<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 3, 1999, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO _________
COMMISSION FILE NUMBER: 0-13459
AXIOHM TRANSACTION SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2917470
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16 SENTRY PARK WEST, SUITE 450
1787 SENTRY PARKWAY WEST
BLUE BELL, PA 19422
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 591-0940
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES XXX NO ___
AS OF JULY 3, 1999, THERE WERE 6,519,301 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS 2
JULY 3, 1999 AND JANUARY 2, 1999
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED
JULY 3, 1999 AND JULY 4, 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS 25
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 26
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 26
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 27
EXHIBITS INDEX 28
SIGNATURES 29
</TABLE>
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
------------------- --------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,915 $ 902
Accounts receivable, net 32,573 33,361
Inventories 32,967 33,210
Prepaid expenses and other current assets 12,431 11,476
------------------- --------------------
Total current assets 80,886 78,949
Fixed assets, net of accumulated depreciation 19,449 20,556
Intangible assets 44,984 63,411
Other assets 8,338 8,810
------------------- --------------------
Total assets $ 153,657 $ 171,726
------------------- --------------------
------------------- --------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 18,517 $ 20,712
Current portion of long-term debt 60,474 9,085
Current portion of government grant obligations 747 813
Accrued payroll, payroll taxes and benefits 6,034 5,367
Accrued expenses 6,523 6,951
Income taxes payable 2,158 --
Deferred revenue 1,888 1,910
Other current liabilities 2,925 3,015
------------------- --------------------
Total current liabilities 99,266 47,853
Non-current liabilities:
Long-term debt 121,827 167,034
Government grant obligations 1,234 1,374
Other long-term liabilities 3,537 3,463
------------------- --------------------
Total liabilities 225,864 219,724
------------------- --------------------
Shareholders' equity (deficit):
Common shares:
Common stock, authorized: 28,500,000
shares; issued and outstanding:
6,519,301 shares in 1999 and 1998 respectively 24,589 24,367
Other comprehensive income (loss) (1,483) (153)
Accumulated deficit (95,313) (72,212)
------------------- --------------------
Total shareholders' equity (deficit) (72,207) (47,998)
------------------- --------------------
Total liabilities and shareholders' equity (deficit) $ 153,657 $ 171,726
------------------- --------------------
------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
------------------------------- -------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $51,512 $ 58,617 $111,989 $115,686
Cost of net sales 36,062 37,084 77,686 74,079
--------------- -------------- -------------- ---------------
Gross margin 15,450 21,533 34,303 41,607
Operating expenses:
Selling, general and administrative 9,843 9,476 19,609 18,280
Research and development 3,824 3,866 8,131 7,956
Plant closing expenses 760 -- 1,694 --
Acquisition related intangible amortization 9,085 8,461 18,167 16,923
--------------- -------------- -------------- ---------------
Total operating expenses 23,512 21,803 47,601 43,159
--------------- -------------- -------------- ---------------
Loss from operations (8,062) (270) (13,298) (1,552)
Interest and other income -- 43 -- 131
Interest and other expense 4,696 4,633 8,955 9,000
--------------- -------------- -------------- ---------------
Loss before income taxes (12,758) (4,860) (22,253) (10,421)
--------------- -------------- -------------- ---------------
Income taxes 1,022 1,426 849 2,601
--------------- -------------- -------------- ---------------
Net loss $(13,780) $ (6,286) $ (23,102) $ (13,022)
--------------- -------------- -------------- ---------------
--------------- -------------- -------------- ---------------
Basic:
Net loss per share $ (2.11) $ (0.96) $ (3.54) $ (2.00)
Shares used in per share calculation 6,519 6,519 6,519 6,519
Diluted:
Net loss per share $ (2.11) $ (0.96) $ (3.54) $ (2.00)
Shares used in per share calculation 6,519 6,519 6,519 6,519
--------------- -------------- -------------- ---------------
--------------- -------------- -------------- ---------------
Foreign currency translation adjustment (358) (420) (1,330) (175)
--------------- -------------- -------------- ---------------
Other comprehensive loss $(14,138) $ (6,706) $ (24,432) $ (13,197)
--------------- -------------- -------------- ---------------
--------------- -------------- -------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
July 3, July 4,
1999 1998
------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cashflows from operating activities:
Net loss $ (23,102) $ (13,022)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization 22,200 20,833
Other non-cash items 222 220
Changes in assets and liabilities, net of effects of acquisition of business:
Accounts receivable (1,154) (6,044)
Inventories (750) (3,853)
Other current assets (1,133) (1,624)
Accounts payable and accrued expenses 2,042 (447)
Other current liabilities (90) (966)
------------------- -------------------
Net cash used in operating activities (1,765) (4,903)
Cashflows from investing activities:
Payment for acquisition of business & other intangibles, net of cash acquired (416) (8,582)
Capital expenditures and other (2,274) (1,790)
------------------- -------------------
Net cash used in investing activities (2,690) (10,372)
Cashflows from financing activities:
Net borrowings under line of credit 11,830 15,854
Principal repayments under long term debt (4,839) (2,585)
Exercise of Stock Options -- 115
Debt issuance costs (328) --
------------------- -------------------
Net cash provided by financing activities 6,663 13,384
Effect of exchange rate changes on cash (195) (175)
------------------- -------------------
Net Increase (decrease) in cash and cash equivalents 2,013 (2,066)
Cash and cash equivalents at beginning of period 902 3,877
------------------- -------------------
Cash and cash equivalents at end of period $ 2,915 $ 1,811
------------------- -------------------
------------------- -------------------
Supplemental Cashflow Disclosures:
Cash paid during the year for:
Interest $ 8,683 $ 8,733
Income taxes $ - $ 4,538
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
4
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(JULY 3, 1999 - UNAUDITED)
NOTE 1: UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the quarter ended July 3, 1999 are not necessarily indicative of the results
which may be expected for the year ending January 1, 2000 or any other
period. Reference is made to the Consolidated Financial Statements and Notes
thereto included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "SEC") on April 1, 1999.
In May 1998, Axiohm Transaction Solutions, Inc. (the "Company") changed its
fiscal year from the twelve-month period ended December 31 to the 52 or
53-week period that ends on the Saturday nearest December 31, effective for
fiscal year 1998. As a result, the Company's Second quarter of 1999 and 1998
represents the thirteen-week period ended on July 3, 1999, and July 4, 1998.
The Company's 1999 fiscal year will end on January 1, 2000.
The October 2, 1997 Business Combination, as listed in the Company's annual
report filed with the SEC on April 1, 1999, was financed 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,
and revolving loans and letters of credit up to $35.0 million and (ii) the
proceeds of a private placement of $120,000,000 of its 9 3/4% Senior
Subordinated Notes, which have been registered under the Securities Act of
1933. In addition, the Indenture and the Credit Facility contain financial
and other restrictive covenants that limit among other things, the ability of
the Company to borrow additional funds.
NOTE 2: DEBT COVENANT
During the quarter ended July 3, 1999, the Company was not in compliance with
respect to the interest, debt leverage, fixed charge and certain other
covenants associated with the Credit Facility, thus permitting the holders of
its Credit Facility to accelerate all such debt. In addition, the line of
credit availability was reduced from $25 million to $20 million. The banking
group, by signature of a majority of the banks has granted waiver of the
non-compliance and has granted an additional availability in the line of
credit of $5 million through October 31, 1999. The Company is currently
scheduled to make principal payments on its senior debt of $2.0 million and
an interest payment on the senior subordinated notes of $5.9 million, on
September 30, 1999 and October 1, 1999, respectively. In the event the
Company is unable to meet any principal and interest payment requirements,
all members of the banking group, other than two have also waived, through
October 31, 1999, such prospective nonpayment as a default; however, the
banks who did not so waive would not be bound by the other banks' waiver of
this matter. Furthermore, the bank group, by signature of a majority of the
banks has waived, through October 31, 1999, any prospective nonpayment of the
scheduled interest payment on the senior subordinated notes due October 1,
1999. The Company reclassed the appropriate long-term debt balance relating
to the term debt and revolver to current liabilities, within the balance
sheet. The $120,000,000 associated with the Senior Subordinated Notes is not
included in the default of the covenants. The reclassification was instituted
on the basis that, although a waiver was granted through October 31, 1999, by
the lending institution, there can be no guarantee that the Company will meet
the covenant requirements at the end of the waiver period. In addition, there
is no assurance that the Company will be able to refinance the entire Credit
Facility within the waiver period. Discussions are ongoing with the lenders
to its Credit Facilities concerning the amounts owed under the Credit
Facility and alternatives for the curing of events of default. Working in
conjunction with the banking group, the Company has employed the services of
Nightingale Associates L.L.C. to act as financial advisor, and to assist in
the determination of strategic alternatives.
NOTE 3: BASIS OF PRESENTATION
The financial statements of the Company 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.
5
<PAGE>
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., a
private French Corporation, 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,
directly or indirectly, 100% of the outstanding Common Stock of Axiohm S.A.
in exchange for 5,518,524 shares of DH Common Stock and $12.2 million in cash
(the "Share Exchange Offer"). Simultaneously 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. As part of the
Acquisition Financing the Company completed a private placement (the "Senior
Notes Offering") of $120 million of its 9.75% 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 "Notes"). 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 "Guarantor
Subsidiaries"), all of which are directly or indirectly wholly owned by the
Company. 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.".
In connection with the Merger, Axiohm S.A. changed its tax filing status and
was renamed Axiohm S.A.R.L. Immediately after the Merger, approximately 85%
of DH's outstanding Common Stock were held by the former shareholders of
Axiohm S.A.R.L. and approximately 15% were 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.R.L. was treated as the acquirer for
accounting purposes. Accordingly, the historical financial information for
periods prior to August 31, 1997 is that of Axiohm S.A.R.L. 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.
NOTE 4: INVENTORIES
<TABLE>
<CAPTION>
July 3, 1999 January 2, 1999
------------ ---------------
<S> <C> <C>
Raw Materials $25,463,000 $24,632,000
Work in Process 1,788,000 2,027,000
Finished Goods 5,716,000 6,551,000
---------------------- -----------------------
Totals $32,967,000 $33,210,000
---------------------- -----------------------
---------------------- -----------------------
</TABLE>
NOTE 5: OTHER COMPREHENSIVE INCOME
Comprehensive income for the six months ended July 3, 1999 and July 4, 1998
presented below includes foreign currency translation items. There was no tax
expense or tax benefit associated with the foreign currency translation items.
<TABLE>
<CAPTION>
July 3, 1999 July 4, 1998
------------ ------------
<S> <C> <C>
Net Loss $(23,102,000) $(13,022,000)
Foreign Currency Translation Adjustment (1,330,000) (175,000)
---------------------- -----------------------
Other Comprehensive Loss $(24,432,000) $(13,197,000)
---------------------- -----------------------
---------------------- -----------------------
</TABLE>
NOTE 6: 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
6
<PAGE>
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.
There are no contractual restrictions, under the Notes or otherwise, upon the
ability of the Guarantor Subsidiaries to make distributions or pay dividends
to their respective equity-holders. Directly or indirectly, the Company is
the sole equity-holder of all of the Guarantor Subsidiaries.
The Company's payment obligation under the Notes is jointly and severally
fully and unconditionally guaranteed on a senior subordinated basis by the
Guarantor Subsidiaries, all of which are directly or indirectly wholly owned
by the Company.
The condensed consolidating financial information presents condensed
consolidating Balance Sheets as of July 3, 1999 and January 2, 1999 and
condensed consolidating statements of operations for the six months ended
July 3, 1999 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 separated as to French Guarantors
(Axiohm S.A.R.L., Dardel Technologies E.U.R.L., Axiohm
Investissements S.A.R.L.), and U.S. Guarantors (Axiohm IPB, Inc.,
Cognitive L.L.C., Cognitive Solutions, Inc., and Stadia Colorado
Corp.),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology
Pty, DH Technologia, Axiohm Ltd. (Hong Kong), Axiohm Japan Inc.
and AP Print S.A.R.L),
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
consolidating balance Sheets as of July 4, 1998 and condensed consolidating
statements of operations for the six months ended July 4, 1998.
a) the Company on a parent company only basis ("Parent") (carrying
its investments in the subsidiaries under the equity method),
b) the Guarantor Subsidiaries separated as to French Guarantors
(Axiohm S.A.R.L., Dardel Technologies E.U.R.L., Axiohm
Investissements S.A.R.L.), and U.S. Guarantors (Axiohm IPB, Inc.,
Cognitive L.L.C., Cognitive Solutions, Inc., and Stadia Colorado
Corp.),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology
Pty, DH Technologia, Axiohm Ltd. (Hong Kong), Axiohm Japan Inc.
and AP Print S.A.R.L.),
d) elimination entries necessary to consolidate the Parent Company
and its subsidiaries, and
e) the Company on a consolidated basis.
