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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 01-11779
ELECTRONIC DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2548221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 Legacy Drive, Plano, Texas 75024-3199
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 604-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange
London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 18, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant (based on the closing price on such
date as reported on the New York Stock Exchange Composite Transactions) was
approximately $22.7 billion.
There were 487,160,497 shares of the registrant's common stock outstanding
as of February 18, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1996 Annual Report to Stockholders are
incorporated by reference in Parts II and IV and portions of the registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on June 5,
1997 are incorporated by reference in Part III.
PART I
ITEM 1 BUSINESS
Electronic Data Systems Corporation ("EDS") was incorporated in Delaware in
1994 and succeeded to the business and assets of Electronic Data Systems
Corporation, a Texas corporation which was incorporated in 1962, at the time of
the split-off (the "Split-Off") of EDS from General Motors Corporation ("GM") on
June 7, 1996. In October 1984, GM acquired all of the capital stock of the Texas
corporation, which prior to that time had been an independent, publicly held
corporation. As a result of the Split-Off, EDS once again became an independent
publicly held corporation with its Common Stock listed for trading on the New
York and London Stock Exchanges.
EDS is a world leader in applying information technology ("IT"), with 35
years of experience in using advanced computer and communications technologies
to meet its clients' business needs. As of December 31, 1996, EDS employed
approximately 100,000 persons and served clients in the United States and 41
other countries. Unless the context otherwise requires, references herein to EDS
include its predecessor and subsidiaries.
Services
EDS offers its clients a continuum of services worldwide, including the
management of computers, networks, information systems, information processing
facilities, business operations and related personnel, providing to its clients
advantages in cost-effectiveness, speed of implementation and state-of-the-art
technology. In delivering this continuum of services, EDS generally performs one
or more of five basic functions:
. Management Consulting Services. Through its A.T. Kearney subsidiary, EDS
offers management consulting services, including business and market
strategy, benchmarking and best practices analysis, business process
reengineering, manufacturing and operations improvement, organizational
effectiveness, global sourcing and logistics and supply chain
management.
. Creation of IT Systems--Systems Development. EDS designs, develops and
implements information systems or adds features that may increase the
capabilities of existing systems.
. Assembly of IT Platforms--Systems Integration. EDS selects technologies
and assembles integrated systems that may include software, hardware,
telecommunications and systems support and maintenance.
. Management of IT Operations--Systems Management. EDS assumes and manages
the operation of part or all of a client's IT operations, which may
include equipment, personnel, information processing systems and
communications networks.
. Management of Business Operations--Process Management. EDS manages an
entire business function within the client's enterprise, which may
include IT operations as well as other activities such as remittance
processing, marketing, sales, customer service and training.
EDS' service offerings continue to evolve in response to the rapid
technological changes occurring within the computer industry. EDS offers a full
range of internet related services to assist clients in participating in
electronic markets. These services include the construction and operation of
corporate intranets, interactive marketing services (website design,
development, implementation and operation) and the application of internet and
intranet technology to the conduct of electronic commerce among EDS' clients and
their customers and suppliers.
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EDS is able to leverage its extensive technical infrastructure and other
numerous resources to offer IT services at clients' sites or through large scale
information processing centers or specialized distributed service centers
located worldwide. EDS' digital telecommunications network, EDSNET(R), is
capable of worldwide transmission of clients' voice, digital and video data
using the integrated fiber optic, microwave and satellite facilities of what EDS
believes is one of the world's largest digital telecommunications networks,
excluding government networks and common carriers. EDS constantly examines and
tests computer hardware and software offered by suppliers worldwide as part of
its efforts to assess and use in its operations, and offer to EDS' clients, the
technological improvements that continuously occur within the computer industry,
including developments in distributed computing and client/server architecture.
EDS has developed computer-aided software engineering tools to assist in
generating new software to keep pace with rapidly evolving strategies involving
hardware technologies and information processing theories and to facilitate the
rapid deployment of its products and services to the market.
Business Areas
EDS conducts its sales, marketing and service activities on a global basis
principally through business units that focus both geographically and vertically
along the lines of specified industries. By combining the skills of an industry-
focused business unit with a geographic business unit where appropriate, EDS is
able to respond to a client's requirements with people who are knowledgeable
about a specific industry and the client's business.
Additionally, certain services provided by EDS are concentrated in specific
business units which provide services directly to EDS clients as well as in
coordination with EDS' geographical or vertical business units having primary
responsibility for a particular client. These business units include EDS' A.T.
Kearney management consulting subsidiary, EDS' Unigraphics unit which offers
computer assisted design, manufacturing and engineering ("CAD," "CAM" and "CAE")
software and services, EDS' direct marketing unit which offers telemarketing,
customer service, data mining and data warehousing services and EDS' internet
and new media unit.
The industry areas to which EDS provides IT services can be broadly
categorized as follows:
. Manufacturing. EDS assists numerous manufacturing companies in their
worldwide operations and in their implementation of global competitive
strategies, providing them with advanced capabilities in information
processing, information management and telecommunications. EDS offers
manufacturing clients expertise in electronic data interchange,
engineering information systems, integrated document processing,
inventory control, materials handling, process control, synchronous
manufacturing, artificial intelligence techniques and capabilities in
CAD/CAM/CAE on an integrated basis.
. Financial Services. EDS offers a full range of IT services to the global
financial services industry. The industry's expansion of products and
services has led to an unprecedented dependence on IT and its
integration with a financial institution's business processes and
strategy. Through strategic alliances and acquisitions, EDS has
positioned itself to support a wide range of industry segments,
including commercial banks, consumer finance companies, commercial
insurance companies, investment banks, regional and community banks,
credit unions, brokerage and securities firms, thrifts and mortgage
lenders. EDS' services are augmented by a full range of industry-
specific products and services, including data processing, automated
teller machines ("ATMs"), debit and credit card services, voice and
teller automation, item and remittance processing, cross-border funds
transfer and currency exchange, consumer asset management, customer
service technology, remote/home banking and business-process
improvement.
