August 1,
2006
CA Inc. yesterday filed its delayed annual
report, reconciling a series of financial miscues,
including $342 million in expenses for improperly granted
stock options.
Separately yesterday, the Islandia business software
company said in its annual report that Kenneth Cron, a
board member and onetime interim chief executive, was
stepping down as a director this summer as CA reduces its
board to 11 members.
And the company declined to comment on recent reports that
it would eliminate as many as 900 jobs in an upcoming
restructuring. "We don't comment on rumors," spokesman Dan
Kaferle said.
CA said full-year 2006 revenue was $3.796billion, an
increase of $20million over the preliminary results CA
announced on June 29; revenue in 2005 was $3.6billion.
Income from continuing operations for fiscal 2006 was
$156million compared with $26 million in fiscal 2005.
The annual report includes financial restatements from
2002 through 2005, reflecting additional noncash expenses
tied to improperly issued stock-option grants dating as
far back as 1996. CA in June said it discovered former
management had maintained a "pool" of stock options priced
on the date a committee of CA's board granted them, but
not "communicated" to employees until as many as two years
later.
Often the options increased in price, making them more
valuable to the employees. Securities law restricts such
practices. The total pretax, noncash expense of the
practice was $342million, CA said in the annual report.
The company said it discovered the problem after an
internal review and that it brought in outside consultants
to review it. CA also discovered incorrectly recorded
subscription revenue that led to millions of dollars in
restatements, and said its outside auditors "determined
that we did not properly calculate our taxes for certain
non-routine tax matters in the fourth quarter of fiscal
year 2006," forcing the company to adjust them.
Those issues led it to conclude it had material weaknesses
in its internal controls. The problems could force CA to
extend the term of the independent examiner hired as part
of its deferred-prosecution agreement with federal
prosecutors after its $2.2-billion accounting scandal.
To date, CA said, it has not been contacted by federal
regulators regarding the latest restatements, Kaferle
said.
According to the annual report, CA's expenses ballooned by
$244million to $1.6billion in fiscal 2006, attributed to
"employee costs," increased travel and a new branding
campaign, among other things. CA bought a new jet last
year and recently installed a heliport at its Islandia
headquarters. CA also said sales commissions were about
$75 million higher than it had anticipated.
CA said its outlook for 2007 "is based on the assumption
that there will be limited-to-modest improvement in the
current economic and IT environments, and that customers
will continue to be cautious with their technology
purchases."
Accordingly, CA expects revenue to be flat at $3.9
billion, with earnings per share for the year of around 44
cents and cash from operations at $1.3 billion.
Cron, a former president of CMP Media, had been a CA
director for four years; he took over as interim chief
executive after Sanjay Kumar stepped down from the role.
Kumar eventually pleaded guilty to securities fraud and
obstruction of justice and is scheduled to be sentenced in
September.
"Ken Cron was a visible face to employees and customers as
interim CEO and his integrity and calmness were
instrumental in restoring confidence in the company,"
chief executive John Swainson said yesterday. "On a
personal note, he played a valuable role in my acclimation
to CA."Copyright 2006 Newsday Inc.
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