November 7, 2016 / 11:28 AM / 10 months ago

Cognizant says some top managers involved in potentially improper payments

(Reuters) - IT services provider Cognizant Technology Solutions Corp said on Monday some senior managers may have participated in or failed to take action to prevent making about $5 million in "potentially improper payments" primarily related to real estate and procurement in India.

Cognizant, whose shares were up 4 percent at $54.18 in early trading, said the material weakness existed as of Dec. 31, 2015, and continues to exist in subsequent interim periods.

The company also said its ongoing internal investigation had identified a material weakness in its internal control over financial reporting. (bit.ly/2fTgrPb)

If the payments are limited to $5 million, this would probably be well below investors' worst case, Cowen and Co analysts said in a research note.

Cognizant said in September it was conducting an internal investigation into possible violations of U.S. anti-corrupt practices laws related to payments in India.

The company also said that the people possibly involved with the payments are no longer with the company or in a senior management position.

The company said in September that President Gordon Coburn had resigned, giving no reason for his departure, and that he would be replaced by Rajeev Mehta, the head of IT services.

Cognizant said in a regulatory filing on Monday that it had not maintained an "effective tone at the top".

"We will continue the investigation until we are confident that we have tracked it all down," Chief Financial Officer Karen McLoughlin said on a conference call, adding that it was "early days" in the investigation.

Cognizant is based in Teaneck, New Jersey but about three-quarters of its employees are in India.

The company narrowed its forecast for 2016 adjusted profit to $3.38-$3.41 per share from $3.32 to $3.44. Analysts were expecting $3.37, according to Thomson Reuters I/B/E/S.

Cognizant also trimmed the top-end of its full-year revenue forecast for 2016, saying it now expected $13.47 billion-$13.53 billion, compared with its prior forecast of $13.47 billion-$13.6 billion. This is the third time Cognizant has trimmed its full-year revenue guidance.

The company reported a better-than-expected profit, helped by demand for cloud services from the financial and healthcare industries.

Cognizant's net income rose to $444.4 million, or 73 cents per share, in the third quarter ended Sept. 30, from $397.2 million, or 65 cents per share, a year earlier.

The company's total revenue rose 8.4 percent to $3.45 billion.

Excluding items, the company earned 86 cents per share, beating estimates of 84 cents per share.

Reporting by Anya George Tharakan and Rishika Sadam in Bengaluru; Editing by Shounak Dasgupta

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