RALEIGH…Red Hat (NASDAQ:RHAT) will restate its earnings back to 2002 to reflect a correction in how it recognizes subscription revenues, the company said today.
Matthew Szulik, chairman and chief executive officer, told a conference call Tuesday morning, “The restatement is not expected to reflect any material difference in our annual revenue or our business trends, which remain strong.”
Nevertheless, investors wary of accounting issues dumped it, and the stock tanked. It closed at $15.73, down $4.62 or nearly 23 percent Tuesday.
Szulik said the company made the change on the recommendation of its independent auditor, PriceWaterhouse Coopers, on June 16. The company also said it is “in the process of responding to other questions from the U.S. Securities and Exchange Commission (SEC) about other accounting practices.”
In a statement Tuesday, the company said, “Red Hat is currently not aware of any other adjustments that will be required to its historical financial statements in addition to those reflected in the estimates (for the subscription revenue change).
“It is possible, however, that other items may be identified in the process of restating the Company’s financial statements. In addition, the Company is in the process of responding to prior comments and questions from the SEC regarding its Annual Report on Form 10-K.
“Although the Company does not anticipate that the review by the Staff will result in any material changes to previously reported financial results, the Company cannot provide assurances that such changes will not be required.”
The current restatements reflect the way the company recognizes revenue from its subscription agreements. Previously, it recognized the revenue at the beginning of the contract. Now it will recognize the revenue over the term of the subscription. The effect of the Company’s decision is to defer a portion of the subscription revenues that would have been recognized in the month of the commencement of the subscription to the last month of the subscription term.
The Company will be filing a Form 12b-25 extending the deadline for the filing of its Form 10-Q for the fiscal quarter ended May 31, 2004. It currently anticipates filing its Form 10-Q for that fiscal quarter on or before July 19, 2004. As soon as practicable, the Company will amend its Form 10-K for the fiscal year ended February 29, 2004, it said.