AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 2002
REGISTRATION NO. 333-____
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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KPMG CONSULTING, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 22-3680505
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
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1676 INTERNATIONAL DRIVE
McLEAN, VA 22102
(703) 747-3000
(Address, Including Zip Code, and Telephone
Number, Including Area Code, of Registrant's
Principal Executive Offices)
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DAVID W. BLACK, ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
KPMG CONSULTING, INC.
1676 INTERNATIONAL DRIVE
McLEAN, VA 22102
(703) 747-3000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
-----------------------------------
COPIES TO:
RICHARD A. STEINWURTZEL, ESQ.
VASILIKI B. TSAGANOS, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVENUE, NW
WASHINGTON, DC 20004
(202) 639-7000
-----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective.
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 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
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. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
--------------------------- ---------------- ---------- ----------- ----------------
Common Stock, $.01 par value(2) 30,471,309 $6.46 $196,844,656.14 $18,110
=========================== ================ ========== =========== ================
(1) Estimated in accordance with Rule 457(c) of the Securities Act of 1933,
as amended, solely for the purpose of computing the amount of the
registration fee, based on the average of the high and low sale price
of KPMG Consulting's common stock reported on the Nasdaq National
Market on September 25, 2002.
(2) Includes associated rights to purchase Series A junior participating
preferred stock.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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 IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 2002
KPMG CONSULTING, INC.
30,471,309 SHARES OF COMMON STOCK
We are registering these shares of common stock for resale by the
selling stockholders identified in this prospectus. We will not receive any of
the proceeds from the selling stockholders' sale of their common stock.
Our common stock is quoted on the Nasdaq National Market under the
symbol "KCIN". On September 25, 2002, the closing sale price of our common stock
on the Nasdaq National Market was $6.45 per share.
INVESTING IN OUR SECURITIES INVOLVES RISKS, SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
--------------------
The date of this prospectus is _____, 2002
KPMG CONSULTING
We are one of the world's largest consulting and systems integration firms
with approximately 16,000 employees. We serve over 2,100 clients worldwide,
including large multi-national Global 2000 and Fortune 1000 companies, small and
medium-sized businesses, government agencies and other organizations. We provide
our clients with business and technology strategy, systems design and
architecture, applications implementation, network and systems integration, and
related services that enable our clients to leverage technology for stronger
return on investment and enhanced services to their customers, vendors and
employees.
We provide consulting services through five industry groups in which we
have significant industry-specific knowledge. These groups are:
- Public Services, which assists public services clients in process
improvement, enterprise resource planning and Internet integration
service offerings. This group is also a leading provider of financial
and economic advisory services to governments, corporations and
financial institutions around the world. Our public services clients
include federal government agencies, state and local governments, and
private and public higher education institutions. In addition, this
group provides services to public service healthcare agencies and
private sector payor and provider companies.
- Financial Services, which focuses on delivering strategic, operational
and technology services, including new, component-based business and
technical architectures that leverage existing application systems and
e-business strategies and development, delivered through consumer and
wholesale lines of business. Our clients in the financial services
sector include banking, insurance, securities, real estate, hospitality
and professional services institutions.
- Communications and Content, which provides financial, operational and
technical services to wireline and wireless communications carriers,
public and private utilities, cable system operators and media and
entertainment service providers. Our services assist clients with
business strategy development, business process flow optimization,
technology integration and asset preservation.
- High Technology, which focuses on the identification and delivery of
business process improvements. Areas of focus include: enterprise
systems; supply chain; product lifecycle and collaboration; sales,
marketing, customer care, and channel and human resource management.
Our services support both global market industry leaders and fast
growing businesses requiring a broad range of technology, integration,
infrastructure and managed services assistance. These solutions address
business challenges specific to our electronics industry clients, which
include contract manufacturers, and consumer electronics,
semiconductor, hardware and network equipment manufacturers; large and
emerging software companies; and life sciences clients consisting of
pharmaceutical, medical device and distribution companies.
- Consumer and Industrial Markets, which advises clients on capturing and
assessing customer needs and buying patterns to improve one-to-one
marketing and capture additional market share. In addition, we develop
and implement channel integration strategies, electronic storefronts,
sales automation and call center service offerings to help clients
better serve their customers. We focus on improving supply chain
integration through e-procurement, collaborative planning, fulfillment,
product data
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management and digital marketplace solutions. We assist companies in
increasing the productivity of their workforce through Internet-enabled
employee self-service and human resource applications, web-based
training and learning, front office/back office integration, shared
services and knowledge management. We work with both established
brick-and-mortar companies, including their related Internet
operations, and newer Internet companies that produce or distribute
consumer and industrial products and services. We focus on three market
sectors--consumer, industrial and automotive, and chemical and energy.
We work with clients in several vertical markets, including petroleum,
industrial products, food, retail and transportation, to create digital
marketplaces and trading exchanges that connect buyers and sellers
within each market.
The above five groups comprise our service offerings to the North
American region. In addition, we have multi-national operations covering Latin
America, Asia Pacific, some countries in Europe and Israel. Our focus on
specific industries provides us with the ability to tailor our service offerings
to reflect an understanding of the marketplaces in which our clients operate and
enables our clients to achieve their objectives more quickly and efficiently.
In addition, during the latter half of fiscal year 2002, we determined
to expand our managed services offerings to provide services for many "non-core"
business activities, including order management, billing, customer care and
service assurance. With our managed services solutions, we offer business
process outsourcing, information technology outsourcing, applications
management, outsourcing consulting and delivery infrastructure.
Our company previously was a part of KPMG LLP, one of the former "Big
5" accounting and tax firms. In January 2000, KPMG LLP transferred its
consulting business to our company. In February 2001 we completed our initial
public offering, and on February 8, 2001 we began to trade on the Nasdaq
National Market. As part of the initial public offering, KPMG LLP and its
partners sold all of the shares of our common stock that they owned.
On September 17, 2002, we announced that we had filed an application
for our common stock to be listed on the New York Stock Exchange. We expect that
our common stock will be listed for trading on the New York Stock Exchange
during the first week of October 2002, and our common stock will cease trading
on the Nasdaq National Market at the same time.
We are a Delaware corporation. Our principal executive offices are
located at 1676 International Drive, McLean, Virginia 22102, and our telephone
number is (703) 747-3000.
3
RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in our securities. The risks and uncertainties described
below are not the only ones facing our company. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also adversely affect our business and operations.
If any of the matters included in the following risks were to occur,
our business, financial condition, results of operations, cash flows or
prospects could be materially adversely affected. In such case, the trading
price of our common stock could decline or you could lose all or part of your
investment.
RISKS THAT RELATE TO OUR FINANCIAL RESULTS
THE CURRENT ECONOMIC DOWNTURN HAS CAUSED, AND FUTURE ECONOMIC DOWNTURNS MAY
CAUSE, OUR REVENUES TO DECLINE.
Our revenues declined during fiscal year 2002, and we had a net loss of
approximately $26.9 million. We continue to operate in a challenging economic
environment in the United States and abroad. As a result of the difficult
economic environment, some clients have cancelled, reduced or deferred
expenditures for consulting and technology services. In addition, due to
increased competition for engagements, we have also experienced pricing pressure
which has eroded our revenues. We have implemented cost-management programs to
manage our expenses as a percentage of revenues. However, current and future
cost-management initiatives may not be sufficient to maintain our margins if the
current challenging economic environment continues for several quarters.
Our results of operations are affected by the level of business
activity of our clients, which in turn is affected by economic conditions.
Except as discussed above, we cannot predict the impact that the current global
economic downturn will have on our future revenues, nor can we predict when
economic conditions will improve. During an economic downturn, our clients and
potential clients often cancel, reduce or defer existing contracts and delay
entering into new engagements. In general, companies also reduce the amount of
spending on information technology products and services during difficult
economic times, resulting in limited
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implementations of new technology and smaller engagements. Because there are
fewer engagements in a downturn, competition usually increases and fees
generally decline as competitors, particularly companies with significant
financial resources, decrease rates to maintain or increase their market share
in our industry. Our gross margin, which is the difference between our revenues
and our costs of service, also may decline in an economic downturn due to lower
utilization of our professionals, which means fewer billable hours per employee,
and pressure on the rates we charge. A decline in gross margin typically causes
our profitability to decline.
THERE WILL NOT BE A CONSISTENT PATTERN IN OUR FINANCIAL RESULTS FROM QUARTER TO
QUARTER, WHICH MAY RESULT IN INCREASED VOLATILITY OF OUR STOCK PRICE.
Our quarterly revenues and profitability have varied in the past and
are likely to vary significantly from quarter to quarter, making them difficult
to predict. This may lead to volatility in our share price. We are a
professional services organization. A major portion of our revenues is based on
the number of hours billed by our professionals and their hourly billing rates.
Companies like ours experience variations in profits during the year. There are
many reasons for these variations, but they can generally be attributed to the
fact that our business is dependent on the decisions and actions of our clients.
For example, a client could delay or cancel a project because the client's
business is experiencing financial problems. When this happens, it could reduce,
eliminate or delay our expected revenues, and we could lose the money that we
have spent to obtain or staff the project. Also, the mix of client projects, the
personnel required and their billing rates will affect results in our business
in a meaningful way. Typically, client service hours are adversely affected
during the first half of our fiscal year (July - December) due to the large
number of vacation days and holidays during this period. The demand for our
services is also significantly affected by general domestic and international
economic and political conditions. When economic activity slows down, as is
currently the case in the United States and many other parts of the world, our
clients are more likely to decrease their technology budgets and to delay or
cancel consulting contracts.
In addition, when companies face eroding revenues and funding
difficulties, they may reduce their spending on consulting services. While our
revenues thus may be adversely affected by an economic downturn, our costs
(especially staffing costs) may not decrease as quickly. In addition, other
factors that could cause variations in our quarterly financial results are:
- our ability to transition employees quickly from completed
projects to new engagements;
- the introduction of new products or services by us or our
competitors;
- changes in our pricing policies or those of our competitors;
and
- our ability to manage costs, including personnel costs and
support services costs.
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OUR PROFITABILITY WILL SUFFER IF WE ARE NOT ABLE TO MAINTAIN OUR PRICES AND
UTILIZATION RATES AND CONTROL OUR COSTS.
Our profit margin, and therefore our profitability, is largely a
function of the rates we are able to charge for our services and the utilization
rate, or chargeability, of our professionals. Accordingly, if we are not able to
maintain the rates we charge for our services or an appropriate utilization rate
for our professionals, we will not be able to sustain our profit margin and our
profitability will suffer. The rates we are able to charge for our services are
affected by a number of factors, including:
- our clients' perception of our ability to add value through
our services;
- competition;
- introduction of new services or products by us or our
competitors;
- pricing policies of our competitors; and
- general economic conditions.
Our utilization rates are also affected by a number of factors, including:
- seasonal trends, primarily as a result of our hiring cycle and
holiday and summer vacations;
- our ability to transition employees from completed projects to
new engagements;
- our ability to forecast demand for our services and thereby
maintain an appropriately balanced and sized workforce; and
- our ability to manage attrition.
