Perot Systems Corp. Reports Third-Quarter Profit Drop due to Contract Modification

Strategic Insights -

Perot Systems Corp., a data processing company for Rhode Island's largest health insurer, reported a third-quarter profit drop to $300,000, or break-even on an earnings-per-share basis, from $25.4 million, or 21 cents a share, in the same quarter last year. The company's sales rose 14 percent to $582.9 million. This drop in profit was mainly due to a contract modification with its Rhode Island client, Blue Cross & Blue Shield, after the company was unable to complete a claims-processing project on time.

Key Takeaways:

  • Perot Systems Corp. reported a third-quarter profit of $300,000, or break-even on an earnings-per-share basis, a significant drop from $25.4 million, or 21 cents a share, in the same quarter last year.
  • The company's sales rose 14 percent to $582.9 million, but the increase in sales did not offset the contract modification costs.
  • Perot Systems Corp. was required to pay Blue Cross & Blue Shield $12 million due to its failure to complete the claims-processing project on schedule.
  • The company also wrote off $40 million in the third quarter due to the contract modification, which resulted in $43.7 million in costs.
  • Perot Systems Corp. is trying to fill a gap that will appear next year when a 10-year contract with UBS AG ends.
  • The company has shifted its workers to other tasks related to the Blue Cross contract or given them jobs elsewhere with Perot.

Statistics:

  • Third-quarter profit: $300,000
  • Sales: $582.9 million, a 14 percent increase from the previous year
  • Contract modification costs: $43.7 million
  • Written-off expenses: $40 million
  • Blue Cross & Blue Shield contract exception: $12 million payment
  • UBS AG contract duration: 10 years
  • Perot Systems Corp. shares rose 5 cents to $14.75 yesterday
  • Capital Properties reported third-quarter net income of $373,000

Sources:

  • "Perot Systems' profit drops as it axes contract with Blue Cross" by Paul Grimaldi, The Providence Journal
  • Securities and Exchange Commission filing by Perot Systems Corp.
  • Perot Systems Corp. statement regarding the contract modification