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Filed pursuant to Rule 424(b)(5)
Registration No. 333-68656
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 24, 2001)
8,000,000 SHARES
(ACS LOGO)
AFFILIATED COMPUTER SERVICES, INC.
CLASS A COMMON STOCK
------------------------------
We are offering 8,000,000 shares of our Class A Common Stock. Our Class A
Common Stock is traded on the New York Stock Exchange under the symbol "ACS." On
October 3, 2001, the last sale price for our Class A Common stock was $83.65 per
share.
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 OF THIS PROSPECTUS SUPPLEMENT TO
READ ABOUT RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR CLASS A
COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
PER SHARE TOTAL
--------- -----
Public offering price...................................... $81.00 $648,000,000
Underwriting discounts and commissions..................... $ 3.24 $ 25,920,000
Proceeds, before expenses, to us........................... $77.76 $622,080,000
------------------------------
The underwriters are severally underwriting the shares being offered. The
underwriters have an option to purchase up to an additional 1,200,000 shares of
Class A Common Stock from us to cover over-allotments, if any.
The underwriters expect to deliver the shares against payment in New York,
New York on October 10, 2001.
------------------------------
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
WELLS FARGO VAN KASPER, LLC
The date of this prospectus supplement is October 3, 2001
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SUMMARY
This summary highlights information contained elsewhere in this prospectus
supplement and the accompanying prospectus about our company. This summary may
not contain all of the information that is important to you. To understand the
offering and our business fully, we strongly encourage you to read carefully
this entire prospectus supplement, the accompanying prospectus and the other
documents we have filed with the Securities and Exchange Commission.
AFFILIATED COMPUTER SERVICES, INC.
We are a global, Fortune 1000 company delivering comprehensive business
process outsourcing and information technology outsourcing solutions, as well as
system integration services, to both commercial and federal government clients.
We are based in Dallas, Texas and have offices primarily in North America, as
well as Central America, South America, Europe, Africa, Australia and the Middle
East. Our clients have time-critical, transaction-intensive information
processing needs, and we typically service these needs through long-term
contracts. Approximately 89% of our revenues for the past three fiscal years
were recurring revenues, which are revenues derived from services that our
clients use each year in connection with their ongoing businesses.
We were formed in 1988 to participate in the trend to outsource information
processing requirements to third parties. This outsourcing enables businesses to
focus on core operations, respond to rapidly changing technologies and reduce
expenses associated with business processes and data processing. Our business
strategy is to expand our client base and enhance our service offerings through
both internal marketing and the acquisition of complementary companies. Our
marketing efforts focus on developing long-term relationships with clients that
choose to outsource mission critical business processes and information
technology requirements. Our focus over the last several years has been to
participate in the expanding business process outsourcing market. Our business
expansion has been accomplished both from internal growth as well as through
acquisitions. Since inception, we have completed 55 acquisitions, which have
resulted in geographic expansion, growth and diversification of our customer
base, expansion of services and products offered, and increased economies of
scale. Our revenues increased from $534 million in fiscal year 1995 to $2.1
billion in fiscal year 2001, a compound annual growth rate of 25%. Of this
growth, approximately one-half resulted from internal growth and the other half
resulted from growth through acquisitions.
On August 24, 2001, we acquired 100% of the stock of Lockheed Martin IMS
Corporation ("IMS"), a wholly-owned subsidiary of Lockheed Martin Corporation,
for approximately $825 million in cash plus transaction costs. IMS, with its
principal office located in Washington D.C. and approximately 4,800 employees
throughout the United States and in various foreign countries, primarily
provides business process outsourcing services to state and local government
agencies focusing on health and human services, transportation, public safety
and child support. IMS' revenues for the twelve-month period ended June 30, 2001
were approximately $620 million.
We serve two primary markets. Our largest market is the commercial sector,
which during fiscal year 2001 accounted for approximately 64% of our annual
revenues. After the IMS acquisition, we believe our commercial sector now
approximates 75% of our revenues. Within the commercial sector, which includes
state and local governments, we provide business process outsourcing, systems
integration services and technology outsourcing to a variety of clients
nationwide, including healthcare providers, retailers, local municipalities,
state agencies, wholesale distributors, manufacturers, utilities, financial
institutions and insurance companies.
We also serve the federal government market, which during fiscal year 2001
accounted for approximately 36% of our annual revenues. Following the IMS
acquisition, we believe our federal government market now approximates 25% of
our revenues. Our services in this market are comprised of business process
outsourcing, systems integration services and technology outsourcing. Within our
federal government business, approximately half of our revenues are derived from
civilian agencies, including the Department of Education, with the remaining
half from Department of Defense agencies.
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THE OFFERING
Class A Common Stock offered........ 8,000,000 shares
Class A Common Stock outstanding
after this offering................. 55,608,056 shares
Class B Common Stock outstanding
after this offering................. 3,299,686 shares
Total common stock outstanding after
this offering....................... 58,907,742 shares
New York Stock Exchange symbol...... ACS
The information above and, unless otherwise indicated, all other share
information set forth in this prospectus supplement are based on shares of our
common stock outstanding on September 27, 2001. This information:
- excludes shares of our Class A Common Stock issuable upon (a) exercise of
options outstanding on such date and (b) conversion of our convertible
subordinated notes (see the section entitled "Capitalization" in this
prospectus supplement); and
- assumes no exercise of the underwriters' over-allotment option.
Our Class B Common Stock is entitled to ten votes on all matters submitted to a
vote of our stockholders and is convertible at any time into Class A Common
Stock on a one-for-one basis.
USE OF PROCEEDS
We will use $550.8 million of the net proceeds of this offering
(approximately $621.2 million, or approximately $714.5 million if the
underwriters exercise their over-allotment option in full) to repay the $550
million of indebtedness and accrued interest owing under an interim facility we
incurred to fund our recently completed acquisition of IMS. Excess proceeds will
be used to repay a portion of the $198 million outstanding as of the date of
this prospectus supplement under our $450 million revolving credit facility.
RISK FACTORS
You should read the "Risk Factors" section beginning on page S-4 of this
prospectus supplement, as well as the other cautionary statements throughout the
entire prospectus supplement and the accompanying prospectus, so that you can
understand the risks associated with an investment in our Class A Common Stock.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical consolidated financial data presented below under the
captions "Statement of Income Data" for the years ended June 30, 1999, 2000 and
2001 and "Balance Sheet Data" as of June 30, 2001 have been derived from our
audited consolidated financial statements and the notes thereto, incorporated by
reference herein from our most recent Annual Report on Form 10-K.
The unaudited pro forma combined summary financial information presented
below gives effect to our acquisition of IMS and has been derived from our pro
forma financial statements relating to our acquisition of IMS that are included
elsewhere in this prospectus supplement. The unaudited pro forma combined
summary statement of income data for the fiscal year ended June 30, 2001
presents our results of operations for such period as if the IMS acquisition had
occurred on July 1, 2000. The unaudited pro forma combined balance sheet data as
of June 30, 2001 presents our financial position as if the IMS acquisition had
occurred on June 30, 2001. The unaudited pro forma, as adjusted balance sheet
data as of June 30, 2001 also gives effect to the receipt of the estimated net
proceeds from the sale of 8,000,000 shares of Class A Common Stock offered by
this prospectus supplement.
The information presented in the table below should be read in conjunction
with "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Combined Financial Statements" and our annual consolidated financial statements
and the consolidated financial statements of IMS appearing herein or
incorporated herein by reference.
FISCAL YEAR ENDED JUNE 30, PRO FORMA
------------------------------------ YEAR ENDED
1999 2000 2001 JUNE 30, 2001
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(IN THOUSANDS)
STATEMENT OF INCOME DATA:
Revenues(1).............................................. $1,642,216 $1,962,542 $2,063,559 $2,684,391
Operating expenses(2).................................... 1,483,632 1,839,134 1,839,833 2,383,599
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Operating income......................................... 158,584 123,408 223,726 300,792
Interest expense......................................... 17,594 23,979 23,742 53,677
Other non-operating income(3)............................ (4,547) (95,841) (21,076) (12,476)
---------- ---------- ---------- ----------
Pretax profit............................................ 145,537 195,270 221,060 259,591
Income tax expense....................................... 59,307 85,958 86,768 101,241
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Net income............................................... $ 86,230 $ 109,312 $ 134,292 $ 158,350
========== ========== ========== ==========
Earnings per share assuming dilution..................... $ 1.66 $ 2.07 $ 2.46 $ 2.87
Weighted average shares outstanding, diluted............. 55,668 55,806 58,228 58,228
AS OF JUNE 30, 2001
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PRO FORMA, AS
ACTUAL PRO FORMA ADJUSTED
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(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................................. $ 528,563 $ 314,821 $ 314,821
Total assets................................................ 1,891,687 2,591,842 2,591,842
Total long-term debt (less current portion)................. 649,313 1,245,313 624,083
Total stockholders' equity.................................. 885,515 885,515 1,506,745
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(1) Includes revenue from divested units of $315.2 million, $298.6 million and
$7.5 million for the fiscal years ended June 30, 1999, 2000 and 2001,
respectively.
(2) Includes $72.0 million and $12.5 million of one-time impairment and
non-recurring charges for the fiscal years ended June 30, 2000 and 2001,
respectively.
(3) Includes non-recurring gains from the sale of divested units of $85.8
million and $12.8 million for the fiscal years ended June 30, 2000 and 2001,
respectively.
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RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information contained in this prospectus supplement and the
accompanying prospectus, before purchasing shares of our Class A Common Stock in
order to evaluate your investment.
TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND WASHINGTON,
D.C., ON SEPTEMBER 11, 2001, AND OTHER ATTACKS OR ACTS OF WAR MAY ADVERSELY
AFFECT THE MARKETS ON WHICH OUR CLASS A COMMON STOCK TRADES, THE MARKETS IN
WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY.
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused major instability in
the U.S. and other financial markets. Leaders of the U.S. government have
announced their intention to actively pursue those behind the attacks and to
possibly initiate broader action against global terrorism. The attacks and any
response may lead to armed hostilities or to further acts of terrorism in the
United States or elsewhere, and such developments would likely cause further
instability in financial markets. In addition, armed hostilities and further
acts of terrorism may directly impact our physical facilities and operations,
which are located in North America, Central America, South America, Europe,
Africa, Australia and the Middle East, or those of our clients. Furthermore, the
recent terrorist attacks and future developments may result in reduced demand
from our clients for our services or may negatively impact our clients' ability
to outsource. These developments will subject our worldwide operations to
increased risks and, depending on their magnitude, could have a material adverse
effect on our business and your investment.
LOSS OF, OR REDUCTION OF BUSINESS FROM, SIGNIFICANT CLIENTS, SUCH AS THE
DEPARTMENT OF EDUCATION, COULD HURT OUR BUSINESS BY REDUCING OUR REVENUES,
PROFITABILITY AND CASH FLOW.
Our success depends substantially upon retaining our significant clients.
Generally, we may lose clients due to merger or acquisition, business failure,
contract expiration, conversion to a competing service provider or conversion to
an in-house data processing system. We cannot guarantee that we will be able to
retain long-term relationships or secure renewals of short-term relationships
with our significant clients in the future.
We incur a high level of fixed costs related to our technology outsourcing
and business process outsourcing clients. These fixed costs result from
significant investments in data processing centers, including computer hardware
platforms, computer software, facilities and client service infrastructure. The
loss of any one of our significant clients could leave us with a significantly
higher level of fixed costs than is necessary to serve our remaining clients,
thereby reducing our profitability and cash flow.
We also are vulnerable to reduced processing volumes from our clients,
which could occur due to business downturns, product liability issues, work
stoppages by organized labor, or other business reasons. Many of our clients are
in industries that are currently undergoing significant consolidation. In the
past, we have modified contracts on terms that have been adverse to us, and it
is possible that future adverse modifications may occur.
Our five largest clients accounted for approximately 18% of our revenue for
the fiscal year ended June 30, 2001 and for the fiscal year ended June 30, 2000.
Approximately 7% of our revenue in fiscal year 2001 and fiscal year 2000 came
from services we performed for the Department of Education. Our agreement with
the Department of Education expires in September 2003; however, the agreement
contains provisions allowing the Department of Education to terminate the
contract prior to the expiration date without cause. If the Department of
Education terminates the contract, we would generally be reimbursed for the then
remaining unamortized costs incurred with respect to providing the services
under the contract, except to the extent that we are able to use any hardware,
software or other resources for other purposes. Our relationship with the
Department of Education is also subject to the risks of the reduction or
modification of the contract due to changing needs and requirements or to
unavailability of funds from the United States government. We cannot assure you
that the Department of Education will not cancel or modify the contract or that
we will maintain our current level of revenue or profit from this relationship.
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See "-- Our government contracts allow for termination at any time without cause
and contain extensive audit rights, either of which could hurt our revenues,
profits and cash flow" for a description of related risks.
After the Department of Education, our next four largest clients accounted
for approximately 11% of our revenue in fiscal year 2001 and fiscal year 2000,
and our agreements with these clients have remaining terms of one to five years.
WE MUST MAKE SIGNIFICANT CAPITAL INVESTMENTS IN ORDER TO ATTRACT AND RETAIN
LARGE OUTSOURCING AGREEMENTS. THESE INVESTMENTS MAY BECOME IMPAIRED IF THE
FINANCIAL CONDITION OF ANY OF THE CLIENTS IN WHICH WE HAVE MADE AN INVESTMENT
DETERIORATES.
We must make significant capital investments in order to attract and retain
large outsourcing agreements. We sometimes must purchase assets such as
computing equipment and purchased software, assume financial obligations such as
computer lease and software maintenance obligations, make investments in
securities issued by clients, incur capital expenditures or incur expenses
necessary to provide outsourcing services to a client. We cannot guarantee that
we will be able to finance and properly evaluate these assets and investments.
We record these investments and asset purchases at fair market value. We record
the remainder of the purchase amount as intangible assets, which are then
amortized over the term of each contract. The termination of a client contract
or the deterioration of the financial condition or prospects of a client has in
the past, and may in the future, result in an impairment of the net book value
of the assets recorded.
COMPETITION IN OUR MARKETS COULD FORCE US TO LOWER PRICES OR CAUSE US TO LOSE
BUSINESS TO OUR COMPETITORS.
We cannot guarantee that we will be able to compete successfully in the
future. We expect to encounter additional competition as we address new markets
and as the computing and communications markets converge. If we are forced to
lower our pricing or if demand for our services decreases, our business,
financial condition, results of operations and cash flow will be materially and
adversely affected. Our markets are intensely competitive and highly fragmented.
Our market share represents a small percentage of the total technology services
market. Our clients' requirements and the technology available to satisfy those
requirements continually change. Our principal competitors include Electronic
Data Systems Corporation, IBM, Computer Sciences Corporation, Unisys, Maximus,
Transcore, FYI, Inc., National Processing Company, First Health Services, Lason,
Inc. and several other small-to-medium local and regional competitors. Many of
our competitors have greater financial, technical, and operating resources and a
larger client base than we do. They may be able to use their resources to adapt
more quickly to new or emerging technologies or to devote greater resources to
the promotion and sale of their products and services. Many of our largest
competitors have a greater international presence than us and offer a broader
range of services. In addition, we must frequently compete with a client's own
internal business process and information technology capabilities, which may
constitute a fixed cost for the client.
WE MAY HAVE DIFFICULTIES EXECUTING OUR ACQUISITION STRATEGY, WHICH COULD HURT
OUR FUTURE GROWTH AND FINANCIAL CONDITION.
We intend to continue to expand our business through the acquisition of
complementary companies. Through acquisitions, we intend to expand our
geographic presence, to expand the products and services we offer to our
existing clients and to enter new markets. Since our inception, we have
completed 55 acquisitions. Approximately one-half of our revenue growth during
the five years ended June 30, 2001 was due to acquisitions. We regularly
evaluate potential acquisition candidates. Risks that we may encounter in our
acquisitions include:
- higher acquisition prices due to increased competition for acquisitions;
- fewer suitable acquisition candidates at acceptable prices;
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- insufficient capital resources for acquisitions;
- inability to successfully integrate or operate acquired companies;
- loss of key management and other employees of acquired companies; and
- departure of key clients of acquired companies.
Although we have not experienced the problem to date, governmental and
regulatory constraints could prevent some acquisitions in the future. We cannot
assure you that any future acquisitions will be successfully integrated or will
be advantageous to us. Without additional acquisitions, we are unlikely to
maintain historical growth rates. If our acquisition strategy fails, our
business, financial condition and results of operations could be materially and
adversely affected.
RAPID TECHNOLOGICAL CHANGES REQUIRE US TO COMMIT SUBSTANTIAL RESOURCES AND COULD
AFFECT OUR ABILITY TO ATTRACT AND RETAIN CLIENTS.
The markets for our information technology services are subject to rapid
technological changes and rapid changes in client requirements. To compete
successfully, we commit substantial resources to operating multiple hardware
platforms, integrating third-party software programs and training client
personnel and our personnel in the use of new technologies. Information
processing is shifting toward client-server and web-based systems in which
individual computers or groups of personal computers and mid-range systems
replace mainframe systems. This trend could adversely affect our business and
financial results. Future hardware and software products may be able to process
large amounts of data more cost-effectively than existing mainframe platforms
which we use in much of our business.
We have committed substantial resources to developing outsourcing solutions
for these distributed computing environments, but we cannot guarantee that we
will be successful in customizing products and services that incorporate new
technology on a timely basis. We also cannot guarantee that we will continue to
be able to deliver the services and products demanded by the marketplace.
LOSS OF SIGNIFICANT SOFTWARE VENDOR RELATIONSHIPS COULD RESULT IN SIGNIFICANT
EXPENSE OR INABILITY TO SERVE OUR CLIENTS.
Our ability to service our clients depends to a large extent on our use of
various software programs that we license from a small number of primary
software vendors. We may not be able to replace these vendors with alternative
vendors. If our significant software vendors assert claims against us for
infringement of intellectual property rights or other claims of breach of our
contracts with them, or if they attempt to re-price our licenses or require us
to cure a claimed breach under a license agreement, we could be required to
expend significant resources to resolve these matters. If our significant
software vendors were to terminate or refuse to renew our contracts with them,
we might not be able to replace the related software programs and would be
unable to serve our clients. As a result, our business and financial results
would be materially adversely affected.
OUR CONTRACTS CONTAIN TERMINATION PROVISIONS AND PRICING RISKS THAT COULD
DECREASE OUR REVENUES, PROFITABILITY AND CASH FLOW.
Some of our contracts with our clients permit termination in the event our
performance is not consistent with service levels specified in those contracts.
Some of our government clients can terminate their contracts without cause. See
"-- Our government contracts allow for termination at any time without cause and
contain extensive audit rights, either of which could hurt our revenues, profits
and cash flow" for specific information on termination risks with respect to our
government contracts. Our clients' ability to terminate contracts creates
uncertain revenue streams. In addition, if clients are not satisfied with our
level of performance, our reputation in the industry may suffer, which could
materially and adversely affect our business, financial condition, results of
operations and cash flow.
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Some of our contracts contain pricing provisions that allow clients to pay
a set fee for our services regardless of whether our costs to perform these
services exceed the amount of the set fee. Many of our technology outsourcing
and business process outsourcing contracts provide for credits to our clients if
we fail to achieve specific contract standards. Some of our contracts contain
re-pricing provisions that can result in reductions of our fees for performing
our services. In these situations, we could incur significant unforeseen costs
or financial penalties in performance under the contracts.
Technology costs have been decreasing for many years and are continuing to
do so due in large part to hardware technology advances. New contracts are
generally priced at lower unit rates than historical contracts. We sometimes
renegotiate client contracts in advance of the scheduled expiration date and
will lower our charges in return for other contractual considerations. If we are
not able to lower our technology costs to keep up with market rates, then our
business, financial condition, results of operations and cash flow could be
adversely affected.
OUR GOVERNMENT CONTRACTS ALLOW FOR TERMINATION AT ANY TIME WITHOUT CAUSE AND
CONTAIN EXTENSIVE AUDIT RIGHTS, EITHER OF WHICH COULD HURT OUR REVENUES, PROFITS
AND CASH FLOW.
Loss or termination of one or more of our large government contracts could
have a material adverse effect on our business and financial results.
Approximately 36% of our revenue in fiscal year 2001 was derived from contracts
with the United States government and its agencies. Additionally, approximately
18% of our revenue in fiscal year 2001 was derived from contracts with state and
local governments and their agencies. After the IMS acquisition, we believe
approximately 25% and 30% of our revenues will be derived from contracts with
the United States government and its agencies, and state and local governments
and their agencies, respectively. See the risk factor entitled "-- Loss of, or
reduction of business from, significant clients, such as the Department of
Education, could hurt our business by reducing our revenues, profitability and
cash flow." The government may terminate most of these contracts at any time,
without cause. In some instances, we will receive compensation only for the
services provided or costs incurred at the time of termination. Many of our
government contracts contain base periods of one or more years, as well as one
or more option periods that may cover more than half of the potential contract
duration. The government generally has the right not to exercise the renewal
option periods. Its failure to exercise option periods could curtail the
contract term of some of our government contracts. The government's termination
of, or failure to exercise option periods for, significant government contracts
could have a material adverse effect on our business and financial results.
