<PAGE> 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 27, 1998
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)
Former address:
(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.
<TABLE>
<CAPTION>
CLASS OUTSTANDING JULY 31, 1998
- ----- -------------------------
<S> <C>
COMMON STOCK,
$.01 PAR VALUE 6,166,300
</TABLE>
<PAGE> 2
TRANSACT TECHNOLOGIES INCORPORATED
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information: Page No.
- ------- ---------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated condensed balance sheets as of June 27, 1998 and December
31, 1997 3
Consolidated condensed statements of income for the three and six months
ended June 27, 1998 and June 28, 1997 4
Consolidated condensed statements of cash flows for the six months ended
June 27, 1998 and June 28, 1997 5
Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of the Results of Operations and
Financial Condition 7
Item 3 Quantitative and Qualitative Disclosures about Market Risk 11
PART II. Other Information:
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 27, December 31,
(In thousands) 1998 1997
---- ----
<S> <C> <C>
ASSETS: (UNAUDITED)
Current assets:
Cash and cash equivalents $ 321 $ 391
Receivables 7,365 7,235
Inventories 10,411 8,570
Other current assets 1,459 1,365
-------- --------
Total current assets 19,556 17,561
-------- --------
Plant and equipment, net 5,923 4,989
Excess of cost over fair value of net assets acquired 1,987 2,073
Other assets 98 76
-------- --------
8,008 7,138
-------- --------
$ 27,564 $ 24,699
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank loans payable $ 5,800 $ 300
Accounts payable 4,427 3,043
Accrued liabilities 2,649 2,780
-------- --------
Total current liabilities 12,876 6,123
-------- --------
Other liabilities 581 673
-------- --------
Shareholders' equity:
Common stock 68 68
Additional paid-in capital 15,169 14,975
Retained earnings 6,927 6,062
Unamortized restricted stock compensation (1,029) (942)
Cumulative translation adjustment (6) (9)
-------- --------
21,129 20,154
Less: Treasury stock, at cost, 666,200 and 200,000 shares (7,022) (2,251)
-------- --------
Total shareholders' equity 14,107 17,903
-------- --------
$ 27,564 $ 24,699
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 27, June 28, JUNE 27, June 28,
(In thousands, except per share data) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 12,500 $ 15,569 $ 25,780 $ 29,583
Cost of sales 9,065 10,606 18,599 20,268
-------- -------- -------- --------
Gross profit 3,435 4,963 7,181 9,315
-------- -------- -------- --------
Operating expenses:
Engineering, design and product
development costs 983 779 1,816 1,457
Selling, general and administrative
expenses 2,004 1,990 3,878 3,831
-------- -------- -------- --------
2,987 2,769 5,694 5,288
-------- -------- -------- --------
Operating income 448 2,194 1,487 4,027
-------- -------- -------- --------
Other income (expense):
Interest expense, net (87) (8) (128) (16)
Other, net 6 6 15 (7)
-------- -------- -------- --------
(81) (2) (113) (23)
-------- -------- -------- --------
Income before income taxes 367 2,192 1,374 4,004
Income taxes 136 832 509 1,557
-------- -------- -------- --------
Net income $ 231 $ 1,360 $ 865 $ 2,447
======== ======== ======== ========
Net income per common share:
Basic $ 0.04 $ 0.20 $ 0.14 $ 0.36
======== ======== ======== ========
Diluted $ 0.04 $ 0.20 $ 0.14 $ 0.36
======== ======== ======== ========
Weighted average common shares outstanding:
Basic 6,239 6,771 6,347 6,747
======== ======== ======== ========
Diluted 6,264 6,895 6,394 6,886
======== ======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 27, June 28,
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 865 $ 2,447
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,047 807
Loss on disposal of equipment 9 --
Changes in operating assets and liabilities:
Receivables (130) (2,533)
Inventory (1,841) (2,356)
Other current assets (94) (216)
Other assets (63) (27)
Accounts payable 1,384 2,731
Accrued liabilities and other liabilities (223) 861
------- -------
Net cash provided by operating activities 954 1,714
------- -------
Cash flows from investing activities:
Purchases of plant and equipment (1,760) (1,358)
Proceeds from sale of equipment 2 1
------- -------
Net cash used in investing activities (1,758) (1,357)
------- -------
Cash flows from financing activities:
Bank line of credit borrowings 8,200 1,200
Bank line of credit repayments (2,700) (1,200)
Purchases of treasury stock (4,771) --
Proceeds from option exercises 2 --
Tax benefit related to employee stock sales -- 376
Payment of intercompany debt -- (1,000)
------- -------
Net cash provided by (used in) financing activities 731 (624)
------- -------
Effect of exchange rate changes on cash 3 5
------- -------
Decrease in cash and cash equivalents (70) (262)
Cash and cash equivalents at beginning of period 391 1,041
------- -------
Cash and cash equivalents at end of period $ 321 $ 779
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of 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 27, 1998, and the results of its operations
and cash flows for the three and six months ended June 27, 1998 and June
28, 1997. The December 31, 1997 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,
1997 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 and six months ended June 27,
1998 and June 28, 1997 are not necessarily indicative of the results to
be expected for the full year.
