<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-22495
PEROT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2230700
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12404 PARK CENTRAL DRIVE
DALLAS, TEXAS 75251
(Address of principal executive offices) (Zip Code)
(972) 340-5000
Registrant's telephone number, including area code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]Yes [ ]No
As of October 30, 1998, the registrant had outstanding 38,979,537 shares of
Class A Common Stock.
<PAGE> 2
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (Unaudited)
<S> <C> <C>
Condensed Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997.............................................................1
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 1998 and 1997.............................2
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997.............................................3
Notes to Condensed Consolidated Financial Statements.......................4-10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................11-16
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.....................................................................17
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................17
ITEM 5: OTHER INFORMATION .....................................................................18
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.......................................................20
SIGNATURES.....................................................................................21
EXHIBIT INDEX..................................................................................22
</TABLE>
<PAGE> 3
ITEM 1: FINANCIAL STATEMENTS
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 102,153 $ 35,298
Accounts receivable, net ..................................... 161,682 105,230
Prepaid expenses and other ................................... 17,656 12,578
Deferred income taxes ........................................ 35,663 24,962
--------- ---------
Total current assets ..................................... 317,154 178,068
Property, equipment and purchased software, net ................. 39,974 50,703
Goodwill ........................................................ 7,240 16,596
Deferred income taxes ........................................... 11,473 10,269
Other assets .................................................... 13,946 11,467
--------- ---------
Total assets ............................................. $ 389,787 $ 267,103
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities on capital lease obligations and long-term
debt...................................................... $ 1,122 $ 1,367
Accounts payable ............................................. 55,620 35,760
Income taxes payable ......................................... 25,793 10,287
Accrued liabilities .......................................... 107,024 76,040
Deferred revenue ............................................. 13,732 23,258
Accrued compensation ......................................... 54,306 23,449
--------- ---------
Total current liabilities ................................ 257,597 170,161
Capital lease obligations and long-term debt, less current
maturities................................................ 1,093 1,532
Other long-term liabilities ..................................... 1,917 2,094
--------- ---------
Total liabilities ........................................ 260,607 173,787
--------- ---------
Stockholders' equity:
Common stock ................................................. 410 406
Additional paid-in-capital ................................... 71,565 61,546
Other stockholders' equity ................................... 56,064 32,158
Accumulated other comprehensive income ....................... 1,141 (794)
--------- ---------
Total stockholders' equity ............................... 129,180 93,316
--------- ---------
Total liabilities and stockholders' equity ............... $ 389,787 $ 267,103
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 1
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue............................................ $ 271,473 $ 202,784 $ 724,185 $ 556,867
Costs and expenses:
Direct cost of services ....................... 215,193 158,491 575,083 437,688
Selling, general and administrative expenses .. 37,063 32,798 103,114 95,911
Goodwill impairment ........................... 3,845 -- 3,845 --
Purchased research and development ............ -- 2,000 -- 2,000
--------- --------- --------- ---------
Operating income ................................... 15,372 9,495 42,143 21,268
Interest income .................................... 1,406 389 2,985 1,312
Interest expense ................................... (58) (453) (184) (953)
Equity in earnings of unconsolidated affiliates .... 1,687 489 4,199 716
Other income/(expense) ............................. 189 (334) 2,742 1,324
--------- --------- --------- ---------
Income before taxes ................................ 18,596 9,586 51,885 23,667
Provision for income taxes ......................... 9,545 4,074 23,690 10,058
--------- --------- --------- ---------
Net income.................................... $ 9,051 $ 5,512 $ 28,195 $ 13,609
========= ========= ========= =========
Basic and diluted earnings per common share:
Basic earnings per common share............... $ 0.23 $ 0.14 $ 0.74 $ 0.34
Weighted average common shares outstanding ... 38,564 38,876 38,337 39,460
Diluted earnings per common share............. $ 0.18 $ 0.12 $ 0.58 $ 0.28
Weighted average diluted common shares
outstanding .................................. 49,199 46,253 48,455 48,280
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 28,195 $ 13,609
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................... 29,440 24,779
Other non-cash items ............................................ (12,028) 5,175
Changes in current assets ....................................... (62,294) (13,677)
Changes in current liabilities .................................. 81,778 (14,099)
--------- ---------
Net cash provided by operating activities ................ 65,091 15,787
--------- ---------
Cash flows from investing activities:
Purchase of property, equipment and software ....................... (18,884) (33,916)
Proceeds from sale of property, equipment and software ............. 7,567 538
Acquisition of businesses, net of cash acquired of $650 in 1997 .... -- (13,334)
Proceeds from sale of nonmarketable equity securities .............. 5,162 --
Acquisition of intellectual property rights ........................ -- (6,322)
Other .............................................................. 1,339 (3,592)
--------- ---------
Net cash used in investing activities .................... (4,816) (56,626)
--------- ---------
Cash flows from financing activities:
Principal payments on debt and capital lease obligations ........... (701) (3,182)
Proceeds from short-term borrowings ................................ -- 25,000
Proceeds from issuance of common stock ............................. 3,045 381
Proceeds from sale of stock options ................................ -- 8,139
Proceeds from issuance of treasury stock ........................... 2,926 794
Purchase of treasury stock ......................................... (950) (1,825)
Repayment of stockholder notes receivable .......................... 184 248
--------- ---------
Net cash provided by financing activities ................ 4,504 29,555
--------- ---------
Effect of exchange rate changes on cash and cash equivalents ............ 2,076 (3,198)
--------- ---------
Net increase/(decrease) in cash and cash equivalents .................... 66,855 (14,482)
Cash and cash equivalents at beginning of period ........................ 35,298 27,516
--------- ---------
Cash and cash equivalents at end of period .............................. $ 102,153 $ 13,034
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1. GENERAL
The accompanying unaudited interim condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). The interim condensed consolidated
financial statements include the consolidated accounts of Perot Systems
Corporation and its majority-owned subsidiaries (collectively, "the Company")
with all significant inter-company transactions eliminated. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the financial position, results of operations
and cash flows for the interim periods presented have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
have been condensed or omitted pursuant to such SEC rules and regulations. These
financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1997 as filed in the Company's Annual
Report on Form 10-K filed with the SEC on March 31, 1998. Operating results for
the three-month and nine-month periods ended September 30, 1998 are not
necessarily indicative of the results for the year ending December 31, 1998.
