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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 01-11779
ELECTRONIC DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2548221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 LEGACY DRIVE, PLANO, TEXAS 75024-3199
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (972) 604-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange
London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of February 27, 1998, the aggregate market value of the voting stock
held by non-affiliates of the registrant (based on the closing price on such
date as reported on the New York Stock Exchange Composite Transactions) was
approximately $15,969,258,389.
There were 491,683,679 shares of the registrant's common stock outstanding
as of February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Stockholders are
incorporated by reference in Parts II and IV and portions of the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 20,
1998 are incorporated by reference in Part III.
PART I
ITEM 1 BUSINESS
Electronic Data Systems Corporation ("EDS") was incorporated in Delaware in
1994 and succeeded to the business and assets of Electronic Data Systems
Corporation, a Texas corporation which was incorporated in 1962, at the time of
the split-off (the "Split-Off") of EDS from General Motors Corporation ("GM") on
June 7, 1996. In October 1984, GM acquired all of the capital stock of the
Texas corporation, which prior to that time had been an independent, publicly
held corporation. As a result of the Split-Off, EDS once again became an
independent publicly held corporation with its Common Stock listed for trading
on the New York and London Stock Exchanges.
EDS is a professional services firm that applies consulting, information and
technical expertise to enhance clients' business performance. As of December
31, 1997, EDS employed approximately 110,000 persons and served clients in the
United States and 43 other countries. Unless the context otherwise requires,
references herein to EDS include its predecessor and subsidiaries.
SERVICES
EDS offers its clients a portfolio of related services worldwide within the
broad categories of systems and technology services, business process
management, management consulting and electronic business. EDS provides clients
access to a wide range of value-added offerings within each of the four
categories. Services include the management of computers, networks, information
systems, information processing facilities, business operations and related
personnel. These offerings continue to evolve in response to the rapid
technological changes occurring within the computer industry and clients'
expanding business needs and market opportunities. The following is a
description of EDS' principal service offerings:
. SYSTEMS AND TECHNOLOGY SERVICES. EDS' traditional outsourcing business
encompasses systems development, systems integration, and systems
management. Also included in this area are desktop services, Year 2000
conversions and enterprise software solutions.
. BUSINESS PROCESS MANAGEMENT. EDS may manage an entire business function
within the client's enterprise, including such activities as remittance
processing, procurement logistics, enterprise customer management,
customer service and training, as well as information technology ("IT")
operations.
. MANAGEMENT CONSULTING. A.T. Kearney, an EDS subsidiary, provides
clients with high value-added strategy, operations and information
technology capabilities combined with implementation skills that improve
overall business performance and competitive positioning. Services in
this area focus on strategic consulting, including customer equity
management, new market entry and shareholder value creation; operations
consulting, encompassing strategic sourcing, supply chain management and
manufacturing; and technology consulting, including systems planning,
new technology applications and advanced applications.
. ELECTRONIC MARKETS. EDS' offerings in this area include interactive
marketing and payment services, internet and online services and
advertising, electronic commerce, EDI (electronic data interchange),
smart cards, multimedia and home shopping, and the design, development,
implementation and operation of internet websites, corporate intranets
and extranets.
EDS is able to leverage its extensive technical infrastructure and other
numerous resources to offer information and technology services at clients'
sites or through large scale information processing centers or specialized
distributed service centers. EDS continually examines and tests computer
hardware and software offered by suppliers worldwide as part of its efforts to
determine which are most appropriate for
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use in its operations and/or to offer to its clients. The company assesses the
technological changes that continuously occur within the IT industry, including
developments in distributed computing, client/server architecture and internet-
based applications. EDS has developed computer-aided software engineering tools
to assist in generating new software to keep pace with rapidly evolving
strategies involving hardware technologies and information processing theories
and to facilitate the rapid deployment of the company's products and services to
market.
BUSINESS AREAS
EDS conducts its sales, marketing and service activities on a global basis
principally through business units that focus both geographically and vertically
along the lines of specified industries. By combining the skills of an
industry-focused business unit with a geographic business unit where
appropriate, EDS is able to respond to a client's requirements with people who
are knowledgeable about a specific industry and the client's business. These
industry-focused business units can be broadly categorized as follows:
. MANUFACTURING. EDS assists numerous manufacturing companies in their
worldwide operations and in their implementation of global competitive
strategies, providing them with advanced capabilities in information
processing, information management and telecommunications. EDS offers
manufacturing clients expertise in EDI, engineering information systems,
integrated document processing, inventory control, materials handling,
process control, synchronous manufacturing, and artificial intelligence
techniques.
. FINANCIAL SERVICES. EDS offers a full range of information and
technology services to the global financial services industry. The
industry's expansion of products and services has led to an
unprecedented dependence on technology and its integration with a
financial institution's business processes and strategy. Through
strategic alliances and acquisitions, EDS has positioned itself to
support a wide range of industry segments, including commercial banks,
consumer finance companies, commercial insurance companies, investment
banks, regional and community banks, credit unions, brokerage and
securities firms, thrifts and mortgage lenders. EDS' services are
augmented by a full range of industry-specific products and services,
including data processing, automated teller machines ("ATMs"), debit
and credit card services, voice and teller automation, item and
remittance processing, cross-border funds transfer and currency
exchange, consumer asset management, customer service technology,
remote/home banking and business-process improvement.
. GOVERNMENT. EDS performs information and technology services for
national, state and local governments in the U.S. and around the world.
