RSA Barely Beats Expectations

Discloses SEC inquiry

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RSA Security Thursday posted fourth-quarter earnings that narrowly beat expectations, but cited a tough economy in its results.

The company also disclosed that the U.S. Securities and Exchange Commission has launched a formal inquiry into its public handling of a change in an accounting practice.

The security vendor, based here, reported net income of $4 million on $63 million in revenue from its core operating business for the quarter ended Dec. 31. That compares with net income of $11 million on $78.1 million in revenue for the same quarter a year ago.

Fourth-quarter earnings of 1 cent per share on a diluted basis compared with First Call/Thomson Financial consensus estimates of break-even.

Including the operations of RSA Capital and other charges, the company reported a fourth-quarter loss of $10.1 million, or 18 cents per share, on a diluted basis.

"While we are in control of our business, we're not in control of the economy," Art Coviello, RSA CEO and president, said in a conference call. "IT spending has not rebounded."

Security purchases after the Sept. 11 terrorist attacks centered around defensive technologies, such as firewalls, antivirus software and intrusion-detection systems, instead of the products RSA offers, including authentication and authorization solutions, he said.

He also said RSA learned Wednesday that the SEC has launched a formal inquiry into how the company publicly disclosed a change it made in the methodology it used to estimate returns during the first quarter. No change was required to the company's financial statements, he said.

"We haven't seen the order," Coviello said. "The SEC has not concluded there has been any wrongdoing on our part and we don't believe there has been any wrongdoing on our part."

Looking ahead, he said RSA has a growing pipeline of large deals, including deferred projects and new prospects. The government sector also provides a big opportunity for the company, he added.

"When the economy does spring back, we will be well positioned," Coviello said.

Shares of RSA, based here, closed Thursday at $16.64, down 39 cents.

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