L:\secfiles\10_k\8041s.doc 12
1 EXHIBIT 99(a)
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of EDS were prepared by management,
which is responsible for their integrity and objectivity. The statements have
been prepared in conformity with generally accepted accounting principles and,
as such, include amounts based on judgments of management. Financial
information elsewhere in this Exhibit 99(a) is consistent with that in the
consolidated financial statements.
Management is further responsible for maintaining a system of internal
accounting controls designed to provide reasonable assurance that the books
and records reflect the transactions of the Company and that its established
policies and procedures are carefully followed. Perhaps the most important
feature in the system of control is that it is continually reviewed for its
effectiveness and is augmented by written policies and guidelines, the careful
selection and training of qualified personnel, and a strong program of
internal audit.
The Company's independent auditors, KPMG Peat Marwick, have audited the
financial statements. Their audits were conducted in accordance with
generally accepted auditing standards, which include the consideration of the
Company's internal controls to the extent necessary to form an independent
opinion on the financial statements prepared by management.
The Board of Directors, through the EDS Audit Committee, is responsible
for assuring that management fulfills its responsibilities in the preparation
of the consolidated financial statements and for engaging the independent
auditors. The Committee reviews the scope of the audits and the accounting
principles being applied in financial reporting. The independent auditors,
representatives of management, and the internal auditors meet regularly
(separately and jointly) with the Committee to review the activities of each,
to ensure that each is properly discharging its responsibilities, and to
discuss the effectiveness of the system of internal accounting controls. It
is management's conclusion that the system of internal accounting controls at
December 31, 1993 provides reasonable assurance that the books and records
reflect the transactions of the Company and that the Company complies with
established policies and procedures. To ensure complete independence, KPMG
Peat Marwick have full and free access to meet with the Committee, without
management representatives present, to discuss the results of their audits and
the quality of the financial reporting.
s/Lester M. Alberthal, Jr. s/Joseph M. Grant
Lester M. Alberthal, Jr. Joseph M. Grant
Chairman of the Board Senior Vice President
President and Chief Executive Officer Chief Financial Officer
IV-25
2
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT AND CONSENT
The Board of Directors
Electronic Data Systems Corporation:
We have audited the accompanying consolidated balance sheets of Electronic
Data Systems Corporation and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income and cash flows for each of
the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Electronic
Data Systems Corporation and subsidiaries at December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
We hereby consent to the incorporation by reference of our report stated
above in the following Registration Statements:
Registration
Form Statement No. Description
- ---- ---------------- -----------------------------------------------------
S-3 33-41557 General Motors Corporation Debt Securities
S-3 33-47343 General Motors Corporation $1-2/3 Par Value Common
(Post-Effective Stock
Amendment No. 1)
S-3 33-49035 General Motors Corporation $1-2/3 Par Value Common
(Amendment No. 1) Stock
S-3 33-49309 General Motors Corporation Dividend Reinvestment Plan
S-8 33-37736 The General Motors Personal Savings Plan for
Hourly-Rate Employees in the United States
S-8 33-49241 General Motors Amended 1987 Stock Incentive Plan
S-8 33-49245 General Motors Savings-Stock Purchase Program for
Salaried Employees in the United States
S-8 2-94690 1984 Electronic Data Systems Corporation Stock
(Post-Effective Purchase Plan
Amendment No. 1)
S-8 2-94691 1984 Electronic Data Systems Corporation Stock
(Post-Effective Incentive Plan
Amendment No. 1)
IV-26
3
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
S-8 33-36443 EDS Deferred Compensation Plan
S-8 33-32322 Hughes Aircraft Company Salaried Employees'
Thrift and Savings Plan
Hughes Aircraft Company Tucson Bargaining Employees'
Thrift and Savings Plan
Hughes Aircraft Company California Hourly Employees'
Thrift and Savings Plan
Hughes Thrift and Savings Plan
S-8 33-43744 The GMAC Mortgage Corporation Savings Incentive Plan
S-8 33-40423 GM Hughes Electronics Corporation Incentive Plan
S-8 33-43746 Saturn Individual Savings Plan for Union-Represented
Employees
S-8 33-49243 Saturn Personal Choices Savings Plan for
Non-Represented Employees
S-8 33-28714 Marketing & Systems Development Corporation
1985 Incentive Stock Option Plan
s/KPMG PEAT MARWICK
KPMG PEAT MARWICK
Dallas, Texas
February 1, 1994 (March 29, 1994 as to the consent in the last paragraph on
the preceding page)
IV-27
4
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions except per share amounts)
Years Ended December 31,
------------------------------
1993 1992 1991
-------- -------- --------
Revenues
Systems and other contracts
GM and affiliates $3,323.7 $3,348.5 $3,362.2
Outside customers 5,183.6 4,806.7 3,666.3
Interest and other income 54.5 63.7 70.5
------- ------- -------
Total revenues 8,561.8 8,218.9 7,099.0
------- ------- -------
Costs and expenses
Cost of revenues 6,390.6 6,205.8 5,415.1
Selling, general, and administrative 1,005.4 969.3 761.9
Interest (Note 8) 34.5 43.0 28.3
------- ------- -------
Total costs and expenses 7,430.5 7,218.1 6,205.3
------- ------- -------
Income before income taxes 1,131.3 1,000.8 893.7
Provision for income taxes (Note 10) 407.3 365.3 330.7
------- ------- -------
Income before cumulative effect of
accounting change 724.0 635.5 563.0
Cumulative effect of accounting change
(Note 10) - - (15.5)
------- ------- -------
Separate Consolidated Net Income $724.0 $635.5 $547.5
======= ======= =======
Available Separate Consolidated Net Income
Average number of shares of GM Class E
common stock outstanding (in millions)
(Note 1) (Numerator) 243.0 209.1 195.3
Class E dividend base (in millions)
(Denominator) 480.6 479.3 478.1
Available Separate Consolidated Net Income $367.2 $278.4 $223.6
======= ======= =======
Earnings Attributable to GM Class E
Common Stock on a Per Share Basis
(Note 1)
Before cumulative effect of accounting
change $1.51 $1.33 $1.17
Cumulative effect of accounting change
(Note 10) - - (0.03)
---- ---- ----
Net earnings attributable to GM Class
E common stock $1.51 $1.33 $1.14
==== ==== ====
See accompanying notes to consolidated financial statements.
IV-28
5
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------
1993 1992
-------- --------
(in millions)
Assets
Current assets
Cash and cash equivalents $383.4 $421.9
Marketable securities 224.1 166.0
Accounts receivable 1,412.5 1,214.0
Accounts receivable from GM and affiliates 112.6 41.1
Inventories 130.7 88.5
Prepaids and other 243.5 225.5
------- -------
Total current assets 2,506.8 2,157.0
------- -------
Property and equipment, at cost less
accumulated depreciation (Note 3)
Land 121.6 84.7
Buildings and facilities 532.0 534.6
Computer equipment 1,275.5 916.2
Other equipment and furniture 185.6 185.2
------- -------
Total property and equipment, net 2,114.7 1,720.7
------- -------
Operating and other assets
Land held for development, at cost (Note 4) 94.4 148.1
Investment in leases and other (Note 5) 1,159.9 1,231.4
Software, goodwill, and other intangibles, net
(Notes 6 and 17) 1,066.3 866.3
------- -------
Total operating and other assets 2,320.6 2,245.8
------- -------
Total Assets $6,942.1 $6,123.5
======= =======
See accompanying notes to consolidated financial statements.
