1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 LASER LANE, WALLINGFORD, CT 06492
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(203) 269-1198
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AUGUST 3, 2001
- ----- --------------------------
COMMON STOCK,
$.01 PAR VALUE 5,659,778
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TRANSACT TECHNOLOGIES INCORPORATED
INDEX
PART I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1 Financial Statements
Consolidated condensed balance sheets as of June 30, 2001 and December
31, 2000 3
Consolidated condensed statements of operations for the three and six
months ended June 30, 2001 and June 24, 2000 4
Consolidated condensed statements of cash flow for the six months ended
June 30, 2001 and June 24, 2000 5
Notes to consolidated condensed financial statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Item 3 Quantitative and Qualitative Disclosures about Market Risk 15
PART II. Other Information:
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
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ITEM 1. FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
JUNE 30, December 31,
(In thousands) 2001 2000
- -------------- ---- ----
ASSETS:
Current assets:
Cash and cash equivalents $ 96 $ 992
Receivables, net 7,647 6,137
Inventories 10,354 9,857
Deferred tax assets 2,158 1,205
Other current assets 601 811
-------- --------
Total current assets 20,856 19,002
-------- --------
Fixed assets, net 6,066 6,794
Goodwill, net 1,574 1,678
Other assets 1,157 145
-------- --------
8,797 8,617
-------- --------
$ 29,653 $ 27,619
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of term loan $ 100 $ --
Accounts payable 4,352 2,690
Accrued liabilities 3,298 2,681
Accrued restructuring expenses (Note 5) 1,385 --
-------- --------
Total current liabilities 9,135 5,371
-------- --------
Revolving bank loan payable 6,686 5,944
Long-term portion of term loan 400 --
Other liabilities 417 445
-------- --------
7,503 6,389
-------- --------
Mandatorily redeemable preferred stock 3,707 3,668
-------- --------
Shareholders' equity:
Common stock 56 56
Additional paid-in capital 6,264 6,069
Retained earnings 3,773 6,929
Unamortized restricted stock compensation (348) (477)
Loan receivable from officer (330) (330)
Accumulated other comprehensive loss (107) (56)
-------- --------
Total shareholders' equity 9,308 12,191
-------- --------
$ 29,653 $ 27,619
======== ========
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, June 24, JUNE 30, June 24,
(In thousands, except per share data) 2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 10,796 $ 13,740 $ 20,569 $ 24,978
Cost of sales 8,383 10,075 16,353 18,300
-------- -------- -------- --------
Gross profit 2,413 3,665 4,216 6,678
-------- -------- -------- --------
Operating expenses:
Engineering, design and product
development costs 873 969 1,691 1,829
Selling and marketing expenses 1,309 1,490 2,455 2,745
General and administrative expenses 1,626 1,418 3,133 2,640
Business consolidation and restructuring
expenses (Note 5) 422 -- 1,446 --
-------- -------- -------- --------
4,230 3,877 8,725 7,214
-------- -------- -------- --------
Operating loss (1,817) (212) (4,509) (536)
-------- -------- -------- --------
Other income (expense):
Interest, net (88) (155) (182) (309)
Other, net (1) 19 40 36
-------- -------- -------- --------
(89) (136) (142) (273)
-------- -------- -------- --------
Loss before income taxes (1,906) (348) (4,651) (809)
Income tax benefit (686) (162) (1,674) (323)
-------- -------- -------- --------
Net loss (1,220) (186) (2,977) (486)
Dividends and accretion charges on
preferred stock (89) (140) (179) (140)
-------- -------- -------- --------
Net loss available to common
shareholders $ (1,309) $ (326) $ (3,156) $ (626)
======== ======== ======== ========
Net loss per share:
Basic and diluted $ (0.24) $ (0.06) $ (0.57) $ (0.11)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic and diluted 5,556 5,501 5,547 5,492
======== ======== ======== ========
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED
----------------
JUNE 30, June 24,
(In thousands) 2001 2000
- -------------- ---- ----
Cash flows from operating activities:
Net loss $(2,977) $ (486)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,599 1,271
Loss (gain) on disposal of equipment 67 (4)
Changes in operating assets and liabilities:
Receivables (1,510) (2,738)
Inventories (497) (2,497)
Deferred tax asset and other current assets (743) 20
Other assets (1,120) (70)
Accounts payable 1,662 1,335
Accrued liabilities and other liabilities 589 342
Accrued restructuring expenses 1,385 --
------- -------
Net cash used in operating activities (1,545) (2,827)
------- -------
Cash flows from investing activities:
