Presstek, Inc. Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the fiscal year ended January 1, 2005 |
|
or |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the transition period
from to |
Commission File No. 0-17541
Presstek, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
02-0415170 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
55 Executive Drive, Hudson, New Hampshire 03051-4903
(Address of principal executive offices including zip
code)
Registrants telephone number, including area code:
(603) 595-7000
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.01 par value
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 þ No o
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
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. No o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant as of July 3, 2004
was approximately $317,000,000.
As of March 11, 2005, there were 34,991,810 shares of the
registrants common stock outstanding.
Documents Incorporated by Reference:
Parts of the definitive Proxy Statement (which is expected to be
filed within 120 days after the Companys fiscal year
end) for the registrants Annual Meeting of Stockholders to
be held on June 7, 2005 are incorporated by reference into
Part II and Part III of this Form 10-K.
TABLE OF CONTENTS
As used in this report, the terms we,
us, our, Presstek and the
Company mean Presstek, Inc., and its subsidiaries,
unless the context indicates another meaning.
PART I
General
Presstek is a market focused high-technology company primarily
engaged in the manufacture and delivery of digital imaging
solutions to the graphic arts and printing industries worldwide.
We are a leader in the development of digital imaging capital
equipment and consumables-based solutions that are economically
beneficial to the user through a streamlined workflow and
chemistry free, environmentally responsible operation.
Through our various operations, we:
|
|
|
|
|
Develop and manufacture products that transfer digital images
onto our proprietary chemistry free printing plates, or
consumables, using digital laser imaging equipment, targeting
primarily the small and medium sized commercial print providers; |
|
|
|
Are a leading sales and services company delivering Presstek
solutions and those from other manufacturing partners through
our ABD International business unit, known as ABDick; |
|
|
|
Manufacture semiconductor solid state laser diodes for Presstek
imaging applications and for use by external defense, industrial
and medical applications; and |
|
|
|
Manufacture and distribute both chemistry free, digitally imaged
printing plates, and printing plates for conventional print
applications at our Precision Lithograining business segment. |
We have developed a proprietary system by which digital images
are transferred onto printing plates for Direct Imaging on-press
applications and for computer-to-plate applications. We refer to
Direct Imaging as DI and computer-to-plate as CTP. Our digital
imaging systems enable customers to produce high-quality, full
color lithographic printed materials more quickly and cost
effectively than conventional methods that employ more
complicated workflows and toxic chemical processing. This
results in reduced printing cycle time and lowers the effective
cost of production for commercial printers. Our solutions make
it more cost effective for printers to meet the increasing
demand for shorter print runs, higher quality color and faster
turn-around times.
Our ground breaking DI technology is marketed to leading press
manufacturers. Our Presstek business segment supplies these
manufacturers with imaging kits complete with optical assemblies
and software which are integrated into the manufacturers
presses. The result is a DI press, which is designed to image
our printing plates. Similar digital imaging technologies are
used in our CTP systems. Our Presstek business segment designs
and manufactures CTP systems that incorporate our imaging
technology and image our chemistry free printing plates.
We deliver our products through multiple channels to market:
|
|
|
|
|
We use the direct sales and service operation of our ABDick
business unit to deliver our solutions and those of other
partner manufacturers primarily in the U.S., Canada and the
United Kingdom; |
|
|
|
We have a well developed graphic arts dealer network to deliver
our products worldwide; and |
|
|
|
We also use original equipment manufacturers, or OEMs, to
deliver our products to markets worldwide. |
The delivery and support of our products was greatly enhanced in
2004 by the addition of the business and distribution network of
the ABDick Company. We now have direct sales and service
capabilities in several of our key markets to complement the
graphic arts dealer and OEM channels.
Presstek, Inc. was incorporated in Delaware in 1987.
Pressteks headquarters are located at 55 Executive Drive,
Hudson, New Hampshire, 03051. Our general telephone number is
603-595-7000, and our web site can be found at
www.presstek.com.
1
Business Overview
2004 was a pivotal year for us, as our capabilities and size
greatly expanded. The actions we have taken in 2004 positioned
us to enter the growth phase of our strategic plan. Prior to
2004, we were a high tech manufacturing company that heavily
relied on strategic partners for the sales, distribution and
service of our products. In 2004 we added greatly enhanced
capabilities in the form of direct sales and service
capabilities and additional engineering and manufacturing
capabilities. This fundamental strengthening of our company is
attributable to two important acquisitions that we completed in
the second half of 2004: the acquisition of Precision
Lithograining at the end of July and the acquisition of the
business of the A.B. Dick Company in November.
On July 30, 2004, we acquired the Precision business
located in South Hadley, Massachusetts, for approximately
$12.2 million in cash. Precision manufactures
Pressteks Anthem and Freedom chemistry-free digital
printing plates, and is also a provider of conventional analog
and other digital printing plates, like Aurora, for both web and
sheet-fed printing applications.
In November 2004, Presstek took a major step forward in
executing its strategic business plan to become an end-to-end
(design, manufacture, distribution and service) provider of
solutions for the small and medium sized commercial print
market. On November 5, 2004, we purchased the business of
the A.B.Dick Company through a Section 363 sale in the
United States Bankruptcy Court of Delaware for approximately
$43.2 million. The A.B.Dick Company originally co-founded
by Thomas Edison, had a rich tradition in the printing industry
spanning 120 years. At the time of the acquisition, the
companys business was comprised of three categories:
(i) offset presses and pre-press equipment, including
products sold under the ABDick, Multigraphics, Itek Graphi®
and other labels (ii) consumables for both pre-press and
offset press equipment, and (iii) after-market repair
services and replacement parts. The company had a limited
manufacturing operation, and was a leading sales and service
operation with clients comprised mainly of small to mid-sized
printing shop customers. The business of the A.B.Dick Company is
now operated through our ABDick segment. As a Presstek reporting
segment, ABDick manufactures, markets, distributes and services
offset printing systems, analog and digital platemaking systems
and related supplies for the graphic arts and printing
industries.
With the addition of Precision and ABDick, Presstek now has
end-to-end solutions for the graphic arts industry,
encompassing each step of the development, manufacture,
distribution and service of their core products.
Presstek now operates in four reportable segments, the Presstek
segment, the Lasertel segment, the Precision segment and the
ABDick segment. The Presstek segment is primarily engaged in the
development, manufacture and sale of our patented digital
imaging systems and printing plate technologies for
direct-to-press, or on-press applications, and CTP, or off-press
applications. The Lasertel segment is primarily engaged in the
manufacture and development of high-powered laser diodes for
Presstek and for sale to external customers. The Precision
segment is primarily engaged in the development, manufacture and
sale of our patented digital plates, as well as digital and
analog plates for other customers. The ABDick segment
manufactures, markets, distributes and services equipment and
supplies for the graphic arts and printing industries.
Information about our business segments, major customers and
geographic areas are included in Note 13 to the
Companys financial statements appearing elsewhere in this
Annual Report on Form 10-K.
Our Business Segments
The Presstek Segment
The Presstek segment serves as the central engine of innovation
for research, new product development and manufacturing.
Research and design for our imaging systems and chemistry-free
digital printing plates occur at the Presstek segment, and the
Presstek segment is the manufacturing center for our CTP systems
and our direct imaging printing plates. In addition, Presstek
serves as the central organization under which each of our
subsidiaries functions, and the Presstek segment sets the
strategic and research initiatives of the organizations.
Distribution and service of the Presstek segment products is
performed through our OEM partners, which
2
includes the ABDick segment and our strategic partners. Through
our distribution channels, Pressteks products are
available worldwide.
The Lasertel Segment
Our Lasertel segment is a world-class developer and manufacturer
of high-quality, high-powered diodes for Presstek imaging
systems as well as third-party systems. The Lasertel segment
provides Presstek with state-of-the-art laser imaging
capabilities that differentiate us by bringing innovation to the
rapidly evolving graphic arts marketplace. In addition, the
Lasertel segment provides external customers with a wide range
of laser diodes for defense, medical and industrial applications.
The Precision Segment
The Precision segment is a manufacturer of high-quality digital
and analog printing plates for customers in the commercial
print, newspaper, and book publication segments of the graphic
arts industry. The Precision segment manufactures four types of
printing plates: Presstek proprietary digital plates using
Pressteks award-winning technology for sale to Presstek
and Presstek customers; Presstek proprietary digital plates
using Pressteks award-winning technology for sale to
third-party customers; third party proprietary digital plates
for sale to third-party customers; and analog plates for sale to
third-party customers. The Precision segments graphic arts
products are distributed on a worldwide basis through the ABDick
segment and Pressteks distribution partners as well as
through OEM partners and a network of independent dealers.
