PEROT SYSTEMS CORP - 10-Q Quarterly Report

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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 September 30, 2002

or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from to

Commission File Number 0-22495

PEROT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 75-2230700
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

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 [ ]No

Number of shares of registrant's common stock outstanding as of October 31,
2002: 108,378,147.

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2002

INDEX

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
(UNAUDITED)

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

Page 1

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(SHARES AND DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

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

Page 2

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(DOLLARS IN THOUSANDS)
(UNAUDITED)

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

Page 3

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, which are of a normal recurring nature and
necessary for a fair presentation, have been included for the interim periods
presented. 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, 2001, as filed in
the Company's Annual Report on Form 10-K. Operating results for the three and
nine month periods ended September 30, 2002, are not necessarily indicative of
the results for the year ending December 31, 2002.

Certain of the 2001 amounts in the accompanying financial statements have been
reclassified to conform to the current presentation.

Financial Accounting Standards 146

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Board No. ("FAS") 146, "Accounting for Costs
Associated with Exit or Disposal Activities." FAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This statement supersedes Financial Accounting Standards Board Emerging Issues
Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." The Company is
required to adopt FAS 146 no later than January 1, 2003. The Company does not
believe that the adoption of FAS 146 will have a material impact on its
consolidated financial statements.

Pending Issuance of Financial Accounting Standards Board Emerging Issues Task
Force Issue 00-21

The Company has long-term fixed-price contracts that include certain
deliverables that would fall under the scope of AICPA Statement of Position No.
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" ("SOP 81-1"), and certain ongoing service elements.
The Company recognizes revenue on these contracts under the
percentage-of-completion method using incurred costs as a measure of progress
towards completion. On October 25, 2002, the EITF reached a tentative conclusion
on EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21") (which has not yet been finalized), regarding when
and how to separate elements of a contract into separate units of accounting. On
November 8, 2002, the EITF released for comment a proposed draft abstract of
EITF 00-21 that the EITF intends to ratify at its November 21, 2002, meeting.
The proposed draft abstract, if ratified, will require the Company to adopt EITF
00-21 for all new revenue arrangements entered into in fiscal years beginning
after December 15, 2002, but alternatively will allow the Company to apply EITF
00-21 to existing contracts and record the effect of adoption as the cumulative
effect of a change in accounting principle. If the Company were to apply the
tentative conclusions of EITF 00-21 and utilize a straight-line revenue
recognition method for the service-related elements of its existing
multi-element arrangements, and if the Company chooses to elect the cumulative
effect transition option of EITF 00-21, the Company would record adjustments to
reduce earnings per share through December 31, 2002, by an amount currently
estimated to range from $0.25 to $0.35. These adjustments would relate primarily
to the Company's financial results since the second quarter of 2001 and would
include a charge of between $0.05 and $0.10 per share to recognize a loss on a
contract element included in an otherwise profitable contract. In addition, the
Company expects, based on current estimates of revenues and costs on its
existing long-term fixed-price contracts, that the change to the new accounting
method for those existing contracts would reduce earnings per share in 2003 by
approximately $0.06 per share and would have an immaterial impact on 2004.

Page 4

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

NOTE 2. ACQUISITIONS

ADI Technology Corporation

On July 1, 2002, the Company acquired ADI Technology Corporation ("ADI"), a
professional services company that provides technical, information, and
management disciplines to the defense, intelligence and law enforcement
communities. As a result of the acquisition, the Company expanded into a
Government Services segment. The purchase price includes $37,765 in cash ($4,186
of which is being held in escrow during a contractual purchase price adjustment
period) and may include additional payments totaling up to $15,000 in cash or
stock over the next two and one-half years. The possible future payments are
contingent on ADI achieving certain financial targets over the same period, and
at the Company's discretion, up to 60% of these payments may be settled in Class
A Common Stock of the Company, valued at the date of settlement. The results of
operations of ADI and the estimated fair value of assets acquired and
liabilities assumed are included in the Company's 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 a
tangible asset appraisal; however, the estimated excess purchase price (in the
amount of $26,899) was recorded as Goodwill, net, on the condensed consolidated
balance sheets, was assigned to the Government Services segment, and is not
deductible for tax purposes.

Claim Services Resource Group, Inc.

On January 1, 2002, the Company acquired all of the outstanding shares of Claim
Services Resource Group, Inc. ("CSRG"), a company that provides claims
processing and related services to the health insurance and managed care
customers in the healthcare industry. As a result of the acquisition, the
Company expanded its business process capabilities available to its customers.
Total consideration included $49,601 in cash (net of $10,328 of cash acquired)
and $3,131 in the form of 154 shares of the Company's Class A Common Stock and
was based on the estimated enterprise value of the acquired corporation. The
results of operations of CSRG and the estimated fair value of assets acquired
and liabilities assumed are included in the Company's consolidated financial
statements beginning on the acquisition date. The excess of the purchase price
over the net assets acquired (in the amount of $52,289) was recorded as
Goodwill, net, on the condensed consolidated balance sheets, was assigned to the
IT Solutions segment, and is not deductible for tax purposes. The purchase price
may be adjusted within an ongoing contractual adjustment period.

