- Third quarter contract signings of $5.7 billion, up 61% versus a year ago
Third quarter revenue increased 6 percent to $5.63 billion from $5.29 billion in the year-ago quarter(1). Third quarter revenue increased 4 percent on an organic basis, which excludes the impact of currency fluctuations, acquisitions and divestitures.
"EDS posted solid results during the quarter and made significant strides to boost its long-term profitability and competitiveness," said Ron Rittenmeyer, president and chief executive officer. "Our earnings tracked to the high end of our guidance, our win rates continued to trend upward, and we announced a number of initiatives that will expand our presence in the highest value areas of the applications market."
Contract signings for the quarter represented the best third quarter signings performance in five years. EDS signed $5.7 billion in contracts versus $3.5 billion in the year-ago quarter. This included eight contracts with values greater than $100 million with clients in the government, financial services, manufacturing and transportation industries.
Third quarter wins included a $630 million renewal with Sabre Holdings to provide a full range of IT services in support of Sabre's continued business transformation; a $489 million amendment to the UK Ministry of Defence (MoD) Defence Information Infrastructure contract to support the deployed military operations environment by creating a single, modernized MoD information infrastructure; and a $310 million renewal with the Commonwealth Bank of Australia.
Rittenmeyer added that the company's 2008 sales pipeline increased by more than 20 percent, year-over-year, with particular strength in financial services and government.
EDS also continued to expand its presence in applications, while adding significant capabilities in higher-margin services.
Applications-related revenue increased 9 percent versus the third quarter of 2006 and represented 31 percent of EDS' total revenue for the quarter. Future contract opportunities also increased, as the company's applications pipeline rose more than 15 percent in the quarter versus the year-ago period.
To move its applications business further up the value chain, EDS recently announced the launch of its Global Testing Services offering and an agreement with long-time alliance partner SAP to develop a high-value, end-to-end SAP consulting practice. These two initiatives address what the company estimates to be an approximately $285 billion market opportunity.
EDS has also seen increasing market interest in its network services offerings, powered by the company's Global Services Network. The contract value for network service deals in the sales pipeline is up more than 60 percent since January of this year.
Third quarter 2007 operating margin was 6.4 percent on an adjusted basis versus 4.0 percent in the year-ago quarter (See discussion of adjusted operating margin under "Non-GAAP Financial Measures" below).
Free cash flow was $181 million in the third quarter of 2007 versus $171 million for the year-ago period (See discussion of free cash flow under "Non- GAAP Financial Measures" below).
"While we have made significant progress, work remains for EDS to reach its long-term goals, and we will not settle for the status quo," said Rittenmeyer. "Moving forward, our focus will be on improving our mix of higher-margin work, driving productivity and improving our working capital management."
Reported third quarter 2007 net income was $225 million, or 42 cents per diluted share, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), versus net income of $125 million, or 24 cents per diluted share, in the prior year's third quarter. A statement reconciling GAAP and adjusted results follows this release.
Third Quarter Results by Segment * Americas: Third quarter revenue was $2.63 billion, up 2 percent compared to the prior-year period. Operating profit was $425 million, up 8 percent from $393 million in the prior-year period. * EMEA: Third quarter revenue was $1.59 billion, up 3 percent compared to the prior-year period. Operating profit was $226 million, up 2 percent from $222 million in the prior-year period. * Asia-Pacific: Third quarter revenue was $465 million, up 18 percent compared to the prior-year period, primarily due to India revenues. Operating profit was $49 million, down 5 percent from $51 million in the prior-year period. * U.S. Government: Third quarter revenue was $710 million, up 4 percent compared to the prior-year period. Operating profit was $179 million, up 14 percent from $157 million in the prior-year period.
All segment comparisons are at constant currency, exclude corporate expenses, and include intersegment transactions.
