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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period endedDecember 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period from  to
 Commission file number 001-12665
 AFFILIATED COMPUTER SERVICES, INC.
 
  Delaware
    
    51-0310342(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)2828 North Haskell, Dallas, Texas
    
    75204(Address of principal executive offices)
    
    (Zip Code)
  Not Applicable
 
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
  Number of shares outstanding as ofTitle of each class
    
    January 31, 2008Class A Common Stock, $.01 par value
    
    89,374,622Class B Common Stock, $.01 par value
    
    6,599,372




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##### 



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
  PAGENUMBERPART I. FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial Statements:Consolidated Balance Sheets (Unaudited) at December 31, 2007 and
June 30, 2007
    
    
    1Consolidated Statements of Income (Unaudited) for the Three and Six
Months Ended December 31, 2007 and 2006
    
    
    2Consolidated Statements of Cash Flows (Unaudited) for the Six
Months Ended December 31, 2007 and 2006
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    41Item 4.
    
    Controls and Procedures
    
    
    41PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    42Item 1A.
    
    Risk Factors
    
    
    42Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3.
    
    Defaults Upon Senior Securities
    
    
    42Item 6.
    
    Exhibits
    
    
    42Certification of CEO Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of CFO Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of CEO Pursuant to Rule 13a-14(b) or 15d-14(b)Certification of CFO Pursuant to Rule 13a-14(b) or 15d-14(b)




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##### Table of Contents



PART I
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (in thousands)
 December 31,
    
    
    June 30,2007
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    297,791
    
    
    $
    307,286Accounts receivable, net
    
    
    1,338,886
    
    
    
    1,257,108Income taxes receivable
    
    
    16,689
    
    
    
    13,268Prepaid expenses and other current assets
    
    
    237,561
    
    
    
    232,872Total current assets
    
    
    1,890,927
    
    
    
    1,810,534Property, equipment and software, net
    
    
    888,975
    
    
    
    897,319Goodwill
    
    
    2,620,932
    
    
    
    2,612,368Other intangibles, net
    
    
    435,250
    
    
    
    481,378Other assets
    
    
    195,537
    
    
    
    180,830Total assets
    
    $
    6,031,621
    
    
    $
    5,982,429LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    157,812
    
    
    $
    97,951Accrued compensation and benefits
    
    
    185,666
    
    
    
    246,742Other accrued liabilities
    
    
    330,550
    
    
    
    400,238Deferred taxes
    
    
    67,430
    
    
    
    14,418Current portion of long-term debt
    
    
    46,350
    
    
    
    47,039Current portion of unearned revenue
    
    
    172,688
    
    
    
    164,484Total current liabilities
    
    
    960,496
    
    
    
    970,872Senior Notes, net of unamortized discount
    
    
    499,489
    
    
    
    499,449Other long-term debt
    
    
    1,865,366
    
    
    
    1,842,823Deferred taxes
    
    
    351,449
    
    
    
    367,565Other long-term liabilities
    
    
    304,889
    
    
    
    235,552Total liabilities
    
    
    3,981,689
    
    
    
    3,916,261Commitments and contingencies (See Notes 2, 5 and 15)Stockholders equity:Class A common stock, $.01 par value, 500,000 shares
authorized, 110,376 and 113,960 shares issued, respectively
    
    
    1,103
    
    
    
    1,139Class B convertible common stock, $.01 par value,
14,000 shares authorized, 6,600 shares issued and
outstanding
    
    
    66
    
    
    
    66Additional paid-in capital
    
    
    1,627,614
    
    
    
    1,642,900Accumulated other comprehensive income, net
    
    
    16,398
    
    
    
    15,916Retained earnings
    
    
    1,460,719
    
    
    
    1,462,115Treasury stock at cost, 21,002 shares
    
    
    (1,055,968
    )
    
    
    (1,055,968
    )Total stockholders equity
    
    
    2,049,932
    
    
    
    2,066,168Total liabilities and stockholders equity
    
    $
    6,031,621
    
    
    $
    5,982,429
  1




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)
 (in thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    1,511,442
    
    
    $
    1,426,761
    
    
    $
    3,004,525
    
    
    $
    2,812,199Operating expenses:Cost of revenues:Wages and benefits
    
    
    717,047
    
    
    
    667,852
    
    
    
    1,416,996
    
    
    
    1,334,468Services and supplies
    
    
    326,457
    
    
    
    317,618
    
    
    
    668,223
    
    
    
    608,980Rent, lease and maintenance
    
    
    185,203
    
    
    
    177,099
    
    
    
    370,121
    
    
    
    356,155Depreciation and amortization
    
    
    94,358
    
    
    
    85,228
    
    
    
    185,182
    
    
    
    166,866Other
    
    
    6,982
    
    
    
    9,141
    
    
    
    13,897
    
    
    
    19,755Total cost of revenues
    
    
    1,330,047
    
    
    
    1,256,938
    
    
    
    2,654,419
    
    
    
    2,486,224Other operating expenses
    
    
    23,501
    
    
    
    19,495
    
    
    
    46,811
    
    
    
    34,789Total operating expenses
    
    
    1,353,548
    
    
    
    1,276,433
    
    
    
    2,701,230
    
    
    
    2,521,013Operating income
    
    
    157,894
    
    
    
    150,328
    
    
    
    303,295
    
    
    
    291,186Interest expense
    
    
    43,049
    
    
    
    48,085
    
    
    
    87,019
    
    
    
    94,098Other non-operating income, net
    
    
    (5,509
    )
    
    
    (9,686
    )
    
    
    (6,189
    )
    
    
    (12,304
    )Pretax profit
    
    
    120,354
    
    
    
    111,929
    
    
    
    222,465
    
    
    
    209,392Income tax expense
    
    
    38,758
    
    
    
    39,855
    
    
    
    74,725
    
    
    
    75,935Net income
    
    $
    81,596
    
    
    $
    72,074
    
    
    $
    147,740
    
    
    $
    133,457Earnings per share:Basic
    
    $
    0.82
    
    
    $
    0.73
    
    
    $
    1.48
    
    
    $
    1.32Diluted
    
    $
    0.81
    
    
    $
    0.72
    
    
    $
    1.47
    
    
    $
    1.30Shares used in computing earnings per share:Basic
    
    
    99,505
    
    
    
    98,914
    
    
    
    99,613
    
    
    
    101,183Diluted
    
    
    100,310
    
    
    
    100,152
    
    
    
    100,648
    
    
    
    102,457
  2




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (in thousands)
 Six Months EndedDecember 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    147,740
    
    
    $
    133,457Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    185,182
    
    
    
    166,866Stock-based compensation expense
    
    
    14,316
    
    
    
    15,592Excess tax benefit on stock-based compensation
    
    
    (2,026
    )
    
    
    (31
    )Deferred income tax expense
    
    
    61,472
    
    
    
    15,485Impairment charges
    
    
    1,560
    
    
    
    1,231Gain on investments
    
    
    (367
    )
    
    
    (5,440
    )Gain on sale of business
    
    
    (2,430
    )
    
    
    (2,459
    )Other non-cash activities
    
    
    11,879
    
    
    
    10,779Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    (85,004
    )
    
    
    (5,496
    )Prepaid expenses and other current assets
    
    
    (1,899
    )
    