7
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
July 3, 1999 (Unaudited)
----------------------------------------------------
Guarantor Subsidiaries
----------------------------------
Parent French US
---------------- ---------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,370 $ (237) $ 478
Accounts receivable, net 8,933 3,606 16,033
Inventories 6,068 6,483 17,369
Prepaid expenses and other current assets 9,717 1,195 690
Intercompany (13,399) 1,346 12,137
---------------- ---------------- ---------------
Total current assets 12,689 12,393 46,707
Fixed assets, net of accumulated depreciation 3,995 3,497 10,580
Intangible assets 41,755 319 2,939
Other assets 6,048 335 1,926
Investment in Subsidiaries 45,029 8,752 --
---------------- ---------------- ---------------
Total assets $ 109,516 $ 25,296 $ 62,152
---------------- ---------------- ---------------
---------------- ---------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,431 $ 5,704 $ 7,251
Current portion of long-term debt 60,265 182 21
Current portion of government grant obligations -- 667 63
Accrued payroll, payroll taxes and benefits 1,506 2,530 1,720
Accrued expenses 4,727 545 888
Income taxes payable (4,015) (255) 6,299
Deferred revenue (37) 1,049 876
Other current liabilities 2,925 -- --
---------------- ---------------- ---------------
Total current liabilities 68,802 10,422 17,118
Non-current liabilities:
Long-term debt 120,477 1,271 9
Government grant obligations -- 753 481
Other long-term liabilities 1 1,711 1,825
Deferred tax liability (2,357) 2,042 315
---------------- ---------------- ---------------
Total liabilities 186,923 16,199 19,748
---------------- ---------------- ---------------
Shareholders' equity (deficit):
Common stock 17,787 11,009 --
Other comprehensive income 119 (961) --
Retained earnings (deficit) (95,313) (951) 42,404
---------------- ---------------- ---------------
Total shareholders' equity (deficit) (77,407) 9,097 42,404
---------------- ---------------- ---------------
Total liabilities and shareholders'
equity (deficit) $ 109,516 $ 25,296 $ 62,152
---------------- ---------------- ---------------
---------------- ---------------- ---------------
<CAPTION>
July 3, 1999 (Unaudited)
--------------------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,304 $ -- $ 2,915
Accounts receivable, net 4,001 -- $ 32,573
Inventories 4,369 (1,322) 32,967
Prepaid expenses and other current assets 374 455 12,431
Intercompany (3,636) 3,552 --
--------------- --------------- ---------------
Total current assets 6,412 2,685 80,886
Fixed assets, net of accumulated depreciation 1,377 -- 19,449
Intangible assets (29) -- 44,984
Other assets 29 -- 8,338
Investment in Subsidiaries -- (53,781) --
--------------- --------------- ---------------
Total assets $ 7,789 $(51,096) $ 153,657
--------------- --------------- ---------------
--------------- --------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,131 $ -- $ 18,517
Current portion of long-term debt 6 -- 60,474
Current portion of government grant obligations 17 -- 747
Accrued payroll, payroll taxes and benefits 278 -- 6,034
Accrued expenses 363 -- 6,523
Income taxes payable 129 -- 2,158
Deferred revenue -- -- 1,888
Other current liabilities -- -- 2,925
--------------- --------------- ---------------
Total current liabilities 2,924 -- 99,266
Non-current liabilities:
Long-term debt 70 -- 121,827
Government grant obligations -- -- 1,234
Other long-term liabilities -- -- 3,537
Deferred tax liability -- -- --
--------------- --------------- ---------------
Total liabilities 2,994 -- 225,864
--------------- --------------- ---------------
Shareholders' equity (deficit):
Common stock 505 (4,712) 24,589
Other comprehensive income (273) (368) (1,483)
Retained earnings (deficit) 4,563 (46,016) (95,313)
--------------- --------------- ---------------
Total shareholders' equity (deficit) 4,795 (51,096) (72,207)
--------------- --------------- ---------------
Total liabilities and shareholders'
equity (deficit) $ 7,789 $(51,096) $ 153,657
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
8
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Operations
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended July 3, 1999 (Unaudited)
-----------------------------------------------
Guarantor Subsidiaries
-------------------------------
Parent French US
-------------- -------------- --------------
<S> <C> <C> <C>
Net Sales $ 25,951 $ 21,243 $ 73,838
Cost of net sales 17,600 14,625 57,525
-------------- -------------- --------------
Gross margin 8,351 6,618 16,313
Operating expenses:
Selling, general and administrative 7,597 2,785 6,800
Research and development 2,082 1,815 4,020
Plant closing expenses 436 -- 1,258
Acquisition related amortization 18,167 -- --
-------------- -------------- --------------
Total operating expenses 28,282 4,600 12,078
-------------- -------------- --------------
Income (loss) from operations (19,931) 2,018 4,235
Interest and other income 1,925 -- --
Interest and other expense 8,520 2,127 138
Equity earnings in subsidiaries 1,721 -- --
-------------- -------------- --------------
Income (loss) before income taxes (benefit) (24,805) (109) 4,097
Income taxes (benefit) (1,703) 742 1,703
-------------- -------------- --------------
Net income (loss) $ (23,102) $ (851) $ 2,394
-------------- -------------- --------------
-------------- -------------- --------------
<CAPTION>
Six Months Ended July 3, 1999 (Unaudited)
-------------------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
--------------- -------------- ---------------
<S> <C> <C> <C>
Net Sales $ 15,222 $ (24,265) $111,989
Cost of net sales 11,677 (23,741) 77,686
--------------- -------------- ---------------
Gross margin 3,545 (524) 34,303
Operating expenses:
Selling, general and administrative 2,427 -- 19,609
Research and development 214 -- 8,131
Plant closing expenses -- -- 1,694
Acquisition related amortization -- -- 18,167
--------------- -------------- ---------------
Total operating expenses 2,641 -- 47,601
--------------- -------------- ---------------
Income (loss) from operations 904 (524) (13,298)
Interest and other income -- (1,925) -
Interest and other expense 97 (1,927) 8,955
Equity earnings in subsidiaries -- (1,721) -
--------------- -------------- ---------------
Income (loss) before income taxes (benefit) 807 (2,243) (22,253)
Income taxes (benefit) 332 (225) 849
--------------- -------------- ---------------
Net income (loss) $ 475 $ (2,018) $(23,102)
--------------- -------------- ---------------
--------------- -------------- ---------------
</TABLE>
9
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended July 3, 1999 (Unaudited)
-------------------------------------------------
Guarantor Subsidiaries
--------------------------------
Parent French US
-------------- -------------- ---------------
<C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities $ (8,451) $ 865 $5,526
Cashflows from investing activities:
Payment for acquisition of business and other intangibles -- -- (416)
Capital expenditures and other (551) (370) (1,301)
-------------- -------------- ---------------
Net cash used in investing activities (551) (370) (1,717)
Cashflows from financing activities:
Net borrowings under line of credit 11,445 385 --
Principal repayments under long term debt (4,800) -- (14)
Debt issuance costs (328) -- --
-------------- -------------- ---------------
Net cash provided by (used in) financing activities 6,317 385 (14)
Effect of exchange rate changes on cash -- (286) --
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents (2,685) 594 3,795
Cash and cash equivalents at beginning of period 4,055 (831) (3,317)
-------------- -------------- ---------------
Cash and cash equivalents at end of period $ 1,370 $ (237) $ 478
-------------- -------------- ---------------
-------------- -------------- ---------------
<CAPTION>
Six Months Ended July 3, 1999 (Unaudited)
------------------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
-------------- --------------- ---------------
<C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities $ 212 $ 83 $ (1,765)
Cashflows from investing activities:
Payment for acquisition of business and other intangibles -- -- (416)
Capital expenditures and other (52) -- (2,274)
-------------- --------------- ---------------
Net cash used in investing activities (52) -- (2,690)
Cashflows from financing activities:
Net borrowings under line of credit -- -- 11,830
Principal repayments under long term debt (25) -- (4,839)
Debt issuance costs -- -- (328)
-------------- --------------- ---------------
Net cash provided by (used in) financing activities (25) -- 6,663
Effect of exchange rate changes on cash 174 (83) (195)
-------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 309 -- 2,013
Cash and cash equivalents at beginning of period 995 -- 902
-------------- --------------- ---------------
Cash and cash equivalents at end of period $ 1,304 $ - $ 2,915
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>
10
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
January 2, 1999
----------------------------------------------------
Guarantor Subsidiaries
---------------------------------
Parent French US
---------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,055 $ (831) $ (3,317)
Accounts receivable, net 10,573 4,255 14,702
Inventories 6,438 7,205 15,556
Prepaid expenses and other current assets 9,494 826 557
Intercompany (18,753) 2,889 15,538
---------------- --------------- ---------------
Total current assets 11,807 14,344 43,036
Fixed assets, net of accumulated depreciation 4,239 4,229 10,650
Intangible assets 59,922 412 3,098
Other assets 6,163 366 2,253
Investment in Subsidiaries 45,029 8,752 --
---------------- --------------- ---------------
Total assets $127,160 $ 28,103 $ 59,037
---------------- --------------- ---------------
---------------- --------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,397 $ 6,847 $ 8,679
Current portion of long-term debt 8,839 214 21
Current portion of government grant obligations -- 760 34
Accrued payroll, payroll taxes and benefits 1,534 1,912 1,580
Accrued expenses 4,578 994 1,199
Income taxes payable (2,538) (1,462) 4,232
Deferred revenue (39) 1,203 746
Other current liabilities 3,015 -- --
---------------- --------------- ---------------
Total current liabilities 18,786 10,468 16,491
Non-current liabilities:
Long-term debt 165,376 1,552 18
Government grant obligations -- 858 516
Other long-term liabilities -- 1,609 1,687
Deferred tax liability (2,475) 2,327 315
---------------- --------------- ---------------
Total liabilities 181,687 16,814 19,027
---------------- --------------- ---------------
Shareholders' equity (deficit):
Common stock 17,567 11,009 --
Other comprehensive income 118 380 --
Retained earnings (accumulated deficit) (72,212) (100) 40,010
---------------- --------------- ---------------
Total shareholders' equity (deficit) (54,527) 11,289 40,010
---------------- --------------- ---------------
Total liabilities and shareholders' equity (deficit) $127,160 $ 28,103 $ 59,037
---------------- --------------- ---------------
---------------- --------------- ---------------
<CAPTION>
January 2, 1999
---------------------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
--------------- --------------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 995 $ -- $ 902
Accounts receivable, net 3,831 -- 33,361
Inventories 4,665 (654) 33,210
Prepaid expenses and other current assets 426 173 11,476
Intercompany (4,989) 5,315 --
--------------- --------------- ----------------
Total current assets 4,928 4,834 78,949
Fixed assets, net of accumulated depreciation 1,438 -- 20,556
Intangible assets (21) -- 63,411
Other assets 28 -- 8,810
Investment in Subsidiaries -- (53,781) --
--------------- --------------- ----------------
Total assets $ 6,373 $(48,947) $171,726
--------------- --------------- ----------------
--------------- --------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,789 $ -- $ 20,712
Current portion of long-term debt 11 -- 9,085
Current portion of government grant obligations 19 -- 813
Accrued payroll, payroll taxes and benefits 341 -- 5,367
Accrued expenses 180 -- 6,951
Income taxes payable (232) -- --
Deferred revenue -- -- 1,910
Other current liabilities -- -- 3,015
--------------- --------------- ----------------
Total current liabilities 2,108 -- 47,853
Non-current liabilities:
Long-term debt 88 -- 167,034
Government grant obligations -- -- 1,374
Other long-term liabilities -- -- 3,296
Deferred tax liability -- -- 167
--------------- --------------- ----------------
Total liabilities 2,196 -- 219,724
--------------- --------------- ----------------
Shareholders' equity (deficit):
Common stock 505 (4,714) 24,367
Other comprehensive income (416) (235) (153)
Retained earnings (accumulated deficit) 4,088 (43,998) (72,212)
--------------- --------------- ----------------
Total shareholders' equity (deficit) 4,177 (48,947) (47,998)
--------------- --------------- ----------------
Total liabilities and shareholders' equity (deficit) $ 6,373 $(48,947) $171,726
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
11
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
July 4, 1998 (Unaudited)
---------------------------------------------------
Guarantor Subsidiaries
---------------------------------
Parent French US
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $12,153 $ (169) $(11,197)
Accounts receivable, net 10,716 4,747 17,914
Inventories 8,512 7,199 15,249
Prepaid expenses and other current assets 10,169 1,144 296
Intercompany (11,792) (460) 12,347
--------------- --------------- ---------------
Total current assets 29,758 12,461 34,609
Fixed assets, net of accumulated depreciation 4,130 3,886 10,922
Intangible assets 77,841 452 3,036
Other assets 5,538 308 1,798
Investment in Subsidiaries 45,029 8,739 --
--------------- --------------- ---------------
Total assets $162,296 $ 25,846 $ 50,365
--------------- --------------- ---------------
--------------- --------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $4,661 $ 5,502 $ 4,485
