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EDS financial probe deepens

The SEC asks for information about a massive asset write-down by the information technology services firm related to its $6 billion U.S. Navy contract.

Ed Frauenheim Former Staff Writer, News
Ed Frauenheim covers employment trends, specializing in outsourcing, training and pay issues.
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Ed Frauenheim
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The U.S. Securities and Exchange Commission has widened its probe of Electronic Data Systems to include a massive charge the company took related to its $6 billion Navy contract.

EDS on Monday issued a statement, saying the SEC's formal inquiry into the company is continuing and that the agency "has 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 spokesman Jeff Baum said the request concerned the company's $559 million asset write-down on the Navy contract, which involves upgrading computer and communications systems for the Navy. EDS announced the write-down Feb. 5, when the company also reported a fourth-quarter net loss of $354 million.

News of the expanded inquiry is another challenge for the IT services giant, which has been trying to recover from a string of troubles dating back to 2002. The company fell far short of earnings expectations in the third quarter of that year due partly to write-downs associated with the US Airways and WorldCom bankruptcies. Later, the SEC launched an investigation into the events leading up to the company's reduced earnings forecast for the third quarter as well as into EDS' stock-hedging efforts.

EDS eventually replaced its CEO with current chief Mike Jordan, but the company's struggles have continued, including the loss of a major contract in the United Kingdom.

As part of its statement on Monday, EDS said it has "no ability to predict the outcome of the inquiry, the SEC's view of the issues being investigated or the nature of any enforcement action the SEC ultimately may or may not take against the company or any of its current or former employees."

The company also said it "takes the SEC inquiry seriously and is cooperating with all formal and informal SEC requests."

The Navy deal--formally known as the Navy-Marine Corps Intranet contract--is valued at more than $6 billion over a seven-year base period. It is set to expire in 2007.