Our profitability is also a function of our ability to control our costs and
improve our efficiency. As we increase the number of our professionals and
execute our strategy for growth, we may not be able to manage a significantly
larger and more diverse workforce, control our costs or improve our efficiency.
WE MAY HAVE DIFFICULTY INTEGRATING OR MANAGING THOSE BUSINESSES WE HAVE ACQUIRED
OR MAY ACQUIRE IN THE FUTURE, WHICH MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR
FINANCIAL RESULTS OR REPUTATION IN THE MARKETPLACE.
In recent years, we have acquired consulting businesses or market
rights from the member firms of KPMG International in Argentina, Australia,
Brazil, Canada, Colombia,
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Costa Rica, Guatemala, Hong Kong, Ireland, Japan, Malaysia, Mexico, the
Netherlands Antilles, New Zealand, Nicaragua, Peru, Singapore, South Korea,
Taiwan and Venezuela. On May 7, 2002, the Company executed a letter of intent
with respect to certain independent business consulting practices affiliated
with Andersen Societe Cooperative Worldwide ("Andersen BC Practices"). Since
May 7, 2002, the Company acquired all or parts of the assets of the Andersen
BC Practices located in Australia, Hong Kong, China, Singapore, South Korea,
Switzerland, Peru, Japan, Norway, Finland, Sweden, France and Spain. The Company
has also hired professionals and staff members of Andersen BC Practices located
in the U.S. and Brazil. Further, the Company has acquired the Ernst & Young
business consulting practice in Brazil. On August 22, 2002, we acquired
KPMG Consulting AG for approximately $273.6 million in cash plus the assumption
of approximately $15 million of net debt and the issuance of approximately
30.5 million shares of our common stock. KPMG Consulting AG's operations consist
primarily of the German, Swiss and Austrian consulting practices of KPMG DTG.
We may acquire additional consulting businesses in the future as part
of our growth strategy.
Each of these acquisitions involves the integration of separate
companies that have previously operated independently and have different
corporate cultures. Because we do not have significant acquisition experience,
we may not succeed at integrating or managing acquired businesses or in managing
the larger company that results from these acquisitions. The process of
combining such companies may be disruptive to their business and our business
and could have an adverse impact on the reputation of our company as a result of
the following difficulties, among others:
- loss of key clients or employees;
- inconsistencies in standards, controls, procedures and
policies among the companies being combined, making it more
difficult to implement and harmonize company-wide financial,
accounting, billing, information and other systems;
- coordination of geographically diverse organizations; and
- diversion of management's attention from the day-to-day
business of our company.
In addition, we may not be able to ensure that the new personnel we
hired from Arthur Andersen LLP's United States business consulting practices
will be utilized at maximum rates on a timely basis as we did not acquire any
customer contracts in connection with that group hire. We may also have
difficulty retaining the personnel that join us in connection with the
acquisitions and group hires.
If we are unable to integrate our acquisitions and/or group hires in a
timely manner, or at all, or if we experience difficulty integrating or managing
the acquired businesses, assets or personnel, we may not achieve the desired
levels of synergies in connection with the recent
7
transactions. Also, the costs of achieving those synergies may be greater than
we anticipate. If we fail to achieve the desired levels of synergies, or if the
costs of achieving them are substantially greater than we anticipate, our
business, financial condition and results of operations may be adversely
affected.
Difficulties with integration or management may also affect client
satisfaction or create problems with the quality of client service, which could
have an adverse impact on the reputation of our company.
OUR PROFITABILITY MAY DECLINE DUE TO FINANCIAL AND OPERATIONAL RISKS INHERENT IN
WORLDWIDE OPERATIONS.
In fiscal year 2002, approximately 92% of our revenues were
attributable to activities in North America. As a result of our recent
acquisitions and group hires, and as we further expand globally, we expect that
the percentage of our revenues from our international operations will grow
significantly.
As a result, we face a number of financial and operational risks that
may hinder our ability to improve profitability, including:
- the lack of local recognition of the new brand that we intend
to adopt, which will cause us to spend significant amounts of
time and money to build a new identity;
- the costs of integrating and managing global operations,
particularly those in Europe;
- difficulties relating to managing our business
internationally;
- operating losses incurred in certain countries as we develop
and expand our international service delivery capabilities,
and the non-deductibility of those losses for tax purposes;
- restrictions on the repatriation of earnings;
- difficulties in collecting payments in some countries;
- restrictions on the movement of cash and other assets;
- differences in, and uncertainties arising from, local business
culture and practices;
- multiple, and sometimes conflicting, laws and regulations,
including tax laws;
- the absence in some jurisdictions of effective laws to protect
our intellectual property rights;
- political, social and economic instability;
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- international political and trade tensions;
- price controls or restrictions on exchanges of foreign
currencies;
- currency exchange fluctuations;
- restriction on the import and export of certain technologies;
- changes in import or export duties and quotas;
- introduction of tariff or non-tariff barriers; and
- restrictions on employment policies.
If any of these risks materialize, there could be a material adverse
effect on our Company's operating results. In the past, we have incurred costs
or experienced disruptions due to the factors described above, and we expect to
do so in the future.
OUR INTERNATIONAL OPERATIONS AND ACQUISITIONS INVOLVE THE USE OF FOREIGN
CURRENCIES, WHICH SUBJECTS US TO FOREIGN EXCHANGE RATE FLUCTUATIONS AND OTHER
CURRENCY RISKS.
The revenues and expenses of our international operations generally are
denominated in local currencies, which subjects us to exchange rate fluctuations
between such local currencies and the United States dollar. These exchange rate
fluctuations subject us to currency translation risk with respect to the
reported results of our international operations and the cost of potential
acquisitions, as well as to other risks sometimes associated with international
operations. We are also subject to currency risk when our service contracts are
denominated in a currency different than the currency in which we incur expenses
related to such contracts. There can be no assurance that we will not experience
fluctuations in financial results from our operations outside of the United
States, and there can be no assurance we will be able, contractually or
otherwise, to reduce the currency risks associated with our international
operations. At the present time, we do not use derivative financial instruments
to manage or control foreign currency risk because most of our revenue and
related expenses are in the same functional currencies. However, we cannot
assure you that we will not use such financial instruments in the future or that
any such use will be successful in managing or controlling foreign currency
risks.
OUR GROWTH IS DEPENDENT IN PART ON OUR ABILITY TO MAKE ACQUISITIONS, AND WE RISK
OVERPAYING FOR ACQUIRED BUSINESSES.
Our growth strategy is dependent in part upon our ability to provide
consulting services worldwide, including our ability to develop a presence
throughout Europe. Since May 7, 2002, the Company has acquired all or parts of
the assets of the Andersen BC Practices located in France, Spain, Switzerland,
Norway, Finland and Sweden. On August 22, 2002, we acquired KPMG Consulting AG,
which has consulting practices in Germany, Switzerland and Austria. Previously,
we had acquired the consulting practice of the KPMG
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International member firm in Ireland. While we have significantly expanded our
consulting practice in Europe, we cannot assure you that we will reach
agreements to acquire consulting practices in any of the other countries in
Europe, including the United Kingdom, Italy or the Netherlands, or that the
terms and conditions of any agreements will be favorable to us.
We may explore other international expansion opportunities, but we
cannot assure you that we will be able to reach an agreement to acquire any
specific practice or that any agreement we do reach will be on terms favorable
to us. We will also continue to evaluate from time to time, on a selective
basis, other strategic acquisitions if they will help us obtain well-trained,
high-quality professionals, new service offerings, additional industry
expertise, a broader client base or an expanded geographic presence. We cannot
assure you that we will be successful in identifying candidates or consummating
acquisitions on terms that are acceptable or favorable to us. In addition, there
can be no assurance that financing for acquisitions will be available on terms
that are acceptable or favorable to us, if at all. We may issue shares of our
common stock as part of the purchase price for some or all of these
acquisitions. Future issuances of our common stock in connection with
acquisitions also may dilute our earnings per share.
WE COULD FACE EXPOSURE TO LIABILITIES IN CONNECTION WITH OUR RECENT GROUP HIRES
AND RECENTLY CLOSED ACQUISITIONS.
Creditors of Arthur Andersen LLP and other parties, including those
representing the interests of shareholders of entities audited by Arthur
Andersen LLP, may bring claims in the United States or elsewhere against us and
others seeking recoveries for liabilities of Arthur Andersen LLP under various
legal theories, including, but not limited to, successor liability and
fraudulent conveyance. We do not believe that our acquisitions of Andersen BC
Practices and the group hires give rise to any liability for us under a theory
of successor liability, fraudelent conveyance or any other theories of liability
of which we are aware. Thus, we do not believe that the acquisitions and the
group hires expose us to potential liabilities associated with Arthur Andersen
LLP's legal difficulties, particularly claims against it arising from its prior
audit work or other services provided to Enron Corporation, Worldcom, Inc. and
other companies. Nevertheless, we cannot assure you that should persons or
entities with claims against Arthur Andersen LLP seek to hold us liable under
one or more legal theories, we will be able to successfully avoid liability for
such claims. If a court were to find us liable for liabilities of Arthur
Andersen LLP arising from such claims, our financial condition and operations
could be materially and adversely affected. In addition, litigation of this
nature could divert management time and attention, and we could incur
substantial defense costs.
In connection with other acquisitions, we are assuming some
liabilities, depending on the structure of the transaction, some of which are
subject to indemnities by the former owners of the businesses we are acquiring.
Accordingly, we may be exposed to liabilities relating to these acquisitions for
which the indemnity will not be sufficient.
OUR LEVERAGE MAY AFFECT OUR BUSINESS AND MAY RESTRICT OUR OPERATING
FLEXIBILITY. IN ADDITION, WE MAY NOT BE ABLE TO REFINANCE OUR DEBT OR TO DO SO
ON FAVORABLE TERMS.
On May 29, 2002, we entered into a new revolving credit facility
agreement with an aggregate principal balance not to exceed $250 million. This
credit facility replaces our previous revolving credit facility and a line of
credit facility. We also have a receivables purchase
10
agreement with an issuer of receivables-backed commercial paper up to $150
million. At June 30, 2002, there was no outstanding balance under either the
revolving credit facility or the receivables purchase agreement. At August 31,
2002, there was $75 million outstanding on our receivables purchase agreement.
On August 21, 2002, we entered into an additional $220 million revolving credit
facility for the purpose of funding our acquisition of KPMG Consulting AG. At
August 31, 2002, there was an outstanding balance of $220 million under this
facility. This facility matures on December 15, 2002. Subject to certain
restrictions set forth in the revolving credit facilities, including the
requirement that we meet certain financial tests, we may incur additional
indebtedness in the future, including indebtedness incurred to finance, or which
is assumed in connection with, acquisitions. However, our indebtedness under the
revolving credit facilities must rank at least equal to any additional new
indebtedness. Our receivables facility also requires us to meet certain
financial tests, which could limit our ability to incur additional indebtedness.
