Softchoice Corporation
TSX : SO

Softchoice Corporation

February 15, 2011 16:03 ET

Softchoice Announces Earnings Growth for the Fourth Quarter and Fiscal Year 2010

- Revenues Increase 16 Percent in the Fourth Quarter of 2010

- Gross Profit Grows 14 Percent in the Fourth Quarter of 2010

- Annual Operating Income Up By 31 Percent

- Annual Adjusted Earnings Per Share Increases 26%

TORONTO, ONTARIO--(Marketwire - Feb. 15, 2011) - Softchoice Corporation (TSX:SO), a leading North American provider of technology solutions and services, today reported its financial results for the fourth quarter and fiscal year of 2010. The audited annual financial statements are available on the Softchoice website at www.softchoice.com.

For the three-month period ended December 31, 2010, Softchoice reported net income of US$7.2 million, or US$0.36 per share (basic and fully diluted). Net income was affected by a non-cash foreign exchange gain in the quarter of US$1.9 million. On an adjusted basis, earnings in the quarter amounted to US$5.9 million, or US$0.30 per share (basic and fully diluted), compared to earnings of US$5.4 million, or US$0.30 per share (basic and fully diluted) for the fourth quarter of 2009.

On a full-year basis, Softchoice reported net income of US$20.2 million, or US$1.02 per share (basic and fully diluted). Adjusting for the impact of non-cash foreign exchange gains and losses, earnings for the year grew by 41 percent to US$18.0 million while earnings per share (basic and fully diluted) increased 26 percent to US$0.91. The Company ended the year with a cash position of $35.8 million.

"Our performance reflects strong demand across all the major segments of our business – from Microsoft and client computing, to server, storage and networking solutions," said David MacDonald, President and CEO of Softchoice. "Moreover, we expect continued momentum as we leverage our investments in solution design and professional services to help customers implement private cloud architecture, desktop virtualization, mobility and unified communications solutions throughout 2011 and beyond."

"The strength of our Microsoft business in the quarter, and the rapid adoption of Windows 7, Office 2010, Exchange 2010 and SharePoint 2010 bode well for the continued growth and diversification of our business," added Mr. MacDonald. "Beyond increasing our share of the annuity licensing market, new software adoption typically drives corresponding investments in hardware platforms, networking and storage infrastructure. Our Microsoft business gives us a natural entry point with which to provide our customers with value-added solution design and implementation services."

During the quarter ended December 31, 2010, the Company changed its revenue accounting policy from gross revenue reporting to net revenue reporting for certain arrangements where the hardware and software support services are performed primarily by third parties. The change to a more relevant accounting policy had no impact on the gross profit, income from operations or net income amounts previously reported for any period. Based on the Company's current interpretation of the relative merits of the various accounting criteria for gross vs. net recognition, the Company determined that this change better reflects the substance of these transactions between the Company and its clients. The Company consulted with its auditors and other members of its industry as part of this change.

The impact of our change in accounting policy to revenue is as follows:

  Quarter ended December 31, Year ended December 31,
  2010 2009 Growth 2010 2009 Growth
Net sales (under previous accounting policy) 339,135 283,889 19% 1,188,260 1,000,248 19%
Net sales (under new accounting policy) 253,643 218,292 16% 884,014 754,144 17%

During the fourth quarter, Softchoice reported net salesof US$253.6 million compared to US$218.3 million, representing an increase of 16 percent over the same period of the year prior. Hardware net sales showed strong growth, increasing by 13 percent in the quarter while net revenue of Microsoft and other software grew in the fourth quarter of 2010 by 24 percent and 13 percent, respectively, over the fourth quarter of 2009.

Quarterly Highlights

Softchoice was named 'Software Asset Management Partner of the Year' at Microsoft Canada's annual IMPACT Awards, in recognition of the support and innovative services the Company has provided to more than 1600 organizations, CDN magazine named Softchoice's Sustainability Programs Manager, Melissa Alvares, a'Top Newsmaker' for 2010 in honor of the Company's efforts to promote sustainable IT practices across the North American business community.

Fourth Quarter Earnings Call Details

Softchoice Corporation will host its fourth-quarter earnings call on February 15, 2011 at 5:00 pm EDT. 

The call will be moderated by David MacDonald, Softchoice's President and CEO and Chief Financial Officer, David Long. The conference call will begin with a brief web presentation followed by a question-and-answer session.

Participant Information

Local Dial in number: 416 800 1066

Toll Free Dial in number: 1 866 212 4491

Webcast URL: http://www.snwebcastcenter.com/custom_events/softchoice-20110215/site/

To ensure participation, please dial in at least 10 minutes prior to the start of the conference at 5:00 pm EDT.

For those unable to attend the call, a link will be made available on the Softchoice website to an archived web and audio version on February 16, 2011.

About Softchoice

As a leading North American provider of technology solutions and services, Softchoice combines the efficiency and reliability of a national IT supplier with the personal touch and technical expertise of a local solutions provider. Softchoice's holistic approach to technology includes solution design, implementation and asset management services, as well as providing access to one of the most comprehensive and cost-effective technology distribution networks in North America. With over 850 employees located in more than 40 branch offices, Softchoice manages the technology needs of more than 15,000 corporate and public sector organizations across the United States and Canada.

Softchoice stock is listed on the Toronto Stock Exchange (TSX) under the trading symbol "SO". The common shares of Softchoice are not registered under the U.S. Securities Act of 1933 and are not publicly traded in the United States.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to expectations, intentions and plans contained in this press release that are not historical fact. When used in this press release, the words "anticipate", "expect", "will" and similar expressions generally identify forward-looking statements. These statements reflect our current expectations and are subject to a number of risks and uncertainties including, but not limited to, change in technology and general market conditions, many of which are set out or incorporated by reference in the Company's latest Annual Information Form. Due to the many risks and uncertainties, Softchoice cannot assure that the forward-looking statements contained in this press release will be realized.

