ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES
 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)

 

	March 31,	December 31,
	2003	2002
ASSETS
Current assets
Cash and cash equivalents	$     1,549	$       1,642
Marketable securities	236	248
Accounts receivable and unbilled revenue, net	6,165	6,435
Prepaids and other	1,009	1,060
Total current assets	8,959	9,385
Property and equipment, net	2,942	3,023
Investments and other assets	936	986
Goodwill	4,162	4,077
Other intangible assets, net	1,401	1,409
Total assets	$   18,400	$     18,880
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$        629	$          710
Accrued liabilities	2,982	2,964
Deferred revenue	812	830
Income taxes	198	386
Current portion of long-term and secured revolving debt	1,202	1,239
Total current liabilities	5,823	6,129
Deferred income taxes	33	51
Pension benefit liability	1,113	1,113
Long-term debt, less current portion	4,039	4,148
Minority interests and other long-term liabilities	443	417
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value; authorized 200,000,000 shares; none issued	-	-
Common stock, $.01 par value; authorized 2,000,000,000 shares; 495,604,217     shares issued at March 31, 2003; 495,604,217 shares issued at December 31, 2002	5	5
Additional paid-in capital	860	901
Retained earnings	7,754	7,951
Accumulated other comprehensive loss	(609)	(689)
Treasury stock, at cost, 17,867,751 and 18,731,311 shares at March 31, 2003 and     December 31, 2002, respectively	(1,061)	(1,146)
Total shareholders' equity	6,949	7,022
Total liabilities and shareholders' equity	$   18,400	$     18,880

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

	Three Months Ended
	March 31,
	2003	2002
Cash Flows from Operating Activities
Net income (loss)	$          (126)	$           354
Adjustments to reconcile net income (loss) to net cash provided by operating      activities:
Depreciation and amortization	390	339
Deferred compensation	27	7
Other	5	(3)
Changes in operating assets and liabilities, net of effects of acquired companies:
Accounts receivable and unbilled revenue	295	(270)
Prepaids and other.	(47)	(238)
Accounts payable and accrued liabilities	(90)	(91)
Deferred revenue	60	15
Income taxes	(197)	108
Total adjustments	443	(133)
Net cash provided by operating activities	317	221
Cash Flows from Investing Activities
Proceeds from sales of marketable securities	13	7
Proceeds from investments and other assets	209	13
Payments for purchases of property and equipment.	(186)	(282)
Payments for investments and other assets	(164)	(45)
Payments related to acquisitions, net of cash acquired	(1)	(15)
Payments for purchases of software and other intangibles	(47)	(91)
Payments for purchases of marketable securities	(1)	(6)
Other	16	3
Net cash used in investing activities	(161)	(416)
Cash Flows from Financing Activities
Proceeds from long-term and secured revolving debt	23	6
Payments on long-term and secured revolving debt	(86)	(96)
Net decrease in borrowings with original maturities less than 90 days	(76)	(24)
Capital lease payments	(23)	(3)
Purchase of treasury shares	-	(20)
Employee stock transactions	10	49
Dividends paid	(71)	(72)
Other	(8)	1
Net cash used in financing activities	(231)	(159)
Effect of exchange rate changes on cash and cash equivalents	(18)	4
Net decrease in cash and cash equivalents	(93)	(350)
Cash and cash equivalents at beginning of period	1,642	521
Cash and cash equivalents at end of period	$        1,549	$           171

See accompanying notes to unaudited condensed consolidated financial statements.

 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1: BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of Electronic Data Systems Corporation ("EDS" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments, which are of a normal recurring nature and necessary for a fair presentation, have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. The information contained herein should be read in conjunction with the Company's 2002 Annual Report on Form 10‑K.

 

The unaudited condensed consolidated financial statements include the accounts of EDS and its controlled subsidiaries. The Company defines control as a non-shared, non-temporary ability to make decisions that enable it to guide the ongoing activities of a subsidiary and the ability to use that power to increase the benefits or limit the losses from the activities of that subsidiary. Subsidiaries in which other shareholders effectively participate in significant operating decisions through voting or contract rights are not considered controlled subsidiaries. The Company's investments in entities which it does not control, but has the ability to exercise significant influence over their operating and financial policies, are accounted for under the equity method.

