-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PkAoMUFhBiRtu06m/t1YTwwlg4W91IZROdP/GKD+ieWDSUln4CpO2DFHzWcH6new 5S5lhlfjCI4ICT0BXSTvLg== 0000728376-96-000010.txt : 19960402 0000728376-96-000010.hdr.sgml : 19960402 ACCESSION NUMBER: 0000728376-96-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DH TECHNOLOGY INC CENTRAL INDEX KEY: 0000728376 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 942917470 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13459 FILM NUMBER: 96542681 BUSINESS ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 BUSINESS PHONE: 6194513485 MAIL ADDRESS: STREET 1: 15070 AVENUE OF SCIENCE CITY: SAN DIEGO STATE: CA ZIP: 92128 10-K 1 DH TECHNOLOGY, INC - FORM 10K ENDING 12-31-95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 31, 1995, or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from ____________ to ____________ Commission File Number: 0-13459 DH TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-2917470 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 15070 AVENUE OF SCIENCE, SAN DIEGO, CA 92128 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (619) 451-3485 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes XXX No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [___] The aggregate market value of the Common Stock held by non-affiliates as of March 04, 1996, (based on the last sales price at that date) was approximately $175,221,709. This computation excludes a total of 46,832 shares beneficially owned by certain executive officers and directors of Registrant who may be deemed to be affiliates of Registrant under applicable rules of the Securities and Exchange Commission. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 04, 1996, there were 7,921,965 shares of Registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: The Registrant's Annual Report to Shareholders for fiscal year ended December 31, 1995, is incorporated by reference to Exhibit 13.1 to the extent stated herein. The Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 30th, 1996, is incorporated by reference in Part III of this Form 10K to the extent stated herein. PART I ITEM 1. BUSINESS GENERAL DH Technology, Inc., a California corporation (the "Company," unless the context otherwise requires, the term "Company" refers to DH Technology, Inc. and its consolidated subsidiaries), was incorporated in 1983. The Company designs, manufactures, and distributes transaction printers and mechanisms, impact printheads, bar code printers, and related services and supplies, such as labels and ribbons. The Company's products provide printing solutions for many diverse applications, including freight and bar code labels, retail point-of-sale transactions, gasoline vending receipts, and airline ticketing. Other applications include banking and ATM transactions, health care industry transactions, data processing reports, gaming tickets, and multi-part forms. The Company's products are marketed and sold worldwide via a direct sales force, sales representatives, value added resellers, and distributors. Company offices are maintained in the United States, the United Kingdom, Mexico, and Australia. The Company develops products that serve the application-specific needs of its customers as well as products focused on general market requirements. To serve these markets and applications, the Company uses a broad range of printing technologies, including impact, thermal, and laser. Impact printing can form a variety of characters, graphics, or bar codes by printing vertical columns of dots in combinations of patterns as the printhead sweeps horizontally across a page. Impact printing permits multiple fonts and multiple language characters to be intermixed under software control and also prints color graphics, bar codes, and multi-part forms. Compared with non-impact printers, impact printers generally have the advantages of lower operating costs and higher reliability. Thermal printing is accomplished either directly or through the use of a ribbon. Direct thermal printing creates images directly on specially treated paper by transferring heat to the paper using a linear array of miniature heater elements. Thermal transfer printing uses a ribbon that transfers images onto untreated paper, using a linear array of miniature heater elements. Laser printing is accomplished by applying an electrical charge to an organic photo conductive drum assembly, applying toner to the drum assembly via this charge and transferring the toner to the print medium with an additional electrical charge. Once the toner is transferred to the print medium, a fuser assembly fuses the toner permanently onto the print medium. ACQUISITIONS OF MOS MAGNETICS CORPORATION On October 30, 1995, DH Technology, Inc. acquired substantially all of the assets and selected liabilities of Mos Magnetics Corporation in a $750,000 cash transaction. This business is now operated as the Magnetics Division of DH Technology, Inc. The Magnetics Division, located in San Diego, California, designs, manufactures, and markets magnetic read and write heads and modules for credit card and debit card readers, check readers, and airline ticket readers. PRODUCTS The Company's products are designed for precision, reliability, and durability and, as such, operate using a full range of print speeds. IMPACT PRINTHEADS AND MAGNETIC HEADs The Company's impact printhead products are divided into 10 series. They range from 7 to 42 wires per head and 200 to 1200 characters per second in print speeds. Printheads are used in a multitude of transaction printing applications, such as office automation, data processing, point-of-sale receipts, bank transaction printing, lottery tickets, entertainment tickets, and airline tickets. Impact printheads are used in transaction printing devices where speed, versatility, multi-part forms capability, reliability, and relatively low cost are important factors. Technological advances by the Company and others now enable impact printheads to print text at speeds up to 1200 characters per second, print multiple text sizes and fonts in draft quality or letter quality under software control, and print high resolution color graphics. Magnetic head products are divided into three categories: magnetic stripe card readers, check readers, and airline ticket/boarding pass readers. Applications include banking transactions, point-of-sale transactions, and airline ticketing. The Company also sells replacement printheads and utilizes its expertise in printhead design and manufacturing to support its printhead repair and replacement operations. TRANSACTION PRINTERS The Company's transaction printers utilize impact and thermal printing technology and consist of four product families: impact printers, impact printing mechanisms, thermal printers, and related supplies and services. Applications for these products include bank teller transactions, ATM receipts and statement printing, point-of-sale receipts, money order printing, weigh/scale printing, lottery tickets, and wagering slips for race tracks. BAR CODE PRODUCTS The Company's bar code products utilize direct thermal, thermal transfer, and laser printing technology in a full range of product families which include desktop printers, portable printers, industrial printers, continuous-feed laser printers, print and apply products for wholesale and industrial use, and related supplies and services, such as software and ribbons. In addition, the Company supplies a full range of stock and bar code label products. The Company's thermal bar-code printer products include a thermal transfer printer designed for industrial environments with the need for high volume printing, a family of direct thermal and thermal transfer compact desktop printers designed for medium volume printer requirements, and several direct thermal and thermal transfer portable printers designed for commercial usage and harsh environments. Industries served include manufacturing, transportation, medical, retail, and distribution. Typical applications include hospital and pharmaceutical management, work order tracking, shipping and receiving, product identification, shelf labeling, pricing labels, and inventory control. MARKETING AND CUSTOMERS The Company markets its impact printheads and magnetic heads directly to a well-defined group of original equipment manufacturers ("OEMs") of data and word processing printers and transaction printing devices. Most of the Company's impact printhead customers rely on the Company as their primary source of supply. The magnetic head business shares its market with several other suppliers. The Company's transaction printers are used to print various types of hard copy output where custom features, reliability, durability, speed, ease of use, and cost are important factors. The markets and applications for these transaction printer products are diverse and widespread. The Company's transaction printers are sold to OEMs, distributors, value-added resellers, and end users. The Company believes many of its transaction printer customers rely on the Company as their sole source supplier but could modify their systems to utilize competitive products. The Company's bar code products are primarily utilized in commercial and retail environments to print labels and bar codes. These products are sold primarily to distributors and value added resellers who add value via software or service. The Company also sells these products directly to large, sophisticated end users who have in-house capability for software development. The Company's labeling products and marking solutions are sold to end users through a sales force located in seven states. Marketing efforts include advertisements in a number of trade journals, news releases covering new products, and participation in most of the significant industry trade shows in the United States and Europe. As of December 31, 1995, sales were conducted through 18 direct sales offices and through distributors and agents in over 20 countries. No customer accounted for more than 10% of the Company's revenues in 1995, 1994, or 1993. Export revenues for the Company's North American operations, which are derived primarily from Europe, were approximately 10%, 11%, and 7%, of total revenues in 1995, 1994, and 1993, respectively. Total foreign sales were $31,271,918 or 32% of revenue in 1995, $24,006,000 or 31% of revenue in 1994, and $17,005,000 or 30% of revenue in 1993. The Company's foreign sales are made directly by the Company and by distributors and agents and are subject to certain risks common to all export activities such as governmental regulation and the risk of imposition of tariffs or other trade barriers. In addition, a majority of the Company's foreign sales are denominated in local currencies and, thus, are subject to the risk of currency fluctuations. The Company reviews potential foreign currency risks on an ongoing basis and to date has been able to effectively manage this risk through natural currency offsets. BACKLOG Most customers purchase products from the Company under purchase orders that specify prices for particular quantities and anticipated release dates ranging up to 10 months. The total backlog under such purchase orders was $33,455,000 as of March 4, 1996, compared to $25,227,000 as of March 3, 1995. The Company's backlog is generally subject to cancellation or rescheduling by the customer on short notice with little or no penalty. Accordingly, the Company's backlog as of any particular date may not necessarily be indicative of actual sales for any future period. MANUFACTURING AND SUPPLIERS The Company manufactures substantially all of its impact printheads and magnetic heads in Tijuana, Mexico, and manufactures prototypes and conducts pilot runs for printheads at its headquarters in San Diego, California. The Company manufactures its bar code products in Paso Robles, California, and Riverton, Wyoming; its labels and supplies in Denver, Colorado, and Paso Robles, California; and its transaction printers and mechanisms in Riverton, Wyoming. The Company also manufactures impact and thermal printers in Manchester, England. Foreign manufacturing is subject to certain risks, including transportation delays and