##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549


FORM 10-Q

(Mark One)



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


For the quarterly period ended December 31, 2003

OR




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


For the period from  to

Commission file number 001-12665

AFFILIATED COMPUTER SERVICES, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 51-0310342                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                         |  |  |            | 
|---------------------------------------- |  |  | ---------- | 
|2828 North Haskell, Dallas, Texas        |  |  | 75204      | 
|                                        
|(Address of principal executive offices) |  |  | (Zip Code) | 

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

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)


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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [  ]

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

|                                     |  |                                    |             | 
|------------------------------------ |  | ---------------------------------- | ----------- | 
|                                     |  | Number of shares outstanding as of
|Title of each class                  |  | February 13, 2004                 
|                                     |  |                                   
|Class A Common Stock, $.01 par value |  |                                    | 122,141,739 | 
|Class B Common Stock, $.01 par value |  |                                    | 6,599,372   | 
|                                     |  |                                    |             | 
|                                     |  |                                    | 128,741,111 | 





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TABLE OF CONTENTS



|                                                |                                                                                               |                                            |  |  |  |  |  | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I                                         
|                                                | ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS                                                    
|                                                |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                                |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME         
|                                                |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II                                        
|                                                | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                                | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                                | ITEM 5. OTHER INFORMATION                                                                    
|                                                | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                     
|INDEX TO EXHIBITS                              
|Bylaws, as Amended and in Effect Sept. 11, 2003
|Amendment to Executive Retirement Agreement    
|Certification of Chief Executive Officer       
|Certification of Chief Financial Officer       
|Certification of Chief Executive Officer       
|Certification of Chief Financial Officer       



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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES

INDEX

|         |  |                                                                                                        |  |        
|-------- |  | ------------------------------------------------------------------------------------------------------ |  | -------
|         |  |                                                                                                        |  | PAGE   
|         |  |                                                                                                        |  | NUMBER 
|PART I.  |  | FINANCIAL INFORMATION                                                                                  |  |        
|Item 1.  |  | Consolidated Financial Statements:                                                                     |  |        
|         |  | Consolidated Balance Sheets at December 31, 2003 and
June 30, 2003                                     |  | 1      
|         |  | Consolidated Statements of Income for the Three Months and Six
Months Ended December 31, 2003 and 2002 |  | 2      
|         |  | Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 2003 and 2002              |  | 3      
|         |  | Notes to Consolidated Financial Statements                                                             |  | 4 - 12 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                  |  | 13 - 25
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                             |  | 25     
|Item 4.  |  | Controls and Procedures                                                                                |  | 25     
|PART II. |  | OTHER INFORMATION                                                                                      |  |        
|Item 1.  |  | Legal Proceedings                                                                                      |  | 26     
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                              |  | 27     
|Item 5.  |  | Other Information                                                                                      |  | 28     
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                       |  | 28     





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PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                      |                                             |  |                                            |                                      |   |              |           |           |   |           |  | 
|------------------------------------- | ------------------------------------------- |  | ------------------------------------------ | ------------------------------------ | - | ------------ | --------- | --------- | - | --------- |  | 
|                                      |                                             |  |                                            |                                      |   | December 31, |           | June 30, 
|                                      |                                             |  |                                            |                                      |   | 2003         |           | 2003     
|                                      |                                             |  |                                            |                                      |   | (Unaudited)  |           | (Audited)
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  |                                            | ASSETS                               |   |              |           |           |   |           |  | 
|Current assets:                       |                                             |  |                                            |                                      |   |              |           |          
|                                      | Cash and cash equivalents                   |  | $                                          | 244,252                              |   |              | $         | 51,170    |  
|                                      | Accounts receivable, net                    |  |                                            | 830,003                              |   |              |           | 835,478   |  
|                                      | Inventory                                   |  |                                            | 6,432                                |   |              |           | 6,245     |  
|                                      | Other current assets                        |  |                                            | 93,187                               |   |              |           | 86,605    |  
|                                      | Assets held for sale                        |  |                                            | 7,049                                |   |              |           |          |  
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  | Total current assets                       |                                      |   | 1,180,923    |           |           |   | 979,498   | 
|                                      |                                             |  |                                            |                                      |   |              |           |           |   |           |  | 
|Property, equipment and software, net |                                             |  | 463,001                                    |                                      |   |              | 478,212   |          
|Goodwill, net                         |                                             |  | 1,856,901                                  |                                      |   |              | 1,905,878 |          
|Intangibles, net                      |                                             |  | 278,753                                    |                                      |   |              | 265,091   |          
|Other long-term assets                |                                             |  | 79,301                                     |                                      |   |              | 70,026    |          
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  | Total assets                               |                                      | $ | 3,858,879    |           |           | $ | 3,698,705 | 
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |   |              |           |           |   |           |  | 
|Current liabilities:                  |                                             |  |                                            |                                      |   |              |           |          
|                                      | Accounts payable                            |  | $                                          | 38,979                               |   |              | $         | 58,376    |  
|                                      | Accrued compensation and benefits           |  |                                            | 97,828                               |   |              |           | 132,027   |  
|                                      | Other accrued liabilities                   |  |                                            | 374,097                              |   |              |           | 272,578   |  
|                                      | Income taxes payable                        |  |                                            | 114,593                              |   |              |           | 17,057    |  
|                                      | Deferred taxes                              |  |                                            | 36,913                               |   |              |           | 26,054    |  
|                                      | Current portion of long-term debt           |  |                                            | 1,742                                |   |              |           | 1,764     |  
|                                      | Current portion of unearned revenue         |  |                                            | 58,857                               |   |              |           | 49,620    |  
|                                      | Liabilities related to assets held for sale |  |                                            | 2,520                                |   |              |           |          |  
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  | Total current liabilities                  |                                      |   | 725,529      |           |           |   | 557,476   | 
|                                      |                                             |  |                                            |                                      |   |              |           |           |   |           |  | 
|Convertible notes                     |                                             |  | 316,990                                    |                                      |   |              | 316,990   |          
|Long-term debt                        |                                             |  | 2,776                                      |                                      |   |              | 181,350   |          
|Deferred taxes                        |                                             |  | 193,286                                    |                                      |   |              | 176,484   |          
|Other long-term liabilities           |                                             |  | 42,684                                     |                                      |   |              | 37,217    |          
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  | Total liabilities                          |                                      |   | 1,281,265    |           |           |   | 1,269,517 | 
|                                      |                                             |  |                                            |                                      |   |              |           |          
|Stockholders equity:                 |                                             |  |                                            |                                      |   |              |           |          
|                                      | Class A common stock                        |  |                                            | 1,273                                |   |              |           | 1,266     |  
|                                      | Class B common stock                        |  |                                            | 66                                   |   |              |           | 66        |  
|                                      | Additional paid-in capital                  |  |                                            | 1,376,108                            |   |              |           | 1,358,418 |  
|                                      | Accumulated other comprehensive income, net |  |                                            | (840                                 | ) |              |           | (971      | )
|                                      | Retained earnings                           |  |                                            | 1,410,246                            |   |              |           | 1,070,409 |  
|                                      | Treasury stock                              |  |                                            | (209,239                             | ) |              |           |          |  
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  | Total stockholders equity                 |                                      |   | 2,577,614    |           |           |   | 2,429,188 | 
|                                      |                                             |  |                                            |                                      |   |              |           |          
|                                      |                                             |  | Total liabilities and stockholders equity |                                      | $ | 3,858,879    |           |           | $ | 3,698,705 | 
|                                      |                                             |  |                                            |                                      |   |              |           |          

The accompanying notes are an integral part of these consolidated financial statements.

1



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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)

|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |         |  |           | 
|--------------------------------------------------- | ----------------------------- | - | ------------------------ | -------- | ------------------ | ------- | ---------------- | ------- | ---- | ------- | --------- | -------- | - | --------- | --------- | ------- |  | --------- | 
|                                                    |                               |   |                          |          | Three Months Ended |         | Six Months Ended
|                                                    |                               |   |                          |          | December 31,       |         | December 31,    
|                                                    |                               |   |                          |          |                    |         |                 
|                                                    |                               |   |                          |          | 2003               |         | 2002             |         | 2003 |         | 2002     
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |          
|Revenues                                            |                               | $ | 997,879                  |          |                    | $       | 908,814          |         |      | $       | 2,034,514 |          |   | $         | 1,791,395 |        
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |         |  |           | 
|Expenses:                                           |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    | Wages and benefits            |   |                          | 443,555  |                    |         |                  | 403,880 |      |         |           | 920,667  |   |           |           | 806,779 | 
|                                                    | Services and supplies         |   |                          | 271,962  |                    |         |                  | 244,196 |      |         |           | 536,926  |   |           |           | 470,686 | 
|                                                    | Rent, lease and maintenance   |   |                          | 96,920   |                    |         |                  | 86,944  |      |         |           | 192,850  |   |           |           | 171,279 | 
|                                                    | Depreciation and amortization |   |                          | 42,216   |                    |         |                  | 35,717  |      |         |           | 83,627   |   |           |           | 71,859  | 
|                                                    | Gain on sale of business      |   |                          | (284,346 | )                  |         |                  |        |      |         |           | (284,346 | ) |           |           |        | 
|                                                    | Other operating expenses      |   |                          | 24,591   |                    |         |                  | 13,111  |      |         |           | 37,880   |   |           |           | 26,171  | 
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    |                               |   | Total operating expenses |          |                    | 594,898 |                  |         |      | 783,848 |           |          |   | 1,487,604 |           |         |  | 1,546,774 | 
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    | Operating income              |   |                          | 402,981  |                    |         |                  | 124,966 |      |         |           | 546,910  |   |           |           | 244,621 | 
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |         |  |           | 
|Interest expense                                    |                               |   | 5,325                    |          |                    |         | 6,147            |         |      |         | 10,545    |          |   |           | 13,201    |        
|Other non-operating (income)
expense, net           |                               |   | (988                     | )        |                    |         | 417              |         |      |         | (1,168    | )        |   |           | 1,889     |        
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    | Pretax profit                 |   |                          | 398,644  |                    |         |                  | 118,402 |      |         |           | 537,533  |   |           |           | 229,531 | 
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |         |  |           | 
|Income tax expense                                  |                               |   | 145,614                  |          |                    |         | 44,401           |         |      |         | 197,695   |          |   |           | 86,074    |        
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    | Net income                    |   | $                        | 253,030  |                    |         | $                | 74,001  |      |         | $         | 339,838  |   |           | $         | 143,457 | 
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|Earnings per common share:                          |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    | Basic                         |   | $                        | 1.93     |                    |         | $                | 0.56    |      |         | $         | 2.57     |   |           | $         | 1.09    | 
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    | Diluted                       |   | $                        | 1.80     |                    |         | $                | 0.53    |      |         | $         | 2.41     |   |           | $         | 1.03    | 
|                                                    |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|Shares used in computing earnings
per common share: |                               |   |                          |          |                    |         |                  |         |      |         |           |          |   |           |           |        
|                                                    | Basic                         |   |                          | 131,001  |                    |         |                  | 132,175 |      |         |           | 132,087  |   |           |           | 132,124 | 
|                                                    | Diluted                       |   |                          | 141,880  |                    |         |                  | 143,295 |      |         |           | 142,889  |   |           |           | 143,139 | 

The accompanying notes are an integral part of these consolidated financial statements.

2



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

|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |          |          |         |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------- | -------- | ---------------- | -------- | ------ | -------- | -------- | ------- | -
|                                                 |                                                                                   |                                                                      |                                               |          | Six Months Ended
|                                                 |                                                                                   |                                                                      |                                               |          | December 31,    
|                                                 |                                                                                   |                                                                      |                                               |          |                 
|                                                 |                                                                                   |                                                                      |                                               |          | 2003             |          | 2002  
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |       
|Cash flows from operating activities:            |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 | Net income                                                                        |                                                                      | $                                             | 339,838  |                  |          | $      | 143,457  |         
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                      |                                               |          |                  |          |        |          |         
|                                                 |                                                                                   | Depreciation and amortization                                        |                                               |          | 83,627           |          |        |          | 71,859   |        
|                                                 |                                                                                   | Gain on sale of business                                             |                                               |          | (284,346         | )        |        |          |         |        
|                                                 |                                                                                   | Impairment of long-term investments                                  |                                               |          |                 |          |        |          | 2,000    |        
|                                                 |                                                                                   | Tax benefit on stock options                                         |                                               |          | 8,113            |          |        |          | 3,682    |        
|                                                 |                                                                                   | Deferred income tax expense                                          |                                               |          | 36,528           |          |        |          | 42,412   |        
|                                                 |                                                                                   | Other non-cash activities                                            |                                               |          | 8,585            |          |        |          | 5,880    |        
|                                                 |                                                                                   | Changes in assets and liabilities, net of effects from acquisitions: |                                               |          |                  |          |        |          |          |        
|                                                 |                                                                                   |                                                                      | Increase in accounts receivable               |          |                  | (123,770 | )      |          |          | (41,638 | )
|                                                 |                                                                                   |                                                                      | (Increase) decrease in inventory              |          |                  | (377     | )      |          |          | 152     |  
|                                                 |                                                                                   |                                                                      | Increase in other current assets              |          |                  | (9,606   | )      |          |          | (4,694  | )
|                                                 |                                                                                   |                                                                      | (Increase) decrease in other long-term assets |          |                  | (12,526  | )      |          |          | 2,498   |  
|                                                 |                                                                                   |                                                                      | Decrease in accounts payable                  |          |                  | (2,170   | )      |          |          | (25,716 | )
|                                                 |                                                                                   |                                                                      | Decrease in accrued compensation and benefits |          |                  | (18,250  | )      |          |          | (27,152 | )
|                                                 |                                                                                   |                                                                      | Increase in other accrued liabilities         |          |                  | 71,209   |        |          |          | 42,453  |  
|                                                 |                                                                                   |                                                                      | Change in income taxes payable                |          |                  | 97,536   |        |          |          | (2,395  | )
|                                                 |                                                                                   |                                                                      | Increase in unearned revenue                  |          |                  | 9,198    |        |          |          | 15,792  |  
|                                                 |                                                                                   |                                                                      | Increase in other long-term liabilities       |          |                  | 7,514    |        |          |          | 4,989   |  
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 |                                                                                   | Total adjustments                                                    |                                               |          | (128,735         | )        |        |          | 90,122   |        
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 |                                                                                   | Net cash provided by operating activities                            |                                               |          | 211,103          |          |        |          | 233,579  |        
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|Cash flows from investing activities:            |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 | Purchases of property, equipment and software, net                                |                                                                      |                                               | (93,144  | )                |          |        | (92,540  | )       
|                                                 | Payments for acquisitions, net of cash acquired                                   |                                                                      |                                               | (112,451 | )                |          |        | (6,381   | )       
|                                                 | Proceeds from divestitures, net of transaction costs                              |                                                                      |                                               | 584,627  |                  |          |        | 5,802    |         
|                                                 | Additions to other intangible assets                                              |                                                                      |                                               | (14,851  | )                |          |        | (25,819  | )       
|                                                 | Additions to notes receivable                                                     |                                                                      |                                               | (2,681   | )                |          |        | (2,871   | )       
|                                                 | Proceeds received on notes receivable                                             |                                                                      |                                               | 3,072    |                  |          |        | 7,555    |         
|                                                 | Other                                                                             |                                                                      |                                               | 23       |                  |          |        | 132      |         
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 |                                                                                   | Net cash provided by (used in) investing activities                  |                                               |          | 364,595          |          |        |          | (114,122 | )      
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|Cash flows from financing activities:            |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 | Proceeds from issuance of debt                                                    |                                                                      |                                               | 521,055  |                  |          |        | 519,062  |         
|                                                 | Repayments of debt                                                                |                                                                      |                                               | (703,733 | )                |          |        | (613,567 | )       
|                                                 | Purchase of treasury shares                                                       |                                                                      |                                               | (209,239 | )                |          |        |         |         
|                                                 | Proceeds from stock options exercised                                             |                                                                      |                                               | 10,655   |                  |          |        | 2,037    |         
|                                                 | Other                                                                             |                                                                      |                                               | (1,354   | )                |          |        | (1,903   | )       
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|                                                 |                                                                                   | Net cash used in financing activities                                |                                               |          | (382,616         | )        |        |          | (94,371  | )      
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|Net increase in cash and cash equivalents        |                                                                                   |                                                                      | 193,082                                       |          |                  |          | 25,086 |         
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |          |          |         |  
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                      | 51,170                                        |          |                  |          | 33,814 |         
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         
|Cash and cash equivalents at end of period       |                                                                                   | $                                                                    | 244,252                                       |          |                  | $        | 58,900 |         
|                                                 |                                                                                   |                                                                      |                                               |          |                  |          |        |         

The accompanying notes are an integral part of these consolidated financial statements.

