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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: September 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
Commission file number: 0-21121
TRANSACT TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 06-1456680
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 LASER LANE, WALLINGFORD, CT 06492
(Address of principal executive offices)
(Zip Code)
(203) 269-1198
(Registrant's telephone number, including area code)
Former address:
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 Months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /x/ NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING OCTOBER 30, 1998
- ----- ----------------------------
COMMON STOCK,
$.01 PAR VALUE 5,826,500
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TRANSACT TECHNOLOGIES INCORPORATED
INDEX
PART I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1 Financial Statements
Consolidated condensed balance sheets as of September 26, 1998 and
December 31, 1997 3
Consolidated condensed statements of income for the three and nine
months ended September 26, 1998 and September 27, 1997 4
Consolidated condensed statements of cash flows for the nine months
ended September 26, 1998 and September 27, 1997 5
Notes to consolidated condensed financial statements 6
Item 2 Management's Discussion and Analysis of the Results of Operations and
Financial Condition 7
Item 3 Quantitative and Qualitative Disclosures about Market Risk 12
PART II. Other Information:
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 12
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 26, December 31,
(In thousands) 1998 1997
---- ----
ASSETS: (UNAUDITED)
Current assets:
Cash and cash equivalents $ 289 $ 391
Receivables 8,366 7,235
Inventories 10,012 8,570
Other current assets 1,411 1,365
-------- --------
Total current assets 20,078 17,561
-------- --------
Plant and equipment, net 5,647 4,989
Excess of cost over fair value of net assets acquired 1,944 2,073
Other assets 113 76
-------- --------
7,704 7,138
-------- --------
$ 27,782 $ 24,699
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank loans payable $ 6,500 $ 300
Accounts payable 3,372 3,043
Accrued liabilities 2,695 2,780
-------- --------
Total current liabilities 12,567 6,123
-------- --------
Other liabilities 530 673
-------- --------
Shareholders' equity:
Common stock 62 68
Additional paid-in capital 8,123 14,975
Retained earnings 7,460 6,062
Unamortized restricted stock compensation (966) (942)
Cumulative translation adjustment 6 (9)
-------- --------
14,685 20,154
Less: Treasury stock, at cost, 0 and 200,000 shares -- (2,251)
-------- --------
Total shareholders' equity 14,685 17,903
-------- --------
$ 27,782 $ 24,699
======== ========
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 26, September 27, SEPTEMBER 26, September 27,
(In thousands, except per share data) 1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 13,600 $ 16,040 $ 39,380 $ 45,623
Cost of sales 9,822 10,975 28,421 31,243
-------- -------- -------- --------
Gross profit 3,778 5,065 10,959 14,380
-------- -------- -------- --------
Operating expenses:
Engineering, design and product
development costs 1,006 617 2,822 2,074
Selling, general and administrative
expenses 1,818 1,884 5,696 5,715
-------- -------- -------- --------
2,824 2,501 8,518 7,789
-------- -------- -------- --------
Operating income 954 2,564 2,441 6,591
-------- -------- -------- --------
Other income (expense):
Interest expense, net (110) 5 (238) (11)
Other, net 2 (17) 17 (24)
-------- -------- -------- --------
(108) (12) (221) (35)
-------- -------- -------- --------
Income before income taxes 846 2,552 2,220 6,556
Income taxes 313 970 822 2,527
-------- -------- -------- --------
Net income $ 533 $ 1,582 $ 1,398 $ 4,029
======== ======== ======== ========
Net income per common share:
Basic $ 0.09 $ 0.23 $ 0.22 $ 0.60
======== ======== ======== ========
Diluted $ 0.09 $ 0.23 $ 0.22 $ 0.58
======== ======== ======== ========
Weighted average common shares outstanding:
Basic 6,164 6,788 6,285 6,761
======== ======== ======== ========
Diluted 6,166 7,014 6,296 6,925
======== ======== ======== ========
See notes to consolidated condensed financial statements.
