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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
    
    Quarterly Report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2005
 or o
    
    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  DELAWARE
    
    75-2230700(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 2300 WEST PLANO PARKWAY
PLANO, TEXAS
75075
(Address of principal executive offices)
(Zip Code) (972) 577-0000
(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. þ Yes o No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). þ Yes o No Number of shares of registrants common stock outstanding as of April 29, 2005: 116,403,498 shares
of Class A Common Stock and 1,750,020 shares of Class B Common Stock.




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

FORM 10-Q
For the Quarter Ended March 31, 2005 INDEX PagePART I: FINANCIAL INFORMATIONITEM 1: FINANCIAL STATEMENTS (UNAUDITED)Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004
    
    
    1Condensed Consolidated Income Statements for the three months ended March 31, 2005 and 2004
    
    
    2Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    13ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    22ITEM 4: CONTROLS AND PROCEDURES
    
    
    22PART II: OTHER INFORMATIONITEM 1: LEGAL PROCEEDINGS
    
    
    23ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    24ITEM 6: EXHIBITS
    
    
    24SIGNATURES
    
    
    26Rule 13a-14 Certification by President and CEORule 13a-14 Certification by Vice President and CFOSection 1350 Certification by President and CEOSection 1350 Certification by Vice President and CFO




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ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) PEROT SYSTEMS CORPORATION AND SUBSIDIARIES 
     March 31, 2005
    
    
    December 31, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    262,181
    
    
    $
    304,786Accounts receivable, net
    
    
    251,726
    
    
    
    233,875Prepaid expenses and other
    
    
    77,729
    
    
    
    51,920Total current assets
    
    
    591,636
    
    
    
    590,581Property, equipment and purchased software, net
    
    
    148,811
    
    
    
    144,425Goodwill
    
    
    385,312
    
    
    
    359,033Deferred contract costs, net
    
    
    58,004
    
    
    
    48,459Other non-current assets
    
    
    72,108
    
    
    
    81,113Total assets
    
    $
    1,255,871
    
    
    $
    1,223,611LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    75,498Accounts payable
    
    
    49,087
    
    
    
    34,114Accrued liabilities
    
    
    93,517
    
    
    
    98,298Accrued compensation
    
    
    33,426
    
    
    
    65,706Income taxes payable
    
    
    50,701
    
    
    
    34,306Other current liabilities
    
    
    22,381
    
    
    
    22,626Total current liabilities
    
    
    249,112
    
    
    
    330,548Long-term debt
    
    
    76,505
    
    
    
    Other non-current liabilities
    
    
    35,081
    
    
    
    31,029Total liabilities
    
    
    360,698
    
    
    
    361,577Commitments and contingenciesStockholders equity:Common stock
    
    
    1,180
    
    
    
    1,173Additional paid-in capital
    
    
    483,499
    
    
    
    478,266Retained earnings
    
    
    409,404
    
    
    
    382,962Other stockholders equity
    
    
    (9,286
    )
    
    
    (9,673
    )Accumulated other comprehensive income
    
    
    10,376
    
    
    
    9,306Total stockholders equity
    
    
    895,173
    
    
    
    862,034Total liabilities and stockholders equity
    
    $
    1,255,871
    
    
    $
    1,223,611
 The accompanying notes are an integral part of these financial statements. Page 1




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES 
     Three months ended March 31,2005
    
    
    2004Revenue
    
    $
    473,271
    
    
    $
    419,804Direct cost of services
    
    
    369,509
    
    
    
    335,376Gross profit
    
    
    103,762
    
    
    
    84,428Selling, general and administrative expenses
    
    
    60,124
    
    
    
    53,449Operating income
    
    
    43,638
    
    
    
    30,979Interest income
    
    
    2,243
    
    
    
    384Interest expense
    
    
    (845
    )
    
    
    (463
    )Other income (expense), net
    
    
    (292
    )
    
    
    (1,008
    )Income before taxes
    
    
    44,744
    
    
    
    29,892Provision for income taxes
    
    
    18,302
    
    
    
    11,149Net income
    
    $
    26,442
    
    
    $
    18,743Basic and diluted earnings per common share:Basic earnings per common share
    
    $
    0.22
    
    
    $
    0.16Weighted average common shares outstanding
    
    
    117,705
    
    
    
    113,944Diluted earnings per common share
    
    $
    0.22
    
    
    $
    0.16Weighted average diluted common shares outstanding
    
    
    122,017
    
    
    
    119,494
 The accompanying notes are an integral part of these financial statements. Page 2




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES 
     Three months ended March 31,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    26,442
    
    
    $
    18,743Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    13,895
    
    
    
    13,382Change in deferred taxes
    
    
    (174
    )
    
    
    (5,423
    )Other non-cash items
    
    
    3,510
    
    
    
    3,592Changes in assets and liabilities (net of effects from acquisitions
of businesses):Accounts receivable, net
    
    
    (22,079
    )
    
    
    (23,837
    )Prepaid expenses
    
    
    (22,794
    )
    
    
    (8,818
    )Deferred contract costs, net
    
    
    (10,374
    )
    
    
    (8,773
    )Accounts payable and accrued liabilities
    
    
    12,182
    
    
    
    7,587Accrued compensation
    
    
    (31,894
    )
    
    
    (8,128
    )Income taxes
    
    
    16,792
    
    
    
    14,926Other current and non-current assets
    
    
    3,736
    
    
    
    692Other current and non-current liabilities
    
    
    3,903
    
    
    
    (1,681
    )Net cash provided by (used in) operating activities
    
    
    (6,855
    )
    
    
    2,262Cash flows from investing activities:Purchases of property, equipment and purchased software
    
    
    (14,791
    )
    
    
    (10,522
    )Acquisitions of businesses
    
    
    (23,878
    )
    
    
    (8,071
    )Net proceeds from the sale of short-term investments
    
    
    
    
    
    
    5,442Other
    
    
    
    
    
    
    (83
    )Net cash used in investing activities
    
    
    (38,669
    )
    
    
    (13,234
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (75,498
    )
    
    
    Proceeds from issuance of long-term debt
    
    
    76,505
    
    
    
    Proceeds from issuance of common stock
    
    
    4,230
    
    
    
    6,061Other
    
    
    (757
    )
    
    
    (65
    )Net cash provided by financing activities
    
    
    4,480
    
    
    
    5,996Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,561
    )
    
    
    (73
    )Net decrease in cash and cash equivalents
    
    
    (42,605
    )
    
    
    (5,049
    )Cash and cash equivalents at beginning of period
    
    
    304,786
    
    
    
    123,770Cash and cash equivalents at end of period
    
    $
    262,181
    
    
    $
    118,721
 The accompanying notes are an integral part of these financial statements. Page 3




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES 
 
 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. The interim
condensed consolidated financial statements include the consolidated accounts of Perot Systems
Corporation and its majority-owned subsidiaries with all significant intercompany transactions
eliminated. In our opinion, 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 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, 2004, in our Annual Report on Form 10-K filed with the SEC on March 9,
2005. Operating results for the three-month period ended March 31, 2005, are not necessarily
indicative of the results for the year ending December 31, 2005. Certain of the 2004 amounts in the accompanying financial statements have been reclassified to
conform to the current presentation. Stock-Based Compensation As permitted by Statement of Financial Accounting Standards Board No. 123, Accounting for
Stock-Based Compensation, and FAS 148, Accounting for Stock-Based Compensation Transition and
Disclosure, we have elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for our employee stock
options. Under APB 25, compensation expense is recorded when the exercise price of employee stock
options is less than the fair value of the underlying stock on the date of grant. We have
implemented the disclosure-only provisions of FAS 123 and FAS 148. Had we elected to adopt the
expense recognition provisions of FAS 123, the impact on net income and earnings per common share
would have been as follows: Three months ended March 31,2005
    