Government contracts are generally subject to audits and investigations by
government agencies. These audits and investigations involve a review of the
contractor's performance on its contracts, as well as its pricing practices and
cost structure and its compliance with applicable laws, regulations and
standards. If the government finds that we improperly charged any costs to a
contract, the costs are not reimbursable. If already reimbursed, the cost must
be refunded to the government. If the government discovers improper or illegal
activities in the course of audits or investigations, the contractor may be
subject to various civil and criminal penalties and administrative sanctions,
which may include termination of contracts, forfeiture of profits, suspension of
payments, fines and suspensions or debarment from doing business with the
government. In recent years, the government has substantially increased the
personnel and resources it devotes to audits and investigations and has
encouraged auditors and investigators to emphasize the detection of fraud or
improper activities. We believe that this high level of industry scrutiny will
continue for some time. Any resulting penalties or sanctions could have a
material adverse effect on our business and financial results.
FAILURE TO PROPERLY MANAGE OUR OPERATIONS AND OUR GROWTH COULD HURT OUR ABILITY
TO SERVICE OUR EXISTING CLIENTS AND COULD IMPEDE OUR ABILITY TO ATTRACT NEW
BUSINESS.
We have rapidly expanded our operations in recent years, and we intend to
continue expansion in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on our
management and operational resources. In order to manage our growth effectively,
we must implement and improve our operational systems, procedures and controls
on a timely
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basis. If we fail to implement these systems procedures and controls on a timely
basis, we may not be able to service our clients' needs, hire and retain new
employees, pursue new business, complete future acquisitions or operate our
businesses effectively. We could also trigger contractual credits to clients. As
a result of any of these problems associated with expansion of our operations,
our business, financial condition, results of operations and cash flow could be
materially and adversely affected.
FEDERAL REGULATIONS RELATING TO THE CONFIDENTIALITY OF HEALTH DATA COULD REQUIRE
US TO MAKE SIGNIFICANT EXPENDITURES FOR NEW TECHNOLOGY AND SUBJECT US TO
INCREASED COMPLIANCE RISKS.
In 1996, Congress passed the Healthcare Insurance Portability and
Accountability Act ("HIPAA") which required the Secretary of Health and Human
Services ("HHS") to establish standards for information sharing, security and
confidentiality with regard to health data of individuals. In December 2000, HHS
published its final health data privacy regulations which became effective in
April 2001 and must be complied with by April 14, 2003. These regulations
restrict the use and disclosure of personally identifiable health information
without the prior informed consent of the patient. HHS has not yet issued final
rules on most of the other provisions under HIPAA and has yet to issue proposed
rules on other provisions. The final rules, if and when issued, may differ from
the proposed rules. We cannot predict the potential impact on our business of
the final rules or the rules that have not yet been proposed. In addition, other
federal or state privacy legislation may be enacted at any time.
Our failure to comply with these laws or regulations, when adopted, could
restrict our ability to obtain, use, process or disseminate the personally
identifiable health information of our employees and the employees of our
processing clients. We process personally identifiable health data for many of
our clients. In connection with our services, we and our clients will be
required to comply with HIPAA. We may be required to implement new technology
and security features to protect the privacy and integrity of such health data.
Our compliance with these new laws or regulations could require significant
expenditures on our part. Expenditures necessary for our own internal HIPAA
compliance will not be directly chargeable to our clients.
While we believe that our compliance efforts undertaken on behalf of our
clients will result in an increase in our charges to such clients, we cannot
guarantee that such increases will occur. Furthermore, in certain instances,
HIPAA subjects us, as a service provider, to liability and monetary penalties
for failure to comply with HIPAA when processing personally identifiable health
data maintained by our clients. If we fail to comply with HIPAA in connection
with such processing services, we could incur liability under these provisions.
OUR HIGH TURNOVER OF TECHNICALLY SKILLED EMPLOYEES REQUIRES THAT WE DEVOTE
SUBSTANTIAL RESOURCES TO ATTRACT AND RETAIN THEM. THE FAILURE TO ATTRACT AND
RETAIN TECHNICAL PERSONNEL AND SKILLED MANAGEMENT COULD HURT OUR ABILITY TO GROW
AND MANAGE OUR BUSINESS.
Our success depends to a significant extent upon our ability to attract,
retain and motivate highly skilled and qualified personnel. If we fail to
attract, train, and retain sufficient numbers of these technically-skilled
people, our business, financial condition and results of operations will be
materially and adversely affected. Competition for personnel is intense in the
information technology services industry, and recruiting and training personnel
requires substantial resources. We must continue to grow internally by hiring
and training technically-skilled people in order to perform services under our
existing contracts and future contracts. The people capable of filling these
positions are in great demand and recruiting and training these personnel
require substantial resources. Despite increasing our expenditures to hire and
retain a technically-skilled workforce, our business still experiences
significant turnover. Our success also depends on the skills, experience and
performance of key members of our management team. The loss of any key employee
could have an adverse effect on our business, financial condition and results of
operations and prospects. Other than with Darwin Deason, we have not entered
into employment agreements with any of our key personnel, although we have
entered into severance agreements with certain of our executive officers and we
may in the future enter into employment agreements with our key personnel.
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DARWIN DEASON HAS SUBSTANTIAL CONTROL OVER OUR COMPANY AND CAN AFFECT VIRTUALLY
ALL DECISIONS MADE BY OUR STOCKHOLDERS.
Darwin Deason, the chairman of our board of directors, beneficially owns
3,299,686 shares of our Class B Common Stock and 1,504,562 shares of our Class A
Common Stock as of September 27, 2001. Mr. Deason controls approximately 42.6%
of the total voting power of ACS (38.8% of the total voting power after this
offering). As a result, Mr. Deason has the requisite voting power to
significantly affect virtually all decisions made by our stockholders, including
the power to block corporate actions such as an amendment to most provisions of
our certificate of incorporation. In addition, Mr. Deason may significantly
influence the election of directors and any other action requiring stockholder
approval. Mr. Deason serves as the one-person nominations committee to our board
of directors and thus recommends management's slate of directors to be proposed
by the board to our stockholders. In the spring of 1999, Mr. Deason was
succeeded by Jeffrey A. Rich as chief executive officer. Mr. Deason has an
employment contract including severance arrangements, which has an expiration
date of May 2004, and is annually renewable thereafter.
LEGAL PROCEEDINGS, INCLUDING A $17 MILLION JUDGMENT, COULD RESULT IN MATERIAL
CHARGES AGAINST OUR EARNINGS.
On December 16, 1998, a state district court in Houston, Texas entered
final judgment against us in a lawsuit brought by 21 former employees of
Gibraltar Savings Association and/or First Texas Savings Association
(collectively, "GSA/FTSA"). The GSA/FTSA employees alleged that they were
entitled to the value of 401,541 shares of our stock pursuant to options issued
to the GSA/FTSA employees in 1988 in connection with a former data processing
services agreement between GSA/FTSA and us. The judgment against us was for
approximately $17 million, which includes attorneys' fees and pre-judgment
interest, but excludes additional attorneys' fees of approximately $850,000 and
post-judgment interest at the statutorily mandated rate, which could be awarded
in the event the plaintiffs are successful upon appeal and final judgment. We
filed our appeal of the judgment on March 15, 1999 and a brief in support of
such appeal has been filed. The plaintiffs also filed a notice of appeal. A
hearing for oral arguments on the parties' appeals occurred on September 20,
2001. Should the proceedings not be favorably resolved on appeal, we would be
subject to a material charge equal to the amount of any final judgment, fees and
interest awarded in favor of the plaintiffs. The court of appeals has given no
indication of when it will issue its decision.
In addition to the foregoing, we are subject to certain other legal
proceedings, claims and disputes which arise in the ordinary course of our
business. We cannot predict the outcomes of these legal proceedings.
WE HAVE SOME SPECULATIVE INVESTMENTS IN SMALL TECHNOLOGY COMPANIES THAT ARE IN
VARIOUS STAGES OF DEVELOPMENT.
We have made investments in, and have received equity and/or debt of,
various development-stage or emerging technology companies. We anticipate that
we may continue to periodically make other investments in similar companies. We
are generally a passive investor in such companies and have little or no control
in their development and management. We cannot guarantee that we have properly
evaluated these companies and investments or that we will be able to do so in
the future. These investments are speculative and illiquid, and we may lose some
or all of the amounts we have invested. The failure of any of these companies to
develop or effectively execute their business plans may result in an impairment
of the net book value of the assets recorded.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD REQUIRE US TO INCUR SUBSTANTIAL
COSTS TO DEFEND THE CLAIMS, CHANGE OUR SERVICES, PURCHASE NEW LICENSES OR
REDESIGN OUR USE OF CHALLENGED TECHNOLOGY.
We, like other companies in our industry, rely heavily on the use of
intellectual property. We do not own the majority of the software that we use to
run our business; instead we license this software from a small number of
primary software vendors. If these vendors assert claims that we or our clients
are
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infringing on their software or related intellectual property, we could incur
substantial costs to defend these claims.
In addition, if any of our vendors' infringement claims are ultimately
successful, our vendors could require us to:
- cease selling or using products or services that incorporate the
challenged software or technology;
- obtain a license or additional licenses from our vendors; or
- redesign our products and services that rely on the challenged software
or technology.
We are not currently involved in any material intellectual property litigation,
but could be in the future to protect our trade secrets or know-how or to defend
ourselves or our clients against alleged infringement claims.
WE MAY, IN THE FUTURE, BE EXPOSED TO RISKS RELATED TO INTERNATIONAL OPERATIONS
WHICH COULD INCREASE OUR COSTS AND HURT OUR BUSINESS.
We currently have operations in many countries around the world and may
increase our international presence in the future. Risks that may affect our
international operations include:
- fluctuations in currency exchange rates;
- import and customs duties regulations;
- complicated licensing and work permit requirements;
- variations in the methods of protection of intellectual property rights;
- restrictions on the ability to convert currency;
- political or social unrest; and
- additional expenses and risks inherent in conducting operations in
geographically distant locations, with clients speaking different
languages and having different cultural approaches to the conduct of
business.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW COULD
DETER TAKEOVER ATTEMPTS THAT STOCKHOLDERS MAY THINK ARE IN THEIR BEST INTERESTS.
Some provisions in our certificate of incorporation and bylaws could delay,
defer, prevent or make more difficult a merger, tender offer or proxy contest
involving our capital stock. Our stockholders might view transactions such as
these as being in their best interests because, for example, a change of control
might result in a price higher than the market price for shares of our Class A
Common Stock. Among other things, these provisions:
- require an 80% vote of the stockholders to amend some provisions of our
certificate of incorporation and our bylaws;
- permit only our chairman, president or a majority of our board of
directors to call stockholder meetings;
- authorize our board of directors to issue up to 3,000,000 shares of
preferred stock in series with the terms of each series to be fixed by
our board of directors;
- authorize our board of directors to issue up to an additional 10,700,314
shares of Class B Common Stock, which shares are entitled to ten votes
per share on any matter submitted to a vote of the stockholders;
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- permit directors to be removed, with or without cause, only by a vote of
at least 80% of the combined voting power; and
- specify advance notice requirements for stockholder proposals and
director nominations to be considered at a meeting of stockholders.
In addition, with some exceptions, Section 203 of the Delaware General
Corporation Law restricts mergers and other business combinations between us and
any holder of 15% or more of our voting stock.
We also have a stockholder rights plan. Under this plan, after the
occurrence of specified events, our stockholders will be able to buy stock from
us or our successor at reduced prices. These rights will not extend, however, to
persons participating in takeover attempts without the consent of our board of
directors. Accordingly, this plan could delay, defer or prevent a change of
control of our company.
Further, we have entered into severance agreements with certain of our
executive officers which may have the effect of discouraging an unsolicited
takeover proposal. Finally, Mr. Deason's ownership of approximately 42.6% of the
total voting power of our capital stock (38.8% of the total voting power after
this offering) could have the effect of delaying, deterring or preventing a
takeover of our company. Specifically, Mr. Deason could block any action
described above that requires 80% of the vote of our stockholders. See
"-- Darwin Deason has substantial control over our company and can affect
virtually all decisions made by our stockholders" for additional information
about Mr. Deason's ownership.
AVAILABILITY OF SIGNIFICANT AMOUNTS OF CLASS A COMMON STOCK FOR SALE COULD CAUSE
THE MARKET PRICE OF OUR CLASS A COMMON STOCK TO DROP.
There is a substantial number of shares of our Class A Common Stock that
may be issued upon the exercise of employee stock options and upon conversion of
shares of our Class B Common Stock, our 4% convertible subordinated notes due
2005 and our 3.5% convertible subordinated notes due 2006. The sale or issuance
of additional shares of Class A Common Stock following this offering could
adversely affect the prevailing market price of the Class A Common Stock.
THE PRICE OF OUR CLASS A COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY, WHICH MAY
RESULT IN LOSSES FOR INVESTORS.
The market price for our Class A Common Stock has been and may continue to
be volatile. For example, during the 52-week period ended October 3, 2001, the
closing prices of our Class A Common Stock as reported on the New York Stock
Exchange ranged from a high of $87.40 to a low of $46.50. We expect our stock
price to continue to be subject to fluctuations as a result of a variety of
factors, including factors beyond our control. These factors include:
- further developments relating to the September 11, 2001 terrorist attacks
on the U.S.;
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations or new products or services by
us or our competitors;
- announcements relating to strategic relationships or acquisitions;
- changes in financial estimates or other statements by securities
analysts;
- changes in general economic conditions;
- conditions or trends affecting the outsourcing industry; and
- changes in the economic performance and/or market valuations of other
information technology companies.
Because of this volatility, we may fail to meet the expectations of our
stockholders or of securities analysts at some time in the future, and our stock
price could decline as a result.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many high technology companies. These fluctuations have often been
unrelated or disproportionate to changes in the operating performance of these
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companies. Any negative change in the public's perception of information
technology companies could depress our stock price regardless of our operating
results.
USE OF PROCEEDS
In August 2001, we borrowed $550 million under an 18-month interim
facility, which bears interest at LIBOR plus 1.43% (currently 4.09%). We used
these funds, along with cash on hand and borrowings under our $450 million
revolving credit facility, to acquire IMS. Our $450 million revolving credit
facility expires in December 2004 and accrues interest at LIBOR plus 1.43%
(currently 4.51%) or the bank's prime rate, as elected by us. We will use $550.8
million of the net proceeds of this offering (approximately $621.2 million, or
approximately $714.5 million if the underwriters exercise their over-allotment
option in full) to repay the principal and accrued interest owing under our
interim facility. Excess proceeds will be used to repay a portion of the $198
million outstanding as of the date of this prospectus supplement under our $450
million revolving credit facility.
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CAPITALIZATION
The table below presents our capitalization as of June 30, 2001:
- on an actual basis,
- on a pro forma basis to give effect to our acquisition of IMS as if it
had occurred on June 30, 2001, and
- on a pro forma, as adjusted basis to also reflect the sale of the
8,000,000 shares of Class A Common Stock offered by us in this offering
and the application of the estimated net proceeds therefrom as described
in "Use of Proceeds."
The information presented in the table below should be read in conjunction
with "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our annual
consolidated financial statements and the consolidated financial statements of
IMS appearing herein or incorporated herein by reference.
AS OF JUNE 30, 2001
----------------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA ADJUSTED
---------- ---------- --------------
(DOLLARS IN THOUSANDS)
Current portion of long-term debt...................... $ 3,362 $ 3,388 $ 3,388
---------- ---------- ----------
Long-term debt:
Credit Facility(1)................................... 100,000 146,000 74,770
Interim Facility(1).................................. -- 550,000 --
4% Convertible Subordinated Notes due 2005........... 229,937 229,937 229,937
3.5% Convertible Subordinated Notes due 2006......... 316,990 316,990 316,990
Other debt, net of current portion(2)................ 2,386 2,386 2,386
---------- ---------- ----------
Total long-term debt......................... 649,313 1,245,313 624,083
Stockholders' equity:
Common Stock:
Class A, par value $.01 per share, 500,000,000 shares
authorized, 47,282,056 shares issued and
outstanding (actual and pro forma) and 55,282,056
shares issued and outstanding (pro forma, as
adjusted)(3)...................................... 473 473 553
Class B, par value $.01 per share, 14,000,000 shares
authorized, 3,299,686 shares issued and
outstanding....................................... 33 33 33
Additional paid-in capital............................. 350,767 350,767 971,917
Accumulated other comprehensive income (net of tax).... (132) (132) (132)
Retained earnings...................................... 534,374 534,374 534,374
---------- ---------- ----------
Total stockholders' equity................... 885,515 885,515 1,506,745
========== ========== ==========
Total capitalization......................... $1,538,190 $2,134,216 $2,134,216
========== ========== ==========
---------------
(1) Our revolving credit agreement has a maximum availability of $450 million,
expires in December 2004 and accrues interest at LIBOR plus 0.625% to 1.43%,
or the bank's prime rate, as elected by us. Our interim credit facility is
$550 million, expires in February 2003 and accrues interest at LIBOR plus
1.43%. As of October 3, 2001, $198 million was outstanding under our
revolving credit facility. As described in "Use of Proceeds," we will use a
portion of the net proceeds from this offering to repay a portion of the
amount outstanding under our revolving credit facility.
(2) Long-term debt includes $4.5 million in capital lease obligations and $1.2
million in other amounts due to individuals and corporations.
(3) Does not include (a) 3,649,094 shares of Class A Common Stock issuable upon
conversion of our 3.5% Convertible Subordinated Notes due 2006, (b)
5,390,460 shares of Class A Common Stock issuable upon conversion of our 4%
Convertible Subordinated Notes due 2005, (c) 11,669,598 shares of Class A
Common Stock reserved for issuance under our stock option plans, under which
options to purchase 5,356,045 shares were outstanding as of June 30, 2001 at
a weighted average exercise price of $33.74 per share, and (d) 3,299,686
shares of Class A Common Stock issuable upon conversion of our Class B
Common Stock.
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THE IMS ACQUISITION
On August 24, 2001, we acquired 100% of the stock of IMS, a wholly-owned
subsidiary of Lockheed Martin Corporation, for approximately $825 million in
cash plus transaction costs of approximately $12 million. We funded the
acquisition with proceeds we received from a combination of a new $550 million
18-month interim facility led by Bear, Stearns & Co. Inc. and Wells Fargo Bank
Texas, National Association, $46 million from our $450 million revolving credit
facility and $229 million from available cash.
IMS' principal office is located in Washington D.C. and employs
approximately 4,800 employees throughout the United States and in various
foreign countries. It provides business process outsourcing services to state
and local government agencies focusing on health and human services,
transportation, public safety and child support. IMS' revenues for the
twelve-month period ended June 30, 2001 were approximately $620 million.
IMS partners with more than 230 state and local government agencies in 45
U.S. states, the District of Columbia, Canada, Australia, and Europe. IMS
specializes in child support enforcement, welfare and workforce services, child
care management, electronic toll collection and other intelligent transportation
services involving the trucking industry, photo enforcement of red-light and
speeding violations, parking management, and information technology outsourcing.
The IMS acquisition is consistent with our overall business strategy and
significantly increases our business process outsourcing offerings, establishes
long-term relationships with new clients and solidifies our position as the
premier provider of business process and technology outsourcing solutions to the
state and local government marketplace. Our business process outsourcing
offerings to state and local governments, which historically focused in the
health and human services and government records management areas, will be
significantly expanded in four key areas:
- Children and Family Services -- We provide two principal offerings
including child support payment processing where we process over $7
billion of payments annually, and electronic benefit payment processing
for the paperless distribution of government benefits, such as food
stamps.
- Welfare and Workforce Services -- We provide government-mandated
workforce services, including management, operation and systems service
offerings linking individuals seeking employment with potential
employers.
- Municipal Services -- We process traffic and parking tickets collecting
over $500 million on behalf of our clients. In addition, we operate
traffic safety programs that use photographic functionality to automate
the enforcement of traffic violations.
- Transportation Systems and Services -- We process more than 25% of the
state issued operating credentials and support the operation of over 30%
of the motor carriers operating in the United States. Additionally, we
provide Electronic Toll Collection Services processing over $1.2 billion
in toll revenues annually on behalf of our clients, which include E-Z
Pass New York, the largest electronic toll collection operation in the
world. We also operate a nationwide network that electronically checks
safety credentials and weighs trucks at highway speed, granting carriers
authorization to bypass weigh stations without stopping.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the consummation of the IMS Acquisition. The unaudited pro forma combined
balance sheet as of June 30, 2001 set forth below presents our financial
position as if we had acquired IMS on June 30, 2001. The unaudited pro forma
combined statement of income for the fiscal year ended June 30, 2001 set forth
herein presents our results of operations for such period as if we had acquired
IMS on July 1, 2000. The unaudited pro forma combined balance sheet as of June
30, 2001 combines, with appropriate adjustments, our audited consolidated
balance sheet as of June 30, 2001 and IMS' unaudited consolidated balance sheet
as of June 30, 2001. The unaudited pro forma combined statement of income for
the fiscal year ended June 30, 2001 combines, with appropriate adjustments, our
audited consolidated results of operations for the fiscal year ended June 30,
2001 and IMS' unaudited consolidated results of operations for the twelve months
ended June 30, 2001. IMS' unaudited consolidated results of operations for the
twelve months ended June 30, 2001 were obtained by adding the unaudited six
months ended June 30, 2001 to the audited twelve months ended December 31, 2000
and deducting the unaudited six months ended June 30, 2000. Certain
reclassifications were made to conform IMS' historical financial statements to
our historical financial statements.
Our acquisition of IMS was completed on August 24, 2001. As such, the
unaudited pro forma combined financial statements reflect the application of
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" to this transaction. SFAS No. 141 applies to all business
combinations consummated after June 30, 2001 and requires the purchase method of
accounting. SFAS No. 141 also establishes new criteria for determining whether
intangible assets should be recognized apart from goodwill. We also adopted SFAS
No. 142 "Goodwill and Other Intangible Assets" effective July 1, 2001. SFAS No.
