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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 [Fee Required]
For the fiscal year ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
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 Identification No.)
organization)
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:
Title of each class
COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. [ ]
As of MARCH 20, 1998 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$62,800,000.
As of MARCH 20, 1998 the registrant had outstanding 6,307,500 shares of common
stock, $0.01 par value.
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PART I
GENERAL
TransAct Technologies Incorporated ("TransAct" or the "Company") designs,
develops, manufactures and markets transaction based printers and related
products under the ITHACA and MAGNETEC brand names. The Company's printers are
used to provide transaction records such as receipts, tickets, coupons, register
journals and other documents. The Company focuses on four vertical markets:
point-of-sale ("POS") (from which the Company derived approximately 40% of its
net sales in the year ended December 31, 1997); gaming and lottery
(approximately 40% of net sales); kiosk (approximately 11% of net sales); and
financial services (approximately 9% of net sales). 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 and Europe. TransAct has two operating facilities located in
Wallingford, Connecticut and Ithaca, New York, and five sales offices, four
located in the United States and one in the United Kingdom.
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS
In November 1995, the Board of Directors of Tridex Corporation ("Tridex")
approved a plan to combine the business operations of two of its wholly-owned
subsidiaries, Magnetec Corporation ("Magnetec") and Ithaca Peripherals
Incorporated ("Ithaca"), under unified management. TransAct was incorporated in
Delaware on June 17, 1996 as a wholly-owned subsidiary of Tridex. Following the
incorporation, Tridex, TransAct, Magnetec and Ithaca entered into a Plan of
Reorganization, pursuant to which: (i) Ithaca merged into Magnetec; (ii)
TransAct transferred to Tridex certain assets of Magnetec used in manufacturing
a printer ribbon product line; (iii) TransAct issued 5,400,000 shares of its
common stock to Tridex in exchange for all the outstanding shares of Magnetec;
(iv) TransAct sold in an initial public offering 1,322,500 shares or
approximately 19.7% of its common stock; (v) TransAct repaid $8,500,000 of
intercompany indebtedness to Tridex; (vi) Tridex applied to the Internal Revenue
Service (the "IRS") for a ruling that the distribution of the 5,400,000 shares
of TransAct owned by Tridex to Tridex stockholders (the "Distribution") would
constitute a tax-free reorganization for federal income tax purposes; and (vii)
Tridex agreed to effect the Distribution promptly after receipt of a favorable
ruling from the IRS and the satisfaction of certain other conditions.
On August 22, 1996, the Company sold 1,150,000 shares of its common stock
at a price of $8.50 per share in an initial public offering (the "Offering"). On
September 18, 1996, the Company sold an additional 172,500 shares upon exercise
of the underwriters' over-allotment option. Net proceeds from the Offering
(including the exercise of the underwriters' over-allotment option) were
approximately $9 million after payment of approximately $2.3 million of Offering
expenses.
On February 12, 1997, Tridex received a favorable ruling from the IRS
confirming the tax-free nature of the Distribution. On March 31, 1997 Tridex
distributed its 5,400,000 shares, or 80.3%, of TransAct's common stock, pro rata
to persons who were Tridex stockholders of record on March 14, 1997, on the
basis of approximately one share of TransAct for each share of Tridex. Upon
completion of the Distribution, Tridex no longer owned any shares of TransAct
capital stock.
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(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
TransAct presently operates in one industry segment, the design,
development, manufacture and marketing of printers and printer peripheral
products.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
TransAct designs, develops, manufactures and markets customizable and
custom dot matrix and thermal printers for applications requiring up to 60
character columns in each of its four vertical markets: POS, gaming and lottery,
kiosk and financial services. The Company also sells an 80 column laser printer
for kiosk applications. The Company's customizable products include several
series of printers which offer customers the ability to choose from a variety of
features and functions. Options typically include paper cutting devices, paper
handling capacities and number of print stations. In addition to its
customizable 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.
The Company also manufactures and sells document transport mechanisms
which deliver the finished printed output to the consumer in unattended
applications, such as ATMs and kiosks. The Company also offers printer ribbons,
paper and replacement parts for all of its products.
The Company provides customers with telephone sales and technical
support, a personal account representative for orders, shipping and general
information and expedited shipping for orders of its customizable and custom
products. Technical and sales support personnel receive training in all of the
Company's products and services manufactured at their facility. The Company's
printers generally carry a one- or two-year limited warranty; extended
warranties are available for purchase on selected printers to supplement the
original warranty. The Company's costs to provide services and parts required
under warranties historically have not been material.
(ii) STATUS OF PRODUCT REQUIRING MATERIAL INVESTMENT
None.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal materials used in manufacturing are copper wire, magnetic
metals, injection molded plastic parts, formed metal parts and electronic
components. Although the Company could experience temporary disruption if
certain suppliers ceased doing business with the Company, the Company's
requirements generally are available from a number of sources. However, the
Company is dependent upon Okidata, Division of Oki America, Inc. ("Okidata") for
a printer component kit consisting of a printhead, control board and carriage
(the "Oki Kit"), which is used in all of the Company's ITHACA brand impact
printers. The loss of the supply of Oki Kits would have a material adverse
effect on the Company. TransAct has a supply agreement with Okidata to provide
Oki Kits until May 2001. Pricing for the Oki Kits was fixed through August 1997;
the Company has placed orders since August 1997 at the prices then in effect,
which orders have been accepted by Okidata. The Company and Okidata are
currently negotiating for future pricing. TransAct believes its relations with
Okidata are good and has received no indication that the supply agreement will
not be renewed beyond the expiration of the current contract. TransAct cannot be
certain, however, that the supply agreement will be renewed, or if renewed, that
the terms will be as favorable as those under the current contract.
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(iv) PATENTS AND PROPRIETARY INFORMATION
The Company owns several patents, one of which it considers material.
That patent covers an automated paper cut-off device, which is a feature offered
on certain of the Company's POS printers. The Company 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 October 2001. Sales to GTECH accounted for approximately
29.1%, 16.0% and 12.4% of net sales for the years ended December 31, 1997,
December 31, 1996, and the nine months ended December 31, 1995, respectively.
(viii) BACKLOG
The Company's backlog of firm orders was approximately $26,700,000 as of
March 13, 1998 and $39,700,000 as of March 22, 1997. Based on customers' current
delivery requirements, TransAct expects to fill approximately $18,200,000 of its
backlog within the current fiscal year, and the remainder within the next fiscal
year.
(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. Two of the Company's competitors, Epson America, Inc. and Star
Micronics America, Inc. together control approximately 50% to 60% of the United
States market for POS printers, a market in which the Company's strategy calls
for increased market share. Other principal competitors in the POS market
include Axiohm Transaction Solutions (a recent merger of Axiohm Incorporated and
DH Technology Incorporated) and Citizen -- CBM America Corporation. Certain
competitors of the Company have lower costs, attributable to higher volume
production and off-shore manufacturing locations, and offer lower prices than
the Company from time to time.
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In the gaming and lottery, financial services and kiosk markets, no
single supplier holds a dominant position. Certain of the Company's products
sold for gaming and lottery, kiosk and financial service applications compete
based upon the Company's ability to provide highly specialized products, custom
engineering and ongoing technical support.
The Company's strategy for competing in its markets is to continue to
develop new products and product line extensions, to increase its geographic
market penetration, and to take advantage of strategic relationships. Although
the Company has historically maintained or increased sales with this strategy
and believes that its products, operations and relationships provide a
competitive foundation, there can be no assurance that the Company will compete
successfully in the future.
(xi) RESEARCH AND DEVELOPMENT ACTIVITIES
The Company spent approximately $2,773,000 in the year ended December 31,
1997, $2,467,000 in the year ended December 31, 1996 and $1,533,000 in the nine
months ended December 31, 1995 on engineering, design and product development
efforts in connection with specialized engineering and design to introduce new
products and to customize existing products.
(xii) ENVIRONMENT
The Company is not aware of any material non-compliance with federal,
state and local provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment.
(xiii) EMPLOYEES
As of February 21, 1998, TransAct Technologies and its subsidiaries
employed 256 persons, of which 226 were full-time and 30 were temporary
employees. None of the Company's employees are unionized and the Company
considers its relationships with its employees to be good.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
The Company has foreign operations primarily from Ithaca Peripherals
Ltd., a wholly-owned subsidiary located in the United Kingdom, which had sales
to its customers of $4,204,000, $397,000 and $332,000 in the year ended December
31, 1997, December 31, 1996 and the nine months ended December 31, 1995,
respectively. The Company had export sales to its customers from its domestic
operations of approximately $5,618,000 in the year ended December 31, 1997,
$1,622,000 in the year ended December 31, 1996 and $1,211,000 in the nine months
ended December 31, 1995.
