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UNITED STATES
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 (Fee required) For the fiscal year ended December
31, 1995, or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required) For the transition period from
____________ to ____________
Commission File Number: 0-13459
DH TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2917470
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
15070 AVENUE OF SCIENCE, SAN DIEGO, CA 92128
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 451-3485
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value (Title of Class)
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 such filing
requirements for the past 90 days. Yes XXX 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 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. [___]
The aggregate market value of the Common Stock held by non-affiliates as of
March 04, 1996, (based on the last sales price at that date) was approximately
$175,221,709. This computation excludes a total of 46,832 shares beneficially
owned by certain executive officers and directors of Registrant who may be
deemed to be affiliates of Registrant under applicable rules of the Securities
and Exchange Commission. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of March 04, 1996, there were 7,921,965 shares of Registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's Annual Report to Shareholders for fiscal year ended December
31, 1995, is incorporated by reference to Exhibit 13.1 to the extent stated
herein. The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on April 30th, 1996, is incorporated by reference in
Part III of this Form 10K to the extent stated herein.
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PART I
ITEM 1. BUSINESS
GENERAL
DH Technology, Inc., a California corporation (the "Company," unless the context
otherwise requires, the term "Company" refers to DH Technology, Inc. and its
consolidated subsidiaries), was incorporated in 1983. The Company designs,
manufactures, and distributes transaction printers and mechanisms, impact
printheads, bar code printers, and related services and supplies, such as labels
and ribbons. The Company's products provide printing solutions for many diverse
applications, including freight and bar code labels, retail point-of-sale
transactions, gasoline vending receipts, and airline ticketing. Other
applications include banking and ATM transactions, health care industry
transactions, data processing reports, gaming tickets, and multi-part forms.
The Company's products are marketed and sold worldwide via a direct sales force,
sales representatives, value added resellers, and distributors. Company offices
are maintained in the United States, the United Kingdom, Mexico, and Australia.
The Company develops products that serve the application-specific needs of its
customers as well as products focused on general market requirements. To serve
these markets and applications, the Company uses a broad range of printing
technologies, including impact, thermal, and laser.
Impact printing can form a variety of characters, graphics, or bar codes by
printing vertical columns of dots in combinations of patterns as the printhead
sweeps horizontally across a page. Impact printing permits multiple fonts and
multiple language characters to be intermixed under software control and also
prints color graphics, bar codes, and multi-part forms. Compared with non-impact
printers, impact printers generally have the advantages of lower operating costs
and higher reliability.
Thermal printing is accomplished either directly or through the use of a ribbon.
Direct thermal printing creates images directly on specially treated paper by
transferring heat to the paper using a linear array of miniature heater
elements. Thermal transfer printing uses a ribbon that transfers images onto
untreated paper, using a linear array of miniature heater elements.
Laser printing is accomplished by applying an electrical charge to an organic
photo conductive drum assembly, applying toner to the drum assembly via this
charge and transferring the toner to the print medium with an additional
electrical charge. Once the toner is transferred to the print medium, a fuser
assembly fuses the toner permanently onto the print medium.
ACQUISITIONS OF MOS MAGNETICS CORPORATION
On October 30, 1995, DH Technology, Inc. acquired substantially all of the
assets and selected liabilities of Mos Magnetics Corporation in a $750,000 cash
transaction. This business is now operated as the Magnetics Division of DH
Technology, Inc. The Magnetics Division, located in San Diego, California,
designs, manufactures, and markets magnetic read and write heads and modules for
credit card and debit card readers, check readers, and airline ticket readers.
PRODUCTS
The Company's products are designed for precision, reliability, and durability
and, as such, operate using a full range of print speeds.
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IMPACT PRINTHEADS AND MAGNETIC HEADs
The Company's impact printhead products are divided into 10 series. They
range from 7 to 42 wires per head and 200 to 1200 characters per second in
print speeds. Printheads are used in a multitude of transaction printing
applications, such as office automation, data processing, point-of-sale
receipts, bank transaction printing, lottery tickets, entertainment
tickets, and airline tickets.
Impact printheads are used in transaction printing devices where speed,
versatility, multi-part forms capability, reliability, and relatively low
cost are important factors. Technological advances by the Company and
others now enable impact printheads to print text at speeds up to 1200
characters per second, print multiple text sizes and fonts in draft quality
or letter quality under software control, and print high resolution color
graphics.
Magnetic head products are divided into three categories: magnetic stripe
card readers, check readers, and airline ticket/boarding pass readers.
Applications include banking transactions, point-of-sale transactions, and
airline ticketing.
The Company also sells replacement printheads and utilizes its expertise in
printhead design and manufacturing to support its printhead repair and
replacement operations.
TRANSACTION PRINTERS
The Company's transaction printers utilize impact and thermal printing
technology and consist of four product families: impact printers, impact
printing mechanisms, thermal printers, and related supplies and services.
Applications for these products include bank teller transactions, ATM
receipts and statement printing, point-of-sale receipts, money order
printing, weigh/scale printing, lottery tickets, and wagering slips for
race tracks.
BAR CODE PRODUCTS
The Company's bar code products utilize direct thermal, thermal transfer,
and laser printing technology in a full range of product families which
include desktop printers, portable printers, industrial printers,
continuous-feed laser printers, print and apply products for wholesale and
industrial use, and related supplies and services, such as software and
ribbons. In addition, the Company supplies a full range of stock and bar
code label products.
The Company's thermal bar-code printer products include a thermal transfer
printer designed for industrial environments with the need for high volume
printing, a family of direct thermal and thermal transfer compact desktop
printers designed for medium volume printer requirements, and several
direct thermal and thermal transfer portable printers designed for
commercial usage and harsh environments.
Industries served include manufacturing, transportation, medical, retail,
and distribution. Typical applications include hospital and pharmaceutical
management, work order tracking, shipping and receiving, product
identification, shelf labeling, pricing labels, and inventory control.
MARKETING AND CUSTOMERS
The Company markets its impact printheads and magnetic heads directly to a
well-defined group of original equipment manufacturers ("OEMs") of data and word
processing printers and transaction printing devices. Most of the Company's
impact printhead customers rely on the Company as their primary source of
supply. The magnetic head business shares its market with several other
suppliers.
The Company's transaction printers are used to print various types of hard copy
output where custom features, reliability, durability, speed, ease of use, and
cost are important factors. The markets and applications for these transaction
printer products are diverse and widespread.
The Company's transaction printers are sold to OEMs, distributors, value-added
resellers, and end users. The Company believes many of its transaction printer
customers rely on the Company as their sole source supplier but could modify
their systems to utilize competitive products.
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The Company's bar code products are primarily utilized in commercial and retail
environments to print labels and bar codes. These products are sold primarily to
distributors and value added resellers who add value via software or service.
The Company also sells these products directly to large, sophisticated end users
who have in-house capability for software development. The Company's labeling
products and marking solutions are sold to end users through a sales force
located in seven states. Marketing efforts include advertisements in a number of
trade journals, news releases covering new products, and participation in most
of the significant industry trade shows in the United States and Europe.
As of December 31, 1995, sales were conducted through 18 direct sales offices
and through distributors and agents in over 20 countries.
No customer accounted for more than 10% of the Company's revenues in 1995, 1994,
or 1993.
Export revenues for the Company's North American operations, which are derived
primarily from Europe, were approximately 10%, 11%, and 7%, of total revenues in
1995, 1994, and 1993, respectively. Total foreign sales were $31,271,918 or 32%
of revenue in 1995, $24,006,000 or 31% of revenue in 1994, and $17,005,000 or
30% of revenue in 1993.
The Company's foreign sales are made directly by the Company and by distributors
and agents and are subject to certain risks common to all export activities such
as governmental regulation and the risk of imposition of tariffs or other trade
barriers. In addition, a majority of the Company's foreign sales are denominated
in local currencies and, thus, are subject to the risk of currency fluctuations.
The Company reviews potential foreign currency risks on an ongoing basis and to
date has been able to effectively manage this risk through natural currency
offsets.
BACKLOG
Most customers purchase products from the Company under purchase orders that
specify prices for particular quantities and anticipated release dates ranging
up to 10 months. The total backlog under such purchase orders was $33,455,000 as
of March 4, 1996, compared to $25,227,000 as of March 3, 1995. The Company's
backlog is generally subject to cancellation or rescheduling by the customer on
short notice with little or no penalty. Accordingly, the Company's backlog as of
any particular date may not necessarily be indicative of actual sales for any
future period.
MANUFACTURING AND SUPPLIERS
The Company manufactures substantially all of its impact printheads and magnetic
heads in Tijuana, Mexico, and manufactures prototypes and conducts pilot runs
for printheads at its headquarters in San Diego, California. The Company
manufactures its bar code products in Paso Robles, California, and Riverton,
Wyoming; its labels and supplies in Denver, Colorado, and Paso Robles,
California; and its transaction printers and mechanisms in Riverton, Wyoming.
The Company also manufactures impact and thermal printers in Manchester,
England. Foreign manufacturing is subject to certain risks, including
transportation delays and interruptions, the imposition of tariffs and export
controls, and changes in governmental policies.
The Company manufactures its products in high volume to exacting quality
standards. Accordingly, the Company maintains an extensive quality assurance
program, including precision computerized final testing of all printheads and
extensive burn-in testing for its bar code products, transaction printers, and
mechanisms.
Component parts used in the assembly of the Company's products, most of which
use tooling designed and owned by the Company, are purchased primarily from
suppliers in the United States, the Far East, and Europe. Although the Company
has more than one vendor available for most parts, some parts are available only
from a sole source. An interruption in supply from any of the Company's sole
source suppliers could temporarily result in the Company's inability to deliver
the affected products on a timely basis, which in turn could adversely affect
the Company's results of operations. Additionally, the Company will often rely
on a sole source for some parts following the introduction of a new product. If
the product is well accepted in the market, the Company will qualify additional
sources.
The Company provides product warranties ranging from 90 days to one year.
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PATENTS AND LICENSES
The Company holds various U.S. and foreign patents on impact printheads,
transaction printers, magnetic card readers, and bar code products and has
applied for additional domestic and foreign patents. The basic technology for
the Company's printhead products is based upon these patents and manufacturing
expertise.
