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 June 30, 2000
[ ] 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)
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<S> <C>
DELAWARE 94-2160013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
804 LAS CIMAS PARKWAY, SUITE 200 78746
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)
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(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:
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<CAPTION>
Class Outstanding at August 14, 2000
----- ----------------------------
<S> <C>
Common Stock 1,000 Shares
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Page 1
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 September 30, 1999 and June 30, 2000 3
Consolidated Statements of Operations for the three months ended 4
June 30, 1999 and June 30, 2000 and nine months ended June 30, 1999
and June 30, 2000
Consolidated Statements of Cash Flows for the nine months ended 5
June 30, 1999 and June 30, 2000
Notes to Consolidated Financial Statements 6
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 9
RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
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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 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 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.
Page 2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
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<CAPTION>
September 30, June 30,
1999 2000
-------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ - $ -
Trade accounts receivable, net 43,977 33,634
Inventories 9,095 4,779
Investment in leases 4,832 4,869
Deferred income taxes 6,608 6,608
Prepaid expenses and other current assets 6,201 5,042
-------------- ----------------
Total current assets 70,713 54,932
Service parts 3,664 2,682
Property and equipment, net 11,686 9,324
Long-term investment in leases 15,383 15,679
Capitalized computer software costs, net 15,435 12,296
Databases, net 13,820 10,822
Deferred financing costs 7,274 6,369
Other intangibles 137,187 125,382
Other assets 11,641 10,549
-------------- ----------------
Total assets $ 286,803 $ 248,035
============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 17,679 $ 10,673
Payroll related accruals 11,110 11,142
Deferred revenue 10,551 7,264
Current portion of long-term debt 6,540 7,818
Accrued expenses and other current liabilities 12,687 11,372
-------------- ----------------
Total current liabilities 58,567 48,269
Long-term debt 175,308 170,180
Deferred income taxes 30,182 23,515
Other liabilities 10,279 11,058
-------------- ----------------
Total liabilities 274,336 253,022
Redeemable Class A Common Stock, including $3,020 and
$9,875 in accretion at September 30, 1999 and 26,961 33,816
June 30, 2000 respectively
Stockholders' deficit:
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 (103,492) (127,801)
-------------- ----------------
Total stockholders' deficit (14,494) (38,803)
-------------- ----------------
Total liabilities and stockholders' deficit $ 286,803 $ 248,035
============== ================
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See accompanying Notes to Consolidated Financial Statements
Page 3
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands)
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<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- -----------------------------
1999 2000 1999 2000
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Systems $ 24,264 $ 15,973 $ 62,339 $ 53,443
Customer support and information services 37,400 38,668 111,219 115,350
Finance 815 957 3,426 2,523
---------- ---------- ----------- -----------
Total revenues 62,479 55,598 176,984 171,316
Cost of revenues:
Systems 15,835 9,410 43,517 39,385
Services and finance 22,099 20,506 67,089 63,564
---------- ---------- ----------- -----------
Total cost of revenues 37,934 29,916 110,606 102,949
---------- ---------- ----------- -----------
Gross margin 24,545 25,682 66,378 68,367
Operating expenses:
Sales and marketing 15,673 12,724 43,274 38,293
Product development 3,644 3,544 11,042 10,314
General and administrative 9,732 10,292 27,696 29,785
---------- ---------- ----------- -----------
Total operating expenses 29,049 26,560 82,012 78,392
---------- ---------- ----------- -----------
Operating loss (4,504) (878) (15,634) (10,025)
Interest expense (4,599) (4,654) (13,496) (14,265)
Other income, net 138 447 261 887
---------- ---------- ----------- -----------
Loss before income taxes (8,965) (5,085) (28,869) (23,403)
Income tax benefit (2,613) (957) (8,055) (6,138)
---------- ---------- ----------- -----------