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TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 26, September 27,
(In thousands) 1998 1997
---- ----
Cash flows from operating activities:
Net income $ 1,398 $ 4,029
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,609 1,250
Loss on disposal of equipment 9 8
Changes in operating assets and liabilities:
Receivables (1,131) (2,696)
Inventory (1,442) (1,392)
Other current assets (46) (286)
Other assets (101) (37)
Accounts payable 329 1,161
Accrued liabilities and other liabilities (228) 678
-------- -------
Net cash provided by operating activities 397 2,715
-------- -------
Cash flows from investing activities:
Purchases of plant and equipment (1,917) (1,688)
Proceeds from sale of equipment 2 42
-------- -------
Net cash used in investing activities (1,915) (1,646)
-------- -------
Cash flows from financing activities:
Bank line of credit borrowings 11,400 1,200
Bank line of credit repayments (5,200) (1,200)
Purchases of treasury stock (4,801) --
Proceeds from option exercises 2 44
Tax benefit related to employee stock sales -- 376
Payment of intercompany debt -- (1,000)
-------- -------
Net cash provided by (used in) financing activities 1,401 (580)
-------- -------
Effect of exchange rate changes on cash 15 5
-------- -------
Increase (decrease) in cash and cash equivalents (102) 494
Cash and cash equivalents at beginning of period 391 1,041
-------- -------
Cash and cash equivalents at end of period $ 289 $ 1,535
======== =======
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 September 26, 1998, and the results
of its operations and cash flows for the three and nine months ended
September 26, 1998 and September 27, 1997. The December 31, 1997
consolidated condensed balance sheet has been derived from the Company's
audited financial statements at that date. These interim financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1997 included in the Company's
Annual Report on Form 10-K.
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. Assets and liabilities of such subsidiaries have been
translated at end of period exchange rates, and related revenues and
expenses have been translated at weighted average exchange rates.
Transaction gains and losses are included in other income.
The results of operations for the three and nine months ended
September 26, 1998 and September 27, 1997 are not necessarily indicative
of the results to be expected for the full year.
2. Earnings per share
Basic earnings per common share for the three and nine months ended
September 26, 1998 and September 27, 1997 were based on the weighted
average number of shares outstanding during the period. Diluted earnings
per share for the same periods were based on the weighted average number
of shares after consideration of any dilutive effect of stock options and
warrants.
3. Inventories:
The components of inventory are:
September 26, December 31,
(In thousands) 1998 1997
---- ----
Raw materials and component parts $ 8,869 $7,482
Work-in-process 795 588
Finished goods 348 500
------- ------
$10,012 $8,570
======= ======
4. Commitments and contingencies
The Company has a long-term purchase agreement with Okidata, Division
of Oki America, Inc., for certain printer components. Under the terms of
the agreement, the Company receives favorable pricing for volume
purchases over the life of the contract. In the event anticipated
purchase levels are not achieved, the Company would be subject to
retroactive price increases on previous purchases. Management currently
anticipates achieving purchase levels sufficient to maintain the
favorable prices.
5. Significant transactions
During the nine months ended September 26, 1998, the Company
purchased 471,200 shares of its common stock on the open market for
approximately $4,801,000, of which 5,000 shares were purchased on the
open market for approximately $30,000 during the three months ended
September 26, 1998. During the quarter ended September 26, 1998, the
Company retired 671,200 shares of its stock held in treasury, reducing
common stock and additional paid in capital by approximately $7,052,000.
