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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|                               |  |               
|------------------------------ |  | --------------
|For the quarterly period ended |  | March 31, 2002
|                               |  |               

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period from ________ to _______

Commission file number 0-24787

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)

Registrants telephone number, including area code (214) 841-6111

|                                                                                   
|-----------------------------------------------------------------------------------
|NOT APPLICABLE                                                                     
|                                                                                   
|(Former name, former address and former fiscal year, if changed since last
report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [   ]

Indicate the number of shares outstanding of each of the registrants classes of
common stock, as of the latest practicable date.

|                                     |  |                                 |             | 
|------------------------------------ |  | ------------------------------- | ----------- | 
|                                     |  | NUMBER OF SHARES OUTSTANDING AS
|TITLE OF EACH CLASS                  |  | OF MAY 9, 2002                 
|                                     |  |                                
|Class A Common Stock, $.01 par value |  |                                 | 125,237,999 | 
|Class B Common Stock, $.01 par value |  |                                 | 6,599,372   | 
|                                     |  |                                 |             | 
|                                     |  |                                 | 131,837,371 | 





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TABLE OF CONTENTS



|                                                                                      |                                                   |                                            |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|                                                                                      |                                                   | CONSOLIDATED BALANCE SHEETS               
|                                                                                      |                                                   | CONSOLIDATED STATEMENTS OF INCOME         
|                                                                                      |                                                   | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                                                      |                                                   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II                                                                              
|                                                                                      | ITEM 1. LEGAL PROCEEDINGS                        
|                                                                                      | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
|                                                                                      | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K         
|SIGNATURES                                                                           



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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES

INDEX

|         |  |                                                                                       |  |        |                                                                                               |  |      |        | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ------ | --------------------------------------------------------------------------------------------- |  | ---- | ------ | 
|         |  |                                                                                       |  |        |                                                                                               |  | PAGE
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  | NUMBER
|         |  |                                                                                       |  |       
|Item 1.  |  | Consolidated Financial Statements:                                                    |  |        |                                                                                               | 
|         |  |                                                                                       |  |        | Consolidated Balance Sheets at March 31, 2002 and
June 30, 2001                               |  |      | 1      | 
|         |  |                                                                                       |  |        | Consolidated Statements of Income for the Three and
Nine Months Ended March 31, 2002 and 2001 |  |      | 2      | 
|         |  |                                                                                       |  |        | Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 2002 and 2001       |  |      | 3      | 
|         |  |                                                                                       |  |        | Notes to Consolidated Financial Statements                                                    |  |      | 4 - 11 | 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  |        | 12 - 17                                                                                       | 
|PART II. |  | OTHER INFORMATION                                                                     |  |        |                                                                                               | 
|Item 1.  |  | Legal Proceedings                                                                     |  |        | 18                                                                                            | 
|Item 2.  |  | Changes in Securities and Use of Proceeds                                             |  |        | 18                                                                                            | 
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |        | 19                                                                                            | 





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##### Table of Contents






AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

|                                       |                                                     |                            |                                            |                                      |           |             |         |           |         |           |  | 
|-------------------------------------- | --------------------------------------------------- | -------------------------- | ------------------------------------------ | ------------------------------------ | --------- | ----------- | ------- | --------- | ------- | --------- |  | 
|                                       |                                                     |                            |                                            |                                      |           | MARCH 31,   |         | JUNE 30, 
|                                       |                                                     |                            |                                            |                                      |           | 2002        |         | 2001     
|                                       |                                                     |                            |                                            |                                      |           | (UNAUDITED) |         | (AUDITED)
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     |                            |                                            | ASSETS                               |           |             |         |           |         |           |  | 
|Current assets:                        |                                                     |                            |                                            |                                      |           |             |         |          
|                                       | Cash and cash equivalents                           |                            | $                                          | 45,201                               |           |             | $       | 242,458   |        
|                                       | Accounts receivable, net                            |                            |                                            | 658,283                              |           |             |         | 472,042   |        
|                                       | Inventory                                           |                            |                                            | 11,561                               |           |             |         | 8,591     |        
|                                       | Prepaid expenses and other current assets           |                            |                                            | 99,055                               |           |             |         | 77,572    |        
|                                       | Deferred taxes                                      |                            |                                            | 2,793                                |           |             |         | 8,952     |        
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     |                            | Total current assets                       |                                      |           | 816,893     |         |           |         | 809,615   | 
|Property, equipment and software, net  |                                                     |                            | 334,639                                    |                                      |           |             | 237,563 |          
|Intangibles, net                       |                                                     |                            | 161,902                                    |                                      |           |             | 97,160  |          
|Goodwill, net                          |                                                     |                            | 1,458,473                                  |                                      |           |             | 697,760 |          
|Long-term investments and other assets |                                                     |                            | 43,804                                     |                                      |           |             | 49,589  |          
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     |                            | Total assets                               |                                      | $         | 2,815,711   |         |           | $       | 1,891,687 | 
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     |                            |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |           |             |         |           |         |           |  | 
|Current liabilities:                   |                                                     |                            |                                            |                                      |           |             |         |          
|                                       | Accounts payable                                    |                            | $                                          | 49,691                               |           |             | $       | 40,265    |        
|                                       | Accrued compensation and benefits                   |                            |                                            | 90,209                               |           |             |         | 82,043    |        
|                                       | Other accrued liabilities                           |                            |                                            | 192,394                              |           |             |         | 126,875   |        
|                                       | Income taxes payable                                |                            |                                            | 12,385                               |           |             |         | 7,742     |        
|                                       | Deferred taxes                                      |                            |                                            | 2,058                                |           |             |         |          |        
|                                       | Short-term debt                                     |                            |                                            | 825                                  |           |             |         | 3,362     |        
|                                       | Current portion of unearned revenue                 |                            |                                            | 36,913                               |           |             |         | 20,765    |        
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     |                            | Total current liabilities                  |                                      |           | 384,475     |         |           |         | 281,052   | 
|Convertible notes                      |                                                     |                            | 316,990                                    |                                      |           |             | 546,927 |          
|Long-term debt                         |                                                     |                            | 204                                        |                                      |           |             | 102,386 |          
|Deferred taxes                         |                                                     |                            | 85,154                                     |                                      |           |             | 55,601  |          
|Other long-term liabilities            |                                                     |                            | 16,314                                     |                                      |           |             | 20,206  |          
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     |                            | Total liabilities                          |                                      |           | 803,137     |         |           |         | 1,006,172 | 
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|Stockholders equity:                  |                                                     |                            |                                            |                                      |           |             |         |          
|                                       | Class A common stock                                |                            |                                            | 1,250                                |           |             |         | 473       |        
|                                       | Class B common stock                                |                            |                                            | 66                                   |           |             |         | 33        |        
|                                       | Additional paid-in capital                          |                            |                                            | 1,318,928                            |           |             |         | 350,767   |        
|                                       | Retained earnings                                   |                            |                                            | 692,298                              |           |             |         | 534,374   |        
|                                       | Accumulated other comprehensive income (net of tax) |                            |                                            | 32                                   |           |             |         | (132      | )      
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     | Total stockholders equity |                                            |                                      | 2,012,574 |             |         |           | 885,515 |          
|                                       |                                                     |                            |                                            |                                      |           |             |         |          
|                                       |                                                     |                            | Total liabilities and stockholders equity |                                      | $         | 2,815,711   |         |           | $       | 1,891,687 | 
|                                       |                                                     |                            |                                            |                                      |           |             |         |          

See notes to consolidated financial statements.

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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |     |         |         |           | 
|--------------------------------------------------- | ------- | ----------------------------- | ------- | ------------------------ | ------- | ------------------ | ------- | ----------------- | ------- | ------- | --------- | ---- | ------- | ------- | --------- | --- | ------- | ------- | --------- | 
|                                                    |         |                               |         |                          |         | THREE MONTHS ENDED |         | NINE MONTHS ENDED
|                                                    |         |                               |         |                          |         | MARCH 31,          |         | MARCH 31,        
|                                                    |         |                               |         |                          |         |                    |         |                  
|                                                    |         |                               |         |                          |         | 2002               |         | 2001              |         | 2002    |           | 2001
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |     
|Revenues                                            |         | $                             | 800,687 |                          |         | $                  | 533,574 |                   |         | $       | 2,206,133 |      |         | $       | 1,513,082 |    
|Expenses:                                           |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    |         | Wages and benefits            |         |                          | 351,890 |                    |         |                   | 232,220 |         |           |      | 976,180 |         |           |     | 660,851 |        
|                                                    |         | Services and supplies         |         |                          | 240,696 |                    |         |                   | 157,796 |         |           |      | 638,274 |         |           |     | 438,778 |        
|                                                    |         | Rent, lease and maintenance   |         |                          | 67,815  |                    |         |                   | 53,621  |         |           |      | 206,675 |         |           |     | 169,010 |        
|                                                    |         | Depreciation and amortization |         |                          | 26,890  |                    |         |                   | 24,586  |         |           |      | 78,804  |         |           |     | 68,254  |        
|                                                    |         | Other operating expenses      |         |                          | 8,055   |                    |         |                   | 3,584   |         |           |      | 21,896  |         |           |     | 15,522  |        
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    |         |                               |         | Total operating expenses |         |                    | 695,346 |                   |         |         | 471,807   |      |         |         | 1,921,829 |     |         |         | 1,352,415 | 
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    |         | Operating income              |         |                          | 105,341 |                    |         |                   | 61,767  |         |           |      | 284,304 |         |           |     | 160,667 |        
|Interest expense                                    |         |                               | 5,789   |                          |         |                    | 6,375   |                   |         |         | 25,971    |      |         |         | 16,250    |    
|Other non-operating expense (income), net           |         |                               | 7,199   |                          |         |                    | (2,301  | )                 |         |         | 6,825     |      |         |         | (16,659   | )  
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    |         |                               |         | Pretax profit            |         |                    | 92,353  |                   |         |         | 57,693    |      |         |         | 251,508   |     |         |         | 161,076   | 
|Income tax expense                                  |         |                               | 30,323  |                          |         |                    | 22,500  |                   |         |         | 90,005    |      |         |         | 63,336    |    
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    |         | Net income                    |         | $                        | 62,030  |                    |         | $                 | 35,193  |         |           | $    | 161,503 |         |           | $   | 97,740  |        
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|Earnings per common share:                          |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    | Basic   |                               | $       | .51                      |         |                    | $       | .35               |         |         | $         | 1.41 |         |         | $         | .98 |        
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    | Diluted |                               | $       | .46                      |         |                    | $       | .32               |         |         | $         | 1.27 |         |         | $         | .90 |        
|                                                    |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|Shares used in computing earnings
per common share: |         |                               |         |                          |         |                    |         |                   |         |         |           |      |         |         |           |    
|                                                    |         |                               | Basic   |                          |         | 122,795            |         |                   |         | 99,928  |           |      |         | 114,253 |           |     |         | 99,472  |          
|                                                    |         |                               | Diluted |                          |         | 142,776            |         |                   |         | 117,346 |           |      |         | 135,553 |           |     |         | 114,490 |          

