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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 LASER LANE, WALLINGFORD, CT 06492
(Address of principal executive offices)
(Zip Code)
(203) 269-1198
(Registrant's telephone number, including area code)
Former address:
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 Months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES / / NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING MARCH 31, 1997
COMMON STOCK,
$.01 PAR VALUE 6,722,500
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TRANSACT TECHNOLOGIES INCORPORATED
INDEX
PART I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1. Financial Statements
Consolidated condensed balance sheets as of March 29, 1997 and December
31, 1996 3
Consolidated statements of income for the three months ended March 29,
1997 and March 30, 1996 4
Consolidated statements of cash flows for the three months ended March
29, 1997 and March 30, 1996 5
Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of the Results of Operations and
Financial Condition 7
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
EXHIBIT INDEX
Exhibit 11 Computation of Per Share Earnings 10
- ----------
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 29, 1997 December 31,
(In thousands) 1996
-------------- --------------
(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents $ -- $ 1,041
Receivables 8,484 5,179
Receivable from Tridex Corporation 189 266
Inventories 8,230 7,370
Other current assets 769 628
-------- --------
Total current assets 17,672 14,484
-------- --------
Plant and equipment, net 4,372 3,964
Excess of cost over fair value of net assets acquired 2,203 2,246
Other assets 91 90
-------- --------
$ 24,338 $ 20,784
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank loans payable $ 1,200 $ --
Note payable to Tridex -- 1,000
Accounts payable 4,533 2,463
Accrued liabilities 2,282 2,412
-------- --------
Total current liabilities 8,015 5,875
-------- --------
Other liabilities 445 502
-------- --------
Shareholders' equity:
Common stock 67 67
Additional paid-in capital 13,562 13,186
Retained earnings 2,256 1,169
Cumulative valuation adjustment (7) (15)
-------- --------
15,878 14,407
-------- --------
$ 24,338 $ 20,784
======== ========
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 29, March 30,
(In thousands, except per share data) 1997 1996
-------- -------
Net sales $ 14,014 $10,463
Cost of sales 9,662 6,984
-------- -------
Gross profit 4,352 3,479
-------- -------
Operating expenses:
Engineering, design and product development costs 678 666
Selling, general and administrative expenses 1,841 1,542
-------- -------
2,519 2,208
-------- -------
Operating income 1,833 1,271
-------- -------
Other income (expense):
Interest expense, net (8) --
Other, net (13) 170
-------- -------
(21) 170
-------- -------
Income before income taxes 1,812 1,441
Provision for income taxes 725 576
-------- -------
Net income $ 1,087 $ 865
======== =======
Earnings per common and common equivalent share:
Primary $ 0.16
========
Average common and common equivalent
shares outstanding 6,877
========
Pro forma earnings per common and common equivalent share:
Primary $ 0.16
=======
Pro forma average common and common
equivalent shares outstanding 5,400
=======
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------
MARCH 29, March 30,
(In thousands) 1997 1996
-------------- ------------
Cash flows from operating activities:
Net income $ 1,087 $ 865
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 385 275
Gain on sale of securities available for sale -- (179)
Gain (loss) on disposal of equipment 1 8
Changes in operating assets and liabilities:
Receivables (3,228) (1,984)
Inventory (860) (55)
Other current assets (141) (201)
Other assets (21) --
Accounts payable 2,070 (40)
Accrued liabilities and other liabilities (187) 56
------- -------
Net cash used in operating activities (894) (1,255)
------- -------
Cash flows from investing activities:
Purchases of plant and equipment (731) (200)
Proceeds from sale of securities available for sale -- 344
------- -------
Net cash provided by (used in) investing activities (731) 144
------- -------
Cash flows from financing activities:
Borrowings under bank revolving credit facility 1,200 --
Repayment of intercompany indebtedness to Tridex (1,000) --
Net transactions with Tridex prior to initial public stock offering -- 1,111
Other 376 --
------- -------
Net cash provided by financing activities 576 1,111
------- -------
Effect of exchange rate changes on cash 8 --
------- -------
Decrease in cash and cash equivalents (1,041) --
Cash and cash equivalents at beginning of period 1,041 --
------- -------
Cash and cash equivalents at end of period $ -- $ --
======= =======
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly its financial position as of March 29, 1997, the results of its
operations and cash flows for the three months ended March 29, 1997 and
March 30, 1996. The December 31, 1996 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, 1996 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.
