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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year (____ weeks) ended December 31, 1996
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
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 incorporation or (I.R.S. Employer Identification No.)
organization)
7 LASER LANE, WALLINGFORD, CT 06492
- ------------------------------------------------ ----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-269-1198
----------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- ---------------------------------------------
COMMON STOCK, $0.01 PAR VALUE NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. [ ]
As of FEBRUARY 28, 1997 the aggregate market value of the registrant's issued
and outstanding voting stock held by non-affiliates of the registrant was
$17,700,000.
As of FEBRUARY 28, 1997 the registrant had outstanding 6,722,500 shares of
common stock, $0.01 par value.
Exhibit Index appears on page 29
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PART I
GENERAL
Transact Technologies Incorporated ("Transact" or the "Company") designs,
develops, manufactures and markets transaction based printers and related
products under the ITHACA and MAGNETEC brand names. The Company's printers are
used to provide transaction records such as receipts, tickets, coupons, register
journals and other documents. The Company focuses on four vertical markets:
point-of-sale ("POS") (from which the Company derived approximately 51% of its
net sales in the year ended December 31, 1996); gaming and lottery
(approximately 29% of net sales); financial services (approximately 12% of net
sales); and kiosk (approximately 8% of net sales). The Company sells its
products directly to end users, original equipment manufacturers ("OEMs"), value
added resellers ("VARs") and selected distributors, primarily in the United
States, Canada and Europe. Transact has two operating facilities located in
Wallingford, Connecticut and Ithaca, New York.
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS
As of the date of this report, Tridex Corporation ("Tridex") owns 5,400,000
shares, or approximately 80.3%, of the outstanding common stock of Transact.
Tridex has announced that on March 31, 1997 it intends to distribute those
shares pro rata to persons who are or were Tridex stockholders of record on
March 14, 1997, on the basis of approximately one share of Transact for each
share of Tridex.
In November 1995, the Board of Directors of Tridex approved a plan to
combine the business operations of two wholly-owned subsidiaries, Magnetec
Corporation ("Magnetec") and Ithaca Peripherals Incorporated ("Ithaca"), under
unified management. Transact was incorporated in Delaware on June 17, 1996 as a
wholly-owned subsidiary of Tridex. Following the incorporation, Tridex,
Transact, Magnetec and Ithaca entered into a Plan of Reorganization, pursuant to
which: (i) Ithaca merged into Magnetec; (ii) Transact transferred to Tridex
certain assets of Magnetec used in manufacturing a printer ribbon product line;
(iii) Transact issued 5,400,000 shares of its common stock to Tridex in exchange
for all the outstanding shares of Magnetec; (iv) Transact sold in an initial
public offering 1,322,500 shares or approximately 19.7% of its common stock; (v)
Transact repaid $8,500,000 of intercompany indebtedness to Tridex; (vi) Tridex
applied to the Internal Revenue Service (the "IRS") for a ruling that the
distribution of the 5,400,000 shares of Transact owned by Tridex to Tridex
stockholders (the "Distribution") would constitute a tax-free reorganization for
federal income tax purposes; and (vii) Tridex agreed to effect the Distribution
promptly after receipt of a favorable ruling from the IRS and the satisfaction
of certain other conditions.
On August 22, 1996, the Company sold 1,150,000 shares of its common stock at
a price of $8.50 per share in an initial public offering (the "Offering"). On
September 18, 1996, the Company sold an additional 172,500 shares upon exercise
of the underwriters' over-allotment option. Net proceeds from the Offering
(including the exercise of the underwriters' over-allotment option) were
approximately $9 million after payment of approximately $2.3 million of Offering
expenses.
On February 12, 1997, Tridex received a favorable ruling from the IRS
confirming the tax-free nature of the Distribution and announced that it would
effect the Distribution on March 31, 1997. Upon completion of the Distribution,
Tridex will no longer own any shares of Transact capital stock.
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(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Transact presently operates in one industry segment, the design,
development, manufacture and marketing of printers and printer peripheral
products.
(C) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
Transact designs, develops, manufactures and markets customizable and custom
dot matrix and thermal printers for applications requiring up to 60 character
columns in each of its four vertical markets: POS, gaming and lottery, financial
services and kiosk. The Company also sells an 80 column laser printer for kiosk
applications. The Company's customizable products include several series of
printers which offer customers the ability to choose from a variety of features
and functions. Options typically include print speeds, paper handling capacities
and numbers of print stations. In addition to its customizable printers,
Transact manufactures custom printers for certain OEM customers. In
collaboration with these customers, the Company provides engineering and
manufacturing expertise for the design and development of specialized printers.
In addition to printer products, the Company designs, manufactures, and
sells an optical mark-sense reader which uses a light source to read lottery,
pari-mutuel betting and other gaming slips marked by customers. The Company also
manufactures and sells document transport mechanisms which deliver the finished
printed output to the consumer in unattended applications, such as ATMs and
kiosks. The Company also offers printer ribbons, paper and replacement parts for
all of its products.
The Company provides customers with telephone sales and technical support, a
personal account representative for orders, shipping and general information and
expedited shipping for orders of its customizable and custom products. Technical
and sales support personnel receive training in all of the Company's products
and services manufactured at their facility. The Company's printers generally
carry a one-year limited warranty; extended warranties are available for
purchase on selected printers to supplement the original warranty. The Company's
costs to provide services and parts required under warranties historically have
not been material.
(ii) STATUS OF PRODUCT REQUIRING MATERIAL INVESTMENT
None.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal materials used in manufacturing are copper wire, magnetic
metals, injection molded plastic parts, formed metal parts and electronic
components. Although the Company could experience temporary disruption if
certain suppliers ceased doing business with the Company, the Company's
requirements generally are available from a number of sources. However, the
Company is dependent upon Okidata, Division of Oki America, Inc. ("Okidata") for
a printer component kit consisting of a printhead, control board and carriage
(the "Oki Kit"), which is used in virtually all of the Company's ITHACA brand
impact printers. The loss of the supply of Oki Kits would have a material
adverse effect on the Company. Transact has a supply agreement with Okidata to
provide Oki Kits until August 2000. Transact believes its relations with Okidata
are good and has received no indication that the supply agreement will not be
renewed beyond the expiration of the current contract. Transact cannot be
certain, however, that the supply agreement will be renewed, or if renewed, that
the terms will be as favorable as those under the current contract.
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(iv) PATENTS AND PROPRIETARY INFORMATION
The Company owns several patents, one of which it considers material.
That patent covers an automated paper cut-off device, which is a feature offered
on certain of the Company's POS printers. The Company regards certain
manufacturing processes and designs to be proprietary and attempts to protect
them through employee and third-party nondisclosure agreements and similar
means. It may be possible for unauthorized third parties to copy certain
portions of the Company's products or to reverse engineer or otherwise obtain
and use, to the Company's detriment, information that the Company regards as
proprietary. Moreover, the laws of some foreign countries do not afford the same
protection to the Company's proprietary rights as do United States laws. There
can be no assurance that legal protections relied upon by the Company to protect
its proprietary position will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technologies.
(v), (vi) SEASONALITY AND PRACTICES RELATING TO WORKING CAPITAL ITEMS
Retailers typically reduce purchases of new POS equipment in the fourth
quarter, due to the increased volume of consumer transactions in that period,
and the Company's sales of printers in the POS market historically have
increased in the third quarter and decreased in the fourth quarter. However, the
Company has not experienced material seasonality in its total net sales, due to
offsetting sales in other markets.
(vi) CERTAIN CUSTOMERS
Sales to GTECH Corporation accounted for approximately 16.0%, 12.4% and 0.9%
of net sales for the year ended December 31, 1996, the nine months ended
December 31, 1995, and the year ended April 1, 1995, respectively. Sales to
Indiana Cash Drawer Company accounted for approximately 7.5%, 8.6% and 13.6%
during the same periods. Sales to Ultimate Technologies Corporation accounted
for approximately 7.5%, 9.2% and 7.9% during the same periods.
