<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K/A
AMENDMENT NO. 3
X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-143
GENERAL MOTORS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
STATE OF DELAWARE 38-0572515
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 FIFTH AVENUE, NEW YORK, NEW YORK 10153-0075
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202-3091
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (313)-556-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ---------------------------------------------------------------------------------- -----------------------------
<S> <C>
*COMMON, $1 2/3 PAR VALUE (755,968,150 SHARES OUTSTANDING AS OF FEBRUARY 29,
1996)........................................................................... NEW YORK STOCK EXCHANGE, INC.
CLASS E COMMON, $0.10 PAR VALUE (483,678,077 SHARES OUTSTANDING AS OF FEBRUARY 29,
1996)........................................................................... NEW YORK STOCK EXCHANGE, INC.
CLASS H COMMON, $0.10 PAR VALUE (97,745,792 SHARES OUTSTANDING AS OF FEBRUARY 29,
1996)........................................................................... NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES B 9 1/8% DEPOSITARY SHARES, STATED VALUE $25
PER SHARE, DIVIDENDS CUMULATIVE (20,020,586 DEPOSITARY SHARES OUTSTANDING AS OF
FEBRUARY 29, 1996).............................................................. NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES C DEPOSITARY SHARES, CONVERTIBLE INTO CLASS E
COMMON STOCK, LIQUIDATION PREFERENCE $50 PER SHARE, DIVIDENDS CUMULATIVE (33,645
DEPOSITARY SHARES OUTSTANDING AS OF FEBRUARY 29, 1996).......................... NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES D 7.92% DEPOSITARY SHARES, STATED VALUE $25
PER SHARE, DIVIDENDS CUMULATIVE (6,069,909 DEPOSITARY SHARES OUTSTANDING AS OF
FEBRUARY 29, 1996).............................................................. NEW YORK STOCK EXCHANGE, INC.
PREFERENCE, $0.10 PAR VALUE, SERIES G 9.12% DEPOSITARY SHARES, STATED VALUE $25
PER SHARE, DIVIDENDS CUMULATIVE (10,079,899 DEPOSITARY SHARES OUTSTANDING AS OF
FEBRUARY 29, 1996).............................................................. NEW YORK STOCK EXCHANGE, INC.
$500,000,000 8 1/8% DEBENTURES DUE APRIL 15, 2016................................. NEW YORK STOCK EXCHANGE, INC.
</TABLE>
*ALSO LISTED ON THE CHICAGO STOCK EXCHANGE, INC., PACIFIC STOCK EXCHANGE, INC.,
AND PHILADELPHIA STOCK EXCHANGE, INC.
NOTE: THE $1 2/3 PAR VALUE COMMON STOCK OF THE REGISTRANT IS ALSO LISTED FOR
TRADING ON:
<TABLE>
<S> <C>
MONTREAL STOCK EXCHANGE................................. MONTREAL, QUEBEC, CANADA
TORONTO STOCK EXCHANGE.................................. TORONTO, ONTARIO, CANADA
BORSE FRANKFURT AM MAIN................................. FRANKFORT ON THE MAIN, GERMANY
BORSE DUSSELDORF........................................ DUSSELDORF, GERMANY
BOURSE DE BRUXELLES..................................... BRUSSELS, BELGIUM
COURTIERS EN VALEURS MOBILIERES......................... PARIS, FRANCE
THE LONDON STOCK EXCHANGE............................... LONDON, ENGLAND
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS, 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. ( )
THE AGGREGATE MARKET VALUE (BASED UPON THE AVERAGE OF THE HIGHEST AND
LOWEST SALES PRICES ON THE COMPOSITE TAPE ON FEBRUARY 29, 1996) OF GENERAL
MOTORS CORPORATION $1 2/3 PAR VALUE, CLASS E, AND CLASS H COMMON STOCKS HELD BY
NONAFFILIATES ON FEBRUARY 29, 1996 WAS APPROXIMATELY $38,807.7 MILLION,
$27,556.3 MILLION, AND $5,610.4 MILLION, RESPECTIVELY.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
PART AND ITEM NUMBER OF FORM
DOCUMENT 10-K INTO WHICH INCORPORATED
- -------------------------------------------------------------------------------- ------------------------------
<S> <C>
GENERAL MOTORS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 24, 1996.................... PART III, ITEMS 10 THROUGH 13
</TABLE>
================================================================================
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K/A
AMENDMENT TO REPORT
FILED PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
GENERAL MOTORS CORPORATION
(Exact name of registrant as specified in charter)
AMENDMENT NO. 3
The undersigned registrant hereby amends Exhibit 99(a) of its 1995 Annual
Report on Form 10-K, previously amended on April 16 and 22, 1996, as follows:
<TABLE>
<CAPTION>
PAGE SECTION SENTENCE AMENDED DISCLOSURE
- ----- ---------------------- ---------------------------- -------------------------------------
<S> <C> <C> <C>
IV-20 Responsibilities for First Paragraph -- The word "presented" was inserted as
Consolidated Financial Last Sentence the sixth word from the end of the
Statements sentence.
IV-20 Responsibilities for Signatures The word "President" was omitted from
Consolidated Financial Mr. Alberthal's title.
Statements
IV-26 Note #1 Principles of Consolidation Two sentences were added at the end
-- 2nd paragraph of the paragraph to disclose that the
effects of purchase accounting
adjustments reflected in GM's
Consolidated Financial Statements
that are applicable to EDS were not
material to EDS' Consolidated
Statements of Income for each of the
three years in the period ended
December 31, 1995 and that the
remaining carrying value of such
purchase accounting adjustments would
not be material to EDS' Consolidated
Financial Statements.
IV-30 Note #1 Significant Customers -- 2nd Amended to reflect that, other than
paragraph General Motors, no single customer
accounted for more than 5% of EDS'
revenues in 1995, 1994 or 1993.
IV-36 Note 10 Consolidated Stockholders' The caption "Stock option and award
Equity Table transactions" was amended to read
"Stock award transactions" for each
presentation of the caption.
IV-38 Note #11 Deferred tax assets and The table was expanded to provide
liabilities table additional detail on the tax effects
of temporary differences and carry
forwards, which result in a
significant portion of the deferred
tax assets and liabilities.
IV-42 Note 17 First Sentence To correct a typographical error in
the word "noncancelable".
IV-45 Selected Financial Expenditures for property The amount reported for 1995 was
Data and equipment changed from $1,261.4 to $1,261.5 and
the amount reported for 1993 was
changed from $816.0 to $816.4 to
correct typographical errors.
IV-45 Selected Financial Current liabilities The amount reported for 1995 was
Data changed from $3,261.3 to $3,261.4 to
correct a typographical error.
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
PAGE SECTION SENTENCE AMENDED DISCLOSURE
- ----- ---------------------- ---------------------------- -------------------------------------
<S> <C> <C> <C>
IV-48 Results of Operations Added as 1st sentence of the Amended to reflect that EDS conducts
-- Revenues 1st paragraph its sales, marketing and service
activities on a global basis through
business units that focus both
geographically and vertically along
the lines of specified industries.
IV-49 Results of Operations Inserted after the last A summary table of revenue
-- Revenues paragraph in the Revenues percentages for industries which
section individually make up more than 10% of
EDS' total revenues for each of the
years in the three-year period ended
December 31, 1995 has been added.
Additionally, EDS has added an
explanation regarding the changes in
year-to-year percentages associated
with these industries.
IV-49 Result of Operations 1st sentence revised and The disclosure discussing cost of
-- Costs and Expenses three new sentences added revenues as a percentage of systems
and other contracts revenues has been
amended to expand on the nature of
the "increasingly competitive
environment" in which EDS operates.
IV-49 Results of Operations 1st sentence The word million has been added after
-- Operating Income the number $1,529.0.
IV-49 Results of Operations End of paragraph A sentence was added at the end of
-- Interest and Other the paragraph to provide an
Income, net explanation of the decrease in
interest and other income.
IV-50 Results of Operations End of Results of Operations A paragraph was added to discuss
section seasonality and inflation factors.
IV-51 Financial Position End of Financial Position Three paragraphs were added to
section provide further discussion of foreign
exchange risk management.
IV-52 Liquidity and Capital 1st sentence of 3rd The sentence was amended to include
Resources paragraph from an expanded discussion of the terms
the end of the original agreement as compared
to the revised GM payment terms under
the IT Services Agreements.
