1
EXHIBIT (17)(b)(2)
FAIRNESS OPINION PRESENTATION TO THE
BOARD OF DIRECTORS
OF
KENTEK INFORMATION SYSTEMS, INC.
MAY 14, 1999
2
TABLE OF CONTENTS
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SECTION
(1) BACKGROUND
(2) KEY ELEMENTS OF THE TRANSACTION
(3) HISTORICAL FINANCIAL RESULTS
(4) PROJECTED FINANCIAL RESULTS
(5) COMPARABLE COMPANY ANALYSIS
(6) COMPARABLE TRANSACTION ANALYSIS
(7) DISCOUNTED CASH FLOW ANALYSIS
(8) LIQUIDATION ANALYSIS
(9) VALUATION SUMMARY
EXHIBITS
Comparable Company Detail
Form of Fairness Opinion
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BACKGROUND
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BACKGROUND
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o On April 17, 1996, Kentek Information Systems, Inc. ("Kentek" or the
"Company") completed its initial public offering ("IPO") of 2,200,000
shares of its common stock at $8 per share, raising $15.6 million in net
proceeds.
o Prior to the Company's IPO, and for a good period thereafter, Kentek was a
leading supplier of heavy-duty, high reliability, mid-range, non-impact
laser printers and related consumable supplies and spare parts.
o Over the past couple of years, the mid-range printer market has been
characterized by:
*printers that could print 30 to 60 pages per minute ("ppm") and 30,000
to 400,000 pages per month; and
*printers that were designed primarily for high-volume printing
requirements, including (i) production printing applications, (ii)
print-on-demand applications, and (iii) computer network applications.
o Kentek printers enjoyed a dominant position in the mid-range market:
*Lowest jam rate in the industry due to "straight paper path" design.
*Lowest cost-per-page in the industry.
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BACKGROUND (CONTINUED)
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o In 1998, however, trends unfavorable to Kentek and similar mid-range
printer companies surfaced. The three major trends that had the most
negative impact on Kentek were (i) the dramatic speed, duty-cycle, and
cost-of-operation improvements in light-duty printers, (ii) the tremendous
growth of distributed network printing using the new, lower cost, and
faster light-duty printers, and (iii) Xerox's marketing war with Hewlett
Packard ("HP") for dominance in the office and departmental market.
IMPROVEMENT IN LIGHT-DUTY PRINTERS:
o Lower-end printers used to be 10-20 ppm behind those printers that defined
the mid-range market.
o Printer companies that specialized in the mid-range market often were
successful in quickly introducing new printers that were faster than their
previous respective models, thus maintaining their advantage over lower-end
printers.
o Several product delays (most notably the delay of HP's 30 ppm printer)
allowed other competitors such as Lexmark and Xerox to enter the mid-range
market.
o As these new market entrants began to develop faster lower-end printers,
competition for market share increased as these printers began migrating
into the mid-range market.
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BACKGROUND (CONTINUED)
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RAPID GROWTH OF DISTRIBUTED NETWORKS:
o As networked offices became more prevalent in the workplace, preference
shifted from offices with 1-2 centralized, bulky printers for everyone to
offices with multiple printers, each serving a small group of individuals.
o Because the lower-end printers that were entering the marketplace were (i)
smaller, (ii) easier to install, and (iii) had a considerably lower
acquisition cost than true mid-range printers, they quickly became the
printers-of-choice in the new office printer paradox.
o Though true mid-range printers such as those offered by Kentek are more
cost-effective in the long-run (as measured by cost per page where volume
and print coverage are high), office managers worried about meeting budget
requirements and maximizing short-term profitability (on which bonuses are
usually based) have opted instead for lower-end printers with cheaper
acquisition costs.
XEROX VERSUS HEWLETT PACKARD:
o In the mid-1990s, Xerox, the pre-eminent supplier of office copiers
worldwide, took notice of trends showing office copier machines were slowly
being replaced by both mid-range printers and printer/copiers with similar
speeds.
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BACKGROUND (CONTINUED)
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XEROX VERSUS HEWLETT PACKARD (CONTINUED):
o Recognizing the need to re-invent itself, Xerox began work on
printer/copiers that could compete in the office sector. HP's delay in
introducing its 30 ppm printer afforded Xerox the opportunity to easily
enter the mid-range printer market.
o With practically unlimited resources at their disposal to develop their new
printer/copiers, Xerox was successful in winning market share away from not
only HP but other industry participants. Xerox's efforts have recently
cumulated with the introduction of a 40 ppm printer/copier (with a
development cost of close to $500 million) that surprised most players in
the printer industry.
o Xerox has taken steps to ensure continued dominance in the departmental,
office sector by:
o expanding the market to OEMs,
o expanding the market through resellers,
o controlling sales channel by directly selling their products,
o offering customers a low up-front purchase price or alternatively, low
monthly lease terms, and
o fully utilizing their majority ownership of Fuji (and Fuji's
technology) to quickly achieve product evolution.
o Xerox is in essence leading the forced attrition of mid-range printers from
the departmental, office sector.
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BACKGROUND (CONTINUED)
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o Running parallel to the problems presented by negative industry trends was
Kentek's inability to develop their 60 ppm printer, the KW60.
o Prior to the KW60, Kentek successfully stayed a step ahead of the
competition by continually introducing faster printers before their
competitors could catch up. The KW60 was suppose to be the next genesis of
this trend.
o Having spent approximately $15 million over a two year period, the Company
believed they were close to finishing development of the KW60. On November
2, 1998, the Company was informed that development was not close to
completion. Certain aspects of the technology had proven to be very
complex, requiring more time and resources than originally planned.
o After estimating that at least another 2 years and $20 million would be
required to bring KW60 to fruition, the Company decided to halt further
development.
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BACKGROUND (CONTINUED)
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o On February 24, 1999, Howard Morgan, the Company's Chairman, approached
Kentek's management ("Management") to discuss whether they had an interest
in purchasing the firm.
o On March 8, 1999, Management, led by President and Chief Executive Officer
Phil Shires, indicated its willingness to acquire the Company's outstanding
common stock at a cash price of $7.85 per share, or at the option of each
stockholder, at a cash price of $7.50 per share and the right to receive
some form of additional consideration.
o In response to the management buyout offer (the "MBO"), Kentek's Board of
Directors formed a Special Committee to review the advisability of the
proposal. The Special Committee had discussions with Printronix, Lexmark,
Genicom and Miami Computer Services to solicit their interest in acquiring
Kentek but all of the aforementioned parties respectfully declined.
o On May 10, 1999, negotiations between the Special Committee and Phil Shires
led to Management revising upwards their offer price to $8.29 per share in
cash (the "Amended MBO").
o Janney Montgomery Scott has been engaged by the Special Committee to
express an opinion as to the fairness, from a financial point of view, of
the Amended MBO to the holders of the Company's common stock.
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KEY ELEMENTS OF THE TRANSACTION
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ECONOMICS AND TIMING
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o The Transaction offers to purchase all of the outstanding shares of
Kentek's common stock for $8.29 per share in cash.
o The Transaction offers to include in Kentek's shares outstanding those
options that have vested prior to the close of the Transaction. Holders of
options not vested will not receive consideration unless their options are
exercisable in a sale or merger of the Company. Holders of these vested
options will only be entitled to the "in-the-money" value of each option
(calculated by subtracting the option's strike price from $8.29).
o The Transaction is expected to close sometime in late July or early August.
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COMMON STOCK AND EQUIVALENTS OUTSTANDING
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Common Shares Outstanding @ 04/28/99 4,591,447
Plus: Morgan's Exercise + 7,705
Kann's Exercise + 5,000
Board Options + 166,912
Vested Employee Options + 29,327
Morgan's Sale-of-Company + 30,000
Less: Shire's Shares - 61,500
------------
Total Shares to be Purchased 4,768,891
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HISTORICAL FINANCIAL RESULTS
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HISTORICAL INCOME STATEMENT
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HISTORICAL INCOME STATEMENT
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For the Year Ended June 30,
----------------------------------------------------------- (1)
1995 1996 1997 1998 1999(P)
------- ------- ------- ------- ----------
(in thousands, except per share data)
Net Revenues $70,192 $74,381 $56,460 $45,053 $36,035
Growth (Decline) in Revenues (11.0)% 6.0% (24.1)% (20.2)% (20.0)%
Cost of Sales 48,449 44,408 30,443 22,324 17,141
------- ------- ------- ------- --------
Gross Profit 21,743 29,973 26,017 22,729 18,894
Gross Margin 31.0% 40.3% 46.1% 50.4% 52.4%
Operating Expenses 13,519 15,048 17,487 17,208 16,048
------- ------- ------- ------- --------
Operating Cash Flow (EBITDA) 8,224 14,925 8,530 5,521 2,846
------- ------- ------- ------- --------
Operating Income (EBIT) 6,406 13,277 7,249 4,243 2,271
------- ------- ------- ------- --------
Profit (Loss) Before Taxes 5,961 13,465 8,626 7,557 5,180
------- ------- ------- ------- --------
Net Income $ 5,035 $13,102 $ 4,761 $ 4,977 $ 4,071
======= ======= ======= ======= ========
Earnings Per Share $ 0.99 $ 2.42 $ 0.69 $ 0.70 $ 0.71
NET SALES
[GRAPH]
OPERATING CASH FLOW
[GRAPH]
(1) Based on actual results for Q1-Q3 and management's estimate of Q4 results.
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HISTORICAL BALANCE SHEET
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At June 30,
--------------------------------------------------------------(1)
1995 1996 1997 1998 1999(P)
-------- -------- -------- -------- --------
Assets: (in thousands, except per share data)
- ------
Cash and Investments $ 6,389 $ 25,992 $ 34,590 $ 42,655 $ 33,709
Accounts Receivable, net 7,822 7,098 6,213 5,297 3,321
Inventory, net 12,613 13,868 10,074 7,725 5,596
Other Current Assets 8,358 9,320 3,673 2,701 2,567
-------- -------- -------- -------- --------
Current Assets 35,182 56,278 54,550 58,378 45,193
Net Fixed Assets 2,715 1,631 1,721 1,794 1,519
Other Assets 1,814 2,336 1,381 1,300 1,068
-------- -------- -------- -------- --------
Total Assets $ 39,711 $ 60,245 $ 57,652 $ 61,472 $ 47,780
======== ======== ======== ======== ========
Liabilities:
- -----------
Accounts Payable $ 6,399 $ 4,145 $ 3,324 $ 2,200 $ 1,350
Current Maturities of LT Debt 101 5,035 -- -- --
Accrued Expenses and Other 3,176 4,238 3,165 3,050 2,368
-------- -------- -------- -------- --------
Current Liabilities 9,676 13,418 6,489 5,250 3,718
LT Debt 6,651 115 -- -- --
Other Liabilities 700 545 502 505 350
-------- -------- -------- -------- --------
Total Liabilities 17,027 14,078 6,991 5,755 4,068
-------- -------- -------- -------- --------
Stockholders' Equity:
- --------------------
Preferred Equity 568 -- -- -- --
Common Stock 8 68 69 71 72
Treasury Stock -- -- -- -- (15,179)
Additional Paid in Capital 31,484 43,463 43,945 44,821 43,842
Translation Gain (Loss) 541 (549) (753) (988) (460)
Retained Earnings (9,917) 3,185 7,400 11,813 15,884
Dividend -- -- -- -- (447)
-------- -------- -------- -------- --------
Total Equity 22,684 46,167 50,661 55,717 43,712
-------- -------- -------- -------- --------
Total Liabilities & Equity $ 39,711 $ 60,245 $ 57,652 $ 61,472 $ 47,780
======== ======== ======== ======== ========
(1) Based on actual results for Q1-Q3 and management's estimate of Q4 results.
