TransAct Technologies (TACT) 10-Q 10 May 17 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - USD ($)	3 Months Ended
	Mar. 31, 2017	Oct. 31, 2016	Jun. 30, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	TRANSACT TECHNOLOGIES INC
Entity Central Index Key	1,017,303
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 0
Entity Common Stock, Shares Outstanding		0
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2017

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 2,429	$ 2,503
Accounts receivable, net	9,304	10,585
Inventories	9,962	9,707
Other current assets	541	372
Total current assets	22,236	23,167
Fixed assets, net of accumulated depreciation of $18,991 and $18,336, respectively	2,228	2,241
Goodwill	2,621	2,621
Deferred tax assets	3,410	3,432
Intangible assets, net of accumulated amortization of $3,024, and $2,779, respectively	464	545
Other assets	37	36
Total noncurrent assets	8,760	8,875
Total assets	30,996	32,042
Current liabilities:
Accounts payable	3,556	4,894
Accrued liabilities	1,676	2,394
Income taxes payable	529	19
Deferred revenue	233	117
Total current liabilities	5,994	7,424
Deferred revenue, net of current portion	67	67
Deferred rent, net of current portion	179	178
Other liabilities	260	264
Total noncurrent liabilities	506	509
Total liabilities	6,500	7,933
Shareholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized; 11,185,331 and 11,170,881 shares issued, respectively; 7,383,364 and 7,782,292 shares outstanding, respectively	112	112
Additional paid-in capital	29,761	29,701
Retained earnings	24,482	24,157
Treasury stock, 3,851,967 and 3,388,589 shares, at cost	(107)	(109)
Treasury stock, at cost, 3,801,967 and 3,388,589 shares, respectively	(29,752)	(29,752)
Total shareholders' equity	24,496	24,109
Total liabilities and shareholders' equity	$ 30,996	$ 32,042

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Assets:
Fixed assets, accumulated depreciation	$ 19,449	$ 19,215
Intangible assets, accumulated amortization	$ 3,203	$ 3,122
Shareholders' equity:
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	11,198,426	11,185,331
Common stock, shares outstanding (in shares)	7,346,459	7,333,364
Treasury stock (in shares)	3,851,967	3,851,967

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]
Net sales	$ 13,997	$ 14,357
Cost of sales	7,904	8,472
Gross profit	6,093	5,885
Operating expenses:
Engineering, design and product development	993	1,236
Selling and marketing	1,672	1,793
General and administrative	2,012	1,917
Operating expenses	4,677	4,946
Operating income	1,416	939
Interest and other income (expense):
Interest, net	(8)	(4)
Other, net	(6)	1
Interest and other income (expense)	(14)	(3)
Income before income taxes	1,402	936
Income tax provision	459	311
Net income	$ 943	$ 625
Net income per common share:
Basic (in dollars per share)	$ 0.13	$ 0.08
Diluted (in dollars per share)	$ 0.13	$ 0.08
Shares used in per-share calculation:
Basic (in shares)	7,396	7,834
Diluted (in shares)	7,445	7,883
Dividends declared and paid per common share (in dollars per share)	$ 0.08	$ 0.08

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) [Abstract]
Net income	$ 943	$ 625
Foreign currency translation adjustment, net of tax	2	(4)
Comprehensive income	$ 945	$ 621

CONDENSED CONSOLIDATED STATEME6

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net income	$ 943	$ 625
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense	146	145
Depreciation and amortization	313	324
Deferred income tax provision	21	115
Foreign currency transaction (gains) losses	8	(2)
Changes in operating assets and liabilities:
Accounts receivable	1,282	(2,179)
Inventories	(254)	1,375
Other current and long term assets	(169)	(252)
Accounts payable	(1,324)	1,305
Accrued liabilities and other liabilities	(195)	(1,677)
Net cash provided by operating activities	771	(221)
Cash flows from investing activities:
Capital expenditures	(234)	(221)
Net cash used in investing activities	(234)	(221)
Cash flows from financing activities:
Payment of dividends on common stock	(587)	(623)
Purchases of common stock for treasury	0	(510)
Incremental tax benefits on stock options exercised	(18)	0
Net cash used in financing activities	(605)	(1,133)
Effect of exchange rate changes on cash and cash equivalents	(6)	(6)
Decrease in cash and cash equivalents	(74)	(1,581)
Cash and cash equivalents, beginning of period	2,503	4,473
Cash and cash equivalents, end of period	2,429	2,892
Supplemental schedule of non-cash investing activities:
Capital expenditures funded by accounts payable	$ 98	$ 66

