Aug 18 2007, 07:10 AM, updated 19y ago
QUOTE
It's already been a rough year for Dell's dwindling market share much to the delight of HP and Apple. Now, as followup to the evidence of accounting errors and misconduct announced back in March, Dell has admitted that their senior / executive management regularly falsified quarterly financial returns from 2003 to 2006. In a filing with the SEC, Dell admits that "account balances were reviewed, sometimes at the request of senior executives, with the goal of seeking adjustments so that quarterly objectives could be met." In only one case did Dell actually invent sales numbers, usually, the shifty accounting involved the recognition of revenue earlier than appropriate. Dell must now reduce its reported net income for the period by as much as $150 million with the biggest downward restatements hitting Q1 2003 and Q2 2004 by 10 to 13 percent -- other quarters are expected to be 5 percent or less. It's unclear whether any of the management responsible for, or engaged in this malfeasance are still employed by Dell. Dell's CFO only said that "disciplinary action had been taken" and that current management and the board are "comfortable we have taken steps necessary to make sure this never happens at Dell again." Dell's stock is actually up a few points in pre-market trading which could be a sign that investors aren't too concerned by the piddley restatement (Dell posted $12 billion in net income during the period in question) and are stoked to see Dell finally move forward, undistracted. That is, if the SEC agrees. We'll see how the stock does once investors wake to the latest fetor to seep outta Austin this side of SXSW.
Wall Street Journal
http://online.wsj.com/article/SB1187296233...p_us_whats_news
QUOTE
Dell Inc. said it would restate more than four years of its financial results, after a massive internal investigation found that unidentified senior executives and other employees manipulated company accounts to hit quarterly performance goals.
The restatement will reduce the computer maker's reported profit by $50 million to $150 million, not a huge sum for a company that posted net income of about $12 billion over the four-year period. But the details disclosed by the long-awaited investigation are a black eye for Dell, a once-consistent performer that has been struggling to regain its footing.
Analysts saw the relatively small size of the restatement as a positive, removing a cloud of uncertainty over the company. Dell shares traded at $25.93, off 37 cents, at 4 p.m. on the Nasdaq Stock Market. Following the announcement, they rose to $26.46 in after-hours trading.
Donald J. Carty, a Dell director who became its chief financial officer in January, promised to take "remedial" action to ensure that what Dell characterized as accounting errors and irregularities wouldn't happen again. The company said it has taken or will take steps involving unspecified employees that include "terminations, reassignments, reprimands, increased supervision, training and imposition of financial penalties."
The restatement and other actions don't end a separate investigation of Dell's accounting by the Securities and Exchange Commission, the company noted. Dell also has previously disclosed that the U.S. attorney for the Southern District of New York was investigating the company.
[Michael Dell]
Accounting issues have been one of several big challenges for Dell, a Round Rock, Texas, company that tops U.S. personal-computer sales but recently fell behind Hewlett-Packard Co. as the world's biggest PC maker. The accounting issues came to light in August 2006, when Dell disclosed that the SEC had been investigating its finances for a year. Dell's audit committee launched its own investigation.
In December, Dell Chief Financial Officer James Schneider resigned and was succeeded by Mr. Carty, the former chief executive of American Airlines parent AMR Corp. A little more than a month later, Dell Chief Executive Kevin Rollins resigned, and Michael Dell reclaimed the top position at the company he started.
Dell had given few details about the focus of the investigation. The disclosures yesterday shed light on the improprieties, but some mysteries remain.
The company said it found evidence that various reserve and accrued-liability accounts were created or improperly adjusted -- usually at the close of the quarter to give the appearance that quarterly financial goals were met. The adjustments sometimes followed reviews of account balances "at the request of or with knowledge of senior executives." Dell added that employees in some business units purposely gave incomplete or incorrect information about these activities to headquarters personnel or auditors.
The improper transactions ranged from several hundred thousand to several million dollars, Dell disclosed. Even when small in size, the company said, the errors and irregularities were serious because of such factors as the number and qualitative nature of the issues.
[Dell]
During a conference call, Mr. Carty declined to specify whether any of the senior executives who took part in the improper actions were still with the company. Dell also wasn't specific about what kinds of accruals and reserves were involved, a topic of Wall Street speculation.
But a company SEC filing disclosed that the investigation uncovered issues about the way Dell recognizes revenue from selling other companies' software, amortizes revenue from some extended warranties and accounts for reimbursement agreements with vendors.