    
    (15,143
    )Other assets
    
    
    (135
    )
    
    
    2,433Accounts payable
    
    
    60,130
    
    
    
    (21,399
    )Accrued compensation and benefits
    
    
    (60,948
    )
    
    
    (17,880
    )Other accrued liabilities
    
    
    (33,025
    )
    
    
    (2,519
    )Income taxes receivable
    
    
    4,929
    
    
    
    13,398Other long-term liabilities
    
    
    10,565
    
    
    
    4,744Unearned revenue
    
    
    18,682
    
    
    
    11,096Total adjustments
    
    
    182,881
    
    
    
    171,257Net cash provided by operating activities
    
    
    330,621
    
    
    
    304,714Cash flows from investing activities:Purchases of property, equipment and software, net
    
    
    (132,402
    )
    
    
    (170,441
    )Additions to other intangible assets
    
    
    (17,416
    )
    
    
    (14,969
    )Payments for acquisitions, net of cash acquired
    
    
    (23,832
    )
    
    
    (102,338
    )Proceeds from divestitures, net of transaction costs
    
    
    4,035
    
    
    
    Purchases of investments
    
    
    
    
    
    
    (6,406
    )Proceeds from investments
    
    
    961
    
    
    
    1,276Other
    
    
    (6,500
    )
    
    
    Net cash used in investing activities
    
    
    (175,154
    )
    
    
    (292,878
    )Cash flows from financing activities:Proceeds from issuance of long-term debt, net
    
    
    197,077
    
    
    
    1,648,287Payments of long-term debt
    
    
    (193,229
    )
    
    
    (705,093
    )Purchase of treasury shares
    
    
    (200,000
    )
    
    
    (730,689
    )Excess tax benefit on stock-based compensation
    
    
    2,026
    
    
    
    31Proceeds from stock options exercised
    
    
    29,337
    
    
    
    5,023Proceeds from issuance of treasury shares
    
    
    
    
    
    
    2,923Other
    
    
    (173
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (164,962
    )
    
    
    220,482Net change in cash and cash equivalents
    
    
    (9,495
    )
    
    
    232,318Cash and cash equivalents at beginning of period
    
    
    307,286
    
    
    
    100,837Cash and cash equivalents at end of period
    
    $
    297,791
    
    
    $
    333,155
  3




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




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
  Commercial
    
    
    Government
    
    
    TotalBalance as of June 30, 2007
    
    $
    1,415,315
    
    
    $
    1,197,053
    
    
    $
    2,612,368Acquisition activity
    
    
    (209
    )
    
    
    2,620
    
    
    
    2,411Divestiture activity
    
    
    
    
    
    
    (964
    )
    
    
    (964
    )Foreign currency translation
    
    
    1,851
    
    
    
    5,266
    
    
    
    7,117Balance as of December 31, 2007
    
    $
    1,416,957
    
    
    $
    1,203,975
    
    
    $
    2,620,932
   December 31, 2007
    
    
    June 30, 2007Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortizable intangible assets:Acquired customer-related
intangibles
    
    $
    419,975
    
    
    $
    (169,442
    )
    
    $
    419,853
    
    
    $
    (147,872
    )Customer-related intangibles
    
    
    242,055
    
    
    
    (118,397
    )
    
    
    247,840
    
    
    
    (101,217
    )All other
    
    
    17,180
    
    
    
    (11,009
    )
    
    
    17,248
    
    
    
    (9,362
    )Total
    
    $
    679,210
    
    
    $
    (298,848
    )
    
    $
    684,941
    
    
    $
    (258,451
    )Non-amortizable intangible assets:Title plant
    
    $
    51,045
    
    
    
    
    
    
    $
    51,045Trade name
    
    
    3,843
    
    
    
    
    
    
    
    3,843Total
    
    $
    54,888
    
    
    
    
    
    
    $
    54,888
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Amortization:Contract inducement
    
    $
    3,381
    
    
    $
    3,859
    
    
    $
    7,109
    
    
    $
    7,669Acquired customer-related intangibles
    
    
    10,945
    
    
    
    10,621
    
    
    
    21,979
    
    
    
    20,826All other intangibles
    
    
    6,975
    
    
    
    5,413
    
    
    
    13,338
    
    
    
    10,163Total amortization
    
    $
    21,301
    
    
    $
    19,893
    
    
    $
    42,426
    
    
    $
    38,658
  5




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Estimated amortization for the years ending June 30,2008
    
    $
    83,6072009
    
    
    72,4982010
    
    
    60,4352011
    
    
    50,7852012
    
    
    36,700
 5. DEBT
 Senior Notes
       6




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##### Table of Contents



AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Credit Facility
   (1)
    
    Consent to the delivery, on or prior to February 14, 2007, of (i) the
financial statements, accountants report and compliance certificate
for the fiscal year ended June 30, 2006 and (ii) financial statements
and related compliance certificates for the fiscal quarters ended
June 30, 2006 and September 30, 2006, and waiver of any default
arising from the failure to deliver any such financial statements,
reports or certificates within the applicable time period provided for
in the Credit Agreement, provided that any such failure to deliver
resulted directly or indirectly from the previously announced
investigation of the Companys historical stock option grant practices
(the Options Matter).(2)
    
    Waiver of any default or event of default arising from the
incorrectness of representations and warranties made or deemed to have
been made with respect to certain financial statements previously
delivered to the Agent as a result of any restatement, adjustment or
other modification of such financial statements resulting directly or
indirectly from the Options Matter.(3)
    
    Waiver of any default or event of default which may arise from the
Companys or its subsidiaries failure to comply with reporting
covenants under other indebtedness that are similar to those in the
Credit Agreement (including any covenant to file any report with the
SEC or to furnish such reports
to the holders of such indebtedness), provided such reporting
covenants are complied with on or prior to February 14, 2007.(4)
    
    Amendments to provisions relating to the permitted uses of the
proceeds of revolving loans under the Credit Agreement that
(i) increase to $500 million from $350 million the aggregate principal
amount of revolving loans that may be outstanding, the proceeds of
which may be used to satisfy the obligations under the Companys 4.70%
Senior Notes due 2010 or 5.20% Senior Notes due 2015 and (ii) until
June 30, 2007, decrease to $200 million from $300 million the minimum
liquidity (i.e., the aggregate amount of the Companys unrestricted
cash in excess of $50 million and availability under the Credit
Agreements revolving facility) required after giving effect to such
use of proceeds.
  7




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 6. PENSION AND OTHER POST-EMPLOYMENT PLANS
 Net periodic benefit cost
  Three Months EndedDecember 31,2007
    
    
    2006Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.
    
    
    U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    1,570
    
    
    $
    926
    
    
    $
    1,510
    
    
    $
    834Interest cost
    
    
    1,680
    
    
    
    123
    
    
    
    1,426
    
    
    
    63Expected return on assets
    
    
    (1,844
    )
    
    
    (173
    )
    
    
    (1,366
    )
    
    
    (54
    )Amortization of gains/losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Amortization of prior service costs
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    63Net periodic benefit cost for defined benefit plans
    
    $
    1,406
    
    
    $
    930
    
    
    $
    1,570
    
    
    $
    900
 Six Months EndedDecember 31,2007
    
    
    2006Non-U.S.
    
