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RE: CC from WSJ Interactive...Network Assoc To Reprise 4Q View In Conference
Call
By Maria V. Georgianis
NEW YORK (Dow Jones)--Network Associates Inc. (NETA) plans to reiterate to
investors Thursday afternoon its expectation of positive fourth-quarter results, which
analysts say have been obscured by the Securities and Exchange Commission's
ongoing investigation of the company.
Network Associates has scheduled a conference call for 4:30 p.m. EST.
As previously reported, the SEC is reviewing Network Associates' in-process
research-and-development writedowns for its 1998 acquisitions of Cybermedia Inc. and
Magic Solutions. The writedowns amounted to $220 million.
Analysts said they aren't anticipating that the company has yet resolved its writedown
issues, but is holding the call to refocus investors on the fourth-quarter's results.
In a down market, shares of Network Associates were up 2 1/2, or 5.5% at 47 11/16 on
Nasdaq volume of 4.6 million. Average daily volume is 2.8 million.
The company said preliminary results are for earnings of 47 cents a share, above the
First Call Corp. consensus of 46 cents and year-ago earnings of 29 cents. It also
estimated revenue of $272 million, up 30% from year-ago revenue.
"The issue for many investors is not the fact that the review is happening but how long it
may take," said Dawn Simon, an analyst with Brown Brothers Harriman & Co.
The company hasn't yet determined when it will report final fourth-quarter results.
Network Associates is one of several technology companies under the SEC's review for
R&D writedowns. The SEC maintains that companies are chalking up too much of their
acquisition costs to R&D writedowns to make future earnings look better.
If companies are forced to write off less in-process R&D costs upfront, that would raise
future amortization expenses and result in lower earnings during the amortization period.
In light of the SEC's review, Network Associates' said future earnings could be reduced
by 2 cents to 3 cents per quarter during the periods in which the amortization expenses
would be incurred.
Other software companies have recently noted that they are reviewing or adjusting their
R&D writedowns in light of the SEC's recent guidance on the matter. Among the
companies are Citrix Systems Inc. (CTXS), JDA Software Group Inc. (JDAS), and
Lernout & Hauspie Speech Products NV (LHSPF).
Ever since Network Associates reported that the SEC is investigating its writedowns, its
stock has taken it on the chin: It was recently changing hands at 48 3/8, down from 58
3/16 on Jan. 6, before it announced the SEC's review.
The stock was down even more on Wednesday on rumors that Chief Financial Officer
Prabhat Goyal was resigning. The company said the rumors are false.
Gerard Klauer Mattison analyst Arthur Newman said he believes investors will eventually
sift out the amortization charges when they look at Network Associates' earnings.
Newman said he is expecting the company's earnings to increase in the mid-30% range
over the long-term. The company has "strong demand" for its core antivirus software as
well as its network visibility products, which combined, account for about 80% of Network
Associates' overall revenue.
Simon said software companies may start adopting the way some Internet companies
report their earnings. Yahoo Inc. (YHOO) and Lycos Inc. (LCOS), for example, both have
two income statements: one with amortization expenses, the other without.
-By Maria V. Georgianis, 201-938-5244
maria.georgianis@cor.dowjones.com. |
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