<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO.2
(Mark One)
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required) For the year ended December 31, 1996, 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
AXIOHM TRANSACTION SOLUTIONS, INC.
(formerly named 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 03, 1997, (based on the last sales price at that date) was approximately
$132,674,740. This computation excludes a total of 54,897 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 03, 1997, there were 7,975,777 shares of Registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's Annual Report to Shareholders for the year ended December 31,
1996, is incorporated by reference to Exhibit 13 hereto to the extent stated
herein. The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on April 24th, 1997, is incorporated by reference in
Part III of this Form 10-K to the extent stated herein.
<PAGE>
This Amendment No. 2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 is being filed solely for the purpose of
correcting the report of the Registrant's independent auditors to relect that
such auditors have signed such report.
<PAGE>
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 sells transaction printers and mechanisms, impact printheads
and magnetic heads, bar code printers, and related services and supplies, such
as labels and ribbons. The Company also offers printhead repair and replacement
services. 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.
Products
The Company's products are designed for precision, reliability, and durability
and, as such, operate using a full range of print speeds.
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.
<PAGE>
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 labels as well as custom 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. The Company's print and apply
products automatically cut and apply bar code labels in high speed
packaging 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.
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 end users who are implementing
new, expansion, or replacement bar coding systems. The Company's labeling
products and marking solutions are sold to end users through a sales force
located in seven states.
<PAGE>
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, 1996, domestic and international sales were conducted via
direct sales offices, distributors and agents.
In 1996, First Data Corporation accounted for 13% of total revenue, or
$15,042,000; and no customer accounted for more than 10% of the Company's
revenues in 1995 or 1994.
Export revenues for the Company's North American operations, shipped primarily
to Europe, were approximately 9%, 10%, and 11%, of total revenues in 1996, 1995,
and 1994, respectively. Total foreign sales were $34,857,000 or 30% of revenue
in 1996, $31,272,000 or 32% of revenue in 1995, and $24,006,000 or 31% of
revenue in 1994.
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 $18,025,174 as
of March 3, 1997, compared to $33,455,000 as of March 4, 1996. The decrease from
1996 to 1997 is primarily due to a decline in sales in 1997 to the Company's
principal customer for 1996. 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 transaction printers and mechanisms in Riverton, Wyoming, its
bar code products in Paso Robles, California; and its labels and supplies in
Denver, Colorado. 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 and 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.
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.
<PAGE>
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 or other will not have an 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.
Competition
One domestic and one foreign printhead manufacturer compete 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 3, 1997, the Company employed 62 individuals dedicated
to research and development.
In 1996, 1995, and 1994, the Company spent $5,805,000, $5,007,000, and
$4,685,000, respectively, for research and development.
Employees
As of March 3, 1997, the Company and its subsidiaries had 925 full-time
employees. No employee is covered by a collective bargaining agreement, and the
Company considers its employee relations to be good.
Executive Officers of the Registrant
Information regarding the Company's Executive Officers is as follows:
Mr. William H. Gibbs, 53, President, Chief Executive Officer, and Chairman
of the Company, joined the Company in November 1985.
Mr. Walter S. Sobon, 48, Chief Financial Officer, joined the Company in
March 1997. From November 1995 to march 1997 Mr. Sobon was an Independent
Management Consultant. From October 1989 to November 1995 Mr. Sobon served
as the Senior Vice President, Chief Financial Officer and Corporate
Secretary of VWR Scientific Products Corporation, a laboratory products
company.
Mr. David T. Ledwell, 50, Executive Vice President, Transaction Products,
joined the Company in March 1986.
Ms. Janet W. Shanks, 37, Chief Accounting Officer, Corporate Controller,
and Secretary, joined the Company in October 1986.
<PAGE>
Certain Factors That May Affect Future Results
The risk factors set forth below and elsewhere under this Item 1 under the
captions "Marketing and Customers, " "Backlog, " "Manufacturing and Supplies,"
"Patents and Licenses," and "Competition" are important factors that may affect
future results and that could cause actual results to differ materially from
those projected in forward-looking statements that may be made by the Company
from time to time.
Future Operating Results Subject to Fluctuation -- The Company's operating
results may fluctuate in the future as a result of a number of factors,
including the timing of customer orders, timing of completion of existing
customer contracts, 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, 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.
The Company anticipates that net sales and results of operations for the first
quarter of 1997 will be significantly below the corresponding results for the
first quarter of 1996 due to delays in orders from some major customers and to a
decline in sales in 1997 to the Company's principal customer for 1996. To the
extent that sales to this or other customers decline and are not replaced with
business from other customers, the Company's results of operations will be
adversely affected.
In addition, the Company is continually evaluating the possible impairment of
goodwill to determine whether events or changes in circumstances indicate that
the carrying amount of goodwill may not be recoverable.
Further, the Company's expense levels are based in part on expectations of
future revenues. The Company has established a program to decrease expenses in
light of the anticipated reduction in revenue discussed above. However, 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. The Company's operating results could
also be affected by general economic conditions. Fluctuations in operating
results are likely to cause volatility in the price of the Company's Common
Stock.
Management of Acquisitions -- Historically, the Company has achieved a portion
of its growth through acquisitions of other businesses, and the Company
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.
<PAGE>
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. The Company anticipates
that first quarter 1997 results will be below last year's level due to a
reduction in orders from some major customers.
