SafeNet finds more accounting problems

January 10, 2007|By Stacey Hirsh | Stacey Hirsh,Sun reporter

SafeNet Inc., the Harford County technology company whose stock option grants are under federal investigation, said yesterday that its internal options grant investigation uncovered other accounting discrepancies totaling $14 million.

The Belcamp information encryption and security company said it would have to adjust revenue recognition in financial statements for 2004 and 2005 and the first quarter of last year. The company expects most of that revenue will be recognized in other periods or in the future.

SafeNet will have to adjust revenue by up to $2 million in 2004, $11 million in 2005 and less than $1 million in the first quarter of 2006 because of incorrect accounting involving recurring engineering revenue, software license revenue, a license agreement with an outside party and research and development payments.

The impact will be greatest on the 2005 results, where the adjustments total $11 million. SafeNet's previously reported 2005 revenue was $263.3 million.

Daniel Ives, a vice president and analyst for Friedman Billings Ramsey who does not own shares of SafeNet, said the impact of the revenue restatements is small in the scheme of things, particularly considering the revenue might move to future periods.

"I think the Street has overlooked these restatements and is focused on the company's core fundamentals and the company's outlook for '07," Ives said.

SafeNet also said yesterday that it is asking Nasdaq for an extension beyond its Jan. 31 deadline to restate results over a five-year period beginning in 2000 to correct improper accounting of stock option grants. Nasdaq issued delisting warnings in August and again in October.

The company reiterated that its fourth-quarter 2006 revenue is expected to be between $78 million and $82 million. SafeNet plans to release its fourth-quarter and year-end results for 2006 next month.

SafeNet's revenue for the quarter ending March 31 is expected to be between $67 million and $70 million, and revenue for this year is expected to be between $318 million and $326 million.

SafeNet also announced yesterday that John W. Frederick has been named chief financial officer.

Frederick, who joined SafeNet in June as vice president and worldwide controller, has been serving as interim chief financial officer since October.

Frederick took over as interim CFO after two top SafeNet executives - Anthony A. Caputo, who was chairman and chief executive of the encryption company, and Carole Argo, who was president, chief operating officer and acting chief financial officer - resigned in October as a result of the stock options investigation.

At the time, both Caputo and Argo agreed not to cash in most of their options pending a determination of whether they were fired or resigned. SafeNet has said that its personnel committee will determine by March 29 whether the executives' terminations were for cause.

Shares of SafeNet closed at $24.07 yesterday, up 11 cents.

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