def14a


(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):


o	Fee paid previously with preliminary materials.

o	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.

On behalf of the Board of Directors, it is my pleasure to invite you to attend the Annual Meeting of Stockholders of American Management Systems, Incorporated on Friday, May 9, 2003, at 12601 Fair Lakes Parkway, Fairfax, Virginia, 22033, at 10:00 a.m., local time.

Details of the business to be conducted at the Annual Meeting are set forth in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.

Your vote is very important. We encourage you to read the Proxy Statement and vote your shares as soon as possible. A return envelope for your proxy card is enclosed for convenience. Stockholders of record also have the option of voting by using a toll-free telephone number or via the Internet. Instructions for using these services are included on the proxy card.

We thank you for your continued support and look forward to seeing you at the Annual Meeting.

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED will be held at 12601 Fair Lakes Parkway, Fairfax, Virginia 22033 on Friday, May 9, 2003, at 10:00 a.m. local time, for the following purposes:


	To elect six (6) directors to hold office until the next Annual Meeting of Stockholders of American Management Systems, Incorporated and until their successors are elected and qualified;

	To approve the American Management Systems, Incorporated 2003 Stock Incentive Plan; and

	To transact such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof.

Only stockholders of record at the close of business on March 24, 2003, will be entitled to notice of, and to vote at, the meeting or any adjournment(s) or postponement(s) thereof.

Stockholders are cordially invited to attend the meeting in person. IF YOU WILL NOT BE ABLE TO ATTEND THE MEETING IN PERSON, PLEASE INDICATE YOUR CHOICE ON THE MATTERS TO BE VOTED UPON, DATE AND SIGN THE ENCLOSED PROXY, AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ALTERNATIVELY, YOU MAY VOTE BY TELEPHONE AT 1-800-435-6710 OR VIA THE INTERNET AT HTTP:// WWW.ePROXY.COM/ AMSY. Instructions regarding telephone and Internet voting are included on the Proxy.

The enclosed Proxy is being solicited by the Board of Directors (the “Board of Directors” or the “Board”) of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the “Corporation” or “AMS”) in connection with the annual meeting of stockholders of the Corporation (the “Annual Meeting”) to be held at 10:00 a.m., local time, on May 9, 2003 at 12601 Fair Lakes Parkway, Fairfax, Virginia 22033, or at any adjournment(s) or postponement(s) thereof.

The entire expense of solicitation of proxies will be borne by the Corporation, except that certain expenses for Internet access will be incurred by stockholders who choose to vote over the Internet. Solicitation will be primarily by mail. However, directors, executive officers, and employees of the Corporation may also solicit by telephone, personal contact or electronic communication. They will receive no additional compensation for their services. We also have retained Georgeson Shareholder Communications, Inc. to assist with the proxy solicitation process for a fee of $7,500, plus reimbursement of reasonable out-of-pocket expenses. The Corporation 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 stockholders on or about April 9, 2003.

As of March 24, 2003, there were outstanding 42,379,461 shares of the Corporation’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 stockholders of record at the close of business on March 24, 2003 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 Annual 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 for the election of directors at the Annual Meeting. The proposal to approve the American Management Systems, Incorporated 2003 Stock Incentive Plan (the “Incentive Plan”) and any other matter submitted to a vote at the Annual Meeting will be approved by the affirmative vote of the holders of a majority of the shares present (in person or represented by Proxy) and entitled to vote on each such matter. The election inspectors will treat abstentions on a particular matter as shares that are present and entitled to vote for purposes of determining the approval of such matter. Abstentions, therefore, will have the same effect as a vote against a particular matter. 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.

Any stockholder giving a Proxy by mail, via telephone or via the Internet has the power to revoke it at any time before it is voted by giving written notice of revocation to the Secretary of the Corporation or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Corporation. 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 4 under the caption “Information Concerning Nominees for Director”; and “FOR” the approval of the Incentive Plan.

The Corporation is sending only one annual report and proxy statement to eligible stockholders who share a single address, unless such stockholders have notified the Corporation to the contrary. This practice, known as “householding,” is designed to reduce the Corporation’s printing and postage costs. Stockholders who participate in householding will continue to receive separate proxy cards. If you own shares through a bank, broker or other nominee, you should contact the nominee concerning householding procedures.

The Corporation will promptly deliver a separate copy of the proxy statement and annual report to any stockholder residing at an address to which only one copy was delivered upon oral or written request to our Shareholder Services Administrator who may be reached by phone at (800) 255-8888 or by mail at 4000 Legato Road, Fairfax, Virginia 22033, Attn: Shareholder Services Administrator. In addition, if a stockholder residing at an address with other stockholders of record wishes to receive a separate annual report or proxy statement in the future, he or she should direct this request to the Corporation’s Shareholder Services Administrator. Similarly, stockholders residing at the same address who are currently receiving multiple copies of the proxy statement and annual report and who wish to begin householding should contact our Shareholder Services Administrator at the telephone number and address listed above.

Six directors are to be elected at the Annual Meeting, each to hold office until the next annual meeting of stockholders of the Corporation 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” set forth below. 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 Alfred T. Mockett, the Corporation’s Chairman of the Board and Chief Executive Officer, is set forth under the caption “Information Concerning Nominees for Director.”

The following table sets forth the number and percentage of outstanding shares of Common Stock beneficially owned as of March 24, 2003 by (i) each director of the Corporation, (ii) each named executive officer of the Corporation, (iii) each executive officer of the Corporation, (iv) all executive officers and directors as a group, and (v) all persons or entities known by the Corporation to beneficially own more than 5% of the Common Stock. Unless otherwise noted below, each person and entity named in the table has sole voting and sole investment power with respect to each of the shares beneficially owned by such person or entity.


(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 24, 2003. Accordingly, Mr. Altobello has 17,333 options vested and exercisable; Mr. Brittain has 16,250 options vested and exercisable; Mr. Forese has 16,083 options vested and exercisable; Mr. Griffiths has 10,000 options vested and exercisable; Mr. Irvin has 17,500 options vested and exercisable; Dr. Leonard has 14,250 options vested and exercisable; Mr. Malek has 12,500 options vested and exercisable; Mr. Mockett has 100,000 options vested and exercisable; Ms. Morea has 32,130 options vested and exercisable; Mr. Purdy has 89,500 options vested and exercisable; Mr. Reagan has 6,250 options vested and exercisable; Dr. Schillereff has 13,867 options vested and exercisable; Mr. Seidel has 37,250 options vested and exercisable; Mr. Turner has 12,000 options vested and exercisable; and none of Mr. Fontaine, Mr. Howell or Mr. Lottie has options that are vested and exercisable. All executive officers and directors as a group (16 persons) have beneficial ownership of 394,913 options vested and exercisable within 60 days of March 24, 2003.

(2)	The percentages of Common Stock were calculated to include stock options vested and exercisable. The number of shares of Common Stock was calculated as of March 24, 2003.

(3)	Indicates a director of the Corporation.

(4)	Indicates a nominee for director of the Corporation.

(5)	Indicates an executive officer of the Corporation.

(6)	Beneficial ownership amounts include the following amounts of shares purchased by the individual under the Corporation’s Employee Stock Purchase Plan as of the record date: Walt Howell (418); Vernon Irvin (1,244).

(7)	Mr. Purdy is a former officer and director of the Corporation.


(8)	The amount includes 5,210 shares each owned by two trusts, totaling 10,420 shares, for the benefit of Mr. Seidel’s two daughters. Mr. Seidel does not have the power to vote or dispose of any such shares, and, accordingly, disclaims beneficial ownership with respect to them.

(9)	Based solely on the February 14, 2003 filing on Schedule 13G of Westport Asset Management, Inc. (“Westport”), it is the Corporation’s understanding that (i) Westport is a registered investment adviser and a parent holding company, (ii) Westport owns 50% of Westport Advisors LLC, which is also a registered investment advisor (“Westport LLC”), (iii) Westport has sole voting and sole dispositive power with respect to 1,051,500 of the reported shares, Westport and Westport LLC share voting power with respect to 1,773,900 of the reported shares, and Westport and Westport LLC share dispositive power with respect to 2,127,100 of the reported shares, and (iv) the reported shares do not include 10,600 shares owned in the personal securities accounts of employees of Westport and Westport LLC.

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires that the Corporation’s directors, executive officers, and persons who own more than 10% of a registered class of the equity securities of the Corporation (“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 Corporation. Reporting persons are required by Commission rules to furnish the Corporation with copies of all Section 16(a) reports they file.

Based solely upon a review of Section 16(a) reports furnished to the Corporation for the fiscal year ended December 31, 2002 (the “2002 fiscal year”), and representations by reporting persons that no other reports were required for the 2002 fiscal year, all Section 16(a) reporting requirements were met, except that during 2002, Larry Seidel filed two Forms 4 late and W. Walker Lewis, a former director of the Corporation, filed one Form 4 late.

The following table summarizes the compensation paid or accrued by the Corporation during the three fiscal years ended December 31, 2002, to the following executive officers of the Corporation (“named executive officers”).


	(1)	Unless otherwise specified, these amounts represent the Corporation’s contribution to special individual retirement accounts pursuant to the AMS Simplified Employee Pension/ IRA Plan.

	(2)	The Compensation Committee of the Board of Directors provided the executive with the option of receiving as his 2002 annual bonus either $300,000 in cash or $330,000 worth of restricted stock. In lieu of taking his annual bonus in cash, the executive has opted to receive restricted stock with a value of $330,000, subject to the approval by the stockholders of the Corporation of the 2003 Stock Incentive Plan, under which the restricted stock would be granted. If the 2003 Stock Incentive Plan is approved, the per share price of the restricted shares will be based upon the closing price on May 9, 2003, the date of the Annual Meeting. The restricted stock units will vest ratably over a period of six, twelve and eighteen months from the date of grant. If the 2003 Stock Incentive Plan is not approved by the stockholders, the executive will receive as his annual bonus $300,000 in cash. As of December 31, 2002, the executive owned 132,750 restricted shares, which represents the unvested portion of the deferred stock units granted to the executive on December 1, 2001. Based on the closing price of Common Stock at December 31, 2002, the restricted shares represented by the deferred stock units and the annual bonus grant were worth $1,921,673.


	(3)	This amount represents the portion of the premium paid by AMS for a supplemental insurance policy for the executive.

	(4)	Based on an annualized base salary of $800,000. Mr. Mockett was appointed Chairman and Chief Executive Officer in December 2001.

	(5)	This amount consists of a $1 million new hire bonus, which was payable over two years, and a pro-rated annual bonus of $46,666 for 2001, which was paid in 2002. With respect to the new hire bonus, an initial payment of $880,000 was paid to Mr. Mockett in December 2001. The remaining $120,000 was paid on December 31, 2002.

	(6)	This award represents a new hire grant of 177,000 deferred stock units, which are rights to receive restricted stock, on December 1, 2001. Based on the closing price of Common Stock at December 31, 2001, the deferred stock units were worth $3,200,160. The deferred stock units vest ratably on each of the first, second, third and fourth anniversary of December 1, 2001. The deferred stock units will be credited with dividend equivalents if AMS pays dividends on its Common Stock. Dividends may be paid on the restricted stock once received.

	(7)	This amount consists of awards of options to purchase Common Stock, which were granted in connection with the terms of the executive’s employment agreement.

	(8)	This amount consists of an annual bonus for 2002 plus a $250,000 executive retention award made pursuant to the executive’s employment agreement.

	(9)	This amount represents the value of above-market portion of the interest paid on deferred compensation during the fiscal year.


(10)	This amount represents $8,444 contributed to Mr. Purdy’s individual retirement account pursuant to the AMS Simplified Employee Pension/ IRA Plan, as well as an annuity premium of $1,250,000 paid in July 2002 by AMS to purchase a commercial deferred annuity to provide Mr. Purdy with an additional retirement benefit.

(11)	This amount represents an executive retention award made pursuant to the executive’s employment agreement.

(12)	This award represents a grant by the Compensation Committee upon the appointment of the executive to a new position as Chief Operating Officer and President.

(13)	This award represents a grant of 10,000 deferred stock units, which are rights to receive restricted stock, on May 10, 2002. Based on the closing price of Common Stock on December 31, 2002, the deferred stock units were worth $119,900. The deferred stock units vest ratably on each of the first, second, third and fourth anniversary of May 10, 2002. The deferred stock units will be credited with dividend equivalents if AMS pays dividends on its Common Stock. Dividends may be paid on the restricted stock once received.

(14)	This amount was awarded based on the achievement of annual performance goals under an incentive compensation plan.

(15)	This amount represents the final cash payment for successful completion of multi-year performance indicators of individual incentive compensation plan.

(16)	This amount represents a new hire bonus paid to the executive.

Shown below is information concerning stock option grants to the Corporation’s named executive officers who were granted options on Common Stock during the Corporation’s 2002 fiscal year.


(1)	Each option grant was awarded with an exercise price equal to the closing market price of the Common Stock on the date of the grant.

(2)	Each option grant was made under Plan F by the appropriate Board committee. The options vest in three equal annual installments beginning on the first anniversary of the grant date.

Shown below is information with respect to exercises, by the Corporation’s named executive officers during the Corporation’s 2002 fiscal year, of options to purchase shares of Common Stock pursuant to Plan F and earlier stock option plans. Also shown is information with respect to certain unexercised options to purchase shares of Common Stock held by the Corporation’s named executive officers as of the end of the Corporation’s 2002 fiscal year.


(1)	Based on the market value of the Common Stock on the last trading day of 2002 (as measured by the closing price of $11.99 on The Nasdaq Stock Market), minus the option’s exercise price.

(1)

The Compensation Committee of the Board of Directors provided the Chief Executive Officer of the Corporation with the option of receiving as his 2002 annual bonus either $300,000 in cash or $330,000 worth of restricted stock. In lieu of taking his annual bonus in cash, the Chief Executive Officer has opted to receive restricted stock with a value of $330,000, subject to the approval by the stockholders of the Corporation of the 2003 Stock Incentive Plan, under which the restricted stock would be granted. If the 2003 Stock Incentive Plan is approved, the per share price of the restricted shares will be based upon the closing price on May 9, 2003, the date of the Annual Meeting. The restricted stock units will vest ratably over a period of six, twelve and eighteen months from the date of grant. If the 2003 Stock Incentive Plan is not approved by the stockholders, the executive will receive as his annual bonus $300,000 in cash.

No long-term incentive plan awards were made to AMS’s named executive officers during the Corporation’s 2002 fiscal year.

Employment, Change in Control and Separation Agreements with Named Executive Officers

Employment Agreements. The Corporation has employment agreements with Alfred T. Mockett, Larry R. Seidel, Donna S. Morea, Paul A. Turner and Ronald L. Schillereff.

The initial term of the employment agreement with Mr. Mockett began on December 1, 2001, and will end on December 1, 2004. At the end of each term, the agreement will renew automatically for an additional one-year term unless AMS terminates the agreement no later than one year prior to the end of the then-current term. Mr. Mockett’s annual base salary for 2002 was $800,000. The base salary will be reviewed annually by the Compensation Committee; provided, however, that the Compensation Committee may not reduce the base salary without Mr. Mockett’s consent. In addition to his base salary, the employment agreement provides Mr. Mockett with eligibility for performance-based annual bonuses for 2002 and later years with a target percentage set at 70% of his base salary. In addition, Mr. Mockett is eligible to participate in a long-term incentive compensation plan having an annual potential value of approximately 150% of his combined annual base salary plus target annual bonus. Under his employment agreement, Mr. Mockett was granted a stock option for 100,000 shares of AMS Common Stock, plus $1 million in cash payable in part in 2001 and in part in 2002. The stock option is fully vested and has an exercise price per share of $15.30. The

employment agreement also provides for new hire grants to compensate Mr. Mockett for the loss of retirement benefits and restricted stock due to his termination of employment with his previous employer. Any unvested grants will vest automatically if the Corporation fails to extend the term of the employment agreement at the end of a term. The employment agreement also contains provisions for confidentiality and non-solicitation of the Corporation’s employees and AMS clients or business.

The Corporation may terminate Mr. Mockett’s employment if, after notice and a hearing by the Board, the Board determines that he has engaged in conduct justifying termination for “cause” (as defined in the employment agreement). If the Corporation terminates Mr. Mockett’s employment without cause, AMS must provide certain severance benefits, including a cash severance benefit equal to 200% of his then-current base salary plus his average annual bonus or target annual bonus, whichever is greater. Any constructive termination of employment by AMS (as defined in the employment agreement) is treated as a termination without cause.

In the event of a change in control of AMS, Mr. Mockett is entitled to full vesting of any options and restricted stock and, if his termination (without cause or constructive) occurs within two years of the change in control, a severance benefit equal to 300% of his annual cash compensation (then-current annual base salary plus average annual bonus or target bonus, whichever is greater).

The employment agreements with Messrs. Seidel, Turner, and Schillereff and Ms. Morea are substantially similar to each other, with material differences noted herein. Messrs. Seidel and Turner and Ms. Morea are employed as Executive Vice Presidents. Mr. Schillereff is employed as a Senior Vice President. All four agreements were effective July 1, 2002. Mr. Turner’s and Mr. Schillereff’s agreements have an initial one-year term, ending on June 30, 2003. Mr. Seidel’s and Ms. Morea’s agreements have an initial two-year term, ending on June 30, 2004. At the end of each term, the agreements will renew automatically for an additional one-year term unless AMS terminates such agreement at least ninety (90) days prior to the end of the then-current term. Under the terms of the agreements, Messrs. Seidel and Turner each have an annual base salary of $400,000. Pursuant to the terms of Ms. Morea’s employment agreement, her annual base salary is $475,000. Pursuant to the terms of Mr. Schillereff’s employment agreement, his annual base salary is $300,000. These base salaries will be reviewed annually by the Compensation Committee; provided, however, that such salaries may not be decreased except as part of a general employment program of salary adjustment by AMS applicable to all similarly–situated employees.

The agreements of Messrs. Seidel and Turner and Ms. Morea provide eligibility for annual performance-based bonuses with a target percentage set at 60% of annual base salary. Mr. Schillereff’s agreement provides eligibility for an annual performance-based bonus with a target percentage set at 50%. Each employment agreement also contains provisions for confidentiality and non-solicitation of AMS employees and AMS clients or business.

Under these employment agreements, the employees may voluntarily terminate their employment with the Corporation upon thirty (30) days’ written notice. If AMS terminates employment without cause (including constructive termination, as defined in the agreements), the employee is entitled to a severance benefit equal to 100% of then-current annual base salary and payment of any premiums for continuation of health and dental insurance. Upon a termination of employment without cause by AMS, Messrs. Seidel and Turner and Ms. Morea also would be entitled to full vesting of any stock options. If the employee is terminated within 12 months of a change in control (as defined in the agreements), he or she would be entitled to a severance benefit equal to 200% of the sum of the employee’s then-current base salary and target annual bonus.

Retirement Agreement. In October 2002, AMS entered into a letter agreement with William M. Purdy, former President, Chief Operating Officer and Director of AMS, in connection with his retirement as an executive officer of the Corporation in December 2002. Pursuant to this agreement, Mr. Purdy has been retained to provide consulting services to the Corporation’s Chief Executive Officer and Board for a twelve-month period beginning in January 2003. In connection with Mr. Purdy’s consulting services, he will receive payments of $25,000 per month, plus out-of-pocket expenses. In addition, under the terms of the agreement,

the Corporation awarded Mr. Purdy a 2002 annual bonus payment of $360,000, which was paid on December 30, 2002. Mr. Purdy resigned from the Board of Directors of the Corporation in March 2003.

The following table summarizes the equity compensation plan information of the Corporation for the fiscal year ended December 31, 2002.

(1)

The Corporation has a Restricted Stock Plan, the American Management Systems Restricted Stock and Stock Bonus Plan, which is not a stockholder approved plan. At December 31, 2002, there were 157,364 discretionary shares restricted under the plan and 138,216 restricted shares as a part of an employee profit-sharing plan. The discretionary shares vest over a three-year period and are forfeited should the employee leave the Corporation prior to vesting. During 2001, the Corporation awarded a new hire grant of 177,000 deferred stock units to the Chief Executive Officer of the Corporation. These shares vest over a four-year period.


		Narrative descriptions of these plans are contained in Note 9 of the Corporation’s consolidated financial statements for the year ended December 31, 2002, which is part of the Corporation’s 2002 Annual Report on Form 10-K.

Notwithstanding anything to the contrary set forth in any of AMS’s previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Compensation Committee Report of Executive Compensation, Audit Committee Report and Stockholder Return Performance Graph shall not be incorporated by reference into any such filings.

The Compensation Committee of the Board of Directors is responsible for developing and making recommendations to the Board with respect to the Corporation’s executive compensation policies generally. It is composed entirely of outside directors who have never served as officers of AMS or its affiliates (the “Outside Directors”). The Compensation Committee approves the compensation plans for the Corporation’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 is responsible for the granting and administration of cash and equity compensation granted to the executive officers. The Compensation Committee has furnished the following report for fiscal 2002:

The objectives of the Corporation’s executive compensation program are to attract and retain highly skilled executives, ensure that compensation is tied directly to the achievement of the Corporation’s short- and long-term financial and strategic objectives, align the interests of management with those of stockholders, and encourage executives to think and act like owners.

In determining salary levels and target incentive award opportunities, the Compensation Committee considers competitive data available from a variety of sources, including proxy statements filed by technology and other consulting firms that are direct competitors, as well as industry-specific survey data compiled by third parties. Many of these firms are in the Goldman Sachs Technology Index, the peer index chosen by the Corporation for comparison in the “Stockholder Return Performance Graph” below. The Committee has engaged a recognized executive compensation consulting firm to assist it with evaluating the data relating to executive compensation.

Base salaries for the Corporation’s executive officers are generally targeted to fall within the median range of competitive practice. When combined with base salaries, incentive plan award opportunities are intended to deliver median total compensation when the Corporation achieves targeted levels of performance. Actual compensation awarded may vary depending on performance versus goals.

General. The Corporation’s executive compensation program has historically consisted of three main components: (i) annual base salary, (ii) the potential for an annual cash bonus based on the Corporation’s annual pre-tax income, corporate, business unit, and individual performance, or some combination of these factors, as measured over multi-year periods, and (iii) the opportunity to earn stock options, which are intended to encourage the achievement of superior results over time and to align executive officer and stockholder interests.

In 2002, the Compensation Committee, working with the executive compensation consulting firm, completed a comprehensive review of the Corporation’s executive compensation program. As a result of this study, the Corporation replaced its historical multi-year incentive program with an annual incentive plan in which bonuses for all executives are tied to common performance goals. The Corporation also decided to reduce reliance on stock option awards and introduce a new performance share plan in which participants earn stock denominated awards based on achievement of financial goals over a 36-month performance period. The first performance cycle under the new annual performance share plan is scheduled to commence in 2004,

assuming the Corporation’s stockholders approve the 2003 Stock Incentive Plan. These changes are intended to foster a better balance between the pursuit of short-and long-term operating objectives and ensure that short-term stock market volatility does not impair the ability of the overall program to support the Corporation’s strategic and human resource objectives.

The executive officers, including the Chief Executive Officer, are eligible for the same benefits, including group health and life insurance and participation in the Simplified Employee Pension/IRA Plan, as are available generally to the Corporation’s professional staff. Except for any additional benefits set forth in their employment agreements and change in control retention agreements, the Corporation 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 Corporation’s executive officers, including the Chief Executive Officer. As mentioned above, the Compensation Committee generally targets median competitive rates for salaries in the aggregate, although individual salaries may vary based on the executive officer’s individual achievements, duties and responsibilities within the Corporation and his or her business unit, and the executive officer’s impact on the operations and profitability of the Corporation. During 2002, one executive officer received an increase in base salary to reflect a significant increase in the officer’s responsibilities. Based on weaker than expected corporate performance in 2001, no merit increases in base salaries were granted during 2002.

Incentive Compensation Plans. In 2001, the Corporation adopted and the stockholders approved, the American Management Systems, Incorporated 2001 Executive Incentive Compensation Plan (the “2001 IC Plan”). The 2001 IC Plan was designed to provide compensation that falls within the statutory exemption in Section 162(m) of the Internal Revenue Code of 1986, as amended, for performance-based compensation. Bonuses for 2002 under the 2001 IC Plan were based on corporate performance, as measured by adjusted pre-tax income for the fiscal year 2002. Based on this performance measure, bonuses for 2002 were awarded at less than target opportunity levels.

Long-term Incentives. The Corporation has historically used stock options as its principal long-term incentive award. Options have historically been awarded to executive officers as part of the multi-year performance plans in place before 2002. In the future, stock options will be awarded to executives based on the Compensation Committee’s assessment of a variety of factors, including each executive’s most recent performance, expected future contributions, value to the Corporation and difficulty of replacement, and readiness for promotion to a higher level or assumption of greater responsibilities.

As described above, if the 2003 Stock Incentive Plan is approved by the Corporation’s stockholders, the Corporation also intends to use grants of performance shares commencing in 2004 as part of its long-term incentive program. Awards granted under this plan will be earned based on both continued employment and achievement of targeted financial objectives over a three-year performance period.

Under Section 162(m), the Corporation’s tax deduction for compensation paid to persons who, as of the end of the year, are employed as the Chief Executive Officer or as one of the other four most highly compensated executive officers is limited to $1 million per year, subject to certain exceptions. One exception is for compensation paid under performance-based compensation arrangements that satisfy certain regulatory requirements, including approval by stockholders and administration by a committee of outside directors. While the Compensation Committee makes every reasonable effort to minimize the adverse effects of Section 162(m) on the after-tax income of AMS, the Committee may authorize grants and payments that are subject to the deduction limitation when the Committee determines that such actions are consistent with the Compensation Committee’s and the Corporation’s goals.

The Chief Executive Officer’s annual base salary is established by the Compensation Committee using the same criteria as discussed above for the other executive officers, except that under the terms of his

employment agreement, Mr. Mockett’s base salary may not be reduced during the term of the agreement without his consent. Mr. Mockett received a base salary of $800,000 for 2002. Mr. Mockett has voluntarily forgone a salary increase for 2003.

