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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one) Form 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended September 30, 1994
OR
[ ] Transition Report Pursuant to Section 13 or 15d of
The Securities Exchange Act of 1934 (No Fee Required)
For the transition period from ___________ to ____________
Commission File Number 0-9505
TRIAD SYSTEMS CORPORATION
(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.)
3055 Triad Drive
Livermore, California 94550
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 449-0606
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
Common Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements, incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $61,350,000 based on the closing sales
price of the Company's common stock, as reported on NASDAQ on
November 30, 1994. Shares of Common Stock held by each officer and director
and by each person who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determin-
ation for other purposes.
The number of outstanding shares of the Registrant's Common Stock
as of November 30, 1994 was 13,843,103.
This report, including all exhibits and attachments, contains 55 pages.
The Exhibit Index is located on pages 21-22.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in those Parts of
this Annual Report on Form 10-K as are set forth below, but only to the extent
specifically stated in such Parts hereof:
(1) Pages 8 through 25 of the Annual Report to Stockholders for Fiscal Year
Ended September 30, 1994 which is referred to herein as the "Annual Report"
and is incorporated as provided above in Parts II and IV.
(2) Proxy Statement for Annual Meeting of Stockholders scheduled to be held
February 9, 1995.
This proxy statement is referred to herein as the "Proxy Statement"
and is incorporated as provided in Part III.
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Triad and the stylized logo, LaserCat(R), ServiceCat(R), LaserGuide(R),
TelePart(R), Zapstart(R), and Telepricing(R) are registered trademarks of
Triad Systems Corporation.
LaserStation(TM), Electronic Catalog(TM), LaborGuide(TM), Competitive
Analysis(TM), AdviceLine(TM), Vista(TM), Triad Prism(TM), Triad Service
System(TM), Eagle(TM), Eagle LS(TM), MarketPACE(TM) and Triad
ServiceWriter(TM) are trademarks of Triad Systems Corporation.
Interactive(TM) is a trademark of Sun Microsystems, Inc.
Pentium(TM) is a trademark of Intel Corporation.
The Paperless Warehouse(TM) is a trademark of Management Technology
International, Inc.
True Value(R) is a registered trademark of Cotter & Company.
IBM(R) and MicroChannel(R) are registered trademarks of International
Business Machines.
UNIX(R) is a registered trademark of UNIX Systems Laboratories, Inc.
MS-DOS(R) is a registered trademark of Microsoft Corporation.
Part I
ITEM 1. Business
Introduction
Triad Systems Corporation is a leading provider of business and
information management solutions for the automotive aftermarket and the
hardgoods industry. Triad offers new and existing customers a variety of
proprietary database products with periodic updates, software and hardware
products, financing and ongoing support services.
Triad's installed base provides significant recurring revenues,
accounting for 72% of its annual revenues in fiscal 1994. In the year ended
September 30, 1994, 33% of Triad's total revenues were from service and
support agreements, 24% from sales of hardware and software upgrades and
add-ons to existing customers and 15% from subscription fees for Triad's
proprietary database products. Triad's principal strategy is to increase its
installed base by offering its database, hardware and software products in its
two key markets, by penetrating adjacent segments of those markets and by
geographic expansion.
Markets
The Company's markets consist of numerous independent businesses which
require management of large quantities of data. These businesses are
increasingly seeking information management products and services targeted to
their specific industries. Triad is providing a growing family of database
products and information management services to existing and new customers in
response to these market demands. See "BUSINESS-Information Services." Triad
continues to provide cost-effective software and hardware products for these
markets.
Automotive Aftermarket. The automotive aftermarket consists of four
principal levels of distribution: manufacturers, warehouse distributors,
wholesalers ("jobbers") and retailers and auto repair shops ("service
dealers"). Manufacturers distribute automotive parts through warehouse
distributors to jobbers and retailers, who stock and sell the automobile
parts used by service dealers and consumers.
As of September 30, 1994, the Company had approximately 10,000
Automotive Division customers, spanning small-to large-sized jobbers.
Historically, the Company's Automotive Division has sold integrated
business systems primarily to jobbers. Triad's large installed base of
jobber customers provides a source of recurring revenue through sales of
applications software packages, peripherals, hardware upgrades, information
services, supplies and customer support services. The new Triad Prism is
initially targeted at upgrade opportunities for our existing customer base.
Due to the high level of automation in the traditional jobber market and the
lower per-unit cost of systems being sold to smaller non-automated jobbers,
the Company does not anticipate significant growth in revenues from system
sales in the domestic jobber market.
The Company has developed new products and approaches to expand its
customer base in adjacent markets. The Company typically offers its software
products and databases in conjunction with system sales, and also markets
selected software products and databases separately from its hardware
products. Triad has gained access to several leading retail chains, as well
as jobbers with competing systems, with these products. Further, the Company
has reached retail chains, service dealers and small jobbers through products
such as the LaserCat and ServiceCat workstations and software and database
products. See "BUSINESS-Triad Hardware Systems and Software Products" and "
- - - -Information Services." The ServiceCat product, Triad Service System and
Triad ServiceWriter are directed to the automotive repair market of
approximately 185,000 potential customers.
To expand its market presence, Triad intends to pursue strategic
acquisitions in its markets as opportunities arise.
Triad markets its Automotive Division products in the United States,
United Kingdom, Ireland, Canada and Puerto Rico. See "BUSINESS-Marketing and
Sales." The Company's strategy is to expand its customer base through the
development and marketing of database products for the automotive parts
aftermarket in the United States, United Kingdom and selected European
Community countries. See "BUSINESS-Information Services."
Triad markets systems to the warehouse distributor segment of the
automotive parts aftermarket. In February 1994, the Company introduced The
Paperless Warehouse and the UNIX-based Warehouse System to provide new levels
of efficiency and productivity in automotive parts warehouses. Approximately
70 mid-range and large warehouse distributors have installed the company's
systems, and 180 smaller warehouse distributors and larger jobbers have
purchased the Company's Series 14 system or its predecessor, the Series 12
system, equipped with specialized applications software designed for the needs
of the warehouse operations. The Triad Information System is designed for
large multiple-location customers who require single-system solutions. See
"BUSINESS-Triad Hardware Systems and Software Products."
Hardgoods Industry. Triad's Hardgoods Division offers integrated
business systems to approximately 47,000 hardware stores and home centers,
lumber/building supplies stores and paint and decorating retailers with
annual sales of between $250,000 and $100 million. At September 30, 1994,
the Company had more than 3,500 customers in these markets.
Hardgoods distribution chains have a much lower level of automation than
the automotive parts aftermarket. The Company believes that independent
hardgoods dealers are increasingly recognizing the advantages of automation
as they face increased competition. Hardgoods trade journals have strongly
favored automation, and major hardgoods wholesalers and cooperatives strongly
endorse automation to their members. Approximately half of the top 60 hardware
distributors endorse Triad products and services, along with five of the seven
leading lumber and building materials groups. In addition, Triad has developed
and maintains strong relationships with the four major hardgoods cooperatives.
See "BUSINESS-Marketing and Sales."
Technological advancements in Triad's interactive UNIX-based Eagle and
Eagle LS systems allow for product offerings suitable for hardgoods and
building materials chains with up to 30 stores and $100 million in annual
sales. See "BUSINESS-Triad Hardware Systems and Software Products."
Information Services
Triad provides its proprietary databases to its customers in return for
a license fee and monthly subscription fees entitling customers to periodic
updates. These database products generate recurring revenues for Triad through
the monthly subscription fees and differentiate the Company's products from
those of its competitors, contributing to new system sales. The Company cur-
rently offers four unique databases to its Automotive Division customers and
has a database catalog product for hardgoods distribution chains affiliated
with Cotter & Company (True Value).
Electronic Catalog. Triad's Electronic Catalog product provides nearly
16.5 million automobile parts applications. This database virtually eliminates
the time-consuming and cumbersome use of printed catalogs and is designed to
increase productivity and accuracy in parts selection and handling.
Proprietary software on Triad's jobber systems integrates information from the
Electronic Catalog and the Telepricing databases so that for a given auto-
motive repair, such as a tune-up, all parts required are identified, along
with updated prices and inventory levels. Additional prompts enable the jobber
to recommend related parts that the customer may need in addition to the parts
requested. Triad charges a monthly subscription fee for the Electronic Catalog
database and provides the customer with periodic updates. At September 30,
1994, approximately 3,400 customers had licensed the Electronic Catalog
database and it was used at more than 29,000 automotive counter positions.
Telepricing. The Telepricing service provides automatic price updates
for automotive parts following a manufacturer's price change, eliminating a
customer's need to input this data manually. Telepricing service customers
pay an initial license fee and a monthly subscription fee for this updating
service. This database had more than 3,000 subscribers at September 30, 1994.
LaborGuide Database. The LaborGuide database automates the estimation of
labor hours for car repairs and is based on labor estimating data from
Mitchell International, Inc. There were more than 1,600 customers paying
monthly fees for this database at September 30, 1994. This database is
targeted to approximately 185,000 service dealers in the United States and
permits users to comply more easily with regulations in many states that
require written estimates of repair costs. During fiscal 1994, Triad added a
new dimension to the automotive repair industry's most comprehensive database
with its introduction of Major Service Intervals for domestic automobiles.
The data includes detailed labor time and parts recommendations as defined by
the automobile manufacturer, enabling subscribers to schedule regular
maintenance appointments for their customers.
LaserGuide. The LaserGuide database is a reconfiguration of Electronic
Catalog and allows a jobber to determine which automobiles (by make and year)
the identified automotive parts will fit. The database also assists the jobber
in making decisions on inventory levels. There were approximately 300 cust-
omers using this database at September 30, 1994.
Workstation Products. Triad offers several products which are designed to
make its proprietary databases available in a cost-effective manner to
businesses with or without Triad systems. These products, including the
LaserCat and ServiceCat, make Triad's proprietary database products available
through CD-ROM technology and are designed to operate as stand-alone terminals
or integrated as terminals in Triad systems or many competitors' systems. See
"BUSINESS-Triad Hardware Systems and Software Products." The Company's
Information Services Division also markets the software and database products
to new customers separately from Triad's hardware systems.
Databases for Retailers. Triad markets its database products to large
automotive retail chains (i.e., Goodyear, Western Auto, Kmart and Sears) with
multiple national or regional sites. These chains use a variety of hardware
platforms and applications software on their systems. Triad's proprietary
databases are integrated into these systems. Triad's applications software
may, but need not, be included in these packages.
Databases for Manufacturers. Triad markets database services utilizing
Triad's database products to auto parts manufacturers. In addition to the
full Telepricing database, manufacturers may select only certain categories of
parts, or may choose the Competitive Analysis service, which compares price
levels and number of applications to a competitor's product line. Triad's new
transaction analysis services, MarketPACE for the Automotive aftermarket and
VISTA for the Hardgoods industry, reports product movement information based
on point of sale (POS) data collected at the independent retail levels in the
respective markets. MarketPACE services supply comprehensive POS information
and inventory analysis providing the decision support tools required to
increase sales, boost productivity, improve distribution and enhance customer
service for warehouses and auto parts stores. VISTA information services
provide product manufacturers with ongoing measurement of brand and item
movement with major product classifications using POS business analysis data
from independent hardware stores, home centers and lumber and building
materials outlets. Information provided by the MarketPACE and VISTA services
provide manufacturers with insight into how a given product or brand performs
against its competitors and the market in general.
Databases for International Markets. Triad established a wholly-owned
subsidiary in Longford, Ireland, to create, maintain and distribute database
products for automotive business management systems marketed by Triad and
third parties in the United Kingdom and Ireland and subsequently for third
party systems marketed in selected European Community nations. This project is
supported, in part, by grants from the Industrial Development Authority of
Ireland ("IDA"), subject to maintaining minimum capitalization and employment
levels for the subsidiary. The facility began distributing database products
in 1993 and its Electronic Catalog product is marketed in the United Kingdom
and Ireland. Triad also markets automotive database products in Canada and
Puerto Rico and is in the process of developing a product for the French
market to be introduced in late 1995.
Cotter & Company Database. Triad introduced the Cotter & Company database
product as a catalog of products available from the Cotter & Company (True
Value) cooperative warehouses. The database is marketed both to Cotter
affiliates and to independent outlets and outlets affiliated with other
cooperatives. See "BUSINESS-Triad Hardware Systems and Software Products."
Triad Hardware Systems and Software Products
Triad's applications software and business computer systems, together
with its database products, provide comprehensive business solutions targeted
to its two key markets. The Company provides a different set of standard
applications programs for each market that include user options allowing the
selective structuring of applications files and reports to meet customers'
specific requirements. These software products also allow Triad customers to
access the Company's proprietary databases. See "BUSINESS-Information
Services."
Systems developed for each specific market are generally field-upgradable
to meet customers' future growth needs. Hardware components include central
processing units (CPUs), disk drives, video display terminals, CD-ROM storage
devices, point of sale terminals, communication devices, printers and other
peripherals. Triad's systems also have communication capabilities allowing
users to exchange purchase orders and pricing and inventory information with
suppliers and, in some cases, customers.
Automotive Aftermarket. Since the first phase of the Triad Prism platform
introduced in 1993, more than 500 Triad Prism systems have been installed.
Triad Prism is a powerful UNIX-based system featuring Intel Pentium and other
processors. Triad Prism was created specifically for the automotive parts
distributor, and it employs a "management-by-exception" capability that is
intuitive and efficient. Triad's Series 11, Series 12 and Series 14 product
lines, and the Triad Prism track inventory, perform point of sale functions
such as invoicing, billing and other accounting functions. Smaller warehouse
distributors also use these systems with applications software designed to
serve their particular information management requirements. Triad's systems
also use a microcomputer manufactured by Triad with a proprietary operating
system. The systems also enable customers to use the Electronic Catalog
database and Triad's other automotive database products. See "BUSINESS-
Information Services."
The Company also markets the TelePart terminal to its jobber
customers, who generally place the terminal on-site with their service
dealer customers. The TelePart terminal allows service dealers to
electronically order parts by communicating directly with that jobber's Triad
system equipped with the Electronic Catalog product. At September 30, 1994,
Triad had installed more than 2,400 TelePart terminals.
In May 1994, Triad introduced Triad ServiceWriter, the latest addition to
its growing family of affordable information management solutions. Triad
ServiceWriter blends Triad's unique databases of 2 million parts, detailed
labor estimates and recommended vehicle service intervals with the latest in
workstation technology and easy-to-use, pull-down windows. Triad ServiceWriter
also creates printed work estimates, automated work orders and maintains
individual vehicle records and histories, enabling users to notify customers
of required preventive maintenance and create other special promotions to
generate higher volumes. Utilizing Triad's unique TelePart feature, Triad
ServiceWriter electronically orders required parts, speeding and increasing
the accuracy of the ordering process. Triad ServiceWriter can also be
integrated with other Triad services, including Triad's new Service Accounting
and ServiceTech for the latest in technical bulletins and other repair infor-
mation. ServiceWriter can also be expanded to include inventory management,
point of sale and general accounting applications.
The ServiceCat workstation is marketed to the service dealer segment of
the automotive parts aftermarket. The ServiceCat product includes the
Electronic Catalog and LaborGuide databases and TelePart software. It permits
service dealers to estimate the cost of an entire repair job, including parts
and labor, for customers which is mandatory in several states. See
"BUSINESS-Information Services." Triad's Information Services Division also
markets the ServiceCat software and databases separately from the workstation.
The Company also markets various terminals and workstations which provide
access to Triad's proprietary databases. Triad's LaserCat product is marketed
to customers requiring the complete Electronic Catalog database product,
regardless of whether they own a Triad jobber system, a competitor's system
or are not automated. The LaserCat product is an independent PC-based
workstation using CD-ROM technology to provide access to Triad's Electronic
Catalog database product, resulting in recurring revenues from monthly
subscription fees. See "BUSINESS-Information Services." LaserCat workstations
function as stand-alone units and also can be integrated as a terminal with
any Triad Jobber System or with numerous competitors' jobber systems. Approx-
imately 8,000 LaserCat workstations had been sold as of September 30, 1994.
