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
September 30, 2001 ended:
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
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 LASER LANE, WALLINGFORD, CT 06492
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(Address of principal executive offices)
(Zip Code)
(203) 269-1198
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(Registrant's telephone number, including area code)
Not applicable
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(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 NOVEMBER 2, 2001
- ----- ----------------------------
COMMON STOCK,
$.01 PAR VALUE 5,679,778
TRANSACT TECHNOLOGIES INCORPORATED
INDEX
Page No.
--------
PART I. Financial Information:
Item 1 Financial Statements
Consolidated condensed balance sheets as of
September 30, 2001 and December 31, 2000 3
Consolidated condensed statements of operations
for the three and nine months ended September 30, 4
2001 and September 23, 2000
Consolidated condensed statements of cash flow for the nine
months ended September 30, 2001 and September 23, 2000 5
Notes to consolidated condensed financial 6
statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures about 15
Market Risk
PART II. Other Information:
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
2
ITEM 1. FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, December 31,
(In thousands) 2001 2000
-------- --------
ASSETS:
Current assets:
Cash and cash equivalents $ 100 $ 992
Receivables, net 7,990 6,137
Inventories 10,252 9,857
Deferred tax assets 1,765 1,205
Other current assets 949 811
-------- --------
Total current assets 21,056 19,002
-------- --------
Fixed assets, net 5,970 6,794
Goodwill, net 1,521 1,678
Other assets 1,466 145
-------- --------
8,957 8,617
-------- --------
$ 30,013 $ 27,619
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of term loan $ 100 $ --
Accounts payable 3,833 2,690
Accrued liabilities 3,348 2,681
Accrued restructuring expenses (Note 4) 1,750 --
-------- --------
Total current liabilities 9,031 5,371
-------- --------
Revolving bank loan payable 7,272 5,944
Long-term portion of term loan 375 --
Other liabilities 408 445
-------- --------
8,055 6,389
-------- --------
Mandatorily redeemable preferred stock 3,727 3,668
-------- --------
Shareholders' equity:
Common stock 57 56
Additional paid-in capital 6,301 6,069
Retained earnings 3,521 6,929
Unamortized restricted stock compensation (283) (477)
Loan receivable from officer (330) (330)
Accumulated other comprehensive loss (66) (56)
-------- --------
Total shareholders' equity 9,200 12,191
-------- --------
$ 30,013 $ 27,619
======== ========
See notes to consolidated condensed financial statements.
3
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -------------------------------
SEPTEMBER 30, September 23, SEPTEMBER 30, September 23,
(In thousands, except per share data) 2001 2000 2001 2000
-------- -------- -------- --------
Net sales $ 13,234 $ 14,604 $ 33,803 $ 39,582
Cost of sales 9,664 10,737 26,017 29,037
-------- -------- -------- --------
Gross profit 3,570 3,867 7,786 10,545
-------- -------- -------- --------
Operating expenses:
Engineering, design and product
development costs 753 826 2,444 2,655
Selling and marketing expenses 1,030 1,074 3,485 3,819
General and administrative expenses 1,426 1,373 4,559 4,013
Business consolidation and restructuring
expenses (Note 4) 470 -- 1,916 --
-------- -------- -------- --------
3,679 3,273 12,404 10,487
-------- -------- -------- --------
Operating income (loss) (109) 594 (4,618) 58
-------- -------- -------- --------
Other income (expense):
Interest, net (105) (169) (287) (478)
Other, net (40) 17 -- 53
-------- -------- -------- --------
(145) (152) (287) (425)
-------- -------- -------- --------
Income (loss) before income taxes (254) 442 (4,905) (367)
Income tax provision (benefit) (92) 152 (1,766) (171)
-------- -------- -------- --------
Net income (loss) (162) 290 (3,139) (196)
Dividends and accretion charges on
preferred stock (90) (90) (269) (230)
-------- -------- -------- --------
Net income (loss) available to common
shareholders $ (252) $ 200 $ (3,408) $ (426)
======== ======== ======== ========
Net income (loss) per share:
Basic and diluted $ (0.05) $ 0.04 $ (0.61) $ (0.08)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic and diluted 5,584 5,512 5,557 5,496
===== ===== ===== =====
See notes to consolidated condensed financial statements.
