Case
Teaching Notes
Supplementary Resources
Abstract
The case briefly describes the history of Electronic Data Systems (EDS) under Ross Perot and GM before turning to the beginning of a tumultuous decade in the late 1990s. As the turn of the century approached, EDS made critical strategic missteps such as missing opportunities in the Internet space, overlooking the onset of client-server computing, and failing to obtain major Y2K-related projects. The company attempted a turnaround by replacing the CEO with Dick Brown, whose leadership helped streamline the sprawling company. Despite initial successes, Brown's tenure ultimately ended in failure, due largely to his failure to recognize the growing Indian market and his willingness to buy business at the expense of the company's margin. The disastrous multibillion-dollar Navy & Marine Corp Intranet contract typified the type of high-profile transactions that Brown pursued, often boosting EDS's stock price in the short term while eroding its cash flow short term and its profitability over the long term. EDS management went through several stages of the turnaround process: the blinded phase, the inactive phase, and the faulty action phase, until Michael Jordan replaced Brown as CEO and enacted a three-tiered operational, strategic, and financial turnaround.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
Resources
Exhibit 1: The Rise of the $1 Billion+ Mega-Deal in IT Outsourcing
Year | Vendor | Client | Estimated Value ($ in millions) | Term (years) |
1998 | IBM Global Services | General Electric | 1,500 | 10 |
1998 | EDS | Banca di Roma | 1,500 | 10 |
1997 | The Sabre Group | US Airways | 4,300 | 25 |
1997 | IBM Global Services | Telstra | 3,500 | N/A |
1997 | EDS | Bell South | 3,000 | 10 |
1997 | Ernst & Young | Shell International | 3,000 | 5 |
1997 | CSC/BDM | GSA | 3,000 | 5 |
1997 | EDS | Commonwealth Bank of Australia | 2,900 | 10 |
1997 | Lucent | Navy | 2,900 | 10 |
1997 | Ernst & Young | Farmland Industries | 2,100 | 15 |
1997 | Andersen Consulting and IBM | Ryder Systems | 1,400 | 10 |
1997 | Lockheed Martin | Federal Aviation Administration | 1,044 | 10 |
1997 | IBM Global Services | Monsanto | 1,000 | 10 |
1996 | IBM Global Services | Lucent | 6,200 | 10 |
1996 | CSC and Andersen Consulting | DuPont | 4,000 | 10 |
1996 | CSC, BDM, EDS | DEIS II | 3,000 | 5 |
1996 | Andersen Consulting, ATT, and CSC | JP Morgan & Co. | 2,000 | 7 |
1996 | CSC | CNA Financial Corporation | 2,000 | 10 |
1996 | IBM Global Services | Ameritech | 2,000 | 10 |
1996 | AT&T Solutions | Textron Inc. | 1,100 | 10 |
1996 | Logicon | National Insititute of Health | 1,000 | 5 |
1995 | Perot Systems | Swiss Bank | 6,250 | 25 |
1995 | EDS | BTI Americas, Inc. | 1,000 | 11 |
1995 | EDS | Dutch Railway | 1,000 | 10 |
1995 | EDS | UK Dept of SS | 1,000 | 10 |
1994 | EDS | Xerox | 3,200 | 10 |
1994 | AT&T Solutions | Delta Air Lines | 2,800 | 10 |
1994 | CSC | British Aerospace | 1,500 | 10 |
1994 | CSC | Hughes Aircraft Co. | 1,500 | 8 |
1994 | CSC | NASA | 1,045 | 8 |
1994 | MCI Systemhouse | Canada Post | 1,000 | 10 |
1993 | EDS | INLAND Revenue | 1,500 | 10 |
1993 | EDS | K.F. Sweden | 1,000 | 10 |
1993 | France Telecom | Euro Disneyland | 1,000 | 10 |
1992 | IBM Global Services | McDonnell Douglas | 3,000 | 10 |
1991 | CSC | General Dynamics | 3,000 | 10 |
1991 | EDS | System One/Continental | 2,100 | 10 |
Source: Salomon Smith Barney Research Note, June 16, 1998.