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HISTORICAL CASH FLOW STATEMENT
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At June 30,
--------------------------------------------------------------(1)
1995 1996 1997 1998 1999(P)
-------- -------- -------- -------- --------
(in thousands, except per share data)
Operating Activities:
Net Income (Loss) $ 5,035 $ 13,102 $ 4,761 $ 4,977 $ 4,701
Depreciation 1,818 1,648 1,281 1,278 575
Other Non-Cash Items 130 (3,465) (409) (1,455) (10)
Changes in Assets and Liabilities 4,033 (1,568) (4,929) (661) 2,948
-------- -------- -------- -------- --------
Cash Provided by Operating Activities 11,016 9,717 704 4,139 8,214
-------- -------- -------- -------- --------
Cash Provided by Investing Activities (1,758) (820) (3,004) (5,776) (300)
-------- -------- -------- -------- --------
Financing Activities:
Net Borrowings (Payment) of Debt (8,490) (85) (5,150) -- (155)
Dividends Paid -- -- (546) (564) (447)
Treasury Stock (Purchases)/Sales -- -- -- -- (15,179)
Proceeds from Sale of Stock -- 17,600 483 878 (907)
Effect of Other Financing Activities -- (6,129) -- -- --
-------- -------- -------- -------- --------
Cash Provided by Financing Activities (8,490) 11,386 (5,213) 314 (16,688)
-------- -------- -------- -------- --------
Effect of exchange rate changes 1,590 (680) (263) (546) 528
-------- -------- -------- -------- --------
Net increase (decrease) in cash 2,358 19,603 (7,776) (1,869) (8,246)
Cash - bop 4,031 6,389 25,992 18,216 16,347
-------- -------- -------- -------- --------
Cash - eop $ 6,389 $ 25,992 $ 18,216 $ 16,347 $ 8,101
======== ======== ======== ======== ========
(1) Based on actual results for Q1-Q3 and management's estimate of Q4 results.
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STOCK PERFORMANCE - KENTEK INFORMATION SYSTEMS, INC.
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[GRAPH]
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STOCK PERFORMANCE - PEER GROUP
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[GRAPH]
Note: The comp group includes the following companies: Kentek Information
Systems, Axiohm Transaction Solutions, Bull Run Corp, Genicom Corp,
Lexmark International Group, Printronix, QMS Inc., Transact Technologies,
Tridex Corp and Zebra Technologies.
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STOCK PERFORMANCE - PEER GROUP
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[GRAPH]
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SHAREHOLDER PROFILE
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Directors and Exec Officers(1) 1,271,247
Institutional Investors 2,372,600
Retail Float 1,125,044
---------
Total Shares Outstanding(2) 4,768,891
[GRAPH]
(1) Excludes shares owned by Phil Shires.
(2) Source: Technimetrics, Proxy and Management estimates.
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PROJECTED FINANCIAL RESULTS
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PROJECTED FINANCIAL DATA
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The following projected financial data for Kentek Information Systems, Inc. has
been reviewed by the Company's management. Janney has relied upon the assessment
of the management of the Company regarding the Company's business and prospects,
and assumed that the projections were reasonably prepared on basis reflecting
the best currently available estimates.
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PROJECTED REVENUE BREAKDOWN
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For the Year Ended June 30,
-------------------------------------------------------------------
2000 2001 2002 2003 2005
-------- -------- -------- -------- --------
(in thousands, except per share data)
Printers - IBM (a) $ -- $ -- $ -- $ -- $ --
Printers - OEM (b) 3,400 1,600 -- -- --
-------- -------- -------- -------- --------
Total Printer Revenue 3,400 1,600 -- -- --
Supplies - Lexmark (c) 4,500 2,000 1,000 500 500
Supplies - OEM (d) 12,494 10,000 8,000 5,000 2,000
Supplies - OEM New (e) 1,006 2,515 3,018 3,018 3,018
-------- -------- -------- -------- --------
Total Supplies Revenue 18,000 14,515 12,018 8,518 5,518
Parts - IBM (f) 750 350 250 100 100
Parts - OEM (g) 1,501 1,000 1,000 500 500
Other 48 30 15 10 5
-------- -------- -------- -------- --------
Total Parts and Other Revenue 2,299 1,380 1,265 610 605
Total Revenue $ 23,699 $ 17,495 $ 13,283 $ 9,128 $ 6,123
======== ======== ======== ======== ========
UNIT SALES DATA (ACTUAL)
Printers IBM -- -- -- -- --
Printers - OEM 400 200 -- -- --
UNIT PRICE DATA (WEIGHTED AVERAGE)
Printers - IBM $ -- $ -- $ -- $ -- $ --
Printers - OEM $ 8,500 $ 8,000 $ 7,500 $ 7,000 $ 6,500
Supplies - OEM (15% cloning adjust.) $ 5,029 $ 5,029 $ 5,029 $ 5,029 $ 5,029
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PROJECTED REVENUE BREAKDOWN - FOOTNOTES
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(a) PRINTERS - IBM. The Company has had no IBM printer sales since FY 1996.
(b) PRINTERS - OEM. Company may stop building printers by September 1999. At
that time, the Company will only have not more than 600 printers on hand,
which it believes it can sell over the next two fiscal years to mostly
financial services players. Likely buyers include (but are not limited to):
Unisys, Oce, Tally, Banctec, NCR, Printer Systems International, Print
Assist and Trisquare.
(c) SUPPLIES - LEXMARK. Projected using historical statistical trends. The
Company does not have accurate data available as to how many printers
remain in the Lexmark installed base; therefore, they are unable to project
these revenues utilizing unit data.
(d) SUPPLIES - OEM. Projected using historical statistical trends. The Company
does not have accurate data available as to how many printers remain in
their installed base; therefore, they are unable to project these revenues
utilizing unit data.
(e) SUPPLIES - OEM NEW. Assumes each new printer sold after FY1999 will produce
$5,029 in annual supplies revenue, after adjusting for potential cloning of
15%. We have assumed these revenues will continue over the 7 year life of
the printers, with the Company only realizing 50% of these revenues in
years 1 and 7 and 100% of these revenues in years 2 through 6.
(f) PARTS - IBM. Though not officially announced, the Company believes that IBM
is close to announcing end-of-life on Kentek printers, as evidenced by the
huge drop in part sales to IBM in recent years. The Company assumes that
minimal, declining sales will occur over the next five years as independent
supplies resellers form some sort of sales channel for these parts.
(g) PARTS - OEM. Company's estimate as to the amount of parts that will be sold
in conjunction with the sale of the remaining 600 printers. Projections
based on historical statistical data.
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PROJECTED INCOME STATEMENT
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For the Year Ended June 30,
-----------------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
(in thousands, except share data)
Net Revenues $ 23,699 $ 17,495 $ 13,283 $ 9,128 $ 6,123
Cost of Sales 12,323 9,097 6,907 4,746 3,184
-------- -------- -------- -------- --------
Gross Profit 11,375 8,397 6,376 4,381 2,939
Operating Expenses:
Sales & Marketing 1,145 1,000 800 500 200
General & Administrative 2,299 2,000 1,700 1,250 1,000
Engineering/R&D 1,075 750 500 300 --
Operations 2,064 1,200 1,000 750 600
Other 308 120 100 80 50
-------- -------- -------- -------- --------
Total Operating Expenses 6,891 5,070 4,100 2,880 1,850
-------- -------- -------- -------- --------
Operating Cash Flow (EBITDA) 4,484 3,327 2,276 1,501 1,089
Depreciation & Amortization 564 300 300 300 200
-------- -------- -------- -------- --------
Operating Income (EBIT) 3,920 3,027 1,976 1,201 889
Interest (Income)/Expense 200 200 200 186 144
-------- -------- -------- -------- --------
Profit (Loss) Before Taxes 3,720 2,927 1,776 1,015 745
Provision for Income Taxes 1,637 1,244 781 447 328
-------- -------- -------- -------- --------
Net Income $ 2,083 $ 1,583 $ 994 $ 569 $ 417
======== ======== ======== ======== ========
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PROJECTED BALANCE SHEET - ASSETS
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At June 30,
-----------------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
(in thousands, except share data)
Assets:
Cash and Investments $ 4,880 $ 5,720 $ 7,811 $ 9,197 $ 9,737
Accounts Receivable, net 2,922 2,157 1,638 1,125 755
Inventory, net 4,220 3,115 2,365 1,625 1,090
Piro-paid Expenses 375 325 275 200 150
Deferred Tax Asset 819 819 819 819 819
-------- -------- -------- -------- --------
Current Assets 13,216 12,136 12,908 12,967 12,551
Property & Office Equipment 7,117 7,377 7,577 7,777 7,977
Tooling 11,853 11,853 11,853 11,853 11,853
Accumulated Depreciation (17,202) (17,502) (17,802) (18,102) (18,302)
-------- -------- -------- -------- --------
Net Fixed Assets 1,768 1,728 1,628 1,528 1,528
Guaranty Deposits 136 136 100 50 --
Deferred Tax Asset 528 528 528 528 528
Other Assets 48 8 -- -- --
-------- -------- -------- -------- --------
Total Assets $ 15,696 $ 14,536 $ 15,164 $ 15,073 $ 14,607
======== ======== ======== ======== ========
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PROJECTED BALANCE SHEET - LIABILITIES AND EQUITY
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At June 30,
-----------------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
Liabilities: (in thousands, except share data)
Bank Credit Lines 2,000 2,000 $ 2,000 $ 1,713 $ 1,149
Accounts Payable 1,215 897 681 468 314
Royalties Payable 468 468 468 468 468
Accrued Expenses 1,400 1,300 1,250 1,200 1,100
Other Current Liabilities 50 25 25 15 --
Current Maturities of LT Debt -- -- -- -- --
-------- -------- -------- -------- --------
Current Liabilities 5,133 4,690 4,424 3,864 3,031
Debentures -- -- -- -- --
LT Debt 2,100 -- -- -- --
NKJ Retirement Liability 450 250 150 50 --
-------- -------- -------- -------- --------
Total Liabilities 7,683 4,940 4,574 3,914 3,031
-------- -------- -------- -------- --------
Stockholders' Equity:
Common Stock -- -- -- -- --
Treasury Stock -- -- -- -- --
Additional Paid in Capital -- -- -- -- --
Translation Gain (Loss) (641) (641) (641) (641) (641)
Retained Earnings 8,653 10,237 11,231 11,800 12,217
Dividend -- -- -- -- --
-------- -------- -------- -------- --------
Total Equity 8,012 9,596 10,590 11,159 11,576
-------- -------- -------- -------- --------
Total Liabilities & Equity $ 15,696 $ 14,536 $ 15,164 $ 15,073 $ 14,607
======== ======== ======== ======== ========
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PROJECTED CASH FLOW STATEMENT
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At June 30,
-----------------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
Operating Activities: (in thousands, except share data)
Net Income (Loss) $ 2,083 $ 1,583 $ 994 $ 569 $ 417
Depreciation 564 300 300 300 200
Adjustments:
Accounts Receivable 399 765 519 512 370
Inventory 1,376 1,105 750 740 535
Other Current Assets 1,373 50 50 75 50
Other Assets 356 40 44 50 50
Accounts Payable and Accruals (585) (443) (266) (273) (269)
Other Liabilities (non-debt) 100 (200) (100) (100) (50)
-------- -------- -------- -------- --------
Cash Provided by Operating Activities 5,667 3,200 2,292 1,873 1,304
-------- -------- -------- -------- --------
Cash Used in Investing Activities:
Purchase of Equipment (813) (260) (200) (200) (200)
-------- -------- -------- -------- --------
Financing Activities:
Net Borrowings (Payment) of Debt (1,900) (2,100) -- (287) (564)
Dividends Paid 447 -- -- -- --
Treasury Stock (Purchases)/Sales -- -- -- -- --
Proceeds from sale of stock -- -- -- -- --
-------- -------- -------- -------- --------
Cash Provided by Financing Activities (1,453) (2,100) -- (287) (564)
-------- -------- -------- -------- --------
Effect of exchange rate changes (181) -- -- -- --
-------- -------- -------- -------- --------
Net increase (decrease) in cash 3,220 840 2,092 1,386 540
Cash - bop 1,660 4,880 5,720 7,811 9,197
-------- -------- -------- -------- --------
Cash - eop $ 4,880 $ 5,720 $ 7,811 $ 9,197 $ 9,737
======== ======== ======== ======== ========
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COMPARABLE COMPANY ANALYSIS
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VALUATION TECHNIQUES
COMPARABLE COMPANY ANALYSIS
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Comparable company analysis looks at the financial and stock market performance
of comparable publicly traded companies. Through reference to various earnings,
cash flow and balance sheet multiples, it is possible to "imply" a composite
reference trading value. Comparable company analysis is therefore extremely
important when evaluating the value to be realized through a sale.
