SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2001
[ ] 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 August 14, 2001
----- --------------------------------
Common Stock 1,000 Shares
1
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, 2000 and
June 30, 2001 4
Consolidated Statements of Operations for the three months and
nine months ended June 30, 2000 and June 30, 2001 5
Consolidated Statements of Cash Flows for the nine months ended
June 30, 2000 and June 30, 2001 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 15
PART II - OTHER INFORMATION 16
ITEM 1. - LEGAL PROCEEDINGS 16
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. - OTHER INFORMATION 16
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 17
INDEX TO EXHIBITS 18
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) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (6) INABILITY OF THE COMPANY TO
SUCCESSFULLY INTEGRATE BUSINESSES ACQUIRED IN THE FUTURE AND TO REALIZE
ANTICIPATED REVENUE AND COST SAVINGS OPPORTUNITIES; (7) INCREASES IN THE
COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY
CAPITAL; AND (8) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH
THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH FACTORS WILL BE BEYOND
THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. IN ADDITION, OTHER FACTORS THAT
COULD AFFECT THE FUTURE RESULTS OF THE COMPANY AND COULD CAUSE THOSE RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS ARE
DISCUSSED AT GREATER LENGTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND APPEAR ELSEWHERE IN THIS
QUARTERLY REPORT. THESE RISKS, UNCERTAINTIES AND OTHER FACTORS SHOULD NOT BE
CONSTRUED AS EXHAUSTIVE, AND THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION TO UPDATE, ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share amounts)
September 30, June 30,
2000 2001
-------------- ----------------
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 679 $ 1,722
Trade accounts receivable, net of allowance for
doubtful accounts of $5,086 and $4,357 at
September 30, 2000 and June 30, 2001, respectively 34,714 37,154
Inventories 3,786 3,258
Investment in leases 4,439 4,214
Deferred income taxes and other current assets 11,630 12,752
-------------- ----------------
Total current assets 55,248 59,100
Service parts 3,813 3,651
Property and equipment, net 8,241 7,025
Long-term investment in leases 12,411 10,375
Capitalized computer software costs, net 13,901 13,261
Databases, net 11,050 11,966
Other intangibles 121,533 111,405
Other assets 18,987 15,210
-------------- ----------------
Total assets $ 245,184 $ 231,993
============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 10,708 $ 11,762
Payroll related accruals 13,663 11,718
Deferred revenue 11,948 12,365
Current portion of long-term debt 8,400 10,047
Accrued expenses and other current liabilities 8,598 9,774
-------------- ----------------
Total current liabilities 53,317 55,666
Long-term debt 170,200 165,932
Deferred income taxes and other liabilities 33,327 32,496
-------------- ----------------
Total liabilities 256,844 254,094
Redeemable Class A Common Stock, including $12,854 and
$22,081 in accumulated accretion at September 30, 2000
and June 30, 2001, respectively 36,795 46,022
Stockholders' deficit:
Common Stock:
Par value $.000125, authorized 50,000,000 shares,
issued and outstanding 35,220,000 at
September 30, 2000 and June 30, 2001 4 4
Additional paid-in capital 88,994 88,994
Retained deficit (136,399) (155,237)
Other accumulated comprehensive income:
Cumulative translation adjustment (1,054) (1,884)
-------------- ----------------
Total stockholders' deficit (48,455) (68,123)
-------------- ----------------
Total liabilities and stockholders' deficit $ 245,184 $ 231,993
============== ================
See accompanying notes
4
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 2001 2000 2001
---------- ---------- ---------- ----------
Revenues:
Systems $ 15,973 $ 13,295 $ 53,443 $ 40,697
Services and finance 39,625 39,357 117,873 119,159
---------- ---------- ---------- ----------
Total revenues 55,598 52,652 171,316 159,856
Cost of revenues:
Systems 9,020 7,596 38,215 23,932
Services and finance 20,681 18,556 64,089 58,886
---------- ---------- ---------- ----------
Total cost of revenues 29,701 26,152 102,304 82,818
---------- ---------- ---------- ----------
Gross margin 25,897 26,500 69,012 77,038
Operating expenses:
Sales and marketing 12,724 9,298 38,293 31,128
Product development 3,759 5,228 10,959 14,124
