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THE FOLLOWING ITEMS WERE THE SUBJECT OF A FORM 12B-25
AND ARE INCLUDED HEREIN: ITEMS 1, 6, 7 AND 8.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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
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AXIOHM TRANSACTION SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 94-2917470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
15070 AVENUE OF SCIENCE
SAN DIEGO, CA 92128
(Address of principal executive offices)
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
------------------------
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 as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes /X/ 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. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 2,
1998 as reported on the Nasdaq National Market, was approximately $39,979,053.
Shares of Common Stock held by officers and directors and their affiliated
entities have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily conclusive for other
purposes.
As of March 2, 1998, the Registrant had 6,512,926 shares of Common Stock
outstanding.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on April 28, 1998 (the "Proxy Statement") is
incorporated by reference in Part III of this Form 10-K to the extent stated
herein.
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THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
INCLUDING, WITHOUT LIMITATION, STATEMENTS THAT INCLUDE THE WORDS "BELIEVES,"
"EXPECTS," "ANTICIPATES," "PLANS" OR SIMILAR EXPRESSIONS AND STATEMENTS RELATING
TO ANTICIPATED COST SAVINGS, ANTICIPATED NET SALES, THE COMPANY'S GROWTH
OBJECTIVES, THE COMPANY'S STRATEGIC PLANS, THE COMPANY'S ABILITY TO MEET FUTURE
CASH REQUIREMENTS, CAPITAL EXPENDITURES, INDUSTRY TRENDS AND PROSPECTS AND THE
COMPANY'S FINANCIAL POSITION. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT ITS PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE
SET FORTH IN THIS REPORT.
PART I
ITEM 1. BUSINESS
GENERAL
Axiohm Transaction Solutions, Inc. (the "Registrant" or "Company") is a
non-captive designer, manufacturer and marketer of transaction printers. The
Company has a broad product line and manufactures its own thermal and impact
printheads and printer components utilizing thermal, magnetic and impact
technologies. The Company's transaction printer products are used in retail,
financial and commercial transactions to provide transaction records such as
receipts, tickets, register journals, checks and other documents. In addition to
transaction printers, the Company also designs, manufactures and markets: (i)
card readers which, sim techto transaction printers, are an integral part of
transaction activity; and nancibar code printers and related consumable
supplies, which are used for automatic identification and data collection
systems. The Company operates on a world-wide basis with significant activities
in North America and Europe. The Company sells its products to OEMs, VARs,
distributors and end-users.
RECENT ACQUISITION
Until October 2, 1997, the Company operated under the name DH Technology,
Inc. ("DH"). On that date, the last in a series of transactions (the
"Transactions") occurred as a result of which the Company was acquired by Axiohm
S.A., a French corporation ("Axiohm"), and DH, the surviving corporation,
changed its name to Axiohm Transaction Solutions, Inc.
DH, which was headquartered in San Diego, California, has been a leading
designer, manufacturer and marketer of impact transaction printing mechanisms,
impact and thermal transaction printers, impact printheads and thermal bar code
products. DH recently broadened its role in transaction products with strategic
acquisitions of a manufacturer of magnetic heads and a manufacturer of card
readers.
Axiohm, which was headquartered in Montrouge, France, has been a leading
designer, manufacturer, and marketer of thermal transaction printing mechanisms
and thermal and impact transaction printers for both standard and
application-specific uses. Axiohm was created in 1988 through a management
buyout of the thermal printhead business from Schlumberger Limited
("Schlumberger"). At that time, Axiohm had annual sales of approximately $3.0
million. In 1994, Axiohm purchased from NCR Corporation ("NCR") the assets and
operations of NCR's transaction printer business and placed the business in a
wholly-owned U.S. subsidiary, Axiohm IPB, Inc. ("Axiohm IPB").
On August 21, 1997, AX Acquisition Corporation, a California corporation
(the "Purchaser") and an indirect wholly-owned subsidiary of Axiohm, acquired
7,000,000 shares of the Common Stock of DH through a tender offer to the
shareholders of DH at a price per share of $25 in cash (the "Tender Offer"). The
Tender Offer was made pursuant to an Agreement and Plan of Merger, dated July
14, 1997, among DH, Axiohm and Purchaser (the "Merger Agreement"). The 7,000,000
shares acquired by Purchaser in the
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Tender Offer represented approximately 87.5% of the outstanding Common Stock of
DH and thereby gave Axiohm and its controlling shareholders control of DH.
On October 2, 1997, the Purchaser exchanged 5,518,524 shares of the Common
Stock it had acquired in the Tender Offer and approximately $12.2 million in
cash for certain of the outstanding shares of capital stock of Axiohm and all of
the outstanding shares of capital stock of Dardel Technologies S.A. ("Dardel"),
which held the remaining shares of capital stock of Axiohm (the "Axiohm
Exchange"). Immediately after the Axiohm Exchange, DH purchased from Axiohm IPB
all of Purchaser's outstanding capital stock in exchange for the assumption by
DH of the obligations incurred in financing the Tender Offer (the "Acquisition
of Purchaser").
Immediately after the Axiohm Exchange and the Acquisition of Purchaser,
Purchaser was merged with and into DH (the "Merger"). The remaining 1,481,476
shares of DH's Common Stock acquired in the Tender Offer and held by Purchaser
at the time of the Merger were canceled in the Merger. Immediately following the
Merger, approximately 85% of DH's outstanding Common Stock was held by former
Axiohm shareholders, of which 1,753,144 shares were beneficially owned by
Patrick Dupuy and 1,740,555 shares were beneficially owned by Gilles Gibier, who
became Co-Chairmen of the Board of Directors of DH upon completion of the Tender
Offer, and 15% was held by former public shareholders of DH. In January 1998,
following the resignation of William H. Gibbs as President of the Company,
Messrs. Dupuy and Gibier were appointed Co-Chief Executive Officers of the
Company. In March, 1998, the Company announced the appointment of Nicolas
Dourassoff as Chief Executive Officer of the Company, to take effect in May,
1998.
The Company financed the above transactions with (i) borrowings of
approximately $57.0 million under a new $85.0 million credit facility that
provides for term loans in the aggregate principal amount of $50.0 million (the
"Term Loan Facility") and revolving loans and letters of credit up to $35.0
million (the "Revolving Credit Facility" and, together with the Term Loan
Facility, the "New Credit Facility") and (ii) the proceeds of a private
placement (the "Offering") of $120,000,000 of its 9 3/4% Senior Subordinated
Notes due 2007. The Notes were exchanged in March 1998 for new, substantially
identical notes which have been registered under the Securities Act of 1933, as
amended (the "Securities Act") (such new notes herein the "Notes").
INDUSTRY OVERVIEW
Transaction products are used in numerous applications in three primary
vertical markets: (i) the POS market, which includes retailers, supermarkets,
gas stations, convenience stores and fast food retailers; (ii) the financial
services market, for applications such as ATMs, money order machines and bank
teller systems; and (iii) the specialty applications market, for uses in
products such as lottery machines, transportation ticketing machines,
pari-mutuel betting machines and information kiosks. The transaction printer
industry is comprised of non-captive manufacturers, such as the Company, and the
internal manufacturing operations of certain OEMs. This market has experienced
strong and stable growth over the past decade, and the Company expects this
trend to continue primarily as a result of: (i) an increase in the retail,
financial and commercial transaction activity in developed and developing
countries; (ii) an increase in non-cash transaction activity that requires
multiple receipts; and (iii) the continued trend of OEMs to outsource the design
and production of non-core components such as transaction printers and card
readers. The non-captive transaction printer market is highly fragmented, and
includes many small competitors that have limited product lines. The Company
also believes that larger competitors, such as the Company, benefit from a
greater diversification of end-use applications and markets, customers,
technology and geography, which reduces the impact of industry or regional
cyclicality.
Transaction printers utilize impact, direct thermal and thermal transfer
printing technologies. Impact printers create an image by striking an ink
ribbon, transferring ink to paper as the printhead passes over the paper. Direct
thermal printers create an image by passing a heated element over specially
treated paper as the paper passes by the printhead, causing the heated section
of the paper to change color.
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Thermal transfer printers create an image by melting ink from a ribbon onto
paper as the paper passes by the printhead.
Customers select printer technology based on cost, application requirements
and cost of consumables such as paper and ribbons. Impact printers generally
have lower paper costs, can print multiple copies of records and can print on
checks, tickets and forms. Thermal printers are generally faster, print higher
quality images, are quieter, have fewer moving parts and therefore have lower
maintenance costs, last longer and operate in a greater range of environments.
As a result of these factors, impact printers for POS applications generally
represent the lower to middle price range of the transaction printer market,
thermal transaction printers for POS applications generally represent the middle
price range of the transaction printer market and hybrid printers (incorporating
both thermal and impact printing technologies) represent the high end price
range of the transaction printer market. In developing countries and for certain
specialty applications in developed countries, impact printing continues to be
popular because of its lower printer and paper cost and the need to maintain
duplicate paper records. However, for higher end applications in the United
States and Europe, thermal printing represents a greater proportion of new
transaction printer and printer mechanism sales.
PRODUCTS
The Company's products consist of transaction products, bar code products
and related consumable supplies and services. The Company has historically
received the majority of its revenues from the sales of transaction printers and
printer mechanisms and expects to continue to derive a significant portion of
its revenues from sales of transaction printers and printer mechanisms.
Additionally, the Company has an increasing sales presence in two growing
products markets: (i) magnetic stripe and computer chip card readers which,
similar to transaction printers, are an integral part of transaction activity;
and (ii) bar code printers and related consumable supplies, which are used for
automatic identification and data collection systems.
TRANSACTION PRODUCTS
The Company designs, manufactures and sells the following transaction
products: (i) thermal and impact transaction printers and printer mechanisms as
well as a hybrid thermal/impact transaction printer; (ii) impact printheads; and
(iii) magnetic heads, magnetic stripe and computer chip card readers and card
reader modules.
Printheads are the part of the printer that actually creates the image on
the paper. Printer mechanisms are application-specific printers that are
designed to be integrated into an OEM final product. Magnetic heads retrieve
from and store data on a magnetic stripe on a credit or debit card, a check or
an airline ticket or boarding pass. Computer chip card readers retrieve from and
store data on integrated circuits ("chips") imbedded on a card. Card reader
modules are card readers that are designed to be integrated into an OEM final
product. While both magnetic stripe and chip cards can be used for stored value,
credit, debit and personal identification applications, a chip card can store
substantially more data and information than a magnetic stripe card.
TRANSACTION PRINTERS AND PRINTER MECHANISMS. The Company's transaction
printers are largely used in retail, financial and commercial applications. The
Company has a broad offering of transaction printers ranging from basic single
receipt printers, to receipt, slip and journal printers and highly complex
transaction printers incorporating such features as magnetic ink character
recognition ("MICR") check reading. These products are either designed for OEMs
for integration in their final products and systems or as standard products
produced by the Company for non-OEM sales to VARs, distributors and end-users.
The Company has focused on being a solution provider to OEMs for
application-specific transaction printer mechanisms. The Company offers its OEM
customers highly developed, customized mechanisms
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that are designed into the OEM's final products and are, consequently, difficult
to replace with products from an alternate supplier. The Company's
application-specific products are designed to adhere to OEM specifications,
including providing electronic and information interface with the other systems
of the OEM's final product, conforming to the space cavity provided in the OEM's
final product and meeting or exceeding performance quality and reliability
standards.
IMPACT PRINTHEADS. Impact printheads are used in a multitude of transaction
printing applications, such as POS receipts, bank transaction printing, lottery
tickets, entertainment tickets and airline tickets. In addition, the Company's
impact printheads are used in a variety of non-transaction printing
applications, including office automation and data processing.
The Company's impact printhead products range from 7 to 42 wires per head
and 200 to 1200 characters per second in print speeds. Technological advances by
the Company and others now enable impact printheads to print text at speeds up
to 1200 characters per second and print multiple text sizes and fonts in draft
quality or letter quality under software control. The Company's strategy has
been to convince large OEM impact printhead manufacturers to outsource their
development and manufacturing of impact printheads to the Company as impact
transaction printheads become less of a product focus for these OEMs, thus
allowing the Company to expand its impact printhead business even though the
market for impact printheads in higher-end applications is declining.
The Company also sells replacement printheads and utilizes its expertise in
printhead design and manufacturing to support its printhead repair and
replacement operations.
MAGNETIC HEADS AND CARD READERS
The Company manufactures magnetic heads, as well as magnetic stripe and
computer chip card readers and card reader modules, all of which are utilized in
the "input" or "front-end" of transaction activity. The Company's card reader
products read either magnetic stripe cards or computer chip cards, and in some
cases both magnetic stripe and computer chip cards. The Company entered the
magnetic head and the card reader markets through two strategic acquisitions in
late 1995 and early 1997. The Company believes that these "input" or "front-end"
transaction products complement the Company's expertise and leading position in
the "output" or "back-end" printing segment of transaction activity.
BAR CODE PRODUCTS
The Company's bar code products are primarily utilized in commercial, retail
and service environments to print labels and bar codes to automate the
collection of information. Typical applications include product identification,
inventory control, work order tracking and shipping and receiving in retail,
hospital and pharmaceutical, industrial, materials handling, and car and
equipment rental industries. The Company's bar code printer products incorporate
direct thermal and thermal transfer technology into a wide range of products,
including compact desktop printers designed for medium volume printing
requirements, portable printers for on-demand printing, industrial printers
designed for high volume printing and/or harsh environment printing, and print
and apply products for wholesale and industrial applications that automatically
apply bar code labels in high speed packaging environments. In addition, the
Company supplies a full range of related supplies including stock and custom bar
code labels as well as other custom label products and software.
PRODUCT DEVELOPMENT
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
December 31, 1997, the Company had 139 employees dedicated to research and
development and spent $6.6 million and $10.0 million in 1996 and 1997,
respectively, for research and development.
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Most of the product and product feature innovations developed by the Company
arise out of creative mechanical and electrical engineering approaches and close
cooperation between the sales and marketing and engineering divisions. Customers
generally inform the Company of their transaction printing requirements, but
generally depend upon the Company to design a product that is suitable for the
desired application. For its OEM customers, the Company's engineers work closely
with each OEM's design and engineering department to provide a comprehensive,
application-specific transaction printer solution.
The Company has developed many technologies and improvements in the field of
transaction printing and processing to improve speed, performance and ease of
use and to reduce the overall cost of its transaction printers. Such
improvements include innovations in the areas of paper loading, paper cutters,
print speeds, check processing incorporating MICR and proprietary software
drivers that are compatible with various hardware platforms and the Windows 95,
Windows NT and OLE for Point-of-Sale Operating Systems. In 1996 and 1997, the
Company's new product introductions included low-cost thermal and impact
printers, a liner-less bar code label printer, a lower-cost general purpose bar
code printer, an Ethernet bar code printer, an easy-load, multi-station POS
impact printer, a high speed thermal printer and the first clamshell shuttle
printer.
The Company holds various U.S. and foreign patents on impact and thermal
printheads, transaction printers and printing mechanisms and has various U.S.
and foreign patent applications pending. See
"--Intellectual Property Rights."
SALES AND MARKETING
The Company sells its products to OEMs, VARs, distributors and end-users.
For each of the years ended December 31, 1996 and December 31, 1997,
approximately 70% of its net sales were derived from OEMs after giving pro forma
effect to the Transactions, with the remaining sales largely split equally among
VARs and distributors and direct sales to end-users. Due to the wide variety of
end-users and applications for the Company's transaction and bar code printers
and card reader products, the Company believes that it is effective to sell
through multiple VARs and distributors with defined market niche expertise and
presence as well as to OEMs and end-users. OEMs and VARs provide customers with
a variety of POS components (including printers), accessories, application
software and systems integration expertise. Some OEMs, such as NCR, resell the
Company's products under their own brand names.
The Company maintains sales offices in the United States, France, Germany,
the United Kingdom, Australia, Taiwan, China and Japan and also sells through
distributors in 32 countries in order to reach its worldwide customer base. The
Company employs a collaborative approach to sales and marketing, focusing the
efforts of its sales, engineering and manufacturing resources to present its
products and capabilities to its customers. See footnote 10 to the Company's
Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data.
The Company develops application-specific, customizable and standardized
products. Application-specific products are typically developed for one OEM or
end-user customer. The process to develop and produce application-specific
products typically takes 12 to 18 months. Depending on the product, life cycles
are approximately four to eight years. In the case of the development of an
application-specific printer mechanism printer mechanism for an OEM, the Company
has historically been insulated from competition for approximately five years
since it is expensive and time-consuming for OEMs to change suppliers. The OEM
would be required to reconfigure its cabinetry tools, electronic hardware and
software to the specifications of a particular printer mechanism. In addition,
the product produced by the new supplier would have to undergo extensive product
testing for reliability. The Company's OEM application-specific products also
establish an opportunity for recurring equipment and parts sales as well as
service revenue following the introduction of application-specific products.
The Company develops standard products for a variety of applications that
are sold to VARs, distributors and end-users. In some cases, the Company
develops standard products as derivatives of
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application-specific products or product features previously developed for OEMs.
The process to develop and produce standard products is typically shorter than
application-specific products. The unit volumes for standard products tend to be
smaller but the number of customers is much greater than that of application-
specific products and therefore the Company sells many of its standard products
through distributors.
In addition to specific direct customer marketing efforts, the Company
exhibits at major international trade shows. These trade shows are used to
introduce new products, develop customer leads and help expand the Company's
sales to VARs and distributors. The Company also advertises in major trade
publications.
CUSTOMERS
TRANSACTION PRINTERS AND PRINTER MECHANISMS. The Company sells its
transaction printers to OEMs, VARs, distributors and end-users and its printer
mechanisms to OEMs. The Company recently became the sole global supplier of
thermal printing mechanisms for ATM requirements to NCR, the Company's largest
customer for transaction printers and printer mechanisms in 1997 and 1996.
Application-specific printer mechanisms are typically developed for and sold to
one OEM customer for integration into the OEM's final products. Some OEMs, such
as NCR, resell the Company's transaction printers under their own brand names.
IMPACT PRINTHEADS. The Company sells impact printheads to OEMs for various
transaction and non-transaction applications and has benefitted from the trend
among OEMs of outsourcing the production of non-core components.
CARD READERS. The Company sells its magnetic stripe and computer chip card
reader products to OEMs, VARs, distributors and end-users.
BAR CODE PRODUCTS. The Company sells its bar code products to VARs,
distributors and end-users. The Company's VAR and distributor customers enhance
the value of the Company's bar code products by adding software and service.
Sales to NCR, the Company's largest customer, represented 35% and 52%,
respectively, of net sales for the years ended December 31, 1997 and December
31, 1996. No other customer accounted for more than 10% of net sales for the
year ended December 31, 1997 or December 31, 1996. On September 2, 1997, Axiohm
IPB entered into a three-year contract with NCR (the "NCR Contract"). The NCR
Contract provides that NCR and Axiohm IPB intend and expect that NCR will
purchase from Axiohm IPB substantially all of its requirements for transaction
printers of the type manufactured by Axiohm IPB (the "Covered Products"). In
case there is reason to believe that NCR is purchasing less than 75% of its
requirements for Covered Products from Axiohm IPB at any time during the term of
the agreement, there is an obligation for both parties to work together in good
faith to eliminate such deficiency. The NCR Contract provides that NCR's
purchase commitment is subject to Axiohm IPB's ability to meet NCR's
specifications and requirements for price, performance, quality, service and
delivery with respect to such Covered Products. Any failure by NCR to continue
purchasing products from the Company at historical levels or the termination of
the NCR Contract would have a material adverse effect on the Company's business,
financial condition and operating results.
BACKLOG
Most customers purchase products from the Company under purchase orders that
specify prices for particular quantities. The total backlog under such purchase
orders was $51,470,000 as of March 6, 1998, compared to $48,139,000 as of March
3, 1997 taking into account total backlog for both DH and Axiohm. 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.
