<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
COMMISSION FILE NUMBER 333-49389
COOPERATIVE COMPUTING, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2160013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6207 BEE CAVE ROAD 78746
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)
(512) 328-2300
(Registrant's telephone number,
including area code)
Indicate by check 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at February 12, 1999
----- --------------------------------
Common Stock 1,000 shares
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COOPERATIVE COMPUTING, INC.
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1998 3
Consolidated Statements of Operations for the three months 4
ended December 31, 1998 and December 31, 1997
Consolidated Statements of Cash Flows for the three months ended 5
December 31, 1998 and December 31, 1997
Notes to Consolidated Financial Statements 6
ITEM 2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 7
RESULTS OF OPERATIONS
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 10
PART II - OTHER INFORMATION 11
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES
</TABLE>
FORWARD-LOOKING STATEMENTS
INFORMATION SET FORTH IN THIS QUARTERLY REPORT ON FORM 10-Q REGARDING EXPECTED
OR POSSIBLE FUTURE EVENTS, INCLUDING STATEMENTS OF THE PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE GROWTH, OPERATIONS, PRODUCTS AND SERVICES AND STATEMENTS
RELATING TO FUTURE ECONOMIC PERFORMANCE, IS FORWARD-LOOKING AND SUBJECT TO RISKS
AND UNCERTAINTIES. FOR THOSE STATEMENTS, THE COMPANY CLAIMS THE PROTECTION OF
THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS PROVIDED FOR BY SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON
ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH, ALTHOUGH
BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE
SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND IT IS LIKELY
THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE THE
FOLLOWING: (1) INCREASED COMPETITION; (2) RAPID TECHNOLOGICAL CHANGE; (3)
INCREASED COSTS; (4) RISKS ASSOCIATED WITH THE INTRODUCTION OF NEW PRODUCTS AND
PRODUCT UPGRADES AND DEPENDENCE ON PROPRIETARY TECHNOLOGY; (5) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (6) INABILITY OF THE COMPANY TO
SUCCESSFULLY INTEGRATE THE OLD CCI AND TRIAD BUSINESSES OR BUSINESSES ACQUIRED
IN THE FUTURE AND TO REALIZE ANTICIPATED REVENUE AND COST SAVINGS OPPORTUNITIES;
(7) INCREASES IN THE COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF
ADDITIONAL DEBT OR EQUITY CAPITAL; AND (8) CHANGES IN GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE.
MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS
MANAGEMENT. IN ADDITION, OTHER FACTORS THAT COULD AFFECT THE FUTURE RESULTS OF
THE COMPANY AND COULD CAUSE THOSE RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN THE FORWARD-LOOKING STATEMENTS ARE DISCUSSED AT GREATER LENGTH
UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" AND APPEAR ELSEWHERE IN THIS QUARTERLY REPORT. THESE RISKS,
UNCERTAINTIES AND OTHER FACTORS SHOULD NOT BE CONSTRUED AS EXHAUSTIVE, AND THE
COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION TO UPDATE,
ANY FORWARD-LOOKING STATEMENTS TO REFLECT OCCURRENCES OR UNANTICIPATED EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
2
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ ------------
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 569 $ 1,159
Trade accounts receivable, net 39,847 37,774
Inventories 6,450 6,005
Investment in leases 2,636 2,792
Deferred income taxes 1,818 1,818
Prepaid expenses and other current assets 8,437 7,742
------------ ------------
Total current assets 59,757 57,290
Service parts 3,456 3,605
Property and equipment, net 12,619 12,528
Long-term investment in leases 16,041 14,771
Capitalized computer software costs, net 22,771 25,174
Databases, net 16,151 16,824
Deferred financing costs 6,154 6,310
Other intangibles 149,643 153,689
Other assets 10,483 10,658
------------ ------------
Total assets $ 297,075 $ 300,849
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,948 $ 16,249
Payroll related accruals 8,305 9,362
Deferred revenue 8,529 6,269
Current portion of long-term debt 1,600 6,229
Accrued expenses and other current liabilities 15,054 13,080
------------ ------------
Total current liabilities 46,436 51,189
Long-term debt 189,075 177,089
Deferred income taxes 33,868 37,487
Other liabilities 9,069 9,721
------------ ------------
Total liabilities 278,448 275,486
Stockholders' equity:
Common Stock, par value $.000125, authorized
50,000,000 shares, issued and outstanding 35,220,000 4 4
Additional paid-in capital 88,994 88,994
Retained deficit (70,371) (63,635)
------------ ------------
Total stockholders' equity: 18,627 25,363
------------ ------------
Total liabilities and stockholders' equity $ 297,075 $ 300,849
============ ============
</TABLE>
See accompanying notes
3
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COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Systems $ 18,215 $ 17,486
Customer support and information services 36,642 32,383
