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 and the cash flow generation qualities of each deal which 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. 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 new business signings, annual recurring revenue and total contract value are measured under GAAP (defined below). During fiscal year 2009, we signed contracts with new clients and incremental business with existing clients representing $1.0 billion of annual recurring revenue with an estimated $4.5 billion in total contract value. The Commercial segment contributed 61% of the new contract signings and the Government segment contributed 39% of the new contract signings (based on annual recurring revenue).
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 2009, total revenue grew 6% over the prior fiscal year and internal revenue grew 3% 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 2009, we renewed approximately 85% of total renewals sought, totaling $1.4 billion of annual recurring revenue with a total contract value of approximately $4.1 billion. 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
We respond 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 2009 and 2008, the overall capital intensity of our business was approximately 6% and 5% 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 2009 percentage. We expect that 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 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 which are reconciled to the most 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 2010 Outlook
Our goals for fiscal 2010 include increasing shareholder value by improving our financial metrics, including growth in revenues, both from internal sources and acquisitions, operating income and margins, net income and earnings per share. Our fiscal year 2009 new business signings of $1.0 billion of annual recurring revenue will, when ramped, help us achieve these goals. Additionally, we have set a goal to increase the fiscal year 2010 new business signings over fiscal year 2009 levels. To that end, we have added approximately 100 sales people and the support structure associated with them during fiscal year 2009, and intend to continue expanding the sales organization into fiscal year 2010. During fiscal year 2009, we have worked with many of our clients who have faced unprecedented budgetary pressures due to the current economic environment, and have provided discounts through contract amendments to assist these clients. We have done this because we believe it's the proper strategic decision in this environment, and we have received valuable goodwill and increased contract terms or other valuable consideration that benefits us long-term. We intend to continue this program into fiscal year 2010.
We expect demand for commercial business process and information technology solutions to remain strong during fiscal year 2010. 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 2010 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 such as revenue generating services and entitlement programs, that have historically grown when government clients have experienced budget pressure.
We currently have projects underway that are changing the way we deliver our services to our clients and make them more competitive in their markets. We will continue to invest in innovation during fiscal year 2010, yet keep our capital intensity within historical ranges.

In the Government segment, we expect to expand our technology solutions and platforms, including our Enterprise Medicaid Management Information System 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 domestic solutions into solutions that we can market globally.
Our non-compete agreement with Lockheed Martin Corporation expired in November 2008. The expiration of this agreement allows 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 Grupo Multivoice ("Multivoice") and e-Services Group International ("e-Services") expanded our customer care offering and will help us provide clients throughout the Americas and Europe a suite of cost competitive bilingual services in English and Spanish for their business process outsourcing solutions. Our acquisitions of sds business services GmbH, Syan Holdings Limited and VBHG Limited ("Anix") 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. We intend to expand our global delivery model and continue to explore cost-savings opportunities as we move higher tier work to lower cost locations.
Significant Developments - Fiscal Year 2009 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. The total pre-tax cost to reduce these employee positions under this initiative is estimated to be approximately $24 million to $26 million, of which severance costs are estimated to be approximately $7 million and transition and other expenses are estimated to be approximately $17 million to $19 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                                         $            6,000              $          1,000              $              -              $            7,000
Transition and other expenses                             12,000 -  13,000                2,500 -  3,000                2,500 -  3,000                17,000 -  19,000

Total costs                                             $ 18,000 - $19,000              $ 3,500 - $4,000              $ 2,500 - $3,000              $ 24,000 - $26,000

As of June 30, 2009, we added approximately 3,600 positions outside the United States and Europe and reduced corresponding positions in the United States and Europe as a result of this initiative. During fiscal year 2009, we recorded severance costs of $7.3 million, ($4.3 million, net of income tax) and incurred $14.1 million, ($9.1 million, net of income tax) for transition and other expenses in cost of revenues in our Consolidated Statements of Income. During fiscal year 2009, we announced a plan to assist displaced employees who are experiencing financial hardships during these difficult economic times. We made contributions of approximately $1.4 million, ($0.9 million, net of income tax), related to this plan during fiscal year 2009, which are included in the transition costs discussed above. The following table reflects charges recorded in each of our segments (in thousands):

                                                                                               Fiscal Year Ended June 30, 2009
                                                           Commercial                     Government                     Corporate                        Total
Accrued severance costs                                 $            5,967              $          1,306              $              -              $            7,273
Transition and other expenses                                       10,223                         1,914                         1,942                          14,079