. Government. EDS performs IT services for national, state and local
governments in the U.S. and around the world. At the national level, EDS
targets its services at both civil and defense organizations with
complex, large-scale information needs. Within state and local
governments, key markets of EDS include human services, transportation,
public safety and administration and
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finance. EDS' core competency for managing complexity and its proven
ability to leverage process performance improvement techniques and
technologies from the private sector into the public sector have allowed
EDS to expand its government presence worldwide.
. Communications. EDS offers a full spectrum of IT services to the global
communications market in addition to industry specific technology
platforms tailored to the information needs of each industry segment.
These services include clearinghouse, roaming and billing services and
systems for the wireless industry, information management and billing
systems for the cable television industry, and operational support
systems and billing systems for the telecommunications industry. EDS
also offers multimedia-based services designed to satisfy the predicted
demand of emerging full service network operators within the interactive
multimedia segment.
. Health. EDS offers IT services to companies in the health care industry,
providing the management of information required in this highly
regulated industry in a rapidly-changing, record-intensive environment.
EDS' services go beyond traditional outsourcing and include solution
sets to improve specific business areas, including sales and marketing,
customer service and claims management.
. Travel and Transportation. EDS' travel and transportation group offers
IT services to customers worldwide in the air transportation, freight,
computer reservation system, vehicle rental, travel agency, cruise line
and hospitality industries. EDS' IT services to these industries are
designed to meet customer requirements for reducing operating costs,
improving quality and increasing responsiveness to rapidly changing
market conditions.
. Energy. EDS provides IT services on a global basis to companies in the
petroleum, natural gas, chemical, pharmaceutical, mining and utility
industries. EDS' services in the energy industry are intended to improve
inventory control, reduce time to market, lower product cost, improve
rate case approval, improve capacity planning and increase efficiency in
regulatory and environmental compliance.
In certain of these markets, EDS provides services, such as ATM and travel
related services, directly to individual consumers.
Acquisitions and Strategic Alliances
From time to time EDS has made acquisitions and entered into strategic
alliances in an effort to obtain a competitive advantage or a new or expanded
presence in targeted geographic or service markets. EDS believes that a
convergence of the computing and software, communication, media and
entertainment and electronic commerce industries is occurring and will continue.
As a result, acquisitions, joint ventures and strategic alliances are expected
to be increasingly important to EDS' ability to compete effectively.
Revenues
EDS receives fees for all aspects of its continuum of services. The fees
are generally paid pursuant to predetermined rates set forth in contracts. EDS'
customer contracts generally have terms of one to 10 years. The following table
sets forth the percentage of revenues for each of the years in the three-year
period ended December 31, 1996 derived by EDS from the identified principal
business areas.
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Percentage of Revenues
for the Years Ended
Business Area December 31,
------------- --------------------------
1996 1995 1994
---- ---- ----
Manufacturing............................... 45% 47% 49%
Financial Services.......................... 14 14 14
Government.................................. 13 12 10
Communications.............................. 7 8 7
Health...................................... 6 7 8
Travel and Transportation................... 4 4 4
Energy...................................... 3 3 4
Other....................................... 8 5 4
---- ---- ----
Total............................... 100% 100% 100%
---- ---- ----
Other than GM, no one client accounted for more than 5% of EDS' total
revenues in 1996, 1995 or 1994.
Backlog
EDS' backlog represents an estimate of the remaining future revenue from
existing signed contracts. Using the best available information, EDS determines
this estimate on an annual basis as of December 31 of each year. The estimate
includes contracts which have a term of 12 months or longer and is calculated
for each of the next ten years plus a summary amount for contracts with terms
extending beyond such ten-year period. The EDS backlog estimate includes
revenues expected under current terms of executed contracts, revenues from
government contracts in which quantities are not definite but estimable, and a
risk-adjusted estimate of renewals and extensions for those contracts which
contain renewal or extension provisions.
Changes in the backlog calculation from year to year result from (i)
additional revenue from the signing of new contracts, (ii) reduction in revenue
from fulfilling contracts during the most recent year, (iii) reduction in
revenue from early termination of contracts, and (iv) adjustments to estimates
of previously included contracts. On an annual basis, EDS reviews each contract
included in the calculation and adjusts estimates for those contracts based on
the latest available information.
At December 31, 1996 and 1995, EDS' firm backlog for services was
approximately $72.5 billion and $39.8 billion, respectively. The estimate at
December 31, 1995 did not include estimates for future revenues from GM and its
subsidiaries because of the inter-company relationships that existed with these
entities prior to the consummation of the Split-Off in June 1996. However, the
estimate at December 31, 1996 does include an estimate for such GM revenues.
Competition
EDS experiences competition in the IT industry and in the broader
information industry, which includes the computing, communications and
media/entertainment industries. EDS has historically faced competition
principally from other companies providing information technology systems and
services. Today, EDS' principal competitors in the IT services industry include
International Business Machines Corporation, Andersen Consulting LLP, Computer
Sciences Corporation and MCI Communications Corporation/SHL Systemhouse Inc. As
the markets for IT services continue to grow and as the services demanded by
customers expand and increase in complexity, EDS faces increasing competition
from niche-oriented and geographically-focused companies as they expand and
become broader competitors through acquisitions, alliances or otherwise.
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Technology in the IT industry is in a rapid and continuing state of change
as new technologies continue to be developed, introduced and implemented. EDS
management believes that its ability to continue to compete effectively will
depend upon its ability to develop and market services and products that meet
changing user needs and respond to technological changes on a timely and cost-
effective basis, as well as its ability to finance and acquire the resources
necessary to offer such services and products.
Employees
As of December 31, 1996, EDS employed approximately 100,000 persons located
in the United States and 41 other countries. None of EDS' United States or
Canadian employees is currently employed under an agreement with a collective
bargaining unit, and EDS believes that its relations with employees are good. To
maintain its technical expertise and its responsiveness to evolving client
needs, EDS provides its employees with extensive continuing education and
training, as well as leadership and professional development programs.