interruptions, the imposition of tariffs and export controls, and changes in governmental policies. The Company manufactures its products in high volume to exacting quality standards. Accordingly, the Company maintains an extensive quality assurance program, including precision computerized final testing of all printheads and extensive burn-in testing for its bar code products, transaction printers, and mechanisms. Component parts used in the assembly of the Company's products, most of which use tooling designed and owned by the Company, are purchased primarily from suppliers in the United States, the Far East, and Europe. Although the Company has more than one vendor available for most parts, some parts are available only from a sole source. An interruption in supply from any of the Company's sole source suppliers could temporarily result in the Company's inability to deliver the affected products on a timely basis, which in turn could adversely affect the Company's results of operations. Additionally, the Company will often rely on a sole source for some parts following the introduction of a new product. If the product is well accepted in the market, the Company will qualify additional sources. The Company provides product warranties ranging from 90 days to one year. PATENTS AND LICENSES The Company holds various U.S. and foreign patents on impact printheads, transaction printers, magnetic card readers, and bar code products and has applied for additional domestic and foreign patents. The basic technology for the Company's printhead products is based upon these patents and manufacturing expertise. COMPETITION There is one domestic and one foreign printhead manufacturer which competes directly with the Company in the high performance segment of the impact printhead market, and additional companies manufacture impact printheads for the intermediate and low performance portions of the market. Additionally, some printer manufacturers sell printheads in competition with the Company. The principal competitive factors in the printhead business are technological expertise and the ability to deliver reliable and cost-effective products on a timely basis. The Company believes that it successfully competes on each of these bases. There are numerous small and large competitors in the transaction printing market. Large, typically Japanese, manufacturers dominate the lower end of the market. The Company has been successful in the intermediate to high-end portion of that market due to the Company's ability to provide application specific products for its customers within relatively short lead times. There are numerous competitors in the printing segment of the bar code market. In addition, the Company expects competition to increase in this market over the next several years. The Company believes its ability to utilize a full range of technology and products gives the Company a reasonably competitive position in relation to many of its competitors in meeting the needs of its customers. PRODUCT DEVELOPMENT The Company is a leader in the development of both impact printing and thermal printing technology. The Company's product development activities are targeted at both existing and new applications. A variety of engineering skills are required in the development of the Company's products, and the Company maintains expertise in mechanical, electrical, firmware, and software engineering disciplines. As of March 4, 1996, the Company employed 53 individuals dedicated to research and development. In 1995, 1994, and 1993 the Company spent $5,006,000, $4,685,000, and $4,170,000, respectively, for research and development. EMPLOYEES As of March 4, 1996, the Company and its subsidiaries had 1,017 full-time employees. No employee is covered by a collective bargaining agreement, and the Company considers employee relations to be good. Executive Officers of the Registrant Information regarding the Company's Executive Officers is as follows: Mr. William H. Gibbs, President, Chief Executive Officer, and Chairman of the Company, joined the Company in November 1985. Mr. Gibbs is 52 years old. Mr. James A. Cole, Chief Financial Officer, and Secretary, joined the Company in October 1995. From July 1994 to October 1995 Mr. Cole served as President of Tri-Steel Structures, Inc., and since 1990 has run his own investment/consulting company, Hidden Oaks Venture. From 1985 to 1990 Mr. Cole was Executive Vice President of Operations and Chief Financial Officer for Stevens Graphics Corporation. Mr. Cole is 50 years old. Mr. David T. Ledwell, Vice President, General Manager, DHTech, joined the Company in March 1986. Mr. Ledwell is 49 years old. Mr. Richard L. Strautman, Vice President, Marketing, joined the Company in July 1991. From October 1984 to May 1991, Mr. Strautman held several Vice President positions for Sunward Technologies, Inc., a rigid disc head assembler. Mr. Strautman is 49 years old. Ms. Janet W. Shanks, Chief Accounting Officer, and Corporate Controller, joined the company in October 1986. Ms. Shanks is 36 years old. FACTORS THAT MAY AFFECT FORWARD LOOKING STATEMENTS. The Company may from time to time make oral forward looking statements. The factors set forth in this Annual Report on Form 10-K for the year ended December 31, 1995 in Item 1, "Business--Marketing and Customers" (last paragraph), "--Manufacturing and Suppliers" (first and third paragraphs) and "--Competition", as well as the following, are important factors that could cause actual results to differ materially from those projected in any such forward looking statements. Management of Acquisitions. Historically, the Company has achieved a portion of its growth through acquisitions of other businesses and continues to pursue additional acquisitions as part of its growth strategy. There are a number of risks associated with any acquisition, including the substantial time and attention required from management of the Company in connection with such transactions, the difficulty of predicting whether the operations will perform as expected and other problems inherent with any transition of one business organization into another. There can be no assurance that the anticipated benefits of any acquisition will be realized. A failure by the Company to manage any such acquisitions effectively could materially and adversely affect the Company's business and operating results. Additionally, future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect the Company's operating results and financial condition. Technological Change; Competition; Dependence on New Products. The markets for some of the Company's products are characterized by frequent new product introductions and declining average selling prices over product life cycles. The Company's future success is highly dependent upon the timely completion and introduction of new products at competitive price/performance levels. In addition, the Company must respond to current competitors, who may choose to increase their presence in the Company's markets, and to new competitors, who may choose to enter those markets. If the Company is unable to make timely introduction of new products or respond to competitive threats, its business and operating results could be materially adversely affected. Fluctuation in Demand. The Company's customers encounter uncertain and changing demand for their products. They typically order products from the Company based on their forecasts. If demand falls below customers' forecasts, or if customers do not control their inventories effectively, they may cancel or reschedule shipments previously ordered from the Company. The Company has in the past experienced, and may at any time and with minimal notice in the future experience, cancellations and postponements of orders, Future Operating Results Subject to Fluctuation. The Company's operating results may fluctuate in the future as a result of a number of other factors, including variations in the Company's sales channels or the mix of products it sells, changes in pricing policies by the Company's suppliers, fluctuations in manufacturing yields, the market acceptance of new and enhanced versions of the Company's products and the timing of acquisitions of other businesses, products and technologies and any associated charges to earnings. Further, the Company's expense levels are based in part on expectations of future revenues, and the Company has been increasing and intends to continue to increase operating expenditures and inventory as it expands its operations. The rate of new orders may vary significantly from month to month; consequently, if anticipated sales and shipments in any quarter do not occur when expected, operating expenses and inventory levels could be disproportionately high and the Company's operating results for that quarter, and potentially for future quarters, would be adversely affected. In addition, the Company's results could be affected by general economic conditions. Fluctuations in operating results may cause volatility in the price of the Company' s Common Stock.
ITEM 2. PROPERTIES The following table outlines the current property leases held by the Company: - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- LOCATION PURPOSE SQUARE ANNUAL EXPIRE DATE FOOTAGE COST - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- San Diego, California administration, marketing, engineering, 17,700 sq. ft $206,000 June 1996 pilot production operations, refurbishment - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- San Diego, California executive offices 4,800 sq. ft $48,000 June 1996 - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- Riverton, Wyoming manufacturing, engineering, marketing, 40,000 sq. ft $95,000 March 1997 administration - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- Paso Robles, California manufacturing, engineering, marketing, 45,000 sq. ft $134,000 Dec. 1996 administration - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- Denver, Colorado administration, marketing, manufacturing 23,500 sq. ft $190,000 Feb. 2004 - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- Tijuana, Mexico manufacturing, 30,000 sq. ft $103,000 Month to Month - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- Tijuana, Mexico manufacturing 10,900 sq. ft $40,000 March 1996 - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- - ---------------------------- --------------------------------------------- ------------------ ------------ --------------- Sydney, Australia marketing, administration, technical support 8,600 sq. ft $39,000 June 1998 - ---------------------------- --------------------------------------------- ------------------ ------------ ---------------
