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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
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(R)
(Exact name of registrant as specified in its charter.)
FLORIDA 59-1797862
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
836 PONCE DE LEON BOULEVARD, CORAL GABLES, FLORIDA 33134
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (305) 442-2060
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE NASDAQ NATIONAL MARKET SYSTEM
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under 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 mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At May 2, 1997, the aggregate market value of common stock held by
non-affiliates of the registrant was $26,016,718, based on the closing sales
price ($13.00) of such common stock on the NASDAQ National Market System on such
date.
The number of shares outstanding of the registrant's Common Stock, par
value $.01, as of May 2, 1997 was 3,473,500.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed in connection with
the registrant's annual stockholders' meeting are incorporated by reference into
Part III of this report.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I
<S> <C>
ITEM 1. BUSINESS 2
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 37
ITEM 11. EXECUTIVE COMPENSATION 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K 38
SIGNATURES 40
</TABLE>
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PART I
ITEM 1. BUSINESS
Equitrac Corporation ("Equitrac" or the "Company") is the leading provider
of computer system solutions to professional service firms for automated cost
recovery and expense management of office equipment. Equitrac designs, develops,
manufactures, markets and supports a fully integrated computer hardware and
software communications network designed to automatically track, record and
report usage of photocopy machines, facsimile machines, laser printers,
telephones, postage meters and other office equipment. The Company's systems
allow users to bill incurred costs, maximize office equipment efficiency and
contain overhead costs. Equitrac's cost recovery and expense management systems
are installed at over 6,000 client sites worldwide.
The Company also provides maintenance service on a wide range of computer
equipment through its Equitrac Computer Services (ECS) division. ECS supports
many major equipment manufacturers, including IDEA, IBM, Hewlett-Packard, Epson
and Synoptics. This multi-vendor support covers a variety of services including
installation, preventive maintenance and on-site repair service.
COST RECOVERY AND EXPENSE MANAGEMENT MARKET OVERVIEW
Equitrac's primary market focus for its systems is cost recovery
applications for law firms, and to a lesser extent, engineering, architectural
design, accounting, advertising and other professional service firms (the
"professional market") that bill their clients for office-related expenses in
order to recover incurred costs. Billable office-related costs generally
represent an important source of revenue to law and other professional service
firms. Office equipment expenditures and service costs represent a significant
portion of a professional service firm's overhead expenses. As a result,
professional service firms have required more sophisticated technology as a
means of tracking and recovering office overhead costs from their clients.
Equitrac's systems provide professional service firms with a highly automated
means of tracking and accounting for a wide variety of office equipment and
services at a cost which can be recovered in a relatively short period of time.
Large corporations, governmental entities and other organizations (the
"commercial market") incur significant capital outlays acquiring and servicing
photocopiers, facsimile machines, laser printers and other office equipment.
Equitrac also markets its systems to commercial and governmental entities for
use in controlling and reducing office expenses and allocating departmental
costs.
PRODUCT FEATURES AND TECHNOLOGY
Equitrac's systems, which are comprised of system software, control
terminals and application software, are designed to allow customers flexibility
in configuring a system to match their own particular needs. Continued product
development efforts have resulted in advanced terminal designs and system
software, data security features, advanced communication technology and computer
networking capabilities for Equitrac's cost recovery and expense management
systems.
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In recent years, the Company has recognized the trend of customers
transitioning away from traditional analog duplicating into new technologies
such as digital printing and multifunctional products. Additionally, the Company
has recognized the significant impact that the Internet has made in professional
service firms for research related activities. As a result, the Company has
focused a significant portion of its product development efforts on the
development of tracking products to be integrated into this new office
technology. See "New Products".
TRANSACTION SERVER SOFTWARE
Equitrac's server software is designed primarily to support a network of
control terminals for applications such as photocopy control, facsimile control
and telephone call accounting. System software is used for terminal
communications, database maintenance, report generation, host system
communications, remote system polling and transaction costing. Equitrac develops
multiple levels of system software that vary by operating system platform such
as Windows(R)NT, Windows(R)95 and DOS. Each software configuration contains
unique feature sets and is designed to match specific customer sizes and
requirements. The levels of system software are as follows:
System 4(TM) - A Windows(R)NT based cost recovery server with an SQL
database engine designed for moderate to large multi-site firms.
System 3(TM) - A DOS based system software designed for a wide range of
firm sizes that can be easily customized for specific applications.
DisburseMate(TM) - Created specifically for small firms with fewer than ten
(10) professionals offering simple reporting and data exporting features.
PartnerOpen - A Windows(R)95 based platform with SQL database support
designed specifically to integrate with the Partner series of copy, fax and
disbursement terminals.
CONTROL TERMINALS
Equitrac's control terminals are data entry devices used to accurately
track the use of photocopy machines, facsimile machines, postage meters, other
office equipment and miscellaneous disbursements. Equitrac develops a number of
terminal variations that contain unique feature sets and are designed to match
specific customer sizes and requirements. The control terminals are as follows:
AlphaCopy(TM) and AlphaFax(TM) - Advanced control terminals with large data
storage capacity, Ethernet connectivity, advanced user interface and multiple
device support.
Distributed Control Terminals (DCT's) and Fax Control Terminals (FCT's) -
Small footprint copy and fax control devices that can be custom configured for a
wide range professional and commercial applications.
DisburseMate(TM) - Created specifically for small firms, DisburseMate copy
and fax terminals do not require dedicated wiring or include advanced feature
support or large data storage capacities.
Partner - Copy, fax and disbursement terminals designed specifically to
work with PartnerOpen software and include an extensive feature set with search
and query capabilities.
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TELEMANAGEMENT AND CALL ACCOUNTING SOFTWARE
Equitrac's telemanagement and call accounting software monitors telephone
call usage and automatically records and prices all local, long distance and
international calls based on carrier charges or customer-created pricing tables.
The software generates comprehensive reports identifying calls made by account
number and extension and validates account codes against stored validation
tables to ensure the accuracy of call records before posting to the customer's
accounting system. Equitrac markets DOS, Windows(R) and Windows(R)NT based
versions that can be purchased modularly depending on customer size and feature
requirements. Applications range from basic call accounting to advanced
telemanagement including fraud detection, traffic and facilities management
modules. Equitrac markets the following telemanagement packages:
TeleTrac 4 - Windows(R)NT based call accounting and telemangement software
created for integration with System 4 or available as a stand-alone product for
both professional and commercial applications.
TeleTrac 3 - DOS based call accounting for professional firms integrated
specifically with System 3 cost recovery software.
TruCall Accountant - Windows(R)95 call accounting and telemanagement for
commercial applications or integrated professional application with PartnerOpen
software.
NEW PRODUCTS
The Company's product development efforts during fiscal 1997 included
several development projects beyond the development of new products for the
Company's core business of professional market cost recovery. The Company has
focused on migrating its tracking technology to a number of new software
applications including Internet tracking and digital printing.
Equitrac's Professional Internet Client(TM) (E.P.I.C.) was designed as a
solution to tracking, controlling and assigning Internet usage to users,
clients, projects and cost centers. Based on Microsoft's Internet Explorer
framework, E.P.I.C. is a full-featured Internet browser that requires users to
choose a business purpose for accessing the Internet and to assign the time
spent on the Internet to a specific client or project. E.P.I.C. tracks all sites
visited, e-mails sent and files downloaded via FTP. Additionally, the blocking
module of E.P.I.C. includes a control list that blocks access to unacceptable
Internet sites. The Company believes E.P.I.C.'s ability to interact with the
user rather than acting as a passive-server based filter makes it a unique
productivity tool for commercial businesses as well as the professional service
market. The Company expects to release E.P.I.C. in the first quarter of fiscal
1998.
PrintLog(TM) was developed to migrate Equitrac's tracking technology from
the walk-up copier to the desktop in response to the proliferation of new
digital output devices. PrintLog is a digital output tracking solution designed
to track all printing activity from the workstation. Designed to work in the
Windows(R)3.1, Windows(R)95 and Windows(R)NT environment, PrintLog counts all
pages printed to laser printers and network photocopiers and assigns each
transaction to a client, project or department. PrintLog compliments Equitrac's
walk-up copy control devices such as the AlphaCopy by providing seamless
integration into an existing Equitrac system. PrintLog is also capable of
operating as a completely stand-alone product for commercial and professional
customers in need of network print management. The Company expects to release
PrintLog in the second quarter of fiscal 1998.
