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CA posts loss
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May 22, 2001: 6:18 p.m. ET
Software company's net income, revenue come in far below year-ago
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NEW YORK (CNNfn) - Computer Associates International Inc. on Tuesday reported a fiscal fourth-quarter net loss of $410 million on revenue that fell more than 61 percent from the same quarter a year ago.
And executives at the Islandia, N.Y.-based firm stood by their previous profit forecast for the current fiscal year.
After the close of trading, Computer Associates said its net loss for the quarter ended March 31 was $410 million, or 71 cents per share. That compares with a profit of $392 million, or 72 cents per share during the same quarter a year earlier.
At $733 million, Computer Associates' net revenue for the quarter was less than half the $1.9 billion it logged during the year-ago quarter.
However, on a "pro forma pro rata" basis, which executives highlighted as a truer representation of the company's performance, Computer Associates said its fourth-quarter profit was $274 million, or 47 cents per share, compared with $207 million, or 34 cents per share during the same quarter a year ago.
Computer Associates is the world's No. 3 independent software company, behind Oracle and Microsoft. The company is the leading supplier of mainframe utility software. Its flagship "Unicenter" software, which contributes about 25 percent of the company's total sales, gives customers centralized control over their software, hardware and network infrastructure.
On April 16, Computer Associates raised its pro forma earnings target for the quarter, saying it expected to report 47 cents per share. Prior to that, analysts generally had expected the company to earn 43 cents per share in the fourth quarter, according to a survey conducted by earnings tracker First Call.
Shares of Computer Associates (CA: Research, Estimates) rose $1.54 to $32.56 on the New York Stock Exchange ahead of the earnings news. They rose 69 cents to $33.35 in extended-hours trade.
The pro forma financial results exclude extraordinary charges related to acquisitions and other one-time items. They company's pro forma results also take into account a new business model which it implemented late last year.
On a pro forma basis, Computer Associates said its fiscal fourth-quarter revenue was $1.4 billion, compared with $1.4 billion during the same quarter a year ago.
The company's financial reporting practices have fallen under scrutiny recently after it changed them in October of last year to reflect a new software licensing model.
Under the new model, Computer Associates accounts for contracted revenue over the life of the license term, "generating tremendous residual value", or backlog, at the end of each quarter. By using the new model, executives said they will have a more predictable revenue stream, where they used to struggle each quarter to close large deals to meet Wall Street's expectations by the end of the quarter.
While the new business model will cause the company to change the way it recognizes revenue, it will not change its overall cash generated from operations, Computer Associates executives have said. But the new accounting practices have raised questions among analysts, some of whom are concerned about the difference between its cash flow and revenue numbers.
The New York Times late last month ran an investigative piece about Computer Associates that accused the company of using "accounting tricks" to "systematically overstate its revenue and profits for years."
Citing unnamed company sources, the Times article claimed that the new business model and accounting methods are nothing more than a red herring designed to draw Wall Street's attention away from the company's former accounting practices, which they said were deceptive and overstated the amount of revenue the company actually took in during any given quarter.
Computer Associates executives have refuted those claims, saying the new model was put in place to give investors and analysts a better picture of the company's outlook -- not to give a picture of growth that isn't there.
They defended their business model and accounting practices during a teleconference with analysts Tuesday evening.
"We are pleased with our overall performance in the fourth fiscal quarter despite a very challenging period for the high technology sector," said Sanjay Kumar, the company's president and CEO.
"Customers continued to embrace our technology, and our new business model is making a competitive difference," he added.
And looking ahead, Kumar said he expects the company will be able to meet its previously stated pro forma earnings target of $2.01 for the current fiscal year, which ends in March 2002.
"Were cautious, but we're holding our estimates," he said.
For the full fiscal year that just ended, the company said its net loss was $591 million, or $1.02 per share, compared with a net profit of $696 million, or $1.25 per share in the prior year. Net revenue for the year was $4.2 million, compared with $6.1 billion in the prior year.
Pro forma earnings for the year were $951 million, or $1.61 per share, versus $787 million, or $1.31 per share in the prior year. Pro forma revenue rose to $5.6 billion from $5.3 billion. 
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