DXC Technology Company and SEC
DXC Technology Company is an information technology services provider located in Ashburn, Virginia. The Securities and Exchange Commission (SEC) announced today that it has charged the company with making misleading disclosures about its non-GAAP financial performance in multiple reporting periods from 2018 until early 2020.
According to the order issued by the SEC, DXC technology materially increased its reported non-GAAP net income by negligently misclassifying tens of millions of dollars of expenses as non-GAAP adjustments for so-called transaction, separation, and integration-related (TSI) costs and improperly excluding them from its non-GAAP earnings.
This caused DXC tchnology’s reported non-GAAP net income to be materially higher than it should have been. The SEC’s order finds that DXC’s non-GAAP disclosure controls and procedures were inadequate to ensure that the company’s expense classifications were consistent with its own public description of TSI costs, despite the fact that DXC technology company publicly claimed that its non-GAAP metrics allowed investors “to better understand the financial performance of DXC.
The company also claimed that its non-GAAP metrics allowed investors “to better understand the financial performance of DXC.” According to the order, DXC technology materially overstated its non-GAAP net income in three of its fiscal quarters by incorrectly classifying the costs associated with TSI. Additionally, DXC technology failed to conduct an analysis of the company’s non-GAAP disclosures concerning TSI costs.
According to Mark Cave, Associate Director of the SEC‘s Division of Enforcement’s Division of Enforcement, “Issuers that choose to report non-GAAP financial metrics are required to accurately describe those metrics in their public disclosures.” “The order finds that DXC technology’s informal procedures and controls were not up to the task, and as a result, investors were repeatedly misled about the company’s performance according to non-GAAP accounting standards,
According to the order issued by the Commission, DXC was found to have violated, albeit unintentionally, the anti-fraud provisions of the Securities Act of 1933 as well as the reporting provisions of the federal securities laws.
Without admitting or denying the findings in the order, DXC consented to a cease-and-desist order, agreed to pay a penalty of $8 million, and agreed to develop and implement appropriate non-GAAP policies and disclosure controls and procedures.
All of these terms were included in the consent agreement. The cooperation and corrective actions taken by DXC were a factor in the SEC’s decision to accept the settlement offer that was presented by DXC.
Matthew Finnegan, John Rossetti, and Gary Peters were the individuals responsible for carrying out the investigation for the SEC. Jeff Leasure and Mr. Cave were in charge of supervising the investigation.
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