Struggling Ariba To Restate 2001 Financials

Ariba, based here, also will wait to file its annual report for the fiscal year ended Sept. 30, 2002, until the review by the audit committee is finished, according to a press statement. That report was due on Dec. 30.

The committee's review, which began on Dec. 21, 2002, has focused primarily on what originally was considered by Ariba as a personal payment of $10 million from then CEO, chairman and co-founder Keith Krach to then president and COO Larry Mueller in March 2001, officials said.

Mueller served as Ariba's CEO for one quarter in 2001, succeeding Krach in the top spot. He resigned in July 2001 for reasons never disclosed publicly. Observers said at the time he was asked to leave.

Krach and Mueller are among the company's six co-founders, who scrawled the initial plan for Ariba's business-to-business marketplace charter on a tablecloth in Silicon Valley in 1996.

At first, Ariba officials viewed the $10 million transaction as personal, since it did not use company funds. However, the company has now decided that for accounting purposes, it should treat the payment as a capital contribution from Krach to the company, and the payment of compensation from the company to Mueller.

After Mueller was ousted, Krach came back to run the company until then CFO Bob Calderoni was named CEO in October 2001.

Ariba officials said the $10 million payment will affect only the fiscal quarter ended March 31, 2001, and the fiscal year ended Sept. 30, 2001. For that quarter and fiscal year, Ariba will change its financial statement to reflect a non-cash charge to its fiscal 2001 operating expenses. That charge, however, will not affect Ariba's fiscal 2001 cash balances, net assets or total stockholders' equity, according to the company.

Company officials said they expect the audit committee to complete its review soon, but they did not specify in company statements when exactly that would happen.

Formerly a thriving business-to-business exchange software provider partnering closely with Accenture, Deloitte Consulting and others, Ariba has been bleeding money for the past two years.

From its scrapped deal to acquire Agile Software, to a maelstrom of shareholder lawsuits, to multiple rounds of layoffs, Ariba saw its fortunes plummet in early 2001.

In an effort to redeem its financial health, the company first changed its business model to focus on five vertical markets. Then, earlier this year, it moved to position itself as an ERP provider, particularly in the area of spend management apps.

In October, Ariba reported a fiscal 2002 loss of $660.8 million, or $2.55 per share.