##### Table of Contents



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 endedMarch 31, 2008
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Number of shares outstanding as ofTitle of each class
    
    May 2, 2008Class A Common Stock, $.01 par value
    
    
    89,790,772Class B Common Stock, $.01 par value
    
    
    6,599,372




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##### 



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
  PAGENUMBERPART I. FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements:Consolidated Balance Sheets (Unaudited) at March 31, 2008 and
June 30, 2007
    
    
    1Consolidated Statements of Income (Unaudited) for the Three and Nine
Months Ended March 31, 2008 and 2007
    
    
    2Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended March 31, 2008 and 2007
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 4.
    
    Controls and Procedures
    
    
    42PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    43Item 1A.
    
    Risk Factors
    
    
    43Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3.
    
    Defaults Upon Senior Securities
    
    
    43Item 6.
    
    Exhibits
    
    
    43Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) or 15d-14(b)Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) or 15d-14(b)




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##### Table of Contents



PART I
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
 AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
 March 31,
    
    
    June 30,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    328,907
    
    
    $
    307,286Accounts receivable, net
    
    
    1,362,320
    
    
    
    1,257,108Income taxes receivable
    
    
    10,871
    
    
    
    13,268Prepaid expenses and other current assets
    
    
    250,328
    
    
    
    232,872Total current assets
    
    
    1,952,426
    
    
    
    1,810,534Property, equipment and software, net
    
    
    899,280
    
    
    
    897,319Goodwill
    
    
    2,750,337
    
    
    
    2,612,368Other intangibles, net
    
    
    446,637
    
    
    
    481,378Other assets
    
    
    205,147
    
    
    
    180,830Total assets
    
    $
    6,253,827
    
    
    $
    5,982,429LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    200,969
    
    
    $
    97,951Accrued compensation and benefits
    
    
    177,737
    
    
    
    246,742Other accrued liabilities
    
    
    359,244
    
    
    
    400,238Deferred taxes
    
    
    84,457
    
    
    
    14,418Current portion of long-term debt
    
    
    47,056
    
    
    
    47,039Current portion of unearned revenue
    
    
    168,179
    
    
    
    164,484Total current liabilities
    
    
    1,037,642
    
    
    
    970,872Senior Notes, net of unamortized discount
    
    
    499,509
    
    
    
    499,449Other long-term debt
    
    
    1,871,385
    
    
    
    1,842,823Deferred taxes
    
    
    376,175
    
    
    
    367,565Other long-term liabilities
    
    
    318,710
    
    
    
    235,552Total liabilities
    
    
    4,103,421
    
    
    
    3,916,261Commitments and contingencies (See Notes 2, 6 and 15)Stockholders equity:Class A common stock, $.01 par value, 500,000 shares
authorized, 110,671 and 113,960 shares issued, respectively
    
    
    1,106
    
    
    
    1,139Class B convertible common stock, $.01 par value, 14,000
shares authorized, 6,600 shares issued and outstanding
    
    
    66
    
    
    
    66Additional paid-in capital
    
    
    1,645,913
    
    
    
    1,642,900Accumulated other comprehensive income, net
    
    
    15,931
    
    
    
    15,916Retained earnings
    
    
    1,543,358
    
    
    
    1,462,115Treasury stock at cost, 21,002 shares
    
    
    (1,055,968
    )
    
    
    (1,055,968
    )Total stockholders equity
    
    
    2,150,406
    
    
    
    2,066,168Total liabilities and stockholders equity
    
    $
    6,253,827
    
    
    $
    5,982,429
  1




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##### Table of Contents



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 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    1,542,370
    
    
    $
    1,440,546
    
    
    $
    4,546,895
    
    
    $
    4,252,745Operating expenses:Cost of revenues:Wages and benefits
    
    
    736,646
    
    
    
    689,298
    
    
    
    2,153,642
    
    
    
    2,023,766Services and supplies
    
    
    338,320
    
    
    
    304,734
    
    
    
    1,006,543
    
    
    
    913,714Rent, lease and maintenance
    
    
    184,622
    
    
    
    174,052
    
    
    
    554,743
    
    
    
    530,207Depreciation and amortization
    
    
    96,413
    
    
    
    87,995
    
    
    
    281,595
    
    
    
    254,861Other
    
    
    7,274
    
    
    
    8,406
    
    
    
    21,171
    
    
    
    28,161Total cost of revenues
    
    
    1,363,275
    
    
    
    1,264,485
    
    
    
    4,017,694
    
    
    
    3,750,709Other operating expenses
    
    
    15,184
    
    
    
    13,470
    
    
    
    61,995
    
    
    
    48,259Total operating expenses
    
    
    1,378,459
    
    
    
    1,277,955
    
    
    
    4,079,689
    
    
    
    3,798,968Operating income
    
    
    163,911
    
    
    
    162,591
    
    
    
    467,206
    
    
    
    453,777Interest expense
    
    
    39,325
    
    
    
    46,391
    
    
    
    126,344
    
    
    
    140,489Other non-operating income, net
    
    
    (4,514
    )
    
    
    (12,325
    )
    
    
    (10,703
    )
    
    
    (24,629
    )Pretax profit
    
    
    129,100
    
    
    
    128,525
    
    
    
    351,565
    
    
    
