CA says it has cash, confirms SEC inquiry

Beleaguered software company Computer Associates has enough money to cover its short-term debts, it reiterated Friday morning in a conference call with investors and the press. The company also confirmed that it is under preliminary inquiry by the U.S. Securities and Exchange Commission (SEC) and the U.S. Attorney's office.

The company hasn't been formally notified of an investigation, nor has it been asked for any documents or to answer any questions by the SEC or the U.S. attorney, said Sanjay Kumar, CA president and CEO. However, the company has informally asked SEC and the U.S. Attorney's Office about the investigation, and the regulatory body confirmed the inquiry, Kumar said.

"We'd like to know what's going on," he said. "And we're eager to answer questions."

General uncertainty about corporate accounting practices in light of the Enron and Global Crossing scandals has made it dangerous for any company with even the faintest whiff of financial irregularity. "These are very frustrating times," Kumar said. "The market is shooting first and asking questions later."

Shares of CA continued a free-fall begun Wednesday, when reports first emerged of a federal investigation of the company. CA shares hit a new 52-week-low Friday for the third day in a row, trading at $14.75 on the New York Stock Exchange before recovering slightly to $15.97. CA shares ended trading Thursday at $18.90, a 25.3% drop from Tuesday's $25.31 close.

Salomon Smith Barney downgraded its rating on CA Thursday from buy to neutral because of "increased uncertainty surrounding the company," according to its analyst report. The company also cut its price target for CA shares to $20 from $45.

The market has had questions for CA before today's troubles, though. Shareholders accused CA's executives in a class action suit in 2000 of holding back bad news about the company's operations in order to benefit from the vesting schedule for $1 billion in stock options. The executives - including Kumar - returned most of the money to settle the suits without admitting guilt.

The company is also reportedly the target of a preliminary investigation by the U.S. Federal Bureau of Investigation and U.S. attorney's office into whether CA's accounting practices violate federal criminal fraud laws, according to the newspaper Newsday.

CA "flatly rejects" that it has used accounting tricks to boost its revenue, noting that it has used "applicable accounting principles," Kumar said.

"Our GAAP (Generally Accepted Accounting Principles) reporting is appropriate and transparent," Kumar said. CA's reporting is "much more detailed than our peers in enterprise software companies."

Company executives also forcefully rebuked a report published Thursday by the Bloomberg news agency that alleged CA had been forced to draw on its line of credit in order to repay its short-term debts.

"Computer Associates has not drawn on its credit lines to pay down its commercial paper obligations," Kumar said. "CA's outstanding commercial paper obligations can be covered by cash on hand as well as cash generated from operations." The company paid down $200 million in debt in January and another $200 million in February, he said.

The company has had $1 billion in operating cash flow in each fiscal year, and the current quarter is the company's strongest quarter historically, Kumar said. CA has commitments for customer payments in excess of its debt obligations, he added. The company said its anticipated debt total was $3.2 billion.

According to the report by Bloomberg, CA was forced to cancel a $1 billion debt sale while borrowing $1.4 billion of $3 billion in credit lines arranged by Credit Suisse First Boston in order to pay back short-term debts. The report quoted CA's chief financial officer Ira Zar as its source for the story.

Bond rating firm Moody's Investors Services announced a review of CA's bond rating before the company's new bond sales, effectively scuttling the debt sale, Zar said. CA had already given irrevocable notice that it was closing the line of credit on Feb. 6 when the debt sale was canceled, so it used the closing credit line to pay back its debt on another line, Zar said.

CA stock again closed lower for the day on Thursday, having fallen $2.01 per share, or 9.61%, to end the day at $18.90. In the last year, the value of CA's stock has experienced a high of $38.74 per share and Wednesday's 52-week low of $18.69.

CA's stock price opened at $17.80 on Friday - 6% lower than its $18.90 close on the New York Stock Exchange on Thursday. It immediately sank 31 cents or another 1% to $17.59.

Stacy Cowley contributed to this story

The IDG News Service is a Network World affiliate.