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



|1. |  | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The consolidated financial statements include the accounts of Affiliated
Computer Services, Inc. (ACS) and its majority-owned subsidiaries. All
material intercompany profits, transactions and balances have been
eliminated. We are a Fortune 500 company with approximately 38,000 people
providing business
process and technology outsourcing solutions to commercial and
government clients.                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | The financial information presented should be read in conjunction with our
consolidated financial statements for the year ended June 30, 2003. Certain
reclassifications have been made to prior period financial statements to
conform to current presentation. The foregoing unaudited consolidated
financial statements reflect all adjustments (all of which are of a normal
recurring nature), which are, in the opinion of management, necessary for a
fair presentation of the results of the interim periods. The results for the
interim periods are not necessarily indicative of results to be expected for
the year.                                                                                                                                                                                     
|  
|   |  | Based on the criteria set forth in Statement of Financial Accounting
Standards No. 131, Disclosure about Segments of an Enterprise and Related
Information (SFAS 131), we have two reportable segments as of December 31,
2003: commercial and government. The segments presented in prior periods
differ from the current presentation. The sale of the majority of our
Federal business necessitated an assessment of our reportable segments under
SFAS 131. As a result, we combined our former State and Local Governments
segment with the remainder of our Federal segment into our Government
segment. Prior period reporting has been restated to conform to the new
segment reporting.                                                                                                                 
|  
|   |  | Significant accounting policies are detailed in our Annual Report on Form
10-K for the year ended June 30, 2003. For discussion of our critical
accounting policies, please refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|2. |  | STOCK-BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | We follow Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, (APB 25) in accounting for our stock-based
compensation plans. Under APB 25, no compensation expense is recognized for
our stock-based compensation plans since the exercise price of awards under
our plans are at the current market price of our stock on the date of grant.
Had compensation cost for our stock-based compensation plans been determined
based on the fair value at the grant date under those plans consistent with
the fair value method of Statement of Financial Accounting Standards No. 123
Accounting for Stock-Based Compensation, our net income and earnings per
share would have been reduced to the pro forma amounts indicated below (in
thousands, except per share amounts):

|                           |                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |         | 
|-------------------------- | ---------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|                           |                                                                                          |  | Three Months Ended |         | Six Months Ended
|                           |                                                                                          |  | December 31,       |         | December 31,    
|                           |                                                                                          |  |                    |         |                 
|                           |                                                                                          |  | 2003               |         | 2002             |  | 2003 |        | 2002
|                           |                                                                                          |  |                    |         |                  |  |      |        |     
|Net Income                 |                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |        
|                           | As reported                                                                              |  | $                  | 253,030 |                  |  | $    | 74,001 |      |  | $ | 339,838 |  |  | $ | 143,457 | 
|                           | Less: Pro forma
employee compensation
cost of stock-based
compensation plans,
net of tax |  |                    | 5,051   |                  |  |      | 4,333  |      |  |   | 9,857   |  |  |   | 8,253   | 
|                           |                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |        
|                           | Pro forma                                                                                |  | $                  | 247,979 |                  |  | $    | 69,668 |      |  | $ | 329,981 |  |  | $ | 135,204 | 
|                           |                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |        
|Basic earnings per share   |                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |        
|                           | As reported                                                                              |  | $                  | 1.93    |                  |  | $    | 0.56   |      |  | $ | 2.57    |  |  | $ | 1.09    | 
|                           | Pro forma                                                                                |  | $                  | 1.89    |                  |  | $    | 0.53   |      |  | $ | 2.50    |  |  | $ | 1.02    | 
|Diluted earnings per share |                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |        
|                           | As reported                                                                              |  | $                  | 1.80    |                  |  | $    | 0.53   |      |  | $ | 2.41    |  |  | $ | 1.03    | 
|                           | Pro forma                                                                                |  | $                  | 1.77    |                  |  | $    | 0.50   |      |  | $ | 2.35    |  |  | $ | 0.98    | 

4



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##### Table of Contents



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



|3. |  | SALE OF FEDERAL BUSINESS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Effective November 1, 2003, we completed the sale of the majority of our
Federal government business to Lockheed Martin Corporation for approximately
$658 million, which included a cash payment of $588 million
at closing and $70 million payable pursuant to a five-year
non-compete agreement. We recognized a pretax gain of $284.3 million ($181.7
million, net of income tax). The proceeds from the divestiture were generally used
to pay down debt, fund the acquisitions of Lockheed Martins commercial
information technology outsourcing business (see Note 4), Patient Accounting Services
Center, LLC and Truckload Management Services, Inc. (see Note 13) and fund our share repurchase program.                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Revenues from the divested Federal business, which are primarily included in
the Government segment, were approximately $61.7 million and $166.4 million
for the three months ended December 31, 2003 and 2002, respectively, and
$237.7 million and $330.5 million for the six months ended December 31, 2003
and 2002, respectively. For fiscal year 2003, revenues from the divested
Federal business were approximately $680 million. This divestiture excludes,
among others, our Department of Education relationship, which during fiscal
year 2003 had revenues of approximately $172 million. Additionally, our
Commercial and Government operations will continue to serve as a
subcontractor on portions of the divested Federal business.                                                                                                                                                                                                                                                                                      
|  
|   |  | Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets requires that depreciation and
amortization of long-lived assets held for sale be suspended during the
holding period prior to sale. Accordingly, we suspended depreciation and
amortization in the amount of $4.3 million ($2.7 million,
net of income tax) and
$1.9 million ($1.2 million, net of income tax) for the first and second quarters of
fiscal year 2004, respectively, related to those long-lived assets sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | As of December 31, 2003, we classified assets related to certain contracts
associated with Hanscom Air Force Base as held for sale. These assets consist primarily of accounts receivable of approximately
$7.0 million, and liabilities for subcontractor costs,
compensation costs and other liabilities of approximately
$2.5 million. Subsequent to
quarter end, we announced the signing of a definitive agreement to sell these
certain assets associated with Hanscom Air Force Base in Massachusetts to
ManTech International Corporation. We reported
approximately $25 million and approximately $13.1 million in revenue from the Hanscom Air Force Base
relationship in fiscal year 2003 and the six months ended
December 31, 2003, respectively, in our Government segment. We will indemnify ManTech with respect to the Department of
Justice subpoena dated October 15, 2002 related to purchasing activities at
Hanscom during the period 1998 to 2000 (see Note 11). The transaction is
expected to close in March 2004.
|  
|   |  | The sale of both the majority of our Federal business to Lockheed Martin and the assets related to the Hanscom Air Force
Base relationship will allow us to focus on our business process and information technology outsourcing service offerings in the commercial, state and local and higher education
markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|4. |  | ACQUISITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Effective November 1, 2003, we acquired Lockheed Martin Corporations
commercial information technology outsourcing business, with annual revenues of
approximately $240 million. The transaction was valued at $107 million plus
related transaction costs with assets acquired of $149.5 million and
liabilities assumed of $42.5 million. We recorded goodwill of $81.6 million,
which is deductible for tax purposes, and $26.5 million in intangible assets.
The $26.5 million intangible assets are attributable to customer
relationships and non-compete agreements with useful lives ranging
from 1 to 8 years, with an aggregate anticipated useful
life of approximately 5 years. The operating results of the acquired
business are included in our financial statements in the Commercial segment
from the effective date of the acquisition, November 1, 2003. This
acquisition is not considered material to our results of operations;
therefore, no pro forma information is presented.                                   
|  
|5. |  | EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | On September 2, 2003, we announced that our Board of Directors authorized a
share repurchase program of up to $500 million of our Class A common stock
effective immediately. The program, which is open-ended, will allow us to
repurchase our shares on the open market from time to time in accordance with
Securities and Exchange Commission (SEC) rules and regulations, including
shares that could be purchased pursuant to SEC Rule 10b5-1. The number of
shares to be purchased and the timing of purchases will be based on the level
of cash and debt balances, general business conditions and other factors,
including alternative investment opportunities. We intend to fund the
repurchase program from various sources, including, but not limited to, cash
on hand, cash flow from operations, and borrowings under our existing
revolving credit facility. As of December 31, 2003, we had                                                                                                                           

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



| |  | repurchased 4.2
million shares at a total cost of approximately $209.2 million. Through
February 13, 2004, on a trade date basis, we have repurchased approximately
5.6 million shares at a total cost of approximately $280.3 million.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | GEORGIA CONTRACT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In 2001, we were awarded a contract by the Department of Community Health of
the State of Georgia (DCH) to develop, implement and operate a system to
administer health benefits to Georgia Medicaid recipients as well as state
government employees (the Georgia Contract). This system development
project is large and complex and anticipated the development of a
system that would process both Medicaid and state employee claims. The
Medicaid phase of this project was implemented on April 1, 2003.
Certain delays
and operational issues were encountered in this phase. In January 2004, we
agreed to a non-binding settlement in principle with DCH to settle claims
that DCH and ACS had made against each other with respect to delays in the
initial phase development. Under the tentative settlement terms, DCH would
pay us approximately $9 million of $13 million in outstanding system
development invoices, with the remaining $4 million to be paid in stages as
certain system functionality is delivered. DCH would also escrow an
additional $11.8 million pending final certification of the payment system by
the Center for Medicare/Medicaid Services, the governing Federal regulatory
agency. In turn, we would pay DCH $10 million to compensate for system
implementation delays and operational issues, which resulted in increased
costs to DCH. Finally, we agreed to cancel Phase II of the contract, which called
for integration of a health claims payment system for state employees with
the Medicaid payment system and the membership enrollment management
system. This tentative settlement is subject
to completion of a definitive settlement agreement, which is expected to be
finalized in the third quarter of fiscal year 2004. In connection with this
tentative settlement, we recorded a $6.7 million reduction in revenue
resulting from the change in our percentage-of-completion estimates primarily
as a result of the termination of Phase II of the contract, a charge of $2.6
million to services and supplies associated with the accrual of wind-down
costs associated with the termination of Phase II and an accrual of $10.0
million in other operating expense that will be paid to DCH pursuant to the
settlement in principle.
|  
|7. |  | GOODWILL AND OTHER INTANGIBLE ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The changes in the carrying amount of goodwill for the six months ended
December 31, 2003 are as follow (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                    |  |            |           |            |  |       |         |  |  |   |           |  
|----------------------------------- |  | ---------- | --------- | ---------- |  | ----- | ------- |  |  | - | --------- | -
|                                    |  | Government |           | Commercial |  | Total
|                                    |  |            |           |            |  |      
|Balance as of June 30, 2003         |  | $          | 1,215,591 |            |  | $     | 690,287 |  |  | $ | 1,905,878 |  
|Goodwill activity during the period |  |            | (132,100  | )          |  |       | 83,123  |  |  |   | (48,977   | )
|                                    |  |            |           |            |  |       |         |  |  |   |           |  
|Balance as of December 31, 2003     |  | $          | 1,083,491 |            |  | $     | 773,410 |  |  | $ | 1,856,901 |  
|                                    |  |            |           |            |  |       |         |  |  |   |           |  



| |  | The sale of the majority of our Federal business necessitated an assessment
of our reportable segments under Statement of Financial Accounting Standards
No. 131 Disclosures about Segments of an Enterprise and Related
Information. As a result, we combined our former State and Local
Governments segment with the remainder of our Federal segment into our
Government segment. Prior period reporting has been restated to conform to
the new segment reporting.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Goodwill activity for the six months ended December 31, 2003 was primarily
due to the sale of a majority of our Federal business (see Note 3), the
current quarter acquisition (see Note 4) and contingent consideration due to
former shareholders of prior acquisitions.                                                                                                                                                                                              

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



| |  | The following information relates to our other intangible assets (in
thousands):
| |  | --------------------------------------------------------------------------------

|                              |                                       |       |   |                   |         |               |   |                |         |              |   |         |         |  |   |         |         |  
|----------------------------- | ------------------------------------- | ----- | - | ----------------- | ------- | ------------- | - | -------------- | ------- | ------------ | - | ------- | ------- |  | - | ------- | ------- | -
|                              |                                       |       |   | December 31, 2003 |         | June 30, 2003
|                              |                                       |       |   |                   |         |              
|                              |                                       |       |   | Gross Carrying    |         | Accumulated   |   | Gross Carrying |         | Accumulated 
|                              |                                       |       |   | Amount            |         | Amortization  |   | Amount         |         | Amortization
|                              |                                       |       |   |                   |         |               |   |                |         |             
|Amortized intangible assets:  |                                       |       |   |                   |         |               |   |                |         |              |   |         |         |  |   |        
|                              | Acquired customer-related
Intangibles |       | $ | 178,370           |         |               | $ | (39,525        | )       |              | $ | 154,771 |         |  | $ | (31,735 | )      
|                              | Customer-related intangibles          |       |   | 136,480           |         |               |   | (48,904        | )       |              |   | 139,667 |         |  |   | (50,129 | )      
|                              | All other                             |       |   | 3,106             |         |               |   | (1,574         | )       |              |   | 4,031   |         |  |   | (2,314  | )      
|                              |                                       |       |   |                   |         |               |   |                |         |              |   |         |         |  |   |        
|                              |                                       | Total |   | $                 | 317,956 |               |   | $              | (90,003 | )            |   | $       | 298,469 |  |   | $       | (84,178 | )
|                              |                                       |       |   |                   |         |               |   |                |         |              |   |         |         |  |   |        
|Unamortized intangible asset: |                                       |       |   |                   |         |               |   |                |         |              |   |         |         |  |   |        
|                              | Title plant                           |       | $ | 50,800            |         |               |   |                |         |              | $ | 50,800  |         |  |   |         |        
|                              |                                       |       |   |                   |         |               |   |                |         |              |   |         |         |  |   |        

|                        |                                            |  |   |        | 
|----------------------- | ------------------------------------------ |  | - | ------ | 
|Aggregate Amortization: |                                            |  |   |       
|                        | For the quarter ended December 31, 2003    |  | $ | 10,234 | 
|                        | For the quarter ended December 31, 2002    |  |   | 8,504  | 
|                        |                                            |  |   |        | 
|                        | For the six months ended December 31, 2003 |  |   | 20,097 | 
|                        | For the six months ended December 31, 2002 |  |   | 17,290 | 
|                        |                                            |  |   |        | 
|Estimated amortization: |                                            |  |   |       
|                        | For the year ended June 30, 2004           |  | $ | 41,395 | 
|                        | For the year ended June 30, 2005           |  |   | 40,019 | 
|                        | For the year ended June 30, 2006           |  |   | 35,166 | 
|                        | For the year ended June 30, 2007           |  |   | 30,975 | 
|                        | For the year ended June 30, 2008           |  |   | 27,648 | 