Purchases of fixed assets (597) (1,886)
------- -------
Net cash used in investing activities (597) (1,886)
------- -------
Cash flows from financing activities:
Bank line of credit borrowings, net 742 1,000
Term loan borrowings, net 500 --
Proceeds from option exercises 195 120
Payment of cash dividends on preferred stock (140) (65)
Net proceeds from issuance of preferred stock -- 3,785
------- -------
Net cash provided by financing activities 1,297 4,840
------- -------
Effect of exchange rate changes on cash (51) (32)
------- -------
(Decrease) increase in cash and cash equivalents (896) 95
Cash and cash equivalents at beginning of period 992 279
------- -------
Cash and cash equivalents at end of period $ 96 $ 374
======= =======
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of TransAct Technologies Incorporated (the "Company"),
the accompanying unaudited consolidated condensed financial statements
contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly its financial position as of
June 30, 2001, the results of its operations for the three and six
months ended June 30, 2001 and June 24, 2000, and its cash flows for
the six months ended June 30, 2001 and June 24, 2000. The December 31,
2000 consolidated condensed balance sheet has been derived from the
Company's audited financial statements at that date. These interim
financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 2000 included in
the Company's Annual Report on Form 10-K. The results of operations for
interim periods are not necessarily indicative of the results to be
expected for the full year.
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 and losses are included in other income.
Effective beginning in 2001, the Company's quarterly periods
end on the last day of the calendar quarter. Prior to 2001, the Company
reported quarterly results generally on thirteen-week quarterly
periods, each ending on the Saturday closest to month-end.
2. Earnings per share
Basic earnings per common share for the three and six months
ended June 30, 2001 and June 24, 2000 were based on the weighted
average number of shares outstanding during the period. Diluted
earnings per share for the same periods were based on the weighted
average number of shares after consideration of any dilutive effect of
stock options and warrants. For the three and six months ended June 30,
2001 and June 24, 2000, the effects of potential dilutive securities
have been excluded, as they would have been anti-dilutive.
3. Inventories:
The components of inventory are:
June 30, December 31,
(In thousands) 2001 2000
---- ----
Raw materials and component parts $10,072 $9,603
Work-in-process 86 200
Finished goods 196 54
------- ------
$10,354 $9,857
======= ======
4. Significant transactions
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 $12 million 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 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.
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TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Business consolidation and restructuring
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 expects to consolidate
all manufacturing and engineering into its existing Ithaca, NY facility
and close its Wallingford, CT facility near the end of 2001 (the
"Consolidation"). Production is planned to continue at the Wallingford
facility until near the end of 2001, with individual product lines
scheduled to transfer over the course of 2001. The closing of the
Wallingford facility is expected to result in the termination of
employment of approximately 70 production, administrative and
management employees. The Company estimates that the non-recurring
costs associated with the Consolidation, including severance pay, stay
bonuses, employee benefits, moving expenses, non-cancelable lease
payments, and other costs, will be approximately $3.0 to $3.5 million
and will be recognized during 2001.
The following table summarizes the activity recorded in the
restructuring accrual during the three and six months ended June 30,
2001.
Three months Six months
Ended Ended
June 30, June 30,
(In thousands) 2001 2001
---- ----
Accrual balance, beginning of period $ 1,007 $ --
------- -------
Business consolidation and restructuring expenses:
Employee severance and termination expenses (1) 379 574
Facility closure and consolidation expenses (2) 43 872
------- -------
422 1,446
------- -------
Cash payments (44) (61)
------- -------
Accrual balance, end of period $ 1,385 $ 1,385
======= =======
(1) Employee severance and termination expenses are the estimated
termination salaries, benefits, outplacement, counseling services and
other related costs expected to be paid to employees who will be
involuntarily terminated.