The Company owns a 12,000 square foot building in Manchester, England in which its DH Technology, plc subsidiary performs its manufacturing, marketing, and administration. The Company believes that its existing facilities are generally suitable and adequate for its businesses. The Company has generally been able to renew its manufacturing and office facilities leases as they expire at then current market rates. Management believes that renewal of existing leases at market rates will not have a significant impact on operating expenses or cash flow. ITEM 3. LEGAL PROCEEDINGS There are no pending legal proceedings, other than ordinary routine litigation incidental to the business which is not considered to be material, to which the registrant or any of its subsidiaries is a party or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information regarding "Market for the Registrant's Common Equity and Related Stockholder Matters" is incorporated by reference to the Company's 1995 Annual Report to Shareholders, where such information appears under the caption "Common Stock Information" on page 21 of such report. An excerpt from the Annual Report to the Shareholders containing this information has been filed as Exhibit 13.1 to this Annual Report on Form 10-K. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the Company is incorporated by reference to the Company's 1995 Annual Report to Shareholders, where such information appears under the caption "Selected Financial Data" on page 10 of such report. An excerpt from the Annual Report to the Shareholders containing this information has been filed as Exhibit 13.1 to this Annual Report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information regarding "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated by reference to the Company's 1995 Annual Report to Shareholders, where such information appears under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 11 of such report. An excerpt from the Annual Report to the Shareholders containing this information has been filed as Exhibit 13.1 to this Annual Report on Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company are incorporated by reference to the Company's 1995 Annual Report to Shareholders, where such information appears under the captions "Consolidated Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements of Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements," and "Independent Auditors' Report" on pages 13 through 20 of such report. An excerpt from the Annual Report to the Shareholders containing this information has been filed as Exhibit 13.1 to this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instructions G(3) to Form 10-K, the information regarding the Company's Directors is set forth under "Election of Directors" in Registrant's Definitive Proxy Statement filed pursuant to Regulation 14A on March 25, 1996, which is incorporated herein by reference. See Item 1 for information regarding Executive Officers. ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instructions G(3) to Form 10-K, the information required by Item 11 of Form 10-K is incorporated by reference to the information contained in the section captioned "Executive Compensation" in Registrant's Definitive Proxy Statement filed pursuant to Regulation 14A on March 25, 1996, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G(3) to Form 10-K, the information required by Item 12 of Form 10-K is incorporated by reference to the information contained in the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Registrant's Definitive Proxy Statement filed pursuant to Regulation 14A on March 25, 1996, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report on Form 10-K. 1. Financial Statements. The following consolidated financial statements of DH Technology, Inc. and subsidiaries and the Independent Auditors' Report are incorporated by reference to the Registrant's 1995 Annual Report to Shareholders: Consolidated Balance Sheets - December 31, 1995 and 1994. Consolidated Statements of Income - Years Ended December 31, 1995, 1994, and 1993. Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1995, 1994, and 1993. Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994, and 1993. Notes to Consolidated Financial Statements Independent Auditors' Report- KPMG Peat Marwick LLP With the exception of the aforementioned information, the 1995 Annual Report to Shareholders is not to be deemed filed as part of this report unless otherwise noted. 2. Financial Statement Schedules. The following financial statement schedules of DH Technology, Inc. and subsidiaries are filed as part of this Report on Form 10-K and should be read in conjunction with the consolidated financial statements , and related notes thereto, of DH Technology, Inc. and subsidiaries. II Valuation and Qualifying Accounts ................... S-1 Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto. 3. Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K. Exhibit Number Description 2.1 Stock Purchase Agreement dated February 10, 1994, by and between Registrant and All Holders of Stadia Colorado Corp. Stock, and Charles J. Osborn, by which Registrant purchased Stadia Colorado Corp. (Incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K dated March 14, 1994.) 2.2 Stock Purchase Agreement dated August 12, 1994, by and between Registrant, Cognitive Solutions, Inc., and John Bergquist, by which Registrant purchased Cognitive Solutions, Inc. (Incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K dated September 14, 1994.) 3.1(a) Registrant's Restated Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 3.1(b) Certificate of Amendment of Restated Articles of Incorporation dated September 22, 1995 3.2 Registrant's Bylaws, as amended. (Incorporated by reference to Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) 10.1* Form of Employment Agreement dated December 3, 1985, between Registrant and William H. Gibbs. (Incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.) 10.2* Registrant's 1985 Director Warrant Plan and Forms of Warrant issued under the Plan, as amended. (Incorporated by reference to Exhibit 10.3 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.) 10.3* Registrant's 1983 Incentive Stock Option Plan and Forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement, as amended. (Incorporated by reference to Exhibit 10.4 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) 10.4 Lease Agreement dated April 20, 1990, between Registrant and Coast Income Properties, Inc., as amended. (Incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.5 Lease Agreement dated July 1, 1990, between DH Tecnologia de Mexico S.A. de C. V. and Alberto Lutteroth. (Incorporated by reference to Exhibit 10.6 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) Exhibit Number Description 10.6* Registrant's 1992 Stock Plan and Form of Incentive Stock Option Agreement, as amended. (Incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for the fiscal year ended December 31, 1994.) 10.7 Lease Agreement dated April 1, 1994, by and between Registrant and Wind River Development Co., a Wyoming corporation. (Incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for the fiscal year ended December 31, 1994.) 10.8 Lease Agreement dated February 28, 1994, between Chardan, Ltd., and Stadia Colorado Corp. (Incorporated by reference to Exhibit 2.2 of Registrant's Current Report on Form 8-K dated March 14, 1994.) 10.9 Sublease Agreement dated September 30, 1992, by and between Medical Engineering Corporation and Cognitive Solutions, Inc. (Incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for the fiscal year ended December 31, 1994.) 10.10 Line of Credit Agreement dated August 15, 1994 by and between DH Technology, Inc. and Wells Fargo Bank. (Incorporated by reference to Exhibit 10.10 on Form 10Q for the Quarter Ended March 31, 1995.) 11 Computation of Net Income Per Share. 13.1 Registrant's 1995 Annual Report to Shareholders, pages 10 through 21. 21 List of Subsidiaries. 23.1 Independent Auditors' Consent and Report on Schedules. 27 Financial Data Schedule - ------------------------ * Management contract or compensatory plan or arrangement. (b) Form 8-K Reports: No current report on Form 8-K was filed during the quarter ended December 31, 1995. SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DH TECHNOLOGY, INC. By: /s/ Janet W. Shanks ------------------- Janet W. Shanks, Chief Accounting Officer, Corporate Controller Date: March 29, 1996 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William H. Gibbs and Janet W. Shanks, jointly and severally, his or her respective attorneys-in-fact, each with the power of substitution, for each other in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her respective substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - ----------------------------- -------------------------------------- ------------------------------ /s/William H. Gibbs/ Chairman of the Board, President, March 29, 1996 - -------------------- Chief Executive Officer (William H. Gibbs) (Principal Executive Officer) /s/James A. Cole/ Chief Financial Officer and Secretary March 29, 1996 - ----------------- (Principal Financial Officer) (James A. Cole) /s/Janet W. Shanks/ Chief Accounting Officer and March 29, 1996 - ------------------- Corporate Controller (Janet W. Shanks) /s/William J. Bowers/ Director March 29, 1996 - -------------------- (William J. Bowers) /s/Bruce G. Klaas/ Director March 29, 1996 - -------------------- (Bruce G. Klaas) /s/Don M. Lyle/ Director March 29, 1996 - -------------------- (Don M. Lyle) /s/George M. Ryan/ Director March 29, 1996 - -------------------- (George M. Ryan)
DH TECHNOLOGY, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Fiscal Years 1995, 1994, and 1993 (Amounts in Thousands)
Balance at Charge to Charge to Balance at Beginning of Cost and Other Accounts End of Period Description Period Expense (1) Deductions - ----------- ------ ------- --- ---------- ------------- Allowance for Doubtful Accounts 1995 $1,003 $75 -- ($11) $1,067 1994 979 105 58 (139) 1,003 1993 812 267 -- (100) 979 - -------------------- (1) Recorded upon acquisition.
S-1 EX-11 2 COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11 DH TECHNOLOGY, INC. AND SUBSIDIARIES Computation of Net Income Per Share (In thousands, except per share data)
THREE MONTHS ENDED TWELVE MONTHS ENDED DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 ----------- ----------- ------------ ----------- --------------------------- ---------------------------- 1995 1994 1995 1994 --------------------------- ---------------------------- Primary and fully diluted:* Average shares outstanding .......... 7,880 7,721 7,809 7,703 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price ................ 511 474 528 373 ------- ------- ------- ------- Average common and common equivalent shares outstanding ....... 8,391 8,195 8,337 8,076 Net income .......................... $ 2,783 $ 2,173 $10,301 $ 8,058 Per share (primary and fully diluted) Net income per share ................ $ .33 $ .27 $ 1.24 $ 1.00 ======== ======== ======== ========
EX-13 3 ANNUAL REPORT
EXHIBIT 13.1 Selected Financial Data (In thousands, except per share amounts) Years ended December 31, 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA Revenue: Net sales .................$98,855 $77,918 $56,351 $54,081 $46,288 $40,038 $41,619 $29,109 $15,763 $16,121 License fees and royalties. -- -- -- 89 258 1,089 436 251 695 764 Total revenue ...................... 98,855 77,918 56,351 54,170 46,546 41,127 42,055 29,360 16,458 16,885 Costs and expenses: Cost of net sales .................. 63,267 48,972 34,870 33,770 28,526 24,521 26,527 20,025 10,152 10,578 Selling, general and administrative ... 15,383 12,769 8,955 8,599 8,078 5,523 5,297 4,113 2,378 3,069 Research and development .. 5,007 4,685 4,170 4,150 3,744 2,845 2,259 1,450 683 799 ----- ----- ----- ----- ----- ----- ----- ----- --- --- Total costs and expenses ........... 83,657 66,426 47,995 46,519 40,348 32,889 34,083 25,588 13,213 14,446 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Income from operations ..............15,198 11,492 8,356 7,651 6,198 8,238 7,972 3,772 3,245 2,439 Interest income, net ................ 955 644 692 391 584 921 560 174 354 410 --- --- --- --- --- --- --- --- --- --- Income before income taxes ..........16,153 12,136 9,048 8,042 6,782 9,159 8,532 3,946 3,599 2,849 Income taxes ........................ 5,852 4,078 2,717 2,252 2,144 3,192 2,640 816 765 508 ----- ----- ----- ----- ----- ----- ----- --- --- --- Net income .........................$10,301 $ 8,058 $ 6,331 $ 5,790 $ 4,638 $ 5,967 $ 5,892 $3,130 $ 2,834 $2,341 ======= ======= ======= ======= ======= ======= ======= ====== ======= ====== Net income per share .............. $ 1.24 $ 1.00 $ 0.82 $ 0.75 $ 0.62 $ 0.79 $ 0.79 $ 0.43 $ 0.38 $ 0.29 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Shares used in per share calculation .... 8,337 8,076 7,731 7,749 7,481 7,529 7,494 7,260 7,383 8,030 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== December 31, 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Working capital ....................$48,664 $37,191 $41,406 $34,771 $27,679 $24,712 $21,077 $15,083 $10,400$ 9,758 Total assets ....................... 85,285 71,306 55,975 47,937 44,113 35,713 32,565 24,709 15,065 14,173 Long-term debt ..................... 3,095 4,355 1,580 2,358 3,687 3,109 4,016 4,865 73 109 Shareholders' equity ............... 67,480 55,848 46,732 39,902 33,531 27,904 22,176 15,914 12,692 11,818
The selected financial data should be read with the related consolidated financial statements and notes thereto, included herein MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes related thereto.
