-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JSFYRchfv9q7ka9XcCM+A8m6Dy85rb/scwDuD6jhg1VTCmivwKVKDj9FsnSOaRfb 9+stTLBjmS+Tawby7NKPYg== 0000950134-09-008924.txt : 20090430 0000950134-09-008924.hdr.sgml : 20090430 20090430160537 ACCESSION NUMBER: 0000950134-09-008924 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20090430 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20090430 DATE AS OF CHANGE: 20090430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFFILIATED COMPUTER SERVICES INC CENTRAL INDEX KEY: 0000002135 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 510310342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12665 FILM NUMBER: 09783787 BUSINESS ADDRESS: STREET 1: 2828 N HASKELL AVE STREET 2: PO BOX 219002 CITY: DALLAS STATE: TX ZIP: 75204 BUSINESS PHONE: 2148416111 MAIL ADDRESS: STREET 1: 2828 N HASKELL CITY: DALLAS STATE: TX ZIP: 75204 FORMER COMPANY: FORMER CONFORMED NAME: ACS INVESTORS INC DATE OF NAME CHANGE: 19940603 FORMER COMPANY: FORMER CONFORMED NAME: AFFILIATED COMPUTER SYSTEMS INC DATE OF NAME CHANGE: 19721130 8-K 1 d67463e8vk.htm FORM 8-K e8vk
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 30, 2009
Affiliated Computer Services, Inc.
(Exact name of registrant as specified in its charter)
         
Delaware
(State or other jurisdiction
of incorporation)
  1-12665
(Commission File Number)
  51-0310342
(IRS Employer
Identification No.)
2828 North Haskell Avenue
Dallas, Texas 75204

(Address of principal executive offices, including zip code)
(214) 841-6111
(Registrant’s telephone number including area code)
Not Applicable
(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

Item 2.02 Results of Operations and Financial Condition.
On April 30, 2009, Affiliated Computer Services, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter of its 2009 fiscal year ended March 31, 2009. A copy of such press release is attached as Exhibit 99.1 and will be published on the Company’s website at http://www.acs-inc.com. The press release includes certain non-generally accepted accounting principles (“GAAP”) financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in the press release.
On April 30, 2009, the Company will hold a telephone conference and webcast to disclose the Company’s financial results for the third quarter of its 2009 fiscal year ended March 31, 2009. During this conference, the Company will present certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures and supplementary information related to these reconciliations are included in the slides to be presented during the conference. These slides will also be published on the Company’s website at http://www.acs-inc.com immediately prior to the telephone conference and webcast.
Pursuant to the rules and regulations of the Securities and Exchange Commission, the press release attached as Exhibit 99.1 is deemed to be furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934.
Item 9.01 Financial Statements and Exhibits.
Pursuant to the rules and regulations of the Securities and Exchange Commission, Exhibit 99.1 referenced below and the information set forth therein is deemed to be furnished pursuant to Item 2.02 hereof and shall not be deemed to be “filed” under the Securities Exchange Act of 1934.
     (d) Exhibits.
     
EXHIBIT    
NUMBER   DESCRIPTION
 
   
99.1
  Affiliated Computer Services, Inc. Press Release dated April 30, 2009.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
         
  AFFILIATED COMPUTER SERVICES, INC.
 
 
Date: April 30, 2009  By:   /s/ Kevin Kyser    
    Name:   Kevin Kyser   
    Title:   Executive Vice President and
Chief Financial Officer 
 

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EXHIBIT INDEX
     
Exhibit    
Number   Description
 
   
99.1
  Affiliated Computer Services, Inc. Press Release dated April 30, 2009.

4

EX-99.1 2 d67463exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
(ACS LOGO)
FOR IMMEDIATE RELEASE
ACS Announces Third Quarter Fiscal Year 2009 Results
Company Reports Record New Business Signings of $342 Million and
Record Adjusted Earnings Per Share of $1.00
DALLAS, Texas: April 30, 2009 — Affiliated Computer Services, Inc. (NYSE: ACS)
Key highlights from the third quarter of fiscal year 2009:
    Record new business signings of $342 million of annual recurring revenue
 