<TABLE>
ITEM 2. PROPERTIES
<CAPTION>
The following table outlines the current property leases held by the Company:
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
LOCATION PURPOSE SQUARE ANNUAL EXPIRE DATE
FOOTAGE COST
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C>
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
San Diego, California administration, marketing, engineering, 17,700 sq. ft $206,000 June 2001
pilot production operations, refurbishment
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
San Diego, California executive offices 4,800 sq. ft $48,000 June 1997
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Riverton, Wyoming manufacturing, engineering, marketing, 40,000 sq. ft $100,000 March 2002
administration
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
Paso Robles, California manufacturing, engineering, marketing, 45,000 sq. ft $134,000 Sept. 1997
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 1999
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
- ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
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 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.
<PAGE>
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 1996 Annual
Report to Shareholders, where such information appears under the caption "Common
Stock Information" on page 26 of such report. An excerpt from the Annual Report
to the Shareholders containing this information has been filed as Exhibit 13 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 1996 Annual Report to Shareholders, where such information appears
under the caption "Selected Financial Data" on page 12 of such report. An
excerpt from the Annual Report to the Shareholders containing this information
has been filed as Exhibit 13 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 1996 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 13 of such report. An excerpt from the Annual
Report to the Shareholders containing this information has been filed as Exhibit
13 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 1996 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 16 through 26
of such report. An excerpt from the Annual Report to the Shareholders containing
this information has been filed as Exhibit 13 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" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in
Registrant's Definitive Proxy Statement filed pursuant to Regulation 14A on
March 24, 1997, which is incorporated herein by reference. See Item 1 for
information regarding Executive Officers.
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 24, 1997, 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 24, 1997 which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual 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 1996 Annual Report to
Shareholders:
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Income - Years Ended December 31, 1996, 1995, and
1994. Consolidated Statements of Shareholders' Equity - Years Ended December
31, 1996, 1995, and 1994. Consolidated Statements of Cash Flows - Years Ended
December 31, 1996, 1995, and 1994. Notes to Consolidated Financial Statements
Independent Auditors' Report- KPMG Peat Marwick LLP
With the exception of the aforementioned information, the 1996 Annual Report to
Shareholders is not to be deemed filed as part of this report unless otherwise
noted.
2. Financial Statement Schedules. The following financial statement
schedules of DH Technology, Inc. and subsidiaries are filed as part of this
Annual 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.
Schedule Page
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 Annual Report on Form 10-K.
Exhibit Description
Number
----------- ----------------------------------------------------------------
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 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.)
<PAGE>
Exhibit
Number Description
- ------------- ----------------------------------------------------------------
3.2 Certificate of Amendment of Restated Articles of Incorporation
dated September 22, 1995. (Incorporated by reference to Exhibit
3.1(b) of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
3.3 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.)
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 Registrant's 1996 Annual Report to Shareholders, pages 12
through 27.
21 List of Subsidiaries.
23.1 Independent Auditors' Consent and Report on Schedules.
- ------------------------
* 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, 1996.
<PAGE>
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.
AXIOHM TRANSACTION SOLUTIONS, INC.
(formerly named DH TECHNOLOGY, INC.)
By: /s/ Janet W. Shanks
----------------------------
Janet W. Shanks
Chief Accounting Officer,
Corporate Controller, and Secretary
Date: February 13, 1998
<PAGE>
<TABLE>
S - 1
DH TECHNOLOGY, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years 1996, 1995, and 1994
(Amounts in Thousands)
<CAPTION>
Balance at Charge to Charge to Balance at
Beginning of Cost and Other Accounts Recoveries/ End of Period
Description Period Expense (1) (Deductions)
- ----------- ------ ------- --- ------------ -------------
Allowance for
Doubtful Accounts
<S> <C> <C> <C> <C> <C>
1996 $1,067 $87 -- $43 $1,197
1995 1,003 75 -- (11) 1,067
1994 979 105 58 (139) 1,003
- --------------------
(1) Recorded upon acquisition.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11
DH TECHNOLOGY, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
(In thousands, except per share data)
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
------------ ------------- -------------- ------------
------------------------------ --------------------------------
1996 1995 1996 1995
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Primary and fully diluted:*
Average shares outstanding 7,974 7,880 7,890 7,809
Net effect of dilutive stock
options and warrants based on
the treasury stock method using
average market price 398 511 461 528
------------ ------------- -------------- ------------
Average common and common
equivalent shares outstanding 8,372 8,391 8,351 8,337
Net income $3,322 $2,783 $13,027 $10,301
Per share (primary and fully diluted)
Net income per share $.40 $.33 $1.56 $1.24
------------ ------------- -------------- ------------
------------ ------------- -------------- ------------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 13
Selected Financial Data
Years ended December 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
(In thousands, except per
