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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-K
(Mark One)
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year (____ weeks) ended__________________________________________
or
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from APRIL 2, 1995 to DECEMBER 31, 1995.
Commission file number: 1-5513
TRIDEX CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0682273
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
61 WILTON ROAD, WESTPORT, CT 06880
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-226-1144
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, WITHOUT PAR VALUE NASDAQ
Securities registered pursuant to Section 12 (g) of the Act:
NONE
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 X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. [ ]
As of FEBRUARY 24, 1996 the aggregate market value of the registrant's issued
and outstanding voting stock held by non-affiliates of the registrant was
$23,300,000.
As of FEBRUARY 24, 1996 the registrant had outstanding 3,809,231 shares of
common stock, without par value.
Exhibit Index appears on page 33
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PART I
GENERAL
Tridex Corporation ("Tridex" or the "Company"), through its
wholly-owned subsidiaries Magnetec Corporation ("Magnetec"), Ithaca Peripherals
Incorporated ("Ithaca"), Ultimate Technology Corporation ("Ultimate") and Cash
Bases GB Limited ("Cash Bases"), is primarily engaged in the design,
development, manufacture and sale of specialty printers, terminal devices and
other peripheral products. The Company's market is the interface between the
consumer and the retailer or other service provider in a variety of transactions
- - at the retail point-of-sale ("POS"), an automated teller machine ("ATM"), a
kiosk, or a lottery terminal. The Company's products include custom-designed dot
matrix and thermal printer mechanisms used to print receipts, coupons, event and
lottery tickets, bank statements and product or service information; optical
mark-sense readers and document transport systems used for automated data entry
to lottery terminals, educational test scoring and vote tally systems; and POS
printers, POS customer displays, POS keyboards and terminal devices, and cash
drawers used in the retail industry.
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS SINCE APRIL 1, 1995
In December 1995, the Company reorganized its printer business by
combining Magnetec and Ithaca into a new Printer Group. The combination provides
a strong and highly focused engineering organization to rapidly develop new
products and an integrated marketing force. In connection with this
reorganization and with reductions in the level of employment in other areas of
the Company, a restructuring provision of $425,000 was recorded in December
1995.
In December 1995, the Company changed its fiscal year to end on
December 31. Previously, the Company's fiscal year ended on the Saturday closest
to March 31. This report includes the nine months ended December 31, 1995 as a
transitional fiscal year.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Tridex presently operates in one industry segment, the design,
manufacture and sale of specialty printers, terminal devices and other
peripheral products.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
Tridex designs, manufactures and sells specialty dot matrix impact
printers, thermal printers, printer mechanisms and optical mark-sense readers
for OEM applications, and dot matrix impact printers, customer displays,
keyboards, terminal devices and custom cash drawers for POS applications.
Tridex's printers and printer mechanisms are high performance,
full-featured peripherals that utilize the Company's electromechanical printing
components and subassemblies. Tridex designs and manufactures a wide variety of
printer products, including printers for automated applications such as
interactive kiosks and ATMs, printers for lottery and pari-mutuel terminals and
other gaming applications and standalone printers for POS and industrial
applications. In addition to designing its own printer products, Tridex also
provides mechanical design services to customers who integrate printers
into specialty applications. The Company's optical mark-sense readers
and document transport systems may be used in, or in connection with, products
that feature the Company's printer mechanisms and printheads. The Company's
cash drawers, constructed of metal, are high quality, custom products, for use
with POS terminals primarily in supermarkets, specialty stores and convenience
stores. Cash drawers are fabricated in the United Kingdom and are sold
primarily in Western Europe through a direct sales force.
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Tridex manufactures and markets POS customer displays, keyboards
and terminal devices for use in Twinax, Unix/Aix and PC-based POS applications.
Tridex's specialty printers, printer components, terminals and other peripheral
products are sold to systems integrators, original equipment manufacturers and
directly to end users by a direct sales force comprised of 20 people located in
Connecticut, New York, New Hampshire, Illinois, California, Georgia, the United
Kingdom, Germany, France and Spain.
Sales of printers, including POS printers, and printer components
accounted for 52% of the Company's net sales for the nine months ended December
31, 1995, and 58% and 71% of net sales for the fiscal years ended April 1, 1995
("fiscal 1995") and April 2, 1994 ("fiscal 1994"), respectively. Sales of POS
printers accounted for 32% of such net sales in the nine months ended December
31, 1995 and 36% and 45% of such net sales in those same periods. Sales of POS
customer displays, keyboards, terminals and related products accounted for 30%
of net sales in the nine months ended December 31, 1995 and 23% and 27% of such
net sales for the fiscal years ended April 1, 1995 and April 2, 1994,
respectively. Solenoid sales were less than 2% of total sales in fiscal 1994
with none in fiscal 1995 as the product line was sold on October 1, 1993. Sales
of custom cash drawers accounted for 18% of net sales in the nine months ended
December 31, 1995 and 19% of the net sales for the fiscal year ended April 1,
1995, the first fiscal year to include such sales. Cash Bases had consolidated
revenues of pounds sterling 6.4 million (approximately $9.6 million) for its
fiscal year ended April 30, 1994.
(ii) SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal materials used by Magnetec are copper wire, magnetic
metals, injection molded plastic parts, formed metal parts and electronic
subassemblies, all of which are readily available from a number of sources.
Ithaca is dependent upon a single source of supply for printer mechanisms for
its POS printers. The loss of this supply source would have a material adverse
effect on Tridex and its subsidiaries taken as a whole. Ithaca has a contract
with this source of supply to provide a sufficient quantity of printer
mechanisms until March, 1998. Ithaca enjoys good relations with this source of
supply and has received no indication that the supply agreement will not be
renewed beyond the expiration of the current contract. Ithaca cannot be
certain, however, that the supply agreement will be renewed, or if renewed,
that the renewal terms will be as favorable as those under the current
contract. The principal raw materials for cash drawers are sheet metal and
molded plastic parts which are available from several sources.
(iii) PATENTS
Tridex considers one of its patents to be material to the conduct
of its business. The Company has rights to a patent expiring in 2008 involving a
unique automated cut-off device which is an option offered in certain of its POS
printers. Tridex considers certain of its other patents, manufacturing processes
and designs to be proprietary in nature, and, therefore, valuable assets.
(iv) SEASONALITY AND PRACTICES RELATING TO WORKING CAPITAL ITEMS
Sales of the Company's products are not subject to material
seasonal variations. As a result, the Company has not historically been required
to maintain significant inventories of raw materials or finished goods in order
to fill customer orders.
(v) CERTAIN CUSTOMERS
During the nine months ended December 31, 1995, no one customer
accounted for more than 10% of consolidated net sales. Sales to Indiana Cash
Drawer Company, an unrelated distributor of POS products, accounted for 4.7% of
consolidated net sales during the nine months ended December 31, 1995, and 8.3%
and 10.5% of net sales in fiscal years 1995 and 1994, respectively.
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(vi) BACKLOG
The Company's backlog of firm orders was approximately $10,138,000
as of February 24, 1996 and $11,852,000 as of May 27, 1995 compared to a backlog
of approximately $7,800,000 as of May 28, 1994. Tridex expects to fill all of
its backlog within the current fiscal year.
(vii) COMPETITION
The markets for the Company's products are highly competitive.
Through its operating subsidiaries the Company competes with approximately 2
domestic and 5 foreign manufacturers for sales of printer mechanisms and
components, with approximately 3 domestic and 2 foreign manufacturers for sales
of optical mark-sense readers and POS printers, with approximately 3 domestic
manufacturers for sales of POS terminal devices, with approximately 3 domestic
and 4 foreign manufacturers for sales of POS customer displays, and with 4
manufacturers of high quality cash drawers. In the market for POS printers, the
Company competes with Epson America, Inc., which holds a dominant market
position.
All of the Company's products compete on the basis of price,
performance, quality and reliability. Some of the Company's lower production
volume products sold to the lottery, interactive kiosk, general gaming and
automatic teller machine industries compete based upon the Company's ability to
provide highly specialized and custom engineering and continuous technical
support. In the kiosk industry, Tridex has established itself as a major
independent supplier of printer mechanisms to a number of major interactive
kiosk manufacturers. With respect to its higher volume products, the Company
competes based on its product design, quality, and reliability, customer support
and in some cases based upon the uniqueness of its products. The Company also
competes on the basis of its design capabilities and quality control procedures.
In certain markets, the Company's competitors can sometimes offer
lower prices than the Company because of lower overhead, attributable to higher
volume production and off-shore manufacturing locations, which enjoy cheaper
sources of labor and raw materials. Many of the Company's domestic competitors,
particularly those that are divisions of substantially larger companies, have
greater financial and other resources than Tridex.
(viii) RESEARCH AND DEVELOPMENT ACTIVITIES
The Company spent approximately $2.3 in the nine months ended
December 31, 1995 and $2.4 and $2.0 million in the fiscal years 1995 and 1994,
respectively, on engineering, design and product development efforts in
connection with specialized engineering and design to introduce a number of new
products and to custom-tailor products for the Company's customers.
(ix) ENVIRONMENT
Somerville, Massachusetts - Allu Realty Trust ("Allu"), a
Massachusetts business trust, with transferable shares, all of which are owned
by Tridex, is the former owner of land improved with a manufacturing-warehouse
building located at 100 Foley Street, Somerville, Massachusetts (the "Site").
Although Allu has sold the property to 100 Foley Street Incorporated ("Foley"),
an unrelated entity, Allu and Tridex remain responsible for certain
environmental problems associated with the Site.
During July 1984, Allu and Tridex disclosed to the
Massachusetts Department of the Attorney General the existence of chromium, oil
and grease at the Site. As a result, the Environmental Protection Division of
the Department of the Attorney General and the Massachusetts Department of
Environmental Protection ("MDEP") conducted an investigation of the Site. At
MDEP's request, the Company retained an environmental engineering firm, which
completed a Phase II investigation study of the Site. The Company has conducted
further studies to more specifically characterize and assess the Site and to
determine appropriate long term clean-up. In January 1993, the Company entered
into an agreement with Foley pursuant to which Tridex and Foley agreed to pay
75% and 25%, respectively, of the costs incurred after January 1, 1992 in
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connection with the investigation and remediation of the Site (the "Site
Participation Agreement"). The Site Participation Agreement also provides that,
to the extent there are available proceeds from the sale of the Site or, if not
sold, from the operation of the Site after January 1, 1997, Tridex shall be
reimbursed for all or a portion of the $260,000 it expended in connection with
the Site prior to January 1, 1992. Under the terms of an Escrow Agreement
entered into by Tridex and Foley simultaneously with the Site Participation
Agreement (the "Escrow Agreement"), Tridex and Foley each placed $125,000 into
escrow to fund the payment of their obligations under the Site Participation
Agreement. Under the terms of the Escrow Agreement, Tridex must place an
additional $100,000 in escrow at the request of the Escrow Agent and thereafter
the amount of any additional funds required by the Escrow Agent to be placed in
escrow shall be contributed 75% by Tridex and 25% by Foley. Approximately $3,000
was being held in escrow as of December 31, 1995, all of which was contributed
by Foley.
