RE: EDS. I was surprised to see the amount of debt they carry. Then there's this snip from yahoo.smartmoney.com
Perhaps that's true. But EDS has a dual agreement with WorldCom — and this could prove equally problematic. In 1999, it agreed to buy $6.0 billion of WorldCom's network services over 11 years, either by itself or as a middleman for customers. Under the contract, EDS is on the hook for upward of $600 million a year. EDS is obliged to pay $400 million a year, whether it buys that much or not, and for amounts between $400 million and $600 million, EDS is subject to a 20% penalty on any shortfall. So if EDS were to buy, say, $500 million worth of services in a given year, it would be forced to pay a $20 million penalty.
Analysts worry that many of EDS's clients will want to steer clear of WorldCom now that its future is so bleak. "We think the ability to meet these minimums is adversely impacted by WorldCom's current situation," admits EDS spokesman Jeff Baum. But he says "we believe through negotiations we will be entitled to some relief to some or all of those obligations."
As if this weren't enough bad enough, EDS on Monday ended talks for a potentially huge contract with Procter & Gamble (PG) involving P&G's human-resources and payroll systems. Investors didn't like any of this news, sending EDS shares down 18% to an eight-year low of $30.45. |