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COMPETITION
The markets in which the Company competes are extremely competitive and the
Company expects that competition will increase. The Company believes the
principal competitive factors in its business are product features, price,
product reliability, ability to meet customer delivery schedules, customer
service and support, reputation and distribution. The Company believes that it
competes favorably with respect to each of these factors. The Company competes
with other manufacturers of transaction products and bar code products,
including in some cases the captive suppliers of some of its OEM customers. Many
of the Company's competitors have significantly greater financial and other
resources than the Company and may have greater access to distribution channels.
The Company's principal competitor is Epson America along with affiliated Epson
entities, including Seiko Epson.
The Company's future prospects will be highly dependent upon the successful
development and introduction of new products that are responsive to market
needs. There can be no assurance that the Company will be successful in
developing or marketing such products. To remain competitive, the Company
believes that it will be required to maintain a high level of technological
expertise and deliver reliable, cost-effective products on a timely basis. There
can be no assurance that the Company will have sufficient resources to continue
to make the investments necessary to maintain its competitive position. A
failure to remain competitive would have a material adverse effect on the
Company's business, financial condition and results of operations.
MATERIALS
The Company's materials purchases are primarily comprised of custom-designed
component parts used in the assembly of the Company's products, most of which
use tooling designed and owned by the Company. The Company's principal
custom-designed component parts include printed circuit boards, plastic
injection molded parts, power supplies, metal stampings and motors, among other
items. The Company purchases its component parts from a variety of suppliers,
and believes alternate sources of supply are readily available.
MANUFACTURING
The Company manufactures its thermal printheads in Puiseaux, France and its
impact printheads and magnetic heads in Tijuana, Mexico. Transaction printers
and mechanisms are manufactured in Ithaca, New York; Puiseaux, France; Riverton,
Wyoming; and Manchester, England. Bar code printers are manufactured in Paso
Robles, California; and bar code printing labels and supplies are produced in
Denver, Colorado. Magnetic stripe and computer chip card readers are
manufactured in Carson, California. At the time of the acquisition of DH the
Company implemented a plan to review the benefits of consolidating operations to
achieve purchasing, manufacturing and other synergies.
The Company manufactures its products 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 transaction printers and mechanisms and its bar code
products.
The Company's San Diego, Tijuana, Ithaca and Riverton facilities are
certified ISO 9001, and the Manchester and Puiseaux facilities are certified ISO
9002.
The Company began manufacturing impact printheads in Mexico in 1986 to
benefit from a more cost-effective location. Currently, the Company manufactures
all of its impact printheads in Mexico.
INTELLECTUAL PROPERTY RIGHTS
The Company holds various U.S. and foreign patents on impact printheads,
transaction printers, magnetic card readers and bar code products and has
applied for additional domestic and foreign patents.
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The basic technology for many of the Company's products is based upon these
patents and on manufacturing expertise. There can be no assurance that any
issued patents will provide the Company with competitive advantages or will not
be challenged by third parties, or that the patents of others will not have a
material adverse effect on the Company's ability to do business, or that others
will not independently develop similar products, duplicate the Company's
products, or design around the patents issued to the Company.
The Company has in the past been, and may in the future be, notified that it
may be infringing intellectual property rights possessed by third parties. In
addition, the Company has in the past commenced, and may in the future, commence
litigation against third parties for infringement of the Company's intellectual
property rights. See "Item 3. Legal Proceedings." Any such litigation initiated
by the Company or by others is, at a minimum, costly, and can divert the efforts
and attention of the Company's management and technical personnel, which can
have a material adverse effect on the Company's business, financial condition
and results of operations. Furthermore, there can be no assurance that other
infringement claims by third parties or other claims for indemnification by
customers or end-users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven to
be true, will not have a material adverse effect on the Company's business,
financial condition and results of operations. If any such claims are asserted
against the Company, the Company may seek to obtain a license under the third
party's intellectual property rights. There can be no assurance, however, that a
license will be available on commercially reasonable terms, if at all. The
Company could decide, in the alternative, to resort to litigation to challenge
such claims or to design around the patented technology. Such actions could be
costly and would divert the efforts and attention of the Company's management
and technical personnel, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
As of December 31, 1997, the Company had 1,513 full-time employees,
including 154 in research and development. Other than the approximately 200
hourly production and manufacturing employees (as of December 31, 1997) at the
Ithaca, New York manufacturing facility, no United States employees of the
Company are represented by a labor union. The Company's Ithaca employees are
members of the International Association of Machinists and Aerospace Workers.
There is a collective bargaining agreement in place with this union until July
1999. To date, the Company has not experienced any work stoppages or significant
employee-related problems at its Ithaca, New York manufacturing facility. The
Company considers its relationship with the union and its other employees to be
satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's Executive Officers is as follows:
Patrick Dupuy, 45, has served as a director and Co-Chairman of the Company
since October 1997 and as Co-Chief Executive Officer of the Company since
January 1998. Mr. Dupuy has been Chairman of Axiohm S.A. since its purchase from
Schlumberger by Axiohm S.A. management in 1988. Mr. Dupuy joined Schlumberger in
1984 as Marketing and Sales Manager for several Schlumberger divisions,
including printer products and low voltage equipment. Prior to joining
Schlumberger, Mr. Dupuy was employed as head of export sales for IER S.A., a
world leader in airline ticket printers.
Gilles Gibier, 43, has served as a director and Co-Chairman of the Company
since October 1997 and as Co-Chief Executive Officer of the Company since
January 1998. Mr. Gibier has been a director of Axiohm S.A. since its purchase
from Schlumberger by Axiohm S.A. management in 1988. Mr. Gibier joined
Schlumberger in 1983. Mr. Gibier held various positions at Schlumberger,
including Divisional General Manager in France, where he was responsible for
divesting certain non-strategic operations, Manager of Internal Business Audit
in the U.S., and Plant Manager of an energy meter plant in the United Kingdom.
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<PAGE>
Walter Sobon, 49, has served as the Chief Financial Officer of the Company
since 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. Sobon is
a certified public accountant.
Malcolm Unsworth, 48, has served as Vice President of Operations for the
Company since September 1997. He has been the Vice President and General Manager
of Axiohm IPB since April 1995. Prior to joining Axiohm IPB, Mr. Unsworth worked
for Schlumberger for 17 years in various North American General Manager
positions including the Retail Petroleum Systems Division, the Transducer
Division, the Electricity Measurement Division and the Defense Systems Group. In
two of these positions, Mr. Unsworth was the immediate General Manager following
the acquisition of the businesses by Schlumberger and led the consolidation and
rationalization activity of numerous businesses within each group.
Bernard Patry, 45, has served as Vice President of Sales and Marketing of
Transaction Products for the Company since September 1997. He was the Vice
President of Sales for Axiohm, from February 1997 to September 1997. From 1991
to 1995, Mr. Patry was the Chief Executive Officer of Axiohm and from 1995 to
1997, he was Vice President of Marketing and Business Development of Axiohm.
Nicolas Dourassoff, 42, has agreed to become the Company's Chief Executive
Officer in May 1998. Mr. Dourassoff is currently a Director of the Company and
is a Managing Director of ABN AMRO Investissement, the investment subsidiary of
ABN AMRO (a Dutch Bank), a position he has held since June 1993. Prior to that,
he had served as the Director of the Acquisition Financing Department of Banque
De Neuflize, Schlumberger Mallet, a subsidiary of ABN AMRO, from January 1994
through June 1995. Mr. Dourassoff received his MBA from Groupe HEC (France) and
his Bachelor of Science degree from the Ecole Nationale Superieure de Techniques
Avancees (France) and holds an engineering degree from the French Naval Academy,
where he graduated as an officer.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The risk factors set forth below and elsewhere under this Item 1 including,
without limitation under the captions "Customers," "Backlog," 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.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE. The Company is, and will continue to
be, highly leveraged. On December 31, 1997, the Company's total debt was $171.5
million and the Company had a shareholders' deficit of $18.1 million. Required
principal payments under the New Credit Facility and Notes are as follows: $5.2
million in 1998; $7.8 million in 1999; $7.8 million in 2000; $9.1 million in
2001; $5.6 million in 2002; $12.25 million in 2003; and $120.0 million in 2007.
In 1998, it is anticipated that capital expenditures will not exceed the limit
of $10.5 million permitted under the New Credit Facility. For the year ended
December 31, 1997 and the year ended December 31, 1996, after giving pro forma
effect to the Transactions as if they had occurred on January 1, 1997 and 1996,
respectively, income (loss) before income taxes and fixed charges would have
been insufficient to cover fixed charges by $25.2 million and $27.6 million,
respectively.
The Company's ability to make scheduled payments of principal of, or to pay
the premium, if any, interest or liquidated damages, if any, thereon, or to
refinance its indebtedness, or to fund planned capital expenditures, will depend
upon its future performance, which, in turn, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. There can be no assurance that the Company's business will
generate cash flow at or above anticipated levels or that the Company will be
able to borrow funds under the New Credit Facility in an amount sufficient to
enable the Company to service its indebtedness, including the Notes, or make
anticipated capital expenditures. If the
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<PAGE>
Company is unable to generate sufficient cash flow from operations or to borrow
sufficient funds in the future to service its debt, it may be required to sell
assets, reduce capital expenditures, refinance all or a portion of its existing
indebtedness (including the Notes) or obtain additional financing. There can be
no assurance that any such refinancing would be available on commercially
reasonable terms, or at all, or that any additional financing could be obtained,
particularly in view of the Company's high level of indebtedness, the
restrictions on the Company's ability to incur additional indebtedness under the
New Credit Facility and the indenture under which the Notes were issued (the
"Indenture"), and the fact that substantially all of the Company's and its
subsidiaries' assets have been pledged to secure obligations under the New
Credit Facility.
In addition, the Indenture and the New Credit Facility contain financial and
other restrictive covenants that limit, among other things, the ability of the
Company to borrow additional funds. Failure by the Company to comply with such
covenants could result in events of default under the Indenture and the New
Credit Facility which, if not cured or waived, could permit the indebtedness
thereunder to be accelerated which would have a material adverse effect on the
Company's business, financial condition and results of operations.
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.
In addition, the Company periodically evaluates 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. 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.
Axiohm has historically experienced, and the Company expects to experience,
relatively lower levels of sales of transaction printers during the period from
mid-November to the end of December. The Company believes that this seasonality
has been caused by the fact that some of its POS customers do not install new
systems in their facilities between Thanksgiving and Christmas, so as not to
disturb their sales flow during this heavy selling period.
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.
INTEGRATION OF OPERATIONS. The integration of the administrative, finance
and manufacturing operations of Axiohm and DH, the coordination of their
respective sales and marketing staffs and the implementation of appropriate
operational, financial and management systems and controls will require
significant financial resources and substantial attention from management. As
part of the plan to achieve purchasing, manufacturing and other synergies, the
Company has identified certain potential cost savings related to the business
combination effected by the business combination. The Company expects to incur
significant integration costs through 1999 related to the Merger and the
aforementioned potential cost savings. Any inability of the Company to integrate
these companies successfully in a timely and efficient
11
<PAGE>
manner could have a material adverse effect on the Company's business, financial
condition and results of operations and would adversely affect its ability to
realize its planned cost savings or would require additional expenditures to
realize such cost savings. In addition, even if the businesses of Axiohm and DH
are successfully integrated, no assurance can be given that future expenses can
be reduced by the expected cost savings. The Company's prospects should be
considered in light of the numerous risks commonly encountered in business
combinations. In addition, the historical financial statements presented in this
Report may not necessarily be indicative of the results that would have been
attained had the Company actually operated on a combined basis.
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.
MANAGEMENT OF FUTURE ACQUISITIONS. Historically, the Company has achieved a
portion of its growth through acquisitions of other businesses, and the Company
intends 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 Company
will be able to consummate any beneficial acquisitions in the future or that the
anticipated benefits of any acquisition will be realized. If any such
acquisitions are consummated, a failure by the Company to manage any such
acquisitions successfully could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, there may
be future acquisitions that could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets associated
with the acquisitions of other businesses, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
FUTURE SALE OF AXIOHM EXCHANGE SHARES. Sales of a substantial number of
shares of the Company's Common Stock in the public market could adversely affect
the market price for the Company's Common Stock. While the 5,518,524 shares of
Common Stock exchanged for shares of Axiohm and Dardel in the Axiohm Exchange
(the "Axiohm Exchange Shares") are "restricted securities" under the Securities
Act, the Company currently plans to register the Axiohm Exchange Shares for sale
by the holders thereof on the public market beginning in May 1998. Such sales,
or the potential for such sales, could have a material adverse effect on the
market price for the Company's Common Stock.
YEAR 2000 COMPLIANCE. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. Beginning in the year 2000, these date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
The Company has purchased the necessary hardware and software, and is
currently in the process of implementing firmwide, Oracle enterprise resource
planning system ("ERP") Version 10.6. To date, Version 10.6 has been implemented
in several locations and is expected to be implemented in other locations.
Although Version 10.6 does not fully address Year 2000 requirements, the Company
believes that Oracle ERP Version 10.7 does. Such Version 10.7 has already been
released by Oracle, and the
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<PAGE>
Company anticipates implementing such Version 10.7 prior to the beginning of the
year 2000. The total cost to the Company of converting to Oracle ERP firmwide,
is estimated to be approximately $1.0 million.
Failure to implement Oracle ERP Version 10.7 or some other form of
enterprise software that addresses Year 2000 requirements prior to the year 2000
might result in significant difficulties in the Company's administration of
invoicing and payables and other processes. Such difficulties could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ITEM 2. PROPERTIES.
The following table sets forth the Company's existing manufacturing and
other facilities:
<TABLE>
<CAPTION>
LEASE
LOCATION PURPOSE EXPIRATION DATE SQUARE FEET
- ----------------------------------------- ----------------------------------------- --------------- -----------
<S> <C> <C> <C>
San Diego, California.................... Executive offices, marketing, engineering 2000/2001 22,500
Sevres, France........................... Executive offices 2006 3,500
Montrouge, France........................ Marketing and research and development 2006 25,000
Riverton, Wyoming........................ Manufacturing, marketing, research and 2002 40,000
development
Paso Robles, California.................. Manufacturing, marketing, research and 1998 45,000
development
Carson, California....................... Manufacturing, research and development 1998 30,000
Denver, Colorado......................... Manufacturing, marketing, research and 2004 25,000
development
Tijuana, Mexico.......................... Manufacturing * 27,000
10,500
Ithaca, New York......................... Manufacturing, marketing, research and Owned 270,000
development, administration
Puiseaux, France......................... Manufacturing 2010 75,000
Manchester, England...................... Manufacturing Owned 12,000
Sydney, Australia........................ Marketing, technical support 2003 7,180
</TABLE>
- ------------------------
* The Company leases its Tijuana facilities on a month-to-month basis.
The Company does not own any facilities other than the Manchester and Ithaca
facilities. The term of the Montrouge facility lease expires in June 2006;
however, under French law, the Company has the option to terminate the lease in
June of 2000 or 2003, without penalty. The Puiseaux facility is occupied under a
capitalized lease that commenced in 1995 and terminates in 2010. Pursuant to the
terms of the Puiseaux lease, the Company is committed to make payments through
the end of the term, but will be able to purchase the facility at the end of the
term for the sum of one French franc.
The Company believes that its existing facilities are generally suitable and
adequate for its businesses and has generally been able to renew its
manufacturing and office facilities leases as they expire at then-current market
rates. The Company believes that renewal of existing leases at market rates will
not have a material adverse effect on operating expenses or cash flow.
ITEM 3. LEGAL PROCEEDINGS.
In August 1992, DH filed a complaint in the U.S. District Court for the
Northern District of California alleging infringement of DH's U.S. Patent No.
5,115,493 by Synergystex International, Inc. ("Synergystex") and seeking
injunctive relief and unspecified damages. Synergystex subsequently asserted a
counterclaim against DH alleging that U.S. Patent No. 5,115,493 is invalid,
unenforceable and not infringed. In
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<PAGE>
August 1996, the District Court granted a Motion for Summary Judgment, finding
on its own motion that DH's patent was invalid for improper payment of a small
entity fee and entered a judgment dismissing DH's complaint. In November 1996,
DH appealed the District Court's judgment to the Federal Circuit Court of
Appeals. After DH filed its opening brief on appeal, the Federal Circuit Court
of Appeals stayed the appeal pending a collateral ruling from the district
court. That ruling was recently issued, and the Federal Circuit has reactivated
the appeal. The Federal Circuit is scheduled to hear oral arguments on the
appeal on May 4, 1998. There can be no assurance that the Company will prevail
in this litigation or that it will not incur significant legal fees and expenses
to further pursue this litigation.
On June 17, 1997, Axiohm filed a complaint in the Central District of
California alleging infringement of Axiohm's U.S. Patent No. 5,579,043 by Seiko
Epson and Epson America. On December 22, 1997, Seiko Epson and Epson America
filed an answer to Axiohm's complaint as well as counterclaims against both
Axiohm and Axiohm IPB. In their response, Seiko Epson and Epson America deny the
validity of Axiohm S.A.'s Patent No. 5,579,043 and infringement thereof, and
seek declaratory relief to that effect. Seiko Epson and Epson America further
allege that Axiohm and Axiohm IPB have infringed and are infringing Seiko
Epson's U.S. Patent Nos. 5,437,004, 5,594,653 and 5,555,349, and seek injunctive
relief, treble damages and attorneys' fees. Although the Company believes its
claims are meritorious, such litigation could be costly and time-consuming. In
the event of an adverse result in such litigation, the Company could be required
to pay substantial damages; indemnify its customers; cease the manufacture, use
and sale of any infringing products; expend significant resources to develop
non-infringing technology; discontinue the use of certain technology or obtain
licenses to any infringing technology; any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will ultimately prevail
in any litigation with Seiko Epson or Epson America.
From time to time the Company is involved in legal proceedings arising in
the ordinary course of its business. The Company does not believe that the
outcome of any such legal proceedings will have a material adverse effect on its
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market, trading
symbol AXHM. As of December 31, 1997, there were 444 shareholders of record of
the Company's 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
Common Stock in each quarter in 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- --------------------
YEARS ENDED HIGH LOW HIGH LOW
- ------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter.......................................... $ 24.13 15.00 $ 24.50 $ 21.25
Second Quarter......................................... 18.00 13.50 27.75 22.00
Third Quarter.......................................... 24.25 15.75 26.50 22.50
Fourth Quarter......................................... 19.00 16.50 25.25 22.75
</TABLE>
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996 1995 1994
-------------- ------------- ------------- -------------
INCOME STATEMENT DATA
Revenue:
Net sales........................................ $ 153,748,000 $ 95,302,000 $ 72,155,000 $ 23,952,000
Other............................................ -- -- -- 858,000
-------------- ------------- ------------- -------------
Total revenue................................ 153,748,000 95,302,000 72,155,000 24,810,000
Cost of net sales.................................. 102,600,000 66,390,000 52,202,000 15,095,000
-------------- ------------- ------------- -------------
Gross margin....................................... 51,148,000 28,912,000 19,953,000 9,715,000
Operating expenses:
Selling, general and administrative.............. 19,139,000 11,013,000 9,200,000 4,506,000
Research and development......................... 10,033,000 6,648,000 5,836,000 3,310,000
In-process technology............................ 34,236,000 -- -- --
Amortization of intangible assets................ 11,474,000 200,000 161,000 --
-------------- ------------- ------------- -------------
Total operating expenses..................... 74,882,000 17,861,000 15,197,000 7,816,000
-------------- ------------- ------------- -------------
Income (loss) from operations...................... (23,734,000) 11,051,000 4,756,000 1,899,000
Interest expense and other income, net............. (9,940,000) 159,000 (1,731,000) 13,000
-------------- ------------- ------------- -------------
Income (loss) before income taxes.................. (33,674,000) 11,210,000 3,025,000 1,912,000
Income taxes....................................... 5,784,000 4,406,000 1,095,000 482,000
-------------- ------------- ------------- -------------
Net income (loss).................................. $ (39,458,000) $ 6,804,000 $ 1,930,000 $ 1,430,000
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Basic:
Net income (loss) per share...................... $ (6.06) $ 1.08 $ 0.32 $ 0.24
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Shares used in per share calculation............. 6,513,000 6,276,000 6,016,000 6,016,000
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Diluted:
Net income (loss) per share...................... $ (6.06) $ 1.08 $ 0.32 $ 0.24
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Shares used in per share calculation............. 6,513,000 6,300,000 6,016,000 6,016,000
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.................................... $ 32,249,000 $ 14,072,000 $ 12,713,000 $ 10,875,000
Total assets....................................... 204,044,000 43,978,000 40,184,000 34,753,000
Long-term debt..................................... 171,512,000 7,770,000 19,508,000 19,415,000
Shareholders' equity (deficit)..................... (18,081,000) 16,433,000 5,977,000 4,302,000
</TABLE>
The selected financial data should be read with the related consolidated
financial statements and notes thereto, included herein.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included herein.