IV-29
6
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
December 31,
------------------
1993 1992
-------- --------
(in millions)
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $359.8 $348.0
Accrued liabilities (Note 7) 996.0 918.4
Deferred revenue 429.7 295.8
Income taxes (Note 10) 202.2 66.0
Notes payable (Note 8) 172.7 274.9
------- -------
Total current liabilities 2,160.4 1,903.1
------- -------
Deferred income taxes (Note 10) 641.5 595.9
------- -------
Notes payable (Note 8) 522.8 561.1
------- -------
Commitments and contingent liabilities (Notes 15 and 16)
Stockholder's equity (Notes 9 and 11)
Common stock, without par value; authorized
1,000.0 shares. Issued and outstanding
480.9 and 479.3 shares at December 31,
1993 and 1992, respectively. 421.2 365.9
Retained earnings 3,196.2 2,697.5
------- -------
Total stockholder's equity 3,617.4 3,063.4
------- -------
Total Liabilities and Stockholder's Equity $6,942.1 $6,123.5
======= =======
See accompanying notes to consolidated financial statements.
IV-30
7
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
- ---------------------------------
1993 1992 1991
---------- ---------- --------
(in millions)
Cash Flows from Operating Activities
Income before cumulative effect
of accounting change $724.0 $635.5 $563.0
------- ------- -------
Adjustments to reconcile income before
cumulative effect of accounting change to
net cash provided by operating activities
(net of effects of acquired companies)
Depreciation and amortization 621.3 611.5 524.4
(Increase) decrease in accounts
receivable (199.8) 18.6 (358.3)
Increase (Decrease) in accounts
receivable from GM and affiliates (56.0) 2.3 23.6
(Increase) decrease in inventories (15.5) (22.3) 14.8
Increase in prepaids and other (26.8) (29.8) (26.6)
Increase (decrease) in accounts
payable and accrued liabilities 22.0 (181.4) 186.8
Increase (decrease) in deferred
revenue 137.1 1.6 (84.0)
Increase (decrease) in income taxes 138.9 (98.2) 94.1
Increase (decrease) in deferred
income taxes excluding effect of
accounting change 49.8 198.0 (31.1)
------- ------- -------
Total adjustments 671.0 500.3 343.7
------- ------- -------
Net cash provided by operating activities 1,395.0 1,135.8 906.7
------- ------- -------
Cash Flows from Investing Activities
Payments for purchase of marketable
securities (305.7) (291.2) (410.7)
Proceeds from sale of marketable
securities 247.4 277.9 565.2
Payments related to land held for
development (6.2) (16.6) (14.4)
Payments for investment in leases
and other (293.5) (456.7) (716.1)
Proceeds from investment in leases
and other 348.8 406.7 617.3
Payments for purchase of software,
goodwill, and other intangibles (119.0) (64.5) (58.8)
Payments for purchase of property
and equipment (799.4) (639.0) (673.2)
Payments related to acquisition of
outside companies, net of cash acquired (122.1) (30.2) (462.2)
------- ------- -------
Net cash used in investing activities ($1,049.7) ($813.6) ($1,152.9)
------- ------- -------
See accompanying notes to consolidated financial statements.
IV-31
8
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Years Ended December 31,
---------------------------------
1993 1992 1991
---------- ---------- --------
(in millions)
Cash Flows from Financing Activities
Net increase (decrease) in current
notes payable with maturities
less than 90 days ($99.0) ($239.4) $273.8
Payments on notes payable (220.5) (800.2) (261.4)
Proceeds from notes payable 91.5 1,032.5 310.6
Payments on advances from GM (5.4) (16.0) (104.1)
Proceeds from issuance of common stock 55.3 42.5 50.9
Cash dividends paid to GM (192.1) (172.4) (153.2)
- ------- ----- -----
Net cash provided by (used in)
financing activities (370.2) (153.0) 116.6
- ------- ----- -----
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (13.6) (7.9) (16.9)
- ------- ----- -----
Net Increase (Decrease) in Cash and
Cash Equivalents (38.5) 161.3 (146.5)
Cash and Cash Equivalents at Beginning
of Year 421.9 260.6 407.1
- ----- ----- -----
Cash and Cash Equivalents at End of Year $383.4 $421.9 $260.6
===== ===== =====
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Electronic Data
Systems Corporation and all majority owned subsidiaries. As used herein, the
terms "EDS" and "the Company" refer to Electronic Data Systems Corporation and
its consolidated subsidiaries. EDS is a wholly owned subsidiary of General
Motors Corporation (GM). The Company's investments in companies in which it
has the ability to exercise significant influence over operating and financial
policies are accounted for under the equity method, with the remaining
investments carried at cost.
IV-32
9
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Earnings Attributable to GM Class E Common Stock on a Per Share Basis have
been determined based on the relative amounts available for the payment of
dividends to holders of GM Class E common stock. Holders of GM Class E common
stock have no direct rights in the equity or assets of EDS, but rather have
rights in the equity and assets of GM (which includes 100% of the stock of
EDS). Dividends on the GM Class E common stock are declared out of the
Available Separate Consolidated Net Income of EDS earned since the acquisition
of EDS by GM. The Available Separate Consolidated Net Income of EDS is
determined quarterly and is equal to the separate consolidated net income of
EDS, excluding the effects of purchase accounting adjustments arising from the
acquisition of EDS, multiplied by a fraction, the numerator of which is the
weighted average number of shares of GM Class E common stock outstanding
during the period and the denominator of which was 480.6 million shares during
the fourth quarter of 1993. Comparable denominators for 1992 and 1991 were
479.3 million and 478.1 million shares, respectively.
GM Series C depositary shares represent ownership of one-tenth of a share
of GM Series C convertible preference stock. GM Series C depositary shares
and GM Series C preference stocks are convertible into GM Class E common stock
and are common stock equivalents for purposes of computing Earnings
Attributable to GM Class E Common Stock on a Per Share Basis. On November 2,
1992, GM Series E-II and E-III preference stocks, previously held by the GM
pension plans, were converted to GM Class E common stock. In 1993 and 1992,
GM Series E-1 preference stock was converted to GM Class E common stock, or
redeemed by GM. The issuances and conversions of such preference stocks have
no dilutive effect on the GM Class E common stock, because to the extent that
shares of GM Class E common stock deemed to be outstanding would increase,
such increased shares would increase the numerator of the fraction used to
determine Available Separate Consolidated Net Income, but would have no effect
on the denominator.
The denominator used in determining the Available Separate Consolidated
Net Income of EDS is adjusted as deemed appropriate by the GM Board of
Directors to reflect subdivisions or combinations of the GM Class E common
stock and to reflect certain transfers of capital to or from EDS. In 1988,
EDS initiated a program to repurchase 11.0 million shares of GM Class E common
stock in order to meet certain future requirements of the Company's employee
benefit plans. The GM Board has generally caused the denominator used in
calculating the Available Separate Consolidated Net Income of EDS to decrease
as shares are purchased and to increase as shares are used for the employee
benefit plans.
