l:\secfiles\10-Q\1995\3rdqtr954\exhib99a.doc 6
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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)
Nine Months Ended
Third Quarter September 30,
----------------- ------------------
1995 1994 1995 1994
----------------- ------------------
Revenues
Systems and other contracts
GM and affiliates $965.9 $879.5 $2,846.4 $2,577.4
Outside customers 2,107.8 1,643.3 5,953.7 4,472.1
Interest and other income 35.4 42.1 56.1 88.7
------- ------- ------- -------
Total revenues 3,109.1 2,564.9 8,856.2 7,138.2
------- ------- ------- -------
Costs and expenses
Cost of revenues 2,386.1 1,920.7 6,857.4 5,356.7
Selling, general, and administrative 307.0 288.8 872.4 829.1
Interest 32.0 17.3 80.4 37.8
------- ------- ------- -------
Total costs and expenses 2,725.1 2,226.8 7,810.2 6,223.6
------- ------- ------- -------
Income before income taxes 384.0 338.1 1,046.0 914.6
Provision for income taxes 138.3 121.7 376.6 329.2
------- ------- ------- -------
Separate Consolidated Net Income $245.7 $216.4 $669.4 $585.4
======= ======= ======= =======
Available Separate Consolidated Net
Income (Note 1)
Average number of shares of GM
Class E common stock outstanding
(Numerator) 438.8 261.2 393.0 259.7
Class E dividend base
(Denominator) 483.7 481.7 483.3 481.6
Available Separate Consolidated
Net Income $222.9 $117.3 $551.1 $315.9
===== ===== ===== =====
Earnings Attributable to GM Class E
Common Stock on a Per Share Basis
(Note 1) $0.51 $0.45 $1.40 $1.22
==== ==== ==== ====
See accompanying note to consolidated financial statements.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in millions)
September 30, December 31,
1995 1994
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ASSETS
Current assets
Cash and cash equivalents $580.8 $608.2
Marketable securities 95.8 149.6
Accounts receivable 2,571.0 2,082.1
Accounts receivable from GM and affiliates 231.4 65.4
Inventories 213.6 137.8
Prepaids and other 390.5 311.0
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Total current assets 4,083.1 3,354.1
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Property and equipment, at cost less accumulated
depreciation of $3,097.7 at September 30, 1995
and $2,680.9 at December 31, 1994
Land 128.0 125.3
Buildings and facilities 537.0 559.2
Computer equipment 2,154.2 1,871.0
Other equipment and furniture 258.8 201.1
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Total property and equipment, net 3,078.0 2,756.6
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Operating and other assets
Land held for development, at cost 98.4 97.4
Investment in leases and other 1,488.4 1,308.8
Software, goodwill, and other intangibles, net 1,518.0 1,269.6
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Total operating and other assets 3,104.8 2,675.8
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Total Assets $10,265.9 $8,786.5
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $498.7 $571.1
Accrued liabilities 1,471.0 1,451.0
Deferred revenue 583.1 536.7
Income taxes 168.9 111.0
Notes payable 258.3 203.4
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Total current liabilities 2,980.0 2,873.2
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Deferred income taxes 637.5 659.8
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Notes payable 1,877.4 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 September 30, 1995 and 481.7 shares
at December 31, 1994 516.9 455.1
Retained earnings 4,254.1 3,777.4
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Total stockholder's equity 4,771.0 4,232.5
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Total Liabilities and Stockholder's Equity $10,265.9 $8,786.5
======== =======
See accompanying note to consolidated financial statements.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in millions)
Nine Months Ended
Third Quarter September 30,
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1995 1994 1995 1994
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Cash Flows from Operating Activities
Net income $245.7 $216.4 $669.4 $585.4
----- ----- ------ -----
Adjustments to reconcile net income
to net cash provided by operating
activities (net of effects of
acquired companies)
Depreciation and amortization 269.1 152.2 797.3 485.4
Accretion of discount related
to commercial paper 12.1 9.9 42.7 19.8
Increase in accounts receivable (184.9) (269.5) (349.6) (332.5)
Increase in accounts receivable
from GM and affiliates (33.4) (124.1) (164.6) (33.4)
Increase in inventories (47.1) (14.2) (75.8) (54.5)
(Increase) decrease in prepaids
and other (14.1) 3.0 (55.3) (55.7)
Increase (decrease) in accounts
payable and accrued liabilities (4.3) 123.2 (280.2) 140.2
Increase (decrease) in deferred
revenue (29.5) 23.9 35.7 26.3
Increase (decrease) in income taxes 49.6 112.6 58.2 (2.6)
Increase (decrease) in deferred
income taxes 5.0 (64.3) (21.4) 15.3
----- ----- ------- -----
Total adjustments 22.5 (47.3) (13.0) 208.3
----- ----- ------- -----
Net cash provided by operating activities268.2 169.1 656.4 793.7
----- ----- ------- -----
Cash Flows from Investing Activities
Payments for purchase of
available-for-sale securities (25.8) (98.7) (73.6) (220.7)
Proceeds from sale of
available-for-sale securities 38.6 84.8 149.8 199.2
Payments related to land held for
development (0.1) (1.6) (1.0) (3.0)
Payments for investment in leases
and certain other assets (94.6) (94.4) (355.7) (404.5)
Proceeds from investment in leases
and certain other assets 80.8 155.5 231.8 301.8
Payments for purchase of software
and certain other intangibles (24.3) 16.4 (98.5) (23.5)
Payments for purchase of property and
equipment (254.1) (358.1) (869.2) (785.4)
Payments related to acquisitions,
net of cash acquired (261.7) (21.9) (388.8) (70.5)
----- ----- ------- -------
Net cash used in investing activities ($541.2)($318.0)($1,405.2) ($1,006.6)
------ ------ -------- --------
Certain 1994 amounts were reclassified to conform with 1995 classifications.
