In what some might consider a rash of corporate bragging, several companies in recent weeks have issued press releases touting successful compliance with Section 404 of The Sarbanes-Oxley Act of 2002

Nothing in SOX compels such public fist-pumping; the statute merely requires notification to the Securities and Exchange Commission in formal filings.

But after tackling the onerous SOX requirements relating to internal controls and emerging unscathed, some companies have decided that it’s important to let the world, and not just the SEC, hear about it.

“One Of The First"

Though the total number of companies making such claims is unknown, a review of press releases filed over the last 30 days uncovered a number of examples.

Ranadive

Tibco Software, a $387.2 million business integration software company in Palo Alto, Calif., issued such a release on Feb. 24. In the release, Tibco Chairman and CEO Vivek Ranadive said that the company “is pleased to have achieved Section 404 compliance—this is an affirmation of the integrity of Tibco’s financial statements, internal controls and systems. This achievement is a testament to the hard work and determined efforts of the individuals involved on this project.” Tibco noted that, due to its Nov. 30 year-end, it was “one of the first to obtain Section 404 compliance.”

Nanophase Technology Corp., a small company in Romeoville, Ill., that provides “nanoengineered solutions” for industrial products, made a similar announcement on March 17. “We are pleased to announce our initial compliance with Sarbanes-Oxley Section 404, with no material weaknesses in internal controls identified,” said the release. “While we have consistently endeavored to ensure transparency and integrity in our financial reporting even before the enactment of the Sarbanes-Oxley, Section 404 compliance demonstrates the continued strength of our reporting and governance process, and confirms the high standard of accountability that our shareholders deserve and expect.”

Gruber

$23.7 million Kintera of San Diego, which provides technology services to non-profits, issued a similar statement on March 17, in which CEO Harry Gruber said, “Public companies of all sizes and types are facing new reporting challenges to comply with the rigorous mandates of Sarbanes-Oxley and the Public Company Accounting Oversight Board. Kintera has worked diligently to maintain and document a sound financial management infrastructure. The conclusion of management, attested to by our independent auditors, that these controls are effective is a validation of our efforts.”

And Witness Systems of Atlanta, a $141.3 million company that provides workforce optimization software and services, also issued a St. Patrick’s Day press release parading its SOX 404 success. “In its Form 10-K, filed yesterday with the Securities and Exchange Commission,” said the release, “Witness Systems management assessed the effectiveness of its internal control over financial reporting and concluded that the company had no material weaknesses and that its controls were effective as of Dec. 31, 2004.”

Little Impact On Stock Price

Positive news about SOX 404 compliance might be expected to boost the price of a stock. But according to an analysis of the companies’ stock prices by Raisch Financial Information Services before and after the announcements, that has not necessarily been the case.

MARKET REACTION

Charted below are stock market reactions to the press releases by the four companies mentioned in the story, above.

Company

Day Before

Day Of

Pct. Change

Day After

Pct. Change

Kintera

6.20

6.25

0.8%

6.03

-3.5%

Nanophase Tch.

5.40

5.91

9.4%

5.59

-5.4%

Tibco

11.15

11.03

-1.1%

11.53

4.5%

Witness Systems

17.12

17.30

1.1%

17.29

-0.1%

Data courtesy of Raisch Financial Information Services.

Kintera, for example, was selling at $6.20 at close on March 16. After the March 17 SOX announcement, the stock price inched up to $6.25 to end the day, but then reversed course, falling to $5.75 at close on March 24.

Wireless Systems didn’t get much mileage out of the SOX announcement either. Its stock ended trading on March 16 at $17.20, and inched up 1 percent to $17.30 on the day of its press release. But by March 22, the stock price had fallen back to $17.10, putting the stock in slightly worse shape than prior to the announcement.

Nanophase, however, fared somewhat better. It was selling at $5.40 when trading stopped on the day before it announced a successful SOX 404 experience. On the day of the announcement, the stock perked up 9 percent to close at $5.91, but the price dropped again the next day to $5.59 and closed on March 22 at $5.65—still a 4.6 percent jump from its pre-SOX announcement.

Tibco got a modest but short-lived boost from its SOX press release. Its stock was selling at $11.15 at close on Feb. 11, the last business day before it issued its SOX press release. Its stock value actually tumbled 1.4 percent on the day of the announcement to $11.03, but perked up to $11.53 on Feb. 15—the day after the announcement—and to $11.59 on Feb. 16, up 3.9 percent from its pre-announcement price. However, the stock has taken a dive since then, down to $7.73 at close on March 24.

The stock’s troubles began when rumors started circulating in late February that Tibco was going to miss its revenue and earnings targets for the first quarter. When the official announcement was made March 1, the already falling stock plummeted another 20 percent in a single day, bottoming out at $7.04. However, Tibco got a bit of a boost from its March 7 announcement that it had signed a strategic agreement with Protiviti to develop a framework to assist companies with documenting, testing, assessing and monitoring internal controls after they achieve initial compliance with Section 404 of SOX. As of the close on March 22, Tibco’s stock had risen 5 percent since the deal with Protiviti was made public.

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