The current GM Board policy is that the cash dividends on the GM Class E
common stock, when, as, and if declared by the GM Board in its sole
discretion, will equal approximately 30% of the Available Separate
Consolidated Net Income of EDS for the prior year.
Consistent with Delaware law, which governs the amount legally available
for the payment of dividends on GM's common stock, the GM Board of Directors
has determined that such amount is materially higher than GM's capital surplus
less accumulated deficit as reported in its financial statements as of
December 31, 1993.
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
these instruments.
IV-33
10
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Marketable Securities
Current marketable securities are composed of bonds and equity securities,
which are carried on an amortized cost basis and at the lower of aggregate
cost or market, respectively. At December 31, 1993 and 1992, approximate
market values of such securities based on quoted market prices were $226.5
million and $168.1 million, respectively.
Inventory Valuation
Inventories are stated principally at the lower of cost or market using the
first-in, first-out method.
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided by the straight-line method over the lesser of the
asset's estimated useful life, the life of the related customer contract, or
the term of the lease in the case of leasehold improvements. The ranges of
estimated useful lives are as follows:
Years
-----
Buildings 20-40
Facilities 5-20
Computer equipment 3-7
Other equipment and furniture 3-15
Software, Goodwill, and Other Intangibles
Software purchased by the Company and utilized in designing, installing, and
operating business information and communications systems is capitalized and
amortized on a straight-line basis over a five- to eight-year period. Costs
of developing and maintaining software systems are incurred primarily in
connection with customer contracts and are generally expensed as incurred.
Software development costs that meet the capitalization requirements of
Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, are
capitalized and amortized on a straight-line basis over three years.
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, eight to 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered.
The amount of goodwill impairment, if any, is measured based on the expected
undiscounted cash flows of the acquired operation.
Other intangibles are amortized on a straight-line basis over the anticipated
period of benefit, which is generally five to 10 years.
Revenue Recognition
Revenue from contracts is generally recognized based on the performance of
tasks as defined in the contracts and the percentage-of-completion method of
accounting. Deferred revenue of $429.7 million and $295.8 million at December
31, 1993 and 1992, respectively, represents billings in excess of costs and
related profits on certain contracts. Included in accounts receivable are
unbilled receivables of $314.9 million and $211.1 million at December 31, 1993
and 1992, respectively, which will be billed and collected in accordance with
contractual agreements. It is anticipated that approximately $263.0 million
of unbilled receivables at December 31, 1993 will be collected in 1994.
IV-34
11
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Currency Translation
Assets and liabilities of non-U.S. subsidiaries whose functional currency is
not the U.S. dollar are translated at current exchange rates. Revenue and
expense accounts are translated using an average rate for the period.
Translation gains and losses are not included in determining net income but
are reflected as a separate component of stockholder's equity. Nonfunctional
currency transaction gains (losses) are included in determining net income and
were ($3.7) million, ($1.5) million, and $5.5 million, net of income taxes,
for the years ended December 31, 1993, 1992, and 1991, respectively.
The Company enters into forward exchange contracts to hedge nonfunctional
currency transactions on a continuing basis, thereby reducing the Company's
risk due to exchange rate movements. At December 31, 1993 and 1992, the
Company had forward exchange contracts maturing in the following year to
purchase $276.9 million and $335.3 million, respectively, and to sell $286.0
million and $201.5 million, respectively, in various currencies, primarily
European. The estimated fair value of forward exchange contracts is based on
quoted market prices. At December 31, 1993 and 1992, the estimated fair value
was ($0.6) million and $1.9 million, respectively.
Income Taxes
Effective January 1, 1991, the Company adopted SFAS No. 109, Accounting for
Income Taxes, and the cumulative effect of that change is reported in the 1991
Consolidated Statement of Income. The Company is included in the consolidated
Federal tax returns filed by GM. Current Federal income taxes are calculated
on a separate return basis and remitted to GM. The deferral method is used to
account for investment tax credits.
Statement of Cash Flows
The Company uses the indirect method to present cash flows from operating
activities and considers certificates of deposit, as well as the following
items with original maturities of three months or less to be cash equivalents:
commercial paper, repurchase agreements, and money market funds. (See
Note 18.)
New Accounting Standards
In November 1992, the Financial Accounting Standards Board (FASB) issued SFAS
No. 112, Employers' Accounting for Postemployment Benefits, which the Company
will adopt effective January 1, 1994. The Standard requires accrual of the
costs of benefits provided to former or inactive employees after employment,
but before retirement. In May 1993, the FASB issued SFAS No. 114, Accounting
by Creditors for Impairment of a Loan, effective January 1, 1995. The
Standard requires that impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective interest
rate. The effect of these Standards, if implemented currently, would not be
material.
Also in May 1993, the FASB issued SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, effective January 1, 1994. The
Standard establishes new accounting and reporting requirements for investments
in certain equity securities that have readily determinable fair values and
for all investments in debt securities. The effect of this Standard, based on
current market prices, would not be material.
IV-35
12
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTE 2: NATIONAL HERITAGE INSURANCE COMPANY
National Heritage Insurance Company (NHIC), a wholly owned subsidiary of EDS,
acts as underwriter for claims benefit payments for the Medicaid welfare
program contracts for the states of Texas and Indiana.
The contracts provide that payments from the states be deposited in trust
accounts that are not included in the consolidated financial statements. Of
such payments received for the years ended December 31, 1993, 1992, and 1991,
$4,453.4 million, $3,664.1 million, and $2,455.5 million, respectively, were
designated for the payment of benefit claims or to be returned to the states.
At December 31, 1993 and 1992, $1,316.3 million and $914.8 million,
respectively, of such designated funds remained in the trust accounts.
Approximate market values of these invested funds at December 31, 1993 and
1992 were $1,315.3 million and $916.1 million, respectively. These
investments primarily consist of corporate bonds. NHIC intends to hold these
investments until their full face value can be realized. Gains and losses
from the sale of these investments held in trust accounts are combined with
gains and losses from the Company's other investments.
NOTE 3: PROPERTY AND EQUIPMENT (in millions)
December 31, 1993
--------------------------------------
Accumulated
Cost Depreciation Net
-------- ------------ --------
Land $121.6 $- $121.6
Buildings and facilities 815.1 283.1 532.0
Computer equipment 3,158.6 1,883.1 1,275.5
Other equipment and furniture 425.1 239.5 185.6
------- ------- -------
Total $4,520.4 $2,405.7 $2,114.7
======= ======= =======
December 31, 1992
--------------------------------------
Accumulated
Cost Depreciation Net
-------- ------------ --------
Land $84.7 $- $84.7
Buildings and facilities 769.0 234.4 534.6
Computer equipment 2,631.3 1,715.1 916.2
Other equipment and furniture 403.9 218.7 185.2
------- ------- -------
Total $3,888.9 $2,168.2 $1,720.7
======= ======= =======
IV-36
13
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTE 4: LAND HELD FOR DEVELOPMENT
Land held for development at December 31, 1993 consists of approximately 2,222
acres located throughout the Dallas metropolitan area. Approximately 1,590
acres of land, site of a commercial real estate development, are located in
Plano, Texas.