The ABDick Segment
The ABDick segment is an international sales channel providing
sales, service, and distribution capabilities to the small
commercial print customer around the world. The ABDick segment
sells and services both our manufactured and third party
manufactured equipment, providing both digital and conventional
printing solutions.
The addition of the ABDick segment greatly expands our reach to
our end-user customers, providing Presstek with significant
direct sales, customer service, field service and distribution
capabilities. In the past, we were largely reliant on
third-party distribution and service organizations to market,
distribute and service Presstek products to end-user customers.
With the addition of the ABDick segment, we have gained access
to end-user customers, many of which we believe will be seeking
digital printing solutions.
The ABDick segments printing equipment, supplies and
services are marketed to commercial, franchise and independent
print shops; in-plant print shops; and government and
educational institutions in the U.S. primarily through direct
sales and dealers, but some sales are also conducted through
supply resellers.
ABDick also provides service to state-of-the-art equipment in
the graphic arts industry, to customers consisting largely of
small to mid-sized printing shop operators. Through its service
organization, the ABDick segment has a geographic reach that
includes North America and the United Kingdom.
As a result, customers served by ABDick are a critical target
market for Presstek products and technologies. With
ABDicks sales and service organizations, we now have an
installed base of approximately 33,000 total products that are
under service and an active customer base of approximately
15,000 printers. The ABDick segment also has an established
catalog of supplies and consumables, many of which complement
Pressteks offerings. The ABDick segment has an equipment
line of CTP devices; workflow modules; conventional duplicators
and printing presses, post-press bindery and finishing equipment
and other ancillary devices by third parties. Presstek products,
in conjunction with the existing product line of the ABDick
segment, should provide the foundation for a comprehensive
digital migration path to address customer needs.
3
Strategy
Our business strategy revolves around employing innovative
digital imaging technology to address specific and
well-understood opportunities primarily in the graphic arts
marketplace.
This strategy reflects several strategic imperatives:
1. Our primary focus is on the growth of our consumables
product.
|
|
|
The graphic arts industry is in the midst of a fundamental
structural change from analog to digital operations.
Presstek-manufactured digital consumable burning engines such as
CTP systems and DI presses have allowed us to build a
substantial installed base. One method of growing the market for
consumables involves further expanding the base of our installed
consumable burning engines (CBEs). We believe
that the addition of the ABDick sales, service and distribution
network will expand our customer base and assist customers in
evolving from analog to digital processes, creating additional
market opportunities for the CBEs that we manufacture. In
addition to expanding our base of our CBEs, an element of
our focus is to reach beyond our proprietary systems and
penetrate the installed base of CTP devices in all market
segments with our chemistry-free and process-free offerings. |
2. We focus on select market segments.
|
|
|
This digital transformation has been driven by large print
providers, who have been the vanguard of adoption of digital
technology. The small and medium-sized commercial print provider
and in-plant print operations are now beginning the wholesale
conversion to digital systems and processes. With the
acquisition of ABDick and with our digital printing solutions,
we believe that we can leverage the depth and breadth of our
products, services, supplies, internal skills, and strategic
partnerships to address these new and emerging market demands. |
3. Because we compete on the basis of technology, we
deliver differentiated products.
|
|
|
Presstek has been a technology innovator since its inception,
providing digital laser technology that is directly responsible
for what is estimated to be over 90% of worldwide DI
installations. As we expand and refine our product offerings, we
will strive to lead the market with high performance products. |
4. We provide environmentally responsible solutions
through our application of technology.
|
|
|
Our thermal chemistry-free plate technologies provide both
streamlined workflow and environmentally responsible solutions.
Besides contributing to a cleaner planet, environmental
responsibility is sound business practice in that our DI and CTP
technology reduces labor needs, reduces space requirements,
eliminates plate-oriented waste disposal, and results in fewer
manufacturing process errors. |
Technology and Products
Direct Imaging Technology
Beginning in the late 1980s, we developed a direct imaging
system known as DI that allows digitally formatted file data to
be used to image a printing plate directly on the printing
press. Essentially, Presstek treated the printing press as a
computer peripheral. Previously, all platemaking activities had
occurred as a separate and specialized activity in the printing
operation primarily using analog film-based technology and
manual processes.
Conventional or analog printing plates are produced using labor
and chemical-intensive, multi-step processes. By imaging plates
directly on a printing press, Presstek products remove the
reliance on chemicals and the multi-step process associated with
analog printing. By consolidating or eliminating process steps
required to prepare a digital file for printing, DI delivers
efficiencies that allow increased print productivity at lower
cost and with better quality than traditional print methods. At
the same time, Pressteks method for transferring the
digital image to the printing plate eliminates the need for the
chemical processing that is generally associated with imaging
traditional printing plates. Pressteks DI presses
therefore are more environmentally responsible than traditional
methods of printing. The result is a higher quality, more
environmentally sound solution for printers.
4
The laser modules that we use for our imaging system are
manufactured at Lasertel. Lasertel manufactures epitaxial
wafers, which are subsequently processed into chips or bars.
Lasertel then assembles these devices into fiber-coupled modules
called multiple emitter packages, which contain four lasers per
module. These modules are then sent to Pressteks
manufacturing facility in Hudson, New Hampshire.
Presstek assembles Lasertel-manufactured laser imaging modules
into imaging kits that are designed for particular press
manufacturers. These kits are then incorporated into the presses
of various press manufacturers. Currently, we have three primary
DI press manufacturing partners: Heidelberger
Druckmaschinen AG, known as Heidelberg, Ryobi Limited, known as
Ryobi and Koenig & Bauer, AG, known as KBA.
Our most recent advance in DI technology, which we refer to
as the ProFire Excel system, has significantly improved the
resolution of our digital printing presses. The ProFire Excel
integrated imaging system, introduced in May 2005, integrates
lasers, laser drivers, digital electronics, and motion control
into one modular package design for direct imaging presses. The
ProFire Excel system has three major components: the
FirePower laser diode system, made up of unique four-beam
laser diodes and laser drivers, the integrated motion system
that controls the placement of the laser diodes, and the
FireStation digital controller and data server. The image
data board of the ProFire Excel controls 16-micron diodes
with patented Image Plus technology. Among the advantages of
Image Plus is a new writing mode that substantially increases
image quality while drastically reducing moiré patterns in
standard screen sets, allowing for a wide range of stochastic
screening (FM) options.
We continue to develop and commercialize our DI digital
imaging systems for on-press applications. There can be no
assurance, however, that we will be able to successfully
commercialize additional products that incorporate this
technology.
CTP Products
In addition to offering our imaging technology in
DI presses, we also offer our imaging technology in
computer-to-plate, which we call CTP devices, which we
manufacture. Unlike the DI press, where the plate is imaged
on the press, CTP systems allow printers to employ
Pressteks digital technology on conventional printing
presses. Pressteks lines of CTP devices incorporate
our proprietary imaging technology to transfer a digital image
onto our proprietary printing plates, which, once imaged, can be
mounted on a traditional printing press, avoiding the multiple
steps and chemical processes traditionally associated with
analog plates. In manufacturing these devices, Presstek
assembles Lasertel-manufactured laser imaging modules into
imaging kits, which, in turn, become components of the
particular CTP device.
The Dimension platesetter is a CTP imaging device that can
image our Anthem, PEARLdry Plus and Applause thermal plates in
an A3 (2-page), A2 (4-page) or A1 (8-page) format
size. The Dimension utilizes Pressteks ProFire laser
imaging technology, and can produce completely imaged printing
plates, ready to be mounted on a printing press, within
3 to 5 minutes depending on the plate size.
In May of 2004, we introduced a new generation of
CTP devices based on our new Sure Fire imaging system,
which we call the Vector series of CTP devices. Presstek
intends to market and distribute these products as
ABDick-branded products. The most recent version of the Vector
series, which we call the Vector TX52, is scheduled for
commercial sale in mid 2005. Designed to image Pressteks
Freedom thermal plate, the Vector line is intended for maximum
ease-of-use to streamline platemaking operations while
delivering the speed, quality and performance that our customers
demand. The Vector TX52 thermal plate-setter and Freedom
chemistry-free plates are designed to provide the short-run,
small format (52cm and under) printer with a unique metal
platemaking solution for higher productivity, cleaner operation
and lower production and material costs. The Vector TX52 will
join the family of Presstek fully integrated, chemistry-free
thermal metal CTP systems on the market.
