i2 restates four years of earnings
The business software maker restates earnings for the past four years, concluding an internal audit of its revenue accounting, which is still under investigation by government regulators.
The net effect of the restatements cumulatively reduced i2's revenue by $359.7 million and increased net loss by $207.1 million from 1999 to 2002, the Dallas-based company said Monday. Of the adjusted revenue, $127.3 million was reversed, and $232.4 million was deferred and may be recognized in the future, the company added.
The adjustments had no effect on i2's cash and investments, which totaled $441 million at the end of March, i2 said. A related probe into i2's accounting practices by the Securities and Exchange Commission that began in March is still under way, a company representative said.
At the heart of i2's accounting problem is the way the software company accounted for revenue in certain licensing deals that also involved software development services, i2 Chief Executive Sanjiv Sidhu said. Instead of deferring revenue on those deals until completing the required development work as it should have under generally accepted accounting principles, i2 treated those contracts as standard software deals and booked the revenue immediately, he said.
Sidhu declined to say how many such deals contributed to the earnings adjustments, but he said that many of them involved sales of newer products, including an application for building online marketplaces for business supplies called TradeMatrix. The company launched TradeMatrix during the dot-com boom, but stopped marketing the product after the market for that technology imploded.
Questions over the company's accounting practices emerged last fall, after i2 disclosed in a regulatory filing that two former i2 executives had presented allegations of accounting fraud to its board of directors. At the time, i2 said the allegations had no merit and didn't see the need to revise its financial statements.
By January, i2 had launched an internal investigation of the matter and later missed the deadline for filing its 2002 annual report to the SEC as it re-audited its books, causing the Nasdaq Stock Market to halt trading of its shares. Its shares were officially de-listed from the stock exchange in May as a result of the missed deadline.
i2 specializes in complex business applications designed to help manufacturers forecast and plan production schedules and shipments of supplies. The market for that software, known as supply chain management, has declined sharply over the last several years as companies cut their information technology budgets. Competitors include software giants SAP, Oracle, J.D. Edwards, as well as specialist Manugistics. Though most of these companies have reported less-than-stellar financial results recently, none has suffered as spectacular a decline as i2, whose stock traded above $100 a share just three years ago.
i2's downward spiral appears to be continuing. i2 posted 2003 first- and second-quarter results Monday, with first-quarter revenue sliding 22 percent to $158 million from the same quarter a year ago, and second-quarter revenue falling by 25 percent to 30 percent to between $114 million and $122 million. However, the company narrowed its loss in the second quarter.