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With SEC investigation underway, CSC reports preliminary earnings

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Falls Church-based CSC has had to hold off reporting final fourth-quarter earnings because of an ongoing Securities and Exchange Commission investigation into possible accounting errors.

The company, which sells to the government as well as commercial businesses, released preliminary earnings late last month but noted that it does not expect to file its 10-K until June 15.

CSC said it originally launched its own investigation of accounting errors in its managed services sector, particularly into irregularities in Scandinavia. However, the SEC’s enforcement division began its own investigation early this year and its corporation finance division has requested additional information from CSC on the errors and the company’s analysis of its internal controls.

“The company is unable to predict the effect, if any, the foregoing matters may have on its business, financial condition or results of operations,” CSC said in its statement.

The potentially damaging investigation also comes as CSC works to reach a memorandum of understanding that could reduce the scope of a major contract with the United Kingdom’s National Health Service.

Michael W. Laphen, chairman, president and chief executive of CSC, said last month that the company has been in “protracted negotiations” on the contract.

“The U.K. government is currently conducting a review of the entire NHS national program,” he said.

In its preliminary earnings report, CSC said its fourth-quarter earnings dropped to $171 million ($1.09 per share) in the three months ended April 1, down nearly 34 percent from $259 million ($1.66) a year earlier. Revenue stayed flat at $4.2 billion.

Concerns about the investigation, along with word of the NHS changes and general worries about a tightened federal budget, have resulted in uncertainty about CSC among the investment community, said David Grossman, a managing director at Stifel Nicolaus.

With little information provided about investigations, “investors frequently look at the glass as half empty rather than half full,” he said.

Still, Laphen said he was satisfied with the company’s commercial revenue for the year.

“Although Fiscal Year 2011 was challenging given the NHS uncertainty, the unexpected difficulties in the Nordics and the delays in the Federal budgets, I am pleased with the sequential and year over year revenue growth in our commercial businesses,” Laphen said in a statement.

Citing the ongoing investigation, the company declined to comment for this article.

CSC’s stock has dropped significantly in recent weeks, falling nearly 27 percent during the month of May.

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