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Outsourcing firm CSC reports £1.77 billion loss in second quarter results

Crisis-hit IT company hit by staggering 'goodwill' writedown

Outsourcer CSC has posted a pre-tax loss for the second quarter of $2.85 billion (£1.77 billion), with most of the damage caused by a goodwill impairment charge of $2.69bn.

The charge arose from the company's annual goodwill test, which showed a "discontinuity" between the market price and book value of goodwill as a result of CSC's lower stock price.

The results were also affected by a non-cash pre-tax charge of $269m related to the settlement of CSC's contract dispute with the US government, and integration costs of recently acquired iSOFT.

On top of this red ink, CSC's cash position was severely affected by a $265m refund of advanced payments to the NHS. And to round it all off CSC said operating margins for the work it does slumped to 5.6 percent from the 7.8 percent last year.

Tola Sargeant, an analyst at TechMarketView, said: "Like many others we have a particular interest in the iSOFT business and CSC's megadeals with the NHS, the future of which are still the subject of negotiations with the Department of Health."

Sargeant pointed out that small print in the results revealed that iSOFT contributed $32 million of revenue in Q2 but made an operating loss of $27 million.

Sargeant said: "Outgoing CSC CEO Mike Laphen confirmed that NHS revenue in the period declined as a result of a 'lower schedule of contract milestones', no surprise there then."

On an analyst call Laphen revealed that the Department of Health and CSC have a "target" to reach agreement on their troubled NHS IT contracts by "the end of 2011", but there is no guarantee this will be achieved. If it isn't CSC's future results could continue to be stained by its NHS involvement.

An investigation by the US Securities and Exchange Commission into the business dealings of CSC has been expanded to include business done in Australia. "Intentional misconduct" had been discovered in Australia in addition to accounting errors, said CSC vice president and CFO Mike Mancuso.

Mancuso said it did not appear the issues in Australia were on the scale of what happened with CSC's Nordic operations, but were "nonetheless disturbing".

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