<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, 1999
[ ] 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:
<TABLE>
<CAPTION>
Class Outstanding at February 11, 2000
----- --------------------------------
<S> <C>
Common Stock 1,000 shares
</TABLE>
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COOPERATIVE COMPUTING, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1999 3
Consolidated Statements of Operations for the three months ended December 31,
1998 and December 31, 1999 4
Consolidated Statements of Cash Flows for the three months ended
December 31, 1998 and December 31, 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 8
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 14
</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 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.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ -- $ --
Trade accounts receivable, net 43,977 42,124
Inventories 9,095 6,619
Investment in leases 4,832 4,713
Deferred income taxes 6,608 6,608
Prepaid expenses and other current assets 6,201 6,311
------------- ------------
Total current assets 70,713 66,375
Service parts 3,664 3,229
Property and equipment, net 11,686 10,575
Long-term investment in leases 15,383 17,612
Capitalized computer software costs, net 15,435 13,385
Databases, net 13,820 11,769
Deferred financing costs 7,274 6,968
Other intangibles 137,187 133,206
Other assets 11,641 11,460
------------- ------------
Total assets $ 286,803 $ 274,579
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 17,679 $ 10,816
Payroll related accruals 11,110 11,404
Deferred revenue 10,551 7,827
Current portion of long-term debt 6,540 6,861
Accrued expenses and other current liabilities 12,687 14,488
------------- ------------
Total current liabilities 58,567 51,396
Long-term debt 175,308 179,755
Deferred income taxes 30,182 27,029
Other liabilities 10,279 11,657
------------- ------------
Total liabilities 274,336 269,837
Redeemable Class A Common Stock, including
$5,225 in accretion 26,961 29,167
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) (113,423)
------------- ------------
Total stockholders' deficit (14,494) (24,425)
------------- ------------
Total liabilities and stockholders' deficit $ 286,803 $ 274,579
============= ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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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 1999
------------ ------------
<S> <C> <C>
Revenues:
Systems $ 19,043 $ 19,248
Customer support and information services 35,584 38,107
Finance 1,304 882
------------ ------------
Total revenues 55,931 58,237
Cost of revenues:
Systems 13,923 16,829
Services and finance 21,125 20,994
------------ ------------
Total cost of revenues 35,048 37,823
------------ ------------
Gross margin 20,883 20,414
Operating expenses:
Sales and marketing 13,645 13,285
Product development 3,701 3,372
General and administrative 8,955 9,896
------------ ------------
Total operating expenses 26,301 26,553
------------ ------------
Operating loss (5,418) (6,139)
Interest expense (4,438) (4,689)
Other income (expense), net (243) 217
------------ ------------
Loss before income taxes (10,099) (10,611)
Income tax benefit (3,061) (3,014)
------------ ------------
Net loss (7,038) (7,597)
Accretion of redeemable convertible stock -- 2,205
------------ ------------
Net loss attributable to common stock $ (7,038) $ (9,802)
============ ============
Comprehensive income (loss):
Net loss $ (7,038) $ (7,597)
Foreign currency translation adjustment 303 (129)
------------ ------------
Comprehensive loss $ (6,735) $ (7,726)
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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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 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,038) $ (7,597)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 2,274 2,310
Amortization 11,126 10,945
Other, net 282 (228)
Changes in assets and liabilities, net of effects of
businesses acquired:
Trade accounts receivable (2,073) 1,854
Inventories (486) 2,476
Investment in leases (1,114) (2,109)
Deferred income taxes (3,619) (3,153)
Prepaid expenses and other assets (634) 117
Accounts payable (3,301) (6,862)
Deferred revenue 2,260 (2,724)
Accrued expenses and other current liabilities 265 3,468
----------- -----------
Net cash used in operating activities (2,058) (1,503)
INVESTING ACTIVITIES
Purchase of property and equipment (1,885) (278)
Capitalized computer software costs and databases (3,345) (2,577)
Purchase of service parts (290) (359)
Acquisitions of businesses, net of cash acquired (375) --
Other, net -- (53)
----------- -----------
Net cash used in investing activities (5,895) (3,267)
FINANCING ACTIVITIES
Proceeds from debt facility 39,200 28,800
Payment on long-term facilities (31,837) (24,032)
----------- -----------
Net cash provided by financing activities 7,363 4,768
----------- -----------
Net decrease in cash and cash equivalents (590) --
Cash and cash equivalents, beginning of period 1,159 --
----------- -----------
Cash and cash equivalents, end of period $ 569 $ --
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 1,963 $ 2,824
=========== ===========
Income taxes $ 116 $ 135
=========== ===========
Non-Cash Transactions:
Accretion of redeemable Class A Common Stock $ -- $ 2,205
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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 three months ended December 31, 1999
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 months ended December 31, 1998 have been
reclassified to conform to the presentation for the three months ended December
31, 1999.
