provide processing capacity, network management and desktop support. Information processing services include mainframe,
mid range, desktop, network, and web hosting solutions.
We provide our technology outsourcing solutions through an extensive data center network, which is comprised of three host
data centers and eight remote data centers. Our data centers and clients are connected via an extensive telecommunications
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.
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.
Within the federal government sector, we provide business process outsourcing and systems integration services. Approximately
22% of our fiscal year 2003 consolidated revenues are derived from contracts and subcontracts with federal government
agencies. Our federal government contract costs and fees are subject to audit by the Defense Contract Audit Agency ( DCAA ).
These audits may result in adjustments to contract costs and fees reimbursed by our federal customers. 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
defense contracts through fiscal year 2001 and all other federal contracts through fiscal year 2000.
Pricing for services provided to our federal government clients varies by type of service. Business process outsourcing services
provided to federal government clients are generally priced on the basis of the number of accounts or transactions processed.
For applications development, applications outsourcing, network implementation and maintenance, desktop services, technical
staff support, and training, we generally price these services on a cost plus fixed fee and time and materials basis.
Business Process Outsourcing
Our federal business process outsourcing services consist primarily of loan servicing and human resource services for federal
agencies. Our loan services generally include billing, lock box payment processing, related accounting and reconciliation,
and client service call center and web site operations. In addition to the Department of Education contract discussed below,
we have contracts with the Defense Finance & Accounting Services, Housing and Urban Development, Ginnie Mae and
Pension Benefit Guarantee Corporation.
Our largest contract is with the Department of Education (the Department ), for which we service student loans under the
Department of Education's Direct Student Loan program administered by its Office of Federal Student Aid ( FSA ).
Revenues from this contract represent approximately 4% of our consolidated revenues. This contract was scheduled to run
through September 30, 2003. In November 2001, the Department extended the contract term through September 30, 2006,
with an option for further extension through September 30, 2007. In December 2001, SLM Corporation ( Sallie Mae )
challenged the Department's sole source extension in a protest filed with the Department. The FSA initially took the
position that the Sallie Mae protest was without merit and that the contract extension was lawful. In July 2002, the
Department's deciding official sustained the protest, concluding that further market research was needed to support the sole
source extension of our contract. However, the deciding official declined to rescind our contract extension and directed the
FSA to analyze its direct loan servicing needs and procure the services in compliance with law.
On January 31, 2003 FSA officials notified us that they would conduct a competitive procurement for Common Services for
Borrowers which will be an integrated solution for FSA for servicing, consolidation and collections functions for federally
insured student aid obligations and will absorb all loan servicing requirements for the Department. The Department
announced that the competitive procurement would be conducted in two phases with phase one being the determination of
eligibility to participate and phase two being the selection process. We, along with Sallie Mae and a third participant who
subsequently withdrew from the competition were selected as eligible to participate. On July 7, 2003, we submitted our