COMPETITION
There is one domestic and one foreign printhead manufacturer which competes
directly with the Company in the high performance segment of the impact
printhead market, and additional companies manufacture impact printheads for the
intermediate and low performance portions of the market. Additionally, some
printer manufacturers sell printheads in competition with the Company. The
principal competitive factors in the printhead business are technological
expertise and the ability to deliver reliable and cost-effective products on a
timely basis. The Company believes that it successfully competes on each of
these bases.
There are numerous small and large competitors in the transaction printing
market. Large, typically Japanese, manufacturers dominate the lower end of the
market. The Company has been successful in the intermediate to high-end portion
of that market due to the Company's ability to provide application specific
products for its customers within relatively short lead times.
There are numerous competitors in the printing segment of the bar code market.
In addition, the Company expects competition to increase in this market over the
next several years. The Company believes its ability to utilize a full range of
technology and products gives the Company a reasonably competitive position in
relation to many of its competitors in meeting the needs of its customers.
PRODUCT DEVELOPMENT
The Company is a leader in the development of both impact printing and thermal
printing technology. The Company's product development activities are targeted
at both existing and new applications. A variety of engineering skills are
required in the development of the Company's products, and the Company maintains
expertise in mechanical, electrical, firmware, and software engineering
disciplines. As of March 4, 1996, the Company employed 53 individuals dedicated
to research and development.
In 1995, 1994, and 1993 the Company spent $5,006,000, $4,685,000, and
$4,170,000, respectively, for research and development.
EMPLOYEES
As of March 4, 1996, the Company and its subsidiaries had 1,017 full-time
employees. No employee is covered by a collective bargaining agreement, and the
Company considers employee relations to be good.
Executive Officers of the Registrant
Information regarding the Company's Executive Officers is as follows:
Mr. William H. Gibbs, President, Chief Executive Officer, and Chairman of
the Company, joined the Company in November 1985. Mr. Gibbs is 52 years old.
Mr. James A. Cole, Chief Financial Officer, and Secretary, joined the
Company in October 1995. From July 1994 to October 1995 Mr. Cole served as
President of Tri-Steel Structures, Inc., and since 1990 has run his own
investment/consulting company, Hidden Oaks Venture. From 1985 to 1990 Mr.
Cole was Executive Vice President of Operations and Chief Financial Officer
for Stevens Graphics Corporation. Mr. Cole is 50 years old.
Mr. David T. Ledwell, Vice President, General Manager, DHTech, joined the
Company in March 1986. Mr. Ledwell is 49 years old.
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Mr. Richard L. Strautman, Vice President, Marketing, joined the Company in
July 1991. From October 1984 to May 1991, Mr. Strautman held several Vice
President positions for Sunward Technologies, Inc., a rigid disc head
assembler. Mr. Strautman is 49 years old.
Ms. Janet W. Shanks, Chief Accounting Officer, and Corporate Controller,
joined the company in October 1986. Ms. Shanks is 36 years old.
FACTORS THAT MAY AFFECT FORWARD LOOKING STATEMENTS.
The Company may from time to time make oral forward looking statements. The
factors set forth in this Annual Report on Form 10-K for the year ended December
31, 1995 in Item 1, "Business--Marketing and Customers" (last paragraph),
"--Manufacturing and Suppliers" (first and third paragraphs) and
"--Competition", as well as the following, are important factors that could
cause actual results to differ materially from those projected in any such
forward looking statements.
Management of Acquisitions. Historically, the Company has achieved a portion of
its growth through acquisitions of other businesses and continues to pursue
additional acquisitions as part of its growth strategy. There are a number of
risks associated with any acquisition, including the substantial time and
attention required from management of the Company in connection with such
transactions, the difficulty of predicting whether the operations will perform
as expected and other problems inherent with any transition of one business
organization into another. There can be no assurance that the anticipated
benefits of any acquisition will be realized. A failure by the Company to manage
any such acquisitions effectively could materially and adversely affect the
Company's business and operating results. Additionally, future acquisitions
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, any of which could materially adversely
affect the Company's operating results and financial condition.
Technological Change; Competition; Dependence on New Products. The markets for
some of the Company's products are characterized by frequent new product
introductions and declining average selling prices over product life cycles. The
Company's future success is highly dependent upon the timely completion and
introduction of new products at competitive price/performance levels. In
addition, the Company must respond to current competitors, who may choose to
increase their presence in the Company's markets, and to new competitors, who
may choose to enter those markets. If the Company is unable to make timely
introduction of new products or respond to competitive threats, its business and
operating results could be materially adversely affected.
Fluctuation in Demand. The Company's customers encounter uncertain and changing
demand for their products. They typically order products from the Company based
on their forecasts. If demand falls below customers' forecasts, or if customers
do not control their inventories effectively, they may cancel or reschedule
shipments previously ordered from the Company. The Company has in the past
experienced, and may at any time and with minimal notice in the future
experience, cancellations and postponements of orders,
Future Operating Results Subject to Fluctuation. The Company's operating results
may fluctuate in the future as a result of a number of other factors, including
variations in the Company's sales channels or the mix of products it sells,
changes in pricing policies by the Company's suppliers, fluctuations in
manufacturing yields, the market acceptance of new and enhanced versions of the
Company's products and the timing of acquisitions of other businesses, products
and technologies and any associated charges to earnings. Further, the Company's
expense levels are based in part on expectations of future revenues, and the
Company has been increasing and intends to continue to increase operating
expenditures and inventory as it expands its operations. The rate of new orders
may vary significantly from month to month; consequently, if anticipated sales
and shipments in any quarter do not occur when expected, operating expenses and
inventory levels could be disproportionately high and the Company's operating
results for that quarter, and potentially for future quarters, would be
adversely affected. In addition, the Company's results could be affected by
general economic conditions. Fluctuations in operating results may cause
volatility in the price of the Company' s Common Stock.
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<TABLE>
<CAPTION>
ITEM 2. PROPERTIES
The following table outlines the current property leases held by the Company:
<S> <C> <C> <C> <C>
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
LOCATION PURPOSE SQUARE ANNUAL EXPIRE DATE
FOOTAGE COST
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
San Diego, California administration, marketing, engineering, 17,700 sq. ft $206,000 June 1996
pilot production operations, refurbishment
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
San Diego, California executive offices 4,800 sq. ft $48,000 June 1996
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Riverton, Wyoming manufacturing, engineering, marketing, 40,000 sq. ft $95,000 March 1997
administration
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Paso Robles, California manufacturing, engineering, marketing, 45,000 sq. ft $134,000 Dec. 1996
administration
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Denver, Colorado administration, marketing, manufacturing 23,500 sq. ft $190,000 Feb. 2004
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Tijuana, Mexico manufacturing, 30,000 sq. ft $103,000 Month to Month
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Tijuana, Mexico manufacturing 10,900 sq. ft $40,000 March 1996
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Sydney, Australia marketing, administration, technical support 8,600 sq. ft $39,000 June 1998
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
</TABLE>
The Company owns a 12,000 square foot building in Manchester, England in which
its DH Technology, plc subsidiary performs its manufacturing, marketing, and
administration.
The Company believes that its existing facilities are generally suitable and
adequate for its businesses. The Company has generally been able to renew its
manufacturing and office facilities leases as they expire at then current market
rates. Management believes that renewal of existing leases at market rates will
not have a significant impact on operating expenses or cash flow.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings, other than ordinary routine litigation
incidental to the business which is not considered to be material, to which the
registrant or any of its subsidiaries is a party or to which any of their
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information regarding "Market for the Registrant's Common Equity and Related
Stockholder Matters" is incorporated by reference to the Company's 1995 Annual
Report to Shareholders, where such information appears under the caption "Common
Stock Information" on page 21 of such report. An excerpt from the Annual Report
to the Shareholders containing this information has been filed as Exhibit 13.1
to this Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is incorporated by reference to the
Company's 1995 Annual Report to Shareholders, where such information appears
under the caption "Selected Financial Data" on page 10 of such report. An
excerpt from the Annual Report to the Shareholders containing this information
has been filed as Exhibit 13.1 to this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information regarding "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated by reference to the
Company's 1995 Annual Report to Shareholders, where such information appears
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on page 11 of such report. An excerpt from the Annual
Report to the Shareholders containing this information has been filed as Exhibit
13.1 to this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are incorporated by
reference to the Company's 1995 Annual Report to Shareholders, where such
information appears under the captions "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Shareholders'
Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated
Financial Statements," and "Independent Auditors' Report" on pages 13 through 20
of such report. An excerpt from the Annual Report to the Shareholders containing
this information has been filed as Exhibit 13.1 to this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instructions G(3) to Form 10-K, the information regarding
the Company's Directors is set forth under "Election of Directors" in
Registrant's Definitive Proxy Statement filed pursuant to Regulation 14A on
March 25, 1996, which is incorporated herein by reference. See Item 1 for
information regarding Executive Officers.
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ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instructions G(3) to Form 10-K, the information required by
Item 11 of Form 10-K is incorporated by reference to the information contained
in the section captioned "Executive Compensation" in Registrant's Definitive
Proxy Statement filed pursuant to Regulation 14A on March 25, 1996, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the information required by
Item 12 of Form 10-K is incorporated by reference to the information contained
in the section captioned "Security Ownership of Certain Beneficial Owners and
Management" in the Registrant's Definitive Proxy Statement filed pursuant to
Regulation 14A on March 25, 1996, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form 10-K.
1. Financial Statements. The following consolidated financial statements of
DH Technology, Inc. and subsidiaries and the Independent Auditors' Report are
incorporated by reference to the Registrant's 1995 Annual Report to
Shareholders:
Consolidated Balance Sheets - December 31, 1995 and 1994.
Consolidated Statements of Income - Years Ended December 31, 1995, 1994, and
1993.
Consolidated Statements of Shareholders' Equity - Years Ended December 31,
1995, 1994, and 1993.
Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994,
and 1993.
Notes to Consolidated Financial Statements
Independent Auditors' Report- KPMG Peat Marwick LLP
With the exception of the aforementioned information, the 1995 Annual Report to
Shareholders is not to be deemed filed as part of this report unless otherwise
noted.
