UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Mark One		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
[ X ]		For the fiscal year ended June 30, 2008
		OR
[     ]		Transition Report Pursuant to Section 13 or 15(d) of the

For the transition period from                      to                      .

Commission file number 1-12665

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, including zip code)

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

Title of each class		Name of exchange on which registered
Class A common stock, par value $.01 per share		New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.          

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.           

Yes [ ] No [X]

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 the past 90 days.  Yes [X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   [X]		Accelerated filer  [ ]		Non-accelerated filer  [ ]		Smaller reporting company  [ ]
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X ]  

As of August 18, 2008, 90,668,572 shares of Class A common stock and 6,599,372 shares of Class B common stock were outstanding. The aggregate market value of the Class A common voting stock held by nonaffiliates of Affiliated Computer Services, Inc. as of the last business day of the second quarter of fiscal year 2008 approximated $3,941,016,506.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the definitive Proxy Statement for the 2008 Annual Meeting are incorporated by reference in Part III.

 

 

AFFILIATED COMPUTER SERVICES, INC.

FORM 10-K
Fiscal Year Ended June 30, 2008

Part I
Item 1.		Business		1
Item 1A.		Risk Factors		11
Item 1B.		Unresolved Staff Comments		20
Item 2.		Properties		20
Item 3.		Legal Proceedings		20
Item 4.		Submission of Matters to a Vote of Security Holders		21
Part II
Item 5.		Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		22
Item 6.		Selected Financial Data		25
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		51
Item 8.		Financial Statements and Supplementary Data		53
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		107
Item 9A.		Controls and Procedures		107
Item 9B.		Other Information		107
Part III
Item 10.		Directors, Executive Officers and Corporate Governance		108
Item 11.		Executive Compensation		108
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		108
Item 13.		Certain Relationships and Related Transactions, and Director Independence		108
Item 14.		Principal Accounting Fees and Services		108
Part IV
Item 15.		Financial Statements and Exhibits		108
Form of Stock Option Agreement
Form of Stock Option Agreement
Form of Stock Option Agreement
Subsidiaries
Consent of PricewaterhouseCoopers LLP
Consent of Value Incorporated
Certification of CEO Pursuant to Rule 13a-14(a)
Certification of CFO Pursuant to Rule 13a-14(a)
Certification of CEO Pursuant to Section 1350
Certification of CFO Pursuant to Section 1350

PART I

Affiliated Computer Services, Inc. (“ACS” or the “Company”), is a provider of business process outsourcing and information technology services to commercial and government clients. Our services are focused on vertical markets and centered on our clients’ needs. The services we provide enable our clients to concentrate on their core operations, respond to rapidly changing technologies and reduce expenses associated with their business processes and information processing. We typically service our clients through long-term contracts and leverage our global production model with approximately 65,000 employees worldwide. We support client operations in more than 100 countries.

We were incorporated in Delaware on June 8, 1988. Our corporate headquarters is located in Dallas, Texas. We are a Fortune 500 and S&P 500 company.

We provide non-core, mission critical services that our clients need to run their day-to-day business. We believe the market for our services is vast. The demand for our services has grown in recent years, and we believe that this demand will continue to grow as the overall acceptance of outsourcing increases in both the Commercial and Government segments.

The cornerstone of our business strategy is our focus on vertical markets and technology solutions that we can leverage across our business and client base. We have significant subject matter expertise in the vertical markets we serve, which, combined with our business strategy, provides us with capabilities to deliver innovative solutions that enable our clients to achieve better outcomes through outsourcing.

The key elements of our business strategy include the following.

As of June 30, 2008, we had approximately 65,000 employees, including approximately 45,000 employed domestically, with the balance employed in our international operations. Of our domestic employees, approximately 60 are represented by a union. Approximately 1,300 of our international employees are represented by unions, primarily in Mexico and Ghana. Approximately 700 of our European employees and approximately 300 of our employees in Brazil are subject to collective bargaining agreements. Employment arrangements for our international employees are often governed by works or labor council arrangements. We have had no work stoppages or strikes by our employees. Management considers its relations with employees and union officials to be good.

As of June 30, 2008, approximately 50,000 domestic and international employees support our commercial clients and approximately 14,300 primarily domestic employees support our government clients and approximately 400 primarily domestic employees are in our Corporate segment.

Our business is structured around two reporting segments – Commercial and Government. These segments are comprised of lines of business that are focused on specific vertical markets or horizontal solutions. The graphic below provides an overview of our reporting segments and the lines of business within these reporting segments.

Our focus on vertical markets and horizontal solutions provides us with subject matter expertise which allow us to deliver innovative and leveragable solutions that drive better outcomes for our clients. The graphic below provides an overview of our approach to vertical markets and horizontal solutions.

During fiscal year 2008, we reorganized the internal operating and reporting structures in our Commercial and Government segments to more formally align our sales, service delivery and financial organizations under their appropriate leadership. As a result, we have restated our Commercial and Government segment results for prior periods to reflect our current operating and reporting structure. The restatement has no impact on our consolidated results for the period of restatement. Please refer to Note 25 of the Notes to Consolidated Financial Statements for further discussion of our segments.

During the last three fiscal years, our revenues by segment were as follows (in thousands):

		Fiscal year ended June 30,
		2008				2007				2006
Commercial (a)		$	3,673,981			$	3,404,935			$	3,118,159
Government (b)			2,486,569				2,367,544				2,235,502
Total revenues		$	6,160,550			$	5,772,479			$	5,353,661

	(a)		Includes $14 million, $18 million and $18.8 million of revenues for fiscal years 2008, 2007 and 2006, respectively, from operations divested through June 30, 2008.
	(b)		Includes $3.6 million, $8.8 million and $112.7 million of revenues for fiscal years 2008, 2007 and 2006, respectively, from operations divested through June 30, 2008.

Commercial Segment

Our Commercial segment accounted for approximately $3.67 billion, or 60% of our fiscal year 2008 revenues. Our Commercial segment provides business process outsourcing, information technology services, systems integration services and consulting services to our commercial clients. This segment is focused on vertical markets that offer good growth opportunities and vertical market subject matter expertise including communications and consumer goods, healthcare, transportation, consumer goods and services, and financial services, which includes education services. Within the vertical markets we serve, we develop or acquire technology solutions that we leverage across our client base and each vertical market which provides us with economies of scale. Our horizontal solutions include information technology, human capital management, finance and accounting, customer care, transaction processing, payment services and commercial education.

Pricing for our services in the commercial market varies by type of service. For business process outsourcing services, we typically price these services on the basis of the number of accounts, resources utilized or transactions processed. Our information technology services are normally priced on a resource utilization basis. Resources utilized include processing time, the number of desktops managed, professional services and consulting time and materials, data storage and retrieval

utilization, client accounts, client employee headcount and output media utilized. Our systems integration services are generally offered on a time and materials basis to clients under short-term contractual arrangements. For consulting services, we typically price these services on a time and materials or fixed fee basis.

The Commercial segment is organized to leverage our horizontal solutions and vertical market focus. Our significant horizontal solutions include the following:

Our key vertical markets in our Commercial segment are as follows:

Government Segment

During fiscal year 2008, our Government segment generated revenues of approximately $2.49 billion, or 40% of our revenues. Our services help government agencies reduce their operating costs, increase their revenue streams and improve the quality of services that they deliver to their constituents. We provide services to four broad government markets which include state and local government, transportation, government healthcare and the federal government. Our services include technology and business process based services with a focus on transaction processing, child support payment processing, electronic toll collection, traffic violations processing, program management services such as Medicaid fiscal agent services and student loan processing services.

Pricing for our services in the government market varies by the type of service. For business process outsourcing services, we typically price these services based on the number of transactions processed or the number of human services cases managed. Our information technology services are normally priced on a resource utilization basis. Resources utilized include processing time, the number of desktops managed, professional services and consulting time and materials, data storage and retrieval utilization, client accounts, client employee headcount and output media utilized. For services where a development project is required, pricing is generally on a fixed price basis.

In connection with the sale of the majority of our federal business in November 2003 (the “Divested Federal Business”), we entered into a five-year non-competition agreement with Lockheed Martin Corporation that generally prohibits us from offering services or products that were previously provided by the Divested Federal Business. This non-competition agreement does not prohibit us from entering into the federal government market for services not previously provided by the Divested Federal Business, such as certain federal healthcare market services, nor does it restrict us from expanding our relationship with the Department of Education. This non-competition agreement expires in November 2008. The expiration of this agreement will allow us to compete for federal government contracts, beyond our current relationships with the Department of Education and other federal agencies.

Our significant government solutions include the following:

Our revenues by service line over the past three years are shown in the following table (in thousands):

		Fiscal year ended June 30,
		2008				2007				2006
Business process outsourcing (a)		$	4,792,403			$	4,322,164			$	3,996,558
Information technology services			1,041,036				1,013,801				971,832
Systems integration services (b)			327,111				436,514				385,271
Total revenues		$	6,160,550			$	5,772,479			$	5,353,661

	(a)		Includes $17.6 million, $26.8 million and $131.2 million of revenues for fiscal years 2008, 2007 and 2006, respectively, from operations divested through June 30, 2008.
	(b)		Includes $0.3 million of revenues for fiscal year 2006 from operations divested through June 30, 2008.

The markets for our services are intensely competitive and highly fragmented. We believe our competitive advantage comes from our use of world-class technology, subject matter expertise, process reengineering skills, proprietary software, our global production model and activity-based compensation.

We compete with a variety of companies in the markets we serve, as well as in-house departments performing the function that we are seeking to outsource. Competition can be large multi-national corporations, accounting or consulting companies, smaller niche service providers and offshore service providers in low-cost locations.

One of our key differentiators is our global production model which encompasses employees in production centers around the world including India, Mexico, the Philippines, Jamaica, Ghana, Brazil, Guatemala, Chile, Argentina, Spain, Poland and Ireland, among others. Our global production model is enabled by our use of technology, including our WorkFlow technology, which allows us to securely distribute discreet portions of client deliverables within data privacy limits across our global workforce and reassemble the finalized deliverable once each discreet portion is complete. Our global production model allows us to leverage lower cost production locations, consistent methodology and processes, and time zone advantages. During fiscal 2008, we increased the headcount in our global production model and anticipate further increases in the future. We believe our global production model is one of our key competitive advantages.

Our five largest clients accounted for approximately 13% of each of our fiscal years 2008, 2007 and 2006 revenues. Our largest client, Sprint Nextel Corporation, represented approximately 4%, 3% and 3% of our consolidated revenues for fiscal years 2008, 2007 and 2006, respectively.

Factors that clients consider when determining whether to outsource a function and the choice of service provider include the following: service offerings, service delivery approach, subject matter expertise, technological innovations, value-add propositions, reputation, references and price.

Approximately 92%, 93% and 95% of our revenues for fiscal years 2008, 2007 and 2006, respectively, were derived from domestic clients. As of June 30, 2008 and 2007, approximately 88% and 92%, respectively, of our long-lived assets were located in the United States. As of June 30, 2008, the largest concentrations of our long-lived assets located outside the United States are in France, the United Kingdom and Mexico, with approximately 2% of our total long-lived assets in each country. As of June 30, 2007, the largest concentration of our long-lived assets located outside the United States was in France, with approximately 2%. Please see Item 1A. Risk Factors for a discussion of the risks associated with our international operations.

We have included the CEO and CFO certifications required by Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as Exhibits 31.1 and 31.2, respectively, to this fiscal year 2008 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The Annual CEO Certification, as required by Section 303A.12(a) of the New York Stock Exchange’s (“NYSE”) listing rules, regarding our compliance with the corporate governance listing standards of the NYSE, was submitted to the NYSE on June 20, 2008.

All of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments to those reports, filed with or furnished to the SEC on or after May 14, 1996, are available free of charge through our internet website, www.acs-inc.com, as soon as reasonably practical after we have electronically filed such material with, or furnished it to, the SEC. Information contained on our internet website is not incorporated by reference in this Annual Report on Form 10-K. In addition, the SEC maintains an internet website containing reports, proxy and information statements, and other information filed electronically at www.sec.gov. You may also read and copy this information, for a copying fee, at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.

The risks described below should not be considered to be comprehensive or all-inclusive. If any events occur that give rise to the following risks, our business, financial condition, cash flow, prospects 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. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our business, financial condition, cash flow, prospects or results of operations. 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.

As of June 30, 2008, we have outstanding $250 million aggregate principal amount of 4.70% Senior Notes due June 1, 2010 and $250 million aggregate principal amount of 5.20% Senior Notes due June 1, 2015 (collectively, the “Senior Notes”) we sold in a public offering in June 2005, and approximately $1.9 billion is drawn under our Credit Facility (defined below). The Credit Facility provides for a senior secured term loan facility of $1.8 billion, with the ability to increase it by up to $1.8 billion (as of June 30, 2008), under certain circumstances (the “Term Loan Facility”) and a senior secured revolving credit

facility of $1 billion with the ability to increase it by up to $750 million (the “Revolving Facility”) (collectively, the “Credit Facility”). Obligations under the Credit Facility are guaranteed by us and substantially all of our domestic subsidiaries and certain of our foreign subsidiaries (but only to the extent such guarantees would not result in materially adverse tax consequences). In addition, Credit Facility obligations are secured under certain pledge agreements by (i) a first priority perfected pledge of all notes owned by us and the guarantors and the capital stock of substantially all of our domestic subsidiaries and certain of our foreign subsidiaries (subject to certain exceptions, including to the extent the pledge would give rise to additional SEC reporting requirements for our subsidiaries or result in materially adverse tax consequences), and (ii) a first priority perfected security interest in all other assets owned by us and the guarantors, subject to customary exceptions.

The interest rates under the Credit Facility fluctuate with changes in the market rates and with changes in our leverage ratio. Thus, our debt service cost will increase as market interest rates increase and as our leverage ratio increases. It will be necessary to utilize cash flow from operating activities to fund debt service cost related to our indebtedness. If we fail to have sufficient cash flow to satisfy the debt service cost of our indebtedness, then we could default on our indebtedness, resulting in foreclosure on the assets used to conduct our business. In addition, reduction of our available cash flow may negatively impact our business, including our ability to make future acquisitions, our ability to compete for client contracts requiring upfront capital costs, and our ability to meet our other obligations. Further, the amount of our indebtedness and our reduction in available cash flow may limit our ability to obtain further debt or equity financing. In addition, if we are fully drawn under our Credit Facility (including the increase resulting from the accordion features of the Revolving Facility), the book value of our equity may be in a deficit position.

Certain holders of our Senior Notes have appealed a lower court’s determination that we did not default under our Senior Notes and that no acceleration of our payment obligations on the Senior Notes has occurred. Our position is that no default and no acceleration has occurred with respect to the Senior Notes or otherwise under the Indenture dated June 6, 2005 (the “Indenture”) between us and The Bank of New York Trust Company, N.A., which has been subsequently replaced as Trustee by Wilmington Trust Company (the “Trustee”), and filed a lawsuit against the Trustee in the United States District Court, Northern District of Texas, Dallas Division, which sought the declaratory judgment which we received affirming our position. There can be no assurance of the outcome of that appeal. If the lower court’s determination is reversed on appeal and final judgment is rendered that there has been a default and acceleration has occurred, then we may have to pay the principal and accrued interest under the Senior Notes. While we do have cash on hand and credit available under our Credit Facility to draw funds to repay the Senior Notes, using our available cash or drawing on the Credit Facility for this purpose would reduce our available cash or credit which could otherwise be used for other corporate purposes, such as acquisitions, share repurchases and general corporate purposes.

The complexity of regulatory environments in which we operate has increased and may continue to increase our costs.

Our business is subject to increasingly complex corporate governance, public disclosure, accounting and tax requirements and environmental legislation that have increased both our costs and the risk of noncompliance. Because our Class A common stock and Senior Notes are publicly traded, we are subject to certain rules and regulations for federal, state and financial market exchange entities (including the Public Company Accounting Oversight Board, the SEC and the NYSE). We have implemented new policies and procedures and continue developing additional policies and procedures in response to recent corporate scandals and laws enacted by Congress. Without limiting the generality of the foregoing, we have made a significant effort to comply with the provisions of the Sarbanes-Oxley Act of 2002 (including, among other things the development of policies and procedures to satisfy the provisions thereof regarding internal control over financial reporting, disclosure controls and procedures and certification of financial statements appearing in periodic reports). Our effort to comply with these new regulations has resulted in, and is likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue generating activities to compliance activities.

