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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File No. 01-11779
ELECTRONIC DATA SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware |
|
75-2548221 |
| (State or other jurisdiction of |
|
(I.R.S. Employer |
| incorporation or organization) |
|
Identification No.) |
5400 Legacy Drive, Plano, Texas 75024-3199
(Address of principal executive offices, including ZIP code)
Registrant’s telephone
number, including area code: (972) 604-6000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class
|
|
Name of each exchange on which registered
|
| Common Stock, $.01 Par Value |
|
New York, London |
| Income Prides |
|
New York |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes þ No ¨.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of February 1, 2002, the aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing price on such date
as reported on the New York Stock Exchange Composite Transactions) was approximately $29,865,000,000.
There were 479,139,536
shares of the registrant’s common stock outstanding as of February 1, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 19, 2002 are incorporated by
reference in Part III.
1
PART I
ITEM
1. BUSINESS
Electronic Data Systems Corporation (“EDS”) was incorporated in Delaware in
1994 and, at the time of its split-off from General Motors Corporation (“GM”) in 1996, became the successor to the business and operations of the Texas corporation which had been incorporated under the same name in 1962. In 1984, GM
acquired all of the capital stock of the Texas corporation, which prior to that time had been an independent publicly held corporation. As a result of the split-off, EDS once again became an independent publicly held corporation with its Common
Stock listed for trading on the New York and London Stock Exchanges. Unless the context otherwise requires, references in this Form 10-K to EDS include its predecessor and subsidiaries.
EDS has been a leader in the global information technology (“IT”) services industry for 40 years. We provide strategy, implementation, and hosting services and solutions for
clients managing the complexities of the digital economy, bringing together the world’s best technologies to address our clients’ critical business imperatives. Our end-to-end portfolio of services integrates our five lines of business
– Information Solutions, Business Process Management, E Solutions, A.T. Kearney, and Product Lifecycle Management Solutions – to help clients solve complex business issues and achieve results with technology. Our eight Global Industry
Groups – Communications, Energy, Financial, Government, Health Care, Manufacturing, Retail, and Transportation – work with each of our lines of business and client executive teams to most effectively position the company within our target
markets.
As of December 31, 2001, we employed approximately 143,000 persons. Our principal executive offices are located at
5400 Legacy Drive, Plano, Texas 75024, telephone number: (972) 604-6000.
Information Solutions
Information Solutions, our largest line of business, encompasses our traditional IT outsourcing business. Information Solutions includes network and
system operations, data management, applications development and maintenance, desktop management and field services, as well as Internet hosting and Web site management. Our capabilities help clients align IT and operations with business strategy
while ensuring predictable performance and costs.
Our Information Solutions services include:
| |
• |
|
Centralized Systems Management. We offer data processing services for stand-alone, midrange or high-end systems physically located in one or more
controlled environments. This includes management services for traditional application processing environments, as well as specialized services such as Web site hosting and data warehousing. These services help clients reduce risk, facilitate
cost-effective growth, improve delivery, efficiency and quality, and enhance client-to-customer relationships. |
| |
• |
|
Distributed Systems Management. We offer end-to-end services to plan, deploy, operate and refresh an enterprise’s total distributed
processing capability. These include traditional laptop and desktop environments, as well as the emerging applications service provider model supported by network-based applications. Benefits to clients for these services may include reduced cost of
ownership, increased return on investment, transformation of PCs into information tools, increased speed to market and enhanced flexibility in business operations. |
| |
• |
|
Communications Management. We define, develop and manage consistent voice, video, data, multi-service and other global communications services.
These services facilitate electronic commerce, increase competitiveness and market opportunities, and improve information sharing through a client’s supply and demand chain. |
| |
• |
|
Application Services. We offer applications development and management services on an outsourced or out-tasked basis. These services range from
outsourcing of all application development and management to implementation and management of EDS-owned or third-party industry applications. Benefits to clients for these services include reduced costs, extended value of technology investments,
information sharing and enhanced ability to adapt to market changes. |
Our Information Solutions line of
business accounted for $16.2 billion of our revenues in 2001.
2
Business Process Management
Business Process Management, or BPM, is the outsourcing of one or more business processes or functions to an external provider. Our BPM line of business focuses on clients’ business goals to enhance their customers’ total
satisfaction with delivery, performance, quality and cost.