    
    2004Net incomeAs reported
    
    $
    26,442
    
    
    $
    18,743Add: stock-based compensation expense included in
reported net income, net of related tax effects
    
    
    453
    
    
    
    145Less: total stock-based employee compensation
expense determined under fair value based methods
for all awards, net of related tax effects
    
    
    ( 3,441
    )
    
    
    (3,725
    )Pro forma
    
    $
    23,454
    
    
    $
    15,163Basic earnings per common shareAs reported
    
    $
    0.22
    
    
    $
    0.16Pro forma
    
    $
    0.20
    
    
    $
    0.13Diluted earnings per common shareAs reported
    
    $
    0.22
    
    
    $
    0.16Pro forma
    
    $
    0.19
    
    
    $
    0.13
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) We utilize the Black-Scholes option pricing model to calculate our pro forma stock-based employee
compensation expense, and the assumptions used for each period are as follows: Three months ended March 31,2005
    
    
    2004Weighted average risk free interest rates
    
    
    3.83
    %
    
    
    2.25
    %Weighted average life (in years)
    
    
    4.1
    
    
    
    3.7Volatility
    
    
    43
    %
    
    
    52
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Weighted average grant-date fair value per
share of options granted
    
    $
    5.47
    
    
    $
    5.33
 With the exception of grants with cliff vesting and acceleration features, the expected life of
each grant was generally estimated to be a period equal to one half of the vesting period, plus one
year, for all periods presented. The expected life for cliff vesting grants was generally equal to
the vesting period, and the expected life for grants with acceleration features was estimated to be
equal to the midpoint of the vesting period. Significant Accounting Standards to be Adopted Statement of Financial Accounting Standards Board No. 123R In December 2004, the FASB issued Statement of Financial Accounting Standards Board No. 123R,
Share-Based Payment, which is a revision of FAS 123. FAS 123R requires employee stock options and
rights to purchase shares under stock participation plans to be accounted for under the fair value
method and eliminates the ability to account for these instruments under the intrinsic value method
prescribed by APB 25, which is allowed under the original provisions of FAS 123. FAS 123R requires
the use of an option pricing model for estimating fair value, which is amortized to expense over
the service periods. In April 2005, the SEC changed the effective date of FAS 123R from the first
annual or interim fiscal period beginning after June 15, 2005, to the first annual fiscal period
beginning after June 15, 2005. If we had applied the provisions of FAS 123R to the financial
statements for the period ending March 31, 2005, net income would have been reduced by
approximately $2,988. FAS 123R allows for either modified prospective recognition of compensation
expense or modified retrospective recognition, which may be back to the original issuance of FAS
123 or only to interim periods in the year of adoption. We currently plan to apply the provisions
of FAS 123R on a modified prospective basis for the recognition of compensation expense for all
share-based awards granted on or after January 1, 2006, and any awards that are not fully vested as
of December 31, 2004. Compensation expense for the unvested awards will be measured based on the
fair value of the awards previously calculated in preparing the pro forma disclosures in accordance
with the provisions of FAS 123. NOTE 2. ACQUISITIONS During 2005, it was determined that Soza & Company, Ltd. met their financial targets for 2004, and
we paid $17,000 of additional consideration in cash, which was recorded as additional goodwill that
was assigned to the Government Services segment and is predominantly nondeductible for tax
purposes. There are no additional contingent payments related to this acquisition, and the $5,000 that was previously held
in escrow was released to the previous shareholders during the first quarter of 2005. During 2005, it was determined that ADI Technology Corporation met their financial targets for
2004, and we paid $6,700 of additional consideration in cash. In addition, we recorded $178 of
other purchase price adjustments. The total amount of $6,878 was recorded as additional goodwill
that was assigned to the Government Services segment and is predominantly nondeductible for tax
purposes. There are no additional contingent payments related to this acquisition. Page 5




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) NOTE 3. GOODWILL The changes in the carrying amount of goodwill for the three months ended March 31, 2005, by
reporting segment are as follows: Industry
    
    
    Government
    
    
    TechnologySolutions
    
    
    Services
    
    
    Services
    
    
    TotalBalance as of December 31, 2004
    
    $
    195,041
    
    
    $
    97,292
    
    
    $
    66,700
    
    
    $
    359,033Additional goodwill for ADI acquisition
    
    
    
    
    
    
    6,878
    
    
    
    
    
    
    
    6,878Additional goodwill for Soza acquisition
    
    
    
    
    
    
    17,000
    
    
    
    
    
    
    
    17,000Other
    
    
    2,250
    
    
    
    
    
    
    
    151
    
    
    
    2,401Balance as of March 31, 2005
    
    $
    197,291
    
    
    $
    121,170
    
    
    $
    66,851
    
    
    $
    385,312
 The $2,250 included in Other for Industry Solutions relates to additional consideration paid in
cash in the second quarter of 2005 for a business that was not material to our consolidated results
of operations, financial position and cash flows in the year acquired. This additional
consideration was contingent on targets relating to 2004 financial performance, which we determined
had been met during the first quarter of 2005. NOTE 4. IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets as of March 31, 2005, are recorded in other non-current assets in
the condensed consolidated balance sheets and are composed of: Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    BookValue
    
    
    Amortization
    
    
    ValueService marks
    
    $
    5,761
    
    
    $
    (3,762
    )
    
    $
    1,999Customer based assets
    
    
    22,599
    
    
    
    (11,926
    )
    
    
    10,673Other intangible assets
    
    
    4,855
    
    
    
    (3,017
    )
    
    
    1,838Balance at March 31, 2005
    
    $
    33,215
    
    
    $
    (18,705
    )
    
    $
    14,510
 Total amortization expense for identifiable intangible assets was $1,290 and $2,519 for the
quarters ended March 31, 2005 and 2004, respectively. Amortization expense is estimated at $5,190,
$3,995, $3,170, $2,233, $486 and $161 for the years ended December 31, 2005 through 2010,
respectively. Identifiable intangible assets are amortized on a straight-line basis over their
estimated useful lives, ranging from 1 to 15 years. The weighted average useful life is
approximately five years. NOTE 5. DEBT Current Portion of Long-term Debt In June 2000, we entered into an operating lease contract with a variable interest entity for the
use of land and office buildings in Plano, Texas, including a data center facility. As part of our
adoption of Financial Accounting Standards Board Interpretation No. 46, Consolidated Financial
Statements, we began consolidating this entity beginning on December 31, 2003. Upon consolidation,
we recorded the debt between the variable interest entity and the financial institutions (the
lenders) of $75,498. In March 2005, we borrowed $76,505 under our credit facility to pay the
exercise amount of $75,498 for the purchase option under the operating lease and certain other
expenses. Our consolidated variable interest entity then repaid the amount due to the lenders. Page 6




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) Long-term Debt In January 2004, we entered into a three-year credit facility with a syndicate of banks that
allows us to borrow up to $100,000. In March 2005, we executed a restated and amended agreement
that expanded the facility to $275,000 and extended the term to five years. Borrowings under the
credit facility will be either through loans or letter of credit obligations. The credit facility
is guaranteed by certain of our domestic subsidiaries. In addition, we have pledged the stock of
one of our non-domestic subsidiaries as security on the facility. Interest on borrowings varies
with usage and begins at an alternate base rate, as defined in the credit facility agreement, or
the LIBOR rate plus an applicable spread based upon our debt/EBITDA ratio applicable on such date.
We are also required to pay a facility fee based upon the unused credit commitment and certain
other fees related to letter of credit issuance. The credit facility matures in March 2010 and
requires certain financial covenants, including a debt/EBITDA ratio and a minimum interest coverage
ratio, each as defined in the credit facility agreement. As discussed above, in March 2005, we
borrowed $76,505 against the credit facility. NOTE 6. COMPREHENSIVE INCOME Total comprehensive income, net of tax, was as follows: Three monthsended March 31,2005
    
