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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 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.)
5400 LEGACY DRIVE, PLANO, TEXAS 75024-3199
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (972) 604-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange
London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
------ ------.
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. [_]
As of February 27, 1998, the aggregate market value of the voting stock
held by non-affiliates of the registrant (based on the closing price on such
date as reported on the New York Stock Exchange Composite Transactions) was
approximately $15,969,258,389.
There were 491,683,679 shares of the registrant's common stock outstanding
as of February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Stockholders are
incorporated by reference in Parts II and IV and portions of the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 20,
1998 are incorporated by reference in Part III.
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PART I
ITEM 1 BUSINESS
Electronic Data Systems Corporation ("EDS") was incorporated in Delaware in
1994 and succeeded to the business and assets of Electronic Data Systems
Corporation, a Texas corporation which was incorporated in 1962, at the time of
the split-off (the "Split-Off") of EDS from General Motors Corporation ("GM") on
June 7, 1996. In October 1984, GM acquired all of the capital stock of the
Texas corporation, which prior to that time had been an independent, publicly
held corporation. As a result of the Split-Off, EDS once again became an
independent publicly held corporation with its Common Stock listed for trading
on the New York and London Stock Exchanges.
EDS is a professional services firm that applies consulting, information and
technical expertise to enhance clients' business performance. As of December
31, 1997, EDS employed approximately 110,000 persons and served clients in the
United States and 43 other countries. Unless the context otherwise requires,
references herein to EDS include its predecessor and subsidiaries.
SERVICES
EDS offers its clients a portfolio of related services worldwide within the
broad categories of systems and technology services, business process
management, management consulting and electronic business. EDS provides clients
access to a wide range of value-added offerings within each of the four
categories. Services include the management of computers, networks, information
systems, information processing facilities, business operations and related
personnel. These offerings continue to evolve in response to the rapid
technological changes occurring within the computer industry and clients'
expanding business needs and market opportunities. The following is a
description of EDS' principal service offerings:
. SYSTEMS AND TECHNOLOGY SERVICES. EDS' traditional outsourcing business
encompasses systems development, systems integration, and systems
management. Also included in this area are desktop services, Year 2000
conversions and enterprise software solutions.
. BUSINESS PROCESS MANAGEMENT. EDS may manage an entire business function
within the client's enterprise, including such activities as remittance
processing, procurement logistics, enterprise customer management,
customer service and training, as well as information technology ("IT")
operations.
. MANAGEMENT CONSULTING. A.T. Kearney, an EDS subsidiary, provides
clients with high value-added strategy, operations and information
technology capabilities combined with implementation skills that improve
overall business performance and competitive positioning. Services in
this area focus on strategic consulting, including customer equity
management, new market entry and shareholder value creation; operations
consulting, encompassing strategic sourcing, supply chain management and
manufacturing; and technology consulting, including systems planning,
new technology applications and advanced applications.
. ELECTRONIC MARKETS. EDS' offerings in this area include interactive
marketing and payment services, internet and online services and
advertising, electronic commerce, EDI (electronic data interchange),
smart cards, multimedia and home shopping, and the design, development,
implementation and operation of internet websites, corporate intranets
and extranets.
EDS is able to leverage its extensive technical infrastructure and other
numerous resources to offer information and technology services at clients'
sites or through large scale information processing centers or specialized
distributed service centers. EDS continually examines and tests computer
hardware and software offered by suppliers worldwide as part of its efforts to
determine which are most appropriate for
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use in its operations and/or to offer to its clients. The company assesses the
technological changes that continuously occur within the IT industry, including
developments in distributed computing, client/server architecture and internet-
based applications. EDS has developed computer-aided software engineering tools
to assist in generating new software to keep pace with rapidly evolving
strategies involving hardware technologies and information processing theories
and to facilitate the rapid deployment of the company's products and services to
market.
BUSINESS AREAS
EDS conducts its sales, marketing and service activities on a global basis
principally through business units that focus both geographically and vertically
along the lines of specified industries. By combining the skills of an
industry-focused business unit with a geographic business unit where
appropriate, EDS is able to respond to a client's requirements with people who
are knowledgeable about a specific industry and the client's business. These
industry-focused business units can be broadly categorized as follows:
. MANUFACTURING. EDS assists numerous manufacturing companies in their
worldwide operations and in their implementation of global competitive
strategies, providing them with advanced capabilities in information
processing, information management and telecommunications. EDS offers
manufacturing clients expertise in EDI, engineering information systems,
integrated document processing, inventory control, materials handling,
process control, synchronous manufacturing, and artificial intelligence
techniques.
. FINANCIAL SERVICES. EDS offers a full range of information and
technology services to the global financial services industry. The
industry's expansion of products and services has led to an
unprecedented dependence on technology and its integration with a
financial institution's business processes and strategy. Through
strategic alliances and acquisitions, EDS has positioned itself to
support a wide range of industry segments, including commercial banks,
consumer finance companies, commercial insurance companies, investment
banks, regional and community banks, credit unions, brokerage and
securities firms, thrifts and mortgage lenders. EDS' services are
augmented by a full range of industry-specific products and services,
including data processing, automated teller machines ("ATMs"), debit
and credit card services, voice and teller automation, item and
remittance processing, cross-border funds transfer and currency
exchange, consumer asset management, customer service technology,
remote/home banking and business-process improvement.
. GOVERNMENT. EDS performs information and technology services for
national, state and local governments in the U.S. and around the world.
At the national level, EDS targets its services at both civil and
defense organizations with complex, large-scale information needs.
Within state and local governments, key markets of EDS include human
services, transportation, public safety and administration and finance.
EDS' core competency for managing complexity and its proven ability to
leverage process performance improvement techniques and technologies
from the private sector into the public sector has allowed EDS to expand
its government presence worldwide.
. COMMUNICATIONS. EDS offers a full spectrum of information and technology
services to the global communications market in addition to industry
specific technology platforms tailored to the information needs of each
industry segment. For the telecommunications segment (local, long
distance, wireless and internet service providers), EDS' service
offerings include call rating and billing, clearinghouse services,
operational support services and customer care and acquisition
technologies. For the entertainment and media segment, EDS provides
content digitization and digital asset management services.
. HEALTH. EDS offers information and technology services to companies in
the health care industry, providing the management of information
required in this highly regulated industry in a rapidly-
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changing, record-intensive environment. EDS' services go beyond
traditional outsourcing and include providing solutions to improve
specific business areas, including sales and marketing, customer service
and claims management.
. TRAVEL AND TRANSPORTATION. EDS' travel and transportation group offers
information and technology services to customers worldwide in the air
transportation, freight, computer reservation system, vehicle rental,
travel agency, cruise line and hospitality industries. EDS' services to
these industries are designed to meet customer requirements for reducing
operating costs, improving quality and increasing responsiveness to
rapidly changing market conditions.
. ENERGY. EDS provides information and technology services on a global
basis to companies in the petroleum, natural gas, chemical, mining and
utility industries. EDS' services in these industries are intended
to help clients improve the performance of their information and
communications infrastructures while providing technology-based business
solutions for specific process and functional areas.
In certain of these markets, EDS provides services, such as ATM and travel
related services, directly to individual consumers.
A.T. Kearney
A.T. Kearney, the global management consulting firm which became a subsidiary
of EDS in 1995, provides clients with sophisticated performance improvement
techniques that improve overall competitive position. The firm has strong
expertise in the aerospace and defense, automotive, chemicals, communications,
consumer industries, financial institutions, forest products, health care, high-
tech electronics, oil and gas, pharmaceuticals, retail, transportation and
utilities industries. EDS and A. T. Kearney together offer a CoSourcing(SM)
Service, which focuses on improving clients' business performance through
concurrent implementation of new business processes, information technology and
enterprise-wide transformation.
Strategic Business Lines
Certain services provided by EDS are organized in strategic business lines so
that their resources and capabilities may be globally leveraged across EDS.
These strategic business lines provide services directly to clients but also
work in coordination with a geographical or vertical business unit having
primary responsibility for a particular client. EDS' strategic business lines
include the following:
CIO Services 2000. EDS' CIO Services unit was organized in 1996 to bring
together the industry organizations within EDS which were providing Year 2000
services to existing and new clients. This unit offers complete Year 2000
services, including assessment, planning and strategy, renovation, testing and
implementation. Source code modifications are performed at renovation centers
in the United States, Ireland and Australia utilizing EDS' proprietary COGEN
2000 tool.
Enterprise Customer Management. EDS' Enterprise Customer Management unit
consolidates all of EDS' customer contact management solutions into one business
line, delivering database marketing, call center services and direct marketing
consulting services for industries on a global basis. Neodata Corporation, the
integrated marketing communications services company which became a wholly-owned
subsidiary of EDS in August 1997, has been integrated into this business line,
making EDS Enterprise Customer Management the largest direct marketing company
in the world.
Electronic Business. Electronic commerce services include business strategy
and project management services, interactive marketing and home shopping
services, bill presentment and payment services, card issuing services, merchant
acquiring services, electronic benefits transferring services, and ATM and debit
card services. EDS' c2o unit offers a range of services that enable enterprises
to capitalize on the
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increasing number of opportunities in the electronic markets. Internet services
include design, construction and management of internet websites, corporate
intranets and extranets.
Unigraphics Solutions
Unigraphics Solutions Inc. ("UG Solutions"), a subsidiary of EDS, develops and
markets computer assisted design, manufacturing and engineering ("CAD," "CAM"
and "CAE") software and services. UG Solutions' principal product offerings
include Unigraphics(R) for design-through-manufacture applications, IMAN(R) for
product information management, and Parasolid(R), a high precision, boundary-
representation solid modeler for mechanical CAD/CAM/CAE applications.
ACQUISITIONS AND STRATEGIC ALLIANCES
From time to time EDS has made acquisitions and entered into strategic
alliances in an effort to obtain a competitive advantage or a new or expanded
presence in targeted geographic or service markets. EDS believes that the
convergence of the computing and software, communication, media and
entertainment and electronic commerce industries will continue. As a result,
acquisitions, joint ventures and strategic alliances are expected to continue to
be important to EDS' ability to compete effectively.
REVENUES
EDS receives fees for all aspects of its portfolio of services. The fees are
generally paid pursuant to predetermined rates set forth in contracts. Customer
contracts for systems and technology services and business process management
services generally have terms of one to 10 years. Management consulting
engagements and electronic markets projects generally have shorter terms.
The following table sets forth the percentage of revenues for each of the
years in the three-year period ended December 31, 1997 derived by EDS from the
identified principal business areas.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR THE YEARS ENDED
BUSINESS AREA DECEMBER 31,
------------- ------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Manufacturing............................... 44% 45% 47%
Financial Services.......................... 15 14 14
Government.................................. 14 13 12
Communications.............................. 6 7 8
Health...................................... 6 6 7
Travel and Transportation................... 4 4 4
Energy...................................... 3 3 3
Other....................................... 8 8 5
------ ------ ------
Total..................................... 100% 100% 100%
====== ====== ======
</TABLE>
Other than GM, no one client accounted for more than 5% of EDS' total revenues
in 1997, 1996 or 1995.
BACKLOG
EDS' backlog represents an estimate of the remaining future revenue from
existing signed contracts. Using the best available information, EDS determines
this estimate on an annual basis as of December 31 of each year. The estimate
includes contracts which have a term of 12 months or longer and is calculated
for each of the next ten years plus a summary amount for contracts with terms
extending beyond such ten-
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year period. The EDS backlog estimate includes revenues expected under current
terms of executed contracts, revenues from government contracts in which
quantities are not definite but estimable, and a risk-adjusted estimate of
renewals and extensions for those contracts which contain renewal or extension
provisions.
Changes in the backlog calculation from year to year result from (i)
additional revenue from the signing of new contracts, (ii) reduction in revenue
from fulfilling contracts during the most recent year, (iii) reduction in
revenue from early termination of contracts, and (iv) adjustments to estimates
of previously included contracts. On an annual basis, EDS reviews each contract
included in the calculation and adjusts estimates for those contracts based on
the latest available information.
At December 31, 1997 and 1996, EDS' firm backlog for services was
approximately $72 billion and $72.5 billion, respectively. Approximately $3.5
billion of the amount of backlog reported at December 31, 1996 was in respect
of lines of business which EDS exited during 1997.
COMPETITION
EDS experiences competition in the IT industry and in the broader professional
services industry. EDS has historically faced competition principally from
other companies providing information technology systems and services. Today,
EDS' principal competitors in the IT services industry include International
Business Machines Corporation, Andersen Consulting LLP and Computer Sciences
Corporation. As the markets for IT services continue to grow and as the
services demanded by customers expand and increase in complexity, EDS faces
increasing competition from niche-oriented, geographically focused companies as
they expand and become broader competitors through acquisitions, alliances or
otherwise.
Technology and its application within the business enterprise is in a rapid
and continuing state of change as new technologies continue to be developed,
introduced and implemented. EDS management believes that its ability to
continue to compete effectively will depend upon its ability to develop and
market offerings that meet changing user needs and respond to technological
changes on a timely and cost-effective basis, as well as its ability to finance
and acquire the resources necessary to offer such services and products.
EMPLOYEES
As of December 31, 1997, EDS employed approximately 110,000 persons located in
the United States and 43 other countries. None of EDS' United States or
Canadian employees is currently employed under an agreement with a collective
bargaining unit, and EDS believes that its relations with employees are good.
To maintain its technical expertise and its responsiveness to evolving client
needs, EDS provides its employees with extensive continuing education and
training, as well as leadership and professional development programs.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
EDS holds a number of patents and pending patent applications in the United
States and in foreign countries. EDS' policy generally is to pursue patent
protection that it considers necessary or advisable for the patentable
inventions and technological improvements of its business. EDS also relies
significantly on trade secrets, copyrights, technical expertise and know-how,
continuing technological innovations and other means, such as confidentiality
agreements with employees, consultants and customers, to protect and enhance its
competitive position.
Some of the business areas in which EDS is engaged are highly patent-
intensive. Many of EDS' competitors have obtained, and may be expected to
obtain in the future, patents that cover or affect services or products directly
or indirectly related to those offered by EDS. EDS routinely receives
communications from third parties asserting patent or other rights covering EDS'
services or products. There can be no assurance that EDS is aware of all
patents containing claims that may pose a risk of infringement by its
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services or products. In addition, patent applications in the United States are
confidential until a patent is issued and, accordingly, EDS cannot evaluate the
extent to which its services or products may infringe claims contained in
pending patent applications. In general, if it were determined that one or more
of the services or products offered by EDS infringe patents held by others, EDS
would be required to cease developing or marketing such services or products, to
obtain licenses to develop or market such services from the holders of the
patents or to redesign such services or products in such a way as to avoid
infringing the patent claims. The extent to which EDS may be required in the
future to obtain licenses with respect to patents held by others and the
availability and cost of any such licenses are currently unknown. There can be
no assurance that EDS would be able to obtain such licenses on commercially
reasonable terms or, if it were unable to obtain such licenses, that it would be
able to redesign its services or products to avoid infringement or that
litigation would not ensue.
EDS management is not aware of any pending patent or proprietary right
disputes against EDS that would have a material adverse effect on EDS'
consolidated financial position or results of operations.
REGULATION
Various aspects of EDS' business are subject to federal and state regulation
noncompliance with which, depending upon the nature of the noncompliance, may
result in the suspension or revocation of any license or registration at issue,
the termination or loss of any contract at issue or the imposition of
contractual damages, civil fines or criminal penalties. EDS has experienced no
material difficulties in complying with the various laws and regulations
affecting its business.
SERVICES FOR GENERAL MOTORS
Approximately 28% of EDS' total revenues in 1997 was attributable to GM and
its affiliates. EDS provides substantially all of the worldwide data processing
and telecommunications activities for GM and its affiliates (other than Hughes
Electronics Corporation, with the exception of its Delco Electronics Corporation
subsidiary), including integrated information systems for payroll, health and
benefits, office automation, communications and plant automation functions. The
loss of GM as an ongoing major customer of EDS would have a material adverse
effect on EDS.
Immediately prior to the Split-Off, GM and EDS entered into a new Master
Service Agreement (the "MSA") that serves as a framework for the negotiation and
operation of service agreements between GM and EDS related to certain "in-scope"
IT services as defined in the MSA ("MSA Services") to be provided by EDS to GM
on a worldwide basis (collectively, together with the MSA, the "IT Services
Agreements"). IT services that are considered to be MSA Services accounted for
approximately $3.75 billion of the approximately $4.3 billion of revenues
received by EDS from GM in 1997. The balance of EDS' 1997 revenues from GM was
attributable to goods and services provided outside the scope of the MSA.
Set forth below is a summary of certain of the principal provisions of the
IT Services Agreements. Such description is not complete and, to the extent it
relates to the MSA, is qualified in its entirety by reference to the MSA, a copy
of which has been filed with the Securities and Exchange Commission.
Term. The term of the MSA commenced on June 7, 1996, the date of the Split-
Off, and will continue for a period of ten years thereafter. The term may be
extended for an additional period or periods by mutual agreement between GM and
EDS. There can be no assurance as to whether or to what extent EDS will
continue to provide IT services to GM after the initial term of the MSA.
Service Agreements. Under the predecessor to the MSA, GM business units and
EDS had entered into a number of Service Agreements ("Service Agreements")
setting forth the terms and provisions applicable to specific services or
projects undertaken by EDS on behalf of various GM organizations. Such Service
Agreements remained in effect after the Split-Off and, in many cases, were
extended or otherwise modified as provided in the MSA. In addition, EDS expects
that it will continue to negotiate and enter into
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additional Service Agreements with GM business units providing for the
performance of IT services on mutually agreed terms. In negotiating future
Service Agreements, the parties will endeavor to agree upon fixed-price service
arrangements which meet the standards of competitiveness described below. The
provisions of the MSA apply to all Service Agreements, whether entered into
before or after the Split-Off.
At the time of the Split-Off, the terms of the largest domestic Service
Agreements then in effect were extended for additional terms of between one and
three years. The Service Agreement with Delphi Automotive Systems (U.S.) was
extended through December 31, 1998 and the Service Agreements with GM's North
American Operations, General Motors Acceptance Corporation (U.S. and Canada) and
Motors Insurance Corporation (U.S. and Canada) were each extended through
December 31, 1999. In addition, at the time of the Split-Off GM and EDS
entered into a successor Service Agreement covering GM International Operations
with a term ending on December 31, 2000.
Scope of Services. The MSA established a contractual framework for the
provision of MSA Services on a worldwide basis to GM and certain of its
affiliates. The MSA contains a flexible description of the MSA Services that is
based on functional service categories so as to take into account possible
future changes in business operations or technologies that result in the
replacement of existing processes and technologies. MSA Services include IT
goods and services related to the following functional service categories: (i)
computing and communications infrastructure; (ii) development of application
software and implementation of commercial off-the-shelf application software;
(iii) data management; (iv) cross-functional IT-related services; and (v)
certain services related to specified plant floor operations. The MSA
specifically excluded from the scope of work to be performed by EDS services for
certain GM units or operations and in certain geographic areas. Furthermore, GM
may competitively bid and award a portion of services to third party providers
as described under "--Market Testing and Outsourcing" below.