Current portion of long-term debt 5,935 215 23
Current portion of government grant obligations -- 712 --
Accrued payroll, payroll taxes and benefits 1,922 1,789 1,694
Accrued expenses 5,195 326 1,168
Income taxes payable (1,324) 646 557
Deferred revenue 206 1,091 735
Other current liabilities 935 3,804 --
--------------- --------------- ---------------
Total current liabilities 17,530 14,085 8,662
Non-current liabilities:
Long-term debt 176,911 1,525 32
Government grant obligations -- 927 550
Other long-term liabilities -- 1,628 1,607
Deferred tax liability (2,168) 1,949 315
--------------- --------------- ---------------
Total liabilities 192,273 20,114 11,166
--------------- --------------- ---------------
Shareholders' equity (deficit):
Common stock 24,187 4,167 --
Other comprehensive income 133 (398) --
Retained earnings (accumulated deficit) (54,297) 1,963 39,199
--------------- --------------- ---------------
Total shareholders' equity (deficit) (29,977) 5,732 39,199
--------------- --------------- ---------------
Total liabilities and shareholders' equity (deficit) $162,296 $ 25,846 $ 50,365
--------------- --------------- ---------------
--------------- --------------- ---------------
<CAPTION>
July 4, 1998 (Unaudited)
-------------------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
--------------- --------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,024 $ -- $ 1,811
Accounts receivable, net 3,182 -- 36,559
Inventories 3,784 (788) 33,956
Prepaid expenses and other current assets 723 307 12,639
Intercompany (2,205) 2,110 --
--------------- --------------- --------------
Total current assets 6,508 1,629 84,965
Fixed assets, net of accumulated depreciation 1,513 -- 20,451
Intangible assets (14) -- 81,315
Other assets 69 -- 7,713
Investment in Subsidiaries -- (53,768) --
--------------- --------------- --------------
Total assets $ 8,076 $(52,139) $ 194,444
--------------- --------------- --------------
--------------- --------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,052 $ (42) $ 16,658
Current portion of long-term debt 5 -- 6,178
Current portion of government grant obligations 131 -- 843
Accrued payroll, payroll taxes and benefits 466 -- 5,871
Accrued expenses 203 -- 6,892
Income taxes payable 121 -- --
Deferred revenue 1 -- 2,033
Other current liabilities -- (1,224) 3,515
--------------- --------------- --------------
Total current liabilities 2,979 (1,266) 41,990
Non-current liabilities:
Long-term debt 121 -- 178,589
Government grant obligations -- -- 1,477
Other long-term liabilities -- -- 3,235
Deferred tax liability -- -- 96
--------------- --------------- --------------
Total liabilities 3,100 (1,266) 225,387
--------------- --------------- --------------
Shareholders' equity (deficit):
Common stock 360 (4,527) 24,187
Other comprehensive income (142) (426) (833)
Retained earnings (accumulated deficit) 4,758 (45,920) (54,297)
--------------- --------------- --------------
Total shareholders' equity (deficit) 4,976 (50,873) (30,943)
--------------- --------------- --------------
Total liabilities and shareholders' equity (deficit) $ 8,076 $(52,139) $ 194,444
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
12
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended July 4, 1998 (Unaudited)
--------------------------------------------------------------------------------------------------
Guarantor Subsidiaries
-------------------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
------------ --------------- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 30,115 $ 23,719 $ 64,750 $ 12,854 $(15,752) $115,686
Cost of net sales 19,687 14,692 46,617 10,248 (17,165) 74,079
------------ --------------- --------------- -------------- --------------- ----------------
Gross margin 10,428 9,027 18,133 2,606 1,413 41,607
Operating expenses:
Selling, general &
administrative 5,521 2,190 8,259 2,310 -- 18,280
Research and development 2,170 1,825 3,692 269 -- 7,956
In-process technology 16,878 45 -- -- -- 16,923
------------ --------------- --------------- -------------- --------------- ----------------
Total operating expenses 24,569 4,060 11,951 2,579 -- 43,159
------------ --------------- --------------- -------------- --------------- ----------------
Income (loss) from operations (14,141) 4,967 6,182 27 1,413 (1,552)
Interest and other income 2,653 42 11 6 (2,581) 131
Interest and other expense 8,894 2,658 2 16 (2,570) 9,000
Equity earnings in subsidiaries 5,724 -- -- -- (5,724) --
------------ --------------- --------------- -------------- --------------- ----------------
Income (loss) before income
taxes (benefit) (14,658) 2,351 6,191 17 (4,322) (10,421)
Income taxes (benefit) (1,636) 2,068 1,590 39 540 2,601
------------ --------------- --------------- -------------- --------------- ----------------
Net income (loss) $(13,022) $ 283 $ 4,601 $ (22) $ (4,862) $ (13,022)
------------ --------------- --------------- -------------- --------------- ----------------
------------ --------------- --------------- -------------- --------------- ----------------
</TABLE>
13
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Period Ended July 4, 1998 (Unaudited)
---------------------------------------------------
Guarantor Subsidiaries
----------------------------------
Parent French US
--------------- --------------- ----------------
<S> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities $(7,709) $ 1,240 $ 1,660
Cashflows from investing activities:
Payment for acquisition of business and other intangibles (8,055) (527) --
Capital expenditures and other (405) (221) (1,164)
--------------- --------------- ----------------
Net cash used in investing activities (8,460) (748) (1,164)
Cashflows from financing activities:
Net borrowings under line of credit 15,854 -- --
Principal repayments under long term debt (1,600) (958) (27)
Exercise of stock options 115 -- --
--------------- --------------- ----------------
Net cash provided by (used in) financing activities 14,369 (958) (27)
Effect of exchange rate changes on cash 93 159 --
--------------- --------------- ----------------
Net increase (decrease) in cash and cash equivalents (1,707) (307) 469
Cash and cash equivalents at beginning of period 13,860 138 (11,666)
--------------- --------------- ----------------
Cash and cash equivalents at end of period $12,153 $ (169) $ (11,197)
--------------- --------------- ----------------
--------------- --------------- ----------------
<CAPTION>
Period Ended July 4, 1998 (Unaudited)
-------------------------------------------------
Non-Guarantor
Subsidiaries Eliminations Consolidated
--------------- --------------- --------------
<S> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities $ (377) $ 283 $(4,903)
Cashflows from investing activities:
Payment for acquisition of business and other intangibles -- -- (8,582)
Capital expenditures and other -- -- (1,790)
--------------- --------------- --------------
Net cash used in investing activities -- -- (10,372)
Cashflows from financing activities:
Net borrowings under line of credit -- -- 15,854
Principal repayments under long term debt -- -- (2,585)
Exercise of stock options -- -- 115
--------------- --------------- --------------
Net cash provided by (used in) financing activities -- -- 13,384
Effect of exchange rate changes on cash (144) (283) (175)
--------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents (521) -- (2,066)
Cash and cash equivalents at beginning of period 1,545 -- 3,877
--------------- --------------- --------------
Cash and cash equivalents at end of period $ 1,024 $ -- $ 1,811
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
14
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto included herein.
With the exception of the reported actual results, the information presented
herein contains predictions, estimates and other forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including without limitation,
those statements herein which are followed by an asterisk (*). Such forward
looking statements involve known and unknown risks, uncertainties and other
factors that may cause actual results, performance and achievements of the
Company to differ materially from those expressed or implied by such
forward-looking statements. Although the Company believes its plans,
intentions and expectations reflected in such forward-looking statements are
based on reasonable assumptions, it can give no assurance that such plans,
intentions, expectations, objects or goals will be achieved. See the "Certain
Factors that May Affect Future Results" section. Important factors that could
cause actual results to differ materially from those included in the
forward-looking statements include but are not limited to: the ability of the
Company to restructure the substantial leverage of debt service of the
Company, the timing of customer orders and product mix; pricing pressure from
customers; the level of backlog; market acceptance of new enhanced versions
of the Company's products; the revenue; timing and cost impact of closing one
of the Companies manufacturing facilities; the inability of the Company to
realize anticipated cost reductions because of the substantial amount of
management time involved and the impact of substantial leverage and debt
service on the Company; the outcome of the Company's Year 2000 certification.
BACKGROUND
The Company was formed from the combination of Axiohm S.A. a French
corporation ("Axiohm") and DH Technology, Inc. ("DH"). On August 21, 1997, AX
Acquisition Corporation, 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 Axiohm Technologies EURL formerly, 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 in the Merger.
Simultaneously, DH changed its name to Axiohm Transaction Solutions, Inc. The
aggregate initial 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") (ii) the proceeds of the Offering
of $120,000,000 of its 9 3/4% Senior Subordinated Notes due in 2007, which
were exchanged in March 1998 for equivalent notes which have been registered
under the Securities Act (the "Notes").
In connection with the foregoing transactions, the Company recorded
approximately $102.1 million of goodwill and other intangibles which is being
amortized over three years using the straight line method, which is the
period estimated to be benefited.
On July 28, 1998 the Company announced a major restructuring program designed
to streamline operations and improve manufacturing efficiencies by
consolidating its Paso Robles, California and Riverton, Wyoming manufacturing
operations principally into its Ithaca, New York manufacturing operation. The
Company has since completed the consolidation of the Paso Robles facility,
and has delayed the consolidation of the Riverton, Wyoming facility, pending
the development of a restructuring plan other the Company's financing
arrangement, as well as the evaluation of strategic alternatives. The delay
in the consolidation of the Riverton facility is not expected to have a
material effect on consolidated results for the Company.* The Company expects
that the completion of both actions will result in the reduction of
approximately 200 jobs in the closing locations and the addition of
approximately 100 jobs in Ithaca, New York.* This final program is a result of
an assessment that began at the time of the acquisition of DH Technology.
Although the Riverton move has been delayed, the Company expects that when
the consolidation moves are completed by mid 2000, pre-tax operating costs
will be reduced by approximately $3.5 million a year.* The Company expects to
incur approximately $6.3 million of costs to fully implement the plan by the
end of 1999, of which approximately $3 million was recorded in the second
quarter of 1998 as an adjustment of the purchase price of DH Technology, Inc.
thereby increasing goodwill and other intangibles from $102.1 million to $105
million.*
During the quarter ended July 3, 1999, the Company was not in compliance with
respect to the interest, debt leverage, and fixed charge covenants associated
with the Credit Facility, thus permitting the holders of its Credit Facility
to accelerate all such debt. In addition, the line of credit availability was
reduced from $25 million to $20 million. The Banking group has granted waiver
of the non-compliance and has granted an additional availability in the line
of credit of $5 million through October 31, 1999. The Company reclassed the
appropriate long-term debt balance relating to the term debt and revolver to
current liabilities, within the balance sheet. The $120,000,000 associated
with the Senior Subordinated Notes is not included in the default of the
covenants. The reclassification was instituted on the basis that, although a
waiver was granted through October 31, 1999, by the lending institution,
there can be no guarantee that the Company will meet the covenant
requirements at the end of the waiver period. In
15
<PAGE>
addition, there is no assurance that the Company will be able to refinance
the entire Credit Facility within the waiver period. Discussions are ongoing
with the lenders to its Credit Facilities concerning the amounts owed under
the Credit Facility and alternatives for the curing of events of default.
Working in conjunction with the banking group, the Company has employed the
services of Nightingale Associates L.L.C. to act as financial advisor, and to
assist in the determination of strategic alternatives.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 3, 1999 COMPARED TO THREE MONTHS ENDED JULY 4, 1998
NET SALES
Net Sales of $51.5 million for the second quarter of 1999 decreased $7.1 million
or 12.1% from revenues of $58.6 million during the same period in 1998. The
decrease in sales is due generally to change in product mix. The Company
continues to develop and introduce new products to replace existing products as
new technology is developed. The Company has experienced delays in the
introduction of these new products to market. Additionally, the Company has
experienced a decrease in average selling prices in transaction products
worldwide due to tightening competition.
COST OF NET SALES
Cost of net sales for the second quarter of 1999 were $36.1 million or 70.0% of
net sales, compared to $37.1 million or 63.3% of net sales during the second
quarter of 1998. The decrease in absolute cost of sale dollars is a direct
correlation to the decrease in net sales. Increase in cost of net sales as a
percentage of net sales is due predominately to product mix, coupled with the
lower average sales prices, offset slightly with reduced cost of sales. The
newer products have higher costs associated with them due to the learning curve
and better technology versus older products nearing the end of their product
life cycle. The Company is still experiencing inefficiencies relating to the
consolidation of the Paso Robles facility into existing facilities as stated
previously under the restructuring plan.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (S,G&A)
S,G&A expenses for the 2nd quarter 1999 totaled $9.8 million increasing to 19.1%
of net sales from $9.5 million or 16.2% of net sales during the same period a
year ago. The increase over the 2nd quarter 1998 is due generally to additional
professional fees related to strategic planning initiatives. The increase as a
percentage of sales is directly related to the decrease in sales.
RESEARCH AND DEVELOPMENT EXPENSES (R&D)
R&D expenses for the 2nd quarter 1999 totaled $3.8 million remaining relatively
unchanged compared to $3.9 at the second quarter 1998.
PLANT CLOSING EXPENSES
The Company recorded $0.8 million in expenses in the second quarter of 1999,
relating to the relocation of operations from Paso Robles, California and
Riverton, Wyoming facilities to the company's Ithaca, New York and Golden,
Colorado facilities, primarily for the payment of bonuses to employees as
incentives to remain with the Company until the facilities are closed.
ACQUISITION RELATED INTANGIBLE AMORTIZATION
The Company anticipates that on a quarterly basis through the third quarter of
2000, operating expenses will include approximately $9.0 million in non-cash
acquisition related charges which principally includes non-cash intangible
amortization.*
LOSS FROM OPERATIONS
Loss from operations for the second quarter of 1999 was $8.1 million compared to
a loss of $.3 million for the same period a year ago. The loss is principally
due to decreases in gross margin due to changing product mix, coupled with the
decrease in sales. Additionally, operating expenses have contributed to the
decline by $1.7 million relating to plant closings and strategic alternative
initiatives.
INTEREST AND OTHER INCOME
The Company did not generate significant interest and other income during the
second quarter of 1999.
16
<PAGE>
INTEREST AND OTHER EXPENSE
Interest expense for the second quarter remained relatively stable at $4.5
million compared to $4.6 million in the second quarter of 1998.
INCOME TAXES
The Company recorded tax expense of $1.0 million for the second quarter 1999
compared to $1.4 million in the second quarter 1998. Although the Company
reported a net loss before income taxes in both periods, goodwill amortization
is not deductible for income tax purposes. For the quarter ended July 3, 1999,
the Company's consolidated results reflect a net loss position, however, the tax
provision for 1999 reflects recognition of income taxes payable in foreign
countries, principally France. Income tax as a percentage on income before
taxes, excluding the effect of acquisition related charges, was approximately
40% in 1998.
SIX MONTHS ENDED JULY 3, 1999 COMPARED TO SIX MONTHS ENDED JULY 4, 1998
NET SALES
Net Sales of $112.0 million for the first six months of 1999 decreased $3.7
million or 3.2% from $115.7 million for the same period last year. The decrease
is primarily related to the change in product mix. The Company continues to
develop and introduce new products as new technology is developed. The Company
has experienced delays in the transition of entering new products to market.
Additionally, the Company has experienced a decrease in average selling prices
of transaction products worldwide.
COST OF NET SALES
Cost of Net Sales for the six months ended July 3, 1999 totaled $77.7 million or
69.4% of total revenue compared to $74.1 million or 64.0% of total revenue for
the same period a year ago. The increase in cost of sales for the six months
compared to the prior year is due principally to product mix, and the decline in
average selling prices, offset slightly with reduced costs of sales. The newer
products have higher initial costs due to a production learning curve, and the
cost of new technology.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (S,G&A)
S,G&A expenses for the six months ended July 3, 1999 totaled $19.6 million or
17.5% of total revenues compared to $18.3 million or 15.8 % of total revenues
for the same period a year ago. Increased expenses are primarily due to
severance payments to former employees.
RESEARCH AND DEVELOPMENT EXPENSES (R&D)
Research and Development expenses for the six months ended July 3, 1999 remained
relatively consistent with the same period of a year ago at $8.1 million and
$8.0 million respectively.
PLANT CLOSING EXPENSES
The Company recorded $1.7 million in expenses for the first half of 1999,
relating to the relocation of operations from Paso Robles, California and
Riverton, Wyoming facilities to the company's Ithaca, New York and Golden,
Colorado facilities, primarily for the payment of bonuses to employees as an
incentive to remain with the Company until the facilities are closed.
ACQUISITION RELATED INTANGIBLE AMORTIZATION
The Company recorded $18.2 million in acquisition related amortization for the
first six months of 1999. The Company anticipates that on a quarterly basis
through the third quarter of 2000, operating expenses will include approximately
$9.0 million in non-cash intangible acquisition related amortization charges.
LOSS FROM OPERATIONS
Loss from operations for the first six months of 1999 was $13.3 million compared
to a loss of $1.6 million for the same period for 1998. The increase in losses
from the current period versus the prior is due to decreased margin dollars,
principally from lower sales and higher cost of sales. Additionally, operating
expenses contributed to the loss in the current period due to increased costs
associated with plant closings and severance.
INTEREST AND OTHER INCOME
The Company did not generate significant interest income and other income during
the first six months of 1999.
17
<PAGE>
INTEREST AND OTHER EXPENSE
Interest expense for the six months ended July 3, 1999 totaled $8.9 million, and
remained relatively consistent with prior year amounts of $9.0 million.
INCOME TAXES
The Company recorded tax expense of $0.8 million for the first six months of
1999 compared to $2.6 million in the same period 1998. Although the Company
reported a net loss before income taxes in both periods, goodwill amortization
is not deductible for income tax purposes. For the six months ended July 3,
1999, the Company's consolidated results reflect a net loss position, however,
the tax provision for 1999 reflects recognition of income taxes payable in
foreign countries, principally France. Income tax as a percentage on income
before taxes, excluding the effect of acquisition related charges, was
approximately 40% in 1998.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The risk factors set forth below 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, including the forward-looking statements included in this report.
Substantial Leverage and Debt Service. For the quarter ended July 3, 1999, the
Company was not in compliance with respect to the interest, debt leverage, and
fixed charge covenants associated with the credit facility. This default permits
the holders of its Credit Facility to accelerate all such debt which, if
accelerated, would result in all such debt being currently due and payable. The
Company has reclassed the appropriate debt associated with the default as a
current obligation within the balance sheet, effective July 3, 1999.
The Company continues to collaborate with the lenders to its Credit
Facilities during the waiver period regarding alternatives for the curing of
events of default. In addition, the Company recognizes the need to emphasize
working capital management in its operations, particularly accounts
receivable and inventory as a potential source of cash. Working in
conjunction with the banking group, the Company has employed the services of
Nightingale Associates L.L.C. to act as financial advisor, and to assist in
the determination of strategic alternatives. The ability of the Company to
cure the events of the default is unknown at this time. Therefore, no
assurance can be given that the Company will be able to do so or what
additional actions will be necessary
Effective July 3, 1999, the revolving line of credit availability was reduced
from $25 million to $20 million, creating significant difficulties for the
Company with respect to cash availability. As mentioned above, the Bank group
has granted a waiver, and granted an additional $5 million in availability on
the line of credit through October 31, 1999. At July 3, 1999, the Company's
total debt excluding government grants was $182.3 million. The Company has
limited borrowing availability under the Credit Facility for working capital and
capital expenditure requirements, due to the decrease in the availability. Debt
levels have increased during the first half of 1999 from the debt levels at
January 2, 1999 due principally to the payment of $5.9 million of subordinated
interest on April 1, 1999.
On July 3, 1999, the Company's total debt (net of cash) was $184.3 million,
and shareholders' deficit was $95.3 million. The Company has classified the
outstanding Bank debt except for the $120,000,000 Senior Subordinated Notes
as short-term. No assurance can be given with respect to the Company's
ability to refinance the Credit Facility within the waiver period. The Bank
group has extended an additional $5 million in availability to the Company
during the waiver period. In addition, there can be no assurance, that the
Company's business will generate cash flow at or above anticipated levels or
that the Company will be able to borrow funds under the credit facility in an
amount sufficient to enable the Company to service its indebtedness, or make
anticipated capital expenditures. In addition, 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. During the quarter ended July 3, 1999, and ongoing the Company
employed the services of several professional firms to evaluate strategic
alternatives, with respect to the financing arrangement of the Company. 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, coupled with the restrictions on the Company's ability to incur
additional indebtedness under the Credit Facility and the
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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 Credit Facility.
In addition, the Indenture and the 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 restructuring of debt, 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. The Company is currently
evaluating the anticipated future benefit of AP Print, a division of the French
Subsidiary to determine any impairment of goodwill and other assets associated
with that division. Any potential charge to the consolidated results in the
third quarter 1999 is not expected to materially effect the consolidated
results. 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.
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.
DEPENDENCE ON PRINCIPAL CUSTOMER.
Sales to NCR Corporation ("NCR"), the Company's largest customer, for the three
months ended July 3, 1999 was 19.6% of total revenue. Net sales for the years
ended January 2, 1999 and December 31, 1997 were 25% and 35% respectively. No
other customer accounted for more than 10% of net sales at any time period. On
September 2, 1997, the Company entered into a three-year contract with NCR (the
"NCR Contract"). The NCR Contract provides that NCR and Axiohm intend and expect
that NCR will purchase from Axiohm substantially all of its requirements for
transaction printers of the type manufactured by the Company (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 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'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.
COMPETITION.
The Company has a number of significant domestic and foreign competitors for its
transaction printer, bar code printer and card reader products. Many of the
Company's competitors have significantly greater financial, technical and
marketing resources than does the Company. To remain competitive, the Company
believes that it will be required to maintain a high level of technological
expertise and deliver reliable cost-effective products on a timely basis. There
can be no assurance that the Company will have sufficient resources to continue
to make the investments necessary to maintain its competitive position or that
other competitors with substantially greater
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financial resources, including other manufacturers of non-transaction
printers, will not attempt to enter the market. A failure to remain
competitive would have a material adverse effect on the Company's business,
financial condition and results of operations.
INTEGRATION OF OPERATIONS/ RESTRUCTURING.
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. During the second quarter of 1998,
as part of the strategy to achieve purchasing, manufacturing and other
synergies begun with the acquisition of DH, the Company finalized its plan to
consolidate two of its manufacturing operations, Paso Robles, California and
Riverton, Wyoming, principally into its Ithaca, New York manufacturing
operation as discussed above. The consolidation of the Paso Robles, CA
facility has been completed, while the consolidation of the Riverton, WY
location has been delayed pending the outcome of the debt restructuring
process. The Company expects to incur $6.3 million in costs through 2000
related to consolidation of these two facilities.* The Company recorded
approximately $3 million in additional goodwill in the second quarter of 1998
related to the closure of the two former DH manufacturing operations. Through
July 3, 1999, the Company has incurred $712,000, in charges against the
reserve. It is reasonable to believe that expenses will be incurred until the
manufacturing locations are closed.* The Company also recorded $0.8 million
in expenses during the quarter ended July 3, 1999, and $3.3 million since the
beginning of the 2nd quarter 1998, relating to the relocation of operations
from Paso Robles, California and Riverton, Wyoming to Ithaca, New York,
primarily for staying bonuses to be paid to employees upon completion of
integration duties. Any inability of the Company to integrate these
operations successfully in a timely and efficient manner could have a
material adverse effect on the Company's business, financial condition and
results of operations and would adversely affect its ability to realize its
planned cost savings or would require additional expenditures to realize such
cost savings. In addition, even if the businesses of Axiohm 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.
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.
INTERNATIONAL SALES AND OPERATIONS.
The Company expects that international sales will continue to represent a
significant portion of its net sales. Although the Company's net sales are
denominated in U.S. dollars, its international business may be affected by
changes in demand resulting from fluctuations in exchange rates as well as by
risks such as tariff regulations and difficulties in obtaining export licenses.
