No one could have guessed that SST's managers had barely finished one dry run before show time.
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Friday the 13th -- October 13 -- was only hours away, and with it, a deadline of supreme importance. The nine-month audited financials had to be in to the underwriters that day. Without them, the underwriters couldn't ship the required documentation to the SEC on the set date, and the SEC wouldn't be able to reply in time.
So what was SST's controller, Catherine Zerboni, doing, racing in and telling Michael Praisner that the allocation report hadn't been run?
The allocation report is a small but vital link in the paperwork chain. It apportions to different departments the expenses for executives who've been wearing different hats. The employee who ran that computer program had gone home at 9:30 p.m. Michael Praisner and his team -- he was still trying to understand the company and close the August and September books in a week -- plugged in their best guesstimates and got the report cranked out minutes after the programmer walked in the following morning.
The offices where Praisner and crew had settled in for seemingly endless late-nighters were buried in files, folders, and spreadsheets. One or two of the underwriters were practically living at SST; the same story was true for Coopers & Lybrand's auditors. Zerboni, whom Praisner had just hired away from Coopers, remembers phoning the lawyers at Cooley Godward at 11:30 p.m. and having one of them answer.
Praisner had started living out of his car trunk, in which he had set up Pendaflex hanging files. To him had fallen makeover job number two: the reassembly of the company's records, vital for the due-diligence portion of the IPO. "A lot of my job was getting the monthly information into quarterly information," he explains.
There was so much information to be retrieved and sorted: breakdowns of pricing trends, historic and projected; breakdowns by distribution, by customer, by product segment. Jan Praisner had begun playing hunter-gatherer early in September, sending to the underwriters' counsel copies of everything from patent documents to employment agreements and officer-compensation records. Yeh concedes that the company's accounting system could not even calculate quarterly figures, never mind do the obligatory earnings-per-share projections. Not only that, but the books had been closing way late -- in 20 days or longer, not within the week, as Wall Street would demand.
But at least there were professional audits; in fact, they'd been done every year since 1990, albeit months after the close of the fiscal year, when the auditors' rates were cheaper. And there were records. Yeh, a stickler for having everything in writing, had models for everything: Organizational models. New-product-development models. Revenue-projection models. His penchant for reducing everything to a mathematical model gave the underwriters tremendous confidence that he knew his company inside out. There were other plus points: SST's accounting practices were distinctly conservative. And Yeh had personally signed every check for more than $200, a helpful control mechanism.
The harrowing pace had paid off. The registration statement was filed in mid-September, only three weeks after the first all-hands meeting. On October 5, the underwriters had sent the SEC a first filing, containing June numbers -- shaving more than a week off the typical IPO schedule. The nine-month audit was wrapped up on cue on October 13, opening the door for the second filing, using audited September financials to be shipped to the SEC a few days later. On October 17, out went the preliminary prospectus -- known as the red herring -- to start warming up the underwriters' sales forces. SST's records were starting to conform to patterns that the Street would recognize. And the computer system was getting an upgrade.
In the outside world, SanDisk did its IPO on November 13. Its stock was launched at $10 a share and shot above $30 almost immediately. SST's public debut, running about two weeks behind SanDisk's, was meeting a cooling technology market. Employees' expectations ran high, however. Says memory-design director Ping Wang, "We were hoping we'd be like SanDisk."
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Unfortunately, nobody had told House Speaker Newt Gingrich (or Bill Clinton, for that matter) that SST was preparing to go public. So when federal government departments shut down for a week during October, hearts in Sunnyvale nearly shut down, too, for fear that the SEC -- the one department SST desperately needed -- would soon close. Cooley Godward lawyers were on the phone almost every day with the agency, whose reviewers must get copies of the preliminary prospectus in enough time to comment on them. SST held up its end of the deal. Now if those reviewers were proclaimed nonessential workers, there wouldn't be enough doors to slam at SST. "If we were delayed, our IPO would have gotten into Thanksgiving," says Yeh. When the holiday season was under way, SST could bet it wouldn't get as much time from fund managers.
The company lucked out: Congress authorized the temporary funding that put federal workers back at their desks. Now all the SEC had to do was respond in time.