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2. Financial Statement Schedules. The following financial statement
schedules of DH Technology, Inc. and subsidiaries are filed as part of this
Report on Form 10-K and should be read in conjunction with the consolidated
financial statements , and related notes thereto, of DH Technology, Inc. and
subsidiaries.
II Valuation and Qualifying Accounts ................... S-1
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the consolidated financial statements or notes thereto.
3. Exhibits. The following Exhibits are filed as part of, or incorporated
by reference into, this Report on Form 10-K.
Exhibit
Number Description
2.1 Stock Purchase Agreement dated February 10, 1994, by and
between Registrant and All Holders of Stadia Colorado Corp.
Stock, and Charles J. Osborn, by which Registrant purchased
Stadia Colorado Corp. (Incorporated by reference to Exhibit 2.1
of Registrant's Current Report on Form 8-K dated March 14,
1994.)
2.2 Stock Purchase Agreement dated August 12, 1994, by and between
Registrant, Cognitive Solutions, Inc., and John Bergquist, by
which Registrant purchased Cognitive Solutions, Inc.
(Incorporated by reference to Exhibit 2.1 of Registrant's
Current Report on Form 8-K dated September 14, 1994.)
3.1(a) Registrant's Restated Articles of Incorporation. (Incorporated
by reference to Exhibit 3.1 of Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988.)
3.1(b) Certificate of Amendment of Restated Articles of Incorporation
dated September 22, 1995
3.2 Registrant's Bylaws, as amended. (Incorporated by reference to
Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
10.1* Form of Employment Agreement dated December 3, 1985, between
Registrant and William H. Gibbs. (Incorporated by reference to
Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985.)
10.2* Registrant's 1985 Director Warrant Plan and Forms of Warrant
issued under the Plan, as amended. (Incorporated by reference
to Exhibit 10.3 of Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.)
10.3* Registrant's 1983 Incentive Stock Option Plan and Forms of
Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement, as amended. (Incorporated by reference to Exhibit
10.4 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990.)
10.4 Lease Agreement dated April 20, 1990, between Registrant and
Coast Income Properties, Inc., as amended. (Incorporated by
reference to Exhibit 10.5 of Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.)
10.5 Lease Agreement dated July 1, 1990, between DH Tecnologia de
Mexico S.A. de C. V. and Alberto Lutteroth. (Incorporated by
reference to Exhibit 10.6 of Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990.)
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Exhibit
Number Description
10.6* Registrant's 1992 Stock Plan and Form of Incentive Stock Option
Agreement, as amended. (Incorporated by reference to Exhibit
10.6 of Registrant's Form 10-K for the fiscal year ended
December 31, 1994.)
10.7 Lease Agreement dated April 1, 1994, by and between Registrant
and Wind River Development Co., a Wyoming corporation.
(Incorporated by reference to Exhibit 10.6 of Registrant's Form
10-K for the fiscal year ended December 31, 1994.)
10.8 Lease Agreement dated February 28, 1994, between Chardan, Ltd.,
and Stadia Colorado Corp. (Incorporated by reference to Exhibit
2.2 of Registrant's Current Report on Form 8-K dated March 14,
1994.)
10.9 Sublease Agreement dated September 30, 1992, by and between
Medical Engineering Corporation and Cognitive Solutions, Inc.
(Incorporated by reference to Exhibit 10.6 of Registrant's Form
10-K for the fiscal year ended December 31, 1994.)
10.10 Line of Credit Agreement dated August 15, 1994 by and between
DH Technology, Inc. and Wells Fargo Bank. (Incorporated by
reference to Exhibit 10.10 on Form 10Q for the Quarter Ended
March 31, 1995.)
11 Computation of Net Income Per Share.
13.1 Registrant's 1995 Annual Report to Shareholders, pages 10
through 21.
21 List of Subsidiaries.
23.1 Independent Auditors' Consent and Report on Schedules.
27 Financial Data Schedule
- ------------------------
* Management contract or compensatory plan or arrangement.
(b) Form 8-K Reports:
No current report on Form 8-K was filed during the quarter ended
December 31, 1995.
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DH TECHNOLOGY, INC.
By: /s/ Janet W. Shanks
-------------------
Janet W. Shanks,
Chief Accounting Officer, Corporate
Controller
Date: March 29, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William H. Gibbs and Janet W. Shanks, jointly and
severally, his or her respective attorneys-in-fact, each with the power of
substitution, for each other in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her respective substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ----------------------------- -------------------------------------- ------------------------------
/s/William H. Gibbs/ Chairman of the Board, President, March 29, 1996
- -------------------- Chief Executive Officer
(William H. Gibbs) (Principal Executive Officer)
/s/James A. Cole/ Chief Financial Officer and Secretary March 29, 1996
- ----------------- (Principal Financial Officer)
(James A. Cole)
/s/Janet W. Shanks/ Chief Accounting Officer and March 29, 1996
- ------------------- Corporate Controller
(Janet W. Shanks)
/s/William J. Bowers/ Director March 29, 1996
- --------------------
(William J. Bowers)
/s/Bruce G. Klaas/ Director March 29, 1996
- --------------------
(Bruce G. Klaas)
/s/Don M. Lyle/ Director March 29, 1996
- --------------------
(Don M. Lyle)
/s/George M. Ryan/ Director March 29, 1996
- --------------------
(George M. Ryan)
</TABLE>
<PAGE>
DH TECHNOLOGY, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years 1995, 1994, and 1993
(Amounts in Thousands)
<TABLE>
<CAPTION>
Balance at Charge to Charge to Balance at
Beginning of Cost and Other Accounts End of Period
Description Period Expense (1) Deductions
- ----------- ------ ------- --- ---------- -------------
Allowance for
Doubtful Accounts
<S> <C> <C> <C> <C> <C>
1995 $1,003 $75 -- ($11) $1,067
1994 979 105 58 (139) 1,003
1993 812 267 -- (100) 979
- --------------------
(1) Recorded upon acquisition.
</TABLE>
S-1
<PAGE>
EXHIBIT 11
DH TECHNOLOGY, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- ------------ -----------
--------------------------- ----------------------------
1995 1994 1995 1994
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Primary and fully diluted:*
Average shares outstanding .......... 7,880 7,721 7,809 7,703
Net effect of dilutive stock
options and warrants based on
the treasury stock method using
average market price ................ 511 474 528 373
------- ------- ------- -------
Average common and common
equivalent shares outstanding ....... 8,391 8,195 8,337 8,076
Net income .......................... $ 2,783 $ 2,173 $10,301 $ 8,058
Per share (primary and fully diluted)
Net income per share ................ $ .33 $ .27 $ 1.24 $ 1.00
======== ======== ======== ========
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13.1
Selected Financial Data
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended December 31, 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Revenue:
Net sales .................$98,855 $77,918 $56,351 $54,081 $46,288 $40,038 $41,619 $29,109 $15,763 $16,121
License fees and royalties. -- -- -- 89 258 1,089 436 251 695 764
Total revenue ...................... 98,855 77,918 56,351 54,170 46,546 41,127 42,055 29,360 16,458 16,885
Costs and expenses:
Cost of net sales .................. 63,267 48,972 34,870 33,770 28,526 24,521 26,527 20,025 10,152 10,578
Selling, general and
administrative ... 15,383 12,769 8,955 8,599 8,078 5,523 5,297 4,113 2,378 3,069
Research and development .. 5,007 4,685 4,170 4,150 3,744 2,845 2,259 1,450 683 799
----- ----- ----- ----- ----- ----- ----- ----- --- ---
Total costs and expenses ........... 83,657 66,426 47,995 46,519 40,348 32,889 34,083 25,588 13,213 14,446
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Income from operations ..............15,198 11,492 8,356 7,651 6,198 8,238 7,972 3,772 3,245 2,439
Interest income, net ................ 955 644 692 391 584 921 560 174 354 410
--- --- --- --- --- --- --- --- --- ---
Income before income taxes ..........16,153 12,136 9,048 8,042 6,782 9,159 8,532 3,946 3,599 2,849
Income taxes ........................ 5,852 4,078 2,717 2,252 2,144 3,192 2,640 816 765 508
----- ----- ----- ----- ----- ----- ----- --- --- ---
Net income .........................$10,301 $ 8,058 $ 6,331 $ 5,790 $ 4,638 $ 5,967 $ 5,892 $3,130 $ 2,834 $2,341
======= ======= ======= ======= ======= ======= ======= ====== ======= ======
Net income per share .............. $ 1.24 $ 1.00 $ 0.82 $ 0.75 $ 0.62 $ 0.79 $ 0.79 $ 0.43 $ 0.38 $ 0.29
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used in
per share calculation .... 8,337 8,076 7,731 7,749 7,481 7,529 7,494 7,260 7,383 8,030
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
December 31, 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital ....................$48,664 $37,191 $41,406 $34,771 $27,679 $24,712 $21,077 $15,083 $10,400$ 9,758
Total assets ....................... 85,285 71,306 55,975 47,937 44,113 35,713 32,565 24,709 15,065 14,173
Long-term debt ..................... 3,095 4,355 1,580 2,358 3,687 3,109 4,016 4,865 73 109
Shareholders' equity ............... 67,480 55,848 46,732 39,902 33,531 27,904 22,176 15,914 12,692 11,818
</TABLE>
The selected financial data should be read with the related consolidated
financial statements and notes thereto, included herein
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes related thereto.
<TABLE>
<CAPTION>
Results of Operations
Operating Percentages
<S> <C> <C> <C>
1995 1994 1993
------- ------ ------
Net sales ........................... 100.0% 100.0% 100.0%
Cost of net sales.................... 64.0% 62.9% 61.9%
Selling, general,
and administrative ............... 15.6% 16.4% 15.9%
Research and development ............ 5.1% 6.0% 7.4%
Income from operations .............. 15.4% 14.7% 14.8%
Income before income taxes........... 16.3% 15.6% 16.1%
Income taxes ........................ 5.9% 5.2% 4.8%
Net income .......................... 10.4% 10.3% 11.2%
</TABLE>
The consolidated financial statements of DH Technology, Inc. (the Company)
represent the financial results of DH Technology, Inc. and its consolidated
subsidiaries, Stadia Colorado Corp. (Stadia); Cognitive Solutions, Inc.