(viii) BACKLOG
The Company's backlog of firm orders was approximately $39,700,000 as of
March 22, 1997 and $7,000,000 as of February 24, 1996. Based on customers'
current delivery requirements, Transact expects to fill approximately
$26,700,000 of its backlog within the current fiscal year, and the remainder
within the next fiscal year.
(ix) MATERIAL PORTION OF BUSINESS SUBJECT TO RENEGOTIATION OF PROFITS
None.
(X) COMPETITION
The market for transaction based printers is extremely competitive, and the
Company expects such competition to intensify in the future. The Company
competes with a number of companies, many of which have greater financial,
technical and marketing resources than the Company. Transact believes its
ability to compete successfully depends on a number of factors both within and
outside its control, including durability, reliability, quality, design
capability, product customization, price, customer support, success in
developing new products, manufacturing expertise and capacity, supply of
component parts and materials, strategic relationships with suppliers, the
timing of new product introductions by the Company and its competitors, general
market and economic conditions and, in some cases, the uniqueness of its
products. Two of the Company's competitors, Epson America, Inc. and Star
Micronics America, Inc. together control approximately 50% to 60% of the United
States market for POS printers, a market in which the Company's strategy calls
for increased market share. Other principal competitors include Axiohm
Incorporated, Citizen -- CBM America Corporation and DH Technology Incorporated.
Certain competitors of the Company have lower costs, attributable to higher
volume production and off-shore manufacturing locations and offer lower prices
than the Company from time to time.
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In the gaming and lottery, financial services and kiosk markets, no single
supplier holds a dominant position. Certain of the Company's products sold for
gaming and lottery, kiosk and financial service applications compete based upon
the Company's ability to provide highly specialized products, custom engineering
and ongoing technical support.
The Company's strategy for competing in its markets is to continue to
develop new products and product line extensions, to increase its geographic
market penetration and to take advantage of strategic relationships. Although
the Company has historically maintained or increased sales with this strategy
and believes that its products, operations and relationships provide a
competitive foundation, there can be no assurance that the Company will compete
successfully in the future.
(xi) RESEARCH AND DEVELOPMENT ACTIVITIES
The Company spent approximately $2,467,000 in the year ended December 31,
1996, $1,533,000 in the nine months ended December 31, 1995 and $1,708,000 in
the year ended April 1, 1995, on engineering, design and product development
efforts in connection with specialized engineering and design to introduce new
products and to customize existing products.
(xii) ENVIRONMENT
The Company is not aware of any material non-compliance with federal, state
and local provisions which have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment.
(xiii) EMPLOYEES
As of February 22, 1997, Transact Technologies and its subsidiaries employed
258 persons, of which 209 were full-time and 49 were temporary employees.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Historically, the Company's export sales and sales originating outside the
United States have not been material. Beginning in 1997, the Company expects
such sales to become material, especially to the United Kingdom and Canada. See
Note 14 to the Consolidated Financial Statements included in this report.
(E) EXECUTIVE OFFICERS OF THE REGISTRANT.
(i) EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
---- --- --------
Bart C. Shuldman 39 President, Chief Executive Officer and Director
Richard L. Cote 55 Executive Vice President, Chief Financial Officer, Treasurer,
Secretary and Director
Lucy H. Staley 45 Senior Vice President - General Manager (Ithaca, NY facility)
John Cygielnik 51 Senior Vice President - General Manager (Wallingford, CT
facility)
Michael S. Kumpf 46 Senior Vice President - Engineering
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BART C. SHULDMAN was appointed Chief Executive Officer, President and a
Director of the Company in June 1996. He joined Magnetec as Vice President of
Sales and Marketing in April 1993 and has served as President of Magnetec since
August 1993 and President of the combined operations of Ithaca and Magnetec
since December 1995. Prior to joining Magnetec, he held several management
positions with Mars Electronics International, a division of Mars, Incorporated
from 1989 to 1993. Most recently, he was Business Manager for the North American
Amusement, Gaming and Lottery operations. From 1979 to 1989, he held
manufacturing and sales management positions with General Electric Company.
RICHARD L. COTE, was appointed Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director in June 1996, and has served as
Senior Vice President and Chief Financial Officer of Tridex from September 1993
until August 1996. Mr. Cote joined Tridex as a Vice President in June 1993. From
October 1991 to June 1993, he was a self-employed management consultant. From
January 1991 to September 1991, he was Vice President and Corporate Controller
of Wang Laboratories, Inc. From November 1989 to December 1990, he was Executive
Vice President of Capital Resources Management, Inc.
LUCY H. STALEY, Senior Vice President-General Manager (Ithaca, NY facility)
since June 1996, served as a Vice President of Ithaca since she joined the
Company in 1984. From 1984 until 1990, when Tridex acquired Ithaca, Ms. Staley
also served as Treasurer of Ithaca.
JOHN CYGIELNIK, Senior Vice President-General Manager (Wallingford, CT
facility) since June 1996, joined Magnetec as Controller in 1992, and has served
as Vice President of Finance of Magnetec since 1993. From 1976 until 1992, Mr.
Cygielnik was employed by Data General Corporation, a computer hardware
manufacturer, where he served in various positions, most recently as Controller
for Manufacturing and Field Service Operations.
MICHAEL S. KUMPF, Senior Vice President-Engineering since June 1996, served
as Vice President of Engineering of Ithaca since he joined the Company in 1991.
From 1973 until 1991, Mr. Kumpf was employed by NCR Corporation, where his most
recent position was Director of Engineering-Retail Systems Printer Division.
ITEM 2. PROPERTIES.
The Company's operations are currently conducted at the two facilities
described below:
Size Owned or Lease Expiration
Location Operations Conducted (Approx. Sq. Ft.) Leased Date
- -------- -------------------- ----------------- ------ ----
Wallingford, Connecticut Manufacturing facility and 44,000 Leased March 31, 2005
executive offices
Ithaca, New York Manufacturing facility 59,000 Leased November 21, 2002
The Ithaca facility includes approximately 23,000 square feet of
additional leased space that the company expects to occupy by May 1, 1997. The
Company believes that its facilities generally are in good condition, adequately
maintained and suitable for their present and currently contemplated uses.
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ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the last
quarter of the year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock is traded on the NASDAQ National Market. As of
February 28, 1997, there were 69 holders of record of the common stock. The
Company completed its initial public offering in the third quarter of 1996. The
high and low sales prices of the common stock reported during each quarter of
the year ended December 31, 1996, since August 22, 1996, the date of the
Offering, were as follows:
Year Ended
December 31, 1996
-----------------
High Low
---- ---
Third Quarter 10 1/4 8
Fourth Quarter 13 3/8 9 1/4
No dividends on the common stock have been declared and the Company does not
anticipate declaring dividends in the foreseeable future. The Company's credit
agreement with Fleet National Bank prohibits the payment of cash dividends for
the term of the agreement.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended Nine Months Ended Year Ended
-------------------------- ------------------------------ -----------------------------------
December 31, December 31, December 31, December 31, April 1, April 2, April 3,
1996 1995 1995 1994 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Statement of Income Data:
Net sales $42,134 $33,433 $25,497 $25,426 $33,362 $23,798 $25,949
Gross profit 13,933 10,590 7,968 8,391 11,013 8,213 8,016
Operating income 5,233 2,254 1,579 3,030 3,705 1,723 2,793
Net income 3,340 1,332 916 1,883 2,304 1,093 1,632
Pro forma earnings per
share 0.57 0.25 0.17 0.35 0.43 0.20 0.30
December 31, December 31, December 31, April 1, April 2, April 3,
1996 1995 1994 1995 1994 1993
---- ---- ---- ---- ---- ----
(Unaudited)
Balance Sheet Data:
Total assets $20,784 $15,969 $14,392 $15,358 $13,916 $14,910
Shareholders' equity 14,407 - - - - -
Tridex investment in the
Company - 11,645 10,591 11,280 10,839 11,326
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Because the Company was wholly-owned by Tridex until August 22, 1996, the
Selected Financial Data which appear in Item 6 and the Consolidated Financial
Statements which appear in Item 8 of this report may not necessarily reflect the
results of operations or financial position of the Company or what the results
of operations would have been if the Company had been a stand alone entity
during the periods presented. This discussion should be read in conjunction with
those Consolidated Financial Statements and notes thereto. See Note 1 of Notes
to Consolidated Financial Statements (Basis of Presentation).
