<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-20719
-------------
PRINTRAK INTERNATIONAL INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0070547
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 NORTH TUSTIN AVENUE, ANAHEIM, CALIFORNIA 92807
--------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(714) 238-2000
---------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been subject
to such filing requirements for the past 90 days.
X Yes No
------- -------
11,236,536 shares of the issuer's common stock, par value $0.0001
per share, were outstanding as of January 31, 1998.
<PAGE>
FORM 10-Q
CONTENTS
Page Number
PART I - FINANCIAL INFORMATION -----------
Item 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1997 (unaudited)
and March 31, 1997.. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations for the three
month periods ended December 31, 1997 and 1996 . . . . . . . . . . . . . 4
Unaudited Consolidated Statements of Operations for the nine
month periods ended December 31, 1997 and 1996 . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flows for the nine
month periods ended December 31, 1997 and 1996.. . . . . . . . . . . . . 6
Notes to the Consolidated Financial Statements.. . . . . . . . . . . . . 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . . . 11
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders. . . . . . 18
Item 6: Exhibits and Reports on Form 8-K.. . . . . . . . . . . . . . . 18
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1997
1997 (RESTATED,
(UNAUDITED) SEE NOTE 1)
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $1,412 $3,832
Short-term investments.. . . . . . . . . . . . . . . . . . . . . . . . 1,616 4,599
Accounts receivable, net (Note 2). . . . . . . . . . . . . . . . . . . 32,539 23,539
Inventories, net (Note 3). . . . . . . . . . . . . . . . . . . . . . . 6,356 5,174
Prepaid expenses and other current assets. . . . . . . . . . . . . . . 1,909 518
Deferred income tax. . . . . . . . . . . . . . . . . . . . . . . . . . 955 1,058
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 44,787 38,720
Notes receivable from related parties. . . . . . . . . . . . . . . . . 554 543
Property, plant and equipment - net. . . . . . . . . . . . . . . . . . 6,292 5,570
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 2,867 2,867
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,092 1,858
------- -------
$60,592 $49,558
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.. . . . . . . . . . . . . . . . . . . . . . . . . . . $5,452 $4,431
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 9,918 4,650
Current portion of long-term debt (Note 4).. . . . . . . . . . . . . . 221 247
Deferred revenue.. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,558 3,919
Income taxes payable.. . . . . . . . . . . . . . . . . . . . . . . . . 314 631
------- -------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 26,463 13,878
Long-term debt, less current portion (Note 4). . . . . . . . . . . . . 4,881 1,524
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . 159 159
------- -------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 31,503 15,561
Stockholders' equity:
Common stock ($.0001 par value; 20,000,000 shares authorized;
11,237,000 and 10,426,000 shares issued and outstanding) . . . . . . . 1 1
Additional paid-in capital.. . . . . . . . . . . . . . . . . . . . . . 17,549 16,756
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 11,889 17,527
Note receivable from stockholder.. . . . . . . . . . . . . . . . . . . (300) (300)
Cumulative foreign exchange translation adjustment.. . . . . . . . . . (50) 13
------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 29,089 33,997
------- -------
$60,592 $49,558
------- -------
------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS
ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
THREE MONTHS DECEMBER 31,
ENDED 1996
DECEMBER 31, (RESTATED,
1997 SEE NOTE 1)
------------- ------------
<S> <C> <C>
REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,307 $17,275
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,473 2,757
------- -------
Total revenues.. . . . . . . . . . . . . . . . . . . . . . . . . . 23,780 20,032
COST OF REVENUES:
System (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . 11,030 8,177
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,630 1,408
------- -------
Total cost of revenues.. . . . . . . . . . . . . . . . . . . . . . 13,660 9,585
Gross profit.. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,120 10,447
OPERATING EXPENSES:
Research, development and engineering (Note 5) . . . . . . . . . . 3,019 2,741
Selling, general and administrative (Note 5) . . . . . . . . . . . 6,178 3,476
Restructuring expenses (Note 5). . . . . . . . . . . . . . . . . . 663 -
------- -------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . 9,860 6,217
------- -------
Operating income.. . . . . . . . . . . . . . . . . . . . . . . . . 260 4,230
Other expense (income) . . . . . . . . . . . . . . . . . . . . . . 142 (104)
------- -------
Income before provision for income taxes.. . . . . . . . . . . . . 118 4,334
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 43 1,405
------- -------
Net income.. . . . . . . . . . . . . . . . . . . . . . . . . . . . $75 $2,929
------- -------
------- -------
Net income per share (Note 6). . . . . . . . . . . . . . . . . . $.01 $.25
------- -------
------- -------
Weighted average shares outstanding. . . . . . . . . . . . . . . . 11,694 11,505
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS
ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
NINE MONTHS DECEMBER 31,
ENDED 1996
DECEMBER 31, (RESTATED,
1997 SEE NOTE 1)
------------- ------------
<S> <C> <C>
REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,603 $41,231
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,665 8,079
------- -------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . 58,268 49,310
COST OF REVENUES:
System (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . 26,426 20,747
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,448 4,448
------- -------
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . 32,874 25,195
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 25,394 24,115
OPERATING EXPENSES:
Research, development and engineering (Note 5) . . . . . . . . . 8,089 8,699
Selling, general and administrative (Note 5). . . . . . . . . . 14,893 9,658
Acquisition related expenses . . . . . . . . . . . . . . . . . . 1,429 -
Restructuring expense (Note 5) . . . . . . . . . . . . . . . . . . 663 -
In-process R & D expense . . . . . . . . . . . . . . . . . . . . 5,900 -
------- -------
Total operating expenses . . . . . . . . . . . . . . . . . . . . 30,974 18,357
------- -------
Operating (loss) income. . . . . . . . . . . . . . . . . . . . (5,580) 5,758
Other (income) expense . . . . . . . . . . . . . . . . . . . . . (103) 207
------- -------
(Loss) income before provision for income taxes. . . . . . . . (5,477) 5,551
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 159 1,857
------- -------
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . $(5,636) $3,694
------- -------
------- -------
Net (loss) income per share (Note 6).. . . . . . . . . . . . . . $(.48) $.35
------- -------
------- -------
Weighted average shares outstanding. . . . . . . . . . . . . . . 11,792 10,707
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS
ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
NINE MONTHS DECEMBER 31,
ENDED 1996
DECEMBER 31, (RESTATED,
1997 SEE NOTE 1)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . $(5,636) $3,694
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 2,557 1,913
Write-off of in process R&D. . . . . . . . . . . . . . . . . . . . . . 5,900 --
Loss on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . 17 2
Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . . . 103 1,281
Changes in operating assets and liabilities (net of assets
acquired):
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . (5,462) (8,824)
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,352 2,977
Prepaid expenses and other current assets . . . . . . . . . . . . . . . (1,214) (200)
(Interest) proceeds from notes receivable & other assets. . . . . . . . (11) 866
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (239) (207)
Accounts payable and other current liabilities. . . . . . . . . . . . . (940) (4,013)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,996 1,112
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,254 (1,653)
------- ------
Net cash provided (used in) operating activities. . . . . . . . . . . . 2,677 (3,052)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (2,603) (3,244)
Business acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . (9,606) --
Proceeds from sale of short-term investments . . . . . . . . . . . . . 2,983 (4,183)
------- ------
Net cash used in by investing activities . . . . . . . . . . . . . . . (9,226) (7,427)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (Payments on) long-term debt . . . . . . . . . . . . . . 3,331 (5,222)
Additional Paid in Capital . . . . . . . . . . . . . . . . . . . . . . 793 15,934
------- ------
Net cash provided by financing activities. . . . . . . . . . . . . . . 4,124 10,712
Effect of exchange rate changes on cash balances . . . . . . . . . . . 5 53
------- ------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . (2,420) 286
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . 3,832 3,261
------- ------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $1,412 $3,547
------- ------
------- ------
Non-Cash Transaction-Transfer of Inventory to Fixed Assets . . . . . . $770 $2,806
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest expense . . . . . . . . . . . $389 $404
Cash paid during the period for income taxes . . . . . . . . . . . . . $178 $158
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS
ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Detail of business acquired in purchase transaction:
Purchased In-Process Research and Development. . . . . . . . $5,900
Fair Value of Assets Acquired. . . . . . . . . . . . . . . . 11,008
Liabilities Assumed. . . . . . . . . . . . . . . . . . . . . (7,301)
------
Cash Paid for the Acquisition, net of cash acquired. . . . . $9,606
</TABLE>
7
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
GENERAL BUSINESS
Printrak International Inc. ("the Company") is a worldwide supplier of
integrated identification and information systems used primarily in criminal
justice and public safety applications and with increasing frequency in civil
applications such as welfare and immigration control. The Company provides
networked fingerprint, photo imaging, computer-aided dispatch and automated
records management systems.
On May 7, 1997, the Company acquired all of the issued and outstanding
capital stock of TFP Inc. ("TFP"), a South Carolina corporation, in a
transaction accounted for as a pooling-of-interest. As a result of the
acquisition, TFP became a wholly-owned subsidiary of the Company and the
outstanding shares and outstanding warrants to purchase shares of TFP Common
Stock and Series A Preferred Stock have been converted into an aggregate
1,399,494 shares of fully paid and non-assessable Common Stock, $.0001 par
value, of the Company. The outstanding options to purchase shares of TFP
Common Stock have been converted into the right to acquire 116,496 shares of
Common Stock of the Company. The purchase price and all other terms of the
Agreement were determined pursuant to arm's-length negotiations between the
parties.
On December 19, 1997, the Company filed a Form S-3 registration statement to
register 279,899 shares of the Company's Common Stock which were issued to
the stockholders of TFP in the transaction discussed above. This
Registration Statement was declared effective by the Securities and Exchange
Commission on January 7, 1998 at 1:00 p.m. EST.
On July 21, 1997 the Company acquired a business unit of SCC Communications
Corp. ("SCC") located in Boulder, Colorado ("Boulder division"), in a
transaction accounted for under purchase accounting. As a result of the
acquisition, the business unit operates as a division of the Company. The
purchase price and all other terms of the transactions were determined
pursuant to arm's-length negotiations between the parties.
On August 29, 1997, the Company acquired SunRise Imaging ("SunRise"), a
California corporation, in a transaction accounted for under purchase
accounting. As a result of the acquisition, SunRise became a wholly owned
subsidiary of the Company and the outstanding shares of Common Stock of
SunRise were converted into the right to receive an aggregate of $10,175,000,
plus an additional amount of up to $725,000 to be determined based on the
revenue of SunRise for fiscal 1997. It is unlikely that this additional
amount will be paid. The purchase price and all other terms of the
transactions were determined pursuant to arm's-length negotiations between
the parties.
RESTRUCTURING PLAN
After extensive evaluation of the SunRise acquisition by the Company's senior
management, the Company has identified opportunities for synergy and cost
savings by wholly integrating SunRise into the Company's Anaheim operations.
In order to achieve the Company's long-term goals, SunRise requires enhanced
efforts in marketing, product support and customer service. The Company
believes all of these disciplines can be provided by Anaheim based employees,
and as a result, the Company announced a formal restructuring plan.
Implementation of the restructuring and integration plan will span the fourth
quarter, with completion expected by the Company's fiscal year end of March
31, 1998. SunRise's base of operations in Fremont, California as well as its
development center in Idaho will relocate to the Company's headquarters in
Anaheim, California. Certain Fremont-based employees will relocate to
Anaheim and others will receive termination benefits after providing support
during the transition period. Costs for the restructuring plan are estimated
at $2.1 million and were recorded in the third fiscal quarter. The costs
were specific to relocation and termination of various SunRise personnel, the
estimated loss on the leased facility, as well as adjustments to asset and
liability valuations on the balance sheet. Under current reporting
guidelines, $1.4 million of the expenses were allocated to cost of sales or
operating expense categories; the balance of the costs, $0.7 million were
reflected as a restructuring charge.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). These consolidated financial statements reflect all
adjustments, which are normal and recurring in nature, and which in the
opinion of management are necessary to a fair statement of the financial
position and results of operations as of and for the three month and nine
month periods ended December 31, 1997 and 1996.
8
<PAGE>
With the exception of the Boulder division, revenue is recognized for system
sales with insignificant customer obligations when the system is shipped. The
Company records an accrual for any remaining obligations which typically
consist of installation and warranty costs. The Company recognizes system
revenue for the Boulder division under percentage of completion accounting
based on the achievement of specified milestones. Under both revenue
recognition policies, if a loss on a contract becomes known, the entire
amount of the estimated loss on the contract is accrued. Revenue for file
conversion services is recognized as such services are performed. Revenue for
maintenance service contracts is recognized on a monthly basis, ratably over
the period of the contract. Cash payments for maintenance received in advance
of revenue recognition are accounted for as deferred revenue. The Company is
presently evaluating Statement of Position 97-2, Software Revenue
Recognition, which was issued October 27, 1997 and will implement this
pronouncement on April 1, 1998. The impact of this implementation on the
Company's revenue stream is not known at this time.
The accompanying consolidated financial statements as of March 31, 1997 and
for the three month and nine month periods ended December 31, 1996 have been
restated to reflect the business combination between Printrak and TFP, its
subsidiary, and are based on each company's respective historical financial
statements and notes thereto. The results of operations for the three month
period ended December 31, 1997 are not necessarily indicative of the results
of operations for the entire fiscal year ending March 31, 1998. These
consolidated financial statements and related footnotes should be read in
conjunction with the consolidated financial statements and related footnotes
presented in the Company's 10-K.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
(unaudited)
-----------
<S> <C> <C>
Billed receivables . . . . . . . . . . . . . . . . . . $14,507 $15,495
Unbilled receivables . . . . . . . . . . . . . . . . . 18,520 8,337
------- -------
33,027 23,832
Less allowance for doubtful accounts . . . . . . . . . (488) (293)
------- -------
$32,539 $23,539
------- -------
------- -------
</TABLE>
Unbilled receivables consist of system and maintenance revenues which have
been earned but not invoiced because of contractual terms of the underlying
agreements.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
(unaudited)
-----------
<S> <C> <C>
Raw materials. . . . . . . . . . . . . . . . . . . . . . . $4,602 $3,827
Work in process. . . . . . . . . . . . . . . . . . . . . . 2,553 1,758
Finished goods . . . . . . . . . . . . . . . . . . . . . . 1 36
------ ------
7,156 5,621
Less allowance for inventory obsolescence. . . . . . . . . (800) (447)
------ ------
$6,356 $5,174
------ ------
------ ------
</TABLE>
9
<PAGE>
4. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
(unaudited)
-----------
<S> <C> <C>
Revolving line of credit with bank . . . . . . . . . . $1,504 $1,000
Acquisition line of credit . . . . . . . . . . . . . . 3,000 -
Obligations under capital leases . . . . . . . . . . . 598 771
------ ------
Total debt . . . . . . . . . . . . . . . . . . . . . . 5,102 1,771
Less current installments of
long-term debt . . . . . . . . . . . . . . . . . . . . (221) (247)
------ ------
$4,881 $1,524
------ ------
------ ------
</TABLE>
The Company's revolving credit agreement provides for a total of $15.0
million in secured borrowings for working capital and acquisitions and bears
interest at variable rates. The loan is presently scheduled to mature July
31, 1998, and the Company is currently negotiating a renewal of the agreement
which will extend the maturity. As of December 31, 1997, the Company had
approximately $10.5 million of available borrowings.
The revolving credit agreement contains certain financial and other covenants
with which the Company must comply on an on-going basis. Management believes
the Company is in compliance with all terms and covenants of this agreement
at December 31, 1997.
5. RESTRUCTURING EXPENSE
The Company has announced a formal plan for restructuring its SunRise
subsidiary to realize cost savings and capitalize on synergies by
consolidating SunRise into the Company's Anaheim operations. The
restructuring, which will be finalized by March 31, 1998, includes the
closure of the Fremont base of operations and the Idaho development center,
the disposition of certain fixed assets and the termination or relocation of
SunRise personnel. The aggregate costs of the restructuring include $875,000
of fixed asset and inventory write-offs, the value of which have been
impacted by the Company's decision to relocate and outsource manufacturing
operations, $302,000 related to facility closure and $935,000 related to
personnel downsizing and relocation as well as other costs. The total
$2,110,000 cost was allocated to cost of sales ($631,000), Research,
Development and Engineering ($114,000), Selling, General and Administrative
($702,000) and restructuring expense ($663,000) in the accompanying
consolidated statements of income.
6. NET INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Statement 128
replaced the previously computed primary and fully diluted earnings per share
(EPS) with basic and diluted EPS. Unlike primary EPS, basic EPS excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
EPS is similar to the previously computed fully diluted EPS and its
disclosure is required regardless of materiality. All EPS amounts for all
periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
10
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains certain forward-looking
statements that are based on current expectations and involve risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions, future business decisions, the ability to effectively manage
recently acquired businesses, efficient utilization of facilities and
financial resources, ability to retain and attract qualified personnel,
foreign currency fluctuations, and possible cancellation of orders included
in backlog, all of which are difficult or impossible to predict accurately
and many of which are beyond the control of the Company.
Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and therefore, there can be no assurance that the results
contemplated in forward-looking statements will be realized. In light of the
significant uncertainties inherent in the forward-looking information
included herein, the inclusion of such information should not be regarded as
a representation by the Company or any other person that the Company's
objectives or plans will be achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the
Company during the period included in the accompanying financial statements.
This discussion compares the three-month period ended December 31, 1997 with
the three-month period ended December 31, 1996, as well as the nine month
period ended December 31, 1997 with the nine month period ended December 31,
1996. This discussion should be read in conjunction with the financial
statements and associated notes.
11
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO
THE THREE MONTH PERIOD ENDED DECEMBER 31, 1996
TOTAL REVENUES
The Company's total revenues are comprised of system revenues, which include
products, file conversion services, and system installation, and maintenance
revenues related to hardware and software support.
Revenues totaled $23.8 million for the quarter ended December 31, 1997,
increasing 18.7% from revenues of $20.0 million for the quarter ended
December 31, 1996. System revenues increased 17.6% to $20.3 million for the
third quarter, up from $17.3 million for the third quarter of the previous
year. System revenue contributions from TFP, SunRise and the Boulder
division contributed $5.8 million in incremental revenue over the previous
year. The incremental revenue is offset in part, by lower AFIS revenue from
the Company's Anaheim operations, due principally to the shipment of a large
system in December 1996.
Maintenance revenues equaled $3.5 million for the three-month period ended
December 31, 1997, up from revenues of $2.8 million for the three month
period ended December 31, 1996. The increase in maintenance revenues is due
in part to the incremental revenue from SunRise and the Boulder division, but
is also reflective of the expiration of warranties on some contracts and an
overall expansion in the customer installed base over the prior year. Upon
expiration of the system warranty, most customers enter into maintenance
agreements which yield revenue over the life of the maintenance agreement.
The Company's quarterly revenues have in the past, and in the future may be
expected to fluctuate. These fluctuations are the result of a variety of
factors, including: the Company's delivery cycle, variations in order size,
variations in product mix and the timing of orders.
GROSS PROFIT
Cost of revenues primarily consists of purchased materials procured for use
in the assembly of the Company's products, file conversion costs and
maintenance expenses.
Overall gross profit decreased 3.1% to $10.1 million for the quarter ended
December 31, 1997 in comparison to $10.4 million for the quarter ended
December 31, 1996. Gross margin was 42.6% for the three months ended
December 31, 1997, down from 52.2% for the three months ended December 31,
1996.
The gross profit for system revenues increased to $9.3 million for the
quarter ended December 31, 1997 from $9.1 million for the same quarter of the
previous fiscal year. The system gross margin decreased to 45.7% for the
current quarter from 52.7% for the third quarter of the previous year due in
part to a $0.6 million restructuring expense for SunRise. The remaining
decline in system margin is due primarily to the shipment of several large,
high margin contracts during the third quarter of the previous fiscal year.
The Company's margin may be affected quarter-to-quarter by several factors,
including the proportion of total revenues derived from competitive bid
process and the mix of products sold.
Maintenance gross profit declined to $0.8 million from $1.3 million for the
quarters ended December 31, 1997 and December 31, 1996. Gross margin related
to maintenance revenues decreased to 24.3% for the third quarter of the
current year in comparison to 48.9% for the third quarter of the previous
year. Customer service margin erosion is also the result of certain inherited
service contracts from the Boulder division that yield somewhat lower margins
than the Company has previously experienced on AFIS maintenance contracts;
these unfavorable contracts will be re-negotiated as they expire.
Additionally, the Company has experienced an increase in the cost of
providing customer service to certain customers without an incremental
increase in maintenance revenues.
12
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses (RD&E) are comprised primarily of
compensation paid to personnel engaged in research, development and engineering
activities, amounts paid for outside services and the cost of materials used in
the development of hardware and software products.
RD&E expenses increased 10.2% to $3.0 million for the quarter ended December 31,
1997, up from $2.7 million for the quarter ended December 31, 1996. RD&E
expenses, as a percentage of revenues, decreased to 12.7% for the three month
period ended December 31, 1997 from 13.7% for the three month period ended
December 31, 1996. The increase in RD&E expense is the result of incremental
expenditures associated with SunRise and the Boulder division as well as
expenses incurred as a result of the SunRise restructuring. RD&E expenses
incurred in the Anaheim division are actually down $0.7 million or 25.3% from
the prior year third quarter due primarily to a reduction in contract labor
utilized to develop the criminal history system application. Restructuring
expenses related to RD&E totaled $0.1 million.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses consist principally of
compensation paid to sales, marketing, and administrative personnel, payments to
consultants, professional service fees, travel and related expenses and other
marketing expenses.
For the three month period ended December 31, 1997, SG&A expenses increased
to $6.2 million up from $3.5 million for the three month period ended
December 31, 1996. SG&A expenses, as a percentage of revenues, equaled 26.0%
for the three month period ended December 31, 1997 versus 17.4% for the same
period of the previous year. This reflects an overall increase in SG&A
expense of $2.7 million or 77.7% between the third quarter of the current
year and the prior year's third quarter. The increase in SG&A is the result
of incremental expenditures associated with SunRise and the Boulder division,
as well as expenses associated with the SunRise restructuring. SG&A expenses
in the Anaheim and TFP divisions increased slightly due to the addition of
personnel in sales and marketing required as a result of increased activity,
particularly in international markets. SG&A as a percentage of revenue was
impacted due to lower revenue and higher expenses in the Anaheim division as
well as a higher overall expense to revenue trend in the other divisions.
Restructuring expenses related to SG&A totaled $0.7 million.
RESTRUCTURING RELATED EXPENSE
The restructuring expense of $0.6 million includes expenditures for the
termination of SunRise personnel as well as the estimated loss associated
with the lease of the Fremont facility.
