Computer Associates To Lay Off 800 Employees

Computer Associates International today said it will lay off 800 workers worldwide in a restructuring plan it said is designed to more closely align its investments with its strategic growth opportunities.

In issuing a statement this morning announcing the action, the company said the effort is expected to yield about US$70 million in savings annually, once the reductions are fully implemented. The layoffs would amount to 5 percent of the company’s workforce.

The majority of the layoffs are expected to be completed by the end of October.

The restructuring and layoffs come on the heels of an agreement announced last week under which CA will pay $225 million into a restitution fund for shareholders, and the government will defer prosecution of criminal charges of accounting fraud against the company pending completion of probation.

CA’s former chief executive, Sanjay Kumar, and former executive vice president for worldwide sales, Stephen Richards, have been indicted in connection with that case.

Moving Forward

Four other CA executives have pleaded guilty to related charges. Among them is CA’s former chief financial officer, Ira Zar. A total of 15 executives and other employees have left CA since last October as a result of the investigation.

“Now is the time for CA to move forward,” CA Chief Executive Officer Kenneth Cron said.

He explained: “CA has great strengths in its technology, its customer base and its balance sheet. To ensure our longterm success, we need to effectively leverage these strengths and realign our investments with the company’s strategic growth opportunities. It is our goal to seize these strategic growth opportunities to ensure we deliver the highest returns to shareholders.”

The layoffs reportedly will affect nearly all departments throughout the company, with a focus on driving marketing efficiencies and, in the development organization, improving productivity and simplifying the product portfolio.

The company said it expects only minimal impact on its sales force.

Affected employees in the United States will be entitled to a severance payment pursuant to CA’s standard severance package, and they also will be entitled to an enhanced COBRA (Consolidated Omnibus Budget Reconciliation Act) health insurance subsidy.

Earnings Impact

CA did not say how many employees in the U.S. would be laid off.

The company said it anticipates the total restructuring plan will cost approximately $40 million, or 4 cents per fully diluted common share, related to severance and associated benefits. About $25 million of that charge is expected to be incurred in the second quarter of fiscal 2005, with the remaining amount expected to be incurred by the end of the fiscal year.

“As we discussed during our first quarter earnings announcement, we saw significant opportunities to control costs,” CA Chief Operating Officer Jeff Clarke said.

He added: “Over the past few months, we have been evaluating the overall business, the skills necessary to meet our company goals and the expenditures required to meet our growth objectives. CA is financially strong, but we must make these changes to grow sales, increase profitability and remain competitive. The result will be a simpler, more efficient company and one positioned for growth.”

Criminal Case

Cron said: “This restructuring will have no effect on our ability to fulfill the obligations of the deferred prosecution agreement announced last week. There is nothing more important to us, and we are committed to fulfilling every requirement.”

Computer Associates International is the world’s largest management software company. It delivers software and services across operations, security, storage, life cycle and service management to optimize the performance, reliability and efficiency of enterprise IT environments.