##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2008
 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 1-14773
 PEROT SYSTEMS CORPORATION
  DELAWARE
    
    75-2230700(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)
 
 
 þ o
 
 Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ




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##### 



PagePART I:
    
    FINANCIAL INFORMATIONITEM 1:
    
    FINANCIAL STATEMENTS (UNAUDITED)Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    1Condensed Consolidated Income Statements for the three and six months ended June 30, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
    
    
    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
    
    
    21ITEM 4:
    
    CONTROLS AND PROCEDURES
    
    
    21PART II:
    
    OTHER INFORMATIONITEM 1:
    
    LEGAL PROCEEDINGS
    
    
    21ITEM 1A:
    
    RISK FACTORS
    
    
    22ITEM 4:
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22ITEM 6:
    
    EXHIBITS
    
    
    23SIGNATURES
    
    
    
    
    24Rule 13a-14 Certification by Peter A. AltabefRule 13a-14 Certification by John E. HarperSection 1350 Certification by Peter A. AltabefSection 1350 Certification by John E. Harper




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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED BALANCE SHEETS  AS OF JUNE 30, 2008 AND DECEMBER 31, 2007  (unaudited)
 June 30, 2008
    
    
    December 31, 2007(Dollars in millions)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    196
    
    
    $
    187Short-term investments
    
    
    
    
    
    
    23Accounts receivable, net
    
    
    487
    
    
    
    477Prepaid expenses and other
    
    
    97
    
    
    
    70Total current assets
    
    
    780
    
    
    
    757Property, equipment and purchased software, net
    
    
    225
    
    
    
    235Goodwill
    
    
    727
    
    
    
    713Deferred contract costs, net
    
    
    99
    
    
    
    82Other non-current assets
    
    
    109
    
    
    
    113Total assets
    
    $
    1,940
    
    
    $
    1,900LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    74
    
    
    $
    69Deferred revenue
    
    
    61
    
    
    
    55Accrued compensation
    
    
    74
    
    
    
    58Income taxes payable
    
    
    5
    
    
    
    18Accrued and other current liabilities
    
    
    133
    
    
    
    130Total current liabilities
    
    
    347
    
    
    
    330Long-term debt
    
    
    182
    
    
    
    213Non-current deferred revenue
    
    
    81
    
    
    
    70Other non-current liabilities
    
    
    56
    
    
    
    44Total liabilities
    
    
    666
    
    
    
    657Commitments and contingenciesStockholders equity:Common stock
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    577
    
    
    
    565Retained earnings
    
    
    756
    
    
    
    698Treasury stock
    
    
    (65
    )
    
    
    (49
    )Accumulated other comprehensive income
    
    
    5
    
    
    
    28Total stockholders equity
    
    
    1,274
    
    
    
    1,243Total liabilities and stockholders equity
    
    $
    1,940
    
    
    $
    1,900
  1




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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED INCOME STATEMENTS
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in millions, except per share data)Revenue
    
    $
    705
    
    
    $
    635
    
    
    $
    1,385
    
    
    $
    1,225Direct cost of services
    
    
    585
    
    
    
    529
    
    
    
    1,147
    
    
    
    1,014Gross profit
    
    
    120
    
    
    
    106
    
    
    
    238
    
    
    
    211Selling, general and administrative expenses
    
    
    73
    
    
    
    70
    
    
    
    147
    
    
    
    141Operating income
    
    
    47
    
    
    
    36
    
    
    
    91
    
    
    
    70Interest income
    
    
    1
    
    
    
    2
    
    
    
    3
    
    
    
    4Interest expense
    
    
    (2
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    (5
    )Other income, net
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    1Income before taxes
    
    
    47
    
    
    
    36
    
    
    
    92
    
    
    
    70Provision for income taxes
    
    
    17
    
    
    
    13
    
    
    
    34
    
    
    
    24Net income
    
    $
    30
    
    
    $
    23
    
    
    $
    58
    
    
    $
    46Earnings per share of common stock:Basic, Class A
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.49
    