Dollar amounts presented are in thousands, except as otherwise noted.
Certain of the 1997 amounts in the accompanying financial statements have been
reclassified to conform to the current presentation.
NOTE 2. IMPLEMENTATION OF NEW ACCOUNTING STANDARD
The Company implemented Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" during the first quarter of 1998. The Company's
total comprehensive income was as follows:
<TABLE>
<CAPTION>
For the Three months For the Nine months
Ended September 30 Ended September 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income......................................... $ 9,051 $ 5,512 $ 28,195 $ 13,609
Foreign currency translation adjustments........... 1,969 (149) 1,935 (1,626)
-------- -------- -------- --------
Total comprehensive income......................... $ 11,020 $ 5,363 $ 30,130 $ 11,983
======== ======== ======== ========
</TABLE>
NOTE 3. SALE OF SUBSIDIARY
During the three months ended September 30, 1998, the Company sold its equity
interest in Doblin Group, Inc. Under the terms and conditions of the divestiture
agreement, the Company received $900 in cash, $1,182 in the form of 60,000
shares of the Company's Class A Common Stock, and a $59 note receivable. The
impact of the sale was immaterial to the results of operations for the three
months and nine months ended September 30, 1998.
Page 4
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND MINORITY INTERESTS
During the three months ended September 30, 1998, the Company entered into a
joint venture with the Bank of Ireland whereby the Company owns 49% of Perot
Systems Information Resource (Ireland) Limited, a Dublin-based entity providing
data center and other related services. The Company made a capital contribution
of $344 to the joint venture in July 1998.
At September 30, 1998, the Company owned 2,394,000 shares of a class of
preferred stock in a software company for an equity interest of approximately
8%. In December 1997, this investment was written off by the entire book value,
however, the Company was still subject to a call option to purchase up to $1,000
in additional shares in the software company. During the three months ended
September 30, 1998, the call option terminated and the Company has no future
commitments related to this investment.
During the nine months ended September 30, 1997, the Company purchased an
interest in an unconsolidated entity for $1,000. During the three months and
nine months ended September 30, 1997, the Company invested an additional $59 and
$1,586 in an existing unconsolidated limited partnership capital fund. In
January, 1998, the Company sold its entire investment in the fund for $5,162,
recognized a gain of $2,986, and has no future commitment to the fund. The
Company also contributed $500 in additional capital to HCL Perot Systems N.V, a
related party, during the third quarter of 1997.
NOTE 5. GOODWILL IMPAIRMENT
During September 1998, the Company determined that certain amounts recorded for
goodwill primarily from the acquisition of Stamos Associates, Inc. ("Stamos")
were impaired and no longer recoverable. The determination was made based on
management's best estimates of the undiscounted future operating cash flows over
the remaining useful life of the goodwill. From this analysis, an impairment
loss was calculated as the difference between the carrying amount of the
goodwill and the fair value of the asset, based on discounted estimated future
cash flows. Goodwill impairments included in the accompanying statement of
operations totaled $3,845 consisting primarily of a write-down of Stamos
goodwill of $3,680. The Company believes that the remaining Stamos goodwill
balance of $338 is recoverable over the remaining amortization period.
NOTE 6. BORROWINGS
There were no borrowings outstanding under the Company's $40,000 line of credit
at September 30, 1998 and December 31, 1997. This facility expired July 31,
1998, and was renewed pursuant to the same terms until January 31, 1999.
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 7. STOCKHOLDERS' EQUITY
The components of other stockholders' equity were as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
Retained earnings......................................... $ 67,242 $ 39,047
Treasury stock............................................ (5,645) (3,950)
Notes receivable from stockholders........................ (1,777) (2,939)
Deferred compensation..................................... (3,756) --
-------- --------
Total other stockholders' equity.......................... $ 56,064 $ 32,158
======== ========
</TABLE>
The increase in retained earnings of $28,195 represented net income for the
period.
