<PAGE> 1
UNITED STATES
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 March 31, 2000
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
Number of shares of registrant's common stock outstanding as of May 8, 2000:
96,183,289.
<PAGE> 2
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999.............................................................1
Condensed Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999.................................................2
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999.................................................3
Notes to Condensed Consolidated Financial Statements...............................4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................8
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..................................................................10
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS...................................................................11
ITEM 2: CHANGES IN SECURITIES...............................................................11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................12
ITEM 5: OTHER INFORMATION...................................................................12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K....................................................12
SIGNATURES.....................................................................................13
EXHIBIT INDEX..................................................................................14
</TABLE>
<PAGE> 3
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 279,764 $ 294,645
Marketable equity securities ........................... 5,352 39,938
Accounts receivable, net ............................... 161,576 156,754
Prepaid expenses and other ............................. 45,754 51,160
---------- ----------
Total current assets 492,446 542,497
Property, equipment and purchased software, net ........... 59,184 38,965
Investments in and advances to unconsolidated companies ... 41,674 24,884
Goodwill, net ............................................. 76,656 659
Other non-current assets .................................. 28,571 6,960
---------- ----------
Total assets ....................................... $ 698,531 $ 613,965
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 57,398 $ 38,069
Accrued liabilities .................................... 86,301 94,203
Deferred revenue ....................................... 14,298 20,533
Accrued compensation ................................... 4,956 53,057
Other current liabilities .............................. 34,475 10,367
---------- ----------
Total current liabilities .......................... 197,428 216,229
Other non-current liabilities ............................. 7,037 7,014
---------- ----------
Total liabilities .................................. 204,465 223,243
---------- ----------
Stockholders' equity:
Common stock ........................................... 959 926
Additional paid-in-capital ............................. 289,957 226,712
Other stockholders' equity ............................. 190,134 151,177
Accumulated other comprehensive income ................. 13,016 11,907
---------- ----------
Total stockholders' equity ......................... 494,066 390,722
---------- ----------
Total liabilities and stockholders' equity ......... $ 698,531 $ 613,965
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 1
<PAGE> 4
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Revenue .............................................. $ 274,582 $ 274,368
Costs and expenses:
Direct cost of services ......................... 204,188 210,327
Selling, general and administrative expenses .... 43,386 41,392
Compensation charge related to acquisition ...... 22,100 --
--------- ---------
Operating income ..................................... 4,908 22,649
Interest income, net ................................. 4,922 2,185
Equity in earnings of unconsolidated affiliates ...... 3,087 2,192
Other income (expense), net .......................... 50,134 (44)
--------- ---------
Income before taxes .................................. 63,051 26,982
Provision for income taxes ........................... 24,905 10,793
--------- ---------
Net income ...................................... $ 38,146 $ 16,189
========= =========
Basic and diluted earnings per common share:
Basic earnings per common share ................. $ 0.41 $ 0.19
Weighted average common shares outstanding ...... 93,381 83,578
Diluted earnings per common share ............... $ 0.33 $ 0.15
Weighted average diluted common shares
outstanding ................................ 114,274 111,081
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
<PAGE> 5
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 38,146 $ 16,189
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ................................ 6,824 7,219
Gain on sale of marketable equity securities ................. (14,952) --
Gain on sale of unconsolidated affiliate ..................... (38,851) --
Other non-cash items ......................................... (8,364) (885)
Change in assets and liabilities:
Accounts receivable ....................................... 1,184 (35,012)
Accounts payable and accrued liabilities .................. 12,483 5,281
Accrued compensation ...................................... (47,659) (29,589)
Income taxes payable ...................................... 32,301 9,237
Other current and non-current assets ...................... (4,014) 355
Other current and non-current liabilities ................. (6,450) 3,720
--------- ---------
Net cash used in operating activities ................. (29,352) (23,485)
--------- ---------
Cash flows from investing activities:
Purchases of property, equipment and purchased software ......... (25,428) (5,002)
Acquisition of business, net of cash acquired of $8,881 ......... (41,119) --
Proceeds from sale of unconsolidated affiliate .................. 55,486 --
Proceeds from sale of marketable equity securities .............. 23,992 --
Other ........................................................... (253) --
--------- ---------
Net cash provided by (used in) investing activities ... 12,678 (5,002)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock .......................... 3,462 109,999
Other ........................................................... 138 3,857
--------- ---------
Net cash provided by financing activities ............. 3,600 113,856
--------- ---------
Effect of exchange rate changes on cash and cash equivalents ......... (1,807) (4,427)
--------- ---------
Net (decrease) increase in cash and cash equivalents ................. (14,881) 80,942
Cash and cash equivalents at beginning of period ..................... 294,645 144,907
--------- ---------
Cash and cash equivalents at end of period ........................... $ 279,764 $ 225,849
========= =========
</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
(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 intercompany 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, 1999 as filed in the Company's Annual
Report on Form 10-K filed with the SEC on March 3, 2000. Operating results for
the three month period ended March 31, 2000 are not necessarily indicative of
the results for the year ending December 31, 2000. Dollar amounts presented are
in thousands, except as otherwise noted.
