ACS Announces Second Quarter Fiscal Year 2005 Results

ACS Announces Second Quarter Fiscal Year 2005 Results

DALLAS, Jan. 20 /PRNewswire-FirstCall/ -- Affiliated Computer Services, Inc., (NYSE:ACS), a premier provider of business process and information technology outsourcing solutions announced today diluted earnings per share increased 14% to $0.73 for the second quarter of fiscal year 2005 compared to an adjusted $0.64 in the second quarter of fiscal year 2004. The second quarter of fiscal year 2004 reported diluted earnings per share of $1.80 included a net benefit of $1.25 per diluted share associated with the divestiture of a majority of the Federal government business ("Federal Divestiture"), discontinuance of depreciation and amortization prior to the closing of the Federal Divestiture and compensation costs associated with former Federal employees, as well as a charge of $0.09 per diluted share related to the settlement with the Georgia Department of Community Health. Revenues for the second quarter of fiscal year 2005 were $1.03 billion compared to $998 million in the prior year period. Excluding the revenue associated with the Federal Divestiture, revenues for the second quarter of fiscal year 2005 increased 11% over the prior year period.

Diluted earnings per share for the six months ended December 31, 2004 increased 17% to $1.45 compared to an adjusted $1.24 per share in the prior year period, excluding the net benefit from the Federal Divestiture and the settlement charge discussed above. Revenues for the six months ended

December 31, 2004 were $2.07 billion compared to $2.03 billion in the prior year period. Excluding the revenue associated with the Federal Divestiture, revenues for the six months ended December 31, 2004 increased 16% over the prior year.

"Business momentum is very solid," said Jeff Rich ACS' Chief Executive Officer. "We had a fantastic quarter of new business signings which should cause internal revenue growth to accelerate during the balance of the year. I was also very pleased with our operating margins and cash flow metrics, both of which continue to run ahead of our expectations. Lastly, our balance sheet is in great shape, giving us flexibility to maximize shareholder value."

Other key highlights from ACS' second quarter results include:

* Annualized recurring new business signings was a record at
$227 million during the quarter. These new business signings
represented over $1.1 billion of total contract value.
* Cash flow from operations was approximately $180 million, or 17.5% of
revenues. Capital expenditures and additions to intangible assets
were approximately $61 million, or 5.9% of revenues. Free cash flow
(defined as operating cash flow less capital expenditures and
additions to intangibles) was $120 million, or 11.6% of revenues.
* Total revenue growth excluding the Federal Divestiture was 11%.
Internal revenue growth for the quarter was 4% with the remaining
growth from acquisitions.
* During the second quarter, the Company announced a tender offer to
purchase all of the outstanding shares of Superior Consultant Holdings
Corporation. With trailing annual revenues of approximately
$104 million, Superior specializes in information technology
outsourcing and strategic consulting services for healthcare
providers. The Company expects the acquisition to be closed during
the third quarter of fiscal year 2005.
* During the quarter, the company successfully completed its previously
announced $1.5 billion, multi-currency, senior unsecured revolving
credit facility with a term of 60 months. The new credit facility
recognizes the Company's strong financial profile and investment grade
rating, and provides for greater financial flexibility.
* From September 2003 through December 31, 2004, the Company has
repurchased approximately 15.3 million shares of Class A common stock
at an aggregate purchase price of approximately $758 million at an
average purchase price of approximately $50 per share. Approximately
$15 million, or 270,000 shares were repurchased during the quarter at
an average price of $54. The Company has approximately $492 million
of availability remaining under its share repurchase program.

Financial Outlook


The Company's financial guidance for the fiscal year ending June 30, 2005 is as follows:

* Revenue is expected to range from $4.375 billion to $4.45 billion.
* Diluted earnings per share is expected to range from $3.10 to $3.15
per share.



The Company introduces financial guidance for the third quarter of fiscal year 2005 as follows:

* Revenue is expected to range from $1.1 billion to $1.125 billion.
* Diluted earnings per share is expected to range from $0.79 to $0.81
per share.