 

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. Areas in which significant judgments and estimates are used include, but are not limited to, percentage-of-completion revenue recognition, projected cash flows associated with long-lived assets, liabilities associated with pensions, performance guarantees, loss contracts, litigation, and receivables collectibility.

 

The Company recognizes compensation cost associated with stock-based awards under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The difference between the quoted market price as of the date of the grant and the contract purchase price of shares is charged to operations over the vesting period. No compensation cost has been recognized for fixed stock options with exercise prices equal to the market price of the stock on the dates of grant and shares acquired by employees under the EDS Stock Purchase Plan or Nonqualified Stock Purchase Plan. Pro forma net income (loss) and earnings (loss) per share disclosures as if the Company recorded compensation expense based on the fair value for stock-based awards have been presented in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock Based Compensation - Transition and Disclosure, and are as follows for the three months ended March 31, 2003 and 2002 (in millions, except per share amounts):

 

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Certain reclassifications have been made to the 2002 unaudited condensed consolidated financial statements to conform to the 2003 presentation.

 

NOTE 2: EARNINGS (LOSS) PER SHARE

 

The weighted-average number of shares outstanding used to compute basic and diluted earnings (loss) per share are as follows for the three months ended March 31, 2003 and 2002 (in millions):

 

Securities that were outstanding but were not included in the computation of diluted earnings (loss) per share because their effect was antidilutive include options to purchase 94 million shares of common stock for the three months ended March 31, 2003, options and contracts to purchase 10 million shares of common stock for the three months ended March 31, 2002, eight million restricted stock units for the three months ended March 31, 2003 and debt and forward purchase contracts convertible into 36 million shares of common stock for the three months ended March 31, 2003 and 2002.

 

NOTE 3: REVENUE RECOGNITION

 

The Company provides services under time-and-material, unit-price and fixed-price contracts, which may extend up to 10 or more years. For time-and-material and certain unit-price and fixed-price contracts under which costs are generally incurred in proportion with contracted billing schedules, revenue is recognized when the client may be billed. For other unit-price and fixed-price contracts, revenue is recognized on the percentage-of-completion method, based on the percentage which incurred contract costs to date bear to total estimated contract costs after giving effect to the most recent estimates of total cost. Risks relating to service delivery, usage, productivity and other factors are considered in the estimation process. If sufficient risk exists, a zero-profit methodology is applied to a specific client contract's percentage-of-completion model whereby the amount of revenue recognized is limited to the amount of costs incurred until such time as the risks have been partially or wholly mitigated through performance. The effect of changes to total estimated contract revenue and costs, including changes resulting from the cessation of the use of the zero-profit methodology, is recognized in the period such changes are determined. Provisions for estimated losses on individual contracts are made in the period in which the loss first becomes apparent.

 

Unbilled revenue of $2,886 million and $3,033 million at March 31, 2003 and December 31, 2002, respectively, represents costs and related profits in excess of billings on certain unit-price and fixed-price contracts. Unbilled revenue was not billable at the balance sheet dates but is recoverable over the remaining life of the contract through billings made in accordance with contract terms. At March 31, 2003, unbilled

 

 

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revenue relating to contracts with U.S. federal, state and international government clients totaled $1.6 billion. Deferred revenue of $812 million and $830 million at March 31, 2003 and December 31, 2002, respectively, represents billings in excess of amounts earned on certain contracts.

 

Revenues from General Motors represented 11% and 13% of total revenues for the three months ended March 31, 2003 and 2002, respectively.

 

NOTE 4: PROPERTY AND EQUIPMENT, NET

 

Property and equipment is stated net of accumulated depreciation of $5.2 billion and $5.0 billion at March 31, 2003 and December 31, 2002, respectively. Depreciation expense for the three months ended March 31, 2003 and 2002 was $257 million and $228 million, respectively.

