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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
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FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number: 0-21121
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TRANSACT TECHNOLOGIES INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
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(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
7 LASER LANE, WALLINGFORD, CT 06492
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-269-1198
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Securities registered pursuant to Section 12(b) of the Act:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes 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 MARCH 17, 2000 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$41,200,000.
As of MARCH 17, 2000 the registrant had outstanding 5,580,800 shares of common
stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Shareholders to be held on May 11,
2000 - Part III.
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PART I
GENERAL
TransAct Technologies Incorporated ("TransAct" or the "Company") designs,
develops, manufactures and markets transaction-based printers and related
products under the Ithaca(R), Magnetec(R) and TransAct.com brand names. The
Company's printers are used worldwide to provide transaction records such as
receipts, tickets, coupons, register journals and other documents. The Company
focuses on five vertical markets: point-of-sale ("POS"), gaming and lottery,
kiosk, financial services and Internet. The Company sells its products directly
to end users, original equipment manufacturers ("OEMs"), value added resellers
("VARs") and selected distributors, primarily in the United States, Canada,
Europe and Latin America. TransAct has two operating facilities located in
Wallingford, Connecticut and Ithaca, New York, five sales offices located in the
United States, and one sales office and service depot in the United Kingdom.
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS
TransAct was incorporated on June 17, 1996, as a wholly-owned subsidiary
of Tridex Corporation ("Tridex"). Following the incorporation, TransAct and two
of Tridex's wholly-owned subsidiaries, Magnetec Corporation ("Magnetec") and
Ithaca Peripherals Incorporated ("Ithaca"), entered into a Plan of
Reorganization, pursuant to which TransAct sold, in an initial public offering
on August 2, 1996, 1,322,500 shares or approximately 19.7% of its common stock.
On March 31, 1997 Tridex distributed its 5,400,000 shares, or 80.3% of
TransAct's common stock, pro rata to persons who were Tridex stockholders of
record on March 14, 1997, on the basis of approximately one share of TransAct
for each share of Tridex (the "Distribution"). Upon completion of the
Distribution, Tridex no longer owned any shares of TransAct capital stock.
On April 20, 1999, the Company formed and incorporated a new wholly-owned
subsidiary, TransAct.Com. Through TransAct.com, the Company plans to explore
leveraging its inkjet printing technology into the vastly expanding online,
e-commerce market. The Company plans to provide receipt printing solutions for
online transactions at the home, including e-trade confirmations, coupons, email
and other online receipts.
On January 1, 2000, the Company merged its wholly-owned subsidiary,
Magnetec Corporation, with and into TransAct Technologies Incorporated.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
TransAct has assessed its operating and reportable segments and
determined that it operates in one reportable segment, the design, development,
manufacture and marketing of transaction-based printers and printer peripheral
products.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
TransAct designs, develops, manufactures and markets a broad array of
transaction-based printers utilizing dot matrix, thermal and inkjet printing
technology for applications requiring up to 60 character columns in each of its
five vertical markets: POS, gaming and lottery, kiosk, financial services and
Internet. The Company's printers are configurable, which offer customers the
ability to choose from a variety of features and functions. Options typically
include paper cutting devices, paper handling capacities and number of print
stations. In addition to its configurable printers, TransAct
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manufactures custom printers for certain OEM customers. In collaboration with
these customers, the Company provides engineering and manufacturing expertise
for the design and development of specialized printers.
The Company also manufactures and sells document transport mechanisms
which deliver the finished printed output to the consumer in unattended
applications, such as ATMs and kiosks. In addition, the Company offers printer
ribbons, paper and replacement parts for all of its products.
The Company provides customers with telephone sales and technical
support, a personal account representative for orders, shipping and general
information and expedited shipping for orders of its customizable and custom
products. Technical and sales support personnel receive training in all of the
Company's products and services manufactured at their facility. The Company's
printers generally carry a one- or two-year limited warranty; extended
warranties are available for purchase on selected printers to supplement the
original warranty.
(ii) STATUS OF PRODUCT REQUIRING MATERIAL INVESTMENT
None.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal materials used in manufacturing are copper wire, magnetic
metals, injection molded plastic parts, formed metal parts and electronic
components. Although the Company could experience temporary disruption if
certain suppliers ceased doing business with the Company, the Company's
requirements generally are available from a number of sources. However, the
Company is dependent upon Okidata, Division of Oki America, Inc. ("Okidata") for
a printer component kit consisting of a printhead, control board and carriage
(the "Oki Kit"), which is used in all of the Company's Ithaca(R) brand impact
printers. The loss of the supply of Oki Kits would have a material adverse
effect on the Company. TransAct has a supply agreement with Okidata to provide
Oki Kits until May 2001. Pricing for the Oki Kits is also fixed through May
2001. TransAct believes its relations with Okidata are good and has received no
indication that the supply agreement will not be renewed beyond the expiration
of the current contract. TransAct cannot be certain, however, that the supply
agreement will be renewed, or if renewed, that the terms will be as favorable as
those under the current contract.
(iv) PATENTS AND PROPRIETARY INFORMATION
The Company owns several patents, one of which it considers material.
That patent covers an automated paper cut-off device, which is a feature offered
on certain of the Company's POS printers. The Company also has sought patent and
other protection for certain design features of its new family of printers
utilizing inkjet printing technology. The Company regards certain manufacturing
processes and designs to be proprietary and attempts to protect them through
employee and third-party nondisclosure agreements and similar means. It may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or otherwise obtain and use, to the
Company's detriment, information that the Company regards as proprietary.
Moreover, the laws of some foreign countries do not afford the same protection
to the Company's proprietary rights as do United States laws. There can be no
assurance that legal protections relied upon by the Company to protect its
proprietary position will be adequate or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies.
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(v), (vi) SEASONALITY AND PRACTICES RELATING TO WORKING CAPITAL ITEMS
Retailers typically reduce purchases of new POS equipment in the fourth
quarter, due to the increased volume of consumer transactions in that period,
and the Company's sales of printers in the POS market historically have
increased in the third quarter and decreased in the fourth quarter. However, the
Company has not experienced material seasonality in its total net sales, due to
offsetting sales in other markets.
(vii) CERTAIN CUSTOMERS
The Company has an OEM purchase agreement with GTECH Corporation
("GTECH") to provide on-line lottery printers and spare parts, at prices to be
negotiated, through July 2004. The Company also sells printers to GTECH for use
in in-lane lottery termimals. Sales to GTECH accounted for approximately 31.8%
and 29.1% of net sales for the years ended December 31, 1998 and 1997,
respectively. The Company had no sales to any one customer greater than 10% of
net sales in 1999.
(viii) BACKLOG
The Company's backlog of firm orders was approximately $19,900,000 as of
March 17, 2000 and $16,100,000 as of March 19, 1999. Based on customers' current
delivery requirements, TransAct expects to fill its current backlog of
approximately $19,900,000 during 2000.
(ix) MATERIAL PORTION OF BUSINESS SUBJECT TO RENEGOTIATION OF PROFITS
None.
(x) COMPETITION
The market for transaction-based printers is extremely competitive, and
the Company expects such competition to intensify in the future. The Company
competes with a number of companies, many of which have greater financial,
technical and marketing resources than the Company. TransAct believes its
ability to compete successfully depends on a number of factors both within and
outside its control, including durability, reliability, quality, design
capability, product customization, price, customer support, success in
developing new products, manufacturing expertise and capacity, supply of
component parts and materials, strategic relationships with suppliers, the
timing of new product introductions by the Company and its competitors, general
market and economic conditions and, in some cases, the uniqueness of its
products.
Three of the Company's competitors, Epson America, Inc., Axiohm
Transaction Solutions and Star Micronics America, Inc. together control
approximately 70% of the United States market for POS printers, a market in
which the Company's strategy calls for increased market share. Another principal
competitor in the POS market is Citizen -- CBM America Corporation. Certain
competitors of the Company have lower costs, attributable to higher volume
production and off-shore manufacturing locations, and offer lower prices than
the Company from time to time.
In the gaming and lottery, financial services and kiosk markets, no
single supplier holds a dominant position. Certain of the Company's products
sold for gaming and lottery, kiosk and financial service applications compete
based upon the Company's ability to provide highly specialized products, custom
engineering and ongoing technical support.
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The Company's strategy for competing in its markets is to continue to
develop new products and product line extensions, to increase its geographic
market penetration, and to take advantage of strategic relationships. The
Company expects to particularly focus on gaining market acceptance for its new
family of printers utilizing Hewlett Packard's inkjet printing technology.
Although the Company has historically maintained or increased sales with this
strategy and believes that its products, operations and relationships provide a
competitive foundation, there can be no assurance that the Company will compete
successfully in the future.
(xi) RESEARCH AND DEVELOPMENT ACTIVITIES
The Company spent approximately $3,235,000, $3,642,000 and $2,773,000 in
1999, 1998 and 1997, respectively, on engineering, design and product
development efforts in connection with specialized engineering and design to
introduce new products and to customize existing products. During 2000, the
Company expects to focus the majority of its research and development activities
on the development of a new family of printers for the POS market, utilizing
Hewlett Packard's inkjet printing technology.
(xii) ENVIRONMENT
The Company is not aware of any material noncompliance with federal,
state and local provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment.
(xiii) EMPLOYEES
As of March 17, 2000, TransAct Technologies and its subsidiaries employed
268 persons, of which 207 were full-time and 61 were temporary employees. None
of the Company's employees is unionized and the Company considers its
relationships with its employees to be good.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
The Company has foreign operations primarily from Ithaca Peripherals
Ltd., a wholly-owned subsidiary located in the United Kingdom, which had sales
to its customers of $700,000, $4,990,000 and $4,204,000 in 1999, 1998 and 1997,
respectively. The Company had export sales to its customers from its domestic
operations of approximately $7,807,000, 3,396,000 and $5,618,000 in 1999, 1998
and 1997, respectively.