Basis of presentation

Basis of presentation	3 Months Ended
	Mar. 31, 2017
Basis of presentation [Abstract]
Basis of presentation	1. Basis of presentation The accompanying unaudited financial statements of TransAct Technologies Incorporated ("the Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America to be included in full year financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the periods presented have been included and are of a normal recurring nature. The December 31, 2016 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016 included in our Annual Report on Form 10-K. The financial position and results of operations of our U.K. subsidiary are measured using local currency as the functional currency. Assets and liabilities of such subsidiary have been translated at the end of period exchange rates, and related revenues and expenses have been translated at the weighted average exchange rates with the resulting translation gain or loss recorded in accumulated other comprehensive income (loss) in the Condensed Consolidated Balance Sheets. Transaction gains and losses are included in other income (expenses) in the Condensed Consolidated Statements of Income. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year.

Inventories

Inventories	3 Months Ended
	Mar. 31, 2017
Inventories [Abstract]
Inventories	2. Inventories, net The components of inventories are: March 31, 2017 December 31, 2016 (In thousands) Raw materials and purchased component parts $ 7,342 $ 6,298 Work-in-process - 8 Finished goods 2,620 3,401 $ 9,962 $ 9,707

Accrued product warranty liabil

Accrued product warranty liability	3 Months Ended
	Mar. 31, 2017
Accrued product warranty liability [Abstract]
Accrued product warranty liability	3. Accrued product warranty liability We generally warrant our products for up to 24 months 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 repairs and the related estimated cost of labor and material to make the necessary repairs. The following table summarizes the activity recorded in the accrued product warranty liability during the three months ended March 31, 2017 and 2016: Three Months Ended March 31, 2017 2016 (In thousands) Balance, beginning of period $ 267 $ 277 Warranties issued 55 80 Warranty settlements (65 ) (74 ) Balance, end of period $ 257 $ 283 $167,000 of the accrued product warranty liability is classified as current in Accrued liabilities at March 31, 2017 in the Condensed Consolidated Balance Sheets. The remaining $90,000 of the accrued product warranty liability is classified as long-term in Other liabilities.

Earnings per share

Earnings per share	3 Months Ended
	Mar. 31, 2017
Earnings per share [Abstract]
Earnings per share	4. Earnings per share The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding: Three Months Ended March 31, 2017 2016 (In thousands, except per share data) Net income $ 943 $ 625 Shares: Basic: Weighted average common shares outstanding 7,396 7,834 Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method 49 49 Diluted: Weighted average common and common equivalent shares outstanding 7,445 7,883 Net income per common share: Basic $ 0.13 $ 0.08 Diluted $ 0.13 $ 0.08 The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options and restricted stock units, when the average market price of the common stock is lower than the exercise price of the related stock award during the period. These outstanding stock awards are not included in the computation of diluted earnings per share because the effect would be anti-dilutive. For the three months ended March 31, 2017 and 2016, there were 846,000 and 878,000, respectively, potentially dilutive shares consisting of stock awards that were excluded from the calculation of earnings per diluted share.

Shareholders' equity

Shareholders' equity	3 Months Ended
	Mar. 31, 2017
Shareholders' equity [Abstract]
Shareholders' equity	5. Shareholders' equity Changes in shareholders' equity for the three months ended March 31, 2017 were as follows (in thousands): Balance at December 31, 2016 $ 24,109 Net income 943 Share-based compensation expense 146 Foreign currency translation adjustment 2 Relinquishment of fully vested deferred stock units (18 ) Reversal of deferred tax asset in connection with stock options forfeited (99 ) Dividends declared and paid on common stock (587 ) Balance at March 31, 2017 $ 24,496 For the three months ended March 31, 2017, our Board of Directors declared a quarterly cash dividend of $0.08 per share, totaling $587,000, which was paid in March 2017 to common shareholders of record at the close of business on February 20, 2017. For the three months ended March 31, 2016, dividends declared and paid totaled $623,000, or $0.08 per share. On April 28, 2017, our Board of Directors declared an increase to the quarterly cash dividend from $0.08 per share to $0.09 per share payable on June 15, 2017 to shareholders of record at the close of business on May 19, 2017.