(E) EXECUTIVE OFFICERS OF THE REGISTRANT AS OF DECEMBER 31, 1997
Name Age Position
- -----------------------------------------------------------------------------------------------------------------------
Thomas R. Schwarz 61 Chairman of the Board
Bart C. Shuldman 40 President, Chief Executive Officer and Director
Richard L. Cote 56 Executive Vice President, Chief Financial Officer, Treasurer,
Secretary and Director
David A. Ritchie 38 Executive Vice President - Sales and Marketing
Lucy H. Staley 46 Senior Vice President - General Manager (Ithaca, NY facility)
John Cygielnik 52 Senior Vice President - General Manager (Wallingford, CT facility)
Michael S. Kumpf 47 Senior Vice President - Engineering
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THOMAS R. SCHWARZ, Chairman of the Board, has been a Director of the
Company since its formation in June 1996. Mr. Schwarz was Chairman and Chief
Executive Officer of Grossman's Inc., a retailer of building materials, from
1990 to 1994. Mr. Schwarz is a Director of Tridex, Foilmark, Inc.,
Lebhar-Friedman Publishing Company and A&W Root Beer.
BART C. SHULDMAN has been Chief Executive Officer, President and a
Director of the Company since its formation in June 1996. He joined Magnetec as
Vice President of Sales and Marketing in April 1993 and has served as President
of Magnetec since August 1993 and President of the combined operations of Ithaca
and Magnetec since December 1995. Prior to joining Magnetec, he held several
management positions with Mars Electronics International, a division of Mars,
Incorporated from 1989 to 1993. Most recently, he was Business Manager for the
North American Amusement, Gaming and Lottery operations.
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 since September 1993. Mr. Cote joined Tridex as a
Vice President in June 1993. From October 1991 to March 1993, he was a
self-employed management consultant.
DAVID A. RITCHIE, was appointed Executive Vice President of Sales and
Marketing in July 1997, and served as Vice President of Sales at TransAct's
Ithaca division from March 1996 to July 1997. Mr. Ritchie joined the Company in
April 1995 as Southeast National Sales Manger. Prior to joining TransAct's
Ithaca division, Mr. Ritchie held several sales management positions including
Regional Sales Manager at Medintell Systems Corporation form March 1994 to April
1995 and Manager of Distribution Channels at AT&T from January 1992 to February
1994.
LUCY H. STALEY, Senior Vice President-General Manager (Ithaca, NY
facility) since June 1996, served as a Vice President of Ithaca since she joined
the Company in 1984.
JOHN CYGIELNIK, Senior Vice President-General Manager (Wallingford, CT
facility) since June 1996, joined Magnetec as Controller in 1992, and has served
as Vice President of Finance of Magnetec since 1993. From 1976 until 1992, Mr.
Cygielnik was employed by Data General Corporation, a computer hardware
manufacturer, where he served in various positions, most recently as Controller
for Manufacturing and Field Service Operations.
MICHAEL S. KUMPF, Senior Vice President-Engineering since June 1996,
served as Vice President of Engineering of Ithaca since he joined the Company in
1991.
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ITEM 2. DESCRIPTION OF PROPERTIES.
The Company's operations are currently conducted at the facilities
described below:
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
Georgia (2), New Jersey, New Five (5) regional sales 1,500 Leased Various
York and the United Kingdom 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 THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock is traded on the NASDAQ National Market under
the symbol TACT. As of March 4, 1998, there were 1,171 holders of record of the
common stock. The Company completed its initial public offering in the third
quarter of 1996. The high and low prices of the common stock reported during
each quarter of the years ended December 31, 1997 and December 31, 1996, since
the date of the Offering, were as follows:
Year Ended Year Ended
December 31, 1997 December 31, 1996
--------------------------- ---------------------------
High Low High Low
-------- -------- -------- --------
First Quarter 15 -1/2 10 N/A N/A
Second Quarter 14 10 -3/4 N/A N/A
Third Quarter 20 13 -1/2 10-1/4 8
Fourth Quarter 20 -1/4 10 13 3/8 9-1/4
No dividends on the common stock have been declared and the Company does
not anticipate declaring dividends in the foreseeable future. The Company's
credit agreement with Fleet National Bank restricts the payment of cash
dividends for the term of the agreement.
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ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended Nine Months Ended Year Ended
---------------------------- ---------------------------- -----------------------
December 31, December 31, December 31, December 31, April 1, April 2,
1997 1996 1995 1994 1995 1994
------------ ----------- ------------ ------------ --------- --------
(Unaudited)
Statement of Income Data:
Net sales $58,400 $42,134 $25,497 $25,426 $33,362 $23,798
Gross profit 18,173 13,933 7,968 8,391 11,013 8,213
Operating income 7,831 5,233 1,579 3,030 3,705 1,723
Net income 4,893 3,340 916 1,883 2,304 1,093
Earnings per share:
Basic 0.72 0.57 0.17 0.35 0.43 0.20
Diluted 0.71 0.57 0.17 0.35 0.43 0.20
December 31, December 31, December 31, December 31, April 1, April 2,
1997 1996 1995 1994 1995 1994
------------ ----------- ------------ ------------ --------- --------
(Unaudited)
Balance Sheet Data:
Total assets $24,699 $20,784 $15,969 $14,392 $15,358 $13,916
Shareholders' equity 17,903 14,407 - - - -
Tridex investment in the
Company - - 11,645 10,591 11,280 10,839
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
Because the Company was wholly-owned by Tridex until August 22, 1996, the
Selected Financial Data which appear in Item 6 and the Consolidated Financial
Statements which appear in Item 8 of this report with respect to periods prior
to the year ended December 31, 1997 may not necessarily reflect the results of
operations or financial position of the Company or what the results of
operations would have been if the Company had been a stand alone entity during
the periods presented. This discussion should be read in conjunction with those
Consolidated Financial Statements and notes thereto. See Note 1 of Notes to
Consolidated Financial Statements (Basis of Presentation).
(A) RESULTS OF OPERATIONS
Certain statements included in this Management's Discussion and Analysis
of the Results of Operations and Financial Condition which are not historical
facts may be deemed to contain forward looking statements with respect to events
the occurrence of which involves risks and uncertainties, including, without
limitation, the Company's expectation regarding gross profit, operating income
and capital expenditures.
IMPACT OF THE YEAR 2000 ISSUE. The Year 2000 Issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
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The Company's products and key financial and operating systems are being
reviewed and, where required, detailed plans have been or are being developed
and implemented on a schedule intended to permit the Company's computer systems
and products to continue to function properly. The Company presently believes
that with modifications to existing software and conversions to new software,
the Year 2000 Issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue could
have a material impact on the operations of the Company. Furthermore, there can
be no guarantee that the systems of other companies on which the Company's
system rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have an material adverse effect on the Company. Management does not expect
costs associated with the Year 2000 Issue to have a material adverse impact on
the Company's financial position, results of operations or cash flows.
(i) YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales into each of the Company's four vertical markets for
the current and prior year were as follows:
Year ended Year ended
(In thousands) December 31, 1997 December 31, 1996
------------------------- -------------------------
Point of sale $23,342 40.0 % $21,414 50.8 %
Gaming and lottery 23,584 40.4 12,217 29.0
Kiosk 6,349 10.8 3,379 8.0
Financial services 5,125 8.8 5,124 12.2
------------- -------- -- ----------- ---------- --
$58,400 100.0 % $42,134 100.0 %
======================== =========================
Net sales for the year ended December 31, 1997 increased $16,266,000, or
39%, to $58,400,000 from $42,134,000 in the prior year, substantially due to
increased shipments into the gaming and lottery market. Shipments of the
Company's on-line lottery printers increased approximately $10,200,000, to
approximately $17,000,000, or 29% of net sales, in the current year, from
approximately $6,800,000, or 16%, in the prior year. Additionally, shipments of
the Company's gaming printers for use in video lottery terminals increased
approximately $1,800,000 from the prior year. Sales into the kiosk market
increased by approximately $2,970,000, or 88%, substantially due to increased
shipments of the Company's thermal kiosk printers. Shipments of the Company's
financial services printers during 1997 were essentially unchanged from 1996.
Sales of the Company's POS printers during 1997 increased approximately
$1,928,000, or 9%, from 1996 due largely to an increase in printer shipments in
to the international POS market, largely offset by a decline in domestic POS
printer shipments. The Company's international sales during 1997 were
$9,822,000, or 17% of net sales, compared to $2,019,000, or 5% of net sales in
the prior year.
GROSS PROFIT. Gross profit increased $4,240,000, or 30%, to $18,173,000
from $13,933,000 in the prior year due primarily to the higher volume of sales.
The gross margin declined to 31.1% from 33.1%, due primarily to a larger
proportion of printer sales at lower average selling prices resulting from
volume discount pricing, particularly in the gaming and lottery market. The
Company expects that its gross margin will remain relatively stable. Operating
income as a percentage of net sales has increased (see "Operating Income"
below).
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ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development costs increased $306,000, or 12%, to $2,773,000 from $2,467,000 for
the prior year, but decreased as a percentage of net sales to 4.7% from 5.9%.