We may in the future renegotiate or refinance our credit facilities with
agreements that have different or more stringent terms. The level of our
indebtedness could:
- limit cash flow available for general corporate purposes, such
as acquisitions and capital expenditures, due to the ongoing
cash flow requirements for debt service;
- limit our ability to obtain, or obtain on favorable terms,
additional debt financing in the future for working capital,
capital expenditures or acquisitions;
- limit our flexibility in reacting to competitive and other
changes in our industry and economic conditions generally;
- expose us to a risk that a substantial decrease in net
operating cash flows due to economic developments or adverse
developments in our business could make it difficult to meet
debt service requirements; and
- expose us to risks inherent in interest rate fluctuations
because borrowings may be at variable rates of interest, which
could result in high interest expense in the event of
increases in interest rates.
Our ability to make scheduled payments of principal of, to pay interest on, or
to refinance our indebtedness and to satisfy our other debt obligations will
depend upon our future operating performance, which may be affected by general
economic, financial, competitive, regulatory, business and other factors beyond
our control, including those discussed herein. Our $220 million credit facility
matures on December 15, 2002. We cannot assure you that we will be able to
extend the term of this facility or obtain sufficient funds to repay the amounts
outstanding under this facility either from a replacement facility or
alternative debt or equity financing. If we are not able to repay amounts
outstanding under this facility, we could be declared in default, which could
result in a default under the credit facilities, the receivables facility and
other agreements, as applicable.
In addition, there can be no assurance that future borrowings or equity
financing will be available for the payment or refinancing of any indebtedness
we may have in the future. If we are unable to service our indebtedness, whether
in the ordinary course of business or upon acceleration of such indebtedness, we
may be forced to pursue one or more alternative strategies, such as
restructuring or refinancing our indebtedness, selling assets, reducing or
delaying capital expenditures or seeking additional equity capital. There can be
no assurances that any of these strategies could be effected on satisfactory
terms, if at all.
WE MAY NOT BE ABLE TO FINANCE FUTURE NEEDS OR ADAPT OUR BUSINESS PLAN TO CHANGES
IN ECONOMIC OR BUSINESS CONDITIONS BECAUSE OF RESTRICTIONS IMPOSED ON US BY OUR
CREDIT FACILITIES, AND IF WE VIOLATE THESE LIMITATIONS WE WILL BE IN DEFAULT ON
THESE FACILITIES.
Our credit facilities and the receivables facility contain a number of
significant covenants that, among other things, will restrict our ability to
dispose of assets, incur additional
11
indebtedness, incur liens on property or assets, repay other indebtedness, pay
dividends, enter into certain investments, transactions or capital expenditures,
repurchase or redeem capital stock, engage in mergers, acquisitions or
consolidations, or engage in certain transactions with affiliates and otherwise
restrict corporate activities. Such restrictions could adversely affect our
ability to operate our business, finance our future operations or capital needs
or engage in or take advantage of other business activities or opportunities
that may be in our interest or arise. In addition, our credit facilities and the
receivables facility also require us to maintain specified financial ratios and
tests, including certain net worth, leverage ratios, fixed charge coverage
ratio, certain net income ratios, and certain debt-to-debt plus net worth
ratios. Other agreements governing our indebtedness may also contain such
affirmative and negative covenants and financial ratios and tests. Our ability
to comply with such covenants, ratios and tests may be affected by events beyond
our control.
A breach of any of these covenants, an inability to comply with the
required financial ratios and tests or our failure to pay principal and interest
when due could result in a default under the credit facilities, the receivables
facility and other agreements, as applicable. In the event of any such default,
the lenders under these facilities could elect to declare all borrowings
outstanding under these facilities, together with accrued interest and other
fees, to be due and payable. In addition, any default under these facilities or
agreements governing our other indebtedness could lead to an acceleration of
debt under other debt instruments that contain cross-acceleration or
cross-default provisions. Our credit facilities and receivables facility contain
cross-default provisions to each other and to other debt. If we were unable to
repay any such borrowings when due, the lenders could proceed against their
collateral. If the indebtedness under these facilities were to be accelerated,
our assets may not be sufficient to repay amounts due on other debt securities,
if any, then outstanding.
RISKS THAT RELATE TO THE NATURE OF OUR BUSINESS
WE INTEND TO CHANGE OUR NAME DURING THE CURRENT FISCAL YEAR AND OUR EXISTING AND
POTENTIAL CLIENTS, INDUSTRY VENDORS, RECRUITING CANDIDATES AND INVESTORS MAY NOT
RECOGNIZE OUR NEW BRAND, WHICH MAY CAUSE OUR REVENUES AND PROFITABILITY TO
DECLINE.
Our agreement with KPMG International regarding the use of the KPMG
name requires us to change our name by February 13, 2005. We intend to change
our name in fiscal year 2003 and to begin operating under a new brand. Because
we have previously marketed our business under the KPMG Consulting name, our
existing and potential clients, industry vendors and investors generally may not
recognize our new brand. Our name change also may cause difficulties in
recruiting qualified personnel. We cannot predict the impact of the change in
trademarks and trade names on our business. We expect to incur approximately $20
million to $40 million of marketing expenses by the end of fiscal year 2003 to
build a new brand identity. If we fail to build a strong new brand recognition,
our revenues and profitability may decline.
OUR ABILITY TO RETAIN OUR MANAGING DIRECTORS IS CRITICAL TO THE SUCCESS OF OUR
BUSINESS.
The retention of our managing directors, is particularly important to
our future success. The cumulative annual
12
rate of turnover among our United States-based managing directors was 4.7%,
8.4%, 10.8% and 3.1% for fiscal years 1999, 2000, 2001 and 2002, respectively,
excluding any involuntary terminations and terminations as a result of
reductions in our workforce. While the turnover rate has recently decreased,
this was partially a result of the general economic slowdown in the United
States and abroad. The turnover rate could return to the historically higher
levels experienced in prior years when there is an economic recovery. In
addition, as a result of our change from a partnership to a corporate structure
and the creation of stock option programs and other corporate employee benefits,
our managing directors have accepted cash compensation that is less than the
payments they received as consulting partners of KPMG LLP, and in some cases
these reductions have been material. We cannot assure you that the substitution
of cash compensation, equity-based incentives and other employee benefits in
lieu of partnership profit distributed to consulting partners of KPMG LLP will
be sufficient to retain these individuals. In addition, there is no guarantee
that the non-competition agreements we have entered into with our managing
directors and other senior professionals are sufficiently broad to prevent our
consultants from leaving us for our competitors or that such agreements would be
upheld by an arbitrator or a court if we were to seek to enforce our rights
under these agreements. Similar considerations may apply with respect to
managing directors who have joined us from other consulting practices as a
result of our acquisitions or group hires.
OUR SUCCESS IS LARGELY DEPENDENT ON OUR ABILITY TO HIRE AND RETAIN TALENTED
PEOPLE IN AN INDUSTRY THAT PERIODICALLY EXPERIENCES A SHORTAGE OF SKILLED
PROFESSIONALS AND A HIGH RATE OF EMPLOYEE TURNOVER.
Our business involves the delivery of professional services and is
highly labor-intensive. Our success depends largely on our general ability to
attract, develop, motivate and retain highly skilled professionals. The loss of
some or a significant number of our professionals or the inability to attract,
hire, develop, train and retain additional skilled personnel could have a
serious negative effect on us, including our ability to obtain and successfully
complete important engagements and thus maintain or increase our revenues. The
cumulative annual rate of turnover among our United States-based professional
consultants was 19.5%, 23.3%, 22.6% and 12.9% for fiscal years 1999, 2000, 2001
and 2002, respectively, excluding any involuntary terminations and terminations
as a result of reductions in our workforce. While the turnover rate has recently
decreased since early 2001, this was partially a result of the general economic
slowdown in the United States and abroad. The turnover rate could return to the
higher levels experienced in the last few years when there is an economic
recovery. In a strong economy, qualified consultants often are in great demand.
In addition, certain of our alliance agreements, such as with SAP America, Inc.,
Cisco Systems, Inc. and Qwest Communications International, Inc., prohibit us
from soliciting their employees or their affiliate's employees. These
circumstances have required us in a strong economy to increase the compensation
we pay our professionals at a rate higher than the general inflation rate. Even
so, we cannot assure that we will be successful in attracting and retaining the
skilled professionals we require to conduct and expand our operations
successfully when there is an economic recovery.
WE DEPEND ON CONTRACTS WITH U.S. FEDERAL GOVERNMENT AGENCIES, PARTICULARLY
CLIENTS WITHIN THE DEPARTMENT OF DEFENSE, FOR A SIGNIFICANT PORTION OF OUR
REVENUES, AND IF OUR RELATIONSHIPS WITH THESE AGENCIES WERE HARMED OR IF THE
SPENDING POLICIES OR BUDGET
13
PRIORITIES OF THE FEDERAL GOVERNMENT CHANGED, WE COULD LOSE SIGNIFICANT
REVENUES.
Contracts funded by U.S. federal government agencies accounted for
12.8%, 16.9% and 25.6% of our revenues for fiscal 2000, 2001 and 2002,
respectively. Contracts funded by clients within the Department of Defense
accounted for 6.7%, 8.6% and 12.8% of our revenues for the same periods. We
believe that federal government contracts will continue to be a source of a
significant amount of our revenues for the foreseeable future. For this reasons,
any issue that compromises our relationship with agencies of the federal
government in general, or within the Department of Defense in particular, would
cause serious harm to our business. Among the key factors in maintaining our
relationships with federal government agencies and departments are our
performance on individual contracts and delivery orders, the strength of our
professional reputation, the relationships of our key executives with client
personnel and our compliance with complex procurement laws and regulations
related to the formation, administration and performance of federal government
contracts. In addition, our failure to obtain and maintain necessary security
clearances may limit our ability to perform classified work for government
clients, which could cause us to lose business. Security breaches in sensitive
government systems we have developed also could damage our reputation and
eligibility for additional work and expose us to significant losses. To the
extent that our performance does not meet client expectations, or our reputation
or relationships with one or more key clients are impaired, our revenues and
operating results could be materially harmed.
Changes in federal government fiscal or spending policies could
directly affect our financial performance. Among the factors that could harm our
federal government contracting business are:
- curtailment of the federal government's use of consulting and
technology services firms;
- a significant decline in spending by the federal government,
in general, or by specific departments or agencies in
particular;
- the adoption of new laws or regulations that affect companies
that provide services to the federal government;
- delays in the payment of our invoices by government payment
offices;
- federal governmental shutdowns, such as the shutdown that
occurred during the government's 1996 fiscal year, and other
potential delays in the government appropriations process; and
- general economic and political conditions.
These or other factors could cause federal government agencies and
departments to reduce their purchases under contracts, to exercise their right
to terminate contracts in whole or in part, to issue temporary stop work orders,
or not to exercise options to renew contracts, any of which could cause us to
lose revenues. We have
14
substantial contracts in place with many federal departments and agencies, and
our continued performance under these contracts, or award of additional
contracts from these agencies, could be materially harmed by federal government
spending reductions or budget cutbacks at these departments or agencies.
