JDA To Restate Financials From 2008 Through 2011
April 16, 2012 Dan Burger
Based on the ongoing Securities and Exchange Commission review of its revenue recognition policies, JDA Software Group will be restating its annual and quarterly financial results during fiscal years 2008 through 2011. Previously issued financial statements from that time period should no longer be relied upon. JDA provides supply chain management software for the retail industry. The company’s software runs on machines equipped with IBM i as well as other operating systems.
The audit committee of JDA’s board of directors signed off on the plan to restate the company’s financial results. According to JDA, the anticipated adjustments center on two areas software license revenue and cloud services revenue. There were instances when transactions associated with service agreements and software purchases were linked inappropriately, meaning software license purchases were noted in one quarter while services revenue was noted in another. In the restatement, JDA will move software license revenue to the quarter in which the services contract was signed.
An area that remains under review pertains to software license contracts recorded in 2009 and 2010 that are being re-evaluated to determine whether JDA should recognize the revenue associated with these contracts over the initial term of the maintenance contract–typically a three-year period–instead of up front, as it was originally recorded.
Also under review is cloud services revenue from 2008 through 2010 when JDA posted license revenue at the front end of a three-year deal rather than recognizing it over the three-year span.
The company released a statement that emphasizes that although revenue figures may change, there is no question whether the revenue exists. It also denies any impact on cash flow from operations or cash balances. The review is expected to continue during the upcoming months, however, and quantifiable impacts may yet arise. One thing is known, the company does not expect to file its Form 10-Q for the quarter ended March 31, 2012, by the May 9, 2012, deadline. Subject to the completion of the audit of the restated financial statements by its independent auditors and the SEC’s ongoing inquiry, JDA expects to file by the August deadline for filing the second quarter.
To date, no instances of intentional wrongdoing have been identified.
The investigation by the SEC’s finance and enforcement divisions was disclosed by JDA in early March when the software company noted it miss the deadline for the filing of its annual report.
The late filing put JDA in violation of NASDAQ rules requiring prompt filing of financial reports, which led to a warning letter and a 60-day grace period to submit a plan to regain compliance before further action is taken. The plan for JDA to regain NASDAQ compliance is due April 30. If NASDAQ accepts JDA’s plan, the grace period could be extended to 180 days.
As of Friday afternoon, JDA stock was trading at $27.77 on a volume of 688,024 shares. Its 52-week high was $35.02 and its low was $22.09. By and large, Wall Street shook off the news.