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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1997, or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from ___________ to _________
Commission file number: 0-13459
Axiohm Transaction Solutions, 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, California 92128
(Address of principal executive office)
Registrant's telephone number, including area code: (619) 451-3485
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____
As of October 31, 1997, there were 6,512,926 shares of the registrant's Common
Stock outstanding.
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AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1 - Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended
September 30, 1997 and September 30, 1996 2
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and
September 30, 1996 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2 - Changes in Securities 17
Item 6 - Exhibits and Reports on Form 8-K 17
SIGNATURES 19
EXHIBITS INDEX 20
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<S> <C> <C>
September 30, December 31,
----------------- -------------------
1997 1996
----------------- -------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents 36,248 1,839
Restricted cash 8,594 --
Accounts receivable, net 32,295 10,552
Inventories 28,523 13,900
Prepaid expenses and other current assets 9,487 3,286
----------------- -------------------
Total current assets 115,147 29,577
Fixed assets, net of accumulated depreciation 20,928 11,235
Intangible assets 86,839 2,606
Other assets 5,240 560
---------------- ------------------
Total assets 228,154 43,978
================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 15,082 7,480
Current portion of long-term debt 4,060 2,322
Accrued payroll, payroll taxes and benefits 4,877 --
Accrued expenses and other current liabilities 7,529 5,703
Income taxes payable 3,140 --
Deferred revenue 493 --
----------------- -------------------
Total current liabilities 35,181 15,505
Non-current liabilities:
Senior subordinated debt 187,800 --
Other long-term debt and long-term liabilities 15,919 10,483
Deferred tax liability 1,627 1,557
----------------- -------------------
Total liabilities 240,527 27,545
----------------- -------------------
Shareholders' equity (deficit):
Preferred shares, no par value
Authorized: 1,000,000 shares, none issued -- --
Common shares:
Common stock, authorized: 28,500,000
shares; issued and outstanding:
6,512,926 shares in 1997 and 1996 23,851 4,167
Foreign currency translation adjustment (107) 117
Retained earnings (accumluated deficit) (36,117) 12,149
----------------- -------------------
Total shareholders' equity (deficit) (12,373) 16,433
----------------- -------------------
Total liabilities and shareholders' equity 228,154 43,978
================= ===================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
----------------------------- -----------------------------
(Unaudited) (Unaudited)
Net sales $42,943 $25,556 $99,558 $71,965
Cost of net sales 28,176 18,216 66,978 49,792
------------- ------------- ------------- -------------
Gross margin 14,767 7,340 32,580 22,173
Operating expenses:
Selling, general and administrative 8,179 2,928 13,878 8,303
Research and development 2,575 1,645 6,198 4,702
In-process technology 50,831 -- 50,831 --
------------- ------------- ------------- -------------
Total operating expenses 61,585 4,573 70,907 13,005
Income (loss) from operations (46,818) 2,767 (38,327) 9,168
Interest and other income 327 23 390 1,229
Interest and other expense 2,715 267 3,077 946
------------- ------------- ------------- -------------
Income (loss) before income taxes (49,206) 2,523 (41,014) 9,451
Income taxes 2,272 967 5,484 3,657
------------- ------------- ------------- -------------
Net income (loss) ($51,478) $1,556 ($46,498) $5,794
============= ============= ============= =============
Net income (loss) per share ($7.90) $0.24 ($7.14) $0.93
Weighted average number of shares outstanding
Per share (primary and fully diluted): 6,513 6,513 6,513 6,243
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<S> <C> <C>
Nine Months Ended
September 30,
------------------------------------
1997 1996
------------------------------------
(Unaudited)
Cashflows from operating activities:
Net income (loss) ($46,498) $5,794
Adjustments to reconcile net income (loss) to net cash provided by operations:
Write off of acquired in-process technology 50,831 --
Depreciation and amortization 5,369 2,008
Other non-cash charges 450 939
Changes in assets and liabilities, net of effects of acquisition of business:
Accounts receivable (8,909) (4,851)
Inventory (1,323) 1,738
Prepaid expenses and other assets 4,819 (501)
Accounts payable and accrued expenses 3,962 4,466
----------------- ------------------
Net cash provided by operating activities 8,701 9,593
Cashflows from investing activities:
Payment for acquisition of business, net of cash acquired (148,074) --
Capital expenditures (3,670) (2,532)
----------------- ------------------
Net cash used in investing activities (151,744) (2,532)
Cashflows from financing activities:
Proceeds from tender financing 186,979 --
Net repayment under line of credit (1,051) (759)
Principal repayments on long term debt (5,000) (8,216)
Dividends (1,768) (411)
Proceeds from stock issuance, net of issuance costs -- 3,807
Debt issuance costs (2,799) --
Loans to related parties 1,713 (388)
----------------- ------------------
Net cash provided by (used in) financing activities 178,074 (5,967)
Effect of exchange rate changes on cash (622) 12
Net increase in cash and cash equivalents 34,409 1,106
Cash and cash equivalents at beginning of period 1,839 636
----------------- ------------------
Cash and cash equivalents at end of period $36,248 $1,742
================= ==================
Supplemental Cashflow Disclosures:
Interest paid $488 $848
Income taxes paid net of refunds $4,723 $2,224
Schedule of non-cash investing and financing activities:
Acquisition of business:
Fair value of assets acquired, net of cash acquired $134,480 --
In process technology $50,831 --
Liabilities assumed ($17,995) --
Fair value of non-tendered stock ($19,242) --
----------------- ------------------
Cash paid, net of cash acquired $148,074 --
During 1996, the Company financed certain capital expenditures totaling
$163,000 through the incurrence of capital lease obligations.
The accompanying notes are an integral part of these
condensed consolidated financial statements
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AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(September 30, 1997 - Unaudited)
Note 1: Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results which may be
expected for the year ended December 31, 1997 or any other period. Reference is
made to the Consolidated Financial Statements and Notes thereto included in the
AX Acquisition Corporation's Schedule 14D-1 filing dated July 16,1997, for
further information.
Note 2: Basis of Presentation
On August 21, 1997, pursuant to an Agreement and Plan of Merger dated as of July
14, 1997 (the "Agreement of Merger"), AX Acquisition Corporation ("AX"), a
wholly-owned subsidiary of Axiohm S.A., acquired approximately 88%, or 7,000,000
shares, of the outstanding Common Stock of DH Technology, Inc. ("DH Technology")
through a public tender offer to the shareholders of DH Technology at a price of
$25 per share (the "Tender Offer").