142 provides that goodwill and intangible assets with indefinite lives will not
be amortized, but rather will be tested for impairment annually. Therefore, no
amortization of goodwill and indefinite lived intangible assets arising from the
IMS acquisition has been reflected in the unaudited pro forma combined statement
of income.
The unaudited pro forma combined financial statements have been prepared on
the basis of preliminary assumptions and estimates. The pro forma adjustments
represent our preliminary determinations of these adjustments and are based on
available information and certain assumptions we consider reasonable under the
circumstances. Final amounts could differ from those set forth herein and are
subject to finalization of a third party valuation. The unaudited pro forma
combined financial statements may not be indicative of the results of operations
that would have been achieved if the IMS acquisition had occurred on the dates
indicated or which we may achieve in the future. The unaudited pro forma
combined financial statements and notes thereto should be read in conjunction
with "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our annual
consolidated financial statements and the financial statements of IMS appearing
in our Annual Report on Form 10-K or Current Report on Form 8-K, incorporated by
reference herein.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2001
(IN THOUSANDS)
HISTORICAL PRO FORMA
--------------------- --------------------------------
ACS IMS ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents................ $ 242,458 $ 11,956 $(240,954)(a)(d) $ 13,460
Accounts receivable, net................. 472,042 107,280 -- 579,322
Inventory................................ 8,591 8,139 -- 16,730
Prepaid expenses and other current
assets................................ 77,572 3,992 -- 81,564
Deferred taxes........................... 8,952 -- -- 8,952
---------- -------- --------- ----------
Total current assets............. 809,615 131,367 (240,954) 700,028
Property and equipment and software, net... 237,563 98,393 (18,393)(c) 317,563
Goodwill, net.............................. 697,760 17,899 612,428(c) 1,328,087
Other intangibles, net..................... 97,160 843 96,000(c) 194,003
Long-term investments and other assets..... 49,589 41,722 (39,150)(c)(d) 52,161
---------- -------- --------- ----------
Total assets..................... $1,891,687 $290,224 $ 409,931 $2,591,842
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable......................... $ 40,265 $ 40,008 $ -- $ 80,273
Accrued compensation and benefits........ 82,043 20,701 -- 102,744
Other accrued liabilities................ 126,875 7,470 19,500(b)(c)(e) 153,845
Income taxes payable..................... 7,742 -- -- 7,742
Current portion of long-term debt........ 3,362 26 -- 3,388
Current portion of unearned revenue...... 20,765 16,450 -- 37,215
---------- -------- --------- ----------
Total current liabilities........ 281,052 84,655 19,500 385,207
Convertible notes.......................... 546,927 -- -- 546,927
Long-term debt............................. 102,386 -- 596,000(a) 698,386
Due to Parent.............................. -- 226,456 (226,456)(d) --
Deferred taxes............................. 55,601 -- -- 55,601
Other long-term liabilities................ 20,206 -- -- 20,206
---------- -------- --------- ----------
Total liabilities................ 1,006,172 311,111 389,044 1,706,327
---------- -------- --------- ----------
Commitments and contingencies
Stockholders' equity:
Common Stock............................. 506 -- -- 506
Additional paid-in capital............... 350,767 (20,887) 20,887(f) 350,767
Retained earnings........................ 534,374 -- -- 534,374
Accumulated other comprehensive income,
net................................... (132) -- -- (132)
---------- -------- --------- ----------
Total stockholders' equity....... 885,515 (20,887) 20,887 885,515
---------- -------- --------- ----------
Total liabilities and
stockholders' equity........... $1,891,687 $290,224 $ 409,931 $2,591,842
========== ======== ========= ==========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA
--------------------- -------------------------
ACS IMS ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
Revenues.......................................... $2,063,559 $620,832 $ -- $2,684,391
Operating expenses:
Wages and benefits.............................. 904,684 224,642 -- 1,129,326
Services and supplies........................... 598,797 253,114(k) -- 851,911
Rent, lease and maintenance..................... 223,679 43,634 -- 267,313
Depreciation and amortization................... 93,617 39,361 (20,544)(g) 112,434
Other operating expenses........................ 19,056 3,559 -- 22,615
---------- -------- -------- ----------
Total operating expenses................ 1,839,833 564,310 (20,544) 2,383,599
Operating income.................................. 223,726 56,522 20,544 300,792
Interest expense.................................. 23,742 135 29,800(h) 53,677
Other non-operating income........................ (21,076) (560) 9,160(i) (12,476)
---------- -------- -------- ----------
Pretax profit................................... 221,060 56,947 (18,416) 259,591
Income tax expense................................ 86,768 2,624 11,849(j) 101,241
---------- -------- -------- ----------
Net income...................................... $ 134,292 $ 54,323 $(30,265) $ 158,350
========== ======== ======== ==========
Earnings per common share:
Basic........................................... $ 2.69 $ 3.17
========== ==========
Diluted......................................... $ 2.46 $ 2.87
========== ==========
Shares used in computing earnings per common
share:
Basic........................................... 49,879 49,879
Diluted......................................... 58,228 58,228
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
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NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
On August 24, 2001, we acquired IMS. Under the terms of the agreement, we
paid $825 million at closing. In addition, we accrued related transaction costs
of approximately $12 million. We funded the cash purchase price of $825 million
from a combination of a new $550 million 18-month interim facility led by Bear,
Stearns & Co. Inc. and Wells Fargo Bank Texas, National Association, $229
million from available cash and $46 million from our $450 million revolving
credit facility. In connection with the foregoing, we amended the credit
facility in order to adjust certain covenants to permit the IMS Acquisition.
IMS partners with more than 230 state and local government agencies in 45
U.S. states, the District of Columbia, Canada, Australia, and Europe. IMS
specializes in child support enforcement, welfare and workforce services, child
care management, electronic toll collection, and other intelligent
transportation services involving the trucking industry, photo enforcement of
red-light and speeding violations, parking management, and information
technology outsourcing. On behalf of its clients, IMS annually collects more
than $7 billion in child support payments, $1.2 billion in toll revenues and
$450 million in violation revenues.
The unaudited pro forma combined balance sheet presents the combined
financial position of us and IMS as of June 30, 2001 assuming the acquisition
had occurred as of that date. Such pro forma information is based upon our
audited consolidated balance sheet as of June 30, 2001 and IMS' unaudited
balance sheet as of June 30, 2001. The unaudited pro forma combined statements
of income are presented for the year ended June 30, 2001 assuming the
acquisition occurred on July 1, 2000. The unaudited pro forma combined statement
of income for the year ended June 30, 2001 combines our audited statement of
income for the year ended June 30, 2001 and IMS' consolidated results of
operations for the twelve months ended June 30, 2001. IMS' unaudited
consolidated results of operations for the twelve months ended June 30, 2001
were obtained by adding the unaudited six months ended June 30, 2001 to the
audited twelve months ended December 31, 2000 and deducting the unaudited six
months ended June 30, 2000.
The unaudited pro forma balance sheet and combined statement of income
reflect a preliminary purchase price allocation of IMS and is subject to change,
pending finalization of the third party valuation of the assets acquired.
Certain reclassifications were made to conform IMS' historical statements to our
historical financial statements.
NOTE 2. ACCOUNTING POLICIES
The unaudited pro forma combined financial statements reflect the
application of Statement of Financial Accounting Standards ("SFAS") No. 141
"Business Combinations" to the IMS acquisition. The provisions of SFAS No. 141
are applicable for all business combinations consummated after June 30, 2001.
ACS adopted SFAS No. 142 "Goodwill and Other Intangible Assets" effective July
1, 2001. In accordance with SFAS No. 142, no amortization of goodwill or
indefinite lived intangible assets arising from the IMS acquisition has been
reflected in the unaudited pro forma combined statement of income. Assuming the
transaction occurred as of June 30, 2001, a summary of the net assets acquired
is as follows (in thousands):
Current assets, net......................................... $ 27,258
Other long-term assets...................................... 3,415
Fixed assets................................................ 38,000
Software.................................................... 42,000
Customer contracts.......................................... 96,000
Goodwill.................................................... 630,327
--------
Total purchase price, including related
transaction costs................................ $837,000
--------
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NOTES TO THE UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. DEBT ISSUANCE
On August 24, 2001, we borrowed $550 million under an 18-month interim
facility led by Bear, Stearns & Co. Inc. and Wells Fargo, N.A. ("Interim
Facility"), which bears interest at LIBOR plus 1.43%, or 5.0% as of the date of
our Current Report on Form 8-K filed on August 29, 2001. In addition, we
borrowed $46 million (at LIBOR plus 1.43%, or 5.0% as of the date of our Current
Report on Form 8-K filed on August 29, 2001) under our existing $450 million
revolving credit facility ("Credit Facility"). The remainder of the purchase
price was funded from available cash.
NOTE 4. PRO FORMA ADJUSTMENTS
The pro forma combined balance sheet has been prepared to reflect our
acquisition of IMS for an aggregate cash purchase price of $825 million plus
transaction costs. Pro forma adjustments are made to the balance sheet to
reflect:
(a) The payment of the cash purchase price of $825 million. The cash
purchase price was funded from the $550 million of borrowings under the
Interim Facility described in Note 3 above, available cash of $229 million
and borrowings of $46 million under the Credit Facility, as amended.
(b) An adjustment to increase the net assets of IMS by $8 million in
accordance with the anticipated working capital adjustment set forth in the
purchase agreement.
(c) The preliminary allocation of the purchase price to the estimated
fair value of the net assets at the acquisition date based on a preliminary
third party valuation (see Note 2) primarily consisting of a write down of
fixed assets from $57 million to $38 million, a write up of software from
$41 million to $42 million, a $3 million write off of a long-term
investment, and the recognition of $726 million in intangible assets
comprised of $630 million in goodwill and $96 million in amortizable
customer contracts. Also, in order to conform IMS' accounting policies to
our policies and to record assumed liabilities from the IMS acquisition,
accruals for approximately $15 million were made.
(d) The elimination of assets, including $12 million in cash and $36
million in long-term assets held for sale, and $226 million of intercompany
debt retained by the parent company of IMS (Lockheed Martin Corporation).
(e) Transaction costs (i.e. legal, investment banking and filing fees)
associated with the IMS Acquisition, which are estimated to be $12 million.
(f) The elimination of net equity of IMS.
Pro forma adjustments are made to the statement of income to reflect:
(g) A net decrease in depreciation and amortization expense resulting
from the $19 million write down of fixed assets, the $1 million write up of
software, a change in fixed asset and software useful lives and the $96
million purchase price allocation to intangible assets related to IMS'
customer contracts. The estimated weighted average life of this intangible
asset is approximately 13 years.
(h) An increase in interest expense related to the borrowings under
the Interim Facility and Credit Facility assuming that the debt was issued
as of July 1, 2000. Borrowings under the Interim Facility in the amount of
$550 million bear interest at LIBOR plus 1.43%, 5.0% as of the date of our
Current Report on Form 8-K filed on August 29, 2001. Borrowings under the
Credit Facility in the amount of $46 million also bear interest at LIBOR
plus 1.43%, 5.0% as of the date of our Current Report on Form 8-K filed on
August 29, 2001. As a result of funding the purchase price with variable
rate debt, a 1/8% variance in interest rates would have an approximate $0.5
million impact on net income.
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NOTES TO THE UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(i) Reduction in interest income related to the use of $229 million of
available cash to fund the acquisition. As of the date of our Current
Report on Form 8-K filed on August 29, 2001, available cash earns interest
at approximately 4.0%.
(j) Adjustment to income taxes on a combined basis to reflect the
estimated our effective tax rate of approximately 39%.
(k) Includes approximately $14 million of overhead allocation from the
parent of IMS.
The pro forma combined financial statements do not include integration
costs, or other transactions or events that the combined entity may undertake or
experience as a result of the acquisition. As such, any restructuring charges,
anticipated increases in revenues, or cost savings, are not presented in the pro
forma combined financial statements.
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SELECTED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Statement of Income Data" and "Balance Sheet Data" as of and for the years
ended June 30, 1999, 2000 and 2001 have been derived from our audited
consolidated financial statements and the notes thereto.
The information presented in the table below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our annual consolidated financial statements appearing herein or
incorporated herein by reference.
FISCAL YEAR ENDED JUNE 30,
--------------------------------------
1999 2000 2001
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA
Revenues............................................... $1,642,216 $1,962,542 $2,063,559
Operating expenses:
Wages and benefits................................... 713,984 854,162 904,684
Services and supplies................................ 500,631 608,401 598,797
Rent, lease and maintenance.......................... 183,116 206,330 223,679
Depreciation and amortization........................ 66,723 84,752 93,617
Impairment charges................................... -- 56,571 --
Other operating expenses............................. 19,178 28,918 19,056
---------- ---------- ----------
Total operating expenses..................... 1,483,632 1,839,134 1,839,833
---------- ---------- ----------
Operating income....................................... 158,584 123,408 223,726
Interest expense....................................... 17,594 23,979 23,742
Net gain on divestitures............................... -- (85,846) --
Other expense (income), net............................ (4,547) (9,995) (21,076)
---------- ---------- ----------
Pretax profit................................ 145,537 195,270 221,060
Income tax expense..................................... 59,307 85,958 86,768
---------- ---------- ----------
Net income................................... $ 86,230 $ 109,312(1) $ 134,292
========== ========== ==========
Earnings per share assuming dilution................... $ 1.66 $ 2.07(1) $ 2.46
Weighted average shares outstanding, diluted........... 55,668 55,806 58,228
AS OF JUNE 30,
--------------------------------------
1999 2000 2001
---------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital........................................ $ 194,226 $ 413,632(2) $ 528,563
Total assets........................................... 1,223,600 1,656,446 1,891,687
Total long-term debt (less current portion)............ 349,106 525,619 649,313
Stockholders' equity................................... 607,421 711,377 885,515
---------------
(1) Net income for fiscal year 2000 includes $1,055,000, or $.02 per share, of
net non-operating gains resulting from divestiture and restructuring
activities.
(2) Working capital and total assets include $180,335,000 of receivables from
the divestiture of business units prior to June 30, 2000 and $43,362,000 of
net assets held-for-sale from business units which were divested in fiscal
year 2001.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our selected
financial data and our annual consolidated financial statements and the related
notes appearing herein or incorporated herein by reference. The results
described below are not necessarily indicative of the results to be expected in
any future period. Certain statements in the following discussion are considered
forward-looking under the federal securities laws. These forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ substantially from historical results or our
predictions. See "A Warning About Forward-Looking Statements" in the
accompanying prospectus.
GENERAL
We derive our revenues from delivering information technology services,
including technology outsourcing, business process outsourcing and systems
integration services, to the commercial sector and to the federal government. A
substantial portion of our revenues is derived from recurring monthly charges to
our customers under service contracts with initial terms that vary from one to
ten years. For the fiscal year ended June 30, 2001, approximately 89% of our
revenues were recurring. We define recurring revenues as revenues derived from
services that are used by our customers each year in connection with their
ongoing businesses, and accordingly exclude conversion and deconversion fees,
software license fees, short-term contract programming engagements, product
installation fees and hardware sales. Since the inception of our company through
June 30, 2001, we have purchased 53 information technology services companies,
resulting in geographic expansion, growth and diversification of our customer
base, expansion of services offered and increased economies of scale.
Approximately half of the increase in revenues since June 30, 1994 has been
attributable to these acquisitions.
RECENT EVENT
On August 24, 2001 we acquired 100% of the stock of Lockheed Martin IMS
Corporation ("IMS") a wholly-owned subsidiary of Lockheed Martin Corporation for
approximately $825 million in cash plus transaction costs. The transaction was
accounted for under the purchase method of accounting, and therefore unless
specifically stated, the following Management's Discussion and Analysis of
Financial Condition and Results of Operations does not include IMS operations.
SIGNIFICANT DEVELOPMENTS -- FISCAL YEAR 2001
During fiscal year 2001, we acquired five companies, all of which serve our
commercial sector. We also signed contracts for a company record $345.0 million
of annual recurring new business during fiscal year 2001.
In the third quarter of fiscal year 2001, we sold a new issue of $317
million of 3.5% Convertible Subordinated Notes due February 15, 2006 (the "3.5%
Notes"). The 3.5% Notes are convertible at any time prior to the maturity date,
unless redeemed or repurchased, into our Class A Common Stock at a conversion
rate of 11.5117 shares of Class A Common Stock for each $1,000 principal amount
of 3.5% Notes (equivalent to a conversion price of $86.87 per share of Class A
Common Stock), subject to adjustments in certain events. The 3.5% Notes may be
redeemed at our option on or after February 18, 2004, in whole or in part, at
the redemption prices set forth in the 3.5% Notes.
During the first quarter of fiscal year 2001, we recorded a $12.8 million
gain in other non-operating income related to the sale of a non-strategic
minority investment in ACS Merchant Services, Inc. Also during the quarter, we
recorded a $10.4 million charge in connection with the termination of certain
hardware leases and disaster recovery contracts (reflected in rent, lease and
maintenance expense) and a $2.1 million charge for non-recurring litigation
costs and the writedown of property held-for-sale (reflected in other operating
expense).
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SIGNIFICANT DEVELOPMENTS -- FISCAL YEAR 2000
In May 2000, we entered into a formal plan to divest certain non-strategic
units consisting primarily of our ATM processing business and our commercial
staffing business. These business units, which were no longer considered
strategic to our long-term goal of providing information technology and business
process outsourcing services, along with other smaller divested business units,
accounted for approximately 15% of our fiscal year 2000 revenues. In June 2000,
we sold the ATM processing business for cash proceeds of approximately $179.8
million. The proceeds from this transaction were received in July 2000. In June
2000, we also completed the sale of two small professional services and systems
integration businesses resulting in cash proceeds of approximately $0.8 million.
As a result of these divestiture transactions, we recorded a net pretax gain of
$85.8 million during the fourth quarter of fiscal year 2000. The cash proceeds
from these divestitures were used to pay down amounts outstanding under our
existing credit facility.
During the fourth quarter of fiscal year 2000, we initiated a formal plan
to divest the commercial staffing business and two other smaller business units.
As a result, we recorded a $43.9 million pretax impairment charge for goodwill
associated with the commercial staffing business and the net assets were
reclassified into the balance sheet caption "Net Assets Held for Sale."
Subsequently, the sale of these units was completed in the first quarter of
fiscal year 2001 with proceeds of approximately $47.0 million.
At June 30, 2000, we recorded a $4.4 million pretax impairment charge for
software and other intangibles associated with two other smaller businesses.
During the fourth quarter of fiscal year 2000, we recorded other
non-recurring pretax charges of approximately $23.7 million related to the
impairment of certain other intangibles, primarily customer contracts, charges
associated with loss contracts, a contractual dispute with a client,
non-recurring litigation and severance.
During fiscal year 2000, we acquired three companies, two serving our
commercial segment and one serving the federal government segment. All of these
acquisition transactions expanded our existing market expertise. Also during
fiscal year 2000, we signed $232.0 million of annual recurring new business.
RESULTS OF OPERATIONS
The following table sets forth certain items from our Consolidated
Statements of Income expressed as a percentage of revenues and includes the
non-recurring charges mentioned above in "Significant Developments":
PERCENTAGE OF REVENUES
YEAR ENDED JUNE 30,
-------------------------
2001 2000 1999
----- ----- -----
Revenues.................................................... 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Wages and benefits........................................ 43.8 43.5 43.5
Services and supplies..................................... 29.0 31.0 30.5
Rent, lease and maintenance............................... 10.8 10.5 11.1
Depreciation and amortization............................. 4.5 4.3 4.0
Impairment charges........................................ -- 2.9 --
Other operating expenses.................................. 0.9 1.5 1.2
----- ----- -----
Total operating expenses.................................... 89.0 93.7 90.3
----- ----- -----
Operating income............................................ 11.0 6.3 9.7
Interest expense............................................ 1.2 1.2 1.1
Net gain from divestitures.................................. -- (4.4) --
Other non-operating income, net............................. (1.0) (0.5) (0.3)
----- ----- -----
Pretax profit............................................... 10.8 10.0 8.9
Income tax expense.......................................... 4.2 4.4 3.6
----- ----- -----
Net income.................................................. 6.6% 5.6% 5.3%
===== ===== =====
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Comparison of Fiscal Year 2001 to Fiscal Year 2000
Excluding revenues from divested units of $7.5 million and $298.6 million
in fiscal years 2001 and 2000, respectively, revenues increased $392.1 million,
or 24%, from $1.66 billion to $2.06 billion. Internal growth for fiscal year
2001 was 14%, while growth from acquisitions was 10%. Revenues in our commercial
segment, excluding the fiscal year 2000 divestitures, rose 25%, or $262.3
million, primarily due to new contracts in state Medicaid and Welfare benefit
program management, as well as growth from new and existing business process
outsourcing and technology outsourcing contracts. Revenues from our federal
segment increased $129.8 million, or 21%, due to the full year impact of the
acquisition of Intellisource in the fourth quarter of fiscal year 2000 and
growth in our Department of Education contract.