share data)
Income Statement Data
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Net sales ........... $115,784 $98,855 $77,918 $56,351 $54,081 $46,288 $40,038 $41,619 $29,109 $15,763
License fees and
royalties ....... -- -- -- -- 89 258 1,089 436 251 695
----- ----- ----- ----- ----- ---- ---- ----- --- ---
Total revenue ................ 115,784 98,855 77,918 56,351 54,170 46,546 41,127 42,055 29,360 16,458
Costs and expenses:
Cost of net sales ... 74,847 63,267 48,972 34,870 33,770 28,526 24,521 26,527 20,025 10,152
Selling, general and
administrative .. 15,997 15,383 12,769 8,955 8,599 8,078 5,523 5,297 4,113 2,378
Research and
development 5,805 5,007 4,685 4,170 4,150 3,744 2,845 2,259 1,450 683
----- ----- ----- ----- ----- ----- ----- ----- ----- ---
Total costs and expenses ..... 96,649 83,657 66,426 47,995 46,519 40,348 32,889 34,083 25,588 13,213
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations ....... 19,135 15,198 11,492 8,356 7,651 6,198 8,238 7,972 3,772 3,245
Interest income, net ......... 1,342 955 644 692 391 584 921 560 174 354
----- --- --- --- --- --- --- --- --- ---
Income before income taxes ... 20,477 16,153 12,136 9,048 8,042 6,782 9,159 8,532 3,946 3,599
Income taxes ................. 7,450 5,852 4,078 2,717 2,252 2,144 3,192 2,640 816 765
----- ----- ----- ----- ----- ----- ----- ----- --- ---
Net income ................... $13,027 $10,301 $8,058 $6,331 $5,790 $4,638 $5,967 $5,892 $3,130 $2,834
------- ------- ------ ------ ------ ------ ------ ------ ------ ------
Net income per share ......... $1.56 $1.24 $1.00 $0.82 $0.75 $0.62 $0.79 $0.79 $0.43 $0.38
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Shares used in
per share calculation 8,351 8,337 8,076 7,731 7,749 7,481 7,529 7,494 7,260 7,383
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Years ended December 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
(In thousands)
Balance Sheet Data
Working capital .............. $62,029 $48,664 $37,191 $41,406 $34,771 $27,679 $24,712 $21,077 $15,083 $10,400
Total assets ................. 97,105 85,285 71,306 55,975 47,937 44,113 35,713 32,565 24,709 15,065
Long-term debt ............... 2,212 3,095 4,355 1,580 2,358 3,687 3,109 4,016 4,865 73
Shareholders' equity ......... 82,252 67,480 55,848 46,732 39,902 33,531 27,904 22,176 15,914 12,692
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
The selected financial data should be read with the related consolidated
financial statements and notes thereto, included herein.
</TABLE>
<PAGE>
Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes related thereto.
Results of Operations
Operating Percentages 1996 1995 1994
---- ---- ----
Net sales .......................... 100.0% 100.0% 100.0%
Cost of net sales .................. 64.6% 64.0% 62.9%
Selling, general, and administrative 13.8% 15.6% 16.4%
Research and development ........... 5.0% 5.1% 6.0%
Income from operations ............. 16.5% 15.4% 14.7%
Income before income taxes ......... 17.7% 16.3% 15.6%
Income taxes ....................... 6.4% 5.9% 5.2%
Net income ......................... 11.3% 10.4% 10.3%
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.
1996 Compared to 1995
In 1996, net sales grew to $115.8 million, a 17.1% increase over 1995 net sales
of $98.9 million. This growth was primarily attributable to increased unit
shipments of transaction printers in 1996. A significant percentage of this
growth was attributable to a single customer. The Company expects that sales to
this customer will decrease significantly in 1997 as a substantial portion of
the business was fulfilled in 1996. Due to the expected decrease in sales to
this customer and to delays in orders from certain other customers, the Company
expects that net sales, and, accordingly, the results of operations for the
first quarter of 1997 will be significantly below the corresponding amounts for
the first quarter of 1996. See "Certain Factors That May Affect Future
Results-Future Operating Results Subject to Fluctuation."
Cost of net sales increased slightly to 64.6% of net sales in 1996 from 64.0% in
1995. Two factors primarily contributed to the increase: a mix shift in the
printhead business to products with higher material content as a percentage of
net sales, and a price decrease for Cognitive's barcode printers in 1996 which
was not completely offset by cost reductions.
Selling, general, and administrative expenses as a percentage of net sales
decreased to 13.8% in 1996 compared to 15.6% in 1995 due to net sales increasing
at a faster rate than these expenses. These expenses increased in absolute
dollars to $16.0 million in 1996 compared to $15.4 million in 1995. This
increase was primarily due to the inclusion of selling, general, and
administrative expenses for the Magnetics division for all of 1996, and an
increase in costs related to the implementation of a new worldwide MIS system,
partially offset by the effect of a foreign exchange gain realized when foreign
subsidiaries reduced intercompany obligations.
Research and development expenses remained relatively constant at 5.0% of net
sales in 1996 compared to 5.1% in 1995. Total research and development expenses
increased to $5.8 million in 1996 from $5.0 million in 1995. 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.
<PAGE>
Income from operations as a percentage of net sales increased to 16.5% in 1996
from 15.4% in 1995 primarily due to lower operating expenses as a percentage of
revenue as discussed above.
Interest income increased to $1,491,000 in 1996 compared to $1,231,000 in 1995
as a result of higher interest-bearing cash balances in 1996.
Interest expense decreased to $149,000 in 1996 from $276,000 in 1995 due to the
payment of debt related to the Cognitive and Stadia acquisitions. See Note 6 of
Notes to Consolidated Financial Statements.
Income taxes as a percentage of income before taxes increased to 36.4% for 1996
from 36.2% for 1995, principally due to the reduced benefits from the federal
research and development tax credit. See Note 12 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 twelve 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 circuits 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.
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.
<PAGE>
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.
Income taxes as a percentage of income before taxes increased to 36.2% for 1995
from 33.6% for 1994, principally due to reduced benefits from the federal
research and development tax credit. See Note 12 of Notes to Consolidated
Financial Statements.
Certain Factors That May Affect Future Results
The Company's representatives may from time to time make oral forward-looking
statements. The factors set forth below are certain important factors that could
affect future operating results or cause actual results to differ materially
from those projected in any such forward-looking statements.
Future Operating Results Subject to Fluctuation -- The Company's operating
results may fluctuate in the future as a result of a number of factors,
including the timing of customer orders, timing of completion of existing
customer contracts, 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, 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.
The Company anticipates that net sales and results of operations for the first
quarter of 1997 will be significantly below the corresponding results for the
first quarter of 1996 due to delays in orders from some major customers and to a
decline in sales in 1997 to the Company's principal customer for 1996. To the
extent that sales to this or other customers decline and are not replaced with
business from other customers, the Company's results of operations will be
adversely affected.
In addition, the Company is continually evaluating the possible impairment of
goodwill to determine whether events or changes in circumstances indicate that
the carrying amount of goodwill may not be recoverable.
Further, the Company's expense levels are based in part on expectations of
future revenues. The Company has established a program to decrease expenses in
light of the anticipated reduction in revenue discussed above. However, 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. The Company's operating results could
also be affected by general economic conditions. Fluctuations in operating
results are likely to cause volatility in the price of the Company's Common
Stock.
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.
<PAGE>
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. The Company anticipates
that first quarter 1997 results will be below last year's level due to a
reduction in orders from some major customers.
Liquidity and Capital Resources
Throughout 1996, 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 $44.8 million on December 31, 1996, compared to
$31.7 million on December 31, 1995.
Operating Activities
In 1996, the Company generated approximately $17.2 million in net cash from
operating activities primarily as a result of $13.0 million in net income and
$3.8 million in depreciation and amortization.
Investing Activities
The Company's principal investing activity in 1996 was the purchase of property
and equipment for product development and production, the purchase of a
worldwide MIS system, and the investment in short-term securities held to
maturity. The average life of securities held has been extended to secure higher
returns. As of December 31, 1996, the Company had no material commitments for
capital expenditures. However, the Company anticipates capital expenditures of
$3 to $4 million in 1997, principally for new product tooling and manufacturing
equipment.
The Company is 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 of a particular Cognitive product line. The Company does
not expect the payments to be material in 1997. See Note 10 of Notes to
Consolidated Financial Statements.
<PAGE>
Financing Activities
The Company's major financing activities in 1996 were the principal repayment of
long-term debt, including the notes payable associated with the Stadia and
Cognitive acquisitions. As of December 31, 1996, the Company had $2.2 million in
debt outstanding of which the current portion was approximately $577,000. This
long-term debt includes approximately $1.5 million payable in annual
installments of $500,000 each in 1997 through 1999 to the former owner of
Cognitive.
On August 15, 1996, 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, 1996, no draws had been
made against this line of credit. The Company is currently negotiating an
additional $15 million no-fee line of credit agreement.
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 twelve 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 without the use of hedging
instruments. In 1996 a $393,000 net gain was realized as a result of favorable
exchange rates prevailing when the foreign subsidiaries reduced intercompany
obligations.
<TABLE>
<CAPTION>
<PAGE>
Consolidated Balance Sheets
Years ended December 31, 1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................... $30,943,000 $28,971,000
Short-term investment securities held to maturity (note 2) .............. 13,835,000 2,750,000
Accounts receivable, net of allowance for doubtful
accounts of $1,197,000 in 1996 and $1,067,000 in 1995 ................... 16,006,000 15,785,000
Inventories (note 3) .................................................... 11,582,000 14,382,000
Deferred tax asset (note 12) ............................................ 2,089,000 1,744,000
Prepaid expenses and other current assets ............................... 792,000 573,000
Total current assets .................................. 75,247,000 64,205,000
Fixed assets, net (notes 4 and 6) ....................................... 8,250,000 6,290,000
Intangible assets, net (note 5) ......................................... 12,464,000 13,312,000
Deferred tax asset (note 12) ............................................ 206,000 --
Other assets ............................................................ 938,000 1,478,000
------- ---------
Total assets .......................................... $97,105,000 $85,285,000
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ........................................................ $4,587,000 $6,383,000
Current portion of long-term debt (note 6) .............................. 577,000 980,000
Accrued payroll, payroll taxes, and benefits ............................ 2,630,000 2,579,000
Accrued expenses ........................................................ 1,963,000 2,045,000
Income taxes payable (note 12) .......................................... 2,406,000 2,128,000
Accrued warranty ........................................................ 478,000 479,000
Deferred revenue ........................................................ 577,000 947,000
------- -------
Total current liabilities ............................. 13,218,000 15,541,000
Long-term debt (note 6) .......................................................... 1,635,000 2,115,000
Deferred tax liability (note 12) ................................................. -- 149,000
-- -------- -------
Total liabilities ..................................... 14,853,000 17,805,000
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:
7,974,277 in 1996 and 7,890,090 shares in 1995 13,168,000 12,335,000
Foreign currency translation adjustment ........................ 393,000 (519,000)
------- --------
Retained earnings .............................................. 68,691,000 55,664,000
---------- ----------
Total shareholders' equity ............................ 82,252,000 67,480,000
Commitments (notes 6, 7, 8, 10, and 11)
Total liabilities and shareholders' equity ............ $97,105,000 $85,285,000
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Consolidated Statements of Income
Years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales ................................... $115,784,000 $98,855,000 $77,918,000
Costs and expenses:
Cost of net sales .................. 74,847,000 63,267,000 48,972,000
Selling, general, and administrative 15,997,000 15,383,000 12,769,000
Research and development ........... 5,805,000 5,007,000 4,685,000
--------- --------- ---------
Total costs and expenses .................... 96,649,000 83,657,000 66,426,000
Income from operations ...................... 19,135,000 15,198,000 11,492,000
---------- ---------- ----------
Interest income ............................. 1,491,000 1,231,000 854,000
Interest expense ............................ (149,000) (276,000) (210,000)
-------- -------- --------
Net interest income ......................... 1,342,000 955,000 644,000
--------- ------- -------
Income before income taxes .................. 20,477,000 16,153,000 12,136,000
Income taxes (note 12) ...................... 7,450,000 5,852,000 4,078,000
-- --------- --------- ---------
Net income .................................. $13,027,000 $10,301,000 $8,058,000
Net income per share ........................ $1.56 $1.24 $1.00
----- ----- -----
Shares used in per share calculation ........ 8,351,000 8,337,000 8,076,000
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Foreign Currency Total
Common Stock Translation Retained Shareholders'
Shares Amount Adjustment Earnings Equity
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Exercise of options and warrants ...... 84,187 694,000 -- -- 694,000
Tax benefit of stock option exercise .. -- 139,000 -- -- 139,000
Foreign currency translation adjustment -- -- 912,000 -- 912,000
Net income ............................ -- -- -- 13,027,000 13,027,000
Balance, December 31, 1996 ............ 7,974,277 $13,168,000 $393,000 $68,691,000 $82,252,000
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $13,027,000 $10,301,000 $8,058,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ..................... 3,830,000 3,640,000 2,391,000
Provision for loss on accounts receivable ......... 87,000 65,000 105,000
Undepreciated value of asset disposals ............ 42,000 65,000 6,000
Provision for deferred income taxes,
excluding effect of acquisitions ......... (700,000) (658,000) (429,000)
Changes in assets and liabilities, excluding effect of acquisitions:
Accounts receivable ............................... (308,000) (3,219,000) (1,997,000)
Inventories ....................................... 2,800,000 (2,814,000) (1,651,000)
Prepaid expenses and other assets ................. 321,000 (17,000) 170,000
Accounts payable and accrued expenses ............. (1,878,000) 2,264,000 (891,000)
Accrued payroll, payroll taxes, and benefits ...... 51,000 431,000 513,000
Income taxes payable .............................. 278,000 772,000 (343,000)
Accrued warranty .................................. (1,000) 96,000 (20,000)
Deferred revenue .................................. (370,000) 61,000 696,000
-------- ------ -------
Net cash provided by operating activities ......... 17,179,000 10,987,000 6,608,000
Cash flows from investing activities:
Net (increase) decrease in short-term
investment securities held to maturity ..................... (11,085,000) 1,550,000 5,420,000
Payment for acquisition purchases, net of cash acquired ............. -- (753,000) (12,825,000)
Capital expenditures ................................................ (4,869,000) (2,469,000) (2,293,000)
Proceeds from sale of assets ........................................ -- -- 26,000
------- --------- ------
Net cash used in investing activities ............. (15,954,000) (1,672,000) (9,672,000)
Cash flows from financing activities:
Principal repayments of long-term debt .............................. (883,000) (1,260,000) (1,482,000)
Exercise of stock options ........................................... 694,000 1,235,000 511,000
Tax benefit of stock option exercise ................................ 139,000 360,000 96,000
------- ------- ------
Net cash provided by (used in) financing activities ........ (50,000) 335,000 (875,000)
Effect of exchange rate changes on cash ...................................... 797,000 (266,000) 365,000
------- -------- -------
Net increase (decrease) in cash and cash equivalents ......................... 1,972,000 9,384,000 (3,574,000)
Cash and cash equivalents at beginning of year ............................... 28,971,000 19,587,000 23,161,000
---------- ---------- ----------
Cash and cash equivalents at end of year ..................................... $30,943,000 $28,971,000 $19,587,000
=========== =========== ===========
Supplemental cash flow disclosures:
Interest paid on debt ............................................... $140,000 $93,000 $106,000
-------- ------- --------
Income taxes paid ................................................... $6,413,000 $5,738,000 $3,539,000
---------- ---------- ----------
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
========== ======= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Description of Business -- 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 Company's
core technologies include thermal, impact and laser. Products are marketed
worldwide by a direct sales force, sales representatives, value-added resellers
and distributors. The Company maintains offices in the United States, Mexico,
England and Australia.
Principles of Consolidation -- 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,
1996, 1995, and 1994 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 -- Investment securities at
December 31, 1996 consist primarily of U.S. Municipal Bonds and are classified
as held to maturity. 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. Financial results of non-U.S. subsidiaries and
affiliates in countries with highly inflationary economies are translated using
a combination of current and historical exchange rates and any translation
adjustments are included in net earnings, along with all transaction gains and
losses for the period. Gains and losses from foreign currency transactions are
not significant and are included in selling, general, and administrative
expenses in the accompanying consolidated statements of income.
<PAGE>
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.
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. Intangible assets, excluding
goodwill, are amortized using the straight-line method over periods ranging from
five 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 revenue or economic life of the related product. The Company amortized
$200,000 of such costs in 1994. In 1995, the Company determined the software
development costs had 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 -- Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
<PAGE>
Disclosure About the Fair Value of Financial Instruments --The carrying amount
of cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses, approximate fair values because of the short maturity of these
instruments. The carrying amounts of long-term debt approximate fair values
because the applicable interest rates approximate current market rates. Fair
value estimates are made at a specific point in time, based on relevant market
information and information about the financial instruments.
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of -- The
Company adopted the provisions of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1,
1996. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity. 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. 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 significantly affect the estimates. Actual results could
differ from those estimates.
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.
Reclassifications -- Certain reclassifications have been made to the 1995 and
1994 financial statements to conform with the 1996 presentation.
<PAGE>
2. Short-Term Investments
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:
1996 1995
---- ----
Municipal bonds
Amortized cost ..................... $13,835,000 $2,750,000
Unrealized gains.................... 202,000 39,000
Unrealized losses................... -- --
---------- ----------
Fair value ......................... $14,037,000 $2,789,000
=========== ==========
All of the above investment securities will generally mature in 1997.
3. Inventories
Inventories are comprised of the following:
December 31, 1996 1995
---- ----
Raw materials ................................ $6,810,000 $8,221,000
Work in process .............................. 934,000 940,000
Finished goods ............................... 3,838,000 5,221,000
--------- ---------
$11,582,000 $14,382,000
=========== ===========
4. Fixed Assets
Fixed assets are comprised of the following:
December 31, 1996 1995
---- ----
Land .......................................... $286,000 $264,000
Building ...................................... 1,026,000 948,000
Leasehold improvements ........................ 1,100,000 1,043,000
Machinery and equipment ....................... 14,606,000 12,820,000
Furniture, fixtures, and equipment ............ 5,190,000 2,838,000
Automobiles ................................... 316,000 172,000
------- -------
22,524,000 18,085,000
Accumulated depreciation
and amortization ...................... (14,274,000) (11,795,000)
----------- -----------
$8,250,000 $6,290,000
========== ==========
Included above are assets under capital leases amounting to $154,000 and
$144,000, net of accumulated amortization of $49,000 and $54,000 at December 31,
1996 and 1995, respectively.
5. Intangible Assets
Intangible assets are comprised of the following:
December 31, 1996 1995
---- ----
Goodwill ........................................ $11,082,000 $11,055,000
Patents and technology rights ................... 2,687,000 2,758,000
Covenants not to compete ........................ 1,175,000 1,375,000
--------- ---------
14,944,000 15,188,000
Accumulated amortization ........................ (2,480,000) (1,876,000)
---------- ----------
$12,464,000 $13,312,000
=========== ===========
<PAGE>
6. Long-Term Debt
Long-term debt is comprised of the following:
December 31, 1996 1995
---- ----
7.5% note payable in monthly
installments of $9,000, including
interest, with final payment
due September 1998;
secured by equipment ..................... $163,000 $257,000
First mortgage note payable in
monthly installments of (pound)
2,000 ($3,600 at December 31,
1996), interest due quarterly
at the UK base rate plus 1.75%
(7.75% at December 31, 1996),
due April 2014 ........................... 606,000 593,000
Note payable from Stadia
acquisition, two annual
installments of $500,000
(discounted using 6% discount
rate) due to former owner, final
installment paid in March 1996 .......... -- 445,000
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 ............. 1,289,000 1,656,000
Capital lease obligations for
equipment, interest rates ranging
from 7.3% to 10.6% per annum,
secured by equipment ..................... 154,000 144,000
------- -------
2,212,000 3,095,000
Less current portion ..................... 577,000 980,000
------- -------
$1,635,000 $2,115,000
========== ==========
<PAGE>
Maturities of long-term debt are as follows:
Capital Total Long-
Debt Leases Term Debt
------------------------------
1997......................... $520,000 $75,000 $595,000
1998......................... 538,000 23,000 561,000
1999......................... 498,000 21,000 519,000
2000......................... 35,000 56,000 91,000
2001......................... 35,000 -- 35,000
Thereafter 432,000 -- 432,000
------- ------- -------
2,058,000 175,000 2,233,000
Less imputed interest -- 21,000 21,000
------ ------ ------
2,058,000 154,000 2,212,000
Less current portion 521,000 56,000 577,000
------- ------ -------
$1,537,000 $98,000 $1,635,000
========== ======= ==========
On August 15, 1996, 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 1996 or 1995.
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, 1996, are as follows:
Years ending December 31,
1997............................... $654,000
1998............................... 442,000
1999............................... 365,000
2000............................... 361,000
2001............................... 275,000
Thereafter......................... 412,000
-------
$2,509,000
==========
Total rent expense for operating leases was $1,181,000, $1,202,000, and $974,000
for 1996, 1995, and 1994, respectively.
<PAGE>
8. Capital Stock and Stock Options Plans
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.
In 1993 DH Technology, Inc. adopted the 1992 Stock Plan (the "1992 Plan") to
replace the 1983 Stock Option Plan which had expired. 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. In April 1994, the plan was
amended to place 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. The total number of shares authorized for grant is 1,473,470.
Stock options generally become exercisable in four equal annual installments
commencing one year from the date of grant and expire within either five or
eight years from the date of grant. As of December 31, 1996, options to purchase
a total of 992,400 shares of common stock were outstanding, and options to
purchase 641,242 shares of common stock were exercisable.
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, 1996, warrants to purchase 136,000 shares have
been granted, of which 64,500 have been exercised and 15,000 have been purchased
by the Company and subsequently terminated. As of December 31, 1996, warrants to
purchase a total of 72,750 shares are outstanding, of which 51,750 are
exercisable.
<PAGE>
<TABLE>
<CAPTION>
Information with respect to activity under the plans is set forth below:
# of shares # of Options/ Price per Weighted Avg. Aggregate
Avail for Grant Warrants share Exercise Price
Outstanding Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 685,790 1,014,863 4.42-13.50 $8.38 8,506,000
Shares Reserved 375,000 -- -- -- --
Options/warrants granted (332,700) 332,700 14.00-18.67 17.69 5,884,000
Options/warrants canceled 94,031 (97,781) 4.42-11.17 7.77 (917,000)
Options/warrants exercised -- (158,945) 4.42-11.17 9.38 (1,235,000)
- ----------------------------------------------------------------------------------------------------------------
Balance - December 31, 1995 822,121 1,090,837 4.42-18.67 $11.28 12,238,000
Options/warrants granted (55,500) 55,500 23.38-23.75 23.03 1,346,000
Options/warrants canceled 750 (750) 18.67-18.67 8.18 (14,000)
Options/warrants exercised -- (80,437) 4.42-11.17 18.67 (657,000)
- ----------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 767,371 1,065,150 4.42-23.75 $12.12 12,913,000
================================================================================================================
</TABLE>
Information with respect to options outstanding and exercisable by exercise
price range at December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------------- ----------------------------------------
Weighted Average
Number of Options/ Remaining Weighted Average Number of Options/ Weighted Average
Range of Exercise Price Warrants Outstanding Contractual Life Exercise Price Warrants Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.42-$4.42 60,000 1.8 $4.42 60,000 $4.42
$6.64-$9.95 406,950 3.3 $7.48 397,760 $7.48
$9.96-$14.92 264,750 5.6 $11.92 143,809 $11.71
$14.93-$22.38 280,950 6.4 $18.54 91,423 $18.48
$22.39-$23.75 52,500 6.4 $23.54 -- --
=========================================================================================================
</TABLE>
<PAGE>
At December 31, 1996 and 1995, the number of options and warrants exercisable
was 692,992 and 566,501, and the weighted-average exercise price of those
options and warrants was $9.54 and $7.99, respectively.
The per share weighted-average fair value of stock options and warrants granted
during 1996 and 1995 was $13.62 and $10.44, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1996-expected dividend yield of 0.0%, stock volatility rate of
48.50%, risk-free interest rates of 6.15% and 6.40%, and expected lives of five
and eight years; 1995-expected dividend yield of 0.0%, stock volatility rate of
48.50%, risk-free interest rates of 6.15% and 6.40%, and expected lives of five
and eight years.
The Company applies APB Opinion No. 25 in accounting for its Plan, and
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
in the following table.
1996 1995
---- ----
Net income
As reported $13,027,000 $10,301,000
Pro forma . $12,203,000 $9,868,000
Net income per share
As reported $1.56 $1.24
Pro forma . $1.46 $1.18
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above as
compensation cost is reflected over the options' vesting period of four years
and compensation cost for options granted prior to January 1, 1995 is not
considered.
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 $10,617,000, $10,234,000, and $8,719,000, in 1996,
1995, and 1994, respectively, or 9% of total revenue in 1996, 10% of total
revenue in 1995, and 11% of total revenue in 1994.
<PAGE>
In 1996 one customer accounted for 13% of total revenue, or $15,042,000; and no
customer accounted for more than 10% of total revenue in 1995 or 1994.
Information about the Company's operations by geographic location is shown
below:
Revenue from
Unaffiliated Operating Identifiable
Customers Profits Assets
1996
United States $91,544,000 $15,361,000 $84,754,000
Europe 13,294,000 1,829,000 6,957,000
Australia 10,946,000 1,945,000 5,394,000
---------- --------- ---------
Total $115,784,000 $19,135,000 $97,105,000
============ =========== ===========
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
=========== =========== ===========
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 paid 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 across the United 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 ($8.5 million paid through
1996, and additional payments of $500,000 each due in 1997 through 1999). 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. As of December 31, 1996 no additional payments have been
made. 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.
<PAGE>
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
accompanying consolidated statements of income include the operations of Stadia
from February 28, 1994, and Cognitive from August 31, 1994.
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 $239,000, which is being amortized over 25 years using the straight-line
method.
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 $109,000,
$96,000, and $74,000, and the Company's matching contributions were $108,000,
$72,000, and $56,000, during 1996, 1995, and 1994, respectively. Total expenses
paid by the Company in 1996, 1995, and 1994 for the administration of the plan
were $15,000, $18,000, and $16,000, respectively.