As of December 31, 1995, the Company had spent approximately
$639,000 in connection with the Site. Of this amount, approximately $468,000
relates to investigation or remediation costs incurred at the Site. Although it
is difficult to distinguish between amounts spent for investigation and
remediation, the Company estimates that approximately $370,000 has been spent in
connection with investigation and approximately $98,000 has been spent in
connection with remediation of the Site. The Company estimates that it will
spend approximately $150,000 to $300,000 in connection with the Site during
1996, including expenditures from the escrow account. Based upon preliminary
estimates provided by a consulting environmental engineer and based upon the
likely future uses of the property, as of December 31, 1995, the Company had
accrued $347,000 for the estimated liability associated with the site, which
represents the currently estimated minimum cost of remediation, after
considering the cost sharing arrangement discussed above. Accordingly, although
no assurances can be given regarding the materiality of the total costs which
may be incurred, the Company does not believe at this time that the remediation
of the Site is reasonably likely to have a material effect on the Company's
financial condition, results of operations or liquidity. The implementation of
clean-up measures may commence, and may be completed, in 1996, in which case
the entire amount of remediation costs to be borne by the Company would be
incurred and paid in 1996. The precise scope and timing of remediation is
dependent upon a proposed sale of the property, which is subject to
negotiations to which the Company is not a party. The Company expects that, as
in the past, funds being held in escrow, cash from operations and the Company's
credit facilities will be sufficient to pay the costs of remediation without a
material effect on the Company's operations.
The Company has also been notified by an adjacent property owner,
Cooper Industries ("Cooper"), that certain petroleum products that may have
migrated from the Site have been detected in a monitoring well located on
Cooper's property. The Company and Foley are investigating possible oil
contamination along the border between the Site and the property owned by
Cooper.
(x) EMPLOYEES
As of February 24, 1996, Tridex and its subsidiaries employed
approximately 452 persons.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
Prior to fiscal 1995, the Company had no foreign operations and
export sales were minimal. Primarily as a result of the acquisition of Cash
Bases in June 1994, the Company had approximately $8.8 million of sales which
originated outside the United States during the nine months ended December 31,
1995 ($10.9 million in fiscal 1995). For the amounts of revenue, operating
profit or loss and identifiable assets by geographic area, see Note 14 to the
Consolidated Financial Statements included in this report. In addition, the
Company had export sales from the United States of approximately $1.6
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million in the nine months ended December 31, 1995 and $4.0 million in fiscal
1995, of which $2.4 million was to Canada and the majority of the balance to
Europe.
(E) DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(i) DIRECTORS OF THE REGISTRANT
Principal Business
Director Name Principal Occupation Employer Name of Employer
- ------------- -------------------- ------------- ------------------
Seth M. Lukash Chairman of the Board, Tridex Corporation Manufacturer of computer
President, Chief peripheral equipment
Executive Officer and
Chief Operating Officer
Richard T. Bueschel Chairman Northern Equities, Inc. Investments and corporate
development
Paul J. Dunphy Management Consultant Self-employed Management consulting
C. Alan Peyser President Country Long Distance Communications Service
Thomas R. Schwarz Retired Investments
Richard W. Sonnenfeldt Senior Advisor NAPP Systems, Inc. Manufacturer of printing plates
Graham Y. Tanaka President Tanaka Capital Investment advising
Management, Inc.
Name Age Position
- ---- --- --------
Seth M. Lukash 49 Chairman of the Board of Directors,
President, Chief Executive Officer, Chief
Operating Officer and Director
Richard L. Cote 54 Senior Vice President and Chief
Financial Officer
George T. Crandall 49 Vice President, Treasurer, Controller
and Assistant Secretary
Dennis J. Lewis 41 President, Ultimate Technology
Corporation, a wholly- owned subsidiary
of the Company
Bart C. Shuldman 38 President, Printer Group and Magnetec
Corporation, a wholly-owned subsidiary
of the Company
Hugh T. Burnett 56 Managing Director, Cash Bases GB
Limited, a wholly-owned subsidiary of
Seth M. Lukash has been a senior Executive Officer of the Company
since 1977 and has been a Director since 1979. He has served as Chairman of the
Board of Directors of the Company since November 1988, Chief Executive Officer
since August 1987, and President and Chief Operating Officer since June 1989.
Mr. Lukash previously served as President of the Company from September 1983 to
August 1988 and as Chief Operating Officer from September 1983 to August 1987.
Mr. Lukash is the son of Alvin Lukash, a Director Emeritus of the Company.
Richard L. Cote joined the Company in March 1993, and has been a
Vice President since June 1993 and Senior Vice President and Chief Financial
Officer since September 15, 1993. Mr. Cote was a self-employed management
consultant from October 1991 to March 1993; Vice President and Corporate
Controller of Wang Laboratories, Inc. from January 1991 to September 1991; and
Executive Vice President of Capital Resources Management, Inc. from November
1989 to December 1990. Previously, Mr. Cote had been employed by Emhart
Corporation, Xerox Corporation and Price Waterhouse LLP.
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George T. Crandall has been a Vice President of the Company since
September 1992, Treasurer since November 1990 and Corporate Controller since
March 1989. Prior to joining Tridex in November 1988, Mr. Crandall was a
consultant to Northeast Manufacturing Companies, Inc. and was previously
employed by Revere Copper and Brass Incorporated.
Dennis J. Lewis has been President of Ultimate since its
acquisition by the Company on January 20, 1993. Prior to the acquisition, Mr.
Lewis had served as Ultimate's President, Chief Executive Officer and a Director
since founding Ultimate in 1988. Prior to 1988, Mr. Lewis held senior management
positions related to the sales, engineering and service of computer peripherals
with Digital Equipment Corporation, Naum Brothers, RS Engineering, Serv Tech and
Add Electronics.
Bart C. Shuldman was appointed President of the Printer Group in
December 1995 and President of Magnetec in July 1993. From 1989 to 1993 he was
employed by Mars Electronics International, a division of Mars, Incorporated,
in several management positions, most recently as Business Manager for the
North American Amusement, Gaming and Lottery operations. Mr. Shuldman
previously held manufacturing and sales management positions with General
Electric Company from 1979 to 1989.
Hugh T. Burnett was appointed Managing Director of Cash Bases
simultaneously with its acquisition by Tridex on June 20, 1994. Prior to the
acquisition and since 1991, he was senior marketing executive with Cash Bases.
Mr. Burnett previously was Managing Director of Omron Systems UK Ltd. from 1983
to 1991.
ITEM 2. PROPERTIES.
The Company's operations are currently conducted at the six
facilities described below: the Company
Size Owned or Lease Expiration
Location Operations Conducted (Approx. Sq. Ft.) Leased Date
- -------- -------------------- ----------------- -------- ----------------
Westport, Connecticut Principal executive offices 5,000 Leased July 31, 2001
Wallingford, Connecticut Manufacturing facility 44,000 Leased March 31, 2005
Ithaca, New York Manufacturing facility 36,000 Leased November 21, 2002
Victor, New York Manufacturing facility 18,000 Leased May 30, 1997
Newhaven, England Manufacturing facility 28,000 Leased March 25, 2000
Bloomfield, Connecticut Non-operating 23,000 Owned N/A
facility held for sale
The Company believes that its facilities generally are in good
condition, adequately maintained and suitable for their present and currently
contemplated uses.
ITEM 3. LEGAL PROCEEDINGS.
See Item 1(C)(ix) "Environment" set forth above and Note 8(c) of
the Notes to Consolidated Financial Statements included in this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
last quarter of the transition year covered by this report.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock is traded on the NASDAQ National Market
System. Prior to August 9, 1995, the Company's common stock was traded on the
American Stock Exchange. As of February 24, 1996 there were 1,311 holders of
record of the common stock. The high and low sales prices of the common stock
reported during the nine months ended December 31, 1995 and fiscal years 1995
and 1994, by quarter, were as follows:
Nine Months Ended Years Ended
----------------- -------------------------------------
December 31, 1995 April 1, 1995 April 2, 1994
----------------- -------------- ---------------
High Low High Low High Low
------- ------ ----- ----- ------ -----
April - June 6-7/8 5-1/2 7-3/4 5-3/8 10-1/2 7-5/8
July - September 10-1/4 6-1/4 8-1/8 5 11-3/4 9
October - December 9 6-3/4 7-1/2 5-3/8 10-3/4 6-7/8
January - March N/A N/A 7-1/2 5-5/8 10-1/8 7
No dividends on the common stock have been declared in more than
five years. The Company does not anticipate declaring dividends in the
foreseeable future. The Company's agreement with Fleet Bank, N.A. prohibits the
payment of cash dividends for the term of the agreement. The indenture covering
the Company's 10.5% Debentures limits the payment of cash dividends to 50% of
aggregate consolidated net income earned after December 27, 1992 for so long as
any of the debentures are outstanding. The Company is permitted by the indenture
to pay dividends in common stock.
Item 6. Selected Financial Data
Nine Months Ended Fiscal Years Ended
-------------------------- ------------------------------------------------
December 31, December 31, April 1, April 2, April 3, March 28,
1995 1994 1995 1994 1993 1992
-------------------------- 52 Weeks 52 Weeks 53 Weeks 52 Weeks
-------- -------- -------- ---------
(A) (B)
(In thousands of dollars, except per share amounts)
Statement of Operations:
Net sales $ 46,029 $39,347 $54,677 $33,688 $28,477 $ 20,345
======== ======= ======= ======= ======= ========
Income (loss) $ (997) $ 1,475 $ 2,686 $ 1,613 $ 1,368 $ (507)
======== ======= ======= ======= ======= ========
Income (loss) per
common and
common equivalent
share $ (0.27) $ 0.38 $ 0.69 $ 0.44 $ 0.46 $ (0.23)
======== ======= ======= ======= ======= ========
Cash dividends per
common share None None None None None None
======== ======= ======= ======= ======= ========
(A) Includes the results of operations of Cash Bases GB Limited since June 20,
1994.
(B) Includes the results of operations of Ultimate Technology Corporation since
January 20, 1993.
