EDS Reports 2007 Second Quarter Results



    
    - Second quarter adjusted EPS of 27 cents, up 35% versus a year ago

    - Second quarter revenue of $5.45 billion, up 5% versus a year ago

    - Continue aggressive change management activity in 2008
    

    PLANO, Texas, Aug. 1 /CNW/ -- EDS today reported second quarter 2007
adjusted net income of $143 million, or 27 cents per diluted share, versus
second quarter 2006 adjusted net income of $107 million, or 20 cents per
diluted share.  See "GAAP Reconciliation" below for reported net income and
earnings per share for second quarter 2007 and 2006.
    Second quarter revenue increased 5 percent to $5.45 billion from $5.19
billion in the year-ago quarter(1).  Second quarter revenue increased 1
percent on an organic basis, which excludes the impact of currency
fluctuations, acquisitions and divestitures.
    "EDS continued to make significant operational progress in the second
quarter," said Mike Jordan, chairman and chief executive officer. "Earnings
and revenues were solid and keep us on pace to achieve our full-year guidance.
We improved our competitiveness by building on our capabilities in
applications services, deploying our Global Services Network and continuing to
drive leverage, standardization and quality in our global delivery system."
    Jordan indicated that, as a result of the capital requirements of new
business transitions and intensified investment in upgrading and automating
facilities,  EDS' full-year 2007 free cash flow will now most likely be in the
range of $900 million to $1 billion.
    EDS signed $4.3 billion in contracts in the second quarter of 2007 versus
$5.4 billion in the year-ago quarter.  EDS signed six deals in the second
quarter of 2007 with contract values greater than $100 million with clients in
the communications, government, financial services and consumer goods
industries - including an eight-year, approximately $1 billion applications
and IT services contract with Germany-based KarstadtQuelle AG, Europe's
leading retail and tourism group.
    "EDS is increasingly well positioned in the marketplace. Our sales
pipeline is strong, especially in applications services, a priority growth
area for the company, and we are winning an increasing percentage of new
logos," said President and Chief Operating Officer Ron Rittenmeyer, who will
become president and chief executive officer, effective September 1.
    "At the same time, we are intensifying our current change management
programs to further build out our applications business and capabilities,
while achieving incremental, productivity-related savings," said Rittenmeyer.
    "In applications, we will continue to expand our presence - both
organically and through targeted acquisitions - in areas such as SAP and
industry-related applications. To drive increased productivity and
competitiveness, we will also continue to aggressively deploy offshore
programming and delivery resources," said Rittenmeyer.
    "The company's accelerated cost-reduction program should result in
additional long-term margin expansion," said Rittenmeyer. "However, even with
these investments and productivity-related initiatives, we expect to produce
2008 free cash flow in line with 2006 and 2007 full-year totals."
    Second quarter 2007 operating margin was 4.3 percent on an adjusted basis
versus 2.9 percent in the year-ago quarter (see GAAP Reconciliation below).
    Free cash flow was $156 million in the second quarter of 2007 versus $362
million for the year-ago period, when EDS benefited from two large one-time
client payments (See discussion of free cash flow under "Non-GAAP Financial
Measures" below).
    
    GAAP Reconciliation
    
    Reported second quarter 2007 net income was $138 million, or 26 cents per
diluted share, in accordance with U.S. Generally Accepted Accounting
Principles (GAAP), versus net income of $104 million, or 20 cents per diluted
share, in the prior year's second quarter.  Second quarter 2007 adjusted net
income excludes net after-tax losses associated with discontinued operations
of $6 million and pre-tax reversal of $1 million of previously recognized
restructuring expenses.  Second quarter 2006 adjusted net income excluded net
after-tax losses associated with discontinued operations of $5 million and
pre-tax reversal of $4 million of previously recognized restructuring expenses
(net 0 cents per share).  A statement reconciling GAAP and adjusted results
follows this release.

