Sales in the quarter ending were $5.5bn, up 2.3% on the year. Operating profit slipped 47.2% to $278m, while net income was down 56% to $138m. This resulted in earnings per share of $0.28, including charges of $0.05 for asset write-downs and $0.01 for executive severance charges. Analysts had expected $0.34 per share.

The company maintained its guidance for the rest of the year, which calls for pro forma earnings per share of $0.70 to $0.80 on revenue of around $11bn. These figures exclude restructuring and other charges, divestitures and accounting changes. One upcoming change comes from a new accounting rule, EITF 00-21.

CFO Robert Swan detailed the effect of the new accounting rule, which affects the way companies such as EDS recognize revenue on contracts with multiple deliveries. The company will restate its first and second-quarter numbers for 2003 to reflect the impact of the rule.

Swan said that while the company was on target to make pro forma earnings per share of $1.34 to $1.44 for the year, under the old accounting system, the impact of the new rule will be 65% to 75% dilutive to that figure, meaning earnings per share in the region of $0.34 to $0.50.

In addition, the new rule will have an additional effect on net unbilled receivables and deferred costs in the region of $1.9bn to $2.2bn pre-tax, which will be flowed through the company’s 2003 results.

In response to questioning from analysts, Swan confirmed that this equated to a $2bn impact on the company’s net worth. EDS said the adoption of the rule would significantly reduce full year earnings but will have a positive effect on earnings in 2004.

The company emphasized it was still working with the Securities and Exchange Commission to confirm its interpretation of the rule change.

Contract signings were $3.4bn in the quarter, versus $6.2bn the previous year, which the company said: reflected the tepid IT spending environment. However, EDS said that signings were up from the previous quarter.

Swan said EDS’ perceived liquidity problem impacted our competitiveness in the market. He said he believed the actions we’ve taken will mitigate these concerns going forward.

Last month EDS raised $1.8bn in capital, through a debt offering and credit revolver. This left the company’s unrestricted cash and revolver at $4.25bn, of which $3bn was cash. Once a variety of actions have taken their course over the rest of the year, including ratings triggers, restructuring and debt payments, Swan expects unrestricted cash and the company’s credit revolver to stand at $3bn by the end of the year, $2bn of which will be cash.

For the year to date, sales were up 2.1% to $10.9bn, while net income was down 98% to $12m.

Source: Computerwire