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Perot Systems Corp. - Computer Services
- Main Page
(972)
577-0000
2300
West Plano Parkway
Plano, TX 75075
www.perotsystems.com
Sales
$1.5
billion
Business Description
Perot
Systems 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, chosen from a breadth of
services, including technology outsourcing, business process outsourcing,
development and integration of systems and applications, and business and
technology consulting services.
With this approach, our customers benefit from integrated service offerings
that help synchronize their strategy, systems, and infrastructure. As a
result, we help our customers achieve their business objectives, whether
those objectives are to accelerate growth, streamline operations, or enhance
customer service capabilities.
Our customers may contract with us for any one or more of our services,
which fall into the following categories:
• IT outsourcing services — includes multi-year contracts in which we assume
operational responsibility for various aspects of our customers’ businesses,
including application systems outsourcing, technology infrastructure
outsourcing (including mainframe and network support services, maintenance
services and helpdesk services), and back office outsourcing. We typically
hire a significant portion of the customers’ staff that has supported these
functions. We then apply our expertise and operating methodologies to
increase the efficiency of the operations, which usually results in
increased operational quality at a lower cost. Our IT outsourcing contracts
are priced using a variety of mechanisms, including level-of-effort, direct
costs plus a fee (which may be either a fixed amount or a percentage of
direct costs incurred), fixed-price, unit price, and risk/reward. Depending
on a customer’s business requirements and the pricing structure of the
contract, the cash flows from a contract can vary significantly during a
contract’s term. With fixed-price contracts or when an upfront payment is
required to purchase assets, an IT outsourcing contract will typically
produce less cash flow at the beginning of the contract with significantly
more cash flow generated as efficiencies are realized later in the term.
With a cost plus contract, the cash flows tend to be relatively consistent
over the term of the contract.
• Business process services — includes services such as claims processing,
revenue cycle management, travel agent commission settlement, and
engineering services, which we offer on a stand-alone basis. We classify our
Business Process Services in three categories: transaction processing
services, back-office services, and professional services related to
non-technical functions.
• Consulting services — includes services such as application development
and maintenance, system design and implementation services, application
systems migration and testing, and management consulting and IT strategy
services, which we offer to customers typically on a short-term basis.
Our contracts utilize a wide variety of pricing mechanisms, used to meet
customer business requirements. In determining how to price a contract, we
consider the delivery, credit and pricing risk of a business relationship.
For the year ended December 31, 2003:
• Approximately 33% of our revenue is from fixed price contracts where our
customers pay us a set amount for contracted services. For some of these
fixed price contracts, the price will be set so that the customer realizes
an immediate savings in relation to their current expense for an operation
we are assuming. On contracts of this nature, our profitability generally
increases over the term of the contract as we become more efficient. The
timeframe it takes for us to realize these efficiencies can range from a few
months to a few years, depending on the complexity of the operation. We have
experienced a substantial increase in our fixed price contract revenue
during the past three years.
• Approximately 30% of our revenue is from cost plus contracts where our
billings are based in part on the amount of expense we incur in providing
services to a customer.
• Approximately 26% of our revenue is from time and materials contracts
where our billings are based on time 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 11% of our revenue is from per-unit pricing where we bill
our customers based upon the volume of technology or business units used 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 a contract.
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.
We offer our services under three primary lines of business — IT Solutions,
Government Services and Consulting. We consider these three 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 13, “Segment and
Certain Geographic Data,” of the Notes to Consolidated Financial Statements
below. We routinely evaluate the historical performance of and growth
prospects for various areas of our business, including our lines of
business, vertical industry 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. During the past four years, we have
used our acquisition program to strengthen our business in the healthcare
market, consulting market (primarily in India), and to expand into the
government market. At the same time, we have divested, or exited, certain
service offerings and joint ventures that did not meet our criteria for
continued investment.
IT Solutions
IT 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. Within IT
Solutions, we face the market through our four vertical industry groups —
Healthcare, Financial Services, Industrial Services and Strategic Markets.
Supporting these vertical industry groups is our Global Infrastructure
Services group, the delivery organization for our technology outsourcing
services and our network and system operations services.
Healthcare
Our Healthcare group, which represented 45% of our total revenue for 2003
and 55% of revenue for the IT Solutions line of business, provides
technology and business process services in four industry markets:
• Providers — including integrated health systems, free standing hospitals,
and physician practices;
• Payers — including national insurers, Blue Cross and Blue Shield plans,
and regional managed care organizations;
• Life Sciences — including research-based pharmaceutical and contract
research companies; and
• Healthcare Supply Chain — including medical/surgical suppliers and
distributors.
