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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
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, 2000
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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 (I.R.S. Employer Identification No.)
incorporation or organization)
7 LASER LANE, WALLINGFORD, CT 06492
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(Address of principal executive (Zip Code)
offices)
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 16, 2001 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$22,100,000.
As of MARCH 16, 2001 the registrant had outstanding 5,620,327 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 23,
2001 - 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 began operating as a stand-alone business in August 1996 to
operate the printer business that was formerly conducted by certain subsidiaries
of Tridex Corporation. TransAct completed an initial public offering on August
22, 1996. In April 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 expanding online, e-commerce
market.
On February 15, 2001, the Company announced plans to establish a global
engineering and manufacturing center at its Ithaca, NY facility. As part of this
strategic decision, the Company will consolidate all manufacturing and
engineering into its existing Ithaca, NY facility and close its Wallingford, CT
facility by the end of 2001. Production is planned to continue at the
Wallingford facility until the end of 2001, with individual product lines
scheduled to move over the course of 2001. The closing of the Wallingford
facility is expected to result in the termination of employment of approximately
70 employees.
(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-related 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 PC board configuration, 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.
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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 inkjet
cartridges, 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 configurable 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, except as
described below.
Okidata, Division of Oki America, Inc. ("Okidata") is the sole supplier
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 at a fixed price through May 2001. The Company
and Okidata are currently negotiating for future supplies and pricing.
Hewlett-Packard Company ("HP") is the sole supplier of inkjet cartridges which
are used in all of the Company's inkjet printers. The loss of the supply of HP
inkjet cartridges would have a material adverse effect on the sale of the
Company's inkjet printers. TransAct has a supply agreement with HP to purchase
inkjet cartridges until June 1, 2001 at a fixed price. The Company and HP are
currently negotiating for future supplies and pricing. TransAct believes its
relations with Okidata and HP are good and has received no indication that
either of the supply agreements will not be renewed beyond the respective
expiration dates of the current contracts. TransAct cannot be certain, however,
that either of the supply agreements will be renewed, or if renewed, that the
terms will be as favorable as those under the current contracts.
(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. Firm purchase orders for printers may be placed
annually by GTECH. For 2001, the Company has received an order for approximately
$14,000,000 for delivery between May and December 2001. The Company also sells
printers to GTECH for use in lottery terminals at grocery check-out lanes
("in-lane lottery printers"). Sales to GTECH accounted for approximately 22.1%
and 31.8% of net sales in 2000 and 1998, respectively. The Company made no
on-line lottery printer shipments to GTECH during 1999. The Company also
provides printers to ICL Pathway for use in the British Post Office. During
2000, sales to ICL Pathway accounted for approximately 20.2% of net sales. The
Company completed shipping printers to ICL Pathway for use in the British Post
Office in February 2001 and no further shipments are expected. 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 $18,100,000 as
of March 16, 2001 and $19,900,000 as of March 17, 2000. Based on customers'
current delivery requirements, TransAct expects to fill its current backlog of
approximately $18,100,000 during 2001.
(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.
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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 greater financial resources, 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.
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 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 $3,481,000, $3,235,000 and $3,642,000
in 2000, 1999 and 1998, 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 2001, the
Company expects to focus the majority of its research and development activities
on the development of (1) a family of printers for the POS market utilizing
Hewlett Packard's inkjet printing technology and (2) new voucher-issuing
printers for use in the casino market.
(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 16, 2001, TransAct Technologies and its subsidiaries
employed 205 persons, of whom 190 were full-time and 15 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 TransAct Technologies
Ltd., a wholly-owned subsidiary located in the United Kingdom, which had sales
to its customers of $11,164,000, $700,000 and $4,990,000 in 2000, 1999 and 1998,
respectively. The Company had export sales to its customers from its domestic
operations of approximately $5,156,000, $7,807,000, and $3,396,000 in 2000, 1999
and 1998, respectively.
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(E) EXECUTIVE OFFICERS OF THE REGISTRANT AS OF DECEMBER 31, 2000
Name Age Position
---- --- --------
Thomas R. Schwarz 64 Chairman of the Board
Bart C. Shuldman 43 President, Chief Executive Officer and Director
Richard L. Cote 59 Executive Vice President, Chief Financial Officer, Treasurer,
Secretary and Director
Mark B. Goebel 46 Senior Vice President - General Manger (Wallingford, CT facility)
Michael S. Kumpf 51 Senior Vice President - Engineering
Lucy H. Staley 50 Senior Vice President - General Manager (Ithaca, NY facility)
James B. Stetson 43 Senior Vice President - Sales
Catherine J. Dawson 33 Vice President - Marketing
Steven A. DeMartino 31 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
Yorkshire Global Restaurants. In February 2001, Mr. Schwarz resigned from his
position as Chairman of the Board, but remains a director of the Company.
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. In February 2001, Mr.
Shuldman was elected Chairman of the Board.
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.
MARK B. GOEBEL, Senior Vice President - General Manager (Wallingford,
CT facility), joined TransAct in November 1993 as Engineering Manager. From
April 1994, Mr. Goebel served as Vice President-Engineering until he was
appointed Senior Vice President of Engineering of Wallingford, and an officer of
the Company, in January 2000. In November 2000, Mr. Goebel was named Senior Vice
President - General Manager of the Wallingford, CT facility.
MICHAEL S. KUMPF, Senior Vice President-Engineering since June 1996,
served as Vice President of Engineering of Ithaca from 1991 until June 1996.
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.
JAMES B. STETSON was appointed Senior Vice President of Worldwide Sales
of the Company in February 2000, and served as Vice President of Sales, Latin
America from October 1997 to February 2000. Prior to joining TransAct, Mr.
Stetson served as Vice President and Sales Manager at Gekay Sales and Service
Company from 1995 until October 1997.
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CATHERINE J. DAWSON joined TransAct in June 1998 as Vice President of
Marketing, and was appointed an officer of the Company on January 1, 2000. Prior
to joining TransAct, Ms. Dawson served as Product Marketing Manager for the
visual systems division of 3M Corporation from March 1996 to March 1998, and as
a Senior Marketing Analyst from June 1994 to March 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.
ITEM 2. PROPERTIES.
The Company's operations are currently conducted at the facilities
described below. In February 2001, the Company announced plans to establish a
global engineering and manufacturing center at its Ithaca, NY facility. As part
of this strategic decision, the Company will consolidate all manufacturing and
engineering into its existing Ithaca, NY facility and close its Wallingford, CT
facility by the end of 2001. The Company expects to be able to sublease the
Wallingford facility for the remaining term of the lease, however there can be
no assurance that the Company will be successful in doing so.
Size Owned or Lease Expiration
Location Operations Conducted (Approx. 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, Florida, Illinois, New York Five (5) regional sales 600 Leased Various
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.
