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: March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation 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 APRIL 26, 2002
COMMON STOCK,
$.01 PAR VALUE 5,707,270
TRANSACT TECHNOLOGIES INCORPORATED
INDEX
PART I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1 Financial Statements
Consolidated condensed balance sheets as of March 31, 2002 and
December 31, 2001 3
Consolidated condensed statements of operations for the three
months ended March 31, 2002 and 2001 4
Consolidated condensed statements of cash flow for the three
months ended March 31, 2002 and 2001 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 13
PART II. Other Information:
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
2
ITEM 1. FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, December 31,
(In thousands) 2002 2001
(unaudited)
--------- ------------
ASSETS:
Current assets:
Cash and cash equivalents $ 77 $ 417
Receivables, net 3,576 4,047
Inventories 10,284 10,633
Deferred tax assets 2,459 2,382
Other current assets 231 212
-------- --------
Total current assets 16,627 17,691
-------- --------
Fixed assets, net 4,867 5,190
Goodwill, net 1,469 1,469
Deferred tax assets 1,120 1,120
Other assets 311 321
-------- --------
7,767 8,100
-------- --------
$ 24,394 $ 25,791
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of term loan $ 100 $ 100
Accounts payable 3,235 2,903
Accrued liabilities 3,260 3,320
Customer advance payment (Note 4) 4,062 --
Accrued restructuring expenses (Note 5) 2,358 3,002
-------- --------
Total current liabilities 13,015 9,325
-------- --------
Revolving bank loan payable -- 4,994
Long-term portion of term loan 325 350
Other liabilities 64 61
-------- --------
389 5,405
-------- --------
Mandatorily redeemable preferred stock 3,766 3,746
-------- --------
Shareholders' equity:
Common stock 57 57
Additional paid-in capital 6,377 6,303
Retained earnings 1,430 1,649
Unamortized restricted stock compensation (209) (286)
Loan receivable from officer (330) (330)
Accumulated other comprehensive loss (101) (78)
-------- --------
Total shareholders' equity 7,224 7,315
-------- --------
$ 24,394 $ 25,791
======== ========
See notes to consolidated condensed financial statements.
3
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------
2002 2001
---- ----
(In thousands, except per share data)
Net sales $ 10,525 $ 9,773
Cost of sales 7,899 7,970
-------- --------
Gross profit 2,626 1,803
-------- --------
Operating expenses:
Engineering, design and product
development expenses 546 818
Selling and marketing expenses 1,031 1,146
General and administrative expenses 1,176 1,507
Business consolidation and restructuring
expenses (Note 5) 41 1,024
-------- --------
2,794 4,495
-------- --------
Operating loss (168) (2,692)
-------- --------
Other income (expense):
Interest, net (55) (94)
Other, net 21 41
-------- --------
(34) (53)
-------- --------
Loss before income taxes (202) (2,745)
Income tax benefit (73) (988)
-------- --------
Net loss (129) (1,757)
Dividends and accretion charges on
preferred stock (90) (90)
-------- --------
Net loss available to common
Shareholders $ (219) $ (1,847)
======== ========
Net loss per share:
Basic and diluted $ (0.04) $ (0.33)
======== ========
Shares used in per share calculation:
Basic and diluted 5,604 5,531
======== ========
See notes to consolidated condensed financial statements.
4
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
THREE MONTHS ENDED
MARCH 31,
(In thousands) 2002 2001
------- -------
Cash flows from operating activities:
Net loss $ (129) $(1,757)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 608 790
Deferred income taxes (77) --
Loss on disposal of equipment -- 3
Changes in operating assets and liabilities:
Receivables 471 870
Inventories 349 569
Other current assets (19) (988)
Other assets (13) (24)
Accounts payable 332 392
Accrued liabilities and other liabilities (57) 368
Customer advance payment (Note 4) 4,062 --
Accrued restructuring expenses (Note 5) (644) 934
------- -------
Net cash provided by operating activities 4,883 1,157
------- -------
Cash flows from investing activities:
Purchases of fixed assets (190) (138)
------- -------
Net cash used in investing activities (190) (138)
------- -------
Cash flows from financing activities:
Revolving bank loan repayments, net (4,994) (1,766)
Term loan repayments, net (25) --
Proceeds from option exercises 79 45
Payment of cash dividends on preferred stock (70) (70)
------- -------
Net cash used in financing activities (5,010) (1,791)
------- -------
Effect of exchange rate changes on cash (23) (51)
------- -------
Decrease in cash and cash equivalents (340) (823)
Cash and cash equivalents at beginning of period 417 992
------- -------
Cash and cash equivalents at end of period $ 77 $ 169
======= =======
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 March 31, 2002,
and the results of its operations and cash flows for the three months ended
March 31, 2002 and 2001. The December 31, 2001 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, 2001 included in the Company's Annual Report on Form 10-K.
