DXC Hit With $8M SEC Fine For ‘Misleading’ Non-GAAP Disclosures

DXC agreed to the $8-million fine and to making changes in the wake of SEC allegations of “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.”

The U.S. Securities and Exchange Commission Tuesday charged IT solution provider and services company DXC Technology with making misleading disclosures related to its non-GAAP financial performance between 2018 and 2020.

The SEC, in a statement released online, also said that DXC has agreed to pay an $8-million penalty related to the allegations. In addition, DXC also consented to a cease-and-desist order and to make and implement appropriate non-GAAP policies.

DXC agreed to the fine and to making those changes without admitting or denying the SEC charges.

[Related: DXC Earnings Report: Acquisition Talks Still On, Revenue Still Slides]

DXC, in a statement emailed to CRN, said that the company has proactively addressed the SEC’s concerns.

“DXC Technology has resolved this legacy matter, which related to the presentation of non-GAAP M&A costs principally related to the 2017 merger that formed DXC. Our current management team has proactively clarified its disclosure, reduced these non-GAAP costs and cooperated fully with the SEC, and is happy to put this matter behind us,” the company said.

Ashburn, Va.-based DXC was formed in 2017 by the merger of former solution provider CSC and Hewlett Packard Enterprise’s Enterprise Services division.

The SEC said in its statement that DXC made misleading disclosures about its non-GAAP financial performance in multiple reporting periods from 2018 until early 2020.

“DXC 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,” the SEC wrote.

Despite DXC claims that its non-GAAP metrics allowed investors to better understand the company’s financial performance, the SEC found that DXC’s non-GAAP disclosure controls and procedures inadequate related to expense classifications, and as a result, DXC materially overstated its non-GAAP net income in three fiscal quarters.

The SEC found that “DXC negligently violated the anti-fraud provisions of the Securities Act of 1933 and reporting provisions of the federal securities laws.” However, the SEC took into account DXC’s cooperation and planned actions to remedy the issues raised in accepting the company’s settlement offer.