On October 2, 1997, pursuant to the Agreement of Merger, AX acquired 100% of the
outstanding Common Stock of Axiohm S.A. in exchange for 5,518,524 shares of DH
Technology Common Stock and $12.2 million in cash (the "Share Exchange Offer").
Simultaneous with the Share Exchange Offer, DH Technology purchased all of the
outstanding shares of AX in exchange for the assumption of approximately $190
million of debt (the "Acquisition Financing") incurred by AX to finance the
Tender Offer. Immediately after the Share Exchange Offer, AX was merged with and
into DH Technology (the "Merger"), the surviving legal entity, and the company
changed its name from "DH Technology, Inc." to "Axiohm Transaction Solutions,
Inc". Immediately after the Merger, approximately 85% of DH Technology's
outstanding Common Stock was held by the former shareholders of Axiohm S.A. and
15% was held by the former public shareholders of DH Technology, Inc. Axiohm
S.A. and its subsidiaries and DH Technology and its subsidiaries are hereinafter
referred to collectively as the "Company".
The Tender Offer, the Share Exchange Offer and the Merger (collectively the
"Acquisition") have been accounted for as a reverse acquisition, in which Axiohm
S.A. was treated as the acquiror for accounting purposes. Accordingly, the
historical financial information for periods prior to August 31, 1997 are those
of Axiohm S.A. The effective date of the Acquisition and Merger of DH Technology
for accounting purposes was August 31, 1997, and, accordingly, the capital
structure of the Company has been retroactively restated to reflect the number
of shares outstanding as a result of the Acquisition. The results of operations
for the three and nine month periods ended September 30, 1997 include the
operations of DH Technology for the month of September 1997.
Note 3: Acquisition
The acquisition of DH Technology has been accounted for using the purchase
method of accounting. The aggregate purchase price of $208.6 million consisted
of cash paid for DH Technology shares, DH Technology stock options, transaction
costs, and the fair value of DH Technology non-tendered shares and was allocated
based on the fair values of tangible and intangible assets acquired. The Company
expects that the final purchase price allocation will be known by December 31,
1997 and could differ from the preliminary allocation. A summary of the
preliminary purchase price allocation is as follows:
Net tangible assets acquired $76,152,000
In-process research and development 50,831,000
Goodwill and other intangibles 81,646,000
----------
Total $208,629,000
============
The purchased in-process research and development had not reached technological
feasibility, had no probable tentative future uses, and was charged to
operations upon acquisition. Goodwill and other intangibles are being amortized
over three years using the straight line method.
Of the cash paid for the DH Technology stock options, $8.6 million was funded to
a Rabbi trust and is reflected on the balance sheet as restricted cash.
The Acquisition Financing consisted of $166.2 million of senior indebtedness
under a credit facility with an institutional lender and $24 million of interim
preferred stock financing. Both of these amounts were fully repaidon October 2,
1997 with the proceeds from a private placement of $120 million of 9-3/4% Senior
Subordinated Notes due 2007 and borrowings under an $85 million Credit
Agreement. See Note 5 of the Notes to Condensed Consolidated Financial
Statements.
The following unaudited pro forma information has been prepared assuming that
the Acquisition and the Acquisition Financing had occurred at the beginning of
the periods presented. Pro forma adjustments included increased amortization for
the purchase price in excess of assets acquired; in-process research and
development expense; increased interest expense from the Acquisition Financing;
and related income tax effects. The pro forma information does not reflect any
potential cost savings from combining the operations of DH Technology and Axiohm
S.A.
Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Net sales $158,289,000 $159,222,000
Net loss $69,239,000 $67,156,000
Net loss per share $10.63 $10.76
Weighted average number of
shares outstanding 6,512,926 6,242,926
The pro forma information is provided for information purposes only and does not
purport to be indicative of the Company's results of operations that would
actually have been achieved had the Acquisition and the Acquisition Financings
been completed at the beginning of the periods presented, or results that may be
obtained for the year ended December 31, 1997 or for any other period. See Note
5 of the Notes to Condensed Consolidated Financial Statements.
Note 4: Inventories
The composition of inventories at September 30, 1997 and December 31, 1996 was
as follows:
September 30, 1997 December 31, 1996
Raw materials $32,612,000 $13,345,000
Work in process 512,000 949,000
Finished goods 3,015,000 1,793,000
Totals $36,139,000 $16,087,000
============ ===========
Note 5: Subsequent Events
Senior Subordinated Notes
On October 2, 1997, the Company completed a private placement (the "Initial
Notes Offering") of $120 million of its 9-3/4% Senior Subordinated Notes due
2007 (the "Initial Notes"). The Initial Notes were placed with Lehman Brothers
Inc. as initial purchaser (the "Initial Purchaser") and were subsequently resold
by the Initial Purchaser in the United States to "qualified institutional
buyers" in reliance on Rule 144A under the Securities Act of 1933, as amended,
(the "Securities Act") and outside of the United States in offshore transactions
to foreign investors in reliance on Regulation S under the Securities Act. The
underwriting discount to the Initial Purchaser was 2.75% of the principal amount
of the Initial Notes purchased (or an aggregate of $3.3 million).
Interest on the Initial Notes is payable semi-annually on April 1 and October 1,
commencing on April 1, 1998, until maturity on October 1, 2007. The Initial
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after October 1, 2002 at various premiums to original face value. The
Company's payment obligation under the Initial Notes is jointly and severally
guaranteed on a senior subordinated basis by each of the Company's U.S.
subsidiaries ("the Guarantors"). The proceeds from the sale of the Initial
Notes, together with borrowings under the $85 million Credit Agreement (see
below) and existing cash were used to repay principal and accrued interest under
the Acquisition Financing.
Pursuant to a Registration Rights Agreement dated October 2, 1997 (the
"Registration Rights Agreement") among the Company, certain of the Company's
U.S. subsidiaries, as Guarantors, and the Initial Purchaser, the Company and the
Guarantors have agreed to use their best efforts to file a registration
statement no later than 60 days after the closing of the Initial Notes Offering,
with respect to an offer to exchange the Initial Notes for new senior
subordinated notes of the Company (the "New Notes") registered under the
Securities Act, with terms identical to those of the Initial Notes, and to cause
such registration statement to become effective no later than 120 days after the
closing of the Initial Notes Offering. The Initial Notes and the New Notes are
hereinafter referred to collectively as the "Notes". The holders of the Notes
are entitled to certain penalty payments from the Company under certain
circumstances if the Company and the Guarantors are not in compliance with their
obligations under the Registration Rights Agreement.