 

NOTE 5: INVESTMENTS AND OTHER ASSETS

 

The Company holds interests in various equipment financing leases, including a $62 million interest in a fiber optic equipment lease with a domestic subsidiary of MCI (formerly known as WorldCom), financed with non-recourse borrowings at lease inception accounted for as leveraged leases. The Company also has an equity interest totaling $143 million at March 31, 2003 in a partnership which holds leveraged aircraft lease investments. The Company accounts for its interest in the partnership under the equity method. At March 31, 2003, the partnership's remaining leveraged lease investments included investments with American Airlines, valued at $23 million, two other U.S. airlines and one international airline. The Company's ability to recover its remaining investment in the partnership is dependent upon the continued payment of rentals by the lessees. In the event such lessees are relieved from their obligation to pay such rentals as a result of bankruptcy, the investment in the partnership would likely be impaired.

 

NOTE 6: RESTRUCTURING ACTIVITIES AND OTHER CHARGES

 

The following table summarizes activity in restructuring accruals for the three months ended March 31, 2003 (in millions):

 

 

Restructuring actions contemplated under prior period restructuring plans are essentially complete as of March 31, 2003 with remaining reserves of $28 million being comprised primarily of future severance-related payments to terminated employees and future lease payments for exited facilities.

 

During the three months ended March 31, 2003, the Company recognized a one-time severance charge totaling $48 million related to the termination of employment of its former Chairman and Chief Executive Officer. The severance charge is comprised of a $12 million cash payment, a non-cash charge of $16 million associated with previously deferred compensation for 344,000 restricted stock units and retirement benefits with a present value of $20 million.

 

NOTE 7: COMPREHENSIVE INCOME (LOSS)

 

Comprehensive income (loss) for the three months ended March 31, 2003 and 2002 was $(46) million and $309 million, respectively. The difference between comprehensive income (loss) and net income (loss) for the three months ended March 31, 2003 and 2002 primarily resulted from foreign currency translation adjustments.

 

 

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NOTE 8: SEGMENT INFORMATION

 

Effective April 15, 2002, the Company combined elements of its former Information Solutions, Business Process Management and E Solutions lines of business into two new lines of business: Operations Solutions and Solutions Consulting. The Operations Solutions line of business integrates the IT outsourcing operations, including centralized and distributed systems and communications management, of Information Solutions with the business process outsourcing capabilities of Business Process Management. The Solutions Consulting line of business combines the capabilities of E Solutions with the applications services business of Information Solutions. A.T. Kearney and PLM Solutions remain separate lines of business. The accompanying segment information is stated in accordance with the new organizational structure. Prior period segment data has been restated to conform to the 2003 presentation.

 

The Company uses operating income (loss), which consists of segment revenues less segment costs and expenses, to measure segment profit or loss. Revenues and operating income (loss) of non-U.S. operations are measured using fixed currency exchange rates in all periods presented. The "all other" category includes differences between fixed and actual exchange rates and corporate expenses.

 

The following is a summary of certain financial information by reportable segment for the three months ended March 31, 2003 and 2002 (in millions):

 

NOTE 9: CHANGE IN ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

 

Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of the liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The majority of the Company's retirement obligations relate to leases which require the facilities be restored to original condition at the expiration of the leases. The adoption of SFAS No. 143 resulted in a reduction of income reported as a cumulative effect of a change in accounting principle of $25 million ($17 million after tax). Additionally, the fair value of the liability recorded on January 1, 2003 was $48 million. Changes in the liability from the date of adoption of SFAS No. 143 and the pro forma impact of adoption on prior periods were not material.