The selection of appropriate comparable companies is often a difficult task,
and this is true in the case of Kentek. However, we believe the following
companies represent an appropriate comparable company group for Kentek and the
Transaction:
o Axiohm Transaction Solutions o QMS Inc.
o Bull Run Corp. o Transact Technologies Inc.
o Genicom Corp. o Tridex Corp.
o Lexmark International Group Inc. o Zebra Technologies
o Printronix Inc.
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COMPARABLE COMPANY ANALYSIS
SUMMARY VALUES AND MULTIPLES
- --------------------------------------------------------------------------------
MARKET LTM LTM LTM LTM 1999(P) 2000(P)
CAP REVENUE EBITDA EBIT NET INCOME EPS EPS
----------- ----------- --------- --------- ---------- ------- -------
KENTEK $ 39,132 $ 39,810 $ 3,156 $ 1,889 $ 3,422 $ 0.38 $ 0.57
Axiohm Transaction Solutions $ 26,892 $ 231,011 $ 68,764 $ 26,501 $ 5,472 N/A N/A
Bull Run Corp 84,898 29,848 1,892 770 2,360 N/A N/A
Genicom Corp 21,041 452,540 25,102 3,022 (13,059) 0.13 N/A
Lexmark Intl Grp Inc 7,951,642 3,020,599 458,400 382,800 243,000 4.32 5.14
Printronix Inc 91,615 176,679 22,246 14,347 12,794 N/A N/A
QMS Inc 36,777 144,251 12,315 2,087 1,536 N/A N/A
Transact Technologies Inc 21,887 52,239 4,478 2,448 1,386 N/A 0.51
Tridex Corp 14,329 43,504 300 (2,964) (3,586) 0.25 N/A
Zebra Technologies 1,056,975 335,983 79,964 69,716 44,917 2.07 2.53
ENTERPRISE VALUE/ EQUITY VALUE/
STOCK ----------------------------------- --------------------------------------
PRICE LTM LTM LTM LTM 1999(P) 2000(P)
(05/03/99) REVENUE EBITDA EBIT NET INCOME NET INCOME NET INCOME
----------- ------- ------ ---- ---------- ---------- ----------
KENTEK $ 7.88 0.1 x 1.5 x 2.5 x 16.0 x 20.7 x 13.9 x
Axiohm Transaction Solutions $ 4.13 0.9 x 3.0 x 7.7 x 4.9 x N/A N/A
Bull Run Corp 3.81 4.7 x 74.4 x 182.7 x 38.1 x N/A N/A
Genicom Corp 1.81 0.3 x 5.1 x 42.7 x NM 13.9 x N/A
Lexmark Intl Grp Inc 123.44 2.6 x 17.4 x 20.8 x 36.3 x 28.6 x 24.0 x
Printronix Inc 13.75 0.5 x 3.7 x 5.7 x 8.1 x N/A N/A
QMS Inc 3.44 0.3 x 3.5 x 20.6 x 24.6 x N/A N/A
Transact Technologies Inc 3.94 0.5 x 6.1 x 11.1 x 19.7 x N/A 7.7 x
Tridex Corp 2.25 0.9 x 133.5 x NM NM 9.0 x N/A
Zebra Technologies 34.13 2.7 x 11.2 x 12.8 x 23.7 x 16.5 x 13.5 x
31 [JANNEY MONTGOMERY SCOTT LOGO]
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COMPARABLE COMPANY ANALYSIS
SUMMARY OF KEY MULTIPLES AND PRICE RANGE
- -------------------------------------------------------------------------------
ENTERPRISE VALUE/ EQUITY VALUE/
------------------------------- -----------------------------------
LTM LTM LTM LTM 1999(P) 2000(P)
REVENUE EBITDA EBIT NET INCOME NET INCOME NET INCOME
------- -------- -------- ---------- ---------- -----------
High 4.7 x 133.5 x 182.7 x 38.1 x 28.6 x 24.0 x
Low 0.3 3.0 5.7 4.9 9.0 7.7
Median 0.9 6.1 16.7 23.7 15.2 13.5
Adjusted Average(1) 1.2 17.3 19.3 22.5 15.2 13.5
KENTEK - PER SHARE EQUITY VALUE
---------------------------------------------------------------------------
LTM (2) LTM (2) LTM (2) LTM (2) 1999(P) 2000(P)
REVENUE(3) EBITDA (3) EBIT (3) NET INCOME NET INCOME NET INCOME
------- -------- -------- ---------- ---------- -----------
KENTEK $39,810 $ 3,156 $ 1,889 $ 3,422 $ 1,812 $ 2,694
Shares Outstanding (000) 4,769 4,769 4,769 4,769 4,769 4,769
High $ 39.35 $ 88.37 $ 72.37 $ 27.36 $ 10.86 $ 13.57
Low 2.38 1.97 2.26 3.53 3.42 4.36
Median 7.38 4.01 6.61 17.00 5.78 7.62
Adjusted Mean(1) 10.00 11.47 7.64 16.13 5.78 7.62
(1) Adjusted to exclude the highest and lowest value before averaging.
(2) LTM results for period ending December 1998.
(3) Per share equity value calculated by subtracting Kentek's total debt of
$0.000 million from indicated enterprise value before dividing by shares
outstanding.
[JANNEY MONTGOMERY SCOTT LOGO]
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34
- --------------------------------------------------------------------------------
COMPARABLE TRANSACTION ANALYSIS
[JANNEY MONTGOMERY SCOTT LOGO]
35
VALUATION TECHNIQUES
COMPARABLE TRANSACTION ANALYSIS
- ------------------------------------------------------------------------------
Comparable transaction analysis is conducted in much the same way as the
comparable company analysis, but makes reference to comparable mergers and
acquisitions. Data from completed transactions must be evaluated in the context
of the market conditions prevailing at that time of acquisition and then
adjusted to reflect current market conditions. Comparable acquisition analysis
attempts to identify what "multiples" acquirors have been willing to pay in
comparable transactions. Comparable acquisitions are particularly meaningful
when evaluating 100% disposition, or acquisition, of controlling or strategic
stakes.
