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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 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
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 2828 North Haskell, Dallas, Texas
    
    75204(Address of principal executive offices)
    
    (Zip Code)
  Not Applicable  (Former name, former address and former fiscal year, if changed since last report.)
 o þ
  þ o o
 o þ
  Number of shares outstanding as ofTitle of each class
    
    January 12, 2007Class A Common Stock, $.01 par value
    
    92,314,491Class B Common Stock, $.01 par value
    
    6,599,372




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
  tPAGENUMBERPART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements:Consolidated Balance Sheets at September 30, 2006 and June 30, 2006
    
    
    1Consolidated Statements of Income for the Three Months Ended September 30, 2006 and 2005
    
    
    2Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2006 and 2005
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    56Item 4.
    
    Controls and Procedures
    
    
    57PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    58Item 1A.
    
    Risk Factors
    
    
    58Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    58Item 3.
    
    Defaults Upon Senior Securities
    
    
    58Item 6.
    
    Exhibits
    
    
    60Certification 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)
 September 30,
    
    
    June 30,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    142,240
    
    
    $
    100,837Accounts receivable, net
    
    
    1,242,662
    
    
    
    1,231,846Income taxes receivable
    
    
    
    
    
    
    8,090Prepaid expenses and other current assets
    
    
    198,159
    
    
    
    188,490Total current assets
    
    
    1,583,061
    
    
    
    1,529,263Property, equipment and software, net
    
    
    921,436
    
    
    
    870,020Goodwill
    
    
    2,477,060
    
    
    
    2,456,654Other intangibles, net
    
    
    487,031
    
    
    
    475,701Other assets
    
    
    181,596
    
    
    
    170,799Total assets
    
    $
    5,650,184
    
    
    $
    5,502,437LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    90,716
    
    
    $
    104,473Accrued compensation and benefits
    
    
    142,536
    
    
    
    172,853Other accrued liabilities
    
    
    395,678
    
    
    
    354,632Income taxes payable
    
    
    14,947
    
    
    
    Deferred taxes
    
    
    15,690
    
    
    
    18,047Current portion of long-term debt
    
    
    35,207
    
    
    
    23,074Current portion of unearned revenue
    
    
    162,609
    
    
    
    152,026Total current liabilities
    
    
    857,383
    
    
    
    825,105Senior Notes, net of unamortized discount
    
    
    499,388
    
    
    
    499,368Other long-term debt
    
    
    1,856,625
    
    
    
    1,114,664Deferred taxes
    
    
    349,156
    
    
    
    331,433Other long-term liabilities
    
    
    281,082
    
    
    
    275,649Total liabilities
    
    
    3,843,634
    
    
    
    3,046,219Commitments
and contingencies (See Notes 2, 7, 13 and 16)Stockholders equity:Class A common stock, $.01 par value, 500,000 shares
authorized, 113,316 and 129,848 shares issued, respectively
    
    
    1,133
    
    
    
    1,299Class B convertible common stock, $.01 par value, 14,000 shares
authorized, 6,600 shares issued and outstanding
    
    
    66
    
    
    
    66Additional paid-in capital
    
    
    1,598,385
    
    
    
    1,799,778Accumulated other comprehensive loss, net
    
    
    (7,473
    )
    
    
    (10,943
    )Retained earnings
    
    
    1,270,407
    
    
    
    1,836,850Treasury stock at cost, 21,002 and 23,289 shares, respectively
    
    
    (1,055,968
    )
    
    
    (1,170,832
    )Total stockholders equity
    
    
    1,806,550
    
    
    
    2,456,218Total liabilities and stockholders equity
    
    $
    5,650,184
    
    
    $
    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 EndedSeptember 30,20052006
    
    
    (as restated)Revenues
    
    $
    1,385,438
    
    
    $
    1,310,917Operating expenses:Cost of revenues:Wages and benefits
    
    
    666,616
    
    
    
    628,685Services and supplies
    
    
    291,362
    
    
    
    290,772Rent, lease and maintenance
    
    
    179,056
    
    
    
    155,172Depreciation and amortization
    
    
    81,638
    
    
    
    68,080Other
    
    
    10,614
    
    
    
    4,247Total cost of revenues
    
    
    1,229,286
    
    
    
    1,146,956Other operating expenses
    
    
    15,294
    
    
    
    9,764Total operating expenses
    
    
    1,244,580
    
    
    
    1,156,720Operating income
    
    
    140,858
    
    
    
    154,197Interest expense
    
    
    46,013
    
    
    
    12,739Other non-operating income, net
    
    
    (2,618
    )
    
    
    (4,381
    )Pretax profit
    
    
    97,463
    
    
    
    145,839Income tax expense
    
    
    36,080
    
    
    