Net loss (6,352) (4,128) (20,814) (17,265)
Accretion of redeemable convertible stock (815) (2,468) (815) (6,855)
---------- ---------- ----------- -----------
Net loss attributable to common stock $ (7,167) $ (6,596) $ (21,629) $ (24,120)
========== ========== =========== ===========
Comprehensive loss:
Net loss $ (6,352) $ (4,128) $ (20,814) $ (17,265)
Foreign currency translation adjustment (463) (1) (65) (189)
---------- ---------- ----------- -----------
Comprehensive loss $ (6,815) $ (4,129) $ (20,879) $ (17,454)
========== ========== =========== ===========
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See accompanying Notes to Consolidated Financial Statements
Page 4
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
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Nine Months Ended
June 30,
------------------------------
1999 2000
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OPERATING ACTIVITIES
Net loss $ (20,814) $ (17,265)
Adjustments to reconcile net loss to net cash provided
by (used in)operating activities:
Depreciation 6,613 6,809
Amortization 33,046 26,837
Other, net (239) (200)
Changes in assets and liabilities, net of effects of
businesses acquired:
Trade accounts receivable (6,113) 10,344
Inventories (828) 4,317
Investment in leases (6,346) (333)
Deferred income taxes (8,676) (6,667)
Prepaid expenses and other assets (1,448) 2,001
Accounts payable (1,759) (7,006)
Deferred revenue 3,088 (3,287)
Accrued expenses and other current liabilities 2,591 (511)
------------ -----------
Net cash provided by (used in) operating activities (885) 15,039
INVESTING ACTIVITIES
Purchase of property and equipment (4,550) (2,046)
Capitalized computer software costs and databases (9,986) (7,753)
Purchase of service parts (2,306) (1,419)
Acquisitions of businesses, net of cash acquired (375) -
Other, net (73) (96)
------------ -----------
Net cash used in investing activities (17,290) (11,314)
FINANCING ACTIVITIES
Issuance of Class A Common Stock 23,941
Proceeds from credit facility 100,050 71,000
Payment on debt facilities (104,654) (74,725)
Debt issuance costs (1,978) -
------------ -----------
Net cash provided by (used in) financing activities 17,359 (3,725)
------------ -----------
Net decrease in cash and cash equivalents (816) -
Cash and cash equivalents, beginning of period (1,159) -
------------ -----------
Cash and cash equivalents, end of period $ 343 $ -
============ ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 10,564 $ 11,826
============ ===========
Income taxes $ 441 $ 180
============ ===========
Accretion of redeemable Class A Common Stock $ 815 $ 6,855
============ ===========
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See accompanying Notes to Consolidated Financial Statements
Page 5
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Cooperative
Computing Holding Company, Inc. ("Holding" or 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 nine months ended June 30, 2000 may not
be indicative of the results for the full fiscal year ending September 30, 2000.
Holding has no assets or liabilities other than (1) its investment in its wholly
owned subsidiary, Cooperative Computing, Inc. ("CCI") and (2) its Redeemable
Convertible Class A Common Stock, the net proceeds of which were contributed in
full to CCI; accordingly, these consolidated financial statements represent the
operations of CCI and its subsidiaries.
Certain amounts in the three and nine months ended June 30, 1999 have been
reclassified to conform to the presentation for the three and nine months ended
June 30, 2000.
2. 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):
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LEASE SERVICING RECOURSE
OBLIGATION OBLIGATION
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Balance at September 30, 1999 $ 1,769 $ 7,680
Newly-created liabilities 477 4,738
Charges and lease write-offs (951) (3,492)
--------------- ---------------
Balance at June 30, 2000 $ 1,295 8,926
=============== ===============
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3. INCOME TAXES
The Company recorded an income tax benefit for the three and nine months ended
June 30, 2000 at an effective rate of approximately 26%, which is based on the
Company's anticipated results for the full fiscal year. The amount of permanent
differences that 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, which consist primarily of goodwill amortization.
4. INVESTMENT IN JOINT VENTURE
On May 31, 2000, the Company, along with other investors including the Company's
majority stockholder, entered into a joint venture arrangement whereby the
Company granted to the venture licenses to certain databases and software owned
by the Company.