Every company has a unique business and financial condition. However, within
these constraints, we believe the transactions on the following pages represent
an appropriate group for evaluating the Transaction:
34 [JANNEY MONTGOMERY SCOTT LOGO]
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COMPARABLE TRANSACTION ANALYSIS
SUMMARY OF CORPORATE INFORMATION
- ------------------------------------------------------------------------------
Mergers and Acquisitions in the Computer Peripheral Industry (1)
==============================================================================
Date Date
Effective Announced Target Target Description
- --------- --------- ------ ------------------
10/2/1996 7/23/1996 Texas Instr-Worldwide Printer Mnfr computer printers
8/11/1997 7/9/1997 Digital Equipment Printing Sys Pvd printing services
10/2/1997 7/15/1997 DH Technology Inc Mnfr whl computer printers
10/28/1997 7/15/1997 Intl Imaging Materials Mnfr thermal transfer ribbons
11/17/1997 11/7/1997 Novadyne Computer Systems Pvd information technology svc
1/12/1998 11/4/1997 Computer Vision Corp Mnfr computers, peripherals
2/25/1998 1/16/1998 Checkmate Electronics Inc Mnfr, whl payment systems
3/2/1998 1/15/1998 Globalcenter (Global Village) Mnfr computer peripherals
4/16/1998 3/30/1998 PureSpeech Inc Dvlp speech recognition prods
4/20/1998 2/25/1998 Progressive Software Inc Develop software
4/30/1998 3/6/1998 Proxima Corp Mnfr PC liq crys display prods
6/29/1998 4/22/1998 AccelGraphics Inc Mnfr graphics accelerators
7/8/1998 7/1/1998 Central Data Corp Mnfr, whl serial port devices
10/28/1998 7/9/1998 Eltron International Inc Mnfr computer printers
11/6/1998 11/6/1998 Adaptec Inc-Disk Drive Bus Manufacture disk drives
3/1/1999 3/1/1999 Amarex Technology Mnfr software-based peripheral
3/4/1999 12/2/1998 Pipelinks Inc Manufacture LAN system
3/12/1999 12/17/1998 Truevision Inc Mnfr color imaging products
3/19/1999 10/6/1998 Raster Graphics Inc Manufacture computer plotters
Date Date
Effective Announced Acquiror Acquiror Description Status
- --------- --------- -------- -------------------- ------
10/2/1996 7/23/1996 Genicom Corp Pvd printer maintenance svcs Completed
8/11/1997 7/9/1997 Genicom Corp Pvd printer maintenance svcs Completed
10/2/1997 7/15/1997 Axiohm SA Mnfr, whl computer printers Completed
10/28/1997 7/15/1997 Paxar Corp Mnfr label systems Completed
11/17/1997 11/7/1997 Genicom Corp Pvd printer maintenance svcs Completed
1/12/1998 11/4/1997 Parametric Technology Corp Develop, wholesale software Completed
2/25/1998 1/16/1998 International Verifact Inc Mnfr, whl electn payment sys Completed
3/2/1998 1/15/1998 Frontier Corp Pvd telecommunications svcs Completed
4/16/1998 3/30/1998 Voice Control Systems Dvlp computer integrated sys Completed
4/20/1998 2/25/1998 Tridex Corp Mnfr terminal devices Completed
4/30/1998 3/6/1998 ASK AS Mnfr liquid crystal displays Completed
6/29/1998 4/22/1998 Evans & Sutherland Computer Mnfr computer graphics system Completed
7/8/1998 7/1/1998 Digi International Inc Mnfr data common hardware Completed
10/28/1998 7/9/1998 Zebra Technologies Corp Mnfr bar code printing sys Completed
11/6/1998 11/6/1998 Texas Instruments Inc Mnfr semiconductors, computers Completed
3/1/1999 3/1/1999 Comverse Technology Inc Mnfr telecommunications equip Completed
3/4/1999 12/2/1998 Cisco Systems Inc Mnfr inter-networking systems Completed
3/12/1999 12/17/1998 Pinnacle Systems Inc Mnfr special effects computers Completed
3/19/1999 10/6/1998 Gretag Imaging Group Inc Mnfr photofinishing equipment Completed
(1) Using SIC code 3577 for Computer Peripherals, not otherwise classified.
35 [JANNEY MONTGOMERY SCOTT LOGO]
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COMPARABLE TRANSACTION ANALYSIS
SUMMARY OF TRANSACTION VALUES AND KEY MULTIPLES
- --------------------------------------------------------------------------------
Mergers and Acquisitions in the Computer Peripheral Industry (1)
- --------------------------------------------------------------------------------
Target Deal Value to Target:
% Owned Deal Enterprise ------------------------------ -----------------------------
Target Post-Deal Value Value Net Sales EBITDA EBIT Net Sales EBITDA EBIT
- ---- --------- ----- ---------- --------- ------ ---- --------- ------ ----
Texas Instr-Worldwide Printer 100.0 27.0 np 132.9 -- 8.2 0.20 n/a 3.31
Digital Equipment-Printing Sys 100.0 3.1 np -- -- -- n/a n/a n/a
DH Technology Inc 85.0 169.5 167.6 103.0 17.6 13.8 1.65 9.62 12.25
Intl Imaging Materials 100.0 244.4 267.9 106.9 26.2 17.9 2.29 9.34 13.62
Novadyne Computer Systems 100.0 12.2 12.2 35.3 (0.6) (2.8) 0.35 nm nm
ComputerVision Corp 100.0 250.3 460.1 309.1 (29.8) (50.1) 0.81 nm nm
Checkmate Electronics Inc 100.0 47.2 46.9 33.7 0.0 (0.8) 1.40 nm nm
Globalcenter(Global Village) 100.0 190.3 np 17.4 (23.7) (25.7) 10.91 nm nm
PureSpeech Inc 100.0 13.1 9.8 1.1 (3.2) (3.8) 12.07 nm nm
Progressive Software Inc 100.0 48.5 48.4 33.8 2.3 2.0 1.43 21.09 24.02
Proxima Corp 100.0 82.9 70.0 133.3 (11.2) (15.8) 0.62 nm nm
AccelGraphics Inc 100.0 55.9 41.9 32.2 (1.6) (2.1) 1.74 nm nm
Central Data Corp 100.0 18.0 np 15.0 -- -- 1.20 n/a n/a
Eltron International Inc 100.0 287.7 282.2 116.6 22.1 19.3 2.47 13.01 14.91
Adaptec Inc-Disk Drive Bus 100.0 17.0 np -- -- -- n/a n/a n/a
Amarex Technology 100.0 16.6 np -- -- -- n/a n/a n/a
Pipelinks Inc 100.0 180.0 np -- -- -- n/a n/a n/a
Truevision Inc 100.0 11.5 8.0 30.5 (0.5) (1.7) 0.38 nm nm
Raster Graphics Inc 100.0 12.8 11.5 46.5 (12.3) (14.1) 0.28 nm nm
Enterprise Value to Target:
---------------------------
Target Net Sales EBITDA EBIT
- ---- --------- ------ -----
Texas Instr-Worldwide Printer n/a n/a n/a
Digital Equipment-Printing Sys n/a n/a n/a
DH Technology Inc 1.63 9.51 12.11
Intl Imaging Materials 2.51 10.24 14.93
Novadyne Computer Systems 0.35 nm nm
ComputerVision Corp 1.49 nm nm
Checkmate Electronics Inc 1.39 nm nm
Globalcenter(Global Village) n/a nm nm
PureSpeech Inc 9.00 nm nm
Progressive Software Inc 1.43 21.05 23.97
Proxima Corp 0.53 nm nm
AccelGraphics Inc 1.30 nm nm
Central Data Corp n/a n/a n/a
Eltron International Inc 2.42 12.76 14.63
Adaptec Inc-Disk Drive Bus n/a n/a n/a
Amarex Technology n/a n/a n/a
Pipelinks Inc n/a n/a n/a
Truevision Inc 0.26 nm nm
Raster Graphics Inc 0.25 nm nm
All Deals
- ----------------------------------------------------------------------
AVERAGE 2.52x 13.27x 13.62x 1.88x 13.39x 16.41x
MEDIAN 1.40x 11.31x 13.62x 1.41x 11.50x 14.78x
HIGH 12.07x 21.09x 24.02x 9.00x 21.05x 23.97x
LOW 0.20x 9.34x 3.31x 0.25x 9.51x 12.11x
======================================================================
Selected Deals
- ----------------------------------------------------------------------
AVERAGE 1.28x 10.66x 11.02x 1.66x 10.84x 13.89x
MEDIAN 1.23x 9.62x 12.94x 1.63x 10.24x 14.63x
HIGH 2.47x 13.01x 14.91x 2.51x 12.76x 14.93x
LOW 0.20x 9.34x 3.31x 0.25x 9.51x 12.11x
======================================================================
(1) Using SIC code 3577 for Computer Peripherals, not otherwise classified.
36 [JANNEY MONTGOMERY SCOTT LOGO]
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- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
[JANNEY MONTGOMERY SCOTT LOGO]
39
VALUATION TECHNIQUES
DISCOUNTED CASH FLOW ANALYSIS
- ------------------------------------------------------------------------------
Discounted cash flow ("DCF") analysis values a company's ability to generate
future free cash flow. A DCF analysis involves the development of a model to
project the income statement, balance sheets and resulting free cash flows of
the company. Projections are usually made for a period of four to six years and
the resulting cash flows are discounted, at an appropriate rate to present
value. The terminal value is also discounted to present value and serves as a
proxy for the annuity represented by the continuing free cash flow of the
business. The result is the net present value of cash flows to all providers of
capital. In general, a range of discount rates and a range of exit multiples are
used to calculate a range of values. The value from a DCF analysis should be
close to the intrinsic value of the company since it does not include the
benefit of synergies that may be available to a strategic buyer.
38 [JANNEY MONTGOMERY SCOTT LOGO]
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DISCOUNTED CASH FLOW ANALYSIS
KENTEK INFORMATION SYSTEMS, INC.
- --------------------------------------------------------------------------------
Projected
--------------------------------------------------------------- Terminal
06/30/00 06/30/01 06/30/02 06/30/03 06/30/04 Value
-------- -------- -------- -------- -------- ----------
Sales $ 23,699 $ 17,495 $ 13,283 $ 9,128 $ 6,123
Change in A/R 399 765 519 512 370
-------- -------- -------- ------- -------
Cash Sales 24,098 18,260 13,802 9,640 6,493
Cost of Goods Sold 12,323 9,097 6,907 4,746 3,184
Change in Inventory (1,376) (1,105) (750) (740) (535)
Change in A/P 135 318 216 213 154
-------- -------- -------- ------- -------
Cash Cost of Goods Sold 11,082 8,311 6,373 4,220 2,803
Cash Gross Profit 13,016 9,949 7,429 5,420 3,690
Operating Expenses 7,455 5,370 4,400 3,180 2,050
Depreciation & Amortization (564) (300) (300) (300) (200)
-------- -------- -------- ------- -------
Cash Operating Expenses 6,891 5,070 4,100 2,880 1,850
Cash Operating Income 6,125 4,879 3,329 2,540 1,840
Less: 44.0% Pro Forma Tax on Taxable Net Income 1,725 1,332 869 529 391
Less: Capital Expenditures 361 260 200 200 200
-------- -------- -------- ------- -------
Unlevered FCF to Capital Providers $ 4,039 $ 3,287 $ 2,260 $ 1,812 $ 1,249 $ 2,178(2)
Interest Expense Tax Shield 88 88 88 82 63
- ------------------------------------------------
NPV of Unlevered FCF(1) $ 9,692
Add: NPV of Tax Shields 409 EBITDA MULTIPLE RANGE
Less: Present Value to Debt Holders 6,000 ---------------------------------------------------
------- 0.0x 1.0x 2.0x 3.0x 4.0x
'Going Concern' Value of Equity $ 4,101 ----- ----- ----- ----- -----
12.5% $7.91 $8.04 $8.16 $8.29 $8.42
'Going Concern' Per Share Value $ 0.86 Discount 15.0% $7.81 $7.93 $8.04 $8.15 $8.27
Add: Cash Per Share Value 7.07 Factor 17.5% $7.72 $7.83 $7.93 $8.03 $8.13
------- Range 20.0% $7.64 $7.74 $7.83 $7.92 $8.01
Suggested Per Share Value $ 7.93 22.5% $7.57 $7.65 $7.73 $7.82 $7.90
- ------------------------------------------------
(1) Unlevered Free Cash Flows discounted at 17.5%.