Competitiveness. The MSA provides that MSA Services will be competitive
with respect to quality, service, price and technology giving due consideration
to GM's requirements and other relevant factors. The provisions of the MSA with
respect to competitiveness apply to the negotiation or renegotiation of (i) new
or replacement Service Agreements, (ii) the terms and conditions applicable to
new or replacement MSA Services and (iii) the pricing of any MSA Services when
such negotiation or renegotiation is contractually provided for in a Service
Agreement. When the applicable EDS and GM organizations reach a mutually
acceptable agreement as to the competitiveness of any services, the standards of
competitiveness provided for in the MSA will be deemed satisfied for the term of
such agreement. If the applicable GM and EDS organizations are unable to reach
a mutually acceptable agreement as to the competitiveness of any MSA Services,
the MSA provides a procedure whereby the negotiating impasse will be escalated
to senior management, the services of a standing neutral mediator may (and, in
some cases, must) be utilized, and, in the absence of an agreement, (i) any
impasse as to uniform published rates for applicable items will be resolved by
binding arbitration and (ii) any impasse as to any other services will be
resolved by EDS providing the services on the basis of the standard terms and
conditions provided in the MSA and a modified cost-plus pricing methodology.
Pricing of Services. Depending on the type of services to be provided by
EDS, the parties may utilize (i) fixed-price arrangements, (ii) cost-based
pricing methods or (iii) uniform published rates for off-the-shelf, commercially
available products and services. However, the parties have agreed to endeavor
to incorporate fixed-price arrangements into new Service Agreements entered into
under the MSA to the extent practicable. With respect to certain information
processing services to be performed by EDS, the parties have agreed to annual
reductions in the rates to be charged by EDS to all GM organizations worldwide,
which reduced rates were applied retroactively as of January 1, 1996 and will be
in effect through December 31, 2000. In addition, with respect to certain
communication services to be performed by EDS, the parties have agreed to annual
reductions in the rates to be charged by EDS to all GM organizations in the
United States, which reduced rates were applied retroactively as of January 1,
1996 and will be in effect through December 31, 1998. During the respective
periods that these reduced rates are in effect, the information processing and
communications services to which the reduced charges apply will not be subject
to the provisions of the MSA relating to market testing or outsourcing described
below.
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Market Testing and Outsourcing. The MSA provides for certain market testing
procedures in order to test the competitiveness of the MSA Services provided by
EDS. Under these procedures, EDS will have the opportunity to bid on any and
all MSA Services and any bid submitted by EDS will be evaluated on the same
criteria as bids submitted by other service providers. During each year
beginning in 1998, GM is permitted to expose to competitive bidding specified
percentages of the prior year's revenues paid to EDS for MSA Services. In each
year from 1998 through 2000, GM may expose to competitive bidding and award to
third parties contracts for MSA Services for which GM would otherwise have
reasonably paid EDS up to an average of approximately 6% of the prior year's
revenues paid to EDS for MSA Services. For the years 2001 through 2006, GM may
expose to competitive bidding and award to third parties contracts for MSA
Services for which GM would otherwise have reasonably paid EDS up to an average
of approximately 2.4% of the prior year's revenues paid to EDS for MSA Services.
Subject to certain limitations, GM will select the MSA Services to be exposed to
competitive bidding after consultation with EDS. In addition to the foregoing
annual limitations, the following aggregate limitations apply: through 2000, in
no single calendar year may the amount paid to third parties for MSA Services
exceed 15% of the aggregate amount of revenue paid to EDS for MSA Services
performed during the prior year; and after 2000, in no single calendar year may
the amount paid to third parties for MSA Services exceed 25% of the aggregate
amount of revenue paid to EDS for MSA Services performed during the prior year.
Although EDS may bid on any and all of such MSA Services, it is expected that
third party service providers will be awarded some portion of the MSA Services
exposed to competitive bidding. There can be no assurance as to whether or to
what extent EDS will be successful in bidding on such MSA Services.
Termination. The MSA provides that it may be terminated (i) by either party,
if the other party defaults in any material respect in the performance of its
obligations thereunder and such default is not cured after notice thereof, (ii)
by EDS, if GM defaults in the payment when due of any material amount owing to
EDS thereunder and such default is not cured after notice thereof, (iii) by
either party, if the other party becomes insolvent or (iv) by GM, if there
occurs a "change of control" of EDS (as defined in the MSA) and certain
additional conditions are met (which conditions include a determination by GM's
Board of Directors that there exists substantial uncertainty about EDS' ability
to perform its obligations under the IT Services Agreements or any other
significant threat to the business relationship between the parties).
ITEM 2. PROPERTIES
As of December 31, 1997, EDS had approximately 379 locations operating in 41
states and 207 cities in the United States and approximately 269 additional
locations in 170 cities in 37 countries outside the United States. At such
date, approximately 5.8 million square feet of space was owned by EDS and an
additional approximately 14.6 million square feet of space was leased. EDS'
worldwide headquarters, which is located on a 363 acre campus in Plano, Texas,
contains approximately 3.5 million square feet of office and data center space.
Other than the 1.6 million square feet EDS Centre building, which is leased for
an initial term of 25 years and subject to certain fixed price purchase options
exercisable by EDS during and at the end of such initial term, all buildings and
real estate comprising the Plano campus are owned by EDS. EDS' two information
management centers, which monitor the EDSNET(R) global telecommunications
network, are located in Plano, Texas and Stockley Park, United Kingdom. EDS'
large scale information processing centers ("IPCs") are located throughout the
United States and in each of Australia, Brazil, Canada, France, Germany, the
Netherlands, Spain and the United Kingdom. In addition, EDS operates
distributed service centers ("DSCs") at customer owned sites or EDS owned or
leased facilities throughout the world. DSCs generally support a single or
small number of customers with more specialized requirements than those
supported at the large scale, multiple customer IPCs.
Leased properties consist primarily of office, warehouse, DSC and non-U.S. IPC
facilities. Lease terms are generally five years or, with respect to leases
related to a specific customer contract, have a term concurrent with that
contract. Upon expiration of its leases, EDS does not anticipate any difficulty
in obtaining renewals or alternative space. In addition to the leased property
referred to above, EDS occupies office space at customer locations throughout
the world. Such space is generally occupied pursuant to the terms of the
respective customer contracts.
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EDS management believes that its facilities are suitable and adequate for its
business; however, EDS periodically reviews its space requirements to
consolidate and dispose of or sublet facilities which are no longer required in
connection with its business and to acquire new space to meet the needs of its
business.
ITEM 3. LEGAL PROCEEDINGS
Three suits challenging the Split-Off, Stephen A. Solomon v. General Motors
Corporation, et al., TRV Holding Company v. General Motors Corporation, et al.,
and Melvin Ward et al. v. General Motors Corporation, et al. were consolidated.
The consolidated case purports to be a class action brought on behalf of the
former holders of GM's Class E common stock, all of which was converted into EDS
common stock in connection with the Split-Off, as well as a double derivative
action brought on behalf of EDS against certain present and former directors of
GM and certain former directors of EDS (all of whom were also directors or
officers of GM). EDS is named in the complaint only as a nominal defendant with
respect to the double derivative action. On May 23, 1996, plaintiffs withdrew
their application for expedited proceedings and preliminary injunctive relief,
and on June 7, 1996 the Split-Off was consummated. Since then, plaintiffs have
filed a third amended consolidated complaint. On December 11, 1997, the
defendants filed a motion to dismiss the third amended consolidated complaint.
EDS believes that the suits are without merit and, to the extent it is a party
thereto, intends to defend them vigorously.
From time to time EDS is involved in various litigation matters arising in the
ordinary course of its business. EDS management does not believe that
disposition of any current matter will have a material adverse effect on EDS'
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None submitted.
EXECUTIVE OFFICERS OF EDS
The following sets forth certain information with respect to the executive
officers of EDS as of February 27, 1998:
Lester M. Alberthal, Jr., 54, has been Chief Executive Officer of EDS since
December 1986 and Chairman of the Board since June 1989. He is a member of EDS'
Office of the Chairman. Mr. Alberthal has been a director of EDS since 1981.
He joined EDS in 1968, became responsible for EDS' health care division in 1974
and was named Senior Vice President with responsibility for EDS' insurance group
in 1979. Following the acquisition of EDS by GM in 1984, Mr. Alberthal led all
non-GM North American operating groups. He served as President of EDS from
April 1986 through the consummation of the Split-Off.
Gary J. Fernandes 54, has been the Vice Chairman of EDS since the consummation
of the Split-Off and a director of EDS since 1981. He is a member of EDS' Office
of the Chairman. Mr. Fernandes had been a Senior Vice President of EDS from
October 1984 until the consummation of the Split-Off. He has oversight
responsibility for EDS' worldwide business development and corporate development
(including marketing and strategic planning) and is Chairman of EDS' A.T.
Kearney management consulting services subsidiary and of EDS Australia. Mr.
Fernandes joined EDS in 1969 and has served in numerous management capacities in
the United States, Europe and Japan.
Jeffrey M. Heller, 58, has been the President and Chief Operating Officer of
EDS since the consummation of the Split-Off and a director of EDS since 1983. He
is a member of EDS' Office of the
10
<PAGE>
Chairman. Mr. Heller was a Senior Vice President of EDS from 1984 until
consummation of the Split-Off. He joined EDS in 1968 and has served in numerous
technical and management capacities.
John A. Bateman, 49, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1992. Mr. Bateman has responsibility for EDS' European, Middle Eastern
and African operations.
Hartmut W. Burger, 54, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Vice
President since October 1992. He has responsibility for EDS' technical
infrastructure and internal information functions, EDS' internet and electronics
markets strategic business lines, and EDS' business units serving customers in
the communications industry. Prior to assuming his current responsibilities,
Mr. Burger was responsible for EDS' business units serving customers in the
manufacturing and commercial services industries.
John R. Castle, Jr., 55, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Senior Vice
President since October 1988. He has oversight responsibility for EDS'
government affairs, communications and public relations groups and its legal
department. Prior to joining EDS in 1988, Mr. Castle was a partner in the
Dallas law firm of Hughes & Luce.
Paul J. Chiapparone, 58, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Senior Vice
President since April 1986. He has responsibility for EDS' global business
units supporting the GM account. Mr. Chiapparone joined EDS in 1966 and has
served in numerous management capacities.
J. Coley Clark, 52, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1989. Mr. Clark has responsibility for EDS' business units serving
customers in the financial services and travel and transportation industries.
Joseph M. Grant, 59, has been Chief Financial Officer of EDS since December
1990 and an Executive Vice President since the consummation of the Split-Off.
Prior to that time he had been a Senior Vice President since February 1992.
Prior to joining EDS in December 1990, he served as executive vice president and
chief systems officer for American General Corporation from 1989 to 1990 and as
chairman of the board and chief executive officer of Texas American Bancshares
Inc. from 1986 to 1989. Mr. Grant will retire from EDS effective March 31,
1998.
Gary B. Moore, 48, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1992. Since June 1996, Mr. Moore has held responsibility for EDS'
business units serving customers in the manufacturing industry. He had served
as Chairman of EDS Japan from January 1993 to June 1996.
G. Stuart Reeves, 58, has been an Executive Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Senior Vice
President since February 1987. He has responsibility for EDS' business units
serving customers in government and in the energy and healthcare industries,
EDS' Customer Solutions strategic business line, and EDS' Canadian, Mexican and
Central and South American operations. Mr. Reeves joined EDS in 1967 and has
held numerous technical and management positions.
Gary L. Rudin, 49, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1989. Since December 1997, Mr. Rudin has had leadership responsibility
for EDS' Future by Design transformation initiative. Prior to that time, he had
responsibility for various geographic and industry business units within EDS.
Edward V. Yang, 52, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1994. Mr. Yang has responsibility for
11
<PAGE>
EDS' Asia/Pacific and Japanese operations. He joined EDS in 1992 as president
of EDS' operations in East Asia. Prior to that time, Mr. Yang was a Senior Vice
President of Wang Laboratories and manager of its South American and
Asia/Pacific operations.
Executive officers serve at the discretion of the Board of Directors of EDS.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "EDS." As a result of the Split-Off, on June 7, 1996 each share of
Class E Common Stock of GM was converted into one share of Common Stock. The GM
Class E Common Stock had been listed and traded on the NYSE under the symbol
"GME" through June 7, 1996. The table below shows the range of reported per
share sales prices on the NYSE Composite Tape for the Class E Common Stock
(through June 7, 1996) and the Common Stock (commencing June 10, 1996) for the
periods indicated.
<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW
- ------------- ---- ---
1996
<S> <C> <C>
First Quarter................................................................ $58.00 $50.00
Second Quarter (through June 7, 1996)........................................ 58.63 52.25
Second Quarter (commencing June 10, 1996).................................... 58.38 52.88
Third Quarter................................................................ 61.38 46.00
Fourth Quarter............................................................... 63.38 40.75
1997
First Quarter................................................................ $49.63 $40.13
Second Quarter............................................................... 44.75 31.75
Third Quarter................................................................ 46.75 34.50
Fourth Quarter............................................................... 44.19 29.56
</TABLE>
The last reported sale price of the Common Stock on the NYSE on February 27,
1998 was $43.8125 per share. As of February 27, 1998, the approximate number of
record holders of Common Stock was 227,770.
Since the consummation of the Split-Off, EDS declared quarterly dividends on
the Common Stock at the rate of $.15 per share for the third and fourth quarters
of 1996 and each quarter of 1997. Prior to the Split-Off, GM paid quarterly
dividends on the GM Class E Common Stock of $.15 per share for the first and
second quarters of 1996.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" for the years 1993 through 1997 on page 62 of
EDS' Annual Report to Stockholders for the year ended December 31, 1997 is
incorporated herein by reference.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 35 through 41 of EDS' Annual Report to Stockholders for the
year ended December 31, 1997 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of EDS included in EDS' Annual
Report to Stockholders for the year ended December 31, 1997 are incorporated
herein by reference.
Consolidated Statements of Income -- Years ended December 31, 1997, 1996 and
1995.
Consolidated Balance Sheets -- December 31, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years ended December 31, 1997, 1996
and 1995.
Notes to Consolidated Financial Statements
Independent Auditors' Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For Item 10, the names and ages of the executive officers of EDS as of February
27, 1998, and the position(s) each of them has held during the past five years,
are included in Part I of this Form 10-K as permitted by General Instruction
G(3). All other information required by Item 10, and the information required
by Items 11, 12 and 13, is incorporated by reference to the registrant's
definitive proxy statement for its Annual Meeting of Stockholders to be held on
May 20, 1998, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1997.
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. The following consolidated financial statements of Electronic Data
Systems Corporation and subsidiaries included in the registrant's 1997 Annual
Report to Stockholders are incorporated by reference in Part II, Item 8:
Consolidated Statements of Income -- Years ended December 31, 1997,
1996 and 1995.
Consolidated Balance Sheets -- December 31, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. The following financial statement schedule of Electronic Data Systems
Corporation and subsidiaries is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
3. Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3(a) Restated Certificate of Incorporation of Electronic Data Systems
Corporation, as amended through June 7, 1996 -- incorporated herein
by reference to Exhibit 3(a) to the Current Report on Form 8-K of
the Registrant dated June 7, 1996.
3(b) Amended and Restated Bylaws of Electronic Data Systems Corporation,
as amended through June 7, 1996 -- incorporated herein by
reference to Exhibit 3(b) to the Current Report on Form 8-K of the
Registrant dated June 7, 1996.
4(a) Rights Agreement dated as of March 12, 1996 between the Registrant
and The Bank of New York, as Rights Agent -- incorporated herein by
reference to Exhibit 4(c) to the Registration Statement on Form S-4
of the Registrant (File No. 333-02543).
4(b) Indenture dated as of August 12, 1996, between the Registrant and
Texas Commerce Bank National Association, as Trustee --
incorporated herein by reference to Exhibit 4 to the Registration
Statement on Form S-3 of the Registrant (File No. 333-10145).
4(c) Instruments defining the rights of holders of nonregistered debt of
the Registrant have been omitted from this exhibit index because
the amount of debt authorized under any such instrument does not
exceed 10% of the total assets of the Registrant and its
subsidiaries. The Registrant agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon request.
14
<PAGE>
10(a) Master Service Agreement dated June 7, 1996 between General Motors
Corporation and the Registrant (portions of which are subject to
confidential treatment granted by the Securities and Exchange
Commission) -- incorporated herein by reference to Exhibit 10(a) to
the Current Report on Form 8-K of the Registrant dated June 7,
1996.
10(b) 1996 Incentive Plan of Electronic Data Systems Corporation --
incorporated herein by reference to Exhibit 10(b) to the Current
Report on Form 8-K of the Registrant dated June 7, 1996.*
10(c) Electronic Data Systems Corporation Supplemental Executive
Retirement Plan -- incorporated herein by reference to Exhibit
10(d) to the Registration Statement on Form S-4 of the Registrant
(File No. 333-02543).*
10(d) Electronic Data Systems Corporation Deferred Compensation Plan for
Non-Employee Directors -- incorporated herein by reference to
Exhibit 10(e) to the Registration Statement on Form S-4 of the
Registrant (File No. 333-02543).*
10(e) Form of Indemnification Agreement entered into between the
Registrant and each of its directors and executive officers --
incorporated herein by reference to Exhibit 10(f) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543).*
10(f) Revolving Credit and Term Loan Agreement dated as of October 4,
1995 among the Registrant, Citibank, N.A., as Administrative Agent,
and the other financial institutions identified therein as
Arrangers, Managers and Lenders -- incorporated herein by
reference to Exhibit 10(h) to the Registration Statement on Form
S-4 of the Registrant (File No. 333-02543).
10(g) Amended and Restated Revolving Credit and Term Loan Agreement
entered into as of September 23, 1997 among the Registrant and the
Lenders identified therein -- incorporated herein by reference to
Exhibit 10(g) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
10(h) Multi-Currency Revolving Credit Agreement dated as of October 4,
1995 among the Registrant, Citibank, N.A., as Administrative Agent,
and the other financial institutions identified therein as
Arrangers, Managers and Lenders -- incorporated herein by
reference to Exhibit 10(i) to the Registration Statement on Form
S-4 of the Registrant (File No. 333-02543).
