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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
__________________________________
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________ to ____________________.
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
- ---------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
7 LASER LANE, WALLINGFORD, CT 06492
- ---------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including 203-269-1198
area code --------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
As of June 28, 2002 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$24,800,000.
As of March 14, 2003, the registrant had outstanding 5,715,119 shares of common
stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Shareholders to be held on May 20,
2003 - Part III (Items 10-13).
PART I
GENERAL
TransAct Technologies Incorporated ("TransAct" or the "Company")
designs, develops, manufactures and markets transaction-based printers under the
Ithaca(R) and Magnetec(R) brand names. In addition, the Company markets related
consumables, spare parts and service. The Company's printers are used worldwide
to provide transaction records such as receipts, tickets, coupons, register
journals and other documents. The Company focuses on two core markets:
point-of-sale ("POS") and gaming and lottery. TransAct sells its products
directly to original equipment manufacturers ("OEMs"), value-added resellers
("VARs"), selected distributors and directly to end-users. The Company's product
distribution spans across the Americas, Europe, the Middle East, Africa, the
Caribbean Islands and the South Pacific. TransAct has one primary operating
facility located in Ithaca, New York, five sales offices located in the United
States, and one sales office and service depot in the United Kingdom. TransAct's
executive offices are located at 7 Laser Lane, Wallingford, CT 06492 with a
telephone number of (203) 269-1198.
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS
TransAct was incorporated in June 1996 and began operating as a
stand-alone business in August 1996 to operate the printer business that was
formerly conducted by certain subsidiaries of Tridex Corporation. TransAct
completed an initial public offering on August 22, 1996.
In February 2001, the Company announced plans to establish a global
engineering and manufacturing center at its Ithaca, NY facility. As part of this
strategic decision, the Company undertook a plan to consolidate all
manufacturing and engineering into its existing Ithaca, NY facility and close
its Wallingford, CT facility (the "Consolidation"). The Company's technology
shift to inkjet and thermal printing from dot matrix impact printing has
dramatically reduced the labor content in its printers, and therefore, lowers
the required production capacity. As of December 31, 2001, substantially all
Wallingford product lines were successfully transferred to Ithaca, NY. The
Company maintains a small component production line and service depot in
Wallingford. The closing of the Wallingford facility resulted in the termination
of employment of approximately 70 production, administrative and management
employees.
As a result of the Consolidation, the Company improved its gross margin
and significantly reduced its operating expenses in 2002 compared to 2001, and
lowered its operating income breakeven point from $54 million to $42 million in
revenues. Management believes this will provide additional operating leverage in
2003.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
TransAct has assessed its operating and reportable segments and has
determined that it operates in one reportable segment, the design, development,
manufacture and marketing of transaction-based printers and printer-related
products.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
TransAct designs, develops, manufactures and markets a broad array of
transaction-based printers utilizing inkjet, thermal and impact printing
technology for applications requiring up to 60 character columns, primarily in
the POS and gaming and lottery markets. The Company's printers are configurable
and offer customers the ability to choose from a variety of features and
functions. Options typically include PC board configuration, paper cutting
devices, paper handling capacities and cabinetry color. In addition to its
configurable printers, TransAct manufactures custom printers for certain OEM
customers. In collaboration with these customers, the Company provides
engineering and manufacturing expertise for the design and development of
specialized printers. In addition, the Company offers inkjet cartridges, printer
ribbons, paper and replacement parts for all of its products.
The Company provides customers with telephone sales and technical
support, a personal account representative for orders, shipping and general
information and expedited shipping for orders of its configurable and custom
products. Technical and sales support personnel receive training in all of the
Company's products and services manufactured at their facility. The Company's
printers generally carry a one- or two-year limited warranty; extended
warranties are available for purchase on selected printers to supplement the
original warranty. Service contracts for the repair and maintenance of printers
beyond the original warranty period are also available for purchase.
(ii) STATUS OF PRODUCT REQUIRING MATERIAL INVESTMENT
None.
2
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal materials used in manufacturing are inkjet, thermal and
impact printheads, injection molded plastic parts, formed/stamped metal parts
and electronic components. Although the Company could experience temporary
disruption if certain suppliers ceased doing business with the Company, the
Company's requirements generally are available from a number of sources, except
as described below.
Okidata Americas, Inc. ("Okidata"), is the sole supplier for a printer
component kit consisting of a printhead, control board and carriage (the "Oki
Kit"), which is used in all of the Company's Ithaca(R) brand impact printers.
The loss of the supply of Oki Kits would have a material adverse effect on the
Company. TransAct has a supply agreement with Okidata to provide Oki Kits until
June 2003. Although prices under this agreement were fixed until March 2002, the
Company continues to purchase supplies at these prices. The Company and Okidata
are currently negotiating for future supplies and pricing.
Additionally, Hewlett-Packard Company ("HP") is the sole supplier of
inkjet cartridges that are used in all of the Company's inkjet printers. The
loss of the supply of HP inkjet cartridges would have a material adverse effect
on the sale of the Company's inkjet printers. TransAct has a supply agreement
with HP to purchase inkjet cartridges until February 1, 2004 at fixed prices.
TransAct believes its relations with Okidata and HP are good and has
received no indication that either of the supply agreements will not be renewed
beyond the respective expiration dates of the current contracts. TransAct cannot
be certain, however, that either of the supply agreements will be renewed, or if
renewed, that the terms will be as favorable as those under the current
contracts.
(iv) PATENTS AND PROPRIETARY INFORMATION
The Company has significantly expanded its patent portfolio over the
past two years, and expects to continue to do so in the future. The Company also
believes its patent portfolio will provide additional opportunities to license
its intellectual property in the future. The Company currently owns eight
patents, four of which it considers material. The earliest expiration date of
these eight patents is in 2008 with the latest expiration date in 2020. Of the
material patents, one patent covers methods and apparatus for allowing a
two-color printer to print images using single pass technology by printing
during both forward and reverse movement of the print mechanism; another patent
relates to TransAct's proprietary void and reprint receipt printing method which
is used in certain of the Company's slot machine printers; and two other patents
cover a method for converting a full color image into a two-color image, plus a
background color. The Company also has sought patent protection for certain
design features of 1) printers using inkjet technology, 2) POS printers using
thermal technology, and 3) thermal printers for use in casino slot machines. The
Company regards certain manufacturing processes and designs to be proprietary
and attempts to protect them through employee and third-party nondisclosure
agreements and similar means. It may be possible for unauthorized third parties
to copy certain portions of the Company's products or to reverse engineer or
otherwise obtain and use, to the Company's detriment, information that the
Company regards as proprietary. Moreover, the laws of some foreign countries do
not afford the same protection to the Company's proprietary rights as do United
States laws. There can be no assurance that legal protections relied upon by the
Company to protect its proprietary position will be adequate or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies.
(v), (vi)SEASONALITY AND PRACTICES RELATING TO WORKING CAPITAL ITEMS
Retailers typically reduce purchases of new POS equipment in the fourth
quarter, due to the increased volume of consumer transactions in that period,
and the Company's sales of printers in the POS market historically have
increased in the third quarter and decreased in the fourth quarter. However, the
Company has not experienced material seasonality in its total net sales, due to
offsetting sales in other markets.
(vii) CERTAIN CUSTOMERS
The Company has two OEM purchase agreements with GTECH Corporation
("GTECH"). The first OEM purchase agreement ("GTECH Impact Printer Agreement")
provides for the sale of impact on-line lottery printers and spare parts, at
prices to be negotiated, through December 31, 2004. The second OEM purchase
agreement ("GTECH Thermal Printer Agreement") provides for the sale of thermal
on-line lottery printers and spares parts, at a fixed prices, through June 28,
2007. Firm purchase orders for printers under either agreement may be placed
annually by GTECH. Pursuant to orders placed under the GTECH Impact Printer
Agreement during 2002, the Company has approximately $500,000 of impact printers
remaining to be shipped during the first quarter of 2003. The Company does not
expect any further shipments of impact on-line lottery printers in 2003 beyond
the first quarter. Additionally, pursuant to the GTECH Thermal Printer
Agreement, the Company has received an initial order for approximately
$4,300,000 worth of thermal printers for delivery in 2003, beginning in the
second quarter. The Company also sells printers to GTECH for use in lottery
terminals at grocery store check-out lanes ("in-lane lottery printers"). Sales
of in-lane lottery printes are project-oriented, and, as such, the Company
cannot predict if
3
and when future sales may occur. Sales to GTECH accounted for approximately 27%,
33% and 22% of net sales in 2002, 2001 and 2000, respectively.
The Company also provides printers to ICL Pathway for use in the
British Post Office. During 2000, sales to ICL Pathway accounted for
approximately 20% of net sales. The Company completed shipping printers to ICL
Pathway for use in the British Post Office in February 2001, and no further
shipments are expected.
(viii) BACKLOG
The Company's backlog of firm orders was approximately $7,628,000 as of
March 14, 2003 and $8,700,000 as of March 25, 2002, including approximately
$4,300,000 and $6,600,000 to GTECH, respectively. Based on customers' current
delivery requirements, TransAct expects to fill its entire current backlog
during 2003.
(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, economic and political conditions and, in some cases, the uniqueness of
its products.
In the POS market, the Company's major competitors are, Epson America,
Inc., Axiohm Transaction Solutions, Star Micronics America, Inc., Citizen -- CBM
America Corporation, and Korean Printer Solutions (a spin-off company from
Samsung). Together, these competitors comprise approximately 80% of the POS
market segments into which the Company sells. Certain competitors of the Company
have greater financial resources, lower costs attributable to higher volume
production and off-shore manufacturing locations, and offer lower prices than
the Company from time to time.
In the lottery market (consisting principally of on-line lottery
transaction printing), the Company holds a leading position, based largely on
its long-term purchase agreements with GTECH, which controls approximately 70%
of the worldwide on-line lottery market. The Company competes in this market
based solely on its ability to provide specialized, custom-engineered products
to GTECH.
In the gaming market (consisting principally of video lottery terminals
and slot machine transaction printing), the Company and its major competitor,
Seiko Instruments Inc. (an affiliate of Seiko Epson Corporation), comprise a
substantial portion of the market. The Company also competes, to a lesser
extent, with JCM American Corporation and Money Controls, a division of Coin
Acceptors, Inc. (Coinco). Certain of the Company's products sold for gaming
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, take advantage of strategic relationships, and to lower
product costs by sourcing certain products overseas. The Company expects to
particularly focus on (1) promoting its new line of slot machine printers into
the gaming market, (2) increasing sales of its family of printers utilizing
Hewlett Packard's inkjet printing technology, and (3) expanding its consumables,
spare parts and service business. Although the Company believes that its
products, operations and relationships provide a competitive foundation, there
can be no assurance that the Company will compete successfully in the future.
(xi) RESEARCH AND DEVELOPMENT ACTIVITIES
The Company spent approximately $2,025,000, $3,070,000 and $3,481,000
in 2002, 2001 and 2000, respectively, on engineering, design and product
development efforts in connection with specialized engineering and design to
introduce new products and to customize existing products. During 2003, the
Company expects to focus the majority of its research and development activities
on the development of a new thermal on-line lottery printer for GTECH, and on
the continuing development and enhancement of (1) its family of printers for the
POS market utilizing inkjet and thermal printing technology and (2) its
ticket-issuing printers for use in the casino market.
4
(xii) ENVIRONMENT
The Company is not aware of any material noncompliance with federal,
state and local provisions that have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment.
(xiii) EMPLOYEES
As of March 14, 2003, TransAct Technologies and its subsidiaries
employed 158 persons, of whom 136 were full-time and 22 were temporary
employees. None of the Company's employees is unionized, and the Company
considers its relationships with its employees to be good.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company has foreign operations primarily from TransAct Technologies
Ltd., a wholly-owned subsidiary located in the United Kingdom, which had sales
to its customers of $738,000, $1,791,000 and $11,164,000 (primarily to ICL
Pathway for use in the British Post Office) in 2002, 2001 and 2000,
respectively. The Company had export sales to its customers from its domestic
operations of approximately $3,968,000, $6,131,000 and $5,156,000 in 2002, 2001
and 2000, respectively.
(E) EXECUTIVE OFFICERS OF THE REGISTRANT AS OF DECEMBER 31, 2002
Name Age Position
- ------------------------------------ ------------- -------------------------------------------------------------
Bart C. Shuldman 45 Chairman of the Board, President and Chief Executive Officer
Richard L. Cote 61 Executive Vice President, Chief Financial Officer, Treasurer,
Secretary and Director
James B. Stetson 45 Executive Vice President - Sales and Marketing
Michael S. Kumpf 53 Executive Vice President - Engineering
Steven A. DeMartino 33 Senior Vice President - Finance and Information Technology
BART C. SHULDMAN has been Chief Executive Officer, President and a
Director of the Company since its formation in June 1996. Previously, Mr.
Shuldman served as President of Magnetec and later the combined operations of
Magnetec and Ithaca from August 1993 until June 1996. In February 2001, Mr.
Shuldman was elected Chairman of the Board.