(2) Assumes a terminal value equal to last year EBITDA of $1.1 million
multiplied by an EBITDA multiple of 2.0x.
39 [JANNEY MONTGOMERY SCOTT LOGO]
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- -------------------------------------------------------------------------------
LIQUIDATION ANALYSIS
[JANNEY MONTGOMERY SCOTT LOGO]
42
VALUATION TECHNIQUES
LIQUIDATION ANALYSIS
- ------------------------------------------------------------------------------
Unlike the going-concern valuation methods (Comparable Companies, Comparable
Transactions, and Discounted Cash Flow) which tend to be based largely on
income and cash flow analyses, liquidation valuations often involves an analysis
of individual asset values usually found on the balance sheet. Virtually all
businesses or interests in businesses may be appraised under each of the
following two alternative premises of value:
VALUE AS AN ORDERLY DISPOSITION. Value in exchange, on a piecemeal basis (not
part of a mass assemblage of assets), as part of an orderly disposition; this
premise contemplates that all of the assets of the business enterprise will be
sold individually, and that they will enjoy normal exposure to their
appropriate secondary market.
VALUE AS A FORCED LIQUIDATION. Value in exchange, on a piecemeal basis (not
part of a mass assemblage of assets), as part of a forced liquidation; this
premise contemplates that the assets of the business enterprise will be sold
individually, and that they will experience less than normal exposure to their
appropriate secondary market.
41 [JANNEY MONTGOMERY SCOTT LOGO]
43
LIQUIDATION ANALYSIS
ORDERLY DISPOSITION AND FORCED LIQUIDATION
- --------------------------------------------------------------------------------
"ORDERLY" "FORCED"
BOOK VALUE RETENTION ORDERLY RETENTION FORCED
ON 03/31/99 PERCENTAGE DISPOSITION PERCENTAGE LIQUIDATION
----------- ---------- ----------- ---------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 34,341 x 100% = $ 34,341 x 100% = $ 34,341
Account receivable, net of allowance 4,426 x 75% = 3,320 x 70% = 3,098
Inventory, net 5,670 x 50% = 2,835 x 35% = 1,985
Prepaid expenses 934 x 43% = 402 x 43% = 402
Current portion of deferred tax asset 1,937 x 11% = 213 x 11% = 213
---------- --------- ---------
Totals $ 47,308 $ 41,110 $ 40,038
---------- --------- ---------
OTHER ASSETS:
Property and Office Equipment $ 6,746 x 15% = $ 1,012 x 10% = $ 675
Tooling 11,365 x 10% = 1,137 x 5% = 568
Other assets 1,128 x 0% = 0 x 0% = 0
---------- --------- ---------
Totals 19,239 $ 2,148 $ 1,243
---------- --------- ---------
TOTAL LIQUIDATING VALUE OF ASSETS $ 43,259 $ 41,281
--------- ---------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 2,352 x 100% = $ 2,352 x 100% = $ 2,352
Royalties payable 543 x 100% = 543 x 100% = 543
Current maturities of long-term debt 0 x 100% = 0 x 100% = 0
Accrued expenses 2,099 x 70% = 1,469 x 70% = 1,469
Other current liabilities 227 x 100% = 227 x 100% = 227
---------- --------- ---------
Totals $ 5,221 $ 4,591 $ 4,591
---------- --------- ---------
OTHER LIABILITIES:
Accrued retirement benefits-Japan $ 472 x 100% = $ 472 x 100% = $ 472
Building leases-US 1,471 x 100% = 1,471 x 100% = 1,471
Building leases-Japan 1,600 x 100% = 1,600 x 100% = 1,600
Lexmark 1,761 x 100% = 1,761 x 100% = 1,761
Open purchase orders (excluding Lexmark) 4,135 x 40% = 1,664 x 40% = 1,664
---------- --------- ---------
Totals 9,439 $ 6,968 $ 6,968
---------- --------- ---------
TOTAL LIQUIDATING VALUE OF LIABILITIES $ 11,559 $ 11,559
--------- ---------
NET ASSET VALUE $ 31,700 $ 29,722
--------- ---------
42 [JANNEY MONTGOMERY SCOTT LOGO]
44
- -------------------------------------------------------------------------------
VALUATION SUMMARY
[JANNEY MONTGOMERY SCOTT LOGO]
45
PER SHARE EQUITY VALUATION - SUMMARY
- ------------------------------------------------------------------------------
Dollar values represent adjusted median values.
[PER SHARE EQUITY VALUATION - SUMMARY GRAPH]
44 [JANNEY MONTGOMERY SCOTT LOGO]
46
-----------------------------------------------------------------------------
COMPARABLE COMPANY DETAIL
[JANNEY MONTGOMERY SCOTT LOGO]
47
COMPARABLE COMPANY ANALYSIS
AXIOHM TRANSACTION SOLUTIONS
------------------------------------------
APPROX. MARKET CAPITALIZATION: $36 MILLION
------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
Axiohm Transaction Solutions, Inc. designs, manufactures and distributes
transaction printers and mechanisms, impact printheads, bar code printers, and
related services and supplies, such as labels and ribbons. Axiohm Transaction
Solutions, Inc. is a non-captive designer, manufacturer and marketer of
transaction printers. Until October 2, 1997, the company operated under the name
DH Technology, Inc. On that date, the last in a series of transactions occurred
as a result of which the company was acquired by Axiohm S.A., a French
corporation, and DH, the surviving corporation, changed its name to Axiohm
Transaction Solutions, Inc.
- --------------------------------------------------------------------------------
------------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
INCOME STATEMENT DATA: 1996 1997 1998 LTM
---- ---- ---- -----
(in thousands, except growth data)
Sales $115,784 $153,748 $231,011 $231,011
Revenue Growth NA 32.8% 50.3% 50.3%
Operating Cash Flow (EDITDA) 24,456 30,616 68,764 68,764
Net Operating Income (EBIT) 20,626 11,087 26,501 26,501
Net Income 13,027 (39,458) 5,472 5,472
BALANCE SHEET DATA:
Current Assets 83,086
Total Assets 97,105 204,044 171,726 171,726
Current Liabilities 42,973
Total Debt 2,212 171,512 178,310 178,310
Shareholders' Equity 82,252 (18,081) (47,998) (47,998)
Total Debt to Capitalization NA 111.8% 136.8% 136.8%
- --------------------------------------------------------------------------------
------------------------------------------
OWNERSHIP ANALYSIS
Management 57%
Retail Float 32%
Institutional 11%
------------------------------------------
46 [JANNEY MONTGOMERY SCOTT LOGO]
48
COMPARABLE COMPANY ANALYSIS
BULL RUN CORP.
------------------------------------------
APPROX. MARKET CAPITALIZATION: $91 MILLION
------------------------------------------
- -------------------------------------------------------------------------------
BUSINESS DESCRIPTION
Bull Run Corp. designs, makes, and markets heavy-duty dot matrix and thermal
printers for industrial applications; and owns interest in television stations,
daily newspapers, and other communications businesses. Bull Run Corp. operates
through wholly owned Datasouth Computer Corp. and affiliates. Datasouth makes
heavy-duty dot matrix and thermal printers, generally selling under the
Datasouth name. It has historically targeted the heavy-duty, multipart forms
segment of the serial matrix impact printer market such as
transportation/travel, healthcare and manufacturing/distribution. These printers
are used mainly for forms such as invoices, purchase orders, bills of lading,
customs documents,
- -------------------------------------------------------------------------------
------------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
------------------------------------------
- -------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
-----------------------------------------
INCOME STATEMENT DATA: (in thousands, except growth data)
Sales $24,654 $22,320 $29,848 $28,848
Revenue Growth NA -9.5% 33.7% 33.7%
Operating Cash Flow (EDITDA) 4,784 1,005 1,892 1,892
Net Operating Income (EBIT) 3,834 4 770 770
Net Income 5,877 (1,773) 2,360 2,360
BALANCE SHEET DATA:
Current Assets 11,523
Total Assets 67,851 76,832 95,172 95,172
Current Liabilities 7,978
Total Debt 31,864 44,498 55,848 55,848
Shareholders' Equity 28,318 25,056 29,791 29,791
Total Debt to Capitalization NA 64.0% 65.2% 65.2%
- -------------------------------------------------------------------------------
------------------------------------------
OWNERSHIP ANALYSIS
Management 62%
Retail Float 14%
Institutional 24%
------------------------------------------
[JANNEY MONTGOMERY SCOTT LOGO]
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COMPARABLE COMPANY ANALYSIS
GENICOM CORP.
------------------------------------------
APPROX. MARKET CAPITALIZATION: $21 MILLION
------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
GENICOM Corp. provides maintenance and repair services for computer systems
produced by various vendors; offers network planning integration and
optimization services; and develops and distributes printers and related
products. GENICOM Corp., through its worldwide operations, provides maintenance
and repair services for computer systems produced by multiple vendors, network
planning integration and optimization services. The company develops,
manufactures, and distributes printers and related products. GENICOM's service
business include information management, procurement, on-site installation and
repair, and off-site repair, refurbishment, and re-manufacturing.
- --------------------------------------------------------------------------------
---------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
---------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
---------- ---------- ---------- ----------
(in thousands, except growth data)
INCOME STATEMENT DATA:
Sales $ 303,258 $ 421,128 $ 452,540 $ 452,540
Revenue Growth NA 38.9% 7.5% 4.5%
Operating Cash Flow(EBITDA) 25,379 37,718 25,102 25,102
Net Operating Income(EBIT) 7,507 18,751 3,022 3,022
Net Income 2,081 7,858 (13,059) (13,059)
BALANCE SHEET DATA:
Current Assets 178,175
Total Assets 186,079 250,049 229,977 229,977
Current Liabilities 93,514
Total Debt 54,553 93,463 112,936 112,936
Shareholders' Equity 37,591 45,396 24,617 24,617
Total Debt to Capitalization NA 67.3% 82.1% 82.1%
- --------------------------------------------------------------------------------
---------------------------------------
OWNERSHIP ANALYSIS
Retail Float 67%
Management 10%
Institutional 23%
---------------------------------------
48 [JANNEY MONTGOMERY SCOTT LOGO]
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COMPARABLE COMPANY ANALYSIS
LEXMARK INTERNATIONAL GROUP INC.
--------------------------------------------
APPROX. MARKET CAPITALIZATION: $7793 MILLION
--------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
Lexmark International Group, Inc. develops, makes and supplies laser and inkjet
printers and associated consumable supplies for the office and home markets. The
company also sells dot matrix printers for printing single and multi-part forms
by business users; and a line of office imaging products. Lexmark International
Group, Inc. is a global developer, manufacturer and supplier of laser and inkjet
printers and associated consumable supplies for the office and home markets. The
company also sells dot matrix printers for printing single and multi-part forms
by business users.