    
    2004Net income
    
    $
    26,442
    
    
    $
    18,743Foreign currency translation adjustments
    
    
    1,070
    
    
    
    5,086Other
    
    
    
    
    
    
    623Total comprehensive income
    
    $
    27,512
    
    
    $
    24,452
 NOTE 7. STOCKHOLDERS EQUITY The components of Other stockholders equity were as follows: March 31, 2005
    
    
    December 31, 2004Deferred compensation
    
    $
    (9,306
    )
    
    $
    (9,761
    )Other
    
    
    20
    
    
    
    88Total other stockholders equity
    
    $
    (9,286
    )
    
    $
    (9,673
    )
 At March 31, 2005, there were 116,291 shares of our Class A Common Stock outstanding and 1,692
shares of our Class B Common Stock outstanding. At December 31, 2004, there were 115,756 shares of
our Class A Common Stock outstanding and 1,517 shares of our Class B Common Stock outstanding. NOTE 8. INCOME TAXES Our effective tax rate for the first quarter of 2005 was 40.9% as compared to 37.3% for the same
period in 2004. Our income tax expense for the first quarter of 2005 includes income tax expense of
$1,761 on $20,850 of foreign earnings to be repatriated under the American Jobs Creation Act of
2004 (the Act). The income tax expense on these earnings increased our effective tax rate for the
first quarter of 2005 by 3.9%. The first quarter 2005 effective tax rate also increased 0.8% due to income tax expense of
$344 on $2,614 of foreign earnings we intend to repatriate in addition to those amounts repatriated
under the Act. Page 7




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) The Act creates a temporary incentive through December 31, 2005, for U.S. companies
to repatriate income earned abroad by providing an 85% dividends received deduction on qualifying
foreign dividends, resulting in a U.S. federal tax rate of 5.25%. The $1,761 of income tax expense on earnings to be repatriated under the Act includes $566 of
income tax expense due to an apparent drafting oversight that the U.S. Department of the Treasury
plans to correct during calendar year 2005. As a result, we expect to reduce income tax expense by
approximately $566 in the quarter the correcting notice is issued. Additional adjustments to income
tax expense may be required at the time of repatriation depending upon a number of factors,
including nondeductible expenses allocated to the repatriated earnings as well as statutory tax
rates in effect at the time of repatriation. We may repatriate up to an additional $25,000 of cash in 2005 under the Act and will record the
associated income tax expense in the quarter a decision to repatriate is made as provided by FASB
Staff Position 109-2. We expect to finalize our assessment of additional amounts to be repatriated
by the end of this year and may incur up to approximately $1,500 of additional income tax expense
in 2005. All funds repatriated under the Act will be invested in accordance with our domestic reinvestment
plan, which provides for the use of amounts repatriated under the Act in the U.S., primarily
through payment of non-executive compensation and capital expenditures. The overall increase in our first quarter 2005 effective tax rate as compared to the same period in
2004 is due to the income tax expense related to the repatriation of foreign earnings as discussed
above, partially offset by a more favorable income tax impact from our foreign operations. NOTE 9. SEGMENT DATA We offer our services under three primary lines of business: Industry Solutions, Government
Services, and Technology Services. Industry Solutions, our largest line of business, provides
services to our customers primarily under long-term contracts in strategic relationships. These
services include technology and business process services, as well as industry domain-based,
short-term project and consulting services. The Government Services segment provides consulting,
engineering, and technology-based business process solutions for the U.S. Department of Defense,
the Department of Homeland Security, various federal intelligence agencies, and other governmental
agencies. The Technology Services segment provides application development and maintenance, and
application systems migration and testing primarily under short-term contracts related to specific
projects. Other includes our remaining operating areas and corporate activities, income and
expenses that are not related to the operations of the other reportable segments, as well as the
elimination of approximately $9,525 and $5,520 of intersegment revenue and direct cost of services
for the quarters ended March 31, 2005 and 2004, respectively, related to the provision of services
by the Technology Services segment to the other segments. The reporting segments follow the same accounting policies that we use for our consolidated
financial statements. Segment performance is evaluated based on income before taxes, exclusive of
income and expenses that are included in the Other category. Substantially all corporate and
centrally incurred costs are allocated to the segments based principally on expenses, employees,
square footage, or usage. Page 8




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) The following is a summary of certain financial information by reportable segment for the quarters
ended March 31, 2005 and 2004. Industry
    
    
    Government
    
    
    TechnologySolutions
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalFor the quarter
ended March 31,
2005:Revenue
    
    $
    380,329
    
    
    $
    62,805
    
    
    $
    39,662
    
    
    $
    (9,525
    )
    
    $
    473,271Income before taxes
    
    
    35,018
    
    
    
    3,621
    
    
    
    6,447
    
    
    
    (342
    )
    
    
    44,744For the quarter
ended March 31,
2004:Revenue
    
    $
    327,492
    
    
    $
    64,762
    
    
    $
    33,070
    
    
    $
    (5,520
    )
    
    $
    419,804Income before taxes
    
    
    22,203
    
    
    
    3,816
    
    
    
    4,031
    
    
    
    (158
    )
    
    
    29,892
 NOTE 10. EARNINGS PER SHARE The following is a reconciliation of the numerators and the denominators of the basic and diluted
earnings per common share computations. For The Quarter Ended March 31,2005
    
    
    2004Basic Earnings per Common ShareNet income
    
    $
    26,442
    
    
    $
    18,743Weighted average common shares outstanding
    
    
    117,705
    
    
    
    113,944Basic earnings per common share
    
    $
    0.22
    
    
    $
    0.16Diluted Earnings per Common ShareNet income
    
    $
    26,442
    
    
    $
    18,743Weighted average common shares outstanding
    
    
    117,705
    
    
    
    113,944Incremental shares assuming dilution
    
    
    4,312
    
    
    
    5,550Weighted average diluted common shares outstanding
    
    
    122,017
    
    
    
    119,494Diluted earnings per common share
    
    $
    0.22
    
    
    $
    0.16
 For the three months ended March 31, 2005 and 2004, options to purchase 13,429 and 13,698 shares,
respectively, of our common stock were not included in the computation of diluted earnings per
common share because the exercise prices for these options were greater than the average market
price of our common shares for the quarters then ended and, therefore, their inclusion would have
been antidilutive. NOTE 11. COMMITMENTS AND CONTINGENCIES Litigation We are, from time to time, involved in various litigation matters. We do not believe that the
outcome of the litigation matters in which we are currently a party, either individually or taken
as a whole, will have a material adverse effect on our consolidated financial condition, results of
operations or cash flows. However, we cannot predict with certainty any eventual loss or range of
possible loss related to such matters. We have purchased, and expect to continue to purchase, insurance coverage that we believe is
consistent with coverage maintained by others in the industry. This coverage is expected to limit
our financial exposure to claims covered by these policies in many cases. Page 9




