<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: September 23, 2000
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.
<TABLE>
<CAPTION>
CLASS OUTSTANDING OCTOBER 27, 2000
----- ----------------------------
<S> <C>
COMMON STOCK, 5,603,000
$.01 PAR VALUE
</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 September 23, 2000 and
December 31, 1999 3
Consolidated condensed statements of operations for the three and nine
months ended September 23, 2000 and September 25, 1999 4
Consolidated condensed statements of cash flow for the nine months ended
September 23, 2000 and September 25, 1999 5
Notes to consolidated condensed financial statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
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
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 23, December 31,
(In thousands) 2000 1999
------------ ------------
ASSETS: (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 880 $ 279
Receivables, net 6,659 4,863
Inventories 12,798 10,257
Other current assets 1,475 1,540
----------- -------------
Total current assets 21,812 16,939
----------- -------------
Plant and equipment, net 7,472 6,705
Excess of cost over fair value of net assets acquired 1,730 1,886
Other assets 106 154
----------- -------------
9,308 8,745
----------- -------------
$ 31,120 $ 25,684
=========== ==============
LIABILITIES, MANDITORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,990 $ 3,056
Accrued liabilities 2,428 2,789
----------- -------------
Total current liabilities 6,418 5,845
----------- -------------
Long-term debt 8,300 7,100
Other liabilities 456 532
----------- -------------
8,756 7,632
----------- -------------
Mandatorily redeemable preferred stock 3,649 -
----------- -------------
Shareholders' equity:
Common stock 56 56
Additional paid-in capital 6,042 5,656
Retained earnings 7,166 7,592
Unamortized restricted stock compensation (559) (747)
Loan receivable from officer (330) (330)
Accumulated other comprehensive loss (78) (20)
----------- -------------
Total shareholders' equity 12,297 12,207
----------- -------------
$ 31,120 $ 25,684
=========== ==============
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 23, September 25, SEPTEMBER 23, September 25,
(In thousands, except per share data) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 14,604 $ 13,020 $ 39,582 $ 34,745
Cost of sales 10,737 9,685 29,037 25,744
----------- ----------- ----------- ---------
Gross profit 3,867 3,335 10,545 9,001
----------- ----------- ----------- ---------
Operating expenses:
Engineering, design and product
development costs 826 803 2,655 2,393
Selling and marketing expenses 1,074 975 3,819 2,831
General and administrative expenses 1,373 1,156 4,013 3,362
----------- ----------- ----------- ---------
3,273 2,934 10,487 8,586
----------- ----------- ----------- ---------
Operating income 594 401 58 415
----------- ----------- ----------- ---------
Other income (expense):
Interest, net (169) (89) (478) (274)
Other, net 17 759 53 785
----------- ----------- ----------- ---------
(152) 670 (425) 511
----------- ----------- ----------- ---------
Income (loss) before income taxes 442 1,071 (367) 926
Income tax provision (benefit) 152 234 (171) 222
----------- ----------- ----------- ---------
Net income (loss) 290 837 (196) 704
Dividends and accretion on preferred stock (90) - (230) -
----------- ----------- ----------- ---------
Net income (loss) available to common
shareholders $ 200 $ 837 $ (426) $ 704
=========== =========== =========== =========
Net income (loss) per share:
Basic $ 0.04 $ 0.15 $ (0.08) $ 0.13
=========== =========== =========== =========
Diluted $ 0.04 $ 0.15 $ (0.08) $ 0.13
=========== =========== =========== =========
Weighted average common shares outstanding:
Basic 5,512 5,559 5,496 5,565
=========== =========== =========== =========
Diluted 5,512 5,656 5,496 5,589
=========== =========== =========== =========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 23, September 25,
(In thousands) 2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (196) $ 704
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,974 1,676
(Gain) loss on disposal of equipment (4) 8
Changes in operating assets and liabilities:
Receivables (1,796) (1,304)
Inventories (2,541) (429)
Other current assets 65 179
Other assets (57) (96)
Accounts payable 934 2,857
Accrued liabilities and other liabilities (437) 287
----------- -----------
Net cash provided by (used in) operating activities (2,058) 3,882
----------- -----------
