Dell Now $92 Million Less Valuable Than Originally Stated

It might be a more embarrassing position for Dell Inc. to find itself in if it were alone: a multi-billion-dollar US manufacturer having to restate earnings after having had to admit it made certain adjustments to its books. An FTC investigation begun two years ago initially looked into the possibility of backdating options to maximize their value on-paper, but later turned up an even uglier truth: From 2003 up until the middle of last year, Dell's fiscal managers adjusted their books by shuffling amounts between accounts, in order to shore up the appearance of better performance.

Now we know the extent of the damage. After having submitted five amended or updated 10-Q reports with the US Securities and Exchange Commission yesterday, and after all the adjusted math is done, the difference between what Dell said it earned and what it actually earned was $92 million over a nearly four-year period.

As yesterday's reports to the SEC admitted once again, the company's internal investigation turned up "evidence that certain adjustments appear to have been motivated by the objective of attaining financial targets.

"According to the investigation," one filing continued, "these activities typically occurred in the days immediately following the end of a quarter, when the accounting books were being closed and the results of the quarter were being compiled. The investigation found evidence that, in that timeframe, account balances were reviewed, sometimes at the request or with the knowledge of senior executives, with the goal of seeking adjustments so that quarterly performance objectives could be met."

It isn't just moving revenue from account A to account B to make things look more even; as some wondered when the extent of the company's misdeeds were revealed, it doesn't seem on the surface like anything is being stolen from anyone. That defense also comes in handy in response to options backdating allegations. Earnings compound, so the more earnings a department appears to have, the more compounding goes on. That compounding thus must be reflected in future earnings reports, so any irregularities in those reports thus...compound.

Thus the $92 million: the extent to which corporate growth to which earnings should contribute is negated once those earnings disappear.

From here, Dell will turn its attention to resuming its role as a seemingly transparent company, reporting its status more regularly and promptly. It hopes to start up quarterly strategy calls late next month - a practice the company suspended when the first allegations of wrongdoing took root. With that November 29 strategy call and a stockholders' meeting set for the following week, we'll finally get to see and hear Michael Dell - the once and future CEO of the company - outline his vision for Dell Inc.'s re-vision publicly.

Hopefully we'll also get our first chance to hear from CFO Don Carty, the legendary former CEO of American Airlines' parent company AMR, and the fiscal engineer of Dell's reformation. In a similar way that Disney turned to key shareholder and former senator George Mitchell in its time of deepest crisis, Dell turned to Carty to bring back integrity and respectability to the company name. How long he'll stay remains a question; as is the case with most superheroes these days, Carty was pulled out of retirement.

Dell's refreshing honesty - another product of Carty's appointment - had a positive effect on its share value this morning, trading up over 2.5% on the NASDAQ by 11 am ET. The company hopes the NASDAQ will change its mind now about a possible delisting, although the exchange had more than enough time to take action against the company if it had seriously ever intended to do so.

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