The increase in deferred compensation was related to options granted during the
nine months ended September 30, 1998, and represented the difference between the
option exercise price and the fair value of the underlying common stock. The
Company recognized $271 of compensation expense during the nine months ended
September 30, 1998 and will amortize the remaining deferred compensation ratably
over the respective vesting periods of the option grants. Prior to any option
forfeitures resulting from employee attrition, the estimated amount of deferred
compensation expense to be recognized during 1998 is $372 and approximately $407
for each year through 2008.
Additional paid-in-capital increased by $10,019 from December 31, 1997 to
September 30, 1998. The components of the increase include a $4,027 increase in
deferred compensation, $3,041 from the September 1998 exercise of 417,160 Class
B Common Stock Options by UBS AG, a significant customer of the Company, and
$1,976 due to income tax benefits resulting from employee options exercised
during the period.
At September 30, 1998, there were 38,447,277 shares of the Company's Class A
Common Stock outstanding, 467,160 shares of the Company's Class B Convertible
Common Stock and 2,083,118 Class A shares held in treasury. At December 31,
1997, there were 38,227,707 shares of the Company's Class A Common Stock
outstanding, 50,000 shares of the Company's Class B Convertible Common Stock and
2,297,112 Class A shares held in treasury.
In July, 1998, the Board of Directors approved an amendment to the Company's
Certificate of Incorporation which includes an increase in the authorized number
of shares of Class A Common Stock to 200,000,000 from 100,000,000 shares. The
amendment was approved by stockholders in August, 1998.
On August 5, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of the
Company's Class A Common Stock.
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
In July 1998, the Board of Directors adopted an employee stock purchase plan
("the ESPP"), which provides for the issuance of a maximum of 10,000,000 shares
of Class A Common Stock. The ESPP will become effective immediately following
the proposed initial public offering of the Company's Class A Common Stock.
Eligible employees may have up to 10% of their earnings withheld, to be used to
purchase shares of the Company's Common Stock on specified dates determined by
the Board of Directors. The price of the Common Stock purchased under the ESPP
will be equal to 85% of the fair value of the stock on the exercise date for the
offering period.
The Board of Directors of Perot Systems anticipates authorizing the Company to
enter into a Stockholder Rights Plan (the "Rights Plan"), providing that one
Class A right (a "Class A Right") will be attached to each share of Class A
Common Stock and one Class B right (a "Class B Right", and together with the
Class A Rights, the "Rights") will be attached to each share of Class B Common
Stock as of the record Date to be determined by the Executive Committee of the
Board of Directors (the "Executive Committee"). Each Class A Right will entitle
the registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock"), at a purchase price to
be determined by the Executive Committee, which price will be subject to
adjustment. Each Class B Right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share of Series B Junior
Participating Preferred Stock, par value $0.01 per share, (the "Series B
Preferred Stock and together with the Series A Preferred Stock, the "Preferred
Stock") at a purchase price determined by the Executive Committee, which will be
subject to adjustment. The Rights will not be exercisable until the Distribution
Date and will expire ten years following the adoption of the Rights Plan, unless
earlier redeemed by the Company as described below. At any time until 10 days
following the Stock Acquisition Date, the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right. The ten day redemption
period may be extended by the Board of Directors so long as the Rights are still
redeemable. Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.01 redemption price.
The Rights have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire the Company in certain
circumstances. Accordingly, the existence of the Rights may deter certain
acquirors from making takeover proposals or tender offers.
NOTE 8. EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share", effective for fiscal years ending after
December 15, 1997. SFAS 128 replaces the presentation of primary earnings per
common share with basic earnings per share, with the principal difference being
that common stock equivalents are not considered in computing basic earnings per
share. The Earnings Per Share amounts for the three months and nine months ended
September 30, 1997, are restated for the effect of SFAS 128. The following chart
is a reconciliation of the numerators and the denominators of the basic and
diluted per-share computations.
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES PER-SHARE
INCOME (IN THOUSANDS) AMOUNT
------ -------------- ------
<S> <C> <C> <C>
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders .... $ 9,051 38,564 $ 0.23
======
Dilutive options ................................ -- 10,635
------- -------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions ...................... $ 9,051 49,199 $ 0.18
======= ======= ======
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders .... $ 5,512 38,876 $ 0.14
======
Dilutive options ................................ -- 7,377
------- ------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions ...................... $ 5,512 46,253 $ 0.12
======= ======= ======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders .... $28,195 38,337 $ 0.74
======
Dilutive options ................................ -- 10,118
------- -------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions ...................... $28,195 48,455 $ 0.58
======= ======= ======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
BASIC EARNINGS PER COMMON SHARE
Net income attributed to common shareholders .... $13,609 39,460 $ 0.34
======
Dilutive options ................................ -- 8,820
------- -------
DILUTED EARNINGS PER COMMON SHARE
Net income attributed to common shareholders
Plus assumed conversions ...................... $13,609 48,280 $ 0.28
======= ======= ======
</TABLE>
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 9. YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process date fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems could be unable to accurately process certain
date-based information. The Company believes it has identified all significant
applications that will require modification to ensure Year 2000 Compliance and
does not believe compliance with the Year 2000 requirements will have a material
adverse effect on the Company's business or results of operations. The Company
is performing an assessment of its obligations to make any of its client's
systems Year 2000 compliant, including an estimate of the cost and revenues to
be incurred in fulfilling such obligations, and monitors this assessment on an
ongoing basis.