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) IPO Allocation Securities Litigation In July and August 2001, we, as well as some of our current and former officers and the investment
banks that underwrote our initial public offering, were named as defendants in two purported class
action lawsuits. These lawsuits, Seth Abrams v. Perot Systems Corp. et al. and Adrian Chin v.
Perot Systems, Inc. et al., were filed in the United States District Court for the Southern
District of New York. The suits allege violations of Rule 10b-5, promulgated under the Securities
Exchange Act of 1934, and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933.
Approximately 300 issuers and 40 investment banks have been sued in similar cases. The suits
against the issuers and underwriters have been consolidated for pretrial purposes in the IPO
Allocation Securities Litigation. The lawsuit involving us focuses on alleged improper practices
by the investment banks in connection with our initial public offering in February 1999. The
plaintiffs allege that the investment banks, in exchange for allocating public offering shares to
their customers, received undisclosed commissions from their customers on the purchase of
securities and required their customers to purchase additional shares in aftermarket trading. The
lawsuit also alleges that we should have disclosed in our public offering prospectus the alleged
practices of the investment banks, whether or not we were aware that the practices were occurring.
The plaintiffs are seeking unspecified damages, statutory compensation and costs and expenses of
the litigation. During 2002, the current and former officers and directors of Perot Systems Corporation that
were individually named in the lawsuits referred to above were dismissed from the cases. In
exchange for the dismissal, the individual defendants entered agreements with the plaintiffs that
toll the running of the statute of limitations and permit the plaintiffs to refile claims against
them in the future. In February 2003, in response to the defendants motion to dismiss, the court
dismissed the plaintiffs Rule 10b-5 claims against us, but did not dismiss the remaining claims. We have accepted a settlement proposal presented to all issuer defendants. Pursuant to the
proposed settlement, plaintiffs would dismiss and release all claims against us and our current and
former officers and directors, in exchange for an assurance by the insurance companies collectively
responsible for insuring the issuers in all of the IPO cases that the plaintiffs will achieve a
minimum recovery (including amounts recovered from the underwriters), and for the assignment or
surrender of certain claims we may have against the underwriters. We would not be required to make
any cash payment with respect to the settlement. The underwriters are opposing approval of the
proposed settlement and have requested that, if the settlement is approved, they receive a
corresponding reduction in any judgment amounts that they may be ordered to pay if they are found
liable in the actions. The court has granted a conditional, preliminary approval of the proposed
settlement. The approval is subject to the issuers, their insurers, and the plaintiffs conforming
the proposed bar order restricting possible claims by the underwriters against the issuers to
certain statutory requirements. In addition, the proposed settlement will be subject to approval
by the members of the class. Litigation Relating to the California Energy Market In June 2002, we were named as a defendant in a purported class action lawsuit that alleges that we
conspired with energy traders to manipulate the California energy market. This lawsuit, Art Madrid
v. Perot Systems Corporation et al., was filed in the Superior Court of California, County of San
Diego. The plaintiffs are seeking unspecified damages, treble damages, restitution, punitive
damages, interest, costs, attorneys fees and declaratory relief. In September 2003, we filed a
demurrer to the complaint and an alternative motion to strike all claims for monetary relief. In
January 2004, the court granted our demurrer and did not grant the plaintiffs leave to amend their
complaint. The plaintiffs, however, have appealed. The case is currently pending in the Third
Appellate District of the California Court of Appeals. Page 10




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) In June, July and August 2002, Perot Systems, Ross Perot and Ross Perot, Jr., were named as
defendants in eight purported class action lawsuits that allege violations of Rule 10b-5, and, in
some of the cases, common law fraud. These suits allege that our filings with the Securities and
Exchange Commission contained material misstatements or omissions of material facts with respect to
our activities related to the California energy market. All of these eight cases have been
consolidated in the Northern District of Texas, Dallas Division in the case of Vincent Milano v.
Perot Systems Corporation. On October 19, 2004, the court dismissed the case with leave for
plaintiffs to amend. In December 2004, the plaintiffs filed a Second Amended Consolidated
Complaint. In February 2005, we filed a motion to dismiss the Second Amended Consolidated
Complaint. The plaintiffs are seeking unspecified monetary damages, interest, attorneys fees and
costs. Other In addition to the matters described above, we have been, and from time to time are,
named as a defendant in various legal proceedings in the normal course of business, including
arbitrations, class actions and other litigation involving commercial and employment disputes.
Certain of these proceedings include claims for substantial compensatory or punitive damages or
claims for indeterminate amounts of damages. We are contesting liability and/or the amount of
damages in each pending matter. Contract-related Contingencies In April 2005, we settled a dispute with a former customer that resulted in a payment to Perot
Systems of approximately $7,600 and a reduction of accrued liabilities of approximately $2,600,
both of which will be recorded as a reduction to direct cost of services in the second quarter of
2005. This dispute related to a contract we exited in 2003. Guarantees and Indemnifications We have applied the disclosure provisions of FASB Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of
Others, to our agreements that contain guarantee or indemnification clauses. FIN 45 requires us to
disclose certain types of guarantee and indemnification arrangements, even if the likelihood of our
being required to perform under these arrangements is remote. The following is a description of
arrangements in which we are a guarantor, as defined by FIN 45. We are a party to a variety of agreements under which we may be obligated to indemnify another
party. Typically, these obligations arise in the context of contracts entered in the normal course
of business under which we agree to hold the other party harmless against losses arising from
certain matters, which may include death or bodily injury, loss of or damage to tangible personal
property, improper disclosures of confidential information, infringement or misappropriation of
copyrights, patent rights, trade secrets or other intellectual property rights, breaches of third
party contract rights, and violations of certain laws applicable to our services, products or
operations. The indemnity obligation in these arrangements is customarily conditioned on the other
party making an adverse claim pursuant to the procedures specified in the particular contract,
which procedures typically allow us to challenge the other partys claims. The term of these
indemnification provisions typically survives in perpetuity after the applicable contract
terminates. It is not possible to predict the maximum potential amount of future payments under
these or similar agreements, due to the conditional nature of our obligations and the unique facts
and circumstances involved in each particular agreement. However, we have purchased and expect to
continue to purchase a variety of liability insurance policies, which are expected, in most cases,
to limit our financial exposure to claims covered by such policies (other than claims relating to
the infringement or misappropriation of copyrights, patent rights, trade secrets or other intellectual property). In
addition, we have not historically incurred material costs individually or in the aggregate to
defend lawsuits or settle claims related to these Page 11




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) indemnification provisions. As a result, we
believe the likelihood of a material liability under these arrangements is remote. Accordingly, we
have no liabilities recorded for these agreements as of March 31, 2005. We include warranty provisions in substantially all of our customer contracts in the ordinary
course of business. These provisions generally provide that our services will be performed in an
appropriate and legal manner and that our products and other deliverables will conform in all
material respects to specifications agreed between our customer and us. Our obligations under these
agreements may be limited in terms of time or amount or both. In addition, we have purchased and
expect to continue to purchase errors and omissions insurance policies, which are expected, in most
cases, to limit our financial exposure to claims covered by such policies. Because our obligations
are conditional in nature and depend on the unique facts and circumstances involved in each
particular matter, we record liabilities for these arrangements only on a case by case basis when
management determines that it is probable that a liability has been incurred. As of March 31, 2005,
we have no significant liability recorded for warranty claims. Page 12




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS This quarterly 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, could, forecasts, expects, plans,
anticipates, believes, estimates, predicts, potential, see, target, projects,
position, or continue or the negative of such terms and other comparable terminology. These
statements reflect our current expectations, estimates, and projections. These statements are not
guarantees of future performance and involve risks, uncertainties, and assumptions that are
difficult to predict. Actual events or results may differ materially from what is expressed or
forecasted in these forward-looking statements. In evaluating these statements, you should
specifically consider various factors, including the risks outlined below under the caption Risk
Factors. These risk factors describe reasons why our actual results may differ materially from any
forward-looking statement. We disclaim any intention or obligation to update any forward-looking
statement. 
 ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our Condensed Consolidated
Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and
with our Consolidated Financial Statements and the information under the heading Managements
Discussion and Analysis of Financial Condition and Results of Operations, which are
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Overview of Our Financial Results for the First Quarter of 2005 Our financial results are affected by a number of factors, including broad economic conditions, the
amount and type of technology spending by our customers, and the business strategies and financial
condition of our customers and the industries we serve, which could result in increases or
decreases in the amount of services that we provide to our customers and the pricing of such
services. Our ability to identify and effectively respond to these factors is important to our
future financial growth. We evaluate our consolidated performance on the basis of several performance indicators. The four
key performance indicators we use are revenue growth, earnings growth, free cash flow, and the
value of contracts signed. We compare these key performance indicators to annual target amounts
established by management and to our performance for prior periods. We establish the targets for
these key performance indicators primarily on an annual basis, but we may revise them during the
year. We assess our performance using these key indicators on a quarterly and annual basis. Revenue Growth Revenue growth is a measure of the growth we generate through sales of services to new customers,
retention of existing contracts, acquisitions, and discretionary services from existing customers.
Revenue for the first quarter of 2005 grew by 12.7% as compared to the first quarter of 2004. As
discussed in more detail below, this revenue growth came primarily from the following:  §
    Revenue from new contracts signed during the twelve-month period
following the first quarter of 2004.§
    An increase in revenue from the expansion of base services and
discretionary technology investments by our customers, which we
believe is due to improved economic conditions. Page 13




