Electronic Data Systems (EDS) is cutting its fourth-quarter and full-year earnings expectations as a result of Monday's US Chapter 11 bankruptcy protection filing from UAL, the parent company of United Airlines.
EDS will take a write-down provision that will lower its fourth-quarter and full-year earnings per share by US$0.05, the company said yesterday.
EDS will write down an investment balance of about $40 million that it has in leveraged aircraft leases with United Airlines. Entered into in 1991, the leases had EDS own United Airlines airplanes and lease them back to the airline, which yielded investment tax credits for EDS, the EDS spokeswoman said. She described the transactions as common types of investments for tax relief purposes.
EDS, the world's second-largest provider of IT services, has seen its earnings suffer this year from other high-profile bankruptcies of clients and partners, including WorldCom and US Airways Group. EDS has also been affected by weak new sales and by slow growth on existing contracts due to a reduction in clients' discretionary spending, particularly in Europe. In October, EDS announced it would cut its workforce worldwide by 3 to 4 per cent over the coming months.
EDS closed its third quarter, which ended September 30, with net income of US$86 million, a far cry from original expectations.