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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 16, 2001, there were 896 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, 2000 and 1999 were as
follows:
Year Ended Year Ended
December 31, 2000 December 31, 1999
----------------- -----------------
High Low High Low
---- --- ---- ---
First Quarter $10.25 $6.03 $3.63 $2.56
Second Quarter 11.38 8.00 6.81 2.75
Third Quarter 11.50 5.75 8.00 5.50
Fourth Quarter 8.25 3.88 9.06 5.25
No dividends on common stock have been declared and the Company does
not anticipate declaring dividends in the foreseeable future. The Company's
credit agreement with Webster Bank restricts the payment of cash dividends on
its common stock for the term of the agreement.
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 the year ended
December 31, 1996 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 1996.
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statement of Operations Data:
Net sales $53,720 $44,889 $52,239 $58,400 $42,134
Gross profit 14,142 11,754 13,826 18,173 13,933
Operating income (loss) (154) 35 2,148 7,831 5,233
Net income (loss) (344) 324 1,206 4,893 3,340
Net income (loss) available
to common shareholders (664) 324 1,206 4,893 3,340
Net income (loss) per share
(pro forma for 1996):
Basic (0.12) 0.06 0.20 0.72 0.57
Diluted (0.12) 0.06 0.20 0.71 0.57
December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance Sheet Data:
Total assets $27,619 $25,684 $23,788 $24,699 $20,784
Long-term debt 5,944 7,100 5,075 - -
Shareholders' equity:
Preferred 3,668 - - - -
Common 12,191 12,207 12,177 17,903 14,407
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto.
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;
introduction of new products into the marketplace by competitors; 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; the Company's ability to successfully
consolidate its operations into its Ithaca, NY facility; 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.
PLANT CONSOLIDATION DURING 2001
In February 2001, the Company announced plans to establish a global
engineering and manufacturing center at its Ithaca, NY facility. As part of this
strategic decision, the Company will consolidate all manufacturing and
engineering into its existing Ithaca, NY facility and close its Wallingford, CT
facility by the end of 2001 (the "Consolidation"). The Company's technology
shift to inkjet and thermal printing from dot matrix impact printing has
dramatically reduced the labor content in printers, and therefore, lowers the
required production capacity. Production is planned to continue at the
Wallingford facility until the end of 2001, with individual product lines
scheduled to move over the course of 2001. The Company estimates that the
non-recurring costs associated with the Consolidation, including severance pay,
employee benefits, moving expenses, non-cancelable lease payments and other
costs, will be in the $3.0 to $3.5 million range and will be recognized during
2001. The Company expects the Consolidation will provide approximately $4.0
million in annual cost savings, compared to 2000, beginning in 2002. See the
"Liquidity and Capital Resources" section for a discussion of the expected
impact of the Consolidation on the Company's future cash flows.
(A) RESULTS OF OPERATIONS
(i) YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31,
1999
NET SALES. Net sales by market for the years ended December 31, 2000
and 1999 were as follows:
Year ended Year ended
(In thousands) December 31, 2000 December 31, 1999
----------------- -----------------
Point of sale $29,396 54.7% $26,653 59.4%
Gaming and lottery 19,298 35.9 8,782 19.5
Other 5,026 9.4 9,454 21.1
------- ----- ------- -----
$53,720 100.0% $44,889 100.0%
======= ===== ======= =====
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Net sales for the year ended December 31, 2000 increased $8,831,000, or
20%, to $53,720,000 from $44,889,000 in 1999 due to increased shipments into the
POS and gaming and lottery markets, partially offset by a decrease in sales in
the Company's other markets. International sales increased to $16,320,000, or
30.4% of net sales in 2000, from $8,507,000, or 19.0% of net sales in 1999.
Point of sale: Sales of the Company's POS printers increased
$2,743,000, or 10%. International POS printer shipments increased approximately
$9,387,000 due to the resumption of printer shipments to ICL Pathway for the
British Post Office project. Shipments of printers for this project totaled
approximately $10,700,000 in 2000. The Company did not make any printer
shipments related to this project in 1999. The Company completed shipping
printers for the British Post Office project in February 2001 and no further
shipments are expected. While the Company expects to replace sales for the
British Post Office project with sales of other POS and gaming and lottery
printers in 2001, if the Company is unable to do so, the absence of such sales
would have a material adverse impact on the Company's operations and financial
results during 2001. The increase in international shipments for the British
Post Office project was offset by a net decrease of approximately $1,300,000 of
printer shipments to other customers primarily in Europe and Latin America.
Domestic POS printer shipments decreased by approximately $6,644,000,
due primarily to continued softness in demand from the Company's domestic
distributors.
Gaming and lottery: Sales of the Company's gaming and lottery printers
increased $10,516,000, or 120%, from 1999. This net increase resulted from a
number of factors. The primary effect on the revenue in this market during 2000
was the resumption of shipments to GTECH of the Company's on-line lottery
printers, that totaled $11,400,000 compared to no on-line lottery printer
shipments during 1999. In addition, the Company's new slot machine printer added
approximately $2,800,000 to revenue in 2000. The new slot machine printer is
primarily for use in Indian casinos in California and casinos in Nevada. The
Company expects sales of its slot machine printers to grow significantly in
2001.
Offsetting the sales increases noted above was a decrease of
approximately $2,400,000 in shipments of printers for use in video lottery
terminals (VLTs), primarily due to the absence in 2000 of sales into the South
Carolina market, which banned VLTs in October 1999. The absence of VLT printer
sales for the South Carolina market was partially offset by increased sales of
these printers into other jurisdictions. Also, sales of in-lane lottery printers
to GTECH did not recur in 2000, resulting in a decrease in sales of $1,100,000.
Sales of in-lane lottery printers are project-oriented and the Company cannot
predict if and when future sales may occur.
The Company received an order from GTECH in January 2001 approximating
$14,000,000 for additional on-line lottery printers which will be delivered from
May to December 2001.
Other: Sales of the Company's printers into other markets decreased
$4,428,000, or 47% from 1999 due to decreased shipments of printers used in
automated teller machines, decreased shipments of printers for use in bank
teller applications, and the absence of shipments of the Company's thermal kiosk
printers for use in a Canadian government application.
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GROSS PROFIT. Gross profit increased $2,388,000, or 20%, to $14,142,000
from $11,754,000 in 1999 due primarily to higher sales volume in 2000. The gross
margin remained essentially the same at 26.3% in 2000 compared to 26.2% in 1999.
The Company expects its gross margin in 2001, before the impact of the
Consolidation, to remain relatively consistent with 2000.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased $246,000, or 8%, to $3,481,000 from $3,235,000 in
1999. The increase in spending was primarily due to increased development and
design expenses related to inkjet printers, including additional engineering
staff. These expenses decreased as a percentage of net sales to 6.5% from 7.2%,
due to higher sales in 2000 compared to 1999. The Company expects its
engineering, design and product development expenses to decrease slightly during
2001, as the Company reduces engineering activity at the Wallingford, CT
facility in preparation for its closing on December 31, 2001.