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):
<TABLE>
<CAPTION>
LEASE SERVICING RECOURSE
OBLIGATION OBLIGATION
--------------- ---------------
<S> <C> <C>
Balance at September 30, 1999 ............................ $ 1,769 $ 7,680
Newly-created liabilities ................................ 142 1,398
Charges and lease write-offs ............................. (267) (420)
--------------- ---------------
Balance at December 31, 1999 ............................. $ 1,644 $ 8,658
=============== ===============
</TABLE>
3. INCOME TAXES
The Company recorded an income tax benefit for the three months ended
December 31, 1999 at an effective rate of approximately 28%, 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.
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4. 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
United Kingdom, Ireland and France.
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1999
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<S> <C> <C>
Systems revenues:
Automotive ................................................ $ 10,306 $ 10,642
Hardlines and lumber ...................................... 8,737 8,606
---------- ----------
Total systems revenues ....................................... 19,043 19,248
Customer support and information services revenues:
Automotive ................................................ 23,881 25,370
Hardlines and lumber ...................................... 11,703 12,737
---------- ----------
Total customer support and information services revenues ..... 35,584 38,107
Finance revenues:
Automotive ................................................ 598 563
Hardlines and lumber ...................................... 706 319
---------- ----------
Total finance revenues: ...................................... 1,304 882
Systems costs of revenues:
Automotive ................................................ 6,915 9,911
Hardlines and lumber ...................................... 7,008 6,918
---------- ----------
Total systems costs of revenues: ............................. 13,923 16,829
Services and finance cost of revenues:
Automotive ................................................ 13,831 13,353
Hardlines and lumber ...................................... 7,294 7,641
---------- ----------
Total services and finance cost of revenues .................. 21,125 20,994
Sales and marketing:
Automotive ................................................ 7,223 8,697
Hardlines and lumber ...................................... 6,412 4,588
---------- ----------
Total sales and marketing .................................... 13,645 13,285
Product development:
Automotive ................................................ 2,562 2,532
Hardlines and lumber ...................................... 963 822
Corporate ................................................. 176 18
---------- ----------
Total product development .................................... 3,701 3,372
General and administrative ................................... 8,955 9,896
Interest expense ............................................. (4,438) (4,689)
Other income (expense), net .................................. (243) 217
---------- ----------
Loss before income taxes ..................................... $ (10,099) $ (10,611)
========== ==========
Revenues:
Americas .................................................. $ 54,448 $ 56,783
Europe .................................................... 1,483 1,454
---------- ----------
Total revenues ............................................... $ 55,931 $ 58,237
========== ==========
Assets:
Americas .................................................. $ 289,947 $ 270,199
Europe .................................................... 7,128 4,380
---------- ----------
Total assets ................................................. $ 297,075 $ 274,579
========== ==========
</TABLE>
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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 featuring
specialized database products and customer support and maintenance services.
Historical Results of Operations
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Revenues for the three months ended December 31, 1999 were $58.2 million,
compared to $55.9 million for the three months ended December 31, 1998, an
increase of $2.3 million, or 4%. For the three months ended December 31, 1999,
revenues for the automotive division increased $1.8 million, or 5%, to $36.6
million, as compared to the three months ended December 31, 1998. For the three
months ended December 31, 1999, revenues for the hardlines and lumber division
increased $0.5 million, or 2%, to $21.7 million, as compared to the three months
ended December 31, 1998.
Systems revenues for the three months ended December 31, 1999 were $19.2
million, compared to $19.0 million for the three months ended December 31, 1998,
an increase of $0.2 million, or 1%. Systems revenues for the automotive division
for the three months ended December 31, 1999 increased $0.3 million to $10.6
million, as compared to the three months ended December 31, 1998. This increase
was primarily due to increases in implementation revenue and the sales of
systems to automotive recyclers, offset by decreases in systems sales to parts
sales outlets and an increase in return reserves. The systems sales to
automotive recyclers were deferred during the year ended September 30, 1999 due
to year 2000 software issues which were resolved during the three months ended
December 31, 1999. Systems revenues for the hardlines and lumber division for
the three months ended December 31, 1999 decreased $0.1 million to $8.6 million
as compared to the three months ended December 31, 1998.
Customer support and information services revenues were $38.1 million for the
three months ended December 31, 1999, compared to $35.6 million for the three
months ended December 31, 1998, an increase of $2.5 million, or 7%. Customer
support and information services revenues for the automotive division for the
three months ended December 31, 1999 increased $1.5 million to $25.4 million, as
compared to the three months ended December 31, 1998. This increase is due to
increases in both information services and customer support services revenues
due to price increases, increases in the installed base of customers, and a
one-time receipt of $0.3 million associated with the ARISB acquisition. Customer
support and information services revenues for
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the hardlines and lumber division for the three months ended December 31, 1999
increased $1.0 million to $12.7 million, as compared to the three months ended
December 31, 1998. This increase in revenues is due to price increases and
growth in the sale of point-of-sale information and data warehouse products.