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS Earnings Growth We measure earnings growth using diluted earnings per share, which is a measure of our
effectiveness in delivering profitable growth. Diluted earnings per share for the first quarter of
2005 increased 37.5% to $0.22 per share from $0.16 per share for the first quarter of 2004. As
discussed in more detail below, this increase came primarily from:  §
    An overall net increase in profitability for existing commercial
customer contracts, which is primarily due to an increase in the
amount of services we perform that are in addition to our base
level of services. These increased services are discretionary in
nature, and the associated margins are typically higher than those
we realize on our base level of services.§
    Income from new contracts signed during the twelve-month period
following the first quarter of 2004.§
    Additional profit in the first quarter of 2005 of approximately
$0.03 per share associated with the termination of a contract. Partially offsetting these increases in earnings were an increase in our effective tax rate to
40.9% for the first quarter of 2005 as compared to 37.3% for the first quarter of 2004 and an
increase in expense in 2005 for bonuses to associates. Free Cash Flow We calculate free cash flow on a trailing twelve month basis as net cash provided by operating
activities less purchases of property, equipment and purchased software, as stated in our
consolidated statements of cash flows. We use free cash flow as a measure of our ability to
generate cash for both our short-term and long-term operating and business expansion needs. We use
a twelve-month period to measure our success in this area because of the significant variations
that typically occur on a quarterly basis due to the timing of certain cash payments. Free cash
flow for the twelve months ended March 31, 2005, was $111.6 million as compared to $71.1 million
for the twelve months ended March 31, 2004. Free cash flow, which is a non-GAAP measure, can be
reconciled to Net cash provided by operating activities as follows (in millions): Twelve MonthsEndedMarch 312005
    
    
    2004Net cash provided by operating activities
    
    $
    149.1
    
    
    $
    96.8Purchases of property, equipment and software
    
    
    (37.5
    )
    
    
    (25.7
    )Free cash flow
    
    $
    111.6
    
    
    $
    71.1
 TCV of Contracts Signed The amount of Total Contract Value (commonly referred to as TCV) that we sell during a
twelve-month period is a measure of our success in capturing new business in the various
outsourcing and consulting markets in which we provide services. We measure TCV as our estimate of
the total expected revenue from contracts with new customers and contracts for new services with
existing customers where the contract is expected to generate revenue in excess of a defined amount
during its contract term and the contract term exceeds a defined length of time. If a new contract
does not meet the defined amount of revenue or length of term, it is not included in our TCV
calculation. Various factors may impact the timing of when a contract is signed, including the complexity of the
contract, competitive pressures, and customer demands. As a result, we generally use a twelve-month
period to measure our success in this area because of the significant variations that typically
occur in the amount of TCV signed during each quarterly period. During the twelve-month period ending March 31,
2005, the Page 14




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS amount of TCV signed was $1.5 billion, as compared to $0.8 billion for the twelve-month period
ending March 31, 2004. The majority of the new contracts signed include fixed and per-unit pricing
mechanisms for the billing of our outsourcing services. Additional Measurements Our three major lines of business are Industry Solutions, Government Services, and Technology
Services. Each of these three major lines of business has distinct economic factors, business
trends, and risks that could affect our results of operations. As a result, in addition to the four
metrics discussed above that we use to measure our consolidated financial performance, we use
similar metrics for each of these lines of business and for certain industry groups and operating
units within these lines of business. Comparison of the Three Months Ended March 31, 2005 and 2004 Revenue Revenue for the first quarter of 2005 increased from revenue for the first quarter of 2004 due to
increases in revenue from the Industry Solutions and Technology Services segments, partially offset
by a decrease in revenue from the Government Services segment. Below is a summary of our revenue
for the first quarter of 2005 as compared to the first quarter of 2004: Three months ended March 312005
    
    
    2004
    
    
    $ Change
    
    
    % ChangeIndustry Solutions
    
    $
    380.3
    
    
    $
    327.5
    
    
    $
    52.8
    
    
    
    16.1
    %Government Services
    
    
    62.8
    
    
    
    64.8
    
    
    
    (2.0
    )
    
    
    (3.1
    %)Technology Services
    
    
    39.7
    
    
    
    33.1
    
    
    
    6.6
    
    
    
    19.9
    %Elimination of intersegment revenue
    
    
    (9.5
    )
    
    
    (5.6
    )
    
    
    (3.9
    )
    
    
    69.6
    %Total
    
    $
    473.3
    
    
    $
    419.8
    
    
    $
    53.5
    
    
    
    12.7
    %
 The net increase in revenue from the Industry Solutions segment for the first quarter of 2005 as
compared to the first quarter of 2004 was primarily attributable to:  §
    $32.6 million increase from contracts signed during the twelve-month period following the
first quarter of 2004. This revenue includes $24.2 million and $8.4 million from new contracts
signed in the Healthcare and Commercial Solutions groups, respectively. The services that we
are providing to these new customers are primarily the same services that we provide to the
majority of our other long-term outsourcing customers. The strength in healthcare new sales
revenue comes from two primary factors:  
    Our solutions for the healthcare market were developed over several years and are
highly customized to the specific business needs of the market. We identified certain
aspects of the healthcare market as core to our long-term service offerings several years
ago when the market for technology and business process outsourcing was immature. As a
result, we have an established presence and brand, which we have strengthened during the
past several years through internal investment in software and solutions and through
acquisitions.
    The healthcare industry continues to be in a state of change as health systems look
to transform their clinical and administrative back-office operations, payer organizations
work to develop new consumer-based health models, and as the rate of medical cost
inflation continues to be high. As a result, approximately half of the contracts we
signed during the twelve-month period following the first quarter of 2004 included a
clinical transformation component. Clinical transformation revolutionizes the way in which
the healthcare community receives patient-specific data that spans the entire continuum of
care, including centralization of patient data and electronic order entry and decision
support. Page 15