Finance 891 2,046
------------ ------------
Total revenues 55,748 51,915
Cost of revenues:
Systems 12,553 12,286
Services and finance 22,692 20,483
------------ ------------
Total cost of revenues 35,245 32,769
------------ ------------
Gross margin 20,503 19,146
Operating expenses:
Sales and marketing 12,668 11,809
Product development 3,732 4,231
General and administrative 9,521 9,169
------------ ------------
Total operating expenses 25,921 25,209
Operating loss (5,418) (6,063)
Interest expense (4,438) (3,547)
Other expense, net (243) (78)
------------ ------------
Loss before income taxes (10,099) (9,688)
Income tax benefit (3,061) (2,898)
------------ ------------
Net loss $ (7,038) $ (6,790)
============ ============
</TABLE>
See accompanying notes
4
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COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,038) $ (6,790)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 2,274 1,386
Amortization 11,126 10,728
Other, net 282 (10)
Changes in assets and liabilities, net of effects
of business acquired:
Trade accounts receivable (2,073) 1,225
Inventories (486) (1,894)
Investment in leases (1,114) 60
Deferred income taxes (3,619) (2,898)
Prepaid expenses and other assets (634) (699)
Accounts payable (3,301) 2,158
Deferred revenue 2,260 (575)
Accrued expenses and other current liabilities 265 (2,867)
------------ ------------
Net cash used in operating activities (2,058) (176)
INVESTING ACTIVITIES
Purchase of property and equipment (1,885) (1,141)
Capitalized computer software costs and databases (3,345) (2,811)
Purchase of service parts (290) (503)
Acquisitions of businesses, net of cash acquired (375) (231)
Other, net -- (94)
------------ ------------
Net cash used in investing activities (5,895) (4,780)
FINANCING ACTIVITIES
Proceeds from debt facility 39,200 69,350
Payment on long-term debt (31,837) (63,850)
Debt issuance costs -- (571)
Other -- (92)
------------ ------------
Net cash provided by financing activities 7,363 4,837
Net decrease in cash and cash equivalents (590) (119)
Cash and cash equivalents, beginning of period 1,159 1,633
------------ ------------
Cash and cash equivalents, end of period $ 569 $ 1,514
============ ============
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest $ 1,963 $ 3,195
============ ============
Income taxes $ 116 $ (128)
============ ============
</TABLE>
See accompanying notes
5
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COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Cooperative
Computing Holding Company, Inc., which include the results of operations of its
wholly owned subsidiary Cooperative Computing, Inc. (the "Company"), have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended December 31, 1998
may not be indicative of the results for the full fiscal year ending September
30, 1999.
Reclassification
Certain prior period amounts have been reclassified to correspond with
current period classification.
2. CHANGES IN ACCOUNTING PRINCIPLES
On October 1, 1998, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-2 ("SOP 97-2"), "Software
Revenue Recognition", and SOP 98-4, which was effective for the transactions
that the Company entered into on and after that date. In accordance with SOP
97-2, prior period financial statements have not been restated to reflect the
change in accounting principle. The adoption of SOP 97-2 resulted in the
deferral of approximately $2.5 million of revenues ($1.3 million of gross
margin) for the three months ended December 31, 1998.
Effective December 15, 1998, AICPA issued SOP 98-9, Modification of SOP
97-2, "Software Revenue Recognition", With Respect to Certain Transactions. SOP
98-9 amends SOP 97-2 and 98-4, extending the deferral of the application of
certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning
on or before March 15, 1999. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. The
Company does not believe that the adoption of SOP 98-9 will have a material
effect on the Company's financial condition or results of operations.
As of October 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components, however, the adoption of
this Statement had no impact on the Company's net loss or stockholders' equity.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in stockholders' equity, to be
included in comprehensive loss. During the first quarter of 1998 and 1997, total
comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------
1998 1997
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<S> <C> <C>
Net loss $ (7,038) $ (6,790)
Foreign currency translation adjustment 303 (10)
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Comprehensive loss $ (6,735) $ (6,800)
============ ============
</TABLE>
For the fiscal year ending September 30, 1999, the Company must adopt SFAS
131, "Disclosures about Segments of an Enterprise and Related Information". This
statement establishes information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company has not yet
determined the impact, if any, of adopting this standard.