Page 6
5. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. We believe the Company's current
revenue recognition policies and practices are materially consistent with this
statement. However, full implementation guidelines for this standard have not
yet been issued. Once available, the current revenue accounting practices may
need to change and such changes could affect the Company's future revenue and
earnings.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 137, DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133, which is effective for fiscal years
beginning after June 15, 2000. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company's
financial statements for the year ending December 31, 2001. Management believes
that this statement will not have a material impact on the Company's financial
position or results of operations.
The FASB recently issued Interpretation No. 44, ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION, (the "Interpretation"). The
Interpretation provides guidance related to the implementation of APB 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The Interpretation is to be applied
prospectively to all new awards, modifications to outstanding awards and changes
in employee status on or after July 1, 2000. For changes made after
December 15, 1998 to awards that affect exercise prices of the awards, the
Company must prospectively account for the impact of those changes. Management
does not believe the full adoption of the Interpretation will have a material
impact on our financial condition or results of operations.
In June 1999, the FASB issued an Exposure Draft, ACCOUNTING FOR TRANSFERS OF
FINANCIAL ASSETS, an amendment of FASB Statement No. 125, which prescribes
certain changes to the original pronouncement. The FASB is expected to issue the
final amendment in August 2000. Once available, the current accounting practices
of the Company may need to be changed and such changes could affect the
Company's financial condition or results of operations.
Page 7
6. SEGMENT REPORTING
The Company's business operations are organized into two divisions, automotive
and hardlines and lumber, as shown below. Additionally, a breakdown by
geographic area of total revenues and total assets is disclosed. The Americas
geographic area covers the U.S. and Canada. The Europe geographic area covers
the United Kingdom, Ireland and France.
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Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- ---------------------------
1999 2000 1999 2000
------------ ------------ ----------- -----------
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Systems revenues:
Automotive $ 14,876 $ 8,272 $ 36,339 $ 28,013
Hardlines and lumber 9,388 7,701 26,000 25,430
------------ ----------- ----------- -----------
Total systems revenues: 24,264 15,973 62,339 53,443
Customer support and information services revenues:
Automotive 24,505 25,002 73,002 75,561
Hardlines and lumber 12,895 13,666 38,217 39,789
------------ ----------- ----------- -----------
Total customer support and information services revenues: 37,400 38,668 111,219 115,350
Finance revenues:
Automotive 427 574 1,630 1,495
Hardlines and lumber 388 383 1,796 1,028
------------ ----------- ----------- -----------
Total finance revenues: 815 957 3,426 2,523
Systems costs of revenues:
Automotive 8,582 5,123 22,850 22,026
Hardlines and lumber 7,253 4,287 20,667 17,359
------------ ----------- ----------- -----------
Total systems costs of revenues: 15,835 9,410 43,517 39,385
Services and finance cost of revenues:
Automotive 13,629 12,173 42,218 38,779
Hardlines and lumber 8,470 8,333 24,871 24,785
------------ ----------- ----------- -----------
Total services and finance cost of revenues: 22,099 20,506 67,089 63,564
Sales and marketing:
Automotive 9,056 7,585 24,004 23,795
Hardlines and lumber 6,617 5,139 19,270 14,498
------------ ----------- ----------- -----------
Total sales and marketing: 15,673 12,724 43,274 38,293
Product development:
Automotive 2,359 2,583 7,350 7,614
Hardlines and lumber 959 766 2,887 2,423
Corporate 326 195 805 277
------------ ----------- ----------- -----------
Total product development: 3,644 3,544 11,042 10,314
General and administrative 9,732 10,292 27,696 29,785
Interest expense (4,599) (4,654) (13,496) (14,265)
Other income(expense), net 138 447 261 887
------------ ----------- ----------- -----------
Loss before income taxes $ (8,965) $ (5,085) $ (28,869) $ (23,403)
============ =========== =========== ===========
Revenues:
Americas $ 60,986 $ 54,110 $ 172,462 $ 166,864
Europe 1,493 1,488 4,522 4,452
------------ ----------- ----------- -----------
Total revenues $ 62,479 $ 55,598 $ 176,984 $ 171,316
============ =========== =========== ===========
Assets:
Americas $ 289,667 $ 243,757 $ 289,667 $ 243,757
Europe 4,815 4,278 4,815 4,278
----------- =========== ----------- ===========
Total assets $ 294,482 $ 248,035 $ 294,482 $ 248,035
=========== =========== =========== ===========
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Page 8
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 unaudited historical
consolidated financial statements and notes thereto, which are included
elsewhere herein.
