##### Table of Contents



x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 September 30, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 001-12665
 AFFILIATED COMPUTER SERVICES, INC.(Exact name of registrant as specified in its charter)
 Delaware
    
    51-0310342(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)2828 North Haskell, Dallas, Texas
    
    75204(Address of principal executive offices)
    
    (Zip Code)
  Not Applicable(Former name, former address and former fiscal year, if changed since last report.)
 x o
 x o
 o x
  Title of each class
    
    Number of shares outstanding as of
November 4, 2005Class A Common Stock, $.01 par value
    
    117,684,933Class B Common Stock, $.01 par value
    
    6,599,372




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
  PAGENUMBERPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements:Consolidated Balance Sheets at September 30, 2005 and June 30, 2005
    
    1Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004
    
    2Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2005 and 2004
    
    3Notes to Consolidated Financial Statements
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    31Item 4.
    
    Controls and Procedures
    
    31PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    32Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    34Item 6.
    
    Exhibits
    
    34Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer




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PART I
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 September 30,
    
    
    June 30,2005
    
    2005(Unaudited)
    
    
    (Audited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    34,226
    
    
    $
    62,685Accounts receivable, net
    
    
    1,111,926
    
    
    
    1,061,590Prepaid expenses and other current assets
    
    
    130,024
    
    
    
    119,822Assets held for sale
    
    
    67,296
    
    
    
    -Total current assets
    
    
    1,343,472
    
    
    
    1,244,097Property, equipment and software, net
    
    
    713,594
    
    
    
    677,241Goodwill
    
    
    2,325,838
    
    
    
    2,334,655Other intangibles, net
    
    
    487,913
    
    
    
    466,312Other assets
    
    
    143,648
    
    
    
    128,533Total assets
    
    $
    5,014,465
    
    
    $
    4,850,838LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    67,431
    
    
    $
    62,788Accrued compensation and benefits
    
    
    174,691
    
    
    
    175,782Other accrued liabilities
    
    
    453,273
    
    
    
    471,577Income taxes payable
    
    
    24,188
    
    
    
    2,310Deferred taxes
    
    
    34,083
    
    
    
    34,996Current portion of long-term debt
    
    
    6,466
    
    
    
    6,192Current portion of unearned revenue
    
    
    92,871
    
    
    
    84,469Liabilities related to assets held for sale
    
    
    9,877
    
    
    
    -Total current liabilities
    
    
    862,880
    
    
    
    838,114Senior Notes, net of unamortized discount
    
    
    499,308
    
    
    
    499,288Other long-term debt
    
    
    257,817
    
    
    
    251,067Deferred taxes
    
    
    255,679
    
    
    
    240,210Other long-term liabilities
    
    
    189,251
    
    
    
    183,731Total liabilities
    
    
    2,064,935
    
    
    
    2,012,410Commitments and contingencies (See Notes 11 and 14)Stockholders equity:Class A common stock
    
    
    1,384
    
    
    
    1,379Class B common stock
    
    
    66
    
    
    
    66Additional paid-in capital
    
    
    1,807,881
    
    
    
    1,792,629Accumulated other comprehensive loss, net
    
    
    (10,737
    )
    
    
    (10,910
    )Retained earnings
    
    
    2,110,320
    
    
    
    2,016,197Treasury stock at cost, 19,224 and 19,255 shares, respectively
    
    
    (959,384
    )
    
    
    (960,933
    )Total stockholders equity
    
    
    2,949,530
    
    
    
    2,838,428Total liabilities and stockholders equity
    
    $
    5,014,465
    
    
    $
    4,850,838
  1




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)
 (in thousands, except per share amounts)
 Three Months EndedSeptember 30,2005
    
    2004Revenues
    
    $
    1,310,917
    
    
    $
    1,046,182Expenses:Wages and benefits
    
    
    628,119
    
    
    
    431,848Services and supplies
    
    
    290,772
    
    
    
