Who’s Getting Who in Andersen’s OC Market Shakeup
By CHRIS CZIBORR
Arthur Andersen LLP’s Orange County office is losing contracts as companies weigh their yearly option to switch auditors. But its two biggest clients remain with the embattled firm,so far.
Most companies have until next month to notify the Securities and Exchange Commission of any change.
At least three sizeable companies have switched from Andersen’s OC office this year, all going to Big Five rival Ernst & Young LLP.
The biggest fish to get away from Andersen so far has been Corinthian Colleges Inc., Santa Ana, which had a market value of $1.15 billion late last week.
Riverside-based recreational vehicle maker Fleetwood Enterprises Inc. switched to Ernst & Young’s OC office at the start of this month. And Newport Beach real estate investment trust company Nationwide Health Properties Inc.,a company just shy of a billion-dollar market value,did the same last month. Meanwhile, KPMG’s Costa Mesa office last month lured Carlsbad-based Callaway Golf Co. from the San Diego office of Andersen.
“The decision wasn’t made easily,they’ve been really good to work with,” said Fleetwood spokeswoman Kathy Snyder. “The problem was that our year-end is the end of April and we couldn’t get assurance that they would be able to complete the audit in a timely fashion.”
Andersen’s OC office did not return a call seeking comment.
Andersen still counts two of the 23 of OC’s Billion-Dollar Club members (see page 14) as clients: Irvine-based Exult Inc. and Newport Beach-based Health Care Property Investors Inc.
While officials at Health Care Property Investors declined to comment, a source familiar with the company said it intends to switch auditors and is in discussions with other Big Five firms. Officials at Exult were unavailable for comment.
Among the companies on the OC 50 list,comprised of companies with market values of $25 million to $1 billion (see page 14),Andersen is not a big player, performing audit work for just four.
Officials at one of these companies,Irvine drug maker NeoTherapeutics Inc.,said they haven’t made a decision to switch from Andersen. Andersen audited the company’s year-end financials released this month.
“We haven’t made any changes yet,” said John McManus, NeoTherapeutics’ vice president for investor relations.
Officials at the other three OC 50 companies that use Andersen,Costa Mesa ceramic products maker Ceradyne Inc., San Clemente medical device maker ICU Medical Inc. and Irvine homebuilder Standard Pacific Corp.,were unavailable to comment on whether they intend to switch.
Ceradyne Chief Executive Joel Moskowitz earlier this year said the company may reevaluate its relationship with Andersen.
The losses by Andersen’s local office, which is the smallest of the Big Five offices in OC, may have as much to do with local issues as with the Enron Corp. scandal engulfing the firm nationally, according to some local sources.
An official at a company that switched from Andersen this year,who asked that his name not be used,said the decision preceded Enron-related events.
“Our process to switch auditors started about a year ago,we decided to seek proposals from three other accounting firms at that time,” the official said. “By the time the Enron story broke we had pretty well already decided based on a large number of intangibles to make a change, so Enron had no effect.”
The official said “quality issues” spurred the move to a different auditor.
An official at another company that has dropped Andersen, speaking not-for-attribution, also downplayed the role the Enron affair played in his company’s decision to switch.
“Our decision was caused by issues at Arthur Andersen,not Enron, which we believe was an isolated case and had no bearing on Andersen as a whole,” the official said. “We’ve been looking at other auditors for several weeks now.”
Still, the Enron affair has sparked a growing exodus of clients nationally from Andersen, and its effects weigh heavily on the local office as well.
One official at another Big Five accounting firm’s OC office painted a bleak picture for the future of Andersen.
“It’s very clear larger and larger numbers of public companies are going out for proposals because the Andersen global network is collapsing,” the official said. “It remains to be seen whether they’ll survive as a firm, let alone an audit practice.”
But Dean Samsvick, managing partner of the Costa Mesa office of KPMG, offered a somewhat more hopeful analysis.
“The Andersen folks have done an outstanding job holding the client base together at this point,a very small percentage of their clients have actually changed,” Samsvick said. “Everyone’s nervous but a lot depends on what happens over the next few weeks.”
Newport Beach homebuilder Capital Pacific Holdings Inc. became one of the latest companies to replace Andersen as its external auditor. The company named Ernst & Young as its new auditor, effective last month.