    
    $
    0.38Basic, Class B
    
    
    
    
    
    $
    0.19
    
    
    
    
    
    
    $
    0.38Diluted
    
    $
    0.24
    
    
    $
    0.18
    
    
    $
    0.48
    
    
    $
    0.37Diluted, Class B
    
    
    
    
    
    $
    0.18
    
    
    
    
    
    
    $
    0.37Weighted average number of common shares
outstanding (in thousands):Basic, Class A
    
    
    119,283
    
    
    
    121,567
    
    
    
    119,547
    
    
    
    121,159Basic and diluted, Class B
    
    
    
    
    
    
    817
    
    
    
    
    
    
    
    817Diluted
    
    
    121,378
    
    
    
    124,943
    
    
    
    121,267
    
    
    
    124,558
  2




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Six Months Ended June 30,2008
    
    
    2007(Dollars in millions)Cash flows from operating activities:Net income
    
    $
    58
    
    
    $
    46Adjustments to reconcile net income to net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    56
    
    
    
    50Impairment of assets
    
    
    3
    
    
    
    2Stock-based compensation
    
    
    9
    
    
    
    8Change in deferred taxes
    
    
    2
    
    
    
    (6
    )Excess tax benefits from stock-based compensation arrangements
    
    
    
    
    
    
    (3
    )Other non-cash items
    
    
    2
    
    
    
    1Changes in assets and liabilities (net of effects from acquisitions of businesses):Accounts receivable, net
    
    
    (10
    )
    
    
    (32
    )Prepaid expenses
    
    
    (25
    )
    
    
    (13
    )Deferred contract costs, net
    
    
    (29
    )
    
    
    (29
    )Accounts payable and accrued liabilities
    
    
    2
    
    
    
    (12
    )Accrued compensation
    
    
    16
    
    
    
    (31
    )Deferred revenue
    
    
    16
    
    
    
    9Income taxes
    
    
    (13
    )
    
    
    (10
    )Other current and non-current assets
    
    
    (7
    )
    
    
    (2
    )Net cash provided by (used in) operating activities
    
    
    80
    
    
    
    (22
    )Cash flows from investing activities:Purchases of property, equipment and software
    
    
    (27
    )
    
    
    (48
    )Acquisitions of businesses, net
    
    
    (20
    )
    
    
    (252
    )Purchases of short-term investments
    
    
    (40
    )
    
    
    (493
    )Net proceeds from sale of short-term investments
    
    
    63
    
    
    
    626Net cash used in investing activities
    
    
    (24
    )
    
    
    (167
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (33
    )
    
    
    Proceeds from issuance of long-term debt
    
    
    
    
    
    
    75Proceeds from issuance of common stock
    
    
    6
    
    
    
    15Proceeds from issuance of treasury stock
    
    
    5
    
    
    
    Excess tax benefits from stock-based compensation arrangements
    
    
    
    
    
    
    3Purchases of treasury stock
    
    
    (24
    )
    
    
    Other
    
    
    
    
    
    
    1Net cash provided by (used in) financing activities
    
    
    (46
    )
    
    
    94Effect of exchange rate changes on cash and cash equivalents
    
    
    (1
    )
    
    
    3Net increase (decrease) in cash and cash equivalents
    
    
    9
    
    
    
    (92
    )Cash and cash equivalents at beginning of period
    
    
    187
    
    
    
    250Cash and cash equivalents at end of period
    
    $
    196
    
    
    $
    158
  3




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Fair Value Measurements
   
    
    Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for
identical assets or liabilities.
    
