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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number 0-22495
PEROT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2230700
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12404 PARK CENTRAL DRIVE
DALLAS, TEXAS
75251
(Address of principal executive offices)
(Zip Code)
(972) 340-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ]No
Number of shares of registrant's common stock outstanding as of May 8, 2000:
96,183,289.
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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 March 31, 2000 and 1999
On March 30, 2000, Perot Systems completed the acquisition of Solutions
Consulting, Inc. ("SCI"). The revenues and operating expenses of SCI have been
included in the condensed consolidated statements of income for the entire
quarter and preacquisition operating earnings have been eliminated in "Other
income (expense), net" as permitted by Accounting Research Bulletin 51,
"Consolidated Financial Statements".
Total revenue for the three months ended March 31, 2000 was
substantially the same as compared to the same period in 1999, increasing by
0.1% to $274.6 million from $274.4 million. This slight increase was
attributable to $28.7 million in new sales signed after the first quarter of
1999, $12.0 million from the acquisition of SCI in the first quarter of 2000,
and an increase of $5.6 million from the restructuring of a certain customer
contract. These increases were almost fully offset by a $25.5 million revenue
decrease from the termination of the East Midlands Electricity (IT) Limited
(together with its parent company East Midlands Electricity plc, "EME")
contract, an $8.1 million decrease from UBS AG ("UBS"), and a net decrease from
other short-term projects and existing clients. During the three months ended
March 31, 2000, revenue from UBS totaled $69.1 million.
Domestic revenue grew by 8.8% in the first quarter of 2000 to $198.4
million from $182.3 million in the first quarter of 1999, and increased as a
percentage of total revenue to 72.2% from 66.4% over the same period.
Non-domestic revenue, consisting of European and Asian operations,
declined in the first quarter of 2000 by 17.3% to $76.2 million from $92.1
million in the first quarter of 1999, and decreased as a percentage of total
revenue to 27.8% from 33.6%. The largest components of European operations were
the United Kingdom and Switzerland. In the United Kingdom revenue decreased
30.6% to $41.2 million in the first quarter of 2000 from $59.4 million in the
first quarter of 1999 due to the termination of the EME contract, which may
result in continued declines in period over period comparisons throughout 2000.
In Switzerland, revenue decreased 13.9% to $11.8 million in the first quarter of
2000 from $13.7 million in the first quarter of 1999. Asian operations
represented 1.8% of total revenue for each of the three month periods.
Direct cost of services decreased in the first quarter of 2000 by 2.9%
to $204.2 million from $210.3 million in the same period of 1999. Gross margin
increased to 25.6% of total revenue in the first quarter of 2000 as compared to
23.4% of total revenue in the first quarter of 1999. This growth was due to
$5.2 million of gross margin from SCI and a decrease of $8.8 million of certain
personnel related expenses. These improvements in gross margin were partially
offset by a decrease from the termination of the EME contract and a decrease in
profitability from short-term projects.
Selling, general and administrative expenses ("SG&A") increased in the
first quarter of 2000 by 4.8% to $43.4 million from $41.4 million in the same
period of 1999, and increased as a percentage of total revenue to 15.8% from
15.1%. The inclusion of SCI represented $1.7 million of the total increase in
SG&A. Additionally, while the Company continued to control its normal general
and administrative spending as a percent of revenue, the Company increased its
spending primarily in the areas of business development and sales. During the
three months ended March 31, 2000, the Company incurred a one-time $22.1 million
compensation charge that was a direct result of the acquisition of SCI.
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As a result of the factors noted above, operating income decreased in
the first quarter of 2000 to $4.9 million from $22.7 million in the first
quarter of 1999. Operating income as a percentage of total revenue decreased to
1.8% from 8.3%. This decrease was due primarily to the one-time $22.1 million
compensation charge the Company incurred during the quarter ended March 31, 2000
related to the acquisition of SCI.