General
The Company is the leading designer and provider of management information
systems and services for the automotive parts aftermarket and the hardlines and
lumber industry. The automotive parts aftermarket industry consists of the
production, sale and installation of both new and remanufactured parts used in
the maintenance and repair of automobiles and light trucks. The hardlines and
lumber industry consists of the sale of products for residential and commercial
building construction, maintenance and repair and agribusiness. The Company's
system offerings are enhanced by extensive information services including
specialized database products and customer support and maintenance services.
Historical Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Total revenues for the three months ended June 30, 2000 were $55.6 million, a
decrease of $6.9 million, or 11.0% from the $62.5 million recorded in the prior
year's period. The decrease was primarily attributed to the automotive division,
which had a revenue decline of $6.0 million.
Total systems revenues for the three months ended June 30, 2000 were $16.0
million, compared to $24.3 million for the three months ended June 30, 1999, a
decrease of $8.3 million, or 34.2%. Systems revenues for the automotive division
for the three months ended June 30, 2000 decreased $6.6 million to $8.3 million,
as compared to last year's similar period, a decrease of 44.3%. Systems revenues
for the hardlines and lumber division for the three months ended June 30, 2000
decreased $1.7 million to $7.7 million, as compared to the three months ended
June 30, 1999. The revenue decreases were primarily due to both market factors
and sales strategy changes. The market factors include an unusually high level
of automotive aftermarket consolidation activity during 1999 resulting in an
increase in the amount of systems purchased during that time, an increase in
systems purchased in 1999 to upgrade in anticipation of Y2K, and an unusually
mild winter during 1999-2000 resulting in less automotive aftermarket parts
sales and a corresponding decrease in system sales. Changes from an internal
reorganization in both the automotive and hardlines and lumber divisions shifted
one automotive sales model to a lower price point and focused on attracting more
profitable new customers.
Total customer support and information services revenues were $38.7 million for
the three months ended June 30, 2000, compared to $37.4 million for the three
months ended June 30, 1999, an increase of $1.3 million, or 3.5%. For the three
months ended June 30, 2000, customer support and information services revenues
for the automotive division and the hardlines and lumber division increased $0.5
million to $25.0 million and increased $0.8 million to $13.7 million,
respectively, as compared to the three months ended June 30, 1999. These
increases are primarily due to improved product and service offerings that have
attracted and retained customers.
At the consolidated level and the divisional levels, revenues from financing
activities for the three months ended June 30, 2000 were comparable to the three
months ended June 30, 1999.
Total cost of revenues were $30.0 million for the three months ended
June 30, 2000, compared to $38.0 million for the three months ended
June 30, 1999, a decrease of $8.0 million, or 21.1%. For the three months ended
June 30, 2000, cost of revenues for the automotive division and the hardlines
and lumber division decreased $4.9 million, or 22.1%, to $17.3 million, and
decreased $3.1 million, or 19.7%, to $12.6 million, respectively, as compared to
the three months ended June 30, 1999. The decrease is primarily due to the
decrease in systems revenue.
