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US Navy blows $375m hole in EDS accounts
Write off agreed
EDS has reached agreement with its auditors on the size of the hole in its accounts left by the exploding contract with the US Navy.
The computer services giant has had to delay posting results twice while it negotiates with KPMG as to how much it should write off. The assets related to the Navy contract were originally valued at $520m but now EDS has agreed to reduce that by $375m.
The firm is also restating results for every quarter of 2003 following disagreement with its auditors about how it accounted for revenue. This included a transaction of $9m in the third quarter of 2003 which was recognised as revenue: "based on managment's judgement regarding the ultimate outcome of ongoing settlement discussion with a client". KPMG advised that such revenue should not be included in accounts until agreement was actually signed.
The firm made a loss of $153m in the third quarter of 2004, compared to a restated loss of $16m for the same period last year.
Mike Jordan, chairman and CEO at EDS, said: "Our third quarter results reflect a company that is operationally solid and delivering for its clients....We moved quickly to deal with our auditor's questions and believe these issues are behind us. Now we can focus on building our business."
The Navy Marine Corps Intranet is valued at $8bn but has already cost EDS $500m in written-off assets. The reduction in asset value relates to "a more conservative timeline for meeting modified performance service levels, a deceleration in customer satisfaction improvement rates, delays in signing certain contract modifications and additions, and the failure to meet seat cutover schedules during the quarter", according to an EDS statement.
EDS took a further $27m charge related to its deal with US Airways which is in Chapter 11 bankrupcy protection.
The firm's Audit Committee has finished investigating quarterly bonus payments made in 2003 and 2004 and found "no improper activities".
More details at EDS. ®