OTHER EXPENSE / INCOME
Other expense for the quarter ended December 31, 1997 equaled $0.1 million in
comparison to $0.1 million income for the quarter ended December 31, 1996.
Other expense for the period ended December 31, 1997 is comprised of interest
expense realized due to borrowing against the credit line as well as some
unfavorable translation adjustment expenses, offset in part by income from
investments and notes receivable from related parties.
13
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROVISION FOR INCOME TAXES
Income tax expense for the quarter ended December 31, 1997 equaled $43,000 in
comparison to expense of $1.4 million for the quarter ended December 31, 1996.
The Company's current year tax provision is based on a statutory rate of 36% and
reflects the impact of state and foreign taxes, as well as the utilization of
limited net operating loss carryforwards.
NINE MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO
THE NINE MONTH PERIOD ENDED DECEMBER 31, 1996
TOTAL REVENUES
Revenues totaled $58.3 million for the nine months ended December 31, 1997,
increasing 18.2% from revenues of $49.3 million for the same period in the prior
year. System revenues for the nine months ended December 31, 1997, increased
17.9% over the prior year period from $41.2 million to $48.6 million. Revenues
from TFP, SunRise and the Company's Boulder division contributed $9.7 million in
incremental system revenue. The incremental revenue is offset in part, by lower
AFIS revenue, due principally to the shipment of a large system in the third
quarter of the previous year.
Maintenance revenues equaled $9.7 million for the nine month period ended
December 31, 1997, up from revenues of $8.1 million for the nine month period
ended December 31, 1996. Sunrise and the Boulder division contributed $0.8
million of the $1.6 million maintenance revenue increase. The remaining
incremental maintenance revenue is reflective of the expiration of warranties on
some contracts and an overall expansion in the customer installed base over the
prior year.
GROSS PROFIT
Overall gross profit increased 5.3% to $25.4 million for the nine months ended
December 31, 1997 in comparison to $24.1 million for the prior year. Gross
margin was 43.6% for the nine months ended December 31, 1997, down from 48.9%
for the nine months ended December 31, 1996.
The gross profit for system revenues increased to $22.2 million for the period
ended December 31, 1997 from $20.5 million for the same period of the previous
fiscal year. The system gross margin decreased to 45.6% for the current quarter
from 49.7% for the third quarter of the previous year. The decline in system
margin is due principally to increased warranty expense realized as a result of
longer acceptance cycles on certain large scale installations as well as the
shipment of several large, high margin contracts in the third quarter of the
previous year. The impact of the restructuring expense on year-to-date system
margin is 1.3 percentage points.
Maintenance gross profit decreased to $3.2 million for the nine month period
ended December 31, 1997 from $3.6 million for the nine months ended December
31, 1996. Gross margin related to maintenance revenues decreased to 33.3% for
the first nine months of the current year in comparison to 44.9% for the
first nine months of the previous year. The decrease in the Company's
maintenance margin is reflective of certain significant costs which the
Company is incurring to implement a world-wide customer service network which
will enhance overall service to all customers. Customer service margin
erosion is also the result of certain inherited service contracts from the
Boulder division that yield somewhat lower margins than the Company has
previously experienced on AFIS maintenance contracts; these unfavorable
contracts will be re-negotiated as they expire. Finally, the Company has
experienced an increase in the cost of providing customer service to certain
customers without an incremental increase in maintenance revenues.
14
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESEARCH, DEVELOPMENT AND ENGINEERING
RD&E expenses decreased 7.0% to $8.1 million for the nine months ended
December 31, 1997, which represents a $0.6 million decrease from the prior
year expense of $8.7 million. RD&E expenses, as a percentage of revenues,
decreased to 13.9% for the nine months ended December 31, 1997 from 17.6% for
the nine months ended December 31, 1996. The decrease in RD&E expense is due
primarily to a reduction in contract labor utilized during the current year,
offset in part by incremental expenses from the acquisition of the Boulder
and SunRise divisions. In the prior year, significant contract labor expense
was incurred to develop the Company's criminal history system application.
SELLING, GENERAL AND ADMINISTRATIVE
For the nine months ended December 31, 1997, SG&A expenses increased to
$14.9 million from $9.7 million for the period ended December 31, 1996. SG&A
expenses, as a percentage of revenues, equaled 25.6% for the nine months
ended December 31, 1997 versus 19.6% for the same period of the previous
year. The increase in SG&A expenses is due in part to increased personnel in
sales and marketing in the Anaheim division required to support increased
marketing and sales activity. Additionally, the Company established a sales
commission plan which provides incentive payments based on the achievement of
established goals. The remaining year-over-year increase is due to
incremental expenses from the acquisition of the Boulder and SunRise
divisions.
AQUISITION RELATED EXPENSE
Acquisition expenses were associated with the TFP Inc., Boulder division and
SunRise Imaging Inc. acquisitions. The expenses included legal and
accounting fees associated with the pooling of interest transaction, employee
relocation costs, a facility closure and other non-capitalizeable acquisition
type costs.
RESTRUCTURING RELATED EXPENSE
The restructuring expense of $0.6 million includes expenditures for the
termination of SunRise personnel as well as the estimated loss associated with
the lease of the Fremont facility.
IN-PROCESS RESEARCH & DEVELOPMENT EXPENSE
The in-process R & D expense of $5.9 million is the value assigned to SunRise's
developmental products. Goodwill was reduced by a corresponding amount and the
remaining goodwill value will be amortized over varying periods, ranging from
three to ten years.
OTHER EXPENSE / INCOME
Other income for the nine month period ended December 31, 1997 equaled $0.1
million in comparison to $0.2 million expense for the same period of the
previous year. Other income for the period ended December 31, 1997 is comprised
of interest income from investments and notes receivable from related parties
offset in part by interest and translation adjustment expenses.
PROVISION FOR INCOME TAXES
Income tax expense for the nine month period ended December 31, 1997 equaled
$0.2 million in comparison to expense of $1.9 million for the nine month
period ended December 31, 1996. The Company's current year tax provision is
based on a statutory rate of 38%, excluding in-process R & D, and reflects
the impact of state and foreign taxes, as well as the utilization of limited
net operating loss carryforwards.
15
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SYSTEM BACKLOG
The Company measures its order backlog for system revenues based on signed
contracts or purchase orders for products which have not been shipped and for
which revenues have not been recognized. At December 31, 1997 the Company's
system revenues backlog was approximately $30.8 million, compared to $14.2
million at March 31, 1997. The significant increase in the Company's backlog is
due to the $58.3 million in orders booked during the current fiscal year.
A significant portion of the Company's backlog as of December 31, 1997 is
expected to be shipped within the next six months. However, certain orders
comprising backlog may set forth requirements for the development of custom
software or the conversion of data files which may require extensive work to be
completed prior to shipment. Any failure of the Company to meet an agreed upon
schedule could result in the cancellation of the related order. Furthermore,
variations in the size, complexity and delivery requirements of the customer
order may result in substantial fluctuations in backlog from period to period.
Accordingly, the Company believes that backlog cannot be considered a meaningful
indicator of future financial performance.
FINANCIAL CONDITION
Cash, cash equivalents, and short-term investments decreased from $8.4 million
at March 31, 1997 to $3.0 million at December 31, 1997 substantially due to the
liquidation of $5.0 million in investments to assist with the purchase of
SunRise. Trade receivables rose $9.0 million from $23.5 million at March 31,
1997 to $32.5 million at December 31, 1997. The Boulder division and SunRise
contributed $3.7 million of the increase, and TFP contributed approximately $3.3
million as a result of the elimination of its receivables factoring. The
remaining balance was due to increased revenues. Total inventory levels
increased $1.2 million from $5.2 million at March 31, 1997 to $6.4 million at
December 31, 1997 due primarily to costs in excess of revenues associated with
percentage of completion accounting in the Company's Boulder division and
inventory balances from SunRise. The $1.4 million increase in prepaid expenses
and other current assets is primarily attributable to the reclassification of a
non-trade receivable balance.
The $0.7 million increase in the net balance of property, plant and equipment is
primarily the result of incremental balances resulting from SunRise and Boulder.
Other assets increased $4.2 million, from $1.9 million as of March 31, 1997 to
$6.1 million as of December 31, 1997. The increase is due to recognition of
goodwill resulting from the purchase accounting for the Boulder and SunRise
acquisitions.
Total current liabilities increased $12.6 million from $13.9 million as of March
31, 1997 to $26.5 million as of December 31, 1997. Accounts payable increased
$1.0 million from $4.4 million as of March 31, 1997 to $5.5 million as of
December 31, 1997 which is consistent with the increase in inventory. Accrued
liabilities increased from $4.7 million as of March 31, 1997 to $9.9 million as
of December 31, 1997. The increase is substantially attributable to incremental
balances assumed and expense accruals incurred resulting from the acquisitions
and the restructuring of SunRise. Additionally, the warranty provision
increased, coincident with the higher level of system shipments and the longer
acceptance periods for certain significant systems. Deferred revenue increased
$6.6 million from $3.9 million as of March 31, 1997 to $10.6 million as of
December 31, 1997. $3.2 million of the increase represents the incremental
balances as a result of the acquisitions. The remaining balance is due to
customer deposits on some large scale AFIS orders. The $3.4 million increase in
long-term debt is reflective of the $3.0 million outstanding balance on the
acquisition line used to acquire SunRise and the outstanding balance on the
Company's revolving line of credit.
16
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations through the cash provided by its
operations, short-term investments and the utilization of its revolving
credit line. Despite increases in accounts receivable, the Company's
operating activities provided net cash of approximately $2.7 million for the
nine months ended December 31, 1997 due primarily to increases in accrued
liabilities resulting from the SunRise and Boulder acquisitions and SunRise
restructuring as well as the in-process research and development write-off
associated with the Sunrise acquisition. Deferred revenue also contributed
to the source of funds due to the receipt of several large customer deposits
in the third quarter. The Company's operating activities used cash of
approximately $3.1 million for the period ended December 31, 1996 as a result
of increases in accounts receivable and reductions in accounts payable. The
Company's investing activities used cash of approximately $9.2 million for
the nine months ended December 31, 1997. The use of $9.6 million to acquire
SunRise and the Boulder division and $2.6 million for capital expenditures
was offset in part, by the sale of short-term investments which yielded
approximately $3.0 million of cash. The Company's investing activities used
cash of approximately $7.4 million for the nine months ended December 31,
1996. $3.2 million was used for capital expenditures and $4.1 primarily
proceeds from the Initial Public Offering ("IPO") were invested for the
short-term. Financing activities generated net cash of approximately $4.1
million and $10.7 million for the nine months ended December 31, 1997 and
December 31, 1996. For the current period, proceeds from long-term debt of
$3.3 million and additional paid in capital of $.8 million provided operating
cash flow. For the period ended December 31, 1996, net debt repayments
equaled $5.2 million while proceeds from the Company's IPO and employee stock
purchase plan provided $15.9 million in proceeds.
17
<PAGE>
PRINTRAK INTERNATIONAL INC.
PART II - OTHER INFORMATION
ITEM 2 - CHANGE IN SECURITIES AND USE OF PROCEEDS
(F) USE OF PROCEEDS
The Company effected a registration with the Securities and Exchange
Commission on Form S-1, Registration No. 333-04610 (the "Registration
Statement"), whereby the Company registered up to 2,500,000 shares of Common
Stock, including 500,000 shares to be offered by the selling stockholders
identified in the Registration Statement. The Registration Statement was
granted effectiveness on July 2, 1996 (the "IPO"). The price of the Company's
Common Stock was $8.00 per share, less underwriting discounts and commissions
of $.56 per share. On August 6, 1996, the underwriters of the Company's IPO
exercised their option to purchase an additional 121,000 shares of Common
Stock directly from the Company at a price of $8.00 per share, less
underwriting discounts and commissions of $.56 per share. The Company
received a total of net proceeds of $15.8 million, before deducting offering
expenses, from the sale of the Common Stock pursuant to the IPO and the
exercise of the over-allotment option.
The Company has previously filed several Forms S-R with the Securities and
Exchange Commission reporting the use of proceeds. The latest Form S-R, which
was filed on June 30, 1997, reported that the Company has used approximately
$8.8 million of the net proceeds from the IPO for repayment of indebtedness
and for working capital. The remaining net proceeds of the offering, equal to
approximately $7.0 million, were invested in short-term investment grade
money market instruments. In conjunction with the Company's acquisition of
SunRise on September 9, 1997, the Company used $5.0 million of proceeds for
partial payment of the purchase price and thereafter has utilized $2.0
million for working capital.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was held on January 29, 1998. Of the
11,236,483 shares of the Company's common stock issued and outstanding and
entitled to vote at the meeting, there were present at the meeting, in person
or by proxy, the holders of 9,062,599 common shares, representing 80.65% of
the total number of shares entitled to vote at the meeting. This percentage
represents a quorum. The following action was taken at the stockholders'
meeting:
One proposal was presented and voted on at the stockholders' meeting.
Proposal One: The stockholders approved an amendment to the Company's 1996
Stock Incentive Plan to increase the number of shares issuable thereunder by
1,000,000 shares, bringing the total number of shares available for issuance
thereunder to a total of 1,500,000. The voting results were: For 8,472,936;
Against 577,121; Abstain 12,542; Broker Non-Vote 0.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Index:
99.1 December 8, 1997 Printrak appoints Al Castleman CFO, VP of
Finance and board member
December 10, 1997 Printrak announces expansion into Australia
and Asia Pacific markets
January 7, 1998 Printrak announces the restructuring of
SunRise Imaging
18
<PAGE>
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.
PRINTRAK INTERNATIONAL INC.
(REGISTRANT)
February 13, 1998
_________________________
Alfred B. Castleman, Jr.
Vice President and
Chief Financial Officer and
Director
19
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