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  After delaying its third quarter results to review the full impact of adopting a new accounting rule and revealing its $2.24bn cumulative effect, Electronic Data Systems reported a net loss of $600,000 for Q3 last week but matched analysts' expectations on a like-for-like basis.
Consulting-Times E-zine
In after-hours trading, EDS shares were unchanged at $21.85.

EDS also revealed that it will be cutting more jobs as part of its plan to reign in cost and stabilize the company financially after several of its biggest clients declared bankruptcy last year.

Revenues were $5.2bn in the quarter ending September 30, down 1.8 percent from the previous year. Operating income was down to $76m from $270m last year, while net loss was $600,000, compared to a profit of $86m a year ago.

EDS said this equates to break even on a per share basis. The company said that on a pro forma basis, Q3 earnings would have been $0.05 per share, and discounting the effect of new accounting rule EITF 00-21, the figure would have been $0.32 per share, matching analysts' estimates. The application of the rule also means dilution of first half earnings by 52 percent and second half earnings by 75 percent.

EDS signed $3.4bn in contracts in Q3, versus $3.0bn a year ago, driven by activity in the government and manufacturing sectors. Signings in the first three quarters of 2003 were $9.7bn, compared with $16.4bn in the comparable 2002 period. Bob Swan, executive vice president and CFO, said the quality of EDS' contract signings continued to improve, though the volume still needed to be increased. He added that the pipeline was strengthening and the company was improving its win rate.

EDS expects Q4 revenues of $5.4bn to $5.5bn, in line with expectations when presented on a pro forma basis and before the impact of EITF 00-21. Swan forecast earnings per share of $0.10 to $0.14, which he said was consistent with EDS's earlier forecasts, when adjusted for the impact of EITF 00-21.

EDS continues with its restructuring efforts. The company announced that it would cut headcount by 5,200 workers by year-end 2004. This includes 2,700 previously announced cuts. The company expects restructuring efforts to generate annual savings of $330 million to $360 million, up $100 million from prior expectations.

Third quarter results by geography and product line

To enhance financial disclosure, EDS said it will now report revenue and operating income for its core IT business (information technology outsourcing and consulting, business process outsourcing and applications development) in four primary areas: Americas, EMEA (Europe, Middle East and Africa), Asia and U.S. Government.

Q3 revenue in the Americas was $2.28 billion, down 3 percent from the same period last year, reflecting lower GM revenue, the sale of the credit union business and renegotiated contracts. EMEA revenue was $1.42 billion, up 4 percent from the same period last year, due to higher contract signings in the financial sector. Asia revenue was $246 million, down 10 percent from the 2002 third quarter, while U.S. Government revenue was $790 million, up 39 percent from the same period last year. All comparisons are in constant currency and exclude divested operations. Year-ago revenue comparisons are on an EITF 00-21 adjusted basis.

In the just-completed quarter, A.T. Kearney revenue declined 26 percent (constant currency) to $192 million from a year ago on an EITF 00-21 adjusted basis, reflecting continued softness in high-value management consulting. PLM Solutions revenue rose 8 percent from a year ago to $212 million, reflecting higher sales of software, maintenance and services.

Product line breakdown: Information technology outsourcing (ITO) accounted for approximately 56 percent of EDS' third quarter revenue. Applications development accounted for 20 percent, and business process outsourcing accounted for 13 percent, while IT consulting generated 3 percent of total revenue in the quarter. PLM Solutions and A.T. Kearney each accounted for 4 percent of the total.
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