BACKGROUND
EFFECT OF ACQUISITIONS
The Company was formed from the combination of Axiohm S.A. a French
corporation ("Axiohm") and DH Technology, Inc. ("DH"). Historically, Axiohm and
DH have achieved a portion of their growth through the acquisition of other
businesses and the Company intends to pursue additional acquisitions as a part
of its growth strategy. See "Item 1. Business--Certain Factors That May Affect
Future Results-- Management of Future Acquisitions", and Note 2 of Notes to the
Consolidated Financial Statements.
In December 1994, Axiohm acquired the transaction printer business of NCR
Corporation ("NCR"), and placed the business in an indirect wholly-owned
subsidiary of Axiohm, Axiohm IPB, Inc. ("Axiohm IPB"). The purchase price
consisted of $15.6 million paid at closing and earn-out payments of $552,000 and
a $952,000 final payment in 1998. Axiohm recorded approximately $3.0 million of
goodwill in connection with this acquisition, which was accounted for using the
purchase method of accounting.
On August 21, 1997, an indirect wholly-owned subsidiary of Axiohm
("Purchaser"), acquired 7,000,000 shares of the Common Stock of DH
(approximately 88%) through a tender offer to the shareholders of DH (the
"Tender Offer"), resulting in a change in control of DH. On October 2, 1997, the
Purchaser exchanged 5,518,524 shares of the Common Stock it had acquired in the
Tender Offer and approximately $12.2 million in cash for certain of the
outstanding shares of capital stock of Axiohm and all of the outstanding shares
of capital stock of Dardel Technologies S.A. ("Dardel"), which held the
remaining shares of capital stock of Axiohm. Immediately after this exchange, DH
purchased from Axiohm IPB all of Purchaser's outstanding capital stock in
exchange for the assumption by DH of the obligations incurred in financing the
Tender Offer. Purchaser was then merged with and into DH (the "Merger"), and the
remaining 1,481,476 shares of DH's Common Stock acquired in the Tender Offer and
held by Purchaser at the time of the Merger were canceled. The aggregate
purchase price of $209.1 million consisted of cash for DH shares and stock
options, transaction costs and the fair value of DH shares not tendered. The
above transactions were financed with (i) borrowings of approximately $57.0
million under a new $85 million credit facility that provides term loans in the
aggregate principal amount of $50.0 million (the "Term Loan Facility", and
revolving loans and letters of credit of up to $35.0 million (the "Revolving
Credit Facility", and together with the Term Loan Facility, the "New Credit
Facility") and (ii) the proceeds of the Offering of $120,000,000 of its 9 3/4%
Senior Subordinated Notes due in 2007. See "Item 1. Business--Recent
Acquisition".
Although DH was the surviving legal entity, the transaction was accounted
for as a purchase of DH by Axiohm. For 1996, the following discussion includes
the results of operations of Axiohm only. For 1997, the following discussion
includes the results of operations of Axiohm for the full year plus the results
of operations of DH since August 31, 1997. While the effective date of the
Merger was October 2, 1997 for legal purposes, the effective date of the
acquisition of DH for accounting purposes was August 31, 1997.
In connection with the DH acquisition, the Company (i) incurred a non-cash
charge of $34.2 million due to the write-off of acquired in-process technology
that had not reached technological feasibility and had no future alternative use
and (ii) will amortize approximately $99.5 million of goodwill and other
intangibles over the next three years. Of the approximately $12.2 million paid
for DH stock options, approximately $8.6 million was funded to a Rabbi trust and
is reflected on the Company's balance sheet as restricted cash at December 31,
1997. See Note 2 of Notes to the Consolidated Financial Statements.
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<PAGE>
IN-PROCESS TECHNOLOGY AND INTANGIBLES
As part of the acquisition of DH, the Company acquired in-process research
and development and technology, developed technology, customer lists, workforce
and goodwill. After an initial review of the activities and assets of DH, $50.8
million of the purchase price was allocated to in-process technology, $22.9
million was allocated to acquired technology, $5.1 million was allocated to
customer lists and $2.1 million was allocated to workforce. The remaining value
of $51.5 million was allocated to goodwill. Based upon information received
subsequent to the third quarter of 1997 related to the allocation of the
purchase price, the Company reallocated approximately $16.6 million from
in-process research and development to goodwill. At the time of the acquisition
of DH, the Company implemented a plan to achieve purchasing, manufacturing and
other synergies. Costs related to such activities of DH could result in
additional costs that may be reflected as additional goodwill.
The acquired in-process research and development had not reached
technological feasibility, had no alternative future use and was charged to
operations in accordance with generally accepted accounting principles. The
in-process technology was material to the future operations of DH in terms of
expected revenues and cash flows, and included several development activities or
projects.
Frequent refinement and enhancement of existing products and new product
introductions characterize the markets for some of the Company's products. The
Company's future prospects are highly dependent upon the timely completion and
introduction of new products at competitive price and performance levels and the
acceptance by new markets of the Company's products. The Company also must
respond to current competitors, which may choose to increase their presence in
the Company's markets, and to new competitors, which may choose to enter those
markets. To anticipate and respond to competitive activities, DH had invested in
research and development projects.
Some of the larger projects were designed to:
- Introduce a multi-station printer intended to be a direct competitor to
products of two of DH's largest competitors. The printer would incorporate
thermal and impact technology and be used in POS applications to print
receipts and print, verify and validate checks,
- Introduce a multi-station printer to be used primarily in banking
applications at the teller station,
- Introduce a printer with new technology (new to POS applications) to be
used where an extremely quiet performance was required,
- Introduce two low cost thermal receipt printers,
- Introduce two thermal transfer, low cost, bar code/label printers (each of
the printers would hold label stock of various dimensions), and
- Introduce two direct thermal low cost, bar code printers (each of the
printers would hold label stock of various dimensions).
The three largest projects, in terms of expected future revenues, were
estimated to contribute significant revenues during fiscal years 1998 and 1999.
Many of the projects were in an advanced state of development.
At the time of acquisition, the Company did not have a specific plan nor had
specific actions been identified concerning any modification to specific product
development projects, although it was generally expected that economies from the
merger would include consolidation of the research and development activities of
the two companies over a several year time period.
Subsequent to the acquisition, a new management team was constituted and
undertook post-combination reviews of the merged companies' product development
activities to determine the optimal
17
<PAGE>
allocation of resources to product development. As a result of these
post-combination product development reviews, management directed that resource
allocations to four of twenty-one DH projects be suspended or curtailed because
other projects were believed to offer advantages in terms of the timing of
marketability at the time of these reviews. Each of four specific projects was
assigned the following purchase price allocations at the time of acquisition:
$4.7 million, $2.7 million, $6.4 million and $2.9 million. Therefore, as a
result of these reviews, the Company does not expect to be negatively affected
in the marketplace because of the existence of the other development projects
and new projects to which resources were allocated, although the expected future
operations of DH could be impacted as a result of lower expected revenues and
lower levels of research and development expenditures related to these specific
projects.
To fully develop the other projects and to develop other new projects, the
Company expects that research and development expenditures, as a percent of
sales, will not be materially different from historical levels, and accordingly
will not have a material adverse impact on future operations and cash flow.
However, there can be no assurance that any of the in-process research and
development projects or any new projects started by the Company will be
successful in the marketplace. There can also be no assurance that activity in
the competitive marketplace will not intensify and cause the Company to make a
greater investment in research and development. If the development of in-process
technology or the investment in new projects is not successful, there would be a
material adverse effect on future operations of the acquired business of DH
which could adversely impact the Company's standing in the marketplace with
current customers and employees. Accordingly, there could be an accelerated
amortization or immediate future write-off of acquired technology, customer
lists, goodwill and workforce. In addition, while the Company is not aware of
any new fundamental technologies for transaction printers that are likely to be
a significant factor in the near future or of a greater intensity in the
marketplace which would require greater research and development expenditures,
no assurance can be given that the Company's competitors will not introduce new
technologies or technological improvements that will place the Company at a
competitive disadvantage. The failure by the Company to make timely introduction
of new products or respond to competitive threats could have a material adverse
effect on its business, financial condition and results of operations.
In evaluating the period to amortize goodwill and other intangible assets
(acquired technology, customer lists and workforce), the Company considered many
factors, including but not limited to (i) the age of its existing product lines,
(ii) the Company's current market share, (iii) competitors' technology, (iv)
pricing and market share, (v) the amount of rapid change in product design and
technology, (vi) the rate of change in its employee base, (vii) its customer
base, (viii) its own research and development efforts, and (ix) the potential
periods for which the earnings stream from acquired products and technology will
have a significant impact upon combined operating results. The Company also
specifically:
- Reviewed the financial performance and level of product activity of four
public companies that were either direct competitors or competed in
markets with similar characteristics,
- Reviewed the length of customer contracts and the criteria for termination
of the contracts,
- Reviewed the turnover of key employee groups and how that turnover is
influenced by intense competition in the marketplace,
- Reviewed the expected actions of competitors in response to the Company's
new product introductions and their financial strength in relation to that
of the Company, and,
- Reviewed the periods that several companies (either competitors or
companies with similar characteristics) amortize intangible assets.
After consideration and evaluation of these and other factors, management has
concluded that a 3-year amortization of goodwill and other intangibles would be
appropriate.
18
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING PERCENTAGES
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of net sales................................................... 66.7% 69.7% 72.3%
Selling, general, and administrative................................ 12.4% 11.6% 12.8%
Research and development............................................ 6.5% 7.0% 8.1%
In-process technology............................................... 22.3% 0.0% 0.0%
Intangible amortization............................................. 7.5% 0.2% 0.2%
Income (loss) from operations....................................... (15.4)% 11.6% 6.6%
Income (loss) before income taxes................................... (21.9)% 11.8% 4.2%
Income taxes........................................................ 3.8% 4.6% 1.5%
Net income (loss)................................................... (25.7)% 7.1% 2.7%
</TABLE>
1997 COMPARED TO 1996
NET SALES. 1997 net sales of $153.7 million increased 61.3% compared to net
sales of $95.3 million for 1996. This increase was attributable to the addition
of DH net sales of $34.7 million and an internal growth in net sales of $23.7
million. The increase in net sales reflects increased unit volumes of
transaction printers and printer mechanisms partially offset by a decline in
average selling prices and a unit decline in sales of thermal mechanisms. The
Company achieved net sales of $54.2 million in the fourth quarter of 1997 and
expects net sales in the first quarter of 1998 to approximate that level. The
Company's long-term growth objectives, over a three to five year period, are to
grow revenues at a rate of approximately 12% to 15% and to grow operating profit
before acquisition related charges in excess of sales growth.
COST OF NET SALES. Cost of net sales as a percentage of revenues decreased
to 66.7% in 1997 from 69.7% in 1996. The decline was due to a favorable impact
of the exchange rate between the U.S. dollar and the French franc for products
manufactured in France and sold in the U.S., lower purchase prices of components
and parts, continuing technology improvements and higher absorption of
relatively fixed overhead costs partially offset by a decrease in average
selling prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $19.1 million for 1997 increased $8.1 million or
73.6% from $11.0 million in 1996. Selling, general and administrative expenses
as a percentage of revenues increased to 12.4% in 1997 from 11.6% in 1996. This
increase was primarily the result of the inclusion of expenses attributable to
DH of $6.5 million, an increase of $1.2 million in base expenses and a $442,000
non-cash charge for stock options. The increase in base expenses was primarily a
result of higher staffing levels and expenses required to support increased
sales, offset, in part, by the favorable impact of the fluctuations in the U.S.
dollar compared to the French franc.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of
$10.0 million in 1997 increased $3.4 million or 51.5% from $6.6 million in 1996.
This increase was primarily due to the inclusion of expenses attributable to DH
of $2.2 million. Research and development expenses as a percentage of revenues
decreased to 6.5% in 1997 from 7.0% in 1996. The Company believes that the
timely development of new products and enhancements to its existing products are
essential to maintaining its competitive position. Accordingly, the Company
anticipates that such expenses will continue to increase in absolute dollar
terms for the foreseeable future but will not vary significantly from historical
levels as a percent of net sales.
IN-PROCESS TECHNOLOGY. In conjunction with the acquisition of DH, the
Company incurred a non-cash charge of $34.2 million due to the write-off of
acquired in-process technology (projects that had not reached technological
feasibility and had no future alternative use). If the Company were to complete
19
<PAGE>
these in-process projects, it would not expect to incur research and development
costs in excess of historical levels as a percentage of sales of DH.
INTANGIBLE AMORTIZATION. Non-cash intangible amortization expense in 1997
increased to $11.5 million in 1997 from $.2 million in 1996 due to the
acquisition of DH. On a quarterly basis through the third quarter of 2000,
intangible amortization will generate approximately $8.3 million in non-cash
acquisition related charges.
INCOME (LOSS) FROM OPERATIONS. The loss from operations for 1997 was $23.7
million, compared to income from operations of $11.1 million in 1996. The loss
from operations in 1997 was largely due to the in-process technology and
intangible amortization charges discussed above.
INTEREST AND OTHER INCOME. Interest and other income of $0.6 million in
1997 decreased $0.6 million from $1.2 million in 1996. In 1996, the Company
received insurance proceeds of $1.0 million as compensation for the loss of
revenue and commercial damage caused by water damage in its clean room facility
located in Puiseaux, France. The Company does not anticipate that it will
generate significant interest income for at least the next 12 months because
substantially all of the Company's cash was used to complete the acquisition of
DH or became restricted following the acquisition.
INTEREST EXPENSE. Interest expense increased to $10.5 million for 1997 from
$1.0 million in 1996 due to the incurrence of the acquisition financing. See
Note 6 of Notes to the Consolidated Financial Statements.
INCOME TAXES. Income taxes of $5.8 million in 1997 increased $1.4 million
from $4.4 million in 1996. Income taxes as a percentage of income (loss) before
taxes, excluding the effect of acquisition related charges, was approximately
29.1% in 1997 compared to 39.3% in 1996 due primarily to changes in tax
jurisdictions and related tax rates as a result of the acquisition of DH. Income
tax expense as a percentage of loss before income taxes including the effect of
acquisition related charges, was 17.2% in the 1997 period primarily due to the
in-process technology charge and intangible amortization being non-deductible
for income tax purposes. The Company expects that its 1998 tax rate before
non-cash acquisition related charges will be approximately 40%. This rate could
vary as a result of the actual income recognized in various tax jurisdictions in
1998.
1996 COMPARED TO 1995
NET SALES. Net sales of $95.3 million for 1996 increased $23.1 million, or
32.1% from $72.2 million in 1995. The net sales increase in 1996 principally
represents increased unit volume from two transaction printer products which
were introduced in 1995 as well as higher transaction mechanism volume.
COST OF NET SALES. Cost of net sales of $66.4 million in 1996 increased
$14.2 million, or 27.2%, from $52.2 million in 1995. Cost of net sales as a
percentage of revenues decreased to 69.7% in 1996 from 72.3% in 1995. In 1995,
cost of net sales included a provision for inventory obsolescence of
approximately $1.0 million related to the 1995 write-off of components and
products dedicated to a customer who filed for bankruptcy protection. If this
provision were excluded, cost of net sales as a percentage of net sales would
have been 71.0% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $11.0 million in 1996 increased $1.8 million, or
19.7%, from $9.2 million in 1995 primarily as a result of higher sales activity
and the reinforcement of Axiohm IPB's sales force after the acquisition of the
transaction printer business from NCR (now known as Axiohm IPB) in December
1994. In addition, Axiohm incurred charges of $265,000 in 1996 and $610,000 in
1995 in connection with the transfer of its existing French manufacturing
facility to a new facility in Puiseaux, France. Selling, general and
administrative expenses as a percentage of revenues decreased to 11.6% in 1996
from 12.8% in 1995.
20
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of
$6.6 million in 1996 increased $812,000, or 13.9%, from $5.8 million in 1995.
Research and development expenses as a percentage of revenues decreased to 7.0%
in 1996 from 8.1% in 1995.
INCOME (LOSS) FROM OPERATIONS. As a result of the foregoing, income from
operations of $11.1 million in 1996 increased $6.3 million, or 132.4%, from $4.8
million in 1995. Income from operations as a percentage of revenues increased to
11.6% in 1996 from 6.6% in the 1995 period.
INTEREST AND OTHER INCOME. Interest income and other income was $1.2
million in 1996 largely as a result of insurance proceeds of $1.0 million
received in 1996 as compensation for the loss of revenue and commercial damage
caused by water damage in the Company's clean room facility in Puiseaux, France.
INTEREST EXPENSE. Interest expense of $1.0 million in 1996 decreased
$857,000, or 45.4%, from $1.9 million in 1995 as a result of lower average debt
levels and interest rates in 1996 compared to 1995.
INCOME TAXES. Income taxes of $4.4 million in 1996 increased $3.3 million,
or 302.4%, from $1.1 million in 1995. Provision for income taxes as a percentage
of income before taxes was 39.3% in 1996 compared to 36.2% in 1995, principally
due to the reduced benefits from the French research and development tax credit,
partially offset by the impact of non-utilized loss carryforwards in overseas
subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are cash flow from operations and
borrowings under the New Credit Facility. For the fourth quarter of 1997,
operating income plus depreciation and amortization was $8.5 million. The
Company's primary capital requirements include debt service, capital
expenditures and working capital. The Company's ability to make scheduled
payments of principal and interest to refinance its indebtedness, or to fund
planned capital expenditures, will depend upon its future performance, which, in
turn, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Based upon current
levels of operations and anticipated growth in revenues and cost savings, the
Company believes that the Company's cash flow from operations and amounts
available under the New Credit Facility will be adequate to meet its anticipated
future requirements for working capital, capital expenditures, and scheduled
payments of principal and interest on its indebtedness. At the time of the
acquisition of DH, the Company implemented a plan to achieve purchasing,
manufacturing and other synergies. Costs related to such activities of DH could
result in additional cash costs that may be reflected as additional goodwill.
Required principal payments under the New Credit Facility and Notes are as
follows: $3.2 million in 1998; $7.8 million in 1999; $7.8 million in 2000; $9.1
million in 2001; $9.1 million in 2002; $8.8 million in 2003; and $120 million in
2007. It is anticipated that capital expenditures in 1998 will not exceed the
maximum permitted under the New Credit Facility of $10.5 million. There can be
no assurance, however, that the Company's business will generate cash flow at or
above anticipated levels or that the Company will be able to borrow funds under
the New Credit Facility in an amount sufficient to enable the Company to service
its indebtedness, or make anticipated capital expenditures. In particular, there
can be no assurance that anticipated revenue growth will be achieved at the
levels currently anticipated or at all. If the Company is unable to generate
sufficient cash flow from operations or to borrow sufficient funds in the future
to service its debt, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing indebtedness, or obtain
additional financing. There can be no assurance that any such refinancing would
be available on commercially reasonable terms, or at all, or that any additional
financing could be obtained, particularly in view of the Company's high level of
debt.
At December 31, 1997, the Company's total debt was $171.5 million, or $167.6
million net of non restricted cash. The Company also had borrowing availability
under the New Credit Facility of an additional $33.0 million for working capital
and capital expenditure requirements, subject to the borrowing
21
<PAGE>
conditions contained therein. Debt levels are expected to increase during the
first half of 1998 from the debt levels at December 31, 1997 due to payments
made to former officers in the first quarter of $3.5 million and the payment of
$5.8 million of subordinated interest expense on April 1, 1998. See "Item 1.
Business--Certain factors that may affect future results--Substantial Leverage
and Debt Service."
The New Credit Facility and the Notes do, and other debt instruments of the
Company may, pose various restrictions and covenants on the Company which could
potentially limit the Company's ability to respond to market conditions, to
provide for unanticipated capital investments, to raise additional debt or
equity capital, or to take advantage of business opportunities. The New Credit
Facility includes various financial covenants of the Company, including
covenants with respect to the maximum capital expenditures, a maximum ratio of
debt to EBITDA, a minimum interest coverage ratio and a minimum fixed charge
coverage ratio. The New Credit Facility subjects the Company to certain negative
covenants, including without limitation covenants that restrict, subject to
specified exceptions: the incurrence of additional indebtedness and other
obligations and the granting of additional liens; mergers and acquisitions,
investments and acquisitions and dispositions of assets; the incurrence of
capitalized lease obligations; investments, loans and advances; dividends, stock
repurchases and redemptions; prepayment or repurchase of other indebtedness and
other provisions. Under the New Credit Facility, the Company was required to
enter into an arrangement to provide interest protection for $20 million of this
floating rate debt for two years.
The Company incurred indebtedness of $120 million in connection with the
issuance of the Notes. The indebtedness evidenced by the Notes is subordinated
to the Company's obligations under the New Credit Facility. Interest is payable
semi-annually on the unpaid principal at 9.75% per annum. The first interest
payment of $5.8 million is due April 1, 1998. The Indenture contains covenants
regarding: restricted payments, incurrence of indebtedness, liens, dividends,
merger, consolidation or sale of assets, and transactions with affiliates. See
"Item 1. Business--Certain Factors That May Affect Future Results-- Substantial
Leverage And Debt Services" and Note 6 of the Notes to the Consolidated
Financial Statements.
In connection with the resignation and termination of employment of the
Company's Chief Executive Officer and another executive, the $8.6 million of
restricted cash on the December 31, 1997 balance sheet was paid out. In January,
1998, $1.8 million was paid for tax obligations due to the officers under the
option cancellation agreements the Company had entered into with them in August,
1997. Severance and non-compete payments of $1.7 million were also made in the
first quarter.
RESTRICTIONS ON DISTRIBUTIONS BY GUARANTORS TO THE COMPANY
There are no contractual restrictions, under the New Credit Facility or
otherwise, upon the ability of the Guarantors to make distributions or pay
dividends to their respective equityholders. Directly or indirectly, the Company
is the sole equityholder of all of the Guarantors.
NEW ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" (SFAS No. 130). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenue, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS No. 130
shall be effective for fiscal years beginning after December 15, 1997 and
requires reclassification of earlier periods presented. The Company does not
believe the adoption of SFAS No. 130 will have a significant impact on the
Company's business, results of operations or financial position for the year
ending December 31, 1998.
22
<PAGE>
In June, 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "Disclosure about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 establishes standards for reporting information
about operating segments in annual financial statements and selected information
about operating segments in interim financial reports issued to stockholders.
The Company does not believe the adoption of Statement No. 131 will have a
significant impact on the Company's financial statement disclosures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Part IV Item 14(a)(1)
and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report because
the registrant will file a definitive Proxy Statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's officers required by this Item is
included in the section in Part I hereof entitled "Item 1. Business--Executive
Officers of the Registrant." The information concerning the Company's directors
required by this Item is incorporated by reference to the Company's Proxy
Statement under the heading "Election of Directors--Nominees." Information
concerning the Company's officers, directors and 10% shareholders compliance
with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to the information contained in the Company's Proxy Statement under
the heading "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Relationships and Related
Transactions."
23
<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.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors...................................................... F-1
Report of Price Waterhouse LLP, Independent Auditors....................................................... F-2
Financial Statements
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statement of Operations..................................................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)................................................. F-5
Consolidated Statement of Cash Flows..................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
Schedule included in Item 14(a):
II Valuation and Qualifying Accounts................................................ S-1
</TABLE>
3. EXHIBITS. The following Exhibits are filed as part of, or incorporated
by reference into, this Annual Report on Form 10-K.
2.1 Agreement and Plan of Merger dated as of July 14, 1997, among DH
Technology, Inc., Axiohm S.A. and AX Acquisition Corporation
(incorporated by reference to Exhibit (c)(1) to DH Technology, Inc.'s
Schedule 14D-9 filed July 16, 1997).
2.2 Purchase and Assumption Agreement, dated October 2, 1997, among Axiohm
IPB, Inc., AX Acquisition Corporation and DH Technology, Inc.
(incorporated by reference to Exhibit 2.2 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
2.3 Stock Purchase Agreement dated August 12, 1994, by and between the
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 Certificate of Restated Articles of Incorporation of the Registrant filed
with the California Secretary of State on January 13, 1998 (incorporated
by reference to Exhibit 3.3A of the Registrant's Registration Statement
on Form S-4 declared effective February 17, 1998).
3.2 Amended and Restated Bylaws of The Registrant (incorporated by reference
to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed
October 17, 1997).
4.1 Indenture dated as of October 2, 1997 among the Registrant, the
Guarantors named therein and The Bank of New York, as trustee (the
"Indenture") (incorporated by reference to Exhibit 4.1 to The
Registrant's Current Report on Form 8-K filed October 17, 1997).
4.2 Supplemental Indenture to the Indenture, dated as of January 9, 1998,
between Axiohm S.A.R.L., as a supplemental guarantor, and The Bank of New
York, as trustee (incorporated by reference to Exhibit 4.1A of the
Registrant's Registration Statement on Form S-4 declared effective
February 17, 1998)
4.3 Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Axiohm Investissements S.A.R.L., as a supplemental guarantor, and
The Bank of New York, as trustee
24
<PAGE>
(incorporated by reference to Exhibit 4.2 of the Registrant's
Registration Statement on Form S-4 declared effective February 17, 1998).
4.3 Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Cognitive L.L.C., as a supplemental guarantor, and The Bank of
New York, as trustee (incorporated by reference to Exhibit 4.3 of the
Registrant's Registration Statement on Form S-4 filed declared effective
February 17, 1998).
4.4 Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Dardel Technologies E.U.R.L., as a supplemental guarantor, and
The Bank of New York, as trustee (incorporated by reference to Exhibit
4.4 of the Registrant's Registration Statement on Form S-4 declared
effective February 17, 1998).
4.5+ Unrestricted Global Note for $120,000,000 in principal amount of New
9 3/4% Senior Subordinated Notes due 2007 and attached Subsidiary
Guarantees.
10.1 Registration Rights Agreement, dated as of October 2, 1997 among the
Registrant, Axiohm S.A., Axiohm IPB, Inc., Dardel Technologies E.U.R.L.,
Stadia Colorado Corp., Cognitive Solutions, Inc. and Lehman Brothers Inc.
(incorporated by reference to Exhibit 10.1 to The Registrant's Current
Report on Form 8-K filed October 17, 1997).
10.2 Resignation Agreement dated January 10, 1998 between the Registrant and
William H. Gibbs (incorporated by reference to Exhibit 10.3A of the
Registrant's Registration Statement on Form S-4 declared effective
February 17, 1998).
10.3 Noncompetition and Mutual Release Agreement dated January 10, 1998
between the Registrant and William H. Gibbs (incorporated by reference to
Exhibit 10.4A of the Registrant's Registration Statement on Form S-4
declared effective February 17, 1998).
10.4* Employment Agreement between the Registrant and Walter Sobon dated as of
July 14, 1997 (incorporated by reference to Exhibit 10.4 to The
Registrant's Current Report on Form 8-K filed October 17, 1997).
10.5* Employment Agreement between the Registrant and Janet Shanks dated as of
July 14, 1997 (incorporated by reference to Exhibit 10.5 to The
Registrant's Current Report on Form 8-K filed October 17, 1997).
10.6*+ Letter Agreement dated March 15, 1998 between the Registrant and Nicolas
Dourassoff.
10.7+ $85,000,000 Credit Agreement among the Registrant, as Borrower, the
several Lenders from time to time Parties thereto, Lehman Brothers Inc.,
as Arranger, Lehman Commercial Paper Inc., as Syndication Agent and Union
Bank of California, N.A., as Administrative Agent dated as of October 2,
1997.
10.8 Guarantee and Collateral Agreement, dated as of October 2, 1997, between
the Registrant, Lehman Brothers Inc., Lehman Commercial Paper Inc. and
certain of The Registrant's subsidiaries (incorporated by reference to
Exhibit 10.8 to The Registrant's Current Report on Form 8-K filed October
17, 1997).
10.9* 1985 Director Warrant Plan and Forms of Warrant issued under the Plan, as
amended. (incorporated by reference to Exhibit 10.3 of The Registrant
Annual Report on Form 10-K for the fiscal year ended December 31, 1991
filed March 28, 1992).
10.10* 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 the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990 filed
March 28, 1991).
25
<PAGE>
10.11* 1992 Stock Plan and Form of Incentive Stock Option Agreement, as amended.
(incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-K
for the fiscal year ended December 31, 1994 filed March 15, 1995).
10.12 Lease Agreement dated April 20, 1990, between the Registrant and Coast
Income Properties, Inc., as amended. (incorporated by reference to
Exhibit 10.5 of The Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 filed March 29, 1993).
10.13 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 the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990 filed March 28, 1991).
10.14 Lease Agreement dated April 1, 1994, by and between the Registrant and
Wind River Development Co., a Wyoming corporation. (incorporated by
reference to Exhibit 10.6 of The Registrant's Form 10-K for the fiscal
year ended December 31, 1994 filed March 15, 1995).
10.15 Lease Agreement dated February 28, 1994, between Chardan, Ltd., and
Stadia Colorado Corp. (incorporated by reference to Exhibit 2.2 of The
Registrant's Current Report on Form 8-K filed March 14, 1994).
10.16 Sublease Agreement dated September 30, 1992, by and between Medical
Engineering Corporation and Cognitive Solutions, Inc. (incorporated by
reference to Exhibit 10.6 of the Registrant's Form 10-K for the fiscal
year ended December 31, 1994 filed March 15, 1995).
10.17 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 of the Registrant's Form 10-Q for the Quarter Ended March
31, 1995 filed May 15, 1995).
10.18* Stock Option Agreement dated October 2, 1997 between the Registrant and
Malcolm Unsworth.(incorporated by reference to Exhibit 10.18 of the
Registrant's Registration Statement on Form S-4 filed on November 28,
1997).
10.19* Co-Chairman Employment Agreement dated effective October 2, 1997 between
the Registrant and Patrick Dupuy (incorporated by reference to Exhibit
10.19 of the Registrant's Registration Statement on Form S-4 filed on
November 28, 1997).
10.20* Co-Chairman Employment Agreement dated effective October 2, 1997 between
the Registrant and Gilles Gibier (incorporated by reference to Exhibit
10.19 of the Registrant's Registration Statement on Form S-4 filed on
November 28, 1997).
21.1+ List of Subsidiaries.
23.1 Independent Auditor's Consent and Report on Schedule (KPMG Peat Marwick
LLP).
23.2 Consent of Independent Accountants (Price Waterhouse)
24.1+ Power of Attorney.
- ------------------------
* This item is a compensatory plan or management contract.
+ Previously filed.
(b) Reports on Form 8-K.
The following Report on Form 8-K was filed during the quarter ended December
31, 1997:
Current report on Form 8-K dated October 2, 1997, as amended by Amendment
No. 1 thereto filed on December 16, 1997 and Amendment No. 2 thereto filed
on February 13, 1998, relating to the completion of a series of transactions
with Axiohm S.A., a private French company, pursuant to an Agreement and
Plan of Merger, dated July 14, 1997, among DH Technology, Inc., Axiohm S.A.
and AX Acquisition Corporation.
26
<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.
<TABLE>
<S> <C> <C>
AXIOHM TRANSACTION SOLUTIONS, INC.
By: /s/ WALTER S. SOBON
-----------------------------------------
Walter S. Sobon
CHIEF FINANCIAL OFFICER
Date: April 15, 1998
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Walter S. Sobon and Janet W. Shanks, jointly and
severally, his or her respective attorneys-in-fact, each with the power of
substitution, for each other in any and all capacities, to sign any amendments
to this Annual Report on Form 10-K, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her respective substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Co-Chairman of the Board
/s/ PATRICK DUPUY* and Co-Chief Executive
- ------------------------------ Officer (Co-Principal April 15, 1998
Patrick Dupuy Executive Officer)
Co-Chairman of the Board
/s/ GILLES GIBIER* and Co-Chief Executive
- ------------------------------ Officer (Co-Principal April 15, 1998
Gilles Gibier Executive Officer)
/s/ WALTER S. SOBON
- ------------------------------ Chief Financial Officer April 15, 1998
Walter S. Sobon
/s/ JANET W. SHANKS*
- ------------------------------ Corporate Controller April 15, 1998
Janet W. Shanks
/s/ NICOLAS DOURASSOFF*
- ------------------------------ Director April 15, 1998
Nicolas Dourassoff
/s/ WILLIAM H. GIBBS*
- ------------------------------ Director April 15, 1998
William H. Gibbs
/s/ BRUCE G. KLAAS*
- ------------------------------ Director April 15, 1998
Bruce G. Klaas
/s/ DON M. LYLE*
- ------------------------------ Director April 15, 1998
Don M. Lyle
</TABLE>
*By: /s/ WALTER S. SOBON
-------------------------
Walter S. Sobon
ATTORNEY-IN-FACT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Axiohm Transaction Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Axiohm
Transaction Solutions, Inc. and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the year ended December 31, 1997. 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 audit.
We conducted our audit 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 audit provides 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 Axiohm
Transaction Solutions, Inc. and subsidiaries as of December 31, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
March 19, 1998
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Axiohm S.A.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Axiohm S.A. (the "Company") and its subsidiaries at December 31,
1996, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with United
States generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with United States generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Axiohm S.A. and its
subsidiaries for any period subsequent to December 31, 1996.
