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EDS Takes Earnings Hit From Accounting Change

The IT services firm is taking a $2.24 billion charge against earnings, retroactive to the first quarter, because of changes in the way it recognizes revenue.

In advance of its widely anticipated third-quarter earnings report Wednesday, IT services firm EDS says it will take a $2.24 billion--or $2.92-per-share--charge against earnings retroactive to the first quarter because of changes in the way it recognizes revenue from long-term contracts. As a result of the charge, EDS's first quarter now reflects a net loss of $2.95 per share.

By adopting the accounting change, EDS is moving from a system under which it recognizes revenue based on the percentage of work completed on a contract to one under which it reports only the revenue that has actually been paid by the customer. Despite the up-front financial hit, analysts say the move is positive as it gives investors and concerned customers a more-accurate picture of the company's finances. "It raises the level of information, and that's always a good thing," says David Garrity, an American Technology Research analyst.

EDS originally was scheduled to report third-quarter earnings last week but delayed the announcement until Wednesday so its accountants could fully evaluate the impact of the accounting change.

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