<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
---------------------
FORM 10-K
---------------------
MARK ONE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition 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)
214-841-6111
(Registrant's telephone number, including area code)
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of exchange on
Title of each class which registered
------------------------------ ------------------------------------
Class A common stock, par
value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
---------------------
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 the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [X]
As of September 26, 2000, 46,482,456 shares of Class A common stock were
outstanding. The aggregate market value of the Class A common voting stock held
by nonaffiliates of Affiliated Computer Services, Inc. as of such date,
approximated $2,323,555,000.
DOCUMENTS INCORPORATED BY REFERENCE: Fiscal 2000 Annual Report to
Stockholders - Parts I, II and IV; Proxy Statement for October 26, 2000 Annual
Meeting - Part III.
================================================================================
<PAGE> 2
AFFILIATED COMPUTER SERVICES, INC.
FORM 10-K
JUNE 30, 2000
<TABLE>
<S> <C>
PART I
Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 7
Item 3. Legal Proceedings....................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders..................................... 7
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............... 8
Item 6. Selected Consolidated Financial Data.................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 10
Item 8. Financial Statements and Supplementary Data............................................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 10
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 10
Item 11. Executive Compensation.................................................................. 10
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 10
Item 13. Certain Relationships and Related Transactions.......................................... 10
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedule and Reports
on Form 8-K........................................................................ 10
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
We are based in Dallas, Texas and have offices primarily in North America,
as well as Central America, South America, Europe, Africa and the Middle East.
We provide a full range of information technology services to clients which have
time-critical, transaction-intensive information processing needs. Our services
include technology outsourcing, business process outsourcing and systems
integration services. Approximately 89% of our revenues for the past three
fiscal years were recurring revenues, which are revenues derived from services
that our clients use each year in connection with their ongoing businesses.
We were formed in 1988 to participate in the trend to outsource information
processing requirements to third parties which enables businesses to focus on
core operations, respond to rapidly changing technologies and reduce data
processing expenses. Our business strategy is to expand our client base and
enhance our service offerings through both internal marketing and the
acquisition of complementary companies. Our marketing efforts focus on
developing long-term relationships with clients that choose to outsource mission
critical business processes and information technology requirements. Since
inception through June 30, 2000, we have completed 48 acquisitions, which have
resulted in geographic expansion, growth and diversification of our customer
base, expansion of services and products offered, and increased economies of
scale. Our revenues have increased from $534 million in fiscal year 1995 to
$1.96 billion in fiscal year 2000, a compound growth rate of 30%. Of this
growth, approximately 14% resulted from internal growth and 16% resulted from
growth through acquisitions.
Our largest transaction occurred in December 1997, when we acquired ACS
Government Solutions, Inc., formerly known as Computer Data Systems, Inc., a
provider of information technology solutions to federal government agencies. We
accounted for this transaction as a pooling of interests, and as a result, we
have restated our historical financial statements prior to this merger to
reflect the combined operations of both companies.
In May 2000, we executed a plan to divest certain non-strategic operations
in order to focus on our core information technology outsourcing and business
process outsourcing operations. Prior to June 30, 2000, we completed the sale of
our ATM processing business and two small professional services businesses. At
June 30, 2000, we also had our commercial staffing business and two other small
businesses for sale. In August 2000, we completed the sale of our commercial
staffing business and we expect to divest the two other small businesses in the
first or second quarter of fiscal 2001. These business units collectively
comprised approximately 15% of fiscal year 2000 consolidated revenues.
We serve two primary markets. Our largest market is the commercial sector,
which accounts for approximately two-thirds of our annual revenues. Within the
commercial sector, we provide business process outsourcing, systems integration
services and technology outsourcing to a variety of clients nationwide,
including retailers, local municipalities, state agencies, healthcare providers,
telecommunications companies, wholesale distributors, manufacturers, utilities,
financial institutions and insurance companies.
We also serve the federal government market, which accounts for
approximately one-third of our annual revenues. Our services in this market are
comprised of business process outsourcing, systems integration services and
technology outsourcing. Within our federal government business, approximately
half of our revenues are derived from civilian agencies with the remaining half
from Department of Defense agencies.
MARKET OVERVIEW
We believe that the demand for our services has grown substantially in
recent years and will continue to increase in the future as a result of
financial, strategic and technological factors. These factors include:
o the increasing desire by businesses and government to drive process
improvements and improve speed of execution;
1
<PAGE> 4
o the desire by businesses and government to take advantage of the
latest advances in technology without the cost and resource commitment
required to maintain an in-house system;
o the increasing complexity of information technology systems and the
need to connect electronically with clients, suppliers, and other
internal systems;
o the proliferation of web-based and wireless technologies;
o the increasing requirements for rapid processing of information and
the instantaneous communication of large amounts of data to multiple
locations;
o the desire of business and government organizations to focus on their
core competencies.
