<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996 .
------------------------------------------------
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)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) 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 February 10, 1997, the Registrant had outstanding 4,325,259 shares of its
common stock, par value $.01 per share.
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION 3
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets-
December 31, 1996 and March 31, 1996 4
Consolidated Statements of Operations-
Three and Nine Months Ended
December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows-
Nine Months Ended December 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results Of Operations 10
PART II - OTHER INFORMATION 15
Item 4. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
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PART I - FINANCIAL INFORMATION
3
<PAGE> 4
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,407 $ 28,123
Short-term investments -- 8,407
Trade accounts receivable, net of
allowance for doubtful accounts 202,216 73,875
Inventories 21,983 12,937
Prepaid expenses 9,465 10,092
Other current assets 2,271 2,435
---------- ----------
Total current assets 241,342 135,869
Furniture, equipment and leasehold
improvements, at cost 29,557 17,033
Less accumulated depreciation and amortization 11,124 7,866
---------- ----------
18,433 9,167
Intangibles and other assets 53,767 5,144
---------- ----------
$ 313,542 $ 150,180
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 4,500 $ --
Notes payable 6,817 --
Trade accounts payable 180,365 61,231
Other current liabilities 20,440 15,586
---------- ----------
Total current liabilities 212,122 76,817
Long-term debt, less current maturities 25,500 --
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,
4,358,601 shares at December 31 and
4,241,384 shares at March 31 44 42
Additional paid-in capital 38,958 36,394
Retained earnings 37,464 37,465
---------- ----------
76,466 73,901
Less treasury stock at cost; 34,311 shares
at December 31 and 34,026 shares at March 31 546 538
---------- ----------
Total shareholders' equity 75,920 73,363
---------- ----------
$ 313,542 $ 150,180
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
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SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 239,834 $ 117,751 $ 582,604 $ 298,896
Cost of sales 213,039 102,160 515,182 258,328
--------- --------- --------- ---------
Gross margin 26,795 15,591 67,422 40,568
Selling, general and
administrative expenses 22,464 10,737 60,310 29,856
Depreciation and amortization expense 2,086 774 5,250 2,048
--------- --------- --------- ---------
Operating income 2,245 4,080 1,862 8,664
Interest income (expense), net (735) 239 (1,515) 741
--------- --------- --------- ---------
Income before income taxes 1,510 4,319 347 9,405
Income tax expense 677 1,546 303 3,229
--------- --------- --------- ---------
Net income $ 833 $ 2,773 $ 44 $ 6,176
========= ========= ========= =========
Earnings per share $ 0.19 $ 0.65 $ 0.01 $ 1.45
========= ========= ========= =========
Weighted average shares
outstanding 4,463 4,266 4,401 4,261
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
----------------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating Activities
Net income $ 44 $ 6,176
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for bad debts 1,332 360
Depreciation and amortization 5,250 2,048
Changes in operating assets and liabilities
Increase in accounts receivable (121,240) (25,473)
Increase in inventories (7,186) (3,443)
Decrease (increase) in prepaid expenses
and other assets 1,737 (9,390)
Increase in trade accounts payable and
other current liabilities 105,722 33,952
--------- ---------
Net cash provided by (used in) operating activities (14,341) 4,230
--------- ---------
Investing Activities
Sales of short term investments, net 8,407 9,451
Purchase of furniture, equipment and
leasehold improvements (10,592) (3,584)
Purchase of subsidiaries, net of cash acquired (44,163) (2,377)
--------- ---------
Net cash provided by (used in) investing activities (46,348) 3,490
--------- ---------
Financing Activities
Borrowings on notes payable 115,584 --
Repayments of notes payable (108,900)
Borrowings on long-term debt 30,000 --
Proceeds from stock issuance including tax
benefit related to stock options exercised 1,266 382
Other 23 (60)
--------- ---------
Net cash provided by financing activities 37,973 322
Increase (decrease) in cash and cash equivalents (22,716) 8,042
Cash and cash equivalents at beginning of period 28,123 11,543
--------- ---------
Cash and cash equivalents at end of period $ 5,407 $ 19,585
========= =========
Supplemental disclosure of cash paid
during the period
Income taxes $ 907 $ 2,425
Interest 1,534 15
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended December 31, 1996
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Software
Spectrum, Inc. (the "Company") and its wholly-owned subsidiaries, Spectrum
Integrated Services, Inc. (d.b.a. Software Spectrum Technology Services Group),
Software Spectrum Canada, Ltd., Software Spectrum Pty, Ltd., Software Spectrum
Limited and Software Spectrum B.V. 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 December
31, 1996, and the consolidated results of operations for the three months and
nine months ended December 31, 1996 and 1995 and the consolidated cash flows
for the nine months ended December 31, 1996 and 1995 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 March 31, 1996,
included in the Company's 1996 Annual Report on Form 10-K.