Advanced Receivables Strategy, Inc.

The Company acquired Advanced Receivables Strategy, Inc. ("ARS") in July 2001.
At December 31, 2001, the Company accrued $20,000 for an additional
consideration payment as a result of ARS achieving a certain financial
performance target in 2001. This consideration was paid in the first quarter of
2002 in the form of $10,000 in cash and $10,756 in 549 shares of the Company's
Class A Common Stock, and resulted in additional goodwill of $20,000 recorded in
2001 and $756 recorded in 2002, all of which was allocated to the IT Solutions
segment. Additional consideration totaling up to $30,000 may be paid over the
next three years and is contingent on ARS achieving certain financial targets
over the same period. At the Company's discretion, up to 50% of these potential
payments may be settled in Class A Common Stock of the Company, valued at the
date of settlement.

NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective July 1, 2001, the Company adopted certain provisions of FAS 141,
"Business Combinations," and effective January 1, 2002, the Company adopted the
full provisions of FAS 141 and FAS 142, "Goodwill and Other Intangible Assets."
FAS 141 requires business combinations initiated after June 30, 2001, to be
accounted for using the purchase method of accounting and broadens the criteria
for recording intangible assets other than goodwill. The Company evaluated its
goodwill and intangibles acquired prior to June 30,

Page 5

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

2001, using the criteria of FAS 141, which resulted in $4,665 (net of related
deferred tax liability) of assembled workforce intangibles being reclassified
into goodwill at January 1, 2002. FAS 142 requires that purchased goodwill and
certain indefinite-lived intangibles no longer be amortized, but instead be
tested for impairment at least annually. This testing requires the comparison of
carrying values to fair value and, when appropriate, requires the reduction of
the carrying value of impaired assets to their fair value.

The transitional impairment analysis required upon adoption of FAS 142 was
completed during the first quarter of 2002, and the annual goodwill impairment
analysis was completed during the third quarter of 2002. In both impairment
analyses, the Company determined that there was no impairment of the carrying
value of goodwill. Additionally, the Company evaluated its intangible assets and
determined that all such assets have determinable lives.

The following tables provide comparative net income (loss) and earnings (loss)
per common share had the non-amortization provision of FAS 142 been adopted for
all periods presented:

The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002, by reporting segment are as follows:

Page 6

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 September 30, 2002, are recorded in Other
non-current assets in the condensed consolidated balance sheets and are
comprised of:

Total amortization expense for identifiable intangible assets was $629 and
$1,634 for the quarter and nine months ended September 30, 2002, respectively,
and $682 and $1,634 for the quarter and nine months ended September 30, 2001,
respectively. Amortization expense is estimated at $2,340, $2,446, $1,989,
$1,570, $907 and $486 for the years ended December 31, 2002 through 2007,
respectively. Identifiable intangible assets will be amortized over a weighted
average of approximately seven years.

NOTE 4. ACCRUED LIABILITIES

At December 31, 2001, the Company had recorded $4,200 for contract-related
expenses associated with the bankruptcy of a customer as certain amounts were
believed to be unrecoverable. During the second quarter of 2002, the Company
received a payment for $3,000 of these contract-related expenses, which was
recorded as a reduction of Direct cost of services in the second quarter of
2002.

NOTE 5. COMPREHENSIVE INCOME (LOSS)

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

NOTE 6. STOCKHOLDERS' EQUITY

The components of "Other stockholders' equity" were as follows:

Additional paid-in capital increased by $52,793 during the nine months ended
September 30, 2002, due primarily to the issuance of the Company's Class A and
Class B Common Stock for the exercise of options in the amount of $6,533 and
$8,099, respectively, and the related $21,304 tax benefit. The majority of the

Page 7

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

remaining increase related to the issuance of $13,872 of Class A Common Stock
for the purchases of ARS and CSRG.

At September 30, 2002, there were 104,815 shares of the Company's Class A Common
Stock and 2,225 shares of the Company's Class B Common Stock outstanding. At
December 31, 2001, there were 100,085 shares of the Company's Class A Common
Stock and 1,784 shares of the Company's Class B Common Stock outstanding. The
increase in the Company's Class A Common Stock is primarily due to the exercise
of stock options to purchase 2,573 shares, the conversion of 1,784 shares of
Class B Common Stock to Class A Common Stock, and the issuance of 703 shares for
two acquisitions. These issuances were partly offset by the repurchase of 639
shares during the period. In April of 2002, the Company issued 2,225 shares of
Class B Common Stock upon the exercise of options.

