Veritas Tumbles on Restatement

Updated from 1:54 p.m. EST

Veritas Software(VRTS) plunged Monday after the company said it will restate three years of financial results.

By the end of the session, shares of the Mountain View, Calif.-based company had recovered a bit from their intraday low of $27.06 but were still off $1.87, or 6%, to $29.14. Trading activity was heavy but, in the end, investors decided that the black eye will probably not have a lasting effect.

Veritas said the restatement would cut net income by $15 million to $20 million for the year ended Dec. 31, and slash revenue for that period by $10 million to $15 million.

Despite the embarrassment of restating financials, Veritas is unlikely to take a long-term hit over the matter, predicted Erik Lang, analyst with PNC Advisors, which is long in the stock. "It will be temporary -- I'm giving management the benefit of the doubt," he said, while adding: "It makes me a little nervous because we're betting on management's word."

Similarly, analyst Kevin Buttigieg of Kaufman Brothers noted that the restatement doesn't affect the company's cash position or cash flow. "This will blow over," he added.

One bit of good news: In a conference call Monday afternoon, Veritas maintained first-quarter 2004 guidance and said it didn't expect any changes to 2004 results.

The company said a forensic audit concluded 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 cited 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."

"Upon conclusion of the investigation, we decided that restating our reported financial statements was the appropriate course of action," said CEO Gary Bloom. "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."

The former CFO, Ken Lonchar, resigned earlier that year after admitting that he had faked part of his resume. Since Lonchar left, the company has also hired a new controller and senior vice president of finance.

Without mentioning any of the former executives by name, Bloom pointed the finger at them several times during the conference call. "We have a new team on board, and we are committed to solid ethics and business practices," he said.