Cash flows from investing activities:
Purchases of plant and equipment (2,296) (1,762)
Loans to officers 15 (345)
Acquisition of Tridex Ribbon business - (295)
----------- -----------
Net cash used in investing activities (2,281) (2,402)
----------- -----------
Cash flows from financing activities:
Bank line of credit borrowings 21,400 9,500
Bank line of credit repayments (20,200) (10,600)
Net proceeds from issuance of preferred stock 3,785 -
Payment of cash dividends on preferred stock (135) -
Proceeds from option exercises 148 1
Purchases of treasury stock - (229)
----------- -----------
Net cash provided by (used in) financing activities 4,998 (1,328)
----------- -----------
Effect of exchange rate changes on cash (58) (4)
----------- -----------
Increase in cash and cash equivalents 601 148
Cash and cash equivalents at beginning of period 279 546
----------- -----------
Cash and cash equivalents at end of period $ 880 $ 694
=========== ============
</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 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 23,
2000, and the results of its operations and cash flows for the three and
nine months ended September 23, 2000 and September 25, 1999. The December
31, 1999 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, 1999 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 nine months ended
September 23, 2000 and September 25, 1999 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 nine months ended
September 23, 2000 and September 25, 1999 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>
September 23, December 31,
(In thousands) 2000 1999
---- ----
<S> <C> <C>
Raw materials and component parts $ 12,417 $ 9,198
Work-in-process 345 542
Finished goods 36 517
--------- --------
$ 12,798 $ 10,257
========= ========
</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.
6
<PAGE> 7
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Significant transactions
On September 21, 2000, the Company entered into a new two-year
revolving credit facility (the "Webster Credit Facility) with Webster
Bank ("Webster") expiring on September 21, 2002. The Webster Credit
Facility replaced the Company's credit facility with Fleet Bank. Under
the Webster Credit Facility, the Company may borrow up to $12 million,
based on certain financial criteria of the Company at the time of any
borrowing, to repay borrowings under the credit facility with Fleet Bank
and to fund working capital. Borrowings under the Webster Credit Facility
bear a floating rate of interest at the higher of the "Prime Rate" as
published in The Wall Street Journal or one-half of one percent (1/2%)
over the federal funds rate (as defined in the Webster Credit Facility).
Under certain circumstances, the Company may select a fixed interest rate
for a specified period of up to 90 days on borrowings based on the
current LIBOR rate (as adjusted as specified in the Webster Credit
Facility) plus 2.5%, which may be reduced to 2.25% on July 1, 2001 if
there is no Event of Default (as defined in the Webster Credit Facility).
The Company will also pay a fee of three-eighths of one percent (3/8%) on
unused borrowing capacity under the Webster Credit Facility. Borrowings
under the Webster Credit Facility are secured by a lien on all the
personal property assets of the Company. The Webster Credit facility also
imposes certain financial covenants on the Company and restricts the
payment of dividends on its common stock and the creation of other liens.
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; 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; 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.
7
<PAGE> 8
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 23, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
25, 1999
NET SALES. Net sales by market for the current and prior year's quarter were as
follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
(In thousands, except %) September 23, 2000 September 25, 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Point of sale $ 8,278 56.7% $ 9,111 70.0%
Gaming and lottery 5,022 34.4 1,557 12.0
Other 1,304 8.9 2,352 18.0
-------- ----- -------- -----
$ 14,604 100.0% $ 13,020 100.0%
======== ===== ======== =====
</TABLE>
Net sales for the third quarter of 2000 increased $1,584,000, or 12%, to
$14,604,000 from the prior year's third quarter, due to significantly increased
shipments into gaming and lottery markets, partially offset by decreased sales
into the point of sale ("POS") and the Company's other markets.
