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Baan sinks on earnings warning

Shares of the business software firm tumble after the company warned of a disquieting loss and blamed the results mostly on the "aggressive restructuring plan."

Shares of Dutch business software firm Baan tumbled at the opening bell today after the company warned of a disquieting fourth-quarter loss blaming the results mostly on the "aggressive restructuring plan" forced by the slowdown in demand for its products and services.

The company announced it is likely to report revenues of approximately $142 million and a whopping net loss of $250 million, or $1.22 loss per share, for its fiscal fourth quarter ended December 31, 1998.

Baan's restructuring plan includes previously announced personnel reductions, office closures, sale of businesses, and write down of certain assets. Nonrecurring charges for these activities will account for approximately $160 million of the quarterly loss.

Baan stock plunged 8.29 percent to 10.78 in early trading. The company has traded as high as 55.5 and as low as 9.5 during the past 52 weeks.

The company also anticipated a near-term slowdown in indirect license sales because of changes in market dynamics from the first half of the year, prompting its decision to reduce revenue in the fourth quarter by approximately $50 million. The total impact of nonrecurring charges and revenue reduction combine to account for approximately $210 million of the loss for the fourth quarter.

Analysts agree that Baan has to undergo the massive restructuring in order to turn around.

"Baan is a very troubled company," said Bert Hochfeld, an analyst at Josephthal. "Its distribution is flawed, and the market is not good."

Still, Baan is not the only ERP company suffering.

"PeopleSoft and SAP are just better houses in a very sorry block," said Hochfeld.

The company's tailspin has also prompted it to call an extraordinary meeting of shareholders for the purpose of approving new members to its supervisory board. Jan Baan, founder of Baan, previously announced that he has resigned from the company's management board. He also announced that he would not serve on the supervisory board of directors. The board is likely to expand from its current three members to a more traditional level of about seven members, including outside directors.

Baan also adjusted its previously reported third quarter results because of a changing in the accounting of its acquisition of CAPS Logistics. As a result, the operating results for the third quarter 1998 will reflect a loss of 24 cents per share compared to the 16 cent-loss per share as originally reported.

"While the fourth quarter proved to be difficult as we anticipated, we achieved a level of approximately $100 million in new license contracting commitments," Baan CEO Tom Tinsley said in a statement. The new contracts are with companies like Volvo, AT&T, Delta Airlines, and others. "Additionally, we signed license agreements with 567 customers; of those 374 are new customer relationships."

As part of the restructuring, Baan reduced its workforce by about 1250 employees in the quarter, bringing total headcount to about 4975 worldwide. The company also closed or consolidated 50 offices, and 14 businesses were either sold during the quarter or are in the process of being sold.