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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYFPpRyNRkkX1xClE9+DvXXzDAzFQ/TZ1zaYj9EU/uANCAQtOiDW9bM7RaoB4PHy jZX6l98RjwATFD9YejDNdQ== 0000950134-09-003731.txt : 20090225 0000950134-09-003731.hdr.sgml : 20090225 20090225171822 ACCESSION NUMBER: 0000950134-09-003731 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090225 DATE AS OF CHANGE: 20090225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEROT SYSTEMS CORP CENTRAL INDEX KEY: 0000894253 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 752230700 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14773 FILM NUMBER: 09634722 BUSINESS ADDRESS: STREET 1: 2300 W PLANO PKWY CITY: PLANO STATE: TX ZIP: 75075 BUSINESS PHONE: 9725770000 MAIL ADDRESS: STREET 1: 2300 W PLANO PKWY CITY: PLANO STATE: TX ZIP: 75075 10-K 1 d66535e10vk.htm FORM 10-K e10vk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the Fiscal Year Ended December 31, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the Transition Period From to

Commission File Number 1-14773

PEROT SYSTEMS CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware		75-2230700
(State or other jurisdiction of incorporation or organization)		(I.R.S. 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)

Securities registered pursuant to Section 12(b) of the Act:


		Name of Each Exchange
Title of Each Class		On Which Registered

Class A Common Stock		New York Stock Exchange
Par Value $0.01 per share

Securities registered pursuant to Section 12(g) of the Act:

Preferred Stock Purchase Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


þ Large accelerated filer		o Accelerated filer		o Non-accelerated filer (Do not check if a smaller reporting company)		o Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of June 30, 2008, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based upon the closing sales price for the registrant’s common stock as reported on the New York Stock Exchange, was approximately $1,267,845,482 (calculated by excluding shares owned beneficially by directors and officers).

Number of shares of registrant’s common stock outstanding as of February 20, 2009: 119,464,311 shares of Class A Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: certain information required in Part III of this Form 10-K is incorporated from the registrant’s Proxy Statement for its 2009 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the registrant’s fiscal year ended December 31, 2008.

FORM 10-K

For the Year Ended December 31, 2008

INDEX


PART I
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	13
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	14

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 8.	Financial Statements and Supplementary Data	37
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	38

PART III
Item 10.	Directors and Executive Officers of the Registrant	38
Item 11.	Executive Compensation	38
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38
Item 13.	Certain Relationships and Related Transactions	38
Item 14.	Principal Accountant Fees and Services	39

PART IV
Item 15.	Exhibits and Financial Statement Schedules	40
Signatures		43
EX-10.28
EX-10.29
EX-10.30
EX-10.31
EX-10.32
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1

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,” “could,” “forecasts,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “see,” “target,” “projects,” “position,” or “continue” or the negative of such terms and other comparable terminology. These statements reflect our current expectations, estimates, and projections. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Actual events or results may differ materially from what is expressed or forecasted in these forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risks outlined below under the caption “Risk Factors.” These risk factors describe reasons why our actual results may differ materially from any forward-looking statement. We disclaim any intention or obligation to update any forward-looking statement.

PART I


Item 1.	*Business*

Overview

Perot Systems Corporation, originally incorporated in the state of Texas in 1988 and reincorporated in the state of Delaware on December 18, 1995, is a worldwide provider of information technology (commonly referred to as IT) services and business solutions to a broad range of customers. We offer our customers integrated solutions designed around their specific business objectives, chosen from a breadth of services, including technology infrastructure services, applications services, business process services, and consulting services.

Through our flexible and collaborative approach, we integrate expertise from across the company to deliver custom solutions that enable clients to accelerate growth, streamline operations and create new levels of customer value.

Our Services

We provide the following categories of services to our customers either on a standalone basis or bundled within a comprehensive solution. Within our market-facing units and as described in more detail below, we offer a mix of these services as part of our solutions.


	•	Infrastructure services

	•	Applications services

	•	Business process services

	•	Consulting services

Infrastructure Services

Infrastructure services are typically performed under multi-year contracts in which we assume operational responsibility for various aspects of our customers’ businesses, including data center and systems management, Web hosting and Internet access, desktop solutions, messaging services, program management, hardware maintenance and monitoring, network management, including VPN services, service desk capabilities, physical security, network security, risk management, and virtualization (the management of leveraged computing environments). We also offer our global services under a modular concept, which allows our customers to select all services mentioned above or only certain subsets, depending on their needs. We are responsible for defining the infrastructure technology strategies for our customers. We identify new technology offerings and innovations that deliver value to our customers. We manage, resolve, and document problems in our customers’ computing environments and provide comprehensive monitoring, planning, and safeguarding of information technology systems against intrusion by monitoring system and network status, collecting and analyzing data regarding system and network performance, and applying appropriate corrective actions. All of these activities are either performed at customer facilities or delivered through centralized data processing centers that we maintain. We typically hire a significant

portion of the customer’s staff that supported these functions prior to the transition of services. We then apply our expertise and operating methodologies and utilize technology to increase the efficiency of the operations, which usually results in increased operational quality at a lower cost.

Applications Services

Applications services include services such as application development and maintenance, including the development and maintenance of custom and packaged application software for customers, and application systems migration and testing, which includes the migration of applications from legacy environments to current technologies, as well as performing quality assurance functions on custom applications. We also provide other applications services such as application assessment and evaluation, hardware and architecture consulting, systems integration, and Web-based services.

Business Process Services

Business process services include services such as product engineering, claims processing, life insurance policy administration, call center management, payment and settlement management, security, and services to improve the collection of receivables. In addition, business process services include engineering support and other technical and administrative services that we provide to the U.S. federal government.

Consulting Services

Consulting services include strategy consulting, enterprise consulting, technology consulting, the implementation of prepackaged software applications, and research. The consulting services provided to customers within our Industry Solutions and Government Services segments typically consist of customized, industry-specific business solutions provided by associates with industry expertise. Consulting services are typically viewed as discretionary services by our customers, with the level of business activity depending on many factors, including economic conditions and specific customer needs.

Our Contracts

Our contracts include services priced using a wide variety of pricing mechanisms. In determining how to price our services, we consider the delivery, credit, and pricing risk of a business relationship. For the year ended December 31, 2008:


	•	Approximately 49% of our revenue was from fixed-price contracts and per-unit priced contracts. Under fixed-price contracts, our customers pay us a set amount for contracted services. Fixed-price contracts frequently include a variable component of pricing based on service volumes that exceed or fall below a defined range of volumes, which adds a per-unit pricing component to these fixed-price arrangements. For some fixed-price contracts, the price is set so the customer realizes immediate savings in relation to their current expense for the services we will be performing. On contracts of this nature, our profitability generally increases over the term of the contract as we become more efficient. The time that it takes for us to realize these efficiencies can range from a few months to a few years, depending on the complexity of the services. Under per-unit priced contracts, our customers pay us based on the volumes of units provided at the unit rate specified. In some contracts, the per-unit prices may vary over the term of the contract, which may result in the customer realizing immediate savings at the beginning of the contract.

	•	Approximately 30% of our revenue was from time and materials contracts where our billings are based on measurements such as hours, days or months, and an agreed upon rate. In some cases, the rate the customer pays for a unit of time can vary over the term of a contract, which may result in the customer realizing immediate savings at the beginning of a contract.

	•	Approximately 21% of our revenue was from cost plus contracts where our billings are based in part on the amount of expense we incur in providing services to a customer.

We also utilize other pricing mechanisms, including license fees and risk/reward relationships where we participate in the benefit associated with delivering a certain outcome. Revenue from these other pricing mechanisms totaled less than 1% of our revenue.

Depending on a customer’s business requirements and the pricing structure of the contract, the amount of profit generated from a contract can vary significantly during a contract’s term. With fixed- or unit-priced contracts, or when an upfront payment is made to purchase assets or as a sales incentive, an outsourcing services contract will typically produce less profit at the beginning of the contract with significantly more profit being generated as efficiencies are realized later in the term. With a cost plus contract, the amount of profit generated tends to be relatively consistent over the term of the contract.

Our Lines of Business

We offer our services under two primary lines of business: Industry Solutions and Government Services. We consider these two lines of business to be reportable segments and include financial information and disclosures about these reportable segments in our consolidated financial statements. You can find this financial information in Note 15, “Segment and Certain Geographic Data,” of the Notes to Consolidated Financial Statements included herein. We routinely evaluate the historical performance of and growth prospects for various areas of our business, including our lines of business, delivery groups, and service offerings. Based on a quantitative and qualitative analysis of varying factors, we may increase or decrease the amount of ongoing investment in each of these business areas, make acquisitions that strengthen our market position, or divest, exit, or downsize aspects of a business area.

Industry Solutions

Industry Solutions, which is our largest line of business and represented approximately 77%, 79%, and 87% of our total revenue for 2008, 2007, and 2006, respectively, provides services to our customers primarily under long-term contracts in strategic relationships. These services include technology, applications, and business process services, as well as industry domain-based, short-term project and consulting services. Industry Solutions also provides software-related services, including the implementation of prepackaged software applications, application development and maintenance, and application systems migration and testing under short-term contracts related to specific projects. Our Industry Solutions line of business consists of two delivery groups — Healthcare and Commercial.

Healthcare

Our Healthcare group, which represented approximately 47%, 51%, and 48% of our total revenue for 2008, 2007, and 2006, respectively, and approximately 61%, 65%, and 55% of revenue for the Industry Solutions line of business for 2008, 2007, and 2006, respectively, provides services primarily to providers of healthcare, but we also serve health insurance organizations and organizations that are a part of the healthcare supply chain:


	•	Providers — including hospitals, physician practices, and public sector agencies. Our hospital customers include health systems and freestanding hospitals. Our physician practice customers include large and community practice groups. Within the public sector, we focus on federal government healthcare agencies such as the Veterans Health Administration;

	•	Health insurance organizations — including national insurers, Blue Cross and Blue Shield plans and regional managed care organizations; and

	•	Healthcare supply chain — including medical surgical suppliers and distributors and retail pharmacy.

Our Healthcare group provides a full range of services, including consulting, applications, infrastructure, and business process services. Our associates deliver technology-based solutions to meet the demanding challenges of the healthcare industry globally to:


	•	Improve patient safety and quality;


	•	Lower the healthcare cost trend and achieve new levels of customer satisfaction; and

	•	Achieve administrative transaction process efficiency.

For hospitals, we provide information technology, revenue cycle, and supply chain sourcing solutions, as well as operational and clinical transformation services that drive lower costs, increase cash and improve the delivery of care. We employ the industry’s leading clinical, technological, and process know-how to provide our services.

For physicians, we deploy electronic health records and operate information technology and revenue cycle management functions.

For health insurance organizations, we enable the transformation to consumer health models by supporting administrative process efficiency with our technology platform and business process services.

For healthcare supply chain, we provide technology infrastructure support and solutions that enhance the integration of the supply chain process among suppliers, distributors, hospitals, and physician organizations.

For public sector healthcare, we utilize our commercial healthcare expertise to support federal government healthcare initiatives.

Commercial

Our Commercial group, which represented approximately 30%, 28%, and 39% of our total revenue for 2008, 2007, and 2006, respectively, and approximately 39%, 35%, and 45% of revenue for the Industry Solutions line of business for 2008, 2007, and 2006, respectively, provides services to customers primarily in three markets:


	•	Consumer — including customers in technology, travel, transportation, telecom, and publishing industries.

	•	Manufacturing — including customers in automotive and automotive components and parts, machinery and durable goods.

	•	Financial Services — including customers in capital markets, banking, insurance, and credit rating agencies.

Within Commercial, we provide a full range of services including consulting, applications, infrastructure, product engineering, and business process services. Our infrastructure and application services are designed to help clients reduce technology costs while increasing operational quality. Our product engineering services are focused on helping manufacturers to develop their products more effectively and include research and design engineering, program management, and manufacturing engineering. Our industry-specific consulting services include the business and technology solutions that improve the efficiencies of critical processes, including product design, supply chain execution, call centers, collaborative engineering tools, manufacturing plant floor processes, and consulting and implementation of enterprise resource planning software packages.

Government Services

Our Government Services group, which represented approximately 23%, 21%, and 13% of our total revenue for 2008, 2007, and 2006, respectively, provides information technology infrastructure and application services, consulting, engineering support, and technology-based business process solutions for the Department of Defense, the Department of Homeland Security, various civilian agencies including the Department of Education and NASA, various federal intelligence agencies, and other governmental agencies.

Our core product portfolio includes information technology and business process outsourcing, business process services, IT infrastructure and applications support, and a wide array of professional services. These services include the direct support of engineering, safety, quality assurance, logistics, environmental, and program management for federal managers across a broad spectrum of critical programs. We provide IT infrastructure support to the federal government through management consulting services, information technology and systems support, application design and development, government financial services, business process services and outreach, media, and communications services.

Perot Systems Associates

The markets for IT personnel and business integration professionals are intensely competitive. A key part of our business strategy is the hiring, training, and retaining of highly motivated personnel with strong character and leadership traits. We believe that employing associates with such traits is — and will continue to be — an integral factor in differentiating us from our competitors in the IT industry. In seeking such associates, we screen candidates for employment through a rigorous interview process. In addition to competitive salaries, we distribute cash bonuses that are paid promptly to reward excellent performance, and we have various incentive compensation programs, including a year-end bonus based on our performance in relation to our business and financial targets.

As of December 31, 2008, we employed approximately 23,100 associates. Some of our associates in Europe are members of work councils and have worker representatives. We believe that our relations with our associates are good.

Competition

We operate in extremely competitive markets, and the technology required to meet our customers’ needs changes. In each of our lines of business, we frequently compete with companies that have greater financial resources; more technical, sales, and marketing capacity; and larger customer bases than we do. Because many of the factors on which we compete, as discussed below, are outside of our control, we cannot be sure that we will be successful in the markets in which we compete. If we fail to compete successfully, our business, financial condition, and results of operations will be materially and adversely affected.

Competitors

We compete with a number of different information technology service providers depending upon the region, country, and/or market we are addressing. Some of our more frequent competitors include: Accenture Ltd., Affiliated Computer Services, Inc., Cap Gemini Ernst & Young, Computer Sciences Corporation, HP Services (a division of Hewlett Packard Company), IBM Global Services (a division of International Business Machines Corporation), and Unisys Corporation. Our Industry Solutions line of business also frequently competes with Atos Origin, CGI Group, Inc., Cerner Corporation, Cognizant Technology Solutions Corporation, Deloitte Consulting LLP (a member of Deloitte Touche Tomatsu), HCL Technologies, iGate Global Solutions Limited, Infosys Technologies Limited, L&T Infotech Ltd., Mastek Limited, McKesson Corporation, MphasiS, Patni Computer Systems Limited, Polaris Software Lab Limited, Sapient Corporation, Siemens Business Services, Inc., Tata Consultancy Services Limited, Tech Mahindra, Wipro Limited, smaller consulting firms with industry expertise in areas such as healthcare or financial services, and the consulting divisions of large systems integrators and information technology services providers. In addition, our Government Services line of business frequently competes with Booz-Allen and Hamilton, CACI International, Inc., General Dynamics, Lockheed Martin Corporation, Northrop Grumman Corporation, Science Applications International Corporation, SRA International, Stanley, Inc., and Verizon Communications Inc. We may also compete with non-IT outsourcing providers who enter into marketing and business alliances with our customers that provide for the consolidation of services. As we enter new markets, we expect to encounter additional competitors. We also frequently compete with our customers’ own internal information technology capability, which may constitute a fixed cost for our customer.

How We Compete

We compete on the basis of a number of factors, including the attractiveness and breadth of the business strategy and professional services that we offer, pricing, technological innovation, industry expertise, and quality of service. Our Industry Solutions line of business also competes on our scale. For our Industry Solutions Segment, emerging offshore development capacity in countries such as India, Mexico, and the Philippines is increasing the degree of competition for our software development services. For our Government segment, we frequently compete in federal and defense programs with declining budgets, which creates pressure to lower our prices. In addition, the market for consulting services is affected by an oversupply of consulting talent, both domestically and offshore, which results in downward price pressure for our services. All of these factors may increase pricing pressure on us.

Financial Information About Foreign and Domestic Operations

See Note 15, “Segment and Certain Geographic Data,” to the Consolidated Financial Statements included elsewhere in this report.

Intellectual Property

While we attempt to retain intellectual property rights arising from customer engagements, our customers often have the contractual right to such intellectual property. We rely on a combination of nondisclosure and other contractual arrangements and trade secret, copyright, and trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license intellectual property. We enter into confidentiality agreements with our associates and limit distribution of proprietary information. There can be no assurance that the steps we take in this regard will be adequate to deter misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights.

We license the right to use the names “Perot Systems” and “Perot” in our current and future businesses, products, or services from the Perot Systems Family Corporation and Ross Perot Jr., our Chairman. The license is a non-exclusive, royalty-free, worldwide, non-transferable license. We may also sublicense our rights to the Perot name to some of our affiliates. Under the license agreement, either party may, in its sole discretion, terminate the license at any time, with or without cause and without penalty, by giving the other party written notice of such termination. Upon termination by either party, we must discontinue all use of the Perot name within one year following notice of termination. The termination of this license agreement could materially and adversely affect our business, financial condition, and results of operations. Except for the license of our name, we do not believe that any particular copyright, trademark, or group of copyrights and trademarks is of material importance to our business taken as a whole.

Our Website and Availability of SEC Reports and Corporate Governance Documents

Our Internet address is www.perotsystems.com and the investor relations section of our website is located at www.perotsystems.com/investors. We make available free of charge, on or through the investor relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Also, posted on our corporate responsibility section of our website (located at www.perotsystems.com/responsibility), and available in print upon request of any shareholder to our Investor Relations department, are our charters for our Audit Committee, Compensation Committee, and Nominating and Governance Committee, as well as our Standards & Ethical Principles and our Corporate Governance Guidelines (which include our Director Qualification Guidelines and Director Independence Standards). Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to the Standards & Ethical Principles and any waiver applicable to our executive officers or directors.


Item 1A.	*Risk Factors*

An investment in our Class A common stock involves a high degree of risk. You should carefully consider the following risk factors in evaluating an investment in our common stock. The risks described below are not the only ones that we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the following risks actually occurs, our business, financial condition, or results of operations could be materially and adversely affected. In such case, the trading price of our Class A common stock could decline, and you could lose all or part of your investment. You should also refer to the other information set forth in this report, including our Consolidated Financial Statements and the related notes.

Our business may be adversely affected by a number of economic and business factors.

Our business may be adversely affected by a number of factors, including general economic conditions, the amount and type of technology spending that our customers undertake, and the business strategies and financial condition of our customers and the industries we serve, which could result in increases or decreases in the amount of

services that we provide to our customers and the pricing of such services. For instance, in the current economic downturn, our customers are deferring many purchasing decisions regarding our services. This could have a negative effect on our revenue and profit if a significant number of them continue to defer or elect not to proceed with new contracts. Our ability to identify and effectively respond to these factors is important to our future financial and growth position. Both of our major lines of business have distinct economic factors, business trends, and risks that could have a material adverse effect on our results of operations and financial condition.

We maintain an investment portfolio of various short-term financial instruments. However, our investments, including our cash and cash equivalents, are subject to general credit, liquidity, market, and interest rate risk and these risks are heightened in the current economic environment. If the global credit markets continue to deteriorate, our investments may be negatively impacted, which could result in reduced liquidity or investment losses.

If customers reduce spending that is currently above contractual minimums, our revenue and profits could diminish.

Some of our outsourcing customers request services in excess of the minimum level of services required by the contract. These services are often in the form of project work and are discretionary to our customers. Our customers’ ability to continue discretionary project spending may depend on a number of factors including, but not limited to, their financial condition, and industry and strategic direction. Spending above contractual minimums by customers could end with limited notice and result in lower revenue and earnings. In the current economic climate, these amounts are at greater risk.

If we are unable to collect our receivables, our results of operations and cash flows could be adversely affected.

Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. The current economic downturn could result in financial difficulties for our clients, and as result cause clients to delay payments to us, request modifications to their payment arrangements or default on their payment obligations. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. We maintain allowances against receivables, but actual losses on client balances could differ from those that we currently anticipate and as a result we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients. In addition, timely collection of client balances depends on our ability to complete our contractual commitments and bill and collect our contracted revenues. If we are unable to meet our contractual requirements, we might experience delays in collection of and/or be unable to collect our client balances, and if this occurs, our results of operations and cash flows could be adversely affected.

We may bear the risk of cost overruns relating to software development and implementation services, and, as a result, cost overruns could adversely affect our profitability.

We provide services related to the development of software applications and the implementation of complex software packages for some of our customers. The effort and cost associated with the completion of these software development and implementation services are difficult to estimate and, in some cases, may significantly exceed the estimates made at the time we begin the services. We provide these software development and implementation services under time and materials and fixed-price contracts. The time and materials contracts are usually based on level-of-effort or direct costs plus a fee. Under those arrangements, we are able to bill our customer based on the actual cost of completing the services, even if the ultimate cost of the services exceeds our initial estimates. However, if the ultimate cost exceeds our initial estimate by a significant amount, we may have difficulty collecting the full amount that we are due under the contract, depending upon many factors, including the reasons for the increase in cost, our communication with the customer throughout the project, and the customer’s satisfaction with the services. As a result, we could incur losses with respect to these software development and implementation services even when they are priced on a time and materials basis. If we provide these software development or implementation services under a fixed-price contract, we bear all the risk that the ultimate cost of the project will exceed the price to be charged to the customer.

Our largest customers account for a substantial portion of our revenue and profits, and the loss of any of these customers could result in decreased revenue and profits.

Our 10 largest customers accounted for 33% of our revenue for 2008. Generally, we may lose a customer as a result of a merger or acquisition, contract expiration, the selection of another provider of information technology services, entry into strategic business and marketing alliances with other business partners, business failure or bankruptcy, or our performance. Our outsourcing contracts typically require us to maintain specified performance levels with respect to the services that we deliver to our customer, with the result that if we fail to perform at the specified levels, we may be required to pay or credit the customer with amounts specified in the contract. In the event of significant failures to deliver the services at the specified levels, a number of these contracts provide that the customer has the right to terminate the agreement. In addition, some of these contracts provide the customer the right to terminate the contract at the customer’s convenience. The customer’s right to terminate for convenience typically requires the customer to pay us a fee. We may not retain long-term relationships or secure renewals of short-term relationships with our large customers in the future.

Profitability of our contracts may be materially, adversely affected if we do not accurately estimate the costs of services and the timing of the completion of projects.

The services that we provide, and projects we undertake, pursuant to our contracts are increasingly complex. Our success in accurately estimating the costs of services and the timing of the completion of projects and other initiatives to be provided pursuant to our contracts is critical to our ability to price our contracts for long-term profitability. While these estimates reflect our best judgment regarding preexisting costs, efficiencies that we will be able to deliver, and resources that will be required for implementation and performance, any increased or unexpected costs, delays or failures to achieve anticipated cost reductions could materially, adversely affect the profitability of these contracts.

If entities we acquire fail to perform in accordance with our expectations or if their liabilities exceed our expectations, our profits could be diminished and our financial results could be adversely affected.

In connection with any acquisition we make, there may be liabilities that we fail to discover or that we inadequately assess. To the extent that the acquired entity failed to fulfill any of its contractual obligations, we may be financially responsible for these failures or otherwise be adversely affected. In addition, acquired entities may not perform according to the forecasts that we used to determine the price paid for the acquisition. If the acquired entity fails to achieve these forecasts, our financial condition and operating results may be adversely affected, including the potential for impairment of goodwill.

Development of our software products may cost more than we initially project, and we may encounter delays or fail to perform well in the market, which could decrease our profits.

Our business has risks associated with the development of software products. There is 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. In addition, there is the risk that the cost of product development differs materially from our estimates or a delay in product introduction may reduce the portion of the market captured by our product.

Our ability to perform on contracts on which we partner with third parties may be materially and adversely affected if these third parties fail to successfully or timely deliver their commitments.

Our engagements often require that our products and services incorporate or coordinate with the software or systems of other vendors and service providers. Our ability to deliver our commitments may depend on the delivery by these vendors and service providers of their commitments. If these third parties fail to deliver their commitments on time or at all, our ability to perform may be adversely affected, which could have a material adverse effect on our business, revenue, profitability or cash flow. In addition, in some cases, we may be responsible for the performance of other vendors or service providers delivering software, systems or other requirements.

Our government contracts contain early termination and reimbursement provisions that may adversely affect our revenue and profits.

Our Government Services line of business provides services as a contractor and subcontractor on various projects with U.S. government entities. Despite the fact that a number of government projects for which we serve as a contractor or subcontractor are planned as multi-year projects, the U.S. government normally funds these projects on an annual or more frequent basis. Generally, the government has the right to change the scope of, or terminate, these projects at its discretion or as a result of changes in laws or regulations that might affect our ability to qualify to perform the projects. The termination or a major reduction in the scope of a major government project could have a material adverse effect on our results of operations and financial condition. Approximately 99% of the revenue from the Government Services line of business in 2008 is from contracts with the U.S. government for which we serve as a contractor or subcontractor.

U.S. government entities audit our contract costs, including allocated indirect costs, or conduct inquiries and investigations of our business practices with respect to our government contracts. If the government finds that we incorrectly charged costs to a contract, the costs are not reimbursable or, if already reimbursed, the cost must be refunded to the government. If the government discovers improper or illegal activities in the course of audits or investigations, the contractor may be subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with the U.S. government. These government remedies could have a material adverse effect on our results of operations and financial condition.

Our operating results may be adversely affected by fluctuations in foreign currency exchange rates.

While we report our operating results in U.S. dollars, a percentage of our revenues is denominated in currencies other than the U.S. dollar. Although we hedge a portion of our foreign currency exposures, fluctuations in foreign currency exchange rates can have adverse effects on us.


	•	As we continue to leverage our global delivery model, more of our expenses are incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies, such as the Indian rupee, against the U.S. dollar could increase costs for delivery of services at offshore sites by increasing labor and other costs that are denominated in local currency, and there can be no assurance that our contractual provisions or our currency hedging activities would offset this impact. This could result in a decrease in the profitability of our contracts that are utilizing delivery center resources.

	•	Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies will affect our revenues, operating income and the value of balance-sheet items originally denominated in other currencies. Declines in the value of other currencies against the U.S. dollar could cause our consolidated earnings stated in U.S. dollars to be lower than our consolidated earnings in local currency and could affect our reported results when compared against other periods. Conversely, increases in the value of other currencies against the U.S. dollar could cause our consolidated earnings stated in U.S. dollars to be higher than our consolidated earnings in local currency and could affect our reported results when compared against other periods. There is no guarantee that our financial results will not be adversely affected by currency exchange rate fluctuations.

Our international operations expose our assets to increased risks and could result in business loss or in more expensive or less efficient operations.

We have operations in many countries around the world. In addition to the risks related to fluctuations in currency exchange rates and the additional risk associated with doing business in India discussed above, risks that affect these international operations include:


	•	complicated licensing and work permit requirements may hinder our ability to operate in some jurisdictions;

	•	our intellectual property rights may not be well protected in some jurisdictions;


	•	our operations may be vulnerable to terrorist actions or harmed by government responses;

	•	governments may restrict our ability to convert currencies or repatriate cash; and

	•	additional expenses and risks inherent in conducting operations in geographically distant locations, with customers speaking different languages and having different cultural approaches to the conduct of business.

We have a significant business presence in India, and risks associated with doing business there could decrease our revenue and profits.

A significant portion of our operations is located in India. In addition to the risks regarding fluctuations in currency exchange rates and regarding international operations discussed above, the following risks associated with doing business in India could decrease our revenue and profits:


	•	governments could enact legislation that restricts the provision of services from offshore locations;

	•	potential wage increases and retention of associates in India; and

	•	cost increases if the Government of India reduces or withholds tax benefits and other incentives provided to us or from the expiration of our existing tax holiday benefits in 2009 and 2010.

We could lose rights to our company name, which may adversely affect our ability to market our services.

We do not own the right to our company name. We have a license agreement with Ross Perot Jr., our Chairman, and the Perot Systems Family Corporation that allows us to use the name “Perot” and “Perot Systems” in our business on a royalty-free basis. Mr. Perot and the Perot Systems Family Corporation may terminate this agreement at any time and for any reason. Beginning one year following such a termination, we would not be allowed to use the names “Perot” or “Perot Systems” in our business. Mr. Perot’s or the Perot Systems Family Corporation’s termination of our license agreement could materially and adversely affect our ability to attract and retain customers, which could have a material adverse effect on our business, financial condition, and results of operations.

If we are unable to successfully integrate acquired entities, our profits may be less and our operations more costly or less efficient.

We have completed several acquisitions in recent years, and we will continue to analyze and consider potential acquisition candidates. Acquisitions involve significant risks, including the following:


	•	companies we acquire may have a lower quality of internal controls and reporting standards, which could cause us to incur expenses to increase the effectiveness and quality of the acquired company’s internal controls and reporting standards;

	•	we may have difficulty integrating the systems and operations of acquired businesses, which may increase anticipated expenses relating to integrating our business with the acquired company’s business and delay or reduce full benefits that we anticipate from the acquisition;

	•	integration of an acquired business may divert our attention from normal daily operations of the business, which may adversely affect our management, financial condition, and profits; and

	•	we may not be able to retain key employees of the acquired business, which may delay or reduce the full benefits that we anticipate from the acquisition and increase costs anticipated to integrate and manage the acquired company.

Our contracts generally contain provisions that could allow customers to terminate the contracts and sometimes contain provisions that enable the customer to require changes in pricing or require us to renegotiate pricing, decreasing our revenue and profits and potentially damaging our business reputation.

Our contracts with customers generally permit termination in the event our performance is not consistent with service levels specified in those contracts. The ability of our customers to terminate contracts creates an uncertain

revenue and profit stream. If customers are not satisfied with our level of performance, our reputation in the industry may suffer, which may also adversely affect our ability to market our services to other customers. Furthermore, some of our contracts contain pricing provisions that permit a customer to request a benchmark study by a mutually acceptable third-party benchmarker. Generally, if the benchmarking study shows that our pricing has a difference outside a specified range and the difference is not due to the unique requirements of the customer, then the parties will negotiate in good faith any appropriate adjustments to the pricing. This may result in the reduction of our rates for the benchmarked services and could negatively impact our results of operations or cash flow. Our fixed-price contracts that have per-unit pricing adjustments for service volumes that exceed or fall below a specified range of volumes generally also have a limit on these adjustments, requiring renegotiation if volumes greatly exceed or fall below a specified range of volumes, which could result in reduced revenues and profits.

Some contracts contain fixed- and unit-price provisions or penalties that could result in decreased profits.

Some of our contracts contain pricing provisions that require the payment of a set fee or per-unit fee by the customer for our services regardless of the costs we incur in performing these services, or provide for penalties in the event we fail to achieve certain service levels. In such situations, we are exposed to the risk that we will incur significant unforeseen costs or such penalties in performing the services under the contract.

If we fail to compete successfully in the highly competitive markets in which we operate, our business, financial condition, and results of operations will be materially and adversely affected.

We operate in extremely competitive markets, and the technology required to meet our customers’ needs changes. In both of our lines of business, we frequently compete with companies that have greater financial resources; more technical, sales, and marketing capacity; and larger customer bases than we do. Because many of the factors on which we compete are outside of our control, we cannot be sure that we will be successful in the markets in which we compete. If we fail to compete successfully, our business, financial condition, and results of operations will be materially and adversely affected.

Increasingly complex regulatory environments may increase our costs.

Our customers are subject to complex and constantly changing regulatory environments. These regulatory environments change and in ways that cannot be predicted. For example, our financial services customers are subject to domestic and foreign privacy and electronic record handling rules and regulations, and our customers in the healthcare industry have been made subject to increasingly complex and pervasive privacy laws and regulations. These regulations may increase our potential liabilities if our services contribute to a failure by our customers to comply with the regulatory regime and may increase the cost to comply as regulatory requirements increase or change.

Our quarterly financial results may vary.

We expect our financial results to vary from quarter to quarter. Such variations are likely to be caused by many factors that are, to some extent, outside our control, including:


	•	the mix, timing, and completion of customer projects;

	•	unforeseen costs on fixed- or unit-price contracts;

	•	implementation and transition issues with respect to new contracts;

	•	hiring, integrating, retaining, and utilizing associates;

	•	the timing of new contracts and changes in scope of services performed under existing contracts;

	•	the resolution of outstanding tax issues from prior years;

	•	the issuance of common shares and options, together with acquisition and integration costs, in connection with acquisitions;


	•	currency exchange rate fluctuations; and

	•	costs to exit certain activities or terminate projects.