5
We continue to develop and commercialize our CTP systems. There
can be no assurance, however, that we will be able to
successfully commercialize these or other products, or enter
into any additional arrangements that will result in the broader
distribution of our Dimension product line.
Printing Plates
Offset printing is the most widely used commercial method of
producing printed materials for everyday use. The majority of
quality, full color printing materials with which the average
consumer comes into daily contact (like magazines, brochures
catalogs and packaging) are produced using the offset printing
process. Pressteks products are designed for offset
printing uses.
Our DI and CTP printing plates are available in both wet
offset and waterless form. Our waterless plates include PEARLdry
and PEARLdry Plus for use on DI presses. Our wet offset
thermal plates include Applause, Anthem and Freedom for
CTP imaging. Our wet and waterless plates are based on our
patented thermal imaging technology, where the plates respond to
heat generated by high-powered lasers, and not to light. These
plates also utilize unique chemistry-free processing methods.
The current PEARLdry Plus plate is a second-generation product
based on our patented PEARLdry technology. The plate uses a
specially formulated silicone material that is coated over the
metalized infrared absorbing layer. Environmentally friendly,
thin-film vacuum deposition processes produce the ultra-thin
film coatings that facilitate ablative imaging without excessive
residue and are the foundation of PEARLdry Plus plates for
waterless printing. Our PEARLdry Plus spooled plates are used in
a number of highly automated DI presses. The Dimension
CTP platesetter and other CTP systems also are able to
image the PEARLdry Plus plate.
Anthem plates for CTP systems feature Pressteks
patented polymer-ceramic technology and combine ablative imaging
and chemical-free cleaning with run lengths of up to
100,000 impressions. The Anthem plate runs with a wide
range of fountain chemistry and inks and can be imaged on other
thermal CTP systems. Anthems market includes a broad
base of installed conventional wet offset presses, currently the
largest segment of the printing industry.
The Applause plate is our first process-free plate product. This
plate is designed for use on both on-press and off-press
applications, with run lengths up to 100,000 impressions.
We believe Applause is unique in that it is a truly the
worlds first commercially available no-process plate.
Unlike other digital plate products, Applause requires no
intermediate steps between imaging and printing. Other benefits
of Applause include excellent ink/water latitude, high
resolution, and compatibility with the existing press
chemistries. Applause is expected to be certified for
third-party, non-proprietary thermal platesetters upon
completion of ongoing qualification testing.
The Freedom plate is the latest chemistry-free plate product,
introduced in September 2003. Like our Anthem plate, Freedom
requires only a simple wash with water before printing. The
unique surface structure of the plate results in fast
make-ready, greater ink/water latitude and excellent durability.
In addition, Freedom plates accommodate a wide range of industry
standard inks and fountain solutions. Freedom plates deliver the
performance characteristics and stability of conventional
aluminum plates.
6
Precisions Aurora process-free thermal printing plate
delivers the performance of traditional CTP plates, with the
benefits of process-less technology for standard 2-page, 4-page
and 8-page formats. The Auroras surface structure results
in fast make-ready, excellent durability and greater ink/water
latitude, while delivering performance characteristics and
stability of conventional aluminum plates.
Precisions Publica line of plates is an analog plate
designed for the needs of the newspaper and high-volume web
printing applications.
Qualis is Precisions latest generation of high-quality,
value-priced conventional (analog) aqueous-based subrative
printing plates.
Presstek continues to develop thermal consumable plate products
that can be imaged by both its own DI systems as well as
high-energy laser-based CTP and other computer-to-plate systems
offered by leading manufacturers. There can be no assurance,
however, that we will be able to successfully commercialize
products that incorporate this technology.
Lasertel Diode Products
The graphic arts industry continues to demand a high degree of
speed, imaging resolution and accuracy without increasing costs.
Our high-powered diode lasers are designed to achieve greater
imaging power, uniformity and reliability at a low unit cost for
the diode array. Writing speed and accuracy are increased,
without increasing space and costs, by combining four fiber
channels into a single optical module. These diodes,
manufactured at our Lasertel subsidiary, also incorporate a
number of packaging innovations that reduce the size of the
device and facilitate incorporation into the ProFire Excel
imaging module. In addition to manufacturing Presstek product,
Lasertel also manufactures products for third-party customers in
the industrial, medical and defense sectors.
Manufacturing
We operate manufacturing sites in Hudson, New Hampshire, Tucson,
Arizona, South Hadley, Massachusetts, and Rochester, New York.
In general, we strive to employ the latest manufacturing
techniques in our equipment assembly and plate manufacturing
processes. Strategic procurement initiatives are in place to
qualify and consolidate vendors, and establish active vendor
report card programs to improve incoming quality and reduce
product costs. With the addition of Precision and ABDick, we are
continually evaluating similar operations in different plants to
leverage our capabilities and achieve economies of scale. We
also continually assess outside manufacturing capacity and
review our existing manufacturing technologies when deciding
whether to manufacture or to buy a product or component.
Pressteks DI imaging kits, CTP systems, and our PEARLdry
Plus and Applause printing plate products are manufactured at
our 165,000-square-foot state-of-the-art facility located in
Hudson, New Hampshire. Equipment manufacturing employs the
latest techniques in the assembly process, including
point-of-use issue of parts, single flow process, and multiple
operations done by each assembler.
We use a number of outside vendors who supply components and
sub-assemblies which are integrated into completed
systems either direct imaging systems used in DI
presses, such as the Ryobi 3404DI, and the Heidelberg
Quickmaster DI, or CTP imaging systems, such as the Dimension.
These systems use semiconductor laser diode devices built to our
specifications and supplied by our Lasertel subsidiary. We
believe there are other sources available to manufacture the
laser diodes to specification, in the future, if required.
Plate manufacturing at our Hudson facility uses vacuum
deposition technology to create ultra-thin imaging layers. We
have a state-of-the-art solution coater capable of handling
aqueous or solvent based fluids with best
7
available environmental controls throughout the process. PET
substrates are laminated to aluminum webs (spools) using
electron beam curing technology. This eliminates the need for
environmental emissions from a drying process. We utilize full
converting capability, which provides high-speed slitting,
spooling, formatting and final packaging.
Lasertel operates a 75,000-square-foot facility located in
Tucson, Arizona. The facility includes 10,000 square feet
of clean room space, and complete process equipment for
semiconductor laser manufacturing. Lasertels manufacturing
process begins with molecular beam epitaxy reactors to grow
semiconductor laser wafers, and extends through the final
polishing techniques for the optical fiber.
The Precision facility located in South Hadley, Massachusetts
has 100,000 square-feet in two buildings, and performs
aluminum plate manufacturing including in-line graining,
anodizing, silicating, and multiple layer coatings. Raw aluminum
is processed into lithographic printing plates for the
conventional and digital markets. Besides Presstek Anthem and
Freedom products and Precision-branded plates, including Aurora,
this facility produces plates for a number of contract customers.
We also manufacture plate-imaging units in our Rochester, New
York facility. We use a number of outside vendors who supply
components and sub-assemblies that are integrated into completed
systems. This facility manufactures the ABDick-branded
DPM line of polyester platesetters and the Vector TX52. We
currently sub-lease the former A.B. Dick Company
manufacturing facility, which has 194,000 square-feet. We
plan to relocate these manufacturing operations to a smaller,
more efficient location in 2005, reducing total space to
approximately 50,000 square-feet. Like our Hudson facility,
this operation employs the latest techniques in the assembly
process, including point-of-use issue of parts, single flow
process, and multiple operations done by each assembler.
Our press products are manufactured under agreements with a
press manufacturers located in Japan and Germany. We believe
that there are other sources available to manufacture these
products; however, if the supply of these presses were to be
delayed, or if import restrictions were imposed, our ability to
ship products in a timely manner could be adversely affected,
which could have a material adverse effect on our business,
results of operations and financial condition.
Marketing, Distribution and Customer
Support
Our sales strategy through 2004 was designed to distribute
Presstek DI and CTP products and the related
consumables to customers through independent graphic arts
dealers and strategic OEM partnerships. With the addition of the
ABDick segment, we are greatly enhancing our marketing,
distribution and service capabilities to give Presstek direct
access to end-user customers of our solutions and services.