SELLING AND MARKETING. Selling and marketing expenses increased
$1,199,000, or 31%, to $5,086,000 from $3,887,000 in 1999, and increased as a
percentage of net sales to 9.5% from 8.7% in 1999. Such expenses increased by
approximately $1,400,000 due primarily to marketing and promotional activities
related to the launch of the Company's new family of printers utilizing inkjet
printing technology in April 2000, including additional marketing staff. This
increase was somewhat offset by lower sales commissions resulting from a
decrease in sales eligible for commissions in 2000 compared to 1999. The Company
expects that selling and marketing expenses for 2001 will be relatively
consistent with those of 2000, as the Company plans to continue a similar level
of marketing and promotional activities to support the existing inkjet product,
as well as a new inkjet printer expected to be introduced during 2001.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $943,000, or 21% to $5,540,000 in 2000 from $4,597,000 in 1999, and
increased slightly as a percentage of net sales to 10.3% from 10.2%. The
increase primarily resulted from (1) higher expenses resulting from the
Company's upgrade of its telecommunications system, (2) an increase in
administrative compensation-related expenses and (3) higher professional
expenses.
PROVISION FOR RESTRUCTURING. During the year ended December 31, 2000,
the Company recorded a provision for restructuring of $189,000 to cover
severance costs related to the downsizing at the Company's manufacturing
facility in Wallingford, Connecticut. At December 31, 2000, approximately
$105,000 of restructuring expenses remained accrued.
OPERATING INCOME (LOSS). The Company incurred an operating loss of
$154,000 in 2000 compared to operating income of $35,000 in 1999. The operating
loss was primarily the result of higher operating expenses, including planned
marketing and product development expenses related to the launch of the
Company's new inkjet printer, higher general and administrative expenses, and
the restructuring provision recorded in 2000.
OTHER INCOME. In 1999, the Company recorded a one-time pre-tax gain of
$770,000 related to the favorable settlement of a lawsuit with GTECH.
11
12
INTEREST. Net interest expense increased to $649,000 from $399,000 in
1999 due to increased average outstanding borrowings on the Company's line of
credit and a higher average borrowing rate in 2000 compared to 1999. See
"Liquidity and Capital Resources" below.
INCOME TAXES. As a result of the Company's loss before income taxes in
2000, the Company recorded an income tax benefit of $448,000, or an effective
rate of 56.6%, compared to an income tax provision of $102,000 in 1999, or an
effective rate of 24%. The abnormally high effective tax benefit rate in 2000
and the low effective tax rate in 1999 are primarily due to the recognition of
certain tax credits and the benefit from the Company's foreign sales corporation
on relatively low pre-tax amounts.
NET INCOME (LOSS). The Company incurred a net loss of $344,000 for
2000, or $0.12 per share (basic and diluted), after giving effect to $264,000 of
dividends and accretion charges and a one-time beneficial conversion charge of
approximately $56,000 on preferred stock issued in April of 2000. This compares
to net income of $324,000, or $0.06 per share (basic and diluted) in 1999. In
2001, dividends and accretion charges on preferred stock will be $360,000,
before the effect of any conversion or redemption of the preferred stock.
(ii) 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
----------------- -----------------
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
------- ----- ------- -----
$44,889 100.0% $52,239 100.0%
======= ===== ======= =====
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.
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 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.
12
13
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. 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 VLTs, 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.
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%.
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.
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.
13
14
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 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.
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.
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
resulted 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.
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $333,000, $2,033,000 and
$4,047,000 in 2000, 1999 and 1998, respectively. The decrease in cash generated
from operations in 2000 compared to 1999 resulted largely from (1) higher
receivables at December 31, 2000 and (2) funding of the Company's net loss in
2000. The Company's working capital increased to $13,631,000 at December 31,
2000 from $11,094,000 at December 31, 1999. The current ratio also increased to
3.54 to 1 at December 31, 2000 from 2.90 to 1 at December 31, 1999. Both the
increase in working capital and the current ratio were largely due to (1) higher
receivables at December 31, 2000 resulting from higher sales volume in the
fourth quarter of 2000 compared to the fourth quarter of 1999 and (2) a higher
cash balance at December 31, 2000.
14
15
On September 21, 2000, the Company entered into a two-year revolving
credit facility (the "Webster Credit Facility") with Webster Bank ("Webster")
expiring on September 21, 2002. The Webster Credit Facility replaced a previous
credit facility with Fleet National Bank. Under the Webster Credit Facility, the
Company may borrow up to $12 million, based on certain financial criteria of the
Company at the time of any borrowing, to fund working capital. Borrowings under
the Webster Credit Facility bear a floating rate of interest at the higher of
the "Prime Rate" as published in The Wall Street Journal or one-half of one
percent (1/2%) over the federal funds rate (as defined in the Webster Credit
Facility). Under certain circumstances, the Company may select a fixed interest
rate for a specified period of up to 90 days on borrowings based on the current
LIBOR rate (as adjusted as specified in the Webster Credit Facility) plus 2.5%,
which may be reduced to 2.25% on July 1, 2001 if there is no Event of Default
(as defined in the Webster Credit Facility). The Company will also pay a fee of
three-eighths of one percent (3/8%) on unused borrowing capacity under the
Webster Credit Facility. Borrowings under the Webster Credit Facility are
secured by a lien on substantially all the assets of the Company. The Webster
Credit facility also imposes certain financial covenants on the Company and
restricts the payment of dividends on its common stock and the creation of other
liens. The Company had $5,944,000 of outstanding borrowings under this facility
at December 31, 2000.
On February 27, 2001, the Company amended the Webster Credit Facility
to (1) provide the Company with the ability to borrow up to $1,500,000 in excess
of the amount permitted under the Webster Credit Facility's borrowing base
formula ("Permitted Over-Formula Borrowing") and (2) revise certain financial
covenants. The Permitted Over-Formula Borrowing is effective from March 1, 2001
through August 31, 2001.
On April 7, 2000 the Company sold 4,000 shares of 7% Series B
Cumulative Convertible Redeemable Preferred Stock (the "Preferred Stock") to
Advance Capital Advisors, L.P. and its affiliate in consideration of $1,000 per
share (the "Stated Value"), for a total of $4,000,000, less issuance costs of
approximately $200,000. The Preferred Stock is convertible at any time by the
holders at a conversion price of $9.00 per common share. In addition, the
Company issued 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, valued at $175,000, are exercisable at any
time until April 7, 2005. The Preferred Stock is 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 April 7, 2003, or for a
60-day period beginning on or after April 7, 2002. The Preferred Stock is
redeemable at the option of the holders on or after April 7, 2005 at $1,000 per
share plus any unpaid dividends. On April 7, 2007, the Company has 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 (which the Company does not believe probable),
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 have certain
voting rights and are entitled to receive a cumulative annual dividend of $70
per share, payable quarterly, and have preference to any other dividends, if
any, paid by the Company.
