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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period from  to
 Commission file number 001-12665
 AFFILIATED COMPUTER SERVICES, INC.
  Delaware
    
    51-0310342(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)2828 North Haskell, Dallas, Texas
    
    75204(Address of principal executive offices)
    
    (Zip Code)
  Not Applicable
 
  þ o
  þ o o
 o þ
  Number of shares outstanding as ofTitle of each class
    
    May 4, 2007Class A Common Stock, $.01 par value 
Class B Common Stock, $.01 par value
    
    92,566,641
6,599,372




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##### 



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
  PAGENUMBERPART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements:Consolidated Balance Sheets (Unaudited) at March 31, 2007 and
June 30, 2006
    
    1Consolidated Statements of Income (Unaudited) for the Three and Nine
Months Ended March 31, 2007 and 2006
    
    2Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended March 31, 2007 and 2006
    
    3Notes to Consolidated Financial Statements
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    34Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    69Item 4. Controls and Procedures
    
    69PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    70Item 1A. Risk Factors
    
    70Item 3. Defaults Upon Senior Securities
    
    70Item 6. Exhibits
    
    72Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Rule 13a-14(b)Certification of CFO Pursuant to Rule 13a-14(b)




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PART I
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
 March 31,
    
    
    June 30,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    95,917
    
    
    $
    100,837Accounts receivable, net
    
    
    1,290,345
    
    
    
    1,231,846Income taxes receivable
    
    
    
    
    
    
    8,090Prepaid expenses and other current assets
    
    
    215,332
    
    
    
    188,490Total current assets
    
    
    1,601,594
    
    
    
    1,529,263Property, equipment and software, net
    
    
    943,709
    
    
    
    870,020Goodwill
    
    
    2,559,863
    
    
    
    2,456,654Other intangibles, net
    
    
    481,958
    
    
    
    475,701Other assets
    
    
    170,630
    
    
    
    170,799Total assets
    
    $
    5,757,754
    
    
    $
    5,502,437LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    88,225
    
    
    $
    104,473Accrued compensation and benefits
    
    
    167,149
    
    
    
    172,853Other accrued liabilities
    
    
    349,632
    
    
    
    354,632Income taxes payable
    
    
    17,536
    
    
    
    Deferred taxes
    
    
    5,424
    
    
    
    18,047Current portion of long-term debt
    
    
    46,544
    
    
    
    23,074Current portion of unearned revenue
    
    
    138,458
    
    
    
    152,026Total current liabilities
    
    
    812,968
    
    
    
    825,105Senior Notes, net of unamortized discount
    
    
    499,429
    
    
    
    499,368Other long-term debt
    
    
    1,828,642
    
    
    
    1,114,664Deferred taxes
    
    
    382,305
    
    
    
    331,433Other long-term liabilities
    
    
    245,872
    
    
    
    275,649Total liabilities
    
    
    3,769,216
    
    
    
    3,046,219Commitments and contingencies (See Notes 2, 9, 16 and 20)Stockholders equity:Class A common stock, $.01 par value, 500,000 shares
authorized, 113,518 and 129,848 shares issued, respectively
    
    
    1,135
    
    
    
    1,299Class B convertible common stock, $.01 par value, 14,000
shares authorized, 6,600 shares issued and outstanding
    
    
    66
    
    
    
    66Additional paid-in capital
    
    
    1,618,636
    
    
    
    1,799,778Accumulated other comprehensive income (loss), net
    
    
    128
    
    
    
    (10,943
    )Retained earnings
    
    
    1,424,541
    
    
    
    1,836,850Treasury stock at cost, 21,002 and 23,289 shares, respectively
    
    
    (1,055,968
    )
    
    
    (1,170,832
    )Total stockholders equity
    
    
    1,988,538
    
    
    
    2,456,218Total liabilities and stockholders equity
    
    $
    5,757,754
    
    
    $
    5,502,437
  1




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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 EndedMarch 31,
    
    
    March 31,2006
    
    
    
    
    
    
    20062007
    
    
    (as restated)
    
    
    2007
    
    
    (as restated)Revenues
    
    $
    1,440,546
    
    
    $
    1,314,455
    
    
    $
    4,252,745
    
    
    $
    3,972,959Operating expenses:Cost of revenues:Wages and benefits
    
    
    689,298
    
    
    
    644,202
    
    
    
    2,023,766
    
    
    
    1,906,348Services and supplies
    
    
    304,734
    
    
    
    272,990
    
    
    
    913,714
    
    
    
    869,651Rent, lease and maintenance
    
    
    174,052
    
    
    
    156,489
    
    
    
    530,207
    
    
    
    475,202Depreciation and amortization
    
    
    87,995
    
    
    
    72,891
    
    
    
    254,861
    
    
    
    211,415Other
    
    
    8,406
    
    
    
    20,303
    
    
    
    28,161
    
    
    
    32,061Total cost of revenues
    
    
    1,264,485
    
    
    
    1,166,875
    
    
    
    3,750,709
    
    
    
    3,494,677Gain on sale of business
    
    
    
    
    
    
    (2,717
    )
    
    
    
    
    
    
    (32,482
    )Other operating expenses
    
    
    13,470
    
    
    
    12,430
    
    
    
    48,259
    
    
    
    43,278Total operating expenses
    
    
    1,277,955
    
    
    
    1,176,588
    
    
    
    3,798,968
    
    
    
    3,505,473Operating income
    
    
    162,591
    
    
    
    137,867
    
    
    
    453,777
    
    
    
    467,486Interest expense
    
    
    46,391
    
    
    
    15,790
    
    
    
    140,489
    
    
    
    42,585Other non-operating (income) expense, net
    
    
    (12,325
    )
    
    
    589
    
    
    
    (24,629
    )
    
    
    (5,786
    )Pretax profit
    
    
    128,525
    
    
    
    121,488
    
    
    
    337,917
    
    
    
    430,687Income tax expense
    
    
    46,466
    
    
    
    44,488
    
    
    
    122,401
    
    
    
    157,942Net income
    
    $
    82,059
    
    
    $
    77,000
    
    
    $
    215,516
    
    
    $
    272,745Earnings per share:Basic
    
    $
    0.83
    
    
    $
    0.62
    
    
    $
    2.15
    
    
    $
    2.18Diluted
    
    $
    0.82
    
    
    $
    0.61
    
    
    $
    2.12
    
    
    $
    2.15Shares used in computing earnings per share:Basic
    
    
    98,945
    
    
    
    124,347
    
    
    
    100,448
    
    
    
    124,879Diluted
    
    
    100,300
    
    
    
    126,381
    
    
    
    101,749
    
    
    
    126,868
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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Nine Months EndedMarch 31,20062007
    
    
    (as restated)Cash flows from operating activities:Net income
    
    $
    215,516
    
    
    $
    272,745Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    254,861
    
    
    
    211,415Stock-based compensation expense
    
    
    22,371
    
    
    
    27,053Excess tax benefit on stock-based compensation
    
    
    (1,308
    )
    
    
    (14,068
    )Gain on sale of business units
    
    
    (2,459
    )
    
    
    (32,482
    )Provision for uncollectible accounts receivable
    
    
    294
    
    
    
    7,986Deferred income tax expense
    
    
    28,711
    
    
    
    54,582Impairment charges
    
    
    1,351
    
    
    
    14,450Gain on investments
    
    
    (15,950
    )
    
    
    (5,441
    )Loss on extinguishment of long-term debt
    
    
    
    
    
    
    4,104Other non-cash activities
    
    
    18,054
    
    
    
    15,758Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    (43,416
    )
    
    
    (41,591
    )Prepaid expenses and other current assets
    
    
    (26,022
    )
    
    
    (15,399
    )Other assets
    
    
    3,882
    
    
    
    5,959Accounts payable
    
    
    (22,176
    )
    
    
    25,841Accrued compensation and benefits
    
    
    (12,732
    )
    
    
    (20,387
    )Other accrued liabilities
    
    
    (11,462
    )
    
    
    (106,214
    )Income taxes payable
    
    
    31,549
    
    
    
    32,837Other long-term liabilities
    
    
    (28,046
    )
    
    
    (5,967
    )Unearned revenue
    
    
    (18,041
    )
    
    
    40,513Total adjustments
    
    
    179,461
    
    
    
    198,949Net cash provided by operating activities
    
    
    394,977
    
    
    
    471,694Cash flows from investing activities:Purchases of property, equipment and software, net
    
    
    (239,123
    )
    
    
    (290,108
    )Additions to other intangible assets
    
    
    (30,266
    )
    
    
    (28,386
    )Payments for acquisitions, net of cash acquired
    
    
    (120,498
    )
    
    
    (155,229
    )Proceeds from divestitures, net of transactions costs
    
    
    
    
    
    
    67,664Intangible assets acquired in subcontract termination
    
    
    
    
    
    
    (16,530
    )Proceeds from sale of investments
    
    
    16,583
    
    
    
    1,903Purchases of investments
    
    
    (6,527
    )
    
    
    (25,456
    )Net cash used in investing activities
    
    
    (379,831
    )
    
    
    (446,142
    )Cash flows from financing activities:Proceeds from issuance of long-term debt, net
    
    
    1,725,081
    
    
    
    3,334,917Payments of long-term debt
    
    
    (1,029,397
    )
    
    
    (2,759,272
    )Purchase of treasury shares
    
    
    (730,689
    )
    
    
    (115,804
    )Purchase of shares in tender offer
    
    
    
    
    
    
    (466,071
    )Excess tax benefit on stock-based compensation
    
    
    1,308
    
    
    
    14,068Stock option settlement with Jeffrey A. Rich, former chief executive
officer
    
    
    
    
    
    
    (18,353
    )Proceeds from stock options exercised
    
    
    10,901
    
    
    
    82,010Proceeds from issuance of treasury shares
    
    
    2,923
    
    
    
    15,145Other
    
    
    (193
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (20,066
    )
    
    
    86,640Net change in cash and cash equivalents
    
    
    (4,920
    )
    
    
    112,192Cash and cash equivalents at beginning of period
    
    
    100,837
    
    
    
    62,685Cash and cash equivalents at end of period
    
    $
    95,917
    
    
    $
    174,877
  3




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. BASIS OF PRESENTATION
      2. REVIEW OF STOCK OPTION GRANT PRACTICES
      4




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




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     
    
    The stock options held by our employees (other than Messrs. King and Edwards and one
management employee) will be adjusted as necessary, with the optionees consent, to avoid
adverse tax consequences to the employee, and we will compensate such employees for any
increase in exercise price resulting from the matters which were the subject of the
internal investigation.
    
    Our non-employee directors, to avoid the appearance of inappropriate gain, voluntarily
agreed that with respect to any historical option grants to them which require incremental
compensation expense as a result of revised measurement dates, the exercise price will be
increased to equal the fair market value of the stock on the revised measurement date,
regardless of whether such increase is necessary to avoid adverse tax consequences to the
director. The non-employee directors will not be reimbursed to offset any individual loss
of economic benefit related to such repriced stock options.
    
    Another employee (not an officer as defined in Rule 16a-1(f) under the Securities
Exchange Act of 1934) will be reassigned and all of such employees stock options will be
repriced so that the exercise price equals the fair market value of our stock on the proper
measurement date.
    
    We will consider whether to recover certain profits from Jeffrey A. Rich, former Chief
Executive Officer, which relate to stock options awarded to Mr. Rich which the internal
investigation concluded were awarded through a process in which favorable grant dates were
selected after the fact.
    
