<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from to
---------- ----------
Commission file number 0-24787
-------
AFFILIATED COMPUTER SERVICES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0310342
- -------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2828 North Haskell, Dallas, Texas 75204
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 841-6111
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Number of Shares Outstanding as of
Title of each class May 9, 1997
- ------------------------------------- ----------------------------------
<S> <C>
Class A Common Stock, $.01 par value 29,491,497
Class B Common Stock, $.01 par value 6,405,686
----------
35,897,183
</TABLE>
<PAGE> 2
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1997 and
June 30, 1996 1
Consolidated Statements of Income for the Three
Months and the Nine Months Ended
March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10-11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE> 3
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,699 $ 25,627
ATM cash 4,350 9,100
Accounts receivable, net of allowance for doubtful
accounts of $1,627 and $1,456, respectively 114,028 99,270
Inventory 13,081 10,938
Prepaid expenses and other current assets 15,908 16,099
Deferred taxes 6,030 7,790
------------ ------------
Total current assets 170,096 168,824
Property and equipment, net of accumulated depreciation and
amortization of $43,709 and $31,331, respectively 97,561 84,911
Purchased computer software, net of accumulated
amortization of $8,461 and $15,691, respectively 3,596 4,946
Goodwill, net of accumulated amortization of $10,826 and
$8,609, respectively 273,360 245,693
Other intangible assets, net of accumulated amortization
of $6,714 and $4,478, respectively 14,585 12,040
Long-term investments and other assets 11,494 11,495
Deferred taxes -- 5,696
------------ ------------
Total assets $ 570,692 $ 533,605
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 14,824 $ 15,976
Accrued compensation and benefits 17,110 19,815
Other accrued liabilities 75,821 58,466
Income taxes payable 21 3,340
Notes payable and current portion of long-term debt 8,542 11,609
Current portion of unearned revenue 10,654 9,657
------------ ------------
Total current liabilities 126,972 118,863
Long-term debt 77,513 57,208
Unearned revenue 865 2,053
Deferred taxes 3,007 --
Other long-term liabilities 24,601 51,427
------------ ------------
Total liabilities 232,958 229,551
------------ ------------
Cumulative redeemable preferred stock -- 1,100
------------ ------------
STOCKHOLDERS' EQUITY
Class A common stock 295 145
Class B common stock 64 32
Additional paid-in capital 258,847 251,944
Retained earnings 78,528 50,833
------------ ------------
Total stockholders' equity 337,734 302,954
------------ ------------
Total liabilities and stockholders' equity $ 570,692 $ 533,605
============ ============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 156,389 $ 99,062 $ 450,726 $ 279,708
---------- ---------- ---------- ----------
Expenses:
Wages and benefits 59,866 42,045 173,053 110,772
Services and supplies 36,397 24,677 102,443 71,313
Rent, lease and maintenance 31,717 17,893 95,050 55,262
Depreciation and amortization 9,190 3,434 22,914 10,745
Other operating expenses 699 1,065 6,133 3,343
---------- ---------- ---------- ----------
Total operating expenses 137,869 89,114 399,593 251,435
---------- ---------- ---------- ----------
Operating income 18,520 9,948 51,133 28,273
Interest and other expenses, net 1,579 370 4,379 614
---------- ---------- ---------- ----------
Income before income taxes 16,941 9,578 46,754 27,659
Income tax expense 6,903 3,843 19,053 11,191
---------- ---------- ---------- ----------
Net income $ 10,038 $ 5,735 $ 27,701 $ 16,468
========== ========== ========== ==========
Earnings per common share $ .28 $ .21 $ .76 $ .59
========== ========== ========== ==========
Weighted average shares outstanding 36,371 28,000 36,479 27,698
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 27,701 $ 16,468
------------ ------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 22,914 10,745
Changes in assets and liabilities, net of effects
from acquisitions:
(Increase) decrease in ATM cash 4,750 (700)
Increase in accounts receivable (3,082) (7,158)
(Increase) decrease in inventory 1,054 (4,783)
(Increase) decrease in prepaid expenses and
other current assets 195 (2,371)
Decrease in deferred taxes 12,095 1,794
(Increase) decrease in other assets (1,454) 85
Increase (decrease) in accounts payable (5,167) 6,357
Decrease in accrued compensation and benefits (3,502) (429)
Decrease in other accrued liabilities (1,779) (2,797)
Increase (decrease) in income taxes payable (3,728) 1,958
