DXC charged US$8M over misleading financial claims with SEC

DXC Technology’s US parent company has been charged by the Securities and Exchange Commission (SEC) for allegedly making misleading disclosures about its financial performance from 2018 to early 2020.

The SEC claimed that DXC increased its reported non-generally accepted accounting principles (GAAP) adjustments “for so-called transition, separation and integration-related (TSI) costs and improperly excluding them from its non-GAAP earnings.

“While DXC publicly claimed that its non-GAAP metrics allowed investors ‘to better understand the financial performance of DXC’, the SEC’s order finds that the company’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,” the Commission said.

The SEC’s order claimed that by misclassifying the TSI costs, DXC “materially overstated" its non-GAAP net income over three fiscal quarters, as well as failing to evaluate its non-GAAP disclosures surrounding TSI costs.

"Issuers that choose to report non-GAAP financial metrics must accurately describe those metrics in their public disclosures," said Mark Cave, associate director of the SEC’s Division of Enforcement.

"As the order finds, DXC’s informal procedures and controls were not up to the task and as a result, investors were repeatedly misled about its non-GAAP financial performance."

The SEC alleges that DXC negligently infringed the US’ Securities Act of 1993 and reporting provisions of the federal securities laws.

As a result, DXC consented to a cease-and-desist order to pay an US$8 million penalty and to undertake to develop and implement appropriate non-GAAP policies and disclosure controls and procedures.

In its determination to accept DXC’s offer of settlement, the SEC added it considered DXC’s cooperation and remedial actions.

A spokesperson from DXC said the company has already resolved the matter at hand, which was mostly related to the 2017 merger that formed DXC.

"Our current management team has pro-actively clarified its disclosure, reduced these non-GAAP costs and cooperated fully with the SEC, and is happy to put this matter behind us," the spokesperson said.