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CA Slashes Profit Forecast
By Bill Snyder Senior Writer

4/25/2006 12:37 PM EDT

CA (CA:NYSE) will miss its top- and bottom-line targets by a wide margin in the fourth quarter, largely because it changed the revenue-recognition practices at companies it recently bought.

"Our results for the quarter were not in line with our expectations," John Swainson, the president and CEO of the business software company, said Tuesday.

The news sparked a modest selloff. In recent trading, shares of CA were off 68 cents, or 2.7%, to $24.83.

Total revenue for the March quarter will range from $940 million to $950 million, compared with the company's earlier guidance of $975 million to $1 billion. Earnings, before items, will range from 14 cents to 16 cents a share, well short of the earlier forecast of 23 cents or 24 cents a share.

CA attributed a significant portion of the revenue shortfall to the rapid switchover of accounting models in recently acquired companies. CA now recognizes revenue over the life of a contract, while the acquired companies used a more traditional license model in which revenue is recorded upfront.

The company also blamed a slow start to bookings in the quarter and said higher sales expenses contributed to the shortfall. Analysts polled by Thomson First Call were looking for a profit of 24 cents a share on sales of $989 million.

The miss is a setback for Swainson's campaign to rehabilitate CA, which was badly shaken by a $2.2 billion accounting scandal that led to the resignation and criminal indictment of former CEO Sanjay Kumar and other top executives. At the time, the company was known as Computer Associates.

Kumar and Stephen Richards, the company's former head of sales, entered guilty pleas Monday to a variety of charges in federal court.

CA will report the quarter's final results after the close of trading on May 30.



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