    337,917Income tax expense
    
    
    46,462
    
    
    
    46,466
    
    
    
    121,187
    
    
    
    122,401Net income
    
    $
    82,638
    
    
    $
    82,059
    
    
    $
    230,378
    
    
    $
    215,516Earnings per share:Basic
    
    $
    0.86
    
    
    $
    0.83
    
    
    $
    2.34
    
    
    $
    2.15Diluted
    
    $
    0.85
    
    
    $
    0.82
    
    
    $
    2.32
    
    
    $
    2.12Shares used in computing earnings per share:Basic
    
    
    96,089
    
    
    
    98,945
    
    
    
    98,447
    
    
    
    100,448Diluted
    
    
    96,921
    
    
    
    100,300
    
    
    
    99,414
    
    
    
    101,749
  2




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 Nine months EndedMarch 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    230,378
    
    
    $
    215,516Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    281,595
    
    
    
    254,861Stock-based compensation expense
    
    
    20,460
    
    
    
    22,371Excess tax benefit on stock-based compensation
    
    
    (2,647
    )
    
    
    (1,308
    )Deferred income tax expense
    
    
    101,049
    
    
    
    28,711Provision for uncollectible accounts receivable
    
    
    1,361
    
    
    
    294Impairment charges
    
    
    1,560
    
    
    
    1,351Loss (gain) on investments
    
    
    2,307
    
    
    
    (15,950
    )Gain on sale of business
    
    
    (2,678
    )
    
    
    (2,459
    )Other non-cash activities
    
    
    17,640
    
    
    
    18,054Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    (82,804
    )
    
    
    (43,416
    )Prepaid expenses and other current assets
    
    
    (7,951
    )
    
    
    (26,022
    )Other assets
    
    
    (4,705
    )
    
    
    3,882Accounts payable
    
    
    94,748
    
    
    
    (22,176
    )Accrued compensation and benefits
    
    
    (71,259
    )
    
    
    (12,732
    )Other accrued liabilities
    
    
    (22,377
    )
    
    
    (11,462
    )Income taxes receivable
    
    
    (7,441
    )
    
    
    31,549Other long-term liabilities
    
    
    2,139
    
    
    
    (28,046
    )Unearned revenue
    
    
    8,726
    
    
    
    (18,041
    )Total adjustments
    
    
    329,723
    
    
    
    179,461Net cash provided by operating activities
    
    
    560,101
    
    
    
    394,977Cash flows from investing activities:Purchases of property, equipment and software, net
    
    
    (192,563
    )
    
    
    (239,123
    )Additions to other intangible assets
    
    
    (25,844
    )
    
    
    (30,266
    )Payments for acquisitions, net of cash acquired
    
    
    (150,462
    )
    
    
    (120,498
    )Proceeds from divestitures, net of transaction costs
    
    
    4,035
    
    
    
    Purchases of investments
    
    
    (8,479
    )
    
    
    (6,527
    )Proceeds from investments
    
    
    2,908
    
    
    
    16,583Other
    
    
    (6,500
    )
    
    
    Net cash used in investing activities
    
    
    (376,905
    )
    
    
    (379,831
    )Cash flows from financing activities:Proceeds from issuance of long-term debt, net
    
    
    213,697
    
    
    
    1,725,081Payments of long-term debt
    
    
    (217,696
    )
    
    
    (1,029,397
    )Purchase of treasury shares
    
    
    (200,000
    )
    
    
    (730,689
    )Excess tax benefit on stock-based compensation
    
    
    2,647
    
    
    
    1,308Proceeds from stock options exercised
    
    
    40,035
    
    
    
    10,901Proceeds from issuance of treasury shares
    
    
    
    
    
    
    2,923Other
    
    
    (258
    )
    
    
    (193
    )Net cash used in financing activities
    
    
    (161,575
    )
    
    
    (20,066
    )Net change in cash and cash equivalents
    
    
    21,621
    
    
    
    (4,920
    )Cash and cash equivalents at beginning of period
    
    
    307,286
    
    
    
    100,837Cash and cash equivalents at end of period
    
    $
    328,907
    
    
    $
    95,917
  3




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. BASIS OF PRESENTATION
     2. DEASON/CERBERUS PROPOSAL
   3. BOARD OF DIRECTORS
  4




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




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
  Commercial
    
    
    Government
    
    
    TotalBalance as of June 30, 2007
    
    $
    1,415,315
    
    
    $
    1,197,053
    
    
    $
    2,612,368Acquisition activity
    
    
    117,738
    
    
    
    9,256
    
    
    
    126,994Divestiture activity
    
    
    
    
    
    
    (964
    )
    
    
    (964
    )Foreign currency translation
    
    
    1,458
    
    
    
    10,481
    
    
    
    11,939Balance as of March 31, 2008
    
    $
    1,534,511
    
    
    $
    1,215,826
    
    
    $
    2,750,337
   As of March 31, 2008
    
    
    As of June 30, 2007Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortizable intangible assets:Acquired customer-related
intangibles
    
    $
    447,021
    
    
    $
    (180,827
    )
    
    $
    419,853
    
    
    $
    (147,872
    )Customer-related intangibles
    
    
    242,041
    
    
    
    (122,811
    )
    
    
    247,840
    
    
    