Triad's Information Services Division also markets the LaserCat software and
databases separately from the workstation. See "BUSINESS-Information Services."
Triad's warehouse systems have the potential for a larger number of
application enhancements and offers increased processor speed to serve
businesses with high transaction volumes. The enhanced database management
features allow the user flexibility in information retrieval. The Paperless
Warehouse from Triad eliminates manual entry of parts-related information and
enables warehouse operators to update inventory records, dramatically changing
the way warehouses manage the flow of parts. This product enables employees
to utilize hand-held computers equipped with bar-code scanners and radio
transmitters to perform every warehouse task from receiving to stocking and
from order picking to shipping, transmitting the data to the host Triad
computer. Triad's UNIX-based Warehouse System merges the latest UNIX/RISC
technology to provide users with total warehouse management capabilities and
gives users a powerful relational database to access any information they
require.
Hardgoods Industry. Triad hardgoods systems automate inventory control,
point of sale functions (such as invoicing and billing), payroll, accounting
and purchase orders to affiliated cooperatives and distributors.
The UNIX-based Intel 486/Pentium driven Eagle series of systems is
designed for mid- to large sized hardgoods dealers. These systems have greater
power and functionality and therefore have expanded access to larger hardgoods
dealers. Existing Triad customers are able to upgrade to an Eagle system and
utilize the newly incorporated technological advancements. More than 1,750
Eagle systems, including upgrades and new systems, have been sold as of
September 30, 1994.
The Company's Eagle LS blends the power and flexibility of Triad's
UNIX-based business and information management system with applications and
features created to meet the unique needs of lumber and building materials
operations. The Eagle LS system efficiently manages the flow of a typical
transaction, including estimating, ordering and inventory management,
shipping, invoicing and tracking accounts receivable. The system's compre-
hensive features enable retailers to serve a wide range of customers, from
building contractors to the do-it-yourself customer.
The LaserStation product includes the Cotter and Company database
product, is designed as a stand-alone unit and may also be integrated as part
of a Triad hardgoods system.
Business Products. Triad markets a wide line of business products to the
automotive aftermarket and hardgoods industry through catalogs and
telemarketing services.
Customer Support and Services
The Company's Customer Support Services organization, representing
approximately 32% of the Company's full-time employees at September 30, 1994,
provides service, training and support to Triad's domestic and international
customers. System support agreements are a significant source of recurring
revenue for Triad. Triad system owners are principally small business
proprietors without the internal staffing or expertise to train users or to
maintain computer systems on a consistent basis. These customers require a
high level of service, training and support. Management believes its service
organization represents a major competitive advantage.
Hardware Maintenance and Software Support. Triad provides a limited
90-day warranty on its systems. Triad also offers a variety of post-sale
support programs through its system support agreements, including preventive
and remedial maintenance, hardware engineering modifications and daily system
operating support by phone. Triad's customers can call the Company's
AdviceLine service on a toll-free network, which gives them access to trained
personnel able to perform on-line diagnostics or to field engineers if on-site
service is necessary.
Quick Assist, introduced in October 1994, is an automated service that
connects customers directly with an Advice Line representative for
high-priority assistance. It provides an alternative to customers who, due to
the urgency of their support need, do not want to wait for a return call.
Virtually all new system customers enter into system support agreements
at the time of acquisition and most retain such service agreements as long as
they own the system. Monthly domestic fees vary with system size.
Triad also provides support for approximately 450 dental customers with
systems previously marketed by Triad and provides support to other businesses
under third party maintenance agreements.
At September 30, 1994, the Company had 189 field engineers and managers,
and 68 customer education representatives (CERs) and managers in 120 domestic
and 15 foreign field service offices.
Customer Training. Customer training is offered in the Company's
facilities, including 40 education centers nationwide. The Company also
provides on-site training for new and existing customers. In addition to
training in system operations and software enhancements, Triad offers seminars
and workshops to assist customers in understanding the capabilities of their
systems.
Pre-Delivery Services and Installation. Triad's sales representatives
provide a number of pre-delivery services to Triad's customers, including a
cost-justification analysis, visits to current Triad users, site planning and
preparation, training for management and employees and installation planning.
Triad's Zapstart product pre-loads an individual automotive customer's inven-
tory, pricing and parts applications data into its Triad system upon
installation, saving customers significant data-entry time. The Company also
offers hardware retailers a similar capability to preload inventory files
provided by certain cooperatives or distributors.
Marketing and Sales
The Company markets its automotive and hardgoods products and services
through a 275-person direct sales organization operating from 120 domestic
and 15 foreign sales and support offices as of September 30, 1994.
The Company's systems are marketed through direct sales calls and by
system demonstrations in customer facilities or in Company sales offices.
Sales prospects are generated by telemarketing, customer referrals, trade
publication advertising and trade show demonstrations. Triad's national
accounts sales force solicits endorsements and other marketing arrangements
with regional and national associations, distributors and cooperatives.
In addition, the Company markets its unique database products directly
by telemarketing and direct sales, or indirectly through value-added
resellers, to jobbers, service dealers and hardgoods distribution chains.
Triad reaches potential customers who do not own Triad computer systems by
marketing its database information products through value-added resellers who
offer other systems or products in Triad's markets.
The Company began marketing certain products and services in the
automotive aftermarket of the United Kingdom and Canada in the early 1980s.
Marketing efforts were expanded to Ireland through the United Kingdom
subsidiary in 1989. Sales in foreign countries are generally priced in local
currencies and are therefore subject to currency exchange fluctuations.
For the years ended September 30, 1992, 1993 and 1994, no customer other
than Triad Systems Financial Corporation ("Triad Financial"), accounted for
10% or more of Triad's revenues, and no end user accounted for more than 10%
of Triad's revenues. Historically, the Company's business has been seasonal,
with the Company generally experiencing a decline in revenues in the first
quarter of each year from the final quarter of the preceding year, with
revenues usually building as the year progresses.
Triad Systems Financial Corporation
Triad formed Triad Systems Financial Corporation in August 1978 to
provide lease financing to the Company's customers. Leases are full-payout,
noncancellable leases with terms from two to six years. Triad Financial
provided lease financing for approximately 61% of domestic business systems
sales in the year ended September 30, 1994.
The Company believes that its ability to offer lease financing to its
customers through Triad Financial shortens the sales cycle and provides a
competitive advantage in marketing Triad products. From its inception through
September 30, 1994, Triad Financial purchased and leased $488 million of Triad
equipment, including $39.6 million during fiscal 1994. Triad Financial
provides lease financing and administration services to independent third
parties in the markets that Triad serves, and since that time has financed
$35.5 million under these programs, including $11.4 million in 1994. It is
actively pursuing additional third party opportunities.
Triad Financial discounts most of its lease receivables on either a full
or limited recourse basis to banks and lending institutions under discounting
agreements. Under the agreements, Triad Financial is contingently liable for
losses in the event of lessee nonpayment for discounted leases. The contin-
gent liability for losses was $19.4 million at September 30, 1994. The
discounting agreements provide for limited recourse of up to 10% or full
recourse at 100% of discounted proceeds, depending on the credit risk
associated with specific leases. At September 30, 1994, the Company had $26
million invested in its lease portfolio and, if needed, maintains discounting
lines to sufficiently liquidate the principal of this investment into cash.
The discounting agreements contain restrictive covenants that must be
maintained in order to discount, the most restrictive requiring that both
Triad and Triad Financial be profitable every quarter. Under the terms of an
operating and support agreement with Triad Financial, the Company is
obligated, if required, to make equity contributions or subordinated loans to
enable Triad Financial to fulfill its obligations under the equipment
financing agreements.
Product Development
Triad's newest products are based on open systems design architecture.
This allows the use of latest technology hardware and industry standard
software for rapid development of products and services. Triad typically
bundles its application software with industry standard operating systems and
hardware platforms. Triad uses its system integration expertise to deliver
reliable systems with the appropriate performance and scalability for future
enhancements. The open design environment allows the Company to focus its
development efforts on applications that provide business solutions for each
segment of its markets. During 1992, 1993 and 1994, Triad's respective
product development expenditures including capitalized costs were $10.8
million, $10.9 million and $11.2 million.
The Company capitalized $3.3 million, $2.8 million and $3.1 million of
software development costs in 1992, 1993 and 1994, respectively. Amortization
of capitalized software costs begins when the products are available for
general release to customers. Costs are amortized over the expected product
lives and are calculated using the greater of the straight-line method,
generally three or five years, or a cost per unit sold basis.
At September 30, 1994, the Company employed 119 persons in product
development. Separate teams of Company analysts and programmers are
dedicated to each of the Company's markets. Common hardware and operating
system expertise provides support to each market-oriented development team.
In addition, Triad uses industry-specific advisory councils, representing a
cross-section of its customers, to review its development plans and give
advice on software applications features and priorities as they relate to
their automation needs.
Manufacturing
Triad's Manufacturing operation consists primarily of systems integra-
tion, including third party hardware and software with the Company's
application software. Triad assembles and tests systems or peripherals from
standard components and third party subassemblies at the Livermore facility.
In addition, Triad provides manufacturing and test services for third party
companies to optimize capacity and material planning operations.
Purchased parts and standard assemblies normally account for
approximately 95% of hardware overhead cost, with subassembly, assembly and
test costs representing the balance. The Company had 52 manufacturing
employees at September 30, 1994. Standard systems are typically shipped in the
same quarter the orders are received. The backlog of orders is not a signi-
ficant factor in understanding the Company's business.
Most of the components and peripherals used in the Company's systems are
available from a number of different suppliers, although the Company generally
purchases such major items as peripherals from a single source of supply. The
Company believes that alternative sources could be developed, if required,
without significant disruption or delay of shipments.
Product Protection
Triad regards its software and databases as proprietary and attempts to
protect them with copyrights, trade secret law and internal nondisclosure
safeguards, as well as restrictions on disclosure and transferability that are
incorporated into its license agreements. Despite these restrictions, it may
be possible for competitors or users to copy aspects of the Company's products
or to obtain information which the Company regards as trade secrets.
Triad has obtained software licenses from several sources covering
operating systems and applications programs used in its minicomputer and
microcomputer systems and planned for future products. The Company is not
aware that the manufacture and sale of its current hardware, software and
database products requires any licenses from others not already secured.
Triad holds one patent, has two patents pending and may seek additional
patent protection related to new hardware or software products as appropriate.
Competition
Triad experiences competition for its applications software and database
products from a variety of firms, ranging from small, independent applications
software producers to partnerships of software producers and computer systems
manufacturers (e.g., IBM and Digital Equipment Corp.). Some of Triad's
competitors customize general-purpose business management software and market
it for use on industry-standard hardware. The Company also faces competition
in both the automotive and hardgoods segments from distributors and coop-
eratives that market computer systems to their members. Competition for the
Company's higher-priced warehouse systems comes from both customers developing
their own systems in-house, and from large, well-established businesses that
offer general-purpose business computers and custom programming. Entry into
the markets for the Company's products is not unusually difficult, and new
competition is expected.
The Company believes that the key competitive factors in each of the
Company's markets are information management capability, product features and
functions, quality and quantity of data, price, ease of use, reliability,
quality of technical support and customer service and features and functions.
The Company believes that it competes favorably with respect to these factors.
Litigation
The Company is involved in litigation arising in the ordinary course of
business and in litigation to protect its proprietary rights. Triad is party
to various legal proceedings, primarily in connection with deficiencies from
customer-financed leases for products and services and related contract
defenses such as breach of warranty. Alleged damages vary widely and some
actions involve claims against the Company for damages, including punitive
damages. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the
Company's results of operations or financial position.
Employees
At September 30, 1994, Triad had 1,449 full-time employees. Persons with
programming skills and experience are in great demand in the information
management industry. The loss of a substantial number of these personnel, or
an inability in the future to obtain sufficient additional qualified person-
nel, would have an adverse effect on the Company's business. The Company
considers its employee relations good and is not party to any collective
bargaining agreements.
ITEM 2. Properties
The Company owns substantially all of its real property and the equipment
used in its business. Corporate headquarters is located on a portion of its
Livermore, California properties. Operations are consolidated in three
buildings aggregating 220,000 square feet. Title to the headquarters buildings
and the land on which they sit is held by a wholly owned subsidiary of the
Company, which leases the premises to the Company for approximately $209,000
per month. The property and the lease are pledged as security on a 15-year
term loan made by an insurance company to the subsidiary in the principal
amount of $15.5 million with an initial interest rate of 9 7/8% that may be
adjusted at the option of the lender in 1998.
At September 30, 1994, the Company was leasing sales and service space
in 120 cities in the United States and 15 foreign sites.
In 1984 the Company purchased Triad Park, an aggregate of 398
contiguous acres in the City of Livermore, for a total purchase price of
$15.8 million. The Company subsequently reconveyed approximately 10 acres of
Triad Park to the sellers under the terms of the original purchase agreement.
Since 1984, the Company has also conveyed approximately 12.8 acres to
Livermore for roadways which Triad developed in Triad Park. A portion of Triad
Park consisting of 110 acres is zoned "open space" and currently may not be
developed under an agreement with the City of Livermore.
The Company sold an aggregate of 39.6 acres of Triad Park from fiscal
years 1987 through 1994 for $8.5 million and intends to market 166 acres of
Triad Park for resale during the next several years. Approximately 50 acres of
property have been rezoned for retail use, and the balance of the property is
zoned for industrial and research and development purposes. As part of this
rezoning process, the Company entered into an agreement with the City of
Livermore canceling the former development agreement for the Triad Park and
eliminating any further obligations by the Triad Park owners, including Triad,
to construct or participate in any assessment district to fund construction
of two freeway interchanges and a water storage facility. However, all future
construction in the Triad Park will require payment to the City of its current
traffic impact fees required in connection with issuance of building permits.
Improvements are financed through municipal bonds. Two series of
municipal bonds were sold by an assessment district from November 1985 through
September 1988 to finance $11.5 million in improvements. A community
facilities district was formed in 1990 that replaced the function of the
assessment district under which $2.4 million in improvements were financed in
September 1990. The community facilities district is authorized to finance a
total of $17 million in bonds to provide funds to pay costs of the
acquisition and construction of certain public facilities and services related
to Triad Park. In 1993, the assessment district debt was refinanced to take
advantage of lower interest rates.
The liens of the assessment district and community facilities district
securing those bonds is segregated on a pro rata basis among all developable
parcels of Triad Park and thus, except with respect to parcels retained by
Triad for its own use, will be assumed by buyers of individual parcels.
Principal and interest payments are required to be made by Triad (or by
subsequent purchasers of parcels of Triad Park) as additional bonds up to the
$17 million authorized are sold. With respect to $11.2 million in assessments
outstanding, the Company made $903,000 in interest payments on the bonds in
fiscal 1992, $1,033,000 in fiscal 1993 and $864,000 in fiscal 1994.
The Company intends to sell those portions of the Livermore acreage
which are in excess of the Company's long-term facilities requirements. The
Company's ability to market this property is dependent upon interest rates,
general economic and market conditions, the prospective purchaser's ability to
develop the property and the purchaser's ability to obtain a variety of
governmental approvals, none of which is assured and all of which are subject
to objections from the public. Economic conditions continue to impact the
real estate market in Livermore, and throughout California, which has resulted
in reduced real estate activity.
ITEM 3. Legal Proceedings
See "Item 1-Litigation."
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of security holders
during the fourth quarter of the fiscal year ended September 30, 1994.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
There is incorporated by reference the information under the caption
"Market for Triad Stock" on page 25 of the Annual Report.
ITEM 6. Selected Financial Data
There is incorporated by reference the information under the caption
"Selected Financial Data" on the inside cover of the Annual Report.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
There is incorporated by reference the information under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 8 through 11 of the Annual Report.
