Network Associates Restates Its Results

Network Associates Inc., maker of the popular McAfee anti-virus software, said Friday that it restated financial results for the years 1998 through 2000 to correct accounting errors the computer security firm attributed to one employee.

The company, under investigation by the Securities and Exchange Commission for its financial reporting in 2000, said the restated results correct intentional errors made in accounting entries on the company’s books. Executives said that the employee, who wasn’t identified, was fired this year and that no motive has been established.

The errors involved improperly moving money through tax and other internal accounts and was part of what analysts called sloppy bookkeeping practices that led to the departure of top managers in December 2000. No one profited from the errors, and none of the errors affected current operations, the company said.

Analysts hailed Network’s quick action, which came three weeks after the firm revealed that it had found accounting inaccuracies and that the SEC had turned a yearlong inquiry into an investigation. At the time, Network Associates also withdrew a $225-million bid for the rest of McAfee.com Corp. It already owns 75% of McAfee.

“I take full responsibility for cleaning up these past events and putting procedures in place to prevent this from ever happening again,” said George Samenuk, brought in as chairman and chief executive in January 2001 to restore credibility in the company’s operations.

Network’s stock rose $1.33, or 7%, to close at $21.62 on the New York Stock Exchange. Jittery investors, fearing another in a series of accounting debacles that have spread since Enron Corp.’s collapse, breathed a sigh of relief that the restated results weren’t as damaging as feared and don’t affect the company’s cash flow or operations last year or this year.

“This is good news. From an investor’s perspective, what is important is that there are no accounting issues since new management took over,” said Israel Hernandez, a Lehman Bros. analyst in San Francisco. “We knew there were some financial shenanigans under the prior management team. The fear was that it would spread into last year and this year.”

Analyst Christopher S. Russ said in a research report for Wachovia Corp.’s First Union Securities Inc. that the SEC investigation still hangs over Network, but that the restatement “should go a long way toward expediting the SEC investigation” and placing the blame on previous managers.

The SEC began looking into the company’s accounting practices after Network Associates disclosed in December 2000 that it would report a steep loss for the quarter and the year and that its top three officers, including Bill Larson, its chairman and chief executive, were quitting.

Three weeks ago, after the agency notified the company that it was starting a formal investigation, Samenuk launched an internal review. The board’s audit committee found that inaccurate entries in various accounts led to understated costs and expenses and overstated revenue.

Restated results reduce 1998 income by 3 cents a share, to $32.4million from $36.4 million; reduce 1999’s net loss by 2 cents a share, to $156.9 million from $159.9million; and increase the 2000 net loss by 16 cents a share, to $123.9million from $102.7 million.

At the same time, the company applied new mandatory accounting rules for the last four years. The rules reclassify certain marketing costs as reductions in sales, which have an overall effect of reducing reported net revenue.