    52,464Net income
    
    $
    61,383
    
    
    $
    93,375Earnings per share:Basic
    
    $
    0.59
    
    
    $
    0.74Diluted
    
    $
    0.59
    
    
    $
    0.73Shares used in computing earnings per share:Basic
    
    
    103,452
    
    
    
    125,429Diluted
    
    
    104,761
    
    
    
    127,286
  2




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Three Months EndedSeptember 30,20052006
    
    
    (as restated)Cash flows from operating activities:Net income
    
    $
    61,383
    
    
    $
    93,375Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    81,638
    
    
    
    68,080Stock-based compensation expense
    
    
    7,744
    
    
    
    9,307Excess tax
benefit on stock-based compensation
    
    
    (31
    )
    
    
    (5,478
    )Provision for uncollectible accounts receivable
    
    
    (52
    )
    
    
    3,250Deferred income tax expense
    
    
    5,838
    
    
    
    15,750Impairment charges
    
    
    1,231
    
    
    
    Other non-cash activities
    
    
    3,807
    
    
    
    1,746Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    (7,202
    )
    
    
    (73,805
    )Prepaid expenses and other current assets
    
    
    (9,442
    )
    
    
    (8,767
    )Other assets
    
    
    (2,324
    )
    
    
    (9,328
    )Accounts payable
    
    
    (13,762
    )
    
    
    9,038Accrued compensation and benefits
    
    
    (33,288
    )
    
    
    (18,643
    )Other accrued liabilities
    
    
    35,607
    
    
    
    (20,319
    )Income taxes payable
    
    
    26,142
    
    
    
    32,577Other long-term liabilities
    
    
    (438
    )
    
    
    (384
    )Unearned revenue
    
    
    16,331
    
    
    
    12,931Total
adjustments
    
    
    111,799
    
    
    
    15,955Net cash provided by operating activities
    
    
    173,182
    
    
    
    109,330Cash flows from investing activities:Purchases of property, equipment and software, net
    
    
    (101,498
    )
    
    
    (94,777
    )Additions to other intangible assets
    
    
    (9,089
    )
    
    
    (6,906
    )Payments for acquisitions, net of cash acquired
    
    
    (33,988
    )
    
    
    (42,644
    )Intangible assets acquired in subcontract termination
    
    
    
    
    
    
    (16,530
    )Purchases of investments
    
    
    (6,360
    )
    
    
    (4,515
    )Net cash used in investing activities
    
    
    (150,935
    )
    
    
    (165,372
    )Cash flows from financing activities:Proceeds from issuance of long-term debt, net
    
    
    1,356,956
    
    
    
    383,461Repayments of long-term debt
    
    
    (615,088
    )
    
    
    (377,708
    )Purchase of treasury shares
    
    
    (730,689
    )
    
    
    Excess tax benefits from stock-based compensation arrangements
    
    
    31
    
    
    
    5,478Proceeds from stock options exercised
    
    
    5,023
    
    
    
    14,739Proceeds from issuance of treasury shares
    
    
    2,923
    
    
    
    1,613Net cash provided by financing activities
    
    
    19,156
    
    
    
    27,583Net change in cash and cash equivalents
    
    
    41,403
    
    
    
    (28,459
    )Cash and cash equivalents at beginning of period
    
    
    100,837
    
    
    
    62,685Cash and cash equivalents at end of period
    
    $
    142,240
    
    
    $
    34,226
  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)
   Vice President

  
    
    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, or are in the process of implementing, 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. This change has already been implemented.
  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)
  Estimatedinterest
    
    
    IncomeStock-based
    
    
    and
    
    
    taxcompensation
    
    
    penalties
    
    
    benefit,
    
    
    Totalexpense
    
    
    (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).     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 Statement of IncomeFor the three months ended September 30, 2005As Reported
    
    
    Adjustments
    
    
    As RestatedRevenues
    
    $
    1,310,917
    
    
    $
    
    
    
    $
    1,310,917Operating expenses:Cost of revenues:Wages and benefits
    
    
    628,119
    
    
    
    566
    (1)
    
    
    628,685Services and supplies
    
    
    290,772
    
    
    
    
    
    
    
    290,772Rent, lease and maintenance
    
    
    155,172
    
    
    
    
    
    
    
    155,172Depreciation and amortization
    
    
    68,080
    
    
    
    
    
    
    
    68,080Other
    
    
    4,247
    
    
    
    
    
    
    
    4,247Cost of revenues
    
    
    1,146,390
    
    
    
    566
    
    
    
    1,146,956Other operating expenses
    
    
    9,764
    
    
    
    
    
    
    
    9,764Total operating expenses
    
    
    1,156,154
    
    
    
    566
    
    
    
    1,156,720Operating income
    
    
    154,763
    
    
    
    (566
    )
    