Senior Bank Credit Agreement
On October 2, 1997, the Company entered into a Credit Agreement (the "Credit
Agreement") with a syndicate of banks (the "Banks"), led by Union Bank and
Lehman Brothers which acted as agent. Pursuant to the Credit Agreement, the
Banks have extended the Company a two tranche amortizing term loan in the
original principal amount of $50 million (the "Term Loan") and established a $35
million revolving line of credit (the "Revolver") available through October 2,
2002. The Term Loan consists of a Tranche A term loan in an aggregate principal
amount of $35 million, which has a maturity of five years, and a Tranche B term
loan in an aggregate principal amount of $15 million, which has a maturity of
six years. The Term Loan and Revolver are secured by a lien on substantially all
of the real and personal property of the Company and certain of its subsidiaries
and a pledge of capital stock of certain of its subsidiaries (provided that no
lien was or will be granted on the assets of Foreign Subsidiaries (as defined)
and no capital stock of Foreign Subsidiaries will be pledged to the extent that
the granting of such lien or the making of such pledge would result in
materially adverse United States federal income tax consequences to the Company
or would violate applicable law). The proceeds of the Term Loan and the initial
advance under the Revolver were used by the Company to repay principal and
accrued interest under the Acquisition Financing. Both the Term Loan and the
Revolver have interest rate options including an interest rate based on the
Eurodollar Rate plus a margin of between 2.5% to 3%. Such margins will vary
depending upon the relationship between the Company's earnings before interest,
taxes, depreciation and amortization ("EBITDA") and the then aggregate total
debt outstanding. The Company is required to pay a fee of 0.375% per annum on
the unused portion of the Revolver. Under the Credit Agreement, the Company is
required to enter into arrangements to provide interest protection for $20
million of this floating rate debt for two years.
Note 6: Shareholders Equity
On June 24, 1996, Axiohm received net proceeds of $3.8 million from a private
placement of 421,200 shares of Common Stock to an employee of Axiohm and two
institutional investors.
On June 24, 1996, Axiohm declared a cash dividend of $0.4 million on Common
Stock which was paid to shareholders of record on June 24, 1996.
On May 14, 1997, Axiohm declared a cash dividend of $1.8 million on Common Stock
which was paid to shareholders of record on May 14, 1997.
Note 7: Commitments and Contingencies
In connection with the August 1994 acquisition by DH Technology of all of the
outstanding stock of Cognitive Solutions, Inc. ("Cognitive"), a designer,
manufacturer and marketer of thermal bar code printers and complementary label
media for use in automatic data collection systems, the Company is obligated to
pay $0.5 million on August 15 in each of 1998 and 1999. The Company also may be
required to make additional payments, not to exceed $3.0 million, to the former
shareholder of Cognitive, based upon net sales of a specified Cognitive product
line.
In connection with the December 1994 acquisition by Axiohm S.A. of the
transaction printer business of NCR Corporation ("NCR"), now known as Axiohm
IPB, for up to $30.6 million, of which $15.6 million was paid at closing, $0.5
million has been paid to date in earn-out payments and a final payment of up to
$5.0 million may be paid in additional earn-out payments based upon 1997 sales.
The Company estimates that the final payment will be less than approximately
$1.5 million and is anticipated to be paid in 1998. Axiohm S.A. recorded
approximately $3.0 million of goodwill in connection with this acquisition,
which was accounted for using the purchase method of accounting.
In connection with the March 1997 acquisition by DH Technology of certain assets
and liabilities of American Magnetics Corporation ("AMC"), a designer,
manufacturer, and marketer of card reader modules and stand-alone card readers,
and a wholly-owned subsidiary of Group 4 Securitas Holdings, a Netherlands
company, for $5.7 million, of which $4.85 million was paid at closing, an
additional $0.8 million will become payable in the years of 2000 and 2001. Based
upon attainment of specified net sales, an additional $1.6 million may also
become payable.
In connection with the purchase and improvement of manufacturing facilities in
France, Axiohm S.A. negotiated in 1994 a $1.6 million grant (the "Grant") from
various agencies of the French government. The Company is contingently liable to
those agencies for the repayment, in whole or in part, of the Grant in the event
that the Company does not meet the requirements of the Grant, which include
minimum employment levels through 1997, minimum capital expenditures and
continued use of the building throughout the lease term.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, statements that include the words "believes,"
"expects," anticipates" and similar expressions relating to: anticipated cost
savings following the Merger; expected sales activity based on seasonal factors;
estimated levels of selling, general and administrative expense after non-cash
charges related to the Acquisition; expected trends in research and development
expenses and interest income; and plans to meet requirements for working
capital, capital expenditures and debt service. Such forward-looking statemetns
involve known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements of the Company to differ materially
from those expressed or implied by such forward-looking statements. Although the
Company believes that its plans, intentions and expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
plans, intentions or expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's expectation are set
forth below under the caption "Certain Factors That May Affect Future Results."
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto included herein.
Background
On August 21, 1997, AX, a wholly-owned subsidiary of Axiohm S.A., completed a
tender offer to acquire 7 million (or approximately 88%) of the outstanding
shares of DH Technology, which resulted in a change of control of DH Technology.
On October 2, 1997, AX (i) acquired all of the outstanding shares of Axiohm S.A.
in exchange for 5,518,524 shares of DH Technology Common Stock and $12.2 million
in cash and then (ii) was merged into DH Technology. Although DH Technology was
the surviving corporation for legal purposes, the merger was treated as a
purchase of DH Technology by Axiohm S.A. for accounting purposes. The effective
date of the merger was October 2, 1997 for legal purposes. The effective date of
the acquisition and merger of DH Technology was August 31, 1997 for accounting
purposes. For the three and nine month periods ended September 30, 1996, the
following discussion includes the results of operations for Axiohm S.A. only.
For the three and nine month periods ended September 30, 1997, the following
discussion includes the results of operations for Axiohm S.A. for the full
periods plus the results of operations of DH Technology for the month of
September 1997.
Results Of Operations
Three Months Ended September 30, 1997 Compared To Three Months Ended September
30, 1996
Net Sales. Net sales of $42.9 million for the third quarter of 1997 increased
68.0%, or $17.3 million, compared to net sales of $25.6 million for the same
period last year. This increase was attributable to the addition of DH
Technology net sales for September 1997 of $10.3 million and an increase in net
sales of $7.0 million. The increase in net sales reflects increased unit volume
of transaction printers and printer mechanisms partially offset by a decline in
average selling prices and a unit decline in thermal mechanisms.
Historically, the Company has experienced lower levels of sales of transaction
printers during the period from mid-November to the end of December caused by
the fact that some of its POS customers do not install new systems in their
facilities between Thanksgiving and Christmas.