(Cognitive); DH Tecnologia de Mexico, S.A. de C.V.; DH Technology plc; and DH
Technology pty. Results of operations subsequent to February 28, 1994, reflect
the added results of Stadia, and results for Cognitive are included after August
31, 1994. Also, results of operations subsequent to October 30, 1995, reflect
the added results of Mos Magnetics. See Note 10 of notes to consolidated
financial statements.
1995 COMPARED TO 1994
In 1995, net sales grew to $98.9 million, a 27.0% increase over 1994 net sales
of $77.9 million. Approximately two-thirds of this increase was due to increased
unit shipments of specialty printers and printer components, including
printheads. The remainder of the increase was attributable to the inclusion of
results of Cognitive, and to a lesser extent Stadia, for an entire 12 months in
1995.
Cost of net sales increased to 64.0% of net sales in 1995 compared to 62.9%
in 1994. Three factors contributed approximately equally to the increase. First,
the results of Cognitive, whose products have slightly lower margins than the
Company's historical average, were included for all of 1995. Second, start up
costs associated with the introduction of two new printer products in 1995 and
higher component and expediting costs caused by integrated circuit shortages
contributed to lower consolidated margins. Third, in 1995 the Company filled a
sizable order for low-end transaction printers with gross margins considerably
lower than the historical average for the Company.
Selling, general, and administrative expenses as a percentage of net sales
decreased to 15.6% in 1995 compared to 16.4% in 1994 due to consolidated revenue
increasing at a faster rate than consolidated selling, general, and
administrative expenses. These expenses increased in absolute dollars to $15.4
million in 1995 compared to $12.8 million in 1994. This increase was primarily
attributable to the inclusion of results for Stadia and Cognitive for all of
1995.
Research and development expenses decreased to 5.1% of net sales in 1995
from 6.0% in 1994 due to consolidated revenues increasing at a faster rate than
consolidated research and development expenses. Total dollars expended for
research and development increased to $5.0 million in 1995 from $4.7 million in
1994. The Company believes that the continued timely development of new products
and enhancements to its existing products are essential to maintaining its
competitive position. Accordingly, the Company anticipates that such expenses
will continue to increase in absolute dollars.
Income from operations as a percentage of net sales increased to 15.4% in
1995 from 14.7% in 1994 primarily due to lower operating expenses as a
percentage of revenue as discussed above. Interest income increased to
$1,231,000 in 1995 compared to $854,000 in 1994 as a result of higher cash
balances and higher interest rates in 1995.
Interest expense increased to $276,000 in 1995 from $210,000 in 1994 due to
interest expense associated with debt incurred as a result of the Stadia and
Cognitive acquisitions. See Note 6 of notes to consolidated financial
statements.
<PAGE>
Income taxes as a percentage of income before taxes increased to 36.2% for
1995 from 33.6% for 1994, principally due to nondeductible goodwill amortization
resulting from the Stadia and Cognitive acquisitions, and reduced benefits from
the federal research and development tax credit. See Note 12 of notes to
consolidated financial statements.
The Company's operating results may fluctuate in the future as a result of a
number of factors, including variations in the Company's sales channels or the
mix of products it sells, changes in pricing policies by the Company's
suppliers, fluctuations in manufacturing yields, the market acceptance of new
and enhanced versions of the Company's products and the timing of acquisitions
of other businesses, products and technologies and any associated charges to
earnings. Further, the Company's expense levels are based in part on
expectations of future revenues, and the Company has been increasing and expects
to continue to increase operating expenditures and inventory as it expands its
operations. The rate of new orders may vary significantly from month to month;
consequently, if anticipated sales and shipments in any quarter do not occur
when expected, operating expenses and inventory levels could be
disproportionately high and the Company's operating results for that quarter,
and potentially for future quarters, would be adversely affected. In addition,
the Company's results could be affected by general economic conditions.
Fluctuations in operating results may cause volatility in the price of the
Company's Common Stock.
1994 COMPARED TO 1993
In 1994, net sales grew to $77.9 million, a 38.1% increase over 1993 net
sales of $56.4 million. This increase was primarily due to inclusion of results
for Stadia for 10 months and Cognitive for four months. Additionally, increased
unit shipments of specialty printers and printer components, including
printheads, contributed to higher net sales in 1994.
Cost of net sales increased to 62.9% of net sales in 1994 compared to 61.9%
in 1993 due primarily to changes in the product mix toward printer components
with higher material costs, as well as the inclusion of results for Stadia for
10 months and Cognitive for four months. Stadia's and Cognitive's product lines
have slightly lower margins than the historical average for the Company.
Selling, general, and administrative expenses as a percentage of net sales
increased to 16.4% in 1994 compared to 15.9% in 1993. These expenses increased
in absolute dollars to $12.8 million in 1994 compared to $9.0 million in 1993.
This increase was primarily attributable to the inclusion of results for Stadia
for 10 months and Cognitive for four months.
Research and development expenses decreased to 6.0% of net sales in 1994
from 7.4% in 1993 primarily due to the inclusion of results for Stadia for 10
months. Stadia had no research and development costs in 1994, resulting in
consolidated revenues increasing at a faster rate than research and development
expenses. Total dollars expended for consolidated research and development
increased to $4.7 million in 1994 from $4.2 million in 1993 primarily due to the
inclusion of results for Cognitive for four months and increased development
expenses related to expanding the Company's product offerings.
Income from operations as a percentage of net sales was virtually unchanged
in 1994 compared to 1993.
Interest income increased to $854,000 in 1994 compared to $794,000 in 1993.
The increase in interest income was attributable to higher interest rates in
1994, which more than offset lower cash balances resulting from the Stadia and
Cognitive acquisitions. Interest expense increased to $210,000 in 1994 from
$102,000 in 1993 due to interest expense associated with debt incurred as a
result of the Stadia and Cognitive acquisitions. See Note 6 of notes to
consolidated financial statements.
Income taxes as a percentage of income before taxes increased to 33.6% for
1994 from 30% for 1993 primarily due to nondeductible goodwill amortization
resulting from the Stadia and Cognitive acquisitions. Additionally, tax-free
interest income contributed a smaller percentage of income before income taxes
in 1994 than in 1993. The Company's tax rate was less than the statutory federal
rate of 34% primarily due to the Company's investment strategy and its use of
the research and development tax credit
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Throughout 1995, the Company continued to maintain its strong financial
condition. The Company's primary source of liquidity has been cash flow
generated from operations. Cash, cash equivalents, and short-term investment
securities totaled approximately $31.7 million on December 31, 1995, compared to
$23.9 million on December 31, 1994.
OPERATING ACTIVITIES
In 1995, the Company generated approximately $11.0 million in net cash from
operating activities primarily as a result of $10.3 million in net income and
$3.6 million in depreciation and amortization, offset by an increase of $2.0
million in net operating assets and liabilities, excluding the effect of
acquisitions. In 1995, accounts receivable increased by $3.2 million due
primarily to increased unit shipments. In addition, inventory increased $2.8
million in order to support these increased volumes.
INVESTING ACTIVITIES
The Company's principal investing activity in 1995 was the purchase of
property and equipment for product development and production. As of December
31, 1995, other than the required payments for Stadia and Cognitive described
below, the Company has no material commitments for capital expenditures.
However, as of the end of 1995, the Company anticipates capital expenditures in
1996 between 3 to 5 million dollars principally for new product tooling,
manufacturing equipment and a new worldwide MIS system.
The Company is also required to make additional payments, not to exceed an
aggregate of $3 million, to the former shareholder of Cognitive based upon the
attainment of specified net sales by a particular Cognitive product line. The
Company does not expect the payment to be material in 1996. See Note 10 of notes
to consolidated financial statements.
FINANCING ACTIVITIES
The Company's major financing activities in 1995 were the principal
repayment on long-term debt, including the notes payable associated with the
Stadia and Cognitive acquisitions. As of December 31, 1995, the Company had $3.1
million in debt outstanding of which the current portion was approximately
$980,000. This long-term debt includes approximately $500,000 payable in a final
installment in 1996 to the former owners of Stadia and approximately $2.0
million payable in annual installments of $500,000 each in 1996 through 1999 to
the former owner of Cognitive.
On August 15, 1995, the Company renewed a $6.5 million line of credit
agreement originally signed on August 15, 1994. The line of credit includes a
subfeature to issue standby and/or commercial letters of credit not to exceed
$1.5 million. Borrowings under the line bear interest at a rate per annum equal
to the prime rate in effect from time to time. As of December 31, 1995, no draws
had been made against this line of credit.
The Company currently expects that current cash balances and cash generated
from operations will adequately fund the Company's anticipated cash needs for
the next 12 months. However, the Company continues to evaluate potential
acquisitions of businesses that would complement the Company's existing
businesses and product lines, and any such acquisitions could require the use of
the Company's cash resources and/or additional borrowings.
The Company reviews potential foreign currency risks on an ongoing basis and
to date has been able to effectively manage this risk through natural currency
offsets.