    Record adjusted diluted earnings per share of $1.00
 
    Total revenue growth of 5%, excluding divestitures
 
    Internal revenue growth of 3%
 
    Adjusted operating margin of 11.3%
 
    Free cash flow of $46 million, or 3% of revenues
 
    Cash balance of $497 million at March 31, 2009
ACS today announced third quarter fiscal year 2009 revenues of $1.61 billion, a 5% increase, excluding divestitures, compared to the prior year quarter. Internal revenue growth was 3%. Third quarter fiscal year 2009 adjusted non-GAAP diluted earnings per share was $1.00, including costs of $0.02 per diluted share related to Project Compete, the Company’s global production initiative. Adjusted non-GAAP diluted earnings per share for the comparable prior year period was $0.91. See “Reconciliation of Reported GAAP Results to Adjusted Non-GAAP Results” below.
Third quarter new business signings totaled $342 million of annual recurring revenue with an estimated total contract value of $1.6 billion, both of which are records for the Company. Trailing twelve month new business signings were a record at $957 million of annual recurring revenue, a 29% increase over the prior comparable period. Trailing twelve month total contract value of new business signings was a record at $4.0 billion, a 32% increase over the prior comparable period.
Total contract value of all signings, including new business signings, renewals and non-recurring revenue, was $2.7 billion for the third quarter of fiscal year 2009. Trailing twelve month total contract value of all signings was $8.8 billion.
Operating cash flow for the third quarter of fiscal year 2009 was $142 million, or 9% of revenues. Capital expenditures and additions to intangible assets increased to $96 million, or 6% of revenues. Free cash flow was $46 million, or 3% of revenues. The Company’s cash balance was $497 million at March 31, 2009.

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Fiscal year-to-date revenues were $4.83 billion, a 7% increase, excluding divestitures, over the prior comparable period. Internal revenue growth for the fiscal year-to-date period was 4%. Fiscal year-to-date adjusted non-GAAP diluted earnings per share was $2.74, including Project Compete costs of $0.13 per diluted share. Adjusted non-GAAP diluted earnings per share for the comparable prior year-to-date period was $2.58. See “Reconciliation of Reported GAAP Results to Adjusted Non-GAAP Results” below.
“Our business demonstrated remarkable performance in the current economic climate,” said Lynn Blodgett, ACS president and chief executive officer. “We signed a record level of new business, we grew revenues and profit, and we generated the highest level of adjusted earnings per share in our history. These results can be attributed to our diverse client base, hard working employees and resilient business model which continues to perform at a very high level.”
Additional highlights from the third quarter of fiscal year 2009:
    Commercial signings represented 71% of new business signings and Government contributed 29%. From a service line perspective, business process outsourcing contributed 95% of new business signings and 5% were information technology outsourcing.
 
    The Commercial segment contributed 60% of revenues and grew 6%, with 3% internal growth. The Government segment contributed 40% of revenues and grew 3%, with 1% internal growth.
 
    Adjusted non-GAAP operating income was $181 million with an adjusted operating margin of 11.3%. See “Reconciliation of Reported GAAP Results to Adjusted Non-GAAP Results” below. The Company’s reported GAAP and adjusted non-GAAP operating income and adjusted operating margin were impacted by Project Compete costs of approximately $4 million, or 20 basis points.
 
    To expand its global capabilities, in March 2009, the Company acquired e-Services Group, a Jamaican-based provider of business process outsourcing and customer care for approximately $85 million. e-Services generated trailing twelve month revenue of approximately $65 million.
Additional highlights from the fiscal year-to-date period of 2009:
    New business signings for the fiscal year-to-date period were $747 million of annual recurring revenue, a 26% increase over the prior comparable period. Commercial signings represented 59% of new business signings and Government contributed 41%. From a service line perspective, business process outsourcing generated 90% of new business signings and 10% were information technology outsourcing. New business signings for the fiscal year-to-date period were an estimated $3.3 billion of total contract value, a 32% increase over the prior comparable period.
 