Decrease in other long-term liabilities (6,042) (3,957)
Decrease in unearned revenue (687) (4,198)
------------ ------------
Total adjustments 15,567 (5,454)
------------ ------------
Net cash provided by operating activities 43,268 11,014
------------ ------------
Cash flows from investing activities:
Purchases of property, equipment and computer software (27,535) (36,283)
Payments for acquisitions, net of cash acquired (42,811) (22,350)
Proceeds from note receivable 4,611 --
Additions to other intangible assets and goodwill (3,762) (2,590)
Cash received from divestitures 2,704 --
Other -- (855)
------------ ------------
Net cash used in investing activities (66,793) (62,078)
------------ ------------
Cash flows from financing activities:
Net proceeds from stock offering -- 68,333
Proceeds from issuance of long-term debt 36,176 51,100
Repayments of long-term debt (17,000) (77,711)
Net borrowings (repayments) of ATM debt (4,750) 700
Proceeds from stock options exercised and related tax
benefits 1,221 3,144
Redemption of preferred stock (607) (440)
Other, net (443) (137)
------------ ------------
Net cash provided by financing activities 14,597 44,989
------------ ------------
Net decrease in cash and cash equivalents (8,928) (6,075)
Cash and cash equivalents at beginning of period 25,627 41,476
------------ ------------
Cash and cash equivalents at end of period $ 16,699 $ 35,401
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Affiliated Computer Services, Inc. and its majority-owned subsidiaries
(the "Company" or "ACS"). All material intercompany profits,
transactions and balances have been eliminated. ACS is a nationwide
provider of information technology services and electronic funds
transfer ("EFT") transaction processing. The Company's information
technology services include business process outsourcing, data
processing outsourcing, image management solutions and information
systems programming services. The Company provides its services to
customers with time-critical, transaction-intensive information
processing needs.
The financial information presented should be read in conjunction with
the Company's annual consolidated financial statements for the year
ended June 30, 1996. The foregoing unaudited consolidated financial
statements reflect all adjustments (all of which are of a normal
recurring nature) which are, in the opinion of management, necessary
for a fair presentation of the results of the interim periods. The
results for interim periods are not necessarily indicative of results
to be expected for the year.
2. ACQUISITIONS AND DIVESTITURES
During the first nine months of fiscal 1997, the Company closed six
acquisitions which were accounted for as purchases. Assets acquired,
liabilities assumed and net purchase price of these acquisitions were
$55.0 million, $9.6 million and $45.4 million, respectively. The
Company financed a portion of the aggregate purchase price for these
acquisitions through the issuance of 408,567 shares of unregistered
Class A common stock.
During the first quarter of fiscal 1997, the Company sold its
community bank processing businesses within Texas and Louisiana which
were a part of the Company's outsourcing business services. The
Company fully reserved for the disposition of these businesses, which
had historical annual revenues of $18.0 million, with a $3.8 million
pre-tax charge to earnings in the fourth quarter of fiscal 1996. The
divestitures netted the Company $2.7 million of cash in the first nine
months of fiscal 1997.
3. STOCK DIVIDEND
On October 28, 1996, the Company's Board of Directors declared a
two-for-one stock split in the form of a 100 percent stock dividend on
the common stock for shareholders of record on November 11, 1996. A
total of 17,741,949 shares of common stock were issued on November 22,
1996 in connection with the split. The stated par value of each share
was not changed from $.01. A total of $177,000 was reclassified from
the Company's additional paid-in capital account to the Company's
common stock accounts. All share and per share amounts have been
restated to reflect the stock split.
4. REVERSAL OF LITIGATION JUDGMENT
In February 1997 the Texas Supreme Court, in a unanimous decision,
overturned a lower court's judgment against the Company for which the
Company had previously accrued approximately $6 million. A motion for
reconsideration was filed by the plaintiffs; however, due to the
strength of the unanimous decision and based upon its legal counsel's
review thereof, the Company does not believe that the court's opinion
will change. During the third quarter of fiscal 1997, the Company
reversed this accrual to Other Operating Expenses.
