Electronic Data Systems Corporation (EDS) said it will delay the release of its third quarter results until Nov. 3 so that its auditor, KPMG, can finish evaluating a possible impairment of the company’s assets stemming from its intranet contract with the U.S. Navy.
The impairment evaluation includes a comparison of the technology company’s projected cash flow over the expected lives of the assets used on the contract with its net asset position of about $700 million on Sept. 30, the company stated.
Through June 30, EDS has suffered about $2 billion in operating losses from its work on the Navy contract, which it received in 2000, according to The Wall Street Journal.
The fact that EDS’ quarterly report was postponed to give auditors more time to do their work suggests that the largest accounting firms might be getting tougher on their clients, mindful that they will be subjected to annual reviews by the Public Company Accounting Oversight Board (PCAOB) themselves.
If EDS writes down part of the value of the Navy Marine Corps. Intranet contract, as it’s called, it will be the second time the company will do so. It wrote down $559 million in the fourth quarter of last year.
Further, the company’s problems with the contract grew when it was forced to renew a critical $900 million credit facility needed to produce funding for the project for a shorter period than it originally planned, according to Reuters. The change in the credit facility wasn’t related to the delay in the earnings release, EDS spokesperson Sean Healy told Reuters.
“To fund its work, EDS may have to resort to back-up lines of credit,” David Garrity, an analyst with Caris & Co., told the wire service.