Network Associates to restate accounts

17 May 2002 Network Associates has announced the restatement of its financial results for the years 1998, 1999 and 2000. The news followed an internal investigation into the accounts of the security and anti-virus software group.

The restated financial results are expected to be filed with the Securities and Exchange Commission (SEC), the US stock market watchdog, before the end of June 2002.

The restatement will increase the losses in 2000 by $21.2 million (€23.1m) to $123.7 million (€134.3m). For 1999, the losses will be cut by $3 million (€3.2m) to $156.9 million (€170.3m). For 1998, earnings will be cut by $4 (EU4.3m) million to $32.4 million (€35.1m).

The restatements will not have a significant impact on the financial results for 2001 and for the first quarter of 2002. The changes stem in part from changes to rules governing the way that US companies account for various marketing-related costs.

The security software vendor conceded in late April that it had found discrepancies in its accounts. It follows an investigation over its fiscal 2000 accounts, that resulted in the resignations of three senior executives, including former CEO Bill Lawson.

One questionable aspect the SEC may be examining is Network Associates’ practice of booking sales of products shipped to distributors before they have reached the end-user. This practice, since discontinued by Network Associates, tends to encourage ‘channel stuffing’ by desperate management.

It was once common in the high-tech industry and makes it possible for software and hardware vendors to artificially inflate sales figures. Channel stuffing is not illegal in the US, but the SEC insists that investors must be kept fully informed of it.

In the more demanding regulatory climate following the collapse of energy trading giant Enron, Network Associates has been under pressure to avoid practices that could be deemed improper – even if not illegal. Network Associates insists that it changed its revenue recognition policies at the end of 2000.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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