SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2003
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 333-49389
Activant Solutions Inc.
(Exact name of Registrant as specified in its charter)
| Delaware | 94-2160013 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 804 Las Cimas Parkway 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 by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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 February 10, 2004 | |
| Common Stock | 1,000 shares |
INDEX
| PAGE | ||
| 3 | ||
| 4 | ||
| 4 | ||
| ACTIVANT SOLUTIONS INC. |
||
| Consolidated Balance Sheets as of September 30, 2003 and December 31, 2003 |
4 | |
| 5 | ||
| 6 | ||
| 7 | ||
| ITEM 2. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 16 | |
| ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
19 | |
| 19 | ||
| 20 | ||
| 20 | ||
| 20 | ||
| ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
20 | |
| 20 | ||
| 20 | ||
| 21 | ||
2
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) LOSS OR OBSOLESCENCE OF THE PROPRIETARY TECHNOLOGY ON WHICH THE COMPANY DEPENDS; (2) CHANGES IN THE MARKETS IN WHICH THE COMPANY COMPETES INCLUDING THE MANNER IN WHICH AUTOPARTS OR HARDWARE AND LUMBER ARE SOURCED, SOLD, DISTRIBUTED OR INVENTORIED, AND CHANGES IN ECONOMIC CONDITIONS IN THESE MARKETS GENERALLY; (3) CLAIMS BY THIRD PARTIES THAT THE COMPANY IS INFRINGING ON THEIR INTELLECTUAL PROPERTY RIGHTS; (4) LOSS OF THE COMPANY’S EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL; (5) INCREASED COMPETITION OR FAILURE TO EFFECTIVELY COMPETE; (6) LOSS OF KEY CUSTOMERS OR INCREASE IN ATTRITION RATES WITH RESPECT TO REVENUE MANAGEMENT VIEWS AS RECURRING; (7) MANUFACTURING DEFECTS OR ERRORS IN THE COMPANY’S SOFTWARE; (8) PROLONGED UNFAVORABLE GENERAL ECONOMIC AND MARKET CONDITIONS; (9) FAILURE TO RECOUP THE COST OF INVESTMENT IN NEW BUSINESSES INTO WHICH THE COMPANY MAY EXPEND AND (10) INCREASES IN THE COMPANY’S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL. 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
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| September 30, 2003 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS: |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 10,215 | $ | 18,876 | ||||
| Trade accounts receivable, net of allowance for doubtful accounts of $7,748 and $7,607 at September 30, 2003 and December 31, 2003, respectively |
40,152 | 41,022 | ||||||
| Inventories, net |
3,546 | 3,113 | ||||||
| Investment in leases, net |
2,115 | 1,911 | ||||||
| Deferred income taxes |
10,527 | 11,238 | ||||||
| Prepaid income taxes |
3,587 | — | ||||||
| Prepaid expenses and other current assets |
2,485 | 2,780 | ||||||
| Total current assets |
72,627 | 78,940 | ||||||
| Service parts, net |
1,520 | 1,506 | ||||||
| Property and equipment, net |
5,748 | 5,140 | ||||||
| Long-term investment in leases |
1,854 | 1,259 | ||||||
| Capitalized computer software costs, net |
7,711 | 7,007 | ||||||
| Databases, net |
7,672 | 7,231 | ||||||
| Goodwill |
87,159 | 87,159 | ||||||
| Other assets |
17,994 | 17,030 | ||||||
| Total assets |
$ | 202,285 | $ | 205,272 | ||||
| LIABILITIES AND STOCKHOLDER’S DEFICIT: |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 9,679 | $ | 9,476 | ||||
| Payroll related accruals |
14,860 | 11,954 | ||||||
| Deferred revenue |
15,870 | 16,592 | ||||||
| Current portion of long-term debt |
310 | 298 | ||||||
| Accrued income taxes |
— | 1,355 | ||||||
| Accrued expenses and other current liabilities |
10,694 | 6,931 | ||||||
| Total current liabilities |
51,413 | 46,606 | ||||||
| Long-term debt |
172,990 | 172,967 | ||||||
| Deferred income taxes and other liabilities |
14,544 | 15,304 | ||||||
| Total liabilities |
238,947 | 234,877 | ||||||
| Stockholder’s deficit: |
||||||||
| Common Stock: |
||||||||
| Par value $.01, authorized, issued and outstanding, 1,000 shares at September 30, 2003 and December 31, 2003 |
— | — | ||||||
| Additional paid-in capital |
83,155 | 83,155 | ||||||
| Retained deficit |
(119,421 | ) | (112,206 | ) | ||||
| Other accumulated comprehensive income: |
||||||||
| Cumulative translation adjustment |
(396 | ) | (554 | ) | ||||
| Total stockholder’s deficit |
(36,662 | ) | (29,605 | ) | ||||
| Total liabilities and stockholder’s deficit |
$ | 202,285 | $ | 205,272 | ||||
See accompanying notes
4
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands)
| Three Months Ended December 31, |
||||||||
| 2002 |
2003 |
|||||||
| Revenues: |
||||||||
| Systems |
$ | 17,713 | $ | 20,987 | ||||
| Services and finance |
39,940 | 35,714 | ||||||
| Total revenues |
57,653 | 56,701 | ||||||
| Cost of revenues: |
||||||||
| Systems |
10,025 | 11,875 | ||||||
| Services and finance |
17,546 | 15,037 | ||||||
| Total cost of revenues |
27,571 | 26,912 | ||||||
| Gross profit |
30,082 | 29,789 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
7,300 | 8,426 | ||||||
| Product development |
3,727 | 3,928 | ||||||
| General and administrative |
6,757 | 6,782 | ||||||
| Total operating expenses |
17,784 | 19,136 | ||||||
| Operating income |
12,298 | 10,653 | ||||||
| Interest expense |
(3,458 | ) | (5,032 | ) | ||||
| Equity loss in affiliate |
(7 | ) | — | |||||
| Foreign exchange loss |
— | (67 | ) | |||||
| Gain on sale of assets |
— | 6,270 | ||||||
| Other income, net |
222 | 93 | ||||||
| Income before income taxes |
9,055 | 11,917 | ||||||
| Income tax expense |
3,563 | 4,702 | ||||||
| Net income |
$ | 5,492 | $ | 7,215 | ||||
| Comprehensive income: |
||||||||
| Net income |
$ | 5,492 | $ | 7,215 | ||||
| Foreign currency translation adjustment |
43 | (158 | ) | |||||
| Comprehensive income |
$ | 5,535 | $ | 7,057 | ||||
See accompanying notes
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| Three Months Ended December 31, |
||||||||
| 2002 |
2003 |
|||||||
| OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 5,492 | $ | 7,215 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
1,564 | 1,409 | ||||||
| Amortization |
3,211 | 2,747 | ||||||
| Deferred income taxes |
(787 | ) | 500 | |||||
| Equity loss from affiliate |
7 | — | ||||||
| Equity income from partnerships |
(87 | ) | (50 | ) | ||||
| Lease loss provision |
— | (153 | ) | |||||
| Provision for doubtful accounts |
1,347 | 1,634 | ||||||
| Gain on sale of assets |
— | (6,270 | ) | |||||
| Other, net |
33 | (115 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| Trade accounts receivable |
(4,153 | ) | (3,818 | ) | ||||
| Inventories |
210 | 433 | ||||||
| Investment in leases |
729 | 952 | ||||||
| Prepaid expenses and other assets |
(813 | ) | 3,806 | |||||
| Accounts payable |
(223 | ) | (203 | ) | ||||
| Deferred revenue |
1,278 | 1,349 | ||||||
| Accrued expenses and other liabilities |
1,225 | (5,496 | ) | |||||
| Net cash provided by operating activities |
9,033 | 3,940 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Purchase of property and equipment |
(991 | ) | (575 | ) | ||||
| Capitalized computer software costs and databases |
(2,261 | ) | (1,526 | ) | ||||
| Purchase of service parts |
(476 | ) | (414 | ) | ||||
| Proceeds from sale of assets |
— | 7,212 | ||||||
| Equity distributions from partnerships |
41 | 42 | ||||||
| Net cash used in investing activities |
(3,687 | ) | 4,739 | |||||
| FINANCING ACTIVITIES |
||||||||
| Proceeds from debt facility |
1,210 | — | ||||||
| Payment on long-term debt and long-term debt facilities |
(3,120 | ) | (18 | ) | ||||
| Net cash used in financing activities |
(1,910 | ) | (18 | ) | ||||
| Net change in cash and cash equivalents |
3,436 | 8,661 | ||||||
| Cash and cash equivalents, beginning of period |
398 | 10,215 | ||||||
| Cash and cash equivalents, end of period |
$ | 3,834 | $ | 18,876 | ||||
| Supplemental disclosures of cash flow information |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 718 | $ | 7,794 | ||||
| Income taxes |
$ | 4,133 | $ | 193 | ||||
See accompanying notes
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Activant Solutions Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2003 may not be indicative of the results for the full fiscal year ending September 30, 2004.
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 OBLIGATION |
RECOURSE OBLIGATION |
|||||||
| Balance at September 30, 2003 |
$ | 142 | ||||||