(2) Facility closure and consolidation expenses are the estimated costs to
close the Wallingford, CT facility including lease termination costs
and other related costs, in accordance with the restructuring plan. The
Wallingford facility closure is expected to be completed near the end
of 2001.
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TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Business consolidation and restructuring (continued)
The following table summarized the components of all charges
related to the Consolidation.
Three months Six months
Ended Ended
June 30, June 30,
(In thousands) 2001 2001
---- ----
Business consolidation and restructuring expenses $422 $1,446
Accelerated depreciation and asset disposal losses (1) 163 261
---- ------
Total business consolidation, restructuring
and related charges $585 $1,707
==== ======
(1) Represents accelerated depreciation and asset disposal losses
on certain leasehold improvements and other fixed assets, due
to the closing of the Wallingford facility. These charges are
included in general and administrative expenses.
6. New accounting pronouncements
On July 20, 2001, the Financial Accounting Standards Board
approved Statements of Financial Accounting Standards No. 141,
"Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142").
FAS 141 supercedes Accounting Principles Board Opinion ("APB")
No. 16, "Business Combinations". The most significant changes made by
FAS 141 are: (1) requiring that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001, (2)
establishing specific criteria for the recognition of intangible assets
separately from goodwill, and (3) requiring unallocated negative
goodwill to be written off immediately as an extraordinary gain instead
of being deferred and amortized.
FAS 142 supercedes APB No. 17, "Intangibles Assets". FAS 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. The provisions of FAS 142 will be
effective for the Company for the year ended December 31, 2002. The
most significant changes made by FAS 142 are: (1) goodwill and
indefinite lived intangible assets will no longer be amortized, (2)
goodwill will be tested for impairment at least annually at the
reporting unit level, (3) intangible assets deemed to have an
indefinite life will be tested for impairment at least annually, and
(4) the amortization period of intangible assets with finite lives will
no longer be limited to forty years.
The Company has not entered into any business combinations
subsequent to June 30, 2001, however it is currently amortizing
goodwill related to the acquisition of Ithaca Peripherals, Inc. in 1991
and the ribbon business formerly conducted by Tridex Corporation in
1999. Management is currently assessing the impact that adoption of FAS
142 will have on the Company, including whether or not an impairment
adjustment would be necessary. At this time, management has not
quantified the impact of adoption on the financial statements of the
Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 by competitors; successful product development; dependence on
significant customers; dependence on third parties for sales in Europe and Latin
America; economic conditions in the United States, Europe and Latin America;
marketplace acceptance of new products; risks associated with foreign
operations; the Company's ability to successfully consolidate its operations
into its Ithaca, NY facility; availability of third-party components at
reasonable prices; the absence of price wars or other significant pricing
pressures affecting the Company's products in the United States or abroad; and
the Company's ability to successfully amend the LaSalle Credit Facility. Actual
results may differ materially from those discussed in, or implied by, the
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
PLANT CONSOLIDATION DURING 2001
In February 2001, the Company announced plans to establish a global engineering
and manufacturing center at its Ithaca, NY facility. As part of this strategic
decision, the Company expects to consolidate all manufacturing and engineering
into its existing Ithaca, NY facility and close its Wallingford, CT facility
near the end of 2001 (the "Consolidation"). The Company's technology shift to
inkjet and thermal printing from dot matrix impact printing has dramatically
reduced the labor content in printers and, therefore, lowers the required
production capacity. Production is planned to continue at the Wallingford
facility until near the end of 2001, with individual product lines scheduled to
transfer over the course of 2001. The Company estimates that the non-recurring
costs associated with the Consolidation, including severance pay, stay bonuses,
employee benefits, moving expenses, non-cancelable lease payments and other
costs, will be in the $3.0 to $3.5 million range and will be recognized during
2001. The Company expects the Consolidation will provide approximately $4.0
million in annual cost savings, compared to 2000, beginning in 2002. See the
"Liquidity and Capital Resources" section for a discussion of the expected
impact of the Consolidation on the Company's future cash flows. Also see Note 5
to Consolidated Condensed Financial Statements.
NEW ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board approved Statements
of Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141")
and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142").