Total costs                                             $           16,190              $          3,220              $          1,942              $           21,352

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.
We opened new facilities and expanded current facilities globally in order to accommodate the increased offshore headcount. Capital expenditures related to these facilities are currently estimated at approximately $9.5 million. During fiscal year 2009, we incurred $8.8 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 during fiscal year ended June 30, 2009 (in thousands):

                   Balance at beginning of period    $        -
                   Accruals, net of reversals             7,273
                   Payments                              (5,024 )

                   Balance at end of period          $    2,249

New Business
During fiscal year 2009, we signed contracts with new clients and incremental business with existing clients representing $1.0 billion of annualized recurring revenue and an estimated $4.5 billion in total contract value. The Commercial segment contributed 61% of the new contract signings and the Government segment contributed 39% of the new contract signings (based on annual recurring revenues).
Acquisitions
During fiscal year 2009, we completed three acquisitions in our Commercial segment, Multivoice, e-Services, Anix and two other small aquisitions. Please see Note 3 to our Consolidated Financial Statements for a discussion of these acquisitions.
Supplemental Executive Retirement Agreement Please see Note 11 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. Evaluation of Strategic Alternatives
We have incurred costs to evaluate our strategic alternatives, including the 2007 proposal from Darwin Deason, Chairman of the Board of Directors, and Cerberus Capital Management, L.P. ("Cerberus"). In addition, several lawsuits were filed in connection with the announced Cerberus buyout transaction, generally alleging claims related to breach of fiduciary duty, and seeking class action status. Those lawsuits have been resolved. Please see Note 19 to our Consolidated Financial Statements for further discussion of these lawsuits. We expect that we may continue to incur costs related to our evaluation of strategic alternatives.
During fiscal years 2009, 2008 and 2007, we recognized approximately $0.2 million, $8.3 million and $4.0 million, respectively, in legal and other costs related to the evaluation of strategic alternatives, and $0.6 million, $1.5 million and $1.9 million, respectively, related to lawsuits discussed above.
Divestitures
Please see Note 20 to our Consolidated Financial Statements for a discussion of the sale of our bindery business during fiscal year 2009. 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 and the Government segment contributed 40% of the new contract signings (based on annual recurring revenues).
Acquisitions
We completed seven acquisitions during fiscal year 2008. Please see Note 3 to our Consolidated Financial Statements for a discussion of these acquisitions.

Divestitures
During 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.
During fiscal year 2008, we completed the sale of our Unclaimed Property Reporting and Recovery ("UPRR") business in our Commercial segment. We recorded a gain on the sale of approximately $1.1 million ($0.7 million, net of income tax) and $1.0 million ($0.6 million, net of income tax) during fiscal years 2009 and 2008, respectively, 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 14 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 FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for and disclosure of uncertainty in tax positions. Please see Note 12 to our Consolidated Financial Statements for a discussion of our adoption of FIN 48.
Stock Option Repricing
Please see Note 14 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
Please see Note 19 to our Consolidated Financial Statements for a discussion of the review of our stock option grant practices. Significant Developments - Fiscal Year 2007 New Business
During fiscal year 2007, we signed contracts with new clients and incremental business with existing clients representing $607.0 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 and the Government segment contributed 36% of the new contract signings (based on annual recurring revenues).
Acquisitions
We completed six acquisitions during fiscal year 2007. Please see Note 3 to our Consolidated Financial Statements for a discussion of these acquisitions. 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 $19.0 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 expense (income), net.
Share Repurchase Programs
Please see Note 14 to our Consolidated Financial Statements for a discussion of our share repurchases during fiscal year 2007.

Stock Option Repricing
Please see Note 14 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 provide comprehensive loan servicing for the Department of Education's (the "Department") Direct Student Loan program under the Common Services for Borrowers contract. Annual revenues from this contract represented approximately 3%, 3% and 4% of our fiscal year 2009, 2008 and 2007 revenues, respectively. We expect the contract to continue through the middle of fiscal year 2012 under the remaining two performance based periods. The Department may also exercise two additional option years at their discretion.
In May 2007, we and the Department agreed to cease development of certain software contemplated under the Common Services for Borrowers contract. At that time, we had implemented approximately $39.0 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
During fiscal year 2007, we settled a dispute involving our contract with the North Carolina Department of Health and Human Services and recognized . . .