Dell To Restate Earnings; Probe Finds Improprieties

Dell will reduce its earnings for the period that ended in the fourth quarter of its 2005 fiscal year by between $50 million and $150 million, and said it is taking steps to strengthen a weak control environment.

Dell Chairman and CEO Michael Dell, in a statement, said the company is "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," Dell added. "It is accompanied by renewed management focus on decision-making and processes intended to drive long-term shareholder value."

Dell executives were slated to meet later on Thursday in a conference call with financial analysts and investors.

In addition to pinpointing the accounting issues, Dell said the U.S. Securities and Exchange Commmission and the U.S. Attorney for the Southern District of New York continued to probe the matter.

"(T)here can be no assurance that there will not be additional issues or matters arising from that investigation," the company said in its statement.

Dell said the restatement period will include fiscal years from 2003 to 2006, and the first quarter of fiscal year 2007.

"The accounting errors and irregularities that will be corrected are significant because of the combination of the number of issues identified, the qualitative nature of many of the issues, and, in some cases, the dollar amounts involved." the company said.

The dollar amount of restatements will be small compared to Dell's overall profit and revenue. But they will loom large because of what the company described as involvement by senior executives - - not named in the announcement - - and because of the loose fiscal controls over accounting and financial reporting that it said ran through the company.

"The (Audit Committee) investigation raised questions relating to numerous accounting issues, most of which involved adjustments to various reserve and accrued liability accounts," Dell said. "The investigation identified evidence that certain adjustments appeared to have been motivated by the objective of attaining financial targets."

During several quarters during those years, Dell met - - but did not exceed - - analysts estimates for earnings per share. After those quarterly reports, Dell's stock often rose substantially. The company said a number of the accounting adjustments were "improper" and were done "sometimes at the request or with the knowledge of senior executives."

Consequences have already begun to be felt. Dell said, for the first time, that some firings, reprimands and reassignments have already taken place although the company did not name names. Late last year, then-Dell Chief Financial Officer James Schneider resigned abruptly to become executive chairman of a west Texas bank. Earlier this year, then-CEO Kevin Rollins left the company abruptly and was replaced in the post by Michael Dell.

Schneider did not immediately return a call seeking comment. Rollins could not be reached.

Separately, in a report filed with the U.S. Securities and Exchange Commission, Dell said that the Audit Commmittee of its Board of Directors hired the law firm of Willkie FarrGallagher, and that during the course of the probe, 125 lawyers and 250 accountants examined more than 2,600 financial journal entries.

"Investigative counsel also conducted 233 interviews of 146 individuals," Dell said in its SEC filing. Willkie Farr also hired an accounting firm, KPMG, to take part in the probe.

"The investigation identified evidence that accounting adjustments were viewed at times as an acceptale device to compensate for earnings shortfalls that could not be closed through operational means," Dell said in the SEC filing.

This story was updated Thursday afternoon.