The Compensation Committee of the Board of Directors provided the Chief Executive Officer with the option of receiving as his 2002 annual bonus either $300,000 in cash or $330,000 worth of restricted stock. Mr. Mockett has elected to receive a grant of restricted stock with a value of $330,000, in lieu of receiving the cash bonus. The election to receive shares of restricted stock, however, is contingent upon the approval by the stockholders of the 2003 Stock Incentive Plan, under which the restricted shares would be granted. If the 2003 Stock Incentive Plan is approved, Mr. Mockett will receive $330,000 worth of shares of restricted stock based on the closing price of the Company’s Common Stock on May 9, 2003, the date of the Annual Meeting. Such shares will vest ratably over a period of six, twelve and eighteen months from the date of grant. If the 2003 Stock Incentive Plan is not approved by the stockholders, Mr. Mockett will receive as his annual bonus $300,000 in cash.


	Daniel J. Altobello (Chairman)
	James J. Forese
	Dorothy Leonard
	Frederic V. Malek

The Audit Committee of the Board of Directors is composed of three independent directors, as that term is defined in Rule 4200(a) of the listing standards of the Nasdaq National Market, and operates under a written charter adopted by the Board of Directors in June 2000. The charter is reviewed annually by the Committee. The members of the Committee are James J. Forese (Chairman), Daniel J. Altobello and Dorothy Leonard. Each member of the Committee meets the qualifications set forth in the Audit Committee charter. The Committee reviews the performance of the Corporation’s independent auditors and recommends to the Board of Directors the selection of the independent auditors. The Committee also reviews the reports of fees for audit and other services rendered to the Corporation.

Management is responsible for the Corporation’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the Corporation’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes on behalf of the Board of Directors.

In this context, the Audit Committee has met and held discussions with management, the internal auditors and the independent auditors regarding the financial reporting process, the Corporation’s internal controls and the audit process. Management represented to the Audit Committee that the Corporation’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. In addition, the Audit Committee discussed with management the Corporation’s choice of critical accounting policies, exposure to material financial risks and appropriate risk-management measures.

The Audit Committee discussed with the internal auditors and the independent auditors the adequacy and effectiveness of, and compliance with, the Corporation’s internal controls and management systems. The Audit Committee also discussed with the independent auditors their recommendations regarding the Corporation’s choice of accounting and auditing principles, their judgments about the quality of the Corporation’s financial reporting, and their perception of the adequacy of the Corporation’s financial accounting personnel. In addition, the Committee has discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees) and Statement on Auditing Standards No. 90 (Audit Committee Communications). The Committee also reviewed the independence and objectivity of the internal auditors and discussed with the internal auditors and the independent auditors the overall scope and plans for their respective audits. At least once per year, the Audit Committee meets privately with the internal auditors and the independent auditors to discuss the results of their respective examinations.

The Corporation’s independent auditors also provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the independent auditors their firm’s independence.

Based upon the Audit Committee’s discussion with management, the internal auditors and the independent auditors and the Audit Committee’s review of the representations of management and the Communication with Audit Committees Report from the independent auditors, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Commission.

The following graph and table provide a comparison of the cumulative total return on the Common Stock of the Corporation for the five-year period beginning December 31, 1997, with returns on the Standard & Poor’s 500 Composite Index, and the Services Sector Index of the Goldman Sachs Technology Index (the “Goldman Sachs Technology Services Index”). The graph and table assume that the value of the investment in the Common Stock of the Corporation and each of the aforementioned indices on December 31, 1997, was $100 and that all cash dividends were reinvested, although the Corporation has never paid cash dividends on the Common Stock. The historical stock price performance of the Common Stock of the Corporation shown below is not necessarily indicative of future stock price performance.

The Corporation has a standing Stock Option/Award Committee, Compensation Committee, Audit Committee and Nominating Committee.

The Stock Option/Award Committee is presently composed of two directors, Alfred T. Mockett (Committee Chairman) and Daniel J. Altobello. The Stock Option/Award Committee administers the Corporation’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 Corporation’s Restricted Stock and Stock Bonus Plan. Directors and executive officers are not eligible to participate in the profit-sharing programs under the Restricted Stock and Stock Bonus Plan. The Stock Option/Award Committee meets as required and met twice during 2002.

The Compensation Committee is presently composed of four Independent Directors, as defined in Section 301 of the Sarbanes-Oxley Act of 2002 and in accordance with Rule 4200(a) of the listing standards of the Nasdaq National Market (“Independent Directors”): Daniel J. Altobello (Committee Chairman), James J. Forese, Dorothy Leonard and Frederic V. Malek. The Compensation Committee is responsible for developing and making recommendations to the Board of Directors with respect to the Corporation’s executive compensation policies generally. The Compensation Committee approves the compensation plans for the Corporation’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 awarded to the Corporation’s executive officers. In 2002, the Compensation Committee met five times.

The Audit Committee is presently composed of three Independent Directors: James J. Forese (Committee Chairman), Daniel J. Altobello and Dorothy Leonard. Each of James J. Forese and Daniel J. Altobello is an Audit Committee Financial Expert, as defined by the Securities and Exchange Commission. The Audit Committee has the responsibility for, among other things, approving and making recommendations to the Board of Directors as to the independent accountants of the Corporation; 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 Corporation. The Board adopted a written charter for the Audit Committee in June 2000, a copy of which was filed with the Corporation’s Proxy Statement for the 2001 Annual Meeting of Stockholders. The Audit Committee met three times in 2002.

The Nominating Committee is presently composed of four Independent Directors: Frederic V. Malek (Committee Chairman), Daniel J. Altobello, James J. Forese and Dorothy Leonard. The Nominating Committee is responsible for making recommendations to the Board of Directors with respect to stockholder proposals, nominations for elections of directors, officers, senior management succession plans and appointments of such other employees as may be referred to the Nominating Committee. The Nominating Committee recommends nominees whose election as directors at the annual stockholders meeting will be recommended by the Board of Directors. The Nominating Committee met twice in 2002.

The Board of Directors met seven times during 2002. All members of the Board of Directors attended at least 75% of the aggregate meetings of the Board of Directors and the committees on which they serve.

Directors who also serve as executive officers of the Corporation are not separately compensated for attending Board meetings. For fiscal year 2002, Independent Directors received a fee of $6,000 per Board meeting attended, plus travel expenses. Under the Corporation’s Outside Directors Stock-for-Fees Plan (the “Stock-for-Fees Plan”), which was approved by stockholders 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 Corporation’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 Corporation achieved certain annual performance goals. Dr. Leonard and Mr. Malek each elected to have all of their meeting fees during 2002 deferred pursuant the Deferred Compensation Plan.

Under AMS’s 1996 Stock Option Plan F, as amended, the Compensation Committee is permitted to grant stock options to Outside Directors on a discretionary basis. No stock options were granted to Outside Directors during the Corporation’s 2002 fiscal year.

In order to ensure that the Corporation remains competitive in the market and to compensate certain Directors for their expanded responsibilities due to recent changes in the regulatory and legal environment, a new compensation package for Outside Directors was adopted effective January 1, 2003. As of such date, Outside Directors will receive $1,500 for each Board and committee meeting attended. In addition, each Outside Director will be paid an annual retainer of $30,000. An additional annual retainer of $12,500 will be paid to the Audit Committee Chair and an additional $10,000 will be paid to the Compensation Committee Chair. If the Board elects a Lead Director, the Lead Director will receive an additional annual retainer of $25,000.

In addition to the foregoing, each Outside Director will be granted options for 5,000 shares of Common Stock on the date of the annual meeting. Upon an Outside Director’s initial election to the Board, such Director will be awarded stock options for 10,000 shares of Common Stock. Effective January 1, 2003, at the conclusion of his or her fifth year of service on the Board, each Outside Director must own Common Stock having a value (based on original purchase value) of at least $120,000. Directors may still elect to participate in the Stock-for-Fees Plan and the Deferred Compensation Plan.

Daniel J. Altobello, James J. Forese, Dorothy Leonard and Frederic V. Malek, served as members of the Compensation Committee during fiscal year 2002 and continue to serve as members. Mr. Altobello is Chairman of the Compensation Committee.

During 2002, there were no Compensation Committee interlocks, and there was no insider participation in the executive compensation decisions of the Corporation.

Effective June 14, 2002, the Corporation entered into an agreement with Garry Griffiths, an Executive Vice President and the Chief Human Resources Officer of AMS, pursuant to which the Corporation lent Mr. Griffiths $150,000, to allow Mr. Griffiths to repay his former employer for certain moving expense reimbursements. The loan has a maturity date of three years from the effective date. On each anniversary of the effective date that Mr. Griffiths remains employed by the Corporation, the Corporation will reduce the amount of principal owing on the loan by $50,000. Interest does not accrue on the unpaid principal until the maturity date, after which interest shall accrue and be payable on the unpaid principal balance at a rate of one percent (1%) above the annual rate of interest publicly announced by Citibank, N.A. or its successor as the “prime rate,” or, if such a rate ceases to be publicly announced, another substantially similar rate.

In October 2002, the Corporation entered into a consulting arrangement with William M. Purdy pursuant to which Mr. Purdy will provide consulting services to the Corporation for a period of twelve months beginning January 2003 and will receive $25,000 per month in consideration of those services. Payments under the

The second item to be acted upon at the Annual Meeting is a proposal to approve the American Management Systems, Incorporated 2003 Stock Incentive Plan (the “Plan”), a copy of which is included as Annex A to this Proxy Statement.

If approved by the stockholders, the Plan will replace the Corporation’s 1996 Amended Stock Option Plan F, 1999 Contractor Stock Option Plan, Stock Option Plan for Employees, and Restricted Stock and Stock Bonus Plan (the “Prior Plans”). Any shares that remain available for issuance under the Prior Plans will become available for grant under the Plan, and no additional grants will be made under the Prior Plans.

The Board of Directors is unanimously recommending this proposal because it believes strongly in encouraging selected employees and Directors of the Corporation and its affiliates to acquire a proprietary and vested interest in the growth and performance of the Corporation. Stock-based awards granted under the Plan will help to generate an increased incentive to contribute to the Corporation’s future success and prosperity, thus enhancing the value of the Corporation for the benefit of its stockholders. In addition, the Plan will enable the Corporation to continue to attract and retain individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth and profitability of the Corporation depends.

If the Plan is not approved by the stockholders, awards would continue to be granted pursuant to the Prior Plans; however, the Corporation would have insufficient shares remaining under the plans to address its overall compensation needs in the future.

A summary of the significant features of the Plan is provided below, but is qualified in its entirety by the full text of the Plan.

Administration. The Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), in its discretion. The Committee has the authority to select individuals to whom awards are granted, to determine the types of awards and the number of shares covered, and to set the terms, conditions, and provisions of such awards and to cancel or suspend awards. The Committee shall be authorized to interpret the Plan and to make all other determinations which may be necessary or advisable for the administration of the Plan.

The Committee has the authority to grant the following types of awards under the Plan: (i) options, (ii) stock appreciation rights (“SARs”), (iii) restricted stock, (iv) performance awards, and/or (v) other stock unit awards. Each of these awards may be granted alone or together with other awards under the Plan and/or cash awards outside the Plan.

Persons Eligible for Grants. Employees and directors of the Corporation and its affiliates are eligible to participate in the Plan. In addition, consultants, advisors and independent contractors who provide bona fide services to the Corporation are also eligible to participate; provided, however, that incentive stock options shall only be awarded to participants who are employees.

The Plan provides that a maximum of 4.5 million shares may be delivered to participants plus any remaining shares available for issuance under the Prior Plans. No more than 40% may be issued pursuant to awards other than options or SARs. As of December 31, 2002, 1,542,574 shares remained available for grants under the Prior Plans.

The shares deliverable under the Plan may consist in whole or in part of treasury shares, authorized but unissued shares, or shares reacquired by the Corporation. If an award under either the Plan or any Prior Plans expires, or is canceled, terminated, forfeited or otherwise settled without the issuance of shares subject to such award, those shares will be available for inclusion in future grants under the Plan. Shares that are delivered to the Corporation in payment of the exercise price for any option granted under the Plan or any Prior Plans, or any shares that are delivered or withheld to satisfy tax withholding obligations arising from awards under the Plan, or any Prior Plans, will also be available for future grant under the Plan. In addition, shares reacquired by the Corporation on the open market using the cash proceeds received by the Corporation from the exercise of options granted under the Plan or any Prior Plans that are exercised after the effective date will also be available for future grants under the Plan.

In the event that a company acquired by the Corporation or with which the Corporation combines has shares available under a pre-existing plan, those shares may be used for awards under the Plan and will not reduce the shares that may be delivered under the Plan provided the awards are only made to individuals who were then eligible for awards under the pre-existing plan.

In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the shares, the Committee, in its sole discretion, may make adjustments in the number of shares that may be issued in the future and in the number and kind of shares and price under all outstanding grants made before the event; provided, however, that the number of shares subject to any award shall always be a whole number.

The Plan contains provisions regarding the vesting and post-termination exercisability of awards held by participants whose employment with the Corporation terminates by reason of death, disability, retirement, for cause or otherwise.

The Committee may grant nonstatutory stock options and/or options which qualify as incentive stock options (“ISOs”) under the Internal Revenue Code of 1986, as amended (the “IRC”) in such number of shares as the Committee shall determine, subject to certain limitations. The option price of either a nonstatutory stock option or an ISO will not be less than 100% of the fair market value of the shares on the date of the grant. Except as otherwise provided in the Plan, options will be exercisable at the time or times, subject to the terms and conditions determined by the Committee. The Corporation may not reprice option grants, including the cancellation of an existing grant followed by a regrant, without the express approval of stockholders of the Corporation.

The term of each option will be determined by the Committee but no option may be exercised more than ten years after the date it is granted. Subject to adjustments permitted under the Plan, a maximum of 2.7 million shares may be delivered as in respect of ISOs. In addition, no participant may be granted options or freestanding SARs covering, in total, more than 1.5 million shares in any consecutive twelve-month period.

The Committee may grant a SAR in conjunction with an option granted under the Plan (a “tandem SAR”) or independent of any option (a “freestanding SAR”). A tandem SAR will terminate and will no longer be exercisable upon the termination or exercise of the related option. A tandem SAR may be exercised by a participant, at the time or times and to the extent the related option is exercisable, by surrendering the applicable portion of the related option in accordance with procedures established by the Committee. Upon exercise, a tandem SAR permits the participant to receive cash, shares, or a combination of cash and shares, as determined by the Committee. The amount of cash or the value of the shares is equal to the excess of the fair market value of a share on the date of exercise over the per share exercise price of the related option, multiplied by the number of shares with respect to which the tandem SAR is exercised.

A freestanding SAR can not have a term of greater than ten years and an exercise price less than 100% of the fair market value of the share on the date of the grant. The strike price cannot be reset without stockholder

approval. Upon exercise, a freestanding SAR permits the holder to receive cash, shares, or a combination of cash or shares, as determined by the Committee. The amount of cash or the value of the shares is equal to the excess of the fair market value of a share on the date of exercise over the strike price, multiplied by the number of shares with respect to which the freestanding SAR is exercised. The Corporation may not reprice the SARs, including the cancellation of an existing grant followed by a regrant, without the express approval of the stockholders of the Corporation.

The Committee may also award shares under a restricted stock grant. The award agreement will set forth a specified period of time, which generally shall not be less than three years (the “Restriction Period”), during which shares of the restricted stock will remain subject to forfeiture or restrictions on transfer. During the Restriction Period, the participant will generally have all the rights of a stockholder, including the right to vote the shares and the right to receive dividends, unless the Committee shall determine otherwise. Except as determined otherwise by the Committee, restricted stock will be forfeited by the participant and reacquired by the Corporation upon termination of employment or services for any reason during the Restriction Period.

The Committee may also grant performance awards, which may be granted either alone or in addition to other awards granted under the Plan. Performance awards may be performance-based stock awards (“Performance Shares”) or performance-based cash awards (“Performance Units”). Performance awards may be granted subject to the attainment of performance goals and/or the continued service of the participant, as specified by the Committee. At the conclusion of the performance period, which may not be shorter than 12 months or longer than five years, the Committee shall evaluate the degree to which any applicable performance goals have been achieved and the performance amounts earned, and shall cause to be delivered the amount earned in either cash, shares, other property, or any combination thereof, in the sole discretion of the Committee at the time of payment. Unless otherwise specified in the award agreement or otherwise determined by the Committee, participants shall be entitled to a pro-rata earn-out upon termination of employment or services during the performance period due to death or disability. The ultimate payout will be made upon completion of the performance period based on actual performance.

An individual may not receive more than 300,000 shares for any performance period of 36 months pursuant to a Performance Share award (subject to adjustments permitted under the Plan) or more than $4,500,000 under any Performance Unit award, with proportionate adjustments for shorter or longer performance periods, not to exceed five years.

The Committee may also grant other awards of shares and other awards that are valued in whole or in part by reference to, or are otherwise based on, shares or other property either alone or in addition to other awards granted under the Plan. Subject to the provisions of the Plan, the Committee has sole and complete authority to determine the employees of the Corporation and its affiliates and directors to whom and the time or times at which such awards shall be made, the number of shares to be granted pursuant to such awards, and all other conditions of the awards.

No award, and no shares subject to other stock unit awards described above that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, except by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a participant may designate a beneficiary to exercise the rights of the participant with respect to any award upon the death of the participant.

Each award shall be exercisable, during the participant’s lifetime, only by the participant or, if permissible under applicable law, by the participant’s guardian or legal representative. Notwithstanding the foregoing, and

subject to Section 422 of the Code, the Committee, in its sole discretion, may permit a participant to assign or transfer an award; provided, however, that an award so assigned or transferred shall be subject to all the terms and conditions of the Plan and the instrument evidencing the award.

The Plan provides that in the event of a Change in Control (as defined in the Plan), unless otherwise determined by the Committee (a) each unvested option and SAR shall become fully exercisable and vested to the full extent of the original grant, (b) restricted stock shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant, (c) all performance awards shall be immediately accelerated and considered earned and payable pro rata based on the portion of the performance period that has been completed as of the date of the Change in Control and the actual performance as of such date; in addition, any deferral or other restriction shall lapse and such performance awards shall be immediately settled or distributed, and (d) the restrictions and deferral limitations and other conditions applicable to any other stock unit awards or any other awards shall lapse, and such other stock unit awards or such other awards shall become free of all restrictions, limitations or conditions and become fully vested and transferable to the full extent of the original term.

Notwithstanding any other provision of the Plan, in the event of a Change in Control, the Committee may, in its discretion, provide that each Option or SAR shall, upon the occurrence of a Change in Control, be cancelled in exchange for a payment in an amount equal to the amount by which the Change in Control Price per Share exceeds the purchase price per Share under the Option or SAR (the “spread”) multiplied by the number of shares granted under the Option or SAR.

Notwithstanding the forgoing, in the event of a Change in Control determined to be a Corporate Transaction (as defined in the Plan), if the successor company assumes or substitutes for an option, SAR, share of restricted stock, other stock unit award, or new awards of substantially equal value (replacement awards), then the acceleration or cash out as described above shall not occur. Furthermore, in the event of an involuntary termination not for Cause (as defined in the Plan) within 12 months of the Change in Control, replacement awards (options, SARs, restricted stock/stock units, and other stock awards) shall vest in full.

The Board of Directors may at any time amend, alter, suspend, or discontinue the Plan; provided, however, that such action will not be taken without the participant’s consent, if such action would impair the rights of a participant under any outstanding award. Furthermore, no amendment may be made without the approval of the Corporation’s stockholders if such approval is necessary to qualify for or comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to qualify or comply. Notwithstanding anything to the contrary, the Committee may amend the Plan in such manner as may be necessary so as to have the Plan conform to local rules and regulations in any jurisdiction within or outside the United States.

The Committee may amend the terms of any award granted prospectively or retroactively but, unless a participant violates any confidentiality, non-solicitation or non-compete obligation, no such amendment shall impair the rights of any participant without his or her consent or shall have the effect of reducing the purchase price of any option or SAR. Except for adjustments upon certain Corporate Transactions, neither options nor SARs may have their exercise price reduced or otherwise be repriced without stockholder approval.

The Plan shall be effective upon approval of the Plan by stockholders and will terminate on the tenth anniversary of such approval unless sooner terminated by the Board.

The following is a brief summary of the federal income tax rules relevant to participants in the Plan, based upon the IRC as currently in effect. These rules are highly technical and subject to change in the future. The following summary relates only to the federal income tax treatment of the awards and the state, local and foreign tax consequences may be substantially different.

Nonstatutory Stock Options. Generally, the participant does not recognize any taxable income at the time of grant of a nonstatutory stock option. Provided the share is not subject to a substantial risk of forfeiture, upon the exercise of the nonstatutory stock option the participant will recognize ordinary income, equal to the excess of the fair market value of the share acquired on the date of exercise over the exercise price, and will be subject to wage and employment tax withholding. The Corporation will generally be entitled to a deduction equal to such ordinary income.

The participant will have a capital gain or loss upon the subsequent sale of the share in an amount equal to the sale price less the fair market value of the share on the date of exercise. The capital gain or loss will be long- or short-term depending on whether the share was held for more than one year after the exercise date. The Corporation will not be entitled to a deduction for any capital gain realized. Capital losses on the sale of shares acquired upon an option’s exercise may be used to offset capital gains.

Incentive Stock Options. Generally, the participant will not recognize any taxable income at the time of grant or exercise of an option that qualifies as an ISO under Section 422 of the IRC. However, the excess of the share’s fair market value at the time of exercise over the exercise price will be included in the participant’s alternative minimum taxable income and thereby may cause the participant to be subject to an alternative minimum tax. The participant will recognize long-term capital gain or loss, measured by the difference between the share sale price and the exercise price, when the shares are sold.

In order to qualify for the ISO tax treatment described in the preceding paragraph, the participant must be employed by the Corporation continuously from the time of the option’s grant until three months before the option’s exercise and the participant must not sell the shares until more than one year after the option’s exercise date and more than two years after its grant date. If the Participant does not satisfy these conditions, the participant will recognize taxable ordinary income when the participant sells the shares in an amount equal to the difference between the option exercise price and the lesser of (i) the fair market value of the share on the exercise date and (ii) the sale price. If the sale price exceeds the fair market value on the exercise date, the excess will be taxable to the participant as long-term or short-term capital gain depending on whether the participant held the share for more than one year.

Notwithstanding the foregoing, ISOs shall not be treated as ISOs to the extent that the aggregate fair market value of shares (determined as of the date of grant) with respect to which the options are first exercisable during any calendar year exceeds $100,000 for any participant. The Corporation will not be entitled to any deduction by reason of the grant or exercise of the ISO or the sale of shares received upon exercise after the required holding periods have been satisfied. If the participant does not satisfy the required holding periods before selling the shares and consequently recognizes ordinary income, the Corporation will be allowed a deduction corresponding to the participant’s ordinary income.

Stock Appreciation Rights. The participant will be subject to ordinary income tax, and wage and employment tax withholding, upon the exercise of an SAR. Upon the exercise of an SAR, the participant will recognize ordinary income equal to the excess of the fair market value of the share on the exercise date over the strike price of the SAR. The Corporation will generally be entitled to a corresponding deduction equal to the amount of ordinary income that the Participant recognizes. Upon the sale of the share acquired upon exercise of an SAR, the participant will recognize long- or short-term capital gain or loss, depending on whether the participant has held the stock for more than one year from the date of exercise.

Restricted Stock. A participant receiving restricted stock generally will recognize ordinary income in the amount of the fair market value of the restricted stock at the time the share is no longer subject to forfeiture, less any consideration paid for the share. The Corporation will be entitled to a deduction at the same time and in the same amount. The holding period to determine whether the participant has long-term or short-term

capital gain or loss on the subsequent sale of such shares generally begins when the restriction period expires, and the participant’s tax basis for such shares will generally equal the fair market value of such shares on such date.

Performance Awards. The participant will not recognize taxable income at the time performance awards are granted but the participant will recognize ordinary income and be subject to wage and employment tax withholding upon the receipt of shares or cash awards at the end of the applicable performance period. The Corporation will generally be entitled to claim a corresponding deduction.

Other Stock Unit Awards. The recipient of deferred stock units or other stock-based awards will not recognize taxable income at the time of grant as long as the shares associated with such awards are subject to a substantial risk of forfeiture but will recognize ordinary income and be subject to wage and employment tax withholding when the substantial risk of forfeiture expires or is removed, unless the shares or cash to be paid with respect to such award are deferred until a date subsequent to the vesting date. The Corporation will generally be entitled to claim a corresponding deduction.

Withholding Taxes. Because the amount of ordinary income the participant recognizes with respect to the receipt or exercise of an award may be treated as compensation that is subject to applicable withholding of federal, state and local income taxes and social security taxes, the Corporation may require the participant to pay the amount required to be withheld by the Corporation before delivering to the participant any shares or other payment to be received under the Plan. Arrangements for payment may include deducting the amount of any withholding or other tax due from other compensation, including salary or bonus, otherwise payable to the participant.

Approval of the Plan will require the affirmative vote of the holders of a majority of shares of Common Stock present (in person or by proxy) and voting on this proposal at the Annual Meeting.

A representative from Deloitte & Touche LLP, independent certified public accountants to the Corporation, is expected to be present at the Annual Meeting and will have an opportunity to make a statement should the representative desire to do so, and is expected to be available to respond to appropriate questions during such Meeting.

The Board of Directors has not yet appointed an accounting firm to audit the accounts of the Corporation for the fiscal year ending December 31, 2003. The Board of Directors, upon the recommendation and approval of the Audit Committee, expects to make such appointment at its regularly scheduled meeting in July 2003.

During the 2002 fiscal year, the Corporation retained its principal independent accountant, Deloitte & Touche LLP, to provide services in the following categories and amounts:


(1)	Audit-related fees consist primarily of assurance services required to meet specific contract commitments.