See notes to consolidated financial statements.

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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |          |         |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------------------------------------------- | -------- | ----------------- | ------- | ------- | -------- | ------- | ------- | -
|                                                     |                                                                                   |                                                                      |                                                                  |          | NINE MONTHS ENDED
|                                                     |                                                                                   |                                                                      |                                                                  |          | MARCH 31,        
|                                                     |                                                                                   |                                                                      |                                                                  |          |                  
|                                                     |                                                                                   |                                                                      |                                                                  |          | 2002              |         | 2001   
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |        
|Cash flows from operating activities:                |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     | Net income                                                                        |                                                                      | $                                                                | 161,503  |                   |         | $       | 97,740   |        
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     | Adjustments to reconcile net income to net cash provided by operating
activities: |                                                                      |                                                                  |          |                   |         |         |          |        
|                                                     |                                                                                   | Depreciation and amortization                                        |                                                                  |          | 78,804            |         |         |          | 68,254  |        
|                                                     |                                                                                   | Gain on sale of investment                                           |                                                                  |          |                  |         |         |          | (12,785 | )      
|                                                     |                                                                                   | Loss on investments                                                  |                                                                  |          | 8,449             |         |         |          |        |        
|                                                     |                                                                                   | Other                                                                |                                                                  |          | 446               |         |         |          | (1,474  | )      
|                                                     |                                                                                   | Changes in assets and liabilities, net of effects from acquisitions: |                                                                  |          |                   |         |         |          |         |        
|                                                     |                                                                                   |                                                                      | Increase in accounts receivable                                  |          |                   | (77,078 | )       |          |         | (52,729 | )
|                                                     |                                                                                   |                                                                      | Increase in inventory                                            |          |                   | (2,565  | )       |          |         | (1,109  | )
|                                                     |                                                                                   |                                                                      | Increase (decrease) in prepaid expenses and other current assets |          |                   | (4,565  | )       |          |         | 7,972   |  
|                                                     |                                                                                   |                                                                      | Change in deferred taxes                                         |          |                   | 38,468  |         |          |         | 31,175  |  
|                                                     |                                                                                   |                                                                      | Increase (decrease) in other long-term assets                    |          |                   | (2,777  | )       |          |         | 2,186   |  
|                                                     |                                                                                   |                                                                      | Increase (decrease) in accounts payable                          |          |                   | 7,823   |         |          |         | (21,322 | )
|                                                     |                                                                                   |                                                                      | Decrease in accrued compensation and benefits                    |          |                   | (18,405 | )       |          |         | (2,662  | )
|                                                     |                                                                                   |                                                                      | (Increase) decrease in other accrued liabilities                 |          |                   | 12,520  |         |          |         | (9,962  | )
|                                                     |                                                                                   |                                                                      | Change in income taxes payable                                   |          |                   | 19,466  |         |          |         | (37,815 | )
|                                                     |                                                                                   |                                                                      | Decrease in unearned revenue                                     |          |                   | (1,022  | )       |          |         | (5,476  | )
|                                                     |                                                                                   |                                                                      | Increase (decrease) in other long-term liabilities               |          |                   | (2,958  | )       |          |         | 713     |  
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     |                                                                                   | Total adjustments                                                    |                                                                  |          | 56,606            |         |         |          | (35,034 | )      
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     |                                                                                   | Net cash provided by operating activities                            |                                                                  |          | 218,109           |         |         |          | 62,706  |        
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|Cash flows from investing activities:                |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     | Purchases of property, equipment and software, net of sales                       |                                                                      |                                                                  | (100,607 | )                 |         |         | (68,740  | )      
|                                                     | Payments for acquisitions, net of cash acquired                                   |                                                                      |                                                                  | (911,755 | )                 |         |         | (87,047  | )      
|                                                     | Proceeds from (payments on) divestitures, net of transaction costs                |                                                                      |                                                                  | (4,013   | )                 |         |         | 206,235  |        
|                                                     | Purchase of investments                                                           |                                                                      |                                                                  | (4,129   | )                 |         |         | (500     | )      
|                                                     | Proceeds from sale of investments                                                 |                                                                      |                                                                  |         |                   |         |         | 17,100   |        
|                                                     | Additions to other intangible assets                                              |                                                                      |                                                                  | (10,945  | )                 |         |         | (20,743  | )      
|                                                     | Additions to notes receivable                                                     |                                                                      |                                                                  | (3,014   | )                 |         |         | (3,229   | )      
|                                                     | Proceeds received on notes receivable                                             |                                                                      |                                                                  | 3,158    |                   |         |         | 8,913    |        
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     |                                                                                   | Net cash provided (used) by investing activities                     |                                                                  |          | (1,031,305        | )       |         |          | 51,989  |        
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|Cash flows from financing activities:                |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     | Proceeds from issuance of debt, net of issuance costs                             |                                                                      |                                                                  | 810,360  |                   |         |         | 674,983  |        
|                                                     | Repayments of debt                                                                |                                                                      |                                                                  | (921,315 | )                 |         |         | (566,089 | )      
|                                                     | Proceeds from equity offering, net                                                |                                                                      |                                                                  | 714,292  |                   |         |         |         |        
|                                                     | Proceeds from stock options exercised                                             |                                                                      |                                                                  | 13,402   |                   |         |         | 8,400    |        
|                                                     | Other                                                                             |                                                                      |                                                                  | (800     | )                 |         |         | (296     | )      
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|                                                     |                                                                                   | Net cash provided by financing activities                            |                                                                  |          | 615,939           |         |         |          | 116,998 |        
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                      | (197,257                                                         | )        |                   |         | 231,693 |         
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                      | 242,458                                                          |          |                   |         | 44,521  |         
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                    | 45,201                                                           |          |                   | $       | 276,214 |         
|                                                     |                                                                                   |                                                                      |                                                                  |          |                   |         |         |         

See notes to consolidated financial statements.

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

|   |  |                      
|-- |  | ---------------------
|1. |  | BASIS OF PRESENTATION



| |  |  | The consolidated financial statements include the accounts of Affiliated
Computer Services, Inc. (ACS) and its majority-owned subsidiaries. All
material intercompany profits, transactions and balances have been
eliminated. We are a Fortune 1000 company comprised of approximately 30,000
full-time equivalent employees in 35 countries providing business process
and technology outsourcing solutions to world-class commercial and
government clients.                                              
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The financial information presented should be read in conjunction with our
consolidated financial statements for the year ended June 30, 2001. The
foregoing unaudited consolidated financial statements reflect all
adjustments (all of which are of a normal recurring nature) which are, in
the opinion of management, necessary for a fair presentation of the results
of the interim periods. The results for the interim periods are not
necessarily indicative of results to be expected for the year.
|
| |  |  | All share and per share information is presented after giving effect to the
two-for-one stock split of our Class A and Class B common shares declared on
January 22, 2002, paid on February 22, 2002 in the form of a stock dividend
to shareholders of record as of February 15, 2002.                                                                                                                                                                                                                      

|   |  |                    
|-- |  | -------------------
|2. |  | EQUITY TRANSACTIONS



| |  |  | On March 15, 2002, we completed the redemption of our 4% Convertible
Subordinated Notes due March 15, 2005 (the Notes). Holders of all of the
outstanding Notes converted their Notes to shares of our Class A common
stock in accordance with Article XII of the Indenture dated as of March 20,
1998 between ACS and U.S Trust Company of Texas, N.A., as trustee prior to
the March 15, 2002 redemption date. As the result of such conversions,
10,780,887 shares of our Class A common stock were issued to such holders.                                                                                                                                                                                                                                                                                                                                                                        
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On February 22, 2002, we completed a two-for-one stock split of our
outstanding Class A common stock and Class B common stock implemented in the
form of a 100% stock dividend (Stock Split). Each holder of record of our
Class A Common Stock and Class B Common Stock as of the close of business on
February 15, 2002 received an additional share of such stock held by them at
that time. In connection with the Stock Split, the number of shares of Class
A common stock reserved for issuance or subject to outstanding options
granted under our employee stock option or other benefit plans, as well as
the number of shares reserved for issuance under our 4% Convertible
Subordinated Notes due March 15, 2005 and 3.5% Convertible Subordinated
Notes due February 15, 2006, were proportionately increased in accordance
with the terms of such options, plans and other instruments.
|
| |  |  | On October 10, 2001, we completed our offering of 18.4 million shares of our
Class A common stock. The shares were issued at $40.50 per share. Net
proceeds of $714.3 million (net of underwriters fees and other costs) were
used to repay the $550 million 18-month interim credit facility we obtained
in connection with the IMS acquisition (described below) and a portion of
the amount outstanding under our revolving credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|   |  |             
|-- |  | ------------
|3. |  | ACQUISITIONS



| |  |  | In August 2001, we acquired 100% of the stock of Lockheed Martin IMS
Corporation (IMS), now known as ACS State and Local
Solutions, a wholly-owned subsidiary of Lockheed Martin Corporation for approximately $825
million. The acquisition was funded from a $550 million 18-month interim
credit facility, borrowings from our existing revolving credit facility, and
existing cash on hand. IMS results have been included in our consolidated
financial statements from the effective date of the acquisition, August 1,
2001. IMS provides business process outsourcing services to more than 230
state and local government agencies in 45 U.S. states, the District of
Columbia, Canada, Australia, and Europe. IMS specializes in child support
enforcement, welfare and workforce services, child care management,
electronic toll collection, and other intelligent transportation services
involving the trucking industry, photo enforcement of red-light and speeding
violations, parking management, and information technology outsourcing. We
believe the acquisition of IMS solidifies ACS as a leader in technology
based outsourcing solutions to state and local government agencies.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