We are subject to the oversight of the SEC and other regulatory agencies and investigations by those agencies could divert management’s focus and could have a material adverse impact on our reputation and financial condition.

As a result of the regulation and oversight of the SEC and other regulatory agencies, we may be subject to legal and administrative proceedings. We are currently the subject of an ongoing SEC and Department of Justice (“DOJ”) investigation related to our historical stock option grant practices. As a result of these investigations, several derivative lawsuits have been filed in connection with our stock option grant practices generally alleging claims related to breach of fiduciary duty and unjust enrichment by certain of our directors and senior executives. As the result of these investigations and shareholder actions, we have incurred and will continue to incur significant legal costs and a significant amount of time of our senior management has been focused on these matters that otherwise would have been directed toward the growth and development of our business. We have concluded our internal investigation of our stock option grant practices as discussed in Note 20 to our Consolidated Financial Statements. The SEC and DOJ investigations are continuing and until these investigations of our stock option grant practices are complete, we are unable to predict the effect, if any, that these investigations and lawsuits will have on our business and financial condition, results of operations and cash flow. We cannot assure that the SEC and/or DOJ will not seek to impose fines or take other actions against us that could have a significant negative impact on our financial condition. In addition, publicity surrounding the SEC’s and DOJ’s investigations, the derivative causes of actions, or any enforcement action, even if ultimately resolved favorably for us, could have a material adverse impact on our cash flows, financial condition, results of operations or business.

Our credit rating or further reductions of our credit rating may have an adverse impact on our business.

The ratings on our current outstanding obligations currently established by the ratings agencies are below investment grade. Below investment grade ratings could negatively impact our ability to renew contracts with our existing clients, limit our ability to compete for new clients, result in increased premiums for surety bonds to support our clients contracts, and/or result in a requirement that we provide collateral to secure our surety bonds. Further, certain of our commercial outsourcing contracts provide that, in the event our credit ratings are downgraded to specified levels, the client may elect to terminate its contract with us and either pay a reduced termination fee or, in some limited instances, no termination fee. A credit rating reduction or downgrade could adversely affect these client relationships. There may be reductions in our ratings if we incur additional indebtedness, including amounts that may be drawn under our Credit Facility.

A decline in revenues from or a loss or failure of significant clients could reduce our profitability and cash flow.

Our revenues, profitability, financial condition and cash flow could be materially adversely affected by the loss or failure of significant clients, some of whom are in sectors which have experienced significant financial difficulties or consolidation, and/or the reduction of volumes or their inability to make payments to us, as a result of, among other things, their merger or acquisition, divestiture of assets or businesses, contract expiration, non-renewal or early termination (including termination for convenience) or business or financial failure or deterioration. Economic and political conditions could affect our clients’ businesses and the markets they serve. A significant or prolonged economic downturn, continued high energy prices or a negative or uncertain political climate could, or could continue to, adversely affect our clients’ financial conditions and the level of business activity of our clients and the industries we serve, which may reduce our clients’ demand for our services or depress pricing of those services and have a material adverse affect on our business, prospects, results of operations, revenues and cash flow. In addition, we incur certain fixed costs related to providing our information technology and business process outsourcing services to our clients. Therefore the loss or failure of any one of our significant clients could leave us with a significantly higher level of fixed costs than is necessary for some period of time to serve our remaining clients, thereby reducing our profitability and cash flow.

Our ability to recover capital investments in connection with our contracts is subject to risk.

In order to attract and retain large outsourcing contracts we sometimes make significant capital investments to perform our services under the contract, such as purchases of information technology equipment and costs incurred to develop and implement software. The net book value of such assets recorded, including a portion of our intangible assets, could be impaired, and our earnings and cash flow could be materially adversely affected in the event of the early termination of all or a part of such a contract or the reduction in volumes and services thereunder for reasons such as, among other things, a client’s merger or acquisition, divestiture of assets or businesses, business failure or deterioration, or a client’s exercise of contract termination rights.

We have non-recurring revenue, which subjects us to a risk that our revenues and cash flows from may fluctuate from period to period.

Revenue generated from our non-recurring services, including our consulting and unclaimed property escheatment services, may increase or decrease in relation to the revenue generated from our recurring services, such as business process outsourcing and information technology outsourcing. Our mix of non-recurring and recurring revenues is impacted by acquisitions as well as growth in our non-recurring lines of business. There is less predictability and certainty in the timing and amount of revenue generated by our non-recurring services and, accordingly, our revenues, results of operations and cash flow may be significantly impacted by the timing and amounts of revenues generated from our non-recurring services.

The markets in which we operate are highly competitive and we may not be able to compete effectively.

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. Some of our competitors have substantially greater resources, and they may be able to use their resources to adapt more quickly to new or emerging technologies, to devote greater resources to the promotion and sale of their products and services, or to obtain client contracts where sizable asset purchases, investments or financing support are required. 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. In the future, competition could continue to emerge from large computer hardware or software providers as they shift their business strategy to include services. Competition has also emerged from European and Indian offshore service providers seeking to expand into our markets and from large consulting companies seeking operational outsourcing opportunities.

Our business could be adversely affected if our clients are not satisfied with our services.

Our business model depends in large part on our ability to attract new work from our base of existing clients. Our business model also depends on relationships we develop with our clients so that we can understand our clients’ needs and deliver solutions and services that are tailored to those needs. If a client is not satisfied with the quality of work performed by us or a subcontractor, or with the type of services or solutions delivered, then we could incur additional costs to address the situation, the profitability of that work might be impaired, and the client’s dissatisfaction with our services could damage our ability to obtain additional work from that client. In particular, clients that are not satisfied might seek to terminate existing contracts prior to their scheduled expiration date and could direct future business to our competitors. In addition, negative publicity related to our client relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new contracts with current and prospective clients.

We are dependent to a significant extent on third party providers, such as subcontractors, a relatively small number of primary software vendors, utility providers and network providers, and could be materially adversely affected if they cannot deliver or perform as expected or if our relationships with them are terminated or otherwise change.

Our ability to service our clients and deliver and implement solutions depends to a large extent on third party providers such as subcontractors, a relatively small number of primary software vendors and utility providers and network providers meeting their obligations to us and our expectations in a timely, quality manner. Our business, revenues, profitability and cash flows could be materially and adversely affected and we might incur significant additional liabilities if these third party providers do not meet these obligations or our expectations or if they terminate or refuse to renew their relationships with us or were to offer their products to us on less advantageous terms than we previously had. In addition, many of our facilities are located in jurisdictions outside of the United States where the provision of utility services, including electricity and water, may not be consistently reliable and, while there are backup systems in many of our operating facilities, an extended outage of utility or network services may have a material adverse effect on our operations, revenues, cash flow and profitability.

We may not be successful at identifying, acquiring or integrating other businesses or technologies.

Historically, we have made a significant number of acquisitions that have expanded the products and services we offer, provided a presence in a complementary business or expanded our geographic presence. We intend to continue our acquisition strategy. 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. If the businesses or technologies we acquire fail to perform in accordance with our expectations or if

their liabilities exceed our expectations, our cash flow, financial condition and results of operations may be adversely affected. Without additional acquisitions, we are unlikely to maintain historical total growth rates.

A failure to properly manage our operations and our growth could have a material adverse effect on our business.

We have expanded our operations in recent years. We intend to continue expansion in the foreseeable future to pursue existing and potential market opportunities. Some market opportunities require that we develop software to perform the services we become contractually obligated to perform, such as our Medicaid activities. This growth places a significant demand on our management and operational resources. In order to manage growth effectively, we must design, develop, implement and improve our operational systems, which may include the design, development and implementation of software and timely development and implementation of procedures and controls. If we fail to design, develop and implement and improve these systems, we may not be able to service our clients’ needs, hire and retain new employees, pursue new business opportunities, complete future acquisitions or operate our businesses effectively. We could also trigger contractual credits to clients or a contractual default. Failure to properly transition new clients 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, impair fixed or intangible assets 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, results of operations and cash flow could be materially and adversely affected. In addition, our success depends on our ability to develop and implement services and solutions that anticipate and respond to continuing changes in technology, industry developments and client needs. We may not be successful in anticipating or responding to these developments on a timely basis, and our offerings may not be successful in the marketplace. Also, services, solutions and technologies offered by current or future competitors may make our service or solution offerings uncompetitive or obsolete.

Approximately 40% of our fiscal year 2008 revenues were derived from contracts with state and local governments and from federal government agencies, including our contract with the Department of Education. Governments and their agencies have the right to terminate most of these contracts at any time, without cause. Also, our Department of Education contract and our other federal contracts are subject to the approval of appropriations by the United States Congress to fund the expenditures of the federal government under this contract. 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 flows. Further, the negative publicity that arises from findings in such audits, investigations or the penalties or sanctions therefore 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.

After a government contract is awarded, a competing bidder may protest the award. If we are awarded a contract and it is protested, it will be necessary to incur costs to defend the award of the contract. Costs to defend an award may be significant and could include hiring experts to defend the basis for the contract award. Some contract protests may take years to resolve. In some instances where we are awarded a contract, the contracting government entity may request that we sign a contract and commence services, even though the contract award has been protested. If the protest is upheld, then our contract would be terminated and the amounts due to us for services that have been performed to date would be subject to payment pursuant to the terms of the terminated contract. Such terms may not provide for full recovery of our incurred costs. In addition, if the government agency requests that we make changes to our contractual agreement during a protest period, but the government agency is unable or unwilling to modify the contract at the end of the protest period (whether or not we are successful in defending the protest), we may be unable to recover the full costs incurred in making such changes. In addition, we may suffer negative publicity as the result of any contract protest being upheld and our contract being terminated. Further, if the

contract is re-bid, we could incur additional costs associated with the re-bid process and be subject to a potential protest if we are awarded a subsequent contract.

Some of our contracts contain provisions that could adversely affect our business, financial condition, operating results and cash flows. Additionally, our inability to control costs could adversely affect our business, financial condition, operating results and cash flows.

Most of our contracts permit termination in the event our performance is not consistent with the service levels specified in those contracts, or require us to provide credits to our clients for failure to meet those service levels. The invoking of those termination or service level penalty provisions by clients, or the seeking of damages by clients permitted under those contracts or the loss of our reputation if clients are not satisfied with our level of performance, could materially adversely affect our business, financial condition, operating results and cash flow.

Other contracts contain pricing provisions requiring that our services be priced based on a fixed price or a fixed price per transaction. Our pricing is dependent on our internal forecasts and predictions about our projects and the marketplace, which might be based on limited data and could turn out to be inaccurate. If we do not accurately estimate the costs and timing for completing projects, or if we encounter increased or unexpected costs, delays, failures or risks, including those outside our control, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. In addition, some contract provisions permit a client to request that their pricing be established by reference to a pre-established standard or benchmark and 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.

Our inability to control our costs and improve our efficiency would also materially adversely affect our business, financial condition, operating results and cash flow. Our cost reduction initiatives might not be sufficient to respond to all pressures on our pricing and, even if we achieve some cost savings, we could experience erosion of operating income as a percentage of revenues before reimbursements if current pricing pressures accelerate.

Claims associated with our actuarial consulting and benefit plan management services could negatively impact our business.

In May 2005, we acquired the human resources consulting business of Mellon Financial Corporation, which includes actuarial consulting services related to commercial, governmental and Taft-Hartley pension plans. Providers of these types of consulting services have experienced frequent claims, some of which have resulted in litigation and significant settlements or judgments, particularly when investment markets have performed poorly and pension funding levels have been adversely impacted. In addition, our total benefits outsourcing business unit manages and administers benefit plans on behalf of its clients and is responsible for processing numerous plan transactions for current and former employees of those clients. We are subject to claims from our client and its current and former employees if transactions are not properly processed. If any claim is made against us in the future related to our actuarial consulting services or benefit plan management services, our business, financial condition, results of operations and cash flows could be materially and adversely affected as a result of the time and cost required to defend such a claim, the cost of settling such a claim or paying any judgments resulting therefrom, or the damage to our reputation in the industry that could result from the negative publicity surrounding such a claim.

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. In addition, we may be exposed to claims for monetary damages. If we are unsuccessful in defending an infringement claim and our vendors require us to initiate any of the above actions, or we are required to pay monetary damages, then such actions could have a material adverse effect on our business, financial condition, results of operations, prospects and cash flow.

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 process, transmit 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 United States (both federal and state) and foreign jurisdiction laws and regulations designed to protect individually identifiable information, including social security numbers, financial and health information. For example, in 1996, Congress passed the Health Insurance Portability and Accountability Act and as required therein, the Department of Health and Human Services 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. Another example is the European Union Directive on Data Protection, entitled “Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data.” We have also taken steps to address the requirements of that Directive. Other United States (both federal and state) and foreign jurisdiction 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, among other things, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process information and allegations by our clients that we have not performed our contractual obligations, any of which may have a material adverse effect on our profitability and cash flow.

We are subject to breaches of our security system.

We have implemented security systems with the intent of maintaining the physical security of our facilities and protecting our, our clients’ and our suppliers’ confidential information and information related to identifiable individuals against unauthorized access through our information systems or by other electronic transmission or through the misdirection, theft or loss of physical media. These include, for example, the encryption of information. Despite such efforts, we are subject to breach of security systems which may result in unauthorized access to our facilities and/or the information we are trying to protect. If unauthorized parties gain physical access to a Company facility or electronic access to our information systems or such information is misdirected, lost or stolen during transmission or transport, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our clients that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for damages related to the theft or misuse of such information, any of which may have a material adverse effect on our profitability and cash flow.

Approximately 40% of our fiscal year 2008 revenues were derived from contracts with federal, state and local governments and their agencies. From time to time, state and local government clients may face budget deficits. Also, the number of requests for proposals issued by state and local government agencies are subject to fluctuation. A significant number of government contracts have provisions permitting termination by the contracting government agency for convenience. If state and local budgets were to be reduced, then services we provided could become non-essential and our contracts could be terminated and future contracting opportunities for government contracts could be limited. Such an event could reduce our revenue and profitability.

Our international and domestic operations are subject to a number of risks.

Recently we have expanded our international operations and also continually evaluate the acquisition of companies formed and operating in foreign countries. We have approximately 20,000 employees in Mexico, India, the Philippines, Jamaica, Ghana, the United Kingdom, Spain, Canada, Guatemala, Malaysia, Dominican Republic and France, as well as a number of other countries, that primarily support our commercial business process and information technology services. Our international operations and acquisitions are subject to a number of risks. These risks include the possible impact on our operations of the laws of foreign countries where we may do business including, among others, data privacy, laws regarding licensing and labor council requirements. In addition, we may experience difficulty integrating the management and operations of businesses we acquire internationally, and we may have difficulty attracting, retaining and motivating highly skilled and qualified personnel to staff key managerial positions in our ongoing international operations. Our international operations

may also be impacted by trade restrictions, such as tariffs and duties or other trade controls imposed by the United States or other jurisdictions, as well as other factors that may adversely affect our business, financial condition and operating results. Because of these foreign operations we are subject to regulations, such as those administered by the Department of Treasury’s Office of Foreign Assets Controls (“OFAC”) and export control regulations administered by the Department of Commerce. Violation of these regulations could result in fines, criminal sanctions against our officers, and prohibitions against exporting, as well as damage to our reputation, which could adversely affect our business, financial condition and operating results.

In addition, our international and domestic operations and facilities and those of our clients are subject to a number of risks related to general economic, social and political conditions in the countries where we or they operate, including, among others, fluctuations in cultural differences, political instability, acts of violence, armed hostilities or natural disasters, employee work stoppages or strikes and the additional expenses and risks inherent in conducting worldwide operations across geographically distant locations.

Our operating results may be adversely affected by fluctuations in foreign currency exchange rates.

