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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
------------ ---------------
COMMISSION FILE NUMBER 333-49389
COOPERATIVE COMPUTING, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2160013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6207 BEE CAVE ROAD 78746
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)
(512) 328-2300
(Issuer'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: 35,220,000 on August 14, 1998
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COOPERATIVE COMPUTING, INC.
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
Cooperative Computing, Inc.
Consolidated Balance Sheets as of June 30, 1998 and September 30, 1997 3
Consolidated Statements of Operations for the three months and nine 4
months ended June 30, 1998 and June 30, 1997
Consolidated Statements of Cash Flows for the nine months ended 5
June 30, 1998 and June 30, 1997
Notes to Consolidated Financial Statements 6
ITEM 2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 8
RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
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3
COOPERATIVE COMPUTING, INC.
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1998 1997
--------------------------
ASSETS (Unaudited)
--------------------------
Current Assets: (Amounts in thousands)
Cash and cash equivalents $ 3,126 $ 1,633
Trade accounts receivable, net 33,044 25,819
Inventories 7,972 4,031
Investment in leases 2,514 1,735
Deferred income taxes 8,339 6,371
Prepaid expenses and other current assets 6,139 7,245
---------- ----------
Total current assets 61,134 46,834
Service Parts 3,270 3,801
Property and equipment, net 11,803 10,355
Long-term investment in leases 11,317 14,378
Capitalized computer software costs, net 27,536 32,569
Databases, net 17,299 20,688
Deferred financing costs 5,783 5,436
Other assets 11,844 11,132
Goodwill, net 126,368 126,934
Other intangibles 30,593 34,313
---------- ----------
Total Assets $ 306,947 $ 306,440
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,215 $ 9,882
Payroll related accruals 11,978 13,129
Deferred revenue 5,507 4,223
Current portion of long-term debt 4,203 6,436
Accrued expenses and other current liabilities 13,385 12,561
---------- ----------
Total current liabilities 50,288 46,231
Long-term debt 168,832 138,531
Deferred income taxes 44,850 53,240
Other liabilities 11,648 14,739
---------- ----------
Total liabilities 275,618 252,741
Stockholders' equity:
Common Stock, par value $.000125, authorized 50,000,000
shares, issued and outstanding 35,220,000 4 4
Additional paid-in capital 88,994 88,994
Retained deficit (57,669) (35,299)
---------- ----------
Total stockholders' equity: 31,329 53,699
---------- ----------
Total liabilities and stockholders' equity $ 306,947 $ 306,440
========== ==========
See accompanying notes
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COOPERATIVE COMPUTING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------------------------------------
1998 1997 1998 1997
----------------------------------------------------------
Revenues:
Systems $ 20,642 $ 17,478 $ 55,105 $ 35,071
Customer support and information services 36,699 32,118 102,800 50,052
Finance 1,909 2,280 5,759 4,011
---------- ---------- ---------- ----------
Total revenue 59,250 51,876 163,664 89,134
Cost of revenues:
Systems 13,802 12,381 38,025 20,957
Services and finance 23,594 19,755 65,952 30,080
---------- ---------- ---------- ----------
Total cost of revenues 37,396 32,136 103,977 51,037
---------- ---------- ---------- ----------
Gross Margin 21,854 19,740 59,687 38,097
Operating expenses:
Sales and marketing 12,276 11,436 35,533 16,874
Product development 3,684 4,170 11,757 8,731
General and administrative 10,347 8,000 28,530 11,873
Write-off of in-process research & development -- -- -- 23,100
---------- ---------- ---------- ----------
Total operating expenses 26,307 23,606 75,820 60,578
Operating income (loss) (4,453) (3,866) (16,133) (22,481)
Interest expense and other (4,027) (3,270) (11,123) (3,542)
---------- ---------- ---------- ----------
Income (loss) before income taxes and extraordinary charge (8,480) (7,136) (27,256) (26,023)
Income tax provision (benefit) (2,323) (1,779) (7,982) 498
---------- ---------- ---------- ----------
Net Loss before extraordinary charge (6,157) (5,357) (19,274) (26,521)
---------- ---------- ---------- ----------
Extraordinary charge, net of tax of $1,969 -- -- 3,017 --
---------- ---------- ---------- ----------
Net Loss $ (6,157) $ (5,357) $ (22,291) $ (26,521)