Page 9
Total cost of systems as a percentage of systems revenues was 58.9% for the
three months ended June 30, 2000, compared to 65.3% for the three months ended
June 30, 1999. Cost of systems revenues as a percentage of systems revenues for
the automotive division were 61.9% and 57.7% for the three months ended
June 30, 2000 and 1999, respectively. The increased percentage is primarily due
to experiencing relatively comparable manufacturing and implementation labor
costs on lower systems revenue. Cost of systems revenues as a percentage of
systems revenues for the hardlines and lumber division was 55.7% and 77.3% for
the three months ended June 30, 2000 and 1999, respectively. This decrease is
due to a decrease in software amortization due to certain assets acquired in
February 1997 becoming fully amortized.
Total cost of revenues for services and finance were $20.5 million for the three
months ended June 30, 2000, compared to $22.1 million for the three months ended
June 30, 1999, a decrease of $1.6 million, or 7.2%. Cost of revenues for
services and finance for the automotive division for the three months ended
June 30, 2000 decreased $1.5 million to $12.2 million, compared to the three
months ended June 30, 1999. As a percentage of services revenues, cost of
revenues for services and finance for the automotive division were 48.7% and
55.6% for the three months ended June 30, 2000 and 1999, respectively. Cost of
revenues for services and finance for the hardlines and lumber division for the
three months ended June 30, 2000 decreased $0.1 million to $8.3 million,
compared to the three months ended June 30, 1999. As a percentage of services
revenues, cost of revenues for services and finance for the hardlines and lumber
division were 61.0% and 65.7% for the three months ended June 30, 2000 and 1999,
respectively. These dollar and percentage decreases in both automotive and
hardlines and lumber are due to savings from a reorganization of the Company's
customer support organization.
Total operating expenses were $26.6 million for the three months ended
June 30, 2000, compared to $29.0 million for the three months ended
June 30, 1999, a decrease of $2.4 million, or 8.3%.
Total sales and marketing expense for the three months ended June 30, 2000
decreased $2.9 million to $12.7 million, as compared to the three months ended
June 30, 1999. Sales and marketing expense for the automotive division for the
three months ended June 30, 2000 decreased $1.5 million to $7.6 million, as
compared to the three months ended June 30, 1999. As a percentage of revenue,
sales and marketing expense for the automotive division was 22.4% and 22.7% for
the three months ended June 30, 2000 and 1999, respectively. Sales and marketing
expense for the hardlines and lumber division for the three months ended
June 30, 2000 decreased $1.5 million to $5.1 million, as compared to the three
months ended June 30, 1999. As a percentage of revenue, sales and marketing
expense for the hardlines and lumber division was 23.6% and 29.2% for the three
months ended June 30, 2000 and 1999, respectively. The decrease in sales and
marketing expense in both automotive and hardlines and lumber divisions is
primarily due to a reorganization of product marketing and a reduction in sales
personnel.
Total product development expenses for the three months ended June 30, 2000
decreased $0.1 million to $3.5 million, as compared to the three months ended
June 30, 1999. As a percentage of revenue, product development expenses were
6.4% and 5.8% for the three months ended June 30, 2000 and 1999, respectively.
Product development expenses for the automotive division for the three months
ended June 30, 2000 increased $0.2 million to $2.6 million. The increase is
primarily due to additional resources added during the second half of 1999,
primarily in service dealer product development. As a percentage of automotive
division revenue, product development expenses for the automotive division were
7.6% and 5.9% for the three months ended June 30, 2000 and 1999. Product
development expenses for the hardlines and lumber division for the three months
ended June 30, 2000 decreased $0.2 million to $0.8 million primarily due to
decreased personnel costs. As a percentage of hardlines and lumber revenue,
product development expenses for the hardlines and lumber division were 3.5% and
4.2% for the three months ended June 30, 2000 and 1999, respectively.
General and administrative expense for the three months ended June 30, 2000 were
$10.3 million compared to $9.7 million for the three months ended June 30, 1999,
an increase of $0.6 million, or 6.2%. As a percentage of revenues, general and
administrative expense was 18.5% and 15.6% for the three months ended
June 30, 2000 and 1999, respectively. The increase in general and administrative
expenses is primarily due to an increase in professional fees from an outside
Page 10
consulting firm that is reviewing the Company's operations offset slightly by a
decrease in personnel costs.