    (101,217
    )All other
    
    
    18,216
    
    
    
    (11,891
    )
    
    
    17,248
    
    
    
    (9,362
    )Total
    
    $
    707,278
    
    
    $
    (315,529
    )
    
    $
    684,941
    
    
    $
    (258,451
    )Non-amortizable intangible assets:Title plant
    
    $
    51,045
    
    
    
    
    
    
    $
    51,045Trade name
    
    
    3,843
    
    
    
    
    
    
    
    3,843Total
    
    $
    54,888
    
    
    
    
    
    
    $
    54,888
 Three Months Ended
    
    
    Nine months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Amortization:Contract inducement
    
    $
    3,249
    
    
    $
    3,503
    
    
    $
    10,357
    
    
    $
    11,172Acquired customer-related intangibles
    
    
    11,393
    
    
    
    10,649
    
    
    
    33,372
    
    
    
    31,475All other intangibles
    
    
    7,364
    
    
    
    5,490
    
    
    
    20,703
    
    
    
    15,653Total amortization
    
    $
    22,006
    
    
    $
    19,642
    
    
    $
    64,432
    
    
    $
    58,300
  6




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Estimated amortization for the years ending June 30,2008
    
    $
    87,0952009
    
    $
    79,0692010
    
    $
    66,7752011
    
    $
    56,2832012
    
    $
    40,980
 6. DEBT
 Senior Notes
       7




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Credit Facility
   (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) the 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
SEC 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.
  8




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 7. PENSION AND OTHER POST-EMPLOYMENT PLANS
 Net periodic benefit cost
  Three Months EndedMarch 31,2008
    
    
    2007Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.
    
    
    U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    1,530
    
    
    $
    926
    
    
    $
    1,461
    
    
    $
    879Interest cost
    
    
    1,647
    
    
    
    123
    
    
    
    1,413
    
    
    
    63Expected return on assets
    
    
    (1,777
    )
    
    
    (173
    )
    
    
    (1,369
    )
    
    
    (54
    )Amortization of gains/losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Amortization of prior service costs
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    63Net periodic benefit cost for defined benefit plans
    
    $
    1,400
    
    
    $
    930
    
    
    $
    1,505
    
    
    $
    945
 Nine months EndedMarch 31,2008
    
    
    2007Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.
    
    
    U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    4,628
    
    
    $
    2,778
    
    
    $
    4,355
    
    
    $
    2,637Interest cost
    
    
    4,959
    
    
    
    369
    
    
    
    4,205
    
    
    
    189Expected return on assets
    
    
    (5,421
    )
    
    
    (519
    )
    
    
    (4,077
    )
    
    
    (162
    )Amortization of gains/losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )Amortization of prior service costs
    
    
    
    
    
    
    162
    
    
    
    
    
    
    
    189Net periodic benefit cost for defined benefit plans
    
    $
    4,166
    
    
    $
    2,790
    
    
    $
    4,483
    
    
    $
    2,835
 Contributions
  Acquired pension plans
  8. INCOME TAXES
  9




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     9. EQUITY
 Share repurchase programs
 Fiscal Year 2008 Activity
  Fiscal Year 2007 Activity
   Stock option grants
  10




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Stock option repricing
  10. EARNINGS PER SHARE
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Net income
    
    $
    82,638
    
    
    $
    82,059
    
    
    $
    230,378
    
    
    $
    215,516Denominator:Basic weighted average shares outstanding
    
    
    96,089
    
    
    
    98,945
    
    
    
    98,447
    
    
    
    100,448Dilutive effect of stock options
    
    
    832
    
    
    
    1,355
    
    
    
    967
    
    
    
    1,301Denominator for earnings per share assuming dilution
    
    
    96,921
    
    
    
    100,300
    
    
    
    99,414
    
    
    
    101,749Basic earnings per share
    
    $
    0.86
    
    
    $
    0.83
    
    
    $
    2.34
    
    
    $
    2.15Diluted earnings per share
    
    $
    0.85
    
    
    $
    0.82
    
    
    $
    2.32
    
    
    $
    2.12
   11. COMPREHENSIVE INCOME
  11




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net incomeOther comprehensive income (loss):
    
    $
    82,638
    
    
    $
    82,059
    
    
    $
    230,378
    
    
    $
    215,516Foreign currency translation adjustment
    
    
    10,467
    
    
    
    1,439
    
    
    
    26,023
    
    
    
    9,751Unrealized loss on interest rate
collar (net of income tax of $1,241)
    
    
    (2,054
    )
    
    
    
    
    
    
    (2,054
    )
    
    
    Unrealized loss on interest rate swap
agreement (net of income tax of
$6,435, $220, $15,609 and $220,
respectively)
    
    
    (10,650
    )
    
    
    (365
    )
    
    
    (26,418
    )
    
    
    (365
    )Amortization of unrealized loss on
forward interest rate agreements (net
of income tax of $240, $240, $719 and
$719, respectively)
    
    
    396
    
    
    
    397
    
    
    
    1,189
    
    
    
    1,190Unrealized gain (loss) on foreign
exchange forward agreements (net of
income tax of $690, $(147), $599 and
$299, respectively)
    
    
    1,340
    
    
    
    (243
    )
    
    
    1,173
    
    
    
