Ariba Restates Virtually All Its Results
By Siobhan Kennedy
NEW YORK (Reuters) - Software company Ariba Inc. (ARBAE.O) said on Thursday it restated or adjusted all but one of its quarterly financial statements since becoming a public company in 1999, citing accounting errors, dubious partnerships and questionable executive perks.
The company, a one-time Wall Street darling whose stock imploded when the Internet bubble burst, said the restatement included a boost in expenses that also widened its net loss for the as-yet-unreported fiscal second quarter ended March 31 by 2 cents a share. It previously said it expected a loss of 16 cents to 18 cents a share.
"I think we're going to see a lot of rewinding like this over the next couple of years and it's not going to be confined to just Ariba," said Bruce Richardson, an analyst with AMR Research in Boston.
Already a string of software companies including Network Associates Inc. (NET.N), which makes security software and i2 Technologies Inc. (ITWOE.O), which makes purchasing software, have restated some or all of their earnings, citing accounting inaccuracies or problems with the way they booked revenue.
"That funny accounting we did to help perpetuate the illusion of record growth. Now in the new sobriety...it's all going to be cleaned up," Richardson added.
Software companies like Sunnyvale, California-based Ariba shot to fame in the dot-com heyday promising companies they would save them millions of dollars using software to purchase goods and services over the Web.
BOOKS OPEN
But then the Internet bubble burst before those promises were ever realized and one by one, vendors like Ariba and its rival Commerce One Inc. (CMRC.O) came crashing down to earth.
Ariba's Chief Financial Officer Jim Frankola said the company first stumbled over the accounting problems when it discovered its ex-chief executive, Keith Krach, had given Ariba's then-chief operating officer, Larry Mueller, a $10 million handout, including $1.2 million to pay for the use of private aircraft.
Once Ariba had its books open, "We took the opportunity to make sure we had everything appropriately accounted for," Frankola told Reuters in an interview.
As it turns out, they didn't.
Ariba, with the help of accounting firm KPMG and another large accounting company that wished to remain unidentified, soon unearthed a string of other problems.
The company had failed to properly account for stock options issued by companies it acquired in 2000.
It signed a number of transactions where its accounting policies "had not been consistently or appropriately applied."
It also accrued expenses before it should have, or in some cases, after it should have.
As a result, Ariba said it restated its results for the fiscal years 2000 and 2001 and for the quarters ending in Dec. 31, 1999, through June 30, 2002.
It also said it adjusted its preliminary financial statement for the quarter and fiscal year ended September 2002 and for the quarter ended Dec. 31, 2002.
That left just one reporting period -- Ariba's first quarter as a public company from June to September 1999 -- that the company did not have to adjust or restate.
LOSS WIDENED
The upshot was to widen its net loss by $9.8 million in 2000 and by $14.1 million in 2001, Ariba said.
For 2002, it said the adjustments decreased its loss by $22.1 million, but increased its fiscal first quarter 2003 loss by $2 million.
Ariba is also the subject of a Securities and Exchange Commission probe into the restatements. The company provided no update on that investigation.
"The big story here is that the review is complete," Frankola said, noting the net effect of all the changes was to increase Ariba's total loss to the end of 2002 by $4 million.
He added that the restatements had no impact on cash, which stood at $267 million as of Dec. 30 2002.
Ariba said it had now filed its financial statements for the quarter ended Dec. 2002 and fiscal year ended Sept. 2002, which had previously been delayed due to the review.
It also said it expected to be in compliance with the Nasdaq listing requirements once it has filed statements for the March and June quarters of 2003.
Richardson said Ariba was already struggling to regain credibility, but after the restatement, the battle will be even harder.
"It's a real marketing challenge," he said. He noted, however, that the company has a string of high profile customers, including Merrill Lynch & Co Inc (MER.N), AstraZeneca (AZN.L) and Dell Computer Corp. (DELL.O), all of which say they save money using its software.
Shares of Ariba closed down 1.8 percent, or 6 cents, at $3.21 on the Nasdaq on Thursday.
04/10/03 19:23 ET
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