Electronic Data Systems Corp.

founded: 1962

Contact Information:

headquarters: 5400 legacy dr.
plano, tx 75024-3199 phone: (972)604-6000 fax: (972)605-2643 toll free: (800)474-2323 email: [email protected] url: http://www.eds.com

OVERVIEW

Electronic Data Services is the leading provider of information technology (IT) services in the United States. Prior to April of 2002, EDS organized its business operations into five segments: Information Solutions, Business Process Management (BPM), E Solutions, A.T. Kearney, and Product Lifecycle Management (PLM) Solutions. Each business unit works in conjunction with eight Global Industry Groups: Communications, Energy, Financial, Government, Health Care, Manufacturing, Retail, and Transportation.

Information Solutions, the company's largest business unit, encompassed all activity related to traditional IT outsourcing. Businesses contract with EDS to provide such services as network and systems operations, data management, application development and maintenance, desktop management and field services, Internet hosting, and Web site management. BPM deliveries outsourcing services for business processes or functions that provides clients with seamless operations in the delivery, performance, quality, and cost thereby improving the clients' customers' satisfaction. E Solutions, the company's global solutions consulting business unit, provides innovative solutions for a wide variety of clients in the areas of enterprise consulting, digital enablement, and digital value chain. E Solutions provides expertise along the entire continuum of e-commerce to allow clients to benefit from the trends in the high tech economy.

In April of 2002, EDS organized these three business units into two: Operations Solutions and Solutions Consulting. Operation Solutions will provide the company's traditional IT outsourcing operations services along with its business process outsourcing, and Solutions Consulting will combine E Solution services with applications services.

A.T. Kerney, an EDS subsidiary since 1995, offers high-value management consulting services that include strategy and organization, operations and technology solutions, executive search services. Working in conjunction with other EDS business units, A.T. Kerney provides services to clients in an array of business segments, including automotive, consumer products and retail, communications, media and entertainment, financial institutions, health care and pharmaceuticals, aerospace and defense, and utilities. PLM Solutions, formed in 2001 from the merger of two recently acquired companies, provides integrated software and services to support the entire lifecycle of a product. Services focus on digital product design, simulation, manufacturing, and collaboration, which allow clients to reduce cost, increase innovation, and decrease the time from product concept to market delivery.

COMPANY FINANCES

In 2001 EDS posted a net income of $1.36 billion on revenues of $21.5 billion, compared to a net income of $1.14 billion on revenues of $19.2 billion in 2000. Of total revenues for 2001, Information Solutions accounted for $16.2 billion, BPM accounted for $3.0 billion, E Solutions accounted for $1.2 billion A.T. Kearney accounted for $1.2 billion, and PLM Solutions accounted for $738 million. Sales to General Motors totaled 14 percent of all revenues, compared to 18 percent and 19 percent of revenues in 2000 and 1999, respectively. Fifty-seven percent of revenues ($12.36 billion) were generated within the United States, and 16 percent ($3.36 billion) of sales were generated in the United Kingdom. The remaining 27 percent ($5.82 billion) of revenues were made in sales around the world. Compared to 2000, these totals reflect an increase in business in the United States and the United Kingdom of 1 percent and 4 percent, respectively, and a decrease in other worldwide sales of 3 percent. EDS' long term debt increased from $2.59 billion in 2000 to $4.54 billion at the end of 2001.

ANALYSTS' OPINIONS

Analysts express mixed opinions regarding EDS. After the company reported double-digit growth for the tenth consecutive quarter in the first quarter of 2002, analysts acknowledged that EDS was effectively increasing its contract bookings and outsourcing business. Other positives include the company's diversity in product offering, customer base, and geographical presence. However, analysts express concern regarding the declining contributions of General Motors, down year-over-year 10 percent, and a weak performance by A.T. Kerney, down year-over-year 8 percent. Some analysts also have questioned EDS' realignment from five business units into four, noting that the move would change financial reports so that previous results would not compare side-by-side with the new structure, thus making it possible to hide changes in growth rates. Other concerns expressed included the increasing level of competition within the IT industry, decreasing growth rate, 23 percent year-over-year decline in stock prices, and the resignation of three top executives in the first quarter of 2002.

FAST FACTS: About Electronic Data Systems Corp.

Ownership: Electronic Data Systems Corp. is a publicly owned company that trades on the New York and the London Stock Exchanges.