/s/ PRICE WATERHOUSE
Paris, France
September 12, 1997, except as to note 19, which is as of January 9, 1998
F-2
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS (NOTE 6)
Current assets:
Cash and cash equivalents....................................................... $ 3,877,000 $ 1,839,000
Restricted cash (notes 2 and 16)................................................ 8,594,000 --
Accounts receivable, net of allowance for doubtful accounts of $205,000 in 1997
and $138,000 in 1996.......................................................... 30,515,000 10,552,000
Inventories..................................................................... 30,103,000 13,900,000
Deferred tax asset (note 14).................................................... 8,751,000 483,000
Loans to related party.......................................................... -- 1,832,000
Other current assets............................................................ 2,264,000 971,000
-------------- -------------
Total current assets........................................................ 84,104,000 29,577,000
Property, plant and equipment, net (note 4)..................................... 21,535,000 11,235,000
Intangible assets, net (notes 2 and 5).......................................... 92,371,000 2,606,000
Other assets.................................................................... 6,034,000 560,000
-------------- -------------
Total assets................................................................ $ 204,044,000 $ 43,978,000
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................ $ 17,351,000 $ 7,480,000
Current portion of long-term debt (notes 6 and 15).............................. 5,948,000 1,406,000
Current portion of government grant obligations................................. 649,000 916,000
Accrued payroll, payroll taxes, and benefits.................................... 6,194,000 2,501,000
Accrued expenses................................................................ 4,645,000 718,000
Income taxes payable (note 14).................................................. 1,937,000 500,000
Deferred revenue................................................................ 2,056,000 --
Rabbi trust (note 2)............................................................ 8,594,000 --
Other current liabilities....................................................... 4,481,000 1,984,000
-------------- -------------
Total current liabilities................................................... 51,855,000 15,505,000
Long-term debt (notes 6 and 15)................................................... 165,564,000 6,364,000
Government grant obligations...................................................... 1,569,000 1,846,000
Deferred tax liability (note 14).................................................. 131,000 1,557,000
Other long term-liabilities (note 8).............................................. 3,006,000 2,273,000
-------------- -------------
Total liabilities........................................................... $ 222,125,000 $ 27,545,000
-------------- -------------
Commitments and contingencies (notes 2, 6 and 7 )................................. -- --
Shareholders' equity (deficit):
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: 6,512,873 shares in 1997 and 1996.............................. 23,852,000 4,167,000
Foreign currency translation adjustment....................................... (658,000) 117,000
Retained earnings (accumulated deficit)....................................... (41,275,000) 12,149,000
-------------- -------------
Total shareholders' equity (deficit)........................................ (18,081,000) 16,433,000
-------------- -------------
Total liabilities and shareholders' equity.................................. $ 204,044,000 $ 43,978,000
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales.......................................................... $ 153,748,000 $ 95,302,000 $ 72,155,000
Cost of net sales.................................................. 102,600,000 66,390,000 52,202,000
-------------- ------------- -------------
Gross margin....................................................... 51,148,000 28,912,000 19,953,000
Operating expenses:
Selling, general, and administrative............................. 19,139,000 11,013,000 9,200,000
Research and development......................................... 10,033,000 6,648,000 5,836,000
In-process technology (note 2)................................... 34,236,000 -- --
Amortization of intangible assets (note 2)....................... 11,474,000 200,000 161,000
-------------- ------------- -------------
Total operating expenses........................................... 74,882,000 17,861,000 15,197,000
-------------- ------------- -------------
Income (loss) from operations...................................... (23,734,000) 11,051,000 4,756,000
Interest and other income (note 13)................................ 585,000 1,191,000 158,000
Interest expense................................................... (10,525,000) (1,032,000) (1,889,000)
-------------- ------------- -------------
Income (loss) before income taxes.................................. (33,674,000) 11,210,000 3,025,000
Income taxes (note 14)............................................. 5,784,000 4,406,000 1,095,000
-------------- ------------- -------------
Net income (loss).................................................. $ (39,458,000) $ 6,804,000 $ 1,930,000
-------------- ------------- -------------
-------------- ------------- -------------
Basic: Net income (loss) per share................................ $ (6.06) $ 1.08 $ 0.32
-------------- ------------- -------------
-------------- ------------- -------------
Shares used in per share calculation........................ 6,513,000 6,276,000 6,016,000
-------------- ------------- -------------
-------------- ------------- -------------
Diluted: Net income (loss) per share............................... $ (6.06) $ 1.08 $ 0.32
-------------- ------------- -------------
-------------- ------------- -------------
Shares used in per share calculation........................ 6,513,000 6,300,000 6,016,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK FOREIGN CURRENCY RETAINED EARNINGS SHAREHOLDERS'
------------------------- TRANSLATION (ACCUMULATED EQUITY
SHARES AMOUNT ADJUSTMENT DEFICIT) (DEFICIT)
---------- ------------- ---------------- -------------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... 6,015,780 $ 682,000 $ 116,000 $ 3,504,000 $ 4,302,000
Net income......................... -- -- -- 1,930,000 1,930,000
Foreign currency translation
adjustment....................... -- -- (255,000) -- (255,000)
---------- ------------- ---------------- -------------------- --------------
Balance, December 31, 1995......... 6,015,780 $ 682,000 $ (139,000) $ 5,434,000 $ 5,977,000
Stock issuance..................... 497,093 3,846,000 -- -- 3,846,000
Stock issuance costs............... -- (39,000) -- -- (39,000)
Allocation to restricted reserves.. -- (322,000) -- 322,000 --
Dividends.......................... -- -- -- (411,000) (411,000)
Net income......................... -- -- -- 6,804,000 6,804,000
Foreign currency translation
adjustment....................... -- -- 256,000 -- 256,000
---------- ------------- ---------------- -------------------- --------------
Balance, December 31, 1996......... 6,512,873 $ 4,167,000 $ 117,000 $ 12,149,000 $ 16,433,000
FAIR VALUE OF DH NON-TENDERED
SHARES (NOTE 2).................. -- 19,243,000 -- -- 19,243,000
STOCK OPTION COMPENSATION
EXPENSE.......................... -- 442,000 -- -- 442,000
DIVIDENDS.......................... -- -- -- (13,966,000) (13,966,000)
NET LOSS........................... -- -- -- (39,458,000) (39,458,000)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT....................... -- -- (775,000) -- (775,000)
---------- ------------- ---------------- -------------------- --------------
BALANCE, DECEMBER 31, 1997......... 6,512,873 $ 23,852,000 $ (658,000) $ (41,275,000) $(18,081,000)
---------- ------------- ---------------- -------------------- --------------
---------- ------------- ---------------- -------------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................... $(39,458,000) $6,804,000 $1,930,000
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
In process technology................................................. 34,236,000 -- --
Depreciation and amortization......................................... 19,529,000 2,921,000 2,696,000
Provision for deferred income taxes................................... (2,020,000) 458,000 (155,000)
Provision for long-term liabilities................................... 843,000 461,000 184,000
Non cash compensation charge.......................................... 442,000 -- --
Other................................................................. (146,000) 213,000 36,000
Changes in assets and liabilities, excluding effect of acquisitions:
Accounts receivable................................................... (7,262,000) (2,215,000) (4,659,000)
Inventories........................................................... (3,533,000) (736,000) (856,000)
Other current assets.................................................. 3,941,000 (517,000) (248,000)
Accounts payable...................................................... 3,778,000 2,700,000 160,000
Accrued payroll, payroll taxes, and benefits.......................... 997,000 329,000 300,000
Accrued expenses...................................................... 3,298,000 187,000 240,000
Income taxes payable.................................................. 992,000 618,000 678,000
Deferred revenue...................................................... 823,000 (107,000) (130,000)
Other current liabilities............................................. (182,000) 621,000 831,000
------------ ---------- ----------
Net cash provided by operating activities........................... $ 16,278,000 $11,737,000 $1,007,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition purchases, net of cash acquired................. $(147,995,000) $ -- $ --
Additional purchase price for IPB....................................... (552,000) -- --
Capital expenditures.................................................... (5,960,000) (3,056,000) (2,955,000)
Proceeds from sale of property, plant and equipment..................... 16,000 71,000 53,000
Other................................................................... (38,000) (12,000) (123,000)
------------ ---------- ----------
Net cash used in investing activities............................... $(154,529,000) $(2,997,000) $(3,025,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft.......................................................... $ -- $ (545,000) $ 409,000
Net borrowings under lines of credit.................................... (1,127,000) (128,000) 953,000
Proceeds from long-term debt and merger financing....................... 172,000,000 -- 2,600,000
Principal repayment under long-term debt................................ (9,198,000) (8,565,000) (5,028,000)
Proceeds from government grant obligations.............................. 550,000 338,000 2,204,000
Repayment under government grant obligations............................ (612,000) (308,000) (196,000)
Debt issuance costs..................................................... (8,137,000) -- --
Payment of dividends.................................................... (13,966,000) (411,000) --
Proceeds from stock issuance, net of issuance costs..................... -- 3,807,000 --
Net loans to related parties............................................ 1,713,000 (1,851,000) --
------------ ---------- ----------
Net cash provided by (used in) financing activities................. $141,223,000 $(7,663,000) $ 942,000
Effect of exchange rate changes on cash................................... (934,000) 126,000 216,000
Net increase (decrease) in cash and cash equivalents...................... $ 2,038,000 $1,203,000 $ (860,000)
Cash and cash equivalents at beginning of year............................ 1,839,000 636,000 1,496,000
------------ ---------- ----------
Cash and cash equivalents at end of year............................ $ 3,877,000 $1,839,000 $ 636,000
------------ ---------- ----------
------------ ---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest................................................................ $ 7,253,000 $ 845,000 $1,649,000
Income taxes............................................................ 4,705,000 3,245,000 604,000
NON-CASH INVESTING ACTIVITY:
Fair market value of assets acquired.................................... $148,364,000 $ -- $ --
In-process technology................................................... 34,236,000 -- --
Liabilities assumed..................................................... (15,363,000) -- --
Non-tendered shares..................................................... (19,242,000) -- --
------------ ---------- ----------
Cash paid, net of cash acquired......................................... $147,995,000 $ -- $ --
OTHER NON-CASH TRANSACTIONS:
Capital lease obligation................................................ $ -- $ 163,000 $1,750,000
Accrual for contingent purchase price consideration..................... 952,000 552,000 --
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Axiohm Transaction Solutions, Inc. ("Axiohm") is a designer, manufacturer
and marketer of transaction printers and printer components utilizing thermal,
magnetic and impact technologies. The Company's transaction printer products are
used in retail, financial and commercial transactions to provide transaction
records such as receipts, tickets, register journals, checks and other
documents. In addition, to transaction printers, the Company also designs,
manufactures and markets: (i) card readers, which, similar to transaction
printers, are an integral part of transaction activity; and (ii) bar code
printers and related consumable supplies, which are used for automatic
identification and data collection systems. The Company operates on a worldwide
basis with significant activities in North America and Europe. The Company sells
its products to OEMs, VARs, distributors and end-users.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of Axiohm include the accounts of its wholly owned
subsidiaries in the United States, France, Mexico, the United Kingdom,
Australia, Hong Kong and Japan. All intercompany accounts and transactions have
been eliminated.
On August 21, 1997, pursuant to an Agreement and Plan of Merger dated as of
July 14, 1997 (the "Agreement of Merger"), AX Acquisition Corporation ("AX" or
the "Purchaser"), an indirect wholly-owned subsidiary of Axiohm S.A., acquired
approximately 88%, or 7,000,000 shares, of the outstanding Common Stock of DH
Technology, Inc. ("DH") through a public tender offer to the shareholders of DH
at a price of $25 per share (the "Tender Offer").
On October 2, 1997, pursuant to the Agreement of Merger, AX acquired 100% of
the outstanding Common Stock of Axiohm S.A. in exchange for 5,518,524 shares of
Common Stock of DH and $12.2 million in cash (the "Share Exchange Offer").
Simultaneous with the Share Exchange Offer, DH purchased all of the outstanding
shares of AX in exchange for the assumption of approximately $190 million of
debt (the "Acquisition Financing") incurred by AX to finance the Tender Offer.
Immediately after the Share Exchange Offer, AX was merged with and into DH (the
"Merger"), the surviving legal entity, and the company changed its name from "DH
Technology, Inc." to "Axiohm Transaction Solutions, Inc." (the "Company").
Immediately after the Merger, approximately 85% of DH's outstanding Common Stock
was held by the former shareholders of Axiohm S.A. and 15% was held by the
former public shareholders of DH.
The Tender Offer, the Share Exchange Offer and the Merger (collectively the
"Acquisition") have been accounted for in a manner similar to a reverse
acquisition, in which Axiohm S.A. was treated as the acquiror for accounting
purposes. Accordingly, the historical financial information for periods prior to
August 31, 1997 are those of Axiohm S.A. The effective date of the Acquisition
and Merger of DH for accounting purposes was August 31, 1997, and, accordingly,
the capital structure of the Company has been retroactively restated to reflect
the number of shares and options outstanding as a result of the Acquisition. The
results of operations for the twelve month period ended December 31, 1997
include the operations of DH after August 31, 1997.
F-7
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents consist principally of highly liquid investments with a
maturity of less than three months at the time of purchase.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated using the
straight-line method over the shorter of the estimated useful life of the asset
or the lease term, ranging from one to 40 years. Renewals and replacements which
extend the useful life of the fixed asset are capitalized.
GOODWILL AND OTHER INTANGIBLES
The Company has classified as goodwill the cost in excess of fair value of
the net assets acquired in purchase transactions. Goodwill and other intangibles
are amortized on a straight-line basis over periods estimated to be benefited,
generally three to fifteen years. The Company periodically assesses the
recoverability of goodwill based on a review of projected undiscounted cash
flows of the related operating entities.
OTHER ASSETS:
Other assets consist primarily of debt issuance costs. Amortization of debt
issuance costs is recorded as interest expense using the effective interest
method over the life of the related debt.
GOVERNMENT GRANTS AND SUBSIDIES
Grants received from government agencies for the acquisition of property and
equipment are netted against the related capital expenditure. Grants for
investments in foreign countries are deferred and recognized as a deduction to
expenses if and when the conditions for the grant have been satisfied. Subsidies
received for employee training are recognized as a deduction to expenses during
the period in which the related costs are incurred.
POST RETIREMENT BENEFITS
Certain employees participate in a defined benefit post-retirement medical
plan. The projected benefit obligation relating to such benefits is calculated
and recorded in accordance with Statement of Financial Accounting Standards No.
106, ACCOUNTING FOR POST-RETIREMENT BENEFITS (SFAS NO. 106).
STOCK-BASED COMPENSATION
The Company adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS NO.
123), on January 1, 1996 and continues to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of
F-8
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. The proforma net income and proforma earnings per
share disclosures for employee stock option grants made in 1995 and future years
are made using the fair-value based method required by SFAS No. 123.
FOREIGN CURRENCY TRANSLATION
The accounts of foreign subsidiaries where the local currency is the
functional currency are translated at the year end rate for assets and
liabilities unless hedged by forward foreign exchange contracts, in which case
the rates specified in such forward contracts are used, while income and
expenses are translated using the average rate for the year. Adjustments
resulting from translating foreign functional currency financial statements into
U.S. dollars are included as a separate component of shareholders' equity.
Financial results of foreign subsidiaries 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
FOREIGN CURRENCY HEDGES
The Company uses financial instruments, primarily forward exchange
contracts, to hedge its exposure to foreign currency exchange rate fluctuations.
In order to mitigate the associated risk resulting from increases in the French
franc compared to the U.S. dollar, the Company identifies on a monthly basis its
cash requirements denominated in each currency for the next quarterly period.
Based on these requirements, currency forwards are entered into and designated
as hedges of specific cash commitments. These contracts must be designated at
inception as a hedge and measured for effectiveness at both inception and on an
ongoing basis. Realized and unrealized gains and losses arising from currency
forwards are recognized in income in the same period as gains and losses
resulting from the underlying hedged transactions. For contracts which do not
meet the Company's criteria for hedge accounting, realized and unrealized gain
or losses are recognized currently. The Company's hedging activities have not
had a material impact on its operations or cash flows. The Company does not use
or hold financial instruments for speculative trading purposes. At December 31,
1997 the Company's portfolio consisted of three foreign exchange contracts to
sell $3.2 million at an average rate of $1 = FF 5.98.
CONCENTRATION OF CREDIT RISK
The Company sells products to various customers across several industries
throughout the world. Financial instruments which potentially subject the
Company to concentrations of credit risk are accounts receivable and cash
equivalents. The Company performs on-going credit evaluations of its customers
financial condition and generally requires no collateral from its customers. The
Company has established reserves for potential credit losses.
INTEREST RATE SWAP AGREEMENT
The Company has entered into a $20,000,000 interest rate swap agreement with
a major financial institution with respect to its term debt outstanding under
its Credit Agreement (note 6). This swap agreement has the effect of converting
certain of the Company's variable rate term debt to fixed rate obligations and
expires in November 1999. Net amounts paid or received are accrued on a
settlement basis as adjustments to interest expense.
F-9
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION
Revenues related to product sales are recognized upon shipment of products
to the customer at which time title and risk of ownership pass. Estimated
provisions for product returns and warranty costs are accrued upon revenue
recognition. Cash received in advance of revenue recognition is recorded as
deferred revenue in the accompanying consolidated balance sheet.
RESEARCH & DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Certain government
research grants are repayable in the event that the related research project
proves to be successful. If it is determined that the project is unsuccessful
and all other conditions of the grant have been satisfied, the Company is not
obligated to repay the grants and an offset to expense is recorded at that time.
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
basis 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.
EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (FAS No. 128), "Earnings Per
Share." The Company adopted the provisions of FAS No. 128 in fiscal 1997. FAS
No. 128 requires disclosure of earnings per share in both Basic and Diluted
format and requires restatement of earnings (loss) per share for all periods
presented. Basic earnings per share is computed by dividing net earnings (loss)
by the weighted average shares of common stock outstanding during the year.
Diluted earnings (loss) per share is computed by dividing net earnings (loss) by
the weighted average shares of common stock and common stock equivalents
outstanding during the year. The dilutive effect of the potential exercise of
outstanding options to purchase shares of common stock is calculated using the
treasury stock method. For the year ended December 31, 1997 options representing
95,000 shares were not included in the calculation of diluted earnings (loss)
per share as their effect would have been antidilutive. For the year ended
December 31, 1996 diluted weighted average shares outstanding were increased by
24,000 to reflect the effect of outstanding options.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates, including
estimates relating to assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amount of revenue and
expenses during the reporting period. These estimates are subjective in nature
and involve uncertainties and matters of
F-10
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
significant judgment and therefore, cannot be determined with precision. Actual
results could differ from estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, and accrued expenses, approximate fair values due
to the short-term nature of these instruments. The carrying amounts of long-term
debt approximate fair values as 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 periodically evaluates the carrying value of long-lived assets
to be held and used, including certain identifiable intangible assets, when
events and circumstances indicate that the carrying amount of an asset may not
be recovered. 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.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
2. ACQUISITIONS
In December 1994, Axiohm S.A. acquired the transaction printer business of
NCR, now known as Axiohm IPB, for $17.1 million. Axiohm S.A. recorded
approximately $3.0 million of goodwill in connection with this acquisition,
which was accounted for using the purchase method of accounting.
In March, 1997 DH purchased certain assets and liabilities of the card
reader business of American Magnetics Corporation (AMC), for a total
consideration of $5.7 million, $4.85 million paid in cash and $322,000 and
$478,000 due to American Magnetics in the years 2000 and 2001, respectively. AMC
designs, manufactures and markets card reader modules and stand-alone card
readers, including both magnetic and chip card products. This acquisition was
accounted for under the purchase method.
On August 21, 1997, Purchaser, an indirect wholly-owned subsidiary of the
Company, acquired 7,000,000 shares of the Common Stock of DH (approximately 88%)
through the Tender Offer to the shareholders of DH, resulting in a change in
control of DH. On October 2, 1997, the Purchaser exchanged 5,518,524 shares of
the Common Stock it had acquired in the Tender Offer and approximately $12.2
million in cash for certain of the outstanding shares of capital stock of The
Company and all of the outstanding shares of capital stock of Dardel, which held
the remaining shares of capital stock of the Company. Immediately after this
exchange, DH purchased from Axiohm IPB all of Purchaser's outstanding capital
stock in exchange for the assumption by DH of the obligations incurred in
financing the Tender Offer. Purchaser was then merged with and into DH, and the
remaining 1,481,476 shares of DH's Common Stock acquired in the Tender Offer and
held by Purchaser at the time of the Merger were canceled in the Merger. The
aggregate purchase price of $209.1 million consisted of cash for DH shares
F-11
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
and stock options, transaction costs and the fair value of DH shares not
tendered. The above transactions were financed with (i) borrowings of
approximately $57.0 million under the $85.0 Term Loan Facility and the Revolving
Credit Facility of up to $35.0 million and (ii) the proceeds of the Offering of
$120,000,000 of its Notes, which were exchanged in March 1998 for equivalent
notes which have been registered under the Securities Act of 1933. See "Item 1.
Business--Recent Acquisition"
Although DH was the surviving legal entity, the transaction was accounted
for as a purchase of DH by Axiohm. The effective date of the acquisition of DH
for accounting purposes was August 31, 1997.
The aggregate purchase price of $209.1 million was allocated based on the
fair values of tangible and intangible assets acquired and consisted of the
following:
<TABLE>
<S> <C>
Cash paid for DH shares....................................... $175,000,000
Cash paid for DH stock options................................ 12,720,000
Transaction costs............................................. 2,142,000
Fair value of DH non-tendered shares(1)....................... 19,242,000
-----------
$209,104,000
-----------
-----------
</TABLE>
- ------------------------
(1) Recorded as an increase to common stock on the accompanying consolidated
balance sheet.
A summary of the purchase price allocation is as follows:
<TABLE>
<S> <C>
Net tangible assets acquired.................................. $75,391,000
In-process technology......................................... 34,236,000
Acquired technology........................................... 22,910,000
Customer lists................................................ 5,100,000
Workforce..................................................... 2,100,000
Goodwill...................................................... 69,367,000
-----------
Total......................................................... $209,104,000
-----------
-----------
</TABLE>
The purchased in-process research and development had not reached
technological feasibility, had no alternative future use, and was charged to
operations upon acquisition. The Company's initial purchase price allocation
assigned a value of $50,831,000 to in-process technology. Based upon information
received in the fourth quarter, the Company reallocated $16,595,000 from
in-process technology to goodwill. Accordingly, the Company recorded a credit of
$16,595,000 to in-process technology expense in the fourth quarter. At the time
of the acquisition of DH, the Company began to assess and formulate a plan to
achieve purchasing, manufacturing and other synergies. In accordance with EITF
Issue 95-3, costs related to such activities of DH could result in additional
costs that may be reflected as additional goodwill. Goodwill and other
intangibles are being amortized over three years using the straight line method,
which is the period estimated to be benefited
Of the cash paid for the DH stock options, $8.6 million was funded to a
Rabbi trust and is reflected on the balance sheet as restricted cash and a
corresponding liability at December 31, 1997. Subsequent to year end the two
officers who were the beneficiaries of the Rabbi trust were terminated whereby
the trust was
F-12
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
liquidated. Accordingly, restricted cash and the corresponding liability are
classified as current on the accompanying consolidated balance sheet.
The acquisition was financed with $120 million of 9.75% Senior Subordinated
Notes due 2007 and borrowings under the $85 million New Credit Facility. (Note 6
of the Notes to Consolidated Financial Statements).
The following unaudited pro forma information has been prepared assuming
that the acquisition of DH and the acquisition financing had occurred at the
beginning of 1996. Pro forma adjustments include increased amortization for the
purchase price in excess of assets acquired; an adjustment to remove the impact
of in-process technology of $34,236,000; increased interest expense from the
acquisition financing; and related income tax effects. The pro forma information
does not reflect any potential cost savings from combining the operations of DH
and Axiohm S.A.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Net sales.................................................... $ 212,479,000 $ 211,086,000
Net loss..................................................... $ 30,951,000 $ 32,011,000
Net loss per share........................................... $ 4.75 $ 5.08
Weighted average number of shares outstanding................ 6,513,000 6,300,000
</TABLE>
The pro forma information is provided for information purposes only and does
not purport to be indicative of the Company's results of operations that would
actually have been achieved had the Acquisition and the acquisition financing
been completed at the beginning of the periods presented, or results that may be
obtained for any other period.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Raw materials.................................................. $ 20,014,000 $ 11,158,000
Work in process................................................ 2,328,000 949,000
Finished goods................................................. 7,761,000 1,793,000
------------- -------------
30,103,000 13,900,000
------------- -------------
------------- -------------
</TABLE>
F-13
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Land........................................................... $ 935,000 $ 755,000
Building & leasehold improvements.............................. 8,860,000 5,355,000
Machinery and equipment........................................ 11,414,000 8,268,000
Furniture, fixtures, and equipment............................. 11,229,000 4,704,000
-------------- -------------
32,438,000 19,082,000
Accumulated depreciation and amortization...................... (10,903,000) (7,847,000)
-------------- -------------
$ 21,535,000 $ 11,235,000
-------------- -------------
-------------- -------------
</TABLE>
Included above are assets under capital leases amounting to $1,672,000 and
1,837,000, net of accumulated amortization of $358,000 and $210,000 at December
31, 1997 and 1996, respectively.
5. INTANGIBLES ASSETS
Intangible assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
-------------- ------------
<S> <C> <C>
Goodwill........................................................ $ 73,287,000 $ 2,967,000
Acquired technology............................................. 22,910,000 --
Customer lists.................................................. 5,100,000 --
Workforce....................................................... 2,100,000 --
Patents and technology rights................................... 703,000 --
Covenants not to compete........................................ 950,000 --
-------------- ------------
105,050,000 2,967,000
Accumulated amortization........................................ (12,679,000) (361,000)
-------------- ------------
$ 92,371,000 $ 2,606,000
-------------- ------------
-------------- ------------
</TABLE>
F-14
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
-------------- ------------
<S> <C> <C>
9.75% senior subordinated notes with interest due semi-annually in April and
October, payable in full on October 1, 2007; guaranteed by certain of the
Company's' subsidiaries.......................................................... $ 120,000,000 $ --
Two Tranche amortizing term loan: Tranche A of $35 million due December 31, 2002,
Tranche B of $15 million due December 31, 2003; secured by all real and personal
property of the Company and certain subsidiaries. Interest rates are based on the
Eurodollar rate plus a margin of between 2.5% and 3.0%........................... 45,750,000 --
Revolving line of credit of $35 million available through October 2, 2002; secured
on the same basis as the term loan............................................... 2,000,000 --
Notes payable related to acquisitions by DH at rates of 7% to 8%, due in annual
installments through March 31, 2001.............................................. 1,690,000 --
Financing arrangement with a commercial lender at PIBOR plus 1.2% payable in
quaterly installments through 2009............................................... 1,217,000 1,446,000
Sodecco bank loan at PIBOR plus 1.2% (4.6% at December 31, 1997) payable in full in
June 2002, secured by equipment.................................................. 589,000 1,046,000
7.5% note payable in monthly installments of $9,000 (including interest) with final
payment due September 1998; secured by equipment................................. 60,000 --
Capital Lease obligation for office equipment and vehicles, interest rates ranging
from 7.3% to 10.6% per annum, secured by equipment, due between 1998 and 2000.... 206,000 236,000
Bank mortgage loan at lender's prime rate plus three quarters (9.50% at December
31, 1996), paid in full in August 1997........................................... -- 3,868,000
Revolving credit line up to $8,000,000 paid in full in August 1997................. -- 1,174,000
-------------- ------------
$ 171,512,000 $ 7,770,000
Less current portion............................................................... $ 5,948,000 $ 1,406,000
-------------- ------------
Total long-term portion............................................................ $ 165,564,000 $ 6,364,000
-------------- ------------
-------------- ------------
</TABLE>
F-15
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
CAPITAL FINANCING TOTAL LONG-
DEBT LEASES ARRANGEMENTS TERM DEBT
-------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
1998................................................. $ 5,802,000 $ 99,000 $ 117,000 $ 6,018,000
1999................................................. 8,385,000 69,000 120,000 8,574,000
2000................................................. 8,254,000 64,000 122,000 8,440,000
2001................................................. 9,721,000 -- 125,000 9,846,000
2002................................................. 5,677,000 -- 128,000 5,805,000
Thereafter........................................... 132,250,000 -- 1,082,000 133,332,000
-------------- ---------- ------------- --------------
170,089,000 232,000 1,694,000 172,015,000
Less imputed interest.............................. -- 26,000 477,000 503,000
-------------- ---------- ------------- --------------
170,089,000 206,000 1,217,000 171,512,000
Less current portion............................... 5,802,000 91,000 55,000 5,948,000
-------------- ---------- ------------- --------------
$ 164,287,000 $ 115,000 $ 1,162,000 $ 165,564,000
-------------- ---------- ------------- --------------
-------------- ---------- ------------- --------------
</TABLE>
SENIOR BANK CREDIT FACILITY
On October 2, 1997, the Company entered into a New Credit Facility with a
syndicate of banks (the "Banks"), led by Union Bank and Lehman Brothers which
acted as agent. Pursuant to the New Credit Facility, the Banks have extended the
Company a two tranche amortizing term loan in the original principal amount of
$50 million (the "Term Loan") and established a $35 million revolving line of
credit (the "Revolver") available through October 2, 2002. The Term Loan
consists of a Tranche A term loan in an aggregate principal amount of $35
million, which has a maturity of five years, and a Tranche B term loan in an
aggregate principal amount of $15 million, which has a maturity of six years.
The Term Loan and Revolver are secured by a lien on substantially all of the
real and personal property of the Company and certain of its subsidiaries and a
pledge of capital stock of certain of its subsidiaries (provided that no lien
was or will be granted on the assets of Foreign Subsidiaries (as defined) and no
capital stock of Foreign Subsidiaries will be pledged to the extent that the
granting of such lien or the making of such pledge would result in materially
adverse United States federal income tax consequences to the Company or would
violate applicable law). The proceeds of the Term Loan and the initial advance
under the Revolver were used by the Company to repay principal and accrued
interest under the Acquisition Financing. Both the Term Loan and the Revolver
have interest rate options including an interest rate based on the Eurodollar
Rate plus a margin of between 2.5% to 3%. Such margins will vary depending upon
the relationship between the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA") and the then aggregate total debt
outstanding. The Company is required to pay a fee of 0.375% per annum on the
unused portion of the Revolver. Under the New Credit Facility, the Company is
required to enter into arrangements to provide interest protection for $20
million of this floating rate debt for two years. The New Credit Facility
contains various restrictive covenants with which the Company must comply. The
more significant covenants relate to: limitations of capital expenditures,
established maximum debt to EBITDA ratios, minimum interest coverage ratios,
minimum fixed charge ratios, and limitations on indebtedness related to capital
leases and certain of the Company's subsidiaries.
F-16
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
SENIOR SUBORDINATED NOTES
On October 2, 1997, the Company completed a private placement (the "Senior
Notes Offering") of $120 million of its 9.75% Senior Subordinated Notes due 2007
(the "Notes"). The underwriting discount was 2.75% of the principal amount of
the Notes purchased (or an aggregate of $3.3 million). The Notes were exchanged
in March 1998 for new, substantially identical Notes which have been registered
under the Securities Act of 1933, as amended.
Interest on the Notes is payable semi-annually on April 1 and October 1,
commencing on April 1, 1998, until maturity on October 1, 2007. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after October 1, 2002 at various premiums to original face value. The Company's
payment obligation under the Notes is jointly and severally fully and
unconditionally guaranteed on a senior subordinated basis by certain of the
Company's subsidiaries ("the Guarantors"), all of which are directly or
indirectly wholly owned by the Company. The proceeds from the sale of the Notes,
together with borrowings under the $85 million New Credit Facility (see above)
and existing cash were used to repay principal and accrued interest under the
acquisition financing.
7. OPERATING LEASES
Leases that do not meet the criteria for capitalization are classified as
operating leases with the related expense 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, 1997, are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31:
------------
<S> <C>
1998............................................................................ $1,164,000
1999............................................................................ 1,022,000
2000............................................................................ 931,000
2001............................................................................ 810,000
2002............................................................................ 651,000
Thereafter...................................................................... 2,090,000
------------
$6,668,000
------------
------------
</TABLE>
Total rent expense for operating leases was $1,025,000, $349,000, and
$349,000 for 1997, 1996, and 1995, respectively.
F-17
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
Other long-term liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Post-retirement benefit obligation................................ $ 1,527,000 $ 1,436,000
Pension and profit sharing obligations--non-US employees.......... 1,479,000 837,000
------------ ------------
Total............................................................. $ 3,006,000 $ 2,273,000
------------ ------------
------------ ------------
</TABLE>
The Company is currently obligated to provide certain post-retirement
medical and life insurance benefits to approximately 100 employees who have met
certain requirements as to age (generally 55) and length of service (generally
10 years, which includes a minimum of 5 years after January 1, 1995). The
Company accounts for the cost of these benefits in accordance with SFAS No. 106
and funds these costs on a pay-as-you-go basis. The net periodic post-retirement
benefit expense for the years ended December 31, 1997, 1996 and 1995 was
$91,000, $96,000 and $144,000, respectively. The components of the net periodic
post retirement benefits expense for the year ended December 31, 1997 were as
follows: Service costs of $185,000, interest cost of $31,000, amortization of
unrecognized loss of $50,000, offset by an amortization of prior service cost of
$175,000.
A reconciliation of the funded status of the post-retirement benefit plan at
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Active-not fully eligible....................................... $ 604,000 $ 374,000
Retired......................................................... 78,000 66,000
------------ ------------
Total......................................................... 682,000 440,000
Unrecognized prior service cost................................... 1,515,000 1,690,000
Unrecognized net loss............................................. (670,000) (694,000)
------------ ------------
Accrued post-retirement benefit obligation........................ $ 1,527,000 $ 1,436,000
------------ ------------
------------ ------------
</TABLE>
Significant assumptions employed in this valuation include a discount rate
of 7.50% at December 31, 1997, and 1996. The pre-Medicare eligible healthcare
cost trend rate is 7.0% for 1998 (6.0% for post-Medicare) declining by one
percent each year through the year 2000, after which a rate of 5.0% is utilized
for each year. The annual costs of post-retirement benefits are based on assumed
discount rates set to reflect market conditions. If the healthcare cost trend
rate was increased by one percentage point, the net post-retirement benefit
expense for the year ended December 31, 1997, 1996 and 1995 and the accumulated
post-retirement benefit obligation, as of December 31, 1996 and 1997 would not
increase by a material amount.
Certain non-US employees participate in a statutory profit sharing plan. The
amounts owed to the employees under the profit sharing plan are based on a
formula prescribed by law. The liability for profit sharing was $1,194,000 and
$552,000 at December 31, 1997 and 1996, respectively.
F-18
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has recorded a liability amounting to $285,000 as of December
31, 1997 and 1996, which represents the actuarially determined pension liability
for lump sum payments due to certain non-US employees at normal retirement age.
The Company sponsors an employee savings plan for certain U.S. employees
which conforms to the provisions of Section 401(k) of the Internal Revenue Code.
The Company also provides certain defined pension benefits (based on years of
service) to certain categories of employees. The Company's obligations under
these plans for 1995, 1996 and 1997 were not material to the Consolidated
Financial Statements.
9. STOCK OPTION PLANS
In September 1997, in connection with the Acquisition, the Company assumed
the DH Technology, Inc. 1992 Stock Plan (the "1992 Plan") and the Director
Warrant Plan. 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. 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. There is 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 Company has a Director Warrant Plan (the "Warrant Plan"), however, all
warrants outstanding under the Warrant Plan were purchased from the directors in
connection with the Acquisition. The Company intends to terminate the Warrant
Plan in 1998.
In September 1997, in connection with the Acquisition an officer of the
Company was granted options to purchase 231,118 shares of the Company's Common
Stock at an exercise price of $7.15 per share to replace stock options that were
granted in 1996 and subsequently canceled in connection with the Acquisition.
The fair market value of the Company's common stock was $17 per share on the
date of grant, resulting in compensation expense totaling $2,277,000. The
Company's Consolidated Statement of Operations for the year ended December 31,
1997 includes a $442,000 charge related to the options that vested in 1997.
F-19
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
Information with respect to activity under the plans is set forth below:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF WEIGHTED
OPTIONS/WARRANTS OPTIONS/ AVERAGE
AVAILABLE FOR WARRANTS PRICE PER EXERCISE AGGREGATE
GRANT OUTSTANDING SHARE PRICE PRICE
---------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1995................ -- -- -- -- --
Options authorized........................ 250,605 -- -- -- --
Options/Warrants granted.................. (250,605) 250,605 $6.54 $ 6.54 1,638,957
Options/Warrants canceled................. -- -- -- -- --
Options/Warrants exercised................ -- -- -- -- --
-------- ----------- ------------- ----------- ------------
Balance--December 31, 1996................ -- 250,605 6.54 6.54 1,638,957
Options authorized........................ 231,118 -- -- -- --
Options/Warrants granted.................. (231,118) 231,118 7.15 7.15 1,652,494
Options acquired in the Acquisition....... 421,271 514,160 11.17-23.75 16.25 8,356,260
Options/Warrants canceled................. 9,750 (260,355) 6.54-23.50 6.95 (1,810,752)
Options/Warrants exercised................ -- -- -- -- --
-------- ----------- ------------- ----------- ------------
Balance--December 31, 1997................ 431,021 735,528 $7.15-23.75 $ 13.37 $ 9,836,959
-------- ----------- ------------- ----------- ------------
-------- ----------- ------------- ----------- ------------
</TABLE>
Information with respect to options outstanding and exercisable by exercise
price range at December 31, 1997 follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- ---------------------------------------------------------------- --------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$7.15 231,118 8.0 $ 7.15 46,223 $ 7.15
$11.01-$15.00 68,316 5.0 $ 12.77 9,375 $ 11.17
$15.01-$18.00 304,167 7.1 $ 15.62 16,666 $ 15.50
$18.01-$20.00 112,427 5.6 $ 18.67 10,050 $ 18.67
$20.01-$23.75 19,500 6.6 $ 23.75 4,875 $ 23.75
</TABLE>
At December 31, 1996, the number of options exercisable was 50,121, and the
weighted-average exercise price of those options and warrants was $6.54.
The per share weighted-average fair value of stock options and warrants
granted during 1997 and 1996 was $15.34 and $14.25, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1997--expected dividend yield 0.0%, risk-free
interest rate of 6.50%, stock volatility rate of 68.44%, and an expected life of
8 years; 1996--expected dividend yield 0.0%, risk-free interest rate of 6.50,
stock volatility rate of 48.50%, and an expected life 8 years.
F-20
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its Plan, and
accordingly, other than the 231,118 options issued in connection with the
Acquisition, 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
below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ---------------------------- -------------- ------------
<S> <C> <C> <C>
Net income (loss) As reported...................... $ (39,458,000) $ 6,804,000
Pro forma........................ $ (39,888,000) $ 6,455,000
Earnings (loss) per share As reported...................... $ (6.06) $ 1.08
Pro forma........................ $ (6.12) $ 1.03
</TABLE>
Pro forma net income (loss) reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts
presented above because compensation cost is reflected over the options' vesting
period of 4 years and compensation cost for options granted prior to January 1,
1996 is not considered.
10. 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 $45,424,000, $10,580,000, and $2,789,000, in
1997, 1996, and 1995, respectively, or 30% of total revenue in 1997, 11% of
total revenue in 1996, and 4% of total revenue in 1995.
Revenues to one customer amounted to $54,079,000, $49,502,000, and
$46,278,000, in 1997, 1996, 1995, respectively, or 35% of total revenue in 1997,
52% of total revenue in 1996, and 64% of total revenue in 1995. At December 31,
1997 and 1996, accounts receivables from this customer were $4,448,000 and
$2,860,000, respectively. All amounts are due within one year.
F-21
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION (CONTINUED)
Information about the Company's operations by geographic location is shown
below:
<TABLE>
<CAPTION>
TRANSFERS
SALES TO BETWEEN
UNAFFILIATED GEOGRAPHIC OPERATING IDENTIFIABLE
CUSTOMERS AREAS TOTAL REVENUES PROFITS/(LOSS) ASSETS
-------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1997
North America................. $ 132,503,000 $ 2,400,000 $ 134,903,000 $ (30,469,000) $ 195,959,000
Europe........................ 18,187,000 29,280,000 47,467,000 9,520,000 159,327,000
Pacific Rim................... 3,058,000 2,330,000 5,388,000 (207,000) 3,817,000
Eliminations.................. -- (34,010,000) (34,010,000) (2,578,000) (155,059,000)
-------------- --------------- -------------- -------------- --------------
Total......................... $ 153,748,000 -- 153,748,000 $ (23,734,000) $ 204,044,000
-------------- --------------- -------------- -------------- --------------
-------------- --------------- -------------- -------------- --------------
1996
North America................. $ 73,625,000 -- 73,625,000 $ 7,613,000 $ 28,640,000
Europe........................ 20,367,000 17,335,000 37,702,000 4,075,000 25,732,000
Pacific Rim................... 1,310,000 -- 1,310,000 (445,000) 599,000
Eliminations.................. -- (17,335,000) (17,335,000) (192,000) (10,993,000)
-------------- --------------- -------------- -------------- --------------
Total......................... $ 95,302,000 -- 95,302,000 $ 11,051,000 $ 43,978,000
-------------- --------------- -------------- -------------- --------------
-------------- --------------- -------------- -------------- --------------
1995
North America................. $ 54,099,000 -- 54,099,000 $ 5,540,000 $ 26,184,000
Europe........................ 17,317,000 8,716,000 26,033,000 68,000 24,089,000
Pacific Rim................... 739,000 -- 739,000 (528,000) 318,000
Eliminations -- (8,716,000) (8,716,000) (324,000) (10,407,000)
-------------- --------------- -------------- -------------- --------------
Total......................... $ 72,155,000 -- 72,155,000 $ 4,756,000 $ 40,184,000
-------------- --------------- -------------- -------------- --------------
-------------- --------------- -------------- -------------- --------------
</TABLE>
11. SHAREHOLDERS' EQUITY
On June 24, 1996, the Company received net proceeds of $3.8 million from a
private placement of 497,093 shares of Common Stock to an employee of the
Company and two institutional investors.
On June 24, 1996, the Company declared a cash dividend of $0.4 million on
Common Stock which was paid to shareholders of record on June 24, 1996.
On May 14, 1997, the Company declared a cash dividend of $1.8 million on
Common Stock which was paid to shareholders of record on May 14, 1997. In
connection with the Share Exchange Offer in October 1997, $12.2 million in cash
was paid to the shareholders of the Company and has been reflected as dividends
in the accompanying consolidated financial statements.
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.
F-22
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. RELATED PARTIES
RELATED PARTY TRANSACTIONS
The Company purchased from Dardel Technologies, services including insurance
coverage, telecommunications, legal and management assistance and office
management services. These services amounted to $683,000, $991,000 and $995,000
in the first six months of 1997, and in fiscal years 1996 and 1995,
respectively. In addition, Dardel Technologies sub-leases to Axiohm S.A. office
space that it leases from a company owned by three directors of Axiohm S.A.R.L.
These sub-lease payments to Dardel Technologies amounted to $216,000 in the
first six months of 1997 and $279,000, $291,000 in 1996, and 1995, respectively.
For the year ended December 31, 1997 the Company paid $132,000 for rent and
$247,000 for services rendered by SNC La Noire. The terms of such transactions
approximate those of an arm's length transaction with an unrelated party.
Axiohm provided selling and commercial services to Enerdis S.A., a
subsidiary of Dardel Technologies for an amount of $132,000 and $93,000 in the
years ended December 31, 1996 and 1995, respectively. The terms of such
transactions approximate those of an arm's length transaction with an unrelated
party.
In 1996 and 1995, Axiohm participated in a cash pooling agreement with
Dardel Technologies allowing it to borrow or loan cash as considered necessary.
At December 31, 1996, Axiohm S.A. had an outstanding loan with Dardel
Technologies amounting to $1,832,000, and bearing interest at 6.42% which was
recorded in other current assets. This loan was reimbursed in April 1997 and the
cash pooling agreement has been subsequently terminated. The terms of such
transactions approximate those of an arm's length transaction with an unrelated
party.
13. SUPPLEMENTARY INCOME STATEMENT DISCLOSURE
OTHER INCOME:
The Company recorded insurance proceeds of $1.0 million in compensation for
the loss of revenue and commercial damage as other income in 1996.
14. INCOME TAXES
Components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
United States.................................. $ (41,884,000) $ 6,934,000 $ 4,596,000
Foreign........................................ 8,210,000 4,276,000 (1,571,000)
-------------- ------------- -------------
$ (33,674,000) $ 11,210,000 $ 3,025,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-23
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
The Company's income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Current income taxes:
Federal.......................................... $ 3,100,000 $ 2,396,000 $ 1,403,000
State............................................ 670,000 393,000 206,000
Foreign.......................................... 3,794,000 1,159,000 (359,000)
Deferred income taxes.............................. (1,782,000) 458,000 (155,000)
------------- ------------ ------------
Total income taxes................................. $ 5,782,000 $ 4,406,000 $ 1,095,000
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The following table summarizes the difference between the effective income
tax rate and the amount computed by applying the U.S. federal income tax rate of
34% in 1997, and French statutory rate of 36.7% in 1996 and 1995 to income
(loss) before income taxes:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate.................................. (34.0%) 36.7% 36.7%
Effect of tax rate in foreign jurisdictions........................ 1.9% 1.1% --
Valuation allowance on foreign entities losscarry forward.......... 0.5% -- 1.7%
Tax research credit................................................ (0.6%) -- (11.9%)
Effect of permanent differences.................................... 46.3% -- --
Effect of internal capital gains................................... 0.6% -- --
Effect of tax rate change.......................................... 0.5% -- 2.8%
Incremental tax on foreign branch income........................... 0.8% -- --
State taxes net of federal......................................... 1.0% -- --
Non utilized foreign entity loss................................... -- 1.7% 6.8%
Other, net......................................................... 0.2% (0.2%) 0.1%
--------- --- ---------
EFFECTIVE INCOME TAX RATE.......................................... 17.2% 39.3% 36.2%
--------- --- ---------
--------- --- ---------
</TABLE>
The effect of permanent differences related primarily to non-deductible
amortization of intangible assets and in-process technology.
F-24
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences which comprise deferred
tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................................... $ 453,000 $ --
Inventory......................................................................... 2,739,000 --
Depreciation and amortization..................................................... 1,335,000 --
Self insurance.................................................................... 105,000 --
Accrued warranty.................................................................. 426,000 --
Accrued payroll................................................................... 695,000 --
Post-retirement benefit obligation................................................ 795,000 677,000
Profit sharing.................................................................... 339,000 143,000
Investment grants................................................................. 464,000 504,000
Stock options..................................................................... 3,265,000 --
Operating loss carry forwards..................................................... 186,000 388,000
Other............................................................................. 219,000 577,000
------------- -------------
Gross deferred tax assets....................................................... 11,021,000 2,289,000
Deferred tax valuation allowance................................................ (154,000) (388,000)
------------- -------------
10,867,000 1,901,000
------------- -------------
------------- -------------
Deferred tax liabilities:
Long-term tax investment.......................................................... 1,516,000 1,603,000
Depreciation and amortization..................................................... -- 1,046,000
Allowance for long-term receivable................................................ 538,000 304,000
Capital gains..................................................................... 193,000 --
Other............................................................................. -- 22,000
------------- -------------
Total deferred tax liabilities.................................................. 2,247,000 2,975,000
------------- -------------
Net deferred tax asset (liability).................................................. $ 8,620,000 $ (1,074,000)
------------- -------------
------------- -------------
Reflected on the accompanying consolidated balance sheet as:
Current deferred tax asset, net................................................... $ 8,751,000 $ 483,000
Non current deferred tax liability, net........................................... (131,000) (1,557,000)
------------- -------------
Net deferred tax asset (liability).................................................. $ 8,620,000 $ (1,074,000)
------------- -------------
------------- -------------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 and
1996 was $154,000 and $388,000, respectively. The net change in the total
valuation allowance for the years ended December 31, 1997 and 1996 was a
decrease of $234,000 and an increase of $128,000, 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. Management
F-25
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
believes that it is more likely than not that future taxable income over the
periods which the deferred tax assets are deductible, will be sufficient to
realize the benefits of these net deductible differences.
15. GUARANTORS AND FINANCIAL INFORMATION
The following consolidating financial information is presented for purposes
of complying with the reporting requirements of the Guarantor Subsidiaries.
Separate financial statements and other disclosures with respect to the
Guarantor Subsidiaries are not presented because the Company believes that such
financial statements and other information would not provide additional
information that is material to investors.
The condensed consolidating financial information presents condensed
financial statements as of December 31, 1997 and for the year ended December 31,
1997 of:
a) the Company on a parent company only basis ("Parent") (carrying its
investments in the subsidiaries under the equity method),
b) the Guarantor Subsidiaries (Axiohm S.A.R.L., Axiohm Investissements
S.A.R.L., Axiohm IPB, Inc., Cognitive L.L.C., Cognitive Solutions, Inc.,
Dardel Technologies E.U.R.L. and Stadia Colorado Corp.)
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology Pty, DH
Technologia, Axiohm Ltd. (Hong Kong), and Axiohm Japan Inc.),
d) elimination entries necessary to consolidate the parent company and its
subsidiaries, and
e) the Company on a consolidated basis.
The condensed consolidating financial information also presents condensed
financial statements as of December 31, 1996 and for the years ended December
31, 1996 and 1995 of:
a) the Guarantor Subsidiaries which were in existence and were within the
Company's consolidated structure as of December 31, 1996 (Axiohm S.A.R.L.
and Axiohm IPB, Inc., but excluding Dardel Technologies E.U.R.L.),
b) The Non-Guarantor Subsidiaries which were in existence and were within
the Company's consolidated structure as of December 31, 1996, (Axiohm
Ltd. (Hong Kong) and Axiohm Japan Inc.),
c) elimination entries necessary to consolidate such Guarantor and
Non-Guarantor Subsidiaries, and
d) such Guarantor and Non-Guarantor Subsidiaries on a consolidated basis.
F-26
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 13,860 $ (11,528) $ 1,545 $ -- $ 3,877
Restricted cash.......................... 8,594 -- -- -- 8,594
Accounts receivable, net................. 10,388 18,969 3,099 (1,941) 30,515
Inventories.............................. 3,611 22,135 4,600 (243) 30,103
Deferred tax asset....................... 7,278 1,441 -- 32 8,751
Other current assets..................... (3,043) 8,755 (3,316) (132) 2,264
---------- ----------- ------- ------------ ------------
Total current assets................... 40,688 39,772 5,928 (2,284) 84,104
Property, plant and equipment, net......... 3,847 15,731 1,957 -- 21,535
Intangible assets, net..................... 88,555 3,614 202 -- 92,371
Other assets............................... 5,428 831 83 (308) 6,034
Investment in subsidiaries................. 45,030 -- -- (45,030) --
---------- ----------- ------- ------------ ------------
Total assets........................... $ 183,548 $ 59,948 $ 8,170 $ (47,622) $ 204,044
---------- ----------- ------- ------------ ------------
---------- ----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable......................... $ 2,511 $ 13,336 $ 1,504 -- $ 17,351
Current portion of long-term debt........ 5,689 259 -- -- 5,948
Current portion of government grant
obligations............................ -- 649 -- -- 649
Accrued payroll, payroll taxes, and
benefits............................... 689 5,505 -- -- 6,194
Accrued expenses......................... 1,620 3,309 (284) -- 4,645
Income tax payable....................... 1,937 -- -- -- 1,937
Deferred revenue......................... 416 1,640 -- -- 2,056
Rabbi Trust.............................. 8,594 -- -- -- 8,594
Other current liabilities................ 4,481 -- -- -- 4,481
Intercompany............................. 14,259 (14,126) 1,761 (1,894) --
---------- ----------- ------- ------------ ------------
Total current liabilities.............. 40,196 10,572 2,981 (1,894) 51,855
Long-term debt............................. 162,903 2,614 47 -- 165,564
Government grant obligations............... -- 1,569 -- -- 1,569
Deferred tax liability..................... (2,168) 2,299 -- -- 131
Other long term obligations................ -- 3,006 -- -- 3,006
---------- ----------- ------- ------------ ------------
Total liabilities...................... 200,931 20,060 3,028 (1,894) 222,125
Shareholders' equity (deficit)
Common stock............................. 23,852 4,167 360 (4,527) 23,852
Foreign currency translation
adjustment............................. 40 (557) 2 (143) (658)
Retained earnings (accumulated
deficit)............................... (41,275) 36,278 4,780 (41,058) (41,275)
---------- ----------- ------- ------------ ------------
Total shareholders' equity (deficit)... (17,383) 39,888 5,142 (45,728) (18,081)
---------- ----------- ------- ------------ ------------
Total liabilities and shareholders'
equity................................. $ 183,548 $ 59,948 $ 8,170 $ (47,622) $ 204,044
---------- ----------- ------- ------------ ------------
---------- ----------- ------- ------------ ------------
</TABLE>
F-27
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents............................... $ 1,724 $ 115 $ -- $ 1,839
Accounts receivable, net.............................. 10,258 294 -- 10,552
Inventories, net...................................... 13,811 89 -- 13,900
Other current assets.................................. 4,293 59 (1,066) 3,286
----------- ------- ------------ ------------
Total current assets.............................. 30,086 557 (1,066) 29,577
Property, plant and equipment, net...................... 11,213 22 -- 11,235
Other assets, including Goodwill........................ 3,454 20 (308) 3,166
----------- ------- ------------ ------------
Total Assets...................................... $ 44,753 $ 599 $ (1,374) $ 43,978
----------- ------- ------------ ------------
----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 7,067 $ 413 $ -- $ 7,480
Bank overdraft........................................ -- -- -- --
Current portion of long-term debt..................... 1,389 17 -- 1,406
Current portion of government grant obligations....... 916 -- -- 916
Other current liabilities............................. 5,660 1,109 (1,066) 5,703
----------- ------- ------------ ------------
Total current liabilities......................... 15,032 1,539 (1,066) 15,505
Long-term debt.......................................... 6,364 -- -- 6,364
Government grant obligations............................ 1,846 -- -- 1,846
Other long-term liabilities............................. 3,829 1 -- 3,830
----------- ------- ------------ ------------
Total Liabilities................................. $ 27,071 $ 1,540 $ (1,066) $ 27,545
----------- ------- ------------ ------------
Commitments and contingencies -- -- -- --
Shareholders' equity:
Common Stock.......................................... $ 4,167 $ 308 $ (308) $ 4,167
Retained earnings..................................... 13,507 (1,358) -- 12,149
Foreign currency translation adjustment............... 8 109 -- 117
----------- ------- ------------ ------------
Total Shareholders' equity........................ 17,682 (941) (308) 16,433
----------- ------- ------------ ------------
Total Liabilities and Shareholders' equity.............. $ 44,753 $ 599 $ (1,374) $ 43,978
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
F-28
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
Net sales................................... $ 20,304 $ 129,049 $ 9,657 $ (5,262) $ 153,748
Cost of net sales........................... 14,405 85,717 7,715 (5,237) 102,600
---------- ----------- ------ ------------ ------------
Gross margin................................ 5,899 43,332 1,942 (25) 51,148
Operating expenses
Selling, general, and administrative...... 2,527 14,986 1,626 -- 19,139
Research and development.................. 1,351 8,525 157 -- 10,033
In-process technology..................... 34,236 -- -- -- 34,236
Intangible amortization................... 11,299 175 -- -- 11,474
---------- ----------- ------ ------------ ------------
Total operating expenses.................... 49,413 23,686 1,783 -- 74,882
---------- ----------- ------ ------------ ------------
Income (loss) from operations............... (43,514) 19,646 159 (25) (23,734)
Interest and other income................... 1,540 270 57 (1,282) 585
Interest expense............................ (8,749) (2,980) (78) 1,282 (10,525)
Equity earnings in subsidiaries............. 9,835 -- -- (9,835) --
---------- ----------- ------ ------------ ------------
Income (loss) before income taxes........... (40,888) 16,936 138 (9,860) (33,674)
Income taxes................................ (1,430) 7,184 55 (25) 5,784
---------- ----------- ------ ------------ ------------
Net income (loss)........................... $ (39,458) $ 9,752 $ 83 $ (9,835) $ (39,458)
---------- ----------- ------ ------------ ------------
---------- ----------- ------ ------------ ------------
</TABLE>
F-29
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales............................................... $ 95,090 $ 1,310 $ (1,098) $ 95,302
Cost of net sales....................................... 66,290 1,198 (1,098) 66,390
----------- ------- ------------ ------------
Gross margin............................................ 28,800 112 -- 28,912
Operating expenses
Selling, general and administrative................... 10,456 557 -- 11,013
Research and development.............................. 6,648 -- -- 6,648
Goodwill amortization................................. 200 -- -- 200
----------- ------- ------------ ------------
Total operating expenses................................ 17,304 557 -- 17,861
----------- ------- ------------ ------------
Income from operations.................................. 11,496 (445) -- 11,051
Interest (expense)/income, net.......................... (817) (57) -- (874)
Other income............................................ 1,033 -- -- 1033
----------- ------- ------------ ------------
Income before income taxes.............................. 11,712 (502) -- 11,210
Provision for income taxes.............................. (4,404) (2) -- (4,406)
----------- ------- ------------ ------------
Net income.............................................. $ 7,308 $ (504) $ -- $ 6,804
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
F-30
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue................................................. $ 71,929 $ 739 $ (513) $ 72,155
Cost of net sales....................................... 52,220 495 (513) 52,202
----------- ------- ----- ------------
Gross margin............................................ 19,709 244 -- 19,953
Operating expenses:
Selling, general and administrative................... 8,428 772 -- 9,200
Research and development.............................. 5,836 -- -- 5,836
Goodwill amortization................................. 161 -- -- 161
----------- ------- ----- ------------
Total operating expenses................................ 14,425 772 -- 15,197
----------- ------- ----- ------------
Income (loss) from operations........................... 5,284 (528) -- 4,756
Interest expense, net................................... (1,709) (22) -- (1,731)
Other income/(expense), net............................. 11 (11) -- --
----------- ------- ----- ------------
Income before income taxes.............................. 3,586 (561) -- 3,025
Provision for income taxes.............................. (1,095) -- -- (1,095)
----------- ------- ----- ------------
Net income.............................................. $ 2,491 $ (561) $ -- $ 1,930
----------- ------- ----- ------------
----------- ------- ----- ------------
</TABLE>
F-31
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating
activities............................ $ 3,395 $ 13,730 $ (847) -- $ 16,278
----------- ----------- ------- --- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition purchases, net
of cash acquired...................... (147,995) -- -- -- (147,995)
Additional purchase price for IPB....... -- (552) -- -- (552)
Capital expenditures.................... (556) (5,216) (188) -- (5,960)
Proceeds from sale of property, plant
and equipment......................... -- 16 -- -- 16
Other................................... -- 4 (42) -- (38)
----------- ----------- ------- --- ------------
Net cash used in investing
activities.......................... (148,551) (5,748) (230) -- (154,529)
----------- ----------- ------- --- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment under line of credit...... 149 (1,260) (16) -- (1,127)
Proceeds from merger financing.......... 172,000 -- -- -- 172,000
Principal repayment under long-term
debt.................................. (4,285) (4,320) (593) -- (9,198)
Proceeds from government grant
obligations........................... -- 550 -- -- 550
Repayment under government grant
obligations........................... -- (612) -- -- (612)
Debt issuance costs..................... (8,137) -- -- -- (8,137)
Payment of dividends.................... (12,198) (1,768) -- -- (13,966)
Merger costs............................ 2,023 (2,023) -- -- --
Loans to related parties................ -- 1,713 -- -- 1,713
----------- ----------- ------- --- ------------
Net cash provided by (used in) financing
activities............................ 149,552 (7,720) (609) -- 141,223
----------- ----------- ------- --- ------------
Effect of exchange rates on cash.......... (225) (666) (43) -- (934)
----------- ----------- ------- --- ------------
Net increase (decrease) in cash and cash
equivalents............................. 4,171 (404) (1,729) -- 2,038
Cash and cash equivalents at beginning of
year.................................... -- 1,724 115 -- 1,839
----------- ----------- ------- --- ------------
Cash and cash equivalents at end of
year.................................... $ 4,171 $ 1,320 $ (1,614) $ -- $ 3,877
----------- ----------- ------- --- ------------
----------- ----------- ------- --- ------------
</TABLE>
F-32
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATING STATEMENT OF CASH-FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES............................................ $ 12,093 $ (356) $ -- $ 11,737
----------- ----- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES................... $ (2,989) $ (8) $ -- $ (2,997)
----------- ----- ------------ ------------
Principal repayments under long-term debt............... $ (8,446) $ -- $ -- $ (8,446)
Proceeds from stock issuance, net of issuance costs..... 3,807 -- -- 3,807
Loans (to)/from related parties......................... (2,320) 469 -- (1,851)
Other................................................... (1,173) -- -- (1,173)
----------- ----- ------------ ------------
NET CASH (USED IN)/PROVIDED BY FINANCING
ACTIVITIES............................................ $ (8,132) $ 469 $ -- $ (7,663)
----------- ----- ------------ ------------
Effect of foreign exchange rate changes on cash and cash
equivalents........................................... $ 126 -- -- 126
----------- ----- ------------ ------------
Change in cash and cash equivalents..................... $ 1,098 $ 105 $ -- $ 1,203
Cash and cash equivalents at beginning of year.......... 626 10 -- 636
----------- ----- ------------ ------------
Cash and cash equivalents at end of year................ $ 1,724 $ 115 $ -- $ 1,839
----------- ----- ------------ ------------
----------- ----- ------------ ------------
</TABLE>
F-33
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH-FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES............................................ $ 1,661 $ (654) $ -- $ 1,007
----------- ----- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES................... $ (3,015) $ (10) $ -- $ (3,025)
----------- ----- ------------ ------------
Proceeds from long-term debt............................ $ 2,600 $ -- $ -- $ 2,600
Principal repayments under long-term debt............... (5,023) -- -- (5,023)
Net proceeds from government grants..................... 2,204 -- -- 2,204
Loans (to)/from related parties......................... (650) 650 -- --
Other................................................... 1,161 -- -- 1,161
----------- ----- ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... $ 292 $ 650 $ -- $ 942
----------- ----- ------------ ------------
Effect of foreign exchange rate changes on cash and cash
equivalents........................................... $ 216 -- -- 216
----------- ----- ------------ ------------
Change in cash and cash equivalents..................... $ (846) $ (14) $ -- $ (860)
Cash and cash equivalents at beginning of year.......... 1,472 24 -- 1,496
----------- ----- ------------ ------------
Cash and cash equivalents at end of year................ $ 626 $ 10 $ -- $ 636
----------- ----- ------------ ------------
----------- ----- ------------ ------------
</TABLE>
F-34
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following condensed consolidating financial information is that of DH on
a stand alone basis for periods prior to the Acquisition and presents condensed
financial statements as of December 31, 1996 and for the years ended December
31, 1996 and December 31, 1995 and unaudited condensed financial statements as
of June 30, 1997 and for the six months ended and June 30, 1997 and June 30,
1996 of:
a) DH on a parent company only basis (carrying its investments in the
subsidiaries under the equity method),
b) the Guarantor Subsidiaries (Cognitive Solutions, Inc. and Stadia
Colorado Corp.,),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology Pty and
DH Technologia),
d) elimination entries necessary to consolidate the parent DH and its
subsidiaries, and
e) DH on a consolidated basis.
