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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number 01-11779
Electronic Data Systems Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-2548221
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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5400 Legacy Drive, Plano, Texas 75024-3199
(Address of principal executive offices)
(Zip Code)
(972) 604-6000
(Registrant's telephone number, including area code)
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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 [X] No [ ].
As of July 31, 1997, there were outstanding 490,118,814 shares of the
registrant's Common Stock, $.01 par value per share.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I -- Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Operations......................... 3
Condensed Consolidated Balance Sheets......................... 4
Condensed Consolidated Statements of Cash Flows............... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
Part II -- Other Information
Item 1. Legal Proceedings....................................... 13
Item 4. Submission of Matters to a Vote of Security Holders..... 13
Item 6. Exhibits and Reports on Form 8-K........................ 13
Signatures............................................................. 14
Exhibit 27 Financial Data Schedule (for SEC information only)
2
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PART I
ITEM 1. FINANCIAL STATEMENTS
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ---------------
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Systems and other contracts revenues $3,682.1 $3,497.8 $7,273.7 $6,864.7
-------- -------- -------- --------
Costs and expenses
Cost of revenues 2,986.2 2,845.7 5,879.8 5,543.8
Selling, general, and administrative 379.2 308.1 749.9 618.0
Restructuring charge 125.3 285.6 125.3 285.6
Asset writedowns 139.7 503.9 139.7 503.9
-------- -------- -------- --------
Total costs and expenses 3,630.4 3,943.3 6,894.7 6,951.3
-------- -------- -------- --------
Operating income (loss) 51.7 (445.5) 379.0 (86.6)
One-time split-off costs -- (45.5) -- (45.5)
Interest expense and other, net (16.0) (19.2) (40.0) (36.2)
-------- -------- -------- --------
Income (loss) before income taxes 35.7 (510.2) 339.0 (168.3)
Provision (benefit) for income taxes 12.8 (183.7) 122.0 (60.6)
-------- -------- -------- --------
Net income (loss) $ 22.9 $ (326.5) $ 217.0 $ (107.7)
======== ========= ======== =========
Earnings (loss) per share $ 0.05 $ (0.67) $ 0.44 $ (0.22)
======== ========= ======== =========
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions except share and per share amounts)
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 698.7 $ 879.9
Marketable securities 63.6 82.6
Accounts receivable, net 3,312.3 3,513.0
Inventories 141.6 141.6
Prepaids and other 322.2 391.2
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Total current assets 4,538.4 5,008.3
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Property and equipment, net 2,939.6 3,097.0
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Operating and other assets
Land held for development, at cost 86.2 89.1
Investments and other assets 1,695.6 1,591.7
Software, goodwill, and other intangibles, net 1,310.3 1,406.8
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Total operating and other assets 3,092.1 3,087.6
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Total Assets $10,570.1 $11,192.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 292.5 $ 465.8
Accrued liabilities 1,915.6 1,843.6
Deferred revenue 431.4 592.6
Income taxes 107.7 127.5
Current portion of long-term debt 118.8 133.3
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Total current liabilities 2,866.0 3,162.8
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Deferred income taxes 328.3 429.4
Long-term debt 1,610.5 2,324.3
Redeemable preferred stock of subsidiaries and minority
interest 865.2 493.3
Stockholders' equity
Preferred stock, $.01 par value; authorized 200,000,000 shares,
none issued -- --
Common stock, $.01 par value; 2,000,000,000 shares authorized;
490,101,032 shares issued and outstanding at June 30, 1997,
and 487,590,995 shares issued at December 31, 1996 4.9 4.9
Additional paid-in capital 781.6 682.8
Retained earnings 4,271.0 4,200.6
Currency translation adjustments and other (157.4) (98.2)
Treasury stock, at cost, 440,488 shares at December 31, 1996 -- (7.0)
--------- ---------
Total stockholders' equity 4,900.1 4,783.1
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Total Liabilities and Stockholders' Equity $10,570.1 $11,192.9
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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<CAPTION>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended Six Months Ended
June 30, June 30,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 193.3 $ 90.0 $ 739.4 $ 578.9
---------- --------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 20.2 11.4 47.4 37.4
Proceeds from investments and other assets 54.2 23.0 99.0 103.8
Payments for purchase of property and equipment (174.0) (262.4) (371.7) (512.9)
Payments for investments and other assets (76.0) (33.9) (165.8) (101.1)
Payments related to acquisitions, net of cash acquired (66.8) 1.0 (73.2) (37.0)
Payments for purchase of software and other intangibles (58.7) 2.9 (59.8) (26.6)