| |  | Amortization includes amounts charged to amortization expense for
customer-related intangibles and other intangibles, other than contract
inducements. Amortization of contract inducements of $2.3 million and $1.7
million for the three months ended December 31, 2003 and 2002, respectively,
and $4.9 million and $2.9 million for the six months ended December 31, 2003
and 2002, respectively, is recorded as a reduction of related contract
revenue. Amortization expense includes approximately $5.1 million and $3.8
million for acquired customer-related intangibles for the three months ended
December 31, 2003 and 2002, respectively, and $9.3 million and $7.9 million
for the six months ended December 31, 2003 and 2002, respectively. Amortized
intangible assets are amortized over the related contract term. The
amortization period of customer-related intangible assets ranges from
1 to 11 years, with a
weighted average of approximately 8 years. The amortization period for all
other intangible assets, including trademarks, ranges from 4 to 21 years, with a weighted average of 7 years.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|8. |  | COMPREHENSIVE INCOME                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS 130), establishes standards for reporting and display of
comprehensive income and its components in financial statements. The
objective of SFAS 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period other than transactions with owners. Comprehensive income is the total
of net income and all other non-owner changes within a companys equity.
|  
|   |  | The components of comprehensive income are as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |         | 
|----------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|                                                                                          |  | Three months ended |         | Six Months ended
|                                                                                          |  | December 31,       |         | December 31,    
|                                                                                          |  |                    |         |                 
|                                                                                          |  | 2003               |         | 2002             |  | 2003 |        | 2002
|                                                                                          |  |                    |         |                  |  |      |        |     
|Net income                                                                                |  | $                  | 253,030 |                  |  | $    | 74,001 |      |  | $ | 339,898 |  |  | $ | 143,457 | 
|Other comprehensive income (loss):                                                        |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |         | 
|Foreign currency translation
adjustment (net of tax effect of
$802 and $79, respectively) |  |                    | 1,336   |                  |  |      |       |      |  |   | 131     |  |  |   |        | 
|                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |         | 
|Comprehensive income                                                                      |  | $                  | 254,366 |                  |  | $    | 74,001 |      |  | $ | 340,029 |  |  | $ | 143,457 | 
|                                                                                          |  |                    |         |                  |  |      |        |      |  |   |         |  |  |   |         | 



|9. |  | EARNINGS PER SHARE                                                                                                                                                                                                          
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In accordance with Statement of Financial Accounting Standard No. 128,
Earnings per Share, the following table (in thousands except per share
amounts) sets forth the computation of basic and diluted earnings per share:

|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |         |         |        | 
|----------------------------------- | ----------------------------------------------- | --------------------------------------------- | ----------------------------- | ------- | ------------------ | ------ | ---------------- | ------- | ------ | ------ | ---- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | 
|                                    |                                                 |                                               |                               |         | Three Months Ended |        | Six Months Ended
|                                    |                                                 |                                               |                               |         | December 31,       |        | December 31,    
|                                    |                                                 |                                               |                               |         |                    |        |                 
|                                    |                                                 |                                               |                               |         | 2003               |        | 2002             |         | 2003   |        | 2002
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |     
|Numerator:                          |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|                                    | Numerator for basic earnings per share -        |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |         |        
|                                    |                                                 | Income available to common stockholders       |                               | $       | 253,030            |        |                  | $       | 74,001 |        |      | $       | 339,838 |        |      | $       | 143,457 |       
|                                    | Effect of dilutive securities:                  |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |         |        
|                                    |                                                 | Interest on 3.5% convertible debt, net of tax |                               |         | 2,055              |        |                  |         | 2,055  |        |      |         | 4,109   |        |      |         | 4,109   |       
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|                                    | Numerator for diluted earnings per share -      |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |         |        
|                                    |                                                 | Income available to common stockholders       |                               | $       | 255,085            |        |                  | $       | 76,056 |        |      | $       | 343,947 |        |      | $       | 147,566 |       
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|Denominator:                        |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|                                    | Weighted average basic shares outstanding       |                                               |                               | 131,001 |                    |        |                  | 132,175 |        |        |      | 132,087 |         |        |      | 132,124 |        
|                                    | Effect of dilutive securities:                  |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |         |        
|                                    |                                                 | 3.5% convertible debt                         |                               |         | 7,298              |        |                  |         | 7,298  |        |      |         | 7,298   |        |      |         | 7,298   |       
|                                    |                                                 | Stock options                                 |                               |         | 3,581              |        |                  |         | 3,822  |        |      |         | 3,504   |        |      |         | 3,717   |       
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|                                    |                                                 |                                               | Total potential common shares |         |                    | 10,879 |                  |         |        | 11,120 |      |         |         | 10,802 |      |         |         | 11,015 | 
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|                                    | Denominator for weighted average diluted shares |                                               |                               | 141,880 |                    |        |                  | 143,295 |        |        |      | 142,889 |         |        |      | 143,139 |        
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|Earnings per common share  basic   |                                                 | $                                             | 1.93                          |         |                    | $      | 0.56             |         |        | $      | 2.57 |         |         | $      | 1.09 |        
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        
|Earnings per common share  diluted |                                                 | $                                             | 1.80                          |         |                    | $      | 0.53             |         |        | $      | 2.41 |         |         | $      | 1.03 |        
|                                    |                                                 |                                               |                               |         |                    |        |                  |         |        |        |      |         |         |        |      |        

8



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##### Table of Contents



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



|10. |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As discussed in Note 1, the sale of the majority of our Federal business
necessitated an assessment of our reportable segments under SFAS 131. As a
result, we combined our former State and Local Governments segment with the
remainder of our Federal segment into our Government segment. Prior period
reporting has been restated to conform to the new segment reporting.
|   
|    |  | The following is a summary of certain financial information by reportable
segment (in thousands):                                                                                                                                                                                                                                                                              

|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|------------------------------------------------------------ |  | ---------- | --------- | ---------- |  | --------- | ------- | ------------ |  | - | ------- | - |  | - | --------- | -
|                                                             |  | Government |           | Commercial |  | Corporate |         | Consolidated
|                                                             |  |            |           |            |  |           |         |             
|Three
Months Ended December 31, 2003                         |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Revenues                                                     |  | $          | 600,611   |            |  | $         | 397,268 |              |  | $ |        |   |  | $ | 997,879   |  
|Operating expenses (excluding depreciation and amortization) |  |            | 516,149   |            |  |           | 308,678 |              |  |   | 12,201  |   |  |   | 837,028   |  
|Gain on sale of business                                     |  |            | (284,346  | )          |  |           |        |              |  |   |        |   |  |   | (284,346  | )
|Depreciation and amortization expense                        |  |            | 17,199    |            |  |           | 24,492  |              |  |   | 525     |   |  |   | 42,216    |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Operating income                                             |  | $          | 351,609   |            |  | $         | 64,098  |              |  | $ | (12,726 | ) |  | $ | 402,981   |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Three
Months Ended December 31, 2002                         |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Revenues                                                     |  | $          | 617,067   |            |  | $         | 291,747 |              |  | $ |        |   |  | $ | 908,814   |  
|Operating expenses (excluding depreciation and amortization) |  |            | 514,274   |            |  |           | 222,382 |              |  |   | 11,475  |   |  |   | 748,131   |  
|Depreciation and amortization expense                        |  |            | 16,770    |            |  |           | 18,129  |              |  |   | 818     |   |  |   | 35,717    |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Operating income                                             |  | $          | 86,023    |            |  | $         | 51,236  |              |  | $ | (12,293 | ) |  | $ | 124,966   |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Six
Months Ended December 31, 2003                           |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Revenues                                                     |  | $          | 1,297,394 |            |  | $         | 737,120 |              |  | $ |        |   |  | $ | 2,034,514 |  
|Operating expenses (excluding depreciation and amortization) |  |            | 1,091,795 |            |  |           | 571,428 |              |  |   | 25,100  |   |  |   | 1,688,323 |  
|Gain on sale of business                                     |  |            | (284,346  | )          |  |           |        |              |  |   |        |   |  |   | (284,346  | )
|Depreciation and amortization expense                        |  |            | 35,590    |            |  |           | 46,941  |              |  |   | 1,096   |   |  |   | 83,627    |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Operating income                                             |  | $          | 454,355   |            |  | $         | 118,751 |              |  | $ | (26,196 | ) |  | $ | 546,910   |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Six
Months Ended December 31, 2002                           |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Revenues                                                     |  | $          | 1,212,120 |            |  | $         | 579,275 |              |  | $ |        |   |  | $ | 1,791,395 |  
|Operating expenses (excluding depreciation and amortization) |  |            | 1,010,862 |            |  |           | 442,097 |              |  |   | 21,956  |   |  |   | 1,474,915 |  
|Depreciation and amortization expense                        |  |            | 33,708    |            |  |           | 36,729  |              |  |   | 1,422   |   |  |   | 71,859    |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  
|Operating income                                             |  | $          | 167,550   |            |  | $         | 100,449 |              |  | $ | (23,378 | ) |  | $ | 244,621   |  
|                                                             |  |            |           |            |  |           |         |              |  |   |         |   |  |   |           |  



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



|11. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Our Education Services business, which is included in our Commercial segment,
performs third party student loan servicing in the Federal Family Education
Loan program (FFEL) on behalf of various financial institutions. At
December 31, 2003, we serviced a FFEL portfolio of 1.5 million loans with an
outstanding principal balance of more than $16.9 billion. Some servicing
agreements contain provisions that, under certain circumstances, require us
to purchase the loans from the investor if the loan guaranty has been
permanently terminated as a result of a loan default caused by our servicing
error. If defaults caused by us are cured during an initial period, any
obligation we may have to purchase these loans expires. Loans that we
purchase may be subsequently cured; the guaranty reinstated and we repackage
the loans for sale to third parties. We evaluate the collectibility of any
purchased loans and establish a reserve for potential losses, or default
liability reserve, through a charge to the provision for loss on defaulted
loans purchased. The reserve is evaluated periodically and adjusted based
upon managements analysis of the historical performance of the purchased
loans. This reserve was approximately $4.2 million at December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | On December 16, 1998, a state district court in Houston, Texas entered final
judgment against us in a lawsuit brought by 21 former employees of Gibraltar
Savings Association and/or First Texas Savings Association (collectively,
GSA/FTSA). The GSA/FTSA employees alleged that they were entitled to the
value of 803,082 shares of our stock (adjusted for February 2002 stock split)
pursuant to options issued to the GSA/FTSA employees in 1988 in connection
with a former technology outsourcing services agreement between GSA/FTSA and
us. The judgment against us was for approximately $17 million, which
includes attorneys fees and pre-judgment interest, but excludes additional
attorneys fees of approximately $0.9 million and post-judgment interest at
the statutorily mandated rate of 10% per annum, which could be awarded in the
event the plaintiffs are successful upon appeal and final judgment. The
judgment was appealed by the plaintiffs and us.
On August 29, 2002, the Fourteenth Court of Appeals, Houston, Texas, reversed
the trial courts judgment and remanded the case to the trial court for
further proceedings. However, the court of appeals affirmed the trial court
judgment in part as to one of the plaintiffs. The court of appeals also held
that the trial court did not err in dismissing certain of our affirmative
defenses at a pretrial conference. We and the plaintiffs filed motions for
rehearing with the court of appeals. On January 16, 2003, the court of
appeals denied both motions for rehearing (except the court reversed its
previous ruling that the trial court should have applied prejudgment interest
at 6% rather than 10%).
On March 3, 2003, we filed a Petition for Review with the Texas Supreme Court
requesting that the Court reverse the decision of the court of appeals and
render judgment that the plaintiffs take nothing or, alternatively, remand
the case to the trial court for further proceedings. On December 12, 2003,
the Texas Supreme Court denied our Petition for Review. On January 29, 2004,
we filed a motion with the Texas Supreme Court to reconsider the Petition for
Review.
We continue to believe that we have a meritorious defense to all or a
substantial portion of the plaintiffs claims, and accordingly, have not
accrued any amount on our balance sheet related to the lawsuit.
|   
|    |  | One of our subsidiaries, ACS Defense, Inc., and several other government
contractors received a grand jury document subpoena issued by the U.S.
District Court for the District of Massachusetts in October 2002. The
subpoena was issued in connection with an inquiry being conducted by the
Antitrust Division of the U.S. Department of Justice (DOJ). The inquiry
concerns certain IDIQ (Indefinite Delivery  Indefinite Quantity)
procurements and their related task orders, which occurred in the late 1990s
at Hanscom Air Force Base in Massachusetts. Our revenue from the contracts
that we believe to be the focus of the DOJs inquiry was approximately $25
million for the fiscal year ended June 30, 2003 and
approximately $13.1 million for the six months ended
December 31, 2003, representing approximately 0.6% of our revenue for each period. We
are continuing our previously announced internal investigation of this matter
through outside legal counsel and we are continuing to cooperate with the DOJ
in producing documents in response to the subpoena and arranging for DOJ
interviews of employees and former employees. At this stage of this inquiry,
we are unable to express an opinion as to its likely outcome.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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



|    |  | Another of our subsidiaries, ACS State & Local Solutions, Inc., and a teaming
partner of this subsidiary, Tier Technologies, Inc. (Tier), received a
grand jury document subpoena issued by the U.S. District Court for the
Southern District of New York in May 2003. The subpoena was issued in
connection with an inquiry being conducted by the Antitrust Division of the
DOJ. The inquiry concerns the teaming arrangement between ACS and Tier
on child support payment processing contracts awarded to ACS and
Tier, as a subcontractor to ACS, in New York, Illinois and Ohio. Our annual
revenue from these three contracts will be approximately $70 million when the
services are fully implemented, representing approximately 1.8% of our annual
revenue. Our teaming arrangement also contemplated the California child
support payment processing request for proposals, which was issued in late
2003; however, we are not entering into a teaming agreement with Tier for the
California request for proposals. Based on Tiers recent filings with the
Securities and Exchange Commission, we understand that on November 20, 2003
the DOJ granted conditional amnesty to Tier in connection with this inquiry
pursuant to the DOJs Corporate Leniency Policy. The policy provides that
the DOJ will not bring any criminal charges against Tier as long as it
continues to fully cooperate in the inquiry (and makes restitution payments
if it is determined that parties were injured as a result of impermissible
anticompetitive conduct). We are continuing our previously announced
internal investigation of this matter through outside legal counsel and we
are continuing to cooperate with the DOJ in producing documents in response
to the subpoena. At this stage of this inquiry, we are unable to express an
opinion as to its likely outcome.
See Note 13 for a discussion of the pending sale of the assets associated
with the Hanscom Air Force Base relationship.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In addition to the foregoing, we are subject to certain other legal
proceedings, inquiries, claims and disputes which arise in the ordinary
course of business. Although we cannot predict the outcomes of these
other proceedings, we do not believe these other actions, in the aggregate, will have a
material adverse effect on our financial position, results of operations or
liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|12. |  | NEW ACCOUNTING STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | In December 2003, the SEC issued SEC Staff Accounting Bulletin 104 Revenue
Recognition (SAB 104). SAB 104 updates existing Staff Accounting Bulletin
Topic 13 Revenue Recognition to be consistent with recently issued
guidance, primarily Emerging Issues Task Force Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). We believe that SAB
104 will not have a material impact on our financial position or results of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|13. |  | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | In January 2004, we completed the acquisition of Patient Accounting Services
Center, LLC (PASC), a provider of revenue cycle management for healthcare
providers, including billing, accounts receivables, and collection services.
PASC generated revenues of nearly $68 million for the year that ended
December 31, 2003, and will be included in our Commercial segment. The
purchase price of $94 million, excluding contingent
consideration of a maximum of $25 million based upon
future financial performance, was funded from our existing cash on hand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | On January 23, 2004, our Board of Directors approved the redemption of our
3.5% Convertible Subordinated Notes due February 15, 2006 (the Notes). The
Notes will be redeemed at a redemption price equal to 101.4% of the principal
amount of the Notes (which equates to approximately $321.4 million), plus
accrued interest to the redemption date. The redemption date for the Notes
is February 27, 2004 and Noteholders may convert their Notes into shares of
our Class A Common Stock at any time up to the close of business on February
26, 2004 in accordance with the procedures specified in the related indenture
governing the Notes. Noteholders have the option to redeem their Notes in
cash at 101.4% of the principal amount or convert their Notes to shares of
our Class A Common Stock at a conversion rate of 23.0234 shares per $1,000
principal amount of Notes (which equates to $43.43 per share). It is
anticipated that, provided our share price is greater than the conversion
price on February 26, 2004, the majority of the Notes would be converted to
shares of our Class A Common Stock. The redemption of the Notes for the cash
redemption price would be funded by various sources, including, but not
limited to, cash on hand, cash flow from operations or borrowings under our
existing revolving credit facility. If settled in cash, the excess of the
cash redemption price over the face amount of the Notes would result in a
charge to earnings in the third quarter of fiscal year 2004. Substantially
all of the Notes remain outstanding as of February 13, 2004.                                                                                                                                                                                                                                                                                                                                                                                   

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



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

All statements in this Managements Discussion and Analysis of Financial
Condition and Results of Operations that are not based on historical fact are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and the provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (which Sections were adopted as part of Private
Securities Litigation Reform Act of 1995). While management has based any
forward-looking statements contained herein on its current expectations, the
information on which such expectations were based may change. These
forward-looking statements rely on a number of assumptions concerning future
events and are subject to a number of risks, uncertainties, and other factors,
many of which are outside of our control, that could cause actual results to
materially differ from such statements. Such risks, uncertainties, and other
factors include, but are not necessarily limited to, those set forth under the
caption Risks Related to our Business. In addition, we operate in a highly
and rapidly changing environment, and new risks may arise. Accordingly,
investors should not place any reliance on forward-looking statements as a
prediction of actual results. We disclaim any intention to, and undertake no
obligation to, update or revise any forward-looking statement.

