Critical Accounting Policies
The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make
estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses. We base our estimates on historical experience and on various other
assumptions or conditions that are believed to be reasonable under the circumstances. Actual results could differ from those
estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and may result
in materially different results under different assumptions and conditions. We believe that the following critical accounting
policies involve significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue recognition. Our policy follows the guidance from SEC Staff Accounting Bulletin 101 "Revenue Recognition in
Financial Statements ( SAB 101 ). SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue
in financial statements. We recognize revenues when persuasive evidence of an arrangement exists, the product has been
shipped or the services have been provided to the client, the sales price is fixed or determinable, and collectibility is
During fiscal year 2003, approximately 60% of our revenue is recognized based on transaction volumes, approximately 12%
is related to time and material contracts, approximately 14% is related to cost reimbursable contracts, approximately 7% of
our revenues are recognized using percentage of completion accounting and the remainder is fixed fee based.
Generally, information technology processing revenues are recognized as services are provided to the client. Revenues from
annual maintenance contracts are deferred and recognized ratably over the maintenance period. Revenues from hardware
sales are recognized upon delivery to the client and when uncertainties regarding customer acceptance have expired.
Revenues for business process outsourcing services are recognized as services are rendered, generally on the basis of the
number of accounts or transactions processed.
In the federal government segment, our contracts are typically cost reimbursable, fixed price, unit price, or time and material
contracts. Revenues on cost reimbursable contracts are recognized by applying an estimated factor to costs as incurred, such
factor being determined by the contract provisions and prior experience. Revenues on unit price contracts are recognized at
the contractual selling prices of work completed and accepted by the client. Revenues on time and material contracts are
recognized at the contractual rates as the labor hours and direct expenses are incurred.
Revenues on certain fixed price contracts where we provide information technology development and implementation services
and certain contracts in our federal government segment are recognized over the contract term based on the percentage of
development and implementation services that are provided during the period compared with the total estimated development
and implementation services to be provided over the entire contract using Statement of Position 81 1, Accounting for
Performance of Construction Type and Certain Production Type Contracts ( SOP 81 1 ). SOP 81 1 requires the use of
percentage of completion accounting for long term contracts that are binding agreements between us and our customers in
which we agree, for compensation, to perform a service to the customer's specifications. Performance will often extend over
long periods, and our right to receive payment depends on our performance in accordance with the agreement.
The percentage of completion methodology involves recognizing revenue using the percentage of services completed, on a
current cumulative cost to total cost basis, using a reasonably consistent profit margin over the period. Due to the long term
nature of these contracts, developing the estimates of costs often requires significant judgment. Factors that must be considered
in estimating the progress of work completed and ultimate cost of the contract include, but are not limited to, the availability of
labor and labor productivity, the nature and complexity of the work to be performed, the impact of delayed performance, and
availability and timing of funding from the client. If changes occur in delivery, productivity or other factors used in developing
the estimates of costs or revenues, we revise our cost and revenue estimates, which may result in increases or decreases in
revenues and costs, and such revisions are reflected in income in the period in which the facts that give rise to that revision