    Level 2: Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
    
    Level 3: Unobservable inputs that reflect the reporting entitys own assumptions.
 4




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Basis of Fair Value MeasurementsQuoted PricesIn Active
    
    SignificantMarkets for
    
    Other
    
    SignificantBalance at
    
    Identical
    
    Observable
    
    UnobservableJune 30,
    
    Items
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(in millions)Cash equivalents  money market funds
    
    $
    77
    
    
    $
    77
    
    
    $
    
    
    
    $
    Interest rate swaps
    
    $
    (3
    )
    
    $
    
    
    
    $
    (3
    )
    
    $
    Foreign currency derivative financial
instruments (including forward
contracts and options)
    
    $
    (15
    )
    
    $
    (11
    )
    
    $
    (4
    )
    
    $
    
   Significant accounting standards to be adopted
 FASB Statement No 141R
  FASB Statement No 161
  FSP No. FAS 142-3
  5




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HighQ IT for the manufacturing industry GmbH
 IT IT IT IT IT IT
 JJ Wild, Inc.
  QSS Group, Inc.
  6




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##### Table of Contents



eServ, LLC
  Other
     ConsultingandIndustry
    
    
    Government
    
    
    ApplicationsSolutions
    
    
    Services
    
    
    Solutions
    
    
    Total(in millions)Balance as of December 31, 2007
    
    $
    338
    
    
    $
    300
    
    
    $
    75
    
    
    $
    713Goodwill resulting from the HighQIT acquisition
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Goodwill resulting from the eServ acquisition
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Other
    
    
    1
    
    
    
    (1
    )
    
    
    1
    
    
    
    1Balance as of June 30, 2008
    
    $
    352
    
    
    $
    299
    
    
    $
    76
    
    
    $
    727
   As of June 30, 2008Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    BookValue
    
    
    Amortization
    
    
    Value(in millions)Service marks
    
    $
    4
    
    
    $
    (2
    )
    
    $
    2Customer-based assets
    
    
    90
    
    
    
    (37
    )
    
    
    53Other intangible assets
    
    
    3
    
    
    
    (2
    )
    
    
    1Total
    
    $
    97
    
    
    $
    (41
    )
    
    $
    56
  7




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Three months
    
    
    Six monthsended June 30,
    
    
    ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)Net income
    
    $
    30
    
    
    $
    23
    
    
    $
    58
    
    
    $
    46Net unrealized loss on foreign exchange
forward contracts and interest rate
swaps
    
    
    (13
    )
    
    
    
    
    
    
    (17
    )
    
    
    Foreign currency translation adjustments
    
    
    (7
    )
    
    
    6
    
    
    
    (6
    )
    
    
    7Total comprehensive income
    
    $
    10
    
    
    $
    29
    
    
    $
    35
    
    
    $
    53
  Accumulated gain at December 31, 2007
    
    $
    1Net unrealized loss on hedging transactions
    
    
    (17
    )Reclassifications into earnings
    
    
    Total accumulated loss at June 30, 2008
    
    $
    (16
    )
    Stock-based compensation
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in millions)
    
    
    (in millions)Direct cost of services
    
    $
    1
    
    
    $
    1
    
    
    $
    2
    
    
    $
    2Selling, general and administrative expenses
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    4Total stock compensation expense from stock options and ESPP
    
    
    3
    
    
    
    3
    
    
    
    6
    
    
    
    6Stock compensation expense from stock options and ESPP, net of tax
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    4
   8




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##### Table of Contents



Three months ended
    
    Six months endedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Weighted average risk free interest rates
    
    
    2.78
    %
    
    
    4.67
    %
    
    
    2.78
    %
    
    
    4.64
    %Weighted average life (in years)
    
    
    4.72
    
    
    
    5.0
    
    
    
    4.72
    
    
    
    5.0Volatility
    
    
    27
    %
    
    
    28
    %
    
    
    27
    %
    
    
    28
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Weighted average grant-date fair value per share of options granted
    
    $
    4.73
    
    
    $
    5.71
    
    
    $
    4.06
    
    
    $
    5.51
 Activity in our stock-based compensation plans
  Six months ended June 30,2008
    
    2007Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    ExerciseOptions
    
    Price
    
    Options
    
    PriceOutstanding at January 1
    
    
    16,240
    
    
    
    15.00
    
    
    
    18,169
    
    
    
    14.42Granted
    
    
    1,625
    
    
    
    14.24
    
    
    
    53
    
    
    
    18.65Exercised
    
    
    (534
    )
    