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.
The results of operations for the three months ended March 31, 2002
are not necessarily indicative of the results to be expected for the full
year.
The Company has adopted the provisions of Statement of Financial
Accounting Standard 142, "Goodwill and Other Intangible Assets" ("FAS 142")
on January 1, 2002. Under FAS 142, goodwill will no longer be amortized and
will be tested for impairment at least annually at the reporting unit
level.
Prior to the adoption of FAS 142 on January 1, 2002, the Company had
been amortizing goodwill related to the acquisition of (1) Ithaca
Peripherals, Inc. ("Ithaca") in 1991 and (2) the ribbon business formerly
conducted by Tridex ("Tridex Ribbon Business"). The original amount
applicable to the Ithaca acquisition totaled $3,536,000 and was being
amortized on the straight-line method over 20 years. The original amount
applicable to the Tridex Ribbon Business acquisition totaled $180,000 and
was being amortized on the straight-line method over five years. The
Company recorded amortization of goodwill of approximately $35,000, net of
taxes, during the first quarter of 2001.
FAS 142 requires that goodwill be tested annually for impairment. The
Company has performed an impairment test as of January 1, 2002 and
determined that no transition adjustment related to impairment is
necessary.
2. Earnings per share
Basic earnings per common share for the three months ended March 31,
2002 and 2001 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 months ended March 31, 2002 and 2001, the effects of potential
dilutive securities have been excluded, as they would have been
anti-dilutive.
3. Inventories:
The components of inventory are:
March 31, December 31,
(In thousands) 2002 2001
---- ----
Raw materials and component parts $10,186 $10,299
Work-in-process 25 25
Finished goods 73 309
------- -------
$10,284 $10,633
======= =======
6
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. Significant transaction
On February 22, 2002, at the request of a major customer, the Company
received a cash payment of approximately $5,824,000 in advance of printer
shipments to be made from March through August 2002. This amount has been
classified as a current liability, and will be reduced by the sales value
of shipments as they are made. As a result of this payment, the Company
repaid all its outstanding revolving borrowings under the LaSalle Credit
Facility in February 2002. As of March 31, 2002 approximately $4.1 million
of the original $5.8 million advance remains outstanding.
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 undertook a plan to consolidate all
manufacturing and engineering into its existing Ithaca, NY facility and
close its Wallingford, CT facility (the "Consolidation"). As of December
31, 2001, substantially all Wallingford product lines were successfully
transferred to Ithaca, NY. The Company currently maintains one small
component production line in Wallingford. 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 has applied the consensus set forth in EITF 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a Restructuring)" in
recognizing the accrued restructuring expenses. 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, accelerated depreciation and other costs,
will be approximately $4.2 million, of which approximately $4.1 million was
recognized during 2001.
The following table summarizes the activity recorded in the
restructuring accrual during the first quarter of 2002 and 2001.
Three Months Ended
March 31,
(In thousands) 2002 2001
- -------------- ---- ----
Accrual balance, beginning of period $ 3,002 $ 105
------- -------
Business consolidation and restructuring expenses:
Employee severance and termination expenses (1) 40 195
Facility closure and consolidation expenses (2) 1 829
------- -------
41 1,024
------- -------
Cash payments (685) (90)
------- -------
Accrual balance, end of period $ 2,358 $ 1,039
======= =======
(1) Employee severance and termination related expenses are the estimated
termination salaries, benefits, outplacement, counseling services and other
related costs expected to be paid to involuntarily terminated employees.
(2) Facility closure and consolidation expenses are the estimated costs to
close the Wallingford, CT facility including lease termination costs and
other related costs, in accordance with the restructuring plan. The
Wallingford facility closure was substantially completed by December 31,
2001.