NOTE 7. TERMINATION OF BUSINESS RELATIONSHIPS

During the quarter ended June 30, 2002, the Company terminated an application
development joint venture. 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.

During the quarter ended September 30, 2002, the Company exited a technology
infrastructure services joint venture. As a result, the Company received a
payment of $7,267 and incurred expenses of $89 that were recorded in Revenue and
Direct costs of services, respectively.

NOTE 8. REALIGNED OPERATING STRUCTURE

During 2001, the Company began to realign its operating structure and recorded
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 the second and third quarters of 2002, the Company continued these efforts
and recorded in Selling, general and administrative expenses ("SG&A") charges of
$8,151 and $2,936, respectively, related to severance and other costs to exit
certain activities. These charges included the following: $9,821 related to the
elimination of approximately 287 positions in various business functions and
geographic areas of the Company; $312 for the closure of a facility; and $954
related to adjustments to reduce the basis of certain facility related assets
and the basis of software and other assets used in exited service offerings to
their net realizable value.

The amounts accrued and the related payments and adjustments against these 2002
and 2001 charges were as follows:

Page 8

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

During the second quarter of 2002, the Company revised its estimates of the
remaining provision needed for employee-related and facility-related costs. The
Company decreased its estimates for employee-related costs primarily due to
lower than expected outplacement and other severance related costs. The Company
increased its estimates for facility-related costs due to the deterioration in
the sublease markets for certain facilities. The remaining balance of $32,012 is
included on the condensed consolidated balance sheets in the amounts of $28,174
in Accrued liabilities and $3,838 in Other non-current liabilities. The
remaining balance is expected to be substantially settled by September 30, 2003.

As a part of the realigned operating structure, in 2001 the Company exited a
separately identifiable operation. For the nine months ended September 30, 2001,
revenue and net operating losses for this operation were $0 and ($3,997),
respectively. There was no activity for this operation for the nine months ended
September 30, 2002.

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 an
application development joint venture. Excluding this $1,565 benefit, the
effective tax rate for the first nine months of 2002 was 39.5%.

During the third quarter of 2001, the Company recorded a valuation allowance
against certain foreign deferred tax assets of $11,001. Excluding this charge,
the effective tax rate for the first nine months of 2001 was 39.5%.

NOTE 10. SEGMENT DATA

The 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
high value short-term projects and consulting capabilities. The Government
Services segment provides technical, information, and management disciplines to
the defense, intelligence and law enforcement communities. The Consulting
segment provides services relating to the implementation of enterprise resource
planning, supply chain management, design, development, implementation, and
maintenance of applications, and various other activities. 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 consolidated financial statements as described in the summary of
significant accounting policies included in the Company's Annual Report on Form
10-K for the year ended December 31, 2001. 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. In the Company's
Annual Report on Form 10-K for the year ended December 31, 2001, goodwill, other
intangible assets and related amortization expense associated with the
acquisition of Solutions Consulting were included in "Other." In the summary
below, these amounts are included in the Consulting segment for all periods
presented.

Page 9

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

The following is a summary of certain financial information by reportable
segment:

During the second quarter of 2002, the Company recorded $7,289 of revenue
associated with the termination of an application development joint venture, and
this revenue is included in the IT Solutions segment. Because of the
non-recurring nature of this revenue, the Company has reported the related gross
profit of $6,530 in "Other."

During the third quarter of 2002, the Company recorded $7,267 of revenue
associated with exiting a technology infrastructure services joint venture, and
this revenue is included in the IT Solutions segment. Because of the
non-recurring nature of this revenue, the Company has reported the related gross
profit of $7,178 in "Other." Also included in "Other" are a payment received by
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 11. EARNINGS (LOSS) PER COMMON SHARE

The following chart is a reconciliation of the numerators and the denominators
of the basic and diluted earnings (loss) per common share computations.

Page 10

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 nine months ended September 30, 2002, options to purchase
17,366 and 15,522 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 nine months ended September 30, 2001, all options to purchase shares of the
Company's common stock were excluded from the calculation of diluted earnings
per common share because the impact was antidilutive given the reported losses
for the periods.

NOTE 12. 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
outcome 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 Litigation

In July and August 2001, the Company, as well as certain of its current and
former officers and certain investment banks, were named as defendants in the
following two purported class action lawsuits, which allege violations of Rule
10b-5, promulgated under the Securities Act of 1934, as amended, and Sections
11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. 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 and subsequently consolidated. Approximately 300 issuers and 40
investment banks have been sued. These suits have been consolidated for pretrial
purposes in the IPO Allocation Securities Litigation. The lawsuit involving the
Company focuses on alleged improper practices by the investment banks in
connection with the Company's initial public offering in February 1999. The
lawsuit alleges that certain investment banks, in exchange for allocations of
public offering shares to their customers, received undisclosed commissions from
their customers on the purchase of securities and required their customers to
purchase additional shares of the Company 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

Page 11

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

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

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 the Company 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, the Company, Ross Perot and Ross Perot, Jr., were
named as defendants in eight purported class action lawsuits that allege
violations of Rule 10b-5, promulgated under the Securities Act of 1934, as
amended, and, in certain of the cases, allege common law fraud. These suits
allege that the Company's SEC filings contained material misstatements or
omissions of material facts with respect to the Company's 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. June Zordich v. Perot
Systems Corp. et al. was transferred to the United States District Court for the
Eastern District of Texas, Sherman 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.