This increase was due primarily to increased product development and design
costs, primarily for new products and enhancements to existing products in the
POS and kiosk markets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $1,336,000, or 21%, to $7,569,000 from $6,233,000 in the
prior year. Selling expenses increased by $442,000 due primarily to increases in
the level of sales staff and increased commissions resulting from a higher
volume of sales principally in the kiosk and POS markets. General and
administrative expenses increased $894,000 over the prior year, primarily
reflecting an increase of general and administrative expenses incurred by the
Company as a stand alone, public company. In the prior year, such expenses were
allocated from Tridex, its former parent. Additionally, the increase reflects
increased incentive compensation and, to a lesser extent, additional
administrative staff expenses to support higher business volumes. Selling,
general and administrative expenses decreased as a percentage of net sales to
13.0% from 14.8% due primarily to management's ability to control these expenses
while increasing sales.
OPERATING INCOME. Operating income increased $2,598,000, or 50%, to
$7,831,000 from $5,233,000 in the prior year. Operating income improved as a
percentage of net sales, increasing to 13.4% from 12.4%, due primarily to the
Company's ability to control operating expenses while increasing sales.
OTHER INCOME. Other income (expense) for the year ended December 31, 1996
included a gain of $285,000 from the sale of securities acquired in the sale of
the Company's solenoid product line in 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes for the year
ended December 31, 1997 reflects an effective tax rate of 37.5%. The effective
rate in the prior year's period was 39.6%. The decline in the Company's
effective tax rate is largely due to tax benefits derived from the establishment
of a foreign sales corporation and certain tax credits.
NET INCOME. Net income for the current year was $4,893,000, or $0.72 per
share (basic) and $0.71 per share (diluted). Net income for the prior year was
$3,340,000, or $0.57 per share (basic and diluted).
(ii) YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
1995
NET SALES. Net sales into each of the Company's four vertical markets for
the years ended December 31, 1996 and 1995 were as follows:
Year ended Year ended
(In thousands) December 31, 1996 December 31, 1995
------------------------- -------------------------
Point of sale $21,414 50.8 % $17,190 51.4 %
Gaming and lottery 12,217 29.0 8,586 25.7
Kiosk 3,379 8.0 3,238 9.7
Financial services 5,124 12.2 4,419 13.2
------------- ----------- ---------- -------------
$42,134 100.0 % $33,433 100.0 %
============= ========== =========== ===========
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Net sales for the year ended December 31, 1996 increased $8,701,000, or
26%, to $42,134,000 from $33,433,000 in the prior year. Approximately $4,200,000
of the increase was due to increased shipments into the POS market. Sales of POS
printers increased to approximately $21,400,000, or 50.8% of net sales, in 1996,
from $17,200,000, or approximately 51.4% of net sales, in 1995. The remainder of
the increase principally reflects increased shipments of the Company's on-line
lottery printers. Sales of these printers increased to approximately $6,800,000,
or 16.1% of net sales, in 1996, from $3,400,000, or 10.2%, in the prior year.
GROSS PROFIT. Gross profit increased $3,343,000, or 32%, to $13,933,000
from $10,590,000 in the prior year due primarily to increased sales in the POS
and gaming and lottery markets. The gross margin increased to 33.1% from 31.7%.
The gross margin for 1995 of 31.7% reflected certain production start-up costs
associated with the Company's new on-line lottery printer and the relocation of
the Company's Connecticut facility in 1995. The Company expects that although
gross profit will increase with increased sales, gross margin will decrease
slightly due to a growing proportion of sales of printers at lower average
selling prices resulting from volume discount pricing, particularly in the POS
and gaming and lottery markets.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development costs increased $470,000, or 24%, to $2,467,000 from $1,997,000 for
the prior year, but decreased slightly as a percentage of net sales to 5.9% from
6.0%. This increase was due primarily to increased product development and
design costs, primarily for new products in the POS market, as well as increases
in the level of engineering staff.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $194,000, or 3%, to $6,233,000 from $6,039,000 in 1995.
Selling expenses increased by $178,000 due primarily to increases in the level
of sales staff and increased commissions resulting from higher unit sales
volumes. General and administrative expenses increased only slightly over the
prior year. Selling, general and administrative expenses decreased as a
percentage of net sales to 14.8% from 18.1% due primarily to management's
continuing effort to control these expenses while increasing sales.
OPERATING INCOME. Operating income increased $2,979,000, or 132%, to
$5,233,000 from $2,254,000 in the prior year. Operating income increased as a
percentage of net sales to 12.4% from 6.7%, due primarily to the Company's
ability to control operating expenses while increasing its level of sales during
1996, and the absence of certain production start-up costs associated with the
Company's new on-line lottery printer and the relocation of the Company's
Connecticut facility during 1995.
PROVISION FOR RESTRUCTURING. During the year ended December 31, 1995, the
Company recorded a provision for restructuring of $300,000 primarily to cover
severance costs related to the combination of the Ithaca and Magnetec businesses
under unified management.
OTHER INCOME. Other income (expense), net increased $292,000, to $295,000
from $3,000 in the year ended December 31, 1995. This increase was primarily the
result of a $285,000 gain on the sale of securities acquired in the sale of the
Company's solenoid product line in 1994.
11
12
PROVISION FOR INCOME TAXES. The provision for income taxes for the year
ended December 31, 1996 reflects an effective tax rate of 39.6%. The provision
for this period includes a benefit resulting from certain tax credits. The
effective rate in the prior year's period was 41.0%.
NET INCOME. Net income for the year ended December 31, 1996 was
$3,340,000, or $0.57 per share (basic and diluted), as compared to $1,332,000,
or $0.25 per share (basic and diluted), in the prior year.
(iii) LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flow from operations of $3,835,000, $1,972,000
and $1,881,000 for the year ended December 31, 1997, December 31, 1996, and the
nine months ended December 31, 1995, respectively. The Company's working capital
at December 31, 1997 increased to $11,438,000 from $8,609,000 at December 31,
1996. The current ratio improved to 2.87 to 1.0 at December 31, 1997 from 2.47
to 1.0 at December 31, 1996. The increase in working capital was funded
primarily through cash generated from operations.
On August 22, 1996, the Company sold 1,150,000 shares of its common stock
at a price of $8.50 per share in the Offering. On September 18, 1996, the
Company sold an additional 172,500 shares upon exercise of the underwriters'
over-allotment option. Net proceeds from the Offering (including the exercise of
the underwriters' over-allotment option) were approximately $8,991,000 after
payment of $2,250,000 of Offering expenses. In conjunction with the Offering,
the Company also repaid $7,500,000 of a total of $8,500,000 of intercompany
indebtedness to Tridex and issued a $1,000,000 subordinated promissory note to
Tridex. The note, which bore interest at the rate paid by Tridex under its
revolving credit facility (8.25% at December 31, 1996), was repaid on February
14, 1997.
Prior to the Offering, the Company participated in Tridex's centralized
cash management system. While under this system, cash deposits from the Company
were transferred to Tridex and Tridex funded the Company's disbursement bank
accounts. On August 22, 1996, the Company ceased to participate in the Tridex
cash management system.
On August 29, 1996, the Company entered into an agreement with Fleet
National Bank ("Fleet") to provide the Company with a $5,000,000 revolving
credit facility (the "Credit Facility"). The Credit Facility bears interest on
outstanding borrowings at Fleet's prime rate (8.25% at December 31, 1997) and
bears a commitment fee of 0.25% on any unused portion of the Credit Facility.
The Credit Facility also permits the Company to designate a LIBOR rate on
outstanding borrowings with a margin of 1.5 percentage points over the market
rate. The Credit Facility is secured by a lien on substantially all of the
assets of the Company, imposes certain financial and restricts the payment of
cash dividends. During 1997, the Company borrowed $1,500,000 under the Credit
Facility, with $300,000 outstanding at December 31, 1997.
12
13
On January 29, 1998, the Company replaced its existing $5,000,000
Credit Facility with a new $15,000,000 facility (the "New Credit Facility"). The
New Credit Facility, also with Fleet, provides the Company with a $5,000,000
revolving working capital facility, and a $10,000,000 revolving credit facility
that may be used for activities such as acquisitions and repurchases of the
Company's common stock. Borrowings under the $10,000,000 revolving credit
facility may, at the Company's election, be converted to a four-year term loan
commencing on June 30, 1999, the expiration date of the New Credit Facility. Any
term loan borrowings mature on June 30, 2003. Borrowings under the New Credit
Facility bear interest on outstanding borrowings at Fleet's prime rate and bear
a commitment fee ranging from 0.25% to 0.50% on any unused portion of the New
Credit Facility. The New Credit Facility also permits the Company to designate a
LIBOR rate on outstanding borrowings with a margin ranging from 1.25 to 1.75
percentage points over the market rate, depending on the Company meeting certain
ratios. The New Credit Facility is secured by a lien on substantially all of the
assets of the Company, imposes certain financial covenants (including, among
other things, a minimum tangible net worth, a maximum leverage ratio, a maximum
debt to cash flow ratio, a minimum interest coverage ratio, a minimum fixed
charge coverage ratio and a minimum collateral coverage ratio) and restricts the
payment of cash dividends and the creation of liens. The Company expects to use
borrowings under the New Credit Facility to fund its short-term working capital
requirements, as they arise.