See accompanying note to consolidated financial statements.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Concluded
(in millions)
Nine Months Ended
Third Quarter September 30,
--------------- -----------------
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 ($41.5) $10.1 $- ($90.9)
Payments on notes payable (287.3) (84.7) (718.7) (138.8)
Proceeds from notes payable 645.2 47.0 1,569.0 527.2
Proceeds from issuance of common stock 5.7 0.6 61.8 33.6
Cash dividends paid to GM (62.8) (57.8) (188.3) (173.3)
----- ----- ----- -----
Net cash provided by (used in)
financing activities 259.3 (84.8) 723.8 157.8
----- ----- ----- -----
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (5.7) 14.1 (2.4) 26.5
----- ----- ----- -----
Net Decrease in Cash and Cash
Equivalents (19.4) (219.6) (27.4) (28.6)
Cash and Cash Equivalents at Beginning
of Period 600.2 574.4 608.2 383.4
----- ----- ----- -----
Cash and Cash Equivalents at End of Period $580.8 $354.8 $580.8 $354.8
===== ===== ===== =====
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
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Note to Consolidated Financial Statements - Concluded
determined quarterly and is equal to the separate consolidated net income of
EDS, excluding the effects of purchase accounting adjustments arising from the
acquisition of EDS, multiplied by a fraction, the numerator of which is a
number equal to the weighted average number of shares of GM Class E common
stock outstanding during the period and the denominator of which was 483.7
million during the third quarter of 1995. The comparable denominator for the
third 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 third quarter and nine months ended
September 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
- ---------------------
During the third quarter, EDS achieved continued double-digit earnings and
revenue growth, marking the 18th consecutive quarter of double-digit earnings
growth and the 32nd quarter in a row in which EDS' revenues have increased
over the corresponding quarter of the year before.
REVENUES. Total revenues (including interest and other income) for the
quarter ended September 30, 1995 rose $544.2 million, or 21.2%, over the
corresponding quarter in 1994 to $3,109.1 million. Total revenues for the
nine months ended September 30, 1995 increased $1,718.0 million, or 24.1%, to
$8,856.2 million compared with $7,138.2 million for the corresponding period
in 1994. Base revenues (revenues not attributable to General Motors and its
affiliates) for the quarter ended September 30, 1995 rose 27.2% to $2,143.2
million compared to $1,685.4 million for the same period in 1994. Base
revenues for the nine months ended September 30, 1995 increased 31.8% to
$6,009.8 million compared with $4,560.8 million for the same period in 1994.
Base revenues comprised 69% and 68% of total revenues for the three and nine
month periods ended September 30, 1995, respectively. For the three and nine
month periods ended September 30, 1994, base revenues were 66% and 64% of
total revenues, respectively. While it is anticipated that General Motors
will continue to contribute a significant portion of total systems and other
contracts revenues, EDS expects the percentage of revenues from GM and its
affiliates to continue to decline as base revenues continue to increase.
COSTS AND EXPENSES. Cost of revenues as a percentage of systems and other
contracts revenues increased slightly to 78% for both the three and nine
months ended September 30, 1995, compared with 76% for both the three and nine
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
months ended September 30, 1994. However, selling, general, and
administrative expenses as a percentage of systems and other contracts
revenues decreased slightly from 11% and 12% in the three and nine months
ended September 30, 1994, respectively, to 10% for both of the corresponding
periods in 1995
NET INCOME. For the three and nine month periods ended September 30, 1995,
EDS' separate consolidated net income increased 13.5% to $245.7 million and
14.3% to $669.4 million, respectively, when compared to net income of $216.4
million and $585.4 million for the respective periods of last year. Earnings
per share of GM Class E common stock rose from $0.45 to $0.51, or 13.3% for
the third quarter of 1995 compared to the third quarter of 1994. Year-to-date
earnings per share increased from $1.22 to $1.40, or 14.8% over 1994. Return
on assets decreased to 9.9% for the twelve-month period ending September 30,
1995, compared with 10.6% for the corresponding period in 1994. Return on
stockholder's equity remained relatively constant at 21% for the twelve-month
periods ended September 30, 1995 and 1994. EDS' effective tax rate also
remained constant at 36% for the nine months ended September 30, 1995 and
1994.