Point of sale: Sales of the Company's POS printers decreased approximately
$833,000, or 9%. Domestic POS printer sales decreased $2,859,000 due primarily
to continued softness in demand from the Company's domestic distributors in the
third quarter of 2000, which the Company expects to continue for the remainder
of 2000. Despite a decrease in domestic printer shipments, international POS
printer shipments increased approximately $2,026,000 due to resumed printer
shipments for the British Post Office project. Shipments for the British Post
Office project totaled approximately $3,400,000 in the third quarter of 2000.
The Company did not make any printer shipments related to this project during
1999. The Company expects to complete shipping printers for the British Post
Office project during the first quarter of 2001, subsequent to which no further
shipments are expected. While the Company expects to replace 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 during 2001. The increase in international shipments for the
British Post Office project were offset by a decrease of approximately
$1,300,000 of printer shipments to Europe and Latin America through the
Company's distribution partner, Okidata.
Gaming and lottery: Sales of the Company's gaming and lottery printers increased
approximately $3,465,000, or 223%, from the third quarter a year ago. The
overall increase primarily reflects resumed printer shipments of the Company's
on-line lottery printers to GTECH. Shipments of these printers and spares
totaled approximately $3,200,000. The Company made no on-line lottery printer
shipments to GTECH during 1999. The Company has not yet received an order from
GTECH for 2001 on-line lottery printer shipments, but expects to receive an
indication of the amount of such an order, if any, by December 31, 2000. If the
Company does not receive an order from GTECH for 2001 of a comparable amount,
the absence of such sales would have a material adverse impact on the Company's
operations and financial results during 2001.
In addition to resumed shipments to GTECH, sales into the gaming and lottery
market increased by approximately $600,000 due to higher shipments of printers
for use in video lottery terminals ("VLTs"). During the third quarter of 1999,
shipments of printers for use in VLTs consisted primarily of those for use in
South Carolina's video poker industry. However, in October 1999, the Supreme
Court of South Carolina upheld legislation to prohibit the use of video poker
machines beginning July 1, 2000. As a result of this legislation, the Company
has not had any sales of its VLT printers in South Carolina since the third
quarter of 1999, and does not expect any in the future. Sales of printers for
use in video lottery printers increased during the third quarter of 2000, as the
Company more than replaced its third quarter of 1999 printer sales into South
Carolina with sales into other jurisdictions. The Company expects to continue
pursuing opportunities to provide printers for use in video lottery and other
gaming machines outside of South Carolina, including newly legalized casinos in
California. The Company began shipping printers for use in such casinos in the
third quarter of 2000.
The increase due to resumed shipments to GTECH and higher VLT printer sales was
somewhat offset by a decrease of approximately $300,000 of sales of in-lane and
other lottery printers to GTECH in 1999 that did not recur in 2000. Sales of
these printers to GTECH are principally project-oriented and the Company cannot
predict if and when future sales may occur.
8
<PAGE> 9
Other: Sales of the Company's printers into other markets decreased by
$1,048,000, or 45% to $1,304,000 from the prior year's quarter. The third
quarter of 1999 included shipments of approximately $300,000 of the Company's
thermal kiosk printers for use in a Canadian government application. No
shipments of these printers were made in the third quarter of 2000. Sales into
the Company's other markets also decreased due to shipments of printers to a
customer for use in a bank teller application in 1999 that did not recur in
2000. 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 $532,000, or 16%, to $3,867,000 from the
prior year's quarter due primarily to higher volume of sales. The gross margin
also improved to 26.5% from 25.6%. Both gross profit and gross margin for the
third quarter of 1999 were adversely impacted by approximately $350,000 of
nonrecurring manufacturing disruption and other costs related to the GTECH
product line. The Company expects its gross margin for the remainder of 2000 to
decline slightly from the third quarter of 2000 level due to an expected change
in the Company's sales mix as it introduces new products.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses increased $23,000, or 3%, to $826,000 from the third quarter of 1999.