Certain of the 1999 amounts in the accompanying financial statements have been
reclassified to conform to the current presentation.
NOTE 2. MARKETABLE EQUITY SECURITIES
Accrue Software Investment
During 1996 and 1997, the Company acquired 2,416,904 shares of NeoVista
Software, Inc. ("NeoVista") preferred stock. In December of 1997, this
nonmarketable equity investment was written off due to a decline in value which
was considered to be other than temporary. In January of 2000, NeoVista was
acquired by Accrue Software, Inc. ("Accrue"). As a result, the NeoVista shares
were converted into 116,868 publicly traded shares of Accrue which are now being
held for investment at fair market value.
At March 31, 2000, the fair market value of this investment is $5,352, and the
unrealized gain of $3,265 (net of tax of $2,087) is classified in "Accumulated
other comprehensive income" on the condensed consolidated balance sheet.
TenFold Corporation Investment
Through a series of separate transactions during January and February of 2000,
the Company sold 500,000 shares of its 1,000,000 shares of TenFold Corporation
("TenFold") common stock which were being held for investment. The total
proceeds and realized gain on these transactions were $23,992 and $14,952
respectively. The gain is included in "Other income (expense), net" on the
condensed consolidated statements of income.
At March 31, 2000, the fair market value of the remaining shares of this
investment is $30,250, and the unrealized gain of $13,268 (net of tax of $8,482)
is classified in "Accumulated other comprehensive income" on the condensed
consolidated balance sheet. Subsequent to December 31, 1999, this investment is
classified in "Investments in and advances to unconsolidated companies" on the
condensed consolidated balance sheet.
Page 4
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. ACQUISITIONS
On March 30, 2000, the Company acquired substantially all of the assets and
liabilities of Solutions Consulting, Inc. ("SCI"), a Pittsburgh based enterprise
software and e-commerce company. Total consideration included $41,119 in cash
(net of $8,881 of cash acquired) and $50,000 in the form of 1,965,602 shares of
the Company's Class A Common Stock. The Company also paid $22,100 in
compensation expense for the benefit of SCI employees. The transaction was
accounted for as a purchase; accordingly, the purchase price has been allocated
to assets and liabilities based on estimated fair values as of the acquisition
date. The costs in excess of the estimated fair value of net assets acquired was
recorded as goodwill in the amount of $76,404, which will be amortized using the
straight-line method of amortization over its estimated useful life.
The revenues and operating expenses of SCI have been included in the condensed
consolidated statements of income for the entire quarter and preacquisition
operating earnings have been eliminated in "Other income (expense), net" as
permitted by Accounting Research Bulletin 51, "Consolidated Financial
Statements". Specifically, SCI contributed $11,960, $6,801, and $1,658 toward
revenue, direct costs of services, and selling, general and administrative
expenses, respectively, and $3,501 in pre-tax income was eliminated in "Other
income (expense), net" on the condensed consolidated statements of income.