4
<PAGE> 7
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. NON-RECURRING CHARGE
During the third quarter of fiscal 1997, the Company recorded a
one-time charge of $6 million ($4.6 million in Other Operating
Expenses and $1.4 million in Depreciation and Amortization) relating
to the consolidation of two of its mainframe data centers and the
upgrading of certain computer hardware and software to newer
technology. The related assets were written down to their estimated
fair values in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Such writedowns were
required when the carrying value of assets currently held for use
exceeded their expected future undiscounted cash flows, including
expected cash flows resulting from eventual disposition.
6. BALANCE SHEET RECLASSIFICATIONS
In June 1996, the Company purchased 100% of the stock of The Genix
Group, Inc. ("Genix"). At the time of the acquisition, the Company
recorded a $30 million liability related to software license issues
with a software vendor. Of the $30 million liability, $5 million was
classified as short-term and the remaining $25 million was classified
as long-term. During the third quarter of fiscal 1997, the Company
agreed to a one-time cash settlement with the vendor resulting in the
$30 million obligation being reduced to $23 million. This liability
was reclassified as short-term at March 31, 1997 and was paid in
April. The Company has also assessed and adjusted other assets and
liabilities recorded in connection with the Genix acquisition,
resulting in an immaterial adjustment to net assets. As such, these
adjustments had no significant impact on third quarter fiscal 1997
earnings.
5
<PAGE> 8
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this MD&A
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will be realized.
In February 1997, the Financial Accounting Standards Board adopted the
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". The
Statement is effective for financial statements issued for periods ending after
December 15, 1997 and specifies new standards for the computation and
presentation of earnings per share. The Company's adoption of this standard
will result in the dual presentation of "basic" and "diluted" earnings per
share on the face of the Company's income statement. Diluted earnings per share
calculated using the new standard is not expected to materially differ from
primary earnings per share previously presented.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of income as a percentage of revenues:
<TABLE>
<CAPTION>
Percentage of Revenues Percentage of Revenues
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Wages and benefits 38.3 42.4 38.4 39.6
Services and supplies 23.3 24.9 22.7 25.5
Rent, lease and maintenance 20.3 18.1 21.1 19.8
Depreciation and amortization 5.9 3.5 5.1 3.8
Other operating expenses 0.4 1.1 1.4 1.2
-------- -------- -------- --------
Total operating expenses 88.2 90.0 88.7 89.9
-------- -------- -------- --------
Operating income 11.8 10.0 11.3 10.1
Interest and other expenses, net 1.0 0.4 0.9 0.2
-------- -------- -------- --------
Income before income taxes 10.8 9.6 10.4 9.9
Income tax expense 4.4 3.9 4.2 4.0
-------- -------- -------- --------
Net income 6.4% 5.7% 6.2% 5.9%
======== ======== ======== ========
</TABLE>
COMPARISON OF THE QUARTER ENDED MARCH 31, 1997 TO THE QUARTER ENDED
MARCH 31, 1996
Revenues increased $57.3 million, or 58%, to $156.4 million in the quarter
ended March 31, 1997 (the third quarter of the Company's 1997 fiscal year),
from $99.1 million in the third quarter of fiscal 1996, due to acquisitions,
internally generated sales and growth from existing customers. Of the 58%
increase in revenue, 17% was from internal growth and 41% was from
acquisitions. The Company acquired two businesses during the quarter, which had
historical annual revenues of approximately $43.0 million. Eight business
acquisitions have occurred since the third quarter of fiscal 1996. Revenues
from these acquisitions were approximately $38.4 million for the quarter ended
March 31, 1997.
Total operating expenses were $137.9 million in the third quarter of fiscal
1997, an increase of 54.8% from $89.1 million in the third quarter of fiscal
1996; however, operating expenses as a percentage of revenues decreased from
90.0% in the third quarter of fiscal 1996 to 88.2% in the third quarter of
fiscal 1997.
6
<PAGE> 9
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Wages and benefits decreased from 42.4% of revenues in the third quarter of
fiscal 1996 to 38.3% of revenues in the third quarter of fiscal 1997.
Additionally, services and supplies decreased to 23.3% of revenues in the third
quarter of fiscal 1997, compared to 24.9% of revenues in the third quarter of
fiscal 1996. The decreases as a percentage of revenues are primarily due to the
acquisition of Genix during June 1996 and economies of scale related to growth
in the Company's outsourcing business line, which offsets the growth in the
Company's more labor intensive professional services businesses.