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As of
====================================================================================
December 31, December 31, April 1, April 2, April 3, March 28,
1995 1994 1995 1994 1993 1992
------------ ------------ -------- -------- -------- ---------
Balance Sheet Data:
Total assets $35,725 $33,055 $36,362 $24,461 $23,521 $14,646
======= ======= ======= ======= ======= =======
Long-term
obligations $ 8,324 $ 6,892 $ 6,185 $ 5,307 $ 8,248 $ 5,980
======= ======= ======= ======= ======= =======
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
(A) RESULTS OF OPERATIONS
(i) NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1994
Consolidated net sales for the nine months ended December 31, 1995
increased $6,682,000 (17%) to $46,029,000 from $39,347,000 in the comparable
period of the prior year. The increase is due to greater volume of shipments of
point-of-sale (POS) terminals, pole displays and other peripherals and to the
sales of Cash Bases, which was acquired on June 20, 1994 and included in only
six and one third months of the nine months ended December 31, 1994.
Consolidated gross profit increased $830,000 (6%) to $13,997,000 from
$13,167,000 in the prior year's period, primarily due to the greater volume of
shipments of POS terminals and POS printers and to the effect of the Cash Bases
acquisition. Gross profit in the current period was adversely impacted by the
production inefficiencies experienced at Cash Bases and by the relocation of
Magnetec. In addition, certain production start-up costs associated with the
Company's new on-line lottery printer negatively affected margin. Consolidated
gross profit percentage decreased to 30.4% of sales from 33.5% of sales in the
prior year's period. The decrease in gross margin percentage reflects a change
in sales mix of products into the POS markets and the non-recurring costs and
unfavorable variances discussed above.
Consolidated engineering, design and product development costs
increased $630,000 (38%) to $2,310,000 from $1,680,000 in the prior year's
period. The increase is primarily the result of the inclusion of such costs for
Cash Bases, as well as the cost of developing new products and enhancing
existing products, particularly for the POS market.
Consolidated selling, administrative and general expenses increased
$3,019,000 (37%) to $11,097,000 from $8,078,000 in the prior year's period. The
increase in selling expenses is primarily the result of the inclusion of such
costs for Cash Bases and the increased staff to support a greater selling
effort, in both the United States and the European markets. The increase in
general and administrative expenses is primarily the result of the inclusion of
such costs for Cash Bases and certain non-recurring charges. Such non-recurring
charges include a provision for damages of $680,000 awarded in a lawsuit with a
former landlord, the cost of establishing an unfunded pension arrangement of
$339,000, and other non-recurring charges totaling approximately $246,000.
During the quarter ended December 31, 1995, the Company recorded a
provision for restructuring of $425,000 to cover the costs associated with the
formation of the printer group, reductions of levels of employment in other
areas of the Company and the discontinuance of certain products. A substantial
portion of the provision relates to employee severance costs.
Consolidated operating profit for the current period decreased to
$165,000 from $3,409,000 in the prior year's period, primarily as a result of
the non-recurring charges discussed above and unfavorable results at Cash Bases.
Operating profit was adversely impacted by production inefficiencies, increased
operating costs at Cash Bases and temporary softness in the European cash drawer
market. Consolidated operating profit as a percentage of revenue was 8.7% in the
prior year's period.
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Net interest expense increased $172,000 (20%) to $1,035,000 from
$863,000 in the prior year's period. The increase in interest expense was due
primarily to additional borrowings under working capital facilities and to the
indebtedness incurred to acquire Cash Bases.
Other non-operating expense, net for the current period includes a
provision of $75,000 for environmental matters, $42,000 for loss on the
anticipated disposal of unused real estate, and $29,000 for net realized
transactional foreign exchange gains. The prior year's period includes an
additional gain of $115,000 related to the October 1993 sale of the Company's
solenoid product line and net realized gains on foreign exchange of $15,000,
offset by an additional provision of $120,000 for loss on the anticipated
disposal of unused real estate.
The provision for taxes for the nine-month period ended December 31,
1995 is $17,000. The provision amount is low relative to the pre-tax loss due to
the accrual for state income taxes and non-deductible amortization of goodwill.
The effective tax rate in the prior period was 42.5%.
Net loss for the current period was $997,000 (or $0.27 per share) as
compared to net income of $1,475,000 (or $0.38 per share) in the prior year's
period. The average number of common shares outstanding during the nine months
ended December 31, 1995 was 3,721,513. Common equivalent shares are not
considered in net loss per share calculations as the incremental shares are
non-dilutive. The average number of common and common equivalent shares
outstanding during fiscal 1995 was 3,860,106 shares.
(ii) FISCAL 1995 COMPARED TO FISCAL 1994
Consolidated net sales for the fiscal year (52 weeks) ended April 1,
1995 increased $20,989,000 (62%) to $54,677,000 from $33,688,000 in the prior
year (52 weeks) ended April 2, 1994. Sales of all printers and printer
components accounted for 58% and 71% of total sales in fiscal 1995 and 1994,
respectively. Terminal devices and customer displays represented 23% and 27%,
respectively, of total sales in fiscal 1995 and 1994. Cash drawers represented
19% of total sales in fiscal 1995. The inclusion of Cash Bases' operations from
the date of acquisition on June 20, 1994 contributed $10,528,000 of the revenue
increase over the prior year. The remainder of the period-to-period increase
primarily was the result of increased unit shipments of printers into the POS
market, as well as increased shipments of printer products into the gaming and
wagering and financial services markets, and increased sales of terminal
devices.
Consolidated gross profit increased $6,168,000 (51%) to $18,249,000
from $12,081,000 in the prior year, primarily as a result of the contribution of
Cash Bases and the increased sales in the gaming and wagering market and in the
POS market. Consolidated gross profit as a percentage of net sales decreased to
33% of sales from 36% of sales in the prior year. The decrease in gross margin
primarily reflects the sales of lower margin products into the POS and gaming
and wagering markets, and to a lesser degree, the inclusion of Cash Bases.
Consolidated engineering, design and product development costs
increased $382,000 (19%) to $2,359,000 from $1,977,000 in the prior year. The
increase reflects the inclusion of such costs for Cash Bases, as well as the
cost of developing new products and enhancing existing products.
Consolidated selling, administrative and general expenses increased
$3,319,000 (41%) to $11,350,000 from $8,031,000 in the prior year. The increase
in selling expenses is the result of the inclusion of such costs for Cash Bases,
increased sales commissions and the increased staff to support a greater selling
effort in both the United States and European markets. The increase in general
and administrative expenses is the result of additional employee costs and
professional services to support business growth.
10
11
Consolidated operating profit for the 1995 fiscal year increased
$2,467,000 (119%) to $4,540,000 from $2,073,000 in the prior year, primarily as
a result of the contribution of Cash Bases and increased sales in the gaming and
wagering market and in the POS market. Consolidated operating profit as a
percentage of net sales increased to 8% from 6% in the prior year.
Net interest expense increased $151,000 (15%) to $1,171,000 from
$1,020,000 in the prior year. The increase in interest expense was due primarily
to the additional indebtedness incurred to acquire Cash Bases offset by the
effect of the conversion of debt securities to common stock in the prior year.
Other non-operating expense (net) for the 1995 fiscal year includes
provisions for estimated loss on the disposal of non-productive property of
$170,000 and estimated clean-up costs associated with certain environmental
matters of $60,000, offset by an additional gain of $115,000 from a contingent
payment related to the October 1993 sale of the Magnetec solenoid product line
and net realized gains on foreign exchange of $84,000.
The provision for income taxes for fiscal 1995 reflects an effective
tax rate of 19.7%. The provision is net of a tax credit of $770,000 recorded in
the fourth quarter which reflects an adjustment to the Company's valuation
allowance to recognize federal deferred tax benefits available to be used by the
Company.
Net income for the 1995 fiscal year was $2,686,000 (or $.69 per share)
as compared to $1,613,000 (or $.44 per share) in the prior year. The average
number of common and common equivalent shares outstanding increased to 3,867,827
shares from 3,661,278 shares in the prior year due primarily to the issuance of
common stock to acquire Cash Bases, the exercise of options and warrants, and
the effect of conversion of various debt securities to common stock at the end
of the prior year.
(iii) LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1995 was $7,474,000
compared with $5,963,000 at April 1, 1995. The current ratio was 1.6 to 1.0 at
December 31, 1995 compared with 1.4 to 1.0 at April 1, 1995. The increase in
working capital and current ratio are due primarily to the effect of the amended
Fleet Credit Agreement discussed below.
On December 15, 1995, the Company and Fleet Bank, N.A. entered into an
amended and restated credit agreement (the "Fleet Credit Agreement") to
significantly increase the Company's borrowing capacity at more favorable rates
and terms than provided for in their 1994 credit agreement. The Fleet Credit
Agreement provided the Company with a working capital facility of $5,000,000
(the "Working Capital Facility") and a term facility of $5,500,000 (the "Term
Loan Facility"). The Working Capital Facility expries June 30, 1997, bears
interest payable monthly at a rate one percentage point above Fleet's prime
rate and bears a non-utilization fee of .25% of the unused balance. The Term
Loan Facility is for a term of six years, bears interest payable monthly at a
rate 1.25 percentage points above Fleet's prime rate and requires principal to
be paid in monthly installments of approximately $82,000 beginning May 31,
1996. The Fleet Credit Agreement also permitted the Company to designate a
LIBOR rate on outstanding debt with a maximum margin of 3.25 percentage
points over the market rate. The Company used the proceeds of the Term Loan
Facility to refinance amounts outstanding under the 1994 credit agreement with
Fleet, which consisted of $2,041,000 under an acquisition term loan facility
and $3,250,000 under a working capital facility.
The Working Capital Facility provides critical capital for the Company.
If for any reason this or comparable financing is not available to the Company,
it would have an adverse effect on the Company and its ability to conduct its
operations as previously conducted. The Company is required to comply with
certain financial covenants, including a minimum tangible net worth, a maximum
leverage ratio, a minimum debt service coverage ratio and a minimum current
ratio, otherwise the lender may withdraw its commitment. As of December 31,
1995, the Company did not satisfy the minimum tangible net worth, minimum debt
service coverage ratio or positive net income covenants. On March 15, 1996,
Fleet agreed to waive compliance with those covenants for the period ended
December 31, 1995 and to amend the Working Capital Facility to reduce the
minimum tangible net worth requirement for the quarter ended March 31, 1996.
Fleet also has adjusted the maximum amount available
11
12
under the Working Capital Facility to $3,000,000 and has eliminated the LIBOR
interest rate option. The adjusted Working Capital Facility is sufficient for
the Company's anticipated working capital requirements in 1996. The Company
expects to be in full compliance with all covenants under the Fleet Credit
Agreement during 1996. Other than as described above and in February and May
of 1993, when it obtained waivers under its previous loan agreement of a
covenant regarding the quick ratio, the Company has been in compliance with the
covenants in its loan agreements during the past three years.
