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.
The Forum
is open to all Computer Associates ("CA") shareholders, whether institutional or
individual, and to any fiduciaries or professionals concerned with their investment decisions.
Its purpose is to provide shareholders with access to information and a free
exchange of views on issues relating to their evaluations of alternatives,
as described in the Forum Summary.
There is no charge for
participation. As stated in the Conditions of Participation, participants are expected to make independent use
of information obtained through the Forum, subject to the privacy rights of
other participants. It is a Forum rule that participants will not be
identified or quoted without their explicit permission.
Inquiries and requests to be included in the Forum's
distribution list may be addressed to
ca@shareholderforum.com.
The material presented on this web site is
published by
Gary Lutin,
as chairman of the Shareholder Forum.