At the national level, EDS targets its services at both civil and
defense organizations with complex, large-scale information needs.
Within state and local governments, key markets of EDS include human
services, transportation, public safety and administration and finance.
EDS' core competency for managing complexity and its proven ability to
leverage process performance improvement techniques and technologies
from the private sector into the public sector has allowed EDS to expand
its government presence worldwide.
. COMMUNICATIONS. EDS offers a full spectrum of information and technology
services to the global communications market in addition to industry
specific technology platforms tailored to the information needs of each
industry segment. For the telecommunications segment (local, long
distance, wireless and internet service providers), EDS' service
offerings include call rating and billing, clearinghouse services,
operational support services and customer care and acquisition
technologies. For the entertainment and media segment, EDS provides
content digitization and digital asset management services.
. HEALTH. EDS offers information and technology services to companies in
the health care industry, providing the management of information
required in this highly regulated industry in a rapidly-
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changing, record-intensive environment. EDS' services go beyond
traditional outsourcing and include providing solutions to improve
specific business areas, including sales and marketing, customer service
and claims management.
. TRAVEL AND TRANSPORTATION. EDS' travel and transportation group offers
information and technology services to customers worldwide in the air
transportation, freight, computer reservation system, vehicle rental,
travel agency, cruise line and hospitality industries. EDS' services to
these industries are designed to meet customer requirements for reducing
operating costs, improving quality and increasing responsiveness to
rapidly changing market conditions.
. ENERGY. EDS provides information and technology services on a global
basis to companies in the petroleum, natural gas, chemical, mining and
utility industries. EDS' services in these industries are intended
to help clients improve the performance of their information and
communications infrastructures while providing technology-based business
solutions for specific process and functional areas.
In certain of these markets, EDS provides services, such as ATM and travel
related services, directly to individual consumers.
A.T. Kearney
A.T. Kearney, the global management consulting firm which became a subsidiary
of EDS in 1995, provides clients with sophisticated performance improvement
techniques that improve overall competitive position. The firm has strong
expertise in the aerospace and defense, automotive, chemicals, communications,
consumer industries, financial institutions, forest products, health care, high-
tech electronics, oil and gas, pharmaceuticals, retail, transportation and
utilities industries. EDS and A. T. Kearney together offer a CoSourcing(SM)
Service, which focuses on improving clients' business performance through
concurrent implementation of new business processes, information technology and
enterprise-wide transformation.
Strategic Business Lines
Certain services provided by EDS are organized in strategic business lines so
that their resources and capabilities may be globally leveraged across EDS.
These strategic business lines provide services directly to clients but also
work in coordination with a geographical or vertical business unit having
primary responsibility for a particular client. EDS' strategic business lines
include the following:
CIO Services 2000. EDS' CIO Services unit was organized in 1996 to bring
together the industry organizations within EDS which were providing Year 2000
services to existing and new clients. This unit offers complete Year 2000
services, including assessment, planning and strategy, renovation, testing and
implementation. Source code modifications are performed at renovation centers
in the United States, Ireland and Australia utilizing EDS' proprietary COGEN
2000 tool.
Enterprise Customer Management. EDS' Enterprise Customer Management unit
consolidates all of EDS' customer contact management solutions into one business
line, delivering database marketing, call center services and direct marketing
consulting services for industries on a global basis. Neodata Corporation, the
integrated marketing communications services company which became a wholly-owned
subsidiary of EDS in August 1997, has been integrated into this business line,
making EDS Enterprise Customer Management the largest direct marketing company
in the world.
Electronic Business. Electronic commerce services include business strategy
and project management services, interactive marketing and home shopping
services, bill presentment and payment services, card issuing services, merchant
acquiring services, electronic benefits transferring services, and ATM and debit
card services. EDS' c2o unit offers a range of services that enable enterprises
to capitalize on the
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increasing number of opportunities in the electronic markets. Internet services
include design, construction and management of internet websites, corporate
intranets and extranets.
Unigraphics Solutions
Unigraphics Solutions Inc. ("UG Solutions"), a subsidiary of EDS, develops and
markets computer assisted design, manufacturing and engineering ("CAD," "CAM"
and "CAE") software and services. UG Solutions' principal product offerings
include Unigraphics(R) for design-through-manufacture applications, IMAN(R) for
product information management, and Parasolid(R), a high precision, boundary-
representation solid modeler for mechanical CAD/CAM/CAE applications.
ACQUISITIONS AND STRATEGIC ALLIANCES
From time to time EDS has made acquisitions and entered into strategic
alliances in an effort to obtain a competitive advantage or a new or expanded
presence in targeted geographic or service markets. EDS believes that the
convergence of the computing and software, communication, media and
entertainment and electronic commerce industries will continue. As a result,
acquisitions, joint ventures and strategic alliances are expected to continue to
be important to EDS' ability to compete effectively.
REVENUES
EDS receives fees for all aspects of its portfolio of services. The fees are
generally paid pursuant to predetermined rates set forth in contracts. Customer
contracts for systems and technology services and business process management
services generally have terms of one to 10 years. Management consulting
engagements and electronic markets projects generally have shorter terms.
The following table sets forth the percentage of revenues for each of the
years in the three-year period ended December 31, 1997 derived by EDS from the
identified principal business areas.