We plan to employ multiple technologies to solve customer
problems. We will develop many of these technologies ourselves,
and others we will acquire through partnerships. We intend to
deliver those solutions through multiple channels, including a
high performing value-added dealer network, a complementary
ABDick segment direct sales and service force, and
strategic OEM partners. With the addition of the
ABDick segment, we have established a worldwide
distribution network through which we market and sell
CTP equipment and PEARLdry Plus Applause Anthem and Aurora
thermal plate products as well as analog plates manufactured at
Precision, and through which we expect to participate in the
distribution of DI Presses. In addition, the
ABDick segment also brings a world-wide service
organization through which we provide service to products
manufactured by Presstek and third-party vendors, the
ABDick sales force represents our primary access to lead
the analog-to-digital migration of its large installed customer
base of smaller print establishments. In addition to our
ABDick segment distribution network, our distribution
network is supplemented with over 30 independent graphic
arts dealers in 18 countries, including two national
distributors, the Pitman Company and xpedx Graphic Systems, and
several regional dealers in the United States. To supplement our
direct distribution partners we also market and sell
DI consumable products through our Presstek.com web site.
We also have OEM agreements or reseller relationships with
Ryobi, KBA and KPG and Heidelberg for direct imaging presses and
related consumables. These agreements permit the
OEM resellers and their dealers to sell DI-based equipment
and consumable products under their own labels.
8
By using this direct and indirect approach to distribution, we
have attempted to maximize the number of systems using Presstek
technology, which require Presstek consumables. Additionally, we
have developed an integrated service strategy, using our own
resources and those of third-party service providers, dedicated
to servicing the products delivered through our distribution
network.
Market acceptance for any products incorporating our various
technologies and proprietary know-how will require substantial
marketing efforts and the expenditure of significant sums,
either by us, and/or our strategic and OEM partners. There can
be no assurance that any existing or new products will achieve
market acceptance or become commercially viable.
We will utilize our ABDick direct sales force to lead the analog
to digital migration of its large installed customer base of
smaller print establishments. In addition:
|
|
|
|
|
We will employ multiple technologies to solve customer problems,
many we will develop ourselves, and some we will acquire through
partnerships. |
|
|
|
We intend to deliver those solutions through multiple channels.
Our channels to market will include a high performing
value-added dealer network, a complementary ABDick direct sales
force, and strategic OEM partners. |
Strategic Relationships
Pressteks business strategy is based in part on strategic
alliances and relationships with leading companies in the
printing and graphic arts industry. This strategy includes
licensing intellectual property; specialized product development
based on our proprietary technologies; the manufacturing of
imaging systems for inclusion in other manufacturers
products; the sale, distribution and marketing of our own
consumables as well as consumables manufactured by others; and
the manufacturing of our patented thermal plate materials for
use in Pressteks and other manufacturers imaging
hardware and printing presses.
In conjunction with Ryobi, an international supplier of printing
presses headquartered in Japan, we developed an A3 format size
four-color DI sheet-fed press, which is marketed by Ryobi as the
3404DI. Incorporating our dual plate cylinder concept, this
press features our internal automated plate cylinder design, our
ProFire Excel technology, and our PEARLdry spooled plates. The
small format of this press is designed to appeal to quick
printers, in-plant printers, and copy centers looking to expand
their services with offset color printing.
In combination with KBA, an international supplier of printing
presses of Germany, we have an agreement under which KBA markets
and sells the 46 Karat press, an A3 format size four-color
sheet-fed DI press, in certain geographic markets. The 46 Karat
delivers fully automated plate advancing, imaging, ink
presetting, and printing, using PEARLdry Plus spooled plates.
KBA also manufactures and markets a digital offset press, the
74 Karat, which uses our PEARLdry plates, and related
intellectual property under license. PEARLdry Plus plates for
the 46 Karat are marketed directly by KBA and through
Pressteks European distributor network.
We also developed a long-term relationship with Heidelberg the
worlds largest manufacturer of printing presses and
printing equipment based in Germany. This relationship was
formalized with the signing of a Master Agreement, Supply
Agreement, and a Technology License, collectively called the
Heidelberg Agreements, in January 1991, which covered the
integration of the DI technology into various presses
manufactured by Heidelberg. Under the Heidelberg Agreements,
Heidelberg is required to pay royalties to us based on the net
sales prices of various specified types of Heidelberg presses on
which our DI technology is used. The manufacture of components,
at specified rates, for these presses and the commercialization
of such presses are also covered by the Heidelberg Agreements.
Heidelberg also has been provided with certain rights for use of
the DI technology for the Quickmaster DI format size press. The
Heidelberg Agreements expire in December 2011, subject to
certain early termination and extension provisions.
In July 2003, we entered into OEM consumables supply agreements
with Heidelberg and Heidelberg USA that provide us with certain
preferred supplier rights, which vary based on territory, time
period and sales volume. Under the terms of the OEM agreements,
which include minimum volume commitments from Heidelberg and
Heidelberg USA, we will manufacture and supply Heidelberg
branded consumable plate products for the
9
Heidelberg Quickmaster DI press. Shipments to Heidelberg of the
branded consumable product began in August 2003. The OEM
consumables supply agreement between Presstek and Heidelberg USA
is scheduled to terminate on or about May 15, 2005.
While our alliance with Heidelberg has been an important one,
there are substantial risks associated with this relationship.
Unlike our distribution relationships with companies such as
Ryobi, we have no distribution rights to the Quickmaster DI, and
must rely on Heidelberg to sell this press. We currently have no
orders from Heidelberg for direct imaging kits used in the
Quickmaster DI. Heidelberg has indicated, as a result of the
global economic slowdown, that it has an inventory of direct
imaging kits on hand to support its production requirements for
six months. We do not believe that orders for direct imaging
kits will resume in fiscal 2005. Sales to Heidelberg and its
distributors represented approximately 9%, 21%, and 36% of
revenue for fiscal 2004, 2003, and 2002, respectively. As a
result of our expanded strategic partnerships and distribution
channels, our sales to Heidelberg comprise a less significant
share of total sales for fiscal 2004. The loss of Heidelberg and
its distributors as customers, however, would have a material
adverse effect on our business, results of operations and
financial condition.
We also have an agreement with KPG, a leading supplier of
digital, conventional and business solutions for the graphic
arts industry, granting KPG certain rights to market, sell and
service a direct digital imaging press and related consumables
in the United States and Canada. The KPG Direct Press 5334 and
5634 DI press solutions are two-page, four-color Ryobi platform
DI presses which is enabled by Pressteks ProFire and
ProFire Excel imaging and thermal plate technology. These highly
automated DI solutions are manufactured to KPG specifications
and are designed to provide high quality offset printing.
We also have a strategic OEM relationship with Ryobi through
ABDick under which Ryobi provides a range of duplicators and 2-
and 4-tower presses sold under the ABDick name. In addition,
ABDick is reliant on its Private Label Sales Agreement with
Mitsubishi Imaging (MPM), Inc., which we call Mitsubishi, under
which ABDick has committed to purchase certain volumes of plate
material from Mitsubishi.
As a result of the acquisition of ABDick, we plan to utilize our
newly-acquired distribution and service organization as an
additional channel through which to sell and service our
products. We are not currently aware of any conflict between our
existing channel and/or OEM partners associated with the
acquisition. There can be no guarantees that the acquisition of
ABDick will not cause conflict with our existing OEM partners.
We are pursuing other business relationships that we believe may
result in broader use of our digital imaging and printing plate
technologies, in existing as well as new applications. There can
be no assurance, however, that any Presstek product, or any
products incorporating our technology, will be able to compete
successfully in these markets.
Competition
We believe that our patented technologies, other intellectual
property, thermal plate manufacturing facilities, and strategic
alliances and worldwide distribution network provide us with a
competitive advantage. However, several other companies address
markets in which Presstek products are used and have products
that are competitive to our patented direct imaging thermal
plate technologies and related capabilities.
In the area of direct imaging and the short-run, on-demand
market, potentially competitive companies use
electrophotographic technology, sometimes referred to as
xerography, as the basis of their product lines. These companies
include, among others, Canon Inc., Hewlett Packard Company,
Kodak, and Xerox. These electrophotographic imaging systems use
either wet or dry toners to create one to four (or more) color
images on paper and typically offer resolutions of between 400
and 1200 dots per inch.