NOTE B - BUSINESS ACQUISITIONS
On April 2, 1996, the Company acquired substantially all of the assets of the
New Zealand business operations of Essentially Group Limited and all of the
outstanding shares of capital stock of Essentially Group (Australia) Limited,
privately held information technology companies in New Zealand and Australia.
The purchase price was $6.3 million, including cash of $5.1 million and the
issuance of 55,363 shares of the Company's common stock. The acquisition has
been accounted for using the purchase method of accounting.
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NOTE B - BUSINESS ACQUISITIONS (CONTINUED)
The estimated fair values of the assets acquired, liabilities assumed and stock
issued in connection with the purchase were $15.8 million, $9.6 million and
$1.2 million, respectively. The excess of the purchase price over the fair
values of the net assets acquired was $5.2 million and is being amortized on
the straight-line method over 20 years. The operating results of the acquired
businesses have been included in the consolidated statements of income from the
date of acquisition. Pro forma operating results, giving effect to the
acquisition as though it had occurred at the beginning of fiscal 1997 or 1996,
are not presented because they do not differ materially from the Company's
actual results.
On May 13, 1996, the Company acquired certain operating assets of the
corporate, government, and educational ("CGE") division of Egghead, Inc.
("Egghead"), a leading supplier of microcomputer software to organizations in
North America, for approximately $45 million in cash. The acquisition has been
accounted for using the purchase method of accounting.
The estimated fair values of the assets acquired and liabilities assumed were
$51 million and $6 million, respectively. The excess of the purchase price over
the fair values of the net assets acquired was $45 million and is being
amortized on the straight-line method over 20 years. The operating results of
the acquired business have been included in the consolidated statements of
income from the date of acquisition. The following unaudited pro forma
information presents summary consolidated results of operations of the Company
and the CGE division as if the acquisition had occurred at the beginning of
each period presented.
<TABLE>
<CAPTION>
Nine Months
Ended December 31,
-------------------------------------------------
1996 1995
(in thousands, except per share amounts)
----------------------- -----------------------
<S> <C> <C>
Net sales $ 622,000 $ 574,000
====================== ======================
Net income (loss) $ (300) $ 5,900
====================== ======================
Earnings (loss) per share $ (0.07) $ 1.38
====================== ======================
</TABLE>
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisition
been made as of these dates or of results which may occur in the future.
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<PAGE> 9
NOTE C - FINANCING ARRANGEMENT WITH BANK
Long-term debt consists of a term bank loan due in quarterly installments
beginning June 30, 1997 through March 31, 2001 ranging from $1.5 million to
$2.25 million. The note bears interest at a variable rate, which averaged
approximately 7.125% for the quarter ended December 31, 1996. The interest rate
is subject to quarterly adjustment, based on certain financial ratios of the
Company.
The financing arrangement also includes a $60 million revolving credit facility
which expires in May 1999. $6.8 million was outstanding under the revolving
credit facility at December 31, 1996. The revolving credit facility bears
interest at prime or LIBOR plus a variable rate, which averaged approximately
7.9% for the quarter ended December 31, 1996.
Until certain financial ratios are maintained for specified periods, borrowings
under the financing arrangement are secured by liens on accounts receivable,
inventory, the pledge of all the Company's shares in Spectrum Integrated
Services, Inc. and the pledge of 66.67% of the Company's shares in its foreign
subsidiaries.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW:
The following table sets forth, for each of the periods indicated, consolidated
statements of operations data expressed as a percentage of net sales for the
period specified.