General and administrative 10,292 9,526 29,785 29,062
---------- ---------- ---------- ----------
Total operating expenses 26,775 24,052 79,037 74,314
---------- ---------- ---------- ----------
Operating income (loss) (878) 2,448 (10,025) 2,724
Interest expense (4,654) (4,296) (14,265) (13,842)
Foreign exchange gain (loss) 25 11 (3) 43
Equity loss in affiliate - (411) - (411)
Other income, net 422 329 890 400
---------- ---------- ---------- ----------
Loss before income taxes (5,085) (1,919) (23,403) (11,086)
Income tax benefit 957 238 6,138 1,374
---------- ---------- ---------- ----------
Net loss (4,128) (1,631) (17,265) (9,712)
Accretion of redeemable convertible stock (2,468) (3,333) (6,855) (9,227)
---------- ---------- ---------- ----------
Net loss attributable to common stock $ (6,596) $ (5,014) $ (24,120) $ (18,939)
========== ========== ========== ==========
Comprehensive loss:
Net loss $ (4,128) $ (1,681) $ (17,265) $ (9,712)
Foreign currency translation adjustment (1) (419) (189) (830)
---------- ---------- ---------- ----------
Comprehensive loss $ (4,129) $ (2,100) $ (17,454) $ (10,542)
========== ========== ========== ==========
See accompanying notes
5
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Nine Months Ended
June 30,
------------------------------
2000 2001
------------ -----------
OPERATING ACTIVITIES
Net loss $ (17,265) $ (9,712)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 6,809 6,101
Amortization 26,837 16,841
Provision for doubtful accounts 7,313 5,482
Equity loss in affiliate - 411
Other, net (200) (848)
Changes in assets and liabilities, net of effects of
businesses acquired:
Trade accounts receivable 3,031 (7,922)
Inventories 4,317 528
Investment in leases (333) 2,261
Deferred income taxes (6,667) 4
Prepaid expenses and other assets 2,001 1,303
Accounts payable (7,006) 1,054
Deferred revenue (3,287) 417
Accrued expenses and other current liabilities (511) (1,602)
------------ -----------
Net cash provided by (used in) operating activities 15,039 14,318
INVESTING ACTIVITIES
Purchase of property and equipment (2,046) (2,593)
Capitalized computer software costs and databases (7,753) (6,572)
Purchase of service parts (1,419) (1,881)
Other (96) 393
------------ -----------
Net cash used in investing activities (11,314) (10,653)
FINANCING ACTIVITIES
Proceeds from debt facility 71,000 31,275
Payment on long-term debt facilities (74,725) (33,897)
------------ -----------
Net cash provided by (used in) financing activities (3,725) (2,622)
------------ -----------
Net increase in cash and cash equivalents - 1,043
Cash and cash equivalents, beginning of period - 679
------------ -----------
Cash and cash equivalents, end of period $ - $ 1,722
============ ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 11,826 $ 9,751
============ ===========
Income taxes $ 180 $ 389
============ ===========
Non cash financing activity:
Accretion of Class A Common Stock $ 6,855 $ 9,227
============ ===========
See accompanying notes
6
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Cooperative
Computing Holding Company, Inc. ("Holding" or the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended June 30, 2001 may not
be indicative of the results for the full fiscal year ending September 30, 2001.
Holding has no assets or liabilities other than (1) its investment in its wholly
owned subsidiary, Cooperative Computing, Inc. ("CCITRIAD") and (2) its
Redeemable Class A Common Stock, the net proceeds of which were contributed in
full to CCITRIAD; accordingly, these consolidated financial statements represent
the operations of CCITRIAD and its subsidiaries.
Certain amounts in the nine months ended June 30, 2000 have been reclassified to
conform to the presentation for the nine months ended June 30, 2001.
2. LEASE RECEIVABLES
Activity in the following servicing 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, 2000...... $ 1,328 $ 5,417
Newly-created liabilities.......... 91 1,838
Charges and lease write-offs....... (491) (1,742)
--------------- ---------------
Balance at June 30, 2001........... $ 928 $ 5,513
=============== ===============
3. INCOME TAXES
The Company recorded an income tax benefit for the nine months ended
June 30, 2001 at an effective rate of 12%, which is based on the Company's
anticipated results for the full fiscal year. The amounts of permanent
differences that impact the effective tax rate are approximately the same for
each of the periods presented.
The Company's benefit for income taxes differs from the amount computed by
applying the statutory rate to loss before income taxes due to the impact of
permanent differences, which consist primarily of goodwill amortization.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company's current revenue
recognition policies and practices are materially consistent with this
statement. The standard is required to be implemented no later than the fourth
quarter of fiscal 2001.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, as amended. This statement requires
companies to record derivatives on the balance sheet as assets or liabilities
7
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The Company adopted SFAS No. 133
effective October 1, 2000, and the adoption did not have a material impact on
the Company's financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, ACCOUNTING FOR TRANSFERS AND
SERVICES OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, a replacement
of FASB Statement No. 125. It is effective for transactions occurring after
March 31, 2001. This statement provides guidance for distinguishing transfers of
financial assets that are sales from transfers that are actually secured
borrowings. The current accounting practices of the Company are materially
consistent with the new standard.
In June 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company may apply the new rules on accounting for goodwill and other
intangible assets beginning in the first fiscal quarter of fiscal 2002. If
applied in the first quarter of fiscal 2002, the nonamortization provisions of
the Statement are expected to result in reduction in net loss of approximately
$10.8 million in fiscal 2002. Once the Statement is adopted, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of October 1, 2002. The Company has not yet
determined what the effect of these tests will be on its earnings and financial
position.
8
5. 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.
(Amounts in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
Systems revenues:
Automotive $ 8,272 $ 5,115 $ 28,013 $ 16,000
Hardlines and lumber 7,701 8,180 25,430 24,697
----------- ----------- ----------- -----------
Total systems revenues: 15,973 13,295 53,443 40,697
Services and finance revenues:
Automotive 25,576 25,096 77,056 76,442
Hardlines and lumber 14,049 14,261 40,817 42,717
----------- ----------- ----------- -----------
Total services and finance revenues: 39,625 39,357 117,873 119,159
Systems costs of revenues:
Automotive 4,733 3,555 20,855 10,535
Hardlines and lumber 4,287 4,041 17,360 13,397
----------- ----------- ----------- -----------
Total systems costs of revenues: 9,020 7,596 38,215 23,932
Services and finance cost of revenues:
Automotive 12,563 11,150 39,949 35,629
Hardlines and lumber 8,118 7,406 24,140 23,257
----------- ----------- ----------- -----------
Total services and finance cost of revenues: 20,681 18,556 64,089 58,886
Sales and marketing:
Automotive 7,585 5,226 23,795 19,456
Hardlines and lumber 5,139 4,072 14,498 11,672
----------- ----------- ----------- -----------
Total sales and marketing: 12,724 9,298 38,293 31,128
Product development:
Automotive 2,583 4,275 7,614 11,196
Hardlines and lumber 981 953 3,068 2,928
Corporate 195 0 277 0
----------- ----------- ----------- -----------
Total product development: 3,759 5,228 10,959 14,124
General and administrative 10,292 9,526 29,785 29,062
Interest expense (4,654) (4,296) (14,265) (13,842)
Other income(expense), net 447 (71) 887 32
----------- ----------- ----------- -----------
Loss before income taxes $ (5,085) $ (1,919) $ (23,403) $ (11,086)
=========== =========== =========== ===========
Revenues:
Americas $ 54,110 $ 51,343 $ 166,864 $ 155,868
Europe 1,488 1,309 4,452 3,988
----------- ----------- ----------- -----------
Total revenues $ 55,598 $ 52,652 $ 171,316 $ 159,856
=========== =========== =========== ===========
Assets:
Americas $ 242,573 $ 226,754 $ 242,573 $ 226,754
Europe 5,462 5,239 5,462 5,239
----------- ----------- ----------- -----------
Total assets $ 248,035 $ 231,993 $ 248,035 $ 231,993
=========== =========== =========== ===========
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 "CCITRIAD"), 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 June 30, 2001 Compared to Three Months Ended June 30, 2000
Revenues for the three months ended June 30, 2001 were $52.7 million, a decrease
of $2.9 million, or 5% from the $55.6 million recorded in the prior year's
period. The decrease was primarily attributable to the automotive division,
which had a revenue decline of $3.6 million.
