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8/17/2006
06:03 PM
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SEC, Directors Investigating Dell Fiscal Issues

News of the investigations comes the same week the company announced the recall of 4.1 million laptop batteries.

Dell is under investigation by the U.S. Securities and Exchange Commission, and a top executive said it has uncovered "accounting and financial reporting matters for certain past fiscal years," prompting a new internal probe.

Executives of the Round Rock, Texas-based company revealed the new investigation during a conference call with financial analysts after unveiling financial results for its second quarter it deemed poor.

"An informal investigation really starts out as a letter from the SEC, just requesting information from you," said Dell Chief Financial Officer Jim Schneider said.

"At the time we got it, we respond to the information [and] there seems to be no reason to disclose it at that time," Schneider said. "There are hundreds if not more of such investigations started each year by the SEC and the vast majority are not disclosed. This has gone on a deliberate process for about a year."

Recent discoveries, he said, caused them to decide to make the revelation now.

"On the course of researching some matters, we uncovered a couple of issues going back prior to fiscal 2006 that we felt warrant additional look," Schneider said. "Rather than just management doing it, we [decided we] would have an investigation done by our audit committee."

Schneider said he didn't think the results of the investigations "should cause any material change to our financial position for the years under question."

He provided no other details about the internal and external investigations.

The revelations come as Dell reported what its own executives said were not up to par. For its most recent fiscal period, Dell turned in sales of $14.1 billion and income of $605 million, or 22 cents per share. That was in line with expectations Dell reduced last month when it announced it would miss earlier projections for revenue and profit.

The earnings and SEC investigation were also reported during a week when Dell announced it was recalling 4.1 million laptop batteries, which were deemed potentially unsafe due to overheating and fire risks.

"The recall of batteries was the right thing to do," Schneider said. "We recalled a larger quantity than the instance would normally require. We don't want our customers to believe we will not do the right thing all the time, regardless of impact."

Schneider said Dell is working with its larger corporate customers on a case by case basis to determine whether to replace suspect batteries all at once, or some at a time.

Despite Dell market share gains during the quarter, said Dell Chairman Michael Dell, "we're not satisfied.

"We're focused on dramatic improvements in customer suervice and support. We're seeing solid progress."

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