    
    U.S.
    
    
    Non-U.S.
    
    
    U.S.Plans
    
    
    Plans
    
    
    Plans
    
    
    PlansComponents of net periodic benefit cost:Defined benefit plans:Service cost
    
    $
    3,098
    
    
    $
    1,852
    
    
    $
    2,894
    
    
    $
    1,758Interest cost
    
    
    3,312
    
    
    
    246
    
    
    
    2,792
    
    
    
    126Expected return on assets
    
    
    (3,644
    )
    
    
    (346
    )
    
    
    (2,708
    )
    
    
    (108
    )Amortization of gains/losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Amortization of prior service costs
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    126Net periodic benefit cost for defined benefit plans
    
    $
    2,766
    
    
    $
    1,860
    
    
    $
    2,978
    
    
    $
    1,890
 Contributions
  7. INCOME TAXES
   8




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




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Stock
option repricing
 9. EARNINGS PER SHARE
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    81,596
    
    
    $
    72,074
    
    
    $
    147,740
    
    
    $
    133,457Denominator:Basic weighted average shares outstanding
    
    
    99,505
    
    
    
    98,914
    
    
    
    99,613
    
    
    
    101,183Dilutive effect of stock options
    
    
    805
    
    
    
    1,238
    
    
    
    1,035
    
    
    
    1,274Denominator for earnings per share assuming dilution
    
    
    100,310
    
    
    
    100,152
    
    
    
    100,648
    
    
    
    102,457Basic earnings per share
    
    $
    0.82
    
    
    $
    0.73
    
    
    $
    1.48
    
    
    $
    1.32Diluted earnings per share
    
    $
    0.81
    
    
    $
    0.72
    
    
    $
    1.47
    
    
    $
    1.30
   10. COMPREHENSIVE INCOME
  10




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    81,596
    
    
    $
    72,074
    
    
    $
    147,740
    
    
    $
    133,457Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    3,814
    
    
    
    5,597
    
    
    
    15,556
    
    
    
    8,312Unrealized loss on interest rate swap
agreement (net of income tax of
$(4,685), $0, $(9,174) and $0,
respectively)
    
    
    (7,754
    )
    
    
    
    
    
    
    (15,768
    )
    
    
    Amortization of unrealized loss on
forward interest rate agreements (net
of income tax of $240, $240, $480 and
$480, respectively)
    
    
    397
    
    
    
    397
    
    
    
    793
    
    
    
    793Unrealized gain (loss) on foreign
exchange forward agreements (net of
income tax of $23, $229, $(91) and
$446, respectively)
    
    
    34
    
    
    
    379
    
    
    
    (167
    )
    
    
    738Prepaid pension cost amortization
(net of income tax of $20 and $40
respectively)
    
    
    34
    
    
    
    
    
    
    
    68
    
    
    
    Comprehensive income
    
    $
    78,121
    
    
    $
    78,447
    
    
    $
    148,222
    
    
    $
    143,300
  As
ofDecember 31, 2007
    
    

As
ofJune 30, 2007Foreign currency gains
    
    $
    32,085
    
    
    $
    16,529Unrealized (loss) gain on
interest rate swap
agreement (net of income
tax of $(6,355) and
$2,819, respectively)
    
    
    (10,517
    )
    
    
    5,251Unrealized loss on
forward interest rate
agreements (net of income
tax of $(4,691) and
$(5,170), respectively)
    
    
    (7,822
    )
    
    
    (8,615
    )Unrealized gains on
foreign exchange forward
agreements (net of income
tax of $135 and $226,
respectively)
    
    
    210
    
    
    
    377Unrecognized prior
service costs (net of
income tax of $(569) and
$(609), respectively)
    
    
    (1,001
    )
    
    
    (1,069
    )Unrealized actuarial
gains on pension plans
(net of income tax of
$1,588 and $1,588,
respectively)
    
    
    3,443
    
    
    
    3,443Total
    
    $
    16,398
    
    
    $
    15,916
 11. DERIVATIVES AND HEDGING INSTRUMENTS
 Interest
rate hedges
  11




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Foreign currency forward agreements
   Weighted
    
    
    CumulativeNotional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    GainAmount
    
    
    Contract
    
    
    Counter
    
    
    Contract
    
    
    (Loss) inHedged Transaction
    
    in USD
    
    
    Currency
    
    
    Currency
    
    
    Rate
    
    
    USDReceipt of revenue
    
    $
    2,972
    
    
    CAD
    
    
    2,774
    
    
    EUR
    
    
    2,018
    
    
    
    0.727
    
    
    $
    144Funding of payroll
    
    
    36,773
    
    
    USD
    
    
    36,773
    
    
    MXN
    
    
    410,000
    
    
    
    11.149
    
    
    
    153Receipt of revenue
    
    
    4,632
    
    
    NOK
    
    
    26,005
    
    
    CHF
    
    
    5,214
    
    
    
    0.201
    
    
    
    (39
    )Receipt of revenue
    
    
    6,722
    
    
    EUR
    
    
    4,662
    
    
    CHF
    
    
    7,567
    
    
    
    1.623
    
    
    
    (58
    )Payment for merchandise
    
    
    3,405
    
    
    USD
    
    
    3,405
    
    
    CHF
    
    
    3,993
    
    
    
    1.173
    
    
    
    145Total
    
    $
    54,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    345
  12




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 12. SEGMENT INFORMATION
   Commercial
    
    
    Government
    
    
    Corporate
    
    
    ConsolidatedThree months ended December 31, 2007Revenues
    
    $
    903,022
    
    
    $
    608,420
    
    
    $
    
    
    
    $
    1,511,442Operating expenses (excluding
depreciation and amortization)
    
    
    748,147
    
    
    
    464,808
    
    
    
    46,235
    
    
    
    1,259,190Depreciation and amortization
    
    
    69,456
    
    
    
    24,513
    
    
    
    389
    
    
    
    94,358Operating income
    
    $
    85,419
    
    
    $
    119,099
    
    
    $
    (46,624
    )
    
    $
    157,894Three months ended December 31, 2006Revenues (a)
    
    $
    849,470
    
    
    $
    577,291
    
    
    $
    
    
    
    $
    1,426,761Operating expenses (excluding
depreciation and amortization)
    
    
    705,768
    
    
    
    443,329
    
    
    
    42,108
    
    
    
    1,191,205Depreciation and amortization
    
    
    60,877
    
    
    
    23,994
    
    
    
    357
    
    
    
    85,228Operating income
    
    $
    82,825
    
    
    $
    109,968
    
    
    $
    (42,465
    )
    
    $
    150,328Six months ended December 31, 2007Revenues
    
    $
    1,781,901
    
    
    $
    1,222,624
    
    
    $
    
    
    
    $
    3,004,525Operating expenses (excluding
depreciation and amortization)
    
    
    1,478,401
    
    
    
    945,518
    
    
    
    92,129
    
    
    
    2,516,048Depreciation and amortization
    
    
    135,352
    
    
    
    49,027
    
    
    
    803
    
    
    
    185,182Operating income
    
    $
    168,148
    
    
    $
    228,079
    
    
    $
    (92,932
    )
    
    $
    303,295Six months ended December 31, 2006Revenues (a)
    
    $
    1,681,609
    
    
    $
    1,130,590
    
    
    $
    
    
    
