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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, 2001
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
- ------------------------------------------------ ------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
7 LASER LANE, WALLINGFORD, CT 06492
- ------------------------------------------------ ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-269-1198
------------------------
Securities registered pursuant to Section 12 (b) of the Act:
NONE
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
(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. |X|
As of March 15, 2002 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$24,600,000.
As of March 15, 2002 the registrant had outstanding 5,703,670 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 17,
2002 - Part III.
PART I
GENERAL
TransAct Technologies Incorporated ("TransAct" or the "Company") designs,
develops, manufactures and markets transaction-based printers under the
Ithaca(R) and Magnetec(R) brand names. In addition, the Company markets related
consumables, spare parts and service. 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 the following vertical
markets: point-of-sale ("POS"), gaming and lottery, financial services and
kiosk. 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 one primary operating facility located in Ithaca, New York, five
sales offices located in the United States, and one sales office and service
depot in the United Kingdom. The Company also has a manufacturing facility in
Wallingford, CT which it expects to close in May 2002 (see "General Development
of Business" below).
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 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 undertook a plan to consolidate all
manufacturing and engineering into its existing Ithaca, NY facility and close
its Wallingford, CT facility (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. As of December 31, 2001, substantially all
Wallingford product lines were successfully transferred to Ithaca, NY. The
Company expects to maintain one small component production line in Wallingford
until May 2002, after which the manufacturing facility will be closed. The
closing of the Wallingford facility is expected to result in the termination of
employment of approximately 70 production, administrative and management
employees.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
TransAct has assessed its operating and reportable segments and has
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 the
following vertical markets: POS, gaming and lottery, financial services and
kiosk. The Company's printers are configurable and 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. 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.
Service contracts for the repair and maintenance of printers beyond the original
warranty period are also available for purchase.
(ii) STATUS OF PRODUCT REQUIRING MATERIAL INVESTMENT
None.
2
(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 Americas, 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
June 2003 at fixed prices through at least March 31, 2002. The Company and
Okidata are currently negotiating for future pricing. Additionally,
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, 2002 at a fixed price. 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, three of which it considers material.
The earliest expiration date of these patents is in 2008. The first patent
covers an automated paper cut-off device, which is a feature offered on certain
of the Company's POS printers; the second is a patent that relates to an
automatic paper loader for a printer; and the third is a patent that covers a
method for converting a full color image into a two-color image, plus a
background color. The Company also has sought patent protection for certain
design features of 1) printers using inkjet technology, 2) POS printers using
thermal technology, and 3) thermal printers for use in casino slot machines. 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.
(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 December 31, 2004. Firm purchase orders for printers may be placed
annually by GTECH. The Company has received orders for approximately $9,800,000
worth of printers for delivery between January 2002 and February 2003. 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 33.0% and 22.1% of net sales in 2001 and 2000, respectively. The
Company made no on-line lottery printer shipments and approximately $1,100,000
of in-lane 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 $8,700,000 as of
March 25, 2002 and $18,100,000 as of March 16, 2001, including approximately
$6,600,000 and $7,800,000 to GTECH, respectively. Based on customers' current
delivery requirements, TransAct expects to fill approximately $8,200,000 of its
current backlog during 2002 and approximately $500,000 during 2003.
3
(ix) MATERIAL PORTION OF BUSINESS SUBJECT TO RENEGOTIATION OF PROFITS
None.
(x) COMPETITION
The market for transaction-based printers is extremely competitive, and
the Company expects such competition to intensify in the future. The Company
competes with a number of companies, many of which have greater financial,
technical and marketing resources than the Company. TransAct believes its
ability to compete successfully depends on a number of factors both within and
outside its control, including durability, reliability, quality, design
capability, product customization, price, customer support, success in
developing new products, manufacturing expertise and capacity, supply of
component parts and materials, strategic relationships with suppliers, the
timing of new product introductions by the Company and its competitors, general
market and economic conditions and, in some cases, the uniqueness of its
products.
Three of the Company's competitors, Epson America, Inc., Axiohm
Transaction Solutions and Star Micronics America, Inc. together control
approximately 70% of the United States market for POS printers, a market in
which the Company's strategy calls for increased market share. Another principal
competitor in the POS market is Citizen -- CBM America Corporation. Certain
competitors of the Company have 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 services 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 (1) gaining market acceptance for its
new family of printers utilizing Hewlett Packard's inkjet printing technology,
(2) promoting its new line of slot machine printers into the gaming market and
(3) expanding its consumables, spares and service business. 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 $3,070,000, $3,481,000 and $3,235,000 in
2001, 2000 and 1999, 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 2002, the
Company expects to focus the majority of its research and development activities
on the continuing development and enhancement of (1) its family of printers for
the POS market utilizing inkjet and thermal printing technology and (2) its
ticket-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 that 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 15, 2002, TransAct Technologies and its subsidiaries employed
176 persons, of whom 141 were full-time and 35 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 $1,791,000, $11,164,000 (primarily to ICL Pathway for use in
the British Post Office) and $700,000 in 2001, 2000 and 1999, respectively. The
Company had export sales to its customers from its domestic operations of
approximately $6,131,000, $5,156,000 and $7,807,000 in 2001, 2000 and 1999,
respectively.
4
(E) EXECUTIVE OFFICERS OF THE REGISTRANT AS OF DECEMBER 31, 2001
Name Age Position
- ------------------- --- --------------------------------------------------
Bart C. Shuldman 44 Chairman of the Board, President and Chief
Executive Officer
Richard L. Cote 60 Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
James B. Stetson 44 Executive Vice President - Sales and Marketing
Steven A. DeMartino 32 Senior Vice President - Finance and Information
Technology
Mark B. Goebel 47 Senior Vice President - General Manager
(Wallingford, CT facility)
Michael S. Kumpf 52 Senior Vice President - Engineering
Lucy H. Staley 51 Senior Vice President - General Manager (Ithaca,
NY facility)
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.
JAMES B. STETSON was appointed Executive Vice President, Sales and
Marketing in November 2001, and served as Senior Vice President of Worldwide
Sales from February 2000 to November 2001, and 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.
STEVEN A. DEMARTINO joined TransAct as Corporate Controller in August 1996
and was appointed an officer of the Company in January 1998, Vice President in
December 1999, and Senior Vice President, Finance and Information Technology in
October 2001. 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.
MICHAEL S. KUMPF, Senior Vice President-Engineering since June 1996,
served as Vice President of Engineering of Ithaca from 1991 until June 1996. Mr.
Kumpf was appointed Executive Vice President of Engineering in January 2002.
MARK B. GOEBEL, Senior Vice President - General Manager (Wallingford, CT
facility), served as Vice President-Engineering from April 1994 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. As a result of the
Consolidation, Mr. Goebel terminated employment with the Company on March 1,
2002.
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. As a result of the Consolidation, Ms. Staley terminated employment
with the Company on January 31, 2002.
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 complete the consolidation of all
manufacturing and engineering into its existing Ithaca, NY facility and close
its Wallingford, CT manufacturing facility in May 2002. 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, or that it will be able to do so at terms comparable to those of its
existing lease.
In connection with the consolidation of facilities into Ithaca, the
Company has entered into an agreement to add approximately 10,000 square feet of
manufacturing space and 3,000 square feet of office space to its Ithaca
facility. The Company expects to occupy the additional space in April 2002.