The Company's capital expenditures were approximately $2,415,000,
$2,742,000 and $2,232,000 in 2000, 1999 and 1998, respectively. These
expenditures primarily included new product tooling, computer equipment, and
factory machinery and equipment. The Company's capital expenditures for 2001 are
expected to be approximately $2,000,000, a majority for new product tooling.
15
16
The Company estimates that the non-recurring costs associated with the
Consolidation will be approximately $3.0 to $3.5 million, and will be recognized
during 2001. Of these costs, approximately $2.5 to $3.0 million will require
future cash outlays. The Company expects to pay approximately $500,000 to
$800,000 in 2001 and the remainder in 2002.
The Company believes that cash flows generated from operations and
borrowings available under the Webster Credit Facility, as necessary, will
provide sufficient resources to meet the Company's working capital needs,
including costs associated with the Consolidation, finance its capital
expenditures and meet its liquidity requirements through December 31, 2001
(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 Webster
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. 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
the Company's 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, 2000 and December 31, 1999. 19
Consolidated statements of operations for the years ended December 31, 2000, 1999 and 1998. 20
Consolidated statements of cash flows for the years ended December 31, 2000, 1999 and 1998. 21
Consolidated statement of changes in shareholders' equity for the period from December 31, 22
1997 through December 31, 2000.
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 operations, 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 at December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 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
Hartford, Connecticut
February 27, 2001
18
19
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2000 1999
---- ----
ASSETS:
Current assets:
Cash and cash equivalents $ 992 $ 279
Receivables, net (Note 4) 6,137 4,863
Inventories (Note 5) 9,857 10,257
Deferred tax assets 1,205 1,144
Other current assets 811 396
-------- --------
Total current assets 19,002 16,939
-------- --------
Fixed assets, net (Note 6) 6,794 6,705
Goodwill, net (Note 2) 1,678 1,886
Other assets 145 154
-------- --------
8,617 8,745
-------- --------
$ 27,619 $ 25,684
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Account payable $ 2,690 $ 3,056
Accrued liabilities (Note 7) 2,681 2,789
-------- --------
Total current liabilities 5,371 5,845
-------- --------
Long-term debt (Note 9) 5,944 7,100
Other liabilities 445 532
-------- --------
6,389 7,632
-------- --------
Commitments and contingencies (Note 10)
Mandatorily redeemable preferred stock, Series B, 7%
cumulative convertible, $1,000 stated value, 8,000 shares
authorized, 4,000 shares issued and outstanding (Note 15) 3,668 --
-------- --------
Shareholders' equity (Notes 11 and 12):
Preferred stock, Series A, $0.01 par value, 5,000,000
authorized, none issued and outstanding -- --
Common stock, $0.01 par value; 20,000,000 authorized;
5,607,827 and 5,576,800 shares issued 56 56
Additional paid-in capital 6,069 5,656
Retained earnings 6,929 7,592
Unamortized restricted stock compensation (477) (747)
Loan receivable from officer (330) (330)
Accumulated other comprehensive income (56) (20)
-------- --------
Total shareholders' equity 12,191 12,207
-------- --------
$ 27,619 $ 25,684
======== ========
See accompanying notes to consolidated financial statements.
19
20
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2000 1999 1998
---- ---- ----
Net sales $ 53,720 $ 44,889 $ 52,239
Cost of sales 39,578 33,135 38,413
-------- -------- --------
Gross profit 14,142 11,754 13,826
-------- -------- --------
Operating expenses:
Engineering, design and product
development expenses 3,481 3,235 3,642
Selling and marketing expenses 5,086 3,887 3,280
General and administrative expenses 5,540 4,597 4,456
Provision for restructuring (Note 15) 189 -- 300
-------- -------- --------
14,296 11,719 11,678
-------- -------- --------
Operating income (loss) (154) 35 2,148
-------- -------- --------
Other income (expense):
Interest, net (649) (399) (353)
Other, net (Note 15) 11 790 32
-------- -------- --------
(638) 391 (321)
-------- -------- --------
Income (loss) before income taxes (792) 426 1,827
Income tax provision (benefit) (Note 13) (448) 102 621
-------- -------- --------
Net income (loss) (344) 324 1,206
Dividends and accretion charges on preferred
stock (Note 15) (320) -- --
-------- -------- --------
Net income (loss) available to common
shareholders $ (664) $ 324 $ 1,206
======== ======== ========
Net income (loss) per share:
Basic $ (0.12) $ 0.06 $ 0.20
======== ======== ========
Diluted $ (0.12) $ 0.06 $ 0.20
======== ======== ========
Weighted average common shares outstanding:
Basic 5,504 5,565 6,163
======== ======== ========
Diluted 5,504 5,614 6,170
======== ======== ========
See accompanying notes to consolidated financial statements.
20
21
TransAct Technologies Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (344) $ 324 $ 1,206
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,750 2,238 2,030
Deferred income taxes (78) (19) (415)
Loss on disposal of equipment -- 11 8
Changes in operating assets and liabilities:
Receivables (1,274) 371 2,082
Inventories 400 (1,475) (174)
Other current assets (415) 158 173
Other assets (162) (100) (134)
Accounts payable (366) 858 (855)
Accrued liabilities and other liabilities (178) (333) 126
------- ------- -------
Net cash provided by operating activities 333 2,033 4,047
------- ------- -------
Cash flows from investing activities:
Purchases of fixed assets (2,415) (2,742) (2,232)
Loans to officers 15 (345) --
Acquisition of Tridex Ribbon Business -- (295) --
Proceeds from sale of assets 217 -- 3
------- ------- -------
Net cash used in investing activities (2,183) (3,382) (2,229)
------- ------- -------
Cash flows from financing activities:
Bank line of credit borrowings (repayments), net (1,156) 1,300 5,500
Proceeds from option exercises 175 24 2
Net proceeds from issuance of preferred stock 3,785 -- --
Payment of cash dividends on preferred stock (205) -- --
Purchases of treasury stock -- (229) (7,170)
Tax benefit related to employee stock sales -- -- 3
------- ------- -------
Net cash provided by (used in) financing
activities 2,599 1,095 (1,665)
------- ------- -------
Effect of exchange rate changes on cash (36) (13) 2
------- ------- -------
Increase (decrease) in cash and cash equivalents 713 (267) 155
Cash and cash equivalents at beginning of
period 279 546 391
------- ------- -------
Cash and cash equivalents at end of period $ 992 $ 279 $ 546
======= ======= =======
Supplemental cash flow information:
Interest paid $ 696 $ 433 $ 351
Income taxes paid 74 171 561
See accompanying notes to consolidated financial statements.
