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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number 333-49389
COOPERATIVE COMPUTING, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2160013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
804 LAS CIMAS PARKWAY, SUITE 200
AUSTIN, TEXAS 78746
(Address of principal executive offices) (Zip Code)
(512) 328-2300
(Registrant's telephone number,
including area code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 14, 2002
----- ---------------------------
Common Stock 1,000 shares
1
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COOPERATIVE COMPUTING, INC.
INDEX
PAGE
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FORWARD-LOOKING STATEMENTS 3
PART I - FINANCIAL INFORMATION 4
ITEM 1. - FINANCIAL STATEMENTS 4
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
Consolidated Balance Sheets as of September 30, 2001 and
March 31, 2002 4
Consolidated Statements of Operations for the three and six
months ended March 31, 2001 and March 31, 2002 5
Consolidated Statements of Cash Flows for the six months
ended March 31, 2001 and March 31, 2002 6
Notes to Consolidated Financial Statements 7
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS 15
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. - OTHER INFORMATION 15
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE 16
2
FORWARD-LOOKING STATEMENTS
INFORMATION SET FORTH IN THIS QUARTERLY REPORT ON FORM 10-Q REGARDING EXPECTED
OR POSSIBLE FUTURE EVENTS, INCLUDING STATEMENTS OF THE PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE GROWTH, OPERATIONS, PRODUCTS AND SERVICES AND STATEMENTS
RELATING TO FUTURE ECONOMIC PERFORMANCE, IS FORWARD-LOOKING AND SUBJECT TO RISKS
AND UNCERTAINTIES. FOR THOSE STATEMENTS, THE COMPANY CLAIMS THE PROTECTION OF
THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS PROVIDED FOR BY SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS
ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH,
ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE
RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED, AND IT
IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE
THE FOLLOWING: (1) INCREASED COMPETITION; (2) RAPID TECHNOLOGICAL CHANGE; (3)
INCREASED COSTS; (4) RISKS ASSOCIATED WITH THE INTRODUCTION OF NEW PRODUCTS AND
PRODUCT UPGRADES AND DEPENDENCE ON PROPRIETARY TECHNOLOGY; (5) THE LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (6) THE INABILITY OF THE COMPANY TO
SUCCESSFULLY INTEGRATE BUSINESSES ACQUIRED IN THE FUTURE AND TO REALIZE
ANTICIPATED REVENUE AND COST SAVINGS OPPORTUNITIES; (7) INCREASES IN THE
COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY
CAPITAL; AND (8) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH
THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH FACTORS WILL BE BEYOND
THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. IN ADDITION, OTHER FACTORS THAT
COULD AFFECT THE FUTURE RESULTS OF THE COMPANY AND COULD CAUSE THOSE RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS ARE
DISCUSSED AT GREATER LENGTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND APPEAR ELSEWHERE IN THIS
QUARTERLY REPORT. THESE RISKS, UNCERTAINTIES AND OTHER FACTORS SHOULD NOT BE
CONSTRUED AS EXHAUSTIVE, AND THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION TO UPDATE, ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31,
September 30, 2002
2001 (Unaudited)
------------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 3,897 $ -
Trade accounts receivable, net of allowance for doubtful
accounts of $4,353 and $7,111 at September 30, 2001 and
March 31, 2002, respectively 35,679 32,803
Inventories, net 2,391 2,743
Investment in leases, net 3,735 3,462
Deferred income taxes 5,991 5,991
Prepaid expenses and other current assets 5,126 4,118
---------- ----------
Total current assets 56,819 49,117
Service parts, net 2,868 2,146
Property and equipment, net 6,504 7,201
Long-term investment in leases 8,621 5,819
Capitalized computer software costs, net 12,927 12,308
Databases, net 12,350 11,945
Goodwill 100,572 87,159
Other assets 22,126 19,705
---------- ----------
Total assets $ 222,787 $ 195,400
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 9,458 $ 9,232
Payroll related accruals 12,923 13,513
Deferred revenue 12,153 12,743
Current portion of long-term debt 10,737 26,702
Accrued expenses and other current liabilities 8,791 10,815
---------- ----------
Total current liabilities 54,062 73,005
Long-term debt 166,020 129,666
Deferred income taxes and other liabilities 27,416 13,326
---------- ----------
Total liabilities 247,498 215,997
