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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[X]  |  | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|     |  |                                                                                         
|     |  | For the quarterly period ended June 30, 2003                                            
|     |  |                                                                                         
|or  
|     |  |                                                                                         
|[  ] |  | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|     |  |                                                                                         
|     |  | For the transition period from  to                                                      

Commission File Number 0-22495

PEROT SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                             
|----------------------------------------------------------------------- |  | --------------------------------------------
|DELAWARE
(State or other jurisdiction of
incorporation or organization) |  | 75-2230700
(IRS Employer
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. x Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). x Yes o No

Number of shares of registrants common stock outstanding as of July 30, 2003:
110,513,431.





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TABLE OF CONTENTS



|                                            |                                                                                                                     |                                                                                                           |  |  |  |  |  | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|                                            | ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)                                                                           
|                                            |                                                                                                                     | CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2003 AND DECEMBER 31, 2002                          
|                                            |                                                                                                                     | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
|                                            |                                                                                                                     | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002          
|                                            |                                                                                                                     | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                     
|                                            | ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS
|                                            | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                 
|                                            | ITEM 4: CONTROLS AND PROCEDURES                                                                                    
|PART II: OTHER INFORMATION                 
|                                            | ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                        
|                                            | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                                           
|SIGNATURES                                 
|Index to Exhibits                          
|EX-31.1 Rule 13a-14(a) Certification of CEO
|EX-31.2 Rule 13a-14(a) Certification of CFO
|EX-32.1 Section 1350 Certification of CEO  
|EX-32.2 Section 1350 Certification of CFO  



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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2003

INDEX

|                                                                                              |                                                                                                           |      |    |   | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ---- | -- | - | 
|                                                                                              |                                                                                                           | Page
|                                                                                              |                                                                                                           |     
|PART I: FINANCIAL INFORMATION                                                                 |                                                                                                           |      |    |  
|ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)                                                      |                                                                                                           |      |    |  
|                                                                                              | Condensed Consolidated Balance Sheets as of June 30, 2003 and
December 31, 2002                           |      |    | 1 | 
|                                                                                              | Condensed Consolidated Statements of Operations for the three and
six months ended June 30, 2003 and 2002 |      |    | 2 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2003 and 2002           |      |    | 3 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                      |      |    | 4 | 
|ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                                                                           |      | 14 |  
|ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK                            |                                                                                                           |      | 23 |  
|ITEM 4: CONTROLS AND PROCEDURES                                                               |                                                                                                           |      | 23 |  
|PART II: OTHER INFORMATION                                                                    |                                                                                                           |      |    |  
|ITEM 1: LEGAL PROCEEDINGS                                                                     |                                                                                                           |      | 24 |  
|ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |                                                                                                           |      | 25 |  
|ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                      |                                                                                                           |      | 26 |  
|SIGNATURES                                                                                    |                                                                                                           |      | 27 |  





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##### Table of Contents






ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)




PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2003 AND DECEMBER 31, 2002
(DOLLARS IN THOUSANDS)
(UNAUDITED)

ASSETS

|                                                |                               |                            |                                               |                                            |         |               |         |                   |         |         |         | 
|----------------------------------------------- | ----------------------------- | -------------------------- | --------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | ----------------- | ------- | ------- | ------- | 
|                                                |                               |                            |                                               |                                            |         | June 30, 2003 |         | December 31, 2002
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|Current assets:                                 |                               |                            |                                               |                                            |         |               |         |                  
|                                                |                               | Cash and cash equivalents  |                                               | $                                          | 124,303 |               |         | $                 | 212,861 |        
|                                                |                               | Accounts receivable, net   |                                               |                                            | 211,796 |               |         |                   | 162,367 |        
|                                                |                               | Prepaid expenses and other |                                               |                                            | 50,308  |               |         |                   | 42,415  |        
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|                                                |                               |                            |                                               | Total current assets                       |         |               | 386,407 |                   |         |         | 417,643 | 
|Property, equipment and purchased software, net |                               |                            | 58,776                                        |                                            |         |               | 62,543  |                  
|Goodwill                                        |                               |                            | 272,593                                       |                                            |         |               | 211,075 |                  
|Long-term accrued revenue                       |                               |                            | 7,006                                         |                                            |         |               | 74,489  |                  
|Other non-current assets                        |                               |                            | 116,455                                       |                                            |         |               | 76,563  |                  
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|                                                |                               |                            |                                               | Total assets                               |         | $             | 841,237 |                   |         | $       | 842,313 | 
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|LIABILITIES AND STOCKHOLDERS EQUITY           
|                                                | Current liabilities:          |                            |                                               |                                            |         |               |         |                   |        
|                                                |                               |                            | Accounts payable                              |                                            | $       | 31,499        |         |                   | $       | 24,452  |        
|                                                |                               |                            | Accrued liabilities                           |                                            |         | 90,584        |         |                   |         | 92,948  |        
|                                                |                               |                            | Other current liabilities                     |                                            |         | 45,757        |         |                   |         | 38,116  |        
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|                                                |                               |                            |                                               | Total current liabilities                  |         |               | 167,840 |                   |         |         | 155,516 | 
|                                                | Other non-current liabilities |                            |                                               | 7,786                                      |         |               |         | 10,211            |        
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|                                                |                               |                            |                                               | Total liabilities                          |         |               | 175,626 |                   |         |         | 165,727 | 
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|                                                | Stockholders equity:         |                            |                                               |                                            |         |               |         |                   |        
|                                                |                               |                            | Common stock                                  |                                            |         | 1,102         |         |                   |         | 1,087   |        
|                                                |                               |                            | Additional paid-in capital                    |                                            |         | 401,751       |         |                   |         | 392,821 |        
|                                                |                               |                            | Other stockholders equity                    |                                            |         | 261,551       |         |                   |         | 284,700 |        
|                                                |                               |                            | Accumulated other comprehensive income (loss) |                                            |         | 1,207         |         |                   |         | (2,022  | )      
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|                                                |                               |                            |                                               | Total stockholders equity                 |         |               | 665,611 |                   |         |         | 676,586 | 
|                                                |                               |                            |                                               |                                            |         |               |         |                  
|                                                |                               |                            |                                               | Total liabilities and stockholders equity |         | $             | 841,237 |                   |         | $       | 842,313 | 
|                                                |                               |                            |                                               |                                            |         |               |         |                  

The accompanying notes are an integral part of these financial statements.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |         | 
|-------------------------------------------------------------------------- | ------------------------------------------------------------------- | - | --------------------------- | ------- | ------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                           |                                                                     |   | Three months ended June 30, |         | Six months ended June 30,
|                                                                           |                                                                     |   |                             |         |                          
|                                                                           |                                                                     |   | 2003                        |         | 2002                      |   | 2003    |         | 2002
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |     
|Revenue                                                                    |                                                                     | $ | 360,041                     |         |                           | $ | 333,465 |         |      | $ | 696,402 |         |   | $ | 659,244 |        
|Costs and expenses:                                                        |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|                                                                           | Direct cost of services                                             |   |                             | 307,252 |                           |   |         | 249,976 |      |   |         | 579,339 |   |   |         | 501,754 | 
|                                                                           | Selling, general and administrative expenses                        |   |                             | 46,994  |                           |   |         | 54,937  |      |   |         | 90,406  |   |   |         | 99,961  | 
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|Operating income                                                           |                                                                     |   | 5,795                       |         |                           |   | 28,552  |         |      |   | 26,657  |         |   |   | 57,529  |        
|Interest income, net                                                       |                                                                     |   | 575                         |         |                           |   | 1,042   |         |      |   | 1,275   |         |   |   | 2,088   |        
|Equity in earnings of unconsolidated affiliates                            |                                                                     |   | 1,516                       |         |                           |   | 1,979   |         |      |   | 3,041   |         |   |   | 3,927   |        
|Other income (expense), net                                                |                                                                     |   | 224                         |         |                           |   | (803    | )       |      |   | 1,524   |         |   |   | (673    | )      
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|Income before taxes                                                        |                                                                     |   | 8,110                       |         |                           |   | 30,770  |         |      |   | 32,497  |         |   |   | 62,871  |        
|Income tax expense                                                         |                                                                     |   | 3,164                       |         |                           |   | 10,590  |         |      |   | 12,674  |         |   |   | 23,270  |        
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|Income before cumulative effect of a change in
accounting principle        |                                                                     |   | 4,946                       |         |                           |   | 20,180  |         |      |   | 19,823  |         |   |   | 39,601  |        
|Cumulative effect of a change in accounting principle,
net of tax          |                                                                     |   |                            |         |                           |   |        |         |      |   | (42,959 | )       |   |   |        |        
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|                                                                           | Net income (loss)                                                   |   | $                           | 4,946   |                           |   | $       | 20,180  |      |   | $       | (23,136 | ) |   | $       | 39,601  | 
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|Basic earnings (loss) per common share:                                    |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|                                                                           | Income before cumulative effect of a change in
accounting principle |   | $                           | 0.05    |                           |   | $       | 0.19    |      |   | $       | 0.18    |   |   | $       | 0.38    | 
|                                                                           | Cumulative effect of a change in accounting
principle, net of tax   |   |                             |        |                           |   |         |        |      |   |         | (0.39   | ) |   |         |        | 
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|                                                                           | Net income (loss)                                                   |   | $                           | 0.05    |                           |   | $       | 0.19    |      |   | $       | (0.21   | ) |   | $       | 0.38    | 
|                                                                           | Weighted average common shares outstanding                          |   |                             | 109,808 |                           |   |         | 106,050 |      |   |         | 109,429 |   |   |         | 104,652 | 
|Diluted earnings (loss) per common share:                                  |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|                                                                           | Income before cumulative effect of a change in
accounting principle |   | $                           | 0.04    |                           |   | $       | 0.17    |      |   | $       | 0.17    |   |   | $       | 0.34    | 
|                                                                           | Cumulative effect of a change in accounting
principle, net of tax   |   |                             |        |                           |   |         |        |      |   |         | (0.37   | ) |   |         |        | 
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|                                                                           | Net income (loss)                                                   |   | $                           | 0.04    |                           |   | $       | 0.17    |      |   | $       | (0.20   | ) |   | $       | 0.34    | 
|                                                                           |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|Weighted average diluted common shares outstanding                         |                                                                     |   | 114,694                     |         |                           |   | 116,389 |         |      |   | 114,368 |         |   |   | 116,022 |        
|Pro forma amounts assuming the accounting change
is applied retroactively: |                                                                     |   |                             |         |                           |   |         |         |      |   |         |         |   |   |         |        
|                                                                           | Net income                                                          |   | $                           | 4,946   |                           |   | $       | 8,547   |      |   | $       | 19,823  |   |   | $       | 22,701  | 
|                                                                           | Basic earnings per common share                                     |   | $                           | 0.05    |                           |   | $       | 0.08    |      |   | $       | 0.18    |   |   | $       | 0.22    | 
|                                                                           | Diluted earnings per common share                                   |   | $                           | 0.04    |                           |   | $       | 0.07    |      |   | $       | 0.17    |   |   | $       | 0.20    | 

