CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended December 31
1995 1994 1993
Net sales (note 8) $62,291 63,142 45,653
Cost of sales 35,163 31,323 22,122
Gross profit 27,128 31,819 23,531
Selling, general and adminis-
trative expenses (note 2) 20,993 19,368 16,171
Product development and
engineering expenses 6,746 6,039 6,800
Operating income (loss) (611) 6,412 560
Interest and other income 661 423 149
Interest expense (note 2) (406) (197) (210)
Earnings (loss) before
income taxes (356) 6,638 499
Income taxes (note 6) (191) 2,516 163
Net earnings (loss) $ (165) 4,122 336
Net earnings (loss) per common
and common equivalent share $ (.03) .71 .06
(note 5)
Weighted average number of
common and common equivalent
shares (note 5) 5,532 5,766 5,721
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
1995 1994
ASSETS
Current assets:
Cash, including interest-bearing
deposits of $311 in 1995 and $787
in 1994 $ 1,881 1,537
Reverse repurchase agreements - 6,400
Total cash and cash equivalents 1,881 7,937
Trade accounts receivable, net of
allowance for doubtful accounts
of $500 in 1995 and $625 in 1994 16,237 16,222
Inventories:
Work in process 3,623 3,334
Parts and materials 8,906 6,145
Total inventories 12,529 9,479
Prepaid income taxes 1,027 -
Deferred income tax benefit (note 6) 869 778
Total current assets 32,543 34,416
Property, plant and equipment (note 3):
Land 250 250
Building and leasehold improvements 5,371 4,872
Machinery and equipment 17,213 13,919
Furniture and fixtures 1,238 1,051
24,072 20,092
Less accumulated depreciation
and amortization 11,949 9,376
Net property, plant and equipment 12,123 10,716
Other assets (note 4) 4,815 609
$ 49,481 45,741
See accompanying notes to consolidated financial statements.
December 31
1995 1994
(In thousands,except share data)
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term
debt (note 3) $ 275 244
Current installments of long-term
debt to Parent (notes 2 and 3) 275 275
Accounts payable 4,431 5,552
Income taxes - 1,186
Accrued compensation costs 994 1,452
Deferred revenue 1,296 1,147
Other current liabilities 220 593
Due to Parent (note 2) 240 355
Total current liabilities 7,731 10,804
Long-term debt, excluding current
installments (note 3) 6,925 350
Long-term debt to Parent, excluding
current installments (notes 2 and 3) 1,397 1,672
Deferred income taxes (note 6) 817 617
Total liabilities 16,870 13,443
Stockholders' equity (note 5):
Preferred stock of $1.00 par value
per share. Authorized 5,000,000
shares; none issued or outstanding - -
Common stock of $0.01 par value per
share. Authorized 20,000,000 shares;
issued and outstanding 5,555,000 in
1995 and 5,436,000 in 1994 56 54
Additional paid-in capital 18,949 18,473
Retained earnings 13,606 13,771
Total stockholders' equity 32,611 32,298
Commitments (note 9)
$ 49,481 45,741
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1995 1994 1993
(In thousands)
Cash from operating activities:
Net earnings (loss) $ (165) 4,122 336
Adjustments to reconcile net
earnings to net cash from
operating activities:
Depreciation and amortization 2,747 2,468 2,121
Provision for doubtful accounts (125) 325 100
Deferred income taxes 109 (96) (363)
Changes in operating assets and
liabilities:
Trade accounts receivable 110 (4,461) (2,609)
Inventories (3,050) 997 (1,550)
Accounts payable (1,121) 2,087 571
Income taxes (2,213) 913 (277)
Accrued compensation costs (458) 587 (114)
Deferred revenue 149 127 293
Due to Parent and other (301) 376 303
Net cash provided by
(used in) operating
activities (4,318) 7,445 (1,189)
Cash flows from investing
activities:
Purchase of property, plant and
equipment (4,259) (2,622) (2,343)
Proceeds from maturities of
marketable securities - 800 1,210
Investment in non-public U.S.