Excluding the non-recurring charges of $12.5 million (see "-- Significant
Developments -- Fiscal Year 2001") and $75.0 million (see "-- Significant
Developments -- Fiscal Year 2000") in fiscal years 2001 and 2000, respectively,
total operating expenses increased $63.2 million, or 3.6%, to $1.8 billion due
to our growth in new business. As a percentage of revenues, wages and benefits
increased from 43.5% to 43.8% primarily as a result of the fiscal year 2000
divestitures, which had a smaller component of wages and benefits. In addition,
the growth of our business process outsourcing services, which has a higher
labor component, has increased this percentage. Services and supplies decreased
as a percentage of revenues from 31.0% to 29.0% as a result of the divestiture
of the ATM processing business, which had a large component of interchange fees
paid to ATM distributors. Excluding the non-recurring items, rent, lease and
maintenance remained relatively constant as a percentage of revenues. Excluding
non-recurring items, other operating expenses decreased from 1.1% to 0.8% as a
percentage of revenues due to legal and other expenses recorded in June 2000.
Other non-operating income, net includes a non-recurring gain of $12.8
million in fiscal year 2001 related to the sale of an investment. Net gain from
divestitures represents an $85.8 million gain in fiscal year 2000 as a result of
the divestiture program completed in early fiscal year 2001 (see "-- Significant
Developments -- Fiscal Year 2000").
Our effective tax rate of approximately 39.25% in fiscal year 2001 exceeded
the federal statutory rate of 35% due primarily to the amortization of certain
acquisition-related costs that are non-deductible for tax purposes, plus the net
effect of state income taxes.
Comparison of Fiscal Year 2000 to Fiscal Year 1999
Revenues increased $320.3 million, or 20%, for fiscal year 2000 to $1.96
billion from $1.64 billion for fiscal year 1999. Of the 20% increase in
revenues, approximately 10% was from internal growth and 10% from acquisitions.
Revenues from our commercial segment increased $253.3 million, or 23%, over
fiscal year 1999 primarily due to acquisitions and new business process
outsourcing and technology outsourcing contracts with customers in the
insurance, retail, healthcare and financial services industries. Revenues from
our federal government segment increased $67.0 million, or 12%, over fiscal year
1999 due primarily to increased requirements under the Department of Education's
contract, new task orders under civilian agency contracts and the Intellisource
acquisition.
Fiscal year 2000 results of operations include several non-recurring pretax
charges totaling $72.0 million and a non-operating net pretax gain from
divestitures of $85.8 million that are discussed above in "-- Significant
Developments -- Fiscal Year 2000" and for purposes of the following discussion
have been excluded. The net effect of these non-recurring transactions increased
our basic and diluted earnings per share by approximately $0.02 for fiscal year
2000.
Total operating expenses increased $283.5 million, or 19%, to $1.77 billion
for fiscal year 2000 as compared to fiscal year 1999, due to our increase in
revenues. As a percentage of revenues, operating expenses decreased slightly in
fiscal year 2000 to 90.0% from 90.3% in fiscal year 1999 as a result of
expansion through internal growth and acquisitions in our business process
outsourcing service lines. Service and supplies as a percentage of revenues
increased from 30.5% in fiscal year 1999 to 30.8% in fiscal year 2000 due to a
higher component of subcontractor costs on the Department of Education contract
and increased ATM transactions. Rent, lease and maintenance expense decreased as
a percentage
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of revenues to 10.5% in fiscal year 2000 from 11.1% in fiscal year 1999 due to
current year acquisitions having a lower component of rent, lease and
maintenance expense. Depreciation and amortization increased as a percentage of
revenues to 4.3% in fiscal year 2000 compared to 4.0% in fiscal year 1999
primarily due to the amortization of current year acquisition costs.
Operating income increased $36.8 million, or 23%, for fiscal year 2000 as
compared to fiscal year 1999.
Interest expense increased $6.4 million to $24.0 million in fiscal year
2000, compared to $17.6 million in fiscal year 1999, primarily due to an
increase in interest rates and additional debt incurred for acquisitions.
Other non-operating income for fiscal year 2000 includes the recognition of
a $3.0 million gain on the collection of a fully reserved note receivable from
the sale of a business unit in fiscal year 1999 and the recognition of a $1.8
million net gain on the sale of a minority investment.
Excluding the non-recurring transactions discussed in "-- Significant
Developments -- Fiscal Year 2000," the effective tax rate for fiscal year 2000
was approximately 40.3% and exceeded the federal statutory rate of 35% due
primarily to the amortization of certain acquisition-related costs that are non-
deductible for tax purposes, plus the net effect of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had cash and cash equivalents totaling $242.5 million
compared to $44.5 million at June 30, 2000. Included in the cash balances at
June 30, 2001 and 2000 are $4.9 million and $22.3 million, respectively, of
restricted cash held on behalf of governmental customers. Working capital
increased to $528.6 million at June 30, 2001 from $413.6 million at June 30,
2000 due primarily to the collection of proceeds from divestitures and the
issuance of our 3.5% Notes, partially offset by the subsequent repayment of
long-term debt under our $450 million revolving credit facility.
Net cash provided by operating activities for fiscal year 2001 decreased to
$141.9 million as compared with $157.8 million in fiscal year 2000. During the
first quarter of fiscal year 2001, we paid approximately $50.0 million in income
taxes related to the net gain from our divestiture activity and approximately
$10.4 million of non-recurring lease termination charges, which are included in
cash flow from operations. After adjusting for these items and divestiture
activity, our net cash flow from operating activities would have been $200.6
million for fiscal year 2001, an increase of $42.8 million over fiscal year
2000. Net cash flow used in investing activities decreased by $246.7 million in
fiscal year 2001 compared to fiscal year 2000 primarily due to the receipt of
proceeds from divestitures of $202.8 million and a decrease in acquisition
payments from $232.9 million to $173.4 million. Net cash provided by financing
activities in fiscal year 2001 was $125.1 million as compared to $173.9 million
in fiscal year 2000, and decreased due to repayments of our $450 million
revolving credit facility less the issuance of our 3.5% Notes.
In the third quarter of fiscal year 2001, we sold a new issue of $317
million of 3.5% Notes, which allowed us to repay borrowings from our existing
$450 million revolving credit facility and to fund current and future
acquisitions. As of June 30, 2001, we had $340.8 million of availability under
our $450 million revolving credit facility.
We funded the purchase of IMS through a combination of an 18-month $550
million interim facility lead by Bear, Stearns & Co. Inc. and Wells Fargo, N.A.,
available cash on hand and borrowings under our existing $450 million revolving
credit facility. See "Use of Proceeds."
Our management believes that available cash and cash equivalents, together
with cash generated from operations and available borrowings under our $450
million revolving credit facility, will provide adequate funds for our
anticipated internal growth needs, including working capital expenditures. Our
management also believes that cash provided by operations will be sufficient to
satisfy all existing debt obligations as they become due. However, we intend to
continue our growth through acquisitions and from time to time to engage in
discussions with potential acquisition candidates. In order to pursue such
opportunities, which
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could require significant commitments of capital, we may be required to incur
debt or to issue additional potentially dilutive securities in the future. No
assurance can be given as to our future acquisition and expansion opportunities
and how such opportunities will be financed.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." SFAS 142 addresses the accounting and reporting of acquired
goodwill and other intangible assets. SFAS 142 discontinues amortization of
acquired goodwill and instead requires annual impairment testing of acquired
goodwill. Intangible assets will be amortized over their useful economic life
and tested for impairment in accordance with SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Intangible assets with an indefinite useful economic life should not be
amortized until the life of the asset is determined to be finite. We have
adopted SFAS 142 effective July 1, 2001. SFAS 142 will have a significant
favorable impact on our fiscal year 2002 financial results. See Note 1 of the
Notes to Consolidated Financial Statements contained in our most recent Annual
Report on Form 10-K, incorporated by reference herein, for further discussion of
the impact of SFAS 142.
Also in June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations." SFAS 141 requires that all business
combinations be accounted for under the purchase method and defines the criteria
for identifying intangible assets for recognition apart from goodwill. SFAS 141
applies to all business combinations initiated after June 30, 2001 and all
business combinations accounted for using the purchase method for which the
acquisition date is July 1, 2001 or later. We have adopted SFAS 141 effective
July 1, 2001. We are currently evaluating the impact of SFAS 141 on our future
earnings and financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements." SAB 101
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements and requires adoption no later than the fourth quarter of
fiscal year 2001. We have adopted the provisions of SAB 101 and do not believe
the adoption of SAB 101 has had a material impact on our earnings and financial
position.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of the FASB Statement
No. 133." SFAS 137 deferred the effective date of SFAS 133, "Accounting for
Derivatives and Hedging Activities" to fiscal years beginning after June 15,
2000. We adopted SFAS 133 on July 1, 2000. We do not believe the adoption of
SFAS 133 has had a material impact on our earnings and financial position.
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BUSINESS
GENERAL
We are a global, Fortune 1000 company delivering comprehensive business
process outsourcing and information technology outsourcing solutions, as well as
system integration services, to both commercial and federal government clients.
We are based in Dallas, Texas and have offices primarily in North America, as
well as Central America, South America, Europe, Africa and the Middle East. Our
clients have time-critical, transaction-intensive information processing needs,
and we typically service these needs through long-term contracts. Approximately
89% of our revenues for the past three fiscal years were recurring revenues,
which are revenues derived from services that our clients use each year in
connection with their ongoing businesses.
We were formed in 1988 to participate in the trend to outsource information
processing requirements to third parties. This outsourcing enables businesses to
focus on core operations, respond to rapidly changing technologies and reduce
expenses associated with business processes and data processing. Our business
strategy is to expand our client base and enhance our service offerings through
both internal marketing and the acquisition of complementary companies. Our
marketing efforts focus on developing long-term relationships with clients that
choose to outsource mission critical business processes and information
technology requirements. Our focus over the last several years has been to
participate in the expanding business process outsourcing market. Our business
expansion has been accomplished both from internal growth as well as through
acquisition. Since inception, we have completed 55 acquisitions, which have
resulted in geographic expansion, growth and diversification of our customer
base, expansion of services and products offered, and increased economies of
scale. Our revenues increased from $534 million in fiscal year 1995 to $2.1
billion in fiscal year 2001, a compound annual growth rate of 25%. Of this
growth, approximately one-half resulted from internal growth and the other half
resulted from growth through acquisitions.
On August 24, 2001, we acquired 100% of the stock of IMS, a wholly-owned
subsidiary of Lockheed Martin Corporation, for approximately $825 million in
cash plus transaction costs. IMS, with its principal office located in
Washington D.C. and approximately 4,800 employees throughout the United States
and in various foreign countries, primarily provides business process
outsourcing services to state and local government agencies focusing on health
and human services, transportation, public safety and child support. IMS'
revenues for the twelve-month period ending June 30, 2001 were approximately
$620 million.
We serve two primary markets. Our largest market is the commercial sector,
which during fiscal year 2001 accounted for approximately 64% of our annual
revenues. After the IMS acquisition, we believe our commercial sector now
approximates 75% of our revenues. Within the commercial sector, which includes
state and local governments, we provide business process outsourcing, systems
integration services and technology outsourcing to a variety of clients
nationwide, including healthcare providers, retailers, local municipalities,
state agencies, wholesale distributors, manufacturers, utilities, financial
institutions and insurance companies.
We also serve the federal government market, which during fiscal year 2001
accounted for approximately 36% of our annual revenues. Following the IMS
acquisition, we believe our federal government market now approximates 25% of
our revenues. Our services in this market are comprised of business process
outsourcing, systems integration services and technology outsourcing. Within our
federal government business, approximately half of our revenues are derived from
civilian agencies, including the Department of Education, with the remaining
half from Department of Defense agencies.
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MARKET OVERVIEW
The demand for our services has grown substantially in recent years, and we
believe that this will continue to increase in the future as a result of
financial, strategic and technological factors. These factors include:
- the increasing desire by businesses and government to drive process
improvements and improve the speed of and reduce the cost of execution;
- the increasing complexity of information technology systems and the need
to connect electronically with clients, suppliers, and other internal
systems;
- the increasing requirements for rapid processing of information and the
instantaneous communication of large amounts of data to multiple
locations;
- the desire of businesses and government organizations to focus on their
core competencies;
- the desire by businesses and government to take advantage of the latest
advances in technology without the cost and resource commitment required
to maintain an in-house system;
- the desire by businesses and government to have a workforce that is able
to expand and contract in relation to their business volumes; and
- the proliferation of web-based and wireless technologies.
BUSINESS STRATEGY
The key components of our business strategy include the following:
- Expand Client Base -- We seek to develop long-term relationships with new
clients by leveraging our subject matter expertise, world-wide data
manufacturing capabilities and infrastructure of information technology
products and services. Our primary focus is to increase our revenues by
obtaining new clients with recurring requirements for business process
and information technology services.
- Expand Existing Client Relationships -- We seek to expand existing client
relationships by increasing the scope and breadth of services we provide.
- Build Recurring Revenues -- We seek to enter into long-term relationships
with clients to provide services that meet their ongoing business
requirements while supporting their mission critical business process or
information technology needs.
- Invest in Technology -- We respond to technological advances and the
rapid changes in the requirements of our clients by committing
substantial amounts of our resources to the operation of multiple
hardware platforms, the customization of products and services that
incorporate new technology on a timely basis and the continuous training
of our personnel.
- Provide Flexible Solutions -- We offer custom-tailored business process
and information technology solutions using a variety of proprietary and
third-party licensed software on multiple hardware and systems software
platforms and domestic and international workforces that are able to
expand and contract in relation to clients' business volumes.
- Maximize Economies of Scale -- Our strategy is to develop and maintain a
significant client and account/transaction base to create sufficient
economies of scale that enable us to achieve competitive costs.
- Complete Strategic and Tactical Acquisitions -- Our acquisition strategy
is to acquire companies to expand our geographic presence, to expand the
products and services we offer to existing clients, and to obtain a
presence in new, complementary markets.
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- Attract, Train and Retain Employees -- We believe that attracting,
training, and retaining high quality employees are essential to our
growth. We seek to hire motivated individuals with strong character and
leadership traits and provide them with ongoing technological and
leadership skills training. We emphasize retaining our employees with
challenging work assignments and incentive programs.
During the last three fiscal years, our revenues by market were as follows
(in thousands):
YEAR ENDED JUNE 30,
------------------------------------
2001 2000 1999
---------- ---------- ----------
Commercial(1).................................... $1,315,893 $1,344,671 $1,091,417
Federal Government............................... 747,666 617,871 550,799
---------- ---------- ----------
Total Revenues................................... $2,063,559 $1,962,542 $1,642,216
========== ========== ==========
---------------
(1) Includes $7,500, $298,600 and $315,180 of revenues from divested companies
for the fiscal years 2001, 2000 and 1999, respectively.
COMMERCIAL
In the commercial sector we provide our clients with business process
outsourcing, systems integration services and technology outsourcing.
Business Process Outsourcing
Business process outsourcing is defined as the delegation of one or more
information technology intensive business processes to an external provider who
owns and manages the selected processes based on measurable performance metrics.
Clients outsource business processes to gain efficiencies, increase productivity
and lower costs. More and more companies are concluding that it is more
efficient to focus on their core competencies and to outsource their non-core
but mission-critical business processes. We developed our business process
outsourcing services to capitalize on a growing trend by business to outsource
entire processes, including the technology requirements of the business
function.
The business process outsourcing market can generally be divided into four
different areas: business administration, customer care, manufacturing and
supply chain management. Today, we are primarily focused on business
administration and customer care. We provide several important services to our
clients, including healthcare claims processing for insurance companies,
accounts payable processing, document management, loan and mortgage processing,
billing, customer service, customer analysis and call centers. We receive client
information in all media formats such as over the web, EDI, fax, voice, paper,
microfilm, computer tape, optical disk or CD ROM. Information is typically
digitized upon receipt and sent through our proprietary workflow process, which
is tailored to our clients' requirements. Using image transmission, storage and
retrieval technology, we digitize, process and transmit millions of information
records daily for our clients utilizing variable workforces both domestically
and internationally. In many instances, we perform quality assurance functions
and store the information for our clients on a long-term basis.
We are also a leading provider of program management, back-office
processing services and consulting for state and local governments' health and
human services agencies. We design, develop, implement and operate large scale
health and human services programs and the information technology solutions that
support those programs. Today, we process over 234 million Medicaid healthcare
claims annually on behalf of eight states using our proprietary Medicaid
management information system. In addition, in July 2001, we were selected by
the state of Georgia to be the prime contractor for the development and
operation of the state's health insurance system and program. This five-year,
$350 million contract is unique because it combines the state's health insurance
programs for its public employees as well as its Medicaid and children's health
insurance program recipients.
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Our recent acquisition of IMS has significantly expanded our business
process outsourcing offerings, including the support of state and local
government in four key areas:
- Children and Family Services -- We provide two principal offerings
including child support payment processing where we process over $7
billion annually, and electronic benefit payment processing for the
paperless distribution of government benefits, such as food stamps.
- Welfare and Workforce Services -- We provide government-mandated
workforce services, including management, operation and systems service
offerings linking individuals seeking employment with potential
employers.
- Municipal Services -- We process traffic and parking tickets collecting
over $500 million on behalf of our clients. In addition, we operate
traffic safety programs that use photographic functionality to automate
the enforcement of traffic violations.
- Transportation Systems and Services -- We process more than 25% of the
state issued operating credentials and support the operation of over 30%
of the motor carriers operating in the United States. Additionally, we
provide Electronic Toll Collection Services processing over $1.2 billion
in toll revenues annually on behalf of our clients, which include E-Z
Pass New York, the largest electronic toll collection operation in the
world. We also operate a nationwide network that electronically checks
safety credentials and weighs trucks at highway speed, granting carriers
authorization to bypass weigh stations without stopping.
Pricing for business process outsourcing services is typically determined on the
basis of the number of accounts or transactions processed.
Technology Outsourcing
We offer a complete range of technology outsourcing solutions to commercial
businesses desiring to improve the performance of their information technology
organizations. Our technology outsourcing solutions include the delivery of
information processing services on a remote basis from host data centers with
tremendous processing capacity, network management and desktop support.
Information processing services include mainframe, mid-range, desktop, network
and web-hosting solutions.
We provide our technology outsourcing solutions through an extensive data
center network, which is comprised of five host data centers and six remote data
centers. Our data centers and clients are connected via an extensive
telecommunication network. We monitor and maintain local and wide area networks
on a seven-day, 24-hour basis and provide shared hub satellite transmission
service as an alternative to multi-drop and point-to-point hard line
telecommunications networks.
Our target market for technology outsourcing services consists of
medium-to-large-sized commercial organizations with time-critical,
transaction-intensive information processing needs. We typically provide our
technology outsourcing services pursuant to multi-year contracts, which are
typically priced on a resource utilization basis. Resources utilized include
processing time, the number of desktops managed, professional services, data
storage and retrieval utilization and output media utilized.
Systems Integration Services
Our systems integration services include application development and
implementation, applications outsourcing, technical support and training, as
well as network design and installation services. Our systems integration
services include the development of web-based applications and web-enablement of
information technology assets, allowing our clients to conduct business with
their customers and business partners via the Internet. We also provide systems
integration services to clients, who are deploying client/server architectures,
advanced networks and outsourcing legacy applications maintenance. We believe
our ability to deliver high-level skill sets and proven methodologies across a
variety of technologies enhances our ability to help clients and prospects deal
with technological change. Due to the nature of the work, we
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generally offer our systems integration services on a time and materials basis
to a changing client base under short-term contractual arrangements.
FEDERAL GOVERNMENT
Within the federal government sector, we also provide business process
outsourcing and systems integration services. Our civilian agency clients
account for about half of our federal government revenues and Department of
Defense agencies account for the remaining half.
Business Process Outsourcing
Our business process outsourcing services consist primarily of loan
servicing for federal agencies. Our services generally include billing, lock-box
payment processing, related accounting and reconciliation and client service
call center and web-site operations. Our largest contract for these services is
with the Department of Education, for which we service student loans under the
Department of Education's Direct Student Loan program. Under this contract, we
currently provide loan servicing to over 5.2 million borrowers, or over 19
million loans with an aggregate value of $79 billion. During fiscal year 2001,
revenue from this contract was approximately $148 million. This contract is
scheduled to expire in September 2003. We also have contracts with the Small
Business Administration, Housing and Urban Development, and Ginnie Mae. Pricing
is typically determined on the basis of the number of accounts and/or
transactions processed.
Systems Integration Services
We provide applications development, applications outsourcing, network
implementation and maintenance, desktop services, technical staff augmentation,
and training. We develop and outsource many applications including legacy, ERP,
and web-based systems. The Department of Defense and civilian agencies generally
either contract directly with us or through the General Services Administration
for these services. The General Services Administration performs the procurement
function for many civilian and Department of Defense agencies. Approximately 23%
of these services for fiscal year 2001 were provided pursuant to three contracts
with the General Services Administration. We also provide our services directly
to a variety of civilian agencies such as the Departments of Labor, Treasury and
Transportation, NASA, the FAA, the U.S. Senate, the U.S. Postal Service, the
Federal Energy Regulatory Commission and the National Drug Intelligence Center.
In addition, we provide these services to a variety of Department of Defense
agencies such as Strategic Command, Air Combat Command, the National Security
Agency and the Defense Special Weapons Agency. We generally price these services
on a time and materials basis.
REVENUES
Our revenues by service line are shown in the following table (in
thousands):
YEAR ENDED JUNE 30,
------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- --------
Business process
outsourcing............... $ 974,244 $ 948,010 $ 696,976 $ 468,175 $385,937
Systems integration
services.................. 648,244 604,841 570,168 390,221 245,720
Technology outsourcing...... 441,071 409,691 375,072 330,727 297,268
---------- ---------- ---------- ---------- --------
Total............. $2,063,559 $1,962,542 $1,642,216 $1,189,123 $928,925
========== ========== ========== ========== ========
CLIENT BASE
We achieve growth in our client base through internal marketing and
acquisitions of other business process and information technology services
companies. We have a diverse client base. Within the commercial segment, we
serve all of the major vertical markets that spend heavily on technology
including the healthcare, retail, transportation and financial industries.
