Red Hat Inc. on Tuesday said it was restating its financial results for the last three years, due to an error in its recognition of revenues.
In addition, the Raleigh, N.C., Linux distributor and software maker said it was responding to "prior comments and questions" from the Securities and Exchange Commission, which is reviewing the company's annual report. The company said it did not expect the review to lead to any material changes to previously reported financial results, but said it "cannot provide assurances that such changes will not be required."
Red Hat's stock fell after the announcements. At midday, shares on the Nasdaq Stock Market were down $3.60, or 18 percent, to $16.75. The company's stock had been trading as high as $29.06 on June 2.
The accounting change follows by less than a month the disclosure that Chief Financial Officer Kevin Thompson was resigning. Thompson, who has served as CFO since November 2000, said he was leaving to spend more time with his family.
Following discussions with its auditor PricewaterhouseCoopers, Red Hat decided to stop recognizing revenue for subscription agreements on a monthly basis, a method it had used for the last five years, and start recognizing revenue on a daily basis over a contract term.
As a result, the company would restate its audited financial statements for the fiscal years ended February of 2004, 2003 and 2002, and for its unaudited financial statements for the quarter ended May 31 of the current fiscal year.
The restatements are expected to result in "significant percentage differences" in certain items, such as quarterly operating profit and net income. They will not materially affect annual revenues, operating cash flows or the number of new subscriptions for any quarterly period, the company said.
"The restatement is not expected to reflect any material difference in the meaningful historical trends of our business, nor will it adversely affect our business outlook, which remains strong," said Matthew Szulik, chairman and chief executive of Red Hat, said in a statement. "We remain committed to meeting high standards in providing timely, accurate and transparent financial reporting, and our planned restatement reflects this commitment. The restatement will also assure that future comparisons to past periods are made on a consistent basis."
This story courtesy of TechWeb.