ITEM 8. Financial Statements and Supplementary Data
There is incorporated by reference the financial statements and the notes
thereto which appear on pages 12 to 22 of the Annual Report.
ITEM 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors, Executive Officers and Operating Management of the
Registrant
The Company's Directors, Executive Officers and Operating Management as
of December 15, 1994 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- - - -------------------- --- ---------------------------------
<S> <S> <S>
William W. Stevens 63 Chairman of the Board
Henry M. Gay 70 Director
George O. Harmon 71 Director
Richard C. Blum 59 Director
James R. Porter 58 President, Chief Executive Officer,
and Director
Shane Gorman 51 Executive Vice President
Thomas A. King 50 Vice President, Product Development
and Manufacturing
Stanley F. Marquis 51 Vice President, Finance, Chief Financial
Officer Corporate Secretary and Corporate
Treasurer; President, Triad Systems
Financial Corporation
Edward Molkenbuhr 47 Vice President and General Manager,
Service Dealer Division
Thomas J. O'Malley 59 Vice President, Administration
Richard J. Savage 48 Vice President and General Manager,
Automotive Division
Chad G. Schneller 53 Vice President and General Manager,
Hardgoods Division
Donald C. Wood 57 Vice President and General Manager,
Information Services Division
Dan F. Dent 47 General Manager, Customer Support
Services Division
Bruce M. Blanco 45 Corporate Controller
</END TABLE>
The Board of Directors is divided into four classes, designated Class I,
Class II, Class III and the Senior Preferred Director, consisting of one,
one, two and one directors, respectively. The director in Class I
(Mr. Stevens) holds office until the annual meeting in 1997, the director in
Class II (Mr. Gay) holds office until the annual meeting in 1995, the
directors in Class III (Mr. Harmon and Mr. Porter) and the Senior Preferred
Director (Mr. Blum) hold office until the annual meeting in 1996. Officers
serve at the discretion of the Board of Directors. The business address of
each of the executive officers and directors is 3055 Triad Drive, Livermore,
California 94550.
Mr. William W. Stevens is a founder of the Company and has been Chairman
of the Board since 1972. Mr. Stevens served as President and Chief Executive
Officer from inception until September 1985, and as Corporate Treasurer from
inception until December 1980.
Mr. Henry M. Gay is a founder of the Company and was Vice President,
Marketing until December 1980. He has been a director since 1972 and was
Corporate Secretary from 1972 to September 1987.
Mr. George O. Harmon was elected a director of the Company in March 1986.
Mr. Harmon has been the President and Chief Executive Officer of Harmon
Associates International, Inc., a management consulting and executive search
corporation since March 1980.
Mr. Richard C. Blum became a director of the Company in August 1993.
Mr. Blum is the President and Chairman of Richard C. Blum & Associates, L.P.,
a merchant banking and registered investment management company he founded in
1975.
Mr. James R. Porter joined the Company as President and Chief Executive
Officer and was elected a director of the Company in September 1985.
Mr. Shane Gorman joined the Company as a sales representative in 1972 and
has held several progressive management positions, including General Manager,
Automotive Division, General Manager, Dental Division and Vice President and
General Manager, Automotive Division. He became Executive Vice President in
September 1992.
Mr. Thomas A. King joined the Company in April 1989 as Vice President,
Product Development and became Vice President, Product Development and
Manufacturing in October 1993.
Mr. Stanley F. Marquis joined the Company in January 1980 as Director of
Triad Systems Financial Corporation. In August 1983 he was elected President,
Triad Systems Financial Corporation and in September 1987 he was elected
Treasurer of Triad. In December 1994 he was promoted to Vice President,
Finance, Chief Financial Officer and became Corporate Secretary.
Mr. Edward Molkenbuhr joined the Company in September 1993 as Vice
President and General Manager of the Company's new Service Dealer Division.
Prior to joining Triad, he served as President and Chief Executive Officer of
Amicus Information Services from November 1992 to May 1993. From January 1983
to November 1992, he served in a number of key senior positions with ADP,
Inc. where his most recent position was Senior Vice President of Data Services.
Mr. Thomas J. O'Malley joined the Company in January 1981 as Director of
Administration and was elected Vice President, Administration in August 1983.
Mr. Richard J. Savage joined the Company in June 1991 as National Sales
Manager, was promoted to General Manager of the Company's Automotive Division
in September 1992 and became Vice President and General Manager, Automotive
Division in September 1993. Prior to joining Triad, he spent four years with
Stenograph Corporation as Senior Vice President of Marketing.
Mr. Chad G. Schneller joined the Company as Vice President and General
Manager, Hardgoods Division in July 1994. Prior to joining Triad, he served as
President and Chief Executive Officer of Harvest Software from January 1991 to
December 1993, and was Senior Vice President of Metaphor Computer Systems from
May 1987 to December 1990.
Mr. Donald C. Wood joined the Company as Vice President and General
Manager, Information Services Division in June 1990. Prior to joining Triad,
he spent 22 years with Donnelly Marketing, a division of the Dun & Bradstreet
Corporation. His most recent position was Senior Vice President, Information
Services.
Mr. Dan F. Dent joined the Company in January 1993 as Director of Field
Operations and became General Manager, Customer Support Services Division in
October 1994. Prior to joining Triad, he was Vice President, Customer Support
Services at Ultimate from July 1991 to December 1992. From August 1984 to June
1991 he held a variety of senior service management positions at Motorola
Codex, where his most recent position was Vice President, Field Engineering.
Mr. Bruce M. Blanco joined the Company in April 1984 as Financial
Manager of Triad Systems Financial Corporation. In January 1985 he became
Revenue Systems Manager and he has been Controller since May 1988.
ITEM 11. Executive Compensation
There is incorporated by reference the information under the caption
"EXECUTIVE COMPENSATION AND OTHER MATTERS" in the definitive Proxy Statement
to be filed by Triad within 120 days of the end of Triad's fiscal year
pursuant to Regulation 14A.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
There is incorporated by reference the information under the caption of
"STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the
definitive Proxy Statement to be filed by Triad within 120 days of the end of
Triad's fiscal year pursuant to Regulation 14A.
ITEM 13. Certain Relationships and Related Transactions
There is incorporated by reference the information under the caption
"EXECUTIVE COMPENSATION AND OTHER MATTERS" in the definitive Proxy Statement
to be filed by Triad within 120 days of the end of Triad's fiscal year
pursuant to Regulation 14A.
- - - ------------------------------------------------------------------------
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
as amended, the undersigned Registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into the Registrant's
Registration Statements on Form S-8, Nos. 33-52101 (filed January 31, 1994),
33-60320 (filed March 30, 1993), 33-40945 (filed May 30, 1991), 33-40875
(filed May 29, 1991), 33-38540 (filed January 7, 1991), 2-88436 (filed
December 15, 1983), 33-2427 (filed November 24, 1985), 33-15219 (filed
June 19, 1987), 33-20239 (filed February 22, 1988), 33-33553 (filed
February 21, 1990) and 33-33554 (filed February 21, 1990).
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) Financial Statements, Schedules and Exhibits
(1) Consolidated Financial Statements
The following consolidated financial statements of Triad Systems
Corporation and subsidiaries (including Triad Financial), and related notes,
together with the report thereon of Coopers & Lybrand L.L.P., independent
accountants, included in the Annual Report are incorporated herein by
reference.
</TABLE>
<TABLE>
<CAPTION>
Annual Report
Page Number
-------------
<S> <C>
Consolidated Statements of Income for the years ended
September 30, 1992, 1993 and 1994 ......................... 12
Consolidated Balance Sheets at September 30, 1993 and 1994 ... 13
Consolidated Statements of Cash Flows for the years ended
September 30, 1992, 1993 and 1994 ......................... 14
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended September 30, 1992, 1993 and 1994 ..... 15
Notes to Consolidated Financial Statements ................... 16-22
Corporate Responsibility Statement ........................... 23
Report of Independent Accountants ............................ 23
</END TABLE>
</TABLE>
<TABLE>
<CAPTION>
(2) Consolidated Financial Statements Schedules in Form 10K Report
<S> <C>
Report of Independent Accountants ............................ 17
VIII Valuation and Qualifying Accounts ...................... 18
IX Short-Term Borrowings .................................... 19
X Supplementary Income Statement Information ................ 20
</END TABLE>
In accordance with the rules of Regulation S-X, the other required
schedules are not submitted because (a) they are not applicable or required,
or (b) the information required to be set forth therein is included in the
financial statements, or notes thereto.
Separate financial statements of the Registrant are omitted because the
Registrant is primarily an operating company and all consolidated
subsidiaries are totally held and are not indebted to any person, other than
the Registrant, in an amount that is in excess of 5% of total consolidated
assets.
(3) Exhibits
See Index to Exhibits, pages 21-22.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last quarter
of the fiscal year ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TRIAD SYSTEMS CORPORATION
December 20, 1994 By: /s/ James R. Porter
- - - ------------------ -------------------------
Date James R. Porter
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
- - - ------------------------ ------------------------------ --------------
<S> <C> <C>
/s/ JAMES R. PORTER President
- - - ------------------------ (Principal Executive Officer)
(James R. Porter)
/s/ STANLEY F. MARQUIS Vice President
- - - ------------------------ (Principal Financial Officer)
(Stanley F. Marquis)
/s/ BRUCE M. BLANCO Corporate Controller
- - - ------------------------ (Principal Accounting Officer)
(Bruce M. Blanco)
/s/ WILLIAM M. STEVENS Chairman of the Board
- - - ------------------------
(William M. Stevens)
/s/ HENRY M. GAY Director
- - - ------------------------
(Henry M. Gay)
/s/ GEORGE O. HARMON Director
- - - ------------------------
(George O. Harmon)
/s/ RICHARD C. BLUM Director
- - - ------------------------
(Richard C. Blum)
</END TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Triad Systems Corporation
Livermore, California
Our report on the consolidated financial statements of Triad Systems
Corporation and subsidiaries has been incorporated by reference in this Form
10-K from page 23 of the 1994 Annual Report to Stockholders of Triad Systems
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedules listed in the
index on page 15 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
October 18, 1994
</TABLE>
<TABLE>
TRIAD SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
(Dollars in thousands)
- - - ------------------------------------------------------------------------
COL A COL B COL C COL D COL E
- - - ------------------------ ---------- ---------- --------- ----------
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- - - ------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended
September 30, 1992:
Allowance for doubtful
accounts and system
returns $1,637 $6,549 $7,070(A) $1,116
====== ====== ====== ======
Product warranty costs(B) $329 $1,598 $1,541 $386
====== ====== ====== ======
Inventory valuation $1,238 $675 $610 $1,303
====== ====== ====== ======
Year ended
September 30, 1993:
Allowance for doubtful
accounts and system
returns $1,116 $6,806 $6,145(A) $1,777
====== ====== ====== ======
Product warranty costs(B) $386 $1,695 $1,519 $562
====== ====== ====== ======
Inventory valuation $1,303 $743 $1,108 $938
====== ====== ====== ======
Year ended
September 30, 1994:
Allowance for doubtful
accounts and system
returns $1,777 $6,819 $6,445(A) $2,151
====== ====== ====== ======
Product warranty costs(B) $562 $1,079 $1,380 $261
====== ====== ====== ======
Inventory valuation $938 $ 595 $ 875 $658
====== ====== ====== ======
- - - -------------------------------------
<FN>
(A) Balances written off during year and transfer of reserves to other
liabilities to provide for recourse on discounted leases.
(B) The estimated cost of warranty repairs is added to the reserve at the
time the products are sold and actual costs deducted as incurred.
</END TABLE>
</TABLE>
<TABLE>
TRIAD SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE IX
SHORT-TERM BORROWINGS
<CAPTION>
(Dollars in thousands except percentage calculations)
- - - --------------------------------------------------------------------------
- - - -------------
COL A COL B COL C COL D COL E COL F
- - - ------------------ ------- -------- -------- --------- ----------
Maximum Average Weighted
Weighted amount amount average
average out- out- interest
Category of Balance interest standing standing rate
aggregate at end rate at during during during
short-term of end of the the the period
borrowings period period period period(B) period(C)
- - - ------------------ ------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended
September 30, 1992:
Payable to Banks
for Borrowings(A) $ -- --% $2,500 $1,189 7.4%
===== ==== ====== ====== ====
Year ended
September 30, 1993:
Payable to Banks
for Borrowings(A) $ -- --% $6,750 $2,756 7.0%
===== ==== ====== ====== ====
Year ended
September 30, 1994:
Payable to Banks
for Borrowings(A) $ -- --% $7,800 $3,000 7.6%
===== ==== ====== ====== ====
- - - -------------------------------------
<FN>
(A) See Note 11 of Notes to Consolidated Financial Statements.
(B) The average borrowings are calculated by dividing the number of days
outstanding per borrowings by the total number of days outstanding for
all borrowings, multiplied by the principal borrowing.
(C) The weighted average interest rate is the sum of all weighted average
interest rates per borrowings and is calculated by dividing the number of
days outstanding by the total number of days outstanding for all bor-
rowings, multiplied by the interest rate per borrowing.
</END TABLE>
</TABLE>
<TABLE>
TRIAD SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For The Three Years Ended September 30,
<CAPTION>
(Dollars in thousands)
- - - -----------------------------------------------------------------------------
COL A COL B
- - - -----------------------------------------------------------------------------
Charged to costs and expenses
-------------------------------------------
Description 1992 1993 1994
- - - ------------------------- ------ ------ ------
<S> <C> <C> <C>
Advertising costs $1,124 $1,125 $1,187
====== ====== ======
Amortization of tangible assets
and capitalized software $3,461 $3,948 $3,709
====== ====== ======
- - - --------------------------------
</END TABLE>
The other items required to be disclosed in Schedule X are either provided in
the Notes to Consolidated Financial Statements, or are less than one percent
of revenues.
</TABLE>
<TABLE>
EXHIBIT INDEX FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1994
<CAPTION>
Exhibit Sequentially
Number Numbered Page
- - - -------- -------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation.
3.2 Triad Systems Corporation, a Delaware corpor-
ation, amended and restated Bylaws incorporated
by reference from Exhibit 3.4 to the Company's
Registration Statement on Form S-4 (33-53038)
(the "Form S-4").
4.1 Senior Floating Rate Note Indenture dated as of
August 1, 1992, between the Company and Security
Pacific National Trust Company (New York), as
Trustee, including form of Fixed Rate Notes,
incorporated by reference from Exhibit 4.1 to
the Company's Current Report on Form 8-K filed
August 17, 1992.
4.2 Amended and Restated Rights Agreement dated as
of December 6, 1993, between the Company and
Chemical Bank of California, as Rights Agent
(including as exhibits the form of Rights
Certificate and the form of Summary of Rights to
Purchase Common Stock).
4.4 Purchase Agreement dated July 2, 1992, between
the Company and purchasers of 12.25% Senior
Notes due 1999, as amended by the Amendment and
Consent to Documents dated as of August 3, 1992,
incorporated by reference from Exhibit 10.1 to
the Company's Current Report on Form 8-K filed
August 17, 1992.
4.5 Purchase Agreement dated July 2, 1992, between
the Company and purchasers of Floating Rate
Senior Notes due 1997, incorporated by reference
from Exhibit 10.2 to the Company's Current Report
on Form 8-K filed August 17, 1992.
* 10.1 Triad Systems Corporation Amended and Restated
1982 Stock Option Plan as amended on October 22,
1993, incorporated by reference from Exhibit 10.1
to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
10.2 Form of Indemnification Agreement, incorporated
by reference from Exhibit 10.4 to the Company's
Registration Statement on Form S-2 (File No.
33-2966) filed July 3, 1989 (the "1989 Form-2
Registration Statement").
* 10.3 Nonqualified Stock Option Agreement between the
Company and James R. Porter dated January 13,
1987, incorporated by reference from Exhibit
10.5 to the 1987 Form S-2 Registration
Statement, (File No. 33-13599) (the "1987
Company's Form S-2 Registration Statement").