ACS will discuss these results on a conference call and webcast on http://www.acs-inc.com/ at 3:30 p.m. CST today. During the conference call, management will refer to a presentation provided on the Investor Relations page of ACS' website and will use certain non-generally accepted accounting principles ("GAAP") financial measures for which reconciliations to the most directly comparable GAAP financial measures will also be provided.

ACS, a FORTUNE 500 company with more than 43,000 people supporting client operations in nearly 100 countries, provides business process and information technology outsourcing 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." ACS makes technology work. Visit ACS on the Internet at http://www.acs-inc.com/ .

All statements in this news release that are not based on historical fact are "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). While management has based any forward-looking statements contained herein on its current expectations, the information on which such expectations were based may change. These forward- looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties, and other factors, many of which are outside of our control, that could cause actual results to materially differ from such statements. Such risks, uncertainties, and other factors include, but are not necessarily limited to, those set forth under the caption "Risks Related to our Business" in the Company's most recent Form 10-K. 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.

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 free cash flow, internal revenue growth and adjusted earnings per share, to provide both management and investors a more complete understanding of the Company's underlying operational results.

These non-GAAP measures are indicators management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods. For example, 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.

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. The Company uses adjusted earnings per share to present the impact of certain transactions or events that management expects to be infrequently occurring. We believe this adjusted measure is more indicative of the Company's operating performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for comparable metrics prepared in accordance with GAAP in the United States.

AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited, in thousands except per share amounts)

Three months ended Six months ended
December 31, December 31,
2004 2003 2004 2003

Revenues (A) $ 1,027,286 $ 997,879 (C) $ 2,073,468 $ 2,034,514 (C)

Expenses:

Wages and benefits 435,970 443,555 (B) 867,818 920,667 (B)
Services and
supplies 251,006 271,962 (C) 526,068 536,926 (C)
Rent, lease and
maintenance 121,124 96,920 240,117 192,850
Depreciation and
amortization 55,586 42,216 (B) 109,905 83,627 (B)
Gain on sale of
business --- (284,346)(B) --- (284,346)(B)
Other operating
expenses 8,676 24,591 (C) 19,595 37,880 (C)

Total operating
expenses 872,362 594,898 1,763,503 1,487,604

Operating income 154,924 402,981 309,965 546,910

Interest expense 2,869 5,325 6,824 10,545
Other non-operating
income, net (1,776) (988) (1,342) (1,168)

Pretax profit 153,831 398,644 304,483 537,533

Income tax expense 57,686 145,614 114,181 197,695

Net income $96,145 $253,030 $190,302 $339,838

Earnings per common
share:

Basic $0.75 $1.93 $1.48 $2.57

Diluted (D) $0.73 $1.80 $1.45 $2.41

Shares used in
computing earnings
per common share:

Basic 128,619 131,001 128,283 132,087

Diluted (D) 131,933 141,880 131,501 142,889



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)

(A) For the three and six months ended December 31, 2004, the Company
generated internal revenue growth of 4% and 7%, respectively.
Internal revenue growth is measured as follows ($ in millions):

Three Months Ended Six Months Ended
December 31, December 31,
Growth Growth
2004 2003 %(a) 2004 2003 % (a)

Total
Revenues $1,027 $998 3 % $2,074 $2,034 2 %
Less:
Divested --- (70) (1) (252)

Adjusted
Base $1,027 $928 11 % $2,073 1,782 16 %

Acquired
revenues* $105 $40 7 % $201 $40 9 %
Internal
Revenues 922 888 4 % 1,872 1,742 7 %


Total $1,027 $928 11 % $2,073 1,782 16 %

* Acquired revenues are based on pre-acquisition normalized revenues
of acquired companies.
(a) Based on actual amounts, not rounded.

