CA announces Q1 2005 results, provides updated guidance

Computer Associates International, Inc, the world`s largest management software company, today reported financial results for the quarter ended 30 June 2004, the first quarter of fiscal 2005. In addition, the company provided revenue and earnings per share guidance for the second quarter and updated guidance for fiscal year 2005.

"We posted solid results this quarter in a challenging industry climate," said CA`s interim Chief Executive Officer Ken Cron. "Customers are cautious with their technology spending and they`re looking for a return on every dollar they invest in IT. That dynamic presents a real opportunity for CA because we provide software management solutions that enable our customers to leverage their IT assets in the most efficient and effective way."

Added Jeff Clarke, CA`s chief operating officer: "Our results exceeded the preliminary revenue, earnings and cash flow guidance we provided earlier this month. We achieved these results through diligent focus on expenses while still investing in our major growth initiatives, including broadening our channel sales business; accelerating product development, especially in security management and enterprise management software; and expanding internationally."

Total revenue for the first quarter of fiscal 2005 was $860 million, a 9% increase over the similar period last year, and $10 million more than the high end of the range of the company`s preliminary guidance provided on 8 July 2004. On a constant currency basis, total revenue for the first quarter increased approximately 7% compared to the similar period last year. Solid results were reported across all geographies, with particular strength noted in North America.

Software fees and other revenue for the first quarter of fiscal 2005 increased $9 million or 13% from the comparable prior year quarter. This includes CA`s revenue related to its distribution and OEM partners, referred to as the "channel" or indirect sales business, which experienced a 37% increase in bookings for the quarter compared to last year. The increase in bookings included a higher mix of maintenance-inclusive arrangements than the prior year. This increase in deferred maintenance bookings of approximately $16 million will be amortised into revenue over time. As announced by the company in its report of fourth quarter 2004 results, CA began offering more flexible licensing terms to its channel customers and initiated subscription accounting for the majority of its indirect business on 1 July, the beginning of its second quarter of fiscal 2005.

Revenue from CA`s Technology Services division declined approximately $4 million, or 7% for the quarter, when compared to last year, due to a higher percentage of services being bundled with products, which resulted in a larger amount of services revenue being deferred.

First quarter bookings, or new deferred subscription revenue, increased by 37% for the quarter to $530 million, bringing the total deferred subscription revenue balance to $4.2 billion.

Income from continuing operations for the first quarter was $53 million, or $0.09 per diluted share, compared to $8 million, or $0.01 per diluted share, reported in the comparable period last year.

On a fully diluted operating basis, excluding acquisition amortisation and $5 million related to a fiscal 2004 shareholder litigation settlement, CA earned $0.21 per share in the first quarter of fiscal year 2005, compared with $0.14 per share in the first quarter of fiscal year 2004. Operating earnings per share is a non-GAAP financial measure as noted in the discussion of non-GAAP results below. A reconciliation of GAAP income from continuing operations to non-GAAP operating income is included in the tables following this press release.

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CA generated approximately $273 million in cash from continuing operations in the first quarter, up from the $169 million reported in the similar period last year. Cash from continuing operations benefited from a reduction of $114 million in estimated tax payments resulting from the adoption of a new IRS policy regarding cash receipts and deferred revenue. The balance of cash and marketable securities at 30 June 2004 was approximately $2.2 billion, up $268 million from 31 March 2004. With $2.3 billion in total debt outstanding, the company has a net debt position of approximately $100 million.

"CA continues to consistently generate cash flow and remains on track to deliver modest cash flow growth this year," said Clarke.

During the quarter, the company made the following announcements:

* Named Jeff Clarke as chief operating officer and chief financial officer, Kenneth V Handal as executive vice-president and general counsel, and John Ruthven as senior vice-president of CA`s Asia Pacific region;

* Began the construction of a Customer Interaction Centre in Barcelona, Spain to generate sales leads across Europe;

* Significantly improved its offerings to partners with its "One" Partner Programme;

* Launched eTrust Antivirus 7.1, the latest version of CA`s award-winning virus management solution;

* Offered its first software-as-a-service solution, eTrust Managed Vulnerability Service, to provide customers with 24x7 risk detection and automated patch management;

* Announced the company`s Enterprise Infrastructure Management (EIM) strategy to deliver complete, integrated and open solutions to help CIOs run IT like a business;

* Unveiled its strategy to help customers leverage open source technologies, including releasing its Ingres database into open source; and

* Announced new product developments in wireless and Web services.

The following updated guidance is based on current expectations and represents "forward looking statements" (as defined below):

For the second quarter ending 30 September 2004:

* Revenue in the range of $830 million to $850 million;
* GAAP earnings per share in the range of $0.03 to $0.05; and
* Diluted operating (non-GAAP) earnings per share in the range of $0.15 to $0.17.

For the full fiscal year 2005 ending 31 March 2005:

* Revenue in the range of $3.4 billion to $3.5 billion, compared to previous guidance of $3.5 billion to $3.7 billion;
* GAAP earnings per share in the range of $0.25 to $0.30, compared to previous guidance of $0.28 to $0.33; and
* Diluted operating (non-GAAP) earnings per share in the range of $0.70 to $0.75, compared to previous guidance of $0.73 to $0.78.

Clarke said: "We are bringing our full year guidance down modestly. We continue to see market growth in our segments of the software industry and, similar to the first quarter we just delivered, we expect to continue to drive solid revenue and earnings per share growth for fiscal 2005."

The company will host a webcast at 4.30pm EDT today to discuss its first quarter fiscal 2005 results. Individuals can access the Webcast, as well as this press release and supplemental financial information, at http://ca.com/invest or listen to the call at 1 (706) 679-5227.

This press release includes financial measures for net income and related per share amounts that exclude certain charges and therefore have not been calculated in accordance with US generally accepted accounting principles (GAAP). Non-GAAP "operating" net income and earnings per share exclude non-cash amortisation of acquired technology and other intangibles, the class-action and derivative litigation settlement charge and the applicable tax effects of these items. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding non-cash acquisition related charges and the litigation settlement charge, these non-GAAP financial measures facilitate management`s internal comparisons to the company`s historical operating results, to competitors` operating results, and to estimates made by securities analysts.

Management uses these non-GAAP financial measures internally to evaluate its performance and they are key variables in determining management incentive compensation. The company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision- making. In addition, the company has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in its financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measure as provided with the financial statements attached to this press release.