<PAGE>
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. (OSFASO) 121, Accounting of the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, effective for
fiscal years beginning after December 15, 1995. SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets carrying amount. SFAS 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company does not believe, based on current circumstances, the effect of
adoption of SFAS 121 will have a material impact on its financial condition or
results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
Accounting for Stock-Based Compensation, effective for fiscal years beginning
after December 15, 1995. SFAS 123 establishes the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of the stock option at the grant date
and the number of options vested, and is recognized over the periods in which
the related services are rendered. If the Company were to retain its current
intrinsic value based method, as allowed by SFAS 123, it will only be required
to disclose the pro forma effect of adopting the fair value based method.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
December 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents ....................................... $28,971,000 $19,587,000
Short-term investment securities held to maturity (note 2) ...... 2,750,000 4,300,000
Accounts receivable, net of allowance for doubtful accounts......
of $1,067,000 in 1995 and $1,003,000 in 1994 .................... 15,785,000 12,435,000
Inventories (note 3) ............................................ 14,382,000 11,386,000
Deferred tax asset (note 12) .................................... 1,744,000 1,165,000
Prepaid expenses and other current assets ....................... 573,000 556,000
------- -------
Total current assets ................. 64,205,000 49,429,000
Fixed assets, net (notes 4 and 6) ............................... 6,290,000 6,771,000
Intangible assets, net (note 5) ................................. 13,312,000 14,549,000
Other Assets..................................................... 1,478,000 557,000
--------- -------
Total assets ......................... $85,285,000 $71,306,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 6,383,000 $ 4,557,000
Current portion of long-term debt (note 6) ...................... 980,000 1,363,000
Accrued payroll, payroll taxes, and benefits .................... 2,579,000 2,148,000
Accrued expenses ................................................ 2,045,000 1,545,000
Income taxes payable (note 12) .................................. 2,128,000 1,356,000
Accrued warranty ................................................ 479,000 383,000
Deferred revenue ................................................ 947,000 886,000
------- -------
Total current liabilities............. 15,541,000 12,238,000
Long-term debt (note 6) .................................................. 2,115,000 2,992,000
Deferred tax liability (note 12) ......................................... 149,000 228,000
-- ------- -------
Total liabilities..................... 17,805,000 15,458,000
========== ==========
Shareholders' equity (note 8):
Preferred shares, no par value
Authorized: 1,000,000 shares; none issued
Common shares:
Common stock, no par value, authorized: 28,500,000 shares; issued and
outstanding: 7,890,090 shares in 1995 and 7,731,161 shares in 1994 12,335,000 10,740,000
Foreign currency translation adjustment ........................... (519,000) (255,000)
Retained earnings.................................................. 55,664,000 45,363,000
---------- ----------
Total shareholders' equity......................................... 67,480,000. 55,848,000
----------- ----------
Commitments (notes 6, 7, 8, 10, and 11)
Total liabilities and shareholders' equity $ 85,285,000 $ 71,306,000
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
<S> <C> <C> <C>
Years ended December 31, 1995 1994 1993
Net sales .............................................................. $98,855,000 $ 77,918,000 $ 56,351,000
Costs and expenses:
Cost of net sales.............................................. 63,267,000 48,972,000 34,870,000
Selling, general, and administrative .......................... 15,383,000 12,769,000 8,955,000
Research and development ...................................... 5,007,000 4,685,000 4,170,000
--------- --------- ---------
Total costs and expenses ............................................... 83,657,000 66,426,000 47,995,000
---------- ---------- ----------
Income from operations ................................................. 15,198,000 11,492,000 8,356,000
---------- ---------- ---------
Interest income ........................................................ 1,231,000 854,000 794,000
Interest expense ....................................................... (276,000) (210,000) (102,000)
-------- -------- --------
Net interest income .................................................... 955,000 644,000 692,000
------- ------- -------
Income before income taxes.............................................. 16,153,000 12,136,000 9,048,000
Income taxes (note 12) ................................................. 5,852,000 4,078,000 2,717,000
-- --------- --------- ---------
Net income ............................................................. $10,301,000 $ 8,058,000 $ 6,331,000
=========== ============ ============
Net income per share ................................................... $ 1.24 $ 1.00 $ 0.82
=========== ============ ============
Shares used in per share calculation ................................... 8,337,000 8,076,000 7,731,000
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign Currency Total
Common Stock Translation Retained Shareholders'
<S> <C> <C> <C> <C> <C>
Shares Amount Adjustment Earnings Equity
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 ............ 7,517,819 $ 9,525,000 $ (597,000) $ 30,974,000 $ 39,902,000
Exercise of options and warrants ...... 101,150 300,000 -- -- 300,000
Employee stock bonus .................. 5,415 58,000 -- -- 58,000
Tax benefit of stock option exercise .. -- 250,000 -- -- 250,000
Foreign currency translation adjustment -- -- (109,000) -- (109,000)
Net income ........................... -- -- -- 6,331,000 6,331,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 ............ 7,624,384 10,133,000 (706,000) 37,305,000 46,732,000
Exercise of options and warrants ...... 106,777 511,000 -- -- 511,000
Tax benefit of stock option exercise .. -- 96,000 -- -- 96,000
Foreign currency translation adjustment -- -- 451,000 -- 451,000
Net income ........................... -- -- -- 8,058,000 8,058,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 ............ 7,731,161 10,740,000 (255,000) 45,363,000 55,848,000
Exercise of options and warrants ...... 158,929 1,235,000 -- -- 1,235,000
Tax benefit of stock option exercise .. -- 360,000 -- -- 360,000
Foreign currency translation adjustment -- -- (264,000) -- (264,000)
Net income ........................... -- -- -- 10,301,000 10,301,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ............ 7,890,090 $ 12,335,000 $ (519,000) $ 55,664,000 $ 67,480,000
===================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C>
Years ended December 31, 1995 1994 1993
Cash flows from operating activities:
Net income ............................................................ $ 10,301,000 $ 8,058,000 $ 6,331,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ....................... 3,640,000 2,391,000 1,871,000
Provision for loss on accounts receivable ........... 65,000 105,000 267,000
Employee stock bonus ................................ N N 58,000
Loss on sale or disposal of fixed assets ............ 65,000 6,000 5,000
Provision for deferred income taxes, excluding effect
of acquisitions .................................. (658,000) (429,000) (279,000)
Changes in assets and liabilities, excluding effect of acquisitions:
Accounts receivable ................................. (3,219,000) (1,997,000) (1,584,000)
Inventories ......................................... (2,814,000) (1,651,000) (566,000)
Prepaid expenses and other current assets ........... (17,000) 170,000 (34,000)
Accounts payable and accrued expenses ............... 2,264,000 (891,000)
898,000
Accrued payroll, payroll taxes, and benefits ........ 431,000 513,000
442,000
Income taxes payable ................................ 772,000 (343,000) 333,000
Accrued warranty .................................... 96,000 (20,000) 71,000
Deferred revenue .................................... 61,000 696,000 129,000
------ ------- -------
Net cash provided by operating activities ........... 10,987,000 6,608,000 7,942,000
Cash flows from investing activities:
Net (increase) decrease in short-term investment
securities held to maturity .................................. 1,550,000 5,420,000 (4,520,000)
Payment for acquisition purchases, net of cash acquired ............... (753,000) (12,825,000)
Capital expenditures .................................................. (2,469,000) (2,293,000) (1,601,000)
Proceeds from sale of assets .......................................... -- 26,000 24,000
------ ------ ------
Net cash used in investing activities ............... (1,672,000) (9,672,000) (6,097,000)
Cash flows from financing activities:
Principal repayments of long-term debt ................................ (1,260,000) (1,482,000) (631,000)
Exercise of stock options ............................................. 1,235,000 511,000 300,000
Tax benefit of stock option exercise .................................. 360,000 96,000 250,000
------- ------ -------
Net cash provided by (used in) financing activities . 335,000 (875,000) (81,000)
Effect of exchange rate changes on cash ........................................ (266,000) 365,000 (74,000)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents ........................... 9,384,000 (3,574,000) 1,690,000
Cash and cash equivalents at beginning of year ................................. 19,587,000 23,161,000 21,471,000
---------- ---------- ----------
Cash and cash equivalents at end of year ....................................... $ 28,971,000 $ 19,587,000 $ 23,161,000
============ ============ ============
Supplemental cash flow disclosures:
Interest paid on debt ................................................. $ 93,148 $ 106,000 $ 102,000
============ ============ ============
Income taxes paid ..................................................... $ 5,738,000 $ 3,539,000 $ 2,200,000
============ ============ ============
Supplementary disclosure of noncash investing activity:
Fair market value of assets acquired .................................. $ 815,000 $ 15,865,000 --
Cash paid ............................................................. (753,000) (12,952,000) --
-------- ----------- -----------
Liabilities assumed ................................................... $ 62,000 $ 2,913,000 --
============ ============ ===========
Supplementary disclosure of noncash financing activity:
Additions to capital lease obligations ................................ -- -- $ 78,000
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF PRESENTATION. DH Technology, Inc. and subsidiaries' (the Company)
principal business activity involves the design, manufacture, and distribution
of transaction printers and mechanisms, impact printheads, bar code printers,
and related services and supplies, such as labels and ribbons. The consolidated
financial statements include the accounts of DH Technology, Inc. and its
wholly-owned subsidiaries, Stadia Colorado Corp.; Cognitive Solutions, Inc.; DH
Tecnologia de Mexico, S.A. de C.V.; DH Technology plc; and DH Technology pty.
Results of operations subsequent to February 28, 1994, reflect the added results
of Stadia, and results for Cognitive are included after August 31, 1994 (Note
10). All significant intercompany accounts and transactions have been
eliminated.
NET INCOME PER SHARE. Net income per share for the years ended December 31,
1995, 1994, and 1993 is computed based on the weighted average number of common
and common equivalent shares outstanding during each year. Stock options and
warrants that have a dilutive effect are considered common stock equivalents for
purposes of this calculation. Fully diluted net income per share is not
materially different from primary net income per share.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be cash
equivalents.
CONCENTRATION OF CREDIT RISK. Cash in excess of daily requirements is invested
in short-term investment securities consisting of money market funds, municipal
bonds, and short-term commercial investments of companies with strong credit
ratings. These investments typically mature within one year and, therefore, bear
minimal risk. To date, the Company has not incurred losses related to these
investments.
SHORT-TERM INVESTMENT SECURITIES HELD TO MATURITY. In accordance with Statement
of Financial Accounting Standards No. 115 Accounting for Certain Investments in
Debt and Equity Securities' (SFAS 115), management determines the appropriate
classification of securities at the time of purchase. If management has the
intent at the time of purchase and the Company has the ability to hold
securities until maturity, they are classified as held to maturity. Investment
securities held to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts over the period to maturity of the related
security.
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out)
or market.
FOREIGN CURRENCY TRANSLATION. The accounts of foreign subsidiaries and
affiliates are measured using local currency as the functional currency. For
these operations, assets and liabilities are translated into U.S. dollars at
period-end exchange rates, and income and expense accounts are translated at
average monthly exchange rates. Net exchange gains or losses resulting from such
translation are excluded from net income and accumulated in a separate component
of shareholders' equity. Gains and losses from foreign currency transactions are
not significant and are included in selling, general, and administrative
expenses in the consolidated statements of income.
FIXED ASSETS, DEPRECIATION, AND AMORTIZATION. Fixed assets are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the related assets or over the terms of the
related leases, whichever is shorter (three to ten years). Capital lease
amortization is included in depreciation and amortization expense. Renewals and
replacements which extend the useful life of the fixed asset are capitalized.