Accordingly, we believe that quarter-to-quarter comparisons of financial results for preceding quarters are not necessarily meaningful. You should not rely on the results of one quarter as an indication of our future performance.

The use of derivative financial instruments exposes us to credit and market risk.

By using derivative financial instruments, we are exposed to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, our credit risk will equal the fair-value gain in a derivative financial instrument. Generally, when the fair value of a derivative financial instrument is positive, this indicates that the counterparty owes us, thus creating a repayment risk for us. When the fair value of a derivative financial instrument is negative, we owe the counterparty and, therefore, assume no repayment risk. We minimize the credit (or repayment) risk in derivative financial instruments by entering into transactions with high-quality counterparties that are reviewed periodically by our Treasurer.

Changes in technology could adversely affect our competitiveness, revenue, and profit.

The markets for our information technology services change rapidly because of technological innovation, new product introductions, changes in customer requirements, declining prices, and evolving industry standards, among other factors. New products and new technology often render existing information services or technology infrastructure obsolete, excessively costly, or otherwise unmarketable. As a result, our success depends on our ability to timely innovate and integrate new technologies into our service offerings. We cannot guarantee that we will be successful at adopting and integrating new technologies into our service offerings in a timely manner.

Failure to recruit, train, and retain technically skilled personnel could increase costs or limit growth.

We must continue to hire and train technically skilled people in order to perform services under our existing contracts and new contracts into which we will enter. The people capable of filling these positions have historically been in great demand, and recruiting and training such personnel requires substantial resources. We may be required to pay an increasing amount to hire and retain a technically skilled workforce. In addition, during periods in which demand for technically skilled resources is great, our business may experience significant turnover. These factors could create variations and uncertainties in our compensation expense and efficiencies that could directly affect our profits. If we fail to recruit, train, and retain sufficient numbers of these technically skilled people, our business, financial condition, and results of operations may be materially and adversely affected.

Alleged or actual infringement of intellectual property rights could result in substantial additional costs.

Our suppliers, customers, competitors, and others may have or obtain patents and other proprietary rights that cover technology we employ. We are not, and cannot be, aware of all patents or other intellectual property rights of which our services may pose a risk of infringement. Others asserting rights against us could force us to defend ourselves or our customers against alleged infringement of intellectual property rights. We could incur substantial costs to prosecute or defend any intellectual property litigation, and we could be forced to do one or more of the following:


	•	cease selling or using products or services that incorporate the disputed technology;

	•	obtain from the holder of the infringed intellectual property right a license to sell or use the relevant technology; or

	•	redesign those services or products that incorporate such technology.

Provisions of our certificate of incorporation, bylaws, and Delaware law could deter takeover attempts.

Our Board of Directors may issue up to 5,000,000 shares of preferred stock and may determine the price, rights, preferences, privileges, and restrictions, including voting and conversion rights, of these shares of preferred stock without any further vote or action by our stockholders. The rights of the holders of common stock will be

subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may make it more difficult for a third party to acquire a majority of our outstanding voting stock.

Some provisions of our certificate of incorporation and bylaws and of Delaware General Corporation Law could also delay, prevent, or make more difficult a merger, tender offer, or proxy contest involving our company. Among other things, these provisions:


	•	require a 662/3% vote of the stockholders to amend our certificate of incorporation or approve any merger or sale, lease, or exchange of all or substantially all of our property and assets;

	•	require an 80% vote for stockholders to amend our bylaws;

	•	require advance notice for stockholder proposals and director nominations to be considered at a vote of a meeting of stockholders;

	•	permit only our Chairman, President, or a majority of our Board of Directors to call stockholder meetings, unless our Board of Directors otherwise approves;

	•	prohibit actions by stockholders without a meeting, unless our Board of Directors otherwise approves; and

	•	limit transactions between our company and persons who acquire significant amounts of stock without approval of our Board of Directors.


Item 1B.	*Unresolved Staff Comments*

None.


Item 2.	*Properties*

As of December 31, 2008, we had offices in approximately 100 locations in the United States and nine countries outside the United States. Our office space and other facilities cover approximately 3,000,000 square feet. We own our corporate headquarters facility in Plano, Texas. Our Industry Solutions line of business uses the corporate headquarters facility and data center. The Government Services line of business does not make significant use of the facility. In addition, we own two campus facilities in India. We own the buildings and lease the land (under a 99-year lease agreement) of our Delhi facility and we own both the land and buildings of our Bangalore facility. The majority of our remaining office space and other facilities are leased.

In addition to these properties, we also occupy office space at customer locations throughout the world. We generally occupy this space under the terms of the agreement with the particular customer. We believe that our current facilities are suitable and adequate for our business.

We have commitments related to data processing facilities, office space, and computer equipment under non-cancelable operating leases and fixed maintenance agreements for remaining periods ranging from one to 10 years. We have disclosed future minimum commitments under these leases and agreements as of December 31, 2008, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 16, “Commitments and Contingencies,” to the Consolidated Financial Statements, which are included elsewhere in this report. Upon expiration of our leases, we do not anticipate any significant difficulty in obtaining renewals or alternative space.


Item 3.	*Legal Proceedings*

We are, from time to time, involved in various litigation matters. We do not believe that the outcome of the litigation matters in which we are currently a party, either individually or taken as a whole, will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, we cannot predict with certainty any eventual loss or range of possible loss related to such matters.

We currently purchase and intend to continue to purchase the types and amounts of insurance coverage customary for the industry and geographies in which we operate. We have evaluated our risk and consider the coverage we carry to be adequate both in type and amount for the business we conduct.

IPO Allocation Securities Litigation

In July and August 2001, we, as well as some of our current and former officers and directors and the investment banks that underwrote our initial public offering, were named as defendants in two purported class action lawsuits seeking unspecified damages for alleged violations of the Securities Exchange Act of 1934 and the Securities Act of 1933. These cases focus on alleged improper practices of investment banks. Our case has been consolidated for pretrial purposes with approximately 300 similar cases in the IPO Allocation Securities Litigation and certain issues, including class certification issues, are being considered in a limited number of test cases. In December 2006, the Second Circuit Court of Appeals vacated the trial court’s class certifications in the test cases, finding the predominance of common questions over individual questions that is required for class certification cannot be met by those plaintiffs.

Other

In addition to the matters described above, we have been, and from time to time are, named as a defendant in various legal proceedings in the normal course of business, including arbitrations, class actions and other litigation involving commercial and employment disputes. Certain of these proceedings include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. We are contesting liability and/or the amount of damages in each pending matter.


Item 4.	*Submission of Matters to a Vote of Security Holders*

We did not submit any matters to a vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2008.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities*

Our Class A Common Stock is traded on the New York Stock Exchange (the “NYSE”) under the symbol “PER.” The table below shows the range of reported per share sales prices for each quarterly period within the two most recent fiscal years.


	High		Low

2007
First Quarter	$	18.21	$	15.64
Second Quarter		18.70		16.13
Third Quarter		17.37		14.53
Fourth Quarter		17.65		12.58
2008
First Quarter	$	15.63	$	11.10
Second Quarter		16.93		14.67
Third Quarter		18.82		14.79
Fourth Quarter		17.29		10.71

The last reported sale price of our Class A Common Stock on the NYSE on February 20, 2009, was $11.34 per share. As of February 20, 2009, the approximate number of record holders of our Class A Common Stock was 2,305.

We have never paid cash dividends on shares of our Class A Common Stock and have no current plans to pay dividends in the future.

Issuer Purchases of Equity Securities

The following table provides information relating to our purchase of common stock for the fourth quarter of 2008.

Approximate

Dollar

Total Number

Value of

of Shares

Shares that

Average

Purchased as

May Yet

Total Number

Price

Part of

Be Purchased

of Shares

Paid per

Publicly Announced

Under the

Period

Purchased(1)

Share

Plans(2)

November 1, 2008 to November 30, 2008

1,723,000

11.62

1,723,000

37,800,000


(1)		Shares of Class A Common Stock.

(2)		Shares of Class A Common Stock. The plan that existed at December 31, 2007, was replaced by a new stock buyback program adopted on February 26, 2008, authorizing the purchase of up to $75 million of our common stock. The program authorizes the purchase of our common stock from time to time in the open market, under a Rule 10b5-1 plan, or through privately negotiated, block transactions, which may include substantial blocks purchased from unaffiliated holders.

Performance Graph

The graph below compares the performance of our Class A Common Stock since December 31, 2003.

COMPARISON OF CUMULATIVE TOTAL RETURN AMONG PEROT SYSTEMS CORPORATION, NYSE MARKET INDEX AND HEMSCOTT GROUP INDEX

ASSUMES $100 INVESTED ON DEC. 31, 2003.

Equity Compensation Plan Information

The following table gives information about our Class A Common Stock that may be issued under our equity compensation plans as of December 31, 2008. See Note 10, “Common and Preferred Stock,” and Note 11, “Stock Options and Stock-Based Compensation,” to the Consolidated Financial Statements included herein for information regarding the material features of these plans.

Number of

Securities Remaining

Number of

Available for

Securities to

Future Issuance

be Issued

Weighted-Average

Under Equity

Upon Exercise

Exercise Price of

Compensation Plans

of Outstanding

Outstanding Options,

(Excluding Securities

Options, Warrants

Warrants and

Reflected in

Plan Category

and Rights

Rights

Column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

11,302,714

(1)

15.86

40,550,048

(2)

Equity compensation plans not approved by security holders

4,117,253

13.56

21,029

(3)

Total

15,419,967

15.25

40,571,077


(1)		Excludes 1,030,473 restricted stock units that have been granted under the 2001 Long-Term Incentive Plan.

(2)		Includes 35,868,380 shares available to be issued under the 2001 Long-Term Incentive Plan, 4,301,668 shares available to be issued under the 1999 Employee Stock Purchase Plan, and 380,000 shares available to directors for annual equity compensation.

(3)		Shares available to be issued to directors who elect to receive stock in lieu of their cash retainer.


Item 6.	*Selected Financial Data*

We have derived the following consolidated statement of income data for 2008, 2007, and 2006 and consolidated balance sheet data as of December 31, 2008 and 2007 from our financial statements included herein. We have derived the following statement of income data for 2005 and 2004 and consolidated balance sheet data as of December 31, 2006, 2005, and 2004 from our 2006 Form 10-K filed on February 28, 2007 and our 2005 Form 10-K filed on February 27, 2006. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related Notes to Consolidated Financial Statements, which are included herein.


	Year Ended December 31,
	2008			2007			2006		2005		2004
	(Dollars in millions, except per share data)

Operating Data:
Revenue	$	2,779		$	2,612		$	2,298	$	1,998	$	1,773
Direct cost of services		2,292			2,130			1,905		1,575		1,405

Gross profit		487			482			393		423		368
Selling, general and administrative expenses		301			298			280		249		236

Operating income		186			184			113		174		132
Interest income (expense), net		(2	)		(3	)		5		4		1
Other income, net		3			1			2		2		2

Income before taxes		187			182			120		180		135
Provision for income taxes		70			67			39		69		41

Net income	$	117		$	115		$	81	$	111	$	94

Earnings per share of common stock:
Basic, Class A	$	0.98		$	0.94		$	0.67	$	0.94	$	0.82
Basic, Class B				$	0.94		$	0.67	$	0.94	$	0.82
Diluted	$	0.97		$	0.92		$	0.66	$	0.91	$	0.78
Diluted, Class B				$	0.92		$	0.66	$	0.91	$	0.78
Weighted average number of common shares outstanding (in thousands):
Basic, Class A		120,144			121,759			118,686		115,973		111,921
Basic, Class B					566			817		1,907		3,282
Diluted		121,924			124,650			122,118		121,867		120,532
Diluted, Class B					566			817		1,965		4,040
Balance Sheet Data (at Period End):
Cash and cash equivalents	$	234		$	187		$	250	$	260	$	305
Total assets		1,978			1,900			1,581		1,371		1,226
Long-term debt		181			213			84		77		—
Stockholders’ equity		1,305			1,243			1,105		961		862
Other Data:
Capital expenditures	$	55		$	75		$	93	$	70	$	33


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related Notes to the Consolidated Financial Statements, which are included herein.

Overview

Our Services

Our customers may contract with us for any one or more of the following categories of services:


	•	Infrastructure services

	•	Applications services

	•	Business process services

	•	Consulting services

Infrastructure Services

Applications Services

Business Process Services

Consulting Services

Our Contracts


	•	Approximately 49% of our revenue was from fixed-price contracts and per-unit priced contracts. Under fixed-price contracts, our customers pay us a set amount for contracted services. Fixed-price contracts frequently include a variable component of pricing based on service volumes that exceed or fall below a defined range of volumes, which adds a per-unit pricing component to these fixed-price arrangements. For some fixed-price contracts, the price is set so the customer realizes immediate savings in relation to their current expense for the services we will be performing. On contracts of this nature, our profitability generally increases over the term of the contract as we become more efficient. The time that it takes for us to realize these efficiencies can range from a few months to a few years, depending on the complexity of the services. Under per-unit priced contracts, our customers pay us based on the volumes of units provided at the unit rate specified. In some contracts, the per-unit prices may vary over the term of the contract, which may result in the customer realizing immediate savings at the beginning of the contract.

	•	Approximately 30% of our revenue was from time and materials contracts where our billings are based on measurements such as hours, days or months, and an agreed upon rate. In some cases, the rate the customer pays for a unit of time can vary over the term of a contract, which may result in the customer realizing immediate savings at the beginning of a contract.

	•	Approximately 21% of our revenue was from cost plus contracts where our billings are based in part on the amount of expense we incur in providing services to a customer.

Depending on a customer’s business requirements and the pricing structure of the contract, the amount of profit generated from a contract can vary significantly during a contract’s term. With fixed- or unit-priced contracts, an outsourcing services arrangement will typically produce less profit at the beginning of the contract with significantly more profit being generated as efficiencies are realized later in the term. With a cost plus contract, the amount of profit generated tends to be relatively consistent over the term of the contract.

Our Lines of Business

As of July 1, 2008, we combined our Consulting and Applications Solutions line of business with our Industry Solutions line of business, resulting in a reduction from three reportable segments to two reportable segments: Industry Solutions and Government Services. We include financial information and disclosures about these

reportable segments in our consolidated financial statements. You can find this financial information in Note 15, “Segment and Certain Geographic Data,” of the Notes to Consolidated Financial Statements included herein. This realignment helps us unify teams where these two lines of business had an overlap in markets, leverage our domain expertise, and build upon the growing collaboration between these lines of business in providing globally delivered services.

Industry Solutions, our largest line of business, provides services to our customers primarily under long-term contracts in strategic relationships. These services include technology and business process services, as well as industry domain-based, short-term project and consulting services. Industry Solutions also provides software-related services, including the implementation of prepackaged software applications, application development and maintenance, and application systems migration and testing under short-term contracts related to specific projects. The Government Services segment provides information technology infrastructure and application services, consulting, engineering support, and technology-based business process solutions for the Department of Defense, the Department of Homeland Security, various civilian agencies including the Department of Education and NASA, various federal intelligence agencies, and other governmental agencies. Based on a quantitative and qualitative analysis of varying factors, we may increase or decrease the amount of ongoing investment in both of these business areas, make acquisitions that strengthen our market position, or divest, exit, or downsize aspects of a business area.

Results of Operations

Overview of Our Financial Results for 2008

Our financial results are affected by a number of factors, including broad economic conditions, the amount and type of technology spending by our customers, and the business strategies and financial condition of our customers and the industries we serve, which could result in increases or decreases in the amount of services that we provide to our customers and the pricing of such services. Our ability to identify and effectively respond to these factors is important to our future financial growth.

We are monitoring current macroeconomic and credit market conditions and levels of business confidence and their potential effect on our clients and on us. A severe or prolonged economic downturn could adversely affect our clients’ financial condition and the levels of business activities in the industries and geographies in which we operate. This could reduce demand and depress pricing for our services, especially with respect to discretionary project services that are above contractual backlog. Non-backlog revenues represented approximately 33.6% of our revenues in 2008. Additionally, our clients and suppliers may be unable to generate cash flows or obtain financing to meet payment or delivery obligations to us, may decide to downsize, or may defer or cancel contracts, all of which could negatively affect revenue. These potential consequences of a severe or prolonged economic downturn could have a material adverse effect on our results of operations or financial condition.

We evaluate our consolidated performance on the basis of several performance indicators. The four key performance indicators we use are revenue growth, earnings growth, free cash flow, and the value of contracts signed. We compare these key performance indicators to both annual target amounts established by management and to our performance for prior periods. We establish the targets for these key performance indicators primarily on an annual basis, but we may revise them during the year. We assess our performance using these key indicators on a quarterly and annual basis.

Certain of these performance indicators are extracted from consolidated financial information and are not required by generally accepted accounting principles (GAAP) and are considered “non-GAAP financial measures” as defined by SEC rules. Specifically, we refer to free cash flow. As required by SEC rules, we provide a reconciliation of each non-GAAP financial measure and an explanation why we believe that the presentation of the non-GAAP financial measure provides useful information to investors. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP.

Revenue Growth

Revenue growth is a measure of the growth we generate through sales of services to new customers, retention of existing contracts, acquisitions, and discretionary services from existing customers. Revenue for 2008 grew by 6.4% as compared to 2007. As discussed in more detail below, this revenue growth came primarily from the following:


	•	Revenue from new contracts signed during 2008 and from new contracts signed in 2007 for which we did not recognize a full year of revenue in 2007.

	•	Revenue from companies acquired in the second and fourth quarters of 2008 and revenue from companies acquired in the first and third quarters of 2007 for which we did not recognize a full year of revenue in 2007.

	•	Revenue from expansion of base services from existing accounts and project work.

Offsetting these increases was a decrease in revenue due to the termination of a services agreement in the fourth quarter of 2007. See Note 13 “Customer Contract Termination” to the Consolidated Financial Statements, which are included herein.

Earnings Growth

We measure earnings growth using diluted earnings per share, which is a measure of our effectiveness in delivering profitable growth. Diluted earnings per share for 2008 increased 5.4% to $0.97 per share from $0.92 per share for 2007. This increase came primarily from:


	•	Industry Solutions, which contributed $84 million of growth or approximately $0.43 per diluted share due to additional project work on existing contracts, increasing the profitability of outsourcing contracts, the profit impact of new contracts and acquisitions, and profit improvement related to our cost reduction activities initiated in the fourth quarter of 2007.

These improvements to our earnings were partially offset by:


	•	An increase in incentive compensation of $38 million, or approximately $0.20 per diluted share.

	•	An $8 million reduction in earnings, or approximately $0.04 per diluted share, in Government Services, primarily attributable to losses in 2008 on a project that ended during the year, partially offset by profit improvement in outsourcing contracts.

In addition, the comparison of 2008 to 2007 earnings was impacted by:


	•	A decrease of $18 million in expense related to cost reduction activities implemented in 2007 of approximately $0.09 per diluted share.

	•	A decrease of $46 million in earnings, or approximately $0.23 per diluted share, due to the termination of a services agreement in the fourth quarter of 2007. See Note 13 “Customer Contract Termination” to the Consolidated Financial Statements.

Free Cash Flow

We calculate free cash flow as net cash provided by operating activities less purchases of property, equipment and purchased software, as stated in our consolidated statements of cash flows. We use free cash flow as a measure of our ability to generate cash for both our short-term and long-term operating and business expansion needs. We believe this measure provides important supplemental information to investors and allows them to assess our ability to meet our working capital requirements and business expansion needs. Free cash flow for the year ended December 31, 2008, was $162 million as compared to $43 million for the year ended December 31, 2007. Free cash

flow, which is a non-GAAP measure, can be reconciled to “Net cash provided by operating activities” as follows (in millions):


	Year Ended December 31
	2008			2007

Net cash provided by operating activities	$	217		$	118
Purchases of property, equipment and purchased software		(55	)		(75	)

Free cash flow	$	162		$	43

See “Liquidity and Capital Resources” below for additional discussion of net cash provided by operating activities (under “Operating Activities”) and additional discussion of our purchases of property, equipment and purchased software (under “Investing Activities”).

TCV of Contracts Signed

The amount of “Total Contract Value” (commonly referred to as TCV) that we sell during a 12-month period is a measure of our success in capturing new business in the various outsourcing and consulting markets in which we provide services and includes contracts with new customers and contracts for new services with existing customers. We measure TCV as our estimate of the total expected revenue from contracts that are expected to generate revenue in excess of a defined amount during a contract term that exceeds a defined length of time.

Various factors may impact the timing of the signing of contracts with customers, including the complexity of the contract, competitive pressures, and customer demands. As a result, we generally measure our success in this area over a 12-month period because of the significant variations that typically occur in the amount of TCV signed during each quarterly period. During the 12-month period ended December 31, 2008, the amount of TCV signed was $0.9 billion, as compared to $1.8 billion for the 12-month period ended December 31, 2007.

During the second half of 2008, we believe that macroeconomic events caused a reduced level of contract signings as client decision making slowed and sales cycles lengthened. While this limited our 2008 new contract signings, we did not experience the same reduction in total bookings, which remained strong in 2008 and included several contract extensions.

Additional Measurements

Both of our primary lines of business have distinct economic factors, business trends, and risks that could affect our results of operations. As a result, in addition to the four metrics discussed above that we use to measure our consolidated financial performance, we use similar metrics for both of these lines of business and for certain industry groups and operating units within these lines of business.

Comparison of 2008 to 2007

Revenue

Revenue for 2008 increased from 2007 across all segments. Below is a summary of our revenue for 2008 as compared to 2007 (in millions):


	Year Ended December 31
	2008			2007			$ Change			% Change

Industry Solutions	$	2,128		$	2,060		$	68			3.3	%
Government Services		654			554			100			18.1	%
Elimination of intersegment revenue		(3	)		(2	)		(1	)		50.0	%

Total	$	2,779		$	2,612		$	167			6.4	%

We combined our Consulting and Applications Solutions line of business with our Industry Solutions line of business, resulting in a reduction from three segments to two segments: Industry Solutions and Government Services. See Note 15, “Segment and Certain Geographic Data,” for further discussion.

Industry Solutions

The net increase in revenue from the Industry Solutions segment for 2008 as compared to 2007 was primarily attributable to:


	•	$101 million increase from new contracts signed during 2008 and from new contracts signed in 2007 for which we did not recognize a full year of revenue in 2007. This increase was composed of $68 million and $33 million in revenue from new contracts signed in the Commercial and Healthcare groups, respectively. The services that we are providing to these new customers are primarily the same services that we provide to the majority of our other long-term outsourcing customers.

	•	$59 million increase from revenue related to acquisitions within our Commercial group during the second quarter, and an acquisition within our Healthcare group during the fourth quarter of 2008, and revenue related to an acquisition during the third quarter of 2007.

	•	$42 million net increase from existing accounts and short-term project work. This net increase resulted from expanding our base services to existing long-term customers and from providing additional discretionary services to these customers. The discretionary services that we provide, which include short-term project work, can vary from period to period depending on many factors, including specific customer and industry needs and economic conditions.

Partially offsetting these increases was a $134 million decrease in revenue due to the termination of a services agreement in 2007. See Note 13 “Customer Contract Termination” to the Consolidated Financial Statements.

Government Services

The $100 million, or 18.1%, net increase in revenue from the Government Services segment for 2008 as compared 2007 was primarily attributable to the ramp up of new contracts, an increase in base services to existing customers, and to the acquisition of QSS Group, Inc. (QSS) on January 30, 2007. Prior to the acquisition, QSS had recognized $25 million in revenue in the first quarter of 2007. Our business with the federal government will fluctuate due to annual federal funding limits and the specific needs of the federal agencies we serve.

Domestic Revenue

Domestic revenue grew by 5.4% in 2008 to $2,423 million from $2,298 million in 2007. The growth in domestic revenue is due to $159 million increase in domestic revenue within our Industry Solutions line of business due to acquisitions, growth in existing accounts, and new contracts signed in 2008 and from new contracts signed in 2007 for which we did not recognize a full year of revenue in 2007, and $100 million increase in domestic revenue within our Government Services line of business due to the ramp up of new contracts, an increase in base services to existing customers, and to the acquisition of QSS on January 30, 2007. Partially offsetting these increases was a $134 million decrease in domestic revenue within our Industry Solutions line of business due to the termination of a customer contract in 2007. See Note 13 “Customer Contract Termination” to the Consolidated Financial Statements.

Non-domestic Revenue

Non-domestic revenue, consisting primarily of European and Asian operations, increased by 13.4% in 2008 to $356 million from $314 million in 2007. The revenue growth was driven by European operations, which generated revenue of $208 million in 2008, as compared to $165 million in 2007. The largest components of our European operations are in the United Kingdom and Germany. In the United Kingdom, revenue for 2008 increased to $123 million from $112 million primarily due to growth of existing accounts. Revenue in Germany increased to $62 million for 2008 from $36 million for 2007 due to growth of existing accounts and our acquisition of HighQ^IT for the manufacturing industry GmbH (“HighQ^IT”) (See Note 5, “Acquisitions”).

Gross Margin

Gross margin, which is calculated as gross profit divided by revenue, for 2008 was 17.5% of revenue, as compared to the gross margin for 2007 of 18.5%. This year-to-year decrease in gross margin was primarily due to the following:


	•	The termination of a services agreement during 2007, which contributed $46 million of termination-related profit in the fourth quarter of 2007. See Note 13 “Customer Contract Termination” to the Consolidated Financial Statements.

	•	Increased incentive compensation, net of amounts reimbursable by our customers, which reduced gross profit by $22 million.

	•	An $8 million reduction in gross margin for Government Services, primarily attributable to losses on a project that ended during the year, partially offset by profit improvement in outsourcing contracts.

These decreases to gross margin were partially offset by an $81 million improvement in Industry Solutions gross profit due to incremental project work on existing accounts, increasing profitability of outsourcing contracts, the profit impact of new contracts and acquisitions, and profit improvement related to cost reduction activities initiated in the fourth quarter of 2007.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 2008 increased 1.0% to $301 million from $298 million in 2007. The increase in SG&A was primarily caused by an increase in employee incentive compensation and other employee related costs, offset by a decrease in SG&A of $18 million associated with cost reduction activities in 2007.

As a percentage of revenue, SG&A for 2008 was 10.8% of revenue, which was slightly lower than SG&A for 2007 of 11.4% of revenue.

Other Income Statement Items

Our effective income tax rate for the year ended December 31, 2008, was 37.4% as compared to 36.8% for the year ended December 31, 2007. Income tax expense for 2008 includes a charge to revalue deferred tax assets resulting from the extension of a holiday applicable to our India operations, offset by benefits attributable to our foreign operations. See Note 14, “Income Taxes” for a further explanation of the effective tax rate.

Reserves for Uncertain Tax Positions

As discussed in Note 14, “Income Taxes” of the Notes to the Consolidated Financial Statements, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” as of January 1, 2007. At December 31, 2008, we had gross reserves for uncertain tax positions totaling $16 million. We believe that we will reach resolution within the next 12 months on certain issues under audit by the Internal Revenue Service for tax years ended December 31, 2003 and December 31, 2004. Consequently, we anticipate a change to the total amount of unrecognized tax benefits within the next 12 months, the amount of which cannot be determined at this time.

Comparison of 2007 to 2006

Revenue

Revenue for 2007 increased from 2006 across both segments. Below is a summary of our revenue for 2007 as compared to 2006 (in millions):


	Year Ended December 31
	2007			2006			$ Change		% Change

Industry Solutions	$	2,060		$	2,009		$	51		2.5	%
Government Services		554			291			263		90.4	%
Elimination of intersegment revenue		(2	)		(2	)		—		—

Total	$	2,612		$	2,298		$	314		13.7	%

Our UBS Relationship

UBS AG was our largest customer through December 31, 2006. We earned approximately 13.4% of our revenue in connection with services performed on behalf of UBS and its affiliates for 2006. We performed most of our services for UBS under an infrastructure outsourcing contract called the IT Services Agreement, which ended January 1, 2007. During 2006, the amount of annual revenue that we earned from UBS and its affiliates under the IT Services Agreement was $265 million, and the amount of gross profit earned was $58 million. We continue to provide applications services to UBS, which are provided outside the scope of the infrastructure outsourcing contract that ended January 1, 2007.

Industry Solutions

The net increase in revenue from the Industry Solutions segment for 2007 as compared to 2006 was primarily attributable to:


	•	$127 million net increase from existing accounts and short-term project work. This net increase resulted from expanding our base services to existing long-term customers and from providing additional discretionary services to these customers. The discretionary services that we provide, which include short-term project work, can vary from period to period depending on many factors, including specific customer and industry needs and economic conditions. This increase was primarily related to contracts in the healthcare industry.

	•	$84 million net increase from a Healthcare client, which includes $59 million of revenue recognized due to the contract termination, (see Note 13 “Customer Contract Termination” to the Consolidated Financial Statements) and $25 million increase in revenue primarily related to software implementation.

	•	$64 million increase from new contracts signed during 2007 and from new contracts signed in 2006 for which we did not recognize a full year of revenue in 2006. This increase was composed of $35 million, $26 million, and $3 million from new contracts signed in the Commercial, Healthcare, and Insurance and Business Process Solutions groups, respectively. The services that we are providing to these new customers are primarily the same services that we provide to the majority of our other long-term outsourcing customers.

	•	$28 million increase from revenue related to an acquisition within our Healthcare group during the third quarter of 2007.

	•	$13 million increase from revenue related to an acquisition within our Commercial group in the first quarter of 2006. The acquired company is a provider of product engineering outsourcing services.

Offsetting these increases was a $265 million decrease in revenue from the expiration of our infrastructure outsourcing contract with UBS on January 1, 2007.

Government Services

The $263 million, or 90.4%, net increase in revenue from the Government Services segment for 2007 as compared 2006 was primarily attributable to the $260 million in revenue from the acquisition of QSS, an information technology services company providing services to the U.S. federal government. Our business with the federal government will fluctuate due to annual federal funding limits and the specific needs of the federal agencies we serve.

Domestic Revenue

Domestic revenue grew by 21.2% in 2007 to $2,298 million from $1,896 million in 2006. Domestic revenue growth for our Industry Solutions segment came primarily from the healthcare industry, where we experienced strong growth from existing accounts and short-term project work, and from acquisitions within our Healthcare and Commercial groups. Offsetting these increases was a decrease in revenue from the expiration of our infrastructure outsourcing contract with UBS on January 1, 2007.

Non-domestic Revenue

Non-domestic revenue, consisting primarily of European and Asian operations, decreased by 21.9% in 2007 to $314 million from $402 million in 2006. Asian operations generated revenue of $132 million in 2007 as compared to $135 million in 2006. This decrease was primarily due to the end of the UBS infrastructure outsourcing contract. The largest components of our European operations are in the United Kingdom and Germany. In the United Kingdom, revenue for 2007 decreased to $112 million from $182 million primarily due to the end of the UBS infrastructure outsourcing contract partially offset by increases in revenue from existing accounts and short-term project work. Revenue in Germany increased to $36 million for 2007 from $31 million for 2006. Revenue in Switzerland, which was primarily from the UBS infrastructure outsourcing contract in 2006, decreased to $2 million for 2007 from $34 million for 2006. The UBS infrastructure outsourcing contract ended January 1, 2007.

Gross Margin

Gross margin, which is calculated as gross profit divided by revenue, for 2007 was 18.5% of revenue, as compared to gross margin for 2006 of 17.1%. This year-to-year increase in gross margin was primarily due to the following:


	•	During the third quarter of 2006, we modified an existing contract that included both construction services and non-construction services. The construction services related to a software development and implementation project, which was modified to eliminate the fixed-price development and implementation deliverables in the original contract. Following the contract modification in September 2006, we impaired $44 million of the deferred costs and recorded this charge to direct cost of services in the consolidated income statements.

	•	$48 million increase in gross profit related to a client of which $46 million is related to the termination of the services agreement discussed in Note 13 “Customer Contract Termination” to the Consolidated Financial Statements.

	•	$15 million reduction to employee-related expenses, consisting of incentive compensation.

These improvements to our gross margin were partially offset by:


	•	$58 million decrease in gross profit from the expiration of our infrastructure outsourcing contract with UBS that is reported within the Industry Solutions line of business.

	•	Reduced gross margin for Government Services primarily attributable to the acquisition of QSS. The gross margins associated with the acquisition are typically lower than those we realize within our consolidated margins because of the cost plus nature of their work. Additionally, lower margins were realized within our


		Government Services group as a result of contract scope reductions on existing contracts related to federal government budget pressure.


	•	Reductions to gross margin within Industry Solutions as a result of a renegotiated contract that will not reach full levels of profitability until after 2007 and profit pressures from new contracts signed in the last two years.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 2007 increased 6.4% to $298 million from $280 million in 2006. The increase resulted primarily from $23 million in SG&A related to our acquisitions in the first and third quarter of 2007 and $18 million recorded in the fourth quarter of 2007 associated with cost reduction activities. These increases were partially offset by a $12 million decrease in associate incentive compensation in 2007. Additionally, 2006 included $5 million of expense related to cost reduction activities and an asset impairment.