Systems revenues for the three months ended June 30, 2001 were $13.3 million,
compared to $16.0 million for the three months ended June 30, 2000, a decrease
of $2.7 million, or 17%. Systems revenues for the automotive division for the
three months ended June 30, 2001 decreased $3.2 million to $5.1 million, as
compared to last year, a decrease of 39%. The revenue decrease was primarily due
to lower sales of large distribution systems and of systems sold to national
accounts. Systems revenues for the hardlines and lumber division for the three
months ended June 30, 2001 increased $0.5 million to $8.2 million, as compared
to the three months ended June 30, 2000. The increase was primarily due to
increased systems distributed by strategic partners.
Services and finance revenues were $39.4 million for the three months ended
June 30, 2001, compared to $39.6 million for the three months ended
June 30, 2000, a decrease of $0.2 million, or 1%. For the three months ended
June 30, 2001, services and finance revenues for the automotive division
decreased $0.5 million from $25.6 million to $25.1 million, while the hardlines
and lumber division increased $0.2 million from $14.1 million to $14.3 million,
as compared to the three months ended June 30, 2000. The decrease in the
automotive division is primarily due to lower finance revenues. The hardlines
and lumber increase is primarily due to greater customer services revenue.
Cost of revenues were $26.2 million for the three months ended June 30, 2001,
compared to $29.7 million for the three months ended June 30, 2000, a decrease
of $3.5 million, or 12%. For the three months ended June 30, 2001, cost of
revenues for the automotive division decreased $2.6 million, or 15%, to
$14.7 million. Cost of revenues for the hardlines and lumber division decreased
$1.0 million, or 8%, to $11.4 million, respectively, as compared to the three
months ended June 30, 2000.
Cost of systems revenues were $7.6 million for the three months ended June 30,
2001, compared to $9.0 million for the three months ended June 30, 2000, a
decrease of $1.4 million or 16%. Cost of systems revenues for the automotive
division for the three months ended June 30, 2001 decreased $1.1 million to
$3.6 million as compared to the three months ended June 30, 2000. Cost of
systems revenues for the hardlines and lumber division for the three months
ended June 30, 2001 decreased $0.3 million to $4.0 million compared to the three
months ended June 30, 2000. The decrease in systems cost of revenues is
primarily due to lower material, labor and overhead costs resulting from lower
systems revenues. Cost of systems revenues as a percentage of systems revenues
for the automotive division were 71% and 57% for the three months ended
June 30, 2001 and 2000, respectively. Cost of systems revenues as a percentage
of systems revenues for the hardlines and lumber division was 49% and 56% for
10
the three months ended June 30, 2001 and 2000, respectively. The percentage
fluctuations are primarily due to a change in the product mix.
Cost of revenues for services and finance were $18.6 million for the three
months ended June 30, 2001, compared to $20.7 million for the three months ended
June 30, 2000, a decrease of $2.1 million, or 10%. Cost of revenues for services
and finance for the automotive division for the three months ended June 30, 2001
decreased $1.4 million to $11.2 million, compared to the three months ended
June 30, 2000. Cost of revenues for services and finance for the hardlines and
lumber division for the three months ended June 30, 2001 decreased $0.7 million
to $7.4 million, compared to the three months ended June 30, 2000. Cost of
revenues of services and finance is down primarily due to lower depreciation,
amortization, and personnel costs. As a percentage of services revenues, cost of
revenues for services and finance for the automotive division were 44% and 49%
for the three months ended June 30, 2001 and 2000, respectively. As a percentage
of services revenues, cost of revenues for services and finance for the
hardlines and lumber division were 52% and 57% for the three months ended
June 30, 2001 and 2000, respectively. The percentage fluctuations are primarily
due to the factors mentioned above.
Sales and marketing expense for the three months ended June 30, 2001 decreased
$3.4 million to $9.3 million, as compared to the three months ended
June 30, 2000. Sales and marketing expense for the automotive division for the
three months ended June 30, 2001 decreased $2.4 million to $5.2 million, as
compared to the three months ended June 30, 2000. As a percentage of automotive
revenue, sales and marketing expense for the automotive division was 17% and 22%
for the three months ended June 30, 2001 and 2000, respectively. The decrease in
the sales and marketing expense for the automotive division is primarily due to
lower bad debt expense, travel, and personnel costs. Sales and marketing expense
for the hardlines and lumber division for the three months ended June 30, 2001
decreased $1.0 million to $4.1 million, as compared to the three months ended
June 30, 2000. As a percentage of hardlines and lumber revenue, sales and
marketing expense for the hardlines and lumber division was 18% and 23% for the
three months ended June 30, 2001 and 2000, respectively. The decrease in sales
and marketing expense in the hardlines and lumber division is primarily due to
lower personnel costs.
Product development expenses for the three months ended June 30, 2001 increased
$1.4 million to $5.2 million, an increase of 37%, as compared to the three
months ended June 30, 2000. As a percentage of revenue, product development
expenses were 10% and 7% for the three months ended June 30, 2001 and 2000,
respectively. Product development expenses for the automotive division for the
three months ended June 30, 2001 increased $1.7 million to $4.3 million. The
increase is primarily due to the development of certain Internet related
products. As a percentage of automotive division revenue, product development
expenses for the automotive division were 14% and 8% for the three months ended
June 30, 2001 and 2000, respectively. Product development expenses for the
hardlines and lumber division for the three months ended June 30, 2001 remained
the same at $1.0 million. As a percentage of hardlines and lumber revenue,
product development expenses for the hardlines and lumber division were 4% and
5% for the three months ended June 30, 2001 and 2000, respectively.
General and administrative expenses for the three months ended June 30, 2001
were $9.5 million compared to $10.3 million for the three months ended
June 30, 2000, a decrease of $0.8 million, or 8%. As a percentage of revenues,
general and administrative expense was 18% and 19% for the three months ended
June 30, 2001 and 2000, respectively. The decrease in general and administrative
expenses is primarily due to lower intangible amortization and lower consulting
fees.
Interest expense for the three months ended June 30, 2001 decreased $0.4 million
to $4.3 million compared to the three months ended June 30, 2000. SEE "Liquidity
and Capital Resources."
As a result of the above factors, the Company experienced a net loss of
$1.7 million for the three months ended June 30, 2001, compared to a net loss of
$4.1 million for the three months ended June 30, 2000, a decrease of
$2.4 million, or 59%.
11
Nine Months Ended June 30, 2001 Compared to Nine Months Ended June 30, 2000
Revenues for the nine months ended June 30, 2001 were $159.9 million, compared
to $171.3 million for the nine months ended June 30, 2000, a decrease of
$11.4 million, or 7%. For the nine months ended June 30, 2001, revenues for the
automotive division decreased $12.7 million, or 12%, to $92.4 million, as
compared to the nine months ended June 30, 2000. For the nine months ended
June 30, 2001, revenues for the hardlines and lumber division increased
$1.2 million, or 2%, to $67.4 million, as compared to the nine months ended
June 30, 2000.
Systems revenues for the nine months ended June 30, 2001 were $40.7 million,
compared to $53.4 million for the nine months ended June 30, 2000, a decrease of
$12.7 million, or 24%. Systems revenues for the automotive division for the nine
months ended June 30, 2001 decreased $12.0 million to $16.0 million, as compared
to the nine months ended June 30, 2000. This decrease was primarily due to lower
national accounts sales, large accounts sales and salvage sales. Systems
revenues for the hardlines and lumber division for the nine months ended
June 30, 2001 decreased $0.7 million to $24.7 million as compared to the nine
months ended June 30, 2000 due to lower large account sales.
Services and finance revenues were $119.2 million for the nine months ended
June 30, 2001, compared to $117.9 million for the nine months ended June 30,
2000, an increase of $1.3 million, or 1%. Services and finance revenues for the
automotive division for the nine months ended June 30, 2001 decreased
$0.7 million to $76.4 million, as compared to the nine months ended June 30,
2000. This decrease is primarily due to lower service dealer information
services revenue. Services and finance revenues for the hardlines and lumber
division for the nine months ended June 30, 2001 increased $1.9 million to
$42.7 million, as compared to the nine months ended June 30, 2000. This increase
in revenues is due to business products, VISTA information services, and greater
software support sales.