This increase is primarily due to additional engineering staff for new printer
development. Engineering and product development expense decreased as a
percentage of net sales to 5.6% from 6.1%, as these expenses grew more slowly
than sales volume in the third quarter of 2000 compared to 1999.
SELLING AND MARKETING. Selling and marketing expenses increased $99,000, or 10%,
to $1,074,000 from the quarter ended September 23, 1999, and decreased slightly
as a percentage of net sales to 7.4% from 7.5%. Such expenses increased
primarily due to continued marketing and promotional activities incurred in the
third quarter of 2000 related to the launch in April of 2000 of the Company's
new family of printers utilizing inkjet printing technology, including
additional marketing staff. This increase was partially offset by lower sales
commissions resulting from a decrease in sales eligible for commissions in the
third quarter of 2000 compared to 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$217,000, or 19%, to $1,373,000 from the comparable prior year's quarter and
increased as a percentage of net sales to 9.4% from 8.9%. The increase primarily
resulted from higher professional, telecommunication, and administrative payroll
expenses during the quarter.
OPERATING INCOME. Operating income increased $193,000, or 48%, to $594,000 from
$401,000 in the third quarter of 1999. Operating income as a percentage of net
sales increased to 4.1% from 3.1%, primarily due to lower gross margin in the
third quarter of 1999 resulting from the inclusion of certain nonrecurring
manufacturing disruption and other costs related to the GTECH product line.
OTHER INCOME. During the third quarter of 1999, the Company recorded a one-time
pre-tax gain of $770,000 related to the favorable settlement of a lawsuit with
GTECH.
INTEREST. Net interest expense increased to $169,000 from $89,000 in the third
quarter of 1999 due to increased average outstanding borrowings on the Company's
line of credit and a higher average interest rate on such borrowings. See
"Liquidity and Capital Resources" below.
INCOME TAXES. The provision for income taxes for the current quarter reflects an
effective tax rate of 34.3% compared to 21.8% in the comparable prior year's
period. The Company's lower effective tax rate in the third quarter of 1999
largely resulted from the recognition of certain tax credits and benefit from
the Company's foreign sales corporation.
NET INCOME. The Company recorded net income of $290,000, or $0.04 per share
(basic and diluted) during the third quarter of 2000, after giving effect to
$90,000 of dividends and accretion recorded during the period on preferred stock
issued in April 2000. This compares to net income of $837,000, or $0.15 per
share (basic and diluted) for the comparable quarter of 1999. In future
quarters, dividends and accretion on preferred stock will be $90,000, before the
effect of any conversion or redemption of the preferred stock.
9
<PAGE> 10
NINE MONTHS ENDED SEPTEMBER 23, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER
25, 1999
NET SALES. Net sales by market for the current and prior nine-month periods
were as follows:
<TABLE>
<CAPTION>
Nine months ended Nine months ended
(In thousands, except %) September 23, 2000 September 25, 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Point of sale $ 22,109 55.9% $ 20,248 58.3%
Gaming and lottery 13,503 34.1 7,688 22.1
Other 3,970 10.0 6,809 19.6
-------- ----- -------- -----
$ 39,582 100.0% $ 34,745 100.0%
======== ===== ======== =====
</TABLE>
Net sales for the first nine months of 2000 increased $4,837,000, or 14%, to
$39,582,000 from the prior year's period, due to increased shipments into the
POS and gaming and lottery markets, partially offset by a decrease in the
Company's other markets.
Point of sale: Sales of the Company's POS printers increased approximately
$1,861,000, or 9%. International POS printer shipments increased approximately
$6,897,000 due to resumed printer shipments for the British Post Office project.