<PAGE>
INTANGIBLE ASSETS. Intangible assets are recorded at cost. The Company has
classified as goodwill the cost in excess of fair value of the net assets of the
companies acquired in purchase transactions. At each balance sheet date, the
Company assesses the recoverability of this intangible asset by determining
whether the goodwill balance can be recovered through undiscounted future
operating cash flows of the acquired operation over its remaining life. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved. Based upon
its most recent analysis, the Company believes that no material impairment of
goodwill exists at December 31, 1995. Intangible assets, excluding goodwill, are
amortized using the straight-line method over periods ranging from four to 15
years. Goodwill is amortized over periods ranging from 20 to 25 years.
SOFTWARE DEVELOPMENT COSTS. The Company capitalizes certain software development
costs in accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed (SFAS 86). Capitalization of software development costs begins upon
the establishment of technological feasibility as defined in SFAS 86. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life, and changes in software and hardware technologies.
Capitalized software costs are amortized using the straight-line method over the
estimated seven-year useful life of the related product. The Company amortized
$200,000 of such costs in each of 1994 and 1993. In 1995, the Company determined
the software development costs to have no future value, and accordingly,
wrote-off the remaining costs of $568,000. Research and development expenditures
are charged to research and development expense in the period incurred.
WARRANTY RESERVE. The Company generally provides customers with limited 90-day
to one-year warranties. The liability for future warranty claims reflects the
estimated future cost of warranty repairs on products previously sold. The
Company recognizes the estimated cost of warranty obligations at the time the
related products are sold and periodically evaluates and adjusts the warranty
reserve to the extent actual warranty experience varies from original estimates.
STOCK OPTIONS. The Company accounts for stock options under the intrinsic value
based method whereby compensation expense is recognized on the difference
between the quoted market price of the Company stock and the option price at the
date of grant.
DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses, and long-term debt, approximate fair values. Fair value estimates are
made at a specific point in time, based on relevant market information and
information about the financial instruments. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore, cannot be determined with precision. Changes in assumptions could
affect the estimates.
<PAGE>
INCOME TAXES. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates 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 that includes the
enactment date.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore, cannot be determined with precision.
Changes in assumptions could affect the estimates.
USE OF ESTIMATES. Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1994 and 1993
consolidated financial statements to conform with the 1995 presentation.
2. SHORT-TERM INVESTMENT SECURITIES
The book value, gross unrealized gains and losses, and fair value of short-term
investment securities held to maturity as of December 31, are as follows:
<TABLE>
<CAPTION>
1995
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
Municipal
bonds ............... $2,750,000 $ 39,000 -- $2,789,000
</TABLE>
<TABLE>
<CAPTION>
1994
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
Municipal
bonds .............. $4,300,000 $ 2,000 $ 4,000 $4,298,000
</TABLE>
All of the above investment securities will mature in 1996, and no loss is
expected to be realized.
<TABLE>
<CAPTION>
3. INVENTORIES
Inventories are comprised of the following:
<S> <C> <C>
December 31, 1995 1994
- -------------------------------------------------------------------------------
Raw materials ...................... $ 8,221,000 $ 5,712,000
Work in process .................... 940,000 1,528,000
Finished goods ..................... 5,221,000 4,146,000
------------ ------------
$14,382,000 $11,386,00
============ ============
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
4. FIXED ASSETS
Fixed assets are comprised of the following:
<S> <C> <C>
December 31, 1995 1994
- -------------------------------------------------------------------------------
Land ...................................... $ 264,000 $ 266,000
Building................................... 948,000 957,000
Leasehold improvements .................... 1,043,000 959,000
Machinery and equipment ................... 12,820,000 11,432,000
Furniture, fixtures, and equipment ........ 2,838,000 2,854,000
Automobiles ............................... 172,000 311,000
18,085,000 16,779,000
Accumulated depreciation
and amortization.......................... (11,795,000) (10,008,000)
------------- -------------
$ 6,290,000 $ 6,771,000
============= =============
</TABLE>
Included above are assets under capital leases amounting to $144,000 and
$235,000, net of accumulated amortization of $54,000 and $52,000 at December 31,
1995 and 1994, respectively.
<TABLE>
<CAPTION>
5. INTANGIBLE ASSETS
Intangible assets are comprised of the following:
<S> <C> <C>
December 31, 1995 1994
Software development costs ............. $ -- $ 1,403,000
Goodwill ............................... 11,055,000 10,841,000
Patents ................................ 2,758,000 2,758,000
Covenants not to compete ............... 1,375,000 1,375,000
------------ ------------
15,188,000 16,377,000
Accumulated amortization ............... (1,876,000) (1,828,000)
------------ ------------
$ 13,312,000 $ 14,549,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
6. LONG-TERM DEBT
Long-term debt is comprised of the following:
<S> <C> <C>
December 31, 1995 1994
- --------------------------------------------------------------------------------
7.5% note payable in monthly
installments of $9,000,
including interest, with final
payment due September
1998; secured by equipment...................... $ 257,000 $ 351,000
First mortgage note payable in
monthly installments of(pound)2,000
($3,000 at December 31, 1995),
interest due quarterly at the UK
base rate plus 1.75% (8.25% at
December 31, 1995), due April 2014 ............. 593,000 631,000
Note payable from DH Technology
plc acquisition, final annual install-
ment of $225,000, paid April 1995 .............. -- 225,000
Note payable from Stadia acquisition,
two annual installments of $500,000
(discounted using 6% discount rate)
due to former owner, final
installment due March 1996..................... 445,000 917,000
Note payable from Cognitive
acquisition, five annual installments
of $500,000 (discounted using 8%
discount rate) due to former owner,
final installment due August 1999 .............. 1,656,000 1,996,000
Capital lease obligations for
equipment, interest rates
ranging from 7.3% to 10.6%
per annum, secured by equipment ................ 144,000 235,000
------- -------
3,095,000 4,355,000
Less current portion ........................... 980,000 1,363,000
--------- ---------
$2,115,000 $2,992,000
<PAGE>
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Maturities of long-term debt are as follows:
<S> <C> <C> <C>
Capital Total Long-
Debt Leases Term Debt
- --------------------------------------------------------------------------------
1996 $935,000 $ 74,000 $1,009,000
1997 536,000 79,000 615,000
1998 522,000 3,000 525,000
1999 495,000 -- 495,000
2000 32,000 -- 32,000
Thereafter 431,000 -- 431,000
2,951,000 156,000 3,107,000
Less imputed interest -- 12,000 12,000
2,951,000 144,000 3,095,000
--------- ------- ---------
Less current portion 934,000 46,000 980,000
------- ------ -------
$2,017,000 $ 98,000 $2,115,000
========== ======== ==========
</TABLE>
<PAGE>
On August 15, 1995, the Company renewed a $6.5 million line of credit agreement
originally signed on August 15, 1994. The line of credit includes a subfeature
to issue standby and/or commercial letters of credit not to exceed $1.5 million.
The outstanding principal balance of the line of credit shall bear interest at a
rate per annum equal to the prime rate in effect from time to time. No draws
were made against this line of credit in 1995 or 1994.
7. OPERATING LEASES
Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred. The
Company leases manufacturing and office facilities at various locations under
operating leases which expire at various dates through 2004. Management expects
that in the normal course of business, leases that expire will be renewed or
replaced with comparable leases. Future minimum lease payments under
noncancelable operating leases (with initial lease terms in excess of one year)
as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
- ------------------------------------------
1996 $698,000
1997 360,000
1998 249,000
1999 195,000
2000 191,000
Thereafter 605,000
-------
$2,298,000
==========
Total rent expense for operating leases was $1,202,000, $974,000, and $780,000
for 1995, 1994, and 1993, respectively.
</TABLE>
<PAGE>
8. CAPITAL STOCK
The Company has authorized 1,000,000 shares of no par preferred stock and
28,500,000 shares of no par common stock. The terms and conditions of the
preferred stock, of which no shares have been issued, are set by the Board of
Directors of the Company.
On September 12, 1995, the Board of Directors declared a three-for-two
common stock split distributable on October 2, 1995 to shareholders of record at
the close of business on September 22, 1995. All per share amounts and numbers
of shares in the accompanying consolidated financial statements have been
restated to reflect the stock split.
The Company's 1983 Stock Option Plan (the O1983 Plan) expired in 1993;
therefore, the Board of Directors adopted the DH Technology, Inc. 1992 Stock
Plan (the O1992 Plan) in February 1992 to replace the 1983 Stock Option Plan.
Upon adoption of the 1992 Plan, 348,470 common shares were reserved for issuance
and the 1983 Stock Option Plan was terminated with respect to new grants. In
April 1993, the shareholders approved a 375,000 share increase in the number of
shares available for grant, and in April 1994, the shareholders approved an
additional increase in the number of shares available for grant from 723,470 to
1,098,470, and in April 1995 increased the number of shares from 1,098,470 to
1,473,470. Under the 1992 Plan, the Board of Directors may grant incentive stock
options to purchase common stock at prices which are not less than fair market
value at the date of grant and non-qualified stock options at prices which are
to be determined by the Compensation Committee of the Board of Directors. Other
terms and conditions are established by the Board of Directors at the time of
grant.
Additionally, in April 1994, the shareholders approved an amendment to the
1992 Plan which places a 1,050,000 share limit on the number of options and
stock appreciation rights (SARs) that may be granted under the plan to an
employee in any fiscal year. This limit is subject to appropriate adjustment in
the case of stock splits, reverse stock splits, and the like. The purpose of
this amendment, which is intended to comply with Section 162(m) of the Internal
Revenue Code and the regulations thereunder, is to preserve the Company's
ability to deduct in full any compensation expense related to stock options and
stock appreciation rights.
Options under both plans generally become exercisable in four equal annual
installments commencing one year from the date of grant. Generally, options
under the 1983 Plan expire if not exercised within five years from the date of
grant. Under the 1992 Plan, options expire if not exercised within eight years
from the date of grant. As of December 31, 1995, options to purchase a total of
361,950 shares of common stock were outstanding under the 1983 Plan, and options
to purchase a total of 653,887 shares of common stock were outstanding under the
1992 Plan. Options to purchase 77,288 shares of common stock were exercisable
under the 1983 Plan, and 59,157 shares of common stock were exercisable under
the 1992 Plan.