    $
    2,812,199Operating expenses (excluding
depreciation and amortization)
    
    
    1,417,429
    
    
    
    867,139
    
    
    
    69,579
    
    
    
    2,354,147Depreciation and amortization
    
    
    117,271
    
    
    
    48,883
    
    
    
    712
    
    
    
    166,866Operating income
    
    $
    146,909
    
    
    $
    214,568
    
    
    $
    (70,291
    )
    
    $
    291,186
 
 (a)
    
    Revenues in our Government segment include revenues from operations divested during
fiscal year 2006 of $0.3 million and $0.9 million for the three and six months ended
December 31, 2006, respectively. 13




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 13. RESTRUCTURING ACTIVITIES
  Balance as of September 30, 2007
    
    $
    206Accrual reversal
    
    
    (81
    )Payments
    
    
    (88
    )Balance as of December 31, 2007
    
    $
    37Balance as of June 30, 2007
    
    $
    893Accrual reversals
    
    
    (381
    )Payments
    
    
    (475
    )Balance as of December 31, 2007
    
    $
    37
   Balance as of September 30, 2007
    
    $
    398Accrual reversal
    
    
    (209
    )Payments
    
    
    (28
    )Balance as of December 31, 2007
    
    $
    161Balance as of June 30, 2007
    
    $
    402Accrual reversals
    
    
    (209
    )Payments
    
    
    (32
    )Balance as of December 31, 2007
    
    $
    161
  14




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




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




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Lawsuits Related to Stock Option Grant Practices
  Dallas County Texas State District Court
    
    Merl Huntsinger, Derivatively on Behalf of Nominal Defendant
Affiliated Computer Services, Inc., Plaintiff, v. Darwin Deason, Mark
A. King, J. Livingston Kosberg, Dennis McCuistion, Joseph P. ONeill,
Jeffrey A. Rich and Frank A. Rossi, Defendants, and Affiliated
Computer Services, Inc., Nominal Defendant, Cause No. 06-03403 in the
District Court of Dallas County, Texas, 193rd Judicial
District filed on April 7, 2006.
    
    Robert P. Oury, Derivatively on Behalf of Nominal Defendant Affiliated
Computer Services, Inc., Plaintiff, v. Darwin Deason, Mark A. King, J.
Livingston Kosberg, Dennis McCuistion, Joseph P. ONeill, Jeffrey A.
Rich and Frank A. Rossi, Defendants, and Affiliated Computer Services,
Inc., Nominal Defendant, Cause No. 06-03872 in the District Court of
Dallas County, Texas, 193rd Judicial District filed on
April 21, 2006.
    
    Anchorage Police & Fire Retirement System, derivatively on behalf of
nominal defendant Affiliated Computer Services Inc., Plaintiff v.
Jeffrey Rich; Darwin Deason; Mark King; Joseph ONeill; Frank Rossi;
Dennis McCuistion; J. Livingston Kosberg; Gerald Ford; Clifford
Kendall; David Black; Henry Hortenstine; Peter Bracken; William
Deckelman; and Affiliated Computer Services Inc. Cause No. 06-5265-A
in the District Court of Dallas County, Texas, 14th
Judicial District filed on June 2, 2006.
 Huntsinger Oury Anchorage In Re Affiliated Computer Services, Inc. Derivative
Litigation rd
 Court of Chancery for the State of Delaware
    
    Jan Brandin, in the Right of and for the Benefit of Affiliated Computer Services, Inc.,
Plaintiff, v. Darwin Deason, Jeffrey A. Rich, Mark A. King, Joseph ONeill and Frank Rossi,
Defendants, and Affiliated Computer Services, Inc., Nominal Defendant, Civil Action No.
2123-VCL, pending before the Court of Chancery of the State of Delaware in and for New Castle
County, filed on May 2, 2006.
  United States District Court for the Northern District of Texas
    
    Alaska Electrical Fund, derivatively on behalf of Affiliated Computer Services Inc. v.
Jeffrey Rich; Joseph ONeill; Frank A. Rossi; Darwin Deason; Mark King; Lynn Blodgett; J.
Livingston Kosberg; Dennis McCuistion; Warren Edwards; John Rexford and John M. Brophy,
Defendants, and Affiliated Computer Services, Inc., Nominal
Defendant, Cause No.
3-06CV1110-M, in the United States District Court for the Northern District of Texas, Dallas
Division, filed on June 22, 2006.
 17




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
    
    Bennett Ray Lunceford and Ann M. Lunceford, derivatively on behalf of Affiliated Computer
Services Inc. v. Jeffrey Rich; Joseph ONeill; Frank A. Rossi; Darwin Deason; Mark King; Lynn
Blodgett; J. Livingston Kosberg; Dennis McCuistion; Warren Edwards; John Rexford and John M.
Brophy, Defendants, and Affiliated Computer Services, Inc., Nominal
Defendant, Cause No.
3-06CV1212-M, filed on July 7, 2006, in the United States District Court for the Northern
District of Texas, Dallas Division.
 Alaska Electrical Lunceford In Re Affiliated Computer Services Federal Derivative
Litigation
  United States District Court of Texas for the Northern District of Texas
  
    
    Terri Simeon, on behalf of Herself and All Others Similarly Situated, Plaintiff, vs.
Affiliated Computer Services, Inc., Darwin Deason, Mark A. King, Lynn R. Blodgett, Jeffrey A.
Rich, Joseph ONeill, Frank Rossi, J. Livingston Kosberg, Dennis McCuistion, The Retirement
Committee of the ACS Savings Plan, and John Does 1-30, Civil Action No. 306-CV-1592P, in
the United States District Court for the Northern District of Texas, Dallas Division, filed
August 31, 2006.
    
    Kyle Burke, Individually and on behalf of All Others Similarly Situated, Plaintiff, vs.
Affiliated Computer Services, Inc., the ACS Administrative Committee, Lora Villarreal, Kellar
Nevill, Gladys Mitchell, Meg Cino, Mike Miller, John Crysler, Van Johnson, Scott Bell, Anne
Meli, David Lotocki, Randall Booth, Pam Trutna, Brett Jakovac, Jeffrey A. Rich, Mark A. King,
Darwin Deason, Joseph P. ONeill and J. Livingston Kosberg, Case No. 306-CV-02379-M,
United States District Court for the Northern District of Texas, Dallas Division, filed on
September 15, 2006.
 Simeon Burke In re Affiliated Computer Systems [sic] ERISA Litigation In re Affiliated Computer Systems [sic] ERISA Litigation
  Litigation arising from buy-out offer
  18




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  
    
    Momentum Partners v. Darwin Deason, Lynn R. Blodgett, Joseph P. ONeill, Frank A.
Rossi, J. Livingston Kosberg, Robert B. Holland, Dennis McCuistion, Affiliated Computer
Services, Inc., and Cerberus Capital Management, L.P., Civil Action No. 2814-VCL, in
the Court of Chancery of the State of Delaware in and for New Castle County, filed on March
20, 2007.
 
    
    Mark Levy v. Darwin Deason, Lynn Blodgett, John Rexford, Joseph P. ONeill, Frank A.
Rossi, J. Livingston Kosberg, Dennis McCuistion, Affiliated Computer Services, Inc., and
Cerberus Capital Management, L.P., Civil Action No. 2816-VCL, filed on March 21, 2007.
    