Shipments for this project totaled approximately $8,000,000 in the first nine
months of 2000. The Company did not make any printer shipments related to this
project during 1999. The Company expects to complete shipping printers for the
British Post Office project during the first quarter of 2001, subsequent to
which no further shipments are expected. While the Company expects to replace
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 during 2001. The increase in international shipments for the
British Post Office project were offset by a decrease of approximately
$1,400,000 of printer shipments to Europe and Latin America through the
Company's distribution partner, Okidata.
Domestic POS printer sales declined by approximately $5,036,000 due primarily to
continued softness in demand from the Company's domestic distributors, which the
Company expects to continue for the remainder of 2000.
Gaming and lottery: Sales of the Company's gaming and lottery printers increased
approximately $5,815,000, or 76%, from the first nine months a year ago. The
overall increase reflects resumed printer shipments of the Company's on-line
lottery printers to GTECH. Shipments of these printers and spares totaled
approximately $9,300,000. The Company made no on-line lottery printer shipments
to GTECH during 1999. The Company has not yet received an order from GTECH for
2001 on-line lottery printer shipments, but expects to receive an indication of
the amount of such order, if any, by December 31, 2000. If the Company does not
receive an order from GTECH for 2001 of a comparable amount, the absence of such
sales would have a material adverse impact on the Company's operations and
financial results during 2001.
The increase due to resumed shipments to GTECH was offset by a decrease of (1)
approximately $1,100,000 of sales of in-lane and other lottery printers to GTECH
that did not recur in 2000 (Sales of these printers to GTECH are principally
project-oriented and the Company cannot predict if and when future sales may
occur); and (2) approximately $2,000,000 in shipments of printers for use in
video lottery terminals. During the first nine months of 1999, shipments of
printers for use in VLTs consisted primarily of those for use in South
Carolina's video poker industry. However, in October 1999, the Supreme Court of
South Carolina upheld legislation to prohibit the use of video poker machines
beginning July 1, 2000. As a result of this legislation, the Company has not
sold any VLT printers for use in South Carolina since the third quarter of 1999,
and does not expect any future sales of such printers. The absence of VLT
printer sales in South Carolina during the first nine months of 2000 was
partially offset by sales of VLT printers into other jurisdictions. The Company
expects to continue pursuing opportunities to provide printers for use in video
lottery and other gaming machines outside of South Carolina, including newly
legalized casinos in California. The Company began shipping printers for use in
such casinos in the third quarter of 2000.
10
<PAGE> 11
Other: Sales of the Company's printers into other markets decreased by
$2,839,000, or 42% to $3,970,000 from the comparable prior year's period. The
first nine months of 1999 included shipments of approximately $1,400,000 of the
Company's thermal kiosk printers for use in a Canadian government application.
No shipments of these printers were made in the nine months ended September 23,
2000. Sales into the Company's other markets also decreased due to shipments of
printers to a customer for use in a bank teller application in 1999 that did not
recur in 2000. 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 $1,544,000, or 17%, to $10,545,000 from the
first nine months of 1999 due primarily to higher volume of sales. The gross
margin also improved to 26.6% from 25.6%. Both gross profit and gross margin for
the nine months of 1999 were adversely impacted by approximately $350,000 of
nonrecurring manufacturing disruption and other costs related to the GTECH
product line. The Company expects its gross margin for the remainder of 2000 to
decline slightly from the third quarter of 2000 level due to an expected change
in the Company's sales mix as it introduces new products.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering, design and product development
expenses increased $262,000, or 11%, to $2,655,000 from the nine months ended
September 23, 1999, and increased as a percentage of net sales to 6.7% from
6.1%. This increase is primarily due to increased product development and design
expenses, primarily for development of printers utilizing inkjet printing
technology and additional engineering staff.