- --------------------------------------------------------------------------------
---------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
---------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
---------- ---------- ---------- ----------
(in thousands, except growth data)
INCOME STATEMENT DATA:
Sales $2,377,600 $2,493,500 $3,020,600 $3,020,600
Revenue Growth NA 4.9% 21.1% 0.0%
Operating Cash Flow(EDITDA) 270,800 332,200 458,400 458,400
Net Operating Income(EBIT) 201,600 254,700 382,800 382,800
Net Income 127,800 163,000 243,000 243,000
BALANCE SHEET DATA:
Current Assets 1,020,000
Total Assets 1,221,500 1,208,200 1,483,400 1,483,400
Current Liabilities 605,700
Total Debt 165,300 75,000 160,400 160,400
Shareholders' Equity 540,300 500,700 578,100 578,100
Total Debt to Capitalization NA 13.0% 21.7% 21.7%
- --------------------------------------------------------------------------------
---------------------------------------
OWNERSHIP ANALYSIS
Management 3%
Retail Float 14%
Institutional 83%
---------------------------------------
49 [JANNEY MONTGOMERY SCOTT LOGO]
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COMPARABLE COMPANY ANALYSIS
PRINTRONIX INC.
-------------------------------------------
APPROX. MARKET CAPITALIZATION: $93 MILLION
-------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
Printronix, Inc. designs, makes and markets medium and high speed printers which
support a wide range of computer systems and software platforms. Products are
designed primarily for business and industrial applications where performance
and reliability are paramount. Printronix, Inc. is a leading independent
supplier of line matrix printers, and a leading supplier of printers for bar
code label printing. In addition to line matrix technology, the company offers
laser printers which are designed for reliability, versatility and ease of
service and thermal printers for dedicated bar code and labeling applications.
Printronix's goal is to provide its customers with a total printing solution.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
---------- ---------- ---------- ----------
(in thousands, except growth data)
INCOME STATEMENT DATA:
Sales $ 173,290 $ 170,391 $ 179,702 $ 179,702
Revenue Growth NA (1.7)% 5.5% 0.0%
Operating Cash Flow (EDITDA) 19,470 24,357 23,172 23,172
Net Operating Income (EBIT) 12,379 16,827 15,273 15,273
Net Income 11,671 15,064 12,364 12,364
BALANCE SHEET DATA:
Current Assets 51,043
Total Assets 80,653 88,864 84,671 84,671
Current Liabilities 20,687
Total Debt 0 0 0 0
Shareholders' Equity 63,508 69,237 63,069 63,069
Total Debt to Capitalization NA 0.0% 0.0% 0.0%
- --------------------------------------------------------------------------------
-------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
-------------------------------------
-------------------------------------
OWNERSHIP ANALYSIS
Management 31%
Retail Float 25%
Institutional 44%
-------------------------------------
50 [JANNEY MONTGOMERY SCOTT LOGO]
52
COMPARABLE COMPANY ANALYSIS
QMS INC.
------------------------------------------
APPROX. MARKET CAPITALIZATION: $35 MILLION
------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
QMS, Inc. designs and makes intelligent controllers which enhance the graphics
capabilities and performance of computer printing and imaging systems. QMS, Inc.
makes controllers which consist of software implemented on printed circuit
boards and are incorporated into computer printing and imaging systems which the
company markets, sells, and supports. QMS also markets its controllers
separately for incorporation into products marketed by others and offers service
support for non-QMS manufactured products.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
---------- ---------- ---------- ----------
(in thousands, except growth data)
INCOME STATEMENT DATA:
Sales $ 147,174 $ 124,589 $ 133,491 $ 144,251
Revenue Growth NA (15.3)% 7.1% 8.1%
Operating Cash Flow (EDITDA) 10,693 (5,980) 4,590 4,461
Net Operating Income (EBIT) 5,325 (10,372) 2,345 2,169
Net Income 4,253 (26,122) 1,825 1,536
BALANCE SHEET DATA:
Current Assets 53,233
Total Assets 91,718 58,589 69,355 70,294
Current Liabilities 38,841
Total Debt 14,963 2,333 6,694 7,850
Shareholders' Equity 47,432 24,324 26,038 26,439
Total Debt to Capitalization NA 8.8% 20.5% 22.9%
- --------------------------------------------------------------------------------
---------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
---------------------------------------
---------------------------------------
OWNERSHIP ANALYSIS
Retail Float 73%
Management 12%
Institutional 15%
---------------------------------------
51 [JANNEY MONTGOMERY SCOTT LOGO]
53
COMPARABLE COMPANY ANALYSIS
TRANSACT TECHNOLOGIES INC.
------------------------------------------
APPROX. MARKET CAPITALIZATION: $19 MILLION
------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
TransAct Technologies, Inc. designs, develops, makes and markets transaction
based printers and related products under the ITHACA and MAGNETEC brand names.
The company's printers are used to provide transaction records such as receipts,
tickets, coupons, register journals and other documents. TransAct Technologies,
Inc. manufactures and sells customized and custom dot matrix and thermal
printers for applications requiring up to 60 character columns in each of its
four vertical markets; and sells an 80 column laser printer for kiosk
applications. TransAct focuses on four vertical markets: point-of-sale, gaming
and lottery, financial services and kiosks.
- --------------------------------------------------------------------------------
------------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
---- ---- ---- -----
INCOME STATEMENT DATA: (in thousands, except growth data)
Sales $42,134 $58,400 $52,239 $52,239
Revenue Growth NA 38.6% (10.5)% 0.0%
Operating Cash Flow (EDITDA) 6,395 9,419 4,478 4,478
Net Operating Income (EBIT) 5,260 7,828 2,448 2,448
Net Income 3,340 4,893 1,386 1,386
BALANCE SHEET DATA:
Current Assets 16,094
Total Assets 20,784 24,699 23,788 23,788
Current Liabilities 5,987
Total Debt 1,000 300 5,800 5,800
Shareholders' Equity 14,407 17,903 12,177 12,177
Total Debt to Capitalization NA 1.6% 32.3% 32.3%
- --------------------------------------------------------------------------------
------------------------------------------
OWNERSHIP ANALYSIS
Retail Float 66%
Institutional 24%
Management 10%
------------------------------------------
52 [JANNEY MONTGOMERY SCOTT LOGO]
54
COMPARABLE COMPANY ANALYSIS
TRIDEX CORP.
------------------------------------------
APPROX. MARKET CAPITALIZATION: $15 MILLION
------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
Tridex Corp. designs, develops, makes, integrates and sells custom-designed
terminal devices, customer displays, keyboards and other peripheral devices used
in a variety of transactions at the retail point-of-sale, and ribbon cartridges
for specialty dot matrix printers. Tridex Corp. provides high quality,
point-of-sale (POS) solutions and peripheral devices used in many niche retail
applications including convenience store, fuel, home centers, automotive parts,
hardware, theatre, grocery and other transaction based markets. Products
include customer displays, keyboards and terminal devices for POS applications.
The company manufactures and markets POS customer displays, keyboards and
terminal devices for use in
- --------------------------------------------------------------------------------
------------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
---- ---- ---- -----
INCOME STATEMENT DATA: (in thousands, except growth data)
Sales $37,053 $25,833 $43,504 $43,504
Revenue Growth NA (30.3)% 68.4% 68.4%
Operating Cash Flow (EDITDA) 2,878 543 300 300
Net Operating Income (EBIT) 1,157 (321) (2,964) (2,964)
Net Income 5,991 (568) (3,586) (3,586)
BALANCE SHEET DATA:
Current Assets 17,944
Total Assets 38,653 28,003 52,953 52,953
Current Liabilities 13,444
Total Debt 5,546 0 25,747 25,747
Shareholders' Equity 26,015 24,219 18,377 18,377
Total Debt to Capitalization NA 0.0% 58.4% 58.4%
- --------------------------------------------------------------------------------
------------------------------------------
OWNERSHIP ANALYSIS
Retail Float 64%
Management 20%
Institutional 16%
------------------------------------------
53 [JANNEY MONTGOMERY SCOTT LOGO]
55
COMPARABLE COMPANY ANALYSIS
ZEBRA TECHNOLOGIES
-------------------------------------------
APPROX. MARKET CAPITALIZATION: $996 MILLION
-------------------------------------------
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION
Zebra Technologies Corp. makes and supports a line of computerized on-demand bar
code label printers, specialty bar code labeling materials, thermal transfer
ribbons and PC-based bar code software which provides bar code labeling
solutions targeted primarily at industrial and service organizations worldwide.
Zebra Technologies Corp. provides bar code labeling solutions, principally to
manufacturing and service entities, for use in automatic identification and data
collection systems. The company makes, sells and supports a broad line of
computerized label printing systems, related specialty supplies and PC-based
label design software on a worldwide basis.
- --------------------------------------------------------------------------------
---------------------------------------
STOCK PRICE AND VOLUME ANALYSIS
[GRAPH]
---------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL PERFORMANCE
1996 1997 1998 LTM
---------- ---------- ---------- ----------
(in thousands, except growth data)
INCOME STATEMENT DATA:
Sales $ 169,715 $ 192,071 $ 335,983 $ 335,983
Revenue Growth NA 13.2% 74.9% 74.9%
Operating Cash Flow (EDITDA) 49,994 65,586 79,964 79,964
Net Operating Income (EBIT) 46,155 61,311 69,716 69,716
Net Income 28,915 42,810 44,917 44,917
BALANCE SHEET DATA:
Current Assets 280,030
Total Assets 163,283 203,584 310,002 310,002
Current Liabilities 38,025
Total Debt 178 253 234 234
Shareholders' Equity 140,456 179,551 270,884 270,884
Total Debt to Capitalization NA 0.1% 0.1% 0.1%
- --------------------------------------------------------------------------------
---------------------------------------
OWNERSHIP ANALYSIS
Management 17%
Retail Float 32%
Institutional 51%
---------------------------------------
54 [JANNEY MONTGOMERY SCOTT LOGO]
56
COMPARABLE COMPANY ANALYSIS
SELECTED MARKET DATA
- --------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of
extraordinary items.