(2)	Tax fees consist primarily of services for tax planning, compliance, and the analysis and preparation of amended Federal tax returns claiming additional research and experimentation tax credits.

(3)	Other fees consist primarily of finance advisory services related to the sale of the Company’s global utilities practice as well as other services.

The Audit Committee has considered whether the provision of non-audit services by the Corporation’s principal independent accountant is compatible with maintaining the principal accountant’s independence and has determined that the provision of such services does not compromise and is consistent with maintaining the principal accountant’s independence.

The Board of Directors does not know of any matters to be presented at the Annual Meeting other than those stated above. If any other business should come before the Annual Meeting, including a vote to adjourn or postpone such Annual Meeting, the persons named in the enclosed Proxy will vote thereon at the Annual Meeting, or any adjournment or postponement thereof, as they determine to be in the best interests of the Corporation.

Under the rules of the Commission, the date by which proposals of stockholders of the Corporation intended to be presented at the 2004 annual meeting of stockholders must be received by the Corporation for inclusion in the proxy statement and form of proxy to be distributed by the Board of Directors is December 11, 2003. Stockholder proposals should be submitted to David R. Fontaine, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.

Under the Corporation’s By-laws (the “By-laws”), a stockholder must follow certain procedures to nominate persons for election as directors or to propose other business to be considered at an annual meeting of stockholders. These procedures provide that stockholders 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 Corporation. The Secretary of the Corporation generally must receive notice of any such proposal not less than sixty days and no more than ninety days prior to the anniversary of the preceding year’s annual meeting of stockholders. In the case of proposals for the 2004 annual meeting of stockholders, the Secretary of the Corporation generally must receive notice of any such proposal no earlier than February 9, 2004, and no later than March 10, 2004 (other than proposals intended to be included in the proxy statement and form of proxy, which, as noted above, must be received by December 11, 2003). Generally, such stockholder 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 stockholder; and (c) as to the stockholder, (i) the name and address of such stockholder, (ii) the number of shares of

Common Stock which are owned beneficially and of record by such stockholder, (iii) a representation that the stockholder 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 stockholder intends, or is part of a group which intends, to solicit proxies from other stockholders in support of such nomination or other business. The chairman of the annual meeting shall have the power to declare that any proposal not meeting these and any other applicable requirements imposed by the By-laws shall be disregarded. A copy of the By-laws may be obtained without charge on written request to David R. Fontaine, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.

In addition, the form of proxy solicited by the Board of Directors in connection with the 2004 annual meeting of stockholders will confer discretionary authority to the named proxies to vote on any proposal, unless with respect to a particular proposal the Secretary of the Corporation receives notice of such matter no earlier than February 9, 2004, and no later than March 10, 2004, and such notice complies with the other requirements described in the preceding paragraph.

A copy of the 2002 Annual Report of the Corporation (which includes condensed financial data and a letter to stockholders) accompanies this Proxy Statement. A copy of the Corporation’s Annual Report on Form 10-K, which contains all of the financial information (including the Corporation’s audited financial statements), and certain general information regarding the Corporation, is attached hereto as Appendix 1. An additional copy of the Corporation’s 2002 Annual Report on Form 10-K may be obtained without charge by writing to David R. Fontaine, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.

STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REMINDED TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED OR CAST YOUR VOTES BY TELEPHONE AT 1-800-435-6710 OR VIA THE INTERNET AT HTTP:// WWW.ePROXY.COM/ AMSY. INSTRUCTIONS REGARDING TELEPHONE AND INTERNET VOTING ARE INCLUDED ON THE PROXY.

SECTION 1. PURPOSES. The purposes of the American Management Systems, Incorporated Stock Incentive Plan (the “Plan”) are to encourage selected Employees, Contractors and Directors of American Management Systems, Incorporated, a Delaware corporation, (“AMS” or the “Company”) and its Affiliates to acquire a proprietary and vested interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company’s future success and prosperity, thus enhancing the value of the Company for the benefit of its stockholders, and to enhance the ability of the Company and its Affiliates to attract and retain individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth and profitability of the Company depends.

SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below:


	(a) “Affiliate” shall mean, as determined by the Committee, (i) any Person that directly, or through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company; or (ii) any entity in which the Company has a significant equity interest.

	(b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Performance Share, Performance Unit, Dividend Equivalent, Other Stock Unit Award or any other right, interest or option relating to Shares or other property granted pursuant to the provisions of the Plan.

	(c) “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award granted by the Committee hereunder, which may, but need not, be executed or acknowledged by both the Company and the Participant.

	(d) “Board” shall mean the Board of Directors of the Company.

	(e) “Cause” shall mean (1) the conviction of the Participant of, or the entry of a plea of guilty or nolo contendere by the Participant to, any felony or misdemeanor involving moral turpitude; (2) fraud, misappropriation or embezzlement by the Participant; (3) the Participant’s willful failure, gross negligence or gross misconduct in the performance of his or her assigned duties for the Company; (4) the Participant’s breach of a fiduciary duty to the Company; (5) any act or omission of the Participant not at the express direction of the Board or other appropriate authority that reflects adversely on the integrity and reputation for honesty and fair dealing of the Company; (6) the breach by the Participant of any material term of the Award Agreement; or (7) the Participant’s breach of any confidentiality, non-solicitation or non-compete obligations or terms in his or her individual employment agreement, AMS Confidentiality and Intellectual Property Rights Agreement, Separation Agreement, and/or any other similar agreement.

	(f) “Change in Control” shall mean the happening of any of the following events, unless otherwise specified in an individual employment agreement:


	(i) Any person or group (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than AMS or a trustee or other fiduciary holding securities under an employee benefit plan of AMS or a corporation owned directly or indirectly by the stockholders of AMS in substantially the same proportions as their ownership of stock of AMS becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing fifty percent (50%) or more of the combined voting power of AMS’s then-outstanding securities entitled generally to vote for the election of directors;

	(ii) During any period of two consecutive years, individuals who, at the beginning of the period, constituted the Board cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by AMS’s stockholders of each new director was approved by


	a vote of at least two-thirds (66 2/3%) of the directors then still in office who were directors at the beginning of the period; and provided further, however, that any such individual whose initial assumption of office occurs as a result of or in connection with either an actual or threatened solicitation with respect to the election of directors (as such terms are used in Rule 14a-12(c) of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an entity other than the Board shall not be so considered as a member of the Board;

	(iii) The consummation of a merger or consolidation with another corporation (other than a majority-controlled subsidiary of AMS) unless AMS’s stockholders immediately before the merger or consolidation are to own more than two-thirds (66 2/3%) of the combined voting power of the resulting entity’s voting securities entitled generally to vote for the election of directors; or

	(iv) The disposition or sale of all or substantially all of the business or assets of the Company and its Subsidiaries, taken as a whole.


	Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred with respect to a Participant by reason of (A) any event involving a transaction in which the Participant or a group of persons or entities with whom or with which the Participant acts in concert, acquires, directly or indirectly, fifty percent (50%) or more of the combined voting power of AMS’s then-outstanding voting securities or the business or assets of AMS, or (B) any event involving or arising out of a proceeding under Title 11 of the United States Code or comparable provisions of any future United States bankruptcy law, an assignment for the benefit of creditors or an insolvency proceeding under state or local law.

	(g) “Change in Control Price” means, with respect to a Share, the higher of (A) the highest reported sales price, regular way, of such Share in any transaction reported on The Nasdaq Stock Market (or any national securities exchange or other automated quotation medium on which the Shares are then listed or quoted) during the 60-day period prior to and including the date of a Change in Control, or (B) if the Change in Control is the result of a tender or exchange offer or a Corporate Transaction, the highest price per such Share paid in such tender or exchange offer or Corporate Transaction; provided, however, that in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, the Change in Control Price shall be the Fair Market Value of such Share on the date such Incentive Stock Option or Stock Appreciation Right is exercised or deemed exercised pursuant to Section 12(b). To the extent the consideration paid in any such transaction described above consists all or in part of securities or other noncash consideration, the value of such securities or other noncash consideration shall be determined in the sole discretion of the Board.

	(h) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.

	(i) “Committee” shall mean the Compensation Committee of the Board, or any successor to such committee, composed of no fewer than two directors, each of whom is a non-employee Director within the meaning of Rule 16b-3(b)(3) of the Exchange Act and an “outside director” within the meaning of Section 162(m) of the Code, or any successor provision thereto.

	(j) “Company” shall mean American Management Systems, Incorporated, a Delaware corporation.

	(k) “Contractor” shall mean any consultant, advisor or independent contractor who provides services to the Company or any Affiliate, so long as such person is an individual who renders bona fide services that (a) are not in connection with the offer and sale of the Company’s securities in a capital-raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities. Unless otherwise determined by the Committee in its sole discretion, for purposes of the Plan, a Contractor shall be considered to have ceased to be a Contractor if his or her employer ceases to provide services to the Company, even if he or she continues to be employed by such employer.


	(l) “Corporate Transaction” shall mean the consummation of a merger or consolidation with another corporation pursuant to Section 2(f)(iii) or the disposition or sale of all or substantially all of the business or assets of the Company and its Subsidiaries, taken as a whole, pursuant to Section 2(f)(iv).

	(m) “Covered Employee” shall mean a “covered employee” within the meaning of Section 162(m)(3) of the Code, or any successor provision thereto.

	(n) “Director” shall mean a member of the Board who is not an Employee.

	(o) “Dividend Equivalent” shall mean payments in amounts equivalent to cash dividends on Shares with respect to the number of Shares covered by an Award. As determined by the Committee, in its sole discretion, such amounts (if any) may be paid in cash on an immediate basis or shall be deemed to have been reinvested in additional Shares.

	(p) “Employee” shall mean any employee of the Company or any Affiliate. Unless otherwise determined by the Committee in its sole discretion, for purposes of the Plan, an Employee shall be considered to have terminated employment or services and to have ceased to be an Employee if his or her employer ceases to be an Affiliate, even if he or she continues to be employed by such employer.

	(q) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

	(r) “Fair Market Value” shall mean, with respect to any property, the market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of Shares as of any date shall be the closing price for the Shares during regular trading hours as reported on the The Nasdaq Stock Market (or on any national securities exchange or other automated quotation medium on which the Shares are then listed or quoted) for that date or, if no such prices are reported for that date, the closing price on the preceding date for which such prices were reported.

	(s) “Incentive Stock Option” shall mean an Option granted under Section 6 that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

	(t) “Nonstatutory Stock Option” shall mean an Option granted under Section 6 that is not intended to be an Incentive Stock Option.

	(u) “Option” shall mean any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine.

	(v) “Other Stock Unit Award” shall mean any right granted to a Participant by the Committee pursuant to Section 11.

	(w) “Participant” shall mean (i) an Employee; (ii) a Director; or (iii) any Contractor who is selected by the Committee to receive an Award under the Plan.

	(x) “Performance Award” shall mean any Award of Performance Shares or Performance Units pursuant to Section 10.

	(y) “Performance Period” shall mean that period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award are to be measured.

	(z) “Performance Share” shall mean any grant pursuant to Section 10 of a unit valued by reference to a designated number of Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.

	(Aa) “Performance Unit” shall mean any grant pursuant to Section 10 of a unit valued by reference to a designated amount of property other than Shares, which value may be paid to the Participant by


	delivery of such property as the Committee shall determine, including, without limitation, cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.

	(Bb) “Person” shall mean any individual, corporation, partnership, association, limited liability company, joint-stock company, trust, unincorporated organization or government or political subdivision thereof.

	(Cc) “Prior Plans” shall mean the Company’s 1996 Amended Stock Option Plan F, 1999 Contractor Stock Option Plan, Stock Option Plan for Employees, and Restricted Stock and Stock Bonus Plan.

	(Dd) “Restricted Stock” shall mean any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such other restrictions as the Committee, in its sole discretion, may impose (including, without limitation, any restriction on the right to vote such Share, and the right to receive any cash dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.

	(Ee) “Restricted Stock Award” shall mean an award of Restricted Stock under Section 9.

	(Ff) “Shares” shall mean the shares of common stock of the Company, par value $0.01 per share.

	(Gg) “Stock Appreciation Right” or “SAR” shall mean any right granted to a Participant pursuant to Section 7 to receive, upon exercise by the Participant, the excess of (i) the Fair Market Value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before the date of exercise, over (ii) the grant price of the right on the date of grant, or if granted in connection with an outstanding Option on the date of grant of the related Option, as specified by the Committee in its sole discretion, which, except in the case of Substitute Awards or in connection with an adjustment provided in Section 4(e), shall not be less than the Fair Market Value of one Share on such date of grant of the right or the related Option, as the case may be. Any payment by the Company in respect of such right may be made in cash, Shares, other property, or any combination thereof, as the Committee, in its sole discretion, shall determine.

	(Hh) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

	(Ii) “Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company or with which the Company combines.

SECTION 3. ADMINISTRATION. The Plan shall be administered by the Committee, which shall have full power, discretion, and authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to (a) select the Participants to whom Awards may from time to time be granted hereunder; (b) determine the type or types of Award to be granted to each Participant hereunder; (c) determine the number of Shares to be covered by each Award granted hereunder; (d) determine the terms and conditions, not inconsistent with the provisions of the Plan, of any Award granted hereunder; (e) determine whether, to what extent and under what circumstances Awards may be settled in cash, Shares or other property or canceled or suspended; (f) determine whether, to what extent, and under what circumstances cash, Shares, other property and other amounts payable with respect to an Award made under the Plan shall be deferred either automatically or at the election of the Participant; (g) interpret and administer the terms of the Plan and any instrument or agreement entered into under the Plan; (h) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (i) make any other determination and take any other action that the

Committee deems necessary or desirable for administration of the Plan. Decisions of the Committee shall be final, conclusive and binding on all Persons, including the Company, any Participant, any stockholder and any Employee of the Company or any Affiliate. A majority of the members of the Committee may determine its actions and fix the time and place of its meetings. Notwithstanding the foregoing or anything else to the contrary in the Plan, any action or determination by the Committee specifically affecting or relating to an Award to a Director shall be approved and ratified by the Board. In addition, no member of the Board or any of its Committees, as the case may be, shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it.

(a) Subject to adjustment as provided in Section 4(e), a total of 4.5 million Shares plus any remaining shares under the Prior Plans shall be authorized for issuance under the Plan and available for grant. No more than 40% may be issued pursuant to Awards other than Options or Stock Appreciation Rights; provided that if any Shares subject to an Award or to an award under Prior Plans are forfeited or if any Award or award under Prior Plans based on Shares is settled for cash, or expires or otherwise is terminated without issuance of such Shares, the Shares subject to such Award shall, to the extent of such cash settlement, forfeiture or termination, again be available for Awards under the Plan. In the event that any Option or Award granted under the Plan or any Prior Plans is exercised through the tendering of Shares (either actually or by attestation) or in the event that withholding tax liabilities arising from such Option or other Award are satisfied by the tendering of Shares or by the withholding of Shares by the Company, the Shares so tendered or withheld shall again be available for Awards under the Plan. Shares reacquired by the Company on the open market using the cash proceeds (the exercise price plus the value of any tax deductions) received by the Company from the exercise of options granted under Prior Plans or Options granted under the Plan that are exercised after the effective date of the Plan shall be available for Awards under the Plan. In addition, Substitute Awards shall not reduce the Shares authorized for issuance under the Plan or authorized for grant to a Participant in any calendar year. In the event that a company acquired by the Company or with which the Company combines has shares available under a pre-existing plan not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for issuance under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees, Contractors or Directors of the Company or an Affiliate prior to such acquisition or combination.

(b) The maximum number of Options and “freestanding” Stock Appreciation Rights, as defined in Section 7, which may be granted under the Plan to any one Participant in any 12-month period is 1,500,000 Shares. “Tandem” SARs granted in connection with an outstanding Option pursuant to Section 7 shall not count against such limit.

(c) The maximum individual cash Award or Performance Share Award under the Plan which may be granted to any one Participant for any Performance Period of 36 months is $4,500,000 or 300,000 Shares, respectively, with proportionate adjustments for shorter or longer Performance Periods, not to exceed five years.

(d) Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased in the open market or otherwise.

(e) In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Shares, such adjustments and other substitutions shall be made to the Plan and to Awards as the Committee, in its sole discretion, deems equitable or appropriate, including, without limitation, such adjustments in the aggregate number, class and kind of securities that may be delivered under the Plan, in the aggregate or to any

one Participant, in the number, class, kind and option or exercise price of securities subject to outstanding Options, Stock Appreciation Rights or other Awards granted under the Plan, and in the number, class and kind of securities subject to Awards granted under the Plan (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of, or other awards denominated in the shares of, another company) as the Committee may determine to be appropriate in its sole discretion; provided, however, that the number of Shares subject to any Award shall always be a whole number.

SECTION 5. ELIGIBILITY. Any Employee, Contractor or Director shall be eligible to be selected as a Participant.

SECTION 6. STOCK OPTIONS. Options may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan shall be evidenced by an Award Agreement in such form as the Committee may from time to time approve. Any such Option shall be subject to the following terms and conditions and to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable:


	(a) OPTION PRICE. The purchase price per Share purchasable under an Option shall be determined by the Committee in its sole discretion; provided, however, that, except in the case of Substitute Awards or in connection with an adjustment provided for in Section 4(e), such purchase price of an Option shall not be less than 100% of the Fair Market Value of the Share on the date of the grant.

	(b) OPTION PERIOD. The term of each Option shall be fixed by the Committee in its sole discretion; provided that no Option shall be exercisable after the expiration of ten years from the date the Option is granted.

	(c) EXERCISABILITY. Options shall be exercisable at such time or times as determined by the Committee at or subsequent to grant.

	(d) METHOD OF EXERCISE. Subject to the other provisions of the Plan, any Option may be exercised by the Participant in whole or in part at such time or times, and the Participant may make payment of the option price in such form or forms, including, without limitation, payment by delivery of cash, delivery of Shares (either actually or by attestation) already owned by the Participant for at least six months (or any shorter period sufficient to avoid a charge to the Company’s earnings for financial reporting purposes) or delivery of other consideration (including, where permitted by law and the Committee, Awards) having a Fair Market Value on the exercise date equal to the total option price, or by any combination of cash, such Shares and other consideration as the Committee may specify in the applicable Award Agreement; provided that the Committee shall have the authority to limit the payment options available to Participants in accordance with applicable law.

	(e) INCENTIVE STOCK OPTIONS. In accordance with rules and procedures established by the Committee, and except as otherwise provided in Section 12, the aggregate Fair Market Value (determined as of the time of grant) of the Shares with respect to which Incentive Stock Options held by any Participant which are exercisable for the first time by such Participant during any calendar year under the Plan (and under any other employee benefit plans of the Company or any Subsidiary) shall not exceed $100,000 or, if different, the maximum limitation in effect at the time of grant under Section 422 of the Code, or any successor provision, and any regulations promulgated thereunder. Incentive Stock Options shall be granted only to Participants who are Employees of the Company or a Subsidiary of the Company. The terms of any Incentive Stock Option granted hereunder shall comply in all respects with the provisions of Section 422 of the Code or any successor provision, and any regulations promulgated thereunder. The aggregate number of Shares with respect to which Incentive Stock Options may be issued under the Plan shall not exceed 2.7 million.

	(f) FORM OF SETTLEMENT. In its sole discretion, the Committee may provide, at the time of grant, that the Shares to be issued upon an Option’s exercise shall be in the form of Restricted Stock, Other Stock Unit Awards or other similar securities, or may reserve the right so to provide after the time of grant.


	(g) PROHIBITION ON REPRICING. The Company may not reprice Option grants, including the cancellation of an existing grant followed by a regrant, without the express approval of stockholders of the Company.

SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights (“SARs”) may be granted hereunder to Participants either alone (“freestanding”) or in addition to other Awards granted under the Plan (“tandem”) and may, but need not, relate to a specific Option granted under Section 6. The provisions of SARs need not be the same with respect to each recipient. Any tandem SAR related to a Nonstatutory Stock Option may be granted at the same time such Option is granted or at any time thereafter before exercise or expiration of such Option. Any tandem SAR related to an Incentive Stock Option must be granted at the same time such Option is granted. In the case of any tandem SAR related to any Option, the SAR or applicable portion thereof shall terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a SAR granted with respect to less than the full number of Shares covered by a related Option shall not be reduced until the exercise or termination of the related Option exceeds the number of Shares not covered by the SAR. Any Option related to any tandem SAR shall no longer be exercisable to the extent the related SAR has been exercised. The Committee may impose such conditions or restrictions on the exercise of any SAR, as it shall deem appropriate; provided that a freestanding SAR shall not have a term of greater than ten years and an exercise price less than 100% of the Fair Market Value of the Share on the date of the grant. The Company may not reprice SAR grants, including the cancellation of an existing grant followed by a regrant, without the express approval of stockholders of the Company.

SECTION 8. OPTION/SAR TREATMENT UPON PARTICIPANT TERMINATION. Unless otherwise stated to the contrary in an individual Award Agreement or pursuant to Section 12, the Participant is entitled to the following upon termination of employment or service with the Company or an Affiliate or Subsidiary:


	(i) Death/Disability. All Options/ SARs held by such Participant which are not then exercisable and not vested, shall become fully exercisable and vested. In the event of death or disability, all vested options may be exercised during the lesser of the remaining term of the Option/ SAR or one year following the date of termination. For purposes of the Plan, disability shall be defined pursuant to the Company’s long-term disability plan.

	(ii) Involuntary Termination for Cause. All Options/ SARs held by such Participant which have not been exercised shall be forfeited upon termination for Cause.

	(iii) Voluntary Termination or Involuntary Termination (Not for Cause). All Options/ SARs held by such Participant which are not then exercisable and not vested, shall cease to vest and be forfeited. All vested Options/ SARs may be exercised during the lesser of the remaining term of the Option/ SAR or 90 days after termination, unless the Participant has ten or more years of continuous service at the time of termination, in which case, the vested Options/ SARs may be exercised during the lesser of the remaining term of the Option/ SAR or one year from the date of termination.

(a) ISSUANCE. A Restricted Stock Award shall be subject to restrictions imposed by the Committee during a period of time specified by the Committee (the “Restriction Period”). Restricted Stock Awards may be issued hereunder to Participants, for no cash consideration or for such minimum consideration as may be required by applicable law, either alone or in addition to other Awards granted under the Plan. The provisions of Restricted Stock Awards need not be the same with respect to each recipient. Except for certain limited situations as determined by the Committee, Restricted Stock Awards shall be subject to restrictions for a minimum of three years from the date of grant.

(b) REGISTRATION. Any Restricted Stock issued hereunder may be evidenced in such manner, as the Committee, in its sole discretion, shall deem appropriate, including, without limitation, book entry registration or issuance of a stock certificate or certificates. In the event any stock certificates are issued in respect of Shares of Restricted Stock awarded under the Plan, such certificates shall be registered in the name

(c) FORFEITURE. Except as otherwise determined by the Committee at the time of grant or thereafter, upon termination of employment or services for any reason during the Restriction Period, all Shares of Restricted Stock still subject to restriction shall be forfeited by the Participant and reacquired by the Company. Unrestricted Shares, evidenced in such manner as the Committee shall deem appropriate, shall be issued to the grantee promptly after expiration of the Restriction Period, as determined or modified by the Committee.

SECTION 10. PERFORMANCE AWARDS. Performance Awards may be issued hereunder to Participants, for no cash consideration or for such minimum consideration as may be required by applicable law, either alone or in addition to other Awards granted under the Plan. The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined by the Committee upon the grant of each Performance Award, provided, however, that a Performance Period shall not be shorter than 12 months or longer than five years. Except as provided in Section 12, Performance Awards will be distributed only after the end of the relevant Performance Period. Performance Awards may be paid in cash, Shares, other property, or any combination thereof, in the sole discretion of the Committee at the time of payment. The performance levels to be achieved for each Performance Period and the amount of the Award to be distributed shall be conclusively determined by the Committee. Performance Awards may be paid in a lump sum or in installments following the close of the Performance Period or, in accordance with procedures established by the Committee, on a deferred basis.

(a) PERFORMANCE MEASURES. One or more of the following performance measures may be used as a performance criteria to be achieved during any Performance Period including: cash generation targets, profit and revenue targets on an aggregate and/or per share basis (including but not limited to earnings before interest and taxes (“EBIT”); earnings before interest, taxes, depreciation and amortization (“EBITDA”); operating income; earnings per share (“EPS”); market share targets; profitability targets as measured through return ratios and stockholder returns or, only with respect to Awards that are paid to any Person other than a Covered Employee, any other financial measure that the Committee believes may be worthy of consideration.


	(i) The measurement of the Company’s performance against its goals shall exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and any other unusual or non-recurring items, and the cumulative effects of accounting changes, each as defined by generally accepted accounting principles and as identified in the Company’s financial statements, notes to the financial statements or management’s discussion and analysis.

	(ii) The Company may establish performance goals on a corporate-wide basis or with respect to one or more of the Company’s business units, divisions, or Subsidiaries or any combination thereof; and in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies.


	(b) PRO-RATA EARN-OUT. Unless otherwise specified in the Award Agreement or determined by the Committee at the time of grant or thereafter, a Participant shall be entitled to a pro-rata earn-out upon a termination of employment or services during the Performance Cycle due to death or disability. Payment shall be made upon completion of the Performance Cycle based on actual performance.

(a) STOCK AND ADMINISTRATION. Other Awards of Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property (“Other Stock Unit Awards”) may be granted hereunder to Participants, either alone or in addition to other Awards granted under the Plan, and such Other Stock Unit Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan. Other Stock Unit Awards may be paid in Shares, cash or any other form of property, as the Committee shall determine. Subject to the provisions of the Plan, the Committee shall have

sole and complete authority to determine the Participants to whom and the time or times at which such Awards shall be made, the number of Shares to be granted pursuant to such Awards, and all other conditions of the Awards. The provisions of Other Stock Unit Awards need not be the same with respect to each recipient. Except for certain limited situations, and where not a form of payment of other Awards, Other Stock Unit Awards, granted to Employees subject solely to continued employment conditions shall generally have a vesting period of not less than three years.

