<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1999.
REGISTRATION NO. 333-71941
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AFFILIATED COMPUTER SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 51-0310342
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
2828 NORTH HASKELL AVENUE
DALLAS, TEXAS 75204
(214) 841-6111
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
DAVID W. BLACK
AFFILIATED COMPUTER SERVICES, INC.
2828 NORTH HASKELL AVENUE
DALLAS, TEXAS 75204
(214) 841-6152
(Name, address, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
DAVID G. LUTHER, JR. C. NEEL LEMON, III
HUGHES & LUCE, L.L.P. THOMPSON & KNIGHT, P.C.
1717 Main Street, Suite 2800 1700 Pacific Ave., Suite 3300
Dallas, Texas 75201 Dallas, Texas 75201
(214) 939-5500 (214) 969-1700
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box: [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON THE DATE THAT THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY SATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 23, 1999
PROSPECTUS
3,500,000 SHARES
[ACS LOGO]
AFFILIATED COMPUTER SERVICES, INC.
CLASS A COMMON STOCK
-------------------------
We are offering and selling 3,500,000 shares of our Class A common stock.
We have two classes of common stock outstanding.
The Class A common stock is listed on the New York Stock Exchange under the
symbol "ACS." The last reported sale price of our Class A common stock on March
22, 1999 was $37 per share.
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR CLASS A COMMON STOCK.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price..................... $ $
Underwriting discount..................... $ $
Proceeds, before expenses, to us.......... $ $
</TABLE>
-------------------------
The underwriters may purchase up to an additional 525,000 shares of Class A
common stock from Darwin Deason, our Chairman of the Board, at the public
offering price less the underwriting discount. If all of these shares are
purchased, the total public offering price will be $ , the underwriting
discount will be $ and the proceeds to Mr. Deason will be $ .
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
BEAR, STEARNS & CO. INC. GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
PRUDENTIAL
SECURITIES
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the risks of
investing in the Class A common stock discussed under "Risk Factors." Unless
otherwise specifically stated, the information throughout this prospectus
assumes that the underwriters do not exercise their over-allotment option and
that outstanding stock options have not been exercised, Class B common stock has
not been converted into Class A common stock and the 4% convertible subordinated
notes have not been converted into Class A common stock.
OVERVIEW
We are based in Dallas, Texas and have offices primarily in North America,
as well as Central and South America, Europe and the Middle East. We provide a
full range of information technology services to clients, which have
time-critical, transaction-intensive information processing needs. Our services
include:
- technology outsourcing;
- business process outsourcing; and
- professional and systems integration services.
A description of each of these services is provided in the following paragraphs.
Generally, when our clients engage us under an outsourcing arrangement, they
delegate to us core technology or business functions which they may have
previously performed themselves, but which we are able to perform more
economically for them on a contract basis.
Our technology outsourcing services consist of processing our clients' data
on a remote basis from our data centers to deliver significant cost savings and
service improvements to our clients. The principal technology outsourcing
services we provide include data center outsourcing, which involves processing,
storing and reporting on large volumes of clients' data, and network management
services, which involve managing clients' computer networks. In order to provide
these services, we utilize a variety of hardware and software systems.
Our business process outsourcing services, an extension of technology
outsourcing, consist of managing, through an outsourcing arrangement, our
clients' non-core, but mission-critical, business processes. The principal
business process outsourcing services we provide include loan and mortgage
processing, claims processing, accounts payable processing, data capture,
storage and retrieval services and automated teller machine transaction
processing.
Our professional and systems integration services include technology
consulting, information and computer systems design and engineering, computer
software applications maintenance and development and providing technical staff
to augment the client's permanent staff as required for particular projects.
Our primary markets are the commercial and federal government sectors. The
commercial sector accounts for approximately two-thirds of our annual revenues,
and the government sector accounts for approximately one-third of our annual
revenues. Approximately 90% of our revenues for the past three fiscal years were
recurring revenues. Recurring revenues are derived from services that our
clients use each year in connection with their ongoing businesses.
Our revenues have grown from $477 million in fiscal 1994 to $1.2 billion in
fiscal 1998, representing a compounded annual growth rate of approximately 26%.
Of this growth, approximately half has come from internally generated services
and approximately half from acquisitions.
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<PAGE> 4
STRATEGY
In pursuit of our ultimate goal of enhancing shareholder value, we pursue a
balanced strategy of internal and external growth strategies.
Our internal growth strategy includes:
- expanding our recurring revenue base;
- maximizing economies of scale by diligently controlling our cost
structure, adding new clients and enhancing our relationships with
existing clients;
- providing flexible solutions to those clients;
- investing in technology; and
- attracting and retaining high quality employees.
Our external growth strategy involves an aggressive but disciplined
acquisition program, focused on:
- expanding our service offerings, client base and geographic coverage; and
- the rapid, effective assimilation of the companies we acquire.
RECENT ACQUISITIONS
In December 1998, we purchased a 63% interest in BRC Holdings, Inc., a
provider of specialized information technology services to the local government
and healthcare sectors. We acquired the remaining 37% interest in February 1999.
We have renamed the company ACS BRC Holdings, Inc. In December 1998, we also
acquired two smaller companies. The annual combined revenues from continuing
operations of these three companies during calendar year 1998 was approximately
$146 million.
We are incorporated in Delaware and our principal offices are located at
2828 North Haskell Avenue, Dallas, Texas 75204; telephone (214) 841-6111. We
maintain a worldwide web site at www.acs-inc.com.
In this prospectus, when we use the terms "ACS," "we," "us" and "our,"
these terms refer to Affiliated Computer Services, Inc. and its subsidiaries,
unless the context otherwise requires.
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THE OFFERING
You should refer to "Description of Capital Stock" for a description of our
capital structure, including the terms of the Class A and Class B common stock.
Class A common stock
offered.................. 3,500,000 shares
Common stock to be
outstanding after this
offering:
Class A common stock..... 49,323,877 shares
Class B common stock..... 3,299,686 shares
Total............ 52,623,563 shares
Voting rights.............. The Class A common stock is entitled to one vote
per share and the Class B common stock is entitled
to ten votes per share. See "Risk Factors -- Darwin
Deason has substantial control over our company and
can affect virtually all decisions made by our
stockholders" for more information on these voting
rights.
Use of proceeds............ We intend to use all of the net proceeds from this
offering to repay a portion of the debt incurred
under ACS's revolving credit agreement primarily in
connection with our acquisition of BRC Holdings,
Inc. See "Use of Proceeds" for more information on
our use of net proceeds.
Dividend policy............ We do not anticipate declaring or paying any cash
dividends in the foreseeable future. Any future
determination to pay dividends will be at the
discretion of our Board of Directors and will be
dependent upon then existing conditions, including
our financial condition, results of operations,
contractual restrictions, capital requirements,
business prospects, and other factors as our Board
of Directors deems relevant.
NYSE symbol................ ACS
We are offering to sell, and seeking offers to buy, shares of Class A
common stock only in jurisdictions where offers and sales are permitted.
RISK FACTORS
For a description of risks that you should consider before buying shares of
the Class A common stock, see "Risk Factors."
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<PAGE> 6
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The table below sets forth the following financial data:
- Summary historical consolidated financial data as of and for each of the
five years ended June 30, 1998 and as of December 31, 1998 and for the
six months ended December 31, 1998 and 1997;
- Consolidated income statement data for the year ended June 30, 1998 and
for the six months ended December 31, 1998, pro forma for the acquisition
of BRC Holdings, Inc., four additional acquisitions during the year ended
June 30, 1998 and five acquisitions subsequent to July 1, 1998; and
- Consolidated balance sheet data as of December 31, 1998, as adjusted for
the consummation of this offering.
You should read this data together with the consolidated financial
statements incorporated by reference in this prospectus. See "Selected
Consolidated Financial Data," "Where You Can Find More Information," and "Pro
Forma Condensed Consolidated Financial Information (Unaudited)" for more
financial information.
ACS has acquired 31 companies during the periods presented under the
purchase method of accounting, and therefore revenues between periods are not
comparable. In addition, all periods reflect the merger of a wholly-owned
subsidiary of ACS with and into ACS Government Solutions Group, Inc., formerly
known as Computer Data Systems, Inc., in December 1997. This merger was
accounted for as a pooling of interests and, accordingly, historical results
have been restated to reflect the combined operations of the two companies.
Pro forma income statement data for the year ended June 30, 1998 and the
six months ended December 31, 1998 present the results of operations of ACS for
the year and the period as if the following transactions had occurred as of July
1, 1997: (1) the consummation of the acquisition of BRC Holdings, Inc.; and (2)
the consummation of four additional acquisitions during the year ended June 30,
1998 and five acquisitions subsequent to July 1, 1998. No adjustment has been
made for the consummation of this offering. See "Pro Forma Condensed
Consolidated Financial Information (Unaudited)" included elsewhere in this
prospectus for additional pro forma financial information.
Balance sheet data at December 31, 1998, as adjusted, give effect to the
receipt of the estimated net proceeds from the sale of 3,500,000 shares of Class
A common stock offered by ACS. See "Use of Proceeds" and "Capitalization" for
additional information related to the "as adjusted" balance sheet data.
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS
YEAR ENDED
YEAR ENDED JUNE 30, ENDED DECEMBER 31,
------------------------------------------------------ JUNE 30, -------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $476,978 $533,848 $647,608 $928,925 $1,189,123 $1,439,871 $550,229 $754,990
Operating income................... 37,475 44,378 56,583 90,266 98,319 127,301 33,388 72,910
Net income......................... 19,654 25,655 33,525 49,666 54,422 54,234 19,052 39,634
Earnings per common share:
Basic............................. $ 0.64 $ 0.74 $ 0.88 $ 1.08 1.14(1) $ 1.13(1) $ 0.40 $ 0.82
Diluted........................... 0.59 0.71 0.85 1.05 1.11(1) 1.10(1) 0.39 0.77
Shares used in computing earnings
per common share:
Basic............................. 30,664 34,625 38,228 46,136 47,599 47,913 47,167 48,488
Diluted........................... 33,233 35,998 39,320 47,452 50,487 50,801 48,453 55,304
<CAPTION>
PRO FORMA
SIX MONTHS
ENDED
DECEMBER 31,
1998
------------
<S> <C>
INCOME STATEMENT DATA:
Revenues........................... $818,853
Operating income................... 83,443
Net income......................... 42,799
Earnings per common share:
Basic............................. $ 0.88
Diluted........................... 0.83
Shares used in computing earnings
per common share:
Basic............................. 48,761
Diluted........................... 55,577
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31, 1998
---------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
-------- -------- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 76,583 $ 77,615 $ 79,928 $110,866 $198,118 $ 210,472
Total assets.................................... 266,734 309,903 636,098 761,477 949,798 1,328,310
Total long-term debt (less current portion)..... 84,534 37,940 57,028 130,680 234,848 408,964
Total stockholders' equity...................... 90,439 156,686 363,204 427,481 503,670 559,411
</TABLE>
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(1) Includes $12,974,000, $8,880,000 net of tax, or $.19 and $.18, per basic and
diluted shares, respectively, of merger costs incurred by ACS in connection
with the merger of a wholly-owned subsidiary of ACS with and into ACS
Government Solutions Group, Inc. in December 1997.
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RISK FACTORS
You should carefully consider the following risk factors and warnings
before making an investment decision. If any of the following risks actually
occur, our business, financial condition or results of operations could be
materially adversely affected, the price of the Class A common stock could
decline, and you may lose all or part of your investment. You should also refer
to the other information contained in this prospectus and incorporated in this
prospectus by reference, including our consolidated financial statements and the
related notes.
