SEC eyes Network Associates' books

The Securities and Exchange Commission is investigating the software company's accounting for 2000. Network Associates says it believes "the accounting was proper."

Margaret Kane
Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
2 min read
Network Associates is being investigated by the Securities and Exchange Commission, the company said Tuesday.

The SEC is looking at the security software company's accounting for 2000, the company said, adding that it believes the investigation relates to issues that predate the current management team's arrival in 2001. Network Associates said it has reviewed its books for 2000 with its outside auditors and "continues to believe that the accounting was proper."

The company did not specify what specifically was being investigated. CEO George Samenuk took over at Network Associates in January 2001, replacing William Larsen.

As a result of the investigation, Network Associates said it is "postponing" its bid to acquire the shares of McAfee.com that it doesn't already own. Network Associates had made a bid for the antivirus site earlier this month, but McAfee rejected the bid Monday, saying that the $211 million offer was too low.

Network Associates executives said in a conference call that the SEC did not specifically state what it was examining, but the company believes the investigation was triggered by a major shake-up in December 2000. During the shake-up, Network Associates' top three executives, including Larsen left the company.

The company also warned of a significant shortfall in results for the fourth quarter of 2000 and announced a change in accounting methods. The company had recorded products as sold when they were sent to distributors.

Under the new method, it recorded them as sold when they were sent to customers. The change resulted in the elimination of $120 million, around 14 percent of its previously estimated annual revenue, from its books.

Samenuk said that the company received "informal" inquiries from the SEC immediately after the changes were made, but believed the matter had been settled. He said he was notified of the formal investigation after the close of business on Friday.

"We called the SEC Monday and received additional information, and after receiving additional information, decided to make it public as soon as we could," he said. Samenuk added that the investigation "does not have any impact on our current operations, our current business or future growth opportunities."

Samenuk also said that although the company was postponing the McAfee.com bid, "we still believe the transaction makes good business sense."

The news took a toll on the stock; it was down $3.18, or 12 percent, to $21.81 in early trading. JP Morgan analyst Andy Sterling downgraded the stock from "buy" to "market performer," saying that "while the investigation will not impact operations in our opinion, and is looking at old issues, it will be a cloud over the stock until resolved."

PricewaterhouseCoopers is Network Associates' accountant.