We report our financial results in accordance with generally accepted
accounting principles (GAAP). However, we believe that certain non-GAAP
financial measures and ratios, used in managing our business, may provide users
of this financial information with additional meaningful comparisons between
current results and prior reported results. Certain of the information set
forth herein and certain of the information presented by us from time to time
(including free cash flow and internal revenue growth) may constitute non-GAAP
financial measures within the meaning of Regulation G adopted by the Securities
and Exchange Commission (SEC). We have presented herein and we will present in other
information we publish that contains any of these non-GAAP financial measures a
reconciliation of these measures to the most directly comparable GAAP financial
measure. The presentation of this additional information is not meant to be
considered in isolation or as a substitute for comparable amounts determined in
accordance with generally accepted accounting principles in the United States.

GENERAL

We are a Fortune 500 company with
approximately 38,000 people providing business process and technology
outsourcing solutions to commercial and government clients. Our clients have
time-critical, transaction-intensive business and information processing needs,
and we typically service these needs through long-term contracts.

During the quarter ended December 31, 2003, we signed contracts with new
clients and incremental business with existing clients representing $144.8
million of annualized recurring revenue, which includes $3.4 million related to
the divested Federal business. The Commercial segment contributed 59% of the
new contract signings. The Government segment contributed 41% of the new
contract signings including the incremental portion of the Common Services for
Borrowers (CSB) contract with the U.S. Department of Education discussed
below. For the six months ended December 31, 2003, we signed contracts with
new clients and incremental business with existing clients representing $293.7
million of annualized recurring revenue, which includes $25.2 million related
to the divested Federal business. We define new business signings as recurring
revenue from new contracts, including the incremental portion of renewals,
signed during the period and represents the estimated annual recurring
revenues, as measured under GAAP, to be recorded under that contract after full
implementation of our services.

In November 2003, we completed the sale of the majority of our Federal
government business to Lockheed Martin Corporation for approximately $658
million, which included a cash payment of $588 million at closing and $70 million payable pursuant to a five-year non-compete
agreement. We recognized a pretax gain of $284.3 million
($181.7 million, net of income tax). We incurred
$9.8 million ($6.2 million, net of income tax) for compensation
costs associated with former Federal employees, which is reflected in wages and
benefits. The proceeds from the divestiture were generally used to pay down
debt, fund the acquisitions of Lockheed Martins commercial information
technology outsourcing business, Patient Accounting Services Center, LLC and Truckload Management Services, Inc. (subsequent to
quarter end) and fund our share repurchase program. Revenues from the divested
Federal business, which are primarily included in the Government segment, were
approximately $61.7 million and $166.4 million for the three months ended
December 31, 2003 and 2002, respectively, and $237.7 million and $330.5 million
for the six months ended December 31, 2003 and 2002, respectively. For fiscal
year 2003, revenues from the divested Federal business were $680 million. This
divestiture excludes, among others, our Department of Education relationship,
which during fiscal year 2003 had revenues of approximately $172 million.
Additionally, our Commercial and Government operations will continue to serve
as a subcontractor on portions of the divested Federal business.

The sale of both the majority of our Federal business to Lockheed Martin and the assets related to the Hanscom Air Force Base relationship (discussed below)
will allow us to focus on our business process and information technology outsourcing service offering in the commercial, state and local and higher education markets.

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In November 2003, we acquired Lockheed Martin Corporations commercial
information technology outsourcing business, with annual revenues of approximately
$240 million. With this acquisition, we acquired four U.S. data centers,
approximately 1,000 employees, and a diverse client base representing the
manufacturing, automotive, retail, financial services, and communications
industries. The transaction was valued at $107 million plus related
transaction costs, with assets acquired of $149.5 million and liabilities
assumed of $42.5 million. We recorded goodwill of $81.6 million, which is
deductible for tax purposes, and $26.5 million in intangible assets. The $26.5
million intangible assets are attributable to customer relationships and
non-compete agreements with useful lives ranging from 1 to 8 years, with an aggregate anticipated useful
life of approximately 5 years. The operating results of the
acquired business are included in our financial statements in the Commercial
segment from the effective date of the acquisition, November 1, 2003.

In November 2003, we were awarded by the U.S. Department of Education (the
Department) the Common Services for Borrowers contract. This contract
includes comprehensive loan servicing, loan consolidation, and portfolio
management services. The new, five-year base contract will integrate a number
of services, which will allow the Department to increase
service quality while saving overall program costs. The contract is estimated
at more than $1 billion in revenue over the five-year period and is effective
January 1, 2004. The contract also includes provisions for up to five,
one-year extensions.

In 2001, we were awarded a contract by the Department of Community Health of
the State of Georgia (DCH) to develop, implement and operate a system to
administer health benefits to Georgia Medicaid recipients as well as state
government employees (the Georgia Contract). This system development project
is large and complex and anticipated the development of a system that would
process both Medicaid and state employee claims. The Medicaid phase of this
project was implemented on April 1, 2003.
Certain delays and operational issues
were encountered in this phase. In January 2004, we agreed to a non-binding settlement
in principle with DCH to settle claims that DCH and ACS had made against each
other with respect to delays in the initial phase development. Under the
tentative settlement terms, DCH would pay us approximately $9 million of $13
million in outstanding system development invoices, with the remaining $4
million to be paid in stages as certain system functionality is delivered. DCH
would also escrow an additional $11.8 million pending final certification of
the payment system by the Center for Medicare/Medicaid Services, the
governing Federal regulatory agency. In turn, we would pay DCH $10 million to
compensate for system implementation delays and operational issues, which
resulted in increased costs to DCH. Finally, we agreed to cancel Phase II of the
contract, which called for integration of a health claims payment system for
state employees with the Medicaid payment system and the membership enrollment
management system. This tentative
settlement is subject to completion of a definitive settlement agreement, which
is expected to be finalized in the third quarter of fiscal year 2004. In
connection with this tentative settlement, we recorded a $6.7 million reduction
in revenue resulting from the change in our percentage-of-completion estimates
primarily as a result of the termination of Phase II of the contract, a charge
of $2.6 million to services and supplies associated with the accrual of
wind-down costs associated with the termination of Phase II and an accrual of
$10.0 million in other operating expense that will be paid to DCH pursuant to
the settlement in principle.

On September 2, 2003, we announced that our Board of Directors authorized a
share repurchase program of up to $500 million of our Class A common stock
effective immediately. The program, which is open-ended, will allow us to
repurchase our shares on the open market from time to time in accordance with
SEC rules and regulations, including shares that could be purchased pursuant to
SEC Rule 10b5-1. The number of shares to be purchased and the timing of
purchases will be based on the level of cash and debt balances, general
business conditions and other factors, including alternative investment
opportunities. We intend to fund the repurchase program from various sources,
including, but not limited to, cash on hand, cash flow from
operations and borrowings under our
existing revolving credit facility. As of December 31, 2003 we had repurchased
4.2 million shares at a total cost of approximately $209.2 million. Through
February 13, 2004, on a trade date basis, we have repurchased
approximately 5.6 million shares at a total cost of
approximately $280.3 million.

On January 23, 2004, our Board of Directors approved the redemption of our 3.5%
Convertible Subordinated Notes due February 15, 2006 (the Notes). The Notes
will be redeemed at a redemption price equal to 101.4% of the principal amount
of the Notes (which equates to approximately $321.4 million), plus accrued
interest to the redemption date. The redemption date for the Notes is February
27, 2004 and Noteholders may convert their Notes into shares of our Class A
Common Stock at any time up to the close of business on February 26, 2004 in
accordance with the procedures specified in the related indenture governing the
Notes. Noteholders have the option to redeem their Notes in cash at 101.4% of
the principal amount or convert their Notes to shares of our Class A Common
Stock at a conversion rate of 23.0234 shares per $1,000 principal amount of
Notes (which equates to $43.43 per share). It is anticipated that, provided our
share price is greater than the conversion price on February 26, 2004, the
majority of the Notes would be converted to shares of our Class A Common Stock.
The redemption of the Notes for the cash redemption price would be funded by
various sources, including, but not limited to, cash on hand, cash flow from
operations or borrowings under our existing revolving credit facility. If
settled in cash, the excess of the cash redemption price over the face amount
of the Notes would result in a charge to earnings in the third quarter of
fiscal year 2004. Substantially all of the Notes remain outstanding as of
February 13, 2004.

As of December 31, 2003, we classified assets related to certain
contracts associated with Hanscom Air Force Base as held for sale.
These assets consist primarily of accounts receivable of
approximately $7.0 million, and liabilities for subcontractors
costs, compensation costs and other liabilities of approximately
$2.5 million. Subsequent to quarter end, we announced the signing of a

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definitive
agreement to sell these certain assets associated with Hanscom
Air Force Base in Massachusetts to ManTech International Corporation.
We reported approximately $25 million and approximately $13.1 million
in revenue from the Hanscom Air Force base relationship in fiscal
year 2003 and the six months ended December 31, 2003, respectively, in our Government segment.
We will indemnify Mantech with respect to the Department of Justice
subpoena dated October 15, 2002 related to purchasing activities at
Hanscom during the period from 1998 to 2000. The transaction is
expected to close in March 2004.

On February 13, 2004, we announced the acquisition of Truckload
Management Services, Inc. (TMI), an expedited document
processing and business process improvement services provider for the
trucking industry. TMI had revenues of approximately $25 million
during the 12-month period ended December 31, 2003. The purchase
price of $28 million, excluding contingent consideration of a
maximum of $14 million based on future finance performance, was
funded from cash on hand.

REVENUE GROWTH

Consolidated internal growth for the
three and six months ended December 31, 2003 was 18% and 17%,
respectively.
Internal revenue growth is measured as total revenue growth less acquired
revenue from acquisitions and revenues from divested operations. Acquired
revenue from acquisitions is based on pre-acquisition normalized revenue of
acquired companies. We use the calculation of internal revenue growth to
measure revenue growth excluding the impact of acquired revenues and the
revenue associated with divested operations and believe these adjustments to
historical reported results are necessary to accurately reflect our internal
revenue growth. The following table sets forth the calculation of internal
revenue growth (in thousands):

|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|---------------------- |  | ------------------------------- | ------- | ----------------------------- |  | -------- | -------- | -------- |  | ---- | ------- | ---- |  | -------- | -- | -------- |  | - | --------- | - |  | - | --------- | - |  | - | ------- |  |  |  | -- | -
|                       |  | Three months ended December 31, |         | Six months ended December 31,
|                       |  |                                 |         |                              
|                       |  | 2003                            |         | 2002                          |  | $ Growth |          | Growth % |  | 2003 |         | 2002 |  | $ Growth |    | Growth %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |         
|Consolidated           |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Total Revenues         |  | $                               | 997,879 |                               |  | $        | 908,814  |          |  | $    | 89,065  |      |  |          | 10 | %        |  | $ | 2,034,514 |   |  | $ | 1,791,395 |   |  | $ | 243,119 |  |  |  | 14 | %
|Less: Divestitures (1) |  |                                 | (61,682 | )                             |  |          | (166,447 | )        |  |      | 104,765 |      |  |          |    |          |  |   | (237,692  | ) |  |   | (330,519  | ) |  |   | 92,827  |  |  |  |    |  
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Adjusted               |  | $                               | 936,197 |                               |  | $        | 742,367  |          |  | $    | 193,830 |      |  |          | 26 | %        |  | $ | 1,796,822 |   |  | $ | 1,460,876 |   |  | $ | 335,946 |  |  |  | 23 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Acquired revenues (2)  |  | $                               | 61,017  |                               |  | $        |         |          |  | $    | 61,017  |      |  |          | 8  | %        |  | $ | 81,021    |   |  | $ |          |   |  | $ | 81,021  |  |  |  | 6  | %
|Internal revenues      |  |                                 | 875,180 |                               |  |          | 742,367  |          |  |      | 132,813 |      |  |          | 18 | %        |  |   | 1,715,801 |   |  |   | 1,460,876 |   |  |   | 254,925 |  |  |  | 17 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Total                  |  | $                               | 936,197 |                               |  | $        | 742,367  |          |  | $    | 193,830 |      |  |          | 26 | %        |  | $ | 1,796,822 |   |  | $ | 1,460,876 |   |  | $ | 335,946 |  |  |  | 23 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Government             |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Total Revenues         |  | $                               | 600,611 |                               |  | $        | 617,067  |          |  | $    | (16,456 | )    |  |          | (3 | %)       |  | $ | 1,297,394 |   |  | $ | 1,212,120 |   |  | $ | 85,274  |  |  |  | 7  | %
|Less: Divestitures (1) |  |                                 | (59,860 | )                             |  |          | (160,404 | )        |  |      | 100,544 |      |  |          |    |          |  |   | (230,777  | ) |  |   | (318,518  | ) |  |   | 87,741  |  |  |  |    |  
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Adjusted               |  | $                               | 540,751 |                               |  | $        | 456,663  |          |  | $    | 84,088  |      |  |          | 18 | %        |  | $ | 1,066,617 |   |  | $ | 893,602   |   |  | $ | 173,015 |  |  |  | 19 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Acquired revenues (2)  |  | $                               | 5,303   |                               |  | $        |         |          |  | $    | 5,303   |      |  |          | 1  | %        |  | $ | 10,307    |   |  | $ |          |   |  | $ | 10,307  |  |  |  | 1  | %
|Internal revenues      |  |                                 | 535,448 |                               |  |          | 456,663  |          |  |      | 78,785  |      |  |          | 17 | %        |  |   | 1,056,310 |   |  |   | 893,602   |   |  |   | 162,708 |  |  |  | 18 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Total                  |  | $                               | 540,751 |                               |  | $        | 456,663  |          |  | $    | 84,088  |      |  |          | 18 | %        |  | $ | 1,066,617 |   |  | $ | 893,602   |   |  | $ | 173,015 |  |  |  | 19 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Commercial             |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Total Revenues         |  | $                               | 397,268 |                               |  | $        | 291,747  |          |  | $    | 105,521 |      |  |          | 36 | %        |  | $ | 737,120   |   |  | $ | 579,275   |   |  | $ | 157,845 |  |  |  | 27 | %
|Less: Divestitures (1) |  |                                 | (1,822  | )                             |  |          | (6,043   | )        |  |      | 4,221   |      |  |          |    |          |  |   | (6,915    | ) |  |   | (12,001   | ) |  |   | 5,086   |  |  |  |    |  
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Adjusted               |  | $                               | 395,446 |                               |  | $        | 285,704  |          |  | $    | 109,742 |      |  |          | 38 | %        |  | $ | 730,205   |   |  | $ | 567,274   |   |  | $ | 162,931 |  |  |  | 29 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Acquired revenues (2)  |  | $                               | 55,714  |                               |  | $        |         |          |  | $    | 55,714  |      |  |          | 19 | %        |  | $ | 70,714    |   |  | $ |          |   |  | $ | 70,714  |  |  |  | 13 | %
|Internal revenues      |  |                                 | 339,732 |                               |  |          | 285,704  |          |  |      | 54,028  |      |  |          | 19 | %        |  |   | 659,491   |   |  |   | 567,274   |   |  |   | 92,217  |  |  |  | 16 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  
|Total                  |  | $                               | 395,446 |                               |  | $        | 285,704  |          |  | $    | 109,742 |      |  |          | 38 | %        |  | $ | 730,205   |   |  | $ | 567,274   |   |  | $ | 162,931 |  |  |  | 29 | %
|                       |  |                                 |         |                               |  |          |          |          |  |      |         |      |  |          |    |          |  |   |           |   |  |   |           |   |  |   |         |  |  |  |    |  



|(1) |  | Divested revenues are revenues of businesses divested as if the
divestiture had occurred at the beginning of the period. Amounts
presented are primarily related to the sale of a majority of our
Federal business.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Acquired revenues are based on pre-acquisition normalized revenues of
acquired companies.                                                                                                                          