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(E) EXECUTIVE OFFICERS OF THE REGISTRANT AS OF DECEMBER 31, 1999
Name Age Position
Thomas R. Schwarz 63 Chairman of the Board
Bart C. Shuldman 42 President, Chief Executive Officer and Director
Richard L. Cote 58 Executive Vice President, Chief Financial Officer, Treasurer,
Secretary and Director
David A. Ritchie 40 Executive Vice President - Sales
Lucy H. Staley 49 Senior Vice President - General Manager (Ithaca, NY facility)
John Cygielnik 55 Senior Vice President - General Manager (Wallingford, CT facility)
Michael S. Kumpf 50 Senior Vice President - Engineering
Steven A. DeMartino 30 Vice President and Corporate Controller
THOMAS R. SCHWARZ, Chairman of the Board, has been a Director of the
Company since its formation in June 1996. Mr. Schwarz was Chairman and Chief
Executive Officer of Grossman's Inc., a retailer of building materials, from
1990 until his retirement in 1994. Mr. Schwarz is a Director of Tridex,
Foilmark, Inc., Tanaka Growth Fund, Lebhar-Friedman Publishing Company and A&W
Restaurants.
BART C. SHULDMAN has been Chief Executive Officer, President and a
Director of the Company since its formation in June 1996. Previously, Mr.
Shuldman served as President of Magnetec and later the combined operations of
Magnetec and Ithaca from August 1993 until June 1996.
RICHARD L. COTE has been Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director of the Company since its formation
in June 1996. Prior thereto, he served as Senior Vice President and Chief
Financial Officer of Tridex from September 1993 to June 1996.
DAVID A. RITCHIE was appointed Executive Vice President of Sales of the
Company in July 1997, and served as Vice President of Sales at TransAct's Ithaca
facility from March 1996 to July 1997. Mr. Ritchie joined Ithaca in April 1995
as Southeast National Sales Manger. Prior to joining TransAct, Mr. Ritchie
served as Regional Sales Manager at Medintell Systems Corporation from March
1994 to April 1995. Mr. Ritchie resigned from the Company in February 2000.
LUCY H. STALEY, Senior Vice President-General Manager (Ithaca, NY
facility) since June 1996, served as a Vice President of Ithaca from 1984 until
June 1996.
JOHN CYGIELNIK, Senior Vice President-General Manager (Wallingford, CT
facility) since June 1996, joined Magnetec as Controller in 1992, and served as
Vice President of Finance of Magnetec from 1993 until June 1996.
MICHAEL S. KUMPF, Senior Vice President-Engineering since June 1996,
served as Vice President of Engineering of Ithaca from 1991 until June 1996.
STEVEN A. DEMARTINO joined TransAct as Corporate Controller in August
1996 and was appointed an officer of the Company in January 1998 and Vice
President in December 1999. Prior to joining TransAct, Mr. DeMartino was a
self-employed financial consultant from May 1996 to August 1996. Prior thereto,
Mr. DeMartino, served as Controller of NER/Copart, Inc. from September 1994 to
May 1996.
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ITEM 2. PROPERTIES.
The Company's operations are currently conducted at the facilities
described below:
Size
(Approx. Owned or Lease Expiration
Location Operations Conducted Sq. Ft.) Leased Date
Wallingford, Connecticut Manufacturing facility and 49,000 Leased March 31, 2008
executive offices
Ithaca, New York Manufacturing facility 59,000 Leased June 30, 2007
Doncaster, United Kingdom Sales office and service 2,800 Leased August 1, 2009
depot
Georgia (2), New Jersey, New Five (5) regional sales 600 Leased Various
York and Texas offices
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.
None.
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 year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq National Market under
the symbol TACT. As of March 17, 2000, there were 885 holders of record of the
common stock. The high and low sales prices of the common stock reported during
each quarter of the years ended December 31, 1999 and 1998 were as follows:
Year Ended Year Ended
December 31, 1999 December 31, 1998
High Low High Low
First Quarter 3 5/8 2 9/16 12 1/4 8 1/2
Second Quarter 6 13/16 2 3/4 10 5/8 7 3/4
Third Quarter 8 5 1/2 8 7/8 4 1/2
Fourth Quarter 9 1/16 5 1/4 7 1/2 1 3/4
No dividends on the common stock have been declared and the Company does
not anticipate declaring dividends in the foreseeable future. The Company's
credit agreement with Fleet National Bank restricts the payment of cash
dividends for the term of the agreement.
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ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Because the Company was wholly-owned by Tridex until August 22, 1996, the
Selected Financial Data which appear below with respect to periods prior to the
year ended December 31, 1997 may not necessarily reflect the results of
operations or financial position of the Company or what the results of
operations would have been if the Company had been a stand alone entity during
the periods presented.
Year Ended Nine Months Ended
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995 1994
(Unaudited)
Statement of Income Data:
Net sales $44,889 $52,239 $58,400 $42,134 $25,497 $25,426
Gross profit 11,754 13,826 18,173 13,933 7,968 8,391
Operating income 35 2,148 7,831 5,233 1,579 3,030
Net income 324 1,206 4,893 3,340 916 1,883
Earnings per share (pro
Forma prior to 1997):
Basic 0.06 0.20 0.72 0.57 0.17 0.35
Diluted 0.06 0.20 0.71 0.57 0.17 0.35
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995 1994
(Unaudited)
Balance Sheet Data:
Total assets $25,684 $23,788 $24,699 $20,784 $15,969 $14,392
Long term debt 7,100 5,075 - - - -
Shareholders' equity 12,207 12,177 17,903 14,407 11,645 10,591
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
This discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto. See Note 1 of Notes to Consolidated
Financial Statements (Basis of Presentation).
Certain statements included in this report, including without limitation
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, which are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
forward-looking statements involve risks and uncertainties, including, but not
limited to, customer acceptance and market share gains, both domestically and
internationally, in the face of substantial competition from competitors that
have broader lines of products and greater financial resources; successful
product development; dependence on significant customers; dependence on third
parties for sales in Europe and Latin America; economic conditions in the United
States, Europe and Latin America; marketplace acceptance of new products; risks
associated with foreign operations; availability of third-party components at
reasonable prices; and the absence of price wars or other significant pricing
pressures affecting the Company's products in the United States or abroad.
Actual results may differ materially from those discussed in, or implied by, the
forward-looking statements.
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YEAR 2000
The Company's program to address the Year 2000 issue consisted of the
following phases: assessment, remediation, testing and contingency planning. The
Company's program was initiated and executed to prevent major interruptions in
the business due to Year 2000 problems. As of December 31, 1999, all phases were
completed. The Company also completed its assessment of its Year 2000 risks
related to significant relationships with its critical third party suppliers and
customers. The total cost of the Year 2000 program was approximately $15,000,
primarily for the cost of replacing/upgrading noncompliant software.
Currently, the Company has not encountered any significant business
interruptions from the Year 2000 issue on its internal IT and non-IT systems.
The Company will continue to monitor its systems and vendors to endure that
issues do not manifest themselves over the next few months. Although the Company
does not anticipate any future significant business interruptions, no assurance
can be given that such interruptions will not occur.
(A) RESULTS OF OPERATIONS
(i) YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET SALES. Net sales by market for the years ended December 31, 1999 and
1998 were as follows:
Year ended Year ended
(In thousands) December 31, 1999 December 31, 1998
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Point of sale $26,653 59.4% $27,778 53.2%
Gaming and lottery 8,782 19.5 20,113 38.5
Other 9,454 21.1 4,348 8.3
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$44,889 100.0% $52,239 100.0%
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Net sales for the year ended December 31, 1999 decreased $7,350,000, or
14%, to $44,889,000 from $52,239,000 in 1998 due to decreased shipments into the
POS and gaming and lottery markets, partially offset by an increase in the
Company's other markets. In addition, for the reasons discussed below, the
Company expects that net sales will increase for 2000 compared to 1999.
Point of sale: Sales of the Company's POS printers decreased
approximately $1,125,000, or 4%. International POS printer shipments decreased
approximately $1,660,000 due largely to the absence of printer shipments for the
British Post Office project. Shipments for this project totaled approximately
$4,600,000 in 1998. The Company has resumed printer shipments related to this
project in the first quarter of 2000, and based on firm orders in backlog,
expects to ship approximately $9,800,000 of printers during 2000. The absence of
printer shipments for the British Post Office project was largely offset by
increased printer shipments to Europe and Latin America through the Company's
distribution partner, Okidata. Domestic POS printer shipments increased by
approximately $535,000 due largely to increased domestic demand for the
Company's POS printers in the third quarter of 1999, particularly its thermal
receipt printer.
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Gaming and lottery: Sales of the Company's gaming and lottery printers
decreased approximately $11,331,000, or 56%, from 1998. The overall decrease
primarily reflects a decrease of approximately $15,800,000 in shipments of the
Company's on-line lottery printers and spare parts to GTECH. The Company did not
make any shipments of on-line lottery printers, other than spares, to GTECH in
1999. However, based on firm orders in backlog, the Company expects to ship
$11,800,000 of on-line lottery printers during 2000. The decrease in sales of
printers for use in on-line lottery terminals was largely offset by (1) an
increase of approximately $300,000 of sales of in-lane and other lottery
printers to GTECH and (2) an increase of approximately $3,900,000 in shipments
of printers for use in video lottery terminals ("VLT"), primarily for use in
South Carolina's video poker industry. During 1998, shipments of VLT printers
were significantly lower due to uncertainty in South Carolina's video poker
industry concerning the industry's continued future in the state. In October
1999, the Supreme Court of South Carolina upheld legislation to prohibit the use
of video poker machines beginning July 1, 2000. As a result, the Company does
not expect any future sales of its VLT printers in South Carolina. However, the
Company is currently pursuing opportunities to provide printers for use in video
lottery and other gaming machines outside of South Carolina.
Other: Sales of the Company's printers into other markets increased
$5,106,000, or 117% from 1998 due largely to increased shipments of printers
(approximately $2,400,000) used in automated teller machines. Additionally,
sales into the Company's other markets increased due to shipments of printers to
a new customer for use in a bank teller application and resumed shipments of
approximately $1,400,000 of the Company's thermal kiosk printers for use in a
Canadian government application. No shipments of these kiosk printers were made
in 1998.