 

NOTE 10: COMMITMENTS AND CONTINGENCIES

 

In connection with certain service contracts, the Company may arrange a client supported financing transaction ("CSFT") with a client and an independent third-party financial institution or its designee, or a securitization transaction where the Company sells certain financial assets resulting from the related service contract. Under CSFT arrangements, the financial institution finances the purchase of certain IT-related assets and simultaneously leases those assets for use in connection with the service contract. Under the securitization transaction, the Company purchases capital assets and sells certain financial assets resulting from the related service contract to a trust ("Trust"). At March 31, 2003, the Trust was capitalized by external borrowings of $360 million and the Company's residual beneficial interest of $106 million. The facility used by the Trust for such borrowings is subject to annual renewal in August of each year and terminates in September 2005. The Company has no effective control over the activities of the Trust and it is legally isolated from the Company.

 

 

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In the CSFT and securitization transactions, all client contract payments are made directly to the financial institution or Trust providing the financing. Immediately after the predetermined monthly obligations of the financial institution or Trust providing the financing are met, the remaining portion of the customer payment is made available to the Company. If the client does not make the required payments under the service contract, under no circumstances does the Company have an ultimate obligation to acquire the underlying assets unless nonperformance under the service contract would permit its termination, or the Company fails to comply with certain customary terms under the financing agreements, including, for example, covenants the Company has undertaken regarding the use of the assets for their intended purpose. The Company considers the likelihood of its failure to comply with any of these terms to be remote.

 

The aggregate dollar value of assets purchased under these financing transactions was $187 million during the three months ended March 31, 2003. As of March 31, 2003, there was outstanding an aggregate of $677 million under CSFTs and $360 million of financial assets securitized by the Company yet to be paid by its clients. The Company believes it is in compliance with performance obligations under all service contracts for which there is a related CSFT or securitization financing transaction, and the ultimate liability, if any, incurred in connection with such financings will not have a material adverse effect on its consolidated results of operations or financial position.

 

Under a software subscription agreement representing $224 million of purchase commitments at March 31, 2003, if the Company's long-term debt is downgraded to below "BBB" by Standard & Poor's Rating Services ("S&P") or "Baa2" by Moody's Investor Services, Inc. ("Moody's"), and a waiver is not granted, the maturity of the remaining minimum purchase commitment will accelerate and become due immediately. As of March 31, 2003, the Company was in compliance with this requirement. In addition, the Company has $364 million outstanding under a $500 million revolving secured financing arrangement collateralized by trade receivables. In the event certain stated criteria are not complied with or a waiver is not granted, the facility may be terminated and amounts outstanding would be repaid through collection of the collateralized trade receivables. Events of termination under the facility include, but are not limited to, the Company's long-term debt rating falling below "BBB‑" by S&P or "Baa3" by Moody's, or events or collection trends materially negatively impacting the collateral.

 

The Company provides IT services to MCI, the majority of which are provided under an 11-year services agreement signed in October 1999. On July 21, 2002, MCI filed for protection under Chapter 11 of the United States Bankruptcy Code. Revenues from MCI represented approximately $610 million of the Company's 2002 annual revenues. Total receivables outstanding under such agreements, net of reserves, were approximately $80 million at March 31, 2003. The Company owns equipment and other assets having a net book value of approximately $65 million deployed for MCI IT services agreements, and approximately one percent of its employee base is dedicated to performing services thereunder. During the year ended December 31, 2002, the Company recorded net reserves and asset writedowns of $118 million as a result of the bankruptcy.

 

The Company has negotiated revised terms for such agreements which reflect changes in its service requirements, reductions to certain existing rates and settlement of pre-petition amounts owed to the Company. The revised agreements were submitted to the bankruptcy court for affirmation during the second quarter of 2003.

 

In a transaction unrelated to the IT services agreement referred to above, the Company entered into a fiber optic equipment leveraged lease with a subsidiary of MCI in 1988. The Company's unrecovered investment in the related equipment totaled $62 million at March 31, 2003. The equipment is currently being used by MCI, and they are making lease payments in accordance with contract schedules. However, MCI has the ability to reject its leveraged lease through its bankruptcy proceeding.