Patents, Proprietary Rights and Licenses
EDS holds a number of patents and pending patent applications in the United
States and in foreign countries. EDS' policy generally is to pursue patent
protection that it considers necessary or advisable for the patentable
inventions and technological improvements of its business. EDS also relies
significantly on trade secrets, copyrights, technical expertise and know-how,
continuing technological innovations and other means, such as confidentiality
agreements with employees, consultants and customers, to protect and enhance its
competitive position.
Some of the business areas in which EDS is engaged are highly patent-
intensive. Many of EDS' competitors have obtained, and may be expected to obtain
in the future, patents that cover or affect services or products directly or
indirectly related to those offered by EDS. EDS routinely receives
communications from third parties asserting patent or other rights covering EDS'
services or products. There can be no assurance that EDS is aware of all patents
containing claims that may pose a risk of infringement by its services or
products. In addition, patent applications in the United States are confidential
until a patent is issued and, accordingly, EDS cannot evaluate the extent to
which its services or products may infringe claims contained in pending patent
applications. In general, if it were determined that one or more of the services
or products offered by EDS infringe patents held by others, EDS would be
required to cease developing or marketing such services or products, to obtain
licenses to develop or market such services from the holders of the patents or
to redesign such services or products in such a way as to avoid infringing the
patent claims. The extent to which EDS may be required in the future to obtain
licenses with respect to patents held by others and the availability and cost of
any such licenses are currently unknown. There can be no assurance that EDS
would be able to obtain such licenses on commercially reasonable terms or, if it
were unable to obtain such licenses, that it would be able to redesign its
services or products to avoid infringement or that litigation would not ensue.
EDS management is not aware of any pending patent or proprietary right
disputes against EDS that would have a material adverse effect on EDS'
consolidated financial position or results of operations.
Regulation
Various aspects of EDS' business are subject to federal and state
regulation, noncompliance with which, depending upon the nature of the
noncompliance, may result in the suspension or revocation of any license or
registration at issue, the termination or loss of any contract at issue or the
imposition of contractual damages, civil fines or criminal penalties. EDS has
experienced no material difficulties in complying with the various laws and
regulations affecting its business.
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Services for General Motors
Approximately 30% of EDS' total revenues in 1996 was attributable to GM and
its affiliates. EDS provides substantially all of the worldwide data processing
and telecommunications activities for GM and its affiliates (other than Hughes
Electronics Corporation ("Hughes"), with the exception of its Delco Electronics
Corporation ("Delco") subsidiary), including integrated information systems for
payroll, health and benefits, office automation, communications and plant
automation functions. The loss of GM as an ongoing major customer of EDS would
have a material adverse effect on EDS.
Immediately prior to the Split-Off, GM and EDS entered into a new Master
Service Agreement (the "MSA") that serves as a framework for the negotiation and
operation of service agreements between GM and EDS related to certain "in-scope"
IT services as defined in the MSA ("MSA Services") to be provided by EDS to GM
on a worldwide basis (collectively, together with the MSA, the "IT Services
Agreements"). The IT Services Agreements replaced the Master Agreement (the
"Prior Master Agreement") that, prior to the Split-Off, served as a framework
for individual services agreements between GM and EDS (collectively, together
with the Prior Master Agreement, the "Prior IT Services Agreements"). IT
services that are considered to be MSA Services accounted for approximately $3.8
billion of the approximately $4.3 billion of revenues received by EDS from GM in
1996. The balance of EDS' 1996 revenues from GM was attributable to goods and
services provided outside the scope of the Master Service Agreement.
Set forth below is a summary description of certain of the principal
provisions of the IT Services Agreements. Such description does not purport to
be complete, and to the extent it relates to the MSA, is qualified in its
entirety by reference to the MSA, a copy of which has been filed with the
Securities and Exchange Commission.
Term. The term of the MSA commenced on June 7, 1996, the date of the Split-
Off, and will continue for a period of ten years thereafter. The term may be
extended for an additional period or periods by mutual agreement between GM and
EDS. Although EDS has historically been able to achieve high renewal rates with
its customers upon the expiration of long-term contracts, there can be no
assurance as to whether or to what extent EDS will continue to provide IT
services to GM after the initial term of the MSA.
Service Agreements. Pursuant to the Prior Master Agreement, GM business
units and EDS had entered into a number of Service Agreements ("Service
Agreements") setting forth the terms and provisions applicable to specific
services or projects undertaken by EDS on behalf of various GM organizations.
Such Service Agreements remained in effect after the Split-Off and, in many
cases, were extended or otherwise modified as provided in the MSA. In addition,
EDS expects that it will continue to negotiate and enter into additional Service
Agreements with GM business units providing for the performance of IT services
on mutually agreed terms. In negotiating future Service Agreements, the parties
will endeavor to agree upon fixed-price service arrangements which meet the
standards of competitiveness described below. The provisions of the MSA apply to
all Service Agreements, whether entered into before or after the Split-Off.
At the time of the Split-Off, the terms of the largest domestic Service
Agreements then in effect were extended for additional terms of between one and
three years. In particular, the Service Agreement with Delphi Automotive Systems
was extended through December 31, 1998 and the Service Agreements with GM's
North American Operations ("NAO"), General Motors Acceptance Corporation (U.S.
and Canada) and Motors Insurance Corporation (U.S. and Canada) were each
extended through December 31, 1999. Each other Service Agreement entered into
prior to the Split-Off will continue in effect for the duration of its agreed
term.