Interest expense for the three months ended June 30, 2000 is comparable to the
three months ended June 30, 1999. See "Liquidity and Capital Resources."
As a result of the above factors, the Company experienced a net loss of
$4.1 million for the three months ended June 30, 2000, compared to a net loss of
$6.4 million for the three months ended June 30, 1999, a decrease in loss of
$2.3 million or 35.9%.
Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999
Total revenues for the nine months ended June 30, 2000 were $171.3 million, a
decrease of $5.7 million, or 3.2%, from the $177.0 million recorded in the prior
year's period. The decrease was primarily attributed to the automotive division,
which had a revenue decline of $5.9 million.
Total systems revenues for the nine months ended June 30, 2000 were $53.4
million, compared to $62.3 million for the nine months ended June 30, 1999, a
decrease of $8.9 million, or 14.3%. Systems revenues for the automotive division
for the nine months ended June 30, 2000 decreased $8.3 million to $28.0 million,
as compared to last year's similar period. Systems revenues for the hardlines
and lumber division for the nine months ended June 30, 2000 decreased $0.6
million to $25.4 million as compared to the nine months ended June 30, 1999. The
revenue decrease was primarily due to both market factors and sales strategy
changes. The market factors include an unusually high level of automotive
aftermarket consolidation activity during 1999 resulting in an increase in the
amount of systems purchased during that time, an increase in systems purchased
in 1999 to upgrade in anticipation of Y2K, and an unusually mild winter during
1999-2000 resulting in less automotive aftermarket parts sales and a
corresponding decrease in system sales. Changes from an internal reorganization
in both the automotive and hardlines and lumber divisions shifted one automotive
sales model to a lower price point and focused on attracting more profitable new
customers.
Total customer support and information services revenues were $115.4 million for
the nine months ended June 30, 2000, compared to $111.2 million for the nine
months ended June 30, 1999, an increase of $4.2 million, or 3.8%. For the nine
months ended June 30, 2000, customer support and information services revenues
for the automotive division and the hardlines and lumber division increased $2.6
million to $75.6 million and increased $1.6 million to $39.8, respectively, as
compared to the nine months ended June 30, 1999. These increases are due to
improved product and service offerings that have attracted and retained
customers.
Revenues from financing activities for the nine months ended June 30, 2000 were
$2.5 million, compared to $3.4 million for the nine months ended June 30, 1999,
a decrease of $0.9 million, or 26.5%. Revenues from financing activities for the
automotive division for the nine months ended June 30, 2000 decreased $0.1
million, or 6.3% to $1.5 million, due to a decrease in the volume of leases
originated and sold during the period and a decrease in the percentage gain on
the sale of the leases as compared to the nine months ended June 30, 1999.
Revenues from financing activities for the hardlines and lumber division for the
nine months ended June 30, 2000 declined $0.8 million to $1.0 million as
compared to the nine months ended June 30, 1999. The decrease in finance
revenues is due to a decrease in the volume of leases originated and sold during
the period and a decrease in the percentage gain on the sale of the leases.
Total cost of revenues were $102.9 million for the nine months ended
June 30, 2000, compared to $110.6 million for the nine months ended
June 30, 1999, a decrease of $7.7 million, or 7.0%. For the nine months ended
June 30, 2000, cost of revenues for the automotive division and the hardlines
and lumber division decreased $4.3 million, or 6.6%, to $60.8 million, and $3.4
million, or 7.5%, to $42.1 million, respectively, as compared to the nine months
ended June 30, 1999. The decrease is primarily due to the decrease in systems
revenue.
Total cost of systems as a percentage of systems revenues was 73.7% for the nine
months ended June 30, 2000, compared to 69.8% for the nine months ended
June 30, 1999. Cost of systems revenues as a percentage of systems revenues
Page 11
for the automotive division were 78.6% and 62.9% for the nine months ended
June 30, 2000 and 1999, respectively. The increased percentage is primarily due
to experiencing relatively comparable manufacturing and implementation labor
costs on lower system revenue. Cost of systems revenues as a percentage of
systems revenues for the hardlines and lumber division was 68.3% and 79.5% for
the nine months ended June 30, 2000 and 1999, respectively. This decrease is due
to a decrease in software amortization due to certain assets acquired in
February 1997 becoming fully amortized.