As of September 30, 1998, the Company estimates the total cost of completing any
required modifications, upgrades, or replacements of its internal systems to be
approximately $1,000, almost all of which the Company believes will be incurred
during the remainder of 1998 and 1999. This estimate is being monitored and will
be revised as additional information becomes available.
Year 2000 engagements do not comprise a substantial portion of the Company's
business. For its two largest Year 2000 contracts, the Company uses a zero
estimate of profit with equal amounts of revenue and cost recognized until the
final outcome of the engagement can be estimated more precisely because of the
inherent uncertainties regarding testability in the existing system environment
and client acceptance. The Company recorded a $13,485 charge in direct cost of
services for the nine months ended September 30, 1998 to address Year 2000
exposures for certain client contracts.
NOTE 10: NEW ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131") effective for years beginning after December 15, 1997.
Statement 131 requires that a public company report financial and descriptive
information about its reportable operating segments pursuant to criteria that
differ from current accounting practice. Operating segments, as defined, are
components of an enterprise about which separate financial information is
available that is evaluated regularly by management in deciding how to allocate
resources and in assessing performance. The financial information to be reported
includes segment profit or loss, certain revenue and expense items and segment
assets and reconciliations to corresponding amounts in the financial statements.
Statement 131 also requires information about revenues from products or
services, countries where the company has operations or assets and major
customers. Management does not believe the implementation of Statement 131 will
have a material impact on its consolidated financial position or results of
operations.
NOTE 11: SUBSEQUENT EVENTS
The Company recorded deferred revenue on a customer contract during prior years
totaling approximately $1,900. During the fourth quarter of 1998, the Company
renegotiated this contract and believes the future services related to the
contract may not be necessary.
Page 9
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
In June 1998, the FASB issued SFAS No. 133 which establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet at fair value. If certain conditions are met, a
derivative may be specifically designated as a fair value hedge, a cash flow
hedge, or a foreign currency hedge. A specific accounting treatment applies to
each type of hedge. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS No. 133 is not expected to have a
material impact on the Company's financial condition or results of operations.
The American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," in March 1998. SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use and requires costs incurred in the application
development stage (whether internal or external) to be capitalized. This SOP is
applicable to all financial statements for fiscal years beginning after December
15, 1998, and should be applied to internal-use computer software costs incurred
in those fiscal years for all projects, including those projects in progress
upon initial application of this SOP. Costs incurred prior to initial
application of this SOP, whether or not capitalized, should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. The adoption of this SOP is not expected to have a
material impact on the Company's financial position or results of operations
Page 10
<PAGE> 13
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 1998 and 1997
Revenue increased in the third quarter of 1998 by 33.9% to
$271.5 million from $202.8 million in 1997, due to the entry into two
significant contracts in the third quarter of 1997 that generated a $19.9
million increase and a $48.8 million increase in revenue from other new and
existing business, including $20.8 million from UBS AG ("UBS"), formerly Swiss
Bank Corporation and $10.0 million from East Midlands Electricity ("EME").
Domestic revenue grew by 31.7% in the third quarter of 1998 to $171.9
million from $130.5 million in the third quarter of 1997, and decreased slightly
as a percentage of total contract revenue to 63.3% from 64.4% over the same
period.
Non-domestic revenue, comprising European and Asian operations, grew by
37.8% in the third quarter of 1998 to $99.6 million from $72.3 million in the
third quarter of 1997, and increased as a percentage of total contract revenue
to 36.7% from 35.6%. Asian operations represented $5.5 million, or 2.0%, and
$2.5 million, or 1.2%, of total revenue for the three months ended September 30,
1998 and 1997, respectively.
Direct cost of services increased in the third quarter of 1998 by 35.8%
to $215.2 from $158.5 million in the third quarter of 1997, due primarily to
continued growth in the Company's business. Gross margins (contract revenue less
direct costs of services) decreased slightly to 20.7% from 21.8% for the quarter
ended September 30, 1998 compared to the quarter ended September 30, 1997, due
to overall improvement in margins on contracts offset by the recognition of a
$8.3 million charge in the third quarter of 1998 to address Year 2000 exposures
for certain client contracts.
Selling, general, and administrative expenses increased in the third
quarter of 1998 by 13.1% to $37.1 million from $32.8 million in the third
quarter of 1997, but decreased as a percentage of total contract revenue to
13.7% from 16.2% due to the Company's increased focus on expense reduction and
cost control since the fourth quarter of 1997. The most significant savings in
administrative expenses included reductions in executive compensation, the
cancellation of discretionary projects, and reductions in marketing and
promotional expenses, and non-essential travel. The Company wrote-down goodwill
associated with acquired businesses by $3.8 million in the third quarter of
1998, and expensed $2.0 million of acquired intellectual property rights as
purchased research and development in the third quarter of 1997. As a result of
the factors noted above, operating income increased in the third quarter of 1998
to $15.4 million from $9.5 million in the third quarter of 1997, and operating
margin (operating income as a percentage of contract revenue) increased to 5.7%
from 4.7%.