    Second Quarter Results by Segment

    
     --   Americas: Second quarter revenue was $2.57 billion, down 2 percent
          compared to the prior-year period. Operating profit was $374
          million, down 8 percent from $408 million in the prior-year period.
          Adjusting for a large contract termination that was previously
          disclosed, segment revenue would have increased by 2 percent, and
          operating profit would have increased by 5 percent.
     --   EMEA: Second quarter revenue was $1.63 billion, up 1 percent
          compared to the prior-year period, and up 6 percent on an organic
          basis.  Operating profit was $243 million, up 10 percent from $221
          million in the prior-year period.
     --   Asia-Pacific: Second quarter revenue was $445 million, up 26 percent
          compared to the prior-year period, primarily due to MphasiS
          revenues. Operating profit was $31 million, down 16 percent from $37
          million in the prior-year period.
     --   U.S. Government: Second quarter revenue was $620 million, up 10
          percent compared to the prior-year period.  Operating profit was
          $127 million, up 110 percent from $61 million in the prior-year
          period.
    
    All segment comparisons are at constant currency and exclude corporate
expenses.

    2007 Updated Guidance

    
     --   Reaffirm prior revenue guidance of $22.0 billion to $22.5 billion.
     --   Reaffirm adjusted EPS of $1.55 to $1.60 (see discussion of adjusted
          EPS under Non-GAAP Financial Measures below).
     --   Adjust free cash flow guidance to a range of $900 million to $1
          billion.
     --   Adjust total contract value guidance from $23 billion-plus to
          approximately $23 billion.
    

    
     For the third quarter of 2007, EDS currently expects:
     --   Revenue of $5.6 billion to $5.8 billion.
     --   Adjusted EPS of $0.37 to $0.43 (see discussion of adjusted EPS under
     --   Non-GAAP Financial Measures below).
    

    
    Conference Call
    
    EDS' earnings conference call will be broadcast live on the Internet
today at 4:00 p.m. Central time (5:00 p.m. Eastern).  To access the call and
view related financial information, go to www.eds.com/call.  The call and
financial information will be archived for 30 days at www.eds.com/call.
    
    About EDS
    
    EDS (NYSE:   EDS) is a leading global technology services company
delivering business solutions to its clients.  EDS founded the information
technology outsourcing industry 45 years ago.  Today, EDS delivers a broad
portfolio of information technology and business process outsourcing services
to clients in the manufacturing, financial services, healthcare,
communications, energy, transportation, and consumer and retail industries and
to governments around the world.  Learn more at eds.com.
    
    (1) Excludes discontinued operations for all periods presented.
    
    Statements in this press release that are not historical statements,
including statements regarding forecasted revenue, EPS, free cash flow, and
total contract value (TCV) of new contract signings, are forward-looking
statements within the meaning of the Federal securities laws.  These
statements are subject to numerous risks and uncertainties, many of which are
beyond our control, which could cause actual results to differ materially from
such statements.  These include, but are not limited to, the performance of
current and future client contracts in accordance with our cost, revenue and
cash flow estimates, including our ability to achieve any operational
efficiencies in our estimates; for contracts with U.S. Federal government
clients, including our NMCI contract, the government's ability to cancel the
contract or impose additional terms and conditions due to changes in
government funding, deployment schedules, military action or otherwise; our
ability to access the capital markets, including our ability to obtain capital
leases, surety bonds and letters of credit; the impact of rating agency
actions on our ability to access capital and our cost of capital; the impact
of third-party benchmarking provisions in certain client contracts; the impact
on a historical and prospective basis of accounting rules and pronouncements;
the impact of claims, litigation and governmental investigations; the success
of our cost-cutting initiatives and the timing and amount of any resulting
benefits; the impact of acquisitions and divestitures; a reduction in the
carrying value of our assets; the impact of a bankruptcy or financial
difficulty of a significant client on the financial and other terms of our
agreements with that client; with respect to the funding of pension plan
obligations, the performance of our investments relative to our assumed rate
of return; changes in tax laws and interpretations and failure to obtain
treaty relief from double taxation; failure to obtain or protect intellectual
property rights; fluctuations in foreign currency, exchange rates and interest
rates; the impact of competition on pricing, revenues and margins; and the
degree to which third parties continue to outsource IT and business processes.
We disclaim any intention or obligation to update or revise any forward-
looking statements whether as a result of new information, future events or
otherwise, except as may be required by law.
    
