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Week’s Top News | Alliances | Business/Finance
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CA Names Interim CEO; Will Restate Revenue
By Jim Wagner

April 26, 2004

Troubled software maker Computer Associates (Quote, Chart) continued a major house-cleaning Monday, naming former Vivendi Universal Games head Kenneth Cron as its interim CEO and restating $2.2 billion in revenues amid a federal accounting probe.

Cron steps into the role vacated last week by CEO Sanjay Kumar, who resigned amidst an accounting scandal the Islandia, N.Y.-based company is moving to put behind it.

Also promoted was newly-installed CFO Jeff Clarke as chief operating officer at CA. Clarke stepped in as the top financial executive only this month. Clarke will wear both hats within the company while the board of directors looks for a permanent CEO and new CFO.

The company also forced the resignation of the senior vice president of worldwide sales, Stephen Richards, who was replaced by Greg Corgan in the position. In a conference call with investors and reporters Monday morning, board chairman Lewis Ranieri said with the current team in place, he doesn’t feel compelled to rush the search for permanent replacements.

“Sanjay [Kumar] has built a terrific team and board has augmented it with Ken [Cron] and promoting Jeff [Clarke], so we have no sense of crisis, and as a result want to do this search well, rather than quickly,” he said.

He did acknowledge the search criteria has been established by board members, but would not detail whether they are looking for someone within or without the software industry.

The CEO fill-in comes five days after Kumar, former chairman and CEO, was forced to resign in the wake of continued investigations into the company’s accounting practices.

Ranieri did drop some hints to explain why the board created the chief software architect position for Kumar, rather than force him from the company entirely as some expected. In addition to the management team already in place because of Kumar, he noted the former chairman and CEO was the one to put its current business practices in place with the New Business Model in October 2000, after years of questionable accounting practices.

It seems, according to Ranieri and Walter Schuetze, former SEC chief accountant and head of CA’s internal audit, that quarterly and annual financial statements at the time were assessed on a ’35-day’ month. That way, contracts that should have been reported as beginning in a new quarter were still being reported as revenue for the previous quarter, an accounting juggle that helped CA’s bottom line revenue numbers.

“It’s important to note that the ’35-day month’ practice involved the premature timing of revenue recognition, not the making up of revenues,” Scheutze said in a statement. “Thus, the restatement involved the movement of revenue from one quarter to another. This practice was wrong, and CA has taken and will take any remedial steps necessary.”

Because of the ’35-day’ month scheme, the company has been fending off class-action lawsuits and an SEC probe for almost a year as its internal auditing team went through finances dating back to 2000. As a result, CA filed a Form 8-K with federal regulators Monday for “prematurely recognized” revenues of $1.782 billion in 2000 and $445 million in 2001. Because of the restatement, revenues for 2000 dropped $2 million to $6.1 billion for the year and 2001 revenues climbed $558 million to $4.75 billion.

Clarke said the restatement, as well as forcing managers to leave the company if they don’t cooperate with auditors, will bring the company back on course.

“As you know, last week we terminated nine vice presidents and managers in the financial and legal departments,” Clarke said. “That action sends an important message in management and employees that we won’t tolerate wrongdoing.

“As COO, I will gladly communicate and enforce a no-tolerance policy for infractions of accounting integrity and business controls,” he said.

Officials deemed 2002 and earlier safe, as the New Business Model was in place for those reporting periods. That’s not to say the SEC’s investigating team, however, might not conclude otherwise.

Guiding the company through this latest wrinkle in corporate finances is Cron, who has been an independent board member at CA since 2002. He replaces Kumar, who is now CA’s chief software architect, until Ranieri can find a permanent CEO to helm day-to-day operations at the company.

Interim CEO Cron said one of his first jobs would be contacting federal investigators to get a settlement between them arranged.

“We will certainly engage the government as quickly as possible to put the matter behind us,” he said. “I don’t exactly know the verbiage of the process but obviously we will want to in some way — whether they say or we say — resolve this issue once and for all.”

Cron’s career includes a position as president of publishing for CMP Media from 1978 to 1999. He left that position for a stint as CEO of Silicon Alley dot-com Uproar, an online gaming site. It was a typical dot-com play, a one-time public company with 18 million registered users, over $93 million in the bank, and trouble turning a profit. Uproar was acquired by Flipside, a unit of Vivendi Universal (Quote, Chart) in February, 2001, for $140 million.

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