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, 2002



Commission File No. 01-11779



LOGO

ELECTRONIC DATA SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | 75-2548221                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer 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 Income Prides |  | New York, London 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. YesüNo .



Indicate by check mark whether the registrant is an accelerated filer. YesüNo .



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 June 30, 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 $17,844,000,000.



There were 477,162,671 shares of the registrants common stock outstanding as of January 31, 2003.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the Registrants Proxy Statement for the Annual Meeting of
Shareholders to be held on April 22, 2003 are incorporated by reference in Part III.





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PART I



|ITEM |  | 1.    BUSINESS
|---- |  | --------------



Overview



Electronic Data Systems Corporation (EDS) has been a leader in the global information technology (IT) services
industry for over 40 years. We provide the strategies, solutions, services and products to help our clients manage the business and technology complexities of the digital economy, bringing together the worlds best technologies and processes to
address our clients critical business imperatives. Our end-to-end portfolio of services integrates our four lines of business  Operations Solutions, Solutions Consulting, 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, Consumer Industries and Retail, Energy, Financial Services, Government, Health Care, Manufacturing and
Transportation  work with each of our lines of business and client executive teams to effectively position the company within our target markets.



As of December 31, 2002, we employed approximately 137,000 persons in the United States and approximately 60 countries around the world.
Our principal executive offices are located at 5400 Legacy Drive, Plano, Texas 75024, telephone number: (972) 604-6000.



Our predecessor was incorporated in Texas under the name Electronic Data Systems Corporation in 1962. In 1984, General Motors Corporation
(GM) acquired all of the capital stock of our predecessor and we remained a wholly-owned subsidiary of GM until our split-off in June 1996. As a result of the split-off, EDS became an independent, publicly-held Delaware corporation.
Unless the context otherwise requires, references to EDS include its predecessor and subsidiaries.



We make available free of charge on our Web site at www.EDS.com/investor our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the SEC). We also make available on our Web site
other reports filed with the SEC under the Securities Exchange Act of 1934, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act. We do not intend for information contained in our Web site to be
part of this Form 10-K.



Lines of Business



EDS operates through four lines of business:
Operations Solutions; Solutions Consulting; A.T. Kearney; and Product Lifecycle Management Solutions. Financial information relating to each of our lines of business is set forth in Note 11 to the consolidated financial statements contained in this
Report.



Operations Solutions



Operations Solutions, our largest line of business, manages
IT and business process solutions to help companies and governments around the world reduce complexity, create efficiencies and manage risk. Operations Solutions transforms core businesses and accelerates strategic agendas through a range of
capabilities backed by EDS global infrastructure and deep vertical industry expertise.



The Operations Solutions line of business was organized in April 2002 to combine the IT outsourcing operations, including centralized and distributed systems and communications management, of our
former Information Solutions line of business with the business process outsourcing capabilities of our former Business Process Management line of business.



Information Technology Outsourcing



Desktop Services.    EDS offers comprehensive, expert management of clients distributed IT environments
through remote monitoring and management, request management, on-site systems support and asset tracking. Desktop Services include:



| | · |  | End User Services.    Our customizable services manage the desktop environment for end-user communities with distinct user profiles,
devices, applications, work locations or collaboration needs. Offered through a Web portal with flexible pricing options, End User Services include messaging, digital learning, mobility and mail services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Field Services.    We offer on-site implementation and maintenance of desktop infrastructure, including hardware and software support,
install/move/add/change services and warranty management.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · |  | Helpdesk Services.    We provide users with a single point of contact for problem and service requests. These services enable direct
interaction between the desktop user and EDS technical support organizations, which leverage both human and technical resources.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Infrastructure Services.    We manage local area networks and shared systems to defined levels of performance, including server
management, network management, security management (including PKI, smart card and business continuity/disaster recovery options) and backup/restore services.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Technology Lifecycle Management.    EDS provides a suite of services that augment, support and increase the value and productivity of
end-user hardware and software. The services include planning and architecture, procurement, global reporting, model office services (to test designs before implementation), security management and business continuity/disaster recovery
services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Hosting Services.    We offer a continuum of fully managed, scalable, hosting services, including the
following:



| | · |  | Application Hosting.    EDS integrated solutions help clients with the implementation and hosting of their enterprise packaged
applications. Our scalable solutions include network connectivity, infrastructure, professional services and application administration.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Intelligent Storage.    EDS on-demand Liquid StorageSMoffering provides a secure, scalable solution that adapts to a clients changing information needs. Services include storage-related consulting and
implementation and management of storage devices and related software.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Mainframe Management.    Our flexible, customizable, large-scale data center hosting solutions include industry-proven standards for
security, delivery excellence and productivity improvements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Midrange Management.    We provide a flexible set of infrastructure hosting services for Internet and wireless applications as well as
traditional enterprise business applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Security and Privacy.    We deliver consulting, technology, training and managed solutions to ensure the privacy, integrity and continued
availability of critical information and processes. Our services and solutions include smart cards and biometrics, perimeter protection of logical systems, best practices in business continuity, security and privacy training and outsourced managed
security and privacy.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Web Hosting.    We offer a complete set of fully managed services, including Web Servers, Application Servers, Database Management,
Managed Network, Storage on Demand, Security, Back-up and Restore, Business Continuity and Disaster Recovery.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Communications Services



EDS Communications Services designs, builds, deploys and manages for clients seamless networks that integrate voice, video and data,
improve the effectiveness of data exchange in the supply chain and deliver secure connectivity and smooth operations over a wired or wireless platform. We offer clients a high-availability infrastructure for both wired and wireless platforms, a
comprehensive portfolio of voice, video and data capabilities and superior communications management services.



Business Process Outsourcing



Financial Process Management Services.    This service line offers a suite of solutions for the financial, business and government markets. EDS offers financial transaction
processing solutions, including credit card processing, digital payments processing and loan servicing, to banks, lending institutions and retailers. We offer a full continuum of mortgage and consumer lending services, from origination,
administration and servicing to collection and asset recovery. EDS solutions enable clients to save time, manage costs and increase payment and settlement speed and accuracy by leveraging and integrating technologies, automating manual processes and
strengthening customer interaction techniques.



Customer Relationship Management (CRM) Services.    Our CRM services enable clients to identify, acquire, service and retain their customers. Services include: contact center outsourcing services, offering
customer care, employee care, sales and marketing services, and technical product support through dedicated and leveraged customer contact centers around the world; supply chain logistics services, including product fulfillment, online retail
fulfillment, wireless logistics services and distribution services; warranty administration services for companies with large warranty claim processes, third party service channels and diverse supplier networks; and business intelligence services,
enabling clients to increase operational efficiencies and improve information utilization. EDS portfolio of CRM services also includes the offerings of our Solutions Consulting and A.T. Kearney lines of business described below.



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Administrative Process Management.    We provide Medicare and Medicaid claims processing to the U.S. federal and state governments helping them lower program costs while increasing efficiency and
performance. Our offerings include fiscal agent services; decision support services; fraud, waste and abuse protection services; integrated pharmacy services; Health Insurance Portability and Accountability Act (HIPAA) compliance services;
immunization registry and tracking services; and case management services. EDS also offers Internet-based enrollment and eligibility inquiry capabilities.



Enterprise Shared Services (ESS).We enable clients to control costs and integrate processes through
the following ESS offerings and enabling technologies: human resources services; finance and accounting services; and procurement outsourcing services.



Solutions Consulting



The Solutions Consulting line of business, which was organized in April 2002, combines the global solutions consulting capabilities of our
former E Solutions line of business with the applications services business of our former Information Solutions line of business. Solutions Consulting encompasses a continuum of innovative and scalable solutions from enterprise strategy through
application design, development and deployment. Our services encompass the management and deployment of disciplines, competencies and capabilities within the following areas: Applications Services, Applied Value Chain Services, Business Process
Innovation Services and Business Acceleration Services.



Applications Services



EDS Applications Services helps organizations plan, develop, integrate and manage custom applications, packaged software and industry-specific solutions. We offer applications development and management services on an outsourced or
out-tasked basis. 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 can include reduced costs,
extended value of technology investments, information sharing and enhanced ability to adapt to market changes. Our Applications Services include the following:



| | · |  | Application Development and Support.    We create new applications, providing full lifecycle support through delivery. We define the
application requirements, analyze application characteristics, implement to a production environment and monitor performance for a warranted time.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Application Selective Outsourcing.    We offer full support for either specific applications or an entire application portfolio. An expert
EDS team assesses the specified applications, plans the transition and provides ongoing management to improve the clients productivity and operating efficiency.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Enterprise Application Management.    We provide ongoing remote support of enterprise resource planning (ERP) software such as
SAP®, Oracle®and PeopleSoft®. We offer a full range of managed services, including functional help desk, program
management, software vendor fixes, minor enhancements and extensions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Applications Services are supplemented by our industry-specific applications for the communications, financial, health care and transportation industries as well as for government clients.



Applied Value Chain Services



EDS Applied Value Chain Services engineers and integrates
technology-enabled business solutions to optimize clients processes and help them achieve rapid business results. Through competencies in solutions engineering, enterprise modeling and business intelligence, and expertise in enterprise
software solutions such as SAP®, Oracle®, PeopleSoft®and other commercially available application software, we can
create efficiencies and improve performance. Our capabilities are organized into the following five practice areas:



| | · |  | Customer Relationship Management Services.    Our services help clients create collaborative, client-centric organizations. We provide
assessments, design and architecture, and implementation of CRM solutions to manage the customer experience.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Enterprise Resource Management Services.    Our services help clients assess and optimize their core enterprise business processes and
applications globally in both shared and dedicated environments. Services include solutions engineering, enterprise modeling, real-time automation, business intelligence and enterprise-software expertise, including SAP®, Oracle®and PeopleSoft®.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · |  | Engineering and Manufacturing Services.    Our services help clients remove inefficiencies, transcend disparate systems and master growth
and complexity in their product lifecycle. As a result, clients can move ideas and products to market faster, reduce product lifecycle costs and improve product design.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Supply Chain Management Services.    We assist clients in the creation of efficient extended supply chains that are responsive to dynamic
markets, bring new products to clients faster and improve operational effectiveness. Our solutions combine leading practices and technologies such as e-business portals, key performance indicators, business intelligence, integration, advanced
planning and scheduling, ERP, e-engineering and electronic business networks.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Industry Products.    Services include a full range of consulting, planning, implementation and optimization to support adapting and
deploying industry-specific solutions to meet our clients needs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Business Process Innovation Services



Business Process Innovation Services help clients achieve their business objectives by redesigning and transforming their people, process and performance measurement systems to effectively support
their business strategies. We create operational efficiencies and enhance how our clients deliver products and services to their clients and throughout their enterprise. Services include quickly identifying opportunities for the greatest impact,
developing a business case for change, implementing industry-specific best practices and developing a phased change implementation plan. Our competencies are organized into the following practice areas:



| | · |  | Business Process Alignment.    Our services align our clients business to common objectives, processes, technologies and tools so
that the full power of their enterprise is behind achieving their business objectives and satisfying their clients. Common deliverables include process designs, flows, simulations, best-practices analyses, organizational design/redesign options,
opportunity reports and transition plans and schedules.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Performance and Value Management.    Our services create performance and value management systems and tools that empower leaders to
measure success against strategic goals, manage day-to-day operations and quickly identify and address emerging issues by having access to accurate and timely information. Our services include identifying appropriate performance metrics and the
associated data sources, building measurement tools and dashboards and analyzing results.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Change Management.    Our services assess and transform organizational structures and roles to support new ways of doing business. We help
clients plan for change, align leadership support and empower employees through communication and training to have the skills and knowledge to perform effectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Learning Solutions.    Our solutions help clients build and retain a competitive workforce. We work with clients to develop learning
strategies, offer custom and catalog curriculums and create manuals and job aids. Delivery platforms include the Web, mobile devices, broadcast and portal options.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Business Acceleration Services



Our Business Acceleration Services portfolio optimizes business processes and delivers solutions that enable
clients to quickly realize business value, generate savings and minimize implementation risk. We apply proven and emerging technologies through the following service practices:



| | · |  | EAI.Web Services.    By integrating disparate systems, we offer clients greater access to information, systems and tools within their
enterprise or among other members of their trading community. Our capabilities include integration assessment, application-to-application and business-to-business integration, building of portals and dashboards and workflow integration.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Portals and Dashboards.    Provides clients with immediate, aggregated information in a personalized view. We focus on implementing
secure, Web-based solutions that provide a single point of access to information, applications and services. This practice combines functions from many IT disciplines, including business intelligence, document management and Intranet site
development.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Collaboration Services.    Enables clients to share and coordinate data with employees, customers, suppliers and partners, build digital
communities and exchange information within applications, among enterprises and across business relationships. We optimize collaboration and improve related business processes through the deployment of leading messaging and collaboration
technologies.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · |  | Web Application Development.    Allows clients to significantly reduce IT costs and create more responsive and effective organizations by
seamlessly connecting information, people, systems and devices. We offer a range of services using both Microsoft®and Java®2 Enterprise Edition (J2EE) platforms as well as the
advantages of certified developers, proven architectural frameworks and best practice software development methodologies.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Web Content Management.    We design and deploy innovative Web content management solutions to help clients manage digital contents to
deliver a personalized Web experience, enable collaboration and promote re-use.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Mobile Applications.    Enables clients to extend information sharing to an increasingly remote work force. Our offerings include Mobile
Workplace, an integrated service platform providing mobile employees real-time interactive access to workplace applications, and Mobile e-mail and Collaboration, extending e-mail access to mobile employees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Microsoft Enterprise Services.    We build and deliver innovative solutions that leverage Microsoft platforms, products and tools, with
emphasis on developer tools, server software, client software and end user applications.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A.T. Kearney



A.T. Kearney, a leading global management consultancy, became a subsidiary of EDS in 1995. The firm provides clients with management consulting services, including strategy and organization consulting and operations and
business technology 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 travel;
utilities; and government. The firm works in collaboration with other EDS lines of business. Services provided by A.T. Kearney include the following:



| | · |  | 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) and Marketing
Strategy.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Operations Consulting.    Clients turn to A.T. Kearney for proven expertise and strategies 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Enterprise Services Transformation.    This practice leverages A.T. Kearneys significant expertise in Corporate Center Strategy and
Organization Effectiveness to meet clients operational diagnostic, planning and high-level design requirements. Offerings include outsourcing of clients human resources; finance and accounting; and customer service processes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | A.T. Kearney Executive Search.    Offers specialty practice teams in most industries and virtually every functional discipline.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



Product Lifecycle Management Solutions



EDS Product Lifecycle Management
(PLM) Solutions is a market leader in PLM software and related services. PLM Solutions enables all of the participants involved in a companys product lifecycle to work in concert to bring products to market and support its customer
base by combining the capabilities and advantages of digital product design, simulation, manufacturing and collaboration technologies in unified software solutions that maximize the business value of the entire product lifecycle. EDS PLM Solutions
enables companies to marshal the skills, expertise, knowledge and experience of their entire extended enterprises and apply them to every major stage in their product lifecycle to achieve competitive excellence.



The PLM Solutions line of business 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 we completed the acquisition of a minority interest in
UGS that had been held by the public in September 2001.



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PLM
Solutions products are offered on an out-of-the-box, industry-specific or individual company basis. Our product suite includes:



| | · |  | Mechanical Design Automation Software.    PLM Solutions Unigraphics®NX software and I-deassoftware feature knowledge-based capabilities for complex product development, simulation, and manufacture.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Mid-level Mechanical Design Automation Software.    PLM Solutions Solid Edge®software provides built-in product data management for product design.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Collaborative Product Lifecycle Management Software.    PLM Solutions Teamcenter®software offers a
complete, scalable suite to capture, manage, visualize, and leverage diverse product information and intellectual capital throughout all stages of the product lifecycle.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Digital Manufacturing Software.    PLM Solutions E-factorysoftware enables optimization of factory layouts, work cell design, material handling, product safety, and ergonomics.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We support our products through ExperteamSM, which provides PLM best practice methodologies, implementation services and expertise for substantive and accelerated
technology benefit, and Open Tools, which includes universally accessible data repositories, CAD-neutral 2D and 3D visualization and an open standards-based web-native architecture for easy and error-free data and knowledge exchange among companies.



Approximately 34,500 clients use EDS PLM
Solutions products and services. PLM Solutions products generate a substantial component of the worlds 3D product definition data and are utilized in diverse industries including aerospace, automotive, hi-tech and machine tool. In
2002, we expanded to serve new markets such as retail, pharmaceutical and consumer products.



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 management
consulting business to up to 10 or more 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 45% of our 2002 revenues were generated outside the United States.



Certain IT outsourcing agreements, principally
in our Operations Solutions line of business, contain third-party benchmarking provisions which generally permit contractual rates to be compared to a range of market rates for comparable services on a periodic basis over the term of the agreement.
We refer you to the Results of Operations  Consolidated section of Managements Discussion and Analysis of Financial Condition and Results of Operations for a discussion of these provisions.



Approximately $3.0 billion of our 2002 revenues were
attributable to the U.S. federal government, including our Navy Marine Corps Intranet contract described under Managements Discussion and Analysis of Financial Condition and Results of Operations  Financial Position.
Contracts with the U.S. federal government are subject to various attributes that differ from other commercial contracts, including modifications in scope of work due to changing customer requirements, annual funding constraints of the federal
government and the indefinite delivery/indefinite quantity characteristics of certain federal government contracts.



Acquisitions, Investments and Strategic Alliances



From time to time EDS has made acquisitions in an effort to obtain a competitive advantage or a new or expanded presence in targeted
geographic or service markets. Acquisitions may continue to be an element of our ongoing strategy. In 2000, we created a venture fund to facilitate certain strategic technology investments. While we may continue to make strategic technology
investments from time to time in the ordinary course of our business, we have discontinued future investments through this venture fund.



From time to time we enter into strategic alliances that allow us to develop and enhance our offerings with the core competencies of world
class partners, including EMC, Microsoft and Sun Microsystems. These alliance relationships can play an integral role in developing solutions to our clients business and technology challenges. However, we remain vendor independent
and continue to maintain multiple technology practices and platforms to enable us and our clients to select the right vendor for specific needs.



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Competition



The IT services market remains fragmented
and highly competitive. We experience significant competition in all four of our lines of business. Our Operations Solutions line of business faces competition from companies providing IT outsourcing and business process outsourcing solutions. The
principal competitors of our Operations Solutions line of business are International Business Machines Global Services (IBM GS), Computer Sciences Corporation (CSC), Fujitsu Services, Hewlett-Packard Services, First
Data Corp., Automatic Data Processing, Inc., Affiliated Computer Services Inc., Accenture Ltd, and Convergys Corporation. Our Solutions Consulting line of business competes with IBM GS (including its consulting business formerly operated by
PricewaterhouseCoopers), Accenture Ltd, Cap Gemini Ernst & Young, CSC, Bearing Point, Inc. and Deloitte Consulting (which is changing its name to Braxton). In addition to these competitors, we increasingly see competition from niche offshore
providers, primarily India-based competitors. The management consulting space, in which our A.T. Kearney line of business is positioned, competes against McKinsey & Company, Bain & Company, Booz Allen & Hamilton, Boston Consulting Group,
Accenture Ltd and Deloitte Consulting. The principal competitors of our PLM Solutions line of business include Parametric Technology Corporation, Dassault Systemes, Matrix One, Inc., SAP AG and Autodesk, Inc. In addition, all four of our lines of
business experience competition from numerous smaller, niche-oriented and regionalized IT services providers.



Technology and its application within the business enterprise are 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 develop and market offerings that meet changing user needs and respond to technological changes on a timely and cost-effective basis.



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.



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 12% of our total revenues in
2002 was attributable to GM and its affiliates. We are the primary provider of data processing and other IT 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.



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Immediately
prior to our split-off from GM in 1996, we entered into a 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 $2.1 billion of the $2.6 billion of our GM revenues in 2002. The remainder was attributable to goods and services provided outside the scope
of the MSA.



The term of the MSA will continue
until June 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, 2002, we operated approximately 371 locations in 44 states and 222 cities in the United States and 587 locations in 201
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 25.6 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 (with certain fixed price purchase options during and at
the end of the initial term), we own all buildings and real estate comprising the Plano campus.



We operate 16 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. SMCs principally support the IT outsourcing operations of our Operations Solutions line of business. In addition, we operate approximately 90 Solution Centres in locations throughout the world from which our staff provides applications
services for our Solutions Consulting line of business. We also 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 clients with
more specialized requirements than those supported at the large scale, multiple customer SMCs or our Solution Centres. Our leased properties consist primarily of office, warehouse, Solutions Centre, SDC and non-U.S. SMC facilities. Lease terms are
generally five years or, for leases related to a specific client contract, generally 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 client locations throughout the world. Such space is generally occupied pursuant to the terms of the relevant client 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.



|ITEM |  | 3.    LEGAL PROCEEDINGS
|---- |  | -----------------------



We and certain of our officers are defendants in numerous purported shareholder class action suits filed from September through December
2002 in response to our September 18, 2002 earnings pre-announcement, publicity about certain equity hedging transactions that we 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 our financial condition. In addition, five purported class action suits have been filed on behalf of participants in the EDS 401(k)
Plan against us, certain of our current and former officers and, in some cases, our 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. We have filed a motion to consolidate all of the foregoing cases into a single action in the United States District Court for the Eastern District of Texas, Sherman Division, and intend to defend the action
vigorously. As these matters are in the earliest stages, we are not able to determine the actual impact on our consolidated financial statements; however, we do not expect the impact to be material.



In addition, there are three derivative complaints filed by
shareholders in the District Court of Collin County, Texas against our directors and certain 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 these matters are in the earliest stages, we are not able to determine the actual
impact on our consolidated financial statements; however, we do not expect the impact to be material. These actions will be defended vigorously.



9



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The SEC staff
is conducting a formal investigation relating to our purchase and settlement of forward contracts related to our common stock and information regarding events leading up to our third quarter 2002 earnings guidance announcement. We are 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. We are unable to predict the outcome of the inquiry or any action that the SEC might take.



From time to time we are involved in various
other litigation matters arising in the ordinary course of our business. We do not believe that disposition of any such 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 15, 2003:



Richard H. Brown,55, 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 H&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.



Anthony Affuso, 56, 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.



James E. Daley,61, has been Executive Vice President of Client Solutions, Global Sales and Marketing of EDS since February 2003. He has oversight responsibility for our sales, marketing,
communications, service excellence, client solutions, alliances, chief client executive officer, global industry solutions and enterprise information technology functions. Mr. Daley served as Executive Vice President and Chief Financial Officer of
EDS from March 1999 to February 2003. 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.



Paulett Eberhart, 49, has been President
of EDS Solutions Consulting line of business since April 2002. She was responsible for the U.S. operations of our Information Solutions line of business from January to April 2002 and its U.S.  Southwest operations from October 1999 to
January 2002. From August 1998 to October 1999 Ms. Eberhart was a Senior Vice President of EDS with responsibility for sections of our financial organization, including serving as acting chief financial officer prior to March 1999. Prior to that
time, she had served as Controller since 1992 and Vice President since 1994. Ms. Eberhart joined EDS in 1978 and has served in numerous financial and leadership positions.



Douglas L. Frederick, 53, has been President of EDS Operations 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.



Dietmar Ostermann, 40, has been Chief Executive Officer of A.T. Kearney, our 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.



10



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Tina
Sivinski, 46, has been Senior Vice President of Leadership and Change Management since October 2002. She has oversight responsibility for our compensation and benefits, diversity, human resources delivery, organizational resource planning, and
EDS University functions. Prior to that time, she was President of EDS Global Energy Industry Solutions group from August 2001 to October 2002. Before joining EDS, Ms. Sivinski was Vice President of Strategic Marketing, Sales and Business
Development for GrandBasin, a Halliburton Company, from November 2000 to May 2001, a Vice President of Science Applications International from January 2000 to November 2000 and was employed by Data General Corp from 1980 to December 1999, most
recently as a Vice President.



Robert H.
Swan, 42, has been Executive Vice President and Chief Financial Officer of EDS since February 2003. Mr. Swan has oversight responsibility for our treasurer, enterprise productivity and digital transformation, financial analysis, tax, controller,
administration, investor relations and audit functions. Prior to joining EDS, he was Executive Vice President and Chief Financial Officer of TRW Inc. from July 2001 to December 2002. Mr. Swan served in executive positions at Webvan Group, Inc. from
1999 to 2001, including Chief Executive Officer from April to July 2001, Chief Operating Officer from September 2000 to July 2001 and Chief Financial Officer from October 1999 to July 2001. (Webvan filed a voluntary petition for Chapter 11
bankruptcy in July 2001.) He held various financial positions in General Electric Company from 1985 to 1999, including Chief Financial Officer, GE Lighting, from May 1998 to October 1999, Vice President, Finance, GE Medical Systems Europe, from
January 1997 to May 1998 and Chief Financial Officer, GE Transportation Systems from October 1994 to January 1997.



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
|-------------- |  | ---- | ----- | ---
|2001           |  |      |       |    
|First Quarter  |  | $    | 67.40 |    
|Second Quarter |  |      | 66.35 |    
|Third Quarter  |  |      | 66.80 |    
|Fourth Quarter |  |      | 72.35 |    
|2002           |  |      |       |    
|First Quarter  |  | $    | 68.55 |    
|Second Quarter |  |      | 57.96 |    
|Third Quarter  |  |      | 44.00 |    
|Fourth Quarter |  |      | 19.88 |    



The last
reported sale price of the common stock on the NYSE on March 3, 2003 was $15.50 per share. As of that date, there were approximately 134,000 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 2001
and 2002.



11



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|ITEM |  | 6.    SELECTED FINANCIAL DATA
|---- |  | -----------------------------



(in millions, except per share amounts)



|                                                                                                |  | As of and for the Years Ended December 31,
|----------------------------------------------------------------------------------------------- |  | ------------------------------------------
|                                                                                                |  | 2002                                      
|Operating results                                                                               |  |                                           
|Revenues                                                                                        |  | $                                         
|Cost of revenues                                                                                |  |                                           
|Selling, general and administrative                                                             |  |                                           
|Acquired in-process R&D and other acquisition-related costs                                     |  |                                           
|Restructuring and other charges                                                                 |  |                                           
|Other income (expense)(3)                                                                       |  |                                           
|Provision for income taxes                                                                      |  |                                           
|Income from continuing operations                                                               |  |                                           
|Income from discontinued operations                                                             |  |                                           
|Cumulative effect on prior years of a change in accounting for derivatives, net of
income taxes |  |                                           
|Net income                                                                                      |  |                                           
|                                                                                               
|Per share data                                                                                  |  |                                           
|Basic earnings per share of common stock:                                                       |  |                                           
|Income from continuing operations                                                               |  | $                                         
|Net income                                                                                      |  |                                           
|Diluted earnings per share of common stock:                                                     |  |                                           
|Income from continuing operations                                                               |  |                                           
|Net income                                                                                      |  |                                           
|Cash dividends per share of common stock                                                        |  |                                           
|                                                                                               
|Financial position                                                                              |  |                                           
|Current assets                                                                                  |  | $                                         
|Property and equipment, net                                                                     |  |                                           
|Other assets                                                                                    |  |                                           
|Total assets                                                                                    |  |                                           
|Current liabilities                                                                             |  |                                           
|Pension benefit liability                                                                       |  |                                           
|Long-term debt, less current portion                                                            |  |                                           
|Minority interests and other long-term liabilities                                              |  |                                           
|Shareholders equity                                                                            |  |                                           

---

|(1) |  | Operating results for each of the years in the four year period ended December 31, 2001 have been restated to conform to the current years
presentation due to our reporting of certain activities as discontinued operations during 2002. See Note 17: Discontinued Operations in the consolidated financial statements for further discussion.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Effective January 1, 2002, we fully adopted SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized. Operating results include goodwill amortization in the pre-tax amounts of $173 million, $164 million, $153 million and $79 million for the years ended December 31, 2001, 2000, 1999 and 1998,
respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Other income (expense) includes net investment gains (losses) in the pre-tax amounts of $(119) million, $344 million, $118 million, $94 million and $37
million for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|



12



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|ITEM |  | 7.     MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS
|---- |  | ----------------------------------------------------------------------------------------------------



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



General



EDS is a professional services firm that offers its clients a portfolio of related services worldwide within the broad categories of
traditional information technology (IT) outsourcing, business process outsourcing, solutions consulting, management consulting, and product lifecycle management software and services. Services include the design, construction and/or
management of computer networks, information systems, information processing facilities and business processes. Our end-to-end portfolio of services integrates our four lines of business  Operations Solutions, Solutions Consulting, Product
Lifecycle Management (PLM) Solutions and A.T. Kearney  to help clients solve complex business issues and achieve results with technology. This discussion refers to EDS and its consolidated subsidiaries.