Our BPM services include:
| |
• |
|
Financial Process Management. We offer a full range of scalable services that enable clients to bridge the gap between paper and electronic
payment processing environments. Our Financial Process Management offerings include credit card processing, ATM and kiosk transaction processing, debit and gateway authorization, check processing, remittance processing, mortgage and consumer loan
processing, relocation services, and a wide variety of document management services. These services are aimed at several different types of clients, including banks and other lending institutions, card issuing institutions, merchants and merchant
acquiring banks, as well as medium-to-large-size billers from multiple industries. |
| |
• |
|
Administrative Process Management. With more than 30 years of experience, we provide end-to-end services for city, state and federal programs that
operate in conjunction with a program’s overall strategy to improve and increase efficiency. We provide solutions to improve business processes around Medicaid and Medicare claims administration, electronic traffic enforcement, and alarm
tracking and billing services. We also provide decision support services, fraud and abuse detection services, registry and tracking services for vaccines and immunizations, and pharmacy benefit management services. In the private sector, we provide
improvement services to clients to enhance and manage policyholder services for both life and property and casualty insurance companies. |
| |
• |
|
Customer Relationship Management. Our expert management of customer interactions enables clients to develop individual customer relationships,
build brand loyalty, and improve customer acquisition, retention and lifetime value. We are a global leader in Customer Relationship Management (“CRM”), supporting hundreds of clients with their end-to-end capabilities across the areas of
customer interaction centers, customer intelligence, fulfillment and distribution services. Together with our four other lines of business, we provide the full range of CRM services, from management consulting and systems integration to ongoing
business process management and outsourcing. |
| |
• |
|
Enterprise Support Services. By outsourcing critical, non-core business functions to EDS, our clients can better control costs, integrate
processes, and gain the expertise of a global service provider. Our clients benefit from improved quality, shorter cycle times and enhanced information security. EDS’ Human Resources (“HR”) Business Process Outsourcing integrates and
streamlines front- and back-end HR processes. Our flexible HR solution uses employee self-service tools and standardized processes and entry points for employees and managers. |
Our BPM line of business accounted for $3.0 billion of our revenues in 2001.
E
Solutions
E Solutions is our global solutions consulting line of business. E Solutions provides innovative and scalable
solutions that enable clients to benefit from business opportunities in today’s digital economy. This unit encompasses a complete continuum of solutions consulting services, from enterprise technical strategy through application design,
development and deployment; from package selection through implementation and integration; and from infrastructure assessment through design and deployment.
E Solutions’ offering framework revolves around the management and deployment of disciplines, competencies and capabilities within three major areas: Enterprise Consulting; Digital Enablement; and Digital Value
Chain.
| |
• |
|
Enterprise Consulting. Applies knowledge disciplines to transform enterprises with three main service offerings. Technology Consulting offers a
synthesis of seasoned, experienced expertise in technology planning and architecture, change management, performance management, industry consulting and project management to ensure that our clients’ business objectives and strategic goals are
completely realized. Digital Learning includes a comprehensive range of training and development services assembled for organizations that intend to use learning as a strategic advantage in a fast-paced global market. Engineering and Manufacturing
Services provides client value through the integration of technology, engineering, and consulting services to achieve complete product lifecycle optimization. |
3
| |
• |
|
Digital Enablement. Uses technology and infrastructure disciplines to transform enterprises. The unit’s Net Applications offering specializes
in creative Internet and interactive application development, including the following interactive solutions: Net Marketing—the development and implementation of strategic Web plans, management of digital branding and fostering Web-based
marketing efforts to attract, retain and maximize customer relationships; Net Design—helping clients develop custom Web-based solutions; Net Portal—develops a common interface and access point to personalized information for business
users; Net Source—outsourcing the Web development needs of an enterprise through a comprehensive management program that coordinates all of the services required to deliver full Web capabilities; and Net Mobility—applications and customer
assistance for mobile devices such as Web-ready cellular phones and personal digital assistants. Our Security and Privacy Services offering addresses cyber threats while enabling e-business opportunities, including assessment, planning,
protection, verification, training solutions and continuous security monitoring and management that anticipate and react to all types of security threats while ensuring business continuity. The Messaging and Collaboration Services offering includes
messaging service migration or upgrade, systems integration, hosted mailboxes, messaging system enhancements, directory services, e-mail content validation, administration optimization and collaborative solutions. |
| |
• |
|
Digital Value Chain. Leverages E Solutions’ deep knowledge of third-party applications implementation and integration with business process
and supply chain disciplines to transform enterprises with the following services: Supply Chain Management, which assists clients in the creation of extended supply chains that are inherently more efficient; Enterprise Resource Planning, which
offers planning, implementation, migration and optimization services for enterprise application systems; Customer Relationship Management, which provides a suite of comprehensive service offerings to help clients plan, design, implement and operate
their customer care programs, including channel integration, marketing and sales automation, customer care solutions, business intelligence, knowledge management and full integration of front- and back-office functions; and Integration Services,
which enables clients to integrate their technical applications and business operations in a legacy or Web-based environment, with value-added solutions, applications, systems and business processes across the extended enterprise.
|
Our E Solutions line of business accounted for $1.2 billion of our revenues in 2001.