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6. Subsequent event
Subsequent to September 26, 1998 and through October 30, 1998, the
Company purchased an additional 334,800 shares of its common stock on the
open market for approximately $1,250,000. These shares were immediately
retired upon purchase. In addition, on October 30, 1998, the Board
authorized the repurchase of an additional 250,000 shares of common stock
in open market transactions. This latest authorization brings the total
authorized to 1.5 million shares since the program began in December
1997. Through October 30, 1998, the Company purchased 1,006,000 shares
for approximately $8,302,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements included in this report, including without limitation
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, which are not historical facts may be deemed to
contain forward looking statements with respect to events the occurrence of
which involves risks and uncertainties, including, but not limited to, customer
acceptance and market share gains, both domestically and internationally, in the
face of substantial competition from competitors that have broader lines of
products and greater financial resources; successful product development;
dependence on significant customers; dependence on third parties for sales in
Europe and Latin America; economic conditions in the United States, Europe and
Latin America; marketplace acceptance of new products; risks associated with
foreign operations; availability of third-party components at reasonable prices;
and the absence of price wars or other significant pricing pressures affecting
the Company's products in the United States or abroad.
IMPACT OF THE YEAR 2000 ISSUE. The Year 2000 Issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has begun a program to resolve the Year 2000 issue. This program
consists of four phases; assessment, remediation, testing and contingency
planning. The Company is currently in the assessment phase. During this phase
the Company has begun to assess its products, key financial and operating
systems and other systems for Year 2000 compliance. The assessment includes
identifying all critical information management systems and other critical
systems on which the Company relies, testing Year 2000 compliance of such
systems, and recommending steps for replacing/making corrective fixes to
non-compliant systems. Additionally, as part of the assessment phase, the
Company has begun to obtain compliance verification from third party vendors
supplying critical parts or services to the Company in order to determine their
plans to address their own Year 2000 issues. The Company has not completed its
detailed assessment (identification of whether failure may occur, solutions and
plans to repair or replace), but anticipates completion by December 1998. The
Company plans completion of all phases, including contingency planning, of the
Year 2000 program by June 1999. All costs associated with the Company's Year
2000 program are being expensed as incurred. The Company's total cost associated
with the Year 2000 program has not been, and based on the assessment to date is
not expected to be, material to the Company's business, financial position,
results of operations or cash flows.
The Company presently believes that with modifications to existing software and
conversions to new software, the Year 2000 Issue can be mitigated. However, the
Company may not timely identify and remediate all significant Year 2000 problems
and remedial efforts may involve significant time and expense. And, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the results of operations,
financial position or cash flows of the Company. Furthermore, there can be no
assurance that any Year 2000 compliance problems of the Company or its customers
or suppliers will not have a material adverse effect on the results of
operations, financial position or cash flows of the Company.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. Risks to completing the
program include the availability of resources, the Company's ability to discover
and correct potential Year 2000 problems which could have an impact on the
Company's operations and the ability of suppliers to bring their systems into
Year 2000 compliance.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
27, 1997
NET SALES. Net sales into each of the Company's four vertical markets for the
current and prior year's quarter were as follows:
Three months ended Three months ended
(In thousands, except %) September 26, 1998 September 27, 1997
------------------ ------------------
Point of sale $ 7,025 51.7% $ 6,119 38.2%
Gaming and lottery 5,210 38.3 7,383 46.0
Kiosk 576 4.2 1,142 7.1
Financial services 789 5.8 1,396 8.7
------- ------- ------- -------
$13,600 100.0% $16,040 100.0%
======= ======= ======= =======
Net sales for the third quarter of 1998 decreased $2,440,000, or 15%, to
$13,600,000 from $16,040,000 in the prior year's third quarter, due to decreased
shipments into the gaming and lottery, kiosk and financial services markets,
somewhat offset by an increase in the point of sales ("POS") market.
Point of sale: Sales of the Company's POS printers increased approximately
$906,000, or 15%, due largely to increased international printer shipments (an
increase of approximately $860,000), including increased printer shipments into
Europe and Latin America, and more shipments of printers for use in the British
post office project. Shipments of printers to the British post office project
increased to approximately $1,400,000 in the third quarter of 1998 from
approximately $1,200,000 in the same quarter a year ago. However, the Company
does not anticipate making any further printer shipments related to this project
for the remainder of 1998. Domestic POS printer sales increased slightly from
the prior year's quarter.
Gaming and lottery: Sales of the Company's gaming and lottery printers decreased
approximately $2,173,000, or 29%, from the third quarter a year ago. The overall
decrease primarily reflects a decrease of approximately $1,700,000 in shipments
of the Company's on-line lottery printers and spare parts due to lower order
levels from one customer in the third quarter of 1998 compared to the third
quarter of 1997. Shipments of on-line lottery printers and spares to this
customer were approximately $4,100,000, or 30% of net sales, in the current
quarter, compared to approximately $5,800,000, or 36% of net sales, in the
comparable prior year's quarter. The Company expects the shipment level of
on-line lottery printers to this customer for the remainder of 1998 to continue
to be lower than that of 1997. The decrease in sales of printers for on-line
lottery terminals was partially offset by an increase of approximately $500,000
of printer shipments to the same customer for new in-lane lottery terminals. No
shipments of in-lane lottery printers are expected in the remainder of 1998.
Additionally, shipments of printers for use in video lottery terminals decreased
approximately $900,000, including fewer printer shipments due to the uncertainty
and litigation in South Carolina's video poker industry.
Kiosk: Kiosk printer sales decreased $566,000, or 50%, to $576,000 from
$1,142,000 in the prior year's quarter, which included shipments totaling
approximately $500,000 of the Company's thermal kiosk printers for use in a
Canadian government application. No shipments of these printers occurred in the
third quarter of 1998, nor is it likely that any will occur in the remainder of
1998. The remaining decrease primarily reflects shipments of other kiosk
printers to various customers in the third quarter of 1997 that did not repeat
in the third quarter of 1998.
Financial services: Sales of the Company's printers into the financial services
market decreased approximately $607,000, or 43%, primarily due to decreased
shipments to one customer of printers used in automated teller machines. Due to
an anticipated continued slowdown in the order level from this customer during
1998, the Company expects sales of its financial services printers for the
remainder of 1998 to be lower than the comparable period of 1997.
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GROSS PROFIT. Gross profit decreased $1,287,000, or 25%, to $3,778,000 from
$5,065,000 in the prior year's quarter due primarily to lower volume of sales.
The gross margin declined to 27.8% from 31.6% largely due to lower sales volume
and an unfavorable change in sales mix, as sales to certain customers at volume
discount prices represented a larger proportion of sales in the third quarter of
1998 compared to the third quarter of 1997. As a result of this change in sales
mix, the Company now expects its gross margin in the remainder of 1998 to be
relatively consistent with that of the most recent quarter.
ENGINEERING, DESIGN AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased $389,000, or 63%, to $1,006,000 from $617,000 in
the three months ended September 27, 1997, and increased as a percentage of net
sales to 7.4% from 3.9%. This increase is primarily due to increased product
development and design expenses, primarily for new products in the POS and
gaming and lottery markets, including expenses related to additional engineering
staff.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased by $66,000, or 4%, to $1,818,000 from $1,884,000 in the
comparable prior year's quarter. General and administrative expenses decreased
in large part due to the absence of incentive compensation in the current
quarter compared to the third quarter of 1997. Selling expenses were comparable
with the prior year's quarter. Selling, general and administrative expenses
increased as a percentage of net sales to 13.4% from 11.7%, due to lower volume
of sales in the third quarter of 1998 compared to 1997.
OPERATING INCOME. Operating income decreased $1,610,000, or 63%, to $954,000
from $2,564,000 in the third quarter of 1997. Operating income as a percentage
of net sales declined to 7.0% from 16.0%, primarily due to lower gross margin on
lower sales volume and also due to increased engineering, design and product
development expense in the third quarter of 1998 compared to 1997.
