EDS Reports Narrow Loss

After adopting the new Financial Accounting Standards Board revenue recognition accounting rule, EDS today announced a net loss of $.6 million on revenues of $5.24 billion.

The Plano, Texas IT outsourcing firm said it would have met Wall Street earnings estimates of 32 cents a share without the change. The rule, which EDS adopted retroactively to January 1 of this year, replaces the percentage-of-completion accounting that EDS had been using. The result of the rule change is to recognize revenue when it is billed, and to amortize costs for building new IT systems for clients over the life of the contract.

The revenues were six percent higher than the same quarter last year. In the same comparison, EDS also boosted contract signings by $.4 billion to $3.4 billion for the 2003 quarter.

“Our contract signings are still lower than we like but they are an improving trend,” said Chairman and CEO Michael Jordan in the earnings conference call this afternoon.

In its ongoing attempts to turn its business around and “restore” EDS’s competitiveness in the market, the company is competitive now in its pricing.

“Our bookings are still low, but we find our win rate is improving. More importantly, as we’ve taken actions to streamline the business and put in place comprehensive a cost reduction program, we are fully competitive on pricing. That won’t be an issue for us in the market any longer,” said Jordan.

EDS has also taken steps to build on its $3 billion base of business process outsourcing. The company hopes to grow that BPO business especially in human resources and purchasing.

As part of its cost reduction efforts, EDS also announced that it will incrementally gain another $100 million savings as a result of major productivity gains and a restructuring of excess capacity in Europe, Jordan said. Earlier this year EDS said it plans to reduce its workforce by four percent or 5,200 employees by the end of next year. EDS had 135,000 employees and the end of the third quarter. As a result of the restructuring, EDS now expects to save $330 to $360 million annually.

In its troubled Navy Marine Corps Intranet contract, Jordan said that roadblocks to rolling out new seats in the project are beginning to come down, although several local sites are still resisting the cut-over of new seats. EDS does not expect to break even on the NMCI contract until the second half of next year.

“Cut-overs have deteriorated. We’ve made moderate improvement in customer satisfaction, but we still have a ways to go to achieve [bonuses in the contract related to certain thresholds of customer satisfaction],” said CFO Bob Swan.

As of the end of the third quarter, EDS has cut over 110,000 seats and has received orders for a total of 282,000 seats. EDS in the third quarter lost $90 million in capital costs for the NMCI.

Jordan hinted at additional organizational changes that EDS plans to announce in the next several weeks, although he would not provide any detail on what those would be.

For the fourth quarter of this year, EDS expects to generate revenues of $5.4 to $5.5 billion, with earnings per share falling in the range of about 10 to 14 cents.

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