SELLING AND MARKETING. Selling and marketing expenses increased $988,000, or
35%, to $3,819,000 from the comparable prior year period, and increased as a
percentage of net sales to 10.1% from 7.5%. Such expenses increased primarily
due to marketing and promotional activities related to the launch of the
Company's new family of printers utilizing inkjet printing technology in April
of 2000, including additional marketing staff. This increase was somewhat offset
by lower sales commissions resulting from a decrease in sales eligible for
commissions in the first nine months of 2000 compared to 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$651,000, or 19%, to $4,013,000 from the comparable prior year's period and
increased as a percentage of net sales to 10.1% from 8.9%. The increase
primarily resulted from (1) higher expenses resulting from the Company's upgrade
of its telecommunications system in late 1999, (2) an increase in administrative
payroll expenses and (3) higher professional expenses.
OPERATING INCOME. Operating income decreased $357,000, or 86%, to $58,000 from
$415,000 in the first nine months of 1999. Operating income as a percentage of
net sales declined to 0.1% from 3.1%, primarily due to higher operating
expenses, including planned marketing and product development expenses related
to the launch of the Company's printers utilizing inkjet printing technology,
and to higher general and administrative expenses.
OTHER INCOME. During the third quarter of 1999, the Company recorded a one-time
pre-tax gain of $770,000 related to the favorable settlement of a lawsuit with
GTECH.
INTEREST. Net interest expense increased to $478,000 from $274,000 in the first
nine months of 1999 due to increased average outstanding borrowings on the
Company's line of credit and a higher 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 $171,000, or an effective tax rate of 46.6%,
in the nine months ended September 23, 2000 compared to an income tax provision
of $222,000, or an effective tax rate of 24% for the nine months ended September
25, 1999. The relatively low tax provision for the nine months of 1999 largely
resulted from the recognition of certain tax credits and benefit from the
Company's foreign sales corporation.
NET INCOME (LOSS). The Company incurred a net loss during the first nine months
of 2000 of $426,000, or $0.08 per share (basic and diluted), after giving effect
to $174,000 of dividends and accretion, and a one-time beneficial conversion
charge of approximately $56,000 (recorded during the second quarter of 2000), on
preferred stock issued in April of 2000. This compares to net income of
$704,000, or $0.13 per share (basic and diluted) for the first nine months of
1999. In future quarters, dividends and accretion on preferred stock will be
$90,000, before the effect of any conversion or redemption of the preferred
stock.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company reported cash used in operations of $2,058,000 during the first nine
months of 2000 compared to cash generated from operations of $3,882,000 during
the first nine months of 1999. The Company's working capital increased to
$15,394,000 at September 23, 2000 from $11,094,000 at December 31, 1999. The
current ratio also increased to 3.40 at September 23, 2000 from 2.90 at December
31, 1999. Both the increase in working capital and the current ratio were
largely due to (1) higher receivables at September 23, 2000 resulting from
higher sales volume in the third quarter of 2000 compared to the fourth quarter
of 1999, (2) higher inventory levels in anticipation of higher sales volume and
new product launches during 2000 compared to 1999 and (3) net proceeds of
approximately $3.8 million from the issuance of preferred stock in April, 2000.
Prior to March 14, 2000, the Company had in place a two-year $10,000,000
revolving credit facility (the "First Fleet Credit Facility") with Fleet
National Bank ("Fleet"). The Company had $7,100,000 of outstanding borrowings
under this facility at December 31, 1999.
On March 14, 2000, the Company entered into a new two-year $13,000,000 revolving
credit facility (the "Second Fleet Credit Facility") with Fleet. The Second
Fleet Credit Facility replaced the First Fleet Credit Facility.
On September 21, 2000, the Company entered into a new two-year revolving credit
facility (the "Webster Credit Facility) with Webster Bank ("Webster") expiring
on September 21, 2002. The Webster Credit Facility replaced the Second Fleet
Credit Facility. Under the Webster Credit Facility, the Company may borrow up to
$12 million, based on certain financial criteria of the Company at the time of
any borrowing, to repay borrowings under the credit facility with Fleet Bank and
to fund working capital. Borrowings under the Webster Credit Facility bear a
floating rate of interest at the higher of the "Prime Rate" as published in The
Wall Street Journal or one-half of one percent (1/2%) over the federal funds
rate (as defined in the Webster Credit Facility). Under certain circumstances,
the Company may select a fixed interest rate for a specified period of up to 90
days on borrowings based on the current LIBOR rate (as adjusted as specified in
the Webster Credit Facility) plus 2.5%, which may be reduced to 2.25% on July 1,
2001 if there is no Event of Default (as defined in the Webster Credit
Facility). The Company will also pay a fee of three-eighths of one percent
(3/8%) on unused borrowing capacity under the Webster Credit Facility.
