Dell Inc executives have finally wrapped up a yearlong internal investigation into accounting problems at the computer company, and the mistakes could end up costing them as much as US$150 million.
"This is not a happy story for Dell nor one that we're terribly proud of," vice chairman and chief financial officer Don Carty said on Thursday after Dell announced it would reduce more than four years' worth of earnings because it misled auditors and manipulated results to meet performance goals.
The beleaguered company said its net income for the restatement period -- all of fiscal 2003 through last year and the first quarter of this fiscal year -- will be reduced by between US$50 million and US$150 million, or US$0.02 to US$0.07 per share.
The largest reductions in quarterly profits were expected to be in the first quarter of fiscal 2003 and the second quarter of fiscal 2004, each lowered between 10 percent and 13 percent.
The investigation, which began last August and evaluated more than 5 million documents, "identified evidence that certain adjustments appear to have been motivated by the objective of attaining financial targets," Dell said.
Dell, based in Round Rock, Texas, said unspecified terminations, reassignments, reprimands, increased supervision, training and financial penalties either have been or will be taken as a result.
Analysts who questioned Carty during a conference call repeatedly asked if any current executives were privy to the accounting woes.
Without naming names, "the ones that knew about it are the ones that are gone," said Carty, the former chairman of American Airlines.
"Let me assure you that both the leadership team of the company and the board feels that we have absolutely taken the necessary action," he said.
The US' Securities and Exchange Commission's (SEC) investigation into some of Dell's accounting and financial reporting practices is ongoing, the company said. Dell still faces shareholder lawsuits, and federal prosecutors in New York subpoenaed documents on the company's financial reporting since 2002.
One analyst, however, said the financial impact would be minimal given Dell's multibillion-dollar size.
"The magnitude of this stuff is very small, it's not a big number," said Roger Kay, president of Endpoint Technologies Associates Inc.
"I don't think it's anything that's going to rise to the level of criminality, but then again I'm not the SEC," he said.
Dell said the findings announced on Thursday would not have a material impact on second quarter results, which are scheduled for release on Aug. 30. Shares dropped US$0.37, or 1.4 percent, to close at US$25.93 before the announcement was made. The stock rebounded US$0.53 in after-hours trading.
It has been a tumultuous time for Dell since the probe was first revealed last August.
The company lost its No. 1 grip on the PC market last fall while rival Hewlett-Packard Co (HP) continues to gain footing. In the second quarter, HP had approximately 19 percent of the worldwide PC market compared with Dell's 16 percent, according to market research firm IDC, citing the most recent data available.