We generally 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 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 a certain level of predictability with regards to our revenue streams during differing economic cycles. We define recurring revenues as revenues derived from services that our clients use each year in connection with their ongoing businesses, and accordingly, exclude non-recurring revenue related to software license fees, short-term contract programming and consulting engagements, product installation fees, and hardware and software sales. We may experience variations in our mix of recurring versus non-recurring revenues if we provide consulting or other services that are primarily short-term in nature. 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 $2.0 billion of annual recurring revenues as of March 31, 2009. Our sales pipeline includes potential business opportunities that we expect 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 March 31, 2009, the Commercial segment comprised approximately 55% of our pipeline and the Government segment comprised the remaining 45%. By service line, approximately 80% of our pipeline is business process outsourcing and approximately 20% of the pipeline is information technology solutions as of March 31, 2009. The Commercial segment pipeline includes opportunities in information technology services, commercial healthcare, transactional business process outsourcing, including customer care, finance and accounting outsourcing, human resources outsourcing, student loan processing and learning process outsourcing. The Government segment pipeline includes opportunities in our domestic and international transportation business, in the state and local market for information technology, eligibility, public safety and electronic payment services, in government healthcare and with the federal government. While the size 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, ramp of new business, cash flow generation qualities of each deal and are subject to risks described further in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. 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 generally accepted accounting principles in the United States ("GAAP"). 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 the three months ended March 31, 2009, we signed contracts with new clients and incremental business with existing clients representing $341.8 million of annual recurring revenue with an estimated $1.64 billion in total contract value. The Commercial segment contributed 71% of the new contract signings and the Government segment contributed 29% of the new contract signings (based on annual recurring revenues). We expanded existing relationships in both our Commercial Healthcare Payer and Government Healthcare lines of business. The Communications and Consumer Goods line of business was also a contributor to our third quarter signings.
During the nine months ended March 31, 2009, we signed contracts with new clients and incremental business with existing clients representing $747.0 million of annual recurring revenue with an estimated $3.27 billion in total contract value. The Commercial segment contributed 59% of the new contract signings and the Government segment contributed 41% 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 operations divested through the end of the current period 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. During the three months ended March 31, 2009, total revenue grew 5% over the prior year period, excluding divestitures, and internal revenue grew 3% over the prior year period. During the nine months ended March 31, 2009, total revenue grew 7% over the prior year period, excluding divestitures, and internal revenue grew 4% over the prior year period. 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. During the three and nine months ended March 31, 2009, we renewed approximately 84% and 85%, respectively, of total renewals sought, totaling $323.9 million and $1.08 billion, respectively, of annual recurring revenue with a total contract value of approximately $890.2 million and $3.30 billion, respectively. 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 and the continuous training of our personnel. Management continually assesses the capital intensity of these technological advances and client requirements, addressing the challenge to provide innovative solutions and a lower cost solution for clients. We monitor the capital intensity of new business signings, which we define as the total of capital expenditures and additions to intangible assets as a percentage of revenue. The capital intensity of new business signings is critical to determine 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 the nine months ended March 31, 2009 and 2008, the overall capital intensity of our business was approximately 5.4% and 4.8% 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. 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 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 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 our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. Management 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 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.

Significant Developments
Global Production Initiative
In October 2008, we announced plans to implement a global production initiative to lower future labor costs. Under this initiative, we intend to hire approximately 4,200 full-time employees in locations outside of the United States and reduce corresponding positions within the United States and Europe by the end of the first quarter of fiscal year 2010. We may elect to hire offshore fewer positions than we are terminating onshore, as we leverage technology and other business process outsourcing solutions, in an effort to achieve a cost effective solution. The total pre-tax cost to reduce these employee positions under this initiative is estimated to be approximately $31.0 million to $34.0 million, of which severance costs are estimated to be approximately $10.0 million to $11.0 million and transition and other expenses are estimated to be approximately $21.0 million to $23.0 million. The transition costs consist primarily of duplicate labor costs as a result of job training and work shadowing, as well as related travel, retention and facility costs during the transition. Substantially all of these expenses to date, and substantially all of the expected expenses, have been or will be cash expenditures. The following table reflects the estimated charges over the term of the initiative for each of our segments (in thousands):