Kentek Axiohm
Information Transaction Bull Run Genicom Lexmark Intl
Systems Solutions Corp Corp Grp Inc
----------- ----------- --------- -------- -------------
Market Price as of: 5/3/1999 $ 7.88 $ 4.13 $ 3.81 $ 1.81 $ 123.44
52 Week High $ 9.38 $ 14.50 $ 5.50 $ 12.75 $ 128.50
52 Week Low $ 4.63 $ 3.00 $ 2.88 $ 1.09 $ 50.75
Symbol/Exchange KNTK/OTC AXHMOTC BULL/OTC GECI/OTC LXK/NYSE
Most Recent Fiscal Year/End 6/98 12/98 12/98 12/98 12/98
Most Recent Quarter End 12/98 12/98 12/98 12/98 12/98
Common Shares Outstanding 4,969 8,519 22,268 11,609 64,418
Market Value of Common Equity $ 39,312 $ 26,892 $ 84,898 $21,041 $ 7,951,642
Total Debt & Preferred Stock(2) 0 178,310 55,848 112,936 160,400
Cash & Marketable Securities (34,341) (902) (58) (4,894) (149,000)
----------- ----------- --------- -------- -------------
Total Enterprise Value (TEV) $ 4,791 $ 204,300 $ 140,688 $129,083 $ 7,963,042
=========== =========== ========= ======== =============
Earnings Per Share
LFY EPS $ 0.70 $ 0.84 $ 0.10 $ (1.13) $ 3.40
LTM EPS $ 0.49 $ 0.84 $ 0.10 $ (1.13) $ 3.40
1999 EPS Estimate (3)% Change $ 0.09 -37.1% N/A N/A N/A N/A $ 0.13 N/A $ 4.32 27.1%
1999 EPS Calendarized Estimate (4)% Change $ 0.38 -15.7% N/A N/A N/A N/A $ 0.13 N/A $ 4.32 27.1%
2000 EPS Estimate (3)% Change $ 0.54 500.0% N/A N/A N/A N/A N/A N/A $ 5.14 19.0%
2000 EPS Calendarized Estimate (4)% Change $ 0.57 48.7% N/A N/A N/A N/A N/A N/A $ 5.14 19.0%
Next 5 Year Growth (%)(3) 5.0% N/A N/A 20.0% 20.0%
Price/LFY EPS 11.3 x 4.9 x 38.1 x NM 36.3 x
Price/LTM EPS 16.0 x 4.9 x 38.1 x NM 36.3 x
Price/1999E Calendarized EPS 20.7 x N/A N/A 13.9 x 28.6 x
Price/2000E Calendarized EPS 13.9 x N/A N/A N/A 24.0 x
Indicated Annual Dividend $ 0.08 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Dividend Yield 1.0% N/A N/A N/A N/A
Latest Return: EBITDA/Total Assets 23.4% 40.0% 2.0% 10.9% 30.9%
Latest Return on Equity 7.7% (11.4)% 7.9% N/M 42.0%
[JANNEY MONTGOMERY SCOTT LOGO]
55
57
COMPARABLE COMPANY ANALYSIS
SELECTED BALANCE SHEET & CAPITALIZATION DATA
- --------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of
extraordinary items.
Kentek Axiohm
Information Transaction Lexmark Intl.
Systems Solutions Bull Run Corp Genicom Corp Grp Inc.
---------- ----------- ------------- ------------ ----------
Capitalization as of: 3/99 12/98 12/98 12/98 12/98
Short-Term Debt $ 0 $ 9,698 $ 4,000 $ 7,936 $ 11,700
Long-Term Debt 0 166,412 51,848 105,000 148,700
Preferred Stock 0 0 0 0 0
Common Equity 44,391 (47,998) 29,791 24,617 578,100
---------- ---------- ---------- ---------- ----------
Total Shareholders' Equity 44,391 (47,998) 29,791 24,617 578,100
---------- ---------- ---------- ---------- ----------
Total Capitalization $ 44,391 $ 130,312 $ 85,639 $ 137,553 $ 738,500
========== ========== ========== ========== ==========
Short-Term Debt 0.00% 7.60% 4.67% 5.77% 1.58%
Long-Term Debt 0.00% 129.24% 60.54% 76.33% 20.14%
Preferred Stock 0.00% 0.00% 0.00% 0.00% 0.00%
Common Equity 100.00% (36.63)% 34.79% 17.90% 76.28%
---------- ---------- ---------- ---------- ----------
Total Shareholders' Equity 100.00% (36.63)% 34.79% 17.90% 78.28%
---------- ---------- ---------- ---------- ----------
Total Capitalization 100.00% 100.00% 100.00% 100.00% 100.00%
========== ========== ========== ========== ==========
Debt/Equity Ratio 0.00% (371.49)% 187.47% 458.77% 27.75%
Total Assets $ 50,084 $ 171,726 $ 95,172 $ 229,977 $1,483,400
Total Operating Assets (3) $ 14,615 $ 88,603 $ 14,001 $ 204,347 $1,301,500
Net Fixed Assets $ 1,648 $ 20,556 $ 2,623 $ 45,459 $ 430,500
Net Sales/Net Fixed Assets (x) 24.2x 11.2x 11.4x 10.0x 7.0x
Average Accts. Rec. Balance (2) $ 4,756 $ 32,838 $ 5,172 $ 88,448 $ 404,450
Acct. Rec. Turnover (Days) 43.6 51.9 63.2 71.3 48.9
Average Accts. Pay. Balance (2) $ 2,177 $ 18,694 $ 2,705 $ 74,756 $ 251,675
Accts. Pay. Turnover (Days) 43.6 45.2 44.7 77.2 47.5
Average Inventory Balance (2) $ 6,949 $ 31,934 $ 4,616 $ 64,603 $ 382,700
Inventory Turnover (Days) 139.3 77.2 76.2 66.7 72.2
56 [JANNEY MONTGOMERY SCOTT LOGO]
58
COMPARABLE COMPANY ANALYSIS
HISTORICAL FINANCIAL DATA
- --------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of
extraordinary items.
Kentek Axiohm
Information Transaction Lexmark Intl
Systems Solutions Bull Run Corp Genicom Corp Grp Inc
----------- ----------- ------------- ------------ ------------
12/98 12/98 12/98 12/98 12/98
Net Operating Revenues
LTM $ 39,810 $ 231,011 $ 29,848 $ 452,540 $3,020,599
1998 45,053 231,011 29,848 452,540 3,020,600
1997 56,460 153,748 21,639 421,128 2,493,500
1996 74,381 95,302 23,810 303,258 2,377,600
Gross Profit
LTM $ 21,603 $ 50,062 $ 7,745 $ 98,945 $1,086,200
1998 22,729 80,082 7,745 98,945 1,086,200
1997 26,017 51,148 5,672 97,181 870,000
1996 29,973 28,912 6,640 70,969 747,400
Operating Cash Flow
LTM $ 3,156 $ 68,764 $ 1,592 $ 25,102 $ 458,400
1998 5,521 68,764 1,592 25,102 458,400
1997 8,530 41,946 502 37,718 352,100
1996 14,925 14,172 2,179 25,257 299,600
Operating Profit
LTM $ 1,889 $ 26,501 $ 770 $ 3,022 $ 382,800
1998 4,243 26,501 770 3,022 382,800
1997 7,249 21,975 (499) 18,751 274,600
1996 13,277 11,251 1,229 7,385 230,400
Profit Before Tax
LTM $ 5,152 $ 9,583 $ 4,214 $ (8,093) $ 365,400
1998 7,557 9,583 4,214 (8,093) 365,400
1997 8,626 12,035 (2,712) 11,659 254,700
1996 13,465 11,410 9,889 2,604 201,600
Net Income
LTM $ 3,422 $ 5,472 $ 2,360 $ (13,059) $ 243,000
1998 4,977 5,472 2,360 (13,059) 243,000
1997 4,761 (7,443) (1,773) 9,354 163,000
1996 13,102 7,004 5,877 4,590 127,800
57 [JANNEY MONTGOMERY SCOTT LOGO]
59
COMPARABLE COMPANY ANALYSIS
HISTORICAL MARGIN DATA
- --------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of
extraordinary items.
Kentek Axiohm
Information Transaction Lexmark Intl
Systems Solutions Bull Run Corp Genicom Corp Grp Inc
----------- ----------- ------------- ------------ ------------
Index Growth Rates
- ------------------
LTM (11.5)% 0.0% 0.0% 0.0% 0.0%
1998 (20.2) 50.3 37.9 7.5 21.1
1997 (24.1) 61.3 (9.1) 38.9 4.9
1996 N/A N/A N/A N/A N/A
Gross Profit as % of Revenue
- ----------------------------
LTM 54.3% 34.7% 25.9% 21.9% 36.0%
1998 50.4 34.7 25.9 21.9 36.0
1997 46.1 33.3 26.2 23.1 34.9
1996 40.3 30.3 27.9 23.4 31.4
Operating Cash Flow as % of Revenue
- -----------------------------------
LTM 7.9% 29.8% 6.3% 5.5% 15.2%
1998 12.3 29.5 6.3 5.5 15.2
1997 15.1 27.3 2.3 9.0 14.1
1996 20.1 14.9 9.2 8.3 12.6
Operating Profit as % of Revenue
- --------------------------------
LTM 4.7% 11.5% 2.6% 0.7% 12.7%
1998 9.4 11.5 2.6 0.7 12.7
1997 12.8 14.3 NM 4.5 11.0
1996 17.8 11.8 5.2 2.4 9.7
Profit Before Tax as % of Revenue
- ---------------------------------
LTM 12.9% 4.1% 14.1% NM 12.1%
1998 16.8 4.1 14.1 NM 12.1
1997 15.3 7.8 NM 2.8 10.2
1996 18.1 12.0 41.5 0.9 8.5
Net Income as % of Revenue
- --------------------------
LTM 8.6% 2.4% 7.9% NM 5.0%
1998 11.0 2.4 7.9 NM 5.0
1997 8.4 NM NM 2.2 6.5
1996 17.6 7.3 24.7 1.5 5.4
[JANNEY MONTGOMERY SCOTT LOGO]
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60
COMPARABLE COMPANY ANALYSIS
SELECTED VALUATION RATIOS
- ---------------------------------------------------------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of extraordinary items.
Kentek Axiohm
Information Transaction Lexmark Intl
Systems Solutions Bull Run Corp Genicom Corp Grp Inc
----------- ----------- ------------- ------------ ------------
Market Capitalization Basis
- ---------------------------
Market/Net Income 16.0 x 4.9 x 38.1 x NM 36.3 x
Market/Net Income (1999P Calendarized) 20.7 x N/A N/A 13.9 x 28.6 x
Market/Net Income (2000P Calendarized) 13.9 x N/A N/A N/A 24.0 x
Market/Book 0.9 x NM 2.8 x 0.9 x 13.8 x
TEV Basis
- ---------
TEV/Revenue 0.1 x 0.9 x 4.7 x 0.3 x 2.6 x
TEV/Operating Cash Flow 1.5 x 3.0 x 74.4 x 5.1 x 17.4 x
TEV/Operating Profit 2.5 x 7.7 x 182.7 x 42.7 x 20.8 x
- ---------------------------------------------------------------------------------------------------------------------------------
59 [JANNEY MONTGOMERY SCOTT LOGO]
61
COMPARABLE COMPANY ANALYSIS
SELECTED MARKET DATA
- -----------------------------------------------------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of extraordinary items.