    For the fiscal year-to-date period, the Commercial segment accounted for 60% of revenues and grew 7%, of which 4% was internal. The Government segment accounted for 40% of revenues and grew 6%, excluding divestitures, of which 3% was internal.

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    Cash flow from operating activities for the fiscal year-to-date period was $451 million, or 9% of revenues, and free cash flow was $188 million, or 4% of revenues. Capital expenditures and additions to intangible assets were $262 million, or 5% of revenues.
 
    In December 2008, the Company acquired Grupo Multivoice, an Argentina-based provider of customer care, to expand and diversify its Communications and Consumer Goods vertical. Multivoice generated trailing twelve month revenue of approximately $40 million.
ACS will discuss its financial results on a conference call and web cast on www.acs-inc.com at 3:30 p.m. central time today. During the conference call, management will refer to a presentation provided on the Investor Relations section of ACS’ website and will use certain non-generally accepted accounting principle (“GAAP”) financial measures for which reconciliations to the most directly comparable GAAP financial measures will also be provided.
ACS, a FORTUNE 500 company with approximately 74,000 employees supporting client operations in more than 100 countries, provides business process outsourcing and information technology solutions to world-class commercial and government clients. The Company’s Class A common stock trades on the New York Stock Exchange under the symbol “ACS”. Visit ACS on the Internet at www.acs-inc.com.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Actual performance may differ materially from those statements due to risks, uncertainties and other factors, including our issued debt, uncommitted debt capacity, and debt service costs, including any reductions in our credit rating; the reversal on appeal of the determination we did not default on our Senior Notes; the impact of the legal and regulatory environment, including the effect of claims and litigations; a decline of revenues from, or the loss or failure of, significant clients; the recoverability of capital investments in connection with our contracts; fluctuations in our non-recurring revenue; competitive conditions and their impact; customer satisfaction with our services; our dependency on third party providers; our success in identifying, acquiring and integrating businesses and technologies and in managing our operations and growth; the impact of contract provisions, such as termination rights, pricing provisions and service level penalties; our success in timely signing and commencing new business; risks in our international and domestic operations, including foreign currency exchange rates; and other factors, including those set forth under “Risk Factors” in our filings with the Securities and Exchange Commission. In addition, we operate in a highly competitive and rapidly changing environment, and new risks may arise. Accordingly, investors should not place any reliance on forward-looking statements as a prediction of actual results. We disclaim any intention to, and undertake no obligation to, update or revise any forward-looking statement.

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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
In thousands, except per share amounts
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2009     2008  
 
               
Revenues
  $ 1,610,429     $ 1,542,370  
 
           
 
               
Operating expenses:
               
Cost of revenues:
               
Wages and benefits
    733,178       736,646  
Services and supplies
    386,990       338,320  
Rent, lease and maintenance
    193,192       184,622  
Depreciation and amortization
    95,334       96,413  
Other
    8,025       7,274  
 
           
Total cost of revenues
    1,416,719       1,363,275  
 
               
Other operating expenses
    19,389       15,184  
 
           
Total operating expenses
    1,436,108       1,378,459  
 
           
Operating income
    174,321       163,911  
 
               
Interest expense
    30,738       39,325  
Other non-operating income, net
    (1,122 )     (4,514 )
 
           
Pretax profit
    144,705       129,100  
 
               
Income tax expense
    51,461       46,462  
 
           
 
               
Net income
  $ 93,244       82,638  
 
           
 
               
Earnings per share:
               
 
               
Basic
  $ 0.96     $ 0.86  
 
           
 
               
Diluted
  $ 0.95     $ 0.85  
 
           
 
               
Shares used in computing earnings per share:
               
 
               
Basic
    97,572       96,089  
 
               
Diluted
    98,042       96,921  
Note: See “Summary Reconciliation of Reported GAAP Results to Adjusted Non-GAAP Results” for certain items impacting the reported numbers above.