The Company has a Director Warrant Plan under which each of the outside
directors, upon first becoming a director, is granted an initial warrant to
purchase 15,000 shares of the Company's common stock. In addition, each director
automatically receives an additional warrant to purchase 5,250 shares each year
beginning in the fifth year after the grant of the initial warrant. The exercise
price of the warrants granted is equal to the fair market value of the Company's
common stock at the date of grant. Each initial warrant vests as to 1/48th of
the shares subject thereto for each full calendar month after the date of grant
that the holder of such initial warrant remains a member of the Board. Each
annual warrant vests one year after the date of grant, subject to the holder of
such annual warrant remaining a member of the Board during such one-year period.
A total of 225,000 common shares is reserved for issuance under the Director
Warrant Plan. As of December 31, 1995, warrants to purchase 115,000 shares have
been granted, of which 45,000 have been exercised and 15,000 have been purchased
by the Company and subsequently terminated. As of December 31, 1995, warrants to
purchase a total of 75,000 shares are outstanding, of which 38,313 are
exercisable.
<PAGE>
<TABLE>
<CAPTION>
Information with respect to activity under the plans is set forth on next
page:
<S> <C> <C> <C> <C>
Outstanding
Options/Warrants
Number of Shares Number of Options/ Price Aggregate
Available for Grant Warrants Outstanding Per Share Price
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993................... 596,555 838,500 $3.83-$9.92 $ 5,797,000
Shares reserved ............................. 375,000 -- -- --
Options/warrants granted .................... (289,140) 289,140 11.17-13.50 3,265,000
Options/warrants canceled ................... 3,375 (6,000) 4.42-7.83 (44,000)
Options/warrants exercised .................. -- (106,777) 3.83-7.83 (512,000)
-------- -------- ---- ---- --------
Balance, December 31, 1994................... 685,790 1,014,863 $4.42-$13.50 $ 8,506,000
Shares reserved ............................. 375,000 -- -- --
ptions/warrants granted ..................... (332,700) 332,700 14.00-18.67 5,884,000
ptions/warrants canceled .................... 94,031 (97,781) 4.42-11.17 (917,000)
ptions/warrants exercised ................... -- (158,945) 4.42-11.17 (1,235,000)
--------- -------- ---- ----- ----------
Balance, December 31, 1995................... 822,121 1,090,837 $4.42-$18.67 $ 12,238,000
======= ========= ===== ====== ============
</TABLE>
9. GEOGRAPHIC AND INDUSTRY
SEGMENT INFORMATION
The Company operates in one industry segment: the design, manufacture, and
distribution of transaction printers and mechanisms, impact printheads, bar code
printers, and related services and supplies, such as labels and ribbons. Export
revenue amounted to $10,234,000, $8,719,000, and $3,896,000, in 1995, 1994, and
1993, respectively, or 10% of total revenue in 1995, 11% of total revenue in
1994, and 7% in 1993. No single customer accounted for 10% or more of total
revenue in 1995, 1994, or 1993. Information about the Company's operations by
geographic location is shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Revenue from
Unaffiliated Operating Identifiable
Customers Profits Assets
- --------------------------------------------------------------------------------
1995
United States ............ $77,817,000 $12,157,000 $72,417,000
Europe ................... 11,671,000 2,005,000 6,708,000
Australia ................ 9,367,000 1,036,000 6,160,000
--------- --------- ---------
Total .................... $98,855,000 $15,198,000 $85,285,000
=========== =========== ===========
1994
United States ............ $62,631,000 $ 9,691,000 $61,518,000
Europe ................... 10,607,000 1,370,000 6,764,000
Australia ................ 4,680,000 431,000 3,024,000
--------- ------- ---------
Total .................... $77,918,000 $11,492,000 $71,306,000
=========== =========== ===========
1993
United States ............ $43,242,000 $ 7,165,000 $48,427,000
Europe ................... 8,892,000 688,000 5,565,000
Australia ................ 4,217,000 503,000 1,983,000
--------- ------- ---------
Total .................... $56,351,000 $ 8,356,000 $55,975,000
=========== =========== ===========
</TABLE>
<PAGE>
10. ACQUISITIONS
On February 28, 1994, DH Technology, Inc. acquired all of the outstanding
stock of Stadia Colorado Corp. (Stadia) pursuant to a stock purchase agreement
for $6.5 million in cash ($5.5 million paid at closing and additional payments
of $500,000 each due in 1995 and 1996). This business is being operated as a
subsidiary of DH Technology, Inc. under the name Stadia Colorado Corp. Stadia,
located in Golden, Colorado, supplies labeling and marking solutions to a
variety of customers in 10 western states.
On August 31, 1994, DH Technology, Inc. acquired all of the outstanding
stock of Cognitive Solutions, Inc. (Cognitive) and certain technology rights
pursuant to a stock purchase agreement for $10 million in cash ($7.9 million
paid through 1995 and additional payments of $500,000 each due in 1996 through
1999) (Note 6). Also, the Company is required to make additional payments, not
to exceed an aggregate of $3 million, to the former shareholder of Cognitive
based upon net sales of a specified Cognitive product line. These additional
payments, if any, will be recorded as additional goodwill and represent the
increased value of Cognitive that was purchased. This business is being operated
as a subsidiary of DH Technology, Inc. under the name Cognitive Solutions, Inc.
and is located in Paso Robles, California. Cognitive designs, manufactures, and
markets thermal bar code printers and complementary label media for use in
automatic data collection systems.
The Stadia and Cognitive acquisitions were accounted for using the purchase
method; accordingly, the assets and liabilities of the acquired companies have
been recorded at their estimated fair values at the dates of acquisition. In
conjunction with the acquisitions of Stadia and Cognitive, the excess of
purchase price over the estimated fair values of the net assets acquired has
been recorded as goodwill of $4,062,000 and $5,590,000, respectively, which is
being amortized over 25 years using the straight-line method (Note 5). The
consolidated statements of income include the operations of Stadia from February
28, 1994, and Cognitive from August 31, 1994.
The following unaudited pro forma summary presents the consolidated results
of operations as though the Stadia and Cognitive acquisitions had occurred at
the beginning of 1993, after giving effect to certain adjustments, including
amortization of goodwill. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions been made as of January 1, 1993, or of results
which may occur in the future.
<TABLE>
<CAPTION>
<S> <C> <C>
1994 1993
- --------------------------------------------------------------------------------
Total revenue $86,983,000 $74,220,000
Net income $8,341,000 $6,174,000
---------- ----------
Net income per share $1.03 $.80
===== ====
</TABLE>
On October 30, 1995, the Company acquired certain assets and liabilities of
Mos Magnetics, a privately held company in San Diego, California, for $752,000
in cash. Mos Magnetics designs, manufactures, and markets magnetic read and
write heads and modules for credit card and debit card readers, check readers,
and airline ticket readers. This acquisition was accounted for using the
purchase method. In conjunction with this acquisition, the Company has recorded
goodwill of $212,000, which is being amortized over 25 years using the
straight-line method
<PAGE>
11. EMPLOYEE BENEFIT PLANS
In 1989, the Company adopted a contributory profit-sharing plan for
employees meeting certain service requirements. The plan qualifies under Section
401(k) of the Internal Revenue Code and allows eligible employees to contribute
up to 15% of their compensation. The Company provides a guaranteed contribution
of $240 per eligible employee per year, and based on profitability, matches the
employee's contribution up to a maximum of six percent of the employee's
compensation. The guaranteed payments made by the Company were $119,000,
$74,000, and $71,000, and the Company's matching contributions were $96,000,
$56,000, and $51,000 during 1995, 1994, and 1993, respectively. Total expenses
paid by the Company in 1995, 1994, and 1993 for the administration of the plan
were $18,000, $16,000, and $16,000, respectively. employee's compensation. The
guaranteed payments made by the Company were $119,000, $74,000, and $71,000, and
the Company's matching contributions were $96,000, $56,000, and $51,000 during
1995, 1994, and 1993, respectively. Total expenses paid by the Company in 1995,
1994, and 1993 for the administration of the plan were $18,000, $16,000, and
$16,000, respectively.
<TABLE>
<CAPTION>
12. INCOME TAXES
Components of income before income taxes are as follows:
<S> <C> <C> <C>
1995 1994 1993
- --------------------------------------------------------------------------------
United States ............ $13,004,000 $10,297,000 $ 7,836,000
Foreign .................. 3,149,000 1,839,000 1,212,000
$16,153,000 $12,136,000 $ 9,048,000
</TABLE>
<TABLE>
<CAPTION>
The Company's income taxes consist of the following:
<S> <C> <C> <C>
1995 1994 1993
- -------------------------------------------------------------------------------
Current income taxes:
Federal ................. $ 4,686,000 $ 3,386,000 $ 2,259,000
State ................... 662,000 412,000 243,000
Foreign ................. 1,162,000 709,000 494,000
Deferred income
taxes ....................... (658,000) (429,000) (279,000)
-------- -------- --------
Total income
taxes ....................... $ 5,852,000 $ 4,078,000 $ 2,717,000
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the difference between the effective income
tax rate and the amount computed by applying the U.S. federal income tax rate of
34% in 1995, 1994, and 1993 to income before income taxes:
<S> <C> <C> <C>
1995 1994 1993
- --------------------------------------------------------------------------------
U.S. statutory federal
income tax rate ......................... 34.2% 34.0% 34.0%
State taxes, net of
federal tax benefit ..................... 2.7% 2.2% 1.8%
Nontaxable dividends
and interest income ..................... (1.9%) (2.0%) (2.8%)
Nondeductible
goodwill amortization ................... 2.2% 1.2% .3%
Research and
development credits ..................... (1.1%) (1.8%) (2.1%)
Difference between
U.S. statutory & foreign
effective tax rates ..................... .5% .4% .9%
Change in valuation
allowance ............................... (2.1%) -- --
Other, net .............................. 1.7% (.4%) (2.1%)
Effective income
tax rate................................. 36.2% 33.6% 30.0%
</TABLE>
<TABLE>
<CAPTION>
The tax effects of significant temporary differences which comprise deferred
tax assets and liabilities consist of the following:
<S> <C> <C>
December 31, 1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts .............. $ 334,000 $ 311,000
Inventory .................................... 943,000 826,000
Self insurance ............................... 222,000 161,000
Accrued warranty ............................. 166,000 131,000
Accrued payroll .............................. 178,000 202,000
Other ........................................ 201,000 175,000
------- -------
Gross deferred tax assets ............ 2,044,000 1,806,000
Deferred tax assets
valuation allowance ....................... (300,000) (641,000)
-------- --------
1,744,000 1,165,000
Deferred tax liabilities:
Depreciation and amortization ................ 149,000 183,000
Other ........................................ -- 45,000
------- ------
Gross deferred tax liabilities ....... 149,000 228,000
------- -------
Net deferred tax asset ....................... $ 1,595,000 $ 937,000
=========== ===========
Reflected on the accompanying
consolidated balance sheets as:
Current deferred tax asset, net .............. $ 1,744,000 $ 1,165,000
Noncurrent deferred tax liability ............ 149,000 228,000
------- -------
Net deferred tax asset ....................... $ 1,595,000 $ 937,000
=========== ===========
</TABLE>
<PAGE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Management considers among other things, the
scheduled reversal of deferred tax liabilities, projected future taxable income,
tax planning strategies, and positions taken by taxing authorities on various
issues related to the deductibility of certain costs in making this assessment.