7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
The following table summarizes the components of all charges related
to the Consolidation.
Three months ended
March 31,
(In thousands) 2002 2001
---- ----
Business consolidation and restructuring expenses $ 41 $1,024
Accelerated depreciation and asset disposal losses (1) -- 98
------ ------
Total business consolidation, restructuring and
related charges $ 41 $1,122
====== ======
(1) Represents accelerated depreciation 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.
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 sublease its facility in
Wallingford, CT subsequent to its closing; availability of third-party
components at reasonable prices; and the absence of price wars or other
significant pricing pressures affecting the Company's products in the United
States or abroad. Actual results may differ materially from those discussed in,
or implied by, the forward-looking statements. The forward-looking statements
speak only as of the date of this report and the Company assumes no duty to
update them to reflect new, changing or unanticipated events or circumstances.
PLANT CONSOLIDATION
In February 2001, the Company announced plans to establish a global engineering
and manufacturing center at its Ithaca, NY facility. As part of this strategic
decision, the Company undertook a plan to consolidate all manufacturing and
engineering into its existing Ithaca, NY facility and close its Wallingford, CT
facility (the "Consolidation"). The Company's technology shift to inkjet and
thermal printing from dot matrix impact printing has dramatically reduced the
labor content in printers, and therefore, lowers the required production
capacity. As of December 31, 2001, substantially all Wallingford product lines
were successfully transferred to Ithaca, NY. The Company expects to maintain one
small component production line in Wallingford until May 2002, after which the
manufacturing facility will be closed. 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 $4.2 million, of which
approximately $4.1 million was recognized during 2001. See the "Liquidity and
Capital Resources" section for a discussion of the expected impact of the
Consolidation on the Company's future results of operations and cash flows.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
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 %) March 31, 2002 March 31, 2001
-------------- --------------
Point of sale $ 3,622 34.4% $ 6,005 61.5%
Gaming and lottery 6,453 61.3 1,928 19.7
Other 450 4.3 1,840 18.8
------- ----- ------- -----
$10,525 100.0% $ 9,773 100.0%
======= ===== ======= =====
Net sales for the first quarter of 2002 increased $752,000, or 8%, to
$10,525,000 from the prior year's first quarter, due to significantly higher
shipments into the Company's gaming and lottery market, largely offset by
decreased sales into the point of sale ("POS") and the Company's other markets.
Overall, international sales decreased to $1,011,000, or 9.6% of net sales in
the first quarter of 2002, from $3,544,000, or 36.3% of net sales in the first
quarter of 2001, largely due to a reduction in revenue related to the British
Post Office project (approximately $800,000) and kiosk printer shipments for use
in a Canadian government application (approximately $1,000,000).
Point of sale: Sales of the Company's POS printers overall decreased by
approximately $2,383,000, or 40% from the same period last year. Domestic POS
printer sales totaling $2,661,000 were lower by $840,000, or 24%, as the Company
continues to experience softness in demand from the Company's domestic
distributors. Due to on-going
9
economic weakness, the Company expects continued worldwide softness in demand
for its POS products during 2002.
International POS printer shipments decreased approximately $1,543,000 due to a
number of factors. First, sales for the British Post Office project, which
include printer shipments and service revenue, declined by approximately
$800,000 to approximately $300,000 in the first quarter of 2002 from
approximately $1,100,000 in the same quarter last year. 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
during 2002. Secondly, shipments of the Company's thermal fiscal printer in
Europe declined by approximately $350,000 to $64,000 in the first quarter of
2002. Although the Company continues to pursue sales of its fiscal printer, such
sales are principally project-oriented, and the Company cannot predict if and
when future sales may occur. Lastly, the Company experienced a decrease in sales
in Latin America of approximately $400,000 through Okidata, the Company's
distribution partner in Latin America.
Gaming and lottery: Sales of the Company's gaming and lottery printers increased
by $4,525,000, or 235%, from the first quarter a year ago. The primary reason
for the increase of revenue in this market is the resumption of shipments of the
Company's on-line and in-lane lottery printers to GTECH Corporation ("GTECH") (a
worldwide lottery terminal provider and major customer of the Company) in the
first quarter of 2002. Shipments of on-line lottery printers and spare parts
totaled approximately $3,800,000 in the first quarter of 2002. The Company made
no shipments of on-line lottery printers during the first quarter of 2001. The
Company has received orders from GTECH for on-line lottery printers, of which
approximately $5,700,000 will be delivered during the remainder of 2002 and
$500,000 in 2003. Shipments of in-lane lottery printers totaled approximately
$550,000 in the first quarter of 2002, compared to none in same quarter of 2001.