PERCENTAGE OF REVENUES
FOR THE YEARS ENDED
BUSINESS AREA DECEMBER 31,
------------- ------------------------
1997 1996 1995
------ ------ ------
Manufacturing............................... 44% 45% 47%
Financial Services.......................... 15 14 14
Government.................................. 14 13 12
Communications.............................. 6 7 8
Health...................................... 6 6 7
Travel and Transportation................... 4 4 4
Energy...................................... 3 3 3
Other....................................... 8 8 5
------ ------ ------
Total..................................... 100% 100% 100%
====== ====== ======
Other than GM, no one client accounted for more than 5% of EDS' total revenues
in 1997, 1996 or 1995.
BACKLOG
EDS' backlog represents an estimate of the remaining future revenue from
existing signed contracts. Using the best available information, EDS determines
this estimate on an annual basis as of December 31 of each year. The estimate
includes contracts which have a term of 12 months or longer and is calculated
for each of the next ten years plus a summary amount for contracts with terms
extending beyond such ten-
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year period. The EDS backlog estimate includes revenues expected under current
terms of executed contracts, revenues from government contracts in which
quantities are not definite but estimable, and a risk-adjusted estimate of
renewals and extensions for those contracts which contain renewal or extension
provisions.
Changes in the backlog calculation from year to year result from (i)
additional revenue from the signing of new contracts, (ii) reduction in revenue
from fulfilling contracts during the most recent year, (iii) reduction in
revenue from early termination of contracts, and (iv) adjustments to estimates
of previously included contracts. On an annual basis, EDS reviews each contract
included in the calculation and adjusts estimates for those contracts based on
the latest available information.
At December 31, 1997 and 1996, EDS' firm backlog for services was
approximately $72 billion and $72.5 billion, respectively. Approximately $3.5
billion of the amount of backlog reported at December 31, 1996 was in respect
of lines of business which EDS exited during 1997.
COMPETITION
EDS experiences competition in the IT industry and in the broader professional
services industry. EDS has historically faced competition principally from
other companies providing information technology systems and services. Today,
EDS' principal competitors in the IT services industry include International
Business Machines Corporation, Andersen Consulting LLP and Computer Sciences
Corporation. As the markets for IT services continue to grow and as the
services demanded by customers expand and increase in complexity, EDS faces
increasing competition from niche-oriented, geographically focused companies as
they expand and become broader competitors through acquisitions, alliances or
otherwise.
Technology and its application within the business enterprise is in a rapid
and continuing state of change as new technologies continue to be developed,
introduced and implemented. EDS management believes that its ability to
continue to compete effectively will depend upon its ability to develop and
market offerings that meet changing user needs and respond to technological
changes on a timely and cost-effective basis, as well as its ability to finance
and acquire the resources necessary to offer such services and products.
EMPLOYEES
As of December 31, 1997, EDS employed approximately 110,000 persons located in
the United States and 43 other countries. None of EDS' United States or
Canadian employees is currently employed under an agreement with a collective
bargaining unit, and EDS believes that its relations with employees are good.
To maintain its technical expertise and its responsiveness to evolving client
needs, EDS provides its employees with extensive continuing education and
training, as well as leadership and professional development programs.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
EDS holds a number of patents and pending patent applications in the United
States and in foreign countries. EDS' policy generally is to pursue patent
protection that it considers necessary or advisable for the patentable
inventions and technological improvements of its business. EDS also relies
significantly on trade secrets, copyrights, technical expertise and know-how,
continuing technological innovations and other means, such as confidentiality
agreements with employees, consultants and customers, to protect and enhance its
competitive position.
Some of the business areas in which EDS is engaged are highly patent-
intensive. Many of EDS' competitors have obtained, and may be expected to
obtain in the future, patents that cover or affect services or products directly
or indirectly related to those offered by EDS. EDS routinely receives
communications from third parties asserting patent or other rights covering EDS'
services or products. There can be no assurance that EDS is aware of all
patents containing claims that may pose a risk of infringement by its
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services or products. In addition, patent applications in the United States are
confidential until a patent is issued and, accordingly, EDS cannot evaluate the
extent to which its services or products may infringe claims contained in
pending patent applications. In general, if it were determined that one or more
of the services or products offered by EDS infringe patents held by others, EDS
would be required to cease developing or marketing such services or products, to
obtain licenses to develop or market such services from the holders of the
patents or to redesign such services or products in such a way as to avoid
infringing the patent claims. The extent to which EDS may be required in the
future to obtain licenses with respect to patents held by others and the
availability and cost of any such licenses are currently unknown. There can be
no assurance that EDS would be able to obtain such licenses on commercially
reasonable terms or, if it were unable to obtain such licenses, that it would be
able to redesign its services or products to avoid infringement or that
litigation would not ensue.
EDS management is not aware of any pending patent or proprietary right
disputes against EDS that would have a material adverse effect on EDS'
consolidated financial position or results of operations.
REGULATION
Various aspects of EDS' business are subject to federal and state regulation
noncompliance with which, depending upon the nature of the noncompliance, may
result in the suspension or revocation of any license or registration at issue,
the termination or loss of any contract at issue or the imposition of
contractual damages, civil fines or criminal penalties. EDS has experienced no
material difficulties in complying with the various laws and regulations
affecting its business.
SERVICES FOR GENERAL MOTORS
Approximately 28% of EDS' total revenues in 1997 was attributable to GM and
its affiliates. EDS provides substantially all of the worldwide data processing
and telecommunications activities for GM and its affiliates (other than Hughes
Electronics Corporation, with the exception of its Delco Electronics Corporation
subsidiary), including integrated information systems for payroll, health and
benefits, office automation, communications and plant automation functions. The
loss of GM as an ongoing major customer of EDS would have a material adverse
effect on EDS.
