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EXHIBIT 99(a)
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Consolidated Statements of Income
(in millions except per share amounts)
Six Months Ended
Second Quarter June 30,
----------------- ------------------
1995 1994 1995 1994
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Revenues
Systems and other contracts
GM and affiliates $982.5 $856.2 $1,880.5 $1,697.9
Outside customers 1,967.6 1,453.3 3,845.9 2,828.8
Interest and other income 12.0 24.5 20.7 46.6
------- ------- ------- -------
Total revenues 2,962.1 2,334.0 5,747.1 4,573.3
------- ------- ------- -------
Costs and expenses
Cost of revenues 2,295.2 1,725.4 4,471.3 3,436.0
Selling, general, and administrative 284.4 289.5 565.4 540.3
Interest 28.0 10.9 48.4 20.5
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Total costs and expenses 2,607.6 2,025.8 5,085.1 3,996.8
------- ------- ------- -------
Income before income taxes 354.5 308.2 662.0 576.5
Provision for income taxes 127.6 110.9 238.3 207.5
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Separate Consolidated Net Income $226.9 $197.3 $423.7 $369.0
======= ======= ======= =======
Available Separate Consolidated Net
Income (Note 1)
Average number of shares of GM
Class E common stock outstanding
(Numerator) 438.7 260.1 369.7 259.0
Class E dividend base
(Denominator) 483.7 481.7 483.0 481.5
Available Separate Consolidated
Net Income $205.8 $106.5 $328.2 $198.6
===== ===== ===== =====
Earnings Attributable to GM Class E
Common Stock on a Per Share Basis
(Note 1) $0.47 $0.41 $0.89 $0.77
==== ==== ==== ====
See accompanying note to consolidated financial statements.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in millions)
June 30, December 31,
1995 1994
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ASSETS
Current assets
Cash and cash equivalents $600.2 $608.2
Marketable securities 109.3 149.6
Accounts receivable 2,273.0 2,082.1
Accounts receivable from GM and affiliates 200.6 65.4
Inventories 169.7 137.8
Prepaids and other 355.2 311.0
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Total current assets 3,708.0 3,354.1
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Property and equipment, at cost less accumulated
depreciation of $2,987.1 at June 30, 1995
and $2,680.9 at December 31, 1994
Land 128.1 125.3
Buildings and facilities 539.2 559.2
Computer equipment 2,133.1 1,871.0
Other equipment and furniture 242.9 201.1
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Total property and equipment, net 3,043.3 2,756.6
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Operating and other assets
Land held for development, at cost 98.3 97.4
Investment in leases and other 1,483.7 1,308.8
Software, goodwill, and other intangibles, net 1,327.7 1,269.6
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Total operating and other assets 2,909.7 2,675.8
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Total Assets $9,661.0 $8,786.5
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $553.5 $571.1
Accrued liabilities 1,338.0 1,451.0
Deferred revenue 617.4 536.7
Income taxes 119.7 111.0
Notes payable 283.1 203.4
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Total current liabilities 2,911.7 2,873.2
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Deferred income taxes 630.9 659.8
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Notes payable 1,528.3 1,021.0
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Stockholder's equity
Common stock, without par value; authorized
1,000.0 shares. Issued and outstanding 483.7
shares at June 30, 1995 and 481.7 shares
at December 31, 1994 511.2 455.1
Retained earnings 4,078.9 3,777.4
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Total stockholder's equity 4,590.1 4,232.5
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Total Liabilities and Stockholder's Equity $9,661.0 $8,786.5
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See accompanying note to consolidated financial statements.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in millions)
Six Months Ended
Second Quarter June 30,
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1995 1994 1995 1994
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Cash Flows from Operating Activities
Net income $226.9 $197.3 $423.7 $369.0
----- ----- ----- -----
Adjustments to reconcile net income
to net cash provided by operating
activities (net of effects of
acquired companies)
Depreciation and amortization 297.2 176.3 528.2 333.2
Accretion of discount related to