(b) TERMS AND CONDITIONS. Subject to the provisions of the Plan and any applicable Award Agreement, Awards and Shares subject to Awards made under this Section 11 may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date on which the Shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses. Shares (including securities convertible into Shares) subject to Awards granted under this Section 11 may be issued for no cash consideration or for such minimum consideration as may be required by applicable law. Shares (including securities convertible into Shares) purchased pursuant to a purchase right awarded under this Section 11 shall be purchased for such consideration as the Committee shall determine in its sole discretion, which, except in the case of Substitute Awards, shall not be less than the Fair Market Value of such Shares or other securities as of the date such purchase right is awarded.

(a) IMPACT OF EVENT. Subject to Section 12(a)(v) and notwithstanding any other provision of the Plan to the contrary, unless the Committee shall determine otherwise at the time of grant with respect to a particular Award, in the event of a consummation of a Change in Control transaction:


	(i) Any Options and SARs outstanding as of the date such Change in Control is determined to have occurred, and which are not then exercisable and not vested, shall become fully exercisable and vested to the full extent of the original grant;

	(ii) The restrictions and deferral limitations applicable to any Restricted Stock shall lapse, and such Restricted Stock shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant;

	(iii) All Performance Awards shall be immediately accelerated and considered to be earned and payable pro rata based on: (a) the portion of the Performance Period that has been completed as of the date such Change in Control is determined to have occurred and (b) the actual performance as of such date; in addition, any deferral or other restriction shall lapse and such Performance Awards shall be immediately settled or distributed;

	(iv) The restrictions and deferral limitations and other conditions applicable to any Other Stock Unit Awards or any other Awards shall lapse, and such Other Stock Unit Awards or such other Awards shall become free of all restrictions, limitations or conditions and become fully vested and transferable to the full extent of the original grant; and

	(v) Notwithstanding the foregoing, if in the event of a Corporate Transaction the successor company assumes or substitutes for an Option, SAR, Share of Restricted Stock or Other Stock Unit Award, then each outstanding Option, SAR, Share of Restricted Stock or Other Stock Unit Award shall not be accelerated as described in Sections 12(a)(i), (ii) and (iv). For the purposes of this Section 12(a)(v), an Option, SAR, Share of Restricted Stock or Other Stock Unit Award shall be considered assumed or substituted for if following the Corporate Transaction the Award confers the right to purchase or receive, for each Share subject to the Option, SAR, Share of Restricted Stock or Other Stock Unit Award immediately prior to the Corporate Transaction, the consideration (whether stock, cash or other securities or property) received in the Corporate Transaction by holders of Shares for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the Corporate Transaction is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of an Option, SAR, Share of Restricted Stock or


	Other Stock Unit Award, for each Share subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per share consideration received by holders of Shares in the Corporate Transaction. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.

	(vi) In the event of an involuntary termination not for Cause within 12 months following a Change in Control, replacement awards (Options, SARs, Restricted Stock/ stock units, and Other Stock Awards) shall vest in full.

(b) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of the Plan, in the event of a Change in Control, the Committee may, in its discretion, provide that each Option or SAR shall, upon the occurrence of a Change in Control, be cancelled in exchange for a payment in an amount equal to the amount by which the Change in Control Price per Share exceeds the purchase price per Share under the Option or SAR (the “spread”) multiplied by the number of Shares granted under the Option or SAR.

(a) Notwithstanding any other provision of the Plan, if the Committee determines at the time Restricted Stock, a Performance Award or an Other Stock Unit Award is granted to a Participant who is then an officer that such Participant is, or is likely to be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that this Section 13 is applicable to such Award.

(b) If Restricted Stock, a Performance Award or an Other Stock Unit Award is subject to this Section 13, then the lapsing of restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee as described in Section 10(a). Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, and the regulations thereunder.

(c) Notwithstanding any provision of the Plan other than Section 12, with respect to any Restricted Stock, Performance Award or Other Stock Unit Award that is subject to this Section 13, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals except in the case of the death or disability of the Participant.

(d) The Committee shall have the power to impose such other restrictions on Awards subject to this Section 13 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.

SECTION 14. AMENDMENTS AND TERMINATION. The Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time; provided, however, that no such amendment, alteration, suspension, discontinuation or termination shall be made without (a) stockholder approval if such approval is necessary to qualify for or comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to qualify or comply or (b) the consent of the affected Participant, if such action would impair the rights of such Participant under any outstanding Award. Notwithstanding anything to the contrary herein, the Committee may amend the Plan in such manner as may be necessary so as to have the Plan conform to local rules and regulations in any jurisdiction within or outside the United States.

The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, except as provided in Section 15(f) of this Agreement, no such amendment shall impair the rights of any Participant without his or her consent or shall have the effect of reducing the purchase price of any Option or SAR. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a “modification” that would cause such Incentive

Stock Option to fail to continue to qualify as an Incentive Stock Option. Notwithstanding the foregoing, any adjustments made pursuant to Section 4(e) shall not be subject to these restrictions.

(a) No Award, and no Shares subject to Awards described in Section 11 that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, except by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary to exercise the rights of the Participant with respect to any Award upon the death of the Participant. Each Award shall be exercisable, during the Participant’s lifetime, only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative. Notwithstanding the foregoing, and subject to Section 422 of the Code, the Committee, in its sole discretion, may permit a Participant to assign or transfer an Award; provided, however, that an Award so assigned or transferred shall be subject to all the terms and conditions of the Plan and the instrument evidencing the Award.

(b) No Employee or Participant shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Employees or Participants under the Plan.

(c) The prospective recipient of any Award under the Plan shall not, with respect to such Award, be deemed to have become a Participant, or to have any rights with respect to such Award, until and unless such recipient shall have executed an agreement or other instrument evidencing the Award and delivered a copy thereof to the Company, and otherwise complied with the then applicable terms and conditions.

(d) Nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment or service contract or confer or be deemed to confer on any Participant any right to continue in the employ or service of, or to continue any other relationship with, the Company or any Affiliate or limit in any way the right of the Company or any Affiliate to terminate a Participant’s employment or service or other relationship at any time, with or without cause.

(e) Except as provided in Section 13, the Committee shall be authorized to make adjustments in performance award criteria or in the terms and conditions of other Awards in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in applicable laws, regulations or accounting principles. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry it into effect. In the event that the Company shall assume outstanding employee benefit awards or the right or obligation to make future such awards in connection with the acquisition of or combination with another corporation or business entity, the Committee may, in its discretion, make such adjustments in the terms of Awards under the Plan as it shall deem appropriate.

(f) The Committee shall have full power and authority to determine whether, to what extent and under what circumstances any Award shall be canceled or suspended. In addition, all outstanding Awards to any Participant shall be canceled if the Participant, without the consent of the Company, while employed by the Company or after termination of such employment or services, violates any confidentiality, non-solicitation or non-compete obligations or terms in his or her individual employment agreement, AMS Confidentiality and Intellectual Property Rights Agreement, Separation Agreement, and/or any other similar agreement; or, if during the period of employment or service, Participant establishes a relationship with a competitor of the Company or engages in activity that is in conflict with or adverse to the interest of the Company, as determined by the Company in its sole discretion.

(g) All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities association or stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(h) No Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would comply with all applicable requirements of the U.S. federal securities laws and any other laws to which such offer, if made, would be subject.

(i) The Committee shall be authorized to establish procedures pursuant to which the payment of any Award may be deferred. Subject to the provisions of the Plan and any Award Agreement, the recipient of an Award (including, without limitation, any deferred Award) may, if so determined by the Committee, be entitled to receive, currently or on a deferred basis, cash dividends or Dividend Equivalents.

(j) Except as otherwise required in any applicable Award Agreement or by the terms of the Plan, recipients of Awards under the Plan shall not be required to make any payment or provide consideration other than the rendering of services.

(k) The Committee may delegate to a committee of one or more directors of the Company or, to the extent permitted by Delaware law, to one or more officers or a committee of officers the right to grant Awards to Participants who are not officers or directors of the Company and to cancel or suspend Awards to Participants who are not officers or Directors of the Company.

(l) The Company shall be authorized to withhold from any Award granted or payment due under the Plan the amount of withholding taxes due in respect of an Award or payment hereunder and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. The Committee shall be authorized to establish procedures for election by Participants to satisfy such obligation for the payment of such taxes by delivery of or transfer of Shares to the Company (up to the employee’s minimum required tax withholding rate to the extent the Participant has owned the surrendered shares for less than six months if such a limitation is necessary to avoid a charge to the Company for financial reporting purposes), or by directing the Company to retain Shares (up to the employee’s minimum required tax withholding rate if such maximum is necessary to avoid a charge to the Company for financial reporting purposes) otherwise deliverable in connection with the Award.

(m) Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

(n) The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the Commonwealth of Virginia and applicable federal law.

(o) If any provision of the Plan is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect.

(p) Awards may be granted to Participants who are foreign nationals or employed outside the United States, or both, on such terms and conditions different from those applicable to Awards to Participants employed in the United States as may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation with respect to tax equalization for Participants on assignments outside their home country.

(r) In the event of a dissolution or liquidation of the Company, all outstanding Award Agreements shall terminate immediately prior to the completion of such dissolution or liquidation.

(s) In the event of a conflict between the terms of the Plan and the terms of an Award Agreement, the terms of the Plan shall govern.

SECTION 16. EFFECTIVE DATE OF PLAN. The Plan shall be effective as of May 9, 2003.

SECTION 17. TERM OF PLAN. The Plan shall terminate on the tenth anniversary of the effective date, unless sooner terminated by the Board pursuant to Section 14; provided, however, that no Incentive Stock Options may be granted more than ten years after the later of (i) the adoption of the Plan by the Board and (ii) the adoption by the Board of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code.

American Management Systems, Incorporated
(Exact name of registrant as specified in its charter)

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ______

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No __

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 28, 2002 was $788,581,010.

The number of shares of the registrant’s common stock outstanding as of March 24, 2003 was 42,379,461.

Portions of the registrant’s definitive Proxy Statement to be issued in conjunction with the registrant’s Annual Meeting of Stockholders to be held May 9, 2003 are incorporated by reference into Part III of this Form 10-K.

American Management Systems, Incorporated, a global business and information technology consulting firm, was incorporated in the State of Delaware on February 2, 1970. We use the terms “AMS,” “we,” “our,” and “us” to refer to American Management Systems, Incorporated and its subsidiaries. Our mission is to partner with customers to improve their business performance through the intelligent use of information technology. Our business approach blends deep industry knowledge with strategic services, technology innovation and project delivery expertise to help business and government collect revenues, improve customer relationships, reduce risk, cut costs, and comply with complex regulatory requirements. Our key solutions include business consulting, IT solutions and outsourcing.

AMS serves clients worldwide. In order to serve clients outside of the United States, AMS has expanded internationally by establishing subsidiaries or foreign branches. Exhibit 21 of this Form 10-K provides a complete listing of all twenty-six active AMS subsidiaries (and branches). Revenues attributable to AMS’s international clients were approximately $132.6 million in 2002, $189.6 million in 2001 and $196.3 million in 2000. Additional financial information regarding revenues from international customers, long-lived assets, and deferred tax assets by geographic areas of operation is provided in Notes 18 and 11 of the consolidated financial statements appearing in Part II, Item 8 of this Form 10-K.

We operate as one segment and focus on clients in specific industries, called our target markets. We have the following five target markets: Federal Government Agencies; State and Local Governments and Education; Communications, Media and Entertainment (formerly New Media and Communications Firms); Financial Services Institutions; and Other Corporate Clients.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 (d) of the Exchange Act are made available free of charge on our internet websire at ams.com as soon as reasonably practicable after we electronically file such material with, or furnish it to , the Securities and Exchange Commission.

AMS provides information technology solutions to help U.S. defense, military, and civilian agencies and civilian government contractors upgrade and integrate legacy systems, streamline processes and secure information. AMS’s long-term relationships with federal government agencies continue to enhance a deep industry expertise that is central to providing management consulting and systems integration services. AMS’s key services in this target market include acquisition and procurement systems, customer relationship management and enterprise contract and financial management.

We provide information technology consulting and systems integration services to state and local governments as well as many universities and school districts. AMS provides these organizations industry experience and expertise in the following areas: digital government, tax and revenue, health and human services, public safety and transportation, and administrative and financial management. Our innovative, benefits-funded contracting options enable state governments to do more with less.

AMS markets systems consulting and integration services to local exchange carriers, integrated communications providers, internet service providers, cable companies, wireless operators as well as content, media and entertainment companies. Our services in this target market include billing, churn management, credit risk and collections, enterprise application security, mobile data, order management,

outsourcing and real-time enterprise integration. Using our products and services, businesses in this industry are addressing their most pressing challenges in today’s economy: decreasing revenues, controlling costs and reducing risk.

We enable banks, insurance companies and retail investment firms to shift from merely selling products to providing integrated services with proven technology and effective execution of business strategy. AMS specializes in credit services, trade services and payments, insurance solutions and retirement services for these clients. AMS partners with best-in-class technology firms such as EISI, Filenet, Marketswitch, Siebel Systems and SunGard.

AMS provides technology solutions to healthcare enterprises and firms in other industries. Our key services for our other corporate clients include workflow automation, system consolidation, and information technology planning and implementation.

Our success is highly dependent on our ability to continue to attract and retain qualified employees. As of December 31, 2002, we had approximately 6,300 employees worldwide. We are committed to the professional development of our employees through continuing education. In 1998, AMS University (AMSU) was founded, a company-wide leadership and professional development initiative. AMSU provides staff members at all levels with the skills they need to advance to higher positions, and keep up to date on leadership, management, technology, and other essential areas. During 2002, we introduced the company-wide balanced scorecard program that creates systemized performance assessments and aligns individual performance with our company goals. Our employees are not represented by any labor union.

A significant component of AMS’s business is the development of proprietary software products. We expended $51.7 million, $55.1 million, and $75.5 million in 2002, 2001, and 2000, respectively, for research and development associated with proprietary software. These products may be licensed as a stand-alone application, as elements of custom tailored systems, or integrated with a variety of other systems as part of an enterprise information technology architecture. In addition to proprietary software, we have developed proprietary methodologies, techniques, and practices that are routinely used to deliver solutions for clients. AMS has established policies and practices related to the use and protection of proprietary and confidential information and intellectual property. We protect our intellectual assets through appropriate contractual arrangements with employees and third parties, as well as reliance on trade secret, copyright, patent and trademark laws.

AMS holds a number of patents and pending patent applications of various durations in the United States and other countries in which we conduct business. While AMS’s various proprietary intellectual property rights are valuable to us and important to our success, we believe our business as a whole is not materially dependent on any particular patent, trademark or license.

A significant portion of our contracts is for large systems integration projects that often provide for the integration and customization of core software. These contracts generally include the sale of software, integration services, training and maintenance. Large systems integration projects are often structured in phases (design, development and implementation) for delivery and contract management purposes. Occasionally these phases are negotiated and contracted separately, with client acceptance at the end of each phase. More often, these phases are negotiated and contracted at the same time. AMS pioneered an innovative approach for our state and city revenue or taxation clients to finance their projects, called benefits-funded contracts. This type of contract is generally contracted based upon a fixed price, however, the amounts due to us are payable from actual monetary benefits derived by the client.

In addition to these large systems integration projects, we also enter into contracts to provide off-the-shelf software and training and consulting services. For these types of contracts, revenues are generally recognized on the basis of unit rates for time-and-materials used, a fixed or ceiling price, or reimbursement of costs plus a fixed fee. In most cases, we receive monthly or milestone progress payments.

Investors are cautioned that this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, relating to our operations that are based on our current expectations, estimates and projections. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” and similar expressions are used to identify these forward-looking statements. These statements are subject to risks, uncertainty and changes in circumstances. Forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Actual results may differ materially from what is expressed or forecast in these forward-looking statements. The reasons for this include changes in general economic and political conditions, including fluctuations in exchange rates, and the factors discussed below under the section entitled “Risk Factors.” We specifically disclaim any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing our estimates or views as of any subsequent date.

The current economic downturn has caused, and future economic downturns may cause, our revenues to decline.
Our revenues declined $196.6 million during fiscal year 2002. We continue to operate in a challenging economic environment in the United States and abroad. Disruptions in commercial activities occasioned by actual or threatened terrorist activity or armed conflict, could have a material adverse effect on our operating results. AMS has implemented a restructuring plan to reduce costs and align our workforce with changing market conditions and new business strategies. As a result of these efforts, costs have begun to be more closely aligned with reduced revenue levels in the business. However, current and future cost-management initiatives may not be sufficient to maintain our margins if the current challenging economic environment is prolonged.

The level of business activity of our clients, which is affected by economic conditions, affects our results of operations. We cannot predict the impact that the current global economic downturn will have on our future revenues, nor can we predict when economic conditions will improve. During an economic

downturn, such as the one we are experiencing now, our clients and potential clients often cancel, reduce or defer existing contracts and delay entering into new engagements. In general, companies also decide to undertake fewer information technology systems projects during difficult economic times, resulting in limited implementations of new technology and smaller engagements. Because there are fewer engagements in a downturn, competition usually increases and pricing for services may decline as competitors, particularly companies with significant financial resources, decrease rates to maintain or increase their market share in our industry. Our pricing, revenues and profitability could be negatively affected as a result of these factors.

Our business will be negatively affected if we are not able to anticipate and keep pace with rapid changes in technology.
Rapidly changing technologies such as frequent new product and service introductions and evolving industry standards characterize our market. If we cannot keep pace with these changes, our business could suffer.

Our success will depend, in part, on our ability to develop and implement management and technology services that anticipate and keep pace with rapid and continuing changes in technology, evolving industry standards and changing client preferences. Our success will also depend on our ability to develop and implement ideas for the successful application of existing and new technologies. We may not be successful in anticipating or addressing these developments on a timely basis or our ideas may not be successful in the marketplace. Also, products and technologies developed by our competitors may make our services less competitive or obsolete. Any one of these circumstances could have a material adverse effect on our ability to obtain and successfully complete client engagements.

The consulting, technology and outsourcing markets are highly competitive, and we may not be able to compete effectively.
AMS operates in an intensely competitive market. The reduced demand by customers for information technology and consulting services has resulted in fierce competition among service providers to win business. Based on revenues and the number of consultants we have, we are smaller than some of our competitors, which gives them a competitive advantage over us. Many of our competitors are taking greater advantage of the lower labor costs in certain countries to allow them to reduce prices. Our competitors primarily include consulting and other professional service firms and system integration firms. In addition, prospective clients may decide to use their own staff to perform projects rather than engage an outside firm.

Our industry is experiencing rapid changes in its competitive landscape. Some of our competitors have sought access to public and private capital and others have merged or consolidated with better-capitalized partners. These changes may create more or larger and better-capitalized competitors with enhanced abilities to address client needs and compete more effectively for market share, geographic presence, skilled professionals, and large-scale government contracts. Any of these circumstances could result in price reductions, reduced profitability, and loss of market share for us.

Our success is highly dependent on our ability to recruit and retain talented employees.
Our business involves the delivery of professional services and is highly labor-intensive. Our success depends largely on our ability to attract, develop, motivate and retain highly skilled professionals. To attract and retain the number of employees we need to grow our business, we may have to increase our compensation levels in the future. This would adversely affect our operating margins.

For 2002, our annual voluntary turnover rate for total staff was approximately 10.9%, a decline of 3.9% from the prior year. If we were to experience the loss of a significant number of our professionals in the

future, it could adversely affect our operating results, including our ability to obtain and successfully complete important client engagements, effectively compete, or grow our business.

We rely on relatively few customers for a significant portion of our business.
We rely on a few large customers, particularly U.S. federal government agencies and departments, to provide a substantial portion of our revenues. Contracts with U.S. federal government agencies and departments accounted for 34.8%, 28.9%, and 27.6% of our revenues in 2002, 2001 and 2000, respectively. We believe that federal government contracts will continue to be a source of a significant amount of our revenues for the foreseeable future. For this reason, any issue that compromises our relationship with agencies of the federal government would cause serious harm to our business. Among the key factors in maintaining our relationships with federal government agencies are our performance on individual contracts and delivery orders, the strength of our professional reputation, the relationships of our key executives with client personnel and our compliance with complex procurement laws and regulations related to the formation, administration and performance of federal government contracts. In addition, our failure to obtain and maintain necessary security clearances may limit our ability to perform classified work for government clients, which could cause us to lose business. Security breaches in sensitive government systems we have developed also could damage our reputation and eligibility for additional work and expose us to significant losses. To the extent that our performance does not meet client expectations, or our reputation or relationships with one or more of our key clients, particularly in our Federal Government Agencies target market, are impaired, our revenues and operating results could be materially harmed. Reductions, delays or cancellations from one or more of these significant clients, or the loss of one or more of these clients, would have a material adverse effect on our revenues, profitability and cash flow.

During 2002 and 2001, the global telecommunications market significantly deteriorated, reflecting a significant decrease in capital spending. Our sales and results of operations have been adversely affected by this market deterioration. Of our $196.6 million drop in revenues from 2001 to 2002, $124.7 million, or 63.4%, was due to lower revenues in our Communications, Media and Entertainment target market. If capital investment levels by telecommunication firms continue to decline, or if our Communications, Media and Entertainment target market does not improve, or improves at a slower pace than we anticipate, our revenues and profitability could be adversely affected.

Adverse changes in federal government fiscal spending could have a negative effect on our business.
Changes in federal government spending policies or budget priorities could directly affect our financial performance. Among the factors that could harm our federal government contracting business are:

	•		curtailment of the federal government’s use of consulting and technology services firms;

	•		a significant decline in spending by the federal government, in general, or by specific departments or agencies in particular;

	•		the adoption of new laws or regulations that affect companies that provide services to the federal government;

	•		delays in the payment of our invoices by government payment offices; and

	•		general economic and political conditions.

These or other factors could cause federal government agencies and departments to reduce their purchases under contracts, to exercise their right to terminate contracts, to issue temporary stop work orders, or not to exercise options to renew contracts, any of which would cause us to lose future revenues. We have contracts in place with many federal departments and agencies, and federal government spending reductions or budget cutbacks at these departments or agencies could materially harm our continued performance under these contracts, or limit the award of additional contracts from these agencies.

Profitability on our contracts may be adversely affected by project-related risks.
We may not be profitable if we do not accurately estimate the cost of large engagements that are conducted on a fixed-price basis. A significant percentage of our engagements are performed on a fixed-price basis. Billing for fixed-price engagements is made in accordance with the contract terms agreed to with our client. Revenues are recognized based on the percentage of costs incurred to date in relation to total estimated costs to be incurred over the duration of the respective contract. When making proposals for these types of engagements, we rely on our estimates of costs and timing for completing the projects. These estimates reflect our best judgment regarding the efficiencies of our methodologies and professionals as we plan to apply them to the projects. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-price contracts, including delays caused by factors outside our control, could make these contracts less profitable or unprofitable.

Our contracts can be terminated by our clients with short notice. Our clients typically retain us on a non-exclusive, engagement-by-engagement basis, rather than under exclusive long-term contracts. Generally, our clients can terminate our contracts without penalty upon written notice and with appropriate compensation to AMS for actual work performed. Longer-term, larger and more complex contracts typically provide for reimbursement of termination costs such as employee relocation expenses and lease termination penalties. Additionally, large client projects involve multiple engagements or phases, and there is a risk that a client may choose not to retain us for additional phases of a project or that a client will cancel or delay additional planned engagements. These terminations, cancellations or delays could result from factors unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the client or the economy generally. When contracts are terminated, we lose the associated future revenues and we may not be able to recoup all associated costs.

Federal government contracts contain provisions giving government clients a variety of rights that are unfavorable to us, including the ability to terminate a contract at any time for convenience. Federal government contracts contain provisions and are subject to laws and regulations that provide government clients with rights and remedies not typically found in commercial contracts. These rights and remedies allow government clients, among other things, to:

	•		reduce or modify contracts;

	•		terminate our facility security clearances and thereby prevent us from receiving classified contracts;

	•		cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;

	•		prohibit future awards with a particular agency due to a finding of organizational conflict of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors;

	•		subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest and may also result in a requirement to resubmit bids for the reduction or modification of the awarded contract; and

	•		suspend or debar us from doing business with the federal government or with a particular governmental agency.

If a government client terminates one of our contracts for convenience, we may recover, at most, only our incurred or committed costs, settlement expenses, and profit on work completed prior to the termination. If a federal government client were to unexpectedly terminate or cancel one or more of our significant contracts, decline to exercise an option to renew a multi-year contract, or suspend or debar us from doing business with government agencies, we could experience a material decline in our revenues.

Our profitability will suffer if we are not able to maintain our pricing and utilization rates and control our costs.
Our profitability on time-and-materials contracts is a function of the rates we are able to charge for our services and the utilization rate, or chargeability, of our professionals. Accordingly, if we are not able to maintain the rates we charge for our services or an appropriate utilization rate for our professionals, our profitability will suffer. The rates we are able to charge for our services are affected by a number of factors, including:

	•		our clients’ perception of our ability to add value through our services;

	•		introduction of new services or products by us or our competitors;

	•		pricing policies of our competitors and other competitive factors; and

	•		general economic conditions.

	•		our ability to transition employees from completed projects to new engagements;

	•		our ability to forecast demand for our services and thereby maintain an appropriately sized workforce; and

	•		our ability to manage attrition.

Our profitability is also a function of our ability to control our costs and improve our efficiency. As we increase the number of our professionals and execute our strategy for growth, we may not be able to manage a significantly larger and more diverse workforce, control our costs or improve our efficiency.

There are risks inherent in a strategy that includes the acquisition of other businesses.
One of our strategies is to pursue growth through acquisitions. We may not be able to identify suitable acquisition candidates at prices that we consider appropriate. The integration of acquired business operations could disrupt our business by diverting management attention away from day-to-day operations. Integrating personnel with disparate business backgrounds and combining different corporate cultures may increase the difficulties of integration. We also may not realize cost efficiencies or synergies that we anticipate when selecting our acquisition candidates. Acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition which could reduce our future reported earnings.

