The Comverse Technology subsidiary also will correct errors in expense accruals and revenue deferral.

Ulticom Inc. said it will restate its financials for the fiscal years ended December 31, 1996 through January 31, 2005 to correct accounting errors, some of which are related to its historical stock-option-grant practices.

The company, whose market cap is around $325 million, also is evaluating its revenue-recognition practices for complex contractual arrangements under AICPA Statement of Position 97-2, Software Revenue Recognition (SOP 97-2).

Under what it calls its Phase I investigation, the cut its estimated charge for withholding taxes, penalties and interest relating to option grants during the eight-year period from $2.7 million to $200,000. The revision was principally due to updated guidance relating to calculations made publicly available by the IRS.

The company noted there is no change to the previously estimated non-cash, stock-based compensation expense resulting from dating inaccuracies in the option grants, which the company expects to be $2.6 million.

Under Phase II, Ulticom said restatement adjustments are required from fiscal 1996 through fiscal 2003 due to excessive expense accruals and improper deferral of revenues relating to contracts with other subsidiaries of its parent, Comverse Technology. It said these changes will not affect its January 31, 2004 balance sheet or cash position.

As for the revenue-recognition practices, the company said it has determined that under SOP 97-2 it should have deferred a portion of the sales that were recognized under some customer contracts — amounting to the fair value of the first-year software maintenance included in the contracts — to subsequent fiscal periods in the following 12 months.

To be able to defer only the first-year maintenance value under the contracts, the company would have to establish that there is vendor specific objective evidence (VSOE) for the fair value of that maintenance. "Although the company believes that VSOE of fair value exists, the absence of VSOE generally would result in the deferral of the entire software license contract revenue and its recognition over the subsequent fiscal periods in the following 12 months," Ulticom said.

It further explained that the absence of VSOE impacts the timing of revenue recognition but does not call into question the validity of the underlying transactions or revenue.

The company said it will delay the filing of its financial reports beyond the previously projected January 31, 2008 date. Comverse, its parent company, had previously stated that it would miss filing on that date due to revenue-recognition issues.