Dell execs skewed numbers to meet earnings targets
This article was updated at 2:45 p.m. PDT.
Dell concluded an internal investigation into its accounting procedures Thursday and found that three years' worth of quarterly earnings statements were improperly adjusted, and senior executives knew about it.
Which executives knew isn't clear yet. A Dell representative said the company is "taking responsibility as a team" and isn't naming names.
According to a statement released by the company, the investigation yielded evidence that "certain adjustments appear to have been motivated by the objective of attaining financial targets," and usually took place at the end of a fiscal quarter. Adjusted account balances were "reviewed, sometime at the request or with the knowledge of senior executives," according to a company statement.
Dell says it will restate earnings filed between 2003 and 2006, and plans to refile with the SEC the first week of November. The cumulative change to Dell's bottom line for the entire period will be between $50 million and $150 million, and earnings per share will be reduced by 2 to 7 cents per share.
The earnings statement from the first fiscal quarter of 2003 and the second fiscal quarter of 2004 will require the most restatement, requiring reductions of between 10 and 13 percent in net income. Earnings from the fourth quarter of fiscal year 2005 will be reduced by 7 percent. But net income for the second quarter of fiscal 2005, and the third and fourth quarters of 2006 will actually be bumped up by 5 to 7 percent.
The company's internal audit committee first announced its preliminary findings in March and said it found "evidence of misconduct." Dell first revealed that it had come under the scrutiny of the SEC last August.
An accounting scandal is another blow to Dell, which has been steadily losing market share to Hewlett-Packard and has seen an exodus of its top executives in the last year, which may or may not be directly related to the outcome of Dell's or the SEC's probe of its accounting practices. CEO Kevin Rollins left in January and was replaced by former CEO and founder Michael Dell. Rollins' departure was preceded by the exit of Jim Schneider, Dell's chief financial officer, who also left in January.
Dell is holding a call with investors regarding the news, so stay tuned for more this afternoon.
Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur. E-mail Erica. 
"Team" for skewing the numbers. "Skewing" the numbers equals
fraud, If the "Team" is guilty of fraud they should all be held
accountable. A decision by committee to commit a crime does not
protect the "Team" from prosecution. If it did the Nazis would not
have been found guilty at Nuremberg.
Yes, the individuals, whether numerous or only a few, are individually responsible for participating in the "team" sport of "hitting up the numbers" as Bernie Ebbers used to put it.
This might not be as sensational as the meltdowns of 2001-2003 were (albeit, we have so far only seen what the company has released from its "internal" findings - the SEC is likely to find another story) but even so, this is securities fraud. This is something that is going to be handled even more harshly now than ever before.
Dell's recent announcment of a 10% downsizing is one example. Guess who is making the decisions on who stays and who goes? It isn't the outsiders who came in to turnaround the company...they are being put back on the street.
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Please contact me at RareVideoExchange@GMAIL.COM if you have paypal and want to buy these.
BTW -- I'm typing this note on my new Lenovo machine: the first non-Dell I've had in years. I've gotta' say, it runs great and the company is a pleasure to do business with.
- Lawyers and MBA's
- by georgiarat August 17, 2007 6:57 AM PDT
- The real problem is that most corporations are run by Lawyers
- Like this Reply to this comment
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- This isn't about customers..
- by daftkey August 17, 2007 8:51 AM PDT
- ..This is about shareholders - almost the antithesis of customers. But you are correct, the people running these companies are given bonuses based on stock value and ROI and other, fudgeable, numbers.
- Like this
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(9 Comments)and MBA's and neither care a flip about customers. Lawyers
only care about how to protect the backside while sticking it to
the customer and are trained to have no feeling for either side
just how to line their pockets. MBA's only care about squeezing
out the last penny from customers and suppliers with no
thought to how that affects employees and customers. Until this
is changed it will be the same ole same ole.
The Universities that train these people have made sure that
morals are eliminated from the academy and have a direct
bearing on what is happening across our country.
As for the "morals" comment - you obviously haven't been to a business school in the current decade, have you? Ethics are peppered into almost EVERY lesson that they give - it is up to the students whether or not they want to absorb the message. In fact, up here in Alberta (where we have one of the most highly rated business schools in North America) one of the largest debates happening right now is whether or not to make a dedicated "information ethics" class a requirement (it is currently an option, but is highly recommended for Accounting, Finance, and MIS majors)