Transact Zebra
Printronix Inc QMS Inc Technologies Inc Tridex Corp Technologies
-------------- -------- ---------------- ----------- ------------
Market Price as of: 5/3/1999 $ 13.75 $ 3.44 $ 3.94 $ 2.25 $ 34.13
52 Week High $ 16.50 $ 5.00 $ 10.63 $ 7.88 $ 44.63
52 Week Low $ 11.00 $ 2.63 $ 1.75 $ 1.88 $ 22.88
Symbol/Exchange PTNX/OTC AQM/NYSE TACT/OTC TRDX/OTC ZBRA/OTC
Most Recent Fiscal Year End 3/98 9/98 12/98 12/98 12/98
Most Recent Quarter End 12/98 12/98 12/98 12/98 12/98
Common Shares Outstanding 6,663 10,699 5,559 6,368 30,974
Market Value of Common Equity $ 91,615 $ 36,777 $ 21,887 $ 14,329 $ 1,056,975
Total Debt & Preferred Stock(2) 0 7,850 5,800 25,747 234
Cash & Marketable Securities (9,820) (1,707) (546) (18) (162,668)
-------- -------- -------- -------- -----------
Total Enterprise Value (TEV) $ 81,795 $ 42,920 $ 27,141 $ 40,058 $ 894,541
======== ======== ======== ======== ===========
Earnings Per Share
- ------------------
LFY EPS $ 1.90 $ 0.17 $ 0.20 $ (0.59) $ 1.44
LTM EPS $ 1.69 $ 0.14 $ 0.20 $ (0.59) $ 1.44
1999 EPS Estimate (3)/% Change N/A N/A N/A N/A N/A N/A $ 0.25 N/A $ 2.07 43.7%
1999 EPS Calendarized Estimate (4)/% Change N/A N/A N/A N/A N/A N/A $ 0.25 N/A $ 2.07 43.7%
2000 EPS Estimate (3)/% Change N/A N/A N/A N/A $ 0.51 N/A N/A N/A $ 2.53 22.2%
2000 EPS Calendarized Estimate (4)/% Change N/A N/A N/A N/A $ 0.51 N/A N/A N/A $ 2.53 22.2%
Next 5 Year Growth (%)(3) N/A N/A 20.0% N/A 18.0%
Price/LFY EPS 7.2 x 20.2 x 19.7 x NM 23.7 x
Price/LTM EPS 8.1 x 24.6 x 19.7 x NM 23.7 x
Price/1999E Calenderized EPS N/A N/A N/A 9.0 x 16.5 x
Price/2000E Calenderized EPS N/A N/A 7.7 x N/A 13.5 x
Indicated Annual Dividend $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Dividend Yield N/A N/A N/A N/A N/A
Latest Return: EBITDA/Total Assets 26.3% 17.5% 18.8% 0.6% 25.8%
Latest Return on Equity 20.3% 5.8% 11.4% NM 16.6%
60 [JANNEY MONTGOMERY SCOTT LOGO]
62
COMPARABLE COMPANY ANALYSIS
SELECTED BALANCE SHEET & CAPITALIZATION DATA
- -----------------------------------------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of extraordinary items.
Transact Zebra
Printronix Inc QMS Inc Technologies Inc Tridex Corp Technologies
-------------- -------- ---------------- ----------- ------------
Capitalization as of: 12/98 12/98 12/98 12/98 12/98
Short-Term Debt $ 0 $ 7,524 $ 725 $ 6,406 $ 234
Long-Term Debt 0 326 5,075 19,341 0
Preferred Stock 0 0 0 0 0
Common Equity 63,069 26,439 12,177 18,377 270,884
-------- -------- -------- -------- --------
Total Shareholders' Equity 63,069 26,439 12,177 18,377 270,884
-------- -------- -------- -------- --------
Total Capitalization $ 63,069 $ 34,289 $ 17,977 $ 44,124 $271,118
======== ======== ======== ======== ========
Short-Term Debt 0.00% 21.94% 4.03% 14.52% 0.09%
Long-Term Debt 0.00% 0.95% 28.23% 43.83% 0.00%
Preferred Stock 0.00% 0.00% 0.00% 0.00% 0.00%
Common Equity 100.00% 77.11% 67.74% 41.55% 99.91%
-------- -------- -------- -------- --------
Total Shareholders' Equity 100.00% 77.11% 67.74% 41.55% 99.91%
-------- -------- -------- -------- --------
Total Capitalization 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ========
Debt/Equity Ratio 0.00% 29.69% 47.63% 140.10% 0.09%
Total Assets $ 84,671 $ 70,294 $ 23,788 $ 52,953 $310,002
Total Operating Assets(3) $ 72,911 $ 58,261 $ 21,212 $ 19,562 $142,653
Net Fixed Assets $ 31,688 $ 4,735 $ 5,664 $ 2,445 $ 38,850
Net Sales/Net Fixed Assets(x) 5.6 x 30.5 x 9.2 x 17.8 x 8.6 x
Average Accts. Rec. Balance(2) $ 24,617 $ 23,579 $ 6,870 $ 5,632 $ 42,367
Accts. Rec. Turnover (Days) 50.9 59.7 48.0 47.3 46.0
Average Accts. Pay. Balance(2) $ 9,634 $ 12,955 $ 3,044 $ 3,741 $ 14,273
Accts. Pay. Turnover (Days) 29.4 45.5 28.9 43.1 28.9
Average Inventory Balance(2) $ 16,374 $ 21,837 $ 8,909 $ 5,430 $ 25,298
Inventory Turnover (Days) 50.0 76.7 84.7 62.6 51.2
[JANNEY MONTGOMERY SCOTT LOGO]
61
63
COMPARABLE COMPANY ANALYSIS
HISTORICAL FINANCIAL DATA
- --------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects
of extraordinary items.
Transact Zebra
Printronix Inc. QMS Inc. Technologies Inc. Tridex Corp Technologies
---------------- --------- ----------------- ----------- ------------
12/98 12/98 12/98 12/98 12/98
Net Operating Expenses
- ---------
LTM $ 176,679 $ 144,251 $ 52,239 $ 43,504 $ 335,983
1998 N/A 133,491 52,239 43,504 335,983
1997 170,391 124,589 58,400 25,833 297,100
1996 173,250 147,174 42,134 22,325 252,487
Gross Profit
- ---------
LTM $ 57,151 $ 40,359 $ 13,826 $ 11,834 $ 155,810
1998 N/A 39,420 13,826 11,834 155,810
1997 53,930 26,032 18,173 6.204 143,708
1996 45,943 48,023 13,933 5,954 117,013
Operating Cash Flow
- ---------
LTM $ 22,246 $ 12,315 $ 4,478 $ 300 $ 79,964
1998 N/A 12,142 4,478 300 79,964
1997 22,619 (3,387) 9,422 (150) 78,264
1996 18,790 15,461 6,368 1,362 64,609
Operating Profit
- ---------
LTM $ 14,347 $ 2,087 $ 2,448 $ (2,964) $ 69,716
1998 N/A 2,081 2,448 (2,964) 69,716
1997 15,086 (17,188) 7,831 (1,014) 71,262
1996 11,699 5,664 5,233 306 59,094
Profit Before Tax
- ---------
LTM $ 15,273 $ 1,571 $ 2,127 (54,721) $ 73,101
1998 N/A 1,860 2,127 (4,721) 73,101
1997 16,744 (18,093) 7,828 (612) 65,225
1996 12,140 3,520 5,528 (666) 65,664
Net Income
- ---------
LTM $ 12,794 $ 1,536 $ 1,386 $ (3,586) $ 44,917
1998 N/A 1,825 1,386 (3,586) 44,917
1997 15,629 (21,305) 4,893 (568) 54,447
1996 11,671 4,253 3,340 3,166 40,929
62 [JANNEY MONTGOMERY SCOTT LOGO]
64
COMPARABLE COMPANY ANALYSIS
HISTORICAL MARGIN DATA
- --------------------------------------------------------------------------------
Note: Financials have been adjusted, where applicable, to exclude the effects of
extraordinary items.
Transact Zebra
Printronix Inc QMS Inc Technologies Inc Tridex Corp Technologies
-------------- ------- ---------------- ----------- ------------
Index Growth Rates
LTM N/A 8.1% 0.0% 0.0% 0.0%
1998 N/A 7.1 (10.5) 68.4 13.1
1997 (1.7) (15.3) 38.5 15.7 17.7
1996 N/A N/A N/A N/A N/A
Gross Profit as % of Revenue
LTM 32.3% 28.0% 26.5% 27.2% 46.4%
1998 N/A 29.5 26.5 27.2 46.4
1997 31.7 20.9 31.1 24.0 46.4
1996 26.5 32.6 33.1 26.7 46.3
Operating Cash Flow as % of Revenue
LTM 12.6% 8.5% 8.6% 0.7% 23.8%
1998 N/A 9.1 8.6 0.7 23.8
1997 13.3 NM 16.1 NM 26.3
1996 10.8 10.5 15.1 6.1 25.6
Operating Profit as % of Revenue
LTM 8.1% 1.4% 4.7% NM 20.7%
1998 N/A 1.6 4.7 NM 20.7
1997 8.9 NM 13.4 NM 24.0
1996 6.8 3.8 12.4 1.4 23.4
Profit Before Tax as % of Revenue
LTM 8.6% 1.1% 4.1% NM 21.8%
1998 N/A 1.4 4.1 NM 21.8
1997 9.8 NM 13.4 NM 28.7
1996 7.0 2.4 13.1 NM 26.0
Net Income as % of Revenue
LTM 7.2% 1.1% 2.7% NM 13.4%
1998 N/A 1.4 2.7 NM 13.4
1997 9.2 NM 8.4 NM 18.3
1996 6.7 2.9 7.9 14.2 16.2
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COMPARABLE COMPANY ANALYSIS
SELECTED VALUATION RATIOS
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Note: Financials have been adjusted, where applicable, to exclude the effects of
extraordinary items.
Transact Zebra
Printronix Inc. QMS Inc Technologies Inc Tridex Corp Technologies
--------------- ------- ---------------- ----------- ------------
Market Capitalization Basis
Market/Net Income 6.1 x 24.6 x 19.7 x NM 23.7 x
Market/Net Income (1999P Calendarized) N/A N/A N/A 9.0 x 16.5 x
Market/Net Income (2000P Calendarized) N/A N/A 7.7 x N/A 13.5 x
Market/Book 1.5 x 1.4 x 1.8 x 0.8 x 3.9 x
TEV Basis
TEV/Revenue 0.5 x 0.3 x 0.5 x 0.9 x 2.7 x
TEV/Operating Cash Flow 3.7 x 3.5 x 6.1 x 133.5 x 11.2 x
TEV/Operating Profit 5.7 x 20.6 x 11.1 x NM 12.8 x
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FORM OF FAIRNESS OPINION
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