GROSS PROFIT. Gross profit decreased $2,072,000, or 15%, to $11,754,000
from $13,826,000 in 1998 due primarily to lower sales volume in 1999 compared to
1998. The gross margin slightly declined to 26.2% from 26.5%. Due to higher
expected sales volume in 2000 compared to 1999, the Company expects its gross
margin in 2000 to improve.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses decreased $407,000, or 11%, to $3,235,000 from $3,642,000
in 1998. This decrease is primarily due to (1) a reduction in engineering staff
resulting from the downsizing and reorganization of the Company's manufacturing
facility in Wallingford, Connecticut in December 1998 and (2) unusually high
expenses related to development of certain of the Company's thermal printers in
1998. These reductions were somewhat offset by increased product development and
design expenses, primarily for new products in the POS market, including
expenses related to the development of printers utilizing inkjet printing
technology. Engineering and product development expenses increased as a
percentage of net sales to 7.2% from 7.0%, due largely to lower sales in 1999
compared to 1998. The Company expects its engineering, design and product
development expenses to significantly increase during 2000, as the Company
accelerates its design and product development activities in preparation for the
launch of new products, particularly its new family of printers utilizing inkjet
printing technology.
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SELLING AND MARKETING. Selling and marketing expenses increased $607,000,
or 19%, to $3,887,000 from $3,280,000 in 1998, and increased as a percentage of
net sales to 8.7% from 6.3%. Such expenses increased due primarily to (1) higher
sales commissions resulting from an increase in sales eligible for commissions
in 1999 compared to 1998 and (2) additional marketing staff related to the
establishment of a corporate marketing department in the second half of 1998.
The Company expects its selling and marketing expenses to significantly increase
during 2000, as the Company accelerates its marketing and promotional activities
in preparation for the launch of new products, particularly its new family of
printers utilizing inkjet printing technology.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$141,000, or 3% to $4,597,000 in 1999 from $4,456,000 in 1998. The increase
primarily resulted from higher depreciation expense largely from the purchase of
new computer and telecommunications hardware and software, partially offset by a
reduction in staff resulting from the downsizing and reorganization of the
Company's manufacturing facility in Wallingford, CT in December 1998. General
and administrative expenses increased as a percentage of net sales to 10.2% from
8.5%, primarily due to lower sales in 1999 compared to 1998.
PROVISION FOR RESTRUCTURING. During the year ended December 31, 1998, the
Company recorded a provision for restructuring of $300,000 to cover severance
costs related to the downsizing and reorganization of the Company's
manufacturing facility in Wallingford, Connecticut.
OPERATING INCOME. Operating income decreased $2,113,000, or 98%, to
$35,000 from $2,148,000 in 1998. Operating income as a percentage of net sales
declined to 0.1% from 4.1%, due primarily to (1) less gross profit on lower
sales volume, (2) increased selling and marketing expenses and (3) $350,000 of
nonrecurring costs related to the GTECH product line.
OTHER INCOME. Other income for the year ended December 31, 1999 includes
a one-time gain of $770,000 related to the favorable settlement of a lawsuit
with GTECH (a $1,000,000 settlement, net of $230,000 of legal and accounting
expenses directly related to the lawsuit settlement.)
INTEREST. Net interest expense increased to $399,000 from $353,000 in
1998 due to increased average outstanding borrowings on the Company's line of
credit and a higher average borrowing rate in 1999 compared to 1998. See
"Liquidity and Capital Resources" below.
INCOME TAXES. The provision for income taxes for the year ended December
31, 1999 reflects an effective tax rate of 24% compared to 34% in the prior
year. The significant decline in the Company's effective tax rate largely
results from the amplified impact of the recognition of certain tax credits
compared to a relatively low income before taxes in 1999.
NET INCOME. Net income for 1999 was $324,000, or $0.06 per share (basic
and diluted), as compared to $1,206,000, or $0.20 per share (basic and diluted)
in 1998.
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(ii) YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31,
1997 NET SALES. Net sales by market for the years ended December 31,
1998 and 1997 were as follows:
Year ended Year ended
(In thousands) December 31, 1998 December 31, 1997
------------------------- -------------------------
Point of sale $27,778 53.2 % $23,342 40.0 %
Gaming and lottery 20,113 38.5 23,584 40.4
Other 4,348 8.3 11,474 19.6
------------- -------- -- ----------- ---------- --
$52,239 100.0 % $58,400 100.0 %
============= ======== == =========== ========== ==
Net sales for the year ended December 31, 1998 decreased $6,161,000, or
11%, to $52,239,000 from $58,400,000 in 1997 due to decreased shipments into the
gaming and lottery, kiosk and financial services markets, partially offset by an
increase in shipments into the POS market.
Point of sale: Sales of the Company's POS printers increased
approximately $4,436,000, or 19%, due largely to increased international printer
shipments (an increase of approximately $2,515,000), including increased printer
shipments into Europe and Latin America, and more shipments of printers for use
in the British Post Office project. Shipments of printers to the British Post
Office project were approximately $4,600,000 in 1998 compared to approximately
$3,600,000 in 1997. In addition to increased international printer shipments,
domestic POS printer shipments increased approximately $1,921,000.
Gaming and lottery: Sales of the Company's gaming and lottery printers
decreased approximately $3,471,000, or 15%, from 1997. The overall decrease
primarily reflects a decrease of approximately $3,000,000 in shipments of
printers for use in VLTs, due largely to the uncertainty and litigation in South
Carolina's video poker industry for most of 1998. However, VLT printer shipments
resumed during the fourth quarter of 1998. In addition to a decrease in printer
shipments for use in VLTs, shipments of the Company's on-line lottery printers
and related spare parts declined $1,200,000 due to lower shipments to one
customer in 1998 than in 1997. Shipments of on-line lottery printers and spares
to this customer were approximately $15,800,000, or 30% of net sales in 1998,
compared to approximately $17,000,000, or 29% of net sales, in the prior year.
The decrease in sales of printers for on-line lottery terminals in 1998 was
largely offset by an increase of approximately $800,000 of printer shipments to
the same customer for new in-lane lottery terminals.
Other: Sales of the Company's printers into other markets decreased
$7,126,000, or 62% from 1997. Sales for 1997 included which included shipments
of approximately $3,600,000 of the Company's thermal kiosk printers for use in a
Canadian government application. No shipments of these printers were made during
1998. Additionally, sales into this market decreased due to decreased shipments
to one customer of printers used in automated teller machines.
GROSS PROFIT. Gross profit decreased $4,347,000, or 24%, to $13,826,000
from $18,173,000 in 1997 due primarily to lower sales volume and, to a lessor
extent, non-recurring product discontinuance charges of $290,000 recorded during
1998. The gross margin declined to 26.5% from 31.1% largely due to lower sales
volume, non-recurring product discontinuance
12
13
charges, and an unfavorable change in sales mix, as certain
customers at volume discount prices represented a larger proportion of sales in
1998 compared to 1997.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased $869,000, or 31%, to $3,642,000 from $2,773,000
in 1997, and increased as a percentage of net sales to 7.0% from 4.7%. This
increase reflected the Company's continued focus on new product development and
design expense, primarily for products in the POS and gaming and lottery
markets, including increased expenses related to additional engineering staff.
SELLING AND MARKETING. Selling and marketing expenses increased $252,000,
or 8%, to $3,280,000 from $3,028,000 in 1997, and increased as a percentage of
net sales to 6.3% from 5.2%. Such expenses increased due to additional sales
staff, increased sales commissions and additional marketing staff related to the
establishment of a corporate marketing department during 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased slightly by $85,000 to $4,456,000 in 1998 from $4,541,000 in 1997.
General and administrative expenses increased as a percentage of net sales to
8.5% from 7.8%, due to lower volume of sales in 1998 compared to 1997.
PROVISION FOR RESTRUCTURING. During the year ended December 31, 1998, the
Company recorded a provision for restructuring of $300,000 to cover severance
costs related to the downsizing and reorganization of the Company's
manufacturing facility in Wallingford, Connecticut.
OPERATING INCOME. Operating income decreased $5,683,000, or 73%, to
$2,148,000 from $7,831,000 in 1997. Operating income as a percentage of net
sales declined to 4.1% from 13.4%, due to (1) lower gross margin on lower sales
volume and an unfavorable change in sales mix, (2) increased engineering, design
and product development expense, (3) increased selling and marketing expense and
(4) non-recurring charges of $590,000, consisting of $300,000 for restructuring
and $290,000 for product discontinuance.
INTEREST. During 1998, the Company incurred net interest expense of
$353,000 compared to net interest income of $16,000 in 1997. The increase in
interest expense is due to increased borrowings on the Company's line of credit
during 1998 primarily to fund stock repurchases and also for working capital
requirements. See "Liquidity and Capital Resources" below.
INCOME TAXES. The provision for income taxes for the year ended December
31, 1998 reflects an effective tax rate of 34.0% compared to 37.5% in the prior
year. The decline in the Company's effective tax rate is largely due to tax
benefits derived from certain tax credits and its foreign sales corporation.
NET INCOME. Net income for the year ended December 31, 1998 was
$1,206,000, or $0.20 per share (basic and diluted), as compared to $4,893,000,
or $0.72 per share basic and $0.71 per share diluted, in 1997.
13
14
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $2,033,000, $4,047,000 and
$3,835,000 in 1999, 1998 and 1997, respectively. Cash from operations for 1999
includes a $770,000 gain related to the favorable settlement of a lawsuit with
GTECH. The Company's working capital increased to $11,094,000 at December 31,
1999 from $10,107,000 at December 31, 1998. The current ratio also increased to
2.90 to 1 at December 31, 1999 from 2.69 to 1 at December 31, 1998. The increase
in the Company's working capital and current ratio at December 31, 1999 is
primarily the result of the classification of $725,000 of bank borrowings as
short-term at December 31, 1998 (See Note 9 of Notes to Consolidated Financial
Statements). All outstanding borrowings are classified as long-term at December
31, 1999.
During 1997 and 1998, the Board of Directors authorized the repurchase of
up to 1.5 million shares of the Company's common stock (the "Stock Buyback
Program"). As of December 31, 1998, the Company had acquired 1,203,000 shares of
its common stock for $9,421,000. During 1999, the Company repurchased an
additional 70,800 shares of its common stock for $229,000. Since the Company
began the Stock Buyback Program in December 1997, it has repurchased 1,273,800
shares for $9,650,000 (an average cost of $7.58 per share.) Further repurchases
of the Company's common stock will depend upon future cash flow of the Company
and stock market conditions.
On January 29, 1998, the Company entered into a $15,000,000 credit
facility (the "Credit Facility") with Fleet National Bank ("Fleet"). The Credit
Facility provided the Company with a $5,000,000 revolving working capital
facility, and a $10,000,000 revolving credit facility that may be used for
activities such as acquisitions and repurchases of the Company's common stock.