UNFAVORABLE GOVERNMENT AUDIT RESULTS COULD FORCE US TO ADJUST PREVIOUSLY
REPORTED OPERATING RESULTS AND COULD SUBJECT US TO A VARIETY OF PENALTIES AND
SANCTIONS.
The federal government audits and reviews our performance on contracts,
pricing practices, cost structure, and compliance with applicable laws,
regulations, and standards. Like most large government contractors, our
contracts are audited and reviewed on a continual basis by federal agencies,
including the Defense Contract Audit Agency. An audit of our work, including an
audit of work performed by companies we have acquired or may acquire, or
subcontractors we have hired or may hire, could result in a substantial
adjustment to our previously reported operating results. For example, any costs
which were originally reimbursed could subsequently be disallowed. In this case,
cash we have already collected may have to be refunded and operating margins may
be reduced.
If a government audit, review or investigation uncovers improper or
illegal activities, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, reimbursement of
payments received, payment of certain government costs, forfeiture of profits,
suspension of payments, fines, and suspension or debarment from doing business
with U.S. federal government agencies. These consequences could lead to a
material reduction in our revenues. In addition, we could suffer serious harm to
our reputation if allegations of impropriety were made against us, whether or
not true. Although audits have been completed on our incurred contract costs
through fiscal 1999, audits for costs incurred or work performed after fiscal
1999 have not yet been completed. In addition, non-audit reviews by the
government may still be conducted on all our government contracts.
If we were suspended or debarred from contracting with the federal
government generally, or any specific agency, if our reputation or relationship
with government agencies were impaired, or if the government otherwise ceased
doing business with us or significantly decreased the amount of business it does
with us, our revenues and operating results could be materially harmed.
FEDERAL GOVERNMENT CONTRACTS CONTAIN PROVISIONS GIVING GOVERNMENT CLIENTS A
VARIETY OF RIGHTS THAT ARE UNFAVORABLE TO US, INCLUDING THE ABILITY TO TERMINATE
A CONTRACT AT ANY TIME FOR CONVENIENCE.
Federal government contracts contain provisions and are subject to laws
and regulations that provide government clients with rights and remedies not
typically found in commercial contracts. These rights and remedies allow
government clients, among other things, to:
- terminate existing contracts, with short notice, for
convenience, as well as for default;
15
- reduce or modify contracts or subcontracts;
- terminate our facility security clearances and thereby prevent
us from receiving classified contracts;
- cancel multi-year contracts and related orders if funds for
contract performance for any subsequent year become
unavailable;
- decline to exercise an option to renew a multi-year contract;
- claim rights in products, systems, and technology produced by
us;
- prohibit future procurement awards with a particular agency
due to a finding of organizational conflict of interest based
upon prior related work performed for the agency that would
give a contractor an unfair advantage over competing
contractors;
- subject the award of contracts to protest by competitors,
which may require the contracting federal agency or department
to suspend our performance pending the outcome of the protest
and may also result in a requirement to resubmit bids for the
contract or in the termination, reduction, or modification of
the awarded contract; and
- suspend or debar us from doing business with the federal
government or with a particular governmental agency.
If a government client terminates one of our contracts for convenience,
we may recover, at most, only our incurred or committed costs, settlement
expenses, and profit on work completed prior to the termination. If a federal
government client were to unexpectedly terminate, cancel, or decline to exercise
an option to renew with respect to one or more of our significant contracts or
suspend or debar us from doing business with government agencies, our revenues
and operating results could be materially harmed.
LOSS OF OUR GENERAL SERVICES ADMINISTRATION ("GSA") SCHEDULE CONTRACTS OR OUR
POSITION AS A PRIME CONTRACTOR ON ONE OR MORE GWACS OR OTHER MULTIPLE-AWARD
CONTRACTS WOULD IMPAIR OUR ABILITY TO WIN NEW BUSINESS.
We believe that a key element of our success in the public services
sector is our position, as of June 30, 2002, as the holder of three GSA schedule
contracts, and as a prime or sub contractor under approximately 10
Government-wide Acquisition Contracts ("GWACs") with approximately 250 related
delivery orders and more than 250 indefinite delivery/indefinite quantity
contracts. For the fiscal year ended June 30, 2002, revenue from GSA schedule
contracts, GWACs and other indefinite delivery/indefinite quantity contracts
accounted for approximately 11.8% of our companywide revenues. As these types of
contracts have increased in importance in the last several years, we believe our
position as a prime or sub contractor on
16
these contracts has become increasingly important to our ability to sell our
services to federal government clients. If we were to lose our position on one
or more of these contracts, we could lose revenues and our operating results
could be materially harmed.
GSA schedule contracts, GWACs, and other indefinite delivery/indefinite
quantity contracts typically have a one- or two-year initial term with multiple
options that are exercisable by our government clients to extend the contract
for one or more years. Although there are options to extend these contracts for
a number of years, we cannot assure you that our clients will exercise these
options.
WE MAY FACE LEGAL LIABILITIES AND DAMAGE TO OUR PROFESSIONAL REPUTATION FROM
CLAIMS MADE AGAINST OUR WORK.
Many of our engagements involve projects that are critical to the
operations of our clients' businesses. If we fail to meet our contractual
obligations, we could be subject to legal liability, which could adversely
affect our business, operating results and financial condition. The provisions
we typically include in our contracts which are designed to limit our exposure
to legal claims relating to our services and the applications we develop may not
protect us or may not be enforceable under some circumstances or under the laws
of some jurisdictions. We have experienced liability claims in the past that
have resulted in litigation expenses and payments for settlements. It is likely,
because of the nature of our business, that we will be sued in the future.
Moreover, as a consulting firm, we depend to a large extent on our relationships
with our clients and our reputation for high caliber professional services and
integrity to retain and attract clients and employees. As a result, claims made
against our work may be more damaging in our industry than in other businesses.
THE INTERNET AND SYSTEMS INTEGRATION CONSULTING MARKETS ARE HIGHLY COMPETITIVE,
AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The Internet and systems integration consulting markets in which we
operate include a large number of participants and are highly competitive. Based
on revenues and the number of consultants we have, we are smaller than some of
our competitors. In particular, these larger competitors may have the ability to
deploy a large number of professionals more quickly in response to an urgent
client need, thereby giving them a competitive advantage over us. Our primary
competitors come from a variety of market segments, including other information
technology service providers, large accounting, consulting and other
professional service firms, packaged software vendors and service groups of
computer equipment companies.
Our marketplace is experiencing rapid changes in its competitive
landscape. For instance, one of the former "Big 5" accounting and consulting
firms sold its consulting business, the former consulting practice of a former
"Big 5" accounting firm completed its initial public offering in the summer of
2001, another former "Big 5" accounting and consulting practice has agreed to
sell its consulting business, and others have indicated plans or proposals to
sell their consulting businesses or to separate and seek capital in the public
or private markets. These changes in our marketplace may create potentially
larger and better capitalized competitors with enhanced abilities to attract and
retain their professionals. We also compete with our clients' internal
17
resources, particularly where these resources represent a fixed cost to the
client. The competitive nature of our industry may impose additional pricing
pressures on us.
Our ability to compete also depends in part on several factors beyond
our control, including the ability of our competitors to hire, retain and
motivate skilled professionals, the price at which others offer comparable
services and our competitors' responsiveness. There is a significant risk that
this severe competition will adversely affect our financial results in the
future.
THE LOSS OF OUR SIGNIFICANT JOINT MARKETING RELATIONSHIPS COULD REDUCE OUR
REVENUES AND GROWTH PROSPECTS.
We have significant joint marketing relationships with Cisco Systems,
Inc., Oracle Corporation, PeopleSoft, Inc., Microsoft Corporation, SAP America,
Inc. and Siebel Systems, Inc. These relationships enable us to increase revenues
by providing us additional marketing exposure, expanding our sales coverage,
increasing the training of our professionals, and developing and co-branding
service offerings that respond to customer demand. The loss of one or more of
these relationships could adversely affect our business by decreasing our
revenues and growth prospects. Mergers, acquisitions and other business
combinations involving one or more of these entities could result in changes in
the degree to which they will cooperate with us in joint marketing and product
development. In addition, if we engage in certain mergers, acquisitions and
other business combinations, these entities could terminate these joint
marketing and product development relationships. Moreover, because most of our
significant joint marketing relationships are nonexclusive, if our competitors
are more successful in building leading-edge products and services, these
entities may form closer or preferred arrangements with other consulting
organizations.
WE MAY LOSE MONEY IF WE DO NOT ACCURATELY ESTIMATE THE COST OF A LARGE
ENGAGEMENT WHICH IS CONDUCTED ON A FIXED-PRICE BASIS.
A significant percentage of our engagements in our public services
industry group is performed on a fixed-price or fixed-time basis. During fiscal
years 1999, 2000, 2001 and 2002, our public services segment revenues
represented 28%, 30%, 28% and 41%, respectively, of our company's total
revenues. While we do not track the percentage of our engagements which are
performed on a fixed-price or fixed-time basis, we believe that only a small
percentage of our other engagements are performed on this basis. In addition,
some of our engagements obligate us to provide ongoing maintenance and other
supporting or ancillary services on a fixed-price basis or with limitations on
our ability to increase prices. Billing for fixed-time engagements is made in
accordance with the engagement terms agreed to with our client. Revenues are
recognized based upon professional costs incurred as a percentage of estimated
total percentage costs of the respective contract, and unbilled revenues
represent revenues for services performed that have not been billed. When making
proposals for these types of engagements, we rely on our estimates of costs and
timing for completing the projects. These estimates reflect our best judgment
regarding the efficiencies of our methodologies and professionals as we plan to
apply them to the projects. Any increased or unexpected costs or unanticipated
delays in connection
18
with the performance of fixed-price or fixed-time contracts, including delays
caused by factors outside our control, could make these contracts less
profitable or unprofitable.
IF WE ARE NOT ABLE TO KEEP UP WITH RAPID CHANGES IN TECHNOLOGY OR MAINTAIN
STRONG RELATIONSHIPS WITH SOFTWARE PROVIDERS, OUR BUSINESS COULD SUFFER.
Our market is characterized by rapidly changing technologies, such as
the evolution of the Internet, frequent new product and service introductions
and evolving industry standards. If we cannot keep pace with these changes, our
business could suffer.
Our success will depend, in part, on our ability to develop service
offerings that keep pace with rapid and continuing changes in technology,
evolving industry standards and changing client preferences. Our success will
also depend on our ability to develop and implement ideas for the successful
application of existing and new technologies. We may not be successful in
addressing these developments on a timely basis or our ideas may not be
successful in the marketplace. Also, products and technologies developed by our
competitors may make our services or product offerings less competitive or
obsolete.
We generate a significant portion of our revenues from projects to
implement software developed by others, including Oracle Corporation,
PeopleSoft, Inc., Siebel Systems, Inc. and SAP America, Inc. Our future success
in the software implementation business depends on the continuing viability of
these companies and their ability to maintain market leadership. We cannot
assure you that we will be able to maintain a good relationship with these
companies or that they will maintain their leadership positions in the software
market.
OUR BUSINESS WILL BE NEGATIVELY AFFECTED IF GROWTH OF THE USE OF THE INTERNET
DECLINES.