The accompanying notes are an integral part of these financial statements.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(DOLLARS IN THOUSANDS)
(UNAUDITED)

|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |         |        |         |         |  
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------------------------- | -------- | ------- | ------ | ------- | ------- | -
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        | Six months ended June 30,
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                          
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        | 2003                      |          | 2002   
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|Cash flows from operating activities:                        |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|                                                             | Net income (loss)                                                                        |                                                                                     | $                                         | (23,136                                   | )      |                           | $        | 39,601  |       
|                                                             | Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                                     |                                           |                                           |        |                           |          |         |       
|                                                             |                                                                                          | Depreciation and amortization                                                       |                                           |                                           | 16,842 |                           |          |         | 15,117 |        
|                                                             |                                                                                          | Cumulative effect of a change in accounting principle                               |                                           |                                           | 42,959 |                           |          |         |       |        
|                                                             |                                                                                          | Impairment of assets                                                                |                                           |                                           | 20,743 |                           |          |         | 922    |        
|                                                             |                                                                                          | Change in deferred taxes                                                            |                                           |                                           | 7,895  |                           |          |         | 9,023  |        
|                                                             |                                                                                          | Equity in earnings of unconsolidated affiliates                                     |                                           |                                           | (3,041 | )                         |          |         | (3,927 | )      
|                                                             |                                                                                          | Other non-cash items                                                                |                                           |                                           | (5,811 | )                         |          |         | 855    |        
|                                                             |                                                                                          | Changes in assets and liabilities (net of effects from acquisitions
of businesses): |                                           |                                           |        |                           |          |         |        |        
|                                                             |                                                                                          |                                                                                     | Accounts receivable, net                  |                                           |        | (17,226                   | )        |         |        | (4,797  | )      
|                                                             |                                                                                          |                                                                                     | Prepaid expenses                          |                                           |        | (14,175                   | )        |         |        | (2,194  | )      
|                                                             |                                                                                          |                                                                                     | Long-term accrued revenue                 |                                           |        | (6,510                    | )        |         |        | (17,745 | )      
|                                                             |                                                                                          |                                                                                     | Accounts payable and accrued liabilities  |                                           |        | (12,853                   | )        |         |        | (9,229  | )      
|                                                             |                                                                                          |                                                                                     | Accrued compensation                      |                                           |        | 447                       |          |         |        | (14,301 | )      
|                                                             |                                                                                          |                                                                                     | Income taxes                              |                                           |        | 8,174                     |          |         |        | 12,190  |        
|                                                             |                                                                                          |                                                                                     | Other current and non-current assets      |                                           |        | (2,909                    | )        |         |        | (14,272 | )      
|                                                             |                                                                                          |                                                                                     | Other current and non-current liabilities |                                           |        | (3,107                    | )        |         |        | (5,163  | )      
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|                                                             |                                                                                          |                                                                                     |                                           | Net cash provided by operating activities |        |                           | 8,292    |         |        |         | 6,080   |  
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|Cash flows from investing activities:                        |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|                                                             | Purchases of property, equipment and purchased software                                  |                                                                                     |                                           | (18,475                                   | )      |                           |          | (18,019 | )     
|                                                             | Acquisition of businesses, net of cash acquired of
$2,222 and $10,328, respectively      |                                                                                     |                                           | (85,557                                   | )      |                           |          | (59,581 | )     
|                                                             | Other                                                                                    |                                                                                     |                                           | (12                                       | )      |                           |          | 712     |       
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|                                                             |                                                                                          |                                                                                     |                                           | Net cash used in investing activities     |        |                           | (104,044 | )       |        |         | (76,888 | )
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|Cash flows from financing activities:                        |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|                                                             | Proceeds from issuance of common stock                                                   |                                                                                     |                                           | 3,839                                     |        |                           |          | 17,910  |       
|                                                             | Other                                                                                    |                                                                                     |                                           | (529                                      | )      |                           |          | (4,291  | )     
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|                                                             |                                                                                          |                                                                                     |                                           | Net cash provided by financing activities |        |                           | 3,310    |         |        |         | 13,619  |  
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                          |                                                                                     | 3,884                                     |                                           |        |                           | 6,174    |        
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|Net decrease in cash and cash equivalents                    |                                                                                          |                                                                                     | (88,558                                   | )                                         |        |                           | (51,015  | )      
|Cash and cash equivalents at beginning of period             |                                                                                          |                                                                                     | 212,861                                   |                                           |        |                           | 259,178  |        
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        
|Cash and cash equivalents at end of period                   |                                                                                          | $                                                                                   | 124,303                                   |                                           |        | $                         | 208,163  |        
|                                                             |                                                                                          |                                                                                     |                                           |                                           |        |                           |          |        

The accompanying notes are an integral part of these financial statements.

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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 1. GENERAL

The accompanying unaudited interim condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC). The interim condensed consolidated
financial statements include the consolidated accounts of Perot Systems
Corporation and its majority-owned subsidiaries (collectively, the Company)
with all significant intercompany transactions eliminated. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the financial position, results of operations
and cash flows for the interim periods presented have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles 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, 2002, as filed in the Companys
Annual Report on Form 10-K filed with the SEC on March 12, 2003. Operating
results for the three and six month periods ended June 30, 2003, are not
necessarily indicative of the results for the year ending December 31, 2003.

Certain of the 2002 amounts in the accompanying financial statements have been
reclassified to conform to the current presentation.

This Quarterly Report on Form 10-Q supercedes the financial information
contained in the Companys press release dated July 29, 2003, and attached to
the Current Report on Form 8-K filed the same date, announcing its second
quarter financial results.

Change in Accounting Principle for Revenue Arrangements with Multiple
Deliverables

The Company has long-term fixed-price contracts that include multiple
deliverables. Prior to January 1, 2003, the Company recognized revenue on
these contracts under the percentage-of-completion method using incurred costs
as a measure of progress towards completion. On November 21, 2002, the
Financial Accounting Standards Board Emerging Issues Task Force reached a
consensus on Issue No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21), regarding whether an arrangement
involving multiple deliverables contains more than one unit of accounting and
how arrangement consideration should be measured and allocated to the separate
units of accounting in an arrangement. The Company was required to apply the
provisions of EITF 00-21 to all new agreements with multiple deliverables
entered into in fiscal periods beginning after June 15, 2003. Alternatively,
the Company was permitted to apply EITF 00-21 to existing agreements and record
the effect of adoption as the cumulative effect of a change in accounting
principle. On January 1, 2003, the Company adopted EITF 00-21 and changed its
method of accounting for revenue from agreements with multiple deliverables for
both existing and prospective customer contracts.

The Companys adoption of EITF 00-21 on January 1, 2003, resulted in an expense
for the cumulative effect of a change in accounting principle of $69,288
($42,959, net of the applicable income tax benefit), or $0.37 per diluted
share, which includes approximately $19,500 of expense (approximately $12,090,
net of the applicable income tax benefit), or $0.11 per diluted share, to
recognize an estimated loss on a contract element included in a contract that
the Company expected to be profitable in the aggregate over its term.

For contracts including multiple deliverables meeting the separation criteria
of EITF 00-21, the Company allocates the total arrangement consideration to
each separate unit of accounting based on the relative fair values of
the deliverables in each unit of accounting
and recognizes revenue based on the Companys revenue recognition policy
applicable to each separate unit of accounting. In general, EITF 00-21 limits
the amount of revenue allocated to an individual deliverable under an agreement
to the lesser of its relative fair value or the amount not contingent on the
Companys performance of other deliverable elements under the agreement,
regardless of the probability of the Companys performance.

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Long-term accrued revenue on in-progress fixed-price contracts totaled $7,006
and $74,489 at June 30, 2003, and December 31, 2002, respectively.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its 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. The Company has implemented the disclosure-only provisions of Statement
of Financial Accounting Standards Board No. (FAS) 123, Accounting for
Stock-Based Compensation, and FAS 148, Accounting for Stock-Based
Compensation Transition and Disclosure. Had the Company elected to adopt the
expense recognition provisions of FAS 123, the pro forma impact on net income
(loss) and earnings (loss) per share would have been as follows:

|                                         |                                                                                                                                            |  |                             |        |                           |  |      |        |      |  |   |         |   |  |   |        |  
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ------ | ------------------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                         |                                                                                                                                            |  | Three months ended June 30, |        | Six months ended June 30,
|                                         |                                                                                                                                            |  |                             |        |                          
|                                         |                                                                                                                                            |  | 2003                        |        | 2002                      |  | 2003 |        | 2002
|                                         |                                                                                                                                            |  |                             |        |                           |  |      |        |     
|Net income (loss)                        |                                                                                                                                            |  |                             |        |                           |  |      |        |      |  |   |         |   |  |   |       
|                                         | As reported                                                                                                                                |  | $                           | 4,946  |                           |  | $    | 20,180 |      |  | $ | (23,136 | ) |  | $ | 39,601 |  
|                                         | Less: Total stock-based employee
compensation expense determined
under fair value based methods for
all awards, net of related tax effects |  |                             | (4,086 | )                         |  |      | (3,802 | )    |  |   | (8,519  | ) |  |   | (7,188 | )
|                                         |                                                                                                                                            |  |                             |        |                           |  |      |        |      |  |   |         |   |  |   |       
|                                         | Pro forma                                                                                                                                  |  | $                           | 860    |                           |  | $    | 16,378 |      |  | $ | (31,655 | ) |  | $ | 32,413 |  
|Basic earnings (loss) per common share   |                                                                                                                                            |  |                             |        |                           |  |      |        |      |  |   |         |   |  |   |       
|                                         | As reported                                                                                                                                |  | $                           | 0.05   |                           |  | $    | 0.19   |      |  | $ | (0.21   | ) |  | $ | 0.38   |  
|                                         | Pro forma                                                                                                                                  |  | $                           | 0.01   |                           |  | $    | 0.15   |      |  | $ | (0.29   | ) |  | $ | 0.31   |  
|Diluted earnings (loss) per common share |                                                                                                                                            |  |                             |        |                           |  |      |        |      |  |   |         |   |  |   |       
|                                         | As reported                                                                                                                                |  | $                           | 0.04   |                           |  | $    | 0.17   |      |  | $ | (0.20   | ) |  | $ | 0.34   |  
|                                         | Pro forma                                                                                                                                  |  | $                           | 0.01   |                           |  | $    | 0.14   |      |  | $ | (0.28   | ) |  | $ | 0.28   |  

The Company utilizes the Black-Scholes option pricing model to calculate its
pro forma stock-based compensation expense, and the assumptions used for each
period are as follows:

|                                                                    |  |                             |                           |      |  |      |      |      |  |   |      |   |  |   |      |  
|------------------------------------------------------------------- |  | --------------------------- | ------------------------- | ---- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                    |  | Three months ended June 30, | Six months ended June 30,
|                                                                    |  |                             |                          
|                                                                    |  | 2003                        |                           | 2002 |  | 2003 |      | 2002
|                                                                    |  |                             |                           |      |  |      |      |     
|Weighted average risk free interest rates                           |  |                             | 2.04                      | %    |  |      | 3.86 | %    |  |   | 2.22 | % |  |   | 3.92 | %
|Volatility                                                          |  |                             | 55                        | %    |  |      | 58   | %    |  |   | 55   | % |  |   | 58   | %
|Expected dividend yield                                             |  |                             | 0                         | %    |  |      | 0    | %    |  |   | 0    | % |  |   | 0    | %
|Weighted average grant-date fair value per
share of options granted |  | $                           | 4.31                      |      |  | $    | 8.21 |      |  | $ | 4.29 |   |  | $ | 8.07 |  

With the exception of certain 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 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.

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Financial Accounting Standards Board Interpretation No. 46

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46), an interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, which changes
the criteria for consolidation by business enterprises of variable interest
entities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003,
and apply in the first fiscal period beginning after June 15, 2003, for
variable interest entities created prior to February 1, 2003. FIN 46 may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated.

The Company has an operating lease contract with a variable interest entity
(also called a special purpose entity) for the use of land and office buildings
in Plano, Texas, including a data center facility. The Company currently does
not consolidate this entity. However, the Company will be required to
consolidate this entity beginning in the third quarter of 2003. Upon
consolidation of this entity, the Company will increase its assets and
long-term debt by approximately $66,300 and $75,500, respectively, and begin
recording additional depreciation expense of approximately $3,200 per year. The
assets will be recorded as land, buildings, improvements and equipment.

The Company has not yet determined whether to restate any previously issued
financial statements in connection with the adoption of FIN 46. If the Company
elects to apply FIN 46 on a prospective basis, the Company would record a
cumulative effect of a change in accounting principle of approximately $8,700
(approximately $5,400, net of the applicable income tax benefit) in the third
quarter of 2003, representing primarily the cumulative depreciation expense on
the buildings, improvements and equipment through June 30, 2003.

NOTE 2. ACQUISITIONS

Soza & Company, Ltd.

On February 20, 2003, the Company acquired Soza & Company, Ltd. (Soza), a
professional services company that provides information technology, management
consulting, financial services and environmental services primarily to public
sector customers. As a result of the acquisition, the Company increased its
customer base and service offerings in its Government Services segment.

The purchase price includes $72,778 in cash (net of $2,222 of cash acquired),
including $5,000 of which is being held in an escrow account for up to two
years, and may include additional payments totaling up to $32,000 in cash or
stock over the next two years. The possible future payments are contingent upon
Soza achieving certain financial targets over the same period, and at the
Companys discretion, up to 70% of these payments may be settled in Class A
Common Stock of the Company. The results of operations of Soza and the
estimated fair value of assets acquired and liabilities assumed are included in
the Companys condensed consolidated financial statements beginning on the
acquisition date.

The allocation of the excess of the purchase price over the net assets acquired
is pending completion of the tangible asset appraisal and a contractual
purchase price adjustment period; however, the estimated excess purchase price
(in the amount of $51,357) was recorded as goodwill on the condensed
consolidated balance sheets, was assigned to the Government Services segment,
and is not deductible for tax purposes.

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

The following table summarizes the estimated fair values of the Soza assets
acquired and liabilities assumed at the date of acquisition.

|                                           |  |                   |         |  
|------------------------------------------ |  | ----------------- | ------- | -
|                                           |  | As of            
|                                           |  | February 20, 2003
|                                           |  |                  
|Current assets                             |  | $                 | 31,380  |  
|Property, equipment and purchased software |  |                   | 1,834   |  
|Goodwill                                   |  |                   | 51,357  |  
|Other non-current assets                   |  |                   | 14,223  |  
|                                           |  |                   |         |  
|                                           |  |                   | 98,794  |  
|Current liabilities                        |  |                   | (18,452 | )
|Other non-current liabilities              |  |                   | (5,342  | )
|                                           |  |                   |         |  
|Purchase consideration                     |  | $                 | 75,000  |  
|                                           |  |                   |         |  

Other

During the first six months of 2003, the Company determined that financial
performance targets for two acquisitions were achieved. As a result, an
additional $10,000 in cash was paid to the previous owners of Advanced
Receivable Strategy, Inc. (ARS),
and the related goodwill was assigned to the IT Solutions segment and is
deductible for tax purposes. The Company acquired substantially all
of the assets of ARS in 2001. In addition, the Company paid $3,000 to the
previous shareholders of ADI Technology Corporation (ADI), which the Company
acquired in 2002. Also during the first six months of 2003, the Company
recorded a purchase price adjustment for ADI based on the completion of a
contractual purchase price adjustment period, which reduced goodwill by $2,985.

NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the six months ended June
30, 2003, by reporting segment are as follows:

|                                             |  |              |         |          |  |            |        |       |  |   |        |  |  |   |         | 
|-------------------------------------------- |  | ------------ | ------- | -------- |  | ---------- | ------ | ----- |  | - | ------ |  |  | - | ------- | 
|                                             |  |              |         |          |  | Government |        |       |  |   |        |  |  |  
|                                             |  | IT Solutions |         | Services |  | Consulting |        | Total
|                                             |  |              |         |          |  |            |        |      
|Balance as of December 31, 2002              |  | $            | 112,805 |          |  | $          | 26,899 |       |  | $ | 71,371 |  |  | $ | 211,075 | 
|Additional goodwill for ADI acquisition, net |  |              |        |          |  |            | 15     |       |  |   |       |  |  |   | 15      | 
|Additional goodwill for ARS acquisition      |  |              | 10,000  |          |  |            |       |       |  |   |       |  |  |   | 10,000  | 
|Estimated goodwill for Soza acquisition      |  |              |        |          |  |            | 51,357 |       |  |   |       |  |  |   | 51,357  | 
|Other                                        |  |              | 146     |          |  |            |       |       |  |   |       |  |  |   | 146     | 
|                                             |  |              |         |          |  |            |        |       |  |   |        |  |  |   |         | 
|Balance as of June 30, 2003                  |  | $            | 122,951 |          |  | $          | 78,271 |       |  | $ | 71,371 |  |  | $ | 272,593 | 
|                                             |  |              |         |          |  |            |        |       |  |   |        |  |  |   |         | 

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Identifiable intangible assets as of June 30, 2003, are recorded in other
non-current assets in the condensed consolidated balance sheets and are
composed of:

|                         |  |          |        |              |  |       |        |     |  |   |        | 
|------------------------ |  | -------- | ------ | ------------ |  | ----- | ------ | --- |  | - | ------ | 
|                         |  | Gross    |        |              |  |       |        | Net
|                         |  | Carrying |        | Accumulated  |  | Book 
|                         |  | Value    |        | Amortization |  | Value
|                         |  |          |        |              |  |      
|Service marks            |  | $        | 5,552  |              |  | $     | (2,597 | )   |  | $ | 2,955  | 
|Customer based assets    |  |          | 15,949 |              |  |       | (1,651 | )   |  |   | 14,298 | 
|Other intangible assets  |  |          | 2,811  |              |  |       | (846   | )   |  |   | 1,965  | 
|                         |  |          |        |              |  |       |        |     |  |   |        | 
|Balance at June 30, 2003 |  | $        | 24,312 |              |  | $     | (5,094 | )   |  | $ | 19,218 | 
|                         |  |          |        |              |  |       |        |     |  |   |        | 

Total amortization expense for identifiable intangible assets was $876 and
$1,583 for the three and six months ended June 30, 2003, respectively, and $521
and $1,005 for the three and six months ended June 30, 2002, respectively.
Amortization expense is estimated to be $3,755, $4,016, $3,864, $3,273, $2,449
and $2,111 for the years ending December 31, 2003 through 2008, respectively.
Identifiable intangible assets will be amortized over a weighted average
amortization period of approximately six years.

NOTE 4. COMPREHENSIVE INCOME (LOSS)

The Companys total comprehensive income (loss), net of tax, was as follows:

|                                         |  |                |       |                |  |      |        |      |  |   |         |   |  |   |        |  
|---------------------------------------- |  | -------------- | ----- | -------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                         |  | Three months   |       | Six months    
|                                         |  | ended June 30, |       | ended June 30,
|                                         |  |                |       |               
|                                         |  | 2003           |       | 2002           |  | 2003 |        | 2002
|                                         |  |                |       |                |  |      |        |     
|Net income (loss)                        |  | $              | 4,946 |                |  | $    | 20,180 |      |  | $ | (23,136 | ) |  | $ | 39,601 |  
|Foreign currency translation adjustments |  |                | 1,711 |                |  |      | 3,907  |      |  |   | 2,559   |   |  |   | 3,310  |  
|Other                                    |  |                | 624   |                |  |      |       |      |  |   | 670     |   |  |   | (29    | )
|                                         |  |                |       |                |  |      |        |      |  |   |         |   |  |   |        |  
|Total comprehensive income (loss)        |  | $              | 7,281 |                |  | $    | 24,087 |      |  | $ | (19,907 | ) |  | $ | 42,882 |  
|                                         |  |                |       |                |  |      |        |      |  |   |         |   |  |   |        |  

NOTE 5. STOCKHOLDERS EQUITY

The components of Other stockholders equity were as follows:

|                                 |  |               |         |                   |  |   |         |  
|-------------------------------- |  | ------------- | ------- | ----------------- |  | - | ------- | -
|                                 |  | June 30, 2003 |         | December 31, 2002
|                                 |  |               |         |                  
|Retained earnings                |  | $             | 262,973 |                   |  | $ | 286,109 |  
|Other                            |  |               | (1,422  | )                 |  |   | (1,409  | )
|                                 |  |               |         |                   |  |   |         |  
|Total other stockholders equity |  | $             | 261,551 |                   |  | $ | 284,700 |  
|                                 |  |               |         |                   |  |   |         |  

At June 30, 2003, there were 106,467 shares of the Companys Class A Common
Stock outstanding and 3,742 shares of Class B Common Stock outstanding. At
December 31, 2002, there were 105,272 shares of the Companys Class A Common
Stock outstanding and 3,392 shares of the Companys Class B Common Stock
outstanding. The increase in the number of shares of Class A Common Stock is
due to the exercise of options and the issuance of shares to participants in
the Employee Stock Purchase Plan.

NOTE 6. EXITING OF BUSINESS RELATIONSHIPS

During the three months ended June 30, 2003, the Company exited an
under-performing contract that included a software development project in which
the actual development costs were expected to exceed the estimated costs as
stated in the contract. While the contract provides for the Company to collect
most of the excess of the actual cost over the estimate in the contract, the
Company and its client were unable to reach
Page 8Table of ContentsPEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)agreement on the timing and form of payment for the excess. As a result, the
Company recorded $17,676 of expense in direct cost of services, which is
composed of the following:
    
    The impairment of assets related to this contract totaling $20,743,
including the impairment of $14,729 of long-term accrued revenue;
    
    The accrual of estimated costs to exit this contract of $3,766; and
    
    Partially offsetting the above expenses was the reversal of $6,833 in
accrued liabilities that had been recognized for future losses that
the Company expected to incur to complete the application development
project.In the second quarter of 2002, the Company began to expect that the application
development project would generate a loss. However, the Company did not
recognize a loss on the contract at that time because it expected that the
contract would be profitable in the aggregate over its term. As part of the
Companys adoption of EITF 00-21 in the first quarter of 2003, the Company
separated the deliverables in the contract into separate units of accounting
and recognized an estimated loss on the application development project
totaling approximately $19,500 (approximately $12,090, net of the applicable
income tax benefit), or $0.11 per diluted share, which was recorded as part of
the cumulative effect of a change in accounting principle.The Company is providing the services necessary to transition certain functions
back to the client. The Company expects the transition to end in the fourth
quarter of 2003.During the three months ended June 30, 2002, the Company terminated a certain
business relationship. As a result, the Company received a termination fee of
$7,289 and incurred expenses of $759 that were recorded in revenue and direct
costs of services, respectively. In addition, in connection with this
termination, the Company reduced a deferred tax asset valuation allowance,
resulting in an income tax benefit of $1,565.NOTE 7. SEGMENT DATAThe Companys operations are classified into three primary lines of business,
which are also reportable segments. These lines of business are IT Solutions,
Government Services, and Consulting. The IT Solutions segment provides
services to customers primarily under long-term contracts in strategic
relationships. These services include technology and business process
outsourcing, as well as industry domain-based short-term project and consulting
capabilities. The Government Services segment provides consulting and
technology-based business process solutions for the Department of Defense and
various other governmental agencies. The Consulting segment provides services
related to business and technical expertise and the design and implementation
of business and software solutions, primarily under short-term contracts
related to specific projects. The Companys remaining operating areas and
corporate activities are included in Other and include profits and expenses
that are not related to the operations of the other reportable segments.The reporting segments follow the same accounting policies used for the
Companys condensed consolidated financial statements. The Company evaluates
segment performance based on income (loss) from operations before income taxes,
exclusive of profits and expenses that are included in the Other category.
All corporate and centrally incurred costs are allocated to the segments based
principally on expenses, employees, square footage, or usage.Page 9Table of ContentsPEROT 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:

|                                          |                            |  |           |         |            |  |            |        |       |  |       |        |   |  |   |       |  |  |   |         | 
|----------------------------------------- | -------------------------- |  | --------- | ------- | ---------- |  | ---------- | ------ | ----- |  | ----- | ------ | - |  | - | ----- |  |  | - | ------- | 
|                                          |                            |  | IT        |         | Government |  |            |        |       |  |       |        |   |  |   |       | 
|                                          |                            |  | Solutions |         | Services   |  | Consulting |        | Other |  | Total
|                                          |                            |  |           |         |            |  |            |        |       |  |      
|For the three months ended June 30, 2003: |                            |  |           |         |            |  |            |        |       |  |       |        |   |  |   |       |  |  |   |        
|                                          | Revenue                    |  | $         | 287,549 |            |  | $          | 58,357 |       |  | $     | 13,752 |   |  | $ | 383   |  |  | $ | 360,041 | 
|                                          | Income (loss) before taxes |  |           | (969    | )          |  |            | 4,340  |       |  |       | 27     |   |  |   | 4,712 |  |  |   | 8,110   | 
|For the three months ended June 30, 2002: |                            |  |           |         |            |  |            |        |       |  |       |        |   |  |   |       |  |  |   |        
|                                          | Revenue                    |  | $         | 318,004 |            |  |            |       |       |  | $     | 14,871 |   |  | $ | 590   |  |  | $ | 333,465 | 
|                                          | Income (loss) before taxes |  |           | 28,607  |            |  |            |       |       |  |       | 1,649  |   |  |   | 514   |  |  |   | 30,770  | 
|For the six months ended June 30, 2003:   |                            |  |           |         |            |  |            |        |       |  |       |        |   |  |   |       |  |  |   |        
|                                          | Revenue                    |  | $         | 575,495 |            |  | $          | 93,386 |       |  | $     | 26,759 |   |  | $ | 762   |  |  | $ | 696,402 | 
|                                          | Income (loss) before taxes |  |           | 19,225  |            |  |            | 7,066  |       |  |       | (679   | ) |  |   | 6,885 |  |  |   | 32,497  | 
|For the six months ended June 30, 2002:   |                            |  |           |         |            |  |            |        |       |  |       |        |   |  |   |       |  |  |   |        
|                                          | Revenue                    |  | $         | 628,200 |            |  |            |       |       |  | $     | 29,930 |   |  | $ | 1,114 |  |  | $ | 659,244 | 
|                                          | Income (loss) before taxes |  |           | 58,420  |            |  |            |       |       |  |       | 1,134  |   |  |   | 3,317 |  |  |   | 62,871  | 

During the second quarter of 2003, the Company recorded $17,676 of expense in
direct cost of services associated with exiting an under-performing contract,
which is included in the IT Solutions segment. In addition, as discussed below
in Note 8, the Company revised its estimates to complete its previous years
streamlining efforts, resulting in a reduction in selling, general and
administrative expenses of $5,415, which is included in the Other category.

During the second quarter of 2002, the Company recorded $7,289 of revenue
associated with the termination of a certain business relationship, and this
revenue is included in the IT Solutions segment. Because of the nature of this
revenue, the Company has reported the related gross profit of $6,530 in
Other. Also included in Other are a payment received from a customer in
bankruptcy that was previously believed to be unrecoverable, severance and
other costs to exit certain activities, and expenses associated with the
California energy investigations and related litigation.

NOTE 8. REALIGNED OPERATING STRUCTURE

During 2001, the Company realigned its operating structure in order to
strengthen the Companys market position and reduce its costs. This realignment
resulted in charges of $74,690, of which $33,713 was recorded during the first
quarter of 2001 and $40,977 was recorded during the third quarter of 2001. In
2002, the Company continued efforts to streamline its operations and recorded
charges of $8,151 in the second quarter and $2,936 in the third quarter related
to severance and other costs to exit certain activities.

The payments made against these charges during the first six months of 2003 are
as follows:

|                                       |  |          |        |          |  |       |        |   |  |   |        |  
|-------------------------------------- |  | -------- | ------ | -------- |  | ----- | ------ | - |  | - | ------ | -
|                                       |  | Employee |        | Facility |  |       |        |  
|                                       |  | Related  |        | Related  |  |       |        |  
|                                       |  | Costs    |        | Costs    |  | Total
|                                       |  |          |        |          |  |      
|Provision balance at December 31, 2002 |  | $        | 7,629  |          |  | $     | 14,382 |   |  | $ | 22,011 |  
|Less: cash payments                    |  |          | (710   | )        |  |       | (5,518 | ) |  |   | (6,228 | )
|Less: changes in estimate              |  |          | (5,336 | )        |  |       | (79    | ) |  |   | (5,415 | )
|                                       |  |          |        |          |  |       |        |   |  |   |        |  
|Remaining balance at June 30, 2003     |  | $        | 1,583  |          |  | $     | 8,785  |   |  | $ | 10,368 |  
|                                       |  |          |        |          |  |       |        |   |  |   |        |  

During the second quarter of 2003, the Company revised its estimates to
complete its previous years streamlining efforts, resulting in a reduction in
selling, general and administrative expenses and in the related liabilities of
$5,415. A large portion of this reduction resulted from a favorable resolution
of an employment dispute. The remaining balance of $10,368 is included on the
condensed consolidated balance

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

sheets in the amounts of $5,828 in accrued liabilities and $4,540 in other
non-current liabilities and is expected to be settled by the end of 2006.

NOTE 9. INCOME TAXES

During the second quarter of 2002, the Company reduced a deferred tax asset
valuation allowance of $1,565 in connection with the termination of a certain
business relationship. Without the effect of this $1,565 tax benefit, the
effective tax rate for the second quarter of 2002 would have been 39.5%.

NOTE 10. EARNINGS PER SHARE

The following chart is a reconciliation of the numerators and the denominators
of the basic and diluted per share computations.

|                                                                                                  |  |                                     |         |      |  |   |         | 
|------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | ---- |  | - | ------- | 
|                                                                                                  |  | For the three months ended June 30,
|                                                                                                  |  |                                    
|                                                                                                  |  | 2003                                |         | 2002
|                                                                                                  |  |                                     |         |     
|Basic Earnings per Common Share                                                                   |  |                                     |         |      |  |   |         | 
|Income before cumulative effect of a change in accounting principle                               |  | $                                   | 4,946   |      |  | $ | 20,180  | 
|                                                                                                  |  |                                     |         |      |  |   |         | 
|Weighted average common shares outstanding                                                        |  |                                     | 109,808 |      |  |   | 106,050 | 
|                                                                                                  |  |                                     |         |      |  |   |         | 
|Basic earnings per common share before cumulative effect of a
change in accounting principle      |  | $                                   | 0.05    |      |  | $ | 0.19    | 
|                                                                                                  |  |                                     |         |      |  |   |         | 
|Diluted Earnings per Common Share                                                                 |  |                                     |         |      |  |   |         | 
|Income before cumulative effect of a change in accounting principle                               |  | $                                   | 4,946   |      |  | $ | 20,180  | 
|                                                                                                  |  |                                     |         |      |  |   |         | 
|Weighted average common shares outstanding                                                        |  |                                     | 109,808 |      |  |   | 106,050 | 
|Incremental shares assuming dilution                                                              |  |                                     | 4,886   |      |  |   | 10,339  | 
|                                                                                                  |  |                                     |         |      |  |   |         | 
|Weighted average diluted common shares outstanding                                                |  |                                     | 114,694 |      |  |   | 116,389 | 
|Diluted earnings before common share before cumulative effect of a
change in accounting principle |  | $                                   | 0.04    |      |  | $ | 0.17    | 
|                                                                                                  |  |                                     |         |      |  |   |         | 

|                                                                                               |  |                                   |         |      |  |   |         | 
|---------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | ---- |  | - | ------- | 
|                                                                                               |  | For the six months ended June 30,
|                                                                                               |  |                                  
|                                                                                               |  | 2003                              |         | 2002
|                                                                                               |  |                                   |         |     
|Basic Earnings per Common Share                                                                |  |                                   |         |      |  |   |         | 
|Income before cumulative effect of a change in accounting principle                            |  | $                                 | 19,823  |      |  | $ | 39,601  | 
|                                                                                               |  |                                   |         |      |  |   |         | 
|Weighted average common shares outstanding                                                     |  |                                   | 109,429 |      |  |   | 104,652 | 
|                                                                                               |  |                                   |         |      |  |   |         | 
|Basic earnings per common share before cumulative effect of a
change in accounting principle   |  | $                                 | 0.18    |      |  | $ | 0.38    | 
|                                                                                               |  |                                   |         |      |  |   |         | 
|Diluted Earnings per Common Share                                                              |  |                                   |         |      |  |   |         | 
|Income before cumulative effect of a change in accounting principle                            |  | $                                 | 19,823  |      |  | $ | 39,601  | 
|                                                                                               |  |                                   |         |      |  |   |         | 
|Weighted average common shares outstanding                                                     |  |                                   | 109,429 |      |  |   | 104,652 | 
|Incremental shares assuming dilution                                                           |  |                                   | 4,939   |      |  |   | 11,370  | 
|                                                                                               |  |                                   |         |      |  |   |         | 
|Weighted average diluted common shares outstanding                                             |  |                                   | 114,368 |      |  |   | 116,022 | 
|Diluted earnings per common share before cumulative effect of a
change in accounting principle |  | $                                 | 0.17    |      |  | $ | 0.34    | 
|                                                                                               |  |                                   |         |      |  |   |         | 

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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)

For the three and six months ended June 30, 2003, options to purchase 21,039
and 22,748 shares, respectively, of the Companys common stock were excluded
from the calculation of diluted earnings per common share because the impact
was antidilutive given that the exercise prices for these options were higher
than the Companys average stock price for these periods. For the three and
six months ended June 30, 2002, options to purchase 15,332 and 15,011 shares,
respectively, of the Companys common stock were excluded for the same reason
as discussed above.

NOTE 11. CONTINGENCIES

Litigation

The Company is, from time to time, involved in various litigation matters
arising in the ordinary course of its business. The Company believes that the
outcomes of these litigation matters, either individually or taken as a whole,
will not have a material adverse effect on the Companys consolidated financial
condition, results of operations or cash flows.

IPO Allocation Securities Litigation

In July and August 2001, Perot Systems, as well as some of its current and
former officers and the investment banks that underwrote Perot Systems 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 Perot Systems
focuses on alleged improper practices by the investment banks in connection
with Perot Systems 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 Perot Systems shares in aftermarket trading. The lawsuit
also alleges that the Company should have disclosed in its public offering
prospectus the alleged practices of the investment banks, whether or not the
Company was aware that the practices were occurring.

During 2002, the individual Perot Systems defendants were dismissed from the
case. 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 Perot Systems,
but did not dismiss the remaining claims.

The Company has recently decided to accept a settlement proposal presented to
all issuer defendants. Pursuant to the proposed settlement, plaintiffs would
dismiss and release all claims against the Company and its 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
the Company may have against the underwriters. The Company would not be
required to make any cash payment with respect to the settlement. The proposed
settlement requires approval of an unspecified percentage of issuers. The
proposed settlement would also require court approval, which cannot be assured.
In the event that the settlement is not completed, the Company will continue
to vigorously defend itself in this case.

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Litigation Relating to the California Energy Market

In June 2002, the Company was named as a defendant in a purported class action
lawsuit that alleges that it 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.

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 the Companys SEC filings contained material misstatements or
omissions of material facts with respect to Perot Systems activities related
to the California energy market. Two lawsuits, Herbert Condell v. Perot Systems
Corp. et al. and Richard J. Dowling v. Perot Systems Corp. et al., were filed
in the United States District Court for the Southern District of New York.
Four lawsuits, Robert Markewich v. Perot Systems Corp. et al., Vincent Milano
v. Perot Systems Corp. et al., Lori Will v. Perot Systems Corp. et al. and June
Zordich v. Perot Systems Corp. et al., were filed in the United States District
Court for the Northern District of Texas, Dallas Division. Two lawsuits,
Joffre Berger v. Perot Systems Corp. et al., and Daniel Taubenfeld v. Perot
Systems Corp. et al., were filed in the United States District Court for the
Eastern District of Texas, Sherman Division. All of these eight cases have
been consolidated in the Northern District of Texas, Dallas Division.

The Company believes the claims against it are without merit and will
vigorously defend itself in these cases.

Other Contingencies

Contract-Related Contingency

As discussed in note six, during the second quarter of 2003, the Company exited
an under-performing contract that included a software development project in
which the actual development costs were expected to exceed the estimated costs
as stated in the contract. While the contract provides for the Company to
collect most of the excess of the actual cost over the estimate in the
contract, the Company and its client were unable to reach agreement on the
timing and form of payment for the excess.

The Company is providing the services necessary to transition certain functions
back to the client. The Company expects the transition to end in the fourth
quarter of 2003.

As a result of the exiting of this contract, in the second quarter of 2003 the
Company determined that certain contract-related assets were impaired and
additional expenses would be incurred in the future related to exiting this
contract, resulting in a loss of $17,676 recorded in direct cost of services.
This estimated loss represents managements current estimate of the loss
related to exiting this contract. The amount of actual loss with respect to
exiting this contract may differ from the Companys current estimates.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS




ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Change in Accounting Principle for Revenue Arrangements with Multiple Deliverables

We have long-term fixed-price contracts that include multiple deliverables.
Prior to January 1, 2003, we recognized revenue on these contracts under the
percentage-of-completion method using incurred costs as a measure of progress
towards completion. On November 21, 2002, the Financial Accounting Standards
Board Emerging Issues Task Force reached a consensus on Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, regarding
whether an arrangement involving multiple deliverables contains more than one
unit of accounting and how arrangement consideration should be measured and
allocated to the separate units of accounting in an arrangement. We were
required to apply the provisions of EITF 00-21 to all new agreements with
multiple deliverables entered into in fiscal periods beginning after June 15,
2003. Alternatively, we were permitted to apply EITF 00-21 to existing
agreements and record the effect of adoption as the cumulative effect of a
change in accounting principle. On January 1, 2003, we adopted EITF 00-21 and
changed our method of accounting for revenue from agreements with multiple
deliverables for both existing and prospective customer contracts.

Our adoption of EITF 00-21 on January 1, 2003, resulted in an expense for the
cumulative effect of a change in accounting principle of $69.3 million ($43.0
million, net of the applicable income tax benefit), or $0.37 per diluted share,
which includes approximately $19.5 million of expense (approximately $12.1
million, net of the applicable income tax benefit), or $0.11 per diluted share,
to recognize an estimated loss on a contract element included in a contract
that we expected to be profitable in the aggregate over its term. The $69.3
million expense was recorded as a reduction in long-term accrued revenue of
$58.8 million and an increase in accrued liabilities of $10.5 million.

To illustrate the impact of the adoption of EITF 00-21 on our financial results
for 2002, we have shown in the table below the pro forma revenue, gross profit,
gross margin and net income (loss) as if EITF 00-21 had been applied during the
three and six months ended June 30, 2002 (amounts in millions):

|                  |  |                                  |  |                                |  |         |       |          |  |             |       |           |  |   |       |   |  |  |  |  |  |             |       |           |  |   |       |   |  |   |       |  
|----------------- |  | -------------------------------- |  | ------------------------------ |  | ------- | ----- | -------- |  | ----------- | ----- | --------- |  | - | ----- | - |  |  |  |  |  | ----------- | ----- | --------- |  | - | ----- | - |  | - | ----- | -
|                  |  | Three Months Ended June 30, 2002 |  | Six Months Ended June 30, 2002
|                  |  |                                  |  |                               
|                  |  |                                  |  |                                |  |         |       |          |  | Impact from |       | Pro Forma |  |   |       |   |  |  |  |  |  | Impact from |       | Pro Forma
|                  |  | Reported                         |  | EITF 00-21                     |  | Amounts |       | Reported |  | EITF 00-21  |       | Amounts  
|                  |  |                                  |  |                                |  |         |       |          |  |             |       |          
|Revenue           |  |                                  |  |                                |  | $       | 333.5 |          |  | $           | (11.1 | )         |  | $ | 322.4 |   |  |  |  |  |  | $           | 659.2 |           |  | $ | (19.5 | ) |  | $ | 639.7 |  
|Gross profit      |  |                                  |  |                                |  |         | 83.5  |          |  |             | (18.8 | )         |  |   | 64.7  |   |  |  |  |  |  |             | 157.5 |           |  |   | (27.3 | ) |  |   | 130.2 |  
|Gross margin      |  |                                  |  |                                |  |         | 25.0  | %        |  |             |       |           |  |   | 20.1  | % |  |  |  |  |  |             | 23.9  | %         |  |   |       |   |  |   | 20.4  | %
|Net income (loss) |  |                                  |  |                                |  |         | 20.2  |          |  |             | (11.7 | )         |  |   | 8.5   |   |  |  |  |  |  |             | 39.6  |           |  |   | (16.9 | ) |  |   | 22.7  |  

The impact of EITF 00-21 on the three and six months ended June 30, 2002, as
reflected above, was limited to the IT Solutions segment.

Exiting of a Customer Contract

During the three months ended June 30, 2003, we exited an under-performing
contract that included a software development project in which the actual
development costs were expected to exceed the estimated costs as stated in the
contract. While the contract provides for us to collect most of the excess of
the actual cost over the estimate in the contract, we and our client were
unable to reach agreement on the timing and form of payment for the excess. As
a result, we recorded $17.7 million of expense in direct cost of services,
which is composed of the following:

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



| |  | The impairment of assets related to this contract totaling $20.7 million, including the impairment of $14.7 million of
long-term accrued revenue;                                                                    
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The accrual of estimated costs to exit this contract of $3.8 million; and                                                                                                                                            
| 
| |  | Partially offsetting the above expenses was the reversal of $6.8 million in accrued liabilities that had been recognized
for future losses that we expected to incur to complete the application development project.

In the second quarter of 2002, we began to expect that the application
development project would generate a loss. However, we did not recognize a
loss on the contract at that time because we expected that the contract would
be profitable in the aggregate over its term. As part of our adoption of EITF
00-21 in the first quarter of 2003, we separated the deliverables in the
contract into separate units of accounting and recognized an estimated loss on
the application development project totaling approximately $19.5 million
(approximately $12.1 million, net of the applicable income tax benefit), or
$0.11 per diluted share, which was recorded as part of the cumulative effect of
a change in accounting principle. Of the $19.5 million estimate loss:



| |  | $12.7 million is included in the pro forma gross profit for the second
quarter of 2002 ($5.0 million as a reduction of revenue and $7.7
million as an increase in direct cost of services); and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | $14.8 million is included in the pro forma gross profit for the first
six months of 2002 ($7.1 million as a reduction of revenue and $7.7
million as an increase in direct cost of services).  

We are providing the services necessary to transition certain functions back to
the client. We expect the transition to end in the fourth quarter of 2003.

Comparison of the Three Months Ended June 30, 2003 and 2002

Revenue

Revenue for the second quarter of 2003 increased by $26.5 million, or 7.9%, to
$360.0 million from revenue of $333.5 million in the second quarter of 2002. As
noted above, we adopted EITF 00-21 effective January 1, 2003, which adjusted
revenue recognized on existing contracts based on the new criteria of EITF
00-21 regarding whether an arrangement involving multiple deliverables contains
more than one unit of accounting and how arrangement consideration should be
measured and allocated to the separate units of accounting in an arrangement.
The effect from this change in accounting is reflected above in the
presentation of pro forma amounts for revenue, gross profit, gross margin and
net income (loss) for the three months ended June 30, 2002. The following
comparison of second quarter 2003 to second quarter 2002 was prepared using pro
forma amounts for second quarter 2002.

Revenue for the second quarter of 2003 increased by $37.6 million, or 11.7%,
compared to pro forma second quarter 2002 revenue of $322.4 million. This
increase in revenue is due to an increase in revenue from the Government
Services segment, partially offset by decreases in revenue from the IT
Solutions and Consulting segments.

In July 2002, we acquired ADI Technology Corporation and formed our Government
Services segment. In February 2003, we acquired Soza & Company, Ltd., which
became part of our Government Services segment. Revenue from Government
Services was $58.4 million for the second quarter of 2003.

Revenue from the IT Solutions segment decreased $19.4 million, or 6.3%, to
$287.5 million in the second quarter of 2003 from pro forma revenue of $306.9
million in the second quarter of 2002. This decrease was primarily
attributable to:
Page 15Table of Contents

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



| |  | a $15.5 million decrease from existing accounts, short-term offerings, and project work that is provided to customers
within our long-term account base. Within our long-term client contracts we typically perform services above our base
level of services. Given the discretionary nature of these additional services, the amount of these services that we
provide to our customers may fluctuate from period to period depending on many factors, including economic conditions and
specific client needs;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a $17.9 million decrease in revenue as a result of exiting certain business relationships and under-performing delivery
units during 2002, including two joint ventures; and                                                                                                                                                                                                                                                                                                                                     
| 
| |  | a $4.5 million decrease from UBS to $59.9 million in 2003 from $64.4 million in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                            

These decreases in revenue were partially offset by an $18.5 million increase
in revenue from contracts signed since the second quarter of 2002 with new
customers.

Revenue from the Consulting segment decreased 8.1% to $13.7 million in the
second quarter of 2003 from $14.9 million in the second quarter of 2002 due
primarily to the weak demand for custom application solutions and package
implementation services.

Gross Margin

Gross margin for the second quarter of 2003 of 14.7% of revenue was lower than
the gross margin for the second quarter of 2002 of 25.0% and is lower than the
pro forma gross margin for the second quarter of 2002 of 20.1%. The following
items are important in understanding the decrease in gross margin as compared
to the pro forma gross margin for 2002:



| |  | In the second quarter of 2002, we recorded revenue of $7.3 million and
direct cost of services of $0.8 million, resulting in gross profit of
$6.5 million, associated with the termination of a certain business
relationship;                                                                                               
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In the second quarter of 2002, we received a $3.0 million payment from
a customer in bankruptcy reorganization that was previously believed
to be unrecoverable;                                                                                                                                                             
| 
| |  | As discussed above in Exiting of a Customer Contract, the pro forma
gross profit for the second quarter of 2002 includes a reduction of
$12.7 million associated with the adoption of EITF 00-21 for this
contract ($5.0 million as a reduction of revenue and $7.7 million as
an increase in direct cost of services); and
| 
| |  | As discussed above in Exiting of a Customer Contract, in the second
quarter of 2003 we recorded $17.7 million of expense in direct cost of
services associated with the exiting of this contract.                                                                                                                          

Without the effects of these items, gross margin for the second quarter of 2003
would have decreased to 19.6% of revenue from a gross margin of 21.2% in the
second quarter of 2002 (calculated by adjusting the pro forma gross margin of
20.1% for the second quarter of 2002 for the 2002 items discussed above). The
year over year decline in gross margin is primarily due to lower demand for
short-term services, lower gross margins from contracts signed since the second
quarter of 2002 with new customers, and lower profit margins from our
Government Services segment.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses for the second quarter of 2003
decreased 14.4% to $47.0 million from $54.9 million for the second quarter of
2002. SG&A for the second quarter of 2003 was 13.1% of revenue, which is lower
than SG&A for the second quarter of 2002 of 17.0% of pro forma revenue. In our
analysis of SG&A for the second quarters of 2003 and 2002, we identified the
following items that are important in understanding this change:
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



| |  | During the second quarter of 2002, we recorded $8.1 million of expense
in SG&A associated with the elimination of approximately 235 positions
and the exiting of certain business operations and $3.5 million of
expense associated with our response to investigations of the
California energy crisis; and                                                                                                                                                                
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | During the second quarter of 2003, we recorded $3.3 million of expense
in SG&A related to severance and other costs to eliminate
approximately 150 positions in various business functions and
geographic areas. In addition, we recorded a reduction of expense of
$5.4 million resulting from revising our estimate of liabilities
associated with actions in previous years to streamline our
operations, which included a favorable resolution of an employment
dispute.

Without the effects of these items, SG&A would have increased by $5.8 million,
or 13.4%, to $49.1 million for the second quarter of 2003 from $43.3 million
for the second quarter of 2002. As a percentage of revenue, SG&A would have
increased to 13.6% of revenue for the second quarter of 2003 from 13.4% of pro
forma revenue for the prior year period. This increase is due primarily to
additional SG&A expenses associated with our recently formed Government
Services segment as well as an increase in expense associated with upgrading
our corporate information technology systems.

Other Statement of Operations Items

Equity in earnings of unconsolidated affiliates, which represents our share of
the earnings of HCL Perot Systems N.V. (HPS), a software joint venture based in
India, was $1.5 million in the three months ended June 30, 2003, compared to
$2.0 million in the same period of 2002.

The effective tax rate for income before the cumulative effect of a change in
accounting principle in the second quarter of 2003 was 39.0%. During the
second quarter of 2002, we reduced a deferred tax asset valuation allowance of
$1.6 million in connection with the termination of a certain business
relationship. Without the effect of this $1.6 million tax benefit, the
effective tax rate for the second quarter of 2002 would have been 39.5%.

Comparison of the Six Months Ended June 30, 2003 and 2002

Revenue

Revenue for the six months ended June 30, 2003, increased by $37.2 million, or
5.6%, to $696.4 million from revenue of $659.2 million for the six months ended
June 30, 2002. As noted above, we adopted EITF 00-21 effective January 1, 2003,
which adjusted revenue recognized on existing contracts based on the new
criteria of EITF 00-21 regarding whether an arrangement involving multiple
deliverables contains more than one unit of accounting and how arrangement
consideration should be measured and allocated to the separate units of
accounting in an arrangement. The effect from this change in accounting is
reflected above in the presentation of pro forma amounts for revenue, gross
profit, gross margin and net income (loss) for the six months ended June 30,
2002. The following comparison of the first six months of 2003 to the first six
months of 2002 was prepared using pro forma amounts for the first six months of
2002.

Revenue for the first six months of 2003 increased by $56.7 million, or 8.9%,
compared to pro forma revenue for the first six months of 2002 of $639.7
million.

In July 2002, we acquired ADI Technology Corporation and formed our Government
Services segment. In February 2003, we acquired Soza & Company, Ltd. Revenue
from this segment was $93.4 million for the first six months of 2003.

Revenue from the IT Solutions segment decreased $33.3 million, or 5.5%, to
$575.4 million for the first six months of 2003 from pro forma revenue of
$608.7 million in the same period of 2002. This decrease was primarily
attributable to:
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



| |  | A $23.3 million decrease from existing accounts, short-term offerings, and project work that is provided to customers
within our long-term account base. Within our long-term client contracts we typically perform services above our base
level of services. Given the discretionary nature of these additional services, the amount of these services that we
provide to our customers may fluctuate from period to period depending on many factors, including economic conditions and
specific client needs;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | A $30.7 million decrease in revenue as a result of exiting certain business relationships and under-performing delivery
units during 2002, including two joint ventures; and                                                                                                                                                                                                                                                                                                                                     
| 
| |  | An $8.7 million decrease from UBS to $118.8 million in 2003 from $127.5 million in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                         

These decreases in revenue were partially offset by a $29.4 million increase in
revenue from contracts signed since the second quarter of 2002 with new
customers.

Revenue from the Consulting segment decreased 10.7% to $26.7 million in the
first six months of 2003 from $29.9 million in the same period of 2002 due
primarily to the weak demand for custom application solutions and package
implementation services.

Gross Margin

Gross margin for the six months ended June 30, 2003, was 16.8% of revenue, was
lower than the gross margin for the six months ended June 30, 2002, of 23.9%
and is lower than the pro forma gross margin for the six months ended June 30,
2002, of 20.4%. The following items are important in understanding the
decrease in gross margin as compared to the pro forma gross margin for 2002:



| |  | In the first six months of 2002, we recorded revenue of $7.3 million
and direct cost of services of $0.8 million, resulting in gross profit
of $6.5 million, associated with the termination of a certain business
relationship;                                                                                               
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In the first six months of 2002, we received a $3.0 million payment
from a customer in bankruptcy reorganization that was previously
believed to be unrecoverable; and                                                                                                                                                         
| 
| |  | As discussed above in Exiting of a Customer Contract, the pro forma
gross profit for the first six months of 2002 includes a reduction of
$14.8 million associated with the adoption of EITF 00-21 for this
contract ($7.1 million as a reduction of revenue and $7.7 million as
an increase in direct cost of services); and
| 
| |  | As discussed above in Exiting of a Customer Contract, in the first
six months of 2003 we recorded $17.7 million of expense in direct cost
of services associated with the exiting of this contract.                                                                                                                          

Without the effects of these items, gross margin for the first six months of
2003 would have decreased to 19.4% of revenue from a gross margin of 21.2% in
the same period of 2002 (calculated by adjusting the pro forma gross margin of
20.4% for the first six months of 2002 for the 2002 items discussed above).
The year over year decline in gross margin is primarily due to lower demand for
short-term services, lower gross margins from contracts signed since the second
quarter of 2002 with new customers, lower profit margins from our Government
Services segment, and $3.0 million of expense associated with unfulfilled
minimum purchase commitments.

Selling, General, and Administrative Expenses

SG&A for the six months ended June 30, 2003, decreased 9.6% to $90.4 million
from $100.0 million for the same period of 2002. SG&A for the first six months
of 2003 was 13.0% of revenue, which is lower than SG&A for the same period of
2002 of 15.6% of pro forma revenue. In our analysis of SG&A for the first
Page 18Table of Contents

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

six months of 2003 and 2002, we identified the following items that are
important in understanding this change:



| |  | During the first six months of 2002, we recorded $8.1 million of
expense in SG&A associated with the elimination of approximately 235
positions and the exiting of certain business operations and $3.5
million of expense associated with our response to investigations of
the California energy crisis; and                                                                                                                                                             
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | During the first six months of 2003, we recorded $3.3 million of
expense in SG&A related to severance and other costs to eliminate
approximately 150 positions in various business functions and
geographic areas. In addition, we recorded a reduction of expense of
$5.4 million resulting from revising our estimate of liabilities
associated with actions in prior years to streamline our operations,
which included a favorable resolution of an employment dispute.

Without the effects of these items, SG&A would have increased by $4.1 million,
or 4.6%, to $92.5 million for the first six months of 2003 from $88.4 million
for the same period of 2002. As a percentage of revenue, SG&A would have
decreased to 13.3% of revenue for the first six months of 2003 from 13.8% of
pro forma revenue for the prior year period. This decrease is due primarily to
our efforts to reduce SG&A costs. Partially offsetting these expense
reductions are an increase in SG&A expenses associated with our recently
formed Government Services segment.

Other Statement of Operations Items

Equity in earnings of unconsolidated affiliates, comprised of equity in
earnings from HPS, was $3.0 million in the six months ended June 30, 2003,
compared to $3.9 million in the same period of 2002.

The effective tax rate for income before the cumulative effect of a change in
accounting principle for the six months ended June 30, 2003, was 39.0%. During
the first six months of 2002, we reduced a deferred tax asset valuation
allowance of $1.6 million in connection with the termination of a certain
business relationship. Without the effect of this $1.6 million tax benefit, the
effective tax rate for the first six months of 2002 would have been 39.5%.

Business Outlook

The following statements regarding our business outlook are based on current
expectations. These statements are forward-looking and actual results may
differ materially. In formulating this outlook, we considered recent and
potential sales, acquisitions and current market conditions.

For the third quarter of 2003, we expect revenue to range from $360.0 million
to $375.0 million, representing an increase of between 5.1% and 9.5% as
compared to the third quarter of 2002. Comparing revenue for the second
quarter of 2003 to our expected revenue for the third quarter of 2003:



| |  | New customer contracts are expected to add between $10.0 million and
$15.0 million of additional revenue, and
|- |  | -------------------------------------------------------------------------------------------------------------
| 
| |  | Potential revenue declines within our long-term account base of
approximately $5.0 million may occur.        

For the third quarter of 2003, diluted earnings per share is expected to range
from $0.10 to $0.13. As discussed below in Accounting Standards Issued,
effective July 1, 2003, we will adopt FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46), which requires us to
consolidate a variable interest entity with which we have an operating lease
contract for the use of land and our headquarters office buildings in Plano,
Texas, including a data center facility. FIN 46 may be applied prospectively
with a cumulative-effect adjustment as of the date on which it is first applied
or by restating previously issued financial statements for one or more years
with a cumulative-effect adjustment as of the beginning of the first year
restated. We have not yet determined whether to restate any previously issued
Page 19Table of Contents

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

financial statements in connection with the adoption of FIN 46. If we elect to
apply FIN 46 on a prospective basis, we would record a cumulative effect of a
change in accounting principle of approximately $8.7 million (approximately
$5.4 million, net of the applicable income tax benefit) in the third quarter of
2003, representing primarily the cumulative depreciation expense on the
buildings, improvements and equipment through June 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 2003, cash and cash equivalents decreased
41.6% to $124.3 million from $212.9 million at December 31, 2002.

Net cash provided by operating activities was $8.3 million for the six months
ended June 30, 2003, compared to net cash provided by operating activities of
$6.1 million for the six months ended June 30, 2002. The primary reason for
the increase in cash provided by operations is a $10.5 million change in the
net cash paid for income taxes, with net refunds of $3.7 million in 2003
compared to net payments of $6.8 million in 2002. Additionally, year-end
bonuses paid to associates in 2003 decreased as compared to 2002 by
approximately $9.3 million. These improvements in operating cash flows were
partially offset by increases in accounts receivable and prepaid expenses and a
decrease in income before the cumulative effect of a change in accounting
principle for the six months ended June 30, 2003, as compared to the six months
ended June 30, 2002.

Net cash used in investing activities increased to $104.0 million for the six
months ended June 30, 2003, from $76.9 million for the same period in 2002.
This increase was due primarily to a $26.0 million increase in the amount of
net cash paid for acquisitions of businesses.



| |  | During the first six months of 2002, we paid $49.6 million net cash
for the acquisition of Claim Services Resource Group, Inc. and $10.0
million as additional consideration related to the acquisition of ARS.          
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | During the first six months of 2003, we paid $72.8 million net cash
for the acquisition of Soza, and $10.0 million and $3.0 million as
additional consideration related to the acquisitions of ARS and ADI,
respectively.

For the six months ended June 30, 2003, net cash provided by financing
activities decreased to $3.3 million from $13.6 million for the six months
ended June 30, 2002. This decrease is due primarily to a decrease in the
exercise of options to purchase Class A Common Stock and Class B Common Stock
during the first six months of 2003 from the same period in 2002. This
decrease was partially offset by a decrease in the number of shares of our
Class A Common Stock that we repurchased in the first six months of 2003 as
compared to the first six months of 2002.

We have no committed line of credit or other borrowings and anticipate that
existing cash and cash equivalents and expected net cash flows from operating
activities will provide sufficient funds to meet our operating needs for the
foreseeable future. We are currently considering obtaining a line of credit,
or an alternative form of financing, which we may need if we make additional
acquisitions using cash. As discussed below, upon adoption of FIN 46 we will
increase our long-term debt by approximately $75.5 million.

We have had discussions with the other shareholder of HPS regarding the
potential purchase from it of its equity ownership in HPS or the potential sale
to it of our equity ownership in HPS. The completion of such a transaction
would have a significant impact on our cash balance.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Contract-Related Contingency

As discussed above, during the second quarter of 2003 we exited an
under-performing contract. We expected this contract to be profitable in the
aggregate over its term, but the contract included an application development
element that was expected to generate a loss for its remaining term and was
negatively impacting our cash flow. As previously disclosed in our 2002 Form
10-K, the cost of this application development element was expected to exceed
the original estimate stated in the contract. While the contract provides for
us to collect most of the excess of the actual cost over the original estimate,
we were unable to reach agreement with the client on the timing and form of
payment for the excess. We are providing the services necessary to transition
certain functions back to the client, which are expected to end in the fourth
quarter of 2003.

As a result of the exiting of this contract, in the second quarter of 2003 we
determined that certain contract-related assets were impaired and additional
expenses would be incurred in the future related to the exiting of this
contract, resulting in a loss of $17.7 million recorded in direct cost of
services. This estimated loss represents our current estimate of the loss
related to exiting this contract. The amount of actual loss with respect to
exiting this contract may exceed our current estimates.

Accounting Standards Issued

Financial Accounting Standards Board Interpretation No. 46

In January 2003, the FASB issued FIN 46, an interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, which changes
the criteria for consolidation by business enterprises of variable interest
entities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003,
and apply in the first fiscal period beginning after June 15, 2003, for
variable interest entities created prior to February 1, 2003. FIN 46 may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated.

We have an operating lease contract with a variable interest entity (also
called a special purpose entity) for the use of land and office buildings in
Plano, Texas, including a data center facility. We currently do not
consolidate this entity. However, we will be required to consolidate this
entity beginning in the third quarter of 2003. Upon consolidation of this
entity, we will increase our assets and long-term debt by approximately $66.3
million and $75.5 million, respectively, and begin recording additional
depreciation expense of approximately $3.2 million per year. The assets will be
recorded as land, buildings, improvements and equipment.

We have not yet determined whether to restate any previously issued financial
statements in connection with the adoption of FIN 46. If we elect to apply FIN
46 on a prospective basis, we would record a cumulative effect of a change in
accounting principle of approximately $8.7 million (approximately $5.4 million,
net of the applicable income tax benefit) in the third quarter of 2003,
representing primarily the cumulative depreciation expense on the buildings,
improvements and equipment through June 30, 2003.

FORWARD-LOOKING STATEMENTS

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, forecasts, expects, plans, anticipates, believes,
estimates, predicts, potential, or continue or the negative of such
terms and other comparable terminology.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

These statements are only predictions. Actual events or results may differ
materially. 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: risks
associated with negotiating and exiting contractual relationships; risks
associated with expanding earnings from new sales; as well as other risks,
including the loss of major clients; deterioration of project and
consulting-based revenue and profit; our ability to achieve future sales;
changes in our UBS relationship and variability of revenue and expense
associated with our largest customer, as well as other clients; risks
associated with the Health Insurance Portability and Accountability Act
(HIPAA), including the risk that timing of software releases and patches for
our software products and products provided by third parties may result in
client testing that is not complete at the effective date of HIPAA regulations,
the risk that additional releases or patches may be required after the
effective date and the risk that our claims processing operations may be
subject to significantly higher volumes of claims that require manual
processing due to the submission by healthcare providers of non-HIPAA compliant
claims; risks associated with the portion of client revenue and profits
representing spending above contractual minimums, which could be deemed as
discretionary by clients and result in lower revenue and earnings for us with
limited notice; the current and future performance of client contracts; risks
associated with non-recoverable cost overruns on software development
contracts; risks associated with the development of software products,
including the risk that capitalized costs of development may not be fully
recovered if the market for our products or the ability of our products to
capture a portion of the market differs materially from our estimates, the risk
that the cost of product development differs materially from our estimates, and
the risk that a delay in product introduction may reduce the portion of the
market captured by our product; growing start-up businesses; the highly
competitive market in which we operate; the variability of quarterly operating
results; the reliance on estimates that involve successful completion of future
actions; guaranteed purchase agreements; changes in technology; changes to
accounting methods; risks associated with developing software for client use
and for resale purposes; risks associated with acquisitions and divestitures,
and risks related to international operations. Please refer to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2002, 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 revise any forward-looking statements whether as a result of new
information, future developments, or otherwise.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2003




ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of our market-risk associated with foreign currencies as of
December 31, 2002, 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 six months ended June 30, 2003, there has been
no significant 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 has materially affected, or is
reasonably likely to materially affect, internal control over financial
reporting.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2003




PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

We are, from time to time, involved in various litigation matters arising in
the ordinary course of our business. We believe that the outcomes of these
litigation matters, either individually or taken as a whole, will not have a
material adverse effect on our consolidated financial condition, results of
operations or cash flows.

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 Perot Systems 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.

During 2002, the individual Perot Systems defendants were dismissed from the
case. 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 defendants motion to dismiss,
the court dismissed the plaintiffs Rule 10b-5 claims against us, but did not
dismiss the remaining claims.

We recently decided to accept 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 proposed settlement requires
approval of an unspecified percentage of issuers. The proposed settlement would
also require court approval, which cannot be assured. In the event that the
settlement is not completed, we will continue to vigorously defend ourselves in
this case.

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.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2003

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 SEC filings contained material misstatements or omissions
of material facts with respect to our activities related to the California
energy market. Two lawsuits, Herbert Condell v. Perot Systems Corp. et al. and
Richard J. Dowling v. Perot Systems Corp. et al., were filed in the United
States District Court for the Southern District of New York. Four lawsuits,
Robert Markewich v. Perot Systems Corp. et al., Vincent Milano v. Perot Systems
Corp. et al., Lori Will v. Perot Systems Corp. et al. and June Zordich v. Perot
Systems Corp. et al., were filed in the United States District Court for the
Northern District of Texas, Dallas Division. Two lawsuits, Joffre Berger v.
Perot Systems Corp. et al., and Daniel Taubenfeld v. Perot Systems Corp. et
al., were filed in the United States District Court for the Eastern District of
Texas, Sherman Division. All of these eight cases have been consolidated in
the Northern District of Texas, Dallas Division.

We believe the claims against us are without merit and will vigorously defend
ourselves in these cases.




ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held an annual meeting of our shareholders on May 7, 2003. The purpose of
the meeting was to elect eight nominees to serve as our directors. The number
of shares voted with respect to each nominee was as follows:

|                    |  |     |            |          |  |  |           | 
|------------------- |  | --- | ---------- | -------- |  |  | --------- | 
|Nominee             |  | For |            | Withheld
|                    |  |     |            |         
|Ross Perot          |  |     | 94,589,148 |          |  |  | 4,228,640 | 
|Ross Perot, Jr      |  |     | 94,527,885 |          |  |  | 4,289,903 | 
|Steven Blasnik      |  |     | 98,184,750 |          |  |  | 633,038   | 
|James Champy        |  |     | 95,070,261 |          |  |  | 3,747,527 | 
|John S.T. Gallagher |  |     | 92,767,359 |          |  |  | 6,050,429 | 
|William K. Gayden   |  |     | 92,764,701 |          |  |  | 6,053,087 | 
|Carl Hahn           |  |     | 92,761,864 |          |  |  | 6,055,924 | 
|Thomas Meurer       |  |     | 97,575,208 |          |  |  | 1,242,580 | 

All of the nominees were elected to the Board of Directors. At the time of the
shareholders meeting, these directors constituted our entire Board of
Directors.

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2003




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits required by Item 601 of Regulation S-K
| | --- |  | -----------------------------------------------

|            |  |          |  |                                                                                                                  
|----------- |  | -------- |  | -----------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Document
|            |  |         
|            |  | 31.1*    |  | Rule 13a-14 Certification dated August 14,
2003, by Ross Perot, Jr., President and Chief Executive
Officer.      
|            |  |          |  |                                                                                                                  
|            |  | 31.2*    |  | Rule 13a-14 Certification dated August 14,
2003, by Russell Freeman, Vice President and Chief Financial
Officer. 
|            |  |          |  |                                                                                                                  
|            |  | 32.1**   |  | Section 1350 Certification dated August 14, 2003, by Ross
Perot, Jr., President and Chief Executive Officer.     
|            |  |          |  |                                                                                                                  
|            |  | 32.2**   |  | Section 1350 Certification dated August 14, 2003, by
Russell Freeman, Vice President and Chief Financial Officer.



| | (b) |  | Reports on Form 8-K                                                                                                                        
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On May 2, 2003, the Company filed a Current Report on Form 8-K to
report a press release. The matter was reported under Item 7 of
Form 8-K.
|
| | *   |  | Filed herewith.                                                                                                                            
|
| | **  |  | Furnished herewith.                                                                                                                        

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##### Table of Contents



PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2003




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: August 14, 2003 |  | By /s/ ROBERT J. KELLY            
|                      |  |                                   
|                      |  | Robert J. Kelly                   
|                      |  | Corporate Controller and Principal
|                      |  | Accounting Officer                

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##### Table of Contents






Index to Exhibits



|            |  |             |  |                                                                                                                  
|----------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description
|            |  |            
|            |  | 31.1*       |  | Rule 13a-14 Certification dated August 14,
2003, by Ross Perot, Jr., President and Chief Executive
Officer.      
|            |  |             |  |                                                                                                                  
|            |  | 31.2*       |  | Rule 13a-14 Certification dated August 14,
2003, by Russell Freeman, Vice President and Chief Financial
Officer. 
|            |  |             |  |                                                                                                                  
|            |  | 32.1**      |  | Section 1350 Certification dated August 14, 2003, by Ross
Perot, Jr., President and Chief Executive Officer.     
|            |  |             |  |                                                                                                                  
|            |  | 32.2**      |  | Section 1350 Certification dated August 14, 2003, by
Russell Freeman, Vice President and Chief Financial Officer.



| | *  |  | Filed herewith.    
| | -- |  | -------------------
|
| | ** |  | Furnished herewith.