Scope of Services. The MSA established a contractual framework for the
provision on a worldwide basis of MSA Services by EDS to GM and all entities (i)
in which GM owns 65% or more of the outstanding equity and over which it
exercises management control (if EDS was providing services in
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support of the business operations of that entity as of August 1, 1995) or (ii)
in which GM owns 80% or more of the outstanding equity (if EDS was not providing
services in support of the business operations of that entity as of August 1,
1995). The MSA contains a flexible description of the MSA Services that is based
on functional service categories so as to take into account possible future
changes in business operations or technologies that result in the replacement of
existing processes and technologies. The MSA Services to be provided by EDS
include IT goods and services related to the following functional service
categories: (i) computing and communications infrastructure; (ii) development of
application software and implementation of commercial off-the-shelf application
software; (iii) data management; (iv) cross-functional IT-related services; and
(v) certain services related to specified plant floor operations.
Under the MSA, services for certain GM units or operations or in certain
geographic areas were specifically excluded from the scope of work to be
performed by EDS. In particular, such agreement provides that GM will not be
required to obtain from EDS any MSA Services (i) for Hughes, with the exception
of its subsidiary, Delco, (ii) for any other business or entity acquired by GM
after January 1, 1985 (other than (x) GMAC Mortgage Corporation, with the
exception of its subsidiary, Residential Funding Corporation, and (y) any other
entity which executed a Service Agreement prior to August 1, 1995), (iii) in any
country where the provision of such services by EDS would violate any national
law of that country, (iv) in specified emerging geographic markets outside of
North America and Western Europe where, as of August 1, 1995, EDS had not
previously provided such services for the same GM business function and line of
business in that emerging market, and (v) with respect to any plant floor
services (other than under the agreement to provide such services for NAO and
Delphi North American entities, excluding Saturn, entered into at the time of
the Split-Off and certain other arrangements then in effect between the
parties). Furthermore, the provisions of the MSA relating to the scope of
services to be, provided by EDS are subject to GM's right, under certain
circumstances, to competitively bid and award a portion of such services to
third party service providers as described under "--Market Testing and
Outsourcing" below.
Competitiveness. The MSA provides that the MSA Services to be provided by
EDS will be competitive with respect to quality, service, price and technology
giving due consideration to GM's requirements and other relevant factors. The
provisions of the MSA with respect to competitiveness apply to the negotiation
or renegotiation of (i) new or replacement Service Agreements, (ii) the terms
and conditions applicable to new or replacement MSA Services and (iii) the
pricing of any MSA Services when such negotiation or renegotiation is
contractually provided for in a Service Agreement. When the applicable EDS and
GM organizations reach a mutually acceptable agreement as to the competitiveness
of any services, the standards of competitiveness provided for in the MSA will
be deemed satisfied for the term of such agreement. In situations where the
applicable GM and EDS organizations are unable to reach a mutually acceptable
agreement as to the competitiveness of any MSA Services, the MSA provides a
procedure whereby the negotiating impasse will be escalated to senior
management, the services of a standing neutral mediator may (and, in some cases,
must) be utilized, and, in the absence of an agreement, (i) any impasse as to
uniform published rates for applicable items will be resolved by binding
arbitration and (ii) any impasse as to any other services will be resolved by
EDS providing the services on the basis of the standard terms and conditions
provided in the MSA and a modified cost-plus pricing methodology.
Pricing of Services. Depending on the type of services to be provided by
EDS, the parties may utilize (i) fixed-price arrangements, (ii) cost-based
pricing methods or (iii) uniform published rates for off-the-shelf, commercially
available products and services. However, the parties have agreed to endeavor to
incorporate fixed-price arrangements into new Service Agreements entered into
under the MSA to the extent practicable. With respect to certain information
processing services to be performed by EDS, the parties have agreed to annual
reductions in the rates to be charged by EDS to all GM organizations worldwide,
which reduced rates were applied retroactively as of January 1, 1996 and will be
in effect through December 31, 2000. In addition, with respect to certain
communication services to be performed by EDS, the parties have agreed to annual
reductions in the rates to be charged by EDS to all GM organizations in the
United States, which reduced rates were applied retroactively as of January 1,
1996 and will be in effect through December 31, 1998. During the respective
periods that these reduced rates
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are in effect, the information processing and communications services to which
the reduced charges apply will not be subject to the provisions of the MSA
relating to market testing or outsourcing described below.
Market Testing and Outsourcing. The MSA provides for certain market testing
procedures in order to test the competitiveness of the MSA Services provided by
EDS. Under these procedures, EDS will have the opportunity to bid on any and all
MSA Services and any bid submitted by EDS will be evaluated on the same criteria
as bids submitted by other service providers. During 1996 and 1997, GM's
International Operations unit ("GMIO") may expose to competitive bidding MSA
Services that would otherwise be provided by EDS so long as the revenues that
would be reasonably paid to EDS by GM for such MSA Services during such years do
not exceed an aggregate of $60 million (and EDS has been advised that GMIO has
submitted requests for quotes for such MSA Services). Following such competitive
bidding, GMIO may award contracts to one or more third party service providers
with respect to any or all of the MSA Services exposed to competitive bidding.
Thereafter, during each year beginning in 1998, GM will be permitted to expose
to competitive bidding specified percentages of the prior year's revenues paid
to EDS for MSA Services. In each year from 1998 through 2000, GM may expose to
competitive bidding and award to third parties contracts for MSA Services for
which GM would otherwise have reasonably paid EDS up to an average of
approximately 6% of the prior year's revenues paid to EDS for MSA Services. For
the years 2001 through 2006, GM may expose to competitive bidding and award to
third parties contracts for MSA Services for which GM would otherwise have
reasonably paid EDS up to an average of approximately 2.4% of the prior year's
revenues paid to EDS for MSA Services. Subject to certain limitations, GM will
select the MSA Services to be exposed to competitive bidding after consultation
with EDS. In addition to the aforementioned annual limitations, the following
aggregate limitations apply: through the year 2000, in no single calendar year
may the amount paid to third parties for MSA Services exceed 15% of the
aggregate amount of revenue paid to EDS for MSA Services performed during the
prior year; and after the year 2000, in no single calendar year may the amount
paid to third parties for MSA Services exceed 25% of the aggregate amount of
revenue paid to EDS for MSA Services performed during the prior year. Although
EDS may bid on any and all of such MSA Services, it is expected that third party
service providers will be awarded some portion of the services exposed to
competitive bidding. There can be no assurance as to whether or to what extent
EDS will be successful in bidding on such MSA Services.