However, during fiscal year 2001, our largest commercial vertical market
accounted for only 20% of our consolidated revenues and no single commercial
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client accounts for more than 2% of our consolidated revenues. Within the
federal government segment, our clients are evenly divided between the
Department of Defense agencies and the civilian agencies. Our largest federal
government client represents 7% of our consolidated revenues. In addition, over
99% of our consolidated revenues are derived from domestic clients. Clients may
be lost due to merger, business failure or conversion to a competing processor
or to an in-house system. Our business with the federal government is subject to
various risks, including the reduction or modification of contracts due to
changing government needs and requirements. Government contracts, by their
terms, generally can be terminated for convenience by the government, which
means that the government may terminate the contract at any time, without cause,
and in certain instances we would be entitled to receive compensation only for
the services provided or stranded asset costs incurred at the time of
termination.
Approximately 89%, 88% and 89% of our revenues for fiscal years 2001, 2000
and 1999, respectively, were recurring. We define recurring revenues as revenues
derived from services that are used by our clients each year in connection with
their ongoing businesses, and accordingly exclude conversion and deconversion
fees, software license fees, product installation fees and hardware sales.
Our five largest customers accounted for approximately 18%, 18% and 19% of
our fiscal years 2001, 2000 and 1999 revenues, respectively.
COMPETITION
The markets for our services are intensely competitive and highly
fragmented. The most significant competitive factors are reliability and quality
of services, technical competence and price of services.
We believe we compete successfully in the business process outsourcing
business by offering high quality services and favorable pricing by leveraging
our technical skills, process knowledge, and economics of scale. Competition is
highly fragmented and depends on the specific business process. Principal
competitors include Electronic Data Systems (EDS), IBM, Unisys, Maximus,
Transcore, FYI, Inc., National Processing Company, First Health, Lason, Inc. and
several other small-to-medium-sized local and regional competitors.
We compete successfully for technology outsourcing contracts by offering
high quality services and favorable pricing by leveraging our technical skills,
infrastructure, and achieving economics of scale. We may be required to purchase
technology assets from prospective clients or to provide financial assistance to
prospective clients in order to obtain their contracts. Many of our competitors
have substantially greater resources and thus, may have a greater ability to
obtain client contracts where sizable asset purchases or investments are
required. To maintain competitive prices, we operate with efficient and low
overhead and maintain a significant client base and account/transaction base to
achieve sufficient economies of scale. Our competition for technology
outsourcing contracts consists of:
- the first-tier outsourcers, including IBM, EDS and Computer Sciences
Corporation (CSC);
- mid-sized divisions of large corporations such as Siemens, Perot Systems;
and
- other smaller, regional competitors.
In the future, we expect competition to emerge from new players (e.g.
Hewlett Packard, Compaq) as they shift their business strategy from hardware to
both services and hardware.
In systems integration services markets, we actively compete with small
specialized firms as well as with large competitors with a wider range of
systems integration services. We believe that the key competitive factors in
obtaining and retaining clients include the ability to understand project
requirements, deliver appropriate skill sets in a timely manner and price
services effectively. We must also compete for qualified personnel through
competitive wages and by maintaining a consistent demand for the skills
recruited. Our competition in systems integration services includes EDS, CSC,
Science Applications International Corporation, and a wide variety of web
hosting and development companies.
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SALES AND MARKETING
We market our services through field sales forces located throughout the
United States. In order to enhance our sales and marketing efforts, we seek to
hire sales representatives who have significant technical and subject matter
expertise in the industries to which they will be marketing. Our sales forces
are focused on specific service offerings or vertical markets, allowing our
representatives to keep abreast of technology and industry developments.
EMPLOYEES
We believe that our success depends on our continuing ability to attract
and retain skilled technical, marketing and management personnel. As of June 30,
2001, we had approximately 21,000 full-time equivalent employees, including
approximately 17,000 employed domestically, with the balance employed in our
international operations. Of the domestic employees, approximately 200 are
represented by a union. Approximately 2,400 of our international full-time
equivalent employees are represented by unions, primarily in Mexico, and we have
had no work stoppages or strikes by these employees. Management considers its
relations with employees to be good.
As of June 30, 2001, approximately 15,200 full-time equivalent employees
provide business process, technology outsourcing and systems integration
services to our commercial clients and approximately 5,300 full-time equivalent
employees provide business process outsourcing and systems integration services
to our federal government clients, including approximately 1,800 employees who
have government security clearance. With the recent IMS acquisition, we have
increased our workforce to approximately 26,000 employees.
GOVERNMENT CONTRACTS AND REGULATION
After the IMS acquisition, approximately 25% of our revenues are derived
from contracts and subcontracts with federal government agencies. Our allowable
federal government contract costs and fees are subject to audit by the Defense
Contract Audit Agency ("DCAA"). These audits may result in non-reimbursement of
some contract costs and fees. To date, we have experienced no material
adjustments as a result of audits by the DCAA. The DCAA has completed audits of
the Company's federal contracts through fiscal year 1999 for a majority of the
federal government contracts.
We are not directly subject to federal or state regulations specifically
applicable to financial institutions. As a provider of services to financial
institutions, however, our technology outsourcing and business process
outsourcing solutions operations are examined periodically by various state and
federal regulatory agencies. These agencies make recommendations regarding
various aspects of our operations, and generally, we implement such
recommendations. We also arrange for annual independent examinations of our
major data processing facilities.
PROPERTIES
As of June 30, 2001, we had approximately 182 locations in the United
States and 12 locations in 6 other countries. Approximately 1.1 million square
feet is owned and approximately 2.7 million square feet is leased. The leases
expire from 2001 to 2011 and we do not anticipate any significant difficulty in
obtaining lease renewals or alternate space. Our executive offices are located
in Dallas, Texas at a company-owned facility of approximately 621,000 square
feet, which also houses a host data center and other operations. Our federal
government sector executive offices are located in Rockville, Maryland in a
company-owned facility of approximately 130,000 square feet. We believe that our
current facilities are suitable and adequate for our business. With the IMS
acquisition we added 120 locations in the United States and two locations in
other countries, which collectively encompass over 1.0 million square feet of
leased space.
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LEGAL PROCEEDINGS
On December 16, 1998, a state district court in Houston, Texas entered
final judgment against us in a lawsuit brought by twenty-one former employees of
Gibraltar Savings Association and/or First Texas Savings Association
(collectively, "GSA/FTSA"). The GSA/FTSA employees alleged that they were
entitled to the value of 401,541 shares of our stock pursuant to options issued
to the GSA/FTSA employees in 1988 in connection with a former data processing
services agreement between GSA/FTSA and us. The judgment against us was for
approximately $17 million, which includes attorneys' fees and pre-judgment
interest, but excludes additional attorneys' fees of approximately $850,000 and
post-judgement interest at the statutorily mandated rate, which could be awarded
in the event the plaintiffs are successful upon appeal and final judgment. We
continue to believe that we have a meritorious defense to all or a substantial
portion of the plaintiffs' claims. We filed our appeal of the judgment on March
15, 1999 and a brief in support of such appeal has been filed. We plan to
vigorously pursue the appeal. The plaintiffs also have filed a notice of appeal.
A hearing for oral arguments on the parties' appeals occurred on September 20,
2001. Should the proceedings not be favorably resolved on appeal, we would be
subject to a material charge. The court of appeals has given no indication of
when it will issue its decision.
In addition to the foregoing, we are subject to certain other legal
proceedings, claims and disputes which arise in the ordinary course of our
business. Although we cannot predict the outcomes of these legal proceedings, we
do not believe these actions, in the aggregate, will have a material adverse
effect on our financial position, results of operations or liquidity.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
The following is a summary of the material U.S. Federal income tax
consequences of the acquisition, ownership and disposition of our Class A Common
Stock by a holder that, for U.S. Federal income tax purposes, is not a U.S.
person as defined below. The discussion is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, judicial authorities,
published positions of the Internal Revenue Service, (the "IRS") and other
applicable authorities, all as in effect on the date hereof and all of which are
subject to change or differing interpretations (possibly with retroactive
effect). The discussion is for general information only and does not purport to
discuss all aspects of the U.S. Federal income taxation that may be relevant to
a particular holder or to holders subject to special treatment under U.S.
Federal income tax laws (including dealers in securities, financial
institutions, banks, insurance companies, tax-exempt organizations,
partnerships, owners of more than 5% of our common stock, persons that hold our
common stock as part of a "straddle," "hedge," "conversion," "synthetic
security" or other integrated investment). The discussion is limited to holders
who will hold our Class A Common Stock as a capital asset (generally, property
held for investment). No ruling has been or will be sought from the IRS
regarding any matter discussed herein. No assurance can be given that the IRS
would not assert, or that a court would not sustain, a position contrary to any
of the tax aspects set forth below. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR
TAX ADVISORS AS TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING,
HOLDING AND DISPOSING OF OUR CLASS A COMMON STOCK, AS WELL AS THE EFFECTS OF
STATE, LOCAL AND NON-U.S. TAX LAWS.
For purposes of this discussion, a U.S. person means any one of the
following:
- an individual who is a citizen or resident of the U.S.,
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S.,
- an estate, the income of which is includible in gross income for U.S.
Federal income tax purposes regardless of its source, or
- a trust (a) the administration of which is subject to the primary
supervision of a U.S. court and which has one or more U.S. persons who
have the authority to control all substantial decisions of the trust or
(b) that was in existence on August 20, 1996, was treated as a U.S.
person under the Code on the previous day, and elected to continue to be
so treated.
A non-U.S. holder is any person other than a U.S. person.
DIVIDENDS
Dividends, if any, paid to a non-U.S. holder of our Class A Common Stock
will generally be subject to withholding of U.S. Federal income tax at the rate
of 30% or a lower rate if provided by an applicable income tax treaty. If,
however, the dividend is effectively connected with the conduct of a trade or
business in the U.S. by the non-U.S. holder, the dividend will be subject to
U.S. Federal income tax imposed on net income on the same basis that applies to
U.S. persons generally, but will not be subject to withholding. Corporate
non-U.S. holders engaged in the conduct of a U.S. trade or business may also be
subject to the branch profits tax. Non-U.S. holders should consult any
applicable income tax treaty that may provide for a reduction or, or exemption
from, withholding taxes.
U.S. Treasury Regulations generally require a non-U.S. holder to certify
its entitlement to benefits under a treaty in order to obtain a reduced rate of
withholding. These Treasury Regulations also provide special rules to determine
whether, for purposes of applying a treaty, dividends paid to a non-U.S. holder
that is an entity should be treated as paid to holders of interests in that
entity.
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GAIN ON DISPOSITION
A non-U.S. holder generally will not be subject to U.S. Federal income tax,
including by way of withholding, on gain recognized on a sale or other
disposition of our Class A Common Stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder,
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and certain
other requirements are met,
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
Federal income tax law applicable to certain U.S. expatriates, or
- we are or have been a "U.S. real property holding corporation" for U.S.
Federal income tax purposes at any time during the shorter of the five
year period ending on the date of disposition or the period that the
non-U.S. holder held our Class A Common Stock.
We have determined that we are not, and we believe we will not become, a
U.S. real property holding corporation.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by a non-U.S. holder will be subject to the U.S. Federal income tax
imposed on net income on the same basis that applies to U.S. persons generally,
but will not be subject to withholding. Corporate non-U.S. holders engaged in
the conduct of a U.S. trade or business may also be subject to the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaty
that may provide for different rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends paid to a holder, and the amount of tax withheld on
those dividends. This information may also be made available to the tax
authorities of a country in which the non-U.S. holder is a resident. Dividends
paid on our Class A Common Stock will not be subject to backup withholding
provided that the non-U.S. holder certifies, under penalty of perjury, that it
is a non-U.S. holder in compliance with applicable requirements and satisfies
documentary evidence requirements for establishing that it is a non-U.S. holder,
or otherwise establishes an exemption.
Information reporting and backup withholding will generally not apply to
payments of gross proceeds of a sale or other taxable disposition of our Class A
Common Stock effected outside the U.S. by a foreign office of a foreign broker.
However, information reporting (but not backup withholding) will apply to
payments of gross proceeds of a sale or other taxable disposition of our Class A
Common Stock effected outside the U.S. by a foreign office of a U.S. broker or a
foreign broker with certain types of relationships to the U.S., unless the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met, or the holder otherwise establishes an
exemption. Payment by a U.S. office of any broker of the gross proceeds of a
sale or other taxable disposition of our Class A Common Stock may be subject to
both backup withholding and information reporting unless the non-U.S. holder
certifies, under penalty of perjury, that it is a non-U.S. holder in compliance
with applicable requirements and satisfies documentary evidence requirements for
establishing that it is a non-U.S. holder, or otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund, or a credit against the
non-U.S. holder's U.S. federal income tax liability, provided that the requisite
procedures are followed and certain information is provided to the IRS.
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UNDERWRITING
Subject to the terms and conditions of an underwriting agreement to be
entered into between us and the underwriters named below, who are represented by
Bear, Stearns & Co. Inc., the underwriters have severally agreed to purchase
from us the following respective number of shares of Class A Common Stock less
the underwriting discounts and commissions set forth on the cover page of this
prospectus supplement.
NUMBER OF
UNDERWRITER SHARES
----------- ---------
Bear, Stearns & Co. Inc. ................................... 5,065,937
Lehman Brothers Inc. ....................................... 1,397,500
Wells Fargo Van Kasper, LLC................................. 524,063
A.G. Edwards & Sons, Inc. .................................. 225,000
Robertson Stephens, Inc. ................................... 225,000
SG Cowen Securities Corp.................................... 225,000
Robert W. Baird & Co. Incorporated.......................... 112,500
BB&T Capital Markets, a Division of Scott & Stringfellow.... 112,500
First Southwest Company..................................... 112,500
---------
Total............................................. 8,000,000
=========
The underwriting agreement will provide that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the continuing correctness of our
representations to them and no occurrence of an event that would significantly
harm our business. The underwriters are obligated to purchase and accept
delivery of all the shares, other than those covered by the over-allotment
option described below, if they purchase any of the shares.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act of 1933, as amended, and, where
such indemnification is unavailable, to contribute to payments that the
underwriters may be required to make in respect of such liabilities.
The underwriters propose to offer the shares of Class A Common Stock
directly to the public at the offering price set forth on the cover page of this
prospectus supplement and to selected dealers at such price less a concession
not to exceed $1.94 per share. The underwriters may allow, and such selected
dealers may reallow, a concession not to exceed $0.10 per share, and after the
commencement of this offering, the offering price and the concessions may be
changed.
We have granted to the underwriters an option to purchase up to 1,200,000
additional shares of Class A Common Stock to be sold in this offering at the
offering price less the underwriting discount set forth on the cover page of
this prospectus supplement. The underwriters may exercise this option solely to
cover over-allotments, if any. The option may be exercised in whole or in part
at any time within 30 days after the date of this prospectus supplement. To the
extent the option is exercised, the underwriters will be severally committed,
subject to several conditions, including the approval of legal matters by their
counsel, to purchase the additional shares of Class A Common Stock in proportion
to their respective commitments as indicated in the table above.
The underwriting fee is equal to the offering price per share of Class A
Common Stock less the amount paid by the underwriters to us per share of Class A
Common Stock. The following table shows the discounts to be paid to the
underwriters by us. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
Underwriting discounts and
commissions payable by us.... $3.24 $3.24 $25,920,000 $29,808,000
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We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $850,000 and will
be paid by us. The shares of Class A Common Stock will be available for
delivery, when, as and if accepted by the underwriters and subject to prior sale
and to withdrawal, cancellation or modification of the offering without notice.
The underwriters reserve the right to reject an order for purchase of the shares
in whole or in part.
We intend to use more than 10% of the net proceeds from the sale of shares
of our Class A Common Stock pursuant to this prospectus supplement to repay
indebtedness owed by us to Bear, Stearns & Co. Inc. and Wells Fargo Bank Texas,
National Association, an affiliate of Wells Fargo Van Kasper, LLC. Accordingly,
this offering is being made in compliance with the requirements of Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc.
We and our executive officers and directors have agreed not to, directly or
indirectly, announce or disclose any intention to issue, offer, sell, offer or
agree to sell, grant any option for the sale of, pledge, make any short sale or
maintain any short position, establish or maintain a "put equivalent position"
(within the meaning of Rule 16a-1(h) of the Securities Exchange Act of 1934),
enter into any swap, derivative transaction or other arrangement that, in any
manner, transfers all or a portion of the economic consequences associated with
the ownership of any shares of Class A Common Stock or otherwise dispose of,
directly or indirectly, any shares of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Class A Common
Stock beneficially owned during the 90-day period following the date of this
prospectus supplement (other than, in the case of the Company, pursuant to
existing employee stock option and stock purchase plans, upon the conversion of
outstanding convertible securities or pursuant to existing earn-out obligations
arising out of prior acquisitions), without the prior written consent of Bear,
Stearns & Co. Inc.; provided, however, that we may issue up to 3,000,000 shares
of Class A Common Stock in consideration for acquisitions of businesses
occurring after the date of this prospectus supplement, provided that each
recipient of any such shares agrees in writing for the benefit of the
underwriters that all such shares shall remain subject to restrictions identical
to those contained in this sentence; and provided, further, however, that
directors and officers may offer, sell, contract to sell or otherwise dispose of
shares pursuant to existing 10b-5-1 sales plans and during the period beginning
on the 61st day after the date of this prospectus supplement and continuing to
and including the 90th day after such date, our directors and executive officers
may offer, sell, contract to sell or otherwise dispose of up to an aggregate of
12.5% of their individual holdings of shares of Class A Common Stock and Class B
Common Stock.
In order to facilitate the offering of shares of our Class A Common Stock,
the underwriters may engage in transactions that stabilize, maintain, or
otherwise affect the market price of shares of our Class A Common Stock.
The underwriters may over-allot shares of our Class A Common Stock in
connection with this offering, thus creating a short position for their own
account. Short sales involve the sale by the underwriters of a greater number of
shares than they are committed to purchase in the offering. A short position may
involve either "covered" short sales or "naked" short sales. Covered short sales
are sales made in an amount not greater than the underwriters' over-allotment
option to purchase additional shares in the offering described above. The
underwriters may close out any covered short position by either exercising their
over-allotment option or purchasing shares in the open market. In determining
the source of shares to close the covered short position, the underwriters will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares through
the over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in this offering.
Accordingly, to cover these short sales positions or to stabilize the
market price of our Class A Common Stock, the underwriters may bid for, and
purchase, shares of our Class A Common Stock in the
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open market. These transactions may be effected on the New York Stock Exchange
or otherwise. Additionally, the representative, on behalf of the underwriters,
may also reclaim selling concessions allowed to an underwriter or dealer.
Similar to other purchase transactions, the underwriters' purchases to cover the
syndicate short sales or to stabilize the market price of our Class A Common
Stock may have the effect of raising or maintaining the market price of our
Class A Common Stock or preventing or mitigating a decline in the market price
of our Class A Common Stock. As a result, the price of the shares of our Class A
Common Stock may be higher than the price that might otherwise exist in the open
market. No representation is made as to the magnitude or effect of any such
stabilization or other activities. The underwriters are not required to engage
in these activities and, if commenced, may end any of these activities at any
time.
From time to time, some of the underwriters or their affiliates have
provided, and may continue to provide in the future, investment banking, general
financing and banking services to us and our affiliates, for which they have
received, and expect to receive, customary compensation.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed on for
us by Baker Botts L.L.P., Dallas, Texas, and for the underwriters by Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
Our financial statements incorporated in this prospectus supplement and the
accompanying prospectus by reference to our Annual Report on Form 10-K for the
year ended June 30, 2001, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Lockheed Martin IMS Corporation (a
subsidiary of Lockheed Martin Corporation) at December 31, 2000 and 1999, and
for each of the three years in the period ended December 31, 2000, incorporated
by reference in this prospectus supplement and the accompanying prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon incorporated by reference herein from our Current Report on Form
8-K filed on August 29, 2001, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
S-39
41
PROSPECTUS
$1,500,000,000
AFFILIATED COMPUTER SERVICES, INC.
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
CLASS A COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
WARRANTS
---------------------
We may offer from time to time:
- Senior Debt Securities
- Subordinated Debt Securities
- Class A Common Stock
- Preferred Stock
- Depositary Shares
- Warrants
In addition, our chairman, Darwin Deason, may offer from time to time up to
1,504,562 shares of our Class A Common Stock.
We will provide the specific terms of the offered securities in supplements
to this prospectus. You should read this prospectus and the supplements
carefully before you invest.
---------------------
Our Class A Common Stock is traded on the New York Stock Exchange under the
trading symbol "ACS".