Although we report our operating results in U.S. dollars, a percentage of our revenues are denominated in currencies other than the U.S. dollar. Fluctuations in foreign currency exchange rates can have a number of adverse effects on us.

	•		Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies will affect our revenues, operating income and the value of balance-sheet items originally denominated in other currencies. Declines in the value of other currencies against the U.S. dollar could cause our consolidated earnings stated in U.S. dollars to be lower than our consolidated earnings in local currency and could affect our reported results when compared against other periods. Conversely, increases in the value of other currencies against the U.S. dollar could cause our consolidated earnings stated in U.S. dollars to be higher than our consolidated earnings in local currency and could affect our reported results when compared against other periods. There is no guarantee that our financial results will not be adversely affected by currency exchange rate fluctuations.
	•		In some countries we could be subject to strict restrictions on the movement of cash and the exchange of foreign currencies, which could limit our ability to use this cash across our global operations.
	•		As we continue to leverage our global delivery model, more of our expenses are incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies against the U.S. dollar could increase costs for delivery of services at off-shore sites by increasing labor and other costs that are denominated in local currency, and there can be no assurance that our contractual provisions or any currency hedging activities would offset this impact. This could result in a decrease in the profitability of our contracts that are utilizing delivery center resources.

A failure to attract and retain necessary technical personnel, skilled management and qualified subcontractors may have an adverse impact on our business.

Because we operate in intensely competitive markets, 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 qualified engineers, technical staff and sales and marketing representatives or are unable to contract with qualified, competent subcontractors, our business, financial condition, and results of operations will be materially and adversely affected. Experienced and capable personnel in the technology industry remain in high demand, and there is continual competition for their talents. Additionally, we may be required to increase our hiring in geographic areas outside of the United States, which could subject us to increased geopolitical and exchange rate risk. Our success also depends on the skills, experience, and performance of key members of our management team. The loss of any key employee or the loss of a key subcontractor relationship could have an adverse effect on our business, financial condition, cash flow, results of operations and prospects.

Risks associated with loans that we service may reduce our profitability and cash flow.

Our Commercial Education business service (for various lenders and under various service agreements) a portfolio of approximately 2.8 million loans with an outstanding principal balance of approximately $39.9 billion as of June 30, 2008 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.

Certain provisions of our certificate of incorporation, bylaws and Delaware law and our stock ownership could deter takeover attempts.

Some provisions in our certificate of incorporation and bylaws could delay, defer, prevent or make more difficult a merger, tender offer, or proxy contest involving our capital stock. Our stockholders might view transactions such as these as being in their best interests because, for example, a change of control might result in a price higher than the market price for shares of the Class A common stock. Among other things, these provisions:

	•		require an 80% vote of the stockholders to amend some provisions of our certificate of incorporation;
	•		require an 80% vote of the stockholders to amend some provisions of our bylaws;
	•		permit only our Chairman, President or a majority of the Board of Directors (calculated as if there were no vacancies) to call stockholder meetings;
	•		authorize our Board of Directors to issue up to 3 million shares of preferred stock in series with the terms of each series to be fixed by our Board of Directors;
	•		authorize our Board of Directors to issue Class B common stock, which shares are entitled to ten votes per share;
	•		permit directors to be removed, with or without cause, only by a vote of at least 80% of the combined voting power; and
	•		specify advance notice requirements for stockholder proposals and director nominations to be considered at a meeting of stockholders.

Further, Section 203 of the Delaware General Corporation Law also generally restricts mergers and other business combinations between us and any holder of 15% or more of our voting stock. Further, we have entered into change of control agreements with certain of our executive officers, which may have the effect of discouraging an unsolicited takeover proposal.

In addition, Darwin Deason beneficially owns 6,599,372 shares of Class B common stock and 2,740,364 shares of the Class A common stock and controls approximately 44% of our total voting power (based on shares of both classes of common stock outstanding) as of August 18, 2008. As a result, Mr. Deason has the requisite voting power to significantly affect many of our significant decisions, including the power to block corporate actions such as an amendment to most provisions of our certificate of incorporation. In addition, Mr. Deason has the right to approve the non-management director nominees. Mr. Deason has an employment agreement, with a term that currently ends on May 18, 2010, provided that such term shall automatically be extended for an additional year on May 18 of each year, unless thirty days prior to May 18 of any year, Mr. Deason gives notice to us that he does not wish to extend the term or our Board of Directors (upon a unanimous vote of the directors, except for Mr. Deason) gives notice to Mr. Deason that it does not wish to extend the term.

The price of our Class A common stock may fluctuate significantly, which may result in losses for investors.

The market price for the Class A common stock has been and may continue to be volatile. For example, during the 52-week period ended August 18, 2008, the closing prices of our Class A common stock as reported on the NYSE ranged from a high of $57.08 per share to a low of $40.39 per share. We expect our stock price to be subject to fluctuations as a result of a variety of factors, including factors beyond our control. Because of this volatility, we may fail to meet the expectations of our stockholders or of securities analysts at some time in the future, and our stock price could decline as a result.

In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many high technology companies. These fluctuations have often been unrelated or disproportionate to changes in the operating performance of these companies. Any negative change in the public’s perception of information technology companies could depress our stock price regardless of our operating results.

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 believe are immaterial, may occur or become material. These risks could impair our business operations or adversely affect revenues, cash flow or profitability.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

As of June 30, 2008, we have approximately 343 locations in the United States, of which 174 locations are occupied by Commercial operations, 169 locations are occupied by Government operations, and our company-owned facility in Dallas, Texas, which is occupied by primarily Commercial and Corporate functions. We also have 121 locations in 27 other countries, of which 79 locations are occupied by Commercial operations and 42 locations are occupied by Government operations. In addition, we also have employees in client-owned locations. We own approximately 1.2 million square feet of real estate space and lease approximately 8.8 million square feet. The leases expire from calendar years 2008 to 2018 and we do not anticipate any significant difficulty in obtaining lease renewals or alternate space. Our executive offices are located in Dallas, Texas at a company-owned facility of approximately 630,000 square feet, which also houses a host data center and other operations. We believe that our current facilities are suitable and adequate for our current business.

Information regarding legal proceedings is incorporated by reference from Note 20 to our Consolidated Financial Statements set forth in Part I. Item 8 of this report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our 2007 Annual Meeting of Stockholders held on May 22, 2008, the following actions were taken:

1.

Election of Directors:

Name		For				Withheld
Darwin Deason			110,950,744				35,618,291
Lynn R. Blodgett			113,402,983				33,166,052
Robert Druskin			119,039,731				27,529,304
Kurt R. Krauss			113,838,959				32,730,076
Ted B. Miller, Jr.			113,837,131				32,731,904
Paul E. Sullivan			119,039,523				27,529,512
Frank Varasano			113,844,671				32,724,364

		Each of the directors was elected by a plurality of the vote and will serve until their respective successors are elected and qualified.
2.		Approval of the fiscal year 2008 performance-based incentive compensation for ACS’ executive officers.

For		Against		Abstain
139,290,967		5,682,793		1,595,274

3.

Ratification of the appointment of PricewaterhouseCoopers LLP as ACS’ independent registered public accounting firm for fiscal year 2008.

For		Against		Abstain
143,017,423		2,412,627		1,138,985

4.

Approval of a stockholder proposal to adopt a policy on an annual advisory vote on executive compensation.

For		Against		Abstain		Broker Non-Votes
30,186,122		103,389,187		6,762,172		6,231,554

PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Price
Our Class A common stock is traded on the NYSE under the symbol “ACS.” The following table sets forth the high and low sales prices of our Class A common stock for the last two fiscal years as reported on the NYSE.

		High				Low
Fiscal year ended June 30, 2008
First Quarter		$	58.70			$	45.52
Second Quarter			52.61				39.46
Third Quarter			53.23				40.43
Fourth Quarter			57.40				49.55
Fiscal year ended June 30, 2007
First Quarter			54.16				47.32
Second Quarter			53.85				48.06
Third Quarter			60.63				47.79
Fourth Quarter			61.67				56.30

On August 18, 2008, the last reported sales price of our Class A common stock as reported on the NYSE was $50.48 per share. As of that date, there were approximately 56,000 record holders of our Class A common stock and one record holder of our Class B common stock.

Dividends
Under the terms of our Credit Facility and Senior Notes (each as defined in Item 1A. Risk Factors), we are allowed to pay cash dividends. Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and such other factors as the Board of Directors deems relevant. We intend to retain earnings for use in the operation of our business and, therefore, did not pay cash dividends in the fiscal years ended June 30, 2008, 2007 and 2006 and do not anticipate paying any cash dividends in the foreseeable future.

Stock Option and Employee Stock Purchase Plans
The following table summarizes certain information related to our stock option and employee stock purchase plans.

Number of securities

Number of

remaining available for

securities to be

future issuance under

issued upon exercise

equity compensation

of outstanding

Weighted average

plans (excluding

options, warrants

exercise price of

securities reflected in

and rights

outstanding options,

initial column)

Plan Category

as of June 30, 2008

warrants and rights

as of June 30, 2008

Equity compensation plans approved by security shareholders

Stock options

13,682,410

(1)

$ 47.82

10,542,500

(2)

Employee stock purchase plan

N/A

N/A

646,457

Equity compensation plans not approved by security shareholders

-

-

-

Total

13,682,410

$ 47.82

11,188,957

(1)

This consists of the 1997 Stock Incentive Plan and the 2007 Equity Incentive Plan. Upon exercise the holder is entitled to receive Class A common stock.

(2)

This represents the available shares under the 2007 Equity Incentive Plan. In June 2007, our stockholders approved the 2007 Equity Incentive Plan which replaced the 1997 Stock Incentive Plan. The remaining shares available for issuance under the 1997 Stock Incentive Plan expired on December 31, 2007.

Stock Option Repricing
Please see Note 16 to our Consolidated Financial Statements for a discussion of the December 2006 repricing of certain outstanding stock options, our tender offer to amend certain options and results of the tender offer, as well as our offer to former employees.

Share Repurchase Program
Please see Note 16 to our Consolidated Financial Statements for a discussion of our Share Repurchase Programs.

Tender Offer
On January 26, 2006, we announced that our Board of Directors authorized a modified “Dutch Auction” tender offer to purchase up to 55.5 million shares of our Class A common stock at a price per share not less than $56 and not greater than $63 (the “Tender Offer”). The Tender Offer commenced on February 9, 2006, and expired on March 17, 2006 (as extended), and was funded with proceeds from the Term Loan Facility (defined in Item 1A. Risk Factors). Our directors and executive officers, including our Chairman, Darwin Deason, did not tender shares pursuant to the Tender Offer. The number of shares purchased in the Tender Offer was 7,365,110 shares of Class A common stock at an average price of $63 per share plus transaction costs, for an aggregate purchase amount of $475.9 million. All of the shares purchased in the Tender Offer were retired as of June 30, 2006.

Performance Graph
The graph below compares the total cumulative return of our Class A common stock from June 30, 2003 through June 30, 2008 with the Standard & Poor’s 500 Software & Services Index and the Standard & Poor’s 500 Stock Index. The graph assumes the investment of $100 on June 30, 2003 and the reinvestment of all dividends. The stock price performance shown on the graph is not necessarily indicative of future stock performance.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data is qualified by reference to and should be read in conjunction with our Consolidated Financial Statements and Notes thereto and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included elsewhere in this document. Please see the discussions “Significant Developments – Fiscal Years 2008, 2007 and 2006” in MD&A for a description of the more significant events, including business combinations, that impact comparability, as well as the Notes to our Consolidated Financial Statements (in thousands, except per share amounts).

		As of and for the fiscal year ended June 30,
		2008				2007(b)				2006(c)				2005(d)				2004(e)
Results of Operations Data:
Revenues (a)		$	6,160,550			$	5,772,479			$	5,353,661			$	4,351,159			$	4,106,393
Operating income		$	645,078			$	536,955			$	617,284			$	647,484			$	834,745
Net income		$	329,010			$	253,090			$	358,806			$	409,569			$	521,728
Earnings per share – basic		$	3.36			$	2.53			$	2.91			$	3.21			$	3.97
Earnings per share – diluted		$	3.32			$	2.49			$	2.87			$	3.14			$	3.77
Weighted average shares outstanding – basic (f)			98,013				100,181				123,197				127,560				131,498
Weighted average shares outstanding – diluted (f)			98,993				101,572				125,027				130,556				139,880
Balance Sheet Data:
Working capital		$	1,017,977			$	839,662			$	704,158			$	405,983			$	406,854
Total assets		$	6,469,399			$	5,982,429			$	5,502,437			$	4,850,838			$	3,907,242
Total long-term debt (g) (less current portion)		$	2,357,541			$	2,342,272			$	1,614,032			$	750,355			$	372,439
Stockholders’ equity		$	2,308,374			$	2,066,168			$	2,456,218			$	2,811,712			$	2,569,678
Other Data:
Net cash provided by operating activities (h)		$	826,777			$	738,378			$	638,710			$	739,348			$	476,209

(a)

Revenues from operations divested through June 30, 2008 were $17.6 million, $26.8 million, $131.5 million, $260 million and $551.0 million for fiscal years 2008, 2007, 2006, 2005 and 2004, respectively. Please see “Significant Developments – Fiscal Year 2008, 2007 and 2006” in MD&A and Note 6 to our Consolidated Financial Statements for a discussion of divestiture activity.

(b)

During fiscal year 2007 we recorded a non-cash impairment charge of approximately $76.4 million ($48.3 million, net of income tax) related to a change in terms on our contract with the Department of Education. Please see “Significant Developments – Fiscal Year 2007” in MD&A for further discussion.

(c)

Please see “Significant Developments – Fiscal Year 2006” in MD&A and the Notes to our Consolidated Financial Statements for discussion of significant items which impacted fiscal year 2006 results of operations.

(d)

During fiscal year 2005, we acquired the human resources consulting and outsourcing business of Mellon Financial Corporation.

(e)

During fiscal year 2004 we completed the sale of the majority of our federal business. We recognized a pretax gain of $285.3 million ($182.3 million, net of income tax) in fiscal year 2004.

(f)

Please see Note 16 to our Consolidated Financial Statements for a discussion of our share repurchase programs and Tender Offer (defined in “Significant Developments – Fiscal Year 2006” in MD&A).

(g)

During fiscal year 2005, we issued $500 million of Senior Notes (defined in Item 1A. Risk Factors) and during fiscal year 2006 we entered into a new $800 million Term Loan Facility and $1 billion Revolving Facility (each as defined in Item 1A. Risk Factors). Please see “Liquidity and Capital Resources” in MD&A and Note 12 to our Consolidated Financial Statements for a discussion of our credit arrangements.

(h)

Please see “Liquidity and Capital Resources” in MD&A for a discussion of items affecting fiscal years 2008, 2007 and 2006 cash flow from operating activities.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

All statements and assumptions contained in this Annual Report and in the documents attached or incorporated by reference that are not based on historical facts constitute “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 the Private Securities Litigation Reform Act of 1995). Such forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance or achievements to be materially different from anticipated results, prospects, performance or achievements expressed or implied by such forward-looking statements. 

Forward-looking information contained in these statements include, among other things, statements with respect to our financial condition, results of operations, cash flows, business strategies, operating efficiencies, indebtedness, litigation,  competitive positions, growth opportunities, plans and objectives of management, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of our control, which could cause actual results to differ materially from the results described in such statements. These factors include without limitation those listed herein under Item 1A. Risk Factors and other reports from time to time filed with or furnished to the SEC. 

Forward-looking statements in this Annual Report on Form 10-K speak only as of the date of this Annual Report on Form 10-K, and forward-looking statements in documents attached or incorporated by reference speak only as to the date of those documents. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events, except as required by law.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We provide non-core, mission critical services that our clients need to run their day-to-day business. We believe the market for our services is vast. The demand for our services has grown in recent years and we believe that this demand will continue to grow as the overall acceptance of outsourcing increases in both the Commercial and Government segments. The cornerstone of our business strategy is our focus on vertical markets and technology solutions that we can leverage across our business and client base.

