A Dell internal probe into accounting and financial reporting has found "evidence of misconduct," and board members are trying to figure out whether the company will need to restate past earnings.
In a late Thursday announcement, Dell said it would delay the mandatory filing of its 10-K annual report with the Securities and Exchange Commission in order to wrap up the inquiry by the audit committee of the company's board. Dell didn't say when it expected that to be.
"The audit committee's investigation has identified a number of accounting errors, evidence of misconduct and deficiencies in the financial control environment," Dell said in a statement.
Dell provided no immediate details of what misconduct or accounting problems were uncovered.
Thomas Luce, the Dell director running the audit committee investigation, said the company was "committing the time and resources required to ensure a thorough and comprehensive review and resolution of all identified issues and the implementation of appropriate remedial measures."
For its most recent fiscal quarter, Dell reported that it was spending almost $1 million per day on issues surrounding the probe. In addition to the Round Rock, Texas-based company's audit committee probe, the SEC and the U.S. Attorney for the Southern District of New York launched investigations into Dell's finances last year.
Two top executives who had overseen Dell's books and operations, then-CEO Kevin Rollins and then-CFO James Schneider, resigned from the company in February. Rollins signed a severance agreement with Dell that would pay him $5 million in exchange for a promise not to volunteer cooperation with any outside investigations or lawsuits unless compelled to via court order or subpoena. The agreement also restricts any remarks Rollins may make about the company publicly.
Schneider, who announced in December that he would resign to become executive chairman of Frontier Bancshares, an Austin, Texas-based financial concern, didn't immediately return telephone calls for comment.
While Dell stopped short of specifying what its audit committee has found, many industry observers have speculated that one problem area for Dell would be its prior accounting of warranty reserves.
In a report issued last year, Friedman, Billings, Ramsey Research (FBR), an Arlington, Va.-based research firm, said that a review it conducted found that Dell may have overstated its earnings per share by between 2 cents and 8 cents in five of 12 previous quarters as a result of incorrect accounting of those reserves.
In its announcement, Dell said it hasn't been determined if the company would need to restate financial results. However, since last year, Dell has held open that possibility. The Thursday announcement was the most detailed offering that the company has provided to date about the severity of past problems.
The 10-K delay is the latest in a series of delays that Dell has announced in filing mandatory SEC reports. Dell executives first disclosed the series of investigations in a conference call with financial analysts last year, and a month later the company announced it would delay its 10-Q filing with the SEC for that quarter. Dell delayed its third-quarter 10-Q filing as well and has stopped providing complete financial results to investors and financial analysts until the investigations are complete.