EDS could face more financial problems with US Navy deal

Electronic Data Systems (EDS) could be facing more rough waters with its $8.8bn (£4.8bn) US Navy contract, as the IT services...

Electronic Data Systems (EDS) could be facing more rough waters with its $8.8bn (£4.8bn) US Navy contract, as the IT services provider delayed release of its third-quarter results pending a review of the value of its assets used on the deal.

Although the company was slated to issue its quarterly results on 25 October, it rescheduled the release for 3 November, saying the postponement will allow its auditors to evaluate a possible impairment of assets related to the contract. As of 30 September, EDS valued the assets at around $700m.

The company already wrote down $559m of deferred costs related to the four-year old deal in the fourth quarter of last year.

The contract to manage the US Navy/Marine Corps Intranet (NMCI) has been plagued by problems and delays almost from the start, and earlier this year prompted an inquiry from the US Securities and Exchange Commission.

Now, EDS faces another impairment, and a possible hit to the company's profit expectations. EDS managed to shake off a series of quarterly losses in the second quarter of this year, reporting a jump in income and revenue in large part from the sale of its design software business, but said that uncertainty from the Navy contract still dogged the company.

EDS lowered its full-year earnings and free cash flow estimates due to concerns over the contract.

However, it said that it continued to expect pro-forma earnings for the third quarter to be at the high end of its guidance of 5 cents to 10 cents a share, including the impact of the US Airways bankruptcy but excluding any possible NMCI impairment. EDS also expects revenue for the quarter to be in line with its guidance of $4.9bn to $5bn.

Scarlet Pruitt writes for IDG News Service

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