In addition, historically the French operations of Axiohm S.A.R.L. have incurred
a majority of Axiohm S.A.R.L.'s expenses in French francs, while a substantial
majority of Axiohm S.A.R.L.'s revenues have been in U.S. dollars. Any material
appreciation in the French franc relative to the U.S. dollar would, absent any
effects associated with hedging or currency trading transactions, detrimentally
affect the financial performance of the Company's French operations. The Company
attempts to limit its exposure to French franc currency fluctuation compared to
the U.S. dollar by entering into various financial instruments, including
forward exchange contracts, to offset its French franc denominated expenses with
associated U.S. dollar denominated revenue, if, in the opinion of the Company,
to do so would mitigate foreign exchange losses. The forward exchange contracts
the Company has entered into are marked to market, with any exchange gains or
losses and associated costs recognized in the income statement. The Company
cannot predict the effect of exchange rate fluctuations upon future operating
results.
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INTELLECTUAL PROPERTY RIGHTS.
The Company holds various U.S. and foreign patents on impact printheads,
transaction printers, magnetic card readers and bar code products and has
applied for additional domestic and foreign patents. The basic technology for
many of the Company's products is based upon these patents and on manufacturing
expertise. There can be no assurance that any issued patents will provide the
Company with competitive advantages or will not be challenged by third parties,
or that the patents of others will not have a material adverse effect on the
Company's ability to do business, or that others will not independently develop
similar products, duplicate the Company's products, or design around the patents
issued to the Company.
The Company has in the past been, and may in the future be, notified that it may
be infringing intellectual property rights possessed by third parties. In
addition, the Company has in the past commenced, and may in the future, commence
litigation against third parties for infringement of the Company's intellectual
property rights. Any such litigation initiated by the Company or by others is,
at a minimum, costly, and can divert the efforts and attention of the Company's
management and technical personnel, which can have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that other infringement claims by third
parties or other claims for indemnification by customers or end-users of the
Company's products resulting from infringement claims will not be asserted in
the future or that such assertions, if proven to be true, will not have a
material adverse effect on the Company's business, financial condition and
results of operations. If any such claims are asserted against the Company, the
Company may seek to obtain a license under the third party's intellectual
property rights. There can be no assurance, however, that a license will be
available on commercially reasonable terms, if at all. The Company could decide,
in the alternative, to resort to litigation to challenge such claims or to
design around the patented technology. Such actions could be costly and would
divert the efforts and attention of the Company's management and technical
personnel, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
FUTURE SALE OF AXIOHM EXCHANGE SHARES
In May 1998, the Company registered with the SEC an aggregate of 5,515,858
shares of Common Stock held by the former shareholders of Axiohm S.A.R.L. and
Dardel for sale by such shareholders from time to time in the open market or in
private transactions. Such sales, or the potential for such sales, could have a
material adverse effect on the market price for the Company's Common Stock.
On March 3, 1999, the Nasdaq Stock Market notified the Company that the Company
would be de-listed unless the Company can demonstrate the ability to sustain
compliance with all listing criteria. The Company scheduled a hearing with
Nasdaq, held on May 27, 1999 to appeal the de-listing of the Company's stock
from the Market. The de-listing has been delayed providing the Company
demonstrates compliance with all requirements for continued listing on or before
October 21, 1999. There can be no assurance that the Company can maintain the
listing requirements through the review period. In addition, the NASDAQ Review
Panel reserves the right to require additional information based on significant
occurrences within the structure of the Company, the Panel can reassess its
decision to keep the Company listed on the exchange. Therefore, it is uncertain
that the Company can maintain its listing with the NASDAQ.
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, computer
systems and/or software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements.
The Company's failure to resolve Year 2000 issues could result in systems
failure or miscalculations causing disruptions in operations, including a
temporary inability to process transactions, send invoices, or engage in normal
business activities. Such failures could materially and adversely affect the
liquidity and financial performance of the company. Dependent on the readiness
of suppliers, delays in supplies could directly correlate to reduce shipments
and lost sales. In addition, a similar result may occur, in the event major
customers do not meet Year 2000 compliance.
Year 2000-State of Readiness
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The Company recognizes the need for addressing the "Year 2000" issue and has
developed an oversight committee to ensure compliance. Representatives from
each operating location, both domestic and international, have been
identified and assigned the task of evaluating the state of readiness of each
respective location. The Chief Information Officer has the responsibility to
oversee the Company's Year 2000 compliance issues. Information systems ("IT")
which are considered to be non-compliant are expected to be modified or
replaced with systems that are Year 2000 compliant.* Similar actions are
being taken with respect to non-IT systems, primarily those systems embedded
in equipment and systems used in manufacturing and other facilities.* In
addition, the teams have been given the responsibility of determining the
state of readiness of customers and vendors and other third parties that may
have a material impact on the Company, and develop contingency plans where
necessary. The Company thus far has primarily used, and expects to continue
to primarily use, internal resources to implement its readiness plan and to
upgrade or replace systems affected by the Year 2000 issue.*
As part of the Company's Year 2000 project, the Company has completed the
awareness phase of all IT and non-IT systems pertaining to the Year 2000
issue. The Company has completed its initial evaluation of current computer
systems hardware, including software and embedded technologies. Evaluation of
IT systems is complete. The Company has begun its evaluation of the "state of
readiness" and expects to continue and complete this evaluation of the "state
of readiness" of both vendors and customers with a material relationship
during 1999.* The following table summarizes the current status of the
Company's position in addressing Year 2000 issues.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Phase % Completed Project Completion Date During
the Period Ending*
--------------------------------------------------------------------------
<S> <C> <C>
Awareness 100% 12/31/98
--------------------------------------------------------------------------
Evaluation 100% 6/30/99
--------------------------------------------------------------------------
Renovation 75% 10/30/99
--------------------------------------------------------------------------
Validation 50% 11/30/99
--------------------------------------------------------------------------
Implementation 50% 12/15/99
--------------------------------------------------------------------------
</TABLE>
Based on the evaluation process thus far, the Company has identified the
primarily non-compliant issue to reside within the company's accounting and
manufacturing software.
The Company has purchased the necessary hardware and software and is
currently in the process of implementing firm wide an Oracle based enterprise
resource planning system ("ERP"). To date, Version 10.7 has been implemented
in several locations. Complete conversion of all Divisions is expected to be
complete by the end of October 1999.* Version 10.7 has been certified Y2K
compliant by Oracle.
The Company anticipates 75% completion of the Oracle conversion by the end of
the 3rd quarter 1999, and 100% completion to be achieved by October 1999.*
Failure to implement Oracle ERP Version 10.7 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.
Non-IT systems (voice mail, security system, and Personal software, etc.) and
non-key IT systems have been evaluated. For each location, a list of top
suppliers has been evaluated. A material effect on the company's performance
is not expected.*
Year 2000-Costs to Address Issues
Incremental costs associated with Year 2000 compliance are expected to
approximate $3.0 million through December 31, 1999, of which the Oracle
conversion is expected to be the largest portion totaling $2.0 million.*
Through July 3, 1999, the company has spent approximately $1.6 million
associated with the Oracle conversion or 80% of the total.* This estimate
assumes that the Company will not incur significant costs associated with
Year 2000 compliance on behalf of vendors, customers or other third parties.
Year 2000-Contingency Plan
As mentioned previously the Company has identified as a significant issue
regarding Y2K to be the Company's conversion to Oracle, or some other form
ERP system. All significant divisions, which may have a material effect on
earnings, have converted to a Y2K certified version of Oracle, with the
exception of the France Division.* The Company has
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determined a contingency plan for the French location regarding Year 2000
non-compliance. The contingency plan is to be evaluated through October 1999.
The Company has developed a foundation for the contingency plan for other
locations and is expecting to complete the plan by October 1999. The Company
believes that in-house problems can be addressed through the use of
alternative resources and manual processes.*
The costs and timetables in which the Company plans to complete the Year 2000
readiness activities, as well as potential outcomes of non-compliance are
based on management's best estimates. These estimates were derived using
numerous assumptions of future events including continuing factors.
Evaluation of Year 2000 issues is a continuous process. There can be no
assurance that these estimates will be achieved. Failure to achieve these
estimates, or complete the Company's Year 2000 readiness plan and activities,
could have a material effect on the company's financial condition and
operating results.
EURO CURRENCY RISKS.
Eleven of fifteen member countries of the European Union established fixed
conversion rates between their existing currencies ("legacy currencies") and one
common currency - the Euro. The Euro now trades on currency exchanges and may be
used in business transactions, eliminating currency exchange risk between the
member countries. Beginning in January 2002, new Euro-denominated bills and
coins will be issued, and legacy currencies will be withdrawn from circulation.
The Company has recognized this situation and is currently in the process of
developing a plan to address issues raised by the Euro conversion. Possible
issues include, but are not limited to, the need to adapt computer and financial
systems to recognize Euro-denominated transactions, as well as the impact of one
common European currency on pricing.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended July 3, 1999, the Company was not in compliance with
respect to the interest, debt leverage, and fixed charge covenants associated
with the credit facility, thus permitting the holders of its Credit Facility to
accelerate all such debt. The Company has reclassed the appropriate Bank Debt to
current liabilities within the balance sheet. In addition, as of July 3, 1999,
the line of credit availability was reduced to $20 million from $25 million.
Under the waiver of the covenant violation, the Bank Group granted an additional
$5 million availability under the line of credit through October 31, 1999.
Discussions are ongoing with the lenders to its Credit Facilities concerning the
amounts owed under the Credit Facility and alternatives for the curing of events
of default. However, it is uncertain that the Company will be able to meet
liquidity and capital requirements during the waiver period. The Company
recognizes the need to, and emphasizes working capital management in its
operations, particularly accounts receivable and inventory as a potential source
of cash. In association with the strategic alternative analysis, the Company
plans to identify potential cost cutting initiatives to assist the improvement
of liquidity and capital resources. The ability of the Company to cure the
events of the default is unknown at this time. Therefore, no assurance can be
given that the Company will be able to do so or what additional actions will be
necessary.
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 Credit Facility will not be adequate to meet its anticipated
future requirements for working capital, capital expenditures, and scheduled
payments of principal and interest on its indebtedness during the next twelve
months, thus stressing the importance of the need to restructure the Credit
Facility.
The Company has classified all of the outstanding Bank debt except for the
$120,000,000 Senior Subordinated Notes (Notes) as short-term liabilities.
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 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
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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.
The Company's primary sources of capital are cash flow from operations and
borrowings under the Credit Facility. For the six months ended July 3, 1999,
cash used in operating activities was $1.8 million. Depreciation and
amortization represented $22.2 million of cash flows from operating
activities. The semi-annual interest payment on subordinated debt of $5.9
million was made on April 1, 1999. Accounts Receivable increased by
approximately $1.2 million offset by accounts payable increases of
approximately $2.0 million. Inventory increased $750,000 during the same
period.
Cash used in investing activities was approximately $2.7 million in the first
half of 1999, and is comprised primarily of increased capital expenditures of
$2.3 million relating primarily to increases in tooling used to support new
products.
At July 3, 1999, the Company's total debt net of cash was $184.3 million.
Total debt excluding government grants totaled $182.3 million. The Company
has limited borrowing availability under the Credit Facility as the line
availability was decreased to $20 million as of July 2, 1999. An additional
$5 million availability was included within the waiver of the covenant
violation. Debt levels have increased during the first half of 1999 from the
debt levels at January 2, 1999 due to the payment of $5.9 million of
subordinated interest on April 1, 1999 and working capital requirements.
The 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 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 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
redemption's; prepayment or repurchase of other indebtedness and other
provisions.
In managing interest rate exposure, principally under the Company's floating
rate revolving credit facilities, the Company has entered into 3 interest
rate swap agreements during the period from December 1997 through October
2001. The swap agreements are with major financial institutions and aggregate
$35 million in notional principal amount at July 3, 1999. The first swap
agreement of $20 million notional principal amount requires fixed interest
payments at a fixed rate of 5.90% through November 1999. The second swap
agreement of $10 million notional principal amount requires fixed interest
payments at a fixed rate of 4.76% through October 2001. The third swap
agreement of $5 million in notional principal amount requires fixed interest
payments at a fixed interest rate of 4.365% through October 2001.