Immediately prior to the Split-Off, GM and EDS entered into a new Master
Service Agreement (the "MSA") that serves as a framework for the negotiation and
operation of service agreements between GM and EDS related to certain "in-scope"
IT services as defined in the MSA ("MSA Services") to be provided by EDS to GM
on a worldwide basis (collectively, together with the MSA, the "IT Services
Agreements"). IT services that are considered to be MSA Services accounted for
approximately $3.75 billion of the approximately $4.3 billion of revenues
received by EDS from GM in 1997. The balance of EDS' 1997 revenues from GM was
attributable to goods and services provided outside the scope of the MSA.
Set forth below is a summary of certain of the principal provisions of the
IT Services Agreements. Such description is not complete and, to the extent it
relates to the MSA, is qualified in its entirety by reference to the MSA, a copy
of which has been filed with the Securities and Exchange Commission.
Term. The term of the MSA commenced on June 7, 1996, the date of the Split-
Off, and will continue for a period of ten years thereafter. The term may be
extended for an additional period or periods by mutual agreement between GM and
EDS. There can be no assurance as to whether or to what extent EDS will
continue to provide IT services to GM after the initial term of the MSA.
Service Agreements. Under the predecessor to the MSA, GM business units and
EDS had entered into a number of Service Agreements ("Service Agreements")
setting forth the terms and provisions applicable to specific services or
projects undertaken by EDS on behalf of various GM organizations. Such Service
Agreements remained in effect after the Split-Off and, in many cases, were
extended or otherwise modified as provided in the MSA. In addition, EDS expects
that it will continue to negotiate and enter into
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additional Service Agreements with GM business units providing for the
performance of IT services on mutually agreed terms. In negotiating future
Service Agreements, the parties will endeavor to agree upon fixed-price service
arrangements which meet the standards of competitiveness described below. The
provisions of the MSA apply to all Service Agreements, whether entered into
before or after the Split-Off.
At the time of the Split-Off, the terms of the largest domestic Service
Agreements then in effect were extended for additional terms of between one and
three years. The Service Agreement with Delphi Automotive Systems (U.S.) was
extended through December 31, 1998 and the Service Agreements with GM's North
American Operations, General Motors Acceptance Corporation (U.S. and Canada) and
Motors Insurance Corporation (U.S. and Canada) were each extended through
December 31, 1999. In addition, at the time of the Split-Off GM and EDS
entered into a successor Service Agreement covering GM International Operations
with a term ending on December 31, 2000.
Scope of Services. The MSA established a contractual framework for the
provision of MSA Services on a worldwide basis to GM and certain of its
affiliates. The MSA contains a flexible description of the MSA Services that is
based on functional service categories so as to take into account possible
future changes in business operations or technologies that result in the
replacement of existing processes and technologies. MSA Services include IT
goods and services related to the following functional service categories: (i)
computing and communications infrastructure; (ii) development of application
software and implementation of commercial off-the-shelf application software;
(iii) data management; (iv) cross-functional IT-related services; and (v)
certain services related to specified plant floor operations. The MSA
specifically excluded from the scope of work to be performed by EDS services for
certain GM units or operations and in certain geographic areas. Furthermore, GM
may competitively bid and award a portion of services to third party providers
as described under "--Market Testing and Outsourcing" below.
Competitiveness. The MSA provides that MSA Services will be competitive
with respect to quality, service, price and technology giving due consideration
to GM's requirements and other relevant factors. The provisions of the MSA with
respect to competitiveness apply to the negotiation or renegotiation of (i) new
or replacement Service Agreements, (ii) the terms and conditions applicable to
new or replacement MSA Services and (iii) the pricing of any MSA Services when
such negotiation or renegotiation is contractually provided for in a Service
Agreement. When the applicable EDS and GM organizations reach a mutually
acceptable agreement as to the competitiveness of any services, the standards of
competitiveness provided for in the MSA will be deemed satisfied for the term of
such agreement. If the applicable GM and EDS organizations are unable to reach
a mutually acceptable agreement as to the competitiveness of any MSA Services,
the MSA provides a procedure whereby the negotiating impasse will be escalated
to senior management, the services of a standing neutral mediator may (and, in
some cases, must) be utilized, and, in the absence of an agreement, (i) any
impasse as to uniform published rates for applicable items will be resolved by
binding arbitration and (ii) any impasse as to any other services will be
resolved by EDS providing the services on the basis of the standard terms and
conditions provided in the MSA and a modified cost-plus pricing methodology.
Pricing of Services. Depending on the type of services to be provided by
EDS, the parties may utilize (i) fixed-price arrangements, (ii) cost-based
pricing methods or (iii) uniform published rates for off-the-shelf, commercially
available products and services. However, the parties have agreed to endeavor
to incorporate fixed-price arrangements into new Service Agreements entered into
under the MSA to the extent practicable. With respect to certain information
processing services to be performed by EDS, the parties have agreed to annual
reductions in the rates to be charged by EDS to all GM organizations worldwide,
which reduced rates were applied retroactively as of January 1, 1996 and will be
in effect through December 31, 2000. In addition, with respect to certain
communication services to be performed by EDS, the parties have agreed to annual
reductions in the rates to be charged by EDS to all GM organizations in the
United States, which reduced rates were applied retroactively as of January 1,
1996 and will be in effect through December 31, 1998. During the respective
periods that these reduced rates are in effect, the information processing and
communications services to which the reduced charges apply will not be subject
to the provisions of the MSA relating to market testing or outsourcing described
below.