    
    154,197Interest expense
    
    
    12,128
    
    
    
    611
    (2)
    
    
    12,739Other non-operating income, net
    
    
    (4,381
    )
    
    
    
    
    
    
    (4,381
    )Pretax profit
    
    
    147,016
    
    
    
    (1,177
    )
    
    
    145,839Income tax expense
    
    
    52,892
    
    
    
    (428

)(3)
    
    
    52,464Net income
    
    $
    94,124
    
    
    $
    (749
    )
    
    $
    93,375Earnings per share:Basic
    
    $
    0.75
    
    
    $
    (0.01
    )
    
    $
    0.74Diluted
    
    $
    0.74
    
    
    $
    (0.01
    )
    
    $
    0.73Shares used in computing earnings per share:Basic
    
    
    125,429
    
    
    
    
    
    
    
    125,429Diluted
(5)
    
    
    127,222
    
    
    
    64

(4)
    
    
    127,286
 12




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Consolidated Statement of Cash FlowsThree months ended September 30, 2005AsAs Reported
    
    
    Adjustments
    
    
    RestatedCash flows from operating activities:Net income
    
    $
    94,124
    
    
    $
    (749
    )
    
    $
    93,375Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    68,080
    
    
    
    
    
    
    
    68,080Stock-based compensation expense
    
    
    8,741
    
    
    
    566
    (1)
    
    
    9,307Excess tax benefit on stock-based compensation
    
    
    (6,982
    )
    
    
    1,504
    
    
    
    (5,478
    )Provision for uncollectible accounts receivable
    
    
    3,250
    
    
    
    
    
    
    
    3,250Deferred income tax expense
    
    
    13,928
    
    
    
    1,822
    (6)
    
    
    15,750Other non-cash activities
    
    
    1,746
    
    
    
    
    
    
    
    1,746Changes in assets and liabilities, net of
effects from acquisitions:Accounts receivable
    
    
    (73,805
    )
    
    
    
    
    
    
    (73,805
    )Prepaid expenses and other current
assets
    
    
    (8,767
    )
    
    
    
    
    
    
    (8,767
    )Other assets
    
    
    (9,328
    )
    
    
    
    
    
    
    (9,328
    )Accounts payable
    
    
    9,038
    
    
    
    
    
    
    
    9,038Accrued compensation and benefits
    
    
    (18,643
    )
    
    
    
    
    
    
    (18,643
    )Other accrued liabilities
    
    
    (20,319
    )
    
    
    
    
    
    
    (20,319
    )Income taxes receivable/payable
    
    
    32,577
    
    
    
    
    
    
    
    32,577Other long-term liabilities
    
    
    1,255
    
    
    
    (1,639
    )
    
    
    (384
    )Unearned revenue
    
    
    12,931
    
    
    
    
    
    
    
    12,931Total adjustments
    
    
    13,702
    
    
    
    2,253
    
    
    
    15,955Net cash provided by operating activities
    
    
    107,826
    
    
    
    1,504
    
    
    
    109,330Cash flows from investing activities:Purchases of property, equipment and software, net
    
    
    (94,777
    )
    
    
    
    
    
    
    (94,777
    )Additions to other intangible assets
    
    
    (6,906
    )
    
    
    
    
    
    
    (6,906
    )Payments for acquisitions, net of cash acquired
    
    
    (42,644
    )
    
    
    
    
    
    
    (42,644
    )Intangibles acquired in subcontract termination
    
    
    (16,530
    )
    
    
    
    
    
    
    (16,530
    )Purchases of investments
    
    
    (4,515
    )
    
    
    
    
    
    
    (4,515
    )Net cash used in investing activities
    
    
    (165,372
    )
    
    
    
    
    
    
    (165,372
    )Cash flows from financing activities:Proceeds from issuance of long-term debt, net
    
    
    383,461
    
    
    
    
    
    
    
    383,461Payments of long-term debt
    
    
    (377,708
    )
    
    
    
    
    
    
    (377,708
    )Excess tax benefit on stock-based compensation
    
    
    6,982
    
    
    
    (1,504
    )
    
    
    5,478Proceeds from stock options exercised
    
    
    14,739
    
    
    
    
    
    
    
    14,739Proceeds from issuance of treasury shares
    
    
    1,613
    
    
    
    
    
    
    
    1,613Net cash provided by financing activities
    
    
    29,087
    
    
    
    (1,504
    )
    
    
    27,583Net change in cash and cash equivalents
    
    
    (28,459
    )
    
    
    
    
    
    
    (28,459
    )Cash and cash equivalents at beginning of period
    
    
    62,685
    
    
    
    
    
    
    
    62,685Cash and cash equivalents at end of period
    
    $
    34,226
    
    
    $
    
    
    
    $
    34,226
 
 (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 quarter 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 tax associated with additional stock-based compensation
expense, net of reversals related to stock option exercises. 13




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 3. ACQUISITION
  4. DIVESTITURES
     September 30, 2006
    
    
    June 30, 2006Intangible assets related to the WWS
Divestiture, net
    
    $
    447
    
    
    $
    634Goodwill related to the WWS Divestiture
    
    
    772
    
    
    
    1,096Total assets held for sale
    
    $
    1,219
    
    
    $
    1,730
 5.
RESTRUCTURING ACTIVITIES
   14




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Balance at June 30, 2006
    
    $
    899Accrual recorded
    
    
    5,058Payments
    
    
    (907
    )Balance at September 30, 2006
    
    $
    5,050
   6. GOODWILL AND OTHER INTANGIBLE ASSETS
  Commercial
    
    
    Government
    
    
    TotalBalance as of June 30, 2006
    
    $
    1,282,053
    
    
    $
    1,174,601
    
    
    $
    2,456,654Acquisition activity
    
    
    17,721
    
    
    
    2,074
    
    
    
    19,795Foreign currency translation
    
    
    1,460
    
    
    
    (849
    )
    
    
    611Balance as of September 30, 2006
    
    $
    1,301,234
    
    
    $
    1,175,826
    
    
    $
    2,477,060
  15




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  September 30, 2006
    
    
    June 30, 2006Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortizable intangible assets:Acquired customer-related
intangibles
    
    $
    405,658
    
    
    $
    (115,086
    )
    
    $
    384,738
    
    
    $
    (104,901
    )Customer-related intangibles
    
    
    230,208
    
    
    
    (97,361
    )
    
    
    222,268
    
    
    
    (90,326
    )All other
    
    
    15,613
    
    
    
    (6,889
    )
    
    
    15,147
    
    
    
    (6,113
    )Total
    
    $
    651,479
    
    
    $
    (219,336
    )
    
    $
    622,153
    
    
    $
    (201,340
    )Non-amortizable intangible assets:Title plant
    
    $
    51,045
    
    
    
    
    
    
    $
    51,045Trade name
    
    
    3,843
    
    
    
    
    
    
    
    3,843Total
    
    $
    54,888
    
    
    
    
    
    
    $
    54,888Aggregate Amortization:For the quarter ended September 30, 2006
    
    
    
    
    
    
    
    
    
    $
    18,765For the quarter ended September 30, 2005
    
    
    
    
    
    
    
    
    
    
    18,012Estimated amortization for the years ended June 30,2007
    
    
    
    
    
    
    
    
    
    $
    75,9322008
    
    
    
    
    
    
    
    
    
    
    71,8252009
    
    
    
    
    
    
    
    
    
    
    61,9962010
    
    
    
    
    
    
    
    
    
    
    53,0662011
    
    
    
    
    
    
    
    
    
    
    46,686
  7. LONG-TERM DEBT
 Credit Facility
   16




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##### Table of Contents



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
   17




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
       8. EQUITY
   18




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   9. EARNINGS PER SHARE
  Three Months EndedSeptember 30,20052006

    
    
    (as restated)Numerator:Income available to common stockholders
    
    $
    61,383
    
    
    $
    93,375Denominator:Basic weighted average shares outstanding
    
    
    103,452
    
    
    
    125,429Dilutive effect of stock options
    
    
    1,309
    
    
    
    1,857Denominator
for earnings per share assuming dillution
    
    
    104,761
    
    
    
    127,286Basic earnings per share
    
    $
    0.59
    
    
    $
    0.74Diluted earnings per share
    
    $
    0.59
    
    
    $
    0.73
   10. COMPREHENSIVE INCOME
  19




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Three Months EndedSeptember,20052006
    
    
    (as restated)Net income
    
    $
    61,383
    
    
    $
    93,375Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    2,715
    
    
    
    (225
    )Amortization of unrealized loss on forward
interest rate
agreements (net of income tax of $0.2 million and
$0.2 million, respectively)
    
    
    396
    
    
    
    397Unrealized gains on foreign exchange forward
agreements (net of income tax of $0.2 million)
    
    
    359
    
    
    
    Comprehensive income
    
    $
    64,853
    
    
    $
    93,547
    As of
    
    
    As ofSeptember 30, 2006
    
    
    June 30, 2006Foreign currency gains (losses)
    
    $
    2,289
    
    
    $
    (426
    )Unrealized loss on forward interest rate agreements
(net of
income tax of $5.9 million and $6.1 million,
respectively)
    
    
    (9,805
    )
    
    
    (10,201
    )Unrealized gains (losses) on foreign exchange forward
agreements (net of income tax of $24 and ($193),
respectively)
    
    
    43
    
    
    
    (316
    )Total
    
    $
    (7,473
    )
    
    $
    (10,943
    )
 20




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 11. PENSION AND OTHER POST-EMPLOYMENT PLANS
 Net periodic benefit cost
 Three Months endedSeptember 30,2006
    
    
    2005Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.U.S. Plan
    
    
    Plans
    
    
    Plan
    
    
    PlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    924
    
    
    $
    1,384
    
    
    $
    
    
    
    $
    1,410Interest cost
    
    
    63
    
    
    
    1,366
    
    
    
    
    
    
    
    1,166Expected return on assets
    
    
    (54
    )
    
    
    (1,342
    )
    
    
    
    
    
    
    (1,227
    )Amortization of gains/losses
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service costs
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost for defined benefit plans
    
    $
    990
    
    
    $
    1,408
    
    
    $
    
    
    
    $
    1,349
 Contributions
 12. SEGMENT INFORMATION
  Commercial
    
    
    Government
    
    
    Corporate
    
    
    ConsolidatedThree months ended September 30, 2006Revenues (a)
    
    $
    841,702
    
    
    $
    543,736
    
    
    $
    
    
    
    $
    1,385,438Operating expenses (excluding
depreciation and amortization)
    
    
    709,637
    
    
    
    425,834
    
    
    
    27,471
    
    
    
    1,162,942Depreciation and amortization
    
    
    57,312
    
    
    
    23,971
    
    
    
    355
    
    
    
    81,638Operating income
    
    $
    74,753
    
    
    $
    93,931
    
    
    $
    (27,826
    )
    
    $
    140,858Three months ended September 30, 2005(as restated)Revenues (a)
    
    $
    766,006
    
    
    $
    544,911
    
    
    $
    
    
    
    $
    1,310,917Operating expenses (excluding
depreciation and amortization)
    
    
    636,555
    
    
    
    422,676
    
    
    
    29,409
    
    
    
    1,088,640Depreciation and amortization
    
    
    45,086
    
    
    
    22,572
    
    
    
    422
    
    
    
    68,080Operating income
    
    $
    84,365
    
    
    $
    99,663
    
    
    $
    (29,831
    )
    
    $
    154,197
 
 (a)
    
    Revenues in our Government segment include revenues from operations divested during
fiscal year 2006 of $0.6 million and $53.6 million for the three months ended September
30, 2006 and 2005, respectively.
 21




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 13.      COMMITMENTS AND CONTINGENCIES
 Regulatory Agency Investigations Relating to Stock Option Grant Practices
   Lawsuits Related to Stock Option Grant Practices
 Dallas County District Court
 l
    
    Merl Huntsinger, Derivatively on Behalf of Nominal Defendant
Affiliated Computer Services, Inc., Plaintiff, vs. 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.l
    
    Robert P. Oury, Derivatively on Behalf of Nominal Defendant Affiliated
Computer Services, Inc., Plaintiff, vs. 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.l
    
    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 McCuiston; 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.
 In Re Affiliated Computer Services,
Inc. Derivative Litigation
 U.S. District Court of Delaware
 l
    
    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 U.S. District
Court of Delaware, Cause No. 06-318, filed on May 16, 2006.
 22




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Delaware Chancery Court
 l
    
    Jan Brandin, in the Right of and for the Benefit
of Affiliated Computer Services, Inc., Plaintiff,
vs. Darwin Deason, Jeffrey A. Rich, Mark A. King,
Joseph ONeill and Frank Rossi, Defendants, and
Affiliated Computer Services, Inc., Nominal
Defendant, Civil Action No. CA2123-N, pending
before the Court of Chancery of the State of
Delaware in and for New Castle County, filed on
May 2, 2006.
 U.S. District Court, Northern District of Texas
 l
    
    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, U.S. District Court, Northern District
of Texas, Dallas Division, Cause No.
3-06CV1110-M, filed on June 22, 2006.l
    
    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
McCuiston; Warren Edwards; John Rexford and John
M. Brophy, Defendants, and Affiliated Computer
Services, Inc., Nominal Defendant, U.S. District
Court, Northern District of Texas, Dallas
Division, Cause No. 3-06CV1212-M, filed on July
7, 2006.
 In Re Affiliated
Computer Services Derivative Litigation
  U.S. District Court of Texas, Northern District of Texas
 l
    
    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, Defendants, U. S. District Court, Northern
District of Texas, Dallas Division, Civil Action No. 306-CV-1592P
filed August 31, 2006.
 l
    
    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, U. S. District Court,
Northern District of Texas, Dallas Division, Case No.
3:06-CV-02379-M.
   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
 23




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\

AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Investigation Concerning Procurement Process at Hanscom Air Force Base
 Investigation Regarding Certain Child Support Payment Processing Contracts
 24




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Investigation regarding Florida Workforce Contracts
     25




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     14. DEPARTURE OF EXECUTIVE OFFICERS
  26




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    15. NEW ACCOUNTING PRONOUNCEMENTS
   27




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    16. SUBSEQUENT EVENTS
     28




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    29




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   OVERVIEW
    30




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REVIEW OF STOCK OPTION GRANT PRACTICES
    31




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32




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##### Table of Contents



 
 President 
  
    
    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.
 33




---



##### Table of Contents




    
    We implemented, or are in the process of implementing, 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. This change has already been implemented.
    34




---



##### 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 certain stock options exercised, due to
revised measurement dates (1)
    
    
    (10,210
    )Reduction of
excess tax benefits for certain stock option 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.
 35




---



##### Table of Contents



Estimatedinterest
    
    
    IncomeStock-based
    
    
    and
    
    
    taxcompensation
    
    
    penalties
    
    
    benefit,
    
    
    Totalexpense
    
    
    (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
    )
 
     36




---



##### Table of Contents



Currentincometax expense 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
   37




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##### Table of Contents



DEPARTURE OF EXECUTIVE OFFICERS
    38




---



##### Table of Contents



SIGNIFICANT DEVELOPMENTS
  New Business
 Acquisition
 Restructuring and other activities
  39




---



##### Table of Contents



Balance at June 30, 2006
    
    $
    899Accrual recorded
    
    
    5,058Payments
    
    
    (907
    )Balance at September 30, 2006
    
    $
    5,050
   Share Repurchase Programs
 Subsequent Events
     40




---



##### Table of Contents



41




---



##### Table of Contents



REVENUE GROWTH
  Three months ended September 30,2006
    
    
    2005
    
    
    $ Growth
    
    
    Growth %Consolidated:Total revenues
    
    $
    1,385,438
    
    
    $
    1,310,917
    
    
    $
    74,521
    
    
    
    6
    %Less: divestitures
    
    
    (585
    )
    
    
    (53,618
    )
    
    
    53,033Adjusted
    
    $
    1,384,853
    
    
    $
    1,257,299
    
    
    $
    127,554
    
    
    
    10
    %Acquired revenues
    
    $
    77,188
    
    
    $
    
    
    
    $
    77,188
    
    
    
    6
    %Internal revenues
    
    
    1,307,665
    
    
    
    1,257,299
    
    
    
    50,366
    
    
    
    4
    %Total
    
    $
    1,384,853
    
    
    $
    1,257,299
    
    
    $
    127,554
    
    
    
    10
    %Commercial:Acquired revenues
    
    $
    31,188
    
    
    $
    
    
    
    $
    31,188
    
    
    
    4
    %Internal revenues
    
    
    810,514
    
    
    
    766,006
    
    
    
    44,508
    
    
    
    6
    %Total
    
    $
    841,702
    
    
    $
    766,006
    
    
    $
    75,696
    
    
    
    10
    %Government:Total revenues
    
    $
    543,736
    
    
    $
    544,911
    
    
    $
    (1,175
    )
    
    
    Less: divestitures
    
    
    (585
    )
    
    
    (53,618
    )
    
    
    53,033Adjusted
    
    $
    543,151
    
    
    $
    491,293
    
    
    $
    51,858
    
    
    
    10
    %Acquired revenues
    
    $
    46,000
    
    
    $
    
    
    
    $
    46,000
    
    
    
    9
    %Internal revenues
    
    
    497,151
    
    
    
    491,293
    
    
    
    5,858
    
    
    
    1
    %Total
    
    $
    543,151
    
    
    $
    491,293
    
    
    $
    51,858
    
    
    
    10
    %
 42




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##### Table of Contents



RESULTS OF OPERATIONS
   Three months endedSeptember 30,2006
    
    
    2005(as restated)Revenues
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Cost of revenues:Wages and benefits
    
    
    48.1
    
    
    
    48.0Services and supplies
    
    
    21.0
    
    
    
    22.2Rent, lease and maintenance
    
    
    12.9
    
    
    
    11.8Depreciation and amortization
    
    
    5.9
    
    
    
    5.2Other
    
    
    0.8
    
    
    
    0.3Total cost of revenues
    
    
    88.7
    
    
    
    87.5Other operating expenses
    
    
    1.1
    
    
    
    0.7Total operating expenses
    
    
    89.8
    
    
    
    88.2Operating income
    
    
    10.2
    
    
    
    11.8Interest expense
    
    
    3.4
    
    
    
    1.0Other non-operating income, net
    
    
    (0.2
    )
    
    
    (0.3
    )Pretax profit
    
    
    7.0
    
    
    
    11.1Income tax expense
    
    
    2.6
    
    
    
    4.0Net income
    
    
    4.4
    %
    
    
    7.1
    %
 COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2006 TO THE THREE MONTHS ENDED SEPTEMBER 30,
2005
 Revenues
   43




---



##### Table of Contents



Operating Expenses
     44




---



##### Table of Contents



Operating Income
 For the quarters endingSeptember 30,2006
    
    
    2005Commercial segment:Costs related to our restructuring activities
    
    $
    (5.6
    )
    
    $
    Asset impairments and other charges
    
    
    (2.1
    )
    
    
    Provision for doubtful accounts for an
assessment of risk related to the bankruptcies
of certain airline clients
    
    
    
    
    
    
    (3.0
    )Government segment:Cost related to our restructuring activities
    
    
    (0.4
    )
    
    
    Corporate segment:Legal and other costs associated with the
ongoing stock option investigation and
shareholder derivative lawsuits
    
    
    (7.9
    )
    
    
    Compensation expense related to the departure
of Jeffrey A. Rich, our former Chief Executive Officer
    
    
    
    
    
    
    (5.4
    )Total
    
    $
    (16.0
    )
    
    $
    (8.4
    )As a percentage of revenue
    
    
    (1.2
    %)
    
    
    (0.6
    %)
 Interest Expense
 Other non-operating income, net
 Income tax expense
 LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
  45




---



##### Table of Contents



Three months endedSeptember 30,20052006
    
    
    As restatedNet cash provided by operating activities
    
    $
    173,182
    
    
    $
    109,330Purchases of property, equipment and software, net
    
    
    (101,498
    )
    
    
    (94,777
    )Additions to other intangible assets
    
    
    (9,089
    )
    
    
    (6,906
    )Free cash flow
    
    $
    62,595
    
    
    $
    7,647
   Credit Facility
    46




---



##### 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
   47




---



##### Table of Contents



Other credit arrangements
 Credit Ratings
 48




---



##### Table of Contents



Derivative instruments and hedging activities
  Share Repurchase Programs
 Other
   49




---



##### Table of Contents



DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
 AS OF SEPTEMBER 30, 2006 (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)
    
    $
    499,388
    
    
    $
    
    
    
    $
    
    
    
    $
    249,937
    
    
    $
    249,451Long-term debt (1)
    
    
    1,856,452
    
    
    
    19,026
    
    
    
    36,065
    
    
    
    36,069
    
    
    
    1,765,292Capital lease obligations (1)
    
    
    35,380
    
    
    
    16,181
    
    
    
    18,979
    
    
    
    220
    
    
    
    Operating leases (2)
    
    
    1,251,724
    
    
    
    325,585
    
    
    
    524,727
    
    
    
    312,984
    
    
    
    88,428Purchase obligations (3) (4)
    
    
    43,515
    
    
    
    16,524
    
    
    
    26,845
    
    
    
    146
    
    
    
    Total Contractual Cash Obligations
    
    $
    3,686,459
    
    
    $
    377,316
    
    
    $
    606,616
    
    
    $
    599,356
    
    
    $
    2,103,171
 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
    
    $
    115,712
    
    
    $
    115,712
    
    
    $
    
    
    
    $
    
    
    
    $
    Surety bonds
    
    
    499,487
    
    
    
    428,060
    
    
    
    47,435
    
    
    
    22,130
    
    
    
    1,862Total Commercial Commitments
    
    $
    615,199
    
    
    $
    543,772
    
    
    $
    47,435
    
    
    $
    22,130
    
    
    $
    1,862
 
 (1)
    
    Excludes accrued interest of $22.9 million at September 30, 2006.(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 our 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.
     50




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Revenue recognition
     51




---



##### Table of Contents



Cost of revenues
 Contingencies
  Valuation of goodwill and intangibles
 52




---



##### Table of Contents



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.
   Pension and post-employment benefits
    53




---



##### Table of Contents



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
  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
  54




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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
  55




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  56




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Managements Evaluation of Disclosure Controls and Procedures
   Internal
Control  Integrated Framework
  Changes in Internal Control over Financial Reporting
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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Maximum number (orTotal number of
    
    
    approximate dollarshare purchased
    
    
    value) of shares thatTotal number of
    
    
    Average
    
    
    as part of publicly
    
    
    may yet be purchasedof shares
    
    
    price paid per
    
    
    announced plans
    
    
    under the plans orPeriod
    
    purchased
    
    
    share
    
    
    or programs
    
    
    programsInception through June 30, 2006
    
    
    5,450,084
    
    
    $
    49.41
    
    
    
    5,450,084
    
    
    $
    730,688,206July 1  July 31, 2006
    
    
    7,578,768
    
    
    
    50.54
    
    
    
    7,578,768
    
    
    
    347,660,127August 1  August 31, 2006
    
    
    6,849,990
    
    
    
    50.75
    
    
    
    6,849,990
    
    
    
    1,000,000,000September 1  September 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000,000Total  Quarter ended September
30, 2006
    
    
    14,428,758
    
    
    
    50.64
    
    
    
    14,428,758
    
    
    
    1,000,000,000Inception through September 30, 2006
    
    
    19,878,842
    
    
    $
    50.30
    
    
    
    19,878,842
    
    
    $
    1,000,000,000
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    58




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##### 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
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##### Table of Contents



ITEM 6. EXHIBITS
 a.)
    
    ExhibitsReference is made to the Index to Exhibits beginning on page
62 for a list of all exhibits
filed as part of this report.
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##### Table of Contents



SIGNATURES
  AFFILIATED COMPUTER SERVICES, INC.By:
    
    /s/ John H. RexfordJohn H. RexfordExecutive Vice President andChief Financial Officer
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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).
 62




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name4.7
    
    Second Supplemental Indenture, dated as of June 6, 2005, by and
between Affiliated Computer Services, Inc. as Issuer and The
Bank of New York Trust Company, N.A. as Trustee, relating to our
5.20% Senior Notes due 2015 (filed as Exhibit 4.3 to our Current
Report on Form 8-K, filed June 6, 2005 and incorporated herein
by reference).4.8
    
    Specimen Note for 4.70% Senior Notes due 2010 (filed as Exhibit
4.4 to our Current Report on Form 8-K, filed June 6, 2005 and
incorporated herein by reference).4.9
    
    Specimen Note for 5.20% Senior Notes due 2015 (filed as Exhibit
4.5 to our Current Report on Form 8-K, filed June 6, 2005 and
incorporated herein by reference).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
    
    Credit Agreement, dated March 20, 2006, by and among Affiliated
Computer Services, Inc., and certain subsidiary parties thereto,
as Borrowers, Citicorp USA, Inc., as Administrative Agent,
Citigroup Global Markets Inc., as Sole Lead Arranger and Book
Runner, and various other agents, lenders and issuers (filed as
Exhibit 10.1 to our Current Report on Form 8-K, filed March 21,
2006 and incorporated herein by reference).10.2
    
    Amendment No. 1 to Credit Agreement dated as of March 30, 2006,
by and among Affiliated Computer Services, Inc., and certain
subsidiary parties thereto, as Borrowers, and Citicorp USA,
Inc., as Administrative Agent (filed as Exhibit 10.25 to our
Annual Report on Form 10-K, filed January 23, 2007 and
incorporated herein by reference).10.3
    
    Amendment No. 2 to Credit Agreement dated as of July 6, 2006, by
and among Affiliated Computer Services, Inc., and certain
subsidiary parties thereto, as Borrowers, and Citicorp USA,
Inc., as Administrative Agent (filed as Exhibit 10.1 to our
Current Report on Form 8-K, filed July 7, 2006 and incorporated
herein by reference).10.4
    
    Amendment No. 3, Consent and Waiver to Credit Agreement, by and
among Affiliated Computer Services, Inc., and certain subsidiary
parties thereto and Citicorp USA, Inc., as Administrative Agent
(filed as Exhibit 10.1 to our Current Report on Form 8-K, filed
September 28, 2006 and incorporated herein by reference).10.5
    
    Amendment No. 4, Consent and Waiver to Credit Agreement, by and
among Affiliated Computer Services, Inc., and certain subsidiary
parties thereto and Citicorp USA, Inc., as Administrative Agent
(filed as Exhibit 10.1 to our Current Report on Form 8-K, filed
December 22, 2006 and incorporated herein by reference)10.6
    
    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.10.7
    
    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.10.8
    
    Affirmation of Liens and Guaranties, dated as of July 6, 2006,
by and among Affiliated Computer Services, Inc. and certain of
its subsidiaries, and Citicorp USA, Inc., as Administrative
Agent (filed as Exhibit 10.2 to our Current Report on Form 8-K,
filed July 7, 2006 and incorporated herein by reference).10.9
    
    Confirmation Deed, dated as of July 6, 2006, by and among the
entities listed on the Schedule thereto and Citicorp USA, Inc.,
as Security Agent (filed as Exhibit 10.3 to our Current Report
on Form 8-K, filed July 7, 2006 and incorporated herein by
reference).10.10
    
    Separation Agreement dated as of November 26, 2006 between
Affiliated Computer Services, Inc. and Mark A. King (filed as
Exhibit 10.1 to our Current Report on Form 8-K, filed November
27, 2006 and incorporated herein by reference).10.11
    
    Separation Agreement dated as of November 26, 2006 between
Affiliated Computer Services, Inc. and Warren D. Edwards (filed
as Exhibit 10.2 to our Current Report on Form 8-K, filed
November 27, 2006 and incorporated herein by reference).
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INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name31.1*
    
    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.
 64