10.4 Development Agreement between the Company and
the City of Livermore dated December 2, 1985,
incorporated by reference from Exhibit 10.5 to
the 1987 Form S-2 Registration Statement.
10.5 Subdivision Improvement Agreement between the
Company and the City of Livermore dated
December 2, 1985, incorporated by reference
from Exhibit 10.7 to the 1987 Form S-2
Registration Statement.
10.6 Mortgage between Variable Annuity Life
Insurance Company and 3055 Triad Drive dated
August 23, 1988, incorporated by reference from
Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended
September 30, 1988 (the "1988 Form 10-K").
* 10.7 Nonqualified Stock Option Agreement between
the Company and James R. Porter dated as of
February 17, 1987, incorporated by reference
from Exhibit 10.7 of the 1988 Form 10-K.
* 10.8 Nonqualified Stock Option Agreement between
the Company and James R. Porter dated
November 12, 1988, incorporated by reference
from Exhibit 10.8 of the 1988 Form 10-K.
* 10.9 Triad Systems Corporation 1990 Stock Option
Plan as amended on October 22, 1993, incor-
porated by reference from Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
* 10.10 Triad Systems Corporation Amended and
Restated Outside Directors Stock Option Plan,
incorporated by reference from Exhibit 10.10
to the Company's Annual Report on Form 10-K
for the fiscal year ended September 10, 1991.
10.11 Revolving Credit Loan Agreement dated as
of June 30, 1992, as amended, between the
Company and Plaza Bank of Commerce,
incorporated by reference from Exhibit 10.3
to the Company's Current Report on Form 8-K
filed August 17, 1992.
10.12 Unit Purchase Agreement dated as of
July 2, 1992, between the Company,
Richard C. Blum & Associates, Inc. and
certain purchasers, together with the First
Amendment to Unit Purchase Agreement dated
as of August 3, 1992, and the form of
irrevocable Proxy, incorporated by reference
from Exhibit 10.4 to the Company's Current
Report on Form 8-K filed August 17, 1992.
10.13 Unit Certificate evidencing Units to pur-
chase Preferred Stock and Warrants,
together with Form of Warrant Certificate,
attached as Exhibit A thereto, incorporated
by reference from Exhibit 3.2 to the
Company's Current Report on Form 8-K filed
August 17, 1992.
10.14 Registration Rights Agreement between the
Company and certain purchasers under the
Unit Purchase Agreement dated as of
August 3, 1992, incorporated by reference
from Exhibit 10.5 to the Company's
Current Report on Form 8-K filed
August 17, 1992.
10.15 Grant Agreement between the Industrial
Development Authority and Triad Systems
Ireland Limited, Triad Systems Corporation
and Tridex Systems Limited and related
agreements, incorporated by reference from
Exhibit 10.15 to the 1992 Form S-4
Registration Statement.
10.16 Cancellation of Development Agreement between
the Company and the City of Livermore dated
July 15, 1993, incorporated by reference from
Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the fiscal year ended
September 30, 1993.
10.17 Amended and Restated Subdivision Improvement
Agreement between the Company and the City of
Livermore dated May 12, 1993, incorporated by
reference from Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the fiscal
year ended September 30, 1993.
* 10.18 Supplemental Deferred Compensation Plan
between the Company and a select group of
Triad Key Employees and their beneficiaries
dated April 1, 1994.
* 10.19 Amendment to Amended and Restated 1982 Stock
Option Plan dated April 25, 1995.
11.1 Computation of Earnings per share. 23
12.1 Statement regarding computation of ratio of
earnings to fixed charges, incorporated by
reference from Exhibit 12.1 to the 1992 Form
S-4 Registration Statement.
13.1 1994 Annual Report to Stockholders. 28-55
21.1 Subsidiaries. 24
23.1 Consent of Independent Accountants. 25
- - - -----------------------------
<FN>
* Compensatory or employment agreement.
</END TABLE>
</TABLE>
<TABLE>
Exhibit 11.1
TRIAD SYSTEMS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
For The Three Years Ended September 30,
<CAPTION>
1992 1993* 1994
------- ------- ------
(Amounts in thousands except
per share data)
<S> <C> <C> <C>
Calculation of number of shares
entering into computations
Weighted average shares
outstanding 11,307 12,162 12,995
Assumed conversion of
preferred stock and exercise
of warrants 495 3,137 3,137
------ ------ ------
11,802 15,299 16,132
Net effect of dilutive stock
options and warrants based
on the average stock price 2,148 1,638 1,286
------ ------ ------
Average primary shares
outstanding 13,950 16,937 17,418
Net effect of dilutive stock
options and warrants based
on the ending stock price 139 11 3
------ ------ ------
Average fully diluted shares
outstanding 14,089 16,948 17,421
====== ====== ======
Income before extraordinary
charge $3,520 $5,065 $7,379
Net interest costs associated
with assumed retirement of
debt 300 96 63
------ ------ ------
Adjusted income before extra-
ordinary charge 3,820 5,161 7,442
Extraordinary charge 1,423 -- 143
------ ------ ------
Adjusted net income $2,397 $5,161 $7,299
====== ====== ======
Earnings per share
Primary
Income before extraordinary
charge $ .27 $ .31 $ .43
Net income .17 .31 .42
Fully diluted
Income before extraordinary
charge $ .27 $ .30 $ .43
Net income .17 .30 .42
<FN>
* The Company adopted Statement of Financial Accounting Standards 109
(SFAS 109), "Accounting for Income Taxes," the effects of which were
applied retroactively to 1993. The 1993 earnings per share (EPS) have
been restated to reflect the change in net income from that previously
reported.
</END TABLE>
</TABLE>
<TABLE>
Exhibit 21.1
TRIAD SYSTEMS CORPORATION
SUBSIDIARIES
<CAPTION>
State or Other
Jurisdiction of
Incorporation or
Name Organization
- - - ----------- ----------------
<S> <C>
Triad Systems Financial Corporation California
Tridex Systems Ltd. United Kingdom
Tridex Leasing Ltd. United Kingdom
Triad Systems Ireland Ltd. Ireland
Triad Systems Canada, Ltd. Canada
3055 Triad Dr. Corp. California
Corporate Data Systems Corp., d/b/a loadSTAR Systems New Jersey
</END TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Triad Systems Corporation and subsidiaries on Form S-8 (File Nos. 33-52101,
33-60320, 33-40945, 33-40875, 33-38540, 33-33554, 33-33553, 33-20239,
33-15219, 33-2427 and 2-88436) of our report dated October 18, 1994, on our
audits of the consolidated financial statements and financial statement
schedules of Triad Systems Corporation and subsidiaries as of September 30,
1992, 1993 and 1994, and for each of the years in the period ended
September 30, 1994, which report is included in the Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
October 18, 1994
</TABLE>
Triad
The Information Company
for the
Automotive
and
Hardgoods
Markets
1994 Annual Report
Corporate Profile
TRIAD is the
information
management
company serving
the automotive
aftermarket
and hardgoods
industries.
<TABLE>
Selected Financial Data
<CAPTION>
For the Years Ended September 30
(Amounts in thousands except per share
and employee data) 1994 1993 1992 1991 1990
- - - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Income Data
Revenues
Systems $ 72,910 $ 64,069 $ 63,820 $ 52,784 $ 63,813
Customer support services 59,733 59,509 61,063 62,127 60,484
Information services 24,436 20,586 18,127 15,338 12,879
Finance 10,199 8,654 9,562 7,270 7,511
-------- -------- -------- -------- --------
Total revenues $167,278 $152,818 $152,572 $137,519 $144,687
Gross margins
Systems 52.8% 52.1% 49.8% 50.0% 54.8%
Services 40.8% 41.8% 41.7% 41.8% 39.3%
Total gross margins 49.3% 49.4% 48.7% 48.0% 49.3%
Operating income $ 19,361 $ 15,822 $ 18,013 $ 15,781 $ 19,852
Gains from sale of land -- 652 -- 580 --
Income before extraordinary 7,379 5,065 3,520 2,085 3,581
charge
Net income 7,236 5,065 2,097 2,085 3,581
Primary earnings per share
Income before extraordinary $ .43 $ .31 $ .27 $ .18 $ .31
charge
Net income .42 .31 .17 .18 .31
Fully diluted earnings per
share
Income before extraordinary .43 .30 .27 .18 .31
charge
Net income .42 .30 .17 .18 .31
Balance Sheet Data
Total assets $136,363 $131,379 $124,175 $124,279 $129,379
Total debt 63,406 72,352 71,896 96,424 100,871
Stockholders' equity (deficit) $ 12,141 $ 3,114 $(2,649) $(25,395) $(28,988)
Other Data
Net income as a percent of 4.3% 3.3% 1.4% 1.5% 2.5%
revenue
Return on assets 5.5% 4.0% 2.8% 1.6% 2.6%
Product development costs
Capitalized software $ 3,142 $ 2,840 $ 3,347 $ 3,677 $ 3,716
Product development expense 8,022 8,118 7,483 7,718 8,025
-------- -------- -------- -------- --------
Total product development $ 11,164 $ 10,958 $ 10,830 $ 11,395 $ 11,741
costs
Capital expenditures $ 3,416 $ 3,029 $ 3,116 $ 2,446 $ 2,151
Depreciation and amortization 8,087 8,423 9,912 8,521 9,467
Number of employees 1,449 1,391 1,409 1,356 1,407
Common shares outstanding 13,626 12,484 11,710 11,088 10,584
Amounts for 1993 have been restated (Note 17).
</END TABLE>
Pictured is a graph which charts the number of automotive counter positions
over the past four years. The number of automotive counter positions is
represented by the vertical axis and the years are represented by the
horizontal axis. The points on the graph are as follows: 19,346, year 1991;
23,171, year 1992; 26,893, year 1993; 29,228, year 1994.
Pictured is a graph which charts the dollars of equipment financed in millions
over the past four years. The dollars of equipment financed is represented by
the vertical axis and the years are represented by the horizontal axis. The
points in millions on the graph are as follows: $29.7, year 1991; $37.4,
year 1992; $42.4, year 1993; $51.1, year 1994.
Pictured is a graph which charts the information services revenues in
thousands over the past four years. The information services revenues dollars
are represented by the vertical axis and the years are represented by the
horizontal axis. The points in millions are as follows: $15.3, year 1991;
$18.1, year 1992; $20.6, year 1993; $24.4, year 1994.
TRIAD creates specific information-management tools to meet the business needs
of its served industries, providing customers at every step of the AUTOMOTIVE
AFTERMARKET and HARDGOODS distribution chains with a growing complement of
innovative solutions.
</TABLE>
<TABLE>
<CAPTION>
TRIAD HARDGOODS STEPS TO IMPROVING TRIAD AUTOMOTIVE
PRODUCTS AND SERVICES INDUSTRY EFFICIENCY PRODUCTS AND SERVICES
<S> <C> <C>
Custom Services Customer/Supplier Custom Services
Partnerships
Vista Market Facts On-line MarketPACE
Competitive Analysis
Best Sellers Market Specific MarketPACE Inventory
Inventory Tune-up
Sierra Direct, Sierra Talk EDI & Paperless Paperless Warehouse,
Distribution Telepart
Sierra POS, FastStart Electronic Catalogs, Parts and Labor
Barcodes Databases,
Telepricing, LaserCat
Eagle,Eagle LS POS,Distribution and Prism, ServiceWriter,
Service Management loadSTAR, Warehouse
Systems Systems
<ENDTABLE>
PROGRESS REPORT TO STOCKHOLDERS AND EMPLOYEES
There is a picture of the President and Chief Executive Officer, Jim Porter
standing in a hardware store.
I'M PLEASED TO REPORT that Triad is in its strongest financial condition and
operational position since our successful 1989 hostile takeover defense.
OUR 1994 ACHIEVEMENTS, detailed in this Annual Report, include a third
consecutive year of record revenues and a 22% increase in operating income.
Operationally, we have significantly bolstered our position as the information
management company of choice in our served industries.
GOING FORWARD, WE WILL FURTHER pursue our vision of linking the segments of
the automotive aftermarket and hardgoods distribution chains with innovative,
efficiency rich products and services that offer the greatest revenue growth
potential.
WE ARE WELL ALONG THE WAY toward that goal. We reached a major milestone in
1994 as revenues from our emerging businesses - primarily hardgoods, auto-
motive service dealer, point of sale transaction analysis and related support
and leasing operations - surpassed those of our core operations.
OUR LEADING - AND EXPANDING - SYSTEMS presence in our markets is the
foundation for our emerging businesses and the attractive revenues associated
with software and database offerings. We have completed the transition to open
systems technology and decision-driven software in each market. The Triad
Prism platform is receiving a strong automotive aftermarket reception, while
the hardgoods industry is showing a steadily growing awareness of the benefits
of our Eagle family of systems.
OUR VISION OF ESTABLISHING a presence across every tier of the automotive
aftermarket and hardgoods industry - from manufacturer to end-user - became a
reality in 1994. While both point of sale transaction analysis businesses -
Vista in the hardgoods and lumber industries and MarketPACE in the automotive
aftermarket - are in their embryonic stages, manufacturer acceptance of each
grows steadily. These high-potential businesses target two new customer
bases - manufacturers of automotive parts and of hardlines products. At
year-end, more than 1,400 hardware customers and approximately 2,000 auto-
motive jobbers had agreed to the extraction of data from their systems for our
compiling, analyzing and marketing of this unique and vital information to a
growing roster of manufacturers and distributors.
WE HAVE MADE these substantial strides in repositioning Triad as an infor-
mation-oriented company despite the constraints of an $80 million debt burden
from our successful takeover defense.
SINCE 1989, WE HAVE invested more than $36 million in new products and new
businesses.
MEANWHILE, WE HAVE TO DATE reduced the debt associated with keeping Triad a
public company by more than half, to below $35 million. We have also improved
stockholders' equity from a negative $34 million in 1989 to a positive $12
million at year-end 1994.
WE HAVE OVERCOME SIGNIFICANT hurdles en route to our greatly improved opera-
tional and financial positions. Consolidation in the automotive aftermarket
left fewer
warehouse distributors and jobbers in a well-automated market. However,
consolidation also brought the opportunity to market new products and services
to the resulting larger operations, such as our new product, The Paperless
Warehouse, for distributors and our UNIX-based Triad Prism for jobbers.
RECENT TECHNOLOGICAL ADVANCEMENT has reduced the prices customers pay for
products and support services, impacting revenues for a time. New products
and support programs have begun reversing the revenue trend, however.
THE INCURSION OF LARGE DISCOUNT chains created competitive pressures on the
independent hardware retailer. Independents are reacting by automating their
operations to improve efficiency and strengthen their competitive posture,
encouraged to modernize by the large distributors and cooperatives. Approxi-
mately half of the top 60 hardware distributors endorse Triad products and
services, along with five of the seven leading lumber and building materials
buying groups. We also continue to enjoy strong relationships with the four
major hardlines cooperatives.
WE ARE ESPECIALLY PLEASED by the performance of our expanding line of products
and services for the independent automotive repair market, which offers the
greatest revenue growth potential in the automotive aftermarket.
THE REPAIR SEGMENT IS a vital end-link in the automotive parts distribution
chain, representing approximately 185,000 potential users of Triad systems
and databases. We are rapidly building market share in this segment, as
evidenced by a 59% revenue increase in 1994 to $8.1 million. All told, Triad's
industry standard automotive parts and labor databases are in use at more than
5,700 locations nationally, including many major retail repair chains.
OUR DEVELOPING BUSINESSES clearly define our transformation over the past five
years. It has been a challenging and sometimes frustrating period, demanding
prudent management of available resources and constant attention to detail and
changing customer needs.
TRIAD PERSONNEL AT EVERY LEVEL have responded well to these challenges,
guided by a seasoned management team with a clear understanding of our goals
and the skills and commitment to attaining them.