Income taxes

Income taxes	3 Months Ended
	Mar. 31, 2017
Income taxes [Abstract]
Income taxes	6. Income taxes We recorded an income tax provision for the first quarter of 2017 of $459,000 at an effective tax rate of 32.7%, compared to an income tax provision during the first quarter of 2016 of $311,000 at an effective tax rate of 33.2%. We are subject to U.S. federal income tax, as well as income tax in certain state and foreign jurisdictions. We have substantially concluded all U.S. federal income tax, state and local, and foreign tax regulatory examination matters through 2012. During 2013, an examination of our 2010 federal tax return was completed. However, our federal tax returns for the years 2013 through 2015 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Condensed Consolidated Financial Statements. No state or foreign tax jurisdiction income tax returns are currently under examination. As of March 31, 2017, we had $111,000 of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. We expect $31,000 of the $111,000 of unrecognized tax benefits will reverse in 2017 upon the expiration of the statute of limitations. We recognize interest and penalties related to uncertain tax positions in the income tax provision. As of March 31, 2017, we have $$21,000 of accrued interest and penalties related to uncertain tax positions.

Accounting pronouncements

Accounting pronouncements	3 Months Ended
	Mar. 31, 2017
Accounting pronouncements [Abstract]
Accounting pronouncements	7. Accounting pronouncements The following accounting pronouncements will be adopted in future reporting periods: In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers." This ASU is intended to clarify the principles for recognizing revenue by removing inconsistencies in revenue requirements; providing a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and providing more useful information to users of financial statements through improved revenue disclosure requirements. In applying the amended guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract's performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The amended guidance applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the impact this ASU may have on our consolidated financial position, results of operations or cash flows and during the first quarter of 2017 we have engaged a national accounting firm to assist management in implementing the new standard. Entities have the option of using either a full retrospective or modified retrospective approach to adopt the amended guidance. The Company currently anticipates adopting the amended guidance using the modified retrospective transition approach, with any cumulative effect of initially adopting this standard recognized through retained earnings at the date of adoption. We will adopt the amended guidance on January 1, 2018 at which time it becomes effective for the Company. As noted above, we have engaged a national accounting firm to assist the Company in implementing the new standard. We are in the initial phases of our project and during 2017, we will further evaluate the impact of the standard, and if needed, establish policies, identify system impacts, integrate the standard into the financial reporting processes and systems, and develop an understanding of the financial impact of this statement on the Company's consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, "Leases." The core principle of this ASU requires that a lessee should recognize the leased assets and related liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact this ASU may have on our consolidated financial position, results of operation or cash flows. The following accounting pronouncements were adopted during the first quarter of 2017: In July 2015, FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." This ASU changes the measurement principle for inventory from the lower of cost or market to lower of cost or net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The provisions of this ASU are effective for years beginning after December 15, 2016. The Company adopted this guidance in the first quarter of 2017 and the adoption has not resulted in a change to the value of inventory. In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting." This ASU is intended to simplify several aspects of the accounting for share based payment transactions. The amended guidance requires that all tax effects related to share-based payments are recorded at settlement (or expiration) through the income statement, rather than through equity. Cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The amended guidance also allows for an employer to repurchase additional employee shares for tax withholding purposes without requiring liability accounting and clarifies that all cash payments made to tax authorities on an employee's behalf for withheld shares should be presented as a financing activity on the Consolidated Statements of Cash Flows. This ASU is effective for years beginning after December 15, 2016, and interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted this guidance in the first quarter of 2017. This adoption required the Company to reflect any adjustments as of January 1, 2017, the beginning of the annual period that includes the interim period of adoption. There was no impact during the first quarter of 2017 upon adopting the standard as we had no stock options exercised and did not recognize any excess tax benefits in the provision for income taxes. In the first quarter of 2016, there were no options exercised that required excess tax benefits to be recorded in additional paid-in-capital, as was required pursuant to the prior accounting guidance. In connection with the adoption of ASU 2016-09, in the first quarter of 2017, the Company made an accounting policy election to no longer estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. This election required the cumulative effect of the change to be recorded to retained earnings. As of January 1, 2017, we recorded $31,000 to decrease retained earnings and increase additional paid-in capital for the difference between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures. The presentation requirements for cash flows related to excess tax benefits and employee taxes paid for withheld shares were applied retrospectively to all periods presented. This resulted in an increase in both net cash provided by operating activities and net cash used by financing activities of $18,000 for the first three months of 2017, respectively.