During November 1997, the Board of Directors approved the repurchase of
up to 500,000 shares of the Company's common stock at a price no more than $12
per share. As of December 31, 1997, the Company acquired 200,000 shares of its
common stock for $2,251,000. Management intends to complete the repurchase of
the remaining 300,000 shares during the first quarter of 1998. The Company
anticipates temporarily financing the repurchases under the New Credit Facility.
The Company's capital expenditures were approximately $2,266,000,
$1,836,000 and $1,334,000 for the year ended December 31, 1997, December 31,
1996 and the nine months ended December 31, 1995, respectively. These
expenditures primarily included new product tooling, computer equipment, and
factory machinery and equipment. In addition, capital expenditures in the nine
months ended December 31, 1995 included new leasehold and equipment purchases
related to the relocation of the Company's Connecticut facility. The Company's
capital expenditures for 1998 are expected to be approximately $3,400,000, a
majority for new product tooling.
The Company believes that cash flows generated from operations and
borrowings available under the New Credit Facility, as necessary, will provide
sufficient resources to meet the Company's working capital needs, finance its
capital expenditures and common stock repurchases, and meet its liquidity
requirements through December 31, 1998.
(B) 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.
13
14
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, 1997 and December 31, 1996. 16
Consolidated statements of income for the years ended December 31, 1997, December 31, 1996 17
and December 31, 1995 (unaudited), and the nine months ended December 31, 1995 and
December 31, 1994 (unaudited).
Consolidated statements of cash flows for the years ended December 31, 1997, December 31, 18
1996 and December 31, 1995 (unaudited), and the nine months ended December 31, 1995 and
December 31, 1994 (unaudited).
Consolidated statement of changes in shareholders' equity for the period from August 22, 19
1996 through December 31, 1997.
Notes to consolidated financial statements. 20
14
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of TransAct Technologies Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
TransAct Technologies Incorporated and its subsidiaries, as described in Note 1,
at December 31, 1997 and 1996, and the results of their operations and their
cash flows for the years ended December 31, 1997 and December 31, 1996 and the
nine months ended December 31, 1995, and their changes in shareholders' equity
for the year ended December 31, 1997 and the period from August 22, 1996 through
December 31, 1996 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Hartford, Connecticut
February 12, 1998
15
16
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1997 1996
-------- ---------
ASSETS:
Current assets:
Cash and cash equivalents $ 391 $ 1,041
Receivables, net (Note 4) 6,941 5,179
Receivable from Tridex 294 266
Inventories (Note 5) 8,570 7,370
Other current assets 1,365 628
-------- ---------
Total current assets 17,561 14,484
-------- ---------
Plant and equipment, net (Note 6) 4,989 3,964
Excess of cost over fair value of net assets acquired, net
(Note 2) 2,073 2,246
Other assets 76 90
-------- ---------
7,138 6,300
-------- ---------
$ 24,699 $ 20,784
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank loans payable (Note 9) $ 300 $ -
Accounts payable 3,043 2,463
Accrued liabilities (Note 7) 2,780 2,412
Note payable to Tridex (Note 15) - 1,000
-------- ---------
Total current liabilities 6,123 5,875
-------- ---------
Other liabilities 673 502
-------- ---------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, $0.01 par value; 20,000,000
authorized; 6,810,300 and 6,722,500 issued 68 67
Preferred stock, 5,000,000 authorized, no issued
and outstanding - -
Additional paid-in capital 14,975 13,186
Retained earnings 6,062 1,169
Unamortized restricted stock compensation (942) -
Cumulative translation adjustment (9) (15)
-------- ---------
20,154 14,407
Less: Treasury stock, at cost, 200,000 shares (Note 18) (2,251) -
-------- ---------
Total shareholders' equity 17,903 14,407
-------- ---------
$ 24,699 $ 20,784
======== =========
See accompanying notes to consolidated financial statements.
16
17
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended Nine Months Ended
--------------------------------------------- ----------------------------
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1995 1994
--------- -------- --------- --------- ---------
(Unaudited) (Unaudited)
Net sales $ 58,400 $ 42,134 $ 33,433 $ 25,497 $ 25,426
Cost of sales 40,227 28,201 22,843 17,529 17,035
--------- -------- --------- --------- ---------
Gross profit 18,173 13,933 10,590 7,968 8,391
--------- -------- --------- --------- ---------
Operating expenses:
Engineering, design and
product development costs 2,773 2,467 1,997 1,533 1,244
Selling, general and
administrative expenses 7,569 6,233 6,039 4,556 4,117
Provision for restructuring
(Note 15) - - 300 300 -
--------- -------- --------- --------- ---------
10,342 8,700 8,336 6,389 5,361
--------- -------- --------- --------- ---------
Operating income 7,831 5,233 2,254 1,579 3,030
--------- -------- --------- --------- ---------
Other income (expense):
Interest, net 16 (17) - - -
Other, net (Note 15) (19) 312 3 (15) 108
--------- -------- --------- --------- ---------
(3) 295 3 (15) 108
--------- -------- --------- --------- ---------
Income before income taxes 7,828 5,528 2,257 1,564 3,138
Income tax provision
(Note 13) 2,935 2,188 925 648 1,255
--------- -------- --------- --------- ---------
Net income $ 4,893 $ 3,340 $ 1,332 $ 916 $ 1,883
========= ========= ========= ======== =========
Net income per share
(pro forma prior to 1997):
Basic $ 0.72 $ 0.57 $ 0.25 $ 0.17 $ 0.35
========= ========= ========= ======== =========
Diluted 0.71 0.57 0.25 0.17 0.35
========= ========= ========= ======== =========
Weighted average common shares
outstanding (pro forma
prior to 1997):
Basic 6,767 5,864 5,400 5,400 5,400
========= ========= ========= ======== =========
Diluted 6,932 5,884 5,400 5,400 5,400
========= ========= ========= ======== =========
See accompanying notes to consolidated financial statements.
17
18
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended Nine Months Ended
-------------------------------------------- ----------------------------
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1995 1994
-------- -------- -------- ------- --------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 4,893 $ 3,340 $ 1,332 $ 916 $ 1,883
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,591 1,135 957 729 686
Deferred income taxes (51) (82) 168 82 -
Gain on sale of securities available - (285) - - -
for sale
Gain on sale of solenoid product
line (Note 15) - - - - (115)
Loss on disposal of equipment 8 6 1 5 8
Changes in operating assets and
liabilities:
Receivables (1,790) (2,199) 752 532 (154)
Inventories (1,200) (1,017) (1,653) (656) (16)
Other current assets (623) 30 (45) (54) (1)
Other assets (50) (27) 41 150 (56)
Accounts payable 580 (248) (50) 35 409
Accrued liabilities and other
liabilities 477 1,319 327 142 315
-------- -------- -------- ------- --------
Net cash provided by operating
activities 3,835 1,972 1,830 1,881 2,959
-------- -------- -------- ------- --------
Cash flows from investing activities:
Purchases of plant and equipment (2,266) (1,836) (1,586) (1,334) (956)
Proceeds from sale of securities available
for sale - 508 - - -
Proceeds from sale of solenoid product line
(Note 15) - - - - 115
Proceeds from sale of equipment 3 13 4 4 13
Other - (5) 30 - -
-------- -------- -------- ------- --------
Net cash used in investing activities (2,263) (1,320) (1,552) (1,330) (828)
-------- -------- -------- ------- --------
Cash flows from financing activities:
Bank line of credit borrowings 1,500 - - - -
Bank line of credit repayments (1,200) - - - -
Purchases of treasury stock (2,251) - - - -
Proceeds from option exercises 76 - - - -
Tax benefit related to employee stock sales 647 - - - -
Payment of intercompany debt (1,000) (7,500) - - -
Net proceeds from issuance of stock - 8,991 - - -
Net transactions with Tridex prior to the
initial public offering - (1,087) (278) (551) (2,131)
-------- -------- -------- ------- --------
Net cash provided by (used in)
financing activities (2,228) 404 (278) (551) (2,131)
-------- -------- -------- ------- --------
Effect of exchange rate changes on cash 6 (15) - - -
-------- -------- -------- ------- --------
Increase (decrease) in cash and cash (650) 1,041 - - -
equivalents
Cash and cash equivalents at beginning of
period 1,041 - - - -
-------- -------- -------- ------- --------
Cash and cash equivalents at end of period $ 391 $ 1,041 $ 0 $ 0 $ 0
======== ======== ======== ======= ========
Supplemental cash flow information:
Interest paid $ 52 $ 28 $ - $ - $ -
Income taxes paid 2,775 592 - - -
See accompanying notes to consolidated financial statements.
