0000936392-95-000086.txt : 19950815 0000936392-95-000086.hdr.sgml : 19950815 ACCESSION NUMBER: 0000936392-95-000086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13459 FILM NUMBER: 95563126 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-Q 1 DH TECHNOLOGY, INC. -- FORM 10-Q ENDING 6/30/95 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO _________ COMMISSION FILE NUMBER: 0-13459 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, CALIFORNIA 92128 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 451-3485 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES XXX NO ----- ----- AS OF JUNE 30, 1995, THERE WERE 5,200,945 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING. 2 DH TECHNOLOGY, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE NO. CONDENSED CONSOLIDATED BALANCE SHEETS 1 JUNE 30, 1995, AND DECEMBER 31, 1994 CONDENSED CONSOLIDATED STATEMENTS OF INCOME 2 THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995, AND JUNE 30, 1994 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 3 SIX MONTHS ENDED JUNE 30, 1995, AND JUNE 30, 1994 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF 5 FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 EXHIBITS INDEX 12
3 PART 1 - FINANCIAL INFORMATION DH TECHNOLOGY, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
JUNE 30, DECEMBER 31, 1995 1994 ------- ------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $26,390 $19,587 Short-term investment securities held to maturity $ 2,500 $4,300 Accounts receivable, net 12,981 12,435 Inventories 12,124 11,386 Prepaid expenses and other current assets 1,739 1,721 ------- ------- Total current assets 55,734 49,429 ------- ------- Fixed assets 17,377 16,779 Less accumulated depreciation and amortization 10,828 10,008 ------- ------- 6,549 6,771 Intangibles 13,841 14,549 Other assets 715 557 ------- ------- Total assets $76,839 $71,306 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,229 $ 4,557 Current portion of long-term debt 1,130 1,363 Accrued payroll 2,221 2,148 Accrued expenses 2,385 1,928 Income taxes payable 1,537 1,356 Deferred revenue 698 886 ------- ------- Total current liabilities 13,200 12,238 ------- ------- Non-current portion of long-term debt 2,436 2,992 Deferred tax liability 228 228 ------- ------- Total liabilities 15,864 15,458 ------- ------- Shareholders' equity: Preferred shares, no par value Authorized: 1,000,000 shares, none issued -- -- Common shares: Common stock, authorized: 19,000,000 shares; issued and outstanding: 5,200,945 shares in 1995 and 5,154,107 shares in 1994 11,347 10,740 Foreign currency translation adjustment (597) (255) Retained earnings 50,225 45,363 ------- ------- Total shareholders' equity 60,975 55,848 ------- ------- Total liabilities and shareholders' equity $76,839 $71,306 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 1 4 DH TECHNOLOGY, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (June 30, 1995 and 1994) (In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 (Unaudited) (Unaudited) -------------------- ------------------- 1995 1994 1995 1994 ------- ------- ------- ------- Net sales $24,317 $19,280 $47,572 $34,930 Cost of net sales 15,531 12,162 30,291 21,864 ------- ------- ------- ------- Gross margin 8,786 7,118 17,281 13,066 Operating expenses: Selling, general and administrative 4,037 3,119 7,971 5,596 Research and development 1,132 1,164 2,244 2,234 ------- ------- ------- ------- Total operating expenses 5,169 4,283 10,215 7,830 Income from operations 3,617 2,835 7,066 5,236 Interest income 283 209 559 412 Interest expense 59 21 133 41 ------- ------- ------- ------- Income before income taxes 3,841 3,023 7,492 5,607 Income taxes 1,344 1,034 2,630 1,812 ------- ------- ------- ------- Net income $2,497 $1,989 $4,862 $3,795 ======= ======= ======= ======= Net income per share $.45 $.37 $.89 $.71 ======= ======= ======= ======= Weighted average number of shares outstanding Per share (primary and fully diluted): 5,510 5,375 5,486 5,350
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 2 5 DH TECHNOLOGY, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands)
SIX MONTHS ENDED JUNE 30 (Unaudited) --------------------- 1995 1994 ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM: Operating activities: Net income $ 4,862 $ 3,795 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 1,824 1,088 Provision for loss on accounts receivable 37 76 Undepreciated value of asset disposals 27 4 Changes in assets and liabilities excluding effect of acquisitions (147) (2,740) ------- ------- Net cash provided by operating activities 6,603 2,223 Investing activities: Net decrease in short-term investment securities held to maturity $ 1,800 3,220 Payment for acquisition, net of cash acquired $0 (5,188) Capital expenditures (1,066) (1,693) Proceeds from sale of fixed assets $0 26 ------- ------- Net cash provided by (used in) investing activities 734 (3,635) Financing activities: Principal repayments on long-term debt (788) (529) Exercise of stock options 607 378 ------- ------- Net cash used in financing activities (181) (151) Effect of exchange rate changes on cash (353) 218 Net increase (decrease) in cash and cash equivalents 6,803 (1,345) Cash and cash equivalents at beginning of period 19,587 23,161 ------- ------- Cash and cash equivalents at end of period $26,390 $21,816 ======= ======= Interest paid on debt $34 $41 Income taxes paid $1,946 $1,430 Supplementary disclosure of noncash investing activity: Fair market value of assets acquired -- $6,374 Cash paid -- $5,457 ------- ------- Long-term debt incurred -- $917 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements Page 3 6 DH TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (JUNE 30, 1995 - UNAUDITED) NOTE 1: BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared in accordance with S.E.C. requirements for interim financial statements. Therefore, they do not include all disclosures that would be presented in the Company's Annual Report on Form 10-K. The financial statements should be read in conjunction with the financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. The information furnished reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations, and changes in cash position for the interim period. The results of operations for the periods presented are not necessarily indicative of results to be expected for the full year. NOTE 2: INVENTORIES The composition of inventories at June 30, 1995, and December 31, 1994, were as follows:
1995 1994 ---- ---- Raw Materials $ 6,409,000 $ 5,712,000 Work in Process 1,622,000 1,528,000 Finished Goods 4,093,000 4,146,000 --------- ----------- Totals $12,124,000 $11,386,000 =========== ===========
NOTE 3: OPERATIONS SUBJECT TO PURCHASE AND SALE AGREEMENTS 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, $500,000 paid on March 1, 1995, and an additional payment of $500,000 on March 1, 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 ten 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 ($7.2 million paid at closing, $248,000 paid 70 days after close, and additional payments of $500,000 each due in 1995 through 1999). Also, the Company is required to make additional payments, not to exceed an aggregate of $3 million, to the former shareholder of Cognitive based upon post acquisition net sales of a specified Cognitive product line. At the end of each calendar year, the company will calculate the amount of the additional payment as defined in the stock purchase agreement. Each payment will be treated as additional acquisition cost, and will be recorded as additional goodwill, PAGE 4 7 amortized straight-line over the remaining life of the asset. 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. The consolidated statements of income include the operations of Stadia from February 28, 1994, and Cognitive from August 31, 1994. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with DH Technology, Inc.'s condensed consolidated financial statements and the notes related thereto included herein. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1995, COMPARED TO THREE MONTHS ENDED JUNE 30, 1994 Net sales of $24.3 million for the quarter ended June 30, 1995, increased 26.1% over net sales of $19.3 million for the same period last year. This increase was primarily attributable to the inclusion of Cognitive's results for the 1995 quarter and increased unit shipments of specialty printers and printer components, including printheads. Cost of net sales increased to 63.9% of net sales for the second quarter of 1995 compared to 63.1% of net sales for the second quarter of 1994. This increase was primarily due to changes in the product mix toward printer components with higher material content as well as the inclusion of results for Cognitive for the entire current quarter. Cognitive's product lines have slightly lower margins than the historical average for the Company. Selling, general, and administrative expenses increased to 16.6% of net sales in the second quarter of 1995 compared to 16.2% in the same period in 1994. These expenses increased in absolute dollars to $4.0 million in the second quarter of 1995 from $3.1 million in the second quarter of 1994. This increase was primarily attributable to the inclusion of results for Cognitive for the second quarter of 1995. Research and development expenses decreased to 4.7% of net sales in the second quarter of 1995 compared to 6.0% in the same period last year due to consolidated PAGE 5 8 revenues increasing at a faster rate than consolidated research and development expenses. Total dollars expended for research and development of $1.1 million in the second quarter of 1995 were virtually unchanged compared to the same period last year. The Company believes that the continued timely development of new products and enhancements to its