RICHARD L. COTE has been Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director of the Company since its formation
in June 1996. Prior thereto, he served as Senior Vice President and Chief
Financial Officer of Tridex from September 1993 to June 1996.
JAMES B. STETSON was appointed Executive Vice President, Sales and
Marketing in November 2001, and served as Senior Vice President of Worldwide
Sales from February 2000 to November 2001, and Vice President of Sales, Latin
America from October 1997 to February 2000. Prior to joining TransAct, Mr.
Stetson served as Vice President and Sales Manager at Gekay Sales and Service
Company from 1995 until October 1997.
MICHAEL S. KUMPF, was appointed Executive Vice President of Engineering
in March 2002. He served as Senior Vice President-Engineering from June 1996 to
March 2002 and Vice President of Engineering of Ithaca from 1991 until June
1996.
STEVEN A. DEMARTINO joined TransAct as Corporate Controller in August
1996 and was appointed an officer of the Company in January 1998, Vice President
in December 1999, and Senior Vice President, Finance and Information Technology
in October 2001. Prior to joining TransAct, Mr. DeMartino was a self-employed
financial consultant from May 1996 to August 1996. Prior thereto, Mr. DeMartino,
served as Controller of NER/Copart, Inc. from September 1994 to May 1996.
5
ITEM 2. PROPERTIES.
The Company's operations are currently conducted at the facilities
described below. In February 2001, the Company announced plans to establish a
global engineering and manufacturing center at its Ithaca, NY facility. As part
of this strategic decision, the Company consolidated all manufacturing and
engineering from its Wallingford, CT facility into its existing Ithaca, NY
facility. The Company's corporate headquarters are still located in the
Wallingford, CT facility. Although the Company is actively seeking to sublease
its Wallingford, CT facility for the remaining term of the lease, and expects to
do so successfully, there can be no assurance that the Company will be
successful in doing so, or that it will be able to do so at terms comparable to
those of its existing lease.
In connection with the consolidation of facilities into Ithaca, the
Company added approximately 10,000 square feet of manufacturing space and 3,000
square feet of office space to its Ithaca facility during 2002.
Size Owned or Lease Expiration
Location Operations Conducted (Approx. Sq. Ft.) Leased Date
- ---------------------------------- -------------------- ----------------- -------- -----------------
Wallingford, Connecticut Executive offices 49,000 Leased March 31, 2008
Ithaca, New York Manufacturing facility 74,000 Leased June 30, 2007
Doncaster, United Kingdom Sales office and service 2,800 Leased August 1, 2009
depot
Georgia (2), Florida, New York and Five (5) regional sales 600 Leased Various
Texas offices
The Company believes that its facilities generally are in good
condition, adequately maintained and suitable for their present and currently
contemplated uses.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the last
quarter of the year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq SmallCap Market
under the symbol TACT. As of March 14, 2003, there were 783 holders of record of
the common stock. The high and low sales bid quotations of the common stock
reported during each quarter of the years ended December 31, 2002 and 2001 were
as follows:
Year Ended Year Ended
December 31, 2002 December 31, 2001
----------------------------------- ------------------------------------
High Low High Low
----------------- --------------- ----------------- -----------------
First Quarter $6.70 $3.90 $7.03 $3.88
Second Quarter 7.00 4.51 9.65 5.05
Third Quarter 5.99 3.60 9.85 3.95
Fourth Quarter 5.12 3.91 6.00 3.88
No dividends on common stock have been declared, and the Company does
not anticipate declaring dividends in the foreseeable future. The Company's
credit agreement with LaSalle Business Credit restricts the payment of cash
dividends on its common stock for the term of the agreement.
6
Information regarding the Company's equity compensation plans as of
December 31, 2002 is as follows:
Number of securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available
warrants and rights warrants and rights for future issuance
-------------------------------------------------------------------
Equity compensation plans approved
by security holders:
1996 Stock Plan 757,816 $5.79 188,550
1996 Non-Employee Director Plan* 132,500 8.09 7,500
2000 Employee Stock Purchase Plan - - 33,881
2000 Preferred stock warrants 54,444 9.00 -
2001 Employee Stock Plan 101,750 4.92 48,250
-------------------------------------------------------------------
Total 1,046,510 $6.17 278,181
===================================================================
* The 1996 Non-Employee Director Plan includes 10,000 shares (2,500
shares to be issued upon exercise and 7,500 shares available for future
issuance) that have not been approved by security holders as of December 31,
2002.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Statement of Operations Data:
Net sales $ 39,461 $ 43,974 $ 53,720 $ 44,889 $ 52,239
Gross profit 10,216 9,774 14,142 11,754 13,826
Operating income (loss) (984) (7,286) (154) 35 2,148
Net income (loss) (692) (4,922) (344) 324 1,206
Net income (loss) available
to common shareholders (1,050) (5,280) (664) 324 1,206
Net income (loss) per share:
Basic (0.19) (0.95) (0.12) 0.06 0.20
Diluted (0.19) (0.95) (0.12) 0.06 0.20
December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Total assets $ 22,030 $ 25,791 $ 27,619 $ 25,684 $ 23,788
Long-term debt 2,791 5,344 5,944 7,100 5,075
Preferred stock 3,824 3,746 3,668 -- --
Shareholders' equity:
Common 6,545 7,315 12,191 12,207 12,177
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto.
FORWARD LOOKING STATEMENTS
Certain statements included in this report, including without
limitation statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All forward-looking statements involve risks and uncertainties,
including, but not limited to, customer acceptance and market share gains, both
domestically and internationally, in the face of substantial competition from
competitors that have broader lines of products and greater financial resources;
introduction of new products into the marketplace by competitors; successful
product development; dependence on significant customers including GTECH
Corporation; dependence on third parties for sales in Europe and Latin America;
economic and political conditions in the United States, Europe and Latin
America; marketplace acceptance of new products; risks associated with foreign
operations; the Company's ability to successfully sublease its facility in
Wallingford, CT; availability of third-party components at reasonable prices;
and the absence of price wars or other significant pricing pressures affecting
the Company's products in the United States or abroad. Actual results may differ
materially from those discussed in, or implied by, the forward-looking
statements. The forward-looking statements speak only as of the date of this
report and the Company assumes no duty to update them to reflect new, changing
or unanticipated events or circumstances.
PLANT CONSOLIDATION DURING 2001
In February 2001, we announced plans to establish a global engineering
and manufacturing center at our Ithaca, NY facility. As part of this strategic
decision, we undertook a plan to consolidate all manufacturing and engineering
into our existing Ithaca, NY facility and close our Wallingford, CT facility
(the "Consolidation"). However, our Company headquarters remains in Wallingford,
CT. Our technology shift to inkjet and thermal printing from dot matrix impact
printing has dramatically reduced the labor content in our printers, and
therefore, lowers the required production capacity. As of December 31, 2001, we
successfully transferred substantially all our Wallingford product lines to
Ithaca, NY, with the exception of a small component production line and service
depot that remain in Connecticut. The closing of the Wallingford facility
resulted in the termination of employment of approximately 70 production,
administrative and management employees.
Through December 31, 2002, we have incurred approximately $5.1 million
of non-recurring costs associated with the Consolidation, including severance
pay, stay bonuses, employee benefits, moving expenses, non-cancelable lease
payments, and other costs, of which approximately $1,000,000 and $4,100,000 were
recognized in 2002 and 2001, respectively. We do not expect to incur any
additional charges related to the Consolidation during 2003. See the "Liquidity
and Capital Resources" section for a discussion of the expected impact of the
Consolidation on our future results of operations and cash flows.
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared by us in accordance with accounting principles generally accepted in
the United States of America. The presentation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and disclosure of contingent assets
and liabilities. Our estimates include those related to revenue recognition,
inventory obsolescence, the valuation of deferred tax assets and liabilities,
depreciable lives of equipment, warranty obligations, and restructuring
accruals. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States. In preparing
the financial statements, we are required to make estimation judgments. Such
judgments are based upon historical experience and certain assumptions that are
believed to be reasonable in the particular circumstances. Those judgments
affect both balance sheet items and income statement categories. We evaluate our
assumptions on an ongoing basis by comparing actual results with our estimates.
Actual results may differ from the original estimates. The following accounting
policies are those that we believe to be most critical in the preparation of our
financial statements.
Inventory Valuation -- Our inventories are stated at the lower of cost
or market. We write down our inventory for any material that has become obsolete
or may become unsaleable based on historical usage and estimates of future
demand in the market. Assumptions are reviewed at least quarterly and
adjustments are made, as necessary, to reflect changed conditions. Should
circumstances change and we determine that additional inventory is subject to
obsolescence, additional write-downs of inventory could result in a charge to
income.
8
Deferred Tax Assets- We have recorded deferred tax assets, largely as the result
of temporary differences between the tax basis of certain reserves (including
restructuring, inventory, warranty and other reserves) and their reported
amounts in the financial statements. During 2002, we established a valuation
allowance on a portion of our foreign tax credits, research and development
credits and certain state net operating loss carryforwards. Based on our
projection of future taxable income and our ability to carryback current year
net operating losses, no additional valuation allowance is considered necessary.
We will need to recognize approximately $7 million in future taxable income in
order to realize all of our deferred tax assets at December 31, 2002. Should
circumstances change and we determine that some or all of the deferred taxes
would not be realized, a valuation allowance would be recorded resulting in a
charge to income in the period the determination is made.
Accrued Restructuring Expenses--In connection with the Consolidation
of manufacturing facilities, we have recorded significant accruals. These
accruals comprise severance pay, stay bonuses, employee benefits, non-cancelable
lease costs and certain other expenses. Management has made reasonable estimates
of such costs and expenses. However, if actual costs differ from the estimates,
charges or credits to income could result in the period the adjustments are
determined. Also, because certain moving and relocation costs are not accruable
under generally accepted accounting principles in the U.S., those expenses are
recorded as incurred. We do not expect to record any additional charges related
to the Consolidation during 2003.
Accrued Warranty Costs--We warranty our products for up to two years
and record the estimated cost of such product warranties at the time the sale is
recorded. Estimated warranty costs are based upon actual past experience of
product returns and the related estimated cost of labor and material to make the
necessary repairs. If actual future product return rates or the actual costs of
material and labor differ from the estimates, adjustments to the accrued
warranty liability would be made.
(A) Results of Operations
(i) YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER
31, 2001
NET SALES. Net sales by market for the years ended December 31, 2002
and 2001 were as follows:
Year ended Year ended
(In thousands) December 31, 2002 December 31, 2001
--------------------- ---------------------
Point of sale $ 16,773 42.5% $ 20,007 45.5%
Gaming and lottery 20,986 53.2 19,869 45.2
Other 1,702 4.3 4,098 9.3
-------------------- ---------------------
$ 39,461 100.0% 43,974 100.0%
==================== =====================
International $ 4,706 11.9% $ 7,922 18.0%
==================== =============== =====
Net sales for 2002 decreased $4,513,000, or 10%, from 2001 largely due
to lower shipments into the Company's point of sale ("POS") and Other markets.
Overall, international sales decreased by $3,216,000 or 41%, primarily due a
reduction in (1) revenue related to the British Post Office project
(approximately $400,000), (2) kiosk printer shipments for use in a Canadian
government application (approximately $1,500,000), (3) shipments of our thermal
fiscal printer in Europe (approximately $1,000,000) and (4) POS revenue through
distribution in Europe and Latin America (approximately $500,000), partially
offset by an increase in international sales of our gaming and lottery printers
(approximately $300,000).
Point of sale: Sales of our POS printers decreased approximately
$3,234,000, or 16%.
International POS printer shipments decreased approximately $1,878,000,
or 30%, to $4,315,000, for several reasons. First, sales to ICL Pathway for the
British Post Office project, which included printer shipments, spare parts and
service revenue, declined by approximately $400,000 to $1,800,000 in 2002. We
completed shipping printers for the British Post Office project during the first
quarter of 2001, and expect no future sales for this project, other than spare
parts and service of approximately $300,000 per quarter during 2003. Secondly,
shipments of our thermal fiscal printer in Europe declined by approximately
$1,000,000 to $950,000 in 2002. Although we continue to pursue sales of our
fiscal printer, such sales are principally project-oriented, and we cannot
predict if and when future sales may occur. Lastly, we experienced a decrease of
approximately $500,000 in sales through distribution, primarily in Latin
America, and to a lesser extent, in Europe. We continue to actively seek
additional distribution partners in both Latin America and Europe in order to
increase our breadth of coverage and future sales in these regions.
9
Domestic POS printer sales totaling $12,458,000 fell by $1,356,000, or
10%, as we experienced softness in demand from our domestic distributors,
particularly in the first and third quarters of 2002. However, sales in 2002
included increasing sales of our POSjet line of inkjet printers, which we expect
to continue into 2003.
Due to on-going economic weakness and continued lower capital spending
by users of our POS products, we expect continued worldwide softness in demand
for our POS products in 2003. As a result, we expect sales into the POS market
for the first quarter of 2003 to be consistent with those reported for the
fourth quarter of 2002.