Payments for purchase of marketable securities (15.2) (24.5) (30.1) (46.2)
Other 28.2 28.9 45.1 38.8
---------- --------- ---------- ---------
Net cash used in investing activities (288.1) (253.6) (509.1) (543.8)
---------- --------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,976.8 2,452.4 3,977.4 3,937.3
Payments on long-term debt (2,103.3) (2,078.6) (4,700.3) (3,315.4)
Proceeds from sale of redeemable preferred stock
of subsidiaries 73.8 -- 412.8 --
Employee stock transactions and related tax benefits 16.8 (2.6) 49.3 17.5
One-time intercompany payment to GM -- (500.0) -- (500.0)
Dividends paid (73.5) (73.1) (146.6) (145.7)
---------- --------- ---------- ---------
Net cash used in financing activities (109.4) (201.9) (407.4) (6.3)
---------- --------- ---------- ---------
Effect of exchange rate changes on cash and cash equivalents 6.1 (5.3) (4.1) (12.6)
---------- --------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (198.1) (370.8) (181.2) 16.2
Cash and cash equivalents at beginning of period 896.8 935.9 879.9 548.9
---------- --------- ---------- ---------
Cash and cash equivalents at end of period $ 698.7 $ 565.1 $ 698.7 $ 565.1
========== ========= ========== =========
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Electronic Data Systems Corporation ("EDS" or the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of only normal recurring items) which are necessary for a fair presentation have
been included. The results for interim periods are not necessarily indicative of
results which may be expected for any other interim period or for the full year.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's 1996 Annual Report on Form 10-K.
Certain reclassifications have been made to the 1996 unaudited condensed
consolidated financial statements to conform to the 1997 presentation.
Note 2. Earnings per Share
Earnings per share for the three and six months ended June 30, 1997 is
computed using the weighted average number of EDS common shares outstanding
during the period of 489.8 million and 488.9 million shares, respectively.
Common-equivalent shares consisting of incremental shares issuable upon the
exercise of stock options and awards are excluded from the weighted average
share computation as their effect is immaterial. On June 7, 1996, GM Class E
common stock was exchanged for EDS common stock on a one-for-one basis. Earnings
before June 7, 1996, are attributable to GM Class E common stock. The
computation of earnings per share for EDS common stock is similar to that for GM
Class E common stock. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's 1996 Annual
Report on Form 10-K.
Note 3. Redeemable Preferred Stock of Subsidiaries
In June 1997, a consolidated subsidiary of the Company issued 45.0
million British pounds (73.9 million U.S. dollars) of redeemable preferred stock
to a third party. Dividends on such preferred shares are cumulative from the
effective date of issue at a fixed rate of 6.95%. The preferred shares are
nonvoting and provide the holders with a priority position with respect to any
class of the issuing subsidiary's stock in the event of dissolution.
In July 1997, the Company retired 400.0 million British pounds (653.0
million U.S. dollars) of redeemable preferred stock of subsidiaries through the
issuance of commercial paper.
Note 4. Depreciation and Amortization
Property and equipment is stated net of accumulated depreciation of
$3,852.9 million and $3,892.1 million at June 30, 1997 and December 31, 1996,
respectively. Additionally, software, goodwill, and other intangibles are stated
net of accumulated amortization of $1,097.8 million and $1,100.9 million at June
30, 1997 and December 31, 1996, respectively. Depreciation and amortization
expense for the three and six months ended June 30, 1997 was $294.7 million and
$574.4 million, respectively.
6
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Note 5. Restructuring Activities
In the second quarter of 1997, the Company began implementation of an
enterprise-wide business transformation initiative to reduce its costs,
streamline its organizational structure, and align its strategy, services and
delivery with market opportunities. This initiative involves the elimination of
approximately 8,500 positions through reassignment of personnel, elimination of
open personnel requisitions, normal attrition and termination of employees. As a
result of this initiative, the Company recorded restructuring charges and asset
writedowns totaling $265 million in the quarter ended June 30, 1997. Such amount
primarily consisted of restructuring charges of $111 million relating to the
severance costs associated with the planned involuntary termination of
approximately 2,600 employees and asset write-offs of $100 million and related
accruals of $14 million relating to operations that the Company plans to sell,
exit or discontinue. These operations primarily consist of several processing
centers which the Company will consolidate and certain product lines and related
services provided to certain industries. In addition, the Company recorded a $40
million writedown of an investment that it was attempting to sell, thereby
reducing such investment to its estimated net realizable value. As of June 30,
1997 approximately 700 employees have been involuntarily terminated and
approximately $6.3 million has been paid in termination benefits.