21
22
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
------ ------ ------- --------
Balance, December 31, 1997 6,610,300 68 14,975 6,062
Issuance of restricted stock 25,000 -- 228 --
Cancellation of restricted
stock (3,000) -- (36) --
Issuance of shares from
exercise of stock options 200 -- 2 --
Amortization of restricted
stock compensation -- -- -- --
Tax benefit related to
employee stock sales -- -- 3 --
---------- ---------- ---------- ----------
Purchase of treasury shares (1,003,000) -- -- --
Retirement of treasury
shares -- (12) (9,409) --
Comprehensive income:
Foreign currency
translation adjustment -- -- -- --
Net income -- -- -- 1,206
---------- ---------- ---------- ----------
Balance, December 31, 1998 5,629,500 56 5,763 7,268
Issuance of restricted stock 13,000 -- 98 --
Issuance of shares from
exercise of stock options 5,100 -- 24 --
Amortization of restricted
stock compensation -- -- -- --
Purchase of treasury shares (70,800) -- -- --
Retirement of treasury
shares -- -- (229) --
Issuance of loan to officer -- -- -- --
Comprehensive income:
Foreign currency
translation adjustment -- -- -- --
Net income -- -- -- 324
---------- ---------- ---------- ----------
Balance, December 31, 1999 5,576,800 56 5,656 7,592
Issuance of restricted stock 5,000 -- 44 --
Cancellation of restricted
stock (3,800) -- (36) --
Issuance of shares from
exercise of stock options 25,000 -- 150 --
Issuance of shares from
employee stock purchase plan 4,827 -- 24 --
Amortization of restricted
stock compensation -- -- -- --
Issuance of preferred stock
warrants -- -- 175 --
Deemed dividend on beneficial
conversion of preferred stock -- -- 56 (56)
Dividends paid on preferred
stock -- -- -- (205)
Accretion of preferred stock
warrants and issuance costs -- -- -- (58)
Comprehensive income:
Foreign currency
translation adjustment -- -- -- --
Net loss -- -- -- (344)
---------- ---------- ---------- ----------
Balance, December 31, 2000 5,607,827 $ 56 $ 6,069 $ 6,929
========== ========== ========== ==========
Unamortized Loan Accumulated
Restricted Receivable Other
Stock from Comprehensive Treasury
Compensation Officer Income Stock
------------ ------- ------ -----
Balance, December 31, 1997 (942) -- (9) (2,251)
Issuance of restricted stock (228) -- -- --
Cancellation of restricted
stock 36 -- -- --
Issuance of shares from
exercise of stock options -- -- -- --
Amortization of restricted
stock compensation 231 -- -- --
Tax benefit related to
employee stock sales -- -- -- --
Purchase of treasury shares -- -- -- (7,170)
Retirement of treasury
shares -- -- -- 9,421
Comprehensive income:
Foreign currency
translation adjustment -- -- 2 --
Net income -- -- -- --
---------- ---------- ---------- ----------
Balance, December 31, 1998 (903) -- (7) --
Issuance of restricted stock (98) -- -- --
Issuance of shares from
exercise of stock options -- -- -- --
Amortization of restricted
stock compensation 254 -- -- --
Purchase of treasury shares -- -- -- (229)
Retirement of treasury
shares -- -- -- 229
Issuance of loan to officer -- (330) -- --
Comprehensive income:
Foreign currency
translation adjustment -- -- (13) --
Net income -- -- -- --
---------- ---------- ---------- ----------
Balance, December 31, 1999 (747) (330) (20) --
Issuance of restricted stock (44) -- -- --
Cancellation of restricted
stock 36 -- -- --
Issuance of shares from
exercise of stock options -- -- -- --
Issuance of shares from
employee stock purchase plan -- -- -- --
Amortization of restricted
stock compensation 278 -- -- --
Issuance of preferred stock
warrants -- -- -- --
Deemed dividend on beneficial
conversion of preferred stock -- -- -- --
Dividends paid on preferred
stock -- -- -- --
Accretion of preferred stock
warrants and issuance costs -- -- -- --
Comprehensive income:
Foreign currency
translation adjustment -- -- (36) --
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balance, December 31, 2000 $ (477) $ (330) $ (56) $ --
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
22
23
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
TransAct Technologies Incorporated ("TransAct" or the "Company") began
operating as a stand-alone, publicly-held company in August 1996 to conduct
the printer business that was formerly operated by certain subsidiaries of
Tridex Corporation ("Tridex").
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 PC board configuration, 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.
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. Significant estimates have been made
in areas including inventory valuation, estimated lives of fixed assets and
goodwill, deferred tax assets, accrued liabilities, allowance for doubtful
accounts and tax provisions (benefits). Actual results could differ from
those estimates.
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.
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.
FIXED ASSETS: Fixed assets 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
$2,176,000, $1,699,000 and $1,546,000 in 2000, 1999 and 1998, respectively.
23
24
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL: Goodwill resulted from the acquisition of (i) Ithaca
Peripherals, Inc. in 1991 and the (ii) ribbon business formerly conducted
by Tridex ("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 five years. Accumulated
amortization of goodwill was $2,038,000 and $1,830,000 at December 31, 2000
and 1999, 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, 2000.
REVENUE RECOGNITION: Sales are recognized when evidence of an
arrangement exists, delivery has occurred, the selling price is fixed and
determinable, and collectibility is reasonably assured. Revenue from
extended warranty and maintenance agreements is recognized over the term of
such agreements as services are performed. Sales to GTECH Corporation
("GTECH") (for lottery printers) and ICL Pathway (for the British Post
Office project) accounted for approximately 22% and 20% of net sales during
2000, respectively. No one customer accounted for more than 10% of net
sales during 1999. Sales to one customer, GTECH, accounted for
approximately 32% of net sales for the year ended December 31, 1998.
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 (losses) are included in other income and amounted to
$(26,000), $11,000 and 17,000 in 2000, 1999 and 1998, respectively.
INCOME TAXES: 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."
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. Since the exercise price of employee stock options granted by the
Company generally 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.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: The Financial Accounting
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.
