Network Associates restating results

The computer security provider first disclosed the accounting issues in April when it dropped its bid for an additional stake in its McAfee.com subsidiary.

Network Associates said then that it discovered accounting inaccuracies in its 1999 and 2000 financial statements in the course of amending its 1999 tax return. The company had already announced that it was being investigated by the U.S. Securities and Exchange Commission for accounting issues in 2000.

Executives said in a Friday news conference that they did not know whether the restatements would have an impact on the SEC's investigation.

Although the main issues occurred from 1998 through 2000, the resulting effect on taxes forced the Santa Clara, Calif.-based company to restate its balance sheets for 2001 and the first quarter of 2002. Network Associates said the restatement would not affect its income statement for 2001 and the first quarter of 2002.

The company's audit committee reached these findings:

• In 1998, Network Associates understated operating costs and expenses by $6.2 million and overstated income from operations by the same amount. The change reduced net income for that year from $36.4 million to $32.4 million, and earnings per share from 26 cents to 23 cents.

• In 1999, the company overstated net revenue by $28.2 million and understated operating costs and expenses by $1.5 million. But Network Associates also overstated its provision for income taxes by $32.7 million. The end result lowered the net loss for the year from $159.9 million to $156.9 million, and decreased the earnings-per-share loss from $1.15 to $1.13.

• In 2000, Network Associates overstated net revenue by $15.3 million, understated the cost of revenue by $1 million, and understated operating costs and expenses by $2.9 million. The result of these changes increased the previously announced net loss from $102.7 million to $123.9 million, and increased the loss per share from 74 cents to 90 cents.

Some of the problems stemmed from an accounting rules change that deals with how companies account for certain marketing expenses. The new rule requires those expenses, which were previously considered a marketing and sales cost, to be considered as reductions in revenue.

Company representatives said Friday that most of the inaccuracies could be "linked to one individual." CEO George Samenuk said that in the past two weeks the company reviewed every bookkeeping entry over $1 million from 1998 to the present, and every entry by that individual.

Samenuk said that Network Associates hired auditors from PricewaterhouseCoopers to review their findings and that the auditing firm had signed off on the results.

"We believe we have a clear and complete understanding of the scope of the inaccuracies," he said.