BUSINESS STRATEGY
The key components of our business strategy include the following:
o Expand Client Base - We seek to develop long-term relationships with
new clients by leveraging our expertise and infrastructure of
information technology products and services. Our primary focus is to
increase our revenues by obtaining new clients with recurring
requirements for information technology services.
o Expand Existing Client Relationships - We seek to expand existing
client relationships by increasing the scope and breadth of services
we provide.
o Build Recurring Revenues - We seek to enter into long-term
relationships with clients to provide services that meet their ongoing
information technology needs.
o Invest in Technology - We respond to technological advances and the
rapid changes in the requirements of our clients by committing
substantial amounts of our resources to the operation of multiple
hardware platforms, the customization of products and services that
incorporate new technology on a timely basis and the continuous
training of our personnel.
o Provide Flexible Solutions - We offer custom-tailored information
technology solutions using a variety of proprietary and third-party
licensed software on multiple hardware and systems software platforms.
o Maximize Economies of Scale - Our strategy is to develop and maintain
a significant client and account/transaction base to create sufficient
economies of scale that enable us to achieve competitive costs.
o Complete Strategic and Tactical Acquisitions - Our acquisition
strategy is to acquire companies to expand our geographic presence, to
expand the products and services we offer to existing clients, and to
obtain a presence in new, complementary markets.
o Attract, Train, and Retain Employees - We believe that attracting,
training, and retaining high quality employees are essential to our
growth. We hire motivated individuals with strong character and
leadership traits and provide them with ongoing technological and
leadership skills training. We emphasize retaining our associates with
challenging work assignments and incentive programs.
2
<PAGE> 5
During the last three fiscal years, our revenue by market was as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Commercial $1,344,671 $1,091,417 $ 789,452
Federal Government 617,871 550,799 399,671
---------- ---------- ----------
Total Revenue $1,962,542 $1,642,216 $1,189,123
========== ========== ==========
</TABLE>
COMMERCIAL
In the commercial sector we provide our clients with business process
outsourcing, systems integration services and technology outsourcing.
Business Process Outsourcing
We are a leader of the business process outsourcing market. We
developed our business process outsourcing services to capitalize on a growing
trend by business to outsource entire processes, including the technology
requirements of the business function. More and more companies are concluding
that it is more efficient to focus on their core competencies and to outsource
their non-core but mission-critical business processes. As a result, they turn
to companies such as ours to manage their processes and improve them. We provide
several important services to our clients, including loan and mortgage
processing, healthcare claims processing for insurance companies, accounts
payable processing, and data capture, storage and retrieval services for
financial institutions. We typically receive client information in all media
formats such as over the web, EDI, fax, voice, paper, microfilm, computer tape,
optical disk or CD ROM. It is critical that we are able to handle all media
types. Upon receipt, information is immediately digitized and sent through our
proprietary workflow process, which is tailored to client's requirements. Using
state-of-the-art image transmission, storage and retrieval technology, we
digitize, process and transmit millions of information records daily for our
clients. In many instances, we perform quality assurance functions and store the
information for our clients on a long-term basis.
We are also a leading provider of consulting, program management and
back-office processing services for state and local governments' health and
human services agencies. We design, develop, implement and operate large scale
health and human services programs and the information technology solutions that
support those programs. Today, we process over 200 million Medicaid healthcare
claims on behalf of 8 states using our state of the art proprietary Medicaid
management information system. In addition, we design and manage children's
health insurance programs for 3 states with estimated uninsured lives of
totaling nearly 3 million. These children's health insurance programs were
created at the federal level in 1997 to provide federal matching funds to enable
states to expand healthcare to targeted uninsured children. Within these
programs we interface with and train community based organizations to help
inform the public of these programs, operate call centers, process enrollment
applications using our proprietary eligibility determination software and match
providers with children participants.
Pricing is typically determined on the basis of the number of accounts or
transactions processed.
Systems Integration Services
Our systems integration services include application development and
implementation, applications outsourcing, technical support and training, as
well as network design and installation services. Our systems integration
services include the development of web-based applications and web-enablement of
information technology assets, allowing our clients to conduct business with
their customers and business partners via the Internet. We also provide systems
integration services to clients, who are deploying client/server architectures,
advanced networks and outsourcing legacy applications maintenance. Our ability
to deliver high-level skill sets and proven methodologies across a variety of
technologies enhances our ability to help clients and prospects deal
3
<PAGE> 6
with technological change. Due to the nature of the work, we generally offer our
systems integration services on a time and materials basis to a changing client
base under short-term contractual arrangements.
We generally price these services on a time and materials basis.
