SEC scrutinizes EDS Navy work

Securities and Exchange Commission officials want to know more about EDS' work on the Navy Marine Corps Intranet.

As part of their probe into EDS finances, SEC officials have "obtained testimony and information in late 2003 and additional information in 2004, including a request for information relating to recent developments regarding the company's Navy contract," EDS said in a March 1 statement.

The company is the lead contractor on the $8.8 billion NMCI project. The enterprisewide network, deployed to more than a quarter of all Navy and Marine personnel so far, has been a financial drag on the company in recent quarters.

SEC's latest request involves a $559 million asset write-down that EDS announced in early February. At the same time, the company announced a net loss of $354 million for the fourth quarter of 2003.

"The NMCI progress is obviously slower than we had anticipated," said Michael Jordan, EDS' president and chief executive officer, Feb. 5. "Going forward, what we intend to do is separate the reporting on the Navy contract from the rest of our operations to give everybody a much cleaner picture of the base business, as well as a lot of transparency on the Navy contract itself."

Robert Swan, EDS' chief financial officer, said EDS has about $2.4 billion invested in NMCI and another $1 billion in operating losses. Swan said NMCI is a significant drain on EDS' earnings and cash flow and admitted the program's poor financial performance.

EDS is the subject of an SEC investigation stemming from a large earnings and revenue shortfall reported in September 2002. The company announced in May 2003 that it also lost $126 million from January to March of the same year in part because of costs associated with NMCI, which alone totaled $334 million in losses.

The company attributed that loss to "a decline in the average seat price based on the types of seats ordered and expected to be ordered by the [Navy], as well as a reduced period of time in which to generate seat revenue due to deployment delays and associated incremental estimated operating costs."

The company said it will continue to cooperate with the SEC and that it "takes the SEC inquiry seriously."