FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: October 31, 2001 Commission File Number: 00-1033864
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DOCUCORP INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-2690838
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
5910 North Central Expressway, Suite 800, Dallas, Texas 75206
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(Address of principal executive offices) (Zip Code)
(214) 891-6500
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(Registrant's telephone number including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, $.01
par value, 13,429,548 shares outstanding as of December 1, 2001.
DOCUCORP INTERNATIONAL, INC.
TABLE OF CONTENTS
QUARTERLY REPORT FORM 10-Q
OCTOBER 31, 2001
Part I - Financial information
<Table>
<Caption>
Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of October 31, 2001 and July 31, 2001 2
Interim Consolidated Statements of Operations and Comprehensive
Income for the three months ended October 31, 2001 and 2000 3
Interim Consolidated Statements of Cash Flows for the three months
ended October 31, 2001 and 2000 4
Notes to Interim Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</Table>
DOCUCORP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
October 31, July 31,
2001 2001
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ASSETS
Current assets:
Cash and cash equivalents $ 8,112 $ 6,215
Short-term investments 3,970 3,989
Accounts receivable, net of allowance
of $375 and $600, respectively 15,909 16,949
Other current assets 3,476 3,403
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Total current assets 31,467 30,556
Fixed assets, net of accumulated depreciation
of $9,154 and $8,545, respectively 6,815 6,786
Software, net of accumulated amortization of $14,258
and $13,635, respectively 7,657 7,406
Goodwill, net of accumulated amortization of $4,940 5,846 5,846
Other assets 1,243 1,190
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$ 53,028 $ 51,784
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,377 $ 2,239
Accrued liabilities:
Accrued compensation 5,214 3,678
Other 1,263 1,213
Deferred revenue 11,347 11,223
Income taxes payable 1,266 912
------------- -------------
Total current liabilities 20,467 19,265
Other long-term liabilities 1,377 1,452
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued 0 0
Common stock, $.01 par value, 50,000,000 shares
authorized; 16,593,849 shares issued 166 166
Additional paid-in capital 43,898 43,899
Treasury stock at cost, 3,124,559 and 2,825,299
shares, respectively (13,389) (12,333)
Accumulated earnings (deficit) 535 (705)
Foreign currency translation adjustment (26) 40
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Total stockholders' equity 31,184 31,067
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$ 53,028 $ 51,784
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</Table>
See accompanying notes to interim consolidated financial statements.
2
DOCUCORP INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
Three months ended
October 31,
------------------------------
2001 2000
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REVENUES
ASP hosting $ 4,550 $ 3,064
Professional services 5,306 4,696
License 2,652 3,044
Maintenance and other recurring 4,642 3,996
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Total revenues 17,150 14,800
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EXPENSES
ASP hosting 3,953 3,024
Professional services 4,284 3,819
Product development and support 2,712 2,660
Selling, general and administrative 4,304 3,870
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Total expenses 15,253 13,373
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Operating income 1,897 1,427
Other income, net 128 42
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Income before income taxes and cumulative
effect of accounting change 2,025 1,469
Provision for income taxes 784 643
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Income before cumulative effect
of accounting change 1,241 826
Cumulative effect of accounting change, net of tax 0 (990)
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Net income (loss) $ 1,241 $ (164)
============= =============
Other comprehensive income:
Foreign currency translation adjustment, net of tax (66) 93
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Comprehensive income (loss) $ 1,175 $ (71)
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Weighted average basic shares outstanding 13,624 14,960
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Basic net income (loss) per share:
Income before cumulative effect of accounting change $ 0.09 $ 0.06
Cumulative effect of accounting change 0 (0.07)
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Basic net income (loss) per share $ 0.09 $ (0.01)
============= =============
Weighted average diluted shares outstanding 14,377 15,807
============= =============
Diluted net income (loss) per share:
Income before cumulative effect of accounting change $ 0.09 $ 0.05
Cumulative effect of accounting change 0 (0.06)
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Diluted net income (loss) per share $ 0.09 $ (0.01)
============= =============
</Table>
See accompanying notes to interim consolidated financial statements.