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	Mar. 31, 2017
Inventories [Abstract]
Components of inventory	The components of inventories are: March 31, 2017 December 31, 2016 (In thousands) Raw materials and purchased component parts $ 7,342 $ 6,298 Work-in-process - 8 Finished goods 2,620 3,401 $ 9,962 $ 9,707

Accrued product warranty liab15

Accrued product warranty liability (Tables)	3 Months Ended
	Mar. 31, 2017
Accrued product warranty liability [Abstract]
Product warranty liability	The following table summarizes the activity recorded in the accrued product warranty liability during the three months ended March 31, 2017 and 2016: Three Months Ended March 31, 2017 2016 (In thousands) Balance, beginning of period $ 267 $ 277 Warranties issued 55 80 Warranty settlements (65 ) (74 ) Balance, end of period $ 257 $ 283

Earnings per share (Tables)

Earnings per share (Tables)	3 Months Ended
	Mar. 31, 2017
Earnings per share [Abstract]
Earnings per share	The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding: Three Months Ended March 31, 2017 2016 (In thousands, except per share data) Net income $ 943 $ 625 Shares: Basic: Weighted average common shares outstanding 7,396 7,834 Add: Dilutive effect of outstanding options and restricted stock units as determined by the treasury stock method 49 49 Diluted: Weighted average common and common equivalent shares outstanding 7,445 7,883 Net income per common share: Basic $ 0.13 $ 0.08 Diluted $ 0.13 $ 0.08

Shareholders' equity (Tables)

Shareholders' equity (Tables)	3 Months Ended
	Mar. 31, 2017
Shareholders' equity [Abstract]
Changes in shareholders' equity	Changes in shareholders' equity for the three months ended March 31, 2017 were as follows (in thousands): Balance at December 31, 2016 $ 24,109 Net income 943 Share-based compensation expense 146 Foreign currency translation adjustment 2 Relinquishment of fully vested deferred stock units (18 ) Reversal of deferred tax asset in connection with stock options forfeited (99 ) Dividends declared and paid on common stock (587 ) Balance at March 31, 2017 $ 24,496

Inventories (Details)

Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Inventories [Abstract]
Raw materials and purchased component parts	$ 7,342	$ 6,298
Work-in-process	0	8
Finished goods	2,620	3,401
Inventories	$ 9,962	$ 9,707

Accrued product warranty liab19

Accrued product warranty liability (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Accrued product warranty liability [Roll Forward]
Balance, beginning of period	$ 267	$ 277
Warranties issued	55	80
Warranty settlements	(65)	(74)
Balance, end of period	257	$ 283
Accrued product warranty liability, current	167
Accrued product warranty liability, long-term	$ 90
Maximum [Member]
Warranty [Abstract]
Product warranty period	24 months

Earnings per share (Details)

Earnings per share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Earnings per share [Abstract]
Net income	$ 943	$ 625
Shares [Abstract]
Basic: Weighted average common shares outstanding (in shares)	7,396	7,834
Add: Dilutive effect of outstanding options as determined by the treasury stock method (in shares)	49	49
Diluted: Weighted average common and common equivalent shares outstanding (in shares)	7,445	7,883
Net income per common share [Abstract]
Basic (in dollars per share)	$ 0.13	$ 0.08
Diluted (in dollars per share)	$ 0.13	$ 0.08
Stock Awards [Member]
Earnings per share [Abstract]
Anti-dilutive securities excluded from computation of earnings per dilutive share (in shares)	846	878

Shareholders' equity (Details)

Shareholders' equity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance	$ 24,109
Net income	943	$ 625
Share-based compensation expense	146
Issuance of deferred stock units, net of relinquishments	(18)
Reversal of deferred tax asset in connection with stock options forfeited	(99)
Foreign currency translation adjustment	2	$ (4)
Dividends declared and paid on common stock	(587)
Ending balance	$ 24,496
Dividends [Abstract]
Dividends declared and paid per common share (in dollars per share)	$ 0.08	$ 0.08
Payment of dividend on common stock	$ 587	$ 623

Income taxes (Details)

Income taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income taxes [Abstract]
Income tax provision	$ 459	$ 311
Effective tax rate	32.70%	33.20%
Total gross unrecognized tax benefits that would impact the effective rate	$ 111
Previously unrecognized tax benefit recognized	31
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	$ 21