    We implemented a number of changes to our internal controls, including:
 o
    
    After reviewing the results of the investigation to date, our Board of
Directors determined that it would be appropriate to accept the resignations of Mr.
King and Mr. Edwards. Our Board of Directors has since appointed a new Chief
Executive Officer and Chief Financial Officer.o
    
    Designating internal legal and accounting staffs to oversee the
documentation and accounting of all grants of stock options or restricted stock.o
    
    Monitoring industry and regulatory developments in stock option and
restricted stock awards and implementing and maintaining best practices with respect
to grants of stock options or restricted stock.o
    
    Adhering to the practice of making annual grants on a date certain and
through board or committee meetings, and not through a unanimous written consent process.
  6




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     7




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Decrease in cumulative net income and retained earnings:Stock-based compensation expense
    
    $
    (51,207
    )Estimated tax related penalties and interest on underpayment
deficiencies resulting from disallowed Section 162(m)
executive compensation deductions
    
    
    (11,562
    )Decrease in pretax profit
    
    
    (62,769
    )Income tax benefit, net
    
    
    12,918Decrease in cumulative net income and retained earnings
    
    
    
    
    
    $
    (49,851
    )Increase to additional paid-in capital:Stock-based compensation expense
    
    
    51,207Reduction of excess tax benefits for stock options
exercised, due to revised measurement dates (1)
    
    
    (10,210
    )Reduction of excess tax benefits for certain stock options
exercised related to disallowed Section 162(m) executive
compensation deductions, due to revised measurement dates
(2)
    
    
    (13,372
    )Reduction of excess tax benefits for certain stock options
exercised related to disallowed executive compensation
deductions previously believed to qualify for Section 162(m)
exceptions, due to factors unrelated to revised measurement
dates (3)
    
    
    (10,505
    )Increase in additional paid-in capital
    
    
    
    
    
    
    17,120Decrease in stockholders equity at June 30, 2006
    
    
    
    
    
    $
    (32,731
    )
 
 (1)
    
    We recorded cumulative deferred income tax benefits of $15.3 million for the income tax
effect related to the stock-based compensation expense adjustments arising from revised
measurement dates, of which $10.2 million has been realized through June 30, 2006 upon stock
option exercises and has been reflected as a reduction of excess tax benefits previously
recorded in additional paid-in capital.(2)
    
    Excess tax benefits for certain stock-based executive compensation deductions from stock
option exercises previously recorded in additional paid-in capital are now disallowed under
Section 162(m) due to revised measurement dates of certain stock option grants. See Other Tax
Matters below in this discussion of Review of Stock Option Grant Practices.(3)
    
    Excess tax benefits for certain stock-based executive compensation deductions from stock
option exercises previously recorded in additional paid-in capital may now be non-deductible
under Section 162(m) as a result of information obtained by us in connection with our internal
investigation, due to factors unrelated to revised measurement dates. See Other Tax Matters
below in this discussion of Review of Stock Option Grant Practices. 8




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  IncomeStock-based
    
    
    Estimated
    
    
    taxcompensation
    
    
    interest and
    
    
    benefit,
    
    
    Totalexpense
    
    
    penalties (1)
    
    
    net
    
    
    adjustmentsYears ended June 30,1995
    
    
    
    
    
    $
    (63
    )
    
    $
    
    
    
    $
    23
    
    
    $
    (40
    )1996
    
    
    
    
    
    
    (444
    )
    
    
    
    
    
    
    130
    
    
    
    (314
    )1997
    
    
    
    
    
    
    (1,404
    )
    
    
    
    
    
    
    301
    
    
    
    (1,103
    )1998
    
    
    
    
    
    
    (1,876
    )
    
    
    
    
    
    
    405
    
    
    
    (1,471
    )1999
    
    
    
    
    
    
    (3,325
    )
    
    
    
    
    
    
    717
    
    
    
    (2,608
    )2000
    
    
    
    
    
    
    (4,870
    )
    
    
    (87
    )
    
    
    511
    
    
    
    (4,446
    )2001
    
    
    
    
    
    
    (6,433
    )
    
    
    (546
    )
    
    
    1,074
    
    
    
    (5,905
    )2002
    
    
    
    
    
    
    (7,833
    )
    
    
    (1,414
    )
    
    
    1,636
    
    
    
    (7,611
    )2003
    
    
    
    
    
    
    (9,237
    )
    
    
    (1,454
    )
    
    
    2,119
    
    
    
    (8,572
    )Cumulative effect at June 30, 2003
    
    
    
    
    
    
    (35,485
    )
    
    
    (3,501
    )
    
    
    6,916
    
    
    
    (32,070
    )
 Net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Netincome as
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    income asreported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    restatedYears ended June 30,2004
    
    $
    529,843
    
    
    
    (7,527
    )
    
    
    (2,509
    )
    
    
    1,921
    
    
    
    (8,115
    )
    
    $
    521,7282005
    
    
    415,945
    
    
    
    (6,061
    )
    
    
    (2,526
    )
    
    
    2,211
    
    
    
    (6,376
    )
    
    
    409,5692006
    
    
    
    
    
    
    (2,134
    )
    
    
    (3,026
    )
    
    
    1,870
    
    
    
    (3,290
    )Cumulative effect at June 30, 2006
    
    
    
    
    
    $
    (51,207
    )
    
    $
    (11,562
    )
    
    $
    12,918
    
    
    $
    (49,851
    )
 
     9




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Currentincome taxexpense onDeferred
    
    
    Current
    
    
    disallowedincome tax
    
    
    income tax
    
    
    deductionsbenefit on
    
    
    benefit on
    
    
    understock-based
    
    
    deductible
    
    
    Section
    
    
    Income taxcompensation
    
    
    interest
    
    
    162(m)
    
    
    benefit, netYears ended June 30,1995
    
    $
    23
    
    
    $
    
    
    
    $
    
    
    
    $
    231996
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    1301997
    
    
    301
    
    
    
    
    
    
    
    
    
    
    
    3011998
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    4051999
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    7172000
    
    
    945
    
    
    
    
    
    
    
    (434
    )
    
    
    5112001
    
    
    1,598
    
    
    
    
    
    
    
    (524
    )
    
    
    1,0742002
    
    
    2,287
    
    
    
    
    
    
    
    (651
    )
    
    
    1,6362003
    
    
    3,246
    
    
    
    70
    
    
    
    (1,197
    )
    
    
    2,119Cumulative effect at June 30, 2003
    
    
    9,652
    
    
    
    70
    
    
    
    (2,806
    )
    
    
    6,916Years ended June 30,2004
    
    
    2,702
    
    
    
    387
    
    
    
    (1,168
    )
    
    
    1,9212005
    
    
    2,194
    
    
    
    576
    
    
    
    (559
    )
    
    
    2,2112006
    
    
    774
    
    
    
    1,096
    
    
    
    
    
    
    
    1,870Cumulative effect at June 30, 2006
    
    $
    15,322
    
    
    $
    2,129
    
    
    $
    (4,533
    )
    
    $
    12,918
 Other tax matters
   10




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




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Consolidated Statements of IncomeThree months ended March 31, 2006
    
    
    Nine months ended March 31, 2006As
    
    
    
    
    
    
    As
    
    
    As
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedRevenues
    
    $
    1,314,455
    
    
    $
    
    
    
    $
    1,314,455
    
    
    $
    3,972,959
    
    
    $
    
    
    
    $
    3,972,959Operating expenses:Cost of revenues:Wages and benefits
    
    
    643,651
    
    
    
    551
    (1)
    
    
    644,202
    
    
    
    1,904,659
    
    
    
    1,689
    (1)
    
    
    1,906,348Services and supplies
    
    
    272,990
    
    
    
    
    
    
    
    272,990
    
    
    
    869,651
    
    
    
    
    
    
    
    869,651Rent, lease and maintenance
    
    
    156,489
    
    
    
    
    
    
    
    156,489
    
    
    
    475,202
    
    
    
    
    
    
    
    475,202Depreciation and amortization
    
    
    72,891
    
    
    
    
    
    
    
    72,891
    
    
    
    211,415
    
    
    
    
    
    
    
    211,415Other
    
    
    20,303
    
    
    
    
    
    
    
    20,303
    
    
    
    32,061
    
    
    
    
    
    
    
    32,061Cost of revenues
    
    
    1,166,324
    
    
    
    551
    
    
    
    1,166,875
    
    
    
    3,492,988
    
    
    
    1,689
    
    
    
    3,494,677Gain on sale of business
    
    
    (2,717
    )
    
    
    
    
    
    
    (2,717
    )
    
    
    (32,482
    )
    
    
    
    
    
    
    (32,482
    )Other operating expenses
    
    
    12,430
    
    
    
    
    
    
    
    12,430
    
    
    
    43,278
    
    
    
    
    
    
    
    43,278Total operating expenses
    
    
    1,176,037
    
    
    
    551
    
    
    
    1,176,588
    
    
    
    3,503,784
    
    
    
    1,689
    
    
    
    3,505,473Operating income
    
    
    138,418
    
    
    
    (551
    )
    
    
    137,867
    
    
    
    469,175
    
    
    
    (1,689
    )
    
    
    467,486Interest expense
    
    
    14,967
    
    
    
    823
    (2)
    
    
    15,790
    
    
    
    40,428
    
    
    
    2,157
    (2)
    
    
    42,585Other non-operating expense
(income), net
    
    
    589
    
    
    
    
    
    
    
    589
    
    
    
    (5,786
    )
    
    
    
    
    
    
    (5,786
    )Pretax profit
    
    
    122,862
    
    
    
    (1,374
    )
    
    
    121,488
    
    
    
    434,533
    
    
    
    (3,846
    )
    
    
    430,687Income tax expense
    
    
    44,986
    
    
    
    (498
    )(3)
    
    
    44,488
    
    
    
    159,337
    
    
    
    (1,395
    )(3)
    
    
    157,942Net income
    
    $
    77,876
    
    
    $
    (876
    )
    
    $
    77,000
    
    
    $
    275,196
    
    
    $
    (2,451
    )
    
    $
    272,745Earnings per share:Basic
    
    $
    0.63
    
    
    $
    (0.01
    )
    
    $
    0.62
    
    
    $
    2.20
    
    
    $
    (0.02
    )
    
    $
    2.18Diluted
    
    $
    0.62
    
    
    $
    (0.01
    )
    
    $
    0.61
    
    
    $
    2.17
    
    
    $
    (0.02
    )
    
    $
    2.15Shares used in computing earnings
per share:Basic
    
    
    124,347
    
    
    
    
    
    
    
    124,347
    
    
    
    124,879
    
    
    
    
    
    
    
    124,879Diluted (5)
    
    
    126,319
    
    
    
    62
    (4)
    
    
    126,381
    
    
    
    126,806
    
    
    
    62
    (4)
    
    
    126,868
 12




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Consolidated Statements of Cash FlowsFor the nine months endedMarch 31, 2006As Reported
    
    Adjustments
    
    As RestatedCash flows from operating activities:Net income
    
    $
    275,196
    
    
    $
    (2,451
    )
    
    $
    272,745Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    211,415
    
    
    
    
    
    
    
    211,415Stock-based compensation expense
    
    
    25,364
    
    
    
    1,689
    (1)
    
    
    27,053Excess tax benefit on stock-based compensation
    
    
    (17,302
    )
    
    
    3,234
    
    
    
    (14,068
    )Gain on sale of business units
    
    
    (32,482
    )
    
    
    
    
    
    
    (32,482
    )Provision for uncollectible accounts receivable
    
    
    7,986
    
    
    
    
    
    
    
    7,986Deferred income tax expense
    
    
    50,397
    
    
    
    4,185
    (6)
    
    
    54,582Impairments charges
    
    
    14,450
    
    
    
    
    
    
    
    14,450Gain on investments
    
    
    (5,441
    )
    
    
    
    
    
    
    (5,441
    )Loss on early extinguishment of long-term debt
    
    
    4,104
    
    
    
    
    
    
    