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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
In thousands, except per share amounts
(Unaudited)
                 
    Nine Months Ended  
    March 31,  
    2009     2008  
 
               
Revenues
  $ 4,826,953     $ 4,546,895  
 
           
 
               
Operating expenses:
               
Cost of revenues:
               
Wages and benefits
    2,199,142       2,153,642  
Services and supplies
    1,163,860       1,006,543  
Rent, lease and maintenance
    591,826       554,743  
Depreciation and amortization
    288,556       281,595  
Other
    28,059       21,171  
 
           
Total cost of revenues
    4,271,443       4,017,694  
Other operating expenses
    39,902       61,995  
 
           
Total operating expenses
    4,311,345       4,079,689  
 
           
Operating income
    515,608       467,206  
 
               
Interest expense
    101,842       126,344  
Other non-operating expenses (income), net
    5,778       (10,703 )
 
           
Pretax profit
    407,988       351,565  
 
               
Income tax expense
    155,592       121,187  
 
           
 
               
Net income
  $ 252,396     $ 230,378  
 
           
 
               
Earnings per share:
               
 
               
Basic
  $ 2.59     $ 2.34  
 
           
 
               
Diluted
  $ 2.58     $ 2.32  
 
           
 
               
Shares used in computing earnings per share:
               
 
               
Basic
    97,475       98,447  
 
               
Diluted
    97,979       99,414  
Note: See “Summary Reconciliation of Reported GAAP Results to Adjusted Non-GAAP Results” for certain items impacting the reported numbers above.

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AFFILIATED COMPUTER SERVICES, INC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
In thousands
(Unaudited)
                 
    March 31,     June 30,  
    2009     2008  
 
               
Assets
               
Cash and cash equivalents
  $ 496,718     $ 461,883  
Accounts receivable, net
    1,472,530       1,378,285  
Income taxes receivable
          7,076  
Other current assets
    257,228       255,872  
 
           
Total current assets
    2,226,476       2,103,116  
 
               
Property, equipment, and software, net
    930,351       920,637  
Goodwill
    2,803,832       2,785,164  
Other intangible assets, net
    421,115       444,479  
Other assets
    179,673       216,003  
 
           
 
               
Total Assets
  $ 6,561,447     $ 6,469,399  
 
           
 
               
Liabilities:
               
Accounts payable
  $ 193,240     $ 198,191  
Accrued compensation and benefits
    176,239       244,888  
Other accrued liabilities
    407,438       338,861  
Income taxes payable
    8,358        
Deferred taxes
    71,581       82,017  
Current portion of long-term debt
    45,738       47,373  
Current portion of unearned revenue
    174,984       173,809  
 
           
Total current liabilities
    1,077,578       1,085,139  
 
               
Long-term debt
    2,294,012       2,357,541  
Deferred taxes
    448,543       411,836  
Other long-term liabilities
    283,931       306,509  
 
           
Total Liabilities
    4,104,064       4,161,025  
 
           
Total Stockholders’ Equity
    2,457,383       2,308,374  
 
           
 
               
Total Liabilities and Stockholders’ Equity
  $ 6,561,447     $ 6,469,399  
 
           