Depreciation and amortization increased to 5.9% of revenues in the third
quarter of fiscal 1997, compared to 3.5% of revenues in the third quarter of
fiscal 1996. This increase is primarily attributable to a one-time charge
during the third quarter of fiscal 1997 relating to planned data center
consolidations and technology upgrades. The portion of this charge related to
depreciation and amortization was $1.4 million.
Other operating expense decreased to 0.4% of revenues in the third quarter of
fiscal 1997, compared to 1.1% of revenues in the third quarter of fiscal 1996.
The decrease was due to the net effect of the reversal of the litigation
accrual and the one-time charge for data center consolidations and technology
upgrades.
Operating income increased $8.6 million, or 86.9%, to $18.5 million in the
third quarter of fiscal 1997, compared to $9.9 million in the third quarter of
fiscal 1996. The increase was due to the combination of increased internally
generated sales and the eight acquisitions completed since the third quarter of
fiscal 1996. The increase in operating income margin to 11.8% in the third
quarter of fiscal 1997, from 10.0% in the third quarter of fiscal 1996, was due
primarily to the acquisition of Genix and the realization of economies of scale
in the outsourcing business line.
Interest and other expenses increased from $0.4 million in the third quarter of
fiscal 1996 to $1.6 million in the third quarter of fiscal 1997. This increase
can be attributed to an increase in net borrowings on the Company's revolving
credit facility resulting from the acquisitions funded since the third quarter
of fiscal 1996.
The Company's effective tax rate of approximately 41% exceeded the federal
statutory rate of 35%, due primarily to the amortization of certain
acquisition-related costs that are non-deductible for tax purposes, plus the
net effect of state income taxes.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1997 TO THE NINE MONTHS ENDED
MARCH 31, 1996
Revenues increased $171.0 million, or 61%, to $450.7 million in the nine months
ended March 31, 1997, from $279.7 million for the same period in fiscal 1996
due to acquisitions, internally generated sales and growth from existing
customers. The Company acquired six businesses during the nine months ended
March 31, 1997 which had historical annual revenues of approximately $62.0
million and generated $13.9 million of revenues for the nine month period ended
March 31, 1997. Revenues from the eight businesses acquired since March 31,
1996 were $102.6 million for the nine months ended March 31, 1997.
Total operating expenses were $399.6 million for the nine months ended March
31, 1997, an increase of 58.9% from $251.4 million for the same period in
fiscal 1996. Operating expenses as a percentage of revenue decreased slightly
from 89.9% in fiscal 1996 to 88.7% in fiscal 1997.
Wages and benefits decreased slightly as a percentage of revenues due to the
growth in the Company's outsourcing business line. Services and supplies
decreased as a percentage of revenues from 25.5% for the first nine months of
fiscal 1996 to 22.7% for the first nine months of fiscal 1997 due to the
acquisition of Genix, acquisitions of several labor intensive businesses during
the preceding twelve months and economies of scale as mentioned above.
Depreciation and amortization increased to 5.1% of revenues in the first nine
months of fiscal 1997, compared to 3.8% of revenues in fiscal 1996. This
increase is due primarily to capital expenditures for computer hardware and
software and goodwill recorded in connection with the Genix acquisition and a
one-time charge during the third quarter of fiscal 1997 relating to planned
data center consolidations and technology upgrades.
7
<PAGE> 10
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Operating income increased $22.8 million, or 80.6%, to $51.1 million for the
first nine months of fiscal 1997, compared to $28.3 million in fiscal 1996. The
increase was due to the growth in new business generated by the Company and
acquisitions since the third quarter of fiscal 1996. The operating income
margin also increased to 11.3% for the first nine months of fiscal 1997, from
10.1% for the first nine months of fiscal 1996 due to the success of recent
acquisitions and increased realization of economies of scale.
Interest and other expenses increased from $0.6 million in the first nine
months of fiscal 1996 to $4.4 million in fiscal 1997. This increase can be
attributed to an increase in net borrowings on the Company's revolving credit
facility resulting from acquisitions funded since the third quarter of fiscal
1996.
The Company's effective tax rate of approximately 41% exceeded the federal
statutory rate of 35%, due primarily to the amortization of certain
acquisition-related costs that are non-deductible for tax purposes, plus the
net effect of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's liquid assets, consisting of cash and cash
equivalents, totaled $21.0 million compared to $34.7 million at June 30, 1996.