    4,104Other non-cash activities
    
    
    15,758
    
    
    
    
    
    
    
    15,758Changes in assets and liabilities, net of effects from
acquisitions:Accounts receivable
    
    
    (41,591
    )
    
    
    
    
    
    
    (41,591
    )Prepaid expenses and other current assets
    
    
    (15,399
    )
    
    
    
    
    
    
    (15,399
    )Other assets
    
    
    5,959
    
    
    
    
    
    
    
    5,959Accounts payable
    
    
    25,841
    
    
    
    
    
    
    
    25,841Accrued compensation and benefits
    
    
    (20,387
    )
    
    
    
    
    
    
    (20,387
    )Accrued liabilities
    
    
    (106,214
    )
    
    
    
    
    
    
    (106,214
    )Taxes receivable/payable
    
    
    32,837
    
    
    
    
    
    
    
    32,837Other long-term liabilities
    
    
    (2,544
    )
    
    
    (3,423
    )
    
    
    (5,967
    )Unearned revenue
    
    
    40,513
    
    
    
    
    
    
    
    40,513Total adjustments
    
    
    193,264
    
    
    
    5,685
    
    
    
    198,949Net cash provided by operating activities
    
    
    468,460
    
    
    
    3,234
    
    
    
    471,694Cash flows from investing activities:Purchases of property, equipment and software, net
    
    
    (290,108
    )
    
    
    
    
    
    
    (290,108
    )Additions to other intangible assets
    
    
    (28,386
    )
    
    
    
    
    
    
    (28,386
    )Payments for acquisitions, net of cash acquired
    
    
    (155,229
    )
    
    
    
    
    
    
    (155,229
    )Proceeds from divestitures, net of transaction costs
    
    
    67,664
    
    
    
    
    
    
    
    67,664Intangibles acquired in subcontract termination
    
    
    (16,530
    )
    
    
    
    
    
    
    (16,530
    )Purchases of investments
    
    
    (25,456
    )
    
    
    
    
    
    
    (25,456
    )Proceeds from sale of investments
    
    
    1,903
    
    
    
    
    
    
    
    1,903Net cash used in investing activities
    
    
    (446,142
    )
    
    
    
    
    
    
    (446,142
    )Cash flows from financing activities:Proceeds from issuance of long-term debt, net
    
    
    3,334,917
    
    
    
    
    
    
    
    3,334,917Payments of long-term debt
    
    
    (2,759,272
    )
    
    
    
    
    
    
    (2,759,272
    )Purchase of treasury shares
    
    
    (115,804
    )
    
    
    
    
    
    
    (115,804
    )Purchase of shares in Tender Offer
    
    
    (466,071
    )
    
    
    
    
    
    
    (466,071
    )Excess tax benefit on stock-based compensation
    
    
    17,302
    
    
    
    (3,234
    )
    
    
    14,068Stock option settlement with Jeffrey A. Rich, former chief
executive officer
    
    
    (18,353
    )
    
    
    
    
    
    
    (18,353
    )Proceeds from stock options exercised
    
    
    82,010
    
    
    
    
    
    
    
    82,010Proceeds from issuance of treasury shares
    
    
    15,145
    
    
    
    
    
    
    
    15,145Net cash provided by (used in) financing activities
    
    
    89,874
    
    
    
    (3,234
    )
    
    
    86,640Net increase (decrease) in cash and cash equivalents
    
    
    112,192
    
    
    
    
    
    
    
    112,192Cash and cash equivalents at beginning of period
    
    
    62,685
    
    
    
    
    
    
    
    62,685Cash and cash equivalents at end of period
    
    $
    174,877
    
    
    $
    
    
    
    $
    174,877
 13




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 (1)
    
    Stock-based compensation expense.(2)
    
    Estimated interest expense on Section 162(m) deduction disallowances.(3)
    
    Income tax benefits for additional stock-based compensation expense and
estimated interest expense.(4)
    
    Adjustment to dilutive shares resulting from changes in unrecognized
compensation and excess tax benefits.(5)
    
    Basic earnings per share of common stock is computed using the weighted
average number of our common shares outstanding during the periods. Diluted earnings per
share is adjusted for the incremental shares that would be outstanding upon the assumed
exercise of stock options. Shares used in computing diluted earnings per share includes the
weighted average shares outstanding for the period used in calculating basic earnings per
share, plus the dilutive effect of stock options outstanding during the period. Share
dilution for the period presented excludes the effect of options outstanding that were
considered antidilutive because the average market price of the underlying stock did not
exceed the sum of the option exercise price, unrecognized compensation expense and windfall
tax benefits.(6)
    
    Deferred income taxes associated with additional stock-based
compensation expense, net of reversals related to stock option exercises. 3. POTENTIAL SALE OF THE COMPANY
   4. ACQUISITIONS
   14




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   5. DIVESTITURES
    6. RESTRUCTURING ACTIVITIES
     Balance at December 31, 2006
    
    $
    1,137Accrual recorded
    
    
    1,593Payments
    
    
    (1,428
    )Balance at March 31, 2007
    
    $
    1,302Balance at June 30, 2006
    
    $
    899Accrual recorded
    
    
    6,653Payments
    
    
    (6,250
    )Balance at March 31, 2007
    
    $
    1,302
 15




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   7. GOODWILL AND OTHER INTANGIBLE ASSETS
  Commercial
    
    
    Government
    
    
    TotalBalance as of June 30, 2006
    
    $
    1,282,053
    
    
    $
    1,174,601
    
    
    $
    2,456,654Acquisition activity
    
    
    95,019
    
    
    
    3,209
    
    
    
    98,228Foreign currency translation
    
    
    3,213
    
    
    
    1,768
    
    
    
    4,981Balance as of March 31, 2007
    
    $
    1,380,285
    
    
    $
    1,179,578
    
    
    $
    2,559,863
   March 31, 2007
    
    
    June 30, 2006Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortizable intangible assets:Acquired customer-related
intangibles
    
    $
    412,504
    
    
    $
    (136,433
    )
    
    $
    384,738
    
    
    $
    (104,901
    )Customer-related intangibles
    
    
    240,830
    
    
    
    (97,721
    )
    
    
    222,268
    
    
    
    (90,326
    )All other
    
    
    16,390
    
    
    
    (8,500
    )
    
    
    15,147
    
    
    
    (6,113
    )Total
    
    $
    669,724
    
    
    $
    (242,654
    )
    
    $
    622,153
    
    
    $
    (201,340
    )Non-amortizable intangible assets:Title plant
    
    $
    51,045
    
    
    
    
    
    
    $
    51,045Trade name
    
    
    3,843
    
    
    
    
    
    
    
    3,843Total
    
    $
    54,888
    
    
    
    
    
    
    $
    54,888
 16




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Aggregate Amortization:For the quarter ended March 31, 2007
    
    $
    19,642For the quarter ended March 31, 2006
    
    
    17,613For the nine months ended March 31, 2007
    
    
    58,300For the nine months ended March 31, 2006
    
    
    53,714Estimated amortization for the years ended June 30,2007
    
    $
    79,6752008
    
    
    80,8882009
    
    
    70,0622010
    
    
    59,5672011
    
    
    50,318
  8. OTHER ASSETS
  9. LONG-TERM DEBT
 Credit Facility
    17




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    (1)
    
    Consent to the delivery, on or prior to February 14, 2007,
of (i) the financial statements, accountants report and
compliance certificate for the fiscal year ended June 30,
2006 and (ii) financial statements and related compliance
certificates for the fiscal quarters ended June 30, 2006
and September 30, 2006, and waiver of any default arising
from the failure to deliver any such financial statements,
reports or certificates within the applicable time period
provided for in the Credit Agreement, provided that any
such failure to deliver resulted directly or indirectly
from the previously announced investigation of the
Companys historical stock option grant practices (the
Options Matter).(2)
    
    Waiver of any default or event of default arising from the
incorrectness of representations and warranties made or
deemed to have been made with respect to certain financial
statements previously delivered to the Agent as a result of
any restatement, adjustment or other modification of such
financial statements resulting directly or indirectly from
the Options Matter.(3)
    
    Waiver of any default or event of default which may arise
from the Companys or its subsidiaries failure to comply
with reporting covenants under other indebtedness that are
similar to those in the Credit Agreement (including any
covenant to file any report with the Securities and
Exchange Commission or to furnish such reports to the
holders of such indebtedness), provided such reporting
covenants are complied with on or prior to February 14,
2007.(4)
    
    Amendments to provisions relating to the permitted uses of
the proceeds of revolving loans under the Credit Agreement
that (i) increase to $500 million from $350 million the
aggregate principal amount of revolving loans that may be
outstanding, the proceeds of which may be used to satisfy
the obligations under the Companys 4.70% Senior Notes due
2010 or 5.20% Senior Notes due 2015 and (ii) until June 30,
2007, decrease to $200 million from $300 million the
minimum liquidity (i.e., the aggregate amount of the
Companys unrestricted cash in excess of $50 million and
availability under the Credit Agreements revolving
facility) required after giving effect to such use of
proceeds.
  Senior Notes
   18




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
         19




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 10. EQUITY
     20




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 11. EARNINGS PER SHARE
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    
    
    
    
    20062007
    
    
    (as restated)
    
    
    2007
    
    
    (as restated)Numerator:Income available to common stockholders
    
    $
    82,059
    
    
    $
    77,000
    
    
    $
    215,516
    
    
    $
    272,745Denominator:Basic weighted average shares outstanding
    
    
    98,945
    
    
    
    124,347
    
    
    
    100,448
    
    
    
    124,879Dilutive effect of stock options
    
    
    1,355
    
    
    
    2,034
    
    
    
    1,301
    
    
    
    1,989Denominator for earnings per share assuming dilution
    
    
    100,300
    
    
    
    126,381
    
    
    
    101,749
    
    
    
    126,868Basic earnings per share
    
    $
    0.83
    
    
    $
    0.62
    
    
    $
    2.15
    
    
    $
    2.18Diluted earnings per share
    
    $
    0.82
    
    
    $
    0.61
    
    
    $
    2.12
    
    
    $
    2.15
   12. COMPREHENSIVE INCOME
  21




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    
    
    
    
    20062007
    
    
    (as restated)
    
    
    2007
    
    
    (as restated)Net income
    
    $
    82,059
    
    
    $
    77,000
    
    
    $
    215,516
    
    
    $
    272,745Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    1,439
    
    
    
    (2,703
    )
    
    
    9,751
    
    
    
    (6,314
    )Amortization of unrealized loss on
forward interest rate agreements (net
of income tax of $0.2 million, $0.2
million, $0.7 million and $0.7
million, respectively)
    
    
    397
    
    
    
    397
    
    
    
    1,190
    
    
    
    1,192Unrealized loss on interest rate swap
agreement (net of income tax of $0.2
million)
    
    
    (365
    )
    
    
    
    
    
    
    (365
    )
    
    
    Unrealized gain (loss) on foreign
exchange forward agreements (net of
income tax of $0.1 million, $0.1
million, $0.3 million and $0,
respectively)
    
    
    (243
    )
    
    
    (228
    )
    
    
    495
    
    
    
    49Comprehensive income
    
    $
    83,287
    
    
    $
    74,466
    
    
    $
    226,587
    
    
    $
    267,672
     As of
    
    
    As ofMarch 31, 2007
    
    
    June 30, 2006Foreign currency gains (losses)
    
    $
    9,325
    
    
    $
    (426
    )Unrealized loss on forward
interest rate agreements (net
of income tax of $5.4 million
and $6.1 million,
respectively)
    
    
    (9,011
    )
    
    
    (10,201
    )Unrealized loss on interest
rate swap agreement (net of
income tax of $0.2 million)
    
    
    (365
    )
    
    
    Unrealized gains (losses) on
foreign exchange forward
agreements (net of income tax
of $0.1 million and ($0.2
million), respectively)
    
    
    179
    
    
    
    (316
    )Total
    
    $
    128
    
    
    $
    (10,943
    )
 22




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 13. FINANCIAL INSTRUMENTS
   14. PENSION AND OTHER POST-EMPLOYMENT PLANS
 Net periodic benefit cost
  Three Months endedMarch 31,2007
    
    
    2006Non-U.S.
    