A.T. Kearney
A.T. Kearney, a leading global
management consultancy, became a subsidiary of EDS in 1995. The firm provides clients with high-value management consulting services, including strategy and organization, operations and technology solutions consulting, as well as executive search
services. A.T. Kearney addresses issues on the CEO’s agenda through delivery of leading-edge solutions to complex problems and implementation that brings results.
A.T. Kearney serves clients through practice teams focused on major industries, including automotive; consumer products and retail; communications, media and entertainment; financial
institutions, high tech; pharmaceuticals/health care; process industries, aerospace and defense/transportation; and utilities. The firm works in collaboration with other EDS lines of business.
Among the services provided by A.T. Kearney are:
| |
• |
|
Strategy and Organization Consulting. This practice is based on a strong foundation in corporate and business unit strategy. A.T. Kearney helps
clients define strategic priorities, allocate resources, design their organizations and implement change. Our primary marketplace offerings are Merger Integration, Top-Line Growth (focusing on pricing optimization), Marketing Strategy and
Organization Effectiveness. |
| |
• |
|
Operations Consulting. Clients turn to A.T. Kearney for proven expertise in four key competencies – supply chain and manufacturing solutions,
strategic supply management, innovation and customer relations. We respond to senior executive demand for solutions that are relevant to business needs, yet rapidly deployed and quickly implemented. Our unique offerings include Sourcing Solutions,
Creating Supply Advantage, Next Generation Cost Reduction, MRO (material repair operations) Management, and Supply Chain Performance Improvement. |
| |
• |
|
Technology Consulting. Assists clients in defining, designing and implementing technology solutions that facilitate execution of the CEO’s
agenda. Together with EDS’ E Solutions line of business, A.T. Kearney can assist at every stage of an engagement, from technology strategy formation to implementation. A.T. Kearney’s primary marketplace offerings are Technology Value
Leverage, Customer Solutions and Digital Value Network solutions. |
4
| |
• |
|
A.T. Kearney Executive Search. Offers specialty practice teams in most industries and virtually every functional discipline. A.T. Kearney’s
experienced recruiters understand our clients’ unique businesses and cultures, find qualified leadership candidates, and deliver superior assessment and executive search services. |
A.T. Kearney accounted for $1.2 billion of our revenues in 2001.
Product Lifecycle Management Solutions
EDS’ newest line of business, Product Lifecycle Management
(“PLM”) Solutions, delivers integrated software and services supporting the entire lifecycle of a product from concept and development to production, distribution and in-service maintenance. This new line of business with over 24,000
customers was formed through the consolidation of two former public companies, Structural Dynamics Research Corporation (“SDRC”) and Unigraphics Solutions Inc. (“UGS”). We acquired SDRC in August 2001 and in September 2001 we
completed the acquisition of the 14 percent minority interest in UGS that had been held by the public. The products and services offered through this line of business enable manufacturers to digitize their product lifecycles as a way to increase
margins and grow revenues. Through this line of business, a complete suite of product lifecycle management solutions are offered focused on digital product design, simulation, manufacturing, and collaboration. In addition, EDS offers
ExperTeamSM services that deliver implementation assistance for PLM along with software support and maintenance. Through
integration, collaboration, insight and automation made possible by these solutions, leading manufacturers can increase profit margins by reducing costs and delivering more innovative products to market earlier than their competitors.
PLM portfolio includes product and service solutions. These products and services consist of:
| |
• |
|
Digital Product Development. Enables distributed teams to design new products starting in the concept stage all the way through detailed design,
and to simulate the real world performance of digital products in order to aid in the selection of a design from a set of options or to improve the performance of a selected design. Products supporting Digital Product Development include
Unigraphics® NX, I–deas®, Solid Edge®, Femap® and Parasolid®. |
| |
• |
|
Digital Manufacturing. Enables distributed teams to develop the plans and requirements for the production manufacturing of digital products. In
addition, these products create automated manufacturing routines that drive factory tools and processes directly from the digital product model. Digital Manufacturing products include Unigraphics CAM and E-factory™. |
| |
• |
|
Collaborative Product Data Management. Provides an environment for product lifecycle management by enabling loosely coupled teams to form via the
Internet as needed and then share information in a secure manner on a real time basis. Digital Collaboration products include Teamcenter™, Iman®, E–visSM, and the Vis suite of products. |
| |
• |
|
PLM Services. Provides support services on many levels. ExperTeamSM combines products and services that are prepackaged for a specific industry need and include Express Automotive, Express Aerospace and Defense, and RDV (Repeatable Digital Validation).
Services teams also provide a broad range of services including consulting services, systems integration and IT outsourcing. |
PLM Solutions accounted for $738 million of our revenues in 2001. On a pro forma basis, assuming the acquisition of SDRC had been completed on January 1, 2001, the PLM Solutions line of business would have represented
$1 billion of revenues in 2001.