Redeemable Class A Common Stock, including $26,104 and $34,061
in accumulated accretion at September 30, 2001 and March 31,
2002, respectively 51,104 59,061
Stockholders' deficit:
Common Stock:
Par value $.000125, authorized 50,000,000 shares,
issued and outstanding 35,220,000 at
September 30, 2001 and March 31, 2002 4 4
Additional paid-in capital 87,934 87,934
Retained deficit (162,490) (166,527)
Other accumulated comprehensive income:
Cumulative translation adjustment (1,263) (1,069)
---------- ----------
Total stockholders' deficit (75,815) (79,658)
---------- ----------
Total liabilities and stockholders' deficit $ 222,787 $ 195,400
========== ==========
See accompanying notes
4
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2001 2002 2001 2002
--------- --------- ---------- ---------
Revenues:
Systems $ 14,446 $ 16,923 $ 27,298 $ 31,468
Services and finance 40,300 40,036 79,906 80,110
--------- --------- ---------- ---------
Total revenues 54,746 56,959 107,204 111,578
Cost of revenues:
Systems 8,124 9,591 16,916 18,308
Services and finance 20,670 19,301 40,737 38,996
--------- --------- ---------- ---------
Total cost of revenues 28,794 28,892 57,653 57,304
--------- --------- ---------- ---------
Gross margin 25,952 28,067 49,551 54,274
Operating expenses:
Sales and marketing 10,446 8,487 20,844 17,525
Product development 4,579 4,602 8,896 8,251
General and administrative 9,405 7,170 19,535 14,239
--------- --------- ---------- ---------
Total operating expenses 24,430 20,259 49,275 40,015
--------- --------- ---------- ---------
Operating income 1,522 7,808 276 14,259
Interest expense (4,674) (3,506) (9,547) (7,563)
Equity loss in affiliate - (200) - (400)
Foreign exchange gain (loss) (7) 44 32 (98)
Other income, net 13 54 72 390
--------- --------- ---------- ---------
Income (loss) before income taxes (3,146) 4,200 (9,167) 6,588
Income tax (benefit) expense (390) 1,611 (1,136) 2,668
--------- --------- ---------- ---------
Net income (loss) (2,756) 2,589 (8,031) 3,920
Accretion of redeemable stock (2,914) (3,935) (5,894) (7,957)
--------- --------- ---------- ---------
Net loss attributable to common stock $ (5,670) $ (1,346) $ (13,925) $ (4,037)
========= ========= ========== =========
Comprehensive income (loss):
Net income (loss) $ (2,756) $ 2,589 $ (8,031) $ 3,920
Foreign currency translation adjustment (515) (86) 749 194
--------- --------- ---------- ---------
Comprehensive income (loss) $ (3,271) $ 2,503 $ (7,282) $ 4,114
========= ========= ========== =========
See accompanying notes
5
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended
March 31,
-----------------------------
2001 2002
---------- ----------
OPERATING ACTIVITIES
Net income (loss) $ (8,031) $ 3,920
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 4,460 3,691
Amortization 11,727 5,499
Deferred income taxes 22 -
Equity loss from affiliate - 400
Equity gain from partnerships (127) (122)
Lease loss provision 3,349 1,850
Provision for doubtful accounts 3,888 5,662
Other, net (156) 165
Changes in assets and liabilities:
Trade accounts receivable (8,764) (2,786)
Inventories (76) (352)
Investment in leases (2,346) 1,225
Prepaid expenses and other assets 662 1,968
Accounts payable 1,905 (226)
Deferred revenue 597 590
Accrued expenses and other current liabilities (1,414) 1,875
---------- ----------
Net cash provided by operating activities 5,696 23,359
INVESTING ACTIVITIES
Purchase of property and equipment (1,912) (2,549)
Capitalized computer software costs and databases (4,740) (3,431)
Purchase of service parts (1,467) (951)
Equity distributions from partnerships 142 64
---------- ----------
Net cash used in investing activities (7,977) (6,867)
FINANCING ACTIVITIES
Proceeds from debt facility 26,550 -
Payment on long-term debt facilities (22,500) (20,389)
---------- ----------
Net cash provided by (used in) financing activities 4,050 (20,389)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,769 (3,897)
Cash and cash equivalents, beginning of period 679 3,897
---------- ----------
Cash and cash equivalents, end of period $ 2,448 $ -
=========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 8,087 $ 6,808
========== ==========
Income taxes $ 273 $ 1,613
========== ==========
Non cash financing activity:
Accretion of Class A Common Stock $ 5,894 $ 7,957
========== ==========
See accompanying notes
6
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Cooperative
Computing Holding Company, Inc. ("Holding", or the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended March 31, 2002 may not
be indicative of the results for the full fiscal year ending September 30, 2002.