We may face legal liabilities or damage to our professional reputation from claims made against our work.
We create, implement and maintain information technology solutions that are often critical to the operations of our clients’ businesses. Our ability to complete large projects as expected often is adversely affected by unanticipated delays, renegotiations, and changing customer requirements or project delays. Such problems could subject us to legal liability, which could adversely affect our business, operating results and financial condition, as well as cause a diminution of our professional reputation. We typically include provisions in our contracts which are designed to limit our exposure to legal claims relating to our services and the applications we develop. These provisions may not protect us or may not be enforceable under some circumstances or under the laws of some jurisdictions.

Our profitability may decline due to financial and operational risks inherent in worldwide operations.
We have offices in 12 countries around the world. AMS subsidiaries are incorporated in 16 foreign countries. Approximately 13.4% of our revenues in 2002, 16.0% in 2001 and 15.3% in 2000 were attributable to international activities. As a result, we are subject to the following risks:

	•		currency fluctuations;

	•		price controls or restrictions on exchange of foreign currency;

	•		the burdens of complying with a wide variety of national and local laws;

	•		differences in, and uncertainties arising from, local business culture and practices;

	•		multiple, and sometimes conflicting, laws and regulations, including tax laws;

	•		operating losses incurred in certain countries as we develop our international service delivery capabilities and the non-deductibility of those losses for tax purposes;

	•		the absence in some jurisdictions of effective laws to protect our intellectual property rights;

	•		restrictions on the movement of cash and other assets;

	•		restriction on the import and export of certain technologies;

	•		restrictions on the repatriation of earnings; and

	•		political, social and economic instability.

Any or all of these risks could impact our global business operations and cause our profitability to decline.

Our services or solutions may infringe upon the intellectual property rights of others.
We cannot be sure that our services and offerings do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us. These claims may be costly, harm our reputation, and prevent us from offering some services and offerings. Historically, in some of our contracts, we have agreed to indemnify our clients for certain expenses or liabilities resulting from claimed infringements of the intellectual property rights of third parties. In some instances, the amount of these indemnities may be greater than the revenues we receive from the client. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, injure our reputation, or require us to enter into royalty or licensing arrangements. Any limitation on our ability to sell or use products or services that incorporate challenged software or technologies could cause us to lose revenue-generating opportunities or require us to incur additional expenses to modify solutions for future projects.

We have only a limited ability to protect our intellectual property rights.
Our success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual property that we use to provide our services. The laws of some countries in which we conduct business may offer only limited protection of our intellectual property rights. AMS’s general practice is to pursue patent or other appropriate intellectual property protection that is reasonable and necessary to protect and leverage our intellectual assets.

AMS asserts trademark rights in and to our name, product names, logos and other markings used to identify our goods and services in the marketplace. We routinely file for and have been granted trademark registrations from the U.S. Patent and Trademark Office and other trademark offices worldwide.

Despite our efforts, the steps taken to protect our intellectual property may not be adequate to prevent or deter infringement or other misappropriation of intellectual property, and we may not be able to detect unauthorized use of our intellectual property, or take appropriate steps to enforce our intellectual property rights.

AMS’s corporate headquarters are located in Fairfax, Virginia with 50 offices worldwide. European headquarters are in The Hague, The Netherlands and AMS has offices in 10 other foreign countries. The Company does not own any real property. Substantially all of the Company’s office space is leased under long-term leases with varying expiration dates. AMS currently has facilities in excess of its needs. During 2001 and 2002, the Company consolidated facilities as part of its restructuring plan as discussed in Note 12 of the consolidated financial statements appearing in Part II, Item 8 of this Form 10-K. The restructuring charge associated with this plan included costs to be incurred through 2006 related to facilities that are subleased, or expected to be subleased, at rates below the Company’s costs.

Mehle v. American Management Systems, Inc., No. 1:01CV01544 (United States District Court for the District of Columbia), appeal pending. As previously reported in the Company’s periodic filings with the SEC, on July 17, 2001, the Federal Retirement Thrift Investment Board (the “Thrift Board”) gave written notice to AMS stating that the Thrift Board had terminated for default its contract with AMS for development and implementation of an automated record-keeping system for the federal employee Thrift Savings Plan. On the same date, the Thrift Board’s executive director, Roger W. Mehle, purporting to act as “managing fiduciary” of the Thrift Savings Fund, filed a companion lawsuit against AMS relating to AMS’s performance of the contract seeking compensatory damages of $50 million and punitive damages of $300 million, plus re-procurement costs, costs and expenses of litigation (including reasonable attorneys’ fees) and prejudgment interest.

AMS moved to dismiss the lawsuit filed by Mr. Mehle. On November 30, 2001, the United States District Court for the District of Columbia issued an order granting AMS’s motion to dismiss Mr. Mehle’s lawsuit for lack of jurisdiction. Mr. Mehle appealed that order. AMS filed both procedural and dispositive motions with the Court of Appeals. On January 25, 2002, the U.S. Department of Justice filed a motion on behalf of the U.S. Government to intervene which has been granted, and a motion to dismiss Mr. Mehle’s appeal. Both the Government’s motion to dismiss the appeal and AMS’s motion to dismiss the appeal were opposed by Mr. Mehle and are pending. A motion by AMS, whose position was supported by the United States, to strike the appearance of private counsel representing Mr. Mehle, also was filed and was opposed by Mr. Mehle. That motion is also pending. In November 2002, Mr. Mehle resigned from his position as Executive Director of the Thrift Board. As a result, Mr. James Petrick, the Thrift Board’s current Acting-Executive Director, was substituted as the named appellant and the case is now captioned Petrick v. American Management Systems, Inc., No. 01-7197 (United States Court of Appeals for the District of Columbia Circuit). The Court of Appeals heard oral argument on March 7, 2003 and the case has been submitted for decision.

American Management Systems, Inc. v. United States, No. 01-586 (Fed. Cl.). AMS believes that the appropriate forum for resolving its dispute over the Thrift Board contract is in the United States Court of Federal Claims (“CFC”), a court of specialized jurisdiction that ordinarily entertains all disputes relating to U.S. government contracts. To that end, AMS filed suit in the CFC against the United States, which is the contracting party in the Thrift Board contract, seeking reversal of the Thrift Board’s decision terminating the contract for default and asking the court to convert the termination into a termination for convenience. The U.S. Department of Justice is defending the United States in this case. The United States moved to dismiss AMS’s Complaint for lack of jurisdiction, arguing that the Thrift Board is a non-appropriated fund instrumentality. AMS opposed the Government’s jurisdictional motion. By written opinion and order dated August 30, 2002, the CFC denied the United States’ motion to dismiss, concluding that jurisdiction did, in fact, exist. On September 12, 2002, the United States filed its Answer to AMS’s Complaint, thereby responding to AMS’s claims in the CFC. On November 1, 2002, the United States filed a motion seeking permission from the CFC to immediately appeal the CFC’s August 30, 2002 decision, and an order suspending further proceedings in the CFC pending the resolution of any such appeal. AMS opposed this request. On January 9, 2003, the CFC authorized the United States to seek immediate review from the U.S. Court of Appeals for the Federal Circuit (“the Federal Circuit”) and stayed further proceedings in the CFC pending final action by the Federal Circuit on the United States’ request for immediate review. The United States subsequently requested that the Federal Circuit grant immediate review. On February 26, 2003, by written order, the Federal Circuit denied the United States’ request for interlocutory appeal. Following the denial of its request for immediate appellate review, the

United States requested that the CFC revisit its August 30, 2002 opinion and then re-certify the matter to the Federal Circuit. AMS has opposed that request. The issue is now pending before the CFC.

Other Procedural Matters Relating to the Thrift Board. On July 16, 2002, AMS submitted a contract termination settlement proposal and claim to the Thrift Board seeking recovery of approximately $58.5 million of unpaid costs and fees incurred in performing the contract and winding it down in accordance with the termination for convenience provisions of the contract. The proposal was submitted pursuant to the instructions given by the Thrift Board’s contracting officer at the time of termination and in accordance with the terms of the contract and the Federal Acquisition Regulation. The submission of a government contractor’s settlement proposal is a routine step in the administrative process of terminating a federal government contract. On August 16, 2002, the Thrift Board denied any liability to pay the settlement proposal and claim. AMS intends to challenge the Thrift Board’s decision with respect to these matters.

There were no matters submitted to a vote of security holders during the fourth quarter of 2002.

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The common stock of American Management Systems, Incorporated, is traded on the NASDAQ over-the-counter market under the symbol AMSY. References to the stock prices are the high and low bid prices during the calendar quarters indicated.

The approximate number of stockholders of record of the Company’s common stock as of March 24, 2003 was 2,234.

The Company has never paid any cash dividends on its common stock and does not currently anticipate paying dividends in the foreseeable future. AMS’s current policy is to invest retained earnings in the operation and expansion of its business. Future dividends on the common stock of AMS, if any, will be at the discretion of its Board of Directors and will depend on the Company’s earnings, financial condition, capital requirements, credit facility covenants and other then-existing conditions.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in Part II, Item 8 of this Annual Report on Form 10-K. We use the terms “AMS,” “we,” “our,” and “us” in this report to refer to American Management Systems, Incorporated and its subsidiaries.

We are a global business and information technology consulting firm serving clients worldwide. We partner with customers to improve their business performance through the intelligent use of information technology. Our business approach blends deep industry knowledge with strategic services, technology innovation and project delivery expertise to help business and government collect revenues, improve customer relationships, reduce risk, cut costs, and comply with complex regulatory requirements. Our key services include business consulting, IT solutions and outsourcing.

We deliver our consulting and system integration services through five industry groups, called target markets, in which we have significant industry knowledge. We invest in emerging technologies through the development of proprietary products and business partnerships. Our focus on specific industries allows us to tailor our offerings to reflect an understanding of the markets in which our clients operate.

We derive our revenues primarily from contracts for business and information technology solutions. The economic environment and level of business activity from our clients affects our revenues. Due to the slowdown in the economy, political uncertainty and weak information technology market during 2001 and 2002, clients reduced or postponed their spending on information technology and consulting services, slowing down the number of new contracts we entered into.

During 2002, we strengthened our leadership team and organizational structure. We created a new sales force to cross-sell our services to customers in all of our target markets. This team added 70 new customers in 2002. We continued to align our costs with market conditions through our restructuring plan and will continue to do so as market demand changes. Future cost-management efforts may not be sufficient to maintain our operating margins given a delayed economic recovery.

In keeping with our strategy to focus on core businesses and invest in areas that complement our strategies, during 2002, we sold our global utilities practice. Additionally, we entered into an agreement to acquire certain assets of Proponix (Canada), Inc. and Proponix (Australia) Pty. Limited, collectively referred to as “Proponix,” a leading provider of back-office letter of credit trade processing for global banks. We expect to close this transaction in March or April of 2003. Additionally, to complement our portfolio of offerings in the Communications, Media and Entertainment target market, we acquired the interconnection gateway software of Quintessent Communications during 2002. This allows AMS to offer full-service interconnection gateway solutions.

In 2002, we transitioned to a matrix business model with horizontal service lines leveraging expertise and efficiencies across all of our vertical target markets. Our service lines, which include Managed Services, Enterprise Integration, and Innovation and Transformation, house our core offerings. The service lines invent, develop and implement offerings across all of our target markets. They also maintain standard methodologies for our offerings and applications and provide expertise to support business development efforts.

Revenues
We derive our revenues primarily from contracts for business and information technology solutions. Our contracts are generally on a fixed-price, time-and-materials or cost-reimbursable basis. With our fixed-price contracts, we believe that we have the ability to produce reasonably dependable estimates regarding the extent of progress towards completion. As such, revenues on these contracts are recognized using the percentage-of-completion basis of accounting based on the percentage of costs incurred in relation to total estimated costs to be incurred over the duration of the contract. These estimates are continuously reviewed during the term of the contract and may result in our revision of recognized revenues and estimated total costs during the period in which changes in circumstances are identified. Revenues on time-and-materials contracts are recognized to the extent of billable rates times hours delivered plus reimbursable expenses incurred. Revenues on cost-reimbursable contracts are recognized to the extent of costs incurred plus a proportionate amount of the fee earned.

Significant portions of our revenues are from contracts that include the sale of our proprietary software solutions, the majority of which relate to large systems integration projects that provide for the integration and customization of our core software. These long-term production-type contracts generally include the delivery of software, integration and customization services, training and maintenance. For these contracts, the entire contract value is generally recognized as revenue using the percentage-of-completion basis of accounting. Large systems integration projects with certain federal clients are structured in phases (e.g., base contract period plus option periods). Option periods for federal client contracts are typically exercised upon government appropriations and at the client’s discretion. These federal contracts require formal acceptance at the end of each phase. Phases may be on a time-and-materials and/or fixed-price basis. Since these federal clients only commit to one phase at a time, we recognize revenue by phase for these contracts.

We also enter into contracts for business purposes that we refer to as benefits-funded contracts. These contracts are similar to our other large systems integration fixed-price contracts; however, the amounts due to us are payable from actual monetary benefits derived by the client. Benefits-funded contracts are used solely in situations where the client receives tangible and quantifiable monetary benefits directly from the new system and processes we implemented. These clients have historically been state or city departments of revenue or taxation, with the systems implemented consisting of new integrated tax systems that enable the organizations to find incremental lost tax revenues. For these contracts, we recognize revenues only to the extent that we can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the value upon which revenue recognition is based.

Less than ten percent of our revenues include the sale of off-the-shelf software for which there are no significant integration or modification services necessary. These contracts often bundle maintenance or other services along with the sale of the software. Maintenance and product support services sold with software generally provide for minor programming corrections, new releases and help-desk support. The terms of the maintenance agreements vary with each client but maintenance is generally sold for a twelve-month period with renewals occurring annually based upon renewal rates stated in the original contract. For contracts that include off-the-shelf software and maintenance or other services, we assign part of the contract value to each element of the contract based upon its relative fair value and recognize revenues for the license fee once the software has been delivered. Maintenance revenues are recognized ratably over the maintenance period and service revenues are recognized as services are delivered.

Additionally, we enter into contracts with clients that do not include the sale or integration of software. These contracts include general consulting or training and are typically performed on a time-and-materials or cost-reimbursable basis.

Certain of our contracts relate to systems that we implement and host for clients. Revenues are recognized on these contracts in accordance with the contractual terms on a straight-line or transaction-volume basis, as appropriate.

On all of our contracts, expense reimbursements, including those relating to travel and out-of-pocket expenses, are included in revenues, and an equivalent amount of reimbursable expenses are included in cost of revenues.

Operating Expenses and Gains
Our major types of operating expenses include the following:


	• Cost of Revenues include direct expenses to provide products and services to our clients such as compensation costs, travel and out-of-pocket expenses, costs for subcontractors, amortization of purchased and developed software for external sale to customers, product support and maintenance costs.

• Selling, General and Administrative (“SG&A”) expenses include expenses not directly related to the delivery of products or services such as compensation for support personnel, rent expense, costs for information systems, selling and marketing expenses, recruiting and training expenses, depreciation expense, and amortization expense for internal-use software. Prior to January 1, 2002 the amortization of goodwill was also included. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” which was adopted January 1, 2002, requires the discontinuation of goodwill amortization.


	• Research and Development expenses include research and development expenses incurred as part of the software development cycle that are not capitalized.


	• Restructuring Charge includes expenses associated with implementing our formal restructuring plan, primarily relating to employee severance and abandoned facilities.


	• Software Asset Impairments include significant expenses associated with the write-down of certain software assets to current net realizable value.


	• Gain on Sale of Utilities Practice includes the proceeds, net of expenses, from the sale of our global utilities practice in line with our strategy to exit non-core businesses.

Interest Expense
Interest expense (net of interest income) is related to interest incurred on borrowings and fees on our revolving credit facility. It also includes interest expense related to our deferred compensation plan.

Other Income
Other income (net of other expense) includes activity not related to our primary business. For example, other income includes gains and losses on the disposal of assets and market gains and losses and premium expense on company-owned life insurance policies.

Loss on Equity Investments
Loss on equity investments reflects our share, as a joint venture investor, in the operating results of Competix, Inc.

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Application of these policies is particularly important to the portrayal of our financial condition and results of operations. Accounting policies and estimates that management believes are most critical to our financial condition and operating results pertain to revenue recognition, net realizable value of software, income taxes and variable compensation. We have discussed the application of these critical accounting policies with our Independent Auditors and the Audit Committee of our Board of Directors.

Revenue Recognition
Most of our revenues are generated from contractual arrangements, some of which are complex in nature. Many of these contracts require significant revenue recognition judgments, particularly in the areas of progress towards completion, multiple-element arrangements and, primarily with respect to our benefits-funded contracts, collectibility. Our contracts are generally on a fixed-price, time-and-materials or cost-reimbursable basis. Revenues on fixed-price contracts are recognized using the percentage-of-completion basis of accounting based on the percentage of costs incurred in relation to total estimated costs to be incurred over the duration of the contract. Revenues on time-and-materials contracts are recognized to the extent of billable rates times hours delivered plus reimbursable expenses incurred. Revenues on cost-reimbursable contracts are recognized to the extent of costs incurred plus a proportionate amount of the fee earned.

In using the percentage-of-completion basis of accounting for our fixed-price, including benefits-funded, contracts, we make important judgments in estimating total costs to complete the contracts in determining revenue recognition. These judgments underlie our determinations regarding overall contract value and contract profitability. As such, these estimates are continuously reviewed during the term of the contract and may result in our revision of recognized revenues in the period in which changes in circumstances are identified. Circumstances that may result in changes to recognized revenues include changes in estimates of costs required to complete an engagement, changes in staffing mix and changes in client participation, as well as other factors.

Our benefits-funded contracts are similar to our other large systems integration fixed-price contracts with the exception that the amounts due to us are payable from actual monetary benefits derived by the client. As such, these contracts require us to apply judgments in determining whether the full contract value will be funded and what the expected profitability on the contract will be. Benefits-funded contracts are used solely in situations where the client receives tangible and quantifiable monetary benefits directly from the new system and processes we implemented. For these contracts, we recognize revenues only to the extent that we can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the value upon which revenue recognition is based.

Net Realizable Value of Software
We develop software for external sale and capitalize the associated software development costs once technological feasibility has been established. We regularly evaluate the net realizable value of capitalized software using the estimated, undiscounted, net cash flows of the underlying products. Asset balances that exceed the expected net realizable value are written off as Software Asset Impairments.

Income Taxes
Determining the consolidated provision for income tax expense, deferred tax assets and liabilities and related valuation allowance involves judgments. As a global company with subsidiaries in 16 foreign countries and the U.S., we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated levels of annual pre-tax income can affect the overall effective tax rate.

Variable Compensation
Variable compensation is a significant discretionary expense that is highly dependent upon management estimates and judgments, particularly at each interim reporting date. In arriving at the amount of expense to recognize, management believes it makes reasonable estimates and judgments using all significant information available. Expenses accrued for variable compensation are based on actual quarterly and annual performance versus plan targets and other factors. Amounts accrued are subject to change in future periods until annual results are finalized if future performance is below plan targets or the performance levels anticipated in prior periods.

The following table sets forth the unaudited percentage of revenues represented by items in our consolidated income statements for the periods presented. Certain amounts reported in previous years have been reclassified to conform with the 2002 presentation.

Revenues
Revenues for 2002 were $986.7 million, a decrease of $196.6 million, or 16.6%, compared to 2001. Revenues with U.S. clients declined 14.0% to $854.1 million, while revenues from international clients dropped 30.0% to $132.6 million. Revenues with international clients are primarily comprised of work with customers in the Communications, Media and Entertainment and Financial Services Institutions target markets across Europe, Asia and the Pacific Rim. This decline internationally is consistent with the decline in information technology spending in those industries overall. Business with international clients represented 13.4% and 16.0% of our total revenues in 2002 and 2001, respectively.

As a result of the difficult economic and uncertain political environment, our revenues declined in 2002. With the exception of the Federal Government Agencies target market, revenues declined in all of our target markets. See Note 18 of the consolidated financial statements in Part II, Item 8 of this Form 10-K for details. The revenue growth in the Federal Government Agencies target market reflected increased defense-related spending and several large-scale implementations of our federal financial management

solution Momentum®. All other target markets declined from the same period of the prior year as clients reduced or deferred their spending on information technology and consulting services due to the slowdown in the economy. Due to the global economic weakening in the telecommunications industry, our Communications, Media and Entertainment target market experienced the most significant decline, accounting for $124.7 million, or 63.4%, of the $196.6 million drop in revenues from 2001 to 2002. Our Financial Services Institutions and State and Local Governments and Education target markets represented $45.8 million and $21.4 million, respectively, of our revenue decline from 2001 to 2002. For 2002, the portion of our total revenues derived from our Federal Government Agencies and State and Local Governments and Education target markets (collectively referred to as Public Sector) was 62.4% in 2002 and 53.8% in 2001. Our Communications, Media and Entertainment and Financial Services Institutions target markets accounted for 19.6% and 12.3%, respectively, of our total 2002 revenues. Approximately 85% of our consolidated revenues came from clients with whom we had performed work previously.

Operating Expenses
Operating expenses in 2002 were $944.2 million, a decrease of $207.3 million, or 17.5%, from 2001. As a percentage of revenues, operating expenses decreased from 97.3% in 2001 to 95.7% in 2002. During 2001 and 2002, the Company took significant charges for restructuring and software asset impairments and recorded gains on the sale of our utilities practice (2002) and a contract litigation settlement (2001). Excluding these items, operating expenses as a percentage of revenues were 93.5% in 2002 and 93.2% in 2001. We continue to implement cost management initiatives aimed at keeping operating costs in line with our forward view of the market.

Cost of Revenues
Cost of revenues were $582.0 million in 2002, a decrease of $140.5 million, or 19.4%, compared with 2001. Cost of revenues declined due to the reduction of project work for customers due to the slowdown in the global economy and information technology spending in particular. As a percentage of revenues, cost of revenues were 59.0% in 2002 versus 61.1% in 2001. During 2002, as a result of our evaluation of outstanding receivables at December 31, 2002, we recorded $8.7 million less to bad debt expense in comparison to 2001. This decrease was related to the overall improvement in the status and estimated collectability of our receivables. We estimate that our allowance for doubtful accounts is adequate to cover any potential exposure to unpaid accounts receivable relating to our customers in the telecommunications and other industries that have been experiencing declining financial performance. The 2002 decrease in cost of revenues was partially due to an overall reduction in variable compensation of $9.2 million compared to 2001. It is also representative of the overall decline in revenue. In 2001, cost of revenues included a $5.3 million loss reserve in connection with certain client engagements while 2002 included none. These decreases were partially offset by increased amortization expense of $3.9 million from 2001 to 2002 for purchased software.

Selling, General and Administrative
SG&A expenses were $315.7 million in 2002, a decrease of $42.9 million, or 12.0%, compared with 2001 and an increase as a percentage of revenues from 30.3% for 2001 to 32.0% for 2002. The decline was primarily attributable to reductions in variable compensation and other staff-related expenses due to our reduced headcount and cost management efforts throughout 2002. The decline was partially offset by higher insurance costs, increased business development expenses attributable to our investment in a new sales force, and $1.9 million of consulting fees related to the analysis and preparation of amended Federal income tax returns for the years 1996 through 2000.

Research and Development
Research and development expenses were $24.8 million in 2002, an increase of $3.0 million, or 13.6% over 2001 and an increase as a percentage of revenues from 1.8% in 2001 to 2.5% in 2002. This increase

was primarily due to the inclusion of $6.7 million of expenses, beginning in the second quarter of 2002, to support our customer care and billing software system, Tapestry®. The increase was partially offset by the transition of several projects from research and development to capitalized development.

Restructuring Charge
In a continuing effort to match our workforce with market conditions and align our personnel with new business strategies, we incurred a $22.1 million restructuring charge in 2002, or 2.2% of revenues. The charge included $17.6 million for severance and severance-related costs and $4.5 million related to changes in estimates associated with our liability for the closure and consolidation of facilities, primarily attributable to declining real estate market conditions and the timing of anticipated subtenant rental agreements. Restructuring costs were $59.8 million for 2001 or 5.1% of revenues. The charge included $37.8 million for severance and severance-related costs, $20.5 million for the consolidation of facilities and $1.5 million for other related restructuring costs.

Software Asset Impairments
Software Asset Impairments were $19.6 million in 2002 compared to $29.8 million in 2001. The entire $19.6 million charge in 2002 and $19.2 million of the charge in 2001 was for the write-down of software assets related to our large-scale, enterprise-wide telecommunications billing system, Tapestry®, based on a significant decline in spending in the Communications, Media and Entertainment target market which indicated the assets’ net realizable values were less than their unamortized, capitalized costs. The remaining book value of the Tapestry® asset was $11.3 million as of December 31, 2002. In addition, in 2001, we recorded a $10.6 million charge related to a decline in expected net realizable values of certain other software assets, as well as for software that no longer fit our business strategies.

Gain on Sale of Utilities Practice
In 2002 we sold our global utilities practice for a net gain of $19.9 million. The divesture was in line with our strategy to exit non-core businesses and generate capital to invest in areas of strategic focus. The assets sold were limited to contracts, certain intellectual property rights, accounts receivable, and a negotiated transfer of certain key employees.

Interest Expense
Interest expense, net of interest income, decreased $4.3 million, or 92%, from 2001 to 2002 due to lower interest expense because we had no outstanding borrowings under our credit facility or former term loan agreements during 2002. As of December 31, 2002, we had no outstanding borrowings. Net interest expense for 2002 included $1.4 million of interest income attributable to amended prior years Federal income tax returns claiming additional research and experimentation tax credits. The $1.4 million of interest income was offset by interest expense related to our deferred compensation program.

Other Income
Other income was negligible in 2002 compared to $2.8 million in 2001. The decline was due to the absence in 2002 of gains on life insurance policies of $1.4 million and gains on the disposition of space leases of $1.4 million that were included in other income in 2001.