========== ========== ========== ==========
Pro forma information:
Historical loss before provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (26,023)
Pro forma provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (183)
---------
Pro forma net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (26,206)
=========
See accompanying notes
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COOPERATIVE COMPUTING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
Nine Months Nine Months
Ended Ended
June 30, 1998 June 30, 1997
OPERATING ACTIVITIES
Net (loss) $ (22,291) $ (26,521)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 5,171 3,024
Amortization 33,183 15,367
Write-off of in-process research and development -- 23,100
Loss on write-off of debt issue costs 3,017 222
Other, net 29 241
Changes in assets and liabilities, net of effects of business
acquired:
Trade accounts receivable (6,592) (1,230)
Inventories (3,229) 582
Investment in leases 2,282 8,755
Deferred income taxes (10,482) (2,308)
Prepaid expenses and other assets 470 8,068
Accounts Payable 5,333 (815)
Deferred revenue 1,284 317
Accrued expenses and other current liabilities (1,489) 986
---------- ----------
Net cash provided by operating activities 6,686 29,788
INVESTING ACTIVITIES
Acquisition of Triad Systems, net of cash acquired -- (179,893)
Purchase of property and equipment (4,774) (2,192)
Capitalized computer software costs and databases (9,986) (9,652)
Equity in earnings (loss) of investments 131 (92)
Purchase of service parts (1,148) 14
Acquisitions, net of cash acquired (9,906) --
Other (1,391) --
---------- ----------
Net cash used in investing activities (27,074) (191,815)
FINANCING ACTIVITIES
Issuance of common stock -- 96,000
Stock issuance costs -- (7,355)
Proceeds from bond issuance 100,000 --
Proceeds from credit facility 207,250 175,450
Payment on debt facilities (279,036) (81,302)
Debt issuance costs (6,082) (6,707)
Shareholder distributions -- (8,650)
Advances from shareholders -- 2,495
Repayments of advances to shareholders -- (7,584)
Other (251) (14)
---------- ----------
Net cash provided by financing activities 21,881 162,333
Net increase in cash and equivalents 1,493 306
Cash and equivalents, beginning of period 1,633 2,388
---------- ----------
Cash and equivalents, end of period $ 3,126 $ 2,694
========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 7,553 $ 3,576
========== ==========
Income taxes $ 188 $ 56
========== ==========
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COOPERATIVE COMPUTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended June 30, 1998 may
not be indicative of the results for the year ended September 30, 1998.
Reclassification
Certain prior period amounts have been reclassified to correspond with
current period classification.
2. DISCOUNTING OF LEASE RECEIVABLES
Activity in the following servicing liability account (recorded in
other liabilities in the Company's balance sheet) is as follows:
RECOURSE
OBLIGATION
----------
Balance at September 30, 1997 ............. $ 9,662
Newly-created liabilities ................. 2,521
Charges and lease write-offs .............. (4,876)
-------
Balance at June 30, 1998 .................. $ 7,307
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3. INCOME TAXES
Through February 27, 1997, the Company and its affiliates had elected
to be treated as S Corporations under Subchapter S of the Internal Revenue Code
of 1986, as amended. As such, federal income taxes were the responsibility of
the individual stockholders.
The pro forma disclosures for the nine month statement of operations
ending June 30, 1997 reflect the adjustments to record provision for income
taxes as if the Company had not been an S Corporation.
The Company recorded an income tax benefit for the quarter ended June
30, 1998 at an effective rate of approximately 27% which is based on the
Company's anticipated results for the year. The amount of permanent differences,
which impact the effective tax rate, are approximately the same for each of the
quarters. Therefore, the impact of the permanent differences on the effective
tax rate for each quarter of fiscal 1998 varies in relation to the loss before
income taxes.
The Company recorded an income tax provision for the nine months
ended June 30, 1998 at an effective tax rate of approximately 29% which is
based on the Company's anticipated results for the year. The effective tax
rates for the nine months ended June 30, 1998 and June 30, 1997 differ
primarily due to the impact of the write-off of in-process research and
development associated with the Triad acquisition.