Factors That May Affect Future Results



The statements in this Report 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 and divestitures, the impact of client bankruptcies, the impact of 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, the timing of the revenue, earnings and cash flow
impact of new and existing contracts, liquidity, 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, the
following:



| | · |  | competition in the industries in which we conduct business and the impact of competition on pricing, revenues and margins;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| | · |  | the impact of general economic and other conditions, including the potential military action in the Middle East, on the discretionary spend of our existing clients
and our ability to obtain new business;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the degree to which third parties continue to outsource IT and business processes;
| | - |  | ----------------------------------------------------------------------------------



| | · |  | the performance of current and future client contracts in accordance with our cost, revenue and cash flow estimates, including our ability to achieve any operational
efficiencies modeled in our estimates;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | for contracts with U.S. federal government clients, including our Navy Marine Corps Intranet contract (the NMCI Contract), our ability to fully recover
certain amounts in the event of the governments cancellation of the contract or imposition of additional terms and conditions due to changes in government funding, deployment schedules or otherwise;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the inability to provide contract performance guarantees due to the cost or availability of surety bonds or letters of credit resulting from the general reduction in
capacity of these markets or otherwise;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the impact of third-party benchmarking provisions in certain client contracts;
| | - |  | ------------------------------------------------------------------------------



| | · |  | the impact, if any, on a historical and prospective basis of proposed accounting rules on the treatment of service contracts;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| | · |  | the impact of acquisitions and divestitures, including our ability to improve productivity and achieve synergies from acquired businesses;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | our ability to attract and retain highly skilled personnel;
| | - |  | -----------------------------------------------------------



| | · |  | a reduction in the carrying value of our assets;
| | - |  | ------------------------------------------------



13



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| | · |  | the impact of a bankruptcy of a significant client, including the impact of the WorldCom and US Airways bankruptcies, on the financial and other terms of our
agreements with that client;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the termination of a significant client contract, including our contract with General Motors (GM);
| | - |  | ----------------------------------------------------------------------------------------------------



| | · |  | with respect to the funding of our pension plan obligations, the performance of our investments relative to our assumed rate of return;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| | · |  | changes in tax laws and interpretations and failure to obtain treaty relief from double taxation;
| | - |  | -------------------------------------------------------------------------------------------------



| | · |  | failure to obtain or protect intellectual property rights; and
| | - |  | --------------------------------------------------------------



| | · |  | fluctuations in foreign currency and exchange rates.
| | - |  | ----------------------------------------------------



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 August
16, 2002, we acquired the managed hosting business of Loudcloud, Inc. (now known as Opsware Inc.) for $63.5 million in cash. In addition, we entered an agreement to license its web-hosting automation software Opswarefor a fee of $52.0 million over three years.



On July 2, 2001, we acquired the airline infrastructure outsourcing business and internal IT infrastructure assets of Sabre Holdings
Corporation for $676 million in cash. Sabres airline infrastructure outsourcing business included contracts with American Airlines, US Airways and other airline and transportation industry clients.



On July 3, 2001, we acquired a controlling interest in
Systematics AG, a German IT services company. The aggregate purchase price for such interest was $533 million comprised of $399 million in cash and $134 million in EDS stock (2.1 million common shares). Systematics provided customer relationship
management, enterprise resource planning, digital value chain and systems integration services. A remaining minority interest was acquired in 2002 for an immaterial amount.



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 offered 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.



In accordance with
Financial Accounting Standards Board (FASB) Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method (An Interpretation of FASB Statement No. 2), amounts
attributed to in-process research and development (R&D) in the allocation of the purchase price of an acquisition must be immediately expensed. In connection with the acquisitions of SDRC and the minority interest in UGS, we recorded
a pre-tax charge relating to the write-off of acquired in-process R&D totaling $86 million. 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 between 21% and 30% for the SDRC
projects and between 27% and 39% for the UGS projects based upon an analysis of the weighted-average cost of capital 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. All projects have been completed as of December 31, 2002.



14



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On October 23,
2000, UGS acquired all of the outstanding stock of Engineering Animation, Inc. (EAI) for $178 million, net of cash acquired. EAI was a leader in Internet-enabled visual process management, collaboration, analysis and communication
solutions for extended manufacturing enterprises. Costs allocated to in-process R&D in the amount of $24 million were expensed upon acquisition.



Results of Operations  Consolidated



Revenues.    The following table displays revenues from contracts with our base (non-GM) clients and revenues
from contracts with GM for the years ended December 31, 2002, 2001 and 2000 (in millions):



|          |  | 2002 |        | 2001 |   | 2000  
|--------- |  | ---- | ------ | ---- | - | ------
|Revenues: |  |      |        |      |   |       
|Base      |  | $    | 18,907 |      | $ | 18,068
|GM        |  |      | 2,595  |      |   | 3,073 
|          |  |      |        |      |   |       
|Total     |  | $    | 21,502 |      | $ | 21,141
|          |  |      |        |      |   |       



The
following table displays our revenue growth percentages for 2002, 2001 and 2000, as adjusted for the impact of foreign currency translation and acquisitions and divestitures:



|                                   |  | Total |    |  | Base |    |  | GM   |   
|---------------------------------- |  | ----- | -- |  | ---- | -- |  | ---- | --
|                                   |  | 2002  |    |  | 2001 |    |  | 2000 |   
|Growth in as-reported revenues     |  | 2     | %  |  | 12   | %  |  | 2    | % 
|Impact of foreign currency changes |  | (1    | %) |  | 3    | %  |  | 4    | % 
|                                   |  |       |    |  |      |    |  |      |   
|Constant currency revenue growth   |  | 1     | %  |  | 15   | %  |  | 6    | % 
|Impact of acquisitions             |  | (4    | %) |  | (5   | %) |  | (1   | %)
|Impact of divestitures             |  | 1     | %  |  | 2    | %  |  | 3    | % 
|                                   |  |       |    |  |      |    |  |      |   
|Organic revenue growth             |  | (2    | %) |  | 12   | %  |  | 8    | % 
|                                   |  |       |    |  |      |    |  |      |   



Constant
currency revenue growth is calculated by removing from current year reported revenues the impact of the change in exchange rates between the local currency and the U.S. dollar from the current period and the comparable prior period. Organic revenue
growth further excludes revenue growth due to acquisitions in the period presented if the comparable prior period had no revenue from the same acquisition, and revenue decreases due to businesses divested in the period presented or the comparable
prior period.



Total revenues increased $361
million, or 2%, in 2002 to $21.5 billion when compared with $21.1 billion in 2001. Total revenues increased 1% in 2002 on a constant foreign currency basis. Total organic revenues decreased 2% in 2002 after adjustments for foreign currency
fluctuations and revenue variances associated with our Sabre, Systematics and SDRC acquisitions completed in mid-2001 and our Canadian-based hardware reseller unit sold in early 2001. Revenues from base clients increased $839 million, or 5%, in 2002
to $18.9 billion when compared with $18.1 billion in 2001. On a constant foreign currency basis, revenues from base clients increased 4% in 2002. Base organic revenues were flat in 2002 compared with 2001. Growth in our Operations Solutions line of
business from contracts signed with base clients during 2001 and 2002 was offset by declines in discretionary spending by clients in our Solutions Consulting, PLM Solutions and A.T. Kearney lines of business. Revenues from GM decreased $478 million,
or 16%, in 2002 to $2.6 billion when compared with $3.1 billion in 2001. Revenues from GM decreased 15% in 2002 on a constant currency basis. The decrease in GM revenues was primarily due to the continued reductions in discretionary spending by that
client.



We expect 2003 revenues to continue to
be negatively impacted by the tight discretionary spending environment we experienced in 2002. We expect full year 2003 base organic revenues to increase at rates generally forecasted by IT industry analysts, which is currently in the low- to
mid-single digit range. Our GM revenues, which we expect to continue to be negatively impacted by reductions in discretionary spend by that client, will also be negatively impacted by price and scope reductions in our renegotiated sector agreements
for GMs North American operations and GMAC and our renegotiated global mainframe compute agreement. As a consequence, we expect our full year 2003 GM revenues to decline in the percentage range of the mid-teens to low-twenties. See
Results of Operations  Segments for a discussion of our segment revenues.



15



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Total revenues
increased $2.3 billion, or 12%, in 2001 to $21.1 billion when compared with $18.9 billion in 2000. Total revenues increased 15% in 2001 on a constant foreign currency basis. Total organic revenues increased 12% after adjustments for foreign currency
fluctuations and revenue variances associated with our acquisitions completed in 2001 and our Canadian-based hardware reseller unit sold in early 2001. Revenues from base clients increased $2.6 billion, or 17%, in 2001 to $18.1 billion when compared
with $15.5 billion in 2000 primarily due to several large IT services contracts signed during 2000 and the first half of 2001. On a constant foreign currency basis, revenues from base clients increased 20% in 2001. Revenues from GM decreased $297
million, or 9%, in 2001 to $3.1 billion when compared with $3.4 billion in 2000. Revenues from GM decreased 8% in 2001 on a constant currency basis. See Results of Operations  Segments for a discussion of our segment revenues.



The following table displays revenues by
geography for the years ended December 31, 2002, 2001 and 2000 (in millions):



|               |  | 2002 |        | 2001 |   | 2000  
|-------------- |  | ---- | ------ | ---- | - | ------
|Revenues:      |  |      |        |      |   |       
|United States  |  | $    | 11,765 |      | $ | 11,955
|United Kingdom |  |      | 3,481  |      |   | 3,364 
|Other          |  |      | 6,256  |      |   | 5,822 
|               |  |      |        |      |   |       
|Total          |  | $    | 21,502 |      | $ | 21,141
|               |  |      |        |      |   |       



Revenues
of non-U.S. operations are measured using fixed currency exchange rates in all periods presented. Differences between fixed and actual exchange rates are included in the Other category.



Costs and expenses.    Following is
a summary of our gross margin percentages [(revenues less cost of revenues)/revenues] for the years ended December 31, 2002, 2001 and 2000, as adjusted for impacts associated with the WorldCom and US Airways bankruptcies and cessation of
amortization of goodwill and certain intangibles:



|                                              |  | 2002 |   |  | 2001 |   |  | 2000 |  
|--------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Gross margins:                                |  |      |   |  |      |   |  |      |  
|As reported                                   |  | 17.5 | % |  | 19.2 | % |  | 18.9 | %
|WorldCom and US Airways bankruptcy provisions |  | 0.9  | % |  |     |   |  |     |  
|Goodwill and certain intangibles amortization |  |     |   |  | 0.8  | % |  | 0.9  | %
|                                              |  |      |   |  |      |   |  |      |  
|As adjusted                                   |  | 18.4 | % |  | 20.0 | % |  | 19.8 | %
|                                              |  |      |   |  |      |   |  |      |  



Our
gross margin in 2002 was adversely affected by receivable reserves and asset writedowns related to our contractual relationships with WorldCom and US Airways, both of which filed for bankruptcy in 2002. Excluding the impact of these charges, our
gross margin percentage was 18.4% in 2002. Cost of revenues for 2001 and 2000 includes amortization expense related to goodwill and certain intangible assets no longer amortized under a new accounting standard effective January 1, 2002. Excluding
amortization expense related to these assets, our gross margin percentages for 2001 and 2000 were 20.0% and 19.8%, respectively. Approximately 70 basis points, or $160 million, of the decrease in our adjusted gross margin percentage in 2002 was due
to loss accruals related to the financial performance of certain contracts, primarily in Europe. As further described in Results of Operations  Segments, our gross margin also decreased due to our inability to transition, in the
timeframe originally planned, from the existing IT cost structures inherited from certain Operations Solutions clients, to the final, more efficient planned IT operating environment, and due to declines in higher margin discretionary IT applications
spending by certain Solutions Consulting clients. These decreases were partially offset by a 110 basis point improvement resulting from reduced sales commission and employee bonus expense as discussed below. The increase in our gross margin
percentage in 2001 was primarily due to our companywide productivity initiatives.



As a percentage of revenues, selling, general and administrative expenses were 8.8%, 8.9% and 9.4% in 2002, 2001 and 2000, respectively. The decrease in this percentage in 2001 was primarily due to our
revenue growth, both organically and through acquisitions, and our productivity initiatives that led to efficiencies in our general and administrative processes.



16



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Following is a
summary of our operating margin percentages [(revenues less total costs and expenses)/revenues] for the years ended December 31, 2002, 2001 and 2000, as adjusted for impacts associated with the WorldCom and US Airways bankruptcies, acquired
in-process R&D and other costs and cessation of amortization of goodwill and certain intangibles:



|                                              |  | 2002 |   |  | 2001 |   |  | 2000 |  
|--------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Operating margins:                            |  |      |   |  |      |   |  |      |  
|As reported                                   |  | 8.7  | % |  | 9.7  | % |  | 9.5  | %
|WorldCom and US Airways bankruptcy provisions |  | 1.0  | % |  |     |   |  |     |  
|Acquired in-process R&D and other             |  |     |   |  | 0.6  | % |  |     |  
|Goodwill and certain intangibles amortization |  |     |   |  | 0.8  | % |  | 0.9  | %
|                                              |  |      |   |  |      |   |  |      |  
|As adjusted                                   |  | 9.7  | % |  | 11.1 | % |  | 10.4 | %
|                                              |  |      |   |  |      |   |  |      |  



Excluding the impact of receivable reserves and asset writedowns related to the WorldCom and US Airways, both of which filed for bankruptcy in 2002, our operating margin was 9.7% in 2002. Excluding acquired in-process R&D and
other acquisition-related costs and amortization expense related to goodwill and certain intangible assets no longer amortized, our operating margins were 11.1% in 2001 and 10.4% in 2000. The decline in adjusted operating margin in 2002 was due to
the factors affecting gross margin mentioned above, partially offset by a 170 basis point improvement resulting from reduced sales commission and employee bonus expense due to the slowdown in new contract signings and the lack of achievement of
specified operating performance targets.



Restructuring activities and other charges.    We recorded net reversals of restructuring charges of $3 million, $15 million and $22 million during the years ended December 31, 2002, 2001 and 2000,
respectively. See Note 19 to the consolidated financial statements for further discussion of restructuring activities. Restructuring actions contemplated under our restructuring plans are essentially complete with remaining reserves of $29 million
being comprised primarily of future severance-related payments to terminated employees and future lease payments for exited facilities.



Other income (expense).    Other income (expense) includes interest expense, interest and dividend income,
investment gains and losses, minority interest expense and foreign currency transaction gains and losses. Following is a summary of other income (expense) for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                                                |  | 2002 |      |   | 2001 |   |      | 2000 | 
|----------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|Other income (expense):                         |  |      |      |   |      |   |      |      | 
|Interest expense                                |  | $    | (258 | ) |      | $ | (245 | )    | 
|Interest income and other                       |  |      | (89  | ) |      |   | 32   |      | 
|Reclassification of investment gain from equity |  |      |     |   |      |   | 315  |      | 
|                                                |  |      |      |   |      |   |      |      | 
|Total                                           |  | $    | (347 | ) |      | $ | 102  |      | 
|                                                |  |      |      |   |      |   |      |      | 



Interest
expense increased $13 million in 2002 to $258 million due primarily to an increase in our average outstanding debt balance in 2002. Interest expense increased $36 million in 2001 to $245 million due primarily to additional borrowings in 2001. See
Liquidity and Capital Resources below.



Interest income and other in 2002 includes net investment losses of $119 million and other income of $30 million. Interest income and other in 2001 includes net investment gains of $29 million and other income of $3 million. Interest
income and other in 2000 includes net investment gains of $118 million and other income of $64 million. Net investment losses in 2002 include write-downs of $76 million relating to our leveraged lease investments as a result of the US Airways and
United Airlines bankruptcies. Net investment gains in 2000 include $96 million resulting from the sale of our interest in a joint venture.



Effective January 1, 2001, we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Upon the adoption
of SFAS No. 133, we reclassified certain available-for-sale securities into the trading securities classification resulting in the recognition of a pre-tax gain of $315 million in our statement of income.



17



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Income
taxes.    The effective income tax rates in 2002, 2001 and 2000 were 34.0%, 37.0% and 36.5%, respectively. The decrease in our effective tax rate in 2002 was due to acquired in-process R&D expense in 2001 which was not
deductible in the computation of the provision for income taxes, and the reduction in nondeductible goodwill amortization expense associated with the new accounting standard for goodwill adopted January 1, 2002. The increase in our effective tax
rate in 2001 was due to acquired in-process R&D expense in 2001. Excluding the impact of nondeductible acquired in-process R&D and goodwill amortization expense, our effective income tax rates in 2001 and 2000 were 34.3% and 34.8%,
respectively.



Discontinued
operations.    During 2002, we sold our Consumer Network Services unit for cash proceeds of $323 million ($301 million net of cash retained by the divested business). The net results of the business through the date of sale,
including a gain recognized on the sale of the unit of $112 million, net of income taxes, are included in discontinued operations in the consolidated statements of income. Also during 2002, we approved a plan to sell our subscription fulfillment
business. The net results of the business, including an asset impairment provision of $25 million, net of income taxes, are included in discontinued operations in the consolidated statements of income. We expect to complete the sale of our
subscription fulfillment business during the first half of 2003.



Net income.    Net income decreased to $1,116 million in 2002, compared with $1,363 million in 2001 and $1,143 million in 2000. Basic earnings per share decreased to $2.33 in 2002 compared with $2.90 in
2001 and $2.45 in 2000. Diluted earnings per share decreased to $2.28 in 2002 compared with $2.81 in 2001 and $2.40 in 2000.



Effective January 1, 2002, we fully adopted SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually. During 2001 and 2000, we recognized amortization expense of $173 million and $164 million, respectively, related to assets for
which amortization was discontinued effective January 1, 2002 upon adoption of SFAS No. 142.



Benchmarking.    Certain long-term IT outsourcing agreements, principally in our Operations Solutions line of business, contain provisions which permit a client to request a
benchmark study by a mutually acceptable third-party benchmarker. Typically, benchmarking may not be conducted during the initial years of the contract term but may be requested by a client periodically thereafter, subject to restrictions which
limit benchmarking to certain groupings of services and limit the number of times benchmarking may be elected during the term of the contract. Generally, the benchmarking compares the contractual price of our services against the price of similar
services offered by other specified providers to a peer comparison group, subject to agreed upon adjustment and normalization factors. Generally, if the benchmarking shows that our pricing has a difference outside a specified range, and the
difference is not due to the unique requirements of the client, then the parties will negotiate in good faith any appropriate adjustments to the pricing. This may result in the reduction of our rates for the benchmarked services.



Approximately 10% of our IT service contracts contain
benchmarking provisions, and services representing approximately 20% of annual revenues are eligible for benchmarking in 2003. We expect services representing a similar percentage of annual revenues would be eligible for benchmarking in subsequent
years. Given the competitive market in which we operate, our client agreements generally provide for pricing during the beginning of the contract term at what we believe are market rates, with contractual rates decreasing over time to levels that
are below market rates in effect at the beginning of the contract based on our expectation of achieving operating efficiencies and other cost reductions over the contract term. Because we have been successful historically in achieving these
operating efficiencies and other cost reductions, benchmarking provisions have not had a material impact on our results of operations or cash flow, and we do not expect these provisions to have a material impact on our results of operations or cash
flow in 2003. However, due to the enhanced focus of our clients on reducing IT costs, as well as the uncertainties and complexities inherent in benchmarking comparisons, clients may increasingly attempt to obtain additional price reductions beyond
those already embedded in our contract rates through the exercise of benchmarking provisions. There can be no assurance such activities would not negatively impact our results of operations or cash flow in 2003 or thereafter to a greater extent than
has been our prior experience.



NMCI
Contract.    In October 2000, we were awarded a contract by the U.S. Navy and Marine Corps to provide end-to-end IT infrastructure on a seat management basis. The NMCI Contract, as originally executed, had a base
period of five years with a three-year extension at the option of the Navy. Deliverables are rolled out to individual users following the order of a procurement contracting officer. Upon issuance of orders, we and the Navy establish a
timeline to assume responsibility for the existing infrastructure (legacy systems) supporting the ordered seats. Upon this assumption of responsibility, we are paid 85% of the established seat price as we establish the new systems and
infrastructure needed to support delivery of the enhanced service to the ordered seats. Upon completion of this activity, the seat is switched to the new environment and after we have achieved the agreed upon performance standards we are entitled to
bill at 100% of the established seat price.



18



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We developed
the pricing for the NMCI Contract based on the assumption that we would receive revenues and seat orders in the amounts and during the periods projected in the contracts pricing schedule. For a number of reasons, including the significant
increase in the number of legacy systems we have been required to test and certify during the performance of the contract and the imposition by the Navy and Congress of additional testing requirements beyond the commercial testing requirements
anticipated at the time the contract was awarded, the roll-out schedule on which we based our pricing has been delayed significantly.



In October 2002, we executed a modification to the NMCI Contract with the Navy. Under that modification, the base period was extended from
five to seven years, with a minimum aggregate order obligation of the Navy for certain specified deliverables, primarily seat services, of $6 billion over the seven year base period. In addition, we released the Navy from any liability
under the contract for certain potential claims, including claims for equitable adjustments or claims attributable to delays in issuing orders for seats up to the date of the modification.



Due to the continuing risk associated with the timing and type of seat deployment and the associated pricing,
we do not anticipate recognizing profit on the NMCI Contract in any significant amount in 2003. As of December 31, 2002, our consolidated balance sheet reflected approximately $1.9 billion of assets, consisting of unbilled revenue, property and
equipment, and other assets, attributable to the contract. At December 31, 2002, the Navy was authorized to order 160,000 computer seats for the current program year ending September 30, 2003. At such date, we had approximately 120,000 computer
seats under management, of which approximately 102,000 were then billable to the client. Approximately 51,000 of these computer seats had been switched over to the new environment. We expect to assume responsibility for virtually all of the 160,000
computer seats by the end of March 2003. Material delays in the transfer of these seats could negatively impact the financial performance of the contract and our earnings during the quarter in which any such delays occur. Under the terms of the NMCI
Contract, as modified, the Navy is obligated to order an additional 150,000 computer seats upon our meeting Service Level Agreements on an existing 20,000 seats and our successful completion of an operational assessment. As of February 25, 2003,
such Service Level Agreements had been met, the operational assessment was successfully completed and the Navy was authorized to order the additional 150,000 seats. Material delays in the assumption of responsibility for or installation of
additional seats under this contract could negatively impact the financial performance of this contract and significantly reduce our earnings and operating cash flow during the quarter in which any such delays occur.



WorldCom.We provide IT services to WorldCom, the
majority of which are provided under an 11-year, $6.4 billion services agreement signed in October 1999. On July 21, 2002, WorldCom filed for protection under Chapter 11 of the United States Bankruptcy Code. WorldCom represented approximately $610
million of our 2002 revenues. Total receivables outstanding under such agreements, net of reserves, were approximately $80 million at December 31, 2002. We own equipment and other assets having a net book value of approximately $70 million deployed
on WorldCom IT services agreements, and approximately one percent of our employee base is dedicated to performing services thereunder.



WorldCom may reject its IT services contracts in bankruptcy. However, we expect to reach agreement with WorldCom on revised terms for such
agreements which reflect both changes in its service requirements and reductions to certain existing rates. Although we believe we would be able to redeploy employees and adjust our cost base to mitigate the earnings impact of a change in service
requirements to WorldCom, we expect a reduction in rates would negatively impact our revenues and earnings in 2003 and thereafter. In either event, we expect to recover the material asset balances associated with these contracts through future
operations.



In addition to our IT services
agreements with WorldCom, we entered into an 11-year network services agreement in 1999 requiring us to procure telecommunications network services from WorldCom and providing for both cumulative and annual take-or-pay revenue
commitments. Certain terms of the network services agreement were amended as part of a settlement agreement approved by WorldComs bankruptcy court on December 23, 2002. As part of the settlement agreement, the parties acknowledged that we did
not owe any penalties for take-or-pay obligations with respect to 2002 network spend, the cumulative take-or-pay obligations in the original agreement were eliminated and the future annual take-or-pay obligations
were substantially reduced. We expect to meet the reduced minimum levels of network spend in the normal course of business. We also agreed to refund over time $92 million of a network payment received from WorldCom upon signing the original
agreement in 1999. Such balance was carried on our balance sheet on the date of the settlement.



Due to uncertainties regarding the recoverability of pre-bankruptcy receivables and certain assets associated with the WorldCom IT services and network contracts, we recorded net reserves and asset
writedowns totaling $118 million during 2002. These amounts are reflected in cost of revenues in our consolidated statement of income.



19



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In a
transaction unrelated to the agreements referred to above, we entered into a fiber optic equipment leveraged lease with MCI Communications Corporation, a domestic subsidiary of WorldCom, in 1988. Our unrecovered investment in the related equipment
totaled $61 million at December 31, 2002. The equipment is currently being used by WorldCom, and they are making lease payments in accordance with contractual schedules. However, WorldCom may reject its leveraged lease through its bankruptcy
proceeding.



US
Airways.    We provide 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. The US Airways contract represented
approximately $190 million of our 2002 revenues. Total receivables outstanding under such agreement, net of reserves, were approximately $25 million at December 31, 2002. We own equipment and other assets having a net book value of approximately $45
million deployed on the US Airways services agreement.



Although US Airways has indicated we will continue to be its IT services provider, we are currently in negotiations regarding revisions to its IT services contract. We expect the revised contract would negatively impact the revenue
and earnings attributable to that client, although we do expect to recover the material asset balances associated with the contract through future operations.



Due to uncertainties regarding the recoverability of pre-bankruptcy receivables associated with the US Airways contract, we recorded
reserves totaling $74 million during 2002. This amount is reflected in cost of revenues in our consolidated statement of income. We also recorded a writedown to our investment in a partnership totaling $35 million during 2002 due in part to
uncertainties related to the recovery of that partnerships investment in leveraged leases with US Airways.