    
    
    
    
    
    Non-U.S.U.S. Plan
    
    
    Plans
    
    
    U.S. Plan
    
    
    PlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    879
    
    
    $
    1,461
    
    
    $
    1,035
    
    
    $
    1,140Interest cost
    
    
    63
    
    
    
    1,413
    
    
    
    30
    
    
    
    1,024Expected return on assets
    
    
    (54
    )
    
    
    (1,369
    )
    
    
    (45
    )
    
    
    (1,096
    )Amortization of gains/losses
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service costs
    
    
    63
    
    
    
    
    
    
    
    60
    
    
    
    Net periodic benefit cost for defined benefit plans
    
    $
    945
    
    
    $
    1,505
    
    
    $
    1,080
    
    
    $
    1,068
 Nine Months endedMarch 31,2007
    
    
    2006Non-U.S.
    
    
    
    
    
    
    Non-U.S.U.S. Plan
    
    
    Plans
    
    
    U.S. Plan
    
    
    PlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    2,637
    
    
    $
    4,355
    
    
    $
    1,380
    
    
    $
    3,705Interest cost
    
    
    189
    
    
    
    4,205
    
    
    
    40
    
    
    
    3,351Expected return on assets
    
    
    (162
    )
    
    
    (4,077
    )
    
    
    (60
    )
    
    
    (3,541
    )Amortization of gains/losses
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service costs
    
    
    189
    
    
    
    
    
    
    
    80
    
    
    
    Net periodic benefit cost for defined benefit plans
    
    $
    2,835
    
    
    $
    4,483
    
    
    $
    1,440
    
    
    $
    3,515
 Contributions
  23




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 15. SEGMENT INFORMATION
  Commercial
    
    
    Government
    
    
    Corporate
    
    
    ConsolidatedThree months ended March 31, 2007Revenues (a)
    
    $
    858,155
    
    
    $
    582,391
    
    
    $
    
    
    
    $
    1,440,546Operating expenses (excluding
depreciation and amortization)
    
    
    703,925
    
    
    
    453,498
    
    
    
    32,537
    
    
    
    1,189,960Depreciation and amortization
    
    
    64,512
    
    
    
    23,108
    
    
    
    375
    
    
    
    87,995Operating income
    
    $
    89,718
    
    
    $
    105,785
    
    
    $
    (32,912
    )
    
    $
    162,591Three months ended March 31, 2006(as restated)Revenues (a)
    
    $
    790,278
    
    
    $
    524,177
    
    
    $
    
    
    
    $
    1,314,455Operating expenses (excluding
depreciation and amortization)
    
    
    676,697
    
    
    
    405,602
    
    
    
    24,115
    
    
    
    1,106,414Gain on sale of business
    
    
    
    
    
    
    (2,717
    )
    
    
    
    
    
    
    (2,717
    )Depreciation and amortization
    
    
    49,340
    
    
    
    23,196
    
    
    
    355
    
    
    
    72,891Operating income
    
    $
    64,241
    
    
    $
    98,096
    
    
    $
    (24,470
    )
    
    $
    137,867Nine months ended March 31, 2007Revenues (a)
    
    $
    2,557,960
    
    
    $
    1,694,785
    
    
    $
    
    
    
    $
    4,252,745Operating expenses (excluding
depreciation and amortization)
    
    
    2,119,851
    
    
    
    1,322,140
    
    
    
    102,116
    
    
    
    3,544,107Depreciation and amortization
    
    
    183,578
    
    
    
    70,195
    
    
    
    1,088
    
    
    
    254,861Operating income
    
    $
    254,531
    
    
    $
    302,450
    
    
    $
    (103,204
    )
    
    $
    453,777Nine months ended March 31, 2006(as restated)Revenues (a)
    
    $
    2,341,050
    
    
    $
    1,631,909
    
    
    $
    
    
    
    $
    3,972,959Operating expenses (excluding
depreciation and amortization)
    
    
    1,964,080
    
    
    
    1,277,377
    
    
    
    85,083
    
    
    
    3,326,540Gain on sale of business
    
    
    
    
    
    
    (32,482
    )
    
    
    
    
    
    
    (32,482
    )Depreciation and amortization
    
    
    141,970
    
    
    
    68,283
    
    
    
    1,162
    
    
    
    211,415Operating income
    
    $
    235,000
    
    
    $
    318,731
    
    
    $
    (86,245
    )
    
    $
    467,486
 
 (a)
    
    Revenues in our Government segment include revenues from operations divested during
fiscal year 2006 of $2.9 million for the three months ended March 31, 2006 and $0.9 million
and $104.3 million for the nine months ended March 31, 2007 and 2006, respectively. 24




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 16. COMMITMENTS AND CONTINGENCIES
 Regulatory Agency Investigations Relating to Stock Option Grant Practices
   Lawsuits Related to Stock Option Grant Practices
  Dallas County District Court
 
    
    Merl Huntsinger, Derivatively on Behalf of Nominal Defendant
Affiliated Computer Services, Inc., Plaintiff, v. Darwin Deason, Mark
A. King, J. Livingston Kosberg, Dennis McCuistion, Joseph P. ONeill,
Jeffrey A. Rich and Frank A. Rossi, Defendants, and Affiliated
Computer Services, Inc., Nominal Defendant, Cause No. 06-03403 in the
District Court of Dallas County, Texas, 193rd Judicial
District filed on April 7, 2006.
    
    Robert P. Oury, Derivatively on Behalf of Nominal Defendant Affiliated
Computer Services, Inc., Plaintiff, v. Darwin Deason, Mark A. King, J.
Livingston Kosberg, Dennis McCuistion, Joseph P. ONeill, Jeffrey A.
Rich and Frank A. Rossi, and Affiliated Computer Services, Inc.,
Nominal Defendant, Cause No. 06-03872 in the District Court of Dallas
County, Texas, 193rd Judicial District filed on April 21,
2006.
    
    Anchorage Police & Fire Retirement System, derivatively on behalf of
nominal defendant Affiliated Computer Services Inc., Plaintiff v.
Jeffrey Rich; Darwin Deason; Mark King; Joseph ONeill; Frank Rossi;
Dennis McCuistion; J. Livingston Kosberg; Gerald Ford; Clifford
Kendall; David Black; Henry Hortenstine; Peter Bracken; William
Deckelman; Affiliated Computer Services Inc. Cause No. 06-5265-A in
the District Court of Dallas County, Texas, 14th Judicial
District filed on June 2, 2006.
 Huntsinger Oury Anchorage In Re Affiliated Computer Services, Inc. Derivative
Litigation rd
 United States District Court for the District of Delaware
 
    
    Jeffrey T. Strauss, derivatively on behalf of Affiliated Computer Services Inc. v.
Jeffrey A. Rich; Mark A. King; and Affiliated Computer Services,
Inc., as defendants. Civil Action
No. 06-318, in the United States District Court for the District of Delaware, filed on May
16, 2006.
 Strauss
 Court of Chancery for the State of Delaware
 
    
    Jan Brandin, in the Right of and for the Benefit of Affiliated Computer Services, Inc.,
Plaintiff, v. Darwin Deason, Jeffrey A.
 25




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Rich, Mark A. King, Joseph ONeill and Frank Rossi, Defendants, and Affiliated
Computer Services, Inc., Nominal Defendant
  United States District Court for the Northern District of Texas
 
    
    Alaska Electrical Fund, derivatively on behalf of Affiliated Computer
Services Inc. v. Jeffrey Rich; Joseph ONeill; Frank A. Rossi; Darwin
Deason; Mark King; Lynn Blodgett; J. Livingston Kosberg; Dennis
McCuistion; Warren Edwards; John Rexford and John M. Brophy,
Defendants, and Affiliated Computer Services, Inc., Nominal
Defendant,
in the United States District Court for the Northern District of
Texas, Dallas Division, Cause No. 3-06CV1110-M, filed on June 22,
2006.
    
    Bennett Ray Lunceford and Ann M. Lunceford, derivatively on behalf of
Affiliated Computer Services Inc. v. Jeffrey Rich; Joseph ONeill;
Frank A. Rossi; Darwin Deason; Mark King; Lynn Blodgett; J. Livingston
Kosberg; Dennis McCuistion; Warren Edwards; John Rexford and John M.
Brophy, Defendants, and Affiliated Computer Services, Inc., Nominal
Defendant, in the United States District Court for the Northern
District of Texas, Dallas Division, Cause No. 3-06CV1212-M, filed on
July 7, 2006.
 Alaska Electrical Lunceford In Re Affiliated Computer Services Federal Derivative Litigation
  United States District Court of Texas for the Northern District of Texas
 
    
    Terri Simeon, on behalf of Herself and All Others Similarly
Situated, Plaintiff, vs. Affiliated Computer Services, Inc.,
Darwin Deason, Mark A. King, Lynn R. Blodgett, Jeffrey A. Rich,
Joseph ONeill, Frank Rossi, J. Livingston Kosberg, Dennis
McCuistion, The Retirement Committee of the ACS Savings Plan, and
John Does 1-30, in the United States District Court for the
Northern District of Texas, Dallas Division, Civil Action No.
306-CV-1592P filed August 31, 2006.
    
    Kyle Burke, Individually and on behalf of All Others Similarly
Situated, Plaintiff, vs. Affiliated Computer Services, Inc., the
ACS Administrative Committee, Lora Villarreal, Kellar Nevill,
Gladys Mitchell, Meg Cino, Mike Miller, John Crysler, Van Johnson,
Scott Bell, Anne Meli, David Lotocki, Randall Booth, Pam Trutna,
Brett Jakovac, Jeffrey A. Rich, Mark A. King, Darwin Deason,
Joseph P. ONeill and J. Livingston Kosberg, United States
District Court for the Northern District of Texas, Dallas
Division, Case No. 306-CV-02379-M.
 Simeon Burke In re Affiliated Computer Systems [sic] ERISA Litigation,
  Litigation arising from buy-out offer
 Momentum Partners v. Darwin Deason, Lynn R.
Blodgett, Joseph P. ONeill, Frank A. Rossi, J. Livingston Kosberg, Robert B. Holland, Dennis
McCuistion, Affiliated Computer Services, Inc., and Cerberus Capital
Management, L.P. Mark Levy v. Darwin Deason, Lynn Blodgett, John Rexford, Joseph P.
ONeill, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Affiliated Computer Services,
Inc., and Cerberus Capital Management, L.P.
 26




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
    
    St. Clair Shores Police and Fire Retirement System v. Darwin Deason, Lynn Blodgett,
Joseph P. ONeill, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert B.
Holland, Cerberus Capital Management, L.P., Citigroup Global Markets Inc., and Affiliated
Computer Services, Inc., Civil Action No. 2821-VCL in the Court of Chancery of the State of Delaware in and for
New Castle County, filed on March 22, 2007.
    
    Steamship Trade Association/International Longshoremans Association Pension Fund v
Affiliated Computer Services, Inc., Darwin Deason, Lynn Blodgett, John Rexford, Joseph P.
ONeill, Gerardo I. Lopez, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert
B. Holland, and Cereberus [sic] Capital Management, L.P., Cause No. 07-02691 in the
District Court of Dallas County, Texas, 44th Judicial District, filed on March
22, 2007.
    