On June 20, 1994 the Company completed the acquisition of Cash Bases.
The purchase price of pounds sterling 3,500,000 (approximately $5.330 million)
was paid pounds sterling 3,067,000 (approximately $4.672 million) in cash and
pounds sterling 433,000 (approximately $658,000) by delivery of 96,788 shares
of Tridex common stock, of which 72,647 shares were placed in escrow to secure
the accuracy of certain representations and warranties made by the sellers. The
escrowed shares were released as scheduled, since the Company made no claims
against the sellers for breach of representations and warranties prior to the
scheduled release dates. In addition, the Company guaranteed for approximately
eighteen months that the sales price of all such shares sold by sellers would
not be less than the average market price of Tridex common stock at the time of
the acquisition ($6.80 per share). During the nine months ended December 31,
1995, the Company reimbursed the sellers an aggregate of $29,000 on the sale of
27,942 shares of common stock including losses on foreign exchange. No further
payments are required. The Company financed the cash portion of the purchase
price through its 1994 credit agreement with Fleet.
During the nine months ended December 31, 1995, the Company's operating
cash needs were satisfied with cash generated from operations and borrowings
under its credit facilities. At December 31, 1995, the Company had approximately
$700,000 in commitments for capital expenditures and had availability of
$5,000,000 remaining under the Working Capital Facility. The Company expects
that funds generated from operations, supplemented by borrowings under the
Working Capital Facility, will be sufficient to satisfy its cash needs for
working capital, scheduled debt retirements and capital expenditures, including
tooling for new products during 1996.
Over the long term, the Company believes that funds generated from
operations and borrowings under the Working Capital Facility, if necessary, will
continue to satisfy its working capital needs, support growth and meet scheduled
debt retirements.
(B) IMPACT OF INFLATION
Tridex believes that its business has not been affected to a
significant degree by inflationary trends because of the low rate of inflation
during the past three years and cost reduction programs at each of its
operations. Tridex believes that any increase in cost due to inflation can be
recovered by price increases or offset by cost reductions and productivity
improvements.
12
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. PAGE
NUMBER
Report of Independent Accountants 14
Tridex Corporation and Subsidiaries consolidated
financial statements:
Consolidated balance sheets as of December 31,
1995 and April 1, 1995. 15
Consolidated statements of operations for the
nine months ended December 31, 1995 and December
31, 1994 (unaudited), and fiscal years ended
April 1, 1995 and April 2, 1994. 17
Consolidated statements of shareholders' equity
for the nine months ended December 31, 1995, and
fiscal year ended April 1, 1995. 18
Consolidated statements of cash flows for the
nine months ended December 31, 1995 and December
31, 1994 (unaudited), and fiscal years ended
April 1, 1995 and April 2, 1994. 19
Notes to consolidated financial statements. 20
Financial Statement Schedules - All schedules
are omitted since the required information is
either (a) not present or not present in amounts
sufficient to require submission of the schedule
or (b) included in the financial statements or
notes thereto.
13
14
REPORT OF INDEPENDENT ACCOUNTANTS
March 15 , 1996
To the Board of Directors and Shareholders
of Tridex Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Tridex
Corporation and its subsidiaries at December 31, 1995 and April 1, 1995, and the
results of their operations and their cash flows for the nine months ended
December 31, 1995 and for each of the two years in the period ended April 1,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Hartford, Connecticut
14
15
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, 1995 April 1, 1995
----------------- -------------
Current Assets:
Cash and cash equivalents $ 933,000 $ 347,000
Receivables (Note 3) 7,406,000 9,635,000
Inventories (Note 4) 9,597,000 8,238,000
Other current assets 732,000 601,000
Deferred tax assets (Note 10) 645,000 742,000
----------- -----------
Total current assets 19,313,000 19,563,000
----------- -----------
Plant and equipment:
Machinery, furniture and equipment 10,963,000 10,854,000
Leasehold improvements 710,000 360,000
----------- -----------
11,673,000 11,214,000
Less accumulated depreciation 6,477,000 6,791,000
----------- -----------
5,196,000 4,423,000
----------- -----------
Excess of cost over fair value of net assets acquired 9,608,000 10,260,000
Other assets 1,483,000 1,977,000
Loans receivable, officers 125,000 139,000
----------- -----------
$35,725,000 $36,362,000
=========== ===========
See notes to consolidated financial statements.
15
16
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, 1995 April 1, 1995
Current liabilities:
Bank loans payable (Note 6) $ 396,000 $ 2,400,000
Current portion of long term debt (Note 6) 2,411,000 2,346,000
Accounts payable 4,516,000 4,877,000
Accrued liabilities (Note 5) 4,452,000 3,343,000
Income taxes payable 64,000 634,000
----------- -----------
Total current liabilities 11,839,000 13,600,000
----------- -----------
Long term debt, less current portion (Note 6) 8,324,000 6,185,000
----------- -----------
Commitments and contingencies (Note 8)
Shareholders' equity (Notes 2 and 9):
Preferred stock, $1 par value;
authorized 2,000,000 shares;
issued none
Common stock, no par value, stated value $.25;
authorized 10,000,000 shares;
issued 3,900,807 and 3,789,682 shares 978,000 950,000
Additional paid-in capital 21,939,000 21,853,000
Accumulated deficit (6,609,000) (5,612,000)
Cumulative valuation adjustments 82,000 124,000
Common stock held in treasury,
at cost, 119,996 and 109,996 shares (828,000) (738,000)
----------- -----------
15,562,000 16,577,000
----------- -----------
$35,725,000 $36,362,000
=========== ===========
See notes to consolidated financial statements.
16
17
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED
---------------------------- --------------------------
DECEMBER 31, December 31, April 1, April 2,
1995 1994 1995 1994
------------ ------------ ----------- ------------
(Unaudited)
Net sales $ 46,029,000 $ 39,347,000 $54,677,000 $ 33,688,000
------------ ------------ ----------- ------------
Operating costs and expenses:
Cost of sales 32,032,000 26,180,000 36,428,000 21,607,000
Engineering, design and product
development costs 2,310,000 1,680,000 2,359,000 1,977,000
Selling, administrative and
general expenses 11,097,000 8,078,000 11,350,000 8,031,000
Provision for restructuring (Note 13) 425,000
------------ ------------ ----------- ------------
45,864,000 35,938,000 50,137,000 31,615,000
------------ ------------ ----------- ------------
Operating profit (loss) 165,000 3,409,000 4,540,000 2,073,000
------------ ------------ ----------- ------------
Other charges:
Interest, net (Note 6) 1,035,000 863,000 1,171,000 1,020,000
Other, net 110,000 (19,000) 24,000 318,000
------------ ------------ ----------- ------------
1,145,000 844,000 1,195,000 1,338,000
------------ ------------ ----------- ------------
Profit (loss) before income taxes (980,000) 2,565,000 3,345,000 735,000
Income tax provision (benefit) (Note 10) 17,000 1,090,000 659,000 (878,000)
------------ ------------ ----------- ------------
Net income (loss) $ (997,000) $ 1,475,000 $ 2,686,000 $ 1,613,000
============ ============ =========== ============
Earnings (loss) per common and
common equivalent share: $ (0.27) $ 0.38 $ 0.69 $ 0.44
============ ============ =========== ============
Average common and common
equivalent shares outstanding: 3,721,513 3,860,106 3,867,827 3,661,278
============ ============ =========== ============
See notes to consolidated financial statements.
17
18
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995,
AND FISCAL YEAR ENDED APRIL 1, 1995
Common stock
Common stock held in treasury Additional Cumulative
--------------------- ------------------ paid-in Accumulated Valuation
Shares Amount Shares Amount capital deficit Adjustments
--------- -------- ------- -------- ----------- ------------ -----------
Balance, April 2, 1994 3,643,454 $913,000 109,996 $738,000 $21,228,000 $(8,298,000)
Issuance of acquisition
shares 96,788 24,000 589,000
Exercise of warrants and
stock options 49,440 13,000 36,000
Translation
adjustment $ 124,000
Net income 2,686,000
--------- -------- ------- -------- ----------- ----------- ----------
Balance, April 1, 1995 3,789,682 950,000 109,996 738,000 21,853,000 (5,612,000) 124,000
EXERCISE OF WARRANTS AND
STOCK OPTIONS 111,125 28,000 86,000
PURCHASE OF
TREASURY STOCK 10,000 90,000
TRANSLATION ADJUSTMENT (99,000)
APPRECIATION OF MARKETABLE
SECURITIES AVAILABLE FOR
SALE 57,000
NET LOSS (997,000)
--------- -------- ------- -------- ----------- ----------- ----------
BALANCE, DECEMBER 31, 1995 3,900,807 $978,000 119,996 $828,000 $21,939,000 $(6,609,000) $ 82,000
========= ======== ======= ======== =========== =========== ==========
See notes to consolidated financial statements.
18
19
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Years Ended
--------------------------- -----------------------
DECEMBER 31, December 31, April 1, April 2,
1995 1994 1995 1994
------------ ------------ -------- --------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (997,000) $ 1,475,000 $ 2,686,000 $ 1,613,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,994,000 1,643,000 2,264,000 1,796,000
Deferred income taxes 2,000 (522,000) (1,020,000)
Loss (gain) on disposal of assets 11,000 (3,000) (5,000) (166,000)
Changes in operating assets and liabilities:
Receivables 2,124,000 1,543,000 (683,000) (2,065,000)
Inventory and prepaid expenses (1,246,000) (499,000) (1,728,000) 602,000
Other assets 122,000 61,000 (83,000) 55,000
Accounts payable, accrued liabilities
and income taxes payable 320,000 496,000 1,390,000 69,000
Other 36,000 132,000
----------- ----------- ----------- -----------
Net cash provided by operating activities 2,330,000 4,716,000 3,355,000 1,016,000
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of plant and equipment (1,773,000) (1,713,000) (2,485,000) (950,000)
Proceeds from sale of assets 7,000 121,000 121,000 608,000
Acquired net assets and acquisition costs, net of cash (5,508,000) (5,576,000)
Other 31,000 (64,000) 15,000 139,000
----------- ----------- ----------- -----------
Net cash used in investing activities (1,735,000) (7,164,000) (7,925,000) (203,000)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net change in borrowings under line of credit (1,993,000) 750,000 2,400,000
Net proceeds from issuance of long-term debt 5,676,000 3,500,000 3,606,000
Debt issuance costs paid (134,000) (155,000) (156,000) (67,000)
Principal payments on long term borrowings (3,573,000) (882,000) (1,666,000) (1,294,000)
Issuance of capital stock and warrants 644,000 614,000
Proceeds from capital stock transactions 24,000 47,000 48,000 319,000
Other 24,000
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities (0) 3,904,000 4,870,000 (1,042,000)
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash (9,000) (1,000) 8,000
Increase (decrease) in cash and cash equivalents 586,000 1,455,000 308,000 (229,000)
Cash and cash equivalents at beginning of year 347,000 39,000 39,000 268,000
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year $ 933,000 $ 1,494,000 $ 347,000 $ 39,000
=========== =========== =========== ===========
Supplemental cash flow information:
Interest paid $ 873,000 $ 851,000 $ 1,018,000 $ 1,064,000
Income taxes paid 552,000 435,000 1,092,000 310,000
Supplemental non-cash investing and financing
activities:
Conversion of convertible debentures to common
common stock $ 2,169,000
Acquisitions:
Fair market value of assets acquired,
excluding cash acquired $ 3,881,000 $ 3,957,000
Goodwill 3,978,000 3,985,000
Debt incurred (4,800,000) (4,800,000)
Liabilities assumed (2,351,000) (2,366,000)
Issuance of warrants (644,000) (614,000)
----------- -----------
Net cash used $ 64,000 $ 162,000
=========== ===========
See notes to consolidated financial statements.