Income Taxes
Our effective company-wide income tax rate decreased from 41% for 2001 to 33% for 2002. The decline was attributable to expected refunds on prior years’ Federal income tax returns as a result of additional research and experimentation tax credits. We estimate our effective tax rate for 2003 will be approximately 41%.

Revenues
Revenues for 2001 were $1,183.3 million, a decrease of $96.0 million, or 7.5%, compared to 2000. Revenues from U.S. clients declined 8.2% to $993.7 million, while revenues from international clients dropped 3.4% to $189.6 million. Revenues with international clients were primarily comprised of work with customers in the Communications, Media and Entertainment and Financial Services Institutions target markets across Europe, Asia and the Pacific Rim. Business with international clients represented 16.0% and 15.3% of our total revenues in 2001 and 2000, respectively.

In 2001, revenues declined in all of our target markets with the exception of Communications, Media and Entertainment revenues, which were flat. See Note 18 of the consolidated financial statements in Part II, Item 8 of this Form 10-K for further discussion. For the first half of 2001, revenues increased $12.9 million, or 2.0%, compared with the first half of 2000. However, the events of September 11th, coupled with the weak information technology market and the troubled global economy significantly affected revenues in the second half of 2001. During the second half of 2001, revenues declined $108.9 million, or 16.8%, when compared to the second half of 2000. In addition, revenues declined in the second half of 2001 as a result of the strategic pause in client work with the Department of Defense on the development of version 5.0 of the Standard Procurement System. The work stoppage with the Thrift Board also contributed to the revenue decline in the second half of 2001. Despite this decline, in 2001, as in preceding years, approximately 85% of our consolidated revenues came from clients with whom we had performed work previously.

Operating Expenses
Our operating expenses in 2001 were $1,511.5 million, a decrease of $49.1 million, or 4.1%, from 2000. As a percentage of revenues, operating expenses increased from 93.8% in 2000 to 97.3% in 2001. Total operating expenses before restructuring, software asset impairments and contract litigation settlement for 2001 were $1,102.9 million, a decrease of $64.4 million, or 5.5%, compared with 2000. As a percentage of revenues, operating expenses before restructuring, software asset impairments and contract litigation settlement increased from 91.2% in 2000 to 93.2% in 2001.

Cost of Revenues
Cost of revenues were $722.5 million in 2001, a decrease of $10.6 million, or 1.4%, compared with 2000. Amortization expense for purchased and internally developed software increased $10.7 million compared with 2000. The increase resulted in large part from the inclusion in 2001 of a full year of amortization expense for Tapestry®, which finished development in late 2000. In addition, in 2000 we received a $0.9 million refund related to a software royalty fee that the Company had previously recorded to cost of revenues related to the Bezeq contract. These net increases in expense were offset by $10.1 million in lower variable compensation during 2001. In addition, cost of revenues declined due to the slowdown or conclusion of project work for several large customers. As a percentage of revenues, cost of revenues was 61.1% in 2001 versus 57.3% in 2000. The weakening of the information technology market resulted in intense competition among service providers to win business. This climate fostered fierce price competition that eroded gross profit margins in 2001.

Selling, General and Administrative
SG&A expenses were $358.6 million in 2001, a decrease of $46.1 million, or 11.4% compared with 2000. As a percentage of revenues, SG&A declined from 31.6% in 2000 to 30.3% in 2001. The decline was attributable primarily to reductions in variable compensation and other staff-related expenses resulting from cost management efforts, including a decrease in our headcount, to bring costs more in line with revenue levels in the business. In addition, in 2001 we recovered court costs of $0.8 million, previously recorded to SG&A, as part of our settlement of the Bezeq contract. This amount slightly offset our other SG&A expenses.

Research and Development
Research and development expenses were $21.8 million in 2001, a decrease of $7.7 million, or 26.1%, compared with 2000. The decrease was driven by the transition of several projects related to our Federal Government Agencies and State and Local Government and Education target markets from research and development to capitalized development. The decrease was also due to a decline, in fiscal year 2001, of non-capitalized development costs on our next generation customer care and billing software, Tapestry®.

Contract Litigation Settlement
Contract litigation settlement income was $41.0 million in 2001 compared to $33.2 million of expense in 2000. A charge of $35.2 million recorded in 2000 was related to our settlement of a lawsuit filed by the State of Mississippi. This was offset by insurance recoveries of $2.0 million related to a settlement of the Bezeq contract that occurred in 2000. The income of $41.0 million, net of costs, recorded in 2001, resulted from the resolution of our dispute with National Union Fire Insurance Company described in Note 17 of the consolidated financial statements in Part II, Item 8 of this Form 10-K.

Interest Expense
Interest expense (net of interest income) was $4.7 million in 2001 compared to $3.4 million in 2000. Interest expense increased 37.7% from 2000 to 2001 due to increased average debt and higher credit facility fees despite lower average interest rates. In addition, we accelerated the payment of our term notes and made corresponding accelerated interest payments that were based on the present value of the remaining interest expense. As of the end of 2001, we had no outstanding borrowings.

Loss on Equity Investments
In late 1998, Competix was established as a joint venture between AMS and the Bank of Montreal to provide online loan application processing services to small and mid-sized financial institutions. Our share of Competix’s losses was $3.0 million in 2001 compared to $5.9 million in 2000. In 2000, our loss of $5.9 million was partially offset by a $3.5 million gain on the sale of a portion of our investment. As of December 31, 2001, we had no remaining basis in the Competix venture.

Our primary sources of liquidity are cash flows from operations, our $160 million bank credit facility and available cash reserves of $136.2 million as of December 31, 2002.

During 2002, we had an unsecured revolving credit facility with a group of lenders that provided borrowing capacity not to exceed $120 million, under which no borrowings were outstanding during 2002. This bank credit facility was available for general corporate purposes, including working capital borrowings, capital investments and other obligations. This facility was replaced on November 13, 2002, with a new three-year unsecured revolving bank credit agreement with a group of lenders that provide borrowings not to exceed $160 million. This credit facility is available for working capital borrowings, capital expenditures, acquisitions, and other corporate purposes. At December 31, 2002 no borrowings were outstanding under this new bank credit facility. During 2002, we complied with all covenants included in both credit facilities.

AMS may borrow funds under the new bank credit agreement in the approved currencies, subject to certain minimum amounts per borrowing. Interest rates on such borrowings will generally range from

LIBOR plus 1.13% to 1.75% per annum, depending on our debt-to-EBITDA ratio, as defined in the agreement. We are required to pay a facility fee ranging from 0.50% to 0.65% per annum on the total facility based on our debt-to-EBITDA ratio.

The new bank credit agreement includes covenants relating to the maintenance of certain financial ratios, and imposes restrictions on our ability to pay dividends, repurchase stock, or make acquisitions, divestitures and investments. The new bank credit agreement expires on November 13, 2005.

Our balance of cash and cash equivalents was $136.2 million and $53.3 million at December 31, 2002 and 2001, respectively, an increase of $82.8 million. This increase was due to cash provided by operating activities during 2002 including a $19.9 million net gain on the sale of our global utilities practice, offset primarily by investments in equipment and purchased and developed software.

Net cash provided by operating activities was $105.0 million during 2002, a decrease of $7.2 million from 2001. This decrease was primarily attributable to a significant receipt in 2001 of $41.0 million (net of costs) from a contract litigation settlement with National Union Fire Insurance Company. Offsetting this receipt in 2001, were higher payments for employee variable compensation in 2001 as compared to 2002. Net cash used in investing activities was $31.5 million for 2002, compared to $50.0 million for 2001. The decline primarily was due to reduced investments in the purchase of property and equipment and a reduced rate of investment in a strategic alliance in the Financial Services Institutions target market. Net cash provided by financing activities was $5.2 million for 2002, compared to net cash used in financing activities of $49.4 million for 2001. The increase in cash provided by financing activities resulted from no payments on borrowings occurring in 2002 and an increased inflow of cash from stock option exercises and the Employee Stock Purchase Plan.

Our total cash and cash equivalents at December 31, 2001 increased $10.1 million, or 23%, from $43.2 million at December 31, 2000. This increase was due to cash provided by operating activities, including $41 million (net of costs) from the contract litigation settlement with National Union Fire Insurance Company, offset by investing and financing activities. Investing activities primarily included the purchase of equipment and the purchase and development of computer software. Financing activities included the payoff of our line of credit and the accelerated repayment of all our outstanding term loans, which reduced our debt to zero as of December 31, 2001.

Net cash provided by operating activities was $112.1 million during 2001, an increase of $109.9 million from 2000. This increase was primarily due to a large payment of $35.2 million in 2000 for the settlement of our contract dispute with the State of Mississippi. In 2001 we recovered these costs along with certain other expenses, through a $41.0 million net settlement with our insurance provider. In addition, variable compensation payments were approximately $27 million higher in 2000 versus 2001. Net cash used in investing activities declined $51.1 million in 2001 from $101.1 million at December 31, 2000 due to reduced investments in acquisitions, primarily $20.0 million for Synergy in 2000, and the purchase and development of software. Net cash used in financing activities was $49.4 million in 2001, compared to cash provided by financing activities of $36.7 million during 2000. Cash provided by financing activities during 2000 included proceeds from our line of credit of $88.0 million, offset by repayments of $59.1 million on our term loans and line of credit. Cash used in financing activities during 2001 was primarily due to the $51.5 million repayment, net of borrowings, of all of our outstanding debt.

We enter into large, long-term contracts and, as a result, periodically maintain significant receivable balances with certain major clients. At December 31, 2002, and 2001 we had approximately $40.5 million in accounts receivable, classified as a long-term contract receivable in Other Assets, under a predominantly cost-plus incentive fee contract with the Thrift Board. See Part II, Item 3, Legal Proceedings of this Form 10-K, for a discussion of pending litigation involving the Thrift Board. At December 31, 2002 and 2001 our three largest individual clients, under numerous contracts, accounted for approximately 62.4% and 52.5% of our accounts receivable. No other single customer represented greater than ten percent of outstanding receivables at the end of fiscal 2002 or 2001.

On January 1, 2002, AMS adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses the financial accounting and reporting for the impairment of long-lived assets. This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 also supersedes Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The adoption of this Statement did not have a material effect on our financial statements.

In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (“SFAS 146”) which was effective January 1, 2003. SFAS 146 nullifies Emerging Issues Task Force (“EIFT”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that an exit or disposal activity-related cost be recognized when the liability is incurred instead of when an entity commits to an exit plan. We do not believe that the adoption of this Statement will have a significant impact on our financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure an Amendment of FASB Statement No. 123,” (“SFAS 148”) which was effective for fiscal years ending after December 15, 2002. SFAS 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The impact of the adoption of SFAS 148 is the addition of a significant accounting policy in Note 1 to our annual consolidated financial statements. In addition, the disclosures previously only included in our annual report on Form 10-K also will be reported in our quarterly reports on Form 10-Q beginning in 2003.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34” (“FIN 45”). FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued. This Interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the

disclosure requirements are effective for financial statement periods ending after December 15, 2002. We do not believe that the adoption of FIN 45 will have a significant impact on our financial statements.

In November 2002, the FASB’s EITF finalized EITF Issue 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. It also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in an arrangement. To the extent that a deliverable in an arrangement is within the scope of other existing higher-level authoritative literature, EITF 00-21 does not apply. AMS must adopt the provisions of EITF 00-21 for new contracts entered into on or after July 1, 2003. We are presently analyzing the potential impact of applying these provisions to our future contracts, but do not believe that the adoption of EITF 00-21 will have a significant impact on our financial statements.

Scale. As our customers grow, they expect us to grow with them. They need to know that we have the depth of resources to deliver. We will achieve scale through a combination of organic growth and strategic acquisitions.

Open application architecture. This involves embracing open standards in our product design so that we can easily integrate off-the-shelf software in our solutions.

Partnerships. This means partnering at all levels – with customers, with our traditional competitors, and with independent software vendors and suppliers.

Annuity revenue streams. We are looking to increase our revenues from multi-year annuity revenue streams. This involves growing our business in managed services and process outsourcing. We can also create multi-year revenues through innovative benefits-funded contracting in both the public and private sector – a concept we pioneered in our State and Local Government and Education target market.

Growth. On balance, the outlook for information technology services appears to show potential for a modest uptick in the coming year. In order to capitalize on the opportunities, we must stay on strategy and continue to execute on our commitments to customers and investors.

We are exposed to market risk from changes in foreign currency exchange rates, interest rates and other marketable securities. We manage our exposure to these market risks through the limited use of derivative financial instruments coupled with other strategies. For purposes of specific risk analysis, we use sensitivity analysis to determine the effects that market risk exposures may have.

We conduct our business in a wide variety of currencies and are therefore exposed to foreign currency risk in the ordinary course of business. Approximately 13.4% of our total revenues in 2002, 16.0% in 2001, and 15.3% in 2000 were derived from international clients. Our practice is to negotiate contracts in the same currency in which the predominant expenses are incurred, thereby mitigating the exposure to foreign currency exchange fluctuations. It is not possible to accomplish this in all cases; thus, there is

some risk that profits will be affected by foreign currency exchange fluctuations. Our primary foreign currency exposures as of December 31, 2002 and 2001 included the Euro and British Pound. In a further effort to mitigate foreign currency exchange risk, we have established a notional cash pool with a European bank. This arrangement allows us to better utilize our cash resources among our subsidiaries, thereby mitigating foreign currency conversion risks.

In the past, AMS has employed limited hedging of intercompany transactions through derivative instruments (foreign currency swap contracts); however, as of December 31, 2002, we had no such outstanding derivative contracts. To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of a hypothetical ten percent change in the value of foreign currencies, assuming no change in interest rates. As of December 31, 2002 and 2001, the result of a uniform ten percent decrease in the values of foreign currency exchange rates against the U.S. dollar for intercompany exposures with all other variables held constant would result in a decrease in the fair value of our foreign currency-denominated operating revenues and expenses of $0.5 million and $1.8 million, respectively.

Our earnings are affected by changes in interest rates due to the impact those changes have on our interest income from cash and short-term investments and interest expense related to our deferred compensation liability or any borrowings. The interest rate risk associated with our investing activities at December 31, 2002 and 2001 is immaterial in relation to our consolidated financial position, results of operations and cash flows. We have not used derivatives instruments to alter the interest rate characteristics of our investment holdings, deferred compensation liability or borrowings.

Our earnings are affected by changes in the market price of marketable securities in our deferred compensation assets. As of December 31, 2002, the effect of a hypothetical ten percent decrease in market price would result in a decrease in other income of $1.0 million. As of December 31, 2001, the effect of a hypothetical ten percent decrease in the market would result in a decrease in other income of $1.9 million. We have not used derivatives instruments to alter the portfolio characteristics of our marketable securities in our deferred compensation assets.

To the Board of Directors and Stockholders of
American Management Systems, Incorporated
Fairfax, Virginia

We have audited the accompanying consolidated balance sheets of American Management Systems, Incorporated and subsidiaries (the Company) as of December 31, 2002 and 2001, and the related consolidated income statements, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of American Management Systems, Incorporated and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 7 to the financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

American Management Systems, Incorporated
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)

American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In thousands)

American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

American Management Systems, Incorporated
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)

American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

American Management Systems, Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
For the Years Ended December 31, 2002, 2001 and 2000
(in thousands except share and per share amounts)

American Management Systems, Incorporated (“AMS” or “the Company”) is an international information technology consulting firm that leverages cross-industry expertise to manage mission-critical information technology, e-business, and systems integration projects. AMS helps clients create value by improving operational efficiencies, enhancing customer or citizen service, and increasing revenues. Founded in 1970, AMS is headquartered in Fairfax, Virginia with approximately 6,300 employees and 50 offices worldwide. European headquarters are in The Hague, The Netherlands, and AMS has staff and offices in ten other foreign countries.

The consolidated financial statements include the accounts of American Management Systems, Incorporated and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. The equity method of accounting is used for unconsolidated investments in which AMS exercises significant influence over operating and financial policies. All other investments are accounted for under the cost method.

Revenues on time-and-materials contracts are recognized to the extent of billable rates times hours delivered plus expenses incurred. Revenues on cost-reimbursable contracts are recognized to the extent of costs incurred plus a proportionate amount of the fee earned. For fixed-price contracts, where we have the ability to produce reasonably dependable estimates regarding revenues and costs, revenues are recognized using the percentage-of-completion basis of accounting based on the percentage of costs incurred in relation to total estimated costs to be incurred. The estimates utilized on these contracts are continuously updated during the term of the contract and may result in the Company’s revision of recognized revenues and estimated costs in the period in which they are identified.

Large systems integration projects are generally either fixed price or time-and-material contracts that are structured in phases (design, development and implementation) for delivery and contract management purposes. These long-term production-type contracts generally include the delivery of software, integration and customization services, training and maintenance. In accordance with the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) No. 97-2, “Software Revenue Recognition,” because these software licenses require significant production, modification, or customization, the entire arrangement is accounted for in accordance with Accounting Research Bulletin No. 45, Long-Term Construction-Type Contracts, using the relevant guidance in SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”). Because the arrangement is accounted for under SOP 81-1, the entire contract value is generally recognized as revenues using the percentage-of-completion basis of accounting.

AMS’s benefits-funded contracts are similar to the Company’s other large systems integration fixed-price contracts, with the exception that the amounts due to the Company are payable from actual monetary benefits derived by the client. Benefits-funded contracts are used solely in situations where the client receives tangible and quantifiable monetary benefits directly from the new system and processes implemented by AMS. For these contracts, AMS recognizes revenues only to the extent it can be predicted, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the value upon which revenue recognition is based.

Typically, the Company bundles software licenses with services. When no significant production, modification or customization of the software is required, the Company allocates a portion of the contract value to each element of the contract based upon its relative vendor specific objective evidence of fair value (“VSOE”). VSOE for software licenses is established based upon standard price lists that are generally adhered to for all such software sales. To establish VSOE for services (such as training), the Company uses standard billing rates used when billing customers on a time-and-material basis. VSOE for maintenance is generally established by the maintenance renewal rate in the contract. Generally the Company is able to establish VSOE for all elements of the arrangement and bifurcate the contract value accordingly. In these circumstances, revenues are recognized on each element separately. Revenues on software license fees are recognized when a non-cancelable license agreement is in force, the software has been delivered, the license fee is fixed or determinable, and collection is deemed probable. In certain circumstances, the Company may not be able to establish VSOE for the software. In these situations, once the software has been delivered and the only undelivered element is services, the entire contract value is recognized over the service period.

Maintenance and product support agreements generally provide for minor programming corrections, new releases and help-desk support. The terms of these agreements may vary with each client but maintenance and product support are typically sold for a twelve-month period with renewals occurring annually based upon renewal rates stated in the original contract. The Company generally invoices and requires the client to pay in advance of the maintenance period. Prepaid maintenance is deferred and recognized ratably over the maintenance period.

The Company also enters into contracts with clients that do not include the sale or integration of software. These contracts include general consulting or training and are typically performed on a time-and-materials or cost-reimbursable basis.

Certain of the Company’s contracts relate to systems that the Company implements and hosts for its clients. Revenues are recognized on these contracts in accordance with the contractual terms on a straight-line or transaction-volume basis, as appropriate.

Losses on contracts, if any, are recognized during the period in which the loss first becomes probable and reasonably estimable. Any projected loss recognized is based on the Company’s best estimates of a contract’s revenues and costs. Any contract losses recognized are periodically reviewed for accuracy as total cost to complete estimates are updated during the term of the contract.

Revenues recognized in excess of billings are recorded as unbilled accounts receivable. Cash collections in excess of revenues recognized are recorded as deferred revenues until the revenue recognition criteria are met. Reimbursements, including those relating to travel, other out-of-pocket expenses, and any third-party costs, are included in revenues, and an equivalent amount of reimbursable expenses are included in cost of revenues.

The costs associated with cost-type federal government contracts are subject to audit and adjustment by the U.S. Government. In the opinion of management, no significant adjustments or disallowances of costs are anticipated beyond any such amounts provided for in the financial statements.

AMS develops proprietary software products using its own funds, or on a jointly funded basis with other organizations. These software products are then licensed to customers, either as stand-alone applications,

or as elements of custom-built systems. AMS expended $51,704 in 2002, $55,110 in 2001, and $75,486 in 2000 for research and development associated with owned proprietary software. The Company received funds from development partners to defray its expenditures of $2,600 in 2001, and $5,900 in 2000. No funds from development partners were received in 2002.

AMS capitalizes the costs incurred for development of software for external sale after technological feasibility has been established in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed” (“SFAS 86”). Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. When the software is ready for general release to customers, capitalization ceases and such costs are amortized on a straight-line basis over the estimated economic life, which is generally three to five years. The amortization expense is included in cost of revenues.

In accordance with SFAS 86, on a quarterly basis the Company performs net realizable value (NRV) analyses on each of our capitalized software products to ensure that the value of the product meets or exceeds the expected total amount to be capitalized on the development as well as to evaluate the economic life of the product. The NRV analyses consider the expected future sales pipeline and revenue projections associated with the products. If, when updating the NRV analyses, the Company notes a change in the expected revenue stream demonstrating declining revenue trends, the Company will either accelerate the amortization or write-off the unamortized software development costs that exceed the expected NRV as necessary.

Additionally, AMS develops software for the Company’s internal use and capitalizes these software development costs incurred during the application development stage in accordance with AICPA SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Costs incurred prior to and after this stage are charged to research and development expense. When the software is ready for its intended use, capitalization ceases and such costs are amortized on a straight-line basis over the estimated life, which is generally three to five years.

In addition to developing external sale and internal use software, the Company purchases off-the-shelf software for both external sale and internal use. The Company capitalizes the purchase price and amortizes these costs on a straight-line basis over an estimated life of generally three to five years. On a quarterly basis, AMS performs the NRV analyses described above for the software purchased for external sale.

AMS recorded total amortization expense on purchased and developed computer software of $37,114 in 2002, $35,173 in 2001, and $23,586 in 2000. The portion of this amortization expense relating to purchased and developed software for external sale is $32,198 in 2002, $28,258 in 2001, and $17,603 in 2000, and is reflected in Cost of Revenues. The remaining amortization expense, related to software developed for internal-use is recorded in Selling, General and Administrative expenses. Unamortized costs of developed software were $81,051 and $104,504 at December 31, 2002 and 2001, respectively. Unamortized costs of purchased software were $9,745 and $15,102 at December 31, 2002 and 2001, respectively.

From time to time, the Company has entered into foreign exchange contracts as a hedge against market fluctuations. Hedges are established in order to reduce the risk of market fluctuations associated with

changes in exchange rates. Market gains and losses are recognized, and are offset by foreign exchange gains and losses on the related hedge transactions. No foreign exchange contracts were outstanding as of December 31, 2002.

The net assets and operations of foreign subsidiaries are translated into U.S. dollars using appropriate exchange rates. Income and expense amounts are translated at average monthly exchange rates throughout the year; assets and liabilities are translated at exchange rates prevailing as of the balance sheet date. The resulting translation adjustments, as well as gains and losses on intercompany transactions that are long-term in nature, are not included in the income statement, but are shown in the accumulated other comprehensive loss account, a separate component of stockholders’ equity.

Cash and cash equivalents consist of all cash balances and highly liquid investments with original maturities of three months or less.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with high quality financial institutions and limits the amount of credit exposure to any one institution. The concentration of trade receivable credit risk is generally limited due to the spread of the Company’s accounts receivable over numerous contracts with multiple government agencies and commercial clients. In addition, the Company is further diversified in that it enters into a range of different types of contracts including fixed-price, cost-plus, time-and-material, and benefits-funded. The Company may also, from time to time, work as a subcontractor on particular contracts. The Company performs ongoing evaluations of contract performance as well as evaluations of the client’s financial condition to help ensure collections and to minimize losses.

AMS enters into large, long-term contracts and, as a result, periodically maintains individually significant receivable balances with certain major clients. At December 31, 2002 and 2001, the balances of AMS’s three largest individual customers on several contracts accounted for approximately 62.4% and 52.5%, respectively, of the Company’s accounts receivable. Revenues derived from the Company’s three largest individual clients, on numerous contracts, accounted for approximately 44.4% of the Company’s consolidated revenues in 2002.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its fair value. Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the asset to the undiscounted cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, the asset is considered impaired and expense is recorded in an amount required to reduce the carrying amount of the asset to its then fair value.

As permitted under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company accounts for its stock-based compensation plans, which are fully described in Note 9, using the intrinsic value method under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates, in accordance with the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.

For disclosure purposes, the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Under the Black-Scholes model, the total value of options granted in 2002, 2001, and 2000 was $16,077, $10,804, and $38,949, respectively. These options would be amortized on a pro-forma basis based upon the vesting schedule specified in the option agreement. The weighted average fair value per share of the options granted in 2002, 2001, and 2000 was $11.22, $9.74, and $12.97, respectively. The fair value of the Company’s stock-based option awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse.

Deferred income taxes are provided for temporary differences in recognizing certain income, expense, and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the methods of accounting for revenues, 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.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Estimates are used for, but not limited to: forecasts of contract costs and progress towards completion that are used to determine revenue recognition under the percentage-of-completion method, allowance for doubtful accounts, restructuring charges, tax valuation allowances, and net realizable value of purchased and developed computer software.

On January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), that addresses the financial accounting and reporting for the impairment of long-lived assets. This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 also supersedes Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The adoption of this Statement did not have a material effect on the financial statements.

In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), which was effective January 1, 2003. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that an exit or disposal activity-related cost be recognized when the liability is incurred instead of when an entity commits to an exit plan. The Company does not believe that the adoption of SFAS 146 will have a significant impact on its financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure an Amendment of FASB Statement No. 123” (“SFAS 148”), effective for fiscal years ending after December 15, 2002. SFAS 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual

and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The impact of the adoption of SFAS 148 is the addition of a significant accounting policy in Note 1 to our annual consolidated financial statements. In addition, disclosures previously included only in the Company’s annual report on Form 10-K will also be reported in the Company’s quarterly reports on Form 10-Q beginning in 2003.