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RESULTS OF OPERATIONS

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

|                                          |                               |                          |       |                    |      |                  |       |      |      |      |       |       |      |  |       |      |      | 
|----------------------------------------- | ----------------------------- | ------------------------ | ----- | ------------------ | ---- | ---------------- | ----- | ---- | ---- | ---- | ----- | ----- | ---- |  | ----- | ---- | ---- | 
|                                          |                               |                          |       | Three months ended |      | Six months ended
|                                          |                               |                          |       | December 31,       |      | December 31,    
|                                          |                               |                          |       |                    |      |                 
|                                          |                               |                          |       | 2003               |      | 2002             |       | 2003 |      | 2002
|                                          |                               |                          |       |                    |      |                  |       |      |      |     
|Revenues                                  |                               |                          | 100.0 | %                  |      |                  | 100.0 | %    |      |      | 100.0 | %     |      |  | 100.0 | %   
|                                         
|Expenses:                                 |                               |                          |       |                    |      |                  |       |      |      |      |       |       |      |  |       |     
|                                          | Wages and benefits            |                          |       | 44.4               |      |                  |       | 44.4 |      |      |       | 45.3  |      |  |       | 45.0 |     
|                                          | Services and supplies         |                          |       | 27.3               |      |                  |       | 26.9 |      |      |       | 26.4  |      |  |       | 26.3 |     
|                                          | Rent, lease and maintenance   |                          |       | 9.7                |      |                  |       | 9.6  |      |      |       | 9.5   |      |  |       | 9.6  |     
|                                          | Depreciation and amortization |                          |       | 4.2                |      |                  |       | 3.9  |      |      |       | 4.1   |      |  |       | 4.0  |     
|                                          | Gain on sale of business      |                          |       | (28.5              | )    |                  |       | 0.0  |      |      |       | (14.0 | )    |  |       | 0.0  |     
|                                          | Other operating expenses      |                          |       | 2.5                |      |                  |       | 1.4  |      |      |       | 1.8   |      |  |       | 1.4  |     
|                                          |                               |                          |       |                    |      |                  |       |      |      |      |       |       |      |  |       |     
|                                          |                               | Total operating expenses |       |                    | 59.6 |                  |       |      | 86.2 |      |       |       | 73.1 |  |       |      | 86.3 | 
|                                          |                               |                          |       |                    |      |                  |       |      |      |      |       |       |      |  |       |     
|                                          | Operating income              |                          |       | 40.4               |      |                  |       | 13.8 |      |      |       | 26.9  |      |  |       | 13.7 |     
|                                         
|Interest expense                          |                               |                          | 0.6   |                    |      |                  | 0.7   |      |      |      | 0.5   |       |      |  | 0.8   |     
|Other non-operating
(income) expense, net |                               |                          | (0.1  | )                  |      |                  | 0.1   |      |      |      | 0.0   |       |      |  | 0.1   |     
|                                          |                               |                          |       |                    |      |                  |       |      |      |      |       |       |      |  |       |     
|                                          | Pretax profit                 |                          |       | 39.9               |      |                  |       | 13.0 |      |      |       | 26.4  |      |  |       | 12.8 |     
|                                          |                               |                          |       |                    |     
|                                          | Income tax expense            |                          |       | 14.5               |      |                  |       | 4.9  |      |      |       | 9.7   |      |  |       | 4.8  |     
|                                          |                               |                          |       |                    |      |                  |       |      |      |      |       |       |      |  |       |     
|                                          | Net income                    |                          |       | 25.4               | %    |                  |       | 8.1  | %    |      |       | 16.7  | %    |  |       | 8.0  | %   
|                                          |                               |                          |       |                    |      |                  |       |      |      |      |       |       |      |  |       |     

COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2003 TO THE THREE MONTHS
ENDED DECEMBER 31, 2002

Revenues

In the second quarter of fiscal year 2004, our revenue increased $89.1 million,
or 10%, to $997.9 million from $908.8 million in the second quarter of fiscal
year 2003. Revenues related to the divested Federal business were $61.7
million and $166.4 million in the quarters ended December 31, 2003 and 2002,
respectively. Excluding the impact of the revenues related to the divested
Federal business, revenues increased from $742.4 million in the second quarter
of fiscal year 2003 to $936.2 million in the second quarter of fiscal year
2004, or 26%. Revenues in the second quarter of fiscal year 2004 includes a
$6.7 million reduction resulting from the change in our percentage-of-completion estimates on the Georgia Contract primarily as a result of the
termination of Phase II of the contract. Internal revenue growth, excluding the
impact of the revenues related to the divested Federal business, for the second
quarter of fiscal year 2004 was 18%. The remainder of the growth was related
to acquisitions.

Revenue in our Government segment, which represents 60% of consolidated revenue
for the second quarter of fiscal year 2004, decreased $16.5 million, or 3%, to
$600.6 million in the second quarter of fiscal year 2004 compared to the same
period last year. Revenues related to the divested Federal business included
in the Government segment were $59.9 million and $160.4 million for the
quarters ended December 31, 2003 and 2002, respectively. Excluding the impact
of the revenues related to the divested Federal business, total Government
segment revenues grew 18% in the second quarter of fiscal year 2004 to $540.8
million from $456.7 million in the second quarter of fiscal year 2003.
Government segment revenues in the second quarter of fiscal year 2004 includes
a $6.7 million reduction resulting from the change in our
percentage-of-completion estimates on the Georgia Contract. Internal revenue growth,
excluding the impact of the revenues related to the divested Federal business,
was 17% primarily due to increased revenues from our Medicaid contracts, Ohio
and Illinois child support payment processing contracts and our New Jersey
EZPass contract. These contracts collectively represent approximately 85% of the internal growth for the period in this segment.

Revenue in our Commercial segment, which represents 40% of consolidated revenue
for the second quarter of fiscal year 2004, increased $105.5 million, or 36%,
to $397.3 million in the second quarter of fiscal year 2004 compared to the
same period last year. Revenues related to the divested Federal business
included in the Commercial segment were $1.8 million and $6.0 million in the
second quarters of fiscal year 2004 and 2003, respectively. Excluding the
impact of the revenues related to the divested Federal business, revenues grew
38% in the second quarter of fiscal year 2004 compared to the same period in
fiscal year 2003. Internal revenue growth, excluding the impact of the
revenues related to the divested Federal business, was 19% due primarily to
ramp up of new business including, among others, the Motorola, Ingram Micro, Miller Brewing,
General Motors and Gateway contracts. These

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contracts collectively
represent approximately 88% of the internal growth for the period in this segment. The remaining growth was from
acquisitions.

Operating Expenses

Wages and benefits increased $39.7 million, or 9.8%, to $443.6 million. As a
percentage of revenue, wages and benefits remained constant at 44.4%. However,
included in wages and benefits during the second quarter of fiscal year 2004
are compensation costs associated with former Federal employees of $9.8
million, which were primarily stay bonuses and accelerated option vesting due
to the sale. Excluding these costs, wages and benefits increased $29.9
million, or 7.4% in the second quarter of fiscal year 2004 over the same period
in fiscal year 2003 (calculated as the $39.7 million increase less $9.8 million
compensation costs, divided by reported second quarter fiscal year 2003 wages
and benefits costs) and therefore decreased 0.9%, to 43.5% as a percentage of
revenue as a result of increased revenue generated on contracts in our
Government segment that do not result in increased headcount and salaries but
result in an increase in third party subcontractor costs.

Services and supplies increased $27.8 million, or 11.4%, to $272.0 million. As
a percentage of revenue, services and supplies increased to 27.3% in the second
quarter of fiscal year 2004 from 26.9% in the second quarter of fiscal year
2003. This increase is primarily due to the $2.6 million of wind-down costs
related to the termination of Phase II of the Georgia Contract discussed
earlier.

Depreciation and amortization increased $6.5 million, or 18.2%, to $42.2
million. As a percentage of revenue, depreciation and amortization increased
0.3%, to 4.2% due to capital expenditures on new business signed in fiscal year
2003. Depreciation and amortization expense was positively impacted in the
second quarter of fiscal year 2004 as a result of the cessation of depreciation
and amortization expense related to the assets held for sale in our Federal
business of $1.9 million.

Other operating expenses increased $11.5 million, or 87.6%, to $24.6 million.
As a percentage of revenue, other operating expenses increased 1.1% to 2.5%.
Included in other operating expenses in the second quarter of fiscal year 2004
is the accrual for the $10.0 million settlement that will be paid to DCH
pursuant to the agreement in principle discussed earlier.

Interest expense

Interest expense decreased $0.8 million in the second quarter of fiscal year
2004 compared to the second quarter of fiscal year 2003, primarily as a result
of the pay down of our revolving credit facility with the proceeds from the
sale of a majority of our Federal business.

Other non-operating (income) expense, net

Other non-operating (income) expense, net decreased $1.4 million in the second
quarter of fiscal year 2004 compared to the second quarter of fiscal year 2003
due to a $0.6 million write-down of a long-term investment in the second
quarter of fiscal year 2003 and increased investment income in the second
quarter of fiscal year 2004.

Tax Expense

Our effective tax rate of approximately 36.5% in the second quarter of fiscal
year 2004 was lower than the second quarter of fiscal year 2003 rate of 37.5%
primarily due to the 36.1% effective tax rate on the gain related to the sale
of a majority of our Federal business. Our effective tax rate exceeds the
Federal statutory rate of 35% due primarily to the net effect of state income
taxes.

COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2003 TO THE SIX MONTHS ENDED
DECEMBER 31, 2002

Revenues

In the first six months of fiscal year 2004, our revenue increased $243.1
million, or 14%, to $2.0 billion from $1.8 billion in the first six months of
fiscal year 2003. Revenues related to the divested Federal business were $237.7
million and $330.5 million in the six months ended December 31, 2003 and 2002,
respectively. Excluding the impact of the revenues related to the divested
Federal business, revenues increased from $1.5 billion in the six months ended
December 31, 2002 to $1.8 billion in the six months ended December 31, 2003, or
23%. Revenues in the six months ended December 31, 2003 include a $6.7 million
reduction resulting from the change in our percentage-of-completion estimates
on the Georgia Contract primarily as a result of the termination of Phase II of
the contract. Internal revenue growth, excluding the impact of the revenues
related to the divested Federal business, for the six months ended December 31,
2003 was 17%. The remainder of the growth was related to acquisitions.

Revenue in our Government segment, which represents 64% of consolidated revenue
for the first six months of fiscal year 2004, increased $85.3 million, or 7%,
to $1.3 billion in the first half of fiscal year 2004 compared to the same
period last year. Revenues related to the divested Federal business included
in the Government segment were $230.8 million and $318.5 million for the six
months ended December 31, 2003 and 2002, respectively. Excluding the impact of
the revenues related to the divested Federal business, revenues grew 19% in the
six months ended December 31, 2003 to $1.1 billion from $893.6 million in the
same period of fiscal year 2003. Government segment revenues in the six months
ended December 31, 2003 include a $6.7 million reduction resulting from the
change in our percentage-of-completion estimates on the Georgia Contract.
Internal revenue growth, excluding the impact of

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the revenues related to the
divested Federal business, was 18%, due primarily to increased revenue on our
Medicaid contracts, Ohio and Illinois child support payment processing
contracts, unclaimed property operations and the New Jersey EZPass contract. These contracts collectively represent substantially all the internal growth for the period in this segment.
The remainder of the growth is from acquisitions.

Revenue in our commercial segment, which represents 36% of consolidated revenue
for the first half of fiscal year 2004, increased $157.8 million, or 27%, to
$737.1 million in the first half of fiscal year 2004 compared to the same
period last year. Revenues related to the divested Federal business included in
the Commercial segment were $6.9 million and $12.0 million in the six months
ended December 31, 2003 and 2002, respectively. Excluding the impact of the
revenues related to the divested Federal business, revenues grew 29% in the
second quarter of fiscal year 2004 compared to the same period in fiscal year
2003. Internal revenue growth, excluding the impact of the revenues related
to the divested Federal business, was 16% due to ramp up of new business,
including, among others, the Motorola, Ingram Micro, General Motors, Gateway and Miller
Brewing contracts. These contracts represent substantially all the internal growth for the period in this segment. The remaining growth was from acquisitions.

Operating Expenses

Wages and benefits increased $113.9 million, or 14.1%, to $920.7 million. As a
percentage of revenue, wages and benefits increased 0.3% to 45.3%. The
increase includes compensation costs of $9.8 million associated with former
Federal employees, which were primarily stay bonuses and accelerated option
vesting due to the sale. Excluding these costs, wages and benefits increased
$104.1 million, or 12.9% in the six months ended December 31, 2003 over the
same period in fiscal year 2003 (calculated as the $113.9 million increase less
$9.8 million compensation costs, divided by reported six months ended December
31, 2003 wages and benefits costs) and therefore decreased to 44.8% as a
percentage of revenue primarily due to increased revenue generated on contracts
in our Government segment that do not result generally in increased headcount
and salaries but generally result in an increase in third party subcontractor
costs.

Services and supplies increased $66.2 million, or 14.1%, to $536.9 million. As
a percentage of revenue, services and supplies increased 0.1% to 26.4%, and
includes $2.6 million of wind-down costs related to the termination of Phase II
of the Georgia Contract recorded in the six months ended December 31, 2003.

Depreciation and amortization increased $11.8 million, or 16.4%, to $83.6
million. Depreciation and amortization expense was positively impacted by
approximately $6.2 million in the six months ended December 31, 2003 as a
result of the cessation of depreciation and amortization expense related to the
assets held for sale in our Federal government business. As a percentage of
revenue, depreciation and amortization increased 0.1%, to 4.1% due to capital
expenditures on new business signed in fiscal year 2003.

