AP
Dell to Restate Earnings After Probe
Thursday August 16, 11:06 pm ET
By Matt Slagle, AP Technology Writer
Dell to Reduce More Than 4 Years of Earnings After Probe Finds Company Misled Auditors

DALLAS (AP) -- Computer maker Dell Inc. said Thursday it will reduce more than four years' worth of earnings by up to $150 million after an internal probe found the company misled its auditors and manipulated results to meet performance goals.

The struggling company said its net income for the restatement period will be reduced by between $50 million and $150 million, or 2 cents to 7 cents per share.

The largest reductions in quarterly profits were expected to be in the first quarter of fiscal 2003 and the second quarter of fiscal 2004, each lowered between 10 percent and 13 percent.

In total, it will restate all of fiscal 2003 through 2006 and the first quarter of fiscal 2007.

The investigation, which began in August 2006 and evaluated more than 5 million documents, "identified evidence that certain adjustments appear to have been motivated by the objective of attaining financial targets," Dell said.

The Round Rock-based company added that unspecified terminations, reassignments, reprimands, increased supervision, training and financial penalties either have or will be taken as a result.

In a conference call, analysts repeatedly asked if any current executives were privy to the accounting woes.

Since the probe was first revealed last August, Dell's executive team has undergone significant changes, including the departure of former Chief Financial Officer James M. Schneider and the return of Michael Dell as its chief executive officer.

Without naming names, "the ones that knew about it are the ones that are gone," said Vice Chairman and CFO Don Carty, the former chairman of American Airlines who replaced Schneider in December. "Let me assure you that both the leadership team of the company and the board feels that we have absolutely taken the necessary action."

In a statement, Chairman and Chief Executive Michael Dell said executives were "committed to achieving and maintaining a strong control environment, high ethical standards and financial reporting integrity."

"This commitment will be communicated to every Dell employee and external stakeholder. It is accompanied by renewed management focus on decision-making and processes intended to drive long-term shareholder value."

The Securities and Exchange Commission's investigation into some of Dell's accounting and financial reporting practices is ongoing, the company said.

One analyst said the financial impact appeared minimal given Dell's multibillion-dollar size.

"The magnitude of this stuff is very small, it's not a big number," said Roger Kay, president of Endpoint Technologies Associates Inc. "I don't think it's anything that's going to rise to the level of criminality, but then again I'm not the SEC."

Dell said the findings would not have a material impact on second-quarter results, which are scheduled for release Aug. 30.

Dell has issued only preliminary financial results for the four most recent quarters and hasn't filed its annual report for the fiscal year that ended Feb. 2 because of the ongoing investigations.

With the internal probe complete, Dell said it expects to file the past-due documents by the first week of November. Its annual shareholders meeting is scheduled for Dec. 4.

Dell still faces shareholder lawsuits, and federal prosecutors in New York subpoenaed documents on the company's financial reporting since 2002.

The news came the same day that rival Hewlett-Packard Co. reported third-quarter net income of $1.78 billion, or 66 cents per share, a 29 percent jump from the $1.38 billion, or 48 cents per share in the year-ago period.

Since losing its No. 1 grip on the PC market last fall, Dell has retooled its products with a new focus on design, some with flashier colors. But in the second quarter, HP had about 19 percent of the worldwide PC market compared with Dell's 16 percent, according to market research firm IDC, citing the most recent data available.

Dell shares dropped 37 cents, or 1.4 percent, to close at $25.93 before the announcement was made. The stock rebounded 42 cents in after-hours trading.