The Company incurred indebtedness of $120 million in connection with the
issuance of the Notes. The indebtedness evidenced by the Notes is
subordinated to the Company's obligations under the Credit Facility. Interest
is payable semi-annually on the unpaid principal at 9.75% per annum. The
Company made the first of two $5.9 million payments for 1999 on April 1,
1999. The Indenture contains covenants regarding restricted payments,
incurrence of indebtedness, liens, dividends, merger, consolidation or sale
of assets, and transactions with affiliates.
NEW ACCOUNTING STANDARDS
In February 1999, the Financial Accounting Standards board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 135 "Discussion of FASB
Statement No. 75 and Technical Corrections." This Statement amends existing
authoritative literature to make various technical corrections, clarify
meanings, or describe applicability under changed conditions. The statement
is effective for fiscal year ending after February 15, 1999. Management has
not yet determined the impact that the inclusion of this statement may have
on consolidated results, financial condition or liquidity of the Company.
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In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement
standardizes the accounting for derivative instruments, including derivative
instruments embedded in contracts, by requiring that the entity recognize
those items as assets or liabilities in the statement of financial position
and measure them at fair value. The statement is scheduled to be effective
for fiscal year beginning after June 15, 1999. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 "Accounting for
Derivative Instruments and Hedging Activities -Deferral of the Effective Date
of FASB Statement No. 133 ("SFAS 137"). SFAS 137 delayed the effective date
of SFAS 133 for one year, to fiscal years beginning after June 15, 2000. The
implementation of SFAS 133 is not expected to have a material impact on the
net earnings of the Company. The recognition of the interest rate swap
agreements and corresponding debt obligations at fair value could reduce the
Company's availability under its revolving credit facility. The reduction in
availability could negatively effect liquidity of the Company depending on
market interest rates at the time of implementation. Management has not yet
determined the impact that the adoption of this statement may have on
consolidated results, financial condition or liquidity of the Company.
The Company plans to adopt these statements in connection with the
preparation of the consolidated financial statements, as permitted by each of
the pronouncements. The adoption of these standards is not expected to have a
material impact on consolidated results, financial condition, or long-term
liquidity of the Company.
RESTRICTIONS ON DISTRIBUTIONS BY GUARANTORS TO THE COMPANY
There are no contractual restrictions, under the Credit Facility or
otherwise, upon the ability of the Guarantor Subsidiaries to make
distributions or pay dividends to their respective equityholders. Directly or
indirectly, the Company is the sole equity-holder of all the Guarantor
Subsidiaries.
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS
The market risk exposure inherent in the Company's international operations
creates potential for losses arising from adverse changes in foreign currency
exchange rates. The Company is exposed to such foreign exchange rate risks in
two main areas: (1) The company has operating facilities and correspondingly
expense generation from multiple non-US locations such as: France; the United
Kingdom; and Australia. (2) Most of the Company's capital lease obligation is
expressed in the French Franc. Conversions from foreign currencies to US
dollars can cause significant exchange gains or losses. In addition, gains
and losses arising from the conversion to U.S. dollars of assets and
liabilities denominated in foreign currencies may contribute to fluctuations
in the Company's operating results.
The Company manufactures and sells its products in a number of locations
around the world, resulting in a diversified revenue and cost base that is
exposed to fluctuations in European and Asian currencies. The diverse base of
foreign currency revenues and costs serves to create a hedge that limits the
Company's net exposure to fluctuations in these foreign currencies.
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. At July
3, 1999 the Company's portfolio consisted of seven foreign exchange contracts
to sell $11 million at an average rate of $1 = FF 5.82.
The Company has undertaken a substantial amount of debt associated with the
Merger. In managing interest rate exposure, principally under the Company's
floating rate revolving credit facilities, the Company has entered into 3
interest rate swap agreements during the period from December 1997 through
October 2001. The swap agreements are with major financial institutions and
aggregate $35 million in notional principal amount at January 2, 1999. The
first swap agreement of $20 million notional principal amount requires fixed
interest payments at a fixed rate of 5.90% through November 1999. The second
swap agreement of $10 million notional principal amount requires fixed
interest payments at a fixed rate of 4.76% through October 2001. The third
swap agreement of $5 million in notional principal amount requires fixed
interest payments at a fixed interest rate of 4.365% through October 2001.
25
<PAGE>
A 100 (10% adverse change) basis point move in interest rates would not have
a material affect on the Company's floating and fixed rate instruments,
including short and long-term debt and derivative instruments.*
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. The Company does not anticipate
an adverse impact on the interest rate protection agreements, as a result of
interest rate volatility.*
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1998, Andrew Newmark filed a complaint against the Company in
the United States District Court, Southern District of California, claiming
rights to a finders fee of up to $2,187,500 in connection with the 1997
acquisition of the Company by Axiohm S.A. Also in September, the Company
filed an action in the United States District Court for the Southern District
of New York against Mr. Newmark, seeking a judgement that Mr. Newmark is not
entitled to any fee. The New York action has been stayed pending resolution
of the California action, in which discovery is presently being conducted.
The Company strongly believes that its position is meritorious, and that Mr.
Newmark's claims are without merit. However, there can be no assurance that
the Company will ultimately prevail in the suits with Mr. Newmark.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1999 Annual Meeting of the Shareholders of Axiohm
Transaction Solutions, Inc. was held at the Philadelphia
Marriott West, West Conshohocken, Pennsylvania 19428 on May 5,
1999, at 11 a.m. (the "Annual Meeting").
(b) At the Annual Meeting the following five persons were elected
to the Company's Board of Directors, constituting all members
of the Board of Directors:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Votes
- ---------------------------------------------------------------------------------------------------------------------
Nominees Cast For: Withheld or Against Broker Non-Votes
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nicholas Dourassoff 4,925,698 3,879 1,589,724
- ---------------------------------------------------------------------------------------------------------------------
Patrick Dupuy 4,925,998 3,579 1,589,724
- ---------------------------------------------------------------------------------------------------------------------
Gilles Gibier 4,925,998 3,579 1,589,724
- ---------------------------------------------------------------------------------------------------------------------
William H. Gibbs 4,926,898 2,679 1,589,724
- ---------------------------------------------------------------------------------------------------------------------
Don M. Lyle 4,926,898 2,679 1,589,724
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Additional proposals considered at the Annual Meeting are set
forth below, each of which was approved according to the
respective vote of the shareholders:
(1) Ratification and approval of the appointment of KPMG LLP
as the Company's independent accountants for the current
fiscal year.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Cast For: Against Abstentions or Broker Non-Votes
-------------------------------------------------------------------------
<S> <C> <C>
4,927,852 1,707 1,589,724
-------------------------------------------------------------------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) During the quarter ended July 3, 1999, the Company filed the
following reports on Form 8-K
Current Report on Form 8-K, dated April 13, 1999
26
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JULY 3, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
EXHIBIT DESCRIPTION
- --------------------------------------------------------------------------------------------------
<S> <C>
10.1 Sixth AMENDMENT executed by majority of lenders, dated as of August
19, 1999 to the Credit Agreement, dated as of October 2, 1997, among
the Company, 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, as amended by the Global Amendment and
Assigned and Acceptance, dated as of October 20, 1997.
27.1 Financial Data Schedule
</TABLE>
27
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXIOHM TRANSACTION SOLUTIONS, INC.
AUGUST 23,1999 BY: /s/ CARMEN J. CONICELLI JR.
----------------------------------------------
DATE CARMEN J. CONICELLI JR., CORPORATE OFFICER
(CHIEF ACCOUNTING OFFICER)
(CORPORATE CONTROLLER)
28
<PAGE>
Exhibit 10.1
SIXTH AMENDMENT AND FORBEARANCE AGREEMENT, dated as of August 18,
1999 (this "AMENDMENT"), to the CREDIT AGREEMENT, dated as of October 2,
1997, as amended by the Global Amendment and Assignment and Acceptance, dated
as of October 20, 1997, the Second Amendment, dated as of March 13, 1998, the
Third Amendment, dated as of May 8, 1998, the Fourth Amendment, dated as of
September 25, 1998 and the Fifth Amendment, dated as of April 2, 1999 (as
further amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among AXIOHM TRANSACTION SOLUTIONS, INC. (f/k/a DH
Technology, Inc.), a California corporation (the "BORROWER"), the several
banks and other financial institutions or entities from time to time parties
to the Credit Agreement (the "LENDERS"), LEHMAN BROTHERS INC., as arranger,
LEHMAN COMMERCIAL PAPER INC., as syndication agent (in such capacities, the
"SYNDICATION AGENT"), and UNION BANK OF CALIFORNIA, N.A., as administrative
agent (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, the Borrower, the Syndication Agent, the Administrative
Agent and the Lenders are parties to the Credit Agreement; and
WHEREAS, the Borrower has requested certain amendments to the
Credit Agreement to which the Lenders are willing to agree, but only on the
terms and subject to the conditions set forth herein; and
WHEREAS, the Borrower has requested that the Lenders forbear from
taking certain actions under the Credit Agreement and the Lenders are willing
to agree, but only on the terms and subject to the conditions set forth
herein;
NOW THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
1.1 DEFINED TERMS. Unless otherwise defined herein and except as set
forth in this Amendment, terms defined in the Credit Agreement are used herein
as therein defined.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT.
2.1 AMENDMENTS TO SECTION 1.1 (DEFINED TERMS).
(a Section 1.1 of the Credit Agreement is hereby amended by (i)
deleting in their entirety the definitions of the following terms:
"COMMITMENT", "ECF PERCENTAGE", "FACILITY", "LENDERS", "LOANS", "REQUIRED
LENDERS" and "TOTAL REVOLVING EXTENSIONS OF CREDIT" and (ii) inserting in their
proper alphabetical order the following definitions:
"BUDGET": a weekly consolidated domestic cash receipts and
disbursements budget, in form and substance satisfactory to the
Administrative Agent and the Required Lenders, which shall, among other
things, project revenues to be received and all material expenditures
proposed to be made during such week and detail the Borrower's domestic
cash balance and outstanding "float", together with a summary of cash
balances of the Borrower's Foreign Subsidiaries.
"COMMITMENT": as to any Lender, the sum of the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment, the Revolving Credit
Commitment and the New Commitment of such Lender.
"ECF PERCENTAGE": 100%.
"FACILITY": each of (a) the Tranche A Term Loan Commitments and the
Tranche A Term Loans made thereunder (the "TRANCHE A TERM LOAN FACILITY"),
(b) the Tranche B Term Loan Commitments and the Tranche B Term Loans made
thereunder (the "TRANCHE B TERM LOAN FACILITY"), (c) the Revolving
<PAGE>
Credit Commitments and the extensions of credit made thereunder (the
"REVOLVING CREDIT FACILITY") and (d) the New Commitment and the extensions
of credit made thereunder (the "NEW FACILITY").
"FORBORNE DEFAULTS": as defined in Section 3.1 of the Sixth
Amendment.
"FRENCH REVOLVER": as defined in Section 7.2(i).
"LENDERS": the collective reference to the Term Loan Lenders, the
Revolving Credit Lenders and the New Lender.
"LOANS": the collective reference to the Term Loans, the Revolving
Credit Loans and the New Loans.
"NEW COMMITMENT": the obligation of the New Lender to make New Loans
in an aggregate principal amount not to exceed $5,000,000.
"NEW COMMITMENT PERIOD": the period from and including the Sixth
Amendment Effective Date to the Revolving Credit Termination Date.
"NEW LENDER": Union Bank of California, N.A.
"NEW LOANS": as defined in Section 2.4A.
"REQUIRED LENDERS": the holders of more than 50% of the sum of (a)
the aggregate unpaid principal amount of the Term Loans, (b) the Total
Revolving Credit Commitments or, if the Revolving Credit Commitments have
been terminated, the Total Revolving Extensions of Credit, and (c) the New
Commitment or, if the New Commitment has been terminated, the principal
amount of New Loans then outstanding.
"SIXTH AMENDMENT": the Sixth Amendment and Forbearance Agreement,
dated as of August 18, 1999, to this Agreement.
"SIXTH AMENDMENT EFFECTIVE DATE": the date on which the Sixth
Amendment became effective in accordance with the terms thereof.
"TOTAL REVOLVING EXTENSIONS OF CREDIT": at any time, the aggregate
amount of the Revolving Extensions of Credit of the Revolving Credit Lenders and
the principal amount of all New Loans then outstanding at such time.
(b Section 1.1 of the Credit Agreement is hereby further amended by
inserting after the phrase "the Letters of Credit," in the definition of the
term "OBLIGATIONS" the phrase "any obligations of the Borrower arising in
connection with its cash management arrangements with any Lender so long as such
Lender does not materially modify its cash management arrangements with the
Borrower in a manner that materially increases the likelihood of losses to such
Lender associated with such arrangements".
