Computer Associates Guides Lower

It has execution issues related to commissions.
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Computer Associates

(CA) - Get Report

lowered its estimate of fourth-quarter operating income Tuesday, citing "execution issues relating to commissions."

The company also delayed the formal release of the fourth-quarter results and said it will report a material weakness in its financial controls related to the monitoring of sales commissions. The news follows a string of executive defections at the software company, including that of Chief Financial Officer Robert Davis on May 15.

In premarket trading, CA shares fall $1.06, or 4.8%, to $21.10.

For the quarter ended in March, CA expects to report what it calls "non-GAAP operating income" of 14 cents. The figure includes a gain of 3 cents a share related to bad accounting for expenses related to commissions in the third quarter. The third quarter will be restated downward by 3 cents a share to fix that accounting.

Stripping out the extra 3 cents a share, CA said, the company would have missed its previous estimate for fourth-quarter earnings of 14 cents to 16 cents a share. On the top line, CA expects to report $947 million, within its previously issued guidance.

The commission problem appears to be two-pronged at CA. In the third and fourth quarter, it led to bad accounting that is being addressed with the 3-cent transfer. In addition, it caused the shortfall in operating earnings.

"The company estimates that commissions and royalties for the fiscal year will be approximately $387 million, which includes approximately $70 million more in sales commissions than originally expected." CA said. "This increase in sales commission expense resulted from a new sales commission plan that did not appropriately align commission payments with the company's overall performance. The impact of the higher sales commission expense was partially offset through reductions in variable compensation programs, including management bonuses, which are all included in the commissions and royalties line item."