    St. Clair Shores Police and Fire Retirement System v. Darwin Deason, Lynn Blodgett,
Joseph P. ONeill, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert B.
Holland, Cerberus Capital Management, L.P., Citigroup Global Markets Inc., and Affiliated
Computer Services, Inc., Civil Action No. 2821-VCL, in the Court of Chancery of the
State of Delaware in and for New Castle County, filed on March 22, 2007.
    
    Louisiana Municipal Police Employees Retirement System v. Darwin Deason, Joseph P.
ONeill, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert B. Holland,
Affiliated Computer Services, Inc., and Cerberus Capital Management, L.P., Civil Action
No. 2839-VCL, in the Court of Chancery of the State of Delaware in and for New Castle
County, filed on March 26, 2007.
    
    Edward R. Koller v. Darwin Deason, Frank A. Rossi, J. Livingston Kosberg, Robert B.
Holland, Affiliated Computer Services, Inc., and Cerberus Capital Management, L.P.,
Civil Action No. 2908-VCL, in the Court of Chancery of the State of Delaware in and for New
Castle County, filed on April 20, 2007.
    
    Suzanne Sweeney Living Trust v. Darwin Deason, Lynn R. Blodgett, John H. Rexford,
Joseph P. ONeill, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert B.
Holland, Affiliated Computer Services, Inc., and Cerberus Capital Management, L.P.,
Civil Action No. 2915-VCL, in the Court of Chancery of the State of Delaware in and for New
Castle County, filed on April 24, 2007.
 In Re Affiliated Computer Services, Inc. Shareholder
Litigation
  
    
    Steamship Trade Association/International Longshoremans Association Pension Fund v
Affiliated Computer Services, Inc., Darwin Deason, Lynn Blodgett, John Rexford, Joseph P.
ONeill, Gerardo I. Lopez, Frank A. Rossi, J. Livingston Kosberg, Dennis McCuistion, Robert
B. Holland, and Cereberus [sic] Capital Management, L.P., Cause No. 07-02691 in the
District Court of Dallas County, Texas, 44th Judicial District, filed on March
22, 2007.
    
    The City of Birmingham, Alabama Retirement and Relief System v. Darwin Deason,
Robert B. Holland, III, J. Livingston Kosberg, Frank A. Rossi, Joseph P. ONeill, Lynn R.
Blodgett, John H. Rexford, Dennis McCuistion, Affiliated Computer Services, Inc., and
Cerberus Capital Management, L.P., Cause No. 07-02768 in the District Court of Dallas,
Texas, 160th Judicial District, filed on March 28, 2007.
 TX State Court Consolidated stock option derivative case
 19




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




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AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Investigation Regarding Certain Child Support Payment Processing Contracts
  Investigation regarding Florida Workforce Contracts
   Other
  21




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




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




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    We have issued debt and have a substantial uncommitted facility available to us. Our
debt service cost could limit cash flow available to fund our operations, and may limit our
ability to obtain further debt or equity financing;
    
    Alleged defaults and purported acceleration of our Senior Notes, if upheld in
litigation, could have a negative impact on our cash flow and divert resources that could
otherwise be utilized in our business operations;
    
    The complexity of regulatory environments in which we operate has increased and may
continue to increase our costs;
    
    We are subject to the oversight of the Securities and Exchange Commission (SEC) and
other regulatory agencies and investigations by those agencies could divert managements
focus and could have a material adverse impact on our reputation and financial condition;
    
    Reductions of our credit rating may have an adverse impact on our business;
    
    A decline in revenues from or a loss of significant clients could reduce our
profitability and cash flow;
    
    Our ability to recover capital investments in connection with our contracts is subject
to risk;
    
    We have non-recurring revenue, which subjects us to a risk that our revenues from year
to year may fluctuate;
    
    The markets in which we operate are highly competitive and we may not be able to compete
effectively;
    
    We may not be able to make acquisitions that will complement our growth;
    
    A failure to properly manage our operations and our growth could have a material adverse
effect on our business;
    
    Our Government contracts are subject to termination rights, audits and investigations,
which, if exercised, could negatively impact our reputation and reduce our ability to
compete for new contracts;
    
    We may incur delays in signing and commencing new business as the result of protests of
Government contracts that we are awarded;
    
    The exercise of contract termination provisions and service level penalties may have an
adverse impact on our business;
    
    Some of our contracts contain pricing provisions that could adversely affect our
operating results and cash flow;
    
    Claims associated with our actuarial consulting and benefit plan management services
could negatively impact our business;
    
    The loss of or change in our significant software vendor relationships could have a
material adverse effect on our business;
    
    We may be subject to claims of infringement of third-party intellectual property rights
which could adversely affect our business;
    
    We are subject to United States and foreign jurisdiction laws relating to individually
identifiable information, and failure to comply with those laws, whether or not
inadvertent, could subject us to legal actions and negatively impact our operations;
    
    We are subject to breaches of our security systems;
    
    Budget deficits and/or fluctuations in the number of requests for proposals issued by
state and local governments and their agencies may adversely impact our business;
    
    Our international operations are subject to a number of risks;
    
    Armed hostilities and terrorist attacks may negatively impact the countries in which we
operate;
    
    A failure to attract and retain necessary technical personnel, skilled management and
qualified subcontractors may have an adverse impact on our business;
    
    Risks associated with loans that we service may reduce our profitability and cash flow;
    
    A disruption in utility or network services may have a negative impact on our business;
and
    
    Our indemnification obligations may have a material adverse effect on our business.
   24




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OVERVIEW
        25




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26




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##### Table of Contents



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




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##### Table of Contents



REVENUE GROWTH
   Three Months Ended December 31,
    
    
    Six Months Ended December 31,2007
    
    
    2006
    
    
    $ Growth
    
    
    Growth %
    
    
    2007
    
    
    2006
    
    
    $ Growth
    
    
    Growth %ConsolidatedTotal Revenues
    
    $
    1,511,442
    
    
    $
    1,426,761
    
    
    $
    84,681
    
    
    
    6
    %
    
    $
    3,004,525
    
    
    $
    2,812,199
    
    
    $
    192,326
    
    
    
    7
    %Less: Divestitures
    
    
    
    
    
    
    (271
    )
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    (856
    )
    
    
    856Adjusted
    
    $
    1,511,442
    
    
    $
    1,426,490
    
    
    $
    84,952
    
    
    
    6
    %
    
    $
    3,004,525
    
    
    $
    2,811,343
    
    
    $
    193,182
    
    
    
    7
    %Acquired revenues
    
    $
    11,179
    
    
    $
    168
    
    
    $
    11,011
    
    
    
    1
    %
    
    $
    37,715
    
    
    $
    168
    
    
    $
    37,547
    
    
    
    1
    %Internal revenues
    
    
    1,500,263
    
    
    
    1,426,322
    
    
    
    73,941
    
    
    
    5
    %
    
    
    2,966,810
    
    
    
    2,811,175
    
    
    
    155,635
    
    
    
    6
    %Total
    
    $
    1,511,442
    
    
    $
    1,426,490
    
    
    $
    84,952
    
    
    
