CA draws a line under financial troubles
CA is hoping to draw a line under its financial troubles, finally filing its late 10k and appointing a new CFO.
The management software company has seen a fifth of its market value wiped out this year as it underwent an internal investigation into financial irregularities that brought to light stock awards made several years after they were granted, as well as errors in accounting for its subscription revenues prior to 2006.
Its 10k form filed today noted ‘material weaknesses in its financial controls … revenue recognition … and the estimation, recording and monitoring of sales commissions.’
CA said that a review of its ‘historical policies and procedures’ around stock option awards granted between fiscal year 1996 to date revealed that prior to 2002, awards were not made in a ‘timely manner’. In fact delays of up to two years were not uncommon between the decision to award stock options and the actual award taking place. In almost all cases, the value of the stock awarded was higher than it had been when the decision was made. CA said the grants were made primarily to non-executive employees.
The company is now recognising the value of the awards based on the time they were exercised and is recording an extra $175m post-tax expense to account for the irregularity.
It also admits to having systematically understated subscription revenues in fiscal years 2004 and 2005 and for the interim periods up to 2006 because of the ways it accounted for subscriptions that had been cancelled and renewed more than once before the expiry date of the existing contract.
This added $43m and $12m in 2005 and 2004 and $19m for the first three quarters in 2006.
Further adjustments included $31m in commission expense and tax restatements that had little net effect.
The company also announced a new CFO in the form of Nancy E. Cooper, effective as of 15 August. Previously CFO at IMS Health Incorporated, Cooper will replace CA’s interim CFO Bob Cirabisi, who will return to his role of corporate controller.
CA recorded revenues of $3.8bn for fiscal 2006 compared with $3.6bn for 2005, and a net income of $156m compared with $26m for 2005. CA stock closed at $20.97 yesterday, up a few cents on their $20.51 opening.