In November 2002, the FASB issued FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34” (“FIN 45”). FIN 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued. This Interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statement periods ending after December 15, 2002. The Company does not believe that the adoption of FIN 45 will have a significant impact on its financial statements.

In November 2002, the FASB’s Emerging Issues Task Force finalized EITF Issue 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. It also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in an arrangement. To the extent that a deliverable in an arrangement is within the scope of other existing higher-level authoritative literature, EITF 00-21 does not apply. The Company must adopt the provisions of EITF 00-21 for new contracts entered into on or after July 1, 2003. The Company is presently analyzing the potential impact of applying these provisions to its future contracts but does not believe that the adoption of EITF 00-21 will have a significant impact on its financial statements.

Certain amounts reported in previous years have been reclassified to conform to the 2002 presentation.

The Company accounts for comprehensive income under SFAS 130, “Reporting Comprehensive Income.” The components of comprehensive income consist of the following at December 31:

On December 31, 2002, the Company completed the sale of its global utilities practice to Wipro, LTD. The purchase price, after post-closing adjustments related to accounts receivable transferred, was $23,825 and resulted in a pre-tax gain of $19,922. The agreement included the transfer of customer contracts, intellectual property rights, and $2,322 of accounts receivable. As of December 31, 2002, the Company had received cash payments of $21,407 and was due $2,418, which was subsequently collected in January 2003.

Property and equipment are stated at cost and depreciated or amortized on the straight-line method over their estimated useful lives. Furniture and equipment useful lives range from three to ten years. The useful life for leasehold improvements is the lesser of the term of the lease, or the useful life of the improvement. Costs for maintenance and repairs are charged to expense when incurred. Property and equipment consists of the following at December 31:

Depreciation and leasehold amortization expense was $7,551 in 2002, $8,708 in 2001 and $8,570 in 2000.

As of December 31, 2002 and 2001, the Company’s long-term contract receivables included $40,489 due from the Federal Retirement Thrift Investment Board (the “Thrift Board”). See Note 17 Commitments and Contingencies for further discussion of the litigation involving the Thrift Board.

Effective January 1, 2002, the Company adopted SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, SFAS 142 requires the Company to perform a transitional goodwill impairment test within six months from the date of adoption. In accordance with the standard, the Company completed the transitional goodwill impairment test during 2002 and determined no impairment charge for goodwill is required. Under SFAS 142, goodwill must be reviewed at least annually thereafter for impairment; the Company has elected to perform this review annually as of January 1.

The following table reconciles reported net income to net income adjusted for goodwill amortization expense.

On November 13, 2002, the Company replaced its former $120 million multi-currency bank credit facility with a new $160 million, three-year multi-currency bank credit agreement that expires on November 13, 2005. The new credit facility is available for general corporate purposes and the Company presently has no outstanding borrowings under the facility. The Company and certain subsidiaries may borrow funds under the new revolving credit agreement in the approved currencies, subject to certain minimum amounts per borrowing. Interest on such borrowings generally ranges from LIBOR plus 1.13% to 1.75% per annum, depending on the debt-to-EBITDA ratio, as defined in the agreement. The Company is required to pay a facility fee ranging from 0.50% to 0.65% per annum on the total facility based on the debt-to-EBITDA ratio. The new revolving credit agreement includes covenants relating to the maintenance of certain financial ratios, and may impose restrictions on our ability to pay dividends or make acquisitions, divestitures and investments.

During 2002, there were no borrowings outstanding. For 2001, the weighted average outstanding borrowings under all agreements were approximately $56,538, at weighted daily average interest rates of approximately 4.6%. The maximum amount outstanding under all agreements was $89,857 in 2001. As of December 31, 2001 the Company had no borrowings outstanding under its revolving credit facility and no outstanding term loans.

Interest and facility fees paid by the Company totaled $986 in 2002, $5,076 in 2001, and $4,477 in 2000.

The Company has an equity incentive plan, Plan F (as amended), under which the Stock Option/Award Committee or the Compensation Committee may grant employees up to 5,800,000 common stock options as either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). Generally, options expire on the date specified in the Option Agreement, which is no later than ten years after the grant date. The Plan also allows grants of stock option awards to Outside Directors on a discretionary basis.

The Company also has an equity incentive plan, the Stock Option Plan for Employees, which is not stockholder approved. Under the plan, the Board is authorized to grant employees options to purchase up to 1,000,000 shares of the Company’s common stock as NSOs. The maximum vesting and life for options is ten years from the date of grant.

On December 1, 2001, the Board approved a new hire grant of 417,000 non-qualified common stock options to the chief executive officer of the Company. These shares have a maximum lifetime of ten years and vest over an eight-year period.

On December 3, 1999, the Board adopted the 1999 Contractor Stock Option Plan, which is not stockholder approved. The purpose of the plan is to offer certain non-employees (“contractors”), who contribute materially to the successful operation of the Company, additional incentive to continue to serve as contractors by increasing their participation in the Company through stock ownership. Under the plan, the Company is authorized to grant up to 20,000 non-qualified common stock options with vesting and expiration specified by an agreement. The plan states that options granted will expire no later than five years after the date of grant. No options were granted under this plan in 2002 or 2001. In

2000, 1,500 options were granted representing $24 of compensation expense. As of December 31, 2002, no options were outstanding under this plan.

Under all stock option plans, the exercise price of an ISO or NSO granted is not less than the fair market value of the common stock on the date of grant. Options granted may be exercisable immediately, in monthly installments, or at a future date no later than ten years after the grant date, as determined by the appropriate Board committee or as otherwise specified in the plan.

At December 31, 2002 there were 1,542,574 shares available for grant under all stock option plans. The following table summarizes information about stock options outstanding at December 31, 2002 under all plans.

The following summary presents changes in the Company’s stock options outstanding under all plans as of December 31, 2000, 2001, and 2002.

The Company has a Restricted Stock and Stock Bonus Plan, that is not a stockholder approved plan, whereby restricted shares may be granted to employees as discretionary awards or as profit-sharing awards if the Company and the employee meet certain performance objectives. Restrictions on shares generally lapse over a three-year period. In certain circumstances, receipt of discretionary awards may be deferred to a later specified date.

There were 60,000, zero, and 415,800 discretionary shares granted under the Restricted Stock and Stock Bonus Plan in 2002, 2001, and 2000, respectively. The 60,000 shares were granted at various dates throughout 2002 as deferred stock units to newly hired executives and vest over three years. The 415,800 restricted shares were granted in 2000 as a part of an employee retention program and vest over two and three years. During 2002, the Company issued 218,486 common shares that had vested over two years. At December 31, 2002, 97,364 shares, vesting over three years, remained restricted under the terms of the plan.

In 2000, $3,622 of compensation expense was recognized for 140,393 shares granted in 1999 as a part of an employee profit-sharing plan. As of December 31, 2002, 138,216 shares remained restricted for this grant. No other profit-based restricted shares were granted during 2002, 2001, or 2000.

In 2001, the Board approved a new hire grant of 177,000 deferred stock units to the chief executive officer of the Company. These shares vest over a four-year period.

Unearned compensation was recorded at the date the restricted stock was granted based upon the market value of the shares. Unearned compensation, which is shown as a separate component of stockholders’ equity, is reduced as compensation expense is recorded and as forfeitures occur. The Company recorded compensation expense for the restricted stock of $2,989, $2,333, and $1,507 for the years ended December 31, 2002, 2001, and 2000 respectively, resulting in a remaining unearned compensation balance of $2,146, $4,451, $5,275 at December 31, 2002, 2001, and 2000, respectively.

The Company has an employee stock purchase plan (“ESPP”) that allows participating employees to purchase shares of common stock at a 15% discount of the fair market value at specified dates. Employees may elect to purchase stock, through payroll deductions, using a maximum of 10% of their compensation. Beginning in 2002, the Company began using its treasury shares to fulfill the obligation of both the employee withholding and the discount. Prior to 2002, the third-party administrator of the plan purchased common shares on the open market at specified dates.

In September 1999, the Company announced that its Board of Directors had authorized the purchase, from time to time, of up to two million shares of its common stock through open market and negotiated purchases. This authorization is in addition to the actions in August 1998 and February 1999, where in both cases, the Board of Directors authorized the purchase of one million shares. The Company repurchased no shares on the open market in 2002 and 2001. Stock option exercises, restricted stock grants, and the employee stock purchase plan have been funded through the reissuance of previously acquired treasury shares. In March of 2003, the Board increased the Company’s existing share repurchase authorization by three million shares as a result of the Company’s strong cash position as well as the Company’s future business plans and strategy for growth. This announcement resulted in an aggregate repurchase authorization of approximately 4.2 million shares.

Basic earnings per share is computed by dividing net income by the weighted average shares outstanding during the year. Diluted earnings per share is computed similarly to basic earnings per share except that the weighted average shares outstanding are increased to include the potentially dilutive effect of outstanding options and restricted stock.

Certain of the Company’s subsidiaries have net operating loss carry forwards totaling $22,141 as of December 31, 2002. Losses of $14,872 expire on or before the close of year 2022. Losses of $7,269 carry forward over an indefinite period. As a result of restrictions on the utilization of certain losses, a valuation allowance has been placed on those losses. The net increase (decrease) in the total valuation allowance for the years ended December 31, 2002, 2001, and 2000 was $1,357, ($487), and ($303), respectively. The Company also has tax credits of $674 that expire at the close of 2005.

The Company has not provided for U.S. federal income and foreign withholding taxes on $6,439 of international subsidiaries’ undistributed earnings as of December 31, 2002, because such earnings are intended to be reinvested indefinitely. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings. If these earnings were distributed, foreign tax credits would become available under current law to reduce or eliminate the resulting U.S. income tax liability.

The Company paid income taxes of $19,165 in 2002, $24,696 in 2001, and $13,034 in 2000.

NOTE 12 – RESTRUCTURING CHARGE
(Staff reductions reported in actual amounts, dollars in thousands)

In an effort to align its work force with changing market conditions and new business strategies, the Company implemented a restructuring plan and recorded charges of $17,047 in 2002 and $37,734 in 2001 for severance and severance-related costs. These charges represent a total of 2,128 staff reductions. Separated employees include individuals at all levels within the Company in both professional and support functions. During the twelve months ended December 31, 2002, the Company reversed a portion of the charge for severance and severance-related costs in the amount of $600 representing a change in estimate. During the twelve months ended December 31, 2002, the Company paid $20,011 in severance and severance-related costs. Of the 2,128 staff reductions, approximately 13 remain to be separated at December 31, 2002. The remaining $3,368 liability as of December 31, 2002 for severance and severance-related costs is expected to be paid within the first six months of 2003.

During 2001, the Company took a charge of $20,432 for the closure and consolidation of facilities. As of December 31, 2001, the Company had a remaining restructuring liability of $17,757 related to this charge. During the year ended December 31, 2002, the Company recorded an additional charge of $5,049 related to changes in estimates primarily attributable to deterioration in real estate market conditions and the timing of anticipated subtenant rental agreements. During the year ended December 31, 2002, the Company made cash payments of $8,241 related to these charges. Of the remaining $13,976 liability at December 31, 2002, $9,356 represents a noncurrent liability for costs to be incurred through 2010.

Restructuring reserve activities as of and for the year ended December 31, 2002 were as follows:

AMS recorded software asset impairments of $19,608 in 2002 and $19,171 in 2001 for the write-down of the Company’s next generation customer care and billing software system. During 2001, the Company recorded additional software asset impairments of $10,651 due to the unamortized book value exceeding the net realizable value of the software.

AMS has deferred compensation plans that were implemented in late 1996, and permit eligible employees and directors to defer an elected portion of their compensation. The deferred compensation earns a specified rate of return. As of December 31, 2002 and 2001, the Company had accrued $34,539 and $38,252, respectively. The Company expensed $2,379, $2,680, and $2,592 in 2002, 2001, and 2000, respectively, related to the earnings by the deferred compensation plan participants.

To fund these plans, AMS purchases company-owned life insurance contracts. Charges to expense associated with these contracts were $2,105, $2,157, and $2,554 in 2002, 2001, and 2000, respectively, which were offset by income, to adjust the contracts to their cash surrender values of $168, $396, and $947 in 2002, 2001, and 2000, respectively. Proceeds from the insurance policies are payable to the Company upon death of the insured. During 2001, the Company received proceeds of $1,810 associated with one of these policies, which were subsequently reinvested in the existing company-owned life insurance contracts. Other noncurrent accrued liabilities, primarily related to consulting fees, deferred rent and noncurrent lessee security deposits, were $1,825 and $165 at December 31, 2002 and 2001, respectively.

The Company has a simplified employee pension plan, which became effective January 1, 1980. This plan is a defined contribution plan whereby the Company makes contributions, which are based on the application of a percentage specified by the Company to the qualified gross wages of eligible employees. Total plan expense was $15,194 in 2002, $16,806 in 2001, and $16,717 in 2000.

In 1998, AMS established a joint venture with Bank of Montreal to provide online loan application and decisioning services to small and mid-size financial institutions via a new limited liability company, Competix L.L.C. In October 1999, Competix converted from a limited liability company to a C-corporation Competix, Inc. (“Competix”) in which the Company currently maintains approximately a 7% interest. During 2000, AMS invested $3,800 in Competix and recorded a gain of $3,465 as an offset to Loss on Equity Investments in connection with the sale of a portion of its Competix holdings. AMS’s share of the losses incurred by Competix during 2000 was $5,935 which the Company recorded as a Loss on Equity Investments. This loss reduced the balance of the Company’s investment in Competix of $4,207 to zero as of December 31, 2000. Additionally, the loss reduced an outstanding note receivable from Competix to a balance of $2,627. The remaining balance of this note receivable was reduced to zero at December 31, 2001 from AMS’s share of Competix’s 2001 losses. During 2001, the Company

recorded an additional Loss on Equity Investments of $414 for a required partial repurchase of stock that Competix previously had sold to J.P. Morgan.

In September 2000, AMS acquired Synergy Consulting, Inc. (“Synergy”), a California based provider of systems integration, eBusiness and management consulting services in a purchase business combination for a cash payment of $20,047. The Company recorded goodwill associated with the acquisition of $20,047, which through December 31, 2001 was being amortized over a 15-year life. During 2001, based on Synergy meeting certain financial and project targets, AMS recorded additional goodwill of $1,250. The Company has a remaining contingent obligation, as part of the purchase price, of up to $10,000 payable upon receipt of a specified contract award or if specific earnings targets are met. These payments, if made, will be added to the acquisition price and recorded as additional goodwill. The results of Synergy have been included in the Company’s Income Statements since September 1, 2000. As discussed in Note 7, the Company adopted SFAS 142 and discontinued the amortization of goodwill beginning in January 2002.

The Company has various lease agreements for office space and equipment including computers, copiers, cars, and telephones. These obligations expire at various dates through 2012. Many leases contain renewal options. None of the office space leases contain purchase options; however, many contain escalation clauses based upon increases in the Consumer Price Index, operating expenses, and property taxes. Many of the equipment leases contain purchase options and some contain escalation clauses. No leases contain restrictions on the Company’s activities concerning dividends, additional debt or further leasing. Rent expense, excluding rent payments and sublease income accrued as part of the Company’s restructuring charge (see Note 12), consisted of the following:

Future minimum rental payments at December 31, 2002, under agreements classified as operating leases with initial or remaining noncancelable terms in excess of one year, are as follows:

During 2002 and 2001 the Company recorded restructuring charges that related to existing lease obligations for office space that the Company is not using. See Note 12 for further details. Included in the above future minimum rental payments is $31,973 which was included in the Restructuring Charge.

AMS has a non-controlling, 19.9% investment interest in Proponix (Canada), Inc. and Proponix (Australia) Pty. Limited, collectively referred to as “Proponix.” On November 15, 2002, AMS signed an agreement (the “Agreement”) with Proponix and the other Proponix shareholders to restructure the ownership and operations of Proponix. Effective March 31, 2003 (the “Closing Date”), the Company will acquire Proponix’s trade processing technology, trademark, clients and relationships, and other assets identified in the Agreement in return for its ownership interest in Proponix and the assumption of certain obligations. Prior to the Closing Date and in accordance with the Agreement, AMS and the other Proponix shareholders have agreed to sustain the operations of Proponix for the purposes of allowing Proponix to continue providing services to existing clients and effecting an orderly wind down and transfer of operations. This funding of operations by AMS and the other shareholders is in proportion to each shareholder’s ownership percentage and is not to exceed an aggregate amount of $9,000. Proponix is not under any obligation to repay any of the funding provided under the Agreement. In addition, in return for certain assets of Proponix, AMS has agreed to fund certain additional obligations at closing. AMS estimates its total future payments in accordance with the Agreement to be approximately $3,000.

At December 31, 2002, AMS accrued a liability for compensatory leave for employees exempt from the Fair Labor Standards Act. At December 31, 2001 and 2000, no liability was accrued because the rate of usage was not reasonably estimable as a result of the Company’s formal plan to align its workforce with changing market conditions and new business strategies. The Company also has an extended leave program for certain employees that provides for paid leave of eight weeks after meeting certain eligibility requirements. The leave can be taken only at the discretion of management. Because of the extended period over which the leave accumulates and the highly discretionary nature of the program, the amount of extended leave accumulated at any period end that will ultimately be taken is indeterminable. Consequently, the Company expenses extended leave as it is taken.

The Company has employment agreements with certain of its executive officers that provide for compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances. The Company also has Change of Control agreements with certain of its executive officers and management personnel that provide additional rights if a Change of Control of the Company occurs.

On July 17, 2001, the Federal Retirement Thrift Investment Board (the “Thrift Board”) gave written notice to AMS stating that the Thrift Board had terminated for default its contract with AMS for development and implementation of an automated record-keeping system for the federal employee Thrift Savings Plan. On the same date, the Thrift Board’s executive director, Roger W. Mehle, purporting to

act as “managing fiduciary” of the Thrift Savings Fund, filed a companion lawsuit against AMS relating to AMS’s performance of the contract seeking compensatory damages of $50,000 and punitive damages of $300,000, plus re-procurement costs, costs and expenses of litigation (including reasonable attorneys’ fees) and prejudgment interest.

AMS moved to dismiss the lawsuit filed by Mr. Mehle. On November 30, 2001, the United States District Court for the District of Columbia granted AMS’s motion to dismiss Mr. Mehle’s lawsuit for lack of jurisdiction. Mr. Mehle appealed that order. AMS filed both procedural and dispositive motions with the Court of Appeals. On January 25, 2002, the U.S. Department of Justice filed a motion on behalf of the U.S. Government to intervene which has been granted, and a motion to dismiss Mr. Mehle’s appeal. Both the Government’s motion to dismiss the appeal and AMS’s motion to dismiss the appeal were opposed by Mr. Mehle, and are pending. A motion by AMS, whose position was supported by the United States, to strike the appearance of private counsel representing Mr. Mehle, also was filed and was opposed by Mr. Mehle. That motion is also pending. In November 2002, Mr. Mehle resigned from his position as Executive Director of the Thrift Board. As a result, Mr. James B. Petrick, the Thrift Board’s current Acting-Executive Director, was substituted as the named appellant and the case is now captioned Petrick v. American Management Systems, Inc.

AMS believes that the appropriate forum for resolving its dispute over the Thrift Board contract is in the United States Court of Federal Claims (“CFC”), a court of specialized jurisdiction that ordinarily entertains all disputes relating to U.S. Government contracts. To that end, AMS filed suit in the CFC against the United States, which is the contracting party in the Thrift Board contract, seeking reversal of the Thrift Board’s decision terminating the contract for default and asking the court to convert the termination into a termination for convenience. The U.S. Department of Justice is defending the United States in this case. The United States moved to dismiss AMS’s Complaint for lack of jurisdiction, arguing that the Thrift Board is a non-appropriated fund instrumentality (“NAFI”). AMS opposed the Government’s jurisdictional motion. By written opinion and order dated August 30, 2002, the CFC denied the United States’ motion to dismiss, concluding that jurisdiction did, in fact, exist. On September 12, 2002, the United States filed its Answer to AMS’s Complaint, thereby responding to AMS’s claims in the CFC. On November 1, 2002, the United States filed a motion seeking permission from the CFC to immediately appeal the CFC’s August 30, 2002 decision, and an order suspending further proceedings in the CFC pending the resolution of any such appeal. On February 26, 2003, by written order, the United States Court of Appeals for the Federal Circuit denied the United States’ request for interlocutory appeal. Following the denial of its request for immediate appellate review, the United States requested that the CFC revisit its August 30, 2002 opinion and then re-certify the matter to the United States Court of Appeals for the Federal Circuit. AMS has opposed that request. The issue is now pending before the CFC. Management is unable to predict the outcome of the litigation. At December 31, 2002, AMS had $40,489 of accounts receivable, classified as a long-term contract receivable in Other Assets, outstanding under this contract.

On July 16, 2002, AMS submitted a contract termination settlement proposal to the Thrift Board seeking recovery of approximately $58,543 of unpaid costs and fees incurred in performing the contract and winding it down in accordance with the termination for convenience provisions of the contract. The proposal was submitted pursuant to the instructions given by the Thrift Board’s contracting officer at the time of termination and in accordance with the terms of the contract and the Federal Acquisition Regulation. The submission of a government contractor’s settlement proposal is a routine step in the administrative process of terminating a federal government contract. On August 16, 2002, the Thrift Board denied any liability to pay the settlement proposal and claim. AMS intends to challenge the Thrift Board’s decision with respect to these matters.

On October 15, 2001 the Company announced resolution of its dispute with National Union Fire Insurance Company concerning National Union’s coverage of AMS during AMS’s litigation with the State of Mississippi. In the fourth quarter of 2001, the Company received $41,025, net of costs, in cash in connection with this settlement, which was recorded as Contract Litigation Settlement Income.

In 2000, the Company’s subsidiary and Bezeq entered into a settlement agreement under which the Company received a $2,000 insurance recovery reported as an offset to Contract Litigation Settlement Expense, a $900 software royalty fee refund reported as an offset to Cost of Revenues, and a $807 refund of court costs recorded as an offset to SG&A expense.

The Company engages in business activities as one operating segment that provides information technology consulting services to large clients in targeted vertical markets. The chief operating decision-maker is provided information about the revenues generated in key client industries. The Company markets its services worldwide, and its operations are grouped into two main geographic areas according to the location of the client. The two groupings consist of the United States and International geographic areas. The Company’s long-lived assets are located primarily in the United States. Pertinent financial data is summarized below.

International revenues include export sales to international clients by AMS’s U.S. Companies of $12,955 in 2002, $33,510 in 2001, and $8,846 in 2000.

Long-lived assets located within the U.S. were approximately $112,474, $146,352 and $166,919 for fiscal year 2002, 2001 and 2000, respectively. Long-lived assets held outside the U.S. were approximately $2,840, $4,191 and $10,009 for 2002, 2001and 2000, respectively.

Revenues from the U.S. Government accounted for approximately 35%, 29% and 28% of the Company’s consolidated revenues during 2002, 2001, and 2000, respectively. No other customer accounted for 10% or more of total revenues in 2002, 2001, or 2000.

The following summary represents the results of operations for the two years in the period ended December 31, 2002.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Information relating to directors and executive officers may be found in the sections of the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held May 9, 2003 (the “Proxy Statement”) labeled “Election of Directors,” “Information Concerning Nominees for Director,” “Information Concerning Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Such information is incorporated herein by reference. The Proxy Statement will be filed within 120 days after December 31, 2002.

The information in the Proxy Statement set forth in the sections labeled “Executive Compensation,” “Compensation Committee Report of Executive Compensation,” “Stockholder Return Performance Graph,” “Committees and Compensation of the Board of Directors” and “Compensation Committee Interlocks and Insider Participation” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information in the Proxy Statement set forth in the sections labeled “Principal Stockholders” and “Equity Compensation Plan Information” is incorporated herein by reference.

The information in the Proxy Statement set forth in the section labeled “Certain Relationships and Related Transactions” is incorporated herein by reference.

Within the 90-day period prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s filings under the Securities Exchange Act of 1934, as amended.

There have been no significant changes in the Company’s internal controls, or in other factors that could significantly affect internal controls, subsequent to the date the Company carried out its evaluation.

The consolidated financial statements of American Management Systems, Incorporated and subsidiaries filed are as follows:

The financial statement schedules of American Management Systems, Incorporated and subsidiaries filed are as follows:

All other schedules are omitted because they are not applicable, or the required information is shown in the financial statements or the notes thereto.

The Exhibits set forth in the Exhibit Index are filed as part of this Annual Report on Form 10-K.

The Company filed the following Current Report on Form 8-K during the three-month period ended December 31, 2002.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 26th of March 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following officers and directors of the Registrant in the capacities and on the date indicated.

1.		I have reviewed this annual report on Form 10-K of American Management Systems, Incorporated;

2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

1.		I have reviewed this annual report on Form 10-K of American Management Systems, Incorporated;

2.		Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

To the Board of Directors and Stockholders of
American Management Systems, Incorporated
Fairfax, Virginia

We have audited the consolidated financial statements of American Management Systems, Incorporated and subsidiaries (the Company) as of December 31, 2002 and for each of the three years in the period ended December 31, 2002 and have issued our report thereon dated February 20, 2003. Our audit also included the financial statement schedule for each of the three years in the period ended December 31, 2002 listed in Item 15(a)(2) of this Form 10-K. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

American Management Systems, Incorporated
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

Inquiries should be directed to Ronald L. Schillereff, Senior Vice President, Director of Investor Relations, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. Telephone (703) 267-8000. Complimentary copies of the Company’s audited financial statements and its Annual Report on Form 10-K filed with the Securities and Exchange Commission may be obtained without charge by writing to David R. Fontaine, Secretary, American Management Systems, Incorporated at the above mentioned address.

* Management contracts and compensatory plans and arrangements required to be filed pursuant to Item 15(c).

The undersigned hereby appoints John S. Brittain, Jr. and David R. Fontaine, and each of them, as proxies, with full power of substitution in each, to vote all shares of the common stock of American Management Systems, Incorporated (the “Corporation”), which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held on May 9, 2003 at 10:00 A.M. local time, and at any adjournment(s) or postponement(s) thereof, on all matters set forth in the Notice of Annual Meeting and Proxy Statement, dated April 9, 2003, a copy of which has been received by the undersigned, as follows on the reverse side.