Exhibit 2: EDS Income Statement
| 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | 1996 | 1995 | 1994 | 1993 |
Net Sales or Revenues | 22,134 | 21,268 | 19,757 | 20,669 | 21,476 | 21,502 | 21,543 | 19,227 | 18,534 | 16,891 | 15,236 | 14,441 | 12,422 | 9,960 | 8,507 |
Operating Expenses | 20,846 | 20,437 | 19,103 | 20,009 | 20,845 | 19,633 | 19,318 | 17,406 | 17,023 | 15,776 | 13,692 | 13,360 | 10,893 | 8,717 | 7,396 |
Cost of Goods Sold | 17,495 | 17,242 | 15,828 | 16,686 | 16,414 | 16,301 | 15,956 | 14,199 | 13,735 | 12,545 | 10,956 | 10,776 | 8,494 | 6,788 | 5,769 |
Selling, General & Admin Expenses | 1,910 | 1,858 | 1,819 | 1,647 | 1,902 | 1,889 | 1,880 | 1,776 | 1,853 | 1,838 | 1,528 | 1,403 | 1,292 | 1,187 | 1,005 |
Depreciation, Depletion & Amortization | 1,441 | 1,337 | 1,456 | 1,676 | 2,529 | 1,443 | 1,482 | 1,431 | 1,436 | 1,394 | 1,209 | 1,181 | 1,108 | 741 | 621 |
Depreciation | 784 | 761 | 831 | 1,058 | 1,044 | 990 | 948 | 815 | 892 | 906 | 876 | 874 | 808 | 578 | 466 |
Amortization of Intangibles | 462 | 401 | 450 | 618 | 1,485 | 453 | 534 | 616 | 544 | 488 | 332 | 307 | 300 | 164 | 156 |
Amortization of Deferred Charges | 195 | 175 | 175 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Operating Income | 1,288 | 831 | 654 | 660 | 631 | 1,869 | 2,096 | 1,821 | 1,511 | 1,115 | 1,543 | 1,082 | 1,529 | 1,244 | 1,111 |
Extraordinary Credit - Pretax | 0 | 0 | 0 | 5 | 0 | 0 | 315 | 0 | 0 | 119 | 0 | 0 | 0 | 0 | 0 |
Extraordinary Charge - Pretax | 156 | 0 | 241 | 909 | 754 | 0 | 144 | 148 | 1,068 | 48 | 330 | 331 | 0 | 0 | 0 |
Non-Operating Interest Income | 182 | 162 | 214 | 104 | 0 | 0 | 35 | 94 | 335 | 80 | 104 | 77 | 59 | 92 | 55 |
Interest Expense On Debt | 225 | 239 | 241 | 321 | 301 | 258 | 247 | 210 | 150 | 131 | 176 | 153 | 121 | 53 | 40 |
Other Income/Expense - Net | 0 | 2 | 53 | 73 | 35 | 86 | 144 | 243 | 29 | 0 | 0 | 0 | 0 | 0 | 0 |
Pretax Income | 1,089 | 756 | 439 | 388 | 389 | 1,525 | 2,199 | 1,800 | 658 | 1,134 | 1,142 | 674 | 1,467 | 1,284 | 1,131 |
Income Taxes | 360 | 257 | 153 | 93 | 137 | 518 | 812 | 657 | 237 | 390 | 411 | 243 | 528 | 462 | 407 |
Current Domestic Income Tax | 145 | 113 | 140 | 373 | 59 | 88 | 153 | 466 | 478 | 450 | 276 | 346 | 346 | 312 | 147 |
Current Foreign Income Tax | 114 | 226 | 87 | 156 | 106 | 360 | 182 | 168 | 249 | 122 | 60 | 69 | 117 | 168 | 78 |
Deferred Domestic Income Tax | 37 | 125 | 262 | 26 | 421 | 416 | 437 | 8 | 323 | 191 | 63 | 95 | 45 | 16 | 161 |
Deferred Foreign Income Tax | 64 | 43 | 188 | 98 | 331 | 170 | 40 | 15 | 168 | 10 | 12 | 77 | 21 | 33 | 21 |