    Louisiana Municipal Police Employees Retirement System v. Darwin Deason, Joseph P.
ONeill, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert B. Holland,
Affiliated Computer Services, Inc., and Cerberus Capital Management,
L.P., Civil Action No. 2839-VCL in the Court
of Chancery of the State of Delaware in and for New Castle County, filed on March 26, 2007.
    
    The City of Birmingham, Alabama Retirement and Relief System v. Darwin Deason,
Robert B. Holland, III, J. Livingston Kosberg, Frank A. Rossi, Joseph P. ONeill, Lynn R.
Blodgett, John H. Rexford, Dennis McCuistion, Affiliated Computer Services, Inc., and
Cerberus Capital Management, L.P., Cause No. 07-02768 in the District Court of Dallas,
Texas, 160th Judicial District, filed on March 28, 2007.
    
    Edward R. Koller v. Darwin Deason, Frank A. Rossi, J. Livingston Kosberg, Robert B.
Holland, Affiliated Computer Services, Inc., and Cerberus Capital Management, L.P., Civil Action No. 2908-VCL in
the Court of Chancery of the State of Delaware in and for New Castle County, filed on April
20, 2007.
    
    Suzanne Sweeney Living Trust v. Darwin Deason, Lynn R. Blodgett, John H. Rexford,
Joseph P. ONeill, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert B.
Holland, Affiliated Computer Services, Inc., and Cerberus Capital
Management, L.P., Civil Action No. 2915-VCL in
the Court of Chancery of the State of Delaware in and for New Castle County, filed on April
24, 2007.
 Momentum Levy In re: Affiliated Computer Services, Inc. Shareholder Litigation
    27




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Declaratory Action with Respect to Alleged Default and Purported Acceleration of our Senior Notes
and Amendment, Consent and Waiver for our Credit Facility
  Investigation Regarding Photo Enforcement Contract in Edmonton, Alberta, Canada
  Investigation Concerning Procurement Process at Hanscom Air Force Base
  Investigation Regarding Certain Child Support Payment Processing Contracts
  28




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Investigation regarding Florida Workforce Contracts
   29




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Other
       30




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    17. DEPARTURE OF EXECUTIVE OFFICERS
    31




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  18. NEW ACCOUNTING PRONOUNCEMENTS
     32




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 19. RELATED PARTY TRANSACTIONS
   20. CONTRACT WITH THE DEPARTMENT OF EDUCATION
   21. SUBSEQUENT EVENTS
   33




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    Our debt service cost could limit cash flow available to fund our operations, and may
limit our ability to obtain further debt or equity financing;
    
    Alleged defaults and purported acceleration of our Senior Notes (defined below), if
upheld in litigation, could have a negative impact on our cash flow and divert resources
that could otherwise be utilized in our business operations;
    
    The complexity of regulatory environments in which we operate has increased;
    
    We are subject to the oversight of the SEC and other regulatory agencies and
investigations by those agencies could divert managements focus and could have a material
adverse impact on our reputation and financial condition;
    
    Reductions of our credit rating may have an adverse impact on our business;
    
    A decline in revenues from or a loss of significant clients could reduce our profitability and cash flow;
    
    Our ability to recover capital investments in connection with our contracts is subject to risk;
    
    We have non-recurring revenue, which subjects us to a risk that revenues from year to year may fluctuate;
    
    The markets in which we operate are highly competitive and we may not be able to compete effectively;
    
    We may not be able to make acquisitions that will complement our growth;
    
    Our failure to properly manage our operations and growth could have a material adverse effect on our business;
    
    Our government contracts are subject to termination rights, audits and investigations,
which, if exercised, could negatively impact our reputation and reduce our ability to
compete for new contracts;
    
    We may incur delays in signing and commencing new business as the result of protests of
government contracts that we are awarded;
    
    The exercise of contract termination provisions and service level penalties may have an
adverse impact on our business;
    
    Some of our contracts contain fixed pricing or benchmarking provisions that could
adversely affect our operating results and cash flow;
    
    Claims associated with our actuarial consulting and benefit plan management services
could negatively impact our business;
    
    The loss of our significant software vendor relationships could have a material adverse
effect on our business;
    
    We may be subject to claims of infringement of third-party intellectual property rights
which could adversely affect our business;
    
    We are subject to United States and foreign jurisdiction laws relating to individually
identifiable information, and failure to comply with those laws, whether or not
inadvertent, could subject us to legal actions and negatively impact our operations;
    
    We are subject to breaches of our security systems which may cause data privacy
concerns;
    
    Budget deficits and/or fluctuations in the number of requests for proposals issued by,
state and local governments and their agencies may adversely impact our business;
    
    Our international operations are subject to a number of risks;
    
    Armed hostilities and terrorist attacks may negatively impact the countries in which we operate;
    
    A failure to attract and retain necessary technical personnel, skilled management and
qualified subcontractors may have an adverse impact on our business;
    
    Risks associated with loans that we service may reduce our profitability and cash flow;
    
    Disruption in utility or network services may have a negative impact on our business; and
    
    Our indemnification obligations may have a material adverse effect on our business.
   34




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OVERVIEW
      35




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##### Table of Contents



REVIEW OF STOCK OPTION GRANT PRACTICES
     36




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##### Table of Contents



37




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##### Table of Contents




    
    The stock options held by our employees (other than Messrs. King and Edwards and one
management employee) will be adjusted as necessary, with the optionees consent, to avoid
adverse tax consequences to the employee, and we will compensate such employees for any
increase in exercise price resulting from the matters which were the subject of the
internal investigation.
    
    Our non-employee directors, to avoid the appearance of inappropriate gain, voluntarily
agreed that with respect to any historical option grants to them which require incremental
compensation expense as a result of revised measurement dates, the exercise price will be
increased to equal the fair market value of the stock on the revised measurement date,
regardless of whether such increase is necessary to avoid adverse tax consequences to the
director. The non-employee directors will not be reimbursed to offset any individual loss
of economic benefit related to such repriced stock options.
    
    Another employee (not an officer as defined in Rule 16a-1(f) under the Securities
Exchange Act of 1934) will be reassigned and all of such employees stock options will be
repriced so that the exercise price equals the fair market value of our stock on the proper
measurement date.
    
    We will consider whether to recover certain profits from Jeffrey A. Rich, former Chief
Executive Officer, which relate to stock options awarded to Mr. Rich which the internal
investigation concluded were awarded through a process in which favorable grant dates were
selected after the fact.
    
    We implemented a number of changes to our internal controls, including:
 o

    
    After reviewing the results of the investigation to date, our Board of
Directors determined that it would be appropriate to accept the resignations of Mr.
King and Mr. Edwards. Our Board of Directors has since appointed a new Chief
Executive Officer and Chief Financial Officer.o

    
    Designating internal legal and accounting staffs to oversee the
documentation and accounting of all grants of stock options or restricted stock.o
    
    Monitoring industry and regulatory developments in stock option and
restricted stock awards and implementing and maintaining best practices with respect
to grants of stock options or restricted stock.
 38




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##### Table of Contents



o
    
    Adhering to the practice of making annual grants on a date certain and through board
or committee meetings, and not through a unanimous written consent process.
     39




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##### Table of Contents



Decrease in cumulative net income and retained earnings:Stock-based compensation expense
    
    $
    (51,207
    )Estimated tax related penalties and interest on underpayment
deficiencies resulting from disallowed Section 162(m)
executive compensation deductions
    
    
    (11,562
    )Decrease in pretax profit
    
    
    (62,769
    )Income tax benefit, net
    
    
    12,918Decrease in cumulative net income and retained earnings
    
    
    
    
    
    $
    (49,851
    )Increase to additional paid-in capital:Stock-based compensation expense
    
    
    51,207Reduction of excess tax benefits for stock options
exercised, due to revised measurement dates (1)
    
    
    (10,210
    )Reduction of excess tax benefits for certain stock options
exercised related to disallowed Section 162(m) executive
compensation deductions, due to revised measurement dates
(2)
    
    
    (13,372
    )Reduction of excess tax benefits for certain stock options
exercised related to disallowed executive compensation
deductions previously believed to qualify for Section 162(m)
exceptions, due to factors unrelated to revised measurement
dates (3)
    
    
    (10,505
    )Increase in additional paid-in capital
    
    
    
    
    
    
    17,120Decrease in stockholders equity at June 30, 2006
    
    
    
    
    
    $
    (32,731
    )
 
 (1)
    
    We recorded cumulative deferred income tax benefits of $15.3 million for the income tax
effect related to the stock-based compensation expense adjustments arising from revised
measurement dates, of which $10.2 million has been realized through June 30, 2006 upon stock
option exercises and has been reflected as a reduction of excess tax benefits previously
recorded in additional paid-in capital.(2)
    
    Excess tax benefits for certain stock-based executive compensation deductions from stock
option exercises previously recorded in additional paid-in capital are now disallowed under
Section 162(m) due to revised measurement dates of certain stock option grants. See Other Tax
Matters below in this discussion of Review of Stock Option Grant Practices.(3)
    
    Excess tax benefits for certain stock-based executive compensation deductions from stock
option exercises previously recorded in additional paid-in capital may now be non-deductible
under Section 162(m) as a result of information obtained by us in connection with our internal
investigation, due to factors unrelated to revised measurement dates. See Other Tax Matters
below in this discussion of Review of Stock Option Grant Practices.  40




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##### Table of Contents



IncomeStock-based
    
    
    Estimated
    
    
    taxcompensation
    
    
    and interest
    
    
    benefit,
    
    
    Totalexpense
    
    
    penalties (1)
    
    
    net
    
    
    adjustmentsYears ended June 30,1995
    
    
    
    
    
    $
    (63
    )
    
    $
    
    
    
    $
    23
    
    
    $
    (40
    )1996
    
    
    
    
    
    
    (444
    )
    
    
    
    
    
    
    130
    
    
    
    (314
    )1997
    
    
    
    
    
    
    (1,404
    )
    
    
    
    
    
    
    301
    
    
    
    (1,103
    )1998
    
    
    
    
    
    
    (1,876
    )
    
    
    
    
    
    
    405
    
    
    
    (1,471
    )1999
    
    
    
    
    
    
    (3,325
    )
    
    
    
    
    
    
    717
    
    
    
    (2,608
    )2000
    
    
    
    
    
    
    (4,870
    )
    
    
    (87
    )
    
    
    511
    
    
    
    (4,446
    )2001
    
    
    
    
    
    
    (6,433
    )
    
    
    (546
    )
    
    
    1,074
    
    
    
    (5,905
    )2002
    
    
    
    
    
    
    (7,833
    )
    
    
    (1,414
    )
    
    
    1,636
    
    
    
    (7,611
    )2003
    
    
    
    
    
    
    (9,237
    )
    
    
    (1,454
    )
    
    
    2,119
    
    
    
    (8,572
    )Cumulative effect at June 30, 2003
    
    
    
    
    
    
    (35,485
    )
    
    
    (3,501
    )
    
    
    6,916
    
    
    
    (32,070
    )Net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Netincome as
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    income asreported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    restatedYears ended June 30,2004
    
    $
    529,843
    
    
    
    (7,527
    )
    
    
    (2,509
    )
    
    
    1,921
    
    
    
    (8,115
    )
    
    $
    521,7282005
    
    
    415,945
    
    
    
    (6,061
    )
    
    
    (2,526
    )
    
    
    2,211
    
    
    
    (6,376
    )
    
    
    409,5692006
    
    
    
    
    
    
    (2,134
    )
    
    
    (3,026
    )
    
    
    1,870
    
    
    
    (3,290
    )Cumulative effect at June 30, 2006
    
    
    
    
    
    $
    (51,207
    )
    
    $
    (11,562
    )
    