Revenues
Our fees are generally paid pursuant to contracts with our clients. These contracts may provide for both fixed and variable fee arrangements. The terms of our client contracts generally range from less than one year
in the high-value management consulting business to up to 10 years in our IT outsourcing business. Other than GM, no one client accounted for more than 10 percent of our total revenues in any of the past three years. Approximately 43 percent of our
2001 revenues were generated outside the United States.
5
Acquisitions, Strategic Alliances and Investments
From time to time EDS has made acquisitions and entered into strategic alliances in an effort to obtain a competitive advantage or a new or expanded presence in targeted geographic or service markets. In January 2000,
we announced the creation of a venture fund to facilitate strategic investments in wireless and broadband solutions, security technologies, knowledge management, hosting services and middleware including enterprise application and B2B integration
tools. We believe that acquisitions, strategic alliances and venture investments will continue to be elements of our ongoing strategy.
Competition
The IT services market remains fragmented and highly competitive. We experience competition in all five of our lines of
business. Our Information Solutions line of business faces competition principally from other companies providing IT systems and services. The principal competitors of our Information Solutions line of business are Cap Gemini Ernst & Young,
Computer Sciences Corporation, International Business Machines Corporation Global Services (“IBM”) and Perot Systems Corporation. The principal competitors of our BPM line of business are First Data Corp., Automatic Data Processing, Inc.,
Affiliated Computer Services Inc., Convergys Corporation and Exult, Inc. Our E Solutions line of business competes with IBM, Cap Gemini Ernst & Young, Accenture, KPMG Consulting and the consulting businesses of PricewaterhouseCoopers and
Deloitte & Touche, as well as a number of other emerging technology companies. The Internet services and solutions consulting markets are converging as companies move toward the formation of collaborative enterprises and Internet services
providers increasingly enter the solutions consulting space, providing Web enablement and enterprise systems integration. Principal competitors of A.T. Kearney include McKinsey & Company, Bain & Company, Booz Allen & Hamilton, Boston
Consulting Group and Accenture. The principal competitors of our PLM Solutions line of business include Parametric Technology Corporation, Dassault Systemes, Autodesk, Inc. and Matrix One, Inc. Product Lifecycle Management has become an important
part of the supply chain, driving the need for integrated solutions from design through manufacturing and logistics. In addition, all five of our lines of business experience competition from numerous smaller, niche-oriented consulting and other
firms, such as Sapient Corp., Digex, Incorporated, Deluxe Corp., FiServe, Inc., DiamondCluster, Inforte and Harte-Hanks, Inc.
Technology and its application within the business enterprise is in a rapid and continuing state of change as new technologies continue to be developed, introduced and implemented. We believe to continue to compete effectively we must be
able to develop and market offerings that meet changing user needs and respond to technological changes on a timely and cost-effective basis.
Employees
As of December 31, 2001, we employed approximately 143,000 persons in the United States and around
the world. None of our U.S. employees are currently employed under an agreement with a collective bargaining unit, and we believe that our relations with employees are good. To maintain our technical expertise and responsiveness to evolving client
needs, we provide our employees with extensive continuing education and training, as well as leadership and professional development programs.
Patents, Proprietary Rights and Licenses
We hold a number of patents and pending patent applications in the
United States and other countries. Our policy generally is to pursue patent protection we consider necessary or advisable for the patentable inventions and technological improvements of our business. We also significantly rely on trade secrets,
copyrights, technical expertise and know-how, continuing technological innovations and other means, such as confidentiality agreements with employees, consultants and clients, to protect and enhance our competitive position.
Some of our business areas are highly patent-intensive. Many of our competitors have obtained, and may obtain in the future, patents that cover or
affect services or products directly or indirectly related to those we offer. We routinely receive communications from third parties asserting patent or other rights covering our products and services. We may not be aware of all patents containing
claims that may pose a risk of infringement by our products and services. In general, if one or more of our products or services infringe patents held by others, we would be required to cease developing or marketing such products or services, obtain
licenses from the holders of the patents, or redesign our products or services to avoid infringing the patent claims. There is no assurance that we would be able to take any of such remedial actions or, if we are able to do so, that the costs
incurred would not be significant.
6
We are not aware of any pending patent or proprietary right disputes that would have a material adverse effect on our consolidated
financial position or results of operations.
Regulation
Various aspects of our business are subject to governmental regulation in the United States and other countries in which we operate. Failure to comply with such regulation may, depending upon the nature of the
noncompliance, result in the suspension or revocation of any license or registration at issue, the termination or loss of any contract at issue or the imposition of contractual damages, civil fines or criminal penalties. We have experienced no
material difficulties in complying with the various laws and regulations affecting our business.
Services for General Motors
Approximately 14 percent of our total revenues in 2001 was attributable to GM and its affiliates. We are the primary provider of data
processing and other information technology services for GM and certain of its affiliates worldwide, including integrated information systems for health and benefits, engineering systems support, office automation, and plant automation functions.