                                       Commercial            Government           Corporate               Total
Severance costs                    $  9,000 -  $9,500     $ 1,000 - $1,500     $              -     $ 10,000 - $11,000
Transition and other expenses        16,000 -  17,000       3,000 -  3,500       2,000 -  2,500       21,000 -  23,000

Total costs                        $ 25,000 - $26,500     $ 4,000 - $5,000     $ 2,000 - $2,500     $ 31,000 - $34,000

As of March 31, 2009, we have added approximately 3,000 positions outside the United States and Europe and reduced corresponding positions in the United States and Europe as a result of this initiative. During the three and nine months ended March 31, 2009, we recorded severance costs (benefits) of $(2.6 million), $(1.7 million), net of income tax, and $10.3 million, $6.3 million, net of income tax, respectively, and incurred $6.3 million, $4.1 million, net of income tax, and $10.1 million, $6.4 million, net of income tax, respectively, for transition and other expenses in cost of revenues in our Consolidated Statements of Income. During the three months ended March 31, 2009, we announced a plan to assist displaced employees who are experiencing financial hardships during these difficult economic times. We made contributions of approximately $0.5 million, $0.3 million, net of income tax, related to this plan during the three months ended March 31, 2009, which are included in the transition costs discussed above. The following table reflects charges recorded during the period in each of our segments (in thousands):

                                              Three Months Ended March 31, 2009
                                  Commercial        Government       Corporate       Total
  Accrued severance costs         $    (2,138 )     $      (449 )   $         -     $ (2,587 )
  Transition and other expenses         4,521               797             969        6,287

  Total costs                     $     2,383       $       348     $       969     $  3,700




                                               Nine Months Ended March 31, 2009
                                   Commercial       Government       Corporate       Total
  Accrued severance costs         $      8,711     $      1,594     $         -     $ 10,305
  Transition and other expenses          7,701            1,337           1,031       10,069

  Total costs                     $     16,412     $      2,931     $     1,031     $ 20,374

We anticipate using a substantial portion of the savings generated from this initiative to invest in innovation, sales and other client opportunities. Upon completion, we estimate the full annual run rate pre-tax savings will be approximately $40 million after these investments.
Additionally, we anticipate opening new facilities and expanding current facilities globally in order to accommodate the increased offshore headcount. Capital expenditures related to these facilities are currently estimated at $12 million to $14 million. During the nine months ended March 31, 2009, we incurred approximately $6.2 million in capital expenditures related to these facilities.

The following table reflects the activity for the accruals for involuntary termination of employees related to this initiative (in thousands):

                     Balance at December 31, 2008   $ 11,703
                     Accruals, net of reversals       (2,587 )
                     Payments                         (1,701 )

                     Balance at March 31, 2009      $  7,415


                     Balance at June 30, 2008       $      -
                     Accruals, net of reversals       10,305
                     Payments                         (2,890 )

                     Balance at March 31, 2009      $  7,415

Acquisitions
During the nine months ended March 31, 2009, we completed two acquisitions in our Commercial segment, Grupo Multivoice ("Multivoice") and e-Services Group International ("e-Services"). Please see Note 2 to our Consolidated Financial Statements for a discussion of these acquisitions. Supplemental Executive Retirement Agreement Please see Note 6 to our Consolidated Financial Statements for a discussion of the termination of the Supplemental Executive Retirement Plan Agreement (the "SERP Termination") with the Chairman of our Board of Directors. Deason/Cerberus Proposal
Please see Note 3 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 for a discussion of the Deason/Cerberus proposal to purchase the Company.

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 operations divested through the end of the current period 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. Internal revenue growth calculations reported in prior periods 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 millions):