Technology Outsourcing
We offer a complete range of technology outsourcing solutions to commercial
businesses desiring to improve the performance of their information technology
organizations. Our technology outsourcing solutions include the delivery of
information processing services on a remote basis from host data centers with
tremendous processing capacity, network management and desktop support.
Information processing services include mainframe, mid-range, and web-hosting
solutions.
We provide our technology outsourcing solutions through an extensive data
center network, which is comprised of five host data centers and seven remote
data centers. Our data centers and clients are connected via an extensive
telecommunication network. We monitor and maintain local and wide area networks
on a seven-day, 24-hour basis and provide shared hub satellite transmission
service as an alternative to multi-drop and point-to-point hard line
telecommunications networks.
Our target market for technology outsourcing services consists of medium-
to large-sized commercial organizations with time-critical, transaction-
intensive information processing needs. We typically provide our technology
outsourcing services pursuant to multi-year contracts, which are typically
priced on a resource utilization basis. Resources utilized include processing
time, the number of desktops managed, professional services, data storage and
retrieval utilization and output media utilized.
We currently have over 13,000 employees providing services to our
commercial clients.
FEDERAL GOVERNMENT
Within the federal government sector, we also provide business process
outsourcing, systems integration services and technology outsourcing. Our
civilian agency clients account for about half of our federal government
revenues and Department of Defense agencies account for the remaining half.
Business Process Outsourcing
Our business process outsourcing services consist primarily of loan
servicing for federal agencies. Our services generally include billing, lockbox
payment processing, related accounting and reconciliation and client service
call center and web-site operations. Our largest contract for these services is
with the Department of Education, for which we service student loans under the
Department of Education's Direct Student Loan program. Under this contract, we
currently provide loan servicing to over 4.7 million borrowers, or over 17.3
million loans with an aggregate value of $66 billion. During fiscal year 2000,
revenue from this contract was approximately $139 million. This contract is
scheduled to expire September 2003. We also have contracts with the Small
Business Administration, Housing and Urban Development, Ginnie Mae and
Department of Veterans Affairs. Pricing is typically determined on the basis of
the number of accounts or transactions processed.
Systems Integration Services
We provide applications development, applications outsourcing, network
implementation and maintenance, desktop services, technical staff augmentation,
and training. We develop and outsource many applications including legacy, ERP,
and web-based systems. The Department of Defense and civilian agencies generally
either contract directly with us or through the General Services Administration
for these services. The General Services Administration performs the procurement
function for many civilian and Department of Defense agencies. Approximately 38%
of these services for fiscal 2000 were provided pursuant to three contracts with
the General Services Administration. We also provide our services directly to a
variety of civilian agencies such as the Departments
4
<PAGE> 7
of Labor, NASA, FAA, Treasury, Transportation, the U.S. Senate, the U.S. Postal
Service, the Federal Energy Regulatory Commission and the National Drug
Intelligence Center. In addition, we also provide these services to a variety of
Department of Defense agencies such as Strategic Command, Air Combat Command,
the National Security Agency and the Defense Special Weapons Agency. We
generally price these services on a time and materials basis.
Technology Outsourcing
We offer a complete range of technology outsourcing solutions to
commercial businesses desiring to improve the performance of their information
technology organizations. Our technology outsourcing solutions include the
delivery of information processing services on a remote basis from host data
centers with tremendous processing capacity, network management and desktop
support. Information processing services include mainframe, mid-range, and
web-hosting solutions.
We currently have over 5,300 employees providing these services to our
federal government clients and approximately 1,662 of these employees have
security clearance.
CLIENT BASE
We achieve growth in our client base through internal marketing and
acquisitions of other information technology services companies. We have a
diverse client base. Within the commercial segment, we serve all of the major
vertical markets that spend heavily on technology including healthcare, retail,
transportation and financial industries. However, our largest vertical market is
only 20% of our consolidated revenues and no single commercial client accounts
for more than 2% of our consolidated revenues. Within the federal government
segment, our clients are evenly divided between the Department of Defense
agencies and the civilian agencies. Our largest federal government client
represents 7% of our consolidated revenues. In addition, over 95% of our
consolidated revenues are derived from domestic clients. Clients may be lost due
to merger, business failure or conversion to a competing processor or to an
in-house system. Our business with the federal government is subject to various
risks, including the reduction or modification of contracts due to changing
government needs and requirements. Government contracts, by their terms,
generally can be terminated for convenience by the government, which means that
the government may terminate the contract at any time, without cause, and in
certain instances we would be entitled to receive compensation only for the
services provided or stranded asset costs incurred at the time of termination.
Approximately 88%, 89% and 89% of our revenues for fiscal 2000, 1999 and
1998, respectively, were recurring. We define recurring revenues as revenues
derived from services that are used by our clients each year in connection with
their ongoing businesses, and accordingly exclude conversion and deconversion
fees, software license fees, product installation fees and hardware sales.