<TABLE>
<CAPTION>
Percentage of Net Percentage of Net
Sales for Three Months Sales for Nine Months
Ended December 31, Ended December 31,
--------------------- --------------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.8 86.7 88.4 86.4
----- ----- ----- -----
Gross margin 11.2 13.3 11.6 13.6
Selling, general and
administrative expenses 9.4 9.1 10.4 10.0
Depreciation and amortization 0.9 0.7 0.9 0.7
----- ----- ----- -----
Operating income 0.9 3.5 0.3 2.9
Interest income (expense), net (0.3) 0.2 (0.2) 0.3
----- ----- ----- -----
Income before income taxes 0.6 3.7 0.1 3.2
Income tax expense 0.3 1.3 0.1 1.1
----- ----- ----- -----
Net income 0.3% 2.4% 0.0% 2.1%
===== ===== ===== =====
</TABLE>
NET SALES:
The Company's revenues are derived primarily from the sale of PC software
products and technology services in North America, Europe and the Asia/Pacific
region. The Company also sells peripheral and hardware products in the
Asia/Pacific region. For the three and nine months ended December 31, 1996,
sales increased by 104% and 95% over sales for the corresponding periods in
1995, reflecting the impact of the Company's acquisitions which occurred in the
first quarter of the current fiscal year.
In April 1996, the Company acquired substantially all of the assets of
Essentially Group Limited and all of the outstanding shares of capital stock of
Essentially Group (Australia) Limited, information technology companies in the
Asia/Pacific region. The acquisition of Essentially Group provided the Company
with a business presence in the Asia/Pacific market and completes the Company's
global operations strategy which includes maintaining operations centers in
North America, Europe and Asia/Pacific to service the major worldwide desktop
technology markets.
In May 1996, the Company acquired certain operating assets of the corporate,
government and education ("CGE") division of Egghead, Inc., a leading supplier
of PC software products to organizations in North America. With the CGE
acquisition, the Company significantly
10
<PAGE> 11
increased its market presence in North America. For the nine months ended
December 1996 and 1995, the pro forma combined sales of the Company and the CGE
division were $622 and $574 million, respectively.
For the three and nine months ended December 1996, sales of PC software
increased 105% and 94%, respectively, as compared to the corresponding periods
in 1995. The Company sells PC software through volume license and maintenance
("VLM") agreements, or right to copy arrangements, and ships full-packaged PC
software products either from its distribution centers or through third party
distributors. The Company serves as a designated service provider for VLM
agreements which are frequently used by customers seeking to standardize
desktop software applications and, consequently, may involve significant
quantities of unit sales for each customer at lower per unit prices than
full-packaged software products. For the three and nine months ended December
31, 1996, sales of software through VLM agreements represented approximately
64% and 57% of net sales as compared to approximately 50% and 45%,
respectively, of net sales for the corresponding periods of the prior year.
For the three and nine months ended December 31, 1996, revenue from technology
services provided by the Company's Technology Services Group increased by more
than 115% as compared to the corresponding periods in 1995. The Company
increased the number of its technology services offices from ten at March 31,
1996, to twenty-five world-wide locations at December 31, 1996. Because
fee-based services revenue has grown from a relatively small base, as compared
to the Company's sales of PC software, fee-based technology services
represented less than 4% of the Company's overall sales while representing
approximately 14% of the Company's gross margin for the nine months ended
December 1996.
The Company believes that any future increases in revenue will depend upon the
Company's ability to maintain and increase its customer base, to continue to
increase its market share, to develop and expand its technology services, and
to capitalize on continued growth in desktop technology markets around the
world.
INTERNATIONAL OPERATIONS:
For the three and nine months ended December 31, 1996, sales outside of the
United States totaled $26 million and $76 million, respectively, as compared to
$10 million and $18 million for the corresponding periods of the prior year
when the Company's international operations were limited to the Canadian and
European markets.