The Company's (provision) benefit for income taxes differs from the
amount computed by applying the statutory rate to income (loss) before income
taxes primarily due to the impact of permanent differences and other items as
discussed above.
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4. COMMITMENTS AND CONTINGENCIES
Licensing Agreement
The Company has a license which allows it to sublicense a software
product that provides quick access to auto repair information. The Company is
obligated to a non-refundable minimum annual commitment of $1 million through
2011.
In May, 1998 the Company completed a right sizing project. The Company
has accrued costs of approximately $0.8 million at May 31, 1998 associated with
severance costs and related fees.
5. DEBT
Refinancing of Debt
On February 10, 1998, the Company consummated the sale of $100 million
Senior Subordinated Notes (the "Offering"). Concurrently with the consummation
of the Offering, the Company (i) amended and restated its $170 million credit
facility (the "Old Credit Facilities") by entering into a new $50 million term
loan facility and a new $50 million revolving credit facility and (ii) used the
net proceeds from the Offering and the new facilities to repay the Old Credit
Facilities. The refinancing of debt resulted in an extraordinary loss of
approximately $3 million, net of tax, as a result of the write-off of existing
deferred financing costs.
6. STOCK OPTION PLAN
In February 1998, the Board of Directors of the Company gave tentative
approval for the implementation of a stock option plan and has reserved 4.8
million shares of the Company's Common Stock for issuance under the plan.
7. POST ACQUISITION RESERVES
In connection with the acquisition of Triad, the Company assumed
approximately $5.2 million of costs to be incurred with the consolidation of
Triad's management administration, manufacturing and finance operations with
the Company's. Such costs include severance costs for the involuntary
termination of certain Triad employees ($4.1 million) and costs associated with
a leased building to be vacated as a result of the consolidation.
The consolidation of the manufacturing operation was completed by June
30, 1998 and the consolidation of the finance operations is expected to be
completed by September 30, 1998.
Total amounts charged to employee severance as of June 30, 1998 were
approximately $2.3 million. Total amounts charged to vacated lease accrual were
approximately $0.6 million.
8. SUBSEQUENT EVENTS
The Company's registration statement with respect to the Exchange of
registered notes for the notes issued in the Offering was declared effective by
the Securities and Exchange Commission on August 7, 1998.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Any forward looking statements are based on estimates and assumptions
made by management of the Company, which, although believed to be reasonable,
are inherently uncertain. Therefore, undue reliance should not be placed upon
such estimates and statements. No assurance can be given that any of such
estimates or statements will be realized and it is likely that actual results
will differ materially from those contemplated by such forward looking
statements.
The Company is a leading designer, provider and servicer of management
information systems and solutions 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 and agribusiness. The Company's
system offerings are enhanced by extensive information services featuring highly
specialized information products and customer support and maintenance services.
The Company, through its wholly owned subsidiary Triad Systems Financial
Corporation ("Triad Financial"), leases its products to some of its customers
under full-payout, direct financing leases.
On February 27, 1997, the Company acquired Triad Systems Corporation
("Triad"). The acquisition of Triad (the "Triad Acquisition") was consummated to
broaden the Company's presence in the automotive aftermarket and to establish a
presence in the hardlines and lumber industry. The Triad Acquisition has been
accounted for as a purchase and, accordingly, the results of operations of Triad
are included from the date of the acquisition. In accounting for the Triad
Acquisition, certain intangible assets were assigned values greater than
historic book values, and the amortization of these assets impact the financial
statements since the date of the Triad Acquisition. In 1997, the Company also
changed its fiscal year end from November 30, to September 30.
On February 10, 1998, the Company refinanced $149.7 million of
indebtedness, primarily incurred in connection with the Triad Acquisition,
through the issuance of $100.0 million in 9% Senior Subordinated Notes and the
restructuring of an existing $170.0 million Senior Credit Facility into a $50.0
million term loan facility and a $50.0 million revolving line of credit. In
addition, on March 1, 1998, the Company acquired certain assets of ADP Claims
Solution Group, Inc. (the "ARISB Acquisition") for approximately $9.3 million in
total consideration (including the assumption of certain liabilities). This
acquisition was funded through the restructured Senior Credit Facility, and the
results of operations from the ARISB Acquisition are immaterial and included
from the date of the acquisition.