5
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, Five (5) regional sales 600 Leased Various
New York and Texas offices
The Company believes that its facilities generally are in good condition,
adequately maintained and suitable for their present and currently contemplated
uses.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the last
quarter of the year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq National Market under
the symbol TACT. As of March 15, 2002, there were 886 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, 2001 and 2000 were as follows:
Year Ended Year Ended
December 31, 2001 December 31, 2000
--------------------- --------------------
High Low High Low
------ ------ ------ ------
First Quarter $ 7.03 $ 3.88 $10.25 $ 6.03
Second Quarter 9.65 5.05 11.38 8.00
Third Quarter 9.85 3.95 11.50 5.75
Fourth Quarter 6.00 3.88 8.25 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 LaSalle Business Credit 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)
Year Ended December 31,
---------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- ------- ------- -------
Statement of Operations Data:
Net sales $ 43,974 $ 53,720 $44,889 $52,239 $58,400
Gross profit 9,774 14,142 11,754 13,826 18,173
Operating income (loss) (7,286) (154) 35 2,148 7,831
Net income (loss) (4,922) (344) 324 1,206 4,893
Net income (loss) available
to common shareholders (5,280) (664) 324 1,206 4,893
Net income (loss) per share:
Basic (0.95) (0.12) 0.06 0.20 0.72
Diluted (0.95) (0.12) 0.06 0.20 0.71
6
December 31,
---------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- ------- ------- -------
Balance Sheet Data:
Total assets $ 25,791 $ 27,619 $25,684 $23,788 $24,699
Long-term debt 5,344 5,944 7,100 5,075 --
Shareholders' equity:
Preferred 3,746 3,668 -- -- --
Common 7,315 12,191 12,207 12,177 17,903
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
sublease its facility in Wallingford, CT subsequent to its closing; 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. The forward-looking
statements speak only as of the date this report and the Company assumes no duty
to update them to reflect new, changing or unanticipated events or
circumstances.
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 undertook a plan to consolidate all
manufacturing and engineering into its existing Ithaca, NY facility and close
its Wallingford, CT facility (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. As of December 31, 2001, substantially all
Wallingford product lines were successfully transferred to Ithaca, NY. The
Company expects to maintain one small component production line in Wallingford
until May 2002, after which the manufacturing facility will be closed. The
closing of the Wallingford facility is expected to result in the termination of
employment of approximately 70 production, administrative and management
employees. The Company estimates that the non-recurring costs associated with
the Consolidation, including severance pay, stay bonuses, employee benefits,
moving expenses, non-cancelable lease payments, and other costs, will be
approximately $4.2 million, of which approximately $4.1 million was recognized
during 2001. See the "Liquidity and Capital Resources" section for a discussion
of the expected impact of the Consolidation on the Company's future results of
operations and cash flows.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States.
In preparing the financial statements, the Company is required to make
estimation judgments. Such judgments are based upon historical experience and
certain assumptions that are believed to be reasonable in the particular
circumstances. Those judgments affect both balance sheet items and income
statement categories. The Company evaluates its assumptions on an ongoing basis
by comparing actual results with its estimates. Actual results may differ from
the original estimates. The following accounting policies are those that the
Company believes to be most critical in the preparation of its financial
statements.
Inventory Valuation--The Company's inventories are stated at the lower of
cost or market. The Company writes down its inventory for any material that has
become obsolete or may become unsaleable based on estimates of future demand in
the market. Assumptions are reviewed at least quarterly and adjustments are
made, as necessary, to reflect changed conditions.
7
Deferred Tax Assets--The Company has recorded deferred tax assets, largely
as the result of the net operating loss incurred in 2001. Based on the Company's
projection of future taxable income and certain prudent tax planning strategies,
no valuation allowance against these deferred tax assets is considered
necessary. Should circumstances change and the Company determine that some or
all of the deferred taxes would not be realized, a valuation allowance would be
recorded resulting in a charge to income in the period the determination is
made.
Accrued Restructuring Expenses--In connection with the Consolidation of
manufacturing facilities, the Company has recorded significant accruals. These
accruals comprise severance pay, stay bonuses, employee benefits, non-cancelable
lease costs and certain other expenses. Management has made reasonable estimates
of such costs and expenses, most of which it expects to be paid in 2002.
However, if actual costs differ from the estimates, charges or credits to income
could result in the period the adjustments are determined. Also, because certain
moving and relocation costs are not accruable under generally accepted
accounting principles in the U.S., those expenses are recorded as incurred. As a
result, the Company expects to record some additional charges in 2002 related to
the completion of the Consolidation.
Accrued Warranty Costs--The Company warranties its products for up to two
years and records the estimated cost of such product warranties at the time the
sale is recorded. Estimated warranty costs are based upon actual past experience
of product returns and the related estimated cost of labor and material to make
the necessary repairs. If actual future product return rates or the actual costs
of material and labor differ from the estimates, adjustments to the accrued
warranty liability would be made.
(A) RESULTS OF OPERATIONS
(i) YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
NET SALES. Net sales by market for the years ended December 31, 2001 and
2000 were as follows:
Year ended Year ended
(In thousands) December 31, 2001 December 31, 2000
----------------- -----------------
Point of sale $20,007 45.5% $29,396 54.7%
Gaming and lottery 19,869 45.2 19,298 35.9
Other 4,098 9.3 5,026 9.4
------- ----- ------- -----
$43,974 100.0% $53,720 100.0%
======= ===== ======= =====
Net sales for 2001 decreased $9,746,000, or 18%, from 2000 largely due to
significantly lower shipments into the Company's point of sale ("POS") market.
International sales decreased to $7,922,000, or 18.0% of net sales in 2001, from
$16,320,000, or 30.4% of net sales in 2000.
Point of sale: Sales of the Company's POS printers decreased approximately
$9,389,000, or 32%. International POS printer shipments decreased approximately
$9,438,000, to $6,193,000, largely due to lower printer shipments to ICL Pathway
for the British Post Office project. Sales for the British Post Office project,
which include printer shipments and service revenue, were approximately
$1,900,000 in 2001 compared to $10,900,000 in 2000. The Company completed
shipping printers for the British Post Office project during the first quarter
of 2001, and no future sales, other than spare parts and service, are expected.
In addition to lower sales to ICL Pathway, the Company experienced a decrease in
sales, primarily to Europe, of approximately $1,200,000 through Okidata, the
Company's former exclusive distribution partner in Europe. As of May 2001,
Okidata no longer exclusively distributes the Company's printers in Europe. The
Company also experienced a decline of approximately $300,000 of sales to Latin
America through Okidata, the Company's distribution partner in Latin America.
The decrease in international POS sales to ICL Pathway and Okidata was somewhat
offset by an increase of approximately $1,200,000 of shipments of the Company's
thermal fiscal printer in Europe.
Despite adverse economic conditions, domestic POS printer sales increased
slightly by $49,000 to $13,814,000. Due to on-going economic weakness, the
Company expects continued worldwide softness in demand for its POS products
during 2002.
8
Gaming and lottery: Sales of the Company's gaming and lottery printers
increased approximately $571,000, or 3%, from the prior year. Sales of the
Company's on-line lottery printers and spares to GTECH increased by
approximately $2,400,000, to approximately $14,300,000 in 2001, compared to
$11,900,000 in 2000. The Company has received follow-on orders from GTECH for
approximately $9,800,000 of on-line lottery printers of which approximately
$9,300,000 and $500,00 will be delivered in 2002 and 2003, respectively. In
addition to the increase of printer sales to GTECH, sales of the Company's slot
machine printers and other gaming printers increased by approximately $900,000.
The slot machine printers are primarily for use in casinos in California and
Nevada. The Company expects sales of its slot machine printers to continue to
increase during 2002.
Offsetting the increase of on-line lottery printer and spares sales to
GTECH and increased slot machine printer sales was a decrease of approximately
$2,700,000 in sales of the Company's video lottery terminal ("VLT") printers to
approximately $1,700,000 in 2001. Sales of these VLT printers were unusually
high in the last half of 2000. Since VLT printer sales are largely
project-oriented, the Company cannot predict if and when future sales may occur.
However, based on existing orders, the Company expects higher sales of VLT
printers in 2002 compared to 2001.
Other: Sales of the Company's printers into other markets decreased by
$928,000, or 18%, from the prior year. During 2001, sales of the Company's ATM
printer and related spares decreased by approximately $1,700,000. In addition,
sales decreased by approximately $800,000 due to sales of kiosk printers to
customers for projects primarily in the third quarter of 2000 that did not
repeat in 2001. Offsetting these decreases was an increase of approximately
$1,600,000 of the Company's thermal kiosk printers for use in a Canadian
government application during 2001. No shipments of these printers were made in
2000. However, the Company expects to ship printers for this application in
2002. Since printer sales into the kiosk printer market are principally
project-oriented, the Company cannot predict if and when future sales may occur.