    
    9.87
    
    
    
    (1,367
    )
    
    
    7.99Forfeited
    
    
    (849
    )
    
    
    15.94
    
    
    
    (989
    )
    
    
    16.92Outstanding at June 30
    
    
    16,482
    
    
    
    15.04
    
    
    
    15,866
    
    
    
    14.83Exercisable at June 30
    
    
    9,519
    
    
    
    15.52
    
    
    
    9,071
    
    
    
    15.63
   9




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##### Table of Contents



ConsultingandIndustry
    
    Government
    
    ApplicationsSolutions
    
    Services
    
    Solutions
    
    Other(1)
    
    Total(in millions)For the three months ended June 30, 2008:Revenue
    
    $
    482
    
    
    $
    161
    
    
    $
    92
    
    
    $
    (30
    )
    
    $
    705Income before taxes
    
    
    30
    
    
    
    3
    
    
    
    14
    
    
    
    
    
    
    
    47For the three months ended June 30, 2007:Revenue
    
    $
    436
    
    
    $
    145
    
    
    $
    75
    
    
    $
    (21
    )
    
    $
    635Income before taxes
    
    
    22
    
    
    
    6
    
    
    
    9
    
    
    
    (1
    )
    
    
    36For the six months ended June 30, 2008:Revenue
    
    $
    943
    
    
    $
    322
    
    
    $
    176
    
    
    $
    (56
    )
    
    $
    1,385Income before taxes
    
    
    57
    
    
    
    8
    
    
    
    27
    
    
    
    
    
    
    
    92For the six months ended June 30, 2007:Revenue
    
    $
    860
    
    
    $
    259
    
    
    $
    146
    
    
    $
    (40
    )
    
    $
    1,225Income before taxes
    
    
    41
    
    
    
    11
    
    
    
    19
    
    
    
    (1
    )
    
    
    70
 
 (1)
    
    Other includes our remaining operating areas and corporate activities, income and expenses
that are not related to the operations of the other reportable segments, and the elimination
of intersegment revenue and direct costs of services of approximately $30 million and $21
million for the three months ended June 30, 2008 and 2007, respectively, and $56 million and
$40 million for the six months ended June 30, 2008 and 2007, respectively, related to the
provision of services by the Consulting and Applications Solutions segment to the Industry
Solutions segment and Government Services segments. 10




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For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands, except per
    
    
    (in thousands, except pershare data)
    
    
    share data)Basic Earnings per Common ShareNet income allocated to Class A common shares (1)
    
    $
    29,668
    
    
    $
    22,575
    
    
    $
    58,101
    
    
    $
    45,826Weighted average common shares outstanding, Class A
    
    
    119,283
    
    
    
    121,567
    
    
    
    119,547
    
    
    
    121,159Basic earnings per common share
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.49
    
    
    $
    0.38Net income allocated to Class B common shares (1)
    
    
    
    
    
    $
    152
    
    
    
    
    
    
    $
    309Weighted average common shares outstanding, Class B
    
    
    
    
    
    
    817
    
    
    
    
    
    
    
    817Basic earnings per common share
    
    
    
    
    
    $
    0.19
    
    
    
    
    
    
    $
    0.38Diluted Earnings per Common ShareNet income (2)
    
    $
    29,668
    
    
    $
    22,727
    
    
    $
    58,101
    
    
    $
    46,135Weighted average common shares outstanding
    
    
    119,283
    
    
    
    122,384
    
    
    
    119,547
    
    
    
    121,975Incremental shares assuming dilution
    
    
    2,095
    
    
    
    2,559
    
    
    
    1,720
    
    
    
    2,583Weighted average diluted common shares outstanding (3)
    
    
    121,378
    
    
    
    124,943
    
    
    
    121,267
    
    
    
    124,558Diluted earnings per common share
    
    $
    0.24
    
    
    $
    0.18
    
    
    $
    0.48
    
    
    $
    0.37Net income allocated to Class B common shares (4)
    
    
    
    
    
