<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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, 1999
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 10, 1999, the Registrant had outstanding 4,212,207 shares of its
Common Stock, par value $.01 per share.
- -------------------------------------------------------------------------------
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<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at January 31, 1999
and April 30, 1998 1
Consolidated Statements of Income for the
Three and Nine Months Ended
January 31, 1999 and 1998 2
Consolidated Statements of Cash Flows
for the Nine Months Ended
January 31, 1999 and 1998 3
Notes to Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, April 30,
1999 1998
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 9,071 $ 7,129
Trade accounts receivable, net of allowance for doubtful
accounts of $2,827 at January 31 and $3,050 at April 30 167,290 171,460
Inventories 2,985 4,564
Prepaid expenses 2,714 2,279
Other current assets 788 1,024
---------- ----------
Total current assets 182,848 186,456
Furniture, equipment and leasehold improvements, at cost 46,428 37,951
Less accumulated depreciation and amortization 23,557 17,538
---------- ----------
22,871 20,413
Other assets, consisting primarily of goodwill, net of accumulated
amortization of $7,637 at January 31 and $5,661 at April 30 49,330 51,762
---------- ----------
$ 255,049 $ 258,631
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 869 $ 393
Trade accounts payable 148,887 160,331
Other current liabilities 12,007 13,824
---------- ----------
Total current liabilities 161,763 174,548
Long-term debt, less current maturities 13,540 7,813
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 4,479,419 shares at January 31 and 4,397,678 shares
at April 30 45 44
Additional paid-in capital 40,696 39,496
Retained earnings 45,464 40,765
Currency translation adjustments (2,751) (2,627)
---------- ----------
83,454 77,678
Less treasury stock at cost; 225,801 shares at January 31 and
92,111 shares at April 30 3,708 1,408
---------- ----------
Total shareholders' equity 79,746 76,270
---------- ----------
$ 255,049 $ 258,631
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
January 31, January 31, January 31, January 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales
Software $ 236,483 $ 233,404 $ 615,608 $ 615,800
Technology services 25,439 13,191 70,555 37,778
---------- ---------- ---------- ----------
261,922 246,595 686,163 653,578
---------- ---------- ---------- ----------
Cost of sales
Software 215,398 210,715 559,240 555,590
Technology services 17,260 8,803 45,014 23,470
---------- ---------- ---------- ----------
232,658 219,518 604,254 579,060
---------- ---------- ---------- ----------
Gross margin 29,264 27,077 81,909 74,518
Selling, general and administrative expenses 22,416 20,671 64,484 58,978
Depreciation and amortization 2,857 2,488 8,182 7,149
---------- ---------- ---------- ----------
Operating income 3,991 3,918 9,243 8,391
Interest expense (income)
Interest expense 510 862 1,269 2,823
Interest income (130) (49) (342) (145)
---------- ---------- ---------- ----------
380 813 927 2,678
---------- ---------- ---------- ----------
Income before income taxes 3,611 3,105 8,316 5,713
Income tax expense 1,500 1,167 3,617 2,606
---------- ---------- ---------- ----------
Net income $ 2,111 $ 1,938 $ 4,699 $ 3,107
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share
Basic $ 0.50 $ 0.45 $ 1.10 $ 0.72
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted $ 0.49 $ 0.45 $ 1.09 $ 0.71
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares outstanding
Basic 4,243 4,306 4,261 4,323
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted 4,272 4,312 4,299 4,347
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SOFTWARE SPECTRUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 4,699 $ 3,107
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for bad debts 766 1,477
Depreciation and amortization 8,182 7,149
Deferred income taxes 284 380
Changes in operating assets and liabilities
Trade accounts receivable 3,256 (8,676)
Inventories 1,591 10,087
Prepaid expenses and other assets 236 3,349
Trade accounts payable and other current
liabilities (13,325) (2,474)
---------- ----------
Net cash provided by operating activities 5,689 14,399
---------- ----------
Investing activities
Purchase of furniture, equipment and leasehold
improvements (8,523) (6,273)
---------- ----------
Net cash used in investing activities (8,523) (6,273)
---------- ----------
Financing activities
Borrowings on long-term debt 154,309 234,028
Repayments of long-term debt (148,132) (237,975)
Proceeds from stock issuance including tax benefit
related to stock options exercised 1,201 318
Purchase of treasury stock (2,300) (862)
Other (10) --
---------- ----------
Net cash provided by (used in) financing activities 5,068 (4,491)
---------- ----------
Effect of exchange rate changes on cash (292) 286
---------- ----------
Increase in cash and cash equivalents 1,942 3,921
Cash and cash equivalents at beginning of period 7,129 7,440
---------- ----------
Cash and cash equivalents at end of period $ 9,071 $ 11,361
---------- ----------
---------- ----------
Supplemental disclosure of cash paid during the period
Income taxes $ 3,274 $ 1,979
Interest 937 3,218
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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, 1999, the
consolidated results of operations for the three and nine months ended January
31, 1999 and 1998 and the consolidated cash flows for the nine months ended
January 31, 1999 and 1998 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, 1998, included in the
Company's 1998 Annual Report on Form 10-K.