We enter into long-term relationships with clients to provide services that meet their ongoing business requirements while supporting their mission critical business process or information technology needs. We derive our revenues from delivering comprehensive business process outsourcing and information technology services solutions to commercial and government clients.  A substantial portion of our revenues is derived from recurring monthly charges to our clients under service contracts with initial terms that vary from one to ten years. The recurring nature of our revenue provides us with predictable revenue streams regardless of the economic cycle. We define recurring revenues as revenues derived from services that our clients use each year in connection with their ongoing businesses, and accordingly, exclude software license fees, short-term contract programming and consulting engagements, product installation fees, and hardware and software sales. However, if we add consulting or other services to enhance the value delivered and offered to our clients that are primarily short-term in nature, we may experience variations in our mix of recurring versus non-recurring revenues.

New Business Pipeline
Management focuses on various metrics in analyzing our business and its performance and outlook. One such metric is our sales pipeline, which was approximately $2 billion of annual recurring revenues as of June 30, 2008.  Our sales pipeline includes potential business opportunities that will be contracted within the next six months and excludes business opportunities with estimated annual recurring revenue that are in excess of $100 million. Both the Commercial and Government pipelines have significant, quality opportunities within our vertical markets and horizontal solutions. As of June 30, 2008, the Commercial segment comprised approximately 59% of our pipeline and the Government segment comprised the remaining 41%. By service line, approximately 74% of our pipeline is business process outsourcing and approximately 26% of the pipeline is information technology solutions as of June 30, 2008. The Commercial segment pipeline includes opportunities in information technology services, commercial healthcare, transactional business process outsourcing and finance and accounting outsourcing. The Government segment pipeline includes opportunities in our domestic and international

transportation business, in the state and local market for information technology and eligibility services and in government healthcare and with the federal government.

While the magnitude of our sales pipeline is an important indicator of potential new business signings and potential future internal revenue growth, actual new business signings and internal revenue growth depend on a number of factors including the effectiveness of our sales pursuit teams, competition for a deal, deal pricing, cash flow generation qualities of each deal and are subject to risks described further in Item 1A. Risk Factors of this Annual Report on Form 10-K.

New Business Signings
We define new business signings as estimated annual recurring revenue from new contracts and the incremental portion of renewals that are signed during the period, which represents the estimated first twelve months of revenue to be recorded under the contracts after full implementation. We use new business signings to forecast prospective revenues and to estimate capital commitments.  Revenues for new business signings are measured under GAAP (defined below). There are no third party standards or requirements governing the calculation of new business signings and our measure may not be comparable to similarly titled measures of other companies. We define total contract value as the estimated total revenues from contracts signed during the period. We use total contract value as an additional measure of estimating total revenue represented by contractual commitments, both to forecast prospective revenues and to estimate capital commitments.  Revenues for annual recurring revenue and total contract value are measured under GAAP.

During fiscal year 2008, we signed contracts with new clients and incremental business with existing clients representing $800.5 million of annual recurring revenue with an estimated $3.2 billion in total contract value. The Commercial segment contributed 60% of the new contract signings and the Government segment contributed 40% of the new contract signings (based on annual recurring revenues).

Internal Revenue Growth
We use internal revenue growth as a measure of the organic growth of our business. Internal revenue growth is measured as total revenue growth less revenues from acquisitions and revenues from divested operations.  At the date of an acquisition, we identify the trailing twelve months of revenue of the acquired company as the “pre-acquisition revenue of acquired companies.”  Pre-acquisition revenue of the acquired companies is considered “acquired revenues” in our calculation, and actual revenues from the acquired company, either above or below “acquired revenues” are components of “internal growth” in our calculation.    Revenues from divested operations are excluded from the internal revenue growth calculation in the periods following the effective date of the divestiture.  We believe these adjustments to historical reported results are necessary to accurately reflect our internal revenue growth. Prior period internal revenue growth calculations are not restated for current period divestitures. Our measure of internal revenue growth may not be comparable to similarly titled measures of other companies. In fiscal year 2008, total revenue grew 7% over the prior fiscal year and internal revenue grew 5% over the prior fiscal year.

Client Renewal Rates
We focus on the performance of our contractual obligations and continually monitor client satisfaction. Renewal rates are the best indicator of client satisfaction. We calculate our renewal rate based on the total annual recurring revenue of renewals won as a percentage of total annual recurring revenue of all renewals sought. In fiscal year 2008, we renewed approximately 92% of total renewals sought, totaling $752.7 million of annual recurring revenue with a total contract value of approximately $2.7 billion. Average contract life for renewals varies between our government and commercial segments. The average contract life of renewals in the government segment is often longer than those in the commercial segment.

Capital Intensity
Management responds to technological advances and the rapid changes in the requirements of our clients by committing substantial amounts of our resources to the operation of multiple hardware platforms, the customization of products and services that incorporate new technology on a timely basis and the continuous training of our personnel. Management continually assesses the capital intensity of these technological advances and client requirements, addressing the challenge to stay ahead of the competition for innovative solutions and provide a lower cost solution for clients.

We monitor the capital intensity, defined as the total of capital expenditures and additions to intangible assets as a percentage of revenue, of new business signings. Understanding the capital intensity of new business signings is critical in determining the future free cash flow generating levels of our business. Historically, the capital intensity in our business has ranged between 5% and 7% of revenue. During fiscal years 2008 and 2007, the overall capital intensity of our business was

approximately 5% and 6% of revenues, respectively. We expect that as our new business signings ramp, we will incur capital expenditures associated with the new business, which could result in increased capital intensity over the fiscal year 2008 percentage, but we expect that the capital intensity will remain within our historical range. We believe the expected capital intensity range of our new business signings reflects a healthy competitive environment and the related risks we are taking with respect to our new business process outsourcing business and information technology services business.

Employees
Attracting, retaining and training our employees has been a key component to our historical success and will continue to be a major factor in our future success. Because we operate in intensely competitive markets, our success depends to a significant extent on our ability to attract, retain and motivate highly skilled and qualified personnel. We consistently review our employee retention rates on a regional and global basis to ensure that we are competitive in hiring, retaining and motivating our employees. We perform benchmarking studies in some markets in which we compete to ensure our competitiveness in compensation and benefits and utilize employee surveys to gauge our employees’ level of satisfaction. We provide our employees ongoing technological, management, financial and leadership training and will continue to do so to develop our employees and remain competitive. We utilize activity based compensation as a means to motivate certain of our employees in both segments of our business and believe our use of activity based compensation is a competitive advantage for ACS.

Other
We identified a number of risk factors in Item 1A. Risk Factors of this Annual Report on Form 10-K. Management continually monitors the general economic conditions, changes in technology and other developments in the markets we serve, competitive pricing trends and contractual terms for future impact on the Company in order to be able to respond effectively and on a timely basis to these developments.

We report our financial results in accordance with generally accepted accounting principles in the United States (“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 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 non-GAAP information is not meant to be considered in isolation or as a substitute for comparable amounts determined in accordance with GAAP.

Fiscal Year 2009 Outlook

Our primary goal for fiscal 2009 is to increase internal revenue growth. We believe we will be able to accomplish this goal as our fiscal year 2008 new business signings generate incremental revenue in fiscal year 2009 and we continue to increase the level of new signings in fiscal year 2009. As a premier provider of business process outsourcing and information technology services, we believe we are well-positioned to benefit from commercial and governmental entities’ demand to outsource non-core, mission-critical functions.

We expect demand for commercial business process and information technology services to remain strong during fiscal year 2009. We also anticipate our existing commercial clients will seek to increase their use of outsourcing as a means to increase their operating efficiency and reduce their costs in the future. We believe the Commercial segment will experience strong demand in fiscal year 2009 for transactional business process outsourcing, finance and accounting outsourcing, customer care outsourcing and traditional information technology services.

We anticipate strong demand for our government services. In addition to the areas that we have marketed historically, such as government healthcare, municipal services, electronic payment services and transportation services and solutions, we continue to believe that government entities could benefit from our commercial best practices in such areas as eligibility administration, human resources outsourcing, customer care and finance and accounting outsourcing. We anticipate growth in certain areas of the government business that have historically grown, such as revenue generating services and entitlement programs, when state and local clients have experienced budget pressure. This trend gives us confidence in our business model and its defensive counter-cyclical nature.

In the Government segment, we expect to expand our technology solutions and platforms, including our software solutions in the state Medicaid market. We expect to leverage our existing broad international presence and subject matter expertise in

the transportation market to markets beyond transportation. We believe we can expand our existing solutions in the property, public safety and judicial markets into solutions that we can market globally.

Our non-compete agreement with Lockheed Martin Corporation expires in November 2008.  The expiration of this agreement will allow us to compete for federal government contracts, beyond our current relationships with the Department of Education and other federal agencies.

From a geographic perspective, we believe that there will continue to be strong demand in the United States and expect to see more business process outsourcing opportunities in Europe and abroad. Our acquisitions of sds business services GmbH and Syan Holdings Limited strengthen our global information technology outsourcing presence in Europe and the United Kingdom.

We also intend to pursue strategic acquisitions in certain vertical markets that will enhance our existing service capabilities, expand our service offerings and increase our service innovation through technology solutions that we can leverage. We expect to strengthen our organization by promoting leaders from within the Company as well as recruiting top industry talent.

In both segments, we also plan to increase our penetration of low-cost delivery locations outside the United States and to deepen our use of incentive based compensation.

Significant Developments – Fiscal Year 2008

New Business
During fiscal year 2008, we signed contracts with new clients and incremental business with existing clients representing $800.5 million of annualized recurring revenue and an estimated $3.2 billion in total contract value. The Commercial segment contributed 60% of the new contract signings (based on annual recurring revenues) including contracts with Sprint Nextel Corporation, T-Mobile, Allergan, Michelin, Hess Corporation, Aetna, Inc., Student Loan Finance Corporation and Verizon Wireless. The Government segment contributed 40% of the new contract signings (based on annual recurring revenues). We teamed with Comerica, Inc. to provide card processing and customer support to the U.S. Department of the Treasury. We also signed contracts with the Tennessee Bureau of TennCare, Indiana Family and Social Services Administration, Alaska Department of Health and Social Services, Texas Housing and Community Affairs, District of Columbia Medical Assistance Administration, California Department of Social Services and Texas Health and Human Services Commission.

Deason/Cerberus Proposal
Please see Note 3 to our Consolidated Financial Statements for a discussion of the Deason/Cerberus proposal to purchase the Company.

Board of Directors
Please see Note 4 to our Consolidated Financial Statements for a discussion of the changes in our Board of Directors during fiscal year 2008.

Acquisitions
We completed seven acquisitions during fiscal year 2008. Please see Note 5 to our Consolidated Financial Statements for a discussion of these acquisitions.

Divestitures
In the second quarter of fiscal year 2008, we completed the sale of our decision support business in our Government segment and recorded a gain on the sale of approximately $2.4 million ($1.6 million, net of income tax) in other operating expense in our Consolidated Statements of Income. We believe that the decision support business was not strategic to our ongoing operations.

In the fourth quarter of fiscal year 2008, we completed the sale of our Unclaimed Property Reporting and Recovery (“UPRR”) business in our Commercial segment and recorded a gain on the sale of approximately $1 million ($0.6 million, net of income tax) in other operating expense in our Consolidated Statements of Income. We believe that the UPRR business was not strategic to our ongoing operations.

Share Repurchase Programs
Please see Note 16 to our Consolidated Financial Statements for a discussion of our share repurchases during fiscal year 2008.

Adoption of FIN 48
Effective July 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for and disclosure of uncertainty in tax positions. Please see Note 14 to our Consolidated Financial Statements for a discussion of our adoption of FIN 48.

Stock Option Repricing
Please see Note 16 to our Consolidated Financial Statements for a discussion of the repricing of certain outstanding stock options, our tender offer to amend certain options and results of the tender offer, as well as our offer to former employees.

Review of Stock Option Grant Practices
On March 3, 2006, we received notice from the SEC that it was conducting an investigation into certain stock option grants made by us from October 1998 through March 2005. On June 7, 2006 and on June 16, 2006, we received requests from the SEC for information on all of our stock option grants since 1994. The SEC issued its formal order of investigation in August 2006. We have been providing supplemental information to the SEC on a voluntary basis following the initial SEC requests.  We are continuing to cooperate with the SEC’s investigation.

Subsequent Events

In July 2008, we completed the sale of our bindery business in our Government segment for approximately $9 million. We believe the bindery business was not strategic to our ongoing operations.

Significant Developments – Fiscal Year 2007

New Business
During fiscal year 2007, we signed contracts with new clients and incremental business with existing clients representing $607 million of annualized recurring revenue and an estimated $2.8 billion in total contract value. The Commercial segment contributed 64% of the new contract signings (based on annual recurring revenues) including contracts with Sprint Nextel Corporation, GlaxoSmithKline, Anthem and Verizon Wireless. The Government segment contributed 36% of the new contract signings (based on annual recurring revenues) including contracts to provide eligibility services to the State of Indiana, install a toll system for the Florida Department of Transportation and a contract with Florida Healthy Kids Corporation.

Acquisitions
We completed six acquisitions during fiscal year 2007. Please see Note 5 to our Consolidated Financial Statements for a discussion of these acquisitions.

Departure of Executive Officers
Please see Note 23 to our Consolidated Financial Statements for a discussion of the departure of our executive officers during fiscal year 2007.

Credit Arrangements
Please see Note 12 to our Consolidated Financial Statements for a discussion of the amendments, consents and waivers we received from the lenders under our Credit Facility.

Please see Note 12 to our Consolidated Financial Statements for a discussion of the declaratory action with respect to the alleged default and purported acceleration of our Senior Notes.

Sale of Minority Interests in a Professional Services Business
In fiscal year 2007, we sold our minority interests in a professional services company, which was accounted for under the equity method, for approximately $19 million. We recorded a gain on the sale of our minority interests of approximately $8.2 million ($5.3 million, net of income tax) in other non-operating (income) expense, net.

Share Repurchase Programs
Please see Note 16 to our Consolidated Financial Statements for a discussion of our share repurchases during fiscal year 2007.

Stock Option Repricing
Please see Note 16 to our Consolidated Financial Statements for a discussion of the December 2006 repricing of certain outstanding stock options, our tender offer to amend certain options and results of the tender offer, as well as our offer to former employees.

Contract with the Department of Education
We have provided loan servicing for the Department of Education’s Direct Student Loan program for over ten years. In 2003, the Department conducted a competitive procurement for its “Common Services for Borrowers” initiative (“CSB”). CSB was a modernization initiative which integrated a number of student loan processing services for the Department, allowing the Department to increase loan servicing quality while saving overall program costs. In November 2003, the Department awarded us the CSB contract. Under this contract we provide comprehensive loan servicing, consolidation loan processing, debt collection services on delinquent accounts, IT infrastructure operations and support, maintenance and development of information systems, and portfolio management services for the Department of Education’s Direct Student Loan program. The CSB contract has a 5-year base term which began in January 2004 and provides the Department five one-year options to extend after the base term. We estimate that our revenues from the CSB contract will exceed $1 billion in total over the base term of the contract. Annual revenues from this contract represented approximately 3% and 4% of our fiscal year 2008 and 2007 revenues, respectively.

In May 2007, we and the Department agreed to cease development of certain software contemplated under the CSB contract. At that time, we had implemented approximately $39 million of internally developed software into the current production system. As a result of the decision to cease development, we recorded a non-cash impairment charge of approximately $76.4 million (approximately $48.3 million, net of income tax) related to in-process capitalized development costs.

Government Healthcare Contract
Please see Note 20 to our Consolidated Financial Statements for a discussion of the settlement of our contract with the North Carolina Department of Health and Human Services.

Restructuring Activities
Please see Note 21 to our Consolidated Financial Statements for a discussion of our restructuring activities.

Significant Developments – Fiscal Year 2006

Review of Stock Option Grant Practices
Please see Note 20 to our Consolidated Financial Statements for a discussion of the results of our internal investigation of our stock option grant practices during the second quarter of fiscal year 2007 and the restatement of our Consolidated Financial Statements.