10(i) Amended and Restated Multi-Currency Revolving Credit Agreement
entered into as of September 23, 1997 among the Registrant and the
Lenders identified therein -- incorporated herein by reference to
Exhibit 10(i) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
10(j) Registration Rights Agreement dated March 12, 1995 between General
Motors Corporation and United States Trust Company of New York, as
Trustee of the General Motors Corporation Hourly-Rate Pension
Plan -- incorporated herein by reference to Exhibit 10(j) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543).
10(k) Succession Agreement dated June 7, 1996 among the Registrant,
General Motors Corporation and United States Trust Company of New
York, as Trustee of the General Motors Corporation Hourly-Rate
Pension Plan, with respect to the Registration Rights Agreement
filed as Exhibit 10(j) above -- incorporated herein by reference to
Exhibit
15
<PAGE>
10(k) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
10(l) Form of Change in Control Employment Agreement entered into by the
Registrant with each of its executive officers -- incorporated
herein by reference to Exhibit 99 to the Registration Statement on
Form S-3 of the Registrant (File No. 333-06655). *
12 Computation of Ratios of Earnings to Fixed Charges for the three
years ended December 31, 1997.
13 Portions of the Registrant's 1997 Annual Report to Stockholders
expressly incorporated by reference herein: Pages 34 through 62.
21 Subsidiaries of the Registrant as of December 31, 1997
23 Consent of Independent Auditors
24 Powers of Attorney for Directors signing this Report on Form 10-K.
27 Financial Data Schedule for the year ended December 31, 1997,
submitted to the Securities and Exchange Commission in electronic
format.
- --------------------
* Management contracts and compensatory plans and arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 14(c).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedule.
The response to this portion of Item 14 is submitted as a separate section
of this report.
16
<PAGE>
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.
Electronic Data Systems Corporation
Dated: March 4, 1998 By: /s/ Lester M. Alberthal, Jr.
-----------------------------------------
Lester M. Alberthal, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 4, 1998 By: /s/ Lester M. Alberthal, Jr.
-----------------------------------------
Lester M. Alberthal, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Dated: March 4, 1998 By: /s/ Gary J. Fernandes
-----------------------------------------
Gary J. Fernandes
Vice Chairman and Director
Dated: March 4, 1998 By: /s/ Jeffrey M. Heller
-----------------------------------------
Jeffrey M. Heller
President, Chief Operating Officer
and Director
Dated: March 4, 1998 By: /s/ Joseph M. Grant
-----------------------------------------
Joseph M. Grant
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: March 4, 1998 By: /s/ H. Paulett Eberhart
-----------------------------------------
H. Paulett Eberhart
Vice President and Controller
(Principal Accounting Officer)
17
<PAGE>
Dated: March 4, 1998 By: *
-----------------------------------------
James A. Baker, III
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Richard B. Cheney
Director
Dated: March 4, 1998 By: *
-----------------------------------------
William H. Gray, III
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Ray J. Groves
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Ray L. Hunt
Director
Dated: March 4, 1998 By: *
-----------------------------------------
C. Robert Kidder
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Judith Rodin
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Enrique J. Sosa
Director
* By: /s/ D. Gilbert Friedlander
----------------------------------------
D. Gilbert Friedlander, Attorney in Fact
March 4, 1998
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Electronic Data Systems Corporation:
Under date of February 4, 1998, we reported on the consolidated balance sheets
of Electronic Data Systems Corporation and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in the 1997 annual report to stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
February 4, 1998
<PAGE>
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
<TABLE>
<CAPTION>
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
Description of year expenses accounts Deductions end of year
- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997
Allowances Deducted from Assets
Accounts and notes receivable 117.2 37.8 -- 49.6(a) 105.4
Inventories 25.6 17.3 -- 12.2(b) 30.7
Valuation allowance for
deferred taxes 139.6 -- 21.8 20.4(c) 141.0
---------- ---------- ---------- ---------- -----------
Total Allowances Deducted
from Assets 282.4 55.1 21.8 82.2 277.1
========== ========== ========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1996
Allowances Deducted from Assets
Accounts and notes receivable 99.5 93.4 -- 75.7(a) 117.2
Inventories 19.5 15.5 -- 9.4(b) 25.6
Valuation allowance for
deferred taxes 126.3 -- 22.9 9.6(c) 139.6
---------- ---------- ---------- ---------- -----------
Total Allowances Deducted
from Assets 245.3 108.9 22.9 94.7 282.4
========== ========== ========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1995
Allowances Deducted from Assets
Accounts and notes receivable 57.9 124.6 -- 83.0(a) 99.5
Inventories 13.7 19.1 -- 13.3(b) 19.5
Valuation allowance for
deferred taxes 111.1 -- 20.8 5.6(c) 126.3
---------- ---------- ---------- ---------- -----------
Total Allowances Deducted
from Assets 182.7 143.7 20.8 101.9 245.3
========== ========== ========== ========== ===========
</TABLE>
Notes:
(a) Accounts written off and foreign currency translation adjustments
(b) Obsolete parts written off and foreign currency translation adjustments
(c) Primarily foreign currency translation adjustments
<PAGE>
Exhibit 12
----------
ELECTRONIC DATA SYSTEMS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Income before cumulative $ 730.6 $ 431.5 $ 938.9 $ 821.9 $ 724.0
effect of accounting change
United States, foreign, and other 411.0 242.6 528.1 462.3 407.3
income taxes
Equity in (income) losses of
affiliates 8.5 .4 8.8 6.2 4.9
-------- -------- -------- -------- --------
Income before income taxes,
undistributed (income) losses of
affiliates, and amortization of
capitalized interest
1,150.1 674.5 1,475.8 1,290.4 1,136.2
-------- -------- -------- -------- --------
Fixed charges included in net income:
Interest and related charges on debt 175.7 153.0 120.8 51.7 34.5
Portion of rentals deemed to be
interest 217.0 219.0 228.0 176.9 189.9
Minority interest-preferred stock
dividend 27.5 2.8 - - -
-------- -------- -------- -------- --------
Total fixed charges included in 420.2 374.8 348.8 228.6 224.4
net income -------- -------- -------- -------- --------
Earnings available for fixed charges $1,570.3 $1,049.3 $1,824.6 $1,519.0 $1,360.6
-------- -------- -------- -------- --------
Fixed charges:
Fixed charges included in
net income $ 420.2 $ 374.8 $ 348.8 $ 228.6 $ 224.4
Interest capitalized in the period - - - 1.2 5.4
-------- -------- -------- -------- --------
Total fixed charges $ 420.2 $ 374.8 $ 348.8 $ 229.8 $ 229.8
-------- -------- -------- -------- --------
Fixed charge coverage $1,150.1 $ 674.5 $1,475.8 $1,289.2 $1,130.8
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges 3.7 2.8 5.2 6.6 5.9
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
Exhibit 13
Independent Auditors' Report
The Board of Directors
Electronic Data Systems Corporation:
We have audited the accompanying consolidated balance sheets of Electronic Data
Systems Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Electronic Data Systems Corporation and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
February 4, 1998
Responsibilities for Financial Statements
The consolidated financial statements of EDS were prepared by management, which
is responsible for their integrity and objectivity. The statements have been
prepared in conformity with generally accepted accounting principles and, as
such, include amounts based on judgments of management. Financial information
elsewhere in this Annual Report is consistent with that presented in the
consolidated financial statements.
Management is further responsible for maintaining a system of internal
accounting controls designed to provide reasonable assurance that the books and
records reflect the transactions of the Company and that its established
policies and procedures are carefully followed. Perhaps the most important
feature in the system of control is that it is continually reviewed for its
effectiveness and is augmented by written policies and guidelines, the careful
selection and training of qualified personnel, and a strong program of internal
audit.
The Company's independent auditors, KPMG Peat Marwick LLP, have
audited the consolidated financial statements. Their audits were conducted in
accordance with generally accepted auditing standards, which include the
consideration of the Company's internal controls to the extent necessary to form
an independent opinion on the consolidated financial statements prepared by
management.
The Board of Directors, through the EDS Audit Committee, is
responsible for assuring that management fulfills its responsibilities in the
preparation of the consolidated financial statements and for engaging the
independent auditors. The Committee reviews the scope of the audits and the
accounting principles being applied in financial reporting. The independent
auditors, representatives of management, and the internal auditors meet
regularly (separately and jointly) with the Committee to review the activities
of each, to ensure that each is properly discharging its responsibilities, and
to discuss the effectiveness of the system of internal accounting controls. It
is management's conclusion that the system of internal accounting controls as of
and for the period ended December 31, 1997, provides reasonable assurance that
the books and records reflect the transactions of the Company and that the
Company complies with established policies and procedures. To ensure complete
independence, KPMG Peat Marwick LLP have full and free access to meet with the
Committee, without management representatives present, to discuss the results of
their audits and the quality of the financial reporting.
/s/ Lester M. Alberthal, Jr. /s/ Joseph M. Grant
Lester M. Alberthal, Jr. Joseph M. Grant
Chairman of the Board Executive Vice President
Chief Executive Officer Chief Financial Officer
34 Electronic Data Systems Corporation and subsidiaries
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
GENERAL
EDS offers its clients a portfolio of related services worldwide within the
broad categories of systems and technology services, business process
management, management consulting, and electronic business. Services include the
management of computers, networks, information systems, information-processing
facilities, business operations, and related personnel.
On June 7, 1996, General Motors Corporation (GM) split-off (the "Split-
Off") EDS to the holders of GM's Class E common stock in a transaction that was
tax-free for U.S. federal income tax purposes, and EDS became a publicly held
company. In connection therewith, EDS paid GM a one-time intercompany payment
(the "Special Intercompany Payment") of $500.0 million in cash. Under the terms
of the Split-Off, one share of EDS common stock was exchanged for each share of
GM Class E common stock.
FORWARD-LOOKING STATEMENTS
All statements other than historical statements contained herein 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 Year 2000 exposure and
opportunity, total contract values of new business signed, future revenues from
GM and other clients, and the recognition of unrealized gains on certain of the
Company's assets identified for disposal. Any Form 10-K, Annual Report to
Stockholders, Form 10-Q or Form 8-K of EDS may include forward-looking
statements. In addition, other written or oral statements which constitute
forward-looking statements have been made or may be made in the future by EDS,
including statements regarding future operating performance, short- and long-
term revenue and earnings growth, backlog and the value of new contract
signings, and industry growth rates and EDS' 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 EDS' 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; with
respect to client contracts accounted for under the percentage-of-completion
method of accounting, the performance of such contracts in accordance with EDS'
cost estimates; the degree to which EDS 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 EDS' Year 2000 exposure
and opportunity, EDS' ability to capitalize on new business opportunities and
the interpretation of information technology contracts it has with its clients.
EDS disclaims any intention or obligation to update or revise any forward-
looking statements whether as a result of new information, future events, or
otherwise.
RESTRUCTURING ACTIVITIES AND OTHER RELATED CHARGES
During 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 $329.6 million. Such amount consisted of restructuring
charges of $111.3 million relating to the severance costs associated with the
planned involuntary termination of approximately 2,600 employees, asset
writedowns of $99.7 million, and related accruals of $14.0 million relating to
operations that the Company plans to 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. Asset
writedowns relating to these product lines include investments; software,
goodwill, and other intangibles; and buildings and computer equipment. In
addition, the Company recorded a $104.6 million writedown relating to operating
assets that it is in the process of selling, thereby reducing such assets to
their estimated net realizable value. As of December 31, 1997, approximately
1,750 employees have been involuntarily terminated, and approximately $55.1
million has been paid in termination benefits and other accruals. The remaining
$70.2 million is expected to be paid in 1998.
During 1996, the Company identified certain actions necessary to maintain
and improve operating efficiencies and accelerate its move toward "user-
centered" computing. To effect these actions, the Company adopted formal
restructuring plans and recorded charges in the second quarter of 1996,
including a $285.6 million charge primarily for work force reductions of
employees who accepted early retirement or were to be involuntarily terminated
under a planned work force realignment. The total employee-related termination
and early retirement offer charges amounted to approximately $258.1 million,
$137.0 million of which related to special termination benefits, including
amounts under the Company's defined benefit pension plan. As of December 31,
1997, 1,743 employees have accepted the early retirement offer and 2,334
employees have been involuntarily terminated. As of December 31,
<PAGE>
1997, approximately $111.0 million has been paid in termination benefits related
to the involuntary termination plan. The Company has substantially completed its
involuntary termination obligations as established in June 1996. At the same
time as the restructuring, the Company wrote down certain of its assets by
$503.9 million. Of this amount, $262.3 million related to computer and other
assets that were written down to their estimated fair values, as determined by
external market quotes; $68.7 million related to the decision to ultimately
discontinue certain business activities; $31.7 million related to a reduction in
certain inventory to net realizable value as a direct result of the Company's
decision to exit the computer product reseller market and to broker the sale of
such inventory; and $21.4 million related to assets written down in relation to
a client in reorganization and in the process of being acquired by a third
party. The remaining balance primarily related to fixed assets, software
licenses, and other assets that were no longer used to support the Company's
operations because of exit decisions. Also included in the 1996 consolidated
financial statements was $60.0 million charged to cost of revenues, the largest
portion of which related to current assets written down in connection with the
Company's decision to exit certain business activities related to the
aforementioned client in reorganization. The balance of the charge to cost of
revenues related to changes in estimated contract costs. In addition, the
Company recognized $45.5 million of costs directly associated with the Split-Off
activities.
YEAR 2000 ISSUE
For EDS, the Year 2000 issue encompasses not only the cost of making EDS'
internal systems Year 2000 compliant but also the cost to EDS of making its
clients' systems Year 2000 compliant where it is obligated to do so. EDS has
developed processes, assembled tools, and created a business organization to
provide Year 2000 services to its customers and to assist in addressing EDS'
internal needs.
With respect to its centralized internal systems, EDS has completed the
assessment and planning stages and has commenced the renovation process. EDS
anticipates that this process and the subsequent testing and implementation of
the modified code will be completed in stages, from mid-1998 through mid-1999.
With respect to noncentralized internal systems, which are generally confined to
a particular location or business unit, EDS is inventorying and assessing such
systems and expects to be completed with the assessment and planning stages for
the systems which EDS deems to be significant by the middle of 1998. The total
cost to EDS of making all of its internal systems Year 2000 compliant is
estimated at approximately $60.0 million, almost all of which will be incurred
during 1998 and 1999.
EDS has completed an assessment of its obligations to make clients' systems
Year 2000 compliant, including an estimate of the cost and revenues to EDS for
performing such work, and monitors this assessment on an ongoing basis. Based on
such assessment, EDS does not believe that its client obligations with respect
to the Year 2000 issue will have a material adverse impact on EDS. The estimated
cost associated with making clients' systems Year 2000 compliant where EDS is
obligated to do so has been treated as a contract cost and is included in the
estimate of total contract costs for the respective contract under the Company's
revenue recognition policy. (See Note 1: "Summary of Significant Accounting
Policies.")
Although the failure to complete the Year 2000 conversion process for EDS'
internal systems on a timely basis would have a material adverse impact on the
Company, EDS believes that this process will be completed in accordance with the
current schedule and that the Year 2000 issue will not have a material adverse
effect on the Company's business or results of operations. Aside from the cost
to EDS discussed above, the Year 2000 issue presents opportunities for revenue
growth for the next several years for EDS' CIO Services unit, which provides a
full range of Year 2000 services.
RESULTS OF OPERATIONS
Years Ended December 31, 1997, 1996, and 1995
Revenues. EDS conducts its sales, marketing, and service activities on a global
basis principally through business units that focus both geographically and
vertically along the lines of specified industries. The following table
summarizes EDS' systems and other contracts revenues in each geographic
operating segment for each of the years ended December 31, 1997, 1996, and 1995.
- --------------------------------------------------------------------------------
Systems and Other Contracts Revenues
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NON-GM CLIENTS:
United States $ 6,634.5 $ 6,577.2 $ 5,794.9
Europe 3,148.6 2,687.0 2,001.5
Other 1,138.5 898.9 734.6
----------------------------------------
Total non-GM clients 10,921.6 10,163.1 8,531.0
----------------------------------------
GM AND AFFILIATES:
United States 3,304.6 3,179.3 2,926.1
Europe 576.8 691.9 659.2
Other 432.6 407.0 305.8
----------------------------------------
Total GM and affiliates 4,314.0 4,278.2 3,891.1
----------------------------------------
Total revenues $15,235.6 $14,441.3 $12,422.1
----------------------------------------
PERCENTAGE OF TOTAL REVENUES:
Non-GM clients 72% 70% 69%
GM and affiliates 28 30 31
----------------------------------------
Total 100% 100% 100%
----------------------------------------
- --------------------------------------------------------------------------------
36 Electronic Data Systems Corporation and subsidiaries
<PAGE>
Total revenues increased 6% in 1997 to $15,235.6 million, up from
$14,441.3 million in 1996, which represented a 16% increase over 1995 total
revenues of $12,422.1 million. Revenues from non-GM clients grew 7% in 1997 to
$10,921.6 million, compared with a 19% increase to $10,163.1 million in 1996, up
from $8,531.0 million in 1995. Total revenues related to GM and its affiliates
were $4,314.0 million, $4,278.2 million, and $3,891.1 million in 1997, 1996, and
1995, respectively. EDS estimates that revenues from GM in 1998 will decrease
from 1997. The percentage of EDS' total revenues generated from GM and its
affiliates declined to 28% in 1997 from 30% in 1996 and 31% in 1995. EDS expects
this trend to continue as revenues from non-GM clients are anticipated to
increase while revenues from GM are anticipated to decline. See "Master Services
Agreement with GM" below.
Total domestic revenues from non-GM clients remained level for the
year and were $6,634.5 million in 1997 compared to $6,577.2 million in 1996.
This compares with growth rates of 13% in 1996 and 26% in 1995. Domestic
revenues from non-GM clients in 1997 were negatively affected by a limited
number of nonperforming contracts, primarily accounted for under the percentage-
of-completion method of accounting, by the exiting of certain areas of business
that were not aligned with the Company's strategic direction, and by contracts
with clients that ended in 1996 and early 1997. The increase in 1996 was
attributable principally to full-year revenues on contracts that began in late
1995 and to full-year revenues related to the acquisition of A.T. Kearney in
August 1995. Domestic revenues from non-GM clients in 1995 increased over 1994
results due principally to full-year revenues on contracts that began in late
1994 and to revenues related to acquisitions, primarily the A.T. Kearney
acquisition.
During 1997, foreign revenues from non-GM clients increased $701.2
million to $4,287.1 million, compared with an increase of $849.8 million to
$3,585.9 million in 1996, up from $2,736.1 million in 1995. Growth in revenues
from non-GM clients in Europe increased $461.6 million, or 17%, to $3,148.6
million in 1997, due primarily to revenues associated with new contracts signed
during 1997 and full-year revenues on contracts that began in late 1996. In
1996, revenues from non-GM clients in Europe increased $685.5 million, or 34%,
to $2,687.0 million, due to revenues associated with new contracts signed during
1995 and 1994.