Services that cross all markets include Health Insurance Portability and
Accountability Act compliance and remediation consulting, and full and
unbundled IT outsourcing. In addition, our Healthcare group provides
numerous services and solutions tailored to each market.
For customers in the provider market, we offer revenue cycle solutions,
clinical solutions, health information management, Digital Access, and ERP
solution. Combined, these services are targeted to improve quality outcomes
and patient safety, increase cash, and improve hospital efficiency and cost
control.
For our payer customers, we offer our Digital Health PlanTM application
suite, which provides an integrated set of Web-based self-service
applications. In addition, we provide claims processing outsourcing and act
as an application service provider for payer enterprise applications. We
also offer DIAMOND® 950, which manages more than 8 million members in a
variety of payer risk settings. In addition, we provide a range of business
and IT strategy, tactical consulting and software development services to
companies in this market. Combined, these services are targeted to increase
back office efficiency, and improve consumer satisfaction.
For life science customers, we offer management consulting, and IT strategic
planning and outsourcing services.
For customers in the healthcare supply chain market, we offer technology
outsourcing services.
Financial Services
Our Financial Services group, which represented 19% of our total revenue for
2003, focuses on providing technology solutions to customers in the
financial markets, banking and insurance sectors. The technology solutions
we provide include application development and management services on both
an on-shore and offshore basis, computer and processing systems services,
desktop services, outsourcing and applications services management.
The majority of our revenue for this group comes from our contract with UBS
AG, which accounted for 85% of the revenue for our Financial Services group
in 2003. Under our agreement with UBS, we provide IT services to UBS
Investment Bank, the investment banking division of UBS, as well as other
business units of UBS. For UBS, our services consist primarily of technology
infrastructure-related services such as outsourcing, customer support, and
market data services.
Industrial Services
Our Industrial Services group, which represented 8% of our total revenue for
2003, focuses on providing business process and technology services
primarily for customers in the engineering and construction and automotive
markets.
For the engineering and construction market, we provide solutions that help
engineering firms as well as commercial and residential construction firms
lower overhead cost, manage project risk, and increase return on assets. We
provide these benefits to our customers primarily by applying our expertise
in information technology and business processes to all aspects of their
business, including the consolidation and integration of technology
operations and the implementation of new technology to increase efficiency
of their IT infrastructure.
For the automotive market, we provide services primarily to automotive
manufacturers and suppliers to these manufacturers. Our services include
business and technology solutions that improve the efficiencies of critical
processes, including product design, supply chain execution, warranty
systems, collaborative commerce, and manufacturing plant floor processes.
We also offer services to a limited customer base in other markets,
including the consumer packaged goods market. These services include supply
chain management and cost reduction, order processing management and support
and customer relationship management.
Strategic Markets
Our Strategic Markets group, which represented 9% of our total revenue for
2003, focuses on the maintenance and future development of a selected set of
vertical industry markets. By utilizing a single delivery and operations
unit that supports the entire group, we are able to optimize our delivery
capability and concentrate our resources on building industry expertise and
scale.
The majority of our revenue in the Strategic Markets group comes from
customers in the travel and transportation industries, including hotel, food
service, vehicle rental, and cargo companies. We also serve a limited number
of customers in the communications and energy industries. Our solutions for
these markets are focused on solving business critical issues with
technology solutions, including IT outsourcing, business process services
and application management.
Global Infrastructure Services
Our Global Infrastructure Services group is responsible for defining the
technology strategies for our IT Solutions customers and us. This group
identifies new technology offerings and innovations that deliver value to
our customers. It manages, updates and maintains our technology
infrastructure including networks, data centers, help desks, mainframes,
servers, storage, and workspace computing. It also provides senior
technology consultants to assist our customers with more complex technology
transformations. It manages, resolves and documents problems in our
customers’ computing environments. The group also provides comprehensive
monitoring, planning, and safeguarding of information technology systems
safeguarding against intrusion by monitoring system and network status,
collecting and analyzing data regarding system and network performance, and
applying appropriate corrective action. All of these activities are either
performed at customer facilities or delivered through centralized data
processing centers that we maintain.
Government Services
We formed Perot Systems Government Services in July of 2002 through the
acquisition of ADI Technology Corporation and then expanded it in February
2003 through the acquisition of Soza & Company, Ltd. This line of business
provides consulting and technology-based business process solutions for the
Department of Defense, law enforcement agencies, and other governmental
agencies.
We provide engineering and technical services predominantly to organizations
with stringent quality, safety, technical, engineering and regulatory
requirements. Our services include the direct support of engineering,
safety, quality assurance, logistics, environmental solutions, financial
management and program management for the United States Navy ships and
nuclear-powered submarines.