NOTE B -- OTHER COMPREHENSIVE INCOME
Effective May 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
addresses the manner in which certain adjustments to shareholders' equity are
displayed in the financial statements. Adoption of this statement had no effect
on the Company's financial position or operating results. The components of
comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 2,111 $ 1,938 $ 4,699 $ 3,107
Currency translation adjustments
30 (577) (124) (1,224)
---------- ---------- ---------- ----------
Comprehensive income $ 2,141 $ 1,361 $ 4,575 $ 1,883
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
NOTE C -- 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 the
exercise price of the options was greater than the average market price of the
common shares totaled approximately 289,000 and 273,000 shares for the three and
nine months ended January 31, 1999 and 232,000 and 246,000 shares for the three
and nine months ended January 31, 1998, respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
--------------------- -----------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $2,111 $1,938 $4,699 $3,107
------ ------ ------ ------
Weighted average shares outstanding - basic 4,243 4,306 4,261 4,323
Effect of dilutive employee and director
stock options 29 6 38 24
------ ------ ------ ------
Weighted average shares outstanding - diluted 4,272 4,312 4,299 4,347
------ ------ ------ ------
Earnings per share - basic $ 0.50 $ 0.45 $ 1.10 $ 0.72
------ ------ ------ ------
------ ------ ------ ------
Earnings per share - diluted $ 0.49 $ 0.45 $ 1.09 $ 0.71
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's revenues are derived primarily from the sale of personal
computer ("PC") software products and technology services in North America,
Europe and Asia/Pacific.
The following table sets forth certain items from the Company's Consolidated
Statements of Income expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------- -----------------------
1999 1998 1999 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.8 89.0 88.1 88.6
----- ----- ----- -----
Gross margin 11.2 11.0 11.9 11.4
Selling, general and administrative expenses 8.6 8.4 9.4 9.0
Depreciation and amortization 1.1 1.0 1.2 1.1
----- ----- ----- -----
Operating income 1.5 1.6 1.3 1.3
Interest expense, net 0.1 0.3 0.1 0.4
----- ----- ----- -----
Income before income taxes 1.4 1.3 1.2 0.9
Income tax expense 0.6 0.5 0.5 0.4
----- ----- ----- -----
Net income 0.8% 0.8% 0.7% 0.5%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NET SALES
The Company sells PC software applications through volume licensing and
maintenance ("VLM") agreements, or right to copy arrangements, and
full-packaged PC software products either from its distribution centers or
through third-party distributors. In addition, the Company provides fee-based
services, including consulting and technical support, through its Technology
Services Group.
Software sales for the three and nine months ended January 31, 1999, were
comparable to those for the three and nine months ended January 31, 1998. The
Company serves as a designated service provider for VLM agreements which are
frequently used by organizations 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.
Sales of software through VLM agreements represented approximately 85% and 82%
of software sales for the three and nine months ended January 31, 1999 compared
to approximately 80% and 75% for the three and nine months ended January 31,
1998. 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. Certain publishers have recently introduced
enterprise-wide licensing arrangements which simplify the administration of VLM
agreements for customers who elect to standardize desktop applications across
their organizations. These programs typically have lower gross margins and
administrative costs than traditional VLM arrangements. The Company believes the
introduction of these programs has lengthened the time required to close sales
to certain large customers, who must evaluate their options under the new
programs.
For the three and nine months ended January 31, 1999, service revenues increased
by 93% and 87% as compared to the three and nine months ended January 31, 1998.
The increase was primarily due to services provided under a large technical
support contract that began in the July 1998 quarter. In addition,
<PAGE>
sales from the Company's consulting sites increased by greater than 10% for
both the three and nine months ended January 31, 1999. As of March 10, 1999,
the Company had 23 consulting offices worldwide. Fee-based services
represented approximately 10% of the Company's overall sales for the nine
months ended January 31, 1999 as compared to 6% for the nine months ended
January 31, 1998. However, such revenue generated approximately 31% and 19%,
respectively, of the Company's gross margin dollars. The Company expects that
the percentage of gross margin dollars provided by fee-based services will
increase as the Company continues to develop and expand its technology
services business.