    6
    %
    
    $
    3,004,525
    
    
    $
    2,811,343
    
    
    $
    193,182
    
    
    
    7
    %CommercialTotal Revenues
    
    $
    903,022
    
    
    $
    849,470
    
    
    $
    53,552
    
    
    
    6
    %
    
    $
    1,781,901
    
    
    $
    1,681,609
    
    
    $
    100,292
    
    
    
    6
    %Less: Divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted
    
    $
    903,022
    
    
    $
    849,470
    
    
    $
    53,552
    
    
    
    6
    %
    
    $
    1,781,901
    
    
    $
    1,681,609
    
    
    $
    100,292
    
    
    
    6
    %Acquired revenues
    
    $
    4,127
    
    
    $
    
    
    
    $
    4,127
    
    
    
    0
    %
    
    $
    23,611
    
    
    $
    
    
    
    $
    23,611
    
    
    
    1
    %Internal revenues
    
    
    898,895
    
    
    
    849,470
    
    
    
    49,425
    
    
    
    6
    %
    
    
    1,758,290
    
    
    
    1,681,609
    
    
    
    76,681
    
    
    
    5
    %Total
    
    $
    903,022
    
    
    $
    849,470
    
    
    $
    53,552
    
    
    
    6
    %
    
    $
    1,781,901
    
    
    $
    1,681,609
    
    
    $
    100,292
    
    
    
    6
    %GovernmentTotal Revenues
    
    $
    608,420
    
    
    $
    577,291
    
    
    $
    31,129
    
    
    
    5
    %
    
    $
    1,222,624
    
    
    $
    1,130,590
    
    
    $
    92,034
    
    
    
    8
    %Less: Divestitures
    
    
    
    
    
    
    (271
    )
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    (856
    )
    
    
    856Adjusted
    
    $
    608,420
    
    
    $
    577,020
    
    
    $
    31,400
    
    
    
    5
    %
    
    $
    1,222,624
    
    
    $
    1,129,734
    
    
    $
    92,890
    
    
    
    8
    %Acquired revenues
    
    $
    7,052
    
    
    $
    168
    
    
    $
    6,884
    
    
    
    1
    %
    
    $
    14,104
    
    
    $
    168
    
    
    $
    13,936
    
    
    
    1
    %Internal revenues
    
    
    601,368
    
    
    
    576,852
    
    
    
    24,516
    
    
    
    4
    %
    
    
    1,208,520
    
    
    
    1,129,566
    
    
    
    78,954
    
    
    
    7
    %Total
    
    $
    608,420
    
    
    $
    577,020
    
    
    $
    31,400
    
    
    
    5
    %
    
    $
    1,222,624
    
    
    $
    1,129,734
    
    
    $
    92,890
    
    
    
    8
    %
 28




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Cost of revenues:Wages and benefits
    
    
    47.4
    
    
    
    46.8
    
    
    
    47.1
    
    
    
    47.4Services and supplies
    
    
    21.6
    
    
    
    22.3
    
    
    
    22.2
    
    
    
    21.7Rent, lease and maintenance
    
    
    12.3
    
    
    
    12.4
    
    
    
    12.3
    
    
    
    12.7Depreciation and amortization
    
    
    6.2
    
    
    
    6.0
    
    
    
    6.2
    
    
    
    5.9Other
    
    
    0.5
    
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.7Total cost of revenues
    
    
    88.0
    
    
    
    88.1
    
    
    
    88.3
    
    
    
    88.4Other operating expenses
    
    
    1.6
    
    
    
    1.4
    
    
    
    1.6
    
    
    
    1.2Total operating expenses
    
    
    89.6
    
    
    
    89.5
    
    
    
    89.9
    
    
    
    89.6Operating income
    
    
    10.4
    
    
    
    10.5
    
    
    
    10.1
    
    
    
    10.4Interest expense
    
    
    2.8
    
    
    
    3.4
    
    
    
    2.9
    
    
    
    3.4Other non-operating income, net
    
    
    (0.4
    )
    
    
    (0.7
    )
    
    
    (0.2
    )
    
    
    (0.4
    )Pretax profit
    
    
    8.0
    
    
    
    7.8
    
    
    
    7.4
    
    
    
    7.4Income tax expense
    
    
    2.6
    
    
    
    2.7
    
    
    
    2.5
    
    
    
    2.7Net income
    
    
    5.4
    %
    
    
    5.1
    %
    
    
    4.9
    %
    
    
    4.7
    %
 COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2007 TO THE THREE MONTHS ENDED DECEMBER 31, 2006
 Revenues
   Operating expenses
 29




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##### Table of Contents



Three Months EndedDecember 31,2007
    
    
    2006Government segment:Gain on sale of our decision support business
    
    $
    (2.4
    )
    
    $
    Gain on settlement of indemnification and
other claims with Lockheed Martin
Corporation
    
    
    (2.2
    )
    
    
    Corporate segment:Legal costs associated with the ongoing
stock option investigations and shareholder
derivative lawsuits
    
    
    12.3
    
    
    
    13.3Legal costs and other costs associated with
the potential sale of the Company and
shareholder derivative lawsuits
    
    
    4.0
    
    
    
    Total
    
    $
    11.7
    
    
    $
    13.3As a percentage of revenue
    
    
    0.8
    %
    
    
    0.9
    %
 30




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##### Table of Contents



Operating income
 Three Months EndedDecember 31,2007
    
    
    2006Commercial segment:Impairment charge related to the termination of a Commercial client that was
acquired
    
    $
    (1.6
    )
    
    $
    Government segment:Gain on sale of our decision support business
    
    
    2.4
    
    
    
    Gain on settlement of indemnification and other claims
with Lockheed Martin Corporation
    
    
    2.2
    
    
    
    Corporate segment:Legal costs
and other costs associated with the ongoing stock option
investigations and shareholder derivative lawsuits
    
    
    (13.0
    )
    
    
    (13.8
    )Legal costs and other costs associated with the
potential sale of the Company and shareholder
derivative lawsuits
    
    
    (3.8
    )
    
    
    Cost related to certain former employees stock options
    
    
    0.4
    
    
    
    Total
    
    $
    (13.4
    )
    
    $
    (13.8
    )As a percentage of revenue
    
    
    0.9
    %
    
    
    1.0
    %
 Interest expense
 Other income, net
 Income tax expense
 COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31,
2007 TO THE SIX MONTHS ENDED DECEMBER 31, 2006
 Revenues
   31




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##### Table of Contents



Operating expenses
    32




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##### Table of Contents



Six Months EndedDecember 31,2007
    
    
    2006Commercial segment:Estimated pre-acquisition litigation
settlement related to our human resources
consulting and outsourcing business acquired
from Mellon Financial Corporation in May
2005
    
    $
    3.0
    
    
    $
    Government segment:Gain on sale of our decision support business
    
    
    (2.4
    )
    
    
    Gain on settlement of indemnification and
other claims with Lockheed Martin
Corporation
    
    
    (2.2
    )
    
    
    Corporate segment:Legal costs associated with the ongoing
stock option investigations and shareholder
derivative lawsuits
    
    
    23.0
    
    
    
    21.0Legal costs and other costs associated with
the potential sale of the Company and
shareholder derivative lawsuits
    
    
    5.2
    
    
    