    275,062Rent, lease and maintenance
    
    
    155,172
    
    
    
    118,993Depreciation and amortization
    
    
    68,080
    
    
    
    54,319Other operating expenses
    
    
    14,011
    
    
    
    10,919Total operating expenses
    
    
    1,156,154
    
    
    
    891,141Operating income
    
    
    154,763
    
    
    
    155,041Interest expense
    
    
    12,128
    
    
    
    3,955Other non-operating (income) expense, net
    
    
    (4,381
    )
    
    
    434Pretax profit
    
    
    147,016
    
    
    
    150,652Income tax expense
    
    
    52,892
    
    
    
    56,495Net income
    
    $
    94,124
    
    
    $
    94,157Earnings per share:Basic
    
    $
    0.75
    
    
    $
    0.74Diluted
    
    $
    0.74
    
    
    $
    0.72Shares used in computing earnings per share:Basic
    
    
    125,429
    
    
    
    127,948Diluted
    
    
    127,222
    
    
    
    131,070
  2




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (in thousands)
 Three Months EndedSeptember 30,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    94,124
    
    
    $
    94,157Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    68,080
    
    
    
    54,319Stock-based compensation expense
    
    
    8,741
    
    
    
    -Excess tax benefits from stock-based compensation arrangements
    
    
    (6,982
    )
    
    
    -Tax benefit on stock options
    
    
    -
    
    
    
    9,402Provision for uncollectible accounts receivable
    
    
    3,250
    
    
    
    550Deferred income tax expense
    
    
    13,928
    
    
    
    27,796Other non-cash activities
    
    
    1,746
    
    
    
    3,423Changes in assets and liabilities, net of effects from acquisitions:(Increase) decrease in accounts receivable
    
    
    (73,805
    )
    
    
    10,235Increase in prepaid expenses and other current assets
    
    
    (8,767
    )
    
    
    (6,683
    )(Increase) decrease in other assets
    
    
    (9,328
    )
    
    
    3,757Increase (decrease) in accounts payable
    
    
    9,038
    
    
    
    (20,897
    )Decrease in accrued compensation and benefits
    
    
    (18,643
    )
    
    
    (46,958
    )Decrease in other accrued liabilities
    
    
    (20,319
    )
    
    
    (19,878
    )Increase in income taxes payable
    
    
    32,577
    
    
    
    15,780Increase (decrease) in unearned revenue
    
    
    12,931
    
    
    
    (10,430
    )Increase in other long-term liabilities
    
    
    1,255
    
    
    
    4,550Total adjustments
    
    
    13,702
    
    
    
    24,966Net cash provided by operating activities
    
    
    107,826
    
    
    
    119,123Cash flows from investing activities:Purchases of property, equipment and software, net
    
    
    (94,777
    )
    
    
    (61,587
    )Payments for acquisitions, net of cash acquired
    
    
    (42,644
    )
    
    
    (70,705
    )Additions to other intangible assets
    
    
    (6,906
    )
    
    
    (9,360
    )Intangible assets acquired in subcontract termination
    
    
    (16,530
    )
    
    
    -Purchases of investments
    
    
    (4,515
    )
    
    
    (4,541
    )Additions to notes receivable
    
    
    -
    
    
    
    (1,076
    )Proceeds received on notes receivable
    
    
    -
    
    
    
    2,419Other
    
    
    -
    
    
    
    (8
    )Net cash used in investing activities
    
    
    (165,372
    )
    
    
    (144,858
    )Cash flows from financing activities:Proceeds from issuance of long-term debt, net
    
    
    383,461
    
    
    
    404,980Repayments of long-term debt
    
    
    (377,708
    )
    
    
    (415,643
    )Proceeds from stock options exercised
    
    
    14,739
    
    
    
    13,040Excess tax benefits from stock-based compensation arrangements
    
    
    6,982
    
    
    
    -Proceeds from issuance of treasury shares
    
    
    1,613
    
    
    