The Company believes future increases in sales will depend upon its ability
to maintain and increase its customer base, 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 January 31, 1999, sales outside of the
United States increased 15% and 24% to $45 million and $117 million,
respectively, as compared to $39 million and $94 million for the three and
nine months ended January 31, 1998.
Sales in Europe increased 41% and 33% to $24 million and $51 million for the
three and nine months ended January 31, 1999, primarily due to increased
sales of software under VLM agreements. The growing European licensing
revenues have been subject to significant margin pressures. This trend is
similar to that experienced in North America, which is discussed below.
Sales in Asia/Pacific increased 19% to $36 million for the nine months ended
January 31, 1999, due primarily to increased sales of software under VLM
agreements. Sales in Asia/Pacific were $8 million and $10 million for the
three months ended January 31, 1999 and 1998, respectively. The decline
relates primarily to decreased sales of software through VLM agreements and
is partially due to the introduction of enterprise-wide licensing
arrangements, which the Company believes has lengthened the sales cycle to
certain customers. Since the Company's Asia/Pacific sales are concentrated in
Australia and New Zealand, management believes that the current decline in
volume is not specifically related to the economic problems in Southeast Asia.
For the three and nine months ended January 31, 1999, 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 11.9% for the
three and nine months ended January 31, 1999, respectively, as compared to
11.0% and 11.4% for the comparable periods of the prior year. The increase in
overall gross margin as a percentage of net sales is primarily due to the
increasing percentage of gross margin provided by fee-based services, which
have higher gross margins as a percentage of net sales than sales of software.
For the three and nine months ended January 31, 1999, gross margin on the
sale of PC software declined to 8.9% and 9.2%, respectively, as compared to
9.7% and 9.8% for the three and nine months ended January 31, 1998,
reflecting the increasing percentage of sales of software through high-volume
VLM agreements. The decline in software gross margin percentages for the
three and nine months ended January 31, 1999 was offset by an increase in
gross margin dollars from technology services. Gross margin percentages on
sales of technology services were 32% and 36% for the three and nine months
ended January 31, 1999, respectively, as compared to 33% and 38% for the
three and nine months ended January 31, 1998.
The Company believes that gross margin percentages on sales of software may
continue to decline if the volume of software product sales by the Company
through VLM agreements, particularly enterprise-wide
<PAGE>
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 offset by anticipated increases in
gross margin dollars generated by technology services.
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, distribution
and administration costs. For the three and nine months ended January 31, 1999,
SG&A expenses, as a percentage of net sales, increased to 8.6% and 9.4%
respectively, as compared to 8.4% and 9.0% for the three and nine months ended
January 31, 1998. The increase is due to growth in the technology services
business, which has higher levels of SG&A expenses as a percentage of net sales
than the Company's software product business. The Company remains focused on
controlling operating costs in both the services and product businesses.
In December 1998, the Company signed an agreement to outsource its distribution
operations in the United States. This model, which will be implemented in the
fourth quarter of fiscal 1999, is expected to decrease the Company's
distribution costs. A significant portion of the decrease will be offset by
increased investment in the Company's services business, including its new
technical support center in Tampa, Florida.
DEPRECIATION AND AMORTIZATION
The increase in depreciation and amortization for the three and nine months
ended January 31, 1999, as compared to the three and nine months ended
January 31, 1998, reflects additional depreciation on the higher level of
fixed assets utilized in the Company's services business in 1999.
INCOME TAX EXPENSE
The Company's effective tax rate for the three and nine months ended January 31,
1999 was approximately 42% and 43% as compared to approximately 38% and 46% for
the three and nine months ended January 31, 1998, respectively. The fluctuations
in the Company's effective tax rate primarily reflect the impact of its
international operations.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company had approximately $9.1 million in cash and cash
equivalents and had $13.3 million outstanding under its $100 million revolving
credit facility. The credit 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. As of January 31, 1999, the Company had approximately $84.7
million of additional borrowing availability under its credit facility. The
facility expires in March 2001.
The decrease in trade accounts receivable and trade accounts payable from
April 30, 1998 to January 31, 1999 is due to collection of the receivables
associated with large sales at the end of fiscal 1998 and payment of the
related liabilities. At January 31, 1999 and April 30, 1998, accounts
receivable represented approximately 54 and 61 days of historical sales,
respectively.
For the nine months ended January 31, 1999, the Company's operating
activities provided $5.7 million of cash compared to $14.4 million of cash
provided by operations in the nine months ended January 31, 1998. The
decrease in cash provided by operations is primarily due to the timing of
certain payments to the Company's vendors.
The increase in furniture, equipment and leasehold improvements from April 30,
1998 to January 31, 1999 reflects approximately $8.5 million of capital
expenditures related primarily to the ongoing upgrade of the
<PAGE>
Company's computer systems and expansion of its technical support centers in
Garland, Texas and Spokane, Washington.