Ticker Symbol: EDS

Officers: Richard H. Brown, 54, Chmn. and CEO, 2001 base salary $1.5 million, 2001 bonus $7 million; Paul J. Chiapparone, 62, EVP, 2001 base salary $600,000, 2001 bonus $1.5 million; James E. Daley, 60, EVP and CFO, 2001 base salary $585,000, 2001 bonus $1.5 million; Troy W. Todd, EVP, 2001 base salary $465,000, 2001 bonus $1.2 million

Employees: 143,000

Principal Subsidiary Companies: EDS has businesses operating in numerous countries to provide services to customers outside of the United States. A.T. Kearney is a wholly owned subsidiary belonging to EDS.

Chief Competitors: The IT services industry is highly fragmented and very competitive. Among EDS' competitors are IBM, Perot Communications Systems, Cap Gemini Earnest & Young, Accenture, and Computer Science Corp.

HISTORY

EDS was founded by H. Ross Perot and incorporated in 1962. Perot, at the time a salesman for IBM, suggested that the company provide electronic data processing management services along with its computer sales. Basically, IBM would sell high tech equipment and then provide trained professional to operate it. When IBM rejected Perot's proposal, he left the company to form EDS.

Perot began his business by renting time on an IBM 7070 computer at Southwestern Life Insurance in Dallas, Texas. Paying wholesale prices, Perot turned a profit by reselling the time to Collins Radio at retail price. In 1963 Perot landed a data processing contract with Mercantile Security Life and a commercial facilities management contract with Frito Lay. Uncommon at the time, EDS offered long-term contracts of up to five years at a fixed price to install a system and provide trained EDS staff to operate it, which are gradually withdrawn as in-house employees learn the system.

During the 1960s EDS began providing outsourcing services to Medicare and Medicaid claims processing systems, which by 1968 accounted for a quarter of EDS' sales. In the same year the company entered another important market when it landed its first account with a financial institution, Dallas Bank. Later, EDS would become the worldwide leader in data processes services within the banking industry. During the late 1960s Perot took his company public and began organizing regional data centers.

The early 1970s provided EDS a roller coaster ride of success and failures. In the spring of 1971 EDS stocks were trading at $16.50 per share but suddenly soared to $160 a share before falling to $66 a share. By 1973 the company's stock prices had fallen to a record low of $15.00 a share. Nonetheless, the company continued to grow, posting revenues of over $100 million in 1974. In 1976 EDS landed its first international clients: King Abulaziz University in Saudi Arabia and the government of Iran, which agreed to a three-year contract valued at $41 million for computer services and training. However, Perot voided the contract with Iran in 1978 after the Iranian government failed to make payments for six months. When Perot ordered his employees to leave the country, two EDS workers were arrested but later released by a mob. Also during the late 1970s EDS began to extend its reach into new markets, including hospitals, small banks, small businesses, and the federal government.

In 1982 the U.S. Army signed a ten-year contract worth $656 million with EDS to computerize the Army's administrative system, now known as Army Standard Information Management Systems. Two years later General Motors purchased EDS, previously a publicly held corporation, for $2.8 billion, a record amount for a computer services firm. The automobile manufacturer wanted to use EDS to cut its $6 billion yearly expenditure for its data processing operations. Perot assumed a seat on the General Motors board of directors. In 1986 General Motors acquired Perot's remaining interest in EDS for $700 million, ending Perot's affiliation with EDS and General Motors. During the latter half of the 1980s the company underwent massive expansion, moving into the United Kingdom, China, Canada, Mexico, Brazil, Venezuela, Australia, New Zealand, France, Japan, and Germany. By 1988 EDS was operating in 27 countries. Although sales had tripled by 1985, after just one full year under General Motors' ownership, net income fell by over 5 percent. In 1986 employee numbers reached 40,000, nearly three times more than two years ago. Business markets were also expanded to include telecommunications and factory automation and expanded international markets in automobile manufacturing, electronics, and banks.

CHRONOLOGY: Key Dates for Electronic Data Systems Corp.