company (2,500) - -
Capitalized product software (1,167) - -
Net cash used in
investing activities (7,926) (1,822) (1,133)
Cash flows from financing actities:
Payments on long-term debt to
Parent (275) (275) (275)
Payments on long-term debt (244) (217) (192)
Borrowings under long-term debt
agreement 6,850 - -
Proceeds from exercise of
stock options 237 109 -
Withholding taxes paid on stock
options (380) - -
Net cash provided by
(used in) financing
activities 6,188 (383) (467)
Net change in cash and
cash equivalents (6,056) 5,240 (2,789)
Cash and cash equivalents at
January 1 7,937 2,697 5,486
Cash and cash equivalents at
December 31 $ 1,881 7,937 2,697
Supplemental disclosure of
cash flow information:
Cash paid for income taxes $ 1,476 1,349 953
Cash paid for interest $ 372 197 210
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended December 31, 1995
(In thousands)
Additional Total
Common stock paid-in Retained stockholders'
Shares Amount capital earnings equity
Balance, December 31,
1992 5,351 $ 54 $17,897 $ 9,313 $27,264
Net earnings - - - 336 336
Grant of restricted
stock 8 - 113 - 113
Balance, December 31,
1993 5,359 54 18,010 9,649 27,713
Net earnings - - - 4,122 4,122
Exercise of common
stock options 96 - 362 - 362
Income tax benefit
from exercise of
non-qualified
stock options (note
6) - - 354 - 354
Redemption of shares
upon exercise of
common stock options (19) - (253) - (253)
Balance, December 31,
1994 5,436 54 18,473 13,771 32,298
Net loss - - - (165) (165)
Exercise of common
stock options 172 2 235 - 237
Income tax benefit
from exercise of
non-qualified stock
options (note 6) - - 621 - -
Redemption of shares
upon exercise of
common stock option (53) - (380) - (380)
Balance, December 31,
1995 5,555 $ 56 $18,949 $13,606 $32,611
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of LXE
Inc. and its wholly-owned subsidiaries, LXE GmbH, LXE Belgium
N.V., LXE Netherlands B.V., LXE Sweden A.B., and LXE France
S.A.R.L., (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
LXE Inc. was organized in Georgia effective January 1, 1989 as a
wholly-owned subsidiary of Electromagnetic Sciences, Inc. (the
"Parent"), at which time the Company's initial capitalization was
established. The Company completed its initial public offering
in April 1991. As a result of this offering and stock options
subsequently exercised by employees, the Parent's ownership
interest in the Company decreased from 100% to 72% as of December
31, 1995.
The Company is engaged in the design, development, manufacture,
sale, and support of wireless data communications products.
Following is a summary of the significant accounting policies
followed by the Company:
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principals requires management to
make estimates and assumptions that affect the amounts of assets,
liabilities, revenues and expenses reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Revenues under most contracts are recognized when units are
delivered or services are performed and represent amounts earned
and billed under the terms of the contracts. Revenues collected
in advance under certain service contracts are initially deferred
and later recognized over the term of the contract. A provision
for doubtful accounts is made for revenues estimated to be
uncollectible and is adjusted periodically based upon the
Company's evaluation of the economy, the industry and collection
experience.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out)
or market (net realizable value). Work in process consists of
raw material and production costs, including indirect
manufacturing costs. Provisions for obsolescence and variances
from standard costs are made in the period in which such amounts
are determined.
CASH EQUIVALENTS
Cash equivalents at December 31, 1995 and 1994 consist of reverse
repurchase agreements with a bank, with U. S. government
securities as the underlying assets, and short term interest-bearing deposits.
For the consolidated statements of cash flows,
the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
PRODUCT WARRANTY
The Company's products typically have a 180-day warranty.
Management maintains an accrual for warranty claims and adjusts
this accrual periodically based on historical experience and
known warranty claims.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation
is provided on the straight-line method over the following
estimated useful lives of the assets:
Buildings 25 years
Machinery and equipment 3 to 8 years
Furniture and fixtures 10 years
Leasehold improvements are amortized over the shorter of their
estimated useful lives or the terms of the respective leases.
The Company has adopted Statement of Financial Accounting
Standard No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of," which
was issued in March 1995. The adoption of SFAS 121 did not
result in any adjustments to the carrying value of property,
plant and equipment or other long-lived assets.
INCOME TAXES
The Company provides for income taxes using the asset and
liability method. 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.
EARNINGS PER SHARE
Earnings per common and common equivalent share are based on the
weighted average number of shares of common stock outstanding and
the equivalent shares derived from dilutive stock options (except
in loss periods.) Fully diluted earnings per share are not
significantly different from the primary earnings per share
presented.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries are
remeasured into U.S. dollars at current exchange rates. Income
and expenses of the foreign subsidiaries are remeasured into U.S.
dollars at the approximate average exchange rates which prevailed
during the year presented. The Company does not engage in any
foreign currency speculation. The effects of remeasuring foreign
currency financial statements are accumulated and reported in the
consolidated statement of operations. Foreign currency
transactions and remeasurement resulted in a net gain of $550,000
in 1995 and $237,000 in 1994 but had no material effect in 1993.