Other airline industry relationships.    Our largest contract in the airline industry is with American
Airlines. That contract has annual revenues slightly below $400 million and represented approximately $70 million in receivables and $100 million in operating assets at December 31, 2002. In addition, we have $23 million of exposure associated with
Americans portion of our aircraft leveraged lease investments. The remaining exposure to investments in aircraft leases totals approximately $160 million. We also have approximately $600 million in annual revenues from other U.S. and
international airline and related travel businesses, the majority of which is provided by seven clients accounting for approximately $200 million in receivables and $100 million of contract-related assets at December 31, 2002.



Other.    Some of our 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 service delivery under these contracts is dependent upon successful completion of the development, construction and
deployment phases. We are currently in the development and construction phase of one such commercial contract in which we have invested assets of $430 million, including receivables, prepaid expenses, equipment and software. This contract has
experienced delays in its development and construction phases, and certain milestones in the contract have been missed. While we believe we can deliver the required systems and services and our investment in this contract will be recovered over the
contracts terms, significant further delays in development and construction could result in an impairment of a large portion of the associated assets.



Seasonality and inflation.    Our revenues, net income and operating cash flow vary over the calendar year,
with the fourth quarter generally reflecting the highest revenues, net income and operating cash flow for the year due to certain services that are purchased more heavily in that quarter as a result of the spending patterns of several clients. In
addition, revenues generally increase from quarter to quarter as a result of new business added throughout the year. Inflation generally had little effect on our results of operations during the past three years.



Results of Operations  Segments



Effective April 15, 2002, we combined elements of our
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 our former Information Solutions line of business with the business process outsourcing capabilities of our former Business Process Management line of business. The
Solutions Consulting line of business combines the capabilities of E Solutions with the applications services business of our former Information Solutions line of business. A.T. Kearney and PLM Solutions remain separate lines of business. Revenues
and operating income of non-U.S. operations are measured using fixed currency exchange rates in all periods presented. Differences between fixed and actual exchange rates are included in the all other category. The all other
category also includes A.T. Kearney and corporate expenses.



20



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Certain
historical information is not readily available under the new reporting structure. As such, revenues and operating income (expense) for 2000 have been estimated based on the information reported under the previous organizational structure.



Revenues.    The
following table displays revenues by reportable segment for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                     |  | 2002 |        | 2001 |   | 2000  
|-------------------- |  | ---- | ------ | ---- | - | ------
|Revenues:            |  |      |        |      |   |       
|Operations Solutions |  | $    | 14,372 |      | $ | 13,962
|Solutions Consulting |  |      | 5,817  |      |   | 6,015 
|PLM Solutions        |  |      | 879    |      |   | 759   
|All other            |  |      | 434    |      |   | 405   
|                     |  |      |        |      |   |       
|Total                |  | $    | 21,502 |      | $ | 21,141
|                     |  |      |        |      |   |       



Revenues
from our Operations Solutions line of business increased $410 million, or 3%, in 2002 to $14.4 billion. Revenues from base clients increased $701 million, or 6%, in 2002 to $12.7 billion. Base organic revenues increased approximately $400 million in
2002 after excluding approximately $500 million in revenues recognized in 2002 related to our Sabre and Systematics acquisitions in mid-2001, and approximately $200 million in revenues recognized in 2001 related to the divestiture of our
Canadian-based hardware reseller unit. The increase in base organic revenues in 2002 was due to incremental revenues in the Americas of approximately $480 million, partially offset by a decrease in revenues in Asia Pacific of approximately $50
million. Revenues from base clients in Europe were flat in 2002. Operations Solutions revenues from GM decreased $291 million, or 15%, in 2002 to $1.7 billion. Revenues from Operations Solutions increased $1.9 billion, or 16%, in 2001 to $14.0
billion. Approximately $500 million of the increase in 2001 is due to the acquisitions of Sabre and Systematics in mid-2001, and the remaining increase is primarily due to an increase in revenues in the Americas associated with large IT services
contracts signed in late 2000 and 2001.



Revenues
from our Solutions Consulting line of business decreased $198 million, or 3%, in 2002 to $5.8 billion. Revenues from base clients increased $11 million in 2002 to $4.9 billion. Base organic revenues decreased approximately $75 million in 2002 after
excluding approximately $85 million in revenues recognized in 2002 related to our Sabre and Systematics acquisitions in mid-2001. The decrease in base organic revenues in 2002 was due to a decrease in revenues in the Americas of approximately $250
million and Asia Pacific of approximately $100 million, partially offset by an increase in revenues in Europe of approximately $300 million. Revenues from GM decreased $209 million, or 19%, in 2002 to $903 million. Revenues from Solutions Consulting
increased $830 million, or 16%, in 2001 to $6.0 billion. Approximately $140 million of the increase in 2001 is due to the acquisitions of Sabre and Systematics in mid-2001, and the remaining increase is primarily due to an increase in revenues in
Europe.



Revenues from our PLM Solutions line of
business increased $120 million, or 16%, in 2002 to $879 million. This increase is the direct result of a full year of revenues recognized in 2002 related to our acquisition of SDRC in August 2001. Organic revenues decreased 16% in 2002 due to lower
software and services revenues resulting from soft market conditions. Revenues from PLM Solutions increased $235 million in 2001 to $759 million. The increase in revenues in 2001 was primarily due to the acquisition of SDRC.



The decrease in revenues in the all other category
in 2001 was primarily due to the relative decline of the euro and the British pound against their respective fixed currency exchange rates.



Operating income.    Management uses operating income, which consists of segment revenues less segment costs
and expenses (before acquired in-process R&D and other acquisition-related costs, and restructuring and other charges) to measure segment profit or loss. The following table displays operating income by reportable segment for the years ended
December 31, 2002, 2001 and 2000 (in millions):



|                            |  | 2002 |       |   | 2001 |   |        | 2000 | 
|--------------------------- |  | ---- | ----- | - | ---- | - | ------ | ---- | 
|Operating income (expense): |  |      |       |   |      |   |        |      | 
|Operations Solutions        |  | $    | 1,663 |   |      | $ | 2,059  |      | 
|Solutions Consulting        |  |      | 1,061 |   |      |   | 1,219  |      | 
|PLM Solutions               |  |      | 138   |   |      |   | 104    |      | 
|All other                   |  |      | (993  | ) |      |   | (1,207 | )    | 
|                            |  |      |       |   |      |   |        |      | 
|Total                       |  | $    | 1,869 |   |      | $ | 2,175  |      | 
|                            |  |      |       |   |      |   |        |      | 



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The operating
margin for Operations Solutions was 11.6% in 2002 compared with 14.7% in 2001 and 15.6% in 2000. Operating income in 2002 was adversely affected by receivable reserves and asset writedowns totaling $158 million related to our contractual
relationships with WorldCom and US Airways, both of which filed for bankruptcy in 2002. Excluding these items, the operating margin was 12.7% in 2002. Operating income in 2001 and 2000 includes amortization expense related to goodwill and other
intangible assets no longer amortized under SFAS No. 142. Excluding the impact of amortization expense related to these assets, the operating margins were 15.3% in 2001 and 16.4% in 2000. Approximately 50 basis points of the decrease in our
operating margin in 2002 was due to loss accruals related to the financial performance of certain contracts, primarily in Europe. The remaining decrease in our 2002 operating margin was primarily due to our inability to transition, in the timeframe
originally planned, from the existing IT cost structures inherited from certain clients, to the final, more efficient planned IT operating environment.



The operating margin for Solutions Consulting was 18.2% in 2002 compared with 20.3% in 2001 and 19.5% in 2000. Operating income in 2002
was adversely affected by receivable reserves and asset writedowns totaling $34 million related to our contractual relationships with WorldCom and US Airways, both of which filed for bankruptcy in 2002. Excluding these items, the operating margin
was 18.8% in 2002. Operating income in 2001 and 2000 includes amortization expense related to goodwill and other intangible assets no longer amortized under SFAS No. 142. Excluding the impact of amortization expense related to these assets, the
operating margins were 21.2% in 2001 and 20.5% in 2000. Approximately 150 basis points of the decrease in our operating margin in 2002 was due to loss accruals related to the financial performance of certain contracts, primarily in Europe, and the
remaining decrease is due to declines in higher margin discretionary IT application spending by our clients as a result of general economic conditions and offshore competition.



As indicated above, a portion of the decrease in our operating margins for both Operations Solutions and
Solutions Consulting in 2002 was attributable to loss accruals related to the financial performance of certain contracts, primarily in Europe. During 2002, we accrued losses of approximately $160 million on several contracts in both lines of
business due to our projected inability to deliver contracted services at estimated cost levels not in excess of expected billings. These loss accruals have also generally resulted from delays in the transition of existing client IT operations to
planned and more efficient IT operating environments, and in one case, inadequate execution on a fixed-price development contract. We are implementing improvements with the intention that these factors will not result in additional loss accruals in
2003 or beyond, although there can be no assurance that further loss accruals will not be required. See Application of Critical Accounting Policies  Liabilities below.



The operating margin for PLM Solutions was 15.7% in 2002 compared with 13.7% in 2001 and 15.3% in 2000.
Operating income in 2001 and 2000 includes amortization expense related to goodwill and other intangible assets no longer amortized under SFAS No. 142. Excluding the impact of amortization expense related to these assets, the operating margins were
17.0% in 2001 and 17.7% in 2000. The decrease in our 2002 operating margin was primarily due to an increase in amortization expense in 2002 related to software and other intangibles acquired with SDRC in 2001. The decrease in our 2001 operating
margin was primarily due to costs related to the integration of SDRC.



Financial Position



At
December 31, 2002, we held cash and marketable securities of $1.9 billion, had working capital of $3.3 billion, and had a current ratio of 1.5-to-1. This compares to cash and marketable securities of $0.8 billion, working capital of $3.4 billion,
and a current ratio of 1.8-to-1 at December 31, 2001. Approximately 20% of our cash and cash equivalents and marketable securities at December 31, 2002 were not available for debt repayment due to various commercial limitations on the use of these
assets.



Our days sales outstanding at December
31, 2002 increased to 105 days compared to 86 days at December 31, 2001. Days sales outstanding for trade receivables were 55 days at December 31, 2002 compared with 56 days at December 31, 2001. Days sales outstanding for unbilled revenue were 50
days at December 31, 2002 compared with 30 days at December 31, 2001. Unbilled revenue increased $1.2 billion to $3.0 billion at December 31, 2002 from $1.8 billion at December 31, 2001. Approximately $860 million of the increase in unbilled revenue
resulted from the NMCI Contract and significant contracts signed by the Company during 2001 and late 2000 with the U.K. government. Approximately $1.7 billion of unbilled revenue, representing 28 days sales outstanding, relates to such contracts. In
addition, approximately $110 million of the increase was due to foreign currency translation adjustments. Approximately 60% of unbilled revenue at December 31, 2002 related to contracts with government clients which carries low credit risk.



Total debt increased to $5.4 billion at December
31, 2002, from $4.7 billion at December 31, 2001. Total debt consists of notes payable, capital leases and commercial paper. The total debt-to-capital ratio (which includes total debt and minority interests as components of capital) increased to 43%
at December 31, 2002 compared with 42% at December 31, 2001.



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Liquidity and Capital
Resources



Net cash provided by operating
activities increased $524 million to $2.2 billion in 2002 compared with $1.7 billion in 2001. The increase in cash flow from operating activities in 2002 was due to a $626 million change in working capital items, partially offset by a $102 million
decrease in earnings, as adjusted to exclude non-cash operating items. Net cash provided by operating activities increased $163 million in 2001 compared with $1.6 billion in 2000. The increase in cash flow from operating activities in 2001 was due
to an increase in earnings, as adjusted to exclude non-cash operating items.



Net cash used in investing activities decreased $2.6 billion to $1.0 billion in 2002 compared with $3.6 billion in 2001. The decrease in net cash used in investing activities in 2002 was due to a
decrease in capital expenditures of $294 million, a decrease in payments for acquisitions of $2.0 billion and an increase in proceeds from divested assets of $275 million. Net cash used in investing activities increased $2.3 billion in 2001 compared
with $1.2 billion in 2000. The increase in net cash used in investing activities in 2001 was due to an increase in capital expenditures of $296 million, an increase in payments for acquisitions of $1.9 billion, and a decrease in proceeds from
marketable securities of $183 million.



Free cash
flow, measured as net cash provided by operating activities less net cash used in investing activities, excluding those related to acquisitions, divestitures and marketable securities, was $1,015 million, $197 million and $330 million in 2002, 2001
and 2000, respectively. Free cash flow in 2002 and 2001 was negatively impacted by investments related to certain large contracts with the U.S. and U.K. governments, including the NMCI Contract. The NMCI and certain U.K. government contracts
resulted in a negative impact on free cash flow of $930 million and $900 million in 2002 and 2001, respectively.



Our principal source of liquidity is cash flow from operations. In addition, at December 31, 2002, we had committed lines of credit of
approximately $1.25 billion which we use as a backup facility for commercial paper borrowings. At December 31, 2002, no amounts were outstanding under these lines of credit. We have generally utilized commercial paper facilities to manage short-term
working capital fluctuations and as interim financing for acquisitions, although we expect to maintain outstanding commercial paper balances even when we may not require such funds in order to facilitate our access to commercial paper markets.
Operating and capital leases are also used periodically to fund capital expenditures.



In December 2002, EDS Information Services, LLC, a wholly-owned subsidiary of EDS, contributed to the capital of and sold certain trade receivables to Legacy Receivables, LLC, a limited liability
company of which it is the sole member (the LLC), which then entered into a $500 million revolving secured financing arrangement collateralized by those trade receivables. At December 31, 2002, $406 million was outstanding under this
facility. The weighted-average variable interest rate on outstanding borrowings was 1.78% at December 31, 2002. Maximum borrowings under the facility vary based on the eligible trade receivables held by the LLC, however outstanding borrowings under
the facility cannot exceed $500 million. The facility is subject to annual renewal and will expire in December 2005. In the event certain stated criteria are not complied with and 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, our long-term debt rating falling below BBB- by Standard & Poors
Rating Services (S&P) or Baa3 by Moodys Investor Services, Inc. (Moodys), or events or collection trends materially negatively impacting the collateral. Proceeds from the sale of the trade
receivables will be used for general corporate purposes.



The following table summarizes our senior long-term and commercial paper credit ratings by Moodys, S&P and Fitch Ratings (Fitch) at February 28, 2003:



|                      |  | Moodys |  | S&P     |  | Fitch  
|--------------------- |  | ------- |  | ------- |  | -------
|Senior long-term debt |  | Baa2    |  | A-minus |  | A-minus
|Short-term debt       |  | Prime-3 |  | A2      |  | F2     



We
believe we will continue to have adequate access to the capital markets to meet our liquidity requirements and believe it is unlikely that the rating agencies would take any action that would materially impact our future access to the long-term
capital markets.



23



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We have
various commitments that require us to maintain specified investment grade debt ratings. In the event we were to become noncompliant with these requirements and waivers are not granted, the related commitments may accelerate and become due
immediately. As a result of action by Moodys in February 2003 to lower our long-term credit rating to Baa2, one of our clients has the right to request repayment of the unused balance of a prepayment made for services which we
continue to provide. We estimate the unused balance of that prepayment will be approximately $121 million at March 31, 2003. In accordance with the original client agreement, the prepayment was to be ratably applied against monthly client invoices
through May 2004. We now expect the unused balance of the prepayment will be applied against monthly billings to that client beginning in April 2003 such that the balance is fully depleted by the end of July 2003. In addition, in the event of a
downgrade to below BBB by S&P or below Baa2 by Moodys, our remaining minimum purchase commitment under a software subscription agreement would become due immediately. The balance of that commitment at December 31,
2002 was approximately $238 million. A reduction of our long-term credit rating below BBB- or Baa3 by S&P or Moodys, respectively, would constitute a termination event under the revolving secured financing
arrangement described above.



During 2001, we
initiated a program to manage the future stock issuance requirements of our employee stock incentive plans by utilizing equity investment contracts for EDS common stock and purchasing shares in the open market. Prior to that time, we had solely
purchased shares in the open market to manage such needs. We purchased 640,000 shares in the open market under this program during 2002. In addition, we entered into equity investment contracts and put obligations during 2001 and 2002 to buy up to
5.4 million shares of EDS common stock. We settled all of these contracts in 2002 through a series of purchases of 5.4 million cumulative treasury shares of EDS common stock for $340 million at a weighted-average exercise price of $62.73 per share.
The principal source of funding for these purchases was cash from operations and proceeds from commercial paper borrowings. Amounts paid upon the purchase of the underlying shares, net of put premiums of $17 million, were recorded as a component of
shareholders equity. No equity investment contracts issued under this program were outstanding at December 31, 2002. We plan to continue a strategy of managing the future stock issuance requirements of our employee incentive plans through the
purchase of EDS common stock on the open market. We do not currently expect to manage these requirements through the use of equity investment contracts, although we may elect to do so in the future.



We expect the holders of our zero-coupon convertible notes
issued in October 2001 will require us to redeem their notes in October 2003 for an aggregate redemption price of $772 million. We expect to fund this redemption from cash reserves.



In connection with certain service contracts, we may arrange a client supported financing transaction
(CSFT) with our client and an independent third-party financial institution or its designee or a securitization transaction where we sell certain financial assets resulting from the related service contract. The use of these transactions
enables us to offer clients more favorable financing terms. These transactions also enable the preservation of our capital resources and allow us to avoid client credit risk relating to the repayment of the financed amounts.



Under CSFT arrangements, the independent third-party financial
institution finances the purchase of certain IT-related assets and simultaneously leases those assets for use in connection with the service contract. The use of a CSFT on a service contract results in lower contract revenue and expense to EDS over
the contract term.



Under a securitization
transaction, we purchase capital assets and sell certain financial assets resulting from the related service contract to a trust (Trust). At December 31, 2002, the Trust was capitalized with external borrowings of $213 million and our
residual beneficial interest of $75 million. The facility used by the Trust for such borrowings is subject to annual renewal and terminates in September 2005. We have no effective control over the activities of the Trust, and it is legally isolated
from EDS.



In the CSFT and securitization
transactions, client payments are made directly to the financial institution or Trust providing the financing. If the client does not make the required payments under the service contract, under no circumstances do we have an ultimate obligation to
acquire the underlying assets unless our nonperformance under the service contract would permit its termination, or we fail to comply with certain customary terms under the financing agreements, including, for example, covenants we have undertaken
regarding the use of the assets for their intended purpose. We consider the possibility of our failure to comply with any of these terms to be remote. With respect to CSFTs, even in the event of our nonperformance under applicable contracts which
would permit their termination, we would have no additional or incremental performance risk with respect to the ownership of the assets, because we would have owned or leased the same or substantially equivalent assets in order to fulfill our
obligations under our service contracts. With respect to the securitization transaction, in the event of a termination due to our nonperformance that triggers our obligation to acquire the underlying assets, we would have a legal claim against the
client to recover the amount paid to acquire such assets.



Performance under our service contracts is generally measured by contract terms relating to project deadlines, IT system deliverables or level-of-effort measurements. We reduce the risk of contract termination due to nonperformance
through the use of a defined risk identification, review and mitigation process. We believe we are in compliance with our performance obligations under all service contracts for which there is a related CSFT or securitization transaction.



24



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Since January
1, 1995, a total of $2.0 billion of assets have been purchased using the financing arrangements referred to above. At December 31, 2002, the estimated future asset purchases that can be financed under existing financing arrangements are
approximately $0.8 billion. The aggregate dollar value of assets purchased under these financing transactions during the years ended December 31, 2002, 2001 and 2000 were $321 million, $564 million and $283 million, respectively. As of December 31,
2002, there was outstanding an aggregate of $692 million under CSFTs yet to be paid by our clients. At that date, there were outstanding $213 million of financial assets securitized by us and not yet paid by our client. In the event a contract may
be terminated due to nonperformance, we would be required to acquire only those assets associated with the outstanding amounts for that contract. Net of repayments, the estimated future maximum amount outstanding under existing financing
arrangements is not expected to exceed $1.1 billion. We believe we have sufficient alternative sources of capital to directly finance the purchase of IT capital assets to be used for current or future service contracts with or without the use of
these transactions.



The following table
summarizes CSFT and securitization financing activities since we began using these arrangements in 1995 (in millions):



|                                                                    |  | Total |        |   | CSFT |   |        | Securitiz-ation | 
|------------------------------------------------------------------- |  | ----- | ------ | - | ---- | - | ------ | --------------- | 
|Total estimated draws under financings arranged, net of expirations |  | $     | 2,800  |   |      | $ | 2,000  |                 | 
|Estimated amounts not yet drawn                                     |  |       | 848    |   |      |   | 303    |                 | 
|                                                                    |  |       |        |   |      |   |        |                 | 
|Total amounts drawn                                                 |  |       | 1,952  |   |      |   | 1,697  |                 | 
|Amounts repaid                                                      |  |       | (1,047 | ) |      |   | (1,005 | )               | 
|                                                                    |  |       |        |   |      |   |        |                 | 
|Total outstanding at December 31, 2002                              |  | $     | 905    |   |      | $ | 692    |                 | 
|                                                                    |  |       |        |   |      |   |        |                 | 



In the
normal course of business, we may provide certain clients, principally governmental entities, with financial performance guarantees, which are generally backed by standby letters of credit or surety bonds. In general, we would be liable for the
amounts of these guarantees in the event our nonperformance permits termination of the related contract by our client, the possibility of which we believe is remote. We believe we are in compliance with the performance obligations under all service
contracts for which there is a performance guarantee.



The following table summarizes the estimated expiration of financial guarantees outstanding as of December 31, 2002 (in millions):



|                                                  |  |       |       | Estimated Expiration Per Period
|------------------------------------------------- |  | ----- | ----- | -------------------------------
|                                                  |  | Total |       | 2003                           
|Performance guarantees:                           |  |       |       |                                
|CSFT transactions                                 |  | $     | 692   |                                
|Securitization transactions                       |  |       | 213   |                                
|Standby letters of credit, surety bonds and other |  |       | 372   |                                
|Other guarantees                                  |  |       | 30    |                                
|                                                  |  |       |       |                                
|Total                                             |  | $     | 1,307 |                                
|                                                  |  |       |       |                                



Certain
of our financing transactions involving IT-related assets have been conducted with entities that may be considered variable interest entities as that term is used in FASB Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities, and may be subject to consolidation in 2003. These entities had assets and obligations of approximately $900 million at December 31, 2002. See New Accounting Standards for further information.



In order to obtain favorable pricing and
commercial terms for services necessary for the ongoing operation of our business, we have signed long-term purchase agreements with certain software and telecommunications services providers. Under the terms of these agreements, we are
contractually committed to purchase specified service minimums over the next 10 years. If we fail to purchase the contractual minimums we have an obligation to pay the service provider the shortfall. We believe these minimum purchase obligations
will be met through the normal course of business.



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The following
table summarizes debt, lease and minimum purchase obligations outstanding as of December 31, 2002 (in millions):



|                                                   |  |       |        |   | Commitment Per Period
|-------------------------------------------------- |  | ----- | ------ | - | ---------------------
|                                                   |  | Total |        |   | 2003                 
|Long-term debt and secured revolving maturities(1) |  | $     | 5,387  |   |                      
|Forward stock sale commitment(2)                   |  |       | (1,610 | ) |                      
|Operating lease payments                           |  |       | 2,156  |   |                      
|Minimum purchase obligations                       |  |       | 4,149  |   |                      
|                                                   |  |       |        |   |                      
|Total                                              |  | $     | 10,082 |   |                      
|                                                   |  |       |        |   |                      

---

|(1) |  | Amounts due in 2003 include $406 million of secured debt related to the sale of an interest in our trade receivables and $765 million related to zero-coupon
convertible senior notes due 2021 but redeemable in whole or in part at the option of the holders in 2003, 2004, 2006, 2011 and 2016.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The forward stock sale commitment was entered into in connection with a June 2001 public security issuance. See Note 7 of the accompanying notes to consolidated
financial statements.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We expect
the principal use of funds for the foreseeable future will be for capital expenditures, debt repayment and working capital. Capital expenditures may consist of purchases of computer and telecommunications equipment, software, land, buildings and
facilities, as well as acquisitions and joint ventures.



During 2002, 2001 and 2000, capital expenditures totaled $1.2 billion, $1.5 billion and $1.2 billion, respectively, excluding acquisition and joint venture activity. In addition, CSFTs, securitization and leasing transactions during
those years provided the estimated capital equivalent of $650 million, $775 million and $400 million, respectively. We estimate capital expenditures, excluding acquisition and joint venture activity, will total $1.4 billion, and utilization of
CSFTs, securitization and leasing transactions will provide the estimated capital equivalent of $900 million in 2003. Total capital expenditures may vary significantly and will depend to a significant extent on capital requirements for new business
and the level of acquisition and joint venture activities, if any. We anticipate that cash reserves, cash flows from operations, proceeds from divestitures and unused borrowing capacity under the existing lines of credit and client financing
transactions will provide sufficient funds to meet our needs during 2003.



Market Risks



We are
exposed to market risk from changes in interest rates, equity prices and foreign currency exchange rates. We enter into various hedging transactions to manage this risk. We do not hold or issue derivative financial instruments for trading purposes.
A discussion of our accounting policies for financial instruments, and further disclosure relating to financial instruments, are included in the notes to the consolidated financial statements.



Interest rate risk.    Our earnings
are affected by changes in short-term interest rates as a result of the issuance of short-term commercial paper and variable-rate notes. However, the effects of interest rate changes are reduced by our management of our debt portfolio between fixed-
and variable-rate instruments as well as the utilization of interest rate swaps. Risk can be estimated by measuring the impact of a near-term adverse movement of 10% in short-term market interest rates. If these rates average 10% more in 2003 than
in 2002, there would be no material adverse impact on our results of operations or financial position. During 2002, had short-term market interest rates averaged 10% more than in 2001, there would have been no material adverse impact on our results
of operations or financial position.



Equity
price sensitivity.    Our financial position is affected by changes in equity prices as a result of certain investments. Risk can be estimated by measuring the impact of a near-term adverse movement of 10% in the value of our
equity security investments. If the market price of our investments in equity securities in 2003 were to fall by 10% below the level at the end of 2002, there would be no material adverse impact on our results of operations or financial position.
During 2002, declines in the market price of our equity securities did not have a material adverse impact on our results of operation or financial position.



Foreign exchange risk.    We conduct business in the United States and around the world. Our most significant
foreign currency transaction exposures relate to Canada, the United Kingdom, Western European countries that use the euro as a common currency, Australia and New Zealand. The primary purpose of our foreign currency hedging activities is to protect
against foreign currency exchange risk from intercompany financing and trading transactions. We enter into foreign currency forward contracts with durations of generally less than 30 days to hedge such transactions. We have not entered into foreign
currency forward contracts for speculative or trading purposes.



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Generally,
foreign currency forward contracts are not designated as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. In addition, since we enter into forward contracts only as an economic
hedge, any change in currency rates would not result in any material gain or loss, as any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Risk can be estimated by measuring the
impact of a near-term adverse movement of 10% in foreign currency rates against the U.S. dollar. If these rates average 10% more in 2003 than in 2002, there would be no material adverse impact on our results of operations or financial position.
During 2002, had foreign currency rates averaged 10% more than in 2001, there would have been no material adverse impact on our results of operations or financial position.