These liquid assets included $4.4 million ($9.1 million at June 30, 1996)
borrowed under a revolving credit facility ("ATM Cash Facility") for use in the
Company's automated teller machines ("ATMs"). Working capital was $43.1 million
and $50.0 million at March 31, 1997 and June 30, 1996, respectively, and
decreased due to the reclassification of a liability to a software vendor. This
issue was resolved in March 1997, at which time the liability was reclassified
from long-term to short-term liabilities.
Net cash provided by operating activities was $43.3 million for the first nine
months of fiscal 1997, compared with $11.0 million provided by operating
activities during the first nine months of fiscal 1996. The improvement is
primarily due to increased earnings, reduction in ATM cash and a decrease in
deferred tax assets. The deferred tax asset reduction relates primarily to the
Genix acquisition for which tax amortization and depreciation deductions exceed
book expense. Net cash used in investing activities increased by $4.7 million
over the prior year nine month period, primarily due to an increase in
acquisitions, offset by a reduction in capital expenditures. The current period
included $42.8 million paid for acquisitions and $27.5 million paid for capital
expenditures. Net cash flow from financing activities decreased $30.4 million,
primarily due to a secondary offering of 1.8 million shares of Class A common
stock which netted the Company $68.3 million in the third quarter of fiscal
1996. This was offset by an increase in borrowings during the first nine months
of fiscal 1997 for the acquisitions mentioned previously.
The Company has an available line of credit of $125 million under an unsecured
revolving credit facility (the "Credit Facility"). Borrowings under the Credit
Facility as of March 31, 1997 were $69.7 million. After considering outstanding
letters of credit and the $23 million payment made to the aforementioned
software vendor in early April, the Company has approximately $21.2 million
available for use under the Credit Facility. The Company has an ATM Cash
Facility of $11 million, of which $4.4 million was outstanding as of March 31,
1997. This facility expires December 1997. The Company also has three vault
cash custody agreements with financial institutions which provide the use of up
to $58.0 million in cash for use in Company-owned ATMs. The amount of cash
outstanding under the cash custody agreements at March 31, 1997 was
approximately $38.5 million and is not an asset or liability of the Company and
therefore not recorded on the accompanying consolidated balance sheets.
The Company's management believes that available cash and cash equivalents,
together with cash generated from operations and available borrowings under its
credit facilities, will provide adequate funds for the Company's anticipated
needs, including working capital, capital expenditures and ATM vault cash
requirements. Management also believes that cash provided from operations will
be sufficient to satisfy all existing debt obligations as they come due.
8
<PAGE> 11
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As the size and financial resources of the Company increase, however,
additional acquisition opportunities requiring significant commitments of
capital may arise. In order to pursue such opportunities, the Company may be
required to incur debt or to issue additional potentially dilutive securities
in the future. No assurance can be given as to the Company's future acquisition
and expansion opportunities and how such opportunities would be financed.
9
<PAGE> 12
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
a) On October 31, 1995, the Fifth District Court of Appeals in
Dallas, Texas (the "Court of Appeals") affirmed the judgment of
the trial court in the matter styled ACS Investors, Inc., et. al.
v. Thomas McLaughlin and John Lazovich. The trial court had
rendered a verdict in favor of Messrs. McLaughlin and Lazovich on
causes of action for tortious interference with an acquisition
agreement entered into by Messrs. McLaughlin and Lazovich and
First Texas Savings Association in 1986 related to the
acquisition of an electronic benefit transfer business. The total
amount of the judgment against the Company, ACS Government
Services, Inc., Darwin Deason and J. Livingston Kosberg, a former
director of the Company, including interest, is approximately
$9.5 million, which includes $3 million in actual damages and
$1.5 million in exemplary damages. The Company has indemnified
Mr. Deason and Mr. Kosberg from any liability arising from the
suit.
The Company pursued its appeal of the judgment before the Texas
Supreme Court in October 1996. On February 21, 1997, the Texas
Supreme Court issued its opinion on this appeal, reversing the
verdict and rendering in favor of the Company. The plaintiffs
subsequently filed a motion for reconsideration with the Texas
Supreme Court. The Texas Supreme Court has not yet issued its
opinion on this motion.
b) On May 22, 1996, a former employee of Gibraltar Savings
Association ("GSA") filed suit in Texas state court alleging
entitlement to 6,467 shares of the Company's Class A common stock
pursuant to options issued to certain GSA employees in 1988 in
connection with a former data processing services agreement
between GSA and the Company. Subsequently, sixteen additional
former GSA employees filed a similar suit alleging entitlement to
310,996 shares of the Company's Class A common stock, which
together with the other shares represent less than 0.9% of the
outstanding common stock and common stock equivalents of the
Company. The Company believes that is has meritorious defenses to
all or substantial portions of plaintiffs' claims and plans to
vigorously defend against these lawsuits.
c) The Company is subject to certain legal proceedings, claims and
disputes which arise in the ordinary course of its business.