New Business
During fiscal year 2006, we signed contracts with new clients and incremental business with existing clients representing $762.2 million of annualized recurring revenue. The Commercial segment contributed 73% of the new contract signings (based on annual recurring revenues) including contracts with Sprint Nextel Corporation, T-Mobile, MeadWestvaco, Humana, Kaiser Permanente, Verizon Wireless, Unum Provident and Aetna. The Government segment contributed 27% of the new contract signings (based on annual recurring revenues) including contracts with the State of Maryland and Texas Health and Human Services Commission.

Acquisitions
We completed five acquisitions during fiscal year 2006. Please see Note 5 to our Consolidated Financial Statements for a discussion of these acquisitions.

Sale of Government Welfare-to-Workforce Services Business
In December 2005, we completed the divestiture of substantially all of our Government welfare-to-workforce services business (the “WWS Divestiture”). The welfare-to-workforce services business was no longer strategic or core to our operating philosophy. This divestiture allows us to focus on our technology-enabled business process outsourcing and information technology service offerings. Please see Note 6 to our Consolidated Financial Statements for a discussion of the WWS Divestiture.

Share Repurchase Programs
Please see Note 16 to our Consolidated Financial Statements for a discussion of our share repurchases during fiscal year 2006.

Tender Offer
On January 26, 2006, we announced that our Board of Directors authorized a modified “Dutch Auction” tender offer to purchase up to 55.5 million shares of our Class A common stock at a price per share not less than $56 and not greater than $63 (the “Tender Offer”). Please see Note 16 to our Consolidated Financial Statements for a discussion of the results of our Tender Offer.

Voting Rights of Our Chairman
Please see Note 16 to our Consolidated Financial Statements for a discussion of the Voting Agreement with the Chairman of our Board of Directors.

Departure of Executive Officer
Please see Note 23 to our Consolidated Financial Statements for a discussion of the departure of Jeffery A. Rich, former Chief Executive Officer during fiscal year 2006.

Credit Agreement
On March 20, 2006, we entered into the Credit Facility. The Credit Facility provides for a Term Loan Facility of $1.8 billion, with the ability to increase it by up to $1.8 billion (as of June 30, 2008), under certain circumstances and a senior secured Revolving Facility of $1 billion with the ability to increase it by up to $750 million. Please see Note 12 to our Consolidated Financial Statements for further discussion of our credit arrangements.

Restructuring Activities
Please see Note 21 to our Consolidated Financial Statements for a discussion of our restructuring activities.

Other
In January 2006, we announced that unsolicited discussions with a group of private-equity investors regarding a possible sale of the company had ended. We had considered alternatives to enhance shareholder value including the discussions with a group of private-equity investors, as well as the possible dual class recapitalization proposal described in our September 30, 2005 proxy statement.

Revenue Growth

In fiscal year 2008, we reorganized the internal operating and reporting structures in our Commercial and Government segments to more formally align our sales, service delivery and financial organizations under their appropriate leadership. As a result, we have restated our Commercial and Government segment results for prior periods to reflect our current operating and reporting structure. The restatement has no impact on our consolidated results for the period of restatement.

We use internal revenue growth as a measure of the organic growth of our business. Internal revenue growth is measured as total revenue growth less revenues from acquisitions and revenues from divested operations.  At the date of an acquisition, we identify the trailing twelve months of revenue of the acquired company as the “pre-acquisition revenue of acquired companies.”  Pre-acquisition revenue of the acquired companies is considered “acquired revenues” in our calculation, and actual revenues from the acquired company, either above or below “acquired revenues” are components of “internal growth” in our calculation.    Revenues from divested operations are excluded from the internal revenue growth calculation in the periods following the effective date of the divestiture.  We believe these adjustments to historical reported results are necessary to accurately reflect our internal revenue growth. Prior period internal revenue growth calculations are not restated for current period divestitures. Our measure of internal revenue growth may not be comparable to similarly titled measures of other companies.

The following table sets forth the calculation of internal revenue growth (in thousands):

		Fiscal year ended																Fiscal year ended
		June 30,								Growth								June 30,								Growth
		2008				2007				$				%				2007				2006				$				%
Consolidated
Total Revenues		$	6,160,550			$	5,772,479			$	388,071				7	%		$	5,772,479			$	5,353,661			$	418,818				8	%
Less: Divestitures			(5,077	)			(10,613	)			5,536								(914	)			(104,524	)			103,610
Adjusted		$	6,155,473			$	5,761,866			$	393,607				7	%		$	5,771,565			$	5,249,137			$	522,428				10	%
Acquired revenues		$	115,614			$	4,094			$	111,520				2	%		$	272,049			$	22,437			$	249,612				5	%
Internal revenues			6,039,859				5,757,772				282,087				5	%			5,499,516				5,226,700				272,816				5	%
Total		$	6,155,473			$	5,761,866			$	393,607				7	%		$	5,771,565			$	5,249,137			$	522,428				10	%
Commercial
Total Revenues (a)		$	3,673,981			$	3,404,935			$	269,046				8	%		$	3,404,935			$	3,118,159			$	286,776				9	%
Less: Divestitures			(5,077	)			(5,487	)			410								-				-				-
Adjusted		$	3,668,904			$	3,399,448			$	269,456				8	%		$	3,404,935			$	3,118,159			$	286,776				9	%
Acquired revenues		$	82,426			$	-			$	82,426				2	%		$	174,947			$	7,103			$	167,844				5	%
Internal revenues			3,586,478				3,399,448				187,030				6	%			3,229,988				3,111,056				118,932				4	%
Total		$	3,668,904			$	3,399,448			$	269,456				8	%		$	3,404,935			$	3,118,159			$	286,776				9	%
Government
Total Revenues (b)		$	2,486,569			$	2,367,544			$	119,025				5	%		$	2,367,544			$	2,235,502			$	132,042				6	%
Less: Divestitures			-				(5,126	)			5,126								(914	)			(104,524	)			103,610
Adjusted		$	2,486,569			$	2,362,418			$	124,151				5	%		$	2,366,630			$	2,130,978			$	235,652				11	%
Acquired revenues		$	33,188			$	4,094			$	29,094				1	%		$	97,102			$	15,334			$	81,768				4	%
Internal revenues			2,453,381				2,358,324				95,057				4	%			2,269,528				2,115,644				153,884				7	%
Total		$	2,486,569			$	2,362,418			$	124,151				5	%		$	2,366,630			$	2,130,978			$	235,652				11	%

(a)

The Commercial segment includes revenues from operations divested through June 30, 2008 of $14 million, $18 million and $18.8 million for fiscal years 2008, 2007 and 2006, respectively.

(b)

The Government segment includes revenues from operations divested through June 30, 2008 of $3.6 million, $8.8 million and $112.7 million for fiscal years 2008, 2007 and 2006, respectively.

Results of Operations

The following table sets forth the items from our Consolidated Statements of Income expressed as a percentage of revenues. Please refer to the comparisons below for discussion of items affecting these percentages.

		Percentage of Revenue
		Fiscal year ended June 30,
		2008				2007				2006
Revenues			100.0	%			100.0	%			100.0	%
Operating expenses:
Cost of revenues:
Wages and benefits			47.2				47.6				48.0
Services and supplies			22.5				21.9				21.8
Rent, lease and maintenance			12.1				12.2				12.1
Depreciation and amortization			6.2				6.0				5.4
Software impairment charge			-				1.3				-
Other			0.4				0.5				0.7
Cost of revenues			88.4				89.5				88.0
Gain on sale of business			-				-				(0.6	)
Other operating expenses			1.1				1.2				1.1
Total operating expenses			89.5				90.7				88.5
Operating income			10.5				9.3				11.5
Interest expense			2.6				3.2				1.3
Other non-operating income, net			(0.2	)			(0.5	)			(0.2	)
Pretax profit			8.1				6.6				10.4
Income tax expense			2.8				2.2				3.7
Net income			5.3	%			4.4	%			6.7	%

Comparison of Fiscal Year 2008 to Fiscal Year 2007

Revenues
Revenue increased $388.1 million, or 7%, to $6.2 billion during fiscal year 2008 from $5.8 billion during fiscal year 2007. Excluding revenues related to operations divested through June 30, 2008, our revenues increased $393.6 million, or 7%. Internal revenue growth was 5% and the remainder of the growth was related to acquisitions. Fiscal years 2008 and 2007 include revenues related to the operations divested through June 30, 2008 of $5.1 million and $10.6 million, respectively.

Revenue in our Commercial segment, which represented approximately 60% of our consolidated revenue for fiscal year 2008, increased $269 million, or 8%, to $3.67 billion in fiscal year 2008 compared to fiscal year 2007. Revenue growth from acquisitions was 2%. Internal revenue growth was 6%, due primarily to increased revenues related to contracts with Sprint Nextel Corporation, Verizon Wireless, University of Phoenix, the Walt Disney Company, DCP Midstream, Caremark, T-Mobile, General Motors Acceptance Corporation, Aetna, Inc., and Ingram Micro. We also experienced growth in our human resources consulting and outsourcing lines of business and our learning process outsourcing line of business. These increases were offset by declines with General Motors and APL. The contracts discussed above collectively represented approximately 89% of our internal revenue growth for the period in this segment. Our Commercial segment revenues for fiscal years 2008 and 2007 includes revenues related to our UPRR business, which was divested in the fourth quarter of fiscal year 2008, of $5.1 million and $5.5 million, respectively.

Revenue in our Government segment, which represented approximately 40% of our consolidated revenue for fiscal year 2008, increased $119 million, to $2.49 billion in fiscal year 2008 compared to fiscal year 2007. Internal revenue growth was 4%. We experienced growth in our contracts with government agencies including our Indiana eligibility contract and Maryland information technology services contract; in our transportation business with our contract with Montreal, Canada

as well as our urban and airport parking services contracts; and in our healthcare offerings with our Medicaid contract with Washington, D.C. This growth was offset by declines in our contract with North Carolina Community College and our unclaimed property business. The areas discussed above collectively represent 94% of our internal revenue growth for the period in this segment. Revenue growth from acquisitions was 1%.

Operating Expenses
Wages and benefits increased $159.6 million, or 5.8%, to $2.9 billion. As a percentage of revenues, wages and benefits decreased 0.4% to 47.2% in fiscal year 2008 from 47.6% in fiscal year 2007. During the fiscal year 2008, we recorded $1.2 million of compensation expense related to amending certain employee stock options and $1.4 million for estimated costs related to certain former employees’ stock options as discussed in Note 20 to our Consolidated Financial Statements. Lower incentive compensation accruals during fiscal year 2008 contributed 0.2% of the decrease as a percentage of revenue. During fiscal year 2007, we recorded $7.2 million of compensation expense related to our fiscal year 2007 restructuring activities and $1.1 million for duplicate costs related to our efforts to relocate domestic functions to offshore facilities.

Services and supplies increased $121.4 million, or 9.6%, to $1.4 billion in fiscal year 2008 from fiscal year 2007. As a percentage of revenues, services and supplies increased 0.6% to 22.5% in fiscal year 2008 from 21.9% in fiscal year 2007. An increase in revenues for our transportation contracts as discussed above contributed 0.4% to the increase in services and supplies as a percentage of revenues. These contracts have a higher component of services and supplies than our other operations. During fiscal year 2008 and 2007, we recorded $3.5 million and $2.8 million, respectively, in other costs associated with the potential buyout of the Company. During fiscal year 2007, we recorded $1.3 million related to our ongoing stock option investigation and shareholder derivative lawsuits, $0.5 million for our fiscal year 2007 restructuring activities and $0.2 million for other impairment charges.

Rent, lease and maintenance increased $44.5 million, or 6.3%, to $746.1 million. As a percentage of revenues, rent, lease and maintenance decreased 0.1% to 12.1% in fiscal year 2008 from 12.2% in fiscal year 2007. During fiscal year 2008 and 2007, we recorded $2.4 million and $0.9 million, respectively, for electronic data storage costs related to our ongoing stock option investigation. During fiscal year 2007, we recorded $2.1 million related to our fiscal year 2007 restructuring activities.

During fiscal year 2007, we recorded a non-cash impairment charge to in-process capitalized software related to our Department of Education contract of approximately $76.4 million as discussed above in “Contract with the Department of Education”.

Other operating expenses increased $2.1 million to $68.8 million. As a percentage of revenues, other operating expenses decreased 0.1%, to 1.1%. This decrease of 0.1% is explained by the following items in fiscal years 2008 and 2007 (in millions):

		Fiscal year ended June 30,
		2008				2007
Commercial segment:
Litigation settlement		$	3.0			$	-
Gain on sale of UPRR			(1.0	)			-
Litigation settlement related to pre-acquisition activities of the Acquired HR Business (as defined in Note 5 to our Consolidated Financial Statements) and subsequent recovery from seller			(1.8	)			4.5
Provision for uncollectible accounts receivable related to the bankruptcy of a sub-prime lending client			-				1.5
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 stockholder derivative lawsuits, net of insurance recovery			30.1				30.1
Legal costs associated with the potential sale of the Company and stockholder derivative lawsuits			6.3				3.1
Reversal of penalties related to Section 162(m) disallowances			-				(0.9	)
Total		$	32.0			$	38.3
As a percentage of revenue			0.5	%			0.7	%
Change as a percentage of revenue explained above			(0.2	)%
Other net change as a percentage of revenue			0.1	%
Total change as a percentage of revenue			(0.1	)%

Operating Income
Operating income increased $108.1 million, or 20.1%, in fiscal year 2008 compared to the prior year. As a percentage of revenues, operating income increased 1.2%.  This increase of 1.2% as a percentage of revenue is explained by the following items in fiscal year 2008 and 2007 (in millions):

		Fiscal year ended June 30,
		2008				2007
Commercial segment:
Litigation settlement		$	(3.0	)		$	-
Impairment charge related to the termination of a Commercial client that was acquired			(1.6	)			-
Gain on sale of UPRR			1.0				-
Costs related to our fiscal year 2007 restructuring activities			-				(8.9	)
Litigation settlement related to pre-acquisition activities of the Acquired HR Business and subsequent recovery from seller			1.8				(4.5	)
Provision for uncollectible accounts receivable and other charges related to the loss of a sub-prime lending client to bankruptcy			-				(1.7	)
Asset impairments and other charges			-				(1.3	)
Costs related to our efforts to relocate domestic functions to offshore facilities			-				(1.2	)
Government segment:
Gain on sale of our decision support business			2.4				-
Gain on settlement of indemnification and other claims with Lockheed Martin Corporation			2.2				-
Software impairment charge related to the CSB contract			-				(76.4	)
Revenue related to the settlement of the North Carolina Department of Health and Human Services contract dispute			-				3.4
Cost related to our restructuring activities			-				(1.3	)
Corporate segment:
Legal and other costs associated with the ongoing stock option investigations and stockholder derivative lawsuits, net of insurance recovery			(32.5	)			(32.3	)
Legal costs and other costs associated with the potential sale of the Company and stockholder derivative lawsuits			(9.9	)			(5.9	)
Cost related to amending certain employees stock options			(1.2	)			-
Cost related to certain former employees’ stock options			(1.4	)			-
Reversal of accrued penalties related to the Section 162(m) disallowances			-				0.9
Total		$	(42.2	)		$	(129.2	)
As a percentage of revenue			(0.7	)%			(2.2	)%
Change as a percentage of revenue explained above			1.5	%
Other net change as a percentage of revenue			(0.3	)%
Total change as a percentage of revenue			1.2	%

Interest Expense
Interest expense decreased $20.7 million, to $161.9 million, primarily due to lower interest rates on outstanding balances on our Credit Facility during fiscal year 2008 as compared to the same period of the prior year. Interest expense in fiscal year 2007 includes $2.6 million in charges related to a waiver fee on our Credit Facility.

Other Non-Operating Income, Net
Other non-operating income, net decreased $16 million to $13.1 million in fiscal year 2008 from $29.1 million in fiscal year 2007. Fiscal year 2007 includes a gain of $8.2 million on the sale of a minority interest in a professional services business. In addition, other income, net decreased in fiscal year 2008 due to lower income on the investments supporting our deferred compensation plans offset by foreign currency transaction gains and gains on our foreign currency forward agreements during fiscal year 2008.