24
25
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITION
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 goodwill 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 Tridex 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,
2000 1999 1998
---- ---- ----
(In thousands)
Balance at beginning of period $ 132 $ 139 $ 102
Doubtful accounts provision (reversal) (24) - 41
Accounts written off, net of recoveries (1) (7) (4)
------ ------ ------
Balance at end of period $ 107 $ 132 $ 139
====== ====== ======
5. INVENTORIES
The components of inventories are:
December 31,
(In thousands) 2000 1999
---- ----
Raw materials and component parts $ 9,603 $ 9,198
Work-in-process 200 542
Finished goods 54 517
-------- --------
$ 9,857 $ 10,257
======== ========
6. FIXED ASSETS
The components of fixed assets are:
December 31,
(In thousands) 2000 1999
---- ----
Tooling, machinery and equipment $10,974 $ 9,501
Furniture, office and computer equipment 3,811 3,746
Leasehold improvements 749 660
------- -------
15,534 13,907
Less: accumulated depreciation (8,740) (7,202)
------- -------
$ 6,794 $ 6,705
======= =======
25
26
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACCRUED LIABILITIES
The components of accrued liabilities are:
December 31,
(In thousands) 2000 1999
---- ----
Payroll and fringe benefits $ 382 $ 521
Income taxes accrued 765 653
Warranty 657 638
Deferred revenue 108 129
Restructuring 105 -
Other 664 848
------- -------
$ 2,681 $ 2,789
======= =======
8. EMPLOYEE BENEFIT PLANS
RETIREMENT SAVINGS PLAN: On April 1, 1997, the Company established the
TransAct Technologies Retirement Savings Plan (the "401(k) Plan"), a
defined contribution plan under Section 401(k) of the Internal Revenue
Code. All full-time employees are eligible to participate in the 401(k)
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 5% of the employees'
compensation contributed to the 401(k) Plan. The Company's matching
contributions were $203,000, $145,000 and $159,000 in 2000, 1999 and 1998,
respectively. During 1999 and 1998, the Company's rate of matching
contributions was 50% of the employees' contributions up to the first 4% of
the employees' compensation contributed to the 401(k) Plan.
EMPLOYEE STOCK PURCHASE PLAN: In May 2000, the Company's shareholders
approved the Employee Stock Purchase Plan (the "ESPP"), under which 50,000
shares of the Company's common stock are available for issuance to
employees beginning June 1, 2000. All full-time employees are eligible to
participate in the ESPP at the beginning of each six-month period (the
"Offering Period"), which begin on June 1 and December 1. Eligible
employees may elect to withhold up to 5% of their salary to purchase shares
of the Company's common stock at a price equal to 85% of the fair market
value of the stock on the first or last day of each Offering Period,
whichever is lower. The ESPP will terminate at the earlier of May 31, 2005
or the date on which all 50,000 shares available for issuance under the
ESPP have been sold. During 2000, the Company sold 4,827 shares of common
stock at $4.88 per share under the ESPP. At December 31, 2000, 45,173
shares remained available for sale. Compensation costs related to the ESPP
are immaterial.
9. BANK CREDIT AGREEMENT
On January 29, 1998, the Company entered into a $15,000,000 credit
facility with Fleet National Bank ("Fleet"). On May 7, 1999, the Company
replaced this facility with a new two-year $10,000,000 revolving credit
facility with Fleet (the "Fleet Credit Facility"). The Fleet Credit
Facility provided the Company with a $10,000,000 credit facility used to
fund working capital. Borrowings under the Fleet Credit facility bore
interest on outstanding borrowings at Fleet's prime rate and bore a
commitment fee ranging from 0.25% to 0.625% on any unused portion of the
Fleet Credit Facility. The Fleet Credit Facility also permitted 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 Fleet
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
Fleet Credit Facility. The Fleet Credit Facility was secured by a lien on
substantially all the assets of the Company, imposed certain financial
covenants and restricted the payment of cash dividends and the creation of
liens.
26
27
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BANK CREDIT AGREEMENT (CONTINUED)
On March 14, 2000, the Company entered into a new two-year $13,000,000
revolving credit facility (the "New Fleet Credit Facility") with Fleet. The
New Fleet Credit Facility replaced the Fleet Credit Facility. The New Fleet
Credit Facility provided the Company with a $13,000,000 credit facility
used to fund working capital. Borrowings under the New Fleet Credit
facility bore interest on outstanding borrowings at Fleet's prime rate plus
a margin ranging from zero to 0.75 percentage points and bore a commitment
fee ranging from 0.375% to 0.75% on any unused portion of the New Fleet
Credit Facility. The New Fleet Credit Facility also permitted 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 Fleet Credit Facility was secured
by a lien on substantially all the assets of the Company, imposed certain
financial covenants and restricted the creation of liens.
On September 21, 2000, the Company entered into a two-year revolving
credit facility (the "Webster Credit Facility) with Webster Bank
("Webster") expiring on September 21, 2002. The Webster Credit Facility
replaced the New Fleet Credit Facility. Under the Webster Credit Facility,
the Company may borrow up to $12 million, based on certain financial
criteria of the Company at the time of any borrowing, to fund working
capital. Borrowings under the Webster Credit Facility bear a floating rate
of interest at the higher of the "Prime Rate" as published in The Wall
Street Journal or one-half of one percent (1/2%) over the federal funds
rate (as defined in the Webster Credit Facility) (9.5% at December 31,
2000). Under certain circumstances, the Company may select a fixed interest
rate for a specified period of up to 90 days on borrowings based on the
current LIBOR rate (as adjusted as specified in the Webster Credit
Facility) plus 2.5%, which may be reduced to 2.25% on July 1, 2001 if there
is no Event of Default (as defined in the Webster Credit Facility). The
Company will also pay a fee of three-eighths of one percent (3/8%) on
unused borrowing capacity under the Webster Credit Facility. Borrowings
under the Webster Credit Facility are secured by a lien on substantially
all the assets of the Company. The Webster Credit facility also imposes
certain financial covenants on the Company and restricts the payment of
dividends on its common stock and the creation of other liens. The Company
had $5,944,000 of outstanding borrowings under this facility at December
31, 2000.
10. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, 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
$991,000, $953,000 and $957,000 in 2000, 1999 and 1998, 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, 2000 are as follows: $891,000 in 2001; $871,000 in 2002;
$873,000 in 2003; $855,000 in 2004; $868,000 in 2005 and $1,663,000
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.
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
generally vest over a five-year period, unless automatically accelerated
for certain defined events. At December 31, 2000, the Company has reserved
1,150,000 and 110,000 shares of common stock for issuance under the 1996
Stock Plan and Directors' Stock Plan, respectively.
27
28
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
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,
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning of
period: 818,100 $7.89 752,300 $8.04 542,600 $10.97
Granted 190,500 9.86 104,500 5.86 428,100 5.75
Exercised (25,000) 6.05 (5,100) 4.75 (200) 8.50
Canceled (64,600) 7.53 (33,600) 5.07 (218,200) 10.83
------- ----- ------- ----- ------- ------
Outstanding at end of period 919,000 $8.34 818,100 $7.89 752,300 $ 8.04
======= ===== ======= ===== ======= ======
Options exercisable at end
of period 436,580 $8.19 296,140 $8.33 165,360 $ 8.28
======= ===== ======= ===== ======= ======
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 2000 Price Contractual Life 2000 Price
------------------------ ---- ----- ---------------- ---- -----
(In years)
$ 2.50 - $ 5.00 238,400 $4.28 6.1 139,740 $4.40
5.01 - 7.50 84,300 6.17 8.0 18,400 6.15
7.51 - 10.00 344,800 8.76 6.1 208,840 8.64
10.01 - 12.50 145,000 10.22 9.1 4,900 11.69
12.51 - 15.00 45,500 13.75 5.8 28,100 13.75
15.01 - 17.50 61,000 16.38 6.6 36,600 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.
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 (loss) and net income (loss) per share would have been as
follows:
28
29
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
Year Ended December 31,
2000 1999 1998
---- ---- ----
(In thousands, except per share data)
Net income (loss) available to common shareholders:
As reported $ (664) $ 324 $ 1,206
Pro forma under FAS 123 (1,171) (422) 747
Net income (loss) per share:
Basic and diluted:
As reported (0.12) 0.06 0.20
Pro forma under FAS 123 (0.21) (0.08) 0.12
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, 2000, 1999 and
1998.
Year Ended December 31,
2000 1999 1998
---- ---- ----
Risk-free interest rate 6.3% 5.8% 4.9%
Dividend yield 0% 0% 0%
Expected volatility factor 83.1% 78.0% 78.1%
Expected option term 7.1 years 7.5 years 10 years
Weighted average fair value of options granted during period $7.78 $4.55 $ 4.69
RESTRICTED STOCK: Under the 1996 Stock Plan, the Company has granted
shares of restricted common stock, for no consideration, to its officers,
one outside director and certain key employees. The 1996 Stock Plan
restricted stock activity is summarized below:
Year Ended December 31,
2000 1999 1998
---- ---- ----
Outstanding shares at beginning of period 95,080 91,440 78,800
Granted 5,000 13,000 25,000
Vested (12,960) (9,360) (9,360)
Canceled (3,800) - (3,000)
------ ------ ------
Outstanding shares at end of period 83,320 95,080 91,440
====== ====== ======
Of the 83,320 shares of restricted stock outstanding at December 31,
2000, 29,320 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 a separate component of shareholders' equity and subsequently amortized
over the vesting period. Amortization expense of $277,000, $254,000 and
$231,000 was recorded during 2000, 1999 and 1998, respectively.
WARRANTS: On August 22, 1996, the Company sold to the underwriters of
its initial public 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 until
August 20, 2001.
On April 7, 2000, in connection with the sale of the Preferred Stock,
the Company issued to its investment advisors, McFarland Dewey & Co.,
warrants to purchase from the Company up to 10,000 shares of common stock
at an exercise price of $9.00 per share. The warrants are exercisable
through April 7, 2005.
29
30
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
to remove the provision in the plan that stipulated that the plan may be
modified or redeemed only by those members of the Board of Directors who
are defined as continuing directors.
13. INCOME TAXES
The components of the income tax provision are as follows:
Year Ended December 31,
2000 1999 1998
---- ---- ----
(In thousands)
Current:
Federal $ (561) $ 88 $ 779
State 43 18 126
Foreign 194 12 131
------- ------- -------
(324) 118 1,036
------- ------- -------
Deferred:
Federal (94) (37) (371)
State (34) 18 (44)
Foreign 4 3 --
------- ------- -------
(124) (16) (415)
------- ------- -------
Total income tax provision (benefit) $ (448) $ 102 $ 621
======= ======= =======
The Company had foreign income before taxes of $665,000, $65,000 and
$435,000 in 2000, 1999 and 1998, 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) 2000 1999
---- ----
Gross deferred tax assets:
Liabilities and reserves $1,435 $1,320
====== ======
Gross deferred tax liabilities:
Depreciation $ 576 $ 539
====== ======
30
31
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES (CONTINUED)
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,
2000 1999 1998
---- ---- ----
Federal statutory tax rate (34.0)% 34.0% 34.0%
State income taxes, net of federal income taxes (0.3) 13.2 6.0
Non-deductible purchase accounting adjustments 9.9 41.6 4.4
Tax benefit from foreign sales corporation (3.1) -- (2.2)
Tax benefit from tax credits (22.9) (60.0) (5.8)
Foreign rate differential (3.5) (1.6) (0.9)
Other (2.7) (3.2) (1.5)
----- ---- ----
Effective tax rate (56.6)% 24.0% 34.0%
===== ==== ====
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.
Off-balance sheet derivative financial instruments include
interest-rate swaps. At December 31, 1999, interest-rate swaps, held for
purposes other than trading, had a fair value settlement of $35,000, based
on the underlying principal amount of $3,000,000. The Company sold its
interest-rate swap during 2000.
15. SIGNIFICANT TRANSACTIONS
RESTRUCTURING: During the fourth quarter of 2000 and fourth quarter of
1998, the Company recorded a restructuring charge of $189,000 and $300,000,
respectively, for severance costs related to the downsizing and
reorganization of its manufacturing facility in Wallingford, CT. Severance
costs resulted from the reduction of 11 and 14 employees in 2000 and 1999,
respectively. At December 31, 2000, approximately $105,000 of restructuring
expenses remained accrued.
PREFERRED STOCK SALE: On April 7, 2000 the Company sold 4,000 shares of
7% Series B Cumulative Convertible Redeemable Preferred Stock (the
"Preferred Stock") to Advance Capital Advisors, L.P. and its affiliate in
consideration of $1,000 per share (the "Stated Value"), for a total of
$4,000,000, less issuance costs. The Preferred Stock is convertible at any
time by the holders at a conversion price of $9.00 per common share. In
addition, the Company issued 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, valued
at $175,000, are exercisable at any time until April 7, 2005, and will be
accreted to preferred stock ratably over 60 months. The Preferred Stock is
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 April 7, 2003, or for a 60-day period beginning on or
after April 7, 2002. The Preferred Stock is redeemable at the option of the
holders on April 7, 2005 at $1,000 per share plus any unpaid dividends. On
or after April 7, 2007, the Company has 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 (which the Company does not believe probable), 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 have certain voting
rights and are entitled to receive a cumulative annual dividend of $70 per
share, payable quarterly and have preference to any other dividends, if
any, paid by the Company.
31
32
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SIGNIFICANT TRANSACTIONS (CONTINUED)
PREFERRED STOCK SALE (CONTINUED): Concurrent with the issuance of the
Preferred Stock, the Company recorded a beneficial conversion charge. The
beneficial conversion charge was calculated as the difference between the
assigned fair value of the Preferred Stock and the fair value of the
related common stock, as of April 7, 2000, into which the Preferred Stock
was immediately convertible. Accordingly, a deemed preferred dividend of
approximately $56,000 as of the issuance date has been recognized as a
charge to retained earnings and net loss attributable to common
shareholders, and as an increase to additional paid-in capital.
GTECH LAWSUIT SETTLEMENT: On June 25, 1999, the Company commenced a
lawsuit in the United States District Court for the District of Rhode
Island against 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 the Company 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.
