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Update: CA names interim CEO, adds COO, restates earnings

New chairman Lewis Ranieri called CA's past financial practices 'utterly unacceptable'

By Stacy Cowley
April 26, 2004 12:00 PM ET

IDG News Service - Computer Associates International Inc. appointed board member Kenneth Cron as its interim CEO today and promoted recent hire Jeff Clarke to chief operating officer.
Cron will lead CA as it searches for a permanent CEO to succeed Sanjay Kumar, who stepped down last week under pressure stemming from government investigations into accounting violations several years ago at CA (see story).
That scandal, which has already forced out more than a dozen CA executives and led to criminal changes against four, claimed another member of CA's management team today: The company announced that worldwide sales head Stephen Richards has left the company. A 15-year veteran of CA, Richards was in charge of CA's sales team during the period in which the company says some contracts were backdated to inflate quarterly earnings.
Richards will be succeeded by Greg Corgan, who joined CA last year and oversaw North American sales.
Clarke's promotion to COO fills a spot left empty since Kumar moved from president and COO to CEO in August 2000. The company had been operating since then without a clear No. 2 executive. Clarke, formerly Hewlett-Packard Co.'s head of global operations, joined CA last month as its chief financial officer.
Clarke will continue as CFO on an interim basis while CA launches a search for a permanent CFO that will run parallel with its CEO search, executives said today during a conference call with analysts.
Board member Lewis Ranieri, promoted to chairman last week, said the board is now interviewing executive search firms. Cron could be at the helm of CA for a significant length of time.
"We want to do this search well rather than quickly," Ranieri said. "We have no sense of crisis."
Islandia, N.Y.-based CA said its development, technology services, legal and communication departments will report to Cron, in addition to Clarke. The company's sales, partnership, business development, marketing, finance and human resources units will report directly to Clarke. Kumar remains with CA as its chief software architect.
CA also announced a long-expected restatement of its financial results for its 2000 fiscal year, the period during which the company and government investigators say the bookkeeping manipulations occurred. More surprisingly, it also restated results from its 2001 fiscal year. The U.S. Securities and Exchange Commission and U.S. Department of Justice, which are jointly investigating and prosecuting the violations, had so far publicly questioned only CA's accounting from its 2000 fiscal year, which ended March 31, 2000.
CA said it prematurely recorded $1.78 billion in revenue in 2000, more than the $1.4 billion the SEC previously identified. Because the accounting plan involved shifting sales among quarters rather than falsifying revenue, the restatements affected CA's reported revenue for the year only slightly. In the restated results filed Monday with the SEC, CA's reported revenue for 2000 dropped from $6.094 billion to $6.092 billion.
In CA's 2001 fiscal year, $445 million was improperly recorded. The company's restated revenue rose from $4.19 billion to $4.75 billion. The snowball of sales recorded in advance of their completion tapered off in fiscal 2001, as CA adjusted to a late-2000 change in its business and accounting model to recognize revenue from software sales gradually over the life of contracts rather than all at once as the contracts were signed.
CA's financials for fiscal 2002, 2003 and the first nine months of fiscal 2004 are unaffected by its restatements, and the company said it still expects to report its fourth-quarter and fiscal 2004 results on May 12, as previously scheduled.

CA spent more than $30 million on its internal investigation and complying with the government investigations, executives said. The new management team emphasized during the call the extensive overhaul under way to change the company's culture and implement safeguards.

"The practices we uncovered are utterly unacceptable," Ranieri said. "CA is implementing remedial steps ... to be sure the practices that made these restatements necessary are never repeated."

Clarke said the new business model CA adopted in late 2000 eliminated the "35-day month" issue, as the accounting manipulation has been called. CA plans to hire a chief compliance officer to report to the board's audit committee, and it will spend $5 million to $10 million replacing its homegrown accounting systems with a standard ERP and accounting package, he said.

CA also named Doug Robinson to the newly created corporate controller position. Robinson served as CA's interim chief financial officer before Clarke's appointment. In his new job, Robinson will oversee CA's financial controls.

The changes made at CA in the past week address the priority concerns of analysts and investors, but may not get the company off the hook with the government. The Justice Department and SEC made clear in court filings that they're gathering evidence against more executives than those charged to date. Kumar is considered a likely target of their inquiries, although CA's board has said its investigation turned up no evidence of wrongdoing on his part.

The SEC notified CA in January that it's considering civil penalties against the company; criminal charges also remain a possibility. Executives declined to speculate today on the timeline or likely severity of the government's actions following the conclusion of its investigations.

CA's shakeup comes one month before its annual user conference, which will be held in late May in Las Vegas. Kumar is currently still scheduled to give the show's opening keynote, but that may change. Cron said the company will soon decide its conference plans and keynote lineup.

Cron noted that he and Clarke will have a visible presence.

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Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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