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VERITAS to Restate Earnings

Questionable accounting from a former financial executive has led VERITAS Software to restate its earnings for 2001 and 2002.

The Mountain View, Calif. storage software maker said the restatement comes as the result of an internal investigation, concluded last Friday, that was supervised by the company's board, along with independent legal and accounting experts. As a result of the issues it discovered during its internal audit, the company also had to delay filing its annual report for 2003.

Shares of VERITAS fell by 6 percent to close Monday at $29.14.

During a conference call Monday, Ed Gillis, the company's chief financial officer, cited 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. As a result, accounts receivables and deferred revenue were overstated by approximately $7 million at June 30, 2002, as well.

According to VERITAS spokesman Michael Hakkert, the questionable accounting was found during the time that Kenneth E. Lonchar was CEO. He resigned in October 2002 after admitting that he lied on his resume about earning a master's degree in business administration from Stanford University.

That news spawned questions about the company's accounting then, but many analysts appeared to be assuaged about their concerns after Gillis took the helm in December 2002.

The latest news is a black eye for the company at a time when scrutiny over accounting is at an all-time high after accounting scandals at Worldcom, Computer Associates and Symbol Technologies , to name a few.

The financial statements for 2003 will also be revised to reflect corrections of 2001-2002, as well as the settlement of tax audits related to the company's acquisition of Seagate Technology in 2000, Gillis said.

Gillis said VERITAS is expected to trim 2001 sales between $1 million to $5 million from the previously reported $1.49 billion and to increase 2002 revenues in the range of $5 million to $10 million from the previously reported $1.51 billion.

These adjustments are expected to trim preliminary revenues for 2003 from $10 million to $15 million from the previously announced $1.77 billion. Net income for the same period is expected to decrease in the range of $15 million to $20 million from the previously announced net income of $274 million.

Gary Bloom, president, chairman and CEO of VERITAS sounded somber and contrite on the conference call as he wrapped up.

"Let me wrap up by acknowledging the key question that I have been wrestling with that you are likely to ask: "Why didn't we find this sooner, and will it happen again? There are no perfect answers to these questions," but noted that VERITAS pieced the faulty accounting together after further review of e-mails and documents from both past and present employees. He said the discrepancies were small on an individual basis, but became more glaring in the aggregate.

Bloom said he expects the restatements will not affect the company's fiscal outlook going forward.

VERITAS is No. 2 in the market behind rival EMC in overall storage software revenues. The company has gotten positive reviews regarding its broadening strategy for providing utility computing, which allows customers more control over the ebb and flow of their IT resources.

The company, which has notified the Securities and Exchange Commission of the internal investigation, expects to file its Form 10-K during the June quarter.