Structural Cost Reductions. The MSA established specified structural cost
reduction targets for the first four years of the agreement. In each of the
years 1996 through 1998, the annual cost reduction targets are $100 million. In
1999, the target is $50 million. These targets are not intended to be
performance guarantees, but rather represent firm good faith business
commitments on the part of GM and EDS. As such, the MSA does not provide for any
gain sharing or similar incentives in the event that the targets are exceeded
and does not impose any penalties or other liabilities in the event that they
are not met. No assurance can be given that any of the specific targets for
structural cost reductions will be achieved.
Payment Terms. The Prior IT Services Agreements provided for GM to pay EDS
on the 15th day of the month in which services were provided with respect to a
substantial portion of services, especially in North America. International
payment terms in the Prior IT Services Agreements were often more favorable to
GM and were generally governed by the commercial standards prevailing in each
particular country. Under the IT Services Agreements, there will be a transition
of payment terms to the 20th day of the month following service for all
agreements which do not have payment terms at least that favorable to GM
(principally in North America). The transition will be accomplished as follows:
(i) through 1996, no change; (ii) beginning in 1997, payment on the 30th day of
the month when services are provided; (iii) beginning in 1998, payment on the
20th day of the month following service for certain business units; and (iv)
beginning in 1999, payment on the 20th day of the month following service for
all remaining business units, including NAO.
Termination. The MSA may be terminated (i) by either party, if the other
party defaults in any material respect in the performance of its obligations
thereunder and such default is not cured as provided therein after notice
thereof, (ii) by EDS, if GM defaults in the payment when due of any material
amount owing to EDS thereunder and such default is not cured as provided therein
after notice thereof, (iii) by either party, if the other party becomes
insolvent or (iv) by GM, if there occurs a "change of control" of
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EDS and certain additional conditions are met. For purposes of the termination
provisions of the MSA, a "change of control" means the occurrence of any of the
following events: (i) any person files (or is required to file) a Schedule 13D
or 14D-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that such person has become the beneficial owner of Common
Stock representing 50% or more of the aggregate voting power of the outstanding
shares of Common Stock; (ii) any person files (or is required to file) a
Schedule 13D or 14D-1 under the Exchange Act disclosing that such person has
become the beneficial owner of Common Stock representing 30% or more of the
aggregate voting power of the outstanding shares of Common Stock, or commences a
proxy solicitation subject to Rule 14a-11 of the Exchange Act with respect to
the election or removal of members of EDS' Board of Directors, and, within two
years, individuals who constituted a majority of the members of such board at
the time of such acquisition or solicitation, together with certain persons
elected, recommended or nominated by such directors, cease to constitute a
majority of the board, or (iii) there is consummated any transaction (or
transactions) resulting in a number of shares of Common Stock which represents
50% or more of the aggregate voting power of the outstanding shares of Common
Stock being beneficially owned by persons who did not either own such securities
as Common Stock immediately prior to such transaction or receive such securities
in respect of the conversion or exchange of Common Stock in such transaction.
In the event of a change of control, GM may elect to terminate the MSA if
its Board of Directors determines that there is substantial uncertainty about
EDS' ability to perform its obligations under the IT Services Agreements in all
material respects or any other significant threat to the business relationship
between EDS and the GM units that are provided MSA Services by EDS. GM may also
terminate the MSA in the event of a change of control in which EDS is acquired
by a manufacturer of cars or trucks that competes with GM (a "core competitor")
and as a result of which GM determines that there is a reasonable likelihood of
a significant competitive threat to GM. In addition, if there is a change of
control in which EDS is acquired by a competitor of GM (other than a core
competitor) and there is a reasonable likelihood of a significant competitive
threat to one or more significant GM units that contract with EDS for MSA
Services under the MSA, GM may terminate the Service Agreements between EDS and
such units; provided, that EDS may instead elect to terminate the MSA if the
revenues associated with those Service Agreements accounted for more than 60% of
the revenues paid to EDS for MSA Services during the preceding year. In the
event that GM elects to terminate the MSA or any Service Agreement as a result
of a change in control of EDS, then GM (i) will be obligated to pay EDS for
transition services in accordance with the provisions therefor in the MSA, and
(ii) may, under certain circumstances, be obligated to pay for all or a portion
(depending on the status of the party acquiring control of EDS) of certain
cancellation charges intended to reimburse EDS for certain wind-down expenses,
losses relating to capital assets and long-term leases, and personnel expenses.
ITEM 2 PROPERTIES
As of December 31, 1996, EDS had approximately 428 locations operating in
46 states and 217 cities in the United States and approximately 226 additional
locations in 99 cities in 29 countries outside the United States. At such date,
approximately 5.7 million square feet of space was owned by EDS and an
additional approximately 14 million square feet of space was leased. EDS'
worldwide headquarters, which is located on a 363 acre campus in Plano, Texas,
contains approximately 3.5 million square feet of office and data center space.
Other than the 1.6 million square feet EDS Centre building, which is leased for
an initial term of 25 years and subject to certain fixed price purchase options
exercisable by EDS during and at the end of such initial term, all buildings and
real estate comprising the Plano campus are owned by EDS. EDS' two information
management centers, which monitor the EDSNET(R) global telecommunications
network, are located in Plano, Texas and Stockley Park, United Kingdom. EDS'
large scale information processing centers ("IPCs") are located throughout the
United States and in each of Australia, Brazil, Canada, France, Germany, the
Netherlands, Spain and the United Kingdom. In addition, EDS operates distributed
service centers ("DSCs") at customer owned sites or EDS owned or leased
facilities throughout the world. DSCs generally support a single or small number
of customers with more specialized requirements than those supported at the
large scale, multiple customer IPCs.