existing products are essential to maintaining the Company's competitive position. Accordingly, the Company anticipates that such expenses will increase in absolute dollars. Income from operations as a percentage of net sales was virtually unchanged at 14.8% for the quarter ended June 30, 1995, compared to 14.7% for the same period in 1994. Interest income increased to $283,000 in the second quarter of 1995 compared to $209,000 in the second quarter of 1994 as a result of higher cash balances and higher interest rates in the second quarter of 1995. Interest expense increased to $59,000 for the quarter ended June 30, 1995, from $21,000 for the same period in 1994 due to interest expense associated with debt incurred as a result of the Cognitive acquisition. Income taxes as a percentage of income before income taxes increased to 35% for the second quarter of 1995 from 34.2% for the same 1994 period, primarily due to nondeductible goodwill amortization resulting from the Cognitive acquisition. The Company's results of operations may be affected in the future by a variety of factors including, but not limited to changes in product mix, competitive pressures on prices, fluctuations in manufacturing yields, product cost increases, acquisitions of new businesses with different cost and expense structures, the timing of product introductions and market demand for new products, operating expenses, and the cancellation or rescheduling of orders by the Company's customers. In addition, the Company's results could be affected by general economic conditions and technology changes in the markets in which it competes. SIX MONTHS ENDED JUNE 30, 1995, COMPARED TO SIX MONTHS ENDED JUNE 30, 1994 Net sales of $47.6 million for the six-month period ended June 30, 1995, increased 36.2% over net sales of $34.9 million for the same period last year. This increase was primarily attributable to the inclusion of Cognitive's results for the 1995 period, a full six month's results in 1995 for Stadia, and increased shipments of the Company's products. Cost of net sales increased to 63.7% of net sales for the first six months of 1995 compared to 62.6% of net sales for the same period in 1994. This increase was primarily due to changes in the product mix toward printer components with higher material content as well as the inclusion of results for Cognitive for the entire first half. Cognitive's product lines have slightly lower margins than the historical average for the Company. PAGE 6 9 Selling, general, and administrative expenses increased to 16.8% of net sales for the six-month period ended June 30, 1995, compared to 16% in the same period in 1994. These expenses increased in absolute dollars to $8 million in the first half of 1995 from $5.6 million in the first half of 1994. This increase was primarily attributable to the inclusion of results for Cognitive for the 1995 period. Research and development expenses decreased to 4.7% of net sales in the first half of 1995 compared to 6.4% in the same period last year due to consolidated revenues increasing at a faster rate than consolidated research and development expenses. Total dollars expended for research and development of $2.2 million in the first half of 1995 were virtually unchanged compared to the same period last year. The Company believes that the continued timely development of new products and enhancements to its existing products are essential to maintaining the Company's competitive position. Accordingly, the Company anticipates that such expenses will increase in absolute dollars. Income from operations as a percentage of net sales remained relatively unchanged at 14.9% in the first half of both 1994 and 1995. Interest income increased to $559,000 in the first six months of 1995 compared to $412,000 in the same period in 1994 as a result of higher cash balances and higher interest rates during 1995. Interest expense increased to $133,000 for the six months ended June 30, 1995, from $41,000 for the same period in 1994 due to interest expense associated with debt incurred as a result of the Stadia and Cognitive acquisitions. Income taxes as a percentage of income before income taxes increased to 35.1% for the first half of 1995 from 32.3% for the same 1994 period. This is due in part to nondeductible goodwill amortization resulting from the Stadia and Cognitive acquisitions. Additionally, taxable income is expected to reach the 35% tax bracket in 1995. The Company's results of operations may be affected in the future by a variety of factors including changes in product mix, competitive pressures on prices, fluctuations in manufacturing yields, product cost increases, acquisitions of new businesses with different cost and expense structures, the timing of product introductions and market demand for new products, operating expenses, and the cancellation or rescheduling of orders by the Company's customers. In addition, the