ELECTRONIC DATA SYSTEMS CORP /DE/ - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

Commission File No. 01-11779

ELECTRONIC DATA SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State of incorporation)		75-2548221 (I.R.S. Employer Identification No.)
5400 Legacy Drive, Plano Texas (Address of principal executive offices)		75024-3199 (ZIP code)

(972) 604-6000

(Registrant's telephone number)

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 X No .

Indicate by check mark whether the registrant is an accelerated filer. Yes X No .

As of July 31, 2003, there were 479,607,920 outstanding shares of the registrant's Common Stock, $.01 par value per share.

INDEX

Page No.

Part I -

Financial Information (Unaudited)

Item 1.

Financial Statements

	Unaudited Condensed Consolidated Statements of Operations	3
	Unaudited Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.

Management's Discussion and Analysis of Financial Condition and Results

of Operations

Item 4.

Controls and Procedures

Part II -

Other Information

Item 1.

Legal Proceedings

Item 2.	Changes in Securities and Use of Proceeds	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
Item 6.	Exhibits and Reports on Form 8-K	33

Signatures

PART I

ITEM 1. FINANCIAL STATEMENTS

ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2003	2002	2003	2002

Revenues	$ 5,522	$ 5,395	$ 10,890	$ 10,661

Costs and expenses
Cost of revenues	4,737	4,416	9,694	8,638
Selling, general and administrative	464	452	931	905
Restructuring and other charges	43	-	91	-
Total costs and expenses	5,244	4,868	10,716	9,543

Operating income	278	527	174	1,118

Other income (expense)	(68)	(61)	(128)	(125)
Income from continuing operations before income taxes	210	466	46	993
Provision for income taxes	71	157	15	337
Income from continuing operations	139	309	31	656
Income (loss) from discontinued operations, net of income taxes	(1)	7	(2)	14
Income before cumulative effect of a change in accounting principle	138	316	29	670
Cumulative effect on prior years of a change in accounting for asset retirement obligations, net of income taxes	-	-	(17)	-
Net income	$ 138	$ 316	$ 12	$ 670

Basic earnings per share of common stock
Income from continuing operations	$ 0.29	$ 0.64	$ 0.06	$ 1.37
Income (loss) from discontinued operations	-	0.02	-	0.03
Cumulative effect on prior years of a change in accounting for asset retirement obligations	-	-	(0.03)	-
Net income	$ 0.29	$ 0.66	$ 0.03	$ 1.40
Diluted earnings per share of common stock
Income from continuing operations	$ 0.28	$ 0.63	$ 0.05	$ 1.33
Income (loss) from discontinued operations	-	0.01	-	0.03
Cumulative effect on prior years of a change in accounting for asset retirement obligations	-	-	(0.03)	-
Net income	$ 0.28	$ 0.64	$ 0.02	$ 1.36

Cash dividends per share	$ 0.15	$ 0.15	$ 0.30	$ 0.30

See accompanying notes to unaudited condensed consolidated financial statements.

ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)


	June 30,	December 31,
	2003	2002
ASSETS
Current assets
Cash and cash equivalents	$ 3,188	$ 1,642
Marketable securities	222	248
Accounts receivable and unbilled revenue, net	6,377	6,435
Prepaids and other	1,062	1,060
Total current assets	10,849	9,385


Property and equipment, net	2,870	3,023
Investments and other assets	936	986
Goodwill	4,302	4,077
Other intangible assets, net	1,353	1,409
Total assets	$ 20,310	$ 18,880

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$ 574	$ 710
Accrued liabilities	3,015	2,964
Deferred revenue	780	830
Income taxes	152	386
Current portion of long-term and secured revolving debt	1,315	1,239
Total current liabilities	5,836	6,129

Deferred income taxes	13	51
Pension benefit liability	1,176	1,113
Long-term debt, less current portion	5,671	4,148
Minority interests and other long-term liabilities	378	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 June 30, 2003 and December 31, 2002	5	5
Additional paid-in capital	831	901
Retained earnings	7,820	7,951
Accumulated other comprehensive loss	(415)	(689)
Treasury stock, at cost, 16,954,534 and 18,731,311 shares at June 30, 2003 and December 31, 2002, respectively	(1,005)	(1,146)
Total shareholders' equity	7,236	7,022
Total liabilities and shareholders' equity	$ 20,310	$ 18,880

See accompanying notes to unaudited condensed consolidated financial statements.

ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

	Six Months Ended
	June 30,
	2003	2002
Cash Flows from Operating Activities
Net income	$ 12	$ 670
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	795	689
Deferred compensation	40	29
Other	31	16
Changes in operating assets and liabilities, net of effects of acquired companies:
Accounts receivable and unbilled revenue	241	(525)
Prepaids and other	(82)	(244)
Accounts payable and accrued liabilities	(261)	(197)
Deferred revenue	(5)	176
Income taxes	(237)	145
Total adjustments	522	89
Net cash provided by operating activities	534	759

Cash Flows from Investing Activities
Proceeds from sales of marketable securities	29	16
Proceeds from investments and other assets	377	36
Proceeds from divested assets	6	-
Payments for purchases of property and equipment	(367)	(594)
Payments for investments and other assets	(268)	(65)
Payments related to acquisitions, net of cash acquired	15	(25)
Payments for purchases of software and other intangibles	(97)	(154)
Payments for purchases of marketable securities	(2)	(12)
Other	19	51
Net cash used in investing activities	(288)	(747)

Cash Flows from Financing Activities
Proceeds from long-term and secured revolving debt	1,790	21
Payments on long-term and secured revolving debt	(176)	(124)
Net decrease in borrowings with original maturities less than 90 days	(73)	(16)
Capital lease payments	(51)	(6)
Purchase of treasury shares	-	(63)
Employee stock transactions	23	74
Dividends paid	(143)	(145)
Other	(15)	(3)
Net cash provided by (used in) financing activities	1,355	(262)
Effect of exchange rate changes on cash and cash equivalents	(55)	4
Net increase (decrease) in cash and cash equivalents	1,546	(246)
Cash and cash equivalents at beginning of period	1,642	521
Cash and cash equivalents at end of period	$ 3,188	$ 275

See accompanying notes to unaudited condensed consolidated financial statements.

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 United States generally accepted accounting principles ("GAAP") 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 GAAP 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 and six months ended June 30, 2003 and 2002 (in millions, except per share amounts):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2003	2002	2003	2002
Net income (loss):
As reported	$ 138	$ 316	$ 12	$ 670
Stock-based employee compensation cost included in reported net income, net of related tax effects	13	22	40	29
Total stock-based employee compensation expense determined under fair value- based method for all awards, net of related tax effects	(55)	(86)	(130)	(144)
Pro forma	$ 96	$ 252	$ (78)	$ 555

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2003	2002	2003	2002
Basic earnings (loss) per share of common stock:
As reported	$ 0.29	$ 0.66	$ 0.03	$ 1.40
Pro forma	0.20	0.52	(0.16)	1.16