19
20
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS: Tridex Corporation (the "Company"), through its
wholly-owned subsidiaries Magnetec Corporation ("Magnetec"), Ithaca
Peripherals Incorporated ("Ithaca"), Ultimate Technology Corporation
("Ultimate") and Cash Bases GB Limited ("Cash Bases"), (collectively
the "Company"), operates in one industry segment, computer peripheral
equipment. Operations in this segment include the design, development,
manufacture and sale of specialty dot matrix impact printers, thermal
printers, printer mechanisms, and optical mark-sense readers for OEM
applications, and dot matrix impact printers, customer displays,
terminal device, keyboards and cash drawers for POS applications.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated
financial statements include the accounts of the Company after
elimination of all material intercompany accounts and transactions. All
material subsidiaries are wholly-owned.
CHANGE IN FISCAL YEAR END: In December 1995, the Company changed
its fiscal year to end on December 31. Previously, the Company's fiscal
year ended on the Saturday closest to March 31.
CASH AND CASH EQUIVALENTS: Cash equivalents consist primarily of
certificates of deposit with maturities of less than ninety days and
are carried at cost which approximates market value.
USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY: The financial position and results of operations
of the Company's foreign subsidiaries are measured using local currency
as the functional currency. Assets and liabilities of such subsidiaries
have been translated at current exchange rates, and related revenues
and expenses have been translated at weighted average exchange rates.
The aggregate effect of translation adjustments so calculated is
included as a separate component of shareholders' equity. Transaction
gains and losses are included in other income.
INVENTORIES: Inventories are stated at the lower of cost
(principally first-in, first-out) or market.
PLANT AND EQUIPMENT AND DEPRECIATION: Plant and equipment and
leasehold improvements are stated at cost. Depreciation is provided for
primarily by the straight-line method over the estimated useful lives.
The estimated useful life of machinery, furniture and equipment is five
to ten years. Leasehold improvements are amortized over the shorter of
the term of the lease or the useful life of the asset.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: The excess
of cost over fair value of net assets acquired (goodwill) resulted from
the acquisitions of Cash Bases in fiscal year 1995, Ultimate in 1993
and Ithaca in 1991. The amount applicable to these acquisitions totaled
$9,608,000 at December 31, 1995, and is being amortized on the straight
line method between ten and twenty years. Accumulated amortization of
the excess of cost over fair value of net assets acquired was
$2,890,000 and $2,238,000 at December 31, 1995 and April 1, 1995,
respectively. The Company periodically reviews goodwill to assess
recoverability based upon expectations of non-discounted cash flows
from operations for each subsidiary having a material goodwill balance.
The Company believes that no material impairment of goodwill exists at
December 31, 1995 or April 1, 1995.
OTHER ASSETS: Other current assets includes marketable securities
available for sale, accounted for at market value of $309,000, with an
unrealized gain of $86,000, net of related tax effect of $29,000,
recorded as a component of shareholders' equity. The market value of
such securities approximated carrying value at April 1, 1995. Included
in other assets are deferred tax assets of $860,000 (see Note 10) and
the net book value of real estate held for sale in the amount of
$196,000. Also included in other assets are bond issue costs (see Note
6) which are being amortized over the term of the bond. Accumulated
amortization of other assets was $479,000, and $637,000 at December 31,
1995, and April 1, 1995, respectively.
REVENUE RECOGNITION: Sales are recognized when the product is
shipped. In the nine months ended December 31, 1995 and the year ended
April 1, 1995, no one customer accounted for more than 10% of
consolidated net sales. In the year ended April 2, 1994, one customer
accounted for 10% of consolidated net sales.
INCOME TAXES: Income tax expense is based on estimated taxes
payable or refundable on a tax return basis for the current year and
changes in the amount of deferred tax assets and liabilities during the
year. Deferred income taxes are provided for revenue and expenses which
are recognized in different periods for income tax and financial
statement purposes. Effective April 4, 1993, the Company adopted FAS
109 "Accounting for Income Taxes," which mandates the liability method
for computing deferred income taxes. The objective of the liability
method is to recognize the amount of current and deferred taxes payable
or refundable at the financial statement date resulting from all events
that have been recognized in the financial statement based upon the
provisions of enacted tax laws. See Note 10 for a further discussion.
20
21
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS (LOSS) PER SHARE: Primary earnings (loss) per common and
common equivalent share are based on the weighted average number of
common shares outstanding during the period, including stock options
and warrants when the result is dilutive. Fully diluted earnings per
common share assumes conversion of dilutive securities, when the result
is dilutive.
2. BUSINESS COMBINATIONS:
On June 20, 1994 the Company completed the acquisition of Cash
Bases, of Newhaven, England. The purchase price of pounds sterling
3,500,000 (approximately $5.330 million) was paid pounds sterling
3,067,000 (approximately $4.672 million) in cash and pounds sterling
433,000 (approximately $658,000) by delivery of 96,788 shares of Tridex
common stock, of which 72,647 shares were placed in escrow to secure
the accuracy of certain representations and warranties made by the
sellers. The escrowed shares were released as scheduled since the
Company made no claim against the sellers for breach of representations
and warranties prior to scheduled release dates. In addition, the
Company guaranteed for approximately eighteen months the sellers that
the sales price of all such shares sold by sellers would not be less
than the average market price of Tridex common stock at the time of the
acquisition ($6.80 per share). During the nine months ended December
31, 1995, the Company reimbursed the sellers an aggregate of $29,000 on
the sale of 27,942 shares of common stock including losses on foreign
exchange. No further payments are required.
The acquisition has been accounted for using the purchase method of
accounting. The acquired company's assets and liabilities have been
recorded in the Company's financial statements at their estimated fair
values at the acquisition date. The Consolidated Statements of
Operations include the results of operations of the acquired company
from the acquisition date.
The following pro forma data (unaudited) reflect the fiscal 1995
acquisition of Cash Bases as if the acquisition had occurred at the
beginning of fiscal 1995 and fiscal 1994; such data does not purport to
be indicative of what would have occurred had these transactions been
made on that date:
NINE MONTHS ENDED YEARS ENDED
----------------- ---------------------------------
DECEMBER 31, 1994 APRIL 1, 1995 APRIL 2, 1994
----------------- ------------- -------------
(In thousands except per share amounts
REVENUE $41,972 $57,302 $43,321
OPERATING PROFIT 3,616 4,747 3,274
NET INCOME 1,538 2,749 1,922
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 0.39 $ 0.70 $ 0.51
3. RECEIVABLES:
Receivables are net of the allowance for doubtful accounts. The
reconciliation of the allowance for doubtful accounts is as follows:
NINE MONTHS ENDED YEARS ENDED
----------------- -----------------------------------
DECEMBER 31, 1995 APRIL 1, 1995 APRIL 2, 1994
----------------- ------------- -------------
(In thousands)
BALANCE AT BEGINNING OF YEAR $ 42 $ 85 $ 44
PROVISION FOR DOUBTFUL ACCOUNTS 71 74 85
ACCOUNTS WRITTEN OFF, NET OF RECOVERIES (43) (117) (44)
---- ----- ----
BALANCE AT END OF YEAR $ 70 $ 42 $ 85
==== ===== ====
21
22
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES:
The components of inventories are:
NINE MONTHS ENDED YEAR ENDED
----------------- -------------
DECEMBER 31, 1995 APRIL 1, 1995
----------------- -------------
(In thousands)
RAW MATERIALS AND COMPONENT PARTS $6,704 $6,232
WORK-IN-PROCESS 1,271 869
FINISHED GOODS 1,622 1,137
------ ------
$9,597 $8,238
====== ======
5. ACCRUED LIABILITIES:
The components of accrued liabilities are:
NINE MONTHS ENDED YEAR ENDED
----------------- -------------
DECEMBER 31, 1995 APRIL 1, 1995
----------------- -------------
(In thousands)
PAYROLL, FRINGE BENEFITS AND COMMISSIONS $1,230 $1,803
UNFUNDED PENSION OBLIGATION 318 --
INTEREST AND TAXES OTHER THAN INCOME TAXES 150 98
CUSTOMER ADVANCES, DEFERRED REVENUE AND
WARRANTY 475 346
ENVIRONMENTAL MATTERS 347 333
PROFESSIONAL SERVICES AND INSURANCE 181 199
RESTRUCTURE 326 --
LITIGATION 776 142
OTHER 649 422
------ ------
$4,452 $3,343
====== ======
6. BANK CREDIT AGREEMENT AND LONG TERM DEBT:
On December 15, 1995, the Company and Fleet Bank, N.A. ("Fleet"),
entered into an amended agreement (the "Fleet Credit Agreement") to
provide the Company with a $5,000,000 working capital revolving credit
facility (the "Working Capital Facility") and a $5,500,000 term loan
facility (the "Term Loan Facility"). The Working Capital Facility,
included on the accompanying balance sheet as "Bank loans payable",
expires on June 30, 1997, bears interest payable monthly at a rate one
percentage point above Fleet's prime rate or 9.5% at December 31,
1995, and bears a non-utilization fee of .25% of the unused facility.