According to the filing, the law firm Willkie Farr & Gallagher LLP and the accounting firm KPMG LLP led an investigation, using special software, that evaluated more than five million documents. They conducted 233 interviews with 146 individuals, according to the filling.
Dell said it would restate annual and quarterly results for its 2003, 2004, 2005 and 2006 fiscal years, as well as the first quarter of fiscal 2007. The cumulative change to its net income a share for that period, previously reported as $4.78, will be reduced by between two cents and seven cents, Dell said.
Dell said fiscal year 2003's first quarter, which ended in May 2002, and fiscal 2004's second quarter, ended in August 2003, would be hit hardest, with net income and earnings a share falling 10% to 13%. Earnings for its 2005 fiscal fourth quarter will be reduced by 7%, and earnings for the last two quarters in its 2006 fiscal year ended February 2006 would be reduced by 5% to 7%.
The restatement will reduce the computer maker's reported profit by $50 million to $150 million, not a huge sum for a company that posted net income of about $12 billion over the four-year period. But the details disclosed by the long-awaited investigation are a black eye for Dell, a once-consistent performer that has been struggling to regain its footing.
Analysts saw the relatively small size of the restatement as a positive, removing a cloud of uncertainty over the company. Dell shares traded at $25.93, off 37 cents, at 4 p.m. on the Nasdaq Stock Market. Following the announcement, they rose to $26.46 in after-hours trading.
Donald J. Carty, a Dell director who became its chief financial officer in January, promised to take "remedial" action to ensure that what Dell characterized as accounting errors and irregularities wouldn't happen again. The company said it has taken or will take steps involving unspecified employees that include "terminations, reassignments, reprimands, increased supervision, training and imposition of financial penalties."
The restatement and other actions don't end a separate investigation of Dell's accounting by the Securities and Exchange Commission, the company noted. Dell also has previously disclosed that the U.S. attorney for the Southern District of New York was investigating the company.
[Michael Dell]
Accounting issues have been one of several big challenges for Dell, a Round Rock, Texas, company that tops U.S. personal-computer sales but recently fell behind Hewlett-Packard Co. as the world's biggest PC maker. The accounting issues came to light in August 2006, when Dell disclosed that the SEC had been investigating its finances for a year. Dell's audit committee launched its own investigation.
In December, Dell Chief Financial Officer James Schneider resigned and was succeeded by Mr. Carty, the former chief executive of American Airlines parent AMR Corp. A little more than a month later, Dell Chief Executive Kevin Rollins resigned, and Michael Dell reclaimed the top position at the company he started.
Dell had given few details about the focus of the investigation. The disclosures yesterday shed light on the improprieties, but some mysteries remain.
The company said it found evidence that various reserve and accrued-liability accounts were created or improperly adjusted -- usually at the close of the quarter to give the appearance that quarterly financial goals were met. The adjustments sometimes followed reviews of account balances "at the request of or with knowledge of senior executives." Dell added that employees in some business units purposely gave incomplete or incorrect information about these activities to headquarters personnel or auditors.
The improper transactions ranged from several hundred thousand to several million dollars, Dell disclosed. Even when small in size, the company said, the errors and irregularities were serious because of such factors as the number and qualitative nature of the issues.
[Dell]
During a conference call, Mr. Carty declined to specify whether any of the senior executives who took part in the improper actions were still with the company. Dell also wasn't specific about what kinds of accruals and reserves were involved, a topic of Wall Street speculation.
But a company SEC filing disclosed that the investigation uncovered issues about the way Dell recognizes revenue from selling other companies' software, amortizes revenue from some extended warranties and accounts for reimbursement agreements with vendors.
According to the filing, the law firm Willkie Farr & Gallagher LLP and the accounting firm KPMG LLP led an investigation, using special software, that evaluated more than five million documents. They conducted 233 interviews with 146 individuals, according to the filling.
Dell said it would restate annual and quarterly results for its 2003, 2004, 2005 and 2006 fiscal years, as well as the first quarter of fiscal 2007. The cumulative change to its net income a share for that period, previously reported as $4.78, will be reduced by between two cents and seven cents, Dell said.
Dell said fiscal year 2003's first quarter, which ended in May 2002, and fiscal 2004's second quarter, ended in August 2003, would be hit hardest, with net income and earnings a share falling 10% to 13%. Earnings for its 2005 fiscal fourth quarter will be reduced by 7%, and earnings for the last two quarters in its 2006 fiscal year ended February 2006 would be reduced by 5% to 7%.
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