As a percentage of revenue, SG&A for 2007 was 11.4% of revenue, which was slightly lower than SG&A for 2006 of 12.2% of revenue. The decrease in SG&A as a percentage of revenue was primarily due to the lower SG&A rate on a business acquired in 2007, the decrease in incentive compensation in 2007 mentioned above, the impact of the $59 million of revenue recognized in the fourth quarter of 2007 as a result of the termination of a services agreement, as discussed in Note 13 “Customer Contract Termination” to the Consolidated Financial Statements, and the $5 million of expense related to cost reduction activities and an asset impairment recorded in 2006. Partially offsetting these decreases is $18 million of expense recorded in the fourth quarter of 2007 related to cost reduction activities.

Other Income Statement Items

Interest income for 2007 decreased by $2 million as compared to 2006 due primarily to lower average balances of cash and cash equivalents and short-term investments during 2007 as compared to 2006. Interest expense for 2007 increased by $6 million as compared to 2006 due primarily to higher debt.

Our effective income tax rate for the year ended December 31, 2007, was 36.8% as compared to 32.5% for the year ended December 31, 2006. The increase in the effective tax rate is primarily due to additional taxes from the expiration of one of our tax holidays in India and higher state income taxes, and is offset by a $2 million tax benefit from the reduction of a valuation allowance against our deferred tax assets in Europe. Income tax expense for 2006 included a greater benefit related to tax-exempt investment income. The increase in effective tax rate from December 31, 2006 to December 31, 2007 is further explained in Note 14, “Income Taxes.”

Liquidity and Capital Resources

At December 31, 2008, we had cash and cash equivalents of $234 million, of which $138 million was held by our foreign subsidiaries. We also had short-term investments of $36 million at December 31, 2008, which were held in the U.S. While we are aware of no restrictions on access to our cash balances in any foreign jurisdiction, it is our intent to permanently reinvest our foreign earnings or to remit such earnings to the U.S. in a tax-free manner, and we do not provide for U.S. income tax on the undistributed earnings of our foreign subsidiaries, as described more fully in Note 14, “Income Taxes,” to the Consolidated Financial Statements.

During 2008, cash and cash equivalents increased $47 million as compared to decreases of $63 million and $10 million for 2007 and 2006, respectively.

We believe that we will be able to meet our future liquidity and cash needs through a combination of cash flows from operating activities, existing cash balances, our available line of credit, and other financing activities. However, during this current economic downturn, we continue to actively monitor the financial markets. Although the condition of these markets continues to be volatile, we believe we will continue to have access to them if the need arises, although their volatility could directly affect the cost and terms of any future debt financing, which could in turn impact our decisions to make acquisitions, purchase shares of our Class A common stock, or make other investments in our business.

Operating Activities

Net cash provided by operating activities was $217 million in 2008 as compared to $118 million in 2007 and $213 million in 2006. The primary reasons for the changes in cash provided by operating activities for these three years are as follows:


	•	Net income was $117 million, $115 million, and $81 million in 2008, 2007, and 2006, respectively. Depreciation and amortization expense, which are non-cash expenses, were $112 million, $104 million, and $79 million in 2008, 2007, and 2006, respectively. The increase in depreciation and amortization expense in 2008 as compared to 2007 and 2006 was due primarily to amortization of deferred contract costs and depreciation and amortization expense on property, equipment, and purchased software. The increased depreciation and amortization expense from property, equipment, and purchased software is associated primarily with acquisitions and our recent data center expansion. The increased amortization of deferred contract costs is primarily associated with transition services and new contract signings.

	•	During 2008, cash provided due to changes in accounts receivables was $24 million, compared to cash used in 2007 and 2006 of $63 million and $49 million, respectively. We typically collect our accounts receivable within 60-65 days, and therefore our accounts receivable balance at the end of each period can change based on the amount of revenue for that period and the timing of collection from our customers, which may vary significantly from period to period.

	•	Cash used in accounts payable and accrued liabilities was $3 million in 2008, and cash provided by accounts payable and accrued liabilities was $4 million and $33 million in 2007 and 2006. This change is primarily due to the timing of vendor payments.

	•	Incentive compensation paid to associates in 2008, 2007, and 2006 (including payments of annual bonuses relating to the prior year’s bonus plan) were $34 million, $58 million, and $72 million, respectively. Included in the bonus amounts that were paid in 2008, 2007, and 2006 were approximately $7 million, $4 million, and $24 million, respectively, of bonus payments that are reimbursable by our customers. The amount of bonuses that we pay each year is based on several factors, including our financial performance and management’s discretion. The increase in accrued compensation in 2008 primarily represents accrued annual incentive compensation, which is expected to be paid in the first quarter of 2009.

	•	During 2008, 2007, and 2006, we made net cash payments for income taxes of $90 million, $52 million, and $50 million, respectively. Payments remitted in 2008 include amounts attributable to anticipated settlement of issues relating to prior tax periods.

	•	During 2008 and 2007, cash used in other current and non-current assets was $10 million and $1 million. This increase is largely attributable cash payments to customers in the form of a sales incentive. In 2006, cash provided due to changes in other current assets was $1 million.

	•	Deferred revenue received from clients was $12 million in 2008. During 2007, cash used due to changes in deferred revenue was $5 million. During 2007, there was a decrease in deferred revenue from clients as compared to 2006, due primarily to deferred revenue received in 2006 from a client whose services agreement terminated in the fourth quarter of 2007 (see Note 13 “Customer Contract Termination” to the Consolidated Financial Statements).

	•	During 2008 and 2007, we increased our spending on deferred contract costs as we entered into new contracts that require significant start-up costs in order to perform our contractual obligations.

Investing Activities

Net cash used in investing activities was $100 million for 2008 as compared to $298 million for 2007 and $255 million for 2006. These changes in cash used in investing activities were primarily attributable to the following:


	•	During 2008, we purchased $55 million of property, equipment and purchased software as compared to $75 million during 2007 and $93 million during 2006. The increased levels of purchases in 2007 and 2006 were primarily related to our business expansion needs for data center and office facilities.

	•	During 2008, we paid $33 million for acquisitions of businesses, including $14 million, net of cash acquired for the acquisition of HighQ^IT, $13 million, net of cash acquired for the acquisition of Tellurian Networks, Inc., and $4 million, net of cash acquired for an acquisition completed in the second quarter. Moreover, we paid $4 million additional consideration for the acquisition of eServ LLC (“eServ”), a provider of product engineering outsourcing services, and we benefited from $2 million in adjustments of purchase price adjustments for other acquisitions.

	•	During 2007, we paid $338 million for acquisitions of businesses, including $248 million, net of cash acquired for the acquisition of QSS, $86 million, net of cash acquired for the acquisition of JJ Wild Holdings, Inc. and JJ Wild, Inc., and $4 million of additional consideration for the acquisition of eServ.

	•	During 2006, we paid $29 million for acquisitions of businesses, including $21 million for the acquisition of eServ, and $8 million as additional consideration related to the acquisition of Technical Management, Inc. and its subsidiaries, including Transaction Applications Group, Inc.

	•	During 2008, we made net purchases of $13 million, as compared to liquidated short-term investments of $110 million, net in 2007. During 2006, we made net purchases of $133 million.

Financing Activities

Net cash used in financing activities was $51 million for 2008, compared to net cash provided by financing activities of $109 million in 2007 and net cash used in financing activities of $27 million in 2006. During 2008, we paid $34 million against our long-term debt. During 2007, we borrowed $130 million against our credit facility in connection with our acquisitions. We purchased $44 million, $47 million, and $18 million of treasury stock in 2008, 2007, and 2006, respectively.

We routinely maintain cash balances in certain European and Asian currencies to fund operations in those regions. During 2008, foreign exchange rate fluctuations had a net negative impact on our non-domestic cash balances of $19 million, as the U.S. dollar strengthened against the Indian rupee and British Pound. We manage foreign exchange exposures that are likely to significantly impact net income or working capital. At December 31, 2008, we had derivative financial instruments to purchase and sell various currencies in the amount of $192 million, which expire at various times before the end of 2011.

Contractual Obligations and Contingent Commitments

The following table sets forth our significant contractual obligations at December 31, 2008, and the effect such obligations are expected to have on our liquidity and cash flows for the periods indicated (in millions):


			2010-		2012-
	2009		2011		2013		Thereafter		Total

Operating leases	$	58	$	72	$	34	$	22	$	186
Capital leases		1		1		—		—		2
Debt		2		180		—		—		182
Purchase commitments		3		2		—		—		5
Estimated interest expense on long-term debt		7		6		—		—		13

Total	$	71	$	261	$	34	$	22	$	388

We discuss these contractual obligations in Note 9, “Debt,” and Note 16, “Commitments and Contingencies” to the Consolidated Financial Statements, which are included herein.

As discussed in Note 5, “Acquisitions,” to the Consolidated Financial Statements, we may be required to make additional payments related to completed acquisitions of $6 million, $5 million, and $2 million in 2009, 2010, and 2011, respectively. Additional payments are contingent upon the acquired companies’ achievement of certain financial targets.

Reserves for Uncertain Tax Positions

As discussed in Note 14, “Income Taxes” of the Notes to the Consolidated Financial Statements, we adopted FIN 48 as of January 1, 2007. At December 31, 2008, we had gross reserves for uncertain tax positions totaling $16 million. We believe that we will reach resolution on certain issues under audit by the Internal Revenue Service for tax years ended December 31, 2003 and December 31, 2004. Consequently, we anticipate a change to the total amount of unrecognized tax benefits within the next 12 months, the amount of which cannot be determined at this time.

Credit Facility

We currently have a credit facility with a syndicate of banks that allows us to borrow up to $275 million that expires in August 2011. Borrowings under the credit facility will be either through loans or letter of credit obligations. The credit facility is guaranteed by certain of our domestic subsidiaries. In addition, we have pledged a portion of the stock of several of our non-domestic subsidiaries as security on the facility. Interest on borrowings varies with usage and begins at an alternate base rate, as defined in the credit facility agreement, or the LIBOR rate plus an applicable spread based upon our debt/EBITDA ratio applicable on such date. We are also required to pay a facility fee of 0.1% based upon the unused credit commitment and certain other fees related to letter of credit issuance. The credit facility requires certain financial covenants, including a debt/EBITDA ratio and a minimum interest coverage ratio, each as defined in the credit facility agreement. We are in compliance with our debt covenants as of December 31, 2008. We currently have borrowings of $177 million under the credit facility and $98 million available.

Concentrations of credit risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash equivalents, short-term investments, and accounts receivable. Our cash equivalents consist primarily of short-term money market deposits, which are deposited with reputable financial institutions. Our short-term investments consist of Variable Rate Demand Notes (VRDN), which are tax-exempt instruments of high credit quality. We believe the risk of loss associated with both our cash equivalents and short-term investments to be remote. We have accounts receivable from customers engaged in various industries including banking, insurance, healthcare, manufacturing, telecommunications, travel and energy, as well as government customers in defense and other governmental agencies, and our accounts receivable are not concentrated in any specific geographic region. These specific industries may be affected by economic factors, which may impact accounts receivable. Generally, we do not require collateral from our customers. We do not believe that any single customer, industry or geographic area represents significant credit risk.

No customer accounted for 10% or more of our total revenue or accounts receivable (including accounts receivable recorded in both accounts receivable, net, and long-term accrued revenue) at December 31, 2008 or at December 31, 2007.

Critical Accounting Policies

The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain information that is important to management’s discussion and analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities.

Critical accounting policies are those that reflect significant judgments and uncertainties and may result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see Note 1, “Nature of Operations and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements.

Revenue recognition

We provide services to our customers under contracts that contain various pricing mechanisms and other terms. The fees under these arrangements are generally based on the level of effort incurred in delivering the services, including cost plus and time and materials fee arrangements, on a contracted fixed price for contracted services, or on a contracted per-unit price for each unit of service delivered. These services include infrastructure services, applications services, business process services, and consulting services.

Within these four categories of services, our contracts include non-construction service deliverables, including infrastructure services and business process services, and construction service deliverables, such as application development and implementation services.

Application of the various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require contract interpretation to determine the appropriate accounting, including whether the deliverables specified in a multiple-deliverable arrangements should be treated as separate units of accounting. Revenue recognized using the percentage-of-completion accounting method requires the use of estimates and judgment as discussed below.

Accounting for Revenue in Single-Deliverable Arrangements

Revenue for non-construction service deliverables is recognized as the services are delivered in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” which provides that revenue should be recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been performed, the fee is fixed or determinable, and collectibility is reasonably assured. Under our policy, persuasive evidence of an arrangement exists when a final understanding between us and our customer exists as to the specific nature and terms of the services that we are going to provide, as documented in the form of a signed agreement between us and the customer.

Revenue for non-construction services priced under fixed-price arrangements is recognized on a straight-line basis over the longer of the term of the contract or the expected service period, regardless of the amounts that can be billed in each period, unless evidence suggests that the revenue is earned or our obligations are fulfilled in a different pattern. If we are to provide a similar level of non-construction services each period during the term of a contract, we would recognize the revenue on a straight-line basis since our obligations are being fulfilled in a straight-line pattern. If our obligations are being fulfilled in a pattern that is not consistent over the term of a contract, then we would recognize revenue consistent with the proportion of our obligations fulfilled in each period. In determining the proportion of our obligations fulfilled in each period, we consider the nature of the deliverables we are providing to the customer and whether the volumes of those deliverables are easily measured, such as when we provide a contractual number of full time equivalent associate resources. If the amount of our obligations fulfilled in each period is not easily distinguished by reference to the volumes of services provided, then we would recognize revenue on a straight-line basis.

incurred to date if the construction services involve a significant amount of non-labor costs. Due to the longer term nature of these projects, developing the estimates of costs often requires significant judgment. Factors that must be considered in estimating the progress of work completed and ultimate cost of the projects include, but are not limited to, the availability of labor and labor productivity, the nature and complexity of the work to be performed, and the impact of delayed performance. If changes occur in delivery, productivity or other factors used in developing the estimates of costs or revenues, we revise our cost and revenue estimates, which may result in increases or decreases in revenues and costs, and such revisions are reflected in income in the period in which the facts that give rise to that revision become known.

Revenue for the sale of a license from our software products or the sale of services relating to a software license is recognized in accordance with the provisions of SOP No. 97-2, “Software Revenue Recognition.” In general, SOP 97-2 addresses the separation and the timing of revenue recognition for software and software-related services, such as implementation and maintenance services. SOP 97-2 also requires the application of the percentage-of-completion method as described in SOP 81-1 for those software arrangements that require significant production, modification, or customization of the software. As a result, the accounting for revenue related to software arrangements includes many of the estimates and significant judgments discussed above.

Revenue for services priced under time and materials contracts and unit-priced contracts is recognized as the services are provided at the contractual unit price.

Revenue for fixed-price contracts with variable components of pricing based on volumes above or below a defined range of volumes is recognized as services are provided at the contractual price.

Accounting for Revenue in Multiple-Deliverable Arrangements

For those arrangements that include multiple deliverables, we first determine whether each service, or deliverable, meets the separation criteria of Financial Accounting Standards Board Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” In general, a deliverable (or a group of deliverables) meets the separation criteria if the deliverable has standalone value to the customer and if there is objective and reliable evidence of the fair value of the remaining deliverables in the arrangement. Each deliverable that meets the separation criteria is considered a separate “unit of accounting.” We allocate the total arrangement consideration to each unit of accounting based on the relative fair value of each unit of accounting. The amount of arrangement consideration that is allocated to a delivered unit of accounting is limited to the amount that is not contingent upon the delivery of another unit of accounting.

After the arrangement consideration has been allocated to each unit of accounting, we apply the appropriate revenue recognition method for each unit of accounting as described previously based on the nature of the arrangement and the services included in each unit of accounting. All deliverables that do not meet the separation criteria of EITF 00-21 are combined into one unit of accounting, and the most appropriate revenue recognition method is applied.

In arrangements for both non-construction and construction services, we may bill the customer prior to performing services, which would require us to record deferred revenue. In other arrangements, we may perform services prior to billing the customer, which could require us to record unbilled receivables or to defer the costs associated with either the non-construction or construction services, depending on the terms of the arrangement and the application of the revenue separation criteria of EITF 00-21.

In certain arrangements we may pay consideration to the customer at the beginning of a contract as an incentive, which is most commonly in the form of cash. This consideration is recorded in other non-current assets on the consolidated balance sheets and is amortized as a reduction to revenue over the term of the related contract.

As a result of our adoption of EITF 00-21 in 2003, we recognized revenue of approximately $6 million, $5 million, and $5 million during the years ended December 31, 2008, 2007, and 2006, respectively, that was recognized prior to 2003 under our accounting for revenue prior to the adoption of EITF 00-21 and was also included in the cumulative effect of a change in accounting principle, which we recorded in the first quarter of 2003.

Contract costs

Costs to deliver services are expensed as incurred, with the exception of setup costs and the cost of certain construction and non-construction services for which the related revenue must be deferred under EITF 00-21 or other accounting literature. We defer and subsequently amortize certain setup costs related to activities that enable us to provide the contracted services to customers. Deferred contract setup costs may include costs incurred during the setup phase of a customer arrangement relating to data center migration, implementation of certain operational processes, employee transition, and relocation of key personnel. We amortize deferred contract setup costs on a straight-line basis over the lesser of their estimated useful lives or the term of the related contract. Useful lives range from three years up to a maximum of the term of the related customer contract.

For a construction service in a single-deliverable arrangement, if the total estimated costs to complete the construction service exceed the total amount that can be billed under the terms of the arrangement, then a loss would generally be recorded in the period in which the loss first becomes probable. For a construction service in a multiple-deliverable arrangement, if the total estimated costs to complete the construction service exceed the amount of revenue that is allocated to the separate construction service unit of accounting (based on the relative fair value allocation, limited to the amount that is not contingent), then the actual costs incurred to complete the construction service in excess of the allocated fair value would be deferred, up to the amount of the relative fair value, and amortized over the remaining term of the contract. A loss would generally be recorded on a construction service in a multiple-deliverable arrangement if the total costs to complete the service exceed the relative fair value of the service.

Deferred contract costs are evaluated for realizability whenever events or changes in circumstances indicate that the carrying amount may not be realizable. Our evaluation is based on the amount of non-refundable deferred revenue that is related to the deferred contract costs and our projection of the remaining gross profits from the related customer contract. To the extent that the carrying amount of the deferred contract costs is greater than the amount of non-refundable deferred revenue and the remaining net gross profits from the customer contract, a charge is recorded to reduce the carrying amount to equal the amount of non-refundable deferred revenue and remaining gross profits.

Year-end bonus plan

One of our compensation methods is to pay to certain associates a year-end bonus, which is based on associate and team performance, our financial results, and management’s discretion. The amount of bonus expense that we record each quarter is based on several factors, including our financial performance for that quarter, our latest expectations for full year results, and management’s estimate of the amount of bonus to be paid at the end of the year. As a result, the amount of bonus expense that we record in each quarter and each year can vary significantly.

Contingencies

We account for claims and contingencies in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.” FAS 5 requires that we record an estimated loss from a claim or loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. If we determine that it is reasonably possible but not probable that an asset has been impaired or a liability has been incurred or the amount of a probable loss cannot be reasonably estimated, then we may disclose the amount or range of estimated loss if the amount or range of estimated loss is material. Accounting for claims and contingencies requires us to use our judgment. We consult with legal counsel on those issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business.

Goodwill and other intangibles

impairment. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 12 months to seven years.

Goodwill is tested for impairment annually in the third quarter or whenever an event occurs or circumstances change that may reduce the fair value of the reporting unit below its book value. The impairment test is conducted for each reporting unit in which goodwill is recorded by comparing the fair value of the reporting unit to its carrying value. Fair value is determined primarily by computing the future discounted cash flows expected to be generated by the reporting unit. If the carrying value exceeds the fair value, goodwill may be impaired. If this occurs, the fair value of the reporting unit is then allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the goodwill of the reporting unit. If the implied fair value is less than the carrying amount of the goodwill of the reporting unit, we would recognize an impairment loss to write down the goodwill to fair value.

The determination of fair value requires assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates. We base our fair value estimates on projected financial information which we believe to be reasonable. However, actual future results may differ from those projections, and those differences may be material. The valuation methodology used to estimate the fair value of our reporting units requires inputs and assumptions that reflect current market conditions as well as management judgment. Future changes in expected operating results or unfavorable changes in other projected financial information used to estimate fair values could result in an impairment of goodwill.

Income taxes

We account for income taxes in accordance with FAS No. 109, “Accounting for Income Taxes.” Under this method, deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. On a quarterly basis, we evaluate the need for and adequacy of valuation allowances based on the expected realizability of our deferred tax assets and adjust the amount of such allowances, if necessary. The factors used to assess the likelihood of realization include our latest forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Income tax expense consists of our current and deferred provisions for U.S. and foreign income taxes.

We do not provide for U.S. income tax on the undistributed earnings of our foreign subsidiaries. We intend to either permanently invest our foreign earnings or remit such earnings in a tax-free manner. The cumulative amount of undistributed earnings (as calculated for income tax purposes) of our foreign subsidiaries was approximately $199 million at December 31, 2008, $232 million at December 31, 2007, and $182 million at December 31, 2006. Such earnings include pre-acquisition earnings of foreign entities acquired through stock purchases and are intended to be invested outside of the U.S. indefinitely. The ultimate tax liability related to repatriation of our undistributed earnings is dependent upon future tax planning opportunities and is not estimable at the present time.

Effective January 1, 2007, we adopted the FIN 48, which clarifies the accounting for and disclosure of uncertainty in tax positions. Additionally, FIN 48 provides guidance on the recognition, measurement, derecognition, classification and disclosure of tax positions and on the accounting for related interest and penalties. As a result of the adoption of FIN 48, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Determining the consolidated provision for income taxes involves judgments regarding the application of tax laws, estimates regarding the ultimate taxability of transactions, and the application of complex tax rules and regulations. As a global company, we are required to provide for income taxes in each of the jurisdictions where we operate, including estimated liabilities for uncertain tax positions. We are subject to income tax audits by federal, state, and foreign tax authorities and we are currently under audit by the Internal Revenue Service and the Indian taxing authorities. We fully cooperate with all audits, but we defend our positions vigorously. Although we believe that we have provided adequate liabilities for uncertain tax positions, the actual liability resulting from examinations by tax authorities could differ from the recorded income tax liabilities and could result in additional income tax expense. Changes to our recorded income tax liabilities resulting from the resolution of tax matters are reflected

in income tax expense in the period of resolution. Other factors may cause us to revise our estimates of income tax liabilities including the expiration of statutes of limitations, changes in tax regulations, and tax rulings. Changes in estimates of income tax liabilities are reflected in our income tax provision in the period in which the factors resulting in our change in estimate become known to us. As a result, our effective tax rate may fluctuate on a quarterly basis.

Financial instruments

The carrying amounts reflected in our consolidated balance sheets for cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and short-term and long-term debt approximate their respective fair values. Fair values are based primarily on current prices for those or similar instruments.

Derivative financial instruments

As part of our risk management strategy, we enter into derivative financial instruments to mitigate certain financial risks related to foreign currencies and interest rates. We have a risk management policy outlining the conditions under which we can enter into derivative financial instrument transactions. To date, our use of derivative financial instruments has been limited to interest rate swaps that hedge our exposure to floating rates on certain portions of our debt and forward contracts and zero cost collars that hedge our exposure to fluctuations in foreign currency exchange rates.

In the third quarter of 2007, we began designating certain derivative financial instruments as cash flow hedges in accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative financial instruments and for hedging activities. As such, the changes in the fair value of our derivative financial instruments are recorded in the consolidated balance sheet and are reclassified to the same consolidated income statement category as the hedged item in the period in which the hedged transactions occur.

Our policy requires us to document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for entering into economic hedges. We also assess, at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. In accordance with FAS 133, the derivative’s change in fair value will be deferred in other comprehensive income until the period in which the hedged transaction occurs. If the change in fair value creates any ineffectiveness, which represents the amount by which the changes in the fair value of the derivative does not offset the change in the cash flow of the forecasted transaction, the ineffective portion of the change in fair value is recorded in earnings.

We will discontinue hedge accounting prospectively when (1) we determine that the derivative financial instrument is no longer effective in offsetting changes in the fair value or cash flows of the underlying exposure being hedged; (2) the derivative financial instrument matures, or is sold, terminated or exercised; or (3) we determine that designating the derivative financial instrument as a hedge is no longer appropriate. When hedge accounting is discontinued, and the derivative financial instrument remains outstanding, the deferred gains or losses on the cash flow hedge will remain in other comprehensive income until the forecasted transaction occurs. Any further changes in the fair value of the derivative financial instrument will be recognized in current period earnings.

For derivative financial instruments that do not qualify for hedge accounting or for which we have not elected to apply hedge accounting, the changes in fair values are recognized in other income, net.

Fair value measurements

FAS No. 157, “Fair Value Measurements” defines fair value as the price that would be paid upon sale of an asset or upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participant would use in pricing the asset or liability, not on assumptions specific to us. In addition, the fair value of assets and liabilities should include consideration of non-performance risk including credit risk.

FAS 157 also discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:


	•	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

	•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

	•	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 assets, which consists of money market funds and our short-term investments. If quoted market prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted market prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology applies to our Level 2 items, which consist of our interest rate swaps and foreign currency derivative financial instruments.

Significant accounting standards to be adopted

See Note 1, “Nature of Operations and Summary of Significant Accounting Policies,” in the notes to condensed consolidated financial statements for a discussion of recent accounting pronouncements.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

Foreign Currency Exchange Risk

In the ordinary course of business, we enter into certain contracts denominated in foreign currency. Potential foreign currency exposures arising from these contracts are analyzed during the contract bidding process. For arrangements in which costs to service these arrangements are incurred in the same currency in which revenue is received, we have been able to mitigate foreign currency risk relating to a portion of our revenues in our international operations. However, when services are delivered globally, we may incur costs that are denominated in currencies different from our revenues. In these situations, we evaluate foreign currency risk and hedge a portion of these risks by entering into derivative financial instruments.

During 2008, 12.8%, or $356 million, of our revenue was generated outside of the United States. Using sensitivity analysis, a hypothetical 10% increase or decrease in the value of the U.S. dollar against all currencies would change total revenue by 1.3%, or $36 million. A portion of this risk would be mitigated by arrangements in which costs are incurred in the same currency as the revenue and a portion would be mitigated by our hedging activities.

Our financial instruments include cash and cash equivalents, short-term investments, and derivative financial instruments. At December 31, 2008, a hypothetical 10% decrease in the value of the U.S. dollar against foreign currencies would result in an increase in the fair value of the company’s financial instruments of approximately $24 million. Conversely, a 10% stronger U.S. dollar against foreign currencies would result in a decrease in the fair value of the company’s financial instruments of $22 million.

Interest Rate Risk

Using sensitivity analysis, a hypothetical increase of 10% in the interest rate related to our variable rate borrowing of $47 million under our credit facility would increase our net expense by approximately $100,000 for the year ended December 31, 2008. The interest rates on our remaining borrowings under our credit facility are effectively fixed due to our interest rate swaps.


Item 8.	*Financial Statements and Supplementary Data*

Index to Consolidated Financial Statements and Financial Statement Schedules

Consolidated Financial Statements


	Page

Management’s Report on Internal Control Over Financial Reporting		F-1
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007		F-3
Consolidated Income Statements for the years ended December 31, 2008, 2007, and 2006		F-4
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2008, 2007, and 2006		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007, and 2006		F-6
Notes to Consolidated Financial Statements		F-7 – F-39

Financial Statement Schedule II, “Valuation and Qualifying Accounts,” is submitted as Exhibit 99.1 to this Annual Report on Form 10-K.

Schedules other than that listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2008. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that our degree of compliance with the policies or procedures may deteriorate.

Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008, based upon criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, our management determined that our internal control over financial reporting was effective as of December 31, 2008, based on the criteria in Internal Control — Integrated Framework issued by COSO.

The effectiveness of our internal control over financial reporting as of December 31, 2008, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Dated: February 25, 2009


Peter A. Altabef		John E. Harper
President and Chief Executive Officer		Vice President and Chief Financial Officer

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Perot Systems Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Perot Systems Corporation and its subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions in 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas

February 25, 2009

F-2

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

as of December 31, 2008 and 2007


	2008			2007
	(Dollars in millions except par values and shares in thousands)

ASSETS
Current assets:
Cash and cash equivalents	$	234		$	187
Short-term investments		36			23
Accounts receivable, net		443			477
Prepaid expenses and other		58			38
Deferred income taxes		35			32

Total current assets		806			757
Property, equipment and purchased software, net		221			235
Goodwill		730			713
Deferred contract costs, net		112			82
Other non-current assets		109			113

Total assets	$	1,978		$	1,900


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	54		$	69
Deferred revenue		60			55
Accrued compensation		98			58
Income taxes payable		11			18
Accrued and other current liabilities		138			130

Total current liabilities		361			330
Long-term debt		181			213
Non-current deferred revenue		80			70
Other non-current liabilities		51			44

Total liabilities		673			657

Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred Stock; par value $.01; authorized 5,000 shares; none issued		—			—
Class A Common Stock; par value $.01; authorized 300,000 shares; issued 125,051 and 123,958 shares, respectively		1			1
Class B Convertible Common Stock; par value $.01; authorized 24,000 shares; none issued		—			—
Additional paid-in capital		587			565
Retained earnings		815			698
Treasury stock		(73	)		(49	)
Accumulated other comprehensive income (loss)		(25	)		28

Total stockholders’ equity		1,305			1,243

Total liabilities and stockholders’ equity	$	1,978		$	1,900

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

F-3

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

for the years ended December 31, 2008, 2007, and 2006


	2008			2007			2006
	(Dollars in millions, except per share data)

Revenue	$	2,779		$	2,612		$	2,298
Direct cost of services		2,292			2,130			1,905

Gross profit		487			482			393
Selling, general and administrative expenses		301			298			280

Operating income		186			184			113
Interest income		8			8			10
Interest expense		(10	)		(11	)		(5	)
Other income, net		3			1			2

Income before taxes		187			182			120
Provision for income taxes		70			67			39

Net income	$	117		$	115		$	81

Earnings per share of common stock:
Basic, Class A	$	0.98		$	0.94		$	0.67
Basic, Class B				$	0.94		$	0.67
Diluted	$	0.97		$	0.92		$	0.66
Diluted, Class B				$	0.92		$	0.66
Weighted average number of common shares outstanding (in thousands):
Basic, Class A		120,144			121,759			118,686
Basic, Class B					566			817
Diluted		121,924			124,650			122,118
Diluted, Class B					566			817

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

F-4

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

for the years ended December 31, 2008, 2007, and 2006


	Shares of																Accumulated
	Common					Additional											Other			Total
	Stock			Common		Paid-In			Retained		Treasury			Deferred			Comprehensive			Stockholders’
	Issued			Stock		Capital			Earnings		Stock			Compensation			Income			Equity
	(Dollars in millions and shares in thousands)

Balance at January 1, 2006		120,458		$	1	$	502		$	494	$	(35	)	$	(11	)	$	10		$	961
Issuance of Class A shares under incentive plans (1,013 shares, including 373 shares from treasury)		640			—		3			—		5			—			—			8
Class A shares purchased (1,288 shares)		—			—		—			—		(18	)		—			—			(18	)
Exercise of stock options for Class A shares (3,463 shares, including 2,028 from treasury)		1,435			—		2			—		27			—			—			29
Exercise of stock options for Class B shares		58			—		—			—		—			—			—			—
Reclassification of deferred compensation, net		—			—		(11	)		—		—			11			—			—
Tax benefit from stock options exercised and restricted stock units vested		—			—		20			—		—			—			—			20
Stock-based compensation		—			—		17			—		—			—			—			17
Net income		—			—		—			81		—			—			—			81
Other comprehensive income, net of tax		—			—		—			—		—			—			7			7

Balance at December 31, 2006		122,591		$	1	$	533		$	575	$	(21	)	$	—		$	17		$	1,105
Issuance of Class A shares under incentive plans		906			—		9			—		—			—			—			9
Class A shares purchased (3,517 shares)		—			—		—			—		(47	)		—			—			(47	)
Class B shares retired (1,458 shares)		(1,458	)		—		(19	)		—		19			—			—			—
Exercise of stock options for Class A shares (1,929 shares, including 10 from treasury)		1,919			—		16			—		—			—			—			16
Tax benefit from stock options exercised and restricted stock units vested		—			—		5			—		—			—			—			5
Stock-based compensation		—			—		16			—		—			—			—			16
Adoption of FIN 48		—			—		5			8		—			—			—			13
Net income		—			—		—			115		—			—			—			115
Other comprehensive income, net of tax		—			—		—			—		—			—			11			11

Balance at December 31, 2007		123,958		$	1	$	565		$	698	$	(49	)	$	—		$	28		$	1,243
Issuance of Class A shares under incentive plans		1,066			—		9			—		—			—			—			9
Class A shares purchased (3,461 shares)		—			—		—			—		(44	)		—			—			(44	)
Exercise of stock options for Class A shares (1,460 shares, including 1,433 from treasury)		27			—		(3	)		—		20			—			—			17
Tax benefit from stock options exercised and restricted stock units vested		—			—		1			—		—			—			—			1
Stock-based compensation		—			—		15			—		—			—			—			15
Net income		—			—		—			117		—			—			—			117
Other comprehensive income, net of tax		—			—		—			—		—			—			(53	)		(53	)

Balance at December 31, 2008		125,051		$	1	$	587		$	815	$	(73	)	$	—		$	(25	)	$	1,305

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

F-5

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the years ended December 31, 2008, 2007, and 2006


	2008			2007			2006
	(Dollars in millions)

Cash flows from operating activities:
Net income	$	117		$	115		$	81
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		112			104			79
Impairment of assets		3			2			46
Stock-based compensation		15			16			17
Change in deferred taxes		6			(1	)		(17	)
Excess tax benefits from stock-based compensation arrangements		—			(4	)		(7	)
Other non-cash items		(7	)		(1	)		4
Changes in assets and liabilities (net of effects from acquisitions of businesses):
Accounts receivable, net		24			(63	)		(49	)
Prepaid expenses		(2	)		—			(3	)
Deferred contract costs		(55	)		(41	)		(30	)
Accounts payable and accrued liabilities		(3	)		4			33
Accrued compensation		33			(22	)		2
Current and non-current deferred revenue		12			(5	)		50
Income taxes		(23	)		13			5
Other current and non-current assets		(10	)		(1	)		1
Other current and non-current liabilities		(5	)		2			1

Total adjustments		100			3			132

Net cash provided by operating activities		217			118			213

Cash flows from investing activities:
Purchases of property, equipment and purchased software		(55	)		(75	)		(93	)
Proceeds from sale of property, equipment and purchased software		—			5			—
Acquisitions of businesses, net of cash acquired of $1, $6 and $0, respectively		(33	)		(338	)		(29	)
Purchases of short-term investments		(101	)		(753	)		(689	)
Proceeds from sale of short-term investments		88			863			556
Other		1			—			—

Net cash used in investing activities		(100	)		(298	)		(255	)

Cash flows from financing activities:
Repayment of long-term debt		(34	)		(2	)		—
Proceeds from issuance of long-term debt		—			130			—
Proceeds from issuance of common and treasury stock		26			25			37
Excess tax benefits from stock-based compensation arrangements		—			4			7
Purchases of treasury stock		(44	)		(47	)		(18	)
Other		1			(1	)		1

Net cash (used in) provided by financing activities		(51	)		109			27

Effect of exchange rate changes on cash and cash equivalents		(19	)		8			5

Net increase (decrease) in cash and cash equivalents		47			(63	)		(10	)
Cash and cash equivalents at beginning of year		187			250			260

Cash and cash equivalents at end of year	$	234		$	187		$	250

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

F-6

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Nature of Operations and Summary of Significant Accounting Policies

Perot Systems Corporation, a Delaware corporation, is a worldwide provider of information technology (commonly referred to as IT) services and business solutions to a broad range of customers. We offer our customers integrated solutions designed around their specific business objectives, and these services include infrastructure services, applications services, business process services, and consulting services. Our significant accounting policies are described below.