GROSS PROFIT. Gross profit decreased $4,368,000, or 31%, and the gross
margin also declined to 22.2% from 26.3%. Both gross profit and gross margin for
2001 were adversely impacted by lower sales volume, due primarily to the absence
of printer shipments for the British Post Office project. The Company expects
its gross margin for the full-year 2002 to improve to between 25% and 26% due to
lower overhead costs resulting from the Consolidation.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses decreased $411,000, or 12%, to $3,070,000 from 2000. This
decrease is primarily due to a reduction in engineering staff at the Company's
Wallingford facility resulting from the Consolidation. Engineering and product
development expense increased as a percentage of net sales to 7.0% from 6.5%,
due to lower sales volume in 2001 compared to 2000. The Company expects
engineering and product development expenses to be significantly lower in 2002
compared to 2001, due largely to staff reductions resulting from the
Consolidation.
SELLING AND MARKETING. Selling and marketing expenses decreased $516,000,
or 10%, to $4,570,000 from the prior year. Such expenses decreased primarily due
to (1) unusually high marketing and promotional expenses incurred in 2000
related to the April 2000 launch of the Company's new family of printers
utilizing inkjet printing technology and (2) a reduction in marketing staff.
Selling and marketing expenses as a percentage of net sales increased to 10.3%
from 9.5%, due to lower sales volume in 2001 compared to 2000. The Company
expects that selling and marketing expenses for 2002 will be slightly lower than
those reported in 2001, due mostly to lower planned promotional and advertising
expenses and staff reductions resulting from the Consolidation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $559,000, or 10%, to $6,099,000 from 2000 and increased as a percentage of
net sales to 13.9% from 10.3%. The increase in expenses primarily resulted from
the inclusion of $680,000 of accelerated depreciation on certain assets
(primarily leasehold improvements and computer equipment) located at the
Company's Wallingford, CT facility whose useful lives have been shortened as a
result of the Consolidation. These increases were partially offset by a
reduction of staff and certain related expenses at the Company's Wallingford, CT
facility resulting from the Consolidation. The Company expects general and
administrative expenses to be significantly lower in 2002 compared to 2001 due
largely to staff reductions resulting from the Consolidation and non-recurring
accelerated depreciation charges incurred in 2001.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During 2001, the Company
incurred approximately $3,321,000 of business consolidation and restructuring
expenses related to the Consolidation. These expenses primarily included
employee severance and termination related expenses, and facility closure and
consolidation expenses (including moving expenses, estimated non-cancelable
lease payments and other costs). Although the Consolidation was substantially
completed in 2001, the Company estimates that it will incur an additional
$50,000 to $100,000 of non-recurring costs associated with the Consolidation
during 2002. These costs are expected to include (1) expenses incurred to
physically move the remaining assets of the Wallingford, CT facility to Ithaca,
NY and (2) severance costs for employees expected to terminate in 2002. See Note
8 to the Consolidated Financial Statements for further detail.
9
OPERATING LOSS. The Company incurred an operating loss of $7,286,000 in
2001 compared to an operating loss of $154,000 in 2000. The operating loss in
2001 resulted primarily from lower gross profit on lower sales in 2001 compared
to 2000 as well as expenses related to the Consolidation.
INTEREST. Net interest expense decreased to $397,000 from $649,000 in 2000
due to decreased average outstanding borrowings on the Company's line of credit
and a lower average interest rate on such borrowings. See "Liquidity and Capital
Resources" below.
INCOME TAXES. As a result of the Company's loss before income taxes, the
Company recorded an income tax benefit of $2,748,000 and $448,000, or an
effective rate of 35.8% and 56.6%, in 2001 and 2000, respectively. The
abnormally high effective tax benefit rate in 2000 is 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 LOSS. The Company incurred a net loss during 2001 of $4,922,000, or
$0.95 per share (basic and diluted) after giving effect to $358,000 of dividends
and accretion charges on preferred stock issued in April 2000. This compares to
a net loss for 2000 of $344,000, or $0.12 per share (basic and diluted) after
giving effect to $320,000 of dividends and accretion charges on preferred stock
issued in April 2000. In future quarters, dividends and accretion charges on
preferred stock will be approximately $90,000, before the effect of any
conversion or redemption of the preferred stock.
(ii) 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%
======= ===== ======= =====
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. Sales for this project, including printers, spares and service,
totaled approximately $10,900,000 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. 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.
10
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.
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.
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.
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.
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.
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.
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.
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.
11
(B) LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company generated cash from operations of $1,445,000, $333,000 and
$2,033,000 in 2001, 2000 and 1999, respectively. The increase in cash generated
from operations in 2001 compared to 2000 resulted from a number of factors:
receivables decreased due to lower sales volume in the fourth quarter of 2001
compared to the fourth quarter of 2000; other current assets decreased due
largely to the receipt of federal and state tax refunds; accounts payable and
accrued liabilities increased largely due to higher inventory purchases at
year-end; accrued restructuring expenses increased as a result of expenses
related to the Consolidation; and increased depreciation and amortization, due
primarily to accelerated depreciation on certain assets as a result of the
Consolidation. Offsetting these increases in cash generated from operations in
2001 were the following: funding the Company's net loss of $4,922,000 in 2001
compared to $344,000 in 2000; higher inventory levels at December 31, 2001 due
largely to inventory bought during the year for recently-introduced products;
and increased deferred taxes resulting largely from expenses related to the
Consolidation and the Company's net loss in 2001. Based on recent tax law
changes, the Company will carry back its federal net operating losses to prior
years, which is expected to result in a tax refund of approximately $700,000 in
2002.
WORKING CAPITAL
The Company's working capital decreased to $8,366,000 at December 31, 2001
from $13,631,000 at December 31, 2000. The current ratio also decreased to 1.90
to 1 at December 31, 2001 from 3.54 to 1 at December 31, 2000. The decrease in
both working capital and the current ratio were largely due to (1) lower
receivables at December 31, 2001 resulting from lower sales volume in the fourth
quarter of 2001 compared to the fourth quarter of 2000 and (2) an increase in
accrued restructuring expenses of approximately $2.9 million related to the
Consolidation at December 31, 2001.
CREDIT FACILITY AND BORROWINGS
On May 25, 2001, the Company entered into a three-year, $13.5 million
credit facility (the "LaSalle Credit Facility") with LaSalle Business Credit,
Inc. ("LaSalle") expiring on May 25, 2004 to replace its prior credit facility
with Webster Bank. The LaSalle Credit Facility provides a $12 million revolving
credit line, a $0.5 million term loan and a $1 million equipment loan facility.
Borrowings under the LaSalle Credit Facility bear a floating rate of interest
based on LaSalle's prime rate. Under certain circumstances, the Company may
select a fixed interest rate for a specified period of time of up to 180 days on
borrowings based on the current LIBOR rate.
On October 30, 2001, the Company amended the LaSalle Credit Facility.
Under the terms of the amendment ("LaSalle Amendment No.1"), LaSalle (1) waived
compliance with the minimum EBITDA financial covenant as of September 30, 2001,
(2) revised certain other financial covenants through December 31, 2001, (3)
increased the floating rate of interest on borrowings under the revolving credit
line to LaSalle's prime rate plus 1.0%, or the current LIBOR rate plus 3.5%, and
(4) increased the floating rate of interest on borrowings under the term loan
and equipment loan to LaSalle's prime rate plus 1.5%, or the current LIBOR rate
plus 4.0%. Upon execution of LaSalle Amendment No. 1, the Company paid a fee of
$20,000 to LaSalle.
On December 21, 2001, the Company amended the LaSalle Credit Facility to
reset certain financial covenants for 2002 and beyond ("LaSalle Amendment No.
2). Upon execution of LaSalle Amendment No. 2, the Company paid a fee of $5,000
to LaSalle.
