MicroStrategy Restates Earnings, Stock Plummets - InformationWeek

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MicroStrategy Restates Earnings, Stock Plummets

MicroStrategy Inc.'s stock price plummeted nearly 62% today after the company said it will restate its sales and earnings for 1998 and 1999 because of a change in the way it accounts for software sales. The move means the business-intelligence software vendor will report a loss for fiscal 1999, which ended Dec. 31, and reduced earnings for 1998.

MicroStrategy (MSTR--Nasdaq) frequently sells its software bundled with services for large, lengthy projects. Until now the company has often accounted for the software portion of those deals as up-front revenue. But on the advice of its auditor, PricewaterhouseCoopers, MicroStrategy will account for software-related revenue over the life of the contract, deferring sales from one quarter or year to the next. According to the company, the move conforms to recent accounting policy changes suggested by the Securities and Exchange Commission and the accounting profession.

The company expects the change in accounting procedures to reduce reported 1999 sales from $205.3 million to somewhere between $150 million and $155 million, and earnings from 15 cents per share to a loss of between 43 and 51 cents per share. Reported sales for 1998 will decrease from $106.4 million to somewhere between $95.9 million and $100.9 million, and earnings from 8 cents per share to between 4 cents and 1 cent per share. Deferred revenue as of Dec. 31, 1999, will increase from $16.8 million to somewhere between $66.5 million and $76.5 million.

News of the financial restatements touched off a sell-off of the company's stock, as its priced dropped from Friday's close of 226-3/4 to 86-3/4 by the closing bell today. Trading volume was 17.3 million shares, compared with an average daily volume of 554,000 shares.

The company emphasized that the financial restatements would not impact its cash flow or reduce the amount of revenue it ultimately expects to recognize. The final numbers will be disclosed in the company's annual report, due to be filed with the SEC by March 30.

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