Principles of consolidation

Our consolidated financial statements include the accounts of Perot Systems Corporation and all domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, realizability of deferred contract costs, impairment testing of goodwill, long-lived assets, and intangible assets, accrued liabilities, income taxes, and loss contingencies associated with litigation and disputes.

Our estimates are based on historical experience and various other assumptions, including assumptions about counterparty financial condition and future business volumes above contractual minimums, which we believe are reasonable under the circumstances and that form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Cash equivalents

All highly liquid investments with original maturities of three months or less that are purchased and sold generally as part of our cash management activities are considered to be cash equivalents.

Revenue recognition

We provide services to our customers under contracts that contain various pricing mechanisms and other terms. The fees under these arrangements are generally based on the level of effort incurred in delivering the services, including cost plus and time and materials fee arrangements, on a contracted fixed price for contracted services, or on a contracted per-unit price for each unit of service delivered. These services generally fall into one of the following categories:


	•	Infrastructure services — include data center and systems management, Web hosting and Internet access, desktop solutions, messaging services, program management, hardware maintenance and monitoring, network management, including VPN services, service desk capabilities, physical security, network security, risk management, and virtualization (the management of leveraged computing environments). We offer our global services under a modular concept, which allows our customers to select all services mentioned above or only certain subsets, depending on their needs. We are responsible for defining the infrastructure technology strategies for our customers. We identify new technology offerings and innovations that deliver value to our customers. We manage, resolve, and document problems in our customers’ computing environments and provide comprehensive monitoring, planning, and safeguarding of information technology systems against intrusion by monitoring system and network status, collecting and analyzing data regarding system and network performance, and applying appropriate corrective actions. All of these activities are either performed at customer facilities or delivered through centralized data processing centers

F-7

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		that we maintain. We typically hire a significant portion of the customer’s staff that supported these functions prior to the transition of services. We then apply our expertise and operating methodologies and utilize technology to increase the efficiency of the operations, which usually results in increased operational quality at a lower cost. The term of our outsourcing contracts generally ranges between five and 10 years.


	•	Applications services — include services such as application development and maintenance, including the development and maintenance of custom and packaged application software for customers, and application systems migration and testing, which includes the migration of applications from legacy environments to current technologies, as well as performing quality assurance functions on custom applications. We also provide other applications services such as application assessment and evaluation, hardware and architecture consulting, systems integration, and Web-based services. The term of our applications services contracts varies based on the complexity of the services provided and the customers’ needs.

	•	Business process services — include services such as product engineering, claims processing, life insurance policy administration, call center management, payment and settlement management, security, and services to improve the collection of receivables. In addition, business process services include engineering support and other technical and administrative services that we provide to the U.S. federal government. The term of our business process services contracts generally ranges from month-to-month to five years.

	•	Consulting services — include services such as strategy consulting, enterprise consulting, technology consulting, implementation of pre-packaged software applications, and research. The consulting services provided to customers within our Industry Solutions and Government Services segments typically consist of customized, industry-specific business solutions provided by associates with industry expertise. Consulting services are typically viewed as discretionary services by our customers, with the level of business activity depending on many factors, including economic conditions and specific customer needs. The term of our consulting contracts varies based on the complexity of the services provided and the customers’ needs.

Accounting for Revenue in Single-Deliverable Arrangements

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

period is not easily distinguished by reference to the volumes of services provided, then we would recognize revenue on a straight-line basis.

Revenue for construction services that do not include a license to one of our software products is recognized in accordance with the provisions of AICPA Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” In general, SOP 81-1 requires the use of the percentage-of-completion method to recognize revenue and profit as our work progresses, and we primarily use hours incurred to date to measure our progress toward completion. This method relies on estimates of total expected hours to complete the construction service, which are compared to hours incurred to date, to arrive at an estimate of how much revenue and profit has been earned to date. Although we primarily measure our progress toward completion using hours incurred to date, we may measure our progress toward completion using costs incurred to date if the construction services involve a significant amount of non-labor costs. Because these estimates may require significant judgment, depending on the complexity and length of the construction services, the amount of revenue and profits that have been recognized to date are subject to revisions. If we do not accurately estimate the amount of hours or costs required or the scope of work to be performed, or do not complete our projects within the planned periods of time, or do not satisfy our obligations under the contracts, then revenue and profits may be significantly and negatively affected or losses may need to be recognized. Revisions to revenue and profit estimates are reflected in income in the period in which the facts that give rise to the revision become known.

Revenue for services priced under time and materials contracts and unit-priced contracts is recognized as the services are provided at the contractual unit price.

Revenue for fixed-price contracts with variable components of pricing based on volumes above or below a defined range of volumes is recognized as services are provided at the contractual price.

Accounting for Revenue in Multiple-Deliverable Arrangements

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

services prior to billing the customer, which could require us to record unbilled receivables or to defer the costs associated with either the non-construction or construction services, depending on the terms of the arrangement and the application of the revenue separation criteria of EITF 00-21.

As a result of our adoption of EITF 00-21 in 2003, we recognized revenue of approximately $6 million, $5 million, and $5 million during the years ended December 31, 2008, 2007, and 2006, respectively, that were recognized prior to 2003 under our accounting for revenue prior to the adoption of EITF 00-21 and were also included in the cumulative effect of a change in accounting principle, which we recorded in the first quarter of 2003.

Contract costs

Costs to deliver services are expensed as incurred, with the exception of setup costs and the cost of certain construction and non-construction services for which the related revenue must be deferred under EITF 00-21 or other accounting literature. We defer and subsequently amortize certain setup costs related to activities that enable us to provide the contracted services to customers. Deferred contract setup costs may include costs incurred during the setup phase of a customer arrangement relating to data center migration or implementation of certain operational processes. We amortize deferred contract setup costs on a straight-line basis over the lesser of their estimated useful lives or the term of the related contract. Useful lives range from three years up to a maximum of the term of the related customer contract.

Year-end bonus plan

F-10

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Contingencies

Property, equipment and purchased software

Buildings are stated at cost and are depreciated on a straight-line basis using estimated useful lives of 20 to 30 years. Computer equipment and furniture are stated at cost and are depreciated on a straight-line basis using estimated useful lives of two to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvement, generally seven years. Purchased software that is utilized either internally or in providing services is capitalized at cost and amortized on a straight-line basis over the lesser of its useful life or the term of the related contract, generally three years.

Upon sale or retirement of property and equipment, the costs and related accumulated depreciation are eliminated from the accounts, and any gain or loss is reflected in the consolidated income statements. Expenditures for repairs and maintenance are expensed as incurred.

Capitalized software development costs

We capitalize internal software development costs for software we sell to our customers in accordance with FAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” This statement specifies that costs incurred internally in creating a computer software product shall be charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of all planning, designing, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features and technical performance requirements. We cease capitalization and begin amortization of internally developed software when the product is made available for general release to customers, and thereafter, any maintenance and customer support is charged to expense as incurred. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the software of three to five years, but amortization may be accelerated to ensure that the software costs are amortized in a manner consistent with the anticipated timing of product revenue. We continually evaluate the recoverability of capitalized software development costs, which are reported at the lower of unamortized cost or net realizable value.

We also capitalize internal software development costs for software we use internally in accordance with SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” This statement specifies that computer software development costs for computer software intended for internal use occur in three stages: (1) the preliminary project stage, where costs are expensed as incurred, (2) the application development stage, where costs are capitalized, and (3) the post-implementation or operation stage, where costs are expensed as incurred. We cease capitalization of developed software for internal use when the software is ready for its intended use and placed in service. We amortize such capitalized costs on a product-by-product basis using a straight-line basis over the estimated useful life of three to five years.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Goodwill and other intangibles

We allocate the cost of acquired businesses to the assets acquired and liabilities assumed based on estimated fair values at the date of acquisition, and any cost of the acquired companies not allocated to assets acquired or liabilities assumed is recorded as goodwill. Goodwill is not amortized, but instead is evaluated at least annually for impairment. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from 12 months to seven years.

Impairment of long-lived assets

Long-lived assets and intangible assets with definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Our review is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge is recorded to reduce the carrying amount to the projected future discounted cash flows.

Income taxes

F-12

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

intended to be invested outside of the U.S. indefinitely. The ultimate tax liability related to repatriation of our undistributed earnings is dependent upon future tax planning opportunities and is not estimable at the present time.

Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FAS Statement No. 109,” which clarifies the accounting for and disclosure of uncertainty in tax positions. Additionally, FIN 48 provides guidance on the recognition, measurement, derecognition, classification and disclosure of tax positions and on the accounting for related interest and penalties. As a result of the adoption of FIN 48, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. See Note 14 “Income Taxes” for further discussion on FIN 48.

Determining the consolidated provision for income taxes involves judgments, estimates, and the application of complex tax regulations. As a global company, we are required to provide for income taxes in each of the jurisdictions where we operate, including estimated liabilities for uncertain tax positions. We are subject to income tax audits by federal, state, and foreign tax authorities and we are currently under audit by the Internal Revenue Service and the Indian taxing authorities. We fully cooperate with all audits, but we defend our positions vigorously. Although we believe that we have provided adequate liabilities for uncertain tax positions, the actual liability resulting from examinations by tax authorities could differ from the recorded income tax liabilities and could result in additional income tax expense. Changes to our recorded income tax liabilities resulting from the resolution of tax matters are reflected in income tax expense in the period of resolution. Other factors may cause us to revise our estimates of income tax liabilities including the expiration of statutes of limitations, changes in tax regulations, and tax rulings. Changes in estimates of income tax liabilities are reflected in our income tax provision in the period in which the factors resulting in our change in estimate become known to us. As a result, our effective tax rate may fluctuate on a quarterly basis.

Financial instruments

Derivative financial instruments

F-13

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

derivative financial instrument’s change in fair value will be deferred in other comprehensive income until the period in which the hedged transaction occurs. If the change in fair value creates any ineffectiveness, which represents the amount by which the changes in the fair value of the derivative financial instruments does not offset the change in the cash flow of the forecasted transaction, the ineffective portion of the change in fair value is recorded in earnings.

Short-term investments

Our short-term investments consist of Variable Rate Demand Notes (VRDN). Our VRDN investments are tax-exempt instruments of high credit quality. The primary objectives of VRDN investments are preservation of invested funds, liquidity sufficient to meet cash flow requirements, and yield. VRDN securities have variable interest rates that reset at regular intervals of one, seven, 28, or 35 days. Although VRDN securities are issued and rated as long-term securities, they are priced and traded as short-term instruments. We classify these short-term investments as available for sale in accordance with FAS No. 115, “Accounting for Certain Instruments in Debt and Equity Securities.” The cost of our VRDNs approximates fair value.

Fair value measurements

We adopted FAS No. 157, “Fair Value Measurements” on January 1, 2008, for our financial assets and liabilities. As permitted by Financial Accounting Standards Board Staff Position No. 157-2, we will adopt FAS 157 for our nonfinancial assets and liabilities on January 1, 2009. The adoption of this FSP is not expected to have a material effect on our results of operations or financial position.

Fair value is defined under FAS 157 as the price that would be paid upon sale of an asset or upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to us. In addition, the fair value of assets and liabilities should include consideration of non-performance risk, including credit risk.


	•	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

	•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

	•	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

F-14

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the basis used to measure certain financial assets and liabilities at fair value on a recurring basis in the balance sheet:


	Basis of Fair Value Measurements
				Quoted Prices
				In Active		Significant
				Markets for		Other			Significant
	Balance at			Identical		Observable			Unobservable
	December 31,			Items		Inputs			Inputs
	2008			(Level 1)		(Level 2)			(Level 3)
	(in millions)

Cash equivalents — money market funds	$	76		$	76	$	—		$	—
Short-term investments	$	36		$	36	$	—		$	—
Interest rate swaps	$	(3	)	$	—	$	(3	)	$	—
Foreign currency derivative financial instruments:
Forward contracts	$	(16	)	$	—	$	(16	)	$	—
Options	$	(7	)	$	—	$	(7	)	$	—

The following section describes the valuation methodologies we use to measure different financial assets and financial liabilities at fair value.

Money market funds and short-term investments

In order to determine fair value of our money market funds and short-term investments, we use quoted prices in active markets for identical assets. Therefore, our money market funds and short-term investments are considered a Level 1 item.

Derivatives

Our interest rate swap agreements eliminate the variability of cash flows in the interest payments for $130 million of borrowings under our $275 million credit facility. The fair value of our interest rate swaps is based on quoted prices for similar instruments from a commercial bank and, therefore, our interest rate swaps are considered a Level 2 item.

Our foreign currency derivative financial instruments mitigate foreign exchange risks and include forward contracts and options. The fair value of our forward contracts is based on inputs that are observable for the asset or liability for similar derivative financial instruments; therefore, our forward contract derivative financial instruments are considered a Level 2 item. The principal market where we execute our option contracts is the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large money center banks and regional banks. Our option contract valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These option contracts are typically classified as a Level 2 item in the fair value hierarchy.

Concentrations of credit risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash equivalents, short-term investments, and accounts receivable. Our cash equivalents consist primarily of short-term money market deposits, which are deposited with reputable financial institutions. Our short-term investments consist of VRDNs, which are tax-exempt instruments of high credit quality. We believe the risk of loss associated with both our cash equivalents and short-term investments to be remote. We have accounts receivable from customers engaged in various industries including banking, insurance, healthcare, manufacturing, telecommunications, travel and energy, as well as government customers in defense and other governmental agencies, and our accounts receivable are not concentrated in any specific geographic region. These specific industries may be affected by

F-15

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

economic factors, which may impact accounts receivable. Generally, we do not require collateral from our customers. We do not believe that any single customer, industry or geographic area represents significant credit risk.

Foreign operations

The consolidated balance sheets include foreign assets and liabilities of $185 million and $80 million, respectively, as of December 31, 2008, and $215 million and $67 million, respectively, as of December 31, 2007.

Assets and liabilities of subsidiaries located outside the United States are translated into U.S. dollars at current exchange rates as of the respective balance sheet date, and revenue and expenses are translated at average exchange rates during each reporting period. Translation gains and losses are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets.

The net foreign currency transaction gains, including those associated with derivative financial instruments that were not accounted for under FAS 133, were immaterial for 2008, 2007, and 2006.

Significant accounting standards to be adopted

FASB Statement No. 141R

In December 2007, the FASB issued FAS No. 141R, “Business Combinations.” FAS 141R requires the acquisition method of accounting to be applied to all business combinations, which significantly changes the accounting for certain aspects of business combinations. Under FAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions. FAS 141R will change the accounting treatment for certain specific acquisition-related items, including the expensing of acquisition-related costs as incurred and the recognition of contingent liabilities. FAS 141R also includes a substantial number of new disclosure requirements. FAS 141R is to be applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, except as it relates to certain income tax accounting matters.

FASB Statement No. 161

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which requires additional disclosures about an entity’s derivative and hedging activities, the method of accounting for such instruments under FAS 133, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Because FAS 161 only provides for additional disclosure requirements, there will be no impact on our results of operations and financial position.


2.	Derivative Financial Instruments

We have elected hedge accounting under FAS 133 for certain foreign currency derivative financial instruments and designated them as cash flow hedges. We hedge the variability of a portion of our anticipated foreign currency cash flows using forward contracts and zero cost collars. These derivative financial instruments are designated as cash flow hedges of forecasted revenues related to our operations in India. The remaining foreign currency derivative financial instruments are being marked to market, with changes in fair value being reported in other income, net, in the consolidated income statements. As of December 31, 2008, the notional amount of foreign currency derivative financial instruments outstanding totaled $192 million, of which $148 million relates to

F-16

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

derivative financial instruments for which we elected hedge accounting. These derivative financial instruments expire at various dates over the next 30 months. At December 31, 2008, the estimated net amount of existing loss that is expected to be reclassified into earnings within the next 12 months is $9 million. As of December 31, 2008, the unrealized loss on our foreign currency hedges, reflected in accumulated other comprehensive income, was approximately $21 million ($16 million, net of tax).

On August 31, 2007, we entered into two interest rate swaps, for which we elected hedge accounting under FAS 133 and designated them as cash flow hedges. The first interest rate swap effectively converted $75 million of our borrowings under our credit facility from a variable-rate instrument into a fixed-rate instrument with an interest rate of 5.28%. The second interest rate swap effectively converted an additional $55 million of our borrowings under our credit facility from a variable-rate instrument into a fixed-rate instrument with an interest rate of 5.33%. As of December 31, 2008, the unrealized loss on our interest rate swaps, reflected in accumulated other comprehensive income, was approximately $3 million ($2 million, net of tax). Both interest rate swaps will expire in August 2009.

The related net change associated with hedging transactions for our derivative financial instruments designated as hedges under FAS 133 for the year ended December 31, 2008, was as follows:


	(in millions)

Accumulated gain at December 31, 2007	$	1
Net unrealized loss on hedging transactions		(25	)
Reclassifications into earnings		6

Total accumulated (loss) at December 31, 2008	$	(18	)


3.	Accounts Receivable

Accounts receivable, net, consisted of the following as of December 31:


	2008			2007
	(in millions)

Amounts billed	$	279		$	304
Amounts to be invoiced		163			168
Recoverable costs and profits		10			8
Other		10			10
Allowance for doubtful accounts		(19	)		(13	)

	$	443		$	477

With regard to amounts billed, allowances for doubtful accounts are provided based primarily on specific identification where less than full recovery of accounts receivable is expected. Amounts to be invoiced represent revenue contractually earned for services performed that are invoiced to the customer primarily in the following month. Recoverable costs and profits represent amounts recognized as revenue that have not yet been billed in accordance with the contract terms but are anticipated to be billed within one year.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


4.	Property, Equipment and Purchased Software

Property, equipment and purchased software, net, consisted of the following as of December 31:


	2008			2007
	(in millions)

Land and buildings	$	175		$	179
Computer equipment		135			117
Furniture and equipment		84			81
Leasehold improvements		23			24

		417			401
Less accumulated depreciation and amortization		(220	)		(191	)

		197			210

Purchased software		95			85
Less accumulated amortization		(71	)		(60	)

		24			25

Total property, equipment and purchased software, net	$	221		$	235

Depreciation and amortization expense for property, equipment and purchased software was $69 million, $67 million, and $55 million for the years ended December 31, 2008, 2007, and 2006, respectively.


5.	Acquisitions

Tellurian Networks, Inc.

On November 13, 2008, we acquired substantially all of the assets of Tellurian Networks, Inc. (Tellurian), a managed services hosting provider of electronic medical records applications and practice management applications to physician groups. The acquisition of Tellurian allows us to extend our reach in the physicians market to small practices through a cost-effective hosting of electronic medical record and practice management software. The initial purchase price for Tellurian was $13 million (net of $1 million of cash acquired), of which approximately $1 million is being held in escrow for potential purchase price adjustments. The purchase agreement contains provisions that include additional payments totaling up to approximately $6 million in cash during the next two fiscal years. The possible future payments are contingent upon Tellurian achieving certain financial targets over the same period. The allocation of the purchase consideration to the assets and liabilities acquired, including goodwill, has not been completed due to the pending completion of tangible and intangible assets appraisals. As of December 31, 2008, the estimated fair values of the acquired intangible assets totaled $5 million, resulting in the estimated excess purchase price over net assets acquired of $6 million, which was recorded as goodwill on the consolidated balance sheet, was assigned to the Industry Solutions segment, and is deductible for tax purposes. This business is not considered material to our consolidated results of operations, financial position, or cash flows.

HighQ^IT for the manufacturing industry GmbH

On May 6, 2008, we acquired all of the outstanding shares of HighQ^IT for the manufacturing industry GmbH and its subsidiary HighQ^IT for the manufacturing industry Slovakia s.r.o. (collectively, HighQ^IT), a provider of SAP consulting, software engineering, implementation and training as well as maintenance and support for IT solutions. The acquisition of HighQ^IT adds to our consulting capabilities and expands our presence in Europe. The initial purchase price for HighQ^IT was $14 million, of which approximately $3 million is being held in escrow for potential purchase price adjustments. The purchase agreement contains provisions that include additional payments totaling up to approximately $5 million in cash during the next three fiscal years. The possible future payments are

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

contingent upon HighQ^IT achieving certain financial targets over the same period. The allocation of the purchase consideration to the assets and liabilities acquired, including goodwill, has not been completed due to a potential contractual purchase price adjustment relating to working capital targets. As of December 31, 2008, the fair values of the acquired intangible assets totaled $6 million, resulting in the estimated excess purchase price over net assets acquired of $6 million, which was recorded as goodwill on the consolidated balance sheet, was assigned to the Industry Solutions segment, and is not deductible for tax purposes. This business is not considered material to our consolidated results of operations, financial position, or cash flows.

JJ Wild, Inc.

On August 31, 2007, we acquired all of the outstanding shares of JJ Wild Holdings, Inc., and its subsidiary, JJ Wild, Inc. (collectively, JJ Wild), an information technology services company providing services to the hospital market and also the preferred provider of integrated healthcare delivery solutions for organizations using the MEDITECH Healthcare Information System. The acquisition of JJ Wild adds to the capabilities of Perot Systems MEDITECH Solution Center and enables us to expand and enhance our MEDITECH service offerings. The initial purchase price for JJ Wild was $86 million (net of $5 million of cash acquired), $9 million of which is being held in an escrow account for up to 18 months for potential purchase price adjustments. The purchase price was partially funded by $55 million borrowed under our existing credit facility. The results of operations of JJ Wild and the fair value of assets acquired and liabilities assumed are included in our consolidated financial statements beginning on the acquisition date. During 2008, the valuation of the intangible assets was concluded, resulting in $1 million of the purchase price being reclassified from intangible assets to goodwill. In addition, the purchase price was reduced by $1 million pursuant to contractual purchase price adjustments. The purchase price in excess of the net assets acquired equaled $79 million and was recorded as goodwill on the consolidated balance sheets, was assigned to the Industry Solutions segment and is not deductible for tax purposes.

The following table summarizes the adjusted fair values of the JJ Wild assets acquired and the liabilities assumed at the date of acquisition, which was August 31, 2007 (in millions):


Current assets	$	23
Property, equipment and purchased software, net		1
Goodwill		79
Identifiable intangible assets		10

		113

Current liabilities and non-current liabilities		(23	)

Total consideration paid as of December 31, 2008	$	90

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table reflects the unaudited pro forma combined results of operations as if the acquisition had taken place at the beginning of the calendar year for each of the periods presented and includes an estimate of interest expense on the amount borrowed against our credit facility and an estimate for amortization expense for identifiable intangible assets that were acquired:


	Unaudited
	2007		2006
	(in millions)

Revenue	$	2,670	$	2,375
Income before taxes		179		108
Net income		113		73
Basic earnings per common share, Class A		0.92		0.61
Basic earnings per common share, Class B		0.92		0.61
Diluted earnings per common share		0.91		0.60
Diluted earnings per common share, Class B		0.91		0.60

In our opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of 2007 or 2006, nor are they indicative of future operations of the combined companies under our ownership and management.

QSS Group, Inc.

On January 30, 2007, we acquired all of the outstanding shares of QSS Group, Inc. (QSS), an information technology services company providing services to the U.S. federal government. As a result of the acquisition, we have gained several significant government-wide contracts and expanded both the scope of services and the areas we serve within the Department of Homeland Security and the Department of Defense. The initial purchase price for QSS was $248 million (net of $1 million of cash acquired). The purchase price was partially funded by $75 million borrowed under our existing credit facility. The results of operations of QSS and the fair value of assets acquired and liabilities assumed are included in our consolidated financial statements beginning on the acquisition date. During 2008, the allocation of the QSS purchase consideration to the assets and liabilities acquired, including goodwill, was concluded in connection with the completion of the contractual purchase price adjustment relating to working capital targets. As a result, the purchase price and the amount of purchase price allocated to goodwill were reduced by $1 million. The estimated purchase price in excess of the net assets acquired equaled $171 million and was recorded as goodwill on the consolidated balance sheets, was assigned to the Government Services segment and is deductible for tax purposes.

The following table summarizes the adjusted fair values of the QSS assets acquired and the liabilities assumed at the date of acquisition, which was January 30, 2007 (in millions):


Current assets	$	61
Property, equipment and purchased software, net		1
Goodwill		171
Identifiable intangible assets		50

		283

Current liabilities and non-current liabilities		(35	)

Total consideration paid as of December 31, 2008	$	248

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table reflects unaudited pro forma combined results of operations as if the acquisition had taken place at the beginning of the calendar year for each of the periods presented and includes an estimate of interest expense on the amount borrowed against our credit facility and an estimate for amortization expense for identifiable intangible assets that were acquired:


	Unaudited
	2007		2006
	(in millions)

Revenue	$	2,637	$	2,564
Income before taxes		182		123
Net income		115		82
Basic earnings per common share, Class A		0.94		0.69
Basic earnings per common share, Class B		0.94		0.69
Diluted earnings per common share		0.92		0.68
Diluted earnings per common share, Class B		0.92		0.68

eServ LLC

On February 28, 2006, we acquired substantially all of the assets of eServ LLC (eServ), a provider of product engineering outsourcing services. As a result of the acquisition, we broadened our suite of BPO services for the automotive, manufacturing and industrial services markets. The initial purchase price for eServ was $21 million. During 2007 and 2008, we determined that eServ met their financial targets for the two previous years, and we paid $4 million in additional cash consideration for each year. The results of operations of eServ and the fair value of assets acquired and liabilities assumed are included in our consolidated financial statements beginning on the acquisition date. The purchase price in excess of the net assets acquired equaled $20 million and was recorded as goodwill on the consolidated balance sheets, was assigned to the Industry Solutions segment, and is deductible for tax purposes.

The following table summarizes the adjusted fair values of the eServ assets acquired and liabilities assumed at the date of acquisition, which was February 28, 2006 (in millions):


Current assets	$	4
Property, equipment and purchased software, net		2
Goodwill		20
Identifiable intangible assets		5
Other non-current assets		1

		32
Current liabilities		(3	)

Total consideration paid as of December 31, 2008	$	29

This business is not considered to be material to our consolidated results of operations, financial position, and cash flows.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Technical Management, Inc.

In August 2005, we acquired all of the outstanding shares of Technical Management, Inc. and its subsidiaries, including Transaction Applications Group, Inc. (TAG), a provider of policy administration and business process services to the life insurance and annuity industry. During 2006, we determined that TAG met contractual financial targets for 2005 and we paid $8 million of additional consideration in cash which was recorded as goodwill on the consolidated balance sheets, was assigned to the Industry Solutions segment, and is not deductible for tax purposes.

Perot Systems TSI B.V.

In March 1996, we entered into a joint venture with HCL Technologies whereby we each owned 50% of HCL Perot Systems B.V. (HPS), an information technology services company based in India. In December 2003, we acquired HCL Technologies’ shares in HPS, and changed the name of HPS to Perot Systems TSI B.V.

For each of the years ended December 31, 2007 and 2006, we revised our pre-acquisition income tax liabilities, which resulted in a decrease in goodwill of $5 million and $1 million, respectively. These adjustments to goodwill were assigned to the Industry Solutions segment, and are not deductible for tax purposes.

Other

Additionally, during 2008, we purchased another business for an initial purchase price of $4 million. This acquisition is not material to our consolidated results of operations, financial position, or cash flows.

As of December 31, 2008, we have made all payments related to our acquisitions, except for potential payments totaling $11 million, as described above, and a potential payment totaling $2 million for an immaterial acquisition made in 2008.


6.	Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2008 and 2007, by reportable segment are as follows:


	Industry			Government
	Solutions			Services			Total
	(in millions)

Balance as of January 1, 2007	$	335		$	128		$	463
Goodwill resulting from the QSS acquisition		—			172			172
Goodwill resulting from the JJWild acquisition		79			—			79
Additional Goodwill resulting from the eServ acquisition		4			—			4
Net reduction to Goodwill resulting from the TSI acquisition		(5	)		—			(5	)

Balance as of December 31, 2007		413			300			713

Additional Goodwill resulting from the eServ acquisition		4			—			4
Goodwill resulting from the HighQ^IT acquisition		6			—			6
Goodwill resulting from the Tellurian acquisition		6			—			6
Other		2			(1	)		1

Balance as of December 31, 2008	$	431		$	299		$	730

During the third quarter of 2008, we combined our Consulting and Applications Solutions line of business with certain reporting units within our Industry Solutions line of business. As a result of this change, we reclassified the goodwill relating to the Consulting reporting unit to the Commercial reporting unit and allocated the goodwill

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

related to the Applications Solutions reporting unit to certain reporting units within the Industry Solutions line of business based on the relative fair values of those reporting units.


7.	Deferred Contract Costs, Net, and Other Non-Current Assets

Deferred contract costs, net

The balance of deferred contract costs, net, at December 31, 2008 and 2007, relate primarily to deferred contract setup costs, which are amortized on a straight-line basis over the lesser of their estimated useful lives or the term of the related contract. Amortization expense for deferred contract setup costs was $22 million, $16 million, and $11 million for the years ended December 31, 2008, 2007, and 2006, respectively.