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS  We have less scale in the markets that we serve through our Commercial Solutions group, and we
have been operating in these markets during a time when many of these industries have been
experiencing economic pressures coupled with a mature market for technology outsourcing.
Consequently, we have not experienced the same level of demand in these markets as we have in
the healthcare industry.§
    $10.0 million net increase from existing accounts, short-term offerings, and project work.
This net increase results from expanding our base services to existing long-term customers and
from providing additional discretionary services to these customers. The discretionary
services that we provide, which include short-term offerings and project work, can vary from
period-to-period depending on many factors, including specific customer and industry needs and
economic conditions. The increase is related to contracts in the healthcare and commercial
solutions industries:  
    The state of change in the healthcare industry has required increased system
investment, which creates demand for our services. Because of the increased complexity
associated with system changes and combined with a desire to focus on core functions,
the healthcare outsourcing market has experienced increased levels of business.
    Within the manufacturing market and the construction and engineering market
served by our Commercial Solutions group, we have experienced increased levels of
business primarily as a result of customers continuing needs to reduce expense and to
improve the efficiency of their operations.  §
    $6.2 million of revenue associated with the early termination of a
contract in the first quarter of 2005.§
    $4.0 million increase from technology and business consulting
services and business process services, primarily due to an
increase in business volume. Our services are typically viewed as
discretionary services by our customers and tend to be tied to
their level of systems investment, which varies with the rate of
technology change and general economic conditions. The decrease in revenue from the Government Services segment for the first quarter of 2005 as
compared to the first quarter of 2004 was primarily attributable to a loss of business, the
majority of which came from the loss of a contract with the Immigration and Naturalization Service
that was rebundled by the customer along with other programs for a recompetition bid. The
consortium of companies that we participated with for the recompete did not win this business.
This was partially offset by existing program expansion, including $3.1 million associated with our
support of the Naval Sea Systems Command. Our business with the federal government may fluctuate
due to annual federal funding limits and the specific needs of the federal agencies we serve. Revenue from the Technology Services segment of $30.2 million for the first quarter of 2005, net of
the elimination of intersegment revenue of $9.5 million, increased as compared to $27.5 million for
the first quarter of 2004, net of the elimination of intersegment revenue of $5.6 million. This
increase is primarily attributable to increased project work in the financial services industry.
Intersegment revenue relates to the provision of services by the Technology Services segment to the
other segments. Revenue from UBS, our largest customer, was $71.5 million for the first quarter of 2005, or 15.1%
of revenue. This revenue is reported within the Industry Solutions and Technology Services lines of
business and is summarized in the following table (amounts in millions): Three months endedMarch 312005
    
    
    2004
    
    
    ChangeUBS revenue in Industry Solutions
    
    $
    62.9
    
    
    $
    58.3
    
    
    
    7.9
    %UBS revenue in Technology Services
    
    
    8.6
    
    
    
    8.0
    
    
    
    7.5
    %Total revenue from UBS
    
    $
    71.5
    
    
    $
    66.3
    
    
    
    7.8
    %
 Page 16




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS The increase in revenue from UBS is due primarily to increased project work and a change in our
estimate of the variable component of our annual fee following the execution of the Transition
Agreement between us and UBS, dated September 16, 2004. Gross Margin Gross margin, which is calculated as gross profit divided by revenue, for the first quarter of 2005
was 21.9% of revenue, which is higher than the gross margin for the first quarter of 2004 of 20.1%.
This year-to-year increase in gross margin is primarily due to the following:  §
    An overall net increase in profitability for existing commercial
customer contracts, which is primarily due to an increase in the
amount of services we perform that are in addition to our base
level of services. The increased services are discretionary in
nature, and the associated gross margins are typically higher than
those we realize on our base level of services. As discussed
above, we have seen increased demand for discretionary investment
from several customers, primarily in the healthcare industry.§
    In the first quarter of 2005, we recorded revenue of $6.2 million
and related direct costs of services of $0.6 million, resulting in
gross profit of $5.6 million, associated with the termination of a
contract.§
    In the first quarter of 2004, we recorded $2.7 million
of additional expense associated with unfulfilled minimum purchase
commitments, as compared to the first quarter of 2005. Partially offsetting these increases was an increase in direct costs of services of $3.9 million
for associate bonus expense in the first quarter of 2005 as compared to the prior year period,
which includes an increase in associate bonus expense of approximately $1.0 million that is
reimbursable by our customers. Selling, General and Administrative Expenses Selling, general and administrative expenses for the first quarter of 2005 increased 12.5% to $60.1
million from $53.4 million for the first quarter of 2004. As a percentage of revenue, SG&A was
consistent at 12.7% of revenue for the first quarters of 2005 and 2004. Other Income Statement Items Interest income for the first quarter of 2005 increased by $1.9 million as compared to the first
quarter of 2004 due primarily to higher average cash balances and higher interest rates during the
first quarter of 2005 as compared to the same period in 2004. Our effective tax rate for the first quarter of 2005 was 40.9% as compared to 37.3% for the same
period in 2004. Our income tax expense for the first quarter of 2005 includes income tax expense of
$1.8 million on $20.9 million of foreign earnings to be repatriated under the American Jobs
Creation Act of 2004 (the Act). The income tax expense on these earnings increased our effective
tax rate for the first quarter of 2005 by 3.9%. The first quarter 2005 effective tax rate also
increased 0.8% due to income tax expense of $0.3 million on $2.6 million of foreign earnings we
intend to repatriate in addition to those amounts repatriated under the Act. The Act creates a
temporary incentive through December 31, 2005, for U.S. companies to repatriate income earned
abroad by providing an 85% dividends received deduction on qualifying foreign dividends, resulting
in a U.S. federal tax rate of 5.25%. The $1.8 million of income tax expense on earnings to be repatriated under the Act includes $0.6
million of income tax expense due to an apparent drafting oversight that the U.S. Department of the
Treasury plans to correct during calendar year 2005. As a result, we expect to reduce income tax
expense by approximately $0.6 million in the quarter the correcting notice is issued. Additional
adjustments to income tax expense may be required at the time of repatriation depending upon a number of factors,
including nondeductible Page 17




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS expenses allocated to the repatriated earnings as well as statutory tax
rates in effect at the time of repatriation. We may repatriate up to an additional $25.0 million of cash in 2005 under the Act and will record
the associated income tax expense in the quarter a decision to repatriate is made as provided by
FASB Staff Position 109-2. We expect to finalize our assessment of additional amounts to be
repatriated by the end of this year and may incur up to approximately $1.5 million of additional
income tax expense in 2005. All funds repatriated under the Act will be invested in accordance with our domestic reinvestment
plan, which provides for the use of amounts repatriated under the Act in the U.S., primarily
through payment of non-executive compensation and capital expenditures. The overall increase in our first quarter 2005 effective tax rate as compared to the same period in
2004 is due to the income tax expense related to the repatriation of foreign earnings as discussed
above, partially offset by a more favorable income tax impact from our foreign operations. Expected Effects of the End of Our Outsourcing Contracts with Two Customers UBS AG is our largest customer, and Harvard Pilgrim is one of our other top 10 customers. Our IT
outsourcing contract with UBS will end on January 1, 2007, and our contract with Harvard Pilgrim is
expected to end during 2006 or 2007. During the first quarter of 2005, these contracts generated
approximately $85 million of revenue and approximately $20 million of gross profit. We continue to
expect that we will lose a substantial majority of our revenue and profit from these contracts when
they end. The impact of the end of these outsourcing agreements on our profits will be based in
part on our ability to reduce our costs. We expect that the end of these outsourcing agreements
likely will have a disproportionately large effect on our profitability compared to the effect on
our revenues. We have identified between $50 million and $60 million of annual operating efficiencies by the end of 2007 compared to our results in 2004, as outlined
in our Annual Report on Form 10-K for the year ended December 31, 2004, that we believe could reduce the expected negative impact on our operating income from the end of these agreements.
Through the first quarter of 2005, we have
realized approximately $6 million of these efficiencies on an annual basis, primarily through
amortization and other expense reductions. We continue to expect that we will realize the
remainder of the identified annual operating efficiencies before the conclusion of 2007. Liquidity and Capital Resources We expect that existing cash and cash equivalents, expected cash flows from operating activities,
and the $198.5 million that is available under our restated and amended credit facility, which is
discussed below, will provide us sufficient funds to meet our operating needs for the foreseeable
future. During the three months ended March 31, 2005, cash and cash equivalents decreased 14.0% to
$262.2 million from $304.8 million at December 31, 2004. Operating Activities Net cash used in operating activities was $6.9 million for the three months ended March 31, 2005,
as compared to net cash provided by operating activities of $2.3 million for the three
months ended March 31, 2004. The primary reasons for the changes in cash provided by operating
activities, as described more fully below, are changes in the amount of cash paid for associate
bonuses and prepaid expenses.  §
    Bonuses paid to associates under our bonus plans in the first quarters of 2005 and 2004
(including payments of annual bonuses relating to the prior years bonus plan) were $60.8 million and
$38.0 million, respectively. Included in the bonus amounts that were paid in the first quarter
of 2005 and 2004 were approximately $23.2 million and $18.9 million, respectively, of bonus
payments that are Page 18




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS  reimbursable by our customers. The amount of bonuses that we pay each year is
based on several factors, including our financial performance and managements discretion.§
    Amounts paid for prepaid expenses in the first quarter of 2005 increased as compared to the
amounts paid in the prior year period due primarily to an increase in amounts paid for prepaid
hardware- and software-related costs and business insurance. Investing Activities Net cash used in investing activities increased to $38.7 million for the three months ended March
31, 2005, as compared to $13.2 million for the same period in 2004. This increase was due primarily
to additional cash paid for acquisitions of businesses.  §
    During the three months ended March 31, 2005, we paid $23.9
million as additional consideration for acquisitions, including
$17.0 million and $6.9 million related to the acquisitions of Soza
& Company, Ltd. and ADI Technology Corporation, respectively.§
    During the three months ended March 31, 2004, we paid $8.1 million
as additional consideration for acquisitions, including $6.3
million and $2.3 million related to the acquisitions of Soza and
ADI, respectively, partially offset by an adjustment to the amount
of cash paid for another acquisition of $0.5 million. Also during
the first quarter of 2004, we received $5.4 million of net
proceeds from the sale of marketable equity securities. Financing Activities Net cash provided by financing activities was $4.5 million for the three months ended March 31,
2005, as compared to $6.0 million for the three months ended March 31, 2004. During the first
quarter of 2004, we received more proceeds from the issuance of common stock due to the exercise
of more stock options to purchase Common Stock as compared to the first quarter in 2005. We routinely maintain cash balances in certain European and Asian currencies to fund operations in
those regions. During the three months ended March 31, 2005, foreign exchange rate fluctuations had
a net negative impact on our non-domestic cash balances of $1.6 million, as the U.S. dollar
strengthened against the Indian Rupee, the Euro, the Swiss Franc and the British pound. We hedge
foreign exchange exposures that are likely to significantly impact net income or working capital. Current Portion of Long-term Debt In June 2000, we entered into an operating lease contract with a variable interest entity for the
use of land and office buildings in Plano, Texas, including a data center facility. As part of our
adoption of FIN 46, we began consolidating this entity beginning on December 31, 2003. Upon
consolidation, we recorded the debt between the variable interest entity and the financial
institutions (the lenders) of $75.5 million. In March  2005, we borrowed $76.5 million under our
credit facility to pay the exercise amount of $75.5 million for the purchase option under the
operating lease and to pay certain other expenses. Our consolidated variable interest entity then
repaid the amount due to the lenders. Long-term Debt In January  2004, we entered into a three-year credit facility with a syndicate of banks that
allows us to borrow up to $100.0 million. In March  2005, we executed a restated and amended
agreement that expanded the facility to $275.0 million and extended the term to five years. Borrowings under the
credit facility will be either through loans or letter of credit obligations. The credit facility
is guaranteed by certain of our domestic subsidiaries. In addition, we have pledged the stock of
one of our non-domestic subsidiaries as security on the facility. Interest on borrowings varies
with usage and begins at an alternate base rate, as Page 19




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS defined in the credit facility agreement, or
the LIBOR rate plus an applicable spread based upon our debt/EBITDA ratio applicable on such date.
We are also required to pay a facility fee based upon the unused credit commitment and certain
other fees related to letter of credit issuance. The credit facility matures in March 2010 and
requires certain financial covenants, including a debt/EBITDA ratio and a minimum interest coverage
ratio, each as defined in the credit facility agreement. As discussed above, in March  2005, we
borrowed $76.5 million against the credit facility. Contract-related Contingencies In April 2005, we settled a dispute with a former customer that resulted in a $7.6 million payment
to Perot Systems and a reduction of accrued liabilities of $2.6 million, both of which will be
recorded as a reduction to direct cost of services in the second quarter of 2005. This dispute
related to a contract we exited in 2003. Stock Repurchase Program In April 2005, our Board of Directors authorized a program to repurchase up to $75.0 million of
our common stock. We may repurchase shares of our common stock from time to time in the
open market, under a Rule 10b5-1 plan, or through privately negotiated, block transactions, which
may include substantial blocks purchased from unaffiliated holders. Significant Accounting Standards to be Adopted Statement of Financial Accounting Standards Board No. 123R In December 2004, the FASB issued Statement of Financial Accounting Standards Board No. 123R,
Share-Based Payment, which is a revision of FAS 123. FAS 123R requires employee stock options and
rights to purchase shares under stock participation plans to be accounted for under the fair value
method and eliminates the ability to account for these instruments under the intrinsic value method
prescribed by APB 25, which is allowed under the original provisions of FAS 123. FAS 123R requires
the use of an option pricing model for estimating fair value, which is amortized to expense over
the service periods. In April 2005, the SEC changed the effective date of FAS 123R from the first
annual or interim fiscal period beginning after June 15, 2005, to the first annual fiscal period
beginning after June 15, 2005. If we had applied the provisions of FAS 123R to the financial
statements for the period ending March 31, 2005, net income would have been reduced by
approximately $3.0 million. FAS 123R allows for either modified prospective recognition of
compensation expense or modified retrospective recognition, which may be back to the original
issuance of FAS 123 or only to interim periods in the year of adoption. We currently plan to apply
the provisions of FAS 123R on a modified prospective basis for the recognition of compensation
expense for all share-based awards granted on or after January 1, 2006, and any awards that are not
fully vested as of December 31, 2004. Compensation expense for the unvested awards will be measured
based on the fair value of the awards previously calculated in preparing the pro forma disclosures
in accordance with the provisions of FAS 123. RISK FACTORS In evaluating all forward-looking statements, you should specifically consider various factors that
may cause actual results to vary from those contained in the forward-looking statements, such as:  
    Our outsourcing agreement with UBS, the largest of our UBS agreements, ends in January 2007, and we expect the end of
this agreement to result in the loss of a substantial majority of revenue and profit from our UBS relationship.
    We may not be able to successfully implement planned operating efficiencies and expense reduction initiatives and
achieve the planned timing and amount of any resulting benefits.
    We may bear the risk of cost overruns under custom software development and implementation services, and, as a result,
cost overruns could adversely affect our profitability. Page 20




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS  
    Our largest customers account for a substantial portion of our revenue and profits, and the loss of any of these
customers could result in decreased revenues and profits. One of these customers, Harvard Pilgrim, has notified us that it intends to transition the services that we provide them to its new business
partner over the next two to three years.
    If entities we acquire fail to perform in accordance with our expectations or if their liabilities exceed our
expectations, our profits per share could be diminished and our financial results could be adversely affected.
    Development of our software products may cost more than we initially project, and we may encounter delays or fail to
perform well in the market, which could decrease our profits.
    Our financial results are materially affected by a number of economic and business factors.
    If we are unable to successfully integrate acquired entities, our profits may be less and our operations more costly or
less efficient.
    Our contracts generally contain provisions that could allow customers to terminate the contracts and sometimes contain
provisions that enable the customer to require changes in pricing, decreasing our revenue and profits and potentially
damaging our business reputation.
    Some contracts contain fixed-price provisions or penalties that could result in decreased profits.
    Fluctuations in currency exchange rates may adversely affect the profitability of our foreign operations.
    Our international operations expose our assets to increased risks and could result in business loss or in more
expensive or less efficient operations.
    We have a significant business presence in India, and risks associated with doing business there could decrease our
revenue and profits.
    Our government contracts contain early termination and reimbursement provisions that may adversely affect our revenue
and profits.
    If customers reduce spending that is currently above contractual minimums, our revenues and profits could diminish.
    If we fail to compete successfully in the highly competitive markets in which we operate, our business, financial
condition, and results of operations will be materially and adversely affected.
    Increasingly complex regulatory environments may increase our costs.
    Our quarterly financial results may vary.
    Changes in technology could adversely affect our competitiveness, revenue, and profit.
    Ross Perot has substantial control over any major corporate action.
    We could lose rights to our company name, which may adversely affect our ability to market our services.
    Failure to recruit, train, and retain technically skilled personnel could increase costs or limit growth.
    Alleged or actual infringement of intellectual property rights could result in substantial additional costs.
    Provisions of our certificate of incorporation, bylaws, stockholders rights plan, and Delaware law could deter
takeover attempts Please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as
filed with the U.S. Securities and Exchange Commission and available at www.sec.gov, for additional
information regarding risk factors. We disclaim any intention or obligation to update any
forward-looking statements whether as a result of new information, future developments, or
otherwise. Page 21




