Embattled IT services provider Electronic Data Systems (EDS) met Wall Street expectations for its third quarter but said it plans to cut 2,500 jobs, bringing this year's announced layoffs to 5,200, or about 4 percent of its workforce of 135,000, the company said Wednesday.
EDS closed the quarter, ending Sept. 30, with a net loss of US$600,000, or break even on a per share basis. Excluding one-time items, EDS reported pro forma earnings per share of $0.05 and net income of $26 million. Meanwhile, revenue rose 6 percent to $5.24 billion.
Those results were calculated using a new accounting rule that changes how the company recognizes some revenue and which EDS recently adopted. The rule in question is the Emerging Issues Task Force Issue 00-21, or EITF 00-21, which calls, with some exceptions, for a certain type of revenue in long-term contracts to be recognized when it is billed. It replaces so-called "percentage of completion" (POC) accounting, which lets companies recognize revenue based on the percentage of the contract's work completed. The result is that EDS will now recognize less revenue and income in the early stages of contracts, and higher revenue and income in the latter stages of contracts. EDS delayed reporting third quarter results for a week while it sought clarification on the accounting rule.
The pro forma earnings results are equivalent to $0.32 per share on a pre-EITF 00-21 basis, matching the consensus forecast from 23 analysts polled by Thomson First Call. Consensus was for revenue of $5.3 billion.
Comparatively, in last year's third quarter, EDS posted net income of $86 million, or $0.18 per share, and revenue of $5.33 billion, using its previous POC-based accounting method. The equivalent results for last year's third quarter using the new EITF 00-21 accounting rule are for a per share loss of $0.22, compared with break even in this year's third quarter.
EDS announced a restructuring plan in June to cut costs, improve the company's bottom line and dispel clouds of controversy that have gathered over the past year, including an ongoing U.S. Securities and Exchange Commission investigation, sagging sales, money-losing contracts and a devalued stock price. At the time, EDS announced it would lay off 2,700 employees. The plan was launched by EDS' new management team, which includes Chairman and Chief Executive Officer Michael Jordan], who took over from Dick Brown in March.
In October 2002, EDS announced it would lay off up to 5,520 employees, or up to 4 percent of its workforce of 138,000 at the time.
The company's shares (EDS) closed at $21.85 on the New York Stock Exchange on Wednesday, before the earnings report came out. Shares were up 1.1 percent to $22.09 on mid-morning trading Thursday.