LOSS OF SIGNIFICANT CLIENTS COULD ADVERSELY AFFECT OUR BUSINESS BY REDUCING OUR
REVENUES AND PROFITABILITY
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 data processor 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. 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, potential year 2000
problems affecting our clients' business 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
both adverse and beneficial, and it is possible that future adverse
modifications may occur.
Our five largest clients accounted for approximately 25% of our revenue for
the fiscal year ended June 30, 1998. For the fiscal year ended June 30, 1997,
our five largest clients accounted for approximately 26% of our revenue.
Approximately 8% of our revenue in fiscal 1998 and 11% of our revenue in fiscal
1997 came from services 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, in specified circumstances, including
termination for convenience. 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. See "-- Our government contracts expose us to risks of
government actions which could adversely affect our financial results" for a
description of related risks. We cannot assure you that the Department of
Education will not cancel or modify the contract or that we will maintain our
historic level of revenues or profits from this relationship. After the
Department of Education, our next four largest clients accounted for
approximately 17% of our revenue in fiscal 1998 and 15% of our revenue in fiscal
1997, and have remaining terms of one and one-half to five years.
WE HAVE SIGNIFICANT INVESTMENTS IN SOME CLIENT CONTRACTS WHICH EXPOSE US TO THE
RISK OF THESE CLIENTS' FINANCIAL CONDITION
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 of a
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client has in the past, and may in the future, result in an impairment of the
net book value of the assets recorded.
WE OPERATE IN HIGHLY COMPETITIVE HIGH-TECHNOLOGY MARKETS; OUR FAILURE TO MEET
RAPIDLY CHANGING MARKET DEMANDS COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION
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, and results of operations 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 Global Services, Computer Sciences Corporation and
several other national 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 information
technology capability, which may constitute a fixed cost for the client.
OUR ABILITY TO MEET CHANGES IN TECHNOLOGY COULD BE EXPENSIVE AND, IF WE DO NOT
KEEP UP WITH THESE CHANGES, WE COULD LOSE EXISTING CUSTOMERS AND BE UNABLE TO
ATTRACT NEW CUSTOMERS
The markets for our information technology services are subject to rapid
technological changes and rapid changes in client requirements. To compete, we
commit substantial resources to operating multiple hardware platforms, to
customizing third-party software programs and to training client personnel and
our personnel in the use of new technologies. Future hardware and software
products may be able to manipulate large amounts of data more cost-effectively
than existing mainframe platforms which we use. 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. We have committed substantial resources to developing outsourcing
solutions for these distributed computing environments. 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.
Technology costs have also dropped significantly in recent years 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, and results of operations could be adversely affected.
OUR RELIANCE ON SIGNIFICANT SOFTWARE VENDOR RELATIONSHIPS COULD RESULT IN
SIGNIFICANT EXPENSE OR INABILITY TO SERVE OUR CLIENTS IF WE LOSE THESE
RELATIONSHIPS
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 them 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 vendors were
to terminate or refuse to renew our contracts with them, we might not be able to
replace the related software
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programs and would be unable to serve our clients. As a result our business
would be materially adversely affected.
OUR CONTRACTS CONTAIN TERMINATION PROVISIONS AND PRICING RISKS WHICH COULD
ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY
Some of our contracts with 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 for any reason or
no reason. Our clients' ability to terminate contracts creates an uncertain
revenue stream. If clients are not satisfied with our level of performance, our
reputation in the industry may suffer, which could also materially and adversely
affect our business, financial condition, and results of operations.
Some of our contracts contain pricing provisions that require the client 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 for our clients
if we fail to achieve specific contract standards. Some of our contracts contain
re-pricing provisions which can result in reductions of our fees for performing
our services. In these situations, we could incur significant unforeseen costs
or financial penalties in performing the contract.
WE MAY HAVE DIFFICULTIES EXECUTING OUR ACQUISITION STRATEGY, WHICH COULD AFFECT
OUR GROWTH AND FINANCIAL CONDITION
We intend to continue to expand our business through acquisitions of
companies. Through acquisitions, we intend to expand our geographic presence, to
expand the products and services we offer to existing clients and to enter new
markets. Since our inception in June 1988, we have completed 44 acquisitions.
Approximately one-half of the increase in our revenues during the five years
ended June 30, 1998 is due to acquisitions. We regularly evaluate potential
acquisition candidates. Risks that we have encountered in our acquisitions
include:
- higher acquisition prices due to increased competition for acquisitions;
- fewer suitable acquisition candidates at acceptable prices;
- 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 acquisitions, if consummated, will be
advantageous to us. Without additional acquisitions, we may not grow at
historical rates. If our acquisition strategy fails, our business, financial
condition and results of operations could be materially and adversely affected.
FAILURE TO PROPERLY MANAGE OUR OPERATIONS AND OUR GROWTH COULD ADVERSELY AFFECT
OUR EXISTING BUSINESS AND IMPEDE OUR ABILITY TO ATTRACT NEW BUSINESS
We have rapidly expanded our operations in recent years. 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 growth effectively, we
must implement and improve our operational systems, procedures, and controls on
a timely 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
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operate our businesses effectively. We could also trigger contractual credits to
clients. Failure to properly integrate acquired operations with vendors' systems
could result in increased cost. As a result of any of these problems associated
with expansion, our business, financial condition and results of operations
could be materially and adversely affected.
OUR GOVERNMENT CONTRACTS EXPOSE US TO RISKS OF GOVERNMENT ACTIONS WHICH COULD
ADVERSELY AFFECT OUR FINANCIAL RESULTS
Loss or termination of one or more large government contracts could have a
material adverse effect on our business and financial results. Approximately
one-third of our revenues in fiscal 1998 were derived from contracts with the
United States government or its agencies. We have over 40 active prime contracts
and numerous active subcontracts with the United States government or its
agencies. The largest of these contracts accounted for approximately 8% of our
revenue for fiscal 1998 and 11% in fiscal 1997.
Government contracts, by their terms, generally can be terminated for
convenience by the government. This means that the government may terminate the
contract 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 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, its
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 the foreseeable future. The government could subject us to similar
scrutiny in the future. Any resulting penalties or sanctions could have a
material adverse effect on our business and financial results.
YEAR 2000 PROBLEMS FOR US OR OUR CLIENTS COULD INCREASE OUR LIABILITIES AND
EXPENSES AND DECREASE OUR REVENUES AND PROFITABILITY
We use many computer software programs and operating systems across our
organization. If our programs or systems contain source code that is unable to
interpret appropriately the upcoming calendar year 2000, modification or
replacement of programs or systems may be necessary. We are evaluating and
managing the risks associated with Year 2000 software failures, and we are
attempting to ensure a smooth Year 2000 transition. We believe, however, that it
is not possible to determine with complete certainty that all Year 2000 problems
affecting us or our clients have been identified or corrected. The number of
devices that could be affected and the interactions among these devices are
simply too numerous. In addition, no one can accurately predict how many Year
2000 problem-related failures will occur or the severity, duration or financial
consequences of these perhaps inevitable failures. As a result, we believe that
the following consequences are possible:
- a significant number of operational inconveniences and inefficiencies for
us and our clients that will divert management's time and attention and
financial and human resources from its ordinary business activities;
8
<PAGE> 11
- a few serious system failures that will require significant efforts by us
or our clients to prevent or alleviate material business disruptions;
- several routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 problems by our clients, which will be
resolved in the ordinary course of business; and
- a few serious business disputes alleging that we failed to comply with
the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.
We are attempting to coordinate with our clients, suppliers and other
parties regarding their Year 2000 compliance. Most of our clients maintain their
own application programs, although they use our computer and network resources.
We do undertake to test and modify system software for our clients, and we rely
on vendors of systems software to provide Year 2000 compliant products. In some
situations, we have agreed to modify or upgrade our client application programs
to remedy any existing Year 2000 problems. We have estimated our costs to
perform these services and have taken steps to plan for these costs. We cannot,
however, guarantee that these steps will be sufficient or that our estimates are
accurate. If we fail to adequately assess these costs, our business could be
adversely affected. In addition, our business could be adversely affected if our
clients experience Year 2000 problems with applications, causing management
resources to be devoted to resulting problems. Consequently, affected clients
could use less of our computing resources, alter their pattern of usage of
resources or dedicate less of their information processing budgets to projects
we conduct. We could also be adversely affected if potential new clients decide
not to pursue outsourcing projects because they are focusing their information
technology resources on Year 2000 issues in their own organizations.
We have identified and analyzed both internally developed and acquired
software that utilizes date embedded codes that may experience operational
problems when the Year 2000 is reached. We intend to complete substantial
necessary modifications to the identified software by June 1999. However, we
expect our efforts regarding Year 2000 compliance to continue thereafter as
necessary. We are spending or incurring significant financial and operating
expenses and resources to become Year 2000 compliant. However, we cannot
guarantee that our systems or our clients' systems will be entirely Year 2000
compliant. Of the approximately $15 million of estimated expenditures for Year
2000 remediation projects, approximately $11 million relates to costs incurred
in the ordinary course of business and approximately $4 million is incremental
costs solely attributable to Year 2000 related problems. Of the $15 million,
approximately $7 million had been incurred through December 31, 1998, and a
majority of the remainder is expected to be incurred by June 30, 1999. The costs
required to achieve substantial Year 2000 compliance, or our failure to do so,
could have a material adverse effect on our business, financial condition or
results of operations.
ATM LEGISLATION COULD REDUCE OUR REVENUE AND PROFITABILITY
State and federal governmental entities have proposed legislation and
regulations to regulate and limit or eliminate the fees that may be collected by
automated teller machine owners. The regulation and limitation or elimination of
ATM fees may reduce the economic viability of many ATMs. If this type of
legislation is enacted, the number of ATMs operated in geographic areas affected
by the legislation could decrease significantly, adversely affecting our results
of operations as they relate to our ATM business. Approximately 10% of our
revenues for fiscal 1998 were derived from our ATM business.
9
<PAGE> 12
FAILURE TO RETAIN AND ATTRACT HIGH-TECH PERSONNEL AND SKILLED MANAGEMENT COULD
ADVERSELY AFFECT OUR ABILITY TO DIRECT GROWTH AND MANAGEMENT OF 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 new contracts that we will enter into. The people capable
of filling these positions are in great demand and recruiting and training these
personnel require substantial resources. We have to pay an increasing amount to
hire and retain a technically-skilled workforce. Our business also experiences
significant turnover of technically-skilled people.
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 each of our executive officers and we may in the
future enter into employment agreements with our key personnel.
DARWIN DEASON HAS SUBSTANTIAL CONTROL OVER OUR COMPANY AND CAN AFFECT VIRTUALLY
ALL DECISIONS MADE BY OUR STOCKHOLDERS
Darwin Deason, our Chairman of the Board, beneficially owns 3,299,686
shares of Class B common stock and 2,575,802 shares of Class A common stock as
of December 31, 1998. Accordingly, upon completion of this offering, Mr. Deason
will control approximately 43.2% of the total voting power of our company
assuming no exercise of the underwriters' over-allotment option, and 42.6% if
the underwriters' over-allotment option is exercised. As a result, Mr. Deason
has the requisite voting power to significantly affect virtually all decisions
made by ACS and 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 shareholder approval. Mr. Deason was recently
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 EARNINGS
On December 16, 1998, a state district court in Houston, Texas entered
judgment against ACS for approximately $17 million in a lawsuit brought by
former employees of Gibraltar Savings Association and/or First Texas Savings
Association. These employees alleged that they were entitled to the value of
401,541 shares of ACS stock under options issued to these employees in 1988 in
connection with a former data processing services agreement between Gibraltar
Savings Association/First Texas Savings Association and ACS. We have filed a
motion for new trial, and plan to immediately and vigorously appeal the
judgment. The plaintiffs also have filed a notice of appeal. Should the
proceedings not be favorably resolved in the trial court or on appeal, we may be
subject to a material charge. See "Business -- Legal Proceedings" for additional
information on this lawsuit.