The Company expects that its cash requirements for fiscal 1999 will be
satisfied from cash flow from operations and borrowings under its credit
facility.
In 1997, the Company implemented a stock repurchase program which, upon
amendment in July 1998, allows the Company to purchase up to $5 million 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 10, 1999 the Company
had repurchased 223,800 shares of Common Stock, for a total of $3.5 million,
under the stock repurchase program.
YEAR 2000
The Company has developed an overall plan outlining the tasks, resources and
target dates necessary to ensure the ongoing operation of the Company's business
through the turn of the century and beyond. Over the last three years, the
Company has replaced substantially all of the core management information
systems used in the Company's business, and the platforms upon which these
systems were developed are designed to process dates accurately beyond the Year
2000. The Company is in the process of updating its third-party software tools,
database engines and applications to the most current release and plans to
complete this project in the second quarter of calendar 1999. Based on the
Company's ongoing assessment of these core systems and the representations
received from third parties, the Company believes that following the planned
updates, its Year 2000 remediation of these systems will be substantially
complete. In addition, the Company has conducted an inventory, review and
assessment of its personal computers, networks and servers, desktop software
applications and non-IT embedded systems to determine whether they support Year
2000 date codes.
The Company is in the process of remediating the systems that are not in
compliance and plans to complete remediation and to test all of its systems by
the third quarter of calendar 1999. Based on its review and assessment, the
Company expects that any required modifications will be made on a timely basis.
In the event of an unexpected failure in one of the Company's systems, the
Company's employees would be able to continue operations on a manual basis until
such systems have been restored to full operating capacity.
The Company's Year 2000 initiative also provides for contacting key software
vendors and other business partners to determine whether they have effective
plans to address their Year 2000 issues. In the event that the Company's key
vendors cannot provide the Company with software products and services that meet
Year 2000 requirements on a timely basis, or if customers delay, forego or
return software purchases based upon Year 2000 related issues, the Company's
operating results could be materially adversely affected. Based on the Company's
evaluation of the information received to date, the Company does not believe
that such an occurrence is likely. However, the Company cannot control the Year
2000 readiness of third parties and therefore, such a risk remains possible.
The Company believes that its most reasonably-likely worst case scenario
involves a temporary business disruption caused by the failure of a supplier to
provide needed products or services. The most significant potential disruption
would be a telecommunications failure at one of the Company's facilities, which
could render the Company unable to accept sales orders or to perform under its
technical support contracts. To the extent that a potential failure is deemed
likely and the risk to the Company is significant, the Company's contingency
plans would include rerouting calls to alternate operations centers, identifying
substitute or second-source suppliers and outlining revised business processes.
The Company estimates that the total cost of the Year 2000 project will not
exceed $1 million. The majority of the costs will involve reallocation of
existing resources rather than incremental costs. This reallocation of resources
is not anticipated to have a material impact on the implementation of any
<PAGE>
significant internal systems projects.
In general, as a reseller of software products, the Company only passes through
to its customers the applicable vendors' warranties. The Company's operating
results could be materially adversely affected, however, if it were held liable
for the failure of software products resold by the Company to be Year 2000
compliant despite its disclaimer of software product warranties. With respect to
the Company's consulting services, the failure of client systems or processes
could subject the Company to claims. Such claims, or the defense thereof, could
have a material adverse effect on the Company's operating results.
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 initial introduction of the Euro did not have a significant effect on
the Company's operations or financial results. The Company believes that its
internal systems are Euro capable and does not expect increased use of the Euro
to 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, estimates regarding the economy
and the software industry in general, key performance indicators that impact the
Company and statements included in the Year 2000 and Euro Currency discussions
above. 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 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 and develop its technology services practice, improve its operating
results in international markets 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 Form
10-K for its fiscal year ended April 30, 1998 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.
INFLATION
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three month period
ended January 31, 1999.
<PAGE>
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 17, 1999 By: /s/ James W. Brown
----------------------------------------------
James W. Brown
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 9,071
<SECURITIES> 0
<RECEIVABLES> 170,117
<ALLOWANCES> 2,827
<INVENTORY> 2,985
<CURRENT-ASSETS> 182,848
<PP&E> 46,428
<DEPRECIATION> 23,557
<TOTAL-ASSETS> 255,049
<CURRENT-LIABILITIES> 161,763
<BONDS> 13,540
0
0
<COMMON> 45
<OTHER-SE> 79,701
<TOTAL-LIABILITY-AND-EQUITY> 255,049
<SALES> 615,608
<TOTAL-REVENUES> 686,163
<CGS> 559,240
<TOTAL-COSTS> 604,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 766
<INTEREST-EXPENSE> 1,269
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