The following table reflects pro forma combined results of operations of the
Company and SCI on the basis that the acquisition had taken place at the
beginning of the calendar year for each of the periods presented:
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenue $ 274,582 $ 289,219
Income before taxes 65,360 31,213
Net income 39,543 18,727
Basic earnings per common share 0.41 0.22
Diluted earnings per common share 0.34 0.17
</TABLE>
In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of 2000 and 1999 or of future
operations of the combined companies under the ownership and management of the
Company.
NOTE 4. SALE OF EQUITY INTEREST
On January 14, 2000, the Company sold its 40% equity interest in Systor A.G.
("Systor"), a Swiss information service company, to UBS Capital B.V. for a
purchase price of $55,486, resulting in a $38,851 pretax gain, which is included
in "Other income (expense), net" in the condensed consolidated statements of
income. UBS Capital B.V. was the holder of the remaining 60% interest in Systor.
NOTE 5. INVESTMENT IN SOFTWARE
In January 2000, the Company paid $20,000 to Sykes Enterprises, Incorporated
("Sykes") as part of a five year strategic alliance agreement to deliver certain
products and services. In connection with the agreement, the Company acquired a
five-year license to utilize Sykes AnswerTeam Software and the right to
sublicense the software to its customers.
Page 5
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6. COMPREHENSIVE INCOME
The Company's total comprehensive income, net of tax, was as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Net income $ 38,146 $ 16,189
Foreign currency translation adjustments (1,431) (2,017)
Unrealized gain on marketable equity securities,
net of tax of $1,624 2,540 --
-------- --------
Total comprehensive income $ 39,255 $ 14,172
======== ========
</TABLE>
NOTE 7. STOCKHOLDERS' EQUITY
The components of "Other stockholders' equity" were as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Retained earnings......................................... $ 193,155 $155,009
Notes receivable from stockholders ....................... (293) (1,010)
Deferred compensation .................................. (2,728) (2,822)
---------- --------
Total other stockholders' equity ......................... $ 190,134 $151,177
========== ========
</TABLE>
Additional paid-in-capital increased by $63,245 during the three months ended
March 31, 2000. The major components of the increase include $49,980 from the
issuance of Class A common shares in the acquisition of Solutions Consulting,
Inc., $7,911 relating to tax benefits resulting from the exercise of options to
purchase shares of the Company's Class A Common Stock, $3,313 from the exercise
of options to purchase shares of the Company's Class A Common Stock, and $1,845
from issuance of Class A common shares through the Employee Stock Purchase Plan.
At March 31, 2000, there were 94,105,169 shares of the Company's Class A Common
Stock outstanding and 1,784,320 shares of the Company's Class B Common Stock
outstanding. At December 31, 1999, there were 90,819,898 shares of the Company's
Class A Common Stock outstanding and 1,784,320 shares of the Company's Class B
Common Stock outstanding. The increase in the Company's Class A Common Stock is
due primarily to the issuance of 1,965,602 Class A shares to acquire Solutions
Consulting, Inc. and the exercise of options to purchase 1,260,885 Class A
shares.
Page 6
<PAGE> 9
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8. EARNINGS PER SHARE (SHARES IN THOUSANDS)
The following chart is a reconciliation of the numerators and the denominators
of the basic and diluted per share computations.
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
-------- --------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Net income ............................................................ $ 38,146 $ 16,189
======== ========
Weighted average common shares outstanding ............................ 93,381 83,578
======== ========
Basic earnings per common share ....................................... $ 0.41 $ 0.19
======== ========
DILUTED EARNINGS PER COMMON SHARE
Net income ............................................................ $ 38,146 $ 16,189
======== ========
Weighted average common shares outstanding ............................ 93,381 83,578
Incremental shares assuming dilution .................................. 20,893 27,503
-------- --------
Weighted average diluted common shares outstanding .................... 114,274 111,081
======== ========
Diluted earnings per common share ..................................... $ 0.33 $ 0.15
======== ========
</TABLE>
For the first quarter of 2000, approximately 14,027 incremental shares of common
stock, assuming dilution related to the Company's outstanding stock options,
were excluded from the calculation of diluted earnings per common share because
the impact was antidilutive.