Net Income Before Extra Items/Preferred Div | 729 | 499 | 286 | 295 | 252 | 1,007 | 1,387 | 1,143 | 421 | 743 | 731 | 432 | 939 | 822 | 724 |
Extr Items & Gain(Loss) Sale of Assets | 13 | 29 | 422 | 748 | 1,446 | 109 | 24 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Net Income Before Preferred Dividends | 716 | 470 | 436 | 453 | 1,698 | 1,116 | 1,363 | 1,143 | 421 | 743 | 731 | 432 | 939 | 822 | 724 |
Net Income to Common Shareholders | 729 | 499 | 0 | 0 | 252 | 1,007 | 1,387 | 1,143 | 421 | 743 | 731 | 432 | 939 | 822 | 724 |
EPS Including Extraordinary Items | $1.35 | $0.89 | $0.28 | $0.32 | $3.55 | $2.28 | $2.81 | $2.40 | $0.85 | $1.50 | $1.48 | $0.89 | $0.00 | $1.71 | $1.51 |
EPS From Continuing Operations | $1.37 | $0.94 | $0.54 | $0.59 | $0.53 | $2.06 | $2.86 | $2.40 | $0.85 | $1.50 | $1.48 | $0.89 | $1.96 | $1.71 | $1.51 |
Dividend Per Share | $0.20 | $0.20 | $0.20 | $0.40 | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | $0.60 | $0.52 | $0.48 | $0.40 |
Common Shares Used to Calculate Diluted EPS (millions) | 542.0 | 529.0 | 526.0 | 501.0 | 479.0 | 489.0 | 484.0 | 476.4 | 498.0 | 495.5 | 493.9 | 487.2 | 483.7 | 481.7 | 480.9 |
Source: Thomson ONE access to EDS 10-K filings.
Exhibit 3: EDS Balance Sheet
| 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | 1996 | 1995 | 1994 | 1993 |
Assets | |||||||||||||||
Cash & ST Investments | 3,194 | 3,017 | 3,220 | 3,555 | 2,313 | 1,890 | 839 | 693 | 729 | 1,312 | 1,025 | 963 | 639 | 758 | 608 |
Cash | 3,139 | 2,972 | 1,899 | 2,102 | 2,197 | 1,642 | 521 | 393 | 537 | 1,039 | 677 | 880 | 549 | 608 | 383 |
Short Term Investments | 55 | 45 | 1,321 | 1,453 | 116 | 248 | 318 | 300 | 192 | 273 | 348 | 83 | 90 | 150 | 224 |
Receivables (Net) | 3,603 | 3,647 | 3,311 | 3,161 | 3,101 | 6,435 | 5,642 | 4,837 | 4,423 | 3,835 | 3,737 | 3,513 | 3,169 | 2,148 | 1,525 |
Inventories | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 37 | 101 | 142 | 181 | 138 | 131 |
Other Current Assets | 1,648 | 1,593 | 1,971 | 1,955 | 2,790 | 1,060 | 893 | 637 | 726 | 450 | 307 | 391 | 393 | 311 | 244 |
Total Current Assets | 8,445 | 8,257 | 8,502 | 8,671 | 8,204 | 9,385 | 7,374 | 6,167 | 5,878 | 5,633 | 5,169 | 5,008 | 4,382 | 3,354 | 2,507 |
Long Term Receivables | 73 | 47 | 49 | 51 | 70 | 0 | 0 | 0 | 0 | 0 | 0 | 34 | 90 | 158 | 118 |
Investment In Unconsolidated Subsidiaries | 51 | 72 | 113 | 149 | 166 | 8 | 311 | 227 | 523 | 627 | 472 | 652 | 603 | 357 | 250 |
