Dell may have to restate earnings

Dell has delayed filing its quarterly earnings report with the U.S. Securities and Exchange Commission and may have to restate past earnings statements, the company said Monday.

Dell's board of directors began an internal financial audit after learning in August 2005 that the SEC had begun an investigation of the company's revenue recognition and accounting practices for past fiscal years, Dell executives acknowledged Aug. 17, while announcing preliminary results for the second quarter.

Since then, Dell learned of a second investigation when the U.S. Attorney for the Southern District of New York subpoenaed the company's financial reporting documents for the years from 2002 through today, said Dell spokesman T.R. Reid.

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Dell has delayed filing its quarterly earnings report with the U.S. Securities and Exchange Commission and may have to restate past earnings statements, the company said Monday.

Dell's board of directors began an internal financial audit after learning in August 2005 that the SEC had begun an investigation of the company's revenue recognition and accounting practices for past fiscal years, Dell executives acknowledged Aug. 17, while announcing preliminary results for the second quarter.

Since then, Dell learned of a second investigation when the U.S. Attorney for the Southern District of New York subpoenaed the company's financial reporting documents for the years from 2002 through today, said Dell spokesman T.R. Reid.

Neither the SEC nor New York state has announced the results of their investigations, but Dell's internal audit now has revealed that the company may have misstated previous financial reports, including accruals, reserves and other balance sheet items. Until it settles those questions, the company cannot file its SEC Form 10-Q, which confirms its quarterly results, Reid said.

Those preliminary results were bad even before Monday's news. Dell earned only $502 million in profits for the second quarter of 2006, a drop of 51% compared with the same period last year. The decline was a casualty of price-cutting in a slow market, Dell CEO Kevin Rollins told analysts in August.

Dell, the world's largest PC vendor, has felt increasing competitive pressure from HP, at the same time chip makers, such as Intel. have been cutting prices on processors, helping to drive down PC prices.

On Aug. 14, Dell announced the largest recall of consumer electronics in U.S. history, recalling 4.1 million notebook batteries containing a defect that causes them to overheat and sometimes catch fire.

Dell is cooperating with both investigations and "will take any appropriate remedial or corrective actions to address any problems," company chairman and founder Michael Dell said in a release. The company has suspended its share repurchasing program, as well as a meeting with analysts scheduled for Sept. 13.

The IDG News Service is a Network World affiliate.