Other non-current assets

Other non-current assets consist of the following as of December 31:


	2008		2007
	(in millions)

Non-current prepaid assets	$	6	$	9
Sales incentives, net		15		6
Identifiable intangible assets, net		54		62
Non-current deferred tax assets		8		10
Non-current tax receivable		13		13
Other non-current assets		13		13

	$	109	$	113

Sales incentives

In certain arrangements we may pay consideration to the customer at the beginning of a contract as a sales incentive, which is most commonly in the form of cash. This consideration is recorded in other non-current assets on the consolidated balance sheets and is amortized as a reduction to revenue over the term of the related contract. Amortization for sales incentives was $2 million, $2 million, and $3 million for each of the years ended December 31, 2008, 2007, and 2006.

Identifiable intangible assets

Identifiable intangible assets are recorded in other non-current assets in the consolidated balance sheets and are composed of:


	As of December 31, 2008							As of December 31, 2007
	Gross					Net		Gross					Net
	Carrying		Accumulated			Book		Carrying		Accumulated			Book
	Value		Amortization			Value		Value		Amortization			Value
	(in millions)

Service mark	$	4	$	(3	)	$	1	$	4	$	(2	)	$	2
Customer-based assets		95		(42	)		53		87		(28	)		59
Other intangible assets		2		(2	)		—		3		(2	)		1

Total	$	101	$	(47	)	$	54	$	94	$	(32	)	$	62

Total amortization expense for identifiable intangible assets was $19 million, $18 million and $8 million, for the years ended December 31, 2008, 2007, and 2006, respectively. Amortization expense is estimated at $18 million, $15 million, $13 million, $4 million and $2 million for the years ended December 31, 2009 through 2013,

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

respectively. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from one to eight years. The weighted average useful life is approximately five years.


8.	Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following as of December 31:


	2008		2007
	(in millions)

Accrued operating expenses	$	75	$	77
Accrued subcontractor costs		35		30
Derivative financial instruments		11		—
Taxes other than income		3		4
Other		14		19

	$	138	$	130

Accrued operating expenses include liabilities recorded for both corporate and contract-related needs, including accrued liabilities for employee benefit plan costs and other general expenditures.


9.	Debt

Credit facility

As of December 31, 2007, we had borrowed $207 million against our $275 million credit facility. As of December 31, 2008, we have borrowed $177 million against our $275 million credit facility with interest rates as noted below:


Variable	Effective Fixed			Net
Interest Rate	Interest Rate			Borrowings
				(in millions)

1.94%⁽¹⁾		—			47
3.97%⁽¹⁾		5.28	%⁽²⁾		75
2.70%⁽¹⁾		5.33	%⁽²⁾		55

				$	177


(1)		Interest rate as of December 31, 2008.

(2)		In August 2007, we entered into interest rate swap agreements to effectively convert these borrowings into fixed-rate instruments.

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated fair value of our amounts outstanding under the credit facility as of December 31, 2008 is $170 million and is determined in accordance with the disclosure requirements of FAS No. 107, “Disclosures about Fair Value of Financial Instruments.” We estimated the fair value of the credit facility by discounting future cash flows using interest rate spreads currently available for a credit facility with similar terms and maturity to our existing outstanding borrowings. The outstanding borrowings are recorded in our financial statements at the carrying value of $177 million.


10.	Common and Preferred Stock

Class B Convertible Common Stock

The Class B shares were authorized in conjunction with the provisions of the original service agreements with Swiss Bank Corporation, one of the predecessors of UBS AG, which were signed in January 1996. Class B shares are non-voting and convertible into Class A shares, but otherwise are equivalent to the Class A shares.

Under the terms of our 1997 agreements with UBS, we sold to UBS 100,000 shares of our Class B stock. Under the terms of the same agreement, we sold UBS options to purchase 7,234,000 shares of our Class B Common Stock. By 2006, UBS had exercised all these options, resulting in issuance of 7,334,000 Class B shares, of which 5,059,000 were converted to Class A shares and 1,458,000 were purchased by us as treasury shares. In 2007, the remaining 817,000 options vested and were converted to Class A shares. In addition, the 1,458,000 treasury shares were retired, resulting in no issued or outstanding Class B shares as of December 31, 2007.

Treasury stock

Treasury stock transactions are accounted for under the cost method. Activity for Class A and Class B Treasury Stock was as follows (shares in thousands and costs in millions):


	Class A						Class B
	Common Stock						Common Stock
	Shares			Cost			Shares			Cost

Balance at January 1, 2006		1,200		$	16			1,458		$	19
Purchased		1,288			18			—			—
Issued for employee incentive plans		(2,401	)		(32	)		—			—

Balance at December 31, 2006		87			2			1,458			19
Purchased		3,517			47			—			—
Issued for employee incentive plans		(10	)		—			—			—
Retired		—			—			(1,458	)		(19	)

Balance at December 31, 2007		3,594			49			—			—
Purchased		3,461			44			—			—
Issued for employee incentive plans		(1,433	)		(20	)		—			—

Balance at December 31, 2008		5,622		$	73			—		$	—

Preferred stock

In July 1998, our Board of Directors approved an amendment to our Certificate of Incorporation that authorized 5 million shares of Preferred Stock, the rights, designations, and preferences of which may be designated from time to time by the Board of Directors. On January 5, 1999, our Board of Directors authorized two series of Preferred Stock: 200,000 shares of Series A Junior Participating Preferred Stock, par value $.01 per share (the Series A Preferred Stock), and 10,000 shares of Series B Junior Participating Preferred Stock, par value $.01 per share (the Series B Preferred Stock and, together with the Series A Preferred Stock, the Preferred Stock).

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employee stock purchase plan

Eligible associates participate in an employee stock purchase plan (the ESPP), which provides for the issuance of a maximum of 10,000,000 shares of Class A Common Stock and is divided into separate U.S. and Non-U.S plans in order to ensure that United States employees continue to receive tax benefits under Section 421 and 423 of the United States Internal Revenue Code. Eligible employee may have up to 10% of their earnings withheld to be used to purchase shares of our common stock on specified dates determined by the Board of Directors. The price of the common stock purchased under the ESPP will be equal to 85% of the fair value of the stock on the exercise date for the offering period.


11.	Stock Options and Stock-Based Compensation

Stock-based compensation

We account for our stock-based compensation under the fair value method of accounting as required by the FAS No. 123R, “Share-Based Payment.” We adopted FAS 123R using the modified prospective method. Under this transition method, stock compensation expense for 2006 included the cost for all share-based payments granted prior to, but not yet vested, as of January 1, 2006, as well as those share-based payments granted subsequent to December 31, 2005. This compensation cost was based on the grant-date fair values determined in accordance with FAS 123 and FAS 123R, which we estimate using the Black-Scholes option pricing model and recognize ratably, less estimated forfeitures, over the vesting period, in direct cost of services or in selling, general and administrative expenses. In addition, we record the related deferred income tax benefits associated with stock compensation expense and reflect the excess tax benefits of stock-based compensation awards in cash flows from financing activities.

For the year ended December 31, 2008, stock-based compensation expense related to stock options, restricted stock, and costs associated with our employee stock purchase plan (ESPP) recorded in direct cost of services and selling, general and administrative expenses, were as follows:


	2008		2007		2006
	(in millions)

Direct cost of services	$	4	$	4	$	6
Selling, general and administrative expenses		11		12		11

Stock based compensation expense		15		16		17
Total stock based compensation expense, net of tax		10		10		11

At December 31, 2008, there was $37 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested options and restricted stock units, which is expected to be recognized over a weighted-average period of 2.0 years.

We utilize the Black-Scholes option pricing model to calculate our stock-based employee compensation expense and the assumptions used for each period are as follows:


	2008			2007			2006

Weighted average risk free interest rates		2.8	%		4.9	%		4.7	%
Weighted average life (in years)		4.7			5.0			5.0
Volatility		27	%		23	%		31	%
Expected dividend yield		0	%		0	%		0	%
Weighted average grant-date fair value per share of options granted at fair market value	$	4.08		$	4.68		$	5.32

For stock options granted in 2007 and 2006, we estimated the expected life of each grant as the weighted average expected life of each tranche of the granted option, which was determined based on the sum of each

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PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

tranche’s vesting period plus one-half of the period from the vesting date of each tranche to its expiration. For stock options granted in 2008, the expected life is the number of years that we estimate, based on history, that options will be outstanding prior to exercise or forfeiture. The expected volatility of our stock price was based on implied volatilities from traded options on our common stock and on historical volatility over the expected term of the granted option. The estimated fair value is not intended to predict actual future events or the value ultimately realized by employees who receive equity awards.

Description of stock-based compensation plans

Below are descriptions of our active stock-based compensation plans, as well as our 1996 Non-Employee Director Stock Option/Restricted Stock Plan and our 1991 Stock Option Plan, under which a significant number of stock options remain outstanding.

2001 Long-Term Incentive Plan

In 2001, we adopted the 2001 Long-Term Incentive Plan under which employees, directors, or consultants may be granted stock options, stock appreciation rights, and restricted stock or may be issued cash awards, or a combination thereof. Under the 2001 Plan, stock option awards may be granted in the form of incentive stock options or non-statutory stock options. The exercise price of any incentive stock option issued is the fair market value on the date of grant, and the term of which may be no longer than 10 years from the date of grant. The exercise price of a non-statutory stock option may be no less than 85% of the fair value on the date of grant, except under certain conditions specified in the 2001 Plan, and the term of a non-statutory stock option may be no longer than 11 years from the date of grant. The vesting period for all options is determined upon grant date, and the options usually vest over a three- to 10-year period, and in some cases can be accelerated through attainment of performance criteria. The options are exercisable from the vesting date, and unexercised vested options are canceled following the expiration of a certain period after the employee’s termination date.

2006 Non-Employee Director Equity Compensation Plan

In 2006, we adopted the 2006 Non-Employee Director Equity Compensation Plan. This plan provides for the issuance of up to 500,000 Class A common shares to non-employee Board members at a designated amount on June 1 of every year. Shares under the plan would be immediately vested upon the grant date and would have no restrictions. The non-employee Board members may elect to defer receipt of a future stock award to the date his or her service terminates.

1996 Non-Employee Director Stock Option/Restricted Stock Plan

In 1996, we adopted the 1996 Non-Employee Director Stock Option/Restricted Stock Plan. No new shares or options will be granted under this plan as the plan was terminated in 2006; however, provisions of this plan will remain in effect for all currently outstanding options granted under this plan. This plan provided for the issuance of up to 800,000 Class A common shares or options to Board members who are not our employees. Shares or options issued under the plan are subject to one- to five-year vesting, with options expiring after an 11-year term. The purchase price for shares issued and exercise price for options issued is the fair value of the shares at the date of issuance. Other restrictions were established upon issuance. The options are exercisable from the vesting date, and unexercised vested options are canceled following the expiration of a certain period after the Board member’s termination date.

1991 Stock Option Plan

In 1991, we adopted the 1991 Stock Option Plan, which was amended in 1993 and 1998. No additional stock options will be granted under this plan as the plan was terminated in 2001; however, provisions of this plan will remain in effect for all outstanding options that were granted under this plan. Pursuant to the 1991 Plan, options to

F-27

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

purchase Class A common shares could be granted to eligible employees. Prior to the date of our initial public offering, such options were generally granted at a price not less than 100% of the fair value of our Class A common shares, as determined by the Board of Directors and based upon an independent third-party valuation. Subsequent to our initial public offering date, the exercise price for options issued was the fair market value of the shares on the date of grant. The stock options vest over a three- to 10-year period based on the provisions of each grant, and in some cases can be accelerated through the attainment of performance criteria. The options are usually exercisable from the vesting date, and unexercised vested options are canceled following the expiration of a certain period after the employee’s termination date.

Activity in our stock-based compensation plans

Activity in stock options for Class A Common Stock was as follows (options in thousands):


	2008					2007					2006
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price

Outstanding at January 1		16,240		$	15.00		18,169		$	14.42		25,342		$	14.81
Granted		1,738			14.31		1,636			15.38		1,543			14.89
Exercised		(1,460	)		10.96		(1,929	)		8.39		(3,463	)		8.54
Forfeited		(1,098	)		15.75		(1,636	)		16.91		(5,253	)		20.33

Outstanding at December 31		15,420			15.25		16,240			15.00		18,169			14.42
Exercisable at December 31		10,050			15.64		10,240			15.37		10,731			14.97

For outstanding and exercisable options at December 31, 2008, the weighted average remaining contractual term (in years) is 3.38 and 2.69 respectively. For outstanding and exercisable options at December 31, 2008, the aggregate intrinsic value is $13 million and $12 million, respectively.

The following table summarizes information about options for Class A Common Stock outstanding at December 31, 2008 (options in thousands):


	Options Outstanding						Options Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
			Exercise		Remaining				Exercise
Range of Prices	Options		Price		Life		Options		Price

$ 1.88 - $ 5.00		30	$	2.76		.57		30	$	2.76
$ 5.01 - $10.00		1,749		9.67		3.23		1,749		9.67
$10.01 - $15.00		7,882		13.31		3.50		4,066		12.91
$15.01 - $20.00		2,913		15.85		4.16		1,504		16.18
$20.01 - $25.00		2,846		23.53		2.37		2,701		23.47

Total		15,420		15.25		3.38		10,050		15.64

We have 40,571,077 shares reserved for issuance under our equity compensation plans.

F-28

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes information about the aggregate intrinsic value and income tax benefits from the exercise of our Class A stock options and the vesting of restricted stock units during the years ended December 31, 2008, 2007, and 2006, as well as the amount of cash received from our stock-based compensation arrangements for the same periods:


	2008		2007		2006
	(in millions)

Aggregate intrinsic value of Class A stock options exercised and restricted stock units vested	$	12	$	20	$	25
Income tax benefits from the exercise of Class A stock options and restricted stock units vested		4		7		9
Cash received from our stock-based compensation arrangements		26		25		37

Of the total income tax benefit of $4 million, $7 million, and $9 million for the years ended December 31, 2008, 2007, and 2006, respectively, $0, $4 million, and $7 million, for 2008, 2007, and 2006, respectively, was reflected as excess tax benefits from stock-based compensation arrangements in net cash provided by financing activities in our consolidated statements of cash flow for the same period.

The number of outstanding nonvested restricted stock units was 1,030,000, 1,010,000, and 957,000 for the years ended December 31, 2008, 2007, and 2006, respectively, with a weighted-average grant-date fair value per share of $14.68, $14.90, and $14.60, respectively. The number of restricted stock units that vested or forfeited during the years ended December 31, 2008, 2007, and 2006 was insignificant.


12.	Comprehensive Income

Total comprehensive income, net of tax, was as follows:


	2008			2007		2006
	(in millions)

Net income	$	117		$	115	$	81
Foreign currency translation adjustments		(34	)		10		7
Net unrealized (loss) gain on foreign exchange forward contracts, forward exchange forward options, and interest rate swaps		(19	)		1		—

Total comprehensive income	$	64		$	126	$	88


13.	Customer Contract Termination

In the fourth quarter of 2007, a customer within our Healthcare group terminated a services agreement with us. We recognized revenue of $134 million under this contract in 2007. Included in the 2007 results were contract termination-related revenue and gross profit of approximately $59 million and $46 million, respectively, including a contractually-obligated termination fee of $26 million and recognition of revenue and costs that were previously deferred of $33 million and $13 million, respectively.


14.	Income Taxes

Income before taxes for the years ended December 31 was as follows:


	2008		2007		2006
	(in millions)

Domestic	$	147	$	141	$	77
Foreign		40		41		43

	$	187	$	182	$	120

F-29

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The provision for income taxes charged to operations was as follows:


	2008		2007			2006
	(in millions)

Current:
U.S. federal	$	47	$	53		$	44
State and local		9		8			4
Foreign		8		7			7

Total current		64		68			55

Deferred:
U.S. federal		5		1			(15	)
State and local		—		—			0
Foreign		1		(2	)		(1	)

Total deferred		6		(1	)		(16	)

Total provision for income taxes	$	70	$	67		$	39

The tax benefits recorded directly to additional paid-in-capital from stock options exercised and restricted stock units vested were $1 million, $5 million, and $20 million in 2008, 2007, and 2006, respectively.

We have foreign net operating loss carryforwards of $47 million to offset future foreign taxable income that do not expire. We have U.S. federal net operating loss carryforwards of $13 million that may be used to offset future taxable income and will begin to expire in 2018. We have state net operating losses that expire over the next 19 years. We also have state income tax credits of $6 million that may be used to offset future Nebraska income tax liability and will begin to expire in 2016.

Deferred tax assets (liabilities) consist of the following at December 31:


	2008			2007
	(in millions)

Accrued liabilities	$	61		$	63
Accrued revenue		8			4
Loss carryforwards		16			17
Property and equipment		14			10
Stock-based compensation		9			7
Tax credits		6			4
Bad debt reserve		6			4
Other		5			6

Gross deferred tax assets		125			115

Deferred costs		(48	)		(35	)
Intangible assets		(30	)		(28	)
Investments in subsidiaries		(11	)		(11	)
Other		(1	)		(1	)

Gross deferred tax liabilities		(90	)		(75	)

Valuation allowance		(16	)		(14	)

Net deferred tax assets	$	19		$	26

F-30

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Based upon our estimates of future taxable income and a review of available tax planning strategies, we believe it is more likely than not that $19 million of net deferred tax assets will be realized, resulting in a valuation allowance at December 31, 2008, of $16 million relating primarily to certain foreign jurisdictions. The valuation allowance increased by $2 million during 2008, due primarily to an increase in Nebraska state tax credits.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income before taxes, as a result of the following differences:


	2008			2007			2006
	(in millions)

Statutory U.S. tax rate	$	66		$	64		$	42
State and local taxes, net of federal benefit		6			6			2
Nondeductible items		2			2			2
U.S. rates in excess of foreign rates and other		(5	)		(3	)		(5	)

		69			69			41
Valuation allowance		1			(2	)		(2	)

Total provision for income taxes	$	70		$	67		$	39

We do not provide for U.S. income tax on the undistributed earnings of our foreign subsidiaries. We intend to either permanently invest our foreign earnings or remit such earnings in a tax-free manner. The cumulative amount of undistributed earnings (as calculated for income tax purposes) of our foreign subsidiaries was approximately $199 million at December 31, 2008, and $232 million at December 31, 2007. Such earnings include pre-acquisition earnings of foreign entities acquired through stock purchases and are intended to be invested outside of the U.S. indefinitely. The ultimate tax liability related to repatriation of our undistributed earnings is dependent upon future tax planning opportunities and is not estimable at the present time.

While we are subject to examination by the tax authorities in each of the jurisdictions where we operate, our principal tax jurisdictions are the United States, India, and the United Kingdom. The statute of limitations is currently open in the United States for tax years 2003 and all subsequent years, in India for fiscal years 2000 and all subsequent years, and in the United Kingdom for tax years 2005 and all subsequent years. The Internal Revenue Service is currently examining our U.S. Federal income tax returns for the tax years ended December 31, 2003, through December 31, 2007. We believe that we will reach resolution on certain issues related to tax years ended December 31, 2003 and December 31, 2004 within the next 12 months. While the resolution of any issues under audit may result in income tax liabilities that are significantly different than the recorded liabilities, management believes the ultimate resolution of these matters will not have a material effect on our consolidated financial position or results of operations. We have previously received a closing agreement from the IRS, which effectively closed all tax years prior to 2003 from further examination. We are also under examination in India for the fiscal years ended March 31, 2002 through March 31, 2006.

Certain of our subsidiaries in India, Singapore, and the Philippines have qualified for tax holidays and incentives. The 2008 tax benefit relating to these tax holidays and incentives was approximately $6 million (approximately $0.05 per diluted share). Our India tax holidays were granted to Software Technology Parks and are scheduled to expire through March 2010. Our Singapore tax incentives were granted to encourage business development and expansion over a five-year period, which expired in September 2008. Our Philippine subsidiary has been designated as an Ecozone IT Enterprise by the Philippine Economic Zone Authority, granting us a four-year tax holiday expiring in August 2010.

Effective January 1, 2007, we adopted the provisions of FIN 48, which clarifies the accounting for and disclosure of uncertainty in tax positions. Additionally, FIN 48 provides guidance on the recognition, measurement, derecognition, classification and disclosure of tax positions and on the accounting for related interest and penalties. As a result of the implementation of FIN 48, we recognized an $18 million decrease in the reserves for uncertain tax

F-31

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

positions, which was recognized as an $8 million increase to retained earnings, a $5 million decrease to goodwill to adjust unrecognized benefits recorded in the cost of acquired companies and a $5 million increase to additional paid in capital to adjust uncertain positions recorded as a component of shareholders’ equity. Following our adoption of FIN 48, the gross balance of reserves for uncertain tax positions was $12 million at January 1, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):


	2008		2007

Balance at January 1	$	14	$	12
Additions based on tax positions related to the current year		—		1
Additions based on tax positions related to prior years		2		1
Settlements		—		—

Balance at December 31	$	16	$	14

The gross balance of reserves for uncertain tax positions of $16 million at December 31, 2008, excludes $3 million of offsetting tax benefits, primarily from international tax treaties, which provide for relief from double taxation. The net unrecognized tax benefits of $13 million, if recognized, would benefit our effective income tax rate.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties, net of tax benefit, related to unrecognized tax benefits were approximately $5 million as of December 31, 2008 and $4 million as of December 31, 2007. We believe that we will reach resolution on certain issues under audit by the Internal Revenue Service for tax years ended December 31, 2003 and December 31, 2004. Consequently, we anticipate a change to the total amount of unrecognized tax benefits within the next 12 months, the amount of which cannot be determined at this time.


15.	Segment and Certain Geographic Data

As of July 1, 2008, we combined our Consulting and Applications Solutions line of business with our Industry Solutions line of business, resulting in a reduction from three segments to two segments: Industry Solutions and Government Services. This realignment helps us unify teams where these two lines of business had an overlap in markets, leverage our domain expertise, and build upon the growing collaboration between these lines of business in providing globally delivered services. We consider these two lines of business to be reportable segments and include financial information and disclosures about these reportable segments in our consolidated financial statements. Operating segments that have similar economic and other characteristics have been aggregated to form our reportable segments. We routinely evaluate the historical performance of and growth prospects for various areas of our business, including our lines of business, delivery groups, and service offerings. Based on a quantitative and qualitative analysis of varying factors, we may increase or decrease the amount of ongoing investment in each of these business areas, make acquisitions that strengthen our market position, or divest, exit, or downsize aspects of a business area.

Industry Solutions, our largest line of business, provides services to our customers primarily under long-term contracts in strategic relationships. These services include technology and business process services, as well as industry domain-based, short-term project and consulting services. Industry Solutions also provides software-related services, including the implementation of prepackaged software applications, application development and maintenance, and application systems migration and testing under short-term contracts related to specific projects. The Government Services segment provides information technology infrastructure and application services, consulting, engineering support, and technology-based business process solutions for the Department of Defense, the Department of Homeland Security, various civilian agencies including the Department of Education and NASA, various federal intelligence agencies, and other governmental agencies. “Other” includes our remaining operating areas and corporate activities, income and expenses that are not related to the operations of the other reportable

F-32

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

segments, and the elimination of intersegment revenue and direct cost of services of approximately $3 million, $2 million, and $2 million for the years ended December 31, 2008, 2007, and 2006, respectively. The assets reported in “Other” consist primarily of cash and cash equivalents, short-term investments, and our corporate headquarters facility.

The reportable segments follow the same accounting policies that we use for our consolidated financial statements as described in the summary of significant accounting policies. Segment performance is evaluated based on income before taxes, exclusive of income and expenses that are included in the “Other” category. Substantially all corporate and centrally incurred costs are allocated to the segments based principally on expenses, employees, square footage, or usage.

The following is a summary of certain financial information by reportable segment as of and for the years ended December 31, 2008, 2007, and 2006.


	Industry		Government
	Solutions		Services		Other			Total
	(in millions)

2008:
Revenue	$	2,128	$	654	$	(3	)	$	2,779
Depreciation and amortization		86		18		8			112
Income before taxes		159		27		1			187
Total assets		1,023		529		426			1,978
2007:
Revenue	$	2,060	$	554	$	(2	)	$	2,612
Depreciation and amortization		79		15		10			104
Income before taxes		178		26		(22	)		182
Total assets		1,066		518		316			1,900
2006:
Revenue	$	2,009	$	291	$	(2	)	$	2,298
Depreciation and amortization		65		5		9			79
Income before taxes		101		19		—			120
Total assets		862		211		508			1,581

Financial information for 2007 and 2006 has been adjusted to reflect the combination in 2008 of the Consulting and Applications Solutions group with the Industry Solutions line of business.

As discussed above in Note 13, “Customer Contract Termination,” during the fourth quarter of 2007, we recorded $59 million of revenue related to a termination fee, which resulted in an additional $46 million dollars in additional gross margin in the Industry Solutions segment.

During the fourth quarter of 2007, we recorded $18 million of expense in selling, general and administrative costs associated with cost reduction activities. This charge is included in the Other segment.

During the third quarter of 2006, we recorded $44 million of expense in direct cost of services associated with the impairment of deferred software development and implementation costs related to the modification of the existing contract. This charge is included in the Industry Solutions segment.

F-33

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summarized below is the financial information for each geographic area. “All Other” includes financial information from other foreign countries in which we provide services, including the following countries: Australia, Canada, China, France, Germany, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, the Philippines, Romania, Singapore, Switzerland, and United Arab Emirates. Revenue for each country is based primarily on where the services are performed.


	2008		2007		2006
	(in millions)

United States:
Total revenue	$	2,423	$	2,298	$	1,896
Long-lived assets at December 31		190		196		183
United Kingdom:
Total revenue		123		112		182
Long-lived assets at December 31		1		1		1
India:
Total revenue		107		106		75
Long-lived assets at December 31		26		35		33
All Other:
Total revenue		126		96		145
Long-lived assets at December 31		4		3		3
Consolidated:
Total revenue		2,779		2,612		2,298
Long-lived assets at December 31		221		235		220

For the year ended December 31, 2006, revenue from one customer, UBS, comprised approximately 13% of total revenue. Our infrastructure outsourcing agreement with UBS, which represented approximately 12% of our consolidated revenue for the year ended December 31, 2006, ended on January 1, 2007. We continue to provide applications services to UBS, which are provided outside the scope of the infrastructure outsourcing contract.


16.	Commitments and Contingencies

Operating leases and maintenance agreements

We have commitments related to data processing facilities, office space and computer equipment under non-cancelable operating leases and fixed maintenance agreements for remaining periods ranging from one to 10 years. Future minimum commitments under these agreements as of December 31, 2008, are as follows:


	Lease and
Year Ended December 31:	Maintenance Commitments
	(in millions)

2009	$	58
2010		42
2011		30
2012		19
2013		15
Thereafter		22

Total	$	186

F-34

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Minimum payments have not been reduced by minimum sublease rental income of $6 million due in the future under non-cancelable subleases. We are obligated under certain operating leases for our pro rata share of the lessors’ operating expenses. Rent expense was $75 million, $72 million, and $57 million for the years ended December 31, 2008, 2007, and 2006, respectively.

Federal government contracts

Despite the fact that a number of government projects for which we serve as a contractor or subcontractor are planned as multi-year projects, the U.S. government normally funds these projects on an annual or more frequent basis. Generally, the government has the right to change the scope of, or terminate, these projects at its discretion or as a result of changes in laws or regulations that might affect our ability to qualify to perform the projects. The termination or a reduction in the scope of a major government project could have a material adverse effect on our results of operations and financial condition.

Our federal government contract costs and fees are subject to audit by the Defense Contract Audit Agency (DCAA) and other federal agencies. These audits may result in adjustments to contract costs and fees reimbursed by our federal customers. The DCAA has completed audits of our contracts through fiscal year 2004.

Contract-related contingencies

We have certain contingent liabilities that arise in the ordinary course of providing services to our customers. These contingencies are generally the result of contracts that require us to comply with certain level of effort or performance measurements, certain cost-savings guarantees, or the delivery of certain services by a specified deadline.

Litigation

IPO Allocation Securities Litigation

Other

F-35

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Guarantees and indemnifications

We have applied the disclosure provisions of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others,” to our agreements that contain guarantee or indemnification clauses. FIN 45 requires us to disclose certain types of guarantee and indemnification arrangements, even if the likelihood of our being required to perform under these arrangements is remote. The following is a description of arrangements in which we are a guarantor, as defined by FIN 45.

We are a party to a variety of agreements under which we may be obligated to indemnify another party. Typically, these obligations arise in the context of contracts under which we agree to hold the other party harmless against losses arising from certain matters, which may include death or bodily injury, loss of or damage to tangible personal property, improper disclosures of confidential information, infringement or misappropriation of copyrights, patent rights, trade secrets or other intellectual property rights, breaches of third party contract rights, and violations of certain laws applicable to our services, products, or operations. The indemnity obligation in these arrangements is customarily conditioned on the other party making an adverse claim pursuant to the procedures specified in the particular contract, which procedures typically allow us to challenge the other party’s claims. The term of these indemnification provisions typically survives in perpetuity after the applicable contract terminates. It is not possible to predict the maximum potential amount of future payments under these or similar agreements, due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. However, we have purchased and expect to continue to purchase a variety of liability insurance policies, which are expected, in most cases, to offset a portion of our financial exposure to claims covered by such policies (other than claims relating to the infringement or misappropriation of copyrights, patent rights, trade secrets or other intellectual property). In addition, we have not historically incurred significant costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, we believe the likelihood of a material liability under these arrangements is remote. Accordingly, we have no significant liabilities recorded for these agreements as of December 31, 2008.

We include warranty provisions in substantially all of our customer contracts in the ordinary course of business. These provisions generally provide that our services will be performed in an appropriate and legal manner and that our products and other deliverables will conform in all material respects to specifications agreed between our customer and us. Our obligations under these agreements may be limited in terms of time or amount or both. In addition, we have purchased and expect to continue to purchase errors and omissions insurance policies, which are expected, in most cases, to limit our financial exposure to claims covered by such policies. Because our obligations are conditional in nature and depend on the unique facts and circumstances involved in each particular matter, we record liabilities for these arrangements only on a case by case basis when management determines that it is probable that a liability has been incurred. As of December 31, 2008, we have no significant liability recorded for warranty claims.


17.	Retirement Plan and Other Employee Trusts

Our eligible associates participate in the Perot Systems 401(k) Retirement Plan, a qualified defined contribution retirement plan. The plan year is the calendar year. The plan allows eligible employees to contribute between 1% and the IRS limit of their annual compensation, including overtime pay, incentive compensation and commissions. For 2008, 2007, and 2006, we matched 100% of employees’ contributions, up to a maximum of 4% of the employee’s compensation, and provided for immediate vesting of all company matching contributions. Employees are not allowed to invest funds in our Class A Common Stock; however, the plan does allow for our matching contributions to be paid in the form of Class A Common Stock, and employees are not restricted in selling any such stock. Our contributions, which were all made in cash, were $31 million, $31 million, and $26 million for the years ended December 31, 2008, 2007, and 2006, respectively. In February 2009, we reduced our matching contribution to 50% of employees’ contributions, up to the maximum of 4% of the employee’s compensation.

F-36

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


18.	Supplemental Cash Flow Information


	2008		2007		2006
	(in millions)

Cash paid for interest	$	10	$	10	$	5

Cash paid for income taxes, net	$	90	$	52	$	50

Non-cash investing and financing activities:
Capital lease obligations incurred	$	1	$	7	$	—


19.	Related Party Transactions

We are providing information technology and energy management services for Hillwood Enterprise L.P., which is controlled and partially owned by Ross Perot, Jr. This contract is scheduled to expire on January 31, 2017. Following this period, the contract will automatically extend for consecutive one-year renewal terms. This contract includes provisions under which we may be penalized if our actual performance does not meet the levels of service specified in the contract, and such provisions are consistent with those included in other customer contracts. For the years ended December 31, 2008, 2007, and 2006, we recorded revenue of $1,967,000, $1,910,000 and $2,086,000 and direct cost of services of $1,607,000, $1,543,000 and $1,656,000 respectively. The pricing of this contract is consistent with the pricing included in other customer contracts. As of December 31, 2008 and 2007, accounts receivables of Perot Systems with Hillwood Enterprise, L.P. were $315,000 and $311,000, respectively.

During 2002, we subleased to Perot Services Company, LLC, which is controlled and owned by Ross Perot, approximately 23,000 square feet of office space at our Plano, Texas, facility. Rent over the term of the lease was approximately $422,000 per year. The initial lease term was 21/2 years with one optional two-year renewal period, and the renewal period was exercised in accordance with the terms of the sublease. In 2007, a new lease agreement was signed through 2015 for the same amount of square footage. Rent over the term of the lease is approximately $491,000 per year. The rates were determined by an independent firm to be consistent with the market for comparable space.