    $
    12,918
    
    
    $
    (49,851
    )
 
 (1)
    
    Estimated interest and penalties on income tax underpayment deficiencies resulting
from disallowed executive compensation deductions under Section 162(m).    41




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##### Table of Contents



Currentincome taxexpense onDeferred
    
    
    Current
    
    
    disallowedincome tax
    
    
    income tax
    
    
    deductionsbenefit on
    
    
    benefit on
    
    
    understock-based
    
    
    deductible
    
    
    Section
    
    
    Income taxcompensation
    
    
    interest
    
    
    162(m)
    
    
    benefit, netYears ended June 30,1995
    
    $
    23
    
    
    $
    
    
    
    $
    
    
    
    $
    231996
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    1301997
    
    
    301
    
    
    
    
    
    
    
    
    
    
    
    3011998
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    4051999
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    7172000
    
    
    945
    
    
    
    
    
    
    
    (434
    )
    
    
    5112001
    
    
    1,598
    
    
    
    
    
    
    
    (524
    )
    
    
    1,0742002
    
    
    2,287
    
    
    
    
    
    
    
    (651
    )
    
    
    1,6362003
    
    
    3,246
    
    
    
    70
    
    
    
    (1,197
    )
    
    
    2,119Cumulative effect at June 30, 2003
    
    
    9,652
    
    
    
    70
    
    
    
    (2,806
    )
    
    
    6,916Years ended June 30,2004
    
    
    2,702
    
    
    
    387
    
    
    
    (1,168
    )
    
    
    1,9212005
    
    
    2,194
    
    
    
    576
    
    
    
    (559
    )
    
    
    2,2112006
    
    
    774
    
    
    
    1,096
    
    
    
    
    
    
    
    1,870Cumulative effect at June 30, 2006
    
    $
    15,322
    
    
    $
    2,129
    
    
    $
    (4,533
    )
    
    $
    12,918
 Other tax matters
    42




---



##### Table of Contents



DEPARTURE OF EXECUTIVE OFFICERS
    43




---



##### Table of Contents



SIGNIFICANT DEVELOPMENTS
 Potential Sale of the Company
   New Business
  Acquisitions
   44




---



##### Table of Contents



Review of Stock Option Grant Practices
  Departure of Executive Officers
  Credit Arrangements
 Credit Facility
 Senior Notes
 Restructuring and other activities
     Balance at December 31, 2006
    
    $
    1,137Accrual recorded
    
    
    1,593Payments
    
    
    (1,428
    )Balance at March 31, 2007
    
    $
    1,302Balance at June 30, 2006
    
    $
    899Accrual recorded
    
    
    6,653Payments
    
    
    (6,250
    )Balance at March 31, 2007
    
    $
    1,302
  45




---



##### Table of Contents



Sale of Minority Interest in a Professional Services Business
  Share Repurchase Programs
  Stock option grants
  Related Party Transactions
   46




---



##### Table of Contents



Contract with the Department of Education
   Government Healthcare Contract
   47




---



##### Table of Contents



SUBSEQUENT EVENTS
   48




---



##### Table of Contents



REVENUE GROWTH
  Three months ended March 31,
    
    
    Nine months ended March 31,2007
    
    
    2006
    
    
    $ Growth
    
    
    Growth %
    
    
    2007
    
    
    2006
    
    
    $ Growth
    
    
    Growth %ConsolidatedTotal Revenues
    
    $
    1,440,546
    
    
    $
    1,314,455
    
    
    $
    126,091
    
    
    
    10
    %
    
    $
    4,252,745
    
    
    $
    3,972,959
    
    
    $
    279,786
    
    
    
    7
    %Less: Divestitures
    
    
    
    
    
    
    (2,907
    )
    
    
    2,907
    
    
    
    
    
    
    
    (856
    )
    
    
    (104,276
    )
    
    
    103,420Adjusted
    
    $
    1,440,546
    
    
    $
    1,311,548
    
    
    $
    128,998
    
    
    
    10
    %
    
    $
    4,251,889
    
    
    $
    3,868,683
    
    
    $
    383,206
    
    
    
    10
    %Acquired revenues
    
    $
    47,048
    
    
    $
    
    
    
    $
    47,048
    
    
    
    4
    %
    
    $
    216,949
    
    
    $
    15,333
    
    
    $
    201,616
    
    
    
    5
    %Internal revenues
    
    
    1,393,498
    
    
    
    1,311,548
    
    
    
    81,950
    
    
    
    6
    %
    
    
    4,034,940
    
    
    
    3,853,350
    
    
    
    181,590
    
    
    
    5
    %Total
    
    $
    1,440,546
    
    
    $
    1,311,548
    
    
    $
    128,998
    
    
    
    10
    %
    
    $
    4,251,889
    
    
    $
    3,868,683
    
    
    $
    383,206
    
    
    
    10
    %CommercialTotal Revenues
    
    $
    858,155
    
    
    $
    790,278
    
    
    $
    67,877
    
    
    
    9
    %
    
    $
    2,557,960
    
    
    $
    2,341,050
    
    
    $
    216,910
    
    
    
    9
    %Less: Divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted
    
    $
    858,155
    
    
    $
    790,278
    
    
    $
    67,877
    
    
    
    9
    %
    
    $
    2,557,960
    
    
    $
    2,341,050
    
    
    $
    216,910
    
    
    
    9
    %Acquired revenues
    
    $
    46,544
    
    
    $
    
    
    
    $
    46,544
    
    
    
    6
    %
    
    $
    124,277
    
    
    $
    
    
    
    $
    124,277
    
    
    
    5
    %Internal revenues
    
    
    811,611
    
    
    
    790,278
    
    
    
    21,333
    
    
    
    3
    %
    
    
    2,433,683
    
    
    
    2,341,050
    
    
    
    92,633
    
    
    
    4
    %Total
    
    $
    858,155
    
    
    $
    790,278
    
    
    $
    67,877
    
    
    
    9
    %
    
    $
    2,557,960
    
    
    $
    2,341,050
    
    
    $
    216,910
    
    
    
    9
    %GovernmentTotal Revenues
    
    $
    582,391
    
    
    $
    524,177
    
    
    $
    58,214
    
    
    
    11
    %
    
    $
    1,694,785
    
    
    $
    1,631,909
    
    
    $
    62,876
    
    
    
    4
    %Less: Divestitures
    
    
    
    
    
    
    (2,907
    )
    
    
    2,907
    
    
    
    
    
    
    
    (856
    )
    
    
    (104,276
    )
    
    
    103,420Adjusted
    
    $
    582,391
    
    
    $
    521,270
    
    
    $
    61,121
    
    
    
    12
    %
    
    $
    1,693,929
    
    
    $
    1,527,633
    
    
    $
    166,296
    
    
    
    11
    %Acquired revenues
    
    $
    504
    
    
    $
    
    
    
    $
    504
    
    
    
    
    
    
    $
    92,672
    
    
    $
    15,333
    
    
    $
    77,339
    
    
    
    5
    %Internal revenues
    
    
    581,887
    
    
    
    521,270
    
    
    
    60,617
    
    
    
    12
    %
    
    
    1,601,257
    
    
    
    1,512,300
    
    
    
    88,957
    
    
    
    6
    %Total
    
    $
    582,391
    
    
    $
    521,270
    
    
    $
    61,121
    
    
    
    12
    %
    
    $
    1,693,929
    
    
    $
    1,527,633
    
    
    $
    166,296
    
    
    
    11
    %
 49




---



##### Table of Contents



RESULTS OF OPERATIONS
   Three months ended
    
    Nine months endedMarch 31,
    
    March 31,2006
    
    
    
    
    
    20062007
    
    (as restated)
    
    2007
    
    (as restated)Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Cost of revenues:Wages and benefits
    
    
    47.8
    
    
    
    49.0
    
    
    
    47.6
    
    
    
    47.9Services and supplies
    
    
    21.2
    
    
    
    20.8
    
    
    
    21.5
    
    
    
    21.9Rent, lease and maintenance
    
    
    12.1
    
    
    
    11.9
    
    
    
    12.5
    
    
    
    12.0Depreciation and amortization
    
    
    6.1
    
    
    
    5.5
    
    
    
    6.0
    
    
    
    5.3Other
    
    
    0.6
    
    
    
    1.5
    
    
    
    0.6
    
    
    
    0.8Total cost of revenues
    
    
    87.8
    
    
    
    88.7
    
    
    
    88.2
    
    
    
    87.9Gain on sale of business
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.8
    )Other operating expenses
    
    
    0.9
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    1.1Total operating expenses
    
    
    88.7
    
    
    
    89.5
    
    
    
    89.3
    
    
    
    88.2Operating income
    
    
    11.3
    
    
    
    10.5
    
    
    
    10.7
    
    
    
    11.8Interest expense
    
    
    3.2
    
    
    
    1.1
    
    
    
    3.3
    
    
    
    1.0Other non-operating (income) expense, net
    
    
    (0.8
    )
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    (0.1
    )Pretax profit
    
    
    8.9
    
    
    
    9.3
    
    
    
    7.9
    
    
    
    10.9Income tax expense
    
    
    3.2
    
    
    
    3.4
    
    
    
    2.8
    
    
    
    4.0Net income
    
    
    5.7
    %
    
    
    5.9
    %
    
    
    5.1
    %
    
    
    6.9
    %
 COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2007 TO THE THREE MONTHS ENDED MARCH 31, 2006
 Revenues
    50




---



##### Table of Contents



Operating Expenses
      51




---



##### Table of Contents



For the three months endingMarch 31,2007
    
    
    2006Commercial segment:Litigation settlement
    
    $
    2.2
    
    
    $
    Provision for uncollectible accounts receivable related to
the loss of a sub-prime lending client due to bankruptcy
    
    
    1.5
    
    
    
    Government segment:Provision for uncollectible accounts receivable retained in
connection with the sale of the majority of our Federal
business in fiscal year 2004
    
    
    
    
    
    
    2.4Corporate segment:Aircraft impairment
    
    
    
    
    
    
    0.3Legal costs associated with the ongoing
stock option investigations and
shareholder derivative lawsuits
    
    
    3.7
    
    
    
    Legal costs associated with the potential sale of the Company
    
    
    0.6
    
    
    
    Legal costs associated with the review of certain
recapitalization options related to our dual class structure
and an unsolicited offer regarding a potential sale of the
Company
    
    
    
    
    
    
    1.3Total
    
    $
    8.0
    
    
    $
    4.0As a percentage of revenue
    
    
    0.5
    %
    
    
    0.3
    %
 Operating Income
  For the three months endingMarch 31,2007
    
    
    2006Commercial segment:Costs related to our restructuring activities
    
    $
    (2.8
    )
    
    $
    (3.0
    )Incremental transaction costs related to the Acquired HR Business
    
    
    
    
    
    
    (2.9
    )Litigation settlement
    
    
    (2.2
    )
    
    
    Provision for uncollectible accounts receivable and other charges
related to the loss of a sub-prime lending client due to bankruptcy
    
    
    (1.6
    )
    
    
    Asset impairment
    
    
    (0.4
    )
    
    
    Government segment:Revenue related to the settlement of the North Carolina contract dispute
    
    
    3.4
    
    
    
    Gain on sale of Government welfare-to-workforce services business
    
    
    
    
    
    
    2.7Provision for uncollectible accounts receivable retained in connection
with the sale of the majority of our Federal business in fiscal year
2004
    
    
    
    
    
    
    (2.4
    )Costs related to our restructuring activities
    
    
    (0.9
    )
    
    
    (1.0
    )Corporate segment:Legal and other costs associated with the
ongoing stock option investigations and
shareholder derivative lawsuits
    
    
    (4.3
    )
    
    
    Legal costs associated with the potential sale of the Company
    
    
    (0.6
    )
    