Application of Critical Accounting Policies



The preparation of our financial statements in conformity with generally accepted accounting principles in
the United States requires us 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 consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. 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, revenue recognition, accounting for long-lived assets, performance guarantees,
litigation, accounts receivable collectibility and retirement plans.



Revenue recognition.    We provide services under time-and-material, unit-price or fixed-price contracts which may extend up to 10 or more years. Under 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 certain unit-price and fixed-price contracts, we follow the guidance contained
in AICPA Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. SOP 81-1 requires the use of percentage-of-completion accounting for certain long-term contracts
that contain enforceable rights regarding services to be provided and received by the contracting parties, consideration to be exchanged, and the manner and terms of settlement, assuming reasonably dependable estimates of revenue and expenses can be
made. We use the cost-to-cost percentage-of-completion method whereby amounts recognized in revenue are calculated using the percentage of services completed, on a current cumulative cost to total cost basis. Costs associated with the purchase of
long-lived assets to be used on a specific contract are capitalized and excluded from current cumulative costs in calculating the percentage of services completed. Depreciation and amortization of such costs are included in such calculation over the
period of use of the asset. Cumulative revenues recognized may be less or greater than cumulative costs and profits billed at any point in time during a contracts term. The resulting difference is recognized as unbilled or deferred revenue.



Any estimation process, including that used in
preparing contract accounting models, involves inherent risk. We reduce the inherent risk relating to revenue and cost estimates in percentage-of-completion models through corporate policy, approval and monitoring processes. 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. This methodology is primarily used at the inception of our largest IT services contracts where
the amount of profit to be recognized on a contract over its term is not yet determinable. Our estimates of revenues and expenses on client contracts change periodically in the normal course of business, occasionally due to modifications of our
contractual arrangements. In addition, the implementation of cost saving initiatives and achievement of productivity gains generally results in a reduction of estimated total contract expenses on affected client contracts. For client contracts
accounted for under the percentage-of-completion method, such changes would be reflected in results of operations as a change in accounting estimate in the period the revisions are determined.



Approximately 10% of our IT service contracts representing
approximately 40% of total revenues use the percentage-of-completion method of revenue recognition. Unbilled and deferred revenue were $3.0 billion and $830 million, respectively, in our consolidated balance sheet at December 31, 2002. The net
change in unbilled and deferred revenue, which represents the difference between amounts billed in accordance with contractual terms and amounts recognized as revenue in our income statement, equated to 3.9% of 2002 total revenues. This net change
was primarily associated with certain contracts requiring large upfront system development and construction efforts. These contracts are structured in a manner that generally provides payment for these efforts over periods of time beginning
subsequent to the completion of the development and construction efforts. The NMCI Contract and the contracts with the U.K. government, referred to under Financial Position above, represent the largest contracts of this type. Excluding
the NMCI Contract and these U.K. government contracts, the net change in unbilled and deferred revenue equated to 0.1% of total revenues during 2002.



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Long-lived
assets.    The following table presents goodwill balances at December 31, 2002 and operating income for the years ended December 31, 2002, 2001 and 2000 for each of our reportable segments (in millions):



|                     |  | Goodwill at December 31, 2002 |       | Operating Income For the Years Ended
|-------------------- |  | ----------------------------- | ----- | ------------------------------------
|                     |  |                               | 2002  |                                     
|Operations Solutions |  | $                             | 1,920 |                                     
|Solutions Consulting |  |                               | 1,168 |                                     
|PLM Solutions        |  |                               | 968   |                                     



Goodwill
is not amortized, but instead tested for impairment at least annually. The first step of the goodwill impairment test is a comparison of the fair value of a reporting unit to its carrying value. The fair value of a reporting unit is the amount which
the unit as a whole could be bought or sold in a current transaction between willing parties. We conducted a transitional goodwill impairment test upon adoption of SFAS No. 142 as of January 1, 2002, and an annual goodwill impairment test as of
December 1, 2002. The goodwill impairment test requires us to identify our reporting units and obtain estimates of the fair values of those units as of the testing date. Our reporting units are our lines of business or the geographic components of
our lines of business that share similar economic characteristics. We estimate the fair values of our reporting units using discounted cash flow valuation models. Those models require estimates of future revenues, profits, capital expenditures and
working capital for each unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans and industry data. The estimated fair value of each of our reporting units exceeded its respective carrying value in both
tests conducted in 2002 indicating the underlying goodwill of each unit was not impaired at the respective testing dates. We plan to conduct our annual impairment test as of December 1 of each year when our budgets and operating plans for the
forthcoming year are finalized. The timing and frequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would more than likely reduce the fair value of a reporting unit below its carrying value.
We will continue to monitor our goodwill balance for impairment and conduct formal tests when impairment indicators are present. A decline in the fair value of any of our reporting units below its carrying value is an indicator that the underlying
goodwill of the unit is potentially impaired. This situation would require the second step of the goodwill impairment test to determine whether the units goodwill is impaired. The second step of the goodwill impairment test is a comparison of
the implied fair value of a reporting units goodwill to its carrying value. An impairment loss is required for the amount which the carrying value of a reporting units goodwill exceeds its implied fair value. The implied fair value of
the reporting units goodwill would become the new cost basis of the units goodwill.



Our property and equipment, software and definite-lived intangible asset policies require the amortization or depreciation of assets over their estimated useful lives. An assets useful life is
the period over which the asset is expected to contribute directly or indirectly to our future cash flows. The useful lives of property and equipment are limited to the lesser of standard depreciable lives or, for those assets dedicated to client
contracts, the related contract term.



The useful
lives of capitalized software are limited to the shorter of the license period or the related contract term. The estimated useful lives of definite-lived intangible assets are based on the expected use of the asset and factors that may limit the use
of the asset. We may utilize the assistance of a third-party appraiser in the assessment of the useful life of an intangible asset.



Liabilities.    When current estimates of total contract revenue and contract cost indicate a loss, a provision
for the entire loss is recognized in the period it becomes evident and, therefore, could have a significant impact on the Companys earnings for such period. Provisions for loss are reported as cost of revenue in the consolidated income
statement. The same risks considered when recognizing revenue under the percentage-of-completion method are also considered when estimating contract loss for a particular contract. During the year ended December 31, 2002, we accrued losses of
approximately $160 million on several contracts due to the lack of delivery of system deliverables in accordance with contractual milestones or our inability to deliver contracted services at cost levels that will not exceed expected billings. Loss
accruals for contracts were not material for 2001 and 2000.



In the normal course of business, we may provide certain clients, principally governmental entities, with financial performance guarantees, which are generally backed by standby letters of credit or surety bonds. In general, we would
only be liable for the amounts of these guarantees in the event that our nonperformance permits termination of the related contract by our client, the possibility of which we believe is remote. At December 31, 2002, we had $372 million of
outstanding standby letters of credit and surety bonds relating to these performance guarantees. In addition, we had $905 million outstanding under CSFT and securitization transactions that are supported by performance guarantees. We believe we are
in compliance with our performance obligations under all service contracts for which there is a performance guarantee. In addition, we had $30 million of other financial guarantees outstanding at December 31, 2002 relating to indebtedness of others.



28



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There are
various claims and pending actions against EDS arising in the ordinary course of the conduct of our business. See Note 15 to the consolidated financial statements for a discussion of current litigation. Certain of these actions seek damages in
significant amounts. Among other things, we consider the period in which the underlying cause of the claim occurred, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the loss to determine whether a
loss accrual and/or disclosure in our consolidated financial statements is required. The degree of probability and the loss related to a particular claim are typically estimated with the assistance of legal counsel.



Accounts receivable.    Reserves
for uncollectible trade receivables are established when collection of amounts due from clients is deemed improbable. Indicators of improbable collection include client bankruptcy, client litigation, industry downturns, client cash flow difficulties
or ongoing service or billing disputes. Receivables more than 180 days past due are automatically reserved unless collection is deemed probable. Our allowances for doubtful accounts as a percentage of total gross trade receivables, excluding
unbilled receivables, were 7.7%, 2.7% and 3.4% at December 31, 2002, 2001 and 2000, respectively. The increase in the allowance in 2002 results from the recognition of reserves in connection with the WorldCom and US Airways bankruptcies. Excluding
these reserves, the allowance percentage was 2.7% at December 31, 2002.



Retirement plans.    We offer pension and other postretirement benefits to our employees through multiple global pension plans. Our largest pension plans are funded through our cash contributions
and earnings on plan assets. We use the actuarial models required by SFAS No. 87, Employers Accounting for Pensions, to account for our pension plans. Two of the most significant actuarial assumptions used to calculate the net periodic
pension benefit expense and the related pension benefit obligation for our defined pension benefit plans are the expected long-term rate of return on plan assets and the discount rate assumptions.



SFAS No. 87 requires the use of an expected long-term rate of
return that, over time, will approximate the actual long-term returns earned on pension plan assets. We base this assumption on historical five-year actual returns as well as anticipated future returns based on our investment mix. Given our
relatively young workforce, we are able to take a long-term view of our pension investment strategy. Accordingly, plan assets are weighted heavily towards equity investments. Equity investments are susceptible to significant short-term fluctuations
but have historically outperformed most other investment alternatives on a long-term basis. At December 31, 2002, approximately 85% of pension assets were invested in public and private equity and real estate investments with the remaining assets
being invested in fixed income securities. Such mix is consistent with that assumed in determining the expected long-term rate of return on plan assets. Rebalancing our actual asset allocations to our planned allocations based on actual performance
has not been a significant issue.



A 9.6%
weighted-average expected long-term rate of return on plan assets assumption was used for the 2002 pension plan actuarial valuations compared to a 9.7% rate used in 2001. A 100 basis point increase or decrease in this assumption results in an
estimated pension expense decrease or increase, respectively, of $40 million in the subsequent years pension expense (based on the most recent pension valuation and assuming all other variables are constant).



An assumed discount rate is required to be used in each
pension plan actuarial valuation. This rate reflects the underlying rate determined on the measurement date at which the pension benefits could effectively be settled. High quality bond yields on our measurement date, October 31, 2002, with
maturities consistent with expected pension payment periods are used to determine the appropriate discount rate assumption. Such maturities are currently estimated to be 17 years. A 6.4% discount rate assumption was used for the 2002 pension plan
actuarial valuations, compared to a 6.7% discount rate used in 2001. The methodology used to determine the appropriate discount rate assumption has been consistently applied. A 100 basis point increase in the discount rate assumption will result in
an estimated decrease of approximately $134 million in the subsequent years pension expense, and a 100 basis point decrease in the discount rate assumption will result in an estimated increase of approximately $156 million in the subsequent
years pension expense (based on the most recent pension valuation and assuming all other variables are constant).



Negative financial market returns in 2001 and 2002 have caused our actual pension plan asset returns to be less than the expected returns
reflected in our assumptions. Our long-standing policy of making consistent cash pension plan contributions has provided some protection against negative short-term market returns. However, despite these contributions, negative market returns have
resulted in a decline in the fair value of our plan assets and declining discount rates have resulted in an increase in our pension liability over the last several years. These factors have caused a significant decline in our pension plans
funded status, which as of October 31, 2002, reflected total plan assets of $3.7 billion and total accumulated benefit obligations under all plans of $4.5 billion. As a result, under the requirements of SFAS No. 87, we accrued an additional minimum
pension plan liability, net of tax, of $423 million during the fourth quarter of 2002 with a corresponding reduction in the accumulated other comprehensive income component of shareholders equity.



29



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As a result of
decreasing our weighted-average long-term rate of return assumption for plan assets as of January 1, 2003 to 8.7% and the decline in the fair value of plan assets in 2002, our 2003 pension expense will increase over 2002 by approximately
$100 million. Our required minimum amount of 2003 contributions will not exceed actual contributions made in 2002. However, we may elect to increase the level of contributions in 2003 over 2002 levels based on a number of factors, including
performance of pension investments, changes in interest rates, and changes in workforce compensation.



New Accounting Standards



In June 2001, the FASB issued 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. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. We will adopt this Standard on January 1, 2003. The adoption of this Standard will result in a cumulative effect adjustment of $(0.04) to $(0.05) per share on January 1, 2003.



In June 2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this Standard is not expected to have a material impact on our results of operations or financial position.



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, which must be applied to all revenue arrangements entered into no later than June 30, 2003. However, the EITF is
continuing discussion of the applicability of this Issue to arrangements having one or more elements within the scope of higher level accounting literature, including SOP 81-1. 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 our contracts, we 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. Assuming the segmentation criteria are met, the accounting for system design and development elements of multiple-element IT service contracts similar to those we typically enter into could continue to use the
percentage-of-completion method of revenue recognition. The accounting for this element, which usually occurs in the early stages of these contracts and has resulted in the recognition of the majority of our unbilled revenues, might not change as a
result of the EITF. Revenue recognition for the segmented processing elements would likely occur on an as-billed or straight-line basis. We cannot determine the ultimate impact of EITF 00-21 on our business until the EITF resolves uncertainties
regarding its scope.



In January 2003, the FASB
issued FIN 46, an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 addresses consolidation by business enterprises of variable interest entities. Under current practice, consolidation occurs
when one enterprise controls the other through voting interests. FIN 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. FIN
46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. Variable interest entities that effectively disperse risks
will not be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed. FIN 46 applies immediately to variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. We are in the process of identifying our interest in variable interest entities to determine which, if any such entities, require consolidation under FIN 46. If we determine we should consolidate these entities,
we would recognize certain assets and debt on our consolidated balance sheets and a cumulative adjustment for the accounting change in our consolidated statements of income.



30



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|ITEM |  | 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|---- |  | -------------------------------------------------



|                                                                         |  |     
|------------------------------------------------------------------------ |  | ----
|Index to Financial Statements and Financial Statement Schedule           |  | Page
|Independent Auditors Report                                             |  | 32  
|Consolidated Statements of Income                                        |  | 33  
|Consolidated Balance Sheets                                              |  | 34  
|Consolidated Statements of Shareholders Equity and Comprehensive
Income |  | 35  
|Consolidated Statements of Cash Flows                                    |  | 36  
|Notes to Consolidated Financial Statements                               |  | 37  
|Financial Statement Schedule II  Valuation and Qualifying Accounts      |  | 73  



31



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INDEPENDENT AUDITORS
REPORT



The Board of Directors

Electronic Data Systems Corporation:



We have audited the accompanying consolidated balance sheets of Electronic Data Systems Corporation and subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of income, shareholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2002. In connection with our audits of the
consolidated financial statements, we have also audited the related financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis
for our opinion.



In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the financial position of Electronic Data Systems Corporation and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



As discussed in Note 1 to the consolidated financial statements, during 2001, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS No. 141, Business Combinations, and certain provisions of SFAS No. 142,
Goodwill and Other Intangibles Assets, as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. In 2002, the Company fully adopted the provisions of SFAS No. 142, as required for
goodwill and intangible assets resulting from business combinations consummated before July 1, 2001.









KPMG LLP

Dallas, Texas

February 5, 2003



32



---



ELECTRONIC DATA SYSTEMS
CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF
INCOME

(in millions, except per share amounts)



|                                                                                                                  |  | Years Ended December 31, |       
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                                                                  |  | 2002                     |       
|Revenues                                                                                                          |  | $                        | 21,502
|                                                                                                                  |  |                          |       
|Costs and expenses                                                                                                |  |                          |       
|Cost of revenues                                                                                                  |  |                          | 17,744
|Selling, general and administrative                                                                               |  |                          | 1,889 
|Acquired in-process R&D and other acquisition-related costs                                                       |  |                          |      
|Restructuring and other charges                                                                                   |  |                          | (3    
|                                                                                                                  |  |                          |       
|Total costs and expenses                                                                                          |  |                          | 19,630
|                                                                                                                  |  |                          |       
|Operating income                                                                                                  |  |                          | 1,872 
|Other income (expense)                                                                                            |  |                          |       
|Interest expense and other, net                                                                                   |  |                          | (347  
|Reclassification of investment gain from equity                                                                   |  |                          |      
|                                                                                                                  |  |                          |       
|Total other income (expense)                                                                                      |  |                          | (347  
|                                                                                                                  |  |                          |       
|Income from continuing operations before income taxes                                                             |  |                          | 1,525 
|Provision for income taxes                                                                                        |  |                          | 518   
|                                                                                                                  |  |                          |       
|Income from continuing operations                                                                                 |  |                          | 1,007 
|Income from discontinued operations, net of income taxes (including net gain of $87 in
2002, net of income taxes) |  |                          | 109   
|                                                                                                                  |  |                          |       
|Income before cumulative effect of a change in accounting principle                                               |  |                          | 1,116 
|Cumulative effect on prior years of a change in accounting for derivatives, net of
income taxes                   |  |                          |      
|                                                                                                                  |  |                          |       
|Net income                                                                                                        |  | $                        | 1,116 
|                                                                                                                  |  |                          |       
|Basic earnings per share of common stock                                                                          |  |                          |       
|Income from continuing operations                                                                                 |  | $                        | 2.10  
|Income from discontinued operations                                                                               |  |                          | 0.23  
|Cumulative effect on prior years of a change in accounting for
derivatives                                        |  |                          |      
|                                                                                                                  |  |                          |       
|Net income                                                                                                        |  | $                        | 2.33  
|                                                                                                                  |  |                          |       
|Diluted earnings per share of common stock                                                                        |  |                          |       
|Income from continuing operations                                                                                 |  | $                        | 2.06  
|Income from discontinued operations                                                                               |  |                          | 0.22  
|Cumulative effect on prior years of a change in accounting for
derivatives                                        |  |                          |      
|                                                                                                                  |  |                          |       
|Net income                                                                                                        |  | $                        | 2.28  
|                                                                                                                  |  |                          |       



See accompanying
notes to consolidated financial statements.



33



---



ELECTRONIC DATA SYSTEMS
CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)



|                                                                                                                                                              |  | December 31, |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------
|                                                                                                                                                              |  | 2002         |       
|ASSETS                                                                                                                                                        |  |              |       
|Current assets                                                                                                                                                |  |              |       
|Cash and cash equivalents                                                                                                                                     |  | $            | 1,642 
|Marketable securities                                                                                                                                         |  |              | 248   
|Accounts receivable and unbilled revenue, net (including pledged receivables of $406 in
2002)                                                                 |  |              | 6,435 
|Prepaids and other                                                                                                                                            |  |              | 1,060 
|                                                                                                                                                              |  |              |       
|Total current assets                                                                                                                                          |  |              | 9,385 
|Property and equipment, net                                                                                                                                   |  |              | 3,023 
|Investments and other assets                                                                                                                                  |  |              | 986   
|Goodwill                                                                                                                                                      |  |              | 4,077 
|Other intangible assets, net                                                                                                                                  |  |              | 1,409 
|                                                                                                                                                              |  |              |       
|Total assets                                                                                                                                                  |  | $            | 18,880
|                                                                                                                                                              |  |              |       
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                          |  |              |       
|Current liabilities                                                                                                                                           |  |              |       
|Accounts payable and accrued liabilities                                                                                                                      |  | $            | 3,674 
|Deferred revenue                                                                                                                                              |  |              | 830   
|Income taxes                                                                                                                                                  |  |              | 386   
|Current portion of long-term and secured revolving debt                                                                                                       |  |              | 1,239 
|                                                                                                                                                              |  |              |       
|Total current liabilities                                                                                                                                     |  |              | 6,129 
|Deferred income taxes                                                                                                                                         |  |              | 51    
|Pension benefit liability                                                                                                                                     |  |              | 1,113 
|Long-term debt, less current portion                                                                                                                          |  |              | 4,148 
|Minority interests and other long-term liabilities                                                                                                            |  |              | 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 December 31, 2002; 495,593,044 shares issued at December 31, 2001 |  |              | 5     
|Additional paid-in capital                                                                                                                                    |  |              | 901   
|Retained earnings                                                                                                                                             |  |              | 7,951 
|Accumulated other comprehensive income                                                                                                                        |  |              | (689  
|Treasury stock, at cost, 18,731,311 and 18,277,672 shares at December 31, 2002 and 2001,
respectively                                                         |  |              | (1,146
|                                                                                                                                                              |  |              |       
|Total shareholders equity                                                                                                                                    |  |              | 7,022 
|                                                                                                                                                              |  |              |       
|Total liabilities and shareholders equity                                                                                                                    |  | $            | 18,880
|                                                                                                                                                              |  |              |       



See accompanying
notes to consolidated financial statements.





34



---



ELECTRONIC DATA SYSTEMS
CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME

(in millions)



|                                                                                           |  | Common Stock  |  | Additional Paid-In Capital |   |  | Retained Earnings |      |             | Other Comprehensive Income |   |        | Treasury Stock |  |   | Share-holders Equity |  
|------------------------------------------------------------------------------------------ |  | ------------- |  | -------------------------- | - |  | ----------------- | ---- | ----------- | -------------------------- | - | ------ | -------------- |  | - | --------------------- | -
|                                                                                           |  | Shares Issued |  | Amount                     |   |  |                   |      | Shares Held |                            |   | Amount |                | 
|Balance at December 31, 1999                                                               |  | 493           |  | $                          | 5 |  | $                 | 972  |             |                            | $ | 5,179  |                |  | $ | (80                   | )
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Comprehensive income:                                                                      |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Net income                                                                                 |  |              |  |                            |  |  |                   |     |             |                            |   | 1,143  |                |  |   |                      |  
|Currency translation adjustment                                                            |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | (96                   | )
|Unrealized losses on securities, net of tax effect of $14, and reclassification
adjustment |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | (24                   | )
|Change in minimum pension liability, net of tax effect of $21                              |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | (38                   | )
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Total comprehensive income                                                                 |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Dividends declared                                                                         |  |              |  |                            |  |  |                   |     |             |                            |   | (280   | )              |  |   |                      |  
|Stock award transactions                                                                   |  |              |  |                            |  |  |                   | (23  | )           |                            |   |       |                |  |   |                      |  
|Purchase of treasury shares                                                                |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   |                      |  
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Balance at December 31, 2000                                                               |  | 493           |  | $                          | 5 |  | $                 | 949  |             |                            | $ | 6,042  |                |  | $ | (238                  | )
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Comprehensive income:                                                                      |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Net income                                                                                 |  |              |  |                            |  |  |                   |     |             |                            |   | 1,363  |                |  |   |                      |  
|Currency translation adjustment                                                            |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | (98                   | )
|Unrealized losses on securities, net of tax effect of $1, and reclassification
adjustment  |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | (239                  | )
|Change in minimum pension liability, net of tax effect of $8                               |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | 15                    |  
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Total comprehensive income                                                                 |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Dividends declared                                                                         |  |              |  |                            |  |  |                   |     |             |                            |   | (283   | )              |  |   |                      |  
|Issuance of stock purchase contracts (Notes 7 and 12)                                      |  |              |  |                            |  |  |                   | (118 | )           |                            |   |       |                |  |   |                      |  
|Stock issued for acquisition (Notes 8 and 16)                                              |  | 3             |  |                            |  |  |                   | 134  |             |                            |   |       |                |  |   |                      |  
|Stock award transactions                                                                   |  |              |  |                            |  |  |                   | (3   | )           |                            |   |       |                |  |   |                      |  
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Balance at December 31, 2001                                                               |  | 496           |  | $                          | 5 |  | $                 | 962  |             |                            | $ | 7,122  |                |  | $ | (560                  | )
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Comprehensive income:                                                                      |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Net income                                                                                 |  |              |  |                            |  |  |                   |     |             |                            |   | 1,116  |                |  |   |                      |  
|Currency translation adjustment                                                            |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | 288                   |  
|Unrealized losses on securities, net of tax effect of $1, and reclassification
adjustment  |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | 6                     |  
|Change in minimum pension liability, net of tax effect of $217                             |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   | (423                  | )
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Total comprehensive income                                                                 |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Dividends declared                                                                         |  |              |  |                            |  |  |                   |     |             |                            |   | (287   | )              |  |   |                      |  
|Stock issued for acquisition (Note 8)                                                      |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   |                      |  
|Issuance of stock purchase contracts (Note 12)                                             |  |              |  |                            |  |  |                   | 11   |             |                            |   |       |                |  |   |                      |  
|Stock award transactions                                                                   |  |              |  |                            |  |  |                   | (72  | )           |                            |   |       |                |  |   |                      |  
|Purchase of treasury shares                                                                |  |              |  |                            |  |  |                   |     |             |                            |   |       |                |  |   |                      |  
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  
|Balance at December 31, 2002                                                               |  | 496           |  | $                          | 5 |  | $                 | 901  |             |                            | $ | 7,951  |                |  | $ | (689                  | )
|                                                                                           |  |               |  |                            |   |  |                   |      |             |                            |   |        |                |  |   |                       |  



See accompanying
notes to consolidated financial statements.





35



---



ELECTRONIC DATA SYSTEMS
CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF
CASH FLOWS

(in millions)



|                                                                                   |  | Years Ended December 31, |      
|---------------------------------------------------------------------------------- |  | ------------------------ | -----
|                                                                                   |  | 2002                     |      
|Cash Flows from Operating Activities                                               |  |                          |      
|Net income                                                                         |  | $                        | 1,116
|                                                                                   |  |                          |      
|Adjustments to reconcile net income to net cash provided by operating
activities:  |  |                          |      
|Depreciation and amortization                                                      |  |                          | 1,443
|Deferred compensation                                                              |  |                          | 59   
|Asset write-downs, including acquired in-process R&D                               |  |                          | 38   
|Other (including net gain from discontinued operations of $87 in 2002)             |  |                          | (64  
|Changes in operating assets and liabilities, net of effects of acquired
companies: |  |                          |      
|Accounts receivable and unbilled revenue                                           |  |                          | (679 
|Prepaids and other                                                                 |  |                          | (216 
|Accounts payable and accrued liabilities                                           |  |                          | 56   
|Deferred revenue                                                                   |  |                          | 210  
|Income taxes                                                                       |  |                          | 283  
|                                                                                   |  |                          |      
|Total adjustments                                                                  |  |                          | 1,130
|                                                                                   |  |                          |      
|Net cash provided by operating activities                                          |  |                          | 2,246
|                                                                                   |  |                          |      
|Cash Flows from Investing Activities                                               |  |                          |      
|Proceeds from sales of marketable securities                                       |  |                          | 60   
|Proceeds from investments and other assets                                         |  |                          | 217  
|Proceeds from divested assets                                                      |  |                          | 301  
|Payments for purchases of property and equipment                                   |  |                          | (973 
|Payments for investments and other assets                                          |  |                          | (175 
|Payments related to acquisitions, net of cash acquired                             |  |                          | (107 
|Payments for purchases of software and other intangibles                           |  |                          | (367 
|Payments for purchases of marketable securities                                    |  |                          | (20  
|Other                                                                              |  |                          | 67   
|                                                                                   |  |                          |      
|Net cash used in investing activities                                              |  |                          | (997 
|                                                                                   |  |                          |      
|Cash Flows from Financing Activities                                               |  |                          |      
|Proceeds from long-term and secured revolving debt                                 |  |                          | 461  
|Payments on long-term debt                                                         |  |                          | (171 
|Net increase (decrease) in borrowings with original maturities less than 90
days   |  |                          | 147  
|Payments for redeemable stock of subsidiary                                        |  |                          |     
|Purchase of treasury shares                                                        |  |                          | (380 
|Employee stock transactions                                                        |  |                          | 89   
|Dividends paid                                                                     |  |                          | (287 
|Other                                                                              |  |                          | (25  
|                                                                                   |  |                          |      
|Net cash provided by (used in) financing activities                                |  |                          | (166 
|                                                                                   |  |                          |      
|Effect of exchange rate changes on cash and cash equivalents                       |  |                          | 38   
|                                                                                   |  |                          |      
|Net increase (decrease) in cash and cash equivalents                               |  |                          | 1,121
|Cash and cash equivalents at beginning of year                                     |  |                          | 521  
|                                                                                   |  |                          |      
|Cash and cash equivalents at end of year                                           |  | $                        | 1,642
|                                                                                   |  |                          |      



See accompanying
notes to consolidated financial statements.





