Legal settlements push CA into the red

Computer Associates International has posted second-quarter results weighed down by expensive litigation settlement charges.

Computer Associates International has posted second-quarter results weighed down by expensive litigation settlement charges.

CA generated revenue of $833m during the quarter ending 30 September, up 8% from $772m for the same period last year. While the company's channel sales, maintenance fees, financing fees and professional services revenue all dropped from the previous year, an increase in its subscription revenue offset the declines.

CA's net loss widened from the previous year, reaching $87m. It included hefty charges for two settlement agreements announced in August: $100m to settle shareholder lawsuits over CA's past accounting practices and $13m toward a $40m payment agreement reached to settle a contractual dispute.

CA's accounting is the subject of a joint investigation by the US Securities and Exchange Commission and the US Department of Justice. The company is also carrying out an internal investigation of its accounting practices.

Based on preliminary results from that inquiry, CA last week requested the resignations of three senior financial executives, including its chief financial officer, after determining that revenue for some contracts had been booked before the contracts were signed.

"The findings were obviously disturbing to all of us, and it's been a painful time for the company," said CA chairman and chief executive officer Sanjay Kumar.

Kumar declined to estimate how long the investigation being conducted by CA's board will take, or to approximate the scope of the improperly booked revenue. He emphasised the board's finding in its preliminary report that all sales booked were eventually completed.

No accounting improprieties have been found since the company's late-2000 move to a new, subscription-based sales and revenue recognition model, said CA's interim chief financial officer Doug Robinson.
While the business environment in Europe remains difficult, CA sees signs of a "continued warm up" in North America. "I'm a bit more optimistic about the North American business compared to three to six months ago," said Kumar.

He cautioned, however, that a substantial recovery remains distant: "It's clearly a buyers' market, and many believe it will continue to be a buyers' market into the future."

Stacy Cowley writes for IDG News Service

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