commercial paper 16.0 6.1 30.6 9.9
Increase in accounts receivable (119.6) (84.9) (164.7) (63.0)
(Increase) decrease in accounts
receivable from GM and affiliates (8.1) 65.2 (131.2) 90.7
Increase in inventories (28.9) (21.8) (28.7) (40.3)
(Increase) decrease in prepaids
and other 24.1 (25.5) (41.2) (58.7)
Increase (decrease) in accounts
payable and accrued liabilities (45.3) 11.4 (275.9) 17.0
Increase (decrease) in
deferred revenue (2.8) 13.9 65.2 2.4
Increase (decrease) in income taxes 18.1 (125.7) 8.6 (115.2)
Increase (decrease) in deferred
income taxes (82.5) 44.0 (26.4) 79.6
----- ----- ----- -----
Total adjustments 68.2 59.0 (35.5) 255.6
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Net cash provided by operating activities 295.1 256.3 388.2 624.6
----- ----- ----- -----
Cash Flows from Investing Activities
Payments for purchase of available-
for-sale securities (37.0) (83.4) (47.8) (122.0)
Proceeds from sale of available-for-sale
securities 47.2 44.1 111.2 114.4
Payments related to land held for
development - - (0.9) (1.4)
Payments for investment in leases
and certain other assets (117.0) (52.9) (261.1) (310.1)
Proceeds from investment in leases
and certain other assets 123.4 49.5 151.0 146.3
Payments for purchase of software
and certain other intangibles (69.2) (35.1) (74.2) (39.9)
Payments for purchase of property and
equipment (351.3) (271.0) (615.1) (427.3)
Payments related to acquisitions,
net of cash acquired (86.2) (47.9) (127.1) (48.6)
----- ----- ----- -----
Net cash used in investing activities ($490.1) ($396.7) ($864.0) ($688.6)
----- ----- ----- -----
See accompanying note to consolidated financial statements.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
(in millions)
Six Months Ended
Second Quarter June 30,
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1995 1994 1995 1994
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Cash Flows from Financing Activities
Net increase (decrease) in current
notes payable with maturities less
than 90 days ($7.3) ($57.4) $41.5 ($101.0)
Payments on notes payable (368.8) (22.0) (431.4) (54.1)
Proceeds from notes payable 707.5 274.5 923.8 480.2
Proceeds from issuance of common stock 4.8 7.9 56.1 33.0
Cash dividends paid to GM (62.9) (57.8) (125.5) (115.5)
----- ----- ----- -----
Net cash provided by
financing activities 273.3 145.2 464.5 242.6
----- ----- ----- -----
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 0.2 9.9 3.3 12.4
----- ----- ----- -----
Net Increase (Decrease) in Cash and Cash
Equivalents 78.5 14.7 (8.0) 191.0
Cash and Cash Equivalents at Beginning
of Period 521.7 559.7 608.2 383.4
----- ----- ----- -----
Cash and Cash Equivalents at End of Period $600.2 $574.4 $600.2 $574.4
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See accompanying note to consolidated financial statements.
Note to Consolidated Financial Statements
In the opinion of management, the interim consolidated financial statements
reflect all adjustments, consisting of only normal recurring items (with the
exception of the accounting change in 1994 to adopt Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities), which are necessary for a fair presentation of
the results for the interim periods presented. The results for interim
periods are not necessarily indicative of results which may be expected for
any other interim period or for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements, the summary of significant accounting policies, and the other
notes to the consolidated financial statements included in General Motors'
1994 Annual Report to the SEC on Form 10-K.
Note 1.
The consolidated financial statements of EDS do not reflect the purchase
accounting adjustments arising as a result of the acquisition of EDS by GM.
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
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
income of EDS, excluding the effects of purchase accounting adjustments
arising from the acquisition of EDS, multiplied by a fraction, the numerator
of which is a number equal to the weighted average number of shares of GM
Class E common stock outstanding during the period and the denominator of
which was 483.7 million during the second quarter of 1995. The comparable
denominator for the second quarter of 1994 was 481.7 million.
On March 13, 1995, GM contributed 173,163,187 shares of GM Class E common
stock to its hourly pension plan. This contribution increased the weighted
average shares outstanding during the second quarter and six months ended
June 30, 1995.