2. Earnings per share
Basic earnings per common share for the three and six months ended June
27, 1998 and June 28, 1997 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.
3. Inventories:
The components of inventory are:
<TABLE>
<CAPTION>
June 27, December 31,
(In thousands) 1998 1997
-------------- ---- ----
<S> <C> <C>
Raw materials and component parts $ 8,922 $ 7,482
Work-in-process 939 588
Finished goods 550 500
-------- -------
$ 10,411 $ 8,570
======== =======
</TABLE>
4. Commitments and contingencies
The Company has a long-term purchase agreement with Okidata, Division of
Oki America, Inc., for certain printer components. Under the terms of the
agreement, the Company receives favorable pricing for volume purchases
over the life of the contract. In the event anticipated purchase levels
are not achieved, the Company would be subject to retroactive price
increases on previous purchases. Management currently anticipates
achieving purchase levels sufficient to maintain the favorable prices.
5. Significant transactions
During the six months ended June 27, 1998, the Company purchased 466,200
of its common stock on the open market for approximately $4,771,000, of
which 166,200 shares were purchased on the open market for approximately
$1,556,000 during the three months ended June 27, 1998.
6
<PAGE> 7
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 may be deemed to
contain forward looking statements with respect to events the occurrence of
which involves risks and uncertainties, including, but not limited to, customer
acceptance and market share gain in the European and Latin American markets in
the face of substantial competition from competitors that have broader lines
of products; successful product development; dependence on significant
customers; economic conditions in the United States, Europe and Latin America;
marketplace acceptance of new products; risks associated with foreign
operations; 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.
IMPACT OF THE YEAR 2000 ISSUE. The Year 2000 Issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company's products and key financial and operating systems are being
reviewed and, where required, detailed plans have been or are being developed
and implemented on a schedule intended to permit the Company's computer systems
and products to continue to function properly. The Company presently believes
that with modifications to existing software and conversions to new software,
the Year 2000 Issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed timely, the Year 2000 Issue could
have a material impact on the operations of the Company. Furthermore, there can
be no guarantee that the systems of other companies on which the Company's
system rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have an material adverse effect on the Company. Management does not expect
costs associated with the Year 2000 Issue to have a material adverse impact on
the Company's financial position, results of operations or cash flows.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 1998 COMPARED TO THREE MONTHS ENDED JUNE 28, 1997
NET SALES. Net sales into each of the Company's four vertical markets for the
current and prior year's quarter were as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C> <C> <C>
Point of sale $ 7,349 58.8 % $ 5,648 36.3 %
Gaming and lottery 4,598 36.8 6,886 44.2
Kiosk 271 2.2 1,940 12.5
Financial services 282 2.2 1,095 7.0
------------------------ ------------------------
$12,500 100.0 % $15,569 100.0 %
======================== ========================
</TABLE>
Net sales for the second quarter of 1998 decreased $3,069,000, or 20%, to
$12,500,000 from $15,569,000 in the prior year's second quarter, due to
decreased shipments into the gaming and lottery, kiosk and financial services
markets, somewhat offset by a significant increase in the POS market.
Point of sale: Sales of the Company's POS printers increased approximately
$1,701,000, or 30%, due largely to increased international printer shipments,
including substantially more shipments of printers for use in the British post
office project. Shipments of printers to the British post office project
increased to approximately $1,600,000 in the second quarter of 1998 from
approximately $600,000 in the same quarter a year ago. The Company expects to
ship approximately $1,400,000 of these printers during the third quarter of
1998. However, beyond the third quarter of 1998, the Company does not anticipate
making any further printer shipments related to this project until 1999.
Domestic POS printer sales were consistent with the prior year's quarter.