Holding has no assets or liabilities other than (1) its investment in its wholly
owned subsidiary, Cooperative Computing, Inc. ("CCI") and (2) its Redeemable
Class A Common Stock, the net proceeds of which were contributed in full to a
subsidiary; accordingly, these consolidated financial statements represent the
operations of CCI and its subsidiaries.
Certain amounts in the six months ended March 31, 2001 have been reclassified to
conform to the presentation for the six months ended March 31, 2002.
2. LEASE RECEIVABLES
Activity in the following servicing and recourse obligation liability accounts
(recorded in other liabilities in the Company's balance sheet) was as follows
(in thousands):
LEASE SERVICING RECOURSE
OBLIGATION OBLIGATION
--------------------------------
Balance at September 30, 2001 $ 833 $ 5,950
Newly-created liabilities - 1,888
Charges and lease write-offs (208) (1,393)
------ --------
Balance at March 31, 2002 $ 625 $ 6,445
====== ========
3. INCOME TAXES
The Company recorded income tax expense for the six months ended March 31, 2002
at an effective rate of 40.5%, which is based on the Company's anticipated
results for the full fiscal year. The Company's income tax expense differs from
the amount computed by applying the statutory rate to income before income taxes
due to the impact of permanent differences, such as meals and entertainment
expense, and amortization of certain acquired intangibles.
4. COMMON STOCK OPTION PLAN
In April 2002, the Company approved the grant of 570,000 options at an exercise
price equal to the estimated fair market value of $1.00 per share.
7
5. GOODWILL AND OTHER INTANGIBLES
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective October 1, 2001 ("SFAS 142"). SFAS 142 discontinues the amortization
of goodwill and requires future periodic testing of goodwill for impairment. In
addition, SFAS 142 requires reassessment of the useful lives of previously
recognized intangible assets.
With the adoption of the Statement, the Company ceased amortization of goodwill
as of October 1, 2001. The following table presents the consolidated results of
the Company on a comparable basis (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2001 2002 2001 2002
--------- -------- --------- --------
Reported net income (loss) $ (2,756) $ 2,589 $ (8,031) $ 3,920
Goodwill amortization, net of tax 2,801 - 5,615 -
--------- -------- --------- --------
Adjusted net income (loss) $ 45 $ 2,589 $ (2,416) $ 3,920
========= ======== ========= ========
Prior to March 31, 2002, the Company completed a preliminary goodwill impairment
test as required by SFAS 142. This test involved the use of estimates related to
the fair market value of the business with which the goodwill is associated.
Based on this impairment test, there was no impairment of goodwill as of October
1, 2001.
In addition, the intangible asset established for trademarks and tradenames is
subject to amortization in accordance with SFAS 142. The gross carrying amount
related to trademarks and tradenames was $14,991,000 while the associated
accumulated amortization balance at September 30, 2001 and March 31, 2002 was
$6,834,000 and $7,281,000, respectively. The aggregate amortization expense was
$224,000 and $448,000 for the three and six months ended March 31, 2001 and
2002, respectively. Estimated amortization expense for the next five fiscal
years is approximately $900,000 in 2002 and 2003, $860,000 in 2004, $790,000 in
2005, and $784,000 in 2006.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. The statement is effective for financial statements for fiscal
years beginning after June 15, 2002. The new statement establishes accounting
standards for recognition of a liability for an asset retirement obligation and
the associated asset retirement cost. The Company does not anticipate any
material impact from this statement on its financial position or results of
operations.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). The statement broadens the
presentation of discontinued operations to include more disposal transactions,
and establishes a single accounting model for long-lived assets to be disposed
of by sale. SFAS 144 is effective for financial statements for fiscal years
beginning after December 15, 2001. Management does not expect any material
impact from adoption of this statement on the Company's financial position or
results of operations.
