SAN FRANCISCO (Reuters) - Dell Inc on Thursday agreed to pay $100 million to settle charges by market regulators that the computer maker used hidden payments from Intel Corp, and fraudulent accounting to make it appear that it was meeting analysts' earnings targets.
The U.S. Securities and Exchange Commission alleged that Dell did not disclose large exclusivity payments it received from Intel to not use chips made by its main rival, Advanced Micro Devices Inc.
Those payments, "rather than the company's management and operations," allowed Dell to meet its earnings targets from 2002 through 2006, the SEC said. The charges were laid out in a stinging 61-page complaint.
Under the settlement, Dell Chief Executive Michael Dell, along with former CEO Kevin Rollins, each agreed to pay $4 million. Former Chief Financial Officer James Schneider agreed to pay $3 million.
Dell announced last month that it had set aside $100 million in its first fiscal quarter in preparation for a potential SEC settlement.
The company and Michael Dell entered into the settlements without admitting or denying the charges.
According to the SEC, Intel's exclusivity payments to Dell grew considerably over the years, peaking at 76 percent of Dell's operating income in the first quarter of fiscal 2007.
Without the Intel payments, Dell would have missed Wall Street's earnings-per-share estimate in every quarter from 2002 through 2006, the SEC said.
Dell shares surged roughly 50 percent from 2002 to 2004.
Rather than disclose the benefits it received from Intel's payments, Michael Dell, Rollins, Schneider and others in regulatory filings cited "cost reduction initiatives" and "declining component costs" as reasons for Dell's increasing profit margins, the complaint said.
"Dell manipulated its accounting over an extended period to project financial results that the company wished it had achieved, but could not," said Christopher Conte, associate director of the SEC's Division of Enforcement, in a statement.
"Dell was only able to meet Wall Street targets consistently during this period by breaking the rules."
Intel cut its payments after Dell announced plans to start using AMD chips, leading to a sharp drop in Dell's operating results which the company blamed on demand and pricing, according to the SEC complaint.
Dell in a statement said the settlement does not include any restrictions on Michael Dell's service as an officer or director of the company he founded.
"Dell's board reaffirms its unanimous support for Michael Dell's continued leadership," said Sam Nunn, presiding director of the Dell board in a statement.
Intel spokesman Chuck Mulloy declined to comment on the settlement between the SEC and Dell, saying the company was not party to the agreement.
"Any characterization of Intel's relationship with Dell have not been tested or adjudicated in any form ...we've maintained all along that the relationship with Dell was not exclusive," he said.
The original SEC probe into the accounting matters began in 2005 and Dell later acknowledged accounting errors and restated financial results from 2003-2007.
Shares of Round Rock, Texas-based Dell closed up 33 cents at $13.40 on the Nasdaq.
Reporting by Gabriel Madway and Yinka Adegoke; Editing by Gary Hill, Bernard Orr