(A) RESULTS OF OPERATIONS
Certain statements included in this Management's Discussion and Analysis of
the Results of Operations and Financial Condition 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, without
limitation, the Company's expectation regarding gross profit and operating
income.
(i) YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 increased
$8,701,000, or 26%, to $42,134,000 from $33,433,000 in the prior year.
Approximately $4,200,000 of the increase was due to increased shipments into the
POS market. Sales of POS printers increased to approximately $21,400,000, or 51%
of net sales, in the current year, from $17,200,000, or approximately 51% of net
sales, in the prior year. The remainder of the increase principally reflects
increased shipments of the Company's on-line lottery printers. Sales of these
printers increased to approximately $6,800,000, or 16.1% of net sales, in the
current year, from $3,400,000, or 10.2%, in the prior year.
Gross Profit. Gross profit increased $3,343,000, or 32%, to $13,933,000 from
$10,590,000 in the prior year due primarily to increased sales in the
POS and gaming and lottery markets. The gross margin increased to 33.1% from
31.7%. The gross margin for 1995 of 31.7% reflected certain production start-up
costs associated with the Company's new on-line lottery printer and the
relocation of the Company's Connecticut facility in 1995. The Company expects
that although gross profit will increase with increased sales, gross margin will
decrease slightly due to a growing proportion of sales of printers at lower
average selling prices resulting from volume discount pricing, particularly in
the POS and gaming and lottery markets. However, operating income as a
percentage of net sales has increased (see "Operating Income" below).
Engineering and Product Development. Engineering, design and product
development costs increased $470,000, or 24%, to $2,467,000 from $1,997,000 for
the prior year, but decreased slightly as a percentage of net sales to 5.9% from
6.0%. This increase was due primarily to increased product development and
design costs, primarily for new products in the POS market, as well as increases
in the level of engineering staff.
Selling, General and Administrative. Selling, general and administrative
expenses increased $194,000, or 3%, to $6,233,000 from $6,039,000 in the prior
period. Selling expenses increased by $178,000 due primarily to increases in the
level of sales staff and increased commissions resulting from higher unit sales
volumes. General and administrative expenses increased only slightly over the
prior year. Selling, general and administrative expenses decreased as a
percentage of net sales to 14.8% from 18.1% due primarily to management's
continuing efforts to control these costs.
Operating Income. Operating income increased $2,979,000, or 132%, to
$5,233,000 from $2,254,000 in the prior year. Operating income increased as a
percentage of net sales to 12.4% from 6.7%, due primarily to the Company's
ability to control operating expenses while increasing its level of sales during
1996, and the absence of certain production start-up costs associated with the
Company's new on-line lottery printer and the relocation of the Company's
Connecticut facility during 1995.
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Provision for Restructuring. During the year ended December 31, 1995, the
Company recorded a provision for restructuring of $300,000 primarily to cover
severance costs related to the combination of the Ithaca and Magnetec businesses
under unified management.
Other Income. Other income (expense), net increased $292,000, to $295,000
from $3,000 in the year ended December 31, 1995. This increase was primarily the
result of a $285,000 gain on the sale of securities acquired in the sale of the
Company's solenoid product line in the year ended April 2, 1994.
Provision for Income Taxes. The provision for income taxes for the year
ended December 31, 1996 reflects an effective tax rate of 39.6%. The provision
for this period includes a benefit resulting from certain tax credits. The
effective rate in the prior year's period was 41.0%.
Net Income. Net income for the current year was $3,340,000, or $0.57 per
share (pro forma), as compared to $1,332,000, or $0.25 per share (pro forma), in
the prior year. Pro forma weighted average shares outstanding increased to
5,884,000 from 5,400,000 shares in the prior year.
(ii) NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1994
Net Sales. Net sales for the nine months ended December 31, 1995 increased
to $25,497,000 from $25,426,000 in the comparable period of the prior year as
the Company's sales in its principal markets were consistent for the relevant
periods.
Gross Profit. Gross profit decreased $423,000, or 5%, to $7,968,000 from
$8,391,000 in the prior year's period. This decrease was primarily due to
certain production start-up costs associated with the Company's new on-line
lottery printer and the relocation of the Company's Connecticut facility in
April 1995. The gross margin declined to 31.3% from 33.0%. In addition to the
above, the Company's lower than historical gross margin in this period reflected
an unfavorable change in the sales mix.
Engineering and Product Development. Engineering, design and product
development costs increased $289,000, or 23%, to $1,533,000 from $1,244,000 for
the nine months ended December 31, 1995, and increased as a percentage of net
sales to 6.0% from 4.9%. The increase reflects the development of new products
and the enhancement of existing products, primarily for the POS market.
Selling, General and Administrative. Selling, general and administrative
expenses increased $439,000, or 11%, to $4,556,000 from $4,117,000 for the nine
months ended December 31, 1995, and increased as a percentage of net sales to
17.9% from 16.2%. Selling expenses increased $62,000 due primarily to
compensation-related costs for additional sales staff. The increase in general
and administrative expenses of $377,000, resulted primarily from increased
allocations of general and administrative expenses from Tridex and, to a lesser
degree, costs related to the relocation of the Company's Connecticut facility
and increased incentive compensation expense.
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Operating Income. Operating income decreased $1,451,000, or 48%, to
$1,579,000 from $3,030,000 in the prior period. Operating income as a percentage
of net sales decreased to 6.2% from 11.9%. This decrease was primarily due to
certain production start-up costs associated with the Company's new on-line
lottery printer and the relocation of the Company's Connecticut facility in
April 1995.
Provision for Restructuring. During the nine months ended December 31, 1995,
the Company recorded a provision for restructuring of $300,000 primarily to
cover severance costs related to the combination of the Ithaca and Magnetec
businesses under unified management.
Other Income. Other income (expense), net for the prior period includes a
gain of $115,000 from a contingent payment from the fiscal 1994 sale of the
Company's solenoid product line.
Provision for Income Taxes. The provision for income taxes for the nine
months ended December 31, 1995 reflects an effective tax rate of 41.4%. The
effective rate in the comparable prior period was 40.0%.
Net Income. Net income for the current year was $916,000, or $0.17 per share
(pro forma), as compared to $1,883,000, or $0.35 per share (pro forma), in the
prior year. Pro forma weighted average shares outstanding were 5,400,000 shares
in each period.
(iii) LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flows from operations of $1,972,000, $1,881,000
and $2,913,000 for the year ended December 31, 1996, the nine months ended
December 31, 1995 and the year ended April 1, 1995, respectively. The Company's
working capital at December 31, 1996 was $8,609,000 compared to $6,281,000 at
December 31, 1995. The current ratio was 2.47 to 1.0 at December 31, 1996 and
2.64 to 1.0 at December 31, 1995. The increase in working capital and net
operating assets was funded primarily through cash generated from operations and
the net proceeds from the Offering.
On August 22, 1996, the Company sold 1,150,000 shares of its common stock at
a price of $8.50 per share in the Offering. On September 18, 1996, the Company
sold an additional 172,500 shares upon exercise of the underwriters'
over-allotment option. Net proceeds from the Offering (including the exercise of
the underwriters' over-allotment option) were approximately $8,991,000 after
payment of $2,250,000 of Offering expenses. In conjunction with the Offering,
the Company also repaid $7,500,000 of a total of $8,500,000 of intercompany
indebtedness to Tridex and issued a $1,000,000 subordinated promissory note to
Tridex. The note, which bore interest at the rate paid by Tridex under its
revolving credit facility (8.25% at December 31, 1996), was repaid on February
14, 1997.