10
Leased properties consist primarily of office, warehouse, DSC and non-
U.S. IPC facilities. Lease terms are generally five years or, with respect to
leases related to a specific customer contract, have a term concurrent with that
contract. Upon expiration of its leases, EDS does not anticipate any difficulty
in obtaining renewals or alternative space. In addition to the leased property
referred to above, EDS occupies office space at customer locations throughout
the world. Such space is generally occupied pursuant to the terms of the
respective customer contracts.
EDS management believes that its facilities are suitable and adequate
for its business; however, EDS periodically reviews its space requirements to
consolidate and dispose of or sublet facilities which are no longer required in
connection with its business and to acquire new space to meet the needs of its
business.
ITEM 3. LEGAL PROCEEDINGS
Three suits challenging the Split-Off, Stephen A. Solomon v. General
Motors Corporation, et al., TRV Holding Company v. General Motors Corporation,
et al., and Melvin Ward et al. v. General Motors Corporation, et al. were
consolidated. The consolidated case purports to be a class action brought on
behalf of the former holders of GM's Class E common stock, all of which was
converted into EDS common stock in connection with the Split-Off, as well as a
double derivative action brought on behalf of EDS against certain present and
former directors of GM and certain former directors of EDS (all of whom were
also directors or officers of GM). EDS is named in the complaint only as a
nominal defendant with respect to the double derivative action. On May 23, 1996,
plaintiffs withdrew their application for expedited proceedings and preliminary
injunctive relief, and on June 7, 1996 the Split-Off was consummated. Since
then, plaintiffs have advised that they intend to move to file a third amended
consolidated complaint. EDS believes that the suits are without merit and, to
the extent it is a party thereto, intends to defend them vigorously.
From time to time EDS is involved in various litigation matters arising
in the ordinary course of its business. EDS management does not believe that
disposition of any current matter will have a material adverse effect on EDS'
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None submitted.
EXECUTIVE OFFICERS OF EDS
The following sets forth certain information with respect to the
executive officers of EDS as of February 20, 1997:
Lester M. Alberthal, Jr., 52, has been Chief Executive Officer of EDS
since December 1986 and Chairman of the Board since June 1989. He has been a
director of EDS since 1981. Mr. Alberthal is chair of EDS' Executive Council,
the company's chief policy making and strategy group. He joined EDS in 1968,
became responsible for EDS' health care division in 1974 and was named Senior
Vice President with responsibility for EDS' insurance group in 1979. Following
the acquisition of EDS by GM in 1984, Mr. Alberthal led all non-GM North
American operating groups. Mr. Alberthal served as President of EDS from 1986
until the consummation of the Split-Off.
Gary J. Fernandes 53, has been the Vice Chairman of EDS since the
consummation of the Split-Off and a director of EDS since 1981. He was a Senior
Vice President of EDS from October 1984 until the consummation of the Split-Off.
Mr. Fernandes has oversight responsibility for EDS' worldwide business
development and corporate development (including marketing and strategic
planning) and is Chairman of
11
its A.T. Kearney management consulting services subsidiary. Mr. Fernandes joined
EDS in 1969 and has served in numerous management capacities in the United
States, Europe and Japan.
Jeffrey M. Heller, 57, has been the President and Chief Operating
Officer of EDS since the consummation of the Split-Off and a director of EDS
since 1983. He was a Senior Vice President of EDS from 1984 until the
consummation of the Split-Off. Mr. Heller is chair of EDS' Global Operations
Council, which is responsible for EDS' operating strategies and other business
issues. He joined EDS in 1968 and has served in numerous technical management
positions.
Hartmut W. Burger, 53, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Vice
President since October 1992. He has responsibility for EDS' technical
infrastructure and internal information functions as well as for EDS' business
units serving customers in the communications industry. Prior to assuming his
current responsibilities, Mr. Burger was responsible for EDS' business units
serving customers in the manufacturing and commercial services industries.
John R. Castle, Jr., 54, has been an Executive Vice President of EDS
since the consummation of the Split-Off and prior to that time had been a Senior
Vice President since October 1988. He has oversight responsibility for EDS'
government affairs, communications and public relations groups and its legal
department. Prior to joining EDS in 1988, Mr. Castle was a partner in the Dallas
law firm of Hughes & Luce.
Paul J. Chiapparone, 57, has been an Executive Vice President of EDS
since the consummation of the Split-Off and prior to that time had been a Senior
Vice President since April 1986. He has responsibility for business units
serving customers in the manufacturing industry (including GM) and the financial
services and travel and transportation industries and for EDS' Asia/Pacific
operations. Mr. Chiapparone joined EDS in 1966 and has served in numerous
management capacities.
Joseph M. Grant, 58, has been Chief Financial Officer of EDS since
December 1990 and an Executive Vice President since the consummation of the
Split-Off. Prior to that time he had been a Senior Vice President since February
1992. Mr. Grant has oversight responsibility for EDS' administration and
corporate finance groups. Prior to joining EDS in December 1990, he served as
executive vice president and chief systems officer for American General
Corporation from 1989 to 1990 and as chairman of the board and chief executive
officer of Texas American Bancshares Inc. from 1986 to 1989.
Dean Linderman, 53, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Senior Vice
President since April 1986. He has responsibility for EDS' global employee
development units, including the technical and leadership development, sales
leadership, quality and industry leadership and global diversity groups. Mr.
Linderman joined EDS in 1970 and has served in numerous management positions.
G. Stuart Reeves, 57, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Senior Vice
President since February 1987. He has responsibility for EDS' business units
serving customers in government and in the energy and healthcare industries as
well as EDS' European, Canadian, Mexican and Central and South American
operations. Mr. Reeves joined EDS in 1967 and has held numerous technical and
management positions.