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Frequently Used Terms
New business signings - while there are no third party standards or requirements governing the calculation of new business signings, we define new business signings as annual recurring revenue from new contracts and the incremental portion of renewals that are signed during the period, which represents the estimated first twelve months of revenue to be recorded under the contracts after full implementation. We use new business signings as a measure of estimated recurring revenues represented by contractual commitments, both to forecast prospective revenues and to estimate capital commitments. Revenues are measured under GAAP.
Trailing twelve month new business — is the preceding twelve months of new business signings at a point in time expressed in annual revenue, not total contract value.
Total contract value — represents estimated total revenue over the term of the contract.
Use of Non-GAAP Financial Information
The Company reports its financial results in accordance with GAAP. However, the Company uses certain non-GAAP performance measures, including adjusted non-GAAP earnings per share, free cash flow and internal revenue growth to provide both management and investors a more complete understanding of the Company’s underlying operational trends and results.
Management uses these non-GAAP measures to provide additional meaningful comparisons between current results and prior results, and as a basis for planning and forecasting for future periods.
Reconciliation of Reported GAAP Results to Adjusted Non-GAAP Results — In addition to reporting operating income, pretax income, net income and earnings per share on a GAAP basis, the Company has also made certain non-GAAP adjustments which are described in “Description of Non-GAAP Adjustments” and are reconciled to the corresponding GAAP measures in the financial schedules included in this earnings release. In making these non-GAAP adjustments, the Company takes into account the impact of items that are infrequently occurring or that are non-operational in nature. Management believes that the exclusion of these items provides a useful basis for evaluating underlying business performance, but should not be considered in isolation and is not in accordance with, or a substitute for, evaluating business unit performance utilizing GAAP financial information. Management uses non-GAAP measures in its budgeting and forecasting processes and to further analyze its financial trends, as well as making financial comparisons to prior periods presented on a similar basis. The Company’s management uses each of these non-GAAP financial measures in its own evaluation of the Company’s performance, particularly when comparing performance to prior periods, and the Company believes that providing such adjusted results allows investors and other users of the Company’s financial statements to better understand the Company’s comparative operating performance for the periods presented.
The Company’s non-GAAP measures may differ from similar measures by other companies, even if similar terms are used to identify such measures. Although the Company’s management believes non-GAAP measures are useful in evaluating the performance of its business, the Company acknowledges that items excluded from such measures may have a material impact on the Company’s income from operations, pretax income, net income and earnings per share

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calculated in accordance with GAAP. Therefore, management uses non-GAAP measures in conjunction with GAAP results. Investors and users of our financial information should also consider the above factors when evaluating the Company’s results.
Description of Non-GAAP Adjustments:
The following items are included in our presentation of Non-GAAP adjustments:
  1.   Costs related to our internal investigation of our stock option grant practices, investigations begun by the Securities and Exchange Commission and Department of Justice, and shareholder derivative suits, net of insurance reimbursements: The Company has incurred costs related to our internal investigation, as well as those of the SEC and DOJ. In addition, several derivative lawsuits have been filed in connection with our stock option grant practices, generally alleging claims related to breach of fiduciary duty and unjust enrichment by certain of our directors and senior executives and the Company has incurred costs related to these lawsuits. Management expects that the Company will continue to incur costs related to the ongoing investigations and derivative lawsuits (collectively, “Option Investigation Related Costs”) and has made and will continue to make claims under its directors’ and officers’ insurance policies for reimbursement of these costs, although the Company cannot predict the timing or amount, if any, of any insurance reimbursements. Management believes that these costs and related insurance reimbursements, if any, although material and recurring, are not related to the Company’s ongoing operations and that excluding them helps to provide a more meaningful representation of the Company’s operating performance.
 
  2.   Costs related to buyout offers and related shareholder derivative suits: The Company has incurred costs to evaluate our strategic alternatives, including the proposal from Darwin Deason, Chairman of the Board of Directors (“Chairman”), and Cerberus. In addition, several lawsuits have been filed in connection with the announced buyout transaction, generally alleging claims related to breach of fiduciary duty, and seeking class action status (collectively, “Buyout Related Costs”). Management expects that the Company may continue to incur costs related to our evaluation of strategic alternatives and these lawsuits. Management believes that these costs, although material and possibly recurring, are not related to the Company’s ongoing operations and that excluding them helps to provide a more meaningful representation of the Company’s operating performance.
 