Results of Operations Operating Percentages 1995 1994 1993 ------- ------ ------ Net sales ........................... 100.0% 100.0% 100.0% Cost of net sales.................... 64.0% 62.9% 61.9% Selling, general, and administrative ............... 15.6% 16.4% 15.9% Research and development ............ 5.1% 6.0% 7.4% Income from operations .............. 15.4% 14.7% 14.8% Income before income taxes........... 16.3% 15.6% 16.1% Income taxes ........................ 5.9% 5.2% 4.8% Net income .......................... 10.4% 10.3% 11.2%
The consolidated financial statements of DH Technology, Inc. (the Company) represent the financial results of DH Technology, Inc. and its consolidated subsidiaries, Stadia Colorado Corp. (Stadia); Cognitive Solutions, Inc. (Cognitive); DH Tecnologia de Mexico, S.A. de C.V.; DH Technology plc; and DH Technology pty. Results of operations subsequent to February 28, 1994, reflect the added results of Stadia, and results for Cognitive are included after August 31, 1994. Also, results of operations subsequent to October 30, 1995, reflect the added results of Mos Magnetics. See Note 10 of notes to consolidated financial statements. 1995 COMPARED TO 1994 In 1995, net sales grew to $98.9 million, a 27.0% increase over 1994 net sales of $77.9 million. Approximately two-thirds of this increase was due to increased unit shipments of specialty printers and printer components, including printheads. The remainder of the increase was attributable to the inclusion of results of Cognitive, and to a lesser extent Stadia, for an entire 12 months in 1995. Cost of net sales increased to 64.0% of net sales in 1995 compared to 62.9% in 1994. Three factors contributed approximately equally to the increase. First, the results of Cognitive, whose products have slightly lower margins than the Company's historical average, were included for all of 1995. Second, start up costs associated with the introduction of two new printer products in 1995 and higher component and expediting costs caused by integrated circuit shortages contributed to lower consolidated margins. Third, in 1995 the Company filled a sizable order for low-end transaction printers with gross margins considerably lower than the historical average for the Company. Selling, general, and administrative expenses as a percentage of net sales decreased to 15.6% in 1995 compared to 16.4% in 1994 due to consolidated revenue increasing at a faster rate than consolidated selling, general, and administrative expenses. These expenses increased in absolute dollars to $15.4 million in 1995 compared to $12.8 million in 1994. This increase was primarily attributable to the inclusion of results for Stadia and Cognitive for all of 1995. Research and development expenses decreased to 5.1% of net sales in 1995 from 6.0% in 1994 due to consolidated revenues increasing at a faster rate than consolidated research and development expenses. Total dollars expended for research and development increased to $5.0 million in 1995 from $4.7 million in 1994. The Company believes that the continued timely development of new products and enhancements to its existing products are essential to maintaining its competitive position. Accordingly, the Company anticipates that such expenses will continue to increase in absolute dollars. Income from operations as a percentage of net sales increased to 15.4% in 1995 from 14.7% in 1994 primarily due to lower operating expenses as a percentage of revenue as discussed above. Interest income increased to $1,231,000 in 1995 compared to $854,000 in 1994 as a result of higher cash balances and higher interest rates in 1995. Interest expense increased to $276,000 in 1995 from $210,000 in 1994 due to interest expense associated with debt incurred as a result of the Stadia and Cognitive acquisitions. See Note 6 of notes to consolidated financial statements. Income taxes as a percentage of income before taxes increased to 36.2% for 1995 from 33.6% for 1994, principally due to nondeductible goodwill amortization resulting from the Stadia and Cognitive acquisitions, and reduced benefits from the federal research and development tax credit. See Note 12 of notes to consolidated financial statements. The Company's operating results may fluctuate in the future as a result of a number of factors, including variations in the Company's sales channels or the mix of products it sells, changes in pricing policies by the Company's suppliers, fluctuations in manufacturing yields, the market acceptance of new and enhanced versions of the Company's products and the timing of acquisitions of other businesses, products and technologies and any associated charges to earnings. Further, the Company's expense levels are based in part on expectations of future revenues, and the Company has been increasing and expects to continue to increase operating expenditures and inventory as it expands its operations. The rate of new orders may vary significantly from month to month; consequently, if anticipated sales and shipments in any quarter do not occur when expected, operating expenses and inventory levels could be disproportionately high and the Company's operating results for that quarter, and potentially for future quarters, would be adversely affected. In addition, the Company's results could be affected by general economic conditions. Fluctuations in operating results may cause volatility in the price of the Company's Common Stock. 1994 COMPARED TO 1993 In 1994, net sales grew to $77.9 million, a 38.1% increase over 1993 net sales of $56.4 million. This increase was primarily due to inclusion of results for Stadia for 10 months and Cognitive for four months. Additionally, increased unit shipments of specialty printers and printer components, including printheads, contributed to higher net sales in 1994. Cost of net sales increased to 62.9% of net sales in 1994 compared to 61.9% in 1993 due primarily to changes in the product mix toward printer components with higher material costs, as well as the inclusion of results for Stadia for 10 months and Cognitive for four months. Stadia's and Cognitive's product lines have slightly lower margins than the historical average for the Company. Selling, general, and administrative expenses as a percentage of net sales increased to 16.4% in 1994 compared to 15.9% in 1993. These expenses increased in absolute dollars to $12.8 million in 1994 compared to $9.0 million in 1993. This increase was primarily attributable to the inclusion of results for Stadia for 10 months and Cognitive for four months. Research and development expenses decreased to 6.0% of net sales in 1994 from 7.4% in 1993 primarily due to the inclusion of results for Stadia for 10 months. Stadia had no research and development costs in 1994, resulting in consolidated revenues increasing at a faster rate than research and development expenses. Total dollars expended for consolidated research and development increased to $4.7 million in 1994 from $4.2 million in 1993 primarily due to the inclusion of results for Cognitive for four months and increased development expenses related to expanding the Company's product offerings. Income from operations as a percentage of net sales was virtually unchanged in 1994 compared to 1993. Interest income increased to $854,000 in 1994 compared to $794,000 in 1993. The increase in interest income was attributable to higher interest rates in 1994, which more than offset lower cash balances resulting from the Stadia and Cognitive acquisitions. Interest expense increased to $210,000 in 1994 from $102,000 in 1993 due to interest expense associated with debt incurred as a result of the Stadia and Cognitive acquisitions. See Note 6 of notes to consolidated financial statements. Income taxes as a percentage of income before taxes increased to 33.6% for 1994 from 30% for 1993 primarily due to nondeductible goodwill amortization resulting from the Stadia and Cognitive acquisitions. Additionally, tax-free interest income contributed a smaller percentage of income before income taxes in 1994 than in 1993. The Company's tax rate was less than the statutory federal rate of 34% primarily due to the Company's investment strategy and its use of the research and development tax credit LIQUIDITY AND CAPITAL RESOURCES Throughout 1995, the Company continued to maintain its strong financial condition. The Company's primary source of liquidity has been cash flow generated from operations. Cash, cash equivalents, and short-term investment securities totaled approximately $31.7 million on December 31, 1995, compared to $23.9 million on December 31, 1994. OPERATING ACTIVITIES In 1995, the Company generated approximately $11.0 million in net cash from operating activities primarily as a result of $10.3 million in net income and $3.6 million in depreciation and amortization, offset by an increase of $2.0 million in net operating assets and liabilities, excluding the effect of acquisitions. In 1995, accounts receivable increased by $3.2 million due primarily to increased unit shipments. In addition, inventory increased $2.8 million in order to support these increased volumes. INVESTING ACTIVITIES The Company's principal investing activity in 1995 was the purchase of property and equipment for product development and production. As of December 31, 1995, other than the required payments for Stadia and Cognitive described below, the Company has no material commitments for capital expenditures. However, as of the end of 1995, the Company anticipates capital expenditures in 1996 between 3 to 5 million dollars principally for new product tooling, manufacturing equipment and a new worldwide MIS system. The Company is also required to make additional payments, not to exceed an aggregate of $3 million, to the former shareholder of Cognitive based upon the attainment of specified net sales by a particular Cognitive product line. The Company does not expect the payment to be material in 1996. See Note 10 of notes to consolidated financial statements. FINANCING ACTIVITIES The Company's major financing activities in 1995 were the principal repayment on long-term debt, including the notes payable associated with the Stadia and Cognitive acquisitions. As of December 31, 1995, the Company had $3.1 million in debt outstanding of which the current portion was approximately $980,000. This long-term debt includes approximately $500,000 payable in a final installment in 1996 to the former owners of Stadia and approximately $2.0 million payable in annual installments of $500,000 each in 1996 through 1999 to the former owner of Cognitive. On August 15, 1995, the Company renewed a $6.5 million line of credit agreement originally signed on August 15, 1994. The line of credit includes a subfeature to issue standby and/or commercial letters of credit not to exceed $1.5 million. Borrowings under the line bear interest at a rate per annum equal to the prime rate in effect from time to time. As of December 31, 1995, no draws had been made against this line of credit. The Company currently expects that current cash balances and cash generated from operations will adequately fund the Company's anticipated cash needs for the next 12 months. However, the Company continues to evaluate potential acquisitions of businesses that would complement the Company's existing businesses and product lines, and any such acquisitions could require the use of the Company's cash resources and/or additional borrowings. The Company reviews potential foreign currency risks on an ongoing basis and to date has been able to effectively manage this risk through natural currency offsets. NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. (OSFASO) 121, Accounting of the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, effective for fiscal years beginning after December 15, 1995. SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company does not believe, based on current circumstances, the effect of adoption of SFAS 121 will have a material impact on its financial condition or results of operations. In October 1995, the Financial Accounting Standards Board issued SFAS 123, Accounting for Stock-Based Compensation, effective for fiscal years beginning after December 15, 1995. SFAS 123 establishes the fair value based method of accounting for stock-based compensation arrangements, under which compensation cost is determined using the fair value of the stock option at the grant date and the number of options vested, and is recognized over the periods in which the related services are rendered. If the Company were to retain its current intrinsic value based method, as allowed by SFAS 123, it will only be required to disclose the pro forma effect of adopting the fair value based method.