    $
    148
    
    
    
    
    
    
    $
    301Weighted average common shares outstanding, Class B
    
    
    
    
    
    
    817
    
    
    
    
    
    
    
    817Diluted earnings per common share, Class B
    
    
    
    
    
    $
    0.18
    
    
    
    
    
    
    $
    0.37
 
 (1)
    
    Net income is allocated to Class A and Class B common shares based on weighted average common
shares attributable to each class of stock.(2)
    
    For purposes of the diluted net income per share computation for common stock, shares of
Class B are assumed to be converted; therefore, 100% of net income is allocated to common
stock.(3)
    
    Class B shares are assumed to be converted in the weighted average diluted common shares
outstanding.(4)
    
    Net income is allocated to class B common shares based on the weighted average diluted common
shares attributable to each class of stock.  For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2008
    
    2007
    
    2008
    
    2007(in thousands)
    
    (in thousands)Common stock options
    
    
    8,818
    
    
    
    5,552
    
    
    
    9,588
    
    
    
    6,647Restricted stock units
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    4
  11




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Litigation
   IPO Allocation Securities Litigation
  Other
  12




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##### Table of Contents



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 described in our Annual Report on Form
10-K for the year ended December 31, 2007. 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.
 
  RESULTS OF OPERATIONS
  Lines of Business
  Subsequent Development
  Overview of Our Financial Results for the Second Quarter of 2008
   13




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##### Table of Contents



Revenue Growth
  
    
    Revenue from expansion of base services from existing accounts and project work and from new
contracts signed in the second quarter of 2007 for which we did not recognize a full quarter
of revenue in the second quarter of 2007.
 
    
    Revenue from new contracts signed during the twelve-month period following the second quarter
of 2007.
 
    
    Increased revenue related to acquisitions.
  Earnings Growth
  
    
    Increased profitability in the Industry Solutions Segment of approximately $0.04 per diluted
share. This growth came from strengthening profitability on existing contracts, operating
efficiencies, and new business.
 
    
    Increased profitability in the Consulting and Applications Solutions Segment, which resulted
in an increase of approximately $0.02 per diluted share.
  Free Cash Flow
  Six MonthsEndedJune 30,2008
    
    
    2007Net cash provided by (used in) operating activities
    
    $
    80
    
    
    $
    (22
    )Purchases of property, equipment and software
    
    
    (27
    )
    
    
    (48
    )Free cash flow
    
    $
    53
    
    
    $
    (70
    )
 14




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##### Table of Contents



TCV of Contracts Signed
   Additional Measurements
  Comparison of the Three Months Ended June 30, 2008 and 2007
 Revenue
  Three Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeIndustry Solutions
    
    $
    482
    
    
    $
    436
    
    
    $
    46
    
    
    
    10.6
    %Government Services
    
    
    161
    
    
    
    145
    
    
    
    16
    
    
    
    11.0
    %Consulting and Applications Solutions
    
    
    92
    
    
    
    75
    
    
    
    17
    
    
    
    22.7
    %Elimination of intersegment revenue
    
    
    (30
    )
    
    
    (21
    )
    
    
    (9
    )
    
    
    42.9
    %Total
    
    $
    705
    
    
    $
    635
    
    
    $
    70
    
    
    
    11.0
    %
 Industry Solutions
  
    
    $23 million net increase from existing accounts and short-term project work and new contracts
signed in the second quarter of 2007 for which we did not recognize a full quarter of revenue
in the second quarter of 2007. This net increase resulted 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 project work,
can vary from period-to-period depending on many factors, including specific customer and
industry needs and economic conditions.
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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS
 
    
    $22 million increase from new contracts signed during the twelve-month period following the
second quarter of 2007. This increase was composed of $15 million, $6 million, and $1 million
from new contracts signed in the Commercial Solutions, Healthcare, and Insurance and Business
Processing 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.
    
    $20 million increase from revenue related to acquisitions.
  Government Services
  Consulting and Applications Solutions
  Gross Margin
  
    
    Increased gross margin within Industry Solutions segment, including an increase from
contract profit improvements, project growth, and efficiency gains.
  