We provide management consulting services, information technology and
infrastructure support, application design and development, government
financial services, business process outsourcing, and outreach, media and
communications services to federal agencies such as the U.S. Department of
Agriculture, U.S. Coast Guard, U.S. Department of Justice, National
Institutes of Health, Environmental Protection Agency, national intelligence
agencies and U.S. Department of Energy among others.
Our service offerings include business process management; enterprise
solutions, environmental consulting, financial services, information
technology, infrastructure management, management consulting, marine
engineering, and ship maintenance and technology consulting.
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 convenience. 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.
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 improperly charged any 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 suspensions 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.
Consulting
Our Consulting line of business includes Perot Systems TSI B.V., Perot
Systems Solutions Consulting, our Global Software Services group, and a
group of management consultants. This line of business provides our
customers high-value and repeatable services related to business and
technical expertise and the design and implementation of business and
software solutions, primarily under short-term contracts related to specific
projects.
Perot Systems TSI
On December 19, 2003, we acquired our joint venture partner’s interest in
HCL Perot Systems and changed its name to Perot Systems TSI B.V. Perot
Systems TSI is an IT services firm specializing in 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 technology, as well as performing quality
assurance functions on custom applications. UBS is Perot Systems TSI’s
largest customer.
Perot Systems Solutions Consulting
Perot Systems Solutions Consulting provides services ranging from strategy
through full implementation of software solutions. These solutions include
enterprise resource planning, supply chain management, eBusiness, customer
relationship management and related process and technology solutions. We
partner with leading packaged software providers including SAP, PeopleSoft,
and Oracle. Our focus is on execution and customer satisfaction, which we
accomplish with small, well-integrated teams that work more collaboratively
with the customer team.
Global Software Services
Our Global Software Services group optimizes the application services
delivery options for our customers by utilizing the proper mix of delivery
resources, architectures, methodologies, and repeatable processes. We
support the entire life cycle of software services. Our service offerings
include application architecture; package application selection and
implementation; design, development, implementation, and maintenance of
applications; as well as systems integration services. These services are
delivered through a combination of teams that leverage our expertise in
project management and software development, primarily through The Technical
Resource Connection delivery unit.
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 an annual incentive plan based
on our performance in relation to our business and financial targets. We
also seek to align the interests of our associates with those of our
stockholders by compensating outstanding performance with stock option
awards, which we believe fosters loyalty and commitment to our goals.
As of December 31, 2003, we employed approximately 13,500 associates. A
limited number of these associates located in the United States are
currently employed under an agreement with a collective bargaining unit. In
foreign countries, our associates are generally 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 all of our segments 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 against our
competitors, our business, financial condition, and results of operations
will be materially and adversely affected.
IT Solutions
Our IT Solutions segment competes 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, CGI Group, Inc., Computer Sciences Corporation,
Electronic Data Systems Corporation,
Hewlett Packard Company, IBM Global Services (a division of International
Business Machines Corporation), McKesson Corporation, and Siemens Business
Services, Inc. As we enter new markets, we expect to encounter additional
competitors. Our IT Solutions segment competes on the basis of a number of
factors, including the attractiveness and breadth of the business strategy
and services that we offer, pricing, technological innovation, quality of
service, ability to invest in or acquire assets of potential customers, and
our scale in certain industries. In addition, we frequently compete with our
customers’ own internal information technology capability, which may
constitute a fixed cost for our customer. This may increase pricing pressure
on us.
Government Services
Our Government Services segment competes with a number of different
information technology service providers depending upon the federal agency
or department as well as the market we are addressing. Some of our more
frequent competitors include: Accenture Ltd., Affiliated Computer Services,
Inc., Anteon International Corporation, BearingPoint, Inc., Booz-Allen and
Hamilton, CACI International, Inc., Cap Gemini Ernst & Young, Computer
Sciences Corporation, Electronic Data Systems Corporation, General Dynamics,
Lockheed Martin Corporation, Northrop Grumman Corporation, Science
Applications International Corporation, SRA International, and Unisys
Corporation. 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 and quality of
service. We must frequently compete in federal and defense programs with
declining budgets, which creates pressure to lower our prices.
Consulting
Our Consulting segment competes with a number of different consulting
practices including large consulting firms such as Accenture Ltd.,
BearingPoint, Inc., Cap Gemini Ernst & Young, Cognizant Technology Solutions
Corporation, Computer Sciences
Corporation, and 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 IT services providers.
We compete on many factors, including price, industry expertise, our process
methodologies and intellectual property, and our past successes in executing
assignments. 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. Emerging offshore development
capacity in countries such as India and China is also increasing the degree
of competition for our consulting services generally and for our software
development services in particular.
Ticker
PER
IT
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