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is September 24, 2001
42
TABLE OF CONTENTS
PAGE
----
ABOUT THIS PROSPECTUS....................................... 1
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.................. 1
AFFILIATED COMPUTER SERVICES, INC........................... 2
USE OF PROCEEDS............................................. 3
RATIO OF EARNINGS TO FIXED CHARGES.......................... 3
DESCRIPTION OF DEBT SECURITIES.............................. 3
General................................................... 3
Our Senior Debt Securities................................ 5
Our Subordinated Debt Securities.......................... 5
Global Certificates....................................... 6
Events of Default......................................... 7
Defeasance................................................ 9
Consolidation, Merger or Sale of Assets................... 9
Modification and Waiver................................... 9
Certificates and Opinions to be Furnished to the
Trustee................................................ 11
Report to Holders of Debt Securities...................... 11
The Trustee............................................... 11
DESCRIPTION OF CAPITAL STOCK................................ 12
Class A Common Stock and Class B Common Stock............. 12
Rights Agreement.......................................... 13
Preferred Stock........................................... 14
Certificate of Incorporation and Bylaws................... 15
Transfer Agent and Registrar.............................. 16
New York Stock Exchange Listing........................... 16
DESCRIPTION OF DEPOSITARY SHARES............................ 17
Dividends and Other Distributions......................... 17
Withdrawal of Stock....................................... 17
Redemption of Depositary Shares........................... 18
Voting of Preferred Stock................................. 18
Liquidation Preference.................................... 18
Conversion of Preferred Stock............................. 19
Amendment and Termination of the Deposit Agreement........ 19
Charges of Preferred Stock Depositary..................... 20
Resignation and Removal of Preferred Stock Depositary..... 20
Miscellaneous............................................. 20
DESCRIPTION OF WARRANTS..................................... 20
Warrants for Preferred Stock or Class A Common Stock...... 21
Warrants for Debt Securities.............................. 21
Exercise of Warrants...................................... 22
SELLING SECURITYHOLDER...................................... 22
PLAN OF DISTRIBUTION........................................ 23
Sale Through Underwriters Or Dealers...................... 23
Direct Sales and Sales Through Agents..................... 23
Delayed Delivery Contracts................................ 24
General Information....................................... 24
LEGAL MATTERS............................................... 24
EXPERTS..................................................... 24
WHERE YOU CAN FIND MORE INFORMATION......................... 24
INFORMATION WE INCORPORATE BY REFERENCE..................... 26
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ABOUT THIS PROSPECTUS
Generally, whenever we use the terms "we," "our," "us," and "ACS," we are
referring to Affiliated Computer Services, Inc. and its subsidiaries. However,
for purposes of the "Description of Notes," the "Description of Capital Stock,"
the "Description of Warrants" and the "Description of Depositary Shares"
sections of this prospectus, and when the context otherwise requires, the terms
"we," "our," "us," and "ACS" refer only to Affiliated Computer Services, Inc.
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission using a "shelf" registration process. The
registration statement also includes a prospectus under which ACS Trust I and
ACS Trust II, two of our subsidiaries, may offer from time to time trust
preferred securities guaranteed by us and we may offer our related subordinated
debt securities. Under the shelf registration process, we may offer from time to
time any combination of the securities described in these two prospectuses in
one or more offerings with a total initial offering price of up to
$1,500,000,000. This prospectus provides you with a general description of the
senior debt securities, subordinated debt securities, Class A Common Stock,
preferred stock, depositary shares and warrants we may offer. Each time we use
this prospectus to offer these securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering such as:
- the type and amount of securities which we propose to sell;
- the initial offering price of such securities;
- the names and compensation of the underwriters or agents, if any, through
or to which we will sell the securities;
- information about any securities exchanges or automated quotation systems
on which the securities will be listed or traded;
- any material United States federal income tax considerations applicable
to the securities; and
- any other material information about the offering and the sale of the
securities.
The prospectus supplement may also add, update, or change information contained
or incorporated by reference in this prospectus. Please carefully read this
prospectus and the prospectus supplement, together with the additional
information described under the heading "Where You Can Find More Information."
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Statements contained in this prospectus, incorporated by reference in this
prospectus and contained in any accompanying prospectus supplement, that are not
historical facts, are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include information about possible or assumed future results of our operations.
Also, when we use the words "believes," "expects," "anticipates," "estimates,"
"may," "could," "potential" or similar expressions, we are making
forward-looking statements. Many possible events or factors could affect the
future financial results and performance of our company. This could cause our
results or performance to differ materially from those expressed in our
forward-looking statements. You should consider these risks when you purchase
securities.
The following list identifies some of the factors that could cause our
actual results to differ from those expressed or implied by our forward-looking
statements.
- changes in demand for and pricing of information technology outsourcing,
business process outsourcing, and systems integration services,
- changes in regulation and governmental or public policy,
- competition,
- our ability to attract and retain skilled personnel,
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- changes in the financial condition of our customers,
- general economic conditions, fluctuations in interest rates and
fluctuations in currency exchange rates in countries in which we do
business,
- our ability to complete and integrate strategic acquisitions and
alliances,
- changes in the U.S. federal government spending levels for information
technology services,
- unexpected operational difficulties or cancellations of significant
customer contracts, and
- other factors we discuss in this prospectus, the applicable prospectus
supplement and our other filings with the SEC.
AFFILIATED COMPUTER SERVICES, INC.
We are a global, Fortune 1000 company delivering comprehensive business
process outsourcing and information technology outsourcing solutions, as well as
system integration services, to both commercial and federal government clients.
We are based in Dallas, Texas and have offices primarily in North America, as
well as Central America, South America, Europe, Africa and the Middle East. Our
clients have time-critical, transaction-intensive information processing needs
and we typically service these needs through long-term contracts.
We were formed in 1988 to participate in the trend to outsource information
processing requirements to third parties. This outsourcing enables businesses to
focus on core operations, respond to rapidly changing technologies and reduce
expenses associated with business processes and data processing. Our business
strategy is to expand our client base and enhance our service offerings through
both internal marketing and the acquisition of complementary companies. Our
marketing efforts focus on developing long-term relationships with clients that
choose to outsource mission critical business processes and information
technology requirements. Our focus over the last several years has been to
participate in the expanding business process outsourcing market. Our business
expansion has been accomplished both from internal growth as well as through
acquisitions.
We serve two primary markets. Our largest market is the commercial sector.
Within the commercial sector, which includes state and local governments, we
provide business process outsourcing, systems integration services and
technology outsourcing to a variety of clients nationwide, including healthcare
providers, retailers, local municipalities, state agencies, wholesale
distributors, manufacturers, utilities, financial institutions and insurance
companies.
We also serve the federal government market. Our services in this market
are comprised of business process outsourcing, systems integration services and
technology outsourcing. Within our federal government business, approximately
half of our revenues are derived from civilian agencies, including the
Department of Education, with the remaining half from Department of Defense
agencies.
Additional information concerning our business and operations is
incorporated by reference herein from our other SEC filings and may be included
in applicable prospectus supplements.
Our principal executive offices are located at 2828 North Haskell Avenue,
Dallas, Texas 75204. Our telephone number at that location is (214) 841-6111.
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USE OF PROCEEDS
Except as otherwise provided in the applicable supplement to this
prospectus, we expect to use the net proceeds from the sale of the securities we
are offering in this prospectus for general corporate purposes. These purposes
may include:
- repayment of indebtedness, including indebtedness incurred in connection
with acquisitions;
- redemption or repurchase of our securities;
- additions to working capital;
- capital expenditures; or
- acquisitions.
We will set forth specific information about the use of proceeds from the
sale of the securities in the applicable prospectus supplement. Before any net
proceeds are applied to the uses described above, the proceeds may be invested
in short-term or marketable securities.
If our chairman, Darwin Deason, sells any of his Class A Common Stock
through this prospectus, we will not receive any proceeds from his sale of
shares of Class A Common Stock. See "Selling Securityholder."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the periods indicated:
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
3.9 3.7 4.2 4.6 5.4
For the purpose of calculating the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes and extraordinary items
plus fixed charges. Fixed charges consist of interest expense, amortization of
debt issue costs and a portion of rental expense representative of interest.
DESCRIPTION OF DEBT SECURITIES
The debt securities covered by this prospectus will be our general
unsecured obligations. The debt securities will be either senior debt securities
or subordinated debt securities. We will issue the debt securities under one or
more separate indentures between us and a trustee named in the indentures.
Senior debt securities will be issued under a senior indenture, and subordinated
debt securities will be issued under a subordinated indenture. We sometimes call
the senior indenture and the subordinated indenture the "indentures."
We have summarized selected provisions of the indentures and the debt
securities below. You should read the indentures for more details regarding the
provisions we describe below and for other provisions that may be important to
you. We have filed the forms of the indentures with the SEC as exhibits to the
registration statement of which this prospectus forms a part. Please read "Where
You Can Find More Information."
GENERAL
The senior debt securities will constitute senior debt and will rank
equally with all our unsecured and unsubordinated debt. The subordinated debt
securities will be subordinated to, and thus have a junior position to, any
senior debt securities and all our other senior debt. In some cases, and as
would be described in a prospectus supplement, a series of our subordinated debt
may also be junior in some respects to a different series of subordinated debt.
The indentures will not limit the amount of debt we
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may issue under the indentures, and, unless we inform you otherwise in the
prospectus supplement, they will not limit the amount of other debt or
securities we may incur or issue. We may issue debt securities under either
indenture from time to time in one or more series, each in an amount we
authorize prior to issuance.
We conduct a substantial part of our operations through our subsidiaries,
and our subsidiaries generate a significant part of our operating income and
cash flow. As a result, distributions or advances from our subsidiaries are
important sources of funds to meet our debt service obligations. Contractual
provisions or laws, as well as our subsidiaries' financial condition and
operating requirements, may limit our ability to obtain from our subsidiaries
cash that we need to pay our debt service obligations, including payments on the
debt securities. In addition, holders of the debt securities will have a junior
position to the claims of creditors of our subsidiaries on their assets and
earnings.
Unless we inform you otherwise in the prospectus supplement, the indentures
and the debt securities will not contain:
- any covenants or other provisions designed to protect holders of the debt
securities in the event we participate in a highly leveraged transaction;
or
- provisions that give holders of the debt securities the right to require
us to repurchase their securities in the event of a decline in our credit
rating resulting from a takeover, recapitalization or similar
restructuring or otherwise.
The prospectus supplement relating to any series of debt securities being
offered will include specific terms relating to the offering. These terms will
include some or all of the following:
- the title of the debt securities;
- the total principal amount of the debt securities;
- whether the debt securities are senior debt securities or subordinated
debt securities;
- whether a series of subordinated debt is junior in any respect to another
series of subordinated debt;
- whether we will issue the debt securities in individual certificates to
each holder or in the form of temporary or permanent global securities
held by a depository on behalf of holders;
- the date or dates on which the principal of and any premium on the debt
securities will be payable;
- any interest rate, the date from which interest will accrue, interest
payment dates and record dates for interest payments;
- whether and under what circumstances any additional amounts with respect
to the debt securities will be payable;
- the place or places where payments on the debt securities will be
payable;
- any provisions for redemption or early repayment;
- any sinking fund or other provisions that would obligate us to redeem,
purchase or repay the debt securities prior to maturity;
- the denominations in which we may issue the debt securities;
- whether payments on the debt securities will be payable in foreign
currency or currency units or another form, and whether payments will be
payable by reference to any index or formula;
- the portion of the principal amount of the debt securities that will be
payable if the maturity is accelerated, if other than the entire
principal amount;
- any additional means of defeasance of the debt securities, any additional
conditions or limitations to defeasance of the debt securities or any
changes to those conditions or limitations;
- any changes or additions to the events of default or covenants this
prospectus describes;
- any restrictions or other provisions relating to the transfer or exchange
of the debt securities;
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- any terms for the conversion or exchange of the debt securities for other
securities issued by ACS or any other entity; and
- any other terms of the debt securities.
We may sell the debt securities at a discount, which may be substantial,
below their stated principal amount. Those debt securities may bear no interest
or interest at a rate that at the time of issuance is below market rates.
If we sell any of the debt securities for any foreign currency or currency
unit or if payments on the debt securities are payable in any foreign currency
or currency unit, we will describe in the prospectus supplement the
restrictions, elections, material tax consequences, specific terms and other
information relating to those debt securities and the foreign currency or
currency unit.
OUR SENIOR DEBT SECURITIES
Generally speaking, our senior debt securities will rank equally with all
of our other senior debt, except to the extent any such debt is secured by our
assets.
"Senior debt" is defined to include all debt, not expressed to be
subordinate or junior in right of payment to any other indebtedness of ACS.
Unless we inform you otherwise in the prospectus supplement, the term
"debt" means:
- indebtedness for borrowed money;
- obligations evidenced by bonds, debentures, notes or similar instruments;
- obligations, including reimbursement obligations, relating to letters of
credit or similar instruments;
- obligations to pay the deferred and unpaid purchase price of property or
services, except trade payables and accrued expenses incurred in the
ordinary course of business;
- capitalized lease obligations;
- debt of a third party secured by a lien on any asset of ACS;
- debt of others guaranteed by ACS to the extent of the guarantee; and
- obligations for claims under derivative products.
Any senior debt securities offered pursuant to the senior indenture will be
senior in right of payment to our subordinated debt securities.
OUR SUBORDINATED DEBT SECURITIES
Our subordinated debt securities will have a junior position to all of our
senior debt. Under the subordinated indenture, payment of the principal,
interest and any premium on the subordinated debt securities will generally be
subordinated and junior in right of payment to the prior payment in full of all
senior debt. Further, a series of subordinated debt may be junior in some
respects to another series of subordinated debt. The subordinated indenture will
provide that no payment of principal, interest and any premium on the
subordinated debt securities may be made in the event:
- we fail to pay the principal, interest, premium or any other amounts on
any senior debt when due; or
- we default in performing any other covenant (a "covenant default") in any
senior debt if the covenant default allows the holders of that senior
debt to accelerate the maturity of the senior debt they hold.
The subordinated indenture will not limit the amount of senior debt that we may
incur.
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Unless we inform you otherwise in the prospectus supplement, a covenant
default will prevent us from making payments on the subordinated debt securities
only for up to 179 days after holders of the senior debt give the trustee for
the subordinated debt securities notice of a covenant default.
Unless provided in a prospectus supplement, any subordinated debt
securities offered pursuant to the subordinated indenture will rank equally in
right of payment with each other and to our $230,000,000 original principal
amount of 4% convertible subordinated notes due March 15, 2005 and our
$316,990,000 original principal amount of 3.50% convertible subordinated notes
due February 15, 2006.
The subordinated indenture will prohibit us from making for a specified
time period any payment of principal of or premium, if any, or interest on, or
sinking fund requirements for, the subordinated debt securities during the
continuance of any default in respect of senior debt, unless and until the
default on the senior debt is cured or waived.
Upon any distribution of our assets in connection with any dissolution,
winding up, liquidation, reorganization, bankruptcy or other similar proceeding
relative to us, our creditors or our property, the holders of our senior debt
will first be entitled to receive payment in full of the principal thereof and
premium, if any, and interest due on the senior debt securities before the
holders of the subordinated debt securities are entitled to receive any payment
of the principal of and premium, if any, or interest on the subordinated debt
securities. Because of this subordination, if we become insolvent, our creditors
who are not holders of our senior debt or of our subordinated debt securities
may recover less, ratably, than holders of our senior debt securities but may
recover more, ratably, than holders of our subordinated debt securities.
The subordination does not affect our obligation, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest on
the subordinated debt securities. In addition, the subordination does not
prevent the occurrence of any default under the indenture.
GLOBAL CERTIFICATES
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depository
identified in a prospectus supplement. The specific terms of the depository
arrangements with respect to any debt securities of a series will be described
in a prospectus supplement.
Unless otherwise specified in a prospectus supplement, debt securities
issued in the form of a global certificate to be deposited with a depository
will be represented by a global certificate registered in the name of the
depository or its nominee. Upon the issuance of a global certificate in
registered form, the depository for the global certificate will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the debt securities represented by the global certificate to the accounts of
institutions that have accounts with the depository or its nominee. The
depository or its nominee are referred to in this prospectus as participants.
The accounts to be credited shall be designated by the underwriters or agents of
the debt securities, or by us if the debt securities are offered and sold
directly by us.
Ownership of beneficial interests in a global certificate will be limited
to participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in a global certificate will
be shown on, and the transfer of that ownership interest will be effected only
through, records maintained by the depository or its nominee for the global
certificate. Ownership of beneficial interests in a global certificate by
persons that hold through participants will be shown on, and the transfer of
that ownership interest within a participant will be effected only through,
records maintained by that participant. The laws of some jurisdictions require
that some purchasers of securities take physical delivery of their securities in
definitive form. These limits and laws may impair your ability to transfer
beneficial interests in a global certificate.
So long as the depository for a global certificate in registered form, or
its nominee, is the registered owner of the global certificate, the depository
or its nominee, as the case may be, will be considered the
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sole owner or holder of the debt securities of the series represented by the
global certificate for all purposes under the indentures. Except as set forth
below, owners of beneficial interests in a global certificate will not be
entitled to have debt securities of the series represented by the global
certificate registered in their names, will not receive or be entitled to
receive physical delivery of debt securities in definitive form, and will not be
considered the owners or holders of the global certificate under the applicable
indenture.
Payment of principal of, premium, if any, and any interest on debt
securities of a series registered in the name of or held by a depository or its
nominee will be made to the depository or its nominee, as the case may be, as
the registered owner or the holder of a global certificate representing the debt
securities. None of us, the trustee, any paying agent, or the applicable debt
security registrar for the debt securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a global certificate for debt securities or
for maintaining, supervising or reviewing any records relating to beneficial
ownership interests.
We expect that the depository for debt securities of a series, upon receipt
of any payment of principal, premium or interest in respect of a permanent
global certificate, will credit immediately participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of the global certificate as shown on the records of the
depository. We also expect that payments by participants to owners of beneficial
interests in a global certificate held through those participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in street name, and those payments will be the responsibility of the
participants. However, we have no control over the practices of the depository
and/or the participants and there can be no assurance that these practices will
not be changed.
Unless it is exchanged in whole or in part for debt securities in
definitive form, a global certificate may generally be transferred only as a
whole unless it is being transferred to particular nominees of the depository.
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company, New York, New York will act as depository. Beneficial interests in
global certificates will be shown on, and transfers of global certificates will
be effected only through, records maintained by The Depository Trust Company and
its participants.
EVENTS OF DEFAULT
Under the indentures an event of default, unless a prospectus supplement
provides otherwise, will mean any of the following:
- our failure to pay principal of or any premium on any debt securities of
that series when due, regardless of whether such payment became due
because of maturity, redemption, acceleration or otherwise, or is
required by any sinking fund established with respect to such series;
- our failure to pay interest or any required additional amounts on any
debt securities of that series for 30 days;
- our failure to comply with any of our covenants or agreements in the debt
securities of that series or the applicable indenture, other than an
agreement or covenant that we have included in that indenture solely for
the benefit of other series of debt securities, for the period of days
specified in the applicable prospectus supplement after written notice by
the trustee or by the holders of at least 25% in principal amount of all
the outstanding debt securities issued under that indenture that are
affected by that failure;
- certain defaults with respect to our debt (other than the debt securities
of that series) in an aggregate principal amount in excess of that dollar
amount specified in the related prospectus supplement and supplemental
indenture for the debt securities, which consists of the failure to make
any payment at maturity or that results in acceleration of the maturity
of such debt;
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- specified events involving our bankruptcy, insolvency or reorganization;
or
- any other event of default provided for that series of debt securities.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under an indenture. The trustee may withhold notice to the
holders of debt securities of any default (except in the payment of principal or
interest) if it considers on good faith that the withholding of notice is in the
best interests of the holders.
If an event of default for any series of debt securities occurs and is
continuing, the trustee or the holders of at least 25% in principal amount of
the outstanding debt securities of the series affected by the default, or, in
some cases, 25% in principal amount of all senior debt securities or
subordinated debt securities affected, voting as one class, may declare the
principal of and all accrued and all unpaid interest on those debt securities to
be due and payable. If an event of default relating to events of bankruptcy,
insolvency or reorganization occurs, the principal of and all accrued and unpaid
interest on all the debt securities will become immediately due and payable
without any action on the part of the applicable trustee or any holder. The
holders of a majority in principal amount of the outstanding debt securities of
the series affected by the default, or of all senior debt securities or
subordinated debt securities affected, voting as one class, may in some cases
rescind this accelerated payment requirement. Depending on the terms of our
other indebtedness, an event of default under either of the indentures may give
rise to cross defaults on our other indebtedness.
The indentures will limit the right to institute legal proceedings. No
holder of any debt securities will have the right to bring a claim under an
indenture unless:
- the holder has given written notice of a continuing default for that
series to the trustee;
- the holders of not less than 25% of the aggregate principal amount of
debt securities of the series shall have made a written request to the
trustee to bring the claim and furnished the trustee reasonable
indemnification as the trustee may require;
- the trustee has not commenced an action within 60 days of receipt of the
notice and indemnification; and
- during the 60-day period following receipt of the notice and
indemnification, no direction inconsistent with the request has been
given to the trustee by the holders of not less than a majority of the
aggregate principal amount of the debt securities of the series then
outstanding.
Subject to applicable law and any applicable subordination provisions, the
holders of debt securities may enforce payment of the principal of or premium,
if any, or interest on their debt securities.
Except as provided in the next sentence, the holders of a majority in
aggregate principal amount of any series of debt securities may direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee or exercising any power conferred on the trustee. The trustee may
decline to follow the holders' direction if, being advised by counsel, the
trustee determines that the action is not lawful, or if the trustee in good
faith determines that the action would unduly prejudice the holders of the debt
securities not taking part in the action or would impose personal liability on
the trustee.
Each indenture will provide that, in case an event of default in respect of
a particular series of debt securities has occurred, the trustee must use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
these provisions, the trustee is under no obligation to exercise any of its
rights or power under the indenture at the request of any of the holders of the
debt securities of any series unless they have furnished to the trustee
reasonable security or indemnity.
We will be required to furnish to the trustee an annual statement as to our
fulfillment of all of our obligations under the relevant indenture.