7
<PAGE> 8
Gaming and lottery: Sales of the Company's gaming and lottery printers decreased
approximately $2,288,000, or 33%, from the second quarter a year ago. The
overall decrease primarily reflects a decrease of approximately $1,400,000 in
shipments of the Company's on-line lottery printers and spare parts due to lower
order levels from one customer in the second quarter of 1998 compared to the
second quarter of 1997. Shipments of on-line lottery printers and spares to this
customer were approximately $3,800,000, or 30% of net sales, in the current
quarter, compared to approximately $5,200,000, or 33% of net sales, in the
comparable prior year's quarter. The Company expects the order level from this
customer for the remainder of 1998 to continue to be lower than that of 1997.
Additionally, shipments of printers for use in video lottery terminals decreased
approximately $900,000, including reduced printer shipments due to the
uncertainty in South Carolina's video poker industry concerning the industry's
continued future in the state, which is currently being litigated.
Kiosk: Kiosk printer sales decreased $1,669,000, or 86%, to $271,000 from
$1,940,000 in the prior year's quarter, which included shipments totaling
approximately $1,200,000 of the Company's thermal kiosk printers for use in a
Canadian government application. No shipments of these printers occurred in the
second quarter of 1998. The remaining decrease primarily reflects shipments of
other kiosk printers to various customers in the second quarter of 1997 that did
not repeat in the second quarter of 1998.
Financial services: Sales of the Company's printers into the financial services
market decreased approximately $813,000, or 74%, primarily due to decreased
shipments of printers to one customer used in automated teller machines. Due to
an anticipated continued slowdown in the order level from this customer during
1998, the Company expects sales of its financial services printers for the
remainder of 1998 to be lower than the comparable period of 1997.
GROSS PROFIT. Gross profit decreased $1,528,000, or 31%, to $3,435,000 from
$4,963,000 in the prior year's quarter due primarily to lower volume of sales.
The gross margin declined to 27.5% from 31.9% largely due to lower sales volume
and an unfavorable change in sales mix, as sales to certain customers at volume
discount prices represented a larger proportion of sales in the second quarter
of 1998 compared to the second quarter of 1997. As a result of this change in
sales mix, the Company now expects its gross margin in the second half of 1998
to be relatively consistent with that of the first half of the year.
ENGINEERING, DESIGN AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased $204,000, or 26%, to $983,000 from $779,000 in
the three months ended June 28, 1997, and increased as a percentage of net sales
to 7.9% from 5.0%. This increase is primarily due to increased product
development and design expenses, primarily for new products in the POS market,
including expenses related to additional engineering staff.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased slightly by $14,000, or 1%, to $2,004,000 from $1,990,000 in
the comparable prior year's quarter. Both selling expenses and general and
administrative expenses were consistent with the prior year's quarter. Selling,
general and administrative expenses increased as a percentage of net sales to
16.0% from 12.8%, primarily due to a lower volume of sales in the second quarter
of 1998 compared to 1997.
OPERATING INCOME. Operating income decreased $1,746,000, or 80%, to $448,000
from $2,194,000 in the second quarter of 1997. Operating income as a percentage
of net sales declined to 3.6% from 14.1%, primarily due to lower gross margin on
lower sales volume and also due to increased operating expenses in the second
quarter of 1998 compared to 1997.
INTEREST. Net interest expense increased to $87,000 from $8,000 in the second
quarter of 1997 due to increased borrowings on the Company's line of credit
during the second quarter of 1998 to fund stock repurchases and working capital
requirements. See "Liquidity and Capital Resources" below.
INCOME TAXES. The provision for income taxes for the quarter ended June 27, 1998
reflects an effective tax rate of 37.1% compared to 38.0% in the prior year's
period. The decline in the Company's effective tax rate is largely due to tax
benefits derived from the establishment of a foreign sales corporation and
certain tax credits.
NET INCOME. Net income for the current quarter was $231,000, or $0.04 per share
(basic and diluted) compared to $1,360,000, or $0.20 per share (basic and
diluted) for the prior year's quarter.