In the second quarter of 1996, the Company recorded numerous one-time
charges, including a $286 million charge primarily for expected workforce
reductions of approximately 4,900 employees who accepted early retirement or
were to be involuntarily terminated under a planned workforce realignment. The
total employee-related termination and early retirement offer charges amounted
to approximately $258 million, $137 million of which related to special
termination benefits under the Company's defined benefit pension plan. As of
June 30, 1997 1,743 employees have accepted the early retirement offer and 2,221
employees have been involuntarily terminated. As of June 30, 1997, approximately
$101.7 million has been paid in termination benefits related to the involuntary
termination plan and an additional $16.4 million is expected to be paid in the
remainder of 1997.
7
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
EDS is a provider of information technology ("IT") services, using computer
and communication technologies to meet the business needs of its clients. EDS
offers its clients a portfolio of services worldwide, including the management
of computers, networks, information systems, information processing facilities,
business operations and related personnel.
Forward Looking Statements
All statements other than historical statements contained in this Report on
Form 10-Q constitute "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Without limitation, these
forward looking statements include statements regarding the Company's business
transformation initiative and any savings therefrom, the Company's Year 2000
exposure and opportunity, and future revenues from General Motors Corporation
("GM"). Any Form 10-K, Annual Report to Shareholders, Form 10-Q or Form 8-K of
the Company may include forward looking statements. In addition, other written
or oral statements which constitute forward looking statements have been made or
may in the future be made by the Company, including statements regarding future
operating performance, short- and long-term revenue and earnings growth,
backlog, the value of new contract signings, and industry growth rates and the
Company's performance relative thereto. These forward looking statements rely on
a number of assumptions concerning future events, and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control, that could cause actual results to differ materially from such
statements. These include, but are not limited to: competition in the
information technology industry and the impact of such competition on pricing,
revenues and margins; the market acceptance of new product or service offerings
that offer higher margins than traditional product or service offerings and
costs associated with the development and marketing of such offerings; the
financial performance of current and future customer contracts, including the
financial performance of EDS' contracts with GM; the degree to which the Company
can improve productivity; general economic conditions; the degree to which
business entities continue to outsource information technology and business
processes; the cost of attracting and retaining highly skilled personnel; and,
with respect to the Company's Year 2000 exposure and opportunity, the Company's
ability to capitalize on new business opportunities and the interpretation of
information technology contracts the Company has with its clients.
The Company disclaims any intention or obligation to update or revise any
forward looking statements whether as a result of new information, future events
or otherwise.
Split-Off of EDS
On June 7, 1996, GM and EDS consummated a split-off (the "Split-Off") of
EDS to the holders of GM's Class E common stock in a transaction that is
tax-free for U.S. federal income tax purposes. In connection with the Split-Off,
GM and EDS entered into a Master Services Agreement (the "Master Services
Agreement") with respect to IT services to be provided after the Split-Off, and
a special payment of $500.0 million was made by EDS to GM (the "Special
Intercompany Payment").
Restructuring Charges and Asset Writedowns
In the second quarter of 1997, the Company began implementation of an
enterprise-wide business transformation initiative to reduce its costs,
streamline its organizational structure, and align its strategy, services and
delivery with market opportunities. This initiative involves the elimination of
approximately 8,500 positions through reassignment of personnel, elimination of
open personnel requisitions, normal
8
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attrition and termination of employees. As a result of this initiative, the
Company recorded restructuring charges and asset writedowns totaling $265
million in the quarter ended June 30, 1997. Such amount primarily consisted of
charges of $111 million relating to the severance costs associated with the
planned involuntary termination of approximately 2,600 employees and asset
write-offs of $100 million and related accruals of $14 million relating to
operations that the Company plans to sell, exit or discontinue. These operations
primarily consist of several processing centers which the Company will
consolidate and certain product lines and related services provided to certain
industries. In addition, the Company recorded a $40 million writedown of an
investment that it was attempting to sell, thereby reducing such investment to
its estimated net realizable value.
