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Software firm trying to get past scandal

Experts say former Computer Associates hasn’t learned lesson and tell investors to be cautious.

GARDEN CITY, N.Y. — There’s no disputing the past of software giant Computer Associates: its corrupt former chief executive was sentenced to 12 years in prison this week in a $400 million accounting fraud.

The future of the company, now known as CA Inc., is another story: While CA insists it’s a different company, some critics still believe the Long Island-based business still has work to do in improving its performance and polishing its image.

Sanjay Kumar, 44, was sentenced to 12 years in prison and fined $8 million Thursday in Brooklyn federal court; he pleaded guilty in April to obstruction of justice and securities fraud charges at the company. Under federal sentencing guidelines, he could have faced life in prison.

“Have they learned their lesson?” asks Nell Minnow, co-founder of the Corporate Library, a corporate governance analyst. “For us, the answer is no. They get a D grade from us right now. We feel that they have not fully gotten the message and are in denial a bit. We would tell investors they should be cautious.”

“The sentencing of Sanjay Kumar today is another step in putting the past of Computer Associates further behind the new CA,” company spokeswoman Jennifer Hallahan said. “We are a dramatically different organization than we were more than two years ago, when Mr. Kumar left the company.”

Kumar admitted orchestrating a plot to report more than $2 billion in false revenue between 1999 and 2000. The indictment also charged that Kumar and others instructed salespeople to complete deals after the quarter had closed — a practice known within the company as the “35-day month” — and “cleaned up” contracts by removing time stamps from faxes.

On the same day Kumar was ordered to prison, CA announced that second-quarter earnings rose 15 percent: net income climbed to $53 million, or 9 cents per share, from $46 million, or 8 cents per share, in the year-ago period. But CA’s stock took a steep fall in Friday trading, down $2.48, or 9.8 percent, at $22.80 a share, because of disappointing cash flow and billings.

“CA remains a company in transition with challenging growth prospects,” Credit Suisse analyst Jason Maynard wrote in a note to investors.

“Management continues to be focused on reducing costs, but without sustainable bookings growth, any margin improvements will likely only be temporary. We expect the company will likely maintain its revenue guidance for the year, and update its earnings and cash flow goal to account for the new financial structure,” Maynard said.

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