Most of the major companies in the graphic arts industry have
developed or are developing off-press CTP imaging systems.
Potential competitors in this area include, among others,
Agfa-Gevaert N.V., Creo Inc. (an acquisition of CREO has been
announced by Eastman Kodak Company), DaiNippon Screen Mfg.,
Ltd., Fuji, Heidelberg, combinations of these companies, and
other smaller or lesser-known companies. To date, these devices,
for the most part, utilize printing plates that require a
post-imaging photochemical developing step and/or other post
processing steps such as heat treatment.
10
We anticipate competition from printing plate companies that
manufacture, or have the potential to manufacture, digital
thermal plates. Such companies include, among others,
Agfa-Gevaert N.V., CREO Inc., which we refer to as CREO, KPG,
and Fuji Photo Film Co., Ltd. Kodak recently announced that it
was exercising its rights under its joint venture agreement with
Sun Chemical, Inc. regarding KPG and that Kodak would own KPG
outright. Kodak also recently announced its intention to
purchase the shares of CREO. It is impossible to determine the
affect that these events will have on our competitive
relationship with CREO or our ongoing strategic relationship
with KPG. Were Kodak to sever our relationship with KPG or
develop competing products, such actions could have a materially
adverse effect on our business and negatively impact our
financial condition and results of operations.
Heidelberg is marketing a competitive plate product as an
alternative to Pressteks PEARLdry for the Quickmaster DI.
This competitive plate has impacted the revenue generated by
Presstek under its agreements with Heidelberg including the OEM
consumables supply agreements entered into in July 2003. CREO is
also marketing a competitive plate product as an alternative to
Pressteks PEARLdry for both the Ryobi and Quickmaster DI
platforms. These competitive plates have impacted the revenue
generated by Presstek under its agreements with Heidelberg and
Ryobi, including the OEM consumables supply agreements with
Heidelberg and Heidelberg USA entered into in July 2003. They
could also lead to downward pricing pressure on our full line of
spooled consumable products, which could have a material adverse
effect on our business, results of operations and financial
condition. Presstek has initiated patent infringement action
against the Heidelberg and CREO products in the Federal Republic
of Germany and the United States, respectively. Some of the
graphic arts companies mentioned above have announced or
released plates that eliminate the need for post image chemical
processing including Agfa-Gevaert N.V., KPG, and Fuji Photo Film
Co., Ltd. We cannot currently estimate the impact these
competitive plates will have on our financial condition and
results of operations.
Products incorporating our technologies can also be expected to
face competition from products using conventional methods of
creating and printing plates. While these methods are considered
to be more costly, less efficient and not as environmentally
conscious as those being implemented by us, they do offer their
users the ability to continue to employ their existing means of
print and plate production. Companies offering these more
traditional means and methods are also refining these
technologies to make them more acceptable to the market.
ABDicks broad portfolio of equipment, supplies, and
service has several competitors. In addition to those mentioned
above, competitors include for Prepress: Esko-Graphics, ECRM,
and RIPit; for Press: Ryobi, Hamada, Xerox, Canon, Ricoh, and
HP; for Service: GBC, TSI (Tech Services International, owned by
KPG), Service On Demand, Kodak, and some independent providers;
for Dealers: xpedx, Pitman, and Enovation.
Lasertels products can also be expected to face
competition from a number of companies marketing competitive
high-powered laser diode products such as Coherent Inc. and JDS
Uniphase Corporation.
Most of the companies marketing competitive products, or with
the potential to do so, are well established have substantially
greater financial, marketing and distribution resources than
Presstek and its subsidiaries, and have established records in
the development, sale and service of products. There can be no
assurance that Presstek, Lasertel, Precision, or ABDick, any of
our products, or any products incorporating our technology will
be able to compete successfully in the future.
While we believe we have strong intellectual property protection
covering many of our technologies, there is no assurance that
the breadth or degree of such protection will be sufficient to
prohibit or otherwise delay the introduction of competitive
products or technologies. The introduction of competitive
products and technologies may have a material adverse effect on
our business, results of operations and financial condition.
Patents, Trademarks and Proprietary
Rights
Our general policy has been to seek patent protection for those
inventions and improvements likely to be incorporated into our
products and services or where proprietary rights will improve
our competitive position. As of January 1, 2005, our
worldwide patent portfolio included over 120 patents. We believe
these patents, which expire from 2008 through 2027, are all
material to our business. We have applied for and are pursuing
applications for 10 additional U.S. patents and 58 foreign
patents. We have registered, or applied to register,
11
certain trademarks in the US and other countries, including
Presstek, DI, Dimension, ProFire, Anthem, Applause, and
PEARLdry. We anticipate that we will apply for additional
patents, trademarks, and copyrights, as deemed appropriate.
There can be no assurance as to the issuance of any such patents
or trademarks or the breadth or degree of protection that our
patents, trademarks or copyrights may afford us.
In addition to the Presstek patents indicated, there is
currently one (1) US patent assigned to Precision, which
will expire in 2017, and three (3) currently active ABDick
patents, which will expire in 2007, 2020, and 2027. Precision
and ABDick are subsidiaries of Presstek.
There is rapid technological development in the electronic image
reproduction industries, resulting in extensive patent filings
and a rapid rate of issuance of new patents. Although we believe
that our technology has been independently developed, and that
the products we market and propose to market will not infringe
on the patents, or violate other proprietary rights of others,
it is possible that such infringement of existing or future
patents, or violation of proprietary rights may occur. In such
event we may be required to modify our design or obtain a third
party license. No assurance can be given that we will be able to
do so in a timely manner, upon acceptable terms and conditions,
or at all. The failure to do any of the foregoing could have a
material adverse effect on our business. Furthermore, there can
be no assurance that we will have the financial or other
resources necessary to successfully defend a patent infringement
or proprietary rights violation action. Moreover, we may be
unable, for financial or other reasons, to enforce our rights
under any of our patents. We have agreements with several of our
strategic partners which require us to indemnify the strategic
partner from claims made by third parties against
Pressteks intellectual property, and to defend the
validity of the patents or otherwise ensure the
technologys availability to the strategic partner. An
indemnification claim under any such agreement could have a
material adverse effect on our business, results of operations
and financial condition.
In September 2003, Presstek filed an action against Fuji Photo
Film Corporation, Ltd., in the District Court of Mannheim,
Germany for patent infringement. In this action, Presstek
alleges that Fuji has manufactured and distributed a product
that violates a Presstek European Patent. Presstek seeks an
order from the court that Fuji refrain from offering the
infringing product for sale, from using the infringing material
or introducing it for the named purposes, or from possessing
such infringing material. A trial on the matter was held in
November 2004 and in March 2005, and we await a final
determination from the Court.
In February 2005, Presstek filed an action against CREO, in the
US District for the District of New Hampshire for patent
infringement. In this action, Presstek alleges that CREO has
manufactured and distributed a product that violates a Presstek
US Patent. Presstek seeks an order from the court: holding that
CREO has infringed the Patent, permanently enjoining CREO from
infringing, inducing others to infringe or contributing to the
infringement of the Patent, and seeking damages from CREO for
the infringement.
Presstek intends to rely on proprietary know-how and to employ
various methods to protect its source code, concepts, trade
secrets, ideas and documentation of its proprietary software and
laser diode technology. However, such methods may not afford
complete protection and there can be no assurance that others
will not independently develop such know-how or obtain access to
our know-how, software codes, concepts, trade secrets, ideas,
and documentation. Although we have and expect to have
confidentiality agreements with our employees and appropriate
vendors, there can be no assurance, however, that such
arrangements will adequately protect our trade secrets and
proprietary know-how.
Research and Development
Research and product development expenses, related to our
continued development of products incorporating DI and
CTP technologies, including our semiconductor laser diodes,
were $ 6.5 million, $7.1 million, and
$9.3 million in fiscal 2004, 2003, and 2002, respectively.
These research and development expenditures are primarily
related to the Presstek segment.
12
Backlog
As of February 25, 2005, we had a backlog of products under
contract aggregating approximately $18.6 million compared
to a consolidated backlog of approximately $12.6 million as
of February 27, 2004. Substantially all backlog of products
as of February 25, 2005 is expected to ship in 2005.