Our business is dependent upon continued growth of the use of the
Internet by our clients, prospective clients and their customers and suppliers.
Growth of use of the Internet has been and may continue to be slowed or delayed
as a result of a decline in general economic or business conditions. In
addition, the adoption of the Internet for commerce and communications,
particularly by those individuals and companies that have historically relied
upon alternative means of commerce and communication, generally requires an
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, companies that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be particularly reluctant or slow to adopt a new, Internet-based strategy that
may make their existing personnel and infrastructure obsolete, especially during
a decline in general economic or business conditions. Capacity constraints
caused by growth in Internet usage may, unless resolved, impede further growth
in Internet use. If the number of Internet users does not increase and commerce
over the Internet does not become more accepted and widespread, demand for our
consulting services may decrease and, as a result, our revenues could decline.
The factors that may affect Internet usage or electronic commerce adoption
include:
19
- actual or perceived lack of security and privacy of
information;
- lack of access or ease of use;
- congestion of traffic or other usage delays on the Internet;
- inconsistent quality of service or lack of availability of
cost-effective high speed service;
- increases in access costs to the Internet;
- excessive governmental regulation;
- uncertainty regarding intellectual property ownership;
- reluctance to adopt new business methods;
- costs associated with the obsolescence of existing
infrastructure; and
- impact of any taxes which may be imposed on transactions using
the Internet.
OUR BUSINESS MAY BE HARMED BY EXISTING OR INCREASED UNITED STATES AND FOREIGN
GOVERNMENT REGULATION OF THE INTERNET.
In the United States and abroad, governments have passed legislation
relating to the Internet. Because these laws are still being implemented, we are
not certain how our business will be affected by them. We may be indirectly
affected by this legislation to the extent it impacts our clients and potential
clients. In addition, United States and foreign governmental bodies are
considering, and may consider in the future, other legislative proposals that
would regulate the Internet. We cannot predict if or how any future legislation
would impact our business.
OUR CONTRACTS CAN BE TERMINATED BY OUR CLIENTS WITH SHORT NOTICE.
Our clients typically retain us on a non-exclusive, engagement-by-
engagement basis, rather than under exclusive long-term contracts. Most of our
consulting engagements are less than 12 months in duration. We estimate that the
majority of our contracts can be terminated by our clients with short notice and
without significant penalty. The advance notice of termination required for
contracts of shorter duration and lower revenue is typically 30 days.
Longer-term, larger and more complex contracts may require a longer notice
period for termination and may include an early termination charge to be paid to
us. Additionally, large client projects involve multiple engagements or stages,
and there is a risk that a client may choose not to retain us for additional
stages of a project or that a client will cancel or delay additional planned
engagements. These terminations, cancellations or delays could result from
factors unrelated to our work product or the progress of the project, but could
be related to business or financial
UNDER A NUMBER OF OUR CONTRACTS THE PAYMENT OF SOME OR ALL OF OUR FEES
IS CONDITIONED UPON OUR PERFORMANCE.
A number of our contracts have some incentive-based or other pricing
terms that condition some or all of our fees on our ability to deliver defined
goals or achieve cost savings for our client. Our failure to meet
contractually-defined goals or a client's expectations in any type of contract
may result in an unprofitable engagement.
20
conditions of the client or the economy generally. When contracts are
terminated, we lose the associated revenues and we may not be able to eliminate
associated costs in a timely manner.
WE CURRENTLY HAVE ONLY A LIMITED ABILITY TO PROTECT OUR IMPORTANT INTELLECTUAL
PROPERTY RIGHTS.
We do not have any patents in the United States or any other
jurisdiction to protect our products or methods of doing business. Existing laws
in the United States offer limited protection for our business, and the laws of
some countries in which we provide services may not protect our intellectual
property rights even to the same limited extent as the laws of the United
States. The provisions in our agreements with clients which protect us against
the unauthorized use, transfer and disclosure of our intellectual property and
proprietary information may not be enforceable under the laws of some
jurisdictions. In addition, we are sometimes required to negotiate limits on
these provisions in our contracts.
Our business includes the development of customized software modules in
connection with specific client engagements, particularly in our systems
integration business. We frequently assign to clients the copyright and other
intellectual property rights in some aspects of the software and documentation
developed for these clients. Although our contracts with our clients may provide
that we also retain rights to our intellectual property, it is possible that
clients will assert rights to, and seek to limit our use of, this intellectual
property.
There can be no assurance that the steps we take will be adequate to
deter misappropriation of proprietary information or that we will be able to
detect unauthorized use and take appropriate steps to enforce our intellectual
property rights.
OUR SERVICES MAY INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
We cannot be sure that our services do not infringe on the intellectual
property rights of others, and we may have infringement claims asserted against
us. These claims may harm our reputation, cost us money and prevent us from
offering some services. In some contracts, we may agree to indemnify our clients
for certain expenses or liabilities resulting from claimed infringements of the
intellectual property rights of third parties. In some instances, the amount of
these indemnities may be greater than the revenues we receive from the client.
Any claims or litigation in this area, whether we ultimately win or lose, could
be time-consuming, may injure our reputation, may result in costly delays or may
require us to enter into royalty or licensing arrangements.
RISKS RELATED TO YOUR OWNERSHIP OF OUR COMMON STOCK
THE PRICE OF OUR COMMON STOCK MAY DECLINE BECAUSE OF THE LARGE NUMBER OF OTHER
SHARES AVAILABLE FOR SALE IN THE FUTURE.
Sales of a substantial number of shares of our common stock, or the
perception that such sales could occur, could adversely affect the market price
of our common stock.
21
On August 22, 2002, we issued approximately 30.5 million shares of our
common stock in connection with our acquisition of KPMG Consulting AG. We have
an obligation to register these shares for resale under the United States
securities laws as soon as reasonably practicable after the acquisition. When
the registration statement becomes effective, all of these shares may be sold in
the public market.
In addition, the assurance and tax partners of the KPMG International
member firms in Ireland, the Netherlands Antilles, Brazil, Argentina and Japan
were issued 1.37 million shares, which must be divested within five years after
the closing of our initial public offering. An additional 0.47 million shares
that were issued to the former consulting partners of these KPMG International
member firms are subject to contractual transfer restrictions that expire as to
one-fourth of the shares on August 7, 2002 and each succeeding anniversary. Our
managing directors, who received their shares (founders shares) when we
separated from KPMG LLP, and Cisco are subject to contractual limitations on
resale. These limitations are described in the table below. Cisco is entitled to
a total of six demands for registration and in addition has the right to
piggyback registration rights if we propose to register our shares under the
Securities Act. Such rights can only be exercised beginning January 31, 2003.
January 31, 2003 is the earliest date that Cisco may sell its shares. As of
August 31, 2002, there were a total of approximately 189.5 million shares of our
common stock outstanding.
The table below sets forth with respect to our managing directors who
received founders shares and Cisco, the number of shares of our common stock
these stockholders held as of February 7, 2001 that are subject to contractual
transfer restrictions, the percentage of our total number of outstanding shares
as of August 31, 2002 that such number represents and the nature of the
contractual transfer restrictions. These restrictions are in addition to any
restrictions contained under applicable law.
Number Percent
Holder of of Total Contractual Transfer
Shares Outstanding Restrictions
------------------------ --------------- ----------- -----------------------------------------
Our Managing Directors 5.14 million 2.7% Restrictions on one-fourth of the total
who hold founders shares shares owned expired on August 7, 2002 and
one-fourth will expire on each succeeding
anniversary.
Cisco Systems, Inc. 15.44 million 8.15% Cisco generally may not sell any shares
until January 31, 2003.
As of June 30, 2002, options to purchase approximately 30.8 million
shares of common stock were outstanding with exercise prices ranging from $9.55
to $55.50, and approximately 21.1 million additional shares of our common stock
were available in connection with future grants or awards under our long-term
incentive plan. Our employee stock purchase plan also had approximately 6.2
million shares available for sale as of June 30, 2002. In addition, we may issue
additional shares in connection with any acquisitions we make. Any such
additional shares could also have a dilutive effect on our earnings per share.
22
THERE ARE SIGNIFICANT LIMITATIONS ON THE ABILITY OF ANY PERSON OR COMPANY TO BUY
OUR COMPANY WITHOUT THE APPROVAL OF OUR BOARD OF DIRECTORS, WHICH MAY DECREASE
THE PRICE OF OUR COMMON STOCK.
Our certificate of incorporation and bylaws each contain provisions
that may make the acquisition of our company more difficult without the approval
of our board of directors. These provisions of our certificate of incorporation
and our bylaws include the following, among others:
- our board of directors is classified into three classes, each
of which, after an initial transition period, will serve for
staggered three-year terms;
- a director may be removed by our stockholders only for cause
and then only by the affirmative vote of two-thirds of the
outstanding voting power of stock entitled to vote generally
in the election of directors;
- only our board of directors or the chairman of our board of
directors may call special meetings of our stockholders;
- our stockholders may take action only at a meeting of our
stockholders and not by written consent;
- our stockholders must comply with advance notice procedures in
order to nominate candidates for election to our board of
directors or to place stockholders' proposals on the agenda
for consideration at meetings of the stockholders;
- our board may consider the impact of any proposed change of
control transaction on constituencies other than our
stockholders in determining what is in the best interest of
our company and our stockholders;
- business combinations involving one or more persons that own
or intend to own at least 15% of our voting stock must be
approved by the affirmative vote of at least a majority of our
voting stock, excluding that held by these persons, or by our
board of directors, excluding directors affiliated with these
persons, or the consideration paid in the business combination
must generally be the highest price paid by these persons to
acquire our voting stock;
- if stockholder approval is required by applicable law, any
mergers, consolidations and sales of all or substantially all
of our assets must be approved by the affirmative vote of at
least two-thirds of our voting stock; and
- our stockholders may amend or repeal any of the foregoing
provisions of our certificate of incorporation or our bylaws
only by a vote of two-thirds of the outstanding voting power
of the stock entitled to vote generally in the election of
directors.
23
In addition, we have a stockholders' rights plan designed to make it more costly
and thus more difficult to gain control of us without the consent of our board
of directors.
RISKS THAT RELATE TO OUR RELATIONSHIP WITH KPMG LLP AND ITS RELATED ENTITIES
THE AGREEMENTS RELATING TO OUR SEPARATION FROM KPMG LLP WERE NOT NEGOTIATED ON
AN ARM'S-LENGTH BASIS, AND THERE IS NO ASSURANCE THAT THESE AGREEMENTS ARE ON
TERMS COMPARABLE TO THOSE THAT COULD HAVE BEEN OBTAINED FROM UNAFFILIATED THIRD
PARTIES.
As part of our separation from KPMG LLP in January 2000, we entered
into a separation agreement which governed the transfer of the assets and
liabilities relating to our business and contained indemnification provisions
between us and KPMG LLP. We have also entered into a non-competition agreement
with KPMG LLP that specifies which services will be offered by us and which by
KPMG LLP. These agreements were not the result of arm's-length negotiations, and
therefore we cannot assure you that their terms are comparable to the terms we
could have obtained from unaffiliated third parties.
