Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Charles Rhyee – Oppenheimer
Charles Rhyee – Oppenheimer
You talked about the catch-up on the margin for the UK contract, can you go over that again and explain where—is it for the southern cluster or is it for the London cluster? I just wanted to get a better understanding what you meant and what we should expect.
Marc Naughton
It’s a good idea; prior to obviously the Fujitsu contract stopping the answer was the same to both. But relative to BT we continue to do our accounting work relative to ability estimate to get to the point where we can start recognizing margin. We continue to look to be on track to getting that done by the end of this year so we will begin be able to start taking margin at that time. As we’ve gone through the accounting its our expectation that there will be a certain catch-up so there’ll be a certain level of margin from the date the contract started to the date that we can begin recognizing margin that will catch-up margin to that point.
So there’ll be a one-time tranche of margin that would get recognized and then post that we would begin recognizing our margin on a monthly basis as we do the work just like under normal long-term contract accounting. That’s a little different then what our initial view was so we wanted to make sure people were aware of that. We haven’t quantified what that amount would be but we feel very good that relative to our path to 20% and the fact that we were looking in 2009 to having some of the margin from the UK helping us get there, that the go forward level of margin on the BT contract will be enough to support the 2009 view of the 20% margin.
Charles Rhyee – Oppenheimer
If I’m not mistaken the original assumption was that the margin that we were not recognizing under the cost recovery method from the start of the contract till the recognition point, that was going to be recognized ratably over the remainder of the contract.
Marc Naughton
Correct that was our original expectation as well and what we’ve discussed. As we’ve continued to go through the fairly complex accounting for these things, it is the guidance of our auditors that there will be some amount of catch-up. Once again we don’t, until we get that quantified we wanted to just preview that with investors. We don’t know if that will be a very large amount at all. Our expectation is its not going to be huge with respect to the entire contract.
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