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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
Mark One Quarterly Report Pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number 0-19349
SOFTWARE SPECTRUM, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1878002
- -------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2140 MERRITT DRIVE
GARLAND, TEXAS
75041
(Address of principal executive offices)
(Zip Code)
972-840-6600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At March 9, 2001, the Registrant had outstanding 3,313,120 shares of its
Common Stock, par value $.01 per share.
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at January 31, 2001
and April 30, 2000 1
Consolidated Statements of Income for the
Three and Nine Months Ended January 31, 2001 and 2000 2
Consolidated Statements of Cash Flows for the
Nine Months Ended January 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
January 31, April 30,
2001 2000
------------ ------------
(Unaudited)
Current assets
Cash and cash equivalents $ 23,931 $ 5,652
Marketable equity securities 4,076 --
Trade accounts receivable, net of allowance for doubtful
accounts of $3,464 at January 31 and $2,767 at April 30 237,742 145,954
Prepaid expenses 1,235 1,031
Net assets of discontinued operations 5 12,037
Other current assets 6,257 4,869
------------ ------------
Total current assets 273,246 169,543
Furniture, equipment and leasehold improvements, at cost 51,830 48,108
Less accumulated depreciation and amortization 32,359 27,301
------------ ------------
19,471 20,807
Other assets, consisting primarily of goodwill, net of accumulated
amortization of $11,435 at January 31 and $9,819 at April 30 38,097 42,504
------------ ------------
$ 330,814 $ 232,854
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ -- $ 63
Trade accounts payable 251,536 135,410
Other current liabilities 12,326 24,602
------------ ------------
Total current liabilities 263,862 160,075
Long-term debt, less current maturities 3,800 7,800
Shareholders' equity
Preferred stock, par value $.01; authorized, 1,000,000 shares;
issued and outstanding, none -- --
Common stock, par value $.01; authorized, 20,000,000 shares;
issued, 4,610,135 shares at January 31 and 4,585,140 shares at April 30 46 46
Additional paid-in capital 42,552 42,292
Retained earnings 42,663 39,897
Currency translation adjustments (4,492) (4,267)
------------ ------------
80,769 77,968
Less treasury stock at cost - 1,198,801 shares at January 31
and 841,201 shares at April 30 17,617 12,989
------------ ------------
Total shareholders' equity 63,152 64,979
------------ ------------
$ 330,814 $ 232,854
============ ============
See notes to consolidated financial statements.
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
January 31, January 31,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales
Software services $ 416,749 $ 281,075 $ 897,204 $ 707,474
Contact services 12,363 21,753 41,822 50,881
----------- ----------- ----------- -----------
429,112 302,828 939,026 758,355
----------- ----------- ----------- -----------
Cost of sales
Software services 389,720 257,982 831,916 643,548
Contact services 9,292 15,968 32,740 39,412
----------- ----------- ----------- -----------
399,012 273,950 864,656 682,960
----------- ----------- ----------- -----------
Gross margin 30,100 28,878 74,370 75,395
Selling, general and administrative expenses 20,896 18,868 60,720 54,159
Depreciation and amortization 2,515 2,644 7,663 7,495
----------- ----------- ----------- -----------
Operating income 6,689 7,366 5,987 13,741
Non-operating expense (income)
Interest expense 618 600 1,404 1,113
Interest income (110) (120) (653) (504)
Other (151) -- (151) --
----------- ----------- ----------- -----------
357 480 600 609
----------- ----------- ----------- -----------
Income before income taxes 6,332 6,886 5,387 13,132
Income tax expense 2,596 2,799 2,156 5,337
----------- ----------- ----------- -----------
Income from continuing operations 3,736 4,087 3,231 7,795
Loss from operations of discontinued professional
services business (net of applicable tax benefit) -- 1,912 -- 3,489
Loss on disposition of discontinued professional
services business (net of applicable tax benefit) -- -- 465 --
----------- ----------- ----------- -----------
Loss from discontinued operations -- 1,912 465 3,489
----------- ----------- ----------- -----------
Net income $ 3,736 $ 2,175 $ 2,766 $ 4,306
=========== =========== =========== ===========
Earnings per share - basic
Income from continuing operations $ 1.10 $ 1.06 $ 0.91 $ 1.95
=========== =========== =========== ===========
Net income $ 1.10 $ 0.56 $ 0.78 $ 1.08
=========== =========== =========== ===========
Earnings per share -diluted
Income from continuing operations $ 1.10 $ 1.02 $ 0.91 $ 1.92
=========== =========== =========== ===========
Net income $ 1.10 $ 0.54 $ 0.78 $ 1.06
=========== =========== =========== ===========
Weighted average shares outstanding
Basic 3,410 3,859 3,551 3,998
=========== =========== =========== ===========
Diluted 3,410 4,019 3,558 4,066
=========== =========== =========== ===========
See notes to consolidated financial statements.