Our five largest customers accounted for approximately 18%, 19% and 25% of
our fiscal 2000, 1999 and 1998 revenues, respectively.
Our revenues derived from information technology services described herein
are shown in the following table:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Business process outsourcing $ 948,010 $ 696,976 $ 468,175 $ 385,937 $ 260,220
Systems integration services 604,841 570,168 390,221 245,720 201,443
Technology outsourcing 409,691 375,072 330,727 297,268 185,945
---------- ---------- ---------- ---------- ----------
Total $1,962,542 $1,642,216 $1,189,123 $ 928,925 $ 647,608
========== ========== ========== ========== ==========
</TABLE>
COMPETITION
The markets for our services are intensely competitive and highly
fragmented. The most significant competitive factors are reliability and quality
of services, technical competence and price of services.
5
<PAGE> 8
We compete successfully in the business process outsourcing business by
offering high quality services and favorable pricing by leveraging our technical
skills, process knowledge, and economics of scale. Competition is highly
fragmented and depends on the specific business process. Principal competitors
include Electronic Data Systems (EDS), First Health, Unisys, Maximus, FYI, Inc.,
National Processing Company, Lason, Inc. and several other small- to
medium-sized local and regional competitors.
We compete successfully for technology outsourcing contracts by offering
high quality services and favorable pricing by leveraging our technical skills,
infrastructure, and achieving economics of scale. We may be required to purchase
technology assets from prospective clients or to provide financial assistance to
prospective clients in order to obtain their contracts. Many of our competitors
have substantially greater resources and thus, may have a greater ability to
obtain client contracts where sizable asset purchases or investments are
required. To maintain competitive prices, we operate with efficient and low
overhead and maintain a significant client base and account/transaction base to
achieve sufficient economies of scale. Our competition for technology
outsourcing contracts consists of:
o the first-tier outsourcers, including IBM Global Services, EDS and
Computer Sciences Corporation (CSC);
o mid-sized divisions of large corporations, such as Lockheed-Martin,
Siemens; and
o other smaller, regional competitors.
In systems integration services markets, we actively compete with small
specialized firms as well as with large competitors with a wider range of
systems integration services. We believe that the key competitive factors in
obtaining and retaining clients include the ability to understand project
requirements, deliver appropriate skill sets in a timely manner and price
services effectively. We must also compete for qualified personnel through
competitive wages and by maintaining a consistent demand for the skills
recruited. Our competition in systems integration services includes EDS, CSC,
Science Applications International Corporation, and a wide variety of web
hosting and development companies such as Exodus, Viant, Scient, and Razorfish
and several other local and regional players.
SALES AND MARKETING
We market our services through field sales forces located throughout the
United States. In order to enhance our sales and marketing efforts, we hire
sales representatives who have significant technical experience in the
industries to which they will be marketing. Our sales forces are focused on
specific service offerings or vertical markets, allowing our representatives to
keep abreast of technology and industry developments.
EMPLOYEES
We believe that our success depends on our continuing ability to attract
and retain skilled technical, marketing and management personnel. While
technology professionals are in high demand, we believe that, to date, we have
been able to attract and retain highly qualified personnel. As of June 30, 2000,
we had over 18,500 full-time equivalent employees, including over 15,000
employed domestically with the balance in our international operations. Of these
employees, approximately 4,200 are represented by unions, primarily in Mexico,
and there have been no work stoppages or strikes. Management considers its
relations with employees to be good.
GOVERNMENT CONTRACTS AND REGULATION
Approximately one-third of our revenues are derived from contracts and
subcontracts with federal government agencies. Our allowable federal government
contract costs and fees are subject to audit by the Defense Contract Audit
Agency ("DCAA"). These audits may result in non-reimbursement of some contract
costs and fees. To date, we have experienced no material adjustments as a result
of audits by the DCAA. The DCAA has completed audits of the Company's federal
contracts through fiscal 1998, for a majority of the federal government
contracts.
We are not directly subject to federal or state regulations specifically
applicable to financial institutions. As a provider of services to financial
institutions, however, our technology outsourcing and business process
outsourcing solutions operations are examined periodically by various state and
federal regulatory agencies. These agencies make
6
<PAGE> 9
recommendations regarding various aspects of our operations, and generally, we
implement such recommendations. We also arrange for annual independent
examinations of our major data processing facilities.
ITEM 2. PROPERTIES
Excluding business units divested and to be divested of at June 30, 2000,
we had approximately 207 locations in the United States and 11 locations in 6
other countries. Approximately 1.1 million square feet is owned and
approximately 2.0 million square feet is leased. The leases expire from 2000 to
2011 and we do not anticipate any significant difficulty in obtaining lease
renewals or alternative space. Our executive offices are located in Dallas,
Texas at a company-owned facility of approximately 612,000 square feet, which
also houses a host data center and other operations. Our federal government
sector executive offices are located in Rockville, Maryland in a company-owned
facility of approximately 130,000 square feet. We believe that our current
facilities are suitable and adequate for our business.
