CA names interim CEO, adds COO

Computer Associates International Inc. appointed board member Kenneth Cron its interim chief executive officer on Monday, and promoted recent hire Jeff Clarke to chief operating officer.

Cron will lead CA as it searches for a permanent CEO to succeed Sanjay Kumar, who stepped down last week under pressure stemming from U.S. government investigations into accounting violations several years ago at CA.

That scandal, which has already forced out more than a dozen CA executives and led to criminal changes against four, claimed another member of CA’s management team Monday: The company announced that worldwide sales head Stephen Richards has left the company. A 15-year veteran of CA, Richards was in charge of CA’s sales team during the period in which the company says some contracts were backdated to inflate quarterly earnings.

Richards will be succeeded by Greg Corgan, who joined CA last year and oversaw North American sales.

Clarke’s promotion to COO fills a spot left empty since Kumar moved from president and COO to CEO in August 2000. The company had been operating since then without a clear number-two executive. Clarke, formerly Hewlett-Packard Co.’s head of global operations, joined CA last month as its chief financial officer.

Clarke will continue as CFO on an interim basis while CA launches a search for a permanent CFO, to run in parallel with its CEO search, executives said Monday during a conference call with analysts.

Board member Lewis Ranieri, promoted to chairman last week, said the board is now interviewing executive search firms. Cron could be at the helm of CA for a significant length of time. “We want to do this search well rather than quickly,” Ranieri said. “We have no sense of crisis.”

CA, based in Islandia, N.Y., said its development, technology services, legal and communication departments will report to Cron, in addition to Clarke. Reporting directly to Clarke are its sales, partnership, business development, marketing, finance and human resources units. Kumar remains with CA as its chief software architect.

CA also announced Monday a long-expected restatement of its financial results for its 2000 fiscal year, the period during which the company and government investigators say the bookkeeping manipulations occurred. More surprisingly, it also restated results from its 2001 fiscal year. The U.S. Securities and Exchange Commission (SEC) and U.S. Department of Justice (DOJ), which are jointly investigating and prosecuting the violations, had so far only publicly questioned CA’s accounting from its 2000 fiscal year, which ended March 31, 2000.

CA said it prematurely recorded US$1.78 billion in revenue in 2000, more than the US$1.4 billion the SEC previously identified. Because the accounting plan involved shifting sales among quarters rather than falsifying revenue, the restatements affected CA’s reported revenue for the year only slightly. In the restated results filed Monday with the SEC, CA’s reported revenue for 2000 dropped from US$6.094 billion to US$6.092 billion.

In CA’s 2001 fiscal year, US$445 million was improperly recorded. The company’s restated revenue rose from US$4.19 billion to US$4.75 billion. The snowball of sales recorded in advance of their completion tapered off in the 2001 fiscal year, as CA adjusted to a late 2000 change in its business and accounting model to recognize revenue from software sales gradually over the life of contracts rather than all at once as the contracts were signed.

CA’s financials for fiscal years 2002, 2003 and the first nine months of 2004 are unaffected by its restatements, and the company said it still expects to report its fourth quarter and 2004 fiscal year results as previously scheduled, on May 12.

CA spent more than US$30 million on its internal investigation and compliance with the government investigations, executives said. The new management team emphasized on Monday’s call the extensive overhaul underway at CA to change the company’s culture and implement safeguards.

“The practices we uncovered are utterly unacceptable,” Ranieri said. “CA is implementing remedial steps…to be sure the practices that made these restatements necessary are never repeated.”

The new business model CA adopted in late 2000 eliminated the “35-day month” issue, as the accounting manipulation has been called, Clarke said. CA plans to hire a chief compliance officer to report to the board’s audit committee, and it will spend US$5 million to US$10 million replacing its homegrown accounting systems with a standard enterprise resource planning and accounting package, he said.

CA also named Doug Robinson to the newly created corporate controller position. Robinson served as CA’s interim CFO before Clarke’s appointment. In his new job, he’ll oversee CA’s financial controls.

The changes made at CA in the past week address the priority concerns of analysts and investors, but may not get the company off the hook with the U.S. government. The DOJ and SEC made clear in their court filings that they are gathering evidence against more executives than those charged to date. Kumar is considered a likely target of their inquiries, although CA’s board has said its investigation turned up no evidence of wrongdoing on his part.

The SEC notified CA in January that it is considering civil penalties against the company; criminal charges also remain a possibility. Executives declined to speculate Monday on the timeline or likely severity of the government’s actions following the conclusion of its investigations.

CA’s shakeup comes one month before its annual user conference, which will be held in late May in Las Vegas. Kumar is currently still scheduled to give the show’s opening keynote, but that may change. Cron said the company will soon decide its conference plans and keynote lineup. Cron noted that he and Clarke will have a visible presence.

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