PRGN aftermath story
I relooked at the 2001 CC and nothing was a tip off. These article gives some other things to look for.
E-commerce software maker Peregrine Systems (NASDAQ:PRGN) said Thursday it will restate 11 straight quarters of financial results after an internal accounting investigation found errors.
The San Diego-based firm said it will adjust its books for fiscal years 2000 and 2001 and the first three quarters of fiscal year 2002. The irregularities could top the $100 million mark.
The company offers products and services in infrastructure resource management, employee relationship management (or self-service) and e-commerce technologies and services.
The accounting firm of KPMG, which Peregrine hired to replace disgraced auditors Arthur Andersen in April, first flagged the errors. A preliminary report earlier this month suggested that some transactions, which were first, recorded as revenue from indirect channels but may have been written off in later quarters.
In a statement the company said it is, "reviewing a range of expense management initiatives, including a reduction in force and financing alternatives, and will provide additional information on these matters as soon as it is practical."
Peregrine currently handles close to 3,000 employees.
The initial probe resulted in the departure of company CEO Steve Gardner and CFO Matt Glass and a 52-week low stock price of $0.73 cents for the first time in the company's history.
Shares of Peregrine tipped upward to $1.57 in Thursday afternoon trading on the New York Stock Exchange.
The burden of proof now lies with Peregrine's current executive team including CEO Rick Nelson, interim CFO Fred Gerson (of San Diego Padres baseball franchise fame) and Charles La Bella, the company's executive VP and senior counsel.
The company will have its work cut out for them, already a handful of law firms are seeking plaintiffs for a class action lawsuit.
internetnews.com
Another update
Peregrine, which is trying to reorganize under Chapter 11 bankruptcy protection, sold its Remedy business unit--the maker of Action Request System software. The software is designed to help companies develop applications to automate such business processes as customer support.
BMC, a systems management software company, acquired Remedy to expand its offerings and plans to operate Remedy as a separate organization within BMC.
"This deal allows BMC to tell a better story in the marketplace," said David Breiner, an analyst with Bear Stearns. "By tying their technology-oriented management products with end-user products through Remedy, they are closing the loop from the data center to help desk."
Breiner said BMC had paid a fair price for the Remedy unit.
The sale of Remedy will ultimately make BMC a stronger competitor of Peregrine in the service management market.
"Although Peregrine can viewed as a competitor, their options were somewhat limited. It can be viewed as a small price to pay for viability," Breiner said.
Shares of BMC rose slightly in morning trading, up 19 cents, or about 1 percent, to $17.69.
news.com.com
Behind the Boards
Michael K. Ozanian, 10.28.02
Growth and value have long been important metrics for stock picking. Add corporate governance to the list.
With all the crooked accounting, egregious self-dealing and insider trading these days, you'd think that corporate board members were either in cahoots with crooked executives--or in a coma. But the watchdogs who apparently see no evil aren't limited to large companies like Enron, WorldCom, Adelphia and Tyco International. You can find them aplenty among small businesses whose boards are sometimes packed with cronies, relatives and folks with clear conflicts of interest. Shareholders are the last things on their minds.
Example: Peregrine Systems (otc: PRGNQ - news - people ). Not that long ago the San Diego-based software maker was one of the hottest small companies around. If insiders knew something was rotten, the Nasdaq didn't wise up until April 2000, when Peregrine's stock plummeted to $33 from $67 in one week (it recently traded at 6 cents a share). Looks like the company, which is currently under investigation by the Securities & Exchange Commission and just filed for Chapter 11, may have been using bogus accounting to inflate sales. As for Peregrine's board: Three of nine members were company executives, according to the most recent 10-K. Directors approved fat bonuses for company executives of up to $1.2 million. Peregrine was also subleasing property from JMI Services--a private investment company whose chairman was John Moores, Peregrine's current chairman, and whose chief executive was Charles E. Noell III, a Peregrine board member. During 2001, when Peregrine lost $852 million on revenue of $565 million, the company treated two officers to golf club memberships.
It's impossible for you, as an investor, to know whether your favorite company is cooking its books; even the auditors may not know. The next best thing is to have a board that is independent enough to have some chance of thwarting evildoers. We asked Institutional Shareholder Services in Rockville, Md. to provide corporate governance scores for our list of the 200 Best--a new category this year. Pulling information from the latest proxy statements and filings with the SEC, ISS looked at 51 variables for each company and grouped them into seven categories: board of directors membership, charter and bylaws, state of incorporation, executive and director compensation, stock ownership, director education and qualitative factors such as a succession process.
Large, insider ownership is a big plus. "A person with a real equity interest in a company has little motivation to game the process to reap a short-term benefit," explains Jill Lyons, an executive vice president at ISS. "High ownership encourages insiders to think like shareholders." This isn't to be confused with stock options. ISS gives low scores to companies that issue a disproportionately large number of options to executives, board members and employees, compared with similar incentives at competitors.
Companies with a majority of independent board members score well. Financial ties--whether providing business to the company or professional advice--have an odor of self-dealing. Independence is particularly key for members of executive compensation, auditing and nominating committees. Higher marks also go to a business that can hire a separate group of accountants to review the company's auditors.
What about a company's charter and bylaws? ISS dislikes staggered boards; it wants to see a full slate of directors elected each year. That makes it easier for a dissident or a takeover artist to boot out incompetent management. Proxy battles are fairly rare these days, but the threat of them may keep insiders on their toes.
Antitakeover defenses aren't always a red flag to ISS. Reason: A poison pill can sometimes be used to solicit a higher bid during a takeover battle. ISS marks down companies whose defensive clauses render an unsolicited embrace all but impossible. Paying greenmail to unwanted suitors is always a no-no.
To arrive at a final score, ISS compares a company's composite results with the scores for companies of similar size on the Russell 3000, a benchmark for the overall market. A score of 75 means that a company's board of directors has better corporate governance standards than three-quarters of the companies its size. You can check out the results for 137 of the 200 Best Small Companies that are included in the Russell 3000, starting on page 290. (For board scores that show how each company stacks up against rivals in the same industry, visit www.forbes.com/200best.)
Investors may find it useful to treat the ISS board score as one more metric for evaluating potentially good investments, as well as riskier bets, along with such traditional yardsticks as price/earnings ratios and growth rates. The tables are illustrative. The first seven companies trade for less than 13 times next year's expected earnings (the average multiple for a small-cap stock) and have board scores of 77 or better. There's no guarantee that any of them will be winners. But the combination of low p/es and high board scores may give some reassurance to investors that they're not paying too much for a company's growth prospects.
The half-dozen companies in the bottom table sell at a sharp premium to most small companies and have humdrum board scores, or worse. The inherent risks are higher.
Somewhat Safer
These companies offer investors some protection because they sell for lower multiples of their earnings than most small-cap issues. Their boards rank in the top 25% of their peers in corporate governance, based on such factors as board membership, charter and bylaws, executive and director compensation and stock ownership.
Company Board of directors, score, P/E, 2003E Board's strength
CEC Entertainment, 79, 12, high insider ownership
Clark/Bardes, 86, 11, independent audit committee
Green Mountain Coffee, 77, 11, high insider ownership
Metro One Telecom, 95, 9, independent board
Polycom, 95, 11, annually elected board
TRC Cos, 95, 12, independent board
US Physical Therapy, 91, 12, annually elected board
Relatively Risky
These stocks are relatively risky because they trade at sharp premiums to other small companies. Their boards of directors, which rank in the bottom 30% of their peers relative to the all-inclusive Russell 3000 in corporate governance, may not be doing a particularly good job of looking out for the interests of shareholders.
Company Board of directors, score, P/E, 2003E Board's weakness
Education Management, 8, 31, excessive pay
FactSet Research Systems, 12, 20, CEO on nominating committee
Gentex, 7, 22, directors affiliated with company
Hain Celestial Group, 17, 19, staggered board
Krispy Kreme Doughnuts, 30, 37, staggered board
Westwood One, 20, 32, directors affiliated with company
forbes.com
I really don't see the staggered board as that big begative as the author, but the others are bad.
Things I saw in the CC that were indicators of a collapse in hindsight. I will look for them in other CCs.
- We close fewer deal over 1M but larger size
- NA struggled during last half, but did well with IBM, Arthur Anderson, and KGPM
- Moore had mutual decision to leave company
- Lost Bill Moore – head of NA sales
- sooner or later will get better, people stretching existing capital
Struggling, people leaving, and hoping for a turnaround.
Jack |
