<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ----------------------
COMMISSION FILE NO. 0-20189
EQUITRAC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1797862
(State or other jurisdiction of (IRS Employee Identification Number)
incorporation or organization)
836 PONCE DE LEON BOULEVARD
CORAL GABLES, FLORIDA 33134
(305) 442-2060
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No .
--- ---
As of January 6, 1996, there were 3,433,900 shares of the Registrant's
common stock, par value $.01, outstanding.
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EQUITRAC CORPORATION
INDEX
[CAPTION]
<TABLE>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
as of November 30, 1996
and February 29, 1996 2
Condensed Statements of Income
for the three months and nine months
ended November 30, 1996 and 1995 3
Condensed Statement of
Stockholders' Equity for the
nine months ended November 30, 1996 4
Condensed Statements of Cash Flows
for the nine months ended
November 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2.Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUITRAC CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 29,
ASSETS 1996 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,291 $ 3,581
Restricted cash - 1,450
Investment securities 4,175 4,031
Accounts receivable, net of allowance of $400 and $350 6,287 4,330
Inventories 2,577 1,780
Deferred income taxes 499 499
Other current assets 401 366
------- -------
Total current assets 17,230 16,037
Investment securities 1,592 1,361
Property and equipment, net 6,134 6,034
Intangible assets, net 3,310 2,067
Other assets 164 147
------- -------
Total assets $28,430 $25,646
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 622 $ 622
Accrued expenses 2,877 2,965
Unearned income and other current liabilities 908 84
------- -------
Total current liabilities 4,407 3,671
Deferred income taxes 157 151
------- -------
Total liabilities 4,564 3,822
------- -------
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized, 3,758,900 and 3,717,750 shares issued
at November 30, 1996, and February 28, 1995 respectively 38 37
Additional paid-in capital 10,524 10,390
Retained earnings 14,944 13,058
Cumulative translation adjustment (12) (25)
Unrealized gain on investment securities, net of tax 25 17
Treasury stock, at cost (330,800 shares at November 30, and
February 29, 1996) (1,653) (1,653)
------- -------
Total stockholders' equity 23,866 21,824
------- -------
Total liabilities and stockholders' equity $28,430 $25,646
======= =======
</TABLE>
See accompanying notes.
2
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EQUITRAC CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 4,574 $3,257 $12,984 $ 9,957
Service and support 3,450 2,548 9,784 7,455
Rental 2,575 2,568 7,788 7,610
------- ------ ------- -------
Total revenues 10,599 8,373 30,556 25,022
------- ------ ------- -------
Expenses:
Cost of revenues 4,036 3,051 11,365 9,042
Product development 574 368 1,534 942
Selling expenses 1,696 1,306 4,866 4,188
General and administrative 3,341 3,037 10,072 9,027
------- ------ ------- -------
Total expenses 9,647 7,762 27,837 23,199
------- ------ ------- -------
Operating income 952 611 2,719 1,823
Interest income 125 80 359 224
------- ------ ------- -------
Income before income taxes 1,077 691 3,078 2,047
Income taxes 416 263 1,192 768
------- ------ ------- -------
Net income $ 661 $ 428 $ 1,886 $ 1,279
======= ====== ======= =======
Earnings per share $ 0.18 $ 0.12 $ 0.53 $ 0.35
======= ====== ======= =======
Weighted average common and common
equivalent shares used in calculation 3,578 3,537 3,541 3,615
======= ====== ======= =======
</TABLE>
See accompanying notes
3
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EQUITRAC CORPORATION
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands, except number of shares)
<TABLE>
UNREALIZED
GAIN ON
COMMON STOCK ADDITIONAL CUMULATIVE INVESTMENT
-------------- PAID-IN RETAINED TRANSLATION SECURITIES, TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT NET OF TAX STOCK EQUITY
------ ------ ---------- -------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 29, 1996 3,717,750 $37 $10,390 $13,058 $(25) $17 $(1,653) $21,824
Unrealized gain on marketable
securities, net of tax - - - - - 8 - 8
Translation Adjustment - - - - 13 - - 13
Exercise of employee
stock options 41,150 1 134 - - - - 135
Net income for the nine months
ended November 30, 1996 - - - 1,886 - - - 1,886
--------- --- ------- -------- ---- --- ------- -------
Balance, November 30, 1996 3,758,900 $38 $10,524 $14,944 $(12) $25 $(1,653) $23,866
========= === ======= ======== ==== === ======= =======
</TABLE>
See accompanying notes.
4
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EQUITRAC CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NOVEMBER 30,
------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $1,886 $1,279
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,835 1,732
Amortization 808 705
Provision for doubtful accounts 50 -
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,007) 1,233
Inventories (437) (157)
Other current assets (35) (183)
Other assets (17) 7
Increase (decrease) in:
Accounts payable and accrued expenses (88) (687)
Unearned income 253 (217)
------ ------
Net cash provided by operating activities 2,248 3,712
------ ------
Cash flows from investing activities:
Purchases of property and equipment (1,911) (1,616)
Acquisition of product line, principally intangible assets (1,834) (222)
Sales and maturities of investment securities 1,348 3,268
Purchases of investment securities (1,709) (3,769)
Restricted cash 1,450 -
------ ------
Net cash used in investing activities (2,656) (2,339)
------ ------
Cash flows from financing activities:
Repayment of acquisition obligations (30) (25)
Proceeds from issuance of common stock 135 19
Purchase of treasury stock - (1,282)
------ ------
Net cash provided by (used in) financing activities 105 (1,288)
------ ------
Exchange rate effect on cash 13 9
------ ------
Net (decrease) increase in cash and cash equivalents (290) 94
Cash and cash equivalents at beginning of period 3,581 2,187
------ ------
Cash and cash equivalents at end of period $3,291 $2,281
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $1,820 $ 747
</TABLE>
Non-cash investing and financing activities during the nine months ended
November 30, 1996 included $611,000 of intangible assets acquired through the
assumption of a liability to fulfill service contracts in connection with the
Infortext Acquisition and a $10,000 reduction in intangible assets resulting
from the reduction of a liability in connection with a contingent consideration
adjustment related to an acquisition. Non-cash investing and financing
activities during the nine months ended November 30, 1995 consisted of $72,000
of assets and liabilities recorded in connection with acquisitions and a
$335,000 reduction in intangible assets resulting from the reduction of notes
payable in connection with a contingent consideration adjustment related to the
acquisitions.
See accompanying notes.
5
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EQUITRAC CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by the Company, in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements have been condensed or omitted pursuant to
such rules and regulations. In the opinion of management, the accompanying
financial statements include all adjustments (of a normal recurring nature)
which are necessary to state fairly the results for the interim periods
presented. The results for the nine months ended November 30, 1996 are not
necessarily indicative of the results to be expected for the full fiscal
year. These unaudited condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Annual Report on Form 10-K for the fiscal year ended February 29, 1996,
filed with the Securities and Exchange Commission.
2. MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
Sales revenue is recognized upon installation and customers' acceptance.
Service and support revenues are recognized ratably over the period in which
the service and support are provided. Rental contract revenue, which
includes service and support on the underlying rental equipment and
software, is recognized ratably over the term of the respective lease.
Rental contracts are accounted for as operating leases.
4. CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with maturities
of three months or less when purchased. The Company maintains cash and cash
equivalent balances with high quality financial institutions. The Company
periodically evaluates the relative credit risk of these financial
institutions.
5. INVESTMENT SECURITIES
Investment securities generally consist of municipal bonds, U.S.
Treasury obligations and investment grade corporate bonds with maturities
ranging from six months to twenty-one years.
6
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6. PROPERTY AND EQUIPMENT
Property and equipment consist primarily of system equipment rented to
customers and system equipment used to service customers with service
contracts and are carried at cost less accumulated depreciation. Rental
equipment is depreciated on a straight line basis over five years.
7. INVENTORIES
Inventories comprised primarily of system components, parts and supplies
are carried at the lower of weighted-average cost or market. The weighted
average cost of inventories approximates the "first in-first out" ("FIFO")
method.
8. PRODUCT DEVELOPMENT COSTS
Product development costs are expensed as incurred.
9. EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares during the period.
Dilutive outstanding stock options are considered common stock equivalents
and are included in the calculation using the treasury stock method.
