Peregrine Execs Quit as Probe Begins
Peregrine Systems Inc. disclosed Monday that it launched an internal investigation into “potential accounting inaccuracies” involving up to $100 million in revenue and that its two top executives resigned.
The announcement sent shares of the San Diego software maker plunging 65% and came a month after it fired accounting firm Arthur Andersen as its auditor.
The new auditor, KPMG, came across the irregularities during a year-end review, said John Moores, who became Peregrine’s chairman on Monday. The amount in question represents nearly 20% of Peregrine’s 2001 revenue of $564.6 million. The transactions in question occurred in fiscal 2001 and 2002.
Peregrine has notified the Securities and Exchange Commission of the situation, said Moores, who owns the San Diego Padres baseball team.
“These transactions were recorded initially as revenue ... and may have been written off in later quarters,” Moores said in a conference call. He declined to elaborate.
Moores did not say which company executives, or how many, were leading the investigation or when it would be completed.
Chairman and Chief Executive Steve Gardner, who had been with the company since its 1997 initial public offering, and Chief Financial Officer Matt Gless resigned Monday. They could not be reached for comment. Fred Gerson, who is finance chief of the Padres, was named acting CFO.
Peregrine was the second- biggest percentage loser on Nasdaq, falling $1.68 to 89 cents in heavy trading Monday. The stock fell 50% last week when the company disclosed that its quarterly results had been delayed. Monday’s close left the company with a market value of $171 million, down from $2.8 billion in January and down from a split-adjusted peak of more than $12 billion in March 2000, when its shares traded at $33.
Company representatives said the possible irregularities concerned sales of Peregrine products from resellers and other third parties, which accounted for about 40% of the company’s annual revenue. Peregrine, founded in 1981, makes software that allows users to track and manage inventory, equipment and other assets.
Andersen was dismissed because of its inability “to assure us they’d be able to deliver on our audit, just because of the separate things they have been going through,” said Rick Nelson, Peregrine’s acting chief executive.
The accounting firm is embroiled in the record bankruptcy of Enron Corp., for which it served as auditor and in-house financial advisor. Andersen went on trial in Houston on Monday on a federal charge of obstruction of justice.
In the post-Enron era, several high-profile companies have announced they are revisiting their past financial statements. But it is highly unusual for the top executives of a company to step down concurrently with the announcement of an accounting review.
When Peregrine severed ties with Andersen, there were no indications of irregularities, Nelson said. At least three senior executives at Peregrine--Louis Blatt, Thomas Smith and Gary Lenz--previously were partners at Andersen, according to the company’s latest annual report.
For 2001, Peregrine paid Andersen $185,000 for auditing and $863,500 in “all other fees,” according to a company filing.
Peregrine has been struggling since 1998, having reported eight consecutive quarterly losses after buying 12 companies. The acquisition binge left Peregrine short of cash. In March, the company said it would get rid of a unit with 550 workers. On Monday, company representatives said Peregrine had less than $100 million in cash.
“They went on a buying spree and didn’t really properly integrate all the acquisitions they made,” said Mike Romanowski of Orbitex Management Inc., who sold his Peregrine holdings during the last several months.
Peregrine also has said it may be unable to borrow more money because it failed to comply with the terms of a $150-million, three-year revolving line of credit. That loan required the company, which lost $88.3 million in the quarter that ended Dec. 31, to be profitable.
The company temporarily restructured the loan to avoid being in violation and had planned to make permanent changes to the loan after reporting earnings for the recent quarter.
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Bloomberg News was used in compiling this report.
