Aug. 16, 2007 7:34 PM EST
Dell (NSDQ:
Dell) Chief Financial Office Donald Carty acknowledged that some executives were fired as a result of accounting improprieties found during a lengthy internal investigation at the company, but declined to say whether all top Dell executives involved in the mess had been terminated, when he spoke during a conference call with financial analysts to talk about the matter.
The accounting irregularities, which Dell said were directed in part by unnamed, top executives at the PC maker between 2002 and 2006, will mean Dell will restate a relatively small amount of earnings - - up to $150 million - - but the company acknowledged other shoes could drop. The U.S. Securities and Exchange Commission and the U.S. Attorney for the Southern District of New York have been conducting their own investigations of Dell's accounting and financial reporting.
"This is not a happy story for Dell, nor one we are terribly proud of," Carty said.
Dell said Thursday that a year-long Audit Committee investigation of accounting issues found that executives wrongfully manipulated accruals and account balances, often to meet Wall Street quarterly financial expectations in prior years. The probe was headed by an outside law firm, Willkie Farr & Gallagher of New York, and involved an outside accounting firm, KPMG. More than five million documents were examined during the probe.
Despite acknowledging that Dell will tighten its financial controls, and that it had fired, reassigned or fined some employees as a result of the internal investigations, Carty declined three separate times to say whether all of the Dell executives involved in the matter had been purged from the company. Carty declined to name any of the executives individually.
"I think not only have I conducted a series of recommendations to the board, with respect to the remedial action . . . the Board (of Directors) has approved the remediation plan and approved the actions," Carty said when one analyst asked whether all employees involved in the accounting misconduct had been ousted. "We've taken the steps necessary to ensure this never happens again."
To another analyst, Carty said: "You've got to take this for how you decide to take it. Both the leadership team of the company and the Board feels we have absolutely taken the necessary remedial actions."
In the conference call, which lasted about a half-hour, Carty said investigators for the SEC gave the company some breathing room to finish its internal investigation and now has its findings.
"The SEC, while they didn't interrupt their activity entirely, they stood down such that they could benefit from the information that came out from the Audit Committee investigation," Carty said. "The company has met with the SEC several times to discuss the issues that were identified . . . They obviously are going to continue their process."
An SEC spokesman did not immediately return a call seeking comment.
While Dell's formal announcement and Carty both stressed the restated earnings would reflect only a fraction of the PC maker's overall business during the time in question, the timing of the accounting manipulations occurred during critical periods for Dell.
For example, the company said that the most significant accounting manipulations happened during several quarters - - including the first quarter of its fiscal 2003 year, when Dell turned in earnings of 17 cents per share compared to Wall Street consensus expectation of 16 cents; the second quarter of fiscal 2004, when Dell met Wall Street expectations exactly with 24 cents of earnings per share; the fourth quarter of fiscal 2005, when Dell turned in earnings per share of 26 cents against Wall Street expectations of 36 cents; and the second quarter of fiscal 2005, when Dell exactly met Wall Street's expectation of 31 cents per share.
"We did not maintain an effective control environment," Carty said. "Accounting adjustments came to be viewed as an acceptable device to compensate for operational shortfalls."
Carty also acknowledged that, in addition to the other accounting irregularities, there was "part of a transaction that occurred overseas where we did find evidence of fraud, revenue that had been booked that had to be undone." He stopped short of offering specifics.
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Jas