Revenues from financing activities for the three months ended December 31, 1999
were $0.9 million, compared to $1.3 million for the three months ended December
31, 1998, a decrease of $0.4 million, or 31%. Revenues from financing activities
for the automotive division for the three months ended December 31, 1999 did not
change as compared to the three months ended December 31, 1998. Revenues from
financing activities for the hardlines and lumber division for the three months
ended December 31, 1999 declined $0.4 million to $0.3 million as compared to the
three months ended December 31, 1998. The decrease in finance revenues is due to
a decrease in the volume of leases sold during the period and a decrease in the
percentage gain on the sale of the leases.
Cost of revenues were $37.8 million for the three months ended December 31,
1999, compared to $35.0 million for the three months ended December 31, 1998, an
increase of $2.8 million, or 8%. For the three months ended December 31, 1999,
cost of revenues for the automotive division increased $2.5 million, or 12%, to
$23.3 million, as compared to the three months ended December 31, 1998. For the
three months ended December 31, 1999, cost of revenues for the hardlines and
lumber division increased $0.3 million, or 2%, to $14.6 million, as compared to
the three months ended December 31, 1998.
Cost of systems revenues were $16.8 million for the three months ended December
31, 1999, compared to $13.9 million for the three months ended December 31,
1998, an increase of $2.9 million, or 21%. Cost of systems revenues for the
automotive division for the three months ended December 31, 1999 increased $3.0
million to $9.9 million, as compared to the three months ended December 31,
1998. The increase is due to the increase in systems sold to automotive
recyclers, the increase in implementation revenues, and an increase in the
amortization of capitalized software, offset by the decrease in systems sold to
parts sales outlets. Cost of systems revenues as a percentage of systems
revenues for the automotive division were 93% and 67% for the three months ended
December 31, 1999 and 1998, respectively. The increase in cost of revenues as a
percentage of revenues for automotive systems is due to the increase in return
reserves, the increase in the amortization of capitalized software, and the
increases in revenues from implementation and sales to automotive recyclers
which both carry higher cost of revenues as a percentage of revenue. Cost of
systems revenues for the hardlines and lumber division for the three months
ended December 31, 1999 decreased $0.1 million to $6.9 million, compared to the
three months ended December 31, 1998. Cost of systems revenues as a percentage
of systems revenues for the hardlines and lumber division was 81% and 89% for
the three months ended December 31, 1999 and 1998, respectively.
Cost of revenues for services and finance were $21.0 million for the three
months ended December 31, 1999, compared to $21.1 million for the three months
ended December 31, 1998, a decrease of $0.1 million, or 1%. Cost of revenues for
services and finance for the automotive division for the three months ended
December 31, 1999 decreased $0.5 million to $13.4 million, compared to the three
months ended December 31, 1998. This decrease is due to savings from a
reorganization of the Company's customer support organization. As a percentage
of services revenues, cost of revenues for services and finance for the
automotive division were 52% and 58% for the three months ended December 31,
1999 and 1998, respectively. The decrease in cost of revenues as a percentage of
revenues is primarily due to the implementation of price increases, the one-time
receipt of $0.3 million associated with the ARISB acquisition, and the decrease
in cost of revenues for customer support services. Cost of revenues for services
and finance for the hardlines and lumber division for
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the three months ended December 31, 1999 increased $0.3 million to $7.6 million,
compared to the three months ended December 31, 1998. As a percentage of
services revenues, cost of revenues for services and finance for the hardlines
and lumber division were 62% and 71% for the three months ended December 31,
1999 and 1998, respectively. The decrease is cost of revenues and cost of
revenues as a percentage of revenue for services and finance was primarily due
to savings from the reorganization of the customer support organization.
Operating expenses were $26.6 million for the three months ended December 31,
1999, compared to $26.3 million for the three months ended December 31, 1998, an
increase of $0.3 million, or 1%.
Product development expenses for the three months ended December 31, 1999
decreased $0.4 million to $3.4 million, as compared to the three months ended
December 31, 1998. As a percentage of revenue, product development expenses were
6% and 7% for the three months ended December 31, 1999 and 1998, respectively.
Product development expenses for the automotive division for the three months
ended December 31, 1999 decreased $0.1 million to $2.5 million. As a percentage
of revenue, product development expenses for the automotive division was 7% for
the three months ended December 31, 1999 and 1998. Product development expenses
for the hardlines and lumber division for the three months ended December 31,
1999 decreased $0.2 million to $0.8 million primarily due to an increase in the
capitalization of software development expenses as compared to the prior year.
