Risk & Compliance

CTRL-ALT-DELETE: Dell Frozen until Restart

Dell will delay second-quarter results until it completes a multiyear restatement, which comes after news that performance goals spurred the improp...
Kate PlourdSeptember 14, 2007

Texas-based computer maker Dell Inc. has announced it will delay filing second-quarter results for fiscal year 2008 until it completes the financial-restatement process it began in mid-August. The announcement follows last month’s admission by the company that some of its employees improperly created and released accruals and reserves in order to meet internal performance measures or market expectations.

The company says it expects to report its official second-quarter results, which the restatements could affect, no later than the first week of November.

Dell first announced it would restate financial statements for fiscal years 2003 through 2006 and the first quarter of 2007 on August 16, when it admitted discovering improper accounting practices that “appear to have been motivated by the objective of attaining financial targets.” The company said the restatements could slash its net income by $50 million to $150 million.

Two weeks later, Dell released preliminary results for its second quarter ending August 3, which said the company expected to report revenue of $14.8 billion, operating income of $896 million, and earnings per share of $0.32 for the second quarter. In a Securities and Exchange Commission filing this week, the company disclosed that these results, as well as results for the second, third, and fourth quarters of 2007 and the first quarter of 2008, could change to reflect adjustments or changes in accounting estimates identified when the restatements are finalized.

Although it is still unknown how much four years of financial misstatements will cost the company, Dell has already spent $59 million on the internal investigation, which it said was one of the factors that had a negative impact on operating expenses in its preliminary second quarter of this year. More than 374 people were involved in the year-long investigation in which the company scrutinized 5 million documents, reviewed thousands of journal entries, and interviewed more than 200 company employees.

Dell’s decision to restate came two years after the SEC began looking into the company’s accounting practices in an informal probe, which as of mid-August was still ongoing.

The finding that accounting adjustments were made to meet performance goals, including the fact that senior executives apparently sometimes asked the finance department to review account balances so that adjustments could be made to meet quarterly performance objectives, has spurred a set of changes at the company to assure the independence of the finance department. In August Dell said it would reshuffle the structure of its finance department by splitting those responsible for accounting and financial reporting from those responsible for planning and forecasting.