Borrowings under the $10,000,000 revolving credit facility could, at the
Company's election, be converted to a four-year term loan commencing on June 30,
1999, the expiration date of the Credit Facility. Borrowings under the Credit
Facility bore interest at Fleet's prime rate and bore a commitment fee ranging
from 0.25% to 0.50% on any unused portion of the Credit Facility. The Credit
Facility also permitted the Company to designate a LIBOR rate on outstanding
borrowings with a margin ranging from 1.25 to 1.75 percentage points over the
market rate. The Credit Facility was secured by a lien on substantially all of
the assets of the Company and imposed certain financial covenants and restricted
the payment of cash dividends and the creation of liens. The Company had
$5,800,000 of borrowings outstanding under the Credit Facility at December 31,
1998. The Company intended to convert the outstanding borrowings to a four-year
term loan at the expiration of the Credit Facility. In accordance with that
intent, $5,075,000 ($5,800,000, less the current maturity of $725,000) was
classified as long-term debt at December 31, 1998.
On May 7, 1999, the Company entered into a new two-year $10,000,000
revolving credit facility (the "Amended Credit Facility") with Fleet, expiring
on May 31, 2001. The Amended Credit Facility replaced both the existing
$5,000,000 revolving working capital facility and $10,000,000 revolving credit
facility. The Amended Credit Facility provides the Company with a $10,000,000
credit facility that may be used to fund working capital. Borrowings under the
Amended Credit facility bear interest on outstanding borrowings at Fleet's prime
rate (8.50% at December 31, 1999) and bear a commitment fee ranging from 0.25%
to 0.625% (0.625% at December 31, 1999) on any unused portion of the Amended
Credit Facility. The Amended Credit Facility also permits the Company to
designate a LIBOR rate on outstanding borrowings with a margin ranging from 1.50
to 2.25 percentage points over the market rate ("Margin"), depending on the
Company meeting certain ratios. Concurrent with the Amended Credit Facility, the
Company entered into a swap agreement with Fleet under which the Company fixed
its interest rate at 5.63% plus the applicable Margin for two years on
$3,000,000
14
15
of outstanding borrowings under the Amended Credit Facility. The Amended Credit
Facility is secured by a lien on substantially all the assets of the Company,
imposes certain financial covenants and restricts the payment of cash dividends
and the creation of liens. The Company had $7,100,000 of outstanding borrowings
under this facility at December 31, 1999.
On March 14, 2000, the Company entered into a new two-year $13,000,000
revolving credit facility (the "New Credit Facility") with Fleet, expiring on
May 31, 2002. The New Credit Facility replaced the Amended Credit Facility. The
New Credit Facility provides the Company with a $13,000,000 credit facility that
may be used to fund working capital. Borrowings under the New Credit facility
bear interest on outstanding borrowings at Fleet's prime rate plus a margin
ranging from zero to 0.75 percentage points and bear a commitment fee ranging
from 0.375% to 0.75% on any unused portion of the New Credit Facility. The New
Credit Facility also permits the Company to designate a LIBOR rate on
outstanding borrowings with a margin ranging from 1.5 to 3.0 percentage points
over the market rate, depending on the Company meeting certain ratios. The New
Credit Facility is secured by a lien on substantially all the assets of the
Company, imposes certain financial covenants and restricts the payment of cash
dividends and the creation of liens.
On March 20, 2000 the Company entered into an agreement with Advance
Capital Advisors, L.P. and its affiliates for the sale of 4,000 shares of 7%
Series B Cumulative Convertible Redeemable Preferred Stock (the "Preferred
Stock") in consideration of $1,000 per share (the "Stated Value"), for a total
of $4,000,000, less issuance costs. The agreement is subject to customary
closing conditions. The Company expects to receive the net proceeds and issue
the Preferred Stock in April 2000. The Preferred Stock will be convertible at
any time by the holders at a conversion price of $9.00 per common share. In
addition, the Company will issue warrants pro-rata to the Preferred Stock
holders to purchase an aggregate of 44,444 shares of the Company's common stock
at an exercise price of $9.00 per common share. The warrants will be exercisable
at any time until the fifth anniversary of the closing. The Preferred Stock will
be subject to mandatory conversion into shares of the Company's common stock
when such stock has traded at $35 per share or more for a 30 day period ending
on or after the third anniversary of the closing, or for a 60 day period
beginning on or after the second anniversary of the closing. The Preferred Stock
will be redeemable at the option of the holders on the fifth anniversary of the
closing at $1,000 per share plus any unpaid dividends. On or after the seventh
anniversary of the closing, the Company will have the right to require (1)
redemption of the Preferred Stock at $1,000 per share plus any unpaid dividends
or (2) conversion of the Preferred Stock at $9.00 per common share. Upon a
change of control, holders have the right to redeem the Preferred Stock for 200%
of the Stated Value plus any unpaid dividends. The holders of the Preferred
Stock will be entitled to receive a cumulative annual dividend of $70 per share,
payable quarterly and will have preference to any other dividends, if any, paid
by the Company.
The Company's capital expenditures were approximately $2,742,000,
$2,232,000 and $2,266,000 in 1999, 1998 and 1997, respectively. These
expenditures primarily included new product tooling, computer equipment, and
factory machinery and equipment. The Company's capital expenditures for 2000 are
expected to be approximately $3,700,000, a majority for new product tooling.
15
16
The Company believes that cash flows generated from operations, net cash
proceeds from the issuance of Preferred Stock and borrowings available under its
credit facilities, as necessary, will provide sufficient resources to meet the
Company's working capital needs, finance its capital expenditures and meet its
liquidity requirements through December 31, 2000.
(C) IMPACT OF INFLATION
TransAct 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to borrowings under the Company's Credit Facility with Fleet
Bank. These borrowings bear interest at variable rates and the fair value of
this indebtedness is not significantly affected by changes in market interest
rates. The Company entered into a swap agreement with Fleet to fix its interest
rate at 5.63% plus a margin as determined under the Company's current credit
facility on $3 million of borrowings through May 2001. An effective increase or
decrease of 10% in the current effective interest rates under the Credit
Facility would not have a material effect on the Company's results of operations
or cash flow.
FOREIGN CURRENCY EXCHANGE RISK
A substantial portion of the Company's sales are denominated in U.S.
dollars and, as a result, the Company has relatively little exposure to foreign
currency exchange risk with respect to sales made. This exposure may change over
time as business practices evolve and could have a material adverse impact on
our financial results in the future. The Company does not use forward exchange
contracts to hedge exposures denominated in foreign currencies or any other
derivative financial instruments for trading or speculative purposes. The effect
of an immediate 10% change in exchange rates would not have a material impact on
the Company's future results of operations or cash flow.
16
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Page
Number
Report of Independent Accountants 18
TransAct Technologies Incorporated consolidated financial statements:
Consolidated balance sheets as of December 31, 1999 and December 31, 1998. 19
Consolidated statements of income for the years ended December 31, 1999, 1998 and 1997. 20
Consolidated statements of cash flows for the years ended December 31, 1999, 1998 and 1997. 21
Consolidated statement of changes in shareholders' equity for the period from December 31, 22
1996 through December 31, 1999.
Notes to consolidated financial statements. 23
17
18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of TransAct Technologies Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
TransAct Technologies Incorporated and its subsidiaries, as described in Note 1,
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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.
/s/ PricewaterhouseCoopers LLP
March 14, 2000
18
19
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1999 1998
---- ----
ASSETS:
Current assets:
Cash and cash equivalents $ 279 $ 546
Receivables, net (Note 4) 4,863 5,153
Inventories (Note 5) 10,257 8,744
Other current assets 1,540 1,651
-------- --------
Total current assets 16,939 16,094
-------- --------
Plant and equipment, net (Note 6) 6,705 5,664
Excess of cost over fair value of net assets acquired, net
(Note 2) 1,886 1,900
Other assets 154 130
-------- --------
8,745 7,694
-------- --------
$ 25,684 $ 23,788
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank loans payable (Note 9) $ -- $ 725
Accounts payable 3,056 2,188
Accrued liabilities (Note 7) 2,789 3,074
-------- --------
Total current liabilities 5,845 5,987
-------- --------
Long-term debt (Note 9) 7,100 5,075
Other liabilities 532 549
-------- --------
7,632 5,624
-------- --------
Commitments and contingencies (Note 10)
Shareholders' equity (Notes 11 and 12):
Common stock, $0.01 par value; 20,000,000
authorized; 5,576,800 and 5,629,500 issued 56 56
Preferred stock, 5,000,000 authorized, no issued
and outstanding -- --
Additional paid-in capital 5,656 5,763
Retained earnings 7,592 7,268
Unamortized restricted stock compensation (747) (903)
Loan receivable from officer (330) --
Accumulated other comprehensive income (20) (7)
-------- --------
Total shareholders' equity 12,207 12,177
-------- --------
$ 25,684 $ 23,788
======== ========
See accompanying notes to consolidated financial statements.
19
20
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
1999 1998 1997
---- ---- ----
Net sales $ 44,889 $ 52,239 $ 58,400
Cost of sales 33,135 38,413 40,227
-------- -------- --------
Gross profit 11,754 13,826 18,173
-------- -------- --------
Operating expenses:
Engineering, design and product
development expenses 3,235 3,642 2,773
Selling and marketing expenses 3,887 3,280 3,028
General and administrative expenses 4,597 4,456 4,541
Provision for restructuring (Note 15) -- 300 --
-------- -------- --------
11,719 11,678 10,342
-------- -------- --------
Operating income 35 2,148 7,831
-------- -------- --------
Other income (expense):
Interest, net (399) (353) 16
Other, net (Note 15) 790 32 (19)
-------- -------- --------
391 (321) (3)
-------- -------- --------
Income before income taxes 426 1,827 7,828
Income taxes (Note 13) 102 621 2,935
-------- -------- --------
Net income $ 324 $ 1,206 $ 4,893
======== ======== ========
Net income per share:
Basic $ 0.06 $ 0.20 $ 0.72
======== ======== ========
Diluted $ 0.06 $ 0.20 $ 0.71
======== ======== ========
Weighted average common shares outstanding:
Basic 5,565 6,163 6,767
======== ======== ========
Diluted 5,614 6,170 6,932
======== ======== ========
See accompanying notes to consolidated financial statements.