ITEM 3. LEGAL PROCEEDINGS
On December 16, 1998, a state district court in Houston, Texas entered
final judgment against us in a lawsuit brought by twenty-one former employees of
Gibraltar Savings Association and/or First Texas Savings Association
(collectively, "GSA/FTSA"). The GSA/FTSA employees alleged that they were
entitled to the value of 401,541 shares of our stock pursuant to options issued
to the GSA/FTSA employees in 1988 in connection with a former data processing
services agreement between GSA/FTSA and us. The judgment against us was for
approximately $17 million, which includes attorneys' fees and pre-judgment
interest, but excludes additional attorneys' fees of approximately $850,000
which could be awarded in the event the plaintiffs are successful upon appeal
and final judgment. We continue to believe that we have a meritorious defense to
all or a substantial portion of the plaintiffs' claims. We filed our appeal of
the judgment on March 15, 1999 and plan to vigorously pursue the appeal. The
plaintiffs also have filed a notice of appeal. Should the proceedings not be
favorably resolved on appeal, we would be subject to a material charge.
On February 11, 1999, and on or about April 16, 1999, Caremark, Inc.,
one of our significant outsourcing clients, filed separate lawsuits in Federal
District Court in Illinois alleging that we had breached contractual obligations
to provide certain information and pricing reductions and a price quote for cost
plus pricing to Caremark. Caremark sought to terminate the contract, which
comprised approximately 1.2% of our revenues for the year ended June 30, 2000.
Caremark's pleadings also requested damages in the millions of dollars, without
further specificity. We believed that we had complied with all contractual
obligations, provided the required information and were not contractually
obligated to provide the price reduction alleged by Caremark to be required. On
February 25, 1999, we filed a lawsuit in County Court in Dallas, Texas against
Caremark and its parent, Caremark Rx (formerly known as MedPartners, Inc.),
alleging that Caremark has caused us significant injury by trying to manufacture
a basis to repudiate this contract and to avoid payment and other obligations.
On September 13, 2000, these lawsuits were settled by agreement of the parties,
which resulted in a contract extension through August 31, 2006, and a dismissal
of all claims.
In addition to the foregoing, we are subject to certain other legal
proceedings, claims and disputes which arise in the ordinary course of our
business. Although we cannot predict the outcomes of these legal proceedings, we
do not believe these actions, in the aggregate, will have a material adverse
effect on our financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal fourth quarter covered by this report, no matter was
submitted to a vote of our security holders.
7
<PAGE> 10
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Class A common stock is traded on the New York Stock Exchange under the
symbol "ACS." The following table sets forth the high and low sales prices of
our Class A common stock for the last two fiscal years as reported on NYSE.
<TABLE>
<CAPTION>
Fiscal year ended June 30, 1999 High Low
------------------------------- -------- -------
<S> <C> <C>
First Quarter 38 3/4 29 3/4
Second Quarter 45 22 3/8
Third Quarter 51 3/4 34 1/2
Fourth Quarter 50 11/16 38 1/4
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended June 30, 2000 High Low
------------------------------- -------- -------
<S> <C> <C>
First Quarter 53 38 1/2
Second Quarter 46 31 3/4
Third Quarter 49 31
Fourth Quarter 39 7/8 31 3/4
</TABLE>
On September 25, 2000, the last reported sales price of our Class A common
stock as reported on the New York Stock Exchange was $50.25 per share.
Except for the dividends paid by ACS Government Solutions Group, Inc. prior
to its becoming part of our company by a December 1997 merger, we have not paid
any dividends to date on our common stock. We intend to continue to retain
earnings for use in the operation of our business and, therefore, do not
anticipate paying any dividends in the foreseeable future. Under the terms of
our unsecured revolving credit agreement with Wells Fargo Bank (Texas), N.A.,
Bank One, Texas N.A. SunTrust Bank and the Bank of Tokyo-Mitsubishi, LTD, we
are prohibited from paying dividends in any fiscal year in a total amount that
would exceed 50% of our net income for the preceding fiscal year. Any future
determination to pay dividends will be at the discretion of our Board of
Directors and will be dependent upon our financial condition, results of
operations, contractual restrictions, capital requirements, business prospects
and such other factors as the Board of Directors deems relevant.
8
<PAGE> 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by
reference to and should be read in conjunction with our Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
document.