Gaming and lottery: Sales into the gaming and lottery market increased
by $1,117,000, or 6%, from 2001, primarily due to stronger sales of our video
lottery terminal ("VLT") and slot machine printers, largely offset by lower
sales of lottery printers to GTECH.
Shipments to GTECH, which included on-line and in-lane lottery printers
and spare parts revenue, decreased $3,750,000 to approximately $10,700,000 in
2002. Sales of impact on-line lottery printers and spare parts totaled
approximately $10,050,000 in 2002, compared to $14,300,000 in 2001. We have
approximately $500,000 of orders from GTECH for impact on-line lottery printers
for delivery in the first quarter of 2003. We do not expect any further
shipments of impact on-line lottery printers in 2003 beyond the first quarter.
Shipments of in-lane lottery printers totaled approximately $700,000 in 2002
compared to $200,000 in 2001. Since sales of in-lane lottery printers are
project-oriented, we cannot predict if and when future sales may occur. In July
2002, we entered into a 5-year agreement with GTECH to provide a newly designed
thermal on-line lottery printer. We have received an initial order from GTECH
for approximately $4.3 million of our new thermal on-line lottery printers, all
of which we expect to ship during 2003, with volume shipments beginning in the
second quarter of 2003. We expect to receive additional thermal printer orders
from GTECH for delivery in 2003.
Sales of our gaming printers, which included VLT and slot machine
printers, and related spare parts and repairs, increased by approximately
$4,900,000 to $10,300,000. The increase in gaming printer sales resulted from
two factors; (1) increased installations of our VLT printers in West Virginia
and other states, including approximately $1,600,000 of sales of a custom
printer to one customer and (2) increased sales of our casino printers,
primarily for use in slot machines at casinos throughout North America that
print receipts instead of issuing coins ("ticket-in, ticket-out"). Based on
existing orders and sales opportunities, we expect sales of our casino printers
to continue to increase in 2003, beginning in the second quarter,
as more regulatory approvals are expected to be obtained and more casinos are
expected to convert to ticket-in, ticket-out slot machines. We also expect sales
of our VLT printers to increase in 2003 compared to 2002 due to the VLT
initiative in the state of New York.
Other: Sales of our printers into other markets decreased by $2,396,000
or 58%, to $1,702,000 from 2001. During 2001, we shipped approximately
$1,500,000 of our thermal kiosk printers for use in a Canadian government
application. We made no shipments of these printers in 2002. We do not expect to
make any future shipments for this application. In addition, sales of our other
kiosk and banking printers and related spare parts declined by approximately
$900,000. Since printer sales into these markets are principally
project-oriented, we cannot predict if and when future sales may occur. Due to
steadily declining sales and low anticipated future sales, we have decided to
exit these markets. As such, beginning in the first quarter of 2003, we will
combine any remaining sales from our Other markets into POS market sales, and no
longer separately report sales in our Other market category.
GROSS PROFIT. Gross profit increased by $442,000, or 5%, to
$10,216,000, and the gross margin also increased to 25.9% from 22.2%. Both gross
profit and gross margin for 2002 benefited from an improved sales mix and cost
reductions resulting from the Consolidation. We expect gross margin for the
first quarter of 2003 to be consistent with that of the full-year 2002, and to
increase in the second quarter of 2003, as we begin volume shipments of our new
thermal on-line lottery printer to GTECH and anticipate increasing sales of our
slot machine printers.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses decreased $1,045,000, or 34%, and also decreased as a
percentage of net sales to 5.1% from 7.0%. This decrease is primarily due to a
reduction in engineering staff at our Wallingford, CT facility due to the
Consolidation.
SELLING AND MARKETING. Selling and marketing expenses decreased
$543,000, or 12%, and decreased as a percentage of net sales to 10.2% from
10.4%. Such expenses decreased mostly due to lower planned promotional and
advertising expenses and staff reductions resulting from the Consolidation.
10
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased by $1,909,000, or 31%, and decreased as a percentage of net sales to
10.6% from 13.9%. The decrease primarily resulted from (1) staff reductions
resulting from the Consolidation and (2) the inclusion in 2001 of $680,000 of
accelerated depreciation on certain assets located at the Company's Wallingford,
CT facility (primarily leasehold improvements and computer equipment) whose
useful lives were shortened as a result of the Consolidation.
BUSINESS CONSOLIDATION AND RESTRUCTURING. We incurred $958,000 of
expenses related to the Consolidation in 2002. These expenses were substantially
the result of a revision to our estimate for non-cancelable lease payments
included in the restructuring accrual at September 30, 2002. Based on regional
softness in demand in the commercial real estate market, we increased our
restructuring accrual by $900,000 to reflect the longer period of time now
projected to sublease our Wallingford, CT facility. The accrual now includes
estimated non-cancelable lease payments and other related costs through
September 30, 2004. We do not expect to incur any additional charges related to
the Consolidation during 2003.
During 2001, we incurred approximately $3,321,000 of Consolidation
expenses, which primarily included a portion of employee severance and
termination related expenses and facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs). See Note 8 to the Consolidated Financial Statements.
OPERATING LOSS. During 2002, we reported an operating loss of $984,000,
or 2.5% of net sales, compared to an operating loss of $7,286,000, or 16.6% of
net sales, in 2001. The reduction in our operating loss was due to (1)
significantly reduced operating expenses as a direct result of the
Consolidation, (2) lower Consolidation expenses and (3) higher gross margin.
INTEREST. Net interest expense decreased by $205,000 to $192,000 in
2002, due largely to a significant reduction in our average outstanding
borrowings under our revolving bank facility resulting from significantly lower
inventories (approximately $2,200,000), receipt of an advance payment from a
customer, and to a lesser extent, lower interest rates. We expect revolving
borrowings to increase to approximately $5 million by the end of the first
quarter of 2003, as we purchase inventory for anticipated higher sales volume in
the second quarter of 2003. As a result, we expect interest expense to increase
in the first quarter of 2003. See "Liquidity and Capital Resources" below.
OTHER INCOME. Other income for 2002 includes a one-time gain of
$145,000 resulting from the receipt of 2,146 shares of common stock from our
health insurance company, Anthem, Inc., upon its demutualization. We sold these
shares during the third quarter of 2002. This gain was partially offset by
approximately $50,000 of transaction exchange loss recorded by our UK subsidiary
during 2002, due to the strengthening of the British pound against the dollar,
mostly in the second quarter of 2002.
INCOME TAXES. We recorded an income tax benefit of $390,000 and
$2,748,000 in 2002 and 2001, respectively, at an effective rate of approximately
36.0% in each period. We expect to record income taxes at a similar effective
rate during 2003.
NET LOSS. We reported a net loss in 2002 of $692,000, or $0.19 per
share (basic and diluted) after giving effect to $358,000 of dividends and
accretion charges on preferred stock. This compares to a net loss of $4,922,000,
or $0.95 per share (basic and diluted) after giving effect to $358,000 of
dividends and accretion charges on preferred stock in 2001. In future quarters,
dividends and accretion charges on preferred stock will be approximately
$90,000, before the effect of any conversion or redemption of the preferred
stock.
(ii) YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER
31, 2000
NET SALES. Net sales by market for the years ended December 31, 2001
and 2000 were as follows:
Year ended Year ended
(In thousands) December 31, 2001 December 31, 2000
-------------------- ---------------------
Point of sale $ 20,007 45.5% $ 29,396 54.7%
Gaming and lottery 19,869 45.2 19,298 35.9
Other 4,098 9.3 5,026 9.4
-------------------- ---------------------
$ 43,974 100.0% $ 53,720 100.0%
==================== =====================
International $ 7,922 18.0% $ 16,320 30.4%
==================== =====================
11
Net sales for 2001 decreased $9,746,000, or 18%, from 2000 largely due
to significantly lower shipments into the Company's POS market. International
sales decreased to $7,922,000, or 18.0% of net sales in 2001, from $16,320,000,
or 30.4% of net sales in 2000.
Point of sale: Sales of our POS printers decreased approximately
$9,389,000, or 32%. International POS printer shipments decreased approximately
$9,438,000, to $6,193,000, largely due to lower printer shipments to ICL Pathway
for the British Post Office project. Sales for the British Post Office project,
which included printer shipments and service revenue, were approximately
$1,900,000 in 2001 compared to $10,900,000 in 2000. We completed shipping
printers for the British Post Office project during the first quarter of 2001,
and no future sales, other than spare parts and service, are expected. In
addition to lower sales to ICL Pathway, we experienced a decrease in sales,
primarily to Europe, of approximately $1,200,000 through Okidata, our former
exclusive distribution partner in Europe. As of May 2001, Okidata no longer
exclusively distributes our printers in Europe. We also experienced a decline of
approximately $300,000 of sales to Latin America through Okidata, our
distribution partner in Latin America. The decrease in international POS sales
to ICL Pathway and Okidata was somewhat offset by an increase of approximately
$1,200,000 of shipments of our thermal fiscal printer in Europe.
Despite adverse economic conditions, domestic POS printer sales
increased slightly by $49,000 to $13,814,000.
Gaming and lottery: Sales of our gaming and lottery printers increased
approximately $571,000, or 3%, from the prior year. Sales of our on-line lottery
printers and spare parts to GTECH increased by approximately $2,400,000, to
approximately $14,300,000 in 2001, compared to $11,900,000 in 2000. We received
follow-on orders from GTECH for approximately $9,800,000 of on-line lottery
printers, of which approximately $9,300,000 was delivered in 2002 and $500,000
will be delivered in 2003. In addition to the increase of printer sales to
GTECH, sales of our slot machine printers and other gaming printers increased by
approximately $900,000. The slot machine printers are primarily for use in
casinos in California and Nevada.
Offsetting the increase of on-line lottery printer and spare parts
sales to GTECH and increased slot machine printer sales was a decrease of
approximately $2,700,000 in sales of our VLT printers to approximately
$1,700,000 in 2001. Sales of these VLT printers were unusually high in the last
half of 2000.
Other: Sales of our printers into other markets decreased by $928,000,
or 18%, from the prior year. During 2001, sales of our ATM printer and related
spare parts decreased by approximately $1,700,000. In addition, sales decreased
by approximately $800,000 due to sales of kiosk printers to customers for
projects primarily in the third quarter of 2000 that did not repeat in 2001.
Offsetting these decreases was an increase of approximately $1,600,000 of our
thermal kiosk printers for use in a Canadian government application during 2001.
No shipments of these printers were made in 2000. Since printer sales into the
kiosk printer market are principally project-oriented, the Company cannot
predict if and when future sales may occur.
GROSS PROFIT. Gross profit decreased $4,368,000, or 31%, and the gross
margin also declined to 22.2% from 26.3%. Both gross profit and gross margin for
2001 were adversely impacted by lower sales volume, due primarily to the absence
of printer shipments for the British Post Office project.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses decreased $411,000, or 12%, to $3,070,000 from 2000. This
decrease was primarily due to a reduction in engineering staff at our
Wallingford facility resulting from the Consolidation. Engineering and product
development expense increased as a percentage of net sales to 7.0% from 6.5%,
due to lower sales volume in 2001 compared to 2000.
SELLING AND MARKETING. Selling and marketing expenses decreased
$516,000, or 10%, to $4,570,000 from the prior year. Such expenses decreased
primarily due to (1) unusually high marketing and promotional expenses incurred
in 2000 related to the April 2000 launch of our new family of printers utilizing
inkjet printing technology and (2) a reduction in marketing staff. Selling and
marketing expenses as a percentage of net sales increased to 10.3% from 9.5%,
due to lower sales volume in 2001 compared to 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by $559,000, or 10%, to $6,099,000 from 2000 and increased as a
percentage of net sales to 13.9% from 10.3%. The increase in expenses primarily
resulted from the inclusion of $680,000 of accelerated depreciation on certain
assets (primarily leasehold improvements and computer equipment) located at our
Wallingford, CT facility whose useful lives have been shortened as a result of
the Consolidation. These increases were partially offset by a reduction of staff
and certain related expenses at our Wallingford, CT facility resulting from the
Consolidation.
12
BUSINESS CONSOLIDATION AND RESTRUCTURING. During 2001, we incurred
approximately $3,321,000 of business consolidation and restructuring expenses
related to the Consolidation. These expenses primarily included employee
severance and termination related expenses, and facility closure and
consolidation expenses (including moving expenses, estimated non-cancelable
lease payments and other costs). See Note 8 to the Consolidated Financial
Statements.
OPERATING LOSS. We incurred an operating loss of $7,286,000 in 2001
compared to an operating loss of $154,000 in 2000. The operating loss in 2001
resulted primarily from lower gross profit on lower sales in 2001 compared to
2000 as well as expenses related to the Consolidation.
INTEREST. Net interest expense decreased to $397,000 from $649,000 in
2000 due to decreased average outstanding borrowings on our line of credit and a
lower average interest rate on such borrowings. See "Liquidity and Capital
Resources" below.
INCOME TAXES. As a result of our loss before income taxes, we recorded
an income tax benefit of $2,748,000 and $448,000, or an effective rate of 35.8%
and 56.6%, in 2001 and 2000, respectively. The abnormally high effective tax
benefit rate in 2000 is primarily due to the recognition of certain tax credits
and the benefit from our foreign sales corporation on relatively low pre-tax
amounts.
