CA concludes stock options probe, finalizes results

CA moved a step closer late Monday to putting some of its troubled financial past behind it with the conclusion of an internal investigation into the granting of employee stock options.

It filed its final fiscal year 2006 annual report with the Securities and Exchange Commission (SEC) late Monday and restated results for the four previous fiscal years.

The troubled systems management and security software company was originally due to release final fourth-quarter and full fiscal 2006 results in late May, but twice delayed the process as it uncovered more issues.

"Filing our Form 10-K closes our fiscal year 2006 and enables us to concentrate on moving forward," John Swainson, CA CEO, said in a statement. In recent conference calls about the vendor's financials, Swainson has been keen to distinguish CA's past from its present and likely future operations.

The restating of results centered around three areas -- stock options prior to fiscal 2002, additional subscription revenue relating to the early renewal of some customer contracts, and extra sales commission expense that should have been recorded in results for the third quarter of fiscal 2006.

CA has now completed its internal review of its policies and procedures around stock option plans dating back to fiscal 1996.

CA's review determined that prior to fiscal 2002, the compensation committee of its board of directors hadn't communicated the approval of stock options grants to individual employees for periods as long as two years.

In the majority of cases, the delay meant that employees didn't benefit from the lower exercise price set at the time of the committee's approval. As applied to individual years, CA has now recognized extra noncash stock compensation expenses on a pre-tax basis of under $1 million per year for fiscal 2005 and 2006 and ranging from $16 million to $50 million for fiscal years 2002 to 2004.

CA reported final net income of $159 million on revenue of $3.8 billion for the year ended March 31, 2006. In unaudited preliminary results issued in July, CA had estimated net income at $139 million on revenue of $3.8 billion.

As well as providing a wealth of detail on the company's restated results, the filing also highlighted CA's current and upcoming expenditure on new ERP (enterprise resource planning) software from SAP which it hopes to implement throughout its global operations.

During fiscal 2006, CA spent around $129 million on the ERP project and expects to spend a further $100 million in fiscal 2007. The company has already completed phase one of the ERP implementation covering its North American operations and worldwide human resources.

CA has declined to comment on recent rumors that it's set to lay off as many as 1,000 staff later this month. As of the end of March, CA employed 16,000 workers, with 8,400 of them in the United States and 7,600 abroad, the 10-K filing stated.

The company is still working on implementing an earlier restructuring plan announced in July 2005 to reduce its workforce by a little over 5 percent, equivalent to 800 staff worldwide, according to the filing. That plan is set to gain the company $75 million in annual savings while costing a maximum of $85 million. For fiscal 2006, CA recorded charges of around $66 million for costs related to severance and facility closings.

CA's filing also disclosed plans to increase the size of its product support and development center in Hyderabad, India. It also intends to carry out more mainframe software development in Prague. Sales operations are slated for growth in both Latin America and Asia-Pacific, notably China.

Copyright © 2006 IDG Communications, Inc.

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