<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ----------------
COMMISSION FILE NO. 0-20189
EQUITRAC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1797862
(State or other jurisdiction of (IRS Employee Identification Number)
incorporation or organization)
836 PONCE DE LEON BOULEVARD
CORAL GABLES, FLORIDA 33134
(305) 442-2060
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No .
--- ---
As of July 8, 1998, there were 3,549,200 shares of the Registrant's common
stock, par value $.01, outstanding.
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<PAGE> 2
EQUITRAC CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets
as of May 31, 1998
and February 28, 1998 2
Condensed Statements of Income
for the three months ended
May 31, 1998 and 1997 3
Condensed Statements of
Stockholders' Equity and Accumulated Other
Comprehensive Income for the three months ended
May 31, 1998 and 1997 4
Condensed Statements of Cash Flows
for the three months ended
May 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
</TABLE>
1
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUITRAC CORPORATION
CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
(Unaudited)
MAY 31, FEBRUARY 28,
ASSETS 1998 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,993 $ 5,819
Short-term investment securities 6,770 5,208
Accounts receivable, net of allowance of $650 8,243 8,178
Inventories 3,694 2,465
Deferred income taxes 832 234
Other current assets 379 444
-------- --------
Total current assets 24,911 22,348
Investment securities 2,490 2,497
Property and equipment, net 6,647 6,418
Intangible assets, net 2,862 3,111
Deferred income taxes 648 556
Other assets 187 184
-------- --------
Total assets $ 37,745 $ 35,114
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,999 $ 1,720
Accrued expenses and other current liabilities 4,880 3,878
Unearned income 1,213 1,337
-------- --------
Total current liabilities 8,092 6,935
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized; 3,913,000 and 3,877,100 shares issued
at May 31, and February 28, respectively 39 39
Additional paid-in capital 12,051 11,490
Retained earnings 19,798 18,830
Accumulated Other comprehensive income (48) 7
Treasury stock, at cost (370,800 shares) (2,187) (2,187)
-------- --------
Total stockholders' equity 29,653 28,179
-------- --------
Total liabilities and stockholders' equity $ 37,745 $ 35,114
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 4
EQUITRAC CORPORATION
CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
THREE MONTHS ENDED
MAY 31,
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Sales $ 5,988 $ 5,240
Service and support 4,617 3,902
Rental 2,653 2,588
------- -------
Total revenues 13,258 11,730
------- -------
Costs and expenses:
Cost of revenues 5,287 4,739
Product development 762 773
Selling expenses 1,907 1,725
General and administrative 3,929 3,488
------- -------
Total costs and expenses 11,885 10,725
------- -------
Operating income 1,373 1,005
Interest income 188 134
------- -------
Income before income taxes 1,561 1,139
Income taxes 593 433
------- -------
Net income $ 968 $ 706
======= =======
Earnings per share:
Basic $ 0.28 $ 0.20
======= =======
Diluted $ 0.25 $ 0.20
======= =======
</TABLE>
See accompanying notes.
3
<PAGE> 5
EQUITRAC CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
AND ACCUMULATED OTHER COMPREHENSIVE INCOME
(in thousands, except number of shares)
<TABLE>
<CAPTION>
(Unaudited)
COMMON
STOCK AND ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
SHARES CAPITAL EARNINGS INCOME STOCK EQUITY
----------- ---------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1998 3,877,100 $ 11,529 $ 18,830 $ 7 $ (2,187) $28,179
Net income for the three
months ended May 31, 1998 -- -- 968 -- -- 968
Accumulated other
comprehensive income
net of tax:
Unrealized loss on marketable
securities, net of tax -- -- -- (34) -- (34)
Translation adjustment -- -- -- (21) -- (21)
Total comprehensive income -- -- -- -- -- 913
Exercise of employee
stock options 35,900 323 -- -- -- 323
Tax benefit from stock
plans -- 238 -- -- -- 238
----------- --------- --------- --------- ---------- -------
Balance, May 31, 1998 3,913,000 $ 12,090 $ 19,798 $ (48) $ (2,187) $29,653
=========== ========= ========= ========= ========== =======
</TABLE>
<TABLE>
<CAPTION>
COMMON
STOCK AND ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
SHARES CAPITAL EARNINGS INCOME STOCK EQUITY
----------- ---------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1997 3,800,300 $ 10,779 $ 15,672 $ (23) $ (1,653) $24,775
Net income for the three
months ended May 31, 1997 -- -- 706 -- -- 706
Accumulated other
comprehensive income
net of tax:
Unrealized loss on marketable
securities, net of tax -- -- -- (5) -- (5)
Translation adjustment -- -- -- 3 -- 3
Total comprehensive income -- -- -- -- -- 704
Exercise of employee
stock options 25,000 160 -- -- -- 160
Purchase of treasury stock
25,000 shares -- -- -- -- (294) (294)
----------- --------- --------- --------- ---------- -------
Balance, May 31, 1997 3,829,300 $ 10,939 $ 16,378 $ (25) $ (1,947) $25,345
=========== ========= ========= ========= ========== =======
</TABLE>
See accompanying notes.