Equity in earnings of unconsolidated affiliates, net, increased in the
quarter ended September 30, 1998 to $1.7 million from $0.5 million during the
quarter ended September 30, 1997 due to improved results at Systor AG
("Systor"), a subsidiary of UBS, and at HCL Perot Systems N.V. ("HPS"), a
software development joint venture based in India. The equity in earnings for
Systor increased to $1.0 million from $0.2 million and equity in earnings for
HPS increased to $0.7 million from $0.3 million for the quarters ended September
30, 1998 and 1997, respectively.
Page 11
<PAGE> 14
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The increase in the effective tax rate for the third quarter of 1998 to
51.3% from 42.5% for the third quarter 1997 was due to an increase in the
Company's tax provision for the third quarter of 1998 reflecting a revision of
the full year effective rate estimate to 45.7% based on a non-deductible
goodwill write-down recorded in the third quarter of 1998.
Net income increased 65.5% in the third quarter of 1998 to $9.1 million
from $5.5 million in the third quarter of 1997 and net income margin increased
to 3.4% from 2.7%.
Comparison of the nine months ended September 30, 1998 and 1997
Revenue increased in the nine months ended September 30, 1998 by 30.0%
to $724.2 million from $556.9 million in the nine months ended September 30,
1997, due to the entry into two significant contracts in the third quarter of
1997 that generated a $63.8 million increase, $15.8 million in additional
revenue resulting from the inclusion of businesses acquired in the first nine
months of 1997 for the entire nine month period in 1998, and a $87.7 million
increase in revenue from other new and existing business, including $31.2
million from EME and $24.7 million from UBS.
Domestic revenue grew by 27.2% in the nine months ended September 30,
1998 to $468.0 million from $368.0 million in the nine months ended September
30, 1997, and decreased slightly as a percentage of total revenue to 64.6% from
66.1% over the same period.
Non-domestic revenue, comprising European and Asian operations, grew by
35.6% in the nine months ended September 30, 1998 to $256.2 million from $188.9
million in the nine months ended September 30, 1997, and increased as a
percentage of total revenue to 35.4% from 33.9%. Asian operations represented
$11.4 million, or 1.6%, and $7.0 million, or 1.3%, of total revenue for the nine
months ended September 30, 1998 and 1997, respectively.
Direct cost of services increased in the nine months ended September
30, 1998 by 31.4% to $575.1 million from $437.7 million in the nine months ended
September 30, 1997, due primarily to continued growth in the Company's business.
Gross margin decreased slightly to 20.6% from 21.4% for the nine months ended
September 30, 1998 compared to the nine months ended September 30, 1997, due
primarily to a $13.5 million charge to address Year 2000 exposures for certain
client contracts, without which gross margin would have increased.
Selling, general, and administrative expenses increased in the nine
months ended September 30, 1998 by 7.5% to $103.1 million from $95.9 million in
the nine months ended September 30, 1997, but decreased as a percentage of total
contract revenue to 14.2% from 17.2%, respectively. The most significant savings
in administrative expenses included reductions in executive compensation, the
cancellation of discretionary projects, and reductions in marketing and
promotional expenses, and non-essential travel. As a result, operating income
increased in the nine months ended September 30, 1998 to $42.2 million from
$21.3 million in the nine months ended September 30, 1997, and operating margin
(operating income as a percentage of contract revenue) increased to 5.8% from
3.8%.
Page 12
<PAGE> 15
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Equity in earnings of unconsolidated affiliates, net, increased in the
nine months ended September 30, 1998 to $4.2 million from $0.7 million during
the nine months ended September 30, 1997 due to improved results at Systor and
HPS. The equity in earnings for Systor increased to $2.2 million from $0.7
million and equity in earnings for HPS increased to $2.0 million from $0.1
million during the nine months ended September 30, 1998 and 1997, respectively.
Other income/(expense) increased in the nine months ended September 30, 1998 to
$2.7 million from $1.3 million in the nine months ended September 30, 1997
primarily due to the $3.0 million gain on the sale of the Company's limited
partnership interests in a venture capital fund in 1998, offset in part by a
$0.8 million decrease in foreign exchange gains from 1997 to 1998.
The increase in the effective tax rate to 45.7% for the nine months
ended September 30, 1998 from 42.5% for the nine months ended September 30, 1997
was due to a non-deductible goodwill write-down recorded in the third quarter of
1998. Excluding the write-down, the effective rate would have been 42.5%.
Net income increased 107.4% in the nine months ended September 30, 1998
to $28.2 million from $13.6 million in the nine months ended September 30, 1997
and net income margin increased to 3.9% from 2.4%.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998, cash and cash
equivalents increased 189.5% to $102.2 million from $35.3 million at December
31, 1997 primarily due to increased cash flow from operating activities.
Cash flow provided by operating activities increased to $65.1 million
from $15.8 million for the periods ended September 30, 1998 and 1997,
respectively. The increase in cash flow from operating activities was due
primarily to the $93.6 million increase in current liabilities such as accrued
liabilities and accrued compensation, offset in part by a $49.9 million increase
in current assets consisting primarily of increased accounts receivable.