Under our transition services agreement, KPMG LLP will provide us with
basic administrative, clerical and processing services in areas such as
accounting support, technology support, human resources, employee benefits and
office space support. The fees we pay for many of these services are based on
the total costs of providing these services on a centralized basis to both our
company and KPMG LLP. We are assessed an allocated portion of these costs,
generally based on the relative headcount, usage and other factors of our
company and KPMG LLP. However, because these agreements were negotiated in the
context of a "parent-subsidiary" relationship and were not the result of
arm's-length negotiations, we may pay more or less for such services and receive
better or worse service than if we had purchased such services from third party
providers.
THE TERMINATION OF SERVICES PROVIDED UNDER THE TRANSITION SERVICES AGREEMENT
WITH KPMG LLP COULD INVOLVE SIGNIFICANT EXPENSE WHICH COULD ADVERSELY AFFECT OUR
FINANCIAL RESULTS.
Under the transition services agreement with KPMG LLP, we contracted to
receive certain infrastructure support services from KPMG LLP until we completed
the build-out of our own infrastructure (which terminates no later than February
8, 2004 for non-technology services and February 8, 2005 for technology-related
services). As the Company terminates services, the Company may be obligated to
pay KPMG LLP termination costs, as defined in the transition services agreement,
incurred as a result of KPMG LLP winding down and terminating such services. The
Company continues to receive from KPMG LLP services relating to information
technology (such as telecommunications and user services), financial systems,
human resources systems, occupancy and office support services in facilities
used by both the Company and KPMG LLP, and financing of capital assets used in
the provisioning of transition services. The Company has given notice to KPMG
LLP of its intent to terminate certain services in fiscal 2003 for which the
amount of termination costs have either not been determined by KPMG LLP or not
agreed upon by the parties. In July 2002, the
24
Company paid KPMG LLP $30.8 million representing the unamortized costs of
leasehold improvements purchased by KPMG LLP and used exclusively by the
Company. Based on information currently available, the Company anticipates
paying KPMG LLP approximately $40 million to $60 million for the sale and
transfer of additional capital assets (such as computer equipment, furniture and
leasehold improvements) currently used by the Company through the transition
services agreement (for which usage charges are included in the monthly costs
under the agreement).
The amount of termination costs that the Company will pay to KPMG LLP
depends upon the timing of service terminations, the ability of the parties to
work together to minimize the costs, and the amount of payments required under
existing contracts with third parties for services provided to the Company by
KPMG LLP and which can continue to be obtained directly by the Company
thereafter. Accordingly, the amount of termination costs that the Company will
pay to KPMG LLP in the future cannot be reasonably estimated at this time. The
Company believes that the amount of termination costs yet to be assessed will
not have a material adverse effect on the Company's consolidated financial
position, cash flows, or liquidity. Whether such amounts could have a material
effect on the results of operations in a particular period or quarter cannot be
determined at this time.
THE NON-COMPETITION AGREEMENT WITH KPMG LLP PROHIBITS US FROM PROVIDING CERTAIN
SERVICES AND MAY LIMIT OUR ABILITY TO EFFECTIVELY MOVE INTO CERTAIN NEW SERVICES
IN THE FUTURE.
Our non-competition agreement with KPMG LLP prohibits us from offering
tax or assurance services, including attestation and verification services, and
defined consulting services which were historically and will continue to be
provided by KPMG LLP's tax and assurance practices. This prohibition may limit
our ability to serve our clients.
If both we and KPMG LLP desire to provide a new type of service or if
we cannot agree with KPMG LLP as to who has the right to provide an existing
service, the non-competition agreement provides a framework for resolving such
disputes. However, if this process fails to resolve any such dispute in a timely
and efficient manner, we may lose the opportunity to enter into a new market or
pursue sales leads on a timely basis. In addition, ongoing disputes with KPMG
LLP as to who can provide a type of existing or new service may result in both
us and KPMG LLP bidding on similar work which, in turn, may damage our
reputation in the marketplace.
RISKS THAT RELATE TO OUR RELATIONSHIP WITH CISCO
THE PROVISIONS OF OUR INVESTOR RIGHTS AGREEMENT WITH CISCO WHICH PROHIBIT US
FROM ENTERING INTO A MERGER OR SIMILAR AGREEMENT WITH FOUR NAMED COMPANIES
WITHOUT CISCO'S CONSENT MAY LIMIT OUR ABILITY TO ENGAGE IN A CHANGE OF CONTROL
TRANSACTION AND REDUCE THE PRICE OF OUR COMMON STOCK.
25
In conjunction with Cisco's investment in our company and our alliance
agreement with Cisco, we agreed that until January 31, 2005, we will not enter
into an agreement with Lucent Technologies Inc., Nortel Networks Corporation,
Alcatel S.A. or Juniper Networks, or four other companies as Cisco may designate
on an annual basis, to merge, consolidate or otherwise combine with any such
specified company or to sell all or substantially all of our assets to any of
them without Cisco's consent. If any of these companies delivers to us a bona
fide proposal to acquire us or if our board of directors decides to initiate
negotiations regarding an acquisition by one of these companies, we have agreed
to notify Cisco and give Cisco an opportunity to make a superior counter
proposal to us. If we close an acquisition transaction with one of these
companies, including if we do so after Cisco has failed to make a superior
proposal, we have agreed to:
- pay Cisco cash in an amount equal to our revenues for the
preceding 12 months;
- repurchase, at Cisco's request, any of our equity securities
then held by Cisco at the greater of fair market value or
original issue price; and
- repurchase, at Cisco's request, any of our debt securities
then held by Cisco at their face amount.
Our obligation to make payments to Cisco if we enter into a transaction
with Lucent Technologies, Inc., Nortel Networks Corporation, Alcatel S.A. or
Juniper Networks also may have significant anti-takeover effects with respect to
those companies and could depress the price of our common stock. Accordingly,
the effect of these provisions is to reduce substantially, or even entirely
eliminate, the possibility of us entering into a merger or other change of
control transaction with one of these companies. To the extent that any of these
companies were or were perceived as possible acquirors of our company, these
provisions may depress the price of our common stock.
OUR ALLIANCE AGREEMENT WITH CISCO MAY REQUIRE US TO MAKE INVESTMENTS IN
PERSONNEL AND EQUIPMENT EVEN IF WE DO NOT GENERATE SUFFICIENT CORRESPONDING
REVENUES FOR US, WHICH MAY DECREASE OUR NET INCOME.
Under our amended alliance agreement with Cisco, we have agreed to
maintain the level of competence of our staff already trained on Cisco products
and technologies as of July 1, 2001. When we are developing a joint solution
with Cisco, we also have agreed to train at least the number of persons on the
design, planning and implementation management of the technologies associated
with the solution as are necessary to achieve the purpose of the solution. In
addition, we have committed to staffing and operating at least one solution
center for every joint solution developed under the alliance agreement. The
solution centers provide clients advanced technology equipment to develop,
demonstrate and provide training on our service offerings using Cisco hardware.
The alliance agreement with Cisco requires us to provide this staffing and these
solution center operations even if the results of our operations do not justify
such activities. If the anticipated benefits of our alliance with Cisco do not
materialize, or fail to materialize in
26
the time frame we anticipate, and we nonetheless have to hire additional
consultants or make additional investments in Cisco-related equipment, it could
adversely affect our profitability.
OUR ALLIANCE AGREEMENT WITH CISCO DOES NOT PREVENT CISCO FROM ENTERING INTO
SIMILAR AGREEMENTS WITH OUR COMPETITORS, AND ANY AGREEMENTS WITH COMPETITORS
MIGHT DIMINISH THE EFFECTIVENESS OF OUR RELATIONSHIP WITH CISCO WITHOUT REDUCING
OUR OBLIGATIONS UNDER THE ALLIANCE AGREEMENT.
As a part of our alliance agreement with Cisco, we have agreed to make
investments in personnel, training and equipment and to limitations on our
ability to jointly market with Lucent Technologies Inc., Nortel Networks
Corporation, Alcatel S.A. or Juniper Networks, or, in lieu thereof, four other
companies as Cisco may designate on an annual basis. These obligations and
restrictions will remain in place even if Cisco enters into a similar
arrangement with one of our competitors. We believe, based on published reports,
that Cisco has entered into joint marketing agreements with certain of our
competitors, including Cap Gemini Ernst & Young and PricewaterhouseCoopers LLP.
To the extent that either of these arrangements or any future arrangements
entered into by Cisco and our other competitors are similar in nature and scope
to our agreement, the effectiveness of our joint marketing efforts may be
negatively impacted and our relationship with Cisco may generate lower revenues
than we anticipate, which could adversely affect our profitability.
27
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and any documents
incorporated by reference constitute "forward-looking statements" within the
meaning of the United States Private Securities Litigation Reform Act of 1995.
These statements relate to our operations that are based on our current
expectations, estimates and projections. Words such as "may," "will," "could,"
"would," "should, " "anticipate," "predict," "potential," "continue," "expects,"
"intends," "plans," "projects," "believes," "estimates" and similar expressions
are used to identify these forward-looking statements. These statements are only
predictions and as such are not guarantees of future performance and involve
risks, uncertainties and assumptions that are difficult to predict.
Forward-looking statements are based upon assumptions as to future events or our
future financial performance that may not prove to be accurate. Actual outcomes
and results may differ materially from what is expressed or forecast in these
forward-looking statements. As a result, these statements speak only as of the
date they were made, and we undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Our actual results may differ from the forward-looking statements
for many reasons, including:
- the business decisions of our clients regarding the use of
our services;
- the timing of projects and their termination;
- the availability of talented professionals to provide our
services;
- the pace of technological change;
- the strength of our joint marketing relationships;
- continuing limitations following our separation from KPMG LLP;
- the actions of our competitors; and
- unexpected difficulties associated with our recent acquisitions
and group hires of business consultants involving KPMG
Consulting AG and the former Andersen Business Consulting
Practices.
In addition, our results and forward-looking statements could be
affected by general domestic and international economic and political
conditions, including the current slowdown in the economy, uncertainty as to the
future direction of the economy and vulnerability of the economy to domestic or
international incidents, as well as market conditions in our industry. For a
more detailed discussion of certain of these factors, see "Risk Factors" in this
prospectus and the applicable prospectus supplement, and "Factors Affecting
Future Financial Results" in our Form 10-K for the year ended June 30, 2002
(incorporated by reference in this prospectus) and similar sections in our
future filings which are incorporated by reference in this prospectus, which
describe risks and factors that could cause results to differ materially from
those projected in such forward-looking statements. We caution the reader that
these risk factors may not be exhaustive. We operate in a continually changing
business environment, and new risk factors emerge from time to time. Management
cannot predict such new risk factors, nor can it assess the impact, if any, of
such new risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
implied by any forward-looking statements.
28
SELLING STOCKHOLDERS
We are registering for resale shares of our common stock held by the
stockholders identified below. The selling stockholders acquired the resale
shares in connection with our acquisition on August 22, 2002 of KPMG Consulting
AG, a company whose operations consist primarily of the former German, Swiss and
Austrian consulting practices of KPMG Deutsche Treuhand-Gesellschaft AG ("KPMG
DTG").