FAS 141 supercedes Accounting Principles Board Opinion ("APB") No. 16, "Business
Combinations". The most significant changes made by FAS 141 are: (1) requiring
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, (2) establishing specific criteria for the
recognition of intangible assets separately from goodwill, and (3) requiring
unallocated negative goodwill to be written off immediately as an extraordinary
gain instead of being deferred and amortized.
FAS 142 supercedes APB No. 17, "Intangibles Assets". FAS 142 primarily addresses
the accounting for goodwill and intangible assets subsequent to their
acquisition. The provisions of FAS 142 will be effective for the Company for the
year ended December 31, 2002. The most significant changes made by FAS 142 are:
(1) goodwill and indefinite lived intangible assets will no longer be amortized,
(2) goodwill will be tested for impairment at least annually at the reporting
unit level, (3) intangible assets deemed to have an indefinite life will be
tested for impairment at least annually, and (4) the amortization period of
intangible assets with finite lives will no longer be limited to forty years.
The Company has not entered into any business combinations subsequent to June
30, 2001, however it is currently amortizing goodwill related to the acquisition
of Ithaca Peripherals, Inc. in 1991 and the ribbon business formerly conducted
by Tridex Corporation in 1999. Management is currently assessing the impact that
adoption of FAS 142 will have on the Company, including whether or not an
impairment adjustment would be necessary. At this time, management has not
quantified the impact of adoption on the financial statements of the Company.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 24, 2000
NET SALES. Net sales by market for the current and prior year's quarter were as
follows:
Three months ended Three months ended
(In thousands, except %) June 30, 2001 June 24, 2000
------------- -------------
Point of sale $ 4,935 45.7% $ 7,998 58.2%
Gaming and lottery 4,813 44.6 4,534 33.0
Other 1,048 9.7 1,208 8.8
------- ----- ------- -----
$10,796 100.0% $13,740 100.0%
======= ===== ======= =====
Net sales for the second quarter of 2001 decreased $2,944,000, or 21%, to
$10,796,000 from the prior year's second quarter, due to significantly lower
shipments into the Company's point of sale ("POS") market and somewhat lower
sales into the Company's other markets, partially offset by an increase of sales
into the Company's gaming and lottery market.
Point of sale: Sales of the Company's POS printers decreased approximately
$3,063,000, or 38%. International POS printer shipments decreased by
approximately $3,394,000, to $1,424,000 in the second quarter of 2001, due
largely to lower printer shipments (approximately $3,200,000) to ICL Pathway for
the British Post Office project. Sales for the British Post Office project
totaled approximately $200,000 (spares and service only) in the second quarter
of 2001 compared to $3,400,000 in the same quarter of 2000. The Company
completed shipping printers for the British Post Office project during the first
quarter of 2001, and no future sales, other than spare parts and service, are
expected. While the Company expects to replace a majority of the sales for the
British Post Office project with sales of other POS and gaming and lottery
printers during 2001, if the Company is unable to do so, the absence of such
sales would have a material adverse impact on the Company's operations and
financial results for the remainder of 2001.
Domestic POS printer sales rose $331,000, to $3,511,000 in the second quarter of
2001, but fell below the Company's expectations. The slight increase in 2001
sales was compared to an unusually low domestic POS sales level in the same
period of 2000.
Due to continued economic weakness, the Company expects continued worldwide
softness in demand for its POS products. As a result, the Company expects sales
into the POS market for each of the last two quarters of 2001 to be consistent
with those reported for the second quarter of 2001.
Gaming and lottery: Sales of the Company's gaming and lottery printers increased
approximately $279,000, or 6%, from the second quarter a year ago. Sales of the
Company's on-line lottery printers and spares to GTECH Corporation ("GTECH") (a
worldwide lottery terminal provider and major customer of the Company) increased
by approximately $300,000, to approximately $3,300,000 in the second quarter of
2001, compared to $3,000,000 in the second quarter of 2000. The Company received
an order from GTECH in January 2001 approximating $14,000,000 for additional
on-line lottery printers that will be delivered from May to December 2001, of
which $3,300,000 was shipped during the second quarter, and a follow-on order in
July 2001 approximating $4,000,000 for on-line lottery printers that will be
delivered from January 2002 to April 2002. Sales of the Company's new slot
machine printer and other gaming printers also increased by approximately
$800,000. The new slot machine printer is primarily for use in casinos in
California and Nevada. The Company expects sales of its slot machine printers to
continue to increase for the remainder of 2001.