Cost of Net Sales. Cost of net sales of $28.2 million decreased to 65.6% of net
sales for the third quarter of 1997 from 71.3%, or $18.2 million, of net sales
for the same period of 1996, due primarily to the following four factors: a
favorable impact of the exchange rate between the U.S. dollar and the French
franc for products manufactured in France and sold in the U.S.; lower purchase
prices of components and parts; continuing technology improvements; and higher
absorption of relatively fixed overhead costs partially offset by a decrease in
average selling prices.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses of $8.2 million increased to 19.0% of net sales in the
third quarter of 1997 from 11.5%, or $2.9 million, in the same period in 1996.
This increase was largely the result of non-cash goodwill amortization expense
of $2.5 million, the inclusion of expenses attributable to DH Technology of $1.6
million, $0.5 million in a non-cash charge for stock options and an increase of
$0.8 million in base expenses. The increase in base expenses was primarily the
result of higher staffing levels and expenses needed to support higher sales,
offset, in part, by the favorable impact of the fluctuations in the U.S. dollar
compared to the French franc. The Company anticipates that, on a quarterly basis
through the third quarter of 2000, selling, general and administrative expenses
will include approximately $8 million to $9 million in non-cash acquisition
related charges which principally includes non-cash goodwill amortization.
Research and Development Expenses. Research and development expenses as a
percentage of net sales decreased to 6.0% in the third quarter of 1997 compared
to 6.4% in the third quarter of 1996. Total dollars expended for research and
development increased $1 million to $2.6 million in the third quarter of 1997
compared to $1.6 million in the third quarter of 1996 partially due to the
inclusion of DH Technology expenses of $.5 million. In addition, the Company
believes that the continued timely development of new products and enhancements
to its existing products are essential to maintaining the Company's competitive
position. Accordingly, the Company anticipates that such expenses will increase
in absolute dollar terms for the foreseeable future.
In-Process Technology. In conjunction with the acquisition of DH Technology, the
Company incurred a non-cash charge of $50.8 million due to the write-off of
acquired in-process technology (projects that had not reached technological
feasibility and had no future alternative use).
Loss from Operations. Loss from operations for the third quarter of 1997 was
$46.8 million, compared to net income of $2.8 million in the same period for
1996. The net loss in the third quarter of 1997 was largely due to the
in-process technology charge discussed above.
Interest and Other Income. Interest income increased $.3 million during the
third quarter of 1997 over the prior year as a result of higher cash balances in
the third quarter of 1997. The Company does not anticipate it will obtain
significant interest income for at least the next twelve months because
substantially all of the Company's cash was used to complete the Merger or
became restricted following the Merger.
Interest and Other Expense. Interest expense increased to $2.7 million in the
third quarter of 1997 from $.3 million for the same period in 1996 due to the
incurrence of Acquisition Financing. See Note 5 of Notes to Condensed
Consolidated Financial Statements.
Provision for Income Taxes. Provision for income taxes of $2.3 million in 1997
increased $1.3 million from $1.0 million in 1996. Income taxes as a percentage
of income before taxes, excluding the effect of acquisition related charges was
approximately 46% compared to 38.3% due to the increase from 36.7% to 41.3%, in
the French statutory tax rate which has been applied in the third quarter of
1997 retroactively from January 1, 1997. Income tax expense as a percentage of
loss before income taxes including the effect of acquisition related charges,
was 4.6% in the third quarter of 1997 primarily due to the in-process technology
charge and goodwill amortization being non-deductible for income tax purposes.
Nine Months Ended September 30, 1997 Compared To Nine Months Ended September 30,
1996
Net Sales. Net sales of $99.6 million for the nine-months ended September 30,
1997 increased 38.3% compared to net sales of $72.0 million for the same period
in the prior year. This increase was attributable to the addition of DH
Technology net sales of $10.3 million and an increase in net sales of $27.6
million. The increase in net sales reflects increased unit volumes of
transaction printers and printer mechanisms partially offset by a decline in
average selling prices and a unit decline in thermal mechanisms.
Historically, the Company has experienced lower levels of sales of transaction
printers during the period from mid-November to the end of December caused by
the fact that some of its POS customers do not install new systems in their
facilities between Thanksgiving and Christmas.
Cost of Net Sales. Cost of net sales of $67.0 million increased $17.2 or 34.5%,
from $49.8 million in the 1996 period. Cost of net sales as a percentage of
revenues decreased from 69.2% in the 1996 period to 67.3% in 1997. The decline
was due to a favorable impact of the exchange rate between the U.S. dollar and
the French franc for products manufactured in France and sold in the U.S., lower
purchase prices of components and parts, continuing technology improvements and
higher absorption of relatively fixed overhead costs partially offset by a
decrease in average selling prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $13.9 million for the 1997 period increased $5.6
million or 67.1% from $8.3 million in the 1996 period. Selling, general and
administrative expenses as a percentage of revenues increased from 11.5% in the
1996 period to 13.9% in the 1997 period. This increase was largely the result of
non-cash goodwill amortization expense of $2.5 million, the inclusion of
expenses attributable to DH Technology of $1.6 million, $0.5 million in a
one-time charge for stock options and an increase of $0.8 million in base
expenses. The increase in base expenses was primarily a result of higher
staffing levels and expenses needed to support higher sales, offset, in part, by
the favorable impact of the fluctuations in the U.S. dollar compared to the
French franc. The Company anticipates that, on a quarterly basis through the
third quarter of 2000, selling, general and administrative expenses will include
approximately $8 million to $9 million in non-cash acquisition related charges.
Research and Development Expenses. Research and development expenses of $6.2
million in the 1997 period increased $1.5 million or 31.8% from $4.7 in the 1996
period. Research and development expenses as a percentage of revenues decreased
slightly from 6.5% in the 1996 period to 6.2% in the 1997 period. The Company
believes that the 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 dollar terms for the foreseeable future.
In-Process Technology. In conjunction with the acquisition of DH Technology, the
Company incurred a non-cash charge of $50.8 million due to the write-off of
acquired in-process technology (projects that had not reached technological
feasibility and had no future alternative use).
Loss From Operations. Loss from operations for the 1997 period was $38.3
million, compared to net income of $9.2 million in the same period for 1996. The
net loss in the third quarter of 1997 was largely due to the in-process
technology charge discussed above.
Interest And Other Income. Interest income and other income of $0.4 million in
the 1997 period decreased $0.8 million from $1.2 million in the 1996 period. In
the 1996 period, Axiohm S.A. received insurance proceeds of $1.0 million as
compensation for the loss of revenue and commercial damage caused by water
damage in its clean room facility located in Puiseaux, France. The Company does
not anticipate that it will obtain significant interest income for at least the
next twelve months because substantially all of the Company's cash was used to
complete the Merger or became restricted following the Merger.