RELATED PARTY TRANSACTIONS
The Parent charges the Company for directly providing a variety
of administrative services, including accounting, personnel,
facilities operation and maintenance, data processing, copying
and employee relations services, and for a portion of expenses
related to employees of the Parent who provide senior management
services to the Company. The charges for these services
represent a portion of actual direct and overhead expenses
incurred by the Parent, and are allocated to the Company based on
estimated relative time commitments of managerial personnel,
relative net sales and relative numbers of employees. Management
believes that these allocation methods are reasonable for the
relevant costs. Charges from the Parent are reported in cost of
sales, product development and engineering expenses or selling,
general and administrative expenses, depending on the nature of
each charge.
The Company's employees participate in the Parent's defined
contribution pension plan. The contribution for all eligible
employees under this plan is determined each year by the Parent's
board of directors; although a minimum annual contribution is not
required, the contribution target has been 5% of base payroll.
Contributions to the plan are allocated to employees based upon
an age-weighted formula that results in an equivalent benefit at
age 65. The Parent allocates defined contribution expense to the
Company based on actual cost. The Company also participates in
the Parent's group health insurance plan, for which the Parent
allocates expense based on the number of employees.
NOTE 2 - RELATED PARTY TRANSACTIONS
Following is a summary of transactions with the Parent (in
thousands):
1995 1994 1993
Due to Parent and long-term debt
to Parent, beginning balance $ 2,302 2,381 2,773
Charges from Parent:
Administrative and related
services 1,724 1,739 1,579
Retirement plan 588 535 411
Group health plan 1,346 1,319 1,199
Interest 177 132 141
Short-term advances from Parent 1,000 - -
Payments to Parent (4,950) (3,529) (3,447)
Net change in due to Parent (115) 196 (117)
Repayment of long-term debt to
Parent (275) (275) (275)
Due to Parent and long-term debt
to Parent, ending balance $ 1,912 2,302 2,381
NOTE 3 - LONG-TERM DEBT AND LONG-TERM DEBT TO PARENT
Following is a summary of long-term debt and long-term debt to
Parent (in thousands):
December 31
1995 1994
Industrial development revenue bond secured
by land, building and equipment, due in
varying monthly installments until March
1997, including interest at 79% of the
prime rate not to exceed 13.5% and not less
than 7% (7% at the end of 1995 and 1994) $ 350 594
Revolving credit loan, unsecured, maturing
in December 1998, interest payable quarterly
at a variable rate (7.67% at the end of
1995) 6,850 -
Junior mortgage debt to Parent secured by
land, building and eqipment, due in monthly
installments of $23 through December
2001, plus interest at the prime rate
(8.75% at the end of 1995 and 8.5% at the
end of 1994) 1,672 1,947
Total long-term debt and long-term
debt to Parent 8,872 2,541
Less current installments 550 519
Long-term debt and long-term debt
to Parent, exluding current
installments $ 8,322 2,022
The approximate prinicpal maturities of long-term debt and long-term
debt to Parent for each of the next five years are $550,000
in 1996, $349,000 in 1997, $7,125,000 in 1998, $275,000 in 1999
and $275,000 in 2000.
In December 1995, the Company entered into a $10 million
revolving credit agreement with a bank that extends through
December 1998. Under the terms of the credit agreement, LXE must
maintain certain ratios related to interest coverage and
leverage, and maintain net worth of at least $25 million, among
other restrictions. Interest is, at the Company's option, a
function of either the bank's prime rate or LIBOR. Additionally,
a commitment fee equal to .20% per annum of the daily average
unused credit available is payable quarterly in arrears. At
December 31, 1995 the Company has $3.1 million of available
credit under the revolving credit loan
NOTE 4 - OTHER ASSETS
Following is a summary of other assets (in thousands):
1995 1994
Investment in non-public U.S. company $ 2,500 -
Capitalized software costs 1,167 -
Other 1,148 609
Total other assets $ 4,815 609
The Company made an investment in a non-public U.S. company
with complementary technologies; the investment comprised a
minority ownership interest and a loan repayable in three years.
This investment is valued at cost.
The Company also capitalized $1,167,000 of certain costs incurred
in 1995 to develop software which will be licensed to customers.