4
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, September 23,
(In thousands) 2001 2000
------- -------
Cash flows from operating activities:
Net loss $(3,139) $ (196)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,375 1,974
Loss (gain) on disposal of fixed assets 70 (4)
Changes in operating assets and liabilities:
Receivables (1,853) (1,796)
Inventories (395) (2,541)
Deferred tax assets and other current assets (698) 65
Other assets (1,450) (57)
Accounts payable 1,143 934
Accrued liabilities and other liabilities 630 (437)
Accrued restructuring expenses 1,750 --
------- -------
Net cash used in operating activities (1,567) (2,058)
------- -------
Cash flows from investing activities:
Purchases of fixed assets (1,143) (2,296)
Proceeds from sale of fixed assets 2 --
Loans to officers -- 15
------- -------
Net cash used in investing activities (1,141) (2,281)
------- -------
Cash flows from financing activities:
Revolving bank loans, net 1,328 1,200
Term loan borrowings, net 475 --
Proceeds from option exercises 233 148
Payment of cash dividends on preferred stock (210) (135)
Net proceeds from issuance of preferred stock -- 3,785
------- -------
Net cash provided by financing activities 1,826 4,998
------- -------
Effect of exchange rate changes on cash (10) (58)
------- -------
(Decrease) increase in cash and cash equivalents (892) 601
Cash and cash equivalents at beginning of period 992 279
------- -------
Cash and cash equivalents at end of period $ 100 $ 880
======= =======
See notes to consolidated condensed financial statements.
5
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
September 30, 2001, the results of its operations for the three and nine
months ended September 30, 2001 and September 23, 2000, and its cash flows
for the nine months ended September 30, 2001 and September 23, 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 the interim periods presented 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 nine months ended
September 30, 2001 and September 23, 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 nine months ended September 30, 2001 and
September 23, 2000, the effects of potential dilutive securities have been
excluded, as they would have been anti-dilutive.
3. Inventories:
The components of inventory are:
September 30, December 31,
(In thousands) 2001 2000
------------- ------------
Raw materials and component
parts $10,043 $9,603
Work-in-process 45 200
Finished goods 164 54
------- ------
$10,252 $9,857
======= ======
4. 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.
6
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. Business consolidation and restructuring (continued)
The following table summarizes the activity recorded in the
restructuring accrual during the three and nine months ended September 30,
2001.
Three months Nine months
ended ended
September 30, September 30,
(In thousands) 2001 2001
------------- -------------
Accrual balance, beginning of period $ 1,385 $ --
------- -------
Business consolidation and restructuring expenses:
Employee severance and termination expenses (1) 385 959
Facility closure and consolidation expenses (2) 85 957
------- -------
470 1,916
------- -------
Cash payments (105) (166)
------- -------
Accrual balance, end of period $ 1,750 $ 1,750
======= =======
(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.
The following table summarizes the components of all charges related
to the Consolidation.
Three months Nine months
ended ended
September 30, September 30,
(In thousands) 2001 2001
-------------- -------------
Business consolidation and restructuring expenses $470 $1,916
Accelerated depreciation and asset disposal losses (1) 101 362
---- ------
Total business consolidation, restructuring and
related charges $571 $2,278
==== ======
(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.
7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. 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 the 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.
6. Subsequent event
On October 30, 2001, the Company amended its existing $13.5 million
credit facility with LaSalle Business Credit, Inc. ("LaSalle") dated May
25, 2001. Under the terms of the amendment ("LaSalle Amendment"), 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%. In
addition, the Company and LaSalle agreed to enter into a second amendment
no later than December 31, 2001 to reset the financial covenants for 2002
and beyond based on a financial plan to be submitted by the Company; if
the Company and LaSalle cannot mutually agree on such financial covenants,
LaSalle has the right to reset the financial covenants to such levels as
determined in its reasonable discretion. Upon execution of the LaSalle
Amendment, the Company paid a fee of $20,000 to LaSalle.
8
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 to 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 4
to the 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 the 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.
9
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
23, 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 %) September 30, 2001 September 23, 2000
--------------------------- ---------------------------
Point of sale $ 5,432 41.0% $ 8,278 56.7%
Gaming and lottery 7,120 53.8 5,022 34.4
Other 682 5.2 1,304 8.9
--------------------------- ---------------------------
$13,234 100.0% $14,604 100.0%
=========================== ===========================
Net sales for the third quarter of 2001 decreased $1,370,000, or 9%, to
$13,234,000 from the prior year's third quarter, due to significantly lower
shipments into the Company's point of sale ("POS") market and 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
$2,846,000, or 34%. International POS printer shipments decreased by
approximately $2,865,000, to $1,496,000 in the third 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 third 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. In addition to lower sales to ICL Pathway, the
Company experienced a decrease in sales, primarily to Europe, of approximately
$400,000 through Okidata, the Company's distribution partner in Europe and Latin
America. The decrease in international POS sales to ICL Pathway and Okidata was
somewhat offset by an increase of approximately $700,000 of shipments of the
Company's thermal fiscal printer in Europe.