Offsetting the increase of printer sales to GTECH and increased slot machine
sales was a decrease of approximately $800,000 in sales of the Company's video
lottery terminal ("VLT") printers.
Other: Sales of the Company's printers into other markets decreased by $160,000,
or 13%, to $1,048,000 from the prior year's comparable quarter primarily due to
lower sales (a decrease of approximately $500,000) of the Company's ATM printer
and related spares. This decrease was largely offset by shipments of
approximately $400,000 of the Company's thermal kiosk printers for use in a
Canadian government application in the second quarter of 2001. No shipments of
these printers were made in the second quarter of 2000. Since printer sales into
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the kiosk printer market are principally project-oriented, the Company cannot
predict if and when future sales may occur.
GROSS PROFIT. Gross profit decreased $1,252,000, or 34%, to $2,413,000 from the
prior year's quarter due primarily to lower volume of sales. The gross margin
also declined to 22.4% from 26.7%. Both gross profit and gross margin for the
second quarter of 2001 were adversely impacted by lower sales, primarily due to
the absence of printer shipments for the British Post Office project. The
Company expects its gross margin to improve during the second half of 2001, as
the Company increases printer shipments to GTECH.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $96,000, or 10%, to $873,000 from the second quarter of 2000.
This decrease is primarily due to a reduction in engineering staff at the
Company's Wallingford facility. Engineering and product development expense
increased as a percentage of net sales to 8.1% from 7.1%, due largely to lower
sales volume in the second quarter of 2001 compared to 2000.
SELLING AND MARKETING. Selling and marketing expenses decreased $181,000, or
12%, to $1,309,000 from the second quarter of 2000. Such expenses decreased
primarily due to unusually high marketing and promotional expenses incurred
during the second quarter of 2000 related to the April 2000 launch of the
Company's new family of printers utilizing inkjet printing technology. Selling
and marketing expenses as a percentage of net sales increased to 12.1% from
10.8%, due largely to lower sales volume in the second quarter of 2001 compared
to 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$208,000, or 15%, to $1,626,000 from the comparable prior year's quarter and
increased as a percentage of net sales to 15.1% from 10.3%. The increase
primarily resulted from (1) higher administrative compensation-related expenses
due largely to annual salary increases and (2) the inclusion of $64,000 of
disposal losses (primarily tooling and machinery and equipment), and $99,000 of
accelerated depreciation on certain assets (primarily leasehold improvements and
computer equipment) located at the Company's Wallingford, CT facility whose
useful lives have been shortened as a result of the Consolidation. For the
remainder of 2001, accelerated depreciation on these assets is expected to be
approximately $100,000 per quarter.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the second quarter of 2001, the
Company incurred approximately $422,000 of expenses related to the
Consolidation. These expenses primarily included a portion of employee severance
and termination expenses incurred during the quarter, and facility closure and
consolidation expenses (including moving expenses, estimated non-cancelable
lease payments and other costs). The Company estimates that the non-recurring
costs associated with the Consolidation will be in the $3.0 to $3.5 million
range and will be recognized during 2001. See Note 5 to the Consolidated
Condensed Financial Statements.
OPERATING LOSS. Operating loss increased $1,605,000, to $1,817,000 from $212,000
in the second quarter of 2000, primarily due to lower gross margin resulting
from lower sales in the second quarter of 2001 compared to the second quarter of
2000 and expenses related to the Consolidation.
INTEREST. Net interest expense decreased to $88,000 from $155,000 in the second
quarter of 2000 due to decreased average outstanding borrowings on the Company's
line of credit and a lower average interest rate on such borrowings. See
"Liquidity and Capital Resources" below.
INCOME TAXES. As a result of the Company's loss before income taxes, the Company
recorded an income tax benefit of $686,000 and $162,000, or an effective rate of
36% and 46.6%, in the second quarter of 2001 and 2000, respectively.