18
19
TRANSACT TECHNOLOGIES INCORPORATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Common Stock Additional Unamortized Cumulative
-------------------- Paid-in Retained Restricted Stock Translation Treasury
Shares Amount Capital Earnings Compensation Adjustment Stock
--------- --------- ---------- --------- -------- --------- ----------
Balance, August 22, 1996 5,400,000 $ 54 $ 4,207 $ - $ - $ - $ -
Issuance of Offering shares 1,322,500 13 8,978 - - - -
Purchase of warrants - - 1 - - - -
Translation adjustments - - - - - (15) -
Net income subsequent to the
Offering - - - 1,169 - - -
--------- --------- ---------- --------- -------- --------- ----------
Balance, December 31, 1996 6,722,500 67 13,186 1,169 - (15) -
Issuance of restricted stock 78,800 1 1,066 - (1,066) - -
Issuance of shares from
exercise of stock options 9,000 - 76 - - - -
Amortization of restricted
stock compensation - - - - 124 - -
Tax benefit related to
employee stock sales - - 647 - - - -
Purchase of treasury shares (200,000) - - - - - (2,251)
Translation adjustments - - - - - 6 -
Net income - - - 4,893 - - -
--------- --------- ---------- --------- -------- --------- ----------
Balance, December 31, 1997 6,610,300 $ 68 $ 14,975 $ 6,062 $ (942) $ (9) $ (2,251)
========= ========= ========== ========= ======== ========= ==========
See accompanying notes to consolidated financial statements.
19
20
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
TransAct Technologies Incorporated ("TransAct" or the "Company") was
incorporated on June 17, 1996, as a wholly-owned subsidiary of Tridex
Corporation ("Tridex"). Following the incorporation, TransAct and two of
Tridex's wholly-owned subsidiaries, Magnetec Corporation ("Magnetec") and
Ithaca Peripherals Incorporated ("Ithaca"), entered into a Plan of
Reorganization (the "Plan of Reorganization"), pursuant to which: (i)
Ithaca merged into Magnetec; (ii) TransAct transferred to Tridex certain
assets of Magnetec used in manufacturing a printer ribbon product line;
(iii) TransAct issued 5,400,000 shares of its common stock to Tridex in
exchange for all the outstanding shares of Magnetec; (iv) TransAct sold in
an initial public offering (the "Offering") 1,322,500 shares or
approximately 19.7% of its common stock; (v) TransAct repaid $8,500,000 of
intercompany indebtedness to Tridex; (vi) Tridex applied to the Internal
Revenue Service (the "IRS") for a ruling that the distribution of the
5,400,000 shares of TransAct owned by Tridex to Tridex stockholders (the
"Distribution") would constitute a tax-free reorganization for federal
income tax purposes; and (vii) Tridex agreed to effect the Distribution
promptly after receipt of a favorable ruling from the IRS and the
satisfaction of certain other conditions.
On February 12, 1997, Tridex received a favorable ruling from the IRS
confirming the tax-free nature of the Distribution. On March 31, 1997
Tridex distributed its 5,400,000 shares, or 80.3% of TransAct's common
stock, pro rata to persons who were Tridex stockholders of record on March
14, 1997, on the basis of approximately one share of TransAct for each
share of Tridex. Upon completion of the Distribution, Tridex no longer
owned any shares of TransAct capital stock.
The financial statements of the Company have been prepared principally
on the basis of items (i) and (ii) of the Plan of Reorganization outlined
above and include the financial position and consolidated (combined prior
to the implementation of the Plan of Reorganization) results of operations
and cash flows of the business described. The term consolidated as used
herein refers to both the consolidated and combined financial statements.
The Company carries its assets and liabilities at historical cost. The
financial results in these financial statements are not necessarily
indicative of results that would have occurred if the Company had been a
separate stand alone entity during the periods presented or of future
results of the Company.
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRODUCTS: TransAct, through its two operations, one in
Wallingford, CT and the other in Ithaca, NY, operates in one industry
segment, printers and printer peripheral products. TransAct designs,
develops, manufactures and markets transaction based printers and related
products under the ITHACA and MAGNETEC brand names. The Company's printers
are used to provide transaction records such as receipts, tickets, coupons,
register journals and other documents. The Company focuses on four vertical
markets: point-of-sale ("POS") (from which the Company derived
approximately 40% of net sales for the year ended December 31, 1997);
gaming and lottery (approximately 40% of net sales); kiosk (approximately
11% of net sales); and financial services (approximately 9% of net sales).
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 manufactures and sells customizable and custom dot matrix and
thermal printers for applications requiring up to 60 character columns in
each of its four vertical markets. The Company also sells an 80 column
laser printer for kiosk applications. The Company's customizable products
include several series of printers which offer customers the ability to
choose from a variety of features and functions. Options typically include
paper cutting devices, paper handling capacities and number of print
stations. In addition to its customizable printers, TransAct manufactures
custom printers for certain OEM customers. In collaboration with these
customers, the Company provides engineering and manufacturing expertise for
the design and development of specialized printers.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, after elimination of all material intercompany accounts and
transactions.
CHANGE IN FISCAL YEAR END: In December 1995, the Company's fiscal year
end was changed to December 31 from the Saturday closest to March 31.
20
21
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments purchased with an initial maturity of three months or less to
be cash equivalents.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
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. The
aggregate effect of translation adjustments so calculated for periods prior
to the Offering, which would be ordinarily included as a separate component
of shareholders' equity, is de minimis. Transaction gains and losses are
included in other income.
INVENTORIES: Inventories are stated at the lower of cost (principally
standard cost which approximates actual cost on a first-in, first-out
basis) or market.
PLANT AND EQUIPMENT AND DEPRECIATION: Plant and equipment and leasehold
improvements are stated at cost. Depreciation is provided for primarily by
the straight-line method over the estimated useful lives. The estimated
useful life of machinery, furniture and equipment is three to ten years.
Leasehold improvements are amortized over the shorter of the term of the
lease or the useful life of the asset. Depreciation amounted to $1,227,000,
$905,000 and $521,000 in the year ended December 31, 1997, December 31,
1996 and the nine months ended December 31, 1995, respectively.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: The excess of
cost over fair value of net assets acquired (goodwill) resulted from the
acquisition of Ithaca in 1991. The original amount applicable to this
acquisition totaled $3,536,000 and is being amortized on the straight line
method over 20 years. Accumulated amortization of goodwill was $1,463,000
and $1,290,000 at December 31, 1997 and December 31, 1996, respectively.
The Company periodically reviews goodwill to assess recoverability based
upon expectations of non-discounted cash flows from operations for Ithaca.
The Company believes that no impairment of goodwill exists at December 31,
1997.
REVENUE RECOGNITION: Sales are recognized when the product is shipped.
Revenue from extended warranty and maintenance agreements is recognized
over the term of such agreements as services are performed. Sales to one
customer accounted for approximately 29%, 16% and 12% of net sales for the
year ended December 31, 1997, December 31, 1996 and the nine months ended
December 31, 1995, respectively.
INCOME TAXES: Through the date of the Distribution, the Company was
included in the consolidated federal and certain state income tax returns
of Tridex. The income tax amounts reflected in the accompanying financial
statements are accounted for under the liability method in accordance with
FAS 109 "Accounting for Income Taxes," and for the periods presented
through the date of the Distribution are an allocation of Tridex's
consolidated balances, and are computed as if a separate return had been
filed for the Company, using those elements of income and expense as
reported in the consolidated statements of income. Subsequent to the
Distribution, the Company will file federal and state income tax returns
separately from Tridex. See Note 13.
EARNINGS PER SHARE: TransAct adopted FAS 128 "Earnings per Share,"
effective December 15, 1997, which requires the dual presentation of basic
and diluted earnings per share for complex capital structures. In
accordance with FAS 128, earnings per share presented in the accompanying
financial statements for periods prior to adoption have been restated. For
the year ended December 31, 1996, December 31, 1995 (unaudited), the nine
months ended December 31, 1995 and the nine months ended December 31, 1994
(unaudited), pro forma basic and diluted earnings per share are based on
the weighted average number of shares outstanding during the period, as if
all shares issued to Tridex prior to the Offering had been outstanding
throughout these periods.
21
22
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. Under APB 25, because the exercise price of employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recorded. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). See Note
11.
3. RELATED PARTY TRANSACTIONS
Prior to the Offering, the Company participated in Tridex's centralized
cash management system. While under this system, cash deposits from the
Company were transferred to Tridex and Tridex funded the Company's
disbursement bank accounts as required. In August 1996, the Company ceased
to participate in the Tridex cash management system.
Prior to the Offering, Tridex provided certain general and
administrative services to the Company, including tax, treasury, risk
management and insurance, legal, marketing, accounting, auditing, human
resources and executive management. For periods prior to the Offering,
these expenses were allocated to the Company based upon actual usage for
those expenses directly attributable to the Company, and otherwise
allocated based upon other methods which management believes to be
reasonable. These allocations were $869,000 and $1,203,000 for the year
ended December 31, 1996 and the nine months ended December 31, 1995,
respectively. These costs may have been different had the Company operated
as a separate stand-alone entity during the periods presented.