For the December 1996 quarter, the Company's operating results were negatively
impacted by a $1.8 million operating loss in Asia/Pacific reflecting slow sales
in the region and expenses associated with increased staffing of the Company's
Technology Services Group in Australia and New Zealand. The Company is
accelerating its plan in the Asia/Pacific region to adjust the business model
there to more closely mirror the lower cost structure in the Company's North
American operations.
11
<PAGE> 12
For the three and nine months ended December 1996, fluctuations in foreign
currencies against the U.S. dollar did not have a material effect on the
Company's financial results.
GROSS MARGIN:
Overall gross margin as a percentage of net sales was 11.2% and 11.6% for the
three and nine months ended December 31, 1996, respectively, as compared to
13.3% and 13.6% for the corresponding periods of the previous year. The decline
in overall gross margin as a percentage of sales, as compared to the previous
year, reflects the decline in gross margin on the sale of PC software,
discussed below, and the change in the Company's sales mix as a result of the
CGE acquisition. Substantially all revenue from former CGE customers was
derived from PC software sales, which have lower gross margins than do the
Company's technology services offerings.
For the three and nine months ended December 31, 1996, gross margin on the sale
of PC software declined to 10% and 10.2%, respectively, as compared to 11.9%
and 12% for the three and nine months ended December 31, 1995, respectively.
The decline in PC software gross margin reflects the growth in sales of PC
software through VLM agreements which generally have lower gross margins as
compared to sales of full-packaged software products, and lower levels of
financial incentives from software publishers in the current periods.
For the quarter ended December 1996, sales of PC software through VLM
agreements significantly increased to approximately 64% of net sales, compared
to 50% of net sales in the quarter ended December 1995. As a result, VLM
agreements represented 57% of net sales for the nine months ended December
1996, compared to 45% of net sales in the corresponding period of 1995. The
increased dollar volume of VLM sales in the December 1996 quarter more than
offset the lower margin on these sales to positively impact operating income
dollars in the period.
It is believed that a portion of the increase in sales in the December 1996
quarter likely resulted from higher levels of year-end spending in certain of
the Company's large accounts. The Company anticipates VLM sales as a percentage
of total sales in the March 1997 quarter should decline from the 64% in the
December quarter. The Company believes that gross margin on sales of software
may decline thereafter if the percentage of software product sales by the
Company through VLM agreements continues to increase or if publishers respond
to continued market pressures by reducing financial incentives available to
resellers. The Company believes that this potential decrease in product gross
margins may be partially offset by anticipated increases in revenue from its
technical services which traditionally have had higher gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses include the costs of the Company's
sales and marketing organization and purchasing, distribution and
administration costs. For the three and nine months ended December 1996,
selling, general and administrative expenses, as a
12
<PAGE> 13
percentage of net sales, were 9.4% and 10.4%, respectively, as compared to 9.1%
and 10% for the corresponding periods in 1995. The increase in selling, general
and administrative expenses as a percentage of sales reflects certain
transition costs, including temporary staffing, excess travel and telephone
expenses and costs associated with systems implementation, totaling
approximately $.6 million and $3.7 million, respectively, incurred in the three
and nine months ended December 1996, primarily in connection with the Company's
recent CGE acquisition. Without these identified transition costs, selling,
general and administrative expenses as a percentage of sales would have been
9.1% and 9.7%, respectively, for the three and nine months ended December 1996.
The Company does not expect to incur any additional significant residual
transition costs from the CGE acquisition.
DEPRECIATION AND AMORTIZATION:
The increase in depreciation and amortization for the three and nine months
ended December 1996, as compared to the corresponding periods in 1995, reflects
depreciation on current year fixed asset additions and amortization of goodwill
recorded in connection with the Company's recent business acquisitions. Most of
the purchase price for these acquisitions represents goodwill which the Company
began amortizing over a 20-year period in the June 1996 quarter.