Prior to the Offering, the Company participated in Tridex's centralized cash
management system. While under this system, cash deposits from the Company were
transferred to Tridex on a daily basis and Tridex funded the Company's
disbursement bank accounts as required. On August 22, 1996, the Company ceased
to participate in the Tridex cash management system.
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On August 29, 1996, the Company entered into an agreement with Fleet
National Bank ("Fleet") to provide the Company with a $5,000,000 revolving
credit facility (the "Credit Facility"). The Credit Facility expires on June 30,
1998, bears interest on outstanding borrowings at Fleet's prime rate (8.25% at
December 31, 1996), and bears a commitment fee of one quarter of one percent 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 of 1.5
percentage points over the market rate. The Credit Facility is secured by a lien
on substantially all of the assets of the Company, imposes certain financial
covenants (including, among other things, a minimum tangible net worth, a
maximum leverage ratio, a minimum current ratio and a minimum interest coverage
ratio) and restricts the payment of cash dividends and the creation of liens.
The Company expects to use borrowings under the Credit Facility to fund its
short-term working capital requirements, as they arise.
The Company's capital expenditures were approximately $1,836,000, $1,334,000
and $1,203,000 for the year ended December 31, 1996, the nine months ended
December 31, 1995 and the year ended April 1, 1995, respectively. These
expenditures primarily included tooling and factory machinery and equipment. In
addition, capital expenditures in the year ended April 1, 1995 and the nine
months ended December 31, 1995 included new leasehold and equipment purchases
related to the relocation of the Company's Connecticut facility. The Company's
capital expenditures for 1997 are expected to be approximately $2,800,000.
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 meet its liquidity requirements through December 31,
1997.
(B) IMPACT OF INFLATION
Transact believes that its business has not been affected to a significant
degree by inflationary trends because of the low rate of inflation during the
past three years.
11
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Page
Number
Report of Independent Accountants 13
Transact Technologies Incorporated consolidated financial statements:
Consolidated balance sheets as of December 31, 1996 and December 31, 1995. 14
Consolidated statements of income for the years ended December 31, 1996 and December 15
31, 1995 (unaudited), the nine months ended December 31, 1995 and December 31, 1994
(unaudited), and the year ended April 1, 1995.
Consolidated statements of cash flows for the years ended December 31, 1996 and 16
December 31, 1995 (unaudited), the nine months ended December 31, 1995 and December
31, 1994 (unaudited), and the year ended April 1, 1995.
Consolidated statement of changes in shareholders' equity for the period from August 22, 17
1996 through December 31, 1996.
Notes to consolidated financial statements. 18
Financial Statement Schedules - All schedules are omitted since
the required information is either (a) not present or not present
in amounts sufficient to require submission of the schedule or (b)
included in the financial statements or notes thereto.
12
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Transact Technologies Incorporated
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes
in shareholders' equity present fairly, in all material respects, the
financial position of Transact Technologies Incorporated and its
subsidiaries, as described in Note 1, at December 31, 1996 and 1995,
and the results of their operations and their cash flows for the year
ended December 31, 1996, the nine months ended December 31, 1995 and
the year ended April 1, 1995 and their changes in shareholders' equity
for the period from August 22, 1996 through December 31, 1996, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Hartford, Connecticut
February 12, 1997
13
14
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
1996 1995
---- ----
ASSETS:
Current assets:
Cash and cash equivalents $ 1,041 $ --
Receivables (Note 4) 5,179 3,246
Receivable from Tridex Corporation 266 --
Inventories (Note 5) 7,370 6,353
Deferred tax assets (Note 11) 524 374
Other current assets 104 134
-------- --------
Total current assets 14,484 10,107
-------- --------
Plant and equipment:
Machinery, furniture and equipment 9,074 7,169
Leasehold improvements 276 428
-------- --------
9,350 7,597
Less accumulated depreciation (5,386) (4,556)
-------- --------
3,964 3,041
-------- --------
Excess of cost over fair value of net assets
acquired, net (Note 2) 2,246 2,418
Other assets (Note 2) 90 403
-------- --------
$ 20,784 $ 15,969
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 2,463 $ 2,711
Accrued liabilities (Note 6) 2,412 1,115
Note payable to Tridex (Note 13) 1,000 --
-------- --------
Total current liabilities 5,875 3,826
-------- --------
Deferred revenue 274 252
Deferred tax liabilities (Note 11) 228 189
-------- --------
502 441
-------- --------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common stock, $0.01 par value; 20,000,000
authorized; 6,722,500 issued and outstanding 67 --
Preferred stock, 5,000,000 authorized, no
issued and outstanding -- --
Additional paid-in capital 13,186 --
Retained earnings 1,169 --
Tridex investment in the Company (Note 7) -- 11,645
Unrealized gain on securities available for sale,
net of taxes -- 57
Cumulative valuation adjustment (15) --
-------- --------
Total shareholders' equity 14,407 11,702
-------- --------
$ 20,784 $ 15,969
======== ========
See accompanying notes to consolidated financial statements.
14
15
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended Nine Months Ended Year Ended
-------------------------------- ------------------------------- ----------
December 31, December 31, December 31, December 31, April 1,
1996 1995 1995 1994 1995
------------ ------------ ------------ ------------ ----------
(Unaudited) (Unaudited)
Net sales $ 42,134 $ 33,433 $ 25,497 $ 25,426 $ 33,362
Cost of sales 28,201 22,843 17,529 17,035 22,349
----------- ----------- ----------- ----------- -----------
Gross profit 13,933 10,590 7,968 8,391 11,013
----------- ----------- ----------- ----------- -----------
Operating expenses:
Engineering, design and
product development
costs 2,467 1,997 1,533 1,244 1,708
Selling, general and
administrative expenses 6,233 6,039 4,556 4,117 5,600
Provision for restructuring
(Note 13) -- 300 300 -- --
----------- ----------- ----------- ----------- -----------
8,700 8,336 6,389 5,361 7,308
----------- ----------- ----------- ----------- -----------
Operating income 5,233 2,254 1,579 3,030 3,705
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest, net (17) -- -- -- --
Other, net (Note 13) 312 3 (15) 108 127
----------- ----------- ----------- ----------- -----------
295 3 (15) 108 127
----------- ----------- ----------- ----------- -----------
Income before income taxes 5,528 2,257 1,564 3,138 3,832
Income tax provision
(Note 11) 2,188 925 648 1,255 1,528
----------- ----------- ----------- ----------- -----------
Net income $ 3,340 $ 1,332 $ 916 $ 1,883 $ 2,304
=========== =========== =========== =========== ===========
Pro forma earnings per share:
Primary $ 0.57 $ 0.25 $ 0.17 $ 0.35 $ 0.43
=========== =========== =========== =========== ===========
Pro forma average common
and common equivalent
shares outstanding 5,884 5,400 5,400 5,400 5,400
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
15
16
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended Nine Months Ended Year Ended
-------------------------- ------------------------- ----------
December 31, December 31, December 31, December 31, April 1,
1996 1995 1995 1994 1995
-------------------------- ------------------------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 3,340 $ 1,332 $ 916 $ 1,883 $ 2,304
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,135 957 729 686 914
Deferred income taxes (82) 168 82 - 86
Gain on sale of securities available for sale (285) - - - -
Gain on sale of solenoid product
line (Note 13) - - - (115) (115)
Loss on disposal of equipment 6 1 5 8 4
Changes in operating assets and liabilities:
Receivables (2,199) 752 532 (154) 66
Inventories (1,017) (1,653) (656) (16) (1,013)
Other current assets 30 (45) (54) (1) 8
Other assets (27) 41 150 (56) (165)
Accounts payable (248) (50) 35 409 324
Accrued liabilities and
deferred revenue 1,319 327 142 315 500
--------- --------- --------- --------- ---------
Net cash provided by operating
activities 1,972 1,830 1,881 2,959 2,913
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of plant and equipment (1,836) (1,586) (1,334) (956) (1,203)
Proceeds from sale of securities available for
sale 508 - - - -
Proceeds from sale of solenoid product line
(Note 13) - - - 115 115
Proceeds from sale of equipment 13 4 4 13 8
Other (5) 30 - - 30
--------- --------- --------- --------- ---------
Net cash used in investing activities (1,320) (1,552) (1,330) (828) (1,050)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of stock 8,991 - - - -
Payment of intercompany indebtedness (7,500) - - - -
Net transactions with Tridex prior to
the initial public offering (1,087) (278) (551) (2,131) (1,863)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities 404 (278) (551) (2,131) (1,863)
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash (15) - - - -
--------- --------- --------- --------- ---------
Increase in cash and cash equivalents 1,041 - - - -
Cash and cash equivalents at beginning of period - - - - -
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 1,041 $ 0 $ 0 $ 0 $ 0
========= ========= ========= ========= =========
Supplemental cash flow information:
Interest paid $ 28 - - - -
Income taxes paid 592 - - - -
See accompanying notes to consolidated financial statements.