Included as a component of Tridex investment in the Company are net
cash advances from Tridex to the Company and general and administrative
expenses allocated from Tridex to the Company. No interest expense on net
advances from Tridex has been reflected in the accompanying financial
statements.
On July 31, 1996, the Company entered into a Corporate Services
Agreement with Tridex. Under the terms of this agreement, Tridex agreed to
provide the Company with certain services, including employee benefit
administration, human resource and related services, administrative
services, risk management, regulatory compliance, preparation of tax
returns and certain financial and other services. Such services were
provided and reimbursed at actual cost, which amounted to approximately
$96,000 and $91,000 for the year ended December 31, 1997 and December 31,
1996, respectively. Certain services ceased to be provided after March 31,
1997. Also, pursuant to the terms of the agreement, Tridex agreed to pay
15% of the direct employment costs of the Company's chief financial officer
through March 31, 1997, which amounted to approximately $7,000 and $8,000
for the year ended December 31, 1997 and December 31, 1996, respectively.
The Corporate Services Agreement expired on December 31, 1997.
On July 31, 1996, the Company entered into a Tax Sharing Agreement with
Tridex. The agreement provides for the treatment of certain tax attributes
of the Company including the method of allocating tax obligations,
treatment of tax carryforwards and the computation of income tax provisions
for the Company between the date of the Offering and the Distribution. In
addition, tax benefits related to certain tax carryforwards arising prior
to the Distribution will be paid to Tridex as the carryforwards are
utilized. For the year ended December 31, 1997 and December 31, 1996, the
Company paid, net of refunds from Tridex, approximately $410,000 and
$527,000, respectively, to Tridex pursuant to the agreement.
The Company and Tridex also entered into an Asset Transfer Agreement
dated July 31, 1996, under which the Company agreed to transfer to Tridex
certain assets used in the manufacturing process of the printer ribbon
product line. Additionally, on September 28, 1996, the Company and Tridex
entered into a Manufacturing Support Services Agreement. Under this
agreement, the Company agrees to provide Tridex with space within its
Wallingford, CT manufacturing facility and certain support services for the
ribbon business through September 28, 1998. Tridex agrees to pay the
Company a monthly fee calculated to compensate the Company for the direct
and indirect costs incurred by the Company to provide the space and render
such services. These fees amounted to approximately $254,000 and $67,000
during the year ended December 31, 1997 and December 31, 1996,
respectively. The Company also purchased approximately $4,000 and $5,000 of
ribbons from Tridex during the same periods.
22
23
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company sells certain POS printers to a wholly-owned subsidiary of
Tridex. Revenues from the sale of such printers amounted to $2,675,000,
$3,178,000 and $2,340,000 for the year ended December 31, 1997, the year
ended December 31, 1996 and the nine months ended December 31, 1995,
respectively. On July 30, 1996, the Company entered into a Printer Supply
Agreement which will require the subsidiary, in consideration for continued
favorable price terms, to purchase from the Company at least three quarters
of its total POS printer requirements through December 31, 1999.
On April 1, 1997, the Company established the TransAct Technologies
Retirement Savings Plan (the "Plan"), a defined contribution plan under
Section 401(k) of the Internal Revenue Code. Prior to the Distribution, the
Company's employees participated in the Tridex Corporation Retirement
Savings Plan. All full-time employees are eligible to participate in the
Plan at the beginning of the calendar quarter immediately following their
date of hire. The Company matches employees' contributions at a rate of
37.5% of employees' contributions up to the first 4% of the employees'
compensation contributed to the Plan. The Company's matching contributions
were $101,000, $80,000 and $51,000 in the year ended December 31, 1997,
December 31, 1996 and the nine months ended December 31, 1995,
respectively, and are included in general and administrative expense.
Effective January 1, 1998, the Company increased its rate of matching
contributions to 50% of the employees' contributions up to the first 4% of
the employees' compensation contributed to the Plan.
4. RECEIVABLES
Receivables are net of the allowance for doubtful accounts. The
reconciliation of the allowance for doubtful accounts is as follows:
Year Ended Nine Months
----------------------------- Ended
December 31, December 31, December 31,
(In thousands) 1997 1996 1995
------ ------ ------
Balance at beginning of period $ 106 $ 40 $ 76
Provision for doubtful accounts 18 66 12
Accounts written off, net of recoveries (22) - (48)
------ ------ ------
Balance at end of period $ 102 $ 106 $ 40
====== ====== ======
5. INVENTORIES
The components of inventories are:
December 31, December 31,
(In thousands) 1997 1996
-------- --------
Raw materials and component parts $ 7,482 $ 5,828
Work-in-process 588 810
Finished goods 500 732
-------- --------
$ 8,570 $ 7,370
======== ========
23
24
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PLANT AND EQUIPMENT
The components of plant and equipment, net are:
December 31, December 31,
(In thousands) 1997 1996
------- --------
Machinery and equipment $ 8,399 $ 6,798
Furniture, office and computer equipment 2,545 2,276
Leasehold improvements 339 276
------- --------
11,283 9,350
Less: accumulated depreciation (6,294) (5,386)
------- --------
$ 4,989 $ 3,964
======= ========
7. ACCRUED LIABILITIES
The components of accrued liabilities are:
December 31, December 31,
(In thousands) 1997 1996
------- --------
Payroll and fringe benefits $ 1,225 $ 931
Income taxes payable 415 330
Customer advances, deferred revenue and
warranty 436 324
Due to Tridex 24 103
Other 680 724
------- --------
$ 2,780 $ 2,412
======= =======
8. TRIDEX INVESTMENT IN THE COMPANY
Tridex investment in the Company includes the original investment in
the Company and the net intercompany payable from the Company to Tridex
reflecting transactions described in Note 3. The following analyzes Tridex's
investment in the Company for the periods presented. The amounts presented
below for the year ended December 31, 1996 reflect activity through the
Offering date, August 22, 1996.
Nine Months
Year Ended Ended
December 31, December 31,
(In thousands) 1996 1995
-------- --------
Balance at beginning of the period $ 11,645 $ 11,280
Net income 2,171 916
Net transactions with Tridex:
Allocation of general and administrative
expenses from Tridex (869) (1,203)
Sales to affiliates 1,998 2,340
Net transfers to Tridex (2,216) (1,688)
Reclassification of note payable to Tridex (8,500) --
Issuance of shares to Tridex in exchange
for all outstanding shares of Magnetec (4,229) --
-------- --------
Balance at end of the period $ -- $ 11,645
======== ========
24
25
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BANK CREDIT AGREEMENT
On August 29, 1996, the Company entered into an agreement with Fleet
National Bank ("Fleet") to provide the Company with a $5,000,000 revolving
credit facility (the "Credit Facility"). The Credit Facility bears interest
on outstanding borrowings at Fleet's prime rate (8.25% at December 31,
1997) and bears a commitment fee of 0.25% on any unused portion of the
Credit Facility. The Credit Facility also permits the Company to designate
a LIBOR rate on outstanding borrowings with a margin of 1.5 percentage
points over the market rate. The Credit Facility is secured by a lien on
substantially all of the assets of the Company, imposes certain financial
covenants and restricts the payment of cash dividends. The Company had
borrowings of $1,500,000 under the Credit Facility during the year ended
December 31, 1997 and none during the year ended December 31, 1996. The
Company had $300,000 of borrowings outstanding at December 31, 1997.
On January 29, 1998, the Company replaced its existing $5,000,000
Credit Facility with a new $15,000,000 facility (the "New Credit
Facility"). The New Credit Facility, also with Fleet, provides the Company
with a $5,000,000 revolving working capital facility, and a $10,000,000
revolving credit facility that may be used for activities such as
acquisitions and repurchases of the Company's common stock. Borrowings
under the $10,000,000 revolving credit facility may, at the Company's
election, be converted to a four-year term loan commencing on June 30,
1999, the expiration date of the New Credit Facility. Any term loan
borrowings mature on June 30, 2003. Borrowings under the New Credit
Facility bear interest at Fleet's prime rate and bear a commitment fee
ranging from 0.25% to 0.50% on any unused portion of the New Credit
Facility. The New Credit Facility also permits the Company to designate a
LIBOR rate on outstanding borrowings with a margin ranging from 1.25 to
1.75 percentage points over the market rate, depending on the Company
meeting certain ratios. The New Credit Facility is secured by a lien on
substantially all of the assets of the Company, imposes certain financial
covenants and restricts the payment of cash dividends and the creation of
liens.
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, 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
$713,000, $682,000 and $532,000 in the year ended December 31, 1997,
December 31, 1996 and the nine months ended December 31, 1995,
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, 1997 are as follows: $836,000 in 1998;
$864,000 in 1999; $842,000 in 2000; $826,000 in 2001; $806,000 in 2002 and
$4,516,000 thereafter.
The Company has a long-term purchase agreement for certain printer
components. Under the terms of the agreement, the Company receives
favorable pricing for volume purchases over the life of the contract. In
the event anticipated purchase levels are not achieved, the Company would
be subject to retroactive price increases on previous purchases. Management
currently anticipates achieving sufficient purchase levels to maintain the
favorable prices.