INCOME TAX EXPENSE (BENEFIT):
The Company's effective tax rates for the three and nine months ended December
1996 were 45% and 87%, respectively, as compared to 36% and 34% in the
corresponding periods of the prior year. The increase in the effective tax
rates reflects the higher relative tax rates in the United States and Canada
where the Company realized taxable income over the lower rates in Asia/Pacific,
where the Company recorded a tax benefit. The effective tax rates also include
state and local taxes within the United States and provincial taxes in Canada.
LIQUIDITY AND FINANCIAL CONDITION:
At December 31, 1996, the Company had approximately $5.4 million in cash and
cash equivalents and had $30 million outstanding under its term loan and $6.8
million outstanding under its $60 million revolving credit line. The term loan
and credit line are initially secured by accounts receivable and inventory and
a pledge of the stock of the Company's domestic and foreign subsidiaries. The
principal amount of the term loan is due in quarterly installments beginning in
June 1997 through March 2001, increasing from $1.5 million to $2.25 million.
The revolving credit line expires in May 1999.
The increase in trade accounts receivable from March 31, 1996 to December 31,
1996, reflects the increase in net sales for the nine months ended December 31,
1996. Terms on the Company's accounts receivable are generally net 30 days from
date of invoice or 10 days in the case of summary periodic billings to
customers. At December 31, 1996 and March 31, 1996, accounts receivable
represented approximately 63 days of historical sales. The Company generally
carries inventory adequate to meet product sales levels for a period of
approximately one month. The increase in inventory as of December 31, 1996,
compared
13
<PAGE> 14
to March 31, 1996, results from the increased sales volume. The increase in
trade accounts payable from March 31, 1996 to December 31, 1996, reflects the
increased levels of accounts receivable and inventories.
For the nine months ended December 1996, the Company used $14.3 million of cash
in its operations compared to $4.2 million of cash provided by operations in
the nine months ended December 1995. The increase in cash used in operations is
primarily due to the increase in accounts receivable.
The increase in furniture, equipment and leasehold improvements at December 31,
1996 reflects approximately $2 million of capital assets included in the recent
business acquisitions and approximately $8.6 million of capital expenditures
related to the Company's installation of computer and telephone systems to
support its recent acquisitions, the ongoing upgrade of its existing computer
and telephone systems, expansion of its Technology Services Group offices, and
relocation and consolidation of its United States distribution facilities to
Louisville, Kentucky.
The Company expects that its cash requirements for the remainder of fiscal 1997
will be satisfied from cash flow from operations and borrowings under its
existing credit facility.
FACTORS THAT MAY AFFECT FUTURE RESULTS:
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward-looking statements of the Company including
statements concerning anticipated operating results, future market trends,
estimates regarding the economy and the software industry in general and key
performance indicators which impact the Company. In developing any
forward-looking statements, the Company makes a number of assumptions including
expectations for continued market growth, anticipated revenue and gross margin
levels, and cost savings and efficiencies. As previously identified, the
Company's ability to manage its growth, improve operational efficiencies and
continue to integrate its recent acquisitions will be key to its success in the
future. Further, the ability of the Company to develop electronic strategies, in
order to effectively lower the cost of business will be a key factor in the
future growth and profitability of the Company. 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 Form 10-K for the March 31, 1996 fiscal year contains
certain additional cautionary statements that describe factors that could cause
the Company's actual results to differ materially from those in the
forward-looking statements in this discussion.
INFLATION:
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
14
<PAGE> 15
PART II - OTHER INFORMATION
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.1 - Amendment Letter to Credit Agreement dated as
of September 30,1996 among Software Spectrum, Inc.,
each of the banks or other lending institutions which
are a party thereto and Texas Commerce Bank National
Association.
Exhibit 10.2 - Fourth Amendment to Credit Agreement dated as of
December 31, 1996 among Software Spectrum, Inc., each
of the banks or other lending institutions which are a
party thereto and Texas Commerce Bank National
Association.
Exhibit 11.1 - Computation of Primary Earnings Per Share
Exhibit 11.2 - Computation of Fully-Diluted Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
A report Form 8-K was filed by the Company on December 23, 1996,
disclosing the declaration of a dividend distribution of one preferred
stock purchase right for each outstanding share of Common Stock and
the execution of a Rights Agreement between the Company and KeyCorp
Shareholder Services, Inc., as Rights Agent.
