Date post: | 07-Apr-2018 |
Category: |
Documents |
Upload: | yashesh-patel |
View: | 220 times |
Download: | 0 times |
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 1/12
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 2/12
COMPANY PROFILE
Industry
Computer softwareComputer security
Fate
Acquired by Intel Founded
1987
Founder(s)
John McAfee
Headquarters2821 Mission College Blvd.Santa Clara,California,United States
A rea served
Worldwide
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 3/12
CONT«..
Key people
Charles Robel,Chairman
David DeWalt,President & CEO
ProductsEmail and Web Security, Data Protection,
Security-as-a-Service (SaaS), Mobile Security,
Network Security, Risk and Compliance, System
Security, Virtualization Security Parent
Intel Corporation
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 4/12
ISSUE OF MC A FEE
McAfee carried out a multimillion dollar financial fraudbetween 1998 and 2000. During that period, McAfee
overstated its revenues by $622 million in order to meet
revenue and earnings targets and understated its
cumulative net losses by $353 million.
McAfee stuffed its distribution channel and improperlyrecorded hundreds of millions of dollars of revenue on sales
transactions with distributors in violation of the antifraud
and other provisions of the federal securities laws.
In a fraudulent scheme to oversell its products and
immediately record the revenue from those transactions,
McAfee secretly gave its distributors substantial cash
payments, price discounts, rebates, and other concessions
as inducements to continue buying, as well as to not return,
McAfee products that the distributors had no reasonable
expectation of selling to customers.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 5/12
McAfee also inflated its revenues in certain
quarters during the relevant period by engaging
in sham sales transactions that lacked economicsubstance and by improperly selling its accounts
receivables in certain quarters, in order to
perpetuate the misleading impression that
McAfee had robust, non-discounted product sales.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 6/12
McAfee concealed the revenue fraud from investorsthrough various ploys.
For example,
o (1) McAfee falsely recorded in its books and records certainof the payments and concessions to distributors asexpenses rather than as reductions in revenue.
o (2) McAfee impermissibly used tax reserve accounts tooffset the undisclosed payments and concessions.
o (3) McAfee improperly inflated acquisitions and otherexpense reserve accounts. In the course of this fraud,McAfee misled investors by filing with the Commissionmaterially false and misleading annual and quarterlyreports and securities registration statements. In thosefilings, McAfee stated that it was recognizing revenue onproduct sales only after product had been delivered, the feewas fixed and determinable, and collection of the resultingaccount receivable was probable. McAfee omitted materialinformation that its accounting practices, as noted above,did not conform to its stated revenue recognition policies.In so doing, McAfee deceived investors about its actualearnings and revenues.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 7/12
McAfee·s accounting scheme began to unravel inthe fourth quarter of 2000 when, after eleven
consecutive quarters of McAfee·s distributionchannel stuffing, its distributors held such hugeinventories of McAfee products that they refusedto buy additional product.
Consequently, on December 26, 2000, McAfee
was forced to announce in a press release that itssales for that quarter would be only $55 million,seventy-eight percent less than the $245 millionin sales that McAfee had projected publicly onlytwo months earlier, on October 14, 2000. Also on
December 26, McAfee announced withoutexplanation the resignations of its Chief Executive Officer, Chief Financial Officer, andPresident.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 8/12
This news sent McAfee·s stock price down sharply,slashing more than $1 billion from the company·s marketcapitalization. On December 26, 2000, prior to the issuance
of the press release, McAfee·s stock price had closed at$11.75. After the press release, in after hours trading,McAfee·s share price dropped sixty-six percent to open onDecember 27, 2000, at $3.97. That day, McAfee·s shareprice reached a low of $3.25 and closed at $4.50.
On October 31, 2003, nearly three years after it hadannounced the sales shortfall, McAfee restated its financialresults to correct for the fraudulent revenue and earningsinflation scheme. The October 2003 restatement was thecompany·s third restatement in five years and it affectedseven years of previously reported financial results ² from1997 through the second quarter of 2003. Among otherthings, the company acknowledged that material amountsof revenue for that period had been improperly recorded inviolation of Generally Accepted Accounting Principles(´GAAPµ). As a result, McAfee recalculated all revenuethat had been previously recognized at the time of sale to adistributor from 1998 through 2000, postponing therecognition of revenue until the time a distributor actuallysold the products.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 9/12
From 1997 through 2004, McAfee failed to
maintain an adequate system of internal
accounting and financial reporting controls toensure that McAfee·s financial results were
reported accurately and fairly to investors.
In part as a result, McAfee had to restate its
reported financial results on five occasions from1999 through 2004.
On March 31, 2005, McAfee·s external auditors
determined that McAfee·s internal control over
financial reporting for such critical accountingareas as the recognition of revenue for software
contracts was materially deficient in several
areas.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 10/12
Specific ploys outlined by the SEC include:
Improperly recording sales to distributors as
revenue. Providing deep price discounts and rebates as
incentives for distributors to continue buying
products, even though many channels already
were overstocked. Secretly paying distributors millions of dollars to
hold on to excess inventory rather than return it
to McAfee for credit.
Using Net Tools Inc., a wholly-owned subsidiary,
to repurchase the overstock that was returned by
distributors.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 11/12
Mc Af ee pays $50 million in accounting
f raud case
McAfee Inc. will pay $50 million to defrauded
investors and appoint an independent consultant
to clean up its internal accounting controls under
a proposed settlement announced by the
Securities and Exchange Commission. In a prepared statement yesterday, the SEC said
the settlement stems from accounting fraud
charges of "channel-stuffing" that overstated
revenue by $562 million, or 131%, from Q2 1998
through 2000. McAfee, then known as Network
Associates Inc., was accused of leveraging that
inflated value to buy other companies and boost
its stock price.
8/4/2019 yashesh McAfee
http://slidepdf.com/reader/full/yashesh-mcafee 12/12