Availability under the Working Capital Facility is limited to 80% of
the Company's eligible accounts receivable and 25% of eligible
inventory (not to exceed $1,500,000). The Term Loan Facility, included
in the accompanying table as "Term loan payable", is for a term of six
years, bears interest payable monthly at a rate of 1.25 percentage
points above Fleet's prime rate, or 9.75% on December 31, 1995, and
requires principal to be paid in monthly installments of approximately
$82,000 commencing in May, 1996. The Fleet Credit Agreement permitted
the Company to designate a LIBOR rate on outstanding debt with a
maximum margin of 3.25 percentage points over the market rate. The
Fleet Credit Agreement is secured by a first priority security
interest in certain assets, imposes certain covenants (including a
minimum tangible net worth, a maximum leverage ratio, a minimum debt
service coverage ratio and a minimum current ratio) and restricts the
amount available for payment in cash dividends and capital stock
distributions. As of December 31, 1995, the Company did not satisfy
the minimum tangible net worth, minimum debt service coverage ratio or
positive net income covenants. On March 15, 1996, Fleet agreed to
waive compliance with those covenants for the period ended December
31, 1995, and to amend the Working Capital Facility to reduce the
minimum tangible net worth requirement for the quarter ended March 30,
1996. Fleet also has adjusted the maximum amount available under the
Working Capital Facility to $3,000,000 and has eliminated the LIBOR
interest rate option. The adjusted Working Capital Facility is
sufficient for the Company's anticipated working capital requirements
in 1996.
22
23
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK CREDIT AGREEMENT AND LONG TERM DEBT: (CONTINUED)
The Company expects to be in full compliance with all covenants
under the Fleet Credit Agreement during 1996.
The components of long term debt are:
NINE MONTHS ENDED YEARS ENDED
----------------- -------------
DECEMBER 31, 1995 APRIL 1, 1995
----------------- -------------
(In thousands)
TERM LOAN PAYABLE $ 5,500 $2,625
10.5% SENIOR SUBORDINATED CONVERTIBLE
DEBENTURES DUE 1997, NET OF DISCOUNT OF
$16 AND $22 3,454 3,448
8% SUBORDINATED CONVERTIBLE TERM
PROMISSORY NOTES DUE 1997, NET OF
DISCOUNT OF $186 AND $308 1,414 1,742
OTHER 367 716
------- ------
10,735 8,531
CURRENT PORTION 2,411 2,346
------- ------
$ 8,324 $6,185
======= ======
The 10.5% Senior Subordinated Convertible Debentures due 1997 (the
"10.5% Debentures") were privately placed in 1993 in conjunction with
the acquisition of Ultimate. Interest is payable quarterly on March 15,
June 15, September 15 and December 15. The Company is required to make
a sinking fund payment of $740,000 on December 15, 1996. The 10.5%
Debentures are convertible into Tridex common stock at $9.00 per share.
As of December 31, 1995, the Company has reserved 385,555 shares of
common stock pursuant to the conversion feature. The indenture
restricts the amount available for the payment of cash dividends and
capital stock distributions. In conjunction with the issuance of the
10.5% Debentures, the Company issued to each debenture holder
detachable warrants to purchase common stock of Tridex Corporation (the
"Warrants") at a rate of 10 shares per $1,000 principal amount of
debentures. The Warrants are exercisable for a period of five years at
$9.25 per share. As of December 31, 1995, the Company had reserved
45,500 shares of common stock for the exercise of the Warrants. The
estimated fair market value of the Warrants has been recorded as a
discount to the principal amount of the outstanding debentures and is
being amortized over the term of the debt. Costs incurred in connection
with the issuance of the 10.5% Debentures of approximately $448,000 are
recorded in other assets and are being amortized over the term of the
debentures.
The 8% Subordinated Convertible Term Promissory Notes (the "8%
Notes") were issued in conjunction with the acquisition of Ultimate
from its former shareholders. The 8% Notes are payable in quarterly
installments over five years and are convertible into Tridex common
stock at $12.00 per share. As of December 31, 1995, the Company had
reserved 133,333 shares of common stock pursuant to this conversion
feature. The discount on the 8% Notes represents imputed interest at a
rate of approximately 18%. The discount, recorded as a reduction of the
purchase price of Ultimate, is being amortized over the life of the
notes using the interest rate method.
Cash Bases has an agreement with Barclay's Bank that provides line
of credit, term loan and equipment financing facilities. At December
31, 1995, pounds sterling 255,000 ($396,000) was outstanding under the
line of credit facility with availability of pounds sterling 245,000.
Other long term debt consists of the term notes payable and equipment
financing obligations of Cash Bases. The equipment financing
obligations are collateralized by the underlying equipment.
Maturities of long-term debt, including sinking fund requirements
and scheduled retirement of the 10.5% Debentures and 8% Notes are as
follows: $2,411,000 in 1996, $4,633,000 in 1997, $1,021,000 in 1998,
$985,000 in 1999, $985,000 in 2000 and $902,000 thereafter. Interest
expense is stated net of interest income of $14,000 in the nine months
ended December 31, 1995, $33,000 in fiscal 1995 and $11,000 in fiscal
1994.
23
24
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PENSION PLAN:
Effective December 31, 1995, the Company established a
non-qualified unfunded pension arrangement for Alvin Lukash, a
significant shareholder and former corporate officer and director. The
pension arrangement which replaces a prior consulting services
agreement, requires the Company to pay an annual benefit of $100,000
payable monthly through the sooner of March 31, 2000 or the death of
Mr. Lukash. The unfunded accumulated benefit obligation at December 31,
1995 of $318,000 is included in Accrued Liabilities in the accompanying
balance sheet. The Company recorded the actuarial present value of the
benefits calculated at a 7.2% discount rate and related fees totaling
$339,000 in the quarter ended December 31, 1995.
8. COMMITMENTS AND CONTINGENCIES:
(a) LEASE OBLIGATIONS:
At December 31, 1995, the Company was lessee on long term operating
leases for equipment and real property. The terms of certain leases
provide for escalating rent payments in later years of the lease as
well as payment of minimum rent and real estate taxes. Rent expense
amounted to approximately $861,000 in the nine months ended December
31, 1995, $997,000 in fiscal 1995, and $676,000 in fiscal 1994. Minimum
aggregate rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year
as of December 31, 1995 are as follows: $1,003,000 in 1996, $947,000 in
1997; $899,000 in 1998; $873,000 in 1999; $810,000 in 2000 and
$1,949,000 thereafter.
(b) ENVIRONMENTAL MATTERS:
The Company is involved in one significant environmental matter:
Allu Realty Trust ("Allu"), a Massachusetts business trust, with
transferable shares, all of which are owned by Tridex, is the former
owner of land improved with a manufacturing-warehouse building located
at 100 Foley Street, Somerville, Massachusetts (the "Site"). Although
Allu has sold the property to 100 Foley Street Incorporated ("Foley"),
an unrelated entity, Allu and Tridex remain responsible for certain
environmental problems associated with the Site.
During July 1984, Allu and Tridex disclosed to the Massachusetts
Department of the Attorney General the existence of chromium, oil and
grease at the Site. As a result, the Environmental Protection Division
of the Department of the Attorney General and the Massachusetts
Department of Environmental Protection ("MDEP") conducted an
investigation of the Site. At MDEP's request, the Company retained an
environmental engineering firm, which completed a Phase II
investigation study of the Site. The Company has conducted further
studies to characterize and assess the Site more specifically and to
determine appropriate long term clean-up measures. In January 1993, the
Company entered into an agreement with Foley pursuant to which Tridex
and Foley agreed to pay 75% and 25%, respectively, of the costs
incurred after January 1, 1992 in connection with the investigation and
remediation of the Site (the "Site Participation Agreement"). The Site
Participation Agreement also provides that, to the extent there are
available proceeds from the sale of the Site or, if not sold, from the
operation of the Site after January 1, 1997, Tridex shall be reimbursed
for all or a portion of the $260,000 it expended in connection with the
Site prior to January 1, 1992. Under the terms of an Escrow Agreement
entered into by Tridex and Foley simultaneously with the Site
Participation Agreement (the "Escrow Agreement"), Tridex and Foley each
placed $125,000 into escrow to fund the payment of their obligations
under the Site Participation Agreement. Under the terms of the Escrow
Agreement, Tridex must place an additional $100,000 in escrow at the
request of the Escrow Agent and thereafter the amount of any additional
funds required by the Escrow Agent to be placed in escrow shall be
contributed 75% by Tridex and 25% by Foley. Approximately $3,000 is
being held in escrow as of December 31, 1995, all of which was
contributed by Foley.
24
25
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
(b) ENVIRONMENTAL MATTERS: (CONTINUED)
As of December 31, 1995, the Company had spent approximately
$639,000 in connection with the Site. Of this amount, approximately
$468,000 relates to investigation or remediation costs incurred at the
Site. Although it is difficult to distinguish between amounts spent for
investigation and remediation, the Company estimates that approximately
$370,000 has been spent in connection with investigation and
approximately $98,000 has been spent in connection with remediation of
the Site. The Company estimates that approximately $150,000 to $300,000
will be spent in connection with the Site during fiscal 1996, including
expenditures from the escrow account. Based upon preliminary estimates
provided by a consulting environmental engineer and based upon the
likely future uses of the property, as of December 31, 1995, the
Company had accrued $347,000 for the estimated liability associated
with the Site which represents currently estimated minimum cost of
remediation, after considering the cost sharing arrangement discussed
above. Accordingly, although no assurances can be given regarding the
materiality of the total costs which may be incurred, the Company does
not believe at this time that the remediation of the Site is reasonably
likely to have a material effect on the Company's financial condition,
results of operations or liquidity. The implementation of clean-up
measures may commence, and may be completed, in 1996, in which case the
entire amount of remediation costs to be borne by the Company would be
incurred and paid in 1996. The precise scope and timing of remediation
is dependent upon a proposed sale of the property, which is subject to
negotiations to which the Company is not a party. The Company expects
that, as in the past, funds being held in escrow, cash from operations
and the Company's credit facilities will be sufficient to pay the costs
of remediation without a material effect on the Company's operations.
The Company has also been notified by an adjacent property owner,
Cooper Industries ("Cooper"), that certain petroleum products that may
have migrated from the Site have been detected in a monitoring well
located on Cooper's property. The Company and Foley are investigating
possible oil contamination along the border between the Site and the
property owned by Cooper.
(c) LEGAL PROCEEDINGS:
In November, 1990, Tridex filed suit against a former landlord,
Gorham Island Associates ("GIA") seeking monetary damages and
rescission of a lease covering 5,700 square feet of office space in
Westport, Connecticut (the "Lease"). In January, 1991, GIA filed suit
against Tridex seeking payment of all amounts due under the Lease for
the balance of the Lease term (aggregating approximately $1,021,000)
and other damages. In December, 1995, the court rendered a decision
against the Company and awarded damages of $988,000, which includes
back rent charges, interest and attorneys fees. In March 1996 the
Company and GIA agreed to settle the suit for $742,500. The Company has
recorded a provision in the quarter ended December 31, 1995 to provide
for the settlement and related fees.