    Total
    
    $
    26.6
    
    
    $
    21.0As a percentage of revenue
    
    
    0.9
    %
    
    
    0.7
    %
 Operating income
 Six Months EndedDecember 31,2007
    
    
    2006Commercial segment:Estimated pre-acquisition litigation settlement
related to our human resources consulting and
outsourcing business acquired from Mellon Financial
Corporation in May 2005
    
    $
    (3.0
    )
    
    $
    Impairment
charge related to the termination of a Commercial client that was
acquired
    
    
    (1.6
    )
    
    
    Restructuring charges
    
    
    
    
    
    
    (5.6
    )Impairments and other charges
    
    
    
    
    
    
    (2.1
    )Government segment:Restructuring charges
    
    
    
    
    
    
    (0.4
    )Gain on sale of our decision support business
    
    
    2.4
    
    
    
    Gain on settlement of indemnification and other claims
with Lockheed Martin Corporation
    
    
    2.2
    
    
    
    Corporate segment:Legal costs
and other costs associated with the ongoing stock option
investigations and shareholder derivative lawsuits
    
    
    (24.1
    )
    
    
    (21.7
    )Legal costs and other costs associated with the
potential sale of the Company and shareholder
derivative lawsuits
    
    
    (8.7
    )
    
    
    Cost related to amending certain employee stock options
    
    
    (1.2
    )
    
    
    Cost related to certain former employees stock options
    
    
    (0.5
    )
    
    
    Total
    
    $
    (34.5
    )
    
    $
    (29.8
    )As a percentage of revenue
    
    
    1.1
    %
    
    
    1.1
    %
 33




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##### Table of Contents



Interest
expense
 Other
income, net
 Income
tax expense
 LIQUIDITY AND CAPITAL RESOURCES
 Cash
flow
 Six Months EndedDecember 31,2007
    
    
    2006Cash paid for interest
    
    $
    (85,308
    )
    
    $
    (81,797
    )Cash paid for legal fees and
other costs related to the
investigations into our stock
option grant practices,
derivative lawsuits related to
our stock option grant practices
and the potential sale
of the Company
    
    
    (29,372
    )
    
    
    (18,624
    )Cash received for interest income
    
    
    5,263
    
    
    
    4,620$
    (109,417
    )
    
    $
    (95,801
    )
   34




---



##### Table of Contents



Six Months EndedDecember 31,2007
    
    
    2006Net cash provided by operating activities
    
    $
    330,621
    
    
    $
    304,714Purchases of property, equipment and software, net
    
    
    (132,402
    )
    
    
    (170,441
    )Additions to other intangible assets
    
    
    (17,416
    )
    
    
    (14,969
    )Free cash flow
    
    $
    180,803
    
    
    $
    119,304
   Credit
arrangements
   Credit
ratings
 35




---



##### Table of Contents



Derivative
instruments and hedging
activities
 Share
Repurchase
Programs
 Stock
Option Repricing
 Other
  36




---



##### Table of Contents



DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
AS OF DECEMBER 31, 2007 (IN THOUSANDS):
 Payments Due by PeriodLess thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsSenior Notes, net of unamortized
discount (1)
    
    $
    499,489
    
    
    $
    
    
    
    $
    249,959
    
    
    $
    
    
    
    $
    249,530Long-term debt (1)
    
    
    1,856,960
    
    
    
    19,271
    
    
    
    36,077
    
    
    
    122,512
    
    
    
    1,679,100Capital lease obligations (1)
    
    
    54,756
    
    
    
    27,079
    
    
    
    26,908
    
    
    
    769
    
    
    
    Operating leases (2)
    
    
    1,019,592
    
    
    
    330,621
    
    
    
    505,623
    
    
    
    128,816
    
    
    
    54,532Purchase obligations (3) (4)
    
    
    18,843
    
    
    
    7,709
    
    
    
    10,250
    
    
    
    884
    
    
    
    Total Contractual Cash Obligations
    
    $
    3,449,640
    
    
    $
    384,680
    
    
    $
    828,817
    
    
    $
    252,981
    
    
    $
    1,983,162
 Total
    
    
    Amount of Commitment Expiration per PeriodAmounts
    
    
    Less thanOther Commercial Commitments
    
    Committed
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsStandby letters of credit
    
    $
    121,635
    
    
    $
    113,635
    
    
    $
    8,000
    
    
    $
    
    
    
    $
    Surety bonds
    
    
    512,511
    
    
    
    472,862
    
    
    
    13,751
    
    
    
    25,898
    
    
    
    Total Commercial Commitments
    
    $
    634,146
    
    
    $
    586,497
    
    
    $
    21,751
    
    
    $
    25,898
    
    
    $
    
 
 (1)
    
    Excludes accrued interest of $6.5 million at December 31, 2007.(2)
    
    We have various contractual commitments to lease hardware and software and for the
purchase of maintenance on such leased assets with varying terms through fiscal year 2013,
which are included in operating leases in the table.(3)
    
    We have entered into various contractual agreements to purchase telecommunications
services. These agreements provide for minimum annual spending commitments, and have
varying terms through fiscal year 2012, and are included in purchase obligations in the
table.(4)
    
    In June 2006, we entered into a two year agreement with Rich Capital, LLC, an M&A
advisory firm owned by Jeffery A. Rich, a former Chief Executive Officer, to provide us
with advisory services in connection with potential acquisition candidates. This
contractual obligation is included in purchase obligations in the table above. However, we
have currently suspended payment under this agreement pending determination whether Rich
Capital, LLC is capable of performing its obligations under the contract in view of the
internal investigations conclusions regarding stock options awarded to Mr. Rich.       37




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Revenue
recognition
      38




---



##### Table of Contents



Cost of revenues
  Contingencies
   Valuation of goodwill and intangibles
  39




---



##### Table of Contents



Valuation of property, equipment and software
  Stock-Based Compensation
  
    
    Expected volatility of our stock price based on historical monthly volatility over the
expected term based on daily closing stock prices.
    
    Expected term of the option based on historical employee stock option exercise behavior
and the vesting and contractual terms of the respective option.
    
    Risk-free interest rate for periods within the expected term of the option.
    
    Expected dividend yield.
   Pension and post-employment benefits
   Allowance for doubtful accounts
  40




---



##### Table of Contents



Income taxes
    NEW ACCOUNTING PRONOUNCEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
  41




---



##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Share repurchase program
   Total number of
    
    Maximum number (orshares
    
    approximate dollarTotal
    
    
    
    
    
    purchased as
    
    value) of shares thatnumber of
    
    Average
    
    part of publicly
    
    may yet be purchasedshares
    
    price paid
    
    announced plans
    
    under the plans orPeriod
    
    purchased
    
    per share
    
    or programs
    
    programsOctober 1  October 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    November 1  November 30, 2007
    
    
    277,400
    
    
    
    42.02
    
    
    
    277,400
    
    
    
    188,344,496December 1  December 31, 2007
    
    
    4,249,319
    
    
    
    44.32
    
    
    
    4,249,319
    
    
    
    For the quarter ended December 31, 2007
    
    
    4,526,719
    
    
    $
    44.18
    
    
    