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DEFEASANCE
When we use the term "defeasance," we mean discharge from some or all of
our obligations under an indenture. If we deposit with the applicable trustee
funds or government securities sufficient to make payments on the debt
securities of a series on the dates those payments are due and payable, then, at
our option, either of the following will occur:
- we will be discharged from our obligations with respect to the debt
securities of that series ("legal defeasance"); or
- we will no longer have any obligation to comply with the restrictive
covenants under the applicable indenture, and the related events of
default will no longer apply to us, but some of our other obligations
under the indenture and the debt securities of that series, including our
obligation to make payments on those debt securities, will survive
("covenant defeasance").
If we effect a covenant defeasance of a series of debt securities, the
holders of the debt securities of the series affected will not be entitled to
the benefits of the applicable indenture, except for our obligations to:
- register the transfer or exchange of debt securities;
- replace stolen, lost or mutilated debt securities; and
- maintain paying agencies and hold moneys for payment in trust.
Unless we inform you otherwise in the prospectus supplement, we will be
required to deliver to the applicable trustee an opinion of counsel that the
deposit and related defeasance would not cause the holders of the debt
securities to recognize income, gain or loss for United States federal income
tax purposes. If we elect legal defeasance, that opinion of counsel must be
based on a ruling from the United States Internal Revenue Service or a change in
law to that effect.
CONSOLIDATION, MERGER OR SALE OF ASSETS
Each indenture will generally permit us to consolidate or merge with
another entity. The indentures will also permit us to sell all or substantially
all of our property and assets. However, we will only consolidate or merge with
or into any other entity, or sell all or substantially all of our assets, in
accordance with the terms and conditions of the indentures. The indentures
provide that we may consolidate with another entity to form a new entity, or
merge into any other entity, or transfer or dispose of our assets substantially
as an entirety to any other entity only if:
- the resulting or surviving entity assumes the due and punctual payments
on the debt securities and the performance of our covenants and
obligations under the applicable indenture and the debt securities; and
- immediately after giving effect to the transaction, no default or event
of default would occur and be continuing.
The remaining or acquiring entity will be substituted for us in the
indentures with the same effect as if it had been an original party to the
indentures. Thereafter, the successor entity may exercise our rights and powers
under any indenture, in our name or in its own name. Any act or proceeding
required or permitted to be done by our board of directors or any of our
officers may be done by the board or officers of the successor entity.
MODIFICATION AND WAIVER
We may amend or supplement either indenture if the holders of a majority in
principal amount of the outstanding debt securities of all series issued under
the applicable indenture and affected by the
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amendment or supplement, acting as one class, consent to it. Without the consent
of the holder of each debt security affected, however, no amendment or
supplement may:
- reduce the amount of debt securities whose holders must consent to an
amendment, supplement or waiver;
- reduce the rate of or change the time for payment of interest on any debt
security;
- reduce the principal of, premium on or any mandatory sinking fund payment
for any debt security;
- change the stated maturity of any debt security;
- reduce any premium payable on the redemption of any debt security or
change the time at which any debt security may or must be redeemed;
- change any obligation to pay additional amounts on any debt security;
- make the payments on any debt security payable in any currency or
currency unit other than as the debt security originally states;
- impair the holder's right to institute suit for the enforcement of any
payment on any debt security;
- make any change in the percentage of principal amount of debt securities
necessary to waive compliance with specified provisions of the applicable
indenture or to make any change in the applicable indenture's provisions
for modification;
- waive a continuing default or event of default regarding any payment on
any debt security; or
- with respect to the subordinated indenture, modify the provisions
relating to the subordination of any subordinated debt security in a
manner adverse to the holder of that security.
We and the applicable trustee may agree to amend or supplement either
indenture or waive any provision of either indenture without the consent of any
holders of debt securities in some circumstances, including:
- to cure any ambiguity, omission, defect or inconsistency;
- to provide for the assumption of our obligations under the indenture by a
successor upon any merger, consolidation or asset transfer;
- to provide for uncertificated debt securities in addition to or in place
of certificated debt securities or to provide for bearer debt securities;
- to provide any security for or add guarantees of any series of debt
securities;
- to comply with any requirement to effect or maintain the qualification of
the indenture under the Trust Indenture Act of 1939;
- to add covenants that would benefit the holders of any debt securities or
to surrender any rights we have under the indenture;
- to add events of default with respect to any debt securities;
- to make any change that does not adversely affect any outstanding debt
securities of any series in any material respect;
- to facilitate the defeasance or discharge of any series of debt
securities if that change does not adversely affect the holders of debt
securities of that series or any other series under the indenture in any
material respect; and
- to provide for the acceptance of a successor or another trustee.
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The holders of a majority in principal amount of the outstanding debt
securities of any series, or of all senior debt securities or subordinated debt
securities affected, voting as one class, may waive any existing or past default
or event of default with respect to those debt securities. Those holders may
not, however, waive any default or event of default in any payment on any debt
security or compliance with a provision that cannot be amended or supplemented
without the consent of each holder affected.
CERTIFICATES AND OPINIONS TO BE FURNISHED TO THE TRUSTEE
Each indenture will provide that, in addition to other certificates or
opinions that may be specifically required by other provisions of an indenture,
every time we ask the trustee to take action under the indenture, we must
provide a certificate of some of our officers and an opinion of counsel (who may
be our counsel) stating that, in the opinion of the signers, all conditions
precedent to the action have been complied with.
REPORT TO HOLDERS OF DEBT SECURITIES
We will provide audited financial statements annually to the trustee. The
trustee will be required to submit an annual report to the holders of the debt
securities discussing, among other things, the trustee's eligibility to serve as
trustee, the priority of the trustee's claims regarding some advances made by
it, and any action taken by the trustee materially affecting the debt
securities.
THE TRUSTEE
U.S. Trust Company of Texas, N.A. will initially serve as the trustee under
both our senior and subordinated indentures.
Pursuant to applicable provisions of the indentures and the Trust Indenture
Act of 1939 governing trustee conflicts of interest, any uncured event of
default with respect to any series of debt securities will force the trustee to
resign as trustee under either the subordinated indentures or the senior
indentures. Any resignation requires the appointment of a successor trustee
under the applicable indenture in accordance with its terms and conditions.
The trustee may resign or be removed by us under certain circumstances
specified in the indenture with respect to one or more series of debt securities
and a successor trustee may be appointed to act with respect to any series. The
holders of a majority in aggregate principal amount of the debt securities of
any series may remove the trustee with respect to the debt securities of that
series.
Each indenture will contain limitations on the right of the trustee
thereunder, in the event that the trustee becomes our creditor, to obtain
payment of claims in particular cases or to realize on some property received in
respect of any claim as security or otherwise.
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DESCRIPTION OF CAPITAL STOCK
We may issue shares of our Class A Common Stock from time to time
hereunder.
Our authorized capital stock consists of:
- 500,000,000 shares of Class A Common Stock, $.01 par value,
- 14,000,000 shares of Class B Common Stock, $.01 par value, and
- 3,000,000 shares of preferred stock, $1.00 par value.
The relative rights and limitations of the Class A Common Stock and the
Class B Common Stock, as well as our preferred stock, are summarized below. We
refer you to our certificate of incorporation and bylaws, copies of which have
been filed as exhibits to our reports or registration statements filed with the
SEC, for the complete terms of our capital stock.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
VOTING RIGHTS
Each share of Class A Common Stock is entitled to one vote and each share
of Class B Common Stock is entitled to ten votes on all matters submitted to a
vote of the stockholders. Except as otherwise provided by law, Class A Common
Stock and Class B Common Stock vote together as a single class on all matters
presented for a vote of the stockholders. Neither class of our common stock has
cumulative voting rights.
CONVERSION OF CLASS B COMMON STOCK
Class A Common Stock has no conversion rights. Each share of Class B Common
Stock is convertible at any time, at the option of and without cost to the
stockholder, into one share of Class A Common Stock upon surrender to our
transfer agent of the certificate or certificates evidencing the Class B Common
Stock to be converted, together with a written notice of the election of a
stockholder to convert shares into Class A Common Stock. Shares of Class B
Common Stock will also be automatically converted into shares of Class A Common
Stock on the occurrence of events described below. Once shares of Class B Common
Stock are converted into shares of Class A Common Stock, the shares may not be
converted back into Class B Common Stock.
Upon the death or permanent incapacity of any Class B holder, the holder's
Class B Common Stock shall automatically be converted into Class A Common Stock.
All shares of Class B Common Stock will automatically convert into shares of
Class A Common Stock on the ninetieth day after the death of our chairman,
Darwin Deason, or upon the conversion by Mr. Deason of all Class B Common Stock
beneficially owned by Mr. Deason into shares of Class A Common Stock.
Subject to compliance with applicable securities laws, shares of Class B
Common Stock are freely transferable among permitted transferees, but any other
transfer of Class B Common Stock will result in its automatic conversion into
Class A Common Stock. The restriction on transfers of shares of Class B Common
Stock to other than a permitted transferee may preclude or delay a change in
control of our capital stock.
No person or entity holding shares of Class B Common Stock may transfer the
shares, whether by sale, assignment, gift, bequest, appointment or otherwise,
except to certain permitted transferees.
DIVIDENDS AND LIQUIDATION RIGHTS
The holders of Class A Common Stock and Class B Common Stock are entitled
to receive dividends out of assets legally available therefore at times and in
amounts as the Board of Directors may from time to time determine. Subject to
any rights of preferred stock, upon liquidation and dissolution of ACS, the
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holders of Class A Common Stock and Class B Common Stock are entitled to receive
all assets available for distribution to stockholders.
OTHER RIGHTS
The holders of Class A Common Stock and Class B Common Stock are not
entitled to preemptive or subscription rights. This means that holders of common
stock do not have rights to buy any portion of securities we may issue in the
future. There are no redemption or sinking fund provisions applicable to the
common stock.
RIGHTS AGREEMENT
On August 5, 1997, we entered into a rights agreement and authorized and
declared a dividend distribution of one right for each share of Class A Common
Stock and one right for each share of Class B Common Stock, each as outstanding
at the close of business on August 25, 1997. Class A Common Stock and Class B
Common Stock issued after August 25, 1997 have been and will be issued with an
associated right. On April 2, 1999, we amended and restated the rights agreement
in order to comply with changes in Delaware law. We have summarized the material
provisions of our amended and restated stockholder rights plan below. The
summary is not complete. The terms of our stockholder rights plan are fully
described in our amended and restated rights agreement dated as of April 2,
1998, which is incorporated in this prospectus by reference. See "Where You Can
Find More Information."
Under the amended and restated rights agreement, each share of Class A
Common Stock and Class B Common Stock that we issue is accompanied by the right,
under specified circumstances, to purchase one share of Class A Common Stock at
a price of $150.00, subject to adjustments. The rights will expire on August 25,
2007, unless this date is extended by us or unless we have already redeemed the
rights. Until the distribution date:
- the rights are not exercisable,
- the rights can only be transferred with the Class A Common Stock and/or
Class B Common Stock, and
- the stock certificates representing shares of our Class A Common Stock
and Class B Common Stock also represent the rights attached to our Class
A Common Stock and Class B Common Stock.
The distribution date is the date, after the date of the rights agreement,
that is the earliest of:
- ten business days following a public announcement that a person or group
of affiliated or associated persons has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the Class A Common
Stock, other than:
- us and certain related entities;
- Darwin Deason and certain entities related to him; and
- any person or group of affiliated or associated persons who acquires 15%
or more:
- inadvertently and subsequently divest the excess stock over 14.9%,
- through a reduction in the number of outstanding shares of Class A
Common Stock by our board of directors, including a majority of those
directors not associated with the person or group of affiliated or
associated persons, and the person or group of affiliated or
associated persons does not acquire any additional shares, or
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- through a stock acquisition or tender or exchange offer pursuant to a
definitive agreement approved by our board of directors, including a
majority of those directors not associated with the acquiring person
or group of affiliated or associated persons, prior to the execution
of the agreement or the public announcement of the offer; or
- ten business days following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a person or group of
15% or more of such outstanding Class A Common Stock.
Pursuant to the terms of the rights agreement, the rights separate from the
shares of our common stock on the distribution date. The rights of the person or
group that triggered the distribution date will be void. As soon as practical
after the distribution date, we will mail the holders of record certificates
representing the rights. The rights will become exercisable to purchase either
the number of shares of Class A Common Stock or the common stock of the
acquiring company, as applicable, having a market value of two times the
applicable exercise price of the right. The exercise price at the time of the
plan's creation was $150.00, however the exercise price and the number of shares
that are evidenced by each right are subject to adjustment from time to time as
set forth in the rights agreement in order to prevent dilution. After the
distribution date but before any person or group of affiliated or associated
persons has acquired, or obtained the right to acquire, beneficial ownership of
50% or more of the Class A Common Stock, our board of directors may exchange the
rights, other than the rights of the person or group of affiliated or associated
persons that triggered the distribution date, in whole or in part, at an
exchange ratio of one share of Class A Common Stock per right, subject to
adjustment.
Unless the rights have expired or been redeemed or exchanged, they may be
exercised after the distribution date at the option of the holders as provided
in the rights agreement. Until a right is exercised, the holder of the right
will have no rights as a stockholder of us, including, without limitation, the
right to vote, or to receive dividends.
Under certain conditions set forth in the rights agreement, our board of
directors may, at its option, direct us to redeem the rights in whole, but not
in part, at a price of $0.01 per right. In addition, our board of directors may
extend or reduce the period during which the rights are redeemable, so long as
the rights are redeemable at the time of such extension or reduction.
Immediately upon any redemption of the rights, the right to exercise the rights
will terminate and the only right of the holders of rights will be to receive
the redemption price.
Our board of directors may amend or supplement the terms of the rights
without the consent of the holders, including an amendment to extend the date on
which the rights expire, except that from and after the distribution date no
such amendment may adversely affect the basic economic interests of the holders
of the rights.
The rights agreement is intended to protect our stockholders in the event
of an unsolicited attempt to acquire us. Our rights could prevent or delay a
takeover of us by causing substantial dilution to a person or group that
attempts to acquire us on terms not approved by our board of directors. Our
rights should not interfere with any merger or other business combination
approved by our board of directors, since our stockholder rights may be redeemed
by us for a price of $0.01 per rights as described above.
PREFERRED STOCK
We have no preferred stock outstanding. This section describes the general
terms and provisions of the preferred stock that we may offer by this
prospectus. We may issue preferred stock in one or more series. Each series of
preferred stock will have its own rights and preferences. We will describe in a
prospectus supplement:
- the specific terms of the series of any preferred stock offered through
this prospectus, and
- any general terms outlined in this section that will not apply to those
shares of preferred stock.
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This summary of terms is not complete. For additional information before you buy
any preferred stock, you should read our certificate of incorporation and bylaws
that are in effect on the date that we offer any preferred stock, as well as any
applicable amendment to our charter designating terms of a series of preferred
stock.
Under our certificate of incorporation, we have the authority to issue up
to 3,000,000 shares of preferred stock. Prior to issuing shares of preferred
stock of a particular series, our board of directors will determine or fix the
terms of that series of preferred stock, including:
- voting rights,
- redemption provisions,
- conversion rights,
- dividend rights,
- any sinking fund provisions,
- any transfer restrictions, and
- preferences in liquidation.
When we issue shares of preferred stock, they will be fully paid and
nonassessable. This means the full purchase price for the outstanding preferred
stock will be paid at issuance and that you and the purchaser of those shares of
preferred stock will not be required later to pay us any additional amount for
that preferred stock. The preferred stock will have no preemptive rights to
subscribe for any additional securities that we may issue in the future. This
means that purchasers will not receive any rights to buy any portion of the
securities that we may issue in the future.
Because our board of directors has the power to establish the preferences
and rights of each class or series of preferred stock, our board of directors
may grant the holders of any series or class of preferred stock preferences,
powers and rights senior to the rights of holders of shares of our common stock.
It is not possible to state the actual effect of the authorization and issuance
of additional series of preferred stock upon the rights of holders of our common
stock until our board of directors determines the specific terms, rights and
preferences of a series of preferred stock. These effects might include, among
other things:
- granting the holders of preferred stock priority over the holders of our
common stock with respect to the payment of dividends;
- diluting the voting power of our common stock; or
- granting the holders of preferred stock preference with respect to
liquidation rights.
In addition, the issuance of preferred stock may, under some circumstances,
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of our
securities or the removal of incumbent management.
CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation and bylaws contain several provisions that
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt. Among other things, these provisions require:
- 80% vote of stockholders to amend some provisions of our certificate of
incorporation or our bylaws;
- permit only our chairman, president or a majority of our board of
directors to call stockholder meetings; and
- permit directors to be removed, with or without cause, only by vote of at
least 80% of the combined voting power.
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Our certificate of incorporation does not provide for cumulative voting.
Any action required or permitted to be taken by our stockholders may be taken at
a duly called annual or special meeting of stockholders. The bylaws provide that
special meetings of the stockholders may be called only by the chairman of the
board of directors, the president or a majority of the members of the board of
directors. These provisions could have the effect of delaying until the next
annual stockholders' meeting actions that are not favored by the holders of a
majority of the voting power of our outstanding capital stock. Moreover, the
bylaws authorize the stockholders to take action by written consent signed by
the holders of a majority of the voting power of our outstanding capital stock,
provided that written notice is given to those stockholders who have not
consented in writing.
Under the Delaware General Corporation Law, the approval of a Delaware
corporation's board of directors, in addition to stockholder approval, is
required to adopt any amendment to the company's certificate of incorporation,
but the exclusive power to adopt, amend and repeal the bylaws is conferred
solely upon the stockholders, unless the corporation's certificate of
incorporation also confers the power on its board of directors. Our certificate
of incorporation grants the power to amend the bylaws to the board of directors.
Our certificate of incorporation also contains provisions permitted under the
Delaware General Corporation Law that limit the liability of directors.
In addition to these provisions of the certificate of incorporation and
bylaws, we are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which restricts the consummation of some business combination
transactions, including mergers, stock and asset sales and other transactions
resulting in financial benefit to the stockholder, between a Delaware public
corporation and an "interested stockholder" for a period of three years after
the date the interested stockholder acquired its stock. An "interested
stockholder" is defined as a person who, together with any of the person's
affiliates and/or associates, beneficially owns 15% or more of any class or
series of stock entitled to vote in the election of directors. However, a person
is not an "interested stockholder" if:
- the transaction is approved by (1) the corporation's board of directors
prior to the date the interested stockholder acquired the shares or (2) a
majority of the board of directors and by the affirmative vote of the
holders of two-thirds of the outstanding shares of each class or series
of stock entitled to vote generally in the election of directors, not
including the shares owned by the interested stockholder; or
- the interested stockholder acquired at least 85% of the voting stock of
the corporation in the transaction in which it became an interested
stockholder.
Section 203 of the Delaware General Corporation Law is intended to
discourage some takeover practices by impeding the ability of a hostile acquirer
to engage in some types of transactions with the target company. Moreover, the
bylaws contain a provision that permits any contract or other transaction
between ACS and any of our directors, officers or stockholders, or any
corporation or firm in which any of them are directly or indirectly interested,
to be valid notwithstanding the presence of the director, officer or stockholder
at the meeting authorizing the contract or transaction, or his participation or
vote in the stockholder's meeting or authorization, subject to conditions,
including disclosure.
TRANSFER AGENT AND REGISTRAR
First City Transfer Company, our affiliate, serves as transfer agent and
registrar for the Class A Common Stock and preferred stock.
NEW YORK STOCK EXCHANGE LISTING
Our Class A Common Stock is listed for trading on the New York Stock
Exchange under the symbol "ACS".
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DESCRIPTION OF DEPOSITARY SHARES
We have no depositary shares outstanding. We may issue depositary receipts
for depositary shares, each of which will represent a fractional interest of a
share of a particular series of preferred stock, as specified in the applicable
prospectus supplement. Shares of preferred stock of each series represented by
depositary shares will be deposited under a separate deposit agreement among us,
the depositary named in the deposit agreement and the holders from time to time
of the depositary receipts. You are encouraged to read the deposit agreement and
depositary receipts.
Subject to the terms of the deposit agreement, each owner of a depositary
receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of preferred stock represented by the depositary shares
evidenced by the depositary receipt he owns, to all the rights and preferences
of the preferred stock represented by the depositary shares, including:
- dividend rights,
- voting rights,
- conversion rights,
- redemption rights, and
- liquidation rights.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable deposit agreement. Immediately following us issuing
and delivering the preferred stock to the preferred stock depositary, we will
cause the preferred stock depositary to issue, on our behalf, the depositary
receipts. A prospectus supplement will include the form of deposit agreement and
depositary receipt. These documents will include the provisions described in
this prospectus.
DIVIDENDS AND OTHER DISTRIBUTIONS
The preferred stock depositary will distribute all cash dividends or other
cash distributions received relating to the preferred stock to the record
holders of depositary receipts evidencing the related depositary shares in
proportion to the number of depositary receipts owned by those holders, subject
to some obligations of holders to:
- file proofs, certificates and other information; and
- pay some charges and expenses to the preferred stock depositary.
In the event of a distribution other than in cash, the preferred stock
depositary will distribute property received by it to the record holders of
depositary receipts entitled to the distribution, subject to some obligations of
holders to:
- file proofs, certificates and other information; and
- pay some charges and expenses to the preferred stock depositary, unless
the preferred stock depositary determines that it is not feasible to make
those distributions, in which case the preferred stock depositary may,
with our approval, sell the property and distribute the net proceeds from
the sale to holders of the relevant depositary receipts. No distribution
will be made relating to any depositary share to the extent that it
represents any preferred stock converted into other securities.