INTEREST. During the quarter ended September 26, 1998, the Company incurred net
interest expense of $110,000, compared to net interest income of $5,000 in the
third quarter of 1997, due to increased borrowings on the Company's line of
credit during the third quarter of 1998 primarily to fund stock repurchases and
also for working capital requirements. See "Liquidity and Capital Resources"
below.
INCOME TAXES. The provision for income taxes for the current quarter reflects an
effective tax rate of 37.0% compared to 38.0% in the prior year's period. The
decline in the Company's effective tax rate is largely due to tax benefits
derived from the establishment of a foreign sales corporation and certain tax
credits.
NET INCOME. Net income for the current quarter was $533,000, or $0.09 per share
(basic and diluted) compared to $1,582,000, or $0.23 per share (basic and
diluted) for the prior year's quarter.
NINE MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 27,
1997
NET SALES. Net sales into each of the Company's four vertical markets for the
current and prior nine-month period were as follows:
Nine months ended Nine months ended
(In thousands, except %) September 26, 1998 September 27, 1997
------------------ ------------------
Point of sale $22,187 56.3% $16,816 36.9%
Gaming and lottery 13,996 35.6 19,271 42.2
Kiosk 1,298 3.3 5,555 12.2
Financial services 1,899 4.8 3,981 8.7
------- ------- ------- -------
$39,380 100.0% $45,623 100.0%
======= ======= ======= =======
Net sales for the first nine months of 1998 decreased $6,243,000, or 14%, to
$39,380,000 from $45,623,000 in the prior year's period, due to decreased
shipments into the gaming and lottery, kiosk and financial services markets,
offset by a significant increase in the POS market.
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Point of sale: Sales of the Company's POS printers increased approximately
$5,371,000, or 32%, due largely to increased international printer shipments (an
increase of approximately $4,100,000), including increased printer shipments
into Europe and Latin America, and substantially more shipments of printers for
use in the British post office project. Shipments of printers to the British
post office project were approximately $4,600,000 in the first three quarter of
1998 compared to approximately $2,300,000 in the same period a year ago.
However, the Company does not anticipate making any further printer shipments
related to this project for the remainder of 1998. In addition to increased
international shipments, domestic POS printer shipments increased approximately
$1,300,000.
Gaming and lottery: Sales of the Company's gaming and lottery printers decreased
approximately $5,275,000, or 27%, from the first nine months a year ago. The
overall decrease primarily reflects a decrease of approximately $3,500,000 in
shipments of printers for use in video lottery terminals due largely to the
uncertainty and litigation in South Carolina's video poker industry.
Additionally, shipments of the Company's on-line lottery printers and spare
parts declined $2,100,000 due to lower shipment levels to one customer in the
first nine months of 1998 compared to the same period of 1997. Shipments of
on-line lottery printers and spares to this customer were approximately
$11,600,000, or 29% of net sales, in the current period, compared to
approximately $13,700,000, or 30% of net sales, in the comparable prior year's
period. The Company expects the shipment level of on-line lottery printers to
this customer for the remainder of 1998 to continue to be lower than that of
1997. The decrease in sales of printers for on-line lottery terminals was
partially offset by an increase of approximately $500,000 of printer shipments
to the same customer for new in-lane lottery terminals. No shipments of in-lane
lottery printers are expected in the remainder of 1998.
Kiosk: Kiosk printer sales decreased $4,257,000, or 77%, to $1,298,000 from
$5,555,000 in the prior year's period, which included shipments totaling
approximately $3,600,000 of the Company's thermal kiosk printers for use in a
Canadian government application. No shipments of these printers occurred in the
first nine months of 1998, nor is it likely that any will occur in the remainder
of 1998. The remaining decrease primarily reflects shipments of other kiosk
printers to various customers in the first nine months of 1997 that did not
repeat in the first nine months of 1998.