Net cash used in investing activities was $4.8 million for the nine
months ended September 30, 1998 compared to $56.6 million for the nine months
ended September 30, 1997. Cash expenditures for property, equipment and software
during the nine months ended September 30, 1998 was $18.9 million and was
partially offset by $7.6 million in proceeds from the sale of property,
equipment and software and the sale of the Company's limited partnership
interest in a venture capital fund for $5.2 million. For the nine months ended
September 30, 1997, there were $33.9 million in cash expenditures for property,
equipment and software, $13.3 million in cash used for business acquisitions and
$6.3 million for the acquisition of intellectual property rights. The
year-on-year decline of 44% in property, equipment and software purchases was
due in part to more rigorous capital expenditure review procedures which were
implemented in the fourth quarter of 1997.
Page 13
<PAGE> 16
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the nine months ended September 30, 1998, net cash provided by
financing activities was approximately $4.5 million, compared to $29.6 million
for the nine months ended September 30, 1997. This decrease was due primarily to
the fourth quarter of 1997 repayment of a $25.0 million borrowing on the
Company's line of credit at September 30, 1997. There were no subsequent
borrowings on this line of credit in 1998. In addition, the Company received
proceeds of $8.1 million from the sale of Class B Common Stock options to UBS
during the nine months ended September 30, 1997 and $3.0 million in proceeds
from the exercise of 417,160 of such stock options during the nine months ended
September 30, 1998.
As of October 31, 1998, the Company had a $40.0 million undrawn line of
credit with a financial institution that expires in January 1999. The Company
anticipates that cash flows from operating activities will provide sufficient
funds to meet its needs for the foreseeable future. From time to time, the
Company may consider repurchasing its Class A Common Stock depending on price
and availability and alternative uses for its financial resources.
Year 2000 Issues
The following statements and all other statements made in this
quarterly report or the accompanying financial statements with respect to the
Company's Year 2000 processing capabilities or readiness are "Year 2000
Readiness Disclosures" in conformance with the Year 2000 Information and
Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat. 2386).
Some computers, software, and other equipment includes computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "Year 2000 Problem".
Assessment. The Year 2000 Problem affects computers, software, and other
equipment used, operated, or maintained by the Company for itself and its
customers. Accordingly, the Company is currently assessing the potential impact
of, and costs of remediating, the Year 2000 Problem for its internal systems
and, where the Company is contractually obligated to remediate the Year 2000
Problem, on systems operated or maintained on behalf of its customers. In
addition, the Company is performing assessments for some other customers.
For each of these areas, the Company is using a methodology involving
the following six phases: Discovery, Assessment, Planning, Remediation,
Testing, and Implementation. At September 30, 1998, the discovery and
assessment phases were substantially complete for most program areas. The
target completion dates for priority items by remaining steps are as follows:
Discovery -- December 1998; Assessment -- December 1998; Planning -- December
1998; Remediation -- September 1999; Testing -- September 1999; and
Implementation -- September 1999.
Because the Company's business involves the assessment, implementation,
and operation of computer systems, the Company has not generally obtained
verification or validation by independent third parties of its processes to
assess Year 2000 Problems, its corrections of Year 2000 Problems, or the costs
associated with these activities. However, the Company's Year 2000 project team
is reviewing the project plans prepared by each of the Company's business units
and monitoring their methods and progress against those plans.
Internal Infrastructure. The Company believes that it has identified
most of the major computers, software applications, and related equipment used
in connection with its internal operations that must be modified, upgraded, or
replaced to minimize the possibility of a material disruption to its business.
The Company has commenced the process of modifying, upgrading, and replacing
major systems that have been assessed as adversely affected, and expects to
complete this process before the occurrence of any material disruption of its
business.
Page 14
<PAGE> 17
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Systems Other than Information Technology Systems. In addition to
computers and related systems, the operation of office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems,
elevators, and other common devices may be affected by the Year 2000 Problem.
The Company is currently assessing the potential effect of, and costs of
remediating, the Year 2000 Problem on its office and facilities equipment.
The Company estimates the total cost to the Company of completing any
required modifications, upgrades, or replacements of these internal systems to
be approximately $1.0 million, almost all of which the Company believes will be
incurred during the remainder of 1998 and 1999. This estimate is being monitored
and will be revised as additional information becomes available. In addition,
the Company recorded a $13.5 million charge in direct cost of services for the
nine months ended September 30, 1998 to address Year 2000 exposures for certain
client contracts.
Based on the activities described above, the Company does not believe
that the Year 2000 Problem will have a material adverse effect on the Company's
business or results of operations. In addition, the Company has not deferred any
material information technology projects as a result of its Year 2000 Problem
Activities.
Client Systems. During 1997, the Company initiated assessments of the
effect of the Year 2000 Problem on computers, software, and other equipment it
operates or maintains for its customers, and its obligations to modify, upgrade,
or replace these systems. As part of this process, the Company has been
estimating the costs and revenues to the Company for performing any necessary
services. The Company is monitoring and updating this assessment on an ongoing
basis. Management believes that the estimated cost associated with making
clients' systems Year 2000 compliant for contracts where the Company is
obligated to perform these services at its expense has been and will be treated
as a contract cost and is included in the estimate of total contract costs for
the respective contract under the Company's revenue recognition policy. The
Company believes that its clients have been deferring other projects pending
resolution of their Year 2000 Problems.