    6,036Net cash provided by financing activities
    
    
    29,087
    
    
    
    8,413Net decrease in cash and cash equivalents
    
    
    (28,459
    )
    
    
    (17,322
    )Cash and cash equivalents at beginning of period
    
    
    62,685
    
    
    
    76,899Cash and cash equivalents at end of period
    
    $
    34,226
    
    
    $
    59,577
  3




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1.
   BASIS OF PRESENTATION
    2.
   STOCK-BASED COMPENSATION
   Three Months EndedSeptember 30, 2004Net IncomeAs reported
    
    $
    94,157Less: Pro forma cost of employee stock-based
compensation plans, net of income taxes of $2,668
    
    
    (5,566
    )Pro forma
    
    $
    88,591Basic earnings per shareAs reported
    
    $
    0.74Pro forma
    
    $
    0.69Diluted earnings per shareAs reported
    
    $
    0.72Pro forma
    
    $
    0.68
  4




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
      5




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     Weighted-AverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    Intrinsic ValueOptions
    
    
    Exercise Price
    
    
    Term
    
    
    (in thousands)Outstanding at June 30, 2005
    
    
    15,356,700
    
    
    $
    39.61
    
    
    
    7.42Granted
    
    
    1,362,000
    
    
    
    52.99Exercised
    
    
    (510,980
    )
    
    
    28.85Canceled(1)
    
    
    (1,733,500
    )
    
    
    39.17Outstanding as of September 30, 2005
    
    
    14,474,220
    
    
    $
    41.30
    
    
    
    7.47
    
    
    $
    192,705Vested and exercisable at September 30, 2005
    
    
    5,424,670
    
    
    $
    32.38
    
    
    
    5.86
    
    
    $
    120,526
 (1)
    
    Includes
the purchase of 610,000 vested options and the cancellation of
640,000 unvested options related to the departure of our former Chief
Executive Officer.
 3.
   ACQUISITIONS
    6




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 4.
   ASSETS HELD FOR SALE
   Assets held for saleAccounts receivable, net
    
    $
    35,881Property, equipment and software, net
    
    
    3,019Intangible assets, net
    
    
    10,145Goodwill
    
    
    16,892Other assets
    
    
    1,359Total assets held for sale
    
    $
    67,296Liabilities related to assets held for saleAccounts payable
    
    $
    5,195Accrued compensation and benefits
    
    
    3,577Accrued liabilities
    
    
    200Other liabilities
    
    
    905Total liabilities related to assets held for sale
    
    $
    9,877
 5.
   GOODWILL AND OTHER INTANGIBLE ASSETS
  Commercial
    
    Government
    
    TotalBalance as of June 30, 2005
    
    $
    1,217,727
    
    
    $
    1,116,928
    
    
    $
    2,334,655Acquisition activity
    
    
    7,368
    
    
    
    707
    
    
    
    8,075Assets held for sale
    
    
    -
    
    
    
    (16,892
    )
    
    
    (16,892
    )Balance as of September 30, 2005
    
    $
    1,225,095
    
    
    $
    1,100,743
    
    
    $
    2,325,838
  7




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  September 30, 2005
    
    June 30, 2005Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationAmortized intangible assets:Acquired customer-related
intangibles
    
    $
    364,854
    
    
    $
    (77,269
    )
    
    $
    377,314
    
    
    $
    (76,515
    )Customer-related intangibles
    
    
    209,167
    
    
    
    (74,197
    )
    
    
    175,571
    
    
    
    (74,336
    )All other
    
    
    14,470
    
    
    
    (4,000
    )
    
    
    12,708
    
    
    
    (3,318
    )Total
    
    $
    588,491
    
    
    $
    (155,466
    )
    
    $
    565,593
    
    
    $
    (154,169
    )Unamortized
intangible assets:Title plant
    
    $
    51,045
    
    
    
    
    
    
    $
    51,045Trade name
    
    
    3,843
    
    
    
    
    
    
    