Since sales of in-lane lottery printers are project-oriented, the Company cannot
predict if and when future sales may occur.
In addition to the printer sales to GTECH, sales of the Company's video lottery
terminal ("VLT") printers increased by approximately $1,000,000 to approximately
$1,500,000, due largely to new installations in West Virginia. Since VLT printer
sales are largely project-oriented, the Company cannot predict if and when
future sales may occur. However based on existing orders and sales
opportunities, the Company expects higher sales of VLT printers in 2002 compared
to 2001 sales of approximately $1,700,000.
Offsetting the above increases, the Company experienced a decrease of
approximately $900,000 of the Company's slot machine and gaming printers, spares
and repairs. Such printers are primarily for use in slot machines and other
gaming machines at casinos in California and Nevada that print receipts instead
of dropping coins. The Company expects sales of its slot machine printers and
other gaming printers to increase significantly in the second quarter of 2002
over the first quarter of 2002 and the second quarter last year, and to continue
to increase during the second half of 2002 as more casinos are expected to
convert to ticket-in, ticket-out slot machines.
Other: Sales of the Company's printers into other markets decreased by
$1,390,000, or 76%, to $450,000 from the prior year's comparable quarter. The
first quarter of 2001 included shipments of approximately $1,000,000 of the
Company's thermal kiosk printers for use in a Canadian government application.
No shipments of these printers were made in the first quarter of 2002. However,
the Company expects to ship printers for this application during the second half
of 2002, although the amount is not known at this time. In addition, sales of
the Company's ATM printer, kiosk printers and related spares declined by
approximately $400,000. Since printer sales into this market are principally
project-oriented, the Company cannot predict if and when future sales may occur.
GROSS PROFIT. Gross profit increased $823,000, or 46%, to $2,626,000 from the
prior year's quarter due primarily to higher volume sales, an improved sales mix
and cost reductions resulting from the Consolidation. The gross margin also
increased to 25.0% from 18.5%. Both gross profit and gross margin for the prior
year's first quarter were adversely impacted by lower sales volume due largely
to the absence of on-line lottery printer shipments to GTECH. Printer shipments
to GTECH resumed during the first quarter of 2002. The Company expects its gross
margin for the full-year 2002 to improve to between 25% and 26% due to cost
savings resulting from the Consolidation.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses decreased $272,000, or 33%, to $546,000 from the first quarter of 2001,
and decreased as a percentage of net sales to 5.2% from 8.4%. This decrease is
primarily due to a reduction in engineering staff at the Company's Wallingford
facility due to the Consolidation.
10
SELLING AND MARKETING. Selling and marketing expenses decreased $115,000, or
10%, to $1,031,000 from the first quarter of 2001, and decreased as a percentage
of net sales to 9.8% from 11.7%. Such expenses decreased due mostly to lower
planned promotional and advertising expenses and staff reductions resulting from
the Consolidation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
$331,000, or 22%, to $1,176,000 from the comparable prior year's quarter, and
decreased as a percentage of net sales to 11.2% from 15.4%. The decrease
primarily resulted from (1) staff reductions resulting from the Consolidation
and (2) the inclusion in the first quarter of 2001 of $98,000 of accelerated
depreciation on certain assets located at the Company's Wallingford, CT facility
(primarily leasehold improvements and computer equipment) whose useful lives
were shortened as a result of the Consolidation.
BUSINESS CONSOLIDATION AND RESTRUCTURING. During the first quarter of 2002, the
Company incurred $41,000 of expenses related to the Consolidation, compared to
approximately $1,024,000 in the first quarter a year ago. In 2002 these expenses
were primarily severance costs; in 2001 these expenses 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). See Note 5 to the
Consolidated Condensed Financial Statements.
