Novell Delays Reports as SEC Pokes Around

Novell (Nasdaq: NOVL) announced Wednesday that it has decided to postpone the release of its fourth quarter and full-year 2007 earnings reports, both of which were scheduled for Thursday.

The cause, it said, was an inquiry from the Securities and Exchange Commission (SEC), with which Novell has had a series of exchanges regarding some of its recent filings.

Specifically, Novell received a comment letter from the SEC in August regarding its Form 10-K for the fiscal year ended Oct. 31, 2006, and its Form 10-Q for the quarter ending April 30, 2007. Novell responded on Sept. 20, and then in October it received a second comment letter from the SEC. In that letter, the SEC indicated that it had reviewed Novell's response, but that questions remained about some accounting matters. Novell responded on Nov. 7, but is still awaiting a response.

'An Abundance of Caution'

"We are confident of our accounting and are working diligently with the SEC to respond to their inquiries," said Dana C. Russell, chief financial officer for the Waltham, Mass.-based company. "In an abundance of caution, we have chosen to postpone our earnings release. We look forward to completing our dialogue with the SEC."

Novell plans to release its delayed reports as soon as the SEC's review is concluded. It expects to file its Form 10-K for the fiscal year ended Oct. 31 on or before its due date of Dec. 31, 2007, it said.

Meanwhile, investors were apparently concerned, causing Novell's stock to plunge 69 U.S. cents, or 9.8 percent, to $6.35 in Wednesday trading.

Possible Restatement

Exchanges of this nature with the SEC can range from a simple request for more detail that resolves the question right away to more prolonged discussions, Brent Williams, an analyst with The Benchmark, told LinuxInsider.

"In some cases, when it's been going back and forth for a while, you have to allow for the possibility that the SEC is mulling over telling the company that they need to change how they treated something," Williams explained. "It's not necessarily because anything bad has gone on, but it could result in a restatement."

In the past, companies could issue reports with the best information they had available. In the wake of the Sarbanes-Oxley Act, however, "you can't sign off on a financial statement if you have any reason to believe any information in your possession might mean the statement has to be changed," Williams noted.

Reasons Unclear

So, if there's the possibility of a restatement, and if it ends up being one that could affect current numbers, Novell can't file that report, he said.

"The most important thing to understand is that it isn't clear what the reason is," Williams added. "It could range from simply a delay in receiving the SEC's letter concluding the matter -- a technicality -- to something more substantial," he said.

Meanwhile, Novell has myriad other issues to deal with, including refocusing the company, establishing more cost discipline and managing the positives and negatives of its agreement with Microsoft (Nasdaq: MSFT), he added.

"It's not like this is a company with no worries," he concluded. "Investors don't like uncertainty, and now the street is grappling with that."