36



---



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS



|NOTE |  | 1:    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|---- |  | ------------------------------------------------



Description of Business



Electronic Data Systems Corporation is a professional services firm that offers its clients a portfolio of related services worldwide
within the broad categories of traditional information technology (IT) outsourcing, business process outsourcing, solutions consulting, management consulting, and product lifecycle management software and services. Services include the
design, construction and/or management of computer networks, information systems, information processing facilities and business processes. As used herein, the terms EDS and the Company refer to Electronic Data Systems
Corporation and its consolidated subsidiaries.



Principles of
Consolidation



The 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 contractual rights are not considered
controlled subsidiaries. The Companys investments in entities it does not control, but in which it has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Under such
method, the Company recognizes its share of the subsidiaries income (loss) in other income (expense).



Earnings Per Share



Basic earnings per share of common stock is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share amounts reflect the incremental
increase in common shares outstanding assuming the exercise of all employee stock options and stock purchase contracts and the issuance of shares in respect of restricted stock units that would have had a dilutive effect on earnings per share.
Diluted earnings per share also assumes that any dilutive convertible debt outstanding was converted at the later of the date of issuance or the beginning of the period, with related interest and outstanding common shares adjusted accordingly. The
following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                                                                 |  | 2002 |  | 2001 |  | 2000
|---------------------------------------------------------------- |  | ---- |  | ---- |  | ----
|Basic earnings per share of common stock:                        |  |      |  |      |  |     
|Weighted-average common shares outstanding                       |  | 479  |  | 470  |  | 466 
|Effect of dilutive securities (Note 10):                         |  |      |  |      |  |     
|Restricted stock units                                           |  | 4    |  | 5    |  | 5   
|Stock options                                                    |  | 5    |  | 9    |  | 5   
|Stock purchase contracts                                         |  | 1    |  |     |  |    
|                                                                 |  |      |  |      |  |     
|Diluted earnings per share:                                      |  |      |  |      |  |     
|Weighted-average common and common equivalent shares outstanding |  | 489  |  | 484  |  | 476 
|                                                                 |  |      |  |      |  |     



Securities that were outstanding but were not included in the computation of diluted earnings per share because their effect was antidilutive include options to purchase 73 million, 9 million and 11 million shares of common stock for
the years ended December 31, 2002, 2001 and 2000, respectively, 1 million restricted stock units for the year ended December 31, 2002, and debt and related forward purchase contracts convertible into 33 million shares of common stock for the
years ended December 31, 2002 and 2001.



Accounts Receivable



The Company recognizes allowances for
doubtful accounts when circumstances indicate an account receivable will not be paid by a client due to client liquidity or other issues. Accounts receivable are shown net of allowances of $283 million and $107 million at December 31, 2002 and 2001,
respectively.



37



---



Marketable Securities



Marketable securities at December 31, 2002
and 2001 consist of government and agency obligations, corporate debt, and corporate equity securities. The Company classifies all of its debt and marketable equity securities as trading or available-for-sale. All such investments are recorded at
fair value. Changes in net unrealized holding gains (losses) on trading securities are recognized in income, whereas changes in net unrealized holding gains (losses) on available-for-sale securities are reported as a component of comprehensive
income in shareholders equity until realized.



Investments in marketable securities are monitored for impairment and written down to fair value with a charge to earnings if a decline in fair value is judged to be other than temporary. The Company considers several factors to
determine whether a decline in the fair value of an equity security is other than temporary, including the length of time and the extent to which the fair value has been less than carrying value, the financial condition of the investee, and the
intent and ability of the Company to retain the investment for a period of time sufficient to allow a recovery in value.



Property and Equipment



Property and equipment are carried at cost. Depreciation of property and equipment is calculated using the straight-line method over the
shorter of the assets estimated useful life or the term of the lease in the case of leasehold improvements. The ranges of estimated useful lives are as follows:



|                              |  | Years
|----------------------------- |  | -----
|Buildings                     |  | 20-50
|Facilities                    |  | 3-20 
|Computer equipment            |  | 3-5  
|Other equipment and furniture |  | 3-7  



The
Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate the carrying values of such assets may not be recoverable. For property and equipment to be held and used, impairment is determined by a
comparison of the carrying value of the asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the
assets exceeds the fair value of the assets. Property and equipment to be disposed of by sale is carried at the lower of then current carrying value or fair value less cost to sell.



Investments and Other Assets



Investments in non-marketable equity securities are monitored for impairment and written down to fair value
with a charge to earnings if a decline in fair value is judged to be other than temporary. The fair values of non-marketable equity securities are determined based on quoted market prices. If quoted market prices are not available, fair values are
estimated based on an evaluation of numerous indicators including, but not limited to, offering prices of recent issuances of the same or similar equity instruments, quoted market prices for similar companies and comparisons of recent financial
information, operating plans, budgets, market studies and client information to the information used to support the initial valuation of the investment. The Company considers several factors to determine whether a decline in the fair value of a
non-marketable equity security is other than temporary, including the length of time and the extent to which the fair value has been less than carrying value, the financial condition of the investee, and the intent and ability of the Company to
retain the investment for a period of time sufficient to allow a recovery in value.



Goodwill and Other Intangible Assets



Purchased software or licensed software not subject to a subscription agreement and utilized in designing, installing and operating business information and communications systems is capitalized and amortized on a
straight-line basis, generally over two to five years. Costs of developing and maintaining software systems incurred primarily in connection with client contracts are considered contract costs. Purchased software and development costs for computer
software sold, leased or otherwise marketed as a separate product or as part of a product or process are capitalized and amortized on a product-by-product basis over their remaining estimated useful lives at the greater of straight-line or the ratio
that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product. Estimated useful lives of software products to be sold, leased or otherwise marketed range from three to seven years.
Software development costs incurred to meet the Companys internal needs are capitalized and amortized on a straight-line basis over three to five years. Software under subscription arrangements, whereby the software provider makes available
current software products as well as products developed or acquired during the term of the arrangement, are expensed ratably over the subscription term.



38



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The cost of acquired companies is allocated to the assets acquired and liabilities assumed
based on estimated fair values at the date of acquisition. Costs allocated to identifiable intangible assets other than purchased software are generally amortized on a straight-line basis over the remaining estimated useful lives of the assets, as
determined by underlying contract terms or appraisals. Such lives range from one to 10 years. Identifiable intangible assets with indefinite useful lives are not amortized but instead tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Intangible assets with indefinite useful lives are impaired when the carrying value of the asset exceeds its fair value. Impaired indefinite lived intangible assets are written down
to fair value with a charge to expense in the period the impairment is identified. As this impairment test is based on the Companys assessment of the fair value of its reporting units, future changes to these estimates could cause an
impairment of a portion of the Companys goodwill balance.



The excess of the cost of acquired companies over the net amounts assigned to assets acquired and liabilities assumed is recorded as goodwill. Goodwill is not amortized but instead tested for impairment at least annually. The first
step of the impairment test is a comparison of the fair value of a reporting unit to its carrying value. Reporting units are the Companys lines of business or the geographic components of its lines of business that share similar economic
characteristics. The fair value of a reporting unit is estimated using the Companys projections of discounted future operating cash flows of the unit. Goodwill allocated to a reporting unit whose fair value is equal to or greater than its
carrying value is not impaired and no further testing is required. A reporting unit whose fair value is less than its carrying value requires a second step to determine whether the goodwill allocated to the unit is impaired. The second step of the
goodwill impairment test is a comparison of the implied fair value of a reporting units goodwill to its carrying value. The implied fair value of a reporting units goodwill is determined by allocating the fair value of the entire
reporting unit to the assets and liabilities of that unit, including any unrecognized intangible assets, based on fair value. The excess of the fair value of the entire reporting unit over the amounts allocated to the identifiable assets and
liabilities of the unit is the implied fair value of the reporting units goodwill. Goodwill of a reporting unit is impaired when its carrying value exceeds its implied fair value. Impaired goodwill is written down to its implied fair value
with a charge to expense in the period the impairment is identified.



The Company determines the timing and frequency of its goodwill impairment tests based on an ongoing assessment of events and circumstances that would more than likely reduce the fair value of a reporting unit below its
carrying value. Events or circumstances that might require the need for more frequent tests include, but are not limited to: the loss of a number of significant clients, the identification of other impaired assets within a reporting unit, the
disposition of a significant portion of a reporting unit, or a significant adverse change in business climate or regulations. The Company also considers the amount by which the fair value of a particular reporting unit exceeded its carrying value in
the most recent goodwill impairment test to determine whether more frequent tests are necessary.



Sales of Financial Assets



The Company accounts for the sale of financial assets when control over the financial asset is relinquished. The Company sold $142 million and $188 million of financial assets, primarily lease
receivables, during 2002 and 2001, respectively. In most cases, the Company sold lease receivables to a legally isolated securitization trust. If a trust is not used, the receivables are sold to an independent substantive financial institution. A
residual beneficial interest, representing the Companys right to receive certain monthly residual cash flows from the securitization trust, has been retained by the Company and is recorded as a current asset at its fair value of $75 million at
December 31, 2002. At December 31, 2001, the recorded and fair values of this residual beneficial interest were $34 million. None of these transactions resulted in any significant gain or loss, or servicing asset or servicing liability.



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. Under 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.



39



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The
Companys software licensing arrangements typically include multiple elements, such as software products, post-contract customer support, consulting and training. The aggregate arrangement fee is allocated to each of the undelivered elements in
an amount equal to its fair value, with the residual of the arrangement fee allocated to the delivered elements. Fair values are based upon vendor-specific objective evidence. Fees allocated to each software element of the arrangement are recognized
as revenue when the following criteria have been met: a) a written contract for the license of software has been executed, b) the Company has delivered the product to the customer, c) the license fee is fixed or determinable, and d) collectibility
of the resulting receivable is deemed probable. If evidence of fair value of the undelivered elements of the arrangement does not exist, all revenue from the arrangement is deferred until such time evidence of fair value does exist, or until all
elements of the arrangement are delivered. Fees allocated to post-contract customer support are recognized as revenue ratably over the support period. Fees allocated to other services are recognized as revenue as the service is performed.



Deferred revenue of $830 million and $488
million at December 31, 2002 and 2001, respectively, represents billings in excess of amounts earned on certain contracts. Unbilled revenue of $3,033 million and $1,845 million at December 31, 2002 and 2001, 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
contractual agreements. Of the $3,033 million unbilled revenue balance outstanding at December 31, 2002, all but $556 million is expected to be billed in 2003. A specific clients aggregate unbilled revenue balance may not decrease when future
billings are rendered because additional costs and related profits in excess of billings may also be incurred in the future in accordance with the contractual agreements. At December 31, 2002, unbilled revenue relating to contracts with U.S.
federal, state and international government clients totaled $1.8 billion.



Currency Translation



Assets and liabilities of non-U.S. subsidiaries whose functional currency is not the U.S. dollar are translated at current exchange rates. Revenue and expense accounts are translated using an average rate for the period. Translation
gains and losses are not included in determining net income, but are reflected in the comprehensive income component of shareholders equity. Cumulative currency translation adjustment losses included in shareholders equity were $240
million, $528 million and $430 million at December 31, 2002, 2001 and 2000, respectively. Net currency transaction losses, net of income taxes, are included in determining net income and were $23 million, $19 million and $7 million, respectively,
for the years ended December 31, 2002, 2001 and 2000.



Accounting Changes



Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative
is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of
the changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are
recognized in earnings. Prior to the adoption of SFAS No. 133, gains and losses on hedges of marketable equity securities were deferred and reported as a component of accumulated other comprehensive income.



The adoption of SFAS No. 133 on January 1, 2001, resulted in a
reduction of income reported as a cumulative effect of a change in accounting principle of $37 million ($24 million after-tax). In accordance with the transitional provisions of SFAS No. 133, the Company elected to reclassify certain
available-for-sale securities into the trading securities classification. This reclassification resulted in a pre-tax gain of $315 million and a decrease to accumulated other comprehensive income of $205 million, net of taxes.



In July 2001, the Financial Accounting Standards Board issued
SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used and establishes new standards for the recognition of certain identifiable
intangible assets, separate from goodwill, for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment
at least annually. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values.



40



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The Company
adopted the provisions of SFAS No. 141 effective July 1, 2001 and fully adopted SFAS No. 142 effective January 1, 2002. In accordance with the transitional provisions of SFAS No. 142, goodwill acquired in purchase business combinations completed
after June 30, 2001 was not amortized, but was evaluated for impairment in 2001 in accordance with the accounting literature in effect prior to the issuance of SFAS No. 142. Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 continued to be amortized through December 31, 2001. Approximately $1.5 billion of the $1.7 billion assigned to goodwill during 2001 was not amortized because it related to acquisitions completed subsequent to June 30, 2001 (see
Note 16).



Derivative Financial Instruments



The Company uses derivative instruments to manage exposures
to foreign currency, securities price and interest rate risks. The Companys objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does
not hold or issue derivative financial instruments for trading purposes.



Foreign Currency Risk



The Company has significant international sales and purchase transactions in foreign currencies. The Company hedges forecasted and actual foreign currency risk with purchased currency options and forward contracts that expire
generally within 30 days. These derivative instruments are employed to eliminate or minimize certain foreign currency exposures that can be confidently identified and quantified. Generally, these instruments are not designated as hedges for
accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings.



Securities Price Risk



The Company has used derivative instruments to eliminate or reduce market price risk associated with strategic equity investments. Securities selected for hedging are determined after considering
market conditions, up-front hedging costs and other relevant factors. Once established, hedges are generally not removed until maturity.



Interest Rate Risk



The Company enters into interest rate swap agreements that convert fixed rate instruments to variable rate instruments to manage interest
rate risk. During 2001 and 2002, the critical terms of each interest rate swap and the underlying debt were the same. As a result, no gains or losses relating to the changes in fair value of the interest rate swap agreements were recognized in
earnings.



Comprehensive Income



Comprehensive income includes all changes in equity during a
period, except those resulting from investments by and distributions to owners. For the years ended December 31, 2002 and 2001, reclassifications from accumulated other comprehensive income to net income of net gains recognized on security
transactions, including the reclassification of certain available-for-sale securities into the trading securities classification, were $3 million and $226 million, net of the related tax expense of $1 million and $122 million, respectively. There
were no such reclassifications in 2000.



Income Taxes



The Company provides for deferred taxes
under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The deferral method is used to account
for investment tax credits.



Statements of Cash Flows



The Company considers the following asset
classes with original maturities of three months or less to be cash equivalents: certificates of deposit, commercial paper, repurchase agreements and money market funds.



41



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Financial Instruments



The following table presents the carrying
amounts and fair values of the Companys significant financial instruments at December 31, 2002 and 2001 (in millions):



|                                                                                                         |  | 2002            |        |   | 2001                 |  
|-------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | - | -------------------- | -
|                                                                                                         |  | Carrying Amount |        |   | Estimated Fair Value |  
|Available-for-sale marketable securities (Note 2)                                                        |  | $               | 179    |   |                      | $
|Trading marketable securities (Note 2)                                                                   |  |                 | 69     |   |                      |  
|Investments in securities, joint ventures and partnerships, excluding equity method
investments (Note 4) |  |                 | 24     |   |                      |  
|Long-term and secured revolving debt (Note 7)                                                            |  |                 | (5,387 | ) |                      |  
|Foreign currency forward contracts, net asset (liability) (Note 12)                                      |  |                 | 8      |   |                      |  
|Interest rate swap agreements, net asset (Note 12)                                                       |  |                 | 61     |   |                      |  



Current
marketable securities are carried at their estimated fair value based on current market quotes. The fair values of certain long-term investments are estimated based on quoted market prices for these or similar investments. For other investments,
various methods are used to estimate fair value, including external valuations and discounted cash flows. The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or based on the current rates
offered to the Company for instruments with similar terms, degree of risk and remaining maturities. The fair value of foreign currency forward and interest rate swap contracts is the estimated amount to settle the contracts using current market
exchange or interest rates. The carrying values of other financial instruments, such as cash equivalents, accounts and notes receivable, and accounts payable, approximate their fair value.



Use of Estimates



The preparation of the 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 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.



Concentration of Credit Risk



Other than our operating receivables from
General Motors (GM), concentrations of credit risk with respect to accounts receivable are generally limited due to the large number of clients forming the Companys client base and their dispersion across different industries and
geographic areas. Net operating receivables from GM and its affiliates totaled $488 million, $453 million and $478 million as of December 31, 2002, 2001 and 2000, respectively. At December 31, 2002, the Company had net operating receivables of
approximately $330 million associated with travel-related industry clients, including airlines, and $410 million associated with clients in the communications industry.



The Company is exposed to credit risk in the event of nonperformance by counterparties to derivative
contracts. Because the Company deals only with major commercial banks with high-quality credit ratings, the Company believes the risk of nonperformance by any of these counterparties is remote.



42



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Stock-Based Compensation



The Company recognizes compensation cost
associated with stock-based awards under the recognition and measurement principles of APB 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 contractual 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 and earnings 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 SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, and are as follows for the years ended December 31, 2002, 2001 and 2000 (in millions,
except per share amounts):



|                                                                                                                                    |  | 2002 |       |   | 2001 |   |       | 2000 | 
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- | 
|Net income:                                                                                                                         |  |      |       |   |      |   |       |      | 
|As reported                                                                                                                         |  | $    | 1,116 |   |      | $ | 1,363 |      | 
|Stock-based employee compensation cost included in reported net income, net of related
tax effects                                  |  |      | 39    |   |      |   | 65    |      | 
|Total stock-based employee compensation expense determined under fair value-based method
for all awards, net of related tax effects |  |      | (312  | ) |      |   | (186  | )    | 
|                                                                                                                                    |  |      |       |   |      |   |       |      | 
|Pro forma                                                                                                                           |  | $    | 843   |   |      | $ | 1,242 |      | 
|                                                                                                                                    |  |      |       |   |      |   |       |      | 
|Basic earnings per share of common stock:                                                                                           |  |      |       |   |      |   |       |      | 
|As reported                                                                                                                         |  | $    | 2.33  |   |      | $ | 2.90  |      | 
|Pro forma                                                                                                                           |  |      | 1.76  |   |      |   | 2.64  |      | 
|                                                                                                                                   
|Diluted earnings per share of common stock:                                                                                         |  |      |       |   |      |   |       |      | 
|As reported                                                                                                                         |  | $    | 2.28  |   |      | $ | 2.81  |      | 
|Pro forma                                                                                                                           |  |      | 1.73  |   |      |   | 2.59  |      | 



The
weighted-average fair value of options granted was $19.59, $23.09 and $19.00 for 2002, 2001 and 2000, respectively. The fair value of each option is estimated at the date of grant using a modified Black-Scholes option pricing model, with the
following weighted-average assumptions for 2002, 2001 and 2000, respectively: dividend yields of 1.1%, 1.0% and 1.2%; expected volatility of 42.7%, 38.6% and 39.8%; risk-free interest rate of 4.5%, 4.8% and 6.3%; and expected lives of 3.8 years, 5.7
years and 3.9 years.



Reclassifications



Certain reclassifications have been made to the 2001 and 2000
consolidated financial statements to conform to the 2002 presentation.



43



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|NOTE |  | 2:    MARKETABLE SECURITIES
|---- |  | ---------------------------



Trading securities at December 31, 2002 and 2001 had carrying amounts of $69 million and $84 million, respectively. Changes in net
unrealized holding losses on trading securities included in earnings were $8 million, $3 million and $1 million for the years ended December 31, 2002, 2001 and 2000.



The following is a summary of current available-for-sale marketable securities at December 31, 2002 and 2001
(in millions):



|                                            |  | 2002          
|------------------------------------------- |  | --------------
|                                            |  | Amortized Cost
|Government and agency obligations           |  | $             
|Other debt securities                       |  |               
|                                            |  |               
|Total debt securities                       |  |               
|Equity securities                           |  |               
|                                            |  |               
|Total current available-for-sale securities |  | $             
|                                            |  |               



|                                            |  | 2001          
|------------------------------------------- |  | --------------
|                                            |  | Amortized Cost
|Government and agency obligations           |  | $             
|Other debt securities                       |  |               
|                                            |  |               
|Total debt securities                       |  |               
|Equity securities                           |  |               
|                                            |  |               
|Total current available-for-sale securities |  | $             
|                                            |  |               



The
amortized cost and estimated fair value of current available-for-sale debt securities at December 31, 2002, by contractual maturity, are shown below (in millions). Expected maturities may differ from contractual maturities because the issuers of the
securities may have the right to repay obligations without prepayment penalties.



|                                      |  | Amortized Cost |     | Estimated Fair Value
|------------------------------------- |  | -------------- | --- | --------------------
|Debt securities:                      |  |                |     |                     
|Due in one year or less               |  | $              | 96  |                     
|Due after one year through five years |  |                | 30  |                     
|                                      |  |                |     |                     
|Total debt securities                 |  | $              | 126 |                     
|                                      |  |                |     |                     



The
following table summarizes sales of available-for-sale securities for the years ended December 31, 2002, 2001 and 2000 (in millions), excluding the delivery of certain investments during 2001 in settlement of the Companys obligation under a
forward sale agreement (see Note 12). Specific identification was used to determine cost in computing realized gain or loss.



|                      |  | 2002 |     |   | 2001 |   | 2000 | 
|--------------------- |  | ---- | --- | - | ---- | - | ---- | 
|Proceeds from sales   |  | $    | 60  |   |      | $ | 58   | 
|Gross realized gains  |  |      |    |   |      |   | 1    | 
|Gross realized losses |  |      | (30 | ) |      |   |     | 



44



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|NOTE |  | 3:    PROPERTY AND EQUIPMENT
|---- |  | ----------------------------



The following is a summary of property and equipment at December 31, 2002 and 2001 (in millions):



|                                                                                                                           |  | 2002 |        |   | 2001 |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Land                                                                                                                       |  | $    | 117    |   |      | $
|Buildings and facilities                                                                                                   |  |      | 1,854  |   |      |  
|Computer equipment                                                                                                         |  |      | 5,460  |   |      |  
|Other equipment and furniture                                                                                              |  |      | 637    |   |      |  
|                                                                                                                           |  |      |        |   |      |  
|Subtotal                                                                                                                   |  |      | 8,068  |   |      |  
|Less accumulated depreciation                                                                                              |  |      | (5,045 | ) |      |  
|                                                                                                                           |  |      |        |   |      |  
|Total                                                                                                                      |  | $    | 3,023  |   |      | $
|                                                                                                                           |  |      |        |   |      |  
|                                                                                                                          
|                                                                                                                          
|NOTE 4:    INVESTMENTS AND OTHER ASSETS                                                                                   
|                                                                                                                          
|The following is a summary of investments and other assets at December 31, 2002 and 2001 (in
millions):                   
|                                                                                                                          
|                                                                                                                          
|                                                                                                                           |  | 2002 |        |   | 2001 |  
|Lease contracts receivable (net of principal and interest on non-recourse
debt)                                            |  | $    | 123    |   |      | $
|Estimated residual values of leased assets (not guaranteed)                                                                |  |      | 35     |   |      |  
|Unearned income, including deferred investment tax credits                                                                 |  |      | (59    | ) |      |  
|                                                                                                                           |  |      |        |   |      |  
|Total investment in leveraged leases (excluding deferred taxes of $42 and $53 at
December 31, 2002 and 2001, respectively) |  |      | 99     |   |      |  
|Leveraged lease partnership investment                                                                                     |  |      | 145    |   |      |  
|Investments in securities, joint ventures and partnerships                                                                 |  |      | 32     |   |      |  
|Deferred pension costs                                                                                                     |  |      | 318    |   |      |  
|Long-term deposit                                                                                                          |  |      | 87     |   |      |  
|Other                                                                                                                      |  |      | 305    |   |      |  
|                                                                                                                           |  |      |        |   |      |  
|Total                                                                                                                      |  | $    | 986    |   |      | $
|                                                                                                                           |  |      |        |   |      |  



The
Company holds interests in various equipment financing leases, including a $61 million interest in a fiber optic equipment lease with a domestic subsidiary of WorldCom, financed with non-recourse borrowings at lease inception accounted for as
leveraged leases. The Company has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases. The Companys share of rent receivable on leveraged leases is
subordinate to the share of other participants who also have security interests in the leased equipment. For U.S. federal income tax purposes, the Company receives the investment tax credit (if available) at lease inception and has the benefit of
tax deductions for depreciation on the leased asset and for interest on the non-recourse debt.



During 2001, the Company contributed certain leveraged aircraft lease investments to a partnership in exchange for an equity interest in the partnership. The Company accounts for its interest in the
partnership under the equity method. During 2002, the Company recorded writedowns totaling $76 million to its investment in the partnership due to uncertainties regarding the recoverability of the partnerships investments with US Airways and
United Airlines, both of which filed for bankruptcy in 2002. These writedowns are reflected in other income (expense) in the Companys consolidated statements of income. At December 31, 2002, the partnerships remaining leveraged lease
investments included investments with American Airlines valued at $23 million. 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 further impaired.



Investments in securities, joint ventures and partnerships includes investments accounted for under the equity method of $8 million and
$25 million at December 31, 2002 and 2001, respectively. The Company recognized impairment losses totaling $22 million and $37 million in 2002 and 2001, respectively, due to other than temporary declines in the fair values of certain non-marketable
equity securities. These losses are reflected in other income (expense) in the Companys consolidated statements of income.



45



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|NOTE |  | 5:    GOODWILL AND OTHER INTANGIBLE ASSETS
|---- |  | ------------------------------------------



In July 2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their estimated residual values. The Company fully adopted the provisions of SFAS No. 142 effective January 1, 2002.



