CA's Back In The BlackCA's Back In The Black

Computer Associates turned its first profit in nearly three years during its first quarter ended June 30, earning $10 million and reversing a year-ago loss of $65 million. Cost controls and a revenue increase--helped in part by a weak dollar versus the euro--helped results, the company said.

CA reported a 6.3% increase in revenue during the quarter, to $813 million, versus $765 million during the year-ago quarter. New deferred subscription revenue, a key measurement of sales bookings during the quarter, rose 16% on an annualized basis, to $387 million. CA's net profit of 2 cents per share was its first since the second quarter of fiscal 2001. Forty percent of CA's sales during the quarter came from outside of North America.

The supplier of management software for mainframe computers and servers generated $171 million in cash from operations during the quarter. But sales of software through resellers declined nearly 16%, to $80 million, as CA cut prices and reorganized its channel business. During a conference call with financial analysts Wednesday, CFO Ira Zar said the IT spending environment remains circumspect. "There doesn't seem to be anything driving people to larger-dollar-value transactions," he said. Chairman and CEO Sanjay Kumar said that while "visibility remains low," the introduction of IBM's z990 T-Rex mainframe could boost software sales during the second half of the year. That's a wild card, though: The new technology may not translate into more CA licenses, he said.

For the quarter ending Sept. 30, CA forecast revenue of between $805 million and $825 million, up from $772 million during the second quarter of 2003, and earnings of 1 cent to 3 cents per share. For the fiscal year, CA expects revenue of $3.3 billion to $3.4 billion, up from $3.1 billion in fiscal 2003.

During the first quarter, CA reduced its debt by $826 million, to $2.3 billion, and says no debt payments are due until April 2005. In addition, CA says it plans to use its $876 million in cash and marketable securities to repurchase shares, make acquisitions, and possibly reduce debt further.

In a regulatory filing earlier this week, CA said Kumar's $1 million-a-year salary was unchanged last year and that he received no bonuses for the third straight year. The company also disclosed that it accelerated founder and former chairman Charles Wang's vesting in CA stock options and also granted Wang more time to exercise previously granted options. Wang, who retired from the company's board in November, will also receive lifetime medical benefits from CA.