    
    Legal costs associated with the review of certain recapitalization
options related to our dual class structure and an unsolicited offer
regarding a potential sale of the Company
    
    
    
    
    
    
    (1.3
    )Aircraft impairment
    
    
    
    
    
    
    (0.3
    )Total
    
    $
    (9.4
    )
    
    $
    (8.2
    )As a percentage of revenue
    
    
    (0.7
    )%
    
    
    (0.6
    )%
 52




---



##### Table of Contents



Interest Expense
  Other non-operating (income) expense, net
  COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2007 TO THE NINE MONTHS ENDED MARCH 31, 2006
 Revenues
    Operating Expenses
   53




---



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54




---



##### Table of Contents



For the nine months endingMarch 31,2007
    
    
    2006Commercial segment:Litigation settlement
    
    $
    2.2
    
    
    $
    Provision for doubtful accounts for an assessment of risk related to the bankruptcies
of certain airline clients
    
    
    
    
    
    
    3.0Provision for uncollectible accounts receivable related to the loss of a sub-prime
lending client due to bankruptcy
    
    
    1.5
    
    
    
    Government segment:Provision for estimated legal settlement and uncollectible accounts receivable
related to the welfare-to-workforce services business
    
    
    
    
    
    
    3.3Provision for uncollectible accounts receivable retained in connection with the sale
of the majority of our Federal business in fiscal year 2004
    
    
    
    
    
    
    2.4Asset impairments
    
    
    
    
    
    
    0.3Legal settlements and related costs
    
    
    
    
    
    
    0.5Corporate segment:Aircraft impairment
    
    
    
    
    
    
    4.4Legal settlements and related costs
    
    
    
    
    
    
    2.6Legal costs associated with the ongoing stock option investigations and shareholder
derivative lawsuits
    
    
    24.7
    
    
    
    Legal costs associated with the potential sale of the Company
    
    
    0.6
    
    
    
    Legal costs associated with the review of certain recapitalization options related
to our dual class structure and an unsolicited offer regarding a potential sale of
the Company
    
    
    
    
    
    
    4.0Total
    
    $
    29.0
    
    
    $
    20.5As a percentage of revenue
    
    
    0.7
    %
    
    
    0.5
    %
 55




---



##### Table of Contents



Operating Income
  For the nine months endingMarch 31,2007
    
    
    2006Commercial segment:Costs related to our restructuring activities
    
    $
    (8.3
    )
    
    $
    (7.7
    )Litigation settlement
    
    
    (2.2
    )
    
    
    Provision for uncollectible accounts receivable and other charges related to the
loss of a sub-prime lending client due to bankruptcy
    
    
    (1.7
    )
    
    
    Asset impairments and other charges
    
    
    (1.3
    )Costs related to our efforts to relocate domestic functions to offshore facilities
    
    
    (1.2
    )
    
    
    Provision for doubtful accounts for an assessment of risk related to the
bankruptcies of certain airline clients
    
    
    
    
    
    
    (3.0
    )Incremental transaction costs related to the Acquired HR Business
    
    
    
    
    
    
    (2.9
    )Government segment:Gain on sale of Government welfare-to-workforce services business
    
    
    
    
    
    
    32.5Revenue related to the settlement of the North Carolina contract dispute
    
    
    3.4
    
    
    
    Cost related to our restructuring activities
    
    
    (1.3
    )
    
    
    (2.6
    )Provision for estimated legal settlement and uncollectible accounts receivable
related to the welfare-to-workforce services business
    
    
    
    
    
    
    (3.3
    )Provision for uncollectible accounts receivable retained in connection with the
sale of the majority of our Federal business in fiscal year 2004
    
    
    
    
    
    
    (2.4
    )Legal settlements and related costs
    
    
    
    
    
    
    (0.5
    )Corporate segment:Aircraft impairment
    
    
    
    
    
    
    (4.4
    )Legal and other costs associated with the
ongoing stock option investigations and
shareholder derivative lawsuits
    
    
    (26.0
    )
    
    
    Compensation expense related to the departure of Jeffrey A. Rich, our former
Chief Executive Officer
    
    
    
    
    
    
    (5.4
    )Legal settlements and related costs
    
    
    
    
    
    
    (2.6
    )Legal costs associated with the potential sale of the Company
    
    
    (0.6
    )
    
    
    Legal costs associated with the review of certain recapitalization options
related to our dual class structure and an unsolicited offer regarding a
potential sale of the Company
    
    
    
    
    
    
    (4.0
    )Total
    
    $
    (39.2
    )
    
    $
    (6.3
    )As a percentage of revenue
    
    
    (0.9
    )%
    
    
    (0.2
    )%
  Interest Expense
  56




---



##### Table of Contents



Other non-operating (income) expense, net
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
  Nine months endedMarch 31,2007
    
    
    2006Cash paid for final settlement of the Mellon Financial Corporate (Mellon)
transition services agreement (a)
    
    $
    
    
    
    $
    (85.8
    )Cash paid for incentive compensation to employees of the Acquired HR Business
    
    
    
    
    
    
    (26.3
    )Cash received for interest income
    
    
    6.8
    
    
    
    1.6Cash paid for legal fees and other costs related to the investigations into
our stock option grant practices, derivative lawsuits related to our stock
option grant practices and the potential sale of the company as discussed
above
    
    
    (24.9
    )
    
    
    Cash paid on tax, interest and penalties related to our stock option grant
practices as discussed above
    
    
    (35.0
    )
    
    
    $
    (53.1
    )
    
    $
    (110.5
    )
 
 (a)
    
    Under the transition services agreement, Mellon provided certain accounting, treasury and
payroll services for an interim period. As part of these services, Mellon was also paying
certain operational costs on our behalf, such as employee related expenses and accounts
payable. This agreement and the related timing of payments to Mellon had a favorable impact
on our net cash provided by operating activities in the fourth quarter of fiscal year 2005
and a negative impact on our net cash provided by operating activities in the third quarter
of fiscal year 2006 when the Acquired HR Business was fully integrated.   57




---



##### Table of Contents



Nine months endedMarch 31,20062007
    
    
    (As restated)Net cash provided by operating activities
    
    $
    394,977
    
    
    $
    471,694Purchases of property, equipment and software, net
    
    
    (239,123
    )
    
    
    (290,108
    )Additions to other intangible assets
    
    
    (30,266
    )
    
    
    (28,386
    )Free cash flow
    
    $
    125,588
    
    
    $
    153,200
   Credit Facility
      58




---



##### Table of Contents



(1)
    
    Consent to the delivery, on or prior to February 14, 2007,
of (i) the financial statements, accountants report and
compliance certificate for the fiscal year ended June 30,
2006 and (ii) financial statements and related compliance
certificates for the fiscal quarters ended June 30, 2006
and September 30, 2006, and waiver of any default arising
from the failure to deliver any such financial statements,
reports or certificates within the applicable time period
provided for in the Credit Agreement, provided that any
such failure to deliver resulted directly or indirectly
from the previously announced investigation of the
Companys historical stock option grant practices (the
Options Matter).(2)
    
    Waiver of any default or event of default arising from the
incorrectness of representations and warranties made or
deemed to have been made with respect to certain financial
statements previously delivered to the Agent as a result of
any restatement, adjustment or other modification of such
financial statements resulting directly or indirectly from
the Options Matter.(3)
    
    Waiver of any default or event of default which may arise
from the Companys or its subsidiaries failure to comply
with reporting covenants under other indebtedness that are
similar to those in the Credit Agreement (including any
covenant to file any report with the Securities and
Exchange Commission or to furnish such reports to the
holders of such indebtedness), provided such reporting
covenants are complied with on or prior to February 14,
2007.(4)
    
    Amendments to provisions relating to the permitted uses of
the proceeds of revolving loans under the Credit Agreement
that (i) increase to $500 million from $350 million the
aggregate principal amount of revolving loans that may be
outstanding, the proceeds of which may be used to satisfy
the obligations under the Companys 4.70% Senior Notes due
2010 or 5.20% Senior Notes due 2015 and (ii) until June 30,
2007, decrease to $200 million from $300 million the
minimum liquidity (i.e., the aggregate amount of the
Companys unrestricted cash in excess of $50 million and
availability under the Credit Agreements revolving
facility) required after giving effect to such use of
proceeds.
  Senior Notes
     59




---



##### Table of Contents



Other credit arrangements
  Credit Ratings
  60




---



##### Table of Contents



Derivative instruments and hedging activities
    Share Repurchase Programs
  Other
   61




---



##### Table of Contents



DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
 AS OF MARCH 31, 2007 (IN THOUSANDS):
 Payments Due by PeriodLess thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsSenior Notes, net of unamortized
discount (1)
    
    $
    499,429
    
    
    $
    
    
    
    $
    249,946
    
    
    $
    
    
    
    $
    249,483Long-term debt (1)
    
    
    1,822,082
    
    
    
    18,861
    
    
    
    36,064
    
    
    
    74,547
    
    
    
    1,692,610Capital lease obligations (1)
    
    
    53,104
    
    
    
    27,683
    
    
    
    25,194
    
    
    
    227
    
    
    
    Operating leases (2)
    
    
    1,186,973
    
    
    
    335,347
    
    
    
    536,209
    
    
    
    245,900
    
    
    
    69,517Purchase obligations (3) (4)
    
    
    31,510
    
    
    
    12,818
    
    
    
    18,692
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    3,593,098
    
    
    $
    394,709
    
    
    $
    866,105
    
    
    $
    320,674
    
    
    $
    2,011,610
 Amount of Commitment Expiration per PeriodTotalAmounts
    
    
    Less thanOther Commercial Commitments
    
    Committed
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsStandby letters of credit
    
    $
    140,627
    
    
    $
    140,607
    
    
    $
    20
    
    
    $
    
    
    
    $
    Surety bonds
    
    
    526,317
    
    
    
    471,489
    
    
    
    29,797
    
    
    
    23,169
    
    
    
    1,862Total Commercial Commitments
    
    $
    666,944
    
    
    $
    612,096
    
    
    $
    29,817
    
    
    $
    23,169
    
    
    $
    1,862
 
 (1)
    
    Excludes accrued interest of $17.4 million at March 31, 2007.(2)
    
    We have various contractual commitments to lease hardware and software and for the purchase
of maintenance on such leased assets with varying terms through fiscal year 2013, which are
included in operating leases in the table.(3)
    
    We have entered into various contractual agreements to purchase telecommunications services.
These agreements provide
for minimum annual spending commitments, and have varying terms through fiscal year 2010, and
are included in purchase obligations in the table.(4)
    
    We have entered into a two year agreement with Rich Capital, LLC, an M&A advisory firm owned
by Jeffery A. Rich, a 62




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##### Table of Contents



former Chief Executive Officer, to provide us with advisory services in
connection with potential acquisition candidates. This contractual obligation is included in
purchase obligations in the table above. However, we have currently suspended payment under
this agreement pending determination whether Rich Capital LLC is capable of performing its
obligations under the contract in view of the internal investigations conclusions regarding
stock options awarded to Mr. Rich.      CRITICAL ACCOUNTING POLICIES
   63




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Revenue recognition
         64




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##### Table of Contents



Cost of revenues
  Contingencies
   Valuation of goodwill and intangibles
  Share-Based Compensation
  
    
    Expected volatility of our stock price based on historical monthly volatility over the
expected term based on daily closing stock prices.
    
    Expected term of the option based on historical employee stock option exercise behavior,
the vesting term of the respective option and the contractual term.
    
    Risk-free interest rate for periods within the expected term of the option.
    