Income Tax Expense
Our effective income tax rate decreased to 33.7% in fiscal year 2008 from 34% in fiscal year 2007. During fiscal year 2008 we reversed $5.9 million in income tax expense related to amounts previously accrued for Internal Revenue Code Section 162(m) deductions due to settlements with taxing authorities (please see Note 20 to our Consolidated Financial Statements for further discussion). During fiscal year 2007 we reversed $4.5 million in income tax expense related to amounts previously accrued

for cash-based compensation related issues associated with Section 162(m) deductions.  Our effective income tax rate on operations is lower than the 35% federal statutory rate primarily due to the impact of refunds and additional settlements with taxing authorities resulting in a reduction of expenses calculated in accordance with FIN 48, offset by state income taxes.

Comparison of Fiscal Year 2007 to Fiscal Year 2006

Revenues
Revenue increased $418.8 million, or 8%, to $5.8 billion in fiscal year 2007 from $5.4 billion in fiscal year 2006. Excluding revenues related to the WWS Divestiture and related subsidiary divestiture (collectively, the “2006 Divestitures”), which were divested in the second quarter of fiscal year 2006, our revenues increased $522.4 million, or 10%. Internal revenue growth was 5% and the remainder of the growth was related to acquisitions. Fiscal years 2007 and 2006 include revenues related to the 2006 Divestitures of $0.9 million and $104.2 million, respectively.

Revenue in our Commercial segment, which represented approximately 59% of our consolidated revenue for fiscal year 2007, increased $286.8 million, or 9%, to $3.4 billion in fiscal year 2007 compared to fiscal year 2006. Revenue growth from acquisitions was 5%. Internal revenue growth was 4%, due primarily to increased revenues related to contracts with Sprint Nextel Corporation, MeadWestvaco, Glaxo-Smith-Kline, Disney, Humana, Genworth, Aetna, T-Mobile, Burger King, University of Phoenix and Unum Provident. These increases were partially offset by decreases with General Motors, SBC Communications, Chase Bank and APL. The contracts discussed above collectively represented approximately 97% of our internal revenue growth for the period in this segment.

Revenue in our Government segment, which represented approximately 41% of our consolidated revenue for fiscal year 2007, increased $132 million, to $2.4 billion in fiscal year 2007 compared to fiscal year 2006. Excluding the impact of the revenues related to the 2006 Divestitures, revenues in our Government segment increased to $2.4 billion in fiscal year 2007 compared to $2.1 billion in fiscal year 2006. Revenue growth from acquisitions was 4%, primarily due to the acquisition of Transport Revenue completed in the second quarter of fiscal year 2006. Internal revenue growth was 7% for fiscal year 2007. We experienced growth in the following areas: (i) our international and domestic transportation contracts, including contracts for the New Jersey Transit Authority and Melbourne, Australia for fare collection, Maryland EZPass, Los Angeles Transit Authority, our commercial vehicle operations contract and the city of Houston; (ii) our Medicaid and pharmacy benefit management contracts, including our Medicaid contracts with Texas, New Hampshire, North Dakota, Mississippi, New Mexico, Colorado and Wyoming, as well as our contracts with Florida Choice and Missouri Medical PA, offset by a decline in our contract with the Georgia Department of Community Health; (iii) our children and youth services and electronic payment services contacts, including our Indiana Eligibility, Michigan and Ohio electronic payment services and New York and New Jersey payment processing and e-Disbursement contracts; (iv) Government information technology business, including our contract with the State of Maryland; and (v) Social Security Administration. This growth was offset by declines in revenue related to our Department of Education and Texas CHIP contracts and lower revenues related to our unclaimed property business. The areas discussed above collectively represent 94% of our internal revenue growth for the period in this segment.

Operating Expenses
Wages and benefits increased $180.7 million, or 7%, to $2.7 billion in fiscal year 2007 from fiscal year 2006. As a percentage of revenues, wages and benefits decreased 0.4% to 47.6% in fiscal year 2007 from 48% in fiscal year 2006. In fiscal years 2007 and 2006, we recorded approximately $7.2 million and $6.5 million, respectively, in expense for involuntary termination charges for employees related to our restructuring activities. In fiscal year 2007, we recorded compensation expense of approximately $1.1 million of duplicate costs related to our efforts to relocate domestic functions to offshore facilities. In fiscal year 2006 we recorded approximately $5.7 million in incremental transaction expenses related to the human resources consulting and outsourcing business of Mellon Financial Corporation (the “Acquired HR Business”) and compensation expense of $5.4 million related to the departure of Jeffrey A. Rich, our former Chief Executive Officer.

Services and supplies increased $93.9 million, or 8%, to $1.3 billion in fiscal year 2007 from fiscal year 2006. As a percentage of revenues, services and supplies increased 0.1% to 21.9% in fiscal year 2007 from 21.8% in fiscal year 2006. In fiscal year 2007 and 2006, we recorded $1.3 million and $0.3 million, respectively, related to our ongoing stock option investigations and shareholder derivative lawsuits. In fiscal year 2007, we recorded $2.8 million related to the potential buyout of the Company. In fiscal year 2007, we recorded approximately $0.5 million related to the consolidation of solution development groups within the Government segment. In fiscal year 2006, we recorded $0.6 million of impairment and other charges related to our restructuring activities.

Rent, lease and maintenance increased $55.1 million, or 8.5%, to $701.6 million in fiscal year 2007 from fiscal year 2006. As a percentage of revenues, rent, lease and maintenance increased 0.1% to 12.2% in fiscal year 2007 from 12.1% in fiscal year 2006. Rent, lease and maintenance for fiscal year 2007 and 2006 includes approximately $2.1 million and $0.7 million,

respectively, of duplicate facility, facility shutdown and other costs related to our restructuring activities. Fiscal year 2007 includes approximately $0.9 million of data storage costs related to our ongoing stock option investigations and shareholder derivative lawsuits.

Depreciation and amortization increased $56.3 million, or 19.4%, to $346.2 million in fiscal year 2007 from fiscal year 2006. As a percentage of revenues, depreciation and amortization increased 0.6%, to 6.0% during fiscal year 2007 as a result of capital expenditures in fiscal year 2006 and 2007, primarily in our information technology outsourcing business.

During fiscal year 2007, we recorded a non-cash impairment charge to in-process capitalized software related to our Department of Education contract of approximately $76.4 million as discussed above in “Contract with the Department of Education”.

Gain on sale of business was $32.9 million during fiscal year 2006 related to the 2006 Divestitures as discussed above in “Sale of Government Welfare-to-Workforce Services Business”.

Other expenses decreased $6.2 million, or 15.6%, to $33.4 million in fiscal year 2007 from fiscal year 2006. As a percentage of revenues, other expenses decreased 0.2% to 0.5% in fiscal year 2007 from 0.7% in fiscal year 2006. In fiscal years 2007 and 2006, we recorded approximately $0.4 million and $3 million, respectively, related to our restructuring activities and $1 million and $3.3 million, respectively, related to asset impairments.

Other operating expenses increased $10 million to $66.7 million in fiscal year 2007. As a percentage of revenues, other operating expenses increased 0.1%, to 1.2%. This increase of 0.1% is explained by the following items in fiscal year 2007 and 2006 (in millions):

		Fiscal year ended June 30,
		2007				2006
Commercial segment:
Litigation settlement related to pre-acquisition activities of the Acquired HR Business		$	4.5			$	-
Provision for uncollectible accounts receivable related to the bankruptcy of a sub-prime lending client			1.5				-
Provision for doubtful accounts for an assessment of risk related to the bankruptcies of certain airline clients			-				3.0
Government segment:
Provision for estimated legal settlement and uncollectible accounts receivable related to the WWS Divestiture			-				3.3
Provision for uncollectible accounts receivable retained in connection with the Divested Federal Business (as defined in Item 1. Business)			-				2.4
Legal settlements and related costs			-				0.5
Corporate segment:
Legal costs associated with the ongoing stock option investigations and stockholder derivative lawsuits			30.1				2.7
Legal costs associated with the potential sale of the Company and stockholder derivative lawsuits			3.1				-
Reversal of penalties related to Section 162(m) disallowances			(0.9	)			-
Aircraft impairment			-				4.7
Legal costs associated with the review of certain recapitalization options related to our dual class structure and an unsolicited offer regarding a potential sale of the Company			-				4.0
Legal settlements and related costs			-				2.7
Total		$	38.3			$	23.3
As a percentage of revenue			0.7	%			0.4	%
Change as a percentage of revenue explained above			0.3	%
Other net change as a percentage of revenue			(0.2	)%
Total change as a percentage of revenue			0.1	%

Operating Income
Operating income decreased $80.3 million, or 13%, in fiscal year 2007 compared to the prior year. As a percentage of revenues, operating income decreased 2.2%. This decrease of 2.2% is explained by the following items in fiscal year 2007 (in millions):

		Fiscal year ended June 30,
		2007				2006
Commercial segment:
Costs related to our restructuring activities		$	(8.9	)		$	(10.2	)
Litigation settlement related to pre-acquisition activities of the Acquired HR Business			(4.5	)			-
Provision for uncollectible accounts receivable and other charges related to the bankruptcy of a sub-prime lending client			(1.7	)			-
Costs related to our efforts to relocate domestic functions to offshore facilities			(1.2	)			-
Other impairments and severance charges			(1.3	)			(2.2	)
Incremental transaction costs related to the Acquired HR Business			-				(5.7	)
Provision for doubtful accounts for an assessment of risk related to the bankruptcies of certain airline clients			-				(3.0	)
Government segment:
Software impairment charge related to the CSB contract			(76.4	)			-
Revenue related to the settlement of the North Carolina Department of Health and Human Services contract dispute			3.4				-
Cost related to our restructuring activities			(1.3	)			(2.6	)
Gain on sale of Government WWS Divestiture			-				32.9
Charge related to the North Carolina Department of Health and Human Services contract			-				(4.0	)
Provision for estimated legal settlement and uncollectible accounts receivable related to the WWS Divestiture			-				(3.4	)
Provision for uncollectible accounts receivable retained in connection with Divested Federal Business			-				(2.4	)
Other impairments and severance charges			-				(1.5	)
Legal settlements and related costs			-				(0.5	)
Corporate segment:
Legal and other costs associated with the ongoing stock option investigations and stockholder derivative lawsuits			(32.3	)			(2.9	)
Legal costs and other costs associated with the potential sale of the Company and stockholder derivative lawsuits			(5.9	)			-
Reversal of accrued penalties related to the Section 162(m) disallowances			0.9				-
Compensation expense related to the departure of Jeffrey A. Rich, former Chief Executive Officer			-				(5.4	)
Aircraft impairment			-				(4.7	)
Legal costs associated with the review of certain recapitalization options related to our dual class structure and an unsolicited offer regarding a potential sale of the Company			-				(4.0	)
Legal settlements and related costs			-				(2.7	)
Total		$	(129.2	)		$	(22.3	)
As a percentage of revenue			(2.2	)%			(0.4	)%
Change as a percentage of revenue explained above			(1.8	)%
Other net change as a percentage of revenue			(0.4	)%
Total change as a percentage of revenue			(2.2	)%

Operating income in fiscal year 2006 included operating losses of $39.5 million (0.7% as a percentage of revenues) related to two underperforming multi-scope human resources contracts (included in various cost of revenues categories). Of this $39.5 million loss, $5 million was related to settlement of various contract disputes with a client, and approximately $2.1 million and $8.4 million related to a contract loss accrual and asset impairment charges, respectively, for another client. These settlements, contract loss accrual and asset impairment are included in other cost of revenues.

Interest Expense
Interest expense increased $114.3 million, to $182.7 million, primarily due to borrowings under our Credit Facility related to the purchase of shares under our share repurchase programs in fiscal years 2007 and 2006, the purchase of shares in our Tender Offer in fiscal year 2006 and general corporate purposes, including the fiscal year 2007 acquisitions of Primax and Systech and the fiscal year 2006 acquisition of Transport Revenue (each as defined in Note 5 to our Consolidated Financial Statements).

Other Non-Operating Income, Net
Other non-operating income, net increased $19.7 million to $29.1 million from $9.4 million in the prior year period. We recorded an $8.2 million gain on the sale of our minority interests in a professional services business during fiscal year 2007 as discussed above in “Significant Developments – Fiscal Year 2007”. In fiscal year 2006, we recorded a loss of $4.1 million on the early extinguishment of debt for the balance of the debt issue costs related to our Prior Facility (as defined in Note 12 to our Consolidated Financial Statements). Also contributing to the increase in other non-operating income, net were increases in interest income on cash investments and long-term investments, including those supporting our deferred compensation plans. The compensation cost related to our deferred compensation plans is included in wages and benefits in our Consolidated Statements of Income.

Income Tax Expense
Our effective income tax rate decreased to 34% in fiscal year 2007 from 35.7% in fiscal year 2006. This effective income tax rate is comprised of the following: an effective tax rate on operations of 35.5%, an effective tax rate on the CSB software impairment charges of 36.8% and a reduction in rate attributable to one-time benefits realized in the fourth quarter of fiscal year 2007. During fiscal year 2007 we reversed $4.5 million in income tax expense related to amounts previously accrued for cash-based compensation related issues associated with Section 162(m) deductions (please see Note 20 to our Consolidated Financial Statements for further discussion). Our effective income tax rate on operations for fiscal year 2006 is higher than the 35% federal statutory rate primarily due to the effect of state income taxes.

Liquidity and Capital Resources

Cash Flows
We generated approximately $826.8 million, $738.4 million and $638.7 million in cash flows provided by operating activities in fiscal years 2008, 2007 and 2006, respectively. Significant items affecting our fiscal years 2008, 2007 and 2006 cash flows provided by operating activities are discussed below (dollars in millions).

		Fiscal year ended June 30,
		2008				2007				2006
Cash paid for interest on outstanding debt		$	(157.7	)		$	(169.6	)		$	(56.3	)
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			(41.4	)			(30.3	)			-
Cash received for interest income			8.9				8.0				3.4
Cash paid to certain current and former employees related to stock options			(6.8	)			-				-
Cash paid on tax, interest and penalties related to our stock option grant practices			-				(35.0	)			-
Cash paid for final settlement of the Mellon Financial Corporation (“Mellon”) transition services agreement (a)			-				-				(85.8	)
Cash paid for incentive compensation to employees of the Acquired HR Business (a)			-				-				(26.3	)
Cash flow used by items listed above		$	(197.0	)		$	(226.9	)		$	(165.0	)

(a)		During fiscal year 2006, we paid approximately $85.8 million related to the final settlement of the Mellon transition services agreement. Under the transition services agreement, Mellon provided certain accounting, treasury and payroll services for an interim period while we integrated the Acquired HR Business. As part of these services, Mellon was also paying certain operational costs on our behalf, such as employee related expenses and accounts payable. This agreement and the related timing of payments to Mellon had a favorable impact on our net cash provided by operating activities and free cash flow (defined below) in fiscal year 2005 of $75.9 million and a negative impact on our net cash provided by operating activities and free cash flow in fiscal year 2006 of $85.8 million when the Acquired HR Business was fully integrated. During fiscal year 2006, we also paid approximately $26.3 million to employees of the Acquired HR Business related to incentive compensation that was earned prior to the date that we acquired the business.

In addition to the reduced cash outflows noted in the table above, our increased fiscal year 2008 cash flows provided by operating activities were positively impacted by higher operating income, excluding the $76.4 million non-cash software impairment charge, lower income tax payments in fiscal year 2008, compared to fiscal year 2007, and favorable timing of vendor payments, offset by the growth in our accounts receivable and increased incentive compensation payments made in fiscal year 2008, but which were earned and accrued in fiscal year 2007. The growth in our accounts receivable was caused by increases in unbilled accounts receivable, primarily in our Government segment, where revenues recognized under a cost plus contract and also under certain percentage-of-completion contracts were higher than the related billings and collections during the fiscal year.

Our increased fiscal year 2007 cash flows provided by operating activities, compared to fiscal year 2006, were negatively impacted by increased cash outflows noted in the table above, but were positively benefited by reduced incentive compensation payments made in fiscal year 2007 due to lower operating performance in fiscal year 2006, increased collections of accounts receivable and reduced payments for hardware and software maintenance, as compared to fiscal year 2006. Additionally, the timing of payments collected for unearned revenue in fiscal year 2007 was reduced, compared to fiscal year 2006.