Interest income, net increased to $4.9 million in the first quarter of
2000 compared to $2.2 million in the prior year period due primarily to a
significant increase in cash and cash equivalents, resulting from $108.1 million
of net proceeds received from the Company's initial public offering ("IPO") of
Class A Common Stock on February 5, 1999.
Other income (expense), net increased in the three months ended March
31, 2000 to $50.1 million of income from expense of $0.1 million in the three
months ended March 31, 1999 primarily due to non-recurring activities.
Non-recurring items during the first quarter of 2000 included a $38.9 million
realized net gain from the sale of a 40% equity interest in Systor AG
("Systor"), a subsidiary of UBS, and a net gain of $15.0 million due to the sale
of 500,000 shares of TenFold Corporation ("TenFold") common stock, which were
held as an investment. These gains were partially offset by a $3.5 million
expense which eliminated the pre-acquisition earnings of SCI for the first
quarter of 2000.
Net income increased 135.2% in the first quarter of 2000 to $38.1
million from $16.2 million in the first quarter of 1999, and net income as a
percentage of total revenue increased to 13.9% from 5.9%.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000, cash and cash equivalents
decreased 5.0% to $279.8 million from $294.6 million at December 31, 1999.
Net cash used in operating activities was $29.4 million for the three
months ended March 31, 2000 and $23.5 million for the three months ended March
31, 1999. This change was due primarily to accrued compensation as bonuses
earned in 1999 and paid in 2000 exceeded those bonuses earned in 1998 and paid
in the first quarter of 1999. Additionally, income taxes payable increased
significantly due to the tax effect of non-operating gains attributable to the
sale of TenFold common stock and the sale of Systor.
Net cash provided by investing activities was $12.7 million for the
three months ended March 31, 2000 compared to net cash used in investing
activities of $5.0 million for the same period in 1999. The significant increase
in cash provided by investing activities was due to the receipt of $24.0 million
in proceeds from the sale of 500,000 shares of TenFold common stock and $55.5
million in proceeds from the sale of Systor. These proceeds were partially
offset by $41.1 million of net cash paid for the acquisition of SCI and an
increase in the purchases of property, equipment and purchased software of $20.4
million over the prior year period, which is due to a $20.0 million purchase of
a software license from Sykes Enterprises.
For the three months ended March 31, 2000, net cash provided by
financing activities was $3.6 million compared to $113.9 million for the three
months ended March 31, 1999. The first quarter of 1999 reflects the proceeds of
$108.1 million from the Company's IPO.
The Company routinely maintains cash balances in certain European and
Asian currencies to fund operations in those regions. During the three months
ended March 31, 2000, foreign exchange rate fluctuations adversely impacted the
Company's non-domestic cash balances by $1.8 million, as British pounds, Swiss
francs, and the Euro all weakened against the U.S. dollar. The Company's foreign
exchange policy does not call for hedging foreign exchange exposures that are
not likely to impact net income or working capital.
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company has no committed line of credit or other borrowings and
anticipates that existing cash and cash equivalents and expected net cash flows
from operating activities will provide sufficient funds to meet its needs for
the foreseeable future. From time to time, the Company may consider repurchasing
its Class A Common Stock depending on price and availability and alternative
uses for its financial resources.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "forecasts," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms and other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, such as: the loss of major
clients; the Company's ability to achieve future sales; changes in our
relationship and variability of revenue and expense associated with our largest
customer; the loss of key personnel; the highly competitive market in which we
operate; the variability of quarterly operating results; changes in technology;
risks related to international operations; risks related to acquisitions; and
general economic conditions. These and other risks are outlined in our annual
report on Form 10-K, which is on file with the Securities and Exchange
Commission and available at www.sec.gov. These factors may cause our actual
results to differ materially from any forward-looking statement.
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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q/A
For the Quarter Ended March 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEROT SYSTEMS CORPORATION
(Registrant)
Date: May 15, 2000 By /s/ TERRY ASHWILL
---------------------
Terry Ashwill
Vice President and Chief Financial Officer
(principal financial officer and
chief accounting officer)
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