20
21
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net income $ 324 $ 1,206 $ 4,893
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,238 2,030 1,591
Deferred income taxes (19) (415) (51)
Loss on disposal of equipment 11 8 8
Changes in operating assets and liabilities:
Receivables 371 2,082 (1,790)
Inventories (1,475) (174) (1,200)
Other current assets 158 173 (623)
Other assets (100) (134) (50)
Accounts payable 858 (855) 580
Accrued liabilities and other liabilities (333) 126 477
-------- -------- --------
Net cash provided by operating activities 2,033 4,047 3,835
-------- -------- --------
Cash flows from investing activities:
Purchases of plant and equipment (2,742) (2,232) (2,266)
Loans to officers (345) -- --
Acquisition of Tridex Ribbon business (295) -- --
Proceeds from sale of equipment -- 3 3
-------- -------- --------
Net cash used in investing activities (3,382) (2,229) (2,263)
-------- -------- --------
Cash flows from financing activities:
Bank line of credit borrowings 16,600 13,400 1,500
Bank line of credit repayments (15,300) (7,900) (1,200)
Purchases of treasury stock (229) (7,170) (2,251)
Proceeds from option exercises 24 2 76
Tax benefit related to employee stock sales -- 3 647
Payment of intercompany debt -- -- (1,000)
-------- -------- --------
Net cash provided by (used in) financing
activities 1,095 (1,665) (2,228)
-------- -------- --------
Effect of exchange rate changes on cash (13) 2 6
-------- -------- --------
Increase (decrease) in cash and cash equivalents (267) 155 (650)
Cash and cash equivalents at beginning of period 546 391 1,041
-------- -------- --------
Cash and cash equivalents at end of period $ 279 $ 546 $ 391
======== ======== ========
Supplemental cash flow information:
Interest paid $ 433 $ 351 $ 52
Income taxes paid 171 561 2,775
See accompanying notes to consolidated financial statements.
21
22
TRANSACT TECHNOLOGIES INCORPORATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Unamortized Loan Accumulated
Common Stock Additional Restricted Receivable Other
---------------- Paid-in Retained Stock from Comprehensive Treasury
Shares Amount Capital Earnings Compensation Officer Income Stock
------ ------ ------- -------- ------------ ------- ------ -----
Balance, December 31, 1996 6,722,500 $ 67 $ 13,186 $ 1,169 $ -- $ -- $ (15) $ --
Issuance of restricted stock 78,800 1 1,066 -- (1,066) -- -- --
Issuance of shares from
exercise of stock options 9,000 -- 76 -- -- -- -- --
Amortization of restricted
stock compensation -- -- -- -- 124 -- -- --
Tax benefit related to
employee stock sales -- -- 647 -- -- -- -- --
Purchase of treasury shares (200,000) -- -- -- -- -- -- (2,251)
Comprehensive income:
Foreign currency
translation adjustments -- -- -- -- -- -- 6 --
Net income -- -- -- 4,893 -- -- -- --
----------- ----- -------- -------- ------- ------- -------- --------
Balance, December 31, 1997 6,610,300 68 14,975 6,062 (942) -- (9) (2,251)
Issuance of restricted stock 25,000 -- 228 -- (228) -- -- --
Cancellation of restricted stock (3,000) -- (36) -- 36 -- -- --
Issuance of shares from
exercise of stock options 200 -- 2 -- -- -- -- --
Amortization of restricted
stock compensation -- -- -- -- 231 -- -- --
Tax benefit related to
employee stock sales -- -- 3 -- -- -- -- --
Purchase of treasury shares (1,003,000) -- -- -- -- -- -- (7,170)
Retirement of treasury shares -- (12) (9,409) -- -- -- -- 9,421
Comprehensive income:
Foreign currency
translation adjustment -- -- -- -- -- -- 2 --
Net income -- -- -- 1,206 -- -- -- --
----------- ----- -------- -------- ------- ------- -------- --------
Balance, December 31, 1998 5,629,500 56 5,763 7,268 (903) -- (7) --
Issuance of restricted stock 13,000 -- 98 -- (98) -- -- --
Issuance of shares from
exercise of stock options 5,100 -- 24 -- -- -- -- --
Amortization of restricted
stock compensation -- -- -- -- 254 -- -- --
Purchase of treasury shares (70,800) -- -- -- -- -- -- (229)
Retirement of treasury shares -- -- (229) -- -- -- -- 229
Issuance of loan to officer -- -- -- -- -- (330) -- --
Comprehensive income:
Foreign currency
translation adjustment -- -- -- -- -- -- (13) --
Net income -- -- -- 324 -- -- -- --
----------- ----- -------- -------- ------- ------- -------- --------
Balance, December 31, 1999 5,576,800 $ 56 $ 5,656 $ 7,592 $ (747) $ (330) $ (20) $ --
=========== ===== ======== ======== ======= ======= ======== ========
See accompanying notes to consolidated financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
TransAct Technologies Incorporated ("TransAct" or the "Company") was
incorporated on June 17, 1996, as a wholly-owned subsidiary of Tridex
Corporation ("Tridex"). Following the incorporation, TransAct and two of
Tridex's wholly-owned subsidiaries, Magnetec Corporation ("Magnetec") and
Ithaca Peripherals Incorporated ("Ithaca"), entered into a Plan of
Reorganization (the "Plan of Reorganization"), pursuant to which TransAct
sold, in an initial public offering (the "Offering") on August 2, 1996,
1,322,500 shares or approximately 19.7% of its common stock. On March 31,
1997 Tridex distributed its 5,400,000 shares, or 80.3% of TransAct's common
stock, pro rata to persons who were Tridex stockholders of record on March
14, 1997, on the basis of approximately one share of TransAct for each share
of Tridex (the "Distribution"). Upon completion of the Distribution, Tridex
no longer owned any shares of TransAct capital stock.
On January 1, 2000, the Company merged its wholly-owned subsidiary,
Magnetec Corporation, with and into TransAct Technologies Incorporated.
The financial statements of the Company for the year ended December 31,
1997 have been prepared principally on the basis of the Plan of
Reorganization above and include the financial position and consolidated
(combined prior to the implementation of the Plan of Reorganization) results
of operations and cash flows of the business described. The term consolidated
as used herein refers to both the consolidated and combined financial
statements. The Company carries its assets and liabilities at historical
cost. The financial results in the 1997 financial statements are not
necessarily indicative of results that would have occurred if the Company had
been a separate stand alone entity during the periods presented or of future
results of the Company.
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRODUCTS: TransAct, through its two operations, one in
Wallingford, CT and the other in Ithaca, NY, operates in one industry
segment, transaction-based printers and related products. TransAct designs,
develops, manufactures and markets transaction-based printers and related
products under the Ithaca(R), Magnetec(R) and TransAct.com brand names. The
Company's printers are used worldwide to provide transaction records such as
receipts, tickets, coupons, register journals and other documents. The
Company focuses on five vertical markets: point-of-sale ("POS), gaming and
lottery, financial services, kiosk and Internet. The Company sells its
products directly to end users, original equipment manufacturers ("OEM"),
value-added resellers and selected distributors, primarily in the United
States, Canada, Europe and Latin America.
TransAct designs, develops, manufactures and markets a broad array of
transaction-based printers utilizing inkjet, thermal and impact printing
technology for applications requiring up to 60 character columns in each of
its vertical markets. The Company's printers are configurable, which offer
customers the ability to choose from a variety of features and functions.
Options typically include paper cutting devices, paper handling capacities
and number of print stations. In addition to its configurable printers,
TransAct manufactures custom printers for certain OEM customers. In
collaboration with these customers, the Company provides engineering and
manufacturing expertise for the design and development of specialized
printers.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, after elimination of all material intercompany accounts and
transactions.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with a maturity date of three months or less at date of purchase
to be cash equivalents.
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.
23
24
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 end of period exchange rates, and related revenues and expenses
have been translated at weighted average exchange rates. Transaction gains
and losses are included in other income.
INVENTORIES: Inventories are stated at the lower of cost (principally
standard cost which approximates actual cost on a first-in, first-out basis)
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 three to ten years.
Leasehold improvements are amortized over the shorter of the term of the
lease or the useful life of the asset. Depreciation amounted to $1,699,000,
$1,546,000 and $1,227,000 in 1999, 1998 and 1997, respectively.
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
acquisition of (i) Ithaca in 1991 and the (ii) Tridex Ribbon business in
1999. The original amount applicable to the Ithaca acquisition totaled
$3,536,000 and is being amortized on the straight-line method over 20 years.
The original amount applicable to the Tridex Ribbon business acquisition
totaled $180,000 and is being amortized on the straight-line method over 5
years. Accumulated amortization of goodwill was $1,830,000 and $1,636,000 at
December 31, 1999 and 1998, respectively. The Company periodically reviews
goodwill to assess recoverability based upon expectations of non-discounted
cash flows from operations of the acquired businesses. The Company believes
that no impairment of goodwill exists at December 31, 1999.
REVENUE RECOGNITION: Sales are recognized when the product is shipped.
Revenue from extended warranty and maintenance agreements is recognized over
the term of such agreements as services are performed. No one customer
accounted for more than 10% of net sales during 1999. Sales to one customer
accounted for approximately 32% and 29% of net sales for the year ended
December 31, 1998 and 1997, respectively.
INCOME TAXES: Through the date of the Distribution, the Company was
included in the consolidated federal and certain state income tax returns of
Tridex. The income tax amounts reflected in the accompanying financial
statements are accounted for under the liability method in accordance with
FAS 109 "Accounting for Income Taxes," and for the periods presented through
the date of the Distribution are an allocation of Tridex's consolidated
balances, and are computed as if a separate return had been filed for the
Company, using those elements of income and expense as reported in the
consolidated statements of income.
EARNINGS PER SHARE: TransAct adopted FAS 128 "Earnings per Share,"
effective December 15, 1997, which requires the dual presentation of basic
and diluted earnings per share for complex capital structures. In accordance
with FAS 128, earnings per share presented in the accompanying financial
statements for the period prior to adoption have been restated.
STOCK-BASED COMPENSATION: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and related interpretations in accounting for its stock options.