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
As of and for the year ended June 30,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues $1,962,542 $1,642,216 $1,189,123 $ 928,925 $ 647,608
Earnings from continuing operations $ 109,312(1) $ 86,230 $ 54,422(3) $ 49,666 $ 33,525
Earnings per common share - basic $ 2.22(1) $ 1.77 $ 1.14(3) $ 1.08 $ 0.88
Earnings per common share
assuming dilution $ 2.07(1) $ 1.66 $ 1.11(3) $ 1.05 $ 0.85
Weighted average shares outstanding -
basic 49,244 48,839 47,599 46,136 38,228
Weighted average shares outstanding
assuming dilution 55,806 55,668 50,487 47,452 39,320
BALANCE SHEET DATA:
Working capital $ 413,632(2) $ 194,226 $ 198,118 $ 110,866 $ 79,928
Total assets $1,656,446 $1,223,600 $ 949,798 $ 761,477 $ 636,098
Total long-term debt
(less current portion) $ 525,619 $ 349,106 $ 234,848 $ 130,680 $ 57,208
Cumulative redeemable
preferred stock $ -- $ -- $ -- $ -- $ 1,100
Stockholders' equity $ 711,377 $ 607,421 $ 503,670 $ 427,481 $ 363,204
</TABLE>
(1) Net income for fiscal 2000 includes $1,055,000, or $.02 per share, of
net non-operating gains resulting from divestiture and restructuring
activities.
(2) Working capital includes $180,335,000 of receivables from the
divestiture of business units prior to June 30, 2000 and $43,362,000
of net assets held-for-sale from business units to be divested
subsequent to June 30, 2000.
(3) Includes $12,974,000, $8,880,000 net of tax, or $.19 and $.18 per
basic and diluted share, respectively, of merger costs we incurred in
connection with the December 1997 Government Solutions merger.
This Annual Report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts included in this Annual Report regarding our
financial position, business strategy and plans and objectives of our management
for future operations, are forward-looking statements including statements
regarding our Year 2000 exposure. These forward-looking statements rely on a
number of
9
<PAGE> 12
assumptions concerning future events and are subject to a number of
uncertainties and other factors, many of which are outside of our control, that
could cause actual results to materially differ from such statements. While we
believe that the assumptions concerning future events are reasonable, we caution
that there are inherent difficulties in predicting certain important factors,
especially the timing and magnitude of technological advances; the performance
of recently acquired businesses; the prospects for future acquisitions; the
possibility that a current customer could be acquired or otherwise affected by a
future event that would diminish its information technology requirements; the
competition in the information technology industry and the impact of such
competition on pricing, revenues and margins; the degree to which business
entities continue to outsource information technology and business processes;
uncertainties surrounding budget reductions or changes in funding priorities for
existing federal, state or local government programs; and the cost of attracting
and retaining highly skilled personnel.
Pursuant to Instruction G(2) to Form 10-K, the information required in
Items 7 and 8 are incorporated by reference from pages 18 through 41 of our
Fiscal 2000 Annual Report to Stockholders, included in this Form 10-K Annual
Report as Exhibit 13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
ITEMS 10 THROUGH 13 is incorporated by reference from our definitive proxy
statement, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K
(a) (1) Financial Statements
Our consolidated financial statements as of June 30, 2000 and 1999 and
for each of the three years in the period ended June 30, 2000,
together with the report of PricewaterhouseCoopers LLP dated July 31,
2000, except for Notes 15 and 18, as to which the date is September
13, 2000, appear on pages 18 to 41 of our Fiscal 2000 Annual Report to
Stockholders, Exhibit 13.1 to this Form 10-K Annual Report, and are
incorporated herein by reference.
(a) (2) Financial Statement Schedule
Schedule II- Valuation and Qualifying Accounts for the three years in
the period ended June 30, 2000, together with the report of
PricewaterhouseCoopers LLP dated July 31, 2000 appear on pages F-1 and
F-2 and are filed as part of this Form 10-K Annual Report.
All other financial statement schedules are omitted for the reason
that they are either not applicable or not required or because the
information required is contained in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
Reference is made to the Index to Exhibits beginning on page 12 for a
list of all exhibits filed as part of this report.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this Report to be signed on our behalf
by the undersigned thereunto duly authorized representative.
Affiliated Computer Services, Inc.
Date: September 28, 2000
By: /s/ Mark A. King
------------------------------
Mark A. King
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 28th day of September 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Darwin Deason Director, Chairman of the Board
----------------------------------
(Darwin Deason)
/s/ Jeffrey A. Rich Director, President and Chief Executive
---------------------------------- Officer
(Jeffrey A. Rich)
/s/ Mark A. King Director, Executive Vice President
---------------------------------- and Chief Financial Officer
(Mark A. King)
/s/ Henry G. Hortenstine Director, Executive Vice President
----------------------------------
(Henry G. Hortenstine)
/s/ William L. Deckelman, Jr. Director, Executive Vice President,
---------------------------------- Corporate Secretary and General Counsel
(William L. Deckelman, Jr.)