    3,843Total
    
    $
    54,888
    
    
    
    
    
    
    $
    54,888Aggregate Amortization:For the quarter ended September 30, 2005
    
    
    
    
    
    
    
    
    
    $
    18,012For the quarter ended September 30, 2004
    
    
    
    
    
    
    
    
    
    
    14,316Estimated amortization for the years ended June 30,2006
    
    
    
    
    
    
    
    
    
    $
    71,8632007
    
    
    
    
    
    
    
    
    
    
    66,3192008
    
    
    
    
    
    
    
    
    
    
    61,8912009
    
    
    
    
    
    
    
    
    
    
    54,0572010
    
    
    
    
    
    
    
    
    
    
    42,216
   6.   PENSION AND OTHER POST-EMPLOYMENT PLANS
  PensionPlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    1,410Interest cost
    
    
    1,166Expected return on assets
    
    
    (1,227
    )Net periodic benefit cost for defined benefit plans
    
    $
    1,349
 8




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  7.
   EQUITY
  8.
   COMPREHENSIVE INCOME
   Three Months EndedSeptember 30,2005
    
    2004Net income
    
    $
    94,124
    
    
    $
    94,157Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (225
    )
    
    
    779Amortization of unrealized loss on
hedging instruments (net of income tax
of $0.2 million)
    
    
    397
    
    
    
    -Comprehensive income
    
    $
    94,296
    
    
    $
    94,936
   9




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 9.
   EARNINGS PER SHARE
  Three Months EndedSeptember 30,2005
    
    2004Numerator for diluted earnings per share -
Income available to common stockholders
    
    $
    94,124
    
    
    $
    94,157Denominator:Weighted average shares outstanding (basic)
    
    
    125,429
    
    
    
    127,948Effect of dilutive securities:Stock options
    
    
    1,793
    
    
    
    3,122Total potential common shares
    
    
    1,793
    
    
    
    3,122Denominator for earnings per share assuming dilution
    
    
    127,222
    
    
    
    131,070Earnings per share (basic)
    
    $
    0.75
    
    
    $
    0.74Earnings per share assuming dilution
    
    $
    0.74
    
    
    $
    0.72
  10. SEGMENT INFORMATION
  Commercial
    
    
    Government
    
    
    Corporate
    
    
    ConsolidatedThree months ended September
30, 2005Revenues
    
    $
    766,006
    
    
    $
    544,911
    
    
    $
    -
    
    
    $
    1,310,917Operating expenses (excluding
depreciation and amortization) (b)
    
    
    636,555
    
    
    
    422,676
    
    
    
    28,843
    
    
    
    1,088,074Depreciation and amortization
    
    
    45,086
    
    
    
    22,572
    
    
    
    422
    
    
    
    68,080Operating income
    
    $
    84,365
    
    
    $
    99,663
    
    
    $
    (29,265
    )
    
    $
    154,763Three months ended September
30, 2004Revenues (a)
    
    $
    494,663
    
    
    $
    551,519
    
    
    $
    -
    
    
    $
    1,046,182Operating expenses (excluding
depreciation and amortization) (b)
    
    
    384,769
    
    
    
    439,960
    
    
    
    12,093
    
    
    
    836,822Depreciation and amortization
    
    
    34,328
    
    
    
    19,475
    
    
    
    516
    
    
    
    54,319Operating income
    
    $
    75,566
    
    
    $
    92,084
    
    
    $
    (12,609
    )
    
    $
    155,041
  (a)
    
    Revenues in our Government segment include revenues from operations divested during
fiscal year 2004 of $0.5 million for the three months ended September 30, 2004.(b)
    
    Corporate operating expenses for the three months ended September 30, 2005 include $8.7
million of stock-based compensation expense pursuant to SFAS 123(R) and $0 for the three
months ended September 30, 2004 under our previous accounting method, APB 25. 10




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 11. COMMITMENTS AND CONTINGENCIES
    11