OUR OUTLOOK IS FOR CONTINUED steady progress as we focus on realizing our
vision for Triad as the preeminent provider of unique products and services
across our served industries. Our experience in recent years will serve us
well as we continue to address our markets' information-management needs and
create viable solutions for them.
I THANK YOU FOR YOUR PATIENCE and support as we continue to invest in Triad's
transformation, and look forward to sharing our progress with you.
/s/ James R. Porter
- - - ------------------------------
James R. Porter
President & Chief Executive Officer
December 16, 1994
OUR TRIAD PRISM, EAGLE AND SERVICE DEALER SYSTEMS ARE DRIVING EXPANSION OF OUR
LEADING MARKET PRESENCE AND ARE THE FOUNDATION FOR FUTURE INFORMATION-DRIVEN
REVENUES.
SINCE 1989, TRIAD HAS INVESTED MORE THAN $36 MILLION IN NEW PRODUCTS AND NEW
BUSINESSES.
TRIAD'S NEW BUSINESSES CLEARLY DEFINE ITS TRANSFORMATION OVER THE LAST FIVE
YEARS.
New products
Focus On
Improving
Industry
Efficiency
Its open-architecture platforms performing strongly, Triad is concentrating on
new products and services that inject greater information-management
efficiencies across its served markets. Innovative 1994 introductions include
The Paperless Warehouse product for automotive distributors and the software
rich second phase of the Triad Prism for jobbers, which began shipping in
early 1995.
Another key offering is the Triad ServiceWriter product, introduced in 1994 to
the automotive repair market of approximately 185,000 potential customers. The
Triad ServiceWriter product accelerates the parts and labor estimating
process, utilizing Triad's comprehensive and accurate databases. It also
electronically transmits the order of needed parts, speeding completion of
the repair.
Triad already has about 5,700 subscribers to its parts and labor-estimating
databases. Included are major retail chain outlets and about 1,700 independent
service dealers receiving monthly Triad database updates.
The Triad ServiceWriter product introduces speed, accuracy and consistency to
the repair-estimating process
This is a picture of an automotive service technician assisting a customer in
estimating car repairs using the Triad ServiceWriter product.
Service Dealer Market
The primary target markets of the Service Dealer business are presented in a
chart. They are as follows: General Auto Repair and Tire 45%, Service Stations
29%, New Car Dealers 7%, Specialty Repair 4%, others 15%.
Emerging Businesses Surpass
Revenues Of Core Operations
A third consecutive year of record revenues in 1994 was accompanied by an
important milestone when, for the first time, revenues from Triad's emerging
businesses surpassed those of its core operations.
Triad has identified its hardgoods, service dealer and point of sale trans-
action analysis businesses as having the greatest growth potential, along with
related database, customer support and leasing programs. Triad's core businesses
consist primarily of its automotive warehouse and jobber systems operations and
the customer services and leasing activities associated with them.
The growing momentum of the emerging businesses is underscored by their 17%
revenue growth in 1994 to $85 million. Triad's core operations registered a 3%
revenue improvement to $82 million, indicating a continuing strengthening of
the company's systems presence and creating additional marketing opportunities
for new products and services.
Pictured is a graph which charts both the core and emerging businesses'
revenues in millions over the past six years. The revenue dollars are
represented on the vertical axis and the years are represented by the hori-
zontal axis. The points in millions are as follows: Emerging revenues -
$44, year 1989; $47, year 1990; $52, year 1991; $62, year 1992; $73,
year 1993; $85, year 1994; Core revenues - $104, year 1989; $97, year 1990;
$86, year 1991; $90, year 1992; $80, year 1993; $82, year 1994.
Point Of Sale Services
Drive Entry Into New Markets
Triad is pioneering point of sale transaction analysis in the automotive after-
market and hardgoods industries, leveraging its strong systems presence to
provide customers with previously unavailable product movement performance.
The services extend Triad's presence across every tier of its markets, from
manufacturer to distributor to retailer or end-user.
Vista was introduced to the hardgoods industry in late 1993, and has seen its
roster of prominent manufacturer customers grow to nearly 30. MarketPACE was
introduced to the automotive aftermarket in mid 1994, and by year-end had 15
manufacturers and distributors under contract for various services.
Approximately 2,000 jobbers and more than 1,400 hardgoods customers have
agreed to have transaction data extracted from their Triad systems. Processed
and analyzed by Triad specialists, this timely point of sale data provides
manufacturers and distributors with previously-unavailable insight into sales,
pricing, market share and product line activity.
Pictured is a typical graph that is produced by the Vista service for the
hardware industry. The graph is a 12 month bar graph which depicts the sea-
sonal trends of Clawhammer sales.
A representation of the types of services available with MarketPACE are
identified as inventory tune-up, special analysis services, and on-line change-
over. Sources of information to provide these services include Triad's
Electronic Catalog, jobber's inventory and sales history, vehicle population
data and Triad's parts and prices data.
Triad Systems Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
</TABLE>
<TABLE>
Results of Operations Percentages of Revenues
for the Years Ended
September 30
--------------------------
<CAPTION>
1994 1993 1992
- - - -----------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Costs and expenses
Cost of systems and services 50.7 50.6 51.3
Marketing 26.3 26.3 25.8
Product development 4.8 5.3 4.9
General and administrative 6.3 6.4 6.2
Other operating expense 0.3 1.1 --
Total costs and expenses 88.4 89.7 88.2
Operating income 11.6 10.3 11.8
Interest and other expense 4.5 5.0 8.2
Income before taxes and
extraordinary charge 7.1 5.3 3.6
Provision for income taxes 2.7 2.0 1.3
Income before extraordinary charge 4.4 3.3 2.3
Extraordinary charge,net of taxes 0.1 -- 0.9
Net income 4.3% 3.3% 1.4%
</END TABLE>
Fiscal 1994 Compared with Fiscal 1993
Revenues
Revenues in 1994 were an all-time high of $167.3 million, 9% above 1993's
$152.8 million, the third consecutive year of record sales. Revenue
improvement occurred in all areas of the business. Combined services revenues
grew 5% to $84.2 million, systems revenues increased 14% to $72.9 million and
finance revenues improved by 18% to $10.2 million.
Services
The 5% growth in services revenues resulted from a 19% increase in Information
Services revenues to $24.4 million and a slight improvement in Customer Sup-
port Services revenues to $59.7 million from $59.5 million.
Strong Electronic Catalog sales and the emergence of the Point of Sale (POS)
movement analysis business generated the increase in Information Services
revenues, partially offset by a 3% decrease to $5.4 million in Telepricing
database revenues.
Electronic Catalog revenues were $18.7 million, $3.7 million or 24% above last
year, due in part to large automotive chain customers who had several locations
begin service during the year. POS operations generated revenues of $.4 mil-
lion, up from $39,000 last year as this market continues to develop.
The increase in Customer Support Services revenues resulted from Business
Products revenues increasing 26% to $4.2 million, partially offset by a 1%
decrease to $55.5 million in support services revenues. Business Products
revenues, when compared to the corresponding periods in prior years, have
averaged over 20% growth each quarter for the past two fiscal years due to an
expanding customer base and a broader selection of products. Systems support
revenues have shown slight decreases the past two years as the Company has
introduced lower-cost services options.
Systems
The automotive and hardgoods businesses, coupled with third party manufac-
turing, comprise systems revenues and showed improvement when compared to last
year. Automotive revenues increased 17% to $44.7 million and hardgoods revenues
increased 2% to $26.2 million. Third party manufacturing revenues increased
$1.6 million to $2 million for the period.
The increase in automotive revenues resulted from the service dealer business
showing a 59% growth in revenues to $8.1 million. Subscribers to the service
dealer parts and labor estimating databases increased from just under 2,000
in 1993 to approximately 5,700 in 1994. Increases in automotive retail
customers provided the majority of this improvement. This success is attributed
to rapid market acceptance of this product and an increased sales force.
Another significant contributing factor to the increase in automotive revenues
was from numerous jobber customers upgrading to the Triad Prism platform.
Revenues from Prism and other upgrades increased 18% or $3.5 million to $22.7
million for the year. Since the first phase of the Triad Prism platform
introduction in July 1993, more than 500 Triad Prism systems have been instal-
led. Because of the sales focus on the Triad Prism product, new systems sales
decreased by 12% to $6.4 million.
Warehouse products provided a $.9 million increase in revenues over 1993 by
generating a record $4.8 million in revenues. Increased sales resulted from a
change to a UNIX-based product which provides customers with more system
options and computing flexibility. Additionally, the Company introduced
The Paperless Warehouse product in February and initial market acceptance has
been favorable.
Hardgoods revenues increased $.6 million to $26.2 million in 1994, reflecting
consistent sales of new systems and increased upgrade activity. Though the
sales of this business have increased over the prior year, results have been
impacted by higher than acceptable turnover in hardgoods management and the
sales force. The Company has taken measures to correct these issues.
Finance
Triad Financial revenues were $10.2 million in 1994, an 18% improvement over
the prior year, due to a $1.0 million increase in gains recognized as a result
of higher discounting. Leases discounted in 1994 were $57.4 million, up from
$37.9 million in 1993, reflecting the Company's taking advantage of higher
current yields, which normally decrease as interest rates rise.
Costs and Expenses
Gross margin as a percent of services revenues decreased by 1% to 41% in 1994.
This decrease is attributed to investments made in developing the POS movement
analysis business and in expanding the Automotive and Service Dealer support
services. Gross margin as a percent of systems revenues increased by 1% to 53%
in 1994. Margins were expected to show a greater increase but were hindered by
a reduction in the average system selling price and from an increase in lower
margin third party manufacturing business.
Marketing expenses were up $3.9 million to $44 million but remained at 26% of
sales. The increase was due primarily to a larger sales force.
Product development expenses after capitalization of software development
decreased $.1 million to $8 million. This reduction resulted from an increase
in the capitalization of development expenses related to the second phase of
the Triad Prism product.
General, administrative and other operating expenses decreased 3% to $11.1
million. The reduction in 1994 costs was attributed to a decline in legal
expenses to $.6 million in 1994 from $1.6 million in 1993. Reductions in legal
expense were partially offset by higher sales force recruiting costs.
Interest and other expense decreased $.2 million to $7.5 million, primarily as
a result of the Company retiring $7.3 million in debt during the year. Interest
expense is expected to decrease next year as the Company retired $2.9 million
of debt in October 1994 and is scheduled to retire an additional $3.9 million
in August 1995 in accordance with the debt agreement.
The early retirement of the senior fixed rate notes in 1994 generated an
extraordinary charge of $143,000 ($.01 per share) that included a premium of
$196,000, unamortized debt costs of $35,000, less taxes of $88,000.
The 1994 effective tax rate increased to 38% from 37.8% in 1993. The 1993
effective tax rate was restated to 37.8% from 28% due to the 1993 income tax
provision increase of $.8 million as a result of the Company retroactively
adopting the Statement of Financial Accounting Standards 109 (SFAS 109),
"Accounting for Income Taxes," to the beginning of fiscal year 1993.
Future Operating Results
The Company's future results will depend upon conditions in its markets that
may affect demand for its products, and upon the Company's ability to intro-
duce products and enhancements on a timely basis. Results will also be
affected by seasonal changes in product demand, market acceptance of new
products and enhancements, the size and experience of the sales force and the
mix of products sold. All could cause operating results to fluctuate,
especially on a quarterly basis.
Liquidity and Capital Resources
Management believes available cash resources, primarily generated from opera-
tions, lease discounting and credit lines, will provide adequate funds to
finance foreseeable operating needs. The Company maintains $13.8 million in
bank lines of credit and there were no borrowings at September 30, 1994.
The Company currently invests its available cash resources in the lease
portfolio of Triad Financial due to the higher yields achieved and the flex-
ibility provided to offer customers financing. At September 30, 1994, the
Company had $26 million invested in its lease portfolio and, if needed, main-
tains discounting lines to sufficiently liquidate the principal of this
investment into cash.
Triad Financial financed 61% of Triad's domestic business systems sales during
1994, as well as $11.4 million in non-Triad equipment through client lease
programs. Additionally, Triad Financial received $64 million of proceeds from
discounting leases during the year.
Limited and full-recourse discounting agreements are maintained with banks and
lending institutions. The discounting agreements contain certain restrictive
covenants which allow Triad Financial to discount only while in compliance
with such covenants. The Company is in compliance with the restrictive cove-
nants and management believes that it will maintain compliance with such
covenants in the foreseeable future. Under the discounting agreements, Triad
Financial is contingently liable for losses in the event of lessee nonpayment.
The agreements provide for limited recourse of up to 10% or full recourse at
100% of discounting proceeds, depending on the credit risk associated with
specific leases. At September 30, 1994, the contingent liability for dis-
counted leases was $19.4 million. Title to equipment discounted under the
agreements is generally pledged as collateral.
The Company's debt agreement covenants adjust to offset the impact of
accounting changes; therefore, the Company's adoption of SFAS 109, which
required balance sheet reclassifications, has not affected the Company's
ability to comply with these debt covenants.
Capital equipment expenditures were $3.4 million during 1994 and are antici-
pated to increase by approximately $1 million during 1995 as the Company is
replacing its current information systems.
During 1994, treasury stock valued at $.7 million was reacquired by the
Company from officers exchanging common shares outstanding for stock options
exercised into common shares, resulting in 143,000 additional treasury shares
in 1994. Total common shares acquired in 1994 by the Company's officers were
632,000 shares.
Working Capital
Management believes that current working capital and the Company's ability to
generate working capital by discounting its investment in Triad Financial's
lease portfolio is sufficient to meet foreseeable business needs. The Company
manages current assets, particularly cash, to maximize the return on assets.
The Company utilizes its cash to fund Triad Financial's lease portfolio, which
was $26 million at September 30, 1994, or to reduce the Company's debt level.
Current working capital has been reduced from the prior year's disclosure by
approximately $6.5 million as a result of the Company's adoption of SFAS 109.
Fiscal 1993 Compared with Fiscal 1992
Revenues
Revenues of $152.8 million in 1993 were slightly higher than record revenues
in the prior year. Services and systems revenues improved 1%, respectively,
to $80.1 million and $64.1 million. Finance revenues of $8.7 million declined
9% from 1992, when there was a higher level of discounting related to the
August 1992 refinancing of long-term debt.
Services
Information Services revenues increased 14% over 1992 to $20.6 million,
reflecting a 17% improvement in Electronic Catalog product sales to $15 mil-
lion. Increased recurring Electronic Catalog revenues were generated by the
product being delivered with nearly 1,000 LaserCat workstations and more than
700 ServiceCat workstations and Triad Service Systems in the Service Dealer
market. Approximately 87% of all new Automotive customers acquired the Elec-
tronic Catalog product with their new Triad system in 1993, compared to 90%
in 1992, and many purchased the product with upgrades to Series 12 systems.
Electronic Catalog sales to major retail Automotive market customers also
contributed to the 1993 revenue increase. Telepricing revenues increased
slightly to $5.5 million. Triad's Information Services Division serves nearly
27,000 Automotive point of sale counter positions, up 16% over 1992.
Customer Support Services revenues of $59.5 million declined 3% from 1992
revenues of $61.1 million, due in part to lower-cost Automotive program
options introduced in 1993 and fewer new jobber locations. Recurring revenues
from the Automotive jobber market were 6% below 1992. An increase in new
Hardgoods customers generated a 6% improvement in Customer Support Services
revenues from that segment, partially offsetting the revenue decline in the
jobber market.
An increase in new customers, predominantly from the Hardgoods market, and
enhanced telemarketing efforts resulted in Business Products revenues
improving 26% to a record $3.3 million. The unit provides computer forms and
supplies to Triad customers.
Systems
Hardgoods revenues rose 14% over 1992 to $25.6 million, including $6 million
in revenues from the Advantage joint marketing program with major distributors.
The Company added 14 distributors to the program in 1993, with a 32% increase
in systems sold to associated retail outlets. A 22% increase in the Hardgoods
sales force also contributed to new Hardgoods systems sales of $14.4 million,
a 36% improvement over 1992.