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

California Senate Select Committee and California Attorney General Inquiries

In connection with investigations of the California energy markets, in June
2002, the California Attorney General subpoenaed documents from the Company and,
in July 2002, the Company, and two of its former employees, provided testimony
to a select committee of the California Senate and a subcommittee of the U.S.
House of Representatives relating to the Company's involvement in the California
energy market in 1997 to 2000.

During the three and nine months ended September 30, 2002, the Company incurred
expenses of $5,146 and $8,676, respectively, associated with the California
energy investigations and related litigation and have included these costs
within SG&A.

Contingency in Unconsolidated Joint Venture

The Company owns 50% of HCL Perot Systems N.V. ("HPS"), a joint venture with HCL
Corporation Limited and HCL Europe Limited. The Company does not control or
consolidate HPS and accounts for its investment in HPS under the equity method.
The Company believes that HPS may have material contingent liabilities that have
not been recorded by the joint venture. The Company has initiated a review of
the joint venture's records to determine the probability and extent of any
contingent liability; however, the Company cannot make a reasonable estimate of
the amount or range of amounts of any possible loss at this time. Accordingly,
the Company has not recorded its share of any possible loss related to this
contingency.

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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

Comparison of the three months ended September 30, 2002 and 2001

Revenue for the three months ended September 30, 2002 was $342.5 million.
Excluding $7.3 million of revenue relating to exiting a technology
infrastructure services joint venture, revenue for the third quarter of 2002 was
$335.2 million, which is an increase of 9.2% over revenue for the third quarter
of 2001 of $307.0 million. This increase in revenue is primarily due to an
increase in revenue for the IT Solutions and Government Services segments.

Revenue for the IT Solutions segment increased 4.9% to $307.6 million in the
third quarter of 2002 from $293.3 million in the same period of 2001. This
increase is primarily attributable to $8.3 million in revenue from contracts
signed during the past twelve months, $7.3 million in revenue related to exiting
a technology infrastructure services joint venture, $5.8 million in revenue from
Claim Services Resource Group, Inc. ("CSRG"), acquired on January 1, 2002, and
$14.9 million from other existing accounts, primarily in the healthcare
industry. These increases were partially offset by a $12.3 million decrease in
revenue from customers in the telecommunications and capital markets industries.
Revenue from UBS AG ("UBS"), which is primarily in the capital markets industry,
decreased to $62.0 million in 2002 from $70.2 million in 2001 due primarily to
lower spending on infrastructure services, resulting from cost savings
initiatives implemented by UBS and the Company. In addition, in 2001 the Company
began to exit certain business relationships and under-performing delivery units
and closed geographic project sales efforts. Revenue in the third quarter of
2002 from these exited activities was $9.7 million less than the revenue from
these activities in the third quarter of 2001.

The Government Services segment was formed in the third quarter of 2002 when the
Company acquired ADI Technology Corporation ("ADI"). Revenue for the Government
Services segment was $19.3 million and is attributable to this acquisition.

Revenue for the Consulting segment increased 15.9% to $15.3 million for the
third quarter of 2002 from $13.2 million in the third quarter of 2001. The
increase is primarily due to growth from Perot Systems Solutions Consulting.

During the three months ended September 30, 2002, the Company recorded $7.2
million of gross profit associated with exiting a technology infrastructure
services joint venture. Excluding this item, gross margin would have been 21.7%
of total revenue. During the third quarter of 2001, the Company recorded a
charge of $5.0 million to reduce the basis of software and other assets used in
exited service offerings. Excluding this charge, gross margin would have been
23.5% of total revenue. This year-over-year decrease in gross margin was due
primarily to lower profit margins on contracts signed and acquisitions
consummated since the middle of 2001, including the Company's newly acquired
government services company, ADI. Contracts in the Government Services segment
generally carry lower gross margins than the Company's average gross margin on
commercial contracts and, as a result, lowered gross margin for the third
quarter of 2002 by 0.5 percentage points. In addition, during the third quarter
of 2002 the Company revised its cost estimates on a certain fixed price contract
due to a significant cost overrun on a software development project included in
this contract, resulting in an adjustment to reverse $0.7 million of previously
recognized revenues and profits. The Company is in discussion with the customer
regarding the recovery of a portion of these cost overruns under the terms of
the contract.

