EDS posts Q4 loss, blames U.S. Navy contract

It cited one-time costs related to its problematic Navy/Marine Corps Intranet contract

IT services provider Electronic Data Systems Corp. reported a steep loss in its fourth quarter, which ended Dec. 31, that it mainly blamed on a one-time write-off of costs related to its chronically problematic Navy/Marine Corps Intranet (N/MCI) contract.

EDS posted a net loss of $354 million, or 74 cents per share, after writing down $559 million in deferred costs related to the N/MCI contract. It also recognized $84 million in pretax restructuring charges, as well as after-tax losses of $7 million from discontinued operations, the company said yesterday. In comparison, EDS had net income of $360 million, or 75 cents per share, in 2002's fourth quarter.

Excluding those one-time items, net income came in at $59 million, or 12 cents per share, exceeding by a penny the consensus expectation of analysts polled by Thomson Financial/First Call, which didn't take into account those charges, according to a Thomson Financial spokesman. That compares with net income of $194 million, or 40 cents per share, in 2002's fourth quarter.

Revenue rose 8% to $5.76 billion, helped by growth in IT outsourcing services. Thomson Financial's revenue consensus expectation was $5.4 billion, the spokesman said. Excluding the effect of currency fluctuations, revenue rose 2%, EDS said.

EDS won the mammoth, multiyear N/MCI contract in October 2000. Valued at $6.9 billion at the time of signing, it has been plagued by delays and controversies over its scope.

EDS said it's working with the Department of the Navy to "stabilize" the N/MCI program by developing a more predictable and controlled base-by-base rollout schedule. The revised plan required the $559 million write-down in the fourth quarter, the company said.

Other N/MCI adjustments include a reorganized account team that now reports directly to EDS President and Chief Operating Officer Jeff Heller and improved coordination with the Navy, EDS said. Both EDS and the Navy remain committed to the N/MCI project, according to EDS.

For the full year, EDS posted a net loss of $1.7 billion, or $3.55 per share, compared with net income of $460 million, or 94 cents per share, in 2002. Revenue rose 7% to $21.5 billion, or by 2% excluding currency fluctuations.

Looking ahead, EDS expects 2004 full-year revenue to be $21 billion to $22 billion and earnings per share to be in the range of 50 cents to 60 cents if N/MCI is included and $1 to $1.10 excluding N/MCI.

For the first quarter of 2004, revenue is expected to be $5 billion to $5.2 billion, and earnings are expected to range from a 4-cents-per-share loss to a 1-cent-per-share profit including N/MCI and from 15 to 20 cents excluding N/MCI.

The value of contracts signed fell in the fourth quarter to $4.3 billion, from $8.1 billion in the fourth quarter of 2002. For the full year, they fell to $14 billion, from $24.4 billion.

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