8
7. SEGMENT REPORTING
The Company's business operations are organized into two divisions, the
automotive division and the hardlines and lumber division, as shown below.
Additionally, a breakdown by geographic area of total revenues and total assets
is disclosed. The Americas geographic area covers the United States and Canada.
The Europe geographic area covers the United Kingdom, Ireland and France.
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ----------------------------
2001 2002 2001 2002
--------- --------- ---------- ----------
Systems revenues:
Automotive $ 6,042 $ 6,961 $ 10,885 $ 12,315
Hardlines and lumber 8,404 9,962 16,413 19,153
--------- --------- ---------- ----------
Total systems revenues: 14,446 16,923 27,298 31,468
Services and finance revenues:
Automotive 24,898 24,799 50,349 49,789
Hardlines and lumber 15,402 15,237 29,557 30,321
--------- --------- ---------- ----------
Total services and finance revenues: 40,300 40,036 79,906 80,110
Systems costs of revenues:
Automotive 3,382 4,798 6,981 8,397
Hardlines and lumber 4,742 4,793 9,935 9,911
--------- --------- ---------- ----------
Total systems costs of revenues: 8,124 9,591 16,916 18,308
Services and finance cost of revenues:
Automotive 12,927 11,063 25,465 22,896
Hardlines and lumber 7,743 8,238 15,272 16,100
--------- --------- ---------- ----------
Total services and finance cost of revenues: 20,670 19,301 40,737 38,996
Sales and marketing:
Automotive 6,118 3,938 12,115 8,105
Hardlines and lumber 4,328 4,549 8,729 9,420
--------- --------- ---------- ----------
Total sales and marketing: 10,446 8,487 20,844 17,525
Product development:
Automotive 3,699 3,637 6,921 6,402
Hardlines and lumber 880 965 1,975 1,849
--------- --------- ---------- ----------
Total product development: 4,579 4,602 8,896 8,251
General and administrative 9,405 7,170 19,535 14,239
Interest expense (4,674) (3,506) (9,547) (7,563)
Other income (expense), net 6 (102) 104 (108)
--------- --------- ---------- ----------
Income (loss) before income taxes $ (3,146) $ 4,200 $ (9,167) $ 6,588
========= ========= ========== ==========
Revenues:
Americas $ 53,382 $ 55,731 $ 104,525 $ 108,985
Europe 1,364 1,228 2,679 2,593
--------- --------- ---------- ----------
Total revenues $ 54,746 $ 56,959 $ 107,204 $ 111,578
========= ========= ========== ==========
Assets:
Americas $ 237,010 $ 190,773 $ 237,010 $ 190,773
Europe 4,996 4,627 4,996 4,627
--------- --------- ---------- ----------
$ 242,006 $ 195,400 $ 242,006 $ 195,400
========= ========= ========== ==========
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the unaudited historical
consolidated financial statements and notes thereto, which are included
elsewhere herein.
General
Cooperative Computing, Inc., a Delaware corporation (hereinafter referred to as
the "Company" or "CCI"), designs and provides management information systems and
services for the automotive parts aftermarket and the hardlines and lumber
industry. The automotive parts aftermarket consists of the production, sale and
installation of both new and remanufactured parts used in the maintenance and
repair of automobiles and light trucks. The hardlines and lumber industry
consists of the sale of products for residential and commercial building
construction, maintenance and repair, lawn and garden, and agribusiness.
Historical Results of Operations
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
Revenues for the three months ended March 31, 2002 were $57.0 million, an
increase of $2.3 million, or 4%, from the $54.7 million recorded in the prior
year's period. The increase was primarily attributable to the hardlines and
lumber division, which had revenue growth of $1.4 million.