16
17
TRANSACT TECHNOLOGIES INCORPORATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Common Stock Additional Cumulative
--------------------------- Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment
------ ------ ------- -------- ----------
Balance, August 22, 1996 5,400,000 $54 $ 4,207 $ - $ -
Issuance of Offering shares 1,322,500 13 8,978 - -
Purchase of warrants - - 1 - -
Translation adjustments - - - - (15)
Net income subsequent to the
Offering - - - 1,169 -
--------- ------ ------- -------- --------
Balance, December 31, 1996 6,722,500 $67 $13,186 $1,169 $(15)
========= ====== ======= ======== ========
See accompanying notes to consolidated financial statements.
17
18
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Transact Technologies Incorporated ("Transact" or the "Company") was
incorporated on June 17, 1996, as a wholly-owned subsidiary of Tridex
Corporation ("Tridex"). Following the incorporation, Transact and two of
Tridex's wholly-owned subsidiaries, Magnetec Corporation ("Magnetec") and Ithaca
Peripherals Incorporated ("Ithaca"), entered into a Plan of Reorganization (the
"Plan of Reorganization"), pursuant to which: (i) Ithaca merged into Magnetec;
(ii) Transact transferred to Tridex certain assets of Magnetec used in
manufacturing a printer ribbon product line; (iii) Transact issued 5,400,000
shares of its common stock to Tridex in exchange for all the outstanding shares
of Magnetec; (iv) Transact sold in an initial public offering (the "Offering")
1,322,500 shares or approximately 19.7% of its common stock; (v) Transact repaid
$8,500,000 of intercompany indebtedness to Tridex; (vi) Tridex applied to the
Internal Revenue Service (the "IRS") for a ruling that the distribution of the
5,400,000 shares of Transact owned by Tridex to Tridex stockholders (the
"Distribution") would constitute a tax-free reorganization for federal income
tax purposes; and (vii) Tridex agreed to effect the Distribution promptly after
receipt of a favorable ruling from the IRS and the satisfaction of certain other
conditions.
The financial statements of the Company have been prepared principally on
the basis of items (i) and (ii) of the Plan of Reorganization outlined above and
include the financial position and consolidated (combined prior to the
implementation of the Plan of Reorganization) results of operations and cash
flows of the business described. The term consolidated as used herein refers to
both the consolidated and combined financial statements. The Company carries its
assets and liabilities at historical cost. The financial results in these
financial statements are not necessarily indicative of results that would have
occurred if the Company had been a separate stand alone entity during the
periods presented or of future results of the Company.
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND PRODUCTS: Transact, through its two operating units, Magnetec
and Ithaca, operates in one industry segment, printer peripheral equipment.
Transact designs, develops, manufactures and markets transaction based printers
and related products under the ITHACA and MAGNETEC brand names. The Company's
printers are used to provide transaction records such as receipts, tickets,
coupons, register journals and other documents. The Company focuses on four
vertical markets: point-of-sale ("POS") (from which the Company derived
approximately 51% of net sales for the year ended December 31, 1996); gaming and
lottery (approximately 29% of net sales); financial services (approximately 12%
of net sales); and kiosk (approximately 8% of net sales). The Company sells its
products directly to end users, original equipment manufacturers ("OEM"), value
added resellers and selected distributors, primarily in the United States,
Canada and Europe.
Transact manufactures and sells customizable and custom dot matrix and
thermal printers for applications requiring up to 60 character columns in each
of its four vertical markets. The Company also sells an 80 column laser printer
for kiosk applications. The Company's customizable products include several
series of printers which offer customers the ability to choose from a variety of
features and functions. Options typically include print speeds, paper handling
capacities and numbers of print stations. In addition to its customizable
printers, Transact manufactures custom printers for certain OEM customers. In
collaboration with these customers, the Company provides engineering and
manufacturing expertise for the design and development of specialized printers.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, after elimination of all material intercompany accounts and
transactions.
CHANGE IN FISCAL YEAR END: In December 1995, the Company's fiscal year end
was changed to December 31 from the Saturday closest to March 31.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments purchased with an initial maturity of three months or less to be
cash equivalents.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
18
19
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY: 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. The aggregate effect of
translation adjustments so calculated for periods prior to the Offering, which
would be ordinarily included as a separate component of shareholders' equity, is
de minimis. Transaction gains and losses are included in other income.
INVENTORIES: Inventories are stated at the lower of cost (principally
first-in, first-out) or market.
PLANT AND EQUIPMENT AND DEPRECIATION: Plant and equipment and leasehold
improvements are stated at cost. Depreciation is provided for primarily by the
straight-line method over the estimated useful lives. The estimated useful life
of machinery, furniture and equipment is five to ten years. Leasehold
improvements are amortized over the shorter of the term of the lease or the
useful life of the asset. Depreciation amounted to $905,000, $521,000 and
$650,000 in the year ended December 31, 1996, the nine months ended December 31,
1995 and the year ended April 1, 1995, respectively.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: The excess of cost
over fair value of net assets acquired (goodwill) resulted from the acquisition
of Ithaca in fiscal year 1991. The original amount applicable to this
acquisition totaled $3,536,000 and is being amortized on the straight line
method over 20 years. Accumulated amortization of goodwill was $1,290,000 and
$1,118,000 at December 31, 1996 and December 31, 1995, respectively. The Company
periodically reviews goodwill to assess recoverability based upon expectations
of non-discounted cash flows from operations for Ithaca. The Company believes
that no impairment of goodwill exists at December 31, 1996.
OTHER ASSETS: At December 31, 1995, other current assets includes marketable
securities available for sale, accounted for at market value of $309,000, with
an unrealized gain of $86,000, net of related tax effect of $29,000, recorded as
a component of stockholder's equity.
REVENUE RECOGNITION: Sales are recognized when the product is shipped.
Revenue from extended warranty and maintenance agreements is recognized over the
term of such agreements as services are performed. Sales to one customer
accounted for approximately 16% and 12% of net sales for the year ended December
31, 1996 and the nine months ended December 31, 1995, respectively. A different
customer accounted for approximately 14% of net sales in the year ended April 1,
1995.
INCOME TAXES: Through the date of the Distribution, the Company will be
included in the consolidated federal and certain state income tax returns of
Tridex. Effective April 4, 1993, Tridex adopted FAS 109 "Accounting for Income
Taxes," which mandates the liability method for computing deferred income taxes.
The income tax amounts reflected in the accompanying financial statements are an
allocation of Tridex's consolidated balances, and are computed as if a separate
return had been filed for the Company, using those elements of income and
expense as reported in the consolidated statements of income. See Note 11 for a
further discussion. Subsequent to the Distribution, the Company will file
federal and state income tax returns separately from Tridex.
PRO FORMA EARNINGS PER SHARE: Pro forma primary earnings per common share is
based on the pro forma weighted average number of shares outstanding during the
period, including stock options and warrants when the result is dilutive, as if
all shares issued to Tridex prior to the Offering had been outstanding
throughout the periods presented.
3. RELATED PARTY TRANSACTIONS
Prior to the Offering, the Company participated in Tridex's centralized cash
management system. While under this system, cash deposits from the Company were
transferred to Tridex on a daily basis and Tridex funded the Company's
disbursement bank accounts as required. On August 22, 1996, the Company ceased
to participate in the Tridex cash management system.
19
20
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Prior to the Offering, Tridex provided certain general and administrative
services to the Company, including tax, treasury, risk management and insurance,
legal, marketing, accounting, auditing, human resources and executive
management. For periods prior to the Offering, these expenses have been
allocated to the Company based upon actual usage for those expenses directly
attributable to the Company, and otherwise allocated based upon other methods
which management believes to be reasonable. These allocations were $869,000,
$1,203,000 and $1,159,000 for the year ended December 31, 1996, the nine months
ended December 31, 1995 and the year ended April 1, 1995, respectively. These
costs may have been different had the Company operated as a separate stand-alone
entity during the periods presented.
Included as a component of Tridex investment in the Company are net cash
advances from Tridex to the Company and general and administrative expenses
allocated from Tridex to the Company. No interest expense on net advances from
Tridex has been reflected in the accompanying financial statements.
On July 31, 1996, the Company entered into a Corporate Services Agreement
with Tridex. Under the terms of this agreement, Tridex agrees to provide the
Company with certain services, including employee benefit administration, human
resource and related services, administrative services, risk management,
regulatory compliance, preparation of tax returns and certain financial and
other services. Such services will be provided and reimbursed at actual cost,
which amounted to approximately $91,000 for the year ended December 31, 1996.
Certain services will no longer be provided after March 31, 1997. Also, pursuant
to the terms of the agreement, Tridex agrees to pay 15% of the direct employment
costs of the Company's chief financial officer through March 31, 1997, which
amounted to approximately $8,000 for the year ended December 31, 1996. The
agreement expires December 31, 1997.
On July 31, 1996, the Company entered into a Tax Sharing Agreement with
Tridex. The agreement provides for the treatment of certain tax attributes of
the Company including the method of allocating tax obligations, treatment of tax
carryforwards and the computation of income tax provisions for the Company
between the date of the Offering and the Distribution. For the year ended
December 31, 1996, the Company paid approximately $527,000 to Tridex pursuant to
the agreement.
The Company and Tridex also entered into an Asset Transfer Agreement dated
July 31, 1996, under which the Company agreed to transfer to Tridex certain
assets used in the manufacturing process of the printer ribbon product line.
Additionally, on September 28, 1996, the Company and Tridex entered into a
Manufacturing Support Services Agreement. Under this agreement, the Company
agrees to provide Tridex with space within its Wallingford, Connecticut
manufacturing facility and certain support services for the ribbon business
through September 28, 1998. Tridex agrees to pay the Company a monthly fee
calculated to compensate the Company for the direct and indirect costs incurred
by the Company to provide the space and render such services. These fees
amounted to approximately $67,000 during the year ended December 31, 1996. The
Company also purchased approximately $5,000 of ribbons from Tridex during the
same period.
The Company sells certain POS printers to a wholly-owned subsidiary of
Tridex. Revenues from the sale of such printers amounted to $3,178,000,
$2,340,000 and $2,639,000 for the year ended December 31, 1996, the nine months
ended December 31, 1995 and the year ended April 1, 1995, respectively. On July
30, 1996, the Company entered into a Printer Supply Agreement which will require
the subsidiary, in consideration for continued favorable price terms, to
purchase from the Company at least three quarters of its total POS printer
requirements through December 31, 1999.
The Company's employees participate in the Tridex Corporation Retirement
Savings Plan (the "Plan"), a defined contribution plan under Section 401(k) of
the Internal Revenue Code. All full-time employees are eligible to participate
in the Plan at the beginning of the calendar quarter immediately following their
date of hire. The Company matches employees' contributions at a rate of 37.5% of
employees' contributions up to the first 4% of the employee's compensation
contributed to the Plan. The Company's matching contributions were $80,000,
$51,000 and $60,000 in the year ended December 31, 1996, the nine months ended
December 31, 1995 and the year ended April 1, 1995, respectively, and are
included in general and administrative expense.
20
21
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RECEIVABLES
Receivables are net of the allowance for doubtful accounts. The
reconciliation of the allowance for doubtful accounts is as follows:
Nine Months
Year Ended Ended Year Ended
December 31, December 31, April 1,
(In thousands) 1996 1995 1995
---- ---- ----
Balance at beginning of period $ 40 $ 76 $102
Provision for doubtful accounts 66 12 48
Accounts written off, net of recoveries - (48) (74)
---- ---- ----
Balance at end of period $106 $ 40 $ 76
==== ==== ====
5. INVENTORIES
The components of inventories are:
December 31, December 31, April 1,
(In thousands) 1996 1995 1995
---- ---- ----
Raw materials and component parts $5,828 $5,041 $4,744
Work-in-process 810 794 606
Finished goods 732 518 347
------ ------ ------
$7,370 $6,353 $5,697
====== ====== ======
6. ACCRUED LIABILITIES
The components of accrued liabilities are:
December 31, December 31, April 1,
(In thousands) 1996 1995 1995
---- ---- ----
Payroll and fringe benefits $ 931 $ 457 $ 664
Income taxes payable 330 - -
Customer advances, deferred revenue and
warranty 324 186 140
Accounts payable to Tridex Corporation 103 - -
Other 724 472 246
------ ------ ------
$2,412 $1,115 $1,050
====== ====== ======
7. TRIDEX INVESTMENT IN THE COMPANY
Tridex investment in the Company includes the original investment in the
Company and the net intercompany payable from the Company to Tridex reflecting
transactions described in Note 3. The following analyzes Tridex's investment in
the Company for the periods presented. The amounts presented below for the year
ended December 31, 1996 reflect activity through the Offering date, August 22,
1996.
21
22
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. TRIDEX INVESTMENT IN THE COMPANY (CONTINUED)
Nine Months
Year Ended Ended Year Ended
December 31, December 31, April 1,
(In thousands) 1996 1995 1995
---- ---- ----
Balance at beginning of the period $11,645 $11,280 $10,839
Net income 2,171 916 2,304
Net transactions with Tridex:
Allocation of general and administrative
expenses from Tridex (869) (1,203) (1,159)
Sales to affiliates 1,998 2,340 2,639
Net transfers to Tridex (2,216) (1,688) (3,343)
Reclassification of note payable to Tridex (8,500) - -
Issuance of shares to Tridex in exchange
for all outstanding shares of Magnetec (4,229) - -
------- ------- -------
Balance at end of the period $ - $11,645 $11,280
======= ======= =======
8. BANK CREDIT AGREEMENT
On August 29, 1996, the Company entered into an agreement with Fleet
National Bank ("Fleet") to provide the Company with a $5,000,000 revolving
credit facility (the "Credit Facility"). The Credit Facility expires on June 30,
1998, bears interest on outstanding borrowings at Fleet's prime rate (8.25% at
December 31, 1996), and bears a commitment fee of one quarter of one percent 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 of 1.5
percentage points over the market rate. The Credit Facility is secured by a lien
on substantially all of the assets of the Company, imposes certain financial
covenants including, among other things, a minimum tangible net worth, a maximum
leverage ratio, a minimum current ratio and a minimum interest coverage ratio
and restricts the payment of cash dividends and the creation of liens. The
Company had no borrowings under the Credit Facility during 1996.
9. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company was lessee on operating leases for
equipment and real property. The terms of certain leases provide for escalating
rent payments in later years of the lease as well as payment of minimum rent and
real estate taxes. Rent expense amounted to approximately $682,000, $532,000 and
$616,000 in the year ended December 31, 1996, the nine months ended December 31,
1995 and the year ended April 1, 1995, respectively. Minimum aggregate rental
payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 1996 are as
follows: $784,000 in 1997; $794,000 in 1998; $789,000 in 1999; $766,000 in 2000;
$755,000 in 2001 and $3,293,000 thereafter.
