Ailing asset management software vendor Peregrine Systems has admitted overstating revenues by $250 million (€254m) – more than twice the amount it confessed to in May 2002. The restatements apply to the period between April 1999 and December 2001.
Worse still, the company has said that the restatements arose from the booking of cash raised through factoring as sales rather than loans – effectively booking revenues twice. The $250 million is equivalent to nearly a fifth of Peregrine’s reported revenues for the 11 quarters.
At the same time, the US Nasdaq stock exchange is preparing to de-list Peregrine because the company’s stock has been trading at less than a dollar since June.
The news comes amid an investigation by the US regulator, the Securities and Exchange Commission (SEC). That was initiated following claims of ‘channel stuffing’ and there are fears that the restatement of revenues could rise before the end of the SEC’s investigation.
Channel stuffing involves knowingly pushing more products into the distribution channel than there is end-user demand for. Although it provides a short-term boost to a company’s revenues and may enable management to meet one or two quarter’s sales targets, sales normally dive in the medium-term because of market saturation.
Many of Peregrine’s problems stem from an ill-conceived acquisition binge between 2000 and 2001.
The company spent nearly $3.5 billion (€3.6bn) – mostly in stock – acquiring a rag-bag of companies, including electronic data interchange software supplier Harbinger; IBM’s Tivoli Service Desk suite; integration software company Extricity; and Remedy, a vendor of customer relationship management software.
Analysts derided this strategy, particularly its move for Harbinger and Extricity. In June 2002, Peregrine sold off its supply chain enablement division – which included both the Harbinger and Extricity technology – to private equity investor Golden Gate Capital in a cut-price deal intended to give ailing Peregrine vital working capital.
After the departure of Steve Gardner in May 2002, former Intersolv and Merant CEO Gary Greenfield was appointed to work out a recovery plan. “Our management team is diligently identifying and correcting the past accounting and irregularities, while working to avoid them in the future,” he said.