As of December 31, 2001, the Company had $4,994,000 and $450,000
outstanding on the revolving credit line and term loan, respectively, and no
borrowings under the equipment loan. Annual principal payments on the term loan
are $100,000.
On February 22, 2002, at the request of a major customer, the Company
received a cash payment of approximately $5,800,000 in advance of printer
shipments to be made from March through August 2002. This amount has been
classified as a current liability and will be reduced by the sales value of
shipments as they are made. As a result of this payment, the Company repaid all
its outstanding revolving borrowings under the LaSalle Credit Facility in
February 2002. However, as shipments are made to the customer between March and
August 2002, the Company expects to resume borrowings under the LaSalle Credit
Facility. The Company expects its revolving borrowings to return to
approximately the same level as December 31, 2001 by the end of the third
quarter 2002. Due to the classification of the advance payment as a current
liability, the Company expects to report lower working capital and a lower
current ratio at March 31, 2002 and June 30, 2002.
12
SALE OF PREFERRED STOCK
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 redeemable at the holders on
April 7, 2005 at $1,000 per share plus any unpaid dividends. The Company used
the net proceeds repay outstanding borrowings under the Company's revolving
credit facility. The Company paid $280,000 and $205,000 of cash dividends to
Advance Capital Advisors, L.P. in 2001 and 2000, respectively, and expects to
pay $280,000 in 2002.
CAPITAL EXPENDITURES
The Company's capital expenditures were approximately $1,382,000,
$2,415,000 and $2,742,000 in 2001, 2000 and 1999, respectively. These
expenditures primarily included new product tooling, computer equipment, and
factory machinery and equipment. The Company's capital expenditures for 2002 are
expected to be approximately $1,000,000, a majority for new product tooling.
CONSOLIDATION EXPENSES
During 2001, the Company incurred approximately $4,096,000 of business
consolidation, restructuring and related charges as a result of the
Consolidation. These expenses primarily included employee severance and
termination related expenses, facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs) and accelerated depreciation and asset disposal losses on certain
leasehold improvements and other fixed assets. Although the Consolidation was
substantially completed in 2001, the Company estimates that it will incur an
additional $50,000 to $100,000 of non-recurring costs associated with the
Consolidation during 2002. These costs are expected to include (1) expenses
incurred to physically move the remaining assets of the Wallingford, CT facility
to Ithaca, NY and (2) severance costs for employees expected to terminate in
2002. The Company believes that the Consolidation will significantly lower the
Company's cost structure in 2002, with estimated annual cost savings of at least
$4 million compared to 2001. See Note 8 to the Consolidated Financial Statements
for further detail.
Of the total of $4,100,000 of expenses, approximately $3,300,000 require
cash outlays. During 2001, the Company paid approximately $400,000 of these
costs, with substantially all the remaining costs expected to be paid during
2002. The Company expects to realize improved gross margins and lower operating
expenses in 2002 as a result of the Consolidation.
The Company believes that cash flows generated from operations and
borrowings available under the LaSalle Credit Facility, as amended, 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, 2002.
(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, nor does it believe it will be significantly affected during
2002.
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 LaSalle
Business Credit. 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.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Page
Number
------
Report of Independent Accountants 15
TransAct Technologies Incorporated consolidated financial
statements:
Consolidated balance sheets as of December 31, 2001 and 16
December 31, 2000.
Consolidated statements of operations for the years ended 17
December 31, 2001, 2000 and 1999.
Consolidated statements of cash flows for the years ended 18
December 31, 2001, 2000 and 1999.
Consolidated statement of changes in shareholders' equity 19
for the period from December 31, 1998 through
December 31, 2001. 20
Notes to consolidated financial statements.
14
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, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001 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 8, 2002
15
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2001 2000
------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents $ 417 $ 992
Receivables, net (Note 4) 4,047 6,137
Inventories (Note 5) 10,633 9,857
Deferred tax assets 2,382 1,205
Other current assets 212 811
-------- --------
Total current assets 17,691 19,002
-------- --------
Fixed assets, net (Note 6) 5,190 6,876
Goodwill, net (Note 6) 1,469 1,678
Deferred tax assets 1,120 --
Other assets 321 63
-------- --------
8,100 8,617
-------- --------
$ 25,791 $ 27,619
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of term loan $ 100 $ --
Accounts payable 2,903 2,690
Accrued liabilities (Note 7) 3,320 2,576
Accrued restructuring expenses (Note 8) 3,002 105
-------- --------
Total current liabilities 9,325 5,371
-------- --------
Revolving bank loan payable (Note 10) 4,994 5,944
Long-term portion of term loan 350 --
Other liabilities 61 445
-------- --------
5,405 6,389
-------- --------
Commitments and contingencies (Note 11)
Mandatorily redeemable preferred stock, Series B, 7%
cumulative convertible, $1,000 stated value,
8,000 shares authorized, 4,000 shares issued
and outstanding (Note 16) 3,746 3,668
-------- --------
Shareholders' equity (Notes 12 and 13):
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,
5,684,770 and 5,607,827 shares issued and outstanding 57 56
Additional paid-in capital 6,303 6,069
Retained earnings 1,649 6,929
Unamortized restricted stock compensation (286) (477)
Loan receivable from officer (330) (330)
Accumulated other comprehensive income (78) (56)
-------- --------
Total shareholders' equity 7,315 12,191
-------- --------
$ 25,791 $ 27,619
======== ========
See accompanying notes to consolidated financial statements.
16
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Net sales $ 43,974 $ 53,720 $ 44,889
Cost of sales 34,200 39,578 33,135
-------- -------- --------
Gross profit 9,774 14,142 11,754
-------- -------- --------
Operating expenses:
Engineering, design and product
development expenses 3,070 3,481 3,235
Selling and marketing expenses 4,570 5,086 3,887
General and administrative expenses
(Note 8) 6,099 5,540 4,597
Business consolidation and restructuring
expenses (Note 8) 3,321 189 --
-------- -------- --------
17,060 14,296 11,719
-------- -------- --------
Operating income (loss) (7,286) (154) 35
-------- -------- --------
Other income (expense):
Interest, net (397) (649) (399)
Other, net (Note 16) 13 11 790
-------- -------- --------
(384) (638) 391
-------- -------- --------
Income (loss) before income taxes (7,670) (792) 426
Income tax provision (benefit) (Note 14) (2,748) (448) 102
-------- -------- --------
Net income (loss) (4,922) (344) 324
Dividends and accretion charges on preferred
stock (Note 16) (358) (320) --
-------- -------- --------
Net income (loss) available to common
shareholders $ (5,280) $ (664) $ 324
======== ======== ========
Net income (loss) per share:
Basic $ (0.95) $ (0.12) $ 0.06
======== ======== ========
Diluted $ (0.95) $ (0.12) $ 0.06
======== ======== ========
Shares used in per share calculation:
Basic 5,551 5,504 5,565
======== ======== ========
Diluted 5,551 5,504 5,614
======== ======== ========
See accompanying notes to consolidated financial statements.
17
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ (4,922) $ (344) $ 324
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 3,398 2,750 2,238
Deferred income taxes (2,643) (78) (19)
Loss on disposal of fixed assets 209 -- 11
Changes in operating assets and
liabilities:
Receivables 2,090 (1,274) 371
Inventories (776) 400 (1,475)
Other current assets 599 (415) 158
Other assets (326) (162) (100)
Accounts payable 213 (366) 858
Accrued liabilities and other 706 (283) (333)
liabilities
Accrued restructuring expenses 2,897 105 --
-------- -------- --------
Net cash provided by operating activities 1,445 333 2,033
-------- -------- --------
Cash flows from investing activities:
Purchases of fixed assets (1,382) (2,415) (2,742)
Loans to officers -- 15 (345)
Acquisition of Tridex Ribbon Business -- -- (295)
Proceeds from sale of assets 2 217 --
-------- -------- --------
Net cash used in investing activities (1,380) (2,183) (3,382)
-------- -------- --------
Cash flows from financing activities:
Revolving bank loan borrowings
(repayments), net (950) (1,156) 1,300
Term loan borrowings, net 450 -- --
Proceeds from option exercises 262 175 24
Net proceeds from issuance of preferred -- 3,785 --
stock
Payments of cash dividends on preferred (280) (205) --
stock
Tax charge related to restricted stock (100) -- --
vested
Purchase of treasury stock -- -- (229)
-------- -------- --------
Net cash provided by (used in) financing
activities (618) 2,599 1,095
-------- -------- --------
Effect of exchange rate changes on cash (22) (36) (13)
-------- -------- --------
Increase (decrease) in cash and cash (575) 713 (267)
equivalents
Cash and cash equivalents at beginning of
period 992 279 546
-------- -------- --------
Cash and cash equivalents at end of period $ 417 $ 992 $ 279
======== ======== ========
Supplemental cash flow information:
Interest paid $ 403 $ 696 $ 433
Income taxes paid (refunded) (637) 74 171
See accompanying notes to consolidated financial statements.