We have a corporate AAirpass program with American Airlines, Inc. under which we prepay for mileage that our associates use for business travel. Historically, the use of prepaid miles has resulted in lower travel costs than refundable tickets for most travel itineraries. Employees of Hillwood Development Company LLC, Perot Services Company, LLC, and their affiliated corporations, as well as members of the Perot family, also use this AAirpass program. These parties reimburse us for the prepaid miles that they use. During 2008, these parties used approximately $880,000 in prepaid miles under our AAirpass program. We benefit from this arrangement because we have a commitment to American Airlines to purchase a minimum number of miles under the AAirpass program, and the miles used by these related parties are counted toward fulfilling that commitment.

F-37

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


20.	Earnings Per Common Share

The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per share of common stock computations under the two class method:


	2008		2007		2006
	(Dollars and shares in thousands, except per share data)

Basic Earnings per Common Share
Net income allocated to Class A common shares(1)	$	117,705	$	114,509	$	79,984

Weighted average common shares outstanding, Class A		120,144		121,759		118,686

Basic earnings per common share	$	0.98	$	0.94	$	0.67

Net income allocated to Class B common shares(1)	$	—	$	532	$	550

Weighted average common shares outstanding, Class B		—		566		817

Basic earnings per common share	$	—	$	0.94	$	0.67

Diluted Earnings per Common Share
Net income(2)	$	117,705	$	115,041	$	80,534

Weighted average common shares outstanding		120,144		122,325		119,503
Incremental shares assuming dilution		1,780		2,325		2,615

Weighted average diluted common shares outstanding(3)		121,924		124,650		122,118

Diluted earnings per common share	$	0.97	$	0.92	$	0.66

Net income allocated to Class B common shares(4)	$	—	$	522	$	538

Weighted average common shares outstanding, Class B		—		566		817

Diluted earnings per common share, Class B	$	—	$	0.92	$	0.66


(1)		Net income is allocated to Class A and Class B common shares based on weighted average common shares attributable to each class of stock.

(2)		For purposes of the diluted net income per share computation for common stock, shares of Class B are assumed to be converted; therefore, 100% of net income is allocated to common stock.

(3)		Class B shares are assumed to be converted in the weighted average diluted common shares outstanding.

(4)		Net income is allocated to class B common shares based on the weighted average diluted common shares attributable to each class of stock.

Options and restricted stock units that were outstanding but were not included in the computation of diluted earnings per share because their effect was antidilutive are as follows:


	For the Twelve
	Months Ended
	December 31, 2008
	2008		2007		2006
	(in thousands)

Common stock options		8,795		6,647		10,490
Restricted stock units		—		—		—

F-38

PEROT SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We determined whether an option or restricted stock unit was dilutive or antidilutive by comparing the average market price of our common shares for that period to the aggregate assumed proceeds from each stock option, measured as the sum of the assumed cash proceeds and excess tax benefits that would be recorded upon the exercise of each stock option and the average unearned compensation cost for each stock option or restricted stock unit.


21.	Supplemental Quarterly Financial Data (Unaudited)


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(Dollars in millions, except per share data)

Year Ended December 31, 2008:
Revenue	$	680	$	705	$	711	$	683
Direct cost of services		562		585		587		558

Gross profit		118		120		124		125
Net income		28		30		30		29
Earnings per share of common stock:
Basic, Class A(1)	$	0.24	$	0.25	$	0.25	$	0.24
Diluted(1)	$	0.23	$	0.24	$	0.25	$	0.24
Year Ended December 31, 2007:
Revenue(2)	$	590	$	635	$	655	$	732
Direct cost of services		485		529		542		574

Gross profit(2)		105		106		113		158
Net income(3)		23		23		25		44
Earnings per share of common stock:
Basic, Class A(1)	$	0.19	$	0.19	$	0.20	$	0.36
Basic, Class B(1)	$	0.19	$	0.19	$	0.20	$	0.36
Diluted(1)	$	0.19	$	0.18	$	0.20	$	0.35
Diluted, Class B(1)	$	0.19	$	0.18	$	0.20	$	0.35


(1)		Due to changes in the weighted average common shares outstanding per quarter and the impact of rounding earnings per share to the nearest penny each quarter, the sum of basic and diluted earnings per common share per quarter may not equal the basic and diluted earnings per common share for the applicable year.

(2)		In the fourth quarter of 2007, a customer within our Healthcare group terminated a services agreement with us. In relation to this, we realized contract termination-related revenue and gross profit of approximately $59 million and $46 million, respectively, consisting of a contractually-obligated termination fee of $26 million and recognition of revenue and costs that were previously deferred of $33 million and $13 million, respectively.

(3)		In the fourth quarter of 2007, we incurred severance expense of $18 million in selling, general, and administrative expenses associated with cost reduction activities we implemented.

F-39


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

None.


Item 9A.	*Controls and Procedures*

Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within required time periods. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2008, such controls and procedures were effective. See “Management’s Report on Internal Control Over Financial Reporting” on page F-1.

Changes in internal controls

The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in our internal control over financial reporting that occurred during the most recent fiscal quarter, and they have concluded that there were no changes to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III


Item 10.	*Directors and Executive Officers of the Registrant*

All information required by Item 10 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 13, 2009, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2008.


Item 11.	*Executive Compensation*

All information required by Item 11 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 13, 2009, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2008.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

All information required by Item 12 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 13, 2009, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2008.


Item 13.	*Certain Relationships and Related Transactions*

All information required by Item 13 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 13, 2009, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2008.


Item 14.	*Principal Accountant Fees and Services*

All information required by Item 14 is incorporated by reference to our definitive proxy statement for our Annual Meeting of Stockholders to be held on May 13, 2009, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2008.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

(1) and (2) Financial Statements and Financial Statement Schedule

The consolidated financial statements of Perot Systems Corporation and its subsidiaries and the required financial statement schedule are incorporated by reference in Part II, Item 8 of this report.

(3) Exhibits


Exhibit			Description of
Number			Exhibit

	3	.1	Third Amended and Restated Certificate of Incorporation of Perot Systems Corporation (the “Company”) (Incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002.)
	3	.2	Fifth Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed December 17, 2008).
	4	.1	Specimen of Class A Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1, Registration No. 333-60755.)
	10	.1	Restricted Stock Plan, as amended through March 22, 2006 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed March 28, 2006.)
	10	.2	Form of Restricted Stock Agreement (Restricted Stock Plan) (Incorporated by reference to Exhibit 10.4 of the Company’s Form 10, dated April 30, 1997.)
	10	.3	1996 Non-Employee Director Stock Option/Restricted Stock Incentive Plan (Incorporated by reference to Exhibit 10.5 of the Company’s Form 10, dated April 30, 1997.)
	10	.4	Form of Restricted Stock Agreement (1996 Non-Employee Director Stock Option/Restricted Stock Incentive Plan) (Incorporated by reference to Exhibit 10.6 of the Company’s Form 10, dated April 30, 1997.)
	10	.5	Form of Stock Option Agreement (1996 Non-Employee Director Stock Option/Restricted Stock Incentive Plan) (Incorporated by reference to Exhibit 10.7 of the Company’s Form 10, dated April 30, 1997.)
	10	.6	1999 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.32 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.)
	10	.7	Amended and Restated 1991 Stock Option Plan, as amended through March 22, 2006 (Incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed March 28, 2006.)
	10	.8	Form of Stock Option Agreement (Amended and Restated 1991 Stock Option Plan) (Incorporated by reference to Exhibit 10.34 of the Company’s Registration Statement on Form S-1, Registration No. 333-60755.)
	10	.9	Amended and Restated 2001 Long-Term Incentive Plan dated effective January 1, 2007. (Incorporated by reference to Exhibit 10.42 of the Company’s Current Report on Form 8-K filed May 8, 2007.)
	10	.10	Form of Nonstatutory Stock Option Agreement (2001 Long Term Incentive Plan) (Incorporated by reference to Exhibit 10.13 of Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.)
	10	.11	Form of Unit Certificate — Restricted Stock Unit Agreement (2001 Long Term Incentive Plan) (Incorporated by reference to Exhibit 10.11 of the Company’s Quarterly Report on Form 10-Q filed October 31, 2006.)
	10	.12	Amended and Restated 2006 Non-Employee Director Equity Compensation Plan adopted September 28, 2006 (Incorporated by reference to Exhibit 10.41 of the Company’s Current Report on Form 8-K filed October 4, 2006.)
	10	.13	Summary of arrangement for non-equity compensation of non-employee directors (Incorporated by reference to Exhibit 10.38 of the Company’s Current Report on Form 8-K filed December 20, 2005.)
	10	.14	Form of Change-in-Control Severance Agreement in effect prior to December 18, 2008. (Incorporated by reference to Exhibit 10.40 of the Company’s Quarterly Report on Form 10-Q filed August 1, 2006.)


Exhibit			Description of
Number			Exhibit

	10	.15	Associate Agreement dated July 8, 1996, between the Company and James Champy (Incorporated by reference to Exhibit 10.20 of the Company’s Form 10, dated April 30, 1997.)
	10	.16	Restricted Stock Agreement dated July 8, 1996, between the Company and James Champy (Incorporated by reference to Exhibit 10.21 of the Company’s Form 10, dated April 30, 1997.)
	10	.17	Letter Agreement dated July 8, 1996, between James Champy and the Company (Incorporated by reference to Exhibit 10.22 of the Company’s Form 10, dated April 30, 1997.)
	10	.18	Employment Agreement dated March 14, 2003, between the Company and Jeff Renzi (Incorporated by reference to Exhibit 10.29 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003.)
	10	.19	Second Amended and Restated License Agreement dated as of October 6, 2005, between Perot Systems Family Corporation and Ross Perot, Jr. and the Company. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed February 28, 2008.)
	10	.20	Amended and Restated Credit Agreement dated as of March 3, 2005, by and among the Company, JPMorgan Chase Bank, N.A., KeyBank National Association, SunTrust Bank, Wells Fargo Bank, N.A., Wachovia Bank, N.A., Comerica Bank, Southwest Bank of Texas, N.A., Bank of Texas, N.A., The Bank of Tokyo-Mitsubishi, Ltd., Bank Hapoalim B.M., and Mizuho Corporate Bank, Ltd. (Incorporated by reference to Exhibit 10.38 of the Company’s Current Report on Form 8-K filed March 4, 2005.)
	10	.21	Amended and Restated Stock Option Agreement dated December 27, 2006, between the Company and Ross Perot, Jr. (Incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.)
	10	.22	Information Technology Services Agreement dated as of January 1, 2007, by and between the Company and Hillwood Enterprises, L.P., a Texas limited partnership. (Incorporated by reference to Exhibit 10.41 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.)
	10	.23	Commercial Lease effective October 1, 2007, between PSC Management Limited Partnership and Perot Services Company, LLC. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed February 28, 2008.)
	10	.24	First Amendment to Amended and Restated Credit Agreement dated August 28, 2006 by and among Perot Systems Corporation, as Borrower, the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.42 of the Company’s Current Report on Form 8-K filed August 31, 2006.)
	10	.25	Stock Purchase Agreement dated December 18, 2006, by and among Perot Systems Government Services, Inc., a wholly owned subsidiary of the Company, QSS Group, Inc., a Maryland corporation (“QSS”), and the stockholders of QSS. (Incorporated by reference to Exhibit 10.40 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.)
	10	.26	Agreement and Plan of Merger dated August 10, 2007, by and among the Company, Eagle Delaware Corp., a Delaware corporation, J. J. Wild Holdings, Inc., a Massachusetts corporation, J. J. Wild, Inc., a Massachusetts corporation, and Certain Stockholders of J. J. Wild Holdings, Inc. (Incorporated by reference to Exhibit 10.43 of the Company’s Quarterly Report on Form 10-Q filed on October 31, 2007.)
	10	.27	Form of Indemnification Agreement adopted December 11, 2008. (Incorporated by reference to Exhibit 10.27 of the Company’s Current Report on Form 8-K filed December 17, 2008.)
	10	.28*	Amendment Two to the Restricted Stock Plan adopted December 22, 2008.
	10	.29*	Amendment to the 1996 Non-Employee Director Stock Option/Restricted Stock Incentive Plan adopted December 22, 2008.
	10	.30*	Plan Amendment to the 2001 Long-Term Incentive Plan (As Amended and Restated Effective January 1, 2007) adopted December 22, 2008.
	10	.31*	Form of Grant Certificate — Stock Settled Stock Appreciation Right Agreement (2001 Long Term Incentive Plan).
	10	.32*	Form of Change in Control Severance Agreement in effect as of December 18, 2008.
	21	.1*	Subsidiaries of the Company.
	23	.1*	Consent of PricewaterhouseCoopers LLP dated February 25, 2009.


Exhibit			Description of
Number			Exhibit

	31	.1*	Rule 13a-14 Certification dated February 25, 2009, by Peter A. Altabef, President and Chief Executive Officer.
	31	.2*	Rule 13a-14 Certification dated February 25, 2009, by John E. Harper, Vice President and Chief Financial Officer.
	32	.1**	Section 1350 Certification dated February 25, 2009, by Peter A. Altabef, President and Chief Executive Officer.
	32	.2**	Section 1350 Certification dated February 25, 2009, by John E. Harper, Vice President and Chief Financial Officer.
	99	.1*	Schedule II — Valuation and Qualifying Accounts.


*		Filed herewith.

**		Furnished herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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


	By:	/s/ Peter A. Altabef

Peter A. Altabef

President and Chief Executive Officer

Dated: February 25, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date


/s/ Peter A. Altabef Peter A. Altabef	Director, President, and Chief Executive Officer (Principal Executive Officer)	February 25, 2009

/s/ John E. Harper John E. Harper	Vice President and Chief Financial Officer (Principal Financial Officer)	February 25, 2009

/s/ Robert J. Kelly Robert J. Kelly	Corporate Controller (Principal Accounting Officer)	February 25, 2009

/s/ Ross Perot Ross Perot	Chairman Emeritus	February 25, 2009

/s/ Ross Perot, Jr. Ross Perot, Jr.	Chairman	February 25, 2009

/s/ Steve Blasnik Steve Blasnik	Director	February 25, 2009

/s/ John S.T. Gallagher John S.T. Gallagher	Director	February 25, 2009

/s/ Carl Hahn Carl Hahn	Director	February 25, 2009

/s/ DeSoto Jordan DeSoto Jordan	Director	February 25, 2009

/s/ Thomas Meurer Thomas Meurer	Director	February 25, 2009


Signature	Title	Date


/s/ Cecil H. Moore, Jr. Cecil H. Moore, Jr.	Director	February 25, 2009

/s/ Anthony Principi Anthony Principi	Director	February 25, 2009

/s/ Anuroop Singh Anuroop Singh	Director	February 25, 2009

/s/ Caroline Mathews Caroline Mathews	Director	February 25, 2009

EX-10.28 2 d66535exv10w28.htm EX-10.28 exv10w28

EXHIBIT 10.28

AMENDMENT TWO
TO THE
PEROT SYSTEMS CORPORATION RESTRICTED STOCK PLAN

This Amendment Two (the “Amendment”) to that certain Restricted Stock Plan (the “Plan”) of Perot Systems Corporation (the “Company”) is made as of December 22, 2008. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Plan or the applicable Restricted Stock Agreement.

WHEREAS, the Board of Directors of the Company (the “Board”) desires to amend the Plan to comply with the applicable requirements of section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the “ Code”); and

WHEREAS, Section 1 of the Plan provides that the Board is authorized to amend the terms of the Plan.

NOW, THEREFORE, the Plan is amended in the following respects:

Section 5 of the Plan is amended by adding the following sentence to the end of Section 5(c):

“Notwithstanding the foregoing, any restrictions or conditions on the Restricted Stock issued to a Participant which grants the Company the option to repurchase the Restricted Stock may not be exercised unless the repurchase price is not greater than 100% of the current Market Value of the Restricted Stock at the time of repurchase.”

IN WITNESS WHEREOF, the Company has caused the execution of this Amendment on this 22^nd day of December, 2008.


	PEROT SYSTEMS CORPORATION
	By:
		Peter Altabef
		President and Chief Executive Officer


	By:
		Thomas D. Williams
		Vice President, General Counsel and Secretary

EX-10.29 3 d66535exv10w29.htm EX-10.29 exv10w29

EXHIBIT 10.29

PEROT SYSTEMS CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK
OPTION/RESTRICTED STOCK INCENTIVE PLAN

This Amendment (the “Amendment”) to the Perot Systems Corporation 1996 Non-Employee Director Stock Option/Restricted Stock Incentive Plan (the “Plan”) of Perot Systems Corporation (the “Company”) is made as of December 22, 2008. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Plan or the applicable Restricted Stock Agreement.

WHEREAS, Section 10(c) of the Plan provides that the Board is authorized to amend the terms of the Plan.

NOW, THEREFORE, the Plan is amended in the following respects:

Section 8 of the Plan is amended by adding the following sentence to the end of Sections 8(f) and 8(g):

“Notwithstanding the foregoing, any restrictions or conditions on the Restricted Stock issued to a participant which grants the Company the option to repurchase the Restricted Stock may not be exercised unless the repurchase price is not greater than 100% of the current fair market value of the Restricted Stock at the time of repurchase.”

IN WITNESS WHEREOF, the Company has caused the execution of this Amendment on this 22^nd day of December, 2008.


	PEROT SYSTEMS CORPORATION
	By:
		Peter Altabef
		President and Chief Executive Officer


	By:
		Thomas D. Williams
		Vice President, General Counsel and Secretary

EX-10.30 4 d66535exv10w30.htm EX-10.30 exv10w30

EXHIBIT 10.30

PEROT SYSTEMS CORPORATION
2001 LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2007)
PLAN AMENDMENT

The Perot Systems Corporation 2001 Long-Term Incentive Plan, as amended and restated effective January 1, 2007 (the “Plan”), is hereby further amended, effective as of December 31, 2008, as follows:

1 Section 2(hh) of the Plan is hereby amended in its entirety to read as follows:

(hh) Stock Appreciation Right” means an Award made pursuant to Section 12 of the Plan that provides the Awardee with the right to receive a distribution from the Company, with respect to each share of Common Stock as to which such right is exercised, equal to the amount by which the Fair Market Value per share of Common Stock on the date such right is exercised by the Awardee exceeds the Fair Market Value per share of Common Stock on the Grant Date. Such distribution shall be payable in shares of Common Stock or cash.

2 Section 4(b)(xi) of the Plan is amended to read as follows:

(xi) subject to Section 15(c) of the Plan, to provide, upon direction by the Board in its sole discretion, in the event there is a change in control of the Company or any Subsidiary, as determined by the Board, for the (A) assumption or substitution of, or adjustment to, each outstanding Award; (B) acceleration of the vesting of Options and Stock Appreciation Rights and the termination of any restrictions on Cash Awards or Stock Awards; and/or (C) cancellation of Awards for a cash payment to the Awardee, provided, however, that such discretion may not be exercised to change the time or form of payment of any outstanding Award which is subject to Code Section 409A, and further provided that, to the extent that the Award is granted as “performance-based compensation” under Section 162(m) of the Code, such action does not conflict with the provisions of Code Section 162(m).

3 Section 6(d)(ii) of the Plan is hereby amended to read as follows:

(ii) If an Option or Stock Appreciation Right is cancelled, forfeited, or lapses in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 15), the cancelled, forfeited or lapsed Option or Stock Appreciation Right will be counted against the limits set forth in subsection (i).

4 Section 6(e)(iii) of the Plan is hereby amended to read as follows:

(iii) No Option or Stock Appreciation Right granted to a Non-Exempt Employee may be exercisable less than six months after the effective date of the grant of such Option, except in the case of death, Total Disability, retirement or change in control.

5 Section 9(c) of the Plan is hereby amended in its entirety to read as follows:

(c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment at the Grant Date. Acceptable forms of consideration may, but are not required to, include:

(i) cash;

(ii) check or wire transfer (denominated in U.S. Dollars or other currency the Administrator determines is acceptable);

(iii) other Shares which (A) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised and (B) have been owned by the Participant for any requisite period necessary to avoid any additional compensation expense for the Company for financial accounting purposes;

(iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(v) a net exercise procedure pursuant to which a portion of the Shares otherwise issuable upon the exercise of the Option are automatically withheld by the Company and applied to (A) the payment of the aggregate Exercise Price of the gross number of Shares as to which the Option is exercised and (B) the satisfaction of the federal and state income and employment withholding taxes applicable to such exercise;

(vi) any combination of the foregoing methods of payment; or

(vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

6 The following new paragraph is hereby added to the end of Section 10(a) of the Plan:

In the event an Option is exercised through the net exercise procedure under Section 9(c)(v), then the requirements of subparagraphs (B) and (C) of paragraph (iv) of this Section 10(a) shall be deemed satisfied through the withholding of a portion of the gross number of Shares for which that Option is exercised, and the number of Shares thereafter available, both for purposes of the Plan and for purchase under such Option, shall be reduced by the gross number of Shares for which the Option is exercised.

7 Section 12(b) of the Plan is hereby amended in its entirety to read as follows:

(b) Grant of Stock Appreciation Right. The Stock Appreciation Right shall entitle the holder upon exercise to an amount for each Share to which such exercise relates equal to the excess of (i) the Fair Market Value on the date of exercise over (i) the base or exercise price per Share set forth in the applicable Award Agreement. The base

or exercise price shall not be less that the Fair Market Value per Share on the grant date of the Stock Appreciation Right. Notwithstanding the foregoing, the Committee may place limits on the amount that may be paid upon exercise of a Stock Appreciation Right.

8 Section 12(e) of the Plan is hereby amended in its entirety to read as follows:

(e) Other Provisions. The Award Agreement evidencing a Stock Appreciation Right shall contain such other terms, provisions and conditions not inconsistent with. the Plan as may be determined by the Committee in its sole discretion, including the vesting period (if any) and terms and provisions similar to those in effect under Section 10 of the Plan for stock option grants. The provisions of such Awards need not be the same with respect to each recipient.

9 The following new paragraph is hereby added to the end of Section 12 of the Plan:

Upon the exercise of an outstanding Stock Appreciation Right, the number of Shares thereafter available, for purposes of calculating both the Plan reserve and the number of Shares as to which such Stock Appreciation Right may be subsequently exercised, shall be reduced by the gross number of Shares as to which the Stock Appreciation Right is exercised.

10 Section 15(c)(i) of the Plan is hereby amended in its entirety to read as follows:

(i) Change in Control without Termination of Employment. In the event there is a change in control of the Company or any Subsidiary, as determined by the Board, without a related termination of the Participant’s employment as provided in Section 15(c)(ii) and (iii) below, the Board may, in its discretion, (A) provide for the assumption or substitution of, or adjustment to, each outstanding Stock Award, Stock Appreciation Right or Option in accordance with the principles of Section 15(a); (B) accelerate the vesting of Options and Stock Appreciation Rights and terminate any restrictions on Cash or Stock Awards; and (C) provide for the cancellation of Awards for a cash payment to the Awardee, provided, however, that such discretion may not be exercised to change the time or form of payment of any outstanding Award which is subject to Code Section 409A.

11 The second paragraph of Section 15(c)(iii) of the Plan is hereby amended to read as follows:

In addition, upon the occurrence of a Change in Control, the provisions of Section 8 of a Participant’s Nonstatutory Stock Option Award Agreement, Section 8 of the Participant’s Stock Appreciation Right Award Agreement, Section 8 of a Participant’s Restricted Stock Unit Award Agreement under the Plan or any similar provisions of the Plan or an Award Agreement to (i) cancel any Award granted to a Participant, (ii) buy back Common Stock issued to a Participant upon the Participant’s exercise of an Award and/or (iii) require repayment with respect to certain proceeds received from the sale of any Common Stock issued to a Participant upon the Participant’s exercise of an Award,

shall be deemed to be cancelled and deleted from such documents and shall be of no further force and effect.

12 The Section 15(c), definition of “Change in Control Benefit,” is amended by adding the phrase “or RSU” after each reference to “Restricted Stock” and by changing the period at the end of Paragraph B to a comma, and inserting thereafter the following text:

provided, however, that in the event that the Participant’s Involuntary Termination occurs during the Pre-Closing Period and prior to the closing of a Change in Control, any RSU which is subject to Code Section 409A shall immediately vest and shall be paid to the Participant at the time and in the form specified under the applicable RSU Award and the Plan governing such RSU Award as if such Involuntary Termination had not occurred.

13 The Section 15(c), definition of “Change in Control Benefit,” is amended by changing the period at the end of Paragraph C to a comma, and inserting thereafter the following text:

, provided, however, that in the event that the Participant’s Involuntary Termination occurs during the Pre-Closing Period and prior to the closing of a Change in Control, any Cash Awards which are subject to Code Section 409A shall immediately vest and shall be paid to the Participant at the time and in the form specified under the terms of the Participant’s Cash Award as if such Involuntary Termination had not occurred.

14 The Section 15(c) definition of “Change in Control Benefit” is amended by adding the following paragraph at the conclusion thereof:

In the case of an Involuntary Termination during the Protected Period, any change in the time or form of payment for any Award subject to Code Section 409A shall be conditioned upon the occurrence of a Change in Control which (i) satisfies the definition of Change in Control set forth in Exhibit B, and (ii) meets the definition of a change in control under Code Section 409A and the regulations issued thereunder.

15 The Section 15(c) definition of “Specified Reason” is amended in the following respects:

(a) Paragraph (A) is amended by inserting the word “material” following “the” in the first line thereof; and

(b) The flush language following Paragraph (B) is amended by inserting “90” in lieu of “120” in the third line thereof.

16 A new Section 24 is added to read as follows:

24. Delayed Commencement of Benefits.

Notwithstanding any provision in this Plan or in any Award to the contrary, no Award subject to Code Section 409A which would otherwise become payable or distributable under the Plan on account of a termination of employment shall be made, paid or

provided prior to the earlier of (i) the expiration of the six (6) month period measured from the date of the Participant’s “separation from service” with the Company (as such term is defined in Treasury Regulations issued under Code Section 409A) or (ii) the date of the Participant’s death, if the Participant is deemed at the time of such separation from service to be a “key employee” within the meaning of that term under Code Section 416(i), and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Section (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to the Participant in a lump sum, and any remaining payments and benefits due under this Plan shall be paid or provided in accordance with the normal payment dates specified for them herein. The Participant shall be entitled to interest on the deferred benefits and payments for the period the commencement of those benefits and payments is delayed by reason of Code Section 409A(a)(2), with such interest to accrue at the prime rate in effect from time to time during that period and to be paid in a lump sum upon the expiration of the deferral period.

17 This Plan Amendment is intended to benefit the holders of outstanding Awards and shall not be deemed to impair the rights of the holder under any such Award. Except as modified by this Plan Amendment, all the terms and provisions of the Plan, as previously amended and restated, shall continue in full force and effect.

[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, Perot Systems Corporation has caused this Plan Amendment to be executed on its behalf by its duly-authorized officer on this 22nd day of December, 2008.


		PEROT SYSTEMS CORPORATION

		By

		Title:

EX-10.31 5 d66535exv10w31.htm EX-10.31 exv10w31

EXHIBIT 10.31

Perot Systems Corporation
2001 Long Term Incentive Plan

Grant Certificate
Stock-Settled Stock Appreciation Right Agreement

Awardee:
ID #:
Grant Date:
Covered Shares:
Base Price:
Vesting Schedule:


Expiration Date:		The tenth anniversary of the Grant Date, subject to earlier termination upon (i) the 90th day after Awardee’s Severance Date (as such term is defined in the Plan) or (ii) any other date, whether before or after such 90th day, on which this Grant terminates under the Award Agreement or pursuant to the provisions of the Plan.

You have been granted a Stock-Settled Stock Appreciation Right under the Perot Systems Corporation’s 2001 Long Term Incentive Plan. subject to the terms and conditions of (i) this Grant Certificate and the form of Stock-Settled Stock Appreciation Right Agreement in effect on the Grant Date (collectively, the “Award Agreement”), and (iii) the Plan. This Grant may only be settled in shares of Perot Systems Class A common stock, par value per share $.01 (“common stock”), through the exercise procedure set forth in Section 2(d) of the Award Agreement.

The Award Agreement and the Prospectus relating to the Plan are available for your review at E*Trade/www.optionslink.com. Perot Systems’ filings with the United States Securities and Exchange Commission are available on the Company’s website at http://www.perotsystems.com/Investors/SECfilings. If you have difficulty accessing any of these websites, please contact the Stock Administration Department at +1 (972) 577-5670 or by e-mail to Stock-Dept@ps.net.

By exercising or attempting to exercise this Stock-Settled Stock Appreciation Right, or asserting or attempting to assert any rights or privileges under the Award Agreement, a person:

	•		agrees to be bound by the terms of the Award Agreement and the Plan;

	•		acknowledges the receipt of an electronic or paper copy of (1) the Plan, (2) the Prospectus for the Plan, and (3) the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q which have been filed with the United States Securities and Exchange Commission; and

	•		is prompt in responding to the delivery request of required documents and future communications relating to the Plan or the Award Agreement via E*Trade or other electronic transmission; and agree to provide Perot Systems with up-to-date electronic contact information.

If you wish to reject this Grant, please contact the Stock Administration Department within 60 days after the Grant Date.

PEROT SYSTEMS CORPORATION


By:



Grant Certificate		Adopted for Awards On or After
Stock-Settled Stock Appreciation Right Agreement		01Jan09
Awards to US Associates


Peter A. Altabef
Chief Executive Officer				Date:

PEROT SYSTEMS Corporation
2001 Long-Term Incentive Plan

Stock-Settled Stock Appreciation Right Agreement

General.

	(a)		The terms and conditions set forth below, together with a certificate issued by the Company (“Grant Certificate”) setting forth the name of the person (the “Awardee”) to whom the Company has granted a stock appreciation right (the “SAR”), the number of Shares covered by the SAR (the “Covered Shares”), the price per Share to be used to measure the appreciation in the Fair Market Value per Covered Share between the Grant Date and the exercise date (the “Base Price”), and the dates on which such SAR may be exercised, constitute this Stock-Settled Stock Appreciation Right Agreement (“Award Agreement”).

	(b)		The terms and conditions of the Perot Systems Corporation 2001 Long-Term Incentive Plan (“Plan”), except Sections 9, 11 and 13 of the Plan, are incorporated by reference into this Award Agreement and, unless provided otherwise in this Award Agreement, will apply to the SAR (with the terms of Section 10 of the Plan relating to stock options granted under the Plan to be equally applicable to this SAR). Capitalized terms used in this Award Agreement will have the meanings given such terms in the Plan, unless they are defined differently in this Award Agreement.

	(c)		English Language. This Agreement has been written in English, which language will control in all respects. No translation of this Agreement into any other language will be of any force or effect in its interpretation or in a determination of the intent of either party. Each party waives, to the maximum extent permitted by applicable law, any right it may have under the laws of any country or other jurisdiction to have this Agreement written in any other language.

Grant, Vesting and Exercise of SAR.

	(a)		Awardee is granted a stock appreciation right covering the number of Shares specified as the “Covered Shares” in the Grant Certificate with a base price per Share specified as the “Base Price” in the Grant Certificate. This SAR is not intended to constitute an “incentive stock option” as that term is used in section 422 of the Code.

	(b)		This SAR will become exercisable, if at all, in one or more installments for a portion of the Covered Shares (“Vested Shares”) on the dates, or upon satisfaction of the conditions, specified as the “Vesting Schedule” in the Grant Certificate, provided that no installment of this SAR will become exercisable after any date, or upon satisfaction of any condition after any date, after the Awardee’s Severance Date, except as provided in Section 10(b), (c), (d) or (e) of the Plan, with each such Section to be applied to this SAR to the same extent as if this SAR were an option granted under the Plan.

	(c)		Awardee may exercise this SAR as to all or any part of the Vested Shares at any time on or before the earlier of (i) the date specified as the “Expiration Date” in the Grant Certificate or (ii) the date on which the Awardee’s SAR terminates under Section 10(b), (c), (d) or (e) of the Plan, with each such Section to be applied to this SAR to the same extent as if this SAR were an option granted under the Plan.

	(d)		This SAR may only be exercised through the following procedure pursuant to which the number of Vested Shares to become issuable upon such exercise will be calculated and a portion of those otherwise issuable Vested Shares will be applied to the payment of the applicable federal and state income and employment withholding taxes (the “Withholding Taxes”). Accordingly, in order to exercise this SAR,



Grant Certificate		Adopted for Awards On or After
Stock-Settled Stock Appreciation Right Agreement		01Jan09
Awards to US Associates

Awardee (or any other person entitled to exercise this SAR) must deliver to the Company, in accordance with the procedures established by the Administrator from time to time, a written or electronic notice of exercise in the form established by the Administrator from time to time stating the gross number of Vested Shares as to which this SAR is exercised.

The number of Vested Shares that will become issuable upon such exercise shall be determined pursuant to the following formula:

X = A x (B-C)/B, where

X is the number of Vested Shares issuable upon the exercise of the SAR, prior to the collection of the applicable Withholding Taxes,

A is the gross number of Vested Shares as to which the SAR is exercised,

B is the Fair Market Value per Vested Share at the time of exercise, with such Fair Market Value to be determined in accordance with the provisions of the Plan, and.

C is the Base Price payable per Vested Share.

A portion of the Vested Shares otherwise issuable upon the exercise of this SAR in accordance with the above calculation shall automatically be withheld by the Company to satisfy the applicable Withholding Taxes in accordance with the following share withholding procedure:

The Company shall collect the applicable Withholding Taxes through an automatic share withholding procedure pursuant to which the Company shall withhold a portion of the Vested Shares otherwise issuable upon the exercise of this SAR that have an aggregate Fair Market Value (measured as of the exercise date) equal to the amount of such Withholding Taxes; provided, however, that the Vested Shares so withheld shall not have an aggregate Fair Market Value in excess of the dollar amount necessary to satisfy the Company’s required tax withholding obligations using the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to supplemental taxable income.

Accordingly, upon the exercise of this SAR in accordance with such exercise procedure, the Awardee shall only be issued the net number of Vested Shares which remain after a portion of the Vested Shares otherwise issuable upon the exercise of this SAR is withheld by the Company to cover the applicable Withholding Taxes. The resulting distribution shall be made solely in shares of the Company’s common stock.

This SAR shall also be automatically exercised on such a net exercise basis (including the automatic share withholding procedure to cover the applicable Withholding Taxes) if and to the extent the Fair Market Value of the Vested Shares subject to this SAR on the applicable Expiration Date exceeds the aggregate Base Price applicable to those Vested Shares.

The net number of Vested Shares to which the Awardee becomes entitled upon any each such exercise of this SAR shall be delivered to or on behalf of the Awardee within five (5) business days after the date the requisite notice of exercise is delivered to the Company. In no event shall any fractional Share be issued. Accordingly, in such event, the net number of Vested Shares to be issued shall be rounded down to the next whole Share and the Company will offset the Fair Market Value (measured as of the exercise date) of the fractional Share resulting from the computation of the of the number of shares to be withheld from any amounts otherwise owed by the Company to the Awardee. The Company may effect such offset through payroll deduction or against any other amount that may be due Awardee. If the Company does not owe Awardee any amount against which it could offset the value of such fractional share, the Company may request, and if requested, Awardee shall promptly pay the Company the Fair Market Value of such fractional share.



Grant Certificate		Adopted for Awards On or After
Stock-Settled Stock Appreciation Right Agreement		01Jan09
Awards to US Associates

Restrictions on Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, personal representatives, successors, and assigns. This SAR may not be sold, assigned, given, exchanged, pledged, hypothecated or otherwise transferred by Awardee except by will or the laws of descent and distribution or with the written consent (executed in ink on paper) of the Administrator. This SAR may be exercised only by (i) Awardee, (ii) the executor or administrator of Awardee’s estate (or, if Awardee has designated a beneficiary in accordance with Section 17 of the Plan, such beneficiary) following his or her death, or (iii) the guardian of Awardee’s property if one is appointed by reason of Awardee’s Total Disability. The Company is not obligated to recognize any exercise of this SAR, or any purported sale, assignment, gift, exchange, pledge, hypothecation or other transfer, in violation of this Section 3 and, unless it elects to do otherwise, may treat any such purported exercise, sale, assignment, gift, exchange, pledge, hypothecation or transfer as null, void, and of no effect.

No Guarantee of Continued Employment. Awardee acknowledges and agrees that this Award Agreement and the transactions it contemplates do not constitute an express or implied promise of continued employment by the Company or his or her Employer for any period or at all and shall not interfere with Awardee’s right or the Company’s or the Employer’s right to terminate Awardee’s employment relationship at any time, with or without cause. Awardee further acknowledges and agrees that this SAR, and Awardee’s ability to acquire one or more Vested Shares hereunder, will terminate in accordance with the terms of this Award Agreement and the Plan if Awardee ceases to provide services to the Company or its Subsidiaries or Affiliates as an employee or consultant.

Communications.

(a)

All communications from Awardee to the Administrator, the Company or the Employer will be deemed delivered on the day the notice or other communication is received in tangible written form addressed to the Stock Administration Department at the Company’s corporate headquarters address. All communications to Awardee from the Administrator, the Company or the Employer will be deemed delivered on the day the notice or other communication is (i) personally delivered to Awardee, (ii) electronically transmitted to Awardee to the last known electronic transmission address of Awardee, or (iii) placed in the official government mail of the country of the sender in an envelope with proper postage paid addressed to the last known address of that person as reflected in the Company’s personnel or stock records. Either party may at any time change its address for notification purposes by giving the other written notice of the new address and the date upon which it will become effective.

(b)

Consent to Electronic Delivery of Communications, Plan Documents and Prospectuses. By exercising any rights or privileges, or attempting to exercise any rights or privileges, under this Award Agreement, Awardee will be deemed to consent to receiving copies of all communications relating to the Plan and this Award Agreement by electronic transmission, including but not limited to the Prospectus relating to the Plan, all participation materials, and all other documents required to be delivered in connection with the Plan. Upon request, the Company will provide any such documents to Awardee (at no cost) in tangible written form.

Disputes and Governing Law.

(a)

This Award Agreement shall be governed by and construed in accordance with the substantive law of the state of Delaware, without regard to the choice of law rules in such state. This Agreement shall be deemed to have been entered into and wholly performed in Dallas County, Texas. Any action to enforce the provisions of, or otherwise relating to, this Agreement shall be brought in the state or federal courts having jurisdiction in Dallas County, Texas. By exercising any rights or privileges, or attempting to exercise any rights or privileges, under this Award Agreement, Awardee consents to the personal jurisdiction of such courts in any such action. Venue of any disputes relating to this Agreement shall be in Dallas County, Texas.]



Grant Certificate		Adopted for Awards On or After
Stock-Settled Stock Appreciation Right Agreement		01Jan09
Awards to US Associates

	(b)		If any legal proceeding is brought to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled.

	(c)		If any provision of this Agreement is held invalid or unenforceable for any reason, the validity and enforceability of all other provisions of this Agreement will not be affected. The section headings used herein are for reference and convenience only and do not affect the interpretation of this Agreement. This Award Agreement (including the Grant Certificate), together with the Plan, constitutes the entire agreement between the parties with respect to its subject matter and may be waived or modified only in writing.

Non-Competition and Non-Disclosure. Awardee acknowledges that: (i) in the course and as a result of employment with the Company or the Employer, Awardee will obtain special training and knowledge and will come in contact with the Company’s or the Employer’s current and potential customers, which training, knowledge, and contacts would provide invaluable benefits to competitors of the Company and the Employer; (ii) the Company and the Employer are continuously developing or receiving Confidential Information, and that during Awardee’s employment he or she will receive Confidential Information from the Company, the Employer, and their respective customers and suppliers and special training related to the Company’s and the Employer’s business methodologies; and (iii) Awardee’s employment by the Employer creates a relationship of trust that extends to all Confidential Information that becomes known to Awardee. Accordingly, and in consideration of this Award, Awardee agrees that the Company and the Employer will be entitled to terminate all rights to exercise the Award and to exercise the rights specified in Section 8 below if Participant does any of the following without the prior written consent of the Company or the Employer:

(a)

while employed by the Company or the Employer or within one year thereafter:

	(i)		competes with, or engages in any business that is competitive with, the Company or the Employer within 250 miles of any location at which Awardee was employed by or provided services to the Company or the Employer;

	(ii)		solicits or performs services, as an employee, independent contractor, or otherwise, for any person (including any Affiliate or Subsidiary of that person) that is or was a customer or prospect of the Company or the Employer during the two years before Awardee’s Severance Date if Awardee solicited business from or performed services for that customer or prospect while employed by the Company or the Employer; or

	(iii)		recruits, hires, or helps anyone to recruit or hire anyone who was an employee of the Company or any Affiliate or Subsidiary of the Company, or of any of their customers for whom Awardee performed services or from whom Awardee solicited business, within the six months before Participant’s Severance Date; or

(b)

discloses or uses any Confidential Information, except in connection with the good faith performance of Awardee’s duties as an employee or, solely with respect to the terms of this Agreement or the Plan, to Awardee’s spouse or legal or financial advisors; or fails to take reasonable precautions against the unauthorized disclosure or use of Confidential Information; or solicits or induces the unauthorized disclosure or use of Confidential Information.

If any court of competent jurisdiction finds any provision of this Section 7 to be unreasonable, then that provision shall be considered to be amended to provide the broadest scope of protection to the Company that such court would find reasonable and enforceable. For purposes of this Section 7, the term “Confidential Information” means all written, machine reproducible, oral and visual data, information and material, including but not limited to the terms of this Agreement and the Plan, business, financial and technical information, computer programs, documents and records (including those that Awardee develops in the scope of his or her employment) that (i) the Company, its Affiliates and Subsidiaries, or any of their respective customers or suppliers treats as proprietary or confidential through markings or otherwise, (ii) relates to the Company, its Affiliates and Subsidiaries, or any of their respective customers or suppliers or any of their business activities,



Grant Certificate		Adopted for Awards On or After
Stock-Settled Stock Appreciation Right Agreement		01Jan09
Awards to US Associates

products or services (including software programs and techniques) and is competitively sensitive or not generally known in the relevant trade or industry, or (iii) derives independent economic value from not being generally known to, and is not readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. Confidential Information does not include any information or material that is approved by the Company or its Affiliates or Subsidiaries for unrestricted public disclosure.



Grant Certificate		Adopted for Awards On or After
Stock-Settled Stock Appreciation Right Agreement		01Jan09
Awards to US Associates

Right to Buy Back Purchased Stock and to Require Payback of Certain Profits.

	(a)		If the Administrator (i) discovers that Awardee has engaged in any conduct prohibited by Section 7 or (ii) determines, in its sole discretion, that Awardee’s employment by the Company or any of its Affiliates or Subsidiaries terminated or, if the relevant facts been known at the time, would have been terminated for Substantial Misconduct, then the Company will have the right for 150 days after the Administer discovers the relevant facts (A) to cancel this Award, whether or not exercisable or vested, (B) require the Awardee to surrender any Shares acquired under this SAR that became vested and exercisable on or after the date two years before the date the Administrator discovered the relevant facts and (C) to require Awardee to pay to the Company the Net Investment Proceeds with respect to any Shares that have been sold or otherwise transferred by Participant that the Company has the right to buy pursuant to clause (B) above. For purposes of this Section 8, “Substantial Misconduct” means termination of employment for conduct resulting in a felony conviction of Awardee; actions involving moral turpitude, theft, or dishonesty in a material matter; breach of any obligation under Section 7 of this Agreement; or failure by Awardee to carry out the directions, instructions, policies, rules, regulations, or decisions of the Company’s or the Employer’s Board of Directors including, without limitation, those relating to business ethics and the ethical conduct of the business of the Company and its Affiliates and Subsidiaries. For purposes of this Section 8, “Net Investment Proceeds,” with respect to any Share sold or otherwise transferred by Awardee or Awardee’s successor in interest, means the greater of the value of the gross proceeds received for such share or the Fair Market Value of such Share on the date of sale or transfer less, in either case, (i) the Base Price applicable to such Share plus simple interest on such amount at the rate of 8% per annum to the date of the sale or transfer, (ii) any reasonable and customary commission paid for the sale or transfer, and (iii) the verified amount of any income taxes paid or payable on the sale or transfer.

	(b)		The Company may exercise its right by notifying Awardee of its election to exercise its right within such 150-day period. Awardee shall tender to the Company, within 10 days, the applicable Shares together with a duly executed stock power attached in proper form for transfer and/or a cashiers or certified check in the amount of the Net Investment Proceeds. If any such Shares or Net Investment Proceeds are not tendered within 10 days, the Company may cancel any outstanding certificate representing such Shares. The Company shall tender the purchase price for tendered Shares within five business days after the Shares are tendered to the Company or the Company cancels the applicable certificate, whichever occurs first.



Grant Certificate		Adopted for Awards On or After
Stock-Settled Stock Appreciation Right Agreement		01Jan09
Awards to US Associates

EX-10.32 6 d66535exv10w32.htm EX-10.32 exv10w32

EXHIBIT 10.32

PEROT SYSTEMS CORPORATION LETTERHEAD

Dear :

[We are pleased to inform you that [the Human Resources and Compensation Committee of] the Company’s Board of Directors has approved a severance benefit program for you.] The purpose of this letter agreement is to set forth the terms and conditions of your severance benefits and to explain certain limitations that may govern their overall value or payment date. [This Agreement supersedes and replaces the prior agreement between you and the Company regarding your severance benefits following a change in ownership or control of the Company.]

Your severance package will become payable should your employment terminate under certain circumstances following the Company’s execution of a definitive agreement to effect a change in ownership or control of the Company. To understand the full scope of your benefits, you should familiarize yourself with the definitional provisions of Part One of this letter agreement. The benefits comprising your severance package are detailed in Part Two, and the terms and conditions of the special excise tax gross up to which you may become entitled are set forth in Part Three. Part Four deals with ancillary matters affecting your severance arrangement.

PART ONE — DEFINITIONS

For purposes of this letter agreement, the following definitions will be in effect:

Agreement means this letter agreement between you and the Company, as it may be amended from time to time in accordance with the applicable provisions of Part Four.

Average Compensation means the average of your W-2 wages from the Company for the five (5) calendar years (or, if you have been employed by the Company for less than five (5) calendar years, such lesser period of time) completed immediately prior to the calendar year in which the Change in Control is effected. Any W-2 wages for a partial year of employment will be annualized, in accordance with the frequency which such wages are paid during such partial year, before inclusion in your Average Compensation.

Award means any Cash Award, Option, RSU, Stock Appreciation Right or any other award granted to you in accordance with the terms of a Plan.

Award Agreement means any instrument or agreement, in written or electronic form, between the Company and you evidencing the terms and conditions of an individual Award

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(subject to the terms and conditions of a Plan), which instrument may, but need not, be executed or acknowledged by you.

Base Salary means the annual rate of base salary in effect for you immediately prior to the Change in Control or (if greater) the annual rate of base salary in effect at the time of your Involuntary Termination.

Board means the Company’s Board of Directors.

Cash Award means any cash awards granted to you pursuant to Section 13 of the Company’s 2001 Long Term Incentive Plan, as such Plan may be amended from time to time.

Cash Award COC Payment means the portion of any Cash Award provided you under Part Two of this Agreement which is deemed to constitute a parachute payment within the meaning of Code Section 280G(b)(2) and the Treasury Regulations issued thereunder,

Cause is defined on Exhibit A.

Change in Control is defined on Exhibit B.

Change in Control Severance Benefits means the various payments and benefits to which you may become entitled under Part Two of this Agreement upon your Involuntary Termination in connection with a Change in Control or upon any earlier termination of your employment by the Company during the Pre-Closing Period other than a Termination for Cause. Such Change in Control Severance Benefits may include one or more of the following: the accelerated vesting of your Options, Stock Appreciation Rights, Cash Awards and/or RSUs, a lump sum severance payment, a pro-rated bonus payment and continued health care coverage provided for you and your spouse and eligible dependents at the Company’s expense.

COC Payment means (i) any Change in Control Severance Benefits provided you under Part Two of this Agreement which is deemed to constitute a parachute payment within the meaning of Code Section 280G(b)(2) and the Treasury Regulations issued thereunder, (ii) any Option COC Payment attributable to your Acquisition-Accelerated Options, and (iii) any RSU COC Payment attributable to your Acquisition-Accelerated RSUs.

Code means the Internal Revenue Code of 1986, as amended.

Common Stock means the Company’s common stock.

Company means Perot Systems Corporation, a Delaware corporation, and any successor corporation, whether or not resulting from a Change in Control.

Independent Auditors means the accounting firm serving as the Company’s independent certified public accountants immediately prior to the Change in Control; provided, however, that in the event such accounting firm also serves as the independent certified public

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accountants for the corporation or other entity effecting the Change in Control transaction with the Company or such accounting firm concludes that the services required of it hereunder would adversely affect its independent status under applicable accounting standards or the performance of such services would otherwise be in contravention of applicable law, then the Independent Auditors shall mean a nationally-recognized public accounting firm mutually acceptable to both you and the Company.

Involuntary Termination means the termination of your employment by the Company without Cause or by you with Specified Reason during a Protected Period or a Pre-Closing Period.

Option means any option granted you to purchase shares of Common Stock under any Plan or other arrangement which is outstanding at the time of a Change in Control (or if earlier, upon the Company’s termination of your employment during the Pre-Closing Period) or upon your Involuntary Termination following a Change in Control. Your Options will be divided into two (2) separate categories as follows:

Acquisition-Accelerated Options: any outstanding Option (or installment thereof) which automatically accelerates, pursuant to the acceleration provisions of the agreement evidencing that Option or any other agreement, upon a Change in Control.

Severance-Accelerated Options: any outstanding Option (or installment thereof) which, pursuant to Part Two of this Agreement, accelerates upon your Involuntary Termination following a Change in Control.

Option COC Payment means, with respect to any Acquisition-Accelerated Option or any Severance-Accelerated Option, the portion of that Option deemed to be a parachute payment under Code Section 280G and the Treasury Regulations issued thereunder. The portion of such Option which is categorized as an Option COC Payment will be calculated in accordance with the valuation provisions established under Code Section 280G and the applicable Treasury Regulations.

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Other COC Payment means any payments in the nature of compensation (other than your Cash Award COC Payment, your Option COC Payment, your RSU COC Payment, your Stock Appreciation Right COC Payment and any other Change in Control Severance Benefits to which you become entitled under Part Two of this Agreement) which are made to you in connection with the Change in Control and which accordingly qualify as parachute payments within the meaning of Code Section 280G(b)(2) and the Treasury Regulations issued thereunder.

Permissible COC Amount means a dollar amount equal to 2.99 times your Average Compensation.

Person means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

Plan means (i) the Company’s 1991 Stock Option Plan, as amended or restated from time to time, (ii) the Company’s 2001 Long Term Incentive Plan, as amended or restated from time to time and (iii) any other stock incentive plan implemented or established by the Company.

Pre-Closing Period means a period commencing with the Company’s execution of the definitive agreement for a Change in Control transaction and ending upon the earlier to occur of (i) the closing of the Change in Control contemplated by such definitive agreement, or (ii) the termination of such definitive agreement without the consummation of the contemplated Change in Control. In the event of competing or superseding offers that result in definitive agreements, each such agreement shall create a Pre-Closing Period.

Present Value means the value, determined as of the date of the Change in Control, of any payment in the nature of compensation to which you become entitled in connection with the Change in Control or your subsequent Involuntary Termination, including (without limitation) the Option and RSU COC Payments attributable to your Severance-Acceleration Options and Severance-Acceleration RSUs and the additional Change in Control Severance Benefits to which you become entitled under Part Two of this Agreement. The Present Value of each such payment will be determined in accordance with the provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one hundred twenty percent (120%) of the applicable Federal rate in effect at the time of such determination, compounded semi-annually to the effective date of the Change in Control.

Protected Period means the period beginning on the date on which a Change in Control occurs and ending on the two year anniversary of such date or such earlier date as Participant’s employment by the Company terminates (other than an Involuntary Termination).

RSU means any restricted stock unit granted to you under any Plan or other arrangement which is outstanding at the time of the Change in Control (or if earlier, upon the Company’s termination of your employment during the Pre-Closing Period) or upon your Involuntary Termination following a Change in Control.

Page 4

Acquisition-Accelerated RSUs: any outstanding RSU (or installment thereof) which automatically accelerates, pursuant to the acceleration provisions of the agreement evidencing that RSU or any other agreement, upon a Change in Control.

Severance-Accelerated RSUs: any outstanding RSU (or installment thereof) which, pursuant to Part Two of this Agreement, accelerates upon the termination of your employment by the Company during the Pre-Closing Period for any reason other than a Termination for Cause or upon your Involuntary Termination following a Change in Control.

RSU COC Payment means, with respect to any Acquisition-Accelerated RSU or any Severance-Accelerated RSU, the portion of that RSU deemed to be a parachute payment under Code Section 280G and the Treasury Regulations issued thereunder. The portion of such RSU which is categorized as a RSU COC Payment will be calculated in accordance with the valuation provisions established under Code Section 280G and the applicable Treasury Regulations.

Specified Reason is defined on Exhibit C.

Stock Appreciation Right means any stock appreciation right granted to you pursuant to Section 12 of the Company’s 2001 Long Term Incentive Plan (or under any Plan or other arrangement) which is outstanding at the time of a Change in Control (or if earlier, upon the Company’s termination of your employment during the Pre-Closing Period) or upon your Involuntary Termination following a Change in Control. Your Stock Appreciation Rights will be divided into two (2) separate categories as follows:

Acquisition-Accelerated Stock Appreciation Rights: any outstanding Stock Appreciation Right (or installment thereof) which automatically accelerates, pursuant to the acceleration provisions of the agreement evidencing that Stock Appreciation Right or any other agreement, upon a Change in Control.

Severance-Accelerated Stock Appreciation Rights: any outstanding Stock Appreciation Right (or installment thereof) which, pursuant to Part Two of this Agreement, accelerates upon your Involuntary Termination following a Change in Control.

Stock Appreciation Right COC Payment means, with respect to any Acquisition-Accelerated Stock Appreciation Right or any Severance-Accelerated Stock Appreciation Right, the portion of that Stock Appreciation Right deemed to be a parachute payment under Code Section 280G and the Treasury Regulations issued thereunder. The portion of such Stock Appreciation Right which is categorized as a Stock Appreciation Right COC Payment will be calculated in accordance with the valuation provisions established under Code Section 280G and the applicable Treasury Regulations.

Subsidiary means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

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Target Bonus means [ ]% of Base Salary.

Termination Date means December 31, 2007; provided, however, that the Termination Date shall automatically be extended to one or more successive one-year anniversaries of such date, unless the Company provides you with written notice of its decision not to extend the Termination Date at least one hundred eighty (180) days prior to the next scheduled Termination Date. In the event of such notice, this Agreement shall terminate on the next scheduled Termination Date, unless such date falls within a Pre-Closing Period or a Protected Period, in which case the Termination Date shall be the last day of the Pre-Closing Period (in the event that a Change in Control does not occur) or the last day of the Protected Period (if a Change in Control has occurred or does occur within the applicable Pre-Closing Period).

PART TWO — CHANGE IN CONTROL SEVERANCE BENEFITS

Should your employment with the Company terminate by reason of an Involuntary Termination, then you will become entitled to receive the applicable Change in Control Severance Benefits provided under this Part Two, provided you execute and deliver to the Company a general release (substantially in the form of attached Exhibit D) which becomes effective under applicable law and pursuant to which you release the Company and its officers, directors, stockholders, employees and agents from any and all claims you may otherwise have with respect to the terms and conditions of your employment with the Company and the termination of that employment. In no event, however, shall such release cover any claims, causes of action, suits, demands or other obligations or liabilities relating to:

(a) any payments, benefits or indemnification to which you are or become entitled pursuant to the provisions of this Agreement (including, without limitation, the severance benefits provided under this Part Two, the special tax gross up payment to which you may become entitled under Part Three and the continued indemnification coverage to which you are entitled under Paragraph 2 of Part Four of this Agreement); and

(b) any claims for workers’ compensation benefits under any of the Company’s workers’ compensation insurance policy or fund.

The Change in Control Severance Benefits provided under this Part Two shall be in lieu of any other severance benefits to which you might otherwise become entitled under any other severance plan, program or arrangement of the Company upon an Involuntary Termination, except for severance benefits granted after the Change in Control.

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1. Accelerated Vesting.

(a) Each outstanding Option or Stock Appreciation Right which you hold at the time of your Involuntary Termination, to the extent that Option or Stock Appreciation Right is not otherwise exercisable for all the shares of Common Stock or other securities at the time subject to that Option or Stock Appreciation Right, will immediately vest and become exercisable as to all the shares subject to such Option or Stock Appreciation Right and may be exercised as to any or all of those shares as fully vested shares. Each such accelerated Option or Stock Appreciation Right will remain so exercisable until the earlier of (i) the expiration of the Option or Stock Appreciation Right or (ii) the post-service exercise period specified in the Award Agreement evidencing such Option or Stock Appreciation Right. Any Options and Stock Appreciation Rights not exercised prior to the expiration of the applicable post-service exercise period will terminate and cease to be exercisable.

(b) Subject to Part Four, each outstanding RSU which you hold at the time of your Involuntary Termination, to the extent that RSU is not otherwise payable will immediately vest and be paid to you as soon as administratively practicable following the date of your Involuntary Termination, provided, however, that in the event that your Involuntary Termination occurs during the Pre-Closing Period and prior to the closing of a Change in Control, any RSUs which are subject to Code Section 409A shall immediately vest and be paid to you at the time and in the form specified under the applicable RSU Award and the Plan governing such RSU Award as if such Involuntary Termination had not occurred.

(c) Each outstanding Cash Award which you hold at the time of your Involuntary Termination, to the extent that Cash Award is not otherwise at that time vested and exercisable or due and payable for the entire amount of the cash subject to such Cash Award, will immediately vest and become exercisable and/or due and payable for the entire amount of the Cash Award, provided, however, that in the event that your Involuntary Termination occurs during the Pre-Closing Period and prior to the closing of a Change in Control, any Cash Awards which are subject to Code Section 409A shall immediately vest and be paid to you at the time and in the form specified under the terms of your Cash Award as if such Involuntary Termination had not occurred.

(d) In the case of an Involuntary Termination during the Protected Period, any change in the time or form of payment for any Award subject to Code Section 409A shall be conditioned upon the occurrence of a Change in Control which (i) satisfies the definition of Change in Control set forth in Exhibit B, and (ii) meets the definition of a change in control under Code Section 409A and the regulations issued thereunder.

(e) Notwithstanding the any other provision in this Agreement, the accelerated payment of any Award subject to Code Section 409A shall be limited to the extent (if any) necessary to avoid contravention of any applicable requirements of Code Section 409A or any prohibited distribution under Code Section 409A(a)(2). In such event, payment of each

Page 7

affected Award shall be made as soon as administratively practicable following the first date such payment can be made in compliance with Code Section 409A.

2. Severance Payment.

(a) Subject to Part Four, in the event your employment terminates pursuant to an Involuntary Termination that occurs during the Protected Period, the Company will make a lump-sum cash severance payment to you within sixty (60) days following the date of your Involuntary Termination in an amount equal to [two (2) times][Executive] [one (1) times][Key Person] the sum of your annual rate of Base Salary and Target Bonus (the “Severance Payment”).

The Severance Payment shall be subject to the Company’s collection of all applicable withholding taxes, and you will only be paid the amount remaining after such withholding taxes have been collected.

(b) Subject to Part Four, in the event your employment terminates pursuant to an Involuntary Termination that occurs during the Pre-Closing Period, you will become entitled to the Severance Payment upon the closing of the Change in Control, provided and only if that Change in Control is in fact consummated prior to the expiration of the Pre-Closing Period. The Company will make such lump-sum cash Severance Payment within sixty (60) days following the effective date of the Change in Control. The Severance Payment shall be subject to the Company’s collection of all applicable withholding taxes, and you will only be paid the amount remaining after such withholding taxes have been collected. In no event, however, will you become entitled to all or any portion of the Severance Payment if the Change in Control is not consummated prior to the expiration of the Pre-Closing Period.

3. Pro-Rated Target Bonus.

(a) In the event your employment terminates pursuant to an Involuntary Termination that occurs during the Protected Period, the Company will make an additional lump-sum cash severance payment (the “Pro-Rated Bonus”) to you equal to the dollar amount obtained by multiplying one-twelfth (1/12th) of the annual Target Bonus in effect for you for the year of your Involuntary Termination by the number of full or partial months of employment which you complete with the Company in that year. Subject to Part Four, the payment of your Pro-Rated Bonus shall be made within sixty (60) days following the date of your Involuntary Termination. The payment shall be subject to the Company’s collection of all applicable withholding taxes, and you will only be paid the amount remaining after such withholding taxes have been collected.

(b) In the event your employment terminates pursuant to an Involuntary Termination that occurs during the Pre-Closing Period, you will subsequently become entitled to the Pro-Rated Bonus upon the closing of the Change in Control, provided and only if that Change in Control is in fact consummated prior to the expiration of the Pre-Closing Period.

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Subject to Part Four, the Company will pay the Pro-Rated Bonus to you in a lump-sum within sixty (60) days following the effective date of the Change in Control. The payment shall be subject to the Company’s collection of all applicable withholding taxes, and you will only be paid the amount remaining after such withholding taxes have been collected. In no event, however, will you become entitled to all or any portion of the Pro-Rated Bonus if the Change in Control is not consummated prior to the expiration of the Pre-Closing Period.

4. Continued Health Care Coverage.

Should you elect under Code Section 4980B to continue health care coverage under the Company’s group health plan for yourself, your spouse and your eligible dependents following your Involuntary Termination and pay the Company monthly an amount equal to your monthly employee contribution for health care coverage prior to your Involuntary Termination, then the Company shall provide such continued health care coverage for you and your spouse and other eligible dependents. Such health care coverage, partially funded by the Company shall continue until the earliest of (i) the expiration of the six (6) month period measured from the date of your Involuntary Termination, (ii) the first date you are covered under another employer’s heath benefit program which provides substantially the same level of benefits without exclusion for pre-existing medical conditions, (iii) the date the definitive agreement for the Change in Control is terminated without consummation of that Change in Control during the Pre-Closing Period, or (iv) the date you discontinue any payments you are required to make to continue health care coverage. Should the Company’s provision of such continued health care coverage result in the recognition of taxable income (whether for federal, state or local income tax purposes) by you or your spouse or other eligible dependent, then each of you will be responsible for the payment of the income and employment tax liability resulting from such coverage, and the Company will not provide any tax gross-up payments to you (or any other Person) with respect to such income and employment tax liability. To the extent you are subject to the delayed benefit commencement provisions of Paragraph 1 of Part Four, you shall directly pay for the health care coverage provided hereunder with your own funds, and at the end of delayed commencement period, the Company shall promptly reimburse you with a lump sum cash payment equal to the cost you incurred for the such health care coverage for that period.

5. Cancellation of Buy Back and Repayment of Profits Provisions.

Upon the occurrence of a Change in Control, the provisions of Section 8 of each Nonstatutory Stock Option Agreement you hold under the Company’s 2001 Long Term Incentive Plan, Section 8 of each Restricted Stock Unit Agreement you hold under the Company’s 2001 Long-Term Incentive Plan, Section 4(b)-(c) of each Stock Option Agreement you hold under the Company’s 1991 Stock Option Plan, or any similar provisions of any other Plan, Award Agreement or any other arrangement to which you are party relating to the Company’s rights to (i) cancel any Award granted to you, (ii) buy back Common Stock issued to you upon your exercise of an Award and/or (iii) require repayment with respect to certain proceeds received from the sale of any Common Stock issued to you upon your exercise of an

Page 9

Award, shall be deemed to be cancelled and deleted from such documents and shall be of no further force and effect.

PART THREE — SPECIAL TAX PAYMENT

1. Special Tax Gross-Up. In the event that (i) one or more of the Acquisition-Accelerated Options, Stock Appreciation Rights or RSUs, any Cash Awards or any of the Change in Control Severance Payments to which you become entitled under Part Two of this Agreement or any Other COC Payments are deemed, in the opinion of the Independent Auditors or by the Internal Revenue Service, to constitute an excess parachute payment under Code Section 280(G) and (ii) it is determined that the aggregate Present Value (measured as of the Change in Control) of the COC Payment attributable to those Change in Control Severance Payments, the Option COC Payment attributable to your Acquisition-Accelerated Options, the RSU COC Payment attributable to your Acquisition-Accelerated RSUs, the Stock Appreciation Right COC Payment attributable to your Acquisition-Accelerated Stock Appreciation Rights, your Cash Award COC Payment (to the extent not otherwise included in the COC Payment attributable to your Change in Control Severance Payments) and any Other COC Payments to which you are entitled exceeds one hundred ten percent (110%) of the Permissible COC Amount, then you shall be entitled to receive from the Company one or more additional payments (collectively, the “Gross-Up Payment”) in an aggregate dollar amount determined pursuant to the following formula, provided and only if the general release required of you pursuant to the provisions of Part Two has become effective:

X = Y ÷ [1 - (A + B + C)], where

X is the aggregate dollar payment of the Gross-up Payment.