Fiscal year 2006 cash flows provided by operating activities were also impacted by an increase in accounts receivables related to signed new business and timing of collections related to other accounts receivable and payments of approximately $5.2 million related to the departure of Jeffrey A. Rich, our former Chief Executive Officer. These decreases were offset by lower annual incentive compensation payments and timing of payments to vendors.

Accounts receivable fluctuations may have a significant impact on our cash flows provided by operating activities. Accounts receivable can be negatively impacted by growth in revenues in one fiscal year compared to the prior fiscal year, where collections typically lag behind the related client billings, resulting in a use of cash for operating activities. Conversely, when revenue growth slows, then accounts receivable is positively impacted, resulting in a source of cash for operating activities. Additionally, accounts receivable is impacted by contracts where we apply percentage-of-completion accounting in the recognition of revenues. Under such contracts we may receive a different amount of payments from the clients during that fiscal year than the amount that we record as revenues during the same period. Such payments are typically dependent on original contract negotiations as to the timing of when such payments are due, and based on actual operational performance in the delivery of the contract milestones and associated client acceptance required under the contracts.

Free cash flow is measured as cash flow provided by operating activities (as reported in our Consolidated Statements of Cash Flows), less capital expenditures (purchases of property, equipment and software, net, 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 of our obligations and execute our business strategies. We also rely on cash flows from 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):

		Fiscal year ended June 30,
		2008				2007				2006
Net cash provided by operating activities		$	826,777			$	738,378			$	638,710
Purchases of property, equipment and software, net			(267,948	)			(316,843	)			(394,467	)
Additions to other intangible assets			(40,358	)			(43,187	)			(35,831	)
Free cash flow		$	518,471			$	378,348			$	208,412

Our capital expenditures, defined as purchases of property, equipment and software, net, and additions to other intangible assets, were approximately $308.3 million, or 5% of total revenues, $360 million, or 6.2% of total revenues, and $430.3 million, or 8% of total revenues, for fiscal years 2008, 2007 and 2006, respectively. Historically, the capital intensity of our business has ranged between 5 to 7%. During fiscal year 2006, the overall capital intensity of our business was 8% due to approximately $60 million of investments for the following: investments related to integrating the Acquired HR Business and expanding our human resources outsourcing technology platform; investments made in our Government Healthcare technology platforms; the expansion of our data center capacity with the addition of a new data center and investments to increase global production both in existing locations and new geographies. We expect that as our new business signings ramp, we will incur capital expenditures associated with the new business, which could result in increased capital intensity over the fiscal year 2008 percentage, but we expect that the capital intensity will remain within our historical range.

During fiscal years 2008, 2007 and 2006, cash used in investing activities was $534.8 million, $529 million and $651.8 million, respectively. We used $219.5 million in fiscal year 2008 for acquisitions, including Syan, sds, CompIQ and TMS (each as defined in Note 5 to our Consolidated Financial Statements). We used $182.7 million in fiscal year 2007 for acquisitions, including Systech, Primax, Albion and CDR (each as defined in Note 5 to our Consolidated Financial Statements). We used $250.3 million for acquisitions during fiscal year 2006, primarily for the purchase of Transport Revenue, LiveBridge and Intellinex (each as defined in Note 5 to our Consolidated Financial Statements). During fiscal year 2008, we received proceeds from the sale of our decision support business and UPRR of $6.3 million. During fiscal year 2006, we received proceeds from divestitures of $67.7 million.

During fiscal year 2008, we used approximately $137.4 million in financing activities, including $200 million to purchase shares under our share repurchase program, offset by proceeds from stock option exercises of $81.2 million. During fiscal year 2007, approximately $2.9 million was used in financing activities. Such financing activities included $696.7 million net borrowings of debt and the repurchase of shares of $730.7 million. During fiscal year 2006, approximately $51.2 million was provided by financing activities. Such financing activities included $813.2 million net borrowings of debt, proceeds from employee stock transactions of $103.1 million, offset by the purchase of shares in our tender offer of $476 million and our share repurchase programs of $385.1 million, as well as the settlement of stock options with Jeffrey A. Rich, former Chief Executive Officer, of $18.4 million.

We entered into capital lease agreements of an aggregate of $26.9 million, $47.8 million and $24.3 million for the purchase of equipment during fiscal years 2008, 2007 and 2006, respectively.

Credit Arrangements
Draws made under our Credit Facility are made to fund cash acquisitions and share repurchases and for general working capital requirements. During the last twelve months, the balance outstanding under our credit facilities for borrowings ranged from $1.83 billion to $1.87 billion. At June 30, 2008, we had approximately $791.5 million available under our Revolving Facility after giving effect to outstanding indebtedness of $91.2 million and $117.3 million of outstanding letters of credit that secure certain contractual performance and other obligations and reduce the availability of our Revolving Facility. At June 30, 2008, we had $1.9 billion outstanding under our Credit Facility, of which $1.8 billion is reflected in long-term debt and $18 million is reflected in current portion of long-term debt. At June 30, 2008, $1.8 billion of our outstanding balances under our Credit Facility bore interest at approximately 4.47% and another $91.2 million of our outstanding balance bore interest from 3.63% to 5.74%. Please see Note 19 to our Consolidated Financial Statements for a discussion of the interest rate swap and interest rate collar agreements related to interest rates on our Credit Facility. We are in compliance with the covenants of our Credit Facility, as amended, as of the date of filing of this report.

Please see Note 12 to our Consolidated Financial Statements for a discussion of the terms of our Credit Facility and our outstanding surety bonds and letters of credit.

Please see Note 12 to our Consolidated Financial Statements for a discussion of the declaratory action with respect to the alleged default and purported acceleration of our Senior Notes.

Credit Ratings
On March 20, 2007, following the announcement that ACS founder Darwin Deason and private equity fund Cerberus proposed to buy the Company, Fitch, Moody’s and Standard & Poor’s placed us on review for potential downgrade.  On December 3, 2007, Fitch removed us from Rating Watch Negative and on December 20, 2007 affirmed our rating at BB with a Stable Outlook, except for our Senior Notes which remain at BB-.  On January 3, 2008, Standard & Poor’s removed us from CreditWatch with negative implications and confirmed our credit rating at BB with a negative outlook.   On January 28, 2008, Moody’s concluded their review of ACS for potential downgrade and confirmed our rating at Ba2 with a stable outlook.  On August 8, 2008, S&P confirmed our BB rating and revised our outlook to stable. There may be additional reductions in our ratings depending on the timing and amounts that may be drawn under our Credit Facility. As a result, the terms of any financings we choose to enter into in the future may be adversely affected. In addition, as a result of these downgrades, the sureties which provide performance bonds backing our contractual obligations could reduce the availability of these bonds, increase the price of the bonds to us or require us to provide collateral such as a letter of credit. However, we believe that we will continue to have sufficient capacity in the surety markets and liquidity from our cash flow and Credit Facility to respond to future requests for proposals.  In addition, certain of our commercial outsourcing contracts provide that, in the event our credit ratings are downgraded to certain specified levels, the client may elect to terminate its contract with us and either pay a reduced termination fee or in some limited instances, no termination fee.  While we do not anticipate that the downgrading of our credit ratings will result in a material loss of commercial outsourcing revenue due to the client’s exercise of these termination rights, there can be no assurance that such a credit ratings downgrade will not adversely affect these client relationships.

Derivative Instruments and Hedging Activities
Please see Note 19 to our Consolidated Financial Statements for a discussion of our derivative instruments and hedging activities.

Share Repurchase Programs
Please see Note 16 to our Consolidated Financial Statements for a discussion of our share repurchase programs.

Stock Option Repricing
Please see Note 16 to our Consolidated Financial Statements for a discussion of the repricing of certain outstanding stock options, our tender offer to amend certain options and results of the tender offer, as well as our offer to former employees.

Other
At June 30, 2008, we had cash and cash equivalents of $461.9 million compared to $307.3 million at June 30, 2007. Our working capital (defined as current assets less current liabilities) increased to $1.02 billion at June 30, 2008 from $839.7 million at June 30, 2007. Our current ratio (defined as total current assets divided by total current liabilities) was 1.9 at both June 30, 2008 and 2007. Our debt-to-capitalization ratio (defined as the sum of short-term and long-term debt divided by the sum of short-term and long-term debt and equity) was 51% and 54% at June 30, 2008 and 2007, respectively.

We believe 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 will meet the cash requirements of our contractual obligations. However, due to the additional borrowings made in relation to our share repurchase programs and if we utilize the unused portion of our Credit Facility to repay the Senior Notes or for other corporate purposes, our indebtedness and interest expense would increase, possibly significantly, and our indebtedness could be substantial in relation to our stockholders’ equity. Should interest rates rise, our interest expense could increase and impact our results of operations and cash flows. We believe that our expected cash flow provided by operating activities, and anticipated access to the unused portion of our Credit Facility and capital markets will be adequate for our expected liquidity needs, including capital expenditures, and to meet the cash requirements of our contractual obligations. 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.

Please see Note 3 to our Consolidated Financial Statements for a discussion of the proposal received from our Chairman, Darwin Deason, and Cerberus to acquire all of the outstanding shares of the Company.

Please see Note 24 to our Consolidated Financial Statements for a discussion of transactions with related parties.

Disclosures about Contractual Obligations and Commercial Commitments as of June 30, 2008 (in thousands):

						Payments Due by Period
						Less than												After
Contractual Obligations		Total				1 Year				1-3 Years				4-5 Years				5 Years
Long-term debt (1)		$	1,852,253			$	18,764			$	36,077			$	1,797,343			$	69
Senior Notes, net of unamortized discount (1)			499,529				-				249,967				-				249,562
Capital lease obligations (1)			53,132				28,609				22,985				1,538				-
Operating leases (2)			1,100,369				340,334				535,733				167,402				56,900
Purchase obligations (3) (4)			48,449				17,369				31,080				-				-
Total Contractual Cash Obligations		$	3,553,732			$	405,076			$	875,842			$	1,966,283			$	306,531

						Amount of Commitment Expiration per Period
		Total
		Amounts				Less than												After
Other Commercial Commitments		Committed				1 Year				1-3 Years				4-5 Years				5 Years
Standby letters of credit		$	117,289			$	117,289			$	-			$	-			$	-
Surety bonds			662,358				627,847				30,825				3,686				-
Total Commercial Commitments		$	779,647			$	745,136			$	30,825			$	3,686			$	-

(1)		Excludes accrued interest of $5.3 million at June 30, 2008.
(2)		We have various contractual commitments to lease hardware and software and for the purchase of maintenance on such leased assets with varying terms through fiscal year 2013, which are included in operating leases in the table.
(3)		We have entered into various contractual agreements to purchase telecommunications services. These agreements provide for minimum annual spending commitments, and have varying terms through fiscal year 2011, and are included in purchase obligations in the table.
(4)		In June 2006, we entered into a two year agreement with Rich Capital, LLC, an M&A advisory firm owned by Jeffery A. Rich, 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.

We made contributions of approximately $14.1 million to our pension plans during fiscal year 2008. We expect to contribute approximately $15 million to our pension plans in fiscal year 2009. Minimum pension funding requirements are not included in the table above as such amounts are zero for our pension plans as of June 30, 2008. Please see “Critical Accounting Policies” below for discussion of our pension plans.

Please see Note 20 to our Consolidated Financial Statements for a discussion of our outstanding surety bonds and letters of credit.

Please see Note 5 to our Consolidated Financial Statements for a discussion of our obligation to make contingent payments to former shareholders of acquired entities upon satisfaction of certain contractual criteria in conjunction with certain acquisitions.

As discussed in Note 20 to our Consolidated Financial Statements, as of June 30, 2008 we accrued approximately $8.1 million to be paid to current and former employees related to stock option repricing as the result of our internal investigation of our stock option grant practices. Approximately $6.8 million was paid during fiscal year 2008 related to these liabilities.

Please see Note 14 to our Consolidated Financial Statements for discussion of our adoption of the provisions of FIN 48 as of July 1, 2007 and our uncertain tax positions. We are unable to make a reasonably reliable estimate as to when cash settlements of these uncertain tax positions with taxing authorities will occur.

As discussed in Note 20 to the Consolidated Financial Statements, during fiscal year 2008, we settled all issues and claims with Lockheed Martin Corporation related to the divestiture of the majority of our federal business and our acquisition of Lockheed Martin Corporation’s commercial information technology services business. This settlement resulted in a payment to Lockheed Martin Corporation of $6.5 million in fiscal year 2008, reflected in cash flows from investing activities in our Consolidated

Statements of Cash Flow, and $2.2 million ($1.5 million, net of income tax) of income recorded to other operating expense in our Consolidated Statements of Income during fiscal year 2008. Also as discussed in Note 20 to our Consolidated Financial Statements, we have agreed to indemnify ManTech International Corporation with respect to the Department of Justice investigation related to purchasing activities at Hanscom Air Force Base during the period 1998 to 2000.

Please see Note 20 to our Consolidated Financial Statements for a discussion of our exposure under our Commercial contract to perform third party student loan servicing in the Federal Family Education Loan program (“FFEL”) on behalf of various financial institutions.

The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts 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 used in the preparation of our Consolidated Financial Statements involve significant judgments and estimates.

Revenue Recognition
A significant portion of our revenue is recognized based on objective criteria that do not require significant estimates or uncertainties. For example, transaction volumes and 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”), unless the transaction is within the scope of other specific authoritative guidance. SAB 104 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. We recognize revenues when persuasive evidence of an arrangement exists, the services have been provided to the client, the fee is fixed or determinable, and collectibility is reasonably assured.

During fiscal year 2008, approximately 74% of our revenue was recognized based on transaction volumes, approximately 8% was fixed fee based, wherein our revenue is earned as we fulfill our performance obligations under the arrangement, approximately 6% was related to cost reimbursable contracts, approximately 6% of our revenue was recognized using percentage-of-completion accounting and the remainder is related to time and material contracts. Our revenue mix is subject to change due to the impact of acquisitions, divestitures and new business.

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. Information technology processing revenues are recognized as services are provided to the client, generally at the contractual selling prices of resources consumed or capacity utilized by our clients. 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 client acceptance have expired.

Revenues on certain fixed price contracts where we provide information technology system development and implementation services 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 clients in which we agree, for compensation, to perform a service to the client’s specifications. These services require that we perform significant, extensive and complex design, development,

modification and implementation activities for our clients’ systems. 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 probable and reasonably estimable revenue using the percentage of services completed, on a current cumulative cost to estimated total cost basis, using a reasonably consistent profit margin over the period. Due to the longer term nature of these projects, 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 projects 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.

At times, we may contract with a client to provide more than one service; for instance, we may contract for an implementation or development project and also provide services or operate the system over a period of time. In these situations, we follow the guidance of Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 provides the methodology for separating the contract elements and allocating total arrangement consideration to the contract elements but does not stipulate the revenue recognition methodology that should be applied to these separate elements. Once the contract has been separated under the guidance of EITF 00-21 and arrangement consideration allocated, revenue recognition for each of the segments follows the applicable revenue recognition method, as described above. In certain instances where revenue cannot be allocated to a contract element delivered earlier than other elements, costs of delivery are deferred and recognized as the subsequent elements are delivered. Costs deferred cannot exceed the relative fair value of the related element and are tested for impairment regularly.

Revenues earned in excess of related billings are accrued, whereas billings in excess of revenues earned are deferred until the related services are provided. We recognize revenues for non-refundable, upfront implementation fees on a straight-line basis over the period between the initiation of the ongoing services through the end of the contract term.

Cost of Revenues
We present cost of revenues in our Consolidated Statements of Income based on the nature of the costs incurred. Substantially all these costs are incurred in the provision of services to our clients. The selling, general and administrative costs included in cost of revenues are not material and are not separately presented in the Consolidated Statements of Income.

Contingencies
We account for claims and contingencies in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies” (“SFAS 5”). SFAS 5 requires that we record an estimated loss from a claim or loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for claims and contingencies requires us to use our judgment. We consult with legal counsel on those issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business.