In conjunction with the Plan of Reorganization, as described in Note 1,
Tridex indemnified the Company from any liabilities, including
environmental liabilities, which could arise in connection with a
manufacturing facility owned by Tridex and formerly operated by the
Company.
25
26
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS. On July 30, 1996, the Company adopted the 1996 Stock
Plan which provides for the grant of awards to officers and other key
employees of the Company, and the Directors' Stock Plan which provides for
non-discretionary awards to non-employee directors. The plans provide for
awards in the form of: (i) incentive stock options, (ii) non-qualified
stock options, (iii) shares of restricted stock, (iv) restricted units, (v)
stock appreciation rights or (vi) limited stock appreciation rights.
Options granted are at prices equal to 100% of the fair market value of the
common stock at the date of grant. Options granted have a ten-year term and
vest over a five-year period, unless automatically accelerated. At December
31, 1997, the Company has reserved 660,000 shares of common stock for
issuance under the 1996 Stock Plan and Directors' Stock Plan.
The 1996 Stock Plan and Directors' Stock Plan option activity is
summarized below:
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------------------- ------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
----------- ------------ ---------- ------------
Outstanding at beginning of period 339,300 $ 8.50 - -
Granted 227,500 14.45 339,300 $ 8.50
Exercised 9,000 8.50 - -
Canceled 15,200 10.04 - -
----------- ------------ ---------- ------------
Outstanding at end of period 542,600 10.97 339,300 8.50
=========== ============ ========== ============
Options exercisable at end of period 57,060 $ 8.50 - $ -
----------- ------------ ---------- ------------
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.
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------------
Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average
December 31, Exercise Price Remaining December 31, Exercise Price
Range of Exercise Prices 1997 Contractual Life 1997
-------------- --------------- ---------------- -------------- ----------------
(In years)
$ 7.50 - $10.00 318,100 $ 8.50 8.4 57,060 $8.50
10.01 - 12.50 15,500 11.75 9.4 - -
12.51 - 15.00 134,000 13.73 9.0 - -
15.01 - 17.50 75,000 16.33 9.6 - -
26
27
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
Had compensation expense been recognized based on the fair value of the
options at their grant dates, as prescribed in FAS 123, the Company's net
income and net income per share would have been as follows:
Year Ended
-----------------------------------
December 31, December 31,
(In thousands, except per share data) 1997 1996
------------- ------------
Net income:
As reported $ 4,893 $ 3,340
Pro forma under FAS 123 4,422 3,248
Net income per share:
Basic:
As reported 0.72 0.57
Pro forma under FAS 123 0.65 0.55
Diluted:
As reported 0.71 0.57
Pro forma under FAS 123 0.64 0.55
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, 1997 and 1996.
Year Ended
----------------------------
December 31, December 31,
1997 1996
------------ ------------
Risk-free interest rate 6.400% 5.062%
Dividend yield 0% 0%
Expected volatility factor 0.600 0.595
Expected option term 10 years 10 years
Weighted average fair value of options granted during period $ 10.97 $ 6.25
RESTRICTED STOCK: Under the 1996 Stock Plan, in 1997 the Company
granted 78,800 shares of restricted common stock to its Chairman of the
Board, officers and certain key employees. Restricted stock totaling 49,800
shares vest over a five-year period, while 29,000 shares vest at the end of
a five-year period. Under certain conditions vesting may be automatically
accelerated. Upon issuance of the restricted stock, unearned compensation
equivalent to the market value at the date of grant is charged to
stockholders' equity and subsequently amortized over the vesting period.
Amortization expense of $124,000 was recorded during 1997.
WARRANTS: On August 22, 1996, the Company sold to the underwriters of
the Offering, for nominal consideration, a warrant to purchase from the
Company up to 115,000 shares of common stock at an exercise price of $10.20
per share. The warrant is exercisable for a period of five years beginning
April 1, 1998. No warrants were exercisable at December 31, 1997.
12. STOCKHOLDER RIGHTS PLAN
In December 1997, the Board of Directors adopted a stockholder rights
plan declaring a distribution of one right (the "Rights") for each
outstanding share of the Company's common stock to shareholders of record
at December 15, 1997. Initially, each of the Rights will entitle the
registered holder to purchase from the Company one one-thousandth of a
share of Series A Preferred Stock, $0.01 par value, at a price of $69 per
one one-thousandth of a share. The Rights, however, will not become
exercisable unless and until, among other things, any person or group of
affiliated persons acquires beneficial ownership of 15 percent or more of
the then outstanding shares of the Company's Common Stock. If a person, or
group of persons, acquires 15 percent or more of the outstanding Common
Stock of the Company (subject to certain conditions and exceptions more
fully described in the Rights Agreement), each Right will entitle the
holder (other than the person, or group of persons, who acquired 15 percent
or more of the outstanding Common Stock) to purchase Preferred Stock of the
Company having a market value equal to twice the exercise price of the
Right. The Rights are redeemable, under certain circumstances, for $0.0001
per Right and will expire, unless earlier redeemed, on December 2, 2007.
27
28
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES
The components of the income tax provision are as follows:
Year Ended Nine Months
-------------------------------- Ended
December 31, December 31, December 31,
(In thousands) 1997 1996 1995
------------ ------------ ------------
Current:
Federal $ 2,461 $ 1,934 $ 476
State 525 336 90
------------ ------------ ------------
2,986 2,270 566
------------ ------------ ------------
Deferred:
Federal (46) (73) 73
State (5) (9) 9
------------ ------------ ------------
(51) (82) 82
------------ ------------ ------------
Total income tax provision $ 2,935 $ 2,188 $ 648
=========== ============ ============
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. The Company's gross deferred tax assets and liabilities were
comprised of the following:
December 31, December 31,
(In thousands) 1997 1996
------------ ------------
Gross deferred tax assets:
Liabilities and reserves $ 710 $ 586
======== ========
Gross deferred tax liabilities:
Depreciation $ 363 $ 290
======== ========
At December 31, 1997 and 1996, the Company had foreign net operating
loss carryforwards of approximately $21,000 and $152,000, respectively,
which do not expire. A valuation allowance was recorded with respect to the
foreign net operating loss carryforwards at December 31, 1996.
Differences between the U.S. statutory federal income tax rate and the
Company's effective income tax rate are analyzed below:
Year Ended Nine Months
-------------------------------- Ended
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income taxes 4.4 4.0 4.4
Non-deductible purchase accounting adjustments 0.9 1.1 2.8
Tax benefit from foreign sales corporation (1.0) - -
Other (0.8) 0.5 0.2
------------ ------------ ------------
Effective tax rate 37.5% 39.6% 41.4%
============ ============ ============
28
29
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. DISCLOSURE REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of trade accounts receivable, other current assets,
trade accounts payable, accrued expenses and bank loans approximate fair
value because of the short maturity of those instruments.
15. SIGNIFICANT TRANSACTIONS
On August 22, 1996, the Company sold 1,150,000 shares of its common
stock at a price of $8.50 per share in the Offering. On September 18, 1996,
the Company sold an additional 172,500 shares upon exercise of the
underwriters' over-allotment option. Net proceeds from the Offering
(including the exercise of the Underwriters' over-allotment option) were
approximately $8,991,000, after payment of approximately $2,250,000 of
Offering expenses.
Concurrent with the Offering, the Company repaid $7,500,000 of a total
of $8,500,000 of intercompany indebtedness to Tridex and issued a
$1,000,000 subordinated promissory note to Tridex. The note was due on
March 31, 1998 and bore interest, payable monthly in arrears, at the rate
paid by Tridex under its revolving credit facility. On February 14, 1997,
the Company repaid the note, plus accrued interest, to Tridex.
In December 1995, the operations of Magnetec and Ithaca were combined
under unified management. In connection with this combination, the Company
recorded a provision for restructuring costs of $300,000, which covers the
costs associated with combining operations under unified management and is
primarily comprised of severance costs.
In 1994 the Company sold its solenoid product line. Proceeds from the
sale were cash and shares of common stock of the purchaser ("marketable
securities"). During the nine months ended December 31, 1994 (unaudited),
the Company recognized a gain of $115,000 as the result of a contingent
payment received from the purchaser. In addition, during the year ended
December 31, 1996, the Company sold the remainder of the marketable
securities and recognized a gain of $285,000. These gains are included in
other income.
16. INTERNATIONAL OPERATIONS
The Company has foreign operations primarily from Ithaca Peripherals
Ltd., a wholly-owned subsidiary, which had sales to its customers of
$4,204,000, $397,000 and $332,000 in the year ended December 31, 1997,
December 31, 1996 and the nine months ended December 31, 1995,
respectively. The Company had export sales to its customers from the United
States of approximately $5,618,000 in the year ended December 31, 1997,
$1,622,000 in the year ended December 31, 1996 and $1,211,000 in the nine
months ended December 31, 1995.