Systems revenues for the three months ended March 31, 2002 were $17.0 million,
compared to $14.4 million for the three months ended March 31, 2001, an increase
of $2.6 million, or 18%. Systems revenues for the automotive division for the
three months ended March 31, 2002 increased $1.0 million to $7.0 million, as
compared to last year, an increase of 17%. The revenue increase was primarily
due to current customers upgrading their systems. Systems revenues for the
hardlines and lumber division for the three months ended March 31, 2002
increased $1.6 million to $10.0 million, or 19%, as compared to the three months
ended March 31, 2001. The revenue increase was primarily due to increased sales
of systems upgrades to the current customer base.
Services and finance revenues were $40.0 million for the three months ended
March 31, 2002, compared to $40.3 million for the three months ended March 31,
2001, a decrease of $0.3 million, or 1%. For the three months ended March 31,
2002, services and finance revenues for the automotive division decreased $0.1
million from $24.9 million to $24.8 million, while the hardlines and lumber
division's revenues decreased $0.2 million from $15.4 million to $15.2 million,
as compared to the three months ended March 30, 2001.
Cost of revenue was $28.9 million for the three months ended March 31, 2002,
compared to $28.8 million for the three months ended March 31, 2001, an increase
of $0.1 million, or less than one percent. For the three months ended March 31,
2002, cost of revenues for the automotive division decreased $0.4 million, or
3%, to $15.9 million. For the quarter ended March 31, 2002, cost of revenues for
the hardlines and lumber division increased $0.5 million, or 4%, to $13.0
million, respectively, as compared to the three months ended March 31, 2001.
Cost of systems revenue was $9.6 million for the three months ended March 31,
2002, compared to $8.1 million for the three months ended March 31, 2001, an
increase of $1.5 million, or 18%. Cost of systems revenues for the automotive
division for the three months ended March 31, 2002 increased $1.4 million, or
42%, to $4.8 million compared to the three months ended March 31, 2001. The
increase in cost of systems revenues is primarily due to the increase in systems
sales. Cost of systems revenues as a percentage of systems revenues for the
automotive division was 69% and 56% for the three months ended March 31, 2002
and 2001, respectively. The increased cost percentage is primarily due to a
higher volume of lower margin systems being sold in the quarter ended March 31,
2002. Cost of systems revenues for the hardlines and lumber division for the
three months ended March 31, 2002 increased $0.1 million to $4.8 million
compared to the three months ended March 31, 2001, an increase of 1%. Cost of
systems revenue as a percentage of systems for the hardlines and lumber division
was 48% and 56% for the three months ended March 31, 2002 and 2001,
10
respectively. The decreased cost percentage is primarily due to the sale of
higher margin systems in the quarter ended March 31, 2002.
Cost of revenues for services and finance was $19.3 million for the three months
ended March 31, 2002, compared to $20.7 million for the three months ended March
31, 2001, a decrease of $1.4 million, or 7%. Cost of revenues for services and
finance for the automotive division for the three months ended March 31, 2002
decreased $1.9 million to $11.1 million, compared to the three months ended
March 31, 2001. Cost of revenues for services and finance for the automotive
division is down primarily due to less use of the Company's field engineers by
the automotive division and lower amortization and depreciation expense as
certain assets become fully amortized. Cost of revenues for services and finance
for the hardlines and lumber division for the three months ended March 31, 2002
increased $0.5 million to $8.2 million, compared to the three months ended March
31, 2001. Cost of revenues of services and finance for the hardlines and lumber
division increased primarily due to a higher use of the Company's field
engineers by the hardlines and lumber division. As a percentage of automotive
services revenues, cost of revenues for services and finance for the automotive
division was 45% and 52% for the three months ended March 31, 2002 and 2001,
respectively. As a percentage of hardlines and lumber division services
revenues, cost of revenues for services and finance for the hardlines and lumber
division was 54% and 50% for the three months ended March 31, 2002 and 2001,
respectively. The percentage fluctuations are primarily due to the factors
mentioned above.
Sales and marketing expense for the three months ended March 31, 2002 decreased
$2.0 million, or 19%, to $8.5 million, as compared to the three months ended
March 31, 2001. Sales and marketing expense for the automotive division for the
three months ended March 31, 2002 decreased $2.1 million to $4.0 million, as
compared to the three months ended March 31, 2001. As a percentage of automotive
revenue, sales and marketing expense for the automotive division was 13% and 20%
for the three months ended March 31, 2002 and 2001, respectively. The decrease
in the sales and marketing expense for the automotive division is primarily due
to a lower accrual for leasing bad debt and lower travel and personnel costs.