NOTE 9. CONTINGENCIES
Litigation
On October 19, 1998, the Robert Plan Corporation ("Robert Plan") filed
a complaint, which it subsequently amended, in New York state court against the
Company and Ross Perot in connection with a September 1, 1990 contract under
which the Company provides data processing and software development needs for
some of Robert Plan's operations. The complaint, as amended, alleges breach of
the 1990 contract, misappropriation of Robert Plan's proprietary information and
business methods in connection with an imaging system, and similar claims
relating to the contract. Although the complaint seeks substantial monetary
awards and injunctive relief, the 1990 contract limits each party's liability
except in limited circumstances, including for "wanton or willful misconduct."
Accordingly, Robert Plan has alleged that the Company has acted in a "wanton"
and "willful" fashion, even though Robert Plan continues to use the services of
the Company under the 1990 contract. The Company believes that it has
meritorious defenses to Robert Plan's claims. The court has dismissed six of
Robert Plan's claims, including the only claim against Ross Perot, while
declining to dismiss the other six claims at this stage. Both parties have
appealed the court's decision. In addition, the Company has filed an answer to
the remaining six claims and has asserted counterclaims against Robert Plan. The
Company intends to continue a vigorous defense of the lawsuit and to conduct a
vigorous prosecution of its counterclaims. The Company does not believe that the
outcome of this litigation will have a material adverse effect on the Company.
Page 7
<PAGE> 10
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 March 31, 2000 and 1999
On March 30, 2000, Perot Systems completed the acquisition of Solutions
Consulting, Inc. ("SCI"). The revenues and operating expenses of SCI have been
included in the condensed consolidated statements of income for the entire
quarter and preacquisition operating earnings have been eliminated in "Other
income (expense), net" as permitted by Accounting Research Bulletin 51,
"Consolidated Financial Statements".
Total revenue for the three months ended March 31, 2000 was
substantially the same as compared to the same period in 1999, increasing by
0.1% to $274.6 million from $274.4 million. This slight increase was
attributable to $28.7 million in new sales signed after the first quarter of
1999, $12.0 million from the acquisition of SCI in the first quarter of 2000,
and an increase of $5.6 million from the restructuring of a certain customer
contract. These increases were almost fully offset by a $25.5 million revenue
decrease from the termination of the East Midlands Electricity (IT) Limited
(together with its parent company East Midlands Electricity plc, "EME")
contract, an $8.1 million decrease from UBS AG ("UBS"), and a net decrease from
other short-term projects and existing clients. During the three months ended
March 31, 2000, revenue from UBS totaled $69.1 million.
Domestic revenue grew by 8.8% in the first quarter of 2000 to $198.4
million from $182.3 million in the first quarter of 1999, and increased as a
percentage of total revenue to 72.2% from 66.4% over the same period.
Non-domestic revenue, consisting of European and Asian operations,
declined in the first quarter of 2000 by 17.3% to $76.2 million from $92.1
million in the first quarter of 1999, and decreased as a percentage of total
revenue to 27.8% from 33.6%. The largest components of European operations were
the United Kingdom and Switzerland. In the United Kingdom revenue decreased
30.6% to $41.2 million in the first quarter of 2000 from $59.4 million in the
first quarter of 1999 due to the termination of the EME contract, which may
result in continued declines in period over period comparisons throughout 2000.
In Switzerland, revenue decreased 13.9% to $11.8 million in the first quarter of
2000 from $13.7 million in the first quarter of 1999. Asian operations
represented 1.8% of total revenue for each of the three month periods.
Direct cost of services decreased in the first quarter of 2000 by 2.9%
to $204.2 million from $210.3 million in the same period of 1999. Gross margin
increased to 25.6% of total revenue in the first quarter of 2000 as compared to
23.4% of total revenue in the first quarter of 1999. This growth was due to
$5.2 million of gross margin from SCI and a decrease of $8.8 million of certain
personnel related expenses. These improvements in gross margin were partially
offset by a decrease from the termination of the EME contract and a decrease in
profitability from short-term projects.