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended
January 31,
------------------------
2001 2000
--------- ---------
Operating activities
Income from continuing operations $ 3,231 $ 7,795
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities
Provision for bad debts 1,695 1,220
Depreciation and amortization 7,663 7,495
Net gains on sales of assets (151) --
Changes in operating assets and liabilities
Trade accounts receivable (94,848) (14,153)
Prepaid expenses and other assets (1,270) 1,148
Marketable equity securities 1,306 --
Trade accounts payable and other
current liabilities 104,323 (389)
--------- ---------
Net cash provided by operating activities 21,949 3,116
--------- ---------
Investing activities
Purchase of subsidiary, net of cash acquired (2,159) (1,916)
Sale of subsidiary, net 503 --
Purchase of furniture, equipment and
leasehold improvements (4,781) (8,163)
--------- ---------
Net cash used in investing activities (6,437) (10,079)
--------- ---------
Financing activities
Borrowings on long-term debt 188,430 132,870
Repayments of long-term debt (192,493) (129,094)
Proceeds from stock issuance 260 585
Purchase of treasury stock (4,628) (6,632)
--------- ---------
Net cash used in financing activities (8,431) (2,271)
--------- ---------
Effect of exchange rate changes on cash (667) 37
--------- ---------
Net cash provided by (used in) continuing operations 6,414 (9,197)
Net cash provided by (used in) discontinued operations 11,865 (3,326)
--------- ---------
Increase (decrease) in cash and cash equivalents 18,279 (12,523)
Cash and cash equivalents at beginning of period 5,652 20,084
--------- ---------
Cash and cash equivalents at end of period $ 23,931 $ 7,561
========= =========
Supplemental disclosure of cash paid during the period
Income taxes $ 3,326 $ 1,847
Interest 832 823
Non-cash investing and financing activities
Marketable equity securities received from sale of subsidiary $ 5,309 $ --
See notes to consolidated financial statements.
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying financial statements include the accounts of Software Spectrum,
Inc. (the "Company") and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
The consolidated financial statements contained herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial position as of January 31, 2001, the
consolidated results of operations for the three and nine months ended January
31, 2001 and 2000 and the consolidated cash flows for the nine months ended
January 31, 2001 and 2000 have been made. In addition, all such adjustments
made, in the opinion of management, are of a normal recurring nature. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the interim reporting rules of the
Securities and Exchange Commission. The interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes for the year ended April 30, 2000, included in the
Company's 2000 Annual Report on Form 10-K.
NOTE B -- DISCONTINUED OPERATIONS
In May 2000, the Company announced a plan to exit its professional services
business. In accordance with this plan, 10 of the Company's 16 professional
services sites were closed effective May 31, 2000. The Company sold its three
Asia/Pacific sites, excluding accounts receivable, effective July 31, 2000 for
approximately $725,000 and its three remaining North American sites effective
August 31, 2000 for approximately $1.4 million. The Company recorded an
additional loss of $465,000, net of tax benefits of $221,000, during the quarter
ended October 31, 2000, primarily related to customer collection issues and real
estate lease termination costs.
The financial data related to the professional services business is classified
as discontinued operations for all periods presented.
The loss from discontinued operations for the three and nine months ended
January 31, 2000 included revenues of approximately $10.3 million and $35.8
million and income tax benefits of approximately $675,000 and $1.7 million,
respectively.