Other foreign revenues from non-GM clients grew $239.6 million over
1996, to $1,138.5 million, due principally to new contracts signed in the
Asia/Pacific region. Other foreign revenues from non-GM clients in 1996
increased $164.3 million from 1995, to $898.9 million, also due principally to
new contracts signed in the Asia/Pacific region. Recent developments in Asian
financial markets are not expected to have a material adverse impact on the
Company's financial position or foreign revenue growth.
The following table displays the percentage of revenues by industry
area:
- --------------------------------------------------------------------------------
Percentage of Revenues for
the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Industry Area:
Manufacturing 44% 45% 47%
Financial Services 15 14 14
Government 14 13 12
All others, individually less than 10% 27 28 27
--------------------------
Total 100% 100% 100%
--------------------------
- --------------------------------------------------------------------------------
Other than GM, no client accounted for more than 5% of EDS' total
revenues in 1997, 1996, or 1995. GM business, which has historically grown at a
slower rate than business from non-GM clients, is included in the Manufacturing
industry area. The Government industry area has grown due to, among other
reasons, EDS' success in selling services related to newly outsourced government
functions in foreign countries, primarily the United Kingdom and Australia.
Costs and expenses. Cost of revenues as a percentage of systems and
other contracts revenues was 80% in 1997, compared with 79% in 1996 and 77% in
1995. For the year ended December 31, 1997, the increase in cost of revenues as
a percentage of systems and other contracts revenues was due primarily to the
writeoff of unbilled receivables associated with a limited number of
nonperforming and/or terminated contracts accounted for under the percentage-of-
completion method of accounting. For the year ended December 31, 1996, cost of
revenues included $60.0 million of charges associated with restructuring
activities. In addition, cost as a percentage of revenues has increased due to
higher labor costs for a skilled work force and to pricing pressures for new
business as a result of the increasingly competitive environment in which EDS
operates. EDS is addressing this environment in part through efficiencies gained
from its restructuring activities described above. However, EDS does not
anticipate that cost of revenues as a percentage of systems and other contracts
revenues will decrease in the near future to levels seen in years prior to 1996.
Expenses recorded for selling, general, and administrative costs increased 9% in
1997, to $1,528.3 million, up from $1,403.3 million in 1996, an increase of 9%
over 1995. As a percentage of systems and other contracts revenues, selling,
general, and administrative expenses remained at 10% in 1997, 1996, and 1995.
For both 1997 and 1996, costs and expenses also include charges for
restructuring activities and other related charges. See "Restructuring
Activities and Other Related Charges" above.
Electronic Data Systems Corporation and subsidiaries 37
<PAGE>
Operating income. Operating income (including the restructuring and
other related charges discussed above for both 1997 and 1996) increased $417.5
million in 1997, to $1,213.6 million, compared to $796.1 million in 1996.
Operating income was $1,529.0 million in 1995. For the year ended December 31,
1997, the operating margin increased to 8.0% (10.1%, excluding the restructuring
and other related charges discussed above), up from 5.5% (11.4%, excluding the
restructuring and other related charges discussed above) in 1996. The 1995
operating margin was 12.3%.
Interest expense and other, net. The components of interest expense
and other, net, are presented below (in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Interest and other income $103.7 $ 76.6 $ 58.8
Interest expense 175.7 153.1 120.8
-------------------------------
Total $(72.0) $(76.5) $(62.0)
-------------------------------
- --------------------------------------------------------------------------------
Interest expense and other, net, decreased $4.5 million in 1997 to
$(72.0) million, compared with $(76.5) million in 1996 and $(62.0) million in
1995. Interest expense increased $22.6 million to $175.7 million in 1997,
compared with $153.1 million in 1996. Interest expense was $120.8 million in
1995. The increase in both 1997 and 1996, compared with 1995, was due primarily
to the issuance of $650.0 million of notes payable in 1995, which were used for
general corporate purposes. In addition, interest expense increased in 1996 due
to borrowings to fund the $500.0 million Special Intercompany Payment and the
issuance of redeemable preferred stock of subsidiaries. The Company estimates
that interest expense in 1998 will decrease from 1997. See "Liquidity and
Capital Resources" below. Interest and other income increased to $103.7 million
in 1997, up from $76.6 million in 1996, due primarily to additional income
received from limited partnership investments and gains on the sale of certain
of the Company's non-core operations identified as not aligned with the
Company's strategic direction. Interest and other income was $58.8 million in
1995. As a result of the level of unrecognized gains on certain of the Company's
assets identified for sale in the near future, and the estimated decrease in
interest expense, interest expense and other, net may be lower in 1998 than in
prior years.
Income taxes. The effective income tax rate was 36% in 1997, 1996, and
1995.
Net income. The Company's net income increased to $730.6 million in
1997, compared with $431.5 million for 1996 and $938.9 million in 1995. During
1997, the Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128 requires the
presentation of both basic and diluted earnings per share for all periods
presented and requires the restatement of prior years' earnings per share
amounts to conform to the provisions of SFAS No. 128. Basic earnings per share
is calculated by dividing net income by the weighted-average number of shares
outstanding during the period. For EDS, diluted earnings per share is
calculated by dividing net income by the sum of both the weighted-average number
of shares outstanding and additional common shares that would have been
outstanding, assuming the exercise of all employee stock options and restricted
stock units that would have a dilutive effect on earnings per share. Basic
earnings per share increased to $1.49 per share in 1997, up from $0.89 per share
in 1996. Diluted earnings per share increased to $1.48 per share in 1997, up
from $0.88 per share in 1996. Earnings per share for the years ended December
31, 1997 and 1996, were negatively impacted by charges totaling $0.43 and $1.18
($0.43 and $1.16 on a diluted basis) per share, respectively, related to
restructuring activities and other related activities. See "Restructuring
Activities and Other Related Charges" above. Basic and diluted earnings per
share for the year ended December 31, 1995, were $1.96 and $1.94, respectively.
EDS and its clients may from time to time modify their contractual
arrangements. For client contracts accounted for under the percentage-of-
completion method, such changes would be reflected in results of operations as a
change in accounting estimate in the period the revisions are determined.
Master Services Agreement with GM. In connection with the Split-Off,
GM and EDS entered into a Master Services Agreement (the "MSA") with respect to
information technology (IT) services to be provided after the Split-Off. The MSA
and certain related sector agreements (collectively, the "IT Services
Agreements") provide that EDS will continue to serve as GM's principal supplier
of IT services for a term of 10 years, which may be extended by agreement of the
parties. The IT Services Agreements provided for certain significant changes to
the pricing and terms under which EDS provides IT services to GM. Among other
things, the IT Services Agreements reduced the rates charged by EDS to GM for
certain information processing activities and communications services. GM has
also been given the right to competitively bid and, subject to certain
restrictions, outsource a limited portion of its IT service requirements to
third-party providers. The impact of the terms of the IT Services Agreements
cannot be precisely quantified, although such terms may have an adverse effect
on revenues and operating margins unless, among other things, EDS is able to
continue to effect cost-reduction measures in the services provided to GM,
retain a significant portion of the business subject to the competitive bidding
provisions of the IT Services Agreements, and reach mutually acceptable
agreements with GM with respect to new or replacement services thereunder. Due
to these factors, EDS
38 Electronic Data Systems Corporation and subsidiaries
<PAGE>
expects its revenues from GM and its affiliates to decline in 1998 compared to
1997. EDS anticipates that this decline in revenues will be offset by additional
revenues from non-GM clients in 1998. However, there can be no assurance that
the margins attributable to any such additional non-GM revenues will be
equivalent to the margins attributable to the revenues from GM.
Seasonality and inflation. The Company's revenues and net income vary
over the calendar year, with the fourth quarter generally reflecting the highest
revenues and net income 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 and net income have generally
increased from quarter to quarter as a result of new business added throughout
the year. Consistent with this pattern, the Company expects the latter half of
1998 to be stronger than the first half of the year. The Company believes that
inflation generally had little effect on its results of operations for each of
the years ended December 31, 1997, 1996, and 1995.
FINANCIAL POSITION
Assets. In 1997, the Company's total assets decreased to $11,174.1 million from
$11,192.9 million at December 31, 1996. This change primarily represents
decreases in cash and cash equivalents, property and equipment, and investments
and other assets offset by increases in marketable securities; accounts
receivable; and software, goodwill, and other intangibles.
At December 31, 1997, the Company held cash and cash equivalents of $677.4
million, had working capital of $1,911.8 million, and had a current ratio of
1.6-to-1. This compares with cash and cash equivalents of $879.9 million,
$1,782.4 million in working capital and a 1.6-to-1 current ratio at December 31,
1996. Return on assets was 6.5% (8.5%, excluding the impact on net income and
assets of the restructuring and other related charges discussed above) in 1997,
compared with 3.9% (9.4%, excluding the impact on net income and assets of the
restructuring and other related charges) in 1996. Return on assets was 9.6% in
1995.
Liabilities and stockholders' equity. Total long-term debt was $2,075.3
million and $2,897.9 million at December 31, 1997 and 1996, respectively. Long-
term debt consists of short- and long-term notes payable, commercial paper, and
redeemable preferred stock of subsidiaries. The total debt-to-capital ratio
(which includes the current portion of long-term debt and redeemable preferred
stock of subsidiaries as components of debt and capital) was 28.1% and 37.7% at
December 31, 1997 and 1996, respectively. The ratio of noncurrent debt-to-
capital was 26.2% and 36.4% at December 31, 1997 and 1996, respectively.
Additionally, EDS maintains an agreement with a syndicate of banks that provide
EDS with committed lines of credit of up to $2,500.0 million. At December 31,
1997, EDS had unused uncommitted short-term lines of credit totaling $595.5
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
EDS' commercial paper borrowings. At December 31, 1997, EDS had total committed
lines of credit of $2,521.3 million.
Stockholders' equity was $5,309.4 million at December 31, 1997, and
$4,783.1 million at December 31, 1996. Return on stockholders' equity was 14.5%
(18.3%, excluding the impact on net income and equity of the restructuring and
other related charges in 1997) in 1997, compared with 8.8% (19.4%, excluding the
impact on net income and equity of the restructuring and other related charges
in 1996) in 1996. Return on stockholders' equity was 20.4% in 1995.
ACCOUNTING STANDARDS
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. The statement also requires the accumulated
balance of other comprehensive income to be displayed separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. SFAS No. 131 establishes standards for reporting
information about operating segments in annual and interim financial statements.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Categories required to be reported as well as reconciled
to the financial statements are segment profit or loss, certain specific revenue
and expense items, and segment assets. SFAS No. 130 and No. 131 are effective
for fiscal years beginning after December 15, 1997.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition, to
supersede SOP 91-1, the previously released SOP on this topic. SOP 97-2 provides
additional guidance on when revenue should be recognized, and in what amounts,
for licensing, selling, leasing, or otherwise marketing computer software. The
provisions of SOP 97-2 are effective for transactions entered into in fiscal
years beginning after December 15, 1997. Adoption of SOP 97-2 is not expected to
have a material adverse impact on the Company's financial statements.
Electronic Data Systems Corporation and subsidiaries 39
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to market risk from changes in interest rates, equity
prices, and foreign currency exchange rates. To manage the risk from these
market-price fluctuations, the Company enters into various hedging transactions.
Pursuant to its prescribed policies, the Company does not hold or issue
derivative financial instruments for trading purposes and is not a party to any
leveraged derivative transactions.
A discussion of the Company's accounting policies for financial instruments
is included in Note 1: "Summary of Significant Accounting Policies" in the Notes
to Financial Statements, and further disclosure relating to financial
instruments is included in Note 15: "Financial Instruments and Risk Management."
Interest rate risk. The Company's earnings are affected by changes in
short-term interest rates as a result of its issuance of short-term commercial
paper and variable-rate notes. However, due to its selective utilization of
interest rate swaps, the effects of interest rate changes are reduced. Risk can
be estimated by measuring the impact of a near-term adverse movement of 10% in
short-term market interest rates. If short-term market interest rates average
10% more in 1998 than in 1997, there would be no material adverse impact on the
Company's results of operations.
Publicly-traded equity price sensitivity. The Company's financial position
is affected by changes in publicly-traded equity prices as a result of certain
investments. However, due to the Company's utilization of various hedging
techniques, the effect of a decrease in publicly-traded equity prices is
significantly reduced. Risk can be estimated by measuring the impact of a near-
term adverse movement of 10% in the value of the Company's publicly-traded
equity security investments. If the market price of the Company's investments in
publicly-traded equity securities in 1998 were to fall by 10% below the level of
December 31, 1997, there would be no material adverse impact on the Company's
financial position.
Foreign exchange risk. EDS conducts business in the United States and 43
other countries. The Company's most significant foreign currency transaction
exposures relate to Canada, Western European countries (primarily Germany, the
United Kingdom, Italy, Spain, and Switzerland), Australia, and New Zealand. The
primary purpose of the Company's foreign exchange hedging activities is to
protect against foreign exchange risk related to intercompany financing and
trading transactions. The Company enters into foreign currency forward contracts
to hedge such transactions with durations of generally less than 12 months.
Gains and losses related to hedges of firm commitments or other
transactions qualifying for hedge accounting treatment are deferred in accrued
liabilities and recognized in earnings at the time of recognition of the
underlying hedged transaction. All other foreign exchange contracts are marked-
to-market on a current basis. To the extent hedges of firm commitments are no
longer effective as hedges of the underlying transaction, they are closed with
gains and losses recognized in earnings on a current basis.
The Company uses a value-at-risk model to assess the foreign exchange
market risk of its derivative and other financial instruments. Value-at-risk
represents the potential loss due to adverse changes in exchange rates, given a
specified time period and confidence level. The Company estimates value-at-risk
using a model with volatilities and correlations derived from historical data.
The model uses the variance/covariance methodology and measures the potential
fair value loss at a 95% confidence level. At December 31, 1997, the value-at-
risk amount representing the potential loss the Company could incur from adverse
foreign exchange rate movements for a one-month period would not materially
affect the Company's results of operations, financial position, or cash flows.
The Company's calculated value-at-risk exposure represents an estimate of
reasonably possible fair value losses to its portfolio of derivative and other
financial instruments, assuming hypothetical movements in foreign exchange
rates, and is not necessarily indicative of actual results which may occur. It
does not represent the maximum possible loss nor any expected loss that may
occur, since actual future gains and losses will differ from those estimated,
based upon actual fluctuations in market rates, exposures, and changes in the
Company's portfolio of derivative and other financial instruments during the
year.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1997, net cash provided by operating activities
was $2,190.1 million, up $638.3 million from the same period in 1996, due
primarily to increases in invoiced revenues and an improvement in days sales
outstanding in accounts receivable. For the year ended December 31, 1996, net
cash provided by operating activities was $1,551.8 million, up $340.3 million
from $1,211.5 million in 1995, due primarily to the increase in operating income
(excluding noncash writedowns regarding the restructuring and other related
charges discussed above) and decreased levels of accounts receivable as a
percentage of revenue.
40 Electronic Data Systems Corporation and subsidiaries
<PAGE>
For the year ended December 31, 1997, net cash used in investing
activities decreased $22.8 million, to $1,248.0 million, when compared with the
same period for 1996, and consisted primarily of payments for the purchase of
property and equipment, marketable securities, and investments and other assets.
Purchases of property and equipment decreased to $769.2 million in 1997 compared
to $1,158.2 million and $1,276.5 million in 1996 and 1995, respectively. Net
cash used in investing activities in 1996 decreased $463.2 million, to $1,270.8
million, compared to $1,734.0 million in 1995.
Net cash used in financing activities was $1,129.8 million for the
year ended December 31, 1997, up $1,196.1 million from the corresponding period
in 1996, due primarily to the reduction of debt. For the year ended December 31,
1996, net cash provided by financing activities was $66.3 million and included a
$500.0 million Special Intercompany Payment to GM at the time of the Split-Off.
For the year ended December 31, 1995, net cash provided by financing activities
was $465.1 million. The Company paid cash dividends totaling $293.8 million,
$291.4 million, and $251.3 million in 1997, 1996, and 1995, respectively.
EDS expects that its principal uses of funds for the foreseeable
future will be for capital expenditures, debt repayment, and working capital.
Capital expenditures may consist of purchases of computer and telecommunications
equipment, buildings and facilities, land, and software, as well as
acquisitions. EDS' projected capital expenditures for 1998 are approximately
$1,250.0 million to $1,750.0 million. However, actual capital expenditures will
depend to a significant extent on the level of acquisition and joint venture
activities by EDS, as well as capital requirements for new business. EDS
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.
The IT services agreements existing between GM and EDS 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 signed at the time of the Split-Off, there will be a
transition over a two-year period, which began in 1997, to payment on the 20th
day of the month following service for all agreements that 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 funded the Special
Intercompany Payment through borrowings under its existing commercial paper
facilities.
At December 31, 1997 and 1996, consolidated subsidiaries of the
Company had redeemable preferred stock outstanding of $175.0 million and $440.3
million. During 1997, consolidated subsidiaries of the Company issued $412.8
million of redeemable preferred stock to third parties and redeemed $653.3
million through the issuance of commercial paper. Also during 1997, the Company
purchased all remaining minority interests of a consolidated financing
subsidiary for $34.8 million. During 1996, consolidated subsidiaries of the
Company issued $440.3 million of redeemable preferred stock to third parties.
Holders of the preferred shares have the right to redeem such shares from 2001
to 2003 for cash equal to the issue amount plus cumulative unpaid dividends.
Dividends on such preferred shares are cumulative from the effective date of
issue at fixed rates ranging from 6.07% to 7.7%. 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. The Company
may call the redeemable preferred stock outstanding at December 31, 1997 in
2001.
On September 1, 1997, the Company sold a 35% share of EDS' Australia
operations to an unrelated third party for $140.5 million. The proceeds from the
sale were recorded in "Redeemable Preferred Stock of Subsidiaries and Minority
Interests" in the consolidated financial statements.