SOFTCHOICE CORPORATION
Consolidated Balance Sheets
(In thousands of U.S. dollars)
(Unaudited)
 
December 31, 2010 and 2009
         
    2010   2009
         
Assets        
         
Current assets:        
  Cash $ 35,752 $ 18,601
  Accounts receivable, net of allowance for doubtful accounts of $5,269 (2009 - $3,967)   224,168   183,674
  Inventories   881   766
  Deferred costs   7,082   385
  Prepaid expenses and other assets   4,706   5,127
  Future income taxes   3,228   2,270
         
    275,817   210,823
         
Restricted cash   500   500
Property and equipment   5,748   6,894
Goodwill   11,383   11,063
Intangible assets   39,770   44,866
Long-term accounts receivable   2,771  
Future income taxes   15,780   16,220
  $ 351,769 $ 290,366
         
Liabilities and Shareholder's Equity        
         
Current liabilities:        
  Accounts payable and accrued liabilities $ 217,925 $ 172,000
  Deferred revenue   1,899   1,465
  Current portion of deferred lease inducements   193   85
  Current portion of term debt   4,104   4,104
  Income taxes payable   2,320   3,288
    226,441   180,942
         
Deferred lease inducements   217   395
Term debt   8,568   12,671
         
Shareholder's equity:        
  Capital stock   26,016   25,842
  Contributed surplus   1,894   983
  Retained earnings   84,505   64,263
  Accumulated other comprehensive income   4,128   5,270
    116,543   96,358
         
  $ 351,769 $ 290,366
             
             
SOFTCHOICE CORPORATION  
Consolidated Statements of Earnings and Retained Earnings  
(In thousands of U.S. dollars, except per share information)  
(Unaudited)  
   
Years ended December 31, 2010 and 2009  
             
    2010     2009  
             
Net sales $ 884,014   $ 754,144  
             
Cost of sales   719,435     611,875  
             
Gross profit   164,579     142,269  
             
Expenses:            
  Salaries and benefits   91,783     76,399  
  Selling, general and administrative   31,632     30,796  
  Amortization of property and equipment   2,797     2,907  
  Amortization of intangible assets   6,639     7,949  
    132,851     118,051  
             
Income from operations   31,728     24,218  
             
Other expenses (income):            
  Foreign currency exchange gain   (2,987 )   (12,649 )
  Interest expense   2,545     3,872  
  Other expense   1,365     1,155  
    923     (7,622 )
             
Income before income taxes   30,805     31,840  
             
Income taxes (recovery):            
  Current   11,040     8,117  
  Future   (477 )   1,460  
    10,563     9,577  
             
Net income   20,242     22,263  
             
Retained earnings, beginning of year   64,263     42,000  
             
Retained earnings, end of year $ 84,505   $ 64,263  
             
Net income per share:            
  Basic $ 1.02   $ 1.26  
  Diluted   1.02     1.26  
             
             
Weighted average number of shares outstanding:            
  Basic   19,778,089     17,628,735  
  Diluted   19,822,852     17,708,738  
             
   
   
SOFTCHOICE CORPORATION  
Consolidated Statements of Comprehensive Income  
(In thousands of U.S. dollars)  
(Unaudited)  
   
Years ended December 31, 2010 and 2009  
             
    2010     2009  
             
Net income $ 20,242   $ 22,263  
             
Other comprehensive loss:            
  Foreign currency translation adjustment, net of income tax expense of nil   (1,142 )   (7,846 )
             
Comprehensive income $ 19,100   $ 14,417  
             
   
Consolidated Statements of Accumulated Other Comprehensive Income  
(In thousands of U.S. dollars)  
   
Years ended December 31, 2010 and 2009  
             
    2010     2009  
             
Balance, beginning of year $ 5,270   $ 13,116  
             
Foreign currency translation adjustment   (1,142 )   (7,846 )
             
Balance, end of year $ 4,128   $ 5,270  
   
   
SOFTCHOICE CORPORATION  
Consolidated Statements of Cash Flows  
(In thousands of U.S. dollars)  
(Unaudited)  
   
Years ended December 31, 2010 and 2009  
             
    2010     2009  
             
Cash provided by (used in):            
             
Operating activities:            
  Net income $ 20,242   $ 22,263  
  Items not involving cash:            
    Amortization of property and equipment   2,797     2,907  
    Stock-based compensation   979     (1,420 )
    Future income taxes   (477 )   1,460  
    Amortization of intangible assets   6,639     7,949  
    Unrealized foreign currency loss   (1,913 )   (9,112 )
    Amortization of debt issuance costs   1,319     1,157  
    Loss on disposal of property and equipment   43     35  
  Change in non-cash operating working capital   (6,181 )   7,892  
    23,448     33,131  
             
Financing activities:            
  Repayment of bank indebtedness       (466 )
  Repayment of long-term debt       (55,596 )
  Increase in term debt       17,683  
  Repayment of term debt   (4,805 )   (3,717 )
  Proceeds from issuance of common shares   106     15,624  
    (4,699 )   (26,472 )
             
Investing activities:            
  Purchase of property and equipment   (1,426 )   (1,800 )
  Purchase of intangible assets   (1,060 )   (1,163 )
  Proceeds on disposal of property and equipment       25  
  Restricted cash       (500 )
    (2,486 )   (3,438 )
             
Effect of exchange rate changes on cash   888     1,282  
             
Increase in cash   17,151     4,503  
             
Cash, beginning of year   18,601     14,098  
             
Cash, end of year $ 35,752   $ 18,601  

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