The Company has a long-term purchase agreement 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 sufficient purchase levels to maintain the favorable
prices.
In conjunction with the Plan of Reorganization, as described in Note 1,
Tridex indemnified the Company from any liabilities, including environmental
liabilities, which could arise in connection with a manufacturing facility owned
by Tridex and formerly operated by the Company.
22
23
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS. On July 30, 1996, the Company adopted the 1996 Stock Plan
which provides for the grant of awards to officers and other key employees of
the Company. The Company also adopted a Directors' Stock Plan which provides for
non-discretionary awards to non-employee directors. The plans provide for awards
in the form of: (i) incentive stock options, (ii) non-qualified stock options,
(iii) shares of restricted stock, (iv) restricted units, (v) stock appreciation
rights or (vi) limited stock appreciation rights. Options granted are at prices
equal to 100% of the fair market value of the common stock at the date of grant.
Options granted have a ten-year term and vest over a five-year period, unless
automatically accelerated. Effective upon the Offering on August 22, 1996, the
Company granted options to purchase 309,300 shares of common stock under the
1996 Stock Plan and options to purchase 30,000 shares under the Directors' Stock
Plan, at the initial public offering price of $8.50 per share. At December 31,
1996, the Company has reserved 660,000 shares of common stock for issuance under
the 1996 Stock Plan and Directors' Stock Plan.
The 1996 Stock Plan activity is summarized below:
Year Ended
December 31, 1996
------------------------
Shares Exercise Price
Granted 339,300 $8.50
Outstanding at period end (non exercisable) 339,300 8.50
Weighted average fair value of options granted during the period $6.25
Had compensation expense been recognized based on the fair value of the
options at their grant dates, as prescribed in Financial Accounting Standard No.
123, the Company's net income and earnings per share would have been:
Year Ended
December 31,
(In thousands, except per share data) 1996
-----------------
Net income:
As reported $ 3,340
Pro forma under FAS 123 3,248
Pro forma earnings per share:
As reported $ 0.57
Pro forma under FAS 123 0.55
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
the grants made during the year ended December 31, 1996: dividend yield of 0%;
risk-free interest rate of 5.0619%; expected volatility factor of 59.5%; and an
expected option term of ten years.
WARRANTS: On August 22, 1996, the Company sold to the underwriters of the
Offering, for nominal consideration, a warrant to purchase from the Company up
to 115,000 shares of common stock at an exercise price of $10.20 per share. The
warrant is exercisable for a period of five years after the effective date of
the Offering and beginning one year from the earlier of (i) the completion of
the Distribution or (ii) the date on which Tridex owns less than 80% of the
Company's outstanding common stock. No warrants were exercisable at December 31,
1996.
RESTRICTED STOCK: Pursuant to the 1996 Stock Plan, the Company intends to
grant 49,800 shares of restricted common stock to its Chairman of the Board and
its officers and certain key employees immediately after completion of the
Distribution. Shares of restricted stock granted will vest over a five year
period, unless automatically accelerated.
23
24
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
The components of the income tax provision are as follows:
Nine Months
Year Ended Ended Year Ended
December 31, December 31, April 1,
(In thousands) 1996 1995 1995
---- ---- ----
Current:
Federal $1,934 $476 $1,212
State 336 90 230
------ ---- ------
2,270 566 1,442
------ ---- ------
Deferred:
Federal (73) 73 77
State (9) 9 9
------ ---- ------
(82) 82 86
------ ---- ------
Total income tax provision $2,188 $648 $1,528
====== ==== ======
Deferred income taxes arise from temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. The Company's gross deferred tax assets and liabilities were
comprised of the following:
December 31, December 31,
(In thousands) 1996 1995
---- ----
Gross deferred tax assets:
Currently non-deductible liabilities and
reserves $586 $469
==== ====
Gross deferred tax liabilities:
Depreciation $290 $284
==== ====
At December 31, 1996, the Company had foreign net operating loss
carryforwards of approximately $152,000, which do not expire. A full valuation
allowance has been recorded with respect to the foreign net operating loss
carryforwards.
Differences between the U.S. statutory federal income tax rate and the
Company's effective income tax rate are analyzed below:
Nine Months
Year Ended Ended Year Ended
December 31, December 31, April 1,
1996 1995 1995
---- ---- ----
Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income taxes 4.0 4.4 4.2
Non-deductible purchase accounting adjustments 1.1 2.8 1.6
Other 0.5 0.2 0.1
---- ---- ----
Effective tax rate 39.6% 41.4% 39.9%
==== ==== ====
24
25
TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. DISCLOSURE REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of trade accounts receivable, other current assets,
trade accounts payable, and accrued expenses approximate fair value because of
the short maturity of those instruments. The carrying value of marketable
securities available for sale is equal to fair value, as discussed in Note 2.
13. SIGNIFICANT TRANSACTIONS
On August 22, 1996, the Company sold 1,150,000 shares of its common stock at
a price of $8.50 per share in the Offering. On September 18, 1996, the Company
sold an additional 172,500 shares upon exercise of the underwriters'
over-allotment option. Net proceeds from the Offering (including the exercise of
the Underwriters' over-allotment option) were approximately $8,991,000, after
payment of approximately $2,250,000 of Offering expenses.
Concurrent with the Offering, the Company repaid $7,500,000 of a total of
$8,500,000 of intercompany indebtedness to Tridex and issued a $1,000,000
subordinated promissory note to Tridex. The note is due on March 31, 1998 and
bears interest, payable monthly in arrears, at the rate paid by Tridex under its
revolving credit facility (8.25% at December 31, 1996).
In December 1995, the operations of Magnetec and Ithaca were combined under
unified management. In connection with this combination, the Company recorded a
provision for restructuring costs of $300,000, which covers the costs associated
with combining operations under unified management and is primarily comprised of
severance costs.
In the year ended April 2, 1994, the Company sold its solenoid product line.
Proceeds from the sale were cash and shares of common stock of the purchaser
("marketable securities"). In the same period, the Company recognized a gain of
$175,000 on the sale of the product line. During the year ended April 1, 1995,
the Company recognized an additional gain of $115,000 as the result of a
contingent payment received from the purchaser. In addition, during the year
ended December 31, 1996, the Company sold the remainder of the marketable
securities and recognized a gain of $285,000. These gains are included in Other
Income in the applicable period.
14. INTERNATIONAL OPERATIONS
The Company has foreign operations primarily from Ithaca Peripherals Ltd., a
wholly-owned subsidiary, which had sales of $397,000, $332,000 and $355,000 in
the year ended December 31, 1996, the nine months ended December 31, 1995 and
the year ended April 1, 1995, respectively. The Company had export sales from
its United States operations of approximately $2,019,000 in the year ended
December 31, 1996, $1,543,000 in the nine months ended December 31, 1995 and
$3,342,000 in the year ended April 1, 1995. Such sales were primarily to
Canada and Europe.
15. SUBSEQUENT EVENTS
On February 12, 1997, Tridex received a ruling from the Internal Revenue
Service confirming the tax-free nature of the Distribution. Tridex owns
5,400,000, or approximately 80.3%, of the outstanding shares of the Company's
common stock, which will be distributed on March 31, 1997 pro rata to Tridex
stockholders of record on March 14, 1997 at the rate of approximately one share
of Transact common stock for each share of Tridex common stock outstanding. On
February 14, 1997, the Company repaid the remaining $1,000,000 of intercompany
indebtedness, plus accrued interest, to Tridex.
25
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(A) DIRECTORS.
The information contained in "Information Concerning Nominee for Election as
Director" of the Company's Proxy Statement (the "Proxy Statement") for its
Annual Meeting of Shareholders which is scheduled to be held on May 1, 1997 is
hereby incorporated herein by reference. Also see Item 1(E)(i) above.
(B) EXECUTIVE OFFICERS.
See Item 1(E)(i) above.