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OneTrac(TM) is an inexpensive copy and fax control product line developed
for resale through both the Equitrac direct sales force and through dealers.
OneTrac is targeted at low-end commercial copy control and was developed as a
solution for small businesses that need expense management capabilities. The
Company expects to release OneTrac in the second half of fiscal 1998.
TelemeTrac(TM) was developed in response to an overwhelming trend in the
photocopier industry: many photocopiers are leased on a cost-per-copy basis
allowing businesses to simply pay for the number of copies they make rather than
purchasing photocopier equipment. The increasing dependence on copier meter
readings resulting from this trend has placed a tremendous burden on the copier
industry and has resulted in increased administrative and service costs, slower
cash flow to dealers and diminished customer satisfaction.
TelemeTrac is a low-cost, cellular-based metering system designed to
automatically collect copier meter readings via the cellular network. The
Company believes that TelemeTrac is the first solution to low-cost and automated
meter reading of copiers.
During fiscal 1997, Equitrac entered into a distributorship agreement with
BellSouth Wireless, Inc. to carry Cellemetry(R) Data Service, a new low-cost
data service which serves as the transport for TelemeTrac. TelemeTrac has been
in the pilot testing phase since October 1996 with installations in several
cities. The Company expects to release TelemeTrac for commercial deployment in
the fourth quarter of fiscal 1998.
In February 1997, the Company entered into a supply agreement and strategic
alliance with Pitney Bowes. Under this agreement, Equitrac will develop and
manufacture an OEM product line, consisting of software and hardware, to be
marketed under the Pitney Bowes name.
SALES AND MARKETING
Equitrac currently markets its systems and services principally through its
own sales personnel and to a lesser extent through independent dealers. As of
February 28, 1997, the Company's direct sales force in the United States totaled
36 sales representatives in 21 locations in or near major metropolitan areas.
The Company's sales offices are staffed with customer service personnel who
provide technical assistance to the Company's sales staff and customers. The
Company's sales representatives are responsible for an assigned geographical
territory. To a lesser extent, the Company markets its systems in the United
States through independent dealers. Equitrac also markets its systems
domestically through facilities management organizations, which contract with
businesses to manage specific office equipment such as photocopiers, facsimile
machines and postage meters. These organizations market the Company's products
with their own products and services.
Equitrac's systems are marketed and serviced internationally through
independent dealers and through its own sales personnel. In the United Kingdom,
the Company has a direct sales office and employs two sales representatives and
in Canada, the Company has three direct sales offices and employs three sales
representatives. Independent dealers currently represent the Company in Europe,
the Far East, Australia, South America and Central America. International
revenues (including export sales) accounted for approximately 11.5%, 11.8%, and
11.3% of the Company's total revenues in fiscal 1997, 1996 and 1995,
respectively.
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The Company's believes that it has the largest market share of installed
cost recovery systems within the legal industry. Future sales of the Company's
products will result primarily from sales of upgraded products to existing and
acquired customers. Additional growth is expected to be attained through sales
of new products and services, as they are developed and offered by the Company.
The Company markets its computer and equipment servicing business
principally through five sales representatives in its ECS division. The Company
plans to continue to expand the ECS division to include additional sales and
service representatives during the next fiscal year.
The Company's Marketing Department is responsible for new product planning
and specifications and coordination of product development in conjunction with
the Product Development Department. Equitrac continually solicits information
and input with respect to new product ideas and enhancements from its customers
and sales personnel.
LEASE AND SERVICE AGREEMENTS
Equitrac's customers may purchase a system or the Company will lease a
system pursuant to an operating lease (the term of which is typically for 36
months or longer) which includes all service and software support. The Company
enters into separate lease agreements for add-ons and upgrades. The Company's
system leases generally contain clauses that automatically extend the lease term
unless the customer chooses to terminate the lease by providing the Company at
least 60 days' notice prior to the expiration of the lease term. In the
Company's experience, a substantial portion of its customers either renew their
leases, enter into new leases with the Company or purchase a new system from the
Company at the end of their initial lease terms. The Company offers its purchase
customers service agreements (the terms of which are typically for 36 months or
longer) which provide for service and software support during the term of the
agreement. Systems that are not purchased in conjunction with a service or
software support agreement are serviced by the Company on a time-and-materials
basis.
ECS customers enter into service agreements (the terms of which are
generally for 12 months) with the Company to provide maintenance service on
specified computer equipment. ECS service contracts provide a wide range of
support services during the term of the agreement. ECS also provides support
services to customers on a time-and-materials basis.
BACKLOG
The Company historically has not had a large backlog of system sales orders
since customer orders are generally shipped and installed within a short period
of time after an order is received. Consequently, order backlog represents only
a limited percentage of the system sales anticipated by the Company in any given
fiscal period and is not indicative of the Company's actual sales for any future
fiscal period. Manufacturing plans and expenditure levels are based primarily on
sales forecasts. This absence of significant scheduled backlog could lead to
fluctuations in quarterly operating results. To support its ability to configure
and deliver systems rapidly, the Company generally maintains at least one
month's supply of CPU's and assembled control terminals.
Although the Company's backlog of system sales is not significant, at
February 28, 1997, the minimum future payments due to the Company during the
next four fiscal years under its existing non-cancelable lease and maintenance
agreements aggregated approximately $43.8 million, compared to approximately
$39.6 million at February 29, 1996.
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CUSTOMER SERVICE AND TECHNICAL SUPPORT
Equitrac believes that the quality and reliability of its systems and its
on-going support of such systems are important elements in its business
strategy. Equitrac provides most of its product service and support through its
own extensive network of service personnel. The Company maintains service
technicians in every major metropolitan area in which the Company's systems are
installed, providing the Company with the ability to offer service in such areas
generally within two to four hours' response time.
Equitrac generally provides a 90-day warranty on its systems, and maintains
and services its systems on a contractual basis after the initial warranty
period. Equitrac's policy is to replace, rather than repair, malfunctioning
terminals at a customer location to minimize system down-time and customer
inconvenience.
ECS believes that the quality and responsiveness of its service
representatives are primary considerations in its business strategy. ECS Field
Technicians receive extensive in-house technical training, as well as various
industry certifications.
PRODUCT DEVELOPMENT
Equitrac works closely with its customers and its sales and marketing
personnel to develop new systems and enhancements to existing systems. Constant
changes in technology, including ongoing developments in computer operating
systems, networks and communications protocols, require the Company to engage in
an ongoing program of product development.
Substantially all product development is performed internally. As of
February 28, 1997, 24 employees of the Company were engaged in product
development. From time to time, the Company also employs independent contractors
for specific development products. Equitrac expensed $2,113,000, $1,282,000, and
$1,288,000 in fiscal 1997, 1996 and 1995, respectively, on product development.
All product development expenses are charged to operations during the period in
which they are incurred.
Current development efforts are focused on enhancements to existing
products as well as several new products. See "New Products".
MANUFACTURING AND QUALITY ASSURANCE
Equitrac assembles substantially all of the hardware and software for its
systems. Equitrac's assembly and manufacturing operations consist primarily of
procurement, assembly, testing and quality control of components and assembled
products. The Company generally uses standard parts and components which are
available from multiple sources; however, certain components, such as terminal
cases, displays, keypads and power supplies, are purchased from limited sources
due to price, quality, availability and other considerations. To date, the
Company has not experienced any significant problems obtaining timely deliveries
from its suppliers. The Company maintains significant additional quantities of
certain key components and continually evaluates alternative sources of supply.
The Company purchases directly all of the components utilized to assemble
circuit boards for its control terminals and packages such components in
complete kits for insertion by circuit board assembly subcontractors. The
Company's quality control program includes inspecting all incoming parts,
inspecting assembled parts and final testing under simulated operating
conditions of all systems prior to shipping.
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ACQUISITIONS
In March 1996, the Company acquired the cost recovery customer base of ISI,
Inc. (ISI), a distributor of cost recovery and telemanagement products based in
Schaumburg, Illinois. Infortext markets its own cost recovery product line and
provides maintenance services on those products. Infortext markets its products
primarily to law and other professional services firms through its own sales
force as well as through independent dealers.
