Regulation

Computer Associates to Restate Results

The software maker unearths past deals that "appear not to have been negotiated on an arm’s-length basis and to have no valid commercial purpose."
Stephen TaubMay 31, 2005

Apparently embarked on a new era following its accounting scandal, Computer Associates found itself being drawn back into the effects of its dark past with yet another restatement.

The company, which already restated $2.2 billion in revenue for 2001 and 2002, reported that it would revise its results from 2000 through 2004 and delay the filing of its 2005 report. The software maker, which had planned to release its annual report on June 29, also said it would delay the filing by up to 15 calendar days.

CA revealed in an 8-K filing that it has identified transactions that it entered into in fiscal years 1998 through 2001 that seem to have been accounted for improperly. Former senior managers and others who have since left the company helped negotiate and approve the deals, according to the company.

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In some cases, the deals involved “contemporaneous purchases and sales (or investments and licenses) of software products and services with the same or related third parties.” Those deals “appear not to have been negotiated on an arm’s-length basis and to have no valid commercial purpose,” the company reported. At other times, license agreements were changed by side agreements that would have delayed the full revenue recognition.

“It’s very disappointing that they have to go back and restate again,” Nitsan Hargil, an analyst with Friedman Billings Ramsey, told The Wall Street Journal. On Friday, Legg Mason downgraded Computer Associates’ stock to “hold” from “buy.”

The company said it would change its financials for fiscal 2000 and 2001 as a result of its discoveries. CA will also restate its financials for fiscal 2002 through 2004, and adjust its financial statements for fiscal years because of the faulty accounting for the deals.

The company said it expects the adjustments in fiscal years 2000 and 2001and prior periods to reduce revenue by a total of $80 million to $110 million and reduce net income by roughly $15 million to $25 million.

Even though CA hasn’t finished its internal review, it doesn’t expect the adjustments for 2002 through 2004 to boost revenue or net income (or reduce net loss) by more than $10 to $15 million in any year, or to increase revenue by more than $7 to $10 million or net income by more than $5 to $8 million in 2005.

None of the changes will affect CA’s cash flows, according to the company.