The net assets of discontinued operations were as follows:
January 31, April 30,
2001 2000
----------- -----------
Accounts receivable, net $ 17 $ 11,051
Prepaid expenses and other current assets -- 317
Furniture, equipment and leasehold improvements, net -- 3,244
Other assets -- 201
Trade accounts payable (10) (187)
Other current liabilities (2) (2,589)
----------- -----------
$ 5 $ 12,037
=========== ===========
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C -- OTHER COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):
Three Months Ended Nine Months Ended
January 31, January 31,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net income $ 3,736 $ 2,175 $ 2,766 $ 4,306
Currency translation adjustments 288 (101) (225) (427)
----------- ----------- ----------- -----------
Comprehensive income $ 4,024 $ 2,074 $ 2,541 $ 3,879
=========== =========== =========== ===========
NOTE D -- EARNINGS PER SHARE
The following table (in thousands, except per share amounts) sets forth the
computation of basic and diluted earnings per share. Outstanding options that
were not included in the computation of diluted earnings per share because their
effect would be antidilutive totaled approximately 655,000 and 494,000 shares
for the three and nine months ended January 31, 2001 and 455,000 and 354,000
shares for the three and nine months ended January 31, 2000, respectively.
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Income from continuing operations $ 3,736 $ 4,087 $ 3,231 $ 7,795
============ ============ ============ ============
Loss from discontinued operations $ -- $ 1,912 $ 465 $ 3,489
============ ============ ============ ============
Weighted average shares outstanding - basic 3,410 3,859 3,551 3,998
Effect of dilutive employee and director
stock options -- 160 7 68
------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted 3,410 4,019 3,558 4,066
------------ ------------ ------------ ------------
Earnings per share from continuing
operations - basic $ 1.10 $ 1.06 $ 0.91 $ 1.95
============ ============ ============ ============
Earnings per share from continuing
operations - diluted $ 1.10 $ 1.02 $ 0.91 $ 1.92
============ ============ ============ ============
Loss per share from discontinued
operations - basic $ -- $ 0.50 $ 0.13 $ 0.87
============ ============ ============ ============
Loss per share from discontinued
operations - diluted $ -- $ 0.48 $ 0.13 $ 0.86
============ ============ ============ ============
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E -- BUSINESS SEGMENTS
Information for the Company's reportable segments for the three and nine months
ended January 31, 2001 and 2000 is presented below (in thousands). The contact
services segment was formerly referred to as support services.
Three Months Ended Nine Months Ended
January 31, January 31,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales
Software services $ 416,749 $ 281,075 $ 897,204 $ 707,474
Contact services 12,363 21,753 41,822 50,881
--------- --------- --------- ---------
$ 429,112 $ 302,828 $ 939,026 $ 758,355
========= ========= ========= =========
Operating income (loss)
Software services $ 17,394 $ 13,920 $ 38,013 $ 39,072
Contact services (312) 2,638 (2,077) 2,756
Unallocated corporate overhead (10,393) (9,192) (29,949) (28,087)
--------- --------- --------- ---------
$ 6,689 $ 7,366 $ 5,987 $ 13,741
========= ========= ========= =========
NOTE F - DISPOSITION OF SUBSIDIARY
On December 5, 2000, the Company sold all of the outstanding stock of its
customer relationship management ("CRM") subsidiary for proceeds of
approximately $6.1 million, consisting of $750,000 in cash and the remainder in
shares of common stock of the acquirer, a publicly traded corporation.
Concurrent with the sale, Software Spectrum also extinguished certain contingent
purchase obligations to the former owners of the CRM business for approximately
$2.2 million. The gain realized on the sale was insignificant.
NOTE G - MARKETABLE EQUITY SECURITIES
The Company's marketable equity securities consist of the common stock acquired
through the sale of its CRM subsidiary (see Note F.) The securities are
classified as trading securities and are recorded at fair value as determined by
quoted market prices. Other non-operating income for the three and nine months
ended January 31, 2001 included realized gains of approximately $1.3 million,
offset by unrealized losses of approximately $1.2 million, related to these
securities. As of March 9, 2001, the fair market value of the securities was
approximately $1.8 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a global business-to-business software services provider that
delivers comprehensive information technology solutions to organizations
throughout North America, Europe and Asia/Pacific. The Company sells personal
computer ("PC") software through volume licensing and maintenance ("VLM")
agreements or right-to-copy arrangements, and full-packaged PC software
products. In addition, the Company provides contact services to software
publishers, Internet service providers and other organizations.
