EDS Records 3Q Loss

EDS, which last week posted a $600,000 loss for the third quarter, has switched from an accounting method in which it records revenue based on how much work it has completed on a contract to one that acknowledges only what a customer has actually paid. It's a more conservative approach, but some investment experts say the change has made it tough to get a handle on the company's results.

John Jones, who watches EDS for Soundview Research, says the accounting switch "clouds interpretation, but not enough to obscure that it's taking longer than hoped to drive improvements." Problem contracts such as the Navy/Marine Corps intranet, along with a low number of new bookings, are dragging down EDS's financial performance, he says.

EDS reported net income, excluding onetime charges, of $26 million, or 5 cents per share, for the quarter ended Sept. 30. Including the charges, it lost $600,000. Revenue rose 6% to $5.2 billion. A year ago, under the old accounting system, EDS posted net income of $86 million, or 18 cents per share. EDS says it would have posted a loss of $88 million in that period if the new accounting rule had been in effect. New contract signings for the quarter totaled $3.4 billion, compared with $3 billion a year ago.

Looking ahead, EDS says it's on track to meet its second-half earnings guidance of 17 cents per share. That has some analysts positive on the stock. Says American Technology Research analyst David Garrity, "There's a lot of hidden value in EDS."