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

|   |  |                         
|-- |  | ------------------------
|3. |  | ACQUISITIONS (CONTINUED)



| |  |  | The acquisition was accounted for under the purchase method of accounting
with assets acquired of $932.3 million and liabilities assumed of $107.3
million. The purchase price was allocated to assets acquired and liabilities
assumed based on the estimated fair value at July 31, 2001 as follows (in
thousands):
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 |                           |   |         |         | 
|-------------------------------- | ------------------------- | - | ------- | ------- | 
|Current Assets                   |                           | $ | 117,114 |        
|Property, equipment and software |                           |   | 50,972  |        
|Other long-term assets           |                           |   | 2,826   |        
|Intangible assets                |                           |   | 64,300  |        
|Goodwill                         |                           |   | 697,045 |        
|                                 |                           |   |         |        
|                                 | Total assets acquired     |   |         | 932,257 | 
|Current liabilities              |                           |   | 107,257 |        
|                                 |                           |   |         |        
|                                 | Total liabilities assumed |   |         | 107,257 | 
|                                 |                           |   |         |        
|                                 | Net assets acquired       |   | $       | 825,000 | 
|                                 |                           |   |         |        



| |  |  | The total amount of goodwill is expected to be fully deductible for tax
purposes. Software of $41.5 million is included in property, equipment and
software and has an anticipated useful life ranging from 2 to 10 years. The
$64.3 million of acquired intangible assets is attributable to customer
contracts with an aggregate anticipated useful life of approximately 11
years.                            
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Pro forma Financial Information                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | The following unaudited pro forma information presents a summary of our
consolidated results of operations as if the IMS acquisition had occurred
at the beginning of the periods presented and are not necessarily
indicative of future results or actual results that would have been
achieved had the acquisition occurred at the beginning of the periods
presented (in thousands, except per share amounts).

|                           |  |                            |         |                           |  |      |         |      |  |   |           |  |  |   |           | 
|-------------------------- |  | -------------------------- | ------- | ------------------------- |  | ---- | ------- | ---- |  | - | --------- |  |  | - | --------- | 
|                           |  | FOR THE THREE MONTHS ENDED |         | FOR THE NINE MONTHS ENDED
|                           |  | MARCH 31,                  |         | MARCH 31,                
|                           |  |                            |         |                          
|                           |  | 2002                       |         | 2001                      |  | 2002 |         | 2001
|                           |  |                            |         |                           |  |      |         |     
|Revenue                    |  | $                          | 800,687 |                           |  | $    | 679,306 |      |  | $ | 2,257,786 |  |  | $ | 1,975,765 | 
|Net income                 |  |                            | 62,030  |                           |  |      | 36,676  |      |  |   | 163,497   |  |  |   | 112,125   | 
|Earnings per common share: |  |                            |         |                           |  |      |         |      |  |   |           |  |  |   |           | 
|Basic                      |  | $                          | .51     |                           |  | $    | .37     |      |  | $ | 1.43      |  |  | $ | 1.13      | 
|Diluted                    |  | $                          | .46     |                           |  | $    | .33     |      |  | $ | 1.28      |  |  | $ | 1.03      | 



| |  |  | We have completed four other acquisitions during fiscal year 2002. The most
significant was the acquisition of the business process outsourcing
services unit of National Processing Company (NPC). NPC provides
healthcare claims processing, credit card application processing and
airline lift ticket processing. As part of the transaction, we acquired all
of NPCs offshore operations in Jamaica, the Dominican Republic, Barbados
and a majority of NPCs Mexican operations. The transaction value was $43
million plus related transaction costs, with assets acquired of $50.3
million and liabilities assumed of $7.3 million. We recorded goodwill of
$25.8 million (which is fully deductible for tax purposes) and $2.8 million
in intangible assets. The $2.8 million intangible assets are attributable
to customer contracts with an aggregate anticipated useful life of
approximately 3 years. NPCs operating results are included in our
financial statements from the effective date of the acquisition, August 1,
2001. Of the three other acquisitions we completed during fiscal year 2002,
two are included in our commercial segment and the other is included in our
federal government segment. These acquisitions are not considered material
to our results of operations; therefore no pro forma information is
presented.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



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

|   |  |                         
|-- |  | ------------------------
|4. |  | NEW ACCOUNTING STANDARDS



| |  |  | In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 (SFAS 141) Business Combinations
and No. 142 (SFAS 142) Goodwill and Other Intangible Assets. SFAS 141
requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as intangible assets apart from goodwill. SFAS 142
requires that ratable amortization of goodwill be replaced with periodic
tests of the goodwills impairment and that intangible assets other than
goodwill be amortized over their useful lives. SFAS 141 is effective for all
business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. We adopted the provisions of SFAS 141
and SFAS 142 effective July 1, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 144, (SFAS 144) Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 retains the fundamental provisions
of existing generally accepted accounting principles with respect to the
recognition and measurement of long-lived asset impairment contained in
Statement of Financial Accounting Standards No. 121 (SFAS 121) Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. However, SFAS No. 144 provides new guidance intended to
address certain significant implementation issues associated with SFAS 121,
including expanded guidance with respect to appropriate cash flows to be
used to determine whether recognition of any long-lived asset impairment is
required, and if required, how to measure the amount of the impairment. SFAS
144 also requires that any net assets to be disposed of by sale be reported
at the lower of carrying value or fair market value less cost to sell, and
expands the reporting of discontinued operations to include any component of
an entity with operations and cash flows that can be clearly distinguished
from the rest of the entity. SFAS 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. We do not believe SFAS 144 will have a
material impact on our future earnings and financial position.
|
| |  |  | In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 145 (SFAS 145), Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other things, SFAS 145 rescinds both Statement of
Financial Standards No. 4 (SFAS 4) Reporting Gains and Losses from
Extinguishment of Debt, and the amendment to SFAS 4, Statement of Financial
Standards No. 64 (SFAS 64), Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. Through this rescission, SFAS 145 eliminates the
requirement (in both SFAS 4 and SFAS 64) that gains and losses from the
extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. Generally, SFAS
145 is effective for transactions occurring after May 15, 2002. We do not
believe SFAS 145 will have a material impact on our future earnings and
financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

6



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##### Table of Contents



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

|   |  |                                                            
|-- |  | -----------------------------------------------------------
|5. |  | GOODWILL AND OTHER INTANGIBLE ASSETS  ADOPTION OF SFAS 142



| |  |  | The following table reflects the effect of SFAS 142 on net income and
earnings per share as if SFAS 142 had been in effect for all periods
presented:
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|                            |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |        | 
|--------------------------- | ----------------------------------------------------------------------------------------- | - | --------------------------------------- | --- | --------------------------------------- | - | ------ | ----- | ---- | - | ------- | ---- |  |  | ------- | ------ | 
|                            |                                                                                           |   | FOR THE THREE MONTHS ENDED              |     | FOR THE NINE MONTHS ENDED              
|                            |                                                                                           |   | MARCH 31,                               |     | MARCH 31,                              
|                            |                                                                                           |   |                                         |     |                                        
|                            |                                                                                           |   | 2002                                    |     | 2001                                    |   | 2002   |       | 2001
|                            |                                                                                           |   |                                         |     |                                         |   |        |       |     
|                            |                                                                                           |   | (in thousands except per share amounts) |     | (in thousands except per share amounts)
|Net income                  |                                                                                           | $ | 62,030                                  |     |                                         | $ | 35,193 |       |      | $ | 161,503 |      |  |  | 97,740  |       
|                            | Add back goodwill amortization, net of
related tax benefit ($956 and $2,716
respectively) |   |                                         |    |                                         |   |        | 5,256 |      |   |         |     |  |  |         | 15,311 | 
|                            |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       
|Adjusted net income         |                                                                                           | $ | 62,030                                  |     |                                         | $ | 40,449 |       |      | $ | 161,503 |      |  |  | 113,051 |       
|                            |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       
|Basic earnings per share:   |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       
|                            | Reported net income                                                                       |   | $                                       | .51 |                                         |   | $      | .35   |      |   | $       | 1.41 |  |  |         | .98    | 
|                            | Add back goodwill amortization (net of
tax benefit)                                       |   |                                         |    |                                         |   |        | .05   |      |   |         |     |  |  |         | .15    | 
|                            |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       
|Adjusted net income         |                                                                                           | $ | .51                                     |     |                                         | $ | .40    |       |      | $ | 1.41    |      |  |  | 1.13    |       
|                            |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       
|Diluted earnings per share: |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       
|                            | Reported net income                                                                       |   | $                                       | .46 |                                         |   | $      | .32   |      |   | $       | 1.27 |  |  |         | .90    | 
|                            | Add back goodwill amortization (net of
tax benefit)                                       |   |                                         |    |                                         |   |        | .04   |      |   |         |     |  |  |         | .13    | 
|                            |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       
|                            | Adjusted net income                                                                       |   | $                                       | .46 |                                         |   | $      | .36   |      |   | $       | 1.27 |  |  |         | 1.03   | 
|                            |                                                                                           |   |                                         |     |                                         |   |        |       |      |   |         |      |  |  |         |       