The loss of GM as an ongoing major customer would have a material adverse effect on EDS.
Immediately prior to our split-off
from GM in 1996, we entered into a new Master Service Agreement, or MSA, with GM that serves as a framework for the negotiation and operation of service agreements for certain “in-scope” IT services (as defined in the MSA) we provide to GM
on a worldwide basis. These “in-scope” services accounted for approximately $2.6 billion of the $3.1 billion of our GM revenues in 2001. The remainder was attributable to goods and services provided outside the scope of the MSA.
The term of the MSA will continue until 2006 and may be extended by mutual agreement of the parties. In addition, the MSA may
be terminated by GM if there occurs a “change of control” of EDS and certain other conditions are met (including a determination by GM’s Board of Directors that there is substantial uncertainty about EDS’ ability to perform its
obligations under the MSA or any other significant threat to the business relationship between the parties). Reference is made to the MSA, a copy of which has been filed with the SEC, for a description of the other terms and conditions of that
agreement, including certain market testing procedures to test the competitiveness of the services we provide thereunder.
ITEM
2. PROPERTIES
As of December 31, 2001, we operated approximately 410 locations in 44 states and 200
cities in the United States and approximately 550 locations in 210 cities in 40 countries outside the United States. At such date, we owned approximately 7 million square feet of space and leased from third parties approximately 26 million square
feet of space. Our global headquarters campus in Plano, Texas contains approximately 3.2 million square feet of office and data center space. Other than the 1.6 million square-foot EDS Centre building, which we lease for an initial term expiring in
2022 (which lease has certain fixed price purchase options we may exercise during and at the end of such initial term), we own all buildings and real estate comprising the Plano campus.
We operate large scale Service Management Centers, or SMCs, in locations throughout the United States and in Australia, Brazil, Canada, France, Germany, the Netherlands, Spain and the
United Kingdom. In addition, we operate service delivery centers, or SDCs, at customer-owned sites or EDS-owned or leased facilities throughout the world. SDCs usually support a single or small number of customers with more specialized requirements
than those supported at the large scale, multiple customer SMCs. Our leased properties consist primarily of office, warehouse, SDC and non-U.S. SMC facilities. Lease terms are generally five years or, for leases related to a specific customer
contract, have a term concurrent with that contract. We do not anticipate any difficulty in obtaining renewals or alternative space upon expiration of our existing leases. In addition to our owned and leased properties, we occupy office space at
customer locations throughout the world. Such space is generally occupied pursuant to the terms of the relevant customer contract.
We believe that our facilities are suitable and adequate for our business. We periodically review our space requirements and consolidate and dispose of or sublet facilities we no longer require for our business and acquire new space to meet
the needs of our business.
7
ITEM 3. LEGAL PROCEEDINGS
From time to time we are involved in various litigation matters arising in the ordinary course of our business. We do not believe that disposition of any current matter will have a material adverse effect on our
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None submitted.
EXECUTIVE OFFICERS OF EDS
The following sets forth certain information with respect to the executive officers
of EDS as of February 28, 2002:
Richard H. Brown, 54, has been Chairman and Chief Executive Officer of EDS since January
1999. He was Chief Executive Officer of Cable & Wireless plc from July 1996 to December 1998 and President and Chief Executive Officer of Hamp;R Block, Inc., and Chairman of its CompuServe subsidiary, from May 1995 to July 1996. Mr. Brown was
Vice Chairman of Ameritech Corporation from January 1993 to May 1995 and President of its Illinois Bell subsidiary from 1990 to 1993. He held various executive positions with United Telecommunications, Inc. from 1981 to 1990, most recently as
Executive Vice President, and was with Ohio Bell from 1969 to 1981.
Paul J. Chiapparone, 62, has been Executive Vice
President – Operations of EDS since November 2000 and prior to that time had served as an Executive Vice President since June 1996 and a Senior Vice President since April 1986. Mr. Chiapparone has oversight responsibility for our Information
Solutions, BPM and PLM Solutions lines of business and CIO and CTO organizations as well as for our GM client on a global basis. He also has oversight responsibility for our eight Global Industry Groups. Mr. Chiapparone joined EDS in 1966 and has
served in numerous management capacities.
James E. Daley, 60, has been Executive Vice President and Chief Financial
Officer of EDS since March 1999. Mr. Daley has oversight responsibility for our controllership, treasury, internal audit, tax, global procurement, investor relations, administration, planning and productivity functions. Before joining EDS, he had
been with Price Waterhouse, L.L.P. from 1963 to 1998, serving as its Co-Chairman – Operations from 1988 to 1995, Vice Chairman International from 1995 to 1996, Global ABS Leader of Financial Services Industry Practices from 1997 to 1998, and as
a member of its Policy Board from 1984 to 1995, Management Committee from 1986 to 1996, World Board from 1988 to 1996 and World Firm Management Committee from 1988 to 1995.