Capitalized software costs will be amortized using the greater of
the ratio of current gross revenues for the product to the total
of current and anticipated future gross revenues or the straight-
line method over three years.
NOTE 5 - STOCK INCENTIVE PLAN
The Company established a stock incentive plan in 1989 with
1,000,000 shares available for grant of restricted shares or
options to employees and directors. The exercise prices of the
options granted under this plan prior to the
Company's initial public offering in 1991 were established at
what the board of directors determined to be the fair market
values of the Company's common stock at the dates of grant.
Subsequent to the public offering, the exercise price of the
options granted under this plan has been at 100% of fair market
value on the grant date, as determined by the closing price of
the Company's stock in the over-the-counter market. These
options become exercisable at various dates through 2000, with
318,000 exercisable at December 31, 1995. Certain options are
subject to possible acceleration to earlier dates based on
achievement of criteria that are expected to be specified in the
future. All outstanding options expire not later than 2004.
Following is a summary of activity in the Company's stock option
plan for the years ended December 31, 1995 and 1994 (in
thousands, except price per share data):
Option
Price Total
Per Option
Shares Share Price
Options outstanding at
December 31, 1993 730 $3.77-18.25 $4,023
Grants 11 8.75-11.25 111
Exercised (96) 3.77 (362)
Canceled (66) 5.66-18.25 (470)
Options outstanding at
December 31, 1994 579 3.77-18.25 3,302
Grants 20 15.00 300
Exercised (172) 3.77- 5.66 (660)
Canceled (20) 5.66-18.25 (193)
Options outstanding at
December 31, 1995 407 $3.77-18.25 $2,749
The Company has accounted for the issuance of options to
employees under Accounting Principles Board Opinion No. 25 (APB
25), which recognizes compensation cost from the issuance of
options based upon the option's "intrinsic value," the amount by
which the quoted market price of an option's underlying stock
exceeds the amount an employee must pay to acquire the stock.
APB 25 specifies different dates for the pertinent quoted market
price, depending on whether the terms of an award are fixed or
variable. Substantially all of the options granted by the
Company have not resulted in compensation cost under APB 25. In
October 1995, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation," effective for fiscal
years beginning after December 15, 1995. SFAS 123 requires the
recognition or disclosure of compensation cost based upon the
"fair value" of a stock option (estimated by an option-pricing
valuation model such as Black-Scholes) as of the grant date. The
Company intends to comply with the provisions of SFAS 123
beginning in fiscal 1996 by continuing to recognize compensation
cost from stock options under the "intrinsic value" method of APB
25, with additional footnote disclosures to be provided,
including the pro forma effects of applying the "fair value"
method of SFAS 123. Based upon this accounting policy, the
Company would not have recognized any compensation cost
associated with stock options granted in fiscal 1995, nor does
the Company expect to recognize any such cost in 1996.
Note 6 - INCOME TAXES
The income tax expense (benefit) provided for in the Company's
consolidated financial statements consists of the following (in
thousands):
1995 1994 1993
Consolidated income tax expense
(benefit) $ (191) 2,516 163
Income tax benefit resulting
from exercise of stock options
credited to stockholders' equity (621) (354) -
$ (812) 2,162 163
Income tax expense (benefit) differed as follows from the amounts
computed by applying the U.S. federal income tax rate of 34% to
earnings (loss) before income taxes (in thousands):
1995 1994 1993
Computed "expected" income taxes $ (121) 2,257 170
State income taxes, net of
federal income tax benefit (99) 216 42
Credit for increasing research
activities (141) (150) (112)
Effect of higher foreign tax rate 172 50 (121)
Change in valuation allowance (47) (30) 77
Benefit from foreign sales
corporation (FSC) (73) (141) -
Other, net 118 314 107
$ (191) 2,516 163
The components of income tax expense (benefit) were (in
thousands):
1995 1994 1993
Current: Federal $ (370) 2,102 452
State (162) 395 72
Foreign 232 73 -
(300) 2,570 524
Deferred: Federal (83) (130) (53)
State 12 (30) (8)
Foreign 180 106 (300)
109 (54) (361)
$ (191) 2,516 163
The tax effects of temporary differences between the financial
statement carrying amounts and tax bases of assets and
liabilities that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below (in thousands):
1995 1994
Deferred tax assets:
Accounts receivable $ 170 231
Inventories 186 231
Accrued compensation costs 130 115
Foreign net operating loss carryforward 239 241
Credits for increasing research activities 141 -
Other, net 3 7
Total gross deferred tax assets 869 825
Less valuation allowance - (47)
Net deferred tax assets 869 778
Deferred tax liability:
Property, plant and equipment (504) (529)
Foreign currency transaction and
remeasurement gain (313) (88)
Total gross deferred tax liabilities (817) (617)
Net deferred tax asset $ 52 161
The components of earnings (loss) before income tax expense
(benefit) were as follows (in thousands):
1995 1994 1993
U.S. earnings (loss) before
income taxes $(1,201) 6,115 1,252
Foreign earnings (loss) before
income taxes 845 523 (753)
$ (356) 6,638 499
As of December 31, 1995, the Company had recognized a cumulative
deferred tax asset of $239,000 relating to cumulative net
operating losses of $725,000 from certain foreign operations,
which may be carried forward through 2000. Management believes
that the foreign operations will generate adequate earnings
before income taxes within the next two years to fully realize
this deferred tax asset.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes certain information regarding the fair
value of the Company's financial instruments at December 31,
1995:
Cash and Cash Equivalents, Trade Accounts Receivable and Accounts
Payable:
The carrying amount approximates fair value because of the short
maturity of these instruments.