</TABLE>
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
General Motors Corporation
--------------------------------------
(Registrant)
By: /s/ WALLACE W. CREEK
--------------------------------------
(Wallace W. Creek, Comptroller)
Date: May 9, 1996
3
<PAGE> 1
EXHIBIT 99(A)
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
RESPONSIBILITIES FOR CONSOLIDATED 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 Exhibit 99(a) 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, 1995 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 and Senior Vice President
Chief Executive Officer Chief Financial Officer
IV-20
<PAGE> 2
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT AND CONSENT
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, 1995 and 1994, and
the related consolidated statements of income and cash flows for each of the
years in the three-year period ended December 31, 1995. 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, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
We hereby consent to the incorporation by reference of our report stated
above in the following Registration Statements:
<TABLE>
<CAPTION>
REGISTRATION
FORM STATEMENT NO. DESCRIPTION
- ---- ------------- -----------
<S> <C> <C>
S-3 33-41557 General Motors Corporation Debt Securities
S-3 33-64229 General Motors Corporation Debt Securities
S-3 33-47343 General Motors Corporation $1 2/3 Par Value Common Stock
(Post Effective
Amendment No. 1)
S-3 33-49035 General Motors Corporation $1 2/3 Par Value Common Stock
Amendment No. 1
S-3 33-56671 General Motors Corporation $1 2/3 Par Value Common Stock
(Amendment No. 1)
S-3 33-49309 General Motors Corporation Dividend Reinvestment Plan
S-8 33-56753 The General Motors Personal Savings Plan for Hourly-Rate
Employees in the United States
S-8 33-54841 General Motors Amended 1987 Stock Incentive Plan
S-8 33-64197 General Motors Savings-Stock Purchase Program for Salaried
Employees in the United States
S-8 2-94690 1984 Electronic Data Systems Corporation Stock Purchase Plan
(Post-Effective
Amendment No. 1)
S-8 2-94691 1984 Electronic Data Systems Corporation Stock Incentive Plan
(Post-Effective
Amendment No. 1)
S-8 33-64681 EDS Deferred Compensation Plan
S-8 33-54833 EDS Puerto Rico Savings Plan
</TABLE>
IV-21
<PAGE> 3
<TABLE>
<CAPTION>
REGISTRATION
FORM STATEMENT NO. DESCRIPTION
- ---- -------------------- -----------------------------------------------------------------
<S> <C> <C>
S-8 33-32322 Hughes Aircraft Company Salaried Employees' Thrift and Savings
Plan
Hughes Aircraft Company Tucson Bargaining Employees' Thrift and
Savings Plan
Hughes Aircraft Company California Hourly Employees' Thrift and
Savings Plan
Hughes Thrift and Savings Plan
S-8 33-54835 The GMAC Mortgage Corporation Savings Incentive Plan
S-8 33-64199 Hughes Electronics Corporation Incentive Plan
S-8 33-64691 Saturn Individual Savings Plan for Represented Members
S-8 33-64693 Saturn Personal Choices Savings Plan for Non-Represented Members
S-8 33-28714 Marketing & Systems Development Corporation 1985 Incentive Stock
Option Plan
</TABLE>
/s/ KPMG PEAT MARWICK LLP
- ----------------------------------------
KPMG PEAT MARWICK LLP
Dallas, Texas
January 24, 1996 (May 8, 1996 as
to the consent in the last
paragraph on the preceding page)
IV-22
<PAGE> 4
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- -------- --------
(IN MILLIONS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Systems and other contracts revenues
GM and affiliates......................................... $ 3,891.1 $3,547.2 $3,323.7
Outside customers......................................... 8,531.0 6,412.9 5,183.6
--------- -------- --------
Total.................................................. 12,422.1 9,960.1 8,507.3
--------- -------- --------
Costs and expenses
Cost of revenues.......................................... 9,601.6 7,529.4 6,390.6
Selling, general, and administrative...................... 1,291.5 1,187.1 1,005.4
--------- -------- --------
Total costs and expenses............................... 10,893.1 8,716.5 7,396.0
--------- -------- --------
Operating income............................................ 1,529.0 1,243.6 1,111.3
Interest and other income, net (Note 20).................... (62.0) 40.6 20.0
--------- -------- --------
Income before income taxes.................................. 1,467.0 1,284.2 1,131.3
Provision for income taxes (Note 11)........................ 528.1 462.3 407.3
--------- -------- --------
Separate Consolidated Net Income............................ $ 938.9 $ 821.9 $ 724.0
========= ======== ========
Available Separate Consolidated Net Income
Average number of shares of GM Class E common stock
outstanding (in millions) (Note 1) (Numerator)............ 404.6 260.3 243.0
Class E dividend base (in millions) (Denominator)........... 483.7 481.7 480.6
Available Separate Consolidated Net Income.................. $795.5 $444.4 $367.2
====== ====== ======
Earnings Attributable to GM Class E Common Stock on a Per
Share Basis (Note 1)...................................... $1.96 $1.71 $1.51
===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
IV-23
<PAGE> 5
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
--------- --------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................................... $ 548.9 $ 608.2
Marketable securities (Note 3)............................................... 89.7 149.6
Accounts receivable, net..................................................... 2,872.0 2,082.1
Accounts receivable from GM and affiliates................................... 297.0 65.4
Inventories.................................................................. 181.2 137.8
Prepaids and other........................................................... 392.7 311.0
--------- --------
Total current assets..................................................... 4,381.5 3,354.1
--------- --------
Property and equipment, at cost less accumulated depreciation (Note 4)......... 3,242.4 2,756.6
--------- --------
Operating and other assets
Land held for development, at cost (Note 5).................................. 105.1 97.4
Investment in leases and other (Note 6)...................................... 1,573.5 1,308.8
Software, goodwill, and other intangibles, net (Notes 7 and 19).............. 1,529.9 1,269.6
--------- --------
Total operating and other assets......................................... 3,208.5 2,675.8
--------- --------
Total Assets................................................................... $10,832.4 $8,786.5
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable............................................................. $ 603.9 $ 571.1
Accrued liabilities (Note 8)................................................. 1,704.5 1,451.0
Deferred revenue............................................................. 629.3 536.7
Income taxes (Note 11)....................................................... 75.9 111.0
Notes payable (Note 9)....................................................... 247.8 203.4
--------- --------
Total current liabilities................................................ 3,261.4 2,873.2
--------- --------
Deferred income taxes (Note 11)................................................ 739.7 659.8
--------- --------
Notes payable (Note 9)......................................................... 1,852.8 1,021.0
--------- --------
Commitments and contingent liabilities (Notes 17 and 18)
Stockholder's equity (Notes 10 and 12)
Common stock, without par value; authorized 1,000.0 shares. Issued and
outstanding 483.7 and 481.7 shares at December 31, 1995 and 1994,
respectively............................................................... 517.7 455.1
Retained earnings............................................................ 4,460.8 3,777.4
--------- --------
Total stockholder's equity............................................... 4,978.5 4,232.5
--------- --------
Total Liabilities and Stockholder's Equity..................................... $10,832.4 $8,786.5
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
IV-24
<PAGE> 6
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income.......................................................... $ 938.9 $ 821.9 $ 724.0
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization..................................... 1,107.8 771.1 626.8
Deferred compensation............................................. 58.8 62.0 33.8
Other............................................................. 33.0 30.9 (17.7)
Changes in assets and liabilities, net of effects of acquired
companies:
Increase in accounts receivable................................. (611.5) (605.4) (200.8)
(Increase) decrease in accounts receivable from GM and
affiliates................................................... (227.8) 51.1 (56.0)
Increase in inventories......................................... (41.9) (1.9) (15.5)
Increase in prepaids and other.................................. (59.7) (57.0) (26.8)
Increase (decrease) in accounts payable and accrued
liabilities.................................................. (76.0) 453.2 27.4
Increase in deferred revenue.................................... 81.0 79.1 137.1
Increase (decrease) in taxes payable............................ 56.4 (72.5) 188.7
--------- --------- ---------
Total adjustments................................................. 320.1 710.6 697.0
--------- --------- ---------
Net cash provided by operating activities............................. 1,259.0 1,532.5 1,421.0
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from sales of marketable securities........................ 163.6 370.0 234.2
Proceeds from investments in leases and other assets................ 87.8 134.6 217.3
Payments for purchases of property and equipment.................... (1,261.5) (1,186.0) (816.4)
Payments for investments in leases and other assets................. (356.3) (395.7) (170.6)
Payments related to acquisitions, net of cash acquired.............. (234.9) (186.6) (122.1)
Payments for purchases of software and other intangibles............ (92.0) (77.0) (119.0)
Payments for purchases of marketable securities..................... (100.9) (248.9) (292.5)
Other............................................................... 12.7 49.9 1.4
--------- --------- ---------
Net cash used in investing activities............................... (1,781.5) (1,539.7) (1,067.7)
--------- --------- ---------
Cash Flows from Financing Activities
Proceeds from notes payable......................................... 7,466.7 10,821.0 2,527.7
Payments on notes payable........................................... (6,776.3) (10,300.7) (2,648.7)
Net decrease in current notes payable with maturities less than 90
days.............................................................. -- (102.9) (99.0)
Employee stock transactions and related tax benefit................. 26.0 20.2 33.9
Cash dividends paid to GM........................................... (251.3) (231.1) (192.1)
--------- --------- ---------
Net cash provided by (used in) financing activities................. 465.1 206.5 (378.2)
--------- --------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents.......... (1.9) 25.5 (13.6)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents.................. (59.3) 224.8 (38.5)
Cash and Cash Equivalents at Beginning of Year........................ 608.2 383.4 421.9
--------- --------- ---------
Cash and Cash Equivalents at End of Year.............................. $ 548.9 $ 608.2 $ 383.4
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
IV-25
<PAGE> 7
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Electronic Data Systems Corporation is a provider of information technology
using advanced computer and communications technologies to meet the business
needs of its clients. As used herein, the terms "EDS" and "the Company" refer to
Electronic Data Systems Corporation and its consolidated subsidiaries. EDS
offers its clients a continuum of services in over 40 countries worldwide. This
continuum includes the management of computers, networks, information systems,
information processing facilities, business operations, and related personnel,
as well as management consulting services. (See Note 14 for geographic segment
information.)
General Motors Corporation (GM) acquired all of the capital stock of EDS in
October 1984. Prior to that time, EDS had been an independent, publicly held
corporation. Electronic Data Systems Holding Corporation was incorporated in
Delaware in 1994 for the purpose of holding the capital stock of EDS, which was
incorporated in Texas in 1962. Accordingly, EDS is an indirect wholly owned
subsidiary of GM.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EDS and all
majority-owned subsidiaries. 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.
Earnings Attributable to GM Class E Common Stock on a Per Share Basis have
been determined based on the relative amounts available for the payment of
dividends to holders of GM Class E common stock. Holders of GM Class E common
stock have no direct rights in the equity or assets of EDS, but rather have
rights in the equity and assets of GM (which includes 100% of the stock of EDS).
Dividends on the GM Class E common stock are declared out of the Available
Separate Consolidated Net Income of EDS earned since the acquisition of EDS by
GM. The Available Separate Consolidated Net Income of EDS is determined
quarterly and is equal to the separate consolidated net income of EDS, excluding
the effects of purchase accounting adjustments arising from the acquisition of
EDS, multiplied by a fraction, the numerator of which is a number equal to the
weighted average number of shares of GM Class E common stock outstanding during
the quarter, and the denominator of which was 483.7 million during the fourth
quarter of 1995. Comparable denominators for the fourth quarters of 1994 and
1993 were 481.7 million and 480.6 million, respectively. The effects of purchase
accounting adjustments reflected in General Motors' Consolidated Financial
Statements that are applicable to EDS were not material to EDS' Consolidated
Statements of Income for each of the three years in the period ended December
31, 1995. At December 31, 1995, the remaining carrying value of such purchase
accounting adjustments would not be material to EDS' Consolidated Financial
Statements.
GM Series C depositary shares represent ownership of one-tenth of a share
of GM Series C convertible preference stock. GM Series C depositary shares and
GM Series C preference stocks are convertible into GM Class E common stock and
are common stock equivalents for purposes of computing Earnings Attributable to
GM Class E Common Stock on a Per Share Basis. On November 2, 1992, GM Series
E-II and E-III preference stocks, previously held by the GM pension plans, were
converted to GM Class E common stock. In 1993 and 1992, GM Series E-1 preference
stock was converted to GM Class E common stock, or redeemed by GM. The issuances
and conversions of such preference stocks have no dilutive effect on the GM
Class E common stock because, to the extent that shares of GM Class E common
stock deemed to be outstanding would increase, such increased shares would
increase the numerator of the fraction used to determine Available Separate
Consolidated Net Income, but would have no effect on the denominator.
Additionally,
IV-26
<PAGE> 8
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
unvested units in the Company's stock incentive plan would have no material
dilutive effect on the denominator.
