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PeopleSoft exec: We pumped up earnings

The company asked customers to accelerate deals to bolster earnings--a ploy to exaggerate profits, Oracle lawyers say.

WILMINGTON, Del.--A top PeopleSoft executive testified on Wednesday that the company had tried to pump up earnings in the second quarter of 2003.

Oracle attorneys argued later the move was a ploy to make PeopleSoft seem more profitable than it really was.

Kevin Parker, PeopleSoft's co-president and chief financial officer, acknowledged in testimony in Delaware Chancery Court that PeopleSoft "had asked certain customers to accelerate their deals" to avoid what otherwise could have been an embarrassing quarter for the company.

In addition, documents shown in court suggested that prior to Oracle's hostile takeover bid, PeopleSoft's internal income projection for 2004 was 69 cents per share. Soon after the bid was launched in June 2003, the figure was updated to 94 cents per share--something that PeopleSoft maintains was an honest overestimate of the combined "synergies" from a deal to acquire J.D. Edwards.

Parker was testifying under cross-examination in a Delaware court case filed by Oracle to eliminate PeopleSoft's so-called poison pill defenses, which are designed to thwart a hostile takeover.

Attorneys for the larger software company hope that Wednesday's court session will show that PeopleSoft's management does not have a lot of credibility when rejecting Oracle's $21 per share bid for the company.

In September 2003, PeopleSoft told analysts that its earnings estimate for 2004 remained 90 to 95 cents per share. The company reaffirmed that estimate in an April 2004 conference call with analysts.

PeopleSoft then missed its earnings estimate for the second quarter of 2004, and in July it stopped offering public earnings estimates.

Among the tactics that PeopleSoft employed in order to bolster its earnings, Parker acknowledged, was a private meeting between then-CEO Craig Conway and Hewlett-Packard CEO Carly Fiorina that led to a contract being signed in time for the second quarter. Other efforts included a deal with IBM and PeopleSoft, extending its first-ever zero-percent financing offer to existing customers.

An e-mail to Conway from IBM sent last year suggested that PeopleSoft tie its software more closely to IBM's DB/2 database as a way of making the company "less attractive to Oracle," which sells its own database software. Under cross-examination about the e-mail, Parker said, "I wouldn't describe it as an anti-takeover measure."

Parker was reticent on the witness stand, often asking the Oracle attorney conducting cross-examination to repeat questions or to explain them further. At one point, he said the second-quarter results included "no abnormal contributions from our partners."

Judge Leo Strine, presiding over the two-week trial, seemed to lose patience with the witness once or twice, saying: "It doesn't have to be this difficult (to get a straight answer). I don't really get why it needs to be this difficult, I really don't."

Parker said: "Vocabulary is very important to me, unfortunately...I apologize, your honor."

In addition, A. George "Skip" Battle, who chairs PeopleSoft's transaction committee, indicated while testifying that the company's board of directors would be willing to consider a deal if Oracle upped its price and altered some terms. Another PeopleSoft director made similar statements last week.

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