F-35
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $34,517,000 ($8,603,000) $ 5,029,000 -- $30,943,000
Short-term investment securities held to
maturity.............................. 13,835,000 -- -- -- 13,835,000
Accounts receivable, net................ 10,030,000 2,774,000 3,202,000 -- 16,006,000
Inventories............................. 3,478,000 4,860,000 3,395,000 (151,000) 11,582,000
Deferred tax asset...................... 2,089,000 -- -- -- 2,089,000
Prepaid expenses and other current
assets................................ (10,429,000) 13,748,000 (2,541,000) 14,000 792,000
----------- ----------- -------------- ------------ ------------
Total current assets.................. 53,520,000 12,779,000 9,085,000 (137,000) 75,247,000
Fixed assets, net....................... 4,079,000 2,167,000 2,004,000 -- 8,250,000
Intangible assets, net.................. 12,246,000 -- 218,000 -- 12,464,000
Deferred tax asset...................... 206,000 -- -- -- 206,000
Other assets............................ 932,000 (20,000) 26,000 -- 938,000
Investment in subsidiaries.............. 21,086,000 -- -- (21,086,000) --
----------- ----------- -------------- ------------ ------------
Total assets.......................... $92,069,000 1$4,926,000 $ 11,333,000 ($21,223,000) $97,105,000
----------- ----------- -------------- ------------ ------------
----------- ----------- -------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 2,962,000 $ 809,000 $ 733,000 $ 83,000 $4,587,000
Current portion of long-term debt....... 486,000 55,000 36,000 -- 577,000
Accrued payroll, payroll taxes, and
benefits.............................. 1,961,000 523,000 146,000 -- 2,630,000
Accrued expenses........................ 1,059,000 624,000 365,000 (85,000) 1,963,000
Income taxes payable.................... 1,865,000 (382,000) 923,000 -- 2,406,000
Accrued warranty........................ 414,000 44,000 20,000 -- 478,000
Deferred revenue........................ 509,000 68,000 -- -- 577,000
Intercompany............................ -- -- -- -- --
----------- ----------- -------------- ------------ ------------
Total current liabilities............. 9,256,000 1,741,000 2,223,000 (2,000) 13,218,000
Long-term debt.......................... 966,000 2,000 667,000 -- 1,635,000
----------- ----------- -------------- ------------ ------------
Total liabilities..................... 10,222,000 1,743,000 2,890,000 (2,000) 14,853,000
----------- ----------- -------------- ------------ ------------
Shareholders' equity:
Common shares:
Common stock............................ 13,168,000 -- 67,000 (67,000) 13,168,000
Foreign currency translation
adjustment............................ (12,000) -- 399,000 6,000 393,000
Retained earnings....................... 68,691,000 13,183,000 7,977,000 (21,160,000) 68,691,000
----------- ----------- -------------- ------------ ------------
Total shareholders' equity............ 81,847,000 13,183,000 8,443,000 (21,221,000) 82,252,000
----------- ----------- -------------- ------------ ------------
Total liabilities and shareholders'
equity.............................. $92,069,000 1$4,926,000 $ 11,333,000 ($21,223,000) $97,105,000
----------- ----------- -------------- ------------ ------------
----------- ----------- -------------- ------------ ------------
</TABLE>
F-36
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 69,249,000 $ 24,673,000 $ 31,413,000 $ (9,551,000) $ 115,784,000
Costs and expenses:
Cost of net sales................ 41,728,000 18,445,000 24,239,000 (9,565,000) 74,847,000
Selling, general, and
administrative................. 7,524,000 5,239,000 3,234,000 -- 15,997,000
Research and development......... 3,089,000 1,862,000 854,000 -- 5,805,000
------------- ------------- -------------- ------------- --------------
Total costs and expenses........... 52,341,000 25,546,000 28,327,000 (9,565,000) 96,649,000
------------- ------------- -------------- ------------- --------------
Income (loss) from operations...... 16,908,000 (873,000) 3,086,000 14,000 19,135,000
Interest income.................... 1,294,000 2,000 195,000 -- 1,491,000
Interest expense................... (152,000) (5,000) 8,000 -- (149,000)
------------- ------------- -------------- ------------- --------------
Net interest income (expense)...... 1,142,000 (3,000) 203,000 -- 1,342,000
Equity earnings in subsidiaries.... 1,582,000 -- -- (1,582,000) --
------------- ------------- -------------- ------------- --------------
Income before income taxes......... 19,632,000 (876,000) 3,289,000 (1,568,000) 20,477,000
Income taxes....................... 6,605,000 (290,000) 1,135,000 -- 7,450,000
------------- ------------- -------------- ------------- --------------
Net income (loss).................. $ 13,027,000 $ (586,000) $ 2,154,000 $ (1,568,000) $ 13,027,000
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
</TABLE>
F-37
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997--UNAUDITED
---------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 25,045,000 $ 11,908,000 $ 12,193,000 $ (4,493,000) $ 44,653,000
Costs and expenses:
Cost of net sales................ 15,658,000 8,543,000 8,884,000 (3,743,000) 29,342,000
Selling, general and
administrative................. 4,162,000 2,422,000 1,735,000 -- 8,319,000
Research and development......... 1,683,000 944,000 264,000 42,000 2,933,000
In process technology, intangible
assets, acquisition integration
and other charges.............. 11,680,000 -- -- -- 11,680,000
------------- ------------- -------------- ------------- --------------
Total costs and expenses........... 33,183,000 11,909,000 10,883,000 (3,701,000) 52,274,000
------------- ------------- -------------- ------------- --------------
Income (loss) from operations...... (8,138,000) (1,000) 1,310,000 (792,000) (7,621,000)
--
Interest income.................... 710,000 1,000 105,000 -- 816,000
Interest expense................... (58,000) (1,000) (22,000) -- (81,000)
Equity earnings in subsidiaries.... 955,000 -- -- (955,000) --
------------- ------------- -------------- ------------- --------------
Income (loss) before income
taxes............................ (6,531,000) (1,000) 1,393,000 (1,747,000) (6,886,000)
Income taxes....................... (431,000) (2,000) 439,000 (792,000) (786,000)
------------- ------------- -------------- ------------- --------------
Net income (loss).................. $ (6,100,000) $ 1,000 $ 954,000 $ (955,000) $ (6,100,000)
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
</TABLE>
F-42
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996--UNAUDITED
--------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 35,182,000 $ 11,627,000 $ 15,458,000 $ (4,861,000) $ 57,406,000
Costs and expenses:
Cost of net sales................. 22,082,000 8,360,000 11,755,000 (4,756,000) 37,441,000
Selling, general, and
administrative.................. 3,775,000 2,495,000 1,635,000 -- 7,905,000
Research and development.......... 1,441,000 831,000 430,000 -- 2,702,000
------------- ------------- -------------- ------------- -------------
Total costs and expenses............ 27,298,000 11,686,000 13,820,000 (4,756,000) 48,048,000
------------- ------------- -------------- ------------- -------------
Income/(loss) from operations....... 7,884,000 (59,000) 1,638,000 (105,000) 9,358,000
Interest income..................... 604,000 (1,000) 116,000 -- 719,000
Interest expense.................... (100,000) (3,000) 13,000 -- (90,000)
Equity earnings in subsidiaries..... 1,018,000 -- -- (1,018,000) --
------------- ------------- -------------- ------------- -------------
Income (loss) before income taxes... 9,406,000 (63,000) 1,767,000 (1,123,000) 9,987,000
Income taxes........................ 3,081,000 (36,000) 617,000 3,662,000
------------- ------------- -------------- ------------- -------------
Net income (loss)................... $ 6,325,000 $ (27,000) $ 1,150,000 $ (1,123,000) $ 6,325,000
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
</TABLE>
F-43
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997--UNAUDITED
-------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES:......................... $ 6,023,000 $ (267,000) $ 1,495,000 -- $ 7,251,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in short-term
investment securities held to
maturity........................ 2,675,000 -- -- -- 2,675,000
Payment for acquisition purchases,
net of cash acquired............ (4,850,000) -- -- -- (4,850,000)
Capital expenditures.............. (554,000) (304,000) (97,000) -- (955,000)
------------- ------------- -------------- ------------ -------------
Net cash used in investing
activities.................... (2,729,000) (304,000) (97,000) -- (3,130,000)
------------- ------------- -------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES: -- -- -- --
Principal repayments of long-term
debt............................ (50,000) (33,000) (38,000) -- (121,000)
Exercise of stock options......... 172,000 -- -- -- 172,000
------------- ------------- -------------- ------------ -------------
Net cash provided by (used in)
financing activities.......... 122,000 (33,000) (38,000) -- 51,000
------------- ------------- -------------- ------------ -------------
Effect of exchange rates on cash...... (66,000) -- (298,000) -- (364,000)
------------- ------------- -------------- ------------ -------------
Net increase (decrease) in cash and
cash equivalents.................... 3,350,000 (604,000) 1,062,000 -- 3,808,000
Cash and cash equivalents at beginning
of period........................... 34,517,000 (8,603,000) 5,029,000 -- 30,943,000
------------- ------------- -------------- ------------ -------------
Cash and cash equivalents at end of
period.............................. $ 37,867,000 $ (9,207,000) $ 6,091,000 -- $ 34,751,000
------------- ------------- -------------- ------------ -------------
------------- ------------- -------------- ------------ -------------
</TABLE>
F-44
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996--UNAUDITED
--------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:....................... $ 6,437,000 $ (446,000) $ 2,480,000 $ -- $ 8,471,000
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net increase in short-term
investment securities held to
maturity........................ (9,805,000) -- -- -- (9,805,000)
Capital expenditures.............. (2,076,000) (486,000) (289,000) -- (2,851,000)
------------- ------------- -------------- ------------- -------------
Net cash used in investing
activities.................... (11,881,000) (486,000) (289,000) -- (12,656,000)
------------- ------------- -------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal repayments of long-term
debt............................ (491,000) (22,000) 32,000 -- (481,000)
Exercise of stock options......... 429,000 -- -- -- 429,000
------------- ------------- -------------- ------------- -------------
Net cash provided by (used in)
financing activities.......... (62,000) (22,000) 32,000 -- (52,000)
------------- ------------- -------------- ------------- -------------
Effect of exchange rates on cash.... (87,000) -- 176,000 -- 89,000
------------- ------------- -------------- ------------- -------------
Net increase (decrease) in cash and
equivalents....................... (5,593,000) (954,000) 2,399,000 -- (4,148,000)
Cash and cash equivalents at
beginning of the period........... 32,562,000 (8,050,000) 4,459,000 -- 28,971,000
------------- ------------- -------------- ------------- -------------
Cash and cash equivalents at end of
the period........................ $ 26,969,000 $ (9,004,000) $ 6,858,000 $ -- $ 24,823,000
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
</TABLE>
F-45
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS
In January 1998, in connection with the resignation and termination of
employment of the Company's Chief Executive Officer and another executive the
$8.6 million of restricted cash in the Rabbi Trust as reflected on the
accompanying balance sheet was paid out. In addition, $1.8 million was paid for
tax obligations due to these officers under the Option Cancellation Agreements
the Company had entered into with them in August, 1997. Severance and
non-compete payments of $1.7 million were also made in the first quarter.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED 1997
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenue............................... 24,891 31,724 42,943 54,190
Gross margin................................ 7,567 10,246 14,767 18,568
Income (loss) before income taxes........... 2,724 5,468 (49,206) 7,340
Net income (loss)........................... 1,625 3,355 (51,478) 7,040
Basic and diluted net income (loss) per
share..................................... 0.25 0.52 (7.90) 1.08
Shares used in per share calculation........ 6,513 6,513 6,513 6,513
<CAPTION>
QUARTERS ENDED 1996
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenue............................... 22,818 23,591 25,556 23,337
Gross margin................................ 6,841 7,992 7,340 6,739
Income before income taxes.................. 2,300 4,628 2,523 1,759
Net income.................................. 1,403 2,835 1,556 1,010
Basic:
Net income per share...................... 0.23 0.47 0.24 0.16
Shares used in per share calculation...... 6,016 6,049 6,513 6,513
Diluted:
Net income per share...................... 0.23 0.47 0.24 0.15
Shares used in per share calculation...... 6,040 6,073 6,537 6,537
</TABLE>
F-46
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS 1997, 1996, AND 1995
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGE TO COST RECOVERIES/ BALANCE AT END
DESCRIPTION PERIOD AND EXPENSE (DEDUCTIONS) OF PERIOD
- ----------------------------------------------- ------------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1997......................................... $ 139,000 $ 49,000 $ 17,000 $ 205,000
1996......................................... 139,000 110,000 (110,000) 139,000
1995......................................... 119,000 116,000 (96,000) 139,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of July 14, 1997, among DH Technology, Inc., Axiohm S.A. and AX
Acquisition Corporation (incorporated by reference to Exhibit (c)(1) to DH Technology, Inc.'s Schedule
14D-9 filed July 16, 1997).
2.2 Purchase and Assumption Agreement, dated October 2, 1997, among Axiohm IPB, Inc., AX Acquisition
Corporation and DH Technology, Inc. (incorporated by reference to Exhibit 2.2 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
2.3 Stock Purchase Agreement dated August 12, 1994, by and between the 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 Certificate of Restated Articles of Incorporation of the Registrant filed with the California Secretary
of State on January 13, 1998 (incorporated by reference to Exhibit 3.3A of the Registrant's Registration
Statement on Form S-4 declared effective February 17, 1998).
3.2 Amended and Restated Bylaws of The Registrant (incorporated by reference to Exhibit 3.2 to the
Registrant's Current Report on Form 8-K filed October 17, 1997).
4.1 Indenture dated as of October 2, 1997 among the Registrant, the Guarantors named therein and The Bank of
New York, as trustee (the "Indenture") (incorporated by reference to Exhibit 4.1 to The Registrant's
Current Report on Form 8-K filed October 17, 1997).
4.2 Supplemental Indenture to the Indenture, dated as of January 9, 1998, between Axiohm S.A.R.L., as a
supplemental guarantor, and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1A
of the Registrant's Registration Statement on Form S-4 declared effective February 17, 1998).
4.3 Supplemental Indenture to the Indenture, dated as of November 26, 1997, between Axiohm Investissements
S.A.R.L., as a supplemental guarantor, and The Bank of New York, as trustee (incorporated by reference
to Exhibit 4.2 of the Registrant's Registration Statement on Form S-4 declared effective February 17,
1998).
4.3 Supplemental Indenture to the Indenture, dated as of November 26, 1997, between Cognitive L.L.C., as a
supplemental guarantor, and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.3
of the Registrant's Registration Statement on Form S-4 declared effective February 17, 1998).
4.4 Supplemental Indenture to the Indenture, dated as of November 26, 1997, between Dardel Technologies
E.U.R.L., as a supplemental guarantor, and The Bank of New York, as trustee (incorporated by reference
to Exhibit 4.4 of the Registrant's Registration Statement on Form S-4 declared effective February 17,
1998).
4.5+ Unrestricted Global Note for $120,000,000 in principal amount of New 9 3/4% Senior Subordinated Notes
due 2007 and attached Subsidiary Guarantees.
10.1 Registration Rights Agreement, dated as of October 2, 1997 among the Registrant, Axiohm S.A., Axiohm
IPB, Inc., Dardel Technologies E.U.R.L., Stadia Colorado Corp., Cognitive Solutions, Inc. and Lehman
Brothers Inc. (incorporated by reference to Exhibit 10.1 to The Registrant's Current Report on Form 8-K
filed October 17, 1997).
10.2 Resignation Agreement dated January 10, 1998 between the Registrant and William H. Gibbs (incorporated
by reference to Exhibit 10.3A of the Registrant's Registration Statement on Form S-4 declared effective
February 17, 1998).
10.3 Noncompetition and Mutual Release Agreement dated January 10, 1998 between the Registrant and William H.
Gibbs (incorporated by reference to Exhibit 10.4A of the Registrant's Registration Statement on Form S-4
declared effective February 17, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.4* Employment Agreement between the Registrant and Walter Sobon dated as of July 14, 1997 (incorporated by
reference to Exhibit 10.4 to The Registrant's Current Report on Form 8-K filed October 17, 1997).
10.5* Employment Agreement between the Registrant and Janet Shanks dated as of July 14, 1997 (incorporated by
reference to Exhibit 10.5 to The Registrant's Current Report on Form 8-K filed October 17, 1997).
10.6*+ Letter Agreement dated March 15, 1998 between the Registrant and Nicolas Dourassoff.
10.7+ $85,000,000 Credit Agreement among the Registrant, as Borrower, the several Lenders from time to time
Parties thereto, Lehman Brothers Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent
and Union Bank of California, N.A., as Administrative Agent dates as of October 2, 1997.
10.8 Guarantee and Collateral Agreement, dated as of October 2, 1997, between the Registrant, Lehman Brothers
Inc., Lehman Commercial Paper Inc. and certain of The Registrant's subsidiaries (incorporated by
reference to Exhibit 10.8 to The Registrant's Current Report on Form 8-K filed October 17, 1997).
10.9* 1985 Director Warrant Plan and Forms of Warrant issued under the Plan, as amended. (incorporated by
reference to Exhibit 10.3 of The Registrant Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 filed March 28, 1992).
10.10* 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 the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990 filed March 28, 1991).
10.11* 1992 Stock Plan and Form of Incentive Stock Option Agreement, as amended. (incorporated by reference to
Exhibit 10.6 of the Registrant's Form 10-K for the fiscal year ended December 31, 1994 filed March 15,
1995).
10.12 Lease Agreement dated April 20, 1990, between the Registrant and Coast Income Properties, Inc., as
amended. (incorporated by reference to Exhibit 10.5 of The Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 filed March 29, 1993).
10.13 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 the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 filed March 28, 1991).
10.14 Lease Agreement dated April 1, 1994, by and between the Registrant and Wind River Development Co., a
Wyoming corporation. (incorporated by reference to Exhibit 10.6 of The Registrant's Form 10-K for the
fiscal year ended December 31, 1994 filed March 15, 1995).
10.15 Lease Agreement dated February 28, 1994, between Chardan, Ltd., and Stadia Colorado Corp. (incorporated
by reference to Exhibit 2.2 of The Registrant's Current Report on Form 8-K filed March 14, 1994).
10.16 Sublease Agreement dated September 30, 1992, by and between Medical Engineering Corporation and
Cognitive Solutions, Inc. (incorporated by reference to Exhibit 10.6 of the Registrant's Form 10-K for
the fiscal year ended December 31, 1994 filed March 15, 1995).
10.17 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 of the Registrant's Form 10-Q for the Quarter Ended March
31, 1995 filed May 15, 1995).
10.18* Stock Option Agreement dated October 2, 1997 between the Registrant and Malcolm Unsworth. (incorporated
by reference to Exhibit 10.18 of the Registrant's Registration Statement on Form S-4 declared effective
February 17, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.19* Co-Chairman Employment Agreement dated effective October 2, 1997 between the Registrant and Patrick
Dupuy (incorporated by reference to Exhibit 10.19 of the Registrant's Registration Statement on Form S-4
declared effective February 17, 1998).
10.20* Co-Chairman Employment Agreement dated effective October 2, 1997 between the Registrant and Gilles
Gibier (incorporated by reference to Exhibit 10.19 of the Registrant's Registration Statement on Form
S-4 filed on November 28, 1997).
21.1+ List of Subsidiaries.
23.1 Independent Auditor's Consent and Report on Schedule (KPMG Peat Marwick LLP).
23.2 Consent of Independent Accountants (Price Waterhouse).
24.1+ Power of Attorney.
</TABLE>
- ------------------------
* This item is a compensatory plan or management contract.
+ Previously filed.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors and Shareholders
Axiohm Transaction Solutions, Inc.:
The audit referred to in our report dated March 19, 1998, included the
related financial statement schedule as of December 31, 1997, included in 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 audit. 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 the incorporation by reference in the registration statements
(Nos. 33-5110; 33-29911; 33-50532 and 33-75798) on Form S-8 of DH Technology,
Inc. and subsidiaries, of our report dated March 19, 1998, relating to the
consolidated balance sheets of Axiohm Transaction Solutions, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, shareholders' equity (deficit), and cash flows for the year ended
December 31, 1997, which report appears in the December 31, 1997 annual report
on Form 10-K of Axiohm Transaction Solutions, Inc.
We also consent to the use of our report on the schedule included herein.
/s/ KPMG PEAT MARWICK LLP
San Diego California
April 10, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-04299 and 33-50532) of Axiohm Transaction
Solutions, Inc. of our report dated September 12, 1997 (except as to Note 19,
which is as of January 9, 1998) relating to the consolidated financial
statements of Axiohm S.A. appearing on page of this Form 10-K.
/s/ PRICE WATERHOUSE
Paris, France
April 9, 1998