 

The Company provides IT services to US Airways through a long-term agreement. On August 11, 2002, US Airways filed for protection under Chapter 11 of the United States Bankruptcy Code. Due to uncertainties regarding the recoverability of pre-bankruptcy receivables associated with the US Airways contract, the Company recorded reserves totaling $74 million during the year ended December 31, 2002. The Company also recorded a writedown to its investment in a partnership totaling $35 million during the year ended December 31, 2002 due to uncertainties related to the recovery of that partnership's investment in leveraged leases with US Airways.

 

US Airways' plan of reorganization was confirmed and became effective on March 31, 2003. On that date, the Company entered into a new contract with US Airways to provide IT services which superseded the previous contract between the Company and the airline. The previous

 

 

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contract represented approximately $190 million of the Company's 2002 annual revenues. The new agreement, which has a term of 10 years, contains reduced services and pricing.

 

The Company provides end-to-end IT infrastructure on a "seat management basis" to the Department of the Navy (the "DON"), which includes the U.S. Navy and Marine Corps, under a contract that has been extended through September 2007 (the "NMCI Contract"). During the first quarter of 2003, the Company recognized a loss of $334 million on the NMCI Contract which resulted from a decline in the average seat price based on the types of seats ordered and expected to be ordered by the DON, as well as a reduced period of time in which to generate seat revenue due to deployment delays and associated incremental estimated operating costs. These factors were somewhat offset by improvements in the estimated number of total seats to be ordered by the DON and subcontractor costs. In addition to estimates regarding the timing of seat deployment and the amount to be billed per seat, the Company's current assessment of the NMCI Contract includes estimates of various factors. Any unfavorable changes in these factors, particularly as the result of significant further delays in the Company's taking responsibility for or the installation of seats, a decrease in billable revenue per seat or delays in seat deployment, would further negatively impact the financial performance of the contract during the quarter in which such event became probable and would result in the recognition of an additional loss, which could be material.

 

Some of the Company's client contracts require significant investment in the early stages which is recovered through billings over the life of the respective contracts. These contracts often involve the construction of new computer systems and communications networks and the development and deployment of new technologies. Substantial performance risk exists in each contract with these characteristics, and some or all elements of service delivery under these contracts are dependent upon successful completion of the development, construction and deployment phases. The Company is currently providing various IT services under a significant commercial client contract using such client's legacy IT systems while developing and deploying a new IT system dedicated to that client. The Company has invested assets of approximately $500 million at March 31, 2003 including receivables, prepaid expenses, equipment and software in this contract. This contract has experienced delays in its construction and deployment phases, and certain milestones have been missed. While the Company believes it can deliver the required systems and services and its investment in the contract will be recovered over its term, significant further delays in construction and deployment could result in an impairment of a large portion of the associated assets.

 

The Company's service contracts with clients contain rights and performance obligations of both parties. From time to time, the Company is required to take appropriate actions to enforce its rights under its client service contracts and ensure recoverability of associated assets. During the year ended December 31, 2002, the Company instituted appropriate legal action to ensure recoverability of approximately $56 million of net assets associated with a service contract terminated by the Company due to a default by the client. The Company believes the recovery of these assets is probable.

 

The Company and certain of its current and former officers are defendants in numerous purported shareholder class action suits filed from September through December 2002 in response to the Company's September 18, 2002 earnings pre-announcement, publicity about certain equity hedging transactions that it had entered into, and the drop in the price of EDS common stock. The cases allege violations of various federal securities laws and common law fraud based upon purported misstatements and/or omissions of material facts regarding the Company's financial condition. In addition, five purported class action suits were filed on behalf of participants in the EDS 401(k) Plan against the Company, certain of its current and former officers and, in some cases, its directors, alleging the defendants breached their fiduciary duties under the Employee Retirement Income Security Act and made misrepresentations to the class regarding the value of EDS shares. The Company's motions to centralize all of the foregoing cases in the United States District Court for the Eastern District of Texas have been granted. The Company intends to defend the action vigorously. As these matters are in the earliest stages, the Company is not able to determine the impact on its condensed consolidated financial statements.