Interest And Other Expense. Interest expense increased to $3.1 million for the
1997 period from $.09 million in the 1996 period due to the incurrence of the
Acquisition Financing. See Note 5 of Notes to Condensed Consolidated Financial
Statements.
Provision For Income Taxes. Provision for income taxes of $5.5 million in 1997
increased $1.8 million from $3.7 million in 1996. Income taxes as a percentage
of income before taxes, excluding the effect of acquisition related charges, was
approximately 41.8% compared to 38.3% due to the increase from 36.7% to 41.3%,
in the French statutory tax rate. Income tax expense as a percentage of loss
before income taxes including the effect of acquisition related charges, was
13.4% in the 1997 period primarily due to the in-process technology charge being
non deductible for income tax purposes.
Certain Factors That May Affect Future Results
An investment in the Company's securities involves a high degree of risk. In
making an investment decision with respect to the Company's securities
prospective investors should carefully read the following factors, in addition
to the other information set forth in this Quarterly report on Form 10Q and in
any other document filed by the Company with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, after the date
hereof.
Substantial Leverage and Debt Service. The Company is, and will continue to be,
highly leveraged. The Company's ability to make scheduled payments of principal
of, or to pay the premium, if any, interest on its outstanding indebtedness or
to refinance its indebtedness or to fund planned capital expenditures, will
depend upon its future performance, which, in turn, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond its control. There can be no assurance that the Company's business
will generate cash flow at or above anticipated levels or that the Company will
be able to borrow funds under the Credit Agreement in an amount sufficient to
enable the Company to service its indebtedness, or to make anticipated capital
expenditures. There can be no assurance that anticipated revenue growth or cost
savings will be achieved at the levels currently anticipated or at all. If the
Company is unable to generate sufficient cash flow from operations or to borrow
sufficient funds in the future to service its debt, it may be required to sell
assets, reduce capital expenditures, refinance all or a portion of its existing
indebtedness or obtain additional financing. There can be no assurance that any
such refinancing would be available on commercially reasonable terms, or at all,
or that any additional financing could be obtained, particularly in view of the
Company's high level of indebtedness, the restrictions on the Company's ability
to incur additional indebtedness under the Credit Agreement and the Indenture,
and the fact that substantially all assets of the Company' and its subsidiaries
will be pledged to secure obligations under the Credit Agreement.
The degree to which the Company is leveraged (i) could make it more difficult
for the Company to satisfy its obligations with respect to its outstanding
indebtedness; (ii) increase the Company's vulnerability to general adverse
economic and industry conditions; (iii) limit the Company's ability to obtain
additional financing to fund future working capital, capital expenditures and
other general corporate requirements; (iv) require the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures or
other general corporate requirements; (v) limit the Company's flexibility in
planning for, or reacting to, changes in its business and the industry in which
it competes; and (vi) place the Company at a competitive disadvantage vis-a-vis
less leveraged or better capitalized competitors. In addition, the Indenture and
the Credit Agreement contain financial and other restrictive covenants that
limit, among other things, the ability of the Company to borrow additional
funds. Failure by the Company to comply with such covenants could result in
events of default under the Indenture and the Credit Agreement which, if not
cured or waived, could permit the indebtedness thereunder to be accelerated
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
Restrictive Loan Covenants. The Indenture contains covenants that restrict,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends or make certain other Restricted Payments (as defined therein),
enter into transactions with affiliates, allow its subsidiaries to make certain
payments, make certain asset dispositions, merge or consolidate with, or
transfer substantially all of its assets to another person, encumber assets
under certain circumstances, restrict dividends and other payments from
subsidiaries, issue capital stock of wholly-owned subsidiaries, engage in
certain business activities, or engage in certain change of control
transactions. In addition, the Credit Agreement contains other and more
restrictive covenants and prohibits the Company from prepaying certain of its
indebtedness. Under the Credit Agreement, the Company is also required to
maintain specified financial covenants, including maximum capital expenditure
limits, minimum EBITDA, a minimum fixed charge coverage ratio and a maximum
leverage ratio (each as defined in the Credit Agreement). The failure by the
Company to maintain such financial covenants or to comply with the restrictions
contained in the Credit Agreement or the Indenture could result in a default
thereunder, which in turn could cause such indebtedness (and by reason of
cross-default provisions, other indebtedness) to become immediately due and
payable. No assurance can be given that the Company's future operating results
will be sufficient to enable compliance with such covenants, or in the event of
a default, to remedy such default.
Dependence on Principal Customer. In 1994, Axiohm S.A. acquired NCR's
transaction printer business and placed the business in Axiohm IPB. At the time
of the acquisition, Axiohm IPB entered into a three-year contract (the "Initial
NCR Contract") with NCR that required NCR to purchase at least 75% of its needs
for transaction printers of the type manufactured by Axiohm IPB at such time
(the "Initial Covered Products"). Since the acquisition, the Company believes
that NCR has purchased over 90% of its requirements for Initial Covered Products
from Axiohm IPB pursuant to the Initial NCR Contract and has also purchased a
substantial number of other products from Axiohm S.A. Total sales to NCR by
Axiohm S.A. represented 52% and 64% of Axiohm S.A.'s revenues for fiscal years
1996 and 1995, respectively. On a pro forma basis for the nine months ended
September 30, 1997, the Company's sales to NCR would have represented 26% of the
Company's total revenue. On September 2, 1997, Axiohm IPB entered into a new
three-year contract with NCR (the "New NCR Contract"). The New NCR Contract does
not obligate NCR to purchase a minimum of 75% of its requirements for
transaction printers of the type manufactured by Axiohm IPB, but does provide
that NCR and Axiohm IPB intend and expect that NCR will purchase from Axiohm IPB
substantially all of its requirements for transaction printers of the type
manufactured by Axiohm IPB (the "New Covered Products"). In case there is reason
to believe that NCR is purchasing less than 75% of its requirements for New
Covered Products from Axiohm IPB at any time during the term of the agreement,
there is an obligation for both parties to work together in good faith to
eliminate such deficiency. Similar to the Initial NCR Contract, the New NCR
Contract provides that NCR's purchase commitment is subject to Axiohm IPB's
ability to meet NCR's specifications and requirements for price, performance,
quality, service and delivery with respect to such New Covered Products. Any
failure by NCR to continue purchasing products from the Company at historical
levels or the termination of the New NCR Contract would have a material adverse
effect on the Company's business, financial condition and operating results.
Integration of Operations. The integration of the administrative, finance and
manufacturing operations of Axiohm S.A. and DH Technology, the coordination of
their respective sales and marketing staffs and the implementation of
appropriate operational, financial and management systems and controls may
require significant financial resources and substantial attention from
management. The Company has identified certain cost savings related to the
business combination. The Company expects to incur significant integration costs
over the course of 1998 and 1999 related to the Merger and the implementation of
the Company's cost saving strategy. Any inability of the Company to integrate
these companies successfully in a timely and efficient manner could have a
material adverse effect on the Company's business, financial condition and
results of operations and would adversely affect its ability to realize its
planned cost savings or would require additional expenditures to realize such
cost savings. In addition, even if the businesses of Axiohm S.A. and DH
Technology are successfully integrated, no assurance can be given that future
expenses can be reduced by the expected cost savings. The Company's prospects
should be considered in light of the numerous risks commonly encountered in
business combinations.
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 or business combination, 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 have a material
adverse effect on the Company's business, financial condition and results of
operations. Additionally, there may be future acquisitions which 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 associated with the acquisitions of other businesses, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Competition. The Company has a number of significant domestic and foreign
competitors for its transaction printer, bar code printer and card reader
products. Many of the Company's competitors have significantly greater
financial, technical and marketing resources than does the Company. To remain
competitive, the Company believes that it will be required to maintain a high
level of technological expertise and deliver reliable cost-effective products on
a timely basis. There can be no assurance that the Company will have sufficient
resources to continue to make the investments necessary to maintain its
competitive position or that other competitors with substantially greater
financial resources, including other manufacturers of non-transaction printers,
will not attempt to enter the market. A failure to remain competitive would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Fluctuating Operating Results; Dependence on OEM Sales. The Company's net sales
and operating results may fluctuate in the future as a result of a number of
factors, including: (i) the timing of customer orders; (ii) the timing of
completion of existing customer contracts; (iii) variations in the Company's
sales channels or the mix of products it sells; (iv) changes in pricing policies
by the Company's suppliers; (v) fluctuations in manufacturing yields; (vi)
market acceptance of new and enhanced versions of the Company's products; (vii)
the success or failure of the sales and marketing efforts of the Company's OEM
customers to end-users; (viii) the timing of acquisitions of other businesses,
products and technologies and any associated charges to earnings; and (ix)
seasonal factors relating to the Company's business. In particular, the
Company's customers encounter uncertain and changing demand for their products.
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 the
Company may at any time and with minimal notice in the future experience,
cancellations and postponements of orders. Any such cancellations or
postponements of orders could have a material adverse effect on the Company's
business, financial condition and results of operations.
A significant portion of the Company's net sales historically have been
application-specific or customizable products designed for and sold to OEMs. The
Company's sales volume for any one particular OEM application-specific product
is necessarily tied to the ability of the OEM to successfully market its final
product to the end-user. The successful marketing of the OEM's final products to
end-users is generally outside of the control of the Company and is usually not
dependent on the successful performance of the Company's products. Although the
Company attempts to diversify its OEM sales across a broad spectrum of OEMs and
OEM product lines to mitigate these risks, the timing of large orders for
particular OEM products may have a material adverse effect on the Company's
results of operations for the periods in which such orders are filled. In
addition, if sales by an OEM of products to end-users decline or fall short of
expectations, orders to the Company related to such products may decline or
cease. For example, DH Technology's results of operations in 1996 were favorably
impacted by $15.6 million in sales to a single OEM for a new product. However,
the Company expects sales to this OEM for this product during 1997 to be less
than $1.0 million. The Company's results of operations in the future may be
similarly affected by large OEM orders for new products or by rapid declines in
sales of the OEM's products.
Seasonality. The Company's results of operations may fluctuate from year to year
or quarter to quarter due to a variety of factors. The Company expects lower
levels of sales and profitability during the period from mid-November to the end
of December impacting the last quarter of each fiscal year. The Company believes
that this seasonality is caused by the fact that some of its POS customers do
not install new systems in their facilities between Thanksgiving and Christmas.
Technological Change; Dependence on New Products. The markets for some of the
Company's products are characterized by frequent refinement and enhancement of
existing products and new product introductions and by declining average selling
prices over product life cycles. The Company's future prospects are highly
dependent upon the timely completion and introduction of new products at
competitive price and performance levels and the acceptance by new markets of
the Company's products. The Company also must respond to current competitors
which may choose to increase their presence in the Company's markets, and to new
competitors, which may choose to enter those markets. In addition, while the
Company is not aware of any new fundamental technologies for transaction
printers that are likely to be a significant factor in the near future, no
assurance can be given that the Company's competitors will not introduce new
technologies or technological improvements that will place the Company at a
competitive disadvantage. The failure by the Company to make timely introduction
of new products or to respond to competitive threats could have a material
adverse effect on its business, financial condition and results of operations.
Environmental and Other Government Regulations. Federal, state, local and
foreign regulations impose various controls on the storage, handling, discharge
and disposal of substances used in the Company's manufacturing processes and on
the Company's facilities. The Company believes that its activities conform to
present governmental regulations applicable to its operations and its current
facilities, including those related to environmental, land use, public utility
utilization and fire code matters. There can be no assurance that such
governmental regulations will not in the future impose the need for additional
capital equipment or other process requirements upon the Company or restrict the
Company's ability to expand its operations. The adoption of such measures or any
failure by the Company to comply with applicable environmental and land use
regulations or to restrict the discharge of hazardous substances could subject
the Company to future liability, or could cause its manufacturing operations to
be curtailed or suspended.
International Sales and Operations. A significant portion of the Company's net
sales historically have been derived from sales to customers outside of the
United States. The Company expects that international sales will continue to
represent a significant portion of its net sales for the foreseeable future.
Although the Company's net sales are denominated in U.S. dollars, its
international business may be affected by changes in demand resulting from
fluctuations in exchange rates as well as by risks such as tariff regulations
and difficulties in obtaining export licenses. In addition, historically the
French operations of Axiohm S.A. have incurred a majority of Axiohm S.A.'s
expenses in French francs, while a substantial majority of Axiohm S.A.'s
revenues have been in U.S. dollars. Any material appreciation in the French
franc relative to the U.S. dollar would, absent any effects associated with
hedging or currency trading transactions, detrimentally affect the financial
performance of the Company's French operations.
Dependence on Key Personnel. The Company's success depends to a significant
degree upon the continued contributions of senior management, certain of whom
would be difficult to replace. There can be no assurance that the services of
such personnel will continue to be available to the Company. The Company is also
dependent upon the continued services of its engineering, research and
development, sales and marketing and manufacturing and service personnel and on
its ability to attract, train and retain highly skilled personnel in each of
these areas. The Company does not have employment agreements with many of its
employees, and there is no assurance that the Company will be able to retain its
key employees. The failure of the Company to hire and retain such key management
and other personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
Voting Control of the Company. As of October 2, 1997, the Company's executive
officers and directors as a group beneficially owned approximately 59% of the
Company's outstanding Common Stock and Patrick Dupuy and Gilles Gibier,
principal shareholders and Co-Chairmen of the Company's Board of Directors,
beneficially owned approximately 54% of the Company's outstanding Common Stock.
Accordingly, Mr. Dupuy and Mr. Gibier have the ability to elect a majority of
the Board of Directors of the Company and to determine the outcome of any other
matter submitted to the shareholders for approval, including the power to
determine the outcome of all corporate transactions, such as mergers,
consolidations and the sale of all or substantially all of the assets of the
Company.
Intellectual Property Rights. 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 many of the Company's products is based upon these patents and on
manufacturing expertise. There can be no assurance that any issued patents will
provide the Company with competitive advantages or will not be challenged by
third parties, or that the patents of others will not have a material adverse
effect on the Company's ability to do business, or that others will not
independently develop similar products, duplicate the Company's products, or
design around the patents issued to the Company.
The Company has in the past been, and may in the future be, notified that it may
be infringing intellectual property rights possessed by third parties. In
addition, the Company has in the past, and may in the future, commence
litigation against third parties for infringement of the Company's intellectual
property rights. Any such litigation initiated by the Company or by others is,
at a minimum, costly and can divert the efforts and attention of the Company's
management and technical personnel, which can have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that other infringement claims by third
parties or other claims for indemnification by customers or end-users of the
Company's products resulting from infringement claims will not be asserted in
the future or that such assertions, if proven to be true, will not have a
material adverse effect on the Company's business, financial condition and
results of operations. If any such claims are asserted against the Company, the
Company may seek to obtain a license under the third party's intellectual
property rights. There can be no assurance, however, that a license will be
available on commercially reasonable terms, if at all. The Company could decide,
in the alternative, to resort to litigation to challenge such claims or to
design around the patented technology. Such actions could be costly and would
divert the efforts and attention of the Company's management and technical
personnel, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Liquidity And Capital Resources
For the nine months ended September 30, 1997 net cash provided by operating
activities was $8.7 million, which was primarily the result of a $46.5 million
net loss offset by non-cash charges of $56.7 million, of which the largest
component was a $50.8 million write-off of in-process technology in conjunction
with the Acquisition..
The increase in working capital from December 31, 1996 to September 30, 1997 of
$51.5 million was primarily due to $56.4 million of working capital acquired
with the Acquisition by an increase in accounts receivable. On October 2, 1997
$31 million of unrestricted cash along with the offset proceeds from the $120
million Initial Notes Offering and $57 million of borrowings under the Credit
Agreement was used to repay principal and accrued interest under the Acquisition
Financing.
Axiohm, S.A. completed a tender for approximately 88% of the outstanding shares
of DH Technology and subsequently merged into DH Technology. On October 2, 1997
DH Technology changed its name to Axiohm Transaction Solutions, Inc. See Note 2
of Notes to Condensed Consolidated Financial Statements.
The Company's primary capital requirements include debt service, capital
expenditures and working capital. The Company's ability to make scheduled
payments of principal, interest or to fund planned capital expenditures or
working capital, will depend upon its future performance, which, in turn, is
subject to various factors both within and beyond its control. See "Certain
Factors That May Affect Future ResultsSubstantial Leverage and Debt Service."
Based upon current levels of operations and anticipated growth in revenues and
cost savings, the Company believes that the Company's cash flow from operations
and amounts available under the Credit Agreement will be adequate to meet its
anticipated future requirements for working capital, capital expenditures, and
scheduled payments of principal and interest on its indebtedness during the next
twelve months. See Note 4 of Notes to Condensed Consolidated Financial
Statements.
The Credit Agreement includes various financial covenants of the Company,
including covenants with respect to the maximum capital expenditures, a maximum
ratio of debt to EBITDA, a minimum interest coverage ratio and a minimum fixed
charge coverage ratio. The Credit Agreement subjects the Company to certain
negative covenants, including without limitation covenants that restrict,
subject to specified exceptions: the incurrence of additional indebtedness and
other obligations and the granting of additional liens; mergers and
acquisitions, investments and acquisitions and dispositions of assets; the
incurrence of capitalized lease obligations; investments, loans and advances;
dividends, stock repurchases and redemptions; prepayment or repurchase of other
indebtedness and other provisions. Under the Credit Agreement, the Company is
required to enter into arrangements to provide interest protection for $20
million of this floating rate debt for two years.
The Company incurred indebtedness of $120 million in connection with the
issuance of the Notes. The indebtedness evidenced by the Notes is subordinated
to the Company's obligations under the Credit Agreement. Interest is payable
semi-annually on the unpaid principal at 9.75% per annum. The Indenture contains
covenants regarding: restricted payments, incurrence of indebtedness, liens,
dividends, merger, consolidation or sale of assets, and transactions with
affiliates. See "Certain Factors That May Affect Future Results- Restrictive
Loan Covenants" and Note 4 of Notes to Condensed Consolidated Financial
Statements.
<PAGE>
PART II. OTHER INFORMATION
Item 2 - Changes in Securities
The Company's Credit Agreement and Senior Subordinated Note Indenture restrict
the Company from paying dividends on its Common Stock
Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits:
----------------------------------- ---------------------------------------
2.1** Agreement and Plan of Merger dated as
of July 14, 1997, among the
Registrant, Axiohm S.A. and AX
Acquisition Corporation.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
2.2* Purchase and Assumption Agreement,
dated October 2, 1997, among Axiohm
IPB, AX Acquisition Corporation and
the Registrant.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
3.1* Certificate of Ownership of the
Registrant filed with the California
Secretary of State on October 2, 1997.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
3.2* Amended and Restated Bylaws of the
Registrant.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
4.1* Indenture, dated as of October 2, 1997
among the Registrant, the Guarantors
named therein, and The Bank of New
York, as trustee.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
4.2* $117,300,000 9-3/4% Senior
Subordinated Note due 2007 and
Subsidiary Guarantee.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
4.3* $2,350,000 9-3/4% Senior Subordinated
Note due 2007 and Subsidiary
Guarantee.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
4.4* $350,000 9-3/4% Senior Subordinated
Note due 2007 and Subsidiary
Guarantee.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
10.1* Registration Rights Agreement, dated
as of October 2, 1997 among the
Registrant, Axiohm S.A., Axiohm IPB,
Inc., Dardel Technologies S.A., Stadia
Colorado Corp., Cognitive Solutions,
Inc. and Lehman Brothers Inc.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
10.2* Purchase Agreement, dated September
25, 1997, among the Registrant, Axiohm
IPB Inc., Cognitive Solutions, Inc.,
Stadia Colorado Corp. and Lehman
Brothers Inc.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
10.3* Employment Agreement between the
Registrant and William H. Gibbs dated
as of July 14, 1997.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
10.4* Employment Agreement between the
Registrant and Walter Sobon dated as
of July 14, 1997.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
10.5* Employment Agreement between the
Registrant and Janet Shanks dated as
of July 14, 1997.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
10.6* Employment Agreement between the
Registrant and David Ledwell dated as
of July 14, 1997.
----------------------------------- ---------------------------------------
------------------------------------ ---------------------------------------
10.7* Credit Agreement, dated October 2,
1997, among the Registrant as
Borrower, Lehman Brothers Inc., as
arranger, and Lehman Commercial Paper
Inc., as syndication agent and
administrative agent.
----------------------------------- -----------------------------------
----------------------------------- ---------------------------------------
10.8* Guarantee and Collateral Agreement,
dated as of October 2, 1997, between
the Registrant, Lehman Brothers, Inc.,
Lehman Commercial Paper Inc. and
certain of Registrant's subsidiaries.
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
27.1 Financial Data Schedule.
----------------------------------- ---------------------------------------
** Incorporated by reference to Exhibit (c)(1) of
the Registrant's Schedule 14D-9 dated July 16,
1997. * Incorporated by reference to exhibits filed
in response to Item 7(c), "Exhibits," of the
Company's Report on Form 8-K dated October 2, 1997.
(b) During the quarter ended September 30, 1997, the
Company filed the following reports on Form 8-K:
Current Report on Form 8-K dated August
21, 1997 relating to a change in
control of DH Technology pursuant to an
acquisition of 7,000,000 shares of the
Common Stock of DH Technology by AX
Acquisition Corporation, a California
corporation and an indirect
wholly-owned subsidiary of Axiohm S.A.,
a private French Company.
Current report on Form 8-K dated
October 2, 1997 relating to the
completion of a series of transactions
with Axiohm S.A., a private French
company, pursuant to an Agreement and
Plan of Merger, dated July 14, 1997,
among DH Technology, Inc., Axiohm S.A.
and AX Acquisition Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Axiohm Transaction Solutions, Inc. by:
November 19, 1997 /s/Janet W. Shanks
------------------- -----------------------------------------
Date Janet W. Shanks, Chief Accounting Officer
(Chief Accounting Officer)
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
- - - --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION
- - - --------------------------------------------------------------------------------
---------------- ------------------------------------------------------------
2.1** Agreement and Plan of Merger dated as of July 14, 1997,
among the Registrant, Axiohm S.A. and AX Acquisition
Corporation.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
2.2* Purchase and Assumption Agreement, dated October 2, 1997,
among Axiohm IPB, AX Acquisition Corporation and the
Registrant.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
3.1* Certificate of Ownership of the Registrant filed with the
California Secretary of State on October 2, 1997.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
3.2* Amended and Restated Bylaws of the Registrant.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
4.1* Indenture, dated as of October 2, 1997 among the
Registrant, the Guarantors named therein, and The Bank of
New York, as trustee.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
4.2* $117,300,000 9-3/4% Senior Subordinated Note due 2007 and
Subsidiary Guarantee.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
4.3* $2,350,000 9-3/4% Senior Subordinated Note due 2007 and
Subsidiary Guarantee.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
4.4* $350,000 9-3/4% Senior Subordinated Note due 2007 and
Subsidiary Guarantee.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.1* Registration Rights Agreement, dated as of October 2,
1997 among the Registrant, Axiohm S.A., Axiohm IPB, Inc.,
Dardel Technologies S.A., Stadia Colorado Corp.,
Cognitive Solutions, Inc. and Lehman Brothers Inc.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.2* Purchase Agreement, dated September 25, 1997, among the
Registrant, Axiohm IPB Inc., Cognitive Solutions, Inc.,
Stadia Colorado Corp. and Lehman Brothers Inc.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.3* Employment Agreement between the Registrant and William
H. Gibbs dated as of July 14, 1997.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.4* Employment Agreement between the Registrant and Walter
Sobon dated as of July 14, 1997.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.5* Employment Agreement between the Registrant and Janet
Shanks dated as of July 14, 1997.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.6* Employment Agreement between the Registrant and David
Ledwell dated as of July 14, 1997.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.7* Credit Agreement, dated October 2, 1997, among the
Registrant as Borrower, Lehman Brothers Inc., as
arranger, and Lehman Commercial Paper Inc., as
syndication agent and administrative agent.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
10.8* Guarantee and Collateral Agreement, dated as of October
2, 1997, between the Registrant, Lehman Brothers, Inc.,
Lehman Commercial Paper Inc. and certain of Registrant's
subsidiaries.
---------------- ----------------------------------------------------------
---------------- ----------------------------------------------------------
27.1 Financial Data Schedule.
---------------- ----------------------------------------------------------
** Incorporated by reference to Exhibit (c)(1) of the Registrant's
Schedule 14D-9 dated July 16, 1997. * Incorporated by reference to
exhibits filed in response to Item 7(c), "Exhibits," of the Company's
Report on Form 8-K dated October 2, 1997.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TAB
LE> <S> <C>
[TEXT]
<ARTICLE> 5
<CIK> 0000728376
<NAME> AXIOHM TRANSACTION SOLUTIONS, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 36,248
<SECURITIES> 0
<RECEIVABLES> 3,295
<ALLOWANCES> 0
<INVENTORY> 28,523
<CURRENT-ASSETS> 115,147
<PP&E> 20,928
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,154
<CURRENT-LIABILITIES> 35,181
<BONDS> 0
0
0
<COMMON> 23,851
<OTHER-SE> (107)
<TOTAL-LIABILITY-AND-EQUITY> (12,373)
<SALES> 99,558
<TOTAL-REVENUES> 99,558
<CGS> 66,978
<TOTAL-COSTS> 70,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,077
<INCOME-PRETAX> (41,014)
<INCOME-TAX> 5,484
<INCOME-CONTINUING> (38,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,498)
<EPS-PRIMARY> (7.14)
<EPS-DILUTED> (7.14)
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