In the second quarter of 1996, the Company recorded one-time charges
including a $286 million charge primarily for expected workforce reductions of
approximately 4,900 employees who accepted early retirement or were to be
involuntarily terminated under a planned workforce realignment. The total
employee-related termination and early retirement offer charges amounted to
approximately $258 million, $137 million of which relates to special termination
benefits, including amounts under the Company's defined benefit pension plan. At
the same time as the restructuring, the Company wrote down certain of its assets
by approximately $564 million, $60 million of which were charged to cost of
revenues, and recognized approximately $45 million of expenses directly
associated with Split-Off activities. For further information, reference is made
to the consolidated financial statements and notes thereto in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share, which
establishes new standards for computing and presenting earnings per share. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997 and requires restatement of all prior-period earnings per
share data. Early application of SFAS 128 is not permitted. The Company's
adoption of the provisions of SFAS 128 will result in the dual presentation of
basic and diluted earnings per share on the Company's income statement. Diluted
earnings per share as calculated under SFAS 128 is not expected to materially
differ from primary earnings per share amounts previously presented.
Results of Operations
Revenues. Total systems and other contracts revenues for the quarter ended
June 30, 1997, rose $184.3 million, or 5%, over the corresponding quarter in
1996 to $3,682.1 million. Total revenues for the six months ended June 30, 1997
increased $409.0 million, or 6%, to $7,273.7 million. Revenues from non-GM
clients for the quarter ended June 30, 1997, rose 4% to $2,548.5 million
compared to $2,447.3 million for the same period in 1996. Revenues from non-GM
clients for the six months ended June 30, 1997 increased 6% to $5,121.1 million
compared to $4,852.0 million for the same period in 1996.
Revenues from non-GM clients comprised 69% and 70% of total revenues for
the three months ended June 30, 1997 and 1996, respectively. Revenues from
non-GM clients comprised 70% and 71% of total revenues for the six months ended
June 30, 1997 and 1996, respectively. As a result of productivity improvements
made on certain contracts with GM accounted for under the
percentage-of-completion method of accounting, approximately $90 million of
additional revenue was recognized in the second quarter of 1997. However, the
Company estimates that revenues from GM in calendar year 1997 will be slightly
less than the amount recorded in 1996.
Costs and Expenses. Cost of revenues as a percentage of systems and other
contracts revenues remained at 81% for both the three and six months ended June
30, 1997, and June 30, 1996. Selling, general and administrative expenses as a
percentage of systems and other contracts revenues were 10% for both the three
and six months ended June 30, 1997, up from 9% in the corresponding periods in
1996. See
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"Restructuring Charges and Asset Writedowns" above for a discussion of other
components of total costs and expenses.
The Company believes that the Year 2000 issue (the cost of making its
internal systems Year 2000 compliant as well as the cost to the Company of
making its clients' systems Year 2000 compliant where it is obligated to do so)
will not have a material adverse effect on its results of operations. In
addition, the Company believes that the Year 2000 issue presents significant
market opportunities for revenue growth.
Interest Expense and Other, Net. Interest expense and other, net decreased
$3.2 million in the second quarter of 1997 to $16.0 million, compared with $19.2
million in 1996 and includes interest expense of $35.3 million for 1997 and
$36.7 million for 1996. For the six months ended June 30, 1997 interest expense
and other increased $3.8 to $40.0 million, and includes interest expense of
$77.6 million for 1997 and $72.3 million for 1996.
Net Income (Loss). For the three month period ended June 30, 1997, the
Company reported net income of $22.9 million, or $.05 per share, compared to a
net loss of $326.5 million, or $.67 per share, for the corresponding period of
1996. Excluding the one-time charges, net income for the three months ended June
30, 1997 was $192.4 million, or $.39 per share, compared to $246.6 million, or
$.51 per share, in the corresponding period of 1996. For the six month period
ended June 30, 1997, the Company's net income increased $324.7 million to $217.0
million when compared with the respective period of 1996. Excluding the one-time
charges, net income for the six months ended June 30, 1997 decreased $78.8
million to $386.6 million when compared with the respective period of 1996. Net
income for the second quarter of 1997 was unfavorably impacted by adjustments,
primarily to revenue, totaling approximately $80 million before taxes for a
limited number of contracts that have not performed as expected or, in some
instances, have been terminated, as well as a decline in operating margins on
certain contracts signed prior to 1996. These unfavorable items were partially
offset by the favorable impact of the productivity improvements made on certain
contracts with GM (see "Revenues" above). Due to the factors discussed above, GM
contracts represented a more significant contribution to the Company's overall
operations in the second quarter of 1997 than in prior periods. EDS' effective
tax rate remained constant at 36% for the three months ended June 30, 1997 and
1996.