Borrowings under the Webster Credit Facility are secured by a lien on all the
personal property assets of the Company. The Webster Credit facility also
imposes certain financial covenants on the Company and restricts the payment of
dividends on its common stock and the creation of other liens. The Company had
$8,300,000 of outstanding borrowings under this facility at September 23, 2000.
On April 7, 2000 the Company sold 4,000 shares of 7% Series B Cumulative
Convertible Redeemable Preferred Stock (the "Preferred Stock") to Advance
Capital Advisors, L.P. and its affiliate in consideration of $1,000 per share
(the "Stated Value"), for a total of $4,000,000, less issuance costs. The
Preferred Stock is convertible at any time by the holders at a conversion price
of $9.00 per common share. In addition, the Company issued warrants pro-rata to
the Preferred Stock holders to purchase an aggregate of 44,444 shares of the
Company's common stock at an exercise price of $9.00 per common share. The
warrants, valued at $175,000, are exercisable at any time until the April 7,
2005. The Preferred Stock is subject to mandatory conversion into shares of the
Company's common stock when such stock has traded at $35 per share or more for a
30-day period ending on or after April 7, 2003, or for a 60-day period beginning
on or after April 7, 2002. The Preferred Stock is redeemable at the option of
the holders on or after April 7, 2005 at $1,000 per share plus any unpaid
dividends. On April 7, 2007, the Company has the right to require (1) redemption
of the Preferred Stock at $1,000 per share plus any unpaid dividends or (2)
conversion of the Preferred Stock at $9.00 per common share. Upon a change of
control, holders have the right to redeem the Preferred Stock for 200% of the
Stated Value plus any unpaid dividends. The holders of the Preferred Stock are
entitled to receive a cumulative annual dividend of $70 per share, payable
quarterly, and have preference to any other dividends, if any, paid by the
Company.
The Company's capital expenditures were approximately $2,296,000 and $1,762,000
for the nine months ended September 23, 2000 and September 25, 1999,
respectively. These expenditures primarily included new product tooling, largely
for new inkjet products in the 2000 period. The Company's total capital
expenditures for 2000 are expected to be approximately $2,800,000, a majority
for new product tooling.
The Company believes that cash flows generated from operations, net cash
proceeds from the issuance of Preferred Stock and borrowings available under the
Webster Credit Facility, as necessary, will provide sufficient resources to meet
the Company's working capital needs, finance its capital expenditures and meet
its liquidity requirements through December 31, 2000.
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<PAGE> 13
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 Webster 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 Webster Credit Facility, may, and has, fixed its rate of
interest at LIBOR plus the applicable margin for between 30 and 90 days on a
significant portion of its outstanding borrowings. The Company does not have any
other protection against interest rate fluctuations. An effective increase or
decrease of 10% in the current effective interest rates under its 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
<TABLE>
<S> <C>
Exhibit 11.1 Computation of earnings per share
Exhibit 27.1 Financial Data Schedule
</TABLE>
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter covered by this report.
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<PAGE> 14
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 2, 2000 /s/ Richard L. Cote
-------------------
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ Steven A. DeMartino
-----------------------
Steven A. DeMartino
Vice President and Corporate Controller
(Principal Accounting Officer)
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<PAGE> 15
EXHIBIT LIST
The following exhibits are filed herewith.
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
11.1 Computation of earnings per share.
27.1 Financial Data Schedule.
</TABLE>
15