NET LOSS. We incurred a net loss during 2001 of $4,922,000, or $0.95
per share (basic and diluted) after giving effect to $358,000 of dividends and
accretion charges on preferred stock issued in April 2000. This compares to a
net loss for 2000 of $344,000, or $0.12 per share (basic and diluted) after
giving effect to $320,000 of dividends and accretion charges on preferred stock
issued in April 2000. In future quarters, dividends and accretion charges on
preferred stock will be approximately $90,000, before the effect of any
conversion or redemption of the preferred stock.
(B) LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
We generated cash from operations of $3,679,000 in 2002, compared to
$1,345,000 in 2001. The significant increase in cash generated from operations
in 2002 was largely the result of a significantly reduced net loss. During 2002,
we reported a net loss of $692,000 compared to $4,922,000 in 2001.
During 2002, depreciation and amortization totaled $2,119,000 compared
to $3,398,000 in 2001. Such expenses in 2001 included accelerated depreciation
and depreciation on certain leasehold improvements and other fixed assets that
were disposed of during 2001 as a result of the Consolidation. Deferred taxes,
net of an increase in refundable income taxes, decreased by $740,000, due
primarily to a refund of taxes received in 2002 as a result of a net operating
loss carryback. In order to utilize all of our deferred tax assets at December
31, 2002 (approximately $2.4 million), we will need to generate approximately $7
million of taxable income in future years. Receivables decreased only slightly
from year-end (approximately $8,000). Inventories were significantly reduced
during 2002 by approximately $2,198,000 due to improved inventory management and
changes related to inventory absolescence. Despite our continued focus on
inventory reduction, we expect inventories to increase in the first quarter of
2003, as we prepare for volume shipments of our new thermal on-line lottery
printer for GTECH and anticipated increasing sales of our gaming printers in the
second quarter of 2003. Accounts payable increased slightly from the prior
year-end (approximately $80,000), and we expect accounts payable to increase in
the first quarter of 2003 in proportion to our expected inventory increase.
Accrued liabilities and other liabilities, excluding accrued restructuring,
increased by $688,000, primarily due to an increase in deferred revenue on an
extended warranty contract with a certain customer.
Offsetting the activities providing cash in the year was a net
reduction in the restructuring accrual of $1,284,000, representing payouts for
severance pay and related benefits and lease payments for the Wallingford
Facility of $2,242,000 offset by an additional accrual of $958,000, primarily
for lease termination expenses (See "Consolidation Expenses" below).
Our capital expenditures were approximately $577,000 and $1,382,000 in
2002 and 2001, respectively. These expenditures for 2002 primarily included new
product tooling and computer equipment. We expect capital expenditures for 2003
to be approximately $1,800,000, primarily for tooling for our new thermal
lottery printer for GTECH and other new products.
We used $2,703,000 in financing activities, largely due to repayments
on our revolving credit facility and term loan and payments of cash dividends on
our preferred stock.
13
WORKING CAPITAL
Our working capital increased to $8,577,000 at December 31, 2002 from
$8,366,000 at December 31, 2001. The current ratio also increased to 2.13 to 1
at December 31, 2002 from 1.90 to 1 at December 31, 2001. The increase in both
working capital and the current ratio was largely due to (1) lower inventories
($2,198,000) and (2) a decrease in the current portion of accrued restructuring
expenses of approximately $2,100,000 related to the Consolidation.
CONTINGENT LIABILITIES
In November 2002, we were advised that certain POS printers sold by us
since late 1999 may use technology covered by recently issued patents of a third
party competitor. We are analyzing the cited patents for validity and
applicability to our products. In an effort to resolve this matter, we have
offered to pay approximately $160,000, while the other party seeks payment of up
to $950,000 (the ''Patent Resolution Payment''). While the outcome of our patent
analysis and discussions cannot be predicted, we have recognized a charge of
$160,000 in cost of sales in the fourth quarter of 2002. This charge represents
what we believe to be a fair and reasonable payment.
CREDIT FACILITY AND BORROWINGS
On May 25, 2001, we entered into a three-year, $13.5 million credit
facility (the "LaSalle Credit Facility") with LaSalle Business Credit, Inc.
("LaSalle") expiring on May 25, 2004 to replace its prior credit facility with
Webster Bank. The LaSalle Credit Facility provides a $12 million revolving
credit line, a $0.5 million term loan and a $1 million equipment loan facility.
Borrowings under the LaSalle Credit Facility bear a floating rate of interest
based on LaSalle's prime rate. Under certain circumstances, we may select a
fixed interest rate for a specified period of time of up to 180 days on
borrowings based on the current LIBOR rate.
On October 30, 2001, we amended the LaSalle Credit Facility. Under the
terms of the amendment ("LaSalle Amendment No. 1"), LaSalle (1) waived
compliance with the minimum EBITDA financial covenant as of September 30, 2001,
(2) revised certain other financial covenants through December 31, 2001, (3)
increased the floating rate of interest on borrowings under the revolving credit
line to LaSalle's prime rate plus 1.0%, or the current LIBOR rate plus 3.5%, and
(4) increased the floating rate of interest on borrowings under the term loan
and equipment loan to LaSalle's prime rate plus 1.5%, or the current LIBOR rate
plus 4.0%. Upon execution of LaSalle Amendment No. 1, we paid a fee of $20,000
to LaSalle.
On December 21, 2001, we amended the LaSalle Credit Facility to reset
certain financial covenants for 2002 and beyond ("LaSalle Amendment No. 2").
Upon execution of LaSalle Amendment No. 2, we paid a fee of $5,000 to LaSalle.
On November 12, 2002, we amended the LaSalle Credit Facility. Under the
terms of the amendment ("LaSalle Amendment No. 3"), LaSalle (1) waived
compliance with the minimum EBITDA, minimum tangible net worth and fixed charge
coverage ratio financial covenants as of September 30, 2002 and (2) revised
these covenants to exclude the effect of $900,000, of the total $912,000, of
restructuring charges incurred in the third quarter. Absent the $900,000
restructuring charge, we would have been in compliance with the above covenants
at September 30, 2002. Upon execution of LaSalle Amendment No. 3, we paid a fee
of $20,000 to LaSalle.
On March 24, 2003, we amended the LaSalle Credit Facility. Under the
terms of the amendment ("LaSalle Amendment No. 4"), LaSalle (1) waived
compliance with the minimum EBITDA covenant as of December 31, 2002, (2) revised
this covenant and certain other financial covenants through May 2004 and (3)
eliminated the availability of the $1 million equipment loan facility due to
expire in May 2003. In addition, LaSalle has restricted $1 million of our
borrowing availability under the revolving credit line pending the outcome of
the Patent Resolution Payment. Upon execution of LaSalle Amendment No. 4, we
paid a fee of $25,000 to LaSalle.
As of December 31, 2002 we had $2,541,000 and $350,000 outstanding on
the revolving credit line and term loan, respectively, and no borrowings under
the equipment loan, leaving undrawn commitments under the LaSalle Credit
Facility of $9,459,000. Annual principal payments on the term loan are $100,000.
SALE OF PREFERRED STOCK
On April 7, 2000 we sold 4,000 shares of 7% Series B Cumulative
Convertible Redeemable Preferred Stock (the "Preferred Stock") to Advance
Capital Advisors, L.P. and its affiliate in consideration of $1,000 per share
(the "Stated Value"), for a total of $4,000,000, less issuance costs of
approximately $200,000. The Preferred Stock is redeemable by the holders on
April 7, 2005 at $1,000 per share plus any unpaid dividends. We used the net
proceeds to repay outstanding borrowings under our revolving credit facility. We
paid $280,000 in 2002 and 2001, and $205,000 in 2000, of cash dividends to
Advance Capital Advisors, L.P. and expect to pay $280,000 in 2003.
14
CAPITAL EXPENDITURES
Our capital expenditures were approximately $577,000, $1,382,000 and
$2,415,000 in 2002, 2001 and 2000, respectively. These expenditures primarily
included new product tooling, and to a lesser extent, computer equipment, and
factory machinery and equipment. Our capital expenditures for 2003 are expected
to be approximately $1,800,000, a majority for new product tooling.
CONSOLIDATION EXPENSES
During 2001, we incurred approximately $4,096,000 of business
consolidation, restructuring and related charges as a result of the
Consolidation. These expenses primarily included employee severance and
termination related expenses, facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs) and accelerated depreciation and asset disposal losses on certain
leasehold improvements and other fixed assets. Although the Consolidation was
substantially completed in 2001, we incurred an additional $958,000 of
non-recurring costs associated with the Consolidation during 2002. During 2002,
we revised our estimate for non-cancelable lease payments included in the
restructuring accrual. Based on regional softness in demand in the commercial
real estate market, we increased the restructuring accrual by $900,000 to
reflect the longer period of time now projected to sublease our Wallingford, CT
facility. The accrual now includes estimated non-cancelable lease payments and
other related costs through approximately September 30, 2004. As a result of the
Consolidation, we have significantly lowered our cost structure in 2002, with
annual cost savings of over $4 million compared to 2001. We do not expect to
incur any additional charges related to the Consolidation during 2003. See Note
8 to the Consolidated Financial Statements for further detail.
Of the total of $5,054,000 of Consolidation expenses, approximately
$4,300,000 requires cash outlays. We paid approximately $2,200,000 and $400,000
of these costs, in 2002 and 2001, respectively. We expect to pay approximately
$900,000 of these costs in 2003, and the remaining $800,000 in 2004. As a result
of the Consolidation, we realized improved gross margins and lower operating
expenses in 2002, and lowered our operating income breakeven point from $54
million to $42 million in sales, which we believe will provide us with
additional operating leverage in 2003.
RESOURCE SUFFICIENCY
We believe that cash flows generated from operations and borrowings
available under the LaSalle Credit Facility, as amended, will provide sufficient
resources to meet the Company's working capital needs, including costs
associated with the Consolidation and the Patent Resolution Payment, finance its
capital expenditures and meet its liquidity requirements through December 31,
2003. However, we recognize that the level of financial resources available to
us is an important competitive factor, and we will consider additional financing
sources as appropriate, including raising additional equity capital on an
on-going basis as market factors and our needs suggest. We currently expect to
refinance any outstanding borrowings at the expiration of the LaSalle Credit
Facility in May 2004.
(C) IMPACT OF INFLATION
TransAct believes that its business has not been affected to a
significant degree by inflationary trends because of the low rate of inflation
during the past three years, nor does it believe it will be significantly
affected by inflation during 2003.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to borrowings under the LaSalle Credit Facility. These
borrowings bear interest at variable rates and the fair value of this
indebtedness is not significantly affected by changes in market interest rates.
An effective increase or decrease of 10% in the current effective interest rates
under the LaSalle Credit Facility would not have a material effect on the
Company's results of operations or cash flow.
FOREIGN CURRENCY EXCHANGE RISK
A substantial portion of the Company's sales are denominated in U.S.
dollars and, as a result, the Company has relatively little exposure to foreign
currency exchange risk with respect to sales made. This exposure may change over
time as business practices evolve and could have a material adverse impact on
the Company's financial results in the future. The Company does not use forward
exchange contracts to hedge exposures denominated in foreign currencies or any
other derivative financial instruments for trading or speculative purposes. The
effect of an immediate 10% change in exchange rates would not have a material
impact on the Company's future results of operations or cash flow.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
Number
------
Report of Independent Accountants 17
TransAct Technologies Incorporated consolidated financial statements:
Consolidated balance sheets as of December 31, 2002 and December 31, 2001. 18
Consolidated statements of operations for the years ended December 31, 2002, 2001 and 2000. 19
Consolidated statements of cash flows for the years ended December 31, 2002, 2001 and 2000. 20
Consolidated statement of changes in shareholders' equity for the period from December 31, 21
1999 through December 31, 2002.
Notes to consolidated financial statements. 22
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of TransAct Technologies Incorporated:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of TransAct Technologies Incorporated and its subsidiaries at December
31, 2002 and 2001, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, 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.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" effective January 1, 2002.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 27, 2003, except for Note 10
which is as of March 26, 2003.
17
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, December 31,
2002 2001
------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents $ 902 $ 417
Receivables, net (Note 3) 4,039 4,047
Inventories (Note 4) 8,435 10,633
Refundable income taxes (Note 14) 228 -
Deferred tax assets (Note 14) 2,221 2,382
Other current assets 327 212
------------ -----------
Total current assets 16,152 17,691
------------ -----------
Fixed assets, net (Note 5) 3,924 5,190
Goodwill, net (Note 1) 1,469 1,469
Deferred tax assets (Note 14) 193 1,120
Other assets 292 321
------------ -----------
5,878 8,100
------------ -----------
Total assets $ 22,030 $ 25,791
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of term loan $ 100 $ 100
Accounts payable 2,983 2,903
Accrued liabilities (Notes 6 and 7) 3,592 3,320
Accrued restructuring expenses (Note 8) 900 3,002
------------ -----------
Total current liabilities 7,575 9,325
------------ -----------
Revolving bank loan payable (Note 10) 2,541 4,994
Long-term portion of term loan 250 350
Accrued restructuring expenses (Note 8) 818 -
Other liabilities 477 61
------------ -----------
4,086 5,405
------------ -----------
Total liabilities 11,661 14,730
------------ -----------
Commitments and contingencies (Note 11)
Mandatorily redeemable preferred stock, Series B, 7%
cumulative convertible, $0.01 par value, 8,000 shares
authorized, 4,000 shares issued and outstanding (Note 16) 3,824 3,746
------------ -----------
Shareholders' equity (Notes 12 and 13):
Preferred stock, $0.01 par value, 4,792,000
authorized, none issued and outstanding - -
Preferred stock, Series A, $0.01 par value, 200,000
authorized, none issued and outstanding - -
Common stock, $0.01 par value, 20,000,000 authorized,
5,715,119 and 5,684,770 shares issued and outstanding 57 57
Additional paid-in capital 6,308 6,303
Retained earnings 599 1,649
Unamortized restricted stock compensation (97) (286)
Loan receivable from officer (Note16) (330) (330)
Accumulated other comprehensive income 8 (78)
------------ -----------
Total shareholders' equity 6,545 7,315
------------ -----------
Total liabilities and equity $ 22,030 $ 25,791
============ ===========
See accompanying notes to consolidated financial statements.
18
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Net sales $ 39,461 $ 43,974 $ 53,720
Cost of sales 29,245 34,200 39,578
--------- --------- ---------
Gross profit 10,216 9,774 14,142
--------- --------- ---------
Operating expenses:
Engineering, design and product
development expenses 2,025 3,070 3,481
Selling and marketing expenses 4,027 4,570 5,086
General and administrative expenses
(Note 8) 4,190 6,099 5,540
Business consolidation and restructuring
expenses (Note 8) 958 3,321 189
--------- --------- ---------
11,200 17,060 14,296
--------- --------- ---------
Operating loss (984) (7,286) (154)
--------- --------- ---------
Other income (expense):
Interest, net (192) (397) (649)
Other, net (Note 16) 94 13 11
--------- --------- ---------
(98) (384) (638)
--------- --------- ---------
Loss before income taxes (1,082) (7,670) (792)
Income tax benefit (Note 14) (390) (2,748) (448)
--------- --------- ---------
Net loss (692) (4,922) (344)
Dividends and accretion charges on preferred
stock (Note 16) (358) (358) (320)
--------- --------- ---------
Net loss available to common
shareholders $ (1,050) $ (5,280) $ (664)
========= ========= =========
Net loss per share:
Basic and diluted $ (0.19) $ (0.95) $ (0.12)
========= ========= =========
Shares used in per share calculation:
Basic and diluted 5,636 5,551 5,504
========= ========= =========
See accompanying notes to consolidated financial statements.
19
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2002 2001 2000
--------- --------- ---------
Cash flows from operating activities:
Net loss $ (692) $ (4,922) $ (344)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,119 3,398 2,750
Deferred income taxes 968 (2,743) (78)
Loss on disposal of fixed assets - 209 -
Changes in operating assets and liabilities:
Receivables 8 2,090 (1,274)
Inventories 2,198 (776) 400
Refundable income taxes (228) - -
Other current assets (115) 599 (415)
Other assets (63) (326) (162)
Accounts payable 80 213 (366)
Accrued liabilities and other liabilities 688 706 (283)
Accrued restructuring expenses (1,284) 2,897 105
--------- --------- ---------
Net cash provided by operating activities 3,679 1,345 333
--------- --------- ---------
Cash flows from investing activities:
Purchases of fixed assets (577) (1,382) (2,415)
Loans to officers - - 15
Proceeds from sale of assets - 2 217
--------- --------- ---------
Net cash used in investing activities (577) (1,380) (2,183)
--------- --------- ---------
Cash flows from financing activities:
Revolving bank loan repayments, net (2,453) (950) (1,156)
Term loan borrowings (repayments), net (100) 450 -
Proceeds from option exercises 130 262 175
Net proceeds from issuance of preferred stock - - 3,785
Payments of cash dividends on preferred stock (280) (280) (205)
--------- --------- ---------
Net cash provided by (used in) financing
activities (2,703) (518) 2,599
--------- --------- ---------
Effect of exchange rate changes on cash 86 (22) (36)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 485 (575) 713
Cash and cash equivalents at beginning of period 417 992 279
--------- --------- ---------
Cash and cash equivalents at end of period $ 902 $ 417 $ 992
========= ========= =========
Supplemental cash flow information:
Interest paid $ 252 $ 403 $ 696
Income taxes paid (refunded), net (975) (637) 74
See accompanying notes to consolidated financial statements.
20
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Unamortized Loan Accumulated
Common Stock Additional Restricted Receivable Other
--------------------- Paid-in Retained Stock from Comprehensive
Shares Amount Capital Earnings Compensation Officer Income
---------- -------- ---------- -------- ------------ ---------- -------------
Balance, December 31, 1999 5,576,800 56 5,656 7,592 (747) (330) (20)
Issuance of restricted stock 5,000 - 44 - (44) - -
Cancellation of restricted stock (3,800) - (36) - 36 - -
Issuance of shares from exercise of
stock options 25,000 - 150 - - - -
Issuance of shares from employee
stock purchase plan 4,827 - 24 - - - -
Amortization of restricted stock
compensation - - - - 278 - -
Issuance of preferred stock warrants - - 175 - - - -
Deemed dividend on beneficial
conversion of preferred stock - - 56 (56) - - -
Dividends paid on preferred stock - - - (205) - - -
Accretion of preferred stock
warrants and issuance costs - - - (58) - - -
Comprehensive income (loss):
Foreign currency translation
adjustment - - - - - - (36)
Net loss - - - (344) - - -
---------- -------- ---------- -------- ------------ ---------- ------------
Balance, December 31, 2000 5,607,827 56 6,069 6,929 (477) (330) (56)
Issuance of restricted stock 20,000 - 95 - (95) - -
Cancellation of restricted stock (3,000) - (22) - 22 - -
Issuance of shares from exercise of
stock options 53,500 1 233 - - - -
Issuance of shares from employee
stock purchase plan 6,443 - 28 - - - -
Amortization of restricted stock
compensation - - - - 264 - -
Tax charge related to restricted
stock vested - - (100) - - - -
Dividends paid on preferred stock - - - (280) - - -
Accretion of preferred stock warrants
and issuance costs - - - (78) - - -
Comprehensive income (loss):
Foreign currency translation
adjustment - - - - - - (22)
Net loss - - - (4,922) - - -
---------- -------- ---------- -------- ------------ ---------- ------------
Balance, December 31, 2001 5,684,770 57 6,303 1,649 (286) (330) (78)
Cancellation of restricted stock (600) - (5) - 5 - -
Issuance of shares from exercise of
stock options 26,100 - 111 - - - -
Issuance of shares from employee
stock purchase plan 4,849 - 19 - - - -
Amortization of restricted stock
compensation - - - - 184 - -
Tax charge related to restricted
stock vested - - (120) - - - -
Dividends paid on preferred stock - - - (280) - - -
Accretion of preferred stock
warrants and issuance costs - - - (78) - - -
Comprehensive income (loss):
Foreign currency translation
adjustment - - - - - - 86
Net loss - - - (692) - - -
---------- -------- ---------- -------- ------------ ---------- ------------
Balance, December 31, 2002 5,715,119 $ 57 $ 6,308 $ 599 $ (97) $ (330) $ 8
========== ======== ========== ======== ============ ========== ============
See accompanying notes to consolidated financial statements
21
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
TransAct Technologies Incorporated ("TransAct" or the "Company") was
incorporated in June 1996 and began operating as a stand-alone,
publicly-held company in August 1996 to conduct the printer business that
was formerly operated by certain subsidiaries of Tridex Corporation
("Tridex").
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRODUCTS: TransAct, through its primary operating facility
in Ithaca, NY, operates in one industry segment, transaction-based printers
and related products. TransAct designs, develops, manufactures and markets
transaction-based printers under the Ithaca(R) and Magnetec(R) brand names.
In addition, the Company markets related consumables, spare parts and
service. The Company's printers are used worldwide to provide transaction
records such as receipts, tickets, coupons, register journals and other
documents. The Company focuses on two core markets: point-of-sale ("POS")
and gaming and lottery. The Company sells its products to original
equipment manufacturers ("OEM"), value-added resellers, selected
distributors and directly to end-users. The Company's product distribution
spans across the Americas, Europe, the Middle East, Africa, the Caribbean
Islands and the South Pacific.
TransAct designs, develops, manufactures and markets a broad array of
transaction-based printers utilizing inkjet, thermal and impact printing
technology for applications requiring up to 60 character columns in each of
its vertical markets. The Company's printers are configurable, which offer
customers the ability to choose from a variety of features and functions.
Options typically include printed circuit board configuration, paper
cutting devices, paper handling capacities and cabinetry color. In addition
to its configurable printers, TransAct manufactures custom printers for
certain OEM customers. In collaboration with these customers, the Company
provides engineering and manufacturing expertise for the design and
development of specialized printers.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Estimates have been made in areas including
inventory valuation, estimated lives of fixed assets and goodwill, deferred
tax assets, accrued liabilities, restructuring reserves related to the
Consolidation, allowance for doubtful accounts and tax provisions
(benefits). Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, after elimination of all material intercompany accounts and
transactions.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with a maturity date of three months or less at date of
purchase to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost (principally
standard cost which approximates actual cost on a first-in, first-out
basis) or market.
FIXED ASSETS: Fixed assets are stated at cost. Depreciation is provided
for primarily by the straight-line method over the estimated useful lives.
The estimated useful life of tooling is five years; machinery and equipment
is ten years; furniture and office equipment is five to ten years; and
computer equipment is three years. Leasehold improvements are amortized
over the shorter of the term of the lease or the useful life of the asset.
Depreciation was $1,843,000, $2,858,000 and $2,176,000 in 2002, 2001
and 2000, respectively. Depreciation for 2001 included $680,000 of
accelerated depreciation on certain leasehold improvements and other fixed
assets due to the closing of the Company's Wallingford, CT facility. As
part of the facility closing, the Company disposed of $2,114,000 and
$895,000 of fixed assets at cost, net of accumulated depreciation of
$2,114,000 and $800,000 during 2002 and 2001, respectively. This resulted
in a loss on disposal of $0 and $95,000 in 2002 and 2001, respectively.
22
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL: The Company has adopted the provisions of Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible
Assets" ("FAS 142") on January 1, 2002. Under FAS 142, goodwill will no
longer be amortized and will be tested for impairment at least annually at
the reporting unit level.
Prior to the adoption of FAS 142 on January 1, 2002, the Company had
been amortizing goodwill related to the acquisition of (1) Ithaca
Peripherals, Inc. ("Ithaca") in 1991 and (2) the ribbon business formerly
conducted by Tridex ("Tridex Ribbon Business") in 1999. The original amount
applicable to the Ithaca acquisition totaled $3,536,000 and was being
amortized on the straight-line method over twenty years. The original
amount applicable to the Tridex Ribbon Business acquisition totaled
$180,000 and was being amortized on the straight-line method over five
years. The Company recorded amortization of goodwill of approximately
$134,000 and $91,000, net of taxes, during 2001 and 2000, respectively.
FAS 142 requires that goodwill be tested annually for impairment. The
Company has performed an impairment test as of January 1, 2003 and
determined that no impairment has occurred.
ACCRUED WARRANTY COSTS: The Company warranties its products for up to
two years and records the estimated cost of such product warranties at the
time the sale is recorded. Estimated warranty costs are based upon actual
past experience of product returns and the related estimated cost of labor
and material to make the necessary repairs.
REVENUE RECOGNITION: Sales are recognized when evidence of an
arrangement exists, delivery (based on shipping terms) has occurred, the
selling price is fixed and determinable, and collectibility is reasonably
assured. Revenue from extended warranty and maintenance agreements is
recognized over the term of such agreements as services are performed.
Sales to GTECH Corporation ("GTECH") (for lottery printers) accounted for
approximately 27%, 33% and 22% of net sales during 2002, 2001 and 2000,
respectively. Sales to ICL Pathway (for the British Post Office project)
accounted for approximately 20% of net sales during 2000.
FOREIGN CURRENCY: The financial position and results of operations of
the Company's foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of such subsidiaries have been
translated at end of period exchange rates, and related revenues and
expenses have been translated at weighted average exchange rates.
Transaction gains (losses) are included in other income and amounted to
$(52,000), $17,000, and $(26,000) in 2002, 2001 and 2000, respectively.
INCOME TAXES: The income tax amounts reflected in the accompanying
financial statements are accounted for under the liability method in
accordance with FAS 109 "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses
include engineering, design and product development expenses incurred in
connection with specialized engineering and design to introduce new
products and to customize existing products, and are expensed as a
component of operating expenses as incurred. The Company spent
approximately $2,025,000, $3,070,000 and $3,481,000 on research and
development expenses in 2002, 2001 and 2000, respectively.
STOCK-BASED COMPENSATION: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and related interpretations in accounting for its stock
options. Since the exercise price of employee stock options granted by the
Company generally equals the market price of the underlying stock on the
date of grant, no compensation expense is recorded. The Company has adopted
the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
See Note 12.
23
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT REPORTING: FASB Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131") requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is
used internally for evaluating segment performance and allocating
resources. The Company has assessed its operating and reportable segments
and determined that it operates in one reportable segment as defined in FAS
131.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: In September 2002,
the FASB issued Statement of Financial Standard No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" ("FAS 146"). This
statement provides guidance on the recognition and measurement of
liabilities associated with exit or disposal activities and requires that
such liabilities be recognized when incurred. This statement is effective
for exit or disposal activities initiated on or after January 1, 2003 and
does not impact the recognition of costs under the Company's existing
programs. The Company does not expect FAS 146 to impact the timing or
recognition of costs associated with future exit or disposal activities.
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES: In
November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). The interpretation
provides guidance on the guarantor's accounting and disclosure requirements
for guarantees, including indirect guarantees of indebtedness. The
accounting guidelines are applicable to guarantees issued after December
31, 2002, irrespective of the guarantor's fiscal year-end. However, the
disclosure requirements are effective for financial statements that end
after December 15, 2002. The Company has adopted the disclosure provisions
of FIN 45 during the fourth quarter of 2002.
ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE: In
December 2002, the FASB issued Statement of Financial Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FAS 123" ("FAS 148"). FAS 148 provides additional transition
guidance for those entities that elect to voluntarily adopt the accounting
provisions of FAS 123, Accounting for Stock-Based Compensation. FAS 148
also mandates certain new disclosures that are incremental to those
required by FAS 123. The provisions of FAS 148 are effective for fiscal
years ending after December 15, 2002. The Company adopted the disclosure
provisions of FAS 148 during the fourth quarter of 2002.
The following table illustrates the effect on net loss, compensation
expense and loss per share as if the Black-Scholes fair value method
described in FAS 123, "Accounting for Stock-Based Compensation" had been
applied to the Company's stock plans.
Year Ended December 31,
(In thousands, except per share data) 2002 2001 2000
-------- -------- --------
Net loss available to common shareholders:
Net loss available to common shareholders, as reported $ (1,050) $ (5,280) $ (664)
Add: Stock-based compensation expense included in reported
net loss, net of tax 118 169 120
Deduct: Stock-based compensation expense determined under
fair value based method for all awards, net of tax (616) (870) (627)
-------- -------- --------
Pro forma net loss available to common shareholders $ (1,548) $ (5,981) $ (1,171)
======== ======== ========
Net loss per share:
Basic and diluted:
As report $ (0.19) $ (0.95) $ (0.12)
Pro Forma $ (0.28) $ (1.08) $ (0.21)
24
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RECEIVABLES
Receivables are net of the allowance for doubtful accounts. The
reconciliation of the allowance for doubtful accounts is as follows:
Year Ended December 31,
2002 2001 2000
------ ------ ------
(In thousands)
Balance at beginning of period $ 84 $ 107 $ 132
Doubtful accounts provision (reversal) (2) 45 (24)
Accounts written off, net of recoveries (4) (68) (1)
------ ------ ------
Balance at end of period $ 78 $ 84 $ 107
====== ====== ======
4. INVENTORIES
The components of inventories are:
December 31,
(In thousands) 2002 2001
-------- --------
Raw materials and component parts $ 8,339 $ 10,299
Work-in-process 1 25
Finished goods 95 309
-------- --------
$ 8,435 $ 10,633
======== ========
5. FIXED ASSETS
The components of fixed assets are:
December 31,
(In thousands) 2002 2001
-------- --------
Tooling, machinery and equipment $ 10,841 $ 11,295
Furniture, office and computer equipment 3,291 4,107
Leasehold improvements 465 794
-------- --------
14,597 16,196
Less: accumulated depreciation and amortization (10,673) (11,006)
-------- --------
$ 3,924 $ 5,190
======== ========
6. ACCRUED LIABILITIES
The components of accrued liabilities are:
December 31,
(In thousands) 2002 2001
-------- --------
Payroll and fringe benefits $ 505 $ 533
Income taxes 455 604
Warranty 644 710
Deferred revenue 967 551
Rent and occupancy 326 290
Other 695 632
-------- --------
$ 3,592 $ 3,320
======== ========
25
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACCRUED PRODUCT WARRANTY LIABILITY
The following table summarizes the activity recorded in the accrued
product warranty liability during 2002 and 2001:
Year ended December 31,
(In thousands) 2002 2001
------- -------
Balance, beginning of year $ 710 $ 603
Additions related to warranties issued 394 609
Warranty costs incurred (460) (502)
------- -------
Balance, end of year $ 644 $ 710
======= =======
8. ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING EXPENSES
In February 2001, the Company announced plans to establish a global
engineering and manufacturing center at its Ithaca, NY facility. As part of
this strategic decision, the Company undertook a plan to consolidate all
manufacturing and engineering into its existing Ithaca, NY facility and
close its Wallingford, CT facility (the "Consolidation"). As of December
31, 2001, substantially all Wallingford product lines were successfully
transferred to Ithaca, NY. The Company currently maintains a small
component production line and service depot in Wallingford. The closing of
the Wallingford facility resulted in the termination of employment of
approximately 70 production, administrative and management employees. The
Company has applied the consensus set forth in EITF 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a Restructuring)" in
recognizing the accrued restructuring expenses.
During 2002, the Company incurred $958,000 of Consolidation expenses.
Approximately $900,000 of these expenses was the result of a revision to
the Company's estimate for non-cancelable lease payments included in the
restructuring accrual. Based on regional softness in demand in the
commercial real estate market, the Company increased its restructuring
accrual by approximately $900,000 to reflect the longer period of time now
projected to sublease its Wallingford, CT facility. The accrual now
includes estimated non-cancelable lease payments and other related costs
through September 30, 2004.
The following table summarizes the activity recorded in the
restructuring accrual during 2002 and 2001.
Year ended December 31,
(In thousands) 2002 2001
--------- -------
Accrual balance, beginning of year $ 3,002 $ 105
--------- -------
Business consolidation and restructuring expenses:
Employee severance and termination expenses (1) 75 2,070
Facility closure and consolidation expenses (2) 883 1,251
--------- -------
958 3,321
--------- -------
Cash payments (2,242) (424)
--------- -------
Accrual balance, end of year $ 1,718 $ 3,002
========= =======
(1) Employee severance and termination related expenses are the estimated
termination salaries, benefits, outplacement, counseling services and other
related costs expected to be paid to employees who are involuntarily
terminated.
(2) Facility closure and consolidation expenses are the estimated costs to close
the Wallingford, CT facility including lease termination costs and other
related costs, in accordance with the restructuring plan. The Wallingford
facility closure was substantially completed by December 31, 2001.
26
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. ACCRUED BUSINESS CONSOLIDATION AND RESTRUCTURING EXPENSES (CONTINUED)
At December 31, 2002, $818,000 of the restructuring accrual was
classified as a long-term liability. This represents the portion of
non-cancelable lease termination costs and other costs expected to be paid
beyond one year.
The following table summarizes the components of all charges related to
the Consolidation.
Year ended December 31,
(In thousands) 2002 2001
------- -------
Business consolidation and restructuring expenses $ 958 $ 3,321
Accelerated depreciation and asset disposal losses (1) - 775
------- -------
Total business consolidation, restructuring and
related charges $ 958 $ 4,096
======= =======
(1) Represents accelerated depreciation ($680) and asset disposal losses ($95)
on certain leasehold improvements and other fixed assets incurred during
2001, due to the closing of the Wallingford facility. These charges are
included in general and administrative expenses.
9. EMPLOYEE BENEFIT PLANS
RETIREMENT SAVINGS PLAN: On April 1, 1997, the Company established the
TransAct Technologies Retirement Savings Plan (the "401(k) Plan"), a
defined contribution plan under Section 401(k) of the Internal Revenue
Code. All full-time employees are eligible to participate in the 401(k)
Plan at the beginning of the calendar quarter immediately following their
date of hire. The Company matches employees' contributions at a rate of 50%
of employees' contributions up to the first 6% of the employees'
compensation contributed to the 401(k) Plan. The Company's matching
contributions were $158,000, $204,000 and $203,000 in 2002, 2001 and 2000,
respectively.
EMPLOYEE STOCK PURCHASE PLAN: In May 2000, the Company's shareholders
approved the Employee Stock Purchase Plan (the "ESPP"), under which 50,000
shares of the Company's common stock are available for issuance to
employees beginning June 1, 2000. All full-time employees are eligible to
participate in the ESPP at the beginning of each six-month period (the
"Offering Period"), which begins on June 1 and December 1. Eligible
employees may elect to withhold up to 5% of their salary to purchase shares
of the Company's common stock at a price equal to 85% of the fair market
value of the stock on the first or last day of each Offering Period,
whichever is lower. The ESPP will terminate at the earlier of May 31, 2005
or the date on which all 50,000 shares available for issuance under the
ESPP have been sold. The Company sold 4,849, 6,443 and 4,827 shares of
common stock under the ESPP during 2002, 2001 and 2000, respectively. At
December 31, 2002, 33,881 shares remained available for sale. Compensation
costs related to the ESPP are immaterial.
27
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BORROWINGS
On May 25, 2001, the Company entered into a new, three-year, $13.5
million credit facility (the "LaSalle Credit Facility") with LaSalle
Business Credit, Inc. ("LaSalle") expiring on May 25, 2004. The LaSalle
Credit Facility replaced the Company's prior credit facility with Webster
Bank. The LaSalle Credit Facility provides a $12 million revolving credit
line, a $0.5 million term loan and a $1 million equipment loan facility.
Borrowings under the revolving credit line bear a floating rate of interest
at LaSalle's prime rate. Borrowings under both the term loan and equipment
loan bear a floating rate of interest at LaSalle's prime rate plus 0.50%.
Under certain circumstances, the Company may select a fixed interest rate
for a specified period of time of up to 180 days on borrowings based on the
current LIBOR rate plus 2.50% and 3.0% under the revolving credit line
facility, and the term and equipment loan facilities, respectively. The
Company also pays a fee of 0.25% on unused borrowings under the revolving
credit line and equipment loan facilities. Borrowings under the LaSalle
Credit Facility are secured by a lien on all the personal property assets
of the Company. The LaSalle Credit Facility also imposes certain financial
covenants on the Company and restricts the payment of dividends on its
common stock and the creation of other liens. Concurrent with the signing
of the LaSalle Credit Facility, the Company borrowed $500,000 under the
term loan. Principal installment payments for the term loan of $8,333, plus
accrued interest, are due on the first day of each month beginning July 1,
2001, with the unpaid principal balance due on May 25, 2004. The Company
had no borrowings under the equipment loan during 2002 or 2001.
On October 30, 2001, the Company amended the LaSalle Credit Facility.
Under the terms of the amendment ("LaSalle Amendment No. 1"), LaSalle (1)
waived compliance with the minimum EBITDA financial covenant as of
September 30, 2001, (2) revised certain other financial covenants through
December 31, 2001, (3) increased the floating rate of interest on
borrowings under the revolving credit line to LaSalle's prime rate plus
1.0% (5.25% at December 31, 2002), or the current LIBOR rate plus 3.5%, and
(4) increased the floating rate of interest on borrowings under the term
loan and equipment loan to LaSalle's prime rate plus 1.5% (5.75% at
December 31, 2002), or the current LIBOR rate plus 4.0%. Upon execution of
LaSalle Amendment No. 1, the Company paid a fee of $20,000 to LaSalle.
On December 21, 2001, the Company amended the LaSalle Credit Facility
to reset certain financial covenants for 2002 and beyond ("LaSalle
Amendment No. 2"). Upon execution of LaSalle Amendment No. 2, the Company
paid a fee of $5,000 to LaSalle.
On November 12, 2002, the Company amended the LaSalle Credit Facility.
Under the terms of the amendment ("LaSalle Amendment No. 3"), LaSalle (1)
waived compliance with the minimum EBITDA covenant, minimum tangible net
worth and fixed charge coverage ratio financial covenants as of September
30, 2002 and (2) revised these covenants to exclude the effect of $900,000,
of the total $912,000, of restructuring charges incurred in the third
quarter. Absent the $900,000 restructuring charge, the Company would have
been in compliance with the above covenants at September 30, 2002. Upon
execution of LaSalle Amendment No. 3, the Company paid a fee of $20,000 to
LaSalle.
On March 24, 2003, the Company amended the LaSalle Credit Facility.
Under the terms of the amendment ("LaSalle Amendment No. 4"), LaSalle (1)
waived compliance with the minimum EBITDA covenant as of December 31, 2002,
(2) revised this covenant and certain other financial covenants through May
2004 and (3) eliminated the availability of the $1 million equipment loan
facility due to expire in May 2003. In addition, LaSalle has restricted $1
million of our borrowing availability under the revolving credit line
pending the outcome of the Company's patent analysis and discusssions
regarding the possible use of technology covered by recently issued
patents of a third party competitor (See Note 11). Upon execution of
LaSalle Amendment No. 4, the Company paid a fee of $25,000 to LaSalle.
As of December 31, 2002, the Company had $2,541,000 and $350,000
outstanding on the revolving credit line and term loan, respectively, and
no borrowings outstanding on the equipment loan, leaving undrawn
commitments under the LaSalle Credit Facility of $9,459,000.
28
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
In November 2002, the Company was advised that certain POS printers
sold by the Company since late 1999 may use technology covered by recently
issued patents of a third party competitor. The Company is analyzing the
cited patents for validity and applicability to the Company's products. In
an effort to resolve this matter, the Company has offered to pay
approximately $160,000, while the other party seeks payment of up to
$950,000. While the outcome of the Company's patent analysis and
discussions cannot be predicted, the Company has recognized a charge of
$160,000 in cost of sales in the fourth quarter of 2002. This charge
represents what the Company believes to be a fair and reasonable payment.
At December 31, 2002, 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 was approximately
$975,000, $983,000 and $991,000 in 2002, 2001 and 2000, 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, 2002 are as follows: $945,000 in 2003; $945,000 in 2004;
$954,000 in 2005; $945,000 in 2006; $965,000 in 2007 and $2,626,000
thereafter.
12. STOCK INCENTIVE PLANS AND WARRANTS
STOCK INCENTIVE PLANS. The Company currently has three primary stock
incentive plans: the 1996 Stock Plan which provides for the grant of awards
to officers and other key employees of the Company, the 1996 Directors'
Stock Plan which provides for non-discretionary awards to non-employee
directors, and the 2001 Employee Stock Plan which provides for the grant of
awards to key employees of the Company and other non-employees who may
provide services to the Company. The plans generally provide for awards in
the form of: (i) incentive stock options, (ii) non-qualified stock options,
(iii) shares of restricted stock, (iv) restricted units, (v) stock
appreciation rights or (vi) limited stock appreciation rights. However, the
2001 Employee Stock Plan does not provide for incentive stock option
awards. Options granted under these plans are at prices equal to 100% of
the fair market value of the common stock at the date of grant. Options
granted have a ten-year term and generally vest over a three- to five-year
period, unless automatically accelerated for certain defined events. At
December 31, 2002, the Company has reserved 1,150,000, 140,000 and 150,000
shares of common stock for issuance under the 1996 Stock Plan, the 1996
Directors' Stock Plan, and the 2001 Employees Stock Plan, respectively.
OPTION EXCHANGE OFFER. In November 2001, the Company announced an offer
to certain officers to exchange outstanding employee stock options having
an exercise price of $9.00 or more per share in return for new stock
options to be granted by the Company (the "Exchange Offer"). Pursuant to
the Exchange Offer, the option holder received a commitment for the grant
of one new option for each option tendered and accepted for exchange, no
sooner than six months and one day from November 16, 2001. A total of
215,000 options were accepted for exchange under the Exchange Offer and
were canceled in November 2001 (and treated as canceled in 2001 in the
table below). The new options were granted on May 17, 2002, and vested 25%
immediately upon grant with the remainder vesting 25% annually over the
next three years. The new options have an exercise price equal to the fair
market value of the Company's common stock on the date of grant.
29
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)
The 1996 Stock Plan, 1996 Directors' Stock Plan and 2001 Employee Stock
Plan option activity is summarized below:
Year Ended December 31,
2002 2001 2000
------------------------- ------------------------ ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- -------- --------- ------- --------
Outstanding at beginning of
period: 742,750 $ 6.95 919,000 $ 8.34 818,100 $ 7.89
Granted 366,750 5.47 189,500 5.67 190,500 9.86
Exercised (26,100) 4.24 (53,500) 4.37 (25,000) 6.05
Canceled (138,000) 7.97 (312,250) 10.71 (64,600) 7.53
-------- ------ -------- ------- ------- ------
Outstanding at end of period 945,400 $ 6.30 742,750 $ 6.95 919,000 $ 8.34
======== ====== ======== ======= ======= ======
Options exercisable at end of
period 429,845 $ 6.81 383,350 $ 7.34 436,580 $ 8.19
======== ====== ======== ======= ======= ======
Options Outstanding Options Exercisable
---------------------------------------------- --------------------------
Weighted- Weighted- Weighted-
Outstanding at Average Average Exercisable at Average
December 31, Exercise Remaining December 31, Exercise
Range of Exercise Prices 2002 Price Contractual Life 2002 Price
-------------- ---------- ---------------- -------------- ---------
(In years)
$ 2.50 - $ 5.00 225,850 $ 4.49 6.9 118,995 $ 4.37
5.01 - 7.50 456,000 5.61 8.8 116,450 5.74
7.51 - 10.00 210,800 8.65 4.9 165,800 8.57
10.01 - 12.50 47,750 10.38 6.8 23,600 10.64
12.51 - 15.00 5,000 13.75 4.1 5,000 13.75
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.
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, 2002, 2001 and
2000.
Year Ended December 31,
2002 2001 2000
----------- ----------- -----------
Risk-free interest rate 4.5% 4.6% 6.3%
Dividend yield 0% 0% 0%
Expected volatility factor 83.3% 85.5% 83.1%
Expected option term 6.4 years 6.1 years 7.1 years
Weighted average fair value of options granted during period $ 4.12 $ 4.25 $ 7.78
30
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STOCK INCENTIVE PLANS AND WARRANTS (CONTINUED)
RESTRICTED STOCK: Under the 1996 Stock Plan, the Company has granted
shares of restricted common stock, for no consideration, to its officers,
one outside director and certain key employees. The 1996 Stock Plan
restricted stock activity is summarized below:
Year Ended December 31,
2002 2001 2000
------- ------- -------
Outstanding shares at beginning of period 89,360 83,320 95,080
Granted - 20,000 5,000
Vested (42,094) (10,960) (12,960)
Canceled (600) (3,000) (3,800)
------- ------- -------
Outstanding shares at end of period 46,666 89,360 83,320
======= ======= =======
The weighted average fair value of restricted stock granted was $4.75
and $8.75 for 2001 and 2000, respectively. No restricted stock was granted
during 2002. Of the 46,666 shares of restricted stock outstanding at
December 31, 2002, 25,000 shares vest at the end of a five-year period,
5,000 shares vest over a five-year period, 6,666 shares vest over a
three-year period and 10,000 shares vest over a two-year period. Under
certain conditions, vesting may be automatically accelerated. Upon issuance
of the restricted stock, unearned compensation equivalent to the market
value at the date of grant is charged to a separate component of
shareholders' equity and subsequently amortized over the vesting period.
Amortization expense of $184,000, $264,000 and $277,000 was recorded during
2002, 2001 and 2000, respectively.
WARRANTS: On April 7, 2000, in connection with the sale of the
Preferred Stock, the Company issued to its investment advisors, McFarland
Dewey & Co., warrants to purchase from the Company up to 10,000 shares of
common stock at an exercise price of $9.00 per share. The warrants are
exercisable through April 7, 2005.
13. STOCKHOLDER RIGHTS PLAN
In December 1997, the Board of Directors adopted a Stockholder Rights
Plan declaring a distribution of one right (the "Rights") for each
outstanding share of the Company's common stock to shareholders of record
at December 15, 1997. Initially, each of the Rights will entitle the
registered holder to purchase from the Company one one-thousandth of a
share of Series A Preferred Stock, $0.01 par value, at a price of $69 per
one one-thousandth of a share. The Rights, however, will not become
exercisable unless and until, among other things, any person or group of
affiliated persons acquires beneficial ownership of 15 percent or more of
the then outstanding shares of the Company's Common Stock. If a person, or
group of persons, acquires 15 percent or more of the outstanding Common
Stock of the Company (subject to certain conditions and exceptions more
fully described in the Rights Agreement), each Right will entitle the
holder (other than the person, or group of persons, who acquired 15 percent
or more of the outstanding Common Stock) to purchase Preferred Stock of the
Company having a market value equal to twice the exercise price of the
Right. The Rights are redeemable, under certain circumstances, for $0.0001
per Right and will expire, unless earlier redeemed, on December 2, 2007.
On February 16, 1999, the Company amended its Stockholder Rights Plan
to remove the provision in the plan that stipulated that the plan may be
modified or redeemed only by those members of the Board of Directors who
are defined as continuing directors.
31
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INCOME TAXES
The components of the income tax benefit are as follows:
Year Ended December 31,
(In thousands) 2002 2001 2000
--------- --------- --------
Current:
Federal $ (1,493) $ (62) $ (561)
State 25 - 43
Foreign 110 56 194
--------- --------- --------
(1,358) (6) (324)
--------- --------- --------
Deferred:
Federal 987 (2,523) (94)
State (19) (219) (34)
Foreign - - 4
--------- --------- --------
968 (2,742) (124)
--------- --------- --------
Total income tax benefit $ (390) $ (2,748) $ (448)
========= ========= ========
At December 31, 2002, the Company has $3,593,000 of state net operating
loss carryforwards that begin to expire in 2005. The Company also has
approximately $373,000 in federal research and development tax credit
carryforwards that expire in 2020. The Company had foreign income before
taxes of $386,000, $232,000 and $665,000 in 2002, 2001 and 2000,
respectively.
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. The Company's gross deferred tax assets and liabilities were
comprised of the following:
December 31,
(In thousands) 2002 2001
--------- --------
Gross deferred tax assets:
Net operating losses $ 188 $ 700
Accrued restructuring expenses 635 1,109
Inventory reserves 749 371
Warranty reserves 238 262
Deferred revenue 533 226
Foreign tax credits 252 -
Other liabilities and reserves 849 834
-------- --------
3,444 3,502
Valuation allowance (439) -
-------- --------
Net deferred tax assets $ 3,005 $ 3,502
======== ========
Gross deferred tax liabilities:
Depreciation $ 558 $ -
Other 33 -
-------- --------
Net deferred tax liabilities $ 591 $ -
======== ========
32
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. INCOME TAXES (CONTINUED)
Based on current year tax law changes, the Company carried back its
federal net operating losses to prior years and received a tax refund of
approximately $1,061,000 in 2002. The Company expects to carry back its
2002 federal net operating losses to prior years, and expects to receive a
refund of approximately $228,000 in 2003. During 2002, the Company
established a valuation allowance of $439,000 on a portion of its foreign
tax credits, research and development credits and certain state net
operating loss carryforwards. Based on future financial projections and the
ability to carry back current year net operating losses, the Company has
determined that it is more likely than not that the existing net deferred
tax asset will be realized, and no additional valuation allowance is
considered necessary.
Differences between the U.S. statutory federal income tax rate and the
Company's effective income tax rate are analyzed below:
Year Ended December 31,
2002 2001 2000
----------- ----------- -----------
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal income taxes (0.3) (0.9) (0.3)
Non-deductible purchase accounting adjustments - 1.6 9.9
Tax benefit from foreign sales corporation - - (3.1)
Tax benefit from tax credits, net of valuation allowance (10.6) (1.7) (22.9)
Foreign rate differential 9.5 - (3.5)
Other (0.6) (0.8) (2.7)
----- ----- -----
Effective tax rate (36.0)% (35.8)% (56.6)%
===== ===== =====
15. DISCLOSURE REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash and cash equivalents approximates fair
value because of the short maturity of these instruments. The carrying
amount of receivables, other current assets, other assets, accounts payable
and accrued liabilities is a reasonable estimate of fair value because of
the short nature of the transactions. The carrying value of long-term debt
approximates the fair value based upon the variable rate on that debt.
33
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SIGNIFICANT TRANSACTIONS
OTHER INCOME: In June 2002, the Company received 2,146 shares of common
stock from its health insurance company, Anthem, Inc., upon its
demutualization. The Company sold these shares in August 2002 for
approximately $145,000, and included this amount in Other Income.
PREFERRED STOCK SALE: On April 7, 2000 the Company sold 4,000 shares of
7% Series B Cumulative Convertible Redeemable Preferred Stock (the
"Preferred Stock") to Advance Capital Advisors, L.P. and its affiliate in
consideration of $1,000 per share (the "Stated Value"), for a total of
$4,000,000, less issuance costs. The Preferred Stock is convertible at any
time by the holders at a conversion price of $9.00 per common share. In
addition, the Company issued warrants pro-rata to the Preferred Stock
holders to purchase an aggregate of 44,444 shares of the Company's common
stock at an exercise price of $9.00 per common share. The warrants, valued
at $175,000, are exercisable at any time until April 7, 2005, and will be
accreted to preferred stock ratably over 60 months. The Preferred Stock is
subject to mandatory conversion into shares of the Company's common stock
when such stock has traded at $35 per share or more for a 30-day period
ending on or after April 7, 2003, or for a 60-day period beginning on or
after April 7, 2002. The Preferred Stock is redeemable at the option of the
holders on or after April 7, 2005 at $1,000 per share plus any unpaid
dividends. On April 7, 2007, the Company has the right to require (1)
redemption of the Preferred Stock at $1,000 per share plus any unpaid
dividends or (2) conversion of the Preferred Stock at $9.00 per common
share. Upon a change of control (which the Company does not believe
probable), holders have the right to require the Company to redeem the
Preferred Stock for 200% of the Stated Value plus any unpaid dividends. The
holders of the Preferred Stock have certain voting rights and are entitled
to receive a cumulative annual dividend of $70 per share, payable quarterly
and have preference to any other dividends, if any, paid by the Company.