Other operating expenses increased $11.7 million, or 44.7%, to $37.9 million.
As a percentage of revenue, other operating expenses increased 0.4% to 1.8%.
The increase is primarily related to the accrual in the six months ended
December 31, 2003 for the $10.0 million settlement that will be paid to DCH
pursuant to the agreement in principle discussed earlier.

Interest expense

Interest expense decreased $2.7 million in the first half of fiscal year 2004
compared to the same period in fiscal year 2003, primarily as a result of the
pay down of our revolving credit facility with the proceeds from the sale of a
majority of our Federal business in fiscal year 2004.

Other non-operating (income) expense, net

Other non-operating (income) expense, net decreased $3.1 million in the first
half of fiscal year 2004 compared to fiscal year 2003 due to $2.0 million of
write-downs of long-term investments in fiscal year 2003 and increased
investment income in fiscal year 2004.

Tax Expense

Our effective tax rate of approximately 36.8% in the six months ended December
31, 2003 was lower than the rate of 37.5% in the same period last year,
primarily due to the 36.1% effective tax rate on the gain related to the sale
of a majority of our Federal business. Our effective tax rate exceeds the
Federal statutory rate of 35% due primarily to the net effect of state income
taxes.

LIQUIDITY AND CAPITAL RESOURCES

We finance our ongoing business operations through cash flows from operations
and utilize excess cash flow combined with the issuance of debt and equity to
finance our acquisition strategy. One of our primary financial goals is to
maintain an adequate level of liquidity through active management of assets and
liabilities.

During the six months ended December 31, 2003, we generated approximately
$211.1 million in cash flow from operations versus approximately $233.6 million
in the same period in fiscal year 2003, a decrease of 10% due primarily
to three factors: an increase in our billed accounts receivable resulting from
slower collections; an increase in our unbilled accounts receivable
for growth in our

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information technology system development and
implementation services accounted for under the
percentage-of-completion method of accounting, including HIPAA
remediation work and Medicaid system implementations; and an increase in
incentive compensation payments over the prior year. Operating cash
flow for the third quarter of fiscal year 2004
will be reduced by approximately $102.6 million of tax payments related to the
gain on the sale of a majority of our Federal business.

Free cash flow was approximately $103.1
million for the first six months of fiscal year 2004 versus approximately
$115.2 million for the first six months of fiscal year 2003. Free cash flow is
measured as operating cash flows (net cash provided by operating activities, as
reported in our consolidated statements of cash flows) less capital
expenditures (purchases of property, equipment and software, net of sales, as reported in our consolidated
statements of cash flows) less additions to other intangible assets (as
reported in our consolidated statements of cash flows).
We believe this free cash flow
metric provides an additional measure of available cash flow after we
have satisfied the capital expenditure requirements of our operations,
and should not be taken in isolation to be a measure of cash flow
available for us to satisfy all our obligations and execute our business strategies.
We also rely on cash flow from investing and financing activities
which, together with free cash flow, are expected to be sufficient
for us to execute our business strategies. Our measure of free cash
flow may not be comparable to similarly titled measures of other
companies.
The following table
sets forth the calculations of free cash flow (in thousands):

|                                                   |  |                  |         |      |  |   |         |  
|-------------------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | -
|                                                   |  | Six months ended
|                                                   |  | December 31,    
|                                                   |  |                 
|                                                   |  | 2003             |         | 2002
|                                                   |  |                  |         |     
|Net cash provided by operating activities          |  | $                | 211,103 |      |  | $ | 233,579 |  
|Purchases of property, equipment and software, net |  |                  | (93,144 | )    |  |   | (92,540 | )
|Additions to other intangible assets               |  |                  | (14,851 | )    |  |   | (25,819 | )
|                                                   |  |                  |         |      |  |   |         |  
|Free cash flow                                     |  | $                | 103,108 |      |  | $ | 115,220 |  
|                                                   |  |                  |         |      |  |   |         |  

During the six months ended December 31, 2003, cash provided by investing
activities was $364.6 million. This includes $584.6 million in the first six
months of fiscal year 2004 related to divestitures, primarily the sale of a
majority of our Federal business, net of transaction costs. We used $112.5
million for acquisitions during the period, primarily the purchase of Lockheed
Martins commercial information technology outsourcing business. Cash used for the purchase
of property, equipment and software was $93.1 million for the first six months
of fiscal year 2004 versus $92.5 million in the same period in fiscal year
2003. Our capital expenditures declined to approximately 4.6% of total
revenues for the six months ended December 31, 2003 compared to 5.2% in the
same period in fiscal year 2003, primarily as a result of the timing of capital
expenditures related to new business signings. We do not expect that the sale
of a majority of our Federal business will have a significant impact on our
capital expenditure needs in relation to new business signings and, as of the
date of this filing, we anticipate that capital expenditures will be
approximately 5% of revenues for fiscal year 2004.

During the first six months of fiscal year 2004, cash used in financing
activities was $382.6 million. Such financing activities include $209.2
million to repurchase 4.2 million shares of our common stock pursuant to our
share repurchase program, and net repayments of debt of $182.7 million,
primarily on our $875 million revolving credit facility. Proceeds generated by
the sale of a majority of our Federal business were used to partially fund such
activities.

At December 31, 2003, we had approximately $321.5 million of long-term debt
outstanding, which was primarily comprised of approximately $317.0 million of
our 3.5% Convertible Subordinated Notes due February 15, 2006. As discussed
below in this section, these Notes have been called for redemption. At December
31, 2003, we had approximately $691.7 million available on our $875.0 million
revolving credit facility after giving effect to $183.3 million of outstanding
letters of credit that secure certain contractual performance and other
obligations. Subsequent to December 31, 2003, the amount of letters of credit
outstanding was reduced to $151.8 million. We had no outstanding balance on our
revolving credit facility as of December 31, 2003. As of December 31, 2003, we
were in compliance with the debt covenants under our revolving credit facility.

Certain contracts, primarily in our Government segment, require us to provide a
surety bond or a letter of credit as a guarantee of performance. As of December
31, 2003, $316.7 million of outstanding surety bonds and $110.0 million of
outstanding letters of credit secured our performance of these contractual
obligations with our clients. In addition, we had approximately $65
million of letters of credit outstanding which serve as collateral
for our surety bond program.
Subsequent to December 31, 2003, these letters of credit were reduced
by approximately $32.5 million. In general, we would only be liable for the
amount of these guarantees in the event of default in the performance of our
obligations under each contract, the probability of which we believe is remote.
We believe that we have sufficient capacity in the surety markets and liquidity
from our cash flow and revolving credit facility to respond to future requests
for proposals.

At December 31, 2003, we had cash and cash equivalents of $244.3 million
compared to $51.2 million at June 30, 2003. Our working capital (defined as
current assets less current liabilities) increased $33.4 million to $455.4
million at December 31, 2003 from $422.0 million at June 30, 2003. Our current
ratio (defined as total current assets divided by total current liabilities)
was 1.6 and 1.8 at December 31, 2003 and June 30, 2003, respectively. Our debt
to capitalization ratio (defined as the sum of short-term and long-term

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debt
divided by the sum of short-term and long-term debt and equity) was 11.1% and
17.1% at December 31, 2003 and June 30, 2003, respectively.

On September 2, 2003, we announced that our Board of Directors authorized a
share repurchase program of up to $500 million of our Class A common stock
effective immediately. The program, which is open-ended, will allow us to
repurchase our shares on the open market from time to time in accordance with
SEC rules and regulations, including shares that could be purchased pursuant to
SEC Rule 10b5-1. The number of shares to be purchased and the timing of
purchases will be based on the level of cash and debt balances, general
business conditions and other factors, including alternative investment
opportunities. We intend to fund the repurchase program from various sources,
including, but not limited to, cash on hand, cash flow from operations, and
borrowings under our existing revolving credit facility. As of December 31,
2003, we had repurchased 4.2 million shares at a total cost of approximately
$209.2 million. Through February 13, 2004, on a trade date basis, we have
repurchased approximately 5.6 million shares at a total cost of approximately
$280.3 million and have $219.7 million remaining available to purchase under
the program.

On January 23, 2004, our Board of Directors approved the redemption of our 3.5%
Convertible Subordinated Notes due February 15, 2006 (the Notes). The Notes
will be redeemed at a redemption price equal to 101.4% of the principal amount
of the Notes (which equates to approximately $321.4 million), plus accrued
interest to the redemption date. The redemption date for the Notes is February
27, 2004 and Noteholders may convert their Notes into shares of our Class A
Common Stock at any time up to the close of business on February 26, 2004 in
accordance with the procedures specified in the related indenture governing the
Notes. Noteholders have the option to redeem their Notes in cash at 101.4% of
the principal amount or convert their Notes to shares of our Class A Common
Stock at a conversion rate of 23.0234 shares per $1,000 principal amount of
Notes (which equates to $43.43 per share). It is anticipated that, provided our
share price is greater than the conversion price on February 26, 2004, the
majority of the Notes would be converted to shares of our Class A Common Stock.
The redemption of the Notes for the cash redemption price would be funded by
various sources, including, but not limited to, cash on hand, cash flow from
operations or borrowings under our existing revolving credit facility. If
settled in cash, the excess of the cash redemption price over the face amount
of the Notes would result in a charge to earnings in the third quarter of
fiscal year 2004. Substantially all of the Notes remain outstanding as of
February 13, 2004.

Management believes that available cash and cash equivalents, together with
cash generated from operations and available borrowings under our credit
facility, will provide adequate funds for our anticipated internal growth and
operating needs, including capital expenditures, and to meet the cash
requirements of our contractual obligations below. If the redemption of the
Notes is required to be settled in cash, we may draw on our revolving credit
facility to fund the redemption. In that case, our available cash on hand and
remaining capacity under our revolving credit facility would be reduced,
thereby potentially affecting the timing of repurchases of our Class A Common
Stock. In addition, we intend to continue our growth through acquisitions,
which could require significant commitments of capital. In order to pursue
such opportunities we may be required to incur debt or to issue additional
potentially dilutive securities in the future. No assurance can be given as to
our future acquisitions and expansion opportunities and how such opportunities
will be financed.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS AS OF DECEMBER 31, 2003 (IN THOUSANDS):

|                                   |  |       |         |        |  |                        |         |           |  |               |         |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ----- | ------- | ------ |  | ---------------------- | ------- | --------- |  | ------------- | ------- |  |  | - | ------ |  |  | - | ------ | 
|                                   |  |       |         |        |  | Payments Due by Period
|                                   |  |       |         |        |  |                       
|                                   |  |       |         |        |  | Less than              |         |           |  |               |         |  |  |   |        |  |  |  
|Contractual Obligations            |  | Total |         | 1 Year |  | 1-3 Years              |         | 4-5 Years |  | After 5 Years
|                                   |  |       |         |        |  |                        |         |           |  |              
|Long-term
debt(1)                  |  | $     | 316,990 |        |  | $                      |        |           |  | $             | 316,990 |  |  | $ |       |  |  | $ |       | 
|Capital lease obligations          |  |       | 4,518   |        |  |                        | 1,742   |           |  |               | 1,983   |  |  |   | 793    |  |  |   |       | 
|Operating leases                   |  |       | 446,980 |        |  |                        | 143,552 |           |  |               | 183,101 |  |  |   | 77,509 |  |  |   | 42,818 | 
|Purchase obligations               |  |       | 49,513  |        |  |                        | 4,513   |           |  |               | 10,000  |  |  |   | 10,000 |  |  |   | 25,000 | 
|                                   |  |       |         |        |  |                        |         |           |  |               |         |  |  |   |        |  |  |   |        | 
|Total Contractual Cash Obligations |  | $     | 818,001 |        |  | $                      | 149,807 |           |  | $             | 512,074 |  |  | $ | 88,302 |  |  | $ | 67,818 | 
|                                   |  |       |         |        |  |                        |         |           |  |               |         |  |  |   |        |  |  |   |        | 

|                             |  |           |         |        |           |           |                                            |           |  |               |         |  |  |   |    |  |  |   |   |  | 
|---------------------------- |  | --------- | ------- | ------ | --------- | --------- | ------------------------------------------ | --------- |  | ------------- | ------- |  |  | - | -- |  |  | - | - |  | 
|                             |  |           |         |        |           |           | Amount of Commitment Expiration per Period
|                             |  |           |         |        |           |           |                                           
|                             |  |           | Total   |        |           |           |                                            |           |  |               |         |  |  |   |    |  |  |   |  
|                             |  |           | Amounts |        | Less than |           |                                            |           |  |               |         |  |  |   |    |  | 
|Other Commercial Commitments |  | Committed |         | 1 Year |           | 1-3 Years |                                            | 4-5 Years |  | After 5 Years
|                             |  |           |         |        |           |           |                                            |           |  |              
|Standby letters of credit    |  | $         | 183,347 |        |           | $         | 89,423                                     |           |  | $             | 93,924  |  |  | $ |   |  |  | $ |  | 
|Surety Bonds                 |  |           | 316,701 |        |           |           | 305,766                                    |           |  |               | 10,898  |  |  |   | 37 |  |  |   |  | 
|                             |  |           |         |        |           |           |                                            |           |  |               |         |  |  |   |    |  |  |   |   | 
|Total Commercial Commitments |  | $         | 500,048 |        |           | $         | 395,189                                    |           |  | $             | 104,822 |  |  | $ | 37 |  |  | $ |  | 
|                             |  |           |         |        |           |           |                                            |           |  |               |         |  |  |   |    |  |  |   |   | 



|(1) |  | Subsequent to December 31,
2003, we announced the redemption of our Notes, as discussed above.
|--- |  | ----------------------------------------------------------------------------------------------

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During the first six months of fiscal year 2004, we entered into an agreement
with a customer to purchase $50 million of products and services over a
seven-year term, with a minimum purchase of $5 million annually, at prices
consistent with the customers commercial pricing and discount guidelines.

We are obligated to make certain contingent payments to former shareholders of
acquired entities upon satisfaction of certain contractual criteria. As of
December 31, 2003, the maximum aggregate amount of the outstanding contingent
obligations is approximately $27.7 million. Upon satisfaction of the specified
contractual criteria, a corresponding increase in goodwill would be recorded.
During the second quarter of fiscal year 2004, we paid $1.2 million related to
these obligations and accrued $8.0 million to be paid in the third quarter of
fiscal year 2004.

Our Education Services business, which is included in our Commercial segment,
performs third party student loan servicing in the Federal Family Education
Loan program (FFEL) on behalf of various financial institutions. At December
31, 2003, we serviced a FFEL portfolio of 1.5 million loans with an outstanding
principal balance of more than $16.9 billion. Some servicing agreements
contain provisions that, under certain circumstances, require us to purchase
the loans from the investor if the loan guaranty has been permanently
terminated as a result of a loan default caused by our servicing error. If
defaults caused by us are cured during an initial
period, any obligation we may have to purchase these loans expires. Loans that
we purchase may be subsequently cured; the guaranty reinstated and we repackage
the loans for sale to third parties. We evaluate the collectibility of any
purchased loans and establish a reserve for potential losses, or default
liability reserve, through a charge to the provision for loss on defaulted
loans purchased. The reserve is evaluated periodically and adjusted based upon
managements analysis of the historical performance of the purchased loans.
This reserve was approximately $4.2 million at December 31, 2003.

CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses. We base our estimates on historical experience and on various other
assumptions or conditions that are believed to be reasonable under the
circumstances. Actual results could differ from those estimates under different
assumptions or conditions.

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties and may result in materially different
results under different assumptions and conditions. We believe that the
following critical accounting policies involve significant judgments and
estimates used in the preparation of our consolidated financial statements.

