Dell II -- But Can't You See What Potter's Doin'?

Jack gets curious any time a year-long investigation into accounting practices is about to be emulsified into an 8-K. At such tense moments, some companies bathe in corporate babble, while others play it nice and straight.

For the most part, Dell avoided the the babble, which is easier to do when you've already canned a CEO and a CFO during the investigation. Airing out dirty laundry is much easier when it belongs to your predecessors.

The release is comprehensive, and follows a dependable formula -- (1) define the problem and its impact on results, (2) announce the actions taken to rectify the dirty deeds, (3) announce the steps taken to ensure such deeds will not happen again, and (4) state your aspiration to become "world-class" at not making similar mistakes in the future.

The upshot of the announcement was that Dell tallied up -- at most -- only $150 million short over a four-year period, hardly material to a company that reports $12 billion in net income. So the market yawned with joy about the numbers, and all the attention then focused on executive culpability. After all, founder Michael Dell was still leading the company in the early days of the "inappropriate" activities, right?

So Jack tuned in to the conference call, and found a new favorite spokesdarling -- CFO/vice chairman Don Carty. The former AMR CEO had chaired the Dell board's audit committee, and came to the rescue by joining management last December when then-CFO James Schneider was thrown overboard.

Carty is credited with getting American Airlines out of trouble, so he's not your average CFO. And he takes the podium with a demeanor that is loaded with both an aw-shucks earnestness and a finance veteran's technical articulateness. And to Carty's credit, he delivers the key themes with a likeable decency matched only by Jimmy Stewart in Frank Capra roles.

Stewart fans should listen to the conference call to hear their hero channelled.

But spin connoiseurs should pick it up at at the Q&A, which comes at about the 20:00 mark, and treat yourself to some of the most delicious, satisfying non-answers Jack has ever heard.

Let's start with Carty's answer to an early question from Sanford Bernstein's Toni Sacconaghi about whether the regularities involved anything more than simply timing, noting that most of the improper dollar shifts seem to balance themselves out. The question gave Carty an easy opportunity to declare a wash, and get on with it. Instead, Carty goes bugs-up.

"Tony, obviously, if you recognize revenue or expense inappropriately, it's inappropriate. Whether or not it's going to reverse itself or not.

I think the answer to your question probably lies in the cumulative change here. The fact that some of these things are reversing themselves doesn't obviate the fact that we had serious control deficiencies. That should not have happened. But I think you can see that by the fact that in the end we don't have significant financial impact on our cumulative P&L, and we don't one on our balance sheet, suggest that most of this reverses itself."

Wow. So it's a wash, but you're still darned disappointed in yourselves? That's great.

Pleasantly baffled, Sacconaghi still wants to make sure he understood what heard. It sounded so good, but he can't quite remember his question being answered. So he follows up -- Can you confirm that everything was basically about timing, Mr. Carty?

Carty then allows that there was one little incident with a transaction in Europe that involved some actual fraud. But it was small stuff that's been corrected.

So Jack is waiting for somebody to finally ask the obvious question? Is Micheal Dell personally implicated in this? Disciplinary action? Firing? Orange coveralls?

Merryl Lynch's Richard Farmer takes the first shot at it, asking if any current executives were found to be involved with the hanky-panky. And if so, which ones?

Carty replies.

"Let me say right up front, I'm not going to talk about any individual by name. I think you'll see all that in our 8-K. We have taken what we believe are - or are in the process of taking - what we perceive to be appropriate actions with respect to personnel that were involved in this... and that is up to and including termination."

Dang. Jack hates it when he has to expend the energy to actually read the 8-K, but he certainly understands that naming the perps would be far too indiscrete for a forum as dignified as an analyst conference all.

Uncle Don continues.

I want to underscore that the current leadership team of the company and the board of this company are taking full responsibility for these control deficiencies. And I might add, and more importantly, taking absolute responsibility for making sure we get the the appropriate remediation in place, and that we move this company to world-class when it comes to financial controls.

All of us are very proud of Dell. We believe we're a world-class company. And we''e not terribly proud that we found one element of our company that clearly wasn't world-class. And we are absolutely committed to elevating our delivery here dramatically. None of us at Dell like this.

Here, here!

But are any current senior execs implicated?

JP Morgan's Bill Shope takes a run at it, explicitly confessing that he was basically asking the same question in a different way -- Were any current executives directly involved, and have you completed disciplinary actions?

Not only have I conducted a series of recommendations to the board with respect to remedial actions with respect to personnel. The board has carefully reviewed that. The board has approved the remedial plan and approved the actions I've recommended to them. And I think we are all comfortable that we have taken the remedial actions that ensure that this never happens at Dell again.

"Ok, thank you," surrenders Shope.

His colleagues wilting, a fresh man takes the line, as UBS analyst Ben Reitzes tightens up the question.

Well, I guess the main question is still back to that, Don. I don't know if we've gotten a full, you know, answer... with all due respect. I guess the way to ask it is, with executives that knew about it, can we be assured that the ones that new about it are the ones that are gone.

Carty responds, and signals that he's already telling us everything that he's going to tell us.

You can be sure... (Stewartesque stammering)... You gotta take this for what you decide to take it. But let me assure you that both the leadership team of the company and the board feels that we have taken - absolutely taken - the necessary remedial actions.

"Ok. Sorry to ask it three times," apologizes Reitzes.

"That's alright, Ben," consols Uncle Don.

"But that's the most important thing," says Reitzes, pretending he got an answer. "Thank you."

"Next question," announces Carty.

FBR's Clay Sumner then confirms the Kabuki as the next caller, saying, "I won't ask it four times. The question has been answered."

After a couple of questions about the cost of the new procedures and the impact on the company's share repurchase plans, Carty goes to his closing remarks.

"Thanks, operator.

Aw, look, as I said, this is not a happy story for Dell or one that we're terribly proud of. But I do think this rigorous examination of our accounting and financial reporting processes, along the remedial actions have made and will continue to make Dell a far stronger company. And it will definitely provide a solid foundation on which we're able to move our business forward. And we absolutely want to move our business forward. We are committed to achieving and maintaining a strong control environment, very high ethical standards, and absolute financial reporting integrity".

Carty assures that Dell management has a renewed its focus on long-term shareholder value, a positive way of saying there won't be any more improper juggling to hit quarterly targets. And then he brings it all home.

Again, I want thank you for joining us today. I do look forward to speaking with you on more pleasant subjects. And I hope we have more opportunities to do that in the not to distant future. Thanks a million.

Thanks a million? Even Stewart couldn't pull of that line at the end of that scene. But somehow it works for Carty.

Jack only found one story that actually reported what was said, or more important, what was not said. John Letzing and Rex Crum's MarketWatch piece call it cleanly.

"Carty did not directly answer questions about whether executives who had knowledge of the misconduct are still with the company."

That made Jack feel a bit saner. After listening to everyone on the conference call confirming that the question had been answered, Jack was worried that maybe a special code was being spoken that Jack doesn't understand.

Letzing and Crum's piece also provided a platform for Reitzes to show some frustrated teeth.

"In our experience, drawn out SEC investigations have on occasion highlighted additional issues that resulted in management changes and or penalties. While seemingly cleared by his company''s investigation, Michael Dell was CEO during periods with the largest restatements needed."

Jack pulls three spins lessons from the call.

1. Putting Michael Dell on the line would have created a much stronger sense that the house is clean. But with the SEC investigation still pending, no decent flack or general counsel wants their founder/CEO to face the question -- "What did you know about it, and when did you know it?"

2. But Carty brought a gravitas and demeanor that carried the moment. His clear statements of accountability and self-criticsm allowed him to dodge the details, as sometimes style does indeed conquer substance. Unless you can slam-dunk the question with a unqualified denial, then there's simply to much risk to having your celebrity CEO say something potentially haunting.

3. Analysts won't embarrass you on the call, because they don't want to poison their future access. But if you embarrass them on the call by not answering the obvious questions, then they'll likely slap you lightly in the press.

What's Jack's blind guess about the story under the story?

The mess was real. It probably was wrong but legal. It's been cleaned up. Michael Dell is holding his breath on the SEC investigation. Everybody just wants to get back to simply saving the company.

Because, as Joshua Lipton noted, the last thing Dell needs is more distraction from getting its core business growing again.