Anthony Affuso, 55, has been President of EDS’ PLM Solutions line of business since its inception in September 2001. Prior to that time he had served as President and Chief
Executive Officer of EDS’ UGS subsidiary from July 2000 to September 2001, Vice President and later Executive Vice President of Products and Operations of UGS from January 1998 to July 2000, and Vice President of Software Development and
Marketing of UGS from March 1992 to December 1997.
Patricia Engels, 51, has been President of EDS’ BPM line of
business since October 2001. Before joining EDS, she served as President and Chief Executive Officer – Directory Operations for SBC Communications in St. Louis from May 2000 to October 2001. Prior to that time, Ms. Engels served in several
executive positions with Ameritech Corporation from 1995 to 2000, most recently as President – Consumer Services from November 1999 to May 2000, and in various capacities with United Airlines from 1981 to 1993, most recently as President and
Chief Executive Officer – Mileage Plus, Inc.
Douglas L. Frederick, 52, has been President of EDS’ Information
Solutions line of business since July 1999. Prior to joining EDS, he had served as Executive Vice President, Baan Customer Initiatives, of the Baan Company, a provider of enterprise business solutions, and Chairman and outside director of the Bain
Company, a software technology company, from April 1997 to July 1999. Mr. Frederick was employed by The Boeing Company from 1979 to March 1997, holding senior executive IT positions commencing in 1990.
8
John McCain, 42, has been President of EDS’ E Solutions line of business since August 1999. He served as President of the E
Solutions consulting group from May 1999 to July 1999. From December 1996 through April 1999, Mr. McCain was head of EDS’ CIO Services strategic business line, which delivered technology-based solutions, including Y2K services, around the
world. He served as Vice President of EDS’ Consumer Products business unit from August 1994 through November 1996. Mr. McCain joined EDS in 1986 in its marketing development program.
Dietmar Ostermann, 39, has been Chief Executive Officer of A.T. Kearney, our high-value management consultancy subsidiary, since December 2000. He had been designated managing
director of A.T. Kearney’s operations in Europe from May 2000 to December 2000, unit head for Central Europe from January 1999 to May 2000, managing director for Germany from July 1997 to January 1999, and practice leader of the firm’s
North American automotive practice from 1996 to July 1997. Mr. Ostermann joined A.T. Kearney in 1989. He is a citizen of Germany.
Troy W. Todd, 73, has been Executive Vice President – Leadership and Change Management of EDS since April 1999, with responsibility for the company’s corporate communications, employee administration, executive
compensation, and professional and technical development functions. Prior to joining EDS, he served in several senior management positions in the utilities and telecommunications industries, including Chief Executive Officer of Cable & Wireless
Panama Telephone Company from June 1997 to March 1999, general manager and Chief Executive Officer of the Orlando Utilities Commission from 1992 to 1995 and President and Chief Executive Officer of United Telephone Company of Florida from 1982 to
1992.
Executive officers serve at the discretion of our Board of Directors.
PART II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Common Stock is listed on the New York Stock Exchange
(the “NYSE”) under the symbol “EDS.” The table below shows the range of reported per share sales prices on the NYSE Composite Tape for the Common Stock for the periods indicated.
| Calendar Year
|
|
High
|
|
Low
|
| 2000 |
| First Quarter |
|
$ |
76.00 |
|
$ |
58.38 |
| Second Quarter |
|
|
73.25 |
|
|
38.67 |
| Third Quarter |
|
|
51.88 |
|
|
38.94 |
| Fourth Quarter |
|
|
60.00 |
|
|
39.44 |
| 2001 |
| First Quarter |
|
$ |
67.40 |
|
$ |
50.90 |
| Second Quarter |
|
|
66.35 |
|
|
51.94 |
| Third Quarter |
|
|
66.80 |
|
|
53.40 |
| Fourth Quarter |
|
|
72.35 |
|
|
55.20 |
The last reported sale price of the Common Stock on the NYSE on February 19, 2002
was $59.63 per share. As of that date, there were approximately 143,910 record holders of Common Stock.
EDS declared quarterly
dividends on the Common Stock at the rate of $0.15 per share for each quarter of 2000 and 2001.