In the third quarter of 2002, the Company recorded in Selling, general and
administrative expenses ("SG&A") $3.0 million related to severance expense for
the elimination of approximately 52 positions in

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

connection with a restructuring of its European operations. In addition, the
Company recorded $5.1 million of expense relating to an investigation of the
Company's involvement in the California energy market. Excluding these items,
SG&A for the third quarter of 2002 was $43.3 million, or 12.9% of revenue (after
excluding the $7.3 million of revenue relating to the termination of the
technology infrastructure joint venture). In the third quarter of 2001, the
Company recorded $36.0 million in SG&A, related primarily to severance and
facility related costs as it continued to realign its operating structure.
Excluding this charge, SG&A for the third quarter of 2001 would have been $46.7
million, or 15.2% of revenue. This decrease is due primarily to a temporary
decline in selling expense, the elimination of the amortization of goodwill and
certain other intangibles, which was $1.7 million in the third quarter of 2001,
and the focused efforts of the Company to reduce SG&A costs as a percentage of
revenue.

Interest income, net, decreased in the third quarter of 2002 to $0.9 million
from $1.8 million in the third quarter of 2001. This decrease is due to both a
lower average cash balance and lower interest rates during 2002 as compared to
the prior year period.

Equity in earnings of unconsolidated affiliates, comprised of equity in earnings
from HCL Perot Systems N.V., a software joint venture based in India ("HPS"),
was $2.1 million in the three months ended September 30, 2002, compared to $2.3
million in the same period of 2001.

Income tax expense for the third quarter of 2001 includes a non-cash charge of
$11.0 million to establish a valuation allowance against certain foreign
deferred tax assets. Excluding this $11.0 million charge, the effective tax rate
for the third quarter of 2001 was 39.5%, which is consistent with the effective
tax rate for the third quarter of 2002.

Comparison of the nine months ended September 30, 2002 and 2001

Revenue for the nine months ended September 30, 2002 was $1,001.7 million.
Excluding $7.3 million of revenue relating to exiting a technology
infrastructure services joint venture and an additional $7.3 million of revenue
relating to the termination of an application development joint venture, revenue
for the first nine months of 2002 is $987.1 million, which is an increase of
10.5% over revenue for the first nine months of 2001 of $893.0 million. This
increase in revenue is due to increases in revenue for the IT Solutions and
Government Services segments, partially offset by a decrease in revenue for the
Consulting segment.

During the nine months ended September 30, 2002, revenue for the IT Solutions
segment increased 10.8% to $935.8 million from $844.4 million in the same period
of 2001. This increase is primarily attributable to $20.3 million in revenue
from the acquisition of CSRG, $14.6 million in revenue from contracts signed
during the past twelve months, $14.6 million of revenue relating to exiting a
technology infrastructure services joint venture and the termination of an
application development joint venture, and $135.1 million from other existing
accounts, primarily in the healthcare industry. These increases were partially
offset by a $53.8 million decrease in revenue from customers in the
telecommunications and capital markets industries. Revenue from UBS, which is
primarily in the capital markets industry, decreased to $189.5 million in 2002
from $227.1 million in 2001 due primarily to lower spending on infrastructure
services, resulting from cost savings initiatives implemented by UBS and the
Company. Revenue also decreased by $39.4 million as a result of the Company
exiting certain business relationships and under-performing delivery units and
the closing of geographic project sales efforts in 2001.

Revenue for the Government Services segment was $19.3 million and is primarily
attributable to the acquisition of ADI.

Revenue for the Consulting segment decreased 1.5% to $45.2 million in the nine
months ended September 30, 2002, from $45.9 million in the same period of 2001
due primarily to the continued weak demand for custom application development
services partially offset by growth in systems integration and package
implementation services.

Page 14

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

During the first nine months of 2002, the Company recorded $0.9 million of
Direct cost of services and $13.7 million of gross profit associated with
exiting a technology infrastructure services joint venture and the termination
of an application development joint venture and received a $3.0 million payment
from a customer in bankruptcy reorganization, which was previously believed to
be unrecoverable. Excluding these items, gross margin for the nine months ended
September 30, 2002, was 22.3% of total revenue. In the first nine months of
2001, the Company exited a separately identifiable operation, which negatively
impacted gross profit by $3.9 million, and incurred a $5.0 million charge to
reduce the basis of software and other assets used in exited service offerings.
Excluding these two items, gross margin for the first nine months of 2001 would
have been 23.6% of total revenue. This year over year decrease in gross margin
was due primarily to lower profit margins on contracts signed since the middle
of 2001 and acquisitions consummated in the last twelve months. In addition,
during the first nine months of 2002, the Company revised its cost estimates on
a certain fixed price contract due to a significant cost overrun on a software
development project included in this contract, resulting in an adjustment to
reverse $2.0 million of previously recognized revenues and profits. The Company
is in discussion with the customer regarding the recovery of a portion of these
cost overruns under the terms of the contract. Partially offsetting these
declines is the higher profit margin generated by a business process services
acquisition closed at the end of the second quarter of 2001. As a result of
market conditions and earnings pressures, the Company recorded less expense for
associate incentive programs in the first nine months of 2002 as compared to the
prior year period, which offset the gross margin decline by approximately 1.1
percentage points.