Other Assets:
Included in other assets at December 31, 1995 is a $2.5 million
minority interest investment in a non-public U.S. company made in
1995. Based on the discounted cash flows to be derived from this
investment, management estimates that its carrying value
approximates its fair value.
Long-Term Debt:
Substantially all of the Company's long-term debt bears interest
at variable rates which management believes are commensurate with
rates currently available on similar debt. Accordingly, the
carrying value of long-term debt approximates fair value.
NOTE 8 - GEOGRAPHIC INFORMATION
The Company operates in one industry segment related to the
design and production of wireless data communications systems
primarily for materials handling operations. The Company's
primary operations are in the United States, but in 1993 the
Company also began conducting significant sales and marketing
activities through its wholly owned subsidiaries in Europe.
Geographic information for the years ended December 31, 1995,
1994 and 1993, as measured by the locale of revenue producing
activities, were as follows (in thousands):
1995 1994 1993
Net sales to unaffiliated customers
United States $49,735 56,332 44,380
Europe 12,556 6,810 1,273
Total $62,291 63,142 45,653
Operating income (loss)
United States $ (889) 6,130 751
Europe 278 282 (191)
Total $ (611) 6,412 560
Identifiable assets
United States $42,504 41,261 35,908
Europe 6,777 4,480 1,957
Total $49,281 45,741 37,865
The Company's intercompany policy is to transfer product at third
party prices. Export sales from the U.S. to European affiliates
were approximately $6.3 million in 1995, $3.3 million in 1994 and
$1.3 million in 1993. Export sales from the U.S. to unaffiliated
customers were approximately $10.3 million, $10.8 million, and
$8.9 million in 1995, 1994 and 1993, respectively.
NOTE 9 - COMMITMENTS
The Company is committed under several noncancellable operating
leases for computer equipment and for sales and administrative
office space at its headquarters. All of these leases expire
within three years, and the combined minimum annual lease
payments are $403,000 in 1996, $218,000 in 1997, and $35,000 in
1998. The Company also has short-term leases for office
equipment, regional sales office space, and automobiles. The
total rent expense under all operating leases was approximately
$1,527,000, $1,032,000, and $1,130,000 in 1995, 1994, and 1993,
respectively.
NOTE 10 - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Following is a summary of interim financial information for the
years ended December 31, 1995 and 1994 (in thousands, except per
share data):
1995 Quarters Ended
March 31 June 30 September 30 December 31
Net sales $17,306 16,534 11,348 17,103
Gross profit 8,132 7,187 4,151 7,658
Net earnings (loss) 907 817 (2,023) 134
Net earnings (loss)
per share .16 .14 (.36) .02
1994 Quarters Ended
March 31 June 30 September 30 December 31
Net sales $13,100 15,300 17,031 17,711
Gross profit 6,911 7,733 8,344 8,831
Net earnings 767 918 1,109 1,328
Net earnings per
share .13 .16 .19 .23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LXE Inc.:
We have audited the accompanying consolidated balance sheets of
LXE Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders'
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 LXE 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.