Return on assets increased to 7.2% for the twelve-month period ended June
30, 1997, compared with 4.1% for the corresponding period ended June 30 1996.
Return on stockholders' equity increased to 16.5% for the twelve-month period
ended June 30, 1997, compared to 9.2% for the comparable period ended June 30,
1996. Excluding the one-time charges discussed above for each of the
twelve-month periods ended June 30, 1997 and 1996, return on assets were 8.9%
and 10.1%, and return on stockholders' equity was 19.8% and 20.8%, respectively.
Excluding the one-time charges, the decline in return on assets and return on
stockholders' equity was attributable primarily to the decline in net income
over the comparable twelve-month periods.
The Company and its clients may, from time to time, modify their
contractual arrangements. For customer contracts accounted for under the
percentage-of-completion method, such changes would be reflected in results of
operations as a cumulative change in accounting estimate in the period the
revisions are determined.
Seasonality and Inflation. The Company's revenues vary over the calendar
year, with the fourth quarter generally reflecting the highest revenues for the
year due to certain EDS services that are purchased more heavily in the fourth
quarter as a result of the spending patterns of several clients. In addition,
revenues have generally increased from quarter to quarter as a result of new
business added throughout the year.
10
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Liquidity and Capital Resources
At June 30, 1997, the Company held cash and cash equivalents of $698.7
million, had working capital of $1,672.4 million, and a current ratio of
1.6-to-1. This compares to cash equivalents of $879.9 million, $1,845.5 million
in working capital and a current ratio of 1.6-to-1 at December 31, 1996. The
decrease in working capital primarily results from decreases in cash and cash
equivalents and accounts receivable partially offset by decreases in accounts
payable and deferred revenue.
The Company's capitalization at June 30, 1997, consisted of $1,610.5
million in long-term debt, less current portion, and $4,900.1 million in
stockholders' equity. Total debt (which includes redeemable preferred stock of
subsidiaries) was $2,557.6 million at June 30, 1997, compared with total debt of
$2,897.9 million at December 31, 1996. The total debt-to-capital ratio (which
includes current portion of long-term debt and redeemable preferred stock of
subsidiaries as components of debt and capital) was 34.3% at June 30, 1997, and
37.7% at December 31, 1996. The ratio of long-term debt to capital was 33.2% at
June 30, 1997 and 36% at December 31, 1996. At June 30, 1997, the Company had
unused uncommitted short-term lines of credit totaling $695.2 million and unused
committed lines of credit of $2,500.0 million. The unused committed lines of
credit of $2,500.0 million serve as a backup facility for commercial paper
borrowings. The balance of commercial paper borrowings at June 30, 1997 was
approximately $830 million. At June 30, 1997, and December 31, 1996, the Company
had total committed lines of credit of $2,521.3 million.
Cash flows from operations increased $160.5 million during the six months
ended June 30, 1997 to $739.4 million compared with the comparable period in
1996 due primarily to normal fluctuations in working capital components. Cash
used in investing activities during the six months ended June 30, 1997 was
$509.1 million compared with $543.8 million in the corresponding period of last
year. Net cash used in financing activities was $407.4 million for the six
months ended June 30, 1997, compared with net cash provided by financing
activities of $6.3 million in the corresponding period of last year.
The Company paid cash dividends totaling $73.5 million for the second
quarter of 1997, and $573.1 million for the same period in 1996. Included in the
1996 amount is the $500.0 million Special Inter-Company Payment made to GM in
connection with the Split-Off.
The Company expects that its principal uses of funds for the foreseeable
future will be for capital expenditures, debt repayments and working capital.
Capital expenditures may consist of purchases of computer and telecommunications
equipment, buildings and facilities, land, and software, as well as
acquisitions. Capital expenditures for 1997 are expected to be approximately
$1,200.0 million to $1,700.0 million. However, actual capital expenditures are
somewhat dependent on acquisition and joint venture activities, as well as
capital requirements for new business. The Company anticipates that cash flows
from operations and unused borrowing capacity under its existing lines of credit
will provide sufficient funds to meet its needs for at least the next year. On
August 7, 1997, EDS announced that it had agreed to acquire the interest it does
not currently own in Neodata Corporation, a Colorado-based integrated marketing
communications services company. EDS will acquire the remaining equity interest
for approximately $70 million. Neodata will retain approximately $210 million of
indebtedness, including approximately $163 million of public debentures
redeemable as early as May 1998.