The denominator used in determining the Available Separate Consolidated Net
Income of EDS is adjusted as deemed appropriate by the GM Board of Directors
to reflect subdivisions or combinations of the GM Class E common stock and to
reflect certain transfers of capital to or from EDS. The Board's discretion
to make such adjustments is limited by criteria set forth in GM's Certificate
of Incorporation. In 1994 and 1988, EDS initiated programs to repurchase
9.5 million and 11.0 million shares, respectively, of GM Class E common stock
in order to meet certain future requirements of EDS' 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.
* * * * *
Management's Discussion and Analysis
Result of Operations
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EDS signed $2.8 billion in new business during the quarter ended June 30,
1995, bringing the total of new business signed for the year to $5.5 billion.
This compares to $6.0 billion signed during the first half of 1994.
Total revenues for the quarter and six months ended June 30, 1995 rose
$628.1 million and $1,173.8 million, respectively, over the comparable quarter
and six-month period in the prior year to $2,962.1 million and $5,747.1
million, respectively. Revenues related to GM and affiliates amounted to
$982.5 million and $856.2 million for the second quarter ended June 30, 1995
and 1994, respectively, and $1,880.5 million and $1,697.9 million for the six
months ended June 30, 1995 and 1994, respectively.
The growth of non-GM revenue during the second quarter and six-month period
ending June 30, 1995, when compared to the corresponding periods in 1994, was
34.0% and 34.5%, respectively. This growth results from several new contracts
and improved performance of existing contracts.
GM revenue increased 14.8% and 10.8% during the second quarter and six-month
period ending June 30, 1995, respectively, when compared with the same periods
in 1994. While it is anticipated that GM will continue to contribute a
significant portion of systems and other contracts revenues, the company
believes that the percentage of revenue from GM and affiliates will continue
to decline as non-GM revenues continue to increase at a greater rate.
Total costs and expenses as a percentage of systems and other contracts
revenue remained relatively flat at 88.4% and 88.8%, respectively, for the
quarter and six months ended June 30, 1995, when compared to the corresponding
periods in 1994.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
For the quarter and six-month periods ended June 30, 1995, EDS' separate
consolidated net income increased 15.0% to $226.9 million and 14.8% to $423.7
million, respectively, when compared to net income of $197.3 million and
$369.0 million for the same respective periods of last year. Earnings per
share of GM Class E common stock rose from $0.41 to $0.47, or 14.6%, for the
second quarter of 1995 when compared to the second quarter of 1994. Year-to-
date earnings per share increased from $0.77 to $0.89, or 15.6%, over 1994.
EDS' effective tax rate remained at 36% for the quarter.
Liquidity and Capital Resources
-------------------------------
EDS maintained a strong liquidity and capital structure during the second
quarter. The current ratio improved to 1.27-to-1 at June 30, 1995 from
1.17-to-1 at December 31, 1994. Return on assets was 10.1% for the first six
months of 1995 compared to 11.0% for the same period of 1994. Return on
equity was 20.6% for the first six months of 1995 compared to 21.1% for the
same period of 1994. The noncurrent debt-to-capital ratio was 25% at June 30,
1995 and 19% at December 31, 1994. At June 30, 1995, EDS' capital consisted
of $1,528.3 million in noncurrent notes payable and $4,590.1 million in
stockholder's equity.
Total debt was $1,811.4 million at June 30, 1995 and represented a 48%
increase from total debt of $1,224.4 million at December 31, 1994. Debt
increased primarily due to the private placement of $650 million of noncurrent
notes in the second quarter. In May 1995, EDS issued $350 million of five-
year notes and $300 million of ten-year notes in a private placement to
investment banks for resale only to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended (the Securities Act).
The proceeds of the offering are being used for general corporate purposes,
including repayment of outstanding commercial paper borrowings and funding of
acquisitions. Such notes have not been and will not be registered under the
Securities Act or any other applicable securities laws and may not be offered,
sold or otherwise transferred unless registered pursuant to, or exempt from
registration under, the Securities Act and other applicable securities laws.
