CA Delays Earnings, Adjusts $9 Million

Software maker Computer Associates said it would adjust $9 million from two quarterly financial statements in 2004 and delay fourth quarter results because of delays caused by a previous earnings restatement.

The delay announcement comes at a time when the company is recovering from a financial scandal over its accounting practices that has led to earnings restatements and the ouster of key executives, including former CEO Sanjay Kumar.

Because of “an adjustment in the way the company calculates subscription revenue,” accountants at the Islandia, N.Y., company are deferring $4 million in the second quarter, and $5 million in the third quarter, of 2004 to subsequent periods.

Doug Robinson, CA controller, told reporters and investors in a conference call the adjustment is the last lingering effect of business practices that took place before the implementation of the company’s “New Business Model” in late 2000.

“While the impact of the adjustment is small, had the process continued the
impact would certainly have been far greater,” he said.

In the past, deferred revenue from previous contracts was tallied in the first year of the new contract with a customer; that’s been changed so that the deferred revenue is spread throughout the term of the new contract. So, according to Robinson, when the company gets $60 in deferred revenue it won’t all be recognized up front, but in installments of $20 over the next three years.

Robinson added fourth quarter 2004 and later results will reflect the new reporting method, which he described as a more precise indication of its revenues for the quarter.

Before the implementation of the company’s “New Business
Model” in late 2000, CA had been fiddling with the method of filing its revenue numbers. Called the “35-day month,” the practice artificially boosted revenues for previous monthly reporting at the expense of the current month’s true numbers.

The fourth quarter report delay, said company CFO and COO Jeff Clarke, is a result of the company’s efforts to restate its 2000 and 2001 financial statements. Manpower was “reallocated” to get those reports out by April 26, which resulted in the $2.2 billion restatement. It also resulted in the forced
April 21 of Kumar, CA’s chief software architect. He had been chairman and CEO of the company since 2000, and the one who first implemented CA’s New Business Model.

“This adjustment does not in any way indicate a weakness in the New Business
Model,” he told investors. “Our model is a much more transparent way to account for revenue associated with multi-year software license agreements.”

Last month, the company adjusted $2.2 billion in revenues for 2000 and 2001 to rectify the results.

It has also recently settled two class-action lawsuits by investors over the practices. The SEC and Department of Justice are still investigating the company, though there is no word on when that might conclude.

CA was originally scheduled to report fourth quarter earnings May 12; official say they will issue their annual report for 2004 earlier than the required June 14 filing date. The company expects revenues of $850 million for the fourth quarter, in line with its previous guidance of $845 to $865 million. The company said it expects to fall short on annual estimates of between $3.29 and $3.31 billion in revenues, however, with $3.28 billion.

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