    Dividend yield.
 65




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##### Table of Contents



Pension and post-employment benefits
       As of June 30,2006
    
    2005OtherBenefit
    
    
    
    
    
    OtherPension Plans
    
    Plan
    
    Pension Plans
    
    Benefit PlanNon-U.S. PlansDiscount rate
    
    
    5.00% - 5.75
    %
    
    
    5.75
    %
    
    
    5.00% - 5.25
    %
    
    
    5.25
    %Rate of increase in compensation levels
    
    
    4.25% - 4.40
    %
    
    
    N/A
    
    
    
    4.25% - 4.40
    %
    
    
    N/AU.S. PlanDiscount rate
    
    
    6.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of increase in compensation levels
    
    
    3.50
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 66




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##### Table of Contents



For the year ended
    
    For the period from May 1, 2005June 30, 2006
    
    through June 30, 2005Other
    
    
    
    
    
    OtherPension Plans
    
    Benefit Plan
    
    Pension Plans
    
    Benefit PlanNon-U.S. PlansDiscount rate
    
    
    5.00% - 5.75
    %
    
    
    5.75
    %
    
    
    5.25% - 5.75
    %
    
    
    5.75
    %Long-term rate of return on assets
    
    
    7.00% - 7.50
    %
    
    
    N/A
    
    
    
    7.00% - 7.50
    %
    
    
    N/ARate of increase in compensation levels
    
    
    4.25% - 4.40
    %
    
    
    N/A
    
    
    
    4.25% - 4.40
    %
    
    
    N/AU.S. PlanDiscount rate
    
    
    5.75
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ALong-term rate of return on assets
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ARate of increase in compensation levels
    
    
    3.00
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  For the year ended
    
    For the period from May 1, 2005June 30, 2006
    
    through June 30, 2005Plus .25%
    
    Less .25%
    
    Plus .25%
    
    Less .25%Non-U.S. PlansEffect on pension benefit obligation
    
    $
    (5,055
    )
    
    $
    5,155
    
    
    $
    (4,490
    )
    
    $
    4,692Effect on service and interest cost
    
    $
    (432
    )
    
    $
    450
    
    
    $
    (380
    )
    
    $
    399U.S. PlanEffect on pension benefit obligation
    
    $
    (164
    )
    
    $
    174
    
    
    
    N/A
    
    
    
    N/AEffect on service and interest cost
    
    $
    (104
    )
    
    $
    110
    
    
    
    N/A
    
    
    
    N/A
     67




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##### Table of Contents



For the year ended
    
    For the period from May 1,June 30, 2006
    
    2005 through June 30, 2005Plus 1%
    
    Less 1%
    
    Plus 1%
    
    Less 1%Effect on pension benefit obligation
    
    $
    30
    
    
    $
    (27
    )
    
    $
    55
    
    
    $
    (48
    )Effect on service and interest cost
    
    $
    4
    
    
    $
    (4
    )
    
    $
    7
    
    
    $
    (6
    )
 Allowance for doubtful accounts
  Income taxes
   NEW ACCOUNTING PRONOUNCEMENTS
    68




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
  69




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##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
     (1)
    
    Consent to the delivery, on or prior to February 14, 2007,
of (i) the financial statements, accountants report and
compliance certificate for the fiscal year ended June 30,
2006 and (ii) financial statements and related compliance
certificates for the fiscal quarters ended June 30, 2006
and September 30, 2006, and waiver of any default arising
from the failure to deliver any such financial statements,
reports or certificates within the applicable time period
provided for in the Credit Agreement, provided that any
such failure to deliver resulted directly or indirectly
from the previously announced investigation of the
Companys historical stock option grant practices (the
Options Matter).(2)
    
    Waiver of any default or event of default arising from the
incorrectness of representations and warranties made or
deemed to have been made with respect to certain financial
statements previously delivered to the Agent as a result of
any restatement, adjustment or other modification of such
financial statements resulting directly or indirectly from
the Options Matter.(3)
    
    Waiver of any default or event of default which may arise
from the Companys or its subsidiaries failure to comply
with reporting covenants under other indebtedness that are
similar to those in the Credit Agreement (including any
covenant to file any report with the Securities and
Exchange Commission or to furnish such reports to the
holders of such indebtedness), provided such reporting
covenants are complied with on or prior to February 14,
2007.(4)
    
    Amendments to provisions relating to the permitted uses of
the proceeds of revolving loans under the Credit Agreement
that (i) increase to $500 million from $350 million the
aggregate principal amount of revolving loans that may be
outstanding, the proceeds of which may be used to satisfy
the obligations under the Companys 4.70% Senior Notes due
2010 or 5.20% Senior Notes due 2015 and (ii) until June 30,
2007, decrease to $200 million from $300 million the
minimum liquidity (i.e., the aggregate amount of the
Companys unrestricted cash in excess of $50 million and
availability under the Credit Agreements revolving
facility) required after giving effect to such use of
proceeds.
 70




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Senior Notes
         71




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ITEM 6. EXHIBITS
  72




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SIGNATURES
  AFFILIATED COMPUTER SERVICES, INC.By:
    /s/ John H. RexfordJohn H. RexfordExecutive Vice President and
Chief Financial Officer 73




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name2.1
    
    Stock Purchase Agreement, dated as of July 31, 2003
between Lockheed Martin Corporation and Affiliated
Computer Services, Inc. (filed as Exhibit 10.1 to our
Quarterly Report on Form 10-Q, filed November 14, 2003
and incorporated herein by reference).2.2
    
    Asset Purchase Agreement, dated as of
July 31, 2003 between Lockheed Martin
Service, Inc. and Affiliated Computer
Services, Inc. (filed as Exhibit 10.2 to
our Quarterly Report on Form 10-Q, filed
November 14, 2003 and incorporated herein
by reference).2.3
    
    Purchase Agreement, dated as of March 15,
2005, among Mellon Financial Corporation,
Mellon Consultants European Holdings
Limited, Affiliated Computer Services,
Inc., ACS Business Process Solutions
Limited and Affiliated Computer Services
of Germany GmbH (filed as Exhibit 2.1 to
our Current Report on Form 8-K, filed
March 17, 2005 and incorporated herein by
reference).2.4
    
    Amendment No. 1 to Purchase Agreement,
dated as of May 25, 2005, among Mellon
Financial Corporation, Mellon Consultants
European Holdings Limited, Affiliated
Computer Services, Inc., ACS Business
Process Solutions Limited and Affiliated
Computer Services of Germany GmbH (filed
as Exhibit 2.1 to our Current Report on
Form 8-K, filed June 1, 2005 and
incorporated herein by reference).2.5
    
    Amendment No. 2 to Purchase Agreement,
dated as of November 11, 2005, among
Mellon Financial Corporation, Mellon
Consultants European Holdings Limited,
Affiliated Computer Services, Inc., ACS
Business Process Solutions Limited and
Affiliated Computer Services of Germany
GmbH (filed as Exhibit 2.1 to our Current
Report on Form 8-K, filed November 16,
2005 and incorporated herein by
reference).3.1
    
    Certificate of Incorporation of
Affiliated Computer Services, Inc. (filed
as Exhibit 3.1 to our Registration
Statement on Form S-3, filed March 30,
2001, File No. 333-58038 and incorporated
herein by reference).3.2
    
    Certificate of Correction to Certificate
of Amendment of Affiliated Computer
Services, Inc., dated August 30, 2001
(filed as Exhibit 3.2 to our Annual
Report on Form 10-K, filed September 17,
2003 and incorporated herein by
reference).3.3
    
    Bylaws of Affiliated Computer Services,
Inc., as amended and in effect on
September 11, 2003 (filed as Exhibit 3.3
to our Quarterly Report on Form 10-Q,
filed February 17, 2004 and incorporated
herein by reference).4.1
    
    Form of New Class A Common Stock
Certificate (filed as Exhibit 4.3 to our
Registration Statement on Form S-1, filed
May 26, 1994, File No. 33-79394 and
incorporated herein by reference).4.2
    
    Amended and Restated Rights Agreement,
dated April 2, 1999, between Affiliated
Computer Services, Inc. and First City
Transfer Company, as Rights Agent (filed
as Exhibit 4.1 to our Current Report on
Form 8-K, filed May 19, 1999 and
incorporated herein by reference).4.3
    
    Amendment No. 1 to Amended and Restated
Rights Agreement, dated as of February 5,
2002, by and between Affiliated Computer
Services, Inc. and First City Transfer
Company (filed as Exhibit 4.1 to our
Current Report on Form 8-K, filed
February 6, 2002 and incorporated herein
by reference).4.4
    
    Form of Rights Certificate (included as
Exhibit A to the Amended and Restated
Rights Agreement (Exhibit 4.3) filed as
Exhibit 4.1 to our Current Report on Form
8-K filed May 19, 1999 and incorporated
herein by reference).4.5
    
    Indenture, dated as of June 6, 2005, by
and between Affiliated Computer Services,
Inc. as Issuer and The Bank of New York
Trust Company, N.A. as Trustee (filed as
Exhibit 4.1 to our Current Report on Form
8-K, filed June 6, 2005 and incorporated
herein by reference).4.6
    
    First Supplemental Indenture, dated as of
June 6, 2005, by and between Affiliated
Computer Services, Inc. as Issuer and The
Bank of New York Trust Company, N.A. as
Trustee, relating to our 4.70% Senior
Notes due 2010 (filed as Exhibit 4.2 to
our Current Report on Form 8-K, filed
June 6, 2005 and incorporated herein by reference).
 74




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name4.7
    
    Third Supplemental Indenture, dated as of
June 6, 2005, by and between Affiliated
Computer Services, Inc. as Issuer and The
Bank of New York Trust Company, N.A. as
Trustee, relating to our 5.20% Senior
Notes due 2015 (filed as Exhibit 4.3 to
our Current Report on Form 8-K, filed
June 6, 2005 and incorporated herein by
reference).4.8
    
    Specimen Note for 4.70% Senior Notes due
2010 (filed as Exhibit 4.4 to our Current
Report on Form 8-K, filed June 6, 2005
and incorporated herein by reference).4.9
    
    Specimen Note for 5.20% Senior Notes due 2015 (filed as
Exhibit 4.5 to our Current Report on Form 8-K, filed June
6, 2005 and incorporated herein by reference).9.1
    
    Voting Agreement dated February 9, 2006 by and between
Affiliated Computer Services, Inc. and Darwin Deason.
(filed as Exhibit 9.1 to our Quarterly Report on Form
10-Q filed February 9, 2006 and incorporated herein by
reference).10.1
    
    1997 Stock Incentive Plan for Employees
in France (filed as Exhibit 10.35 to our
Annual Report on Form 10-K, filed January
23, 2007 and incorporated herein by
reference).10.2
    
    Form of Stock Option Agreement (France)
(filed as Exhibit 10.36 to our Annual
Report on Form 10-K, filed January 23,
2007, and incorporated herein by
reference).31.1*
    
    Certification of Chief Executive Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(a) promulgated
under the Securities Exchange Act of
1934, as amended.31.2*
    
    Certification of Chief Financial Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(a) promulgated
under the Securities Exchange Act of
1934, as amended.32.1*
    
    Certification of Chief Executive Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(b) promulgated
under the Securities Exchange Act of
1934, as amended and Section 1350 of
Chapter 63 of Title 18 of the United
States Code. Pursuant to Item
601(b)(32)(ii) of Regulation S-K, this
Exhibit is furnished to the SEC and shall
not be deemed to be filed.32.2*
    
    Certification of Chief Financial Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(b) promulgated
under the Securities Exchange Act of
1934, as amended and Section 1350 of
Chapter 63 of Title 18 of the United
States Code. Pursuant to, Item
601(b)(32)(ii) of Regulation S-K this
Exhibit is furnished to the SEC and shall
not be deemed to be filed.
 
 *Filed herewith.Management contract or compensatory plan or arrangement. 75