Automotive Division revenues of $38.1 million represented a 7% decline from
1992, primarily the result of a 15% decrease in jobber systems sales. Jobber
revenues reflected uncertain economic conditions, competitive pressures, a
reduction in sales force and a management reorganization early in the year.
Service Dealer revenues increased 58% to $5.1 million and Warehouse revenues
rose 30% to $3.8 million.
Improved Service Dealer revenues reflected a 15% increase in the number of
ServiceCat workstations sold in 1993, along with 245 units of the Triad
Service System introduced in late 1992 to provide full business management
capabilities to Service Dealer customers. The revenue improvement was achieved
with a newly created dedicated sales force and expansion of marketing efforts
into 20 additional regions nationwide.
The fourth quarter introduction of the first phase of the Triad Prism jobber
system had a positive impact on jobber revenues, generating increased upgrade
revenues through the sale of 205 units. The UNIX-based Triad Prism product
will offer new and existing customers a fully integrated system with greater
flexibility and enhanced software applications upon the release of the second
phase in early fiscal 1995.
Improved warehouse revenues reflected increased sales of the Triad Information
System, which was first offered in mid 1992 to large multiple-location
customers who require single-system solutions.
Finance
Triad Financial revenues of $8.7 million declined 9% from 1992, resulting from
a 12% decrease in discounting gains. Leases discounted in 1993 were $37.9
million compared to $42.1 million in 1992, when increased discounting
generated additional cash for the August 1992 refinancing of long-term debt.
Costs and Expenses
Gross margin as a percent of services revenues was unchanged at 42% in 1993.
Gross margin as a percent of systems sales improved to 52% from 50%, primarily
due to lower component costs and a mix of higher-margin products for Hardgoods
systems.
Marketing expenses rose 2% to $40.1 million due to costs associated with
expanded Service Dealer and Hardgoods sales forces. The increase was partially
offset by lower costs related to reduced domestic and international Automotive
jobber sales forces. Expenses also reflected increased sales force training
costs and sales efforts to market new services products.
Product development expenses after capitalization of software development were
$8.1 million, an increase of 8%. Software capitalization decreased during the
year due to fewer development projects falling within capitalization criteria.
General and administrative expenses of $9.8 million increased $.4 million over
1992 and other operating expenses of $1.6 million increased $1.5 million over
1992. Legal costs in other operating expense rose $1.6 million due to
litigation, including actions to protect the Company's intellectual property
rights.
Interest and other expense decreased $4.8 million to $7.7 million, reflecting
the refinancing of long-term debt in 1992 that resulted in more favorable
interest rates and lower average borrowings in 1993. In addition, 1993
included a gain of $.7 million from the sale of 15.3 acres of land held for
resale.
The effective tax rate decreased to 28% in 1993 (before the SFAS 109
restatement) from 36% in 1992 following the favorable conclusion of tax audits
covering fiscal 1986 through 1989.
In August 1992, the Company recorded an extraordinary charge due to the early
retirement of debt and the resulting write-off of $1.2 million in unamortized
financing costs and a $.7 million premium paid upon retirement, net of income
taxes of $.5 million.
Triad Systems Corporation
</TABLE>
<TABLE>
Consolidated Statements of Income
For the Years Ended September 30
<CAPTION>
(Amounts in thousands except per share data) 1994 1993 1992
- - - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Systems $ 72,910 $ 64,069 $ 63,820
Customer support services 59,733 59,509 61,063
Information services 24,436 20,586 18,127
Finance 10,199 8,654 9,562
-------- -------- --------
Total revenues 167,278 152,818 152,572
Costs and expenses
Systems 34,407 30,687 32,029
Services 50,359 46,606 46,197
Marketing 44,030 40,149 39,347
Product development 8,022 8,118 7,483
General and administrative 10,515 9,810 9,408
Other operating expense 584 1,626 95
-------- -------- --------
Total costs and expenses 147,917 136,996 134,559
-------- -------- --------
Operating income 19,361 15,822 18,013
Interest and other expense 7,459 7,676 12,513
-------- -------- --------
Income before income taxes and extraordinary
charge 11,902 8,146 5,500
Provision for income taxes 4,523 3,081 1,980
-------- -------- --------
Income before extraordinary charge 7,379 5,065 3,520
Extraordinary charge on repurchase of debt,
net of taxes 143 -- 1,423
-------- -------- --------
Net income $ 7,236 $ 5,065 $ 2,097
======== ======== ========
Earnings per share
Primary
Income before extraordinary charge $ .43 $ .31 $ .27
Net income .42 .31 .17
Weighted average shares 17,418 16,937 13,950
Fully diluted
Income before extraordinary charge $ .43 $ .30 $ .27
Net income .42 .30 .17
Weighted average shares 17,421 16,948 14,089
Amounts for 1993 have been restated (Note 17).
The accompanying notes are an integral part of these financial statements.
</END TABLE>
Triad Systems Corporation
</TABLE>
<TABLE>
Consolidated Balance Sheets
September 30
<CAPTION>
(Amounts in thousands except share data) 1994 1993
- - - ----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 7,963 $ 8,250
Trade accounts receivable 14,090 10,081
Investment in leases 4,152 5,874
Inventories 6,113 6,567
Prepaid expenses and other current assets 6,068 5,097
-------- --------
Total current assets 38,386 35,869
Service parts 2,434 2,104
Property, plant and equipment 27,033 26,389
Long-term investment in leases 21,836 24,306
Land for resale 25,063 25,367
Capitalized software and intangible assets 13,870 11,655
Other assets 7,741 5,689
-------- --------
Total assets $136,363 $131,379
======== ========
Liabilities
Current liabilities
Notes payable and current portion of long-term debt $ 6,773 $ 2,971
Accounts payable 8,940 9,210
Accrued employee compensation 8,090 7,348
Deferred income taxes 4,310 3,872
Other current liabilities and accrued expenses 10,189 10,170
-------- --------
Total current liabilities 38,302 33,571
Long-term debt 56,633 69,381
Deferred income taxes 23,855 20,892
Other liabilities 5,432 4,421
-------- --------
Total liabilities 124,222 128,265
-------- --------
Stockholders' Equity
Cumulative convertible preferred stock
$.01 par value; authorized 1,000,000 shares;
issued and outstanding 1,000,000 shares in
1994 and 1993; liquidation value $20 million 10 10
Common stock
$.001 par value; authorized 50,000,000 shares;
issued 13,896,000 in 1994 and 12,611,000 shares
in 1993 14 13
Treasury stock
270,000 shares in 1994 and 127,000 shares in 1993 (1,326) (592)
Capital in excess of par value 31,680 27,626
Accumulated deficit (18,237) (23,943)
-------- --------
Total stockholders' equity 12,141 3,114
-------- --------
Total liabilities and stockholders' equity $136,363 $131,379
======== ========
Amounts for 1993 have been restated (Note 17).
The accompanying notes are an integral part of these financial statements.
</END TABLE>
Triad Systems Corporation
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
For the Years Ended September 30
<CAPTION>
(Amounts in thousands) 1994 1993 1992
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Income before extraordinary charge $ 7,379 $ 5,065 $ 3,520
Adjustments to reconcile income before
extraordinary charge to net cash provided
by operating activities
Extraordinary charge on repurchase of debt,
net of taxes (143) -- (1,423)
Depreciation and amortization 8,087 8,423 9,912
Receivable and inventory loss provisions 8,264 7,549 7,224
Gains from lease discounting (5,923) (4,862) (5,529)
Gain from sale of land -- (652) --
Other 1,710 859 (191)
Changes in assets and liabilities
Trade accounts receivable (6,548) (2,212) (3,479)
Leases purchased (discounted) 6,233 (5,062) 5,917
Inventories (991) (475) 1,288
Deferred income taxes 3,401 950 1,851
Prepaid expenses and other current assets (1,512) 132 (241)
Accounts payable (764) 521 1,802
Accrued employee compensation 742 42 653
Other current liabilities and accrued
expenses 513 2,907 (3,692)
-------- -------- --------
Net cash provided from operating
activities 20,448 13,185 17,612
Cash flows from investing activities
Investment in property, plant and equipment (3,416) (3,029) (3,116)
Capitalized software (3,142) (2,840) (3,347)
Proceeds from the sale of land -- 1,720 --
Other (5,501) (3,955) (3,457)
-------- -------- --------
Net cash used in investing activities (12,059) (8,104) (9,920)
Cash flows from financing activities
Issuance of debt 40,560 38,895 48,000
Repayment of debt (50,536) (41,842) (75,627)
Proceeds from sale of common stock 2,834 1,893 1,419
Proceeds from sale of preferred stock -- -- 18,864
Dividends paid (800) (727) --
Purchase of treasury stock (734) (442) --
Other -- (90) (2,268)
-------- -------- --------
Net cash used in financing activities (8,676) (2,313) (9,612)
Net increase (decrease) in cash and
equivalents (287) 2,768 (1,920)
Beginning cash and equivalents 8,250 5,482 7,402
-------- -------- --------
Ending cash and equivalents $ 7,963 $ 8,250 $ 5,482
======== ======== ========
Supplemental disclosures of cash flow
information
Cash paid during the year for
Interest $ 7,172 $ 7,763 $ 12,987
Income taxes 881 1,517 2,424
Noncash investing and financing activities
Leases capitalized 518 -- 253
Purchase of lease portfolio -- 3,199 --
Assessment district refinancing -- 517 --
Note payable for business acquisition -- -- 1,715
======== ======== ========
Amounts for prior years have been restated (Notes 17 and 19).
The accompanying notes are an integral part of these financial statements.
</END TABLE>
Triad Systems Corporation
</TABLE>
<TABLE>
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended September 30
<CAPTION>
Number of Shares
---------------------
(Amounts in thousands) 1994 1993 1992 1994 1993 1992
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative convertible
preferred stock $ 10 $ 10 $ 10 1,000 1,000 1,000
Common stock
Beginning balance 13 12 11 12,611 11,750 11,128
Common stock issuance 1 1 1 1,285 861 622
------- ------- ------- ------ ------ ------
Ending balance 14 13 12 13,896 12,611 11,750
------- ------- ------- ------ ------ ------
Treasury stock
Beginning balance (592) (150) (150) 127 40 40
Treasury stock purchase (734) (442) -- 143 87 --
------- ------- ------- ------ ------ ------
Ending balance (1,326) (592) (150) 270 127 40
------- ------- ------- ------ ------ ------
Capital in excess of par
Beginning balance 27,626 24,399 3,647
Common stock issuance 2,833 1,893 1,419
Market rate adjustment on
dividend 870 867 145
Tax benefit of options
exercised 351 453 334
Preferred stock issuance -- 14 18,854
------- ------- -------
Ending balance 31,680 27,626 24,399
------- ------- -------
Accumulated deficit
Beginning balance (23,943) (26,920) (28,903)
Net income 7,236 5,065 2,097
Translation gains (losses) 140 (427) 164
Dividends declared on
cumulative convertible
preferred stock (800) (794) (133)
Market rate adjustment on
dividends (870) (867) (145)
------- ------- -------
Ending balance (18,237) (23,943) (26,920)
------- ------- -------
Stockholders' equity $12,141 $ 3,114 $(2,649)
(deficit) ======= ======= =======
Amounts for 1993 have been restated (Note 17).
The accompanying notes are an integral part of these financial statements.
</END TABLE>
Triad Systems Corporation
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies.
Triad Systems Corporation ("Triad") is a leading provider of business and
information management services to the automotive parts aftermarket, the
service dealer market and the hardgoods industry. The Company produces and
markets proprietary databases and software products, and designs, develops,
manufactures, markets, services and leases computer systems. The following is
a summary of the Company's significant accounting policies.
Consolidation.
The Consolidated Financial Statements include the accounts of Triad and its
wholly-owned subsidiaries, including Triad Systems Financial Corporation
("Triad Financial"), after elimination of intercompany accounts and trans-
actions.
Foreign Currency Translation.
Assets and liabilities of subsidiary operations denominated in foreign
currencies are translated at the year-end rates of exchange and the income
statements have been translated at the average rates of exchange for the year.
Local currencies are considered to be the functional currencies.
Cash and Equivalents.
Cash equivalents are short-term interest bearing instruments with maturity
dates of ninety days or less at the time of purchase.
Inventories.
Inventories are stated at the lower of cost (first-in, first-out method) or
market and include amounts which ultimately may be capitalized as equipment
or service parts.
Service Parts.
Service parts used for servicing installed equipment are stated at cost and
are depreciated over a five-year period using the straight-line method.
Property, Plant and Equipment.
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the straight-line method
over their estimated useful lives or the lease term, whichever is less. As
property, plant and equipment are disposed of, the asset cost and related
accumulated depreciation or amortization are removed from the accounts, and
the resulting gains or losses are reflected in operations.
Investment in Leases.
At the inception of a lease, the gross lease receivable, the reserve for
potential losses, the estimated residual value of the leased equipment and the
unearned lease income are recorded. The unearned lease income represents the
excess of the gross lease receivable plus the estimated residual value over
the cost of the equipment leased. Certain initial direct costs incurred in
consummating the leases, included in the investment in leases, are amortized
over the life of the lease. Leases discounted under the agreements are removed
from the balance sheet and the gains are reflected in operations.
Capitalized Software.
Costs relating to the conceptual formulation and design of software products
are expensed as product development, and costs incurred subsequent to esta-
blishing the technological feasibility of software products are capitalized.
Amortization of capitalized software costs begins when the products are avail-
able for general release to customers. Costs are amortized over the expected
product lives and are calculated using the greater of the straight line
method, generally over three or five years, or a cost per unit sold basis.
Debt and Equity Issuance Costs.
The unamortized costs associated with the issuance of debt and equity
instruments are recorded with the associated liability. Amortization is
computed according to the interest method for debt issuance costs and is
included in interest expense. Upon retirement of remaining principal balances,
the associated unamortized costs are reflected in operations.
Treasury Stock.
Purchases of the Company's common stock are valued at cost.
Revenue Recognition.
Services revenue is recognized over the period that the services are per-
formed. Systems revenue is recognized upon product shipment provided there are
no remaining significant obligations and collection is probable. Finance
revenue is recognized ratably over the lease term, except discounting gains,
which are recognized at the time of discounting.
Income Taxes.
Deferred income taxes reflect differences in reporting certain items for
financial statement and income tax purposes. Income taxes are provided on the
undistributed earnings of foreign subsidiaries that are not considered to be
permanently reinvested. Business tax credits are accounted for using the
flow-through method and accordingly, are deducted from the tax provision in
the period in which the credit arises.
Earnings Per Share.
Primary and fully diluted earnings per share are based on the average common
shares outstanding, the dilutive effect of the stock options, and the assumed
conversion of the preferred stock and exercise of warrants. Dilution from
common equivalents has been further limited under the modified treasury stock
method.
Reclassification.
Certain 1992 and 1993 amounts have been reclassified to conform to the 1994
presentation. These changes have no effect on the financial condition or
results of operations as previously reported.
Note 2. Finance Subsidiary.