|   |  |                                   
|-- |  | ----------------------------------
|6. |  | DERIVATIVES AND HEDGING ACTIVITIES



| |  |  | In order to manage interest costs and exposure to changing interest rates,
we held two interest rate hedges, designated as cash flow hedges, which were
initiated in December 1998. Both interest rate hedges expired in December
2001. Each hedge was structured such that we paid a fixed rate of interest
of 4.54%, and received a floating rate of interest based on one month LIBOR.
The notional amount of the two hedges totaled $100 million and the fair
market value of the two hedges at March 31, 2002 and June 30, 2001 was $0
and ($355,000), respectively. The fair value of each interest rate hedge
reflected termination cash value. The fair value of the interest rate
hedges, net of $0 and $139,000 tax benefit, respectively, was reflected in
Accumulated other comprehensive income (net of tax).
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In order to manage the volatility of the value of our marketable security
investment of $979,000, we entered into a no-cost collar agreement in June
2001, which will mature in July 2002. The collar, a fair value hedge, is
structured so that all fluctuations in the price of the marketable security
above or below 100% or 102.5% of its value on the date the collar was
entered into are hedged. As of March 31, 2002 and June 30, 2001, the collar
had fair market values of ($1,000) and $27,000, respectively.                                                                                                                                                                                                                                                                                                   

7



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

|   |  |                     
|-- |  | --------------------
|7. |  | COMPREHENSIVE INCOME



| |  |  | We have adopted Statement of Financial Accounting Standards No. 130 (SFAS
130), Reporting Comprehensive Income. The objective of SFAS 130 is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners. Comprehensive income is the total of net income and other
non-owner charges in equity.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The components of comprehensive income are as follow (in the thousands):                                                                                                                                                                                                                                                                                                                                        

|                                                                                                 |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        | 
|------------------------------------------------------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- |  |  | - | ------ | 
|                                                                                                 |  | THREE MONTHS ENDED |        | NINE MONTHS ENDED
|                                                                                                 |  | MARCH 31,          |        | MARCH 31,        
|                                                                                                 |  |                    |        |                  
|                                                                                                 |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                                                                                 |  |                    |        |                   |  |      |        |     
|Net income                                                                                       |  | $                  | 62,030 |                   |  | $    | 35,193 |      |  | $ | 161,503 |  |  | $ | 97,740 | 
|Change in fair value of derivatives (net
of tax effect of $0, ($492), $158 and
$15 respectively) |  |                    |       |                   |  |      | (754   | )    |  |   | 164     |  |  |   | 23     | 
|                                                                                                 |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        | 
|Comprehensive income                                                                             |  | $                  | 62,030 |                   |  | $    | 34,439 |      |  | $ | 161,667 |  |  | $ | 97,763 | 
|                                                                                                 |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        | 

|   |  |         
|-- |  | --------
|8. |  | GOODWILL



| |  |  | The changes in the carrying amount of goodwill for the quarter ended March
31, 2002 are as follow (in thousands):
| |  |  | -----------------------------------------------------------------------------------------------------------------

|                                     |  |            |           |            |  |         |         |  |  |   |           | 
|------------------------------------ |  | ---------- | --------- | ---------- |  | ------- | ------- |  |  | - | --------- | 
|                                     |  |            |           |            |  | FEDERAL |         |  |  |  
|                                     |  | COMMERCIAL |           | GOVERNMENT |  | TOTAL  
|                                     |  |            |           |            |  |        
|Balance as of December 31, 2001      |  | $          | 1,299,135 |            |  | $       | 122,873 |  |  | $ | 1,422,008 | 
|Goodwill activity during the quarter |  |            | 24,913    |            |  |         | 11,552  |  |  |   | 36,465    | 
|                                     |  |            |           |            |  |         |         |  |  |   |           | 
|Balance as of March 31, 2002         |  | $          | 1,324,048 |            |  | $       | 134,425 |  |  | $ | 1,458,473 | 
|                                     |  |            |           |            |  |         |         |  |  |   |           | 



| |  |  | The goodwill activity during the quarter is primarily due to two
acquisitions in our commercial and federal government segments as well as
the refinement of the third-party valuation of the IMS acquisition in the
current quarter.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |  |                  
|-- |  | -----------------
|9. |  | INTANGIBLE ASSETS

|                              |                                       |       |   |                                     |         |              |   |         |         |  
|----------------------------- | ------------------------------------- | ----- | - | ----------------------------------- | ------- | ------------ | - | ------- | ------- | -
|                              |                                       |       |   | AS OF MARCH 31, 2002 (IN THOUSANDS)
|                              |                                       |       |   |                                    
|                              |                                       |       |   | GROSS CARRYING                      |         | ACCUMULATED 
|                              |                                       |       |   | AMOUNT                              |         | AMORTIZATION
|                              |                                       |       |   |                                     |         |             
|Amortized intangible assets:  |                                       |       |   |                                     |         |              |   |        
|                              | Customer contract related intangibles |       | $ | 156,454                             |         |              | $ | (46,761 | )      
|                              | All other                             |       |   | 3,115                               |         |              |   | (1,706  | )      
|                              |                                       |       |   |                                     |         |              |   |        
|                              |                                       | Total |   | $                                   | 159,569 |              |   | $       | (48,467 | )
|                              |                                       |       |   |                                     |         |              |   |        
|Unamortized intangible asset: |                                       |       |   |                                     |         |              |   |        
|                              | Title plant                           |       | $ | 50,800                              |         |              |   |         |        
|                              |                                       |       |   |                                     |         |              |   |        
|                              |                                       | Total |   | $                                   | 50,800  |              |   |         |         |  
|                              |                                       |       |   |                                     |         |              |   |        

8



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##### Table of Contents



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

|   |  |                              
|-- |  | -----------------------------
|9. |  | INTANGIBLE ASSETS (CONTINUED)

|                                |                                      |  |   |        | 
|------------------------------- | ------------------------------------ |  | - | ------ | 
|Aggregate amortization expense: |                                      |  |   |       
|                                | For
the quarter ended March 31, 2002 |  | $ | 5,456  | 
|Estimated amortization expense: |                                      |  |   |       
|                                | For the year ended June 30, 2002     |  | $ | 21,808 | 
|                                | For the year ended June 30, 2003     |  | $ | 19,621 | 
|                                | For the year ended June 30, 2004     |  | $ | 16,175 | 
|                                | For the year ended June 30, 2005     |  | $ | 13,324 | 
|                                | For the year ended June 30, 2006     |  | $ | 12,035 | 



| |  |  | Customer contract-related intangibles are amortized over a weighted average
of approximately 8 years. All other intangibles are amortized over a
weighted average of 11 years.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |  |                   
|--- |  | ------------------
|10. |  | EARNINGS PER SHARE



| |  |  | In accordance with Statement of Financial Accounting Standard No. 128,
Earnings per Share, the following table (in thousands except per share
amounts) sets forth the computation of basic and diluted earnings per share
after giving effect to the two-for-one stock split paid on February 22, 2002
(see Note 2):
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |         |         |        | 
|------------------------------------------- | ---------------------------------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------- | ------- | ------------------ | ------ | ----------------- | ------- | ------ | ------ | ---- | ------- | ------- | ------ | --- | ------- | ------- | ------ | 
|                                            |                                                      |                                                                                              |                                               |         | THREE MONTHS ENDED |        | NINE MONTHS ENDED
|                                            |                                                      |                                                                                              |                                               |         | MARCH 31,          |        | MARCH 31,        
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                  
|                                            |                                                      |                                                                                              |                                               |         | 2002               |        | 2001              |         | 2002   |        | 2001
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |     
|Numerator:                                  |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|                                            |                                                      | Numerator
for earnings per share (basic)
Income available to common stockholders             |                                               | $       | 62,030             |        |                   | $       | 35,193 |        |      | $       | 161,503 |        |     | $       | 97,740  |       
|                                            |                                                      | Effect of dilutive securities:                                                               |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |         |         |       
|                                            |                                                      |                                                                                              | Interest on 4% convertible debt, net of tax   |         |                    | 1,283  |                   |         |        | 1,540  |      |         |         | 4,369  |     |         |         | 4,615  | 
|                                            |                                                      |                                                                                              | Interest on 3.5% convertible debt, net of tax |         |                    | 2,070  |                   |         |        | 834    |      |         |         | 6,187  |     |         |         | 834    | 
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|                                            |                                                      | Numerator for earnings per share assuming
Dilution  income available to common stockholders |                                               | $       | 65,383             |        |                   | $       | 37,567 |        |      | $       | 172,059 |        |     | $       | 103,189 |       
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|Denominator:                                |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|                                            |                                                      | Weighted average shares outstanding (basic)                                                  |                                               |         | 122,795            |        |                   |         | 99,928 |        |      |         | 114,253 |        |     |         | 99,472  |       
|                                            |                                                      | Effect of dilutive securities:                                                               |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |         |         |       
|                                            |                                                      |                                                                                              | 4% convertible debt                           |         |                    | 8,588  |                   |         |        | 10,784 |      |         |         | 10,061 |     |         |         | 10,784 | 
|                                            |                                                      |                                                                                              | 3.5% convertible debt                         |         |                    | 7,298  |                   |         |        | 3,046  |      |         |         | 7,298  |     |         |         | 1,000  | 
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|                                            |                                                      |                                                                                              | Stock options                                 |         |                    | 4,095  |                   |         |        | 3,588  |      |         |         | 3,941  |     |         |         | 3,234  | 
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|                                            |                                                      |                                                                                              | Total potential common shares                 |         |                    | 19,981 |                   |         |        | 17,418 |      |         |         | 21,300 |     |         |         | 15,018 | 
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|                                            | Denominator for earnings per share assuming dilution |                                                                                              |                                               | 142,776 |                    |        |                   | 117,346 |        |        |      | 135,553 |         |        |     | 114,490 |        
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|Earnings per common share (basic)           |                                                      | $                                                                                            | .51                                           |         |                    | $      | .35               |         |        | $      | 1.41 |         |         | $      | .98 |        
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        
|Earnings per common share assuming dilution |                                                      | $                                                                                            | .46                                           |         |                    | $      | .32               |         |        | $      | 1.27 |         |         | $      | .90 |        
|                                            |                                                      |                                                                                              |                                               |         |                    |        |                   |         |        |        |      |         |         |        |     |        