Total cost of revenues for services and finance were $63.6 million for the nine
months ended June 30, 2000, compared to $67.1 million for the nine months ended
June 30, 1999, a decrease of $3.5 million, or 5.2%. Cost of revenues for
services and finance for the automotive division for the nine months ended
June 30, 2000 decreased $3.4 million to $38.8 million, compared to the nine
months ended June 30, 1999. As a percentage of services revenues, cost of
revenues for services and finance for the automotive division were 51.3% and
57.8% for the nine months ended June 30, 2000 and 1999, respectively. Cost of
revenues for services and finance for the hardlines and lumber division for the
nine months ended June 30, 2000 decreased $0.1 million to $24.8 million, or
0.4%, compared to the nine months ended June 30, 1999. As a percentage of
services revenues, cost of revenues for services and finance for the hardlines
and lumber division were 62.3% and 65.1% for the nine months ended June 30, 2000
and 1999, respectively. These dollar and percentage decreases in both automotive
and hardlines and lumber are due to savings from a reorganization of the
Company's customer support organization.
Total operating expenses were $78.4 million for the nine months ended
June 30, 2000, compared to $82.0 million for the nine months ended
June 30, 1999, a decrease of $3.6 million, or 4.4%.
Total sales and marketing expense for the nine months ended June 30, 2000
decreased $5.0 million to $38.3 million, as compared to the nine months ended
June 30, 1999. Sales and marketing expense for the automotive division for the
nine months ended June 30, 2000 decreased $0.2 million to $23.8 million as
compared to the nine months ended June 30, 1999. As a percentage of revenue,
sales and marketing expense for the automotive division was 22.6% and 21.6% for
the nine months ended June 30, 2000 and 1999, respectively. Sales and marketing
expense for the hardlines and lumber division for the nine months ended June 30,
2000 decreased $4.8 million to $14.5 million, as compared to the nine months
ended June 30, 1999. As a percentage of revenue, sales and marketing expense for
the hardlines and lumber division was 21.9% and 29.2% for the nine months ended
June 30, 2000 and 1999, respectively. The decrease in sales and marketing
expense in both automotive and hardlines and lumber divisions is primarily
related to a reorganization of product marketing and a reduction in sales
personnel.
Total product development expenses for the nine months ended June 30, 2000
decreased $0.7 million to $10.3 million, as compared to the nine months ended
June 30, 1999. As a percentage of revenue, product development expenses were
6.0% and 6.2% for the nine months ended June 30, 2000 and 1999, respectively.
Product development expenses for the automotive division for the nine months
ended June 30, 2000 increased $0.2 million to $7.6 million, as compared to the
nine months ended June 30, 1999. The increase is primarily due to additional
resources added during the second half of 1999, primarily in service dealer
product development. As a percentage of automotive division revenue, product
development expenses for the automotive division were 7.2% and 6.6% for the nine
months ended June 30, 2000 and 1999, respectively. Product development expenses
for the hardlines and lumber division for the nine months ended June 30, 2000
decreased $0.5 million to $2.4 million primarily due to decreased personnel
costs. As a percentage of hardlines and lumber division revenue, product
development expenses for the hardlines and lumber division were 3.7% and 4.4%
for the nine months ended June 30, 2000 and 1999, respectively.
General and administrative expense for the nine months ended June 30, 2000 were
$29.8 million compared to $27.7 million for the nine months ended June 30, 1999,
an increase of $2.1 million, or 7.5%. As a percentage of revenues, general and
administrative expense was 17.4% and 15.6% for the nine months ended
June 30, 2000 and 1999, respectively. The increase in general and administrative
expenses was primarily due to increases in professional fees from an outside
consulting firm, which is reviewing the Company's operations and benefits
expense due to higher claims offset slightly by a decrease in personnel costs.