6
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3. SALE OF LEASE RECEIVABLES
Activity in the following servicing liability accounts (recorded in other
liabilities in the Company's balance sheet) was as follows (in thousands):
<TABLE>
<CAPTION>
LEASE SERVICING RECOURSE
OBLIGATION OBLIGATION
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<S> <C> <C>
Balance at September 30, 1998...... $ 1,781 $ 5,447
Newly-created liabilities.......... 235 1,320
Charges and lease write-offs....... (276) (1,224)
------- -------
Balance at December 31, 1998....... $ 1,740 $ 5,543
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</TABLE>
4. INCOME TAXES
The Company recorded an income tax benefit for the three months ended
December 31, 1998 at an effective rate of approximately 30%, which is based on
the Company's anticipated results for the full fiscal year. The amount of
permanent differences, which impact the effective tax rate, are approximately
the same for each of the periods presented.
The Company's benefit for income taxes differs from the amount computed by
applying the statutory rate to loss before income taxes due to the impact of
permanent differences consisting primarily of goodwill amortization.
5. SUBSEQUENT EVENTS
On February 11, 1999, the Company amended its existing $100 million senior
secured credit facilities by adding a new $30 million senior secured term loan B
and prepaying $20 million of the Company's existing $50 million senior secured
term loan A. The Company also paid down approximately $8.0 million of the
outstanding amounts under the existing $50 million senior secured revolving
credit facility. After giving effect to the amendment, the Company now has $110
million senior secured credit facilities, consisting of the new $30 million term
loan B, the remaining $30 million term loan A, and the existing $50 million
revolving credit facility. Other modifications included revisions to the
financial covenants and an increased interest rate to reflect current market
rates for facilities of this type.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the historical consolidated
financial statements and notes thereto included elsewhere herein.
Any forward looking statements are based on estimates and assumptions made by
management of the Company, which, although believed to be reasonable, are
inherently uncertain. Therefore, undue reliance should not be placed upon such
estimates and statements. No assurance can be given that any of such estimates
or statements will be realized, and it is likely that actual results will differ
materially from those contemplated by such forward looking statements.
The adoption of SOP 97-2 on October 1, 1998 resulted in the deferral of $2.3
million in systems revenues and $0.2 million in customer services revenues as of
December 31, 1998. Prior to the adoption of SOP 97-2, the Company accrued the
insignificant obligations or costs associated with these revenues. Under the
provisions of SOP 97-2, these costs are no longer accrued, which resulted in a
reduction of cost of systems revenues by $1.3 million and an increase in cost of
customer services revenues by $0.2 million. Gross margin was reduced by $1.3
million for the three months ended December 31, 1998. The impact of SOP 97-2 is
expected to primarily be limited to the three months ended December 31, 1998,
since any deferrals in future quarters are anticipated to be offset by the
recognition of prior period deferrals.
7
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REVENUES
Revenues for the three months ended December 31, 1998 were $55.7 million,
compared to $51.9 million for the three months ended December 31, 1997, an
increase of $3.8 million, or 7%. In March 1998, the Company acquired certain
assets of the ADP Claims Solutions Group (the "ARISB acquisition"), which
marketed systems and services to the automotive recycling industry. Revenues
generated from this acquisition accounted for $2.9 million of the increase in
revenues for the three months ended December 31, 1998.
Systems revenues for the three months ended December 31, 1998 increased $0.7
million, or 4%, to $18.2 million as compared to $17.5 million for the three
months ended December 31, 1997. Automotive systems revenues increased $1.1
million, or 11%, to $10.4 million due primarily to an increase in store systems
sales. Hardlines systems revenues decreased $0.3 million, or 4%, to $7.9 million
due primarily to a reduction in the sales of add-on equipment and systems
upgrades to existing customers. The reduction in the sales of add-ons and
upgrades was partially offset by increases in the sales of systems to new
customers.
Revenues from customer support services and information services increased $4.3
million, or 13%, to $36.6 million for the three months ended December 31, 1998
as compared to $32.4 million for the three months ended December 31, 1997.
Recurring customer services revenues from the ARISB acquisition accounted for
$2.8 million of this increase. The remaining $1.5 million increase resulted from
increases in customer support and information services revenues primarily due to
growth in the automotive and hardlines installed base of customers.
Revenues from financing activities decreased $1.2 million to $0.9 million for
the three months ended December 31, 1998 as compared to $2.0 million for the
three months ended December 31, 1997. This decrease in financing revenues was
primarily due to a decrease in the amount of leases sold during the period.
