Internet Security Systems: Earnings Could Fall Short

Investment impairment and bad debt are cited, but revenue is expected to be in line.
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Updated from Jan. 13

Internet Security Systems

(ISSX)

said fourth-quarter earnings may fall short of expectations due to an investment impairment and bad debt allowance, although revenue will be near or slightly above guidance.

About 30 minutes into Wednesday's session, shares of Internet Security Systems were down $2.35, or 12%, to $17.30.

Atlanta-based ISS said it expects pro forma net income may be below targets of 13 cents to 17 cents a share. Analysts polled by Thomson First Call were expecting EPS of 14 cents.

ISS said it is evaluating whether it needs to record an expense for the impairment of $2.7 million in investments made in 2001 by its Japanese subsidiary and it needs to take an additional bad debt allowance for $2.4 million of accounts receivable related to transactions with its China distributor originating before 2003.

Excluding these items, pro forma net income will fall in that range, the intrusion-detection software maker said.

Revenue, however, will be near or slightly above the upper end of the company's prior guidance of $66 million for the fourth quarter. Analysts' estimates call for revenue of $63.7 million.