Xerox Corp said the U.S. Securities and Exchange Commission was investigating some accounting practices at Affiliated Computer Services, an IT outsourcing firm it bought in 2010 for $5.5 billion.
The investigation is focused on whether revenue from some ACS equipment resale deals should have been presented on a net rather than gross basis, primarily before the acquisition, Xerox said in a regulatory filing. (link.reuters.com/nus63v)
Xerox moved into business services with its purchase of ACS, the company's biggest deal in its 106-year history. The company now gets more than half its revenue from services.
The transactions being investigated were not material to Xerox's post-acquisition consolidated financial statements, the company said.
Xerox said Lynn Blodgett, ACS's former chief executive and the current president of Xerox's services division, had received a "Wells notice" from SEC staff.
A Wells notice is the document the SEC sends to a firm or individual when it plans to recommend bringing charges. Recipients of Wells notices are given a chance to explain why the SEC should not file a lawsuit.
"Lynn is a key member of the executive management team and it is the company's expectation that he will continue to direct and lead our services business," a Xerox spokesman said in an email to Reuters.
Xerox said two other individuals, a current employee and a former employee, had also received Wells notices.
"This raises the importance of having a deep bench in senior management position in Xerox services, an issue we (and investors) have raised in the past, given (Xerox's) inconsistent services financial performance in 2010 and 2011," BMO Capital Markets analyst Keith Bachman wrote in a note.
The SEC staff will not recommend charges against Xerox, the company said.
Xerox's shares were down more than a percent at $10.28 in morning trading on the New York Stock Exchange on Tuesday.
(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Don Sebastian and Saumyadeb Chakrabarty)