Accounting Snags Push Dresser to Restate

Problems with derivative transactions, inventory controls, keep IPO on hold
Stephen TaubNovember 28, 2006

Dresser Inc. said it will restate its financial statements for 2001 through 2003 based on a host of accounting errors. In May, the industrial engineering company had warned that it would restate its 2004 annual filing, its 2004 and 2005 quarterly financial statements, and would be evaluating the potential need to restate prior periods.

The accounting errors relate to inventory valuation and derivative transactions under the Financial Accounting Standards Board’s FAS 133. Other accounting errors relate to the company’s businesses which were sold in November 2005.

The errors associated with the divested businesses relate to derivative transactions and to the accounting treatment of income tax associated with intercompany inventory valuation between tax jurisdictions, the company elaborated. It had previously disclosed a number of material weaknesses in its internal control environment. Dresser stressed that it is continuing to remediate them. The company assured investors that it does not believe the errors will have a significant cumulative impact on earnings before interest, taxes, depreciation and amortization (EBITDA) or its financial position.

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This is not the first time the company has had to restate its results due to accounting errors. Last year, it revised its financial statements and other information to correct errors contained in financial statements for the first nine months of 2004 and periods prior to 2004. They consisted of accounting for foreign currency translation; inventory, including capitalization of inventory costs, the elimination of profits related to intercompany inventory transfers, and excess and obsolete inventory; capitalization and amortization of deferred financing fees; and other adjustments primarily of a control-related or bookkeeping nature.

In June, Dresser withdrew its registration statement to list its shares on the New York Stock Exchange, which was originally filed in September 2004 and subsequently amended in December 2004.The company said at the time that it considered the withdrawal to be appropriate so it could complete its pending restatement and to strengthen its financial controls.

Dresser also noted that the 18-month-old document “does not reflect the current scope of the company’s businesses or its financial results.” The company said any future decision concerning an initial public offering will be dependent on market conditions at that time.