  3.   Cost related to amending certain employee stock options: During the first quarter of fiscal year 2008, the Company amended the exercise price of certain outstanding stock options in order to reprice all, or a portion, of the respective stock option grants to the revised accounting measurement date to avoid adverse tax consequences to individual holders under Section 409(a) of the Internal Revenue Code (“Section 409(a)”). During the first quarter of fiscal year 2008, the Company expensed approximately $1.2 million related to these amended stock options (“Amended Options”). Management believes that these costs and cash payments are not related to the Company’s ongoing operations and that excluding them helps to provide a more meaningful representation of our operating performance.

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  4.   Cost related to certain former employees’ stock options: The exercise price of certain former employees’ vested, unexercised and outstanding stock options were less than the fair market value per share of ACS stock on the revised measurement dates for such stock options. During the first quarter of fiscal year 2008, the Company notified certain former employees that the Company will pay them the additional 20% income tax imposed by Section 409(a) if a triggering event occurs and if the employee is required to recognize and report W-2 income under Section 409(a), subject to certain limitations. During the three and nine month periods ended March 31, 2009, the Company recorded a charge (credit) of approximately $0.2 million and ($0.6) million, respectively, based on the market price of ACS common stock. During the three and nine month periods ended March 31, 2008, the Company recorded a charge of approximately $0.5 million and $1.0 million, respectively, based on the market price of ACS common stock. The Company will adjust this accrual to the fair market value of ACS stock each quarter until the options are exercised (“Income Tax Reimbursements”). Management believes that these costs are not related to the Company’s ongoing operations and that excluding them helps to provide a more meaningful representation of our operating performance.
 
  5.   Gain related to sale of our decision support business: In the second quarter of fiscal year 2008, the Company divested its decision support business and recognized a pre-tax gain of $2.4 million and an after tax gain of $1.6 million. Management believes that the decision support business is not strategic to our ongoing operations and its sale is an isolated event. Management believes excluding the gain on its sale better reflects the performance of our continuing operations.
 
  6.   Gain related to sale of our bindery business: In the first quarter of fiscal year 2009, the Company divested its bindery business and recognized a pre-tax gain of $0.2 million and an after-tax loss of $0.8 million. Management believes that the bindery business is not strategic to our ongoing operations and its sale is an isolated event. Management believes excluding the gain on its sale better reflects the performance of our continuing operations.
 
  7.   Litigation settlement: In fiscal year 2007, we recorded charges for a pre-acquisition claim related to our fiscal year 2005 acquisition of the human resources consulting business of Mellon Financial Corporation. In the third quarter of fiscal year 2008, we recovered approximately $1.8 million of this settlement. We believe that the settlement and subsequent recovery of this pre-acquisition claim is not related to our ongoing operations and that excluding them helps to provide a more meaningful representation of the performance from our continuing operations.
 
  8.   Cost related to terminating the Supplemental Executive Retirement Agreement (“SERP Agreement”) between the Company and its Chairman: During the second quarter of fiscal 2009, at the request of the Company, the Chairman agreed to terminate the SERP Agreement and the stock options issued to the Chairman in 2003 in connection with the SERP Agreement due to the complex requirements of Section 409(a) of the Internal Revenue Code. As a result, the Company incurred a charge of $8.9 million, as

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      determined pursuant to Amendment No. 3 to the SERP Agreement, and the Company has no further obligations to the Chairman pursuant to the SERP Agreement (“SERP Termination”). The SERP Termination removes the potential future liability the Company might incur under the SERP Agreement. Management believes that these costs are not related to the Company’s ongoing operations and that excluding them helps to provide a more meaningful representation of our operating performance.

