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7/27/2005
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CA To Shed 800 Employees As Profits Surge

Even though it reported good financial results for the quarter, Computer Associates said it is laying off 5% of its workforce to help reduce costs.

Computer Associates International plans to terminate 800 employees worldwide.

The workforce reductions, which represent 5 percent of CA's total employee headcount, are part of a restructuring plan to save about $75 million on an annualized basis, executives of the Islandia, N.Y., software vendor said Wednesday.

CA announced the restructuring as it reported earnings for the first fiscal quarter 2006. The current layoffs follow a similar workforce reduction in September 2004.

For its first quarter, which ended June 30, 2005, the vendor earned $94 million, or 15 cents a share, on revenue of $920 million. That's a 135 percent increase over the $40 million in earnings CA reported for the same quarter a year ago, when it earned 7 cents a share on revenue of $850 million.

The year-over-year improvement in earnings is marked with an asterisk, because CA's first quarter fiscal 2005 results have been restated in order to comply with FAS123(R), according to CA. FAS123 is a new reporting standard that requires public companies to expense the cost of stock options, effectively taking away the ability to offer employee compensation without factoring it into financial statements.

Compliance costs drove CA's expenses up during the quarter while its bookings from direct and indirect sales fell sharply, the vendor said.

Sarbanes-Oxley and legal costs pushed first quarter expenses to $834 million compared to $785 million for the same quarter a year ago. First quarter bookings from both direct and indirect sales fell 30 percent compared to the same period last year, according to CA.

John Swainson, president and CEO, said the first quarter results demonstrated that "CA is very much a work in process."

Swainson blamed sluggish sales on a competitive market environment where rival vendors engaging in product "bake offs" made customers less willing to commit fully to CA products, and more inclined to sample technology solutions before entering into larger deployment contracts.

Swainson said he was confident that the launch of Unicenter release 11, the next upgrade of CA's flagship product, would spur sales when released later this year.

COO Jeff Clarke added that for CA, the first quarter is "seasonally slow" and typically accounts for only about 14 percent of CA's yearly business.

The 800 layoffs CA announced as part of its second restructuring plan this year should be completed by the end of the calendar year, according to CA. Executives did not elaborate on which departments would be effected. CA will take a pretax charge ranging from $50 million to $75 million in the current fiscal second quarter for severance and other related costs, the Islandia, N.Y., company said.

CA just came off a rough fiscal year 2005, during which it suffered a 60 percent drop in earnings compared to the year before.

The vendor raised its second quarter revenue guidance to about $960 million.

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