The following is a summary of net income and earnings per share for the years ended December 31, 2001 and
2000, as adjusted to remove the amortization of goodwill and intangible assets with indefinite useful lives (in millions, except per share amounts):



|                                            |  | 2001 |       | 2000
|------------------------------------------- |  | ---- | ----- | ----
|Net income  as reported                    |  | $    | 1,363 |     
|Goodwill amortization, net of income taxes  |  |      | 137   |     
|Tradename amortization, net of income taxes |  |      | 6     |     
|                                            |  |      |       |     
|Net income  as adjusted                    |  | $    | 1,506 |     
|                                            |  |      |       |     
|Basic earnings per share of common stock:   |  |      |       |     
|Net income  as reported                    |  | $    | 2.90  |     
|Goodwill amortization, net of income taxes  |  |      | 0.29  |     
|Tradename amortization, net of income taxes |  |      | 0.01  |     
|                                            |  |      |       |     
|Net income  as adjusted                    |  | $    | 3.20  |     
|                                            |  |      |       |     
|Diluted earnings per share of common stock: |  |      |       |     
|Net income  as reported                    |  | $    | 2.81  |     
|Goodwill amortization, net of income taxes  |  |      | 0.29  |     
|Tradename amortization, net of income taxes |  |      | 0.01  |     
|                                            |  |      |       |     
|Net income  as adjusted                    |  | $    | 3.11  |     
|                                            |  |      |       |     



The
Company changed its segment reporting during 2002 to conform to a new organizational structure (see Note 11). Goodwill was reassigned to the new reporting segments based on the relative fair value of each segment to the aggregate fair value of those
segments affected by the reorganization. The Company changed its segment reporting during 2001 to include the Product Lifecycle Management (PLM) Solutions line of business. The following is a summary of changes in the carrying amount of
goodwill by segment for the years ended December 31, 2002 and 2001 (in millions):



|                             |  | Operations Solutions |       |   | Solutions Consulting |   |       | PLM Solutions |  |   | All Other |   |  | Total |    
|---------------------------- |  | -------------------- | ----- | - | -------------------- | - | ----- | ------------- |  | - | --------- | - |  | ----- | ---
|Balance at December 31, 2000 |  | $                    | 1,080 |   |                      | $ | 870   |               |  | $ | 170       |   |  | $     | 26 
|Additions                    |  |                      | 676   |   |                      |   | 247   |               |  |   | 817       |   |  |       |   
|Amortization                 |  |                      | (84   | ) |                      |   | (54   | )             |  |   | (25       | ) |  |       | (10
|Other                        |  |                      | (14   | ) |                      |   | (6    | )             |  |   | (1        | ) |  |       |   
|                             |  |                      |       |   |                      |   |       |               |  |   |           |   |  |       |    
|Balance at December 31, 2001 |  |                      | 1,658 |   |                      |   | 1,057 |               |  |   | 961       |   |  |       | 16 
|Additions                    |  |                      | 188   |   |                      |   | 60    |               |  |   | 23        |   |  |       |   
|Deletions                    |  |                      | (51   | ) |                      |   |      |               |  |   |          |   |  |       |   
|Other                        |  |                      | 125   |   |                      |   | 51    |               |  |   | (16       | ) |  |       | 5  
|                             |  |                      |       |   |                      |   |       |               |  |   |           |   |  |       |    
|Balance at December 31, 2002 |  | $                    | 1,920 |   |                      | $ | 1,168 |               |  | $ | 968       |   |  | $     | 21 
|                             |  |                      |       |   |                      |   |       |               |  |   |           |   |  |       |    



Goodwill
additions resulted from acquisitions completed in 2001 and 2002, and 2002 activity includes adjustments to the preliminary purchase price allocations related to acquisitions completed in 2001. Deletions resulted from divestitures completed in 2002
(see Note 17). Other changes to the carrying amount of goodwill were primarily due to foreign currency translation adjustments. During 2002, the Company completed the required transitional goodwill and intangible asset impairment tests as of January
1, 2002 and annual goodwill impairment test as of December 1, 2002. No impairment losses were identified as a result of these tests.



46



---



Intangible
assets with definite useful lives are amortized over their respective estimated useful lives to their estimated residual values. Effective January 1, 2002, intangible assets with indefinite useful lives are not amortized but instead tested for
impairment at least annually. The following is a summary of intangible assets at December 31, 2002 and 2001 (in millions):



|                        |  | 2002                 
|----------------------- |  | ---------------------
|                        |  | Gross Carrying Amount
|Definite Useful Lives   |  |                      
|Software                |  | $                    
|Customer accounts       |  |                      
|Other                   |  |                      
|                        |  |                      
|Total                   |  | $                    
|                        |  |                      
|Indefinite Useful Lives |  |                      
|Tradename               |  |                      
|                        |  |                      
|Total intangible assets |  | $                    
|                        |  |                      
|                       
|                        |  | 2001                 
|                        |  | Gross Carrying Amount
|Definite Useful Lives   |  |                      
|Software                |  | $                    
|Customer accounts       |  |                      
|Other                   |  |                      
|                        |  |                      
|Total                   |  | $                    
|                        |  |                      
|Indefinite Useful Lives |  |                      
|Tradename               |  |                      
|                        |  |                      
|Total intangible assets |  | $                    
|                        |  |                      



The
Company recorded a $38 million asset impairment provision during 2002 related to its decision to exit the subscription fulfillment business included in the Operations Solutions segment. This amount is reflected in discontinued operations in the
Companys consolidated statements of income. The impairment provision was calculated as the difference between carrying value of the net assets of the subscription fulfillment business and its estimated selling price, and resulted in the
write-off of certain customer accounts intangible assets totaling $28 million.



Amortization expense related to intangible assets was $415 million and $302 million for the years ended December 31, 2002 and 2001, respectively. Estimated amortization expense related to intangible
assets subject to amortization at December 31, 2002 for each of the years in the five year period ending December 31, 2007 and thereafter is (in millions): 2003  $423; 2004  $328; 2005  $209; 2006  $116; 2007  $71 and
thereafter  $129.



|NOTE |  | 6:    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|---- |  | ----------------------------------------------



The following is a summary of accounts payable and accrued liabilities at December 31, 2002 and 2001 (in
millions):



|                                    |  | 2002 |       | 2001
|----------------------------------- |  | ---- | ----- | ----
|Accounts payable                    |  | $    | 710   |     
|Accrued liabilities relating to:    |  |      |       |     
|Contracts                           |  |      | 1,060 |     
|Payroll                             |  |      | 622   |     
|Restructuring activities            |  |      | 29    |     
|Property, sales and franchise taxes |  |      | 276   |     
|Other                               |  |      | 977   |     
|                                    |  |      |       |     
|Total                               |  | $    | 3,674 |     
|                                    |  |      |       |     



47



---



|NOTE |  | 7:    LONG-TERM AND SECURED REVOLVING DEBT
|---- |  | ------------------------------------------



The following is a summary of long-term and secured revolving debt at December 31, 2002 and 2001 (in
millions):



|                                                                                  |  | 2002   |       |   | 2001                  |     
|--------------------------------------------------------------------------------- |  | ------ | ----- | - | --------------------- | ----
|                                                                                  |  | Amount |       |   | Weighted-Average Rate |     
|Secured revolving facility                                                        |  | $      | 406   |   |                       | 1.78
|                                                                                  |  |        |       |   |                       |     
|Long-term debt:                                                                   |  |        |       |   |                       |     
|Commercial paper                                                                  |  | $      | 231   |   |                       | 2.04
|Convertible notes due 2004                                                        |  |        | 1,610 |   |                       | 5.78
|Zero-coupon convertible notes due 2021                                            |  |        | 765   |   |                       | 1.25
|Notes payable, fixed rates, due dates ranging from 2003 to 2029, net of
discounts |  |        | 2,316 |   |                       | 7.00
|Other                                                                             |  |        | 59    |   |                       |     
|                                                                                  |  |        |       |   |                       |     
|Total                                                                             |  |        | 4,981 |   |                       |     
|Less current portion of long-term debt                                            |  |        | (833  | ) |                       |     
|                                                                                  |  |        |       |   |                       |     
|Long-term debt                                                                    |  | $      | 4,148 |   |                       |     
|                                                                                  |  |        |       |   |                       |     



In
December 2002, EDS Information Services, LLC, a wholly-owned subsidiary of EDS, contributed to the capital of and sold certain trade receivables to Legacy Receivables, LLC, a limited liability company of which it is the sole member (the
LLC), which then entered into a $500 million revolving secured financing arrangement collateralized by those trade receivables. At December 31, 2002, $406 million was outstanding under this facility. The weighted average variable
interest rate on outstanding borrowings was 1.78% at December 31, 2002. Maximum borrowings under the facility vary based on the eligible trade receivables held by the LLC, however outstanding borrowings under the facility cannot exceed $500 million.
The facility is subject to annual renewal and will expire in December 2005. In the event certain stated criteria are not complied with and 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, EDS long-term debt rating falling below BBB- by Standard & Poors Rating Services
(S&P) or Baa3 by Moodys Investor Services, Inc. (Moodys), or events or collection trends materially negatively impacting the collateral. Proceeds from the sale of the trade receivables will be used
for general corporate purposes.



The current
portion of long-term debt includes $765 million related to zero-coupon convertible senior notes due 2021 but redeemable in whole or in part at the option of the holders in 2003, 2004, 2006, 2011 and 2016.



Commercial paper is classified as non-current debt, as it is
intended to be maintained on a long-term basis, with ongoing credit availability provided by the Companys revolving, committed lines of credit. The Company maintains $1.25 billion of committed lines of credit, of which $625 million expires in
2003, with the option to convert any outstanding amounts under these lines into term loans maturing in 2004. The remaining $625 million expires in 2004. No amounts were outstanding under the lines of credit at December 31, 2002. The Company pays
annual commitment fees of 0.05% to 0.10% on the unused portion of the lines of credit.



In October 2001, the Company completed the public offering of 1 million zero-coupon convertible senior notes due October 10, 2021. Each note was issued at a price of $779.41 and has a principal amount
at maturity of $1,000. Holders may convert each note on or before the maturity date into 9.7294 shares of the Companys common stock when the average per share sale price of the Companys common stock is at least a specified percentage,
beginning at 120% and declining 0.5% each year thereafter, above the accreted value of a note (original note proceeds plus interest earned to date) divided by 9.7294. The notes may also be converted if the Companys debt rating falls below
investment grade, the Company calls the notes for redemption, makes specified shareholder distributions or becomes party to a merger pursuant to which EDS common stock would be converted into cash, securities or other property. In lieu of delivering
shares of common stock, the Company may elect to pay holders cash for their notes. The issue price per note represents a yield to maturity of 1.25% per year calculated from October 2001. Commencing with the six-month period beginning October 2004,
the notes will accrue contingent interest if the average market price of the notes equals 120% or more of the accreted value of the note. The amount of contingent interest payable per note is equal to the greater of 0.125% of the market price of the
note or the equivalent cash dividends per share of common stock paid by the Company during the related six-month period multiplied by the number of shares of common stock issuable upon conversion of a note. The contingent interest liability is
marked-to-market each period with a corresponding adjustment to interest expense. No contingent interest has been recognized through December 31, 2002. At any time on or after October 2004, the Company may



48



---

redeem all or a portion of the notes for cash in an amount equal to the accreted value of the notes plus
unpaid contingent interest, if any. Holders may require the Company to redeem their notes at the accreted value of the note for cash on October 10, 2003, or at the accreted value of the note, plus unpaid contingent interest, for any combination of
cash or EDS common stock, at the Companys option, on October 10, 2004, 2006, 2011 and 2016. Net proceeds from the offering of $762 million were used to repay outstanding indebtedness under the Companys commercial paper and other
short-term debt facilities which had been utilized to fund acquisitions during 2001.



In June 2001, the Company completed the public offering of 32.2 million units of a security, each with a stated price of $50 before underwriting discount. Each unit initially consists of $50 principal
amount of EDS senior notes due August 2006, and a purchase contract which obligates the investor to purchase $50 of EDS common stock no later than August 2004 at a price ranging from $59.31 to $71.47 per share. The notes bear interest at a rate of
5.78% per year, which is expected to be reset on or after May 2004 and are contingently redeemable at that time. Contract adjustment payments are payable to the holders of purchase contracts at a fixed rate of 1.845% per year. The present value of
the contract adjustment payments of $84 million and issuance costs of $40 million were accrued upon issuance and recorded as a reduction to additional paid-in capital. Net proceeds from the offering of $1.6 billion were used to fund acquisitions
during 2001.



Expected maturities of long-term
debt for years subsequent to December 31, 2002 are as follows (in millions):



|2003       |  | $ | 833  
|---------- |  | - | -----
|2004(1)    |  |   | 2,425
|2005       |  |   | 581  
|2006       |  |   | 21   
|2007       |  |   | 1    
|Thereafter |  |   | 1,120
|           |  |   |      
|Total      |  | $ | 4,981
|           |  |   |      

---

|(1) |  | Does not include expected proceeds of $1.6 billion to be received by the Company from the purchase contracts associated with the June 2001 public offering. After
applying such proceeds against the related debt maturity, remaining debt maturities in 2004 are $815 million.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Companys lines of credit and the indentures governing its long-term notes contain certain covenants, including restrictions on
mergers, consolidations and sales of substantially all of the assets of the Company. In addition, the Companys lines of credit contain a minimum net worth covenant that is calculated each calendar quarter as the sum of a) $3.1 billion plus b)
50% of net income or loss for each fiscal quarter commencing after June 30, 1999, as adjusted to exclude nonrecurring items. Such calculation equated to $5.0 billion at December 31, 2002. In the event that the Company was to become noncompliant, the
associated indebtedness may become immediately due. As of December 31, 2002, the Company was in compliance with all of these covenants.



|NOTE |  | 8:    MINORITY INTERESTS AND OTHER LONG-TERM LIABILITIES
|---- |  | --------------------------------------------------------



At December 31, 2002 and 2001, respectively, other long-term liabilities were $285 million and $372 million,
respectively. Minority interests were $132 million and $272 million at December 31, 2002 and 2001, respectively.



The Company acquired a controlling interest in Systematics AG in July 2001 (see Note 16). The shares acquired in July 2001, together with
shares previously purchased in a public tender offer and the shares the Company had under a forward purchase contract, represented approximately 98% of the outstanding Systematics shares. The Company acquired the remaining Systematics shares in
2002. At December 31, 2001, the remaining minority interest liability related to the unpaid acquisition price was $158 million. The Company settled this liability in 2002 with cash of $65 million and 1.3 million shares of common stock, all of which
were held in escrow at December 31, 2001.



49



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|NOTE |  | 9:    INCOME TAXES
|---- |  | ------------------



Total income tax expense for the years ended December 31, 2002, 2001 and 2000 was allocated as follows (in millions):



|                                                                           |  | 2002 |      |   | 2001 |   |      | 2000 | 
|-------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|Income from continuing operations                                          |  | $    | 518  |   |      | $ | 794  |      | 
|Discontinued operations                                                    |  |      | 57   |   |      |   | 18   |      | 
|Cumulative effect on prior years of a change in accounting for
derivatives |  |      |     |   |      |   | (13  | )    | 
|Shareholders equity                                                       |  |      | (227 | ) |      |   | (183 | )    | 
|                                                                           |  |      |      |   |      |   |      |      | 
|Total                                                                      |  | $    | 348  |   |      | $ | 616  |      | 
|                                                                           |  |      |      |   |      |   |      |      | 



The
provision for income tax expense on income from continuing operations is summarized as follows for the years ended December 31, 2002, 2001 and 2000 (in millions):



|         |  | United States |     |   |       |   |         
|-------- |  | ------------- | --- | - | ----- | - | --------
|         |  | Federal       |     |   | State |   | Non-U.S.
|2002     |  |               |     |   |       |   |         
|Current  |  | $             | (94 | ) |       | $ | 6       
|Deferred |  |               | 411 |   |       |   | 5       
|         |  |               |     |   |       |   |         
|Total    |  | $             | 317 |   |       | $ | 11      
|         |  |               |     |   |       |   |         
|2001     |  |               |     |   |       |   |         
|Current  |  | $             | 117 |   |       | $ | 18      
|Deferred |  |               | 404 |   |       |   | 33      
|         |  |               |     |   |       |   |         
|Total    |  | $             | 521 |   |       | $ | 51      
|         |  |               |     |   |       |   |         
|2000     |  |               |     |   |       |   |         
|Current  |  | $             | 412 |   |       | $ | 40      
|Deferred |  |               | 6   |   |       |   | 2       
|         |  |               |     |   |       |   |         
|Total    |  | $             | 418 |   |       | $ | 42      
|         |  |               |     |   |       |   |         



Income
from continuing operations before income taxes included the following components for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                |  | 2002 |       | 2001 |   | 2000 
|--------------- |  | ---- | ----- | ---- | - | -----
|U.S. income     |  | $    | 1,071 |      | $ | 1,546
|Non-U.S. income |  |      | 454   |      |   | 602  
|                |  |      |       |      |   |      
|Total           |  | $    | 1,525 |      | $ | 2,148
|                |  |      |       |      |   |      



A
reconciliation of income tax expense using the statutory U.S. federal income tax rate of 35.0% to the actual income tax expense follows for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                                                           |  | 2002 |      |   | 2001 |   |      | 2000 | 
|---------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|Statutory federal income tax                               |  | $    | 534  |   |      | $ | 752  |      | 
|State income tax, net                                      |  |      | 7    |   |      |   | 33   |      | 
|Nondeductible acquired in-process research and development |  |      |     |   |      |   | 30   |      | 
|Nondeductible goodwill                                     |  |      |     |   |      |   | 39   |      | 
|Research and experimentation credits                       |  |      | (55  | ) |      |   | (53  | )    | 
|Other                                                      |  |      | 32   |   |      |   | (7   | )    | 
|                                                           |  |      |      |   |      |   |      |      | 
|Total                                                      |  | $    | 518  |   |      | $ | 794  |      | 
|                                                           |  |      |      |   |      |   |      |      | 
|Effective income tax rate                                  |  |      | 34.0 | % |      |   | 37.0 | %    | 
|                                                           |  |      |      |   |      |   |      |      | 



50



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The tax
effects of temporary differences and carryforwards, which result in a significant portion of the deferred tax assets and liabilities, are as follows as of December 31, 2002 and 2001 (in millions):



|                                                |  | 2002   |       | 2001
|----------------------------------------------- |  | ------ | ----- | ----
|                                                |  | Assets |       |     
|Leasing basis differences                       |  | $      | 9     |     
|Unbilled and deferred revenue differences       |  |        | 28    |     
|Other accrual accounting differences            |  |        | 253   |     
|Employee benefit plans                          |  |        | 167   |     
|Depreciation/amortization differences           |  |        | 127   |     
|Net operating loss and tax credit carryforwards |  |        | 298   |     
|Employee-related compensation                   |  |        | 196   |     
|Other                                           |  |        | 333   |     
|                                                |  |        |       |     
|Subtotal                                        |  |        | 1,411 |     
|Less valuation allowance                        |  |        | (120  | )   
|                                                |  |        |       |     
|Total deferred taxes                            |  | $      | 1,291 |     
|                                                |  |        |       |     



The net
changes in the valuation allowance shown in the table above for the years ended December 31, 2002 and 2001 were increases of $5 million and $32 million, respectively. Approximately one-half of the Companys net operating loss and tax
carryforwards expire over various periods from 2003 through 2022, and others are unlimited. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized and adjusts the valuation allowance accordingly.



|NOTE |  | 10:    STOCK PURCHASE AND INCENTIVE PLANS
|---- |  | -----------------------------------------



Stock Purchase Plan and Nonqualified Stock Purchase Plan



Under the Stock Purchase Plan and Nonqualified Stock Purchase Plan, eligible employees may purchase EDS
common stock at 85% of the quoted market price through payroll deductions of up to 10% of their compensation, not to exceed $25,000 per year. Shares of EDS common stock purchased under the plans may not be sold or transferred within two years of the
date of purchase unless they are first offered to EDS at the lesser of the original purchase price or the fair value on the date of the sale. At December 31, 2002, the number of shares available for future sale under the EDS Stock Purchase Plan and
Nonqualified Stock Purchase Plan was 48.4 million.



PerformanceShare and EDS Global Share Plans



PerformanceShare and Global Share are broad-based plans that permit the grant of stock options to any employee of EDS or its subsidiaries other than executive officers. As of December 31, 2002, options for 16.0
million shares had been granted under PerformanceShare (principally in a broad-based grant in May 1997) and options for 25.9 million shares had been granted under Global Share (principally in two broad-based grants in July 2000 and February 2002).
The number of shares originally authorized for issuance under PerformanceShare and Global Share is 20 million and 27 million, respectively. As of December 31, 2002, no shares were available for issuance under PerformanceShare and 0.3 million shares
were available for issuance under Global Share.



Incentive
Plan



The Incentive Plan is authorized to
issue up to 94.5 million shares of common stock. The Incentive Plan permits the granting of stock-based awards in the form of restricted shares, restricted stock units, stock options or stock appreciation rights to eligible employees and
non-employee directors. The exercise price for stock options granted under this plan must be equal to or greater than the quoted market price on the date of the grant. The maximum number of shares for which additional awards may be granted under
this plan was 21.7 million at December 31, 2002.



During the years ended December 31, 2002, 2001 and 2000, 0.2 million, 0.3 million and 0.1 million restricted stock units, respectively, were granted. A restricted stock unit is the right to receive shares. Units granted are generally
scheduled to vest over periods of five to 10 years. The weighted-average fair values of the restricted stock units granted were $39.73, $58.42 and $45.13 for the years ended December 31, 2002, 2001 and 2000, respectively. The quoted market price of
common stock as of the date of grant is charged to operations over the vesting period. The total number of unvested units outstanding at December 31, 2002 was 5.8 million.



51



---



The Company
recognized compensation expense in connection with the restructuring activities described in Note 19 totaling $10 million during the year ended December 31, 2000 resulting from changes to vesting conditions for unvested restricted stock units and
options pursuant to the Companys officer retention plan. The plan provides for cash benefits and accelerated vesting of restricted stock units and options in the event of termination of employment without cause and other benefits in the event
the officer remains employed at the end of the retention period.



During the years ended December 31, 2002, 2001 and 2000, non-employee directors were granted a total of 1,820, 1,651 and 2,650 restricted shares, respectively, of EDS common stock that vest over a three-year period. The quoted market
price of common stock on the date of grant is charged to expense over the vesting period.



Transition Incentive Plan



The Transition Incentive Plan permits the grant of nonqualified stock options to eligible employees. This plan was intended to be used exclusively for the grant of stock options to former employees of Structural Dynamics Research
Corporation (SDRC), which was acquired in August 2001, and Unigraphics Solutions Inc. (UGS), which became a wholly-owned subsidiary in September 2001, and has been used exclusively for that purpose. As of December 31, 2002,
options for 2.9 million shares were outstanding under this plan. Such options have an exercise price equal to the fair market value per share of common stock on the grant date, vest ratably over four years and have a term of 10 years from the grant
date. The number of options originally authorized for issuance under this plan is 3.7 million. At December 31, 2002, no options were available for issuance under the plan.



Transition Inducement Plan



The Transition Inducement Plan permits awards in the form of nonqualified stock options, stock appreciation rights or common stock
(including units denominated in common stock) to eligible employees. This plan was adopted in December 2002 in anticipation of proposed New York Stock Exchange rules which provide that awards issued to induce new employment or in exchange for awards
under an acquired plan are not subject to shareholder approval. The Company does not intend to issue awards under this plan prior to the effectiveness of the proposed New York Stock Exchange rules and, thereafter, will only issue awards
that meet the employee inducement and acquired plan provisions of the proposed rules. All options granted under this plan must have an exercise price not less than the fair market value per share of common stock on the grant
date. As of December 31, 2002, no awards had been made under this plan. The maximum number of shares that can be issued under this plan is 4.0 million, of which not more than 2.0 million are available for awards other than in the form of stock
options.



Executive Deferral Plan



The Executive Deferral Plan is a defined contribution plan
established for members of senior management, which allows participants to contribute a percentage of their compensation to a savings plan and defer income taxes until the time of distribution. The plan is a nonqualified plan for U.S. federal income
tax purposes and as such, its assets are part of the Companys general assets. The Company makes matching contributions on a portion of amounts deferred by plan participants that are invested in EDS stock units. Matching contributions vest upon
contribution. The quoted market price of common stock on the date of matching contributions is charged to operations in the period made. The Company also makes discretionary contributions that vest over periods up to five years as determined by the
Board of Directors. The quoted market price of common stock on the date of discretionary contributions is charged to operations over the vesting period. During the years ended December 31, 2002 and 2001, employer contributions to the plan were 0.3
million and 0.6 million shares, respectively, with a weighted-average fair value of $18.13 and $62.59, respectively. The plan is authorized to issue up to 8.2 million shares of common stock, of which 5.9 million was available for issuance at
December 31, 2002.



52



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A summary of
options activity under PerformanceShare, Global Share, Incentive Plan and Transition Incentive Plan during the years ended December 31, 2002, 2001 and 2000, is presented below (shares in millions):



|                                 |  | 2002   |   | 2001 |                                 | 2000
|-------------------------------- |  | ------ | - | ---- | ------------------------------- | ----
|                                 |  | Shares |   |      | Weighted-Average Exercise Price |     
|Fixed Options:                   |  |        |   |      |                                 |     
|Outstanding at beginning of year |  | 57.1   |   |      | $                               | 51  
|Granted                          |  | 26.5   |   |      | $                               | 59  
|Exercised                        |  | (0.7   | ) |      | $                               | 44  
|Forfeited                        |  | (9.0   | ) |      | $                               | 56  
|                                 |  |        |   |      |                                 |     
|Outstanding at end of year       |  | 73.9   |   |      | $                               | 53  
|                                 |  |        |   |      |                                 |     
|Exercisable                      |  | 21.4   |   |      | $                               | 51  
|                                 |  |        |   |      |                                 |     



A
summary of options outstanding by exercise price range at December 31, 2002 is presented below (shares in millions):



|           |  | Shares Outstanding |  | Shares Exercisable             
|---------- |  | ------------------ |  | -------------------------------
|           |  | Shares             |  | Weighted-Average Exercise Price
|$14 to $29 |  | 0.5                |  | $                              
|$30 to $46 |  | 23.8               |  | $                              
|$47 to $58 |  | 18.4               |  | $                              
|$59 to $69 |  | 31.2               |  | $                              
|           |  |                    |  |                                
|Total      |  | 73.9               |  |                                
|           |  |                    |  |                                



In
February 2003, the Companys Board of Directors authorized, subject to shareholder approval, a program designed to offer certain employees that hold certain stock options with exercise prices greater than $33.00 per share an opportunity to
forfeit all, but not some, of their eligible options for the right to receive a lesser number of new options at a later date, assuming continued employment. The offer, which is expected to begin in August and end in September 2003, would permit such
employees to receive new options with a fair value equivalent to the forfeited options, generally one new option for every 1.5 to 3.0 options forfeited. All new options will have exercise prices equal to the fair market value of a share of common
stock on the date of the grant and will be issued under the Incentive Plan no sooner than six months and one day from the date of forfeiture. Approximately 50 million options would be eligible for forfeiture under the program for the right to
receive approximately 24 million new options.



|
|

|NOTE |  | 11:    SEGMENT INFORMATION
|---- |  | --------------------------



Effective April 15, 2002, the Company combined elements of Information Solutions, Business Process Management and E Solutions 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 our former
Information Solutions line of business with the business process outsourcing capabilities of our former Business Process Management line of business. The Solutions Consulting line of business combines the capabilities of our former E Solutions line
of business with the applications services business of our former Information Solutions line of business. 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 2002 presentation.



The PLM Solutions line of business, launched during 2001, is comprised of the former SDRC and UGS businesses. The Company acquired SDRC in
August 2001, and completed the acquisition of the 14% minority interest in UGS that had been held by the public in September 2001.



53



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The Company
uses operating income, which consists of segment revenues less segment costs and expenses (before restructuring and other charges and acquired in-process R&D and other acquisition-related costs), to measure segment profit or loss. Revenues and
operating income of non-U.S. operations are measured using fixed currency exchange rates in all periods presented. Differences between fixed and actual exchange rates are included in the all other category. The all other
category also includes A.T. Kearney and corporate expenses.



Certain historical information is not readily available under the new reporting structure. As such, revenues, operating income (expense) and total assets for 2000 have been estimated based on the information reported under the
previous organizational structure.