3
DOCUCORP INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Three months ended
October 31,
------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,241 $ (164)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 627 518
Amortization of capitalized software 623 544
Amortization of goodwill 0 285
Provision for doubtful accounts 236 123
Stock option compensation expense 6 5
Cumulative effect of accounting change 0 990
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 824 (2,639)
(Increase) decrease in other assets (121) (85)
Decrease in accounts payable (863) (15)
Increase in accrued liabilities 1,577 333
Increase (decrease) in deferred revenue 120 (400)
Increase in other liabilities 279 900
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Total adjustments 3,308 (559)
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Net cash provided by operating activities 4,549 395
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (3,970) (3,910)
Sale of short-term investments 3,989 5,832
Purchase of fixed assets (650) (617)
Capitalized software development costs (874) (509)
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Net cash provided by (used in) investing activities (1,505) 796
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 1 14
Purchase of treasury stock (1,065) (1,812)
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Net cash used in financing activities (1,064) (1,798)
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Effect of exchange rates on cash flows (83) (26)
Net increase (decrease) in cash and cash equivalents 1,897 (633)
Cash and cash equivalents at beginning of period 6,215 4,739
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Cash and cash equivalents at end of period $ 8,112 $ 4,106
============= =============
</Table>
See accompanying notes to interim consolidated financial statements.
4
DOCUCORP INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of Docucorp
International, Inc. and its subsidiaries ("Docucorp" or the "Company") for the
three month periods ended October 31, 2001 and 2000 have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The financial information presented should be read in
conjunction with the Company's annual consolidated financial statements for the
year ended July 31, 2001. The foregoing unaudited interim consolidated financial
statements reflect all adjustments (all of which are of a normal recurring
nature) which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods. Operating results for the
three months ended October 31, 2001 are not necessarily indicative of the
results to be expected for the year. Certain prior year amounts have been
reclassified to conform to the current year presentation.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The unaudited interim consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accounts of the Company's foreign subsidiary are maintained in its local
currency. The accompanying unaudited interim consolidated financial statements
have been translated and adjusted to reflect U.S. dollars in accordance with
accounting principles generally accepted in the United States.
NOTE 3 - NET INCOME PER SHARE
The Company's basic and diluted net income per share are computed in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). Basic net income per share is computed using the weighted average
number of common shares outstanding. Diluted net income per share is computed
using the weighted average number of common shares outstanding and the assumed
exercise of stock options and warrants (using the treasury stock method). The
following is a reconciliation of the shares used in computing basic and diluted
net income per share for the periods indicated (in thousands):
<Table>
<Caption>
Three months ended
October 31,
-----------------------------
2001 2000
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Shares used in computing basic net income per share 13,624 14,960
Dilutive effect of stock options and warrants 753 847
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Shares used in computing diluted net income per share 14,377 15,807
============= =============
</Table>
5
DOCUCORP INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Options to purchase approximately 1,404,000 and 1,164,000 shares of Common Stock
at average exercise prices of $4.41 and $4.59 per share at October 31, 2001 and
2000, respectively, were anti-dilutive and not included in the computation of
diluted net income per share, because the options' exercise price was greater
than the average market price of the Common Stock for the period.
NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). Adoption of SFAS 142 is required for fiscal years beginning after
December 15, 2001, and earlier adoption is permitted for entities with fiscal
years beginning after March 15, 2001, provided that the first interim financial
statements have not been previously issued. SFAS 142 requires that goodwill and
intangible assets which have indefinite useful lives not be amortized but rather
tested at least annually for impairment. SFAS 142 provides specific guidance for
testing goodwill and intangible assets that will not be amortized for
impairment. The Company adopted SFAS 142 as of August 1, 2001. The Company has
performed an initial impairment analysis and determined that there is no
impairment on the carrying value of goodwill.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). Adoption of SFAS 144 is required
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early adoption encouraged. SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS 121 and related literature and establishes a
single accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. The Company adopted SFAS 144 as of
August 1, 2001. The adoption of SFAS 144 did not have a material impact on the
Company's consolidated financial statements for the quarter ended October 31,
2001.