8
<PAGE> 9
SIX MONTHS ENDED JUNE 27, 1998 COMPARED TO SIX MONTHS ENDED JUNE 28, 1997
NET SALES. Net sales into each of the Company's four vertical markets for the
current and prior six-month period were as follows:
<TABLE>
<CAPTION>
Six months ended Six months ended
June 27, 1998 June 28, 1997
------------------------- -------------------------
<S> <C> <C> <C> <C>
Point of sale 15,162 58.8 % $10,697 36.2 %
Gaming and lottery 8,786 34.1 11,888 40.2
Kiosk 722 2.8 4,413 14.9
Financial services 1,110 4.3 2,585 8.7
------------------------ ------------------------
25,780 100.0 % $29,583 100.0 %
======================== ========================
</TABLE>
Net sales for the first half of 1998 decreased $3,803,000, or 13%, to
$25,780,000 from $29,583,000 in the prior year's period, due to decreased
shipments into the gaming and lottery, kiosk and financial services markets,
offset by a significant increase in the POS market.
Point of sale: Sales of the Company's POS printers increased approximately
$4,465,000, or 42%, due largely to increased international printer shipments (an
increase of approximately $3,300,000), including substantially more shipments of
printers for use in the British post office project. Shipments of printers to
the British post office project were approximately $3,200,000 in the first half
of 1998 compared to approximately $800,000 in the same period a year ago. The
Company expects to ship approximately $1,400,000 of these printers during the
third quarter of 1998. However, beyond the third quarter of 1998, the Company
does not anticipate making any further printer shipments related to this project
until 1999. In addition to increased international shipments, domestic POS
printer shipments increased approximately $1,200,000.
Gaming and lottery: Sales of the Company's gaming and lottery printers decreased
approximately $3,102,000, or 26%, from the first half a year ago. The overall
decrease primarily reflects a decrease of approximately $2,800,000 in shipments
of printers for use in video lottery terminals due largely to the uncertainty in
South Carolina's video poker industry concerning the industry's continued future
in the state, which is currently being litigated. Additionally, shipments of the
Company's on-line lottery printers and spare parts declined $400,000 due to
lower order levels from one customer in the first half of 1998 compared to the
same period of 1997. Shipments of on-line lottery printers and spares to this
customer were approximately $7,500,000, or 29% of net sales, in the current
period, compared to approximately $7,900,000, or 27% of net sales, in the
comparable prior year's period. The Company expects the order level from this
customer for the remainder of 1998 to continue to be lower than that of 1997.
Kiosk: Kiosk printer sales decreased $3,691,000, or 84%, to $722,000 from
$4,413,000 in the prior year's period, which included shipments totaling
approximately $3,100,000 of the Company's thermal kiosk printers for use in a
Canadian government application. No shipments of these printers occurred in the
first six months of 1998. The remaining decrease in kiosk printer sales
primarily reflects shipments of other kiosk printers to various customers in the
first half of 1997 that did not repeat in the first half of 1998.
Financial services: Sales of the Company's printers into the financial services
market decreased approximately $1,475,000, or 57%, primarily due to decreased
shipments of printers to one customer used in automated teller machines. Due to
an anticipated continued slowdown in the order level from this customer during
1998, the Company expects sales of its financial services printers for the
remainder of 1998 to be lower than the comparable period of 1997.
GROSS PROFIT. Gross profit decreased $2,134,000, or 23%, to $7,181,000 from
$9,315,000 in first half of 1997 due primarily to lower volume of sales. The
gross margin declined to 27.9% from 31.5% largely due to lower sales volume and
an unfavorable change in sales mix, as sales to certain customers at volume
discount prices represented a larger proportion of sales in the first half of
1998 compared to the first half of 1997. As a result of this change in sales
mix, the Company now expects its gross margin in the second half of 1998 to be
relatively consistent with that of the first half of the year.
9
<PAGE> 10
ENGINEERING, DESIGN AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased $359,000, or 25%, to $1,816,000 from $1,457,000
in the six months ended June 28, 1997, and increased as a percentage of net
sales to 7.1% from 4.9%. This increase is primarily due to increased product
development and design expenses, primarily for new products in the POS market,
including expenses related to additional engineering staff.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased slightly by $47,000, or 1%, to $3,878,000 from $3,831,000 in
the comparable prior year's period. Both selling expenses and general and
administrative expenses were consistent with the prior year's period. Selling,
general and administrative expenses increased as a percentage of net sales to
15.0% from 13.0%, primarily due to a lower volume of sales in the first half of
1998 compared to 1997.
OPERATING INCOME. Operating income decreased $2,540,000, or 63%, to $1,487,000
from $4,027,000 in the first six months of 1997. Operating income as a
percentage of net sales declined to 5.8% from 13.6%, due primarily to lower
gross margin on lower sales volume and also due to increased operating expenses
in the first six months of 1998 compared to 1997.