Despite adverse economic conditions, domestic POS printer sales increased
slightly to $3,936,000 compared to $3,917,000 in the third quarter of 2000.
Due to on-going economic weakness, the Company expects continued worldwide
softness in demand for its POS products. Additionally, retailers typically
reduce purchases of new POS equipment in the fourth quarter due to increased
volume of consumer transactions in that period. As a result, the Company expects
sales into the POS market for last quarter of 2001 to be lower than those
reported for the third quarter of 2001.
Gaming and lottery: Sales of the Company's gaming and lottery printers increased
approximately $2,098,000, or 42%, from the third 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 $2,900,000, to approximately $6,100,000 in the third
quarter of 2001, compared to $3,200,000 in the third quarter of 2000. The
Company received an order from GTECH in January 2001 approximating $14,000,000
for on-line lottery printers that will be delivered from May to December 2001,
of which approximately $9,400,000 was shipped year-to-date through September 30,
2001. The Company also received follow-on orders from GTECH approximating
$7,800,000 for on-line lottery printers that will be delivered from January 2002
to August 2002. Sales of the Company's new slot machine printer and other gaming
printers also increased by approximately $600,000. 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
printer sales was a decrease of approximately $1,400,000 in sales of the
Company's video lottery terminal ("VLT") printers. Sales of such printers were
unusually high in the third quarter of 2000. Since the Company's sales of VLT
printers were also unusually high in the fourth quarter of 2000, the Company
expects lower sales of such printers in the fourth quarter of 2001 compared to
the fourth quarter of 2000.
10
Other: Sales of the Company's printers into other markets decreased by $622,000,
or 48%, to $682,000 from the prior year's comparable quarter primarily due to
(1) lower sales (a decrease of approximately $300,000) of the Company's ATM
printer and related spares and (2) sales of kiosk printers to customers for
projects in the third quarter of 2000 that did not repeat in the third quarter
of 2001. 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 $297,000, or 8%, to $3,570,000 from the
prior year's quarter due primarily to lower volume of sales. Gross profit for
the third quarter of 2001 was adversely impacted by lower sales, primarily due
to the absence of printer shipments for the British Post Office project. Despite
lower sales, gross margin increased to 27.0% from 26.5% due to a favorable
change in sales mix. The Company expects its gross margin for the remaining
quarter of 2001 to decline from the level in the third quarter of 2001 to be
relatively consistent with that of the first nine months of 2001.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $73,000, or 9%, to $753,000 from the third quarter of 2000.
This decrease is primarily due to a reduction in engineering staff at the
Company's Wallingford facility resulting from the Consolidation. Engineering and
product development expenses increased slightly as a percentage of net sales to
5.7% from 5.6%, due to lower sales volume in the third quarter of 2001 compared
to 2000.
SELLING AND MARKETING. Selling and marketing expenses decreased $44,000, or 4%,
to $1,030,000 from the third quarter of 2000. Such expenses decreased primarily
due to continued unusually high marketing and promotional expenses incurred
during the third 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 7.8% from 7.4%,
due to lower sales volume in the third quarter of 2001 compared to 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$53,000, or 4%, to $1,426,000 from the comparable prior year's quarter and
increased as a percentage of net sales to 10.8% from 9.4%. The increase
primarily resulted from the inclusion of $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 fourth quarter of 2001, accelerated
depreciation on these assets is expected to be approximately $100,000. This
increase was partially offset by a reduction of staff and certain related
expenses at the Company's Wallingford, CT facility resulting from the
Consolidation.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the third quarter of 2001, the
Company incurred approximately $470,000 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 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 4
to the Consolidated Condensed Financial Statements.
OPERATING INCOME (LOSS). The Company incurred an operating loss of $109,000 in
the third quarter of 2001 compared to operating income of $594,000 in the third
quarter of the prior year. The operating loss in the third quarter of 2001
resulted primarily from lower gross profit on lower sales in the third quarter
of 2001 compared to the third quarter of 2000 and expenses related to the
Consolidation.
INTEREST. Net interest expense decreased to $105,000 from $169,000 in the third
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 $92,000, or an effective rate of 36%, in the
third quarter of 2001 compared to an income tax provision of $152,000, or an
effective tax rate of 34.4%, in the third quarter of 2000.
NET INCOME (LOSS). The Company incurred a net loss during the third quarter of
2001 of $162,000, or $0.05 per share (basic and diluted) after giving effect to
$90,000 of dividends and accretion charges on preferred stock issued in April
2000. This compares to net income of $290,000, or $0.04 per share (basic and
diluted) after giving effect to $90,000 of dividends and accretion charges on
preferred stock, for the third 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.
11
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER
23, 2000
NET SALES. Net sales by market for the current and prior year's quarter were
as follows:
Nine months ended Nine months ended
(In thousands, except %) September 30, 2001 September 23, 2000
--------------------------- ---------------------------
Point of sale $16,372 48.4% $22,109 55.9%
Gaming and lottery 13,861 41.0 13,503 34.1
Other 3,570 10.6 3,970 10.0
--------------------------- ---------------------------
$33,803 100.0% $39,582 100.0%
=========================== ===========================
Net sales for the first nine months of 2001 decreased $5,779,000, or 15%, to
$33,803,000 from the prior year's first nine months, largely due to
significantly lower shipments into the Company's point of sale ("POS") market.
Point of sale: Sales of the Company's POS printers decreased approximately
$5,737,000, or 26%. International POS printer shipments decreased approximately
$5,981,000, to $5,424,000 largely due to lower printer shipments (approximately
$6,500,000) to ICL Pathway for the British Post Office project. Sales for the
British Post Office project totaled approximately $1,500,000 in the first nine
months of 2001 compared to $8,000,000 in the first nine 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 $1,000,000 through Okidata, the Company's distribution partner in
Europe and Latin America. The decrease in international POS sales to ICL Pathway
and Okidata was somewhat offset by an increase of approximately $1,600,000 of
shipments of the Company's thermal fiscal printer in Europe.
Despite adverse economic conditions, domestic POS printer sales increased
slightly by $244,000 to $10,948,000.
Due to on-going economic weakness, the Company expects continued worldwide
softness in demand for its POS products. Additionally, retailers typically
reduce purchases of new POS equipment in the fourth quarter due to increased
volume of consumer transactions in that period. As a result, the Company expects
sales into the POS market for last quarter of 2001 to be lower than those
reported for the third quarter of 2001.
Gaming and lottery: Sales of the Company's gaming and lottery printers increased
approximately $358,000, or 3%, from the first nine months a year ago. Sales of
the Company's on-line lottery printers to GTECH increased by approximately
$100,000, to approximately $9,400,000 in the first nine months of 2001, compared
to $9,300,000 in the first nine months of 2000. The Company received an order
from GTECH in January 2001 approximating $14,000,000 for on-line lottery
printers that will be delivered from May 2001 to December 2001, of which
$9,400,000 was shipped year-to-date through September 30, 2001. The Company also
received follow-on orders from GTECH approximating $7,800,000 for on-line
lottery printers that will be delivered from January 2002 to August 2002. In
addition to the increase of printer sales to GTECH, sales of the Company's new
slot machine printers and other gaming printers increased by approximately
$2,500,000. 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 on-line lottery printer sales to GTECH and increased
slot machine printer sales, was a decrease of approximately $2,300,000 in sales
of the Company's video lottery terminal ("VLT") printers. Since the Company's
sales of VLT printers were unusually high in the last half of 2000, the Company
expects lower sales of such printers in the year ended December 31, 2001
compared to 2000.
12
Other: Sales of the Company's printers into other markets decreased by $400,000,
or 10%, to $3,570,000 from the prior year's comparable period. During the 2001
nine-month period, sales of the Company's ATM printer and related spares
decreased approximately $1,400,000. In addition, sales decreased by
approximately $500,000 due to sales of kiosk printers to customers for projects
primarily in the third quarter of 2000 that did not repeat in the first nine
months of 2001. The first nine months of 2001 also included shipments of
approximately $1,500,000 of the Company's thermal kiosk printers for use in a
Canadian government application. No shipments of these printers were made in the
first nine months of 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 $2,759,000, or 26%, to $7,786,000 from the
first nine months of 2000 due primarily to lower volume of sales. The gross
margin also declined to 23.0% from 26.6%. Both gross profit and gross margin for
the first nine months of 2001 were adversely impacted by lower sales volume due
primarily to the absence of printer shipments for the British Post Office
project. The Company expects its gross margin for the remaining quarter of 2001
to be relatively consistent with that of the first nine months of 2001.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $211,000, or 8%, to $2,444,000 from the first nine months of
2000. This decrease is primarily due to a reduction in engineering staff at the
Company's Wallingford facility resulting from the Consolidation. Engineering and
product development expense increased as a percentage of net sales to 7.2% from
6.7%, due to lower sales volume in the first nine months of 2001 compared to
2000.