NOTE 5: INVESTMENT IN LEASES AND OTHER (in millions)
December 31,
-------------------
1993 1992
-------- --------
Lease contracts receivable (net of principal
and interest on nonrecourse debt) $396.8 $403.4
Estimated residual values of leased assets
(not guaranteed) 337.7 343.2
Unearned income, including deferred investment
tax credits (271.3) (285.8)
------- -------
Investment in leveraged leases (excluding
deferred taxes of $307.4 and $336.1
at December 31, 1993 and 1992, respectively) 463.2 460.8
Investment in securities and joint ventures 249.9 216.0
Investment in direct financing leases, net of
unearned income 158.6 214.8
Noncurrent notes receivable 118.1 148.1
GM Class E common stock held for benefit plans 62.4 80.1
Long-term prepaid contract costs 58.8 65.5
Investment in tax benefit transfers 40.9 42.4
Other 8.0 3.7
------- -------
Total $1,159.9 $1,231.4
======= =======
The fair values of certain long-term investments are estimated based on quoted
market prices for these or similar investments. For other investments, a
variety of methods are used to estimate fair value including external
valuations and discounted cash flows. At December 31, 1993, the fair values
of investments in joint ventures (accounted for using the cost method of
accounting), long-term marketable securities, and noncurrent notes receivable
were estimated to be $182.5 million, $152.8 million, and $114.9 million,
respectively, with carrying amounts of $156.4 million, $128.5 million, and
$118.1 million, respectively. At December 31, 1992, the fair values of
investments in joint ventures (accounted for using the cost method of
accounting), long-term marketable securities and noncurrent notes receivable
were estimated to be $214.1 million, $114.2 million, and $140.9 million,
respectively, with carrying amounts of $165.3 million, $95.5 million, and
$148.1 million, respectively. Long-term marketable securities include GM
Class E common stock and other marketable securities. The carrying value of
the GM Class E common stock, which was less than the market value, was
utilized to estimate the investment's fair value shown above since the stock
will be used to satisfy future benefit plan obligations.
Financing leases that are financed with nonrecourse borrowings at lease
inception are accounted for as leveraged leases. Such borrowings are secured
by substantially all of the lessor's rights under the lease plus the residual
value of the asset. For Federal income tax purposes, the Company receives the
investment tax credit (if available) at lease inception and has the benefit of
tax deductions for depreciation on the leased asset and for interest on the
nonrecourse debt. A portion of the Company's leveraged lease portfolio is
concentrated within the airline industry. The Company historically has not
experienced credit losses from these transactions, and the portfolio is
diversified among unrelated lessees.
IV-37
14
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTE 6: SOFTWARE, GOODWILL, AND OTHER INTANGIBLES (in millions)
December 31, 1993
---------------------------------------
Accumulated
Cost Amortization Net
-------- ------------ ------
Software $791.5 $374.2 $417.3
Goodwill 595.8 58.4 537.4
Other intangibles 235.2 123.6 111.6
------- ----- -------
Total $1,622.5 $556.2 $1,066.3
======= ===== =======
December 31, 1992
---------------------------------------
Accumulated
Cost Amortization Net
-------- ------------ ------
Software $681.4 $298.1 $383.3
Goodwill 450.1 39.0 411.1
Other intangibles 116.9 45.0 71.9
------- ----- -----
Total $1,248.4 $382.1 $866.3
======= ===== =====
NOTE 7: ACCRUED LIABILITIES (in millions)
December 31,
------------------
1993 1992
------ ------
Contract related $387.2 $306.5
Payroll related 286.8 314.5
Operating expenses 150.0 112.2
Property, sales, and franchise taxes 82.5 84.2
Claims settlement 51.5 49.2
Construction related 15.2 31.0
Other 22.8 20.8
----- -----
Total $996.0 $918.4
===== =====
NOTE 8: NOTES PAYABLE (in millions)
December 31,
------------------
1993 1992
------ ------
Commercial paper, 3.3% to 3.5% $398.6 $398.2
Lines of credit, variable rate 2.7% to
9.2%, due 1994 135.7 246.3
Notes, variable rate 2.9% to 7.0%, due 1996 85.1 24.3
Notes, fixed rate 3.9% to 14.5%, due 1994 to 2003 75.6 96.7
Lines of credit, variable rate - 65.0
----- -----
Total 695.0 830.5
Less current maturities classified as
notes payable 172.2 269.4
----- -----
Noncurrent notes payable $522.8 $561.1
===== =====
GM has advanced amounts for Company capital expenditures on GM-related
projects. The advances are substantially non-interest bearing and repayable
in monthly installments. Amounts advanced are $0.5 million at December 31,
1993 and $5.5 million at December 31, 1992.
IV-38
15
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Commercial paper is classified as noncurrent debt as it is intended to be
maintained on a long-term basis with ongoing credit availability provided by
the Company's revolving, committed lines of credit. During 1993, the
Company entered into an agreement with a syndicate of banks which provided
$1,000.0 million in committed lines of credit, of which $500.0 million expires
in 1994 with the option to convert any outstanding amounts under these lines
into term loans that mature in 1996. The remaining $500.0 million expires in
1997. Upon expiration of the commitment periods, the lenders and EDS have the
option to extend the commitment. In addition, as of December 31, 1993, the
Company had available another $37.3 million in committed lines of credit, of
which $5.8 million remained unused. The Company also had available $692.0
million in uncommitted short-term lines of credit, of which $600.3 million
remained unused at December 31, 1993. These lines of credit do not require
material commitment fees, compensating balances, or collateral. Under the
terms of the $1,000.0 million agreement, the Company is required to maintain a
consolidated net worth of $2,250.0 million, increasing quarterly by 50 percent
of the Company's consolidated net income after June 30, 1993.
Notes payable relate to land held for development, property and equipment,
acquisitions, and other items. These notes are generally unsecured, with
certain notes secured by assets of a majority owned subsidiary.
The Company has entered into interest rate swap agreements that
effectively convert the variable interest rates on an aggregate contract
amount of $54.4 million and $115.0 million at December 31, 1993 and 1992,
respectively, to fixed interest rates ranging from 5.3% to 8.1% and 7.0% to
7.5% at December 31, 1993 and 1992, respectively. The net interest paid or
received is included in interest expense. The counterparties to interest rate
swaps consist of various financial institutions. The Company continually
monitors its positions and the credit ratings of the counterparties to limit
exposure to credit losses in the event of nonper- formance by these
counterparties. The Company does not anticipate losses due to these control
procedures. The fair value of interest rate swap agreements is obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties. At
December 31, 1993 and 1992, the estimated fair value of such agreements was
($0.8) million and ($5.4) million, respectively.
Maturities of notes payable for years subsequent to December 31, 1993 are
as follows (in millions):
1994 $172.2
1995 25.1
1996 462.6
1997 4.7
1998 3.5
Thereafter 26.9
For the years ended December 31, 1993, 1992, and 1991, interest costs of
$5.4 million, $18.1 million, and $15.5 million, respectively, were capital-
ized, which, if charged to expense, would have resulted in reductions in net
income of $3.5 million, $11.9 million, and $10.2 million, respectively.
The fair value of notes payable is estimated based on the current rates
offered to the Company for the same remaining maturities. At December 31,
1993 and 1992, the estimated fair value was $703.5 million and 836.6 million,
respectively.
