CA says it has cash, confirms SEC inquiry

Beleaguered software company Computer Associates International has enough money to cover its short-term debts, it reiterates. The company also confirms that it is under preliminary inquiry by the US Securities and Exchange Commission and the US Attorney's Office.

          Beleaguered software company Computer Associates International (CA) has enough money to cover its short-term debts, it reiterates. The company also confirms that it is under preliminary inquiry by the US Securities and Exchange Commission (SEC) and the US 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 US attorney, says Sanjay Kumar, CA president and chief executive officer. However, the company has informally asked the US Attorney's Office and the SEC about the investigation, and the regulatory body confirmed the inquiry, Kumar says.

          "We'd like to know what's going on," he says. "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 says. "The market is shooting first and asking questions later."

          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 $US20 from $US45.

          The market has had questions for Computer Associates before the latest 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 $US1 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 US Federal Bureau of Investigation and US attorney's office into whether CA's accounting practices violate federal criminal fraud laws, according to the newspaper Newsday.

          Computer Associates "flatly reject" that it has used accounting tricks to boost its revenue, noting that it has used "applicable accounting principles," Kumar says.

          "Our GAAP (Generally Accepted Accounting Principles) reporting is appropriate and transparent," Kumar says. 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 says. "CA's outstanding commercial paper obligations can be covered by cash on hand as well as cash generated from operations." The company paid down $US200 million in debt in January, and another $200 million in February, he says.

          The company has had $US1 billion in operating cash flow in each fiscal year, and the current quarter is the company's strongest quarter historically, Kumar says. CA has commitments for customer payments in excess of its debt obligations, he adds. The company says its anticipated debt total was $3.2 billion.

          According to the report by Bloomberg, CA was forced to cancel a $US1 billion debt sale while borrowing $US1.4 billion of $US3 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 says. CA had already given irrevocable notice that it was closing the line of credit on February 6 when the debt sale was canceled, so it used the closing credit line to pay back its debt on another line, Zar says.

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