Cost of revenues were $82.8 million for the nine months ended June 30, 2001,
compared to $102.3 million for the nine months ended June 30, 2000, a decrease
of $19.5 million, or 19%. For the nine months ended June 30, 2001, cost of
revenues for the automotive division decreased $14.6 million, or 24%, to
$46.2 million, as compared to the nine months ended June 30, 2000. For the nine
months ended June 30, 2001, cost of revenues for the hardlines and lumber
division decreased $4.8 million, or 12%, to $36.7 million, as compared to the
nine months ended June 30, 2000.
Cost of systems revenues were $23.9 million for the nine months ended June 30,
2001, compared to $38.2 million for the nine months ended June 30, 2000, a
decrease of $14.3 million, or 37%. Cost of systems revenues for the automotive
division for the nine months ended June 30, 2001 decreased $10.4 million to
$10.5 million, as compared to the nine months ended June 30, 2000. The decrease
is primarily due to lower systems revenues. Cost of systems revenues as a
percentage of systems revenues for the automotive division were 66% and 75% for
the nine months ended June 30, 2001 and 2000, respectively. Cost of systems
revenues for the hardlines and lumber division for the nine months ended
June 30, 2001 decreased $4.0 million to $13.4 million, compared to the nine
months ended June 30, 2000 primarily due to lower systems sales and lower
amortization costs. Cost of systems revenues as a percentage of systems revenues
for the hardlines and lumber division was 54% and 69% for the nine months ended
June 30, 2001 and 2000, respectively.
Cost of revenues for services and finance were $58.9 million for the nine months
ended June 30, 2001, compared to $64.1 million for the nine months ended
June 30, 2000, a decrease of $5.2 million, or 8%. Cost of revenues for services
and finance for the automotive division for the nine months ended June 30, 2001
decreased $4.3 million to $35.6 million, compared to the nine months ended
June 30, 2000. Cost of revenues for services and finance for the hardlines and
lumber division for the nine months ended June 30, 2001 decreased $0.8 million
to $23.3 million, or 3%, compared to the nine months ended June 30, 2000. Cost
of revenues of services and finance is down primarily due to lower amortization
expense and lower personnel costs. As a percentage of services revenues, cost of
revenues for services and finance for the automotive division were 47% and 52%
for the nine months ended June 30, 2001 and 2000, respectively. As a percentage
of services revenues, cost of revenues for services and finance for the
hardlines and lumber division were 55% and 59% for the nine months ended
June 30, 2001 and 2000, respectively.
12
Sales and marketing expense for the nine months ended June 30, 2001 decreased
$7.2 million to $31.1 million, as compared to the nine months ended June 30,
2000. Sales and marketing expense for the automotive division for the nine
months ended June 30, 2001 decreased $4.3 million to $19.5 million as compared
to the nine months ended June 30, 2000. As a percentage of automotive revenue,
sales and marketing expense for the automotive division was 21% and 23% for the
nine months ended June 30, 2001 and 2000, respectively. The decrease in sales
and marketing expense primarily is related to lower expenses for personnel, bad
debt, and travel. Sales and marketing expense for the hardlines and lumber
division for the nine months ended June 30, 2001 decreased $2.8 million to
$11.7 million, as compared to the nine months ended June 30, 2000. As a
percentage of hardlines and lumber revenue, sales and marketing expense for the
hardlines and lumber division was 17% and 22% for the nine months ended June 30,
2001 and 2000, respectively. The reduction in sales and marketing expense in the
hardlines and lumber division is due to lower costs for personnel.
Product development expenses for the nine months ended June 30, 2001 increased
$3.1 million to $14.1 million, as compared to the nine months ended June 30,
2000. As a percentage of revenue, product development expenses were 9% and 6%
for the nine months ended June 30, 2001 and 2000, respectively. Product
development expenses for the automotive division for the nine months ended June
30, 2001 increased $3.6 million to $11.2 million. The increase was primarily due
to the development of certain Internet related products. As a percentage of
automotive division revenue, product development expenses for the automotive
division were 12% and 7% for the nine months ended June 30, 2001 and 2000,
respectively. Product development expenses for the hardlines and lumber division
for the nine months ended June 30, 2001 decreased $0.2 million to $2.9 million.