OPERATING LOSS. Operating loss was reduced by $2,524,000, to $168,000 in the
first quarter of 2001, primarily due to the higher expenses related to the
Consolidation in the first quarter a year ago and higher gross margin on
increased sales in the first quarter of 2002 compared to the first quarter of
2001.
INTEREST. Net interest expense decreased to $55,000 from $94,000 in the first
quarter of 2001 due largely to the repayment of all outstanding borrowings under
the Company's revolving bank facility in late February 2002. The cash proceeds
for the repayment resulted from the receipt of an advance payment of
approximately $5.8 million from a major customer in advance of printer shipments
to be made from March through August 2002. The Company expects its revolving
borrowings to return to approximately the same level as December 31, 2001 by the
end of the third quarter 2002. As a result, interest expense is expected to
increase sequentially in each of the remaining quarters of 2002. See "Liquidity
and Capital Resources" below.
INCOME TAXES. As a result of the Company's loss before taxes, the Company
recorded an income tax benefit of $73,000 and $988,000 in the first quarter of
2002 and 2001, respectively at an effective rate of approximately 36.0% in both
quarters.
NET LOSS. The Company incurred a net loss during the first quarter of 2002 of
$129,000, or $0.04 per share (basic and diluted) after giving effect to $90,000
of dividends and accretion charges on preferred stock. This compares to a net
loss of $1,757,000, or $0.33 per share (basic and diluted) for the first quarter
of 2001, after giving effect to $90,000 of dividends and accretion charges on
preferred stock. In future quarters, dividends and accretion charges on
preferred stock will be approximately $90,000, assuming no conversion or
redemption of the preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company generated cash from operations of $4,883,000 and $1,157,000 in
the first quarter of 2002 and 2001, respectively. The significant increase in
cash generated from operations in the first quarter of 2002 was largely the
result of the receipt of a $5,824,000 advance payment from a major customer in
February 2002, of which $4,062,000 was outstanding at quarter end. (See Note 4
to the Consolidated Condensed Financial Statements.) Depreciation and
amortization totaled $608,000 in the quarter. Receivables were lower by
$471,000, primarily the result of the advance payment noted above. Without the
advance payment, receivables would have increased by approximately $1,000,000.
Inventories were reduced in the quarter by approximately $350,000 due to higher
shipments and tighter inventory management. Offsetting the activities providing
cash in the quarter was the net reduction in the restructuring accrual of
$644,000, representing primarily payouts for severance pay and related benefits
of $685,000 and an additional accrual of $41,000.
WORKING CAPITAL
The Company's working capital decreased to $3,612,000 at March 31, 2002
from $8,366,000 at December 31, 2001. The current ratio also decreased to 1.28
to 1 at March 31, 2002 from 1.90 to 1 at December 31, 2001. The decrease in both
working capital and the current ratio were largely due to the receipt of a
$5,824,000 advance payment from a major customer in February 2002, the balance
of which ($4,062,000) is carried as a current liability in the condensed
consolidated balance sheet.
11
CREDIT FACILITY AND BORROWINGS
On May 25, 2001, the Company entered into a three-year, $13.5 million
credit facility (the "LaSalle Credit Facility") with LaSalle Business Credit,
Inc. ("LaSalle") expiring on May 25, 2004 to replace its prior credit facility
with Webster Bank. The LaSalle Credit Facility provides a $12 million revolving
credit line, a $0.5 million term loan and a $1 million equipment loan facility.
Borrowings under the LaSalle Credit Facility bear a floating rate of interest
based on LaSalle's prime rate. Under certain circumstances, the Company may
select a fixed interest rate for a specified period of time of up to 180 days on
borrowings based on the current LIBOR rate.
On October 30, 2001, the Company amended the LaSalle Credit Facility. Under
the terms of the amendment ("LaSalle Amendment No.1"), LaSalle, in consideration
of certain waivers and other matters, (1) 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 (2) increased the floating
rate of interest on borrowings under the term loan and equipment loan to
LaSalle's prime rate plus 1.5%, or the current LIBOR rate plus 4.0%. Upon
execution of LaSalle Amendment No. 1, the Company paid a fee of $20,000 to
LaSalle.
On December 21, 2001, the Company amended the LaSalle Credit Facility to
reset certain financial covenants for 2002 and beyond ("LaSalle Amendment No.
2). Upon execution of LaSalle Amendment No. 2, the Company paid a fee of $5,000
to LaSalle.
