UPDATE 3-Dell to restate 4 years of results after audit ends

SAN FRANCISCO, Aug 17 (Reuters) Dell Inc. said on Thursday it would restate four years of financial results, reducing net income for the period by as much as 0 million, after a lengthy audit found that top executives sought accounting adjustments to reach quarterly performance goals.

The restatement, affecting a small fraction of the billions of dollars Dell earned in the period, was greeted with relief by some analysts who had expected more serious consequences.

Dell, the world's second-largest personal computer maker, still faces a U.S. Securities and Exchange Commission investigation, now in its second year, but legal experts said the audit would likely address most of the SEC's concerns.

''Most of the changes look relatively minimal to revenue and earnings per share as far as the restatement is concerned,'' said Brent Bracelin, an analyst at Pacific Crest Securities in Portland, Oregon.

Dell said it expects the restatements to also reduce revenue by 1 percent or less per year for the period under review. Shares of Dell rose 1.6 percent to .35 in after-hours trading from a close of .93 on Nasdaq.

The review ''identified evidence that certain adjustments appear to have been motivated by the objective of attaining financial targets,'' Dell said, adding that the changes ''typically occurred at the close of the quarter.'' Dell said it expected a cumulative reduction to net income for the restatement period of million to 0 million and a reduction in earnings per share for the period of 2 cents to 7 cents. Dell reported net income of more than billion in the restatement period.

The company said the investigation raised questions about a number of accounting matters, mainly involving adjustments to reserve and accrued liability accounts. It said remedial measures, including firings, were being taken.

Dell, based in Round Rock, Texas, said it did not expect the restatements to have a ''material'' impact on its current balance sheet or on cash flows during the restatement period, which covered fiscal 2003, 2004, 2005, 2006 and the first fiscal quarter of 2007.

''It looks positive,'' said Shaw Wu, an analyst at American Technology Research in San Francisco who has a ''neutral'' rating on Dell. ''It looks like the restatements are pretty minor.'' Dell said it expected to conclude that control deficiencies identified by auditors ''constituted material weaknesses in the company's internal control over financial reporting.'' The company added that executives, which it did not name, transferred excess accruals from one liability account to another and used excess balances ''to offset unrelated expenses in later periods.'' TURNING POINT The investigation's conclusion marks a turning point in a probe of the company's finances that had weighed on Dell's stock and had raised questions about the reliability of its financial reporting.

Dell said 125 lawyers and 250 accountants reviewed more than 5 million documents and conducted more than 200 interviews of company employees in the audit that began in August, 2006, Dell said.

The audit's conclusion comes as Dell, which last year lost the top PC market-share ranking to Hewlett-Packard Co., is revamping its consumer unit and cutting 10 percent of the work force to focus on its fastest-growing and most-profitable businesses.

Founder Michael Dell returned as chief executive in January, replacing his protege Kevin Rollins, and changed top managers to stoke growth and profitability after Dell lost market share to HP. James Schneider, the company's former chief financial officer, left Dell earlier this year amid the audit.

Dell recently broke from its direct-to-consumer sales model and started selling PCs in Wal-Mart Stores Inc in North America and retail chains in the UK and Japan.

The company had suspended share buybacks while the accounting audit was pending, missed financial reporting filing deadlines, canceled analyst and shareholder meetings and saw its stock placed on conditional status by Nasdaq.

''The SEC investigation is still ongoing, but it sounds like the internal investigation was quite thorough,'' said Chuck Ross of the white-collar criminal defense law firm of Charles A.

Ross and Associates.

''A large effort was made to get to any problems that concerned any regulators,'' Ross added. ''This should go a substantial way to satisfying the SEC, and I would not expect regulatory enforcement in response to this very substantial effort.'' REUTERS SZ VP0550