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
       12




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   12. DEPARTURE OF OUR FORMER CHIEF EXECUTIVE OFFICER
   13. NEW ACCOUNTING PRONOUNCEMENTS
  13




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 14. SUBSEQUENT EVENT
  14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   GENERAL
  New Business
 Stock-based Compensation
   15




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Acquisitions
  Departure of our former Chief Executive Officer
  16




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Government Healthcare Contract
 Assets held for sale
 SUBSEQUENT EVENT
  17




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REVENUE GROWTH
  Three months ended September 30,2005
    
    2004
    
    $ Growth
    
    Growth %Consolidated:Total Revenues
    
    $
    1,310,917
    
    
    $
    1,046,182
    
    
    $
    264,735
    
    
    
    25
    %Less: Divestitures (1)
    
    
    (81
    )
    
    
    (539
    )
    
    
    458Adjusted
    
    $
    1,310,836
    
    
    $
    1,045,643
    
    
    $
    265,193
    
    
    
    25
    %Acquired revenues (2)
    
    $
    225,762
    
    
    $
    4,355
    
    
    $
    221,407
    
    
    
    21
    %Internal revenues
    
    
    1,085,074
    
    
    
    1,041,288
    
    
    
    43,786
    
    
    
    4
    %Total
    
    $
    1,310,836
    
    
    $
    1,045,643
    
    
    $
    265,193
    
    
    
    25
    %Commercial:Total Revenues
    
    $
    766,006
    
    
    $
    494,663
    
    
    $
    271,343
    
    
    
    55
    %Less: Divestitures (1)
    
    
    -
    
    
    
    -
    
    
    
    -Adjusted
    
    $
    766,006
    
    
    $
    494,663
    
    
    $
    271,343
    
    
    
    55
    %Acquired revenues (2)
    
    $
    223,356
    
    
    $
    4,167
    
    
    $
    219,189
    
    
    
    44
    %Internal revenues
    
    
    542,650
    
    
    
    490,496
    
    
    
    52,154
    
    
    
    11
    %Total
    
    $
    766,006
    
    
    $
    494,663
    
    
    $
    271,343
    
    
    
    55
    %Government:Total Revenues
    
    $
    544,911
    
    
    $
    551,519
    
    
    $
    (6,608
    )
    
    
    (1
    )%Less: Divestitures (1)
    
    
    (81
    )
    
    
    (539
    )
    
    
    458Adjusted
    
    $
    544,830
    
    
    $
    550,980
    
    
    $
    (6,150
    )
    
    
    (1
    )%Acquired revenues (2)
    
    $
    2,406
    
    
    $
    188
    
    
    $
    2,218
    
    
    
    -Internal revenues
    
    
    542,424
    
    
    
    550,792
    
    
    
    (8,368
    )
    
    
    (1
    )%Total
    
    $
    544,830
    
    
    $
    550,980
    
    
    $
    (6,150
    )
    
    
    (1
    )%
 
 (1)
    
    Divested revenues are revenues of businesses divested as if the divestiture had
occurred at the beginning of the period.(2)
    
    Acquired revenues are based on pre-acquisition normalized revenues of acquired companies. 18




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##### Table of Contents



RESULTS OF OPERATIONS
  Three months endedSeptember 30,2005
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %Expenses:Wages and benefits
    
    
    47.9
    
    
    
    41.3Services and supplies
    
    
    22.2
    
    
    
    26.3Rent, lease and maintenance
    
    
    11.8
    
    
    
    11.4Depreciation and amortization
    
    
    5.2
    
    
    
    5.2Other operating expenses
    
    
    1.1
    
    
    
    1.0Total operating expenses
    
    
    88.2
    
    
    
    85.2Operating income
    
    
    11.8
    
    
    
    14.8Interest expense
    
    
    0.9
    
    
    
    0.4Other non-operating (income) expense, net
    
    
    (0.3
    )
    
    
    0.0Pretax profit
    
    
    11.2
    
    
    
    14.4Income tax expense
    
    
    4.0
    
    
    
    5.4Net income
    
    
    7.2
    %
    
    
    9.0
    %
 COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2005 TO THE THREE MONTHS ENDED SEPTEMBER 30,
2004
 Revenues
   Operating Expenses
 19




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##### Table of Contents



Interest Expense
 Other non-operating (income) expense, net
 Income tax expense
 LIQUIDITY AND CAPITAL RESOURCES
  Cash Flow
  20




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##### Table of Contents



Three months endedSeptember 30,2005
    
    2004Net cash provided by operating activities
    
    $
    107,826
    
    
    $
    119,123Purchases of property, equipment and software, net
    
    
    (94,777
    )
    
    
    (61,587
    )Additions to other intangible assets
    
    
    (6,906
    )
    
    
    (9,360
    )Free cash flow
    
    $
    6,143
    
    
    $
    48,176
     Credit arrangements
  21




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##### Table of Contents



Derivatives
 Share Repurchase Program
 Other
 22




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##### Table of Contents



DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
 AS OF SEPTEMBER 30, 2005 (IN THOUSANDS):
 Payments Due by PeriodLess thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    After 5 YearsSenior Notes, net of unamortized
discount (1)
    
    $
    499,308
    
    
    $
    -
    
    
    $
    -
    
    
    $
    249,920
    
    
    $
    249,388Long-term debt (1)
    
    
    252,737
    
    
    
    555
    
    
    
    58
    
    
    
    251,964
    
    
    
    160Capital lease obligations (1)
    
    
    11,546
    
    
    
    5,912
    
    
    
    5,120
    
    
    
    514
    
    
    
    -Operating leases
    
    
    670,168
    
    
    
    204,775
    
    
    
    271,003
    
    
    
    107,851
    
    
    
    86,539Purchase obligations
    
    
    24,511
    
    
    
    7,891
    
    
    
    15,308
    
    
    
    1,312
    
    
    
    -Total Contractual Cash Obligations
    
    $
    1,458,270
    
    
    $
    219,133
    
    
    $
    291,489
    
    
    $
    611,561
    
    
    $
    336,087Amount of Commitment Expiration per PeriodTotalAmounts
    
    Less thanOther Commercial Commitments
    
    Committed
    
    1 Year

    
    1-3 Years
    
    4-5 Years
    
    After 5 YearsStandby letters of credit
    
    $
    102,442
    
    
    $
    102,442
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Surety bonds
    
    
    294,582
    
    
    
    278,112
    
    
    
    14,598
    
    
    
    10
    
    
    
    1,862Total Commercial Commitments
    
    $
    397,024
    
    
    $
    380,554
    
    
    $
    14,598
    
    
    $
    10
    
    
    $
    1,862
 (1)
    
    Excludes accrued interest of $8.8 million at September 30, 2005.       23




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Revenue recognition
       24




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##### Table of Contents



Contingencies
  Valuation of goodwill and intangibles
 Share-Based Compensation
 25




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##### Table of Contents




    
    Expected volatility of our stock price based on historical monthly volatility over the expected term of the option.
    
    Expected term of the option based on historical employee stock
option exercise behavior, the vesting term of the respective option
and the contractual term.
    
    Risk-free interest rate for periods within the expected term of the option.
    
    Dividend yield.
   Pension and post-employment benefits
   Pension PlansDiscount rate
    
    
    5.00% - 5.25
    %Rate of increase in compensation levels
    
    
    4.25% - 4.40
    %
  Pension PlansDiscount rate
    
    
    5.00% - 5.25
    %Long-term rate of return on assets
    
    
    7.00% - 7.50
    %Rate of increase in compensation levels
    
    
    4.25% - 4.40
    %
  Allowance for doubtful accounts
 26




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##### Table of Contents



Income taxes
  NEW ACCOUNTING PRONOUNCEMENTS
  RISKS RELATED TO OUR BUSINESS
  Loss of, or reduction of business from, significant clients
 Impairment of investments made to attract clients
 Competition
 27




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##### Table of Contents



Difficulties in executing our acquisition strategy
 Failure to properly manage our operations and our growth
 Government clients - termination rights, audits and investigations
 Government clients  protests of contract awards
 Exercise of contract termination provisions and service level penalties
 28




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##### Table of Contents



Pricing risks
 Actuarial consulting services and benefit plan management  potential claims
 Loss of significant software vendor relationships
 Intellectual property infringement claims
 Rapid technological changes
 United States and Foreign Jurisdiction laws relating to individually identifiable information
 29




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##### Table of Contents



Security
 Budget deficits at, or fluctuations in the number of requests for proposals issued by, state
and local governments and their agencies
 International risks
 Armed hostilities and terrorist attacks
 Failure to attract and retain necessary technical personnel, skilled management and qualified
subcontractors
 Servicing Risks
 30




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##### Table of Contents



Disruption in Utility or Network Services
 Indemnification Risk
 Other Risks
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  31




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##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
    32




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Maximum number (orTotal number of
    
    approximate dollarshares purchased
    
    value) of shares thatTotal number
    
    Average
    
    as part of publicly
    
    may yet be purchasedof shares
    
    price paid per
    
    announced plans
    
    under the plans orPeriod
    
    purchased
    
    share
    
    or programs
    
    programsInception through June 30, 2005
    
    
    19,914,514
    
    
    $
    49.91
    
    
    
    19,914,514
    
    
    $
    256,010,038July 1  July 31, 2005
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    256,010,038August 1  August 31, 2005
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    256,010,038September 1  September 30, 2005
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    256,010,038Total  Quarter ended September
30, 2005
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    256,010,038Inception through September 30, 2005
    
    
    19,914,514
    
    
    $
    49.91
    
    
    
    19,914,514
    
    
    $
    256,010,038
 33




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Name
    
    For
    
    WithheldDarwin Deason
    
    
    166,666,827
    
    
    
    4,698,351Mark A. King
    
    
    168,012,376
    
    
    
    3,352,802Lynn R. Blodgett
    
    
    163,687,225
    
    
    
    7,677,953Joseph P. ONeill
    
    
    160,860,530
    
    
    
    10,504,648Frank A. Rossi
    
    
    168,835,961
    
    
    
    2,529,217J. Livingston Kosberg
    
    
    162,343,797
    
    
    
    9,021,381Dennis McCuistion
    
    
    169,413,831
    
    
    
    1,951,347
     
 ITEM 6. EXHIBITS
 a.)    Exhibits
  34




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##### Table of Contents



SIGNATURES
  AFFILIATED COMPUTER SERVICES, INC.By:
    
    /s/ Warren D. EdwardsWarren D. EdwardsExecutive Vice President andChief Financial Officer
 35




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name3.1
    
    Certificate of Incorporation of Affiliated Computer Services,
Inc. (filed as Exhibit 3.1 to our Registration Statement on Form
S-3, filed March 30, 2001, File No. 333-58038 and incorporated
herein by reference).3.2
    
    Certificate of Correction to Certificate of Amendment of
Affiliated Computer Services, Inc., dated August 30, 2001 (filed
as Exhibit 3.2 to our Annual Report on Form 10-K, filed
September 17, 2003 and incorporated herein by reference).3.3
    
    Bylaws of Affiliated Computer Services, Inc., as amended and in
effect on September 11, 2003 (filed as Exhibit 3.3 to our
Quarterly Report on Form 10-Q, filed February 17, 2004 and
incorporated herein by reference).4.1
    
    Form of New Class A Common Stock Certificate (filed as Exhibit
4.3 to our Registration Statement on Form S-1, filed May 26,
1994, File No. 33-79394 and incorporated herein by reference).4.2
    
    Amended and Restated Rights Agreement, dated April 2, 1999,
between Affiliated Computer Services, Inc. and First City
Transfer Company, as Rights Agent (filed as Exhibit 4.1 to our
Current Report on Form 8-K, filed May 19, 1999 and incorporated
herein by reference).4.3
    
    Amendment No. 1 to Amended and Restated Rights Agreement, dated
as of February 5, 2002, by and between Affiliated Computer
Services, Inc. and First City Transfer Company (filed as Exhibit
4.1 to our Current Report on Form 8-K, filed February 6, 2002
and incorporated herein by reference).4.4
    
    Form of Rights Certificate (included as Exhibit A to the Amended
and Restated Rights Agreement (Exhibit 4.3)).4.5
    
    Indenture, dated as of June 6, 2005, by and between Affiliated
Computer Services, Inc. as Issuer and The Bank of New York Trust
Company, N.A. as Trustee (filed as Exhibit 4.1 to our Current
Report on Form 8-K, filed June 6, 2005 and incorporated herein
by reference).4.6
    
    First Supplemental Indenture, dated as of June 6, 2005, by and
between Affiliated Computer Services, Inc. as Issuer and The
Bank of New York Trust Company, N.A. as Trustee, relating to our
4.70% Senior Notes due 2010 (filed as Exhibit 4.2 to our Current
Report on Form 8-K, filed June 6, 2005 and incorporated herein
by reference).4.7
    
    Second Supplemental Indenture, dated as of June 6, 2005, by and
between Affiliated Computer Services, Inc. as Issuer and The
Bank of New York Trust Company, N.A. as Trustee, relating to our
5.20% Senior Notes due 2015 (filed as Exhibit 4.3 to our Current
Report on Form 8-K, filed June 6, 2005 and incorporated herein
by reference).4.8
    
    Specimen Note for 4.70% Senior Notes due 2010 (filed as Exhibit
4.4 to our Current Report on Form 8-K, filed June 6, 2005 and
incorporated herein by reference).4.9
    
    Specimen Note for 5.20% Senior Notes due 2015 (filed as Exhibit
4.5 to our Current Report on Form 8-K, filed June 6, 2005 and
incorporated herein by reference).10.1
    
    Independent Director Compensation (filed as Item 1.01 of our
Current Report on Form 8-K, filed August 29, 2005 and
incorporated herein by reference).10.2
    
    Named Executive Officer Compensation (filed as Item 1.01 of our
Current Report on Form 8-K, filed September 14, 2005 and
incorporated herein by reference).10.3
    
    Named Executive Officer Compensation (filed as Item 1.01 of our
Current Report on Form 8-K, filed October 3, 2005 and
incorporated herein by reference).10.4
    
    Agreement, dated as of September 30, 2005, between Affiliated
Computer Services, Inc. and Jeffrey A. Rich (filed as Exhibit
10.1 to our Current Report on Form 8-K, filed October 3, 2005
and incorporated herein by reference).31.1*
    
    Certification of Chief Executive Officer of Affiliated Computer
Services, Inc. pursuant to Rule 13a-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.31.2*
    
    Certification of Chief Financial Officer of Affiliated Computer
Services, Inc. pursuant to Rule 13a-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer of Affiliated Computer
Services, Inc. pursuant to Rule 13a-14(b) promulgated under the
Securities Exchange Act of 1934, as amended and Section 1350 of
Chapter 63 of Title 18 of the United States Code. Pursuant to
SEC Release 34-47551, this Exhibit is furnished to the SEC and
shall not be deemed to be filed.
 36




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INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name32.2*
    
    Certification of Chief Financial Officer of Affiliated Computer
Services, Inc. pursuant to Rule 13a-14(b) promulgated under the
Securities Exchange Act of 1934, as amended and Section 1350 of
Chapter 63 of Title 18 of the United States Code. Pursuant to
SEC Release 34-47551, this Exhibit is furnished to the SEC and
shall not be deemed to be filed.
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement. 37