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS 142
The following table reflects the effect of SFAS 142 on net income before
cumulative effect of accounting change and net income per share before
cumulative effect of accounting change as if SFAS 142 had been in effect for all
periods presented (in thousands except per share amounts):
6
DOCUCORP INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<Table>
<Caption>
Three months ended
October 31,
-----------------------------
2001 2000
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Net income before cumulative effect of accounting change $ 1,241 $ 826
Goodwill amortization, net of tax 0 220
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Adjusted net income before cumulative effect of accounting change $ 1,241 $ 1,046
============= =============
Basic net income per share before cumulative effect of accounting change:
Reported net income before cumulative effect of accounting
change $ 0.09 $ 0.06
Goodwill amortization, net of tax 0 0.01
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Adjusted net income per share before cumulative effect of
accounting change $ 0.09 $ 0.07
============= =============
Diluted net income per share before cumulative effect of accounting change:
Reported net income before cumulative effect of accounting
change $ 0.09 $ 0.05
Goodwill amortization, net of tax 0 0.02
------------- -------------
Adjusted net income per share before cumulative effect of
accounting change $ 0.09 $ 0.07
============= =============
</Table>
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information contained herein may include "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts included in this Form 10-Q, are
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which include, but are not limited to, events of September 11,
2001, dependence upon the insurance and utilities industries, technological
advances, attraction and retention of technical employees, fluctuations in
operating results, and the other risk factors and cautionary statements listed
from time to time in the Company's periodic reports filed with the Securities
and Exchange Commission. All forward-looking statements included in this Form
10-Q and all subsequent oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements.
OVERVIEW
Docucorp International, Inc. ("Docucorp" or the "Company") develops, markets and
supports a portfolio of enterprise-wide software products that enable users to
acquire, manage, personalize and present information. The Company provides
professional services related to its information software products including
consulting, implementation, integration and training. In addition, the Company
provides application service provider ("ASP") hosting using its software and
facilities to provide processing, print, mail, archival and Internet delivery of
documents for customers who outsource these activities.
The Company's software products support leading hardware platforms, operating
systems, printers and imaging systems. These products are designed to
personalize, produce and manage documents such as insurance policies, utility
statements, telephone bills, bank and mutual fund statements, invoices, direct
mail correspondence, bills of lading and other customer-oriented documents. The
Company's ASP offerings include customer statement and bill generation,
electronic bill presentment and payment, insurance policy production and
electronic document archival. The Company currently has an installed base of
more than 1,200 customers. More than half of the 200 largest North American
insurance companies use the Company's software products and services, including
the 10 largest life and health insurance companies and nine of the 10 largest
property and casualty insurance companies. Many of the largest North American
utilities companies, major international financial services institutions, and
clients in higher education and the telecommunications industries use the
Company's products and services.
The Company derives its revenues from ASP hosting fees, professional services
fees, license fees and recurring maintenance fees related to its software
products. ASP hosting revenues consist of fees earned from customers who
outsource customer statements and insurance policy production applications.
Professional services revenues include fees for consulting, implementation and
education services. License revenues are generally derived from perpetual
licenses of software products. Maintenance and other recurring revenues consist
primarily of recurring license fees and annual software maintenance contracts.
8
HISTORICAL OPERATING RESULTS OF THE COMPANY
The following table sets forth selected unaudited interim consolidated
statements of operations data of the Company expressed as a percentage of total
revenues for the periods indicated:
<Table>
<Caption>
Three months ended
October 31,
------------------------------
2001 2000
------------- -------------
Revenues
ASP hosting 27% 21%
Professional services 31 32
License 15 20
Maintenance and other recurring 27 27
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Total revenues 100 100
Expenses
ASP hosting 23 20
Professional services 25 26
Product development and support 16 18
Selling, general and administrative 25 26
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Total expenses 89 90
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Operating income 11 10
Other income, net 1 0
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Income before income taxes and cumulative
effect of accounting change 12 10
Provision for income taxes 5 4
------------- -------------
Income before cumulative effect of accounting
change 7 6
Cumulative effect of accounting change, net of tax 0 (7)
------------- -------------
Net income (loss) 7% (1)%
============= =============
</Table>
COMPARATIVE ANALYSIS OF QUARTERLY RESULTS FOR THE THREE MONTHS ENDED OCTOBER 31,
2001 AND 2000
REVENUES
Total revenues increased 16% due to an increase in ASP hosting revenues,
professional services revenues, and maintenance revenues, partially offset by a
decrease in license revenues. ASP hosting revenues increased 48% due to the
addition of several new customers. Professional services revenues increased 13%
due to the expansion of this business and the adoption of Staff Accounting
Bulletin No. 101 ("SAB 101"). Maintenance revenues increased 16% due to an
expanding customer base. License revenues decreased 13% as a result of a lower
volume of contracts in the three months ended October 31, 2001.
Backlog for the Company's products and services of approximately $46.8 million
as of October 31, 2001, of which approximately $25.2 million is scheduled to be
satisfied within one year, is primarily composed of recurring software license
fees and maintenance revenues for ongoing maintenance and support, software
implementation and consulting services, and ASP hosting services. Software
agreements for recurring license fees generally have non-cancelable terms of up
to five years. Annual maintenance contracts may generally be terminated upon 30
to 60 days notice; however, the Company has not historically experienced
material cancellations of such contracts. Software implementation and consulting
services backlog is principally performed under time and material agreements of
which some
9
have cancellation provisions. ASP hosting agreements generally provide that fees
are charged on a per transaction basis. The estimated future revenues with
respect to software implementation and ASP hosting services are based on
management's estimate of revenues over the remaining life of the respective
contracts.
ASP HOSTING EXPENSE
ASP hosting expense is composed primarily of personnel costs, facility-related
costs, postage, and supplies expense related to the Company's two ASP hosting
centers. ASP hosting expense increased 31% for the three months ended October
31, 2001 due primarily to increased personnel and computer costs associated with
expanding the business. ASP hosting expense also increased as a result of
approximately $236,000 of additional postage and supplies expense related to
increased ASP hosting revenues. For the three months ended October 31, 2001 and
2000, ASP hosting expense represented 87% and 99% of ASP hosting revenues,
respectively. The decrease in cost as a percentage of revenues is mainly due to
greater efficiency in the ASP centers as the revenues increase. ASP hosting
expense is expected to increase based on customer and market requirements.
PROFESSIONAL SERVICES EXPENSE
Professional services expense is composed primarily of personnel expenses
related to implementation, education, and consulting services. Professional
services expense increased 12% due primarily to additional personnel costs as a
result of expanding the department to accommodate increased revenue levels. For
both the three month periods ended October 31, 2001 and 2000, professional
services expense represented 81% of professional services revenues. The Company
expects professional services expense to increase in order to meet additional
resource requirements as professional services activities increase both in North
America and Europe.
PRODUCT DEVELOPMENT AND SUPPORT EXPENSE
Product development and support expense consists primarily of research and
development efforts, amortization of capitalized software development costs,
customer support, and other product support costs. For the three months ended
October 31, 2001, product development and support expense increased 2%. The
increase is related to additional personnel expenses for continued development
and support efforts of the Company's products, offset by an increase in software
capitalization related to the development of the Company's products. The Company
anticipates continued increases in development efforts, including Internet
applications, integration of its existing product offerings, further development
of systems for use in industries such as utilities and financial services,
development of new software products, and continued support of its existing
product lines. Expenditures in this area are expected to increase in relation to
the anticipated growth in revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased 11%. This is primarily due
to additional personnel costs as the Company focuses on expanding the sales
force. This increase was partially offset by the discontinuation of goodwill
amortization in the three months ended October 31, 2001 due to the adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," ("SFAS 142") which discontinues amortization of goodwill and
indefinite lived assets.
OTHER INCOME, NET
Other income, net increased approximately $86,000 largely due to a gain on
foreign exchange rate associated with the Company's European subsidiary for the
three months ended October 31, 2001 as compared to a loss on foreign rate for
the comparable prior year period. This increase was partially offset by a
decrease in interest income.
10
PROVISION FOR INCOME TAXES
The effective tax rates for the three month periods ended October 31, 2001 and
2000 were approximately 39% and 44%, respectively. The decrease in the effective
tax rate is related to the adoption of SFAS 142 for the three months ended
October 31, 2001.
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Net income before cumulative effect of accounting change increased 50% for the
three months ended October 31, 2001. This increase is primarily due to revenue
growth with controlled expenses, increased efficiency in the ASP hosting
centers, elimination of goodwill amortization and the decrease in the effective
tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2001, the Company's principal sources of liquidity consisted of
cash of approximately $8.1 million and short-term investments of approximately
$4.0 million. Cash and cash equivalents for the three months ended October 31,
2001 increased approximately $1.9 million due primarily to cash generated by
operations, offset by the purchase of fixed assets, capitalized software
development costs and purchase of treasury stock. Cash flows used in investing
activities of approximately $650,000 were related to the purchase of fixed
assets and approximately $874,000 related to costs associated with the
development of capitalized software. Cash flows used in financing activities of
approximately $1.1 million relate to the purchase of treasury stock. As of
October 31, 2001, the Company had approximately 3,125,000 shares of treasury
stock at an average per share cost of $4.29. Since inception of the Company's
stock repurchase program in fiscal 1999, the Company has repurchased
approximately 4,450,000 shares of stock at an average purchase price of $4.46.
The Company's board of directors believes the repurchase program is an
appropriate means of increasing shareholder value. Accordingly, the board of
directors previously authorized the Company to repurchase up to an aggregate of
5,000,000 shares of stock.
Working capital was approximately $11.0 million at October 31, 2001, compared
with approximately $11.3 million at July 31, 2001.
The Company's liquidity needs are expected to arise primarily from funding the
continued development, enhancement, and support of its software offerings,
selling and marketing costs associated principally with continued entry into new
vertical and international markets, and purchase of treasury stock under the
Company's stock repurchase program. Although the Company has no current
commitments or agreements with respect to any acquisition of other businesses or
technologies, a portion of the Company's cash could be used to acquire
complementary businesses or obtain the right to use complementary technologies.
The Company currently anticipates that existing cash and short-term investments
and cash generated from operations will be sufficient to satisfy its operating
cash needs for the foreseeable future.
11
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
Adoption of SFAS 142 is required for fiscal years beginning after December 15,
2001, and earlier adoption is permitted for entities with fiscal years beginning
after March 15, 2001, provided that the first interim financial statements have
not been previously issued. SFAS 142 requires that goodwill and intangible
assets which have indefinite useful lives not be amortized but rather tested at
least annually for impairment. SFAS 142 provides specific guidance for testing
goodwill and intangible assets that will not be amortized for impairment. The
Company adopted SFAS 142 as of August 1, 2001. The Company has performed an
initial impairment analysis and determined that there is no impairment on the
carrying value of goodwill.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). Adoption of SFAS 144 is required
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early adoption encouraged. SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS 121 and related literature and establishes a
single accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. The Company adopted SFAS 144 as of
August 1, 2001. The adoption of SFAS 144 did not have a material impact on the
Company's consolidated financial statements for the quarter ended October 31,
2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments in its cash and cash
equivalent balances. The Company invests its cash and cash equivalents in
investments-grade, highly liquid investments, consisting of money market
instruments and commercial paper.
The Company is exposed to market risk arising from changes in foreign currency
exchange rates as a result of selling its products and services outside the U.S.
(principally Europe). A portion of the Company's sales generated from its
non-U.S. operations are denominated in currencies other than the U.S. dollar,
principally British pounds. Consequently, the translated U.S. dollar value of
Docucorp's non-U.S. sales and operating results are subject to currency exchange
rate fluctuations which may favorably or unfavorably impact reported earnings
and may affect comparability of period-to-period operating results.
For the three months ended October 31, 2001, approximately 5% of the Company's
revenues and operating expenses were denominated in British pounds. For the
three months ended October 31, 2000, approximately 1% of the Company's revenues
and 5% of the Company's operating expenses were denominated in British pounds.
Historically, the effect of fluctuations in currency exchange rates has not had
a material impact on the Company's operations; however, there can be no
guarantees that it will not have a material impact in the future. The Company's
exposure to fluctuations in currency exchange rates will increase as it expands
its operations outside the U.S.
12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months
ended October 31, 2001.
13
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 by the
undersigned, thereunto duly authorized.
Docucorp International, Inc.
- -----------------------------
(Registrant)
/s/ Michael D. Andereck Date December 17, 2001
- ----------------------------- -----------------
President and Chief Executive Officer
(Duly Authorized Officer and Principal Financial Officer)
14