Other Investments | 151 | 142 | 182 | 411 | 253 | 355 | 112 | 354 | 363 | 475 | 644 | 784 | 728 | 714 | 716 |
Property Plant & Equipment – Net | 2,489 | 2,179 | 1,967 | 2,181 | 2,818 | 3,023 | 3,082 | 2,474 | 2,460 | 2,314 | 3,141 | 3,395 | 3,602 | 3,171 | 2,532 |
Property Plant & Equipment - Gross | 7,198 | 6,564 | 6,729 | 7,288 | 8,320 | 8,068 | 7,667 | 6,790 | 6,706 | 7,871 | 7,905 | 8,000 | 7,528 | 6,314 | 5,312 |
Land | 60 | 89 | 86 | 118 | 116 | 117 | 115 | 131 | 139 | 136 | 136 | 135 | 137 | 125 | 122 |
Buildings | 1,759 | 1,460 | 1,599 | 1,792 | 1,991 | 1,854 | 1,627 | 1,260 | 1,232 | 1,147 | 1,063 | 1,007 | 925 | 879 | 815 |
Machinery & Equipment | 0 | 0 | 0 | 0 | 0 | 5,460 | 5,298 | 4,846 | 4,775 | 4,976 | 4,980 | 5,202 | 4,836 | 3,968 | 3,159 |
PP&E - Other | 449 | 429 | 424 | 440 | 600 | 637 | 627 | 553 | 560 | 1,612 | 1,727 | 1,657 | 1,630 | 1,342 | 1,217 |
(Less) Accumulated Depreciation | 4,709 | 4,385 | 4,762 | 5,107 | 5,502 | 5,045 | 4,585 | 4,315 | 4,246 | 5,556 | 4,764 | 4,605 | 3,926 | 3,143 | 2,780 |
Other Assets | 7,829 | 6,296 | 5,450 | 5,415 | 6,135 | 6,109 | 5,474 | 3,479 | 3,299 | 2,477 | 1,748 | 1,319 | 1,395 | 978 | 757 |
Deferred Charges | 1,549 | 899 | 710 | 767 | 1,190 | 318 | 234 | 210 | 338 | 475 | 329 | 0 | 0 | 0 | 0 |
Tangible Other Assets | 259 | 283 | 268 | 389 | 242 | 305 | 254 | 237 | 260 | 141 | 144 | 210 | 225 | 122 | 108 |
Intangible Other Assets | 6,021 | 5,114 | 4,472 | 4,259 | 4,703 | 5,486 | 4,986 | 3,031 | 2,701 | 1,861 | 1,275 | 1,109 | 1,170 | 856 | 649 |
Total Assets | 19,038 | 16,993 | 16,263 | 16,878 | 17,646 | 18,880 | 16,353 | 12,700 | 12,522 | 11,526 | 11,174 | 11,193 | 10,799 | 8,732 | 6,880 |
Liabilities | |||||||||||||||
Accounts Payable | 605 | 677 | 492 | 472 | 572 | 710 | 462 | 407 | 378 | 330 | 372 | 466 | 604 | 571 | 360 |
ST Debt & Current Portion of LT Debt | 168 | 127 | 314 | 658 | 2,275 | 1,239 | 36 | 13 | 494 | 48 | 110 | 133 | 248 | 203 | 173 |
Accrued Payroll | 851 | 815 | 694 | 565 | 800 | 622 | 1,318 | 1,139 | 1,081 | 850 | 662 | 313 | 291 | 196 | 287 |
Income Taxes Payable | 54 | 72 | 208 | 58 | 50 | 386 | 220 | 112 | 93 | 175 | 138 | 128 | 76 | 111 | 202 |
Other Current Liabilities | 3,238 | 3,543 | 3,340 | 3,536 | 3,873 | 3,172 | 2,331 | 2,648 | 2,950 | 2,255 | 1,976 | 2,123 | 2,042 | 1,791 | 1,139 |
Total Current Liabilities | 4,916 | 5,234 | 5,048 | 5,289 | 7,570 | 6,129 | 4,367 | 4,318 | 4,996 | 3,657 | 3,258 | 3,163 | 3,261 | 2,873 | 2,160 |
Long Term Debt | 3,209 | 2,965 | 2,939 | 3,168 | 3,488 | 4,148 | 4,692 | 2,586 | 2,216 | 1,184 | 1,791 | 2,324 | 1,853 | 1,021 | 523 |