The Company has recorded a valuation allowance to reflect the estimated amount
of deferred tax assets which may not be realized as the result of unfavorable
positions taken by taxing authorities in connection with the deductibility of
certain acquisition related costs. The net change in the valuation allowance was
a decrease of $341,000 during 1995, and reflects Management's re-evaluation of
the likelihood of unfavorable positions taken by these taxing authorities, and
the related impact on the deferred tax assets.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of DH Technology, Inc.:
We have audited the accompanying consolidated balance sheets of DH
Technology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DH
Technology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
San Diego, California
February 16, 1996
<PAGE>
CORPORATE INFORMATION
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
LEGAL COUNSEL
Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
ACCOUNTANTS
KPMG Peat Marwick LLP 750 B Street,
Suite 3000 San Diego, California 92101
CORPORATE HEADQUARTERS
DH Technology, Inc. 15070 Avenue of Science
San Diego, California 92128
Telephone: 619-451-3485 Fax: 619-451-3573
FORM 10-K
The Company files an annual report with the Securities and Exchange Commission
on form 10-K, pursuant to the Securities Exchange Act of 1934. Shareholders may
obtain a copy of this report without cost by writing:
Chief Financial Officer
DH Technology, Inc.
15070 Avenue of Science
San Diego, California 92128
ANNUAL MEETING
The meeting of shareholders will be held at 10:00 a.m. on Tuesday, April 30,
1996, at the Sheraton Hotel West Tower on Harbor Island, San Diego, California.
<PAGE>
DIRECTORS
William H. Gibbs
Chairman of the Board
William J. Bowers
Retired Chairman, MSI Data Corporation
Bruce G. Klaas
Attorney at Law
Don M. Lyle
Independent Consultant
George M. Ryan
Investor
EXECUTIVE MANAGEMENT
William H. Gibbs
President and Chief Executive Officer
William R. Allred
Acting General Manager
DHPrint
Steven D. Anton
Vice President and General Manager
Stadia
James A. Cole
Chief Financial Officer and Secretary
David T. Ledwell
Vice President and General Manager
DHTech
Janet W. Shanks
Corporate Controller and
Chief Accounting Officer
Richard L. Strautman
Vice President, Marketing
Endre D. Vargha
Vice President and General Manager
Cognitive Solutions
Russell C. Willcox
Managing Director
DH Technology plc
<PAGE>
LOCATIONS
UNITED STATES
Albuquerque, NM
Atlanta, GA
Charlotte, NC
Chicago, IL
Dallas, TX
Dayton, OH
Denver, CO
Oklahoma City, OK
Paso Robles, CA
Phoenix, AZ
Riverton, WY
Salt Lake City, UT
San Diego, CA
MEXICO
Tijuana
ENGLAND
Manchester
AUSTRALIA
Hornsby, NSW
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK INFORMATION
The Company's common stock is traded on the NASDAQ National Market System,
trading symbol DHTK. As of December 31, 1995, there were 479 shareholders of
record of DH Technology, Inc. common stock. The Company has never paid dividends
on its common stock nor does it expect to pay dividends in the foreseeable
future. The following table sets forth the high and low closing price of the
Company's stock for the eight most recent quarters
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Years ended December 31, 1995 December 31, 1994
High Low High Low
- --------------------------------------------------------------------------------
First Quarter .............. $ 16.17$ 13.83 $ 12.33 $ 11.00
Second Quarter ............. 19.41 13.83 14.50 11.33
Third Quarter .............. 22.17 17.33 15.33 13.00
Fourth Quarter ............. 24.75 19.00 17.33 14.33
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Quarters ended 1995 March 31 June 30 Sept 30 Dec 31
- --------------------------------------------------------------------------------
Total revenue .......................... $23,255 $24,317 $25,278 $26,005
Income from operations ................. 8,495 8,786 8,840 9,467
Income before income taxes.............. 3,651 3,841 4,116 4,545
Net income ............................. 2,365 2,497 2,656 2,783
Net income per share ................... $ .29 $ .30 $ .32 $ .33
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarters ended 1994 March 31 June 30 Sept 30 Dec 31
- --------------------------------------------------------------------------------
Total revenue .......................... $15,650 $19,280 $20,342 $22,646
Income from operations ................. 5,948 7,118 7,612 8,268
Income before income taxes.............. 2,584 3,023 3,115 3,414
Net income ............................. 1,806 1,989 2,090 2,173
Net income per share ................... $ .22 $ .25 $ .26 $ .27
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
DH Technology, Inc. presently has the following subsidiaries:
DH Technology plc., a United Kingdom corporation, of which DH Technology,
Inc. owns all of the outstanding stock.
DH Tecnologia de Mexico, S.A. de C.V., a Mexican corporation, of which DH
Technology, Inc. owns all of the outstanding stock.
DH Technology pty., an Australian corporation, of which DH Technology, Inc.
owns all of the outstanding stock.
Stadia Colorado Corp., a Colorado corporation, of which DH Technology, Inc.
owns all of the outstanding stock.
Cognitive Solutions, Inc., a California corporation, of which DH
Technology, Inc. owns all of the outstanding stock.
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent and Report on Schedule
To the Board of Directors and Shareholders of DH Technology, Inc.:
The audits referred to in our report dated February 16, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995, included in the Form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, this financial statement
schedule, when considered in relation to the financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to incorporation by reference in the registration statements on Form
S-8 (Nos. 33-5110; 33-29911; 33-50532; 33-75798) of DH Technology, Inc. and
subsidiaries, of our report dated February 16, 1996, relating to the
consolidated balance sheets of DH Technology, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the December 31, 1995
annual report on Form 10K of DH Technology, Inc.
We also consent to the use of our report on the schedule included herein.
San Diego, California
March 27, 1996
/s/KPMG Peat Marwick LLP/
(KPMG Peat Marwick LLP)
<PAGE>
EXHIBIT 3.1(b)
CERTIFICATE OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION OF
DH TECHNOLOGY, INC.
WILLIAM H. GIBBS and JANET W. SHANKS certify that:
1. They are the President and Chief Executive Officer, and the Secretary,
respectively, of DH TECHNOLOGY, INC. a California corporation.
2. Article III of the Restated Articles of Incorporation of this corporation is
amended to read in its entirety as follows
III
(a)(i) This corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock." The total number of shares
which this corporation shall have authority to issue is Twenty-Nine Million
Five Hundred Thousand (29,500,000), of which Twenty-Eight Million Five
Hundred Thousand (28,500,000) shall be Common Stock and One Million
(1,000,000) shall be Preferred Stock. Upon the amendment of this Article III
as set forth herein, each outstanding share of Common Stock shall be split
up and converted into one and one-half (1.5) shares of Common Stock.
(ii) The Preferred Stock authorized by these Articles of Incorporation shall
be issued in series. The Board of Directors of this corporation is
authorized to determine or alter the rights, preferences, privileges, and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, and within the limitations or restrictions stated in any
resolutions of the Board of Directors originally fixing the number of shares
of Preferred Stock constituting any series, to increase or decrease (but not
below the number of shares of any such series then outstanding) the number
of shares of any such series subsequent to the issue of shares of that
series, to determine the designation of any series and to fix the number of
any series.
3. The foregoing amendment of the Restated Articles of Incorporation has been
duly approved by the Board of Directors.
4. The amendment which has been made hereby to the Restated Articles of
Incorporation is to effect a one and one-half-for-one stOck split of the Common
Stock and to increase the authorized Common Stock proportionately. Pursuant to
Section 902(c) of the California Corporations Code, shareholder approval of this
amendment is not required.
5. Pursuant to Section 110(c) of the California Corporations Code, the foregoing
amendment of the Restated Articles of Incorporation of this corporation shall
become effective at the close of business of September 22, 1995.
6. Each of the undersigned declare under penalty of perjury under the laws of
the State of California that the matters set forth in the foregoing certificate
are true of his or her own knowledge.
Executed at San Diego, California on September 19, 1995.
/s/William H. Gibbs/
(William H Gibbs), President and Chief Executive Officer
/s/Janet W. Shanks/
(Janet W. Shanks), Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 28,971
<SECURITIES> 2,750
<RECEIVABLES> 16,852
<ALLOWANCES> (1,067)
<INVENTORY> 14,382
<CURRENT-ASSETS> 64,205
<PP&E> 18,085
<DEPRECIATION> (11,795)
<TOTAL-ASSETS> 85,285
<CURRENT-LIABILITIES> 15,541
<BONDS> 2,115
0
0
<COMMON> 12,335
<OTHER-SE> 55,145
<TOTAL-LIABILITY-AND-EQUITY> 85,285
<SALES> 98,855
<TOTAL-REVENUES> 98,855
<CGS> 63,267
<TOTAL-COSTS> 63,267
<OTHER-EXPENSES> 20,390
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 276
<INCOME-PRETAX> 16,153
<INCOME-TAX> 5,852
<INCOME-CONTINUING> 10,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,301
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