The denominator used in determining the Available Separate Consolidated Net
Income of EDS is adjusted as deemed appropriate by the GM Board of Directors to
reflect subdivisions or combinations of the GM Class E common stock and to
reflect certain transfers of capital to or from EDS. The GM Board's discretion
to make such adjustments is limited by criteria set forth in GM's Certificate of
Incorporation. In 1988, EDS initiated a program to repurchase 11.0 million
shares of GM Class E common stock in order to meet certain future requirements
of the Company's employee benefit plans. As of December 31, 1989, the Company
had purchased 11.0 million shares of GM Class E common stock to be distributed
to key employees under the provisions of the 1984 Plan. The GM Board has
generally caused the denominator used in calculating the Available Separate
Consolidated Net Income of EDS to decrease as shares are purchased and to
increase as shares are used for the employee benefit plans.
In March 1995, GM contributed 173 million newly issued shares of GM Class E
common stock to the General Motors Hourly-Rate Employees Pension Plan.
The current GM Board policy is that the cash dividends on the GM Class E
common stock, when, as, and if declared by the GM Board in its sole discretion,
will equal approximately 30% of the Available Separate Consolidated Net Income
of EDS for the prior year.
DEBT AND MARKETABLE EQUITY SECURITIES
Marketable securities at December 31, 1995 and 1994 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 adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, effective January 1, 1994. Pursuant to SFAS No. 115, the provisions
of the Statement were not applied retroactively. The change had no material
cumulative effect on the Company's financial position or results of operations.
Under SFAS No. 115, the Company classifies all of its debt and marketable equity
securities as available-for-sale. Management determines the appropriate
classification of all securities at the time of purchase and re-evaluates such
designation as of each balance sheet date. Noncurrent available-for-sale
securities are reported within the balance sheet classification "Investment in
Leases and Other". The Company's available-for-sale securities are recorded at
fair value. Unrealized holding gains and losses, net of the related tax effect,
are excluded from earnings and are reported as a separate component of
stockholder's 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 are stated principally at the lower of cost or market using the
first-in, first-out 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
IV-27
<PAGE> 9
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
contract, or the term of the lease in the case of leasehold improvements. The
ranges of estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Buildings............................................................. 20-40
Facilities............................................................ 5-20
Computer equipment.................................................... 3-7
Other equipment and furniture......................................... 3-15
</TABLE>
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 customer 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. 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 which is
determined based on the individual characteristics of the acquired entity,
generally five to 40 years. 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 company periodically evaluates the carrying amounts of goodwill and
other intangibles, 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 intangible assets. To
the extent such projections indicate that future undiscounted cash flows are not
sufficient to recover the carrying amounts of related intangibles, the
underlying assets are written down by charges to expense so that the carrying
amount is equal to future undiscounted cash flows. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
REVENUE RECOGNITION
The Company provides services under level-of-effort and fixed-price
contracts, with the length of the Company's contracts ranging up to ten years.
For level-of-effort types of contracts, revenue is earned based on the
agreed-upon billing amounts as services are provided to the customer. For
certain fixed-price contracts, revenue is recognized on the
percentage-of-completion method. Revenue earned is 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. Changes to total
estimated contract costs, if any, are recognized in the period they are
determined. Deferred revenue of $629.3 million and $536.7 million at December
31, 1995 and 1994, respectively, represents billings in excess of costs and
related profits on certain contracts. Included in accounts receivable are
unbilled receivables of $622.2 million and $448.5 million at December 31, 1995
and 1994, respectively. Such unbilled receivables for certain contracts in
progress represent costs and related profits in excess of billings, and such
amounts were not billable at the balance sheet date but are recoverable over the
remaining life of the contract. These billings on fixed-price contracts will be
made in the future in accordance with contractual agreements. Of the unbilled
receivables at December 31, 1995, billings to such customers amounting to $108.3
million are expected to be collected in 1997 and thereafter.
IV-28
<PAGE> 10
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 stockholder's equity. Nonfunctional
currency transaction gains (losses) are included in determining net income and
were ($3.8) million, $4.5 million, and ($3.7) million, net of income taxes, for
the years ended December 31, 1995, 1994, and 1993, 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 Company is included in the
consolidated Federal tax returns filed by GM. Current Federal income taxes are
calculated on a separate return basis and remitted to GM. The deferral method is
used to account for investment tax credits.
STATEMENT 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.)
FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments as defined under SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for-sale marketable securities (Notes 3 and
6).................................................. $ 93.5 $ 93.5 $ 153.6 $ 153.6
Investment in joint ventures and partnerships, under
the cost method of accounting (Note 6).............. 215.1 271.4 149.6 172.0
Other long-term securities (Note 6)................... 263.2 307.4 201.2 192.6
Non-current notes receivable (Note 6)................. 89.6 86.0 158.1 154.4
Notes payable (Note 9)................................ 2,100.6 2,168.4 1,224.4 1,230.3
Foreign exchange forward contracts, net liability
(Note 15)........................................... (5.4) (5.4) (0.9) (0.9)
</TABLE>
The carrying value of other financial instruments such as cash equivalents,
accounts receivable, and accounts payable approximate their fair value.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers comprising the Company's customer base and
their dispersion across different industry and geographic areas. Accounts
receivable are shown net of allowances of $99.5 million and $57.9 million as of
December 31, 1995 and 1994, respectively.
IV-29
<PAGE> 11
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 are recorded in the
Company's Consolidated Balance Sheets at fair value at the reporting date.
Realized and unrealized changes in fair value are recognized in income, as other
income (expense), in the period in which the changes occur.
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 CUSTOMERS
The percentage of EDS' total revenues attributable to GM and its affiliates
has decreased significantly since GM's acquisition of EDS in 1984 as a result of
the revenue growth of EDS' non-GM business. During the year ended December 31,
1995, the portion of EDS' revenues attributable to GM was approximately 31%. On
August 7, 1995, GM announced that it intends to pursue a split-off (the
"Split-Off") of EDS to its GM Class E stockholders in a tax-free exchange.
Immediately before the Split-Off, GM and EDS will enter into a new master
services agreement and certain related agreements which would significantly
change the pricing and terms of the services currently provided by EDS. In
addition, it is also expected that at the time of the Split-Off, a Special
Inter-Company Payment will be made to GM by EDS to ensure the fairness of the
Split-Off to all classes of GM common stock. Therefore, EDS does not anticipate
the loss of GM as an ongoing major customer in the near future.
Other than General Motors, no single customer accounted for more than 5% of
the Company's revenues in 1995, 1994, or 1993.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 consolidated
financial statements to conform to the 1995 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 contract provides that 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. Of such
payments received for the years ended December 31, 1995, 1994, and 1993,
$3,440.1 million, $4,188.7 million, and $4,453.4 million, respectively, were
designated for the payment of benefit claims or to be returned to the state. At
December 31, 1995 and 1994, $664.7 million and $983.5 million, respectively, of
such designated funds at amortized cost remained in the trust accounts.
Approximate market values of these invested funds at December 31, 1995 and 1994
were $663.3 million and $975.2 million, respectively. These investments
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.
IV-30
<PAGE> 12
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. DEBT AND MARKETABLE EQUITY SECURITIES
Following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Current
U.S. government and agency obligations............... $ 33.2 $0.1 $0.1 $ 33.2
Other debt securities................................ 35.6 0.1 1.8 33.9
------- ---- ---- ------
Total debt securities........................... 68.8 0.2 1.9 67.1
Equity securities.................................... 23.4 -- 0.8 22.6
------- ---- ---- ------
Total current available-for-sale securities..... $ 92.2 $0.2 $2.7 $ 89.7
======= ==== ==== ======
Noncurrent (Note 6)
Other debt securities................................ $ 0.6 $ -- $ -- $ 0.6
Equity securities.................................... 5.7 -- 2.5 3.2
------- ---- ---- ------
Total noncurrent available-for-sale
securities................................... $ 6.3 $ -- $2.5 $ 3.8
======= ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Current
U.S. government and agency obligations............... $ 31.9 $ -- $0.6 $ 31.3
Other debt securities................................ 94.9 0.2 4.7 90.4
------- ---- ---- ------
Total debt securities........................... 126.8 0.2 5.3 121.7
Equity securities.................................... 29.2 -- 1.3 27.9
------- ---- ---- ------
Total current available-for-sale securities..... $ 156.0 $0.2 $6.6 $149.6
======= ==== ==== ======
Noncurrent (Note 6)
Other debt securities................................ $ 0.6 $ -- $ -- $ 0.6
Equity securities.................................... 5.8 -- 2.4 3.4
------- ---- ---- ------
Total noncurrent available-for-sale
securities................................... $ 6.4 $ -- $2.4 $ 4.0
======= ==== ==== ======
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown on the next page. Expected
maturities will differ from contractual maturities because the issuers of the
securities may have the right to repay obligations without prepayment penalties.
IV-31
<PAGE> 13
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------
AMORTIZED FAIR
COST VALUE
--------- -----
(IN MILLIONS)
<S> <C> <C>
Debt securities
Due in one year or less.................................... $18.1 $18.1
Due after one year through five years...................... 30.7 30.7
Due after five years through 10 years...................... 2.0 2.0
Due after 10 years......................................... 0.7 0.7
Mortgage-backed securities................................. 17.9 16.2
----- -----
Total debt securities................................... $69.4 $67.7
===== =====
</TABLE>
The following table summarizes sales of available-for-sale securities:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1995 1994
--------- ------
(IN MILLIONS)
<S> <C> <C>
Proceeds from sales......................................... $ 162.5 $374.4
Gross realized gains........................................ $ 0.7 $ 17.4
Gross realized losses....................................... $ (1.1) $ (4.1)
</TABLE>
Specific identification was used to determine cost in computing realized gain or
loss.
NOTE 4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION NET
-------- ------------ --------
(IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 1995
Land.......................................................... $ 136.9 $ -- $ 136.9
Buildings and facilities...................................... 925.1 383.5 541.6
Computer equipment............................................ 4,836.2 2,571.3 2,264.9
Other equipment and furniture................................. 663.6 364.6 299.0
-------- -------- --------
Total.................................................... $6,561.8 $3,319.4 $3,242.4
======== ======== ========
DECEMBER 31, 1994
Land.......................................................... $ 125.3 $ -- $ 125.3
Buildings and facilities...................................... 878.7 319.5 559.2
Computer equipment............................................ 3,967.6 2,096.6 1,871.0
Other equipment and furniture................................. 465.9 264.8 201.1
-------- -------- --------
Total.................................................... $5,437.5 $2,680.9 $2,756.6
======== ======== ========
</TABLE>
NOTE 5. LAND HELD FOR DEVELOPMENT
Land held for development at December 31, 1995 consists of approximately
2,260 acres located throughout the Dallas metropolitan area. Approximately 1,590
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 analysis and appraisals to determine whether an adjustment is
required.