The following
is a summary of certain financial information by reportable segment as of and for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                     |  | 2002    
|-------------------- |  | --------
|                     |  | Revenues
|Operations Solutions |  | $       
|Solutions Consulting |  |         
|PLM Solutions        |  |         
|All other            |  |         
|                     |  |         
|Total                |  | $       
|                     |  |         



|                     |  | 2001    
|-------------------- |  | --------
|                     |  | Revenues
|Operations Solutions |  | $       
|Solutions Consulting |  |         
|PLM Solutions        |  |         
|All other            |  |         
|                     |  |         
|Total                |  | $       
|                     |  |         



|                     |  | 2000    
|-------------------- |  | --------
|                     |  | Revenues
|Operations Solutions |  | $       
|Solutions Consulting |  |         
|PLM Solutions        |  |         
|All other            |  |         
|                     |  |         
|Total                |  | $       
|                     |  |         



The
following is a summary of depreciation and amortization included in the calculation of operating income above for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                     |  | 2002 |       | 2001 |   | 2000 
|-------------------- |  | ---- | ----- | ---- | - | -----
|Operations Solutions |  | $    | 1,103 |      | $ | 1,072
|Solutions Consulting |  |      | 104   |      |   | 148  
|PLM Solutions        |  |      | 63    |      |   | 67   
|All other            |  |      | 173   |      |   | 195  
|                     |  |      |       |      |   |      
|Total                |  | $    | 1,443 |      | $ | 1,482
|                     |  |      |       |      |   |      



54



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The following
presents information about the Companys operations in different geographic regions as of and for the years ended December 31, 2002, 2001 and 2000 (in millions):



|               |  | 2002     |        | 2001                   |   | 2000    
|-------------- |  | -------- | ------ | ---------------------- | - | --------
|               |  | Revenues |        | Property and Equipment |   | Revenues
|United States  |  | $        | 11,765 |                        | $ | 1,806   
|United Kingdom |  |          | 3,481  |                        |   | 411     
|All other      |  |          | 6,256  |                        |   | 806     
|               |  |          |        |                        |   |         
|Total          |  | $        | 21,502 |                        | $ | 3,023   
|               |  |          |        |                        |   |         



Revenues
and property and equipment of non-U.S. operations are measured using fixed currency exchange rates in all periods presented. Differences between fixed and actual exchange rates are included in the all other category.



For the years ended December 31, 2002, 2001 and 2000, revenues
from contracts with GM and its affiliates totaled $2.6 billion, $3.1 billion and $3.4 billion, respectively. Revenues from contracts with GM were reported in each of the Companys reportable segments.



|NOTE |  | 12:    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
|---- |  | ------------------------------------------------



The Company makes investments, receives revenues and incurs expenses in many countries and has exposure to
market risks arising from changes in interest rates, foreign exchange rates and equity prices. Derivative financial instruments are used to hedge against these risks by creating offsetting market positions. The Company has also invested in start-up
companies to gain access to technology and marketplaces in which the Company intended to grow its business. The Companys ability to sell these investments may be constrained by market or other factors.



The notional amounts of derivative contracts, summarized below
as part of the description of the instruments utilized, do not necessarily represent the amounts exchanged by the parties and thus are not necessarily a measure of the exposure of the Company resulting from its use of derivatives. The amounts
exchanged by the parties are normally calculated on the basis of the notional amounts and the other terms of the derivatives.



Interest Risk Management



At December 31, 2002 and 2001, in connection with its long-term notes payable discussed in Note 7, the Company had interest rate swap fair
value hedges outstanding in the notional amount of $1 billion. Under the swaps, the Company receives fixed rates of 6.85% to 7.125% and pays floating rates tied to the London Interbank Offering Rate. The weighted-average floating rate was 3.45% at
December 31, 2002.



Foreign Exchange Risk Management



The Company uses derivative financial
instruments, particularly foreign exchange forward contracts, to hedge transactions denominated in different currencies on a continuing basis. The purpose of the Companys hedging activities is to reduce the level of exposure to exchange rate
movements, most significantly in Canada, the United Kingdom, Western European countries that use the euro as a common currency, Australia and New Zealand. At December 31, 2002 and 2001, the Company had forward exchange contracts maturing
predominantly in the following year to purchase various foreign currencies in the amount of $812 million and $747 million, respectively, and to sell various foreign currencies in the amount of $2.1 billion and $2.2 billion, respectively.



55



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Other Risk Management
Activities



During 2001, the Company
initiated a program to manage the future stock issuance requirements of its employee stock incentive plans (Note 10) by utilizing equity investment contracts for EDS stock. At December 31, 2001, the Company owned equity contracts to purchase 539,000
shares of EDS common stock at a weighted-average price of $70.14. The Company also had put obligations covering 821,000 shares of EDS common stock at a weighted-average price of $70.73. During 2002, the Company entered into additional equity
investment contracts to purchase 2,142,000 shares of EDS common stock at a weighted-average price of $59.74 and additional put obligations covering 1,938,000 shares of EDS common stock at a weighted-average price of $60.59. The Company settled all
of these contracts in 2002 through a series of purchases of 5.4 million cumulative treasury shares of EDS common stock for $340 million at a weighted-average exercise price of $62.73 per share. The principal source of funding for these purchases was
proceeds from commercial paper borrowings. Amounts paid upon the purchase of the underlying shares, net of put premiums received in 2001 and 2002 of $17 million, were recorded as a component of shareholders equity. No equity investment
contracts issued under this program were outstanding at December 31, 2002.



In January 2000, EDS entered into a five-year forward sale of an investment in an e-commerce solutions company. The forward sale agreement monetized the Companys position and established the
difference between the Companys basis in the stock and the sales price on the date of the forward sale transaction as the minimum amount of appreciation that would be realized upon sale. The Company received $310 million in net proceeds as a
result of entering into the forward sale and recognized this amount as debt. During 2001, the Company settled its obligation under the forward sale and retired the related debt by delivering its ownership interest in the e-commerce solutions company
to the counterparty.



|NOTE |  | 13:    RETIREMENT PLANS
|---- |  | -----------------------



The Company has several qualified and nonqualified pension plans (the Plans) covering substantially all its employees. The
majority of the Plans are noncontributory. In general, employees become fully vested upon attaining two to five years of service, and benefits are based on years of service and earnings. The actuarial cost method currently used is the projected unit
credit cost method. The Companys U.S. funding policy is to contribute amounts that fall within the range of deductible contributions for U.S. federal income tax purposes.



The following tables provide a reconciliation of the changes in the Plans benefit obligations and fair
value of assets (using October 31, 2002 and 2001 measurement dates), and a statement of the funded status as of December 31, 2002 and 2001 (in millions):



|                                               |  | 2002 |       |   | 2001 |  
|---------------------------------------------- |  | ---- | ----- | - | ---- | -
|Reconciliation of Benefit Obligation           |  |      |       |   |      |  
|Benefit obligation at beginning of year        |  | $    | 3,943 |   |      | $
|Service cost                                   |  |      | 287   |   |      |  
|Interest cost                                  |  |      | 277   |   |      |  
|Plan amendments                                |  |      |      |   |      |  
|Actuarial (gain) loss                          |  |      | 161   |   |      |  
|Foreign currency exchange rate changes         |  |      | 213   |   |      |  
|Benefit payments                               |  |      | (88   | ) |      |  
|Curtailments                                   |  |      | (22   | ) |      |  
|Settlements                                    |  |      | (26   | ) |      |  
|Other                                          |  |      | 409   |   |      |  
|                                               |  |      |       |   |      |  
|Benefit obligation at end of year              |  | $    | 5,154 |   |      | $
|                                               |  |      |       |   |      |  
|Reconciliation of Fair Value of Plan Assets    |  |      |       |   |      |  
|Fair value of plan assets at beginning of year |  | $    | 3,585 |   |      | $
|Actual return on plan assets                   |  |      | (381  | ) |      |  
|Foreign currency exchange rate changes         |  |      | 124   |   |      |  
|Employer contributions                         |  |      | 207   |   |      |  
|Benefit payments                               |  |      | (88   | ) |      |  
|Settlements                                    |  |      | (26   | ) |      |  
|Other                                          |  |      | 318   |   |      |  
|                                               |  |      |       |   |      |  
|Fair value of plan assets at end of year       |  | $    | 3,739 |   |      | $
|                                               |  |      |       |   |      |  



56



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|                                                                              |  | 2002 |        |   | 2001 |  
|----------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -
|Funded Status                                                                 |  |      |        |   |      |  
|Funded status at December 31                                                  |  | $    | (1,415 | ) |      | $
|Unrecognized transition obligation                                            |  |      | 12     |   |      |  
|Unrecognized prior-service cost                                               |  |      | (267   | ) |      |  
|Unrecognized net actuarial loss                                               |  |      | 1,541  |   |      |  
|Adjustments from October 31 to December 31                                    |  |      | 22     |   |      |  
|                                                                              |  |      |        |   |      |  
|Net amount recognized on the consolidated balance sheets (as described
below) |  | $    | (107   | ) |      | $
|                                                                              |  |      |        |   |      |  



The
following table summarizes the assets and liabilities reflected on the Companys balance sheets for pension benefits as of December 31, 2002 and 2001 (in millions):



|                                       |  | 2002 |        |   | 2001 |  
|-------------------------------------- |  | ---- | ------ | - | ---- | -
|Prepaid benefit cost                   |  | $    | 283    |   |      | $
|Accrued benefit liability              |  |      | (1,113 | ) |      |  
|Intangible asset                       |  |      | 35     |   |      |  
|Accumulated other comprehensive income |  |      | 688    |   |      |  
|                                       |  |      |        |   |      |  
|Net amount recognized                  |  | $    | (107   | ) |      | $
|                                       |  |      |        |   |      |  



The
Company has additional defined benefit retirement plans outside the U.S. not included in the tables above due to their individual insignificance. These plans collectively represent an additional benefit obligation of approximately $30 million and
plan assets of approximately $20 million.



The
projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $4,714 million, $4,228 million, and $3,401 million, respectively, at
December 31, 2002 and $455 million, $372 million, and $87 million, respectively at December 31, 2001.



The following table provides the components of net periodic pension cost recognized in earnings for the years ended December 31,
2002, 2001 and 2000 (in millions):



|                                                             |  | 2002 |      |   | 2001 |   |      | 2000 | 
|------------------------------------------------------------ |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|Service cost                                                 |  | $    | 287  |   |      | $ | 283  |      | 
|Interest cost                                                |  |      | 277  |   |      |   | 263  |      | 
|Expected return on plan assets                               |  |      | (355 | ) |      |   | (382 | )    | 
|Amortization of transition obligation                        |  |      | 1    |   |      |   | 1    |      | 
|Amortization of prior-service cost                           |  |      | (32  | ) |      |   | (31  | )    | 
|Amortization of net actuarial loss                           |  |      | 17   |   |      |   | 8    |      | 
|                                                             |  |      |      |   |      |   |      |      | 
|Net periodic benefit cost                                    |  |      | 195  |   |      |   | 142  |      | 
|Curtailment loss (gain)                                      |  |      | (18  | ) |      |   | 10   |      | 
|Settlement loss                                              |  |      | 4    |   |      |   |     |      | 
|                                                             |  |      |      |   |      |   |      |      | 
|Net periodic benefit cost after curtailments and settlements |  | $    | 181  |   |      | $ | 152  |      | 
|                                                             |  |      |      |   |      |   |      |      | 



Prior-service costs are amortized on a straight-line basis over the average remaining service period of active participants. Gains or losses in excess of 10% of the greater of the benefit obligation and the market-related value of
assets are amortized over the average remaining service period of active participants.



The Company recorded a curtailment gain of $18 million and a settlement loss of $4 million during 2002 related to the conversion of one of the international plans to a defined contribution plan.



At December 31,
2002 and 2001, the Plans assets consisted primarily of equity securities and, to a lesser extent government obligations and other fixed income securities. The U.S. pension plan is a cash balance plan that uses a benefit formula based on years
of service, age and earnings. Employees are allocated the current value of their retirement benefit in a hypothetical account. Monthly credits based upon age, years of service, compensation and interest are added to the account. Upon retirement, the
value of the account balance is converted to an annuity. Effective January 1, 2000, the Company allowed employees to elect to direct up to 33% of their monthly credits to the EDS 401(k) Plan (the 401k Plan). The Company contributed $6
million, $8 million and $8 million to the 401k Plan related to these elections during the years ended December 31, 2002, 2001 and 2000, respectively. These amounts are not included in net periodic pension cost shown in the table above.



57



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The
weighted-average assumptions used in the measurement of the Companys benefit obligation are shown in the following table for the years ended December 31, 2002, 2001 and 2000:



|                                                      |  | 2002 |   |  | 2001 |   |  | 2000 |  
|----------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Discount rate at October 31                           |  | 6.4  | % |  | 6.7  | % |  | 7.2  | %
|Rate of increase in compensation levels at October 31 |  | 3.5  | % |  | 4.3  | % |  | 5.2  | %
|Long-term rate of return on assets at January 1       |  | 9.6  | % |  | 9.7  | % |  | 9.9  | %



The
weighted-average discount rate, rate of increase in compensation levels, and long-term rate of return on assets used to calculate 2003 pension expense will be 6.4%, 3.5% and 8.7%, respectively.



In addition to the plans described above, the 401k Plan
provides a long-term savings program for participants. The 401k Plan allows eligible employees to contribute a percentage of their compensation to a savings program and to defer income taxes until the time of distribution. Participants may invest
their contributions in various publicly traded investment funds or EDS common stock. The 401k Plan also provides for employer-matching contributions, in the form of EDS common stock, which participants may elect to transfer to another investment
option within the EDS 401k Plan after two years from the date of contribution. During the years ended December 31, 2002, 2001 and 2000, employer-matching contributions totaled $39 million, $35 million and $37 million, respectively.



|NOTE |  | 14:    COMMITMENTS AND RENTAL EXPENSE
|---- |  | -------------------------------------



Total rentals under cancelable and non-cancelable leases of tangible property and equipment included in costs
and charged to expenses were $925 million, $954 million and $838 million for the years ended December 31, 2002, 2001 and 2000, respectively. Commitments for rental payments under non-cancelable operating leases of tangible property and equipment
are: 2003  $469 million; 2004  $416 million; 2005  $299 million; 2006  $226 million; 2007  $191 million; and all years thereafter  $555 million.



The Company has signed certain service agreements with terms of up to ten years with certain vendors to
obtain favorable pricing and commercial terms for services that are necessary for the ongoing operation of its business. These agreements relate to software and telecommunications services. Under the terms of these agreements, the Company has
committed to contractually specified minimums over the contractual periods. The contractual minimums are: 2003  $666 million; 2004  $510 million; 2005  $531 million; 2006  $462 million; 2007  $443 million; and all years
thereafter  $1.5 billion. Amounts paid under these agreements were $762 million, $561 million and $461 million during the years ended December 31, 2002, 2001 and 2000, respectively. To the extent that the Company does not purchase the
contractual minimum amount of services, the Company must pay the vendors the shortfall. The Company believes that it will meet the contractual minimums through the normal course of business. Under a software subscription agreement representing $238
million of the aggregate balance, if our long-term debt is downgraded to below BBB by S&P or Baa2 by Moodys and a waiver is not granted, the maturity of the remaining minimum purchase commitment will accelerate and
become due immediately. As of December 31, 2002, the Company was in compliance with this requirement.



|NOTE |  | 15:    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 December 31, 2002, the Trust was capitalized by external borrowings of $213 million and the Companys residual beneficial interest of $75 million.
The Company has no effective control over the activities of the Trust and it is legally isolated from the Company.



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. With respect to CSFTs, even in the event of nonperformance under



58



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applicable contracts which would permit their termination, the Company would have no additional or
incremental performance risk with respect to the ownership of the assets, because it would have owned or leased the same or substantially equivalent assets in order to fulfill its obligations under its service contracts. With respect to the
securitization transaction, even in the event of termination due to the Companys nonperformance, in which case the Company would have an obligation to acquire the underlying assets, the Company would have a legal claim against the client to
recover the amount paid to acquire such assets. Performance under the Companys service contracts is generally measured by contract terms relating to project deadlines, IT system deliverables or level-of-effort measurements.



The aggregate dollar values of assets purchased under these
financing transactions during the years ended December 31, 2002, 2001 and 2000 were $321 million, $564 million and $283 million, respectively. As of December 31, 2002, there was outstanding an aggregate of $692 million under CSFTs yet to be paid by
the Companys clients. As of December 31, 2002, there was outstanding $213 million of financial assets securitized by the Company yet to be paid by the client. 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. Certain of the Companys financing transactions involving IT-related assets have been conducted with entities that may be considered variable interest entities as that term is used in FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, and may be subject to consolidation in 2003. These entities had assets and obligations of approximately $900 million at December 31, 2002.



In the normal course of business, the Company may provide
certain clients, principally governmental entities, with financial performance guarantees, which are generally backed by standby letters of credit or surety bonds. In general, the Company would only be liable for the amounts of these guarantees in
the event that nonperformance by the Company permits termination of the related contract by the Companys client, which the Company believes is remote. At December 31, 2002, the Company had $372 million outstanding standby letters of credit and
surety bonds relating to these performance guarantees. The Company believes it is in compliance with its performance obligations under all service contracts for which there is a performance guarantee, and the ultimate liability, if any, incurred in
connection with these guarantees will not have a material adverse effect on its consolidated results of operations or financial position. In addition, the Company had $30 million of other financial guarantees outstanding at December 31, 2002
relating to indebtedness of others.



The Company
is exposed to market risk on investments it holds in trust on behalf of one of its clients. These investments, which consist primarily of corporate and government bonds with maturities less than 90 days, had a market value of $197 million and $112
million at December 31, 2002 and 2001, respectively.



As a result of action by Moodys in February 2003 to lower the Companys long-term credit rating to Baa2, one of its clients has the right to request repayment of the unused balance of a prepayment made for
services which the Company continues to provide. The unused balance of that prepayment was approximately $146 million at December 31, 2002. In addition, a reduction of the Companys long-term credit rating below BBB- or
Baa3 by S&P or Moodys, respectively, would constitute a termination event under the revolving secured financing arrangement described in Note 7.



The Company provides IT services to WorldCom, the majority of which are provided under an 11-year, $6.4
billion services agreement signed in October 1999. On July 21, 2002, WorldCom filed for protection under Chapter 11 of the United States Bankruptcy Code. WorldCom represented approximately $610 million of the Companys 2002 revenues. Total
receivables outstanding under such agreements, net of reserves, were approximately $80 million at December 31, 2002. The Company owns equipment and other assets having a net book value of approximately $70 million deployed on WorldCom IT services
agreements, and approximately one percent of its employee base is dedicated to performing services thereunder.



WorldCom may reject its IT services contracts in bankruptcy. However, the Company expects to reach agreement with WorldCom on revised
terms for such agreements which reflect both changes in its service requirements and reductions to certain existing rates. Although the Company believes it would be able to redeploy employees and adjust its cost base to mitigate the earnings impact
of a change in service requirements to WorldCom, the Company expects a reduction in rates would negatively impact its revenues and earnings in 2003 and thereafter. In either event, the Company expects to recover the material asset balances
associated with these contracts through future operations.



In addition to its IT services agreements with WorldCom, the Company entered into an 11-year network services agreement in 1999 requiring it to procure telecommunications network services from WorldCom and providing for both
cumulative and annual take-or-pay revenue commitments. Certain terms of the network services agreement were amended as part of a settlement agreement approved by WorldComs bankruptcy court on December 23, 2002. As part of the
settlement agreement, the parties acknowledged that the Company did not owe any penalties for take-or-pay obligations with respect to 2002 network spend, the cumulative take-or-pay obligations in the original agreement were
eliminated and the future annual



59



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take-or-pay obligations were substantially reduced. The Company expects to meet the reduced
minimum levels of network spend in the normal course of business. The Company also agreed to refund over time $92 million of a network payment it received from WorldCom upon signing the original agreement in 1999. Such balance was carried on the
Companys balance sheet on the date of the settlement.



Due to uncertainties regarding the recoverability of pre-bankruptcy receivables and certain assets associated with the WorldCom IT services and network contracts, the Company recorded net reserves and asset writedowns totaling $118
million during 2002. These amounts are reflected in cost of revenues in the consolidated statement of income.



In a transaction unrelated to the agreements referred to above, the Company entered into a fiber optic equipment leveraged lease with MCI
Communications Corporation, a domestic subsidiary of WorldCom, in 1988. The Companys unrecovered investment in the related equipment totaled $61 million at December 31, 2002. The equipment is currently being used by WorldCom, and they are
making lease payments in accordance with contractual schedules. However, WorldCom may 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. The US Airways contract represented approximately $190 million of the Companys 2002 revenues. Total receivables outstanding under such agreements, net of reserves, were approximately $25 million
at December 31, 2002. The Company owns equipment and other assets having a net book value of approximately $45 million deployed on the US Airways services agreement.



Although US Airways has indicated the Company will continue to be its IT services provider, the Company is
currently in negotiations regarding revisions to its IT services contract. The Company expects the revised contract would negatively impact the revenue and earnings attributable to that client, although it does expect to recover the material asset
balances associated with the contract through future operations.



Due to uncertainties regarding the recoverability of pre-bankruptcy receivables associated with the US Airways contract, the Company recorded reserves totaling $74 million during 2002. This amount is reflected in cost of revenues in
the consolidated statement of income. The Company also recorded a writedown to its investment in a partnership totaling $35 million during 2002 due in part to uncertainties related to the recovery of that partnerships investment in leveraged
leases with US Airways.



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 service delivery under these contracts is dependent upon successful completion of
the development, construction and deployment phases. The Company is currently in the development, construction and deployment phase of two significant government and commercial client contracts in which the Company has invested assets of $1.9
billion and $430 million, respectively, including receivables, prepaid expenses, equipment and software. Each of these contracts has experienced delays in its construction and deployment phases, and certain milestones in the commercial client
contract have been missed. While the Company believes it can deliver the required systems and services and its investment in these contracts will be recovered over the contracts terms, 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. At December 31, 2002, the Company has 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 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 (described in the Other Risk Management Activities section of Note
12), 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 have been filed on behalf of participants in the EDS 401k 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 has filed a motion to consolidate all of the foregoing cases into a single
action in the United States District Court for the Eastern District of Texas, Sherman Division, and intend to defend the action vigorously. As these matters are



60



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in the earliest stages, the
Company is not able to determine the actual impact on its consolidated financial statements; however, the Company does not expect the impact to be material.



In addition, there are three derivative complaints filed by shareholders in the District Court of Collin County, Texas against its
directors and certain officers and naming the Company 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 the
Companys financial condition similar to those raised in the purported class actions described above. As these matters are in the earliest stages, the Company is not able to determine the actual impact on its consolidated financial statements;
however, the Company does not expect the impact to be material. 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. 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 inquiry or any action that the SEC might take.



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 December 31, 2002 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 16:    ACQUISITIONS



On August 16, 2002, the Company acquired the managed hosting business of Loudcloud, Inc. (now known as
Opsware Inc.) for $63.5 million in cash. In addition, the Company entered an agreement to license its web-hosting automation software Opswarefor a fee of $52.0 million over three years. The acquisition and licensing agreement strengthen the Companys position in the Web hosting market and provide a foundation for automation of service
delivery and applications management.



On July 2,
2001, the Company acquired the airline infrastructure outsourcing business and internal IT infrastructure assets of Sabre Holdings Corporation 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 the Company a leading provider of global IT infrastructure services to the airline industry and expands the Companys presence in
strategic infrastructure outsourcing.



On July 3,
2001, the Company acquired a controlling interest in Systematics AG, a German IT services company. The aggregate purchase price for such interest was $533 million comprised of $399 million in cash and $134 million in EDS stock (2.1 million common
shares). Systematics provided customer relationship management, enterprise resource planning, digital value chain and systems integration services. The acquisition deepened the Companys penetration in key industry segments such as finance,
government, insurance and telecommunications. A remaining minority interest was acquired in 2002 for an immaterial amount.



On August 31, 2001, the Company acquired all of the outstanding capital stock of 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, the Company acquired the 14% publicly held minority interest in its consolidated UGS subsidiary for $174 million in
cash. The Company 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. The formation of PLM Solutions created a single source for fully
serviced product lifecycle management solutions for the manufacturing industry.



In connection with the acquisitions of SDRC and the minority interest in UGS, the Company recorded pre-tax charges relating to the write-off of acquired in-process R&D totaling $86 million. 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 between 21% and 30% for the SDRC projects and between 27% and 39% for the UGS projects based upon an analysis of the weighted-average cost of
capital for publicly traded companies within the software



61



---



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. All projects have been completed as of December 31, 2002.



The purchase prices of the Sabre, Systematics, SDRC and UGS
acquisitions were allocated to the estimated fair values of assets acquired and liabilities assumed based on managements estimates and appraisals. The excess purchase price over the fair value of net assets acquired was allocated to goodwill
in the Operations Solutions, Solutions Consulting and PLM Solutions segments in the amounts of $744 million, $268 million and $840 million, respectively. Approximately $370 million of the goodwill is expected to be deductible for income tax
purposes. Approximately $200 million assigned to goodwill for these acquisitions was subject to amortization in 2001 (see Note 5).



The following table summarizes the purchase price allocation and the weighted-average useful life of intangibles for the aforementioned
acquisitions in 2001 (dollars in millions; life in years):



|                                             |  | Amount |       |   | Intangibles Weighted- Average Useful Life
|-------------------------------------------- |  | ------ | ----- | - | -----------------------------------------
|Working capital                              |  | $      | (292  | ) |                                          
|Fixed assets                                 |  |        | 206   |   |                                          
|Intangibles:                                 |  |        |       |   |                                          
|Customer accounts                            |  |        | 247   |   |                                          
|Tradename                                    |  |        | 8     |   |                                          
|Software                                     |  |        | 131   |   |                                          
|Acquired in-process research and development |  |        | 86    |   |                                          
|Goodwill                                     |  |        | 1,852 |   |                                          
|                                             |  |        |       |   |                                          
|Purchase price paid, net of cash acquired    |  | $      | 2,238 |   |                                          
|                                             |  |        |       |   |                                          



The
following table is prepared on a pro forma basis for the years ended December 31, 2001 and 2000 as though the Sabre, Systematics and SDRC businesses and the UGS minority interest had been acquired as of the beginning of the period presented, after
including the estimated impact of certain adjustments such as amortization of intangibles and interest expense. Impact of the Loudcloud acquisition has been excluded from the pro forma amounts as such impact is not material. The pro forma amounts
exclude the charge for acquired in-process research and development and other acquisition-related costs, and amortization expense related to goodwill resulting from acquisitions completed subsequent to June 30, 2001 (unaudited; in millions except
per share amounts):



|                                                                    |  | 2001 |        | 2000
|------------------------------------------------------------------- |  | ---- | ------ | ----
|Revenues                                                            |  | $    | 22,125 |     
|Income before cumulative effect of a change in accounting principle |  |      | 1,469  |     
|Net income                                                          |  |      | 1,445  |     
|Basic earnings per share of common stock                            |  |      | 3.07   |     
|Diluted earnings per share of common stock                          |  |      | 2.98   |     



The pro
forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that
might be achieved from combining the operations.



