|
Dell finds evidence of misconduct in finance probe
2007-03-29
Dell Inc., the world's second-largest personal computer maker, said on Thursday an internal financial audit found evidence of misconduct, accounting errors and deficiencies in its financial controls. Dell, already facing federal and regulatory probes of its accounts and reeling from several disappointing quarters, said its audit committee was working with management and independent auditors to determine whether to restate past results. Dell shares fell more than 2 percent in after-hours trade. The accounting review meant Dell would not file its annual report with securities regulators by the April 3 due date, or by an extension date of April 18, the company added. "We still don't know the extent of the misconduct," said Sunil Reddy, senior portfolio manager at Fifth Third Asset Management, which oversees about $21 billion in assets, including Dell shares. "This news creates uncertainty, but more important are the operational metrics, which need to change in the right direction," Reddy said. "That's going to take some time." A spokesman said the company would not comment beyond the statement. Dell will see whether the control deficiencies "constitute a material weakness" in its control over financial reporting. Thomas Luce III, chairman of the Dell audit committee, said in the statement Dell would take "appropriate remedial measures" after a "thorough and comprehensive review." Dell disclosed its accounting review a year after it was begun in August 2005. Later in 2006, the company said the U.S. Securities and Exchange Commission and federal prosecutors were investigating its past accounting, and it canceled its annual meeting with analysts in September because of the probes. Dell still has not filed financial statements for the second and third quarters of fiscal 2007, pending the completion of the accounting reviews. Founder Michael Dell in January retook the helm from Kevin Rollins, who left after the investigations were disclosed and a series of lower-than-forecast results. Also in 2006, Dell lost the No. 1 PC market share spot to Hewlett-Packard Co. In December, former American Airlines chief Donald Carty replaced Chief Financial Officer James Schneider. Dell, 42, has also made a series of changes to his senior management team, including the appointment of former Motorola Inc. executive Ron Garriques to oversee a new global consumer unit. "There was some hope that this SEC investigation would come to a close," said Shaw Wu, an analyst at American Technology Research who has a "neutral" rating on Dell shares and does not own any. "With this new disclosure, this will likely remain an overhang over the stock. Dell has disclosed little about the accounting probes. It said in August the SEC had requested information on "revenue recognition and other accounting and financial reporting matters" for past fiscal years. In an SEC filing in September, Dell said the U.S. Attorney's office in Manhattan had subpoenaed documents related to its financial reporting from 2002 to the present. Dell said in September the investigations indicated the "possibility of misstatements" in prior financial reports, including issues "relating to accruals, reserves and other balance sheet items." The shares fell 6.6 percent to $21.85 in after-hours trading following the announcement, though it recovered slightly and was last down 2.3 percent at $22.82.
| 