As a percentage of hardlines and lumber division revenue, product development
expenses for the hardlines and lumber division were 4% and 5% for the nine
months ended June 30, 2001 and 2000, respectively.
General and administrative expense for the nine months ended June 30, 2001 and
June 30, 2000 were $29.1 million and $29.8 million. As a percentage of revenues,
general and administrative expense was 18% and 17% for the nine months ended
June 30, 2001 and 2000, respectively. The decreased expense came mainly from
lower intangible amortization and lower personnel costs.
Interest expense for the nine months ended June 30, 2001 was $13.8 million
compared to $14.3 million for the nine months ended June 30, 2000, a decrease of
$0.5 million, or 3%. SEE "Liquidity and Capital Resources."
As a result of the above factors, the Company experienced a net loss of
$9.7 million for the nine months ended June 30, 2001, compared to a net loss of
$17.3 million for the nine months ended June 30, 2000, a decrease of
$7.6 million, or 44%.
Liquidity and Capital Resources
As of June 30, 2001, the Company had $176.0 million in outstanding indebtedness,
a decrease of $2.6 million from September 30, 2000. The Company's outstanding
indebtedness under its Restated Senior Credit Facilities at June 30, 2001
included $28.0 million borrowed on the Company's $47.5 million senior secured
revolving credit facility under its Restated Senior Credit Facilities and
$47.3 million of senior secured term loans. Remaining indebtedness consists of
$100.0 million of Senior Subordinated Notes, due 2008, bearing interest at 9%,
and a note for $0.7 million, bearing interest at 11%, due 2008. 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 June 30,
2001, the Company was in compliance with these restrictions.
The $47.3 million term loan facility requires repayment of $2.1 million per
quarter in fiscal year 2001. All borrowings under the Restated Senior Credit
Facilities are scheduled to be repaid by March 31, 2004. A portion of the
Company's debt bears interest at floating rates; therefore, its financial
condition is and will be affected by changes in prevailing rates.
13
In addition to servicing its debt obligations, the Company requires substantial
liquidity for capital expenditures and working capital needs. The Company also
requires working capital as it funds its customer leasing operations and then
periodically produces working capital as it liquidates its lease portfolio
through discounting arrangements with banks and lending institutions. For the
nine months ended June 30, 2001, the Company's capital expenditures were
$11.0 million, which includes $6.6 million for capitalized computer software
costs and databases. Additionally, the Company is obligated to pay a minimum
royalty of $1.0 million through 2011 for a software license that the Company
sublicenses to customers in the automotive industry.
The Company 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 working capital and debt service requirements (including
the funding of the customer leasing operations). The Company's ability to meet
its working capital and debt service requirements, however, is subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. If the Company is not able to meet such
requirements, it may be required to seek additional financing. There can be no
assurance that the Company will be able to obtain financing from other sources
on terms acceptable to the Company, if at all.
14
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, 2000. There have been no material changes in the
quarter ended June 30, 2001.
15
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,
the resolution of these matters will not 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.
The stockholders approved the 2001 Broad-Based Stock Option Plan and the 2000
Amended and Restated Key Employee Plan on June 5, 2001.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.41 Stock Option Agreement dated January 1, 2001 between
Holding and Edgar Frandle
10.42 Stock Option Agreement dated February 16, 2000 between
Holding and Michael A. Aviles
10.43 Stock Option Agreement dated February 16, 2000 between
Holding and Paul D. Stone
10.44 Amended and Restated Stock Option Bonus Plan
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months
ended June 30, 2001.
16
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 August, 2001.
COOPERATIVE COMPUTING, INC.
By: /s/ PAUL D. STONE
Paul D. Stone
Senior Vice President and
Chief Administrative Officer
17
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.41 Stock Option Agreement dated January 1, 2001 between Holding
and Edgar Frandle
10.42 Stock Option Agreement dated February 16, 2000 between Holding
and Michael A. Aviles
10.43 Stock Option Agreement dated February 16, 2000 between Holding
and Paul D. Stone
10.44 Amended and Restated Stock Option Bonus Plan
18