During the first nine months of 2002, the Company continued efforts to
streamline its operations and recorded in SG&A charges of $11.1 million related
to severance and other costs to exit certain activities. Also during the first
nine months of 2002, the Company recorded $8.7 million of expense relating to an
investigation of the Company's involvement in the California energy market.
Excluding these items, SG&A for the first nine months of 2002 was $131.6
million, or 13.3% of revenue (after excluding the $14.6 million of revenue from
the exiting of a technology infrastructure services joint venture and the
termination of an application development joint venture). During the nine months
ended September 30, 2001, the Company recorded $69.7 million in SG&A related
primarily to severance and facility related costs as a result of realigning its
operating structure. Excluding this charge, SG&A for the first nine months of
2001 would have been $142.0 million, or 15.9% of total revenue. This decrease is
due primarily to the focused efforts of the Company to reduce SG&A costs as a
percentage of revenue, the elimination of the amortization of goodwill and
certain other intangibles, which was $4.9 million for the first nine months of
2001, and a temporary decline in selling expense.

Interest income, net, decreased in the nine months ended September 30, 2002, to
$3.0 million from $7.5 million in the same period of 2001. This decrease is due
to both a lower average cash balance and lower interest rates during 2002 as
compared to the prior year period.

Equity in earnings of unconsolidated affiliates was $6.1 million in the nine
months ended September 30, 2002, compared to $6.5 million in the same period of
2001. Equity in earnings from HPS decreased to $6.1 million in the nine months
ended September 30, 2002, from $7.3 million in the same period of 2001.

During the second quarter of 2002, the Company reduced a deferred tax asset
valuation allowance of $1.6 million in connection with the termination of an
application development joint venture. Excluding this $1.6 million benefit, the
effective tax rate for the first nine months of 2002 was 39.5%. During the third
quarter of 2001, the Company recorded an $11.0 million valuation allowance
against certain foreign deferred tax assets. Excluding this $11.0 million
charge, the Company's effective tax rate for the first nine months of 2001 would
have been 39.5%.

STOCK OPTIONS

The Company accounts for its employee and non-employee director stock option
activity under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Had the Company elected to
adopt FAS 123, "Accounting for Stock Based Compensation," the pro forma

Page 15

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

diluted earnings per common share for the three and nine months ended September
30, 2002, would have been $0.14 and $0.42, respectively, and the pro forma
diluted (loss) per common share for the three and nine months ended September
30, 2001, would have been ($0.21) and ($0.18), respectively.

BUSINESS OUTLOOK

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

For the fourth quarter of 2002, activities affecting revenue on a sequential
basis include:

o The $7.3 million payment received relating to exiting a
technology infrastructure services joint venture will not
recur in the fourth quarter of 2002.

o The Company's exiting of a technology infrastructure services
joint venture will sequentially reduce revenue by $8.0 million
but will not have a material impact on earnings.

o Account declines related to project timing and lower
discretionary spending are expected to reduce revenue by
approximately $10.0 million.

o Recent and expected new contract signings are expected to
contribute approximately $10.0 million of sequential revenue
growth. Of this amount, $4.0 million is attributable to a
non-recurring license fee associated with the expected
completion of an application development milestone for a
customer.

For the fourth quarter of 2002, the Company expects to recognize a license fee
that would contribute approximately $4.0 million, or $0.02 per share to
earnings, that will not recur. This license fee is contingent upon the
completion of an application development milestone and is expected to offset
sequential weakness in the Company's consulting offerings and certain
application-related engagements.

The Company expects a significant reduction in the fourth quarter of 2002 in its
activities and expenses related to responding to investigations of the Company's
involvement in the California energy market.

The Company believes there is a potential for reduced discretionary spending
from its customers. If this reduction in discretionary spending materializes,
the Company may experience a sequential earnings per share decline for the first
quarter of 2003.

The Company owns 50% of HCL Perot Systems N.V. ("HPS"), a joint venture with HCL
Corporation Limited and HCL Europe Limited. The Company does not control or
consolidate HPS and accounts for its investment in HPS under the equity method.
The Company believes that HPS may have material contingent liabilities that have
not been recorded by the joint venture. The Company has initiated a review of
the joint venture's records to determine the probability and extent of any
contingent liability; however, the Company cannot make a reasonable estimate of
the amount or range of amounts of any possible loss at this time. Accordingly,
the Company has not recorded its share of any possible loss related to this
contingency.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September 30, 2002, cash and cash equivalents
decreased 25.8% to $192.4 million from $259.2 million at December 31, 2001.