IV-32
<PAGE> 14
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6. INVESTMENT IN LEASES AND OTHER
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN MILLIONS)
<S> <C> <C>
Lease contracts receivable (net of principal and interest on nonrecourse
debt).................................................................. $ 385.9 $ 384.5
Estimated residual values of leased assets (not guaranteed).............. 335.3 339.0
Unearned income, including deferred investment tax credits............... (246.8) (260.6)
-------- --------
Investment in leveraged leases (excluding deferred taxes of $303.0 and
$284.7 at December 31, 1995 and 1994, respectively)................. 474.4 462.9
Investment in securities, joint ventures, and partnerships............... 602.8 357.2
Investment in direct financing leases, net of unearned income............ 148.2 153.8
Noncurrent notes receivable.............................................. 89.6 158.1
GM Class E common stock held for benefit plans........................... 33.2 54.7
Investment in tax benefit transfers...................................... 36.2 38.6
Long-term prepaid software license fees.................................. 43.4 16.6
Other.................................................................... 145.7 66.9
-------- --------
Total............................................................... $1,573.5 $1,308.8
======== ========
</TABLE>
The fair values of certain long-term investments are estimated based on
quoted market prices for these or similar investments. For other investments, a
variety of methods are used to estimate fair value, including external
valuations and discounted cash flows. At December 31, 1995, the fair values of
investments in joint ventures and partnerships (accounted for using the cost
method), long-term securities, and noncurrent notes receivable were estimated to
be $271.4 million, $307.4 million, and $86.0 million, respectively, with
carrying amounts of $215.1 million, $263.2 million, and $89.6 million,
respectively. At December 31, 1994, the fair values of investments in joint
ventures and partnerships (accounted for using the cost method), long-term
securities, and noncurrent notes receivable were estimated to be $172.0 million,
$192.6 million, and $154.4 million, respectively, with carrying amounts of
$149.6 million, $201.2 million, and $158.1 million, respectively. The carrying
amount of securities, joint ventures and partnerships also includes investments
accounted for under the equity method, none of which are material to the
Company's consolidated financial statements. A decline in the market value of
any of these investments which is deemed to be other than temporary would be
charged to earnings. At December 31, 1995 and 1994, Investment in Leases and
Other was net of an allowance of $26.6 million and $17.5 million, respectively.
Long-term securities include GM Class E common stock and other securities. The
carrying value of the GM Class E common stock, which was less than the market
value, was utilized as the investment's fair value shown above, because the
stock will be used to satisfy future benefit plan obligations.
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 portfolio is
diversified among unrelated lessees.
IV-33
<PAGE> 15
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7. SOFTWARE, GOODWILL, AND OTHER INTANGIBLES
<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
-------- ------------ --------
(IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 1995
Software...................................................... $ 966.6 $606.8 $ 359.8
Goodwill...................................................... 1,225.6 129.6 1,096.0
Other intangibles............................................. 245.8 171.7 74.1
-------- ------ --------
Total....................................................... $2,438.0 $908.1 $1,529.9
======== ====== ========
DECEMBER 31, 1994
Software...................................................... $ 876.0 $462.1 $ 413.9
Goodwill...................................................... 833.9 80.4 753.5
Other intangibles............................................. 312.8 210.6 102.2
-------- ------ --------
Total....................................................... $2,022.7 $753.1 $1,269.6
======== ====== ========
</TABLE>
NOTE 8. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN MILLIONS)
<S> <C> <C>
Contract related......................................................... $1,044.8 $ 880.9
Payroll related.......................................................... 291.4 196.4
Operating expenses....................................................... 157.7 196.1
Property, sales, and franchise taxes..................................... 135.1 100.1
Other.................................................................... 75.5 77.5
-------- --------
Total.................................................................. $1,704.5 $1,451.0
======== ========
</TABLE>
NOTE 9. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN MILLIONS)
<S> <C> <C>
Commercial paper, 5.6% to 5.9%........................................... $1,078.0 $ 933.0
Lines of credit, variable rate 5.9% to 9.6%, due 1996.................... 118.9 48.7
Notes, variable rate, 3.0% to 11.2%, due 1996 to 2006.................... 9.3 91.1
Notes to Banks, fixed rate, 4.9% to 11.7%, due 1996 to 2003.............. 121.6 107.2
Notes Payable, fixed rate, 6.85% to 7.125%, due 2000 to 2005, net of
discount............................................................... 645.8 --
Notes Payable, fixed rate, 1.2% to 10.4%, due 1996 to 2004............... 127.0 44.4
-------- --------
Total.................................................................. 2,100.6 1,224.4
Less current maturities classified as notes payable.................... (247.8) (203.4)
-------- --------
Noncurrent notes payable............................................... $1,852.8 $1,021.0
======== ========
</TABLE>
IV-34
<PAGE> 16
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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. During 1995, the Company revised
its agreement with a syndicate of banks, which increased to $2,500.0 million its
committed lines of credit, of which $1,250.0 million expires in 1996 with the
option to convert any outstanding amounts under these lines into term loans that
mature in 1998. The remaining $1,250.0 million expires in 2000. Upon expiration
of the commitment periods, the lenders and EDS have the option to extend the
commitment.
In addition, as of December 31, 1995, the Company had available and had
used another $15.5 million in committed lines of credit. The Company also had
available $831.6 million in uncommitted short-term lines of credit, of which
$728.2 million remained unused at December 31, 1995.
In May 1995, EDS issued $350.0 million of its 6.85%, five-year notes and
$300.0 million of its 7.125% ten-year notes in a private placement to investment
banks.
Notes payable relate to land held for development, property and equipment,
acquisitions, and other items. Notes payable are generally unsecured with
certain notes secured by assets of a majority-owned subsidiary.
Maturities of notes payable for years subsequent to December 31, 1995 are
as follows (in millions):
<TABLE>
<S> <C>
1996................................... $ 247.8
1997................................... 60.6
1998................................... 35.5
1999................................... 6.9
2000................................... 1,433.1
Thereafter............................. 316.7
--------
$2,100.6
========
</TABLE>
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, 1995, the
Company was in compliance with all of these covenants.
For the years ended December 31, 1994 and 1993, interest costs of $1.2
million and $5.4 million, respectively, were capitalized, which, if charged to
expense, would have resulted in reductions in net income of $0.7 million and
$3.5 million, respectively. During 1995, the Company capitalized no interest
costs.
The fair value of notes payable is estimated based on the current rates
offered to the Company for the same remaining maturities. At December 31, 1995
and 1994, the estimated fair value was $2,168.4 million and $1,230.3 million,
respectively.
IV-35
<PAGE> 17
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10. CONSOLIDATED STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CURRENCY MARKET CONSOL.
--------------- TRANS. VALUE RETAINED STOCKHOLDER'S
SHARES AMOUNT ADJUST. ADJUST. EARNINGS EQUITY
------ ------ -------- ------- -------- -------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992............... 479.3 $365.9 $(52.7) $ -- $2,750.2 $ 3,063.4
Separate consolidated net income......... -- -- -- -- 724.0 724.0
Cash dividends declared -- $0.40 per
share................................. -- -- -- -- (192.1) (192.1)
Stock award transactions................. 1.6 55.3 -- -- -- 55.3
Currency translation adjustment.......... -- -- (33.2) -- -- (33.2)
----- ------ ------ ----- -------- ---------
Balance at December 31, 1993............... 480.9 421.2 (85.9) -- 3,282.1 3,617.4
Separate consolidated net income......... -- -- -- -- 821.9 821.9
Cash dividends declared -- $0.48 per
share................................. -- -- -- -- (231.1) (231.1)
Stock award transactions................. 0.8 33.9 -- -- -- 33.9
Currency translation adjustment.......... -- -- (3.0) -- -- (3.0)
Unrealized loss on securities, net (Note
3).................................... -- -- -- (6.6) -- (6.6)
----- ------ ------ ----- -------- ---------
Balance at December 31, 1994............... 481.7 455.1 (88.9) (6.6) 3,872.9 4,232.5
Separate consolidated net income......... -- -- -- -- 938.9 938.9
Cash dividends declared -- $0.52 per
share................................. -- -- -- -- (251.3) (251.3)
Stock award transactions................. 2.0 62.6 -- -- -- 62.6
Currency translation adjustment.......... -- -- (6.6) -- -- (6.6)
Unrealized gain on securities, net (Note
3).................................... -- -- -- 2.4 -- 2.4
----- ------ ------ ----- -------- ---------
Balance at December 31, 1995............... 483.7 $517.7 $(95.5) $(4.2) $4,560.5 $ 4,978.5
===== ====== ====== ===== ======== =========
</TABLE>
NOTE 11. INCOME TAXES
The current and deferred income tax liabilities (assets) are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(IN MILLIONS)
<S> <C> <C>
Current payable............................................................. $ 4.3 $ 49.3
Current deferred............................................................ 71.6 61.7
------ ------
Total income taxes -- current............................................. 75.9 111.0
Noncurrent deferred......................................................... 739.7 659.8
------ ------
Total current and noncurrent income taxes................................. $815.6 $770.8
====== ======
</TABLE>
IV-36
<PAGE> 18
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The provision for income tax expense is summarized as follows:
<TABLE>
<CAPTION>
U.S. U.S.
YEAR-ENDED FEDERAL NON-U.S. STATE TOTAL
- ---------- ------- -------- ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Current..................................................... $310.3 $117.3 $35.4 $463.0
Deferred.................................................... 44.5 20.6 -- 65.1
------ ------ ----- ------
Total..................................................... $354.8 $137.9 $35.4 $528.1
====== ====== ===== ======
DECEMBER 31, 1994
Current..................................................... $279.0 $167.9 $32.6 $479.5
Deferred.................................................... 15.8 (33.0) -- (17.2)
------ ------ ----- ------
Total..................................................... $294.8 $134.9 $32.6 $462.3
====== ====== ===== ======
DECEMBER 31, 1993
Current..................................................... $130.1 $ 77.8 $17.0 $224.9
Deferred.................................................... 161.0 21.4 -- 182.4
------ ------ ----- ------
Total..................................................... $291.1 $ 99.2 $17.0 $407.3
====== ====== ===== ======
</TABLE>
Income before income taxes included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
U.S. income...................................... $1,131.6 $ 963.5 $ 886.1
Non-U.S. income.................................. 335.4 320.7 245.2
-------- -------- --------
Total.......................................... $1,467.0 $1,284.2 $1,131.3
======== ======== ========
</TABLE>
A reconciliation of income tax expense using the statutory Federal income
tax rate of 35.0% for 1995, 1994, and 1993 to the actual income tax expense
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Income before income taxes..................................... $1,467.0 $1,284.2 $1,131.3
======== ======== ========
Statutory Federal income tax................................... $ 513.4 $ 449.5 $ 395.9
Non-U.S. taxes, net of credit.................................. 4.1 18.9 13.4
U.S. State income tax, net..................................... 23.0 21.2 11.1
Investment tax credit -- leveraged leases...................... (3.0) (3.1) (4.4)
Research and experimentation credits........................... (7.5) (11.3) (8.8)
Other.......................................................... (1.9) (12.9) 0.1
-------- -------- --------
Total........................................................ $ 528.1 $ 462.3 $ 407.3
======== ======== ========
Effective income tax rate...................................... 36.0% 36.0% 36.0%
==== ==== ====
</TABLE>
IV-37
<PAGE> 19
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1994
---------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Basis differences attributable to leasing activities.... $ 1.6 $ 488.4 $ 2.5 $ 504.8
Adjustments necessary to convert accruals to a tax
basis................................................. 129.9 246.8 111.9 215.1
Employee benefit plans.................................. 27.1 57.8 32.0 25.9
Accumulated tax depreciation/amortization versus
accumulated financial statement
depreciation/amortization............................. 12.0 259.5 18.7 211.2
Effect on deferred taxes of carryforwards............... 122.3 -- 102.9 --
Unpaid claims and unearned premiums related to NHIC..... 12.1 72.8 27.6 52.7
Employee related compensation........................... 94.0 -- 69.5 --
Allowance for doubtful accounts......................... 19.3 -- 4.8 --
Adjustments from conversion from cash to accrual basis
on open tax years..................................... 43.5 -- 43.5 --
Book to tax differences on securities................... 17.0 -- 15.0 --
Effect of lower tax rate on distributable foreign
earnings.............................................. 31.7 -- 29.6 --
Other................................................... 87.6 157.8 42.1 100.8
------- -------- ------- --------
Subtotal........................................... 598.1 1,283.1 500.1 1,110.5
Less valuation allowance........................... (126.3) -- (111.1) --
------- -------- ------- --------
Total deferred taxes............................... $ 471.8 $1,283.1 $389.0 $1,110.5
======= ======== ======= ========
</TABLE>
The net changes in the total valuation allowance for the years ended
December 31, 1995 and 1994 were increases of $15.2 million and $18.8 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 1984 Electronic Data Systems Corporation Employee Stock Purchase Plan
(Purchase Plan) enables EDS employees to purchase up to 80.0 million shares of
GM Class E common stock at 85% of the quoted market price through payroll
deductions of up to 10% of their compensation. Shares of GM Class E common stock
purchased under the Purchase Plan may not be sold or transferred within two
years of the date of purchase unless they are first offered to GM or 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 Purchase Plan was
58.1 million shares at December 31, 1995.
The 1984 Electronic Data Systems Corporation Stock Incentive Plan (1984
Plan) covers up to 160.0 million shares of GM Class E common stock and expires
on October 17, 2004. The 1984 Plan permits shares and rights or options to
acquire shares, which may be subject to restrictions, to be granted or sold. The
maximum number of shares for which additional shares, rights, or options may be
granted or sold under the provisions of the 1984 Plan was 93.3 million shares at
December 31, 1995.
The EDS Incentive and Compensation Committee (the Committee) granted the
right to purchase a total of 27.6 million shares of GM Class E common stock, at
prices of $0.0125 and $0.025 per share, to key employees under the provisions of
the 1984 Plan. As of December 31, 1995, substantially all of these shares have
vested. The difference between the quoted market price as of the date of grant
and the purchase price of shares granted has been charged to operations over the
vesting period. Expense for these awards amounted to $1.6 million, $13.3
million, and $16.3 million for the years ended December 31, 1995, 1994, and
1993, respectively.
IV-38
<PAGE> 20
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In 1995, 1994, 1991, and 1988, the Committee approved restricted stock unit
grants. The 1995 grant, related to the acquisition of A.T. Kearney (see Note
19), totals 6.6 million shares of GM Class E common stock. The 1995 grant and
the 1994 grant, which totaled 9.5 million shares, will be distributed to key
employees under the provisions of the 1984 Plan. The right to receive shares is
a restricted stock unit. All units granted are generally scheduled to vest over
a period of 10 years. The 1995 units are scheduled to vest beginning September
1996. The 1994, 1991, and 1988 grants began vesting in March 1995, March 1992,
and March 1989, respectively. 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, 1995 was 19.8 million.
The Company has a bonus plan under which awards are granted to key
executives and employees. Bonus expense amounted to $96.9 million, $86.6
million, and $49.8 million for the years ended December 31, 1995, 1994, and
1993, respectively. Included in bonus expense is $57.2 million, $48.7 million,
and $17.5 million relating to the restricted stock unit grants for the years
ended December 31, 1995, 1994, and 1993, respectively.
NOTE 13. DEFERRED COMPENSATION PLAN
The EDS Deferred Compensation Plan (Plan) provides a long-term savings
program for participants. The 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.
NOTE 14. SEGMENT INFORMATION
INDUSTRY SEGMENTS
The Company's business involves operations in principally one industry
segment: designing, installing, and operating business information and
communications systems. Revenues from GM contributed approximately 31%, 36%, and
39% of total revenues for the years ended December 31, 1995, 1994, and 1993,
respectively.
GEOGRAPHIC SEGMENTS
The following presents information about the Company's operations in
different geographic areas:
<TABLE>
<CAPTION>
U.S. EUROPE OTHER TOTAL
-------- -------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
Systems and other contracts revenues
Outside customers.................................. $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
======== ======== ======== =========
</TABLE>
IV-39
<PAGE> 21
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
U.S. EUROPE OTHER TOTAL
-------- -------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994
Systems and other contracts revenues
Outside customers.................................. $4,611.2 $1,308.1 $ 493.6 $ 6,412.9
GM and affiliates.................................. 2,764.4 523.4 259.4 3,547.2
-------- -------- -------- ---------
Total systems and other contracts revenues........... $7,375.6 $1,831.5 $ 753.0 $ 9,960.1
======== ======== ======== =========
Operating income..................................... $1,008.6 $ 168.3 $ 66.7 $ 1,243.6
======== ======== ======== =========
Identifiable assets.................................. $6,618.0 $1,573.8 $ 594.7 $ 8,786.5
======== ======== ======== =========
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993
Systems and other contracts revenues
Outside customers.................................. $4,004.5 $ 911.6 $ 267.5 $ 5,183.6
GM and affiliates.................................. 2,574.5 511.2 238.0 3,323.7
-------- -------- -------- ---------
Total systems and other contracts revenues........... $6,579.0 $1,422.8 $ 505.5 $ 8,507.3
======== ======== ======== =========
Operating income..................................... $ 906.5 $ 148.7 $ 56.1 $ 1,111.3
======== ======== ======== =========
Identifiable assets.................................. $5,350.6 $1,185.9 $ 405.6 $ 6,942.1
======== ======== ======== =========
</TABLE>
NOTE 15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates on a global basis receiving revenues and incurring
expenses in many different 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 exposures. 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 derivatives contracts are summarized below as part
of the description of the instruments utilized. The notional amounts do not
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 based upon the notional amounts and the
other terms of the derivatives. The Company is not a party to leveraged
derivatives.
INTEREST RISK MANAGEMENT
The Company has historically entered into interest rate swap agreements in
order to reduce the impact of changes in interest rates upon its floating-rate
debt. As of December 31, 1995 and 1994, the Company had no outstanding interest
rate swap agreements.
IV-40
<PAGE> 22
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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. At December 31, 1995 and 1994, the Company had forward
exchange contracts maturing in the following year to purchase various foreign
currencies in the amount of $651.9 million and $289.0 million, respectively, and
to sell $1,380.1 million and $766.5 million, respectively. The estimated fair
value of forward exchange contracts is based on quoted market prices. At
December 31, 1995, the estimated fair value of outstanding contracts in a gain
position was $5.5 million and the estimated fair value of outstanding contracts
in a loss position was ($10.9) million. At December 31, 1994, the estimated fair
value of outstanding contracts in a gain position was $3.3 million and the
estimated fair value of outstanding contracts in a loss position was ($4.2)
million. The Company recognizes realized and unrealized gains and losses on
foreign exchange contracts by marking to market all outstanding forward exchange
contracts. Fair value represents the cash required to settle foreign
exchange-forward contracts.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to foreign exchange contracts, but because the Company deals only
with major commercial banks with high quality credit, the Company does not
anticipate nonperformance by any of these counterparties.
NOTE 16. RETIREMENT PLANS
The Company has pension plans (the Plans) covering substantially all of its
employees, the majority of which 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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
Discount rate........................................................ 8.0% 8.9% 7.7%
Rate of increase in compensation levels.............................. 5.4% 5.7% 5.9%
Long-term rate of return on assets................................... 9.9% 10.0% 9.8%
</TABLE>
Net pension cost consisted of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost of the current period................................ $ 87.6 $ 96.1 $ 72.6
Interest cost on projected benefit obligation..................... 97.5 82.3 69.8
Actual return on assets........................................... (158.6) (22.3) (121.3)
Net amortization and deferral..................................... 59.9 (37.9) 75.2
------- ------ -------
Net pension cost.................................................. $ 86.4 $118.2 $ 96.3
======= ====== =======
</TABLE>
IV-41
<PAGE> 23
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At December 31, 1995 and 1994, the Plans' assets consisted primarily of
equity and fixed income securities, commingled pension trust funds, and U.S.
Government obligations. Accrued and/or prepaid pension cost is included in
Accrued Liabilities or Investment in Leases and Other in the Company's
Consolidated Balance Sheets.
The following is a reconciliation of the funded status of the Plans:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------- --------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Plans' assets at fair value.............................. $1,242.0 $ 8.2 $ 918.3 $ --
-------- -------- ------- --------
Actuarial present value of benefit obligation
Vested benefits........................................ 750.7 81.2 485.9 56.1
Nonvested benefits..................................... 78.4 13.3 57.6 11.2
-------- -------- ------- --------
Accumulated benefit obligation........................... 829.1 94.5 543.5 67.3
Effect of projected future salary increases.............. 462.9 57.9 326.4 25.5
-------- -------- ------- --------
Projected benefit obligation (PBO)....................... 1,292.0 152.4 869.9 92.8
-------- -------- ------- --------
Excess (deficiency) of Plans' assets over PBO............ (50.0) (144.2) 48.4 (92.8)
Unrecognized net (gain) loss............................. 126.7 (19.7) (28.3) (35.3)
Unrecognized net (asset) obligation at date of
adoption............................................... (3.1) 26.0 (9.6) 23.4
Unrecognized prior service cost.......................... 11.4 (0.8) 12.8 (1.0)
Additional minimum liability............................. -- (0.1) -- --
-------- -------- ------- --------
Net prepaid (accrued) pension cost....................... $ 85.0 $ (138.8) $ 23.3 $ (105.7)
======== ======== ======= ========
</TABLE>
NOTE 17. COMMITMENTS AND RENTAL EXPENSE
Commitments for rental payments under noncancelable operating leases for
each of the next five years ending December 31 and thereafter for computer
equipment, software, and facilities are as follows (in millions):
<TABLE>
<S> <C>
1996..................................... $371.5
1997..................................... 273.7
1998..................................... 193.1
1999..................................... 168.7
2000..................................... 142.9
Thereafter............................... 646.5
</TABLE>
Total rentals under cancelable and noncancelable leases, principally
computer equipment, leased facilities, and other leased assets, included in
costs and charged to expenses were $676.1 million, $524.3 million, and $564.9
million for the years ended December 31, 1995, 1994, and 1993, respectively.
Total rentals under cancelable and noncancelable leases for software included in
costs and charged to expenses were $306.8 million, $220.2 million, and $129.3
million for the years ended December 31, 1995, 1994, and 1993, respectively.
At December 31, 1995 and 1994, the Company had $43.9 million and $51.5
million, respectively, outstanding under standby letters of credit related to
payment and performance guarantees.
IV-42
<PAGE> 24
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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. The amount of liability on these claims and
actions at December 31, 1995 was not determinable, but in the opinion of
management, the ultimate liability, if any, will not have a material adverse
effect on the Company's consolidated results of operations or financial
position.
NOTE 19. ACQUISITIONS
On August 31, 1995, the Company acquired A.T. Kearney, a Chicago-based
international management consulting firm. 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 shareholders and principals. The terms of the
acquisition agreement also include a restricted stock grant of approximately 6.6
million shares of GM Class E common stock, which will vest over a ten-year
period for certain A.T. Kearney personnel remaining with the Company (see Note
12). Prior to December 31, 1995, $80.9 million of short-term notes related to
the acquisition were retired.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the excess purchase price over net assets acquired, based upon 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 ten-year period. The
Consolidated Statements of Income include the operations of A.T. Kearney since
the date of acquisition. Pro forma disclosure relating to A.T. Kearney's results
of operations is not presented, as the impact is immaterial to EDS.
In conjunction with acquisitions made during the years ended December 31,
1995 and 1994, assets were acquired and liabilities were assumed as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
------- -------
(IN MILLIONS)
<S> <C> <C>
Fair value of assets acquired............................ $ 674.7 $ 427.8
Less: Cash paid for stock and assets, net of cash
acquired........................................... (234.9) (186.6)
Debt issued for stock and assets................... (184.9) (94.9)
------- -------
Liabilities assumed................................. $ 254.9 $ 146.3
======= =======
</TABLE>
NOTE 20. SUPPLEMENTARY FINANCIAL INFORMATION
The following summarizes certain costs charged to expense for the years
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Depreciation of property and equipment......................... $808.1 $577.5 $465.6
====== ====== ======
Amortization................................................... $299.7 $193.6 $161.2
====== ====== ======
</TABLE>
IV-43
<PAGE> 25
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
The components of Interest and other income, net, are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Interest and other income..................................... $ 58.8 $ 92.3 $ 54.5
Interest expense.............................................. (120.8) (51.7) (34.5)
------- ------ ------
Total.................................................... $ (62.0) $ 40.6 $ 20.0
======= ====== ======
</TABLE>
Supplemental cash flow information is presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Cash paid for
Income taxes, net of refunds................................. $407.8 $465.6 $183.8
====== ====== ======
Interest, net of amount capitalized.......................... $108.3 $ 49.7 $ 40.2
====== ====== ======
</TABLE>
NOTE 21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Systems and other contracts revenues.................. $2,776.3 $2,950.1 $3,073.7 $3,622.0
Gross profit from operations.......................... 600.2 654.9 687.6 877.8
Income before income taxes............................ 307.5 354.5 384.0 421.0
Separate Consolidated Net Income...................... 196.8 226.9 245.7 269.5
Available Separate Consolidated Net Income............ $ 122.4 $ 205.8 $ 222.9 $ 244.4
Earnings Attributable to GM Class E Common Stock on a
Per Share Basis..................................... $0.42 $0.47 $0.51 $0.56
Stock price range of GM Class E Common Stock
High............................................. $41.38 $45.25 $47.50 $52.63
Low.............................................. $36.88 $38.38 $41.50 $43.88
YEAR ENDED DECEMBER 31, 1994
Systems and other contracts revenues.................. $2,217.2 $2,309.5 $2,522.8 $2,910.6
Gross profit from operations.......................... 506.6 584.1 602.1 737.9
Income before income taxes............................ 268.3 308.2 338.1 369.6
Separate Consolidated Net Income...................... 171.7 197.3 216.4 236.5
Available Separate Consolidated Net Income............ $ 92.1 $ 106.5 $ 117.3 $ 128.5
Earnings Attributable to GM Class E Common Stock on a
Per Share Basis..................................... $0.36 $0.41 $0.45 $0.49
Stock price range of GM Class E Common Stock
High............................................. $36.88 $38.00 $38.50 $39.50
Low.............................................. $27.50 $32.88 $33.00 $34.75
</TABLE>
IV-44
<PAGE> 26
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $12,422.1 $9,960.1 $8,507.3 $8,155.2 $7,028.5
Separate Consolidated Net Income Before
Cumulative Effect of Accounting Change.... 938.9 821.9 724.0 635.5 563.0
Separate Consolidated Net Income After
Cumulative Effect of Accounting Change.... $ 938.9 $ 821.9 $ 724.0 $ 635.5 $ 547.5
Average number of shares of GM Class E
common stock outstanding (in millions).... 404.6 260.3 243.0 209.1 195.3
Class E dividend base (in millions)......... 483.7 481.7 480.6 479.3 478.1
Available Separate Consolidated Net
Income.................................... $ 795.5 $ 444.4 $ 367.2 $ 278.4 $ 223.6
Earnings Attributable to GM Class E
Common Stock on a Per Share Basis Before
Cumulative Effect of Accounting Change.... $1.96 $1.71 $1.51 $1.33 $1.17
Earnings Attributable to GM Class E
Common Stock on a Per Share Basis After
Cumulative Effect of Accounting Change.... $1.96 $1.71 $1.51 $1.33 $1.14
Expenditures for property and equipment..... $ 1,261.5 $1,186.0 $ 816.4 $ 639.0 $ 673.2
Cash and marketable securities.............. $ 638.6 $ 757.8 $ 607.5 $ 587.9 $ 415.8
Current assets.............................. $ 4,381.5 $3,354.1 $2,506.8 $2,157.0 $1,945.6
Current liabilities......................... $ 3,261.4 $2,873.2 $2,160.4 $1,903.1 $2,396.7
Total assets................................ $10,832.4 $8,786.5 $6,942.1 $6,123.5 $5,703.2
Long-term debt.............................. $ 1,852.8 $1,021.0 $ 522.8 $ 561.1 $ 281.9
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
EDS is a provider of information technology ("IT") services using computer
and communication technologies to meet the business needs of its clients. EDS
offers its clients a continuum of services, including the management and
operation of computers, networks, information systems, information processing
facilities, business operations, and related personnel, as well as management
consulting services.
Proposed Split-Off of EDS
The GM Board of Directors has approved a split-off (the "Split-Off") of EDS
to the holders of General Motors' Class E Common Stock in a transaction that is
tax-free for U.S. federal income tax purposes. GM's Board believes that the
Split-Off is in the best interest of and is fair to GM and the holders of each
of the three outstanding classes of GM common stock. The Split-Off will be
submitted for approval by the common stockholders of General Motors and, if
approved, is expected to be consummated in the second quarter of 1996.
The Split-Off is intended to accomplish three principal objectives from the
perspective of EDS and the holders of Class E Common Stock: (i) to remove
limitations on EDS' ability to participate in major strategic alliances
(including mergers and acquisitions which can be effected using EDS Common
Stock); (ii) to remove limitations on EDS' ability to obtain additional business
from and establish new customer relationships with companies that compete with
General Motors or its subsidiaries; and (iii) to enhance EDS' access to the
capital necessary for investment in its future growth.
IV-45
<PAGE> 27
In connection with the Split-Off, the GM Board of Directors approved a
Master Services Agreement (the "Master Services Agreement") to be entered into
between EDS and General Motors with respect to information technology services
to be provided after the Split-Off, as well as a special payment to be made by
EDS to GM (the "Special Inter-Company Payment"). If the Split-Off is not
completed, EDS will continue as an indirect wholly owned subsidiary of GM and no
Special Inter-Company Payment will be made. Under such circumstances, the
existing agreements and arrangements between GM and EDS with respect to IT
services (the "Existing IT Services Agreements") will continue with such changes
as GM and EDS may from time to time agree upon or as the GM Board of Directors
upon recommendation of its Capital Stock Committee may from time to time
determine to be fair to all classes of GM common stockholders. No agreement has
been reached between GM and EDS regarding any changes to the Existing IT
Services Agreements which would take effect if the Split-Off is not approved by
GM stockholders or is not consummated for any other reason. GM management has
advised EDS management that in such an eventuality it would seek substantial
changes in the Existing IT Services Agreements, including implementation of
substantially all of the changes provided for by the Master Services Agreement.
Neither the GM Board nor its Capital Stock Committee has determined whether to
require such changes to the Existing IT Services Agreements if the Split-Off is
not consummated, but they anticipate considering such changes if such
circumstances arise.
The Master Services Agreement and certain related agreements between
General Motors and EDS with respect to IT services to be provided after the
Split-Off (collectively, the "IT Services Agreements") contemplate that EDS
would continue to serve as General Motors' principal supplier of IT services for
a term of ten years, which may be extended by agreement of the parties, and that
the IT services to be provided by EDS after the Split-Off will generally be
similar to those provided to General Motors under the Existing IT Services
Agreements. Certain of the existing service arrangements applicable to
particular units, sectors or other organizations within General Motors will be
extended for additional terms of between approximately one and three years
beyond their current expiration dates. In addition, under the IT Services
Agreements, EDS will provide certain plant floor automation services in North
America that it has not previously provided. The IT Services Agreements also
provide that certain significant changes will be made to the pricing and terms
under which EDS will provide IT services to General Motors after the Split-Off.
Among other things, the IT Services Agreements provide that the rates charged by
EDS to General Motors for certain information processing activities and
communications services will be reduced and that the parties will work together
to achieve increased targets for structural cost reductions. General Motors will
also be given the right to competitively bid and, subject to certain
restrictions, outsource a limited portion of its IT service requirements to
third party providers. In addition, beginning in 1997, the payment terms
relating to IT services provided by EDS will be revised over a two-year period
to extend the due dates for payments from General Motors. The GM Board of
Directors believes that the changes reflected in the IT Services Agreements are
necessary (i) in light of the fact that, after the Split-Off, EDS will no longer
be a subsidiary of General Motors and the Capital Stock committee of the GM
Board of Directors will no longer be able to monitor the IT service arrangements
between the parties; (ii) to reflect the evolutionary nature of the General
Motors-EDS customer relationship and the IT services industry; and (iii) to
provide additional assurance to General Motors, as EDS' largest customer, that
the IT services performed by EDS will remain competitive.
Based on currently available information and assuming that the IT Services
Agreements had been effective as of January 1, 1996, EDS believes that revenues
generated from services performed for General Motors in 1996 would be slightly
lower than those generated from such services in 1995. In addition, EDS expects
that the contemplated changes in its arrangements with GM could reduce its 1996
earnings per share by as much as $0.07 to $0.14 (including $0.03 in the first
quarter of 1996). The long-term impact of the terms of the IT Services
Agreements cannot be precisely quantified at present, although such terms may
have an adverse effect on operating margins unless EDS is able to effect
reductions in the costs of providing services to General Motors. Although EDS
plans to implement certain cost reduction measures, there can be no assurance as
to the extent if any, to which such measures will mitigate the possible adverse
impact on its operating margins. In general, there can be no assurance that the
terms of the IT Services Agreements would not have a material adverse effect in
the long-term on the results of operations of EDS.
IV-46
<PAGE> 28
The Special Inter-Company Payment will be paid by EDS to GM at such time,
if any, as the Split-Off occurs. The amount of the Special Inter-Company Payment
will be $500.0 million. Interest costs related to the Special Inter-Company
Payment are expected to be approximately $.03 per share in 1996. In addition to
the Special Inter-Company Payment, EDS expects to incur approximately $35.0
million, or approximately $.05 per share in 1996, of one-time costs in
connection with the formulation and implementation of the Split-Off. Certain of
these costs will be incurred only if the Split-Off is consummated. In arriving
at the amount of the $500 million Special Inter-Company Payment, the parties
took into account the fact that in the Separation Agreement GM would provide EDS
an allowance of $50 million relating to the resolution of various uncertain,
contingent or other matters arising out of the separation of GM and EDS.
Statements about the effect of the proposed Split-Off and the impact of the
agreement relating to IT Services after the proposed Split-Off are
forward-looking statements which by their nature are subject to numerous
uncertainties that could cause actual results to vary. Further information about
the terms of the proposed Split-Off will be set forth in a joint consent
solicitation statement and prospectus of GM and EDS to be filed with the
Securities and Exchange Commission and distributed to GM common stockholders in
connection with the submission of the Split-Off for approval by such
stockholders. No offering of securities of EDS in connection with the proposed
Split-Off will be made other than by means of such prospectus.
RESTRUCTURING ACTIVITIES
On April 1, 1996, EDS announced that it is taking certain actions and
considering others to maintain and improve operating efficiencies and accelerate
EDS' move towards "user-centered" computing. In connection therewith, EDS also
announced the implementation of a voluntary early retirement offer and
involuntary severance arrangements affecting between 4,000 and 5,000 employees
and designed to both reduce labor costs and change the skill mix of EDS'
workforce. Communication of terms of these arrangements to employees began on
April 1 and will continue during the second quarter of 1996. It is expected that
substantially all of these workforce reductions would be completed by December
1996.
As part of its overall goal to improve operating efficiencies, EDS is also
in the process of evaluating certain aspects of its business to identify any
redundant facilities and related assets which may no longer fit its long-term
strategic objectives. Accordingly, the actions under consideration could include
the elimination by EDS of certain business functions and consolidation of
certain related facilities.
EDS will incur a pre-tax non-recurring charge in the second quarter of 1996
in connection with the restructuring actions discussed above. The amount of the
aggregate charge (including the employee related actions, asset writedowns, and
other actions being considered) will depend on the number of employees who elect
to accept early retirement offers and the determination of which EDS business
functions and related facilities would be eliminated or consolidated. EDS
estimates that all such actions could result in an aggregate pre-tax
non-recurring charge in the second quarter of 1996 in the range of $500.0
million to $750.0 million (between $.66 and $.99 per share, after tax). A
portion of the contemplated charge will be of a non-cash nature, the amount of
which has not yet been determined. EDS expects that any restructuring actions
implemented by it will result in savings commencing in the second half of 1996.
The restructuring activities discussed above are not contingent upon approval or
consummation of the Split-Off.
Statements about the effect of EDS' actions and the possible amount of a
non-recurring charge are forward-looking statements which by their nature are
subject to numerous uncertainties that could cause actual results to vary.
IV-47
<PAGE> 29
RESULTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Revenues. EDS conducts its sales, marketing and service activities on a
global basis 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, 1995, 1994 and 1993:
SYSTEMS AND OTHER CONTRACTS REVENUES
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
OUTSIDE CUSTOMERS:
United States............................................... $ 5,794.9 $4,611.2 $4,004.5
Europe...................................................... 2,001.5 1,308.1 911.6
Other....................................................... 734.6 493.6 267.5
--------- -------- --------
TOTAL OUTSIDE CUSTOMERS.................................. 8,531.0 6,412.9 5,183.6
--------- -------- --------
GM AND AFFILIATES:
United States............................................... 2,926.1 2,764.4 2,574.5
Europe...................................................... 659.2 523.4 511.2
Other....................................................... 305.8 259.4 238.0
--------- -------- --------
TOTAL GM AND AFFILIATES.................................. 3,891.1 3,547.2 3,323.7
--------- -------- --------
TOTAL SYSTEMS AND OTHER CONTRACTS REVENUES.................... $12,422.1 $9,960.1 $8,507.3
========= ======== ========
PERCENTAGE OF TOTAL REVENUES:
Outside Customers............................................. 69% 64% 61%
GM and Affiliates............................................. 31% 36% 39%
--- --- ---
Total....................................................... 100% 100% 100%
=== === ===
</TABLE>
Total revenues increased 25% in 1995 to $12,422.1 million from $9,960.1
million in 1994, which represented a 17% increase over 1993 total revenues of
$8,507.3 million. Revenues from customers other than General Motors and its
affiliates (outside customers) grew 33% in 1995 to $8,531.0 million, compared to
a 24% increase in 1994 from $5,183.6 million in 1993. Total revenues related to
GM and its affiliates were $3,891.1 million, $3,547.2 million, and $3,323.7
million in 1995, 1994 and 1993, respectively. The percentage of EDS' total
revenues generated from GM and its affiliates declined to 31% in 1995 from 36%
in 1994 and 39% in 1993. EDS expects this trend to continue as revenues from
outside customers continue to grow.
Total domestic revenues from outside customers increased 26% from $4,611.2
million in 1994 to $5,794.9 million for 1995. This compares with growth rates of
15% in 1994 and 8% in 1993. The increase in 1995 was attributable to full-year
revenues on contracts which began in late 1994 and to revenues related to
acquisitions, primarily the A.T. Kearney acquisition in August 1995. Domestic
revenues from outside customers in 1994 increased over 1993 results due to
revenues associated with new contracts signed in 1993 and 1994.
During 1995, non-U.S. revenues from outside customers increased $934.4
million compared with an increase of $622.6 million in 1994 from $1,179.1
million in 1993. Growth in revenues from outside customers in Europe increased
$693.4 million in 1995 from revenues associated with new contracts signed during
1994 and 1995, as well as certain acquisitions which occurred in late 1994 or
1995. In 1994, non-U.S. revenues from outside customers in Europe increased
$396.5 million, or 43%, to $1,308.1 million.
Other non-U.S. revenues from outside customers grew $241.0 million over
1994, to $734.6 million due to new contracts signed in Asia/Pacific and Canada,
as well as full-year revenues from acquisitions in New Zealand which occurred in
1994. Other non-U.S. revenues from outside customers in 1994 was up $226.1
million over 1993 due in part to business in Japan and New Zealand.
IV-48
<PAGE> 30
The following summary table sets forth the percentage of revenues for each
of the years in the three-year period ended December 31, 1995, derived from EDS'
principal industry areas.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
INDUSTRY AREA 1995 1994 1993
------------- ---- ---- ----
<S> <C> <C> <C>
Manufacturing........................................... 47% 49% 51%
Financial Services...................................... 14 14 15
Government.............................................. 12 10 10
All others individually less than 10%................... 27 27 24
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Other than General Motors, no one client accounted for more than 5% of EDS'
total revenues in 1995, 1994, or 1993. GM business, which has historically grown
at a slower rate than business from outside customers, is included in the
Manufacturing industry area. The Government industry area has grown due to,
among other reasons, EDS' success in selling to newly privatized sectors in
Europe.
Costs and Expenses. Cost of revenues as a percentage of systems and other
contracts revenues was 77% in 1995, compared with 76% in 1994 and 75% in 1993.
Cost as a percentage of revenues has increased due to higher labor costs for
skilled workforce and pricing pressures as a result of the increasingly
competitive environment in which EDS operates. The increasingly competitive
environment in which EDS operates results in part from a long-term trend of
convergence occurring in the computing, communications and media/entertainment
sectors of the information industry. EDS is addressing this environment in part
through expected efficiencies to be gained from its restructuring activities
described above and its value-added business approach. Selling, general and
administrative expenses increased 9% in 1995 to $1,291.5 million from $1,187.1
million in 1994, which increased 18% from 1993. Selling, general and
administrative expenses were 10% of systems and other contracts revenues in
1995, down from 12% in 1994 and 1993 due to the fixed nature of certain of these
costs.
Operating Income. Operating income increased $285.4 million to $1,529.0
million in 1995. Operating income was $1,243.6 million and $1,111.3 million for
1994 and 1993, respectively. Operating margins declined from 12.5% in 1994 to
12.3% in 1995 due to the aforementioned changes in costs and expenses, as well
as increased reserves for certain customer receivables. The 1993 operating
margin was 13.1%.
Interest and Other Income, net. Interest and other income, net, decreased
$102.6 million in 1995 to $(62.0) million, compared with $40.6 million in 1994
and $20.0 million in 1993. The primary reason for the decrease in 1995 was due
to increased interest expense. Interest expense increased to $120.8 million in
1995, compared with $51.7 million in 1994 and $34.5 million in 1993. The
increase in 1995 resulted from interest associated with the issuance of $350.0
million of 6.85% notes due May 15, 2000 (the "Five-year Notes") and $300.0
million of 7.125% notes due May 15, 2005 (the "Ten-year Notes"), as well as from
other borrowings. These borrowings were used for general corporate purposes,
including the repayment of outstanding commercial paper borrowings, property and
equipment expenditures, acquisitions, and other contract-related investments to
support business growth. Interest and other income decreased from $92.3 million
in 1994 to $58.8 million in 1995 primarily due to lower interest income on notes
receivable and the recognition of other than temporary declines in the fair
value of certain investment securities.
Income Taxes. The effective income tax rate was 36% in 1995, 1994 and 1993.
Net Income. EDS' separate consolidated net income increased 14% to $938.9
million in 1995, compared with $821.9 million for 1994 and $724.0 million in
1993. Earnings per share attributable to GM's Class E common stock increased 15%
to $1.96 per share in 1995 and 13% to $1.71 per share in 1994, based on EDS'
Available Separate Consolidated Net Income as described in Note 1 to EDS'
Consolidated Financial Statements.
IV-49
<PAGE> 31
EDS and its customers may, from time-to-time, modify their contractual
arrangements. For customer contracts accounted for under the
percentage-of-completion method, such changes would be reflected in results of
operations as a cumulative change in accounting estimate in the period the
revisions are determined.
Seasonality and Inflation. EDS' revenues vary over the calendar year, with
the fourth quarter generally reflecting the highest revenues for the year due to
certain EDS services that are purchased more heavily in the fourth quarter as a
result of the spending patterns of several customers. In addition, revenues have
generally increased from quarter to quarter as a result of new business added
throughout the year. EDS believes that inflation generally had little effect on
its results of operations for each of the years ended December 31, 1995, 1994,
and 1993.
FINANCIAL POSITION
Assets. In 1995, EDS' total assets increased to $10,832.4 million, a 23%
increase over total assets of $8,786.5 million at December 31, 1994. This change
represents increases in accounts receivable and property and equipment for
contract-related investments and an increase in intangible assets related to
acquisitions, primarily the acquisition of A.T. Kearney. Accounts receivable
from outside customers increased $789.9 million due to more competitive contract
terms, receivables acquired in the A.T. Kearney acquisition ($149.3 million),
and an increase in unbilled receivables on newer contracts.
At December 31, 1995, EDS held cash and cash equivalents of $548.9 million,
had working capital of $1,120.1 million, and a current ratio of 1.3-to-1. This
compares to $480.9 million in working capital and a 1.2-to-1 current ratio at
December 31, 1994.
On August 31, 1995, EDS acquired A.T. Kearney, a Chicago-based
international management consulting firm. At the acquisition date, EDS paid
approximately $113 million in cash and $162 million in short and long-term notes
to A.T. Kearney shareholders in connection with this acquisition. Additionally,
the terms include restricted stock grants of approximately 6.6 million shares of
GM Class E common stock, which will vest over a ten-year period for certain A.T.
Kearney personnel remaining with EDS. Prior to December 31, 1995, EDS retired
$80.9 million of short-term notes related to the acquisition. After the
acquisition, EDS' Management Consulting Services unit was combined with A.T.
Kearney to create a new wholly owned subsidiary operating under the A.T. Kearney
brand.
Return on assets was 9.6% in 1995, compared with 10.5% for 1994 and 11.1%
for 1993. Return on assets has declined due to the increasing capital intensity
of EDS' business and increased contract-related investments in computers and
telecommunications equipment, software, and other property and equipment.
Additionally, EDS' results for the year ended December 31, 1995, include the
results of A.T. Kearney's operations only since the acquisition date.
Liabilities and Stockholder's Equity. Total liabilities increased in 1995
to support business growth and as a result of the issuance of EDS' Five-year and
Ten-year Notes. Additionally, EDS revised its agreement with a syndicate of
banks, which increased EDS' committed lines of credit to $2,500.0 million. Total
debt was $2,100.6 million and $1,224.4 million at December 31, 1995 and 1994,
respectively, which consisted of long-and short-term notes payable. The total
debt-to-capital ratio (which includes current notes payable as a component of
capital) was 29.7% at December 31, 1995, and 22.4% at December 31, 1994. The
ratio of noncurrent debt-to-capital was 27% at December 31, 1995, and 19% at
December 31, 1994. At December 31, 1995, EDS had unused uncommitted short-term
lines of credit totaling $728.2 million and unused committed lines of credit of
$2,500.0 million. The unused committed lines of credit of $2,500.0 million serve
as a backup facility for EDS' commercial paper borrowings. At December 31, 1995,
EDS had total committed lines of credit of $2,515.5 million.
Stockholder's equity was $4,978.5 million at December 31, 1995, and
$4,232.5 million at December 31, 1994. Return on stockholder's equity was 20.4%
in 1995, compared with 20.9% in 1994 and 21.7% in 1993.
New Accounting Standards. The Financial Accounting Standards Board (FASB)
has issued Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which will become effective for fiscal years beginning in 1996.
IV-50
<PAGE> 32
The Statement requires that long-lived assets and certain identifiable
intangibles to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, and for the measurement of loss to be based on the fair value of
the asset. In addition, long-lived assets and certain identifiable intangibles
to be disposed of are generally to be reported at the lower of the carrying
amount or fair value less selling costs.
As discussed above, EDS is in the process of evaluating certain aspects of
its business to identify any redundant facilities and related assets which may
no longer fit its long-term strategic objectives. Since this evaluation is not
expected to be completed until the second quarter of 1996, EDS believes the
effects of initially adopting SFAS No. 121 as of January 1, 1996, will be
immaterial to its consolidated financial statements.
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation,
which will become effective for fiscal years beginning in 1996. The Company
intends to remain on Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, for the preparation of its basic consolidated
financial statements and provide pro forma disclosures as if the SFAS No. 123
fair value method had been applied. Accordingly, the Company expects no impact
on the basic consolidated financial statements upon adoption of this Statement.
Foreign Exchange Risk Management. The translation effects of changes in
exchange rates on EDS' Consolidated Financial Statements can be found in the
consolidated stockholder's equity currency translation adjustment in Note 10 and
in the effect of exchange rate changes on cash and cash equivalents in the EDS
consolidated statements of cash flows. The disclosure of nonfunctional currency
transactions gains (losses) is contained in the "Summary of Significant
Accounting Policies" in Note 1. All other effects of changes in exchange rates
on EDS' consolidated financial statements are immaterial due to the general
nature of EDS' business and its risk management strategies described below. EDS'
foreign subsidiaries conduct nearly all aspects of their respective operations
using their respective functional currencies. Accordingly, such operations are
not expected to yield significant currency risks.
EDS hedges predominantly all its transaction risk associated with material
monetary assets and liabilities denominated in currencies other than the U.S.
dollar. EDS does not hedge the foreign exchange risk related to either the
translation of foreign earnings into U.S. dollars or the translation of its net
investment in foreign subsidiaries into U.S. dollars. EDS has no material
unhedged monetary assets or liabilities denominated in currencies other than its
foreign operations' functional currencies.
EDS conducts business in the United States and approximately 40 other
countries. EDS' most significant foreign currency transaction exposures relate
to Canada, Western European countries (primarily Germany, the United Kingdom,
Italy, the Netherlands and Switzerland) and New Zealand. EDS manages the foreign
exchange transaction exposure resulting from its multinational operations
primarily by utilizing short-term forward contracts which are used to hedge the
aggregate net exposure in each currency. Derivatives involve, to varying
degrees, elements of credit risk in the event a counterparty should default and
market risk as the instruments are subject to rate and price fluctuations.
Credit risk is managed by dealing solely with major commercial banks with high
quality credit and, therefore, EDS management does not expect to incur any cost
due to counterparty default. Market risk is inherently limited by the fact that
EDS holds offsetting asset or liability positions. Pursuant to its prescribed
policies, EDS does not hold or issue financial instruments for trading purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, net cash provided by operating
activities was $1,259.0 million, down $273.5 million from the same period in
1994 due to increases in accounts receivable, including an increase in
receivables from GM and its affiliates. For the year ended December 31, 1994,
net cash provided by operating activities was $1,532.5 million, up $111.5
million from 1993, due in part to increases in accounts payable and accrued
liabilities. Net cash provided by operating activities for 1993 consisted of
depreciation and amortization as well as increases in working capital items.
IV-51
<PAGE> 33
For the year ended December 31, 1995, net cash used in investing activities
increased $241.8 million, to $1,781.5 million when compared to the same period
for 1994. Net cash used in investing activities increased $472.0 million, to
$1,539.7 million in 1994 from $1,067.7 million in 1993. Consistent with the
increasing capital intensity of EDS' business, cash used in investing activities
consisted largely of payments for purchases of property and equipment of
$1,261.5 million, $1,186.0 million, and $816.4 million in 1995, 1994 and 1993,
respectively. Additionally, EDS used cash for investments in leases and other
assets and for payments related to acquisitions.
Net cash provided by financing activities was $465.1 million for the year
ended December 31, 1995, up $258.6 million from the corresponding period in 1994
due in part to the issuance of long-term debt and notes payable, particularly
the issuance of the Five-year Notes and Ten-year Notes. For the year ended
December 31, 1994, net cash provided by financing activities was $206.5 million,
compared with cash used in financing activities of $378.2 million in 1993. EDS
paid cash dividends to GM totaling $251.3 million, $231.1 million, and $192.1
million in 1995, 1994 and 1993, respectively.
EDS expects that its principal uses of funds for the foreseeable future
will be for capital expenditures, debt repayment, working capital and costs
associated with the Split-Off, as well as the payment of the Special
Inter-Company Payment to General Motors. 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 1996 are approximately $1,400.0 to $1,700.0 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 Existing IT Services Agreements provide for GM to pay EDS on the 15th
day of the month in which services are provided with respect to a substantial
portion of services. Under the IT Services Agreements, there will be a
transition over a two-year period, beginning in 1997, to payment on the 20th day
of the month following service for all agreements which do not already have
payment terms at least that favorable to GM. These revised payment terms are
expected to result in an increase in EDS' working capital requirements. EDS will
obtain the funds for this working capital impact and for the Special
Inter-Company Payment through borrowings under its existing commercial paper or
bank credit facilities. EDS currently anticipates that it may seek to refinance
such commercial paper or bank borrowings as part of its general plan to extend
maturities of its indebtedness.
The competitive environment and changing market forces are increasing the
capital intensity of EDS' business. Increasing amounts of capital will be
required by EDS in order to make investments in acquisitions, joint ventures and
strategic alliances in other parts of the information industry and in new
product development. In addition, information technology customer contracts
frequently require investments in computers and telecommunications equipment,
software, and other property, plant and equipment. For these reasons, EDS'
ability to continue to access the capital markets on an efficient basis will
become increasingly important to its ability to compete effectively.
The Split-Off is intended, among other things, to afford EDS more flexible
access to capital markets to meet its growing needs without regard to competing
considerations of GM and its affiliates. Following the Split-Off, EDS may over
time incur substantially more debt than it has while a subsidiary of GM. As a
result, EDS' financial leverage may increase in the future. To the extent that
EDS would become more highly leveraged following the Split-Off, EDS may be
required to pay higher interest rates on its outstanding borrowings. In order to
provide the funds necessary for EDS' future acquisition and expansion goals, EDS
expects that it might incur, from time to time, additional bank financing and/or
issue equity or debt securities, depending on market and other conditions.
* * * *
IV-52