WITHDRAWAL OF STOCK
Upon surrender of the depositary receipts at the corporate trust office of
the preferred stock depositary (unless the related depositary shares have
previously been called for redemption or converted into other securities), the
holders of those depositary receipts will be entitled to delivery at the
corporate trust office, to or upon that holder's order, the number of whole or
fractional shares of the preferred stock and any money or other property
represented by the depositary shares evidenced by the depositary receipts owned
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by the holder. Holders of depositary receipts will be entitled to receive whole
or fractional shares of the related preferred stock on the basis of the
proportion of preferred stock represented by the depositary share surrendered as
specified in the applicable prospectus supplement. However, holders of shares of
preferred stock will not thereafter be entitled to receive depositary shares for
such stock. If the depositary receipts delivered by the holder evidence a number
of depositary shares in excess of the number of depositary shares representing
the number of shares of preferred stock to be withdrawn, the preferred stock
depositary will deliver to the holder surrendering the depositary receipt at the
same time a new depositary receipt evidencing the excess number of depositary
shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever we redeem shares of preferred stock held by the preferred stock
depositary, the preferred stock depositary will redeem as of the same redemption
date the number of depositary shares representing shares of the preferred stock
so redeemed, provided we shall have paid in full to the preferred stock
depositary the redemption price of the preferred stock to be redeemed plus an
amount equal to any accrued and unpaid dividends thereon to the date fixed for
redemption. The redemption price per depositary share will be equal to the
corresponding proportion of the redemption price and any other amounts per share
payable with respect to the preferred stock. If fewer than all the depositary
shares are to be redeemed, the depositary shares to be redeemed will be selected
pro rata (as nearly as may be practicable without creating fractional depositary
shares) or by any other equitable method determined by us.
From and after the date fixed for redemption, all dividends in respect of
the shares of preferred stock called for redemption will cease to accrue, the
depositary shares called for redemption will no longer be deemed to be
outstanding. At such time, all rights of the holders of the depositary receipts
evidencing the depositary shares called for redemption will cease, except the
right to receive any moneys payable upon redemption of the depositary receipts
and any money or other property to which the holders of the depositary receipts
redeemed were entitled upon redemption and surrender, which moneys or other
property will be paid to the preferred stock depositary.
VOTING OF PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the preferred
stock are entitled to vote, the preferred stock depositary will mail the
information contained in such notice of meeting to the record holders of the
depositary receipts evidencing the depositary shares which represent such
preferred stock. Each record holder of depositary receipts evidencing depositary
shares on the record date (which will be the same date as the record date for
the preferred stock) will be entitled to instruct the preferred stock depositary
as to the exercise of the voting rights pertaining to the amount of preferred
stock represented by each holder's depositary shares. The preferred stock
depositary will vote the amount of preferred stock represented by the depositary
shares in accordance with the instructions provided by the holder of the
depositary shares. We will agree to take all reasonable action which may be
deemed necessary by the preferred stock depositary in order to enable the
preferred stock depositary to vote in accordance with the instructions provided
by the holders.
The preferred stock depositary will abstain from voting the amount of
preferred stock represented by depositary shares to the extent it does not
receive specific instructions from the holders of depositary receipts evidencing
the depositary shares. The preferred stock depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as such action or non-action is in good
faith and does not result from negligence or willful misconduct of the preferred
stock depositary.
LIQUIDATION PREFERENCE
In the event of our liquidation, dissolution or winding up, whether
voluntary or involuntary, the holders of each depositary receipt will be
entitled to the fraction of the liquidation preference accorded
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each share of preferred stock represented by the depositary shares evidenced by
the respective depositary receipt, as set forth in the applicable prospectus
supplement.
CONVERSION OF PREFERRED STOCK
The depositary shares will not be convertible into common stock or any
other of our securities or property. Nevertheless, if available, the depositary
receipts may be surrendered by holders of the depositary receipts to the
preferred stock depositary with written instructions to the preferred stock
depositary to instruct us to cause conversion of the preferred stock represented
by the depositary shares evidenced by the depositary receipts surrendered into
whole shares of common stock, other shares of our preferred stock or other
shares of stock. We have agreed that upon receipt of instructions to convert and
any amounts payable in respect of the conversion, we will cause the conversion
of depositary receipts utilizing the same procedures as those provided for
delivery of preferred stock to effect conversion of the depositary receipts. If
the depositary shares evidenced by a depositary receipt are to be converted in
part only, a new depositary receipt or receipts will be issued for any
depositary shares not to be converted. No fractional shares of common stock will
be issued upon conversion, and if conversion would result in a fractional share
being issued, an amount will be paid in cash by us equal to the value of the
fractional interest based upon the closing price of the common stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares that
represent the preferred stock and any provision of the deposit agreement may at
any time be amended by agreement between us and the preferred stock depositary.
However, any amendment that materially and adversely alters the rights of the
holders of depositary receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related preferred
stock will not be effective unless the amendment has been approved by the
existing holders of at least sixty-six and two-third percent (66 2/3%) of the
depositary shares evidenced by the depositary receipts then outstanding. No
amendment will impair the right, subject to some exceptions in the deposit
agreement, of any holder of depositary receipts to surrender any depositary
receipt with instructions to deliver to the holder the related preferred stock
and all money and other property, if any, represented thereby, except in order
to comply with law. Every holder of an outstanding depositary receipt at the
time any amendment becomes effective will be deemed, by continuing to hold such
receipt, to consent and agree to the amendment and to be bound by the deposit
agreement as amended by such amendment.
The deposit agreement may be terminated by us upon not less than 30 days'
prior written notice to the preferred stock depositary if the holders of a
majority of each series of preferred stock affected by the termination consents
to the termination. Upon a termination that has been consented to, the preferred
stock depositary will deliver or make available to each holder of depositary
receipts, upon surrender of the depositary receipts held by the holder, the
number of whole or fractional shares of preferred stock as are represented by
the depositary shares evidenced by the depositary receipts surrendered by the
holder together with any other property held by the preferred stock depositary
with respect to the depositary receipts surrendered by the holder. In addition,
the deposit agreement will automatically terminate if:
- all outstanding depositary shares have been redeemed;
- there has been a final distribution in respect of the related preferred
stock in connection with any liquidation, dissolution or winding up of
ACS and the distribution has been distributed to the holders of
depositary receipts evidencing the depositary shares representing such
preferred stock; or
- each share of the related preferred stock has been converted into our
securities not represented by depositary shares.
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CHARGES OF PREFERRED STOCK DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the deposit agreement. In addition, we will pay the
fees and expenses of the preferred stock depositary in connection with the
performance of its duties under the deposit agreement. However, holders of
depositary receipts will pay the fees and expenses of the preferred stock
depositary for any duties requested by those holders to be performed which are
outside of those expressly provided for in the deposit agreement.
RESIGNATION AND REMOVAL OF PREFERRED STOCK DEPOSITARY
The preferred stock depositary may resign at any time by delivering to us
notice of its election to do so, and we may at any time remove the preferred
stock depositary. Any resignation or removal of the preferred stock depositary
will take effect upon the appointment of a successor preferred stock depositary.
A successor preferred stock depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
MISCELLANEOUS
The preferred stock depositary will forward to holders of depositary
receipts any reports, notices, proxy soliciting materials or other
communications from us that are received by the preferred stock depositary with
respect to the related preferred stock. Neither the preferred stock depositary
nor us will be liable if it is prevented from or delayed in performing its
obligations under the deposit agreement, by law or any circumstances beyond its
control. Our obligations and the obligations of the preferred stock depositary
under the deposit agreement will be limited to performing their duties under the
deposit agreement in good faith and without negligence (in the case of any
action or inaction in the voting of preferred stock represented by the
depositary shares), gross negligence or willful misconduct, and we and the
preferred stock depositary will not be obligated to prosecute or defend any
legal proceeding in respect of any depositary receipts, depositary shares or
shares of preferred stock represented thereby unless satisfactory indemnity is
furnished.
We and the preferred stock depositary may rely on written advice of counsel
or accountants, or information provided by persons presenting shares of
preferred stock represented by the depositary receipts for deposit, holders of
depositary receipts or other persons believed in good faith to be competent to
give information to us and the preferred stock depositary, and on documents
believed in good faith to be genuine and signed by a proper party. In the event
the preferred stock depositary receives conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and us,
on the other hand, the preferred stock depositary will be entitled to act on
those claims, requests or instructions received from us.
DESCRIPTION OF WARRANTS
We have no warrants outstanding. We may issue warrants for the purchase of
our preferred stock, Class A Common Stock or debt securities by this prospectus.
Warrants may be:
- issued independently;
- issued together with any other securities offered by any prospectus
supplement;
- issued through a dividend or other distribution to our stockholders; or
- attached to or separate from securities.
We may issue warrants under a warrant agreement to be entered into between us
and a warrant agent. We will name any warrant agent in the applicable prospectus
supplement. The warrant agent will act solely as our agent in connection with
the warrants of a particular series and will not assume any obligation or
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relationship of agency or trust for or with any holders or beneficial owners of
warrants. You are encouraged to read the warrant before purchasing the same.
WARRANTS FOR PREFERRED STOCK OR CLASS A COMMON STOCK
In the applicable prospectus supplement, we will describe the terms of the
warrants for the purchase of our preferred stock or Class A Common Stock, the
warrant certificates and applicable warrant agreement, including, where
applicable, the following:
- the title of the warrants;
- their aggregate number;
- the price or prices at which we will issue them;
- changes to the exercise price;
- the designation, number and terms of the preferred stock or Class A
Common Stock that can be purchased upon exercise of the warrants;
- the designation and terms of the other securities, if any, with which the
warrants are issued and the number of warrants that are issued with each
of those securities;
- any provisions for adjustment of the number or amount of shares of
preferred stock or Class A Common Stock receivable upon exercise of the
warrants;
- the date, if any, on and after which the warrants and the related
preferred stock or Class A Common Stock, if any, will be separately
transferable;
- the price at which each share of preferred stock or Class A Common Stock
that can be purchased upon exercise of the warrants may be purchased;
- the date on which the right to exercise them will commence and the date
on which that right will expire;
- the minimum or maximum number of the warrants that may be exercised at
any one time;
- information with respect to book-entry procedures, if any;
- a discussion of material federal income tax considerations; and
- any other terms of the warrants, including terms, procedures and
limitations relating to the transferability, exchange and exercise of the
warrants.
WARRANTS FOR DEBT SECURITIES
In the applicable prospectus supplement, we will describe the terms of the
warrants for the purchase of our debt securities, the warrant certificates, and
applicable warrant agreement, including the following:
- the title of the warrants;
- the aggregate number of the warrants;
- the price or prices at which the warrants will be issued;
- the designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the warrants, the exercise price
and the procedures, terms, limitations and conditions relating to the
exercise of the warrants;
- the designation and terms of any related debt securities with which the
warrants are issued, and the number of the warrants issued with each debt
security;
- the date, if any, on and after which warrants and the related debt
securities will be separately transferable;
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- the date on which the right to exercise the warrants will commence, and
the date on which the right will expire;
- the maximum or minimum number of warrants which may be exercised at any
time;
- a discussion of the material United States Federal income tax
considerations applicable to the warrants; and
- any other terms of the warrants.
Prior to the exercise of the warrants, holders of warrants will not have any of
the rights of holders of the debt securities that may be purchased upon exercise
and will not be entitled to payments of principal of (or premium, if any) or
interest, if any, on the debt securities that may be purchased upon such
exercise.
EXERCISE OF WARRANTS
Each warrant will entitle the holder of warrants to purchase for cash the
principal amount of debt securities, shares of preferred stock or shares of
Class A Common Stock at the exercise price as set forth in, or be determinable
as set forth in, the applicable prospectus supplement relating to the warrants
offered thereby. Warrants may be exercised at any time up to the close of
business on the expiration date set forth in the applicable prospectus
supplement. After the close of business on the expiration date, unexercised
warrants will become void.
Warrants may be exercised as set forth in the applicable prospectus
supplement. Upon receipt of payment and the warrant certificate properly
completed and duly executed at the corporate trust office of the warrant agent
or any other office indicated in the applicable prospectus supplement, we will,
as soon as practicable, forward the debt securities, or shares of preferred
stock or Class A Common Stock purchasable upon exercise of the warrant. If less
than all of the warrants represented by a warrant certificate are exercised, a
new warrant certificate will be issued for the remaining warrants.
SELLING SECURITYHOLDER
Darwin Deason founded ACS in 1988 and until February 1999 served as our
chairman and chief executive officer. Since February 1999, he has continued to
serve as the chairman of our board of directors. As of August 31, 2001 he owned
beneficially 1,504,562 shares of our Class A Common Stock and all 3,299,686
shares of our outstanding Class B Common Stock.
The following table sets forth information with respect to Mr. Deason's
beneficial ownership of Class A Common Stock, as adjusted to reflect the sale by
Mr. Deason of up to 1,504,562 shares of Class A Common Stock registered for sale
by the registration statement of which this prospectus is a part.
SHARES OF
SHARES OF CLASS A COMMON CLASS A COMMON STOCK
STOCK BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
------------------------- CLASS A ---------------------
PERCENT OF COMMON STOCK PERCENT OF
NAME OF SELLING SECURITYHOLDER NUMBER OUTSTANDING OFFERED HEREBY(1) NUMBER OUTSTANDING
------------------------------ ---------- ------------ -------------------- ------ -----------
Darwin Deason.................. 1,504,562 3.16% 1,504,562 -0- 0%
---------------
(1) These figures include 1,003,397 shares of Class A Common Stock owned by The
Deason International Trust. Mr. Deason holds the sole voting power with
respect to these shares through an irrevocable proxy granted by the trust.
The investment power with respect to these shares is held by the trust. In
addition, these figures include 7,310 shares owned by Mr. Deason's spouse
and her daughter. Mr. Deason disclaims beneficial ownership of these shares.
These figures do not include the 3,299,686 shares of our Class B Common
Stock which Mr. Deason beneficially owns. Each share of Class B Common Stock
is convertible at any time, at Mr. Deason's option, into one share of Class
A Common Stock. In addition to the voting rights of the Class A Common
Stock, each Class B Common Stock is entitled to 10 votes per share.
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PLAN OF DISTRIBUTION
We may sell the securities described in this prospectus in and outside the
United States (a) through underwriters or dealers, (b) directly to purchasers,
including our affiliates, (c) through agents or (d) through a combination of any
of these methods. The prospectus supplement will include the following
information:
- the terms of the offering,
- the names of any underwriters or agents,
- the name or names of any managing underwriter or underwriters,
- the purchase price of the securities from us,
- the net proceeds to us from the sale of the securities,
- any delayed delivery arrangements,
- any underwriting discounts, commissions and other items constituting
underwriters' compensation,
- any initial public offering price,
- any discounts or concessions allowed or reallowed or paid to dealers, and
- any commissions paid to agents.
SALE THROUGH UNDERWRITERS OR DEALERS
If we use underwriters in the sale, the underwriters will acquire the
securities for their own account. The underwriters may resell the securities
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
prior to or at the time of sale, including at prevailing market prices or at
prices related to prevailing market prices. Underwriters may offer securities to
the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters.
Unless we inform you otherwise in the prospectus supplement, the obligations of
the underwriters to purchase the securities will be subject to certain
conditions, and the underwriters will be obligated to purchase all the offered
securities if they purchase any of them. The underwriters may change from time
to time any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers.
During and after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market. These transactions may
include overallotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters may also impose a penalty bid, which means that selling concessions
allowed to syndicate members or other broker-dealers for the offered securities
sold for their account may be reclaimed by the syndicate if the offered
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the offered securities, which may be higher than the price that
might otherwise prevail in the open market. If commenced, the underwriters may
discontinue these activities at any time.
If we use dealers in the sale of securities, we will sell the securities to
them as principals. They may then resell those securities to the public at
varying prices determined by the dealers at the time of resale. We will include
in the prospectus supplement the names of the dealers and the terms of the
transaction.
DIRECT SALES AND SALES THROUGH AGENTS
We may sell the securities directly. In this case, no underwriters or
agents would be involved. We may also sell the securities through agents we
designate from time to time. In the prospectus supplement, we will name any
agent involved in the offer or sale of the offered securities, and we will
describe any
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commissions payable by us to the agent. Unless we inform you otherwise in the
prospectus supplement, any agent will agree to use its reasonable best efforts
to solicit purchases for the period of its appointment.
We may sell the securities directly to institutional investors or others
who may be deemed to be underwriters within the meaning of the Securities Act of
1933 with respect to any sale of those securities. We will describe the terms of
any such sales in the prospectus supplement.
DELAYED DELIVERY CONTRACTS
If we so indicate in the prospectus supplement, we may authorize agents,
underwriters or dealers to solicit offers from certain types of institutions to
purchase securities from us at the public offering price under delayed delivery
contracts. These contracts would provide for payment and delivery on a specified
date in the future. The contracts would be subject only to those conditions
described in the prospectus supplement. The prospectus supplement will describe
the commission payable for solicitation of those contracts.
GENERAL INFORMATION
We may have agreements with the agents, dealers and underwriters to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act of 1933, or to contribute with respect to payments that the
agents, dealers or underwriters may be required to make. Agents, dealers and
underwriters may be customers of, engage in transactions with or perform
services for us in the ordinary course of their businesses.
LEGAL MATTERS
The validity of the securities will be passed upon for us by Baker Botts
L.L.P., Dallas, Texas.
EXPERTS
The financial statements incorporated in this prospectus by reference to
our Annual Report on Form 10-K for the year ended June 30, 2001, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Lockheed Martin IMS Corporation (A
subsidiary of Lockheed Martin Corporation) at December 31, 2000 and 1999, and
for each of the three years in the period ended December 31, 2000, incorporated
by reference in this prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated by
reference herein from our Current Report on Form 8-K filed on August 29, 2001,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements,
information statements and other information with the SEC. You may read and copy
this information, for a copying fee, at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. We encourage you to call the SEC at 1-800-SEC-0330 for more information
about its public reference rooms. Our SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov. Information about us is also
available to the public from our website at http://www.acs-inc.com.
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Our Class A Common Stock is traded on the New York Stock Exchange and,
therefore, the information we file with the Commission may also be inspected at
the offices of the New York Stock Exchange, located at 20 Broad Street, New
York, NY 10005.
This prospectus is part of a registration statement we have filed with the
SEC relating to the securities we may offer. As permitted by SEC rules, this
prospectus does not contain all of the information we have included in the
registration statement and the accompanying exhibits and schedules we file with
the SEC. You should read the registration statement and the exhibits and
schedules for more information about us and our securities. The registration
statement, exhibits and schedules are available at the SEC's public reference
room or through its web site.
You may also obtain a copy of our filings with the SEC, at no cost, by
writing or telephoning us at the following address:
Affiliated Computer Services, Inc.
Attention: William L. Deckelman, Jr.
Executive Vice President, General Counsel and Secretary
2828 North Haskell Avenue
Dallas, Texas 75204
Telephone: (214) 841-6111
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INFORMATION WE INCORPORATE BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with them, which means that we can disclose important
information to you by referring to another document filed separately with the
SEC. The information incorporated by reference is deemed to be part of this
prospectus, except for information superseded by this prospectus or the
applicable prospectus supplement. The prospectus incorporates by reference the
documents set forth below that we have previously filed with the Commission.
These documents contain important information about us and our financial
condition and results of operations.
- our Annual Report on Form 10-K for the year ended June 30, 2001;
- our Current Report on Form 8-K filed August 29, 2001; and
- the description of our Class A Common Stock, par value $0.01 per share,
contained in our Registration Statement on Form 8-A, dated September 26,
1994, including any amendment or report filed for the purpose of updating
such description.
We also incorporate by reference additional documents that we file with the
SEC in the future under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 prior to the termination of this offering. The information
filed by us with the SEC in the future will update and supercede the information
referenced above.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR THE APPLICABLE PROSPECTUS SUPPLEMENT. WE HAVE NOT
AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE ONLY AS TO THE DATE ON THE FRONT OF THE
DOCUMENT AND THAT ANY INFORMATION WE HAVE INCORPORATED BY REFERENCE IS ACCURATE
ONLY AS OF THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE.
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NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL ONLY THE
SECURITIES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS
WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT IS CURRENT ONLY AS OF ITS DATE.
------------------------------
TABLE OF CONTENTS
------------------------------
PAGE
----
PROSPECTUS SUPPLEMENT
Summary............................... S-1
Risk Factors.......................... S-4
Use of Proceeds....................... S-12
Capitalization........................ S-13
The IMS Acquisition................... S-14
Unaudited Pro Forma Combined Financial
Statements.......................... S-15
Selected Financial Data............... S-21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-22
Business.............................. S-27
Certain United States Federal Tax
Considerations for Non-United States
Holders............................. S-35
Underwriting.......................... S-37
Legal Matters......................... S-39
Experts............................... S-39
PROSPECTUS
About This Prospectus................. 1
A Warning About Forward-Looking
Statements.......................... 1
Affiliated Computer Services, Inc. ... 2
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 3
Description of Debt Securities........ 3
Description of Capital Stock.......... 12
Description of Depositary Shares...... 17
Description of Warrants............... 20
Selling Securityholder................ 22
Plan of Distribution.................. 23
Legal Matters......................... 24
Experts............................... 24
Where Can You Find More
Information......................... 24
Information We Incorporate by
Reference........................... 26
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(ACS LOGO)
AFFILIATED COMPUTER
SERVICES, INC.
8,000,000 SHARES
CLASS A COMMON STOCK
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
WELLS FARGO VAN KASPER, LLC
October 3, 2001
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