Net cash provided by operating activities decreased to $35.2 million for the
nine months ended September 30, 2002, from $36.5 million for the nine months
ended September 30, 2001. This decrease is partially due to an increase in
Long-term accrued revenue of $15.2 million, which represents revenues earned
under long-term service contracts that will be billed in the future as specified
in the terms of the related contracts. In addition, the decrease in cash
provided by operating activities is due to an increase in year-end bonuses paid

Page 16

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

to associates in 2002 as compared to 2001 of approximately $6.8 million and cash
payments made related to the Company's realignment of its operating structure of
approximately $9.8 million. These cash outflows were partially offset by an
increase in net income for the nine months of 2002 as compared to the nine
months of 2001.

Net cash used in investing activities increased to $123.1 million for the nine
months ended September 30, 2002, from $78.7 million for the same period in 2001.
This increase was due primarily to $49.6 million of net cash paid in the first
quarter of 2002 for the acquisition of CSRG, $37.8 million of net cash paid for
the acquisition of ADI, and $10.0 million in cash paid as additional
consideration related to the acquisition of Advanced Receivables Strategy, Inc.
("ARS"). In the third quarter of 2001 the Company purchased ARS for $52.2
million.

For the nine months ended September 30, 2002, net cash provided by financing
activities increased to $12.8 million from $5.6 million for the nine months
ended September 30, 2001. This increase is primarily due to an increase in the
exercise of options to purchase Class A Common Stock during the nine months of
2002 and the exercise of options to purchase shares of Class B Common Stock,
which did not occur during the prior year period.

The Company has no committed line of credit and anticipates that existing cash
and cash equivalents and expected net cash flows from operating activities will
provide sufficient funds to meet its needs for the foreseeable future.

ACCOUNTING STANDARDS ISSUED

Financial Accounting Standards 146

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Board No. ("FAS") 146, "Accounting for Costs
Associated with Exit or Disposal Activities." FAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This statement supersedes Financial Accounting Standards Board Emerging Issues
Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." The Company is
required to adopt FAS 146 no later than January 1, 2003. The Company does not
believe that the adoption of FAS 146 will have a material impact on its
consolidated financial statements.

Pending Issuance of Financial Accounting Standards Board Emerging Issues Task
Force Issue 00-21

The Company has long-term fixed-price contracts that include certain
deliverables that would fall under the scope of AICPA Statement of Position No.
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" ("SOP 81-1"), and certain ongoing service elements.
The Company recognizes revenue on these contracts under the
percentage-of-completion method using incurred costs as a measure of progress
towards completion. On October 25, 2002, the EITF reached a tentative conclusion
on EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21") (which has not yet been finalized), regarding when
and how to separate elements of a contract into separate units of accounting. On
November 8, 2002, the EITF released for comment a proposed draft abstract of
EITF 00-21 that the EITF intends to ratify at its November 21, 2002, meeting.
The proposed draft abstract, if ratified, will require the Company to adopt EITF
00-21 for all new revenue arrangements entered into in fiscal years beginning
after December 15, 2002, but alternatively will allow the Company to apply EITF
00-21 to existing contracts and record the effect of adoption as the cumulative
effect of a change in accounting principle. If the Company were to apply the
tentative conclusions of EITF 00-21 and utilize a straight-line revenue
recognition method for the service-related elements of its existing
multi-element arrangements, and if the Company chooses to elect the cumulative
effect transition option of EITF 00-21, the Company would record adjustments to
reduce earnings per share through December 31, 2002, by an amount currently
estimated to range from $0.25 to $0.35. These adjustments would relate primarily
to the Company's

Page 17

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

financial results since the second quarter of 2001 and would include a charge of
between $0.05 and $0.10 per share to recognize a loss on a contract element
included in an otherwise profitable contract. In addition, the Company expects,
based on current estimates of revenues and costs on its existing long-term
fixed-price contracts, that the change to the new accounting method for those
existing contracts would reduce earnings per share in 2003 by approximately
$0.06 per share and would have an immaterial impact on 2004.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "forecasts," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms and other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating our
forward-looking statements, you should specifically consider that one of the
Company's large customers is currently in bankruptcy, and we understand that the
customer is in discussions to obtain additional financing. We also understand
that the ability of the customer to continue its operations as currently
conducted may be dependent on the customer securing additional financing. The
customer also has the option, under bankruptcy law, of rejecting our contract.
The Company would have an unsecured claim for any damages that result from the
rejection of our contract. If the customer is unable to continue its operations
as currently conducted or rejects our contract, the Company's earnings could be
materially adversely affected. In addition, various other factors may cause
actual results to vary from those contained in the forward-looking statements,
such as: the loss of major clients; deterioration of project and
consulting-based revenue and profit associated with deteriorating market
conditions; the Company's ability to achieve future sales; changes in its UBS
relationship and variability of revenue and expense associated with its largest
customer, as well as other clients; a portion of client revenue and profits
represent spending above contractual minimums, which could be deemed as
discretionary by clients and result in lower revenue and earnings for the
Company with limited notice; the current and future performance of client
contracts; risks associated with non-recoverable cost overruns on software
development contracts; growing start-up businesses; the highly competitive
market in which the Company operates; the variability of quarterly operating
results; the reliance on estimates that involve successful completion of future
actions; changes in technology; changes to accounting methods, and risks related
to international operations. Please refer to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2001, as filed with the U.S.
Securities and Exchange Commission and available at www.sec.gov, for additional
information regarding risk factors. The Company disclaims any intention or
obligation to revise any forward-looking statements whether as a result of new
information, future developments, or otherwise.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4: CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of these disclosure
controls and procedures were effective.