(C) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information contained in "Voting Securities and Principal Holders
Thereof Compliance with Section 16(a)" of the Proxy Statement is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in "Compensation of Directors and Executive
Officers" of the Proxy Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in "Security Ownership of Certain Beneficial
Owners and Management" of the Proxy Statement is hereby incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in "Voting Securities and Principal Holders
Thereof Certain Relationships and Related Transactions" of the Proxy Statement
is hereby incorporated herein by reference.
26
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART OF
THIS REPORT:
(i) Financial statements
See Item 8 on page 12.
(ii) Financial statement schedules
See Item 8 on page 12.
(iii) List of Exhibits.
See Exhibit Index on page 29.
(B) REPORTS ON FORM 8-K.
None.
27
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
By: /s/ Bart C. Shuldman
-----------------------------------------------------
Bart C. Shuldman
President, Chief Executive Officer and Director
Date: March 24, 1997
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Bart C. Shuldman President, Chief Executive Officer and March 24, 1997
- ---------------------------------- Director
Bart C. Shuldman
(Principal Executive Officer)
/s/ Richard L. Cote Executive Vice President, Chief Financial March 24, 1997
- ---------------------------------- Officer, Treasurer, Secretary and Director
Richard L. Cote
(Principal Accounting Officer)
/s/ Thomas R. Schwarz Chairman of the Board and Director March 24, 1997
- ----------------------------------
Thomas R. Schwarz
/s/ Graham Y. Tanaka Director March 24, 1997
- ----------------------------------
Graham Y. Tanaka
/s/ Charles A. Dill Director March 24, 1997
- ----------------------------------
Charles A. Dill
28
29
Exhibit Index
Page
Number
------
3.1 Certificate of Incorporation of the Company, filed with the Secretary of the State of Delaware *
on June 17, 1996.
3.2 By-laws of the Company. *
4.1 Specimen Common Stock Certificate. *
4.2 See Exhibits 3.1 and 3.2 for provisions in the Certificate of Incorporation and By-laws of the *
Company defining the rights of the holders of common stock.
10.1 Plan of Reorganization dated as of June 24, 1996 among Tridex, Magnetec, Transact and Ithaca *
10.2 Amendment to Plan of Reorganization dated as of August 30, 1996 among Tridex, Magnetec, **
Transact and Ithaca.
10.3 Agreement and Plan of Merger dated as of July 16, 1996 between Magnetec and Ithaca. *
10.4 Asset Transfer Agreement dated as of July 31, 1996 between Magnetec and Tridex. *
10.5 Manufacturing Support Services Agreement between Magnetec and Tridex, dated as of September **
28, 1996.
10.6 Corporate Services Agreement dated as of July 30, 1996 between Tridex and Transact. **
10.7 Printer Supply Agreement dated as of July 31, 1996 between Magnetec and Ultimate *
Technology Corporation.
10.8 Tax Sharing Agreement dated as of July 31, 1996 between Tridex and Transact. **
10.9 Credit Agreement dated as of August 29, 1996 among Transact, Magnetec and Fleet National **
Bank.
10.10 Purchase Agreement dated as of October 17, 1996 between ICL Pathway Limited, Ithaca **
Peripherals Limited and Transact. (Pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Company has requested confidential treatment
of portions of this exhibit deleted from the filed copy.)
10.11 Stock Plan, dated August 22, 1996. **
10.12 Non-Employee Directors' Stock Plan, dated August 22, 1996. **
10.13 Sales and Marketing Agreement by and between the Company and Oki Europe Limited, dated *
May 9, 1996. (Pursuant to Rule 477 under the Securities Act of
1993, as amended (the "Securities Act"), the Company has requested
confidential treatment of portions of this exhibit deleted from
the filed copy.)
10.14 OEM Purchase Agreement by and between GTECH, Transact and Magnetec, commencing ***
October 1, 1996. (Pursuant to Rule 24b-2 under the Exchange Act, the Company has
requested confidential treatment of portions of this exhibit deleted from the filed copy.)
10.15 OEM Purchase Agreement by and between OKIDATA and Tridex, dated January 24, 1990. *
(Pursuant to Rule 477 under the Securities Act, the Company has requested confidential
treatment of portions of this exhibit deleted from the filed copy.)
10.16 Strategic Agreement by and between OKIDATA and Tridex, dated May 9, 1996. (Pursuant to *
Rule 477 under the Securities Act, the Company has requested confidential treatment of
portions of this exhibit deleted from the filed copy.)
10.17 Lease Agreement by and between Pyramid Construction Company and Magnetec, dated *
August 1, 1994.
10.18 Lease Agreement by and between Bomax Properties and Ithaca, dated as of March 23, 1992. *
10.19 First Amendment to Lease Agreement by and between Bomax Properties and Ithaca, dated as *
of October 18, 1993.
10.20 Employment Agreement, dated July 31, 1996, by and between the Company and Bart C. *
Shuldman.
10.21 Employment Agreement, dated July 31, 1996, by and between the Company and Richard L. *
Cote.
10.22 Severance Agreement by and between Transact and Lucy H. Staley, dated September 4, 1996 **
29
30
Page
Number
------
10.23 Severance Agreement by and between Transact and John Cygielnik, dated September 10, **
1996.
10.24 Severance Agreement by and between Transact and Michael S. Kumpf, dated September 4, **
1996.
11.1 Statement re: computation of per share earnings. 31
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule
* These exhibits, which were previously filed with the Company's Registration
Statement on Form S-1 (No. 333-06895), are incorporated by reference.
** These exhibits, which were previously filed with the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1996, are
incorporated by reference.
*** This exhibit, which was previously filed with the Company's Current Report
on Form 8-K filed October 11, 1996, is incorporated by reference.
30
1
TRANSACT TECHNOLOGIES INCORPORATED
EXHIBIT 11.1
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
Year Ended Nine Months Ended Year Ended
-------------------------------- ---------------------------- ----------
December 31, December 31, December 31, December 31, April 1,
1996 1995 1995 1994 1995
------------ ------------ ------------ ------------ --------
(Unaudited) (Unaudited)
PRIMARY:
Net Income $3,340,000 $1,332,000 $ 916,000 $1,883,000 $2,304,000
========== ========== ========== ========== ==========
SHARES:
Pro forma average common shares
outstanding 5,864,242 5,400,000 5,400,000 5,400,000 5,400,000
Dilutive effect of outstanding options
and warrants as determined by the
treasury stock method 19,792 - - - -
---------- ---------- ---------- ---------- ----------
5,884,033 5,400,000 5,400,000 5,400,000 5,400,000
========== ========== ========== ========== ==========
Pro forma earnings per common and
common equivalent share: $ 0.57 $ 0.25 $ 0.17 $ 0.35 $ 0.43
========== ========== ========== ========== ==========
31
1
TRANSACT TECHNOLOGIES INCORPORATED
EXHIBIT 21.1
SUBSIDIARIES OF TRANSACT TECHNOLOGIES INCORPORATED
Jurisdiction of Percentage
Name Incorporation Owner Owned
- ---- ------------- ----- -----
Magnetec Corporation Connecticut Transact 100%
Technologies
Incorporated
Ithaca Peripherals Limited United Kingdom Magnetec 100%
Transact Technologies International Ltd Barbados Transact 100%
Technologies
Incorporated
32
5
1,000
12-MOS
DEC-31-1995
JAN-01-1995
DEC-31-1995
0
0
3,286
40
6,353
10,107
7,597
4,556
15,969
3,826
0
0
0
0
11,702
15,969
33,433
33,433
22,843
31,179
(3)
0
0
2,257
925
1,332
0
0
0
1,332
0.25
0
5
1,000
12-MOS
DEC-31-1996
JAN-01-1996
DEC-31-1996
1,041
0
5,551
106
7,370
14,484
9,350
5,386
20,784
5,875
0
0
0
67
14,340
20,784
42,134
42,134
28,201
36,901
(312)
0
17
5,528
2,188
3,340
0
0
0
3,340
0.57
0