    Non-GAAP Financial Measures
    
    In addition to GAAP results, EDS discloses the non-GAAP measures of
adjusted net income, adjusted earnings per share (EPS) and free cash flow.
    Adjusted net income and adjusted earnings per share exclude the impact of
certain amounts, specifically earnings/losses from discontinued operations net
of taxes, gains and losses from divestitures, reversals of previously
recognized restructuring expense, and other identified items that management
believes are not reflective of EDS' core operating business.  Such amounts may
have a material impact on EDS' net income and earnings per share. Refer to the
Reconciliation of GAAP Results to Adjusted Results below for a reconciliation
of GAAP results to adjusted results for the three and six months ended June
30, 2007 and 2006.
    EDS defines free cash flow as net cash provided by operating activities,
less capital expenditures. Capital expenditures is the sum of (i) net cash
used in investing activities, excluding proceeds from sales of marketable
securities, proceeds related to divested assets and non-marketable equity
investments, payments for acquisitions, net of cash acquired, and non-
marketable equity investments, and payments for purchases of marketable
securities, and (ii) payments on capital leases. Free cash flow excludes items
that are actual expenses that impact cash available to EDS for other uses and
should not be considered a measure of liquidity or an alternative to the cash
flow measurements required by GAAP, such as net cash provided by operating
activities or net increase/decrease in cash and cash equivalents.  Refer to
the Reconciliation of Free Cash Flow to Net Change in Cash and Cash
Equivalents below for a reconciliation of free cash flow to the net decrease
in cash and cash equivalents for the six months ended June 30, 2007 and 2006.
    EDS may not define adjusted net income, adjusted earnings per share or
free cash flow in the same manner as other companies and, accordingly, the
amounts reported by EDS for such measures may not be comparable to similarly
titled measures reported by other companies.
    Non-GAAP measures are a supplement to, and not a replacement for, GAAP
financial measures. To gain a complete picture of EDS' performance, management
does (and investors should) rely on EDS' GAAP financial statements.
    Contact:  Travis Jacobsen, Media Relations, +1-972-797-8751, or
travis.jacobsen@eds.com, or Roxane Barry, Investor Relations, +1-972-605-6420,
or roxane.barry@eds.com.



    ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

    
     SUMMARY OF RESULTS OF OPERATIONS
     (in millions, except per share amounts)
    


    
                                          Three Months Ended Six Months Ended
                                               June 30,          June 30,
                                            2007     2006     2007    2006
    

    Revenues(1)(2)                         $5,449   $5,194  $10,673 $10,272

    
    Costs and expenses
      Cost of revenues                      4,730    4,567    9,253   9,118
      Selling, general and administrative     486      476      922     926
      Other operating (income) expense        (1)      (4)      (1)     (5)
        Total costs and expenses, net       5,215    5,039   10,174  10,039
    

    Operating income                      234      155      499     233

    
    Interest expense                         (56)     (63)    (113)   (123)
    Interest income and other, net             24       37       74      75
        Other income (expense), net          (32)     (26)     (39)    (48)
    

    
        Income from continuing operations
         before income taxes                  202      129      460     185
    

    
    Provision for income taxes                 58       20      151      43
        Income from continuing operations     144      109      309     142
    Loss from discontinued operations,
     net of income taxes(3)                   (6)      (5)      (7)    (14)
        Net income(4)                        $138     $104     $302    $128
    

    
    Basic earnings per share
        Income from continuing operations   $0.28    $0.21    $0.60   $0.28
        Loss from discontinued operations  (0.01)   (0.01)   (0.01)  (0.03)
        Net income                          $0.27    $0.20    $0.59   $0.25
    

    
    Diluted earnings per share
        Income from continuing operations   $0.27    $0.21    $0.58   $0.27
        Loss from discontinued operations  (0.01)   (0.01)   (0.01)  (0.03)
        Net income(4)                       $0.26    $0.20    $0.57   $0.24
    

    
    Weighted-average shares outstanding
        Basic earnings per share              510      518      512     520
        Diluted earnings per share            541      528      543     531
    

    
    Cash dividends per share                $0.05    $0.05    $0.10   $0.10
    
    Refer to the following page for accompanying notes to the summary of
results of operations.


    ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

    
    NOTES TO THE SUMMARY OF RESULTS OF OPERATIONS
    
    (1) Revenues for the six months ended June 30, 2007 includes
approximately $100 million of a $225 million payment received from Verizon in
the first quarter of 2007 related to the termination of the Company's IT
services contract with Verizon. The residual $125 million of the $225 million
payment was deferred and is expected to be recognized in the third quarter of
2007 when certain contingencies associated with the payment are expected to be
resolved.
    (2) Revenues for the six months ended June 30, 2006 include product
revenue for dedicated equipment of approximately $116 million related to a
modification of the Company's contract with the Department of Navy, which
includes the U.S. Navy and Marine Corps.
    (3) Discontinued operations is comprised primarily of the net results of
A.T. Kearney which was sold in January 2006 and the maintenance, repair and
operations (MRO) management services business which was sold in March 2007.
Discontinued operations also includes gains and losses related to the
settlement of contingencies associated with sales of certain businesses
classified as discontinued operations in prior years.
    (4) Adjusted net income was $143 million, or $0.27 per diluted share, for
the three months ended June 30, 2007, compared with $107 million, or $0.20 per
diluted share, for the three months ended June 30, 2006. Refer to "Non-GAAP
Financial Measures" for a definition of adjusted net income and adjusted
earnings per share, and "Reconciliation of GAAP Earnings to Adjusted Earnings"
for a reconciliation of net income and diluted earnings per share to adjusted
net income and diluted earnings per share.


    ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

    
    RECONCILIATION OF GAAP EARNINGS TO ADJUSTED EARNINGS
    (in millions)
    

    
                                         Three Months Ended Six Months Ended
                                              June 30,          June 30,
                                            2007     2006     2007     2006
    Net income                              $138     $104     $302     $128
    Adjusting items, pre-tax:
      Restructuring reversal                 (1)      (4)      (1)      (4)
      Net gain on divestitures                 -        -        -      (1)
    Tax effect of adjusting items              -        2        -        3
    Adjusting items, net of income taxes     (1)      (2)      (1)      (2)
    Loss from discontinued operations          6        5        7       14
    Adjusted net income                     $143     $107     $308     $140
    

    
    Diluted earnings per share
      Net income                           $0.26    $0.20    $0.57    $0.24
      Adjusting items                          -   (0.01)        -   (0.01)
      Loss from discontinued operations     0.01     0.01     0.01     0.03
      Adjusted net income                  $0.27    $0.20    $0.58    $0.26
    


    ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

    
    SUMMARY OF CONSOLIDATED BALANCE SHEETS
    (in millions)
    

    
                                                         June       December
                                                          30,           31,
                                                         2007          2006
    ASSETS
    Current Assets
      Cash and cash equivalents                         $2,881       $2,972
      Marketable securities                                 45           45
      Accounts receivable, net                           3,874        3,647
      Prepaids and other                                   859          866
      Deferred income taxes                                630          727
        Total current assets                             8,289        8,257
    

    
    Property and equipment, net                          2,338        2,179
    Deferred contract costs, net                           930          807
    Investments and other assets                           694          636
    Goodwill                                             4,531        4,365
    Other intangible assets, net                           791          749
    Deferred income taxes                                  891          961
        Total assets                                   $18,464      $17,954
    