18
TransAct Technologies Incorporated
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Unamortized Loan Accumulated
Common Stock Additional Restricted Receivable Other
------------------ Paid-in Retained Stock from Comprehensive Treasury
Shares Amount Capital Earnings Compensation Officer Income Stock
--------- ------ ---------- -------- ------------ ---------- ------------ --------
Balance, December 31, 1998 5,629,500 $ 56 $ 5,763 $ 7,268 $ (903) $ -- $ (7) $ --
Issuance of restricted stock 13,000 -- 98 -- (98) -- -- --
Issuance of shares from
exercise of stock options 5,100 -- 24 -- -- -- -- --
Amortization of restricted
stock compensation -- -- -- -- 254 -- -- --
Purchase of treasury shares (70,800) -- -- -- -- -- -- (229)
Retirement of treasury shares -- -- (229) -- -- -- -- 229
Issuance of loan to officer -- -- -- -- -- (330) -- --
Comprehensive income:
Foreign currency translation
adjustment -- -- -- -- -- -- (13) --
Net income -- -- -- 324 -- -- -- --
--------- ------ ---------- -------- ------------ ---------- ------------ --------
Balance, December 31, 1999 5,576,800 56 5,656 7,592 (747) (330) (20) --
Issuance of restricted stock 5,000 -- 44 -- (44) -- -- --
Cancellation of restricted
stock (3,800) -- (36) -- 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 -- -- -- -- 278 -- -- --
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 (loss):
Foreign currency translation -- --
adjustment -- -- -- -- -- -- (36) --
Net loss -- -- -- (344) -- -- -- --
--------- ------ ---------- -------- ------------ ---------- ------------ --------
Balance, December 31, 2000 5,607,827 56 6,069 6,929 (477) (330) (56) --
Issuance of restricted stock 20,000 -- 95 -- (95) -- -- --
Cancellation of restricted (3,000) -- (22) -- 22 -- -- --
stock
Issuance of shares from
exercise of stock
options 53,500 1 233 -- -- -- -- --
Issuance of shares from
employee purchase plan stock 6,443 -- 28 -- -- -- -- --
Amortization of restricted
stock compensation -- -- -- -- 264 -- -- --
Tax charge related to
restricted stock vested -- -- (100) -- -- -- -- --
Dividends paid on preferred
stock -- -- -- (280) -- -- -- --
Accretion of preferred stock
warrants and issuance costs -- -- -- (78) -- -- -- --
Comprehensive income (loss):
Foreign currency translation
adjustment -- -- -- -- -- -- (22) --
Net loss -- -- -- (4,922) -- -- -- --
--------- ------ ---------- -------- ------------ ---------- ------------ --------
Balance, December 31, 2001 5,684,770 $ 57 $ 6,303 $ 1,649 $ (286) $ (330) $ (78) $ --
========= ====== ========== ======== ============ ========== ============ ========
See accompanying notes to consolidated financial statements.
19
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").
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRODUCTS: TransAct, through its primary operating
facility in Ithaca, NY, operates in one industry segment,
transaction-based printers and related products. TransAct designs,
develops, manufactures and markets transaction-based printers under the
Ithaca(R) and Magnetec(R) brand names. In addition, the Company markets
related consumables, spare parts and service. The Company also operates a
small component production line in a manufacturing facility in
Wallingford, CT that it expects to close in May 2002 (see Note 8 for a
further discussion). 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 the following vertical
markets: point-of-sale ("POS"), gaming and lottery, financial services and
kiosk. 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 printed circuit 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. Estimates
have been made in areas including inventory valuation, estimated lives of
fixed assets and goodwill, deferred tax assets, accrued liabilities,
restructuring reserves related to the Consolidation, 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 $2,858,000, $2,176,000 and $1,699,000 in 2001,
2000 and 1999, respectively. Depreciation for 2001 included $680,000 of
accelerated depreciation on certain leasehold improvements and other fixed
assets due to the closing of the Company's Wallingford, CT facility.
20
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL: On July 20, 2001, the Financial Accounting Standards Board
approved Statements of Financial Accounting Standards No. 141, "Business
Combinations" ("FAS 141") and No. 142, "Goodwill and Other Intangible
Assets" ("FAS 142").
FAS 141 supercedes Accounting Principles Board Opinion ("APB") No.
16, "Business Combinations." The most significant changes made by FAS 141
are: (1) requiring that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, (2) establishing
specific criteria for the recognition of intangible assets separately from
goodwill, and (3) requiring unallocated negative goodwill to be written
off immediately as an extraordinary gain instead of being deferred and
amortized.
FAS 142 supercedes APB No. 17, "Intangibles Assets." FAS 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. The provisions of FAS 142 will be
effective for the Company for the year ended December 31, 2002. The most
significant changes made by FAS 142 are: (1) goodwill and indefinite lived
intangible assets will no longer be amortized, (2) goodwill will be tested
for impairment at least annually at the reporting unit level, (3)
intangible assets deemed to have an indefinite life will be tested for
impairment at least annually, and (4) the amortization period of
intangible assets with finite lives will no longer be limited to forty
years.
The Company has not entered into any business combinations
subsequent to June 30, 2001. However, the Company is currently amortizing
goodwill related to the acquisition of (i) Ithaca Peripherals, Inc.
("Ithaca") in 1991 and the (ii) ribbon business formerly conducted by
Tridex ("Tridex Ribbon Business"). 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 $2,247,000 and $2,038,000 at December 31, 2001 and 2000,
respectively. The Company believes there will be no impact upon the
adoption of FAS 142.
ACCRUED WARRANTY COSTS: The Company warranties its products for up
to two years and records the estimated cost of such product warranties at
the time the sale is recorded. Estimated warranty costs are based upon
actual past experience of product returns and the related estimated cost
of labor and material to make the necessary repairs.
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) accounted for approximately 33% of net
sales during 2001. Sales to GTECH 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.
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
$12,000, $(26,000) and $11,000 in 2001, 2000 and 1999, 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." Deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled.
21
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 ("FASB") 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.
ASSET RETIREMENT OBLIGATIONS: In July 2001, the FASB issued
Statement of Financial Standards No. 143, "Accounting for Asset Retirement
Obligations" ("FAS 143). FAS 143 requires recognition of the fair value of
liabilities associated with the retirement of long-lived assets when a
legal obligation to incur such costs arises as a result of the
acquisition, construction, development and/or the normal operation of a
long-lived asset. FAS 143 is effective for fiscal years beginning after
June 15, 2002. The Company does not expect that the issuance of FAS 143
will have any impact on the Company's consolidated financial statements.
IMPAIRMENT OF DISPOSAL OF LONG-LIVED ASSETS: In August 2001, the
FASB issued Statement of Financial Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144), which supercedes
FAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed." FAS 144 requires that long-lived assets
to be disposed of by sale, including discontinued operations, be measured
at the lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or in discontinued operations. The
provisions of FAS 144 are effective for fiscal years beginning after
December 15, 2001. The Company does not expect that the issuance of FAS
144 will have any impact on the Company's 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.