Electronic Data Systems Corporation and subsidiaries 41
<PAGE>
Consolidated Statements of Income
(in millions, except per share amounts)
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Systems and other contracts revenues $15,235.6 $14,441.3 $12,422.1
-----------------------------------------
Costs and expenses
Cost of revenues (Note 21) 12,164.1 11,452.4 9,601.6
Selling, general, and administrative 1,528.3 1,403.3 1,291.5
Restructuring charges (Note 21) 125.3 285.6 --
Asset writedowns (Note 21) 204.3 503.9 --
-----------------------------------------
Total costs and expenses 14,022.0 13,645.2 10,893.1
-----------------------------------------
Operating income 1,213.6 796.1 1,529.0
One-time split-off costs (Note 21) -- (45.5) --
Interest expense and other, net (72.0) (76.5) (62.0)
-----------------------------------------
Income before income taxes 1,141.6 674.1 1,467.0
Provision for income taxes 411.0 242.6 528.1
-----------------------------------------
Net income $ 730.6 $ 431.5 $ 938.9
-----------------------------------------
Basic earnings per share
of common stock $ 1.49 $ .89 $ 1.96
-----------------------------------------
Diluted earnings per share
of common stock $ 1.48 $ .88 $ 1.94
=========================================
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
42 Electronic Data Systems Corporation and subsidiaries
<PAGE>
Consolidated Balance Sheets
(in millions, except share and per share amounts)
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 677.4 $ 879.9
Marketable securities 347.5 82.6
Accounts receivable, net 3,736.8 3,513.0
Inventories 100.9 141.6
Prepaids and other 306.8 328.1
-------------------------
Total current assets 5,169.4 4,945.2
-------------------------
Property and equipment, net 2,868.4 3,097.0
-------------------------
Operating and other assets
Land held for development, at cost 87.2 89.1
Investments and other assets 1,501.2 1,654.8
Software, goodwill, and other intangibles, net 1,547.9 1,406.8
-------------------------
Total operating and other assets 3,136.3 3,150.7
-------------------------
Total assets $11,174.1 $11,192.9
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 2,579.7 $ 2,309.4
Deferred revenue 430.8 592.6
Income taxes 137.6 127.5
Current portion of long-term debt 109.5 133.3
-------------------------
Total current liabilities 3,257.6 3,162.8
-------------------------
Deferred income taxes 474.8 429.4
Long-term debt, less current portion 1,790.9 2,324.3
Redeemable preferred stock of subsidiaries and
minority interests 341.4 493.3
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, $.01 par value; authorized
200,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized
2,000,000,000 shares; 491,567,240 shares
issued and outstanding at December 31, 1997;
487,590,995 shares issued at December 31, 1996 4.9 4.9
Additional paid-in capital 855.7 682.8
Retained earnings 4,601.6 4,200.6
Currency translation adjustments and other (152.8) (98.2)
Treasury stock, at cost, 440,488 shares at
December 31, 1996 -- (7.0)
-------------------------
Total stockholders' equity 5,309.4 4,783.1
-------------------------
Total liabilities and stockholders' equity $11,174.1 $11,192.9
-------------------------
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Electronic Data Systems Corporation and subsidiaries 43
<PAGE>
Consolidated Statements of Stockholders' Equity
(in millions)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Common Stock Currency
---------------------- Additional Translation
Shares Paid-in Adjustments
Outstanding Amount Capital and Other
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 481.7 $455.1 $ - $ (95.5)
Net income - - - -
Dividends declared - - - -
Stock award transactions 2.0 62.6 - -
Currency translation adjustment - - - (6.6)
Unrealized gain on securities, net - - - 2.4
--------------------------------------------------------------
Balance at December 31, 1995 483.7 517.7 - (99.7)
Recapitalization (Note 1) - (512.8) 512.8 -
Net income - - - -
Dividends declared - - - -
Stock award transactions 3.5 - 170.0 -
Currency translation adjustment - - - 1.6
Unrealized loss on securities, net - - - (0.1)
--------------------------------------------------------------
Balance at December 31, 1996 487.2 4.9 682.8 (98.2)
Net income - - - -
Dividends declared - - - -
Stock award transactions 4.4 - 172.9 -
Preacquisition losses of a previous
cost basis investee - - - -
Currency translation adjustment - - - (82.4)
Unrealized gain on securities, net - - - 27.8
--------------------------------------------------------------
Balance at December 31, 1997 491.6 $ 4.9 $855.7 $(152.8)
==============================================================
<CAPTION>
Treasury Stock
------------------- Consolidated
Retained Shares Stockholders'
Earnings Held Amount Equity
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $3,872.9 - $ - $4,232.5
Net income 938.9 - - 938.9
Dividends declared (251.3) - - (251.3)
Stock award transactions - - - 62.6
Currency translation adjustment - - - (6.6)
Unrealized gain on securities, net - - - 2.4
--------------------------------------------------------------
Balance at December 31, 1995 4,560.5 - - 4,978.5
Recapitalization (Note 1) (500.0) 2.0 (20.3) (520.3)
Net income 431.5 - - 431.5
Dividends declared (291.4) - - (291.4)
Stock award transactions - (1.6) 13.3 183.3
Currency translation adjustment - - - 1.6
Unrealized loss on securities, net - - - (0.1)
--------------------------------------------------------------
Balance at December 31, 1996 4,200.6 0.4 (7.0) 4,783.1
Net income 730.6 - - 730.6
Dividends declared (293.8) - - (293.8)
Stock award transactions - (0.4) 7.0 179.9
Preacquisition losses of a previous
cost basis investee (35.8) - - (35.8)
Currency translation adjustment - - - (82.4)
Unrealized gain on securities, net - - - 27.8
--------------------------------------------------------------
Balance at December 31, 1997 $4,601.6 - $ - $5,309.4
==============================================================
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
44 Electronic Data Systems Corporation and subsidiaries
<PAGE>
Consolidated Statements of Cash Flows
(in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 730.6 $ 431.5 $ 938.9
--------------------------------------
Adjustments to reconcile net income to net cash provided by operating activities:
Asset writedowns 204.3 503.9 --
Depreciation and amortization 1,208.5 1,180.8 1,107.8
Deferred compensation 103.2 81.9 58.8
Other 83.9 46.2 34.1
Changes in operating assets and liabilities, net of effects of acquired companies:
Accounts receivable (209.7) (374.1) (839.3)
Inventories 48.0 (8.4) (41.9)
Prepaids and other (125.9) (307.0) (214.5)
Accounts payable and accrued liabilities 263.4 274.4 30.2
Deferred revenue (148.7) (27.4) 81.0
Taxes payable 32.5 (250.0) 56.4
--------------------------------------
Total adjustments 1,459.5 1,120.3 272.6
--------------------------------------
Net cash provided by operating activities 2,190.1 1,551.8 1,211.5
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of marketable securities 90.8 78.9 162.5
Proceeds from investments and other assets 255.4 184.9 87.9
Proceeds from divestitures 36.5 -- --
Payments for purchases of property and equipment (769.2) (1,158.2) (1,276.5)
Payments for investments and other assets (308.8) (244.4) (307.8)
Payments related to acquisitions, net of cash acquired (180.4) (46.7) (234.9)
Payments for purchases of software and other intangibles (132.3) (107.5) (92.0)
Payments for purchases of marketable securities (326.2) (79.3) (100.9)
Other 86.2 101.5 27.7
--------------------------------------
Net cash used in investing activities (1,248.0) (1,270.8) (1,734.0)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 8,377.3 11,238.6 7,466.7
Payments on long-term debt (9,155.3) (10,871.2) (6,776.3)
Proceeds from sale of stock of subsidiaries 553.3 440.3 --
Redemption of stock of subsidiaries (688.1) (9.2) --
Employee stock transactions and related tax benefits 76.8 59.2 26.0
One-time intercompany payment to General Motors (Note 1) -- (500.0) --
Dividends paid (293.8) (291.4) (251.3)
--------------------------------------
Net cash provided by (used in) financing activities (1,129.8) 66.3 465.1
--------------------------------------
Effect of exchange rate changes on cash and cash equivalents (14.8) (16.3) (1.9)
--------------------------------------
Net increase (decrease) in cash and cash equivalents (202.5) 331.0 (59.3)
Cash and cash equivalents at beginning of year 879.9 548.9 608.2
--------------------------------------
Cash and cash equivalents at end of year $ 677.4 $ 879.9 $ 548.9
--------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Electronic Data Systems Corporation and subsidiaries 45
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Electronic Data Systems Corporation (EDS) is a professional services firm which
offers its clients a portfolio of related services worldwide within the broad
categories of systems and technology services, business process management,
management consulting, and electronic business. Services include the management
of computers, networks, information systems, information processing facilities,
business operations, and related personnel. (See Note 14 for geographic segment
information.) As used herein, the terms "EDS" and "the Company" refer to
Electronic Data Systems Corporation, its predecessor, and its consolidated
subsidiaries. EDS offers its clients a continuum of services in the United
States and 43 other countries.
On June 7, 1996, General Motors Corporation (GM) split-off (the "Split-
Off") EDS to the holders of GM's Class E common stock in a transaction that was
tax-free for U.S. federal income tax purposes, and EDS became a publicly held
company. In connection therewith, EDS paid GM a one-time intercompany payment of
$500.0 million in cash. Under the terms of the Split-Off, one share of EDS
common stock was exchanged for each share of GM Class E common stock.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EDS and all
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company's investments in companies in
which it has the ability to exercise significant influence over operating and
financial policies are accounted for under the equity method, with the remaining
investments carried at cost.
BASIS OF REPORTING
During the period of GM's ownership of EDS, purchase accounting adjustments
reflected in GM's consolidated financial statements which were applicable to EDS
were not reflected in the accompanying consolidated financial statements. The
effects of such purchase accounting adjustments and their remaining carrying
value were not material to the consolidated financial statements for each of the
years ended December 31, 1996 and 1995.
In February 1997, Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, was issued which requires the presentation of basic and
diluted earnings per share for each period presented in the consolidated
financial statements and retroactive adjustment of all per share amounts in the
Company's financial statements. Basic earnings per share of common stock is
computed by dividing net income by the weighted-average number of EDS common
shares outstanding during the period. Diluted earnings per share is calculated
in the same manner as basic earnings per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding, assuming the exercise of all employee stock options and restricted
stock units that would have had a dilutive effect on earnings per share. A
reconciliation of the number of shares used in the calculation of basic and
diluted earnings per share for the years ended December 31, 1997 and 1996,
follows (in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Basic earnings per share of common stock
Weighted-average common shares outstanding 489.8 485.8
Effect of dilutive securities (Note 12)
Restricted stock units 3.7 5.4
Stock options 0.4 --
-----------------------------------
Diluted earnings per share
Weighted-average common and common
equivalent shares outstanding 493.9 491.2
-----------------------------------
- --------------------------------------------------------------------------------
Securities which were outstanding but were not included in the
computation of diluted earnings per share because their effect was antidilutive
include restricted stock units of 5.4 million shares for the year ended December
31, 1997, and options to purchase 10.1 million and 1.0 million shares of common
stock for the years ended December 31, 1997 and 1996, respectively.
For periods ended prior to June 7, 1996, earnings per share was
determined based on the relative amounts available for the payment of dividends
to holders of GM Class E common stock (the "Available Separate Consolidated Net
Income"). The Available Separate Consolidated Net Income of EDS was determined
quarterly and was equal to the Consolidated Net Income of EDS, multiplied by a
fraction, the numerator of which was the weighted-average number of shares of GM
Class E common stock outstanding during the period, and the denominator of which
was the number of EDS common shares outstanding at the end of the respective
period. Calculations under this method were not materially different from
calculations under the method used for the years ended December 31, 1997 and
1996.
46 Electronic Data Systems Corporation and subsidiaries
<PAGE>
The following table summarizes the calculations used to determine
earnings attributable to GM Class E common shares mentioned above for the year
ended December 31, 1995 (in millions, except per share amounts):
- --------------------------------------------------------------------------------
Separate consolidated net income $938.9
Available separate consolidated net income $795.6
Average number of shares of GM Class E
common stock outstanding (numerator) 404.6
Class E dividend base (denominator) 483.7
Average number of shares of EDS common stock outstanding 483.7
Basic earnings attributable to GM Class E
common stock on a per share basis $ 1.96
Diluted earnings attributable to GM Class E
common stock on a per share basis $ 1.94
- --------------------------------------------------------------------------------
For the year ended December 31, 1995, 21.7 million shares related to
restricted stock units were dilutive for the purpose of calculating diluted
earnings per share. No additional securities were outstanding at December 31,
1995.
MARKETABLE SECURITIES
Marketable securities at December 31, 1997 and 1996 consist of securities issued
by the U.S. Treasury, states, and political subdivisions, as well as mortgage-
backed debt, corporate debt, and corporate equity securities. The Company
classifies all of its marketable debt and equity securities as available-for-
sale. Management determines the appropriate classification of all securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Noncurrent available-for-sale securities are reported within the balance
sheet classification "Investments and Other Assets." The Company's available-
for-sale securities are recorded at fair value. Unrealized holding gains
(losses), net of the related tax effect, totaling $23.5 million, $(4.3) million,
and $(4.2) million at December 31, 1997, 1996, and 1995, respectively, are
excluded from earnings and are reported as a component of stockholders' equity
until realized. A decline in the fair value of any available-for-sale security
below cost that is deemed other than temporary is charged to earnings, resulting
in the establishment of a new cost basis for the security. (See Note 3.)
INVENTORY VALUATION
Inventories, primarily consisting of computer equipment, are stated principally
at the lower of cost or market using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation of property and
equipment is calculated using the straight-line method over the lesser of the
asset's estimated useful life, the life of the related customer contract, or the
term of the lease in the case of leasehold improvements. The ranges of estimated
useful lives are as follows:
- --------------------------------------------------------------------------------
Years
- --------------------------------------------------------------------------------
Buildings 20-40
Facilities 5-20
Computer equipment 3-8
Other equipment and furniture 3-15
- --------------------------------------------------------------------------------
SOFTWARE, GOODWILL, AND OTHER INTANGIBLES
Software purchased by the Company and utilized in designing, installing, and
operating business information and communications systems is capitalized and
amortized on a straight-line basis over a five- to eight-year period. Costs of
developing and maintaining software systems are incurred primarily in connection
with client contracts and are considered contract costs. Software development
costs that meet the capitalization and recoverability requirements of SFAS No.
86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed, are capitalized and generally amortized on a straight-line
basis over three years. Such amounts were not significant.
The cost of acquired companies is allocated first to identifiable assets
based on estimated fair values. Costs allocated to identifiable intangible
assets are amortized on a straight-line basis over the remaining estimated
useful lives of the assets, as determined by underlying contract terms or
independent appraisals. Such lives range from five to ten years. The excess of
the purchase price over the fair value of identifiable assets acquired, net of
liabilities assumed, is recorded as goodwill and amortized on a straight-line
basis over the useful life. The useful life is determined based on the
individual characteristics of the acquired entity and ranges from five to forty
years.
The Company periodically evaluates the carrying amounts of goodwill, as
well as the related amortization periods, to determine whether adjustments to
these amounts or useful lives are required based on current events and
circumstances. The evaluation is based on the Company's projection of the
undiscounted future operating cash flows of the acquired operation over the
remaining useful lives of the related goodwill. To the extent such projections
indicate that future undiscounted cash flows are not sufficient to recover the
carrying amounts of related goodwill, the underlying assets are written down by
charges to expense so that the carrying
Electronic Data Systems Corporation and subsidiaries 47
<PAGE>
amount is equal to future undiscounted cash flows. The assessment of the
recoverability of goodwill will be affected if estimated future operating cash
flows are not achieved.
REVENUE RECOGNITION
The Company provides services under level-of-effort and fixed-price contracts,
which extend up to ten years. Under level-of-effort types of contracts, revenue
is recognized as services are provided to the client in accordance with
contractual billing schedules. For certain fixed-price contracts, revenue is
recognized on the percentage-of-completion method based on the percentage that
incurred contract costs to date bear to total estimated contract costs after
giving effect to the most recent estimates of total cost. The effect of changes
to total estimated contract costs is recognized in the period such changes are
determined. Provisions for estimated losses are made in the period in which the
loss first becomes apparent. Revenue under nonrefundable fixed-price contracts
for software licenses is recognized after the software has been delivered, all
significant obligations of the Company have been fulfilled, and all significant
uncertainties regarding customer acceptance have expired. The portion of the
fixed-fee revenue related to maintenance is unbundled, deferred, and recognized
ratably over the contract period.
Deferred revenues of $430.8 million and $592.6 million at December 31, 1997
and 1996, respectively, represent billings in excess of costs and related
profits on certain contracts. Included in accounts receivable are unbilled
receivables of $963.7 million and $950.2 million at December 31, 1997 and 1996,
respectively. Unbilled receivables represent costs and related profits in excess
of billings on certain fixed-price contracts. Unbilled receivables were not
billable at the balance sheet date but are recoverable over the remaining life
of the contract through billings which will be made in accordance with
contractual agreements. Of the unbilled receivables at December 31, 1997,
billings to such clients totaling $237.9 million are expected to be collected in
1999 and thereafter. A specific customer's unbilled receivable balance may not
be directly decreased for such future years' billings because additional costs
may also be incurred in the future in accordance with the contractual
agreements.
CURRENCY TRANSLATION
Assets and liabilities of non-U.S. subsidiaries whose functional currency is not
the U.S. dollar are translated at current exchange rates. Revenue and expense
accounts are translated using an average rate for the period. Translation gains
(losses) are not included in determining net income, but are reflected as a
separate component of stockholders' equity. Cumulative currency translation
adjustments included in stockholders' equity were $(176.3) million, $(93.9)
million, and $(95.5) million at December 31, 1997, 1996, and 1995, respectively.
Nonfunctional currency transaction losses are included in determining net income
and were $22.6 million, $11.8 million, and $3.8 million, net of income taxes,
for the years ended December 31, 1997, 1996, and 1995, respectively.
INCOME TAXES
The Company provides for deferred taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered. The deferral method is used to account
for investment tax credits. Prior to the Split-Off, the Company was included in
the consolidated federal tax returns filed by GM. Current federal income taxes
were calculated on a separate return basis and remitted to GM.
STATEMENTS OF CASH FLOWS
The Company uses the indirect method to present cash flows from operating
activities and considers certificates of deposit, as well as the following items
with original maturities of three months or less, to be cash equivalents:
commercial paper, repurchase agreements, and money market funds. (See Note 20.)
DERIVATIVES
Derivative financial instruments are used by the Company in the management of
its interest rate and foreign currency exposures. Net payments or receipts under
the Company's interest rate swap agreements are recorded as adjustments to
interest expense. Foreign exchange forward contracts that meet the requirements
for hedge accounting, including being designated as and effective as a hedge of
a foreign currency firm commitment, are designated as a hedge of a firm
commitment, and gains and losses are deferred and included in the measurement of
the hedged transaction upon settlement. Deferred gains and losses relating to
these instruments were not material in the years ended December 31, 1997, 1996,
and 1995. Gains and losses on other foreign currency forward contracts are
reflected in other income in the period in which the currency fluctuation
occurs.
48 Electronic Data Systems Corporation and subsidiaries
<PAGE>
FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1997 and 1996 (in millions):
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current available-for-sale
marketable securities (Note3) $ 347.5 $ 347.5 $ 82.6 $ 82.6
Investment in securities, joint
ventures, and partnerships,
under the cost method
of accounting (Note 6) 379.1 480.6 500.0 565.2
Long-term debt (Note 9) 1,900.4 1,960.4 2,457.6 2,498.6
Redeemable preferred stock of
subsidiaries and related
interest rate swap
agreements (Note 10) 175.0 175.0 440.3 440.3
Foreign exchange forward
contracts, net asset
(liability) (Note 15) 10.5 10.2 (12.0) (12.0)
Currency swap agreement,
net asset (Note 15) -- -- 8.2 8.2
- --------------------------------------------------------------------------------
The following notes summarize the major methods and assumptions used
in estimating the fair values of financial instruments:
Available-for-sale marketable securities - These investments are
classified as available-for-sale and carried at their estimated fair value based
on current market quotes.
Investment in securities, joint ventures, and partnerships - The fair
values of certain long-term investments are estimated based on quoted market
prices for these or similar investments. For other investments, various methods
are used to estimate fair value, including external valuations and discounted
cash flows.
Long-term debt and redeemable preferred stock of subsidiaries,
including related interest rate swap agreements - The fair value of these
instruments is estimated based on the current rates offered to the Company for
instruments with similar terms, degree of risk, and remaining maturities.
Foreign exchange forward contracts - The fair value of foreign
exchange forward contracts is based on the estimated amount to settle based on
market exchange rates.
Currency swap agreement The fair value of this instrument is
estimated based on quotes from the market makers of this instrument and
represents the estimated amount that the Company would expect to receive or pay
to terminate the agreement.
Other - The carrying value of other financial instruments, such as
cash equivalents, accounts and notes receivable, and accounts payable,
approximates their fair value.
USE OF ESTIMATES
The preparation of the consolidated 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
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
SIGNIFICANT CLIENTS
Immediately prior to the Split-Off, EDS and GM entered into a new Master
Services Agreement (the "Master Services Agreement") that serves as a framework
for the negotiation and operation of service agreements between GM and EDS
related to certain "in-scope" information technology (IT) services to be
provided by EDS to GM on a worldwide basis (collectively, together with the
Master Services Agreement, the "IT Services Agreements"). The IT Services
Agreements replaced the master agreement that, prior to the Split-Off, served as
a framework for individual services agreements between GM and EDS.
During the years ended December 31, 1997, 1996, and 1995, the portion of
EDS revenues attributable to GM was 28%, 30%, and 31%, respectively. Due to the
signing of the new IT Services Agreements prior to the Split-Off, EDS does not
anticipate the loss of GM as an ongoing major client in the near future.
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of clients forming the Company's client base and
their dispersion across different industry and geographic areas. Accounts
receivable are shown net of allowances of $105.4 million and $117.2 million as
of December 31, 1997 and 1996, respectively.
Other than GM, no single client accounted for more than 5% of the Company's
revenues in 1997, 1996, or 1995.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted the disclosure provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, which requires pro forma
disclosure of net income and earnings per share as if the SFAS No. 123 fair
value method had been applied. The Company continues to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, for the preparation of its basic consolidated financial statements.
(See Note 12.)
Electronic Data Systems Corporation and subsidiaries 49
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amounts of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Initial adoption of SFAS No. 121 as of January 1, 1996 did not
have a material impact on the Company's financial position or results of
operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
- --------------------------------------------------------------------------------
NOTE 2: NATIONAL HERITAGE INSURANCE COMPANY
National Heritage Insurance Company (NHIC), a wholly owned subsidiary of EDS,
acts as underwriter for claims benefit payments for the Medicaid welfare program
contract for the state of Texas (the "State"). NHIC also acts as an
administrator for the Medicare Part B Program in Northern California,
Massachusetts, Maine, Vermont, and New Hampshire.
The underwriting contract provides that certain payments from the State be
deposited in trust accounts that are not included in the consolidated financial
statements. In accordance with contractual provisions, these funds will be
returned to the State if total benefit claims are less than the amounts
received. At December 31, 1997 and 1996, designated funds at amortized costs of
$678.4 million and $645.1 million, respectively, remained in the trust accounts.
Approximate market values of these designated funds at December 31, 1997 and
1996, were $678.1 million and $644.4 million, respectively. Invested funds
primarily consist of corporate and government bonds. NHIC has the ability and
intent to hold these investments until their full face value can be realized.
Gains and losses from the sale of these investments held in trust accounts are
combined with gains and losses from the Company's other investments.
- --------------------------------------------------------------------------------
NOTE 3: MARKETABLE SECURITIES
The following is a summary of current available-for-sale securities
(in millions):
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. government and
agency obligations $215.8 $ 0.4 $ -- $216.2
Other debt securities 11.7 -- -- 11.7
---------------------------------------------------
Total debt securities 227.5 0.4 -- 227.9
Equity securities 92.3 27.3 -- 119.6
---------------------------------------------------
Total current
available-for-sale
securities $319.8 $27.7 $ -- $347.5
---------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. government and
agency obligations $ 43.0 $ -- $ 0.1 $ 42.9
Other debt securities 35.4 -- 2.5 32.9
---------------------------------------------------
Total debt securities 78.4 -- 2.6 75.8
Equity securities 7.0 -- 0.2 6.8
---------------------------------------------------
Total current
available-for-sale
securities $ 85.4 $ -- $ 2.8 $ 82.6
---------------------------------------------------
- --------------------------------------------------------------------------------
Noncurrent available-for-sale securities are included in "Investments
and Other Assets" (Note 6) and are not significant.
The amortized cost and estimated fair value of current debt securities
at December 31, 1997, by contractual maturity, are shown below (in millions).
Expected maturities will differ from contractual maturities because the issuers
of the securities may have the right to repay obligations without prepayment
penalties.
- --------------------------------------------------------------------------------
Estimated
Amortized Fair
December 31, 1997 Cost Value
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Debt securities
Due in one year or less $ 17.0 $ 17.0
Due after one year through five years 207.9 208.3
Due after five years through ten years -- --
Due after ten years 2.6 2.6
--------------------------
Total debt securities $227.5 $227.9
--------------------------
- --------------------------------------------------------------------------------
50 Electronic Data Systems Corporation and subsidiaries
<PAGE>
The following table summarizes sales of available-for-sale securities
(in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proceeds from sales $90.8 $78.9 $162.5
-------------------------------
Gross realized gains $ - $ 0.2 $ 0.7
-------------------------------
Gross realized losses $(1.4) $(1.7) $ (1.1)
-------------------------------
- --------------------------------------------------------------------------------
Specific identification was used to determine cost in computing
realized gain or loss.
- --------------------------------------------------------------------------------
NOTE 4: PROPERTY AND EQUIPMENT (IN MILLIONS)
- --------------------------------------------------------------------------------
Accumulated
December 31, 1997 Cost Depreciation Net
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Land $ 135.9 $ - $ 135.9
Buildings and facilities 1,062.6 442.4 620.2
Computer equipment 4,979.5 3,191.0 1,788.5
Other equipment and furniture 723.2 399.4 323.8
---------------------------------------
Total $6,901.2 $4,032.8 $2,868.4
=======================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accumulated
December 31, 1996 Cost Depreciation Net
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Land $ 134.8 $ - $ 134.8
Buildings and facilities 1,007.1 420.8 586.3
Computer equipment 5,201.5 3,150.9 2,050.6
Other equipment and furniture 645.7 320.4 325.3
---------------------------------------
Total $6,989.1 $3,892.1 $3,097.0
=======================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 5: LAND HELD FOR DEVELOPMENT
At December 31, 1997, land held for development consists of approximately 1,440
acres located throughout the Dallas metropolitan area. Approximately 1,186 acres
of land, site of a commercial real estate development, are located in Plano,
Texas. The carrying value of land is periodically compared to current sales,
market analyses, and appraisals to determine whether an adjustment is required.
- --------------------------------------------------------------------------------
NOTE 6: INVESTMENTS AND OTHER ASSETS (IN MILLIONS)
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Lease contracts (net of principal and interest
on nonrecourse debt) $ 346.9 $ 362.5
Estimated residual values of leased assets
(not guaranteed) 289.2 318.2
Unearned income, including deferred
investment tax credits (224.7) (235.5)
--------------------------
Investment in leveraged leases (excluding
deferred taxes of $319.6 and $323.7 at
December 31, 1997 and 1996, respectively) 411.4 445.2
Investment in securities, joint ventures,
and partnerships 471.7 651.8
Deferred pension costs 172.2 112.0
Deferred software license fees 157.2 171.1
Investment in direct financing leases, net of
unearned income 145.0 141.9
Other 143.7 132.8
--------------------------
Total $1,501.2 $1,654.8
==========================
- --------------------------------------------------------------------------------
Financing leases that are financed with nonrecourse borrowings at
lease inception are accounted for as leveraged leases. Such borrowings are
secured by substantially all of the lessor's rights under the lease plus the
residual value of the asset. For federal income tax purposes, the Company
receives the investment tax credit (if available) at lease inception and has the
benefit of tax deductions for depreciation on the leased asset and for interest
on the nonrecourse debt. A portion of the Company's leveraged lease portfolio is
concentrated within the airline industry. The Company historically has not
experienced credit losses from these transactions, and the portfolios are
diversified among unrelated lessees.
Investment in securities, joint ventures, and partnerships includes
investments accounted for under the equity method of $92.6 million and $151.8
million at December 31, 1997 and 1996, respectively. A decline in the market
value of any investments which is deemed to be other than temporary is charged
to earnings. At December 31, 1997 and 1996, "Investments and Other Assets" was
net of valuation allowances of $122.4 million and $21.2 million, respectively.
Electronic Data Systems Corporation and subsidiaries 51
<PAGE>
- --------------------------------------------------------------------------------
NOTE 7: SOFTWARE, GOODWILL, AND OTHER INTANGIBLES
(IN MILLIONS)
- --------------------------------------------------------------------------------
Accumulated
December 31, 1997 Cost Amortization Net
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Software $1,003.6 $ 730.7 $ 272.9
Goodwill 1,295.7 277.9 1,017.8
Other intangibles 495.1 237.9 257.2
-----------------------------------------
Total $2,794.4 $1,246.5 $1,547.9
=========================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accumulated
December 31, 1996 Cost Amortization Net
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Software $1,010.8 $ 712.7 $ 298.1
Goodwill 1,046.8 218.4 828.4
Other intangibles 450.1 169.8 280.3
-----------------------------------------
Total $2,507.7 $1,100.9 $1,406.8
=========================================
- --------------------------------------------------------------------------------
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(IN MILLIONS)
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accounts payable $ 372.4 $ 317.1
Contract-related 1,171.1 1,049.0
Payroll-related 662.0 576.8
Operating expenses 133.3 146.3
Property, sales, and franchise taxes 122.3 108.5
Other 118.6 111.7
-----------------------------
Total $2,579.7 $2,309.4
=============================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 9: LONG-TERM DEBT (IN MILLIONS)
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Commercial paper, weighted-average
interest rate of 5.44% $ 662.7 $1,537.9
Lines of credit, variable rate, weighted-average
interest rate of 8.18%, due 1998 17.3 27.0
Notes, variable rate, weighted-average interest
rate of 4.17%, due 1998 to 2006 22.0 8.3
Notes to banks, fixed rate, weighted-average
interest rate of 5.28%, due 1998 to 2003 263.3 102.1
Notes payable, fixed rate, weighted-average
interest rate of 6.98%, due 2001 to 2005,
net of discount 647.1 646.4
Notes payable, fixed rate, weighted-average
interest rate of 10.33%, due 1998 to 2014 288.0 135.9
-----------------------------
Total 1,900.4 2,457.6
Less current portion of long-term debt (109.5) (133.3)
-----------------------------
Long-term debt $1,790.9 $2,324.3
=============================
- --------------------------------------------------------------------------------
Commercial paper is classified as noncurrent debt, as it is intended
to be maintained on a long-term basis, with ongoing credit availability provided
by the Company's revolving, committed lines of credit. The Company maintains a
credit agreement with a syndicate of banks which provide for $2,500.0 million of
committed lines of credit, of which $1,250.0 million expires in 1998 with the
option to convert any outstanding amounts under these lines into term loans that
mature in 2000. The remaining $1,250.0 million expires in 2002. The Company pays
commitment fees of .04% to .06% on the unused portion of the lines of credit.
In addition, as of December 31, 1997, the Company had available
$612.8 million in uncommitted short-term lines of credit, of which $595.5
million remained unused at December 31, 1997.
Notes payable relate to land held for development, property and
equipment, acquisitions, and other items.
Maturities of long-term debt for years subsequent to December 31,
1997, are as follows (in millions):
- --------------------------------------------------------------------------------
1998 $ 109.5
1999 10.5
2000 554.8
2001 5.2
2002 666.7
Thereafter 553.7
-----------
Total $1,900.4
===========
- --------------------------------------------------------------------------------
52 Electronic Data Systems Corporation and subsidiaries
<PAGE>
The Company's credit facilities and the indenture governing its
medium-term notes contain certain financial and other covenants, including the
maintenance of a minimum net worth and restrictions on mergers, consolidations,
and sales of substantially all of the assets of the Company. As of December 31,
1997, the Company was in compliance with all of these covenants.
- --------------------------------------------------------------------------------
NOTE 10: REDEEMABLE PREFERRED STOCK OF SUBSIDIARIES AND MINORITY INTERESTS
At December 31, 1997 and 1996, consolidated subsidiaries of the Company had
redeemable preferred stock outstanding of $175.0 million and $440.3 million.
During 1997, consolidated subsidiaries of the Company issued $412.8 million of
redeemable preferred stock to third parties and redeemed $653.3 million through
the issuance of commercial paper. Also during 1997, the Company purchased all
remaining minority interests of a consolidated financing subsidiary for $34.8
million. During 1996, consolidated subsidiaries of the Company issued $440.3
million of redeemable preferred stock to third parties. Holders of the preferred
shares have the right to redeem such shares from 2001 to 2003 for cash equal to
the issue amount plus cumulative unpaid dividends. Dividends on such preferred
shares are cumulative from the effective date of issue at fixed rates ranging
from 6.07% to 7.7%. (See Note 15 for a discussion of related interest rate swap
agreements.) 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. The Company may call the redeemable preferred stock
outstanding at December 31, 1997 in 2001.
On September 1, 1997, the Company sold a 35% share in EDS' Australia
operations to an unrelated third party for $140.5 million. The proceeds from the
sale were recorded in "Redeemable Preferred Stock of Subsidiaries and Minority
Interests" in the consolidated financial statements.
- --------------------------------------------------------------------------------
NOTE 11: INCOME TAXES
The current and deferred income tax liabilities (assets) are summarized as
follows (in millions):
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current payable (refund due) $(25.3) $(11.0)
Current deferred 162.9 138.5
--------------------------
Total income taxes - current 137.6 127.5
Noncurrent deferred 474.8 429.4
--------------------------
Total current and noncurrent income taxes $612.4 $556.9
==========================
- --------------------------------------------------------------------------------
The provision for income tax expense is summarized as follows (in
millions):
- --------------------------------------------------------------------------------
U.S.
Year Ended December 31, 1997 Federal Non-U.S. State Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current $243.9 $60.3 $32.4 $336.6
Deferred 55.6 11.7 7.1 74.4
--------------------------------------------
Total $299.5 $72.0 $39.5 $411.0
============================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S.
Year Ended December 31, 1996 Federal Non-U.S. State Total
- --------------------------------------------------------------------------------
Current $303.2 $ 69.1 $42.4 $ 414.7
Deferred (94.6) (77.2) (0.3) (172.1)
--------------------------------------------
Total $208.6 $ (8.1) $42.1 $ 242.6
============================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S.
Year Ended December 31, 1995 Federal Non-U.S. State Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current $342.0 $ 85.6 $35.4 $ 463.0
Deferred 42.3 20.6 2.2 65.1
--------------------------------------------
Total $384.3 $106.2 $37.6 $ 528.1
============================================
- --------------------------------------------------------------------------------
Electronic Data Systems Corporation and subsidiaries 53
<PAGE>
Income before income taxes included the following components (in
millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. taxable income $1,017.8 $705.1 $1,220.8
Non-U.S. taxable income (loss) 123.8 (31.0) 246.2
--------------------------------------
Total $1,141.6 $674.1 $1,467.0
--------------------------------------
- --------------------------------------------------------------------------------
A reconciliation of income tax expense using the statutory federal
income tax rate of 35.0 percent to the actual income tax expense follows (in
millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income before income taxes $1,141.6 $674.1 $1,467.0
----------------------------------------
Statutory federal income tax 399.6 235.9 513.4
State income tax, net 25.7 27.4 24.4
Research and experimentation credits (28.0) (13.1) (7.5)
Other 13.7 (7.6) (2.2)
----------------------------------------
Total $ 411.0 $242.6 $ 528.1
----------------------------------------
Effective income tax rate 36.0% 36.0% 36.0%
----------------------------------------
- --------------------------------------------------------------------------------
The tax effects of temporary differences and carryforwards, which
result in a significant portion of the deferred tax assets and liabilities, are
as follows (in millions):
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Basis differences attributable
to leasing activities $ -- $ 490.9 $ -- $ 510.6
Adjustments necessary
to convert accruals to
a tax basis 158.3 289.0 127.9 258.8
Employee benefit plans 25.6 112.6 23.8 67.6
Accumulated depreciation/
amortization basis
differences 18.5 194.5 9.0 109.8
Effect on deferred taxes
of carryforwards 230.8 -- 213.8 --
Employee-related
compensation 143.4 -- 132.1 --
Other 236.0 222.3 241.2 229.3
--------------------------------------------------
Subtotal 812.6 1,309.3 747.8 1,176.1
Less valuation allowance (141.0) -- (139.6) --
--------------------------------------------------
Total deferred taxes $ 671.6 $1,309.3 $ 608.2 $1,176.1
==================================================
- --------------------------------------------------------------------------------
The net changes in the total valuation allowance for the years ended
December 31, 1997, 1996, and 1995 were increases of $1.4 million, $13.3 million,
and $15.2 million, respectively. Certain of the Company's foreign subsidiaries
have net operating loss carryforwards which expire over an indefinite period. A
majority of such carryforwards are included in the valuation allowance. In
assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
- --------------------------------------------------------------------------------
NOTE 12: STOCK PURCHASE AND INCENTIVE PLANS
The 1996 Electronic Data Systems Corporation Stock Purchase Plan (the "EDS Stock
Purchase Plan") and the 1996 Incentive Plan of Electronic Data Systems
Corporation (the "Incentive Plan") are both continuations of plans in effect
prior to the Split-Off to reward certain officers and employees of EDS. In 1996,
a broad-based nonqualified stock option plan (the "PerformanceShare Plan") was
adopted to provide additional financial incentives for almost all employees. The
EDS Incentive and Compensation Committee was replaced at the time of the
Split-Off by the Compensation and Benefits Committee of the EDS Board of
Directors (the "Committee"). The Committee has exclusive authority to administer
these plans. All references to common stock prior to the Split-Off are to GM
Class E common stock.