Revenue recognition. A significant portion of our revenue is recognized based
on objective criteria that does not require significant estimates or
uncertainties. For example, transaction volumes and time and costs under time
and material and cost reimbursable arrangements are based on specific,
objective criteria under the contracts. Accordingly, revenues recognized under
these methods do not require the use of significant estimates that are
susceptible to change. Revenue recognized using the percentage-of-completion
accounting method does require the use of estimates and judgment as discussed
below.

Our policy follows the guidance from SEC Staff Accounting Bulletin 104 Revenue
Recognition (SAB 104). SAB 104 provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements and updates
existing Staff Accounting Bulletin Topic 13 to be consistent with recently
issued guidance, primarily Emerging Issues Task Force Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). We recognize revenues
when persuasive evidence of an arrangement exists, the services have been
provided to the client, the sales price is fixed or determinable, and
collectibility is reasonably assured.

In fiscal year 2003, approximately 60% of our revenue was recognized based on
transaction volumes, approximately 12% was related to time and material
contracts, approximately 14% was related to cost reimbursable contracts,
approximately 7% of our revenues were recognized using percentage-of-completion
accounting and the remainder was fixed fee based.

Revenues on cost reimbursable contracts are recognized by applying an estimated
factor to costs as incurred, such factor being determined by the contract
provisions and prior experience. Revenues on unit-price contracts are
recognized at the contractual selling prices of work completed and accepted by
the client. Revenues on time and material contracts are recognized at the
contractual rates as the labor hours and direct expenses are incurred.

Revenues for business
process outsourcing services are recognized as services are rendered, generally
on the basis of the number of accounts or transactions processed. Revenues from annual maintenance contracts
are deferred and recognized ratably over the maintenance period. Revenues from
hardware sales are recognized upon delivery to the client and when
uncertainties regarding customer acceptance have expired.

Revenues on certain fixed price contracts where we provide information
technology system development and implementation services

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are recognized over the contract term based on the
percentage of development and implementation services that are provided during
the period compared with the total estimated development and implementation
services to be provided over the entire contract using Statement of Position
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts (SOP 81-1). SOP 81-1 requires the use of
percentage-of-completion accounting for long-term contracts that are binding
agreements between us and our customers in which we agree, for compensation, to
perform a service to the customers specifications. Performance will often
extend over long periods, and our right to receive future payment depends on our
future performance in accordance with the agreement.

The percentage-of-completion methodology involves recognizing revenue using the
percentage of services completed, on a current cumulative cost to total cost
basis, using a reasonably consistent profit margin over the period. Due to the
long-term nature of these
contracts, developing the estimates of costs often requires significant
judgment. Factors that must be considered in estimating the progress of work
completed and ultimate cost of the contract include, but are not limited to,
the availability of labor and labor productivity, the nature and complexity of
the work to be performed, and the impact of delayed performance. If changes occur in delivery,
productivity or other factors used in developing the estimates of costs or
revenues, we revise our cost and revenue estimates, which may result in
increases or decreases in revenues and costs, and such revisions are reflected
in income in the period in which the facts that give rise to that revision
become known.

EITF 00-21 addresses the accounting treatment for an arrangement to provide the
delivery or performance of multiple products and/or services where the delivery
of a product or system or performance of services may occur at different points
in time or over different periods of time. The Emerging Issues Task Force
reached a consensus regarding, among other issues, the applicability of the
provisions regarding separation of contract elements in EITF 00-21 to contracts
where one or more elements fall within the scope of other authoritative
literature, such as SOP 81-1. EITF 00-21 does not impact the use of SOP 81-1
for contract elements that fall within the scope of SOP 81-1, such as the
implementation or development of an information technology system to client
specifications under a long-term contract. Where an implementation or
development project is contracted with a client, and we will also provide
services or operate the system over a period of time, EITF 00-21 provides the
methodology for separating the contract elements and allocating total
arrangement consideration to the contract elements. We adopted the provisions
of EITF 00-21 on a prospective basis to transactions entered into after July 1,
2003. We believe that EITF 00-21 did not have a material impact on our
financial position or results of operations.

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

Valuation of goodwill and intangibles. Due to the fact that we are primarily a
services company, our business acquisitions typically result in significant
amounts of goodwill and other intangible assets, which affect the amount of
future period amortization expense and possible expense we could incur as a
result of an impairment. The determination of the value of goodwill and other
intangibles requires us to make estimates and assumptions about future business
trends and growth. We continually evaluate whether events and circumstances
have occurred that indicate the balance of goodwill or intangible assets may
not be recoverable. In evaluating impairment, we estimate the sum of expected
future cash flows derived from the goodwill or intangible asset. Such
evaluation is significantly impacted by estimates and assumptions of future
revenues, costs and expenses and other factors. If an event occurs which would
cause us to revise our estimates and assumptions used in analyzing the value of
our goodwill or other intangibles, such revision could result in a non-cash
impairment charge that could have a material impact on our financial results.

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

NEW ACCOUNTING PRONOUNCEMENTS

In December 2003, the SEC issued SAB 104. SAB
104 updates existing Staff Accounting Bulletin Topic 13 Revenue Recognition
to be consistent with recently issued guidance, primarily EITF 00-21. We
believe that SAB 104 will not have a material impact on our financial position
or results of operations.

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RISKS RELATED TO OUR BUSINESS

The risks described below should not be considered to be comprehensive and
all-inclusive. Additional risks that we do not yet know of or that we
currently think are immaterial may also impair our business operations. If any
events occur that give rise to the following risks, our business, financial
condition, cash flow or results of operations could be materially and adversely
affected, and as a result, the trading price of our Class A common stock could
be materially and adversely impacted. These risk factors should be read in
conjunction with other information set forth in this report, including our
Consolidated Financial Statements and the related notes.

Loss of, or reduction of business
from, clients. The loss of clients and/or the
reduction of volumes and services provided to our clients could materially
affect our revenues, profitability and cash flows. In addition, we incur a high
level of fixed costs related to our technology outsourcing and business process
outsourcing clients. Therefore the loss of any one of our significant clients
could leave us with a significantly higher level of fixed costs than is
necessary to serve our remaining clients, thereby reducing our revenues,
profitability and cash flow.

Termination of all or a part of a contract by a client or deterioration of the
financial condition of a client. We must make significant capital investments
in order to attract and retain large outsourcing agreements. The termination of
all or a part of a client contract or the deterioration of the financial
condition or prospects of a client has in the past, and may in the future,
result in an impairment of the net book value of the assets recorded, including
a portion of our intangible assets, and a reduction in our earnings and cash
flow.

Competition. We expect to encounter additional competition as we address new
markets and new competitors enter our existing markets. If we are forced to
lower our pricing or if demand for our services decreases, our business,
financial condition, results of operations, and cash flow may be materially and
adversely affected. Many of our competitors have greater resources, and they
may be able to use their resources to adapt more quickly to new or emerging
technologies or to devote greater resources to the promotion and sale of their
products and services. In addition, we must frequently compete with a clients
own internal business process and information technology capabilities, which
may constitute a fixed cost for the client.

Difficulties in executing our acquisition strategy. We intend to continue to
expand our business through the acquisition of complementary companies. We
cannot, however, make any assurances that we will be able to identify any
potential acquisition candidates or consummate any additional acquisitions or
that any future acquisitions will be successfully integrated or will be
advantageous to us. Without additional acquisitions, we are unlikely to
maintain historical total growth rates.

Failure to properly manage our operations and our growth. We have rapidly
expanded our operations in recent years. We intend to continue expansion in the
foreseeable future to pursue existing and potential market opportunities. This
rapid growth places a significant demand on our management and operational
resources. In order to manage growth effectively, we must implement and improve
our operational systems, procedures, and controls on a timely basis. If we fail
to implement these systems, procedures and controls on a timely basis, we may
not be able to service our clients needs, hire and retain new employees,
pursue new business, complete future acquisitions or operate our businesses
effectively. We could also trigger contractual credits to clients.
Failure to properly transition new customers to our systems, properly
budget transition costs or accurately estimate new contract
operational costs could result in delays in our contract performance,
trigger service level penalties or result in contracts whose profit
margins did not meet our expectations or our historical profit
margins. Failure to
properly integrate acquired operations could result in increased cost. As a
result of any of these problems associated with expansion, our business,
financial condition, and results of operations could be materially and
adversely affected.

Government clients  termination rights, audits and investigations. A
substantial portion of our revenues are derived from contracts with state and
local governments and from contracts with the Department of Education.
Governments and their agencies may terminate most of these contracts at any
time, without cause. Also, our Department of Education contracts are subject
to the approval of appropriations being made by the United States Congress to
fund the expenditures to be made by the Federal government under these
contracts. Additionally, government contracts are generally subject to audits
and investigations by government agencies. If the government finds that we
improperly charged any costs to a contract, the costs are not reimbursable or,
if already reimbursed, the cost must be refunded to the government. If the
government discovers improper or illegal activities in the course of audits or
investigations, the contractor may be subject to various civil and criminal
penalties and administrative sanctions, which may include termination of
contracts, forfeiture of profits, suspension of payments, fines and suspensions
or debarment from doing business with the government. Any resulting penalties
or sanctions could have a material adverse effect on our business, financial
condition, results of operations and cash flow. Further, the negative publicity
that arises from findings in such audits, investigations or the penalties or
sanctions therefrom could have an adverse effect on our reputation in the
industry and reduce our ability to compete for new contracts and may also have
a material adverse effect on our business, financial condition, results of
operations and cash flow.

Exercise of contract termination provisions and service level penalties. Most
of our contracts with our clients permit termination in the event our
performance is not consistent with service levels specified in those contracts,
or provide for credits to our clients for failure to meet service levels. In
addition, if clients are not satisfied with our level of performance, our
reputation in the industry may suffer, which could materially and adversely
affect our business, financial condition, results of operations, and cash flow.

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Pricing risks. Some of our contracts contain provisions requiring that our
services be priced based on a pre-established standard or benchmark regardless
of the costs we incur in performing these services. Some of our contracts
contain pricing provisions that require
the client to pay a set fee for our services regardless of whether our costs to
perform these services exceed the amount of the set fee. Some of our contracts
contain re-pricing provisions which can result in reductions of our fees for
performing our services. In such situations, we are exposed to the risk that
we may be unable to price our services to levels that will permit recovery of
our costs, and may adversely affect our operating results and cash flow.

Loss of significant software vendor relationships. Our ability to service our
clients depends to a large extent on our use of various software programs that
we license from a small number of primary software vendors. If our significant
software vendors were to terminate or refuse to renew our contracts with them,
we might not be able to replace the related software programs and would be
unable to serve our clients, which could have a material adverse effect on our
business, revenues, profitability and cash flow.

Intellectual property infringement claims. We rely heavily on the use of
intellectual property. We do not own the majority of the software that we use
to run our business; instead we license this software from a small number of
primary vendors. If these vendors assert claims that we or our clients are
infringing on their software or related intellectual property, we could incur
substantial costs to defend these claims, which could have a material effect on
our profitability and cash flow. In addition, if any of our vendors
infringement claims are ultimately successful, our vendors could require us (1)
to cease selling or using products or services that incorporate the challenged
software or technology, (2) to obtain a license or additional licenses from our
vendors, or (3) to redesign our products and services which rely on the
challenged software or technology. If we are unsuccessful in the defense of
an infringement claim and our vendors require us to initiate any of the above
actions, then such actions could have a material adverse effect on our
business, financial condition, results of operations and cash flow.

Rapid technological changes. The markets for our information technology
services are subject to rapid technological changes and rapid changes in client
requirements. We may be unable to timely and successfully customize products
and services that incorporate new technology or to deliver the services and
products demanded by the marketplace.

Federal and State laws relating to individually identifiable information. We
process and store information relating to identifiable individuals, both in our
role as a service provider and as an employer. As a result, we are subject to
numerous Federal and State laws and regulations designed to protect
individually identifiable information, including financial and health
information. For example, in 1996, Congress passed the Health Insurance
Portability and Accountability Act (HIPAA) and as required therein, the
Department of Health and Human Services (HHS) established regulations
governing, among other things, the privacy, security and electronic
transmission of individually identifiable health information. We have taken
measures to comply with each of those regulations on or before the required
dates. Other Federal and State laws apply to the processing of individually
identifiable information as well, and additional legislation may be enacted at
any time. Failure to comply with these types of laws may subject us to
liability for monetary damages, fines and/or criminal prosecution and may have
a material adverse effect on our profitability and cash flow.

Budget deficits at state and local governments and their agencies. A
substantial portion of our revenues are derived from contracts with state and
local governments and their agencies. Currently, many state and local
governments that we have contracts with are facing potential budget deficits.
While this has not had a material adverse impact on our results of operations
through the second quarter of fiscal year 2004, it is unclear what impact, if
any, these deficits may have on our future business, revenues, results of
operations and cash flow.

International risks. Recently we have expanded our international operations.
International operations are subject to a number of risks including, but not
limited to the following  fluctuations in foreign currency exchange rates;
licensing and labor counsel requirements; staffing key managerial positions;
data privacy laws adopted by various countries in which ACS does business,
including but not limited to member states of the European Union; general
economic conditions in foreign countries; additional expenses and risks
inherent in conducting operations in geographically distant locations; laws of
those foreign countries; political instability; trade restrictions such as
tariffs and duties or other controls affecting foreign operations, and other
factors that may adversely affect our business, financial condition and
operating results.

Armed hostilities and terrorist attacks. Terrorist attacks and further acts of
violence or war may cause major instability in the U.S. and other financial
markets in which we operate. In addition, armed hostilities and acts of
terrorism may directly impact our physical facilities and operations, which are
located in North America, Central America, South America, Europe, Africa,
Australia, Asia and the Middle East, or those of our clients. These
developments subject our worldwide operations to increased risks and, depending
on their magnitude, could have a material adverse effect on our business.

Failure to attract and retain necessary technical personnel and skilled
management and qualified subcontractors. Our success depends to a significant
extent upon our ability to attract, retain and motivate highly skilled and
qualified personnel and to subcontract with qualified, competent
subcontractors. If we fail to attract, train, and retain, sufficient numbers
of these technically-skilled people or are unable to contract with qualified,
competent subcontractors, our business, financial condition, and results of
operations will be

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materially and adversely affected. Our success also depends
on the skills, experience, and performance of key members of our management
team and on qualified, competent subcontractors. The loss of any key employee
or the loss of a key subcontract relationship could have an adverse effect on
our business, financial condition, cash flow, results of operations and
prospects.

Servicing Risks. We service (for various lenders and under various service
agreements) a portfolio of approximately $17 billion of loans made under the
Federal Family Education Loan Program, which loans are guaranteed by a Federal
government agency. If a loan is in default, then a claim is made upon the
guarantor. If the guarantor denies the claim because of a servicing error,
then under certain of the servicing agreements we may be required to purchase
the loan from the lender. Upon purchase of the loan, we attempt to cure the
servicing errors and either sell the loan back to the guarantor (which must
occur within a specified period of time) or sell the loan on the open market to
a third party. We are subject to the risk that we may be unable to cure the
servicing errors or sell the loan on the open market. Our reserves, which are
based on historical information, may be inadequate if our servicing performance
results in the requirement that we repurchase a substantial number of loans,
which repurchase could have a material adverse impact on our cash flow and
profitability.

Disruption in Utility or Network Services. Our services are dependent on the
companies providing electricity and other utilities to our operating
facilities, as well as network companies providing connectivity to our
facilities and clients. While there are backup systems in many of our
operating facilities, an extended outage of utility services may have a
material adverse effect on our operations, revenues, cash flow and
profitability.

Indemnification Risk. Our contracts, including our agreements with respect to
divestitures, include various indemnification obligations. If we are required
to satisfy an indemnification obligation, that may have a material adverse
effect on our business, profitability and cash flow.