Concurrent with the issuance of the Preferred Stock, the Company
recorded a beneficial conversion charge. The beneficial conversion charge
was calculated as the difference between the assigned fair value of the
Preferred Stock and the fair value of the related common stock, as of April
7, 2000, into which the Preferred Stock was immediately convertible.
Accordingly, a deemed preferred dividend of approximately $56,000 as of the
issuance date has been recognized as a charge to retained earnings and net
loss attributable to common shareholders, and as an increase to additional
paid-in capital.
LOAN TO OFFICER: On February 23, 1999, with the Board of Directors'
approval, the Company provided a $330,000 loan to an officer of the
Company. The loan proceeds were used to purchase 104,000 shares of the
Company's common stock on the open market during January and February 1999.
The loan is payable on February 23, 2004, and is a full recourse obligation
to the officer collateralized by 154,000 shares of the Company's common
stock, which includes 50,000 shares of restricted stock. The loan currently
bears interest at a rate equivalent to the Company's average borrowing rate
under its current credit facility. Interest payments through December 31,
2001 were added to the principal amount of the loan. During 2002, interest
was compounded and added to principal monthly and is payable at maturity.
Thereafter, interest will accrue monthly and be payable at maturity. The
principal amount of the loan is deducted from shareholders' equity. The
total amount of the loan including accrued interest is approximately
$434,000 at December 31, 2002.
17. INTERNATIONAL OPERATIONS
The Company has foreign operations primarily from TransAct Technologies
Ltd., a wholly-owned subsidiary, which had sales to its customers of
$738,000, $1,791,000 and $11,164,000 in 2002, 2001 and 2000, respectively.
The Company had export sales to its foreign customers from the United
States of approximately $3,968,000, $6,131,000 and $5,156,000 in 2002, 2001
and 2000, respectively.
34
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's quarterly results of operations for the years ended
December 31, 2002, 2001 and 2000 (unaudited) are as follows:
Quarter Ended
-----------------------------------------------------------
(In thousands, except per share amounts) March 31 June 30 September 30 December 31
--------- --------- ------------ -----------
2002:
Net sales $ 10,525 $ 10,921 $ 8,852 $ 9,163
Gross profit 2,626 3,112 2,302 2,176
Net income (loss) (129) 289 (709) (143)
Net income (loss) available to common Shareholders (219) 200 (799) (232)
Net income (loss) per share:
Basic and diluted (0.04) 0.04 (0.14) (0.04)
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------
2001:
Net sales $ 9,773 $ 10,796 $ 13,234 $ 10,171
Gross profit 1,803 2,413 3,570 1,988
Net loss (1,757) (1,220) (162) (1,783)
Net loss available to common shareholders (1,847) (1,309) (252) (1,872)
Net loss per share:
Basic and diluted (0.33) (0.24) (0.05) (0.34)
March 25 June 24 September 23 December 31
--------- --------- ------------ -----------
2000:
Net sales $ 11,238 $ 13,740 $ 14,604 $ 14,138
Gross profit 3,013 3,665 3,867 3,597
Net income (loss) (300) (186) 290 (148)
Net income (loss) available to common Shareholders (300) (326) 200 (238)
Net income (loss) per share:
Basic and diluted (0.05) (0.06) 0.04 (0.04)
35
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 20, 2003 is hereby incorporated herein by reference. Also, see
information under "Executive Officers of Registrant" in Item 1.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in "Executive Compensation" other than the
"Compensation Committee Report on Executive Compensation" of the Proxy Statement
is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
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.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days of the filing of this report, an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures was conducted under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures were adequate
and designed to ensure that information required to be disclosed by the Company
in this report is recorded, processed, summarized and reported in a timely
manner, including that such information is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
There were no significant changes in internal controls or in other
factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses in internal controls, subsequent to the evaluation described above.
Reference is made to the Certifications of the Chief Executive
Officer and Chief Financial Officer about these and other matters following the
signature page of this report.
36
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS
PART OF THIS REPORT:
Financial statements
(i) See Item 8.
(ii) Financial statement schedules
All schedules are omitted since the required information is
either (a) not present or not present in amounts sufficient to
require submission of the schedule or (b) included in the
financial statements or notes thereto.
37
(iii) List of exhibits
3.1(a) Certificate of Incorporation of the Company, filed with the (2)
Secretary of State of Delaware on June 17, 1996.
3.1(b) Certificate of Amendment of Certificate of Incorporation of (4)
the Company, filed with the Secretary of State of Delaware on
June 4, 1997.
3.1(c) Certificate of Designation, Series A Preferred Stock, filed (5)
with the Secretary of State of Delaware on December 2, 1997.
3.1(d) Certificate of Designation, Series B Preferred Stock, filed (8)
with the Secretary of State of Delaware on April 6, 2000.
3.2 Amended and Restated By-laws of the Company. (6)
4.1 Specimen Common Stock Certificate. (2)
4.2 Amended and Restated Rights Agreement between TransAct and (5)
American Stock Transfer & Trust Company dated February
16, 1998.
10.1 Tax Sharing Agreement dated as of July 31, 1996 between Tridex (3)
and TransAct.
10.2(x) 1996 Stock Plan, effective July 30, 1996. (3)
10.3(x) Non-Employee Directors' Stock Plan, effective August 22, 1996. (3)
10.4(x) 2000 Employee Stock Purchase Plan (9)
10.5(x) 2001 Employee Stock Plan (11)
10.6 Lease Agreement by and between Bomax Properties and Ithaca, (2)
dated as of March 23, 1992.
10.7 Second Amendment to Lease Agreement by and between Bomax (4)
Properties and Ithaca, dated December 2, 1996.
10.8 Agreement regarding the Continuation and Renewal of Lease by (14)
and between Bomax Properties, LLC and TransAct, dated
July 18, 2001.
10.9 Lease Agreement by and between Pyramid Construction Company (4)
and Magnetec, dated July 30, 1997.
10.10(x) Employment Agreement, dated July 31, 1996, by and between the (2)
Company and Bart C.Shuldman.
10.11(x) Employment Agreement, dated July 31, 1996, by and between the (2)
Company and Richard L. Cote.
10.12(x) Severance Agreement by and between TransAct and Lucy H.Staley, (3)
dated September 4, 1996.
10.13(x) Release and Settlement Agreement by and between TransAct and (14)
Lucy H. Staley, dated December 4, 2001
10.14(x) Severance Agreement by and between TransAct and Michael (3)
S. Kumpf, dated September 4, 1996.
10.15(x) Severance Agreement by and between TransAct and Steven (6)
A. DeMartino, dated January 21, 1998.
10.16(x) Severance Agreement by and between TransAct and Mark Goebel, (10)
dated July 31, 1996.
10.17(x) Release and Settlement Agreement by and between TransAct and (14)
Mark Goebel, dated March 1, 2002
10.18(x) Severance Agreement by and between TransAct and James B. (10)
Stetson, dated January 24, 2001.
10.19 Loan Agreement by and between the Company and Bart C. (14)
Shuldman, dated July 1, 2001
10.20 Loan Agreement by and between the Company and Bart C. (15)
Shuldman, dated January, 2002
38
10.21 OEM Purchase Agreement by and between GTECH Corporation, (7)
TransAct Technologies and Magnetec Corporation commencing July
14, 1999. (Pursuant to Rule 24-b-2 under the Exchange Act, the
Company has requested confidential treatment of portions of
this exhibit deleted from the filed copy.)
10.22 OEM Purchase Agreement by and between GTECH Corporation and (16)
TransAct Technologies Incorporated commencing July 2, 2002.
(Pursuant to Rule 24-b-2 under the Exchange Act, the Company
has requested confidential treatment of portions of this
exhibit deleted from the filed copy.)
10.23 OEM Purchase Agreement by and between Okidata Americas, Inc. (14)
and TransAct, dated June 8, 2001. (Pursuant to Rule 24b-2
under the Exchange Act, the Company has requested confidential
treatment of portions of this exhibit deleted from the filed
copy.)
10.24 Preferred Stock Purchase Agreement and Certificate of (8)
Designation dated as of March 20, 2000 between TransAct
Technologies Incorporated and Advance Capital Partners, L.P.
and affiliate
10.25 Loan and Security Agreement dated as of May 25, 2001 among (12)
TransAct, LaSalle Business Credit, Inc. ("LaSalle") and the
institutions from time to time a party thereto.
10.26 Waiver and Amendment No. 1 to Loan and Security Agreement (13)
dated as of October 30, 2001 among TransAct, LaSalle and the
institutions from time to time a party thereto.
10.27 Amendment No. 2 to Loan and Security Agreement dated as of (14)
December 21, 2001 among TransAct, LaSalle and the institutions
from time to time a party thereto.
10.28 Waiver and Amendment No. 3 to Loan and Security Agreement (17)
dated as of November 12, 2002 among TransAct, LaSalle and the
institutions from time to time a party thereto.
10.29 Waiver and Amendment No. 4 to Loan and Security Agreement (1)
dated as of March 24, 2003 among TransAct, LaSalle and the
institutions from time to time a party thereto.
11.1 Computation of earnings per share. (1)
21.1 Subsidiaries of the Company. (1)
23.1 Consent of PricewaterhouseCoopers LLP. (1)
99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted (1)
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(1) These exhibits are filed herewith.
(2) These exhibits, which were previously filed with the Company's
Registration Statement on Form S-1 (No. 333-06895), are
incorporated by reference.
(3) These exhibits, which were previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1996, are incorporated by reference.
(4) These exhibits, which were previously filed with the Company's
Annual Report on Form 10-K for the year ended December 31,
1997, are incorporated by reference.
(5) This exhibit, which was previously filed with the Company's
Current Report on Form 8-K filed February 18, 1999, is
incorporated by reference.
(6) These exhibits, which were previously filed with the Company's
Annual Report on Form 10-K for the year ended December 31,
1998, are incorporated by reference.
(7) This exhibit, which was previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended September
25, 1999, is incorporated by reference.
(8) This exhibit, which was previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended March 25,
2000, is incorporated by reference.
(9) This exhibit, which was previously filed with the Company's
Registration Statement on Form S-8 (No. 333-49540), is
incorporated by reference.
(10) These exhibits, which were previously filed with the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, are incorporated by reference.
39
(11) This exhibit, which was previously filed with the Company's
Registration Statement on Form S-8 (No. 333-59570), is
incorporated by reference.
(12) This exhibit, which was previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
2001, is incorporated by reference.
(13) This exhibit, which was previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 2001, is incorporated by reference.
(14) These exhibits, which were previously filed with the Company's
Annual Report on Form 10-K for the year ended December 31,
2001, are incorporated by reference.
(15) This exhibit, which was previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
2002, is incorporated by reference.
(16) This exhibit, which was previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
2002, is incorporated by reference.
(17) This exhibit, which was previously filed with the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 2002, is incorporated by reference.
(x) Management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c).
(B) REPORTS ON FORM 8-K.
None.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRANSACT TECHNOLOGIES INCORPORATED
By: /s/ Bart C. Shuldman
-------------------------------------
Bart C. Shuldman
Chairman of the Board, President and
Chief Executive Officer
Date: March 31, 2003
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Bart C. Shuldman Chairman of the Board, President and March 31, 2003
- ------------------------- Chief Executive Officer
Bart C. Shuldman (Principal Executive Officer)
/s/ Richard L. Cote Executive Vice President, Chief Financial March 31, 2003
- ------------------------- Officer, Treasurer, Secretary and Director
Richard L. Cote (Principal Financial Officer)
/s/ Steven A. DeMartino Senior Vice President, Finance March 31, 2003
- ------------------------- and Information Technology
Steven A. DeMartino (Principal Accounting Officer)
/s/ Charles A. Dill Director March 31, 2003
- -------------------------
Charles A. Dill
/s/ Jeffrey T. Leeds Director March 31, 2003
- -------------------------
Jeffrey T. Leeds
/s/ Thomas R. Schwarz Director March 31, 2003
- -------------------------
Thomas R. Schwarz
/s/ Graham Y. Tanaka Director March 31, 2003
- -------------------------
Graham Y. Tanaka
41
CERTIFICATION
I, Bart C. Shuldman, certify that:
1. I have reviewed this annual report on Form 10-K of TransAct Technologies
Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Bart C. Shuldman
- --------------------
Bart C. Shuldman
Chairman, President and Chief Executive Officer
42
CERTIFICATION
I, Richard L. Cote, certify that:
1. I have reviewed this annual report on Form 10-K of TransAct Technologies
Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Richard L. Cote
- -------------------
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
43
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
10.29 Waiver and Amendment No. 4 to Loan and Security Agreement dated as of
March 24, 2003 among TransAct, LaSalle and the institutions from time
to time a party thereto.
11.1 Computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002
44