9. STOCK OPTIONS AND WARRANTS:
1989 LONG TERM INCENTIVE PLAN
The 1989 Long Term Incentive Plan (the "Plan") permits stock-based
incentive compensation in the form of: (a) stock options, (b) stock
appreciation rights, (c) restricted stock, (d) deferred stock, (e)
stock purchase rights and (f) other stock-based compensation. Pursuant
to the Plan, up to 1,250,000 shares of common stock may be distributed
to officers and key employees of the Company. Options granted are at
prices equal to 100% of the fair market value of the common stock at
the date of grant. No charge against income was required with respect
to options. Options granted are exercisable at the discretion of the
Stock Option Committee, but in no event shall the period be for more
than ten years. Ninety days after an employee's termination, the
outstanding options are canceled. At December 31, 1995 the Company had
reserved 1,029,470 shares of common stock for issuance upon the
exercise of options granted under the Plan. The following table
summarizes the activity of the Plan for the nine months ended December
31, 1995 and for the prior two years.
25
26
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS AND WARRANTS: (CONTINUED)
OPTIONS
EXERCISABLE
SHARES UNDER OPTION PRICE PER SHARE AT YEAR END
------------------- --------------- -----------
OPTIONS OUTSTANDING 4/3/93 484,235 $0.750 - $ 9.075 116,515
OPTIONS GRANTED 119,000 $7.250 - $10.750 =======
OPTIONS EXERCISED (29,000) $0.750 - $ 5.250
OPTIONS CANCELED (60,380) $0.750 - $ 9.000
-------
OPTIONS OUTSTANDING 4/2/94 513,855 $0.750 - $10.750 173,905
OPTIONS GRANTED 127,150 $6.625 - $ 8.000 =======
OPTIONS EXERCISED (14,440) $0.750 - $ 5.250
OPTIONS CANCELED (14,100) $8.750 - $10.750
-------
OPTIONS OUTSTANDING 4/1/95 612,465 $0.750 - $10.750 255,295
OPTIONS GRANTED 211,800 $6.000 - $ 6.625
OPTIONS EXERCISED (111,125) $0.750 - $ 7.250
OPTIONS CANCELED (43,610) $0.875 - $10.750
-------
OPTIONS OUTSTANDING 12/31/95 669,530 $0.750 - $10.750 213,870
======= =======
WARRANTS:
As of December 31, 1995, the Company had outstanding stock purchase
warrants for an aggregate of 283,832 shares of common stock. Stock
purchase warrants for 165,000 shares expiring five years from date of
grant are held by directors of the Company, for 73,332 shares expiring
December 31, 1997 are held by Value Investing Partners, Inc., placement
agent for the Company for the 10.5% Debentures, and for 45,500 shares
expiring December 31, 1997 are held by purchasers of the 10.5%
Debentures. The following table summarizes the activity of outstanding
warrants for the nine months ended December 31, 1995 and for the prior
three years.
WARRANTS
EXERCISABLE
SHARES UNDER WARRANT PRICE PER SHARE AT YEAR END
-------------------- --------------- -----------
OUTSTANDING 4/3/93 329,539 $0.875 - $9.250 329,539
GRANTED TO DIRECTORS 70,000 $7.250 =======
EXERCISED (80,707) $0.875 - $4.250
--------
OUTSTANDING 4/2/94 318,832 $0.875 - $9.250 248,832
=======
EXERCISED (35,000) $0.875
-------
OUTSTANDING 4/1/95 283,832 $0.875 - $9.250 236,932
------- =======
OUTSTANDING 12/31/95 283,832 $0.875 - $9.250 236,932
======= =======
26
27
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income taxes:
The sources of profit (loss) before income taxes are as follows:
NINE MONTHS ENDED YEARS ENDED
----------------- -----------------------------
DECEMBER 31, 1995 APRIL 1, 1995 APRIL 2, 1994
----------------- ------------- -------------
(In thousands)
UNITED STATES $ (374) $2,114 $735
FOREIGN (606) 1,231 --
------- ------ ----
$ (980) $3,345 $735
======= ====== ====
The components of the income tax provision (benefit) are as
follows:
NINE MONTHS ENDED YEARS ENDED
----------------- -----------------------------
DECEMBER 31, 1995 APRIL 1, 1995 APRIL 2, 1994
----------------- -----------------------------
(In thousands)
CURRENT:
FEDERAL $ 50 $ 464 $ (136)
STATE 144 287 278
FOREIGN (141) 430 --
------- ------- -------
53 1,181 142
------- ------- -------
DEFERRED:
FEDERAL (24) (477) (1,020)
STATE -- -- --
FOREIGN (12) (45) --
------- ------- -------
(36) (522) (1,020)
------- ------- -------
TOTAL INCOME TAX PROVISION (BENEFIT) $ 17 $ 659 $ (878)
======= ======= =======
Deferred income taxes arise from temporary differences between the
tax basis of assets and liabilities and their reported amounts in the
financial statements. The Company's gross deferred tax assets and
liabilities were comprised of the following:
NINE MONTHS ENDED YEARS ENDED
----------------- -------------
DECEMBER 31, 1995 APRIL 1, 1995
----------------- -------------
(In thousands)
GROSS DEFERRED TAX ASSETS:
CURRENTLY NON-DEDUCTIBLE LIABILITIES AND
RESERVES $1,495 $1,048
NET OPERATING LOSS CARRYFORWARDS 582 514
FEDERAL BUSINESS AND FOREIGN TAX CREDIT
CARRYFORWARDS 615 787
FEDERAL MINIMUM TAX CREDIT CARRYFORWARDS 211 211
------ ------
$2,903 $2,560
====== ======
GROSS DEFERRED TAX LIABILITIES:
DEPRECIATION $ 227 $ 135
====== ======
27
28
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES: (CONTINUED)
At December 31, 1995, a valuation allowance of $1,171,000 has been
recorded which relates primarily to state net operating loss and
federal foreign tax credit carryforwards, and certain state deferred
tax deductions for which a tax benefit will not likely be realized. The
net change since April 1, 1995 in the valuation allowance for deferred
tax assets was an increase of $282,000 related primarily to foreign tax
credits and deferred state tax benefits which will not likely be
realized. Deferred tax assets and liabilities are offset for
presentation in the consolidated balance sheet.
At December 31, 1995, the Company had $8,100,000 of state net
operating loss carryforwards that expire principally in 1996 through
2000. Federal business and foreign tax credit carryforwards which are
available to offset future federal income taxes total $615,000 and
principally expire in 1997 through 2002. The Company has a federal
minimum tax credit carryforward of approximately $211,000 which will be
available to reduce federal tax in future years.
Differences between the U.S. statutory federal income tax rate and
the company's effective income tax rate are analyzed below:
NINE MONTHS ENDED YEARS ENDED
----------------- -----------------------------
DECEMBER 31, 1995 APRIL 1, 1995 APRIL 2, 1994
----------------- ------------- -------------
FEDERAL STATUTORY TAX RATE (34.0)% 34.0% 34.0%
OVERACCRUAL OF PRIOR YEAR INCOME TAXES (41.0)
STATE INCOME TAXES, NET OF FEDERAL
INCOME TAXES 9.7 5.7 24.9
NON-DEDUCTIBLE PURCHASE ACCOUNTING
ADJUSTMENTS 22.6 8.4 31.5
VALUATION ALLOWANCE (33.7) (186.9)
FEDERAL BENEFIT OF ACQUIRED LOSS
CARRYFORWARDS USED TO REDUCE GOODWILL 1.0 20.0
EFFECT OF FOREIGN OPERATIONS 5.3 3.8
OTHER (1.8) .5 (2.5)
----- ----- ------
EFFECTIVE TAX RATE 1.8% 19.7% (120.0)%
===== ===== ======
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash, trade accounts receivable, other
current assets, trade accounts payable, and accrued expenses
approximate fair value because of the short maturity of those
instruments. The carrying value of marketable securities available for
sale is equal to fair value, as discussed in Note 1. The carrying
amount of borrowings under the Working Capital Facility, the Term Loan
Facility and the Barclay's agreement approximate their fair value. The
fair value of the Company's debt is estimated based on the quoted
market prices of the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The
estimated fair values of the Company's debt instruments are as follows:
CARRYING AMOUNT FAIR VALUE
10.5% DEBENTURES $3,454 $4,200
8% NOTES 1,414 1,700
28
29
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board (the "FASB") issued
Financial Accounting Standard No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (FAS
121) in March 1995. FAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The entity must estimate the future cash flows expected to
result from the use of the asset and its eventual disposition, and
recognize an impairment loss for any difference between the fair value
of the asset and the carrying amount of the asset. FAS 121 must be
adopted for the year beginning after December 15, 1995. The effect, if
any, on the Company's financial position or results of operations from
adoption of FAS 121 is not expected to be material.
The FASB issued Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation," in October 1995 effective for years
beginning after December 15, 1995. Under provisions of this accounting
standard, the Company is not required to change its method of
accounting for stock-based compensation. Management expects to retain
its current method of accounting.
13. SIGNIFICANT TRANSACTIONS:
During the quarter ended December 31, 1995, the Company recorded
provisions for the following non-recurring operating expenses:
litigation settlement of $680,000, restructuring costs of $425,000,
pension of $339,000 and other non-recurring items totaling $246,000. In
addition, the Company recorded other charges of $42,000 for estimated
loss on disposal of unused real estate and $75,000 for environmental
clean-up. The provision for restructuring covers the costs associated
with the formation of the printer group and the discontinuance of
certain products. A substantial portion of the provision relates to
employee severance costs.
During the fourth quarter of fiscal 1995, the Company recorded an
additional provision for the estimated loss on disposal of unused real
estate of $50,000 and an additional provision for estimated
environmental clean-up costs of $60,000. Also in the fourth quarter,
the Company recorded an adjustment to fully recognize federal deferred
tax benefits as discussed in Note 10.
During the fourth quarter of fiscal 1994, the Company recorded
several non-recurring charges, including: a provision for the estimated
loss on disposal of unused real estate of $132,000; estimated
environmental clean-up costs of $270,000; and a provision for
litigation matters totaling $280,000. Also in the fourth quarter, the
Company recorded one-time tax credits, including the reversal of an
excess income tax accrual of $300,000 and the adjustment to the
valuation allowance discussed in Note 10.