The Company applies APB Opinion No. 25, Accounting for Stock Issued
to Employees, in accounting for its plans. Compensation cost that has been
charged against income in connection with stock plans is $103.2 million, $81.9
million, and $58.8 million for the years ended December 31, 1997, 1996, and
1995, respectively. The difference between the quoted market price as of the
date of the grant and the purchase price of shares is being charged to
operations over the vesting period. No compensation cost has been recognized for
fixed stock options and shares acquired by employees under the EDS Stock
Purchase Plan. If compensation cost for the
54 Electronic Data Systems Corporation and subsidiaries
<PAGE>
Company's stock-based compensation plans had been determined in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below (in millions, except per share amounts):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net income As reported $730.6 $431.5 $938.9
Pro forma $701.5 $416.6 $928.9
Earnings per share of common stock
Basic As reported $1.49 $0.89 $1.96
Pro forma $1.43 $0.86 $1.94
Diluted As reported $1.48 $0.88 $1.94
Pro forma $1.42 $0.85 $1.92
- --------------------------------------------------------------------------------
The pro forma amounts for 1995 reflect only compensation for shares
acquired by employees under the EDS Stock Purchase Plan since no stock options
were granted until 1996. The weighted-average fair value of options granted
during the year is $14.48 and $18.66 for 1997 and 1996, respectively. The fair
value of each option is estimated at the date of grant using the Black-Scholes
option pricing model, with the following weighted-average assumptions for 1997
and 1996, respectively: dividend yields of 1.56% and 1.27%, expected volatility
of 25.5% and 23.9%, risk-free interest rate of 6.44% and 6.46%, and expected
lives of 7.8 years and 8.2 years.
EDS STOCK PURCHASE PLAN
The EDS Stock Purchase Plan enables EDS employees to purchase up to 57.5 million
shares of EDS common stock at 85% of the quoted market price through payroll
deductions of up to 10% of their compensation. Shares of EDS common stock
purchased under the EDS Stock Purchase Plan may not be sold or transferred
within two years of the date of purchase unless they are first offered to EDS at
the lesser of the original purchase price or the fair market value on the date
of sale. The number of shares available for future sale under the EDS Stock
Purchase Plan was 54.9 million shares at December 31, 1997.
INCENTIVE PLAN
The Incentive Plan covers up to 60.0 million shares of EDS common stock, in
addition to 17.0 million unvested shares that were outstanding at the date of
the Split-Off. The Incentive Plan permits the granting of stock-based awards in
the form of restricted shares, restricted stock units, stock options, or stock
appreciation rights to eligible employees, officers, and nonemployee directors.
The maximum number of shares for which additional shares, rights, or options may
be granted or sold under the provisions of the Incentive Plan was 43.8 million
shares at December 31, 1997.
During the years ended December 31, 1997, 1996, and 1995, 5.2
million, 0.6 million, and 6.6 million restricted stock units, respectively, were
granted. The weighted-average fair value of the restricted stock units granted
was $42.92, $54.85, and $46.09 for the years ended December 31, 1997, 1996, and
1995, respectively. A restricted stock unit is the right to receive shares. All
units granted are generally scheduled to vest over a period of 10 years. The
quoted market price as of the date of grant is charged to operations over the
vesting period. The total unvested number of units as of December 31, 1997, was
18.0 million.
In 1997, the Committee also granted to employees stock options to
acquire 4.3 million shares of EDS common stock that vest ratably over 10 years
of service. In addition, the Company granted options to employees to acquire 0.6
million shares of EDS common stock that vest 100% after 10 years of service,
with ratable accelerated vesting available after five years of service to
eligible participants under certain conditions. The exercise price is equal to
the quoted market price on the date of grant. At December 31, 1997, 3,500 of the
Incentive Plan options were exercisable.
In 1997, nonemployee directors were granted a total of 7,349
restricted shares of EDS common stock and a total of 26,194 stock options under
the Incentive Plan. Both of these grants vest over a three-year period. The
quoted market price on the date of grant is charged to expense over the vesting
period for the restricted shares. The exercise price of the options is equal to
the quoted market price on the date of grant.
PERFORMANCESHARE PLAN
The PerformanceShare Plan covers up to 20.0 million shares of EDS common stock
and permits the granting of stock-based awards in the form of stock options to
eligible employees. In 1997, the Committee granted to employees stock options to
acquire 14.1 million shares of EDS common stock that vest after 10 years of
service, subject to accelerated vesting based on the appreciation in quoted
market price of the Company's common stock. The original grant was canceled and
regranted for the same number of options and the same vesting requirements after
a decline in market value of EDS stock. The exercise price equals quoted market
price on the date of grant. At December 31, 1997, 15,406 of these options were
exercisable with a weighted-average exercise price of $37.375 per share. The
maximum number of shares for which future options may be granted under the
provisions of the PerformanceShare Plan was 7.5 million shares at December 31,
1997.
Electronic Data Systems Corporation and subsidiaries 55
<PAGE>
A summary of the Company's stock options issued under the
PerformanceShare and Incentive Plans during the years ended December 31, 1997
and 1996, is presented below (in millions, except per share amounts):
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Outstanding at beginning
of year 6.1 $48 - -
Granted 19.0 $39 6.1 $48
Exercised - - - -
Forfeited (1.9) $39 - -
------ ---
Outstanding at end of year 23.2 $41 6.1 $48
------ ---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Options Outstanding
- --------------------------------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Price at 12/31/97 Contractual Life Exercise Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$37 to 44 17.4 15 $39
$45 to 61 5.8 9 $48
-------
23.2
-------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 13: DEFERRED COMPENSATION PLAN
The EDS Deferred Compensation Plan (the "Plan") provides a long-term savings
program for participants. This Plan allows eligible employees to contribute a
percentage of their compensation to a savings program and to defer income taxes
until the time of distribution. The Company intends to amend the Plan, effective
July 1, 1998, to provide for employer matching contributions. In addition, the
EDS Nonemployee Director Deferred Compensation Plan allows nonemployee directors
of the Company to defer all or a portion of their directors' fees in an
interest-bearing account or in units denominated by EDS common stock.
- --------------------------------------------------------------------------------
NOTE 14: SEGMENT INFORMATION
INDUSTRY SEGMENTS
The Company's business involves operations in principally one industry segment:
the design, installation, and operation of business information and
communications systems.
GEOGRAPHIC SEGMENTS
The following presents information about the Company's operations in different
geographic areas (in millions):
- --------------------------------------------------------------------------------
As of and for the Year Ended
December 31, 1997
- --------------------------------------------------------------------------------
U.S. Europe Other Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Systems and other
contracts revenues
Non-GM clients $6,634.5 $3,148.6 $1,138.5 $10,921.6
GM and affiliates 3,304.6 576.8 432.6 4,314.0
-----------------------------------------------------
Total systems and other
contracts revenues $9,939.1 $3,725.4 $1,571.1 $15,235.6
-----------------------------------------------------
Operating income $ 944.3 $ 210.7 $ 58.6 $ 1,213.6
-----------------------------------------------------
Identifiable assets $7,024.7 $2,980.6 $1,168.8 $11,174.1
-----------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of and for the Year Ended
December 31, 1996
- --------------------------------------------------------------------------------
U.S. Europe Other Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Systems and other
contracts revenues
Non-GM clients $6,577.2 $2,687.0 $ 898.9 $10,163.1
GM and affiliates 3,179.3 691.9 407.0 4,278.2
-----------------------------------------------------
Total systems and other
contracts revenues $9,756.5 $3,378.9 $1,305.9 $14,441.3
-----------------------------------------------------
Operating income $ 682.9 $ 45.6 $ 67.6 $ 796.1
-----------------------------------------------------
Identifiable assets $7,097.1 $3,003.5 $1,092.3 $11,192.9
-----------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of and for the Year Ended
December 31, 1995
- --------------------------------------------------------------------------------
U.S. Europe Other Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Systems and other
contracts revenues
Non-GM clients $5,794.9 $2,001.5 $ 734.6 $ 8,531.0
GM and affiliates 2,926.1 659.2 305.8 3,891.1
-----------------------------------------------------
Total systems and other
contracts revenues $8,721.0 $2,660.7 $1,040.4 $12,422.1
-----------------------------------------------------
Operating income $1,164.0 $ 271.5 $ 93.5 $ 1,529.0
-----------------------------------------------------
Identifiable assets $7,566.8 $2,490.1 $ 775.5 $10,832.4
-----------------------------------------------------
- --------------------------------------------------------------------------------
56 Electronic Data Systems Corporation and subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
NOTE 15: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates on a global basis, receiving revenues and incurring
expenses in many countries. As a result of these activities, the Company has
exposure to market risks arising from changes in interest rates and foreign
exchange rates. Derivative financial instruments are used by the Company for the
purpose of hedging against these risks, to which the Company is exposed in the
normal course of business, by creating offsetting market positions. The
Company's use of such instruments in relation to such risks is explained below.
The Company does not hold or issue financial instruments for trading purposes.
The notional amounts of derivative contracts, summarized below as
part of the description of the instruments utilized, do not necessarily
represent the amounts exchanged by the parties and thus are not a measure of the
exposure of the Company through its use of derivatives. The amounts exchanged by
the parties are normally calculated on the basis of the notional amounts and the
other terms of the derivatives. The Company is not a party to leveraged
derivatives.
The Company is exposed to credit risk in the event of nonperformance
by counterparties to interest rate swaps and foreign exchange contracts.
However, because the Company deals only with major commercial banks with
high-quality credit ratings, the Company does not anticipate nonperformance by
any of these counterparties.
INTEREST RISK MANAGEMENT
As of December 31, 1997, in connection with a debt issuance transaction, the
Company had one interest rate swap outstanding in the notional amount of $200.0
million. Under the swap, the Company pays a fixed rate of 6.975% and receives a
floating rate tied to the London Interbank Offered Rate (LIBOR), which was 7.54%
at December 31, 1997. Also, as of December 31, 1997, in connection with the
preferred stock transactions discussed in Note 10, the Company had two
fixed-to-variable interest rate swaps outstanding in the combined notional
amount of $175.0 million ($440.3 million at December 31, 1996), with
floating-rate payments tied to the LIBOR. At December 31, 1997, the floating
rates to pay were 6.32% to 6.46% and the fixed rates to receive were 6.95% to
7.81%. The Company also had two currency swaps outstanding at December 31, 1997,
for $175.0 million ($101.2 million at December 31, 1996), which converted the
British pound LIBOR paid by the Company in the swaps related to the preferred
stock to the U.S. dollar LIBOR.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company uses derivative financial instruments, particularly foreign exchange
forward contracts, to hedge transactions denominated in different currencies on
a continuing basis. The purpose of the Company's hedging activities is to reduce
the levels of risk to which it is exposed resulting from exchange rate movements
most significantly in Canada, Western European countries (primarily Germany, the
United Kingdom, Italy, Spain, and Switzerland), Australia, and New Zealand. At
December 31, 1997 and 1996, the Company had forward exchange contracts maturing
predominantly in the following year to purchase various foreign currencies in
the amount of $1,105.5 million and $953.0 million, respectively, and to sell
various foreign currencies in the amount of $2,023.5 million and $1,709.0
million, respectively.
- --------------------------------------------------------------------------------
NOTE 16: RETIREMENT PLANS
The Company has pension plans (the "Plans") covering substantially all its
employees. The majority of the Plans are noncontributory. In general, employees
become fully vested upon attaining five years of service, and benefits are based
on years of service and earnings. The actuarial cost method currently used is
the projected unit credit cost method. The Company's U.S. funding policy is to
contribute amounts that fall within the range of deductible contributions for
federal income tax purposes.
The weighted-average assumptions used for the Plans using a
measurement date of October 1 are as follows:
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Discount rate 7.3% 8.0% 8.0%
Rate of increase in compensation levels 5.5% 5.4% 5.4%
Long-term rate of return on assets 10.1% 9.7% 9.9%
- --------------------------------------------------------------------------------
Net pension cost consisted of the following components (in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Service cost for the period $ 135.8 $ 119.8 $ 87.6
Interest cost on projected benefit
obligation 159.8 121.8 97.5
Actual return on assets (458.0) (195.5) (158.6)
Net amortization and deferral 286.4 78.3 59.9
-------------------------------------
Net pension cost $ 124.0 $ 124.4 $ 86.4
-------------------------------------
- --------------------------------------------------------------------------------
Electronic Data Systems Corporation and subsidiaries 57
<PAGE>
At December 31, 1997 and 1996, the Plans' assets consisted primarily
of equity and fixed income securities and U.S. government obligations. Accrued
and/or prepaid pension cost is included in "Accounts Payable and Accrued
Liabilities" or "Investments and Other Assets" in the accompanying consolidated
financial statements.
The following is a reconciliation of the funded status of the Plans
(in millions):
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
Accum. Exceed Accum. Exceed
Benefits Assets Benefits Assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Plans' assets at fair value $ 2,368.6 $ 8.3 $ 1,772.2 $ 8.0
Actuarial present value of
benefit obligation
Vested benefits 1,570.7 91.0 1,178.5 86.6
Nonvested benefits 113.1 14.8 89.8 14.2
---------------------------------------------
Accumulated benefit obligation 1,683.8 105.8 1,268.3 100.8
Effect of projected future
salary increases 671.3 50.4 513.8 57.0
---------------------------------------------
Projected benefit obligation 2,355.1 156.2 1,782.1 157.8
---------------------------------------------
Excess (deficiency) of Plans'
assets over projected
benefit obligation 13.5 (147.9) (9.9) (149.8)
Unrecognized net (gain) loss 106.0 (7.8) 68.4 (15.3)
Unrecognized net (asset)
obligation at date of adoption 0.4 17.2 (2.5) 22.2
Unrecognized prior service cost 9.2 (0.4) 10.5 (0.8)
---------------------------------------------
Net prepaid (accrued)
pension cost $ 129.1 $ (138.9) $ 66.5 $ (143.7)
=============================================
- --------------------------------------------------------------------------------
The curtailment loss incurred by the Company in connection with its
restructuring during 1996 was not material. (See Note 21.)
- --------------------------------------------------------------------------------
NOTE 17: COMMITMENTS AND RENTAL EXPENSE
Commitments for rental payments for each of the next five years ending December
31 and thereafter under noncancelable operating leases for computer equipment,
software, and facilities are as follows (in millions):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998 $429.4
1999 337.1
2000 251.5
2001 193.4
2002 165.0
Thereafter 624.7
- --------------------------------------------------------------------------------
Total rentals under cancelable and noncancelable leases, principally
computer equipment, leased facilities, and other leased assets, included in
costs and charged to expenses (net of noncancelable sublease rental income) were
$651.0 million, $679.7 million, and $676.1 million for the years ended December
31, 1997, 1996, and 1995, respectively. Total rentals under cancelable and
noncancelable leases for software included in costs and charged to expenses were
$355.1 million, $337.3 million, and $306.8 million for the years ended December
31, 1997, 1996, and 1995, respectively.
At December 31, 1997, the Company had $71.1 million outstanding under
standby letters of credit related to payment and performance guarantees.
- --------------------------------------------------------------------------------
NOTE 18: CONTINGENT LIABILITIES
There are various claims and pending actions against the Company arising in the
ordinary course of the conduct of its business. Certain of these actions seek
damages in significant amounts. However, the amount of liability on claims and
pending actions at December 31, 1997, was not determinable. In the opinion of
management, the ultimate liability, if any, resulting from the aforementioned
contingencies will not have a material adverse effect on the Company's
consolidated results of operations or financial position.
In the normal course of business, the Company provides IT consulting
and processing services to its clients under contracts which sometimes require
the Company to comply with certain project-related performance criteria,
including project deadlines, defined IT system deliverables, or level-of-effort
measurements. Under certain contracts, the Company could be required to purchase
project-related IT processing assets of its clients totaling $469.0 million if
the Company does not comply with such criteria. The Company believes that it is
in compliance with the
58 Electronic Data Systems Corporation and subsidiaries
<PAGE>
performance provisions of these contracts and that the ultimate liability, if
any, incurred under these contracts will not have a material adverse effect on
the Company's consolidated results of operations or financial position.
- --------------------------------------------------------------------------------
NOTE 19: ACQUISITIONS
On August 29, 1997, EDS acquired all remaining outstanding equity interests in
Neodata Corporation ("Neodata"), a Colorado-based integrated marketing
communications services company, for $61.7 million, net of cash acquired, in a
transaction accounted for as a purchase. Neodata retained $217.1 million of
indebtedness, including $163.0 million of public debentures redeemable as early
as May 1998 at 106% of their principal amount. The excess purchase price over
net tangible assets acquired, based on the fair value of such assets and
liabilities at the date of acquisition, was $253.3 million and is being
amortized to expense over periods ranging from 5 to 20 years. Prior to August
29, 1997, the Company's investment in Neodata, which was first made in 1993, was
accounted for under the cost method. With the acquisition of the remaining
outstanding equity interests of Neodata, preacquisition losses for years prior
to 1997 of $35.8 million were charged to retained earnings.
On August 31, 1995, the Company acquired A.T. Kearney, a
Chicago-based international management consulting firm in a transaction
accounted for as a purchase. At the acquisition date, the Company paid
approximately $112.7 million in cash and issued $162.3 million in short- and
long-term notes to A.T. Kearney stockholders and principals. Prior to December
31, 1995, $80.9 million of short-term notes related to the acquisition were
retired. The excess purchase price over net tangible assets acquired, based on
the fair value of such assets and liabilities at the date of acquisition, was
$252.1 million and is being amortized to expense over a 10-year period.
The accompanying consolidated financial statements include the
operations of A.T. Kearney and Neodata since their dates of acquisition. Pro
forma disclosure relating to A.T. Kearney's and Neodata's results of operations
is not presented, as the impact is immaterial to EDS.