10. ACQUISITIONS
On March 1, 1996, the Company acquired the cost recovery customer base
of ISI Infortext, Inc. ("ISI"), a distributor of cost recovery and
telemanagement products. The transaction was financed by $1,834,000 in
cash, including $1,450,000 of cash restricted for that purpose as of
February 29, 1996, and the assumption of a liability of $611,000 to fulfill
service contracts. Additional consideration is contingent upon the results
of the acquisition during fiscal 1997.
Intangible assets recorded in connection with this and previous
acquisitions represent costs allocated to specifically identifiable assets
and the excess of cost over the fair market value of tangible and
identifiable intangible assets arising from these acquisitions ("goodwill").
The costs of all identifiable intangible assets are being amortized on a
straight line basis over their respective estimated useful lives, ranging
from three to ten years. Goodwill is amortized over ten years. Amortization
expense on the intangible assets for the nine months ended November 30, 1996
and 1995 was $808,000 and $705,000, respectively.
7
<PAGE> 9
11. CONTINGENCIES
The Company is involved from time to time in legal proceedings incident
to the normal course of its business. Management believes that adverse
decisions in any pending or threatened proceedings would not have a material
adverse effect on the Company's financial position or results of operations.
Certain aspects of the Company's fiscal 1992, 1993 and 1994 federal
income tax returns are currently under examination by the Internal Revenue
Service ("IRS"). The IRS is reviewing the characterization and useful lives
of certain intangible assets of the Company. A report previously issued by
the IRS assessing additional taxes, penalties and interest for the 1992
fiscal year has been rejected by the IRS appeals division and the case has
been returned to the initial examiner. A revised report has not been
received regarding the Company's 1992 tax return and no report has been
received regarding the Company's 1993 and 1994 tax returns. If the IRS
prevails, the Company may be required to make payments relating to the
timing of tax deductions taken on these federal income tax returns. The
Company may also be assessed interest and penalties. Although management
and its tax advisors believe that the Company has a meritorious position,
the ultimate outcome of this matter cannot presently be determined and,
therefore, no liability has been recorded at this time. The Company intends
to vigorously defend its position.
12. RECLASSIFICATIONS
Certain interim statement of income items have been reclassified to
conform with the fiscal year 1997 presentation.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's revenues are derived from three principal sources: (1) sales
of new systems, upgrades and add-ons of equipment and software; (2) maintenance
service and software support agreements and (3) leases of its system equipment
and software. The Company offers its customers the option of purchasing a
system or leasing a system pursuant to an operating lease (the term of which is
typically 36 months or longer), which includes all service and software support
services. The Company offers its purchase customers service and software
support agreements (the terms of which are typically for 36 months or longer).
Systems that are neither leased nor purchased in conjunction with a service
contract are serviced by the Company on a time-and-materials basis. The
Company's computer service division offers its customers service contracts (the
terms of which are typically for 12 months) and also provides service on a
time-and-materials basis.
The following table sets forth selected items in the Condensed Statements
of Income as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> C> <C> <C> <C>
Revenues:
Sales 43.2% 38.9% 42.5% 39.8%
Service and support 32.5 30.4 32.0 29.8
Rental 24.3 30.7 25.5 30.4
---- ---- ---- ----
Total revenues 00.0 00.0 00.0 00.0
---- ---- ---- ----
Expenses:
Cost of revenues 38.1 36.4 37.2 36.1
Product development 5.4 4.4 5.0 3.8
Selling expenses 16.0 15.6 15.9 16.7
General and administrative 31.5 36.3 33.0 36.1
---- ---- ---- ----
Total expenses 91.0 92.7 91.1 92.7
---- ---- ---- ----
Operating income 9.0 7.3 8.9 7.3
Interest income 1.1 0.9 1.2 0.9
---- ---- ---- ----
Income before income taxes 10.1 8.2 10.1 8.2
Income taxes 3.9 3.1 3.9 3.1
---- ---- ---- ----
Net income 6.2% 5.1% 6.2% 5.1%
==== ==== ==== ====
</TABLE>
9
<PAGE> 11
REVENUES
Total revenues for the third quarter ended November 30, 1996 increased 27%
to $10,599,000 from $8,373,000 in the same quarter last fiscal year. For the
nine months ended November 30, 1996, total revenues were $30,556,000, an
increase of 22% over revenues of $25,022,000 recorded in the same nine month
period in the prior fiscal year. The Company's total revenues increased
primarily as a result of increases in sales revenues and service and support
revenues. System sales revenues were comprised primarily of revenues from
sales of new systems to existing and acquired customers and, to a lesser
extent, from sales of new systems to new customers and from sales of add-on
equipment to existing customers. Service and support revenues and rental
revenues were comprised primarily of recurring revenues from existing and
acquired maintenance and lease agreements.
Sales revenues. Sales revenues for the quarter ended November 30, 1996
increased 40% to $4,574,000 from $3,257,000 in the same quarter last fiscal
year. Sales revenues for the nine months ended November 30, 1996 increased 30%
to $12,984,000 from $9,957,000 in the same nine month period last fiscal year.
A portion of these increases in sales revenues resulted from sales of new
systems to customers acquired through the Infortext acquisition. Sales
revenues derived from customers acquired through the Infortext acquisition were
$697,000 and $1,722,000 during the quarter and nine months ended November 30,
1996, respectively. The remaining increases resulted from an increase in
volume of sales of new systems to existing customers.
Service and support revenues. Service and support revenues for the
quarter ended November 30, 1996 increased 35% to $3,450,000 from $2,548,000 in
the same quarter last fiscal year. Service and support revenues for the nine
months ended November 30, 1996 increased 31% to $9,784,000 from $7,455,000 in
the same nine month period last fiscal year. A portion of these increases in
service and support revenues resulted from revenues derived from customers
acquired through the Infortext acquisition and increased revenues in the
Company's computer services division. Service and support revenues derived
from customers acquired through the Infortext acquisition were $388,000 and
$1,155,000 during the quarter and nine months ended November 30, 1996,
respectively. Service and support revenues generated by the Company's computer
service division increased to $260,000 and $623,000 during the quarter and nine
months ended November 30, 1996, respectively from $88,000 and $212,000 in the
same quarter and nine month period last fiscal year.
Rental Revenue. Rental revenues for the quarter ended November 30, 1996
were $2,575,000 compared to $2,568,000 in the same quarter last fiscal year.
Rental revenues for the nine months ended November 30, 1996 increased to
$7,788,000 from $7,610,000 in the same nine month period last fiscal year.
These increases in rental revenue resulted from rental contracts acquired at
the end of last fiscal year relating to a settlement with a leasing company.
Rental revenues derived from these acquired contracts were $70,000 and $286,000
for the quarter and nine months ended November 30, 1996, respectively. As a
result of this settlement, rental revenue is anticipated to be higher in the
fourth quarter of the current fiscal year than in the fourth quarter of last
fiscal year. However, due to the trend of customers purchasing new systems
rather than entering into new lease agreements as their old lease agreements
expire, Management anticipates that rental revenue will comprise a decreasing
percentage of total revenues in future periods.
10
<PAGE> 12
EXPENSES
Cost of revenues. Cost of revenues is comprised primarily of (i) the cost
of hardware and other system components associated with system sales and
service, (ii) payroll and other expenses related to the Company's
manufacturing, customer support and service personnel and (iii) depreciation of
system rental and service units. Cost of revenues for the quarter ended
November 30, 1996 increased to $4,036,000, or 38.1% of total revenues, from
$3,051,000, or 36.4% of total revenues, in the same quarter last fiscal year.
Cost of revenues for the nine months ended November 30, 1996 increased to
$11,365,000, or 37.2% of total revenues, from $9,042,000, or 36.1% of total
revenues. These increases in cost of revenues as a percentage of revenues
resulted primarily from (i) the higher cost of manufacturing the Company's
newest terminals compared to older product lines together with an increase in
sales of these new terminals as a percentage of total sales, (ii) the higher
cost of revenues as a percentage of revenues in the Company's newly acquired
Infortext Group division compared to the Company's existing cost recovery
divisions and (iii) the existence of lower margin resales of computer equipment
by the Company's computer service division. Partially offsetting these
increases were the rental revenues acquired in the leasing company settlement
without related costs of revenues.
Product development expenses. Product development expenses for the
quarter ended November 30, 1996 increased to $574,000, or 5.4% of total
revenues from $368,000, or 4.4% of total revenues, in the same quarter last
fiscal year. Product development expenses for the nine months ended November
30, 1996 increased to $1,534,000, or 5.0% of total revenues, from $942,000, or
3.8% of total revenues, in the same nine month period last fiscal year.
Current development efforts are focused on enhancing and expanding the Equitrac
and Infortext cost recovery product lines as well as developing several new
products. Development efforts include joint development projects with major
office equipment manufacturers relating primarily to tracking and reporting
activity on laser printers, digital copiers and other office equipment. Other
new products under development include the Equitrac Professional Internet
Client ("E.P.I.C."), a full-featured Internet browser designed to control
Internet access and track on-line research and e-mail for billing and
management purposes and the development of TelemeTrac(TM), a product which
collects and consolidates photocopier meter totals remotely through cellular
telephone networks. The Company does not capitalize any of its product
development costs since development costs incurred subsequent to attainment of
technological feasibility of a new product line are not deemed to be
significant; accordingly product development expenses for each period include
all hardware and software development costs incurred. Management anticipates
product development expenses to remain above previous fiscal year levels for
the remainder of the current fiscal year due to the Company's increased product
development activities which are focused on new technologies. Additionally,
Management does not anticipate to derive revenues from the new products under
development until the second half of next fiscal year.
Selling expenses. Selling expenses for the quarter ended November 30,
1996 increased to $1,696,000, from $1,306,000 in the same quarter last fiscal
year. Selling expenses were 16% of total revenues in the third quarter of the
current fiscal year and last fiscal year. Selling expenses for the nine months
ended November 30, 1996 increased to $4,866,000, or 15.9% of total revenues,
from $4,188,000, or 16.7% of total revenues, in the same nine month period last
fiscal year. This decrease in selling expenses as a percentage of revenues
resulted primarily from higher revenues per sales representative during the
nine months ended November 30, 1996 compared to the same nine month period last
fiscal year.
11
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General and administrative expenses. General and administrative expenses
for the quarter ended November 30, 1996 increased to $3,341,000, or 31.5% of
total revenues, from $3,037,000, or 36.3% of total revenues, in the same
quarter last fiscal year. General and administrative expenses for the nine
months ended November 30, 1996 increased to $10,072,000, or 33.0% of total
revenues, from $9,027,000, or 36.1% of total revenues, in the same nine month
period last fiscal year. These decreases in general and administrative
expenses as a percentage of revenues resulted primarily from the Company's
ability to increase revenues through acquisitions of customer bases and
internal sales growth without adding a commensurate level of support and
administrative positions.
Interest income. The Company's interest income increased to $125,000
during the quarter ended November 30, 1996 from $80,000 during the same quarter
last fiscal year. Interest income for the nine months ended November 30, 1996
increased to $359,000 from $224,000 in the same nine month period last fiscal
year. These increases in interest income resulted from both higher
interest-earning asset balances and higher yields on invested balances as the
Company reallocated a portion of its investment portfolio out of municipal
bonds into higher yielding investment grade securities.
Income taxes. The Company's effective income tax rate was 38.6% and 38.7%
for the quarter and nine months ended November 30, 1996, compared to 38.1% and
37.5% in the same quarter and nine month period last fiscal year. These
increases in the Company's effective tax rate resulted primarily from a
reduction in tax exempt municipal bond interest income.
Certain aspects of the Company's fiscal 1992, 1993 and 1994 federal income
tax returns are currently under examination by the Internal Revenue Service
("IRS"). The IRS is reviewing the characterization and useful lives of certain
intangible assets of the Company. A report previously issued by the IRS
assessing additional taxes, penalties and interest for the 1992 fiscal year has
been rejected by the IRS appeals division and the case has been returned to the
initial examiner. A revised report has not been received regarding the
Company's 1992 tax return and no report has been received regarding the
Company's 1993 and 1994 tax returns. If the IRS prevails, the Company may be
required to make payments relating to the timing of tax deductions taken on
these federal income tax returns. The Company may also be assessed interest
and penalties. Although management and its tax advisors believe that the
Company has a meritorious position, the ultimate outcome of this matter cannot
presently be determined and, therefore, no liability has been recorded at this
time. The Company intends to vigorously defend its position.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations over the past several years
principally from cash flow from operations. The Company's cash and cash
equivalents and investment securities decreased to $9,058,000 at November 30,
1996 from $10,423,000 at February 29, 1996. This decrease in cash and cash
equivalents and investment securities resulted primarily from the Infortext
acquisition. This acquisition was financed by $1,834,000 in cash, including
$1,450,000 of cash restricted for that purpose as of February 29, 1996, and the
assumption of a liability of $611,000 to fulfill service contracts. Additional
consideration is contingent upon the results of the acquisition during fiscal
1997. Cash flows used in investing activities included the acquisition of
$1,911,000 of property and equipment, primarily system rental units which are
leased to customers and system service units which are used to service
customers with service contracts. Partially offsetting these uses of cash was
the generation of $2,248,000 in cash from operating activities during the nine
months ended November 30, 1996.
12
<PAGE> 14
The Board of Directors has authorized the Company to spend up to
$2,000,000 to repurchase shares of the Company's issued and outstanding common
stock, based upon consideration of the Company's current cash position,
management's expectations of future cash flows from operating activities and
the level of cash required to fund future growth opportunities. Through
November 30, 1996, the Company repurchased 330,800 shares of its outstanding
common stock at an aggregate purchase price of $1,653,000. Future purchases
will be made from time to time subject to prevailing market conditions in open
market or privately negotiated transactions.
The Company anticipates that its cash and cash equivalents and marketable
securities and cash flow from operating activities will be adequate to meet the
Company's cash requirements for the foreseeable future.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q, including statements contained
herein under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations", constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements express or implied by such forward-looking
statements. Such factors include, but are not limited to the following:
general economic and business conditions; charges and costs related to
acquisitions; and the ability of the Company to develop and market products for
the markets in which it operates, to successfully integrate its acquired
products and services, to adjust to changes in technology, customer
preferences, enhanced competition and new competitors in the markets in which
it operates.
13
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PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
4. 11. Statement of Computation of Earnings per Share
27. Financial Data Schedule (for SEC use only).
B. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf thereunto
duly authorized.
EQUITRAC CORPORATION
Date: January 10, 1997 By: /s/ George P. Wilson
-----------------------------
George P. Wilson
President and Chief
Executive Officer
Date: January 10, 1997 By: /s/ Scott J. Modist
--------------------------
Scott J. Modist
Vice President - Finance,
Treasurer and Chief Financial
Officer
14
<PAGE> 1
EXHIBIT 11
EQUITRAC CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 3,413 3,472 3,402 3,552
Common share equivalents arising
from dilutive options 165 65 139 63
------ ------ ------ ------
3,578 3,537 3,541 3,615
====== ====== ====== ======
Earnings per share $ 0.18 $ 0.12 $ 0.53 $ 0.35
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF NOVEMBER 30, 1996 AND INCOME STATEMENT FOR THE NINE MONTHS ENDED
NOVEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FORM
10-Q FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 3,291,000
<SECURITIES> 4,175,000
<RECEIVABLES> 6,687,000
<ALLOWANCES> 400,000
<INVENTORY> 2,577,000
<CURRENT-ASSETS> 17,230,000
<PP&E> 13,276,000
<DEPRECIATION> 7,142,000
<TOTAL-ASSETS> 28,430,000
<CURRENT-LIABILITIES> 4,407,000
<BONDS> 0
0
0
<COMMON> 38,000
<OTHER-SE> 23,828,000
<TOTAL-LIABILITY-AND-EQUITY> 28,430,000
<SALES> 12,984,000
<TOTAL-REVENUES> 30,556,000
<CGS> 11,365,000
<TOTAL-COSTS> 4,866,000
<OTHER-EXPENSES> 11,606,000
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,078,000
<INCOME-TAX> 1,192,000
<INCOME-CONTINUING> 1,886,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,886,000
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
