Item 2.02 Results of Operations and Financial Condition.
On March 1, 2007, Dell Inc. issued a press release announcing its preliminary
financial results for its fiscal quarter ended February 2, 2007. A copy of the
press release is furnished as Exhibit 99.1 to this report.
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
On February 28, 2007, Dell was informed that the NASDAQ Listing and Hearing
Review Council had decided to call the Listing Qualifications Panel's January
17, 2007 decision for review, and had also stayed any future action by the Panel
to delist the company's common stock pending further review by the Council.
As previously announced, the company is not in compliance with NASDAQ
Marketplace Rule 4310(c)(14) because it has not timely filed its Quarterly
Reports on Form 10-Q for the periods ended August 4, 2006 and November 3, 2006.
On January 17, 2007, the Listing Qualifications Panel issued a decision granting
the company's request for continued listing, subject to specified conditions. On
February 22, 2007, the company requested that the Council review that decision,
and on February 28, 2007, Dell's request was granted. Dell's common stock will
remain listed until the Council's review has been completed. The company has
until May 4, 2007 to submit any additional information that it wishes the
Council to consider in its review.
Item 8.01 Other Events.
Dell is involved in various claims, suits, investigations and legal proceedings
that arise from time to time in the ordinary course of its business. As required
by Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies," the company accrues a liability when management believes that it
is both probable that a liability has been incurred and the company can
reasonably estimate the amount of the loss. Management believes that the company
appropriately accrues for all such matters. The following is a discussion of
significant legal matters involving the company.
Investigations and Related Litigation
In August 2005, the U.S. Securities and Exchange Commission (the "SEC")
initiated an investigation into certain accounting and financial reporting
matters at Dell. In August 2006, because of potential issues identified in the
course of responding to the SEC's requests for information, the company's Audit
Committee, on the recommendation of management, initiated an independent
investigation. The investigations are examining certain accounting and financial
reporting matters, including issues relating to reserves and other balance sheet
items that may affect the company's previously reported financial results. Due
to questions raised in connection with these ongoing investigations, Dell has
not filed the Form 10-Q for its fiscal second quarter ended August 4, 2006, or
the Form 10-Q for the fiscal third quarter ended November 3, 2006. The
investigations are ongoing, and no determination has been made as to whether
restatements of prior period financial statements will be required. Management
is cooperating with the SEC and the Audit Committee, and the company is
committed to resolving the issues raised in connection with the investigations
and regaining compliance with all SEC filing requirements and all NASDAQ listing
requirements as soon as possible.
The SEC requests for information were joined by a similar request from the
United States Attorney for the Southern District of New York ("SDNY"), who
subpoenaed documents related to the company's financial reporting from 2002 to
the present. The company is also cooperating with the SDNY.
The company and various current and former directors and officers of the company
are parties to securities, ERISA, and shareholder derivative lawsuits all
arising out of the same events and facts. Four securities class actions are
pending in the Western District of Texas, Austin Division against the company
and certain current and former officers asserting violations of sections 10(b),
20(a), and 20A of the Securities and Exchange Act of 1934 based on alleged false
and misleading disclosures or omissions regarding Dell's financial statements,
governmental investigations, known battery problems, and insiders' sales of
company securities. One of the actions also asserts that Dell manipulated
earnings and misstated its public disclosures by failing to disclose large
rebates from Intel, who is also named as a defendant. Two of the actions also
include the company's independent auditor, PricewaterhouseCoopers, as a
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defendant. Four putative class actions were also filed in the Western District
by purported participants in the company's employee pension benefit plan
asserting claims under ERISA and alleging that the company and certain current
and former officers and directors imprudently invested, managed, or disclosed
information regarding the company's 401(k) plan. These actions have been
consolidated. In addition, seven outstanding shareholder derivative lawsuits
have been filed in three separate jurisdictions (the Western District of Texas,
Austin Division; the Delaware Chancery Court; and the state district court in
Travis County, Texas) naming various current and former officers and directors
as defendants and Dell Inc. as a nominal defendant. The shareholder derivative
lawsuits allege claims derivatively on behalf of Dell under state law, including
breaches of fiduciary duties. Dell intends to defend all of these lawsuits
vigorously.
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