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Market Testing and Outsourcing. The MSA provides for certain market testing
procedures in order to test the competitiveness of the MSA Services provided by
EDS. Under these procedures, EDS will have the opportunity to bid on any and
all MSA Services and any bid submitted by EDS will be evaluated on the same
criteria as bids submitted by other service providers. During each year
beginning in 1998, GM is permitted to expose to competitive bidding specified
percentages of the prior year's revenues paid to EDS for MSA Services. In each
year from 1998 through 2000, GM may expose to competitive bidding and award to
third parties contracts for MSA Services for which GM would otherwise have
reasonably paid EDS up to an average of approximately 6% of the prior year's
revenues paid to EDS for MSA Services. For the years 2001 through 2006, GM may
expose to competitive bidding and award to third parties contracts for MSA
Services for which GM would otherwise have reasonably paid EDS up to an average
of approximately 2.4% of the prior year's revenues paid to EDS for MSA Services.
Subject to certain limitations, GM will select the MSA Services to be exposed to
competitive bidding after consultation with EDS. In addition to the foregoing
annual limitations, the following aggregate limitations apply: through 2000, in
no single calendar year may the amount paid to third parties for MSA Services
exceed 15% of the aggregate amount of revenue paid to EDS for MSA Services
performed during the prior year; and after 2000, in no single calendar year may
the amount paid to third parties for MSA Services exceed 25% of the aggregate
amount of revenue paid to EDS for MSA Services performed during the prior year.
Although EDS may bid on any and all of such MSA Services, it is expected that
third party service providers will be awarded some portion of the MSA Services
exposed to competitive bidding. There can be no assurance as to whether or to
what extent EDS will be successful in bidding on such MSA Services.
Termination. The MSA provides that it may be terminated (i) by either party,
if the other party defaults in any material respect in the performance of its
obligations thereunder and such default is not cured after notice thereof, (ii)
by EDS, if GM defaults in the payment when due of any material amount owing to
EDS thereunder and such default is not cured after notice thereof, (iii) by
either party, if the other party becomes insolvent or (iv) by GM, if there
occurs a "change of control" of EDS (as defined in the MSA) and certain
additional conditions are met (which conditions include a determination by GM's
Board of Directors that there exists substantial uncertainty about EDS' ability
to perform its obligations under the IT Services Agreements or any other
significant threat to the business relationship between the parties).
ITEM 2. PROPERTIES
As of December 31, 1997, EDS had approximately 379 locations operating in 41
states and 207 cities in the United States and approximately 269 additional
locations in 170 cities in 37 countries outside the United States. At such
date, approximately 5.8 million square feet of space was owned by EDS and an
additional approximately 14.6 million square feet of space was leased. EDS'
worldwide headquarters, which is located on a 363 acre campus in Plano, Texas,
contains approximately 3.5 million square feet of office and data center space.
Other than the 1.6 million square feet EDS Centre building, which is leased for
an initial term of 25 years and subject to certain fixed price purchase options
exercisable by EDS during and at the end of such initial term, all buildings and
real estate comprising the Plano campus are owned by EDS. EDS' two information
management centers, which monitor the EDSNET(R) global telecommunications
network, are located in Plano, Texas and Stockley Park, United Kingdom. EDS'
large scale information processing centers ("IPCs") are located throughout the
United States and in each of Australia, Brazil, Canada, France, Germany, the
Netherlands, Spain and the United Kingdom. In addition, EDS operates
distributed service centers ("DSCs") at customer owned sites or EDS owned or
leased facilities throughout the world. DSCs generally support a single or
small number of customers with more specialized requirements than those
supported at the large scale, multiple customer IPCs.
Leased properties consist primarily of office, warehouse, DSC and non-U.S. IPC
facilities. Lease terms are generally five years or, with respect to leases
related to a specific customer contract, have a term concurrent with that
contract. Upon expiration of its leases, EDS does not anticipate any difficulty
in obtaining renewals or alternative space. In addition to the leased property
referred to above, EDS occupies office space at customer locations throughout
the world. Such space is generally occupied pursuant to the terms of the
respective customer contracts.
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EDS management believes that its facilities are suitable and adequate for its
business; however, EDS periodically reviews its space requirements to
consolidate and dispose of or sublet facilities which are no longer required in
connection with its business and to acquire new space to meet the needs of its
business.
ITEM 3. LEGAL PROCEEDINGS
Three suits challenging the Split-Off, Stephen A. Solomon v. General Motors
Corporation, et al., TRV Holding Company v. General Motors Corporation, et al.,
and Melvin Ward et al. v. General Motors Corporation, et al. were consolidated.
The consolidated case purports to be a class action brought on behalf of the
former holders of GM's Class E common stock, all of which was converted into EDS
common stock in connection with the Split-Off, as well as a double derivative
action brought on behalf of EDS against certain present and former directors of
GM and certain former directors of EDS (all of whom were also directors or
officers of GM). EDS is named in the complaint only as a nominal defendant with
respect to the double derivative action. On May 23, 1996, plaintiffs withdrew
their application for expedited proceedings and preliminary injunctive relief,
and on June 7, 1996 the Split-Off was consummated. Since then, plaintiffs have
filed a third amended consolidated complaint. On December 11, 1997, the
defendants filed a motion to dismiss the third amended consolidated complaint.