Triad Financial is a wholly-owned subsidiary that purchases Triad systems and
other products and leases those products to third parties under full-payout
and direct financing leases. Triad Financial's purchases from Triad were
$39,624,000 in 1994, $35,540,000 in 1993 and $34,501,000 in 1992. Summarized
financial information of the Company's combined leasing operations, included
in the Consolidated Financial Statements, is as follows:
</TABLE>
<TABLE>
Condensed Combined Balance Sheets
September 30
<CAPTION>
(Amounts in thousands) 1994 1993
- - - -----------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ -- $ 171
Net investment in leases 25,988 30,180
Residual value retained on leases
discounted, less unearned income
of $6,584 in 1994 and $5,223 in 1993 5,544 4,163
Receivable from parent company 25,633 17,179
Other assets 2,857 2,870
------- -------
Total assets $60,022 $54,563
======= =======
Liabilities and Stockholder's Equity
Other liabilities and accrued expenses $ 8,115 $ 7,382
Deferred income 1,955 1,554
Debt 2,171 3,249
Stockholder's equity 47,781 42,378
------- -------
Total liabilities and
stockholder's equity $60,022 $54,563
======= =======
</END TABLE>
</TABLE>
<TABLE>
Condensed Combined Statements of Income
For the Years Ended September 30
<CAPTION>
(Amounts in thousands) 1994 1993 1992
- - - --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $10,199 $ 8,654 $ 9,562
Costs and expenses
Selling and administrative 2,148 2,110 1,948
Provision for doubtful accounts
and revaluation charges 2,317 3,235 3,212
------- ------- -------
Operating income 5,734 3,309 4,402
Intercompany income 3,148 2,726 2,666
------- ------- -------
Income before taxes 8,882 6,035 7,068
Provision for income taxes 3,430 1,690 2,545
------- ------- -------
Net income $ 5,452 $ 4,345 $ 4,523
======= ======= =======
</END TABLE>
Note 3. Discounting of Lease Receivables.
Limited and full recourse agreements are maintained with banks and lending
institutions under which available lines were $51,325,000 at September 30,
1994. As leases are discounted, a sale is recorded and gains, the difference
between proceeds received and the book value of the lease receivables, are
reflected in finance revenue. Proceeds from discounting of lease receivables
were $64,044,000 in 1994, $42,460,000 in 1993 and $48,607,000 in 1992. A
portion of discounting gains is deferred to offset future administration costs
for discounted leases and is amortized over the remaining lease term.
Under the discounting agreements, Triad Financial is contingently liable for
losses in the event of lessee nonpayment. The agreements provide for limited
recourse of up to 10% or full recourse at 100% of discounting proceeds,
depending on the credit risk associated with specific leases. At September 30,
1994, the contingent liability for discounted leases was $19,426,000. Title
to equipment discounted under the agreements is generally pledged as
collateral.
The discounting agreements contain restrictive covenants which allow Triad
Financial to discount only while in compliance with such covenants. The
Company is in compliance with the restrictive covenants, and management
believes that it will maintain compliance with such covenants in the
foreseeable future. The most restrictive covenant requires that both Triad
and Triad Financial be profitable each quarter. Under the terms of an
operating and support agreement with the finance subsidiary, Triad is
obligated, if necessary, to make equity contributions or subordinated loans
to enable Triad Financial to fulfill its obligations under the agreements.
Note 4. Trade Accounts Receivable.
Trade accounts receivable at September 30, 1994 and 1993 include allowances
for doubtful accounts of $1,166,000 and $991,000, respectively. Most of the
Company's customers are in the automotive parts aftermarket, the service
dealer market or the hardgoods industry.
</TABLE>
<TABLE>
Note 5. Inventories.
<CAPTION>
(Amounts in thousands) 1994 1993
- - - ---------------------------------------------------------------
<S> <C> <C>
Purchased parts $2,404 $2,607
Work in process 448 617
Finished goods 3,261 3,343
------ ------
Total inventories $6,113 $6,567
====== ======
</END TABLE>
</TABLE>
<TABLE>
Note 6. Service Parts.
<CAPTION>
(Amounts in thousands) 1994 1993
- - - ----------------------------------------------------------------
<S> <C> <C>
Service parts $10,095 $10,620
Less accumulated depreciation 7,661 8,516
------- -------
Total service parts $ 2,434 $ 2,104
======= =======
</END TABLE>
</TABLE>
<TABLE>
Note 7. Property, Plant and Equipment.
<CAPTION>
(Amounts in thousands) 1994 1993
- - - ----------------------------------------------------------------
<S> <C> <C>
Furniture and equipment $18,218 $15,577
Field service and demonstration
equipment 11,990 12,096
Buildings and leasehold
improvements 17,524 17,577
------- -------
47,732 45,250
Less accumulated depreciation and
amortization 27,486 25,331
------- -------
20,246 19,919
Land 6,787 6,470
------- -------
Total property, plant and
equipment $27,033 $26,389
======= =======
</END TABLE>
</TABLE>
<TABLE>
Note 8. Investment in Leases.
<CAPTION>
(Amounts in thousands) 1994 1993
- - - -----------------------------------------------------------------
<S> <C> <C>
Total minimum lease payments
receivable $22,169 $34,873
Allowance for doubtful accounts (322) (460)
Initial direct costs 343 490
Estimated unguaranteed residual
value 1,544 2,554
------- -------
Gross investment in leases 23,734 37,457
Unearned income (6,533) (10,720)
Leases pending acceptance 8,787 3,443
------- -------
Total investment in leases $25,988 $30,180
======= =======
Short-term investment in leases 4,152 5,874
Long-term investment in leases 21,836 24,306
======= =======
</END TABLE>
Historically, a substantial portion of the lease receivables are discounted
prior to maturity. Accordingly, a schedule of maturities for the next five
years is not indicative of future cash collections. Most of Triad Financial's
customers are in the automotive parts aftermarket, the service dealer market
or the hardgoods industry.
</TABLE>
<TABLE>
Note 9. Capitalized Software.
<CAPTION>
(Amounts in thousands) 1994 1993
- - - ----------------------------------------------------------------
<S> <C> <C>
Beginning balance $ 7,263 $ 7,324
Capitalized software costs 3,142 2,840
Amortization of software costs (2,291) (2,901)
------- -------
Ending balance $ 8,114 $ 7,263
======= =======
</END TABLE>
Note 10. Land for Resale.
Triad currently holds 166 acres in Livermore, California that it intends to
sell over a period of years. Gains from the sale of land amounting to $652,000
in 1993 are included as other income in interest and other expense.
</TABLE>
<TABLE>
Note 11. Debt.
<CAPTION>
(Amounts in thousands) 1994 1993
- - - -------------------------------------------------------------------
<S> <C> <C>
12.25% senior fixed rate notes, due
in 1999 $22,200 $25,000
Senior floating rate notes, due in 1997 15,500 15,500
Bank borrowings, bearing interest
at prime plus .75%, maturing 1997 -- 4,500
Mortgage loan payable, bearing
interest at 9.9%, and maturing
through 2003 11,803 12,580
Assessment district improvement
bonds, bearing interest at rates
ranging from 4.75% to 7.25%,
and maturing through 2014
Land for operations 2,485 2,536
Land for resale 8,683 8,862
Other, bearing interest at rates
ranging from 7% to 12%, and
maturing through 1998 4,134 5,317
Unamortized debt issuance costs (1,399) (1,943)
------- -------
Total debt $63,406 $72,352
======= =======
Short-term debt 6,773 2,971
Long-term debt 56,633 69,381
======= =======
</END TABLE>
The company retired $2,800,000 of the 12.25% senior fixed rate notes at 107%
of principal plus accrued interest in May 1994. The remaining $22,200,000
12.25% senior fixed rate notes ("fixed rate notes") mature in 1999 and can be
redeemed at the option of the Company beginning in August 1997 at 101% of
principal plus accrued interest and at 100% of principal plus accrued
interest after August 1998. Mandatory redemption of $8,334,000 of principal
plus accrued interest is required annually beginning August 1997. Interest is
payable semiannually.
The $15,500,000 senior floating rate notes ("floating rate notes") mature in
1997 and can be redeemed at the option of the Company in increments of
$1,000,000 at 100% of principal plus interest. Mandatory redemption of
principal of $3,875,000 and $7,750,000 plus interest is required in August
1995 and 1996, respectively. Interest is adjusted quarterly based on the
three-month LIBOR rate plus 3.05% (7.86% at September 30, 1994). The rate is
effective for the subsequent quarter and interest is payable quarterly. In
the event of a change in control as defined in the debt agreements, both the
fixed rate and floating rate notes must be redeemed at 101% of principal plus
interest.
The Company's $13,367,000 revolving line of credit with a bank bears interest
at prime (7.75% at September 30, 1994) plus .75%, and is collateralized by
receivables and inventories. There were no bank borrowings at September 30,
1994. The line of credit commitment decreases by $1,167,000 in 1995 and in
each of the succeeding years through maturity in 1997. Commitment fees are
0.5% on the average unused commitment.
The Company maintains an overdraft facility with a bank in Europe. The maximum
commitment available under the agreement is $394,000 and the agreement
provides that borrowings will bear interest at the United Kingdom prime rate
(5.75% at September 30, 1994) plus 1.8%. There were no borrowings at
September 30, 1994.
The fixed rate notes, the floating rate notes and the line of credit agree-
ments contain restrictive covenants regarding payment of dividends, incurrence
of additional debt and maintenance of consolidated tangible net worth and
certain financial ratios. In the event the Company is unable to meet these
covenants, accelerated repayments could be required.
The interest rate on the mortgage financing for the Livermore headquarters
facility may be adjusted at the option of the lender in 1998 and could impact
the interest rate from 1999 to its maturity in 2003. Borrowings are col-
lateralized by land and buildings, and are payable in monthly installments.
A portion of the Company's land for resale and the parcels retained for its
facilities are part of assessment districts and are subject to bonded
indebtedness incurred in connection with the development of improvements and
community services. Semiannual principal and interest payments on the bonds
are required to be made by Triad as long as the parcels are owned by the
Company. As the Company sells land, the corresponding obligation will be
assumed by the new owners.
Annual maturities of long-term debt for each year from 1995 through 1999 are
$6,924,000, $10,567,000, $13,935,000, $10,174,000 and $7,302,000,
respectively.
Accruals for interest expense at the end of 1994 and 1993 were $768,000 and
$782,000, respectively.
Note 12. Equity.
Cumulative Convertible Preferred Stock.
The 1,000,000 shares of $.01 par value senior cumulative convertible preferred
stock ("senior preferred stock") are redeemable at the option of the Company
at 100%, provided at least one half the outstanding shares are redeemed in the
initial transaction and the balance in any subsequent transaction. The senior
preferred stock has a liquidation value of $20 per share plus accrued
dividends, and is convertible at the option of the holder into common stock at
a conversion price of $20 per share. Dividends are cumulative and payable
quarterly at 4% per annum through September 1995, are adjusted to 8% per
annum through September 1996 and to 10% per annum thereafter. Dividends
declared were $.80 per share in 1994 and in 1993. While dividends are cur-
rently paid at a 4% rate, stockholders' equity includes an adjustment that
raises the effective dividend rate to 10% and increases the value of dividends
to $1,670,000 in 1994. Shares of senior preferred stock are voted with, and
have voting rights equal to, the Company's common stock. Except with regard to
election of directors, each preferred share is convertible into one share of
common stock, and initially has one vote per share. Preferred stockholders are
entitled to elect one director to the Company's Board of Directors. In the
event the Company is in arrears on dividend payments, the preferred stock-
holders are entitled to additional representation on the Company's Board of
Directors.
Warrants.
Detachable warrants to purchase 3,500,000 shares of the Company's common stock
at $6.375 per share were issued in connection with the $20,000,000 senior
preferred stock issuance in August 1992. The warrants are immediately exer-
cisable, expire in August 1997 and are callable by the Company any time
commencing February 1996, provided the Company's common stock trades at a
minimum of $9.56 for 20 of the most recent 30 consecutive trading days. The
$20,000,000 preferred stock investment can be applied toward the exercise of
the warrants.
Common Stock.
Triad has declared no dividends on its common stock since its incorporation
and anticipates it will continue to retain its earnings for use in its
business. The Company's loan agreements contain restrictions on the payment of
dividends on its common stock. The most restrictive covenant regarding the
payment of common stock cash dividends requires the ability to cover interest
expense three times from operating income.
Note 13. Employee Stock Plans.
Stock Options.
The Company has reserved shares of common stock for issuance under its
employee and outside director stock option plans for nonqualified or incentive
stock options. The option price may not be less than the fair market value at
the date of grant. Options become exercisable at various dates as specified by
the Board of Directors and expire ten years from the date of grant.
</TABLE>
<TABLE>
Stock Option Activity
<CAPTION>
(Amount in thousands Option Price Exercisable Available
except per share data) Shares Per Share Amount Options for Grant
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options outstanding at
September 30, 1991 5,632 $1.47 to $4.12 $12,964 4,448 526
Granted 64 5.25 to 6.25 387
Exercised (482) 1.47 to 4.12 (973)
Cancelled (42) 1.53 to 5.25 (153)
----- -------------- ------- ----- ---
Options outstanding at
September 30, 1992 5,172 1.47 to 6.25 12,225 4,478 519
Granted 26 4.37 to 5.87 146
Exercised (720) 1.47 to 4.12 (1,266)
Cancelled (8) 4.12 to 5.87 (40)
----- -------------- ------- ----- ---
Options outstanding at
September 30, 1993 4,470 1.47 to 6.25 11,065 4,138 501
Granted 337 4.62 to 5.50 1,757
Exercised (1,136) 4.12 to 5.75 (2,200)
Cancelled (15) 3.12 to 4.12 (61)
----- -------------- ------- ----- ---
Options outstanding at
September 30, 1994 3,656 $1.50 to $6.25 $10,561 3,210 194
===== ============== ======= ===== ===
</END TABLE>
An employee who exercises a nonqualified option granted before 1987 receives
a bonus equal to either (a) 30% of the excess, if any, of the fair market
value over the option price, or (b) 30% of the difference between the option
price and a $2.50 per share maximum, if the employee elected to participate
in a 1991 measure that granted additional options. Fluctuations in the
liability for the stock option bonus are charged to operations.
Stock Purchase Plan.
The Company has an Employee Stock Purchase Plan under which shares of common
stock have been reserved for issuance to all permanent employees who have met
minimum employment criteria. Employees who do not own 5% or more of the out-
standing shares of the Company are eligible to participate through payroll
deductions in amounts relating to their basic compensation. At the end of an
offering period, shares are purchased by the participants at 85% of the lower
of the fair market value at the beginning or the end of the offering period,
to a maximum of 500 shares per participant. The Company has reserved
650,000 shares of common stock and at September 30, 1994, 563,000 shares have
been issued and 87,000 shares are available for issuance.
Note 14. Savings and Investment Plan.
The Company has a savings and investment plan known as the Triad Systems
Corporation Savings and Investment Plan (the "Plan") as allowed under Sections
401(k) and 401(a) of the Internal Revenue Code. The Plan provides employees
with tax deferred salary deductions and alternative investment options.
Employees are eligible to participate the first day of the calendar quarter
following date of hire and are able to apply for and secure loans from their
account in the Plan.
The Plan provides for contributions by the Company as determined annually by
the Board of Directors. The Company matches 50% of the first 4% of compen-
sation contributed by each employee and cannot exceed 15% of the annual
aggregate salaries of those employees eligible for participation. Contri-
butions to the Plan are allocated among eligible participants in the
proportion of their salaries to the total salaries of all participants and
amounted to $933,000 in 1994, $857,000 in 1993 and $750,000 in 1992.
Note 15. Other Operating Expense.
Other operating expenses of $584,000 in 1994, $1,626,000 in 1993 and $95,000
in 1992 represent legal expenses for the Company's litigation, initiated by
the Company, to protect its intellectual property rights and changes in the
liability for bonuses associated with employee stock options.
Note 16. Extraordinary Charges.
Extraordinary charges resulted from the reduction of debt in 1994 and 1992.
The early retirement of the senior fixed rate notes in 1994 generated an
extraordinary charge of $143,000 ($.01 per share) that included a premium of
$196,000, unamortized debt costs of $35,000, less taxes of $88,000. In 1992,
the repurchase of the reset notes created an extraordinary charge of
$1,423,000 ($.10 per share) that included unamortized debt costs of
$1,252,000, a premium of $698,000, less taxes of $527,000.
Note 17. Income Taxes.