In May 2000, the Company announced a plan to exit its professional services
business. In accordance with this plan, 10 of the Company's 16 professional
services sites were closed effective May 31, 2000. The Company sold its three
Asia/Pacific sites effective July 31, 2000 and its three remaining North
American sites effective August 31, 2000. The financial data related to the
professional services business is classified as discontinued operations for all
periods presented.
The following table sets forth certain items from the Company's Consolidated
Statements of Income expressed as a percentage of net sales.
Three Months Ended Nine Months Ended
January 31, January 31,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.0 90.5 92.1 90.1
-------- -------- -------- --------
Gross margin 7.0 9.5 7.9 9.9
Selling, general and administrative expenses 4.8 6.2 6.5 7.1
Depreciation and amortization 0.6 0.9 0.8 1.0
-------- -------- -------- --------
Operating income 1.6 2.4 0.6 1.8
Non-operating expense 0.1 0.1 0.1 0.1
-------- -------- -------- --------
Income before income taxes 1.5 2.3 0.5 1.7
Income tax expense 0.6 0.9 0.2 0.7
-------- -------- -------- --------
Income from continuing operations 0.9% 1.4% 0.3% 1.0%
======== ======== ======== ========
NET SALES
Software revenues for the three and nine months ended January 31, 2001 increased
approximately 48% and 27% over those for the three and nine months ended January
31, 2000, primarily due to the Company's strong competitive position with global
enterprises, the expansion of the sales force throughout the year and the
continued trend on the part of large customers toward enterprise-wide licensing
agreements. Software revenues from VLM agreements represented approximately 90%
and 87% of software revenues for the three and nine months ended January 31,
2001 compared to approximately 89% and 87% for the three and nine months ended
January 31, 2000.
For the three months ended January 31, 2001, contact services (formerly referred
to as support services) revenues decreased by 43% as compared to the three
months ended January 31, 2000. The decline was attributable to the decision by
one of the Company's largest customers to reduce and realign call volumes
outsourced to third parties, which resulted in lower call volumes in the
Company's Garland and Spokane
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contact centers. Contact services revenues decreased approximately 18% for the
nine months ended January 31, 2001 compared to the nine months ended January 31,
2000. Increased call volumes in the Company's Tampa contact center, which opened
in June 1999, partially offset the decline in call volumes in the Garland and
Spokane contact centers. Contact services represented approximately 3% and 4% of
the Company's overall revenues for the three and nine months ended January 31,
2001 as compared to 7% for both the three and nine months ended January 31,
2000. Such revenue generated approximately 10% and 12%, respectively, of the
Company's gross margin dollars during the three and nine months ended January
31, 2001, compared to 20% and 15% during the three and nine months ended January
31, 2000.
The Company believes future increases in revenues will depend upon its ability
to maintain and increase its customer base, to develop and expand its contact
services and to capitalize on continued growth in technology markets around the
world.
INTERNATIONAL OPERATIONS
For the three and nine months ended January 31, 2001, sales outside of North
America increased 35% and 21%, to $35 million and $104 million, respectively, as
compared to $26 million and $86 million for the three and nine months ended
January 31, 2000.
Sales in Europe increased 37% and 32% to $24 million and $59 million for the
three and nine months ended January 31, 2001. Sales in Asia/Pacific increased
32% and 10% to $11 million and $45 million during the same periods.
For the three and nine months ended January 31, 2001, fluctuations in foreign
currencies increased operating income by approximately $403,000 and $415,000,
respectively. Fluctuations in foreign currencies decreased operating income by
approximately $615,000 and $860,000, respectively, for the three and nine months
ended January 31, 2000.
GROSS MARGIN
Overall gross margin as a percentage of net sales was 7.0% and 7.9% for the
three and nine months ended January 31, 2001, as compared to 9.5% and 9.9% for
the comparable periods of the prior year. The decrease in overall gross margin
as a percentage of net sales is primarily due to lower gross margins on product
services revenues, as well as the decrease in the percentage of revenues
provided by contact services, which traditionally have higher margins than the
Company's product services. For the three and nine months ended January 31,
2001, gross margins on product services decreased to 6.5% and 7.3% as compared
to 8.2% and 9.0% for the three and nine months ended January 31, 2000, primarily
due to price competition and an increase in the percentage of revenue derived
from enterprise-wide licensing contracts, which generally have lower margins
than traditional VLM arrangements. In addition, gross margins in contact
services for the nine months ended January 31, 2001 were negatively impacted by
a $560,000 nonrecurring charge for employee termination costs related to the
decline in business in the Garland contact center.
The Company generally realizes lower gross margins as a percentage of net sales
on sales of software through VLM agreements, as compared to sales of
full-packaged software products. Therefore, the Company believes that gross
margin percentages on sales of software may decline if the volume of software
product sales by the Company through VLM agreements, particularly
enterprise-wide agreements, continues or if publishers respond to continued
market pressures by reducing financial incentives to resellers. This potential
decrease in product gross margin percentages may be partially offset by
increases in gross margin dollars generated by contact services.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses include the costs of the
Company's sales and marketing organization as well as purchasing and corporate
administrative costs. For the three and nine months ended January 31, 2001, SG&A
expenses, as a percentage of net sales, decreased to 4.8% and 6.5%, as compared
to 6.2% and 7.1% for the three and nine months ended January 31, 2000. SG&A
expenses for the nine months ended January 31, 2001 include a nonrecurring
charge of $730,000 relating to excess facilities due to the decline in the
contact services business. The decrease in SG&A expenses, as a percentage of net
sales, is primarily due to increased sales in the product services area and the
favorable movement of foreign currency exchange rates, as well as more frequent
use of the Company's electronic offerings. The Company remains focused on
controlling operating costs in both of its business lines.
DEPRECIATION AND AMORTIZATION
The decrease in depreciation and amortization for the three months ended January
31, 2001, as compared to the three months ended January 31, 2000 is primarily
due to a decline in goodwill amortization. The increase in depreciation and
amortization for the nine months ended January 31, 2001, as compared to the nine
months ended January 31, 2000, reflects depreciation on enhancements to the
Company's computer systems and additional depreciation on the higher level of
fixed assets utilized in the Company's contact services business in fiscal 2001.
INCOME TAX EXPENSE
The Company's effective tax rate was approximately 41% and 40% for the three and
nine months ended January 31, 2001 as compared to 41% for both the three and
nine months ended January 31, 2000.
OPERATING INCOME
Operating income for the three and nine months ended January 31, 2001 was $6.7
million and $6.0 million, respectively, compared to operating income of $7.4
million and $13.7 million, respectively, for the three and nine months ended
January 31, 2000. The decrease in operating income is primarily due to lower
contact services revenues, reduced gross margin percentages on product services
and the $1.3 million of nonrecurring charges related to the contact services
business, which were recorded in the second fiscal quarter.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2001, the Company had approximately $24 million in cash and cash
equivalents and had $4 million outstanding under its $100 million revolving
credit facility (the "Facility.") The Facility, which is secured by accounts
receivable, inventory and a pledge of the stock of certain of the Company's
subsidiaries, permits the Company to borrow up to $100 million, subject to
availability under its borrowing base. The Company amended the Facility in
December 2000. The amendment included revisions to the Company's borrowing base
calculation, which will be effective April 30, 2001. Based on the revised
calculation, the Company would have had approximately $50 million of borrowing
availability under its credit facility at January 31, 2001. The Facility expires
in March 2002.
The increase in trade accounts receivable and trade accounts payable from April
30, 2000 to January 31, 2001 reflects the Company's seasonally high sales during
the third fiscal quarter. At January 31, 2001 and April 30, 2000, accounts
receivable represented approximately 50 and 48 days of historical sales,
respectively.