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As a result of the significant impact on operations due to the Triad
Acquisition, the Company changing its fiscal year, and the debt refinancing, the
results of operations and financial condition of the Company for the nine months
ended June 30, 1998 are not directly comparable to the corresponding period in
1997.
Revenues for the three months ended and nine months ended June 30, 1998
were $59.3 million and $163.7 million, respectively. These revenues were $7.4
million and $74.5 million greater than the corresponding periods in 1997. The
Company experienced a net loss of $6.2 million for the three months ended
June 30, 1998 and a net loss of $22.3 million for the nine months ended June 30,
1998.
REVENUE
Revenues for the three months ended June 30, 1998 were $59.3 million
compared to $51.9 million for the three months ended June 30, 1997, an increase
of $7.4 million. Revenues for the nine months ended June 30, 1998 were $163.7
million compared to $89.1 million for the nine months ended June 30, 1997, an
increase of $74.5 million. The majority of this increase is attributed to the
Triad Acquisition. Triad had total revenues of $66.4 million for the five months
prior to the acquisition.
Systems revenues for the three months ended June 30, 1998, increased
$3.2 million or 18% to $20.6 million as compared to the three months ended June
30, 1997. The increase in revenues was due to increased sales in both the
automotive and hardlines markets. Automotive system sales increased $2.3 million
or 27% and hardlines systems sales increased $0.9 million or 10%. Systems
revenues for the nine months ended June 30, 1998, increased $20.0 million or 57%
to $55.1 million as compared to the nine months ended June 30, 1997, primarily
due to the Triad acquisition. Triad had systems revenues of $21.1 million during
the five months prior to the acquisition.
Revenues from customer support and information services increased $4.6
million or 14% for the three months ended June 30, 1998 as compared to the three
months ended June 30, 1997. The ARISB Acquisition accounted for 3.0 million of
the increase. The remaining increase in support and services revenues was due to
the increased customer base in both the automotive and hardlines industries. For
the nine months ended June 30, 1998, revenues from customer support and
information services increased $52.7 million or 105% as compared to the nine
months ended June 30, 1997. The majority of this increase is due to the effects
of the Triad acquisition. Triad had customer support and information services
revenues of $43.1 million for the five months prior to the acquisition.
Revenues from financing activities decreased $0.4 million to $1.9
million for the three months ended June 30, 1998 as compared to the three months
ended June 30, 1997. For the nine months ended June 30, 1998, revenues from
financing activities increased $1.7 million to $5.8 million as compared to the
nine months ended June 30, 1997. This increase is a direct result of the
financing activities of Triad being included for the entire nine month period
ending June 30, 1998.
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COST OF REVENUES
Cost of revenues were $37.4 million for the three months ended June 30,
1998, an increase of $5.3 million over the corresponding period in 1997,
primarily the result of increased revenues. Cost of revenues were $104.0 million
for the nine months ended June 30, 1998, an increase of $52.9 million over the
corresponding period of 1997. The majority of the increase was due to the Triad
Acquisition and the increased revenues. Triad had cost of revenues of $38.3
million for the five months prior to the acquisition. Additionally, the nine
months ended June 30, 1998 contain an additional five months of amortization of
intangible assets acquired in the Triad Acquisition and revalued through
purchase accounting. This additional amortization increased cost of revenues by
$6.3 million.
Cost of systems revenues for the three months ended June 30, 1998
increased $1.4 million to $13.8 million as compared to the three months ended
June 30, 1997. The increase was due to the increase in systems revenues. Cost
of systems revenues for the nine months ended June 30, 1998 increased $17.1
million to $38.0 million as compared to the nine months ended June 30, 1997.
Triad had cost of systems revenues of $12.0 million during the five months
prior to the acquisition. The additional five months of amortization of
internally developed software acquired in the Triad Acquisition and revalued
through purchase accounting increased costs by $5.1 million for the nine months
ended June 30, 1998.