No significant changes were made in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.

Page 18

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2002

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

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
outcome 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 Litigation

In July and August 2001, the Company, as well as certain of its current and
former officers and certain investment banks, were named as defendants in the
following two purported class action lawsuits, which allege violations of Rule
10b-5, promulgated under the Securities Act of 1934, as amended, and Sections
11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. 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 and subsequently consolidated. Approximately 300 issuers and 40
investment banks have been sued. These suits have been consolidated for pretrial
purposes in the IPO Allocation Securities Litigation. The lawsuit involving the
Company focuses on alleged improper practices by the investment banks in
connection with the Company's initial public offering in February 1999. The
lawsuit alleges that certain investment banks, in exchange for allocations of
public offering shares to their customers, received undisclosed commissions from
their customers on the purchase of securities and required their customers to
purchase additional shares of the Company 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. The Company believes the
claims against it are without merit and will vigorously defend itself in these
cases.

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 the Company 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, the Company, Ross Perot and Ross Perot, Jr., were
named as defendants in eight purported class action lawsuits that allege
violations of Rule 10b-5, promulgated under the Securities Act of 1934, as
amended, and, in certain of the cases, allege common law fraud. These suits
allege that the Company's SEC filings contained material misstatements or
omissions of material facts with respect to the Company's 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. June Zordich v. Perot
Systems Corp. et al. was transferred to the United States District Court for the
Eastern District of Texas, Sherman 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.

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

Page 19

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2002

California Senate Select Committee and California Attorney General Inquiries

In connection with investigations of the California energy markets, in June
2002, the California Attorney General subpoenaed documents from the Company and,
in July 2002, the Company, and two of its former employees, provided testimony
to a select committee of the California Senate and a subcommittee of the U.S.
House of Representatives relating to the Company's involvement in the California
energy market in 1997 to 2000.

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

The Company did not submit any matters to a vote of its security holders during
the period covered by this report.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

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

Exhibit No. Document
----------- --------

3.2 Third Amended and Restated Bylaws

10.51 Commercial Sublease dated September 18, 2002 by and
between PSC Management Limited Partnership, as
sublessor, and Perot Services Company, LLC, as
sublessee.

(b) Reports on Form 8-K

On July 1, 2002, the Company filed a Current Report on Form 8-K
including exhibits which are documents being produced in response to
the subpoena from the Attorney General of the State of California and
also being provided to the California State Senate Committee
investigating the California energy markets. The matter was reported
under Item 9 of Form 8-K.

On July 2, 2002, the Company filed Amendment No. 1 to Current
Report on Form 8-K/A including exhibits which are documents being
produced in response to the subpoena from the Attorney General of the
State of California and also being provided to the California State
Senate Committee investigating the California energy markets. The
matter was reported under Item 9 of Form 8-K.

On July 2, 2002, the Company filed Amendment No. 2 to Current
Report on Form 8-K/A including exhibits which are documents being
produced in response to the subpoena from the Attorney General of the
State of California and also being provided to the California State
Senate Committee investigating the California energy markets. The
matter was reported under Item 9 of Form 8-K.

On August 9, 2002, the Company filed a Current Report on Form 8-K
including exhibits which are the Statements Under Oath of the Principal
Executive Officer and the Principal Financial Officer regarding facts
and circumstances relating to Exchange Act filings. The matter was
reported under Item 9 of Form 8-K.

Page 20

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

PEROT SYSTEMS CORPORATION
(Registrant)

Date: November 13, 2002 By /s/ ROBERT J. KELLY
------------------------
Robert J. Kelly
Corporate Controller and Principal
Accounting Officer

Page 21

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2002

CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED

I, Ross Perot, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Perot Systems
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

November 13, 2002

/s/ ROSS PEROT, JR.
- -----------------------------
Ross Perot, Jr.
Principal Executive Officer

Page 22

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2002

CERTIFICATIONS PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED

I, Russell Freeman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Perot Systems
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

November 13, 2002

/s/ RUSSELL FREEMAN
- ------------------------------
Russell Freeman
Principal Financial Officer

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INDEX TO EXHIBITS