CA Names Interim CEO, Restates Earnings

UPDATED: Computer Associates names independent board member Kenneth Cron to the interim CEO spot vacated by Kumar and announces that it has filed to restate earnings for 2000 and 2001.

Computer Associates International Inc. this morning, after wrapping up its own internal investigation into CA accounting practices, announced that it has filed to restate earnings for 2000 and 2001 for $2.2 billion in revenue prematurely booked.

CA announced the restatement, which will not affect the results of CA financial quarters booked under the new business model adopted in 2002, along with other changes in its executive lineup.

As expected, CA confirmed that it has selected independent board member Kenneth Cron as its interim CEO. But CA also named newly appointed chief financial officer Jeff Clarke as chief operating officer, announced the resignation of Stephen Richards, and promoted Greg Corgan to replace Richards as senior vice president of worldwide sales.

In a conference call this morning, newly appointed Chairman Lewis Ranieri, lead independent director on CAs board, said that with such a strong management team in place, CA will take its time to find the best fit for a permanent CEO.

"We want to do this search well, rather than quickly," he said in the call.

At least one Wall Street analyst applauded a measured, deliberate search. "For them to proceed at warp speed would frankly be somewhat fool-hardy," said Gregg Moskowitz, analyst at Susquehanna Financial Group LLLP in New York. "It is much more advantageous for CA to have the right person for that job. Having said that, even though it could be a few months, I know they wont want it to drag on indefinitely."

CA will conduct its CEO search in parallel with a search for a new CFO. Clarke will act as both CFO and COO while the search is conducted.

Although CA is anxious to put the burgeoning scandal behind it, it is unclear what effect, if any, its restatement and executive shuffle will have on the ongoing SEC and Department of Justice investigations.

It is possible that the company itself could be charged with wrongdoing, or that ousted CEO Sanjay Kumar, who is now chief software architect at CA, could be charged with wrongdoing. It was unclear in this mornings conference call what the next step is that the government will take, or when it will act.

/zimages/5/28571.gifCA customers are expressing reservations about dealing with a vendor with damaged credibility. Click here to read the full report.

At the same time, the latest of some 15 managers and executives to depart the company as part of the ongoing investigations—Stephen Richards—has not been charged with any wrongdoing. All CAs new Senior Vice President of Worldwide Sales Greg Corgan would say of Richards departure was, "In the course of all the investigations we were going through, it became apparent for him and us that it was the best course of action." Corgan, who reported to Richards, is a veteran in the industry, with 24 years at IBM before joining CA about a year ago.

In restating $2.2 billion in revenues during fiscal 2000 and 2001, CAs audit committee found no fictitious revenue, but it found a pattern of prematurely recognizing revenues for those periods and prior to that, according to Clarke. But CAs new business model "has eliminated the 35 day issue," he said. "KPMG did four audits (since 2001) and there were no adjustments around revenue recognition. Its clear through this rigorous exam that reporting of the new business model is solid," he added.

To put in place additional checks and balances, CA intends to hire a new chief compliance officer as well as a chief accounting officer and invest some $5 million to $10 million in industry standard financial management systems; in addition, CA put former interim CFO Doug Robinson in place as corporate controller.

Kumars role as chief software architect will be to maintain CAs technology vision as a dominant supplier of management software to the IT industry. His role will not have any effect on the responsibilities of Mark Barrenechea, senior vice president of product development, according to Corgan.

"That does remain to be seen. They are still in a state of flux," said Moskowitz.

Ranieri described the internal investigation as lengthy and exhaustive. He said more than 1000 CA license agreements had been reviewed since August, more than 100 employees were interviewed and more than 1 million electronic messages were combed. "Those who declined to cooperate were asked to resign from the company," he said. CA spent about $30 million on the investigation.

He also hinted that its possible CA may rescind bonuses given to some executives. "Although bonuses paid to officers of the company are under review, this will have no effect on compensation for any other employee," he said.

Editors Note: This story was updated to include information and comments from a press conference with analysts.

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