NET LOSS. The Company incurred a net loss during the second quarter of 2001 of
$1,220,000, or $0.24 per share (basic and diluted) after giving effect to
$89,000 of dividends and accretion charges on preferred stock issued in April
2000. This compares to a net loss of $186,000, or $0.06 per share (basic and
diluted) after giving effect to $140,000 of dividends and accretion charges on
preferred stock, for the second quarter of 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.
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SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 24, 2000
NET SALES. Net sales by market for the current and prior year's quarter were as
follows:
Six months ended Six months ended
(In thousands, except %) June 30, 2001 June 24, 2000
------------- -------------
Point of sale $10,940 53.2% $13,831 55.4%
Gaming and lottery 6,741 32.8 8,481 33.9
Other 2,888 14.0 2,666 10.7
------- ------- ------- -------
$20,569 100.0% $24,978 100.0%
======= ======= ======= =======
Net sales for the first half of 2001 decreased $4,409,000, or 18%, to
$20,569,000 from the prior year's first half, due to significantly lower
shipments into the Company's point of sale ("POS") and gaming and lottery
markets, somewhat offset by increased sales into the Company's other markets.
Point of sale: Sales of the Company's POS printers decreased approximately
$2,891,000, or 21%. International POS printer shipments decreased approximately
$3,116,000, to $3,928,000 largely due to lower printer shipments (approximately
$3,300,000) to ICL Pathway for the British Post Office project. Sales for the
British Post Office project totaled approximately $1,300,000 in the first half
of 2001 compared to $4,600,000 in the first six months of 2000. The Company
completed shipping printers for the British Post Office project during the first
quarter of 2001, and no future sales, other than spare parts and service, are
expected. While the Company expects to replace a majority of the sales for the
British Post Office project with sales of other POS and gaming and lottery
printers during 2001, if the Company is unable to do so, the absence of such
sales would have a material adverse impact on the Company's operations and
financial results for the remainder of 2001. In addition to lower sales to ICL
Pathway, the Company experienced a decrease in sales, primarily to Europe, of
approximately $600,000 through the Company's distribution partner in Europe and
Latin America, Okidata. The decrease in international POS sales to ICL Pathway
and Okidata were somewhat offset by an increase of approximately $900,000 of
shipments of the Company's thermal fiscal printer in Europe.
Domestic POS printer sales increased slightly by $225,000 to $7,012,000, but
fell below the Company's expectations. The slight increase in 2001 sales was
compared to an unusually low domestic POS sales level in the same period of
2000.
Due to continued economic weakness, the Company expects continued worldwide
softness in demand for its POS products. As a result, the Company expects sales
into the POS market for each of the last two quarters of 2001 to be consistent
with those reported for the second quarter of 2001.
Gaming and lottery: Sales of the Company's gaming and lottery printers decreased
approximately $1,740,000, or 21%, from the first half a year ago. The primary
reason for the decrease of revenue in this market is significantly reduced
shipments of the Company's on-line lottery printers to GTECH Corporation
("GTECH") (a worldwide lottery terminal provider and major customer of the
Company) in the first half of 2001. Shipments of these printers and spares
decreased by approximately $2,800,000, to approximately $3,300,000 in the first
half of 2001, compared to $6,100,000 in the first half of 2000. The Company
received an order from GTECH in January 2001 approximating $14,000,000 for
additional on-line lottery printers that will be delivered from May to December
2001, of which $3,300,000 was shipped in the second quarter, and a follow-on
order in July 2001 approximating $4,000,000 for on-line lottery printers that
will be delivered from January 2002 to April 2002. In addition to the decrease
of printer sales to GTECH, sales of the Company's video lottery terminal ("VLT")
printers decreased approximately $900,000.
Offsetting the decrease of on-line lottery printer sales to GTECH and VLT
printer sales, was an increase of approximately $1,900,000 in sales of the
Company's new slot machine printer. The new slot machine printer is primarily
for use in casinos in California and Nevada. The Company expects sales of its
slot machine printers to continue to increase for the remainder of 2001.
