Dell may have to restate earnings

Company under investigation by both SEC and New York State

Dell Inc. has delayed filing its quarterly earnings report with the U.S. Securities and Exchange Commission (SEC) 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 TR Reid.

Neither the SEC nor New York State has announced the results of their investigations, but Dell's internal audit has now revealed that the company may have misstated prior 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 US$502 million in profits for the second quarter of 2006, a drop of 51 percent below that period last year. The decline was a casualty of cutting prices in a slow market, Dell Chief Executive Officer Kevin Rollins told analysts in August.

Dell, the world's largest PC vendor, has felt increasing competitive pressure from Hewlett-Packard Co. at the same time chip makers like Intel Corp. have been cutting prices on processors, helping to drive down PC prices.

And on Aug. 14, Dell announced the largest recall of consumer electronics in U.S. history, recalling 4.1 million notebook batteries that suffered from a defect causing 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 also suspended its share repurchasing program and a meeting with analysts scheduled for Sept. 13.