IV-39
16
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTE 9: STOCKHOLDER'S EQUITY (in millions except per share amounts)
Currency Stock-
Common Stock Translation Retained holder's
--------------
Shares Amount Adjustment Earnings Equity
------ ------ ----------- ---------- --------
Balance at December 31, 1990 478.6 $272.5 $16.5 $1,892.8 $2,181.8
Separate consolidated
net income - - - 547.5 547.5
Cash dividends declared -
$0.32 per share - - - (153.2)
(153.2)
Stock option and
award transactions (0.6) 50.9 - - 50.9
Currency translation
adjustment - - (16.7) -
(16.7)
---- ----- ---- ------- -------
Balance at December 31, 1991 478.0 323.4 (0.2) 2,287.1 2,610.3
Separate consolidated
net income - - - 635.5 635.5
Cash dividends declared -
$0.36 per share - - - (172.4)
(172.4)
Stock option and
award transactions 1.3 42.5 - - 42.5
Currency translation
adjustment - - (52.5) -
(52.5)
----- ----- ---- ------- -------
Balance at December 31, 1992 479.3 365.9 (52.7) 2,750.2 3,063.4
Separate consolidated
net income - - - 724.0 724.0
Cash dividends declared -
$0.40 per share - - - (192.1)
(192.1)
Stock option and
award transactions 1.6 55.3 - - 55.3
Currency translation
adjustment - - (33.2) -
(33.2)
----- ----- ---- ------- -------
Balance at December 31, 1993 480.9 $421.2 ($85.9) $3,282.1 $3,617.4
===== ===== ==== ======= =======
As the sole stockholder of EDS, GM is able to cause EDS to pay cash dividends
and make advances to or otherwise enter into transactions with GM as GM deems
desirable and appropriate. GM reserves the right to cause EDS to pay cash
dividends to GM in such amounts as GM determines are desirable under the then
prevailing facts and circumstances. Such amounts may be the same as, greater
than, or less than the cash dividends paid by GM on its Class E common stock.
There is no fixed relationship, on a per share or aggregate basis, between the
cash dividends that may be paid by GM to holders of its Class E common stock
and the cash dividends or other amounts that may be paid by EDS to GM.
NOTE 10: INCOME TAXES
As discussed in Note 1, the Company adopted SFAS No. 109 as of January 1,
1991, and the cumulative effect of this change is reported in the 1991
Consolidated Statement of Income. Prior years' consolidated financial
statements have not been restated to apply the provisions of SFAS No. 109.
The provisions of the Omnibus Budget Reconciliation Act of 1993 had an
immaterial impact on current and deferred taxes in 1993.
IV-40
17
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
The current and deferred income tax liabilities (assets) are summarized as
follows (in millions):
December 31,
-------------------
1993 1992
------ ------
Current payable $66.3 $66.9
Current deferred 135.9 (0.9)
----- -----
Total income taxes - current 202.2 66.0
Noncurrent deferred 641.5 595.9
----- -----
Total current and noncurrent
income taxes $843.7 $661.9
===== =====
The provision for income tax expense is summarized as follows (in
millions):
U.S.
Federal Non-U.S. State Total
------- -------- ----- ------
Year Ended
December 31, 1993
- -----------------
Current $130.1 $77.8 $17.0 $224.9
Deferred 161.0 21.4 - 182.4
----- ---- ---- -----
Total $291.1 $99.2 $17.0 $407.3
===== ==== ==== =====
Year Ended
December 31, 1992
- -----------------
Current $113.9 $97.3 $21.0 $232.2
Deferred 145.0 (11.9) - 133.1
----- ---- ---- -----
Total $258.9 $85.4 $21.0 $365.3
===== ==== ==== =====
Year Ended
December 31, 1991
- -----------------
Current $191.8 $77.2 $8.3 $277.3
Deferred 43.4 10.0 - 53.4
----- ---- ---- -----
Total $235.2 $87.2 $8.3 $330.7
===== ==== ==== =====
Income before income taxes included the following components (in
millions):
Years Ended December 31,
----------------------------
1993 1992 1991
-------- ------ ------
U.S. income $886.1 $781.9 $686.4
Non-U.S. income 245.2 218.9 207.3
------- ------- ------
Total $1,131.3 $1,000.8 $893.7
======= ======= ======
IV-41
18
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
A reconciliation of income tax expense using the statutory Federal income
tax rate of 35.0% for 1993 and 34.0% for 1992 and 1991 to the actual income
tax expense follows (in millions):
Years Ended December 31,
------------------------------
1993 1992 1991
-------- ------ ------
Income before income taxes $1,131.3 $1,000.8 $893.7
======= ======= =====
Statutory Federal income tax $395.9 $340.3 $303.9
Non-U.S. taxes, net of credit 13.4 10.3 16.7
State income tax, net 11.1 13.8 5.5
Investment tax credit - leveraged leases (4.4) (2.8) (3.2)
Other (8.7) 3.7 7.8
------- ----- -----
Total $407.3 $365.3 $330.7
===== ===== =====
Effective income tax rate 36.0% 36.5% 37.0%
===== ===== =====
The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities, are as
follows (in millions):
December 31, 1993 December 31, 1992
-------------------- -------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ ----------
Basis differences attributable to
leasing activities $6.4 $515.3 $5.4 $520.8
Adjustments necessary to convert
accruals to a tax basis 76.8 200.1 98.0 139.7
Employee benefit plans 17.5 27.0 37.9 9.4
Accumulated tax depreciation/
amortization versus accumulated
financial statement
depreciation/amortization 26.1 186.0 37.3 148.5
Effect on deferred taxes of
alternative minimum tax credit
and other carryforwards 110.0 - 90.5 -
Other 126.0 119.5 132.8 129.9
----- ----- ----- -----
Subtotal 362.8 1,047.9 401.9 948.3
Less valuation allowance (92.3) - (48.6) -
----- ----- ----- -----
Total deferred taxes $270.5 $1,047.9 $353.3 $948.3
===== ======= ===== =====
The net changes in the total valuation allowance for the years ended
December 31, 1993 and 1992 were increases of $43.7 million and $0.3 million,
respectively. The Company has alternative minimum tax credit carryforwards of
approximately $34.0 million which are available to reduce future Federal
regular income taxes over an indefinite period.
IV-42
19
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTE 11: STOCK PURCHASE AND INCENTIVE PLANS
The 1984 Electronic Data Systems Corporation Employee Stock Purchase Plan
(Purchase Plan) enables EDS employees to purchase up to 80.0 million shares of
GM Class E common stock at 85% of the quoted market price through payroll
deductions of up to 10% of their compensation. Shares of GM Class E common
stock purchased under the Purchase Plan may not be sold or transferred within
two years of the date of purchase unless they are first offered to GM or EDS
at the lesser of the original purchase price or the fair market value on the
date of sale. The number of shares available for future sale under the
Purchase Plan was 61.0 million shares at December 31, 1993.
The 1984 Electronic Data Systems Corporation Stock Incentive Plan (1984
Plan) covers up to 160.0 million shares of GM Class E common stock. During
the 10-year life of the 1984 Plan, shares and rights or options to acquire
shares, which may be subject to restrictions, may be granted or sold. The
maximum number of shares for which additional shares, rights, or options may
be granted or sold under the provisions of the 1984 Plan was 108.9 million
shares at December 31, 1993.
The EDS Incentive and Compensation Committee (the Committee) has granted
the right to purchase a total of 27.6 million shares of GM Class E common
stock, at prices of $0.0125 and $0.025 per share, to key employees under the
provisions of the 1984 Plan. These shares will vest over various periods up
to 10 years from the date of grant. The difference between the quoted market
price as of the date of grant and the purchase price of shares granted is
generally charged to operations over the vesting period. Expense for these
awards amounted to $16.3 million, $14.9 million, and $15.2 million for the
years ended December 31, 1993, 1992, and 1991, respectively.
As of December 31, 1989, the Company had purchased 11.0 million shares of
GM Class E common stock to be distributed to key employees under the
provisions of the 1984 Plan. In 1991 and 1988, the Committee approved
restricted stock unit grants. The right to receive shares is a restricted
stock unit. These units are scheduled to vest over a period of 10 years.
Vesting of the 1991 grant began in March 1992, while the 1988 grant began
vesting in March 1989. The quoted market price as of the date of grant is
charged to operations over the vesting period.
The Company has a bonus plan under which awards are granted to key
executives and employees. Bonus expense amounted to $49.8 million, $44.6
million, and $35.0 million for the years ended December 31, 1993, 1992, and
1991, respectively. Included in bonus expense is $17.5 million, $15.5
million, and $15.4 million relating to the restricted stock unit grants for
the years ended December 31, 1993, 1992, and 1991, respectively.
NOTE 12: DEFERRED COMPENSATION PLAN
The EDS Deferred Compensation Plan and Trust (Plan) provides a long-term
savings program for participants. The Plan allows eligible employees to
contribute a percentage of their compensation to a savings program and to
defer income taxes until the time of distribution.
NOTE 13: SEGMENT INFORMATION
Industry Segments
The Company's business involves operations in principally one industry
segment: designing, installing, and operating business information and
communications systems. Revenues from GM contributed approximately 39%, 41%,
and 47% of gross revenues for the years ended December 31, 1993, 1992, and
1991, respectively.
IV-43
20
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Geographic Segments
The following presents information about the Company's operations in different
geographic areas (in millions):
As of and for the Year Ended December 31, 1993
U.S. Europe Other Total
-------- -------- ------ -------
Systems and other contracts revenue
GM and affiliates $2,574.5 $511.2 $238.0 $3,323.7
Outside customers 4,004.5 911.6 267.5 5,183.6
------- ------- ----- -------
Total systems and other contracts revenue $6,579.0 $1,422.8 $505.5 $8,507.3
======= ======= ===== =======
Operating income $906.5 $148.7 $56.1 $1,111.3
======= ======= ===== =======
Identifiable assets $5,350.6 $1,185.9 $405.6 $6,942.1
======= ======= ===== =======
As of and for the Year Ended December 31, 1992
U.S. Europe Other Total
-------- ------ ------ -------
Systems and other contracts revenue
GM and affiliates $2,562.9 $546.5 $239.1 $3,348.5
Outside customers 3,693.6 828.3 284.8 4,806.7
------- ------- ----- -------
Total systems and other contracts revenue $6,256.5$1,374.8 $523.9 $8,155.2
======= ======= ===== =======
Operating income $773.3 $131.3 $75.5 $980.1
======= ======= ===== =======
Identifiable assets $4,750.3$1,008.7 $364.5 $6,123.5
======= ======= ===== =======
As of and for the Year Ended December 31, 1991
U.S. Europe Other Total
-------- ------ ------ -------
Systems and other contracts revenue
GM and affiliates $2,620.2 $501.6 $240.4 $3,362.2
Outside customers 3,006.4 457.9 202.0 3,666.3
------- ----- ----- --------
Total systems and other contracts revenue $5,626.6 $959.5 $442.4 $7,028.5
======= ===== ===== ========
Operating income $687.8 $107.8 $55.9 $851.5
======= ===== ===== ========
Identifiable assets $4,498.2 $960.1 $244.9 $5,703.2
======= ===== ===== ========
NOTE 14: RETIREMENT PLANS
The Company has noncontributory pension plans (the Plans) covering
substantially all of its employees. In general, employees become fully vested
upon attaining five years of service, and benefits are based on years of
service and earnings. The actuarial cost method currently used is the
projected unit credit cost method. The Company's U.S. funding policy is to
contribute amounts that fall within the range of deductible contributions for
Federal income tax purposes.
The weighted average assumptions used for the Plans are as follows:
Years Ended December 31,
--------------------------
1993 1992 1991
------- ------- ------
Discount rate 7.7% 9.1% 9.4%
Rate of increase in compensation levels 5.9% 5.3% 5.8%
Long-term rate of return on assets 9.8% 9.7% 9.8%
IV-44
21
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Net pension cost consisted of the following components (in millions):
Years Ended December 31,
--------------------------
1993 1992 1991
------- ------- ------
Service cost of the current period $72.6 $67.8 $48.0
Interest cost on projected benefit obligation 69.8 62.0 46.1
Actual return on assets (121.3) (19.3) (52.4)
Net amortization and deferral 75.2 (24.1) 22.7
---- ---- ----
Net pension cost $96.3 $86.4 $64.4
==== ==== ====
At December 31, 1993 and 1992, the Plans' assets consisted principally of
marketable securities. Accrued pension cost is included in accrued
liabilities in the Company's Consolidated Balance Sheets.
The following is a reconciliation of the funded status of the Plans (in
millions):
December 31, 1993 December 31, 1992
------------------ ------------------
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
Accum. Exceed Accum. Exceed
Benefits Assets Benefits Assets
-------- -------- -------- --------
Plans' assets at fair value $671.0 $6.1 $494.5 $5.2
===== ===== ===== =====
Actuarial present value of benefit
obligation
Vested benefits $472.6 $50.8 $305.3 $36.4
Nonvested benefits 69.1 17.9 19.9 14.6
----- ----- ----- -----
Accumulated benefit obligation 541.7 68.7 325.2 51.0
Effect of projected future salary
increases 368.6 44.1 288.9 64.4
----- ----- ----- -----
Projected benefit obligation $910.3 $112.8 $614.1 $115.4
===== ===== ===== =====
Excess of projected benefit
obligation over Plans' assets, net ($239.3) ($106.7) ($119.6) ($110.2)
Unrecognized net (gain) loss 150.9 (5.8) 35.8 0.8
Unrecognized net (asset) obligation
at date of adoption (6.8) 26.5 (8.2) 29.2
Unrecognized prior service cost 32.8 0.9 35.9 1.1
Additional minimum liability - (3.7) - (1.4)
----- ----- ----- -----
Net accrued pension cost ($62.4) ($88.8) ($56.1) ($80.5)
===== ===== ===== =====
NOTE 15: COMMITMENTS AND RENTAL EXPENSE
Commitments for rental payments under noncancellable operating leases for each
of the next five years ending December 31 and thereafter for computer
equipment, software, and facilities are as follows (in millions):
1994 $347.8
1995 243.7
1996 201.0
1997 190.3
1998 172.4
Thereafter 428.8
Total rentals under cancellable and noncancellable leases, principally
computer equipment and software, included in costs and expenses were $564.9
million, $614.6 million, and $578.7 million for the years ended December 31,
1993, 1992, and 1991, respectively.
IV-45
22
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTE 16: CONTINGENT LIABILITIES
In January 1992, a vendor of the Company filed counterclaims seeking
substantial damages for the Company's alleged breach of contract, copyright
infringements, and violations of the vendor's software license restrictions.
The Company's management believes that the Company has strong and meritorious
defenses to the claims asserted by the vendor and intends to vigorously defend
against such claims and to press for the relief sought in the claims asserted
by the Company against the vendor.
There are also other various claims and pending actions against the
Company arising in the ordinary course of the conduct of its business.
Certain of these actions seek damages in significant amounts. The amount of
liability on these claims and actions or the above described legal proceeding
at December 31, 1993 was not determinable, but in the opinion of management,
the ultimate liability, if any, will not have a material adverse effect on the
Company's consolidated operations or financial position.
NOTE 17: ACQUISITIONS
During August 1991, the Company acquired SD-Scicon, a British and French
computer services company, for $265.7 million. The acquisition was accounted
for as a purchase. Accordingly, the excess purchase price over net tangible
assets acquired, based upon the fair values of such assets and liabilities at
the date of acquisition, was $236.8 million. The excess purchase price,
consisting principally of goodwill, is being amortized on a straight-line
basis up to 30 years.
During November 1991, the Company acquired McDonnell Douglas Systems
Integration Company (MDSI), a leading provider of computer-aided design and
manufacturing products, for $199.1 million. The acquisition was accounted for
as a purchase. Accordingly, the excess purchase price over the net tangible
assets acquired, based upon the fair values of such assets and liabilities at
the date of acquisition, was $186.0 million. The excess purchase price
consists of $170.4 million of software and $15.6 million of goodwill, which
are being amortized on a straight-line basis over eight years.
The Consolidated Statements of Income include the operations of SD-Scicon
and MDSI since the date of each acquisition. Pro forma disclosures relating
to SD-Scicon's and MDSI's results of operations are not presented as the
impact is not material.
In conjunction with the aforementioned and certain other acquisitions made
during the years ended December 31, 1993 and 1992, liabilities were assumed as
follows (in millions):
1993 1992
------ ------
Fair value of assets acquired $319.8 $74.9
Cash paid for stock and assets,
net of cash acquired 122.1 30.2
Debt issued for stocks and assets 91.2 21.6
----- -----
Liabilities assumed $106.5 $23.1
===== =====
IV-46
23
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
NOTE 18: SUPPLEMENTARY FINANCIAL INFORMATION
The following summarizes certain costs charged to expense for the years
indicated (in millions):
Years Ended December 31,
----------------------------
1993 1992 1991
------ ------ ------
Depreciation of property and equipment $465.6 $457.9 $445.5
===== ===== =====
Amortization $155.7 $153.6 $78.9
===== ===== =====
Maintenance and repairs $209.5 $232.0 $210.8
===== ===== =====
Supplemental cash flow information is presented below (in millions):
Years Ended December 31,
--------------------------
1993 1992 1991
------ ------ ------
Cash paid for
Income taxes, net of refunds $183.8 $252.6 $255.8
===== ===== =====
Interest, net of amount capitalized $40.2 $46.8 $23.8
===== ===== =====
NOTE 19: QUARTERLY FINANCIAL DATA (UNAUDITED)
Year Ended December 31, 1993
--------------------------------------
(In millions except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues $2,073.2 $2,090.5 $2,084.3 $2,313.8
Gross profit from operations 490.1 501.3 525.0 600.3
Income before income taxes 236.6 278.2 299.4 317.1
Separate Consolidated
Net Income 151.4 178.1 191.6 202.9
Available Separate Consolidated
Net Income $74.1 $87.7 $98.4 $107.0
Earnings Attributable to GM
Class E Common Stock on a
Per Share Basis $0.32 $0.37 $0.40 $0.42
Stock price range of GM
Class E common
High $35.88 $33.38 $32.50 $31.13
Low $27.63 $28.25 $26.00 $26.50
Year Ended December 31, 1992
--------------------------------------
(In millions except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues $1,995.0 $2,017.3 $2,062.0 $2,144.6
Gross profit from operations 425.5 455.1 484.9 583.9
Income before income taxes 211.3 249.4 261.2 278.9
Separate Consolidated Net Income 133.1 157.1 167.3 178.0
Available Separate Consolidated
Net Income $55.5 $67.2 $72.3 $83.4
Earnings Attributable to GM Class
E Common Stock on a Per Share
Basis $0.28 $0.33 $0.35 $0.37
Stock price range of GM
Class E common
High $32.56 $31.25 $31.13 $34.00
Low $27.00 $25.75 $25.25 $27.38
IV-47
24
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
SELECTED FINANCIAL DATA
(In millions except As of and for the Years Ended December 31,
------------------------------------------------
per share amounts) 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Revenues $8,561.8 $8,218.9 $7,099.0 $6,108.8 $5,466.8
Separate Consolidated Net
Income Before Cumulative
Effect of Accounting Change 724.0 635.5 563.0 496.9 435.3
Separate Consolidated Net
Income After Cumulative
Effect of Accounting Change $724.0 $635.5 $547.5 $496.9 $435.3
Average number of shares of
GM Class E common stock
outstanding (in millions) 243.0 209.1 195.3 187.1 189.1
Class E dividend base
(in millions) 480.6 479.3 478.1 478.6 477.4
Available Separate
Consolidated Net Income $367.2 $278.4 $223.6 $194.4 $171.0
Earnings Attributable to GM
Class E Common Stock on a
Per Share Basis Before
Cumulative Effect of
Accounting Change $1.51 $1.33 $1.17 $1.04 $0.90
Earnings Attributable to GM
Class E Common Stock on a
Per Share Basis After
Cumulative Effect of
Accounting Change $1.51 $1.33 $1.14 $1.04 $0.90
Expenditures for property
and equipment $799.4 $639.0 $673.2 $514.8 $382.5
Cash and marketable
securities $607.5 $587.9 $415.8 $715.4 $681.2
Current assets $2,506.8 $2,157.0 $1,945.6 $1,716.4 $1,457.9
Current liabilities $2,160.4 $1,903.1 $2,396.7 $1,653.9 $1,494.5
Total assets $6,942.1 $6,123.5 $5,703.2 $4,565.3 $3,918.2
Long-term debt $522.8 $561.1 $281.9 $285.1 $326.4
IV-48
25
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
1993 was another record year for EDS, with total revenues of $8,561.8
million and net income of $724.0 million. EDS' base business continues to
grow in volume and diversity across industries as EDS builds long-term
relationships with new customers. In 1993, EDS signed new base business with
total revenues over the contracts' estimated lives of $7,027.2 million, the
highest in EDS' history. 1991 and 1992 were the second and third highest
years with $5,705.9 million and $5,106.4 million, respectively.
Results of Operations
Total revenues increased 4% over the prior year to $8,561.8 million for the
year ended December 31, 1993. Revenue from GM business remained relatively
constant compared with that of 1992 and 1991, while base revenue increased 8%
to $5,183.6 million compared with increases of 31% and 32% in 1992 and 1991,
respectively. Although 1993 was a record year for new sales, the timing of
the sales impacted 1993 revenue growth. In 1993, 39% of the $7,027.2 million
of new sales occurred in the fourth quarter compared with 25% in 1992 and 18%
in 1991. The pattern of revenue growth reflects this. The increase in base
revenue during the second half of 1993 was 11% more than that of the second
half of 1992; during the fourth quarter of 1993, base revenue growth was 14%
more than that of the fourth quarter of 1992.
Total U.S. base revenue for 1993 increased 8%, or $310.9 million, to
$4,004.5 million. U.S. base revenue recorded increases of 23% in 1992 and 26%
in 1991. The growth rates in 1992 and 1991 were affected by the strategic
acquisition of McDonnell Douglas Systems Integration Company.
EDS' percentage of non-U.S. revenue remained constant at 23% in 1993 and
1992, an increase from 20% in 1991. Had it not been for the strengthening of
the U.S. dollar and the deconsolidation of a Korean joint venture, 1993 non-
U.S. revenue would have been 25% of total revenue.
European base revenue increased $83.3 million, or 10%, in 1993 to $911.6
million. Without the effect of a stronger U.S. dollar, which had a negative
impact of $105.7 million on reported European base revenue, the increase would
have been 23%. Increases in 1992 and 1991 were $370.4 million and $231.2
million, respectively. The prior years were affected by the acquisitions of
SD Scicon and McDonnell Douglas Systems Integration Company.
Other non-U.S. base revenue was adversely affected in 1993 by an
accounting change to deconsolidate the Korean joint venture. The joint
venture was consolidated in 1992 and 1991, and had recorded revenue of $104.9
million and $89.7 million in those years, respectively. (For additional
information on the geographic breakdown of revenue, see Note 13, Segment
Information.)
Systems and other contracts revenue for the year ended December 31, 1993
included $3,323.7 million of revenue related to the GM contracts, compared
with $3,348.5 million and $3,362.2 million in 1992 and 1991, respectively. It
is anticipated that GM will continue to contribute a significant portion of
systems revenue. However, as base revenue has continued to increase, the
percentage of revenue coming from GM and its subsidiaries continues to
decline. In 1991, 47% of total revenue came from GM and its subsidiaries.
This decreased to 41% in 1992 and 39% in 1993. EDS expects this trend to
continue as base revenue grows.
Net interest and other income remained stable in 1993 at $20.0 million
compared with $20.7 million in 1992. In 1991, net interest and other income
was $42.2 million. The higher 1991 amount was a result of higher interest
and dividends earned on investment securities and lower interest expense, due
to lower average debt balances.
IV-49
26
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Cost of revenues as a percentage of systems and other contracts revenue
was 75% in 1993, compared with 76% and 77% in 1992 and 1991, respectively.
This is a result of continued productivity improvement programs and cost-
reduction efforts. Selling, general, and administrative expenses remained
constant at 12% of systems and other contracts revenue as compared with 12%
and 11% in 1992 and 1991, respectively. Pre-tax margins increased in 1993 to
13.2%, compared with 12.2% in 1992 and 12.6% in 1991. The effective income
tax rate was 36.0% in 1993, down from 36.5% in 1992 and 37.0% in 1991. The
increase in the Federal income tax rate in 1993 and the consequent impact of
the revaluation of deferred taxes under SFAS No. 109 were offset by benefits
received through the extension of the Research and Experimentation Credit, as
well as favorable events with respect to EDS' foreign tax position.
EDS' separate consolidated net income increased 14% to $724.0 million for
1993, compared with $635.5 million in 1992 and $547.5 million for 1991 after
the cumulative effect of the accounting change of $15.5 million.
Return on stockholder's equity remained constant at 22% in 1993 and 1992,
compared with 23% in 1991. Return on stockholder's equity reflects the
increasing amount of equity, which rose to $3.6 billion in 1993 from $3.1
billion in 1992 and $2.6 billion in 1991. Return on assets remained constant
at 11% for 1993, 1992, and 1991.
Liquidity and Capital Resources
EDS maintained a strong liquidity and capital structure during 1993. The
current ratio improved to 1.2 to 1 at December 31, 1993 from 1.1 to 1 at
December 31, 1992, largely due to the retirement of current debt during 1993.
The ratio of noncurrent debt to capital declined to 13% at December 31, 1993
from 15% at December 31, 1992, as a result of the increase in stockholder's
equity. EDS' capital at December 31, 1993 was composed of $522.8 million in
noncurrent notes payable and $3,617.4 million in stockholder's equity. Total
debt was $695.5 million at December 31, 1993, which was composed entirely of
notes payable. This represented a 17% decrease from total debt of $836.0
million at December 31, 1992. The composition of long-term debt in 1992 was
$830.0 million in notes payable and $6.0 million in advances from GM. At year-
end 1993, EDS had unused uncommitted short-term lines of credit totaling
$600.3 million and unused committed lines of credit of $1,005.8 million. The
total debt-to-capital ratio (which includes current debt as a component of
capital) was 16% at December 31, 1993, compared with 21% and 25% at December
31, 1992 and 1991, respectively. (For additional information on EDS' debt,
see Note 8, Notes Payable.)
On September 25, 1992 and November 2, 1992, respectively, Moody's
Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P)
announced that they were reviewing for possible downgrade the commercial paper
and long-term credit ratings, as applicable, of GM and its subsidiaries, which
include EDS. On November 23, 1992, Moody's affirmed the rating of commercial
paper of EDS at Prime-1, the highest of three investment grade ratings
available from Moody's for commercial paper. On February 3, 1993, S&P lowered
the rating for EDS commercial paper to A-2. EDS anticipates no liquidity
problems if access to the commercial paper market is reduced as a result of
any lower rating because the commercial paper is 100% backed by long-term bank
lines of credit. The impact of any incremental increased interest cost would
have no material effect upon future operations. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. Each rating
should be evaluated independently of any other rating. (For additional
information on EDS' commercial paper, see Note 8, Notes Payable.)
IV-50
27
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
EDS continues to maintain a strong cash position. Cash flows from
operations were $1,395.0 million, up 23 percent or $259.2 million from 1992.
Net cash used in investing activities increased to $1,049.7 million in 1993
from $813.6 million in 1992. This was largely the result of acquisitions.
Net cash used in financing activities was $370.2 million in 1993 and $153.0
million in 1992. The change was largely due to retirement of debt. EDS made
net additions to property and equipment of $799.4 million, net additions to
software, goodwill, and other intangibles of $119.0 million, and net additions
to land held for development of $6.2 million, including acquisitions. EDS
made cash dividend payments to GM totaling $192.1 million in 1993 and has
consistently paid cash dividends since 1974.
EDS' capital expenditures for calendar year 1994 are projected at
approximately $1.0 billion to $1.2 billion. Future capital expenditures may
consist of purchases of computers and telecommunications equipment, buildings
and facilities, land, and software, as well as acquisitions of outside
companies. EDS will finance these investments through a combination of
internally generated funds and outside sources.
Relationship Between EDS and GM
The pricing policy between EDS and GM contemplates three alternative pricing
methods. First, GM and EDS operating units use fixed-price contracts where
the scope of the work can be precisely defined. The second alternative
permits GM operating units to use a cost-based incentive method of pricing for
EDS' services. This method of pricing, within specified limits, provides for
equal sharing by the companies of cost savings and overruns. Also under this
method, EDS units earn a before-tax cost markup based, within limits, on
performance. Under the third alternative, commercially available products and
services are provided to GM at uniform, competitive rates. A majority of the
services EDS provides for GM is covered by fixed-price, multiyear agreements.
* * * *
IV-51