/s/ Peter A. Bracken Director and Vice-Chairman,
---------------------------------- ACS Government Solutions Group, Inc.
(Peter A. Bracken)
/s/ Joseph P. O'Neill Director
----------------------------------
(Joseph P. O'Neill)
/s/ Frank A. Rossi Director
----------------------------------
(Frank A. Rossi)
/s/ Clifford M. Kendall Director
----------------------------------
(Clifford M. Kendall)
</TABLE>
11
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Affiliated Computer Services, Inc.
Our audits of the consolidated financial statements referred to in our
report dated July 31, 2000, except as to Notes 15 and 18 as to which the date is
September 13, 2000, appearing in the 2000 Annual Report to Stockholders of
Affiliated Computer Services, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
July 31, 2000
F-1
<PAGE> 15
AFFILIATED COMPUTER SERVICES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(in thousands)
<TABLE>
<CAPTION>
Balance Balances of Balance
at Beginning Charged to Costs Divested at End
Description of Period and Expenses Businesses (1) Deductions of Period
------------------------------------- ------------- ---------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 2000
Deducted from asset accounts:
Accounts receivable $ 4,633 $ 7,295 $ 794 $ 6,488 (2) $ 4,646
Property and equipment 123,944 42,395 10,006 7,746 (3) 148,587
Software 15,056 7,580 4,517 1,148 (3) 16,971
Goodwill 41,779 21,573 11,581 -- (3) 51,771
Other intangible assets 25,006 13,204 2,351 7,291 (3) 28,568
--------- --------- --------- --------- ---------
Total $ 210,418 $ 92,047 $ 29,249 $ 22,673 $ 250,543
========= ========= ========= ========= =========
Year ended June 30, 1999
Deducted from asset accounts:
Accounts receivable $ 2,840 $ 3,673 -- $ 1,880 (2) $ 4,633
Property and equipment 90,096 35,342 -- 1,494 (3) 123,944
Software 11,029 5,093 -- 1,066 (3) 15,056
Goodwill 25,846 15,664 -- (269)(3) 41,779
Other intangible assets 14,414 10,624 -- 32 25,006
--------- --------- --------- --------- ---------
Total $ 144,225 $ 70,396 $ -- $ 4,203 $ 210,418
========= ========= ========= ========= =========
Year ended June 30, 1998
Deducted from asset accounts:
Accounts receivable $ 1,964 $ 998 -- $ 122 (2) $ 2,840
Property and equipment 66,302 25,493 -- 1,699 (3) 90,096
Software 9,436 3,661 -- 2,068 (3) 11,029
Goodwill 15,504 10,432 -- 90 (3) 25,846
Other intangible assets 7,100 7,888 -- 574 (3) 14,414
--------- --------- --------- --------- ---------
Total $ 100,306 $ 48,472 $ -- $ 4,553 $ 144,225
========= ========= ========= ========= =========
</TABLE>
(1) Allowances associated with divested and held-for-sale business
units at June 30, 2000.
(2) Uncollectible accounts written off, net of recoveries and
allowances of acquired businesses.
(3) Retirements
F-2
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
------- ------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of September 20, 1997, by
and among the Company, ACS Acquisition Corp. and Computer Data
Systems, Inc., filed as Exhibit 2.1 to the Company's Form S-4
(Registration No. 333-40351) ("Form S-4") and incorporated herein
by reference.
3.1 Charter of Incorporation of the Company, filed as Exhibit 3.1 to
the Company's Form S-4 and incorporated herein by reference.
*3.2 Bylaws of the Company, as amended and in effect on May 3, 2000.
4.1 Form of New Class A Common Stock Certificate, filed as Exhibit 4.3
to the Company's Form S-1 (Registration No. 333-79394) (the "Form
S-1") and incorporated herein by reference.
4.2 Rights Agreement, dated April 2, 1999, between the Company and
First City Transfer Company, as Rights Agent, filed as Exhibit 4.1
to the Company's Report on Form 8-K dated May 19, 1999 and
incorporated herein by reference.
4.3 Indenture, dated as of March 20, 1998 between Affiliated Computer
Services, Inc., as issuer and U.S. Trust Company of Texas, N.A. as
trustee, filed as Exhibit 4.1 to the Company's Report on Form 8-K
dated March 20, 1998 and incorporated herein by reference.
4.4 Registration Rights Agreement, dated as of March 17, 1998 between
Affiliated Computer Services, Inc. and Goldman, Sachs & Co., Bear,
Stearns & Co., Inc., Smith Barney Inc., Hambrecht & Quist LLC,
Donaldson, Lufkin & Jenrette Securities Corporation and Prudential
Securities Incorporated, filed as Exhibit 4.2 to the Company's
Report on Form 8-K dated March 20, 1998 and incorporated herein by
reference.
