AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DDH. In the first quarter of fiscal year 2003, we purchased $1.0 million in prepaid charter flights at favorable rates from DDH.
As of June 30, 2003, we have $0.8 million remaining in prepaid flights with DDH. During fiscal year 2003, we paid DDH
approximately $0.5 million for maintenance services, chartered aircraft and equipment.
In August 2001, we purchased a Challenger 600 aircraft from DDH for a purchase price of $8.5 million, which included
interior and exterior refurbishment of the aircraft. As of June 30, 2002, the purchase price for the aircraft was paid in full, and
refurbishment was near completion. The aircraft was delivered to us in the first quarter of fiscal year 2003.
In July 2000, we completed the sale of our convertible preferred stock investment in ACS Merchant Services, Inc., a
subsidiary which was sold to one of its officers in 1996, for $15.0 million, resulting in a non operating pretax gain of
approximately $12.8 million.
14. Commitments and Contingencies
We have various operating lease agreements for information technology equipment and facilities. A summary of the lease
commitments under noncancelable operating leases at June 30, 2003 is as follows (in thousands):
Year ending June 30,
Lease expense for information technology equipment and facilities was approximately $134.2 million, $117.6 million and
$81.2 million for the years ended June 30, 2003, 2002 and 2001, respectively.
Our Education Services business, which is included in our commercial segment, performs third party student loan servicing in
the Federal Family Education Loan program ("FFEL") on behalf of various financial institutions. At June 30, 2003, we
serviced a FFEL portfolio of 1.3 million loans with an outstanding principal balance of more than $14.2 billion. Some
servicing agreements contain provisions that, under certain circumstances, require us to purchase the loans from the investor if
the loan guaranty has been permanently terminated as a result of a loan default caused by our servicing error. If defaults
caused by us are cured during an initial period, any obligation we may have to purchase these loans expires. Loans that we
purchase may be subsequently cured; the guaranty reinstated and we repackage the loans for sale to third parties.
We evaluate the collectibility of any purchased loans and establish a reserve for potential losses, or default liability reserve,
through a charge to the provision for loss on defaulted loans purchased. The reserve is evaluated periodically and adjusted
based upon management s analysis of the historical performance of the purchased loans. This reserve was approximately $4.2
million at June 30, 2003.
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.
On December 16, 1998, a state district court in Houston, Texas entered final judgment against us in a lawsuit brought by 21
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 803,082 shares of our stock (adjusted for February 2002
stock split) pursuant to options issued to the GSA/FTSA employees in 1988 in connection with a former technology
outsourcing services agreement between GSA/FTSA and us. The judgment against us was for approximately $17 million,