LT Debt Excl Capital Leases | 3,209 | 2,965 | 2,939 | 3,168 | 3,488 | 4,148 | 4,692 | 2,586 | 2,216 | 1,184 | 1,791 | 2,324 | 1,853 | 1,021 | 523 |
Non-Convertible Debt | 2,519 | 2,275 | 2,249 | 2,478 | 2,798 | 1,773 | 3,910 | 2,586 | 2,216 | 1,184 | 1,791 | 2,324 | 1,853 | 1,021 | 523 |
Convertible Debt | 690 | 690 | 690 | 690 | 690 | 2,375 | 782 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Provision for Risks & Charges | 989 | 1,404 | 1,173 | 1,132 | 1,116 | 1,113 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Deferred Taxes | 186 | 961 | 0 | 866 | 970 | 51 | 204 | 129 | 268 | 363 | 475 | 429 | 740 | 660 | 642 |
Other Liabilities | 245 | 305 | 487 | 531 | 562 | 285 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Total Liabilities | 9,173 | 8,947 | 8,673 | 9,254 | 11,766 | 11,726 | 9,263 | 7,033 | 7,480 | 5,204 | 5,523 | 5,917 | 5,854 | 4,554 | 3,325 |
Shareholders' Equity | |||||||||||||||
Minority Interest | 174 | 150 | 78 | 184 | 166 | 132 | 644 | 354 | 333 | 227 | 166 | 53 | 0 | 0 | 0 |
Preferred Stock | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 175 | 175 | 179 | 175 | 440 | 0 | 0 | 0 |
Common Equity | 9,691 | 7,896 | 7,512 | 7,440 | 5,714 | 7,022 | 6,446 | 5,139 | 4,535 | 5,917 | 5,309 | 4,783 | 4,945 | 4,178 | 3,555 |
Common Stock | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 518 | 455 | 421 |
Capital Surplus | 3,097 | 2,973 | 2,682 | 2,433 | 917 | 901 | 962 | 949 | 972 | 958 | 856 | 683 | 0 | 0 | 0 |
Other Appropriated Reserves | 158 | 684 | 552 | 538 | 359 | 454 | 560 | 238 | 80 | 0 | 0 | 0 | 0 | 0 | 0 |
Retained Earnings | 6,158 | 5,630 | 5,371 | 5,492 | 5,812 | 7,951 | 7,122 | 6,042 | 5,179 | 5,050 | 4,602 | 4,201 | 4,561 | 3,873 | 3,282 |
Unrealized Foreign Exchange Gain(Loss) | 912 | 502 | 189 | 482 | 226 | 240 | 0 | 0 | 0 | 96 | 153 | 98 | 96 | 89 | 86 |
(Less) Treasury Stock | 639 | 530 | 179 | 431 | 889 | 1,146 | 1,083 | 1,619 | 1,542 | 0 | 0 | 7 | 33 | 55 | 62 |
Total Shareholders' Equity | 9,691 | 7,896 | 7,512 | 7,440 | 5,714 | 7,022 | 6,446 | 5,314 | 4,710 | 6,096 | 5,484 | 5,223 | 4,945 | 4,178 | 3,555 |
Total Liabilities & Shareholders' Equity | 19,038 | 16,993 | 16,263 | 16,878 | 17,646 | 18,880 | 16,353 | 12,700 | 12,522 | 11,526 | 11,174 | 11,193 | 10,799 | 8,732 | 6,880 |
Common Shares Outstanding (millions) | 509.9 | 508.5 | 523.3 | 515.3 | 480.6 | 476.9 | 477.3 | 465.3 | 466.2 | 493.1 | 491.6 | 487.2 | 483.7 | 481.7 | 480.9 |
Source: Thomson ONE access to EDS 10-K filings.