2.2 AMENDMENTS TO SECTION 2 (AMOUNT AND TERMS OF COMMITMENTS). (a)
Section 2 of the Credit Agreement is hereby amended by inserting immediately
after Section 2.4 a new Section 2.4A to read as follows:
" 2.4A. NEW COMMITMENT. (a) Subject to the terms and conditions
hereof, the New Lender agrees to make revolving credit loans ("NEW LOANS")
to the Borrower from time to time during the New Commitment Period in an
aggregate principal amount at any one time outstanding which does not
exceed the amount of the New Commitment. During the New Commitment Period
the Borrower may use the New Commitment by borrowing, prepaying the New
Loans in whole or in part, and reborrowing, all in accordance with the
terms and conditions hereof. The New Loans may from time to time be
Eurodollar Loans or Base Rate Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.5A and
2.11, PROVIDED that no New Loan shall be made as a Eurodollar Loan after
the day that is one month prior to the Revolving Credit Termination Date.
<PAGE>
(b) The Borrower shall repay all outstanding New Loans on the
Revolving Credit Termination Date.".
(b) Section 2 of the Credit Agreement is hereby further amended by
inserting immediately after Section 2.5 a new Section 2.5A to read as follows:
" 2.5A. PROCEDURE FOR NEW BORROWING. The Borrower may borrow under the
New Commitment during the New Commitment Period on any Business Day,
PROVIDED that the Borrower shall give the Administrative Agent irrevocable
Notice of Borrowing (which notice must be received by the Administrative
Agent prior to 3:00 p.m., New York City time, (a) three Business Days prior
to the requested Borrowing Date, in the case of Eurodollar Loans, or (b)
one Business Day prior to the requested Borrowing Date, in the case of Base
Rate Loans), specifying (i) the amount and Type of New Loans to be
borrowed, (ii) the requested Borrowing Date and (iii) in the case of
Eurodollar Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Period therefor. Each borrowing
under the New Commitment shall be in an amount equal to (x) in the case of
Base Rate Loans, $500,000 or a whole multiple thereof (or, if the then
available New Commitment is less than $500,000 such lesser amount) and (y)
in the case of Eurodollar Loans, $500,000 or a whole multiple thereof.
Such borrowing will be made available to the Borrower by the Administrative
Agent crediting the account of the Borrower on the books of the Funding
Office with the amounts made available to the Administrative Agent by the
New Lender and in like funds as received by the Administrative Agent.".
2.3 AMENDMENTS TO SECTION 2.6 (REPAYMENT OF LOANS; EVIDENCE OF DEBT).
(a) Section 2.6(a) of the Credit Agreement is hereby amended by deleting the
first sentence of said Section in its entirety and inserting in lieu thereof the
following:
"The Borrower hereby unconditionally promises to pay to the Administrative
Agent for the account of the appropriate Lender (i) the then unpaid
principal amount of each Revolving Credit Loan of each such Revolving
Credit Lender on the Revolving Credit Termination Date (or such earlier
date on which the Loans become due and payable pursuant to Section 8), (ii)
the then unpaid principal amount of each Swing Line Loan of the Swing Line
Lender on the Revolving Credit Termination Date (or such earlier date on
which the Loans become due and payable pursuant to Section 8), (iii) the
then unpaid principal amount of each New Loan of the New Lender on the
Revolving Credit Termination Date (or such earlier date on which the Loans
become due and payable pursuant to Section 8) and (iv) the principal amount
of each Term Loan of each such Term Loan Lender in installments according
to the amortization schedule set forth in Section 2.3 (or on such earlier
date on which the Loans become due and payable pursuant to Section 8).".
(b) Section 2.6(e) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting in lieu thereof the
following:
" (e) The Borrower agrees that, promptly following the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver
to such Lender (i) a promissory note of the Borrower evidencing any Term
Loans (a "TERM NOTE"), Revolving Credit Loans (a "REVOLVING CREDIT NOTE"),
Swing Line Loans (a "SWING LINE NOTE") or New Loans (a "NEW NOTE"), as the
case may be, of such Lender, substantially in the forms of Exhibit G-1,
G-2, G-3 or G-4, respectively, with appropriate insertions as to date and
principal amount.".
2.4 AMENDMENTS TO SECTION 2.9 (OPTIONAL PREPAYMENTS). Section 2.9
of the Credit Agreement is hereby amended (a) by inserting the phrase "New
Loans," immediately after each of the following phrases: "except in the case of"
and "Partial prepayments of" and (b) inserting a new sentence at the end of said
Section to read as follows:
"During the period from the Sixth Amendment Effective Date through the
Revolving Credit Termination Date, any amounts prepaid pursuant to this
Section 2.9 on either the Term Loans or the Revolving Credit Loans shall be
applied, FIRST, to the prepayment of the Term Loans and, SECOND, to the
prepayment of the Revolving Credit Loans.".
<PAGE>
2.5 AMENDMENTS TO SECTION 2.10 (MANDATORY PREPAYMENTS AND
COMMITMENT REDUCTIONS). (a) Section 2.10(a) of the Credit Agreement is
hereby amended by deleting said Section in its entirety and inserting in lieu
thereof the following:
" (a) Unless the Required Lenders shall otherwise agree, if on any date
the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds
from any issuance of any Capital Stock or Indebtedness (excluding
Indebtedness in respect of the French Revolver and the New Loans) or any
other Capital Markets Transaction (as defined in the Senior Subordinated
Note Indenture) including, without limitation, any private placement or
public issuance of debt or equity, such Net Cash Proceeds shall be applied
on the date of such issuance or Incurrence toward the prepayment of the
Term Loans and the reduction of the Commitments as set forth in Section
2.10(d).".
(b) Section 2.10(b) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting in lieu thereof the
following:
" (b) Unless the Required Lenders shall otherwise agree, if on any date
the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds
from any Asset Sale or Recovery Event such Net Cash Proceeds shall be
applied on such date toward the prepayment of the Term Loans and the
reduction of the New Commitment and the Revolving Credit Commitments as set
forth in Section 2.10(d).".
(c) Section 2.10(c) of the Credit Agreement is hereby amended by
inserting the phrase "New Commitment and the" before the phrase "Revolving
Credit Commitments" in said Section.
(d) Section 2.10(d) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting in lieu the following:
" (d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to this Section 2.10 shall be applied,
FIRST, to the prepayment of the Term Loans and, SECOND, to reduce
permanently the Revolving Credit Commitments and New Commitments PRO RATA.
Any such reduction of the Revolving Credit Commitments and New Commitments
shall be accompanied by prepayment of the Revolving Credit Loans and/or
Swing Line Loans and New Loans to the extent, if any, that the Total
Revolving Extensions of Credit exceed the amount of the aggregate Revolving
Credit Loans, Swing Line Loans and New Loans, as so reduced. The
application of any prepayment pursuant to this Section 2.10 shall be made,
FIRST, to Base Rate Loans and, SECOND, to Eurodollar Loans. Each
prepayment of the Loans under this Section 2.10 (except in the case of
Revolving Credit Loans and New Loans that are Base Rate Loans and Swing
Line Loans) shall be accompanied by accrued interest to the date of such
prepayment on the amount prepaid.
(e) On each Business Day, after giving effect on such Business Day to
anticipated receipts by, and disbursements of, the Borrower and its
Domestic Subsidiaries, the Borrower shall apply all available cash on hand
in excess of $1,500,000 to the prepayment of the New Loans. Any such
prepayments shall not permanently reduce the New Commitment and are
available for reborrowing.".
2.6 AMENDMENT TO SECTION 2.23 (SWING LINE COMMITMENT). Section 2.23
of the Credit Agreement is hereby amended by deleting the phrase "during the
Revolving Credit Commitment Period" and inserting in lieu thereof the phrase
"prior to the Sixth Amendment Effective Date".
2.7 AMENDMENT TO SECTION 3.1 (L/C COMMITMENT). Section 3.1 of the
Credit Agreement is hereby amended by inserting the phrase "but prior to the
Sixth Amendment Effective Date" immediately after the phrase "After the
Syndication Date".
2.8 AMENDMENT TO SECTION 4.2 (NO CHANGE). Section 4.2 of the Credit
Agreement is hereby amended by deleting the reference to the date "December 31,
1996" and inserting in lieu thereof the phrase "the Sixth Amendment Effective
Date".
2.9 AMENDMENT TO SECTION 4.16 (USE OF PROCEEDS). Section 4.16 of the
Credit Agreement is hereby amended by (a) inserting at the commencement of
Section 4.16(b), the phrase "Prior to the Sixth Amendment Effective Date" and
(b) inserting a new Section 4.16(c) to read as follows:
<PAGE>
" (c) The proceeds of the New Loans shall be used for working capital
purposes and other general corporate purposes of the Borrower, and shall be
used only in accordance with the items and in the approximate amounts set
forth in the Budget for the applicable week (except that proceeds may be
used in accordance with items and in the approximate amounts identified in
Budgets for a prior week but not used in such week).".
2.10 AMENDMENT TO SECTION 5.2 (CONDITIONS TO EACH EXTENSION OF
CREDIT). Section 5.2 of the Credit Agreement is hereby amended by inserting a
new Section 5.2(c) to read as follows:
" (c) BORROWING CERTIFICATE. As a condition precedent to the making of
any New Loan, the Administrative Agent shall have received, with a copy for
each Lender, a certificate executed by a Responsible Officer of the
Borrower certifying that (i) the requested Loan and the intended use
thereof are consistent with the terms of this Agreement and is to be used
in accordance with Section 4.16(c), (ii) the proceeds thereof are
necessary, after utilization and application of the Borrowers' available
cash reserves (allowing for reasonable operating cash balances), in order
for the Borrower to satisfy its obligations in the ordinary course of its
business, (iii) except with respect to the Forborne Defaults and the
representations and warranties contained in Section 4.20 of the Credit
Agreement, the representations and warranties contained in Section 4 of the
Credit Agreement are true and correct in all material respects and the
Borrower and the Guarantors have observed and performed all applicable
covenants and agreements contained in the Credit Agreement and in the other
Loan Documents to be observed, performed or satisfied by the Borrower or
the Guarantors and (iv) such officer has no knowledge of any Default or
Event of Default other than a Forborne Default.".
2.11 AMENDMENT TO SECTION 7.5 (LIMITATION ON SALE OF ASSETS). (a)
Section 7.5(d) of the Credit Agreement is hereby amended by deleting said
Section in its entirety and inserting in lieu thereof the following:
" (d) [intentionally omitted]".
(b) Section 7.5(h) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and inserting in lieu thereof the
following:
" (h) [intentionally omitted].".
2.12 AMENDMENT TO SECTION 7.6 (LIMITATION ON DIVIDENDS). Section
7.6 of the Credit Agreement is hereby amended by deleting Sections 7.6(b), (c)
and (d) in their entirety and inserting in lieu thereof the following:
" (b) [intentionally omitted]
(c) [intentionally omitted]
(d) [intentionally omitted].".
2.13 AMENDMENT TO SECTION 7.8 (LIMITATION ON INVESTMENTS, LOANS AND
ADVANCES). Section 7.8(l) of the Credit Agreement is hereby amended by deleting
said Section in its entirety and inserting in lieu thereof the following:
" (l) [intentionally omitted].".
2.14 AMENDMENT TO SECTION 7.11(LIMITATION ON SALES AND LEASEBACKS).
(a) Section 7.11 of the Credit Agreement is hereby amended by deleting the
phrase ", except if the Net Cash Proceeds of such sale are applied toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments pursuant to Section 2.10".
2.15 AMENDMENT TO SECTION 10 (MISCELLANEOUS). Section 10 of the
Credit Agreement is hereby amended by inserting immediately following Section
10.1 a new Section 10.1A as follows:
" 10.1A AMENDMENTS AND WAIVERS. No waiver, amendment, supplement or
modification otherwise permitted by Section 10.1 shall (a) forgive the
principal amount or extend the final scheduled date of
<PAGE>
maturity of any New Loan, reduce the stated rate of any interest or fee
payable with respect to the New Facility or extend the scheduled date of
any payment thereof, or increase the amount or extend the expiration date
of the New Commitment, in each case without the consent of the New Lender;
or (b) amend, modify or waive any condition precedent to any extension of
credit under the New Facility set forth in Section 5.2 (including, without
limitation, in connection with any waiver of an existing Default or Event
of Default) without the written consent of the New Lender.".
