EDS earnings hit, sells unit for $320 m

NEW YORK: Struggling computer services company Electronic Data System Corp said that pension fund costs would hit earnings next year and that it was selling a unit which manages automatic teller machines for about $320 million in cash.

EDS, the No. 2 computer services company which is seeking to cut costs and raise cash by spinning off non-core assets, will sell funds transfer unit Consumer Network Services to Fiserv Inc., the companies said. EDS also announced in a quarterly regulatory filing that its pretax pension expense would be $120 million more than anticipated, which a spokesman said would cut earnings by 15 cents to 16 cents per share.

The sale of Consumer Network Services, which transfers funds electronically would not change EDS's financial outlook for 2002, excluding a one-time gain in the fourth quarter as a result of the sale, Plano, Texas-based EDS said. Its 2003 earnings would be reduced by less than 2 cents per share by the deal, a spokesman said.

"We are undertaking a complete review of our business lines to ensure that they are essential to our technology and outsourcing strength," said EDS spokesman Sean Healy. EDS stunned investors in September with its warning that earnings would be a fraction of what had been expected, because of protracted softness in the computer services sector, and in October it said it would cut 5,500 jobs and sell non-core assets.

SoundView Technology analyst John Jones said EDS's figures implied a profit margin for the funds transfer unit roughly in line with the corporate average. EDS appeared to be getting a good price for the division, at approximately twice its $150 million to $160 million in projected 2003 revenue, he said.

"It looks like they've got requirements to generate cash," he said of EDS. The unit might do better in the hands of Fiserv, giving the acquiring company critical mass, he added. Brookfield, Wisconsin-based Fiserv is expected to close the deal by the end of the year.

Jones also said that the higher pension liability was not a surprise. Many companies with defined benefit plans face similar or worse straits. EDS said its pension fund assets were about $500 million less than its $4.0 billion in obligations. The company would take a balance sheet charge of $350 million in the fourth quarter and it expected a non-cash increase in pension expense of about $120 million in 2003.

The pension expense increase, net of tax, would lower earnings per share by 15 cents to 16 cents, EDS spokesman Jeff Baum said. The Wall Street consensus is for $2.19 in 2003 earnings per share, Thomson First Call reported. Shares of EDS rose 61 cents, or 4.27 percent, to $14.91 on the NYSE.