Past returns to haunt CA with second delay in results

Past returns to haunt CA with second delay in results

CA delayed filing its fourth-quarter and full fiscal 2006 results for a second time.

Seemingly unable to shake its troubled financial past, CA for the second time is delaying the filing of its final fourth-quarter and full-year 2006 results, the systems management and security software vendor announced Thursday.

The company made the decision after uncovering issues concerning the granting of employee stock options and the understating of subscription revenue during its annual audit.

"We're all disappointed that we continue to find problems in CA's past," John Swainson, CA president and chief executive officer, said during a Thursday conference call to discuss the news. "Our delay in filing our [Securities and Exchange Commission Form] 10-K has nothing to do with the current operational state of the business," he added. "It's related to historical people and historical processes."

CA was originally due to release its financials at the end of May. Taking the market by surprise, the vendor announced it would delay those results and also restate its third-quarter results, due in part to the impact of a new sales-commission plan that saw CA pay out higher sales commission that it had previously expected.

It's difficult to determine exactly when CA might issue final fourth-quarter and fiscal 2006 results, but the vendor's hoping to get it all wrapped up by the end of July, according to Michael Christenson, CA's chief operating officer:

Since officially taking over as CA's CEO in February 2005, Swainson has worked to completely transform the software vendor in terms of both its internal operations and its relations with customers. Those efforts are still ongoing.

CA is trying to re-emerge as a new company untainted by an accounting scandal that laid waste to its previous management team, three of whom, including former CEO Sanjay Kumar, recently have pleaded guilty to financial fraud charges.

Based on an initial look at its previous policies and procedures related to granting stock options, dating back to fiscal 1997, CA now believes that in the fiscal years prior to 2002, the company delayed properly informing individual staff about the approval of their stock option grants by as much as two years.

So far, CA estimates taking those delays into account may require it to recognize extra noncash stock compensation expenses. The pre-tax amounts relating to fiscal 2005 and 2006 would be under US$20 million per year, and for fiscal years 2002 to 2004 they would be in the range of US$40 million to US$100 million annually on a pre-tax basis. As for the period of fiscal 1997 to 2002, the impact is expected to be more than US$200 million, CA said.

As for the understatement of subscription revenue regarding the renewal of some of its software license contracts, CA estimates that amount in the years prior to fiscal 2006 in the aggregate amount of about US$40 million.

In its latest unaudited preliminary results issued Thursday, CA recorded a fourth-quarter loss from continuing operations of US$36 million compared to net income of US$16 million in the year-earlier quarter. Revenue was up 3 percent to US$947 million. For fiscal 2006 as whole, CA estimated net income at US$139 million on revenue of US$3.8 billion. Taking into account the impact of acquisitions, CA's preliminary earnings per share (EPS) was US$0.14 for the fourth quarter and US$0.81 for fiscal 2006 as a whole. A consensus estimate of analysts polled by Thomson Financial had predicted CA would report a fourth-quarter EPS of US$0.20 and a fiscal 2006 EPS of US$0.90.

Going forward, CA will no longer provide quarterly guidance, Christenson said. For fiscal 2007 as a whole, CA is estimating revenue of US$3.9 billion. Taking into account likely one-time charges, fiscal 2007 EPS will be US$0.83, he added.

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