CA delays Q4, revises Q2 and Q3

CA delays Q4, revises Q2 and Q3

Still recovering from its accounting-fraud investigation and subsequent management purge, Computer Associates International Inc. (CA) said Thursday it will delay its financial report on its just-ended fourth quarter and revise its revenue calculations for its second and third quarters.

The revenue restatement is small: CA said it will defer US$5 million of previously recognized revenue in the third quarter of its 2004 fiscal year, ended Dec. 31, and US$4 million of revenue from the preceding quarter. Islandia, New York-based CA previously reported revenue of US$844 million and US$833 million for the respective quarters.

Even a minor revenue revision is likely to raise flags with analysts, though, coming less than two weeks after CA announced that a long-running board investigation of past accounting violations had uncovered US$2.2 billion in premature bookings in CA's 2000 and 2001 fiscal years. CA said at the time that none of its restatements would affect its 2002, 2003 or ongoing 2004 fiscal years.

Chief Operating Officer Jeff Clarke, who also serves as CA's chief financial officer, attributed the revision to an adjustment in the way CA calculates its subscription revenue.

In a conference call with analysts, Clarke and CA Controller Doug Robinson explained that CA has changed its method for recording subscription revenue when a new contract supersedes an existing one. As CA progresses through the fourth year of its revised, subscription-focused licensing model, the company is beginning to process renewals of its early contracts, which generally have a term of around three years, executives said.

Under CA's old method, when a new contract term overlaps the end of a previous contract, remaining revenue from the previous contract was booked concurrently with overlapping revenue from the new one. Now, remaining revenue will be amortized over the life of the new contract.

The change does not affect the total revenue accumulated by CA, but it does change the timing of that revenue. Under the old model, CA would start off its new contract with one period of spiked revenue, thanks to the lump sum from the expiring contract. Now, it records a level amount in each year of the new contract, resulting in a lower first-year total but higher totals in subsequent years.

Clarke said the change came now because the issue of booking renewal revenue is just beginning to crop up. It was made as part of the normal process of reviewing the books at the fiscal year's end, and does not relate to CA's earlier restatement, he said.

Asked whether CA anticipates further changes in its accounting methods, Clarke said nothing is looming on the horizon. He also said CA does not expect any further adjustments relating to the past accounting violations.

"We have completed the restatement. Unless something comes out of the blue, new information, that's done and finished," he said. "We don't expect anything new."

CA also said it will postpone its fourth-quarter report for one to two weeks past the originally scheduled May 12 announcement date. CA's US$2.2 billion restatement consumed thousands of working hours from CA's staff and its auditors, forcing the delay in reporting on the recent quarter, Clarke said.

CA offered preliminary results from the quarter in its Thursday announcement. Revenue will be around US$850 million, the company said -- below the US$866.1 million consensus forecast of analysts polled by Thomson First Call. For the full fiscal year, revenue will be around US$3.28 billion, slightly below CA's previous guidance.

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