22
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2001 2000 1999
------ ------ ------
(In thousands)
Balance at beginning of period $ 107 $ 132 $ 139
Doubtful accounts provision (reversal) 45 (24) --
Accounts written off, net of recoveries (68) (1) (7)
------ ------ ------
Balance at end of period $ 84 $ 107 $ 132
====== ====== ======
5. INVENTORIES
The components of inventories are:
December 31,
(In thousands) 2001 2000
-------- --------
Raw materials and component parts $ 10,299 $ 9,603
Work-in-process 25 200
Finished goods 309 54
-------- --------
$ 10,633 $ 9,857
======== ========
6. FIXED ASSETS
The components of fixed assets are:
December 31,
(In thousands) 2001 2000
-------- --------
Tooling, machinery and equipment $ 11,295 $ 10,974
Furniture, office and computer equipment 4,107 4,243
Leasehold improvements 794 749
16,196 15,966
Less: accumulated depreciation (11,006) (9,090)
-------- --------
$ 5,190 $ 6,876
======== ========
7. ACCRUED LIABILITIES
The components of accrued liabilities are:
December 31,
(In thousands) 2001 2000
-------- --------
Payroll and fringe benefits $ 533 $ 382
Income taxes 604 765
Warranty 710 657
Deferred revenue 551 108
Rent 290 292
Other 632 372
-------- --------
$ 3,320 $ 2,576
======== ========
23
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING EXPENSES
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 undertook a plan to consolidate
all manufacturing and engineering into its existing Ithaca, NY facility
and close its Wallingford, CT facility (the "Consolidation"). As of
December 31, 2001, substantially all Wallingford product lines were
successfully transferred to Ithaca, NY. The Company expects to maintain
one small component production line in Wallingford until May 2002, after
which the manufacturing facility will be closed. The closing of the
Wallingford facility is expected to result in the termination of
employment of approximately 70 production, administrative and management
employees. The Company has applied the consensus set forth in EITF 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)" in recognizing the accrued restructuring expenses. The
Company estimates that the non-recurring costs associated with the
Consolidation, including severance pay, stay bonuses, employee benefits,
moving expenses, non-cancelable lease payments, accelerated depreciation
and other costs, will be approximately $4.2 million, of which
approximately $4.1 million was recognized during 2001.
During the fourth quarter of 2000, the Company recorded a
restructuring charge of $189,000 for severance costs related to the
downsizing and reorganization of its manufacturing facility in
Wallingford, CT. Severance costs resulted from the reduction of 11
employees.
The following table summarizes the activity recorded in the
restructuring accrual during 2001 and 2000.
Year ended Year ended
December 31, December 31,
(In thousands) 2001 2000
------------ ------------
Accrual balance, beginning of year $ 105 $ --
-------- --------
Business consolidation and restructuring expenses:
Employee severance and termination expenses (1) 2,070 189
Facility closure and consolidation expenses (2) 1,251 --
-------- --------
3,321 189
-------- --------
Cash payments (424) (84)
-------- --------
Accrual balance, end of year $ 3,002 $ 105
======== ========
(1) Employee severance and termination related expenses are the
estimated termination salaries, benefits, outplacement, counseling
services and other related costs expected to be paid to employees
who will be involuntarily terminated.
(2) Facility closure and consolidation expenses are the estimated costs
to close the Wallingford, CT facility including lease termination
costs and other related costs, in accordance with the restructuring
plan. The Wallingford facility closure was substantially completed
by December 31, 2001.
The following table summarizes the components of all charges related
to the Consolidation.
Year ended Year ended
December 31, December 31,
(In thousands) 2001 2000
------------ ------------
Business consolidation and restructuring expenses $ 3,321 $ 189
Accelerated depreciation and asset disposal losses (1) 775 --
-------- --------
Total business consolidation, restructuring and
related charges $ 4,096 $ 189
======== ========
(1) Represents accelerated depreciation ($680) and asset disposal losses
($95) on certain leasehold improvements and other fixed assets, due
to the closing of the Wallingford facility. These charges are
included in general and administrative expenses.
24
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 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 6% of the employees'
compensation contributed to the 401(k) Plan. The Company's matching
contributions were $204,000, $203,000 and $145,000 in 2001, 2000 and 1999,
respectively. During 1999 and 1998, the Company's rate of matching
contributions was 50% of the employees' contributions up to the first 5%
and 4% of the employees' compensation contributed to the 401(k) Plan,
respectively.
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. The Company sold 6,443 and
4,827 shares of common stock under the ESPP during 2001 and 2000,
respectively. At December 31, 2001, 38,730 shares remained available for
sale. Compensation costs related to the ESPP are immaterial.
10. BORROWINGS
On March 14, 2000, the Company entered into a two-year $13,000,000
revolving credit facility (the "Fleet Credit Facility") with Fleet Bank
("Fleet"). The Fleet Credit Facility replaced a previous credit facility
also with Fleet. The Fleet Credit Facility provided the Company with a
$13,000,000 credit facility used to fund working capital. Borrowings under
the Fleet Credit facility bore interest on outstanding borrowings at
Fleet's prime rate 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 Fleet Credit Facility. The Fleet Credit Facility
also permitted the Company to designate a LIBOR rate on outstanding
borrowings with a margin ranging from 1.5 to 3.0 percentage points over
the market rate, depending on the Company meeting certain ratios. The
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 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.
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.
25
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BORROWINGS (CONTINUED)
On May 25, 2001, the Company entered into a new, three-year, $13.5
million credit facility (the "LaSalle Credit Facility") with LaSalle
Business Credit, Inc. ("LaSalle") expiring on May 25, 2004. The LaSalle
Credit Facility replaced the Webster Credit Facility. The LaSalle Credit
Facility provides a $12 million revolving credit line, a $0.5 million term
loan and a $1 million equipment loan facility. Borrowings under the
revolving credit line bear a floating rate of interest at LaSalle's prime
rate. Borrowings under both the term loan and equipment loan bear a
floating rate of interest at LaSalle's prime rate plus 0.50%. Under
certain circumstances, the Company may select a fixed interest rate for a
specified period of time of up to 180 days on borrowings based on the
current LIBOR rate plus 2.50% and 3.0% under the revolving credit line
facility, and the term and equipment loan facilities, respectively. The
Company also pays a fee of 0.25% on unused borrowings under the revolving
credit line and equipment loan facilities. Borrowings under the LaSalle
Credit Facility are secured by a lien on all the personal property assets
of the Company. The LaSalle 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. Concurrent with the signing
of the LaSalle Credit Facility, the Company borrowed $500,000 under the
term loan. Principal installment payments for the term loan of $8,333,
plus accrued interest, are due on the first day of each month beginning
July 1, 2001, with the unpaid principal balance due on May 25, 2004. The
Company had no borrowings under the equipment loan during 2001.
On October 30, 2001, the Company amended the LaSalle Credit
Facility. Under the terms of the amendment ("LaSalle Amendment No.1"),
LaSalle (1) waived compliance with the minimum EBITDA financial covenant
as of September 30, 2001, (2) revised certain other financial covenants
through December 31, 2001, (3) increased the floating rate of interest on
borrowings under the revolving credit line to LaSalle's prime rate plus
1.0% (5.75% at December 31, 2001), or the current LIBOR rate plus 3.5%,
and (4) increased the floating rate of interest on borrowings under the
term loan and equipment loan to LaSalle's prime rate plus 1.5% (6.25% at
December 31, 2001), or the current LIBOR rate plus 4.0%. Upon execution of
LaSalle Amendment No. 1, the Company paid a fee of $20,000 to LaSalle.
On December 21, 2001, the Company amended the LaSalle Credit
Facility to reset certain financial covenants for 2002 and beyond
("LaSalle Amendment No. 2). Upon execution of LaSalle Amendment No. 2, the
Company paid a fee of $5,000 to LaSalle. As of December 31, 2001, the
Company had $4,994,000 and $450,000 outstanding on the revolving credit
line and term loan, respectively, and no borrowings outstanding on the
equipment loan.