Exhibit 4: EDS Cash Flow Statement
| 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | 1996 | 1995 | 1994 | 1993 |
Operations | |||||||||||||||
Net Income | 729 | 499 | 286 | 0 | 0 | 1,007 | 1,387 | 1,143 | 421 | 743 | 731 | 432 | 939 | 822 | 724 |
Depreciation, Depletion & Amortization | 1,441 | 1,337 | 1,456 | 0 | 2,529 | 1,443 | 1,482 | 1,431 | 1,436 | 1,394 | 1,209 | 1,181 | 1,108 | 741 | 621 |
Depreciation & Depletion | 784 | 761 | 831 | 0 | 0 | 990 | 948 | 815 | 892 | 906 | 876 | 874 | 808 | 578 | 466 |
Amortization of Intangible Assets | 657 | 576 | 625 | 0 | 1,485 | 453 | 534 | 616 | 544 | 488 | 332 | 307 | 300 | 164 | 156 |
Deferred Income Taxes & Investment Tax Credit | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 22 | 50 |
Other Cash Flow | 224 | 214 | 260 | 0 | (37) | 142 | (175) | (44) | 20 | 31 | 391 | 632 | 92 | 31 | 0 |
Funds From Operations | 2,394 | 2,050 | 2,002 | 1,853 | 2,226 | 2,592 | 2,694 | 2,530 | 1,876 | 2,168 | 2,331 | 2,244 | 2,139 | 1,616 | 1,395 |
Funds From/For Other Operating Activities | (353) | (117) | (706) | (535) | (840) | (346) | (972) | (972) | 186 | (81) | (140) | (693) | (880) | (125) | (0) |
Decrease/(Increase) In Receivables | 327 | 51 | (310) | - | 440 | (679) | (882) | (411) | 21 | (129) | (210) | (374) | (839) | (534) | (256) |
Decrease/(Increase) In Inventories | 0 | 0 | 0 | - | - | 0 | 0 | 0 | - | - | 48 | (8) | (42) | (2) | (16) |
Increase/(Decrease) In Accounts Payable | (95) | 312 | (207) | - | 31 | 56 | (481) | (305) | 368 | 181 | 263 | 274 | (76) | 483 | 22 |
Increase/(Decrease) In Income Taxes Payable | 206 | (234) | (347) | - | (475) | 283 | - | (38) | (276) | (111) | 33 | (250) | 56 | (94) | 139 |
Decrease/(Increase) In Other Assets/Liabilities | (791) | (246) | 158 | - | (836) | (6) | 391 | (218) | 73 | (22) | (275) | (334) | 21 | 22 | 110 |
Net Cash Flow – Operating Activities | 2,041 | 1,933 | 1,296 | 1,318 | 1,386 | 2,246 | 1,722 | 1,559 | 2,062 | 2,088 | 2,190 | 1,552 | 1,259 | 1,491 | 1,395 |
Investing | |||||||||||||||
Capital Expenditures (Addition to Fixed Assets) | (725) | (729) | (718) | (666) | (703) | (973) | (1,285) | (768) | (685) | (980) | (902) | (1,266) | (1,354) | (1,218) | (918) |
Additions To Other Assets | (378) | (427) | (300) | (302) | (494) | (367) | (294) | (601) | (114) | 0 | 0 | 0 | 0 | 0 | 0 |
Net Assets From Acquisitions | (461) | (361) | (552) | (78) | (11) | (107) | (2,089) | (202) | (1,722) | (108) | (180) | (47) | (235) | (187) | (122) |
Increase In Investments | (4) | (1,608) | (1,338) | (3,078) | (1,111) | (195) | (259) | (142) | (270) | (561) | (635) | (324) | (457) | (770) | (605) |
Decrease In Investments | 120 | 3,008 | 1,904 | 3,298 | 1,348 | 277 | 295 | 320 | 690 | 406 | 346 | 264 | 251 | 689 | 596 |
Disposal of Fixed Assets | 28 | 49 | 178 | 0 | 224 | 301 | 26 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Other Use/(Source) – Investing | (34) | (35) | (29) | (28) | (25) | (67) | (18) | (145) | (227) | (466) | (123) | (102) | (13) | 0 | 0 |
Net Cash Flow – Investing | (1,386) | (33) | (797) | (798) | (700) | (997) | (3,588) | (1,247) | (1,874) | (779) | (1,248) | (1,271) | (1,782) | (1,486) | (1,050) |
