Mail Stop 4-06
May 23, 2005
Anthony Bettencourt - President and Chief Executive Officer
Verity, Inc.
894 Ross Drive
Sunnyvale, CA 94089
RE: Verity, Inc. (File No. 000-26880)
Form 10-K: For the Fiscal Year Ended May 31, 2004
Form 10-Q: For the quarters ending August 31 and November 30,
2004,
and February 28, 2005
Dear Mr. Bettencourt;
We have reviewed the above mentioned filing and have the
following comments. Where indicated, we think you should revise
your
future filings in response to these comments. If you disagree, we
will consider your explanation as to why our comments are
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with supplemental information so we may better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K: For the Fiscal Year Ended May 31, 2004
Item 9A. Controls and Procedures, page 41
1. We note your disclosure that your "Chief Executive Officer and
Chief Financial Officer, concluded that our disclosure controls
and
procedures were effective as of May 31, 2004, to provide
reasonable
assurance that the information required to be disclosed by us in
this
Annual Report on Form 10-K was recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange
Commission rules and Form 10-K." Tell us how you officers
considered
Exchange Act Rule 13a-15(e) concluding that your disclosure
controls
and procedures are also effective to ensure that information
required
to be disclosed in the reports that you file or submit under the
Exchange Act is accumulated and communicated to your management,
including your chief executive officer and chief financial
officer,
to allow timely decisions regarding required disclosure.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition, page 52
2. We note that a number of the Company`s contracts are with
government agencies. Supplementally tell us how you considered
paragraphs 32 - 33 of SOP 97-2 in accounting for fiscal funding
clauses included in your software arrangements. Also tell us
how
fiscal funding clauses or other government contract contingencies
impact your revenue recognition for other services and products
you
provide.
Note 4. Business Combinations, page 57
3. Tell us how you considered Rule 3-05 and Article 11 of
Regulation
S-X in determining the financial statement requirements in the
Cardiff Software acquisition. Also, supplementally provide us with
your calculation of the significance test pursuant to Rule 1-02(w)
of
Regulation S-X. Please note that considering the Company recorded
pretax net income in the most recent fiscal year preceding the
acquisition, if Cardiff Software reported a pretax loss in the
same
period, you should use absolute values in determining the
significance of this acquisition.
February 28, 2005 - Form 10-Q
Note 1 - Interim Financial Data
Reclassifications, page 6
4. We note that the Company reclassified auction rate securities
of
$53.3 million as of May 31, 2004 from cash and cash equivalents to
short-term investments on its consolidated balance sheet. Tell us
what consideration you have given to restating the Company`s May
31,
2004 Form 10-K. Also, tell us what consideration you have given
to
your Item 307 requirements for disclosure controls and procedures
and
the 308(c) of Regulation S-K reporting requirements regarding
changes
in internal control procedures.
As appropriate, please respond to these comments via EDGAR
within 10 business days of the date of this letter. You may
request
additional time to respond, as necessary. Please furnish a cover
letter that keys your responses to our comments and provides any
requested supplemental information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please provide, in
writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Megan Akst, Staff Accountant, at (202) 551-
3407
or Kathleen Collins, the Branch Chief who supervised this review,
at
(202) 551-3499 if you have questions regarding comments on the
financial statements and related matters, or me at (202) 551-3730
with any other questions.
Very truly yours,
Craig Wilson
Senior Assistant Chief
Accountant
??
??
??
??
Verity, Inc.
May 23, 2005
Page 3 of 3