Financial services: Sales of the Company's printers into the financial services
market decreased approximately $2,082,000, or 52%, primarily due to decreased
shipments to one customer of printers used in automated teller machines. Due to
an anticipated continued slowdown in the order level from this customer during
1998, the Company expects sales of its financial services printers for the
remainder of 1998 to be lower than the comparable period of 1997.
GROSS PROFIT. Gross profit decreased $3,421,000, or 24%, to $10,959,000 from
$14,380,000 in the first nine months of 1997 due primarily to lower volume of
sales. The gross margin declined to 27.8% from 31.5% largely due to lower sales
volume and an unfavorable change in sales mix, as sales to certain customers at
volume discount prices represented a larger proportion of sales in the first
nine months of 1998 compared to the first nine months of 1997. As a result of
this change in sales mix, the Company now expects its gross margin for the
remainder of 1998 to be relatively consistent with that of the first nine months
of the year.
ENGINEERING, DESIGN AND PRODUCT DEVELOPMENT. Engineering, design and product
development expenses increased $748,000, or 36%, to $2,822,000 from $2,074,000
in the nine months ended September 27, 1997, and increased as a percentage of
net sales to 7.2% from 4.5%. This increase is primarily due to increased product
development and design expenses, primarily for new products in the POS and
gaming and lottery markets, including expenses related to additional engineering
staff.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased slightly by $19,000, to $5,696,000 from $5,715,000 in the
comparable prior year's period. Both selling expenses and general and
administrative expenses were consistent with the prior year's period. Selling,
general and administrative expenses increased as a percentage of net sales to
14.4% from 12.5%, due to lower volume of sales in the first nine months of 1998
compared to the first nine months of 1997.
OPERATING INCOME. Operating income decreased $4,150,000, or 63%, to $2,441,000
from $6,591,000 in the first nine months of 1997. Operating income as a
percentage of net sales declined to 6.2% from 14.5%, due primarily to lower
gross margin on lower sales volume and also due to increased engineering, design
and product development expense in the first nine months of 1998 compared to
1997.
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INTEREST. Net interest expense increased to $238,000 from $11,000 in the first
nine months of 1997 substantially due to increased borrowings on the Company's
line of credit during the first nine months of 1998 primarily to fund stock
repurchases and also for working capital requirements. See "Liquidity and
Capital Resources" below.
INCOME TAXES. The provision for income taxes for the nine months ended September
26, 1998 reflects an effective tax rate of 37.0% compared to 38.5% in the prior
year's period. The decline in the Company's effective tax rate is largely due to
tax benefits derived from the establishment of a foreign sales corporation and
certain tax credits.
NET INCOME. Net income for the current period was $1,398,000, or $0.22 per share
(basic and diluted) compared to $4,029,000, or $0.58 per share-diluted ($0.60
per share-basic) for the prior year's period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operations was $397,000 and $2,715,000 for the
nine months ended September 26, 1998 and September 27, 1997, respectively. The
Company's working capital declined to $7,511,000 at September 26, 1998 from
$11,438,000 at December 31, 1997. The current ratio also declined to 1.60 at
September 26, 1998 from 2.87 at December 31, 1997. The decrease in the Company's
working capital and current ratio at September 26, 1998 was the result of
short-term financing for stock repurchases (see below).
During November 1997, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock at a price of no more than $12 per
share. As of December 31, 1997, the Company acquired 200,000 shares of its
common stock for $2,251,000. During the first quarter of 1998, the Company
repurchased the remaining 300,000 shares authorized by the Board for
approximately $3,215,000. In May 1998 and August 1998, the Board approved the
repurchase of an additional 500,000 and 250,000 shares, respectively, of which
the Company repurchased 166,200 shares for approximately $1,556,000 during the
second quarter of 1998, and 5,000 shares for approximately $30,000 during the
third quarter of 1998. Further repurchases of the Company's common stock will
depend upon future cash flow of the Company and stock market conditions. Since
the Company began the stock repurchase program in December 1997 through
September 26, 1998, it has repurchased 671,200 shares for $7,052,000 (an average
cost of $10.51 per share). See Note 6 concerning authorizations and repurchases
since September 26, 1998.