11. COMMITMENTS AND CONTINGENCIES
At December 31, 2001, 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
$983,000, $991,000 and $953,000 in 2001, 2000 and 1999, 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, 2001 are as follows: $873,000 in 2002; $875,000 in
2003; $855,000 in 2004; $868,000 in 2005; $877,000 in 2006 and $786,000
thereafter.
12. STOCK INCENTIVE PLANS AND WARRANTS
STOCK INCENTIVE PLANS. The Company currently has three primary stock
incentive plans: the 1996 Stock Plan which provides for the grant of
awards to officers and other key employees of the Company, the 1996
Directors' Stock Plan which provides for non-discretionary awards to
non-employee directors, and the 2001 Employee Stock Plan which provides
for the grant of awards to key employees of the Company and other
non-employees who may provide services to the Company. The plans generally
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. However, the 2001 Employee Stock Plan does not
provide for incentive stock option awards. Options granted under these
plans 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 three- to five-year period, unless automatically
accelerated for certain defined events. At December 31, 2001, the Company
has reserved 1,150,000, 110,000 and 150,000 shares of common stock for
issuance under the 1996 Stock Plan, the 1996 Directors' Stock Plan, and
the 2001 Employees Stock Plan, respectively.
26
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)
OPTION EXCHANGE OFFER. In November 2001, the Company announced an
offer to certain officers to exchange outstanding employee stock options
having an exercise price of $9.00 or more per share in return for new
stock options to be granted by the Company (the "Exchange Offer").
Pursuant to the Exchange Offer, the option holder received a commitment
for the grant of one new option for each option tendered and accepted for
exchange, no sooner than six months and one day from November 16, 2001. A
total of 215,000 options were accepted for exchange under the Exchange
Offer and were canceled in November 2001 (and treated as canceled in 2001
in the table below). The new option grants of 215,000 are expected to be
granted no sooner than May 17, 2002, and will vest 25% immediately upon
grant with the remainder vesting 25% annually over the next three years.
The new options will have an exercise price equal to the fair market value
of the Company's common stock on the date of grant.
The 1996 Stock Plan, 1996 Directors' Stock Plan and 2001 Employee
Stock Plan option activity is summarized below:
Year Ended December 31,
2001 2000 1999
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------
Outstanding at beginning of
period: 919,000 $8.34 818,100 $7.89 752,300 $8.04
Granted 189,500 5.67 190,500 9.86 104,500 5.86
Exercised (53,500) 4.37 (25,000) 6.05 (5,100) 4.75
Canceled (312,250) 10.71 (64,600) 7.53 (33,600) 5.07
-------- -------- -------- -------- -------- --------
Outstanding at end of period 742,750 $6.95 919,000 $8.34 818,100 $7.89
======== ======== ======== ======== ======== ========
Options exercisable at end of
period 383,350 $7.34 436,580 $8.19 296,140 $8.33
======== ======== ======== ======== ======== ========
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 2001 Price Contractual Life 2001 Price
-------------- --------- ---------------- -------------- ---------
(In years)
$ 2.50 - $ 5.00 203,200 $4.34 5.5 120,100 $4.38
5.01 - 7.50 184,700 5.55 8.0 28,300 6.20
7.51 - 10.00 277,200 8.69 4.9 203,800 8.58
10.01 - 12.50 64,650 10.31 6.4 20,750 10.59
12.51 - 15.00 12,000 13.75 2.3 9,600 13.75
15.01 - 17.50 1,000 16.38 0.4 800 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:
27
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)
Year Ended December 31,
2001 2000 1999
-------- -------- --------
(In thousands, except per share data)
Net income (loss) available to common shareholders:
As reported $ (5,280) $ (664) $ 324
Pro forma under FAS 123 (5,981) (1,171) (422)
Net income (loss) per share:
Basic and diluted:
As reported (0.95) (0.12) 0.06
Pro forma under FAS 123 (1.08) (0.21) (0.08)
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,
2001, 2000 and 1999.
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Risk-free interest rate 4.6% 6.3% 5.8%
Dividend yield 0% 0% 0%
Expected volatility factor 85.5% 83.1% 78.0%
Expected option term 6.1 years 7.1 years 7.5 years
Weighted average fair value of options granted during period $ 4.25 $ 7.78 $ 4.55
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,
2001 2000 1999
-------- -------- --------
Outstanding shares at beginning of period 83,320 95,080 91,440
Granted 20,000 5,000 13,000
Vested (10,960) (12,960) (9,360)
Canceled (3,000) (3,800) --
-------- -------- --------
Outstanding shares at end of period 89,360 83,320 95,080
======== ======== ========
The weighted average fair value of restricted stock granted was
$4.75, $8.75 and $7.50 for 2001, 2000 and 1999, respectively. Of the
89,360 shares of restricted stock outstanding at December 31, 2001, 15,360
shares vest over a five-year period, 54,000 shares vest at the end of a
five-year period, 10,000 shares vest over a three-year period and 10,000
shares vest over a two-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
$264,000, $277,000 and $254,000 was recorded during 2001, 2000 and 1999,
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 expired on 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.
28
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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.
14. INCOME TAXES
The components of the income tax provision are as follows:
Year Ended December 31,
(In thousands) 2001 2000 1999
-------- -------- --------
Current:
Federal $ (62) $ (561) $ 88
State -- 43 18
-------- -------- --------
Foreign 56 194 12
-------- -------- --------
(6) (324) 118
Deferred:
Federal (2,523) (94) (37)
State (219) (34) 18
Foreign -- 4 3
-------- -------- --------
(2,742) (124) (16)
-------- -------- --------
Total income tax provision (benefit) $ (2,748) $ (448) $ 102
======== ======== ========
At December 31, 2001, the Company has $1,754,000 of federal net
operating loss carryforwards that begin to expire in 2021, and $3,526,000
of state net operating loss carryforwards that begin to expire in 2005.
The Company also has approximately $147,000 in federal research and
development tax credit carryforwards that expire in 2020. The Company had
foreign income before taxes of $232,000, $665,000 and $65,000 in 2001,
2000 and 1999, 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:
29
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INCOME TAXES (CONTINUED)
December 31,
(In thousands) 2001 2000
------ ------
Gross deferred tax assets:
Net operating losses $ 700 $ 39
Accrued restructuring expenses 1,109 46
Other liabilities and reserves 1,693 1,350
------ ------
$3,502 $1,435
====== ======
Gross deferred tax liabilities:
Depreciation $ -- $ 576
====== ======
The gross deferred tax asset is largely the result of the Company's
net operating loss in 2001 due to the Consolidation. Based on recent tax
law changes, the Company will carry back its federal net operating losses
to prior years, which is expected to result in a tax refund of
approximately $700,000 in 2002. Based on annual cost savings expected to
be realized as a result of the Consolidation, future financial projections
and the ability to carry back net operating losses, the Company has
determined that no valuation allowance is considered necessary.
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,
2001 2000 1999
------ ------ ------
Federal statutory tax rate (34.0)% (34.0)% 34.0%
State income taxes, net of federal income taxes (0.9) (0.3) 13.2
Non-deductible purchase accounting adjustments 1.6 9.9 41.6
Tax benefit from foreign sales corporation -- (3.1) --
Tax benefit from tax credits (1.7) (22.9) (60.0)
Foreign rate differential -- (3.5) (1.6)
Other (0.8) (2.7) (3.2)
------ ------ ------
Effective tax rate (35.8)% (56.6)% 24.0%
====== ====== ======
15. 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.
30
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SIGNIFICANT TRANSACTIONS
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.
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 collateralized by 154,000 shares of the
Company's common stock, which includes 50,000 shares of restricted stock.
The loan currently bears compounded interest at a rate equivalent to the
Company's average borrowing rate under its current credit facility.
Accrued interest through 2002 is deferred until maturity. The principal
amount of the loan is deducted from shareholders' equity.
STOCK REPURCHASE PROGRAM: Under a stock repurchase program, the
Company acquired 70,800 shares of its common stock for $229,000 in 1999.