2.16 AMENDMENT TO SECTION 10.6 (SUCCESSORS AND ASSIGNS;
PARTICIPATIONS AND ASSIGNMENTS). Section 10.6(e) of the Credit Agreement is
hereby amended by (a) inserting the phrase ", New Note" immediately after the
phrase "Revolving Credit Note" each time that it appears in said Section and (b)
inserting the phrase ", New Commitment" immediately after the phrase "Revolving
Credit Commitment" each time that it appears in said Section.
2.17 AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby
amended by inserting immediately after Exhibit G-3 a new Exhibit G-4 in the form
of Exhibit A attached hereto.
SECTION 3. AGREEMENTS
3.1 FORBEARANCE. The Lenders hereby agree to forbear, during the
period from the date hereof to October 31, 1999, from the exercise of any rights
or remedies under the Credit Agreement in respect of Defaults or Events of
Default that (a) are set forth on Exhibit B hereto, (b) may arise under Section
7.1 of the Credit Agreement for the period ending on September 30, 1999, (c) may
arise as a result of the failure of the Borrower to pay principal due and owing
on September 30, 1999 on the Term Loans or (d) may arise as a result of the
failure of the Borrower to pay interest due and owing on October 1, 1999 under
the Senior Subordinated Note Indenture (collectively, the "Forborne Defaults").
Prior to October 31, 1999, the Borrower shall be permitted to borrow New Loans
notwithstanding the Borrower's failure to satisfy Section 5.2(b) of the Credit
Agreement due to the existence of the Forborne Defaults.
3.2 FORBEARANCE FEE. The Borrower shall pay to the Administrative
Agent for the ratable benefit of the Lenders a fee equal to $75,000 (the
"FORBEARANCE FEE") which fee shall be earned and payable on the Sixth Amendment
Effective Date.
3.3 LENDERS' FINANCIAL ADVISOR. In the event the Administrative
Agent determines to retain a financial advisor, the Borrower shall pay or
reimburse the Administrative Agent for all reasonable fees and out-of-pocket
expenses associated with such retention.
3.4 FINANCIAL ADVISOR; CONFERENCE CALLS. (a) The Borrower shall
continue to retain Nightingale & Associates LLC or another financial advisor
satisfactory to the Administrative Agent and the Required Lenders (the
"FINANCIAL ADVISOR").
(b Senior management of the Borrower and the Financial Advisor shall
participate in weekly conference calls with the Administrative Agent and the
Lenders and respond promptly to all reasonable inquiries of the Administrative
Agent and the Lenders.
3.5 YEAR 2000 COMPLIANCE. The Borrower shall provide to the
Administrative Agent, on or before August 31, 1999, a report describing in
detail the Borrower's efforts to become year 2000 compliant. The Borrower
hereby certifies that any reprogramming required to permit the proper
functioning in and following the year 2000 of (a) computer systems of the
Borrower or any Subsidiary and (b) systems and equipment containing embedded
microchips of the Borrower or any Subsidiary, and the testing of all such
computer systems and equipment, as so reprogrammed, shall be completed by
December 15, 1999.
3.6 CASH MANAGEMENT. The Borrower shall maintain a system of cash
management that (a) collects domestic accounts receivable in accounts maintained
by the Agent and Mellon Bank, N.A. and (b) concentrates available funds on a
daily basis in a single account maintained by the Administrative Agent. The
Borrower shall cooperate with the Administrative Agent in the review of its
existing cash management system and the development of a streamlined cash
management system. The Borrower shall use its best efforts to deliver to the
Administrative Agent on or before September 15, 1999 depository agreements,
blocked account agreements or lockbox agreements in form and substance
satisfactory to the Administrative Agent with each institution at which the
Borrower or any Subsidiary maintains a deposit account.
<PAGE>
3.7 FINANCIAL INFORMATION. The Borrower shall provide to the
Administrative Agent and each Lender all financial information reasonably
requested by the Administrative Agent in form satisfactory to the
Administrative Agent and the Required Lenders including, without limitation,
weekly cash flow projections.
3.8 BUSINESS PLAN. The Borrower shall provide to the
Administrative Agent and each Lender, on or before October 15, 1999, a
strategic business plan which shall provide, among other things, a detailed
description of the Borrower's financing alternatives and asset divestiture
efforts.
3.9 LIMITATION ON INDEBTEDNESS. Notwithstanding anything to the
contrary contained in the Credit Agreement, on and after the Sixth Amendment
Effective Date, the Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, first create, incur or become
obligated with respect to any new Indebtedness otherwise permitted by Section
7.2 of the Credit Agreement, except (a) the New Loans and (b) Indebtedness
permitted by Sections 7.2(b), (f), (i) and (j) of the Credit Agreement.
3.10 LIMITATION ON CAPITAL EXPENDITURES. Notwithstanding anything
to the contrary contained in the Credit Agreement, on and after the Sixth
Amendment Effective Date, the Borrower shall not, and shall not permit any of
its Subsidiaries to, make or commit to make (by way of the acquisition of
securities of a Person or otherwise) any Capital Expenditure except as set
forth in the Budget.
3.11 AXIOHM S.A.R.L.. Axiohm S.A.R.L. shall at all times maintain
a working capital facility for the purpose of funding working capital needs
in the ordinary course of its business in an amount not less than the Fr.
franc equivalent (determined in good faith by the Borrower) of $1,500,000.
3.12 DEBTOR-IN-POSSESSION FINANCING. In the event the Borrower
shall commence, or there shall be commenced against the Borrower, any case,
proceeding or action relating to bankruptcy or any other insolvency
proceeding, the Borrower shall negotiate with the Lenders in good faith for
the provision by the Lenders of debtor-in-possession financing.
3.13 COMPLIANCE. The Borrower agrees that its failure to perform
any of the agreements set forth in this Section 3 shall constitute an
immediate Event of Default under paragraph (c)(i) of Section 8 of the Credit
Agreement.
3.14 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that (a)
it is truly and justly indebted to the Lenders, without defense, counterclaim
or offset of any kind, in the aggregate principal amount of $58,650,000
(without giving effect to the Sixth Amendment) plus accrued and unpaid
interest and (b) the Obligations (giving effect to the Sixth Amendment) are
secured by valid, perfected, enforceable and unavoidable first priority liens
and security interests upon the Collateral, senior to all other security
interests and liens upon the Collateral (except as set forth in the Security
Agreement) and constitute "Senior Debt" of the Borrower under the Senior
Subordinated Note Indenture.
3.15 RELEASE The Borrower and each Guarantor hereby release and
discharge, individually and collectively, the Administrative Agent, the
Syndication Agent and each Lender, their respective present or former
officers, directors, agents, employees, servants, affiliates, subsidiaries,
general or limited partners, attorneys and representatives as well as their
respective successors and assigns, from and against any and all actions,
causes of action, suits, debts, dues, sums of money, obligations, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, liabilities, rights and demands whatsoever, of whatever
kind or nature, in contract or in tort, in law or equity, known or unknown,
which the Borrower, the Guarantors, or any of them, or any party claiming by
or through the Borrower, the Guarantors, or any of them, ever had, now have
or hereafter can, shall or may have for, upon or by reason of any matter,
cause or thing whatsoever, from the beginning of the world to and including
the Sixth Amendment Effective Date which are based upon, arise under or are
related to the Credit Agreement and the other Loan Documents. The Borrower
and each Guarantor expressly waives any and all rights under any applicable
statute, doctrine or principle of law restricting the right of any person to
release claims which such person does not know or suspect to exist at the
time of executing a release, which claims, if known, may have materially
affected such person's decision to give such a release. In connection with
such waiver and relinquishment, the Borrower and each Guarantor acknowledges
that it is aware that it may hereafter discover claims presently unknown or
unsuspected, or facts in addition to or different from those which it now
knows or believes to be true, with respect to the matters released herein.
Nevertheless, it is the intention of the Borrower and each Guarantor to
fully, finally and
<PAGE>
forever settle and release all such matters, and all claims relative thereto
which now exist, may exist or theretofore have existed between or among the
Borrower, the Guarantors, or any of them, and the Lenders, as specifically
provided herein.
3.16 AMENDMENT TO GUARANTEE AND COLLATERAL AREEMENT. The Borrower
and each Guarantor shall execute and deliver to the Administrative Agent the
Amendment to the Guarantee and Collateral Agreement, in the form attached
hereto as Exhibit C (the "COLLATERAL AGREEMENT AMENDMENT"). Each Lender
hereby authorizes the Administrative Agent to execute the Collateral
Agreement Amendment.
SECTION 4. MISCELLANEOUS.
4.1 EFFECTIVENESS. This Amendment shall become effective as of
the date first set forth above upon (a) receipt by the Administrative Agent
of counterparts of this Amendment, duly executed and delivered by the
Borrower, the Guarantors, Union Bank of California, N.A., the Required
Lenders and the Administrative Agent, (b) receipt by the Administrative Agent
of payment of all reasonable costs and expenses (including the reasonable
fees and disbursements of counsel) incurred by the Administrative Agent and
the Lenders in connection with this Amendment, (c) receipt by the
Administrative Agent of a duly executed Assumption Agreement (as defined in
the Guarantee and Collateral Agreement) by Cognitive L.L.C., (d) receipt by
the Administrative Agent of the Collateral Agreement Amendment, duly executed
and delivered by the Borrower, the Guarantors and the Administrative Agent,
(e) receipt by the Administrative Agent of resolutions duly adopted by the
Board of Directors of the Borrower and the Guarantors authorizing the
transactions contemplated by this Amendment and (f) receipt by the
Administrative Agent of evidence satisfactory to the Administrative Agent and
the Required Lenders that the facility referred to in Section 3.11 is in
place at the time the conditions contained in clauses (a) through (e) of this
Section 4.1 are satisfied.
4.2 CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendments contained herein shall not constitute an amendment or
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any purpose except as expressly set forth herein.
4.3 COUNTERPARTS. This Amendment may be executed in any number of
counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument. This Amendment may be delivered by
facsimile transmission of the relevant signature pages hereof, and the
failure to deliver an executed counterpart by other means shall not affect
the validity, enforceability or binding effect of this Amendment.
4.4 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed and delivered by their respective duly authorized officers as
of the date first above written.
AXIOHM TRANSACTION SOLUTIONS, INC.
By: [sig.]
Name:
Title:
AXIOHM S.A.R.L. (formerly known as AXIOHM S.A.,
successor by merger to AXIOHM-INVESTISSEMENTS)
By: [sig.]
Name:
Title:
AXIOHM E.U.R.L. (formerly known as DARDEL
TECHNOLOGIES, S.A.).
By: [sig.]
Name:
Title:
AXIOHM IPB, INC.
By: [sig.]
Name:
Title:
STADIA COLORADO CORP.
By: [sig.]
Name:
Title:
COGNITIVE SOLUTIONS, INC.
<PAGE>
By: [sig.]
Name:
Title:
COGNITIVE L.L.C.
By: [sig.]
Name:
Title:
UNION BANK OF CALIFORNIA, N.A., as
Administrative Agent and as a Lender
By: [sig.]
Name:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By: [sig.]
Name:
Title:
SOUTHERN PACIFIC BANK
By: [sig.]
Name:
Title:
BHF (USA) CAPITAL CORPORATION
By: [sig.]
Name:
Title:
By: [sig.]
Name:
Title:
<PAGE>
BALANCED HIGH-YIELD FUND I LTD.
By: BHF (USA) Capital Corporation, as
attorney-in-fact
By: [sig.]
Name:
Title:
By: [sig.]
Name:
Title:
BSB BANK & TRUST COMPANY
By: [sig.]
Name:
Title:
IMPERIAL BANK, A CALIFORNIA BANKING CORPORATION
By: [sig.]
Name:
Title:
MELLON BANK, N.A.
By: [sig.]
Name:
Title:
SOCIETE GENERALE
By: [sig.]
Name:
Title:
BANQUE NATIONALE DE PARIS
By: [sig.]
Name:
Title:
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE
By: [sig.]
Name:
Title:
CREDIT LYONNAIS
By:
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000728376
<NAME> AXIOHM TRANSACTION SOLUTIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUL-03-1999
<CASH> 2,915
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<RECEIVABLES> 34,079
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<DEPRECIATION> (19,735)
<TOTAL-ASSETS> 153,657
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<BONDS> 0
0
0
<COMMON> 24,589
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<TOTAL-LIABILITY-AND-EQUITY> 153,657
<SALES> 111,989
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<INCOME-PRETAX> (22,253)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,102)
<EPS-BASIC> (3.54)
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