Except where noted otherwise, the selling stockholders whose names are
listed below are current or former employees and consultants of KPMG Consulting
AG.
The selling stockholders will determine the actual number of shares, if
any, that they will sell. Because the selling stockholders may sell all, some or
none of the shares of common stock that they hold, we are unable to estimate the
amount or percentage of shares of common stock that they will hold after
completion of the offering.
The following table provides information regarding the beneficial
ownership of our common stock by the selling stockholders as of August 31, 2002.
Selling Stockholder Table
-----------------------------------------------------------------------------------------------------------
Shares Beneficially
Owned Prior to Offering
-----------------------------------------------------------------------------------------------------------
Maximum Number of
Name of Selling Shares Being
Stockholder Number Percent Offered
-----------------------------------------------------------------------------------------------------------
KPMG DTG(1) 21,923,825 11.57% 9,401,277
-----------------------------------------------------------------------------------------------------------
KPMG Regulus 12,522,548 6.61% 12,522,548
Treuhand-Gesellschaft GmbH
("KPMG RTG")(2)
-----------------------------------------------------------------------------------------------------------
Blaschitz, Peter(3) 944,350 * 944,350
-----------------------------------------------------------------------------------------------------------
Blaschitz, Michael(3) 166,650 * 166,650
-----------------------------------------------------------------------------------------------------------
Ansink, Hendrik 293,568 * 293,568
-----------------------------------------------------------------------------------------------------------
Melcher, Peter 293,568 * 293,568
-----------------------------------------------------------------------------------------------------------
Leimbacher, Beat 147,544 * 147,544
-----------------------------------------------------------------------------------------------------------
Barth, Hans-Peter 146,801 * 146,801
-----------------------------------------------------------------------------------------------------------
Falk, Bodo 146,801 * 146,801
-----------------------------------------------------------------------------------------------------------
Herrmann, Manfred 146,801 * 146,801
-----------------------------------------------------------------------------------------------------------
Seeger, Steffen 146,801 * 146,801
-----------------------------------------------------------------------------------------------------------
Baer, Jakob(4) 93,438 * 93,438
-----------------------------------------------------------------------------------------------------------
Achterholt, Uwe 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Bretschneider, Harald 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Brunner, Kurt 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Crostack, Gunther 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Dammig, Ernst-Dieter 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Hauff, Volker 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Hohler, Gabriele 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Lang, Peter 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Weil, Thomas 66,060 * 66,060
-----------------------------------------------------------------------------------------------------------
Zwicker, Stefan(5) 64,642 * 64,642
-----------------------------------------------------------------------------------------------------------
Bender, Cornel 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Gilb, Theo 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Grall, Torsten 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Hartmann, Detlef 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Horstmann, Walter 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Kreutzmann, Werner 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Lambertz, Hans-Dieter 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Lehmann, Horst 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
29
-----------------------------------------------------------------------------------------------------------
Mockler, Peter 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Mundus, Franz-Josef 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Niedermayer, Peter 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Raubold, Peter 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Seum, Andreas 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Wallesch, Brigitte 51,380 * 51,380
-----------------------------------------------------------------------------------------------------------
Mahrlander, Hans-Jurgen 44,389 * 44,389
-----------------------------------------------------------------------------------------------------------
Achermann, Hubert 42,739 * 42,739
-----------------------------------------------------------------------------------------------------------
Hess, Peter 42,739 * 42,739
-----------------------------------------------------------------------------------------------------------
Halbedl, Ewald 41,104 * 41,104
-----------------------------------------------------------------------------------------------------------
Mathers, Bruce 40,420 * 40,420
-----------------------------------------------------------------------------------------------------------
Walker, Jorg 39,848 * 39,848
-----------------------------------------------------------------------------------------------------------
Stemme, Wolfgang 39,636 * 39,636
-----------------------------------------------------------------------------------------------------------
Haag, Gunter 38,853 * 38,853
-----------------------------------------------------------------------------------------------------------
Diethelm, Hanno 35,130 * 35,130
-----------------------------------------------------------------------------------------------------------
Rubin, Heinz 35,130 * 35,130
-----------------------------------------------------------------------------------------------------------
Scheuer, Alex 35,130 * 35,130
-----------------------------------------------------------------------------------------------------------
Sutter, Kurt 35,130 * 35,130
-----------------------------------------------------------------------------------------------------------
Wicki, Josef 35,130 * 35,130
-----------------------------------------------------------------------------------------------------------
Ramsperger, Udo 34,952 * 34,952
-----------------------------------------------------------------------------------------------------------
Castelnuovo, Mario 33,071 * 33,071
-----------------------------------------------------------------------------------------------------------
Bretzke, Wolf-Rudiger 33,030 * 33,030
-----------------------------------------------------------------------------------------------------------
Hanimann, Peter 29,396 * 29,396
-----------------------------------------------------------------------------------------------------------
Brunner, Robert 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Correnz, Wofgang 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Dambon, Dieter 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Engel, Peter 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Gortzen, Matthias 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Grotenhofer, Jochen 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Haisermann, Alexa 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Hase, Ekkehard 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Hedden, Olaf 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Hefner, Sabine 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Hilbert, Hans-Joachim 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Jung, Wolfgang 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Kehlenbeck, Ralf 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Lauffer, Goetz 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Linzner, Peter 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Max, Clemens 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Meyer, Rolf 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Morlock, Eccard 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Petschke, Christian 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Pfaff, Manfred 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Prisco, Paolo 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Rahmel, Stefanie 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Sauer-Brabander, Thomas 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Schnetzer, Michael 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Schubart, Wolfgang 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Schurau, Peter 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Schwieger, Hans-Christian 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Scott, Paul 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Wagner, Robert 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
30
-----------------------------------------------------------------------------------------------------------
Wunsch, Axel 29,360 * 29,360
-----------------------------------------------------------------------------------------------------------
Hauser, Paco 28,104 * 28,104
-----------------------------------------------------------------------------------------------------------
Nickler, Marcel 28,104 * 28,104
-----------------------------------------------------------------------------------------------------------
Bahler, Armin 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Doerig, Beat 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Gebert, Georges 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Herzog, Peter 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Honegger, Claude 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Ittensohn, Elmar 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Luthiger, Fredy 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Roth, Rudolf 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Rufi, Bernard 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Rusconi, Bruno 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Russi, Doris 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Schenk, Peter 27,197 * 27,197
-----------------------------------------------------------------------------------------------------------
Albrecht, Christoph 26,424 * 26,424
-----------------------------------------------------------------------------------------------------------
Hiller, Franz 26,424 * 26,424
-----------------------------------------------------------------------------------------------------------
Schroder. Gerd 26,424 * 26,424
-----------------------------------------------------------------------------------------------------------
Allenspach, Hansjurg 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Bertschinger, Peter 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Beyeler, Willy 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Braunschweig, Yves 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Buck, Arthur 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Buhler, Josef 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Colledge, David 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Escher, Adrian 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Gehriger, Pierre-Olivier 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Killer, Rolf 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Lonfat, Marc 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Malcotsis, George 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Moser, Hans 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Ranzoni, Marco 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Robertson, Stuart 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Scherer, Martin 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
von Deschwanden, Paul 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Wharton, Michael 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Zach, Pierre 25,722 * 25,722
-----------------------------------------------------------------------------------------------------------
Kloti, Albert 23,312 * 23,312
-----------------------------------------------------------------------------------------------------------
Lanfranchi, Orlando 23,312 * 23,312
-----------------------------------------------------------------------------------------------------------
Meisterhans, Jurg 23,312 * 23,312
-----------------------------------------------------------------------------------------------------------
Michael, Peter 23,312 * 23,312
-----------------------------------------------------------------------------------------------------------
Willems, Erik 23,312 * 23,312
-----------------------------------------------------------------------------------------------------------
Ueltschi, Urs 22,834 * 22,834
-----------------------------------------------------------------------------------------------------------
Zimmermann, Andreas 22,132 * 22,132
-----------------------------------------------------------------------------------------------------------
Aepli, Hans 22,047 * 22,047
-----------------------------------------------------------------------------------------------------------
DeBlanc, Bryan 22,047 * 22,047
-----------------------------------------------------------------------------------------------------------
Dormann, Hieronymus 22,047 * 22,047
-----------------------------------------------------------------------------------------------------------
Greig, Brian 22,047 * 22,047
-----------------------------------------------------------------------------------------------------------
Hallauer, Philipp 22,047 * 22,047
-----------------------------------------------------------------------------------------------------------
Jaquet, Raphael 22,047 * 22,047
-----------------------------------------------------------------------------------------------------------
Kappeli, Puis 22,047 * 22,047
-----------------------------------------------------------------------------------------------------------
31
-----------------------------------------------------------------------------------------------------------
520 selling stockholders who in 1,859,616 0.98% 1,859,616
the aggregate hold
less than 1% of our
common stock outstanding
prior to the offering
-----------------------------------------------------------------------------------------------------------
* Less than one percent of the outstanding shares of common stock.
(1) KPMG DTG has sole dispositive power with respect to 9,401,277 shares and
sole voting power with respect to 21,923,825 shares. KPMG RTG has sole
dispositive power with respect to 12,522,548 of these shares. KPMG DTG was the
majority stockholder of KPMG Consulting AG prior to our acquisition of KPMG
Consulting AG and had a variety of contractual and business relationships with
that entity, including contractual arrangements to provide certain support and
technical services, financing services and cash management services. KPMG DTG
continues to provide a limited number of services at cost pursuant to a
transition services agreement with KPMG Consulting AG, which was entered into in
connection with our acquisition of KPMG Consulting AG.
(2) KPMG RTG is an entity affiliated with KPMG DTG. Contractual arrangements
between KPMG RTG and KPMG DTG provide KPMG DTG with sole voting power with
respect to these 12,522,548 shares and KPMG RTG with sole dispositive power with
respect to these shares. KPMG DTG may be deemed to beneficially own these
shares.
(3) These selling stockholders were former minority stockholders and officers of
KPMG Consulting AG group companies.
(4) This selling stockholder was a member of the supervisory board of KPMG
Consulting AG until July 2002 but was not an employee or consultant of KPMG
Consulting AG.
(5) This selling stockholder was not an employee or consultant of KPMG
Consulting AG.
USE OF PROCEEDS
We will not receive any of the proceeds when the selling stockholders
sell their common stock to others. All sale proceeds will be received by the
selling stockholders.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, donees, assignees,
transferees or successors-in-interest selling shares received from a named
selling stockholder as a gift, partnership distribution or other non-sale
related transfer after the date of this resale prospectus (collectively, the
"selling stockholders") may, from time to time, sell any or all of the shares of
common stock offered hereby on the Nasdaq National Market or any stock exchange,
market or trading facility on which the shares are traded, or in private
transactions. These sales may be made at market prices prevailing at the time of
the sale or at negotiated or fixed prices. The selling stockholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling stockholders may use any one or more of the
following methods when selling shares:
32
- ordinary brokerage transactions and transactions in which
the broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to
sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the
transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- underwritten offerings;
- short sales;
- agreements by the broker-dealer and the selling stockholders
to sell a specified number of such shares at a stipulated
price per share;
- a combination of any such methods of sale; and
- any other method permitted by applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, or under Section 4(1) of the Securities Act,
rather than under this resale prospectus.
Unless otherwise prohibited, the selling stockholders may enter into
hedging transactions with broker-dealers or other financial institutions in
connection with distributions of the shares or otherwise. In such transactions,
broker-dealers or financial institutions may engage in short sales of the shares
in the course of hedging the position they assume with the selling stockholders.
The selling stockholders may also engage in short sales, puts and calls,
forward-exchange contracts, collars and other transactions in our securities or
derivatives of our securities and may sell or deliver shares in connection with
these trades. If the selling stockholders sell shares short, they may redeliver
the shares to close out such short positions. The selling stockholders may also
enter into option or other transactions with broker-dealers or financial
institutions which require the delivery to the broker-dealer or the financial
institution of the shares. The broker-dealer or financial institution may then
resell or otherwise transfer such shares pursuant to this resale prospectus. In
addition, the selling stockholders may loan their shares to broker-dealers or
financial institutions who are counterparties to hedging transactions and the
broker-dealers, financial institutions or counterparties may sell the borrowed
shares into the public market. The selling stockholders may also pledge their
shares to their brokers or financial institutions and under the margin loan the
broker or financial institution may, from time to time, offer and sell the
pledged shares.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and complied with.
We will file a supplement to this resale prospectus, if required, under
Rule 424(b) under the Securities Act upon being notified by a selling
stockholder that any material arrangement has been entered into with a
broker-
33
dealer or financial institution for the sale of shares through a block
trade, special or underwritten offering, exchange distribution or secondary
distribution or a purchase by a broker, dealer or financial institution. Such
supplement may include:
- the name of each selling stockholder and of the participating broker-
dealer(s) or financial institution(s);
- the number of shares involved;
- the price at which such shares were sold;
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s) or financial institution(s), where applicable;
- that such broker-dealer(s) or financial institution(s) did not conduct
any investigation to verify the information set out or incorporated by
reference in this resale prospectus; and
- other facts material to the transaction.
We will pay all fees and expenses in connection with the registration
of the shares by the selling stockholders. We have agreed to indemnify each
selling stockholder against certain liabilities, including liabilities arising
under the Securities Act of 1933. The selling stockholders have agreed to
indemnify us and our agents against certain liabilities. The selling
stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
The selling stockholders and any underwriters, brokers, dealers,
financial institutions or agents that participate in the distribution of the
common stock may be deemed to be "underwriters" under the Securities Act, and
any profit on the sale of the common stock by them and any discounts,
commissions or concessions received by any such underwriters, dealers, financial
institutions or agents might be deemed to be underwriting discounts and
commissions under the Securities Act.
The selling stockholders and any other person participating in the
distribution will be subject to the applicable provisions of the Securities
Exchange Act of 1934 and the rules and regulations under the Exchange Act. The
Exchange Act rules include, without limitation, Regulation M, which may limit
the timing of any other person participating in the distribution. In addition,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the common stock to engage in market-making activities
with respect to the particular shares of common stock being distributed for a
period of up to five business days prior to the commencement of the
distribution. This may affect the marketability of the shares of common stock
and the ability of any person or entity to engage in market-making activities
with respect to the shares of common stock.
LEGAL MATTERS
The validity of the shares of our common stock offered by this resale
prospectus will be passed upon for our company by Fried, Frank, Harris, Shriver
& Jacobson (a partnership including professional corporations), Washington, DC.
34
EXPERTS
The consolidated balance sheets of KPMG Consulting (successor to the
consulting business of KPMG LLP) as of June 30, 2002 and 2001, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the years ended June 30, 2002 and 2001 and the five months
ended June 30, 2000, and the related combined statements of income before
partner distributions and benefits, changes in equity and cash flows for the
seven months ended January 31, 2000 have been audited by Grant Thornton LLP,
independent certified public accountants. These financial statements and the
report of the independent certified public accountants, included in KPMG
Consulting's Annual Report on Form 10-K for the year ended June 30, 2002 filed
on September 30, 2002, are incorporated by reference in this document.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is only part of a registration statement on Form S-3
that we have filed with the SEC. As permitted by SEC rules, this prospectus does
not contain all the information contained in the registration statement or the
exhibits to the registration statement. You may refer to the registration
statement and accompanying exhibits for more information about us and our
securities.
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file with the SEC at its public reference rooms at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our
filings are also available to the public on the Internet, through a database
maintained by the SEC at http://www.sec.gov. In addition, you can inspect and
copy our reports, statements and other information at the offices of National
Association of Securities Dealers, Inc., at 1735 K Street, N.W., Washington,
D.C. 20006.
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference into this document the
information we have filed with it. This means that we can disclose important
business, financial and other information to you by referring you to other
documents separately filed with the SEC. All information incorporated by
reference is part of this document, unless and until that information is updated
and superseded by the information contained in this document or any information
subsequently incorporated by reference.
We incorporate by reference the documents listed below:
1. Our annual report on Form 10-K for the fiscal year ended
June 30, 2002;
2. Our current reports on Form 8-K filed on September 6, 2002 and
September 30, 2002; and
3. The description of our common stock and the stockholders rights
attached to our common stock contained in our registration
statement on Form 8-A filed on September 19, 2002;
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Investor Relations
KPMG Consulting, Inc.
99 High Street
Boston, MA 02110-2371
Tel: (617) 988-1885, Fax: (617) 988-0836
E-mail: us-investors@kpmg.com
35
Exhibits to the filings will not be sent, however, unless those
exhibits have specifically been incorporated by reference.
We also incorporate by reference all future filings we make with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 (i) on or after the date of the filing of the registration statement
containing this prospectus and prior to the effectiveness of such registration
statement and (ii) on or after the date of this prospectus and prior to the
termination of the offering made hereby. Such documents will become a part of
this prospectus from the date that the documents are filed with the SEC.
You should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not making an offer to sell these securities in any jurisdiction
where the offer and sale is not permitted. You should assume that the
information appearing or incorporated by reference in this prospectus is
accurate only as of the date of the documents containing the information. Our
business, financial condition, results of operation and prospects may have
changed since that date.
36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses payable by the
registrant in connection with the issuance and distribution of the securities
being registered hereby (other than underwriting discounts and commissions). All
such expenses, except the Securities and Exchange Commission, which we refer to
as the SEC, registration fee, are estimated.
SEC registration fee ................ $18,110
Legal fees and expenses ............. $75,000
Accounting fees and expenses ........ $50,000
Printing expenses ................... $100,000
Miscellaneous ....................... $45,000
--------
Total ............................ $288,110
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
LIMITATION ON LIABILITY OF DIRECTORS
Section 145(a) of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a Delaware corporation may 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, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise, against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit, if he or she acted under similar standards to
those set forth above, except that no indemnification may be made in respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation, unless and only to the extent that the court in
which such action or suit was brought shall determine that despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
actually and reasonably incurred by such person in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
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any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against such officer
or director and incurred by him or her in any such capacity or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liabilities under Section 145.
As permitted by Section 102(b)(7) of the DGCL, the company's
certificate of incorporation provides that a director shall not be personally
liable to the company or its stockholders for monetary damages for breach of
fiduciary duty as a director. However, such provision does not eliminate or
limit the liability of a director for: (i) any breach of the director's duty of
loyalty to the company or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) any violation of Section 174 of the DGCL, or (iv) engaging in any
transaction from which the director derived an improper personal benefit. The
company's certificate of incorporation requires that directors and officers be
indemnified to the fullest extent authorized by the DGCL, or any other
applicable law or amendments thereunder but, in the case of any amendments, only
to the extent such amendment permits the company to provide broader
indemnification rights than permitted prior thereto.
Any underwriting agreements that we may enter into may provide for the
indemnification of the registrant, its controlling persons, its directors and
certain of its officers by the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The company has a directors' liability insurance policy which insures
directors and officers against the cost of defense, settlement or payment of a
judgment under certain circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
The exhibits to this registration statement are listed in the Exhibit
Index to this registration statement, which Exhibit Index is hereby incorporated
by reference.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or
sales are being made of the securities registered
hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than
a 20 percent change in the
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maximum aggregate offering price set forth
in the "Calculation of Registration Fee"
table in the effective registration
statement; and
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement;
provided, however, that the undertakings set
forth in clauses (i) and (ii) above do not
apply if the information required to be
included in a post-effective amendment by
those clauses is contained in periodic
reports filed with or furnished to SEC by
the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this
registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment 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; and
(3) To remove from registration by means of a post-
effective amendment any of the securities being
registered which remain unsold at the termination of
the offering;
(b) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of our annual report
pursuant to Section 13(a) or 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 this 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; and
(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, the
registrant has been advised that in the opinion of the
Securities and Exchange 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.
(d) The undersigned registrant hereby undertakes that:
(1) 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.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus 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.
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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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of McLean, Commonwealth of Virginia, on the 30th day of
September, 2002.
KPMG Consulting, Inc.
By: /s/ Randolph C. Blazer
---------------------------------------
Randolph C. Blazer
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons on
September 30, 2002 in the capacities indicated below.
Signature Title
--------- -----
/s/ Randolph C. Blazer Chairman of the Board, Chief Executive Officer and
------------------------------ President
Randolph C. Blazer
/s/ Robert C. Lamb, Jr. Principal Financial and Accounting Officer: Executive Vice
------------------------------ President and Chief Financial Officer
Robert C. Lamb, Jr.
By: * Director
------------------------------
Douglas C. Allred
By: * Director
------------------------------
Wolfgang Kemna
Director
------------------------------
Roderick C. McGeary
By: * Director
------------------------------
Afshin Mohebbi
By: * Director
------------------------------
Alice M. Rivlin
* By: /s/ David W. Black
------------------------------
David W. Black
as Attorney-in-Fact
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
-------------- ----------------------
2.1 Share Purchase Agreement, dated June 8, 2002, among
KPMG Consulting, Inc., KPMG DTG and the minority
stockholders (incorporated herein by reference to
Exhibit 2.1 to the Registrant's Form 8-K, filed on
September 6, 2002).
4.1 Rights Agreement, dated as of October 2, 2001, between KPMG Consulting, Inc.
and EquiServe Trust Company, N.A. (incorporated herein by reference to Exhibit
1.1 to the Registrant's Registration Statement on Form 8-A, filed on October 3,
2001).
4.2 Amendment No. 1 to Rights Agreement, dated as of August 19, 2002, between KPMG
Consulting, Inc. and EquiServe Trust Company, N.A. (incorporated herein by
reference to Exhibit 99.1 to the Registrant's Form 8-K, filed on September 6,
2002).
5.1* Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the legality of the
common stock covered by this registration statement.
23.1* Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1).
23.2 Consent of Grant Thornton LLP.
24.1 Powers of Attorney.
--------------------
*To be filed by amendment.
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