Sales and marketing expense for the hardlines and lumber division for the three
months ended March 31, 2002 increased $0.1 million to $4.5 million, as compared
to the three months ended March 31, 2001. The increase in sales and marketing
expense in the hardlines and lumber division is primarily due to higher
personnel costs due to the increased systems sales. As a percentage of hardlines
and lumber division revenue, sales and marketing expense for the hardlines and
lumber division was 18% and 19% for the three months ended March 31, 2002 and
2001, respectively.
Product development expenses for the three months ended March 31, 2002 remained
at $4.6 million, as compared to the three months ended March 31, 2001. As a
percentage of revenue, product development expense was 8% for the three months
ended March 31, 2002 and March 31, 2001. Product development expenses for the
automotive division for the three months ended March 31, 2002 decreased $0.1
million to $3.6 million. The decrease is primarily due to lower personnel costs.
As a percentage of automotive division revenue, product development expenses for
the automotive division were 11% and 12% for the three months ended March 31,
2002 and 2001, respectively. Product development expenses for the hardlines and
lumber division for the three months ended March 31, 2002 increased $0.1 million
to $1.0 million. The increase was due to higher personnel costs. As a percentage
of hardlines and lumber division revenue, product development expense for the
hardlines and lumber division was 4% for the three months ended March 31, 2002
and 2001.
General and administrative expense for the three months ended March 31, 2002 was
$7.2 million, a decrease of $2.2 million, or 24%, as compared to the three
months ended March 31, 2001. The decrease was primarily due to the October 1,
2001 adoption of the new accounting guidance regarding amortization of goodwill.
As a percentage of revenues, general and administrative expense was 13% and 17%
for the three months ended March 31, 2002 and 2001, respectively.
Interest expense for the three months ended March 31, 2002 was $3.5 million
compared to $4.7 million for the three months ended March 31, 2001, a decrease
of $1.2 million, or 25%. Interest was down due to a combination of lower
interest rates and a lower principal balance. See "Liquidity and Capital
Resources."
11
As a result of the above factors, the Company realized net income of $2.6
million for the three months ended March 31, 2002, compared to a net loss of
$2.8 million for the three months ended March 31, 2001, an improvement of $5.4
million.
Six Months Ended March 31, 2002 Compared to Six Months Ended March 31, 2001
Revenues for the six months ended March 31, 2002 were $111.6 million, compared
to $107.2 million for the six months ended March 31, 2001, an increase of $4.4
million, or 4%. For the six months ended March 31, 2002, revenues for the
automotive division increased $0.9 million, or 1%, to $62.1 million, as compared
to the six months ended March 31, 2001. For the six months ended March 31, 2002,
revenues for the hardlines and lumber division increased $3.5 million, or 8%, to
$49.5 million, as compared to the six months ended March 31, 2001.
Systems revenues for the six months ended March 31, 2002 were $31.5 million,
compared to $27.3 million for the six months ended March 31, 2001, an increase
of $4.2 million, or 15%. Systems revenues for the automotive division for the
six months ended March 31, 2002 increased $1.4 million, or 13%, to $12.3
million, as compared to the six months ended March 31, 2001. This increase was
primarily due to current customers upgrading their systems. Systems revenues for
the hardlines and lumber division for the six months ended March 31, 2002
increased $2.8 million, or 17%, to $19.2 million as compared to the six months
ended March 31, 2001, primarily due to increased sales of systems upgrades to
the current customer base.
Services and finance revenues were $80.1 million for the six months ended March
31, 2002, compared to $79.9 million for the six months ended March 31, 2001, an
increase of $0.2 million, or less than one percent. Services and finance
revenues for the automotive division for the six months ended March 31, 2002
decreased $0.5 million to $49.8 million, as compared to the six months ended
March 31, 2001. This decrease was primarily due to customer attrition in the
automotive recycling product line. Services and finance revenues for the
hardlines and lumber division for the six months ended March 31, 2002 increased
$0.7 million to $30.3 million, as compared to the six months ended March 31,
2001. This increase was primarily due to increased customer service revenue.
Cost of revenues was $57.3 million for the six months ended March 31, 2002,
compared to $57.7 million for the six months ended March 31, 2001, a decrease of
$0.4 million, or 1%. For the six months ended March 31, 2002, cost of revenues
for the automotive division decreased $1.2 million, or 4%, to $31.3 million, as
compared to the six months ended March 31, 2001. For the six months ended March
31, 2002, cost of revenues for the hardlines and lumber division increased $0.8
million, or 3%, to $26.0 million, as compared to the six months ended March 31,
2001.
Cost of systems revenues was $18.3 million for the six months ended March 31,
2002, compared to $16.9 million for the six months ended March 31, 2001, an
increase of $1.4 million, or 8%. Cost of systems revenues for the automotive
division for the six months ended March 31, 2002 increased $1.4 million to $8.4
million, as compared to the six months ended March 31, 2001. The increase was
primarily due to the increase in systems sales. Cost of systems revenues as a
percentage of systems revenues for the automotive division was 68% and 64% for
the six months ended March 31, 2002 and 2001, respectively. Although revenue for
the hardlines and lumber division systems increased, cost of systems revenues
for the hardlines and lumber division for the six months ended March 31, 2002
remained constant at $9.9 million, compared to the six months ended March 31,
2001, primarily due to the sale of higher margin systems in the quarter ended
March 31, 2002. Accordingly, cost of systems revenues as a percentage of systems
revenues for the hardlines and lumber division was 52% and 61% for the six
months ended March 31, 2002 and 2001, respectively.
Cost of revenues for services and finance was $39.0 million for the six months
ended March 31, 2002, compared to $40.8 million for the six months ended March
31, 2001, a decrease of $1.8 million, or 5%. Cost of revenues for services and
finance for the automotive division for the six months ended March 31, 2002
decreased $2.6 million to $22.9 million, compared to the six months ended March
31, 2001. Cost of revenues of services and finance for the automotive division
decreased primarily due to less use of the Company's field engineers by the
automotive division and lower amortization and depreciation expense as certain
assets became fully amortized. Cost of revenues of services and finance for the
hardlines and lumber division for the six months ended March 31, 2002 increased
$0.8 million, or 5%, to $16.1 million compared to the six months ended March 31,
2001. Cost of revenues for services and finance for
12
the hardlines and lumber division increased primarily due to a higher use of the
Company's field engineers by the hardlines and lumber division. As a percentage
of services revenues, cost of revenues for services and finance for the
automotive division was 46% and 51% for the six months ended March 31, 2002 and
2001, respectively. As a percentage of services revenues, cost of revenues for
services and finance for the hardlines and lumber division was 53% and 52% for
the six months ended March 31, 2002 and 2001, respectively.
Sales and marketing expense for the six months ended March 31, 2002 decreased
$3.3 million, or 16%, to $17.5 million, as compared to the six months ended
March 31, 2001. Sales and marketing expense for the automotive division for the
six months ended March 31, 2002 decreased $4.0 million to $8.1 million as
compared to the six months ended March 31, 2001. As a percentage of automotive
revenue, sales and marketing expense for the automotive division was 13% and 20%
for the six months ended March 31, 2002 and 2001, respectively. The decrease in
sales and marketing expense is related primarily to lower personnel costs and
lower leasing bad debt accruals. Sales and marketing expense for the hardlines
and lumber division for the six months ended March 31, 2002 increased $0.7
million to $9.4 million, as compared to the six months ended March 31, 2001. As
a percentage of hardlines and lumber division revenue, sales and marketing
expense for the hardlines and lumber division remained constant at 19% for the
six months ended March 31, 2002 and 2001. The increase in sales and marketing
expense in the hardlines and lumber division was due to a higher bad debt
accrual and higher personnel costs due to the increased systems sales.
Product development expenses for the six months ended March 31, 2002 decreased
$0.6 million to $8.3 million, as compared to the six months ended March 31,
2001. As a percentage of revenue, product development expenses were 7% and 8%
for the six months ended March 31, 2002 and 2001, respectively. Product
development expenses for the automotive division for the six months ended March
31, 2002 decreased $0.5 million to $6.4 million. The decrease was primarily due
to lower personnel costs. As a percentage of automotive division revenue,
product development expenses for the automotive division were 10% and 11% for
the six months ended March 31, 2002 and 2001, respectively. Product development
expenses for the hardlines and lumber division for the six months ended March
31, 2002 decreased $0.1 million to $1.9 million. As a percentage of hardlines
and lumber division revenue, product development expenses for the hardlines and
lumber division remained at 4% for the six months ended March 31, 2002 and 2001.