1962:

H. Ross Perot forms Electronic Data Systems Corp. (EDS)

1965:

Medicare and Medicaid legislation open opportunity for EDS to organize claims processing systems

1971:

Stocks jump from $16.50 a share to $160 a share before fall to $66 during the month of April

1973:

Stock prices hit a low of $15 per share

1978:

Two EDS employees are jailed and later released in Iran

1984:

General Motors purchases EDS for $2.8 billion

1986:

General Motors buys all remaining interest in EDS owned by Perot

1988:

Fortune names EDS the leading company in diversified services

1989:

EDS opens 153,000 square-foot Information Management Center in Plano, Texas

1995:

EDS purchases A.T. Kearney

1996:

General Motors spins off EDS, which again becomes a publicly owned company

1999:

EDS undergoes restructuring, including job cuts

2002:

EDS reorganizes five business units into four to focus on technology outsourcing services

EDS underwent several significant changes in 1989, including the opening of its new 153,000 square-foot Information Management Center in Plano, Texas, which with over 7,000 employees served as command central for over 20 domestic and international information processing centers. In the same year EDS launched its ongoing JASON project, a program that offers children nationwide the opportunity to explore science and nature live via "telepresence." In May of 1989 EDS joined Hitachi to form Hitachi Data Systems Corp. to market Hitachi computer products. The following month EDS combined its communications network with General Motors' network to create the largest privately owned digital telecommunications system.

By 1992 EDS had expanded its customer base so that General Motor accounted for only 41 percent of the company's $8.5 billion in annual revenues. In 1994 a merger with Sprint was considered by ultimately rejected by EDS. The following year EDS purchased consulting firm A.T. Kearney for $628 million, merging EDS' 1,600 consultants with A.T. Kearney's 1,900 to create one of the largest consulting operations in the world. On June 10, 1996 General Motors spun off EDS, which becomes a publicly held company trading on the New York Stock Exchange.

The late 1990s proved challenging for EDS. The company's stock prices floundered and new major contract signings were scarce, leading to major cost cutting measures and restructuring. Over 13,000 employees were released, and 48 business units were reorganized into just four. As a result of the changes, the company responded by entering the 2000s with $42 billion of contract-signings, including a $7 billion deal with the U.S. Navy and Marine Corp. to build and maintain its computer networks.

STRATEGY

When Dick Brown joined EDS as the chief executive officer in January of 1999, he came in with the reputation for overhauling companies. By 2002, Brown had laid off one-third of the sales force and cut annual costs by $2 billion. At the same time, EDS successfully landed $89 billion in multiyear contracts. Yet start up of new contracts cause a drain on cash flow so even though revenues were growing, net income increases were not proportional. To maintain across-the-board positive numbers, EDS must continue to secure new contract as it continues to carry out its commitments to its current customers.

To keep EDS growing, the company plans to build new partnership and acquire new business interests. On July 2, 2001, EDS purchased the airline infrastructure outsourcing business and internal IT operational assets of Sabre Holdings Corporation for $676 million, providing EDS with airline outsourcing contracts with American Airlines, US Airways, and other major airline industry clients. The day following the acquisition of Sabre, EDS purchased a controlling interest in Systematics AG, a German IT service organization, for cash and stock worth $533 million, doubling EDS' presence in German.

On August 31, 2002, EDS acquired all outstanding shares of Structural Dynamics Research Corp. for $840 million, followed by the acquisition of the publicly held shares of Unigraphics Solutions Inc. for $174 million. The two new additions were combined to form PLM Solutions, the manufacturing industry's only single source for complete service in product lifecycle management.

INFLUENCES

With General Motors' revenues remaining flat, sales to General Motors have steadily decreased as the automobile manufacturer curbs discretionary spending. Both General Motors and EDS' other clients have been negatively affected by a stagnant economy and foreign currency fluctuations during 2001, especially in the value of the dollar against the euro and the British pound. With over 40 percent of its revenues being generated by its international businesses, EDS is directly impacted by downturns in the world economy and changes in the exchange rate in multiple currencies.

CURRENT TRENDS

Although the terrorist attacks of September 11, 2001, devastated the economy and paralyzed consumer spending, the tragic events opened the door to a unique opportunity for EDS: an increasing demand for computer security. Since September 11, security-related inquiries rose 150 percent at EDS. With over one thousand experts in data encryption, computer forensics, and disaster planning and recovery on the payroll, EDS is positioned to respond to the increasing willingness of corporations to shell out big bucks to back up their systems and protect against cyberterrorism.