2007 Guidance * Revenue of $22.0 billion to $22.5 billion. * Adjusted EPS of $1.55 to $1.60 (see discussion of adjusted EPS under Non-GAAP Financial Measures below). * Free cash flow of $900 million to $1 billion. * Updated total contract value of $21 billion to $23 billion.
EDS' earnings conference call will be broadcast live on the Internet today at 8:00 a.m. Central time (9:00 a.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.
(1) Excludes discontinued operations for all periods presented.
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.
The statements in this news release that are not historical statements, including statements regarding the amount of new contract values, 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 EDS' control, which could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see EDS' most recent Form 10-K. EDS disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
In addition to GAAP results, EDS discloses the non-GAAP measures of adjusted operating margin, net income, and earnings per share (EPS), and free cash flow.
Adjusted operating margin, net income and EPS 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, charges to earnings attributable to early retirement offers, and other identified items that management believes are not reflective of EDS' core operating business. Such amounts may have a material impact on EDS' operating margin, net income and EPS. Refer to the Reconciliation of GAAP Results to Adjusted Results below for a reconciliation of GAAP results to adjusted results for the three and nine months ended September 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 nine months ended September 30, 2007 and 2006.
EDS may not define adjusted operating margin, net income, EPS 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 Roxane Barry - Investor Relations 972.797.8751 972.605.6420 Email Contact Email Contact ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY OF RESULTS OF OPERATIONS (in millions, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Revenues(1)(2) $5,629 $5,292 $16,302 $15,564 Costs and expenses Cost of revenues 4,791 4,625 14,044 13,743 Selling, general and administrative 476 453 1,398 1,379 Other operating (income) expense - (1) (1) (6) Total costs and expenses, net 5,267 5,077 15,441 15,116 Operating income 362 215 861 448 Interest expense (56) (58) (169) (181) Interest income and other, net 52 59 126 134 Other income (expense), net (4) 1 (43) (47) Income from continuing operations before income taxes 358 216 818 401 Provision for income taxes 133 86 284 129 Income from continuing operations 225 130 534 272 Loss from discontinued operations, net of income taxes(3) - (5) (7) (19) Net income(4) $225 $125 $527 $253 Basic earnings per share Income from continuing operations $0.44 $0.25 $1.04 $0.53 Loss from discontinued operations - (0.01) (0.01) (0.04) Net income $0.44 $0.24 $1.03 $0.49 Diluted earnings per share Income from continuing operations $0.42 $0.25 $1.01 $0.52 Loss from discontinued operations - (0.01) (0.01) (0.04) Net income(4) $0.42 $0.24 $1.00 $0.48 Weighted-average shares outstanding Basic earnings per share 511 517 512 519 Diluted earnings per share 541 546 543 529 Cash dividends per share $0.05 $0.05 $0.15 $0.15
Refer to the following page for accompanying notes to the unaudited summary of results of operations.
ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED SUMMARY OF RESULTS OF OPERATIONS (1) Revenues for the three and nine months ended September 30, 2007 includes $125 million and $225 million, respectively, related to the termination of the Company's IT services contract with Verizon. (2) Revenues for the nine months ended September 30, 2006 includes 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. (4) Adjusted net income was $225 million, or $0.42 per diluted share, for the three months ended September 30, 2007, compared with $128 million, or $0.24 per share, for the three months ended September 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 UNAUDITED RECONCILIATION OF GAAP EARNINGS TO ADJUSTED EARNINGS (in millions) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Net income $225 $125 $527 $253 Adjusting items, pre-tax: Restructuring reversal - (1) (1) (5) Net gain on divestitures - - - (1) Tax effect of adjusting items - - - 2 Adjusting items, net of income taxes - (1) (1) (4) Loss from discontinued operations - 5 7 19 Other, rounding - (1) - - Adjusted net income $225 $128 $533 $268 Diluted earnings per share Net income $0.42 $0.24 $1.00 $0.48 Adjusting items - - - (0.01) Loss from discontinued operations - 0.01 0.01 0.04 Other, rounding - (0.01) - - Adjusted net income $0.42 $0.24 $1.01 $0.51 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY OF CONSOLIDATED BALANCE SHEETS (in millions) September December 30, 31, 2007 2006 ASSETS Current Assets Cash and cash equivalents $3,062 $2,972 Marketable securities 46 45 Accounts receivable, net 3,912 3,647 Prepaids and other 880 866 Deferred income taxes 627 727 Total current assets 8,527 8,257 Property and equipment, net 2,435 2,179 Deferred contract costs, net 985 807 Investments and other assets 665 636 Goodwill 4,659 4,365 Other intangible assets, net 829 749 Deferred income taxes 826 961 Total assets $18,926 $17,954 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $689 $677 Accrued liabilities 2,627 2,689 Deferred revenue 1,535 1,669 Income taxes 148 72 Current portion of long-term debt 155 127 Total current liabilities 5,154 5,234 Pension benefit liability 1,598 1,404 Long-term debt, less current portion 3,170 2,965 Minority interests and other long-term liabilities 427 455 Shareholders' equity 8,577 7,896 Total liabilities and shareholders' equity $18,926 $17,954 ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES UNAUDITED SUMMARY OF CONSOLIDATED CASH FLOWS (in millions) Nine Months Ended September 30, 2007 2006 Net cash provided by operating activities(1) $1,183 $1,196 Cash Flows from Investing Activities Proceeds from sales of marketable securities - 1,985 Proceeds from investments and other assets 63 216 Net proceeds (payments) from divested assets and non-marketable equity securities 53 (11) Net proceeds from real estate sales 28 49 Payments for purchases of property and equipment (531) (510) Payments for investments and other assets - (37) Payments for acquisitions, net of cash acquired, and non-marketable equity securities (40) (352) Payments for purchases of software and other intangibles (313) (338) Payments for purchases of marketable securities (3) (1,483) Other 24 28 Net cash used in investing activities (719) (453) Cash Flows from Financing Activities Proceeds from long-term debt 5 - Payments on long-term debt (10) (209) Capital lease payments (125) (109) Purchase of treasury stock (334) (502) Employee stock transactions 142 203 Dividends paid (77) (78) Other 13 14 Net cash used in financing activities (386) (681) Effect of exchange rate changes on cash and cash equivalents 12 (1) Net increase (decrease) in cash and cash equivalents 90 61 Cash and cash equivalents at beginning of period 2,972 1,899 Cash and cash equivalents at end of period $3,062 $1,960 (1) Depreciation and amortization and deferred cost charges were $1,058 million and $973 million for the nine months ended September 30, 2007 and 2006, respectively. ELECTRONIC DATA SYSTEMS CORPORATION AND SUBSIDIARIES UNAUDITED RECONCILIATION OF FREE CASH FLOW TO NET CHANGE IN CASH AND CASH EQUIVALENTS (in millions) Nine Months Ended September 30, 2007 2006 Net cash provided by operating activities $1,183 $1,196 Capital expenditures: Proceeds from investments and other assets 63 216 Net proceeds from real estate sales 28 49 Payments for purchases of property and equipment (531) (510) Payments for investments and other assets - (37) Payments for purchases of software and other intangibles (313) (338) Other investing activities 24 28 Capital lease payments (125) (109) Total net capital expenditures (854) (701) Free cash flow 329 495 Other investing and financing activities: Proceeds from sales of marketable securities - 1,985 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 (40) (352) Payments for purchases of marketable securities (3) (1,483) Proceeds from long-term debt 5 - Payments on long-term debt (10) (209) Purchase of treasury stock (334) (502) Employee stock transactions 142 203 Dividends paid (77) (78) Other financing activities 13 14 Effect of exchange rate changes on cash and cash equivalents 12 (1) Net increase in cash and cash equivalents $90 $61
Web site: http://www.eds.com/