Courtesy of Stephen Karasick:
news.com
Network Associates to Restate '98 Profit Downward,Analysts Say
Bloomberg News
March 25, 1999, 5:39 p.m. PT
Network Associates to Restate '98 Profit Downward, Analysts Say
Santa Clara, California, March 25 (Bloomberg) -- Network Associates Inc., the top maker of security software, is expected to restate 1998 earnings downward within a few weeks after an accounting review by the U.S. Securities and Exchange Commission.
Network Associates, which went on a buying spree last year, said on Jan. 6 that it received a letter from the SEC regarding how the company writes off acquisition-related expenses and that earnings may be reduced by new SEC rules.
The Santa Clara, California-based company said then that the restatement would reduce fourth-quarter profit by 2 cents to 3 cents a share and that earnings would be in line with forecasts. Yet analysts said the fact that Network Associates still hasn't released audited results for the quarter or for 1998 suggests the impact of the SEC review will be greater than previously thought.
"If it was a minor issue, it probably would've been resolved already," said Paul Saunders, an analyst at Soundview Financial Group who rates Network Associates "buy."
Network Associates officials didn't immediately return phone calls. Its shares rose 1 15/16 to 31 Thursday. The company's stock has fallen more than 50 percent this year amid worries about the SEC review and pessimism that Network Associates won't meet first-quarter earnings forecasts.
A restatement likely will reduce earnings for additional quarters last year and for 1999, Saunders and two other analysts said.
Such earnings restatements "usually reduce earnings going forward," said Farrokh Billimoria, an analyst with Hambrecht & Quist who rates Network Associates "buy."
R&D Charges
The SEC has said it is examining closely the use of charges to pay for in-process research and development acquired in a takeover, amid concern that large estimated values for these unfinished technology projects may inflate future earnings for the combined companies.
If the SEC disallows such charges that Network Associates took in 1998, the company will have to amortize the charges over an extended period of time, reducing earnings, Billimoria said.
MCI WorldCom Inc., America Online Inc. and Cabletron Systems Inc. are among the technology companies that have restated such charges after an SEC review.
On Jan. 6, Network Associates Chief Executive William Larson said the company expected earnings of 47 cents a share for the period ended Dec. 31, up from the year-earlier, split-adjusted 29 cents. Network Associates is expected to earn 46 cents a share, the average estimate of analysts polled by First Call Corp.
Revenue rose 30 percent to $272 million from $209 million in combined year-earlier sales of Network Associates and its acquisitions, Larson said then. The preliminary results don't include charges related to the acquisitions of Dr. Solomon's Group Plc and Trusted Information Systems.
Larson said then that Network Associates could offset any reduction caused by a restatement with cost cutting and that the company remained comfortable with 1999 earnings estimates.
Network Associates is expected to earn $1.54 a share in 1998 and $2.12 in 1999, according to First Call. |