LOAN TO OFFICER: 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 under its
current credit facility, and is payable annually. The principal amount of
the loan is deducted from shareholders' equity.
STOCK REPURCHASE PROGRAM: 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). The
Company did not repurchase any shares during 2000, and management does not
expect to repurchase any additional shares in the foreseeable future.
16. INTERNATIONAL OPERATIONS
The Company has foreign operations primarily from TransAct Technologies
Ltd., a wholly-owned subsidiary, which had sales to its customers of
$11,164,000, $700,000 and $4,990,000 in the year ended December 31, 2000,
1999 and 1998, respectively. The Company had export sales to its foreign
customers from the United States of approximately $5,156,000, $7,807,000
and $3,396,00 in the year ended December 31, 2000, 1999 and 1998,
respectively.
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33
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT EVENTS (unaudited)
On February 15, 2001, the Company announced plans to establish a global
engineering and manufacturing center at its Ithaca, NY facility. As part of
this strategic decision, the Company will consolidate all manufacturing and
engineering into its existing Ithaca, NY facility and close its
Wallingford, CT facility by the end of 2001. Production is planned to
continue at the Wallingford facility until the end of 2001, with individual
product lines scheduled to move over the course of 2001. The closing of the
Wallingford facility is expected to result in the termination of employment
of approximately 70 employees. The Company estimates that the non-recurring
costs associated with the consolidation, including severance pay, employee
benefits, moving expenses, non-cancelable lease payments, and other costs,
will be approximately $3.0 to $3.5 million and will be recognized during
2001.
On February 27, 2001, the Company amended the Webster Credit Facility
to (1) provide the Company with the ability to borrow up to $1,500,000 in
excess of the amount permitted under the Webster Credit Facility's
borrowing base formula ("Permitted Over-Formula Borrowing") and (2) revise
certain financial covenants. The Permitted Over-Formula Borrowing is
effective from March 1, 2001 through August 31, 2001.
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's quarterly results of operations for the years ended
December 31, 2000, 1999 and 1998 (unaudited) are as follows:
Quarter Ended
-------------
(In thousands, except per share amounts) March 27 June 26 September 23 December 31
-------- ------- ------------ -----------
2000:
Net sales $ 11,238 $ 13,740 $ 14,604 $ 14,138
Gross profit 3,013 3,665 3,867 3,597
Net income (loss) (300) (186) 290 (148)
Net income (loss) available to common
Shareholders (300) (326) 200 (238)
Net income (loss) per share:
Basic and diluted (0.05) (0.06) 0.04 (0.04)
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 and 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 and diluted 0.10 0.04 0.09 (0.03)
33
34
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 Directors" 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 23, 2001 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.
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35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART
OF THIS REPORT:
(i) Financial statements
See Item 8.
(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.
35
36
(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 Michael S. Kumpf, dated September 4, (3)
1996.
10.13 Second Amendment to Lease Agreement by and between Bomax Properties and Ithaca, (4)
dated December 2, 1996.
10.14 Lease Agreement by and between Pyramid Construction Company and Magnetec, dated (4)
July 30, 1997.
10.15 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.)
10.16(x) Severance Agreement by and between TransAct and Steven A. DeMartino, dated January (6)
21, 1998.
10.17 Loan Agreement by and between the Company and Bart C. Shuldman, dated February 23, (6)
1999.
36
37
10.18 Asset Transfer Agreement dated as of May 28, 1999 between Magnetec Corporation and (7)
Tridex Corporation.
10.19 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.)
10.20 Amendment to OEM Purchase Agreement by and between Okidata and Tridex, dated August (9)
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.)
10.21 Preferred Stock Purchase Agreement and Certificate of Designation dated as of March (10)
20, 2000 between TransAct Technologies Incorporated and Advance Capital Partners,
L.P. and affiliate
10.22 Revolving Credit Agreement dated as of September 21, 2000 by and between TransAct (11)
Technologies Incorporated and Webster Bank.
10.23(x) Severance Agreement by and between TransAct and Catherine J. Dawson, dated April 21, (1)
1999.
10.24(x) Severance Agreement by and between TransAct and Mark Goebel, dated July 31, 1996. (1)
10.25(x) Severance Agreement by and between TransAct and James B. Stetson, dated January 24, (1)
2001.
10.26 Amendment to Revolving Credit Agreement dated February 27, 2001 by and between (1)
TransAct Technologies Incorporated and Webster Bank.
11.1 Computation of earnings per share. (1)
21.1 Subsidiaries of the Company. (1)
23.1 Consent of PricewaterhouseCoopers LLP. (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, are 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, are 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, are 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.
(9) These exhibits, which were previously filed with the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999, are incorporated by
reference.
(10) These exhibits, which were previously filed with the
Company's Quarterly Report on Form 10-Q for the
period ended March 25, 2000, are incorporated by
reference.
(11) This exhibit, which was previously filed with the
Company's Current Report on Form 8-K filed October
11, 2000, is incorporated by reference.
37
38
(x) Management contract or compensatory plan or
arrangement required to be filed pursuant to Item
14(c).
(B) REPORTS ON FORM 8-K.
A Form 8-K was filed on October 11, 2000 to report under Item
5 a new revolving credit agreement with Webster Bank.
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
Chairman of the Board, President and
Chief Executive Officer
Date: March 28, 2001
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 Chairman of the Board, President and March 28, 2001
- ------------------------------------ Chief Executive Officer
Bart C. Shuldman (Principal Executive Officer)
/s/ Richard L. Cote Executive Vice President, Chief Financial March 28, 2001
- ------------------------------------ Officer, Treasurer, Secretary and Director
Richard L. Cote (Principal Financial Officer)
/s/ Steven A. DeMartino Vice President and Corporate Controller March 28, 2001
- ------------------------------------ (Principal Accounting Officer)
Steven A. DeMartino
/s/ Charles A. Dill Director March 28, 2001
- ------------------------------------
Charles A. Dill
/s/ Jeffrey T. Leeds Director March 28, 2001
- ------------------------------------
Jeffrey T. Leeds
/s/ Thomas R. Schwarz Director March 28, 2001
- ------------------------------------
Thomas R. Schwarz
/s/ Graham Y. Tanaka Director March 28, 2001
- ------------------------------------
Graham Y. Tanaka
38
39
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
10.23(x) Severance Agreement by and between TransAct and
Catherine J. Dawson, dated April 21, 1999.
10.24(x) Severance Agreement by and between TransAct and Mark
Goebel, dated July 23, 1996.
10.25(x) Severance Agreement by and between TransAct and James
B. Stetson, dated January 24, 2001
10.26 Amendment to Revolving Credit Agreement dated
February 27, 2001 by and between TransAct
Technologies Incorporated and Webster Bank.
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
39