Software Spectrum Reports Fiscal 2002 Third Quarter Earnings

Business Wire, Feb 21, 2002

Business Editors & High Tech Writers

DALLAS--(BUSINESS WIRE)--Feb. 21, 2002

Software Spectrum Reports Continued Strong Results

Software Spectrum, Inc. (NASDAQ:SSPE) today reported net income of $7.4 million, or $2.36 per share, for the quarter ended January 31, 2002, which includes a non-recurring tax benefit of $3.4 million and an unrealized investment gain of $290,000. Excluding these non-operating income items, net income for the third quarter was $3.8 million, or $1.20 per share, versus comparable net income of $3.6 million, or $1.07 per share for the quarter ended January 31, 2001. The non-recurring tax benefit resulted from the recognition of accumulated losses on the deemed liquidations, for Federal income tax purposes only, of certain foreign subsidiaries.

Revenue for the quarter ended January 31, 2002 was $409 million, compared with revenue of $429 million for the quarter ended January 31, 2001. The quarter over quarter revenue decline reflects the impact of two previously disclosed changes made by Microsoft in its licensing programs. Some customers accelerated product purchases into the fiscal second quarter in response to Microsoft licensing changes effective October 1, 2001. In addition, the January 31, 2002 quarter is the first full quarter where new Enterprise Agreements are priced, billed and collected directly by Microsoft. Under this new agency model, the company records net service fees, rather than gross product revenue, for sales under new Enterprise Agreements. The company continues to perform pre- and post-sale customer service and support related to these agreements.

Excluding the effect of foreign currency gains and losses, selling, general and administrative spending for the quarter ended January 31, 2002 was down by over $500,000, and operating income was comparable to the third quarter of the prior year.

Year-to-date operating income improved from $6.0 million for the nine months ended January 31, 2001, to $11.8 million for the nine months ended January 31, 2002, a 98 percent improvement on a revenue increase of 12 percent. Earnings from continuing operations for the nine months ended January 31, 2002, excluding the non-recurring tax benefit and unrealized investment gains and losses, were $7.2 million, or $2.28 per share, versus comparable earnings from continuing operations of $3.1 million, or $0.88 per share for the nine months ended January 31, 2001.

Product Services revenue increased 13 percent to $1.0 billion for the nine months ended January 31, 2002, compared to the same period of the prior year. Operating income for the nine months ended January 31, 2002 for Product Services was $38.7 million, representing an increase of $700,000 over the corresponding period of the prior year.

"We are pleased to again report strong quarterly results," said Judy C. Odom, Chairman and Chief Executive Officer. "The significant year-to-date earnings growth in less than ideal economic times, particularly in the technology sector, demonstrates our ability to aggressively pursue market opportunities while reaping the benefits of an efficient infrastructure."

Third quarter revenues for Spectrum Contact Services totaled $15.3 million, an increase of 24 percent over revenues of $12.4 million for the same quarter of the prior year. Contact Services operating income increased to $1.3 million for the January 31, 2002 quarter, compared to an operating loss of $300,000 for the January 31, 2001 quarter. For the nine months ended January 31, 2002, segment operating income was $2.6 million, an improvement of $4.7 million over the same period of the prior year.

"We are accomplishing solid results in our Contact Services business by improving operating effectiveness while maintaining high levels of customer service," said Keith R. Coogan, President and Chief Operating Officer. "A strategic requirement for the long-term success of this business is to diversify our customer base. As a result, we are intensifying our sales efforts and continually enhancing our technology solutions. Recently we enhanced our capabilities for handling E Mail, Web Chat, and Collaborative services, which further enables Contact Services to move into new markets for Web-based services."

The company continues to be cautious about softness in the product services marketplace. Despite the 13 percent revenue growth experienced in the first nine months of this fiscal year, considering the impact of the Microsoft agency model, as well as an anticipated gradual economic recovery, fourth quarter revenue and operating income growth may be more modest, with full year operating income not expected to significantly outpace the prior year for this segment. Contact Services is expected to maintain current levels of operating income in the fourth quarter. Full year operating income margins are expected to exceed six percent for this business unit.

Under Statement of Financial Accounting Standards No. 142 (SFAS 142), purchased goodwill will no longer be amortized but will be tested for impairment annually. As required, the company will adopt SFAS 142 in its July 2002 quarter. Although the company has not fully evaluated the financial impact of the statement, the exclusion of goodwill amortization for the three and nine months ended January 31, 2002 would have increased reported earnings per share by $0.12 and $0.34, respectively.