CONSOLIDATED BALANCE SHEETS December 31, 1995 1994 - ----------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents ....................................... $28,971,000 $19,587,000 Short-term investment securities held to maturity (note 2) ...... 2,750,000 4,300,000 Accounts receivable, net of allowance for doubtful accounts...... of $1,067,000 in 1995 and $1,003,000 in 1994 .................... 15,785,000 12,435,000 Inventories (note 3) ............................................ 14,382,000 11,386,000 Deferred tax asset (note 12) .................................... 1,744,000 1,165,000 Prepaid expenses and other current assets ....................... 573,000 556,000 ------- ------- Total current assets ................. 64,205,000 49,429,000 Fixed assets, net (notes 4 and 6) ............................... 6,290,000 6,771,000 Intangible assets, net (note 5) ................................. 13,312,000 14,549,000 Other Assets..................................................... 1,478,000 557,000 --------- ------- Total assets ......................... $85,285,000 $71,306,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ................................................ $ 6,383,000 $ 4,557,000 Current portion of long-term debt (note 6) ...................... 980,000 1,363,000 Accrued payroll, payroll taxes, and benefits .................... 2,579,000 2,148,000 Accrued expenses ................................................ 2,045,000 1,545,000 Income taxes payable (note 12) .................................. 2,128,000 1,356,000 Accrued warranty ................................................ 479,000 383,000 Deferred revenue ................................................ 947,000 886,000 ------- ------- Total current liabilities............. 15,541,000 12,238,000 Long-term debt (note 6) .................................................. 2,115,000 2,992,000 Deferred tax liability (note 12) ......................................... 149,000 228,000 -- ------- ------- Total liabilities..................... 17,805,000 15,458,000 ========== ========== Shareholders' equity (note 8): Preferred shares, no par value Authorized: 1,000,000 shares; none issued Common shares: Common stock, no par value, authorized: 28,500,000 shares; issued and outstanding: 7,890,090 shares in 1995 and 7,731,161 shares in 1994 12,335,000 10,740,000 Foreign currency translation adjustment ........................... (519,000) (255,000) Retained earnings.................................................. 55,664,000 45,363,000 ---------- ---------- Total shareholders' equity......................................... 67,480,000. 55,848,000 ----------- ---------- Commitments (notes 6, 7, 8, 10, and 11) Total liabilities and shareholders' equity $ 85,285,000 $ 71,306,000 ============ ============ See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1995 1994 1993 Net sales .............................................................. $98,855,000 $ 77,918,000 $ 56,351,000 Costs and expenses: Cost of net sales.............................................. 63,267,000 48,972,000 34,870,000 Selling, general, and administrative .......................... 15,383,000 12,769,000 8,955,000 Research and development ...................................... 5,007,000 4,685,000 4,170,000 --------- --------- --------- Total costs and expenses ............................................... 83,657,000 66,426,000 47,995,000 ---------- ---------- ---------- Income from operations ................................................. 15,198,000 11,492,000 8,356,000 ---------- ---------- --------- Interest income ........................................................ 1,231,000 854,000 794,000 Interest expense ....................................................... (276,000) (210,000) (102,000) -------- -------- -------- Net interest income .................................................... 955,000 644,000 692,000 ------- ------- ------- Income before income taxes.............................................. 16,153,000 12,136,000 9,048,000 Income taxes (note 12) ................................................. 5,852,000 4,078,000 2,717,000 -- --------- --------- --------- Net income ............................................................. $10,301,000 $ 8,058,000 $ 6,331,000 =========== ============ ============ Net income per share ................................................... $ 1.24 $ 1.00 $ 0.82 =========== ============ ============ Shares used in per share calculation ................................... 8,337,000 8,076,000 7,731,000 ========= ========= ========= See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Foreign Currency Total Common Stock Translation Retained Shareholders' Shares Amount Adjustment Earnings Equity -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992 ............ 7,517,819 $ 9,525,000 $ (597,000) $ 30,974,000 $ 39,902,000 Exercise of options and warrants ...... 101,150 300,000 -- -- 300,000 Employee stock bonus .................. 5,415 58,000 -- -- 58,000 Tax benefit of stock option exercise .. -- 250,000 -- -- 250,000 Foreign currency translation adjustment -- -- (109,000) -- (109,000) Net income ........................... -- -- -- 6,331,000 6,331,000 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 ............ 7,624,384 10,133,000 (706,000) 37,305,000 46,732,000 Exercise of options and warrants ...... 106,777 511,000 -- -- 511,000 Tax benefit of stock option exercise .. -- 96,000 -- -- 96,000 Foreign currency translation adjustment -- -- 451,000 -- 451,000 Net income ........................... -- -- -- 8,058,000 8,058,000 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 ............ 7,731,161 10,740,000 (255,000) 45,363,000 55,848,000 Exercise of options and warrants ...... 158,929 1,235,000 -- -- 1,235,000 Tax benefit of stock option exercise .. -- 360,000 -- -- 360,000 Foreign currency translation adjustment -- -- (264,000) -- (264,000) Net income ........................... -- -- -- 10,301,000 10,301,000 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995 ............ 7,890,090 $ 12,335,000 $ (519,000) $ 55,664,000 $ 67,480,000 =================================================================================================================================== See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995 1994 1993 Cash flows from operating activities: Net income ............................................................ $ 10,301,000 $ 8,058,000 $ 6,331,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....................... 3,640,000 2,391,000 1,871,000 Provision for loss on accounts receivable ........... 65,000 105,000 267,000 Employee stock bonus ................................ N N 58,000 Loss on sale or disposal of fixed assets ............ 65,000 6,000 5,000 Provision for deferred income taxes, excluding effect of acquisitions .................................. (658,000) (429,000) (279,000) Changes in assets and liabilities, excluding effect of acquisitions: Accounts receivable ................................. (3,219,000) (1,997,000) (1,584,000) Inventories ......................................... (2,814,000) (1,651,000) (566,000) Prepaid expenses and other current assets ........... (17,000) 170,000 (34,000) Accounts payable and accrued expenses ............... 2,264,000 (891,000) 898,000 Accrued payroll, payroll taxes, and benefits ........ 431,000 513,000 442,000 Income taxes payable ................................ 772,000 (343,000) 333,000 Accrued warranty .................................... 96,000 (20,000) 71,000 Deferred revenue .................................... 61,000 696,000 129,000 ------ ------- ------- Net cash provided by operating activities ........... 10,987,000 6,608,000 7,942,000 Cash flows from investing activities: Net (increase) decrease in short-term investment securities held to maturity .................................. 1,550,000 5,420,000 (4,520,000) Payment for acquisition purchases, net of cash acquired ............... (753,000) (12,825,000) Capital expenditures .................................................. (2,469,000) (2,293,000) (1,601,000) Proceeds from sale of assets .......................................... -- 26,000 24,000 ------ ------ ------ Net cash used in investing activities ............... (1,672,000) (9,672,000) (6,097,000) Cash flows from financing activities: Principal repayments of long-term debt ................................ (1,260,000) (1,482,000) (631,000) Exercise of stock options ............................................. 1,235,000 511,000 300,000 Tax benefit of stock option exercise .................................. 360,000 96,000 250,000 ------- ------ ------- Net cash provided by (used in) financing activities . 335,000 (875,000) (81,000) Effect of exchange rate changes on cash ........................................ (266,000) 365,000 (74,000) -------- ------- ------- Net increase (decrease) in cash and cash equivalents ........................... 9,384,000 (3,574,000) 1,690,000 Cash and cash equivalents at beginning of year ................................. 19,587,000 23,161,000 21,471,000 ---------- ---------- ---------- Cash and cash equivalents at end of year ....................................... $ 28,971,000 $ 19,587,000 $ 23,161,000 ============ ============ ============ Supplemental cash flow disclosures: Interest paid on debt ................................................. $ 93,148 $ 106,000 $ 102,000 ============ ============ ============ Income taxes paid ..................................................... $ 5,738,000 $ 3,539,000 $ 2,200,000 ============ ============ ============ Supplementary disclosure of noncash investing activity: Fair market value of assets acquired .................................. $ 815,000 $ 15,865,000 -- Cash paid ............................................................. (753,000) (12,952,000) -- -------- ----------- ----------- Liabilities assumed ................................................... $ 62,000 $ 2,913,000 -- ============ ============ =========== Supplementary disclosure of noncash financing activity: Additions to capital lease obligations ................................ -- -- $ 78,000 ============ ============ ============ See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES STATEMENT OF PRESENTATION. DH Technology, Inc. and subsidiaries' (the Company) principal business activity involves the design, manufacture, and distribution of transaction printers and mechanisms, impact printheads, bar code printers, and related services and supplies, such as labels and ribbons. The consolidated financial statements include the accounts of DH Technology, Inc. and its wholly-owned subsidiaries, Stadia Colorado Corp.; Cognitive Solutions, Inc.; DH Tecnologia de Mexico, S.A. de C.V.; DH Technology plc; and DH Technology pty. Results of operations subsequent to February 28, 1994, reflect the added results of Stadia, and results for Cognitive are included after August 31, 1994 (Note 10). All significant intercompany accounts and transactions have been eliminated. NET INCOME PER SHARE. Net income per share for the years ended December 31, 1995, 1994, and 1993 is computed based on the weighted average number of common and common equivalent shares outstanding during each year. Stock options and warrants that have a dilutive effect are considered common stock equivalents for purposes of this calculation. Fully diluted net income per share is not materially different from primary net income per share. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. CONCENTRATION OF CREDIT RISK. Cash in excess of daily requirements is invested in short-term investment securities consisting of money market funds, municipal bonds, and short-term commercial investments of companies with strong credit ratings. These investments typically mature within one year and, therefore, bear minimal risk. To date, the Company has not incurred losses related to these investments. SHORT-TERM INVESTMENT SECURITIES HELD TO MATURITY. In accordance with Statement of Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities' (SFAS 115), management determines the appropriate classification of securities at the time of purchase. If management has the intent at the time of purchase and the Company has the ability to hold securities until maturity, they are classified as held to maturity. Investment securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts over the period to maturity of the related security. INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out) or market. FOREIGN CURRENCY TRANSLATION. The accounts of foreign subsidiaries and affiliates are measured using local currency as the functional currency. For these operations, assets and liabilities are translated into U.S. dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translation are excluded from net income and accumulated in a separate component of shareholders' equity. Gains and losses from foreign currency transactions are not significant and are included in selling, general, and administrative expenses in the consolidated statements of income. FIXED ASSETS, DEPRECIATION, AND AMORTIZATION. Fixed assets are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets or over the terms of the related leases, whichever is shorter (three to ten years). Capital lease amortization is included in depreciation and amortization expense. Renewals and replacements which extend the useful life of the fixed asset are capitalized. INTANGIBLE ASSETS. Intangible assets are recorded at cost. The Company has classified as goodwill the cost in excess of fair value of the net assets of the companies acquired in purchase transactions. At each balance sheet date, the Company assesses the recoverability of this intangible asset by determining whether the goodwill balance can be recovered through undiscounted future operating cash flows of the acquired operation over its remaining life. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. Based upon its most recent analysis, the Company believes that no material impairment of goodwill exists at December 31, 1995. Intangible assets, excluding goodwill, are amortized using the straight-line method over periods ranging from four to 15 years. Goodwill is amortized over periods ranging from 20 to 25 years. SOFTWARE DEVELOPMENT COSTS. The Company capitalizes certain software development costs in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS 86). Capitalization of software development costs begins upon the establishment of technological feasibility as defined in SFAS 86. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized software costs are amortized using the straight-line method over the estimated seven-year useful life of the related product. The Company amortized $200,000 of such costs in each of 1994 and 1993. In 1995, the Company determined the software development costs to have no future value, and accordingly, wrote-off the remaining costs of $568,000. Research and development expenditures are charged to research and development expense in the period incurred. WARRANTY RESERVE. The Company generally provides customers with limited 90-day to one-year warranties. The liability for future warranty claims reflects the estimated future cost of warranty repairs on products previously sold. The Company recognizes the estimated cost of warranty obligations at the time the related products are sold and periodically evaluates and adjusts the warranty reserve to the extent actual warranty experience varies from original estimates. STOCK OPTIONS. The Company accounts for stock options under the intrinsic value based method whereby compensation expense is recognized on the difference between the quoted market price of the Company stock and the option price at the date of grant. DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and long-term debt, approximate fair values. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could affect the estimates. INCOME TAXES. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could affect the estimates. USE OF ESTIMATES. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS. Certain reclassifications have been made to the 1994 and 1993 consolidated financial statements to conform with the 1995 presentation. 2. SHORT-TERM INVESTMENT SECURITIES The book value, gross unrealized gains and losses, and fair value of short-term investment securities held to maturity as of December 31, are as follows:
1995 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------- Municipal bonds ............... $2,750,000 $ 39,000 -- $2,789,000
1994 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------- Municipal bonds .............. $4,300,000 $ 2,000 $ 4,000 $4,298,000
All of the above investment securities will mature in 1996, and no loss is expected to be realized.
3. INVENTORIES Inventories are comprised of the following: December 31, 1995 1994 - ------------------------------------------------------------------------------- Raw materials ...................... $ 8,221,000 $ 5,712,000 Work in process .................... 940,000 1,528,000 Finished goods ..................... 5,221,000 4,146,000 ------------ ------------ $14,382,000 $11,386,00 ============ ============
4. FIXED ASSETS Fixed assets are comprised of the following: December 31, 1995 1994 - ------------------------------------------------------------------------------- Land ...................................... $ 264,000 $ 266,000 Building................................... 948,000 957,000 Leasehold improvements .................... 1,043,000 959,000 Machinery and equipment ................... 12,820,000 11,432,000 Furniture, fixtures, and equipment ........ 2,838,000 2,854,000 Automobiles ............................... 172,000 311,000 18,085,000 16,779,000 Accumulated depreciation and amortization.......................... (11,795,000) (10,008,000) ------------- ------------- $ 6,290,000 $ 6,771,000 ============= =============
Included above are assets under capital leases amounting to $144,000 and $235,000, net of accumulated amortization of $54,000 and $52,000 at December 31, 1995 and 1994, respectively.
5. INTANGIBLE ASSETS Intangible assets are comprised of the following: December 31, 1995 1994 Software development costs ............. $ -- $ 1,403,000 Goodwill ............................... 11,055,000 10,841,000 Patents ................................ 2,758,000 2,758,000 Covenants not to compete ............... 1,375,000 1,375,000 ------------ ------------ 15,188,000 16,377,000 Accumulated amortization ............... (1,876,000) (1,828,000) ------------ ------------ $ 13,312,000 $ 14,549,000 ============ ============
6. LONG-TERM DEBT Long-term debt is comprised of the following: December 31, 1995 1994 - -------------------------------------------------------------------------------- 7.5% note payable in monthly installments of $9,000, including interest, with final payment due September 1998; secured by equipment...................... $ 257,000 $ 351,000 First mortgage note payable in monthly installments of(pound)2,000 ($3,000 at December 31, 1995), interest due quarterly at the UK base rate plus 1.75% (8.25% at December 31, 1995), due April 2014 ............. 593,000 631,000 Note payable from DH Technology plc acquisition, final annual install- ment of $225,000, paid April 1995 .............. -- 225,000 Note payable from Stadia acquisition, two annual installments of $500,000 (discounted using 6% discount rate) due to former owner, final installment due March 1996..................... 445,000 917,000 Note payable from Cognitive acquisition, five annual installments of $500,000 (discounted using 8% discount rate) due to former owner, final installment due August 1999 .............. 1,656,000 1,996,000 Capital lease obligations for equipment, interest rates ranging from 7.3% to 10.6% per annum, secured by equipment ................ 144,000 235,000 ------- ------- 3,095,000 4,355,000 Less current portion ........................... 980,000 1,363,000 --------- --------- $2,115,000 $2,992,000 ========== ==========
Maturities of long-term debt are as follows: Capital Total Long- Debt Leases Term Debt - -------------------------------------------------------------------------------- 1996 $935,000 $ 74,000 $1,009,000 1997 536,000 79,000 615,000 1998 522,000 3,000 525,000 1999 495,000 -- 495,000 2000 32,000 -- 32,000 Thereafter 431,000 -- 431,000 2,951,000 156,000 3,107,000 Less imputed interest -- 12,000 12,000 2,951,000 144,000 3,095,000 --------- ------- --------- Less current portion 934,000 46,000 980,000 ------- ------ ------- $2,017,000 $ 98,000 $2,115,000 ========== ======== ==========
On August 15, 1995, the Company renewed a $6.5 million line of credit agreement originally signed on August 15, 1994. The line of credit includes a subfeature to issue standby and/or commercial letters of credit not to exceed $1.5 million. The outstanding principal balance of the line of credit shall bear interest at a rate per annum equal to the prime rate in effect from time to time. No draws were made against this line of credit in 1995 or 1994. 7. OPERATING LEASES Leases that do not meet the criteria for capitalization are classified as operating leases with related rentals charged to operations as incurred. The Company leases manufacturing and office facilities at various locations under operating leases which expire at various dates through 2004. Management expects that in the normal course of business, leases that expire will be renewed or replaced with comparable leases. Future minimum lease payments under noncancelable operating leases (with initial lease terms in excess of one year) as of December 31, 1995, are as follows:
Year ending December 31: - ------------------------------------------ 1996 $698,000 1997 360,000 1998 249,000 1999 195,000 2000 191,000 Thereafter 605,000 ------- $2,298,000 ========== Total rent expense for operating leases was $1,202,000, $974,000, and $780,000 for 1995, 1994, and 1993, respectively.