EDS believes that the suits are without merit and, to the extent it is a party
thereto, intends to defend them vigorously.
From time to time EDS is involved in various litigation matters arising in the
ordinary course of its business. EDS management does not believe that
disposition of any current matter will have a material adverse effect on EDS'
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None submitted.
EXECUTIVE OFFICERS OF EDS
The following sets forth certain information with respect to the executive
officers of EDS as of February 27, 1998:
Lester M. Alberthal, Jr., 54, has been Chief Executive Officer of EDS since
December 1986 and Chairman of the Board since June 1989. He is a member of EDS'
Office of the Chairman. Mr. Alberthal has been a director of EDS since 1981.
He joined EDS in 1968, became responsible for EDS' health care division in 1974
and was named Senior Vice President with responsibility for EDS' insurance group
in 1979. Following the acquisition of EDS by GM in 1984, Mr. Alberthal led all
non-GM North American operating groups. He served as President of EDS from
April 1986 through the consummation of the Split-Off.
Gary J. Fernandes 54, has been the Vice Chairman of EDS since the consummation
of the Split-Off and a director of EDS since 1981. He is a member of EDS' Office
of the Chairman. Mr. Fernandes had been a Senior Vice President of EDS from
October 1984 until the consummation of the Split-Off. He has oversight
responsibility for EDS' worldwide business development and corporate development
(including marketing and strategic planning) and is Chairman of EDS' A.T.
Kearney management consulting services subsidiary and of EDS Australia. Mr.
Fernandes joined EDS in 1969 and has served in numerous management capacities in
the United States, Europe and Japan.
Jeffrey M. Heller, 58, has been the President and Chief Operating Officer of
EDS since the consummation of the Split-Off and a director of EDS since 1983. He
is a member of EDS' Office of the
10
Chairman. Mr. Heller was a Senior Vice President of EDS from 1984 until
consummation of the Split-Off. He joined EDS in 1968 and has served in numerous
technical and management capacities.
John A. Bateman, 49, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1992. Mr. Bateman has responsibility for EDS' European, Middle Eastern
and African operations.
Hartmut W. Burger, 54, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Vice
President since October 1992. He has responsibility for EDS' technical
infrastructure and internal information functions, EDS' internet and electronics
markets strategic business lines, and EDS' business units serving customers in
the communications industry. Prior to assuming his current responsibilities,
Mr. Burger was responsible for EDS' business units serving customers in the
manufacturing and commercial services industries.
John R. Castle, Jr., 55, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Senior Vice
President since October 1988. He has oversight responsibility for EDS'
government affairs, communications and public relations groups and its legal
department. Prior to joining EDS in 1988, Mr. Castle was a partner in the
Dallas law firm of Hughes & Luce.
Paul J. Chiapparone, 58, has been an Executive Vice President of EDS since
the consummation of the Split-Off and prior to that time had been a Senior Vice
President since April 1986. He has responsibility for EDS' global business
units supporting the GM account. Mr. Chiapparone joined EDS in 1966 and has
served in numerous management capacities.
J. Coley Clark, 52, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1989. Mr. Clark has responsibility for EDS' business units serving
customers in the financial services and travel and transportation industries.
Joseph M. Grant, 59, has been Chief Financial Officer of EDS since December
1990 and an Executive Vice President since the consummation of the Split-Off.
Prior to that time he had been a Senior Vice President since February 1992.
Prior to joining EDS in December 1990, he served as executive vice president and
chief systems officer for American General Corporation from 1989 to 1990 and as
chairman of the board and chief executive officer of Texas American Bancshares
Inc. from 1986 to 1989. Mr. Grant will retire from EDS effective March 31,
1998.
Gary B. Moore, 48, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1992. Since June 1996, Mr. Moore has held responsibility for EDS'
business units serving customers in the manufacturing industry. He had served
as Chairman of EDS Japan from January 1993 to June 1996.
G. Stuart Reeves, 58, has been an Executive Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Senior Vice
President since February 1987. He has responsibility for EDS' business units
serving customers in government and in the energy and healthcare industries,
EDS' Customer Solutions strategic business line, and EDS' Canadian, Mexican and
Central and South American operations. Mr. Reeves joined EDS in 1967 and has
held numerous technical and management positions.
Gary L. Rudin, 49, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1989. Since December 1997, Mr. Rudin has had leadership responsibility
for EDS' Future by Design transformation initiative. Prior to that time, he had
responsibility for various geographic and industry business units within EDS.
Edward V. Yang, 52, has been a Senior Vice President of EDS since the
consummation of the Split-Off and prior to that time had been a Vice President
since 1994. Mr. Yang has responsibility for
11
EDS' Asia/Pacific and Japanese operations. He joined EDS in 1992 as president
of EDS' operations in East Asia. Prior to that time, Mr. Yang was a Senior Vice
President of Wang Laboratories and manager of its South American and
Asia/Pacific operations.
Executive officers serve at the discretion of the Board of Directors of EDS.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "EDS." As a result of the Split-Off, on June 7, 1996 each share of
Class E Common Stock of GM was converted into one share of Common Stock. The GM
Class E Common Stock had been listed and traded on the NYSE under the symbol
"GME" through June 7, 1996. The table below shows the range of reported per
share sales prices on the NYSE Composite Tape for the Class E Common Stock
(through June 7, 1996) and the Common Stock (commencing June 10, 1996) for the
periods indicated.
CALENDAR YEAR HIGH LOW
- ------------- ---- ---
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
1997
First Quarter................................................................ $49.63 $40.13
Second Quarter............................................................... 44.75 31.75
Third Quarter................................................................ 46.75 34.50
Fourth Quarter............................................................... 44.19 29.56
The last reported sale price of the Common Stock on the NYSE on February 27,
1998 was $43.8125 per share. As of February 27, 1998, the approximate number of
record holders of Common Stock was 227,770.
Since the consummation of the Split-Off, EDS declared quarterly dividends on
the Common Stock at the rate of $.15 per share for the third and fourth quarters
of 1996 and each quarter of 1997. Prior to the Split-Off, GM paid quarterly
dividends on the GM Class E Common Stock of $.15 per share for the first and
second quarters of 1996.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" for the years 1993 through 1997 on page 62 of
EDS' Annual Report to Stockholders for the year ended December 31, 1997 is
incorporated herein by reference.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 35 through 41 of EDS' Annual Report to Stockholders for the
year ended December 31, 1997 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of EDS included in EDS' Annual
Report to Stockholders for the year ended December 31, 1997 are incorporated
herein by reference.
Consolidated Statements of Income -- Years ended December 31, 1997, 1996 and
1995.
Consolidated Balance Sheets -- December 31, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years ended December 31, 1997, 1996
and 1995.
Notes to Consolidated Financial Statements
Independent Auditors' Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For Item 10, the names and ages of the executive officers of EDS as of February
27, 1998, and the position(s) each of them has held during the past five years,
are included in Part I of this Form 10-K as permitted by General Instruction
G(3). All other information required by Item 10, and the information required
by Items 11, 12 and 13, is incorporated by reference to the registrant's
definitive proxy statement for its Annual Meeting of Stockholders to be held on
May 20, 1998, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1997.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. The following consolidated financial statements of Electronic Data
Systems Corporation and subsidiaries included in the registrant's 1997 Annual
Report to Stockholders are incorporated by reference in Part II, Item 8:
Consolidated Statements of Income -- Years ended December 31, 1997,
1996 and 1995.
Consolidated Balance Sheets -- December 31, 1997 and 1996.
Consolidated Statements of Cash Flows -- Years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. The following financial statement schedule of Electronic Data Systems
Corporation and subsidiaries is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
3. Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3(a) Restated Certificate of Incorporation of Electronic Data Systems
Corporation, as amended through June 7, 1996 -- incorporated herein
by reference to Exhibit 3(a) to the Current Report on Form 8-K of
the Registrant dated June 7, 1996.
3(b) Amended and Restated Bylaws of Electronic Data Systems Corporation,
as amended through June 7, 1996 -- incorporated herein by
reference to Exhibit 3(b) to the Current Report on Form 8-K of the
Registrant dated June 7, 1996.
4(a) Rights Agreement dated as of March 12, 1996 between the Registrant
and The Bank of New York, as Rights Agent -- incorporated herein by
reference to Exhibit 4(c) to the Registration Statement on Form S-4
of the Registrant (File No. 333-02543).
4(b) Indenture dated as of August 12, 1996, between the Registrant and
Texas Commerce Bank National Association, as Trustee --
incorporated herein by reference to Exhibit 4 to the Registration
Statement on Form S-3 of the Registrant (File No. 333-10145).
4(c) Instruments defining the rights of holders of nonregistered debt of
the Registrant have been omitted from this exhibit index because
the amount of debt authorized under any such instrument does not
exceed 10% of the total assets of the Registrant and its
subsidiaries. The Registrant agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon request.
14
10(a) Master Service Agreement dated June 7, 1996 between General Motors
Corporation and the Registrant (portions of which are subject to
confidential treatment granted by the Securities and Exchange
Commission) -- incorporated herein by reference to Exhibit 10(a) to
the Current Report on Form 8-K of the Registrant dated June 7,
1996.
10(b) 1996 Incentive Plan of Electronic Data Systems Corporation --
incorporated herein by reference to Exhibit 10(b) to the Current
Report on Form 8-K of the Registrant dated June 7, 1996.*
10(c) Electronic Data Systems Corporation Supplemental Executive
Retirement Plan -- incorporated herein by reference to Exhibit
10(d) to the Registration Statement on Form S-4 of the Registrant
(File No. 333-02543).*
10(d) Electronic Data Systems Corporation Deferred Compensation Plan for
Non-Employee Directors -- incorporated herein by reference to
Exhibit 10(e) to the Registration Statement on Form S-4 of the
Registrant (File No. 333-02543).*
10(e) Form of Indemnification Agreement entered into between the
Registrant and each of its directors and executive officers --
incorporated herein by reference to Exhibit 10(f) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543).*
10(f) Revolving Credit and Term Loan Agreement dated as of October 4,
1995 among the Registrant, Citibank, N.A., as Administrative Agent,
and the other financial institutions identified therein as
Arrangers, Managers and Lenders -- incorporated herein by
reference to Exhibit 10(h) to the Registration Statement on Form
S-4 of the Registrant (File No. 333-02543).
10(g) Amended and Restated Revolving Credit and Term Loan Agreement
entered into as of September 23, 1997 among the Registrant and the
Lenders identified therein -- incorporated herein by reference to
Exhibit 10(g) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
10(h) Multi-Currency Revolving Credit Agreement dated as of October 4,
1995 among the Registrant, Citibank, N.A., as Administrative Agent,
and the other financial institutions identified therein as
Arrangers, Managers and Lenders -- incorporated herein by
reference to Exhibit 10(i) to the Registration Statement on Form
S-4 of the Registrant (File No. 333-02543).