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN,
WILL BE VOTED “FOR” EACH OF THE MATTERS STATED.

GRANT AUTHORITY upon such other matters as may come before the meeting, including any adjournment(s) or postponement(s) of the meeting, as they determine to be in the best interests of the Corporation:

Signature _________________________ Signature _________________________ Date ______________

Internet or telephone voting is available through 11 PM Eastern Time the day prior to annual meeting day.

Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.

If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.


o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Under Rule 14a-12


Name	Age		Position	Background

John S. Brittain, Jr		44	Executive Vice President, Chief Financial Officer, and Treasurer	Mr. Brittain has been Executive Vice President and Chief Financial Officer of AMS since March 2002, and has been the Treasurer since April 2002. Prior to joining AMS, he was with Nextel Communications, Inc., where he acted as the Chief Financial Officer during 2000 and 2001 and served as Vice President and Treasurer from 1999 to 2002. From 1994 through 1998, he served as Senior Vice President and Treasurer of Sotheby’s Holdings, Inc. Mr. Brittain commenced his career in banking as an officer of JP Morgan Chase.

David R. Fontaine		39	Executive Vice President, General Counsel, Chief Risk Officer and Secretary	Mr. Fontaine joined AMS as Executive Vice President, General Counsel, Chief Risk Officer and Corporate Secretary in July 2002. From June 2001 to June 2002, he served as Executive Vice President and General Counsel of Dimension Data, NA. From 1999 to June 2001 he served in various positions at Proxicom, Inc., prior to its acquisition by Dimension Data Holdings, plc in June 2001. At Proxicom, Inc., he served as Senior Vice President and General Counsel in 2001, Vice President and General Counsel in 2000 and Deputy General Counsel from 1999 to 2000. Prior to joining Proxicom, Inc., Mr. Fontaine was a Partner of the law firm, Miller Cassidy, Larroca & Lewin, LLP in Washington, D.C.

Garry Griffiths		58	Executive Vice President and Chief Human Resources Officer	Mr. Griffiths has served as Executive Vice President and Chief Human Resources Officer since May 2002. Prior to joining AMS, he had a 37-year career in human resources management at British Telecommunications plc (“BT”), most recently serving as Senior Vice President for Human Resources and Security at BT Ignite from 2000 to 2002. From 1998 to 2000, Mr. Griffiths was Vice President of Human Resources for BT Asia Pacific, based in Singapore.


Name	Age		Position	Background

Walt Howell		52	Executive Vice President, Financial Services Group	Mr. Howell joined AMS as Executive Vice President, Financial Services Group in July 2002. Prior to joining AMS, Mr. Howell held various positions at IBM Global Services (“IBM”) since 1993. From January 2001 to July 2002, he served as Managing Director of IBM, responsible for the company’s relationship with Morgan Stanley. From June 1993 to December 2001, Mr. Howell served as Vice President, IBM Global Services. Mr. Howell serves as a director of the Greater Washington Board of Trade.

Vernon Irvin		41	Executive Vice President, Communications, Media and Entertainment and Europe	Mr. Irvin has been an Executive Vice President of AMS since February 2002. He is currently the head of AMS’s Communications, Media and Entertainment Group and Europe. From March 2000 until February 2002, Mr. Irvin served as a founding manager and President of BT Ignite, the broadband and Internet services business of British Telecommunications plc. From 1999 to February 2000, Mr. Irvin served as Senior Vice President, Marketing and Internet, of B.T. Worldwide. Prior to joining BT in 1999, he served as an Executive Vice President for corporate development and strategy for e.spire Communications.

Rick Lottie		55	Executive Vice President, Corporate Managed Services	Mr. Lottie joined AMS in July 2002 as Executive Vice President, Corporate Managed Services. From January 2001 to October 2001, Mr. Lottie served as a “Customer Partner” of Trilogy, an Austin, Texas software company, where he focused on improving customer relations in major accounts. From June 2000 to January 2001, Mr. Lottie served as President and Chief Executive Officer of Digital Information and Virtual Access, Inc. (“DIVA”). From January 2000 until March 2000, Mr. Lottie was a consultant for Edata.com. From October 1993 to December 1999, he was with MCI Systemhouse Corporation/EDS, serving as Group Executive and Vice President, responsible for the global delivery of outsourcing and technology deployment services. In April 2001, subsequent to Mr. Lottie’s departure, DIVA filed for bankruptcy in the U.S. Bankruptcy Court in Dallas, Texas.


Name	Age		Position	Background

Donna S. Morea		48	Executive Vice President, Public Sector Group	Ms. Morea has been an Executive Vice President of AMS since May 2000. In March 2002, she was appointed to head the Corporation’s public sector practice, which brings together into one organization the Corporation’s resources for federal agencies and state and local governments. She served as the General Manager of the Corporation’s State and Local Solutions Group from 2000 to 2002. Prior to taking on this role, Ms. Morea established the Human Services Group, which she led for six years. She joined AMS in 1980. Ms. Morea serves on the Board of Directors of the Crossway Community, a nationally recognized social services innovator, and on the Board of Directors and the Executive Committee of the Northern Virginia Technology Council.

James C. Reagan		44	Senior Vice President and Controller	Mr. Reagan has served as the Corporation’s Senior Vice President and Controller since May 2002. Prior to joining AMS, he was with Nextel Communications, Inc., where he served as Vice President, Operations Finance from February 1999 to April 2002. From February 1997 to February 1999, Mr. Reagan served as Executive Director, Financial Operations of MCI Worldcom.

Larry R. Seidel		53	Executive Vice President and Corporate Development Officer	Mr. Seidel, who became an Executive Vice President of the Corporation in May 2000, has been the Corporate Development Officer since March 2002. He previously was responsible for AMS’s Financial Services Industry Group and the Management Systems and Technology Group, overseeing AMS’s business with financial services companies, including insurance, federal civilian agencies, and environmental and health care organizations. He joined the Corporation in 1973.

Paul A. Turner		63	Executive Vice President and Chief Technology Officer	Mr. Turner became an Executive Vice President of AMS in May 2000 and the Chief Technology Officer of the Corporation in January 2000. He has the overall responsibility for identifying and introducing new technology into AMS’s system design and development activities. Before joining AMS, Mr. Turner was the founder and managing partner of the PricewaterhouseCoopers (“PwC”) Global Technology Center. Mr. Turner worked at PwC for 13 years.


		Amount of			Percent of
		Beneficial			Outstanding
Name and Address of Beneficial Owner		Ownership(1)			Shares(2)

Daniel J. Altobello(3)			36,458			*
	6550 Rock Spring Drive
	Bethesda, MD 20817

John S. Brittain, Jr.(5)			21,250			*
	4050 Legato Road
	Fairfax, VA 22033

David R. Fontaine(5)			5,000			*
	4050 Legato Road
	Fairfax, VA 22033

James J. Forese(3)			104,208			*
	70 Valley Stream Parkway
	Malvern, PA 19355

Garry Griffiths(5)			15,000			*
	4050 Legato Road
	Fairfax, VA 22033

Walt Howell(5)			6,418	(6)		*
	4050 Legato Road
	Fairfax, VA 22033

Vernon Irvin(5)			28,744	(6)		*
	4050 Legato Road
	Fairfax, VA 22033

Dorothy Leonard(3)			21,630			*
	Harvard University Graduate School of Business
	522 Soldiers Field Road
	Morgan Hall T93
	Boston, MA 02163

Rick Lottie(5)			5,000			*
	4050 Legato Road
	Fairfax, VA 22033

Frederic V. Malek(3)			39,593			*
	901 15th Street, N.W., Suite 350
	Washington, D.C. 20004

Alfred T. Mockett(3)(5)			307,000			*
	4050 Legato Road
	Fairfax, VA 22033

Donna S. Morea(5)			81,034			*
	4050 Legato Road
	Fairfax, VA 22033


(1)	Title of each class of securities to which transaction applies:


(2)	Aggregate number of securities to which transaction applies:


	BY ORDER OF THE BOARD OF DIRECTORS,



	David R. Fontaine
	Secretary


General		1
Proxy Solicitation Costs		1
Voting Procedure		1
Householding		2
Proposal 1: Election of Directors		2
Information Concerning Nominees for Director		3
Information Concerning Executive Officers		6
Principal Stockholders		9
Section 16(a) Beneficial Ownership Reporting Compliance		11
Executive Compensation		12
Equity Compensation Plan Information		17
Compensation Committee Report of Executive Compensation		18
Audit Committee Report		21
Stockholder Return Performance Graph		22
Committees and Compensation of the Board of Directors		23
Compensation Committee Interlocks and Insider Participation		24
Certain Relationships and Related Transactions		24
Proposal 2: Approval of the 2003 Stock Incentive Plan		25
Independent Public Accountants		30
Other Matters		31
Proposals for 2004 Annual Meeting of Stockholders		31
Annual Report		32
American Management Systems, Incorporated 2003 Stock Incentive Plan		Annex A
American Management Systems, Incorporated Annual Report on Form 10-K		Appendix 1



													Long-Term Compensation


													Awards						Payouts

																Shares
																Underlying
		Annual Compensation											Restricted			Options
Name and													Stock			(No. of			LTIP			All Other
Principal Position		Year		Salary			Bonus			Other			Award(s)			Shares)			Payout			Compensation⁽¹⁾

Alfred T. Mockett			2002	$	800,000			—			—		$	330,000	⁽²⁾		—			—		$	9,418	⁽³⁾
	Chairman of the		2001		66,667	⁽⁴⁾	$	1,046,666	⁽⁵⁾		—			2,708,100	⁽⁶⁾		517,000	⁽⁷⁾		—			—
	Board, Chief Executive Officer and Director
William M. Purdy			2002	$	600,000		$	610,000	⁽⁸⁾	$	2,274	⁽⁹⁾		—			—			—		$	1,258,444	⁽¹⁰⁾
	Former President,		2001		400,000			150,000	⁽¹¹⁾		—			—			72,500	⁽¹²⁾		—			8,593
	Chief Operating
	Officer and Director		2000		358,958			—			—			—			14,600			—			8,731
Donna S. Morea			2002	$	443,750		$	450,000	⁽⁸⁾				$	205,600	⁽¹³⁾		75,000			—		$	8,444
	Executive Vice		2001		400,000			150,000	⁽¹¹⁾		—			—			—			—			8,593
	President		2000		355,624			360,750	⁽¹⁴⁾		—			—			9,000		$	1,082,250	⁽¹⁵⁾		8,731
Larry R. Seidel			2002	$	400,000		$	350,000	⁽⁸⁾				$	205,600	⁽¹³⁾		50,000			—		$	8,444
	Executive Vice		2001		400,000			150,000	⁽¹¹⁾		—			—			—			—			8,593
	President and
	Corporate Development Officer		2000		358,958			—			—			—			—			—			8,731
Paul A. Turner			2002	$	400,000		$	300,000	⁽⁸⁾		—			—			—			—		$	8,444
	Executive Vice		2001		400,000			150,000	⁽¹¹⁾		—			—			—			—			—
	President and Chief Technology Officer		2000		357,500			162,500	⁽¹⁶⁾		—			—			—			—			—
Ronald L. Schillereff			2002	$	266,448		$	290,000	⁽⁸⁾		—			—			15,000			—		$	8,444
	Senior Vice		2001		328,000			150,000	⁽¹¹⁾		—			—			—			—			—
	President and Director of Investor Relations		2000		362,500			150,000	⁽¹⁴⁾		—			—			—			—			—



	Individual Grants									Potential Realizable
										Value at Assumed Annual
	Number of		% of Total							Rates of Stock Price
	Shares		Options							Appreciation for Option
	Underlying		Granted to			Exercise or				Term Compounded Annually
	Options		Employees in			Base Price		Expiration
Name	Granted(2)		Fiscal 2002			($/Share)(1)		Date		5%		10%

Alfred T. Mockett		—		N/A			N/A		N/A		N/A		N/A
William M. Purdy		—		N/A			N/A		N/A		N/A		N/A
Donna S. Morea		50,597		3.53	%	$	20.56		05/10/2009	$	423,496	$	986,926
		24,403		1.70	%	$	21.00		06/07/2009	$	208,624	$	486,182
Larry R. Seidel		29,250		2.04	%	$	20.56		05/10/2009	$	244,822	$	570,539
		20,750		1.45	%	$	21.00		06/07/2009	$	177,394	$	413,403
Paul A. Turner		—		N/A			N/A		N/A		N/A		N/A
Ronald L. Schillereff		15,000		1.05	%	$	17.72		07/01/2009	$	167,160	$	423,617



					Number of Shares
					Underlying Unexercised				Value of Unexercised
	Number of				Options at End of				In-the-Money Options at
	Shares				Fiscal Year 2002				End of Fiscal Year 2002(1)
	Acquired on		Value
Name	Exercise		Realized		Exercisable		Unexercisable		Exercisable		Unexercisable

Alfred T. Mockett		—	$	0		100,000		417,000	$	0	$	0
William M. Purdy		—	$	0		89,500		—	$	0	$	0
Donna S. Morea		—	$	0		32,131		59,369	$	0	$	0
Larry R. Seidel		—	$	0		34,000		50,000	$	0	$	0
Paul A. Turner		—	$	0		12,000		18,000	$	0	$	0
Ronald L. Schillereff		—	$	0		13,867		17,133	$	0	$	0


		Dollar			Number
Name	Position	Value($)			of Units

Alfred T. Mockett	Chief Executive Officer	$	330,000	(1)
Donna Morea	Executive Vice President		—			—
William M. Purdy	Former President, Chief Operating Officer and Director		—			—
Larry R. Seidel	Executive Vice President and Corporate Development Officer		—			—
Paul A. Turner	Executive Vice President and Chief Technology Officer		—			—
Ronald L. Schillereff	Senior Vice President and Director of Investor Relations		—			—
Executive Group		$	330,000	(1)
Non-Executive Director Group			—			—
Non-Executive Officer Employee Group			—			—


	James J. Forese (Chairman)
	Daniel J. Altobello
	Dorothy Leonard




	12/31/97		12/31/98		12/31/99		12/31/00		12/31/01		12/31/02


AMSY Common Stock	$	100	$	205	$	161	$	102	$	93	$	61
S&P 500 Composite Index	$	100	$	128	$	155	$	141	$	124	$	97
Goldman Sachs Technology Services Index	$	100	$	125	$	157	$	142	$	150	$	96


(1)	Amount Previously Paid:


(2)	Form, Schedule or Registration Statement No.:


(3)	Filing Party:


	Sincerely,



	Alfred T. Mockett
	Chairman of the Board


	2002		2001

Audit Fees	$	844,082	$	700,476
Audit-related Fees(1)		135,900		56,741
Tax Fees(2)		2,313,970		649,373
All Other Fees(3)		769,627		103,968


X	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the fiscal year ended December 31, 2002

	or

__	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Transition Period From: ________To: ________


Delaware		54-0856778
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)


	4050 Legato Road
	Fairfax, Virginia		22033
	(Address of principal executive office)		(Zip code)


			Page

Part I	Item 1.	Business		1
	Item 2.	Properties		8
	Item 3.	Legal Proceedings		9
	Item 4.	Submission of Matters to a Vote of Security Holders		10
Part II	Item 5.	Market for the Registrant’s Common Stock and Related Stockholder Matters		11
	Item 6.	Selected Financial Data		11
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk		24
	Item 8.	Financial Statements and Supplementary Data		26
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		55
Part III	Item 10.	Directors and Executive Officers of the Registrant		56
	Item 11.	Executive Compensation		56
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		56
	Item 13.	Certain Relationships and Related Transactions		56
	Item 14.	Controls and Procedures		56
Part IV	Item 15.	Exhibits, Financial Statements and Schedules, and Reports on Form 8-K		57
		Signatures		58
Schedule II		Valuation and Qualifying Accounts		63
		Stockholder and 10-K Information		64
		Exhibit Index		65


	2002				2001

	High		Low		High		Low

1st Quarter	$	20.41	$	17.55	$	24.63	$	16.38
2nd Quarter	$	23.33	$	17.60	$	25.00	$	15.25
3rd Quarter	$	19.14	$	12.32	$	25.04	$	11.61
4th Quarter	$	14.45	$	10.71	$	19.50	$	10.25


	Years Ended December 31,

(In thousands, except per share data)	2002		2001		2000		1999		1998

Revenues	$	986,695	$	1,183,292	$	1,279,328	$	1,240,268	$	1,057,782
Net Income	$	28,206	$	15,872	$	43,798	$	56,885	$	51,763
Basic Earnings per Share	$	0.67	$	0.38	$	1.06	$	1.36	$	1.23
Diluted Earnings per Share	$	0.66	$	0.38	$	1.05	$	1.34	$	1.21


	As of December 31,

(In thousands)	2002		2001		2000		1999		1998

Cash and Cash Equivalents	$	136,191	$	53,347	$	43,221	$	111,269	$	119,300
Total Assets	$	622,496	$	600,166	$	648,280	$	612,451	$	537,633
Noncurrent Liabilities	$	65,764	$	74,609	$	85,107	$	74,206	$	61,497
Stockholders’ Equity	$	420,025	$	376,509	$	360,350	$	309,491	$	291,880


December 31,			2002		2001

ASSETS

CURRENT ASSETS:
	Cash and Cash Equivalents		$	136,191	$	53,347
	Accounts Receivable, Net			212,098		246,392
	Prepaid Expenses and Other Current Assets			35,126		31,366

		Total Current Assets		383,415		331,105

NONCURRENT ASSETS:
	Property and Equipment (Net of Accumulated Depreciation and Amortization of $44,751 and $46,741)			24,518		30,937
	Purchased and Developed Computer Software (Net of Accumulated Amortization of $136,591 and $101,916)			90,797		119,606
	Goodwill, Net			24,331		24,313
	Cash Value of Life Insurance			29,830		36,428
	Other Assets			69,605		57,777

		Total Noncurrent Assets		239,081		269,061

TOTAL ASSETS			$	622,496	$	600,166


														Accumulated
	Common					Capital In								Other						Total
	Stock Shares			Common		Excess of			Unearned			Retained		Comprehensive			Treasury			Stockholders'
	Outstanding			Stock		Par Value			Compensation			Earnings		Loss			Stock			Equity

Balance at December 31, 1999		41,018		$	510	$	89,500		$	—		$	297,187	$	(12,158	)	$	(65,547	)	$	309,492

Exercise of Common Stock Options		560					(7,201	)										16,976			9,775
Tax Effect from Exercise of Common Stock Options and Restricted Stock Issuance							2,518														2,518
Stock Options Granted to Non-Employees							24														24
Shares Issued to Directors		2					(8	)										62			54
Currency Translation Adjustment															(5,845	)					(5,845	)
Unearned Compensation on Restricted Stock							6,783			(6,783	)										—
Amortization and Forfeitures of Unearned Compensation										1,507											1,507
Common Stock Repurchased		(192	)															(4,537	)		(4,537	)
Restricted Stock Award		140																3,622			3,622
Net Income													43,798								43,798

Balance at December 31, 2000		41,528			510		91,616			(5,276	)		340,985		(18,003	)		(49,424	)		360,408

Exercise of Common Stock Options		168					(2,404	)										4,446			2,042
Tax Effect from Exercise of Common Stock Options and Restricted Stock Issuance							129														129
Shares Issued to Directors		4					(28	)										95			67
Currency Translation Adjustment															(4,301	)					(4,301	)
Unearned Compensation on Restricted Stock							2,708			(2,708	)										—
Amortization and Forfeitures of Unearned Compensation							(1,199	)		3,533											2,334
Common Stock Repurchased		(2	)															(42	)		(42	)
Net Income													15,872								15,872

Balance at December 31, 2001		41,698			510		90,822			(4,451	)		356,857		(22,304	)		(44,925	)		376,509

Exercise of Common Stock Options		228					(2,124	)										5,799			3,675
Tax Effect from Exercise of Common Stock Options and Restricted Stock Issuance							(241	)													(241	)
Shares Issued to Directors		1					(3	)										15			12
Currency Translation Adjustment															7,389						7,389
Treasury Stock Issued Under Employee Stock Purchase Plan		331					(3,557	)										7,988			4,431
Unearned Compensation on Restricted Stock							1,116			(1,116	)										—
Amortization and Forfeitures of Unearned Compensation							(432	)		3,421											2,989
Common Stock Repurchased		(152	)															(2,945	)		(2,945	)
Restricted Stock Award		218					(5,272	)										5,272			—
Net Income													28,206								28,206

Balance at December 31, 2002		42,324		$	510	$	80,309		$	(2,146	)	$	385,063	$	(14,915	)	$	(28,796	)	$	420,025


	2002			2001

Equipment	$	21,131		$	27,668
Furniture and fixtures		22,583			23,991
Leasehold improvements		25,555			26,019

	$	69,269		$	77,678
Less accumulated depreciation and amortization		(44,751	)		(46,741	)

	$	24,518		$	30,937


		2002			2001

Amounts Billed and Billable		$	149,515		$	196,870
Amounts Not Yet Billable			60,554			49,956
Contract Retentions			11,391			11,210

	Subtotal		221,460			258,036
Allowance for Doubtful Accounts			(9,362	)		(11,644	)

	Total	$	212,098		$	246,392


												Options Exercisable
Total Options Outstanding at 12/31/2002												at 12/31/2002

							Average		Weighted					Weighted
							Remaining		Average					Average
Range of Exercise					Number of		Contractual		Exercise			Number of		Exercise
Prices					Shares		Life (Years)		Price			Shares		Price
$	12.11	—	$	15.30		862,736		7.67		$	14.65		270,736		$	14.58
	16.31	—		16.31		1,009,000		7.78			16.31		1,009,000			16.31
	16.44	—		20.56		1,152,445		7.06			19.71		199,078			18.92
	20.60	—		26.13		796,646		5.46			23.08		422,511			23.80
	26.25	—		33.38		921,878		4.85			31.38		674,155			31.45
	33.50	—		38.50		165,720		2.66			35.55		121,779			35.05
	39.00	—		39.00		280,000		7.42			39.00		56,000			39.00

						5,188,425		6.54		$	22.35		2,753,259		$	22.48


									Software
			Severance & Benefits			Facilities			& Other			Total

Restructuring Liability as of December 31, 2001			$	6,332		$	17,757		$	440		$	24,529

Restructuring Charge
	First Quarter			—			—			—			—
	Second Quarter			11,647			—			—			11,647
	Second Quarter Change in Estimate			—			4,449			—			4,449
	Third Quarter			6,000			—			—			6,000
	Fourth Quarter Change in Estimate			(600	)		600			—			—

		Total Restructuring Charge		17,047			5,049			—			22,096
Leasehold Amortization and Related Items				—			(589	)		—			(589	)
Cash payments				(20,011	)		(8,241	)		(440	)		(28,692	)

	Restructuring Liability as of December 31, 2002		$	3,368		$	13,976		$	0		$	17,344


	Office Space		Equipment		Totals

2003	$	41,996	$	15,823	$	57,819
2004		34,364		8,241		42,605
2005		31,969		1,697		33,666
2006		28,908		638		29,546
2007		27,074		234		27,308
Thereafter		57,037		—		57,037

Totals	$	221,348*	$	26,633	$	247,981


(In thousands, except per share data)

	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter		Total

2002:

Revenues	$	251,430	$	251,697	$	247,480	$	236,088	$	986,695
Income Before Income Taxes	$	18,173	$	1,922	$	10,043	$	11,961	$	42,099
Net Income	$	10,722	$	1,134	$	8,336	$	8,014	$	28,206
Basic Earnings per Share	$	0.26	$	0.03	$	0.20	$	0.19	$	0.67
Diluted Earnings per Share	$	0.25	$	0.03	$	0.20	$	0.19	$	0.66

2001:

Revenues	$	322,972	$	318,970	$	281,419	$	259,931	$	1,183,292
Income Before Income Taxes	$	9,346	$	7,737	$	3,128	$	6,690	$	26,901
Net Income	$	5,514	$	4,564	$	1,846	$	3,948	$	15,872
Basic Earnings per Share	$	0.13	$	0.11	$	0.04	$	0.09	$	0.38
Diluted Earnings per Share	$	0.13	$	0.11	$	0.04	$	0.09	$	0.38


(i)	Current Report on Form 8-K filed with the SEC on November 21, 2002, reporting the replacement of its former bank credit facility with a new bank credit agreement.


Signature	Title	Date

(i) Principal Executive Officer:

/s/ Alfred T. Mockett Alfred T. Mockett	Chairman and Chief Executive Officer	March 26, 2003

(ii) Principal Financial Officer:

/s/ John S. Brittain, Jr. John S. Brittain, Jr.	Executive Vice President, Chief Financial Officer and Treasurer	March 26, 2003

(iii) Principal Accounting Officer:

/s/ James C. Reagan James C. Reagan	Senior Vice President and Controller	March 26, 2003


Date: March 26, 2003				/s/ Alfred T. Mockett Alfred T. Mockett Chairman and Chief Executive Officer


Years Ended December 31,		2002			2001			2000

Allowance for Doubtful Accounts
	Balance at Beginning of Period	$	11,644		$	7,976		$	10,845
	Allowance Accruals (Reversals)		(1,000	)		7,725			6,700
	Charges Against Allowance		(1,282	)		(4,057	)		(9,569	)

	Balance at End of Period	$	9,362		$	11,644		$	7,976



Deferred Tax Asset Valuation Allowance
	Balance at Beginning of Period	$	143		$	630		$	933
	Allowance Accruals		1,357			143			—
	Charges Against Allowance		—			(630	)		(303	)

	Balance at End of Period	$	1,500		$	143		$	630



Provision for Contract Losses
	Balance at Beginning of Period	$	—		$	825		$	27,000
	Allowance Accruals		—			—			35,234
	Charges Against Allowance		—			(825	)		(61,409	)

	Balance at End of Period	$	—		$	—		$	825