CA reports solid Q2 2005 results, increases full year guidance

Computer Associates International, Inc, the world`s largest management software company, today reported financial results for its fiscal year 2005 second quarter ended 30 September 2004, that exceeded previous guidance for revenue and operating earnings. In addition, the company provided revenue and earnings per share guidance for the third quarter and increased its operating earnings guidance for the full fiscal year 2005.

"CA`s made significant progress in the second quarter," said CA`s Chief Executive Officer Kenneth Cron. "We resolved the government investigations and initiated an aggressive restructuring plan. We continued to drive our business and revenue growth strategies and outperformed in what continues to be a challenging technology environment. This is a demonstration of the strength and resiliency of CA`s business, and recognises the promise of our go-forward growth strategy."

Stated CA Chief Operating Officer Jeff Clarke: "Business was solid across the geographies and product lines. I`m particularly pleased with the performance of our channel business, one of our strategic growth opportunities, which grew by 20%. With our restructuring plan well under way, we are committed to continued expense controls, rigorous analysis to maximise our investments and expanding our margins. Clearly, we are in an excellent position to focus on our future and deliver value to our customers and shareholders."

Total revenue for the second quarter of fiscal year 2005 was $855 million, a 6% increase over the second quarter of fiscal year 2004, and $5 million greater than the high end of the range of the company`s previous preliminary guidance.

On a constant currency basis, total revenue for the second quarter increased approximately 3% compared to the similar period last year.

Revenue from CA`s Technology Services unit was $59 million for the quarter, up approximately 7% when compared to the similar quarter last year, as a result of better execution in meeting customer needs.

Bookings, or new deferred subscription revenue for the second quarter increased by 70% to $690 million, including $41 million of indirect bookings. CA`s total deferred subscription revenue balance as of 30 September 2004, was approximately $4.4 billion.

The company reported a GAAP loss from continuing operations for the second quarter of $94 million, or $0.16 per diluted share, compared to a GAAP loss of $90 million, or $0.16 per diluted share, reported in the comparable period last year. The GAAP loss reflected a number of one-time items, including a $218 million, or $0.24 per diluted share, after-tax charge related to the previously announced establishment of a restitution fund to resolve the government investigations; a $7 million, or $0.01 per diluted share, non-cash gain related to the fiscal 2004 shareholder litigation settlement; a $28 million, or $0.03 per diluted share after-tax charge related to the company`s restructuring plan; and a one-time tax benefit of approximately $26 million, or $0.04 per diluted share.

On a fully diluted operating basis, excluding acquisition amortisation, the fiscal 2004 shareholder litigation settlement gain, the establishment of the restitution fund, and the company`s restructuring plan, CA earned $0.22 per share in the second quarter of fiscal year 2005, compared with $0.14 per share in the second quarter of fiscal year 2004. Excluding the $0.04 per diluted share one-time tax benefit this quarter, CA earned $0.18 per share in the second quarter compared to the company`s previous guidance of $0.15 to $0.17 per share.

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.

Trek to the summit

00Days

:

00Hrs

:

00Min

:

00Sec

CA generated approximately $152 million in cash from continuing operations in the second quarter, compared to the $184 million reported in the similar period last year.

The balance of cash and marketable securities at 30 September 2004, was approximately $2.25 billion, up $82 million from 30 June 2004. With $2.3 billion in total debt outstanding, the company has a net debt position of $48 million.

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

During the quarter, CA made a number of important advances, including:

* Resolving the government investigations and agreeing to form a restitution fund to compensate shareholders and agreeing to assist the government in obtaining executive disgorgement.

* Initiating a cost restructuring plan to better align the company`s investments with its growth strategy and save an estimated $70 million on an annualised basis, when fully implemented.

* Acquiring top-of-the-line anti-spyware technology and production from PestPatrol to help build the company`s security portfolio.

* Announcing the availability of BrightStor r11.1, a new generation of intelligent storage management solutions to help enterprises safeguard their corporate data assets with greater cost-efficiency.

* Launching Unicenter Service Management to help customers gain greater visibility and control over the resources, costs and performance of their IT services.

* Making several enhancements to its leadership, including electing Laura S Unger, a former commissioner of the Securities and Exchange Commission, to its board of directors, and naming George Fischer as senior vice-president for North American Sales and Kevin Kern as chief information officer.

"In an IT marketplace in which purchasers continue to demand a measured return on every dollar invested, CA`s Enterprise Infrastructure Management strategy is a real competitive advantage," Cron continued. "We are delivering on that strategy by developing and acquiring products that strengthen our product portfolio and meet the needs of our customers. We`re expanding our customer base to reach the growing small to medium enterprise market and we`re moving in to new geographies with outstanding growth potential. We have a management team focused on growing the business and leading the industry`s most talented employees to new levels of success."

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

For the third quarter ending 31 December 2004:

* Revenue in the range of $850 million to $865 million;
* GAAP earnings per share in the range of $0.06 to $0.07; and
* Diluted operating (non-GAAP) earnings per share in the range of $0.18 to $0.19.

For the full fiscal year 2005 ending 31 March 2005:

* Revenue in the range of $3.425 billion to $3.475 billion, compared to the company`s previous guidance of $3.4 billion to $3.5 billion;

* GAAP earnings per share in the range of $0.06 to $0.09, inclusive of one-time items, compared to previous guidance of $0.25 to $0.30; and

* Diluted operating (non-GAAP) earnings per share in the range of $0.79 to $0.82, compared to previous guidance of $0.70 to $0.75.

Clarke said: "Our financial discipline and restructuring plan will allow us to focus on our strategic initiatives to drive top-line growth."

The company will host a webcast at 5pm EDT today to discuss its second quarter fiscal year 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 government investigation and restructuring charges, 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, the government investigation and restructuring 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.