As a percentage of revenue, product development expenses for the hardlines and
lumber division were 4% and 5% for the three months ended December 31, 1999 and
1998, respectively.
Sales and marketing expense for the three months ended December 31, 1999
decreased $0.3 million to $13.3 million, as compared to the three months ended
December 31, 1999. Sales and marketing expense for the automotive division for
the three months ended December 31, 1999 increased $1.5 million to $8.7 million
as compared to the three months ended December 31, 1998. As a percentage of
revenue, sales and marketing expense for the automotive division was 24% and 21%
for the three months ended December 31, 1999 and 1998, respectively. The
increase in sales and marketing expense primarily is related to increases in bad
debt reserves and personnel. Sales and marketing expense for the hardlines and
lumber division for the three months ended December 31, 1999 decreased $1.8
million to $4.6 million, as compared to the three months ended December 31,
1998. As a percentage of revenue, sales and marketing expense for the hardlines
and lumber division was 21% and 30% for the three months ended December 31, 1999
and 1998, respectively. The reduction in sales and marketing expense in the
hardlines and lumber division is due to reduced personnel.
General and administrative expense for the three months ended December 31, 1999
were $9.9 million compared to $9.0 million for the three months ended December
31, 1998, an increase of $0.9 million, or 10%. As a percentage of revenues,
general and administrative expense was 17% and 16% for the three months ended
December 31, 1999 and 1998, respectively. The increase in general and
administrative expenses was primarily due to expense accruals for potential year
2000 issues and an increase in bonus accruals.
Interest expense for the three months ended December 31, 1999 was $4.7 million
compared to $4.4 million for the three months ended December 31, 1998, an
increase of $0.3 million or 7%. The increase in interest expense is due to the
increase in debt levels. See - "Liquidity and Capital Resources."
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As a result of the above factors, the Company experienced a net loss of $7.6
million for the three months ended December 31, 1999, compared to a net loss of
$7.0 million for the three months ended December 31, 1998, an increase in loss
of $0.6 million or 9%.
Liquidity and Capital Resources
As of December 31, 1999, the Company had $186.6 million in outstanding
indebtedness, an increase of $4.8 million from September 30, 1999. The Company's
outstanding indebtedness under its Restated Senior Credit Facilities at December
31, 1999 included $28.2 million borrowed on the Company's $50.0 million senior
secured revolving credit facility under its Restated Senior Credit Facilities
and $58.4 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.
Repayment of the $58.4 million term loan facility 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, 2003. 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
three months ended December 31, 1999, the Company's capital expenditures were
$3.2 million, which includes $2.6 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. Because the Company expected
it would not be in compliance with the amounts and ratios as defined in the
Restated Senior Credit Facilities and measured quarterly as of December 31,
1999, on December 21, 1999, the Company amended its Restated Senior Credit
Facilities to reset and reduce specified financial amounts and ratios for the
fiscal year 2000.
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.
Page 11
<PAGE> 12
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. 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.
To date, the Company has not experienced any material Year 2000 problems in
products that it sells or has installed for our customers or in its internal
systems. While we are not currently aware of any internal or external Year 2000
failures impacting its operations or those of our customers due to Year 2000
failures of our products, we continue to monitor the compliance of our products
and internal systems, as well as third party software purchased from suppliers
prior to January 1, 2000.
Although we believe that we have successfully modified our products, services
and internal systems as necessary to be Year 2000 ready, we cannot be sure that
our products and services or our internal systems do not contain undetected
errors or defects associated with Year 2000 functions that may manifest
themselves over time and may result in a material adverse impact on the
Company's business, financial condition, or results of operations.
With regard to the Company's products, the most likely worst case scenario with
respect to any Year 2000 problems will be higher than anticipated call volumes
on the Company's Advice Lines, which support customers by answering questions
about products sold by the Company, sending software updates and assisting with
customer problems. With regard to the Company's internal systems, and products
and services acquired from third party suppliers, the most likely worst case
scenario will be a delayed Year 2000-related failure. Information Technology
staff have continued testing internal systems after the rollover date of January
1, 2000, and as of the date hereof, have detected no material errors or
malfunctions resulting from Year 2000 issues. Information Technology staff will
continue to monitor internal systems and investigate reports of Year
2000-related errors or failures in our products well into the future.
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 Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1999. There have been no material changes in the
quarter ended December 31, 1999.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 -- Financial Data Schedule.
Page 12
<PAGE> 13
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
December 31, 1999.
Page 13
<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 February, 2000.
COOPERATIVE COMPUTING, INC.
By: /s/ MICHAEL A. AVILES
---------------------------------------
Michael A. Aviles
President and Chief Operating Officer
Page 14
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