On October 23, 2000, the Company acquired all of the outstanding stock of Engineering Animation, Inc. (EAI) for $178 million in cash, net of cash acquired, in a transaction accounted for as a purchase. The purchase price
was allocated to the estimated fair values of assets acquired and liabilities assumed based on managements estimates and an appraisal. The excess of the purchase price over the fair value of net tangible assets acquired and in-process research
and development was $126 million and is being amortized over periods of three to seven years. Costs allocated to in-process research and development in the amount of $24 million were expensed in 2000.



The consolidated financial statements include the operations
of Sabre, SDRC, Systematics and EAI since the respective dates of each acquisition. The Company made various other acquisitions during the years ended December 31, 2002, 2001 and 2000, none of which had a material effect on the Companys
financial position or results of operations during the periods presented.



62



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|NOTE |  | 17:    DISCONTINUED OPERATIONS
|---- |  | ------------------------------



On December 5, 2002, the Company sold its Consumer Network Services (CNS) unit for cash proceeds of $323 million ($301 million
net of cash retained by the divested business). The net results of the business through the date of sale, including a gain recognized on the sale of the unit of $112 million, net of income taxes, are included in discontinued operations in the
consolidated statements of income. The CNS business was included in the Companys Operations Solutions line of business. The sale resulted in a pre-tax reduction to goodwill of $50 million. At December 31, 2001, CNS had current and non-current
assets of $49 million and $89 million, respectively, and current liabilities of $17 million. Following is a summary of income from discontinued operations of the business for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                                                        |  | 2002 |     | 2001 |   | 2000
|------------------------------------------------------- |  | ---- | --- | ---- | - | ----
|Revenues                                                |  | $    | 157 |      | $ | 230 
|Cost of revenues                                        |  |      | 130 |      |   | 199 
|                                                        |  |      |     |      |   |     
|Operating income                                        |  |      | 27  |      |   | 31  
|Other income                                            |  |      |    |      |   | 3   
|                                                        |  |      |     |      |   |     
|Income from discontinued operations before income taxes |  | $    | 27  |      | $ | 34  
|                                                        |  |      |     |      |   |     



During
2002, the Company approved a plan to sell its subscription fulfillment business. The Company expects to complete the sale of the business during the first half of 2003. The net results of the business, including an asset impairment provision of $25
million, net of income taxes, are included in discontinued operations in the consolidated statements of income. Total assets and liabilities of the business at December 31, 2002 were not material. The subscription fulfillment business is included in
the Companys Operations Solutions line of business. Following is a summary of income from discontinued operations of the business for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                                                        |  | 2002 |     |   | 2001 |   |     | 2000
|------------------------------------------------------- |  | ---- | --- | - | ---- | - | --- | ----
|Revenues                                                |  | $    | 123 |   |      | $ | 172 |     
|Cost of revenues                                        |  |      | 114 |   |      |   | 153 |     
|                                                        |  |      |     |   |      |   |     |     
|Operating income                                        |  |      | 9   |   |      |   | 19  |     
|Other expense                                           |  |      | (2  | ) |      |   | (2  | )   
|                                                        |  |      |     |   |      |   |     |     
|Income from discontinued operations before income taxes |  | $    | 7   |   |      | $ | 17  |     
|                                                        |  |      |     |   |      |   |     |     



NOTE
18:    SUPPLEMENTARY FINANCIAL INFORMATION



The following summarizes supplemental financial information for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                                                |  | 2002 |      |   | 2001 |   |      | 2000 | 
|----------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|Interest expense                                |  | $    | (258 | ) |      | $ | (245 | )    | 
|Interest income and other                       |  |      | (89  | ) |      |   | 32   |      | 
|Reclassification of investment gain from equity |  |      |     |   |      |   | 315  |      | 
|                                                |  |      |      |   |      |   |      |      | 
|Total other income (expense)                    |  | $    | (347 | ) |      | $ | 102  |      | 
|                                                |  |      |      |   |      |   |      |      | 
|Depreciation of property and equipment          |  | $    | 990  |   |      | $ | 948  |      | 
|Amortization                                    |  |      | 453  |   |      |   | 534  |      | 
|Cash paid for:                                  |  |      |      |   |      |   |      |      | 
|Income taxes, net of refunds                    |  |      | 267  |   |      |   | 393  |      | 
|Interest                                        |  |      | 305  |   |      |   | 189  |      | 



63



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NOTE
19:    RESTRUCTURING ACTIVITIES AND OTHER CHARGES



The following table summarizes restructuring activities and other charges for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                                         |  | 2002 |    |   | 2001 |   |     | 2000 | 
|---------------------------------------- |  | ---- | -- | - | ---- | - | --- | ---- | 
|Restructuring activities                 |  | $    |   |   |      | $ |    |      | 
|Reversal of prior restructuring accruals |  |      | (3 | ) |      |   | (15 | )    | 
|                                         |  |      |    |   |      |   |     |      | 
|Total                                    |  | $    | (3 | ) |      | $ | (15 | )    | 
|                                         |  |      |    |   |      |   |     |      | 



The
following table summarizes activity in the restructuring accruals for the years ended December 31, 2002, 2001 and 2000 (in millions):



|                             |  | Employee Separations |      |   | Exit Costs |   |     | Asset Impairments |  |   | Total |  
|---------------------------- |  | -------------------- | ---- | - | ---------- | - | --- | ----------------- |  | - | ----- | -
|Balance at December 31, 1999 |  | $                    | 402  |   |            | $ | 61  |                   |  | $ |      |  
|2000 activity                |  |                      | 88   |   |            |   | 17  |                   |  |   | 19    |  
|Amounts utilized(1)          |  |                      | (371 | ) |            |   | (52 | )                 |  |   | (19   | )
|                             |  |                      |      |   |            |   |     |                   |  |   |       |  
|Balance at December 31, 2000 |  |                      | 119  |   |            |   | 26  |                   |  |   |      |  
|Amounts utilized(1)          |  |                      | (88  | ) |            |   | (13 | )                 |  |   |      |  
|                             |  |                      |      |   |            |   |     |                   |  |   |       |  
|Balance at December 31, 2001 |  |                      | 31   |   |            |   | 13  |                   |  |   |      |  
|Amounts utilized(1)          |  |                      | (10  | ) |            |   | (5  | )                 |  |   |      |  
|                             |  |                      |      |   |            |   |     |                   |  |   |       |  
|Balance at December 31, 2002 |  | $                    | 21   |   |            | $ | 8   |                   |  | $ |      |  
|                             |  |                      |      |   |            |   |     |                   |  |   |       |  

---

|(1) |  | Amounts utilized in 2000, 2001 and 2002 include cash payments of $268 million, $46 million and $12 million and non-cash utilization of $174 million, $55 million
and $3 million, respectively. Non-cash utilization includes asset impairments, reversal of residual restructuring accruals, early retirement offers included under the Companys defined benefit pension plan and changes to the vesting conditions
of unvested restricted stock units and options.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the first quarter of 1999, the Company began the implementation of initiatives designed to reduce costs, streamline its organizational structure and exit certain operating activities. As a result of these initiatives, the
Company recorded restructuring charges and related asset writedowns totaling $1,068 million for the year ended December 31, 1999. Amounts recorded for restructuring activities during 1999 provided for planned workforce reductions of approximately
15,300 employees, consisting of approximately 3,200 employees who accepted the Companys early retirement offer and the involuntary termination of approximately 12,100 individuals employed throughout the Company in managerial, professional,
clerical, consulting and technical positions.



As
a result of the Companys ongoing evaluation of the results of the initiatives begun in 1999, the Company amended some of the original plans in the fourth quarter of 2000 due to actual attrition rates for job categories and/or geographies
differing from original expectations. These amendments consisted primarily of plans to involuntarily terminate employees different from those originally planned. Due to the specific requirements to detail both the type of position and location of
the workplace when recording a restructuring charge, these amendments resulted in the reversal of a portion of the charge associated with the original plan, representing approximately 1,500 of the original positions, and the recognition of a charge
associated with the new plan. As a result of the new plan, the Company recorded restructuring charges and asset writedowns totaling $124 million in the fourth quarter of 2000. The financial impact resulting from the new plan was more than offset by
the reversal of accruals of $146 million related to restructuring charges previously recorded in 1999, resulting in a net reversal of restructuring charges of $22 million for 2000.



Amounts recorded for restructuring activities in the fourth quarter of 2000
provided for workforce reductions of approximately 2,250 employees, consisting of individuals employed throughout the Company in managerial, professional, clerical, consulting and technical positions. Total involuntary termination charges amounted
to $88 million, $10 million of which pertained to changes in the vesting conditions for unvested restricted stock units and options (see Note 10). These initiatives also resulted in charges of $17 million resulting from the exit of certain business
activities and the consolidation of facilities, and asset writedowns of $19 million. The accrual for business exit activities and consolidation of facilities included estimated costs of $13 million to exit certain leases, $3 million to terminate
certain client contracts and $1 million for other costs. These costs were associated primarily with the former Business Process Management line of business. Asset writedowns related to the restructuring activities consisted primarily of writedowns
of computer-related equipment and other assets. Such asset writedowns, which predominantly related to businesses that the Company had decided to exit in the former Information Solutions line of business, were primarily determined based on the
present value of anticipated future cash flows.



64



---



Through
December 31, 2002, approximately 11,450 employees have left the Company through involuntary termination as a result of the 1999 and 2000 initiatives, and $526 million of termination benefits have been charged to the accrual. In addition, $86 million
has been paid in connection with the exit activities described above. In the second quarter of 2001, the Companys workforce was reduced by 1,230 employees, who were identified in the 2000 initiative described above, due to the sale of a
subsidiary. Restructuring accruals totaling $25 million were utilized in connection with this sale. Also, during the years ended December 31, 2002 and 2001, the Company reversed restructuring accruals totaling $3 million and $15 million,
respectively, related to these initiatives. Restructuring actions contemplated under the Companys restructuring plans are essentially complete as of December 31, 2002 with remaining reserves of $29 million being comprised primarily of future
severance-related payments to terminated employees and future lease payments for exited facilities. Management expects that remaining cash expenditures relating to these charges will be incurred primarily in 2003.



NOTE 20:    QUARTERLY FINANCIAL DATA (UNAUDITED)

(in millions, except per share amounts)



|                                                                                 |  | Year Ended December 31, 2002(1)     |      
|-------------------------------------------------------------------------------- |  | ----------------------------------- | -----
|                                                                                 |  | First Quarter                       |      
|Revenues                                                                         |  | $                                   | 5,266
|Gross profit from operations                                                     |  |                                     | 1,044
|Restructuring and other charges                                                  |  |                                     |     
|Income from continuing operations                                                |  |                                     | 347  
|Income from discontinued operations                                              |  |                                     | 7    
|Net income                                                                       |  |                                     | 354  
|Basic earnings per share of common stock:                                        |  |                                     |      
|Income from continuing operations                                                |  |                                     | 0.72 
|Diluted earnings per share of common stock:                                      |  |                                     |      
|Income from continuing operations                                                |  |                                     | 0.70 
|Cash dividends per share of common stock                                         |  |                                     | 0.15 
|                                                                                
|                                                                                 |  | Year Ended December 31, 2001(1) (2) |      
|                                                                                 |  | First Quarter                       |      
|Revenues                                                                         |  | $                                   | 4,893
|Gross profit from operations                                                     |  |                                     | 896  
|Acquired in-process research and development and other acquisition-related
costs |  |                                     |     
|Restructuring and other charges                                                  |  |                                     |     
|Income from continuing operations                                                |  |                                     | 463  
|Income from discontinued operations                                              |  |                                     | 7    
|Net income                                                                       |  |                                     | 446  
|Basic earnings per share of common stock:                                        |  |                                     |      
|Income from continuing operations                                                |  |                                     | 0.99 
|Diluted earnings per share of common stock:                                      |  |                                     |      
|Income from continuing operations                                                |  |                                     | 0.97 
|Cash dividends per share of common stock                                         |  |                                     | 0.15 

---

|(1) |  | Restated to reflect the sale of CNS and the expected sale of the subscription fulfillment businesses as discontinued operations
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes pre-tax amounts of $40 million, $43 million, $45 million and $45 million, respectively, in the first, second, third and fourth quarters of 2001
for amortization expense related to goodwill and certain other intangible assets no longer amortized effective January 1, 2002
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes pre-tax amounts of $101 million, $107 million and $26 million, respectively, in the second, third and fourth quarters of 2002 for reserves and
asset writedowns associated with the bankruptcies of WorldCom, US Airways and United Airlines
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes pre-tax amounts of $88 million in the third quarter of 2001 and ($2) million in the fourth quarter of 2001 of costs allocated to acquired
in-process research and development that is not deductible for tax purposes
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



65



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ITEM
9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                    DISCLOSURE



None





PART III



ITEM
10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



ITEM 11.    EXECUTIVE COMPENSATION



ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



For Item 10, the names and ages of our executive officers as of February 15, 2003, and the position(s) each
of them has held during the past five years, are included in Part I of this Form 10-K under the caption Executive Officers of EDS. All other information required by Item 10, and the information required by Items 11, 12 and 13, is
incorporated herein by reference to the definitive proxy statement for our Annual Meeting of Shareholders to be held on April 22, 2003, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2002.



ITEM 14.    CONTROLS AND PROCEDURES



Within 90 days prior to the filing of this
report, an evaluation was carried out under the supervision and with the participation of EDS management, including EDS Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer, of the effectiveness
of the design and operation of its disclosure controls and procedures. Based upon that evaluation, EDS Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that EDS disclosure controls
and procedures are effective.



There have been no
significant changes in EDS internal controls or, to our knowledge, in other factors that could significantly affect these internal controls subsequent to the date of their evaluation.



It should be noted that any system of controls, however well
designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.





PART IV



ITEM
15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|(a)(1) |  | The following consolidated financial statements of Electronic Data Systems Corporation and subsidiaries are included in Part II, Item 8:
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------



Independent Auditors Report.

Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000.

Consolidated Balance Sheets as of December 31, 2002 and 2001.

Consolidated Statements of Shareholders Equity and Comprehensive Income as of and for the years ended

December 31, 2002, 2001 and 2000.

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000.

Notes to Consolidated Financial Statements.



66



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|(a)(2) |  | The following financial statement schedule of Electronic Data Systems Corporation and subsidiaries is included in Item 15(d):
|------ |  | -----------------------------------------------------------------------------------------------------------------------------



Schedule II  Valuation and Qualifying Accounts.

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.



|(a)(3) |  | Exhibits
|------ |  | --------



Included in this Form 10-K:



|Exhibit No. |  | Description                                                                                                                                                                                                                                     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           
|10(a)       |  | Receivables Purchase Agreement dated as of December 27, 2002, among EDS, EDS Information Services L.L.C., Legacy
Receivables LLC, CIESCO L.P., Corporate Asset Funding Company, Inc., Citibank, N.A. and Citicorp North America, Inc., as Agent.
|           
|10(b)       |  | Purchase and Contribution Agreement dated as of December 27, 2002, between EDS Information Services L.L.C. and Legacy
Receivables LLC.                                                                                                          
|           
|10(c)       |  | Relocation Loan Promissory Note of Dietmar Ostermann dated February 15, 2001 and letter of EDS to Dietmar Ostermann
dated January 16, 2002 extending the repayment date therefor.*                                                              
|           
|10(d)       |  | Relocation Loan Promissory Note of Dietmar Ostermann dated February 15,
2001.*                                                                                                                                                                  
|           
|10(e)       |  | Retention Agreement effective as of December 3, 2002 between EDS and Douglas
Frederick.*                                                                                                                                                        
|           
|10(f)       |  | Retention Agreement effective as of December 3, 2002 between EDS and Dietmar
Ostermann.*                                                                                                                                                        
|           
|10(g)       |  | Retention Agreement effective as of February 4, 2003 between EDS and James E.
Daley.*                                                                                                                                                           
|           
|12          |  | Computation of Ratios of Earnings to Fixed Charges.                                                                                                                                                                                             
|           
|21          |  | Subsidiaries of EDS as of December 31, 2002.                                                                                                                                                                                                    
|           
|23          |  | Consent of Independent Auditors.                                                                                                                                                                                                                
|           
|24          |  | Powers of Attorney (included on signature pages).                                                                                                                                                                                               



Not included in this
Form 10-K:

|· |  | The Restated Certificate of Incorporation of EDS, as amended through June 7, 1996, is Exhibit 3(a) to our Current Report on Form 8-K dated June 7, 1996, and is
hereby incorporated by reference.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Certificate of Designation of Series A Junior Participating Preferred Stock dated March 12, 1996 is Exhibit 4(c) to our Registration Statement on Form S-4 (File No.
333-02543) and is hereby incorporated by reference.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | The Amended and Restated Bylaws of EDS is Exhibit 4(c) to our Registration Statement on Form S-3 (File No. 333-62442) and is hereby incorporated by reference.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Rights Agreement dated March 12, 1996 between EDS and The Bank of New York, as Rights Agent, is Exhibit 4(c) to our Registration Statement on Form S-4 (File No.
333-02543) and is hereby incorporated by reference.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Indenture dated August 12, 1996 between EDS and Texas Commerce Bank National Association, as Trustee, is Exhibit 4 to our Registration Statement on Form S-3 (File
No. 333-10145) and is hereby incorporated by reference.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Supplemental Indenture dated October 12, 1999 between EDS and Chase Bank of Texas, National Association as trustee, is Exhibit 4.4 to our Form 8-K dated October 12,
1999, and is hereby incorporated by reference.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Second Supplemental Indenture dated June 26, 2001 between EDS and The Chase Manhattan Bank, as trustee, is Exhibit 4.1 to our Form 8-K/A dated June 20, 2001, and is
hereby incorporated by reference.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Third Supplemental Indenture dated October 10, 2001 between EDS and The Chase Manhattan Bank, as trustee, is Exhibit 4.1 to our Form 8-K dated October 4, 2001, and
is hereby incorporated by reference.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Amended Revolving Credit and Term Loan Agreement dated as of September 11, 2002 among EDS and the lenders and agents party thereto amending the Revolving Credit and
Term Loan Agreement dated September 15, 1999 is Exhibit 10(r)(1) to our Form 10-Q for the quarter ended September 30, 2002 and is hereby incorporated by reference. Revolving Credit and Term Loan Agreement dated September 15, 1999 is Exhibit 10(r)(2)
to our Form 10-Q for the quarter ended September 30, 2002 and is hereby incorporated by reference.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Multi-Currency Revolving Credit Agreement dated as of September 15, 1999 among EDS and the lenders and agents parties thereto is Exhibit 10(s)(2) to our Form 10-Q
for the quarter ended September 30, 2002 and is hereby incorporated by reference.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Instruments defining the rights of holders of nonregistered debt of EDS have been omitted from this exhibit index because the amount of debt authorized under any
such instrument does not exceed 10% of the total assets of EDS and its subsidiaries. EDS will furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67



---



|· |  | Master Service Agreement dated June 7, 1996 between General Motors Corporation and EDS (portions of which are subject to confidential treatment granted by the
Securities and Exchange Commission) is Exhibit 4(a) to our Current Report on Form 8-K dated June 7, 1996, and is hereby incorporated by reference.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Form of Indemnification Agreement entered into between EDS and each of its directors and certain executive officers is Exhibit 10(f) to our Registration
Statement on Form S-4 (File No. 333-02543) and is hereby incorporated by reference.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Form of Change in Control Employment Agreement with certain executive officers of EDS is Exhibit 99 to our Registration Statement on Form S-3 (File No. 333-06655)
and is hereby incorporated by reference.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Employment Agreement effective January 1, 1999 between EDS and Richard H. Brown is Exhibit 10(q) to our Annual Report on Form 10-K for the year ended December 31,
1998 and is hereby incorporated by reference.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Offer of Employment effective February 23, 1999 between EDS and James E. Daley is Exhibit 10(l) to our Annual Report on Form 10-K for the year ended December 31,
1999 and is hereby incorporated by reference.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | Amended and Restated EDS Incentive Plan is Exhibit 4 (a) to our Registration Statement on Form S-8 (File No. 333-65784), and is hereby incorporated by reference.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS 1998 Supplemental Executive Retirement Plan is Exhibit 10(c) to our Annual Report on Form 10-K for the year ended December 31, 1998, and is hereby incorporated
by reference. *
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Deferred Compensation Plan for Non-Employee Directors is Exhibit 10(d) to our Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and is hereby
incorporated by reference.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Transition Incentive Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-65786) and is hereby incorporated by reference.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Executive Deferral Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-103044) and is hereby incorporated by reference.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS United Kingdom Executive Deferral Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-72086) and is hereby incorporated by reference.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Global Share Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-82520) and is hereby incorporated by reference.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|· |  | PerformanceShare, 1997 Nonqualified Stock Option Plan of EDS is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-22077) and is hereby
incorporated by reference.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Deferred Compensation Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-101285) and is hereby incorporated by reference.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Puerto Rico Savings Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-101286) and is hereby incorporated by reference.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Stock Purchase Plan is Exhibit 10(c) to our Registration Statement on Form S-4 (File No. 333-2543) and is hereby incorporated by reference.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|· |  | 1999 EDS Non-Qualified Stock Purchase Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-65828) and is hereby incorporated by reference.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· |  | EDS Transition Inducement Plan is Exhibit 4(a) to our Registration Statement on Form S-8 (File No. 333-101287) and is hereby incorporated by reference.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

---

|* |  | Management contracts and compensatory plans and arrangements required to be filed as exhibits to this Form 10-K pursuant to Item 15(c).
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

During the quarter ended December 31, 2002, EDS filed the following Current Reports on Form 8-K:

| | (i) |  | Current Report on Form 8-K dated December 9, 2002 reporting under Item 9  Regulation FD Disclosure, a press release regarding the impact of the bankruptcy of
United Airlines.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) |  | Current Report on Form 8-K dated November 15, 2002 reporting under Item 9  Regulation FD Disclosure, a press release regarding the disposition of EDS
consumer network services unit.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) |  | Current Report on Form 8-K dated November 13, 2002 reporting under Item 9  Regulation FD Disclosure, the certifications of the Chief Executive Officer and
Chief Financial Officer of EDS Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv) |  | Current Report on Form 8-K dated October 30, 2002 reporting under Item 9  Regulation FD Disclosure, a press release regarding earnings for the quarter ended
September 30, 2002.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (v) |  | Current Report on Form 8-K dated September 30, 2002 reporting under Item 9  Regulation FD Disclosure, an open letter to shareholders posted on EDS
website.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



68



---



|(c) |  | Exhibits.
|--- |  | ---------

The response to
this portion of Item 15 is submitted as a separate section of this report.



|(d) |  | Financial Statement Schedule.
|--- |  | -----------------------------

The response to this portion of Item 15 is submitted as a separate section of this report.





SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |  |  | Electronic Data Systems Corporation
|--------------------- |  |  |  | -----------------------------------
|                     
|Dated: March 12, 2003 |  |  |  | By:                                
|                      |  |  |  |                                    





POWER OF ATTORNEY



Each of the undersigned officers and directors of Electronic Data Systems Corporation hereby severally constitutes and appoints Robert H. Swan and D. Gilbert Friedlander, and each of them singly, his
or her true and lawful attorneys with full power to them, and each of them singly, to execute on behalf of the undersigned in the capacities indicated below any and all amendments to this Report on Form 10-K.



Pursuant to the requirements of the Securities Exchange Act of
1934, this report and power of attorney have been signed below by the following persons in the capacities and on the date indicated.



|                      |  |  |  |    
|--------------------- |  |  |  | ---
|                     
|Dated: March 12, 2003 |  |  |  | By:
|                      |  |  |  |    



|                      |  |  |  |    
|--------------------- |  |  |  | ---
|                     
|Dated: March 12, 2003 |  |  |  | By:
|                      |  |  |  |    



|                     
|---------------------
|Dated: March 12, 2003
|                     





69



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|Dated: March 12, 2003 |  |  |  | By:
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|Dated: March 12, 2003 |  |  |  | By:
|                      |  |  |  |    



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|Dated: March 12, 2003 |  |  |  | By:
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|Dated: March 12, 2003 |  |  |  | By:
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|Dated: March 12, 2003 |  |  |  | By:
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|--------------------- |  |  |  | ---
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|Dated: March 12, 2003 |  |  |  | By:
|                      |  |  |  |    



|                      |  |  |  |    
|--------------------- |  |  |  | ---
|                     
|Dated: March 12, 2003 |  |  |  | By:
|                      |  |  |  |    



70



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CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Richard H. Brown, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Electronic Data Systems Corporation;
|-- |  | ---------------------------------------------------------------------------------------

|
|

|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | b. |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | c. |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|6. |  | The registrants other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 12, 2003



/S/    Richard H. BrownRichard H. Brown Chairman and Chief Executive Officer




71



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CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Robert H. Swan, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Electronic Data Systems Corporation;
|-- |  | ---------------------------------------------------------------------------------------

|
|

|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | a. |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | b. |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | c. |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | a. |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | b. |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|6. |  | The registrants other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 12, 2003



/S/    Robert H. SwanRobert H. Swan Executive Vice President and Chief Financial Officer




72



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ELECTRONIC DATA SYSTEMS
CORPORATION AND SUBSIDIARIES



SCHEDULE II 
VALUATION AND QUALIFYING ACCOUNTS

(in millions)



|Description                           |  | Balance at beginning of year |     | Additions charged to costs and expenses |   | Additions (deductions) charged to other accounts |  |   | Deductions |      |  | Balance at end of year
|------------------------------------- |  | ---------------------------- | --- | --------------------------------------- | - | ------------------------------------------------ |  | - | ---------- | ---- |  | ----------------------
|FOR THE YEAR ENDED DECEMBER 31, 2002  |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Allowances deducted from assets:      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Accounts and notes receivable         |  | $                            | 107 |                                         | $ | 235                                              |  | $ | (1         | )(d) |  | $                     
|Inventories                           |  |                              | 6   |                                         |   |                                                 |  |   |           |      |  |                       
|                                      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Total allowances deducted from assets |  | $                            | 113 |                                         | $ | 235                                              |  | $ | (1         | )    |  | $                     
|                                      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|FOR THE YEAR ENDED DECEMBER 31, 2001  |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Allowances deducted from assets:      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Accounts and notes receivable         |  | $                            | 133 |                                         | $ | 44                                               |  | $ | 14         | (c)  |  | $                     
|Inventories                           |  |                              | 17  |                                         |   | 4                                                |  |   | (9         | )(d) |  |                       
|                                      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Total allowances deducted from assets |  | $                            | 150 |                                         | $ | 48                                               |  | $ | 5          |      |  | $                     
|                                      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|FOR THE YEAR ENDED DECEMBER 31, 2000  |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Allowances deducted from assets:      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Accounts and notes receivable         |  | $                            | 95  |                                         | $ | 120                                              |  | $ |           |      |  | $                     
|Inventories                           |  |                              | 27  |                                         |   | 8                                                |  |   |           |      |  |                       
|                                      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       
|Total allowances deducted from assets |  | $                            | 122 |                                         | $ | 128                                              |  | $ |           |      |  | $                     
|                                      |  |                              |     |                                         |   |                                                  |  |   |            |      |  |                       

---

Notes:

|(a) |  | Primarily accounts written off
|--- |  | ------------------------------

|(b) |  | Obsolete inventory written off and foreign currency translation adjustments
|--- |  | ---------------------------------------------------------------------------

|(c) |  | Additions resulting from acquisitions
|--- |  | -------------------------------------

|(d) |  | Deductions resulting from divestitures
|--- |  | --------------------------------------



73