Executive officers serve at the discretion of the Board of Directors of
EDS.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "EDS." As a result of the Split-Off, on June 7, 1996 each share
of Class E Common Stock of GM was converted into one share of Common Stock. The
GM Class E Common Stock had been listed and traded on the NYSE under the symbol
"GME" through June 7, 1996 (the date of consummation of the Split-Off). The
table below shows the range of reported per share sales prices on the NYSE
Composite Tape for the Class E Common Stock (through June 7, 1996) and the
Common Stock (commencing June 10, 1996) for the periods indicated.
Calendar Year High Low
- ------------- ---- ---
1995
First Quarter................................. $41.38 $36.88
Second Quarter................................ 45.25 38.38
Third Quarter................................. 47.50 41.50
Fourth Quarter................................ 52.63 43.88
1996
First Quarter................................. $58.00 $50.00
Second Quarter (through June 7, 1996)......... 58.63 52.25
Second Quarter (commencing June 10, 1996)..... 58.38 52.88
Third Quarter................................. 61.38 46.00
Fourth Quarter................................ 63.38 40.75
The last reported sale price of the Common Stock on the NYSE on March 4,
1997 was $45.875 per share. As of March 4, 1997, the approximate number
of record holders of Common Stock was 260,498.
Since the consummation of the Split-Off, EDS declared third and fourth
quarter dividends on the Common Stock of $.15 per share in 1996. Prior to the
Split-Off, GM paid quarterly dividends on the GM Class E Common Stock of $.13
per share in 1995 and $.15 per share for the first and second quarters of 1996.
ITEM 6. SELECTED FINANCIAL DATA"
"Selected Financial Data" for the years ended December 31, 1992 through
1996 on page 53 of EDS' Annual Report to Stockholders for the year ended
December 31, 1996 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 29 through 34 of EDS' Annual Report to Stockholders for
the year ended December 31, 1996 is incorporated herein by reference.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of EDS included in EDS'
Annual Report to Stockholders for the year ended December 31, 1996 are
incorporated herein by reference:
Consolidated Statements of Income - Years ended December 31, 1996, 1995
and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Stockholders' Equity- Years ended December
31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements
Independent Auditors' Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For Item 10, the names and ages of the executive officers of EDS as of February
20, 1997, and the position(s) each of them has held during the past five years,
are included in Part I of this Form 10-K as permitted by General Instruction
G(3). All other information required by Item 10, and the information required
by Items 11, 12 and 13, is incorporated by reference to the registrant's
definitive proxy statement for its Annual Meeting of Stockholders to be held on
June 5, 1997, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1996.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. The following consolidated financial statements of Electronic Data
Systems Corporation and subsidiaries included in the registrant's 1996
Annual Report to Stockholders are incorporated by reference in Part II,
Item 8:
Consolidated Statements of Income -- Years ended December 31, 1996,
1995 and 1994.
Consolidated Balance Sheets -- December 31, 1996 and 1995.
Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows -- Years ended December 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. The following financial statement schedule of Electronic Data Systems
Corporation and subsidiaries is included in Item 14(d):
Independent Auditors' Report on Schedule.
Schedule II - Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
3. Exhibits
Exhibit No. Description
- ----------- -----------
3(a) Restated Certificate of Incorporation of Electronic Data Systems
Corporation, as amended through June 7, 1996 - incorporated herein by
reference to Exhibit 3(a) to the Current Report on Form 8-K of the
Registrant dated June 7, 1996.
3(b) Amended and Restated Bylaws of Electronic Data Systems Corporation,
as amended through June 7, 1996 - incorporated herein by reference to
Exhibit 3(b) to the Current Report on Form 8-K of the Registrant
dated June 7, 1996.
4(a) Rights Agreement dated as of March 12, 1996 between the Registrant
and The Bank of New York, as Rights Agent - incorporated herein by
reference to Exhibit 4(c) to the Registration Statement on Form S-4
of the Registrant (File No. 333-02543).
4(b) Indenture dated as of August 12, 1996, between the Registrant and
Texas Commerce Bank National Association, as Trustee - incorporated
herein by reference to Exhibit 4 to the Registration Statement on
Form S-3 of the Registrant (File No. 333-10145).
15
4(c) Instruments defining the rights of holders of nonregistered debt of the
Registrant have been omitted from this exhibit index because the amount
of debt authorized under any such instrument does not exceed 10% of the
total assets of the Registrant and its subsidiaries. The Registrant
agrees to furnish a copy of any such instrument to the Securities and
Exchange Commission upon request.
10(a) Master Service Agreement dated June 7, 1996 between General Motors
Corporation and the Registrant (portions of which are subject to
confidential treatment granted by the Securities and Exchange
Commission) - incorporated herein by reference to Exhibit 10(a) to the
Current Report on Form 8-K of the Registrant dated June 7, 1996.
10(b) 1996 Incentive Plan of Electronic Data Systems Corporation -incorporated
herein by reference to Exhibit 10(b) to the Current Report on Form 8-K
of the Registrant dated June 7, 1996. *
10(c) Electronic Data Systems Corporation Supplemental Executive Retirement
Plan - incorporated herein by reference to Exhibit 10(d) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543). *
10(d) Electronic Data Systems Corporation Deferred Compensation Plan for Non-
Employee Directors - incorporated herein by reference to Exhibit 10(e)
to the Registration Statement on Form S-4 of the Registrant (File No.
333-02543). *
10(e) Form of Indemnification Agreement entered into between the Registrant
and each of its directors and executive officers - incorporated herein
by reference to Exhibit 10(f) to the Registration Statement on Form S-4
of the Registrant (File No. 333-02543). *
10(f) Revolving Credit and Term Loan Agreement dated as of October 4, 1995
among the Registrant, Citibank, N.A., as Administrative Agent, and the
other financial institutions identified therein as Arrangers, Managers
and Lenders -incorporated herein by reference to Exhibit 10(h) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543).
10(g) First Amendment to Revolving Credit and Term Loan Agreement dated
September 25, 1996 among the Registrant and the Lenders identified
therein -incorporated herein by reference to Exhibit 10(n) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
10(h) Multi-Currency Revolving Credit Agreement dated as of October 4, 1995
among the Registrant, Citibank, N.A., as Administrative Agent, and the
other financial institutions identified therein as Arrangers, Managers
and Lenders -incorporated herein by reference to Exhibit 10(i) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543).
10(i) First Amendment to Multi-Currency Revolving Credit Agreement dated
September 25, 1996 among the Registrant and the Lenders identified
therein -incorporated herein by reference to Exhibit 10(o) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
10(j) Registration Rights Agreement dated March 12, 1995 between General
Motors Corporation and United States Trust Company of New York, as
Trustee of the General Motors Corporation Hourly-Rate Employees Pension
Plan - incorporated herein by reference to Exhibit 10(j) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543).
16
10(k) Succession Agreement dated June 7, 1996 among the Registrant, General
Motors Corporation and United States Trust Company of New York, as
Trustee of the General Motors Corporation Hourly-Rate Employees Pension
Plan, with respect to the Registration Rights Agreement filed as Exhibit
10(j) above.
10(l) Form of Change in Control Employment Agreement entered into by the
Registrant with each of its executive officers - incorporated herein by
reference to Exhibit 99 to the Registration Statement on Form S-3 of the
Registrant (File No. 333-06655). *
12 Computation of Ratios of Earnings to Fixed Charges for the three years
ended December 31, 1996.
13 Portions of the Registrant's 1996 Annual Report to Stockholders
expressly incorporated by reference herein: Pages 27 through 53.
21 Subsidiaries of the Registrant as of December 31, 1996.
23 Consent of Independent Auditors.
24 Powers of Attorney for Directors signing this Report on Form 10-K.
27 Financial Data Schedule for the year ended December 31, 1996, submitted
to the Securities and Exchange Commission in electronic format.
- -----------------
* Management contracts and compensatory plans and arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 14(c).
(b) Reports on Form 8-K.
One report on Form 8-K dated November 5, 1996 was filed during the quarter
ended December 31, 1996 reporting a press release under Item 5 - Other
Events and Item 7 - Exhibits.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedule.
The response to this portion of Item 14 is submitted as a separate section
of this report.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ELECTRONIC DATA SYSTEMS CORPORATION
Dated: March 5, 1997 By: /s/ LESTER M. ALBERTHAL, JR
--------------------------------
Lester M. Alberthal, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 5, 1997 By: /s/ LESTER M. ALBERTHAL, JR
--------------------------------
Lester M. Alberthal, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Dated: March 5, 1997 By: /s/ GARY J. FERNANDES
--------------------------------
Gary J. Fernandes
Vice Chairman and Director
Dated: March 5, 1997 By: /s/ JEFFREY M. HELLER
--------------------------------
Jeffrey M. Heller
President, Chief Operating
Officer and Director
Dated: March 5, 1997 By: /s/ JOSEPH M. GRANT
--------------------------------
Joseph M. Grant
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: March 5, 1997 By: /s/ H. PAULETT EBERHART
--------------------------------
H. Paulett Eberhart
Vice President and Controller
(Principal Accounting Officer)
18
By: *
--------------------------------
James A. Baker, III
Director
By: *
--------------------------------
Richard B. Cheney
Director
By: *
--------------------------------
William H. Gray, III
Director
By: *
--------------------------------
Ray J. Groves
Director
By: *
--------------------------------
Ray L. Hunt
Director
By: *
--------------------------------
C. Robert Kidder
Director
By: *
--------------------------------
Judith Rodin
Director
By: *
--------------------------------
Enrique J. Sosa
Director
* By:/s/ D. GILBERT FRIEDLANDER
---------------------------------------
D. Gilbert Friedlander, Attorney in Fact
March 5, 1997
19
Independent Auditors' Report
----------------------------
The Board of Directors
Electronic Data Systems Corporation:
Under date of January 31, 1997, we reported on the consolidated balance sheets
of Electronic Data Systems Corporation and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, as contained in the 1996 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1996. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
----------------------------------------
KPMG Peat Marwick LLP
Dallas, Texas
January 31, 1997
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
Additions Additions
Balance at charged to charged to
beginning costs to other Balance at
Description of year expenses accounts Deductions end of year
- ----------- ----------- ---------- ------------ ------------ ------------
FOR THE YEAR ENDED DECEMBER 31, 1996
Allowances Deducted from Assets
Accounts and notes receivable 99.5 93.4 -- 88.6 (a) 104.3
Inventories 19.5 15.5 -- 9.4 (b) 25.6
Valuation allowance for deferred taxes 126.3 -- 22.9 9.6 (c) 139.6
---------- --------- ----------- ---------- -----------
Total Allowances Deducted from Assets 245.3 108.9 22.9 107.6 269.5
========== ========= =========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1995
Allowances Deducted from Assets
Accounts and notes receivable 57.9 124.6 -- 83.0 (a) 99.5
Inventories 13.7 19.1 -- 13.3 (b) 19.5
Valuation allowance for deferred taxes 111.1 -- 20.8 5.6 (c) 126.3
---------- --------- ----------- ---------- -----------
Total Allowances Deducted from Assets 182.7 143.7 20.8 101.9 245.3
========== ========= =========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1994
Allowances Deducted from Assets
Accounts and notes receivable 53.0 50.6 -- 45.7 (a) 57.9
Inventories 15.0 28.2 -- 29.5 (b) 13.7
Valuation allowance for deferred taxes 92.3 -- 18.8 -- 111.1
---------- --------- ----------- ---------- -----------
Total Allowances Deducted from Assets 160.3 78.8 18.8 75.2 182.7
========== ========= =========== ========== ===========
Notes:
(a) Accounts written off and foreign currency translation adjustments
(b) Obsolete parts written off and foreign currency translation adjustments
(c) Foreign currency translation adjustments