9



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##### Table of Contents



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

|    |  |                    
|--- |  | -------------------
|11. |  | NON-RECURRING ITEMS



| |  |  | In the third quarter of fiscal 2002, we recorded a $7.4 million loss ($4.7
million, net of tax) in Other non-operating (income) expense, net
associated with a write-down of a cost-basis investment to its estimated
realizable value.                                                                                                                                                                      
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Included in tax expense in the third quarter of fiscal 2002 is a one-time
tax benefit of approximately $4.3 million resulting primarily from recently
enacted federal income tax rules that provide for a larger tax deduction
associated with our June 2000 divestitures and deferred tax adjustments to
reflect realization of tax deductions for which their probability is no
longer uncertain.            
|
| |  |  | In the first quarter of fiscal 2001, we recorded a $12.8 million gain in
Other non-operating (income) expense, net related to the sale of a
non-strategic minority investment in ACS Merchant Services, Inc.                                                                                                                                                                                                 
|
| |  |  | In the first quarter of fiscal 2001, we recorded a $10.4 million charge in
connection with the termination of certain hardware leases and disaster
recovery contracts, which is included in Rent, lease and maintenance
expense. In addition, we recorded a $2.1 million charge for non-recurring
litigation costs and the writedown of property held-for-sale to market value
to Other operating expenses.

|    |  |                    
|--- |  | -------------------
|12. |  | SEGMENT INFORMATION



| |  |  | Based on the criteria set forth in Statement of Financial Accounting
Standard No. 131, Disclosure about Segments of an Enterprise and Related
Information, we have two reportable segments: commercial and federal
government. Certain reclassifications have been made to the segment
disclosure as the result of changes to our reporting structure. The
following is a summary of certain financial information by reportable
segment (in thousands):
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         | 
|----------------------------------- |  | ---------- | ------- | ---------- |  | --------- | ------- | ------------ |  | - | ------ | - |  | - | ------- | 
|Quarter Ended March 31, 2002        |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         | 
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         | 
|                                    |  |            |         |            |  | Federal   |         |              |  |   |        |   |  |  
|                                    |  | Commercial |         | Government |  | Corporate |         | Consolidated
|                                    |  |            |         |            |  |           |         |             
|Revenue                             |  | $          | 591,035 |            |  | $         | 209,652 |              |  | $ |       |   |  | $ | 800,687 | 
|Operating expense                   |  |            | 469,462 |            |  |           | 189,721 |              |  |   | 9,273  |   |  |   | 668,456 | 
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         | 
|EBITDA(a)                           |  |            | 121,573 |            |  |           | 19,931  |              |  |   | (9,273 | ) |  |   | 132,231 | 
|Depreciation & amortization expense |  |            | 22,183  |            |  |           | 4,212   |              |  |   | 495    |   |  |   | 26,890  | 
|Goodwill amortization               |  |            |        |            |  |           |        |              |  |   |       |   |  |   |        | 
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         | 
|Operating income                    |  | $          | 99,390  |            |  | $         | 15,719  |              |  | $ | (9,768 | ) |  | $ | 105,341 | 
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         | 

|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         |    
|----------------------------------- |  | ---------- | ------- | ---------- |  | --------- | ------- | ------------ |  | - | ------ | - |  | - | ------- | ---
|Quarter Ended March 31, 2001        |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         |    
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         |    
|                                    |  |            |         |            |  | Federal   |         |              |  |   |        |   |  |  
|                                    |  | Commercial |         | Government |  | Corporate |         | Consolidated
|                                    |  |            |         |            |  |           |         |             
|Revenue                             |  | $          | 343,427 | (b)        |  | $         | 190,147 |              |  | $ |       |   |  | $ | 533,574 | (b)
|Operating expense                   |  |            | 272,347 |            |  |           | 170,627 |              |  |   | 4,247  |   |  |   | 447,221 |    
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         |    
|EBITDA(a)                           |  |            | 71,080  |            |  |           | 19,520  |              |  |   | (4,247 | ) |  |   | 86,353  |    
|Depreciation & amortization expense |  |            | 15,020  |            |  |           | 2,871   |              |  |   | 483    |   |  |   | 18,374  |    
|Goodwill amortization               |  |            | 5,019   |            |  |           | 1,193   |              |  |   |       |   |  |   | 6,212   |    
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         |    
|Operating income                    |  | $          | 51,041  |            |  | $         | 15,456  |              |  | $ | (4,730 | ) |  | $ | 61,767  |    
|                                    |  |            |         |            |  |           |         |              |  |   |        |   |  |   |         |    



---

|(a) |  | EBITDA consists of earnings before interest income, interest expense, other
non-operating income and expense, income taxes, depreciation and
amortization. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as an alternative to net income as an indicator of a companys
performance or to cash flows from operations as a measure of liquidity.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes revenue of $7.9 million for the three months ended March 31, 2001
related to divestitures.                                                                                                                                                                                                                                                                                                                                           

10



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##### Table of Contents



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

|    |  |                                
|--- |  | -------------------------------
|12. |  | SEGMENT INFORMATION (CONTINUED)

|                                    |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           | 
|----------------------------------- |  | ---------- | --------- | ---------- |  | --------- | ------- | ------------ |  | - | ------- | - |  | - | --------- | 
|Nine Months Ended March 31, 2002    |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           | 
|                                    |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           | 
|                                    |  |            |           |            |  | Federal   |         |              |  |   |         |   |  |  
|                                    |  | Commercial |           | Government |  | Corporate |         | Consolidated
|                                    |  |            |           |            |  |           |         |             
|Revenue                             |  | $          | 1,615,164 |            |  | $         | 590,969 |              |  | $ |        |   |  | $ | 2,206,133 | 
|Operating expense                   |  |            | 1,289,158 |            |  |           | 531,918 |              |  |   | 21,949  |   |  |   | 1,843,025 | 
|                                    |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           | 
|EBITDA(a)                           |  |            | 326,006   |            |  |           | 59,051  |              |  |   | (21,949 | ) |  |   | 363,108   | 
|Depreciation & amortization expense |  |            | 64,625    |            |  |           | 12,671  |              |  |   | 1,508   |   |  |   | 78,804    | 
|Goodwill amortization               |  |            |          |            |  |           |        |              |  |   |        |   |  |   |          | 
|                                    |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           | 
|Operating income                    |  | $          | 261,381   |            |  | $         | 46,380  |              |  | $ | (23,457 | ) |  | $ | 284,304   | 
|                                    |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           | 

|                                    |  |            |         |            |  |           |         |              |  |   |         |   |  |   |           |    
|----------------------------------- |  | ---------- | ------- | ---------- |  | --------- | ------- | ------------ |  | - | ------- | - |  | - | --------- | ---
|Nine Months Ended March 31, 2001    |  |            |         |            |  |           |         |              |  |   |         |   |  |   |           |    
|                                    |  |            |         |            |  |           |         |              |  |   |         |   |  |   |           |    
|                                    |  |            |         |            |  | Federal   |         |              |  |   |         |   |  |  
|                                    |  | Commercial |         | Government |  | Corporate |         | Consolidated
|                                    |  |            |         |            |  |           |         |             
|Revenue                             |  | $          | 959,170 | (b)        |  | $         | 553,912 |              |  | $ |        |   |  | $ | 1,513,082 | (b)
|Operating expense                   |  |            | 773,215 | (c)        |  |           | 499,045 |              |  |   | 11,901  |   |  |   | 1,284,161 | (c)
|                                    |  |            |         |            |  |           |         |              |  |   |         |   |  |   |           |    
|EBITDA(a)                           |  |            | 185,955 |            |  |           | 54,867  |              |  |   | (11,901 | ) |  |   | 228,921   |    
|Depreciation & amortization expense |  |            | 40,692  |            |  |           | 8,339   |              |  |   | 1,196   |   |  |   | 50,227    |    
|Goodwill amortization               |  |            | 14,505  |            |  |           | 3,522   |              |  |   |        |   |  |   | 18,027    |    
|                                    |  |            |         |            |  |           |         |              |  |   |         |   |  |   |           |    
|Operating income                    |  | $          | 130,758 |            |  | $         | 43,006  |              |  | $ | (13,097 | ) |  | $ | 160,667   |    
|                                    |  |            |         |            |  |           |         |              |  |   |         |   |  |   |           |    

|    |  |                 
|--- |  | ----------------
|13. |  | SUBSEQUENT EVENT

On May 3, 2002, we acquired the domestic finance and accounting business process
outsourcing unit of Andersen Worldwide. This business generated revenue of approximately
$55 million for the year ended December 31, 2001.
Included in this acquisition are contracts with General Motors (GM) and the
University of Phoenix (University). Under a new 10-year agreement with GM, we will provide
transactional accounting services such as payroll processing, disbursement
processing, dealer accounting, accounts receivable processing, lease and
subsidiary accounting and expense reporting. Under the arrangement with the
University, we will provide student financial aid business process
outsourcing services to the University including federal eligibility
determinations, loan and grant processing, and disbursement of student aid as
well as other support services related to student financial aid processing.