16
<PAGE> 17
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: February 13, 1997 By:/s/ Deborah A. Nugent
-----------------------------------------
Deborah A. Nugent, Vice President of Finance
(Principal Financial Officer and Principal
Accounting Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Pages
------------
<S> <C> <C>
Exhibit 10.1 Amendment Letter to Credit Agreement dated as of September 30,1996
among Software Spectrum, Inc., each of the banks or other lending
institutions which are a party thereto and Texas Commerce Bank National
Association.
Exhibit 10.2 Fourth Amendment to Credit Agreement dated as of December 31, 1996
among Software Spectrum, Inc., each of the banks or other lending
institutions which are a party thereto and Texas Commerce Bank National
Association.
Exhibit 11.1 Computation of Primary Earnings Per Share
Exhibit 11.2 Computation of Fully Diluted Earnings Per Share
Exhibit 27 Financial Data Schedule
</TABLE>
18
<PAGE> 1
Exhibit 10.1
SOFTWARE SPECTRUM, INC.
2140 MERRITT DRIVE
DALLAS, TEXAS 75201
As of September 30, 1996
Texas Commerce Bank
National Association, as Agent
Attn: Loan Syndication Services
1111 Fannin, 9th Floor, MS46
Houston, Texas 77002
Re: Credit Agreement dated as of May 3, 1996, among Software
Spectrum, Inc, Texas Commerce Bank National Association, as
agent (the "Agent") and as a bank and the other banks or
lending institutions named therein (together with the Agent
in its individual capacity, herein the "Banks") (as amended by
that certain First Amendment to Credit Agreement and Master
Assignment and Acceptance dated June 28, 1996 and that certain
Second Amendment to Credit Agreement dated June 28,1996, the
"Credit Agreement"). Capitalized terms not otherwise defined
herein shall have the same meanings as set forth in the Credit
Agreement.
Ladies and Gentlemen:
This letter (the "Amendment Letter") is written to request that the
Agent and the Banks agree to amend clauses (a) and (b) of Section 11.3 of the
Credit Agreement to read in their respective entireties as follows (the
"Amendment"):
(a) 1.00 to 1.00 computed on the basis of the Cash Flow and Fixed
Charges for the period from June 30, 1996 through September
30, 1996; (b) 1.10 to 1.00 computed on the basis of the Cash
Flow and Fixed Charges for the period from June 30, 1996
through December 31, 1996;
If the Agent and the Banks agree with the foregoing, please execute a
duplicate copy of this Amendment Letter in the space indicated below and return
an original to the undersigned.
In order to induce the Agent and the Banks to agree to this Amendment
Letter, Borrower and Spectrum Integrated Services, Inc. (by their execution of
this Amendment Letter below) agree that:
a. Except as expressly set forth herein, this Amendment Letter
shall not be deemed to be an amendment or waiver of the terms
and provisions of any of the Loan Documents nor a waiver of any
Potential Default or Event of Default;
Amendment Letter, Page 1
<PAGE> 2
b. Except as expressly modified by this Amendment Letter, the
terms and provisions of the Credit Agreement and the other
Loan Documents are ratified and confirmed and shall continue
in full force and effect;
C. The Credit Agreement and the other Loan Documents continue to
be legal, valid, binding and enforceable in accordance with
their respective terms; and
d. Each reference in any Loan Document to the Credit Agreement is
hereby amended to mean the Credit Agreement as amended by this
Amendment Letter.
THIS AMENDMENT LETTER EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS
AMENDMENT LETTER, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. This Amendment Letter shall be governed by and construed in accordance
with the laws of the State of Texas and the applicable laws of the United
States of America. This Amendment Letter may be executed in one or more
counterparts and on telecopy counterparts each of which shall be deemed an
original but all of which together shall constitute one and the same agreement.
Sincerely,
SOFTWARE SPECTRUM, INC.
By: /s/ Deborah A. Nugent
-----------------------------------
Deborah A. Nugent
Vice President
Accepted and agreed to:
SPECTRUM INTEGRATED SERVICES, INC.
By: /s/ Deborah A. Nugent
-----------------------------------
Deborah A. Nugent
Secretary/Treasurer
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
individually as a Bank and as the Agent
By: /s/ Jill Johnson Todd
-----------------------------------
Jill Johnson Todd
Vice President
Amendment Letter, Page 2
<PAGE> 3
BANQUE PARIBAS
BY:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
BY:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
NATIONAL CITY BANK, KENTUCKY
BY:/s/ Don Pullen
------------------------------------
Name: Don Pullen
-------------------------------
Title: Vice President
------------------------------
COMERICA BANK
BY:/s/ Reginald M. Goldsmith, III
------------------------------------
NAME: Reginald M. Goldsmith, III
-------------------------------
Title: Vice President
------------------------------
PNC BANK, N.A.
BY:/s/ Philip K. Liebscher
------------------------------------
Name: Philip K. Liebscher
-------------------------------
TITLE: Vice President
------------------------------
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
BY:/s/ Ken Taylor
------------------------------------
Name: Ken Taylor
-------------------------------
Title: Assistant Vice-President
------------------------------
NBD BANK
BY:/s/
------------------------------------
Name:
-------------------------------
Title:
------------------------------
Amendment Letter, Page 3
<PAGE> 1
EXHIBIT 10.2
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (the "Amendment"),
dated as of December 31, 1996 is among SOFTWARE SPECTRUM, INC. (the
"Borrower"), each of the banks or other lending institutions which are a party
hereto (individually a "Bank" and collectively, the "Banks") and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, individually as a Bank (in its individual capacity
and not as agent, herein "TCB") and as agent for itself and the other Banks (in
such capacity as agent, together with its successors in such capacity, the
"Agent").
RECITALS:
A. Borrower, TCB and the Agent have entered into that
certain Credit Agreement dated May 3, 1996 (as amended by that certain First
Amendment to Credit Agreement and Master Assignment and Acceptance dated as of
June 28, 1996, that certain Second Amendment to Credit Agreement dated as of
June 28, 1996 and that certain Amendment Letter dated as of September 30, 1996,
herein the "Agreement".
B. Pursuant to Section 14.8 of the Agreement, TCB assigned
certain of its rights and obligations under the Agreement and the other Loan
Documents to the other Banks.
C. The Borrower, Banks and the Agent desire to amend the
Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Agreement, as amended hereby.
ARTICLE 2
Amendments
Section 2.1 Amendment to Section 11.3. Effective as of the date
hereof, clause (b) of Section 11.3 of the Agreement is amended in its entirety
to read as follows:
(b) 0.90 to 1.00 computed on the basis of the Cash Flow and
Fixed Charges for the period from June 30, 1996 through December 31,
1996; and
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE> 2
ARTICLE 3
Miscellaneous
Section 3.1 Ratification. The terms and provisions set forth
in this Agreement shall modify and supersede all inconsistent terms and
provisions set forth in the Agreement and except as expressly modified and
superseded by this Agreement, the terms and provisions of the Agreement and the
other Loan Documents are ratified and confirmed and shall continue in full
force and effect. Borrower, Spectrum Integrated Services, Inc. (by its
execution below), the Banks and Agent agree that the Agreement, as amended
hereby, and the other Loan Documents shall continue to be legal, valid, binding
and enforceable in accordance with their respective terms.
Section 3.2 Reference to Agreement. Each of the Loan Documents,
including the Agreement, are hereby amended so that any reference in such Loan
Documents to the Agreement shall mean a reference to the Agreement as amended
hereby.
Section 3.3 Severability. Any provision of this Amendment held
by a court of component jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Amendment and the effect thereof
shall be confined to the provision so held to be invalid or unenforceable.
Section 3.4 Applicable Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
Section 3.5 Successors and Assigns. This Amendment is binding
upon and shall inure to the benefit of Borrower, Agent, the Banks and their
respective successors and assigns, except Borrower may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Banks.
Section 3.6 Counterparts. This Amendment may be executed in one
or more counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same agreement.
Section 3.7 Headings. The headings, captions and
arrangements used in this Amendment are for convenience only and shall not
affect the interpretation of this Amendment.