COMPETITION
The market for cost recovery and expense management products is
competitive. Equitrac believes that it has the largest market share of installed
cost recovery systems within the legal industry. Equitrac and its competitors
also compete in the sale of cost recovery systems to other professional service
firms, facilities management organizations and manufacturers of equipment
controlled by cost recovery and expense management systems. Future competitors
in the Company's existing and potential markets might include manufacturers of
equipment controlled by cost recovery and expense management systems, software
development companies and facilities management organizations.
Competition in the Company's markets is based on a number of factors,
including price, service and support, system software capability, product
quality and reliability and compatibility. Equitrac believes that it is
competitive with respect to each of these factors and that its principal
competitive advantages are its emphasis on customer service and support, its
product quality, its system compatibility, which allows the Company's systems to
integrate easily into a customer's existing computer system, and its continued
development efforts on product enhancements and new systems.
The Company anticipates that the markets for its new products under
development will be very competitive and there is no guarantee that these new
products will gain market acceptance. The Company does not anticipate achieving
the same market share with these new products as it has achieved in its core
cost recovery business.
The market for computer services is very competitive. Competitors include
other third party service organizations, as well as OEM's. Competition in the
computer services market is based on a number of factors, including price,
quality of service, equipment serviced and responsiveness. ECS believes that it
is competitive with respect to each of these factors.
PROPRIETARY RIGHTS
The Company has historically relied upon a combination of contractual
rights, trademarks, trade secrets, and copyright laws to establish and protect
its proprietary rights in its systems and related technologies. Due to the
Company's strategic move from proprietary systems to industry-standard software
applications, the Company is taking actions to further protect its proprietary
rights through software patents. The Company has several United States software
applications pending. In connection with the Company's March 1, 1997 acquisition
of Professional Systems Group, the Company acquired two Canadian software
patents. Furthermore, the Company's license agreements restrict a customer's use
of the Company's software and prohibits disclosure to third parties.
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EMPLOYEES
At February 28, 1997 Equitrac had a total of 361 full-time employees, of
which 34 were engaged in manufacturing, 24 were engaged in product development,
58 were engaged in sales and marketing, 186 were engaged in customer service and
support and 59 were engaged in administrative and finance positions. None of the
Company's employees are represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.
ITEM 2. PROPERTIES
At February 28, 1997, Equitrac's corporate headquarters and research and
development facilities were located in approximately 20,000 square feet of
leased office space in Coral Gables, Florida. The Company leases such space from
related parties and the lease expires on September 30, 2000. See Note 7 to the
Company's Financial Statements, included in Item 8 hereof. The Company's
manufacturing and distribution operations are located in approximately 10,000
square feet of leased space near its corporate headquarters. The Company's sales
and support staff operate in leased space in 29 locations in the United States,
two locations in the United Kingdom and three locations in Canada. The Company
believes that its existing facilities are adequate to meet its current and
anticipated requirements.
ITEM 3. LEGAL PROCEEDINGS
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, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
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Name Age Position(s)
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<S> <C> <C>
John T. Kane 53 Chairman of the Board of Directors
George P. Wilson 53 President, Chief Executive Officer and
Director
Scott J. Modist 36 Vice President - Finance, Treasurer and
Chief Financial Officer
Cid Yousefi 40 Vice President - Product Development
and Information Services
Christopher Rickborn 33 Vice President - Marketing and Product Planning
Patrick J. Raftery 47 Vice President - Sales, U.S. Sales Division
John P. Jones 55 Vice President - Sales, International
</TABLE>
JOHN T. KANE is the founder of the Company, has served as the Company's
Chairman of the Board since its inception in January 1978 and was President of
the Company from its inception until October 1989.
GEORGE P. WILSON has been the President and Chief Executive Officer and a
Director of the Company since October 1989. Mr. Wilson served as Executive Vice
President of the Company from 1978 through October 1989.
SCOTT J. MODIST, a certified public accountant, has been Vice President -
Finance, Treasurer and Chief Financial Officer of the Company since April 1992.
From November 1983 through April 1992, Mr. Modist was employed by KPMG Peat
Marwick L.L.P., and was a senior manager from July 1989 to April 1992.
CID YOUSEFI has been Vice President - Product Development and Information
Services since May 1993. Mr. Yousefi has served the Company in various data
processing and management information capacities since 1982. Mr. Yousefi was the
Company's Director of Data Processing from 1987 through April 1992, at which
time he was appointed Vice President - Software Development and Management
Information Services.
CHRISTOPHER RICKBORN was named Vice President - Marketing and Product
Planning in April 1996. Mr. Rickborn served as Director of Marketing from
January 1995 to April 1996 and as a Product Manager prior to being named as
Director of Marketing.
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PATRICK J. RAFTERY has been Vice President - Sales, U.S. Sales Division
since September 1993. Mr. Raftery joined the Company in July 1989 as the
Company's Vice President - Sales, Eastern Division.
JOHN P. JONES has served as the Company's Vice President - Sales,
International Division since November 1990. Mr. Jones served as the Company's
Director of Dealer and National Account Sales from June 1987 to November 1990
and as a Regional Sales Manager from July 1982 to June 1987.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market System under the symbol ETRC. The following table sets
forth, for the periods indicated, the range of high and low closing sale prices
for the Common Stock, as reported by Nasdaq.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
Fiscal year ended February 28, 1997
Fourth Quarter 12 5/8 10 1/2
Third Quarter 10 15/16 7 1/8
Second Quarter 10 7 1/2
First Quarter 10 5 3/4
Fiscal year ended February 29, 1996
Fourth Quarter 7 3/4 5 1/4
Third Quarter 5 1/2 4 5/8
Second Quarter 5 1/8 4 1/2
First Quarter 5 4 1/4
</TABLE>
On May 15, 1997, there were approximately 710 holders of record, including
security position listings, of the Company's Common Stock.
The Company has never declared nor paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
its operations and the expansion of its business. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon the Company's earnings, capital requirements, financial
condition and other factors deemed relevant to the Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of the
Company for each of the years in the five-year period ended February 28, 1997.
The selected financial data as of and for each of the years in the five-year
period ended February 28, 1997 have been derived from the Company's financial
statements, which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The selected financial data should be read in conjunction with the
Company's financial statements and the notes thereto for the three-year period
ended February 28, 1997 and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Total revenues $41,901 $33,718 $31,224 $29,122 $27,475
Operating income 3,729 2,805 1,754 1,897 3,783
Net income 2,614 1,882 1,287 1,357 2,444
Earnings per share $ 0.73 $ 0.52 $ 0.34 $ 0.36 $ 0.70
Weighted average common and
common equivalent shares outstanding 3,562 3,597 3,770 3,770 3,495
BALANCE SHEET DATA (END OF YEAR):
Working capital $13,159 $12,366 $12,343 $11,873 $12,314
Total assets 30,682 25,646 25,436 22,848 21,990
Total current liabilities 5,907 3,671 3,535 2,137 2,692
Long-term debt, net of current portion -- -- -- -- 125
Total stockholders' equity $24,775 $21,824 $21,491 $20,273 $18,844
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's revenues are derived from three principal sources: (i) sales
of new systems, upgrades and add-ons of equipment or software, (ii) monthly
revenues from service and software support agreements and (iii) monthly revenues
from leases of its systems. 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. 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 not purchased in conjunction with a service agreement are
serviced by the Company on a time-and-materials basis. The Company's computer
service division offers its customers service agreements (the terms of which are
typically for 12 months) and also provides service on a time-and-materials
basis.
The Company's total revenues, system rental and service and support
revenues have increased every year since the Company's inception in 1978.
Historically, system rental and service and support revenues have accounted for
a majority of the Company's revenues. At February 28, 1997, the minimum future
payments due under the Company's existing non-cancelable lease and service and
support agreements aggregated $43.8 million over the next four fiscal years.
