Business News
EDS Reports Second Quarter 2008 Results
Tuesday 29. July 2008 - - Second quarter adjusted EPS of 33 cents, up 22% versus a year ago ... second quarter GAAP EPS of 31 cents, up 19% versus a year ago - Second quarter contract signings of $5.4 billion, up 27% versus a year ago
EDS (NYSE:EDS) today reported second quarter 2008 adjusted net income of $173 million, or 33 cents per share (1), versus second quarter 2007 adjusted net income of $143 million, or 27 cents per share (2). Second quarter 2008 net income, in accordance with U.S. GAAP, was $160 million, or 31 cents per share, versus $138 million, or 26 cents per share, in the prior year’s second quarter (a statement reconciling GAAP and adjusted results is included in this release).
The adjusted EPS of 33 cents exceeded the high end of the company-provided guidance of 24 to 27 cents due, in part, to lower than expected workforce-related costs. Absent that, adjusted EPS would have been at the high end of EDS’ guidance.
Second quarter 2008 revenue was $5.62 billion, up from $5.45 billion in the year-ago quarter. Second quarter 2008 revenue increased 3 percent on a reported basis, down 2 percent on an organic basis, which excludes the impact of currency fluctuations, acquisitions and divestitures.
“EDS had very solid performance during the second quarter,” said Ron Rittenmeyer, EDS chairman, president and CEO. “During the quarter, our team across the globe continued to provide our clients with excellent service, not allowing the merger planning activities to distract them. I’m proud of our employees and the earnings performance, robust contract signings, and increased free cash flow that they delivered.”
EDS signed $5.4 billion in contracts in the second quarter of 2008, up 27 percent from $4.3 billion in the year-ago quarter. Signings were particularly strong in the EMEA region (up 57 percent year over year) and in the Government (up 155 percent year over year) and Financial Services (up 111 percent year over year) sectors.
Significant contracts signed during the quarter included a contract extension for data services with the Department for Work and Pensions in the UK, EDS subsidiary NHIC’s win with the Centers for Medicare and Medicaid Services, and a contract renewal with Kellwood, a leading marketer of apparel and consumer soft goods.
Free cash flow was $306 million in the second quarter of 2008, up $150 million from the year-ago period, driven principally by improved earnings and working capital management along with lower net capital expenditures. (See discussion of free cash flow under “Non-GAAP Financial Measures” below.)
Second Quarter Results by Segment
— Americas: Second quarter revenue was $2.49 billion, down 6 percent compared to the prior-year period. Operating profit was $337 million, down from $382 million in the prior-year period. Growth on recent signings and productivity were offset primarily by contract renegotiations, including the impact of moving work to Best Shore locations, contract run-off and terminations.
— EMEA: Second quarter revenue was $1.89 billion, up 3 percent compared to the prior-year period. Operating profit was $293 million, up from $272 million in the prior-year period. Performance was driven by growth and productivity.
— Asia Pacific: Second quarter revenue was $588 million, up 11 percent compared to the prior-year period. Operating profit was $65 million, up from $30 million in the prior-year period. Results were driven by increased MphasiS revenues and overall contract performance, primarily in Australia and New Zealand.
— U.S. Government: Second quarter revenue was $657 million, up 6 percent compared to the prior-year period. Operating profit was $136 million, up from $131 million in the prior-year period. Results were driven by contract performance and growth, including revenue from the acquisition of Saber Government Solutions.
All segment comparisons are at constant currency(3), exclude corporate expenses and include intersegment transactions.
On May 13, 2008, EDS and Hewlett-Packard (HP) executed an Agreement and Plan of Merger pursuant to which EDS would be acquired by HP. The agreement was unanimously approved by the EDS Board of Directors and is subject to certain closing conditions. Those conditions include the expiration of the waiting period under the Hart Scott Rodino Antitrust Act, which period expired on June 27; approval from the European Commission, which was granted on July 25; approval of EDS stockholders and approvals from certain other jurisdictions. A special meeting of EDS stockholders to approve the proposed merger is scheduled for July 31.
The company also announced on July 25 that EDS, HP and the plaintiffs in the five stockholder lawsuits that were commenced following the execution of the definitive acquisition agreement have agreed to settle and dismiss all pending lawsuits concerning the proposed merger, subject to court approval.
In light of EDS’ proposed merger with HP, EDS will not be updating prior financial guidance or providing financial guidance for the third quarter or full year 2008 and will not be hosting an earnings conference call.
(1) 2Q08 EPS excludes $16 million of pre-tax costs related to the proposed
HP transaction and $1 million after-tax income from discontinued
operations.
(2) 2Q07 excludes reversal of prior year restructuring and discontinued
operations.
(3) 2007 segment results have been restated to reflect updated foreign
exchange rates.