Selling, general and administrative expenses ("SG&A") increased in the
first quarter of 2000 by 4.8% to $43.4 million from $41.4 million in the same
15.1%. The inclusion of SCI represented $1.7 million of the total increase in
SG&A. Additionally, while the Company continued to control its normal general
and administrative spending as a percent of revenue, the Company increased its
spending primarily in the areas of business development and sales. During the
three months ended March 31, 2000, the Company incurred a one-time $22.1 million
compensation charge that was a direct result of the acquisition of SCI.
Page 8
<PAGE> 11
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As a result of the factors noted above, operating income decreased in
the first quarter of 2000 to $4.9 million from $22.7 million in the first
quarter of 1999. Operating income as a percentage of total revenue decreased to
1.8% from 8.3%. This decrease was due primarily to the one-time $22.1 million
compensation charge the Company incurred during the quarter ended March 31, 2000
related to the acquisition of SCI.
Interest income, net increased to $4.9 million in the first quarter of
2000 compared to $2.2 million in the prior year period due primarily to a
significant increase in cash and cash equivalents, resulting from $108.1 million
of net proceeds received from the Company's initial public offering ("IPO") of
Class A Common Stock on February 5, 1999.
Other income (expense), net increased in the three months ended March
31, 2000 to $50.1 million of income from expense of $0.1 million in the three
months ended March 31, 1999 primarily due to non-recurring activities.
Non-recurring items during the first quarter of 2000 included a $38.9 million
realized net gain from the sale of a 40% equity interest in Systor AG
("Systor"), a subsidiary of UBS, and a net gain of $15.0 million due to the sale
of 500,000 shares of TenFold Corporation ("TenFold") common stock, which were
held as an investment. These gains were partially offset by a $3.5 million
expense which eliminated the pre-acquisition earnings of SCI for the first
quarter of 2000.
Net income increased 135.2% in the first quarter of 2000 to $38.1
million from $16.2 million in the first quarter of 1999, and net income as a
percentage of total revenue increased to 13.9% from 5.9%.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000, cash and cash equivalents
decreased 5.0% to $279.8 million from $294.6 million at December 31, 1999.
Net cash used in operating activities was $29.4 million for the three
months ended March 31, 2000 and $23.5 million for the three months ended March
31, 1999. This change was due primarily to accrued compensation as bonuses
earned in 1999 and paid in 2000 exceeded those bonuses earned in 1998 and paid
in the first quarter of 1999. Additionally, income taxes payable increased
significantly due to the tax effect of non-operating gains attributable to the
sale of TenFold common stock and the sale of Systor.
Net cash provided by investing activities was $12.7 million for the
three months ended March 31, 2000 compared to net cash used in investing
activities of $5.0 million for the same period in 1999. The significant increase
in cash provided by investing activities was due to the receipt of $24.0 million
in proceeds from the sale of 500,000 shares of TenFold common stock and $55.5
million in proceeds from the sale of Systor. These proceeds were partially
offset by $41.1 million of net cash paid for the acquisition of SCI and an
increase in the purchases of property, equipment and purchased software of $20.4
million over the prior year period, which is due to a $20.0 million purchase of
a software license from Sykes Enterprises.
For the three months ended March 31, 2000, net cash provided by
financing activities was $3.6 million compared to $113.9 million for the three
months ended March 31, 1999. The first quarter of 1999 reflects the proceeds of
$108.1 million from the Company's IPO.
The Company routinely maintains cash balances in certain European and
Asian currencies to fund operations in those regions. During the three months
ended March 31, 2000, foreign exchange rate fluctuations adversely impacted the
Company's non-domestic cash balances by $1.8 million, as British pounds, Swiss
francs, and the Euro all weakened against the U.S. dollar. The Company's foreign
exchange policy does not call for hedging foreign exchange exposures that are
not likely to impact net income or working capital.