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Other: Sales of the Company's printers into other markets increased by $222,000,
or 8%, to $2,888,000 from the prior year's comparable period. The first half of
2001 included shipments of approximately $1,400,000 of the Company's thermal
kiosk printers for use in a Canadian government application. No shipments of
these printers were made in the first half of 2000. This increase was largely
offset by lower sales (a decrease of approximately $1,100,000) of the Company's
ATM printer and related spares. 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 $2,462,000, or 37%, to $4,216,000 from the
prior year's quarter due primarily to lower volume of sales. The gross margin
also declined to 20.5% from 26.7%. Both gross profit and gross margin for the
first half of 2001 were adversely impacted by lower sales volume due primarily
to the absence of printer shipments for the British Post Office project and
lower on-line lottery printer shipments to GTECH. The Company expects its gross
margin to improve in the second half of 2001, as the Company increases printer
shipments to GTECH.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $138,000, or 8%, to $1,691,000 from the first half of 2000.
This decrease is primarily due to a reduction in engineering staff at the
Company's Wallingford facility. Engineering and product development expense
increased as a percentage of net sales to 8.2% from 7.3%, due largely to lower
sales volume in the first half of 2001 compared to 2000.
SELLING AND MARKETING. Selling and marketing expenses decreased $290,000, or
11%, to $2,455,000 from the first six months of 2000. Such expenses decreased
primarily due to unusually high marketing and promotional expenses incurred
during the first half of 2000 related to preparation for the April 2000 launch
of the Company's new family of printers utilizing inkjet printing technology.
This decrease was partially offset by higher sales commissions resulting from an
increase in sales eligible for commissions in the first half of 2001 compared to
2000. Selling and marketing expenses as a percentage of net sales increased to
11.9% from 11.0%, due largely to lower sales volume in the first half of 2001
compared to 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$493,000, or 19%, to $3,133,000 from the comparable prior year's period and
increased as a percentage of net sales to 15.2% from 10.6%. The increase
primarily resulted from (1) higher administrative compensation-related expenses
due largely to annual salary increases and 2) the inclusion of $64,000 of
disposal losses (primarily tooling and machinery and equipment), and $197,000 of
accelerated depreciation on certain assets (primarily leasehold improvements and
computer equipment) located at the Company's Wallingford, CT facility whose
useful lives have been shortened as a result of the Consolidation. For the
remainder of 2001, accelerated depreciation on these assets is expected to be
approximately $100,000 per quarter.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the first half of 2001, the
Company incurred approximately $1,446,000 of expenses related to the
Consolidation. These expenses primarily included a portion of employee severance
and termination expenses incurred during the quarter, and facility closure and
consolidation expenses (including moving expenses, estimated non-cancelable
lease payments and other costs). The Company estimates that the non-recurring
costs associated with the Consolidation will be in the $3.0 to $3.5 million
range and will be recognized during 2001. See Note 5 to the Consolidated
Condensed Financial Statements.
OPERATING LOSS. Operating loss increased $3,973,000, to $4,509,000 from $536,000
in the first half of 2000, primarily due to expenses related to the
Consolidation and lower gross margin resulting from lower sales in the first
half of 2001 compared to the first half of 2000.
INTEREST. Net interest expense decreased to $182,000 from $309,000 in the first
half of 2000 due to decreased average outstanding borrowings on the Company's
line of credit and a lower average interest rate on such borrowings. See
"Liquidity and Capital Resources" below.
INCOME TAXES. As a result of the Company's loss before income taxes, the Company
recorded an income tax benefit of $1,674,000 and $323,000, or an effective rate
of 36% and 39.9%, in the first half of 2001 and 2000, respectively.