 

In addition, there are three derivative complaints filed by shareholders in the District Court of Collin County, Texas against the Company's directors and certain current and former officers and naming EDS as a nominal defendant. The actions allege breach of fiduciary duties, abuse of control and gross mismanagement based upon purported misstatements and/or omissions of material facts regarding EDS' financial condition similar to those raised in the purported class actions described above. As of January 30, 2003 the foregoing cases were consolidated

 

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into a single action in the District Court of Collin County, Texas. As these matters are in the earliest stages, the Company is not able to determine the actual impact on its consolidated financial statements. These actions will be defended vigorously.

 

The SEC staff is conducting a formal investigation relating to the Company's purchase and settlement of forward contracts related to its common stock and information regarding events leading up to its third quarter 2002 earnings guidance announcement. Following the Company's announcement that it recognized a $334 million loss on the NMCI Contract in the first quarter of 2003, the SEC staff also requested certain documents related to that contract. The Company is in the process of responding to a subpoena and providing documents and information to the SEC staff and will continue to cooperate with the SEC staff in its investigation. The Company is unable to predict the outcome of the investigation or any action that the SEC might take.

 

In March 2003, representatives of two committees responsible for administering the EDS 401(k) Plan notified the Company of their demand for payment of amounts they believe are owing to plan participants under Section 12(a)(1) of the Securities Act of 1933 as a result of an alleged failure to register certain shares of common stock sold pursuant to the plan during a period of approximately one year ending on November 18, 2002.  Section 12(a)(1) imposes liability for offers and sales of securities made in violation of the registration requirements of the Securities Act.  The committee representatives have asserted that plan participants to whom shares were sold during the applicable period are entitled to receive a return of the amounts paid for the shares, plus interest and less any income received, upon tender of the shares to the Company.  The Company has not been able to reach agreement with representatives of the plan committees as to whether it is liable for rescission or, if so, as to the amount of the liability.  The Company believes it can assert arguments and defenses that could significantly reduce or eliminate any liability.  However, some of the legal principles involved in theses arguments and defenses are subject to significant uncertainties.  No legal proceedings have been commenced to date with respect to these claims, although the plan committees may take action that could lead to the filing of one or more lawsuits against the Company.  Any such lawsuits could be consolidated with the other securities and ERISA proceedings described above.

 

There are 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 claims and pending actions at March 31, 2003 was not determinable. However, in the opinion of management, the ultimate liability, if any, resulting from the aforementioned contingencies will not have a material adverse effect on the Company's consolidated results of operations or financial position.

 

NOTE 11: DISCONTINUED OPERATIONS

 

During 2002, the Company sold its Consumer Network Services ("CNS") unit and approved a plan to sell its subscription fulfillment business. The Company completed the sale of its subscription fulfillment business on April 15, 2003. The net results of CNS are included in discontinued operations in the unaudited condensed consolidated statement of operations for the three months ended March 31, 2002. The net results of the subscription fulfillment business are included in discontinued operations in the unaudited condensed consolidated statements of operations for the three months ended March 31, 2003 and 2002. Total assets and liabilities of the business at March 31, 2003 were not material. Following is a summary of income (loss) from discontinued operations for the three months ended March 31, 2003 and 2002 (in millions):

 

 

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NOTE 12: ACCOUNTING PRONOUNCEMENTS

 

In November 2002, the FASB's Emerging Issues Task Force ("EITF") reached a consensus on Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00‑21 governs how to identify whether goods or services or both that are to be delivered separately in a bundled sales arrangement should be accounted for separately. If EITF 00-21 were applicable to all of the Company's contracts, it would be required to apply its segmentation criteria which are different from those contained in existing contract accounting literature. Such application could result in more segmentation of multiple-element IT services arrangements into separate accounting units. The appropriate accounting literature for revenue recognition would then be applied to each unit.  The EITF is continuing discussion regarding the allocation of arrangement consideration to separate units of accounting. EITF 00-21 can be adopted prospectively on new contracts only or cumulatively for all contracts, and must be adopted no later