29
30
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's quarterly results of operations for the years ended
December 31, 1997 and 1996 (unaudited) are as follows:
Quarter Ended
---------------------------------------------------------------
(In thousands, except per share amounts) March 29 June 28 September 27 December 31
-------------- -------------- -------------- ---------------
1997:
Net sales $ 14,014 $ 15,569 $ 16,040 $ 12,777
Gross profit 4,352 4,963 5,065 3,793
Net income 1,087 1,360 1,582 864
Net income per share:
Basic 0.16 0.20 0.23 0.13
Diluted 0.16 0.20 0.23 0.12
March 30 June 29 September 28 December 31
-------------- -------------- -------------- ---------------
1996:
Net sales $ 10,463 $ 9,762 $ 10,794 $ 11,115
Gross profit 3,479 3,328 3,655 3,471
Net income 865 868 927 680
Net income per share:
Basic 0.16 0.16 0.16 0.10
Diluted 0.16 0.16 0.16 0.10
18. SUBSEQUENT EVENTS
As of February 9, 1998 the Company had purchased an additional 164,500
shares of its common stock on the open market for approximately $1,841,000.
30
31
\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 7, 1998 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" of the Proxy
Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in "Security Ownership of Certain Beneficial
Owners and Management" of the Proxy Statement is hereby incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in "Certain Relationships and Related
Transactions" of the Proxy Statement is hereby incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART OF
THIS REPORT:
(i) Financial statements
See Item 8.
(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.
31
32
(iii) List of exhibits
3.1(a) Certificate of Incorporation of the Company, filed with the Secretary of State of (2)
Delaware on June 17, 1996.
3.1(b) Certificate of Amendment of Certificate of Incorporation of the Company, filed with (1)
the Secretary of State of Delaware on May 30, 1997.
3.2 By-laws of the Company. (2)
4.1 Specimen Common Stock Certificate. (2)
4.2 See Exhibits 3.1 and 3.2 for provisions in the Certificate of Incorporation and (2)
By-laws of the Company defining the rights of the holders of common stock.
4.3 Form of Rights Agreement dated as of December 2, 1997, between TransAct and American (5)
Stock Transfer & Trust Company.
10.1 Plan of Reorganization dated as of June 24, 1996 among Tridex, Magnetec, TransAct (2)
and Ithaca.
10.2 Amendment to Plan of Reorganization dated as of August 30, 1996 among Tridex, (3)
Magnetec, TransAct and Ithaca.
10.3 Agreement and Plan of Merger dated as of July 16, 1996 between Magnetec and Ithaca. (2)
10.4 Asset Transfer Agreement dated as of July 31, 1996 between Magnetec and Tridex. (2)
10.5 Manufacturing Support Services Agreement between Magnetec and Tridex, dated as of (3)
September 28, 1996.
10.6 Corporate Services Agreement dated as of July 30, 1996 between Tridex and TransAct. (3)
10.7 Printer Supply Agreement dated as of July 31, 1996 between Magnetec and Ultimate (2)
Technology Corporation.
10.8 Tax Sharing Agreement dated as of July 31, 1996 between Tridex and TransAct. (3)
10.9 Credit Agreement dated as of August 29, 1996 among TransAct, Magnetec and Fleet (3)
National Bank.
10.10 Purchase Agreement dated as of October 17, 1996 between ICL Pathway Limited, Ithaca (3)
Peripherals Limited and Transact. (Pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Company has requested
confidential treatment of portions of this exhibit deleted from the filed copy.)
10.11(x) 1996 Stock Plan, effective July 30, 1996. (3)
10.12(x) Non-Employee Directors' Stock Plan, effective August 22, 1996. (3)
10.13 Sales and Marketing Agreement by and between the Company and Oki Europe Limited, (2)
dated May 9, 1996. (Pursuant to Rule 477 under the Securities Act of 1993, as
amended (the "Securities Act"), the Company has requested confidential treatment of
portions of this exhibit deleted from the filed copy.)
10.14 OEM Purchase Agreement by and between GTECH, TransAct and Magnetec, commencing (4)
October 1, 1996. (Pursuant to Rule 24b-2 under the Exchange Act, the Company has
requested confidential treatment of portions of this exhibit deleted from the filed
copy.)
10.15 OEM Purchase Agreement by and between OKIDATA and Tridex, dated January 21, 1991. (2)
(Pursuant to Rule 477 under the Securities Act, the Company has requested
confidential treatment of portions of this exhibit deleted from the filed copy.)
10.16 Strategic Agreement by and between OKIDATA and Tridex, dated May 9, 1996. (Pursuant (2)
to Rule 477 under the Securities Act, the Company has requested confidential
treatment of portions of this exhibit deleted from the filed copy.)
32
33
Page
Number
10.17 Lease Agreement by and between Pyramid Construction Company and Magnetec, dated (2)
August 1, 1994.
10.18 Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23, (2)
1992.
10.19 First Amendment to Lease Agreement by and between Bomax Properties and Ithaca, dated (2)
as of October 18, 1993.
10.20(x) Employment Agreement, dated July 31, 1996, by and between the Company and Bart C. (2)
Shuldman.
10.21(x) Employment Agreement, dated July 31, 1996, by and between the Company and Richard L. (2)
Cote.
10.22(x) Severance Agreement by and between TransAct and Lucy H. Staley, dated September 4, (3)
1996
10.23(x) Severance Agreement by and between TransAct and John Cygielnik, dated September 10, (3)
1996.
10.24(x) Severance Agreement by and between TransAct and Michael S. Kumpf, dated September 4, (3)
1996.
10.25(x) Severance Agreement by and between TransAct and David A. Ritchie, dated July 1, 1997. (1)
10.26 Credit Agreement dated as of January 29, 1998 among TransAct, Magnetec and Fleet (1)
National Bank.
10.27 Second Amendment to Lease Agreement by and between Bomax Properties and Ithaca, dated (1)
December 2, 1996.
10.28 Lease Agreement by and between Pyramid Construction Company and Magnetec, dated (1)
July 30, 1997.
10.29 Amendment to OEM Purchase Agreement by and between Okidata and Tridex, dated
May 31, 1996. (Pursuant to Rule 24b-2 under the Exchange Act, the Company has
requested confidential treatment of portions of this exhibit deleted from the filed
copy.) (1)
11.1 Computation of earnings per share. (1)
21.1 Subsidiaries of the Company. (1)
27.1 Financial Data Schedule. (1)
(1) These exhibits are filed herewith.
(2) These exhibits, which were previously filed with the Company's Registration
Statement on Form S-1 (No. 333-06895), are incorporated by reference.
(3) These exhibits, which were previously filed with the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996, are incorporated by reference.
(4) This exhibit, which was previously filed with the Company's Current Report on Form
8-K filed October 11, 1996, is incorporated by reference.
(5) This exhibit, which was previously filed with Amendment No. 1 to the Company's
Current Report on Form 8-K filed December 12, 1997, 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.
On December 2, 1997, the Company filed a report on Form 8-K to
report under Item 5, "Other Events", and Item 7, "Exhibits", the adoption
of a Stockholder Rights Plan. An amendment to the Form 8-K was filed on
December 12, 1997.
33
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRANSACT TECHNOLOGIES INCORPORATED
By: /s/ Bart C. Shuldman
-----------------------------------
Bart C. Shuldman
President, Chief Executive Officer
and Director
Date: March 27, 1998
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Bart C. Shuldman President, Chief Executive Officer and March 27, 1998
- ------------------------------------ Director
Bart C. Shuldman (Principal Executive Officer)
/s/ Richard L. Cote Executive Vice President, Chief Financial March 27, 1998
- ------------------------------------ Officer, Treasurer, Secretary and Director
Richard L. Cote (Principal Financial Officer)
/s/ Steven A. DeMartino Corporate Controller March 27, 1998
- ------------------------------------ (Principal Accounting Officer)
Steven A. DeMartino
/s/ Thomas R. Schwarz Chairman of the Board and Director March 27, 1998
- ------------------------------------
Thomas R. Schwarz
/s/ Graham Y. Tanaka Director March 27, 1998
- ------------------------------------
Graham Y. Tanaka
/s/ Charles A. Dill Director March 27, 1998
- ------------------------------------
Charles A. Dill
34
35
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
- -------
3.1(b) Certificate of Amendment of Certificate of Incorporation of the Company, filed with
the Secretary of State of Delaware on May 30, 1997.
10.25(x) Severance Agreement by and between TransAct and David A. Ritchie, dated July 1,
1997.
10.26 Credit Agreement dated as of January 29, 1998 among TransAct, Magnetec and Fleet
National Bank.
10.27 Second Amendment to Lease Agreement by and between Bomax Properties and
Ithaca, dated December 2, 1996.
10.28 Lease Agreement by and between Pyramid Construction Company and Magnetec,
dated July 30, 1997.
10.29 Amendment to OEM Purchase Agreement by and between Okidata and Tridex, dated
May 31, 1996. (Pursuant to Rule 24b-2 under the Exchange Act, the Company has
requested confidential treatment of portions of this exhibit deleted from the
filed copy.)
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule.