Veritas cites internal investigation, plans to restate earnings results

It blamed the financial problems on incorrect reporting by prior management

Citing an internal investigation into its finances, Veritas Software Corp. said today that it will restate its financial results for calendar years 2001 and 2002 and will revise its results for 2003.

In an announcement today, the Mountain View, Calif.- based storage, utility and virtualization software vendor said it will delay filing its annual 10-K report for 2003 with the U.S. Securities and Exchange Commission so that it can include the restatements.

The internal investigation, completed on Friday, "identified certain accounting practices not in compliance with generally accepted accounting principles during 2002, 2001 and prior periods under the direction of former financial management," the company said in a statement. "These practices included the incorrect deferral of professional services revenue and the unsubstantiated accrual of certain expenses, which had a positive impact in some periods and a negative impact in others. In addition, accounts receivables and deferred revenue were overstated by approximately $7 million at June 30, 2002."

"We decided that restating our reported financial statements was the appropriate course of action" following the investigation, said Gary Bloom, president, chairman and CEO of Veritas. "The company is committed to accurate financial reporting, and our financial leadership has been substantially improved since the arrival of Ed Gillis, our chief financial officer, in November 2002."

Bloom added that "while today's announcement is unfortunate, it does not change the fundamental strength of our business, as we drive the company to a target of $2 billion in revenue in 2004. We remain comfortable with our guidance for the first quarter." The company had earlier estimated that its revenue in the first quarter would be $455 million to $470 million. That would equate to diluted earnings per share of 17 cents to 20 cents on a generally accepted accounting principles (GAAP) basis and 18 cents to 21 cents on a non-GAAP basis.

A Veritas spokesman couldn't be reached for comment this afternoon.

Based on its internal investigation, the company also plans to revise financial reports to reflect tax audits related to Veritas' acquisition of Seagate Technology LLC in 2000.

The restatement is expected to decrease 2001 revenue by $1 million to $5 million from the previously reported $1.49 billion and to boost 2002 revenue by $5 million to $10 million from the previously reported $1.51 billion. Those figures are based on preliminary estimates from Veritas.

Net GAAP loss for 2001 is expected to decrease, and non-GAAP net income will increase by $5 million to $10 million from the previously reported GAAP net loss of $642 million and non-GAAP net income of $291 million. Under the restatement, Veritas expects 2002 net income will drop by $5 million to $10 million from the previously reported GAAP net income of $57 million and non-GAAP net income of $256 million.

Revenue for the year ended Dec. 31, 2003, will be $10 million to $15 million lower than the previously announced $1.77 billion, the company said. Net income for the same period is expected to decrease by $15 million to $20 million from the previously announced GAAP net income of $274 million and non-GAAP net income of $353 million.

The investigation began as an internal matter in accordance with the company's corporate governance processes, which ultimately led to an independent forensic accounting and legal investigation under the supervision of the audit committee of the Veritas board.

Veritas said it now expects to file its 2003 Form 10-K in June with the SEC. Veritas has notified the SEC of the investigation and has said it will cooperate with authorities.

Copyright © 2004 IDG Communications, Inc.

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