Although the Company cannot predict the outcomes of these legal
proceedings, the Company's management does not believe these
actions will have a material adverse effect on the Company's
financial position, results of operations or liquidity. However,
if unfavorably resolved, these proceedings could have a material
adverse effect on the Company's financial position, results of
operations and liquidity.
Item 2. Changes in Securities
On March 1, 1997, the Company, through its 70% owned subsidiary,
Technical Directions, Inc., acquired all of the capital stock of
Wesson, Taylor, Wells & Associates, Inc., a privately owned
company based in Charlotte, North Carolina and in the business of
supplying contract programming and consulting services.
Consideration given for the stock included cash plus 264,423
shares of the Company's Class A common stock at $20.80 per
share. The Company issued the Class A common stock in reliance on
the exemption provided in Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act").
On March 31, 1997, the Company acquired all of the capital stock
of Intelligent Solutions, Inc., a privately owned company based
in Fairfax, Virginia and in the business of providing LAN services
to a majority of the members of the U.S. Congress, the White
House and to executive branch agencies. Consideration given for
the stock included cash plus 144,144 shares of the Company's
10
<PAGE> 13
PART II. OTHER INFORMATION (CONTINUED)
Class A common stock at $20.81 per share. The Company issued the
Class A common stock in reliance on the exemption provided in
Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
11.1 Earnings per Share.
27 Financial Data Schedule
b) Reports on Form 8-K
The Company did not file any current report on Form 8-K during the
quarter ended March 31, 1997.
11
<PAGE> 14
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 thereunto duly authorized on the 15th day of May, 1997.
AFFILIATED COMPUTER SERVICES, INC.
By: /s/ Mark A. King
------------------------------------
Mark A. King
Executive Vice President and
Chief Financial Officer
12
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
11.1 Earnings per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET INCOME $ 10,038 $ 5,735 $ 27,701 $ 16,468
========= ========= ========= =========
PRIMARY
Weighted average number of shares outstanding 35,521 27,246 35,462 26,984
Additional weighted average shares from assumed exercise
of dilutive stock options and warrants, net of
shares assumed to be repurchased with exercise
proceeds 850 754 1,017 714
Additional weighted average shares from assumed
issuance of shares issuable from acquisitions -- -- -- --
--------- --------- --------- ---------
36,371 28,000 36,479 27,698
========= ========= ========= =========
Earnings per share $ .28 $ .21 $ .76 $ .59
========= ========= ========= =========
FULLY DILUTED
Weighted average number of shares outstanding 35,521 27,246 35,462 26,984
Additional weighted average shares from assumed exercise
of dilutive stock options and warrants, net of
shares assumed to be repurchased with exercise
proceeds 850 854 1,017 928
Additional weighted average shares from assumed
issuance of shares issuable from acquisition -- -- -- --
Additional weighted average shares from assumed
conversion of preferred stock -- 52 -- 52
--------- --------- --------- ---------
36,371 28,152 36,479 27,964
========= ========= ========= =========
Earnings per share (fully diluted): $ .28 $ .20 $ .76 $ .59
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,699
<SECURITIES> 0
<RECEIVABLES> 114,028
<ALLOWANCES> 1,627
<INVENTORY> 13,081
<CURRENT-ASSETS> 170,096
<PP&E> 97,561
<DEPRECIATION> 43,709
<TOTAL-ASSETS> 570,692
<CURRENT-LIABILITIES> 126,972
<BONDS> 77,513
0
0
<COMMON> 359
<OTHER-SE> 337,734
<TOTAL-LIABILITY-AND-EQUITY> 570,692
<SALES> 0
<TOTAL-REVENUES> 450,726
<CGS> 0
<TOTAL-COSTS> 399,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,379
<INCOME-PRETAX> 46,754
<INCOME-TAX> 19,053
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,701
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