INTEREST. Net interest expense increased to $128,000 from $16,000 in the first
six months of 1997 due to increased borrowings on the Company's line of credit
during the first half of 1998 to fund stock repurchases and working capital
requirements. See "Liquidity and Capital Resources" below.
INCOME TAXES. The provision for income taxes for the six months ended June 27,
1998 reflects an effective tax rate of 37.0% compared to 38.9% in the prior
year's period. The decline in the Company's effective tax rate is largely due to
tax benefits derived from the establishment of a foreign sales corporation and
certain tax credits.
NET INCOME. Net income for the current period was $865,000, or $0.14 per share
(basic and diluted) compared to $2,447,000, or $0.36 per share (basic and
diluted) for the prior year's period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operations was $954,000 and $1,714,000 for the
six months ended June 27, 1998 and June 28, 1997, respectively. The Company's
working capital declined to $6,680,000 at June 27, 1998 from $11,438,000 at
December 31, 1997. The current ratio also declined to 1.52 at June 27, 1998 from
2.87 at December 31, 1997. The decrease in the Company's working capital and
current ratio in the first half of 1998 was largely the result of short-term
financing for stock repurchases (see below) and, to a lesser extent, for
short-term working capital requirements.
During November 1997, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock at a price of no more than $12 per
share. As of December 31, 1997, the Company acquired 200,000 shares of its
common stock for $2,251,000. During the first quarter of 1998, the Company
repurchased the remaining 300,000 shares authorized by the Board for
approximately $3,215,000. In May 1998, the Board approved the repurchase of an
additional 500,000 shares, of which the Company repurchased 166,200 shares for
approximately $1,556,000 during the second quarter of 1998. Future repurchases
of the Company's stock will depend upon the future cash flow of the Company and
stock market conditions. Since the Company began the stock repurchase program in
December 1997, it has repurchased 666,200 shares for $7,022,000 (an average cost
of $10.54 per share).
The Company has in place a $15,000,000 revolving credit facility (the "Credit
Facility") with Fleet National Bank ("Fleet"). The Credit Facility provides the
Company with a $5,000,000 revolving working capital facility, and a $10,000,000
revolving credit facility that may be used for activities such as acquisitions
and repurchases of the Company's common stock. Borrowings under the $10,000,000
revolving credit facility may, at the Company's election, be converted to a
four-year term loan commencing on June 30, 1999, the expiration date of the
Credit Facility. Any term loan borrowings mature on June 30, 2003. Borrowings
under the Credit Facility bear interest at Fleet's prime rate (8.50% at June 27,
1998) and bear a commitment fee ranging from 0.25% to 0.50% on any unused
portion of the Credit Facility. The Credit Facility also permits the Company to
designate a LIBOR rate on outstanding borrowings with a margin ranging from 1.25
to 1.75 percentage points over the market rate, depending on the Company meeting
certain ratios. The Credit Facility is secured by a lien on substantially all of
the assets of the Company, imposes certain financial covenants and restricts the
payment of cash dividends and the creation of liens.
10
<PAGE> 11
At December 31, 1997, the Company had outstanding borrowings of $300,000. During
the six months ended June 27, 1998, the Company borrowed $8,200,000 under the
Credit Facility, primarily to fund its common stock repurchases, and to fund its
short-term working capital requirements. The Company repaid $2,700,000 of its
borrowings during the period, with $5,800,000 outstanding at June 27, 1998.
The Company's capital expenditures were approximately $1,760,000 and $1,358,000
for the six months ended June 27, 1998 and June 28, 1997, respectively. These
expenditures primarily included new product tooling, computer equipment, and
factory machinery and equipment. The Company's total capital expenditures for
fiscal 1998 are expected to be approximately $3,000,000, a majority for new
product tooling.
The Company believes that cash flows generated from operations and borrowings
available under the Credit Facility, if necessary, will provide sufficient
resources to meet the Company's working capital needs, finance its capital
expenditures and stock repurchases (if any), and meet its liquidity requirements
through December 31, 1998.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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 7,
1998. Matters voted upon at the meeting and the number of
votes cast for, against or withheld, 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 2001 or until their successors have been duly elected
and qualified. Nominees were Graham Y. Tanaka and Richard
L. Cote. Votes cast were as follows:
<TABLE>
<CAPTION>
For Abstained
--- ---------
<S> <C> <C>
Graham Y. Tanaka 5,973,141 205,607
Richard L. Cote 5,973,187 205,561
</TABLE>
(2) To ratify the selection of Price Waterhouse LLP as
independent accountants for 1998. Votes cast were as
follows: 5,984,099 for; 129,660 against; 64,989 abstained.