Financing | |||||||||||||||
Net Proceeds From Sale/Issue of Com & Pref | 155 | 285 | 107 | 274 | 47 | 89 | 417 | 97 | 162 | 104 | 630 | 490 | 26 | 34 | 55 |
Com/Pfd Purchased | (391) | (667) | (0) | (0) | (0) | (380) | (0) | (332) | (1,836) | (93) | (688) | (0) | (0) | (0) | (0) |
Long Term Borrowings | 13 | 0 | 5 | 6 | 1,869 | 461 | 3,211 | 44,511 | 30,366 | 7,255 | 8,377 | 11,239 | 7,467 | 690 | 92 |
Reduction In Long Term Debt | (192) | (357) | (709) | (728) | (1,432) | (171) | (425) | (44,350) | (28,956) | (7,912) | (9,155) | (10,871) | (6,776) | (197) | (221) |
Increase/(Decrease) In Short Term Borrowings | 0 | 0 | 0 | 0 | (235) | 147 | (700) | 0 | 0 | 0 | 0 | 0 | 0 | (103) | (99) |
Cash Dividends Paid 0 Total | (102) | (104) | (105) | (200) | (287) | (287) | (283) | (280) | (291) | (295) | (294) | (291) | (251) | (231) | (192) |
Other Source (Use) – Financing | 13 | 9 | 21 | (15) | (33) | (25) | (156) | 2 | 0 | 0 | 0 | (500) | 0 | 1 | (5) |
Net Cash Flow – Financing | (504) | (834) | (681) | (663) | (71) | (166) | 2,064 | (352) | (554) | (941) | (1,130) | 66 | 465 | 194 | (370) |
Effect of Exchange Rate On Cash | 16 | 7 | 21 | 48 | 60 | 38 | 70 | 73 | 135 | 6 | 15 | 16 | 2 | 26 | 14 |
Increase/(Decrease) In Cash & Short Term Investments | 167 | 1,073 | 203 | 95 | 555 | 1,121 | 128 | 114 | 502 | 361 | 203 | 331 | 59 | 225 | 39 |
Note: EDS restated its 2003 and 2004 net income figures due to miscalculations arising from the NMCI contract, executive bonus payments, and improperly recognized revenue.
Source: Thomson ONE access to EDS 10-K filings.
Exhibit 5: EDS Stock Price Performance

Exhibit 6: GM Contract's Drag on Revenue Growth
Year | Estimated Base Rev. Growth (%) | Estimated GM Rev. Growth a (%) | GM Drag on Base Growth b (%) |
1998 | 20 | –11 | –8.8 |
1999 | 17 | –7 | –5.4 |
2000 | 15 | –7 | –4.2 |
2001 | 15 | –3 | –2.8 |
2002 | 15 | –2 | –2.3 |
2003 | 15 | –2 | –2.0 |
2004 | 15 | –2 | –1.8 |
2005 | 15 | –1 | –1.5 |
a. Assumes master service agreement revenues do not grow and EDS loses all revenues bid out under the MSA and that revenues are lost mid-year, on average.
b. Difference between base growth and total growth.
Source: Salomon Smith Barney Research Note, June 16, 1998.
Exhibit 7: EDS's Lagging BPO Penetration—Revenue by Service Category, 1997
Source: Salomon Smith Barney Research Note, June 16, 1998.

Exhibit 8: Stock Price Performance under Dick Brown with Mega-Deal Announcements
Source: Yahoo Finance.

Exhibit 9: EDS Divestitures under Jordan
Asset Sold | Year Closed | Amount ($ in millions) |
UGS PLM Solutions | 2004 | 2,005 |
Consumer Network Services | 2004 | 323 |
Credit Union Industry Group | 2004 | 218 |
Automotive Retail Group | 2004 | 85 |
US Wireless Clearing Business | 2004 | 58 |
Technology Solutions/Subscription Fulfillment | 2004 | 6 |
Soft Solutions | 2004 | 1 |
European Wireless Clearing Business | 2005 | 93 |
A.T. Kearney | 2006 | 52 |
Total (all cash) | 2,841 |
Source: EDS 10-K, 2006.
Exhibit 10: Rebound in New Contract Signings under Jordan ($ in billions)
Source: CSFB Equity Research Note, September 17, 2005.

Exhibit 11: EDS Company Timeline

This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved