http://www.nytimes.com/2002/03/27/business/27PLAC.html?dlbk=&pagewanted=print
March 27, 2002 MARKET PLACE U.S. Inquiry into Network Associates' Accounting By CHRIS GAITHER ARES in Network Associates (news/quote), the computer security company, tumbled 11 percent yesterday after it disclosed that federal regulators had begun a formal investigation into its accounting practices during 2000. The inquiry and falling stock price caused Network Associates to delay its $248 million offer to buy out its former spinoff, McAfee.com. That news sent shares of McAfee.com (news/quote) down 16 percent. Under George Samenuk as chief executive, Network Associates' top managers had made strides in distancing themselves from the missteps of their predecessors, who resigned in December 2000 amid revelations of a steep profit shortfall and concerns about the methods used to book sales. After Mr. Samenuk took the helm on Jan. 3, 2001, the company's stock rose more than 500 percent that year, from $4.19 to $25.85. But the questions about the old accounting methods returned in force yesterday with the disclosure of the investigation by the Securities and Exchange Commission. Several Wall Street analysts downgraded their ratings on the company's stock. Heightened fear of accounting irregularities in the wake of the Enron (news/quote) scandal would cause some investors to stay clear of Network Associates stock, they said. Shares of Network Associates fell $2.77, to $22.23. Shares of McAfee.com shed $2.96, closing at $15.55. The inquiry was disclosed before the markets opened. Network Associates, based in Santa Clara, Calif., said it had received a formal notice of investigation, which grants the commission broader powers to subpoena information from the company and its distributors. While the commission would neither confirm nor deny that it had begun an investigation, Mr. Samenuk said the inquiry "centers on" the company's 2000 financial results and actions announced on Dec. 26, 2000. On that day, the company announced three resignations of top executives and said it would probably report fourth-quarter sales of $65 million and a $140 million loss, instead of the $250 million in sales and the profit it had predicted two months earlier. Network Associates also said it would begin booking revenue when products were sold to the customer, instead of when products were shipped to the retailer. Shareholder lawsuits followed, accusing the company of stuffing the retail channel with products to inflate sales. A class-action suit is still pending, the company said yesterday. The Securities and Exchange Commission began asking questions about the company's accounting practices last year but only issued a formal notice of investigation on Friday, Mr. Samenuk said. He said Network Associates' accountants and its independent auditor, PricewaterhouseCoopers, have scrutinized the company's financial results from 2000 and found no improprieties. "We do not expect this to have any effect on our day-to-day operations, our current business or future growth opportunities," he said. The notification came less a week after Network Associates offered to buy the 25 percent of McAfee.com that it did not already own. McAfee.com, the online seller of antivirus software, was spun off in 1999. On Sunday, McAfee.com's board rejected the buyout offer as inadequate, but Network Associates said Monday that it would take the proposal to McAfee.com shareholders. Yesterday, however, Network Associates postponed the offer. Several analysts and fund managers praised the company's turnaround in the last year and said they expected the inquiry to have little impact on its sales or profits this year. But they warned that the stock price would probably continue to suffer. Until the inquiry is resolved, they said, investors will fear the worst. "It could be a whole slew of things," Allan House, an analyst with Federated Investors, which owned 521,000 shares of Network Associates on Dec. 31, said of the reason behind the inquiry. "Until we find out, it adds risk to the name." -- ----------------- R. A. Hettinga <mailto: [EMAIL PROTECTED]> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA The IBUC Symposium on Geodesic Capital April 3-4, 2002, The Downtown Harvard Club, Boston <mailto: [EMAIL PROTECTED]> for details... "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' --------------------------------------------------------------------- The Cryptography Mailing List Unsubscribe by sending "unsubscribe cryptography" to [EMAIL PROTECTED]