Cost of revenues for services and finance for the three months ended
June 30, 1998 increased $3.8 million to $23.6 million as compared to the three
months ended June 30, 1997. This increase is primarily attributable to increased
revenues, particularly those resulting from the ARISB Acquisition. Cost of
revenues for services and finance for the nine months ended June 30, 1998
increased $35.9 million to $66.0 million as compared to the nine months ended
June 30, 1997, primarily due to the Triad Acquisition. Triad had cost of
revenues for services and finance of $26.4 million for the five
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months prior to the acquisition. The additional five months of amortization of
information products acquired during the Triad Acquisition and revalued through
purchase accounting entries increased costs by $1.3 million for the nine months
ended June 30, 1998. Additionally, cost of revenues for customer support
services increased due to increases in the customer base and increased
headcount in the hardlines customer support area. Increases in cost of revenues
for financing are a direct result of the financing activities of Triad being
included for nine month period ending June 30, 1998.
EXPENSES AND OTHER INCOME
Operating expenses for the three months ended June 30, 1998 were $26.3
million, an increase of $2.7 million over the corresponding period in 1997.
During the period, the Company recorded approximately $0.5 million in severance
associated with a right sizing which took place on June 1, 1998. Additionally,
costs associated with the consolidation of finance and accounting functions in
Austin, the startup of the Company's captive travel agency, and increased
marketing expenses contributed to the increase. Operating expenses for the nine
months ended June 30, 1998 were $75.8 million, an increase of $15.2 million
over the corresponding period in 1997. This increase is primarily related to
the acquisition of Triad. Triad had operating expenses of $27.7 million for the
five months prior to the acquisition. The additional five months of
amortization of intangible assets acquired in the Triad Acquisition and
revalued through purchase accounting increased operating expenses by $5.9
million for the nine months ended June 30, 1998 as compared to the
corresponding period in 1997. Additionally, the annual rent expense of $2.5
million on the Livermore, California facility acquired in the Triad Acquisition
and annual wage increases have contributed to an increase in operating
expenses. The nine months ended June 30, 1997 include a $23.1 million write-off
of developed software acquired during the Triad Acquisition.
Interest and other expenses for the three months ended June 30, 1998
increased $0.8 million from the corresponding period in 1997. Interest and
other expenses for the nine months ended June 30, 1998 were $11.1 million, an
increase of $7.6 million from the corresponding period in 1997. The increase was
due to the increased interest expense on the debt incurred as a result of the
Triad Acquisition and the ARISB Acquisition.
The Company recorded a benefit for income taxes of $2.3 million and $8.0
million for three months and nine months ended June 30, 1998, respectively. The
effective tax rate used to record the benefit for income taxes is based on the
Company's anticipated results for the year. For the three months and nine months
ended June 30, 1997, the Company recorded an income tax benefit of $1.8 million
and an income tax expense of $0.5 million, respectively. Prior to the Triad
Acquisition, the Company elected to be treated as an S Corporation and therefore
had no federal provision for income taxes. The provision for income taxes of
$0.5 million for the nine months ending
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June 30, 1997 represents tax expense for four months of operations ended June
30, 1997 and the impact of the termination of the S Corporation election which
occurred on February 27, 1997. The effective tax rate for the nine months ended
June 30, 1997 was also impacted by the write-off of in-process research and
development associated with the Triad acquisition. The effective tax rates for
the quarters ended June 30, 1998 and March 31, 1998 are based on anticipated
results for the year and differ primarily due to the impact of permanent
differences on the effective tax rate in relation to the loss before income
taxes. The permanent differences for each of the quarters during fiscal 1998 are
approximately the same. See also note 3 in unaudited financial statements for
the period ending June 30, 1998.
On February 10, 1998, the Company refinanced its existing debt. This
generated an extraordinary charge of $3.0 million, net of tax of $2.0 million,
due to the write-off of debt issuance costs associated with the original debt
facilities. This charge is included in the results of operations for the nine
months ended June 30, 1998.