Suppliers. The Company has initiated communications with third party
suppliers of the major computers, software, and other equipment used, operated,
or maintained by the Company for itself or its customers to identify and, to the
extent possible, to resolve issues involving the Year 2000 Problem. However, the
Company has limited or no control over the actions of these third party
suppliers. Thus, while the Company expects that it will be able to resolve any
significant Year 2000 Problems with these systems, there can be no assurance
that these suppliers will resolve any or all Year 2000 Problems with these
systems before the occurrence of a material disruption to the business of the
Company or any of its customers. Any failure of these third parties to timely
resolve Year 2000 Problems with their systems could have a material adverse
effect on the Company's business, financial condition, and results of operation.
Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business operations. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 Problems
affecting the Company or its clients have been identified or corrected. The
number of devices that could be affected and the interactions among these
devices are simply too numerous. In addition, no one can accurately predict how
many Year 2000 Problem-related failures will occur or the severity, duration, or
financial consequences of these perhaps inevitable failures. As a result,
management expects that the Company will likely suffer the following
consequences:
Page 15
<PAGE> 18
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
o a significant number of operational inconveniences and inefficiencies for
the Company and its clients that will divert management's time and
attention and financial and human resources from its ordinary business
activities;
o a lesser number of serious system failures that will require significant
efforts by the Company or its clients to prevent or alleviate material
business disruptions;
o several routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 Problems by clients, which will be resolved in
the ordinary course of business; and
o a few serious business disputes alleging that the Company failed to comply
with the terms of its contracts or industry standards of performance, some
of which could result in litigation or contract termination.
Contingency Plans. The Company is currently developing contingency
plans to be implemented if its efforts to identify and correct Year 2000
Problems affecting its internal systems are not effective. The Company expects
to complete its contingency plans by the end of 1998. Depending on the systems
affected, these plans could include accelerated replacement of affected
equipment or software, short-to medium-term use of backup sites, equipment and
software, increased work hours for Company personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 Problems that
arise or to provide manual workarounds for information systems, and similar
approaches. If the Company is required to implement any of these contingency
plans, it could have a material adverse effect on the Company's financial
condition and results of operations.
The Company is also developing contingency plans for certain clients
where such plans are contractually required or are otherwise appropriate to be
developed. In most cases, these contingency plans are being developed jointly by
the Company and its clients. Depending on the systems affected, these plans
could include accelerated replacement of affected equipment or software, short-
to medium-term use of backup sites, equipment and software, increased work hours
for company personnel or use of contract personnel to correct on an accelerated
schedule any Year 2000 Problems that arise or to provide manual workarounds for
information systems, and similar approaches. If the Company is required to
implement any of these contingency plans, it could have a material adverse
effect on the Company's financial condition and results of operations.
Disclaimer. The discussion of the Company's efforts, and management's
expectations, relating to Year 2000 compliance are forward-looking statements.
The Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely impacted by, among
other things, the availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and unanticipated problems
identified in the ongoing compliance review.
IMPACT OF EUROPEAN MONETARY UNION
The European Union is moving towards economic and monetary union in
Europe, with the goal of introducing a single currency called the EURO. The
Company is currently assessing the potential impact of, and costs of
adopting, the EURO conversion for its internal systems and, where the Company
is contractually obligated to take these steps, on systems operated or
maintained on behalf of its customers. For each of these areas, the Company is
using the six phase methodology described above for the Year 2000 Problem. The
Company expects to complete the discovery phase by March 1999, but the EURO
conversion is not expected to have a material impact on the Company's operations
or financial condition or results of operation.
Disclaimer. The discussion of the Company's efforts, and management's
expectation, relating to the EURO conversion are forward-looking statements.
The Company's ability to adapt for the EURO conversion and the level of
incremental costs associated therewith, could be adversely impacted by, among
other things, the availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and unanticipated problems
identified in the ongoing conversion review.
Page 16
<PAGE> 19
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1998
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, involved in various litigation
matters arising in the ordinary course of its business. The Company believes
that the resolution of currently pending legal proceedings, either individually
or taken as a whole, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of shareholders of the Company on
May 5, 1998. The purpose of the meeting was to elect nine nominees to serve as
directors of the Company and ratify the selection of PricewaterhouseCoopers LLP
as the Company's independent accountants for the fiscal year ending December 31,
1998. The number of shares voted with respect to each nominee was as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
- ------- --- --------
<S> <C> <C>
Ross Perot....................... 28,154,892 5,808
James Champy..................... 27,784,410 380,283
Steve Blasnik.................... 27,265,886 898,807
Carl Hahn........................ 28,089,290 75,403
George Heilmeier................. 28,135,340 29,353
Ross Perot, Jr................... 27,310,332 854,361
</TABLE>
There were no broker non-votes. All of the nominees were elected to the Board of
Directors. These directors constituted the entire Board of Directors of the
Company. The selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ended December 31, 1998 was ratified
by the shareholders. The vote was 28,100,990 for and 5,400 against with the
holders of 53,333 shares abstaining.