For the nine months ended January 31, 2001, the Company's operating activities
provided $21.9 million of cash from continuing operations compared to $3.1
million of cash provided by continuing operations during the nine months ended
January 31, 2000. The increase in cash provided by continuing operations
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is primarily due to increased collections of accounts receivable and the timing
of certain payments to the Company's vendors, offset by the reduction in income
from continuing operations.
The increase in furniture, equipment and leasehold improvements from April 30,
2000 to January 31, 2001 reflects approximately $5 million of capital
expenditures related primarily to the ongoing investment in the Company's
computer systems.
The Company expects that its cash requirements for fiscal 2001 will be satisfied
from cash flow from operations and borrowings under its credit facility.
In 1997, the Company implemented a stock repurchase program which allows for the
purchase of the Company's Common Stock from time to time in the open market or
through privately negotiated transactions. The Company funds such purchases with
cash or borrowings under the Company's credit facility. As of March 9, 2001, the
Company had repurchased 1,246,800 shares of Common Stock, for a total of $18.1
million, under the stock repurchase program and is authorized by its Board of
Directors to repurchase up to an additional $3.7 million of its common stock.
On December 5, 2000, the Company sold all of the outstanding stock of its
customer relationship management ("CRM") subsidiary for proceeds of
approximately $6.1 million, consisting of $750,000 in cash and the remainder in
shares of common stock of the acquirer, a publicly traded corporation.
Concurrent with the sale, Software Spectrum also extinguished certain contingent
purchase obligations to the former owners of the CRM business for approximately
$2.2 million. The gain realized on the sale was insignificant.
EURO CURRENCY ISSUES
On January 1, 1999, eleven of the fifteen member countries of the European Union
introduced a common legal currency called the Euro, which is intended to replace
the currently existing currencies of the participating countries by January
2002. The Company does not believe that use of the Euro has or will materially
impact its financial condition, operating results or use of derivative
instruments.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Other than statements of historical fact, this Management's Discussion and
Analysis of Financial Condition and Results of Operations includes certain
statements of the Company that may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements include future market trends, expectations concerning the
Company's growth, estimates regarding the economy and the software industry in
general, key performance indicators that impact the Company, statements
regarding market risk and statements included in the Euro Currency discussion
above. In developing any forward-looking statements, the Company makes a number
of assumptions, including expectations for continued market growth, supplier
relationships, anticipated revenue and gross margin levels, and cost savings and
efficiencies that include the ability of the Company to develop electronic
strategies. Although the Company believes these assumptions are reasonable, no
assurance can be given that they will prove correct. The Company's ability to
continue to grow product sales, develop its contact services business and
improve operational efficiencies will be key to its success in the future. If
the industry's or the Company's performance differs materially from these
assumptions or estimates, Software Spectrum's actual results could vary
significantly from the estimated performance reflected in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results. The Company's report on Form 10-K for the fiscal
year ended April 30, 2000 contains certain cautionary statements under
"Forward-Looking Information" that identify factors that could cause the
Company's actual results to differ materially from those in the forward-looking
statements in this discussion. All forward-looking statements in this discussion
are expressly qualified in their entirety by the cautionary statements in this
paragraph and under "Forward-Looking Information" in the Company's Form 10-K.
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INFLATION
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to securities price risk relating to its marketable
equity securities. The Company occasionally uses hedging activities to decrease
this risk; however, no portion of this risk was hedged as of January 31, 2001.
Based on the securities owned at January 31, 2001, a 10% decline in security
prices would decrease operating income by approximately $408,000.
Information about market risks relating to foreign currency exchange rates and
interest rates for the three and nine months ended January 31, 2001 does not
differ materially from that discussed in Item 7 of the Company's Annual Report
on Form 10-K for its fiscal year ended April 30, 2000.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.15(b) - Fourth Amended and Restated Limited Waiver
Agreement, dated September 1, 2000, between the Company and
Private Capital Management, Inc.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three month period
ended January 31, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOFTWARE SPECTRUM, INC.
Date: March 16, 2001 By: /s/ James W. Brown
--------------------------------------------
James W. Brown
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.15(b) Fourth Amended and Restated Limited Waiver
Agreement, dated September 1, 2000, between the Company and
Private Capital Management, Inc.
15