As a result of the above factors, the Company experienced a net loss of
$6.2 million for the three months ended June 30, 1998, an increase of $0.8
million from the loss recorded for the three months ended June 30, 1997. For the
nine months ended June 30, 1998, the Company experienced a net loss of $22.3
million, a $4.2 million improvement over the $26.5 million loss for the nine
months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had $173.0 million in outstanding
indebtedness, an increase of $28.1 million from September 30, 1997. For the
nine months ended June 30, 1998, net cash used from operations was
approximately $6.4 million. This use of cash from operations primarily was
driven by the operating loss for the nine months ended June 30, 1998 coupled
with increases in inventories and accounts receivable.
On February 10, 1998, the Company refinanced $149.7 million of indebtedness
through the issuance of $100.0 million in 9% Senior Subordinated Notes (the
"Notes") and the restructuring of an existing $170.0 million Senior Credit
Facility into a $50.0 million term loan facility and a $50.0 million revolving
line of credit. Debt issuance costs for the refinancing totaled $6.1 million. In
addition, on March 1, 1998 the Company consummated the ARISB Acquisition for
total consideration of approximately $9.3 million which was funded through the
Company's revolving credit facility. The Notes require annual interest payments
of $9.0 million, and the Company estimates that, based on current debt levels,
the restructed Senior Credit Facility will require annual interest payments of
$6.3 million.
In addition to servicing its debt obligations, the Company requires
substantial liquidity for capital expenditures and working capital needs. The
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Company requires working capital as it funds its customer leasing operations and
then periodically liquidates its lease portfolio through discounting
arrangements with banks and lending institutions. For the nine months ended June
30, 1998, the Company's capital expenditures were $15.7 million which includes
$9.8 million for development of the Company's software and information service
products. Additionally, the Company is obligated to a minimum annual commitment
of $1.0 million through 2011 for a software license which allows the Company to
sublicense software to customers in the automotive industry.
The Notes and the Senior Credit Facilities impose certain
restrictions on the Company's ability to incur additional indebtedness. These
restrictions may limit the Company's ability to respond to changes in economic
conditions or unanticipated capital investment requirements. The covenants
contained in the Notes and Senior Credit Facilities also, among other things,
limit the ability of the Company to dispose of assets, repay indebtedness or
amend debt instruments, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances and make acquisitions.
During the three months ended June 30, 1998, the Company completed a right
sizing project which is expected to reduce annual operating expenses by
approximately $12.0 million. The Company believes that the cash flow from its
operations, together with the amounts available under the Company's credit
facility, will be sufficient to fund its working capital requirements which
include the funding of the Company's customer leasing operations. The revolving
credit facility allows the Company to borrow up to $50 million, of which as of
June 30, 1998, $22.5 million had been borrowed thereunder. Repayment of the
$50.0 million term loan facility begins on June 30, 1999 at a beginning rate of
$2.0 million per quarter. All borrowings under the credit facilities are
scheduled to be repaid by March 31, 2003. While the Company expects to service
these obligations with cash flow from operations, its ability to service its
debt obligations is subject to future economic conditions and to financial,
business, and other factors, many of which are beyond the Company's control. See
"Risk Factors."
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace significant portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems, the cost of
which is not expected to be material in relation to the Company's operations.
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted and would not have an adverse effect on the Company's systems.
The Company has determined it has minimal exposure to contingencies related to
the Year 2000 Issue for the products it has sold.
The Company plans to utilize internal resources to reprogram or replace and
test the software for Year 2000 modifications. The Company anticipates
completing the Year 2000 project by June 30, 1999, which is prior to any
anticipated impact on its operating systems. The Company has not established a
separate budget for making its internal systems Year 2000 ready, as many of its
internal systems have been recently replaced with an enterprise-wide information
system believed to be Year 2000 ready and the Company's own products are
scheduled to be made ready as part of its ordinary update cycle in a version of
products scheduled for release prior to the year 2000.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
June 30, 1998.
14
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COOPERATIVE COMPUTING, INC.
Dated: August 14, 1998 By: /s/ MATTHEW HALE
------------------------------------
Matthew Hale
Chief Financial Officer
(Principal financial and chief
accounting officer)
15
16
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule