February 10, 2006
IT services vendor Affiliated Computer Services plans to cut up to 1,700 jobs and reduce operations in its Mexican near-shore services center in favor of a lower cost location, according to a document the company filed Thursday with the Securities and Exchange Commission.
The filing also reveals that former ACS CEO Jeffrey Rich, who resigned last year, will receive a payout of $4 million and a number of other lucrative benefits. As part of its cost-cutting campaign, ACS also plans to sell a corporate jet it originally purchased from a firm owned by ACS founder and chairman Darwin Deason. The firm, DDH Aviation, has fallen under the scrutiny of the Federal Aviation Administration as part of an investigation into a February 2005 crash at New Jersey's Teterboro Airport that injured 20 people. ACS last month terminated talks with several private equity firms aiming for a buyout of the company. ACS, which last year reported revenues of $4.35 billion, said the 1,700 positions it's cutting are mostly "offshore processors and related management." The staff, according the SEC filing, will be "involuntarily terminated." ACS says it expects the move will result in savings of $13 million beginning in fiscal 2007. ACS officials were not immediately available to elaborate. Many of the cuts could come at ACS's operations in Mexico. In its SEC filing, the company says it's cutting back in locations "where our labor costs are no longer competitive…including one of our Mexican locations." ACS operates facilities in the Mexican cities of Monterrey and Ciudad Juarez. It's conceivable that ACS could move some positions to its operations center in Bangalore, India, where costs would be lower. The company also maintains offshore facilities in Eastern Europe and China. Even as ACS pares staff, former CEO Jeffrey Rich is due to receive a one-time payout of $4.1 million, according to the SEC filing. Rich will also remain on ACS's payroll at a pro-rated annual salary of $820,000 through June. If Rich starts his own mergers and acquisitions advisory firm, ACS is obligated to hire the firm for at least two years on an annual retainer of $250,000 plus fees. ACS is also looking to sell its Canadian-built Challenger 600 corporate jet. It purchased the aircraft in 2001 from DDH Aviation for $8.5 million, taking delivery in 2003. ACS chairman Darwin Deason is the majority owner of DDH Aviation. ACS says it will take a charge against earnings of $4 million for depreciation expenses related to the aircraft. In February 2005, a corporate jet owned by DDH Aviation barreled off the runway at New Jersey's Teterboro airport and into a warehouse, injuring a total of 20 people. The FAA cited the company operating the plane at the time, Platinum Jet Management, for failing to meet industry safety standards. DDH has filed a lawsuit against Platinum over insurance claims related to the accident.
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