    495Prepaid pension cost amortization
(net of income tax of $20 and $40
respectively)
    
    
    34
    
    
    
    
    
    
    
    102
    
    
    
    Comprehensive income
    
    $
    82,171
    
    
    $
    83,287
    
    
    $
    230,393
    
    
    $
    226,587
  As of
    
    
    As ofMarch 31, 2008
    
    
    June 30, 2007Foreign currency gains
    
    $
    42,552
    
    
    $
    16,529Unrealized loss on interest rate collar (net of income tax of $1,241)
    
    
    (2,054
    )
    
    
    Unrealized (loss) gain on interest rate swap agreement (net of
income tax of $(12,790) and $2,819, respectively)
    
    
    (21,167
    )
    
    
    5,251Unrealized loss on forward interest rate agreements (net of income
tax of $(4,451) and $(5,170), respectively)
    
    
    (7,426
    )
    
    
    (8,615
    )Unrealized gains on foreign exchange forward agreements (net of
income tax of $825 and $226, respectively)
    
    
    1,550
    
    
    
    377Unrecognized prior service costs (net of income tax of $(549) and
$(609), respectively)
    
    
    (967
    )
    
    
    (1,069
    )Unrealized actuarial gains on pension plans (net of income tax of
$1,588 and $1,588, respectively)
    
    
    3,443
    
    
    
    3,443Total
    
    $
    15,931
    
    
    $
    15,916
 12. DERIVATIVES AND HEDGING INSTRUMENTS
 Interest rate hedges
   12




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Foreign currency forward agreements
   Notional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    CumulativeAmount
    
    
    Contract
    
    
    Counter
    
    
    Average
    
    
    Gain (Loss)Hedged Transaction
    
    in USD
    
    
    Currency
    
    
    Currency
    
    
    Contract Rate
    
    
    in USDReceipt of revenue
    
    $
    2,686
    
    
    CAD
    
    
    2,338
    
    
    EUR
    
    
    1,700
    
    
    
    0.727
    
    
    $
    401Payment of operating expenses
    
    
    35,013
    
    
    USD
    
    
    35,013
    
    
    MXN
    
    
    391,000
    
    
    
    11.167
    
    
    
    891Receipt of revenue
    
    
    4,435
    
    
    NOK
    
    
    22,104
    
    
    CHF
    
    
    4,411
    
    
    
    0.200
    
    
    
    226Receipt of revenue
    
    
    7,608
    
    
    EUR
    
    
    4,662
    
    
    CHF
    
    
    7,567
    
    
    
    1.623
    
    
    
    307Payment for merchandise
    
    
    3,282
    
    
    USD
    
    
    3,282
    
    
    CHF
    
    
    3,845
    
    
    
    1.172
    
    
    
    550Total
    
    $
    53,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,375
  13




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 13. SEGMENT INFORMATION
   Commercial
    
    
    Government
    
    
    Corporate
    
    
    ConsolidatedThree months ended March 31, 2008Revenues
    
    $
    922,385
    
    
    $
    619,985
    
    
    $
    
    
    
    $
    1,542,370Operating expenses (excluding
depreciation and amortization)
    
    
    767,071
    
    
    
    484,728
    
    
    
    30,247
    
    
    
    1,282,046Depreciation and amortization
    
    
    69,985
    
    
    
    26,038
    
    
    
    390
    
    
    
    96,413Operating income
    
    $
    85,329
    
    
    $
    109,219
    
    
    $
    (30,637
    )
    
    $
    163,911Three months ended March 31, 2007Revenues (a)
    
    $
    851,188
    
    
    $
    589,358
    
    
    $
    
    
    
    $
    1,440,546Operating expenses (excluding
depreciation and amortization)
    
    
    704,001
    
    
    
    453,422
    
    
    
    32,537
    
    
    
    1,189,960Depreciation and amortization
    
    
    63,684
    
    
    
    23,936
    
    
    
    375
    
    
    
    87,995Operating income
    
    $
    83,503
    
    
    $
    112,000
    
    
    $
    (32,912
    )
    
    $
    162,591Nine months ended March 31, 2008Revenues
    
    $
    2,704,286
    
    
    $
    1,842,609
    
    
    $
    
    
    
    $
    4,546,895Operating expenses (excluding
depreciation and amortization)
    
    
    2,245,472
    
    
    
    1,430,246
    
    
    
    122,376
    
    
    
    3,798,094Depreciation and amortization
    
    
    205,337
    
    
    
    75,065
    
    
    
    1,193
    
    
    
    281,595Operating income
    
    $
    253,477
    
    
    $
    337,298
    
    
    $
    (123,569
    )
    
    $
    467,206Nine months ended March 31, 2007Revenues (a)
    
    $
    2,532,797
    
    
    $
    1,719,948
    
    
    $
    
    
    
    $
    4,252,745Operating expenses (excluding
depreciation and amortization)
    
    
    2,121,430
    
    
    
    1,320,561
    
    
    
    102,116
    
    
    
    3,544,107Depreciation and amortization
    
    
    180,955
    
    
    
    72,818
    
    
    
    1,088
    
    
    
    254,861Operating income
    
    $
    230,412
    
    
    $
    326,569
    
    
    $
    (103,204
    )
    
    $
    453,777
 
 (a)
    