In August 1998, the Company solicited consents to act upon the following
proposals:
1. Approve the 1998 Associate Stock Purchase Plan. The shareholders
ratified the adoption of this Proposal. There were no broker non-votes.
The vote was 30,918,755 for and 10,910 against with the holders of
25,954 shares abstaining.
2. Amend the Amended and Restated Certificate of Incorporation
("Certificate of Incorporation") to increase the number of shares of
the Company's Class A Common Stock from 100,000,000 shares to
200,000,000. The shareholders ratified the adoption of this Proposal.
There were no broker non-votes. The vote was 30,600,666 for and 172,022
against with the holders of 184,931 shares abstaining.
Page 17
<PAGE> 20
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1998
3. Amend the Certificate of Incorporation to authorize five million
shares of "blank check" preferred stock. The shareholders ratified the
adoption of this Proposal. There were no broker non-votes. The vote was
30,355,404 for and 305,684 against with the holders of 282,331 shares
abstaining.
4. Amend the Certificate of Incorporation and the Amended and Restated
Bylaws (the "Bylaws") to eliminate shareholder action by written
consent unless the Board of Directors allows such action. The
shareholders ratified the adoption of this Proposal. There were no
broker non-votes. The vote was 30,621,945 for and 243,710 against with
the holders of 92,964 shares abstaining.
5. Amend the Certificate of Incorporation and the Bylaws to permit only
the Chairman of the Board and the President, or the Chairman of the
Board, President or the Secretary at the request in writing of a
majority of the Board of Directors, to call special meetings of
shareholders and to limit the business permitted to be conducted at
such meetings to that brought before the meetings by or at the
direction of the Board of Directors. The shareholders ratified the
adoption of this Proposal. There were no broker non-votes. The vote was
30,629,594 for and 300,316 against with the holders of 26,709 shares
abstaining.
6. Amend the Certificate of Incorporation and the Bylaws to implement an
advance notice procedure for the submission of director nominations and
other business to be considered at annual meetings of shareholders. The
shareholders ratified the adoption of this Proposal. There were no
broker non-votes. The vote was 30,786,958 for and 130,296 against with
the holders of 40,365 shares abstaining.
7. Amend the Bylaws to require either a majority vote of the Board of
Directors or an affirmative vote of 80% of the outstanding Common Stock
entitled to vote in order to adopt, amend, or repeal the Bylaws. The
shareholders ratified the adoption of this Proposal. There were no
broker non-votes. The vote was 30,636,990 for and 181,137 against with
the holders of 126,292 shares abstaining.
ITEM 5. OTHER INFORMATION
SHAREHOLDER PROPOSALS FOR 1998 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the annual
meeting to be held in 1999 must be received by the Company no later than
December 7, 1998 in order to be included in the proxy statement and related
proxy materials.
OTHER MATTERS TO COME BEFORE THE MEETING
If a shareholder desires to bring business before the meeting which is
not the subject of a proposal timely submitted for inclusion in the proxy
statement or if the shareholder desires to nominate a person for election to the
Board other than a director nominated at the direction of the Board, the
shareholder must follow procedures outlined in the Company's Bylaws. The
procedural requirements in the Bylaws require timely notice in writing of the
business the shareholder proposes to bring before the annual meeting or the
Page 18
<PAGE> 21
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1998
proposed nomination. To be timely, notice of shareholders' proposals or
nominations must be received by the Company not less than 60 days nor more than
90 days prior to the annual meeting; provided however, that in the event that
less than 70 days notice or prior public disclosure of the date of the annual
meeting is given or made to shareholders, notice by a shareholder, to be timely,
must be received no later than the close of business on the 10th day following
the date on which such notice of the date of the annual meeting was made or such
public disclosure was made, whichever first occurs.
A copy of these procedures is available upon request from the Secretary
of the Company, 12404 Park Central Drive, Dallas, Texas 75251.
Page 19
<PAGE> 22
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit No. Document
-------------- ------------
27 Financial Data Schedule
(b) Reports of Form 8-K
No reports were filed on Form 8-K during the three months ended
September 30, 1998.
Page 20
<PAGE> 23
PEROT SYSTEMS CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEROT SYSTEMS CORPORATION
(Registrant)
Date: November 13, 1998 By /s/ TERRY ASHWILL
---------------------
Terry Ashwill
Vice President and Chief Financial Officer
Page 21
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule as of September 30, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 102,153
<SECURITIES> 0
<RECEIVABLES> 164,496
<ALLOWANCES> 2,814
<INVENTORY> 0
<CURRENT-ASSETS> 317,154
<PP&E> 130,119
<DEPRECIATION> 90,145
<TOTAL-ASSETS> 389,787
<CURRENT-LIABILITIES> 257,597
<BONDS> 0
0
0
<COMMON> 410
<OTHER-SE> 128,770
<TOTAL-LIABILITY-AND-EQUITY> 389,787
<SALES> 724,185
<TOTAL-REVENUES> 724,185
<CGS> 575,083
<TOTAL-COSTS> 682,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 51,885
<INCOME-TAX> 23,690
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,195
<EPS-PRIMARY> .74
<EPS-DILUTED> .58
</TABLE>