(3) To approve an amendment to the 1996 Stock Plan to increase
the number of shares of Common Stock subject thereto.
Votes cast were as follows: 5,389,878 for; 611,152
against; 150,420 abstained.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits filed herein
Exhibit 10.31 Amended and Restated
Manufacturing Support Services
Agreement between Tridex
Corporation and Magnetec
Corporation dated as of
June 1, 1998
Exhibit 11 Computation of Earnings Per
Share
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the quarter covered by this report.
11
<PAGE> 12
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 11, 1998 /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
Corporate Controller
(Principal Accounting Officer)
12
<PAGE> 1
EXHIBIT 10.31
AMENDED AND RESTATED
MANUFACTURING SUPPORT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANUFACTURING SUPPORT SERVICES AGREEMENT (the
"Agreement") is dated as of June 1, 1998 by and between Tridex Corporation, a
Connecticut corporation ("Tridex"), and Magnetec Corporation, a Connecticut
corporation ("Magnetec").
WHEREAS, Magnetec and Tridex entered into a Manufacturing Support
Services Agreement dated as of September 28, 1996 (the "Original Agreement"),
under which Magnetec has provided certain services to Tridex in connection with
Tridex's conduct of the ribbon business (the "Ribbon Business"); and
WHEREAS, Tridex and Magnetec wish to amend and restate such Original
Agreement to reflect their revised agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Staffing: Management Supervision and Control by Tridex.
(a) No Magnetec employees will engage directly in the
manufacturing operations of the Ribbon Business. Tridex shall employ all
personnel required to be directly engaged in such operations, and only the
individuals employed by Tridex for the Ribbon Business shall be permitted to
operate Ribbon Business equipment.
(b) Tridex shall maintain managerial supervision and control
of the Ribbon Business manufacturing operations and shall exercise final
approval authority over all Tridex purchase orders and Tridex checks prepared by
Magnetec in connection with the manufacturing support services rendered
hereunder. The designated Tridex employee (the "Ribbon Line Supervisor") will
supervise the Ribbon Business manufacturing line employees and serve as
day-to-day on-site representative of Tridex for Ribbon Business matters.
(c) The Ribbon Line Supervisor, or another Tridex employee (as
designated by Tridex in writing to Magnetec), shall: (i) forecast annual
materials requirements; (ii) develop material requirements planning ("MRP") data
for input to Magnetec's automated manufacturing and inventory control systems;
(iii) develop a production schedule and determine quantities and delivery dates
required for periodic materials requirements; (iv) issue Tridex purchase orders
for delivery of such materials in the appropriate quantities on the delivery
dates; (v) supervise Tridex employees engaged in the manufacturing operations of
the Ribbon Business; (vi) collect Ribbon Business receivables; (vii) authorize
payment of invoices; and (viii) supervise third-party payroll service and
provide Tridex federal taxpayer identification number for payroll purposes.
-1-
<PAGE> 2
2. Insurance. Tridex agrees to obtain and maintain all necessary
insurance, including but not limited to, property, casualty, liability and
workers' compensation with respect to the Ribbon Business and the Tridex
employees engaged in Ribbon Business operations at Magnetec's facility. Tridex
shall provide proof of coverage upon request by Magnetec.
3. Space Provided. Magnetec hereby agrees to provide Tridex up to
approximately 2,200 square feet of floor space including, to the extent
practicable, manufacturing, stockroom, finished goods warehouse, and shipping
and receiving space. Space provided to Tridex shall, to the extent practicable,
be clearly marked as separate areas designated for the Ribbon Business.
4. Ribbon Business Products Sold to Magnetec. Tridex agrees to sell
Ribbon Business products to Magnetec at prices no higher than ten percent (10%)
below the lowest price paid by any other customer of Tridex for the same
products. This price is subject to annual adjustment upon the mutual agreement
of the parties hereto, with annual increases not to exceed five percent (5%) of
then current prices.