14
<PAGE> 16
The following table sets forth, for the periods presented, certain income
statement data of the Company, expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL REVENUES INCREASE (DECREASE)
FOR FISCAL YEARS FROM PRIOR YEAR
-------------------------------- --------------------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Sales 43.3% 40.0% 41.0% 34.4% 5.4%
Service and support 32.0 30.0 28.5 32.5 13.7
Rental 24.7 30.0 30.5 2.5 6.1
----- ----- -----
Total revenues 100.0% 100.0% 100.0% 24.3 8.0
----- ----- -----
Expenses:
Cost of system sales 13.6 12.8 12.7 31.9 9.2
Cost of system rental, service
and support 25.1 24.1 22.6 29.2 15.0
Product development 5.0 3.8 4.2 64.8 (0.5)
Selling expenses 15.6 16.4 18.6 18.6 (5.1)
General and administrative 31.8 34.6 36.3 14.1 2.8
----- ----- -----
Total expenses 91.1 91.7 94.4 23.5 4.9
----- ----- -----
Operating income 8.9 8.3 5.6 32.9 59.9
Interest income 1.2 1.1 0.8 39.3 33.5
----- ----- -----
Income before income taxes 10.1 9.4 6.4 33.7 56.5
Income taxes 3.9 3.8 2.3 25.9 74.5
----- ----- -----
Net income 6.2% 5.6% 4.1% 38.9 46.2
===== ===== =====
</TABLE>
15
<PAGE> 17
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS 1997, 1996 AND 1995
REVENUES. Total revenues increased 24% to $41,901,000 in fiscal 1997 from
$33,718,000 in fiscal 1996, which in turn represented an 8% increase over fiscal
1995 revenues of $31,224,000. The Company's total revenues increased in both of
the last two fiscal years primarily as a result of increases in sales revenues
and service and support revenues. Sales revenues in each year were comprised
primarily of revenues from sales of new systems to existing and acquired
customers and, to a lesser extent, from sales of systems to new customers and
from sales of add-on equipment to existing customers. Service and support
revenues and rental revenues in each year were comprised primarily of recurring
revenues from existing and acquired service and lease agreements.
SALES REVENUES. Sales revenues increased 34% to $18,126,000 in fiscal 1997
from $13,490,000 in fiscal 1996. This increase resulted primarily from revenues
derived from customers acquired in the Infortext acquisition, an increase in
computer equipment resale revenues from the ECS division and an increase in
sales of systems manufactured by the Company. Sales revenues in fiscal 1997
included $2,535,000 of revenues derived from customers acquired in the Infortext
acquisition. ECS computer equipment resale revenue increased to $1,167,000 in
fiscal 1997 from $390,000 in fiscal 1996, primarily as a result of expanded
geographical sales territory and increased market presence. Sales revenues of
company manufactured systems by the Company's previously existing cost recovery
divisions increased 10% to $14,424,000 in fiscal 1997 from $13,080,000 in fiscal
1996. This increase resulted primarily from sales of new systems to existing
customers as part of a trend for professional service firms to upgrade their
office equipment technology on a firm-wide basis.
Sales revenues increased 5% in fiscal 1996 from fiscal 1995. This increase
in sales revenues was derived primarily from sales of new systems to existing
customers. Increased sales revenues were partially offset by a decline in sales
revenues derived from the Company's older product lines and a decline in
revenues derived from custom programming and other data processing functions as
a result of the increase in functionality of the Company's newest systems and
the corresponding decline in customers' needs for services beyond those provided
by the Company's products.
SERVICE AND SUPPORT REVENUES. Service and support revenues increased 33% to
$13,411,000 in fiscal 1997 from $10,119,000 in fiscal 1996. This increase in
service and support revenues resulted primarily from incremental revenues
derived from the customers acquired in the Infortext acquisition, an increase in
service contracts in the Company's previously existing cost recovery divisions
and an increase in service and support revenues generated by the ECS division.
Service and support revenues in fiscal 1997 included $1,638,000 of revenues
derived from customers acquired in the Infortext acquisition. Service and
support revenues from the Company's previously existing cost recovery divisions
increased 11% to $10,853,000 in fiscal 1997 from $9,745,000 in fiscal 1996. This
increase resulted primarily from incremental revenues derived in fiscal 1997
from existing customers and an increase in service contracts with existing
customers who previously leased systems from the Company but have chosen to
purchase new systems when their leases expired. ECS service and support revenues
increased to $920,000 in fiscal 1997 from $374,000 in fiscal 1996, primarily as
a result of expanded geographical sales and service territories and increased
market presence.
16
<PAGE> 18
Service and support revenues increased 14% in fiscal 1996 from fiscal 1995.
This increase resulted primarily from incremental revenues derived in fiscal
1996 from existing customers as well as from an increased emphasis on obtaining
service contracts with customers who purchased systems.
RENTAL REVENUE. Rental revenue increased to $10,364,000 in fiscal 1997 from
$10,109,000 in fiscal 1996 which represented an increase over fiscal 1995 rental
revenues of $9,526,000. The increase of rental revenues in fiscal 1997 resulted
primarily from $268,000 of rental revenue derived from rental contracts acquired
at the end of fiscal 1996 in a settlement with a leasing company. Partially
offsetting this increase was the migration of customers who previously leased
systems to purchases of new systems with related service contracts, as their
rental contracts expired. Management anticipates that rental revenue will
decline in future periods as this trend of rental customers purchasing new
systems and related service contracts as their rental contracts expire continues
in the future.
COST OF SYSTEM SALES. Cost of system sales is comprised of the cost of
hardware and system components and payroll and other expenses related to system
assembly and testing. Cost of system sales does not include software development
costs which have been expensed as product development in the period incurred.
Cost of system sales as a percentage of sales revenue was 32% in fiscal 1997 and
1996 compared to 31% in fiscal 1995. Cost of system sales increased as a
percentage of sales revenue in fiscal 1996 as a result of the higher cost of
manufacturing the Company's newest systems compared to previous product lines.
COST OF SYSTEM RENTAL, SERVICE AND SUPPORT. Cost of system rental, service
and support is comprised primarily of (i) payroll and other expenses related to
customer service and support personnel, (ii) depreciation of rental and service
units, (iii) the cost of hardware and system components used for repairs and
(iv) amortization of acquired system software. Cost of system rental, service
and support does not include software development costs which have been expensed
as product development in the period incurred. Cost of system rental, service
and support as a percentage of total rental and service and support revenues was
44% in fiscal 1997 compared to 40% in fiscal 1996 and 38% in fiscal 1995. This
increase in the cost of system rental, service and support as a percentage of
total rental and service and support revenues in fiscal 1997 is primarily
attributable to higher expenses as a percentage of related revenues in the
Company's ECS division and in the recently acquired Infortext Group division
than in the Company's previously existing cost recovery divisions. Cost of
system rental, service and support as a percentage of total rental and service
and support revenues increased in fiscal 1996 compared to fiscal 1995 primarily
as a result of the higher expenses as a percentage of related revenues in the
Company's ECS division than in the cost recovery divisions of the Company.
Partially offsetting this increase was the reduction in system software
amortization in fiscal year 1996, as the majority of acquired system software
became fully amortized during fiscal 1995, when amortization of system software
totaled $218,000. Depreciation of rental and service units increased to
$1,729,000 in fiscal 1997 from $1,580,000 and $1,333,000 in fiscal 1996 and
1995, respectively. Management anticipates that the cost of system rental,
service and support as a percentage of total rental and service and support
revenues may increase in future periods, as the Company expands its ECS division
into new geographical territories and to the extent that the ECS division
contributes a higher percentage of the Company's revenues.
17
<PAGE> 19
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased 65% to
$2,113,000 in fiscal 1997 from $1,282,000 in fiscal 1996, which represented a
slight decrease from fiscal 1995 product development expenses of $1,288,000.
Product development expenses were 5% of total revenues in fiscal 1997 compared
to 4% of total revenues in fiscal 1996 and 1995. Product development expenses
increased in fiscal 1997 as a result of development projects related to several
new products. These new products under development include (i) Equitrac's
Professional Internet Client(TM) (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, (ii) TelemeTrac(TM), a product which collects
and consolidates photocopier meter totals remotely through cellular telephone
networks, (iii) PrintLog(TM), a digital output tracking application designed to
track all pages printed from a workstation to laser printers and network
photocopiers and assign each transaction to a client, project or department and
(iv) OneTrac(TM), an inexpensive copy and fax control product line developed for
resale through both the Equitrac direct sales force and through copier dealers.
Management does not anticipate deriving significant revenue from the products
until the second half of fiscal 1998. 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 during the period.
Management anticipates that product development costs will increase during
fiscal 1998, as the projects under development are completed and the Company
invests in the development of additional products.
SELLING EXPENSES. Selling expenses increased 19% to $6,541,000 in fiscal
1997 from $5,517,000 in fiscal 1996, which in turn represented a 5% decrease in
selling expenses of $5,815,000 in fiscal 1995. Selling expenses as a percentage
of total revenues was 15.6% in fiscal 1997 compared to 16.4% and 18.6% in fiscal
1996 and 1995, respectively. Selling expenses as a percentage of total revenues
decreased in fiscal 1997, primarily as a result of the addition of revenues from
acquired customers without selling expenses commensurate with those related to
internally generated revenues. Selling expenses as a percentage of total
revenues also declined in fiscal 1996 as a result of a $648,000 decrease in
selling expenses associated with the commercial market division compared to
fiscal 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
14% to $13,312,000 in fiscal 1997 from $11,662,000 in fiscal 1996, which in turn
represented a slight increase over fiscal 1995 general and administrative
expenses of $11,339,000. General and administrative expenses as a percentage of
total revenues were 32% in fiscal 1997 compared to 35% and 36% in fiscal 1996
and 1995, respectively. General and administrative expenses increased in fiscal
1997 primarily as a result of $1,455,000 of general and administrative expenses,
including $294,000 of amortization expense, incurred by the Infortext Group
division. General and administrative expense increases in fiscal 1996 included a
$200,000 increase in amortization expense related to intangible assets recorded
in connection with acquisitions compared to fiscal 1995 and a $162,000 increase
in rent and other office expenses compared to fiscal 1995.
General and administrative expenses decreased as a percentage of total
revenues during fiscal 1997 and 1996 as a result of increases in total revenues
without corresponding increases in corporate support expenses. Management
anticipates that general and administrative expenses may increase as a
percentage of total revenues during fiscal 1998 as the Company adds additional
support positions for the growth anticipated to be derived from the ECS division
and the Company's new products under development.
18
<PAGE> 20
INTEREST INCOME. The Company earned interest income of $489,000 in fiscal
1997 compared to $351,000 in fiscal 1996 and $263,000 in fiscal 1995. 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 from municipal bonds into higher-yielding
investment grade securities.
INCOME TAXES. The Company's effective income tax rate for fiscal 1997 was
38% compared to 40% and 36% in fiscal 1996 and 1995, respectively. The decrease
in the Company's effective tax rate in fiscal 1997 resulted primarily from the
increase in the Company's research and development tax credit due to the
increase in product development expenditures. The increase in the Company's
effective tax rate in fiscal 1996 resulted primarily from the reduction of the
Company's research and development tax credit as a percentage of income and a
reduction in tax exempt interest income as the Company moved a portion of its
investment portfolio from municipal bonds.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations over the past several years
principally from cash flows from operations. The Company generated $4,698,000,
$6,966,000 and $3,528,000 in cash flows from operating activities in fiscal
1997, 1996 and 1995, respectively. Cash flows used in investing activities in
fiscal 1997 included the acquisition of $2,580,000 of property and equipment,
primarily system rental units which are leased to customers and system service
units which are used to fulfill service contract commitments to customers with
service contracts. In addition, cash flows used in investing activities in
fiscal 1997 included the Infortext acquisition, which was financed by $1,834,000
in cash, including $1,450,000 of cash restricted for that purpose at February
29, 1996, and the assumption of a liability of $611,000 to fulfill service
contracts. Additional purchase price consideration of $625,000 was paid to ISI
in March 1997 pursuant to the acquisition agreement.
During fiscal 1996, the Board of Directors authorized the Company to spend
up to $2,000,000 to repurchase shares of the Company's issued and outstanding
common stock. Through February 28, 1997, the Company repurchased 330,800 shares
of its outstanding common stock at an aggregate purchase price of $1,653,000.
Subsequent to fiscal 1997, the Board of Directors authorized the Company to
spend up to an additional $2,500,000 to repurchase shares of the Company's
issued and outstanding common stock.
The Company anticipates that its cash and cash equivalents, investment
securities and cash flows from operating activities will be adequate to meet the
Company's cash requirements for the foreseeable future. A principal source of
cash flow from operations will be payments received under the Company's lease
and service agreements. At February 28, 1997, the future minimum payments due to
the Company under its existing non-cancelable lease and service agreements
aggregate $43.8 million, of which $20.0 million is due in fiscal 1998. The
Company has no material commitments for capital expenditures.
SEASONALITY AND INFLATION
Historically, the Company's business has not been seasonal. However,
although the Company's rental and service and support revenues from installed
systems do not fluctuate greatly from quarter to quarter, fluctuations in the
amount of system sales may result in quarterly variations in the Company's total
revenues and net income. Accordingly, interim results of operations may not be
an accurate measure of the annual performance of the Company. The Company
believes that inflation has not had a material impact on the results of
operations.
19
<PAGE> 21
FOREIGN OPERATIONS
In fiscal 1997, revenue from foreign operations (including export sales)
increased 21% to $4,808,000 from $3,980,000 in fiscal 1996, which in turn
represented a 13% increase over revenue from foreign operations (including
export sales) of $3,521,000 in fiscal 1995. These increases in revenues from
foreign operations (including export sales) resulted primarily from revenues
derived from rental contracts obtained in the settlement of a litigation matter.
As a percentage of total revenues, revenues from foreign operations (including
export sales) was 11.5% in fiscal 1997 compared to 11.8% and 11.3% in fiscal
1996 and 1995, respectively.
Equitrac's foreign revenue is subject to the normal risks of foreign
operations, such as protective tariffs, export and import controls and
transportation delays and interruptions. The Company's direct international
sales are billed in foreign currencies and are subject to currency exchange
fluctuations.
Since Equitrac's systems are manufactured in the United States, the
Company's foreign operations could be affected by fluctuations in the relative
value of the U.S. dollar to foreign currencies. In fiscal years 1997, 1996 and
1995, the effect of foreign currency exchange fluctuations was not significant
to the Company.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K, 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.
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation
We have audited the accompanying balance sheets of Equitrac Corporation as
of February 28, 1997 and February 29, 1996, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended February 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Equitrac Corporation as of
February 28, 1997 and February 29, 1996 and the results of its operations and
its cash flows for each of the three years in the period ended February 28, 1997
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 14, 1997
21
<PAGE> 23
EQUITRAC CORPORATION
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,755 $ 3,581
Restricted cash -- 1,450
Investment securities 4,817 4,031
Accounts receivable, net of allowances of $550
and $350 in 1997 and 1996, respectively 6,117 4,330
Inventories 2,483 1,780
Deferred income taxes 581 499
Other current assets 313 366
-------- --------
Total current assets 19,066 16,037
Investment securities 1,330 1,361
Property and equipment, net 6,317 6,034
Intangible assets, net 3,378 2,067
Deferred income taxes 397 --
Other assets 194 147
-------- --------
Total assets $ 30,682 $ 25,646
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,095 $ 622
Accrued expenses and other current liabilities 3,930 3,005
Unearned income 882 44
-------- --------
Total current liabilities 5,907 3,671
Deferred income taxes -- 151
-------- --------
Total liabilities 5,907 3,822
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized; 3,800,300 and 3,717,750 shares issued
in 1997 and 1996, respectively 38 37
Additional paid-in capital 10,741 10,390
Retained earnings 15,672 13,058
Cumulative translation adjustment (23) (25)
Unrealized gain on investment securities, net of tax -- 17
Treasury stock, at cost (330,800 shares) (1,653) (1,653)
-------- --------
Total stockholders' equity 24,775 21,824
-------- --------
Total liabilities and stockholders' equity $ 30,682 $ 25,646
======== ========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 24
EQUITRAC CORPORATION
STATEMENTS OF INCOME
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales $18,126 $13,490 $12,796
Service and support 13,411 10,119 8,902
Rental 10,364 10,109 9,526
------- ------- -------
Total revenues 41,901 33,718 31,224
------- ------- -------
Expenses:
Cost of system sales 5,710 4,329 3,963
Cost of system rental, service and support 10,496 8,123 7,065
Product development 2,113 1,282 1,288
Selling expenses 6,541 5,517 5,815
General and administrative 13,312 11,662 11,339
------- ------- -------
Total expenses 38,172 30,913 29,470
------- ------- -------
Operating income 3,729 2,805 1,754
Interest income 489 351 263
------- ------- -------
Income before income taxes 4,218 3,156 2,017
Income taxes 1,604 1,274 730
------- ------- -------
Net income $ 2,614 $ 1,882 $ 1,287
======= ======= =======
Earnings per share $ 0.73 $ 0.52 $ 0.34
======= ======= =======
Weighted average common and common
equivalent shares outstanding 3,562 3,597 3,770
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 25
EQUITRAC CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Common Unrealized
Stock and gain (loss) on
Additional Cumulative Investment Total
Paid-in Retained Translation Securities, Treasury Stockholders'
Common Shares Capital Earnings Adjustment Net of Tax Stock Equity
------------- ------- -------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1994 3,691,850 $ 10,384 $ 9,889 $ -- $ -- $ -- $ 20,273
Unrealized loss on investment
securities, net of tax -- -- -- -- (49) -- (49)
Translation adjustment -- -- -- (29) -- -- (29)
Exercise of employee stock options 4,900 9 -- -- -- -- 9
Net income for the year ended
February 29, 1995 -- -- 1,287 -- -- -- 1,287
--------- --------- --------- --------- --------- --------- ---------
Balance, February 28, 1995 3,696,750 10,393 11,176 (29) (49) -- 21,491
Purchase of treasury stock -
330,800 shares -- -- -- -- -- (1,653) (1,653)
Unrealized gain on investment
securities, net of tax -- -- -- -- 66 -- 66
Translation adjustment -- -- -- 4 -- -- 4
Exercise of employee stock options 21,000 34 -- -- -- -- 34
Net income for the year ended
February 29, 1996 -- -- 1,882 -- -- -- 1,882
--------- --------- --------- --------- --------- --------- ---------
Balance, February 29, 1996 3,717,750 10,427 13,058 (25) 17 (1,653) 21,824
Unrealized loss on investment
securities, net of tax -- -- -- -- (17) -- (17)
Translation adjustment -- -- -- 2 -- -- 2
Exercise of employee stock options 82,550 352 -- -- -- -- 352
Net income for the year ended
February 28, 1997 -- -- 2,614 -- -- -- 2,614
--------- --------- --------- --------- --------- --------- ---------
Balance, February 28, 1997 3,800,300 $ 10,779 $ 15,672 $ (23) $ -- $ (1,653) $ 24,775
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 26
EQUITRAC CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,614 $ 1,882 $ 1,287
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,321 2,064 1,890
Amortization 1,090 1,125 1,013
Provision for doubtful accounts 200 -- 25
Deferred income taxes (618) (616) (20)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,987) 1,541 (1,278)
Inventories (343) 99 (437)
Other current assets 53 192 48
Other assets (47) 8 (18)
Increase (decrease) in:
Accounts payable 473 (383) 352
Accrued expenses 715 1,395 591
Unearned income 227 (341) 75
------- ------- -------
Net cash provided by operating activities 4,698 6,966 3,528
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment (2,580) (1,982) (2,510)
Acquisitions of product lines, principally
intangible assets (1,934) (225) (621)
Sales and maturities of investment securities 2,338 5,223 2,559
Purchase of investment securities (3,122) (5,308) (1,249)
Decrease (increase) in restricted cash 1,450 (1,450) --
------- ------- -------
Net cash used in investing activities (3,848) (3,742) (1,821)
------- ------- -------
Cash flows from financing activities:
Repayment of acquisition obligations (30) (215) (94)
Proceeds from issuance of common stock 352 34 9
Purchase of treasury stock -- (1,653) --
------- ------- -------
Net cash provided by (used in) financing
activities 322 (1,834) (85)
------- ------- -------
Exchange rate effect on cash 2 4 (29)
------- ------- -------
Net increase in cash and cash equivalents 1,174 1,394 1,593
Cash and cash equivalents at beginning of year 3,581 2,187 594
------- ------- -------
Cash and cash equivalents at end of year $ 4,755 $ 3,581 $ 2,187
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 1,502 $ 948 $ 545
</TABLE>
Non-cash investing and financing activities consisted of $861,000, $40,000 and
$575,000 of assets and liabilities recorded in connection with product line
acquisitions in fiscal 1997, 1996 and 1995, respectively. In addition, non-cash
investing and financing activities consisted of $10,000, $360,000 and $101,000
reductions in intangible assets resulting from the reduction of liabilities in
connection with contingent consideration adjustments related to acquisitions for
fiscal 1997, 1996 and 1995, respectively.
See accompanying notes to financial statements.
25
<PAGE> 27
EQUITRAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Equitrac Corporation (the "Company") designs, develops, manufactures,
markets and supports a fully integrated computer hardware and software
communications network designed to automatically track, record and report usage
of various office equipment such as photocopy machines, facsimile machines,
laser printers, word processing terminals, telephones and postage meters. The
Company primarily markets its systems to law firms and other professional
service firms. The Company offers its systems by sale or lease in the United
States, the United Kingdom and Canada through direct sales offices. The
Company's systems are also available through independent dealers.
The Company also provides maintenance services on a wide range of computer
equipment manufactured by others through its Equitrac Computer Services
division. This multi-vendor support includes installation, preventive
maintenance and on-site repair service.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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 contact 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.
CASH AND CASH EQUIVALENTS
All investments in highly liquid marketable securities with a maturity of
three months or less at time of purchase are classified as cash equivalents.
RESTRICTED CASH
Restricted cash at February 29, 1996 consisted of cash held in trust and
committed for the acquisition of The Infortext Group (Infortext). The cash held
in trust was used as the initial payment for the Infortext acquisition on March
1, 1996.
26
<PAGE> 28
INVESTMENT SECURITIES
The Company's investment securities consist primarily of municipal bonds,
U.S. Treasury obligations and investment grade corporate bonds with maturities
ranging from one to twenty-one years. These investments are classified as
available-for-sale and are recorded at fair value with unrealized gains and
losses included in stockholders' equity. Interest income is recognized when
earned.
At February 28, 1997 and February 29, 1996, the amortized cost of these
investments approximated market value.
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.
PROPERTY AND EQUIPMENT
Property and equipment consist primarily of system rental equipment under
operating leases and service equipment used in connection with service
contracts, and are stated at cost less accumulated depreciation. Additions,
major renewals and improvements are capitalized, and repair and maintenance
costs are expensed. Upon retirement or sale, the cost of the assets disposed of
and the related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the determination of net income. Property
and equipment are depreciated using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated life of the asset or the
remaining term of the lease.
Effective March 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS 121 requires that long-lived assets
and certain identifiable intangible assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption of SFAS 121 did not have an impact on the
carrying value of the Company's long-lived assets.
INTANGIBLE ASSETS
Intangible assets represent costs allocated to specifically identifiable
assets and the excess of cost over the fair value of tangible and identifiable
intangible assets arising from acquisitions ("goodwill"). The costs of all
identifiable assets and goodwill are amortized on a straight-line basis over
their respective estimated useful lives, ranging from three to seven years.
PRODUCT DEVELOPMENT COSTS
Product development costs are expensed as incurred.
27
<PAGE> 29
FOREIGN CURRENCY TRANSLATION
Translation of foreign currencies into U.S. dollars is computed for revenue
and expense accounts using average exchange rates during the year. Net assets of
the Company's Canadian operations, whose "functional currency" is the Canadian
dollar are translated at current rates of exchange, with the resulting
translation adjustment recorded directly into a separate component of
stockholders' equity. The functional currency for the Company's other foreign
operations is the U.S. dollar. Net assets of these operations are translated at
current rates of exchange, with the resulting translation gains and losses
included in the statement of income.
EARNINGS PER SHARE
Earnings per share (EPS) are based on the weighted average number of shares
of common stock and common stock equivalents outstanding during the year. Common
stock equivalents consist of stock options.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), EARNINGS PER SHARE. SFAS
128 specifies new standards designed to improve the earnings per share
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
the comparability of EPS data on an international basis. Some of the changes
made to simplify the EPS computations include (i) eliminating the presentation
of primary EPS and replacing it with basic EPS, (ii) eliminating the modified
treasury stock method and the three percent materiality provision and (iii)
revising the contingent share provisions and the supplemental EPS data
requirements. SFAS 128 also makes a number of changes to existing disclosure
requirements. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The Company does not
believe that the adoption of SFAS 128 in fiscal 1998 will have a significant
impact on the Company's reported EPS.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
System rental and service units $ 10,314 $ 9,195
Equipment, furniture and fixtures 2,598 2,106
Leasehold improvements 1,033 1,002
--------- --------
13,945 12,303
Accumulated depreciation and amortization
(including $5,552 in 1997 and $4,784 in 1996
relating to system rental and service units) (7,628) (6,269)
--------- --------
$ 6,317 $ 6,034
========= ========
</TABLE>
28
<PAGE> 30
3. INTANGIBLE ASSETS:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Covenants not to compete $ 2,300 $ 2,300
Service contracts 2,494 383
Customer lists 2,115 1,825
Goodwill 479 479
System software 100 130
--------- --------
7,488 5,117
Accumulated amortization (4,110) (3,050)
--------- --------
$ 3,378 $ 2,067
========= ========
</TABLE>
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Compensation and benefits $ 1,749 $ 1,183
Federal, state and local taxes 961 1,049
Acquisition obligations 250 40
Other 970 733
--------- ---------
$ 3,930 $ 3,005
========= =========
</TABLE>
5. LEASING TRANSACTIONS AND SERVICE AGREEMENTS:
The Company leases systems under operating lease agreements for terms of 36
months or longer. The Company's existing leases generally expire over the next
four years and include all service and software support. The lessee is
responsible for risk of loss, theft or damage to the equipment. The majority of
the lessees pay the lease amount in monthly installments and are liable for the
full contractual obligation upon cancellation. Customers who purchase a system
may obtain a separate service agreement.
Future minimum lease payments to be received under non-cancelable operating
lease and service agreements as of February 28, 1997 are as follows (in
thousands):
Fiscal Year
-----------
1998 $ 20,043
1999 12,247
2000 7,099
2001 4,371
-----------
$ 43,760
===========
29
<PAGE> 31
6. RETIREMENT PLAN:
The Company has a 401(k) plan covering all eligible employees. Subject to
certain dollar limits, eligible employees may contribute up to 15% of their
salaries to the plan. The Company matches 100% of the employee contributions up
to 5% of their gross pay and may make discretionary contributions in amounts
determined by the Board of Directors. Company matching contributions charged to
income were approximately $514,000, $460,000, and $464,000 for fiscal years
1997, 1996 and 1995, respectively.
7. COMMITMENTS:
The Company has a lease obligation with related parties through September
30, 2000, for certain office space. Under this agreement, the related parties
hold a $50,000 security deposit. Additionally, the Company leases other office
space and office equipment under operating leases from unrelated parties. Total
rent expense for fiscal years 1997, 1996 and 1995 was approximately $1,661,000,
$1,324,000 and $1,286,000, respectively, including rent expense to related
parties of approximately $418,000 in each year.
At February 28, 1997, the future minimum lease payments under
non-cancelable operating leases are as follows (in thousands):
Fiscal Year
-----------
1998 $ 1,554
1999 1,188
2000 967
2001 550
2002 116
Thereafter 325
---------
$ 4,700
=========
8. INCOME TAXES:
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates and laws expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period of enactment.
30
<PAGE> 32
The total income tax expense included the following components (in thousands):
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense:
Federal $ 1,618 $ 1,380 $ 537
State 604 510 213
--------- --------- ---------
2,222 1,890 750
--------- --------- ---------
Deferred tax expense:
Federal (449) (450) (14)
State (169) (166) (6)
--------- --------- ---------
(618) (616) (20)
--------- --------- ---------
Total income tax expense $ 1,604 $ 1,274 $ 730
========= ========= =========
</TABLE>
The components of the net deferred tax assets are as follows (in thousands):
February 28, February 29,
1997 1996
------------ ------------
Deferred income taxes, current:
Allowance for doubtful accounts $ 225 $ 149
Inventories 80 95
Accrued expenses 276 267
Other -- (12)
----- -----
581 499
----- -----
Deferred income taxes, long-term:
Intangible assets 519 66
Property and equipment (122) (217)
----- -----
397 (151)
----- -----
Net deferred tax asset $ 978 $ 348
===== =====
31
<PAGE> 33
A reconciliation of income tax expense computed at the U.S. federal statutory
tax rate of 34% to the Company's income tax provision is as follows (in
thousands):
<TABLE>
<CAPTION>
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Expected income taxes $ 1,434 $ 1,073 $ 686
State income taxes, net of federal benefit 274 234 127
Research and development tax credit (92) (66) (72)
Other (12) 33 (11)
------- ------- -------
Total income tax expense $ 1,604 $ 1,274 $ 730
======= ======= =======
</TABLE>
The Internal Revenue Service (IRS) has concluded its examination of the
Company's federal income tax returns for the years ended February 29, 1992
through February 28, 1995. As a result of the examination, certain deductions
related to business acquisitions prior to 1993 were deferred until future years
requiring a current payment of federal income taxes which resulted in a $656,000
increase in net deferred tax assets.
9. COMMON STOCK:
The Company has a 1992 Stock Option Plan (the "Plan"), as amended July 20,
1994, under which 400,000 shares of common stock are reserved for issuance upon
exercise of stock options. The Plan provides for the granting of incentive stock
options (as defined under the Internal Revenue Code) and nonstatutory stock
options at prices determined by the Stock Option Committee of the Board of
Directors. Under the Company's prior stock option plan, which terminated in
April 1992, options to acquire 68,400 shares of common stock remain exercisable
through May 6, 2001.
The Company also has a 1992 Directors Stock Option Plan (the "Directors
Plan") under which 40,000 shares of common stock are reserved for issuance upon
exercise of stock options. The Directors Plan provides for an automatic grant of
an option to purchase 5,000 shares of common stock to each nonemployee director
of the Company upon election as a director of the Company and an automatic grant
of an option to purchase 1,000 shares upon reelection as a director of the
Company, in both instances at an exercise price equal to the fair market value
of the common stock on the date of grant.
32
<PAGE> 34
The following is a summary of stock option activity and related information:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
----------------------- ----------- -------------
Weighted
Average
Exercise
Shares Price Shares Shares
------ ----- ------ ------
<S> <C> <C> <C> <C>
Options outstanding
at beginning of year 363,950 $4.68 289,350 288,450
Options granted 118,000 8.97 102,500 13,000
Options canceled - - (6,900) (7,200)
Options exercised (82,550) 4.26 (21,000) (4,900)
------- ------- -------
Options outstanding at end of year 399,400 $5.99 363,950 289,350
======= ======= =======
Shares subject to exercisable options
at end of year 285,400 $4.80 261,450 284,350
======= ======= =======
Option price range at
end of year $1.78 - $9.00 $1.78 - $7.25 $0.73 - $7.25
Option price range for
exercised shares $1.78 - $7.00 $0.73 - $1.78 $1.78
Options available for grant
at end of year 51,500 169,500 260,000
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding at
February 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices February 28, 1997 Life (Years) Price February 28, 1997 Price
-------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$1.78 68,400 4.2 $1.78 68,400 $1.78
4.25 - 6.25 138,000 7.6 5.03 138,000 5.03
7.00 - 9.00 193,000 8.1 8.17 79,000 7.01
------- ----- ------ -------- -----
$1.78 - $9.00 399,400 7.2 $5.99 285,400 $4.80
======= ===== ===== ======= =====
</TABLE>
As permitted under Statement of Financial Accounting Standards No. 123
(SFAS 123), ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has elected to
follow Accounting Principles Board Opinion No. 25 (APB 25), ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related Interpretations, in accounting for stock-based
awards to employees. Under APB 25, the Company generally recognizes no
compensation expense with respect to such awards.
33
<PAGE> 35
Pro forma information regarding net income and earnings per share is
required by SFAS 123 for awards granted after December 15, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of SFAS 123. The fair value of the Company's stock option grants to
employees was estimated using a Black-Scholes option pricing model with the
following assumptions used for grants in fiscal 1997 and 1996, respectively:
expected lives of 5.21 and 5.83 years in fiscal 1997 and 1996, respectively;
volatility factors of 26.8% and 25.4% respectively; risk free interest rates of
6.81% and 6.33%, respectively, and no dividend payments. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions including the expected stock price volatility and the expected
holding period of options. Because the Company's stock options granted to
employees have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
option grants to employees.
The weighted average fair value of stock options granted was $3.43 and
$1.65 in fiscal 1997 and 1996, respectively. Generally, stock options issued
under the Plan and the Directors Plan are exercisable within three years from
the date of grant and expire ten years after the date of grant.
Had compensation cost for the Company's options plans been determined and
recorded consistent with the Black-Scholes option pricing model in accordance
with SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts as follows:
Year Ended
--------------------------------
February 28, February 29,
1997 1996
------------ ------------
Net income (in thousands)
As reported $ 2,614 $ 1,882
Pro forma 2,223 1,713
Earnings per share
As reported $ 0.73 $ 0.52
Pro forma 0.62 0.48
The fiscal 1997 and 1996 pro forma effect on net income and earnings per
share is not necessarily indicative of the pro forma effect in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to fiscal 1996. Pro forma compensation expense does
not include a tax benefit unless a disqualifying disposition of the Company's
common stock has occurred. In addition, the Company anticipates granting
additional options in future years.