4
<PAGE> 6
EQUITRAC CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
THREE MONTHS ENDED
MAY 31,
-------------------------
1998 1997
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 968 $ 706
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 688 714
Amortization 249 338
Provision for doubtful accounts -- 100
Deferred income taxes (701) --
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (65) (846)
Inventories (1,229) 121
Other current assets 65 (6)
Other assets (3) (9)
Increase (decrease) in:
Accounts payable 279 (473)
Accrued expenses 1,240 (345)
Unearned income (124) 69
------- -------
Net cash provided by operating activities 1,367 369
------- -------
Cash flows from investing activities:
Purchase of property and equipment (917) (713)
Acquisitions of product lines, principally intangible assets -- (1,053)
Sales and maturities of investment securities 1,407 1,278
Purchase of investment securities (2985) (860)
------- -------
Net cash used in investing activities (2,495) (1,348)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 323 160
Purchase of treasury stock -- (294)
------- -------
Net cash provided by (used in) financing activities 323 (134)
------- -------
Exchange rate effect on cash (21) 3
------- -------
Net decrease in cash and cash equivalents (826) (1,110)
Cash and cash equivalents, beginning of period 5,819 4,755
------- -------
Cash and cash equivalents, end of period $ 4,993 $ 3,645
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 249 $ 613
</TABLE>
See accompanying notes.
5
<PAGE> 7
EQUITRAC CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by the Company, in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in
financial statements have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying financial statements
include all adjustments (of a normal recurring nature) which are necessary to
state fairly the results for the interim periods presented. The results for the
three months ended May 31, 1998 are not necessarily indicative of the results to
be expected for the full fiscal year. These unaudited condensed financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Annual Report on Form 10-K for the fiscal year ended
February 28, 1998, filed with the Securities and Exchange Commission.
In March 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 REPORTING COMPREHENSIVE INCOME ("SFAS 130"). The calculation
of comprehensive income is included in the accompanying unaudited Condensed
Statements of Stockholder's Equity and Accumulated Other Comprehensive Income.
2. REVENUE RECOGNITION
Revenues from sales of company-manufactured products sold to end-users are
recognized upon installation and customers' acceptance, in accordance with the
provisions of SOP 97-2, SOFTWARE REVENUE RECOGNITION. Revenues from sales of
company-manufactured products to independent dealers and distributors are
recognized upon shipment. Revenues from resale of products by the Equitrac
Computer Services ("ECS") division are recognized upon shipment. Service and
support revenues are recognized ratably over the contractual period in which the
service and support are provided or as the services are provided. Amounts
received in advance of services are deferred. Rental contract revenues, 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.
3. 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.
4. FINANCIAL INSTRUMENTS AND CREDIT RISK
The carrying amounts of cash and cash equivalents, investment securities,
accounts receivable and accounts payable reflected in the financial statements
approximate fair value.
6
<PAGE> 8
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, investment
securities and accounts receivable. The Company performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral from its customers. The allowance for doubtful accounts receivable is
based upon the expected collectibility of all accounts receivable. The Company
places its cash equivalents and investment securities in investment-grade debt
instruments and preferred stock and limits the amount of credit exposure to any
one commercial issuer.
5. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining
maturity of three months or less at the time of purchase to be cash equivalents.
Cash equivalents are carried at cost, which approximates fair value.
6. INVESTMENT SECURITIES
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are stated at fair value with
unrealized gains and losses included in stockholders' equity. Interest and
dividends on all securities are recognized when earned.
Both gross unrealized gains and losses as of May 31, 1998 and 1997, and
realized gains and losses on sales of each type of security for the periods
ended May 31, 1998 and 1997, were not material. For the purpose of determining
gross realized gains and losses, the cost of securities sold is based upon
specific identification.
7. INVENTORIES
Inventories, which consist primarily of system components, parts and
supplies, are stated at the lower of weighted average cost or market. The
weighted average cost of inventories approximates the "first in-first out"
("FIFO") method. Management performs periodic assessments to determine the
existence of obsolete, slow-moving and nonsalable inventories and records
necessary provisions to reduce such inventories to net realizable value.
8. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided on the straight-line method over the shorter of the estimated
useful lives of the assets or the applicable lease term for leasehold
improvements.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon retirement or sale, the cost and accumulated depreciation
are removed from the accounts and any gain or loss is recognized currently.
7
<PAGE> 9
9. INTANGIBLE ASSETS
Intangible assets arise from certain purchase transactions and are
amortized on a straight-line basis over the respective estimated useful lives,
ranging from three to seven years. The carrying value of intangible assets is
subject to periodic review of realizability.
10. PRODUCT DEVELOPMENT COSTS
The Company examines its product development costs after technological
feasibility has been established to determine the amount of capitalization that
is required. For all periods presented herein, product development costs
incurred subsequent to the establishment of technological feasibility have not
been material.
11. EARNINGS PER SHARE
In fiscal 1998, the Company adopted SFAS No. 128, Earnings per Share
("EPS"). SFAS No. 128 requires the presentation of basic EPS and diluted EPS.
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding. Diluted EPS includes the
dilutive effect of stock options. All prior year EPS calculations have been
restated in accordance with the provisions of SFAS No. 128. Adoption of SFAS No.
128 did not have a material effect on the Company's historically disclosed EPS.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) Per-Share
Net Income Shares Amount
------------ ------------- -------------
<S> <C> <C> <C>
Quarter ended May 31, 1998
Basic Earnings Per Share:
Income available to common stockholders $ 968 3,517 $ 0.28
Options issued to employees 302
------------ ------------- -------------
Diluted Earnings Per Share:
Income available to common stockholders
plus assumed conversions $ 968 3,819 $ 0.25
============ ============= =============
Quarter ended May 31, 1997
Basic Earnings Per Share:
Income available to common stockholders $ 706 3,471 $ 0.20
Options issued to employees 51
------------ ------------- -------------
Diluted Earnings Per Share:
Income available to common stockholders
plus assumed conversions $ 706 3,522 $ 0.20
============ ============= =============
</TABLE>
8
<PAGE> 10
12. 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 statements of income.
13. CONTINGENCIES
The Company is involved from time to time in legal proceedings incident to
the normal course of its business. Management believes that the ultimate outcome
of any pending or threatened litigation would not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
In November, 1997, the Company filed a lawsuit in Canada against Promatek
Industries, Ltd., a Canadian company ("Promatek") for infringement of two
Canadian patents owned by the Company. Promatek has not yet filed a defense
against the Company's claims in the Canadian lawsuit. However, in June 1998,
Promatek filed a lawsuit in the United States District Court for the Northern
District of Illinois alleging, among other things, violations by the Company of
various U.S. antitrust and trade practice laws and seeking injunctive relief and
compensatory and punitive damages against the Company. The Company believes that
the U.S. lawsuit has been brought by Promatek solely as a defensive measure to
encourage the Company to dismiss or settle its Canadian lawsuit. The Company
believes that the claims made by Promatek in the U.S. lawsuit are without merit
and intends to vigorously defend that action. The Company also intends to
continue to pursue enforcement of its patents against Promatek in the Canadian
lawsuit.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's revenues are derived from three principal sources: (1) sales
of new systems, upgrades and add-ons of equipment or software; (2) monthly
revenues from service and software support agreements and (3) 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 following table sets forth, for the periods presented, selected items
from the Condensed Statements of Income as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
FOR THE THREE MONTHS ENDED
MAY 31,
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Sales 45.2% 44.7%
Service and support 34.8 33.2
Rental 20.0 22.1
----------- -----------
Total revenues 100.0 100.0
=========== ===========
Costs and expenses:
Cost of revenues 39.9 40.4
Product development 5.8 6.6
Selling expenses 14.4 14.7
General and administrative 29.6 29.7
----------- -----------
Total costs and expenses 89.7 91.4
=========== ===========
Operating income 10.3 8.6
Interest income 1.4 1.2
----------- -----------
Income before income taxes 11.7 9.8
Income taxes 4.5 3.7
----------- -----------
Net income 7.2% 6.1%
=========== ===========
</TABLE>
10
<PAGE> 12
REVENUES
SALES REVENUES. Sales revenues for the quarter ended May 31, 1998 increased
14% to $5,988,000 from $5,240,000 in the same quarter last fiscal year. This
increase resulted from incremental revenues derived from OEM sales of Pitney
Bowes AccuTrac SA Mail Accounting Systems by the Business Technology Division
("BTD") and an increase in sales of cost recovery systems manufactured by the
Company. BTD sales revenues totaled $850,000 for the quarter ended May 31, 1998.
Sales revenues of company manufactured systems by the Company's cost recovery
divisions increased 7% to $4,736,000 for the quarter ended May 31, 1998 from
$4,418,000 in the same quarter last fiscal year.
SERVICE AND SUPPORT REVENUES. Service and support revenues for the quarter
ended May 31, 1998 increased 18% to $4,617,000 from $3,902,000 in the same
quarter last fiscal year. This increase in service and support revenues resulted
from an increase in service contracts in the Company's cost recovery divisions
and an increase in service and support revenues generated by the ECS division.
Service and support revenues from the Company's cost recovery divisions
increased 14% to $3,838,000 for the quarter ended May 31, 1998 from $3,374,000
in the same quarter last fiscal year. Service and support revenues for the
quarter ended May 31, 1998 included $742,000 of revenues generated by the ECS
division compared to $528,000 for the same quarter last fiscal year.
RENTAL REVENUES. Rental revenues increased to $2,653,000 for the quarter
ended May 31, 1998 from $2,588,000 in the same quarter last fiscal year. As a
percentage of total revenues, rental revenues were 20% for the quarter ended May
31, 1998 compared to 22% in the same quarter last fiscal year. Management
anticipates that rental revenues as a percentage of total revenues may continue
to decline in future periods.
EXPENSES
COST OF REVENUES. Cost of revenues is comprised primarily of (i) payroll
and other expenses related to customer support and service personnel, (ii) the
cost of hardware and system components associated with system sales and service,
and (iii) depreciation of rental and service units. Cost of revenues for the
quarter ended May 31, 1998 increased to $5,287,000 from $4,739,000 in the same
quarter last fiscal year, primarily as a result of increased revenues. Cost of
revenues as a percentage of total revenues remained relatively constant at 40%
for the quarters ended May 31, 1998 and 1997. Management anticipates that the
cost of revenues as a percentage of total revenues may fluctuate in future
periods, depending upon the product mix and the concentration of revenues from
the Company's ECS and BTD divisions. The majority of sales revenues generated by
the ECS and BTD divisions have a higher cost of revenues expense as a percentage
of revenues compared to the Company's cost recovery divisions.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses for the quarter
ended May 31, 1998 decreased slightly to $762,000 from $773,000 in the same
quarter last fiscal year. Product development expenses as a percentage of total
revenues was 5.8% for the quarter ended May 31, 1998 compared to 6.6% for the
same quarter last fiscal year. Current development efforts were focused
primarily on enhancing and expanding the cost recovery product lines as well as
developing several new products. Products under development during these periods
include (i) TelemeTrac(TM), a product which collects and reports photocopier
meter totals remotely through cellular telephone networks, (ii) PrintLog(TM), a
digital output tracking application designed to track all pages printed from a
workstation to laser printers and network photocopiers
11
<PAGE> 13
and assign each transaction to a client, project or department, (iii) new
version of System 4(TM), a Windows (R) NT based cost recovery servwer with an
SQL database engine and (iv) an exclusive OEM product line for Pitney Bowes. 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 have not been material. Management anticipates that
product development costs may increase during the remainder of fiscal 1999 as
the Company invests in the development and enhancements of existing products, as
well as, new products.
SELLING EXPENSES. Selling expenses for the quarter ended May 31, 1998
increased 11% to $1,907,000 from $1,725,000 in the same quarter last fiscal
year. Selling expenses as a percentage of total revenues was 14.4% for the
quarter ended May 31, 1998 compared to 14.7% for the same quarter last fiscal
year. The Company's sales infrastructure supported an increase in revenues
without a commensurate increase in selling expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the quarter ended May 31, 1998 increased 13% to $3,929,000 from $3,488,000
in the same quarter last fiscal year. General and administrative expenses as a
percentage of total revenues remained relatively constant at 30% for the quarter
ended May 31, 1998 compared to the same quarter last fiscal year.
INTEREST INCOME. The Company's interest income increased to $188,000 during
the quarter ended May 31, 1998 from $134,000 during the same quarter last fiscal
year.
INCOME TAXES. The Company's effective income tax rate was 38% for the
quarters ended May 31, 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations over the past several years
principally from cash flows from operations. The Company generated $1,367,000
and $369,000 in cash flows from operating activities for the quarters ended May
31, 1998 and 1997. The Company's cash and cash equivalents and investment
securities increased to $14,253,000 at May 31, 1998 from $13,524,000 at February
28, 1998.
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. The Company is planning
on purchasing a new information system during fiscal 1999 and is currently
evaluating its existing facilities in order to determine whether they are
adequate to meet its current and anticipated space requirements.
12
<PAGE> 14
The Board of Directors has authorized the Company to spend up to $4,500,000
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. Through May 31, 1998, the
Company repurchased 370,800 shares of common stock for an aggregate purchase
price of $2,187,000.
YEAR 2000 CONSIDERATIONS
The Company is in the process of selecting an information system to
implement company-wide that correctly identifies the year 2000. The Company
plans to begin implementation of the new software beginning in the second half
of calendar year 1998 and to complete the implementation before the fourth
quarter of calendar year 1999. However, there can be no assurance that this
software implementation will be successfully completed, or that the
implementation will not have a material adverse impact on the Company's
financial position or results of operations. Although the Company believes that
the information systems of its major vendors (insofar as they relate to the
Company's business) comply with Year 2000 requirements, there can be no
assurance that the Year 2000 issue will not affect the information systems of
the Company's major vendors as they relate to the Company's business, or that
any such impact of a major vendor's information system would not have a material
adverse effect on the Company. The Company believes that all current versions of
its product lines are Year 2000 compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statements of Financial Accounting No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
131"). The Company is required to adopt this statement during fiscal year 1999.
SFAS 131 establishes standards for reporting information about operating
segments. The Company is currently evaluating the impact of this standard on its
financial statement disclosures.
In March 1998, the ACSEC issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 establishes
criteria for determining which costs of developing or obtaining internal-use
computer software should be charged to expense and which should be capitalized.
SOP 98-1 is effective for all transactions entered into in fiscal years
beginning after December 15, 1998.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q, including statements contained herein
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations", constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements express or implied by such forward-looking statements. Such factors
include, but are not limited to the following: general economic and business
conditions; charges and costs related to acquisitions; and the ability of the
Company to develop and market products for the markets in which it operates, to
successfully integrate its acquired products and services, to adjust to changes
in technology, customer preferences, enhanced competition and new competitors in
the markets in which it operates.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
None
B. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf thereunto duly
authorized.
EQUITRAC CORPORATION
Date: July 14, 1998 By: /s/ George P. Wilson
------------------------------
George P. Wilson
President and Chief
Executive Officer
Date: July 14, 1998 By: /s/ Scott J. Modist
-----------------------------
Scott J. Modist
Senior Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MAY 31, 1998 AND INCOME STATEMENT FOR THE THREE MONTHS ENDED MAY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 4,993,000
<SECURITIES> 6,770,000
<RECEIVABLES> 8,893,000
<ALLOWANCES> 650,000
<INVENTORY> 3,694,000
<CURRENT-ASSETS> 24,911,000
<PP&E> 14,047,445
<DEPRECIATION> 7,400,115
<TOTAL-ASSETS> 37,745,000
<CURRENT-LIABILITIES> 8,092,000
<BONDS> 0
0
0
<COMMON> 39,000
<OTHER-SE> 29,614,000
<TOTAL-LIABILITY-AND-EQUITY> 37,745,000
<SALES> 5,988,000
<TOTAL-REVENUES> 13,258,000
<CGS> 5,287,0000
<TOTAL-COSTS> 1,907,000
<OTHER-EXPENSES> 4,691,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,561,000
<INCOME-TAX> 593,000
<INCOME-CONTINUING> 968,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 968,000
<EPS-PRIMARY> $0.28
<EPS-DILUTED> $0.25
</TABLE>