Under APB 25, because the exercise price of employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"). See Note 11.
SEGMENT REPORTING: FASB Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131") requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and allocating resources. The
Company has assessed its operating and reportable segments and determined
that it operates in one reportable segment as defined in FAS 131.
24
25
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Financial Standards
Board issued Statement of Financial Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") in June 1998
which, as amended, is currently effective January 1, 2001 for the Company.
The Company believes adoption of FAS 133 will not have a material impact on
the Company's financial position, results of operations or cash flows.
3. RELATED PARTY TRANSACTIONS
Prior to the Offering, Tridex provided certain general and administrative
services to the Company. Such services were provided and reimbursed at actual
cost, which amounted to approximately $96,000 for the year ended December 31,
1997. On July 31, 1996, the Company entered into a Tax Sharing Agreement with
Tridex. Tax benefits related to certain tax carryforwards arising prior to
the Distribution will be paid to Tridex as the carryforwards are utilized.
For the year ended December 31, 1997, the Company paid, net of refunds from
Tridex, approximately $410,000 to Tridex pursuant to the agreement.
The Company sold certain POS printers to a wholly-owned subsidiary of
Tridex. Revenues from the sale of such printers amounted to $2,675,000 during
1997.
On May 28, 1999, the Company acquired the business and substantially all
the assets of the Tridex ribbon business for total cash consideration of
approximately $295,000. The acquisition has been accounted for by the
purchase method of accounting. The purchased assets and liabilities have been
recorded in the Company's financial statements at their estimated fair values
at the acquisition date. The results of operations of the acquired company
have been included with those of the Company since the date of acquisition.
The acquisition cost exceeded the fair value of the net assets acquired by
$180,000. Such excess cost is being amortized over a five-year period on a
straight-line basis. Prior to the acquisition, the Company provided Tridex
with space within its Wallingford, CT manufacturing facility and certain
support services for the ribbon business.
4. RECEIVABLES
Receivables are net of the allowance for doubtful accounts. The
reconciliation of the allowance for doubtful accounts is as follows:
Year Ended December 31,
1999 1998 1997
----- ----- -----
(In thousands)
Balance at beginning of period $ 139 $ 102 $ 106
Provision for doubtful accounts - 41 18
Accounts written off, net of (7) (4) (22)
recoveries
----- ----- -----
Balance at end of period $ 132 $ 139 $ 102
===== ===== =====
5. INVENTORIES
The components of inventories are:
December 31,
(In thousands) 1999 1998
---- ----
Raw materials and component parts $ 9,198 $ 7,754
Work-in-process 542 495
Finished goods 517 495
$ 10,257 $ 8,744
25
26
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PLANT AND EQUIPMENT
The components of plant and equipment, net are:
December 31,
(In thousands) 1999 1998
-------- --------
Tooling, machinery and equipment $ 9,501 $ 9,533
Furniture, office and computer 3,746 3,276
equipment
Leasehold improvements 660 551
-------- --------
13,907 13,360
Less: accumulated depreciation (7,202) (7,696)
-------- --------
$ 6,705 $ 5,664
======== ========
7. ACCRUED LIABILITIES
The components of accrued liabilities are:
December 31,
(In thousands) 1999 1998
------ ------
Payroll and fringe benefits $ 521 $ 522
Income taxes payable 653 757
Customer advances, deferred
revenue and Warranty 767 850
Restructuring -- 300
Other 848 645
------ ------
$2,789 $3,074
====== ======
8. RETIREMENT SAVINGS PLAN
On April 1, 1997, the Company established the TransAct Technologies
Retirement Savings Plan (the "Plan"), a defined contribution plan under
Section 401(k) of the Internal Revenue Code. Prior to the Distribution, the
Company's employees participated in the Tridex Corporation Retirement Savings
Plan. All full-time employees are eligible to participate in the Plan at the
beginning of the calendar quarter immediately following their date of hire.
The Company matches employees' contributions at a rate of 50% of employees'
contributions up to the first 4% of the employees' compensation contributed
to the Plan. The Company's matching contributions were $145,000, $159,000 and
$101,000 in 1999, 1998 and 1997, respectively, and are included in general
and administrative expense. Prior to January 1, 1998, the Company's rate of
matching contributions was 37.5% of the employees' contributions up to the
first 4% of the employees' compensation contributed to the Plan.
9. BANK CREDIT AGREEMENT
On January 29, 1998, the Company entered into a $15,000,000 credit
facility (the "Credit Facility") with Fleet National Bank ("Fleet"). The
Credit Facility provided the Company with a $5,000,000 revolving working
capital facility, and a $10,000,000 revolving credit facility that may be
used for activities such as acquisitions and repurchases of the Company's
common stock. Borrowings under the $10,000,000 revolving credit facility
could, at the Company's election, be converted to a four-year term loan
commencing on June 30, 1999, the expiration date of the Credit Facility.
Borrowings under the Credit Facility bore interest at Fleet's prime rate and
bore a commitment fee ranging from 0.25% to 0.50% on any unused portion of
the Credit Facility. The Credit Facility also permitted the Company to
designate a LIBOR rate on outstanding borrowings with a margin ranging from
1.25 to 1.75 percentage points over the market rate. The Credit Facility was
secured by a lien on substantially all of the assets of the Company and
imposed certain financial covenants and restricted the payment of cash
dividends and the creation of liens. The Company had $5,800,000 of borrowings
outstanding under the Credit Facility at December 31, 1998.
26
27
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BANK CREDIT AGREEMENT (CONTINUED)
The Company intended to convert the outstanding borrowings to a four-year
term loan at the expiration of the Credit Facility. In accordance with that
intent, $5,075,000 ($5,800,000, less the current maturity of $725,000) was
classified as long-term debt at December 31, 1998.
On May 7, 1999, the Company entered into a new two-year $10,000,000
revolving credit facility (the "Amended Credit Facility") with Fleet,
expiring on May 31, 2001. The Amended Credit Facility replaced both the
existing $5,000,000 revolving working capital facility and $10,000,000
revolving credit facility. The Amended Credit Facility provides the Company
with a $10,000,000 credit facility that may be used to fund working capital.
Borrowings under the Amended Credit facility bear interest on outstanding
borrowings at Fleet's prime rate (8.50% at December 31, 1999) and bear a
commitment fee ranging from 0.25% to 0.625% (0.625% at December 31, 1999) on
any unused portion of the Amended Credit Facility. The Amended Credit
Facility also permits the Company to designate a LIBOR rate on outstanding
borrowings with a margin ranging from 1.50 to 2.25 percentage points over the
market rate ("Margin"), depending on the Company meeting certain ratios.
Concurrent with the Amended Credit Facility, the Company entered into a swap
agreement with Fleet under which the Company fixed its interest rate at 5.63%
plus the applicable Margin for two years on $3,000,000 of outstanding
borrowings under the Amended Credit Facility. The Amended Credit Facility is
secured by a lien on substantially all the assets of the Company, imposes
certain financial covenants and restricts the payment of cash dividends and
the creation of liens. The Company had $7,100,000 of outstanding borrowings
under this facility at December 31, 1999.
On March 14, 2000, the Company entered into a new two-year $13,000,000
revolving credit facility (the "New Credit Facility") with Fleet, expiring on
May 31, 2002. The New Credit Facility replaced the Amended Credit Facility.
The New Credit Facility provides the Company with a $13,000,000 credit
facility that may be used to fund working capital. Borrowings under the New
Credit facility bear interest on outstanding borrowings at Fleet's prime rate
plus a margin ranging from zero to 0.75 percentage points and bear a
commitment fee ranging from 0.375% to 0.75% on any unused portion of the New
Credit Facility. The New Credit Facility also permits the Company to
designate a LIBOR rate on outstanding borrowings with a margin ranging from
1.5 to 3.0 percentage points over the market rate, depending on the Company
meeting certain ratios. The New Credit Facility is secured by a lien on
substantially all the assets of the Company, imposes certain financial
covenants and restricts the creation of liens.
10.COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company was lessee on 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
$953,000, $957,000 and $713,000 in 1999, 1998 and 1997, respectively. 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, 1999 are as follows: $858,000 in 2000; $851,000 in 2001; $831,000 in
2002; $821,000 in 2003; $818,000 in 2004 and $2,832,000 thereafter.
The Company has a long-term purchase agreement for certain printer
components. Under the terms of the agreement, the Company receives favorable
pricing for volume purchases over the life of the contract. In the event
anticipated purchase levels are not achieved, the Company would be subject to
retroactive price increases on previous purchases. Management currently
anticipates achieving sufficient purchase levels to maintain the favorable
prices.
27
28
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS. On July 30, 1996, the Company adopted the 1996 Stock Plan
which provides for the grant of awards to officers and other key employees of
the Company, and the Directors' Stock Plan which provides for
non-discretionary awards to non-employee directors. The plans provide for
awards in the form of: (i) incentive stock options, (ii) non-qualified stock
options, (iii) shares of restricted stock, (iv) restricted units, (v) stock
appreciation rights or (vi) limited stock appreciation rights. Options
granted are at prices equal to 100% of the fair market value of the common
stock at the date of grant. Options granted have a ten-year term and vest
over a five-year period, unless automatically accelerated. At December 31,
1999, the Company has reserved 960,000 shares of common stock for issuance
under the 1996 Stock Plan and Directors' Stock Plan.
During the fourth quarter of 1998, the Company approved the cancellation
and reissuance of certain outstanding options under the 1996 Stock Plan.
Under the program, holders of outstanding options as of December 10, 1998,
excluding the Company's executive officers, obtained in substitution for
existing options new options for the same number of shares. The new options,
totaling 190,600, are exercisable at a price of $4.75 per share, the fair
market value of the common stock on the reissue date. The new options
maintain the vesting schedule established by the canceled option. These
190,600 options have been treated as canceled and granted in 1998 in the
table below.
