CA PR offensive

By John Pallatto  |  Posted 2004-05-27 Print this article Print

Making a pre-emptive offer is not likely to sway federal prosecutors, who have been highly aggressive in prosecuting accounting fraud charges against companies such as Enron, WorldCom and Tyco International.

While the charges levied against CA havent been on the brazen scale of these other companies, the results could be similar—new indictments, trials, guilty pleas, fines and perhaps even prison terms.

Click here to read about interim CEO Ken Crons efforts to ensure CAs business reforms remain on track.
The settlement disclosure has been part of a public relations offensive by CAs top management to assure customers, shareholders and the government that the company is on its way to repairing the damage.

CA disclosed the settlement offer on May 25 along with its fiscal fourth-quarter financial report. CA had delayed the release of this report for two weeks because the company said its accounting staff (presumably decimated after the firings) was overburdened by having to restate earlier quarterly reports after an investigation by the board of directors audit committee found irregularities.

As part of its quarterly report, CA also disclosed that it has will adopt a more conservative accounting policy for the way it recognizes revenue generated from subscription software sales reported by indirect distributors.

CA will spread the booking of these sales over time rather than recognizing them all at once. This was the crux of the SECs investigations: that CA was overstating revenue because it was booking software sales before customers actually paid the bills. The company estimates that this policy will cut its net income by about $125 million, equal to 13 cents a share.

The company also says it will start reporting stock options as expenses, which will further reduce 2005 income by about 4 cents a share. This is a move that many companies have tenaciously resisted unless forced by adamant shareholders.

Meanwhile, Cron is acting more like a permanent rather than an interim CEO as he makes the rounds of customers and partners to convince them that he and the board are keeping a tight rein on the companys financial and sales policies.

All of this is designed to demonstrate that CA is going to be a good corporate citizen from now on. But the company is still likely to feel some more jarring bumps along the road to respectability. The SEC may decide it is going to cost a lot more than $10 million before CA is finally allowed to put years of shady dealings behind it. Enterprise Applications Center Editor John Pallatto is a veteran journalist in the field of enterprise software and Internet technology.

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John Pallatto John Pallatto is's Managing Editor News/West Coast. He directs eWEEK's news coverage in Silicon Valley and throughout the West Coast region. He has more than 35 years of experience as a professional journalist, which began as a report with the Hartford Courant daily newspaper in Connecticut. He was also a member of the founding staff of PC Week in March 1984. Pallatto was PC Week's West Coast bureau chief, a senior editor at Ziff Davis' Internet Computing magazine and the West Coast bureau chief at Internet World magazine.

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