CA's financial results depend on eye of the beholder

Both fans and critics of Computer Associates International could find something to like about the software vendor's latest financial results.

The confusion stems from the way CA started booking its revenue last fall. Under the new accounting method, the Islandia, N.Y.-based company yesterday reported net operating income of US$323 million for its fiscal first quarter ended June 30 -- up 61 percent from the year-earlier level of $201 million. But based on its historical reporting procedures, CA posted a loss of $342 million, compared with a $21 million profit in last year's first quarter.

CA needs all the good financial news it can get. The company is trying to fend off a proxy challenge from entrepreneur Sam Wyly, who's seeking to take over control of CA's board and management through a shareholder vote. Wyly has been hammering away at what he claims is CA's lackluster financial performance, and his investment company, Dallas-based Ranger Governance Ltd., yesterday said the first-quarter results "can only be described as 'anemic.' " But Sanjay Kumar, CA's president and CEO, said in a conference call yesterday afternoon that the company had "a really good quarter in a very difficult environment." Kumar said the first-quarter results exceeded expectations when measured through the pro forma operating method CA prefers, and he raised the company's projections for the current three-month period.

As part of the first-quarter announcement, Kumar noted that CA booked contracts worth $502 million in deferred revenue during the first quarter and now has $2.2 billion in total deferred revenue. Under CA's new subscription-based software licensing scheme, he added, the average user contract is now four years long, down from five-plus years previously. CA's goal is to reduce contract lengths to three years, Kumar said.

One not-so-bright spot for CA during the quarter was professional services. According to Ira Zar, the company's chief financial officer, services revenue dropped 43 percent from the year-earlier level of $141 million, finishing at $81 million. That was partly due to the sell-off of subsidiary Sterling Software Inc.'s federal systems group last September, Zar said, adding that the unit had contributed about $40 million in revenue on a quarterly basis.

But Zar also acknowledged the tough economic climate as a factor in the services decline, describing the revenue figure as "somewhat disappointing." In addition, he said, CA is "moving way from services arrangements that aren't centered around our products." Services contributed just 5 percent of CA's total revenue during the first quarter, down from 10 percent in the year-earlier period.

Stacy Cowley of the IDG News Service contributed to this report.

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