CA delays fourth-quarter results on sales commission concerns

Long Island Business News, May 30, 2006 by Henry E. Powderly II

CA Inc. on Tuesday said it is delaying the release of its fourth- quarter and fiscal 2006 financials until it can sort out issues related to sales commissions and income tax accounting.

The Islandia-based company said its fourth-quarter results will be hurt by $26 million in additional income taxes. The company repatriated cash from its foreign subsidiaries, causing the charge.

CA said in a statement it will also report a material weakness in its financial controls related to the forecasting, processing and monitoring of sales commissions.

According to CA, commissions and royalties for fiscal 2006 will hit $387 million, $70 million more than the company expected. CA said the discrepancies arose because its new sales commission plan did not align commission payments with the company's overall performance.

CA said it reduced management bonuses to offset the higher commissions.

The commission snafu also affects the company's previously released third-quarter results. The company said it will restate the prior quarter's earnings because they did not include $26 million in additional commission expenses.

As a result, CA said its third-quarter profit will fall from 10 cents per share to 7 cents per share.

CA had on April 25 lowered its expectation of the fourth quarter to a profit of zero to 2 cents per share. In light of Tuesday's announcement, CA said it will post a loss of 7 cents per share, but the company still expects revenue of $947 million.

CA also said it will delay its June 8 meeting with analysts until an unspecified date.

Investors were obviously shaken by Tuesday's announcement as shares of CA (NYSE: CA) fell $1.16, more than 5 percent, to $21 per share before the market opened.