The service agreements between EDS and GM that existed prior to the
Split-Off provided for GM to pay EDS on the 15th day of the month in which
services are provided with respect to a substantial portion of services. Under
the IT Services Agreements, there will be a transition over a two-year period,
beginning in 1997, to payment on the 20th day of the month following service for
all agreements which do not already have payment terms at least that favorable
to GM. These revised payment terms are expected to result in an increase in EDS'
working capital requirements. EDS will obtain the funds for this working capital
impact through borrowings under its existing commercial paper or bank credit
facilities. EDS currently anticipates that it will seek to refinance such
commercial paper or bank borrowings as part of its general plan to extend
maturities of its indebtedness.
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The competitive environment and changing market forces are increasing the
capital intensity of the Company's business. Increasing amounts of capital will
be required in order to make investments in acquisitions, joint ventures, and
strategic alliances in other parts of the information industry and in new
product development. In order to provide the funds necessary for its future
acquisition and expansion goals, the Company expects that it might incur, from
time to time, additional bank financing and/or issue equity or debt securities,
depending on market and other conditions. In addition, information technology
client contracts frequently now require front-end investments in computers and
telecommunications equipment, software, and other property and equipment. For
these reasons, the Company's ability to continue to access the capital markets
on an efficient basis will become increasingly important to its ability to
compete effectively.
12
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PART II
ITEM 1. LEGAL PROCEEDINGS
Reference is made to EDS' Annual Report on Form 10-K for the year ended
December 31, 1996 for information regarding certain litigation in connection
with the split-off of EDS from GM. On or about April 30, 1997 the plaintiffs who
originally filed the Ward class action lawsuit moved to sever their claims from
the consolidated class action on the grounds that their claims were narrower
that those of the other plaintiffs and that the lead attorneys for the
consolidated class action had not proceeded quickly enough with the litigation.
On or about July 10, 1997 the plaintiffs in the consolidated class action filed
a motion for leave to serve a Third Amended Complaint. The Third Amended
Complaint asserts claims against the GM Board of Directors for breach of
fiduciary duties including a duty to disclose complete information relating to
the Split-Off. In addition, the Third Amended Complaint asserts a derivative
claim on behalf of EDS. Therefore, EDS is named as a nominal defendant. No
current EDS director or officer is named as a defendant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) EDS' 1997 Annual Meeting of Stockholders was held on June 5, 1997 in Plano,
Texas.
(b) Not applicable.
(c) A total of 416,997,519 shares (approximately 85.2% of all shares entitled
to vote at the meeting) were represented by proxy or ballot at the meeting.
The matters voted upon at the meeting, and the votes cast with respect to
each, were:
(i) Election of four Class I directors for a term expiring at the 2000
Annual Meeting of Stockholders: William H. Gray, III - 403,383,529
shares cast for election and 13,613,990 shares withheld; Ray J. Groves
- 403,982,886 shares cast for election and 13,014,633 shares withheld;
Jeffrey M. Heller - 403,374,492 shares cast for election and
13,623,027 shares withheld; and Ray L. Hunt - 403,827,146 shares cast
for election and 13,170,373 shares withheld.
(ii) Ratification of the appointment of KPMG Peat Marwick LLP as auditors
to audit the accounts for EDS for 1997: 413,477,284 shares cast for
the ratification, 1,971,759 shares cast against the ratification and
1,544,476 shares abstained.
There were no broker non-votes.
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
27 Financial Data Schedule (for SEC information only)
(b) Reports on Form 8-K
During the quarter ended June 30, 1997, EDS filed two Current Reports on
Form 8-K dated April 24, 1997 and May 19, 1997, each reporting a press
release under Item 5 - Other Events and Item 7 - Exhibits.
13
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC DATA SYSTEMS CORPORATION
-----------------------------------
(Registrant)
By /s/ Joseph M. Grant
-----------------------------------
(Joseph M. Grant, Executive
Vice President and Chief Financial
Date: August 13, 1997 Officer)
By /s/ H. Paulett Eberhart
-----------------------------------
(H. Paulett Eberhart, Vice President
Date: August 13, 1997 and Controller)
14
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