    Revenues in our Government segment include revenues from operations divested through
the third quarter of fiscal year 2008 of $2.2 million and $3 million for the three and nine
months ended March 31, 2007, respectively. 14. DIVESTITURES
   14




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 15. COMMITMENTS AND CONTINGENCIES
 Regulatory Agency Investigations Relating to Stock Option Grant Practices
        15




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     Lawsuits Related to Stock Option Grant Practices
  Dallas County Texas State 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, Defendants, 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.
 16




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
    
    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;and 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
 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. Rich, Mark A. King, Joseph ONeill and Frank Rossi,
Defendants, and Affiliated Computer Services, Inc., Nominal Defendant, Civil Action No.
2123-VCL, pending before the Court of Chancery of the State of Delaware in and for New Castle
County, filed on May 2, 2006.
  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, Cause No.
3-06CV1110-M, in the United States District Court for the Northern District of Texas, Dallas
Division, 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, Cause No.
3-06CV1212-M, filed on July 7, 2006, in the United States District Court for the Northern
District of Texas, Dallas Division.
 Alaska Electrical Lunceford In Re Affiliated Computer Services Federal Derivative
Litigation
 17




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   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, Civil Action No. 306-CV-1592P, in
the United States District Court for the Northern District of Texas, Dallas Division, 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, Case No. 306-CV-02379-M,
United States District Court for the Northern District of Texas, Dallas Division, filed on
September 15, 2006.
 Simeon Burke In re Affiliated Computer Systems [sic] ERISA Litigation 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., Civil Action No. 2814-VCL, in
the Court of Chancery of the State of Delaware in and for New Castle County, filed
on March 20, 2007.
 18




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
    
    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., Civil Action No. 2816-VCL, in the Court of Chancery
of the State of Delaware in and for New Castle County, filed on March 21, 2007.
    
    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.
    
    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.
    
    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.
 In Re Affiliated Computer Services, Inc. Shareholder
Litigation
  
    
    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.
    
    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.
 Texas State Court Consolidated stock option derivative case
 19




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Texas State Court Consolidated stock option derivative
case
 Texas Federal Court Consolidated stock option derivative case
  Declaratory Action with Respect to Alleged Default and Purported Acceleration of our Senior Notes
and Amendment, Consent and Waiver for our Credit Facility
  Investigation Concerning Procurement Process at Hanscom Air Force Base
  Investigation regarding Florida Workforce Contracts
  20




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Other
      21




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    16. NEW ACCOUNTING PRONOUNCEMENTS
     22




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   17. SUBSEQUENT EVENTS
   23




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    We have issued debt and have a substantial uncommitted facility available to us. 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, 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 and may
continue to increase our costs;
    
    We are subject to the oversight of the Securities and Exchange Commission (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 our 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;
    
    A failure to properly manage our operations and our 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 pricing 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 or change in 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;
    
    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;
    
    A 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.
   24




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OVERVIEW
       25




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##### Table of Contents



26




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##### Table of Contents



SIGNIFICANT DEVELOPMENTS
 Deason/Cerberus Proposal
  Board of Directors
  Business combinations
  Divestiture
  Adoption of FIN 48
  Stock option repricing
  Subsequent events
  
 27




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REVENUE GROWTH
   Three Months Ended March 31,
    
    
    Nine months Ended March 31,2008
    
    
    2007
    
    
    $ Growth
    
    
    Growth %
    
    
    2008
    
    
    2007
    
    
    $ Growth
    
    
    Growth %ConsolidatedTotal Revenues
    
    $
    1,542,370
    
    
    $
    1,440,546
    
    
    $
    101,824
    
    
    
    7
    %
    
    $
    4,546,895
    
    
    $
    4,252,745
    
    
    $
    294,150
    
    
    
    7
    %Less: Divestitures
    
    
    
    
    
    
    (2,191
    )
    
    
    2,191
    
    
    
    
    
    
    
    
    
    
    
    (3,047
    )
    
    
    3,047Adjusted
    
    $
    1,542,370
    
    
    $
    1,438,355
    
    
    $
    104,015
    
    
    
    7
    %
    
    $
    4,546,895
    
    
    $
    4,249,698
    
    
    $
    297,197
    
    
    
    7
    %Acquired revenues
    
    $
    33,256
    
    
    $
    
    
    
    $
    33,256
    
    
    
    2
    %
    
    $
    70,970
    
    
    $
    168
    
    
    $
    70,802
    
    
    
    2
    %Internal revenues
    
    
    1,509,114
    
    
    
    1,438,355
    
    
    
    70,759
    
    
    
    5
    %
    
    
    4,475,925
    
    
    
    4,249,530
    
    
    
    226,395
    
    
    
    5
    %Total
    
    $
    1,542,370
    
    
    $
    1,438,355
    
    
    $
    104,015
    
    
    
    7
    %
    
    $
    4,546,895
    
    
    $
    4,249,698
    
    
    $
    297,197
    
    
    
    7
    %CommercialTotal Revenues
    
    $
    922,385
    
    
    $
    851,188
    
    
    $
    71,197
    
    
    
    8
    %
    
    $
    2,704,286
    
    
    $
    2,532,797
    
    
    $
    171,489
    
    
    