Employees
As of January 1, 2005, Presstek had 1,089 employees
worldwide. Of these, 44 are engaged primarily in
engineering, research and development; 247 are engaged in
sales and marketing, 376 are engaged in service and
customer support, 318 are engaged primarily in
manufacturing, manufacturing engineering and quality control;
and 104 are engaged primarily in corporate management,
administration and finance. None of our employees is represented
by a labor union. We consider the relationship with our
employees to be very good.
Investor Information
Financial and other information about Presstek is available on
our website (www.presstek.com). We make available, free
of charge on our website, our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC.
Glossary
Set forth below is a glossary of certain terms used in this
report:
|
|
|
A1 (8-page) |
|
a printing term referring to a standard paper size capable of
printing eight 8.5 x 11 pages on a
sheet of paper |
|
A2 (4-page) |
|
a printing term referring to a standard paper size capable of
printing four 8.5 x 11 pages on a
sheet of paper |
|
A3/B3 (2-page) |
|
a printing term referring to a standard paper size capable of
printing two 8.5 x 11 pages on a
sheet of paper |
|
Ablation |
|
a controlled detachment/ vaporization caused by a thermal event,
this process is used during the imaging of Pressteks PEARL
and Anthem consumables |
|
Anthem |
|
Pressteks line of wet offset digital plates with a unique
polymer-ceramic construction |
|
Applause |
|
Pressteks new process-free wet offset digital plate |
|
Computer-to-plate (CTP) |
|
a general term referring to the exposure of lithographic plate
material from a digital database, off-press |
|
Direct Imaging (DI) |
|
Pressteks registered trademark for digital imaging systems
that allow image carriers (film and plates) to be imaged from a
digital database, on and off-press |
|
Dots per inch (dpi) |
|
a measurement of the resolving power or the addressability of an
imaging device |
|
Heidelberg |
|
Heidelberger Druckmaschinen AG, one of the worlds largest
printing press manufacturers, headquartered in Heidelberg,
Germany |
|
Infrared |
|
light lying outside of the visible spectrum beyond its red-end,
characterized by longer wavelengths; used in our thermal imaging
process |
13
|
|
|
KBA |
|
Koenig & Bauer, AG, one of the worlds largest
printing press manufacturers, headquartered in Wurzburg, Germany |
|
KPG |
|
Kodak Polychrome Graphics, a leading supplier of digital,
conventional and business solutions for the graphic arts
industry, headquartered in Norwalk, Connecticut |
|
Lithography |
|
printing from a single plane surface under the principle that
the image area carries ink and the non-image area does not, and
that ink and water do not mix |
|
Off-press |
|
making a printing plate from either an analog or digital source
independent of the press on which it will be used |
|
On-press |
|
the use of Pressteks direct imaging technologies to make a
plate directly from a digital file on the press |
|
PEARL |
|
the name associated with Pressteks first generation laser
imaging technologies and related products and consumables |
|
ProFire and ProFire Excel imaging systems |
|
the Presstek components required to convert a conventional
printing press into a direct imaging press, including laser
diode arrays, computers, electronics |
|
Dimension |
|
Pressteks product line of CTP off-press platemaking
equipment |
|
Platemaking |
|
the process of applying a printable image to a printing plate |
|
Prepress |
|
graphic arts operations and methodologies that occur prior to
the printing process; typically these include photography,
scanning, image assembly, color correction, exposure of image
carriers (film and/or plate), proofing and processing |
|
Quickmaster DI |
|
the second generation of direct imaging, waterless presses,
highly automated with roll-fed PEARLdry Plus plate material, a
joint development effort between Heidelberg and Presstek |
|
Ryobi |
|
Ryobi Limited of Japan, a printing press manufacturer
headquartered in Japan |
|
Ryobi 3404DI |
|
an A3 format size four-color sheet-fed press, incorporating
Pressteks dual plate cylinder concept and PEARLdry Plus
spooled plates, a joint development effort between Ryobi and
Presstek |
|
Semiconductor laser diode |
|
a high-powered, infrared imaging technology employed in the DI
imaging systems |
|
Short-run markets/printing |
|
a graphic arts classification used to denote an emerging trend
for lower print quantities |
|
Thermal |
|
a method of digitally exposing a material via the heat generated
from a laser beam |
|
Vacuum deposition process |
|
a technology to accurately, uniformly coat substrates in a
controlled environment |
|
Waterless |
|
a lithographic printing method that uses dry offset printing
plates and inks and does not require a dampening system |
14
Item 2. Properties
Pressteks manufacturing operations are conducted primarily
in four locations. In addition, the Company maintains leased
offices in approximately 11 locations in North America and 2
locations outside North America. The term of these leases
generally range from one to three years.
Our building located at 55 Executive Drive in Hudson, New
Hampshire is a 165,000-square-foot facility, which we own. This
building contains the corporate headquarters for all of our
operating segments, as well as manufacturing operations,
research and development activities, marketing and demonstration
facilities, and various administrative and customer support
activities for the Presstek segment.
We also own a 75,000-square-foot facility in Tucson, Arizona,
which is leased from us by Lasertel. This building contains the
manufacturing operations, research and development activities,
as well as the various administrative activities of the Lasertel
segment.
We also own two buildings in South Hadley, Massachusetts
totaling approximately 100,000-square-feet. These buildings
contain the manufacturing operations, research and development
activities, as well as the various administrative activities of
the Precision segment.
Substantially all of the properties we own are secured by a
five-year credit facility totaling $80.0 million.
We also lease a 54,000 square-foot facility located in Niles,
Illinois which contains the marketing and customer support
activities, as well as, the administrative activities for the
ABDick segment.
We also lease a 194,000 square-foot facility located in
Rochester, New York, which contains the primary manufacturing
operations for the ABDick segment.
We currently utilize approximately 70% of the capacity of our
facilities. We believe that our existing facilities are well
maintained, in good operating condition, and are adequate for
our current and expected future operations.
Item 3. Legal
Proceedings
In September 2003, Presstek filed an action against Fuji Photo
Film Corporation, Ltd., in the District Court of Mannheim,
Germany for patent infringement. In this action, Presstek
alleges that Fuji has manufactured and distributed a product
that violates Presstek European Patent 0 644 047
registered under number DE 694 17 129 with the
German Patent and Trademark Office. Presstek seeks an order from
the court that Fuji refrain from offering the infringing product
for sale, from using the infringing material or introducing it
for the named purposes, or from possessing such infringing
material. A trial was held in November 2004 and March 2005, and
we await a final determination from the Courts.
In August 2003, the Company was served with a purported
securities class action lawsuit filed on June 2, 2003 in
the United States District Court for the Districts of New
Hampshire against the Company and two of its former officers.
This lawsuit was dismissed by the court, on October 4,
2004. The plaintiffs have appealed the courts dismissal on
November 4, 2004. On January 27, 2005, the plaintiffs
withdrew their appeal and the matter was permanently closed in
Pressteks favor.
In March 2005, Presstek filed an action against CREO, in the
United States District Court for the District of New Hampshire
for patent infringement. In this action, Presstek alleges that
CREO has distributed a product that violates a Presstek United
States patent. Presstek seeks an order from the court that CREO
refrain from offering the infringing product for sale, from
using the infringing material or introducing it for the named
purposes, or from possessing such infringing material, and for
the payment of damages associated with the infringement.
15
|
|
Item 4. |
Submission of Matters to a Vote of
Security Holders |
Not Applicable.
PART II
|
|
Item 5. |
Market for Registrants Common
Equity, Related Stockholder Matters and Issuer Purchasers of
Equity Securities |
Pressteks common stock is quoted on the Nasdaq National
Market under the symbol PRST. The following table
sets forth the high and low bid prices per share of common stock
for each full quarterly period within the two most recently
completed fiscal years as reported by the NASDAQ National Market.
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 1, 2005 |
|
High | |
|
Low | |
|
|
| |
|
| |
First quarter
|
|
$ |
12.20 |
|
|
$ |
7.25 |
|
Second quarter
|
|
|
12.05 |
|
|
|
9.00 |
|
Third quarter
|
|
|
10.24 |
|
|
|
8.15 |
|
Fourth quarter
|
|
|
10.99 |
|
|
|
8.56 |
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 3, 2004 |
|
High | |
|
Low | |
|
|
| |
|
| |
First quarter
|
|
$ |
5.72 |
|
|
$ |
4.15 |
|
Second quarter
|
|
|
6.75 |
|
|
|
4.20 |
|
Third quarter
|
|
|
8.78 |
|
|
|
5.86 |
|
Fourth quarter
|
|
|
8.46 |
|
|
|
7.02 |
|
On March 11, 2005 there were 2,695 holders of record of our
common stock. The closing price of our common stock was
$8.20 per share on March 11, 2005.
Dividend Policy
To date, we have not paid any cash dividends on our common
stock. The payment of cash dividends in the future is within the
discretion of our Board of Directors, and will depend upon our
earnings, capital requirements, financial condition and other
relevant factors. The Board of Directors does not intend to
declare any cash dividends in the foreseeable future, but
instead intends to retain all earnings, if any, for use in our
business operations.
|
|
Item 6. |
Selected Financial
Data |
The following selected financial data of the Company has been
derived from the financial statements of the Company, appearing
elsewhere herein (except for the statements of operations data
for the fiscal years ended December 29, 2001 and
December 30, 2000 and the balance sheet data at
December 28, 2002, December 29, 2001, and
December 30, 2000, which are not included in such financial
statements).
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended | |
|
|
| |
|
|
Jan 1, | |
|
Jan 3, | |
|
Dec 28, | |
|
Dec 29, | |
|
Dec 30, | |
|
|
2005 | |
|
2004 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except earnings per share) | |
Revenue
|
|
$ |
129,851 |
|
|
$ |
87,232 |
|
|
$ |
83,453 |
|
|
$ |
102,303 |
|
|
$ |
87,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (1)
|
|
|
87,387 |
|
|
|
51,151 |
|
|
|
54,639 |
|
|
|
64,395 |
|
|
|
46,747 |
|
|
Research and product development
|
|
|
6,460 |
|
|
|
7,061 |
|
|
|
9,303 |
|
|
|
11,719 |
|
|
|
15,897 |
|
|
Sales, marketing and customer support
|
|
|
17,675 |
|
|
|
12,272 |
|
|
|
10,767 |
|
|
|
13,311 |
|
|
|
9,856 |
|
|
General and administrative (2)
|
|
|
13,786 |
|
|
|
9,363 |
|
|
|
10,212 |
|
|
|
15,495 |
|
|
|
9,392 |
|
|
Special charges (credits) (3)
|
|
|
(392 |
) |
|
|
550 |
|
|
|
5,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
124,916 |
|
|
|
80,397 |
|
|
|
90,882 |
|
|
|
104,920 |
|
|
|
81,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations
|
|
|
4,935 |
|
|
|
6,835 |
|
|
|
(7,429 |
) |
|
|
(2,617 |
) |
|
|
5,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(605 |
) |
|
|
(376 |
) |
|
|
(872 |
) |
|
|
(1,136 |
) |
|
|
(99 |
) |
|
Other, net
|
|
|
(265 |
) |
|
|
209 |
|
|
|
21 |
|
|
|
(63 |
) |
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(870 |
) |
|
|
(167 |
) |
|
|
(851 |
) |
|
|
(1,199 |
) |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Continuing Operations Before Income
Taxes
|
|
|
4,065 |
|
|
|
6,668 |
|
|
|
(8,280 |
) |
|
|
(3,816 |
) |
|
|
5,450 |
|
Provision for Income Taxes
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Continuing Operations
|
|
|
3,865 |
|
|
|
6,668 |
|
|
|
(8,280 |
) |
|
|
(3,816 |
) |
|
|
5,300 |
|
Discontinued Operations: (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
1,429 |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Discontinued Operations
|
|
|
|
|
|
|
1,429 |
|
|
|
|
|
|
|
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
|
$ |
(3,816 |
) |
|
$ |
5,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
|
$ |
0.16 |
|
|
From discontinued operations
|
|
$ |
0.00 |
|
|
$ |
0.04 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Basic
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
|
$ |
0.15 |
|
|
From discontinued operations
|
|
$ |
0.00 |
|
|
$ |
0.04 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Diluted
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Basic
|
|
|
34,558 |
|
|
|
34,167 |
|
|
|
34,124 |
|
|
|
34,096 |
|
|
|
32,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Diluted
|
|
|
35,357 |
|
|
|
34,400 |
|
|
|
34,124 |
|
|
|
34,096 |
|
|
|
35,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan 1, | |
|
Jan 3, | |
|
Dec 28, | |
|
Dec 29, | |
|
Dec 30, | |
Balance Sheet Data as of: |
|
2005 | |
|
2004 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Working capital
|
|
$ |
40,997 |
|
|
$ |
42,512 |
|
|
$ |
28,572 |
|
|
$ |
26,741 |
|
|
$ |
32,287 |
|
Total assets
|
|
|
171,318 |
|
|
|
106,528 |
|
|
|
101,796 |
|
|
|
106,844 |
|
|
|
115,902 |
|
Total borrowings
|
|
|
41,822 |
|
|
|
14,464 |
|
|
|
16,707 |
|
|
|
16,398 |
|
|
|
18,470 |
|
Stockholders equity
|
|
|
89,402 |
|
|
|
80,183 |
|
|
|
71,766 |
|
|
|
79,985 |
|
|
|
83,143 |
|
|
|
(1) |
Included in 2002 was $3.7 million in cost of sales for
inventory write-downs and other charges related to discontinued
programs. |
|
(2) |
Includes a $2.1 million write-off recorded in fiscal 2001
for pre-payments made as a result of a suppliers
bankruptcy petition in 2002. |
|
(3) |
Special charges (credits) relates to repositioning activities
and workforce reductions recorded in June 2002 and in May 2003. |
|
(4) |
Relates to the operations of Delta V Technologies, Inc.,
which were shutdown in fiscal 1999. See Note 2 to the
companys consolidated financial statements appearing
elsewhere herein. |
17
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations
The following Managements Discussion and Analysis should
be read in connection with Item 1. Business,
Item 6. Selected Financial Data,
Item 7A. Quantitative and Qualitative Disclosures
about Market Risks, the Companys Consolidated
Financial Statements and Notes thereto and the information
described under the caption Risk Factors below.
Overview
Presstek is a market focused high-technology company primarily
engaged in the manufacture and delivery of digital imaging
solutions to the graphic arts and printing industries worldwide.
We are a leader in the development of digital imaging capital
equipment and consumables-based solutions that are economically
beneficial to the user through a streamlined workflow and
chemistry free, environmentally responsible operation.
Through our various operations, we:
|
|
|
|
|
Develop and manufacture products that transfer digital images
onto our proprietary chemistry-free printing plates, or
consumables, using digital laser imaging equipment, targeting
primarily the small and medium sized commercial print providers; |
|
|
|
Are a leading sales and services company delivering Presstek
solutions and those from other manufacturing partners through
our ABD International business unit, known as ABDick; |
|
|
|
Manufacture semiconductor solid state laser diodes for Presstek
imaging applications and for use by external defense, industrial
and medical applications; and |
|
|
|
Manufacture and distribute both chemistry-free, digitally imaged
printing plates, and printing plates for conventional print
applications at our Precision Lithograining business segment. |
We have developed a proprietary system by which digital images
are transferred onto printing plates for Direct Imaging on press
applications and for computer-to-plate applications. We refer to
Direct Imaging as DI and computer-to-plate as CTP. Our digital
imaging systems enable customers to produce high-quality, full
color lithographic printed materials more quickly and cost
effectively than conventional methods that employ more
complicated workflows and toxic chemical processing. This
results in reduced printing cycle time and lowers the effective
cost of production for commercial printers. Our solutions make
it more cost effective for printers to meet the increasing
demand for shorter print runs, higher quality color and faster
turn-around times.
Our ground breaking DI technology is marketed to leading press
manufacturers. Our Presstek business segment supplies these
manufacturers with imaging kits complete with optical assemblies
and software which are integrated into the manufacturers
presses. The result is a DI press, which is designed to image
our printing plates. Similar digital imaging technologies are
used in our CTP systems. Our Presstek business segment designs
and manufactures CTP systems that incorporate our imaging
technology and image our chemistry free printing plates.
Lasertel, Inc., a subsidiary of Presstek, is primarily engaged
in the manufacture and development of high-powered laser diodes
for Presstek and for sale to external customers. Lasertels
products include semiconductor lasers and active components for
the graphics, defense, industrial, and medical industries.
Lasertel offers high-powered laser diodes in both standard and
customized configurations, including chip on sub-mount,
un-mounted bars, and fiber-coupled devices, to support various
applications.