Other Risks. We have attempted to identify material risk factors currently
affecting our business and company. However, additional risks that we do not
yet know of, or that we currently think are immaterial, may occur or become
material. These risks could impair our business operations or adversely affect
revenues, cash flow or profitability.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have fixed rate and variable rate debt instruments. Our variable rate debt
instruments are subject to market risk from changes in interest rates.
Sensitivity analysis is one technique used to measure the impact of changes in
the interest rates on the value of market-risk sensitive financial instruments.
A hypothetical 10% movement in interest rates would not have a material impact
on our future earnings, fair value, or cash flows.




ITEM 4. CONTROLS AND PROCEDURES

The management of the Company, including the Companys principal executive
officer and principal financial officer have evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934) as of December 31, 2003. Based on such
evaluation, the Companys principal executive officer and principal financial
officer have concluded that as of December 31, 2003, such disclosure controls
and procedures are effective for the purpose of ensuring that material
information required to be in this Quarterly Report is made known to them by
others on a timely basis. There have not been any changes in the Companys
internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended
December 31, 2003 that have materially affected or are reasonably likely to
materially affect the Companys internal control over financial reporting.

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PART II




ITEM 1. LEGAL PROCEEDINGS

On December 16, 1998, a state district court in Houston, Texas entered final
judgment against us in a lawsuit brought by 21 former employees of Gibraltar
Savings Association and/or First Texas Savings Association (collectively,
GSA/FTSA). The GSA/FTSA employees alleged that they were entitled to the
value of 803,082 shares of our stock (adjusted for February 2002 stock split)
pursuant to options issued to the GSA/FTSA employees in 1988 in connection with
a former technology outsourcing services agreement between GSA/FTSA and us.
The judgment against us was for approximately $17 million, which includes
attorneys fees and pre-judgment interest, but excludes additional attorneys
fees of approximately $0.9 million and post-judgment interest at the
statutorily mandated rate of 10% per annum, which could be awarded in the event
the plaintiffs are successful upon appeal and final judgment. The judgment was
appealed by the plaintiffs and us. On August 29, 2002, the Fourteenth Court of Appeals, Houston, Texas, reversed
the trial courts judgment and remanded the case to the trial court for further
proceedings. However, the court of appeals affirmed the trial court judgment
in part as to one of the plaintiffs. The court of appeals also held that the
trial court did not err in dismissing certain of our affirmative defenses at a
pretrial conference. We and the plaintiffs filed motions for rehearing with the
court of appeals. On January 16, 2003, the court of appeals denied both
motions for rehearing (except the court reversed its previous ruling that the
trial court should have applied prejudgment interest at 6% rather than 10%).
On March 3, 2003, we filed a Petition for Review with the Texas Supreme Court
requesting that the Court reverse the decision of the court of appeals and
render judgment that the plaintiffs take nothing or, alternatively, remand the
case to the trial court for further proceedings. On December 12, 2003, the
Texas Supreme Court denied our Petition for Review. On January 29, 2004, we
filed a motion with the Texas Supreme Court to reconsider the Petition for
Review. We continue to believe that we have a meritorious defense to all or a
substantial portion of the plaintiffs claims, and accordingly, have not
accrued any amount on our balance sheet related to the lawsuit.

One of our subsidiaries, ACS Defense, Inc., and several other government
contractors received a grand jury document subpoena issued by the U.S. District
Court for the District of Massachusetts in October 2002. The subpoena was
issued in connection with an inquiry being conducted by the Antitrust Division
of the U.S. Department of Justice (DOJ). The inquiry concerns certain IDIQ
(Indefinite Delivery  Indefinite Quantity) procurements and their related task
orders, which occurred in the late 1990s at Hanscom Air Force Base in
Massachusetts. Our revenue from the contracts that we believe to be the focus
of the DOJs inquiry was approximately $25 million for the fiscal year ended June 30, 2003, and approximately $13.1 million for the six
months ended December 31, 2003, representing
approximately 0.6% of our revenue in each period. We are continuing our previously
announced internal investigation of this matter through outside legal counsel
and we are continuing to cooperate with the DOJ in producing documents in
response to the subpoena and arranging for DOJ interviews of employees and
former employees. At this stage of this inquiry, we are unable to express an
opinion as to its likely outcome. See Managements Discussion and Analysis of Financial Condition and Results of Operations  General for a
discussion of the pending sale of the assets associated with the
Hanscom Air Force Base relationship.

Another of our subsidiaries, ACS State & Local Solutions, Inc., and a teaming
partner of this subsidiary, Tier Technologies, Inc. (Tier), received a grand
jury document subpoena issued by the U.S. District Court for the Southern
District of New York in May 2003. The subpoena was issued in connection with an
inquiry being conducted by the Antitrust Division of the DOJ. The inquiry
concerns the teaming arrangement between ACS and Tier on child
support payment processing contracts awarded to ACS and Tier, as a
subcontractor to ACS, in New York, Illinois and Ohio. Our annual revenue from
these three contracts will be approximately $70 million when the services are
fully implemented, representing approximately 1.8% of our annual revenue. Our
teaming arrangement also contemplated the California child support payment
processing request for proposals, which was issued in late 2003; however, we
are not entering into a teaming agreement with Tier for the California request
for proposals. Based on Tiers recent filings with the Securities and Exchange
Commission, we understand that on November 20, 2003 the DOJ granted conditional
amnesty to Tier in connection with this inquiry pursuant to the DOJs Corporate
Leniency Policy. The policy provides that the DOJ will not bring any criminal
charges against Tier as long as it continues to fully cooperate in the inquiry
(and makes restitution payments if it is determined that parties were injured
as a result of impermissible anticompetitive conduct). We are continuing our
previously announced internal investigation of this matter through outside
legal counsel and we are continuing to cooperate with the DOJ in producing
documents in response to the subpoena. At this stage of this inquiry, we are
unable to express an opinion as to its likely outcome.

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

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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On September 2, 2003, we announced that our Board of Directors authorized a
share repurchase program of up to $500 million of our Class A common stock
effective immediately. The program, which is open-ended, will allow us to
repurchase our shares on the open market from time to time in accordance with
SEC rules and regulations, including shares that could be purchased pursuant to
SEC Rule 10b5-1. The number of shares to be purchased and the timing of
purchases will be based on the level of cash and debt balances, general
business conditions and other factors, including alternative investment
opportunities. We intend to fund the repurchase program from various sources,
including, but not limited to, cash on hand, cash flow from operations, and
borrowings under our existing revolving credit facility. As of December 31,
2003, we had repurchased 4.2 million shares at a total cost of approximately
$209.2 million. Through February 13, 2004, on a trade date basis, we have
repurchased approximately 5.6 million shares at a total cost of approximately
$280.3 million and have $219.7 million remaining available to purchase under
the program.

|                                            |                                          |           |           |           |            |             |                 |          |                      |  |                       |           |                    |   |             |             | 
|------------------------------------------- | ---------------------------------------- | --------- | --------- | --------- | ---------- | ----------- | --------------- | -------- | -------------------- |  | --------------------- | --------- | ------------------ | - | ----------- | ----------- | 
|                                            |                                          |           |           |           |            |             |                 |          |                      |  | Total number of       |           | Maximum number (or
|                                            |                                          |           |           |           |            |             |                 |          |                      |  | shares purchased      |           | approximate dollar
|                                            |                                          |           | Total     |           |            |             |                 |          | as part of           |  | value) of shares that
|                                            |                                          |           | number    |           | Average    |             | publicly        |          | may yet be purchased
|                                            |                                          |           | of shares |           | price paid |             | announced plans |          | under the plans or  
|Period                                      |                                          | purchased |           | per share |            | or programs |                 | programs
|                                            |                                          |           |           |           |            |             |                 |         
|September 11  September 30, 2003           |                                          |           | 700,000   |           |            | $           | 50.9402         |          |                      |  | 700,000               |           |                    | $ | 464,341,891 |            
|                                            |                                          |           |           |           |            |             |                 |          |                      |  |                       |           |                    |   |             |            
|                                            | Total  Quarter ended September 30,
2003 |           |           | 700,000   |            |             |                 | 50.9402  |                      |  |                       | 700,000   |                    |   |             | 464,341,891 | 
|                                            |                                          |           |           |           |            |             |                 |          |                      |  |                       |           |                    |   |             |            
|                                            |                                          |           |           |           |            |             |                 |          |                     
|October 1  October 31, 2003                |                                          |           | 1,182,700 |           |            |             | 48.9515         |          |                      |  | 1,182,700             |           |                    |   | 406,447,006 |            
|November 1  November 30, 2003              |                                          |           | 1,540,000 |           |            |             | 48.1100         |          |                      |  | 1,540,000             |           |                    |   | 332,357,586 |            
|December 1  December 31, 2003              |                                          |           | 812,500   |           |            |             | 51.1962         |          |                      |  | 812,500               |           |                    |   | 290,760,690 |            
|                                            |                                          |           |           |           |            |             |                 |          |                      |  |                       |           |                    |   |             |            
|                                            | Total  Quarter ended December 31, 2003  |           |           | 3,535,200 |            |             |                 | 49.1008  |                      |  |                       | 3,535,200 |                    |   |             | 290,760,690 | 
|                                            |                                          |           |           |           |            |             |                 |          |                      |  |                       |           |                    |   |             |            
|Total repurchases through December 31,
2003 |                                          |           | 4,235,200 |           |            | $           | 49.4048         |          |                      |  | 4,235,200             |           |                    | $ | 290,760,690 |            
|                                            |                                          |           |           |           |            |             |                 |          |                      |  |                       |           |                    |   |             |            

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ITEM 5. OTHER INFORMATION

On January 30, 2004, the Florida Agency for Workforce Innovations Office of
the Inspector General issued a report on its review of services we provide to
Floridas workforce development system. The report covered our workforce
services in 13 Florida workforce regions and noted concerns in three regions
with errors and possible irregularities related to accuracy and validity of
customer case records maintained by our staff. According to the report, the
U.S. Department of Labor has stated its intent to conduct a separate
investigation of these issues in this region, and that until this U.S.
Department of Labor investigation is completed, it may not be appropriate for
the region to pursue a monetary settlement with us. The Inspector Generals
report also states that during the 2002-03 contract period for Region 23, which
covers Dade and Monroe counties, we were paid $7 million in total fees, with
$1.4 million or 20% of the total fees representing performance-based payments.
The report identified possible false job placements and wage manipulation, upon
which certain performance payments could have been based. The Inspector
General requested that ACS provide a written action plan within 30 days
describing how ACS will correct the identified deficiencies. The workforce
services contract for this region expired on June 30, 2003 and was not renewed.
Our annual revenue from all of our Florida workforce contracts is
approximately $44 million. We are currently investigating the report findings
and intend to respond in a timely manner.

We have been made aware that the SEC recently requested the Independent
Monitoring Office of the South Florida Workforce to voluntarily submit to the
SEC any information that it may have obtained in connection with its audit of
our contracts. Upon learning of that request, we have contacted the SEC and
advised them that we intend to cooperate fully in connection with their
informal inquiry.

At this stage of our investigation, the U.S. Department of Labors
investigation and the SECs informal inquiry, we are unable to express an
opinion as to the outcome of this matter.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|a.) |  | Exhibits                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Reference is made to the Index to Exhibits beginning on page 30 for a list of all exhibits filed as part of this report.
|   
|b.) |  | Reports on Form 8-K                                                                                                     



| | 1. |  | On October 21, 2003, the Company filed a Current Report on
Form 8-K (dated as of October 21, 2003) for the purpose of
furnishing the earnings press release, announcing the telephone
conference and webcast to disclose the Companys financial results
and disclosing the location of the Companys Supplementary Financial
Information used during the conference for the quarter ended
September 30, 2003.        
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | On October 27, 2003, the Company filed a Current Report on
Form 8-K (dated as of October 21, 2003) for the purpose of
furnishing the transcript of the Companys presentation during the
telephone conference disclosing the Companys financial results, the
questions and answers following the presentation and furnishing a
copy of the slides presented during the telephone conference on the Companys
website.
|
| | 3. |  | On November 4, 2003, the Company filed a Current Report on
Form 8-K (dated as of November 4, 2003) for the purpose of
announcing the commencement of services under a new human resources
servicing contract with General Motors Corporation.                                                                                                                                                                         
|
| | 4. |  | On November 21, 2003, the Company filed a Current Report on
Form 8-K (dated as of November 20, 2003) for the purpose of
announcing that the Company has been selected by the U.S Department
of Education as the winner of the Common Services for Borrowers
contract and reaffirmed its full-year, fiscal 2004 financial
guidance.                                                                                    
|
| | 5. |  | On November 26, 2003, the Company filed a Current Report on
Form 8-K (dated as of November 25, 2003) for the purpose of
announcing that it had closed the divestiture of a portion of its
Federal business to Lockheed Martin and the acquisition of Lockheed
Martins commercial information technology outsourcing business.                                                                                        
|
| | 6. |  | On December 9, 2003, the Company filed a Current Report on
Form 8-K/A (dated as of November 25, 2003) for the purpose of
amending its Current Report on Form 8-K dated November 25, 2003
(filed November 26, 2003) to include Item 7(b) Pro Forma Financial
Information.                                                                                                                                              

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 17th day of February, 2004.

| |  |                                    |  |                                                                                              
| |  | ---------------------------------- |  | ---------------------------------------------------------------------------------------------
| |  | AFFILIATED COMPUTER SERVICES, INC.
| |  |                                    |  |                                                                                              
| |  | By:                                |  | /s/ Warren D. Edwards

Warren D. Edwards
Executive Vice President and
Chief Financial Officer

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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|Number  |  | Exhibit Name                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|3.1     |  | Certificate of Incorporation of the Company (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 the
Company, 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 the Company, as amended and in effect on September 11,2003.                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|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
the Company 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     |  | Indenture, dated as of February 21, 2001, between the Company, as
Issuer, and U.S. Trust Company of Texas, N.A., as Trustee, relating
to the Companys 3.5% Convertible Subordinated Notes due February
15, 2006 (filed as Exhibit 4.1 to our Registration Statement on Form
S-3, filed March 30, 2001, File No. 333-58038 and incorporated
herein by reference).                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|4.4     |  | Registration Rights Agreement, dated February 21, 2001, by and
between the Company and Goldman, Sachs & Co., as representative of
the several purchasers named therein relating to the Companys 3.5%
Convertible Subordinated Notes due February 15, 2006 (filed as
Exhibit 4.4 to our Registration Statement on Form S-3, filed March
30, 2001, File No. 333-58038 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|4.5     |  | Specimen Note for the Companys 3.5% Convertible Subordinated Notes
due February 15, 2006 (filed as Exhibit 4.2 to our Registration
Statement on Form S-3, filed March 30, 2001, File No. 333-58038 and
incorporated herein by reference).                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|4.6     |  | Amendment No. 1 to First Amended and Restated Rights Agreement,
dated as of February 5, 2002, by and between the Company 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).                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|4.7     |  | Form of Rights Certificate (included as Exhibit A to the Amended and
Restated Rights Agreement (Exhibit 4.2)).                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|10.1*   |  | Amendment to Supplemental Executive Retirement Agreement, dated
November 13, 2003 between the Company and Darwin Deason.                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|31.1*   |  | Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|31.2*   |  | Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|32.1*   |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.,
Section 1350, as adopted pursuant to Section 9.06 of the
Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this
Exhibit is furnished to the SEC and shall not be deemed to be
filed.                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            
|32.2*   |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.,
Section 1350, as adopted pursuant to Section 9.06 of the
Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this
Exhibit is furnished to the SEC and shall not be deemed to be
filed.                                                                                                                                         

* Filed herewith

30