Company's results could be affected by general economic conditions and technology changes in the markets in which it competes. PAGE 7 10 FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES The Company's primary source of liquidity has been cash flow generated from operations. Cash, cash equivalents, and short-term investment securities held to maturity totaled approximately $28.9 million on June 30, 1995, compared to $23.9 million on December 31, 1994. OPERATING ACTIVITIES For the six-month period ended June 30, 1995, the Company generated approximately $6.6 million in net cash from operating activities primarily as a result of approximately $4.8 million in net income and $1.8 million in depreciation and amortization, offset by an increase in net operating assets and liabilities of $147,000. Since December 31, 1994, accounts receivable increased $546,000 due primarily to increased unit shipments. INVESTING ACTIVITIES Excluding short-term investment securities held to maturity, the Company's principal investing activities to date have been the purchase of property and equipment for product development and production. As of June 30, 1995, the Company had no material commitments for capital expenditures; however, the Company will continue to invest in property and equipment as needed. Additionally, on February 28, 1994, the Company acquired Stadia Colorado Corp. in exchange for $6.5 million cash ($5.5 million paid at closing, $500,000 paid on March 1, 1995, and an additional payment of $500,000 due in 1996). Likewise, on August 31, 1994, the Company acquired 100% of the outstanding stock of Cognitive and certain technology rights in exchange for $10 million in cash ($7.2 million paid at closing, $248,000 paid 70 days after close, and additional payments of $500,000 each due in 1995 through 1999). Also, the Company is required to make additional payments, not to exceed an aggregate of $3 million, to the former shareholder of Cognitive based upon post acquisition net sales of a specified Cognitive product line. (See Note 3 of notes to condensed consolidated financial statements included herein). 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. FINANCING ACTIVITIES The Company's major financing activities to date have been the principal repayments on long-term debt. As of June 30, 1995, the Company had $3.5 million in debt outstanding of which the current portion was approximately $1.1 million. This long-term debt includes approximately $500,000 payable to the former owners of Stadia in one installment due in 1996 and $2.5 million payable to the former owner of Cognitive in annual installments of $500,000 each due in 1995 through 1999. Long-term debt PAGE 8 11 decreased approximately $789,000 due primarily to principal repayments on long-term debt associated with the Stadia acquisition. The Company expects that current cash balances and cash generated internally will adequately fund the Company's anticipated cash needs in 1995. In addition, on August 15, 1994, the Company entered into a $6.5 million line of credit agreement which 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 June 30, 1995 no draws had been made against this line of credit. PAGE 9 12 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 11 Computation of Net Income Per Share. Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K No report on Form 8-K was filed during the quarter ended June 30, 1995. PAGE 10 13 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. AUGUST 14, 1995 /S/ JANET W. SHANKS --------------- ------------------------------------- DATE JANET W. SHANKS, CORPORATE CONTROLLER (ACTING CHIEF FINANCIAL OFFICER) PAGE 11 14 DH TECHNOLOGY, INC. EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995
SEQUENTIALLY EXHIBIT DESCRIPTION NUMBERED PAGE ------- ----------- ------------- 11 COMPUTATION OF NET INCOME PER SHARE 13 27 FINANCIAL DATA SCHEDULE 14
PAGE 12 EX-11 2 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 DH TECHNOLOGY, INC. AND SUBSIDIARIES Computation of Net Income Per Share (In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- ------------------- 1995 1994 1995 1994 ------ ------ ------ ------ Primary and fully diluted:* Average shares outstanding 5,187 5,131 5,174 5,127 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price 323 244 312 223 ------ ------ ------ ------ Average common and common equivalent shares outstanding 5,510 5,375 5,486 5,350 Net income $2,497 $1,989 $4,862 $3,795 Per share (primary and fully diluted) Net income per share $.45 $.37 $.89 $.71 ====== ====== ====== ======
* There is no significant difference between primary and fully diluted earnings per share. Page 13 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1995 JUN-30-1995 26,390 2,500 14,045 (1,064) 12,124 55,734 17,377 (10,828) 76,839 13,200 2,436 11,347 0 0 49,628 76,839 47,572 47,572 30,291 30,291 10,215 26 133 7,492 2,630 4,862 0 0 0 4,862 0.89 0.89