    
    Reduced gross margin for Government Services, primarily attributable to lower profit
margins related to early stage outsourcing contracts signed in 2007.
    
    Increased incentive compensation, net of amounts reimbursable by our customers.
 Selling, General and Administrative Expenses
  16




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS
 Comparison of the Six Months Ended June 30, 2008 and 2007
 Revenue
  Six Months Ended June 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeIndustry Solutions
    
    $
    943
    
    
    $
    860
    
    
    $
    83
    
    
    
    9.7
    %Government Services
    
    
    322
    
    
    
    259
    
    
    
    63
    
    
    
    24.3
    %Consulting and Applications Solutions
    
    
    176
    
    
    
    146
    
    
    
    30
    
    
    
    20.5
    %Elimination of intersegment revenue
    
    
    (56
    )
    
    
    (40
    )
    
    
    (16
    )
    
    
    40.0
    %Total
    
    $
    1,385
    
    
    $
    1,225
    
    
    $
    160
    
    
    
    13.1
    %
 Industry Solutions
  
    
    $47 million net increase from existing accounts and short-term project work and new contracts
signed in the second quarter of 2007 for which we did not recognize a full quarter of revenue
in the second quarter of 2007. This net increase resulted 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 project work,
can vary from period-to-period depending on many factors, including specific customer and
industry needs and economic conditions.
    
    $37 million increase from revenue related to acquisitions.
    
    $34 million increase from new contracts signed during the twelve-month period following the
second quarter of 2007. This increase was composed of $21 million, $10 million, and $3 million
from new contracts signed in the Commercial Solutions, Healthcare, and Insurance and Business
Processing 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.
  Government Services
  Consulting and Applications Solutions
  17




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS
  Gross Margin
  
    
    Reduced gross margin for Government Services, primarily attributable to lower profit
margins related to early stage outsourcing contracts signed in 2007.
    
    Increased incentive compensation, net of amounts reimbursable by our customers.
 Selling, General and Administrative Expenses
  Other Income Statement Items
  Liquidity and Capital Resources
  Operating Activities
  
    
    Net income was $58 million and $46 million for the six months ended June 30, 2008 and 2007,
respectively. Depreciation and amortization expense, which are non-cash expenses, were $56
million and $50 million for the six months ended June 30, 2008 and
2007, respectively. The increase in depreciation expense in 2008 as compared to 2007 was due
primarily to increased depreciation and amortization expense from property, equipment, and
purchased software associated primarily with data center migration, our recent data center
expansion, and acquisitions.
 18




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS
 
    
    Cash used due to changes in accounts receivable was $10 million for the six months ended June
30, 2008, as compared to $32 million for the same period of the prior year. We typically
collect our accounts receivable within 62-65 days, and therefore our accounts receivable
balance at the end of each period can change based on the amount of revenue for that period
and the timing of collection from our customers, which may vary significantly from period to
period.
    
    Cash provided by changes in accounts payable and accrued liabilities was $2 million for the
six months ended June 30, 2008, as compared to cash used of $12 million for the same period of
the prior year. This increase is primarily due to the timing of vendor payments.
    
    During the six months ended June 30, 2008, there was an increase of $7 million in net
deferred revenue received from clients as compared to the same period in 2007.
    
    Bonuses paid to associates under our bonus plans in the first six months of 2008 and 2007
(including payments of annual bonus amounts relating to the previous years bonus plan) were
approximately $21 million and $47 million, respectively. The amount of bonuses that we pay
each year is based on several factors, including our financial performance and managements
discretion.
  
    
    During the six months ended June 30, 2008, we made net cash payments for income taxes of $46
million as compared to $40 million in the six months ended June 30, 2007.
 Investing Activities
  
    
    During the six months ended June 30, 2007, we paid $252 million for acquisitions of
businesses, including $248 million, net of cash acquired, for the acquisition of QSS, and $4
million of additional consideration for the acquisition of eServ LLC.
    