The Company made various other acquisitions during the years ended
December 31, 1997, 1996, and 1995, none of which had a material effect on the
Company's financial position or results of operations during the periods. In
conjunction with the aforementioned acquisitions, assets acquired and
liabilities assumed are summarized as follows (in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fair value of assets acquired $ 526.9 $ 78.1 $ 674.7
Less:
Cash paid for stock and assets,
net of cash acquired (180.4) (46.7) (234.9)
Debt issued for stock and assets -- -- (184.9)
---------------------------------
Liabilities assumed $ 346.5 $ 31.4 $ 254.9
=================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 20: SUPPLEMENTARY FINANCIAL INFORMATION
The following summarizes certain costs charged to expense for the years
indicated (in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Depreciation of property and equipment $876.1 $873.8 $808.1
=================================
Amortization $332.4 $307.0 $299.7
=================================
- --------------------------------------------------------------------------------
The components of interest expense and other, net, are presented
below (in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Interest and other income $ 103.7 $ 76.6 $ 58.8
Interest expense 175.7 153.1 120.8
----------------------------------
Total $ (72.0) $ (76.5) $ (62.0)
==================================
- --------------------------------------------------------------------------------
Supplemental cash flow information is presented below
(in millions):
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash paid for:
Income taxes, net of refunds $ 346.5 $ 390.8 $ 407.8
====================================
Interest $ 177.0 $ 150.6 $ 108.3
====================================
- --------------------------------------------------------------------------------
Electronic Data Systems Corporation and subsidiaries 59
<PAGE>
- --------------------------------------------------------------------------------
NOTE 21: RESTRUCTURING ACTIVITIES AND OTHER RELATED CHARGES
During 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 $329.6 million. Such amount consisted of restructuring
charges of $111.3 million relating to the severance costs associated with the
planned involuntary termination of approximately 2,600 employees, asset
writedowns of $99.7 million, and related accruals of $14.0 million relating to
operations that the Company plans to 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. Asset
writedowns relating to these product lines include investments; software,
goodwill, and other intangibles; and buildings and computer equipment. In
addition, the Company recorded a $104.6 million writedown relating to operating
assets that it is in the process of selling, thereby reducing such assets to
their estimated net realizable value. As of December 31, 1997, approximately
1,750 employees have been involuntarily terminated, and approximately $55.1
million has been paid in termination benefits and other accruals. The remaining
$70.2 million is expected to be paid in 1998.
During 1996, the Company identified certain actions necessary to
maintain and improve operating efficiencies and accelerate its move toward
"user-centered" computing. To effect these actions, the Company adopted formal
restructuring plans and recorded charges in the second quarter of 1996,
including a $285.6 million charge primarily for work force reductions of
employees who accepted early retirement or were to be involuntarily terminated
under a planned work force realignment. The total employee-related termination
and early retirement offer charges amounted to approximately $258.1 million,
$137.0 million of which related to special termination benefits, including
amounts under the Company's defined benefit pension plan. As of December 31,
1997, 1,743 employees have accepted the early retirement offer and 2,334
employees have been involuntarily terminated. As of December 31, 1997,
approximately $111.0 million has been paid in termination benefits related to
the involuntary termination plan. The Company has substantially completed its
involuntary termination obligations as established in June 1996. At the same
time as the restructuring, the Company wrote down certain of its assets by
approximately $503.9 million. Of this amount, $262.3 million related to computer
and other assets that were written down to their estimated fair values, as
determined by external market quotes, due to formal plans to consolidate certain
of its processing centers; $68.7 million related to the decision to ultimately
discontinue certain business activities; $31.7 million related to a reduction in
certain inventory to net realizable value as a direct result of the Company's
decision to exit the computer product reseller market and to broker the sale of
such inventory; and $21.4 million related to assets written down in relation to
a client in reorganization and in the process of being acquired by a third
party. The remaining balance primarily related to fixed assets, software
licenses, and other assets that were no longer used to support the Company's
operations because of exit decisions. Also included in the 1996 consolidated
financial statements was $60.0 million charged to cost of revenues, the largest
portion of which related to current assets written down in connection with the
Company's decision to exit certain business activities related to the
aforementioned client in reorganization. The balance of the charge to cost of
revenues related to changes in estimated contract costs. In addition, the
Company recognized $45.5 million of costs directly associated with the Split-Off
activities.
60 Electronic Data Systems Corporation and subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
NOTE 22: QUARTERLY FINANCIAL DATA (UNAUDITED)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Year Ended December 31, 1997 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Systems and other contracts revenues $3,591.6 $3,682.1 $3,733.7 $4,228.2 $15,235.6
Gross profit from operations 698.0 695.9 788.6 889.0 3,071.5
Income before income taxes 303.3 35.7/(1)/ 359.7/(1)/ 442.9/(1)/ 1,141.6
Net income 194.1 22.9/(1)/ 230.2/(1)/ 283.4/(1)/ 730.6
Basic earnings per share of common stock/(2)/ 0.40 0.05/(1)/ 0.47/(1)/ 0.58/(1)/ 1.49
Diluted earnings per share of common stock/(2)/ 0.39 0.05/(1)/ 0.47/(1)/ 0.57/(1)/ 1.48
Cash dividends per share of common stock 0.15 0.15 0.15 0.15 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Year Ended December 31, 1996 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Systems and other contracts revenues $3,366.9 $3,497.8 $3,570.5 $4,006.1 $14,441.3
Gross profit from operations 668.8 652.1 759.4 908.6 2,988.9
Income (loss) before income taxes 341.9 (510.2)/(1)/ 416.2 426.2 674.1
Net income (loss) 218.8 (326.5)/(1)/ 266.4 272.8 431.5
Basic earnings (loss) per share of common stock/(2)/ 0.45 (0.67)/(1)/ 0.55 0.56 0.89
Diluted earnings (loss) per share of common stock/(2)/ 0.45 (0.67)/(1)/ 0.54 0.56 0.88
Cash dividends per share of common stock 0.15 0.15 0.15 0.15 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes restructuring charges, asset writedowns, and other related
charges discussed in Note 21.
(2) Earnings per share for each period presented has been calculated using the
provisions of SFAS No. 128, Earnings per Share, which is effective for
periods ending after December 15, 1997, and requires the restatement of
all prior period earnings per share data. (See Note 1: "Basis of
Reporting.")
Electronic Data Systems Corporation and subsidiaries 61
<PAGE>
Selected Financial Data
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
As of and for the Years Ended December 31, 1997 l996 l995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $ 15,235.6 $ 14,441.3 $ 12,422.1 $ 9,960.1 $ 8,507.3
Cost of revenues 12,164.1 11,452.4 9,601.6 7,529.4 6,390.6
Selling, general, and administrative 1,528.3 1,403.3 1,291.5 1,187.1 1,005.4
Restructuring charges 125.3 285.6 -- -- --
Asset writedowns 204.3 503.9 -- -- --
One-time split-off costs -- 45.5 -- -- --
Interest expense and other, net 72.0 76.5 62.0 (40.6) (20.0)
Provision for income taxes 411.0 242.6 528.1 462.3 407.3
-------------------------------------------------------------------------
Net income $ 730.6 $ 431.5 $ 938.9 $ 821.9 $ 724.0
-------------------------------------------------------------------------
PER SHARE DATA/(1)/
Basic earnings per share of common stock $ 1.49 $ 0.89 $ 1.96 $ 1.71 $ 1.51
Diluted earnings per share of common stock $ 1.48 $ 0.88 $ 1.94 $ 1.69 $ 1.50
Cash dividends per share of common stock $ 0.60 $ 0.60 $ 0.52 $ 0.48 $ 0.40
FINANCIAL POSITION
Current assets $ 5,169.4 $ 4,945.2 $ 4,381.5 $ 3,354.1 $ 2,506.8
Property and equipment, net 2,868.4 3,097.0 3,242.4 2,756.6 2,114.7
Operating and other assets 3,136.3 3,150.7 3,208.5 2,675.8 2,320.6
Total assets 11,174.1 11,192.9 10,832.4 8,786.5 6,942.1
Current liabilities 3,257.6 3,162.8 3,221.5 2,873.2 2,160.4
Long-term debt, less current portion 1,790.9 2,324.3 1,852.8 1,021.0 522.8
Redeemable preferred stock of subsidiaries
and minority interests 341.4 493.3 39.9 -- --
Stockholders' equity 5,309.4 4,783.1 4,978.5 4,232.5 3,617.4
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Earnings per share for each period presented has been calculated using the
provisions of SFAS No. 128, Earnings per Share, which is effective for
periods ending after December 15, 1997, and requires the restatement of
all prior period earnings per share data. (See Note 1: "Basis of
Reporting.")
- --------------------------------------------------------------------------------
STOCK PRICE RANGE
The Company's common stock is listed on the New York Stock Exchange (NYSE) under
the symbol "EDS." As a result of the Split-Off of the Company from GM on June 7,
1996, each share of GM Class E common stock was converted into one share of
common stock of the Company. The GM Class E common stock had been listed and
traded on the NYSE under the symbol "GME" through June 7, 1996 (the date of
consummation of the Split-Off). This table shows the range of reported per share
sales prices on the NYSE Composite Tape for the GM Class E common stock (through
June 7, 1996) and the common stock (beginning June 10, 1996) for the periods
indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $49.63 $40.13 $58.00 $50.00
Second quarter 44.75 31.75 58.63 52.25
Third quarter 46.75 34.50 61.38 46.00
Fourth quarter 44.19 29.56 63.38 40.75
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
62 Electronic Data Systems Corporation and subsidiaries
<PAGE>
Exhibit 21
----------
A.T. Kearney Australia Pty Ltd., an Australia corporation
A.T. Kearney GmbH, a Germany corporation
A.T. Kearney (Hong Kong) Limited, a Hong Kong corporation
A.T. Kearney International, Inc., a Delaware corporation
A.T. Kearney, Inc., a Delaware corporation
A.T. Kearney K.K., a Japan corporation
A.T. Kearney Limited, an England corporation
A.T. Kearney Ltd., an Ontario corporation
A.T. Kearney New Zealand Limited, a New Zealand corporation
A.T. Kearney S.A. de C.V., a Mexico corporation
A.T. Kearney S.A.S., a France corporation
A.T. Kearney S.p.A., an Italy corporation
Citymax Inc., a Delaware corporation
Citymax Integrated Information Systems Ltd., an England corporation
E.D.S. de Mexico, Sociedad Anonima de Capital Variable, a Mexico corporation
E.D.S. International Corporation, a Texas corporation
E.D.S. of Canada, Ltd., an Ontario corporation
E.D.S. Service, Ltd., a Japan corporation
E.D.S. World Corporation (Far East), a Nevada corporation
E.D.S. World Corporation (Netherlands), a Texas corporation
EDS (Australia) Pty Limited, an Australia corporation
EDS Desenvoluimento de Productos Ltda., a Brazil corporation
EDS Electronic Data System Luxembourg S.A., a Luxembourg corporation
EDS Electronic Data Systems Fertigungsindustrie (Deutschland) GmbH, a Germany
corporation
EDS Electronic Data Systems (Hong Kong) Limited, a Hong Kong corporation
EDS Electronic Data Systems (India) Private Limited, an India corporation
EDS Electronic Data Systems Industrien (Deutschland) GmbH, a Germany corporation
EDS Electronic Data Systems Italia S.p.A., an Italy corporation
EDS (Electronic Data Systems) Limited, an England corporation
EDS Electronic Data Systems (Philippines), Inc., a Philippines corporation
EDS Electronic Data Systems (Thailand) Co., Ltd., a Thailand corporation
EDS Electronic Financial Services, Inc., a Delaware corporation
EDS Elektronikus Adatrendzer Kft, a Hungary corporation
EDS (Europe) S.A., a Switzerland corporation
EDS Finance plc, an England corporation
EDS Holding GmbH, a Germany corporation
EDS Industrie A.G., a Switzerland corporation
EDS Information Management AG, a Switzerland corporation
EDS Information Services L.L.C., a Delaware limited liability company
EDS Informationstechnologie und Service (Deutschland) GmbH, a Germany
corporation
EDS Informatique S.A., a Switzerland corporation
EDS Ingevision S.A.S., a France corporation
EDS International (Greece), a Greece corporation
<PAGE>
EDS International (France) S.A.S., a France corporation
EDS International (Singapore) Pte. Limited, a Singapore corporation
EDS Kaufmannische Dienste und Informatik GmbH, a Germany corporation
EDS (Korea) Ltd., a Korea corporation
EDS New Zealand Limited, a New Zealand corporation
EDS Personal Communications Corporation, a Delaware corporation
EDS Poland Sp.z.o.o., a Poland corporation
EDS, s.r.o., a Czech Republic corporation
EDS (Schwiez) AG, a Switzerland corporation
EDS Sycon Oy, a Finland corporation
EDS Technical Products Corporation, a Delaware corporation
EDS-Electronic Data Systems de Portugal Lda., a Portugal corporation
EDS-Electronic Data Systems do Brasil Ltda, a Brazil corporation
EDS-Fides Informatik AG, a Switzerland corporation
EDS-FLS Data A/S, a corporation in the Municipality of Copenhagen
EDS-Scicon N.V., a Belgium corporation
Electronic Data Systems Belgium N.V., a Belgium corporation
Electronic Data Systems Columbia, S.A., a Columbia corporation
Electronic Data Systems Danmark A/S, a Denmark corporation
Electronic Data Systems de Argentina S.A., an Argentina corporation
Electronic Data Systems de Venezuela "EDS" C.A., a Venezuela corporation
Electronic Data Systems (EDS) A/S, a Norway corporation
Electronic Data Systems (EDS Austria) GmbH, an Austria corporation
Electronic Data Systems (EDS) CVI N.V., a Netherlands corporation
Electronic Data Systems (EDS) International B.V., a Netherlands corporation
Electronic Data Systems (EDS) Israel, Ltd., an Israel corporation
Electronic Data Systems (EDS) Sweden AB, a Sweden corporation
Electronic Data Systems (EDS-IPG) Inc., a Canada corporation
(does business under assumed/fictitious name of Systemes de Donnees
Electroniques (EDS-IPG) Inc.)
Electronic Data Systems Espana S.A., a Spain corporation
Electronic Data Systems (Ireland) Limited, an Ireland corporation
Electronic Data Systems IT Services (M) Sdn. Bhd., a Malaysia corporation
Electronic Data Systems Limited, an England corporation
Electronic Data Systems, Ltd., a Japan corporation
Electronic Data Systems Taiwan Corporation, a Taiwan corporation
Istiservice S.p.A., an Italy corporation
Japan Systems Company Limited, a Japan corporation
Lacek Group, Inc. (The), a Delaware corporation
Lacek Group, Inc. - Korea (The), a Korea corporation
Lacek Group Pty Ltd. (The), an Australia corporation
Lacek Travel Services, Inc., a Minnesota corporation
National Heritage Insurance Company, a Texas insurance corporation
Neodata Corporation, a Delaware corporation
Neodata Creative Services, Inc., a Delaware corporation
Neodata Services, Inc., a Delaware corporation
<PAGE>
Paymaster (1836) Limited, an England corporation
Power Investment Corporation, a Nevada corporation
Progical S.A., a France corporation
Telecommunications International, Inc., a California corporation
(does business under assumed/fictitious name of TIIC)
Unigraphics Solutions Inc., a Delaware corporation
Varitel, Inc., a California corporation
(does business under assumed/fictitious name of EDS Digital Studios)
Wendover Financial Services Corporation, a North Carolina corporation
Wendover Funding, Inc., a North Carolina corporation
Wendover Resources, Inc., a Pennsylvania corporation
Electronic Data Systems Corporation does business under various
assumed/fictitious names, as follows: Encore Auto Financing, Inc. - in Missouri
and Oklahoma; Energy Management Associates - in California, Georgia and Guam;
Maryland Health Information Network - in Arizona, Delaware, Florida, Georgia,
Idaho, Illinois, Maryland, Michigan, New Jersey, New York, North Carolina,
Oklahoma, Pennsylvania, South Carolina, Vermont, Virginia and West Virginia.
<PAGE>
Exhibit 23
----------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Electronic Data Systems Corporation:
We consent to incorporation by reference in the following registration
statements of Electronic Data Systems Corporation of our reports dated February
4, 1998, relating to the consolidated balance sheets of Electronic Data Systems
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997, and the related
schedule, which reports appear in or are incorporated by reference in the 1997
annual report on Form 10-K of Electronic Data Systems Corporation.
<TABLE>
<CAPTION>
Registration
Form Statement No. Description
- ---- ------------- -----------
<S> <C> <C>
S-3 333-10145 Electronic Data Systems Corporation Debt Securities
S-8 2-94690 1996 Electronic Data Systems Corporation Stock Purchase Plan
(Post Effective
Amendment No. 2)
S-8 2-94691 Electronic Data Systems Corporation 1996 Incentive Plan
(Post Effective
Amendment No. 2)
S-8 33-64681 EDS Deferred Compensation Plan
(Post Effective
Amendment No. 1)
S-8 33-36443 EDS Deferred Compensation Plan
(Post Effective
Amendment No. 1)
S-8 33-54833 EDS Puerto Rico Savings Plan
(Post Effective
Amendment No. 1)
S-8 333-22077 Performance Share, 1997 Nonqualified Stock Option Plan of
Electronic Data Systems Corporation
</TABLE>
/s/ KPMG Peat Marwick LLP
Dallas, Texas
March 4, 1998
<PAGE>
Exhibit 24
----------
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a
Delaware corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal,
Jr., Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each
of them, my true and lawful attorneys-in-fact and agents, with full power to
them and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ James A. Baker, III
--------------------------------------
James A. Baker, III
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal, Jr.,
Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each of
them, my true and lawful attorneys-in-fact and agents, with full power to them
and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ Richard B. Cheney
--------------------------------------
Richard B. Cheney
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal, Jr.,
Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each of
them, my true and lawful attorneys-in-fact and agents, with full power to them
and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ William H. Gray, III
--------------------------------------
William H. Gray, III
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal, Jr.,
Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each of
them, my true and lawful attorneys-in-fact and agents, with full power to them
and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ Ray J. Groves, III
--------------------------------------
Ray J. Groves, III
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal, Jr.,
Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each of
them, my true and lawful attorneys-in-fact and agents, with full power to them
and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ Ray L. Hunt
--------------------------------------
Ray L. Hunt
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal, Jr.,
Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each of
them, my true and lawful attorneys-in-fact and agents, with full power to them
and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ C. Robert Kidder
--------------------------------------
C. Robert Kidder
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal, Jr.,
Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each of
them, my true and lawful attorneys-in-fact and agents, with full power to them
and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ Dr. Judith Rodin
--------------------------------------
Dr. Judith Rodin
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned director of Electronic Data Systems Corporation, a Delaware
corporation ("EDS"), hereby constitute and appoint Lester M. Alberthal, Jr.,
Gary J. Fernandes, Jeffrey M. Heller, and D. Gilbert Friedlander, and each of
them, my true and lawful attorneys-in-fact and agents, with full power to them
and each of them to sign for me, and in my name and the capacity indicated
below, EDS' Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and any and all amendments thereto, with power to file said Form 10-K and
any and all other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform any and all acts and
things requisite and necessary to be done as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: February 5, 1998 By: /s/ Enrique J. Sosa
--------------------------------------
Enrique J. Sosa
Director
<TABLE> <S> <C>
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<FN>
<F1>EPS - BASIC PER SFAS NO. 128
<F2>EPS - DILUTED PER SFAS NO. 128
</FN>
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<FN>
<F1>EPS - BASIC PER SFAS NO. 128
<F2>EPS - DILUTED PER SFAS NO. 128
</FN>
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0 0 0
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<FN>
<F1>EPS - BASIC PER SFAS NO. 128
<F2>EPS - DILUTED PER SFAS NO. 128
</FN>
</TABLE>