The Company has in place a $15,000,000 revolving credit facility (the "Credit
Facility") with Fleet National Bank ("Fleet"). The Credit Facility provides the
Company with a $5,000,000 revolving working capital facility, and a $10,000,000
revolving credit facility that may be used for activities such as acquisitions
and repurchases of the Company's common stock. Borrowings under the $10,000,000
revolving credit facility may, at the Company's election, be converted to a
four-year term loan commencing on June 30, 1999, the expiration date of the
Credit Facility. Any term loan borrowings mature on June 30, 2003. Borrowings
under the Credit Facility bear interest at Fleet's prime rate (8.50% at
September 26, 1998) and bear a commitment fee ranging from 0.25% to 0.50% on any
unused portion of the Credit Facility. The Credit Facility also permits the
Company to designate a LIBOR rate on outstanding borrowings with a margin
ranging from 1.25 to 1.75 percentage points over the market rate, depending on
the Company meeting certain ratios. The Credit Facility is secured by a lien on
substantially all of the assets of the Company, imposes certain financial
covenants and restricts the payment of cash dividends and the creation of liens.
At December 31, 1997, the Company had outstanding borrowings of $300,000. During
the nine months ended September, 1998, the Company borrowed $11,400,000 under
the Credit Facility, primarily to fund its common stock repurchases, and to fund
its short-term working capital requirements. The Company repaid $5,200,000 of
its borrowings during the period, with $6,500,000 outstanding at September 26,
1998.
The Company's capital expenditures were approximately $1,917,000 and $1,688,000
for the nine months ended September 26, 1998 and September 27, 1997,
respectively. These expenditures primarily included new product tooling,
computer equipment, and factory machinery and equipment. The Company's total
capital expenditures for fiscal 1998 are expected to be approximately
$2,300,000, a majority for new product tooling.
The Company believes that cash flows generated from operations and additional
borrowings available under the Credit Facility, if necessary, will provide
sufficient resources to meet the Company's working capital needs, finance its
capital expenditures and stock repurchases (if any), and meet its liquidity
requirements through December 31, 1998.
11
12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk - Not
applicable.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits filed herein
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)
November 10, 1998 /s/ Richard L. Cote
-------------------
Richard L. Cote
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ Steven A. DeMartino
-----------------------
Steven A. DeMartino
Corporate Controller
(Principal Accounting Officer)
12
1
TRANSACT TECHNOLOGIES INCORPORATED
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 26, September 27, SEPTEMBER 26, September 27,
1998 1997 1998 1997
---- ---- ---- ----
NET INCOME $ 533,000 $1,582,000 $1,398,000 $4,029,000
========== ========== ========== ==========
SHARES:
Basic - Weighted average common shares
outstanding 6,164,000 6,788,000 6,285,000 6,761,000
Dilutive effect of outstanding options and
warrants as determined by the treasury
stock method 2,000 226,000 11,000 164,000
---------- ---------- ---------- ----------
Dilutive - Weighted average common and
common equivalent shares outstanding 6,166,000 7,014,000 6,296,000 6,925,000
========== ========== ========== ==========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Basic * $ 0.09 $ 0.23 $ 0.22 $ 0.60
========== ========== ========== ==========
Diluted * 0.09 0.23 0.22 0.58
========== ========== ========== ==========
* Net income per share for the three and nine months ended September 27,
1997 have been calculated giving effect to SFAS 128.
5
1,000
9-MOS
DEC-31-1998
JAN-01-1998
SEP-26-1998
289
0
8,520
154
10,012
20,078
13,129
7,482
27,782
12,567
0
0
0
62
14,623
27,782
39,380
39,380
28,421
36,939
(17)
0
238
2,220
822
1,398
0
0
0
1,398
0.22
0.22