10.1 Amended Stock Option Plan of the Company, filed as Exhibit 10.1 to
the Company's Form S-1 and incorporated herein by reference.
10.2 1997 Stock Incentive Plan of the Company, filed as Appendix to the
Company's Joint Proxy Statement / Prospectus filed as Form 14A
dated November 14, 1997 and incorporated herein by reference.
10.3 Reciprocal Services Agreement, dated June 30, 1994, between the
Company and Precept, filed as Exhibit 10.15 to the Company's
Form S-1 and incorporated herein by reference.
10.4 Mutual Indemnification Agreement, dated June 30, 1994, between the
Company and Precept, filed as Exhibit 10.18 to the Company's
Form S-1 and incorporated herein by reference.
10.5 Stockholders Tax Indemnification Agreement, dated June 30, 1994,
between the Company and the Stockholders named therein, filed as
Exhibit 10.19 to the Company's Form S-1 and incorporated herein by
reference.
10.6 Form of Directors Indemnification Agreement, filed as
Exhibit 10.20 to the Company's Form S-1 and incorporated herein by
reference.
10.7 Credit Agreement dated December 15, 1995 the Company, Bank One,
Texas, N.A., as Documentation Agent and Co-Agent, First Interstate
Bank of Texas N.A., as Administrative Agent and Co-Agent and
Certain Lenders filed as Exhibit 10.1 to the Company's Third
Quarter Report on Form 10-Q for the quarter ended March 31, 1996
and incorporated herein by reference.
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
10.8 Restated Credit Agreement dated June 20, 1996 between the Company,
Borrower, Wells Fargo Bank (Texas), N.A., Agent, Bank One, Texas,
N.A., Co-Agent, and Certain Lenders for $160,000,000 Revolving
Facility filed as Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1996 and incorporated herein
by reference.
10.9 First Amendment to Restated Credit Agreement dated July 29, 1997
the Company, Wells Fargo Bank (Texas) N.A., Agent; Bank One,
Texas, N.A., Co-Agent; and Certain Lenders for $200,000,000
Revolving Facility filed as Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference.
10.10 Second Amendment to Restated Credit Agreement dated March 20, 1998
between the Company, Wells Fargo Bank (Texas) N.A., Agent; Bank
One, Texas, N.A., Co-Agent; and Certain Lenders for $200,000,000
Revolving Credit Facility filed as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1999 and
incorporated herein by reference.
*10.11 Third Amendment to Restated Credit Agreement dated September 24,
1999 between the Company; Wells Fargo Bank (Texas), N.A., Agent;
Bank One, Texas, N.A., Co-Agent; and certain Lenders for
$200,000,000 Revolving Credit Facility.
*10.12 Credit Agreement dated September 27, 1999 between the Company;
Wells Fargo Bank (Texas), N.A., Agent and Arranger; and certain
Lenders for $50,000,000 Revolving Credit Facility.
*10.13 First Amendment to Credit Agreement dated February 24, 2000
between the Company; Wells Fargo Bank (Texas), N.A., Agent and
Arranger; and certain lenders for $50,000,000 Revolving Credit
Facility.
*10.14 Credit Agreement dated May 12, 2000 between the Company; Wells
Fargo Bank Texas, National Association, Administrative Agent and
Co-Lead Arranging Agent; Bank One, N.A., Syndication Agent and
Co-Lead Arranging Agent; SunTrust Bank, Documentation Agent: The
Bank of Tokyo-Mitsubishi, Ltd., Co-Agent; and certain Lenders and
certain Subsidiary Guarantors for $450,000,000 Revolving Credit
Facility.
10.15 Form of Severance Agreement by and between the Company and Certain
Executive Officers of the Company filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1997 and incorporated herein by reference.
10.16 U.S. Department of Education Contract No. PM94017001 (portions of
which are subject to an Order for Confidential Treatment pursuant
to Rule 24b-2) included as an exhibit to the Form 10-Q/A filed
August 24, 1994 by ACS Government Solutions, Inc. (formerly known
as Computer Data Systems, Inc.) and incorporated herein by
reference.
10.17 Supplemental Executive Retirement Agreement by and between the
Company and the Company's Chairman of the Board filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1999 and incorporated herein by reference.
10.18 Employment Agreement by and between the Company and the Company's
Chairman of the Board filed as Exhibit 10.(iii)(A) to the
Company's Third Quarter Report on Form 10-Q for the quarter ended
March 31, 1999 and incorporated herein by reference.
*13.1 Excerpt of the Fiscal 2000 Annual Report to Stockholders, pages 18
through 40.
*21.1 Subsidiaries of the Company
*23.1 Consent of PricewaterhouseCoopers LLP
*27.1 Financial Data Schedule
</TABLE>
* Filed herewith