    4,526,719
    
    
    $
    
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 6. EXHIBITS
  42




---



##### Table of Contents



SIGNATURES
  AFFILIATED COMPUTER SERVICES, INC.By:
    /s/ Kevin KyserKevin KyserExecutive Vice President and
Chief Financial Officer 43




---



##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name2.1
    
    Stock Purchase Agreement, dated as of July 31, 2003
between Lockheed Martin Corporation and Affiliated
Computer Services, Inc. (filed as Exhibit 10.1 to our
Quarterly Report on Form 10-Q, filed November 14, 2003
and incorporated herein by reference).2.2
    
    Asset Purchase Agreement, dated as of
July 31, 2003 between Lockheed Martin
Service, Inc. and Affiliated Computer
Services, Inc. (filed as Exhibit 10.2 to
our Quarterly Report on Form 10-Q, filed
November 14, 2003 and incorporated herein
by reference).2.3
    
    Purchase Agreement, dated as of March 15,
2005, among Mellon Financial Corporation,
Mellon Consultants European Holdings
Limited, Affiliated Computer Services,
Inc., ACS Business Process Solutions
Limited and Affiliated Computer Services
of Germany GmbH (filed as Exhibit 2.1 to
our Current Report on Form 8-K, filed
March 17, 2005 and incorporated herein by
reference).2.4
    
    Amendment No. 1 to Purchase Agreement,
dated as of May 25, 2005, among Mellon
Financial Corporation, Mellon Consultants
European Holdings Limited, Affiliated
Computer Services, Inc., ACS Business
Process Solutions Limited and Affiliated
Computer Services of Germany GmbH (filed
as Exhibit 2.1 to our Current Report on
Form 8-K, filed June 1, 2005 and
incorporated herein by reference).2.5
    
    Amendment No. 2 to Purchase Agreement,
dated as of November 11, 2005, among
Mellon Financial Corporation, Mellon
Consultants European Holdings Limited,
Affiliated Computer Services, Inc., ACS
Business Process Solutions Limited and
Affiliated Computer Services of Germany
GmbH (filed as Exhibit 2.1 to our Current
Report on Form 8-K, filed November 16,
2005 and incorporated herein by
reference).3.1
    
    Certificate of Incorporation of
Affiliated Computer Services, Inc. (filed
as Exhibit 3.1 to our Registration
Statement on Form S-3, filed March 30,
2001, File No. 333-58038 and incorporated
herein by reference).3.2
    
    Certificate of Correction to Certificate
of Amendment of Affiliated Computer
Services, Inc., dated August 30, 2001
(filed as Exhibit 3.2 to our Annual
Report on Form 10-K, filed September 17,
2003 and incorporated herein by
reference).3.3
    
    Bylaws of Affiliated Computer Services,
Inc., as amended and in effect on
December 7, 2007 (filed as Exhibit 3.2 to
our Current Report on Form 8-K, filed
January 29, 2008 and incorporated herein
by reference).4.1
    
    Form of New Class A Common Stock
Certificate (filed as Exhibit 4.3 to our
Registration Statement on Form S-1, filed
May 26, 1994, File No. 33-79394 and
incorporated herein by reference).4.2
    
    Indenture, dated as of June 6, 2005, by
and between Affiliated Computer Services,
Inc. as Issuer and The Bank of New York
Trust Company, N.A. as Trustee (filed as
Exhibit 4.1 to our Current Report on Form
8-K, filed June 6, 2005 and incorporated
herein by reference).4.3
    
    First Supplemental Indenture, dated as of
June 6, 2005, by and between Affiliated
Computer Services, Inc. as Issuer and The
Bank of New York Trust Company, N.A. as
Trustee, relating to our 4.70% Senior
Notes due 2010 (filed as Exhibit 4.2 to
our Current Report on Form 8-K, filed
June 6, 2005 and incorporated herein by
reference).4.4
    
    Second Supplemental Indenture, dated as
of June 6, 2005, by and between
Affiliated Computer Services, Inc. as
Issuer and The Bank of New York Trust
Company, N.A. as Trustee, relating to our
5.20% Senior Notes due 2015 (filed as
Exhibit 4.3 to our Current Report on Form
8-K, filed June 6, 2005 and incorporated
herein by reference).4.5
    
    Specimen Note for 4.70% Senior Notes due
2010 (filed as Exhibit 4.4 to our Current
Report on Form 8-K, filed June 6, 2005
and incorporated herein by reference).4.6
    
    Specimen Note for 5.20% Senior Notes due 2015 (filed as
Exhibit 4.5 to our Current Report on Form 8-K, filed June
6, 2005 and incorporated herein by reference).9.1
    
    Voting Agreement, as amended December 7, 2007, by and
between Affiliated Computer Services, Inc. and Darwin
Deason (filed as Exhibit 99.1 to our Current Report on
Form 8-K, filed December 10, 2007 and incorporated herein
by reference).10.1
    
    Form of Resignation Agreement by and
among the Company, Darwin Deason, Lynn R.
Blodgett, John H. Rexford and certain
members of the Companys Board of
Directors (filed as Exhibit 10.1 to our
Current Report on Form 8-K, filed November 21, 2007 and incorporated herein
by reference).
 44




---



##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit Name10.2
    
    Employment Agreement, as amended December
7, 2007, between Affiliated Computer
Services, Inc. and Darwin Deason (filed
as Exhibit 99.2 to our Current Report on
Form 8-K, filed December 10, 2007 and
incorporated herein by reference).10.3
    
    Executive Employment Agreement, entered
into January 4, 2008 and effective
December 14, 2007, by and between
Affiliated Computer Services, Inc. and
Lynn R. Blodgett (filed as Exhibit 99.1
to our Current Report on Form 8-K, filed
January 11, 2008 and incorporated herein
by reference).10.4
    
    Form of Severance Agreement, each dated as of March 1, 2004 except as otherwise noted, by
and between Affiliated Computer Services, Inc. and each of Mark A.
King, Warren D. Edwards,
Lynn Blodgett, Harvey Braswell (September 14, 2004), John Brophy, William L. Deckelman, Jr.,
Ann Vezina (May 25, 2006), Kevin Kyser (entered into
January 31, 2008 and effective December
14, 2007) and Tom Blodgett (entered into January 31, 2008 and effective December 14, 2007)
(filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed May 17, 2004 and
incorporated herein by reference).31.1*
    
    Certification of Chief Executive Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(a) or 15d-14(a)
promulgated under the Securities Exchange
Act of 1934, as amended.31.2*
    
    Certification of Chief Financial Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(a) or 15d-14(a)
promulgated under the Securities Exchange
Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(b) or 15d-14(b)
promulgated under the Securities Exchange
Act of 1934, as amended and Section 1350
of Chapter 63 of Title 18 of the United
States Code. Pursuant to Item
601(b)(32)(ii) of Regulation S-K, this
Exhibit is furnished to the SEC and shall
not be deemed to be filed.32.2*
    
    Certification of Chief Financial Officer
of Affiliated Computer Services, Inc.
pursuant to Rule 13a-14(b) or 15d-14(b)
promulgated under the Securities Exchange
Act of 1934, as amended and Section 1350
of Chapter 63 of Title 18 of the United
States Code. Pursuant to Item
601(b)(32)(ii) of Regulation S-K, this
Exhibit is furnished to the SEC and shall
not be deemed to be filed.
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement. 45