Page 12
Interest expense for the nine months ended June 30, 2000 was $14.3 million
compared to $13.5 million for the nine months ended June 30, 1999, an increase
of $0.8 million, or 5.9%. The increase in interest expenses is due to an
increase in the base rates, Bank Prime and LIBOR, used in computing the interest
charged to the Company and also to an increase in the spread over the base rate
charged on certain components of the Company's Restated Senior Credit
Facilities. The effect of the increase in interest rates was partially offset by
a lower average balance of indebtedness for the comparable periods in the
current fiscal year. See "Liquidity and Capital Resources."
As a result of the above factors, the Company experienced a net loss of
$17.3 million for the nine months ended June 30, 2000, compared to a net loss of
$20.8 million for the nine months ended June 30, 1999, a decrease in loss of
$3.5 million or 16.8%.
Liquidity and Capital Resources
As of June 30, 2000, the Company had $178.0 million in outstanding indebtedness,
a decrease of $3.9 million from September 30, 1999. The Company's outstanding
indebtedness under its Restated Senior Credit Facilities at June 30, 2000
included $22.8 million borrowed on the Company's $50.0 million senior secured
revolving credit facility under its Restated Senior Credit Facilities and $55.2
million of senior secured term loans. The remaining indebtedness consists of
$100.0 million in aggregate principal amount of its 9% Senior Subordinated Notes
due 2008.
The term loan balance was $60.0 million on September 30, 1999. Repayment began
on December 31, 1999 at a beginning rate of $1.6 million per quarter. All
borrowings under the Restated Senior Credit Facilities are scheduled to be
repaid by March 31, 2004. 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.
In addition to servicing its debt obligations, 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 produces working capital as it liquidates its lease portfolio
through discounting arrangements with banks and lending institutions. For the
nine months ended June 30, 2000, the Company's capital expenditures were $11.2
million, which includes $7.8 million for capitalized computer software costs and
databases. Additionally, the Company is obligated to pay a minimum royalty of
$1.0 million through 2011 for a software license that the Company sublicenses to
customers in the automotive industry.
The Company's Restated 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 tests relating to financial amounts and ratios
defined in the Restated Senior Credit Facilities. As of June 30, 2000, the
Company was in compliance with the financial tests required by the Restated
Senior Credit Facilities.
The Company believes that cash flows from operations, together with the amounts
available under the Company's Restated Senior Credit Facilities, should be
sufficient to fund its working capital and debt service requirements (including
the funding of the customer leasing operations). The Company's ability to meet
its working capital and debt service requirements, however, is subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. If the Company is not able to meet such
requirements, it may be required to seek additional financing. There can be no
assurance that the Company will be able to obtain financing from other sources
on terms acceptable to the Company, if at all.
Impact of Year 2000
At this time, the Company has not experienced any Year 2000 problems that have
negatively impacted the production or delivery of our products in a material
manner. The Company also has not experienced any material internal or external
business interruptions. In preparing for Year 2000 readiness, the Company did
Page 13
not establish a separate budget for making either its products or its internal
systems Year 2000 Ready. Rather, such expenditures were part of the Company's
regular capital and operating budgets. These expenditures were not tracked
separately. Thus, the Company does not believe it can estimate the expenditures
accurately; however, the Company does not foresee any material additional
expenditures. The Company will continue to monitor potential Year 2000 problems.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 - Employment Agreement Amendment, dated June 27, 2000
between the Company and Michael A. Aviles
27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
June 30, 2000.
Page 14
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, on the 14th day of August, 2000.
COOPERATIVE COMPUTING, INC.
By: /s/ PAUL D. STONE
Paul D. Stone
Senior Vice President and
Chief Administrative Officer
Page 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.1 Employment Agreement Amendment dated June 27, 2000 between
the Company and Michael A. Aviles
27 Financial Data Schedule.
</TABLE>
Page 16
