Seeking to remove one more question about its viability, supply chain software vendor i2 Technologies Inc. today said it has restructured $235 million in long-term debt. The move, among other things, will reduce i2's annual interest expense by $4 million.
i2 said it will use cash from several sources -- including the anticipated $30 million sale of its Content and Data Services business, a recent $75 million private equity placement, and retained earnings -- to pay off $235 million in debt, which is in the form of convertible subordinated notes. The notes had been scheduled to mature in December 2006.
The new $75 million placement creates a series of convertible notes that would be due in 2015.
i2 had earlier revealed plans to sell its Content and Data Services.Recently, the company identified the prospective buyer as IHS Inc. (Englewood, CO), a provider of energy and engineering product development information. Originally, i2 had predicted that the sale to IHS would be completed by the end of this month.
Today, however, i2 said that if "certain closing conditions" are satisfied the sale will be completed "in the next few weeks."
The debt restructuring is the latest in a series of moves by the once high-flying software vendor to overcome viability questions stemming from its fall from financial grace over the last few years.
Five years ago, i2 was highly profitable and had a total capitalization of $20 billion.Recently, however, the company has struggled to regain profitability and to deal with class action lawsuits and debt issues.
Earlier this year i2 settled the class action lawsuits -- mostly related to the fall of its share price. The company also has been inching its way back to profitability, mostly achieved through operating expense reductions enacted by new CEO Michael McGrath.
"When I took over as CEO of i2, I committed to our customers, our shareholders, and our employees that we would work to make i2 a more financially secure company," said McGrath in a prepared statement. "We have made significant progress in a number of areas, including the recent actions we have announced aimed at strengthening our company's balance sheet. Our current and prospective customers can be more confident that i2 has a stronger financial foundation allowing us to both support them in the future and focus on growth."
The debt restructuring is a step in the right direction for i2, said Lora Cecere, a research director at AMR Research (Boston). i2, however, still has a lot of work in front of it, she said. "These moves will help i2 with their debt, but the real issue in the eyes of shareholders is on the revenue line, and i2's ability to innovate," Cecere said. Although i2 has been improving profitability in recent quarters, its revenues have not grown much.
The key to renewed growth at i2, Cecere said, will be the company's ability to create new products. "While i2 has depth in product, most of the products that they have are now commodities in the market," Cecere said. "The bigger issue is that i2 is becoming more and more insignificant due the lack of true innovation against the newer areas of emphasis like sales and operations planning, multi-tier supply management, service management, and demand sensing and shaping."
The restructuring plan will not wipe out all of the questions related to i2's debt. The restructuring will not cover $25 million worth of convertible notes which will come due next December. The company also holds a $6.8 million promissory note related to office space.
Nor have all of the legal and regulatory issues facing i2 gone away. Several former i2 executives, including former CEO Greg Brady, former CFO William Beecher and former president of worldwide operations Reagan Lancaster are the subjects of an ongoing investigation by the Securities and Exchange Commission into their alleged misrepresentation of certain i2 revenues.