Dell to Restate Financials

Dell announced that its Audit Committee has completed its independent investigation into certain accounting and financial reporting matters

August 17, 2007

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ROUND ROCK, Texas -- Dell (NASDAQ:DELL - News) today announced that its Audit Committee has completed its independent investigation into certain accounting and financial reporting matters. As a result of accounting errors and irregularities identified in that investigation and in additional reviews conducted by management, the Audit Committee has determined to restate the company's financial statements relating to fiscal 2003, 2004, 2005 and 2006 (including the interim periods within those years) and the first quarter of fiscal 2007 (collectively the "restatement period"). Dell's previously issued financial statements for those periods should no longer be relied upon.

Restatement

The restatement will correct the accounting errors and irregularities that have been identified through the Audit Committee investigation and by management as a result of its additional reviews. The accounting errors and irregularities that will be corrected are significant because of the combination of the number of issues identified, the qualitative nature of many of the issues, and in some cases, the dollar amounts involved. Many of the adjustments offset each other during the restatement period, and most relate to the timing of the recognition of income and expenses. Consequently, the restatement is expected to have the following effects:

  • Net revenue for each annual period is expected to be reduced by less than 1 percent of the previously reported revenue for the period.

  • The cumulative change to net income for the restatement period is expected to be a reduction of between $50 million and $150 million (compared to previously reported net income of more than $12 billion for the restatement period), and the cumulative change to earnings per share (EPS) for the restatement period is expected to be a reduction of $0.02 to $0.07 (compared to previously reported EPS of $4.78 over the restatement period). Most of these reductions relate to the timing of net income that would or will be recognized in periods before and after the restatement period.

  • The largest percentage changes in quarterly net income and EPS are expected to be in the first quarter of fiscal 2003 and the second quarter of fiscal 2004, each with expected reductions of between 10 percent and 13 percent; the fourth quarter of fiscal 2005, with an expected reduction of approximately 7 percent; and the second quarter of fiscal 2005 and the third and fourth quarters of fiscal 2006, each with an expected increase of approximately 5 percent to 7 percent. Net income and EPS for each of the other quarters are expected to change by 5 percent or less.

  • The adjustments are not expected to have a material impact on the current balance sheet. Adjustments to the annual periods are expected to increase total assets by 1 percent or less and increase total liabilities by approximately 1 percent. The opening balance sheet for fiscal 2003 will include a cumulative adjustment to retained earnings reflecting principally the shift of net income from the restatement period into periods prior to fiscal 2003.

  • The adjustments are not expected to have a material impact on cash flows during the restatement period and are not expected to have a significant effect on the reported results of future operations. Scope of Investigation; Summary of Findings

The investigation, which began August 2006, involved more than 375 professionals deployed across all the company's major regions. The investigation team evaluated more than five million documents, conducted more than 200 interviews of company personnel and reviewed thousands of journal entries and supporting documentation.Dell Inc.

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