Section 3.8 ENTIRE AGREEMENT. THIS AMENDMENT EMBODIES THE
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO.
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE> 3
Executed as of the date first written above.
BORROWER:
---------
SOFTWARE SPECTRUM, INC.
By:/s/ Deborah A. Nugent
------------------------------------
Deborah A. Nugent
Vice President
Accepted and agreed to:
SPECTRUM INTEGRATED SERVICES, INC.
By: /s/ Deborah A. Nugent
------------------------------------
Deborah A. Nugent
Secretary/Treasurer
AGENT:
------
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually as a
Bank and as the Agent
By: /s/ Jill Johnson Todd
------------------------------------
Jill Johnson Todd
Vice President
OTHER BANKS:
------------
BANQUE PARIBAS
By:/s/ Larry Robinson
------------------------------------
Name: Larry Robinson
-----------------------------
Title: Vice President
-----------------------------
By:/s/ Rosemary Davis
------------------------------------
Name: Rosemary Davis
-----------------------------
Title: Vice President
-----------------------------
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE> 4
NATIONAL CITY BANK, KENTUCKY
By: /s/ Don Pullen
-----------------------------------
Name: Don Pullen
-----------------------------
Title: Vice President
-----------------------------
COMERICA BANK
By: /s/ Reginald M. Goldsmith, III
-----------------------------------
Name: Reginald M. Goldsmith, III
-----------------------------
Title: Vice President
-----------------------------
PNC BANK, N.A.
By: /s/ Philip K. Liebscher
------------------------------------
Name: Philip K. Liebscher
-----------------------------
Title: Vice President
-----------------------------
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:
------------------------------------
Name:
-----------------------------
Title:
-----------------------------
NBD BANK
By: /s/ Larry E. Cooper
-----------------------------------
Name: Larry E. Cooper
-----------------------------
Title: First Vice President
-----------------------------
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE> 1
Exhibit 11.1
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 833,000 $2,773,000 $ 44,000 $6,176,000
========== ========== ========== ==========
Shares as adjusted:
Average number of shares
outstanding 4,317,925 4,204,602 4,289,962 4,192,847
Incremental shares
from outstanding stock
options as determined
under the treasury stock
method, using the
average market price 144,725 61,701 111,370 68,380
---------- ---------- ---------- ----------
Shares as adjusted 4,462,650 4,266,303 4,401,332 4,261,227
========== ========== ========== ==========
Primary earnings per share $ .19 $ .65 $ .01 $ 1.45
========== ========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit 11.2
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY-DILUTED EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ----------------------
<S> <C> <C> <C> <C>
Net income $ 833,000 $2,773,000 $ 44,000 $6,176,000
========== ========== ========== ==========
Shares as adjusted:
Average number of shares
outstanding 4,317,925 4,204,602 4,289,962 4,192,847
Incremental shares
from outstanding stock
options as determined
under the treasury stock
method, using the higher
of ending or average
market price 148,054 67,223 132,662 78,209
---------- ---------- ---------- ----------
Shares as adjusted 4,465,979 4,271,825 4,422,624 4,271,056
========== ========== ========== ==========
Fully-diluted earnings per share $ .19 $ .65 $ .01 $ 1.45
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 5,407
<SECURITIES> 0
<RECEIVABLES> 204,596
<ALLOWANCES> (2,380)
<INVENTORY> 21,983
<CURRENT-ASSETS> 241,342
<PP&E> 29,577
<DEPRECIATION> 11,124
<TOTAL-ASSETS> 313,542
<CURRENT-LIABILITIES> 212,122
<BONDS> 25,500
0
0
<COMMON> 44
<OTHER-SE> 75,876
<TOTAL-LIABILITY-AND-EQUITY> 313,542
<SALES> 582,604
<TOTAL-REVENUES> 582,604
<CGS> 515,182
<TOTAL-COSTS> 515,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,332
<INTEREST-EXPENSE> 1,410
<INCOME-PRETAX> 347
<INCOME-TAX> 303
<INCOME-CONTINUING> 44
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
