CA Restates Financial Data, Appoints Cron Interim CEO

As expected, the embattled software maker also formally announced that board member Ken Cron, a former president of CMP Media and the original publisher of CRN, is taking the post of interim CEO. CA also named Jeff Clarke, a former key Hewlett-Packard top executive who recently joined CA, as chief operating officer.

Replacing RIchards is Greg Corgan, who joined CA in 2003 as senior vice president for North American Sales. Corgan, who will report to Clarke, has been named senior vice president for worldwide sales.

Valeh Nazemoff, director of business development for DataTech Enterprises Inc., a Fredericksburg, Va. solution provider, said she is anxious to see if Corgan and Cron put some muscle behind CA's channel effort. "I am hopeful they will not just focus on the direct sales force but how the direct sales force can work effecitively with partners," she said.

CA's Audit Committee found that a total of $2.2 billion in revenue was booked prematurely by quarter within fiscal 2000 and 2001. A total of $1.782 billion was prematurely recognized in fiscal 2000 and $445 million in fiscal 2001.

For the entire fiscal year 2000, revenue decreased $2 million from $6.094 billion to $6.092 billion. Neither net income nor earnings per share was affected. However, beginning stockholders' equity was reduced by $333 million due to prior period adjustments.

For the entire 2001 fiscal year, revenue increased $558 million from $4.190 billion to $4.748 billion. Correspondingly, the loss for the year dropped by $333 million from a previously reported loss of $591 million to a restated loss of $258 million. Loss per share improved from a loss of $1.02 to a loss of 44 cents per share.

The financial restatement comes with the completion of the CA Audit Committee's investigation into the company's accounting practices. CA is grappling with a federal investigation into its accounting practices that has led to former chief financial officer Ira Zar and two senior vice presidents of finance pleading guilty to unspecified federal charges.

In a prepared statement, Walter Schuetze, a CA board member and head of the company's Audit Committee, said that the committee "found that CA had a practice of prematurely recognizing revenue on software license agreements for several years prior to CA's adoption of its new business model in October 2000."

"These practices included holding the financial period open after the end of the fiscal quarter in order to recognize revenue from contracts that were not executed by the end of such fiscal quarter," said Schuetze, a former chief accountant for the Securities and Exchange Commission. "It's important to note that the '35-day month' practice involved the premature timing of revenue recognition, not the making up of revenues. Thus, the restatement involved the movement of revenue from one quarter to another. This '35-day month' practice was wrong, and CA has taken and will take any remedial steps necessary."

"The board is confident that CA's current financial reporting is sound. This was an exhaustive and comprehensive investigation," added Schuetze, "involving reviews of hundreds of thousands of pages of documents, interviews of scores of CA personnel and an in-depth accounting analysis of every aspect of the applicable software revenue recognition criteria in order to assess the full extent of accounting irregularities.

"I am satisfied that today's restatement appropriately corrects the effects of the company's '35-day month' practice in fiscal 2000 and 2001," Schuetze said. "We have shared with the government substantial evidence of wrongdoing by former CA executives who have since pled guilty to serious federal crimes. We fully support the government's effort to bring these individuals to justice."

CA is holding a conference call to discuss the restatement and Cron's appointment this morning. At CMP Media, Cron was responsible for all U.S. business, including print magazines such as CRN and InformationWeek plus trade shows and online services. More recently, Cron was CEO of Vivendi Universal Games, a maker of interactive entertainment games, and Uproar Inc.

Cron's knowledge of the channel is a plus for solution providers, some of whom expressed concern that management changes at CA could stall the software maker's aggressive channel push.

"Cron has a good understanding of the channel and what the channel wants," said Gregory Maisel, director of business strategy at Applied IT Solutions, a Dallas-based CA solution provider. "He would be an excellent choice. He brings to the table what Ross Perot brought to EDS and Perot Systems. He understands his customer base and has raw energy, charisma and good fortitude."