The aggregate effect of translation adjustments so calculated for
periods prior to the Company's initial public offering on August 22,
1996 (the "Offering"), which would ordinarily be included as a separate
component of shareholders' equity, is de minimus. Transaction gains and
losses are included in other income.
The results of operations for the three months ended March 29,
1997 and March 30, 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Earnings per share
Primary earnings per common share for the three months ended
March 29, 1997 were based on the weighted average number of shares
outstanding during the period after consideration of any dilutive
effect of stock options and warrants. Primary earnings per common share
for the three months ended March 30, 1996 were based on the pro forma
weighted average number of shares outstanding during the period, as if
all shares issued to the Company's former parent, Tridex Corporation
("Tridex"), prior to the Offering had been outstanding throughout the
periods presented.
In February of 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 128, "Earnings
per Share." The Company will adopt this standard, as required, at the
end of this year. Had this standard been adopted in the first quarter
of 1997, the Company's reported basic earnings per share would
have been unchanged at $0.16.
3. Inventories:
The components of inventory are:
March 29, March 30,
(In thousands) 1997 1996
--------- ----------
Raw materials and component parts $6,692 $5,828
Work-in-process 667 810
Finished goods 871 732
------ ------
$8,230 $7,370
====== ======
4. Other income, net:
Other income, net for the three months ended March 30, 1996
included a $179,000 gain on the sale of securities available for sale.
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5. 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. Subsequent events
On March 31, 1997, Tridex distributed its 5,400,000 shares, or
approximately 80.3%, of the Company's stock pro rata to Tridex's
shareholders 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 30, 1996
NET SALES. Net sales into each of the Company's four vertical markets for the
current and prior quarter were as follows:
Three months ended Three months ended
March 29, 1997 March 30, 1996
------------------------- -------------------------
Point of sale $ 5,049 36.0% $ 4,654 44.5%
Gaming and lottery 5,002 35.7 3,354 32.1
Financial services 1,490 10.6 1,793 17.1
Kiosk 2,473 17.7 662 6.3
----------------------- -----------------------
$14,014 100.0% $10,463 100.0%
======================= =======================
Net sales for the quarter ended March 29, 1997 increased $3,551,000, or 34%, to
$14,014,000 from $10,463,000 in the prior year's quarter. Approximately
$1,900,000 of the increase was the result of increased shipments of the
Company's thermal kiosk printers. Additionally, shipments of the Company's
on-line lottery printers increased approximately $1,000,000, to approximately
$2,700,000, or 19.3% of net sales, in the current quarter, from approximately
$1,700,000, or 16.2%, in the prior year's quarter. The remainder of the
increase primarily reflects increased shipments into the POS market, offset
by a decrease in sales in the financial services market.
GROSS PROFIT. Gross profit increased $873,000, or 25%, to $4,352,000 from
$3,479,000 in the prior period, primarily as a result of the higher volume of
shipments of printers, particularly into the kiosk and gaming and lottery
markets. The gross margin declined to 31.1% from 33.3% due primarily to
increased sales of printers at lower average selling prices resulting from
volume discount pricing, particularly in the gaming and lottery market. The
Company expects that its gross profit will increase with increased net sales,
while its gross margin will remain relatively stable. However, operating income
as a percentage of net sales has increased (see "Operating Income" below).