COST OF REVENUES
Cost of revenues were $35.2 million for the three months ended December 31, 1998
compared to $32.8 million for the three months ended December 31, 1997, an
increase of $2.5 million, or 8%. Cost of revenues from the ARISB acquisition
accounted for $2.0 million of the increase. As a percentage of revenues, cost of
revenues was 63% for the three months ended December 31, 1998, which represented
no change from the three months ended December 31, 1997.
Cost of systems revenues for the three months ended December 31, 1998 increased
$0.3 million, or 2%, to $12.5 million as compared to $12.3 million for the three
months ended December 31, 1997. This increase was due to the increase in systems
revenues, partially offset by a 1% reduction in costs as a percentage of
revenues.
Cost of revenues for services and finance for the three months ended December
31, 1998 increased $2.2 million, or 11%, to $22.7 million as compared to $20.5
million for the three months ended December 31, 1997. The ARISB acquisition
accounted for $1.9 million of the increase. As a percentage of revenues, cost of
revenues for services and finance increased 1% overall due to a decrease in
revenues from financing activities, which carry little or no cost of revenues.
This increase was partially offset by a 5% improvement in cost of revenues as a
percentage of revenues for information services due primarily to low incremental
costs associated with the increased revenues. Cost of revenues for customer
services increased $0.5 million due primarily to the increased revenues and a 1%
increase in the cost of revenues as a percentage of revenues.
EXPENSES AND OTHER INCOME
Operating expenses for the three months ended December 31, 1998 were $25.9
million, an increase of $0.7 million, or 3%, as compared to $25.2 million for
the three months ended December 31, 1997. The inclusion of operations from the
ARISB acquisition increased operating expenses by $0.5 million. Product
development expenses for the three months ended December 31, 1998 were $3.7
million, a decrease of $0.5 million over the three months ended December 31,
1997. Sales and marketing expenses for the three months ended December 31, 1998
were $12.7 million, an increase of $0.9 million over the three months ended
December 31, 1997. This increase was due primarily to increases in the
automotive and hardlines sales force and the ARISB acquisition. General and
administrative expenses for the three months ended December 31, 1998 were $9.5
million, an increase of $0.4 million over the three months ended December 31,
1997.
Interest expense for the three months ended December 31, 1998 was $4.4 million,
an increase of $0.9 million from the three months ended December 31, 1997, due
to increased debt, primarily associated with the growth in working capital and
the ARISB Acquisition.
8
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Other expenses for the three months ended December 31, 1998 were $0.2 million, a
$0.2 million increase over the three months ended December 31, 1997.
The Company's effective tax rate for the three months ended December 31, 1997
and 1998 was 30% in both periods. The Company recorded a benefit from income
taxes of $3.1 million and $2.9 million for the three months ended December 31,
1998 and December 31, 1997, respectively. The effective tax rate used to record
the benefit for income taxes for the three months ended December 31, 1998 is
based on the Company's anticipated results for the full fiscal year. The amount
of permanent differences, which impact the effective tax rate, were
approximately the same for each of the periods presented.
As a result of the above factors, the Company experienced a net loss of $7.0
million, an increase of $0.2 million, or 4%, for the three months ended December
31, 1998, compared to a net loss of $6.8 million for the three months ended
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had $190.7 million in outstanding
indebtedness, an increase of $7.4 million from September 30, 1998. For the three
months ended December 31, 1998, operating activities used approximately $2.1
million of cash. Cash provided from operations was reduced by $1.1 million due
primarily to an increase in investment in leases and a $2.1 million increase in
accounts receivable. Additionally, the Company reduced accounts payable and
other current liabilities by $3.0 million during the three months ended December
31, 1998. The increase in accounts receivable and investments in leases is
primarily due to the continuation of the increased systems sales experienced
during the end of the prior fiscal year.
On February 11, 1999, the Company amended its existing $100 million senior
secured credit facility by adding a new $30 million senior secured term loan B
which allowed the Company to prepay $20 million of the existing $50 million
senior secured term loan ("term loan A"). After paying approximately $2.0
million in fees and expenses related to securing the amendment and new issuance
of debt, the Company used approximately $8.0 million to pay down outstanding
amounts under the existing $50 million revolving credit facility. The Company
estimates that, based on expected debt levels, the amended senior secured credit
facilities will require annual interest payments of $8.5 million. Additionally,
the Company pays semi-annual interest payments of $4.5 million on $100.0 million
of 9% Senior Subordinated Notes due 2008.
In addition, the Company requires substantial liquidity for capital expenditures
and working capital needs. The Company requires working capital as it funds its
customer leasing operations and then periodically liquidates its lease portfolio
through arrangements with banks and lending institutions. For the three months
ended December 31, 1998, the Company's capital expenditures were $5.9 million,
which included $3.3 million for capitalized computer software costs and
databases.
