EDS Chief To Analysts: Layoff Of 2,000 Is Not Related To WorldCom Troubles

EDS WorldCom

"This action has absolutely nothing to do with our relationship with WorldCom," Brown told investors during a teleconference. "EDS is a solid company with a straightforward business model."

Brown said the layoff represents 1.4 percent of the integrator's 140,000-member workforce. He characterized the move as "not unusual for our business" and assured investors that EDS' accounting practices are straightforward and aboveboard. EDS has found itself and its large, complex IT outsourcing deals under the microscope this week following revelations of alleged accounting fraud at WorldCom.

EDS provides information technology services to WorldCom, the majority of which are part of an 11-year, $6.5 billion services agreement signed in October 1999.

In addition, EDS and WorldCom entered into a network services agreement in 1999 valued at $6 billion, requiring EDS to procure telecommunication network services from WorldCom over a period of 11 years. As part of the network services agreement, WorldCom is EDS' preferred telecommunications provider. EDS, however, emphasized last week in a statement that the relationship is not exclusive.

EDS said while "in certain downside scenarios these developments could be material to the results of operations in 2002, in most events they are not, and in any event they are not material to EDS' financial position."

Under the existing services agreements, WorldCom is expected to contribute $160 million to $175 million of EDS' revenue and 3 cents to 4 cents of earnings per share in each of the last two quarters of 2002, according to information released by the company.

EDS carries $40 million of assets on its balance sheet associated with the network services contract, the bulk of which are prepayments to WorldCom for network-related services, according to the company.

In other information released this week by EDS, the company said it routinely provides business-continuity and disaster-recovery plans to ensure access to alternative carriers in the event of service disruption. The company said it is "closely monitoring the situation with WorldCom and will obtain alternative providers for clients as necessary."

In a transaction unrelated to the previously mention agreements, EDS entered into a fiber-optic equipment leveraged lease with MCI (now part of WorldCom) in 1988. EDS' unrecovered investment in the related equipment, net of taxes, totals approximately $40 million, according to the company.

Shares of EDS were up slightly Tuesday afternoon at $30.68 per share in heavy volume trading. Shares closed Monday trading at $30.45.