12. Income Taxes
Components of income before income taxes are as follows:
1996 1995 1994
---- ---- ----
United States ............ $16,288,000 $13,004,000 $10,297,000
Foreign .................. 4,189,000 3,149,000 1,839,000
--------- --------- ---------
$20,477,000 $16,153,000 $12,136,000
=========== =========== ===========
The Company's income taxes consist of the following:
1996 1995 1994
---- ---- ----
Current income taxes:
Federal ............ $ 5,989,000 $ 4,685,000 $ 3,386,000
State .............. 698,000 663,000 412,000
Foreign ............ 1,463,000 1,162,000 709,000
Deferred income taxes ....... (700,000) (658,000) (429,000)
-------- -------- --------
Total income taxes .......... $ 7,450,000 $ 5,852,000 $ 4,078,000
=========== =========== ===========
<PAGE>
The following table summarizes the difference between the U.S. federal statutory
effective income tax rate and the Company's effective income tax rate:
1996 1995 1994
---- ---- ----
U.S. federal statutory
income tax rate ................... 34.6% 34.2% 34.0%
State taxes, net of
federal tax benefit ............... 2.2% 2.7% 2.2%
Nontaxable dividends
and interest income ............... (2.0%) (1.9%) (2.0%)
Nondeductible
goodwill amortization ............. 0.7% 0.9% 1.2%
Research and
development credits ............... (0.5%) (1.1%) (1.8%)
Difference between
U.S. statutory
and foreign
effective tax rates ............... 0.1% 0.5% 0.4%
Change in
valuation allowance ............... (1.5%) (2.1%) --
Other, net ................................. 2.8% 3.0% (0.4%)
Effective income
tax rate .......................... 36.4% 36.2% 33.6%
The tax effects of significant temporary differences
which comprise deferred tax assets and liabilities consist of the following:
December 31, 1996 1995
---- ----
Deferred tax assets:
Allowance for doubtful accounts .......... $363,000 $334,000
Inventory ................................ 788,000 943,000
Depreciation and amortization ............ 206,000 --
Self insurance ........................... 271,000 222,000
Accrued warranty ......................... 162,000 166,000
Accrued payroll .......................... 233,000 178,000
Other .................................... 272,000 201,000
------- -------
Gross deferred tax assets ....... 2,295,000 2,044,000
Deferred tax assets
valuation allowance .... -- (300,000)
------- --------
2,295,000 1,744,000
Deferred tax liabilities:
Depreciation and amortization ............ -- 149,000
------- -------
Gross deferred tax liabilities ........... -- 149,000
------- -------
Net deferred tax asset ............................ $ 2,295,000 $ 1,595,000
=========== ===========
Reflected on the accompanying
consolidated balance sheets as:
Current deferred
tax asset, net .................. $ 2,089,000 $ 1,744,000
Noncurrent deferred
tax asset (liability) ........... 206,000 (149,000)
------- --------
Net deferred tax asset ............................ $ 2,295,000 $ 1,595,000
=========== ===========
<PAGE>
The valuation allowance for deferred tax assets as of January 1, 1996 and 1995
was $300,000 and $641,000, respectively. The net change in the total valuation
allowance for the years ended December 31, 1996 and 1995 was a decrease of
$300,000 and $341,000, respectively. 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. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences.
<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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP/
San Diego, California
February 12, 1997
<PAGE>
Common Stock Information
The Company's common stock is traded on the NASDAQ National Market System,
trading symbol DHTK. As of December 31, 1996, there were 466 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 prices of the
Company's stock for the eight most recent quarters.
December 31, 1996 December 31, 1995
Years ended High Low High Low
- --------------------------------------------------------------------------------
First Quarter $24.50 $21.25 $16.17 $13.83
Second Quarter 27.75 22.00 19.41 13.83
Third Quarter 26.50 22.50 22.17 17.33
Fourth Quarter 25.25 22.75 24.75 19.00
Quarterly Financial Information (Unaudited)
Quarters ended 1996 March 31 June 30 Sept 30 Dec 31
- --------------------------------------------------------------------------------
(In thousands, except per share data)
Total revenue .......................... $28,196 $29,210 $29,851 $28,527
Gross margin ........................... 9,726 10,239 10,621 10,351
Income before income taxes ............. 4,762 5,226 5,321 5,168
Net income ............................. 3,035 3,291 3,379 3,322
Net income per share ................... $ 0.36 $ 0.39 $ 0.40 $ 0.40
Quarters ended 1995 March 31 June 30 Sept 30 Dec 31
- --------------------------------------------------------------------------------
Total revenue .......................... $23,255 $24,317 $25,278 $26,005
Gross margin ........................... 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 ................... $0.29 $0.30 $0.32 $0.33
<PAGE>
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
Independent Auditors
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 Thursday, April 24, 1997, 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. Klass
Attorney at Law
Don M. Lyle
Independent Consultant
George M. Ryan
Investor
Executive Management
William H. Gibbs
President and Chief Executive Officer
David T. Ledwell
Executive Vice President
Transaction Products
Walter S. Sobon
Chief Financial Officer
Janet W. Shanks
Corporate Controller and
Chief Accounting Officer
Endre D. Vargha
Vice President and General Manager
Cognitive Solutions, Inc.
Steven D. Anton
Vice President and General Manager
Stadia Colorado Corporation
Russell C. Willcox
Managing Director
DH Technology plc
Vaughan Blackwood
Warwick Dennett
Co-Managing Directors
DH Technology pty
Locations United States Albuquerque, NM Atlanta, GA Charlotte, NC Chicago, IL
Dallas, TX Dayton, OH Denver, CO Paso Robles, CA Phoenix, AZ Riverton, WY
Salt Lake City, UT
San Diego, CA
Mexico
Tijuana
England
Manchester
Australia
Hornsby, NSW
<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 12, 1997, included the
related financial statement schedule as of December 31, 1996, and for each of
the years in the three-year period ended December 31, 1996, 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 12, 1997, relating to the
consolidated balance sheets of DH Technology, Inc. and subsidiaries as of
December 31, 1996, and 1995, 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, 1996, which report appears in the December 31, 1996
annual report on Form 10K of DH Technology, Inc.
We also consent to the use of our report on the schedule included herein.
/s/ KPMG Peat Marwick LLP/
San Diego, California
March 27, 1997
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