Computer Associates Overstated Sales, Profit, Newspaper Reports
Computer Associates International Inc., which makes software to manage mainframe computers, has used accounting methods to overstate sales and profit for years, the New York Times reported Sunday, citing former employees and industry analysts.
The company inflated its reported sales so that new products looked like they had sold better than they had, the paper said, quoting more than a dozen former sales, accounting and marketing workers on condition of anonymity.
If Computer Associates had used generally accepted accounting principles, as required in Securities and Exchange Commission filings, sales in the fourth quarter ended March 31 fell almost 60%, to $732 million, from $1.91 billion, instead of rising as the company said this month, the paper reported. The company also extended existing contracts about to expire and called the income new sales, the newspaper said, quoting the former workers.
Computer Associates couldn’t be reached for comment.
On April 16, Computer Associates said it expects to report profit of $1.44 billion, or 47 cents a share, in the most-recent quarter on a “pro forma pro rata” basis. The Islandia, N.Y.-based company was expected on that basis to earn 43 cents on sales of $1.43 billion, the average estimate of analysts polled by First Call/Thomson Financial.
Computer Associates said pro forma, pro rata results are adjusted to let its new sales model’s effects be compared accurately with past numbers. Under a program announced in October, the company sells a subscription to use its software and accounts for sales over the length of the software license contract.
The results confuse analysts because the company doesn’t elaborate on how pro forma amounts compare with standard results, the Times said. Computer Associates boosted sales by booking fees from software contracts as license fees immediately, even though it wouldn’t get the money for several years, the newspaper said, quoting former workers.
Computer Associates shares fell 76 cents to close at $35.25 Friday on the New York Stock Exchange. They have risen 81% this year.
Ernst & Young, which audited the company until 1999, and present auditor KPMG wouldn’t discuss their client’s accounting practices, the Times said.