Page 9
<PAGE> 12
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company has no committed line of credit or other borrowings and
anticipates that existing cash and cash equivalents and expected net 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.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "forecasts," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms and other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, such as: the loss of major
clients; the Company's ability to achieve future sales; changes in our
relationship and variability of revenue and expense associated with our largest
customer; the loss of key personnel; the highly competitive market in which we
operate; the variability of quarterly operating results; changes in technology;
risks related to international operations; risks related to acquisitions; and
general economic conditions. These and other risks are outlined in our annual
report on Form 10-K, which is on file with the Securities and Exchange
Commission and available at www.sec.gov. These factors may cause our actual
results to differ materially from any forward-looking statement.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
Page 10
<PAGE> 13
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2000
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 or cash flow.
On October 19, 1998, the Robert Plan Corporation ("Robert Plan") filed
a complaint, which it subsequently amended, in New York state court against the
Company and Ross Perot in connection with a September 1, 1990 contract under
which the Company provides data processing and software development needs for
some of Robert Plan's operations. The complaint, as amended, alleges breach of
the 1990 contract, misappropriation of Robert Plan's proprietary information and
business methods in connection with an imaging system, and similar claims
relating to the contract. Although the complaint seeks substantial monetary
awards and injunctive relief, the 1990 contract limits each party's liability
except in limited circumstances, including for "wanton or willful misconduct."
Accordingly, Robert Plan has alleged that the Company has acted in a "wanton"
and "willful" fashion, even though Robert Plan continues to use the services of
the Company under the 1990 contract. The Company believes that it has
meritorious defenses to Robert Plan's claims. The court has dismissed six of
Robert Plan's claims, including the only claim against Ross Perot, while
declining to dismiss the other six claims at this stage. Both parties have
appealed the court's decision. In addition, the Company has filed an answer to
the remaining six claims and has asserted counterclaims against Robert Plan. The
Company intends to continue a vigorous defense of the lawsuit and to conduct a
vigorous prosecution of its counterclaims. The Company does not believe that the
outcome of this litigation will have a material adverse effect on the Company.
ITEM 2: CHANGES IN SECURITIES
On February 1, 1999, the Securities and Exchange Commission declared
the Company's Registration Statement on Form S-1, Registration No. 333-60755
relating to the Company's initial public offering ("IPO"), effective.
As of the date of filing of this Form 10-Q, the Company has used $100.2
million in proceeds from the IPO: $17.0 million was utilized to purchase
1,000,000 shares of common stock in a publicly traded company, $20.0 million was
paid in connection with a strategic alliance agreement, $41.1 million was used
for an acquisition, and $22.1 million in compensation was paid as a direct
result of an acquisition.
Page 11
<PAGE> 14
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2000
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security
holders during the period covered by this report.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On January 28, 2000, the Company filed a Current Report on Form 8-K to
report the disposition of its 40% minority equity interest in Systor AG. The
transaction was reported under Item 2 of Form 8-K and included pro forma
financial information under Item 7 of Form 8-K, which information was presented
as if the transaction had occurred as of specified times.
Page 12
<PAGE> 15
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2000
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: May 15, 2000 By /s/ TERRY ASHWILL
---------------------
Terry Ashwill
Vice President and Chief Financial Officer
(principal financial officer and
chief accounting officer)
Page 13
<PAGE> 16
PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2000
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
27 Financial Data Schedule as of March 31, 2000.
</TABLE>
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 279,764
<SECURITIES> 5,352
<RECEIVABLES> 166,610
<ALLOWANCES> 5,034
<INVENTORY> 0
<CURRENT-ASSETS> 492,446
<PP&E> 139,306
<DEPRECIATION> 80,122
<TOTAL-ASSETS> 698,531
<CURRENT-LIABILITIES> 197,428
<BONDS> 0
0
0
<COMMON> 959
<OTHER-SE> 493,107
<TOTAL-LIABILITY-AND-EQUITY> 698,531
<SALES> 274,582
<TOTAL-REVENUES> 274,582
<CGS> 204,188
<TOTAL-COSTS> 269,674
<OTHER-EXPENSES> (50,134)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 63,051
<INCOME-TAX> 24,905
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,146
<EPS-BASIC> .41
<EPS-DILUTED> .33
</TABLE>