5. Manufacturing Support Services Provided by Magnetec.
Magnetec will provide the following services to Tridex for the
conduct of the Ribbon Business:
(a) Purchasing and Manufacturing Processing Services: receive
at the Magnetec receiving dock materials ordered by Tridex for Ribbon Business
operations; generate list of goods received and cross-check against vendor's
packing list and Tridex purchase order; spot inspect such materials upon
receipt; store materials in the Magnetec stockroom in a separate area designated
for the Ribbon Business; move materials to manufacturing area according to
manufacturing schedule; and move finished goods to a separate area designated
for Ribbon Business finished goods.
(b) Sales Order Processing and Customer Billing Services:
promptly after the date hereof, notify all Ribbon Business customers to submit
orders to Tridex in care of Magnetec Sales Department; receive and, after
acceptance of order by Ribbon Line Supervisor (as defined below), enter customer
orders into order processing system, including scheduling shipment date;
generate shipping documents; package and prepare finished goods for shipment;
ship finished goods and generate invoice on Tridex form.
(c) Accounts Payable Processing Services: promptly after the
date hereof, notify Ribbon Business suppliers to submit invoices to Tridex in
care of Magnetec Accounts Payable; match suppliers invoices with Tridex purchase
orders and receiving department records and enter verified invoices onto
accounts payable system; and prepare Tridex checks to suppliers for signature by
Tridex authorized signatory. (Tridex will in all cases make the final decision
regarding payment of any invoice submitted by a Ribbon Business supplier.)
(d) Payroll Processing Services: maintain Ribbon Business
employee files, including hours worked and payroll records. (Using the Tridex
employer identification number,
-2-
<PAGE> 3
Tridex will establish with a third party payroll service provider a separate
payroll for all Ribbon Business employees, including the Ribbon Line Supervisor.
Tridex will be solely responsible for all Ribbon Business wages, salaries,
insurance and other benefits, and all withholding or other taxes due thereon.)
(e) Accounting and Data Processing Services: establish within
the Magnetec accounting system separate accounts for all activity of the Ribbon
Business; provide Tridex with a monthly trial balance, detailed general ledger
and subledgers for all transactions. (All general ledger accounts will be
controlled by Tridex. Tridex will provide a Ribbon Business cash receipt journal
to Magnetec on a monthly basis to update the accounts receivable on the Ribbon
Business records maintained by Magnetec.)
6. Tridex Payment to Magnetec.
(a) Magnetec shall bill Tridex in arrears, as of the last day
of Magnetec's accounting month, and Tridex shall pay Magnetec no later than
thirty (30) days after the date of the invoice, as compensation for
manufacturing support services provided, for Magnetec's overhead attributable to
general and administrative expenses (e.g., expenses incurred to provide order
processing, customer billing and accounting services), and for Magnetec's fixed
employment costs for sales employees, a fixed fee of $11,000 per month.
(b) For other costs incurred and paid by Magnetec on behalf of
Tridex which are not included in Section 6(a) but are directly related to the
conduct of the Ribbon Business, including but not limited to sales commissions
paid on Ribbon Business sales, temporary labor, the direct cost of engineering
labor costs, benefits, and manufacturing equipment maintenance and repair, and
shipping costs, Tridex shall reimburse Magnetec for the actual cost of such
goods or services. Tridex shall reimburse Magnetec for the full cost of such
goods or services, when all such goods or services have been or will be used for
the Ribbon Business.
7. Goodwill of Common Customers. Magnetec has invested
substantial time, effort and expense in developing its goodwill and reputation
for providing to its customers quality printer products, including Ribbon
Business products, at competitive prices. Magnetec will continue to sell
printers to such customers, many of whom are and will be Ribbon Business
customers. As a material inducement to Magnetec to enter into this Agreement,
Tridex agrees not to take any action during the term of this Agreement which is
intended to have, or which would have a reasonable likelihood of having, a
material adverse effect on the relationship of Magnetec with its customers or
end users of its products.
8. Liabilities; Disclaimer. In furnishing the other party with services
as herein provided, Tridex, Magnetec and their respective officers, directors,
employees or agents (collectively, "Representatives") shall not be liable to the
other party or its respective Representatives, creditors or shareholders for any
action or failure to act except willful malfeasance, bad faith or gross
negligence in the performance of their duties or reckless disregard of their
obligations and duties under the terms of this Agreement. The provisions of this
Agreement are for the sole benefit of Tridex, Magnetec and their respective
Representatives
-3-
<PAGE> 4
and will not, except to the extent otherwise expressly stated herein, inure to
the benefit of any third party. Neither Tridex nor Magnetec makes any express or
implied warranty or representation with respect to the quality of the services
provided hereunder.