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NET LOSS. The Company incurred a net loss during the first half of 2001 of
$2,977,000, or $0.57 per share (basic and diluted) after giving effect to
$179,000 of dividends and accretion charges on preferred stock issued in April
2000. This compares to a net loss for the first half of 2000 of $486,000, or
$0.11 per share (basic and diluted) after giving effect to $140,000 of dividends
and accretion charges on preferred stock. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $1,545,000 and $2,827,000 cash from operations during the first
half of 2001 and 2000, respectively. Cash used from operations for the first
half of 2001 was largely the result of the Company's net loss incurred during
the period. The Company's working capital decreased to $11,721,000 at June 30,
2001 from $13,631,000 at December 31, 2000. The current ratio also decreased to
2.28 at June 30, 2001 from 3.54 at December 31, 2000. Both the decrease in
working capital and the current ratio were largely due to (1) higher accounts
payable and accrued expenses (approximately $2.3 million) and (2) accrued
restructuring expenses of approximately $1.4 million related to the
Consolidation. However, the Company has maintained tight control over its
inventory level which rose only approximately $500,000, or 5%, from December 31,
2000. The Company expects its working capital and current ratio to continue to
decline for the remainder of 2001, as the majority of expenses related to the
Consolidation will continue to accrue during 2001, but are not expected to be
paid until 2002.
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 $12 million 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 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 beginning July 1, 2001, and restricts the
payment of dividends on its common stock and the creation of other liens. The
Company had a total of $7,186,000 of outstanding borrowings under this facility
at June 30, 2001 ($6,686,000 under the revolving credit line and $500,000 under
the term loan). Based on the Company's projections, it appears likely that the
Company will not meet certain of its financial covenants at September 30, 2001.
The Company is currently negotiating with LaSalle and it expects to amend the
LaSalle Credit Facility to adjust such financial covenants by September 30,
2001; the absence of such an amendment could have a material adverse impact on
the Company.
The Company's capital expenditures were approximately $597,000 and $1,886,000
for the six months June 30, 2001 and June 24, 2000, respectively. These
expenditures primarily included new product tooling, largely for new inkjet
products in the 2000 period. The Company's total capital expenditures for 2001
are expected to be approximately $1,500,000, a majority for new product tooling.
The Company estimates that the non-recurring costs associated with the
Consolidation will be approximately $3.0 to $3.5 million, and will be recognized
during 2001. Of these costs, approximately $2.5 to $3.0 million will require
future cash outlays. The Company expects to pay approximately $500,000 to
$800,000 in 2001 and the remainder in 2002. The Company paid approximately
$61,000 of these costs during the first half of 2001.
The Company believes that cash flows generated from operations and borrowings
(as necessary) available under the LaSalle Credit Facility, when amended, will
provide sufficient resources to meet the Company's working capital needs
including costs associated with the Consolidation, finance its capital
expenditures and meet its liquidity requirements through December 31, 2001.
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ITEM 3. 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.
The Company, under the LaSalle Credit Facility may fix its rate of interest at
LIBOR plus the applicable margin for between 30 and 90 days on a significant
portion of its outstanding borrowings. The Company does not have any other
protection against interest rate fluctuations. 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 and purchases 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 and purchases.
This exposure may change over time as business practices evolve and could have a
material adverse impact on its 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.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 23, 2001.
Matters voted upon at the meeting and the number of votes cast for,
against, withheld or abstentions, are as follows:
(1) To consider and act upon a proposal to elect two Directors to
serve until the Annual Meeting of Shareholders in the year
2004 or until their successors have been duly elected and
qualified. Nominees were Graham Y. Tanaka and Richard L. Cote.
Votes cast were as follows:
For Withheld
--- --------
Graham Y. Tanaka 5,376,864 16,951
Richard L. Cote 5,292,596 101,219
(2) To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for 2001. Votes cast were as
follows: 5,128,454 common shares for; 185,809 common shares
against; 79,552 common shares abstained; 4,000 preferred
shares (representing 444,444 votes) for.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits filed herein
Exhibit 10.27 Loan and Security Agreement dated as of May
25, 2001 among TransAct Technologies
Incorporated, LaSalle Business Credit, Inc.
and the institutions from time to time a
party hereto.
Exhibit 11.1 Computation of earnings per share
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange 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
(Registrant)
August 13, 2001 /s/ Richard L. Cote
---------------------------------------
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ Steven A. DeMartino
---------------------------------------
Steven A. DeMartino
Vice President and Corporate Controller
(Principal Accounting Officer)
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EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
-------
10.27 Loan and Security Agreement dated as of May 25, 2001 among
TransAct Technologies Incorporated, LaSalle Business Credit,
Inc. and the institutions from time to time a party hereto.
11.1 Computation of earnings per share.
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