SELLING AND MARKETING. Selling and marketing expenses decreased $334,000, or 9%,
to $3,485,000 from the first nine months of 2000. Such expenses decreased
primarily due to unusually high marketing and promotional expenses incurred
during the first nine months 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 10.3% from
9.6%, due to lower sales volume in the first nine months of 2001 compared to
2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$546,000, or 14%, to $4,559,000 from the comparable prior year's period and
increased as a percentage of net sales to 13.5% from 10.1%. The increase in
expenses primarily resulted from (1) higher administrative compensation-related
expenses due largely to annual salary increases and (2) the inclusion of
$296,000 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 fourth quarter 2001, accelerated depreciation on these
assets is expected to be approximately $100,000. These increases were partially
offset by a reduction of staff and certain related expenses at the Company's
Wallingford, CT facility resulting from the Consolidation.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the first nine months of 2001,
the Company incurred approximately $1,916,000 of expenses related to the
Consolidation. These expenses primarily included a portion of employee severance
and termination expenses incurred during the period, 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 4 to the Consolidated
Condensed Financial Statements.
OPERATING LOSS. The Company incurred an operating loss of $4,618,000 in the
first nine months of 2001 compared to operating income of $58,000 in the first
nine months of the prior year. The operating loss in the first nine months of
2001 resulted primarily from lower gross profit on lower sales in the first nine
months of 2001 compared to the first nine months of 2000 and expenses related to
the Consolidation.
INTEREST. Net interest expense decreased to $287,000 from $478,000 in the first
nine months 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 $1,766,000 and $171,000, or an effective rate
of 36% and 46.6%, in the first nine months of 2001 and 2000, respectively.
13
NET LOSS. The Company incurred a net loss during the first nine months of 2001
of $3,139,000, or $0.61 per share (basic and diluted) after giving effect to
$269,000 of dividends and accretion charges on preferred stock issued in April
2000. This compares to a net loss for the first nine months of 2000 of $196,000,
or $0.08 per share (basic and diluted) after giving effect to $230,000 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $1,567,000 and $2,058,000 of cash from operations during the
first nine months of 2001 and 2000, respectively. Cash used from operations for
the first nine months of 2001 was largely the result of the Company's net loss
incurred during the period. The Company's working capital decreased to
$12,025,000 at September 30, 2001 from $13,631,000 at December 31, 2000. The
current ratio also decreased to 2.33 at September 30, 2001 from 3.54 at December
31, 2000. Both the decrease in working capital and the current ratio were
largely due to higher accounts payable and accrued expenses (approximately $1.8
million), and accrued restructuring expenses of approximately $1.75 million
related to the Consolidation, partially offset by an increase in accounts
receivable and deferred taxes. The Company has maintained tight control over its
inventory level, which rose only approximately $400,000, or 4%, 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. Prior to the LaSalle Amendment
described below, borrowings under the revolving credit line bore a floating rate
of interest at LaSalle's prime rate. Borrowings under both the term loan and
equipment loan bore 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 which bore interest
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 $7,747,000 of
outstanding borrowings under the LaSalle Credit Facility at September 30, 2001
($7,272,000 under the revolving credit line and $475,000 under the term loan).
On October 30, 2001, the Company amended the LaSalle Credit Facility. Under the
terms of the amendment ("LaSalle Amendment"), 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%. In addition, the Company and LaSalle agreed to seek to enter into a second
amendment no later than December 31, 2001 to reset the financial covenants for
2002 and beyond based on a financial plan to be submitted by the Company; if the
Company and LaSalle cannot mutually agree on such financial covenants, LaSalle
has the right to reset the financial covenants to such levels as determined in
its reasonable discretion. Upon execution of the LaSalle Amendment, the Company
paid a fee of $20,000 to LaSalle.
The Company's capital expenditures were approximately $1,143,000 and $2,296,000
for the nine months ended September 30, 2001 and September 23, 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, the majority
of which was invested in 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 $300,000 to
$500,000 in 2001 and the remainder in 2002. The Company paid approximately
$166,000 of these costs during the first nine months of 2001.
14
The Company believes that cash flows generated from operations and borrowings
available under the LaSalle Credit Facility, as amended by the LaSalle
Amendment, 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.
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 180 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits filed herein
Exhibit 10.28 Waiver and Amendment No. 1 to 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.
15
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)
November 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)
16
EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
-------
10.28 Waiver and Amendment No. 1 to 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.
17