For release: 07 Feb 2007
EDS Reports Fourth Quarter and Full-Year 2006 Results
- Fourth quarter adjusted EPS of 47 cents, up 124%; full-year adjusted EPS of $0.99
- Fourth quarter revenues of $5.7 billion, up 11%; organic revenue growth of 7%; $21.3 billion for full year
- Free Cash Flow of $392 million; $887 million for full year
- Contract signings of $7.6 billion, up 43%; $26.5 billion for full year
PLANO, Texas – EDS today reported fourth quarter 2006 adjusted net income of $254 million, or 47 cents per share, versus fourth quarter 2005 adjusted net income of $111 million, or 21 cents per share. See “GAAP Reconciliation” below for reported net income and earnings per share for fourth quarter 2006.
EDS posted fourth quarter revenues of $5.7 billion, an increase of 11 percent, or 7 percent on an organic basis (which excludes the impact of currency fluctuations, acquisitions and divestitures), from $5.15 billion in the year-ago quarter(1).
“On balance, this was the strongest quarter EDS has had since I joined the company in 2003,” said Mike Jordan, EDS chairman and chief executive officer. “We nearly doubled our earnings while posting solid revenue growth, free cash flow and contract signings. At the same time, we continued to invest in our global delivery network and capabilities. The past four years have been all about setting a foundation to win and grow profitably in the future. We met those objectives in 2006.”
“This quarter’s strong performance was driven by contract execution, relentless focus on productivity and revenue growth,” said Ron Rittenmeyer, EDS president and chief operating officer. “These items provided good margin improvement, which contributed to a solid cash flow performance, creating a strong foundation as we head into 2007.”
EDS signed $7.6 billion in contracts in the fourth quarter of 2006 versus $5.3 billion in the year-ago quarter. Significant signings in the fourth quarter included contracts with Fondiaria-Sai Insurance Group, Vodafone, Fonterra, the U.S. Department of Veterans Affairs, MERSCORP, and the UK Ministry of Defence.
Fourth quarter 2006 operating margin was 6.8 percent on an adjusted basis versus 4.4 percent in the year-ago quarter (see GAAP Reconciliation below).
Free cash flow was $392 million in the fourth quarter versus $143 million for the year-ago period. (See discussion of free cash flow under “Non-GAAP Financial Measures” below.)
“During the year, EDS continued to strengthen its balance sheet while investing in the business and returning capital to shareholders,” said Ron Vargo, EDS chief financial officer. “In 2007, we expect to utilize our solid financial position to drive greater future value by expanding in key industry segments and building on our capabilities.”
GAAP Reconciliation
Reported fourth quarter 2006 net income was $217 million, or 40 cents per share, in accordance with Generally Accepted Accounting Principles (GAAP), versus net income of $112 million, or 21 cents per share, in the prior year's fourth quarter. Fourth quarter 2006 adjusted net income excludes net after-tax losses associated with discontinued operations of $10 million and pre-tax items as follows: a reversal of previously recognized restructuring expenses of $2 million and a loss on divestiture of $23 million. Fourth quarter 2005 adjusted net income excludes net after-tax losses associated with discontinued operations of $14 million and pre-tax items as follows: a reversal of previously recognized restructuring expenses of $10 million and gains on divestiture of $9 million. (A statement reconciling GAAP and adjusted results follows this release.)
Fourth Quarter Results by Segment
- Americas: Fourth quarter revenue was $2.58 billion, up 6 percent compared to the prior-year period. Operating profit was $506 million, up 20 percent from $421 million in the prior-year period.
- EMEA: Fourth quarter revenue was $1.71 billion, up 6 percent compared to the prior-year period, and up 10 percent on an organic basis (excludes impact of Global Field Services divestiture). Operating profit (excluding loss from Global Field Services divestiture) was $310 million, up 24 percent from $251 million in the prior-year period, due to improved contract execution.
- Asia-Pacific: Fourth quarter revenue was $410 million, up 19 percent compared to the prior-year period primarily due to MphasiS revenues. Operating profit was $52 million, up 176 percent from $19 million in the prior-year period.
- U.S. Government: Fourth quarter revenue was $825 million, up 10 percent compared to the prior-year period. Operating profit was $191 million, up 58 percent from $121 million in the prior-year period. Revenue and operating profit increases were driven in large part by the improved performance of the Navy Marine Corps Intranet contract.
All segment comparisons are at constant currency and exclude the impact of expensing stock options and performance-based restricted stock units.
Full-Year 2006 Results
For full-year 2006, EDS posted earnings of $470 million, or 89 cents per share, versus earnings the prior year of $150 million, or 28 cents per share.
EDS' 2006 adjusted net income was $522 million, or $0.99 per share, which excludes net after-tax losses associated with discontinued operations of $29 million and pre-tax items as follows: a reversal of previously recognized restructuring expenses of $7 million and net losses on divestitures of $22 million. This compares to EDS' adjusted net income of $219 million, or 42 cents per share, in 2005, which excluded net after-tax losses associated with discontinued operations of $136 million and pre-tax items as follows: a reversal of previously recognized restructuring expenses of $32 million, net gains on divestitures of $94 million, and shareholder litigation reserve of $24 million.
Full-year 2006 free cash flow was $887 million, versus $619 million for full-year 2005.
Full-year 2006 total revenue reached $21.3 billion, compared to 2005 total revenue of $19.8 billion.
Full-year 2006 total contract value (TCV) was $26.5 billion, up 32 percent from $20.1 billion the prior year. EDS’ total contract value for the year was the company's highest total since 2001. New logos accounted for $4.2 billion of total contract value, an increase of nearly 70 percent from 2005.
2007 Guidance
EDS' 2007 full-year guidance for revenue, adjusted EPS and Free Cash Flow is as follows:
- Revenue of $22.0 billion to $22.5 billion
- Adjusted EPS of $1.60, which excludes the impact of reversals of previously recognized restructuring expenses, discontinued operations, and gains and losses on divestitures
- Free Cash Flow of $1.0 billion to $1.1 billion
For the first quarter of 2007, EDS currently expects:
- Revenue of $5.1 billion to $5.3 billion
- Adjusted EPS of $0.17 to $0.22 (see discussion of Adjusted EPS under Non-GAAP Financial Measures below)
Conference Call
EDS' securities analyst 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.
EDS expects to provide additional information for 2007 in conjunction with its Securities Analyst Meeting in New York on Tuesday, February 20, 2007.
(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 TCV, 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 multi-year plan and 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.
About EDS
EDS is a leading global technology services company delivering business solutions to its clients. EDS founded the information technology outsourcing industry more than 40 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.
Note: EDS news releases are archived on this Web site for historical purposes. Information in the stories is accurate at the time of release. However, service offerings and availability, relationships, contacts and other specified information may change over time. Information as stated in the release may or may not be in effect after the date on the release. For assistance, contact us.