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METHOD EXPLAINED

CA offers tutorial on its accounting

BY MARK HARRINGTON
STAFF WRITER

October 20, 2004

It's back-to-school for some investors and analysts attempting to master subscription-based financial accounting as interpreted by Computer Associates International Inc.

Before year's end, the company plans to hold an online forum and question-and-answer session on the workings of its controversial subscription software-sales model and accompanying accounting method.

The plan, according to a CA spokeswoman, is to give new investors and analysts who are unfamiliar with the complex methodology a "resource" for better understanding.

The need for such a resource suggests that the 4-year-old system - alternately referred to as "phony accounting" by dissident investor Sam Wyly and "a stroke of genius" by adherents such as CA board member Walter Schuetze - continues to bedevil the Islandia software firm.

Termed "pro-forma pro-rata" at its inception, the accounting methodology records revenue from software sales over the life of a contract rather than all at once at the time a deal is signed, as CA had in its past. CA has frequently hailed the subscription business model as a competitive edge in a flat software market, even while portraying it as a more conservative way of tallying its results. Last month the company agreed to pay $225 million in restitution after acknowledging $2.2 billion in past accounting manipulations.

But even some seasoned analysts continue to have a problem with the new accounting, a situation not helped by recent decisions to augment it.

"It's definitely frustrating," Nitsan Hargil, an analyst at Friedman, Billings, Ramsey in Manhattan, said after the company's July conference call on first-quarter results. The model "is still raising as many problems and questions as it did when they announced it four years ago," he said.

After the conference, investment banker Gary Lutin shot off a letter to CA's board chairman Lewis Ranieri.

"Three of the six analysts who asked questions during CA's July 22nd earnings conference call raised issues about the company's accounting," he wrote. "If top professionals have trouble understanding the numbers, the reporting simply isn't satisfactory."

That led to rumblings from within CA that the company would avoid technical discussions of the accounting.

But the CA spokeswoman stressed that the planned accounting tutorial, which will remain on CA's Web site, won't replace the give-and-take of the analyst conference calls.

"We're still going to answer questions, but we're trying to provide [investors] with additional resources to provide a level of explanation that you can't on an earnings conference call," she said.

Lutin said that's not good enough. "The information should be usable by someone who isn't a sophisticated securities analyst," he said.

The online tutorial obviously won't be ready for prime time by the company's financial conference call this evening at 5 p.m., when the company is expected to report a loss of 23 cents a share on revenue between $830 million and $850 million.

Copyright 2004, Newsday, Inc.

 

 

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