The Company has not repurchased any shares since 1999, and management does
not expect to repurchase any additional shares in the foreseeable future.
31
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. INTERNATIONAL OPERATIONS
The Company has foreign operations primarily from TransAct
Technologies Ltd., a wholly-owned subsidiary, which had sales to its
customers of $1,791,000, $11,164,000 and $700,000 in the year ended
December 31, 2001, 2000 and 1999, respectively. The Company had export
sales to its foreign customers from the United States of approximately
$6,131,000, $5,156,000 and $7,807,000 in the year ended December 31, 2001,
2000 and 1999, respectively.
18. SUBSEQUENT EVENTS (UNAUDITED)
On February 22, 2002, at the request of a major customer, the
Company received a cash payment of approximately $5,800,000 in advance of
printer shipments to be made from March through August 2002. This amount
has been classified as a current liability, and will be reduced by the
sales value of shipments as they are made. As a result of this payment,
the Company repaid all its outstanding revolving borrowings under the
LaSalle Credit Facility in February 2002.
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's quarterly results of operations for the years ended
December 31, 2001, 2000 and 1999 (unaudited) are as follows:
Quarter Ended
------------------------------------------------
(In thousands, except per share amounts) March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
2001:
Net sales $9,773 $10,796 $ 13,234 $ 10,171
Gross profit 1,803 2,413 3,570 1,988
Net loss (1,757) (1,220) (162) (1,783)
Net loss available to common shareholders (1,847) (1,309) (252) (1,872)
Net loss per share:
Basic and diluted (0.33) (0.24) (0.05) (0.34)
March 25 June 24 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)
32
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 17, 2002 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.
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART OF
THIS REPORT:
Financial statements
(i) See Item 8.
(ii) Financial statement schedules
All schedules are omitted since the required information is
either (a) not present or not present in amounts sufficient to
require submission of the schedule or (b) included in the
financial statements or notes thereto.
34
(iii) List of exhibits
3.1(a) Certificate of Incorporation of the
Company, filed with the Secretary of State
of Delaware on June 17, 1996. (2)
3.1(b) Certificate of Amendment of Certificate of (4)
Incorporation of the Company, filed with
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 (5)
between TransAct and American Stock
Transfer & Trust Company dated February
16, 1998.
10.1 Tax Sharing Agreement dated as of July 31, (3)
1996 between Tridex and TransAct.
10.2(x) 1996 Stock Plan, effective July 30, 1996. (3)
10.3(x) Non-Employee Directors' Stock Plan, (3)
effective August 22, 1996.
10.4(x) 2000 Employee Stock Purchase Plan (9)
10.5(x) 2001 Employee Stock Plan (11)
10.6 Lease Agreement by and between Bomax (2)
Properties and Ithaca, dated as of March
23, 1992.
10.7 Second Amendment to Lease Agreement by and (4)
between Bomax Properties and Ithaca, dated
December 2, 1996.
10.8 Agreement regarding the Continuation and (1)
Renewal of Lease by and between Bomax
Properties, LLC and TransAct, dated July
18, 2001.
10.9 Lease Agreement by and between Pyramid (4)
Construction Company and Magnetec, dated
July 30, 1997.
10.10(x) Employment Agreement, dated July 31, 1996, (2)
by and between the Company and Bart C.
Shuldman.
10.11(x) Employment Agreement, dated July 31, 1996, (2)
by and between the Company and Richard L.
Cote.
10.12(x) Severance Agreement by and between (3)
TransAct and Lucy H. Staley, dated
September 4, 1996.
10.13(x) Release and Settlement Agreement by and (1)
between TransAct and Lucy H. Staley, dated
December 4, 2001
10.14(x) Severance Agreement by and between (3)
TransAct and Michael S. Kumpf, dated
September 4, 1996.
10.15(x) Severance Agreement by and between (6)
TransAct and Steven A. DeMartino, dated
January 21, 1998.
10.16(x) Severance Agreement by and between (10)
TransAct and Mark Goebel, dated July 31,
1996.
10.17(x) Release and Settlement Agreement by and (1)
between TransAct and Mark Goebel, dated
March 1, 2002
10.18(x) Severance Agreement by and between (10)
TransAct and James B. Stetson, dated
January 24, 2001.
10.19 Loan Agreement by and between the Company
and Bart C. Shuldman, dated July 1, 2001 (1)
10.20 OEM Purchase Agreement by and between (7)
GTECH Corporation, TransAct Technologies
and 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.)
35
10.21 OEM Purchase Agreement by and between (1)
Okidata Americas, Inc. and TransAct,
dated June 8, 2001. (Pursuant to Rule
24b-2 under the Exchange Act,
the Company has requested confidential
treatment of portions of this exhibit
exhibit deleted from the filed copy.)
10.22 Preferred Stock Purchase Agreement and (8)
Certificate of Designation dated as of
March 20, 2000 between TransAct
Technologies Incorporated and Advance
Capital Partners, L.P. and affiliate
10.23 Loan and Security Agreement dated as of (12)
May 25, 2001 among TransAct, LaSalle
Business Credit, Inc. ("LaSalle") and the
institutions from time to time a party
hereto.
10.24 Waiver and Amendment No. 1 to Loan and (13)
Security Agreement dated as of May 25,
2001 among TransAct, LaSalle and the
institutions from time to time a party
hereto.
10.25 Amendment No. 2 to Loan and Security (1)
Agreement dated as of May 25, 2001 among
TransAct, LaSalle and the institutions
from time to time a party hereto.
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) 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.
(8) This exhibit, which was previously filed with the
Company's Quarterly Report on Form 10-Q for the period
ended March 25, 2000, is incorporated by reference.
(9) This exhibit, which was previously filed with the
Company's Registration Statement on Form S-8 (No.
333-49540), is incorporated by reference.
(10) These exhibits, which were previously filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 2000, are incorporated by reference.
(11) This exhibit, which was previously filed with the
Company's Registration Statement on Form S-8 (No.
333-59570), is incorporated by reference.
(12) This exhibit, which was previously filed with the
Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2001, is incorporated by reference.
(13) This exhibit, which was previously filed with the
Company's Quarterly Report on Form 10-Q for the period
ended September 30, 2001, is incorporated by reference.
(x) Management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c).
(B) REPORTS ON FORM 8-K.
None.
36
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, 2002
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 March 28, 2002
- ---------------------------- and Chief Executive Officer
Bart C. Shuldman (Principal Executive Officer)
/s/ Richard L. Cote Executive Vice President, Chief March 28, 2002
- ---------------------------- Financial Officer, Treasurer,
Richard L. Cote Secretary and Director
(Principal Financial Officer)
/s/ Steven A. DeMartino Senior Vice President, Finance
- ---------------------------- and Information Technology March 28, 2002
Steven A. DeMartino (Principal Accounting Officer)
/s/ Charles A. Dill Director March 28, 2002
- ----------------------------
Charles A. Dill
/s/ Jeffrey T. Leeds Director March 28, 2002
- ----------------------------
Jeffrey T. Leeds
/s/ Thomas R. Schwarz Director March 28, 2002
- ----------------------------
Thomas R. Schwarz
/s/ Graham Y. Tanaka Director March 28, 2002
- ----------------------------
Graham Y. Tanaka
37
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
-------
10.8 Agreement regarding the Continuation and Renewal of Lease
by and between Bomax Properties, LLC and TransAct, dated
July 18, 2001.
10.13(x) Release and Settlement Agreement by and between TransAct
and Lucy H. Staley, dated December 4, 2001
10.17(x) Release and Settlement Agreement by and between TransAct
and Mark Goebel, dated March 1, 2002
10.19 Loan Agreement by and between the Company and Bart C.
Shuldman, dated July 1, 2001
10.21 OEM Purchase Agreement by and between Okidata Americas,
Inc. and TransAct, dated June 8, 2001.(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.)
10.25 Amendment No. 2 to Loan and Security Agreement dated as of
May 25, 2001 among TransAct, LaSalle and the institutions
from time to time a party hereto.
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
38