---

|(a) |  | EBITDA consists of earnings before interest income, interest expense, other
non-operating income and expense, income taxes, depreciation and
amortization. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as an alternative to net income as an indicator of a companys
performance or to cash flows from operations as a measure of liquidity.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes revenue of $24 million for the nine months ended March 31, 2001
related to divestitures.                                                                                                                                                                                                                                                                                                                                             
|   
|(c) |  | Operating expense includes $12.5 million of non-recurring charges related to
hardware lease buyouts and disaster recovery contracts, legal fees and a
writedown of property held-for-sale to market value (see Note 11).                                                                                                                                                                                                                      

11



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##### Table of Contents






MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Managements Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All statements, other than statements of historical facts, included in
this MD&A regarding our financial position, business strategy and plans and
objectives of our management for future operations are forward-looking
statements. 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
events include, but are not necessarily limited to: (i) uncertainties caused by
terrorist attacks on September 11, 2001 and the threat of other attacks, acts of
war or other related events that may disrupt the markets in which we operate,
our customers, our operations and our profitability; (ii) the loss of business
from significant customers; (iii) the impairment of our capital investments as
the result of the deterioration of the financial condition of our customers in
whom we have made a significant capital investment; (iv) the competition in the
information technology industry and the impact of such competition on pricing,
revenues and margins; (v) difficulty or inability to execute our acquisition
strategy; (vi) timing and magnitude of technological advances; (vii) loss of
significant vendor(s) resulting in increased expense or inability to serve our
customers; (viii) provisions in our contracts permitting termination for
convenience, permitting termination of or subjecting us to penalties under
certain contracts, if specified service levels are not maintained, and/or
permitting audits of our pricing and compliance; (ix) changes in federal, state
or local government requirements imposing additional burdens and subjecting us
to additional expenditures and increased compliance risk; and (x) the cost of
attracting and retaining highly skilled personnel. These risks and uncertainties
and other risks and uncertainties are discussed in more detail in the Risk
Factors section of our Prospectus Supplement dated October 3, 2001, which has
been filed with the Securities and Exchange Commission. In addition, we operate
in a highly 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 undertake no obligation to
update any forward looking statements.

SIGNIFICANT DEVELOPMENTS

NINE MONTHS ENDED MARCH 31, 2002

In the third quarter of fiscal 2002, we recorded a $7.4 million loss in Other
non-operating (income) expense, net associated with a write-down of a
cost-basis investment to its estimated realizable value. Included in tax expense
in the third quarter of fiscal 2002 is a one-time tax benefit of approximately
$4.3 million resulting primarily from recently enacted federal income tax rules
that provide for a larger tax deduction associated with our June 2000
divestitures and deferred tax adjustments to reflect realization of tax
deductions for which their probability is no longer uncertain.

On March 15, 2002, we completed the redemption of our 4% Convertible
Subordinated Notes due March 15, 2005 (the Notes). Holders of all of the
outstanding Notes converted their Notes to shares of our Class A common stock in
accordance with Article XII of the Indenture dated as of March 20, 1998 between
ACS and U.S Trust Company of Texas, N.A., as trustee prior to the March 15, 2002
redemption date. As the result of such conversions, 10,780,887 shares of our
Class A common stock were issued to such holders.

On February 22, 2002, we completed a two-for-one stock split of our outstanding
Class A Common Stock and Class B Common Stock implemented in the form of a 100%
stock dividend (Stock Split). Each holder of record of our Class A common
stock and Class B common stock as of the close of business on February 15, 2002
received an additional share of such stock held by them at that time. In
connection with the Stock Split, the number of shares of Class A Common Stock
reserved for issuance or subject to outstanding options granted under our
employee stock option or other benefit plans, as well as the number of shares
reserved for issuance under our 4% Convertible Subordinated Notes due March 15,
2005 and 3.5% Convertible Subordinated Notes due February 15, 2006, were
proportionately increased in accordance with the terms of such options, plans
and other instruments.

On October 10, 2001, we completed our offering of 18.4 million shares of our
Class A common stock. The shares were issued at $40.50 per share. Net proceeds
of $714.3 million (net of underwriters fees and other costs) were used to repay
the $550 million 18-month interim credit facility incurred to fund the IMS
acquisition (described below) and a portion of the amount outstanding under our
revolving credit facility.

12



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##### Table of Contents



In August 2001, we acquired Lockheed Martin IMS Corporation (IMS), now known
as ACS State and Local Solutions, a wholly-owned subsidiary of Lockheed Martin
Corporation. IMS, with its principal offices located in Washington D.C. and
approximately 4,800 employees primarily throughout the United States, provides
services to state and local government agencies in child support enforcement,
welfare and workforce services, child care management, electronic toll
collection, and other intelligent transportation services involving the trucking
industry, photo enforcement of red-light and speeding violations, parking
management, and information technology outsourcing. The transaction, valued at
$825 million plus related transaction costs, was initially funded through a
combination of a $550 million, 18-month interim credit facility, borrowings on
our existing credit facility and existing cash on hand. IMS operating results
are included in our financial statements from the effective date of the
acquisition, August 1, 2001.

Also in August 2001, we acquired the business process outsourcing services unit
of National Processing Company (NPC). NPC provides healthcare claims
processing, credit card application processing and airline lift ticket
processing. As part of the transaction, we acquired all of NPCs offshore
operations in Jamaica, the Dominican Republic, Barbados and a majority of NPCs
Mexican operations. The transaction value was $43 million plus related
transaction costs. NPCs operating results are included in our financial
statements from the effective date of the acquisition, August 1, 2001.

NINE MONTHS ENDED MARCH 31, 2001

During the third quarter of fiscal year 2001, we completed the sale of a new
issue of $317 million of 3.5% Convertible Subordinated Notes due February 15,
2006 (the 3.5% Notes). The 3.5% Notes are convertible into our Class A common
stock at a conversion rate of 23.0234 shares of Class A common stock for each
$1,000 principal amount of 3.5% Notes (equivalent to a conversion price of
$43.44 per share of Class A common stock), subject to adjustments in certain
events. Interest on the 3.5% Notes is payable semi-annually on February 15 and
August 15 of each year commencing on August 15, 2001. The 3.5% Notes may be
redeemed at our option on or after February 18, 2004, in whole or in part, at
the redemption prices set forth in the 3.5% Notes.

During the first quarter of fiscal year 2001, we recorded a $12.8 million gain
in Other non-operating (income) expense, net associated with the sale of a
certain non-strategic minority investment in ACS Merchant Services, Inc. In
addition, we recorded non-recurring charges totaling $12.5 million related to
the termination of certain computer equipment leases and consolidation of
disaster recovery contracts ($10.4 million recorded in Rent, lease and
maintenance) and litigation expense and the writedown of a facility
held-for-sale to market value ($2.1 million recorded in Other operating
expenses).

RESULTS OF OPERATIONS

The following table sets forth certain items from our consolidated statements of
income as a percentage of revenues:

|                                          |                               |                          |     |                    |      |                   |      |      |      |      |     |      |      |  |      |      |      | 
|----------------------------------------- | ----------------------------- | ------------------------ | --- | ------------------ | ---- | ----------------- | ---- | ---- | ---- | ---- | --- | ---- | ---- |  | ---- | ---- | ---- | 
|                                          |                               |                          |     | THREE MONTHS ENDED |      | NINE MONTHS ENDED
|                                          |                               |                          |     | MARCH 31,          |      | MARCH 31,        
|                                          |                               |                          |     |                    |      |                  
|                                          |                               |                          |     | 2002               |      | 2001              |      | 2002 |      | 2001
|                                          |                               |                          |     |                    |      |                   |      |      |      |     
|Revenues                                  |                               |                          | 100 | %                  |      |                   | 100  | %    |      |      | 100 | %    |      |  | 100  | %   
|Expenses:                                 |                               |                          |     |                    |      |                   |      |      |      |      |     |      |      |  |      |     
|                                          | Wages and benefits            |                          |     | 43.8               |      |                   |      | 43.5 |      |      |     | 44.2 |      |  |      | 43.7 |     
|                                          | Services and supplies         |                          |     | 30.1               |      |                   |      | 29.6 |      |      |     | 28.9 |      |  |      | 29.0 |     
|                                          | Rent, lease and maintenance   |                          |     | 8.5                |      |                   |      | 10.0 |      |      |     | 9.4  |      |  |      | 11.2 |     
|                                          | Depreciation and amortization |                          |     | 3.4                |      |                   |      | 4.6  |      |      |     | 3.6  |      |  |      | 4.5  |     
|                                          | Other operating expenses      |                          |     | 1.0                |      |                   |      | 0.7  |      |      |     | 1.0  |      |  |      | 1.0  |     
|                                          |                               |                          |     |                    |      |                   |      |      |      |      |     |      |      |  |      |     
|                                          |                               | Total operating expenses |     |                    | 86.8 |                   |      |      | 88.4 |      |     |      | 87.1 |  |      |      | 89.4 | 
|                                          |                               |                          |     |                    |      |                   |      |      |      |      |     |      |      |  |      |     
|                                          | Operating income              |                          |     | 13.2               |      |                   |      | 11.6 |      |      |     | 12.9 |      |  |      | 10.6 |     
|Interest expense                          |                               |                          | 0.7 |                    |      |                   | 1.2  |      |      |      | 1.2 |      |      |  | 1.1  |     
|Other non-operating expense (income), net |                               |                          | 1.0 |                    |      |                   | (0.4 | )    |      |      | 0.3 |      |      |  | (1.1 | )   
|                                          |                               |                          |     |                    |      |                   |      |      |      |      |     |      |      |  |      |     
|                                          | Pretax profit                 |                          |     | 11.5               |      |                   |      | 10.8 |      |      |     | 11.4 |      |  |      | 10.6 |     
|                                          | Income tax expense            |                          |     | 3.8                |      |                   |      | 4.2  |      |      |     | 4.1  |      |  |      | 4.2  |     
|                                          |                               |                          |     |                    |      |                   |      |      |      |      |     |      |      |  |      |     
|                                          | Net income                    |                          |     | 7.7                | %    |                   |      | 6.6  | %    |      |     | 7.3  | %    |  |      | 6.4  | %   
|                                          |                               |                          |     |                    |      |                   |      |      |      |      |     |      |      |  |      |     

13



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COMPARISON OF THE QUARTER ENDED MARCH 31, 2002 TO THE QUARTER ENDED MARCH 31, 2001

Revenue increased $275.0 million to $800.7 million in the third quarter of
fiscal year 2002 from $525.7 million (excluding $7.9 million revenue from
divested units) in third quarter of fiscal year 2001. Revenues from our
commercial segment increased 76% (excluding the $7.9 million in revenue from
divested units) to $591.0 million. Internal revenue growth for the commercial
segment was 18% and growth from acquisitions was 58%. Internal growth is
primarily due to increased revenues in business process outsourcing from our
state healthcare and state and local government customers. Revenue in our
government segment increased 10% in the third quarter of fiscal year 2002 to
$209.7 million from $190.1 million in the same period last year. Internal
revenue growth was 7% and growth from acquisitions was 3% for our government
segment. For the consolidated group internal growth was 14% and growth from
acquisitions was 38%.

After adjusting for the application of SFAS 142 (see Note
5), operating income increased $37.3 million to $105.3 million in the third
quarter of fiscal year 2002 as compared to $68.0 million for the third quarter
of fiscal year 2001, primarily due to the impact of the IMS and NPC acquisitions
in the first quarter of fiscal year 2002, as well as the internal growth
discussed above.

After adjusting for the application of SFAS 142 (see Note 5), our operating
margins increased to 13.2% in the third quarter of fiscal year 2002 from 12.7%
in the third quarter of fiscal year 2001. Wages and benefits increased 0.3% and
services and supplies increased 0.5%, while rent, lease and maintenance
decreased 1.5% as a percentage of revenue due to our increasing BPO business mix
that has a higher mix of salaries and benefits than hardware and maintenance
costs. Depreciation and amortization remained constant at 3.4% as a percentage
of revenue after adjusting for the application of SFAS 142.

Included in other non-operating (income) expense in the third quarter of fiscal
year 2002 is a $7.4 million loss on the write down of a cost-basis investment to
its estimated realizable value. Excluding this loss, other income decreased $2.1
million due to interest income earned during the third quarter of fiscal 2001 on
cash balances from the issuance and related proceeds from the February 2001 3.5
% Convertible Subordinated Notes.

Tax expense for the third quarter of fiscal year 2002 includes a one-time tax
benefit of $4.3 million (see Note 11). Excluding this benefit, our effective tax
rate of approximately 37.5% in the third quarter of fiscal year 2002 exceeded
the federal statutory rate of 35% due primarily to the net effect of state
income taxes. Our effective tax rate decreased 1.5% from 39.0% from the third
quarter of fiscal year 2001 due to the application of SFAS 142 (see Note 5).

COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2002 TO THE NINE MONTHS ENDED
MARCH 31, 2001

Revenue increased 46% to $2.2 billion in the nine months ended March 31, 2002 as
compared to the nine months ended March 31, 2001. Internal revenue growth was
12% and 36% was growth from acquisitions. Revenue growth in our commercial
segment, excluding revenue from divested units, was 73% with 20% internal growth
and 53% acquisition growth. In our government segment, revenue increased $37.1
million, or 7%, primarily from internal growth.

Excluding the non-recurring charges from fiscal year 2001 (see Note 11) and
adjusting for the application of SFAS 142 (see Note 5), operating income rose
$93.0 million to $284.3 million for the nine months ended March 31, 2002. Our
12% increase in internal growth over the prior year period and the impact of
acquisitions, particularly IMS and NPC, are the major factors driving the
increase.

Our operating margins increased 0.3% as a percentage of revenue after adjusting
for the fiscal year 2001 non-recurring charges and the application of SFAS 142
(see Note 5). Wages and benefits increased 0.5% as a percentage of revenue
offset by a 1.1% decrease as a percentage of revenue in rent, lease and
maintenance after adjusting for the non-recurring charges from fiscal year 2001
(see Note 11) due to the increase in BPO business mix which has a higher
component of wages and benefits and a lower component of rent, lease and
maintenance than traditional technology outsourcing. Depreciation and
amortization increased 0.3% as a percentage of revenue after adjusting for the
application of SFAS 142 due to capital expenditures and additions to intangible
assets during the last year.

Interest expense increased $9.7 million primarily due to the interest expense on
the 3.5% Convertible Subordinated debt issued in the third quarter of fiscal
year 2001.

Other non-operating expense in fiscal year 2002 consisted primarily of a $7.4
million loss on a cost basis investment to its net realizable value and a $1.0
million loss on a long-term investment we received in the December 1998
acquisition of BRC Holdings, Inc. Other non-operating income in fiscal year 2001
consisted of a non-recurring gain on sale of an investment (see Note 11) and a
gain on a note receivable.

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Tax expense for the third quarter of fiscal year 2002 includes a one-time tax
benefit of $4.3 million (see Note 11). Excluding this benefit, our effective tax
rate of approximately 37.5% in the third quarter of fiscal year 2002 exceeded
the federal statutory rate of 35% due primarily to the net effect of state
income taxes. Our effective tax rate decreased 1.5% from 39.0% from the third
quarter of fiscal year 2001 primarily due to the application of SFAS 142 (see
Note 5).

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2002, we had cash and cash equivalents of $45.2 million compared to
$242.5 million at June 30, 2001. Included in the cash balances were $4.6 million
and $4.9 million at March 31, 2002 and June 30, 2001, respectively, of
restricted cash held on behalf of governmental customers. Our working capital
decreased to $432.4 million at March 31, 2002 from $528.6 million at June 30,
2001 due to cash paid for the IMS and NPC acquisitions during the first quarter
of $225 million and $43 million, respectively, offset by proceeds from the
second quarter fiscal year 2002 equity offering, net of repayments of
outstanding balances on our revolving credit facility and interim credit
facility.

Cash flow from operations was $218.1 million for the nine months ended March 31,
2002 as compared to $122.8 million for the same period last year after adjusting
for the approximately $49.7 million paid in income taxes related to the net gain
from our summer 2000 divestiture activity and approximately $10.4 million of
non-recurring lease termination charges, which are included in cash flows from
operations. Cash flow used by investing activities was $1.0 billion primarily
due to the acquisition activity during the nine months ended March 31, 2002. Net
cash flow from financing activities was $615.9 million due to the proceeds
received from the second quarter fiscal 2002 equity offering offset by net
payments on our revolving credit facility and interim credit facility.

On March 15, 2002, we completed the redemption of our 4% Convertible
Subordinated Notes due March 15, 2005 (the Notes). Holders of all of the
outstanding Notes converted their Notes to shares of our Class A common stock in
accordance with Article XII of the Indenture dated as of March 20, 1998 between
ACS and U.S Trust Company of Texas, N.A., as trustee prior to the March 15, 2002
redemption date. As the result of such conversions, 10,780,887 shares of our
Class A common stock were issued to such holders.

On February 22, 2002, we completed a two-for-one stock split of our outstanding
Class A common stock and Class B common stock implemented in the form of a 100%
stock dividend (Stock Split). Each holder of record of our Class A common
stock and Class B common stock as of the close of business on February 15, 2002
received an additional share of such stock held by them at that time. In
connection with the Stock Split, the number of shares of Class A common stock
reserved for issuance or subject to outstanding options granted under our
employee stock option or other benefit plans, as well as the number of shares
reserved for issuance under our 4% Convertible Subordinated Notes due March 15,
2005 and 3.5% Convertible Subordinated Notes due February 15, 2006, were
proportionately increased in accordance with the terms of such options, plans
and other instruments.

On October 10, 2001, we completed our offering of 18.4 million shares of our
Class A common stock. The shares were issued at $40.50 per share. Net proceeds
of $714.3 million (net of underwriters fees and other costs) were used to repay
the $550 million 18-month interim credit facility incurred to fund the IMS
acquisition and a portion of the amount outstanding under our revolving credit
facility.

At March 31, 2002, we had $345 million available on our $450 million revolving
credit facility and outstanding letters of credit of $105 million that secure
certain contractual performance and other obligations. These letters of credit
reduce the availability of our revolving credit facility. Subsequent to quarter
end, we issued additional letters of credit totaling $65 million to secure
performance bonds related to ACS State and Local Solutions business. As of March
31, 2002, we had $317.2 million of long-term debt outstanding, which was
primarily comprised of our 3.5 % Convertible Subordinated Notes due February 15,
2006. For discussion of our lease obligations, please see Note 16 to the Notes
to Consolidated Financial Statements in our Annual Report on Form 10-K for the
year ended June 30, 2001.

Due to the terrorist attacks on September 11, 2001 and the Enron Corporation
bankruptcy, the surety bond market has substantially changed, resulting in
reduced availability of bonds and increased premiums. Some of our state and
local government contracts require either a bond or a letter of credit and
future requests for proposal may require a surety bond or letter of credit.
Notwithstanding the existing condition of the surety bond market, management
believes that we have sufficient liquidity from its cash flow and under our
revolving credit facility to meet ongoing business needs and to respond to
future requests for proposals from state and local governments.

We, along with our Chairman, have an equity interest in DDH Aviation, Inc.
(DDH), a corporate airplane brokerage firm, and our Chairman, along with two
of our officers are directors of DDH. Under a guaranty agreement, we are liable
for up to approximately $11.5 million of DDHs $47 million line of credit with
Citicorp USA, Inc. We have entered into an Agreement for Purchase with DDH
Aviation, Inc. for the purchase of a Challenger 600 aircraft for a purchase
price of $8.5 million, which aircraft is scheduled to be delivered during the
middle of calendar year 2002.

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Management believes that available cash and cash equivalents, together with cash
generated from operations and available borrowings under our credit facility,
will provide adequate funds for our anticipated internal growth needs, including
capital expenditures. Our management also believes that cash provided by
operations will be sufficient to satisfy all existing debt obligations as they
become due. However, we intend to continue our growth through acquisitions and
from time to time to engage in discussions with potential acquisition
candidates, which could require significant commitments of capital. In order to
pursue such opportunities we may be required to incur debt or to issue
additional potentially dilutive securities in the future. No assurance can be
given as to our future acquisitions and expansion opportunities and how such
opportunities will be financed.

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. During fiscal year 2001, we adopted 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 reasonably assured.

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 uncertainties
regarding customer acceptance have expired.

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 customer.
Revenues on time and material contracts are recognized at the contractual rates
as the labor hours and direct expenses are incurred.

Revenues on fixed price contracts are recognized over the contract term based on
the percentage of services that are provided during the period compared with the
total estimated 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), which requires the use of
percentage-of-completion accounting for long-term contracts that are binding
agreements between ACS 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 based on
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 customer.
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 and
any revisions are charged to income in the period in which the facts that give
rise to that revision become known.

Revenues earned in excess of related billings are accrued, whereas billings in
excess of revenues earned are deferred until the related services are provided.
Immediate recognition is made of any anticipated losses.

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Valuation of goodwill and intangibles. Our business acquisitions typically
result in goodwill and other intangible assets, which affect the amount of
future period amortization expense and possible impairment expense that we could
incur. The determination of the value of goodwill and other intangibles requires
us to make estimates and assumptions about future business trends and growth. If
an event occurs which would cause us to revise our estimates and assumptions
used in analyzing the value of our goodwill or other intangibles, such revision
could result in an impairment charge that could have a material impact on our
financial results.

Allowance for doubtful accounts. We make estimates of the collectibility of our
accounts receivables. We specifically analyze accounts receivables and
historical bad debts, customer credit-worthiness, current economic trends and
changes in our customer payment terms and collection trends when evaluating the
adequacy of our allowance for doubtful accounts. Any change in the assumptions
used in analyzing a specific account receivable may result in additional
allowance for doubtful accounts being recognized in the period in which the
change occurs.

NEW ACCOUNTING STANDARDS

On July 1, 2001, we adopted Statements Financial Accounting Standards No. 141,
Business Combinations (SFAS 141) and No. 142 Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart from
goodwill. SFAS 142 requires that ratable amortization of goodwill be replaced
with periodic tests of the goodwills impairment and that intangible assets
other than goodwill be amortized over their useful lives. SFAS 141 is effective
for all business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 144, (SFAS 144) Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 retains the fundamental provisions of
existing generally accepted accounting principles with respect to the
recognition and measurement of long-lived asset impairment contained in
Statement of Financial Accounting Standards No. 121 (SFAS 121) Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. However, SFAS No. 144 provides new guidance intended to address certain
significant implementation issues associated with SFAS 121, including expanded
guidance with respect to appropriate cash flows to be used to determine whether
recognition of any long-lived asset impairment is required, and if required, how
to measure the amount of the impairment. SFAS 144 also requires that any net
assets to be disposed of by sale be reported at the lower of carrying value or
fair market value less cost to sell, and expands the reporting of discontinued
operations to include any component of an entity with operations and cash flows
that can be clearly distinguished from the rest of the entity. SFAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. We do not
believe SFAS 144 will have a material impact on our future earnings and
financial position.

In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 145 (SFAS 145), Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
Among other things, SFAS 145 rescinds both Statement of Financial Standards No.
4 (SFAS 4) Reporting Gains and Losses from Extinguishment of Debt, and the
amendment to SFAS 4, Statement of Financial Standards No. 64 (SFAS 64),
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Through
this rescission, SFAS 145 eliminates the requirement (in both SFAS 4 and SFAS
64) that gains and losses from the extinguishment of debt be aggregated and, if
material, classified as an extraordinary item, net of the related income tax
effect. Generally, SFAS 145 is effective for transactions occurring after May
15, 2002. We do not believe SFAS 145 will have a material impact on our future
earnings and financial position.

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PART II




ITEM 1. LEGAL PROCEEDINGS

On December 16, 1998, a state district court in Houston, Texas entered final
judgment against us in a lawsuit brought by twenty-one 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 401,541 shares of our stock 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, which includes attorneys fees and
pre-judgment interest, but excludes additional attorneys fees of approximately
$850,000 and post-judgement interest at the statutorily mandated rate, which
could be awarded in the event the plaintiffs are successful upon appeal and
final judgment. We continue to believe that we have a meritorious defense to all
or a substantial portion of the plaintiffs claims, and accordingly, have not
accrued any amount on our balance sheet related to the lawsuit. We filed our
appeal of the judgment on March 15, 1999 and a brief in support of such appeal
has been filed. We plan to vigorously pursue the appeal. The plaintiffs also
have filed a notice of appeal. A hearing for oral arguments on the parties
appeals occurred on September 20, 2001. Should the proceedings not be favorably
resolved on appeal, we would be subject to a material charge. The court of
appeals has given no indication of when it will issue its decision.

In addition to the foregoing, we are subject to certain other legal proceedings,
claims and disputes which arise in the ordinary course of our business. Although
we cannot predict the outcomes of these legal proceedings, we do not believe
these actions, in the aggregate, will have a material adverse effect on our
financial position, results of operations or liquidity.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On March 15, 2002, we completed the redemption of our 4% Convertible
Subordinated Notes due March 15, 2005 (the Notes). Holders of all of the
outstanding Notes converted their Notes to shares of our Class A common stock in
accordance with Article XII of the Indenture dated as of March 20, 1998 between
ACS and U.S Trust Company of Texas, N.A., as trustee prior to the March 15, 2002
redemption date. As the result of such conversions, 10,780,887 shares of our
Class A common stock were issued to such holders.

On February 22, 2002, we completed a two-for-one stock split of our outstanding
Class A common stock and Class B common stock implemented in the form of a 100%
stock dividend (Stock Split). Each holder of record of our Class A common
stock and Class B common stock as of the close of business on February 15, 2002
received an additional share of such stock held by them at that time. In
connection with the Stock Split, the number of shares of Class A common stock
reserved for issuance or subject to outstanding options granted under our
employee stock option or other benefit plans, as well as the number of shares
reserved for issuance under our 4% Convertible Subordinated Notes due March 15,
2005 and 3.5% Convertible Subordinated Notes due February 15, 2006, were
proportionately increased in accordance with the terms of such options, plans
and other instruments.

On October 10, 2001, we completed our offering of 18.4 million shares of our
Class A common stock. The shares were issued at $40.50 per share. Net proceeds
of $714.3 million (net of underwriters fees and other costs) were used to repay
the $550 million 18-month interim credit facility we obtained in connection with
the IMS acquisition and a portion of the amount outstanding under our revolving
credit facility.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|    |  |                    
|--- |  | -------------------
|a.) |  | Exhibits           
|   
|    |  | None.              
|   
|b.) |  | Reports on Form 8-K

| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | -- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 1. |  |  | On January 22, 2002, the Company filed a Current Report on
 Form 8-K announcing a two-for-one stock split of its
 outstanding Class A Common Stock and Class B Common Stock to
 be implemented in the form of a 100% stock dividend.                        
| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | 2. |  |  | On February 5, 2002, the Company filed a Current Report on
 Form 8-K announcing the Board of Directors approved an
 amendment the ACS First Amended and Restate Rights Agreement,
 dated as of April 2, 1999, between ACS and First City Transfer
 Company.
| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | 3. |  |  | On February 12, 2002, ACS announced that its Board of
 Directors approved the redemption of ACS 4% Convertible
 Subordinated Notes due March 15, 2005.                                                                                                     
| |  |  |    |  |  |                                                                                                                                                                                                                                                             
| |  |  | 4. |  |  | On March 15, 2002, ACS announced that all holders of its 4%
 Convertible Subordinated Notes (the Notes) had converted
their Notes to shares of ACS Class A Common Stock.                                                                                 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 15th day of May, 2002.

| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | AFFILIATED COMPUTER SERVICES, INC                                                                  
|
| | By:  /s/ Warren D. EdwardsWarren D. Edwards
   Executive Vice President and
Chief Financial Officer

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