EDS again postpones Q3 earnings report

A review of its Navy Marine Corps Intranet (NMCI) contract has forced services provider Electronic Data Systems (EDS) to again...

A review of its Navy Marine Corps Intranet (NMCI) contract has forced services provider Electronic Data Systems (EDS) to again postpone its financial report for its third fiscal quarter.

EDS also announced its audit committee is conducting an internal investigation on a separate matter.

The company had scheduled its third quarter report for 25 October, but moved it to 3 November, citing a need to complete a review of a possible asset impairment related to its problematic $8.8bn (£4.8bn) NMCI contract.

This contract, awarded in 2000, has been plagued by delays and mismatched expectations and has drained significant cash from EDS.

On 3 November, EDS said it was once again postponing its earnings report because, although it is confirming the impairment, it has not completed the related review; at issue are the timing and the amount of the write-down.

EDS also disclosed that the company's audit committee has launched an internal accounting investigation of a matter unrelated to the NMCI issue. The audit committee began an investigation on 27 October centred on issues relating to quarterly bonus plan accruals in 2003 and 2004.

The investigation came as a recommendation from the company's external auditor KPMG, which brought the issues to the attention of the audit committee.

Independent counsel and accounting advisers are assisting the audit committee with this investigation, which revolves around money EDS sets aside and accrues as an expense for the purpose of bonus payments it later makes to employees, said EDS spokesman Kevin Lightfoot.

This investigation could lead to revisions of EDS' quarterly financial statements from 2003, but the company does not think they will affect its reported financial results for the full year of 2003, EDS said.

KPMG will not be able to complete its review of EDS' financial statements issue for its third quarter until the audit committee finishes its investigation, EDS said.

The audit committee investigation is not expected to be finished before 9 November, which is EDS' deadline for filing its 10-Q form with the US Securities Exchange Commission (SEC).

EDS will either file the 10-Q without the results of the investigation, or, if the investigation is expected to end before 15 November, it will request an extension from the SEC, Lightfoot said.

The company is not at this point saying when it plans to issue its third-quarter financial report, Lightfoot said.

EDS does not expect that the accounting probe will have a "material adverse effect" on its finances or its credit and the company reaffirmed its previously-announced third-quarter and full-year financial forecasts.

The company expects third-quarter revenue of between $4.9bn to $5bn. For the full year, it expects between $20bn and $21bn in revenue.

EDS, which is on a quest to cut $3bn in costs, last week announced it is offering early retirement options to 17% of its US employees, in the hopes that about half, or about 4,600 employees, will accept.

EDS is the world's second-largest IT services provider after IBM.

Juan Carlos Perez writes for IDG News Service

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