The Company believes that cash flow from operations, together with the amounts
available under the Company's credit facility, should be sufficient to fund its
working capital requirements through the fiscal year ended September 30, 1999.
The revolving credit facility allows the Company to borrow up to $50 million, of
which approximately $40.0 million was outstanding as of December 31, 1998.
The senior credit facilities impose certain restrictions on the Company, the
most significant of which include limitations on additional indebtedness, liens,
guarantees, payment or declaration of dividends, sale of assets, investments,
capital expenditures and transactions with affiliates. The Company must also
meet certain quarterly tests relating to certain financial covenants and ratios.
As of December 31, 1998, the Company was in compliance with the financial tests
required by the senior credit facilities as amended on February 11, 1999.
Repayment of the $30 million term loan A begins on December 31, 1999, starting
at $1.5 million per quarter and increasing by $0.5 million per quarter each
fiscal year. All borrowings under the term loan A are scheduled to be repaid by
March 31, 2003. Repayment of the $30 million term loan B begins on December 31,
1999 at an amount of $0.1 million per quarter, which remains constant until a
final payment of $28.3 million due on March 31, 2004. While the Company expects
to service these obligations with cash flow from operations, its ability to
service its debt obligations is subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control. A portion of the Company's debt bears interest at floating rates,
therefore, its financial condition is and will be affected by changes in
prevailing rates.
9
<PAGE> 10
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has completed an assessment of the Year 2000 status of products that
it sells or has installed for customers. The majority of the Company's products
have been reprogrammed over the past year to make them Year 2000 ready. This
programming was completed by December 31, 1998. Product releases with the Year
2000 corrections were made available to customers during the first quarter of
1999 and are expected to be fully distributed to all customers with systems that
are being made Year 2000 ready by the end of the second quarter of 1999.
Certain older products that the Company was no longer marketing were determined
not to be upgradable for Year 2000 issues, due either to third party software
vendor constraints or hardware incompatibility. This affects a small number of
the Company's customers. The customers were notified of the situation in writing
during 1998. The Company has converted many of these customers to newer Year
2000 ready products and continues to work with the remaining customers to work
out viable options.
While there can be no assurance, based on currently available information the
Company does not believe that the Year 2000 issue as it relates to the Company's
products sold to customers will have a material adverse impact on the Company's
business, financial condition or results of operations. However, there can be no
assurance that the failure to ensure Year 2000 capability by a supplier or other
third party would not have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company determined that it was required to modify or replace significant
portions of its software so that its internal computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company has
also had formal communications with all of its significant suppliers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remediate their own Year 2000 issues. Some third
party software vendors have notified the Company that their products will not be
compliant. In those cases, the Company has purchased new versions of software or
replaced the third party software completely. The Company is utilizing internal
resources to reprogram or replace and test the software for Year 2000
modifications. The Company has completed a portion of the modifications to its
software and expects to have all modifications completed by September 1999,
which is prior to any anticipated impact on its operating systems. The Company
has not established a separate budget for making its internal systems Year 2000
ready, rather, these expenditures are part of the Company's regular capital and
operating budgets.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its internal computer systems, the cost of which is not
expected to be material in relation to the Company's operations and historical
capital spending levels. However, if such modifications and conversions are not
successful, or are not completed timely, the Year 2000 issue could have a
material impact on the operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures
About Market Risk, in the Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
December 31, 1998.
<PAGE> 12
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 hereunto duly authorized.
COOPERATIVE COMPUTING, INC.
Dated: February 16, 1999 By: /s/ MATTHEW HALE
Matthew Hale
Vice President of Finance and Chief
Financial Officer
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 569
<SECURITIES> 0
<RECEIVABLES> 39,847
<ALLOWANCES> 0
<INVENTORY> 6,450
<CURRENT-ASSETS> 59,757
<PP&E> 12,619
<DEPRECIATION> 0
<TOTAL-ASSETS> 297,075
<CURRENT-LIABILITIES> 46,436
<BONDS> 100,000
0
0
<COMMON> 4
<OTHER-SE> 18,623
<TOTAL-LIABILITY-AND-EQUITY> 297,075
<SALES> 18,215
<TOTAL-REVENUES> 55,748
<CGS> 12,553
<TOTAL-COSTS> 35,245
<OTHER-EXPENSES> 25,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,438
<INCOME-PRETAX> (10,099)
<INCOME-TAX> (3,061)
<INCOME-CONTINUING> (7,038)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,038)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