PRODUCTS

The Operation Solutions business unit offers services such as centralized systems management, including Web site hosting and data warehousing; distributed systems management, which provides end-to-end services in planning, deployment, and operation of a client's computer network; communication management, which defines, develops, and manages consistent voice, video, data, and other global communication services; financial process management, which includes credit card processing, ATM processing, mortgage and consumer loan processing, and other document management services; and administrative process management, which provides end-to-end services in a wide range of business processes including medical claims administration, electronic traffic enforcement, and alarm tracking.

Solution Consulting services include application services, offering application development and management; and enterprise consulting, which provides consulting services in technology, engineering and manufacturing. EDS' subsidiary A.T. Kearney provides strategy and organization consulting, operations consulting, technology consulting, and executive search services. The PLM Solutions business unit provides digital product development, collaborative product data management, and support services in systems integration.

CORPORATE CITIZENSHIP

EDS' JASON Project, debuted in 1989, is its longest standing contribution to education. The project offers hundreds of thousands of school children the opportunity to explore distant places and nature via telepresence. EDS also operates an Educational Outreach program that offers employees the opportunity to volunteer at schools as teachers, coaches, and mentors. EDS Technology Grants provide schoolteachers with funds to purchase computer equipment. Global Volunteer Day, held every October, gives thousands of EDS employees opportunities to contribute to their local communities. The EDS Foundation exists to provide funds to bridge the gap between wealthy and poor communities to work toward equal access to the digital technology available.

GLOBAL PRESENCE

Approximately 43 percent of EDS' 2001 revenues were generated outside the United States. EDS does business in more than 60 countries.

UNPLUGGED AND ON WHEELS

EDS, which promotes a creative and fun working environment, opened a new office facility in Troy, Michigan, in early 2002. The entire office has no private offices, and the conference room walls are made of glass. All of the furniture is on wheels, and all the computer equipment is wireless, creating unending possibilities for office arrangements. Everything from desks, chairs, filing cabinets, and black metal screens that serve as office dividers is moveable. There's a table filled with Legos, Play-Doh, and a sorcerer's cap; close by is a basketball net. During meetings in the conference rooms, employees write notes with a marker on the glass walls, and when the crowd get too big, all the furniture is pushed back to create a mini-auditorium. Not all EDS offices offer such flexibility and creative planning, but the office in Troy shows proof that the company values creativity, freedom to be innovative, and the ability break down traditional barriers.

EMPLOYMENT

EDS boasts of a work atmosphere of team spirit, freedom, and fun that fuels visionary thinking and innovative ideas. Career opportunities include the fields of systems engineering, technical delivery, customer business service, operations, communications, marketing, and sales.

SOURCES OF INFORMATION

Bibliography

bills, steve. "eds follows two downgrades with $1b package of deals." american banker, 1 april 2002.

"eds on enron path?" investment dealers' digest, 22 april 2002.

"eds promotes three senior executives, realigns business units for growth." eds company press release, 5 april 2002. available at http://www.eds.com.

"e.d.s. reorganizes to focus on technology consulting." the new york times, 6 april 2002.

"eds tests a remedy for enronitis." business week online, 19 february 2002. available at http://www.businessweek.com.

"electronic data systems corp.: leading companies reap savings 13 times greater than investment; in eprocurement, according to a.t. kearney study." market news publishing, 6 may 2002.

"electronic data systems corp.: procurement solutions tops $20 billion in total negotiated spend; has saved clients more than $3 billion." market news publishing, 17 may 2002.

gaither, chris. "e.d.s. cites lag in orders for decline in earnings." the new york times, 23 april 2002.

"meet the 'completely different eds.'" business week, 18 december 2000.

spagat, elliot. "eds says profit fell 21%, revenue will fall short." the wall street journal, 23 april 2002.

spagat, elliot. "electronic data's management shake-up realigns five business units into four." the wall street journal, 8 april 2002.

weinberg, neil. "scare tactics." forbes, 4 march 2002.

For an annual report:

on the internet at: http://www.eds.com

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. electronic data systems corp.'s primary sics are:

6719 holding companies, not elsewhere classified

7372 prepackaged software

7373 computer integrated systems design

7374 data processing services

7376 computer facilities management service

also investigate companies by their north american industry classification system codes, also known as naics codes. electronic data systems corp.'s primary naics codes are:

511210 software publishers

514210 data processing services

541512 computer systems design services

541513 computer facilities management services