9
ITEM 6. SELECTED FINANCIAL DATA
(in millions, except per share
amounts)
| |
|
As of and for the Years Ended December 31,
|
|
| |
|
2001
|
|
|
2000
|
|
|
1999
|
|
1998
|
|
1997
|
|
| Operating results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
21,543 |
|
|
$ |
19,227 |
|
|
$ |
18,732 |
|
$ |
17,243 |
|
$ |
15,370 |
|
| Cost of revenues |
|
|
17,438 |
|
|
|
15,631 |
|
|
|
15,368 |
|
|
14,290 |
|
|
12,298 |
|
| Selling, general and administrative |
|
|
1,880 |
|
|
|
1,776 |
|
|
|
1,853 |
|
|
1,838 |
|
|
1,528 |
|
| Acquired in-process R&D and other acquisition-related costs |
|
|
144 |
|
|
|
24 |
|
|
|
– |
|
|
– |
|
|
– |
|
| Restructuring and other charges |
|
|
(15 |
) |
|
|
(22 |
) |
|
|
1,038 |
|
|
48 |
|
|
330 |
|
| Other income (expense) |
|
|
103 |
|
|
|
(18 |
) |
|
|
185 |
|
|
67 |
|
|
(72 |
) |
| Provision for income taxes |
|
|
812 |
|
|
|
657 |
|
|
|
237 |
|
|
391 |
|
|
411 |
|
| Cumulative effect on prior years of a change in accounting for derivatives, net of income taxes |
|
|
(24 |
) |
|
|
– |
|
|
|
– |
|
|
– |
|
|
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
$ |
1,363 |
|
|
$ |
1,143 |
|
|
$ |
421 |
|
$ |
743 |
|
$ |
731 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Per share data |
| Basic earnings per share of common stock |
|
$ |
2.90 |
|
|
$ |
2.45 |
|
|
$ |
0.87 |
|
$ |
1.51 |
|
$ |
1.49 |
|
| Diluted earnings per share of common stock |
|
|
2.81 |
|
|
|
2.40 |
|
|
|
0.85 |
|
|
1.50 |
|
|
1.48 |
|
| Cash dividends per share of common stock |
|
|
0.60 |
|
|
|
0.60 |
|
|
|
0.60 |
|
|
0.60 |
|
|
0.60 |
|
| Financial position |
| Current assets |
|
$ |
7,374 |
|
|
$ |
6,159 |
|
|
$ |
5,877 |
|
$ |
5,633 |
|
$ |
5,169 |
|
| Property and equipment, net |
|
|
3,082 |
|
|
|
2,474 |
|
|
|
2,460 |
|
|
2,708 |
|
|
2,869 |
|
| Operating and other assets |
|
|
5,897 |
|
|
|
4,059 |
|
|
|
4,185 |
|
|
3,185 |
|
|
3,136 |
|
| Total assets |
|
|
16,353 |
|
|
|
12,692 |
|
|
|
12,522 |
|
|
11,526 |
|
|
11,174 |
|
| Current liabilities |
|
|
4,367 |
|
|
|
4,310 |
|
|
|
4,996 |
|
|
3,657 |
|
|
3,258 |
|
| Long-term debt, less current portion |
|
|
4,692 |
|
|
|
2,585 |
|
|
|
2,216 |
|
|
1,184 |
|
|
1,791 |
|
| Redeemable preferred stock of subsidiaries, minority interests and other long-term liabilities |
|
|
644 |
|
|
|
529 |
|
|
|
508 |
|
|
406 |
|
|
341 |
|
| Shareholders’ equity |
|
|
6,446 |
|
|
|
5,139 |
|
|
|
4,535 |
|
|
5,916 |
|
|
5,309 |
|
10
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
Electronic Data Systems Corporation, or
EDS, is a global services company providing strategy, implementation and hosting services and solutions for clients managing the business and technology complexities of the digital economy. Our end-to-end portfolio of services integrates our five
lines of business – Information Solutions, Business Process Management (“BPM”), E Solutions, A.T. Kearney and Product Lifecycle Management (“PLM”) Solutions – to help clients solve complex business issues and achieve
results using technology. This discussion refers to EDS and its consolidated subsidiaries.
Forward-Looking Statements
The statements in this discussion that are not historical statements are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding estimated revenues, operating margins, cash flows, capital expenditures, financing transactions, the impact of acquisitions, the adoption of
accounting standards and other forward-looking financial information. In addition, we have made in the past and may make in the future other written or oral forward-looking statements, including statements regarding future operating performance,
short- and long-term revenue and earnings growth, the timing of the revenue and earnings impact of new contracts, backlog, the value of new contract signings, business pipeline and industry growth rates and our performance relative thereto. Any
forward-looking statement may rely on a number of assumptions concerning future events and be subject to a number of uncertainties and other factors, many of which are outside our control, that could cause actual results to differ materially from
such statements. These include, but are not limited to, competition in the industries in which we conduct business and the impact of competition on pricing, revenues and margins; fluctuations in foreign currency rates; the financial performance of
current and future client contracts, including contracts with GM; with respect to client contracts accounted for under the percentage-of-completion method of accounting, the performance of such contracts in accordance with our cost and revenue
estimates; the impact of acquisitions and divestitures, including our ability to improve productivity and achieve synergies from acquired businesses; the degree to which third parties continue to outsource information technology and business
processes; and the cost of attracting and retaining highly skilled personnel. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as
may be required by law.