During fiscal 1996, the Board of Directors authorized the Company to spend
up to $2,000,000 to repurchase shares of the Company's issued and outstanding
common stock. Through February 28, 1997, the Company repurchased 330,800 shares
of its outstanding common stock at an aggregate purchase price of $1,653,000,
including 34,000 shares from a director for an aggregate purchase price of
$189,125.
34
<PAGE> 36
10. 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, results of operations or cash flows.
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
Unaudited summarized financial data by quarter for fiscal 1997 and 1996
is as follows (in thousands, except earnings per share):
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
May 31 August 31 November 30 February 28
------ --------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal 1997
Revenues $ 9,663 $ 10,294 $ 10,599 $ 11,345
Operating income 812 955 952 1,010
Net income 574 651 661 728
Earnings per share $ 0.16 $ 0.18 $ 0.18 $ 0.20
<CAPTION>
May 31 August 31 November 30 February 29
------ --------- ----------- -----------
Fiscal 1996
Revenues $ 8,384 $ 8,265 $ 8,373 $ 8,696
Operating income 645 567 611 982
Net income 449 402 428 603
Earnings per share $ 0.12 $ 0.11 $ 0.12 $ 0.17
</TABLE>
12. SUBSEQUENT EVENTS:
In March 1996, the Company acquired the cost recovery customer base of ISI
Infortext, Inc. (ISI). Pursuant to the acquisition agreement, additional
purchase price consideration of $625,000 was paid to ISI in March 1997. The
Company also repurchased 25,000 shares of Equitrac stock from ISI at the fair
market value of the shares at the time of repurchase.
In April 1997, the Board of Directors authorized the Company to spend an
additional $2,500,000 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.
Future purchases will be made from time to time subject to prevailing market
conditions in open market or privately negotiated transactions.
35
<PAGE> 37
13. GEOGRAPHIC INFORMATION:
The Company operates exclusively in one business segment. Geographic
information related to revenues, operating income and assets (at year end) is as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
U.S. $ 37,682 $ 30,340 $ 28,413
Foreign, principally United Kingdom and Canada 4,219 3,378 2,811
------------- ------------- -------------
Total $ 41,901 $ 33,718 $ 31,224
============= ============= =============
Operating income (loss):
U.S. $ 3,212 $ 3,105 $ 1,669
Foreign, principally United Kingdom and Canada 517 (300) 85
------------- ------------- -------------
Total $ 3,729 $ 2,805 $ 1,754
============= ============= =============
Assets (at end of year):
U.S. $ 29,204 $ 24,503 $ 23,080
Foreign, principally United Kingdom and Canada 1,478 1,143 2,356
------------- ------------- -------------
Total $ 30,682 $ 25,646 $ 25,436
============= ============= =============
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
<PAGE> 38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to directors of the Company
will be included in the Company's definitive Proxy Statement in connection with
its 1997 Annual Meeting of Stockholders (the "1997 Proxy Statement") which will
be filed with the Securities and Exchange Commission, and is incorporated herein
by reference. Information with respect to executive officers of the Company is
presented in Part I, above, under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the 1997 Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the 1997 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The information required by this item will be contained in the 1997 Proxy
Statement and is incorporated herein by reference.
37
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) 1. INDEX TO FINANCIAL STATEMENTS
The following financial statements of Equitrac Corporation are filed as
part of this report on Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 21
Balance Sheets - February 28, 1997 and February 29, 1996 22
Statements of Income - Years ended February 28, 1997, February 29, 1996
and February 28, 1995 23
Statements of Stockholders' Equity - Years ended February 28, 1997
February 29, 1996 and February 28, 1995 24
Statements of Cash Flows - Years ended February 28, 1997,
February 29, 1996 and February 28, 1995 25
Notes to Financial Statements 26
2. SUPPLEMENTAL SCHEDULE
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or required under the related
instructions or is included in the Financial Statements or notes thereto.
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporated by reference to Exhibit No. 3.1 to the
Incorporation Company's Registration Statement on Form S-1 (No.
33-47367) (the "S-1")
3.2 Bylaws Incorporated by reference to Exhibit 3.2 to the
Company's S-1
4 Form of Common Stock Certificate Incorporated by reference to Exhibit 4 to the Company's
S-1
10.1 Executive Compensation Plan
and Arrangements
10.1(a) 1992 Stock Option Plan, as amended Incorporated by reference to the Company's S-8
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
<S> <C> <C>
10.1(b) Directors Stock Option Plan Incorporated by reference to Exhibit 10.2 to the
Company's S-1
10.1(c) Employment Agreement, dated as of April Incorporated by reference to Exhibit 10.3 to the
17, 1992 between the Company and John Company's S-1
T. Kane
10.1(d) Employment Agreement, dated as of April Incorporated by reference to Exhibit 10.4 to the
17, 1992 between the Company and George Company's S-1
P. Wilson
10.2 Form of Indemnification Agreement Incorporated by reference to Exhibit 10.5 to the
between the Company and each of its Company's S-1
Executive Officers and Directors
10.3 Lease Agreement dated September 17, Incorporated by reference to Exhibit 10.8 to the
1990, between the Company and 3200 Company's S-1
Ponce de Leon Associates
11 Statement re: computation of earnings
per share
22 Subsidiaries Incorporated by reference to Exhibit 22.1 to the
Company's S-1
24 Consent of Coopers & Lybrand L.L.P.
</TABLE>
(C) REPORTS ON FORM 8-K.
No reports were filed on Form 8-K during the three months ended February
28, 1997.
39
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 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, in the City of Coral Gables,
Florida on May 23, 1997.
EQUITRAC CORPORATION
By /s/ George P. Wilson
-----------------------------
George P. Wilson
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John T. Kane Chairman of the Board of Directors May 23, 1997
- -------------------------------
John T. Kane
/s/ George P. Wilson President, Chief Executive Officer
- ------------------------------- and Director May 23, 1997
George P. Wilson
/s/ Scott J. Modist Vice President - Finance, Treasurer
- ------------------------------- and Chief Financial Officer (Principal
Scott J. Modist Financial Officer) May 23, 1997
/s/ Richard S. Staveley, Jr. Controller (Principal Accounting Officer) May 23, 1997
- ------------------------------
Richard S. Staveley, Jr.
/s/ James F. Courbier Director May 23, 1997
- ------------------------------
James F. Courbier
/s/ Marc M. Watson Director May 23, 1997
- ------------------------------
Marc M. Watson
/s/ Peter Marx Director May 23, 1997
- ------------------------------
Peter Marx
</TABLE>
40
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation
Our report on the financial statements of Equitrac Corporation is
included on page 21 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 38 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Miami, Florida
April 14, 1997
S-1
<PAGE> 43
SCHEDULE II
EQUITRAC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER DEDUCT- AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS TIONS OF YEAR
- ----------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Year ended
February 28, 1997
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 350 $ 200 $ -- $ -- $ 550
Year ended
February 29, 1996
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 350 $ -- $ 100 $ 100 $ 350
Year ended
February 28, 1995
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 325 $ 25 $ -- $ -- $ 350
</TABLE>
S-2
<PAGE> 1
EXHIBIT 11
EQUITRAC CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 3,412 3,537 3,694 3,670 3,343
Common share equivalents
arising from dilutive options(1) 150 60 76 100 152
------- ------ ------- ------- -------
3,562 3,597 3,770 3,770 3,495
======= ====== ======= ======= =======
Earnings per share $ .73 $ .52 $ .34 $ .36 $ .70
======= ====== ======= ======= =======
</TABLE>
(1) Computed under the "treasury stock" method.
Primary and fully diluted earnings per share are essentially the same.
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Equitrac Corporation on Forms S-8 (File No. 33-49656 and 333-12307) of our
reports dated April 14, 1997, on our audits of the financial statements and
financial statement schedule of Equitrac Corporation as of February 28, 1997 and
February 29, 1996 and for each of the three years in the period ended February
28, 1997, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida
May 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EQUITRAC CORPORATION FOR THE TWELVE MONTHS ENDED
FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
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0
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