    7
    %Less: Divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted
    
    $
    922,385
    
    
    $
    851,188
    
    
    $
    71,197
    
    
    
    8
    %
    
    $
    2,704,286
    
    
    $
    2,532,797
    
    
    $
    171,489
    
    
    
    7
    %Acquired revenues
    
    $
    26,297
    
    
    $
    
    
    
    $
    26,297
    
    
    
    3
    %
    
    $
    49,907
    
    
    $
    
    
    
    $
    49,907
    
    
    
    2
    %Internal revenues
    
    
    896,088
    
    
    
    851,188
    
    
    
    44,900
    
    
    
    5
    %
    
    
    2,654,379
    
    
    
    2,532,797
    
    
    
    121,582
    
    
    
    5
    %Total
    
    $
    922,385
    
    
    $
    851,188
    
    
    $
    71,197
    
    
    
    8
    %
    
    $
    2,704,286
    
    
    $
    2,532,797
    
    
    $
    171,489
    
    
    
    7
    %GovernmentTotal Revenues
    
    $
    619,985
    
    
    $
    589,358
    
    
    $
    30,627
    
    
    
    5
    %
    
    $
    1,842,609
    
    
    $
    1,719,948
    
    
    $
    122,661
    
    
    
    7
    %Less: Divestitures
    
    
    
    
    
    
    (2,191
    )
    
    
    2,191
    
    
    
    
    
    
    
    
    
    
    
    (3,047
    )
    
    
    3,047Adjusted
    
    $
    619,985
    
    
    $
    587,167
    
    
    $
    32,818
    
    
    
    6
    %
    
    $
    1,842,609
    
    
    $
    1,716,901
    
    
    $
    125,708
    
    
    
    7
    %Acquired revenues
    
    $
    6,959
    
    
    $
    
    
    
    $
    6,959
    
    
    
    1
    %
    
    $
    21,063
    
    
    $
    168
    
    
    $
    20,895
    
    
    
    1
    %Internal revenues
    
    
    613,026
    
    
    
    587,167
    
    
    
    25,859
    
    
    
    5
    %
    
    
    1,821,546
    
    
    
    1,716,733
    
    
    
    104,813
    
    
    
    6
    %Total
    
    $
    619,985
    
    
    $
    587,167
    
    
    $
    32,818
    
    
    
    6
    %
    
    $
    1,842,609
    
    
    $
    1,716,901
    
    
    $
    125,708
    
    
    
    7
    %
 28




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Cost of revenues:Wages and benefits
    
    
    47.8
    
    
    
    47.8
    
    
    
    47.4
    
    
    
    47.6Services and supplies
    
    
    21.9
    
    
    
    21.2
    
    
    
    22.1
    
    
    
    21.5Rent, lease and maintenance
    
    
    12.0
    
    
    
    12.1
    
    
    
    12.2
    
    
    
    12.5Depreciation and amortization
    
    
    6.2
    
    
    
    6.1
    
    
    
    6.2
    
    
    
    6.0Other
    
    
    0.5
    
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.6Total cost of revenues
    
    
    88.4
    
    
    
    87.8
    
    
    
    88.4
    
    
    
    88.2Other operating expenses
    
    
    1.0
    
    
    
    0.9
    
    
    
    1.3
    
    
    
    1.1Total operating expenses
    
    
    89.4
    
    
    
    88.7
    
    
    
    89.7
    
    
    
    89.3Operating income
    
    
    10.6
    
    
    
    11.3
    
    
    
    10.3
    
    
    
    10.7Interest expense
    
    
    2.5
    
    
    
    3.2
    
    
    
    2.8
    
    
    
    3.3Other non-operating income, net
    
    
    (0.3
    )
    
    
    (0.8
    )
    
    
    (0.2
    )
    
    
    (0.5
    )Pretax profit
    
    
    8.4
    
    
    
    8.9
    
    
    
    7.7
    
    
    
    7.9Income tax expense
    
    
    3.0
    
    
    
    3.2
    
    
    
    2.6
    
    
    
    2.8Net income
    
    
    5.4
    %
    
    
    5.7
    %
    
    
    5.1
    %
    
    
    5.1
    %
 COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2008 TO THE THREE MONTHS ENDED MARCH 31, 2007
 Revenues
    29




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##### Table of Contents



Operating expenses
      For the Three Months EndedMarch 31,2008
    
    
    2007Commercial segment:Pre-acquisition litigation settlement related to our human
resources consulting and outsourcing business acquired from
Mellon Financial Corporation in May 2005 and subsequent
recovery from seller
    
    $
    (1.8
    )
    
    $
    2.2Provision for uncollectible accounts receivable related to
the loss of a sub-prime lending client due to bankruptcy
    
    
    
    
    
    
    1.5Corporate segment:Legal costs associated with the ongoing stock option
investigations and shareholder derivative lawsuits, net of
insurance recovery
    
    
    9.2
    
    
    
    3.7Legal costs associated with the potential sale of the Company
    
    
    0.2
    
    
    
    0.6Total
    
    $
    7.6
    
    
    $
    8.0As a percentage of revenue
    
    
    0.5
    %
    
    
    0.5
    %
 30




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##### Table of Contents



Operating income
  For the Three Months EndedMarch 31,2008
    
    
    2007Commercial segment:Costs related to our fiscal year 2007 restructuring activities
    
    $
    
    
    
    $
    (2.8
    )Pre-acquisition litigation settlement related to our human resources
consulting and outsourcing business acquired from Mellon Financial
Corporation in May 2005 and subsequent recovery from seller
    
    
    1.8
    
    
    
    (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
    
    
    
    
    
    
    3.4Costs related to our fiscal year 2007 restructuring activities
    
    
    
    
    
    
    (0.9
    )Corporate segment:Legal and other costs associated with the ongoing stock option
investigations and shareholder derivative lawsuits, net of insurance
recovery
    
    
    (9.8
    )
    
    
    (4.3
    )Legal costs associated with the potential sale of the Company
    
    
    (0.2
    )
    
    
    (0.6
    )Cost related to certain former employees stock options
    
    
    (0.5
    )
    
    
    Total
    
    $
    (8.7
    )
    
    $
    (9.4
    )As a percentage of revenue
    
    
    (0.6
    )%
    
    
    (0.7
    )%
 Interest expense
  Other income, net
  Income tax expense
  COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2008 TO THE NINE MONTHS ENDED MARCH 31, 2007
 Revenues
   31




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##### Table of Contents



Operating expenses
     32




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##### Table of Contents



For the Nine Months EndedMarch 31,2008
    
    
    2007Commercial segment:Litigation settlement
    
    $
    3.0
    
    
    $
    Pre-acquisition litigation settlement related to our human
resources consulting and outsourcing business acquired from
Mellon Financial Corporation in May 2005 and subsequent
recovery from seller
    
    
    (1.8
    )
    
    
    2.2Provision for uncollectible accounts receivable related to
the loss of a sub-prime lending client due to bankruptcy
    
    
    
    
    
    
    1.5Government segment:Gain on sale of our decision support business
    
    
    (2.4
    )
    
    
    Gain on settlement of indemnification and other claims
with Lockheed Martin Corporation
    
    
    (2.2
    )
    
    
    Corporate segment:Legal costs associated with the ongoing stock option
investigations and shareholder derivative lawsuits, net of
insurance recovery
    
    
    32.2
    
    
    
    24.7Legal costs associated with the potential sale of the Company
    
    
    5.4
    
    
    
    0.6Total
    
    $
    34.2
    
    
    $
    29.0As a percentage of revenue
    
    
    0.8
    %
    
    
    0.7
    %
 33




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##### Table of Contents



Operating income
  For the Nine Months EndedMarch 31,2008
    
    
    2007Commercial segment:Litigation settlement
    
    $
    (3.0
    )
    
    $
    Impairment charge related to the termination of a Commercial client that was
acquired
    
    
    (1.6
    )
    
    
    Costs related to our fiscal year 2007 restructuring activities
    
    
    
    
    
    
    (8.3
    )Pre-acquisition litigation settlement related to our human resources consulting and outsourcing business acquired from Mellon Financial Corporation in May 2005
and subsequent recovery from seller
    
    
    1.8
    
    
    
    (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
    )Government segment:Gain on sale of our decision support business
    
    
    2.4
    
    
    
    Gain on settlement of indemnification and other claims with Lockheed Martin
Corporation
    
    
    2.2
    
    
    
    Revenue related to the settlement of the North Carolina contract dispute
    
    
    
    
    
    
    3.4Cost related to our fiscal year 2007 restructuring activities
    
    
    
    
    
    
    (1.3
    )Corporate segment:Legal and other costs associated with the ongoing stock option investigations and
shareholder derivative lawsuits, net of insurance recovery
    
    
    (34.0
    )
    
    
    (26.0
    )Legal costs associated with the potential sale of the Company
    
    
    (8.9
    )
    
    
    (0.6
    )Cost related to amending certain employee stock options
    
    
    (1.2
    )
    
    
    Cost related to certain former employees stock options
    
    
    (1.0
    )
    
    
    Total
    
    $
    (43.3
    )
    
    $
    (39.2
    )As a percentage of revenue
    
    
    (1.0
    )%
    
    
    (0.9
    )%
 Interest expense
  Other income, net
  Income tax expense
  34




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Cash flow
  Nine Months EndedMarch 31,2008
    
    
    2007Interest payments on outstanding debt
    
    $
    (117.6
    )
    
    $
    (121.1
    )Cash paid on tax, interest and penalties related
to our stock option grant practices as discussed
above
    
    
    
    
    
    
    (35.0
    )Cash 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
    
    
    (35.1
    )
    
    
    (24.9
    )Cash paid to current employees related to stock
option repricing as the result of our internal
investigation of our stock option grant practices
    
    
    (6.7
    )
    
    
    Cash received for interest income
    
    
    6.5
    
    
    
    6.8$
    (152.9
    )
    
    $
    (174.2
    )
    Nine Months EndedMarch 31,2008
    
    
    2007Net cash provided by operating activities
    
    $
    560,101
    
    
    $
    394,977Purchases of property, equipment and software, net
    
    
    (192,563
    )
    
    
    (239,123
    )Additions to other intangible assets
    
    
    (25,844
    )
    
    
    (30,266
    )Free cash flow
    
    $
    341,694
    
    
    $
    125,588
  35




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##### Table of Contents



Credit arrangements
    Credit ratings
  Derivative instruments and hedging activities
  Share Repurchase Programs
  36




---



##### Table of Contents



Stock Option Repricing
  Other
   DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS  AS OF MARCH 31, 2008 (IN THOUSANDS):
 Payments Due by PeriodLess thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    After 5 YearsSenior Notes, net of unamortized
discount (1)
    
    $
    499,509
    
    
    $
    
    
    
    $
    249,963
    
    
    $
    
    
    
    $
    249,546Long-term debt (1)
    
    
    1,863,735
    
    
    
    18,891
    
    
    
    36,076
    
    
    
    1,808,688
    
    
    
    80Capital lease obligations (1)
    
    
    54,706
    
    
    
    28,165
    
    
    
    25,092
    
    
    
    1,449
    
    
    
    Operating leases (2)
    
    
    1,012,970
    
    
    
    340,141
    
    
    
    493,257
    
    
    
    127,234
    
    
    
    52,338Purchase obligations (3) (4)
    
    
    25,688
    
    
    
    11,170
    
    
    
    11,596
    
    
    
    2,922
    
    
    
    Total Contractual Cash Obligations
    
    $
    3,456,608
    
    
    $
    398,367
    
    
    $
    815,984
    
    
    $
    1,940,293
    
    
    $
    301,964
 Amount of Commitment Expiration per PeriodTotalAmounts
    
    
    Less thanOther Commercial Commitments
    
    Committed
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    After 5 YearsStandby letters of credit
    
    $
    122,160
    
    
    $
    114,160
    
    
    $
    8,000
    
    
    $
    
    
    
    $
    Surety bonds
    
    
    580,274
    
    
    
    509,941
    
    
    
    66,886
    
    
    
    3,447
    
    
    
    Total Commercial Commitments
    
    $
    702,434
    
    
    $
    624,101
    
    
    $
    74,886
    
    
    $
    3,447
    
    
    $
    
 
 (1)
    
    Excludes accrued interest of $11.7 million at March 31, 2008.(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 2011, and are included in purchase obligations in the
table.(4)
    
    In June 2006, we entered into a two year agreement with Rich Capital, LLC, an M&A
advisory firm owned by Jeffery A. Rich, a 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. 37




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Revenue recognition
   38




---



##### Table of Contents



Cost of revenues
  Contingencies
  39




---



##### Table of Contents



Valuation of goodwill and intangibles
  Valuation of property, equipment and software
  Stock-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
and the vesting and contractual terms of the respective option.
    
    Risk-free interest rate for periods within the expected term of the option.
    
    Expected dividend yield.
  40




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##### Table of Contents



Pension and post-employment benefits
   Allowance for doubtful accounts
  Income taxes
    NEW ACCOUNTING PRONOUNCEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   41




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
  42




---



##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Share repurchase program
    
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 6. EXHIBITS
  43




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##### Table of Contents



SIGNATURES
  AFFILIATED COMPUTER SERVICES, INC.By:
    /s/  Kevin KyserKevin KyserExecutive Vice President and
Chief Financial Officer 44




---



##### 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 March 19, 2008 (filed as Exhibit 3.2
to our Current Report on Form 8-K, filed March 21, 2008 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
    
    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).4.3
    
    First Supplemental Indenture, dated as of June 6, 2005, by and between Affiliated Computer Services, Inc. as
Issuer and The Bank of New York Trust Company, N.A. as Trustee, relating to our 4.70% Senior Notes due 2010
(filed as Exhibit 4.2 to our Current Report on Form 8-K, filed June 6, 2005 and incorporated herein by
reference).4.4
    
    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).4.5
    
    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).4.6
    
    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).4.7
    
    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).4.8
    
    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
 45




---



##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit NameForm 8-K, filed February 6, 2002 and incorporated herein by reference).4.9
    
    Form of Rights Certificate (included as Exhibit A to the Amended and Restated Rights Agreement (Exhibit 4.3)).4.10
    
    Certificate of Elimination of the Series A Cumulative Redeemable Preferred Stock of Affiliated Computer
Services, Inc. dated August 20, 2001 (filed as Exhibit 4.3 to our Registration Statement on Form S-8, filed
June 13, 2007 and incorporated herein by reference).10.1
    
    Executive Employment Agreement, entered into January 4, 2008 and effective December 14, 2007, by and between
Affiliated Computer Services, Inc. and Lynn R. Blodgett (filed as Exhibit 99.1 to our Current Report on Form
8-K, filed January 11, 2008 and incorporated herein by reference).10.2
    
    Form of Severance Agreement, each dated as of March 1, 2004 except as otherwise noted, by and between
Affiliated Computer Services, Inc. and each of Mark A. King, Warren D. Edwards, Harvey Braswell (September 14,
2004), John Brophy, William L. Deckelman, Jr., Ann Vezina (May 25, 2006), Kevin Kyser (entered into January 31,
2008 and effective December 14, 2007) and Tom Blodgett (entered into January 31, 2008 and effective December
14, 2007) (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed May 17, 2004 and incorporated
herein by reference).31.1*
    
    Certification of Chief Executive Officer of Affiliated Computer Services, Inc. pursuant to Rule 13a-14(a) or
15d-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) or
15d-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) or
15d-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) or
15d-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. 46