The total debt-to-capital ratio (includes current debt as a component of
capital) was 28.3% at June 30, 1995 and 22.4% at December 31, 1994.
On April 4, 1995, Standard & Poor's Corporation ("S&P") raised its
commercial paper rating of EDS to A-1 from A-2, second highest within the four
investment grade ratings available from S&P for commercial paper, indicating a
strong degree of safety regarding timely payments, and removed the rating from
CreditWatch, where it was placed on February 6, 1995. 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.
EDS' strong cash position reflects additional borrowings during the quarter.
Overall cash and cash equivalents decreased $8.0 million to $600.2 million
from the end of 1994 to the end of the second quarter. Cash flows from
operations decreased from $624.6 million during the first six months of 1994
to $388.2 million during the same period of 1995. Cash flows from operations
increased $38.8 million during the second quarter of 1995 when compared to the
second quarter of 1994. The changes in cash flows from operations principally
reflect the timing of receipts and disbursements. Cash used in investing
activities was $490.1 million and $864.0 million for the quarter and first six
months of 1995, respectively, compared with $396.7 million and $688.6 million,
respectively, for the corresponding periods in 1994. The increased use of
cash during the first six months of 1995 is due to expenditures supporting the
growth of business. Net cash provided by financing activities was $273.3
million and $464.5 million for the quarter and first six months of 1995,
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
respectively, compared to $145.2 million and $242.6 million, respectively, for
the same periods last year. The changes in cash flows from financing
activities is principally due to the issuance of long-term debt.
During the quarter, EDS made net additions to property and equipment of
$351.3 million and net additions to software, goodwill, and other intangibles
of $69.2 million. EDS paid cash dividends to GM totaling $62.9 million in the
second quarter and has consistently paid cash dividends since 1974.
EDS and A. T. Kearney announced they had entered into a letter of intent
under which EDS would acquire the Chicago-based firm and merge EDS' management
consulting unit with A. T. Kearney. The transaction, if completed, would
create a new EDS-owned management consulting subsidiary under the A. T.
Kearney name.
The competitive environment and changing market forces are increasing the
capital intensity of EDS' business. Increasing amounts of capital will be
required by EDS in order to make investments in acquisitions, joint ventures
and strategic alliances in other parts of the information industry and in new
product development. In addition, information technology customer contracts
frequently now require front-end investments in computers and
telecommunications equipment, software, and other property, plant and
equipment. For these reasons, EDS' ability to continue to access the capital
markets on an efficient basis will become increasingly important to EDS'
ability to compete effectively.
On August 7, 1995, GM announced that it intends to pursue a split-off of its
wholly owned subsidiary, EDS, to its GM Class E shareholders in a tax-free
exchange of stock.
To achieve a split-off, GM would exchange EDS capital stock for outstanding
GM Class E common stock. GM would not recognize a gain on the transaction.
There are currently 438.7 million shares of GM Class E common stock
outstanding, and 44.9 million shares currently reserved for issuance upon
conversion of Series C Preference Stock. The process of establishing
definitive terms for a split-off transaction which will be fair to all holders
of GM common stock will, among other things, consider differences between the
values of GM Class E and EDS common stocks in order to establish any
adjustment deemed appropriate by the GM Board of Directors.
A split-off would be subject to the appropriate stockholder approvals, and a
favorable Internal Revenue Service ruling that the transaction would be tax-
free. The specific terms of a transaction, which are yet to be developed,
must also be approved by the GM Board of Directors. Subject to these and
other approvals and conditions, GM and EDS expect that a split-off could occur
in the first half of 1996. However, it should be noted that due to the
numerous uncertainties involved in these matters, there can be no assurance
that any split-off of EDS will be proposed or completed.
A split-off would be proposed only in a manner that would not result in the
recapitalization of GM Class E common stock into GM $1-2/3 par value common
stock at a 120 percent exchange ratio, as currently provided for under certain
circumstances in the GM Certificate of Incorporation.
In the event of a split-off, GM and EDS would enter into a long-term
agreement under which EDS would provide substantially the same information
technology services for GM that it does today.
* * * * *
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