As of March 31, 2002, the Company had no borrowings outstanding on the
revolving credit line compared to $4,994,000 outstanding at December 31, 2001.
At March 31, 2002 the Company had $425,000 outstanding under the term loan,
compared to $450,000 at December 31, 2001. Annual principal payments on the term
loan are $100,000. There were no borrowings under the equipment loan.
PREFERRED STOCK
In connection with its 7% Series B Cumulative Convertible Redeemable
Preferred Stock (the "Preferred Stock"), the Company paid $70,000 of cash
dividends to Advance Capital Advisors, L.P. in the first quarter of 2002 and
2001, respectively, and expects to pay $70,000 per quarter for the remainder of
2002. The preferred stock is redeemable at the option of the holders on April
7, 2005 for an aggregate of $4,000,000 plus any unpaid dividends.
CAPITAL EXPENDITURES
The Company's capital expenditures were approximately $190,000 and $138,000
in the first quarter of 2002 and 2001, respectively. These expenditures
primarily included new product tooling, computer equipment, and factory
machinery and equipment. The Company's capital expenditures for the remainder of
2002 are expected to be approximately $800,000, a majority for new product
tooling.
CONSOLIDATION EXPENSES
During 2001, the Company incurred approximately $4,096,000 of business
consolidation, restructuring and related charges as a result of the
Consolidation. These expenses primarily included employee severance and
termination related expenses, facility closure and consolidation expenses
(including moving expenses, estimated non-cancelable lease payments and other
costs) and accelerated depreciation and asset disposal losses on certain
leasehold improvements and other fixed assets. Although the Consolidation was
substantially completed in 2001, the Company estimates that it will incur an
additional $50,000 to $100,000 of non-recurring costs associated with the
Consolidation during 2002, of which $41,000 was recorded in the first quarter.
These costs in 2002 include (1) expenses incurred to physically move the
remaining assets of the Wallingford, CT facility to Ithaca, NY and (2) severance
costs for employees who terminate in 2002. The Company believes that the
Consolidation will significantly lower the Company's cost structure in 2002,
with estimated annual cost savings of at least $4 million compared to 2001. The
first quarter 2002 operating results reflect a portion of those cost savings.
Of the total of $4,200,000 of expenses, approximately $3,400,000 requires
cash outlays. During 2001, the Company paid approximately $400,000 of these
costs, with substantially all the remaining costs expected to be paid during
2002. During the first quarter of 2002, the Company paid $685,000 of these
expenses.
RESOURCE SUFFICIENCY
The Company believes that cash flows generated from operations and
borrowings available under the LaSalle Credit Facility, as amended, will provide
sufficient resources to meet the Company's working capital needs, including
costs associated with the Consolidation, finance its capital expenditures and
meet its liquidity requirements through December 31, 2002.
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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 Company's Credit Facility with LaSalle
Business Credit. These borrowings bear interest at variable rates and the fair
value of this indebtedness is not significantly affected by changes in market
interest rates. An effective increase or decrease of 10% in the current
effective interest rates under the Credit Facility would not have a material
effect on the Company's results of operations or cash flow.
FOREIGN CURRENCY EXCHANGE RISK
A substantial portion of the Company's sales are denominated in U.S.
dollars and, as a result, the Company has relatively little exposure to foreign
currency exchange risk with respect to sales made. This exposure may change over
time as business practices evolve and could have a material adverse impact on
the Company's financial results in the future. The Company does not use forward
exchange contracts to hedge exposures denominated in foreign currencies or any
other derivative financial instruments for trading or speculative purposes. The
effect of an immediate 10% change in exchange rates would not have a material
impact on the Company's future results of operations or cash flow.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits filed herein
Exhibit 10.26 Loan Agreement by and between the
Company and Bart C. Shuldman, dated
January 1, 2002
Exhibit 11.1 Computation of earnings per share
b. Reports on Form 8-K
None.
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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)
May 13, 2002 /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
Senior Vice President, Finance and
Information Technology
(Principal Accounting Officer)
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EXHIBIT LIST
The following exhibits are filed herewith.
Exhibit
10.26 Loan Agreement by and between the Company and Bart C.
Shuldman, dated January 1, 2002
11.1 Computation of earnings per share.
15