We are also subject to other legal proceedings, claims and disputes which
arise in the ordinary course of our business. If unfavorably resolved, these
proceedings could have a material adverse effect on our financial position,
results of operation and liquidity.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW COULD
DETER TAKEOVER ATTEMPTS
Some provisions in our certificate of incorporation and bylaws could also
delay, defer, prevent or make more difficult a merger, tender offer, or proxy
contest involving our company. Our stockholders might view
10
<PAGE> 13
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;
- require an 80% vote of the stockholders to amend some provisions of our
bylaws;
- permit only our Chairman, President or a majority of the 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 Class B common stock, which
shares are entitled to ten votes per share;
- divide our Board of Directors into three classes so that only
approximately one-third of the total number of directors will be elected
each year;
- permit directors to be removed, with or without cause, only by vote of at
least 80% 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. See "Description of Capital Stock -- Rights Agreement"
for additional information about the rights plan.
Further, we have entered into severance agreements with each of our
executive officers, which may have the effect of discouraging an unsolicited
takeover proposal. Finally, Mr. Deason's ownership of approximately 45% of the
voting power of our company (approximately 43.2% after completion of the
offering, assuming no exercise of the underwriters' over-allotment option, and
42.6% if the underwriters' over-allotment option is exercised) could have the
effect of delaying, deterring or preventing a takeover of our company. 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.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD ADVERSELY AFFECT OUR BUSINESS
We and 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 vendors. If these vendors assert claims that we or our clients are
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 (1)
to cease selling or using products or services that incorporate the challenged
software or technology, (2) to obtain a license or additional licenses from our
vendors, or (3) to redesign our products and services which 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.
11
<PAGE> 14
AVAILABILITY OF SIGNIFICANT AMOUNTS OF CLASS A COMMON STOCK FOR SALE COULD
ADVERSELY AFFECT THE MARKET PRICE OF OUR CLASS A COMMON STOCK
Our stockholders hold a substantial number of shares of common stock which
they may be able to sell in the public market in the near future. In addition,
there are a substantial number of shares of the Class A common stock that may be
issued and subsequently sold upon exercise of employee stock options, and upon
conversion of our Class B common stock and our 4% convertible subordinated
notes. 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. See "Description of Capital Stock" for a description
of these shares and "Underwriting" for a description of limitations on ACS'
ability to issue new shares of Class A common stock and on directors' and
officers' ability to dispose of shares of Class A common stock they hold after
this offering.
RISKS RELATED TO INTERNATIONAL OPERATIONS COULD AFFECT OUR BUSINESS IN THE
FUTURE
We currently have limited operations in many countries around the world but
may increase our international presence in the future. Risks that affect
international operations include:
- fluctuations in currency exchange rates;
- complicated licensing and work permit requirements;
- variations in the protection of intellectual property rights;
- restrictions on the ability to convert currency; 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.
OTHER RISKS, UNKNOWN OR IMMATERIAL TODAY, MAY BECOME KNOWN OR MATERIAL IN THE
FUTURE
We have attempted to identify material risk factors currently affecting our
company. However, additional risks that we do not yet know of, or that we
currently think are immaterial, may occur or become material. These risks could
impair our business operations or adversely affect revenues or profitability.
WHERE YOU CAN FIND MORE INFORMATION
ACS files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the reports, statements or other information we file at the SEC's public
reference room in Washington, D.C. located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains regional offices where you can
read and copy the reports. These are located at 500 West Madison Street, Room
1400, Chicago, Illinois 60606 and at 7 World Trade Center, Suite 1300, New York,
New York 10048. You can request copies of these documents, upon payment of
photocopying fees, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC's internet site
(http://www.sec.gov). These documents are also available for viewing and copying
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC. This prospectus does not contain all the information in that
registration statement. For further information with respect to ACS and the
securities offered by this prospectus, you should review the registration
statement. You can obtain the registration statement from the SEC and the NYSE
at the public reference facilities we referred to above.
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<PAGE> 15
The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in this prospectus.
This prospectus incorporates by reference the documents set forth below that ACS
and BRC Holdings, Inc. have previously filed with the SEC. These documents
contain important information about ACS and its financial condition.
There may be statements in a document incorporated by reference in this
prospectus that are modified or updated by statements in this prospectus or in a
document filed after the date of this prospectus. Any prior statements that are
so modified or updated in this prospectus or subsequently filed documents are
not considered to be a part of this prospectus.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. The information
contained or incorporated by reference in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the Class A common stock. The reference to our
worldwide web address in this prospectus does not constitute incorporation by
reference of the information contained at the site.
The following ACS documents are incorporated by reference into this
prospectus:
<TABLE>
<CAPTION>
FILING PERIOD
- ------ ------
<S> <C>
Annual Report on Form 10-K......................... Year Ended June 30, 1998
Quarterly Report on Form 10-Q...................... Quarter Ended September 30, 1998
Quarterly Report on Form 10-Q...................... Quarter Ended December 31, 1998
Current Report on Form 8-K......................... Dated February 19, 1998
Current Report on Form 8-K......................... Dated December 30, 1998
Current Report on Form 8-K/A....................... Dated February 5, 1999
Proxy Statement on Schedule 14A.................... Dated September 29, 1998
The description of common stock purchase rights
included in the Company's registration statement
on Form 8-A...................................... Dated August 21, 1997
</TABLE>
The following BRC Holdings, Inc. information is incorporated by reference
into this prospectus:
<TABLE>
<CAPTION>
INFORMATION PERIOD
- ----------- ------
<S> <C>
Financial Statements of BRC Holdings, Inc. as of
December 31, 1996 and 1997 and for the three
years ended December 31, 1997 located on pages 22
through 49 of the Annual Report on Form 10-K..... Year Ended December 31, 1997
Financial Statements of BRC Holdings, Inc.
(unaudited) as of September 30, 1998 and for the
quarter ended September 30, 1998 located on pages
1 through 9 of the
Quarterly Report on Form 10-Q/A.................. Quarter Ended September 30, 1998
</TABLE>
All documents filed by ACS as required by Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the date of this prospectus
will be deemed to be incorporated by reference into this prospectus and to be a
part hereof from the date of filing of these documents.
Documents incorporated by reference are available from ACS without charge,
excluding all exhibits unless specifically incorporated by reference as an
exhibit to this prospectus. Prospective investors may obtain documents
incorporated by reference in this prospectus by requesting them in writing or by
telephone from the company at its executive offices: Attention: General Counsel,
2828 North Haskell Avenue, Dallas, Texas 75204, (214) 841-6111.
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<PAGE> 16
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Business" and elsewhere in this prospectus, or incorporated in this prospectus
by reference, constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Statements about ACS' outlook and all other statements in this prospectus other
than historical facts are forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "anticipates," "plans," "believes," "estimates,"
"predicts," "potential," "intends," "foresees," "projects," "forecasts" or
"continue" or the negative of these terms or other comparable terminology. These
forward looking statements rely on a number of assumptions concerning future
events and are subject to a number of uncertainties and factors, many of which
are outside of our control, that could cause actual results to differ materially
from these statements. While we believe that the assumptions concerning future
events are reasonable, we caution that there are inherent difficulties in
predicting important factors, especially the loss of any significant customers,
the competition in the information technology industry and the impact of
competition on pricing, the timing and magnitude of technological advances,
reliance on key software vendors, the performance of recently acquired
businesses and prospects for future acquisitions, uncertainties surrounding
budget reductions or changes in funding priorities or existing government
programs, Year 2000 problems affecting ACS' and its clients' business, the costs
of attracting and retaining highly skilled personnel and the other factors
described under "Risk Factors" beginning on page 5.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of any forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform these statements to actual results.
USE OF PROCEEDS
We estimate that the net proceeds to us from this Class A common stock
offering, after deducting estimated expenses will be approximately $ million.
We will use all of the net proceeds of this offering for repayment of a portion
of the bank debt under our revolving credit agreement with Wells Fargo Bank
(Texas) N.A., as agent, Bank One, Texas, N.A., as co-agent, and the other
lenders that are parties to the credit agreement. As of December 31, 1998, our
outstanding debt under the credit agreement was $174.0 million, including
approximately $165 million used in connection with the acquisition of BRC
Holdings, Inc., now known as ACS BRC Holdings, Inc. See "Business -- Recent
Acquisitions" for a description of the acquisition of BRC Holdings, Inc. The
credit agreement expires in July 2002, and loans outstanding at December 31,
1998 under the credit agreement bear interest at LIBOR plus 0.625%. As of
December 31, 1998, after giving effect to the receipt of the estimated net
proceeds to us from the sale of the Class A common stock offered by this
prospectus, we will have $ of indebtedness under the credit agreement and
$ million of availability under the credit agreement. We intend to borrow
under the credit agreement from time to time as necessary to fund acquisitions
and for other general corporate purposes.
If the underwriters exercise their over-allotment option in full, Mr.
Deason will receive estimated net proceeds of approximately $ million. ACS will
receive no proceeds from the sale of Mr. Deason's shares of Class A common stock
in connection with the exercise of the underwriters' over-allotment option.
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<PAGE> 17
SELLING STOCKHOLDER
IF UNDERWRITERS' OVER-ALLOTMENT OPTION IS EXERCISED
The following table sets forth information regarding the shares of the
Class A common stock and Class B common stock beneficially owned by Mr. Deason,
our Chairman of the Board, as of the date of this prospectus, and as adjusted to
reflect the sale of the shares of Class A common stock offered by this
prospectus, assuming that the underwriters' over-allotment option is exercised.
In calculating the percent of total voting power, the voting power of shares of
Class A common stock, which has one vote per share, and Class B common stock,
which has ten votes per share, is aggregated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PRIOR TO OFFERING
---------------------------------------------------------
PERCENT
OF TOTAL
PERCENT SHARES OF
NUMBER OF TOTAL NUMBER CLASS A PERCENT SHARES OF
OF SHARES SHARES OF OF SHARES AND OF CLASS A
OF CLASS A CLASS A OF CLASS B CLASS B TOTAL COMMON
COMMON COMMON COMMON COMMON VOTING STOCK
STOCK STOCK STOCK STOCK POWER OFFERED
---------- --------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELLING STOCKHOLDER
Darwin Deason................. 2,575,802 5.6% 3,299,686 12.0% 45.1% 525,000
<CAPTION>
SHARES BENEFICIALLY OWNED AFTER OFFERING,
ASSUMING EXERCISE OF OVER-ALLOTMENT OPTION
---------------------------------------------------------
PERCENT
OF TOTAL
PERCENT SHARES OF
NUMBER OF TOTAL NUMBER CLASS A PERCENT
OF SHARES SHARES OF OF SHARES AND OF
OF CLASS A CLASS A OF CLASS B CLASS B TOTAL
COMMON COMMON COMMON COMMON VOTING
STOCK STOCK STOCK STOCK POWER
---------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
SELLING STOCKHOLDER
Darwin Deason................. 2,050,802 4.2% 3,299,686 10.2% 42.6%
</TABLE>
The shares listed above include 1,628,397 shares of Class A common stock
owned by The Deason International Trust and 72,728 of the shares of Class A
common stock owned by the Deason Foundation. Mr. Deason holds the sole voting
power with respect to these shares through an irrevocable proxy granted by the
trust and a board resolution passed by the foundation. The investment power with
respect to these shares is held by the trust and the foundation. The shares of
Class A common stock also include 7,310 shares owned by Mr. Deason's spouse and
her daughter, to which Mr. Deason disclaims beneficial ownership.
15
<PAGE> 18
PRICE RANGE OF CLASS A COMMON STOCK
Since February 5, 1997, the Class A common stock has been traded on the
NYSE. From February 5, 1997 to November 30, 1998, the Class A common stock
traded under the symbol "AFA." Since December 1, 1998, it has traded under the
symbol "ACS." From September 26, 1994 to February 5, 1997, the Class A common
stock was traded on the Nasdaq National Market under the symbol "ACSA." The
following table shows the quarterly high and low sales prices of the Class A
common stock for the last two fiscal years as reported on the Nasdaq through
February 1997 and then on the NYSE, and has been retroactively adjusted for the
two-for-one stock split which occurred in November 1996.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended June 30, 1997
First Quarter............................................. $32 $21 1/8
Second Quarter............................................ $32 $24 3/4
Third Quarter............................................. $30 1/4 $19 1/2
Fourth Quarter............................................ $28 5/8 $20 3/4
Fiscal year ended June 30, 1998
First Quarter............................................. $29 15/16 $24 5/16
Second Quarter............................................ $26 1/2 $21 1/2
Third Quarter............................................. $37 1/8 $24 1/2
Fourth Quarter............................................ $39 3/4 $30 5/8
Fiscal year ended June 30, 1999
First Quarter............................................. $38 3/4 $29 3/4
Second Quarter............................................ $45 $22 3/8
Third Quarter (through March 22, 1999).................... $51 3/4 $36 1/2
</TABLE>
On March 22, 1999, the last reported sales price of the Class A common
stock as reported on the NYSE was $37 per share.
DIVIDEND POLICY
Except for the dividends paid by ACS Government Solutions Group, Inc.,
formerly known as Computer Data Systems, Inc., prior to its merger with a
wholly-owned subsidiary of ACS in December 1997, ACS has not paid any cash
dividends to date on its Class A common stock. We intend to continue to retain
earnings for use in the operation of our business and, therefore, do not
anticipate declaring or paying any cash dividends in the foreseeable future.
Under the terms of our credit agreement, we are prohibited from paying cash
dividends in any fiscal year in a total amount that would exceed 50% of our net
income for the preceding fiscal year. Any future determination to pay dividends
will be at the discretion of our Board of Directors and will be dependent upon
our financial condition, results of operations, contractual restrictions,
capital requirements, business prospects and other factors the Board of
Directors deems relevant.
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<PAGE> 19
CAPITALIZATION
The following table shows the capitalization of our company as of December
31, 1998, and as adjusted to give effect to the sale of shares of Class A common
stock offered by ACS by this prospectus and the application of the estimated net
proceeds to us from this offering as described under "Use of Proceeds." You
should read this table in conjunction with the other financial information
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
AS
ACTUAL ADJUSTED
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Notes payable and current portion of long-term debt......... $ 11,699 $
======== ========
Long-term debt:
Credit agreement.......................................... $174,000 $
4% convertible subordinated notes due 2005................ 230,000
Other debt, net of current portion........................ 4,964
-------- --------
Total long-term debt.............................. 408,964
Stockholders' equity:
Common stock:
Class A, $.01 par value, 500,000,000 shares authorized,
45,823,877 shares issued and outstanding (49,323,877
after this offering).................................. 459
Class B, par value $.01 per share, 14,000,000 shares
authorized, 3,299,686 shares issued and outstanding... 33
Additional paid-in capital................................ 314,490
Retained earnings......................................... 244,429
-------- --------
Total stockholders' equity........................ 559,411
-------- --------
Total capitalization.............................. $968,375 $
======== ========
</TABLE>
In reviewing the table above, you should note the following:
- Our notes payable and current portion of long-term debt consists of $9.0
million borrowed from a commercial bank for cash used in ACS-owned ATMs
and $2.7 million in capital lease obligations and other notes payable to
individuals and corporations.
- Our credit agreement with Wells Fargo, among others, has a maximum
availability of $200 million, expires in July 2002 and accrues interest
at LIBOR plus 0.3% to 0.875%, or the bank's prime rate, as elected by
ACS. At December 31, 1998, our borrowing rate was LIBOR plus 0.625%.
- Our other long-term debt includes $2.2 million in capital lease
obligations and $2.8 million in other amounts due to individuals and
corporations.
- The number of shares of Class A common stock listed above does not
include (a) 6,326,457 shares of Class A common stock reserved for
issuance under our stock option plans, under which options to purchase
4,876,957 shares were outstanding as of December 31, 1998 at a weighted
average exercise price of $21.22 per share, (b) 5,391,936 shares of Class
A common stock issuable upon conversion of our 4% convertible
subordinated notes due March 15, 2005, or (c) 3,299,686 shares of Class A
common stock issuable upon conversion of all outstanding shares of Class
B common stock. See "Description of Capital Stock -- Class A Common Stock
and Class B Common Stock" for a description of the terms of the common
stock, including conversion rights.
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<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated income statement data for the fiscal
years ended June 30, 1995, 1996, 1997 and 1998 and selected consolidated balance
sheet data as of June 30, 1996, 1997 and 1998 were derived from our audited
financial statements, incorporated in this prospectus by reference. The
following selected consolidated income statement data for the fiscal year ended
June 30, 1994 and selected consolidated balance sheet data as of June 30, 1994
and 1995 were derived from our audited financial statements, incorporated in
this prospectus by reference, and the audited financial statements of ACS
Government Solutions Group, Inc., formerly Computer Data Systems, Inc. The
following selected consolidated income statement data for the six months ended
June 30, 1997 and 1998 and the selected consolidated balance sheet data as of
December 31, 1998 were derived from our unaudited financial statements,
incorporated in this prospectus by reference. In the opinion of management, our
unaudited financial statements reflect all adjustments, consisting of only
normal recurring accruals, that are necessary to present fairly the financial
results for the periods presented. The selected financial data do not purport to
indicate results of operations as of any future date or any future period.
We acquired 31 companies during the periods presented under the purchase
method of accounting, and therefore revenues between periods are not comparable.
In addition, all periods reflect the merger of a wholly-owned subsidiary of ACS
with and into ACS Government Solutions Group, Inc., formerly known as Computer
Data Systems, Inc., in December 1997. This merger was accounted for as a pooling
of interests and, accordingly, historical results have been restated to reflect
the combined operations of the two companies.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $476,978 $533,848 $647,608 $928,925 $1,189,123 $550,229 $754,990
Operating expenses:
Wages and benefits............................ 233,678 248,680 298,659 395,780 504,284 234,217 319,152
Services and supplies......................... 116,483 132,737 185,550 264,104 364,285 168,136 234,951
Rent, lease and maintenance................... 72,184 87,661 82,314 132,837 150,253 74,792 87,895
Depreciation and amortization................. 10,614 14,784 18,450 35,510 47,475 21,833 31,347
Merger costs.................................. -- -- -- -- 12,974 12,974 --
Other operating expenses...................... 6,544 5,608 6,052 10,428 11,533 4,889 8,735
-------- -------- -------- -------- ---------- -------- --------
Total operating expenses................ 439,503 489,470 591,025 838,659 1,090,804 516,841 682,080
-------- -------- -------- -------- ---------- -------- --------
Operating income.............................. 37,475 44,378 56,583 90,266 98,319 33,388 72,910
Interest expense.............................. 6,483 4,729 3,417 7,121 12,059 5,456 7,168
Other nonoperating income, net................ (1,727) (3,321) (2,751) (425) (7,832) (6,596) (1,164)
-------- -------- -------- -------- ---------- -------- --------
Income before income taxes.................... 32,719 42,970 55,917 83,570 94,092 34,528 66,906
Income tax expense............................ 13,065 17,315 22,392 33,904 39,670 15,476 27,272
-------- -------- -------- -------- ---------- -------- --------
Net income..................................... $ 19,654 $ 25,655 $ 33,525 $ 49,666 $ 54,422 $ 19,052 $ 39,634
======== ======== ======== ======== ========== ======== ========
Earnings per common share:
Basic......................................... $ 0.64 $ 0.74 $ 0.88 $ 1.08 $ 1.14(1) $ 0.40 $ 0.82
Diluted....................................... 0.59 0.71 0.85 1.05 1.11(1) 0.39 0.77
Shares used in computing earnings per common
share:
Basic......................................... 30,664 34,625 38,228 46,136 47,599 47,167 48,488
Diluted....................................... 33,233 35,998 39,320 47,452 50,487 48,453 55,304
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
---------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 76,583 $ 77,615 $ 79,928 $110,866 $198,118 $ 210,472
Total assets...................................... 266,734 309,903 636,098 761,477 949,798 1,328,310
Total long-term debt (less current portion)....... 84,534 37,940 57,208 130,680 234,848 408,964
Total stockholders' equity........................ 90,439 156,686 363,204 427,481 503,670 559,411
</TABLE>
- ---------------
(1) Includes $12,974,000, $8,880,000 net of tax, or $.19 and $.18 per basic and
diluted shares, respectively, of merger costs incurred by ACS in connection
with the merger of a wholly-owned subsidiary of ACS with and into ACS
Government Solutions Group, Inc. in December 1997.
18
<PAGE> 21
BUSINESS
GENERAL
We are based in Dallas, Texas and have offices primarily in North America,
as well as Central and South America, Europe and the Middle East. We provide a
full range of information technology services to clients which have
time-critical, transaction-intensive information processing needs. Our services
include technology outsourcing, business process outsourcing and professional
and systems integration services. Approximately 90% 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 technology
intensive information processing functions to third parties, which enables
businesses to focus on core operations, respond to rapidly changing technologies
and reduce technology expenses. Our business strategy is to continue to lower
our unit processing costs by expanding our client base 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 various information processing requirements, as well as on expanding
the services we offer to existing clients. Since inception through December 31,
1998, we have completed 44 acquisitions, which have resulted in geographic
expansion, growth and diversification of our client base, expansion of services
and products offered, and increased economies of scale. Approximately half of
the increase in our revenues for the five years ended June 30, 1998 has been
attributable to acquisitions.
Our largest transaction occurred in December 1997, when we acquired ACS
Government Solutions Group, Inc., formerly known as Computer Data Systems, Inc.,
a provider of information technology solutions primarily to Federal government
agencies. We accounted for this transaction as a pooling of interests, and as a
result, we have restated our historical financial statements to reflect the
combined operations of both companies.
We serve two primary markets. Our largest market is the commercial sector,
which accounts for approximately two-thirds of our annual revenue. Within the
commercial sector, we provide technology outsourcing, business process
outsourcing and professional and systems integration services to a variety of
clients nationwide, including retailers, local municipalities, healthcare
providers, telecommunications companies, wholesale distributors, manufacturers,
utilities, financial institutions and insurance companies.
We also serve the federal government market which accounts for
approximately one-third of our annual revenues. Our services in this market are
comprised primarily of professional and systems integration services and
business process outsourcing. Within our federal government business,
approximately half of our revenues are derived from civilian agencies with the
remaining half from the Department of Defense.
Our revenues, derived from the services indicated, are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------- ------------
1996 1997 1998 1998
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Technology outsourcing............................. $185,945 $297,268 $ 330,727 $187,396
Business process outsourcing....................... 260,220 385,937 468,175 303,091
Professional services/systems integration.......... 201,443 245,720 390,221 264,503
-------- -------- ---------- --------
Total.................................... $647,608 $928,925 $1,189,123 $754,990
======== ======== ========== ========
</TABLE>
MARKET OVERVIEW
According to industry sources, the 1997 worldwide market for information
technology services and solutions was approximately $266 billion, with the
United States market accounting for $124 billion, or
19
<PAGE> 22
approximately half of the total market. These sources estimate that
approximately $47 billion, or one-third, of the U.S. market has been outsourced
to companies like ours, and that the U.S. outsourced market is expected to grow
to $76 billion in 2002, representing a 10% compounded annual growth rate.
However, in the particular markets in which ACS competes, industry sources
estimate that information technology spending in the U.S. was approximately $38
billion in 1997, of which approximately $18 billion was outsourced. This
outsourced market is expected by these industry sources to increase to $36
billion in 2002, representing a 14% compounded annual growth rate.
We believe that the demand for third-party information processing services
has grown substantially in recent years and will continue to increase in the
future as a result of financial, strategic and technological factors. These
factors include:
- the increasing complexity in the information technology systems
environment;
- the desire by businesses to take advantage of the latest advances in
technology without the cost and time commitment required to maintain an
in-house system;
- the increasing requirements for rapid processing and communication of
large amounts of data to multiple locations;
- the increasing attention by businesses to controlling costs, causing them
to compare the fully allocated cost of in-house processing with the cost
of outsourcing; and
- the desire of organizations to focus on their primary competencies.
As a result of rapid technological change in our markets, we expect strong
demand for third-party professional programming and consulting services. Because
we provide professional programming services to clients with mainframe
environments as well as with client-server and network applications, we believe
that we are well-positioned to expand our services in current locations as well
as in new geographic markets. As part of our consulting services, we advise
clients on the strategic acquisition and utilization of information technology
to achieve and improve their competitive position.
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 expertise and breadth of information technology
products and services. Our primary focus is to increase our revenues by
obtaining new clients with recurring requirements for information
technology services.
- Expand Existing Client Relationships -- We seek to leverage existing
clients relationships in which we are currently not providing a full
range of services in order to increase the information technology
services we provide to these clients.
- Build Recurring Revenues -- We seek to enter into long-term contracts
with clients to provide services that meet their ongoing 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, customization of products and services that
incorporate new technology on a timely basis and continuous training of
our client service personnel.
- Provide Flexible Solutions -- We offer custom-tailored information
processing solutions using a variety of proprietary and third-party
licensed software on multiple hardware and systems software platforms.
- 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 will enable us to achieve competitive costs.
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<PAGE> 23
- 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. Although we currently generate
virtually all of our revenue from domestic clients, we believe we have
significant international growth opportunities and intend to pursue those
opportunities in a disciplined manner.
- Attract, Train, and Retain Employees -- We believe that attracting,
training, and retaining high quality employees is essential to our
growth. We 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.
COMMERCIAL SECTOR
In the commercial sector we provide our clients with technology
outsourcing, business process outsourcing and professional programming and
systems integration services.
Technology Outsourcing
We offer a diverse set of technology outsourcing solutions to businesses
desiring to achieve reductions in data processing costs and/or improvements in
the quality of data processing. Our principal technology outsourcing service is
the delivery of data processing services on a remote basis from host data
centers with sufficient computer processing capacity to deliver significant cost
savings and process improvements to clients. We typically outsource a client's
in-house data processing operation by migrating the processing workload to one
of our data centers over a period of three to six months, and in some instances
we acquire the client's data processing assets and hire some client personnel.
Our services include both on-line and batch processing of data and network
management assistance. We process the mission-critical application systems for
our clients including financial, human resources, retail and wholesale inventory
distribution, manufacturing, healthcare management, transportation management,
commercial and residential telephone billing, mortgage portfolio information and
software development systems.
We provide our technology outsourcing services through an extensive
national data and service center network, which comprises five host data centers
and seven remote data centers, as well as an extensive telecommunications
network. We manage data communications and, in some instances, voice
communications for our clients, as well as various local and wide area networks.
We maintain a nationwide voice and data network to support the complex
telecommunications requirements of our client base. We monitor and maintain
network lines and circuits on a seven-day, 24-hour basis from our host data
centers. We also provide shared hub satellite transmission services as an
alternative to multi-drop and point-to-point hard line telecommunication
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 based on multi-year contracts which are
typically priced on a resource utilization basis. Resources utilized include
processing time, professional services, hardware, data storage and retrieval
requirements and output volume required for processing.
Business Process Outsourcing
We participate in several segments of the business process outsourcing
market. We developed and acquired our business process outsourcing services to
capitalize on a growing trend in corporate America. 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 processes. As a result, they turn
to companies such as ours to manage their processes. We provide a variety of
services on behalf of our clients, including loan and mortgage processing,
claims processing, accounts payable processing, data capture, storage and
retrieval services and trade marketing. We typically receive client information
in a variety of media such as paper, microfilm, computer tape, optical disk or
CD ROM. Upon receipt, we either duplicate, electronically scan or convert the
information into another suitable medium for processing. Using state-of-the-art
image
21
<PAGE> 24
transmission, storage and retrieval technology, we digitize and transmit
millions of information records daily from client locations for high-speed
conversion and database update. In many instances, we store the information for
our clients on a long term basis. Pricing is typically based on the number of
accounts or transactions processed.
We also provide automated teller machine transaction processing services
primarily for financial institutions and retailers. We believe we are one of the
largest processors of retail automated teller machines in the United States.
Professional Services/Systems Integration
Our professional services include consulting, contract programming,
applications and technical support and training, as well as network design and
installation services. We provide a variety of clients with professional
services allowing our clients the opportunity to use a planned, flexible
workforce, either through staff augmentation or by serving as a client's
in-house development staff. Our ability to deliver high-level skill sets and
proven methodologies across a variety of technologies enhances our ability to
offer complementary services to clients and prospects dealing with technological
change.
We also provide systems integration services to clients in selected
industries who are deploying newer technology such as client/server
architectures, advanced networks and web-based systems. We use a combination of
third party and proprietary systems to offer packaged solutions to clients with
intensive document management needs. We currently have approximately 1,500
employees providing professional and systems integration services to commercial
clients. We provide these services in fifteen offices in major cities throughout
the United States. Due to the nature of the work, we generally offer our
professional services on a time and materials basis to a changing client base
under short-term contractual arrangements.
FEDERAL GOVERNMENT SECTOR
Within the federal government sector, we provide professional
services/system integration services and business process outsourcing services
to several agencies. Our civilian agency clients account for about half of our
federal government revenues and our department of defense clients accounts for
the remaining half.
Professional Services/Systems Integration
We provide applications maintenance and development, network implementation
and maintenance, desktop services, technical staff augmentation, training and
web page development. Department of Defense and civilian agencies generally
either contract directly with us or through the General Services Administration.
The GSA performs the procurement function for many civilian and Department of
Defense agencies. Approximately 41% of the professional services/systems
integration services we provided to the federal government for fiscal 1998 were
based on three contracts with the GSA. We provide our services to a variety of
civilian agencies such as the Departments of Labor, Treasury and Transportation,
the U.S. Senate, the U.S. Postal Service, the Federal Energy Regulatory
Commission and the National Drug Intelligence Center. In addition, we also
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 currently have over 3,900 employees providing these services to our
government clients. Additionally, approximately 1,100 of these employees have
security clearance. We generally price these services on a time and materials
basis.
Business Process Outsourcing
Our business process outsourcing services consist primarily of loan
servicing to federal agencies. Our services include billing, lockbox payment
processing, related accounting and reconciliation and client service call center
operations. Our largest contract for these services is with the Department of
Education,
22
<PAGE> 25
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 3.8 million borrowers, or over 10.8 million loans with an aggregate
value of $39 billion. During fiscal year 1998, revenue from this contract was
approximately $97 million. This contract is scheduled to expire September 2003.
We also have contracts with the Small Business Administration and Department of
Veterans Administration. Pricing is typically based on the number of accounts or
transactions processed.
RECENT ACQUISITIONS
We purchased approximately 63% of the shares of BRC Holdings, Inc., now
known as ACS BRC Holdings, Inc., in a tender offer completed on December 15,
1998 for a total of approximately $165 million in cash. We purchased the
remaining shares of BRC in a second-step merger in February 1999 for a total of
approximately $104 million, and as a result, BRC is a wholly-owned subsidiary of
our company. BRC is an information technology services firm with 30 years
experience providing consulting, project management, technical support and
system services, and specializing in information technology outsourcing,
consulting, information systems and document management services to the local
government and healthcare sectors.
In December 1998 we also acquired two other companies. The combined annual
revenues of BRC and these two companies during calendar year 1998 was
approximately $146 million.
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.
In connection with some large technology outsourcing contracts, 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, as a result,
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, Electronic Data Systems
Corporation and Computer Sciences Corporation;
- mid-sized divisions of large corporations, such as MCI WorldCom and
Lockheed-Martin; and
- other smaller, regional competitors.
In professional services markets, we actively compete with small
specialized firms as well as with large competitors with a wider range of
professional 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 professional services includes EDS, CSC, Science Applications
International Corporation and several other local and regional players.
We compete successfully in the business process outsourcing business by
offering a wide range of high quality services and achieving favorable pricing
by maintaining a significant volume of transactions to obtain economies of
scale. Competition is highly fragmented and depends on the specific business
process. Principal competitors for accounts payable, claims processing and
records storage and retrieval services include FYI, Inc., National Processing
Company, Lason, Inc., and several other small- to medium-sized local and
regional competitors. Principal electronic commerce solution competitors include
EDS, Deluxe Data Corporation, Concord EFS, Inc., large financial institutions
and several regional automated teller machine networks and processors.
23
<PAGE> 26
GOVERNMENT CONTRACTS AND REGULATION
One-third 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. 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 our federal contracts through fiscal 1996, with the
exception of the operations of our subsidiary, Analytical Systems Engineering
Corporation, which have been audited through calendar year 1995.
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 electronic commerce
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 an annual independent examination of our major data processing
facilities.
Our ATM network operations are subject to federal and state regulations
governing consumers' rights with respect to ATM transactions. Fees charged by
ATM owners are currently regulated, and additional legislation which would
regulate or eliminate some ATM fees has been proposed by the federal government
and by several states. There can be no assurance whether new regulations or
legislation will be enacted in the future or that existing consumer protection
laws will not be expanded to apply to fees charged in connection with ATM
transactions. However, if new legislation were enacted, the number of ATMs
operated nationwide, or within the geographic areas affected by the legislation,
could be significantly reduced. This could adversely affect our revenues and
income as they relate to our ATM network operations.
PROPERTIES
As of December 31, 1998, we had approximately 248 locations in the United
States and countries outside the United States, nine of which are
owned and 239 of which are leased. Our leases have expiration dates ranging from
1999 to 2018. Our executive offices are located in Dallas, Texas at a
company-owned facility of approximately 587,000 square feet, which also houses a
host data center and other operations. Our other significant facilities include
four host data centers, seven remote data centers, 58 facilities for business
process outsourcing service centers, one records center located on 334 acres of
land with 38 underground storage bunkers and another records center located on
199 acres of land with 23 underground storage bunkers, and 88 other facilities
we use for office or warehouse space. Upon expiration of our leases, we do not
anticipate any significant difficulty in obtaining renewals or alternative
space. In addition to these properties, we occupy office space at client
locations throughout the world, generally under the terms of the agreement with
the particular client. All properties we lease or own are in good repair and in
suitable condition for the purposes for which we use them.
LEGAL PROCEEDINGS
On December 16, 1998, a state district court in Houston, Texas entered
final judgment against ACS in a lawsuit brought by twenty-one former employees
of Gibraltar Savings Association and/or First Texas Savings Association. The
GSA/FTSA employees alleged that they were entitled to the value of 401,541
shares of ACS stock under options issued to the GSA/FTSA employees in 1988 in
connection with a former data processing services agreement between GSA/FTSA and
ACS. The judgment against ACS was for approximately $17 million, which includes
attorneys' fees and prejudgment interest, but excludes additional attorneys'
fees of approximately $850,000 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. ACS has filed a motion for new trial, and if that motion is
denied, ACS plans to immediately and vigorously appeal the judgment. The
plaintiffs also
24
<PAGE> 27
have filed a notice of appeal. Should the proceedings not be favorably resolved
in the trial court or on appeal, we may be subject to a material charge.
A putative class action complaint by Matador Capital Management
Corporation, among other plaintiffs, against BRC, our company and the directors
of BRC at that time, was filed on October 30, 1998 in the Court of Chancery of
the State of Delaware seeking, among other things, to enjoin the tender offer
and proposed merger involving BRC. The complaint alleged, among other things,
misstatements and omissions by BRC in documents mailed to the stockholders of
BRC in connection with the tender offer, breaches of the fiduciary duties of the
board of directors of BRC and the aiding and abetting of these alleged breaches
of fiduciary duties by ACS. On November 25, 1998, the Court of Chancery issued
an opinion and related order denying Matador's motion for a preliminary
injunction except insofar as it sought to require the disclosure and
dissemination of additional information outlined in the opinion to our
stockholders by ACS. On December 2, 1998, the Court of Chancery entered a
further order permitting the tender offer to be consummated on December 14,
1998, following dissemination by BRC to its stockholders of a disclosure
reviewed by the Court of Chancery. BRC mailed the disclosure to its stockholders
on December 2, 1998. No BRC stockholders exercised their dissenter's rights
under Delaware law in connection with the merger of a subsidiary of ACS with and
into BRC, which was concluded on February 12, 1999.
We are also subject to 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, our management does not believe these
actions will have a material adverse effect on our financial position, results
of operations or liquidity. However, if unfavorably resolved, these proceedings
could have a material adverse effect on our financial position, results of
operations and liquidity.
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 500,000,000 shares of Class A common
stock, $.01 par value, up to 14,000,000 shares of Class B common stock, $.01 par
value, and up to 3,000,000 shares of preferred stock, $1.00 par value. As of
December 31, 1998, we had issued and outstanding 45,823,877 shares of Class A
common stock held by 364 stockholders of record, 3,299,686 shares of Class B
common stock held by one holder of record, and no shares of preferred stock. As
of December 31, 1998, 4,876,957 shares of Class A common stock were subject to
outstanding options. In addition, up to 5,391,936 shares of Class A common stock
could be issued upon conversion of our 4% convertible subordinated notes due
March 15, 2005 in the aggregate principal amount of $230 million at a conversion
price of $42.66 per share (equivalent to a conversion rate of 23.4432 shares per
$1,000 principal amount of 4% notes), and 3,299,686 shares of Class A common
stock could be issued upon conversion of all outstanding shares of Class B
common stock.
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. The
following is a summary description of our capital stock. We refer you to the
certificate of incorporation and the 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.
PREFERRED STOCK
Our Board of Directors has the authority, without further action by the
stockholders, to issue up to 3,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any unissued shares of preferred stock and to fix the number
of shares constituting any series and the designations of the series. The
issuance of preferred stock could adversely affect the voting power of the
holders of Class A common stock and the likelihood that holders will receive
dividend payments and payments upon liquidation and may have the effect of
delaying, deferring or preventing a change in control of ACS.
25
<PAGE> 28
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
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.
Restrictions on Transfer of Class B Common 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 a permitted transferee (as described below). In the case of a Class B
holder who is a natural person and the beneficial owner of shares of Class B
common stock to be transferred, a permitted transferee consists of:
- the Class B holder's spouse; provided, however, that upon divorce any
Class B common stock held by the spouse shall automatically be converted
into Class A common stock;
- any lineal descendant of any great-grandparent of the Class B holder,
including adopted children, and the descendant's spouse (the descendants
and their spouses, together with the Class B holder's spouse, are
referred to as "family members");
- the trustee of a trust for the sole benefit of the Class B holder or any
of the Class B holder's family members;
- any charitable organization established by the Class B holder or any of
the Class B holder's family members;
- any partnership made up exclusively of the Class B holder and any of the
Class B holder's family members or any corporation wholly-owned by the
Class B holder and any of the Class B holder's family members; provided
that, if there is any change in the partners of the partnership or in the
stockholders of the corporation that would cause the partnership or
corporation no longer to be a permitted transferee, any Class B common
stock held by the partnership or corporation shall automatically be
converted into Class A common stock;
- in the case of a Class B holder that is a partnership or corporation, (1)
the partnership's partners or the corporation's stockholders, as the case
may be, (2) any transferor to the partnership or corporation of shares of
Class B common stock after the record date of the initial distribution of
Class B common stock and (3) successors by merger or consolidation;
- in the case of a Class B holder that is an irrevocable trust on the
record date of the distribution of Class B common stock, (1) successor
trustees of the trust, (2) any person to whom or for whose benefit
principal or income may be distributed under the terms of the trust or
any person to whom the trust may be obligated to make future transfers,
provided the obligation exists prior to the date the trust becomes a
holder of Class B common stock and (3) any family member of the creator
of the trust; and
26
<PAGE> 29
- in the case of a Class B holder that is any trust other than an
irrevocable trust on the date of the distribution of Class B common
stock, (1) successor trustees of the trust and (2) the person who
established the trust and the person's permitted transferees.
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 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 ACS.
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. Upon
liquidation and dissolution of ACS, the 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, and there are no redemption or
sinking fund provisions applicable to the common stock.
RIGHTS AGREEMENT
On August 5, 1997, ACS 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 will be issued with an associated
right. Each right entitles the registered holder to purchase from ACS one share
of Class A common stock at an exercise price of $150.00 per share, subject to
adjustment from time to time.
CERTIFICATE OF INCORPORATION AND BYLAWS
The 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. See "Risk Factors -- Provisions of our
certificate of incorporation, bylaws and Delaware law could deter takeover
attempts" for a discussion of the effects of these provisions. The 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
27
<PAGE> 30
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.
The certificate of incorporation grants the power to amend the bylaws to the
Board of Directors.
The certificate of incorporation 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
First City Transfer Company, our affiliate, serves as transfer agent and
registrar for the Class A common stock.
28
<PAGE> 31
UNDERWRITING
Bear, Stearns & Co. Inc., Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette Securities Corporation, Hambrecht & Quist LLC and Prudential Securities
Incorporated are representing the underwriters listed below. Subject to the
terms and conditions of an underwriting agreement, dated , 1999, the
underwriters have severally agreed to purchase from us the number of shares of
Class A common stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Goldman, Sachs & Co.........................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Hambrecht & Quist LLC.......................................
Prudential Securities Incorporated..........................
---------
Total............................................. 3,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of Class A common
stock offered by this prospectus are subject to approval by their counsel and to
other conditions. The underwriters are obligated to purchase and accept delivery
of all the shares of Class A common stock offered by this prospectus, other than
shares covered by the over-allotment option, if any are purchased.
The underwriters propose to offer the shares of Class A common stock to the
public initially at the public offering price set forth on the cover page of
this prospectus and in part to dealers, including the underwriters, at that
price less a concession not to exceed $ per share. The underwriters may
allow, and some dealers may reallow to other dealers, a concession not in excess
of $ per share. After the initial offering to the public, the public
offering price and other selling terms may be changed by the representatives of
the underwriters at any time without notice.
Mr. Deason, our Chairman of the Board, has granted to the underwriters an
option to purchase up to 525,000 additional shares of Class A common stock at
the public offering price less the underwriting discount set forth on the cover
page of this prospectus solely for the purpose of covering over-allotments, if
any. The option may be exercised at any time until 30 days after the date of
this prospectus. To the extent that the underwriters exercise such option, each
underwriter will become obligated, subject to some conditions, to purchase a
number of additional shares proportionate to the underwriter's initial
commitment as indicated in the preceding table.
We and Mr. Deason have agreed to indemnify the underwriters against
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
to these liabilities.
We have agreed that, for a period of 90 days from the commencement of this
offering, we will not issue, sell, offer, or agree to sell any shares of Class A
or Class B common stock (except for existing employee stock option and stock
purchase plans, upon the conversion of outstanding convertible securities or for
existing earn-out obligations arising out of prior acquisitions), without the
prior consent of Bear, Stearns & Co. Inc. We may, however, issue up to 1,000,000
shares of Class A common stock in consideration for acquisitions of businesses
occurring after this offering. In addition, our directors and executive officers
have agreed not to sell their shares of Class A and Class B common stock for a
period of 90 days from the commencement of this offering. They may, however,
beginning on the 31st day after the commencement of this offering sell up to 15%
of their individual holdings of shares of Class A common stock and Class B
common stock. These individual holdings represent approximately 952,000 shares
of common stock issued and outstanding as of the date of this prospectus
(including 881,323 shares held by Mr. Deason), excluding options. In the event
that the underwriters' over-allotment option is exercised in full, and as a
result Mr. Deason sells 525,000 shares of his Class A common stock, Mr. Deason
may
29
<PAGE> 32
thereafter offer, sell, contract to sell or otherwise dispose of a maximum of
356,323 shares of common stock during the period specified above.
The following table shows the underwriting discounts and commissions to be
paid by ACS and, assuming the exercise in full of the underwriters'
over-allotment option, Mr. Deason upon the sale of the shares offered by this
prospectus:
<TABLE>
<CAPTION>
ACS MR. DEASON
-------- ----------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
In order to facilitate the offering, persons participating in the offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Class A common stock during and after the offering. Specifically,
the underwriters may over-allot or otherwise create a short position in the
Class A common stock for their own account by selling more shares of Class A
common stock than have been sold to them by us. The underwriters may elect to
cover any short position by purchasing shares of Class A common stock in the
open market or by exercising the over-allotment option. In addition, these
persons may stabilize or maintain the price of the Class A common stock by
bidding for or purchasing shares of Class A common stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in this offering are reclaimed if
shares of Class A common stock previously distributed in the offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price of
the Class A common stock at a level above the level that might otherwise prevail
in the open market. The imposition of a penalty bid may also affect the price of
the Class A common stock to the extent that it discourages resales. No
representation is made as to the magnitude or effect of any stabilization or
other transactions. These transactions, if commenced, may be discontinued at any
time.
Some of the underwriters (including the representatives of the
underwriters) or their affiliates provide ACS with investment banking services
from time to time for which they receive customary compensation.
EXPERTS
The consolidated financial statements of ACS as of June 30, 1998 and 1997
and for each of the fiscal years in the three-year period ended June 30, 1998
have been incorporated in this prospectus by reference from the ACS Annual
Report on Form 10-K for the year ended June 30, 1998, except as they relate to
ACS Government Solutions Group, Inc., formerly Computer Data Systems, Inc., as
of June 30, 1997 and for each of the two years in the period ended June 30,
1997, and have been audited by PricewaterhouseCoopers LLP, independent
accountants, as set forth in their report which is incorporated in this
prospectus by reference. The consolidated financial statements of ACS Government
Solutions Group, Inc. as of June 30, 1997 and for each of the two years in the
period ended June 30, 1997, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included in our Annual Report on
Form 10-K for the year ended June 30, 1998, which is incorporated in this
prospectus by reference. ACS' consolidated financial statements are incorporated
in this prospectus by reference in reliance upon these reports given on the
authority of these firms as experts in accounting and auditing.
The consolidated financial statements of BRC as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997 as
included in our Current Report on Form 8-K/A dated February 5, 1999, which is
incorporated in this prospectus by reference, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report which appears in the Current Report on Form 8-K/A. These consolidated
financial statements are incorporated in this prospectus by reference in
reliance upon this report given on the authority of PricewaterhouseCoopers LLP
as experts in accounting and auditing.
30
<PAGE> 33
LEGAL MATTERS
The validity of the Class A common stock offered by this prospectus has
been passed upon on behalf of ACS by Hughes & Luce, L.L.P., Dallas, Texas. Some
legal matters with respect to the Class A common stock will be passed upon on
behalf of the underwriters by Thompson & Knight, P.C., Dallas, Texas, which firm
also represents ACS with respect to intellectual property matters from time to
time.
31
<PAGE> 34
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet as
of December 31, 1998 set forth below presents the financial position of ACS as
if the consummation of this offering, including the issuance and sale of
3,500,000 shares of Class A common stock by ACS and the application of the
estimated net proceeds to ACS therefrom occurred on December 31, 1998.
The unaudited pro forma condensed consolidated statements of income for the
six months ended December 31, 1998 and for the year ended June 30, 1998 set
forth below present the results of operations of ACS for the period and year as
if the following transactions had occurred at the beginning of each period: (1)
the consummation of the acquisition of BRC Holdings, Inc., now known as ACS BRC
Holdings, Inc.; (2) the four additional acquisitions completed during fiscal
1998 and the five acquisitions (excluding BRC) completed subsequent to July 1,
1998 (collectively, the "Other Acquisitions"); and (3) the consummation of this
offering including the issuance and sale of 3,500,000 shares of Class A common
stock by ACS and the application of the estimated net proceeds to ACS from this
offering. The unaudited pro forma condensed consolidated statement of income for
the six months ended December 31, 1998 combines, with appropriate adjustments,
our unaudited consolidated statement of income for the six months ended December
31, 1998 with the unaudited consolidated statement of income of BRC and the
Other Acquisitions for the same six month period to the extent they are not
included in our results of operations. The unaudited pro forma condensed
consolidated statement of income for the year ended June 30, 1998 combines, with
appropriate adjustments, our audited consolidated statements of income for our
fiscal year ended June 30, 1998 and the unaudited consolidated statements of
income of BRC and the Other Acquisitions for the twelve months ended June 30,
1998 to the extent they are not included in our statements of income. Some
reclassifications were made to conform the historical financial statements of
BRC and the Other Acquisitions with our historical financial statements.
The unaudited pro forma condensed consolidated 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 assumptions we consider reasonable under the circumstances.
Final amounts could differ from those set forth in this prospectus. The
unaudited pro forma consolidated financial statements may not be indicative of
the results of operations that would have been achieved if the acquisition of
BRC and the Other Acquisitions and this offering had been effected on the dates
indicated or which may be achieved in the future. The unaudited pro forma
consolidated financial statements and notes to the financial statements should
be read in conjunction with our "Selected Consolidated Financial Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the annual consolidated financial statements of ACS and BRC
appearing or incorporated in this prospectus by reference.
F-1
<PAGE> 35
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
OFFERING
ACS(A) ADJUSTMENTS(B) COMBINED
---------- -------------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 146,254 $ $
ATM cash.............................................. 9,000
Accounts receivable, net of allowance for doubtful
accounts of $4,188 and $2,840, respectively........ 305,333
Inventory............................................. 15,984
Prepaid expenses and other current assets............. 45,273
Deferred taxes........................................ 12,902
---------- --------- ----------
Total current assets.......................... 534,746
Property and equipment, net of accumulated depreciation
and amortization of $107,668 and $90,096,
respectively.......................................... 160,698
Software, net of accumulated amortization of $12,353 and
$11,029, respectively................................. 16,998
Goodwill, net of accumulated amortization of $32,860 and
$25,846, respectively................................. 545,001
Other intangible assets, net of accumulated amortization
of $19,596 and $14,414, respectively.................. 39,107
Long-term investments and other assets.................. 31,760
---------- --------- ----------
Total assets.................................. $1,328,310 $ -- $
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 41,728 $ $
Accrued compensation and benefits..................... 43,012
Other accrued liabilities............................. 108,558
Due to BRC Holdings, Inc. shareholders................ 104,066
Notes payable and current portion of long-term debt... 11,699
Current portion of unearned revenue................... 15,211
---------- --------- ----------
Total current liabilities..................... 324,274 --
Convertible notes due 2005.............................. 230,000
Long-term debt.......................................... 178,964
Deferred taxes.......................................... 19,712
Other long-term liabilities............................. 15,949
---------- --------- ----------
Total liabilities............................. 768,899
---------- --------- ----------
Stockholders' equity:
Class A common stock.................................. 459
Class B common stock.................................. 33
Additional paid-in capital............................ 314,490
Retained earnings..................................... 244,429
---------- --------- ----------
Total stockholders' equity.................... 559,411
---------- --------- ----------
Total liabilities and stockholders' equity.... $1,328,310 $ -- $
========== ========= ==========
</TABLE>
F-2
<PAGE> 36
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 1998
(A) Information obtained from the December 31, 1998 unaudited condensed
consolidated balance sheet of ACS. Amounts include the allocation of the
purchase price for BRC and five other acquisitions completed since July 1,
1998.
(B) Reflects an estimate of the net proceeds to be received by ACS from this
offering of 3,500,000 new shares of our Class A common stock at an assumed
offering price of $ per share less underwriting discounts and estimated
offering expenses. Proceeds received will be used to pay down a substantial
portion of our line of credit.
F-3
<PAGE> 37
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
BRC BRC
ACQUISITION DIVESTED BRC OTHER
ACS BRC(A) ADJUSTMENTS OPERATIONS(B) SUBTOTAL ACQUISITIONS(G)
-------- ------- ----------- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $754,990 $54,540 $ -- $(5,690) $48,850 $16,382
Operating expenses
Wages and benefits......... 319,152 27,557 (925)(C) (4,171) 22,461 5,522
Services and supplies...... 234,951 13,791 (516)(C) (1,731) 11,544 5,578
Rent, lease and
maintenance.............. 87,895 4,123 (151)(C) (357) 3,615 699
Depreciation and
amortization............. 31,347 3,105 (227)(D) (235) 2,643 429
Other operating expenses... 8,735 612 275 887 1,074
-------- ------- ------- ------- ------- -------
Total operating
expenses............ 682,080 49,188 (1,819) (6,219) 41,150 13,302
-------- ------- ------- ------- ------- -------
Operating income........... 72,910 5,352 1,819 529 7,700 3,080
Other non-operating (income)
expense, net............... 6,004 (3,282) 7,134(D) 32 3,884 --
-------- ------- ------- ------- ------- -------
Pretax profit from
continuing operations.... 66,906 8,634 (5,315) 497 3,816 3,080
Income tax expense.......... 27,272 3,419 (1,364)(F) 199 2,254 1,217
-------- ------- ------- ------- ------- -------
Income from continuing
operations............... $ 39,634 $5,215 $(3,951) $ 298 $ 1,562 $ 1,863
======== ======= ======= ======= ======= =======
Earnings per common share:
Basic...................... $ 0.82
Diluted.................... $ 0.77
Shares used in computing
earnings per common share:
Basic...................... 48,488 -- -- -- -- --
Diluted.................... 55,304 -- -- -- -- --
<CAPTION>
PRO FORMA
------------------------- AS ADJUSTED
OTHER -------------------------
ACQUISITIONS OFFERING
ADJUSTMENTS(H) COMBINED ADJUSTMENTS(J) COMBINED
-------------- -------- -------------- --------
<S> <C> <C> <C> <C>
Revenues.................... $(1,369) $818,853 $ -- $
Operating expenses
Wages and benefits......... (151) 346,984 --
Services and supplies...... (1,401) 250,672 --
Rent, lease and
maintenance.............. -- 92,209 --
Depreciation and
amortization............. 435 34,854 --
Other operating expenses... (5) 10,691 --
------- -------- -------- --------
Total operating
expenses............ (1,122) 735,410 --
------- -------- -------- --------
Operating income........... (247) 83,443
Other non-operating (income)
expense, net............... 179 10,067
------- -------- -------- --------
Pretax profit from
continuing operations.... (426) 73,376
Income tax expense.......... (166) 30,577
------- -------- -------- --------
Income from continuing
operations............... $ (260) $42,799 $ $
======= ======== ======== ========
Earnings per common share:
Basic...................... $ 0.88 $
Diluted.................... $ 0.83 $
Shares used in computing
earnings per common share:
Basic...................... 273(I) 48,761 $
Diluted.................... 273(I) 55,577 $
</TABLE>
F-4
<PAGE> 38
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(A) Information obtained from the unaudited financial statements of BRC for the
six months ended December 31, 1998 to the extent they are not included in
ACS's results of operations.
(B) Reflects an adjustment to eliminate operating results for businesses of BRC
which we either divested or shut down after consummation of the merger. The
operating results for these businesses are included in BRC's historical
financial information noted in (A) above.
(C) Reflects employee terminations (i.e., salary and related expenses of
general and administration personnel) and elimination of redundant public
company and facility costs effected immediately after consummation of the
acquisition.
(D) Reflects the additional amortization of expense of approximately $2.0
million resulting from the allocation of the excess cost of the acquisition
to software, non-compete agreements and goodwill, offset by a reduction in
depreciation and amortization expense of approximately $2.2 million as a
result of recording BRC's fixed assets at their respective fair values
based upon an independent appraisal.
(E) Reflects interest expense for the financing of the transaction based upon
the terms of our increase in our revolving line of credit (See "Use of
Proceeds" discussed elsewhere in this prospectus).
(F) Reflects the income tax effect for the pro forma adjustments at the
statutory tax rate adjusted for the impact of non-deductible goodwill
amortization.
(G) Other Acquisitions reflects the aggregate historical results of operations
for the three acquisitions we made during the period from July 1, 1998
through the date of this prospectus (excluding BRC). Two other acquisitions
we made during the period from July 1, 1998 through the date of this
prospectus were effective July 1, 1998 and are therefore included in our
unaudited historical consolidated statement of operations for the six
months ended December 31, 1998.