8. CAPITAL STOCK The Company has authorized 1,000,000 shares of no par preferred stock and 28,500,000 shares of no par common stock. The terms and conditions of the preferred stock, of which no shares have been issued, are set by the Board of Directors of the Company. On September 12, 1995, the Board of Directors declared a three-for-two common stock split distributable on October 2, 1995 to shareholders of record at the close of business on September 22, 1995. All per share amounts and numbers of shares in the accompanying consolidated financial statements have been restated to reflect the stock split. The Company's 1983 Stock Option Plan (the O1983 Plan) expired in 1993; therefore, the Board of Directors adopted the DH Technology, Inc. 1992 Stock Plan (the O1992 Plan) in February 1992 to replace the 1983 Stock Option Plan. Upon adoption of the 1992 Plan, 348,470 common shares were reserved for issuance and the 1983 Stock Option Plan was terminated with respect to new grants. In April 1993, the shareholders approved a 375,000 share increase in the number of shares available for grant, and in April 1994, the shareholders approved an additional increase in the number of shares available for grant from 723,470 to 1,098,470, and in April 1995 increased the number of shares from 1,098,470 to 1,473,470. Under the 1992 Plan, the Board of Directors may grant incentive stock options to purchase common stock at prices which are not less than fair market value at the date of grant and non-qualified stock options at prices which are to be determined by the Compensation Committee of the Board of Directors. Other terms and conditions are established by the Board of Directors at the time of grant. Additionally, in April 1994, the shareholders approved an amendment to the 1992 Plan which places a 1,050,000 share limit on the number of options and stock appreciation rights (SARs) that may be granted under the plan to an employee in any fiscal year. This limit is subject to appropriate adjustment in the case of stock splits, reverse stock splits, and the like. The purpose of this amendment, which is intended to comply with Section 162(m) of the Internal Revenue Code and the regulations thereunder, is to preserve the Company's ability to deduct in full any compensation expense related to stock options and stock appreciation rights. Options under both plans generally become exercisable in four equal annual installments commencing one year from the date of grant. Generally, options under the 1983 Plan expire if not exercised within five years from the date of grant. Under the 1992 Plan, options expire if not exercised within eight years from the date of grant. As of December 31, 1995, options to purchase a total of 361,950 shares of common stock were outstanding under the 1983 Plan, and options to purchase a total of 653,887 shares of common stock were outstanding under the 1992 Plan. Options to purchase 77,288 shares of common stock were exercisable under the 1983 Plan, and 59,157 shares of common stock were exercisable under the 1992 Plan. The Company has a Director Warrant Plan under which each of the outside directors, upon first becoming a director, is granted an initial warrant to purchase 15,000 shares of the Company's common stock. In addition, each director automatically receives an additional warrant to purchase 5,250 shares each year beginning in the fifth year after the grant of the initial warrant. The exercise price of the warrants granted is equal to the fair market value of the Company's common stock at the date of grant. Each initial warrant vests as to 1/48th of the shares subject thereto for each full calendar month after the date of grant that the holder of such initial warrant remains a member of the Board. Each annual warrant vests one year after the date of grant, subject to the holder of such annual warrant remaining a member of the Board during such one-year period. A total of 225,000 common shares is reserved for issuance under the Director Warrant Plan. As of December 31, 1995, warrants to purchase 115,000 shares have been granted, of which 45,000 have been exercised and 15,000 have been purchased by the Company and subsequently terminated. As of December 31, 1995, warrants to purchase a total of 75,000 shares are outstanding, of which 38,313 are exercisable.
Information with respect to activity under the plans is set forth on next page: Outstanding Options/Warrants Number of Shares Number of Options/ Price Aggregate Available for Grant Warrants Outstanding Per Share Price - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1993................... 596,555 838,500 $3.83-$9.92 $ 5,797,000 Shares reserved ............................. 375,000 -- -- -- Options/warrants granted .................... (289,140) 289,140 11.17-13.50 3,265,000 Options/warrants canceled ................... 3,375 (6,000) 4.42-7.83 (44,000) Options/warrants exercised .................. -- (106,777) 3.83-7.83 (512,000) -------- -------- ---- ---- -------- Balance, December 31, 1994................... 685,790 1,014,863 $4.42-$13.50 $ 8,506,000 Shares reserved ............................. 375,000 -- -- -- ptions/warrants granted ..................... (332,700) 332,700 14.00-18.67 5,884,000 ptions/warrants canceled .................... 94,031 (97,781) 4.42-11.17 (917,000) ptions/warrants exercised ................... -- (158,945) 4.42-11.17 (1,235,000) --------- -------- ---- ----- ---------- Balance, December 31, 1995................... 822,121 1,090,837 $4.42-$18.67 $ 12,238,000 ======= ========= ===== ====== ============
9. GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION The Company operates in one industry segment: the design, manufacture, and distribution of transaction printers and mechanisms, impact printheads, bar code printers, and related services and supplies, such as labels and ribbons. Export revenue amounted to $10,234,000, $8,719,000, and $3,896,000, in 1995, 1994, and 1993, respectively, or 10% of total revenue in 1995, 11% of total revenue in 1994, and 7% in 1993. No single customer accounted for 10% or more of total revenue in 1995, 1994, or 1993. Information about the Company's operations by geographic location is shown below:
Revenue from Unaffiliated Operating Identifiable Customers Profits Assets - -------------------------------------------------------------------------------- 1995 United States ............ $77,817,000 $12,157,000 $72,417,000 Europe ................... 11,671,000 2,005,000 6,708,000 Australia ................ 9,367,000 1,036,000 6,160,000 --------- --------- --------- Total .................... $98,855,000 $15,198,000 $85,285,000 =========== =========== =========== 1994 United States ............ $62,631,000 $ 9,691,000 $61,518,000 Europe ................... 10,607,000 1,370,000 6,764,000 Australia ................ 4,680,000 431,000 3,024,000 --------- ------- --------- Total .................... $77,918,000 $11,492,000 $71,306,000 =========== =========== =========== 1993 United States ............ $43,242,000 $ 7,165,000 $48,427,000 Europe ................... 8,892,000 688,000 5,565,000 Australia ................ 4,217,000 503,000 1,983,000 --------- ------- --------- Total .................... $56,351,000 $ 8,356,000 $55,975,000 =========== =========== ===========
10. ACQUISITIONS On February 28, 1994, DH Technology, Inc. acquired all of the outstanding stock of Stadia Colorado Corp. (Stadia) pursuant to a stock purchase agreement for $6.5 million in cash ($5.5 million paid at closing and additional payments of $500,000 each due in 1995 and 1996). This business is being operated as a subsidiary of DH Technology, Inc. under the name Stadia Colorado Corp. Stadia, located in Golden, Colorado, supplies labeling and marking solutions to a variety of customers in 10 western states. On August 31, 1994, DH Technology, Inc. acquired all of the outstanding stock of Cognitive Solutions, Inc. (Cognitive) and certain technology rights pursuant to a stock purchase agreement for $10 million in cash ($7.9 million paid through 1995 and additional payments of $500,000 each due in 1996 through 1999) (Note 6). Also, the Company is required to make additional payments, not to exceed an aggregate of $3 million, to the former shareholder of Cognitive based upon net sales of a specified Cognitive product line. These additional payments, if any, will be recorded as additional goodwill and represent the increased value of Cognitive that was purchased. This business is being operated as a subsidiary of DH Technology, Inc. under the name Cognitive Solutions, Inc. and is located in Paso Robles, California. Cognitive designs, manufactures, and markets thermal bar code printers and complementary label media for use in automatic data collection systems. The Stadia and Cognitive acquisitions were accounted for using the purchase method; accordingly, the assets and liabilities of the acquired companies have been recorded at their estimated fair values at the dates of acquisition. In conjunction with the acquisitions of Stadia and Cognitive, the excess of purchase price over the estimated fair values of the net assets acquired has been recorded as goodwill of $4,062,000 and $5,590,000, respectively, which is being amortized over 25 years using the straight-line method (Note 5). The consolidated statements of income include the operations of Stadia from February 28, 1994, and Cognitive from August 31, 1994. The following unaudited pro forma summary presents the consolidated results of operations as though the Stadia and Cognitive acquisitions had occurred at the beginning of 1993, after giving effect to certain adjustments, including amortization of goodwill. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of January 1, 1993, or of results which may occur in the future.
1994 1993 - -------------------------------------------------------------------------------- Total revenue $86,983,000 $74,220,000 Net income $8,341,000 $6,174,000 ---------- ---------- Net income per share $1.03 $.80 ===== ====
On October 30, 1995, the Company acquired certain assets and liabilities of Mos Magnetics, a privately held company in San Diego, California, for $752,000 in cash. Mos Magnetics designs, manufactures, and markets magnetic read and write heads and modules for credit card and debit card readers, check readers, and airline ticket readers. This acquisition was accounted for using the purchase method. In conjunction with this acquisition, the Company has recorded goodwill of $212,000, which is being amortized over 25 years using the straight-line method 11. EMPLOYEE BENEFIT PLANS In 1989, the Company adopted a contributory profit-sharing plan for employees meeting certain service requirements. The plan qualifies under Section 401(k) of the Internal Revenue Code and allows eligible employees to contribute up to 15% of their compensation. The Company provides a guaranteed contribution of $240 per eligible employee per year, and based on profitability, matches the employee's contribution up to a maximum of six percent of the employee's compensation. The guaranteed payments made by the Company were $119,000, $74,000, and $71,000, and the Company's matching contributions were $96,000, $56,000, and $51,000 during 1995, 1994, and 1993, respectively. Total expenses paid by the Company in 1995, 1994, and 1993 for the administration of the plan were $18,000, $16,000, and $16,000, respectively. employee's compensation. The guaranteed payments made by the Company were $119,000, $74,000, and $71,000, and the Company's matching contributions were $96,000, $56,000, and $51,000 during 1995, 1994, and 1993, respectively. Total expenses paid by the Company in 1995, 1994, and 1993 for the administration of the plan were $18,000, $16,000, and $16,000, respectively.
12. INCOME TAXES Components of income before income taxes are as follows: 1995 1994 1993 - -------------------------------------------------------------------------------- United States ............ $13,004,000 $10,297,000 $ 7,836,000 Foreign .................. 3,149,000 1,839,000 1,212,000 $16,153,000 $12,136,000 $ 9,048,000
The Company's income taxes consist of the following: 1995 1994 1993 - ------------------------------------------------------------------------------- Current income taxes: Federal ................. $ 4,686,000 $ 3,386,000 $ 2,259,000 State ................... 662,000 412,000 243,000 Foreign ................. 1,162,000 709,000 494,000 Deferred income taxes ....................... (658,000) (429,000) (279,000) -------- -------- -------- Total income taxes ....................... $ 5,852,000 $ 4,078,000 $ 2,717,000 =========== =========== ===========
The following table summarizes the difference between the effective income tax rate and the amount computed by applying the U.S. federal income tax rate of 34% in 1995, 1994, and 1993 to income before income taxes: 1995 1994 1993 - -------------------------------------------------------------------------------- U.S. statutory federal income tax rate ......................... 34.2% 34.0% 34.0% State taxes, net of federal tax benefit ..................... 2.7% 2.2% 1.8% Nontaxable dividends and interest income ..................... (1.9%) (2.0%) (2.8%) Nondeductible goodwill amortization ................... 2.2% 1.2% .3% Research and development credits ..................... (1.1%) (1.8%) (2.1%) Difference between U.S. statutory & foreign effective tax rates ..................... .5% .4% .9% Change in valuation allowance ............................... (2.1%) -- -- Other, net .............................. 1.7% (.4%) (2.1%) Effective income tax rate................................. 36.2% 33.6% 30.0%
The tax effects of significant temporary differences which comprise deferred tax assets and liabilities consist of the following: December 31, 1995 1994 - -------------------------------------------------------------------------------- Deferred tax assets: Allowance for doubtful accounts .............. $ 334,000 $ 311,000 Inventory .................................... 943,000 826,000 Self insurance ............................... 222,000 161,000 Accrued warranty ............................. 166,000 131,000 Accrued payroll .............................. 178,000 202,000 Other ........................................ 201,000 175,000 ------- ------- Gross deferred tax assets ............ 2,044,000 1,806,000 Deferred tax assets valuation allowance ....................... (300,000) (641,000) -------- -------- 1,744,000 1,165,000 Deferred tax liabilities: Depreciation and amortization ................ 149,000 183,000 Other ........................................ -- 45,000 ------- ------ Gross deferred tax liabilities ....... 149,000 228,000 ------- ------- Net deferred tax asset ....................... $ 1,595,000 $ 937,000 =========== =========== Reflected on the accompanying consolidated balance sheets as: Current deferred tax asset, net .............. $ 1,744,000 $ 1,165,000 Noncurrent deferred tax liability ............ 149,000 228,000 ------- ------- Net deferred tax asset ....................... $ 1,595,000 $ 937,000 =========== ===========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers among other things, the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and positions taken by taxing authorities on various issues related to the deductibility of certain costs in making this assessment. The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets which may not be realized as the result of unfavorable positions taken by taxing authorities in connection with the deductibility of certain acquisition related costs. The net change in the valuation allowance was a decrease of $341,000 during 1995, and reflects Management's re-evaluation of the likelihood of unfavorable positions taken by these taxing authorities, and the related impact on the deferred tax assets. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of DH Technology, Inc.: We have audited the accompanying consolidated balance sheets of DH Technology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DH Technology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. San Diego, California February 16, 1996 CORPORATE INFORMATION TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 LEGAL COUNSEL Wilson, Sonsini, Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 ACCOUNTANTS KPMG Peat Marwick LLP 750 B Street, Suite 3000 San Diego, California 92101 CORPORATE HEADQUARTERS DH Technology, Inc. 15070 Avenue of Science San Diego, California 92128 Telephone: 619-451-3485 Fax: 619-451-3573 FORM 10-K The Company files an annual report with the Securities and Exchange Commission on form 10-K, pursuant to the Securities Exchange Act of 1934. Shareholders may obtain a copy of this report without cost by writing: Chief Financial Officer DH Technology, Inc. 15070 Avenue of Science San Diego, California 92128 ANNUAL MEETING The meeting of shareholders will be held at 10:00 a.m. on Tuesday, April 30, 1996, at the Sheraton Hotel West Tower on Harbor Island, San Diego, California. DIRECTORS William H. Gibbs Chairman of the Board William J. Bowers Retired Chairman, MSI Data Corporation Bruce G. Klaas Attorney at Law Don M. Lyle Independent Consultant George M. Ryan Investor EXECUTIVE MANAGEMENT William H. Gibbs President and Chief Executive Officer William R. Allred Acting General Manager DHPrint Steven D. Anton Vice President and General Manager Stadia James A. Cole Chief Financial Officer and Secretary David T. Ledwell Vice President and General Manager DHTech Janet W. Shanks Corporate Controller and Chief Accounting Officer Richard L. Strautman Vice President, Marketing Endre D. Vargha Vice President and General Manager Cognitive Solutions Russell C. Willcox Managing Director DH Technology plc LOCATIONS UNITED STATES Albuquerque, NM Atlanta, GA Charlotte, NC Chicago, IL Dallas, TX Dayton, OH Denver, CO Oklahoma City, OK Paso Robles, CA Phoenix, AZ Riverton, WY Salt Lake City, UT San Diego, CA MEXICO Tijuana ENGLAND Manchester AUSTRALIA Hornsby, NSW
COMMON STOCK INFORMATION The Company's common stock is traded on the NASDAQ National Market System, trading symbol DHTK. As of December 31, 1995, there were 479 shareholders of record of DH Technology, Inc. common stock. The Company has never paid dividends on its common stock nor does it expect to pay dividends in the foreseeable future. The following table sets forth the high and low closing price of the Company's stock for the eight most recent quarters - -------------------------------------------------------------------------------- Years ended December 31, 1995 December 31, 1994 High Low High Low - -------------------------------------------------------------------------------- First Quarter .............. $ 16.17$ 13.83 $ 12.33 $ 11.00 Second Quarter ............. 19.41 13.83 14.50 11.33 Third Quarter .............. 22.17 17.33 15.33 13.00 Fourth Quarter ............. 24.75 19.00 17.33 14.33
QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Amounts in thousands, except per share amounts) Quarters ended 1995 March 31 June 30 Sept 30 Dec 31 - -------------------------------------------------------------------------------- Total revenue .......................... $23,255 $24,317 $25,278 $26,005 Income from operations ................. 8,495 8,786 8,840 9,467 Income before income taxes.............. 3,651 3,841 4,116 4,545 Net income ............................. 2,365 2,497 2,656 2,783 Net income per share ................... $ .29 $ .30 $ .32 $ .33
Quarters ended 1994 March 31 June 30 Sept 30 Dec 31 - -------------------------------------------------------------------------------- Total revenue .......................... $15,650 $19,280 $20,342 $22,646 Income from operations ................. 5,948 7,118 7,612 8,268 Income before income taxes.............. 2,584 3,023 3,115 3,414 Net income ............................. 1,806 1,989 2,090 2,173 Net income per share ................... $ .22 $ .25 $ .26 $ .27
EX-21 4 LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES DH Technology, Inc. presently has the following subsidiaries: DH Technology plc., a United Kingdom corporation, of which DH Technology, Inc. owns all of the outstanding stock. DH Tecnologia de Mexico, S.A. de C.V., a Mexican corporation, of which DH Technology, Inc. owns all of the outstanding stock. DH Technology pty., an Australian corporation, of which DH Technology, Inc. owns all of the outstanding stock. Stadia Colorado Corp., a Colorado corporation, of which DH Technology, Inc. owns all of the outstanding stock. Cognitive Solutions, Inc., a California corporation, of which DH Technology, Inc. owns all of the outstanding stock. EX-23 5 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 Independent Auditors' Consent and Report on Schedule To the Board of Directors and Shareholders of DH Technology, Inc.: The audits referred to in our report dated February 16, 1996, included the related financial statement schedule as of December 31, 1995, and for each of the years in the three-year period ended December 31, 1995, included in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, this financial statement schedule, when considered in relation to the financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-5110; 33-29911; 33-50532; 33-75798) of DH Technology, Inc. and subsidiaries, of our report dated February 16, 1996, relating to the consolidated balance sheets of DH Technology, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10K of DH Technology, Inc. We also consent to the use of our report on the schedule included herein. San Diego, California March 27, 1996 /s/KPMG Peat Marwick LLP/ (KPMG Peat Marwick LLP) EX-3.(I) 6 CERT OF AMENDMENT OF RESTATED ARTICLES OF A EXHIBIT 3.1(b) CERTIFICATE OF AMENDMENT OF RESTATED ARTICLES OF INCORPORATION OF DH TECHNOLOGY, INC. WILLIAM H. GIBBS and JANET W. SHANKS certify that: 1. They are the President and Chief Executive Officer, and the Secretary, respectively, of DH TECHNOLOGY, INC. a California corporation. 2. Article III of the Restated Articles of Incorporation of this corporation is amended to read in its entirety as follows III (a)(i) This corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock." The total number of shares which this corporation shall have authority to issue is Twenty-Nine Million Five Hundred Thousand (29,500,000), of which Twenty-Eight Million Five Hundred Thousand (28,500,000) shall be Common Stock and One Million (1,000,000) shall be Preferred Stock. Upon the amendment of this Article III as set forth herein, each outstanding share of Common Stock shall be split up and converted into one and one-half (1.5) shares of Common Stock. (ii) The Preferred Stock authorized by these Articles of Incorporation shall be issued in series. The Board of Directors of this corporation is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolutions of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of any series. 3. The foregoing amendment of the Restated Articles of Incorporation has been duly approved by the Board of Directors. 4. The amendment which has been made hereby to the Restated Articles of Incorporation is to effect a one and one-half-for-one stOck split of the Common Stock and to increase the authorized Common Stock proportionately. Pursuant to Section 902(c) of the California Corporations Code, shareholder approval of this amendment is not required. 5. Pursuant to Section 110(c) of the California Corporations Code, the foregoing amendment of the Restated Articles of Incorporation of this corporation shall become effective at the close of business of September 22, 1995. 6. Each of the undersigned declare under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing certificate are true of his or her own knowledge. Executed at San Diego, California on September 19, 1995. /s/William H. Gibbs/ (William H Gibbs), President and Chief Executive Officer /s/Janet W. Shanks/ (Janet W. Shanks), Secretary EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 28,971 2,750 16,852 (1,067) 14,382 64,205 18,085 (11,795) 85,285 15,541 2,115 0 0 12,335 55,145 85,285 98,855 98,855 63,267 63,267 20,390 75 276 16,153 5,852 10,301 0 0 0 10,301 1.24 1.24
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