Our contracts with clients typically span several years. We continuously review and reassess our estimates of contract profitability. If our estimates indicate that a contract loss will occur, a loss accrual is recorded in the Consolidated Financial Statements in the period it is first identified, if allowed by relevant accounting guidance. Circumstances that could potentially result in contract losses over the life of the contract include variances from expected costs to deliver our services, and other factors affecting revenues and costs.

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. In addition, in connection with our revenue arrangements, we incur costs to originate long-term contracts and to perform the transition and setup activities necessary to enable us to perform under the terms of the arrangement. We capitalize certain incremental direct costs which are related to the contract origination or transition, implementation and setup activities and amortize them over the term of the arrangement. From time to time, we also provide certain inducements to clients in the form of various arrangements, including contractual credits, which are capitalized and amortized as a reduction of revenue over the term of the contract. The determination of the value of goodwill and other intangibles requires us to make estimates and assumptions about future business trends and growth. In addition to our annual impairment testing, we continually evaluate whether events and circumstances have occurred that indicate the balance of goodwill or intangible assets may not be recoverable. In evaluating goodwill for impairment, we

compare the estimated fair value of the reporting unit to its underlying book value. In evaluating intangible assets for impairment, we compare the estimated fair value of the intangible asset to its underlying book value. 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 intangible assets, such revision could result in a non-cash impairment charge that could have a material impact on our financial results.

Valuation of Property, Equipment and Software
We continually evaluate whether events and circumstances have occurred that indicate the balance of our property, equipment and software may not be recoverable. 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 property, equipment and software, such revision could result in a non-cash impairment charge that could have a material impact on our financial results.

Stock-Based Compensation
SFAS No. 123(revised 2004), “Share-based Payment” (“SFAS 123(R)”) requires us to recognize compensation expense for all stock-based payment arrangements based on the fair value of the stock-based payment on the date of grant. In determining the fair value of stock options, we use the Black-Scholes option pricing model that employs the following assumptions:

	•		Expected volatility of our stock price based on historical monthly volatility over the expected term.
	•		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.

Our stock price volatility and expected option lives are based on management’s best estimates at the time of grant, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the vesting term of the option.

SFAS 123(R) requires that we recognize compensation expense for only the portion of stock-based payment arrangements that are expected to vest. Therefore, we apply estimated forfeiture rates that are based on historical employee termination behavior. We periodically adjust the estimated forfeiture rates so that only the compensation expense related to stock-based payment arrangements that vest are included in wages and benefits. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

Pension and Post-Employment Benefits
SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), establishes standards for reporting and accounting for pension benefits provided to employees. On June 30, 2007, we adopted SFAS 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). This Statement requires recognition of the funded status of a defined benefit plan in the statement of financial position as an asset or liability if the plan is overfunded or underfunded, respectively. Changes in the funded status of a plan are required to be recognized in the year in which the changes occur, and reported in comprehensive income as a separate component of stockholders’ equity. Further, certain gains and losses that were not previously recognized in the financial statements are required to be reported in comprehensive income, and certain disclosure requirements were changed. SFAS 158 also requires the measurement date of the plan’s funded status to be the same as the company’s fiscal year end. There was no change to our June 30 measurement date as a result of the adoption of SFAS 158.

Assumptions for calculating benefit obligations and net periodic benefit cost
The following table summarizes the weighted-average assumptions used in the determination of our benefit obligation:

		As of June 30,
		2008				2007
Non-U.S. Plans
Discount rate			5.20% - 6.00	%			5.20% - 5.67	%
Rate of increase in compensation levels			3.00% - 5.45	%			4.25% - 4.80	%
U.S. Plan
Discount rate			6.80	%			6.40	%
Rate of increase in compensation levels			3.80	%			3.40	%

The following table summarizes the assumptions used in the determination of our net periodic benefit cost:

		Fiscal year ended June 30,
		2008				2007				2006
		Pension				Pension				Pension
		Plans				Plans				Plans
Non-U.S. Plans
Discount rate			5.20% - 6.00	%			5.20% - 5.67	%			5.00% - 5.75	%
Long-term rate of return on assets			7.00% - 7.25	%			6.50% - 7.00	%			7.00% - 7.50	%
Rate of increase in compensation levels			3.00% - 4.80	%			4.25% - 4.60	%			4.25% - 4.40	%
U.S. Plan
Discount rate			6.40	%			6.50	%			5.75	%
Long-term rate of return on assets			8.00	%			8.00	%			N/A
Rate of increase in compensation levels			3.40	%			3.50	%			3.00	%

Our discount rate is determined based upon high quality corporate bond yields as of the measurement date. The table below illustrates the effect of increasing or decreasing the discount rates by 25 basis points (in thousands):

		Fiscal year ended June 30,
		2008								2007
		Plus .25%				Less .25%				Plus .25%				Less .25%
Non-U.S. Plans
Effect on pension benefit obligation		$	(7,297	)		$	7,827			$	(5,786	)		$	5,841
Effect on service and interest cost		$	(582	)		$	569			$	(485	)		$	488
U.S. Plan
Effect on pension benefit obligation		$	(441	)		$	467			$	(316	)		$	336
Effect on service and interest cost		$	(144	)		$	152			$	(145	)		$	153

We estimate the long-term rate of return on UK, Canadian, and U.S. plan assets will be 7%, 7.25%, and 8%, respectively, based on the long-term target asset allocation. Expected returns for the following asset classes used in the plans are based on a combination of long-term historical returns and current and expected market conditions.

The UK pension scheme’s target asset allocation is 50% equity securities, 40% debt securities and 10% in real estate. External investment managers actively manage all of the asset classes. The target asset allocation has been set by the plan’s trustee board with a view to meeting the long-term return assumed for setting the employer’s contributions while also reducing volatility relative to the plan’s liabilities. The managers engaged by the trustees manage their assets with a view to seeking moderate out-performance of appropriate benchmarks for each asset class. At this time, the trustees do not engage in any alternative investment strategies, apart from UK commercial property.

The Canadian funded plan’s target asset allocation is 35% Canadian federal, provincial and corporate bonds, 30% larger capitalization Canadian stocks, 30% developed and larger capitalization Global ex Canada stocks (mainly U.S. and international stocks) and 5% cash and cash equivalents. A single investment manager actively manages all of the asset classes. This manager uses an equal blend of large cap value and large cap growth for stocks in order to participate in the returns generated by stocks in the long-term, while reducing year-over-year volatility. The bonds are managed using a core

approach where multiple strategies are engaged such as interest rate anticipation, credit selection and yield curve positioning to mitigate overall risk. At this time, the manager does not engage in any alternative investment strategies.

The U.S. pension plan’s target asset allocation is 30% large capitalization U.S. equities, 5% small capitalization U.S. equities, 25% developed market non-U.S. equities, 30% long duration U.S. Treasury bonds and 10% in alternative investments. The asset allocation was set considering asset class expected returns and volatility relative to the duration of the liabilities of the pension plan.

The asset allocation is reviewed annually in accordance with the Investment Policy Statement. The assets are held in a separate pension trust account at a custodian bank. External registered investment advisors manage the assets in active and passive strategies that are well diversified, investment grade, liquid and unleveraged.

Allowance for Doubtful Accounts
We make estimates of the collectibility of our accounts receivable. We specifically analyze accounts receivable and historical bad debts, client credit-worthiness, current economic trends, and changes in our client 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.

Income Taxes
We account for income taxes in accordance with SFAS No. 109 “Accounting for Income Taxes”. The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions may be challenged and that we may not succeed. We adjust these reserves in light of changing facts and circumstances. Our provision for income taxes includes the impact of these reserve changes. In the event that there is a significant unusual or one-time item recognized in our operating results, the taxes attributable to that item would be separately calculated and recorded at the same time as the unusual or one-time item.

Deferred income taxes are determined based on the difference between financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which such differences are expected to reverse. We routinely evaluate all deferred tax assets to determine the likelihood of their realization.

Effective July 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – and interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for and disclosure of uncertainty in tax positions. Additionally, FIN 48 provides guidance on the recognition, measurement, de-recognition, classification and disclosure of tax positions and on the accounting for related interest and penalties. Please see Note 14 to our Consolidation Financial Statements for a discussion of the adoption of FIN 48 and its impact on our financial condition and results of operations.

New Accounting Pronouncements

Please see Note 28 to our Consolidated Financial Statements for a discussion of recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk resulting from changes in interest rates, changes in market value of financial instruments caused by changes in interest rates and foreign currency exchange rates. Sensitivity analysis is one technique available to measure the impact that changes in these rates could have on our results of operations or financial position. The following analysis provides an indication of our sensitivity to changes in interest rates and foreign currency exchange rates as of June 30, 2008.

Interest Rates
During fiscal year 2006, we entered into the Credit Facility (please see Note 12 to our Consolidated Financial Statements for more discussion).  The Term Loan Facility and Revolving Facility are variable rate instruments and are subject to market risk resulting from changes in interest rates.  Risk can be estimated by measuring the impact of a near-term adverse movement of 100 basis points in short-term market interest rates.  If interest rates had increased by 100 basis points at June 30, 2008, and the amount outstanding as of June 30, 2008 under our Credit Facility had been outstanding for the entire fiscal year, net of $1.1 billion under

our interest rate swap and interest rate collar discussed below, our results of operations would have decreased approximately $11.6 million ($7.2 million, net of income tax).

In January 2008, we entered into a zero cost interest rate collar with an interest rate cap of 3.281% and a floor of 2.425%. The notional amount of the collar is $500 million executed in two transactions each having two year terms, $300 million of which expires on January 30, 2010 and $200 million of which expires February 11, 2010. In March 2007, we entered into a five-year amortizing interest rate swap agreement structured so that we pay a fixed interest rate of 4.897%, and receive a floating interest rate equal to the one-month LIBOR rate. At June 30, 2008, the notional amount of the rate swap was $600 million. The interest rate collar and rate swap are designated as a cash flow hedge of forecasted interest payments on up to $1.1 billion of outstanding floating rate debt. The transactions had a fair market value of zero at inception. The unrealized loss on the transactions as of June 30, 2008 of $14.3 million ($8.9 million, net of income tax) is reflected in accumulated other comprehensive income, net and the fair market value of ($14.3 million) is reflected in other long term liabilities. The unrealized gain of $8.1 million ($5.3 million, net of income tax) as of June 30, 2007 is reflected in accumulated other comprehensive income, net and the fair market value of $8.1 million is reflected in other assets. Changes in the fair value of our interest rate hedges would not impact our results of operations or cash flows, unless redeemed prior to maturity.

We entered into $500 million of fixed rate Senior Notes during fiscal year 2005. The Senior Notes are subject to market risk from changes in interest rates. Risk can be estimated by measuring the impact of a near-term adverse movement of 10% in market interest rates. The fair value of the Senior Notes as of June 30, 2008 and 2007 was $455.9 million and $459.4 million, respectively, based on quoted market prices. If these rates were 100 basis points higher or lower at June 30, 2008, the fair value of the Senior Notes would be approximately $439.6 million and $473.1 million, respectively. Changes in the fair value of our fixed rate Senior Notes would not impact our results of operations or cash flows, unless redeemed prior to maturity.

Foreign Currency
We conduct business in the U.S. and in foreign countries and are exposed to foreign currency risk from changes in the value of underlying assets and liabilities of our non-U.S. denominated foreign investments and foreign currency transactions. Risk can be estimated by measuring the impact of a near-term adverse movement of 10% in foreign currency rates against the U.S. dollar. If these rates were 10% higher or lower at June 30, 2008, there would have been no material adverse impact on our results of operations or financial position.

We utilize derivative financial instruments to manage our exposure to foreign currencies related to our domestic and international operations. We enter into foreign currency forward agreements in order to hedge the exchange rate risk associated with specific forecasted transactions, including payments and receipts from clients and suppliers, and funding of operating expenses of our offshore operations. We use sensitivity analysis to determine the effects that market risk exposures may have on the fair value of our foreign exchange forward agreements. The foreign exchange risk is computed based on the market value of the forward agreements as affected by changes in the corresponding foreign exchange rates. The sensitivity analysis represents the hypothetical changes in the value of the foreign exchange forward agreements and does not reflect the offsetting gain or loss on the underlying exposure. Fluctuations in the fair value of the foreign exchange forward agreements that qualify for hedge accounting treatment under SFAS 133 are recorded in accumulated other comprehensive income, net. As of June 30, 2008, a 10% adverse movement in the foreign currency exchange rate with all other variables held constant would have resulted in a decrease in the fair value of our qualified foreign exchange forward agreements of $4.3 million.  Changes in the fair value of these foreign exchange forward agreements would not impact our results of operations or cash flows, unless terminated prior to maturity.

As part of the acquisition of the Transport Revenue division of Ascom AG in December 2005, we acquired foreign exchange forward agreements that hedge our French operation’s Euro foreign exchange exposure related to its Canadian dollar and U.S. dollar revenues. These agreements do not qualify for hedge accounting under SFAS 133. In addition, we have entered into certain other foreign currency contracts not designated as hedges for accounting purposes, although management believes they are essential economic hedges. As of June 30, 2008, a 10% adverse movement in the foreign currency exchange rate with all other variables held constant would have resulted in a decrease in the fair value of our non-qualified foreign exchange forward agreements of approximately $2.2 million. Changes in the fair value of these foreign exchange forward agreements are recorded in other non-operating income, net in our Consolidated Statements of Income.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		PAGE
Report of Independent Registered Public Accounting Firm		54
Consolidated Balance Sheets		55
Consolidated Statements of Income		56
Consolidated Statements of Changes in Stockholders’ Equity		57
Consolidated Statements of Cash Flows		58
Notes to Consolidated Financial Statements		59

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Affiliated Computer Services, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Affiliated Computer Services, Inc. and its subsidiaries at June 30, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Notes 1 and 14 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain income tax positions in fiscal year 2008.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Syan Holdings Limited (“Syan”) and sds business services GmbH (“sds”) from its assessment of internal control over financial reporting as of June 30, 2008 because they were acquired by the Company in purchase business combinations during fiscal year 2008. We have also excluded Syan and sds from our audit of internal control over financial reporting. Syan and sds are wholly-owned subsidiaries whose total assets and total revenues represent 3.0% and 0.7%, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30, 2008.

PricewaterhouseCoopers LLP
Dallas, TX
August 28, 2008

AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES

		June 30,
		2008				2007
ASSETS
Current assets:
Cash and cash equivalents		$	461,883			$	307,286
Accounts receivable, net			1,378,285				1,257,108
Income taxes receivable			7,076				13,268
Prepaid expenses and other current assets			255,872				232,872
Total current assets			2,103,116				1,810,534
Property, equipment and software, net			920,637				897,319
Goodwill			2,785,164				2,612,368
Other intangibles, net			444,479				481,378
Other assets			216,003				180,830
Total assets		$	6,469,399			$	5,982,429
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	198,191			$	97,951
Accrued compensation and benefits			244,888				246,742
Other accrued liabilities			338,861				400,238
Deferred taxes			82,017				14,418
Current portion of long-term debt			47,373				47,039
Current portion of unearned revenue			173,809				164,484
Total current liabilities			1,085,139				970,872
Senior Notes, net of unamortized discount			499,529				499,449
Other long-term debt			1,858,012				1,842,823
Deferred taxes			411,836				367,565
Other long-term liabilities			306,509				235,552
Total liabilities			4,161,025				3,916,261
Commitments and contingencies (See Notes 12 and 20)
Stockholders’ equity:
Class A common stock, $.01 par value, 500,000 shares authorized, 111,660 and 113,960 shares issued, respectively			1,116				1,139
Class B convertible common stock, $.01 par value, 14,000 shares authorized, 6,600 shares issued and outstanding			66				66
Additional paid-in capital			1,702,340				1,642,900
Accumulated other comprehensive income, net			18,830				15,916
Retained earnings			1,641,990				1,462,115
Treasury stock at cost, 21,002 shares			(1,055,968	)			(1,055,968	)
Total stockholders’ equity			2,308,374				2,066,168
Total liabilities and stockholders’ equity		$	6,469,399			$	5,982,429