9. Term. The term of this Agreement shall begin as of the date hereof
and continue for two (2) years, unless terminated sooner. Either Magnetec or
Tridex may terminate this Agreement without cause upon ninety (90) days prior
written notice.
10. Status of Relationship. Magnetec shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for or bind Tridex.
11. Notices. All notices, billings, requests, demands, approvals,
consents, and other communications which are required or may be given under this
Agreement will be in writing and will be deemed to have been duly given if
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid to the parties at their respective addresses set
forth below:
If to Magnetec:
Magnetec Corporation
7 Laser Lane
Wallingford, CT 06492
Attention: Chief Financial Officer
If to Tridex:
Tridex Corporation
61 Wilton Road
Westport, CT 06880
Attention: Chief Financial Officer
12. Confidentiality. Tridex and Magnetec hereby agree to hold, and
cause their respective employees, agents and authorized representatives to hold,
in strict confidence, all information concerning the other party furnished
pursuant to this Agreement.
13. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and shall not be deemed to confer upon any third
party and right, remedy or claim in excess of those existing without reference
to this Agreement.
14. Access to Information. During the term of this Agreement and for
one (1) year thereafter, Tridex shall afford to Magnetec and its authorized
representatives, agents and employees, and Magnetec shall afford to Tridex and
its authorized representatives, agents and employees, access during normal
business hours to all records, books, contracts and other data,
-4-
<PAGE> 5
including but not limited to corporate, financial, accounting, personnel and
other business records, related to the Ribbon Business.
15. No Assignment. This Agreement shall not be assignable except with
the prior written consent of the other party to this Agreement.
16. Applicable Law. This Agreement shall be governed by and construed
under the laws of the State of Connecticut applicable to contracts made and to
be performed therein.
17. Section Headings. The section headings used in this Agreement are
for convenience of reference only and will not be considered in the
interpretation or construction of any of the provisions thereof.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
19. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any prior or contemporaneous agreement between the parties, written
or oral (including but not limited to the Original Agreement), which relates to
the subject matter hereof. This Agreement may be amended or modified only by a
written instrument signed by the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Amended and Restated
Manufacturing Support Services Agreement to be executed as a sealed instrument
by their duly authorized officers as of the date first above written.
TRIDEX CORPORATION
By: /s/ D.P. Bergeron
-------------------------
Title: VP/CFO
----------------------
MAGNETEC CORPORATION
By: /s/ Richard L. Cote
-------------------------
Title: Secretary - Treasurer
----------------------
-5-
<PAGE> 1
TRANSACT TECHNOLOGIES INCORPORATED
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 27, June 28, JUNE 27, June 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 231,000 $1,360,000 $ 865,000 $2,447,000
---------- ---------- ---------- ----------
SHARES:
Basic - Weighted average common shares
outstanding 6,239,000 6,771,000 6,347,000 6,747,000
Dilutive effect of outstanding options and
warrants as determined by the treasury
stock method 25,000 124,000 47,000 139,000
---------- ---------- ---------- ----------
Dilutive - Weighted average common and
common equivalent shares outstanding 6,264,000 6,895,000 6,394,000 6,886,000
---------- ---------- ---------- ----------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic * $ 0.04 $ 0.20 $ 0.14 $ 0.36
========== ========== ========== ==========
Diluted * 0.04 0.20 0.14 0.36
========== ========== ========== ==========
</TABLE>
* Net income per share for the three and six months ended June 28, 1997
have been calculated giving effect to SFAS 128.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TRANSACT
TECHNOLOGIES INCORPORATED QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
JUNE 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-27-1998
<CASH> 321
<SECURITIES> 0
<RECEIVABLES> 7,506
<ALLOWANCES> 141
<INVENTORY> 10,411
<CURRENT-ASSETS> 19,556
<PP&E> 12,981
<DEPRECIATION> 7,058
<TOTAL-ASSETS> 27,564
<CURRENT-LIABILITIES> 12,876
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 14,039
<TOTAL-LIABILITY-AND-EQUITY> 27,564
<SALES> 25,780
<TOTAL-REVENUES> 25,780
<CGS> 18,599
<TOTAL-COSTS> 24,293
<OTHER-EXPENSES> (15)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> 1,374
<INCOME-TAX> 509
<INCOME-CONTINUING> 865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 865
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