Acquisitions
On July 2, 2001, we acquired the airline infrastructure outsourcing business and internal information technology (“IT”) infrastructure assets of Sabre Holdings Corporation (“Sabre”) for $676
million in cash. Sabre’s airline infrastructure outsourcing business includes contracts with American Airlines, US Airways and other airline and transportation industry clients. The acquisition makes us the leading provider of global IT
infrastructure services to the airline industry and expands our presence in strategic infrastructure outsourcing.
On July 3,
2001, we acquired a controlling interest in Systematics AG, a German IT services company. The shares acquired on that date, together with shares previously purchased in a public tender offer and the shares acquired under a forward contract in
January 2002, represent approximately 98% of the outstanding Systematics shares. The aggregate purchase price for Systematics was $533 million comprised of $399 million in cash and $134 million in EDS stock (2.1 million common shares). Systematics
provides customer relationship management, enterprise resource planning, digital value chain and systems integration services. The acquisition doubles our presence in Germany, Europe’s largest IT services market, and deepens our penetration in
key industry segments such as finance, government, insurance and telecommunications.
On August 31, 2001, we acquired all of the
outstanding capital stock of Structural Dynamics Research Corporation (“SDRC”) for $840 million in cash, net of cash acquired. SDRC offers software and services in mechanical design, product data management and business integration. On
September 28, 2001, we acquired the 14% publicly held minority interest in our Unigraphics Solutions Inc. (“UGS”) subsidiary for $174 million in cash. We combined UGS and SDRC to create the PLM Solutions line of business to deliver
integrated technology and services supporting the entire lifecycle of a product. PLM Solutions creates the manufacturing industry’s only single source for fully serviced product lifecycle management solutions.
11
In connection with the acquisitions of SDRC and the minority interest in UGS, we recorded a $144 million pre-tax charge comprised of
acquired in-process research and development (“R&D”) totaling $86 million and other acquisition-related costs of $58 million associated primarily with certain UGS employee stock option transactions. At the respective dates of these
acquisitions, the in-process R&D projects had not yet reached technological feasibility and had no alternative future use if their development was not successfully completed. The development projects generally included enhancements and upgrades
to existing technology, enhanced communication among systems, introduction of new functionality and the development of new technology primarily for integration purposes. The SDRC development projects ranged from 50% to 80% complete and the UGS
development projects ranged from 20% to 60% complete at their respective acquisition dates. The value of the in-process R&D was calculated using a discounted cash flow analysis of the anticipated income stream of the related product sales. The
projected net cash flows were discounted using a weighted-average cost of capital (“WACC”) between 21% and 30% for the SDRC projects and between 27% and 39% for the UGS projects based upon an analysis of the WACC for publicly traded
companies within the software industry, the stage of completion of each of the projects, costs and complexity of the work completed to date and to be completed, and other risks associated with completing the development. The remaining costs to
complete the SDRC projects are anticipated to be approximately $51 million, and the projects will be released throughout 2002. The remaining costs to complete the UGS projects are anticipated to be approximately $47 million, and the projects will be
released throughout 2002. If these projects are not successfully developed, future revenues and profitability may be adversely affected, and the value of intangible assets acquired may become impaired.
On October 23, 2000, UGS acquired all of the outstanding stock of Engineering Animation, Inc. (“EAI”) for a purchase price of $178 million,
net of cash acquired. EAI is a leader in Internet-enabled visual process management, collaboration, analysis and communication solutions for extended manufacturing enterprises. The cost of EAI was allocated to tangible and identifiable intangible
assets acquired and liabilities assumed based on estimated fair values. Costs allocated to in-process R&D in the amount of $24 million were expensed upon acquisition. The value of the in-process R&D was calculated using a discounted cash
flow analysis of the anticipated income stream of the related product sales. The projected net cash flows were discounted using a WACC between 24% and 33% based upon an analysis of the completion of each of the projects, costs and complexity of the
work completed to date and to be completed, and other risks associated with completing the development. Management continues to believe that the original net cash flow projections for the development efforts are reasonable.
Results of Operations – Consolidated
Revenues. The following table displays revenues from contracts with our base (non-GM) clients and revenues from contracts with GM (dollars in millions):
| |
|
2001
|
|
|
2000
|
|
|
1999
|
|
| Revenues: |
| Base |
|
$ |
18,470 |
|
86 |
% |
|
$ |
15,857 |
|
82 |
% |
|
$ |
15,151 |
|
81 |
% |
| GM |
|
|
3,073 |
|
14 |
% |
|
|
3,370 |
|
18 |
% |
|
|
3,581 |
|
19 |
% |
| |