10(i) Amended and Restated Multi-Currency Revolving Credit Agreement
entered into as of September 23, 1997 among the Registrant and the
Lenders identified therein -- incorporated herein by reference to
Exhibit 10(i) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
10(j) Registration Rights Agreement dated March 12, 1995 between General
Motors Corporation and United States Trust Company of New York, as
Trustee of the General Motors Corporation Hourly-Rate Pension
Plan -- incorporated herein by reference to Exhibit 10(j) to the
Registration Statement on Form S-4 of the Registrant (File No. 333-
02543).
10(k) Succession Agreement dated June 7, 1996 among the Registrant,
General Motors Corporation and United States Trust Company of New
York, as Trustee of the General Motors Corporation Hourly-Rate
Pension Plan, with respect to the Registration Rights Agreement
filed as Exhibit 10(j) above -- incorporated herein by reference to
Exhibit
15
10(k) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
10(l) Form of Change in Control Employment Agreement entered into by the
Registrant with each of its executive officers -- incorporated
herein by reference to Exhibit 99 to the Registration Statement on
Form S-3 of the Registrant (File No. 333-06655). *
12 Computation of Ratios of Earnings to Fixed Charges for the three
years ended December 31, 1997.
13 Portions of the Registrant's 1997 Annual Report to Stockholders
expressly incorporated by reference herein: Pages 34 through 62.
21 Subsidiaries of the Registrant as of December 31, 1997
23 Consent of Independent Auditors
24 Powers of Attorney for Directors signing this Report on Form 10-K.
27 Financial Data Schedule for the year ended December 31, 1997,
submitted to the Securities and Exchange Commission in electronic
format.
- --------------------
* Management contracts and compensatory plans and arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 14(c).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedule.
The response to this portion of Item 14 is submitted as a separate section
of this report.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Electronic Data Systems Corporation
Dated: March 4, 1998 By: /s/ Lester M. Alberthal, Jr.
-----------------------------------------
Lester M. Alberthal, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 4, 1998 By: /s/ Lester M. Alberthal, Jr.
-----------------------------------------
Lester M. Alberthal, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Dated: March 4, 1998 By: /s/ Gary J. Fernandes
-----------------------------------------
Gary J. Fernandes
Vice Chairman and Director
Dated: March 4, 1998 By: /s/ Jeffrey M. Heller
-----------------------------------------
Jeffrey M. Heller
President, Chief Operating Officer
and Director
Dated: March 4, 1998 By: /s/ Joseph M. Grant
-----------------------------------------
Joseph M. Grant
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: March 4, 1998 By: /s/ H. Paulett Eberhart
-----------------------------------------
H. Paulett Eberhart
Vice President and Controller
(Principal Accounting Officer)
17
Dated: March 4, 1998 By: *
-----------------------------------------
James A. Baker, III
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Richard B. Cheney
Director
Dated: March 4, 1998 By: *
-----------------------------------------
William H. Gray, III
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Ray J. Groves
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Ray L. Hunt
Director
Dated: March 4, 1998 By: *
-----------------------------------------
C. Robert Kidder
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Judith Rodin
Director
Dated: March 4, 1998 By: *
-----------------------------------------
Enrique J. Sosa
Director
* By: /s/ D. Gilbert Friedlander
----------------------------------------
D. Gilbert Friedlander, Attorney in Fact
March 4, 1998
18
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Electronic Data Systems Corporation:
Under date of February 4, 1998, we reported on the consolidated balance sheets
of Electronic Data Systems Corporation and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in the 1997 annual report to stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
February 4, 1998
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
Description of year expenses accounts Deductions end of year
- ----------- ---------- ---------- ---------- ---------- -----------
FOR THE YEAR ENDED DECEMBER 31, 1997
Allowances Deducted from Assets
Accounts and notes receivable 117.2 37.8 -- 49.6(a) 105.4
Inventories 25.6 17.3 -- 12.2(b) 30.7
Valuation allowance for
deferred taxes 139.6 -- 21.8 20.4(c) 141.0
---------- ---------- ---------- ---------- -----------
Total Allowances Deducted
from Assets 282.4 55.1 21.8 82.2 277.1
========== ========== ========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1996
Allowances Deducted from Assets
Accounts and notes receivable 99.5 93.4 -- 75.7(a) 117.2
Inventories 19.5 15.5 -- 9.4(b) 25.6
Valuation allowance for
deferred taxes 126.3 -- 22.9 9.6(c) 139.6
---------- ---------- ---------- ---------- -----------
Total Allowances Deducted
from Assets 245.3 108.9 22.9 94.7 282.4
========== ========== ========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1995
Allowances Deducted from Assets
Accounts and notes receivable 57.9 124.6 -- 83.0(a) 99.5
Inventories 13.7 19.1 -- 13.3(b) 19.5
Valuation allowance for
deferred taxes 111.1 -- 20.8 5.6(c) 126.3
---------- ---------- ---------- ---------- -----------
Total Allowances Deducted
from Assets 182.7 143.7 20.8 101.9 245.3
========== ========== ========== ========== ===========
Notes:
(a) Accounts written off and foreign currency translation adjustments
(b) Obsolete parts written off and foreign currency translation adjustments
(c) Primarily foreign currency translation adjustments