Monday May 20, 8:21 pm Eastern Time
Reuters Business Report
JNI Says Sales Overstated, CEO Fired
LOS ANGELES (Reuters) - JNI Corp. (NasdaqNM:JNIC - News), which makes equipment for data and storage networks, on Monday said it discovered it had overstated fourth-quarter sales by 4 percent and that its board of directors had fired its chief executive as a result.
The news sent the company's shares lower in after-hours trade to $5 on Instinet from a Nasdaq close of $5.37. Shares in the maker of adapters that connect computer servers to data storage devices have fallen 32 percent since the start of the year.
The San Diego-based company said fourth-quarter revenue had been overstated by about $501,000 because of a single order that was recognized in violation of established policies.
JNI's former chief executive, Neal Waddington, had granted a "right of return" to a customer and had not disclosed that to the company's financial personnel or auditors.
Sales with such side agreements are problematic since there is no guarantee that they will not be used to inflate revenues for a particular quarter.
JNI, which sells to storage hardware providers, including EMC Corp. (NYSE:EMC - News) and Hitachi Data Systems (Tokyo:6501.T - News), did not identify the customer involved in the transaction.
The company said it had conducted a review of its accounting from the beginning of 2001, and while an audit committee had found no other "improper activities," the board of directors had asked for Waddington's resignation.
That decision came as investors have stepped up pressure for better corporate disclosure and governance, particularly since the failure of energy trading giant Enron Corp. (Other OTC:ENRNQ.PK - News), which concealed off-balance sheet liabilities.
"In this environment, revenue recognition policy must be taken very, very seriously," said John Stiska, a director who was appointed chief executive on an interim basis.
In a restatement filed with securities regulators, JNI's total revenue for the last three months of 2001 was reduced to $13.0 million from $13.5 million, forcing JNI to restate its loss per share as 16 cents from 15 cents as initially reported.
Stiska, a director and chairman of venture lending fund Commercial Bridge Capital, told a conference call for financial analysts that JNI's audit committee and board had maintained a "zero tolerance policy" for accounting missteps.
The restatement and management change would have little impact on operations, Stiska said.
(Los Angeles Bureau, 213-955-6760) |