The Company adopted Statement of Financial Accounting Standards 109
(SFAS 109), "Accounting for Income Taxes," the effects of which were applied
retroactively to 1993. The financial statements for fiscal year 1993 have been
restated to reflect the change in accounting for income taxes from that
previously reported. The 1992 financial statements reflect the previous
treatment under APB11. The effect of the retroactive application of SFAS 109
on the deferred tax balance sheet classifications was not material, and the
effect on the income tax provision for the year ended September 30, 1993 was
an increase of $800,000 ($.05 per share) as a result of the federally
legislated corporate income tax rate change in August 1993.
</TABLE>
<TABLE>
Provision for Income Taxes.
<CAPTION>
(Amounts in thousands) 1994 1993 1992
- - - ------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 545 $1,578 $ (110)
State 503 500 (145)
Foreign 30 53 (143)
------ ------ ------
Current provision (benefit) 1,078 2,131 (398)
------ ------ ------
Deferred
Federal 2,481 695 1,175
State 983 233 686
Foreign (107) 22 (10)
------ ------ ------
Deferred provision 3,357 950 1,851
------ ------ ------
Provision for income taxes $4,435 $3,081 $1,453
====== ====== ======
</END TABLE>
In 1994 and 1992, taxes of $4,523,000 and $1,980,000, respectively, were
provided on income from continuing operations. Respective tax benefits of
$88,000 and $527,000, related to extraordinary charges on the repurchases of
debt are included in the 1994 and 1992 total provision for income taxes.
The Company's effective tax rate from continuing operations differs from the
U.S. statutory income tax rate as set forth below:
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
- - - ---------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory income tax rate 35.0% 35.0% 34.0%
State taxes, net of Federal
income tax benefit 8.1 5.9 8.0
Foreign income taxes (benefit) -- 1.0 (8.2)
Favorable tax settlements on
prior years -- (15.2) --
Adjustment of deferred tax
assets and liabilities for
enacted changes in
tax laws and rates -- 8.8 --
Income tax credits (1.3) -- --
Other (3.8) 2.3 2.2
----- ----- -----
Effective tax rate 38.0% 37.8% 36.0%
===== ===== =====
</END TABLE>
</TABLE>
<TABLE>
Deferred Tax Provision.
<CAPTION>
(Amounts in thousands) 1992
- - - ---------------------------------------------------
<S> <C>
Direct financing leases $2,864
Software capitalization 119
Depreciation (961)
State taxes (313)
Original debt issue discount (226)
Inventory reserves (215)
General business credits applied (129)
Accrued compensation (110)
Other 822
------
Total deferred tax provision $1,851
======
</END TABLE>
</TABLE>
<TABLE>
Deferred Tax Assets and Liabilities.
<CAPTION>
(Amounts in thousands) 1994 1993
- - - --------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets
Current gross deferred tax assets
Inventory and sales return
reserves $ 1,792 $ 1,440
Accrued compensation 873 891
Other 1,056 872
------- -------
Total current gross deferred
tax assets 3,721 3,203
------- -------
Noncurrent gross deferred tax assets
Federal Tax credit 6,645 6,733
Depreciation 1,374 1,659
Other 1,843 1,044
------- -------
Total noncurrent gross deferred tax
assets 9,862 9,436
------- -------
Total gross deferred tax assets 13,583 12,639
Less valuation allowance (26) (56)
------- -------
Total deferred tax assets $13,557 $12,583
Deferred Tax Liabilities
Current gross deferred tax liabilities
Direct financing leases $ 7,659 $ 6,955
Other 372 120
------- -------
Total current gross deferred tax
liabilities 8,031 7,075
------- -------
Noncurrent gross deferred tax
liabilities
Direct financing leases 33,568 29,473
Other 123 799
------- -------
Total noncurrent gross deferred tax
liabilities 33,691 30,272
------- -------
Total gross deferred tax liabilities 41,722 37,347
------- -------
Net deferred tax liabilities $28,165 $24,764
======= =======
</END TABLE>
At September 30, 1994, the Company had business tax credit carryforwards of
$2,557,000, which may be used to reduce future Federal income taxes, if any.
The business tax credit carryforwards expire from 1998 through 2007. Also
available to the Company to reduce future regular federal income taxes are
alternative minimum tax credits of approximately $4,088,000 with no statutory
expiration period.
Substantially all of the Company's operating income was generated from
domestic operations during 1994, 1993 and 1992. The Company has not provided
for United States income taxes on the earnings of certain foreign subsidiaries
that are considered invested indefinitely outside the United States. The
cumulative earnings of the foreign subsidiaries that are considered
permanently invested outside the United States amounted to $2,255,000 at
September 30, 1994.
Note 18. Commitments and Contingencies.
The Company rents office facilities under noncancellable operating lease
agreements for periods of up to five years. Certain lease agreements contain
renewal options and provisions for maintenance, taxes or insurance. Minimum
future lease payments for each year 1995 through 1999 are $1,335,000,
$1,085,000, $708,000, $532,000 and $263,000, respectively. Rental expense
under operating leases was $3,007,000 in 1994, $3,009,000 in 1993 and
$2,739,000 in 1992.
The Company is involved in litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the
Company's results of operations or financial position.
Note 19. Restatement.
The statements of cash flows for 1993 and 1992 have been restated to present
cash used for investment in leases ($43,632,000 and $39,291,000 for 1993 and
1992, respectively) and cash provided by proceeds from lease discounting
($42,460,000 and $48,607,000 for 1993 and 1992, respectively) as cash flows
from operating activities. This restatement had no effect on previously
reported financial position, results of operations or net cash flows.
Note 20. Segment Information.
The Company operates in one industry segment; it produces and markets pro-
prietary databases and software products, and designs, develops, manufactures,
markets, services and leases computer systems. The Company markets its
products in the United States, the United Kingdom, Canada and Ireland and has
no customer which accounts for 10% or more of its revenue. Revenue, operating
income and assets outside the United States were not material to the consoli-
dated financial statements of the Company.
</TABLE>
<TABLE>
Note 21. Selected Quarterly Financial Data (Unaudited).
<CAPTION>
(Amounts in thousands 1994 Fiscal Quarter Ended
except per share data Dec. 31 March 31 June 30 Sept. 30
--------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $37,476 $40,561 $41,391 $47,850
Operating income 3,642 4,132 5,387 6,200
Income before
extraordinary
charge 1,044 1,396 2,201 2,738
Extraordinary
charge, net of
taxes -- -- 143 --
Net income 1,044 1,396 2,058 2,738
Earnings per share
Primary
Income before
extraordinary
charge $ .06 $ .08 $ .13 $ .16
Net income .06 .08 .12 .16
Fully diluted
Income before
extraordinary
charge .06 .08 .13 .16
Net income .06 .08 .12 .16
------- ------- ------- -------
</END TABLE>
</TABLE>
<TABLE>
1993 Fiscal Quarter Ended
--------------------------------------------
<CAPTION>
Dec. 31 March 31 June 30 Sept. 30
- - - ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $34,160 $36,973 $37,627 $44,058
Operating income 2,708 3,556 3,932 5,626
Net income 410 927 1,597 2,131
Earnings per common
and common
equivalent share $ .03 $ .06 $ .10 $ .13
======= ======= ======= =======
</END TABLE>
Corporate Responsibility Statement
The Company's management is responsible for the preparation and accuracy of
the financial statements and other information included in this report. The
financial statements have been prepared in conformity with generally accepted
accounting principles using, where appropriate, management's best estimates
and judgments.
In meeting its responsibility for the integrity of financial information,
management has developed and relies upon the Company's system of internal
accounting control. The system is designed to provide reasonable assurance
that assets are safeguarded and that transactions are executed as authorized
and are properly recorded. The system is augmented by written policies and
procedures.
The Board of Directors reviews the financial statements and reporting prac-
tices of the Company through its Audit Committee. The committee meets
regularly with the independent accountants and management to discuss audit
scope and results and to consider internal controls and financial reporting
matters. The independent accountants have unrestricted access to the Audit
Committee.
/s/ James R. Porter
James R. Porter
President and Chief Executive Officer
/s/ Jerome W. Carlson
Jerome W. Carlson
Vice President Finance
Chief Financial Officer and Corporate Secretary
October 18, 1994
Livermore, California
Report of Independent Accountants
To The Board of Directors and Stockholders
Triad Systems Corporation
Livermore, California
We have audited the accompanying consolidated balance sheets of Triad Systems
Corporation and Subsidiaries as of September 30, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended September 30, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Triad Systems
Corporation and Subsidiaries as of September 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 17 and 19 to the consolidated financial statements, the
Company adopted SFAS 109, "Accounting for Income Taxes," and restated
operating, investing and financing cash flow classifications.
/s/ Coopers & Lybrand L.L.P.
October 18, 1994
San Jose, California
</TABLE>
<TABLE>
Revenue by Grouping of Similar Products and Services (Unaudited).
For the Years Ended September 30
<CAPTION>
(Amounts in thousands) 1994 1993 1992
- - - ---------------------------------------------------------------------
<S> <C> <C> <C>
Automotive Aftermarket $112,519 $102,620 $105,372
Hardgoods 50,476 47,370 43,139
Other 4,283 2,828 4,061
-------- -------- --------
Total $167,278 $152,818 $152,572
======== ======== ========
</END TABLE>
Automotive Aftermarket, Hardgoods and other revenues include sales of systems,
information and support services and leasing.
The automotive aftermarket includes manufacturers, warehouse distributors,
wholesalers ("jobbers"), retailers and auto repair shops ("service dealers").
Manufacturers distribute automotive parts through warehouse distributors to
jobbers and retailers, who stock and sell the automobile parts used by
service dealers and consumers. Automotive systems track inventory, perform
point of sale functions such as invoicing and billing, provide bookkeeping
and other accounting functions, electronically order automotive parts and
estimate repair job costs, including labor and parts.
The hardgoods industry includes hardware stores and home centers,
lumber/building supplies stores and paint and decorating retailers. Triad's
hardgoods systems automate inventory control, point of sale functions such as
invoicing and billing, payroll, accounting, tracking accounts receivable and
purchase orders to affiliated cooperatives and distributors.
"Other" includes third party manufacturing and services and dental operations.
Corporate Directory
Directors
William W. Stevens***
Chairman of the Board and
founder of Triad
Director since 1972
Henry M. Gay*
Founder of Triad
Director since 1972
George O. Harmon**
President and Chief Executive Officer
Harmon Associates International, Inc.
(management and consulting and executive search firm)
Director since 1986
James R. Porter**
President and Chief Executive Officer
Director since 1985
Richard C. Blum**
President and Chairman
Richard C. Blum & Associates, L.P.
Director since 1992
* For a term ending during 1995
** For a term ending during 1996
*** For a term ending during 1997
Committees of the Board of Directors
Audit Committee
Henry M. Gay
George O. Harmon
James R. Porter
Compensation Committee
Henry M. Gay
George O. Harmon
William W. Stevens
Officers and Operating Management
James R. Porter
President and Chief Executive Officer
Shane Gorman
Executive Vice President
Jerome W. Carlson
Vice President Finance
Chief Financial Officer and
Corporate Secretary
Thomas A. King
Vice President
Product Development and Manufacturing
Stanley F. Marquis
Corporate Treasurer
President, Triad Systems
Financial Corporation
Edward Molkenbuhr
Vice President and General Manager
Service Dealer Division
Thomas J. O'Malley
Vice President
Administration
Richard J. Savage
Vice President and General Manager
Automotive Division
Chad G. Schneller
Vice President and General Manager
Hardgoods Division
Donald C. Wood
Vice President and General Manager
Information Services Division
Dan F. Dent
General Manager
Customer Support Services Division
Bruce M. Blanco
Corporate Controller
Design: Heiney & Craig, Inc. San Francisco
Stockholder Information
Policy on Public Disclosure
Triad maintains a policy of timely, complete and free disclosure of fund-
amental information pertinent to the Company. We make every effort to meet the
letter as well as the spirit of all applicable laws and regulations governing
the disclosure of corporate information.
We also seek feedback on new and better means of presenting our financial and
other Company information. Your comments are always welcome.
Market for Triad Stock
Triad common stock is traded on the over-the-counter market under the NASDAQ
National Market System symbol TRSC. As of September 30, 1994, there were
1,224 record holders of the Company's common stock. Below are the quoted
prices for the stock's high and low sales prices:
</TABLE>
<TABLE>
<CAPTION>
FY 1994 High Low
- - - ----------------------------------------
<S> <C> <C>
First Quarter $5.75 $4.5
Second Quarter 5.625 4.625
Third Quarter 5.25 4.375
Fourth Quarter 5.125 4.125
FY 1993 High Low
- - - ----------------------------------------
First Quarter $7.25 $5.625
Second Quarter 6.875 5.625
Third Quarter 5.75 4.25
Fourth Quarter 5.50 4.125
</END TABLE>
Form 10-K
Triad's annual report on Form 10-K, as filed with the Securities and Exchange
Commission, is available upon request from Triad's corporate secretary at the
company's executive offices.
Annual Meeting
Stockholders are cordially invited to attend Triad's 1995 Annual Meeting of
Stockholders, which will be held at 2:00 p.m. on Thursday, February 9, 1995,
at the Company's headquarters at 3055 Triad Drive in Livermore, California.
Proxy cards should be dated, signed and returned promptly to ensure that all
shares are represented at the meeting and voted in accordance with stock-
holder instructions.
Transfer Agent and Registrar
Chemical Trust Company of California, 10th Floor, 50 California Street,
San Francisco, CA 94111, acts as Triad's transfer agent and registrar, and
maintains common stockholder records for the Company.
Stockholder and Financial Information
For a response to questions regarding misplaced stock certificates, a change
of address or the consolidation of accounts, please write to Triad's transfer
agent, Chemical Trust Company of California, Attention: Shareholder Relations
Department. If further questions arise regarding share ownership, stockholders
may contact the corporate secretary's office at (510) 449-0606.
Questions from the financial community or the media concerning the activities
of Triad and its operating results may be directed to the investor relations
department at (510) 449-0606.
Financial Mailing List
Stockholders who hold their stock in the names of their brokers or bank
nominees may receive information directly from the Company by writing to
Triad's investor relations department at the Company's executive offices or
by calling (510) 449-0606.
Counsel
Gray Cary Ware & Freidenrich
Palo Alto, California
Independent Accountants
Coopers & Lybrand L.L.P.
San Jose, California
Executive Offices
3055 Triad Drive
Livermore, California 94550
(510) 449-0606
Major Locations
loadSTAR Systems, Inc.
loadSTAR Park
P.O. Box 175
Halsey Road
Newton, NJ 07860
Tridex Systems, LTD.
Units 2/3 Victory Business Centre
Fleming Way
Isleworth, Middlesex
United Kingdom TW7 6DB
Triad Systems Canada, LTD.
30 Pennsylvania Avenue, Suite 3
Concord, Ontario L4K4A5
Triad Systems Ireland, LTD.
Templemichael
Ballinalee Road
Longford, County, Longford
Republic of Ireland
Triad maintains sales and services operations at 135 locations, including 120
in the United States, 9 in Canada and 6 in the United Kingdom and Ireland.
Triad is an affirmative action, equal opportunity employer.
To Our Stockholders
As part of a continuing effort to reduce costs and improve efficiencies,
Triad is discontinuing publication of its quarterly report to stockholders.
We will instead focus on other communications that are more timely and
meaningful to stockholders.
Stockholders wishing to receive quarterly information can request Triad's
quarterly financial results media release by writing Triad Systems Corpor-
ation, investor relations department, 3055 Triad Drive, Livermore, CA 94550,
or by calling (510) 449-0606 extension 6834.
Triad and the stylized logo, LaserCat and ServiceCat are registered trademarks
of Triad Systems Corporation. Triad Prism, Eagle, Vista, MarketPACE, Triad
Service System and Triad ServiceWriter are trademarks of Triad Systems
Corporation. UNIX is a registered trademark of UNIX Systems Laboratories, Inc.
The Paperless Warehouse is a trademark of Management Technology International,
Inc.
Triad Systems Corporation
3055 Triad Drive
Livermore, California 94550
</TABLE>