KPMG Peat Marwick LLP
Atlanta, Georgia
January 19, 1996
SELECTED FINANCIAL DATA
(In thousands, except per
share data)
Years Ended December 31
1995 1994 1993 1992 1991
Net sales $62,291 63,142 45,653 44,401 38,721
Cost of sales 35,163 31,323 22,122 19,127 17,413
Gross profit 27,128 31,819 23,531 25,274 21,308
Selling, general and adminis-
trative expenses 20,993 19,368 16,171 13,802 11,404
Product development and engi-
neering expenses 6,746 6,039 6,800 6,337 5,036
Operating income (loss) (611) 6,412 560 5,135 4,868
Interest and other income 661 423 149 352 353
Interest expense (406) (197) (210) (234) -
Earnings (loss) before
income taxes (356) 6,638 499 5,253 5,221
Income taxes (191 2,516 163 1,943 1,985
Net earnings (loss) $ (165) 4,122 336 3,310 3,236
Net earnings (loss) per common
and common equivalent share $ (.03) .71 .06 .57 .60
Weighted average number of
common and common equivalent
shares 5,532 5,766 5,721 5,786 5,398
Years Ended December 31
1995 1994 1993 1992 1991
(In thousands)
Working capital $24,812 23,612 19,750 19,118 16,964
Total assets 49,481 45,741 37,865 37,115 32,718
Long-term debt 6,925 350 594 827 1,004
Long-term debt to Parent and
due to parent - noncurrent 1,397 1,672 1,946 2,221 2,473
Stockholders' equity 32,611 32,298 27,713 27,264 23,663
No cash dividends have been declared or paid during any of the periods
presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales decreased in 1995 due to a third quarter
revenue shortfall, mainly in the U.S. market, which management
believes was related to the start of the Company's transition to an
expanded product line. Much of the decrease in domestic revenues was
offset by increased revenues from international markets (particularly
Europe), which grew in 1995 to $22.9 million from $17.6 million in
1994. Higher revenues from the Company's European markets were also
an important factor in the growth of net sales from 1993 to 1994, as
were increased sales through U.S.-based third-party distributors.
Cost of sales, as a percentage of consolidated net sales, was 56%
in 1995, compared with 50% in 1994 and 48% in 1993. This growth was
mainly attributable to greater distribution of the Company's products
through indirect channels that typically carry lower gross profit
margins, and to a more competitive pricing environment. Cost of sales
in 1995 was also affected by the transition to an expanded product
line, which resulted in higher manufacturing overhead and additional
efforts to adapt current generation products to certain customers'
requirements.
Selling, general and administrative expenses have increased over
the past three years due to establishment of European sales
subsidiaries and expansion of the Company's marketing and internal
sales support efforts.
Product development and engineering expenses totaled $6.7 million
in 1995, compared with $6.0 million in 1994 and $6.8 million in 1993.
Expenses increased in 1995 from 1994 due to the development of an
expanded product line with DOS and Windows capabilities that support
client/server networks and emerging software standards. Expenses
decreased in 1994 from 1993 upon completing the design of the
Company's current generation of products, which was developed and
introduced during 1993 and 1992.
Interest and other income increased in 1995 compared with 1994,
due to higher gains from foreign currency transactions and
remeasurement associated with European subsidiaries, which more than
offset a decrease in interest income from lower cash available for
investment. In 1994, higher levels of cash available for investment,
as well as gains from foreign currency transactions and remeasurement,
resulted in increased interest and other income compared with 1993.
The effective income tax rate was 54% for 1995, 38% for 1994 and
33% for 1993. The change in 1995 reflected the effect of tax credits
for research and development. The increase in 1994 was related to
profit growth from European operations and the reduced effect of tax
credits of research and development.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased as a result of several
factors during 1995, including an increase in inventory levels related
to lower sales in the second half of the year. More cash was also
used in investing activities in 1995 compared with 1994 as a result of
increases in capital expenditures for purchases of equipment,
development of product software, and the acquisition of a minority
interest in a strategic business partner. Capital expenditures were
financed by existing cash and cash equivalents and by borrowing under
the revolving credit agreement.
During 1995, the Company replaced its previous $5 million short-term
line of credit with a $10 million, three-year revolving credit
agreement with a bank. At December 31, 1995, the Company had $3.1
million remaining under the revolving credit agreement. The Company
does not have material existing capital commitments, but does
anticipate that continued growth of its business will require cash to
finance increased accounts receivable and to continue to acquire
capital equipment for use in manufacturing and product development.
Management believes that the Company's present cash and cash
equivalents and investments, together with cash from operations and
currently available external financing, will support its current
business activities and capital investment plans.
NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statements of
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company's fiscal year
ended December 31, 1996. Management believes that adoption of this
new accounting standard will not have a material effect on the
Company's financial statements.