29
30
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INTERNATIONAL OPERATIONS
Prior to fiscal year 1995, the Company had no foreign operations and
export sales were minimal. As a result of the acquisition of Cash Bases, the
Company acquired manufacturing facilities in the United Kingdom. Amounts
included in the accompanying consolidated financial statements associated
with operations outside the United States consist of the following:
NINE MONTHS ENDED YEARS ENDED
----------------- -------------
DECEMBER 31, 1995 APRIL 1, 1995
----------------- -------------
SALES:
DOMESTIC $ 37,424 $ 44,000
FOREIGN 8,839 10,883
ELIMINATION (234) (206)
--------- ---------
TOTAL $ 46,029 $ 54,677
--------- ---------
OPERATING PROFIT:
DOMESTIC $ 893 $ 3,635
FOREIGN (728) 905
--------- ---------
TOTAL $ 165 $ 4,540
--------- ---------
IDENTIFIABLE ASSETS:
DOMESTIC $ 27,284 $ 27,349
FOREIGN 8,441 9,013
--------- ---------
TOTAL $ 35,725 $ 36,362
========= =========
Net sales are based on the location of the operation. Transfers between
geographic areas are recorded at amounts generally above cost and in
accordance with the regulations of applicable taxing jurisdictions.
Operating profit consists of total net sales less operating expenses and
corporate expenses, and does not include either interest, other income or
income taxes. Identifiable assets of geographic areas are those assets used
in the Company's operations in each area.
The Company had export sales from its United States operations of
approximately $1,644,000 in the nine months ended December 31, 1995 and
$4,073,000 in fiscal 1995. Such sales were primarily to Canada and were not
material in prior years. Export sales from the Company's foreign operations
totaling approximately $4,900,000 are primarily to European countries. The
Company recorded net foreign exchange transaction gains of approximately
$29,000 in the nine months ended December 31, 1995 and $85,000 in the year
ended April 1, 1995.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
30
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(A) DIRECTORS.
The information contained in "Information Concerning Nominees for
Election as Directors and Executive Officers" of the Company's Proxy Statement
(the "Proxy Statement") for its Annual Meeting of Shareholders which is
scheduled to be held on May 30, 1996 is hereby incorporated herein by reference.
Also see Item 1(E)(i) above.
(B) EXECUTIVE OFFICERS.
See Item 1(E)(ii) above.
(C) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information contained in "Compliance with Section 16(a)" of the
Proxy Statement is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in "Compensation of Directors and Executive
Officers" of the Proxy Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in "Security Ownership of Certain
Beneficial Owners and Management" of the Proxy Statement is hereby incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in "Certain Relationships and Related
Transactions" of the Proxy Statement is hereby incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART OF
THIS REPORT:
(i) Financial statements
See Item 8 on page 13.
(ii) Financial statement schedules
See Item 8 on page 13.
(iii) List of Exhibits.
See Exhibit Index on page 33.
(B) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K on December 26, 1995
to report (a) the decision rendered against the Company in litigation between
the Company and a former landlord, and (b) the change in fiscal year.
31
32
SIGNATURES
Pursuant to the requirements of Section 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.
TRIDEX CORPORATION
By: /s/ Seth M. Lukash
----------------------------------------
Seth M. Lukash
Chairman of the Board, President,
Chief Executive Officer, Chief Operating
Officer and Director
Date: March 28, 1996
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Seth M. Lukash Chairman of the Board, President, Chief March 28, 1996
- ----------------------------- Executive Officer, Chief Operating Officer
Seth M. Lukash and Director
(Principal Executive Officer)
/s/ Richard L. Cote Senior Vice President and March 28, 1996
- ----------------------------- Chief Financial Officer
Richard L. Cote
(Principal Financial Officer)
/s/ George T. Crandall Vice President, Treasurer, March 28, 1996
- ----------------------------- Controller and Assistant Secretary
George T. Crandall
(Principal Accounting Officer)
/s/ Graham Y. Tanaka Director March 28, 1996
- -----------------------------
Graham Y. Tanaka
/s/ Richard T. Bueschel Director March 28, 1996
- -----------------------------
Richard T. Bueschel
/s/ Paul J. Dunphy Director March 28, 1996
- -----------------------------
Paul J. Dunphy
/s/ Richard W. Sonnenfeldt Director March 28, 1996
- ----------------------------
Richard W. Sonnenfeldt
/s/ C. Alan Peyser Director March 28, 1996
- -----------------------------
C. Alan Peyser
/s/ Thomas R. Schwarz Director March 28, 1996
- -----------------------------
Thomas R. Schwarz
32
33
Exhibit Index
Page
Number
------
3.1 Certificate of Incorporation of Tridex, as amended, filed on June 28,
1985 as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 30, 1985, is hereby incorporated herein by
reference.
3.2 Certificate of Amendment of Incorporation of Tridex, dated October 1,
1987, filed on July 18, 1988 as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 2, 1988 is hereby
incorporated herein by reference.
3.3 Certificate of Amendment of Incorporation of Tridex, dated August 15,
1988, filed on June 29, 1989 as Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 1, 1989 is hereby
incorporated herein by reference.
3.4 Certificate of Amendment of Incorporation of Tridex, dated March
31,1989 filed on June 29, 1989 as Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 1, 1989 is hereby
incorporated herein by reference.
3.5 Bylaws of Tridex, as amended and restated as of January 22, 1996. 35
4.1 Description of the Company's common stock set forth in the Company's
Registration Statement on Form 8-A filed July 14, 1986, is hereby
incorporated herein by reference.
4.2 The Tridex Corporation 1989 Long Term Incentive Plan (as amended and
restated) filed as Exhibit A to the Company's Proxy Statement for
Annual Meeting of Shareholders filed September 14, 1994 is hereby
incorporated herein by reference.
4.3 Form of 8% Subordinated Convertible Term Promissory Notes dated January
20, 1993, by and among the Company and the shareholders of Ultimate
Technology Corporation, filed as an Exhibit to Current Report on Form
8-K filed February 10, 1993, is hereby incorporated herein by
reference.
4.4 Form of Registration Rights Agreement, dated January 20, 1993, filed as
an Exhibit to Current Report on Form 8-K filed February 10, 1993, is
hereby incorporated herein by reference.
4.5 Indenture dated as of December 31, 1992 by and among the Company and
American Stock Transfer & Trust Company, as Trustee, filed as an
Exhibit to Current Report on Form 8-K filed February 10, 1993, is
hereby incorporated herein by reference.
4.6 Form of 10.5% Senior Subordinated Convertible Debentures due December
31, 1997, filed as an Exhibit to Current Report on Form 8-K filed
February 10, 1993, is hereby incorporated herein by reference.
4.7 Form of Warrant, dated January 20, 1993, to purchase shares of Tridex
common stock, filed as an Exhibit to Current Report on Form 8-K filed
February 10, 1993, is hereby incorporated herein by reference.
4.8 Form of Registration Rights Agreement, filed as an Exhibit to Current
Report on Form 8-K filed February 10, 1993, is hereby incorporated
herein by reference.
4.9 Form of 10% Subordinated Convertible Term Promissory Note due May 10,
1994 filed as an Exhibit to the Company's Current Report on Form 8-K
filed May 25, 1990, is hereby incorporated herein by reference.
4.10 Registration Rights Agreement, dated as of May 10, 1990, by and among
the Company, Ithaca Peripherals Incorporated and Noteholders filed as
an Exhibit of the Company's Current Report on Form 8-K filed May 25,
1990 is hereby incorporated herein by reference.
4.11 Form of Warrant dated January 20, 1993, to purchase common stock of
Tridex Corporation, filed as an exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended April 3, 1993 is hereby
incorporated herein by reference.
33
34
Page
Number
------
10.1 Employment Agreement, dated as of April 16, 1995, between Tridex and
Seth M. Lukash, filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended April 1, 1995, and hereby
incorporated herein by reference.
10.2 Severance Agreement, dated as of April 16, 1990, between Tridex and
Seth M. Lukash filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1990 is hereby
incorporated by reference.
10.3 First Amendment to Severance Agreement, dated as of April 16, 1992
between Tridex and Seth M. Lukash, filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended March 28, 1992, is
hereby incorporated by reference.
10.4 Second Amendment to Severance Agreement, dated as of June 1, 1995,
between Tridex and Seth M. Lukash, filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended April 1, 1995, and
hereby incorporated herein by reference.
10.5 Severance Agreement, dated as of April 29, 1990, between Tridex and
George T. Crandall filed as an Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 28, 1992, is hereby
incorporated by reference.
10.6 Employment and Non-competition Agreement, dated as of January 20, 1993,
between Ultimate Technology Corporation and Dennis J. Lewis, filed as
an exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended April 3, 1993 is hereby incorporated herein by reference.
10.7 Severance Agreement, dated as of June 1, 1993 between Tridex and
Richard L. Cote, filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended April 3, 1993 is hereby
incorporated herein by reference.
10.8 First Amendment to Severance Agreement, dated as of June 1, 1995,
between Tridex and Richard L. Cote, filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended April 1,
1995, and hereby incorporated herein by reference.
10.9 Letter Agreement, dated as of June 1, 1995, between Tridex and Richard
L. Cote regarding severance, filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended April 1, 1995, and
hereby incorporated herein by reference.
10.10 The Tridex Corporation 1989 Long Term Incentive Plan (as amended and
restated) filed as Exhibit A to the Company's Proxy Statement for
Annual Meeting of Shareholders filed July 23, 1992 is hereby
incorporated herein by reference.
10.11 Employee Performance Compensation Agreement, dated January 20, 1993 by
and among Tridex and the Ultimate shareholders, filed as an exhibit to
the Company's Annual Report on Form 10-K for the fiscal year ended
April 3, 1993 is hereby incorporated herein by reference.
10.12 Amended and Restated Credit Agreement dated as of December 15, 1995 among 39
Tridex Corporation, Ithaca Peripherals Incorporated, Ultimate Technology
Corporation, Magnetec Corporation, Cash Bases Incorporated and Fleet Bank,
National Association.
10.13 Amendment No. 1, dated as of March 15, 1996 to amended and restated Credit 72
Agreement dated as of December 15, 1995 among Tridex Corporation, Ithaca
Peripherals Incorporated, Ultimate Technology Corporation, Magnetec
Corporation, Cash Bases Incorporated and Fleet Bank, National Association.
10.14 Service Agreement, dated June 20, 1994, between Cash Bases G.B. Limited
and Hugh T. Burnett filed on June 30, 1994 as Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended April 2,
1994 is hereby incorporated by reference.
10.15 Retirement Agreement, dated as of December 31, 1995, between Tridex 79
Corporation and Alvin Lukash
11.1 Statement re: computation of per share earnings. 82
21.1 List of Subsidiaries of Tridex. 83
23.1 Consent of Independent Accountants. 84
23.2 Consent of Independent Accountants. 85
27.1 Financial Data Schedule
34