(B) During the second quarter of fiscal 2004, the Company completed the
Federal Divestiture. The second quarter of fiscal 2004 includes a
benefit of $276.4 million ($176.7 million after tax), or $1.25 per
diluted share associated with the divestiture, discontinuance of
depreciation and amortization related to the assets held for sale and
compensation costs associated with former Federal employees. This
net benefit before taxes is recorded in three components: (i) Wages
and benefits includes a $9.8 million ($0.04 per diluted share)
compensation charge related to former Federal employees; (ii)
Depreciation and amortization includes a $1.9 million benefit
($0.01 per diluted share) associated with the discontinuance of
depreciation and amortization, and (iii) Gain on sale of business
represents a $284.3 million gain ($1.28 per diluted share) on the
Federal Divestiture. In addition, the second quarter of fiscal 2004
results also included a $0.09 per diluted share charge associated
with the settlement with the Georgia Department of Community Health
as discussed in Footnote 3 below.


Reported Q2 FY04 diluted EPS $1.80

Adjustments:
Compensation charge .04
Depreciation &
amortization benefit (.01)
Net gain from sale (1.28)
Georgia settlement .09
Adjusted Q2 FY04 diluted EPS $0.64


The impact of the Federal Divestiture on the first quarter of fiscal
2004 was a $4.3 million ($0.02 per diluted share) benefit associated
with the discontinuance of depreciation and amortization.

(C) The second quarter of fiscal 2004 includes a pretax profit charge of
$19.3 million, or $0.09 per diluted share associated with the
settlement with the Georgia Department of Community Health. This
charge is recorded in three components: (i) Revenue includes a
$6.7 million reduction resulting from the change in our percentage-
of-completion estimates; (ii) Services and supplies includes a
charge of $2.6 million associated with the accrual of wind-down
costs associated with the cancellation of Phase II; and, (iii)
Other operating expenses include an accrual of $10.0 million that
was paid to the State of Georgia pursuant to the settlement.

(D) The diluted earnings per share calculations include the after-tax
impact of interest and amortization of offering costs on convertible
notes in the amount of $2.1 million for the three months ended
December 31, 2003, and $4.1 million for the six months ended
December 31, 2003. In addition, the diluted weighted shares
include 7.3 million shares for the three and six months ended
December 31, 2003 representing shares that would be issued upon
conversion of the notes.



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)

December 31, June 30,
2004 2004
(Unaudited) (Audited)
ASSETS:
Cash and cash equivalents $35,866 $76,899
Accounts receivable, net 844,609 873,471
Other current assets 102,272 94,054
Total current assets 982,747 1,044,424
Property, equipment and software, net 562,273 521,772
Goodwill, net 2,039,786 1,969,326
Other intangible assets, net 296,362 283,767
Other long-term assets 83,473 87,953
TOTAL ASSETS $3,964,641 $3,907,242

LIABILITIES:
Accounts payable $64,437 $61,749
Accrued compensation 83,669 133,530
Other accrued liabilities 287,616 342,648
Income taxes payable 30,705 10,628
Deferred taxes 37,111 25,426
Current portion of long-term debt 4,953 2,048
Current portion of unearned revenue 58,406 61,541
Total current liabilities 566,897 637,570

Long-term debt 254,950 372,439
Long-term deferred taxes 239,711 234,183
Other long-term liabilities 87,140 72,563
TOTAL LIABILITIES 1,148,698 1,316,755
TOTAL STOCKHOLDERS' EQUITY 2,815,943 2,590,487

TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $3,964,641 3,907,242



Source: ACS, Inc.

CONTACT: analyst, Warren Edwards, Executive Vice President-Chief
Financial Officer, +1-214-841-8082, or warren.edwards@acs-inc.com , or media,
Lesley Pool, Senior Vice President-Chief Marketing Officer, +1-214-841-8028,
or lesley.pool@acs-inc.com , both of Affiliated Computer Services, Inc.

Web site: http://www.acs-inc.com/


-------
Profile: intent