    
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities
      Accounts payable                                    $874         $677
      Accrued liabilities                                2,510        2,689
      Deferred revenue                                   1,716        1,669
      Income taxes                                          42           72
      Current portion of long-term debt                    136          127
        Total current liabilities                        5,278        5,234
    

    
    Pension benefit liability                            1,549        1,404
    Long-term debt, less current portion                 2,966        2,965
    Minority interests and other long-term liabilities     456          455
    Shareholders' equity                                 8,215        7,896
        Total liabilities and shareholders' equity     $18,464      $17,954
    


    ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

    
    SUMMARY OF CONSOLIDATED CASH FLOWS
    (in millions)
    

    
                                                             Six Months Ended
                                                                 June 30,
                                                              2007      2006
    Net cash provided by operating activities(1)              $753      $840
    

    
    Cash Flows from Investing Activities
      Proceeds from sales of marketable securities               -     1,431
      Proceeds from investments and other assets                61       171
      Net proceeds (payments) from divested assets
       and non-marketable equity securities                     53      (11)
      Payments for purchases of property and equipment       (367)     (327)
      Payments for investments and other assets                  -      (35)
    

    
      Payments for acquisitions, net of cash acquired,
       and non-marketable equity securities                   (43)     (349)
      Payments for purchases of software and
       other intangibles                                     (230)     (267)
      Payments for purchases of marketable securities          (2)   (1,193)
      Other                                                      8        12
    Net cash used in investing activities                    (520)     (568)
    

    
    Cash Flows from Financing Activities
      Proceeds from long-term debt                               5         -
      Payments on long-term debt                              (10)      (10)
      Capital lease payments                                  (77)      (70)
      Purchase of treasury stock                             (334)     (455)
      Employee stock transactions                              129       175
      Dividends paid                                          (51)      (52)
      Other                                                      7        14
    Net cash used in financing activities                    (331)     (398)
    Effect of exchange rate changes on cash
     and cash equivalents                                        7         1
    Net decrease in cash and cash equivalents                 (91)     (125)
    Cash and cash equivalents at beginning of period         2,972     1,899
    Cash and cash equivalents at end of period              $2,881    $1,774
    
    (1) Depreciation and amortization and deferred cost charges were $685
million and $647 million for the six months ended June 30, 2007 and 2006,
respectively.

    ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES

    
    RECONCILIATION OF FREE CASH FLOW TO NET CHANGE IN CASH
     AND CASH EQUIVALENTS
    (in millions)
    

    
                                                             Six Months Ended
                                                                 June 30,
                                                             2007      2006
    Net cash provided by operating activities                $753      $840
    

    
    Capital expenditures:
      Proceeds from investments and other assets               61       171
      Payments for purchases of property and equipment      (367)     (327)
      Payments for investments and other assets                 -      (35)
      Payments for purchases of software and
       other intangibles                                    (230)     (267)
      Other investing activities                                8        12
      Capital lease payments                                 (77)      (70)
        Total net capital expenditures                      (605)     (516)
        Free cash flow                                        148       324
    

    
    Other investing and financing activities:
      Proceeds from sales of marketable securities              -     1,431
      Net proceeds (payments) from divested assets
       and non-marketable equity securities                    53      (11)
      Payments for acquisitions, net of cash
       acquired, and non-marketable equity securities        (43)     (349)
      Payments for purchases of marketable securities         (2)   (1,193)
      Proceeds from long-term debt                              5         -
      Payments on long-term debt                             (10)      (10)
      Purchase of treasury stock                            (334)     (455)
      Employee stock transactions                             129       175
      Dividends paid                                         (51)      (52)
      Other financing activities                                7        14
    Effect of exchange rate changes on cash
     and cash equivalents                                       7         1
        Net decrease in cash and cash equivalents           $(91)    $(125)
    




For further information:

For further information: Travis Jacobsen, Media Relations, 
+1-972-797-8751, or travis.jacobsen@eds.com, or Roxane Barry, Investor 
Relations, +1-972-605-6420, or roxane.barry@eds.com Web Site:
http://www.eds.com/

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