Computer Associates Brushes Off New Questions

After spending most of the year answering accounting questions about how
it met sales targets in order to pay top executives’ bonuses, software and
IT consultancy Computer Associates is fending off a new
round of accounting questions.

But this time, investors and analysts appear to be shrugging off the
news.

Stories in Monday’s The Wall Street Journal and also on financial
wire
service Reuters said federal investigators had widened their ongoing
probe
of the company’s accounting practices.

For months now, the Securities and Exchange Commission and U.S. Attorney’s office have been looking into how the Islandia, New York-based Computer Associates booked revenue in relation to $1.1 billion in compensation for executives. Their bonuses were tied to the company’s sales targets and stock price.

The Journal and Reuters stories on Monday sourced former employees who alleged that Computer Associates used customer contracts and free software as part of a scheme to shift revenue during 1999 and 2000, the tail end of the Internet boom. The procedures, the stories said, could be against accounting rules. The employees also have lawsuits pending against the company regarding harassment charges.

But investors continued to brush off the accounts, leaving shares of Computer Associates little changed Monday and slightly off by less than 1 percent to $14.96 during Tuesday’s session, during a down day in market activity.

Computer Associates said it has not been advised by the federal
regulators or investigators that ongoing probes of the company’s finances
have been expanded.

“The story in the Wall Street Journal is largely based on the
allegations
and speculation of a few former employees, who have brought their
complaints
to the government,” Computer Associates said in a statement.

“They are free to do all the guessing they want, but, as we said last
week, Computer Associates has not been advised by either the SEC or the U.S. Attorney’s Office of any recent change in the status of the inquiry into
the company’s accounting practices.”

The company’s disclosure of federal probes into its finances have already been
factored into its price, said Kimberly Caughey, an equity analyst with
Pittsburgh-based brokerage Parker/Hunter.

“The bigger issue that needs to be resolved is did it manipulate its
figures in order to give the top three executives their shot at a $1.1
billion payoff,” she said. “That’s the thing that needs to be answered.”
Caughey, like most analysts that cover the company, did not downgrade her
positive rating on the company after the reports appeared.

Banc of America Securities, meanwhile, recently reported that Computer
Associates’ mainframe business continues to hold up in a weak IT spending
environment. It also noted that Europe continues to be a “pocket of
strength” for the company. During the third quarter its Unicenter security
back-up sales were up by 24 percent compared to the quarter before, and
its bookings for security and storage, “while not spectacular, were
stable” and are consistent with its peers in the industry.

Still, despite how the company is performing in a sluggish IT spending environment, analysts say the probes continue to hang over the company’s outlook.

On Saturday, The New York Times reported that the investigation into the company’s accounting had grown more intense after prosecutors in Brooklyn issued subpoenas to former employees and customers.

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