    During the six months ended June 30, 2008, we purchased $27 million of property, equipment
and purchased software as compared to $48 million during the six months ended June 30, 2007.
The first six months of 2007 included purchases related to our business expansion needs for
data center and office facilities.
    
    During the six months ended June 30, 2008, we liquidated short-term investments of $23
million, net as compared $133 million, net during the six months ended June 30, 2007. The
liquidation during the first six months of 2007 was in connection with our acquisition of QSS.
    
    During the six months ended June 30, 2008, we paid $20 million for acquisitions of
businesses, including $14 million, net of cash acquired, for the acquisition of
HighQIT for the manufacturing industry GmbH and its subsidiary (collectively,
called HighQIT), $4 million of additional consideration for the acquisition of
eServ LLC, and $4 million for an acquisition in the second quarter of 2008. These payments
were partially offset by purchase price adjustments paid to us of $2 million.
 Financing Activities
  19




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS
  Significant Accounting Standards to be Adopted
  20




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IPO Allocation Securities Litigation
  Other
  21




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##### Table of Contents



Nominee
    
    For
    
    
    WithheldRoss Perot
    
    
    108,106,281
    
    
    
    2,432,923Ross Perot, Jr.
    
    
    108,059,976
    
    
    
    2,479,228Peter A. Altabef
    
    
    108,199,500
    
    
    
    2,339,704Steven Blasnik
    
    
    106,155,424
    
    
    
    4,383,780John S.T. Gallagher
    
    
    109,964,344
    
    
    
    574,860Carl Hahn
    
    
    109,897,919
    
    
    
    641,285DeSoto Jordan
    
    
    91,474,995
    
    
    
    19,064,209Thomas Meurer
    
    
    107,280,652
    
    
    
    3,258,552Cecil H. (C. H.) Moore, Jr.
    
    
    109,949,641
    
    
    
    589,563Anthony J. Principi
    
    
    109,941,867
    
    
    
    597,337Anuroop (Tony) Singh
    
    
    109,934,435
    
    
    
    604,769
  22




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT3.1
    
    Third Amended and Restated Certificate of Incorporation of Perot Systems Corporation (the Company)
(Incorporated by reference to Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2002.)3.2
    
    Fourth Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 of the Companys Current
Report on Form 8-K filed September, 24, 2004).4.1
    
    Specimen of Class A Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of the Companys
Registration Statement on Form S-1, Registration No. 333-60755.)4.2
    
    Rights Agreement dated January 28, 1999 between the Company and The Chase Manhattan Bank (Incorporated by
reference to Exhibit 4.2 of the Companys Registration Statement on Form S-1, Registration No. 333-60755.)4.3
    
    Form of Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred
Stock (included as Exhibit A-1 to the Rights Agreement) (Incorporated by reference to Exhibit 4.3 of the
Companys Registration Statement on Form S-1, Registration No. 333-60755.)4.4
    
    Form of Certificate of Designation, Preferences, and Rights of Series B Junior Participating Preferred
Stock (included as Exhibit A-2 to the Rights Agreement) (Incorporated by reference to Exhibit 4.4 of the
Companys Registration Statement on Form S-1, Registration No. 333-60755.)31.1*
    
    Rule 13a-14 Certification dated July 29, 2008, by Peter A. Altabef, President and Chief Executive Officer.31.2*
    
    Rule 13a-14 Certification dated July 29, 2008, by John E. Harper, Vice President and Chief Financial
Officer.32.1**
    
    Section 1350 Certification dated July 29, 2008, by Peter A. Altabef, President and Chief Executive Officer.32.2**
    
    Section 1350 Certification dated July 29, 2008, by John E. Harper, Vice President and Chief Financial
Officer.
 
 *
    
    Filed herewith.**
    
    Furnished herewith. 23




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##### Table of Contents



PEROT SYSTEMS CORPORATION
(Registrant)Date: July 29, 2008
    By
    /s/ ROBERT J. KELLYRobert J. KellyCorporate Controller and Principal
Accounting Officer 24