Y is the total excise tax, together with all applicable interest and penalties (collectively, the “Excise Tax”), imposed on you pursuant to Code Section 4999 (or any successor provision) with respect to the excess parachute payment attributable to (i) one or more of the Change in Control Severance Payments provided you under Part Two of this Agreement, (ii) your Acquisition-Acceleration Options and RSUs and (iii) any Other COC Payments.

A is the Excise Tax rate in effect under Code Section 4999 for such excess parachute payment,

B is the highest combined marginal federal income and applicable state income tax rate in effect for you for the applicable calendar year in which the Gross-Up Payment is made, determined after taking into account the deductibility of state income taxes against federal income taxes to the extent actually allowable for that calendar year, and

C is the applicable Hospital Insurance (Medicare) Tax Rate in effect for you for the applicable calendar year in which the Gross-Up Payment is made.

Should the aggregate Present Value (measured as of the Change in Control) of the COC Payment attributable to your Change in Control Severance Payments, the COC Payment attributable to your Acquisition-Accelerated Options, RSUs and Stock Appreciation Rights, the

Page 10

COC Payment attributable to your Cash Awards (to the extent not otherwise included in the COC Payment attributable to your Change in Control Severance Payments) and any Other COC Payments to which you become entitled not exceed one hundred ten percent (110%) of the Permissible COC Amount, then no Gross-Up Payment shall be made under this Part Three, and the Change in Control Severance Payments shall instead be subject to reduction in accordance with the benefit limitation provisions of Appendix I to this Agreement.

2. Determination Procedures. All determinations required to be made under this Part Three shall be made by the Independent Auditors in accordance with the following procedures:

(a) If your Involuntary Termination occurs during the Pre-Closing Period, then within ten (10) business days after the closing of the Change in Control, the Independent Auditors shall provide both you and the Company with a written determination of the COC Payments attributable to your Acquisition-Accelerated Options, Acquisition-Accelerated RSUs and Acquisition-Accelerated Stock Appreciation Rights (if any), the COC Payment attributable to your Change in Control Severance Payments under Part Two, the COC Payment attributable to your Cash Award (to the extent not otherwise included in the COC Payment attributable to your Change in Control Severance Payments) and any Other COC Payment to which you are entitled, together with detailed supporting calculations with respect to the Gross-Up Payment due you by reason of those various COC Payments. Except to the extent the deferred payment provisions set forth in Paragraph 1 of Part Four are applicable to your Gross-Up Payment, the Company shall pay the resulting Gross-Up Payment to you within three (3) business days after receipt of such determination.

(b) In the event your Involuntary Termination occurs during the Protected Period, then the following determination procedures shall be in effect:

Within ten (10) business days after the closing of the Change in Control, the Independent Auditors shall provide both you and the Company with a written determination of the COC Payment attributable to your Acquisition-Accelerated Options, Acquisition-Accelerated RSUs and Acquisition —Accelerated Stock Appreciation Rights (if any), together with detailed supporting calculations with respect to the Gross-Up Payment due you by reason of that COC Payment. The Company shall pay the resulting Gross-Up Payment to you within three (3) business days after receipt of such determination.

Within ten (10) business days after the date of your Involuntary Termination, the Independent Auditors shall provide both you and the Company with a written determination of the COC Payments attributable to any Change in Control Severance Payments, the COC Payment attributable to your Cash Award (to the extent not otherwise included in your COC Payment attributable to your Change in Control Severance Payments) or Other COC Payment to which you are entitled, together with detailed supporting calculations with respect to the Gross-Up Payment due you by reason of those COC Payments. Except to the extent the deferred payment provisions set forth in Paragraph 1 of Part Four are applicable to your Gross-Up

Page 11

Payment, the Company shall pay the resulting Gross-Up Payment to you within three (3) business days after receipt of such determination or (if later) contemporaneously with the Change in Control Severance Payment or Other COC Payment triggering such Gross-Up Payment.

(c) In the event the Treasury Regulations under Code Section 280G (or applicable judicial decisions) specifically address the status of any Change in Control Severance Payment or Other COC Payment or the method of valuation therefor, the characterization afforded to such payment by the Regulations (or such decisions) shall, together with the applicable valuation methodology, be controlling. All other determinations by the Independent Auditors shall be made on the basis of “substantial authority” (within the meaning of Section 6662 of the Code).

(d) Both you and the Company shall provide the Independent Auditors with access to and copies of any books, records and documents in your or its possession which may be reasonably requested by the Independent Auditors and shall otherwise cooperate with the Independent Auditors in connection with the preparation and issuance of the determinations contemplated by this Part Three.

(e) All fees and expenses of the Independent Auditors and the appraisers shall be borne solely by the Company, and to the extent those fees or expenses are treated as a COC Payment, they shall be taken into account in the calculation of the Gross-Up Payment to which you are entitled under this Part Three.

3. Additional Claims. You shall provide written notification to the Company of any claim made by the Internal Revenue Service which would, if successful, require the payment by the Company of an additional Gross-Up Payment. Such notification shall be given as soon as practicable after you are informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. You shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which such notice is given to the Company (or such shorter period ending on the date that any payment of taxes, interest and/or penalties with respect to such claim is due). Prior to the expiration of such thirty (30) day or shorter period, the Company shall ether (i) pay you the additional Gross-Up Payment attributable to the Internal Revenue Service claim or (ii) provide written notice to you that the Company shall contest the claim on your behalf. In the event, the Company provides you with such written notice, you shall:

(a) provide the Company with any information reasonably requested by the Company relating to such claim;

(b) take such action in connection with contesting such claim as the Company may reasonably request in writing from time to time, including (without limitation) accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably satisfactory to you, with the fees and expenses of such attorney to be

Page 12

the sole responsibility of the Company without any tax implications to you in accordance with the same tax indemnity/gross-up arrangement as in effect under subparagraph (d) below;

(d) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all additional Excise Taxes imposed upon you and all costs, legal fees and other expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify you for and hold you harmless from, on an after-tax basis, any additional Excise Tax (including interest and penalties) imposed upon you and any Excise Tax or income or employment tax (including interest and penalties) attributable to the Company’s payment of that additional Excise Tax on your behalf or imposed as a result of such representation and payment of all related costs, legal fees and expenses. The amounts owed to you by reason of the foregoing shall be paid to you or on your behalf as they become due and payable. Without limiting the foregoing provisions of this subparagraph (d), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at the Company’s sole option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you shall prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that should the Company direct you to pay such claim and sue for a refund, the Company shall advance the amount of such payment to you, on an interest-free basis, and shall indemnify you for and hold him harmless from, on an after-tax basis, any Excise Tax or income or employment tax (including interest or penalties) imposed with respect to such advance or with respect to any imputed income with respect to such advance or any income resulting from the Company’s forgiveness of such advance; provided, further, that the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

PART FOUR — MISCELLANEOUS

1. Delayed Commencement of Benefits. Notwithstanding any provision to the contrary in this Agreement, no Severance Payment, Pro-Rated Bonus and no Company-paid health care coverage to which you otherwise become entitled under Part Two of this Agreement or any Gross-Up Payment to which you may become entitled under Part Three or any Cash or other Award subject to Code Section 409A which would otherwise become payable to distributable to you under Part Two of this Agreement shall be made, paid or provided to you prior to the earlier of (i) the expiration of the six (6) month period measured from the date of your “separation from service” with the Company (as such term is defined in Treasury Regulations issued under Code Section 409A) or (ii) the date of your death, if you are deemed at

Page 13

the time of such separation from service to be a “key employee” within the meaning of that term under Code Section 416(i) and such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable Code Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant to this Paragraph (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to you in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. You shall be entitled to interest on the deferred benefits and payments for the period the commencement of those benefits and payments is delayed by reason of Code Section 409A(a)(2), with such interest to accrue at the prime rate in effect from time to time during that period and to be paid in a lump sum upon the expiration of the deferral period.

2. Continued Indemnification. The indemnification provisions for Officers and Directors under the Company’s bylaws, the Directors and Officers Liability Insurance Policy (if any) and any Indemnification Agreement between you and the Company shall (to the maximum extent permitted by law) be extended to you during the period following your resignation or termination of employment for any reason (other than a Termination for Cause), whether or not in connection with a Change in Control, with respect to all matters, events or transactions occurring or effected during your period of employment with the Company.

3. No Mitigation Duty. The Company shall not be entitled to set off any of the following amounts against the Change in Control Severance Benefits to which you may become entitled under Part Two of this Agreement: (i) any amounts which you may subsequently earn through other employment or service following your termination of employment with the Company or (ii) any amounts which you might have potentially earned in other employment or service had you sought such other employment or service.

4. Death. Should you die before your receive the full amount of payments and benefits to which you may become entitled under this Agreement, then the balance of such payments shall be made, on the due dates hereunder had you survived, to the executors or administrators of your estate. Should you die before you exercise all your outstanding Options as accelerated hereunder, then such Options may be exercised, within the applicable exercise period following your death, by the executors or administrators of your estate or by the Persons to whom those Options are transferred pursuant to your will or in accordance wit the laws of inheritance. In no event, however, may any such Option be exercised after the specified expiration date of the option term.

5. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and shall be binding upon, (i) the Company and its successors and assigns, including any successor entity by merger, consolidation or transfer of all or substantially all of the Company’s assets (whether or not such transaction constitutes a Change in Control), and (ii) you, the personal representative of your estate and your heirs and legatees.

Page 14

6. General Creditor Status. The benefits to which you may become entitled under Part Two of this Agreement shall be paid, when due, from the Company’s general assets. No trust fund, escrow arrangement or other segregated account shall be established as a funding vehicle for such payments. Your right (or the right of the executors or administrators of your estate) to receive such benefits shall at all times be that of a general creditor of the Company and shall have no priority over the claims of other general creditors.

7. Amendment and Termination.

(a) This Agreement may only be amended by written instrument signed by you and an authorized officer of the Company. This Agreement shall remain in effect through December 31, 2007 and shall be subject to one or more successive one-year automatic renewals in accordance with the provisions of the Termination Date definition in Part One.

(b) This Agreement may not be terminated during a Pre-Closing Period or a Protected Period that begins prior to what would otherwise be a Termination Date, and no subsequent termination of this Agreement shall adversely affect your right to receive any benefits to which you may have previously become entitled hereunder in connection with your Involuntary Termination.

8. Termination for Cause/Resignation. In the event of your Termination for Cause or your resignation under circumstances which would otherwise constitute grounds for a Termination for Cause, the Company will only be required to pay you (i) any unpaid compensation earned for services previously rendered through the date of such termination and (ii) any accrued but unpaid vacation benefits or sick days, and no benefits will be payable to you under Part Two of this Agreement.

9. Governing Law/Other Agreements. This Agreement is to be construed and interpreted under the laws of the State of Delaware. This Agreement supersedes all prior agreements between you and the Company relating to the subject of severance benefits payable upon a change in control or ownership of the Company, and you will not be entitled to any other severance benefits upon such a termination other than those that are provided in this Agreement.

10. At Will Employment. Nothing in this Agreement is intended to provide you with any right to continue in the employ of the Company (or any Subsidiary) for any period of specific duration or interfere with or otherwise restrict in any way your rights or the rights of the Company (or any Subsidiary), which rights are hereby expressly reserved by each, to terminate your employment at any time and for any reason, with or without cause.

11. Arbitration. Any controversy or dispute arising out of or relating to this Agreement shall be settled by arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association (or such other rules as may be agreed upon by both you and the Company). The arbitration shall be held in Dallas County in the State of Texas,

Page 15

and any court having jurisdiction thereof may enter judgment upon the award rendered by the arbitrator(s). Such award shall be binding and conclusive upon the parties

Please indicate your agreement with the foregoing terms and conditions of your change in control severance package by signing the Acceptance section of the enclosed copy of this letter and returning it to the Company.


				Very truly yours,

				PEROT SYSTEMS CORPORATION

		By:


		Title:

ACCEPTANCE

I hereby agree to all the terms and provisions of the foregoing Agreement governing the special benefits to which I may become entitled in the event my employment should terminate under certain prescribed circumstances in connection with a substantial change in control or ownership of the Company.


		Signature:


		Dated:


		Address

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APPENDIX I

BENEFIT LIMIT

1. Benefit Limit. Should it be determined that the aggregate Present Value (measured as of the Change in Control) of the COC Payment attributable to the Change in Control Severance Payments, the Option COC Payment attributable to your Acquisition-Accelerated Options, the RSU COC Payment attributable to your Acquisition-Accelerated RSUs, the Stock Appreciation Right COC Payment attributable to your Acquisition-Accelerated Stock Appreciation Rights and your Cash Award COC Payment (to the extent not otherwise included in the COC Payment attributable to your Change in Control Severance Payments), when added to the Present Value of any Other COC Payment to which you may be entitled, does not exceed one hundred ten percent (110%) of the Permissible COC Amount, then no Gross-Up Payment shall be made to you under Part Three of the Agreement. Instead, the limitations set forth in this Appendix I to the Agreement shall apply. Accordingly, the amount of the Change in Control Severance Payments otherwise due you under Part Three of the Agreement shall be reduced to the extent necessary to assure that the aggregate Present Value of the COC Payment attributable to your Change in Control Severance Payments, the Option COC Payment attributable to your Acquisition-Accelerated Options, the RSU COC Payment attributable to your Acquisition-Accelerated RSUs, the Stock Appreciation Right COC Payment attributable to your Acquisition-Accelerated Stock Appreciation Rights, your Cash Award COC Payment (to the extent not otherwise included in the COC Payment attributable to your Change in Control Severance Payments) and any Other COC Payments to which you may be entitled does not exceed the greater of the following dollar amounts (the “Benefit Limit”)

(a) the Permissible COC Amount, or

(b) the amount which yields you the greatest after-tax amount of benefits under Part Two of the Agreement after taking into account any excise tax imposed under Code Section 4999 on the COC Payment attributable to the Change in Control Severance Payments which are provided you under Part Two, the Option COC Payment attributable to your Acquisition-Accelerated Options, the RSU COC Payment attributable to your Acquisition-Accelerated RSUs, the Stock Appreciation Right COC Payment attributable to your Acquisition-Accelerated Stock Appreciation Rights, your Cash Award COC Payment (to the extent not otherwise included in the COC Payment attributable to your Change in Control Severance Payments) or any Other COC Payments to which you are entitled.

2. Benefit Reduction.

(a) To the extent the aggregate Present Value, measured as of the Change in Control, of (i) the Option, RSU and Stock Appreciation Right COC Payments attributable to your Acquisition-Accelerated and Severance-Accelerated Options, RSUs and Stock Appreciation Rights (or installments thereof) plus (ii) the COC Payment attributable to your other Change in Control Severance Benefits under Part Two of the Agreement plus (iii) your Cash Award COC Payment (to the extent not otherwise included in the COC Payment attributable to your Change

Appendix I — Page 1

in Control Severance Payments)would, when added to the Present Value of all of your Other COC Payments, exceed the Benefit Limit, then the following reductions shall be made to the Change in Control Severance Benefits to which you are otherwise entitled under Part Two of this Agreement and your Acquisition-Accelerated Options and RSUs, to the extent necessary to assure that such Benefit Limit is not exceeded:

first, the dollar amount of the Severance Payment to which you would otherwise be entitled shall be reduced,

next, the dollar amount of the Pro-Rated Bonus to which you would otherwise be entitled shall be reduced,

next, your RSUs which would otherwise be payable shall be reduced (based on the amount of RSU COC Payment attributable to such RSUs), with the actual RSUs to be so reduced to be determined by you,

next, your Cash Awards which would otherwise be payable shall be reduced (based on the amount of the Cash Award COC Payment attributable to such Cash Awards), with the actual Cash Awards to be so reduced to be determined by you, and

then the number of shares as to which Acquisition-Accelerated and Severance-Accelerated Options and Stock Appreciation Rights would otherwise be exercisable shall be reduced (based on the amount of the Option COC Payment attributable to each such Option and the Stock Appreciation Right COC Payment attributable to each such Stock Appreciation Right) to the extent necessary to eliminate such excess, with the actual Options and Stock Appreciation Rights to be so reduced to be determined by you.

(b) In the event your Involuntary Termination occurs during the Pre-Closing Period, the Benefit Limit shall be calculated in good faith first at the time of such termination, with such calculation to be based upon the probability of the consummation of the contemplated Change in Control within the Pre-Closing Period, and any benefit reduction required by Paragraph 2 above on the basis of such good-faith calculation shall be applied at that time. The Benefit Limit shall be recalculated in accordance with this Appendix I as soon as administratively practicable following the expiration of the Pre-Closing Period. To the extent any Options or RSUs are reduced and terminated in connection with the initial calculation made at the time of your termination of employment, those Options and RSUs will not be subsequently restored in connection with the re-calculation of the Benefit Limit following the expiration of the Pre-Closing Period, even if those terminated Options and RSUs could have otherwise fallen within the Benefit Limit as so re-calculated.

3. Resolution Procedures. In the event there is any disagreement between you and the Company as to whether one or more payments to which you become entitled in connection with the Change in Control or your subsequent Involuntary Termination constitute COC Payments, Option COC Payments, RSU COC Payments, Stock Appreciation Right COC Payments, Cash

Appendix I — Page 2

Award COC Payments or Other COC Payments or as to the determination of the Present Value thereof, such dispute will be resolved in accordance with as follows:

(a) In the event the Treasury Regulations under Code Section 280G (or applicable judicial decisions) specifically address the status of any such payment or the method of valuation therefor, the characterization afforded to such payment by the Regulations (or such decisions) will, together with the applicable valuation methodology, be controlling.

(b) In the event Treasury Regulations (or applicable judicial decisions) do not address the status of any payment in dispute, the matter will be submitted for resolution to the Independent Auditors. The resolution reached by the Independent Auditors will be final and controlling; provided, however, that if in the judgment of the Independent Auditors, the status of the payment in dispute can be resolved through the obtainment of a private letter ruling from the Internal Revenue Service, a formal and proper request for such ruling will be prepared and submitted by the Independent Auditors, and the determination made by the Internal Revenue Service in the issued ruling will be controlling. All expenses incurred in connection with the retention of the Independent Auditors and (if applicable) the preparation and submission of the ruling request shall be shared equally by you and the Company.

(c) In the event Treasury Regulations (or applicable judicial decisions) do not address the appropriate valuation methodology for any payment in dispute, the Present Value thereof will, at the Independent Auditor’s election, be determined through an independent third-party appraisal, and the expenses incurred in obtaining such appraisal shall be shared equally by you and the Company.

Appendix I — Page 3

EXHIBIT A

CAUSE

Cause means you have:

	(a)		participated in fraud, embezzlement or another act of material misconduct involving the Company, which has resulted in significant harm to the Company;

	(b)		admitted, confessed or entered a plea bargain or a plea of nolo contendere to, or been convicted of, a crime constituting a felony (or its equivalent) under the laws of any jurisdiction in which the Company or any applicable Affiliate conducts its business or any crime involving moral turpitude or dishonesty; or

	(c)		willfully and continually failed to perform substantially the appropriate duties of your position with the Company (other than any such failure resulting from your physical or mental illness, incapacity or disability), for a period of at least 14 days after a written demand for substantial performance is delivered to you by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or the Chief Executive Officer believes that you have not substantially performed your duties; provided that, in the event that you have not commenced to perform substantially the duties of your position during such 14-day grace period after written demand is made by the Company, the Company may not terminate you for Cause except in accordance with the procedures set forth below. In no event shall an event that would constitute Specified Reason be considered the failure to perform substantially the appropriate duties of your position with the Company.

For purposes of the definition of Cause, no act or failure to act on your part shall be considered “willful” unless it is done, or omitted to be done, by you intentionally, not in good faith and without reasonable belief that your action or omission was in the best interests of the Company.

Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or, if applicable, upon the instructions of the Chief Executive Officer or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. The termination of your employment shall not be deemed to be for Cause unless and until, following the expiration of the 14-day grace period set forth above, there shall have been delivered to you a copy of a resolution of the Board (or, if the Company is a Subsidiary of a publicly traded corporation, the board of directors of such publicly traded corporation), duly adopted by the affirmative vote of not less than 66-2/3% of the entire membership of the applicable board of directors (excluding you if you are a member of such board of directors) at a meeting of such board of directors called and held for such purpose (after reasonable notice is provided to you and you are given an opportunity, together with counsel, to be heard before such board of directors), finding that, in the good faith opinion of such board of directors, you have engaged in conduct which would constitute Cause under any of paragraphs (a) through (c) above and

Exhibit A — Page 1

specifying the particulars thereof in detail.

For purposes of this Exhibit A, “Affiliate” means an entity with whom the Company would be considered a single employer under Code Sections 414(b) or 414(c); provided, however, that for purposes of determining a controlled group of corporations under Code Section 414(b) and of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Code Section 414(c), the phrase “at least 50% shall be substituted for the phrase “at least 80%” everywhere it appears in Code Sections 1563(a)(1), (2) and (3) and in treasury regulation 1.414(c)-2. In addition, where the use of Common Stock for a stock grant under this Plan is based upon legitimate business criteria, the phrase “at least 20% shall be substituted in each place noted above. The Administrator may designate a different permissible ownership threshold percentage, but such percentage may not be made effective for at least 12 months after adoption of such change and the same designation must apply to all compensatory stock plans of the Company subject to Code Section 409A.

Exhibit A — Page 2

EXHIBIT B

CHANGE IN CONTROL

Change in Control means the happening of any of the events described in paragraphs (a) through (d) below:

	(a)		the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (1) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this paragraph (a), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company or a Subsidiary of the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or a Subsidiary of the Company; (D) any acquisition by any Perot Stockholder; (E) any acquisition by any entity pursuant to a transaction that complies with clauses (1), (2) and (3) of paragraph (c) of this definition; or (F) in respect of any outstanding Awards held by you, any acquisition by you or any group of Persons including you (or any entity controlled by you or any group of Persons including you);

	(b)		individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of a majority of the directors then comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board until 24 months after such initial assumption of office;

	(c)		consummation by the Company of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination:

Exhibit B — Page 1

	1.		the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to the consummation of such Business Combination (or, if applicable, the stock into which the Outstanding Company Common Stock and Outstanding Company Voting Securities are converted pursuant to such Business Combination) represents more than 60% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation or other entity resulting from such Business Combination (including without limitation a corporation or other entity that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be;

	2.		no Person (excluding the Company, a Subsidiary of the Company, any corporation or other entity resulting from a Business Combination or any employee benefit plan (or related trust) thereof or a Perot Stockholder) beneficially owns, directly or indirectly, 30% or more of, respectively, the then-outstanding shares of common stock of the corporation or other entity resulting from such Business Combination or the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors of such corporation or entity, except to the extent that such ownership existed prior to the Business Combination; and

	3.		at least a majority of the members of the board of directors of the corporation or other entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d)

approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

For purposes of this Exhibit B, “Perot Stockholder” means Ross Perot, Ross Perot, Jr., HWGA, Ltd. or any of their respective Affiliates and Associates (within the meaning of Rule 12b-2 of the Exchange Act).

Exhibit B — Page 2

EXHIBIT C

SPECIFIED REASON

Specified Reason means:

	(a)		the assignment to you of duties inconsistent, in any materially adverse manner, with your position (including offices, titles and reporting requirements), authority, duties and responsibilities with the Company immediately prior to the Change in Control (other than as a result of a promotion or advancement); a material reduction in the nature or scope of the authority, functions or duties attached to the position that you held immediately prior to the Change in Control (including, without limitation, as a result of you ceasing to hold a comparable executive office in a publicly traded corporation); a material change in your reporting responsibilities (other than as a result of a promotion or advancement); or you are removed from, or there is a failure to re-elect you to, any position with the Company that you held immediately prior to the Change in Control, except in connection with a promotion or advancement or the termination of your employment due to Cause, long-term disability, Retirement or death;

	(b)		the material reduction of your Base Salary, unless such reduction is part of an across-the-board reduction of no more than 10% in compensation of all executive officers of the Company (and, if the Company is a Subsidiary of a publicly traded corporation, all executive officers of such publicly traded corporation);

	(c)		any material reduction in your maximum bonus or incentive compensation potential (including any material adverse change in the formula or metrics used to compute whether such bonus or incentive compensation has been earned), unless such reduction is part of an across-the-board reduction of no more than 25% in maximum bonus or incentive compensation potential of all executive officers of the Company (and, if the Company is a Subsidiary of a publicly traded corporation, all executive officers of such publicly traded corporation);

	(d)		except as required by law, the failure by the Company to continue to provide to you employee benefits substantially equivalent, in the aggregate, to those enjoyed by you under the qualified and nonqualified employee benefit and welfare plans of the Company, including, without limitation, the savings, retirement, pension, insurance, medical, dental, health and disability plans, in which you were eligible to participate immediately prior to the Change in Control, or the failure by the Company to provide you with substantially the same number of paid vacation days to which you were entitled under the Company’s vacation policy immediately prior to the Change in Control;

	(e)		a failure by the Company to continue in effect any stock option or other equity-based plan in which you participated immediately prior to the Change in Control, unless you are afforded the opportunity to participate in a substantially equivalent

Exhibit C — Page 1

			alternative compensation arrangement (embodied in an ongoing substitute or alternative plan), or a failure by the Company to continue your participation in any such plan on substantially the same basis, both in terms of the amount of benefits provided and the level of such your participation relative to other participants, as existed immediately prior to the Change in Control;

	(f)		the Company’s requiring you to be based at any office or location that is more than 35 miles from your principal work location and residence immediately prior to the Change in Control; or

	(g)		the Company’s requiring you to travel on Company business to an extent substantially more burdensome than your travel obligations immediately prior to the Change in Control.

Notwithstanding anything to the contrary set forth above, no event or condition described above shall constitute Specified Reason unless (i) you, within 90 days after the occurrence of such event or condition, give the Company written notice specifying in reasonable detail the event or condition which you believe give rise to Specified Reason, (ii) within 30 days after the Company’s receipt of such notice (the “Cure Period”), the Company fails to correct or remedy such event or condition, and (iii) you resign your employment with the Company not more than 120 days following expiration of the Cure Period.

For this purposes of this Exhibit C, (i) “long term disability” means you are entitled to receive benefits from the Company’s Long-Term Disability Plan or another long term disability plan sponsored by the Company, and (ii) “Retirement” means your retirement in accordance with any retirement policy generally applicable to the Company’s salaried employees, as in effect immediately prior to the Change in Control, or any written retirement arrangement established by the Company and you as in effect immediately prior to the Change in Control.

Exhibit C — Page 2

EX-21.1 7 d66535exv21w1.htm EX-21.1 exv21w1

EXHIBIT 21.1


Subsidiaries of Perot Systems Corporation
		JURISDICTION OF
SUBSIDIARY		INCORPORATION


Fleetwood Personal & Marketing GmbH Health Systems Design Corp. HighQ^IT for the Manufacturing Industry GmbH HighQ^IT for the manufacturing industry Slovakia s.r.o. Hospital Revenue Associates LLC Kay Software, Inc. Original Solutions Limited perot.com inc. Perot Systems A.G. Perot Systems Applications Solutions, Inc. Perot Systems Asia Pacific Pte Ltd. Perot Systems BPS, LLC Perot Systems Business Process Solutions, Inc. Perot Systems Business Process Solutions India Private Limited Perot Systems B.V. Perot Systems (Canada) Corporation Perot Systems Communication Services, Inc. Perot Systems (Czech Republic) s.r.o. Perot Systems Europe (Energy Services) Limited Perot Systems Europe Limited Perot Systems FS Limited Partnership Perot Systems GmbH Perot Systems Government Healthcare Solutions, Inc. Perot Systems Government Services, Inc. Perot Systems Government Solutions, Inc. Perot Systems Healthcare Services LLC Perot Systems Healthcare Solutions, Inc. Perot Systems Holdings Pte Ltd. Perot Systems Hong Kong Limited Perot Systems India Foundation Perot Systems Investments B.V. Perot Systems (Japan) Ltd. Perot Systems Luxembourg S.a.r.l. Perot Systems (Malaysia) Sdn.Bhd Perot Systems México, S. de R.L. de C.V. Perot Systems Nederland BV Perot Systems Philippines, Inc. Perot Systems Revenue Cycle Solutions, Inc. Perot Systems Romania SRL Perot Systems S.A.S. Perot Systems Services Mexico, S.C. Perot Systems (Shanghai) Consulting Co., Ltd. Perot Systems (Singapore) Pte. Ltd. Perot Systems S.r.l. Perot Systems (Switzerland) GmbH Perot Systems TSI (Bermuda) Ltd. Perot Systems TSI (Germany) GmbH Perot Systems TSI (Hungary) Liquidity Management LLC Perot Systems TSI (India) Private Limited Perot Systems TSI (Mauritius) Pvt. Ltd. Perot Systems TSI (Middle East) FZ-LLC Perot Systems TSI (Netherlands) B.V.		Germany California Germany Slovakia Delaware California Republic of Ireland Delaware Switzerland Delaware Singapore Delaware Texas India The Netherlands Canada Delaware Czech Republic England & Wales England & Wales Texas Germany Delaware Virginia Delaware Delaware Massachusetts Singapore Hong Kong India The Netherlands Japan Luxembourg Malaysia Mexico The Netherlands Philippines Delaware Romania France Mexico Republic of China Singapore Italy Switzerland Bermuda Germany Hungary India Mauritius Dubai-United Arab Emirates The Netherlands


		JURISDICTION OF
SUBSIDIARY		INCORPORATION
Perot Systems (UK) Ltd. Persys Ireland Limited Persys TSI (Ireland) Limited Protega Services, LLC PrSM Corporation PS BP Services LLC PS eServ Corp. PSC GP Corporation PSC Healthcare Software, Inc. PSC LP Corporation PSC Management Limited Partnership PSC Security, Inc. QSS Group, Inc. Solutions Consulting LLC Technical Management, Inc. The Technical Resource Connection, Inc. Third Party Administration Group, Inc. Transaction Applications Group, Inc. TXZ Holding Company Limited Vision Business Process Solutions, Inc.		England & Wales Republic of Ireland Ireland Virginia Tennessee Delaware Delaware Delaware Delaware Delaware Texas Delaware Maryland Delaware Nebraska Delaware Nebraska Nebraska Bermuda Delaware

EX-23.1 8 d66535exv23w1.htm EX-23.1 exv23w1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-4 (Nos. 333-30068 and 333-110387) and Form S-8 (Nos. 333-30401, 333-70267, 333-31278, 333-45474, 333-60644, 333-110871 and 333-134629) of Perot Systems Corporation of our report dated February 25, 2009 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Dallas, Texas
February 25, 2009

EX-31.1 9 d66535exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

Certification Pursuant to Rule 13A-14
Under the Securities Exchange Act of 1934, As Amended
(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Peter A. Altabef, certify that:

1.		I have reviewed this Annual Report of Perot Systems Corporation on Form 10-K for the period ending December 31, 2008;

2.		Based on my knowledge, this 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 report;

3.		Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2009


		/s/ Peter A. Altabef Peter A. Altabef President and Chief Executive Officer

EX-31.2 10 d66535exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

Certification Pursuant to Rule 13A-14
Under the Securities Exchange Act of 1934, As Amended
(Section 302 of the Sarbanes-Oxley Act of 2002)

I, John E. Harper, certify that:

1.		I have reviewed this Annual Report of Perot Systems Corporation on Form 10-K for the period ending December 31, 2008;

2.		Based on my knowledge, this 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 report;

3.		Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: February 25, 2009		/s/ John E. Harper John E. Harper
		Vice President and Chief Financial Officer

EX-32.1 11 d66535exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350 (AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002)

In connection with the Annual Report of Perot Systems Corporation (the “Company”) on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter A. Altabef, President and Chief Executive Officer of the Company, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

IN WITNESS WHEREOF, the undersigned has executed this Certificate, effective as of February 25, 2009.


		/s/ Peter A. Altabef Peter A. Altabef President and Chief Executive Officer

EX-32.2 12 d66535exv32w2.htm EX-32.2 exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350 (AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002)

In connection with the Annual Report of Perot Systems Corporation (the “Company”) on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John E. Harper, Vice President and Chief Financial Officer of the Company, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

IN WITNESS WHEREOF, the undersigned has executed this Certificate, effective as of February 25, 2009.


		/s/ John E. Harper John E. Harper Vice President and Chief Financial Officer

EX-99.1 13 d66535exv99w1.htm EX-99.1 exv99w1

Exhibit 99.1

Schedule II — Valuation and Qualifying Accounts

VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(Dollars in millions)


	Balance at				Deductions		Balance at
	beginning				(Write-offs		end of
	of period		Additions		and Recoveries)		period
December 31, 2008	$	13	$	13	$	7	$	19
December 31, 2007	$	8	$	7	$	2	$	13
December 31, 2006	$	7	$	3	$	2	$	8

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