(H) Reflects the aggregate pro forma adjustments from the three acquisitions we
made during the period noted in (G) above. The adjustments represent
primarily: (i) decreases to revenue to conform revenue recognition policies
to those of ACS, (ii) net decreases to expenses upon the consolidation of
the acquired business operations, including the elimination of costs
associated with the prior owners and overhead allocations by the prior
owners which would not be reflective of the ongoing operations of the
acquired operations, (iii) the net decrease to depreciation and
amortization expense from the allocation of the purchase price of each
acquisition to the assets and liabilities of the business acquired, (iv)
the increase to amortization expense resulting from the allocation of the
excess cost of the acquisition to client contracts, software and goodwill
after recording the fair value of the assets acquired and the liabilities
assumed, (v) the net increase to interest expense reflecting the financing
of the transactions, (vi) the related tax effect of the pro forma
adjustments at the statutory tax rates adjusted for the impact of
non-deductible goodwill amortization, and (vii) the elimination of sales
between ACS and the acquired businesses during the period presented.
(I) Reflects an adjustment to the shares used in computing earnings per common
share issued in connection with the purchase of Other Acquisitions as if
the issuance had occurred at the beginning of the period.
(J) Reflects the reduction in interest expense, including related tax effect,
after applying estimated net proceeds from this offering to pay down our
line of credit.
F-5
<PAGE> 39
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------
BRC BRC
ACQUISITION DIVESTED BRC OTHER
ACS BRC(A) ADJUSTMENTS OPERATIONS(B) SUBTOTAL ACQUISITIONS(G)
---------- -------- ----------- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $1,189,123 $113,723 $ -- $(17,769) $95,954 $157,194
Operating expenses
Wages and benefits......... 504,284 60,871 (2,221)(C) (10,498) 48,152 84,253
Services and supplies...... 364,285 25,287 (1,238)(C) (5,503) 18,546 42,792
Rent, lease and
maintenance.............. 150,253 8,844 (362)(C) (827) 7,655 7,205
Depreciation and
amortization............. 47,475 8,135 (933)(D) (860) 6,342 5,490
Merger costs............... 12,974 -- -- -- -- --
Other operating expenses... 11,533 2,707 -- (1,305) 1,402 3,600
---------- -------- -------- -------- ------- --------
Total operating expenses... 1,090,804 105,844 (4,754) (18,993) 82,097 143,340
---------- -------- -------- -------- ------- --------
Operating income........... 98,319 7,879 4,754 1,224 13,857 13,854
Other non-operating (income)
expense net................ 4,227 (873) 17,741(E) (241) 16,627 615
---------- -------- -------- -------- ------- --------
Pretax profit from
continuing operations.... 94,092 8,752 (12,987) 1,465 (2,770) 13,239
Income tax expense.......... 39,670 5,177 (3,090)(F) 579 2,666 5,783
---------- -------- -------- -------- ------- --------
Income from continuing
operations............... $ 54,422 $ 3,575 $ (9,897) $ 886 $(5,436) $ 7,456
========== ======== ======== ======== ======= ========
Earnings per common share:
Basic...................... $ 1.14
Diluted.................... $ 1.11
Shares used in computing
earnings per common share:
Basic...................... 47,599 -- -- -- -- --
Diluted.................... 50,487 -- -- -- -- --
<CAPTION>
PRO FORMA AS ADJUSTED
--------------------------- ---------------------------
OTHER
ACQUISITIONS OFFERING
ADJUSTMENTS(H) COMBINED ADJUSTMENTS(J) COMBINED
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Revenues.................... $(2,400) $1,439,871 -- $
Operating expenses
Wages and benefits......... (974) 635,715 --
Services and supplies...... (4,076) 421,547 --
Rent, lease and
maintenance.............. (2) 165,111 --
Depreciation and
amortization............. 1,386 60,693 --
Merger costs............... -- 12,974 --
Other operating expenses... (5) 16,530 --
------- ---------- ------- ----------
Total operating expenses... (3,671) 1,312,570 --
------- ---------- ------- ----------
Operating income........... 1,271 127,301 --
Other non-operating (income)
expense net................ 4,755 26,224
------- ---------- ------- ----------
Pretax profit from
continuing operations.... (3,484) 101,077
Income tax expense.......... ( 1,276) 46,843
------- ---------- ------- ----------
Income from continuing
operations............... $(2,208) $ 54,234 $ $
======= ========== ======= ==========
Earnings per common share:
Basic...................... $ 1.13 $
Diluted.................... $ 1.10 $
Shares used in computing
earnings per common share:
Basic...................... 314(I) 47,913
Diluted.................... 314(I) 50,801
</TABLE>
F-6
<PAGE> 40
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
INCOME
(UNAUDITED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
(A) Information obtained from the unaudited financial statements of BRC for the
twelve months ended June 30, 1998. In December 1997, BRC recognized a $5.8
million charge to other non-operating income related to the impairment of
goodwill and other intangible assets of BRC's payor services healthcare
business unit in accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of."
(B) Reflects an adjustment to eliminate operating results for businesses of BRC
which we either divested or shut down after consummation of the merger. The
operating results for these businesses are included in BRC's historical
financial information noted in (A) above.
(C) Reflects employee terminations (i.e., salary and related expenses of
general and administration personnel) and elimination of redundant public
company and facility costs effected immediately after consummation of the
acquisition.
(D) Reflects the additional amortization of expense of approximately $4.8
million resulting from the allocation of the excess cost of the acquisition
to software, non-compete agreements and goodwill, offset by a reduction in
depreciation and amortization expense of approximately $5.7 million as a
result of recording BRC's fixed assets at their respective fair values
based upon an independent appraisal.
(E) Reflects interest expense for the financing of the transaction based upon
the terms of our increase in our revolving line of credit. (See "Use of
Proceeds" included elsewhere in this prospectus).
(F) Reflects the income tax effect for the pro forma adjustments at the
statutory tax rate adjusted for the impact of non-deductible goodwill
amortization.
(G) Other Acquisitions reflects the aggregate historical results of operations
for the nine acquisitions we made during the period from July 1, 1997
through the date of this prospectus (excluding BRC).
(H) Reflects the aggregate pro forma adjustments from the nine acquisitions we
made during the period noted in (G) above. The adjustments represent
primarily: (i) decreases to revenue to conform revenue recognition policies
to those of ACS, (ii) net decreases to expenses upon the consolidation of
the acquired business' operations, including the elimination of costs
associated with the prior owners and overhead allocations by the prior
owners which would not be reflective of the ongoing operations of the
acquired operations, (iii) the net decrease to depreciation and
amortization expense from the allocation of the purchase price of each
acquisition to the assets and liabilities of the businesses acquired, (iv)
the increase to amortization expense resulting from the allocation of the
excess cost of the acquisition to client contracts, software and goodwill
after recording the fair value of the assets acquired and the liabilities
assumed, (v) the net increase to interest expense reflecting the financing
of the transactions, (vi) the related tax effect of the pro forma
adjustments at the statutory tax rates adjusted for the impact of
non-deductible goodwill amortization, and (vii) the elimination of sales
between ACS and the acquired businesses during the period presented.
(I) Reflects an adjustment to the shares used in computing earnings per common
share issued in connection with the purchase of Other Acquisitions as if
the issuance had occurred at the beginning of the period.
(J) Reflects the reduction in interest expense, including related tax effect,
after applying estimated net proceeds from this offering to pay down our
line of credit.
F-7
<PAGE> 41
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER ACS NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE
PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE
SECURITIES.
-------------------------
TABLE OF CONTENTS
-------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Where You Can Find More Information... 12
Cautionary Statement Concerning
Forward-Looking Statements.......... 14
Use of Proceeds....................... 14
Selling Stockholder if Underwriters'
Over-Allotment Option is Exercised.. 15
Price Range of Class A Common Stock... 16
Dividend Policy....................... 16
Capitalization........................ 17
Selected Consolidated Financial Data.. 18
Business.............................. 19
Description of Capital Stock.......... 25
Underwriting.......................... 29
Experts............................... 30
Legal Matters......................... 31
Pro Forma Condensed Consolidated
Financial Information (Unaudited)... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[ACS Logo]
AFFILIATED COMPUTER SERVICES, INC.
3,500,000 SHARES
CLASS A COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
-------------------------
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
PRUDENTIAL SECURITIES
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 42
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the estimated expenses to be incurred in
connection with the offering described in this registration statement, all of
which will be paid by ACS.
<TABLE>
<S> <C>
Registration fee............................................ $ 54,873
Accounting fees and expenses................................ 60,000
Legal fees and expenses..................................... 80,000
NASD fees................................................... 20,239
Blue Sky fees and expenses (including counsel fees)......... 2,500
Printing and engraving expenses............................. 55,000
Miscellaneous expenses...................................... 127,388
--------
Total............................................. $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation provides that no director of ACS will be
personally liable to ACS or any of its stockholders for monetary damages arising
from the director's breach of fiduciary duty as a director, with limited
exceptions.
Under the provisions of Section 145 of the Delaware General Corporation
Law, every Delaware corporation has the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of any corporation, partnership, joint venture, trust
or other enterprise, against any and all expenses, judgments, fines and amounts
paid in settlement and reasonably incurred in connection with an action, suit or
proceeding. The power to indemnify applies only if the person acted in good
faith and in a manner the person reasonably believed to be in the best
interests, or not opposed to the best interests, of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in these actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
Our certificate of incorporation contains provisions requiring us to
indemnify our officers and directors to the fullest extent permitted by the
Delaware General Corporation Law.
ITEM 16. EXHIBITS.
The exhibits to this registration statement are listed in the Index to
Exhibits on page II-4 of this registration statement, which index is
incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-1
<PAGE> 43
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) and 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-2
<PAGE> 44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on March 22, 1999.
AFFILIATED COMPUTER SERVICES, INC.
By: /s/ JEFFREY A. RICH
----------------------------------
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and March 22, 1999
- ----------------------------------------------------- Director
Darwin Deason
/s/ JEFFREY A. RICH President, Chief Executive March 22, 1999
- ----------------------------------------------------- Officer and Director
Jeffrey A. Rich
* Chief Financial Officer and March 22, 1999
- ----------------------------------------------------- Director
Mark A. King
* Executive Vice President and March 22, 1999
- ----------------------------------------------------- Director
Henry G. Hortenstine
* Executive Vice President, March 22, 1999
- ----------------------------------------------------- Secretary, General Counsel
David W. Black and Director
* Executive Vice President and March 22, 1999
- ----------------------------------------------------- Director
Peter A. Bracken
* Director March 22, 1999
- -----------------------------------------------------
Clifford M. Kendall
* Director March 22, 1999
- -----------------------------------------------------
Joseph P. O'Neill
* Director March 22, 1999
- -----------------------------------------------------
Frank A. Rossi
*By: /s/ JEFFREY A. RICH March 22, 1999
-------------------------------------------------
Jeffrey A. Rich
As attorney-in-fact
</TABLE>
II-3
<PAGE> 45
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
*1.1 -- Form of Underwriting Agreement
4.1 -- Rights Agreement, dated August 5, 1997 between the
Company and ChaseMellon Shareholder Services, L.L.C.,
filed as Exhibit 4.1 to the Company's Form 8-K (date of
earliest event reported: August 20, 1997) and
incorporated herein by reference
*5.1 -- Opinion of Hughes & Luce, L.L.P.
*23.1 -- Consent of PricewaterhouseCoopers LLP
*23.2 -- Consent of PricewaterhouseCoopers LLP
*23.3 -- Consent of Ernst & Young LLP
*23.4 -- Consent of Hughes & Luce, L.L.P. (included in Exhibit
5.1)
*24.1 -- Power of Attorney (included on signature page of
Registration Statement)
</TABLE>
- ---------------
* previously filed
II-4