The 1996 Stock Plan and Directors' Stock Plan option activity is
summarized below:
Year Ended December 31,
1999 1998 1997
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------
Outstanding at beginning of 752,300 $ 8.04 542,600 $10.97 339,300 $ 8.50
period:
Granted 104,500 5.86 428,100 5.75 227,500 14.45
Exercised (5,100) 4.75 (200) 8.50 (9,000) 8.50
Canceled (33,600) 5.07 (218,200) 10.83 (15,200) 10.04
-------- ------ -------- ------ -------- ------
Outstanding at end of period 818,100 $ 7.89 752,300 $ 8.04 542,600 $10.97
======== ====== ======== ====== ======== ======
Options exercisable at end
of period 296,140 $ 8.33 165,360 $ 8.28 57,060 $ 8.50
======== ====== ======== ====== ======== ======
Options Outstanding Options Exercisable
----------------------------------------------- ----------------------------
Weighted- Weighted- Weighted-
Outstanding at Average Average Exercisable at Average
December 31, Exercise Remaining December 31, Exercise
Range of Exercise Prices 1999 Price Contractual Life 1999 Price
------------------------ ---- ----- ---------------- ---- -----
(In years)
$ 2.50 - $ 7.50 368,800 $ 4.76 8.3 97,960 $ 4.53
7.51 - 10.00 324,300 8.72 7.3 148,380 8.60
10.01 - 12.50 8,500 11.66 7.4 3,200 11.70
12.51 - 15.00 50,500 13.75 7.1 20,200 13.75
15.01 - 17.50 66,000 16.38 7.6 26,400 16.38
The Company applies APB 25 and related interpretations in accounting for
its long-term incentive stock plans. Accordingly, no compensation cost has
been recognized for its stock options.
28
29
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
Had compensation expense been recognized based on the fair value of the
options at their grant dates, as prescribed in FAS 123, the Company's net
income and net income per share would have been as follows:
Year Ended December 31,
1999 1998 1997
--------- --------- ---------
(In thousands, except per share data)
Net income (loss):
As reported $ 324 $ 1,206 $ 4,893
Pro forma under FAS 123 (422) 747 4,422
Net income (loss) per share:
Basic:
As reported 0.06 0.20 0.72
Pro forma under FAS 123 (0.08) 0.12 0.65
Diluted:
As reported 0.06 0.20 0.71
Pro forma under FAS 123 (0.08) 0.12 0.64
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for the grants made during the years ended December 31, 1999, 1998 and
1997.
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Risk-free interest rate 5.8% 4.9% 6.4%
Dividend yield 0% 0% 0%
Expected volatility factor 78.0% 78.1% 60.0%
Expected option term 7.5 years 10 years 10 years
Weighted average fair value of options granted during period $ 4.55 $ 4.69 $ 10.97
RESTRICTED STOCK: Under the 1996 Stock Plan, the Company has granted
shares of restricted common stock, for no consideration, to its Chairman of
the Board, officers and certain key employees. The 1996 Stock Plan and
Directors' Stock Plan restricted stock activity is summarized below:
Year Ended December 31,
1999 1998 1997
------- -------- ------
Outstanding shares at beginning of period 100,800 78,800 --
Granted 13,000 25,000 78,800
Canceled -- (3,000) --
------- -------- ------
Outstanding shares at end of period 113,800 100,800 78,800
======= ======== ======
Vested shares at end of period 18,720 9,360 --
======= ======== ======
29
30
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
Of the 113,800 shares of restricted stock outstanding at December 31,
1999, 59,800 shares vest over a five-year period, while 54,000 shares vest at
the end of a five-year period. Under certain conditions vesting may be
automatically accelerated. Upon issuance of the restricted stock, unearned
compensation equivalent to the market value at the date of grant is charged
to shareholders' equity and subsequently amortized over the vesting period.
Amortization expense of $254,000, $231,000 and $124,000 was recorded during
1999, 1998 and 1997, respectively.
WARRANTS: On August 22, 1996, the Company sold to the underwriters of the
Offering, for nominal consideration, a warrant to purchase from the Company
up to 115,000 shares of common stock at an exercise price of $10.20 per
share. The warrant is exercisable for a period of five years beginning April
1, 1998.
12. STOCKHOLDER RIGHTS PLAN
In December 1997, the Board of Directors adopted a stockholder rights
plan declaring a distribution of one right (the "Rights") for each
outstanding share of the Company's common stock to shareholders of record at
December 15, 1997. Initially, each of the Rights will entitle the registered
holder to purchase from the Company one one-thousandth of a share of Series A
Preferred Stock, $0.01 par value, at a price of $69 per one one-thousandth of
a share. The Rights, however, will not become exercisable unless and until,
among other things, any person or group of affiliated persons acquires
beneficial ownership of 15 percent or more of the then outstanding shares of
the Company's Common Stock. If a person, or group of persons, acquires 15
percent or more of the outstanding Common Stock of the Company (subject to
certain conditions and exceptions more fully described in the Rights
Agreement), each Right will entitle the holder (other than the person, or
group of persons, who acquired 15 percent or more of the outstanding Common
Stock) to purchase Preferred Stock of the Company having a market value equal
to twice the exercise price of the Right. The Rights are redeemable, under
certain circumstances, for $0.0001 per Right and will expire, unless earlier
redeemed, on December 2, 2007.
On February 16, 1999, the Company amended its Stockholder Rights Plan that
was originally adopted in December 1997. The amendment removed that provision
in the plan that stipulated that the plan may be modified or redeemed only by
those members of the Board of Directors that are defined as continuing
directors. A continuing director as generally defined under the plan is a
member of the Board of Directors prior to the commencement of a hostile
takeover of the Company.
13. INCOME TAXES
The components of the income tax provision are as follows:
Year Ended December 31,
1999 1998 1997
------- ------- -------
(In thousands)
Current:
Federal $ 88 $ 779 $ 2,461
State 18 126 525
Foreign 12 131 --
------- ------- -------
118 1,036 2,986
------- ------- -------
Deferred:
Federal (37) (371) (46)
State 18 (44) (5)
Foreign 3 -- --
------- ------- -------
(16) (415) (51)
------- ------- -------
Total income tax provision $ 102 $ 621 $ 2,935
======= ======= =======
30
31
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES (CONTINUED)
The Company had foreign income before taxes of $65,000, $435,000 and
$131,000 in 1999, 1998 and 1997, respectively.
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:
December 31,
(In thousands) 1999 1998
------ ------
Gross deferred tax assets:
Liabilities and reserves $1,320 $1,187
====== ======
Gross deferred tax liabilities:
Depreciation $ 539 $ 425
====== ======
Differences between the U.S. statutory federal income tax rate and the
Company's effective income tax rate are analyzed below:
Year Ended December 31,
1999 1998 1997
------ ------ ------
Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal
income taxes 13.2 6.0 4.4
Non-deductible purchase accounting
adjustments 41.6 4.4 0.9
Tax benefit from foreign sales
corporation -- (2.2) (1.0)
Tax benefit from tax credits (60.0) (5.8) (1.6)
Foreign rate differential (1.6) (0.9) --
Other (3.2) (1.5) 0.8
------ ------ ------
Effective tax rate 24.0% 34.0% 37.5%
====== ====== ======
14. DISCLOSURE REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash and cash equivalents approximates fair value
because of the short maturity of these instruments. The carrying amount of
receivables, other current assets, other assets, accounts payable and accrued
liabilities is a reasonable estimate of fair value because of the short
nature of the transactions. The carrying value of long-term debt approximates
the fair value based upon the variable rate on that debt, and upon the recent
negotiation of a new debt facility with similar features and rates.
Off-balance sheet derivative financial instruments include interest-rate
swaps. At December 31, 1999, interest-rate swaps, held for purposes other
than trading, have a fair value settlement of $35,000, based on the
underlying principal amount of $3,000,000.
31
32
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SIGNIFICANT TRANSACTIONS
On June 25, 1999, the Company and its wholly-owned subsidiary, Magnetec
Corporation ("Magnetec"), commenced a lawsuit in the United States District
Court for the District of Rhode Island against GTECH Corporation ("GTECH")
for misappropriation of trade secrets, breach of contract and related claims,
seeking injunctive relief and compensatory and punitive damages. On July 15,
1999, GTECH and the Company signed a new five-year agreement under which
Magnetec will be the exclusive manufacturer and supplier to GTECH of an
impact printer for use in GTECH's Isys(R) online lottery terminal. As part of
the agreement, GTECH agreed to pay the Company $1 million for past design
efforts, development costs and manufacturing interruption costs and agreed to
place a non-cancelable order for delivery of a minimum of approximately $8
million of printers in the year 2000. In connection with the execution of
this agreement, the parties agreed to have all claims under the lawsuits
dismissed and filed dismissal stipulations to terminate the federal and state
lawsuits. As a result of the settlement, the Company reported $770,000 ($1
million cash settlement, less $230,000 of directly-related expenses) in other
income during 1999.
On February 23, 1999, with the Board of Directors' approval, the Company
provided a $330,000 loan to an officer of the Company. The loan proceeds were
used to purchase 104,000 shares of the Company's common stock on the open
market during January and February 1999. The loan is payable on February 23,
2004, and is a full recourse obligation to the officer secured by 154,000
shares of the Company's common stock, which includes 50,000 shares of
restricted stock. The loan bears interest at a rate equivalent to the
Company's average borrowing rate its current credit facility, and is payable
annually. The principal amount of the loan is deducted from shareholders'
equity.
During November 1997, the Board of Directors approved the repurchase of up
to 500,000 shares of the Company's common stock at a price of no more than
$12 per share. During May, August and October 1998, the Board approved the
repurchase of an additional 500,000, 250,000 and 250,000 shares,
respectively, bringing the total authorized to 1.5 million shares. The
Company acquired 70,800 shares of its common stock for $229,000 in 1999,
1,003,000 shares for $7,170,000 in 1998, and 200,000 shares for $2,251,000 in
1997. Since the Company began the stock repurchase program in December 1997
through December 31, 1999, it has repurchased 1,273,800 shares for $9,650,000
(an average cost of $7.58 per share).
During the fourth quarter of 1998, the Company recorded a restructuring
charge of $300,000 for severance costs related to the downsizing and
reorganization of its manufacturing facility in Wallingford, CT.
16. INTERNATIONAL OPERATIONS
The Company has foreign operations primarily from Ithaca Peripherals Ltd.,
a wholly-owned subsidiary, which had sales to its customers of $700,000,
$4,990,000 and $4,204,000 in the year ended December 31, 1999, 1998 and 1997,
respectively. The Company had export sales to its customers from the United
States of approximately $7,807,000, $3,396,000 and $5,618,00 in the year
ended December 31, 1999, 1998 and 1997, respectively.
32
33
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT EVENTS (UNAUDITED)
On March 20, 2000 the Company entered into an agreement with Advance
Capital Advisors, L.P. and its affiliates for the sale of 4,000 shares of 7%
Series B Cumulative Convertible Redeemable Preferred Stock (the "Preferred
Stock") in consideration of $1,000 per share (the "Stated Value"), for a
total of $4,000,000, less issuance costs. The agreement is subject to
customary closing conditions. The Company expects to receive the net proceeds
and issue the Preferred Stock in April 2000. The Preferred Stock will be
convertible at any time by the holders at a conversion price of $9.00 per
common share. In addition, the Company will issue warrants pro-rata to the
Preferred Stock holders to purchase an aggregate of 44,444 shares of the
Company's common stock at an exercise price of $9.00 per common share. The
warrants will be exercisable at any time until the fifth anniversary of the
closing. The Preferred Stock will be subject to mandatory conversion into
shares of the Company's common stock when such stock has traded at $35 per
share or more for a 30 day period ending on or after the third anniversary of
the closing, or for a 60 day period beginning on or after the second
anniversary of the closing. The Preferred Stock will be redeemable at the
option of the holders on the fifth anniversary of the closing at $1,000 per
share plus any unpaid dividends. On or after the seventh anniversary of the
closing, the Company will have the right to require (1) redemption of the
Preferred Stock at $1,000 per share plus any unpaid dividends or (2)
conversion of the Preferred Stock at $9.00 per common share. Upon a change of
control, holders have the right to redeem the Preferred Stock for 200% of the
Stated Value plus any unpaid dividends. The holders of the Preferred Stock
will be entitled to receive a cumulative annual dividend of $70 per share,
payable quarterly and will have preference to any other dividends, if any,
paid by the Company.
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's quarterly results of operations for the years ended December
31, 1999, 1998 and 1997 (unaudited) are as follows:
Quarter Ended
------------------------ -------------------------
(In thousands, except per share amounts) March 27 June 26 September 25 December 31
-------- ------- ------------ -----------
1999:
Net sales $ 9,201 $12,524 $13,020 $ 10,144
Gross profit 2,428 3,238 3,335 2,753
Net income (loss) (279) 146 837 (380)
Net income (loss) per share:
Basic (0.05) 0.03 0.15 (0.07)
Diluted (0.05) 0.03 0.15 (0.07)
March 28 June 27 September 26 December 31
-------- ------- ------------ -----------
1998:
Net sales $13,280 $12,500 $13,600 $ 12,859
Gross profit 3,746 3,435 3,778 2,867
Net income (loss) 634 231 533 (192)
Net income (loss) per share:
Basic 0.10 0.04 0.09 (0.03)
Diluted 0.10 0.04 0.09 (0.03)
March 29 June 28 September 27 December 31
-------- ------- ------------ -----------
1997:
Net sales $14,014 $15,569 $16,040 $12,777
Gross profit 4,352 4,963 5,065 3,793
Net income 1,087 1,360 1,582 864
Net income per share:
Basic 0.16 0.20 0.23 0.13
Diluted 0.16 0.20 0.23 0.12
33
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information contained in "Election of Director" and "Section 16(a)
Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement (the
"Proxy Statement") for its Annual Meeting of Shareholders which is scheduled to
be held on May 11, 2000 is hereby incorporated herein by reference. Also, see
information under "Executive Officers of Registrant" in Item 1.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in "Executive Compensation" other than the
Compensation Committee Report on Executive Compensation 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:
Financial statements
(i) See Item 8.
(ii) 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.
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35
(iii) List of exhibits
----------------
3.1(a) Certificate of Incorporation of the Company, filed with the Secretary of State of (2)
Delaware on June 17, 1996.
3.1(b) Certificate of Amendment of Certificate of Incorporation of the Company, filed with (4)
the Secretary of State of Delaware on May 30, 1997.
3.2 Amended and Restated By-laws of the Company. (6)
4.1 Specimen Common Stock Certificate. (2)
4.2 Amended and Restated Rights Agreement between TransAct and American Stock Transfer & (5)
Trust Company dated February 16, 1998.
10.1 Tax Sharing Agreement dated as of July 31, 1996 between Tridex and TransAct. (3)
10.2 Purchase Agreement dated as of October 17, 1996 between ICL Pathway Limited, Ithaca (3)
Peripherals Limited and TransAct. (Pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Company has requested
confidential treatment of portions of this exhibit deleted from the filed copy.)
10.3(x) 1996 Stock Plan, effective July 30, 1996. (3)
10.4(x) Non-Employee Directors' Stock Plan, effective August 22, 1996. (3)
10.5 Sales and Marketing Agreement by and between the Company and Oki Europe Limited, (2)
dated May 9, 1996. (Pursuant to Rule 477 under the Securities Act of 1993, as amended
(the "Securities Act"), the Company has requested confidential treatment of portions
of this exhibit deleted from the filed copy.)
10.6 OEM Purchase Agreement by and between OKIDATA and Tridex, dated January 21, 1991. (2)
(Pursuant to Rule 477 under the Securities Act, the Company has requested
confidential treatment of portions of this exhibit deleted from the filed copy.)
10.7 Strategic Agreement by and between OKIDATA and Tridex, dated May 9, 1996. (Pursuant (2)
to Rule 477 under the Securities Act, the Company has requested confidential
treatment of portions of this exhibit deleted from the filed copy.)
10.8 Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23, (2)
1992.
10.9(x) Employment Agreement, dated July 31, 1996, by and between the Company and Bart C. (2)
Shuldman.
10.10(x) Employment Agreement, dated July 31, 1996, by and between the Company and Richard L. (2)
Cote.
10.11(x) Severance Agreement by and between TransAct and Lucy H. Staley, dated September 4, (3)
1996.
10.12(x) Severance Agreement by and between TransAct and John Cygielnik, dated September 10, (3)
1996.
10.13(x) Severance Agreement by and between TransAct and Michael S. Kumpf, dated September 4, (3)
1996.
10.14(x) Severance Agreement by and between TransAct and David A. Ritchie, dated July 1, 1997. (4)
10.15 Credit Agreement dated as of January 29, 1998 among TransAct, Magnetec and Fleet (4)
National Bank.
10.16 Second Amendment to Lease Agreement by and between Bomax Properties and Ithaca, (4)
dated December 2, 1996.
10.17 Lease Agreement by and between Pyramid Construction Company and Magnetec, dated (4)
July 30, 1997.
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36
10.18 Amendment to OEM Purchase Agreement by and between Okidata and Tridex, dated May 31, (4)
1996. (Pursuant to Rule 24b-2 under the Exchange Act, the Company has requested
confidential treatment of portions of this exhibit deleted from the filed copy.)
10.19(x) Severance Agreement by and between TransAct and Steven A. DeMartino, dated January (6)
21, 1998.
10.20 Loan Agreement by and between the Company and Bart C. Shuldman, dated February 23, (6)
1999.
10.21 Amendment No. 1 to Credit Agreement dated as of May 7, 1999 by and among TransAct (7)
Technologies Incorporated, Magnetec Corporation and Fleet National Bank.
10.22 Asset Transfer Agreement dated as of May 28, 1999 between Magnetec Corporation and (7)
Tridex Corporation.
10.23 OEM Purchase Agreement by and between GTECH Corporation, TransAct Technologies and (8)
Magnetec Corporation commencing July 14, 1999. (Pursuant to Rule 24-b-2 under the
Exchange Act, the Company has requested confidential treatment of portions of this
exhibit deleted from the filed copy.)
10.24 Amendment to OEM Purchase Agreement by and between Okidata and Tridex, dated August (1)
28, 1999. (Pursuant to Rule 24b-2 under the Exchange Act, the Company has requested
confidential treatment of portions of this exhibit deleted from the filed copy.)
11.1 Computation of earnings per share. (1)
21.1 Subsidiaries of the Company. (1)
23.1 Consent of PricewaterhouseCoopers LLP. (1)
27.1 Financial Data Schedule. (1)
(1) These exhibits are filed herewith.
(2) These exhibits, which were previously filed with the Company's Registration Statement
on Form S-1 (No. 333-06895), are incorporated by reference.
(3) These exhibits, which were previously filed with the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996, are incorporated by reference.
(4) These exhibits, which were previously filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1997, is incorporated by reference.
(5) This exhibit, which was previously filed with the Company's Current Report on Form
8-K filed February 18, 1999, is incorporated by reference.
(6) These exhibits, which were previously filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, is incorporated by reference.
(7) These exhibits, which were previously filed with the Company's Quarterly Report on
Form 10-Q for the period ended June 26, 1999, is incorporated by reference.
(8) This exhibit, which was previously filed with the Company's Quarterly Report on
Form 10-Q for the period ended September 25, 1999, is incorporated by reference.
(x) Management contract or compensatory plan or arrangement required to be filed pursuant
to Item 14(c).
(B) REPORTS ON FORM 8-K.
None.
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37
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.
TRANSACT TECHNOLOGIES INCORPORATED
By: /s/ Bart C. Shuldman
--------------------------------------------
Bart C. Shuldman
President, Chief Executive Officer and Director
Date: March 28, 2000
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/ Bart C. Shuldman President, Chief Executive Officer and March 28, 2000
- ------------------------------------ Director
Bart C. Shuldman (Principal Executive Officer)
/s/ Richard L. Cote Executive Vice President, Chief Financial March 28, 2000
- ------------------------------------ Officer, Treasurer, Secretary and Director
Richard L. Cote (Principal Financial Officer)
/s/ Steven A. DeMartino Vice President and Corporate Controller March 28, 2000
- ------------------------------------ (Principal Accounting Officer)
Steven A. DeMartino
/s/ Thomas R. Schwarz Chairman of the Board and Director March 28, 2000
- ------------------------------------
Thomas R. Schwarz
/s/ Graham Y. Tanaka Director March 28, 2000
- ------------------------------------
Graham Y. Tanaka
/s/ Charles A. Dill Director March 28, 2000
- ------------------------------------
Charles A. Dill
37
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EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
-------
10.24 Amendment to OEM Purchase Agreement by and between Okidata
and Tridex, dated August 28, 1999. (Pursuant to Rule 24b-2
under the Exchange Act, the Company has requested
confidential treatment of portions of this exhibit deleted
from the filed copy.)
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
38