Accounting probe sees i2 restate four years results

Business software company i2 Technologies has seen net losses increase by $207.1m after restating earnings for the past four years, concluding a six-month internal audit of its revenue accounting, which is still under investigation by government regulators.

The restatements also cumulatively reduced i2's revenue by $359.7m from 1999 to 2002, the company said this week. Of the adjusted revenue, $127.3m was reversed, while $232.4m was deferred and may be recognised in the future.

But the adjustments had no effect on i2's cash and investments, which totalled $441m at the end of March. 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.

i2 CEO Sanjiv Sidhu said the way the software company accounted for revenue in certain licensing deals that also involved software development services is at the heart of i2's accounting problem.

He 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.

Sidhu declined to say how deals contributed to the earnings adjustments but said 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 pushing the product after the market for that technology imploded.

Questions over the company's accounting practices emerged last autumn, 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 did not 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 specialises 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, JD Edwards, and 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 this week, with first-quarter revenues sliding 22 per cent to $158m from the same quarter a year ago and second-quarter revenue falling by 25 per cent to 30 per cent to between $114m and $122m. However, the company did narrow its loss in the second quarter.

Alorie Gilbert writes for CNET News.com