CA reels after expose on accounting practices

Reeling from a Sunday New York Times story accusing mainframe software maker Computer
Associates International Inc. (CA) of misleading accounting practices, the company's
executives punched back in a Web-broadcast teleconference Monday, calling the
article unfair.

CA changed its business model last year to allow for short-term licensing contracts
for its software. The move prevents dramatic price changes for its products
during a quarter, an effect Chief Executive Officer and President Sanjay Kumar
called the "hockey stick" phenomenon -- flat sales until the end of
a quarter when a company drops prices to book sales.

Kumar said its previous model "is not sustainable. We believe the new
business model will help alleviate the effect."

The new business model comes with accounting changes, however. Revenue for
licenses is recorded differently than "maintenance" revenue for upkeep
of software. Software companies record all license revenue up front, while maintenance
revenue is booked month by month as it is paid.

The Times charges CA of having used abstract accounting methods to shift revenue
from one category to another for years in order to show revenue growth. It also
pointed to a substantial difference between its pro forma, pro rata earnings
and earnings reported under generally accepted accounting principles.

Kumar said many other companies use pro forma accounting, including its competitors,
and that it more accurately reflects CA's finances. "Revenue under the
old business model and the new business model is not comparable," he said.
"As many analysts will say, the model is completely transparent and provides
better predictability."

CA's accounting firm, KPMG LLP, said the company has conformed to standard
accounting principles. Company officials are not aware of any investigation
by the U.S. Securities and Exchange Commission, said Ira Zar, chief financial
officer for CA.

The highly critical story also said CA moved to a new business model because
CA was running out of competitors to buy and could not shift revenue anymore.
Citing unnamed sources, the Times said CA inflated revenue growth in its Unicenter
client-server product by buying large competitors and reworking the contracts
of the newly acquired clients to show Unicenter sales at companies that actually
may not use the software.

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