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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
RECONCILIATION OF OPERATING INCOME (GAAP)
TO ADJUSTED OPERATING INCOME (Non-GAAP)
(UNAUDITED)
(In millions)
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2009     2008     2009     2008  
Operating Income (GAAP)
  $ 174.3     $ 163.9     $ 515.6     $ 467.2  
Adjusting items, pre-tax:
                               
Option investigation related costs, net of recoveries
    7.3       9.8       7.0       34.0  
Buyout related costs
    (0.4 )     0.2       0.8       8.9  
Amended options (409(a))
                      1.2  
Income tax reimbursement, net of recoveries
    0.2       0.5       (0.6 )     1.0  
Sale of decision support business
                      (2.4 )
Sale of bindery business
                (0.2 )      
Legal settlement
          (1.8 )           (1.8 )
SERP termination
                8.9        
 
                       
Adjusted Operating Income (Non-GAAP)*
  $ 181.4     $ 172.7     $ 531.6     $ 508.2  
 
                       
RECONCILIATION OF NET INCOME (GAAP)
TO ADJUSTED NET INCOME (Non-GAAP)
(UNAUDITED)
(In millions)
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2009     2008     2009     2008  
Net Income (GAAP)
  $ 93.2     $ 82.6     $ 252.4     $ 230.4  
Adjusting items, net of tax:
                               
Option investigation related costs, net of recoveries
    4.7       6.3       4.6       21.9  
Buyout related costs
    (0.3 )     0.1       0.5       5.8  
Amended options (409(a))
                      0.8  
Income tax reimbursement, net of recoveries
    0.1       0.3       (0.4 )     0.7  
Sale of decision support business
                      (1.6 )
Sale of bindery business
                0.8        
Legal settlement
          (1.1 )           (1.1 )
SERP termination
                10.4        
 
                       
Adjusted Net Income (Non-GAAP)*
  $ 97.8     $ 88.3     $ 268.3     $ 256.8  
 
                       
RECONCILIATION OF DILUTED EARNINGS PER SHARE (GAAP)
TO ADJUSTED DILUTED EARNINGS PER SHARE (Non-GAAP)
(UNAUDITED)
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2009     2008     2009     2008  
Diluted Earnings Per Share (GAAP)
  $ 0.95     $ 0.85     $ 2.58     $ 2.32  
Adjusting items, net of tax:
                               
Option investigation related costs, net of recoveries
    0.05       0.06       0.05       0.22  
Buyout related costs
                0.01       0.06  
Amended options (409(a))
                      0.01  
Income tax reimbursement, net of recoveries
                      0.01  
Sale of decision support business
                      (0.02 )
Sale of bindery business
                0.01        
Legal Settlement
          (0.01 )           (0.01 )
SERP termination
                0.11        
 
                       
Adjusted Diluted Earnings Per Share (Non-GAAP)*
  $ 1.00     $ 0.91     $ 2.74     $ 2.58  
 
                       
 
*   Differences in schedule due to rounding.

-11-


 

Internal revenue growth — is measured as total revenue growth less acquired revenue from acquisitions and revenues from divested operations. Acquired revenue from acquisitions is based on pre-acquisition normalized revenue of acquired companies. We use the calculation of internal revenue growth to measure revenue growth excluding the impact of acquired revenues and the revenue associated with divested operations and we believe these adjustments to historical reported results are necessary to accurately reflect our internal revenue growth.
For the three months ended March 31, 2009, the Company generated internal revenue growth of 3%. Internal revenue growth is measured as follows (unaudited, in millions):
                       
    Three Months Ended March 31,
    2009     2008     Growth%(a)
 
                     
Consolidated
                     
Total Revenues
  $ 1,610     $ 1,542       4%
Less: Divested
          (6 )      
 
               
Adjusted Base
  $ 1,610     $ 1,536       5%
 
               
 
                     
Acquired Revenues*
  $ 41     $ 4       2%
Internal Revenues
    1,569       1,532       3%
 
               
Total
  $ 1,610     $ 1,536       5%
 
               
 
                     
Commercial
                     
Total Revenues
  $ 974     $ 922       6%
Less: Divested
          (2 )      
 
