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Dell delays quarterly report due to SEC probe

Investigation-raised questions lead PC maker to hold up regulatory filing; federal prosecutor begins related probe.

Issues raised by a U.S. Securities and Exchange Commission probe have led Dell to delay filing its quarterly earnings report and could mean that it will have to restate financial results.

Computer maker Dell announced the SEC investigation in August, saying the regulatory agency contacted it in August 2005. On Monday, Dell said in a statement it will delay the 10-Q filing for the quarter ended Aug. 4 because of questions raised by the "informal" SEC investigation "into certain accounting and financial reporting matters" and the subsequent investigation by Dell's audit committee of its board.

Dell's Chief Financial Officer Jim Schneider said in August that the company didn't expect the matter to have a material effect on its finances. However, audit committee chairman Don Carty said Monday, "We have not yet reached any conclusion on materiality as to these issues."

In addition, the U.S. Attorney for the southern district of New York has begun requesting information. It has subpoened documents related to Dell's financial reporting from 2002 to the present, the company said.

Dell's move indicates the situation is more "ominous" than what it had disclosed in August and that it doesn't bode well for management, Sanford C. Bernstein analyst Toni Sacconaghi wrote in a research note Monday.

"As much as anything, we believe that today's announcement is likely to further undermine management's already fragile credibility," Sacconaghi said. "We note that Dell's senior management team has been under fire over the last six-plus quarters for its deteriorating financial performance and its ostensible inability to grasp the severity of the issues and put in place an effective action plan. Today's disclosure that the company also appears to have been remiss in understanding its own financial controls is likely to further unnerve investors."

Dell said the SEC and board investigations "have indicated the possibility of misstatements in prior period financial reports, including issues relating to accruals, reserves and other balance sheet items that may affect the company's previously reported financial results."

Dell stock dropped 46 cents, or 2 percent, to close at $21.18 on Monday.

"We are fully cooperating with the investigations and working to resolve any and all issues raised in connection with those investigations as quickly as possible, and we will take any appropriate remedial or corrective actions to address any problems," Chairman Michael Dell said in a statement.

Dell also suspended a share repurchase program and canceled a meeting with Wall Street analysts that had been scheduled for Wednesday.