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2005 
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a discussion of our market risk associated with foreign currencies as of December 31, 2004, see
Quantitative and Qualitative Disclosures about Market Risk in Part II, Item 7A, Managements
Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on
Form 10-K for the fiscal year then ended. For the three months ended March 31, 2005, there has
been no material change in related market risk factors. 
 ITEM 4: CONTROLS AND PROCEDURES As of the end of the period covered by this report, an evaluation was carried out by our
management, with the participation of our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that these disclosure controls and procedures were effective. There were no changes in internal control over financial reporting (as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934) that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, internal control over
financial reporting. Page 22




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2005 
 PART II: OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS We are, from time to time, involved in various litigation matters. We do not believe that the
outcome of the litigation matters in which we are currently a party, either individually or taken
as a whole, will have a material adverse effect on our consolidated financial condition, results of
operations or cash flows. However, we cannot predict with certainty any eventual loss or range of
possible loss related to such matters. We have purchased, and expect to continue to purchase, insurance coverage that we believe is
consistent with coverage maintained by others in the industry. This coverage is expected to limit
our financial exposure to claims covered by these policies in many cases. IPO Allocation Securities Litigation In July and August 2001, we, as well as some of our current and former officers and the investment
banks that underwrote our initial public offering, were named as defendants in two purported class
action lawsuits. These lawsuits, Seth Abrams v. Perot Systems Corp. et al. and Adrian Chin v.
Perot Systems, Inc. et al., were filed in the United States District Court for the Southern
District of New York. The suits allege violations of Rule 10b-5, promulgated under the Securities
Exchange Act of 1934, and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933.
Approximately 300 issuers and 40 investment banks have been sued in similar cases. The suits
against the issuers and underwriters have been consolidated for pretrial purposes in the IPO
Allocation Securities Litigation. The lawsuit involving us focuses on alleged improper practices
by the investment banks in connection with our initial public offering in February 1999. The
plaintiffs allege that the investment banks, in exchange for allocating public offering shares to
their customers, received undisclosed commissions from their customers on the purchase of
securities and required their customers to purchase additional shares in aftermarket trading. The
lawsuit also alleges that we should have disclosed in our public offering prospectus the alleged
practices of the investment banks, whether or not we were aware that the practices were occurring.
The plaintiffs are seeking unspecified damages, statutory compensation and costs and expenses of
the litigation. During 2002, the current and former officers and directors of Perot Systems Corporation that
were individually named in the lawsuits referred to above were dismissed from the cases. In
exchange for the dismissal, the individual defendants entered agreements with the plaintiffs that
toll the running of the statute of limitations and permit the plaintiffs to refile claims against
them in the future. In February 2003, in response to the defendants motion to dismiss, the court
dismissed the plaintiffs Rule 10b-5 claims against us, but did not dismiss the remaining claims. We have accepted a settlement proposal presented to all issuer defendants. Pursuant to the
proposed settlement, plaintiffs would dismiss and release all claims against us and our current and
former officers and directors, in exchange for an assurance by the insurance companies collectively
responsible for insuring the issuers in all of the IPO cases that the plaintiffs will achieve a
minimum recovery (including amounts recovered from the underwriters), and for the assignment or
surrender of certain claims we may have against the underwriters. We would not be required to make
any cash payment with respect to the settlement. The underwriters are opposing approval of the
proposed settlement and have requested that, if the settlement is approved, they receive a
corresponding reduction in any judgment amounts that they may be ordered to pay if they are found
liable in the actions. The court has granted a conditional, preliminary approval of the proposed
settlement. The approval is subject to the issuers, their insurers, and the plaintiffs conforming
the proposed bar order restricting possible claims by the underwriters against the issuers to
certain statutory requirements. In addition, the proposed settlement will be subject to approval
by the members of the class. Page 23




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2005 Litigation Relating to the California Energy Market In June 2002, we were named as a defendant in a purported class action lawsuit that alleges that we
conspired with energy traders to manipulate the California energy market. This lawsuit, Art Madrid
v. Perot Systems Corporation et al., was filed in the Superior Court of California, County of San
Diego. The plaintiffs are seeking unspecified damages, treble damages, restitution, punitive
damages, interest, costs, attorneys fees and declaratory relief. In September 2003, we filed a
demurrer to the complaint and an alternative motion to strike all claims for monetary relief. In
January 2004, the court granted our demurrer and did not grant the plaintiffs leave to amend their
complaint. The plaintiffs, however, have appealed. The case is currently pending in the Third
Appellate District of the California Court of Appeals. In June, July and August 2002, Perot Systems, Ross Perot and Ross Perot, Jr., were named as
defendants in eight purported class action lawsuits that allege violations of Rule 10b-5, and, in
some of the cases, common law fraud. These suits allege that our filings with the Securities and
Exchange Commission contained material misstatements or omissions of material facts with respect to
our activities related to the California energy market. All of these eight cases have been
consolidated in the Northern District of Texas, Dallas Division in the case of Vincent Milano v.
Perot Systems Corporation. On October 19, 2004, the court dismissed the case with leave for
plaintiffs to amend. In December 2004, the plaintiffs filed a Second Amended Consolidated
Complaint. In February 2005, we filed a motion to dismiss the Second Amended Consolidated
Complaint. The plaintiffs are seeking unspecified monetary damages, interest, attorneys fees and
costs. Other In addition to the matters described above, we have been, and from time to time are,
named as a defendant in various legal proceedings in the normal course of business, including
arbitrations, class actions and other litigation involving commercial and employment disputes.
Certain of these proceedings include claims for substantial compensatory or punitive damages or
claims for indeterminate amounts of damages. We are contesting liability and/or the amount of
damages in each pending matter. 
 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We did not submit any matters to a vote of our security holders during the period covered by this
report. 
 ITEM 6. EXHIBITS Exhibits required by Item 601 of Regulation S-K Exhibit No.
    
    Document31.1*
    
    Rule 13a-14 Certification dated May 3, 2005, by Peter A.
Altabef, President and Chief Executive Officer.31.2*
    
    Rule 13a-14 Certification dated May 3, 2005, by Russell
Freeman, Vice President and Chief Financial Officer.32.1**
    
    Section 1350 Certification dated May 3, 2005, by Peter A. Altabef, President
and Chief Executive Officer.
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2005 Exhibit No.
    
    Document32.2**
    
    Section 1350 Certification dated May 3, 2005, by Russell Freeman, Vice
President and Chief Financial Officer.
   *
    
    Filed herewith.**
    
    Furnished herewith. Page 25




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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2005 
 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 3, 2005
    
    By /s/ ROBERT J. KELLYRobert J. KellyCorporate
Controller and Principal   Accounting Officer Page 26