               
Adjusted Base
  $ 974     $ 920       6%
 
               
 
                     
Acquired Revenues*
  $ 27     $ 4       3%
Internal Revenues
    947       916       3%
 
               
Total
  $ 974     $ 920       6%
 
               
 
                     
Government
                     
Total Revenues
  $ 636     $ 620       3%
Less: Divested
          (4 )      
 
               
Adjusted Base
  $ 636     $ 616       3%
 
               
 
                     
Acquired Revenues*
  $ 14     $       2%
Internal Revenues
    622       616       1%
 
               
Total
  $ 636     $ 616       3%
 
               
 
*   Acquired revenues are based on pre-acquisition normalized revenues of acquired companies.
 
(a)   Differences in schedule due to rounding.

-12-


 

For the nine-months ended March 31, 2009, the Company generated internal revenue growth of 4%. Internal revenue growth is measured as follows (unaudited, in millions):
                         
    Nine Months Ended March 31,  
    2009     2008     Growth%(a)  
 
                       
Consolidated
                       
Total Revenues
  $ 4,827     $ 4,547       6%
Less: Divested
          (24 )        
 
                 
Adjusted Base
  $ 4,827     $ 4,523       7%
 
                 
 
                       
Acquired Revenues*
  $ 140     $ 4       3%
Internal Revenues
    4,687       4,519       4%
 
                 
Total
  $ 4,827     $ 4,523       7%
 
                 
 
                       
Commercial
                       
Total Revenues
  $ 2,897     $ 2,704       7%
Less: Divested
        $ (9 )        
 
                 
Adjusted Base
  $ 2,897     $ 2,695       7%
 
                 
 
                       
Acquired Revenues*
  $ 97     $ 4       3%
Internal Revenues
    2,800       2,691       4%
 
                 
Total
  $ 2,897     $ 2,695       7%
 
                 
Government
                       
Total Revenues
  $ 1,930     $ 1,843       5%
Less: Divested
          (15 )        
 
                 
Adjusted Base
  $ 1,930     $ 1,828       6%
 
                 
 
                       
Acquired Revenues*
  $ 43     $     3%
Internal Revenues
    1,887       1,828       3%
 
                 
Total
  $ 1,930     $ 1,828       6%
 
                 
 
*   Acquired revenues are based on pre-acquisition normalized revenues of acquired companies.
 
(a)   Differences in schedule due to rounding.

-13-


 

Free Cash Flow
Free cash flow — is measured as operating cash flow (net cash provided by operating activities, as reported in our consolidated statements of cash flows) less capital expenditures (purchases of property, equipment and software, net of sales, as reported in our consolidated statements of cash flows) less additions to other intangible assets (as reported in our consolidated statements of cash flows). We believe this free cash flow metric provides an additional measure of available cash flow after we have satisfied the capital expenditure requirements of our operations, and should not be taken in isolation to be a measure of cash flow available for us to satisfy all our obligations and execute our business strategies. We also rely on cash flows from investing and financing activities which, together with free cash flow, are expected to be sufficient for us to execute our business strategies. Our measure of free cash flow may not be comparable to similarly titled measures of other companies. (Unaudited, in millions)
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2009     2008     2009     2008  
Free Cash Flow
                               
Net cash provided by operating activities
  $ 142     $ 229     $ 451     $ 560  
Less:
                               
Purchase of property, equipment and software, net of sales
    (84 )     (60 )     (232 )     (193 )
Additions to other intangible assets
    (12 )     (8 )     (30 )     (26 )
 
                       
Free Cash Flow*
  $ 46     $ 161     $ 188     $ 342  
 
                       
 
*   Differences in schedule due to rounding.
Contacts
Investors
Jon Puckett, Vice President Investor Relations
214-841-8281
jon.puckett@acs-inc.com
Media
Kevin Lightfoot, Vice President Corporate Communications
214-841-8191
kevin.lightfoot@acs-inc.com
—end—

-14-

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