General and administrative expense for the six months ended March 31, 2002
decreased $5.3 million to $14.2 million as compared to the six months ended
March 31, 2001. As a percentage of revenues, general and administrative expense
was 13% and 18% for the six months ended March 31, 2002 and 2001, respectively.
The decrease was primarily due to the application of the October 1, 2001
adoption of the new accounting guidance regarding amortization of goodwill.
Interest expense for the six months ended March 31, 2002 was $7.6 million
compared to $9.5 million for the six months ended March 31, 2001, a decrease of
$1.9 million, or 20%. See "Liquidity and Capital Resources." The decrease was
due to lower interest rates and a lower principal balance.
As a result of the above factors, the Company realized net income of $3.9
million for the six months ended March 31, 2002, compared to a net loss of $8.0
million for the six months ended March 31, 2001, an improvement of $11.9
million.
13
Liquidity and Capital Resources
As of March 31, 2002, the Company had $156.4 million in outstanding
indebtedness, a decrease of $20.4 million from September 30, 2001. The Company's
outstanding indebtedness under its Restated Senior Credit Facilities at March
31, 2002 included $15.0 million borrowed on the Company's $47.5 million senior
secured revolving credit facility under its Restated Senior Credit Facilities
and $40.0 million of senior secured term loans. Remaining indebtedness consists
of $100.0 million of Senior Subordinated Notes, due 2008, bearing interest at
9%, and $1.4 million in debt which matures in varying amounts over the next five
years. The Company's Restated Senior Credit Facilities impose certain
restrictions on the Company, the most significant of which include limitations
on additional indebtedness, liens, guarantees, payment or declaration of
dividends, sale of assets, investments, capital expenditures, and transactions
with affiliates. At March 31, 2002, the Company was in compliance with these
restrictions.
The $40.0 million term loan facility requires repayment of $2.6 million per
quarter in fiscal year 2002. The revolving credit facility is due on March 31,
2003. Accordingly, the March 31, 2002 current portion of long term debt is
comprised of the $15.0 million revolving credit facility balance, $11.4 million
of the term loan facility and $0.3 million of other debt. The Company
anticipates refinancing its revolving credit facility prior to maturity,
although there can be no assurances that the Company will be successful in
refinancing its revolving credit facility on acceptable terms, if at all. All
senior term loan borrowings under the Restated Senior Credit Facilities are
scheduled to be repaid by March 31, 2004. A portion of the Company's debt bears
interest at floating rates; therefore, its financial condition is and will be
affected by changes in prevailing rates.
In addition to servicing its debt obligations, the Company requires substantial
liquidity for capital expenditures and working capital needs. For the six months
ended March 31, 2002, the Company's capital expenditures were $6.9 million,
which included $3.4 million for capitalized computer software costs and
databases.
The Company believes that cash flows from operations, together with the amounts
available under the Company's Restated Senior Credit Facilities, will be
sufficient to fund its anticipated working capital and debt service requirements
(including the funding of the customer leasing operations) through the remainder
of this fiscal year. The Company's ability to meet its working capital and debt
service requirements, however, is subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control. If the Company is not able to meet such requirements, it may be
required to seek additional financing. There can be no assurance that the
Company will be able to obtain financing from other sources on terms acceptable
to the Company, if at all.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Reference is made to Part II, Item 7A, "Quantitative and Qualitative Disclosures
About Market Risk" in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001. There have been no material changes in the
quarter ended March 31, 2002.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
although there can be no assurances, the Company does not anticipate that the
resolution of these matters will have a material adverse effect on the Company's
results of operation or financial position.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three
months ended March 31, 2002.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 14th day of May 2002.
COOPERATIVE COMPUTING, INC.
By: /s/ GREG PETERSEN
-----------------
Greg Petersen
Senior Vice President, Finance
and Administration
16