ENGINEERING, DESIGN AND PRODUCT DEVELOPMENT. Engineering, design and product
development costs increased slightly by $12,000, or 2%, to $678,000 from
$666,000 in the three months ended March 30, 1996, and decreased as a percentage
of net sales to 4.8% from 6.4%. The increase was due primarily to increased
product design and development costs, primarily for new products in the POS
market.
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SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $299,000, or 19%, to $1,841,000 from $1,542,000 in the prior
period. Selling expenses increased approximately $100,000 due primarily to
increased commissions resulting from higher unit sales volumes principally in
the kiosk market. General and administrative costs increased approximately
$199,000. This increase primarily reflects an increase of general and
administrative expenses incurred by the Company as a stand alone, public
company. In the prior period, such expenses were allocated from Tridex, its
former parent. Selling, general and administrative expenses decreased
as a percentage of net sales to 13.1% from 14.7%, as management continues to
closely monitor these costs.
OPERATING INCOME. Operating income increased $562,000, or 44%, to $1,833,000
from $1,271,000 in the prior year's quarter. Operating income increased as a
percentage of net sales to 13.1% from 12.2%, reflecting the Company's ability to
control operating expenses while increasing its level of sales.
OTHER INCOME. Other income (expense), net for the three months ended March 30,
1996 includes a gain of $179,000 from the sale of the remainder 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 both the current
and prior quarter reflects an effective tax rate of 40.0%.
NET INCOME. Net income for the current quarter was $1,087,000, or $0.16 per
share, as compared to $865,000, or $0.16 per share (pro forma), in the prior
year's quarter. Weighted average shares outstanding increased to 6,877,000
shares from 5,400,000 shares (pro forma) in the prior year's quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows used in operations were $894,000 and $1,255,000 for the
three months ended March 29, 1997 and March 30, 1996, respectively. The
Company's working capital was $9,657,000 at March 29, 1997 compared with
$8,609,000 at December 31, 1996. The current ratio was 2.20 to 1.0 at March 29,
1997 and 2.47 to 1.0 at December 31, 1996. The increase in working capital and
net operating assets for the quarter was funded primarily through cash from
operations and borrowings under the credit facility.
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, which bore interest at the
rate paid by Tridex under its revolving credit facility, 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.
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 (8.50% at March
29, 1997), 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 was in compliance with all covenants under this facility at March
29, 1997 and expects to be in compliance with these covenants for the remainder
of 1997.
During the three months ended March 29, 1997, the Company borrowed $1,200,000
under the Credit Facility, primarily to fund its short-term working capital
requirements. No repayments were made during the quarter.
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The Company's capital expenditures were approximately $731,000 and $200,000 for
the three months ended March 29, 1997 and March 30, 1996, respectively. These
expenditures primarily included tooling and factory machinery and equipment. The
Company's total capital expenditures for fiscal 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.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the quarter covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSACT TECHNOLOGIES INCORPORATED
(Registrant)
May 9, 1997 /s/ Richard L. Cote
-----------------------
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
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TRANSACT TECHNOLOGIES INCORPORATED
EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
-------------------------------
MARCH 29, March 30,
1997 1996
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PRIMARY:
EARNINGS:
Net income $1,087,000 $ 865,000
========== ==========
SHARES:
Weighted average common shares outstanding 6,723,000 5,400,000*
Dilutive effect of outstanding options and
warrants as determined by the treasury
stock method 154,000 --
---------- ----------
6,877,000 5,400,000*
========== ==========
EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE:
Primary $ 0.16 $ 0.16*
========== ==========
* Weighted average common shares outstanding and primary earnings per common
and common equivalent share for the three months ended March 30, 1996 are
presented on a pro forma basis.
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5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-29-1997
0
0
8,800
127
8,230
17,672
10,048
5,676
24,338
8,015
0
0
0
67
15,811
24,338
14,014
14,014
9,662
12,181
13
0
8
1,812
725
1,087
0
0
0
1,087
0.16
0