Liquidity and Capital Resources
- -------------------------------
EDS' liquidity and capital structure changed during 1995 to reflect the
steady growth in significant customer relationships established in recent
years. As a result, working capital increased from $480.9 million at December
31, 1994, to $1,103.1 million at September 30, 1995. The 1995 increase was
primarily in the areas of accounts receivable, inventories, and prepaids and
other, as well as decreases in accounts payable.
EDS' current ratio increased to 1.4-to-1 at September 30, 1995, up from 1.2-
to-1 at December 31, 1994. The ratio of noncurrent debt-to-capital was 28% at
September 30, 1995, compared with 19% at December 31, 1994. EDS' capital at
September 30, 1995 consisted of $1,877.4 million in noncurrent notes payable
and $4,771.0 million in stockholder's equity (GM's equity in its indirectly
wholly owned subsidiary, EDS). Total debt was $2,135.7 million at September
30, 1995, which consisted of long and short-term notes payable. This compared
with total debt of $1,224.4 million at December 31, 1994. At September 30,
1995, EDS had unused uncommitted short-term lines of credit totaling $623.0
million and unused committed lines of credit of $1,815.5 million. On October
5, 1995, EDS increased its unused committed lines of credit to $2,500.0
million. The total debt-to-capital ratio (which includes current debt as a
component of capital) was 30.9% at September 30, 1995 and 22.4% at December
31, 1994.
On August 31, 1995, EDS acquired A.T. Kearney, a Chicago-based international
management consulting firm. At the acquisition date, EDS paid approximately
$113 million in cash and $162 million in short and long-term notes to A.T.
Kearney in connection with this acquisition. Additionally, the terms include
a stock incentive provision of approximately 6.6 million shares of GM Class E
common stock, which will vest over a long-term period for certain A.T. Kearney
people joining the new entity. Prior to September 30, 1995, EDS retired $80.9
million of short-term notes related to the acquisition. The acquisition
combined EDS' Management Consulting Services unit with A.T. Kearney to create
a new EDS-owned subsidiary operating under the A.T. Kearney name.
In May 1995, EDS issued $350 million of its 6.85% five-year notes and $300
million of its 7.125% 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 such offering are being used for general corporate purposes,
including repayment of outstanding commercial paper borrowings and funding of
acquisitions. Such notes were not and will not be registered under the
Securities Act or any other applicable securities laws and may not be offered,
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
sold or otherwise transferred unless registered pursuant to, or exempt from
registration under, the Securities Act and other applicable securities laws.
Additionally, during the third quarter of 1995, EDS increased its borrowings
of commercial paper by $301.1 million.
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. Additionally, on August 7,
1995, S&P placed the EDS rating on CreditWatch with positive implications
following General Motors' announcement that it intends to split-off EDS. 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.
Cash flows from operations increased $99.1 million during the third quarter
of 1995 when compared to the third quarter of 1994. Cash used in investing
activities during the third quarter of 1995 was $541.2 million compared with
$318.0 million in the corresponding period of last year due to increased
participation in business combinations, including the acquisition of A.T.
Kearney. Net cash provided by financing activities was $259.3 million in the
third quarter of 1995. During the same period in 1994, EDS used cash in
financing activities of $84.8 million primarily for payments on notes payable
and dividends.
EDS continues to maintain a strong cash position, holding cash and cash
equivalents of $580.8 million at September 30, 1995. For the nine months ended
September 30, 1995, cash flows from operations were $656.4 million, down
$137.3 million from the corresponding period in 1994 due primarily to changes
in working capital items. Net cash used in investing activities increased
$398.6 million, to $1,405.2 million during the nine months of 1995 from
$1,006.6 million in the same period for 1994. This was primarily due to
purchases of property and equipment, as well as increased participation in
business combinations and other investments to support business growth. Net
cash provided by financing activities increased $566.0 million to $723.8
million for the nine months of 1995 due to the issuance of long-term debt and
notes payable. EDS paid cash dividends to GM totaling $188.3 million for the
nine months of 1995, and $173.3 million for the same period in 1994.
EDS expects that it will continue to use funds in the foreseeable future for
capital expenditures, note repayments and working capital. Capital
expenditures may consist of purchases of computer and telecommunications
equipment, buildings and facilities, land, and software, as well as
acquisitions. EDS' projected capital expenditures for 1995 will be
approximately $1,200 to $1,500 million. However, actual capital expenditures
are somewhat dependent on acquisition and joint venture alliances, as well as
capital requirements for new business.
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.
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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
On August 7, 1995, the Corporation announced that it intends to pursue a
split-off of its wholly owned subsidiary, EDS, to its GM Class E stockholders
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.
As of September 30, 1995, there were 438.9 million shares of GM Class E common
stock outstanding, and 44.8 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 stocks 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% 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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