On July 30, 2004, we acquired all the stock of Precision
Lithograining Corporation, an independent plate manufacturer and
its affiliated company SDK Realty Corp., located in South
Hadley, Massachusetts, for approximately $12.2 million in
cash. Precision manufactures our Anthem and Freedom digital
printing plates, and is also a provider of other conventional
analog and digital printing plates for both web and sheet-fed
printing applications to other external customers.
In November 2004, we completed the acquisition of certain assets
and the assumption of certain liabilities of The ABDick Company,
through our wholly owned subsidiary, ABD International, Inc.,
for approximately $43.2 million. ABDick manufactures and
markets offset systems and digital platemaking systems and
related
18
supplies for the graphic arts and printing industries. As a
result of the acquisition of ABDick, management is currently
finalizing plans to streamline and integrate the operations of
ABDick with its current operations. The restructuring plan is
expected to be substantially complete by June 2005. Total costs,
primarily for severance and lease commitments, are expected to
be approximately $1.5 million. Although the Company
believes its estimated exit costs to be reasonable, actual
spending for exit activities may differ from current estimated
exit costs, which may impact the financial aggregate purchase
price. In addition, the Company may incur certain direct
acquisition costs subsequent to January 1, 2005, which will
increase the total amount of direct acquisition costs included
in the aggregate purchase price.
We operate in four reportable segments, (i) the Presstek
segment, (ii) the Lasertel segment, (iii) the
Precision segment, and (iv) the ABDick segment.
|
|
|
|
|
The Presstek segment is primarily engaged in the development,
manufacture and sale of our patented digital imaging systems and
printing plate technologies for direct-to-press, or on-press,
applications and CTP, or off-press, applications. |
|
|
|
The Lasertel segment is primarily engaged in the development and
manufacture of high-powered laser diodes for use by Presstek and
for sale to external customers. |
|
|
|
The Precision segment is primarily engaged in the manufacture
and sale of our patented digital plates for development, as well
as digital and analog plates for other customers. |
|
|
|
The ABDick segment is primarily engaged in the manufacturing,
marketing, distribution and sale of offset analog and digital
platemaking equipment, consumables and related services for the
graphic arts and printing industries. |
We generate revenue through four main sources: (i) the sale
of our equipment, including DI presses, CTP devices, and imaging
kits incorporated by leading press manufacturers into direct
imaging presses for the graphic arts industry; (ii) the
sale of high-powered laser diodes for the industrial and defense
industries; (iii) the sale of our proprietary and
non-proprietary consumables and supplies; and (iv) the
servicing of offset printing systems and analog and digital
platemaking systems. Our business strategy is centered on
maximizing the sale of consumable products, and therefore our
business efforts focus on the sale of consumable burning
engines such as our DI presses and CTP devices. We rely on
partnerships with press manufacturers such as Ryobi, Heidelberg
and Koenig & Banner AG, or KBA to manufacture presses that
use our proprietary consumables. We also rely on distribution
partners, such as Kodak Polychrome Graphic, or KPG, to sell and
distribute press and CTP systems and the related proprietary
consumable products.
Historically we have been reliant on our customer and strategic
partner Heidelberger Druckmaschinen AG (Heidelberg)
for a material share of our revenue. In fiscal 2002, we
initiated a process to evaluate our resources and strategically
re-focus the business. During this re-alignment, we decided to
reposition and rescale our resources, and implemented cost
savings programs in fiscal 2002 and 2003 to return to
profitability. We expanded our strategic relationships with
other press manufacturers and distributors such as Ryobi, KBA,
and KPG to develop and distribute presses that incorporate our
imaging technology and use our proprietary consumables, so as to
lessen our reliance on any one partner. Prior to the acquisition
of the business of the A.B. Dick Company we established a
relationship with the company to sell Presstek CTP devices and
consumables under their brand name. We are working with other
CTP manufacturers to qualify our consumables on their systems.
We believe this shift in strategy fundamentally enhances
Pressteks ability to expand and control its business.
Our revenue for fiscal 2004 increased to $129.9 million, up
by $42.7 million or 49% compared to $87.2 million in
fiscal 2003. This increase was due to growth in Pressteks
core business of $9.9 million and the addition of revenue
from two acquisitions of $32.8 million in the second half
of 2004 which significantly contributed to fiscal 2004 revenues.
We operate and report on a 52- or 53-week fiscal year, ending on
the Saturday closest to December 31. Accordingly, the financial
statements include the 52-week fiscal year ended January 1,
2005 (fiscal 2004), 53-week fiscal year ended
January 3, 2004 (fiscal 2003), and the 52-week
fiscal year ended December 28, 2002 (fiscal
2002).
19
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items
as a percentage of total revenue, and the percentage change in
dollar amounts of such items compared with the corresponding
period in the previous fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of | |
|
|
|
|
Total Revenue | |
|
Period-to-Period Change | |
|
|
| |
|
| |
|
|
|
|
2004 | |
|
2003 | |
|
|
Jan 1, | |
|
Jan 3, | |
|
Dec 28, | |
|
Compared | |
|
Compared | |
For the Fiscal Years Ended |
|
2005 | |
|
2004 | |
|
2002 | |
|
To 2003 | |
|
To 2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
49 |
% |
|
|
5 |
% |
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
67 |
|
|
|
59 |
|
|
|
65 |
|
|
|
71 |
|
|
|
(6 |
) |
|
Research and product development
|
|
|
5 |
|
|
|
8 |
|
|
|
11 |
|
|
|
(9 |
) |
|
|
(24 |
) |
|
Sales, marketing and customer support
|
|
|
14 |
|
|
|
14 |
|
|
|
13 |
|
|
|
44 |
|
|
|
14 |
|
|
General and administrative
|
|
|
11 |
|
|
|
11 |
|
|
|
12 |
|
|
|
47 |
|
|
|
(8 |
) |
|
Special charges
|
|
|
(1 |
) |
|
|
1 |
|
|
|
7 |
|
|
|
(71 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
96 |
|
|
|
92 |
|
|
|
109 |
|
|
|
55 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations
|
|
|
4 |
|
|
|
8 |
|
|
|
(9 |
) |
|
|
(28 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
|
(1 |
) |
|
|
* |
|
|
|
(1 |
) |
|
|
(61 |
) |
|
|
(57 |
) |
|
Other, net
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(1 |
) |
|
|
* |
|
|
|
(1 |
) |
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Continuing Operations Before Income
Taxes
|
|
|
3 |
|
|
|
8 |
|
|
|
(10 |
) |
|
|
(39 |
) |
|
|
181 |
|
Provision for Income Taxes
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Continuing Operations
|
|
|
3 |
|
|
|
8 |
|
|
|
(10 |
) |
|
|
(42 |
) |
|
|
181 |
|
|
Income (loss) from discontinued Operations
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Discontinued Operations
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
3 |
|
|
|
9 |
|
|
|
(10 |
) |
|
|
(52 |
)) |
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004 versus Fiscal
2003 |
Revenue for fiscal 2004 of $129.9 million consisted of
product sales, service revenue, royalties and license fees.
Revenue for fiscal 2004 increased $42.7 million or 49%,
compared with $87.2 million for fiscal 2003. This revenue
increase resulted from growth in Pressteks core business
of $9.9 million and the addition in 2004 of two new
segments, Precision and ABDick. Revenue since the acquisition
dates from Precision (July 30, 2004) and ABDick
(November 5, 2004) was $32.8 million.
Product sales for equipment and spare parts were
$41.3 million for fiscal 2004, an increase of
$10.5 million or 34%, as compared to $30.8 million for
fiscal 2003. This increase in product sales was due primarily to
increased press sales of $6.0 million and the inclusion of
$6.7 million in equipment sales from the ABDick segment.
These increases were partially offset by volume decreases of
$2.0 million in imaging kits sold to our press
manufacturing partners.
Revenue generated from the sale of consumable products was
$75.0 million for fiscal 2004, an increase of
$23.2 million or 45%, as compared to $51.8 million for
fiscal 2003. This increase in revenue from consumables is
primarily the result of the addition of $19.4 million in
consumable sales from our two new business segments,
20
Precision and ABDick as well as an increase in sales of
$13.7 million for Anthem and DI consumables used on the
KPG, Ryobi and Karat presses as a result of the increase in the
installed base of equipment using these consumables. Partially
offsetting this increase was a volume decrease of
$4.7 million for consumables used on the Quickmaster DI,
primarily as a result of the availability of competitive
products.
Revenue generated from services, including installation and
service contract revenue, was $13.1 million or 10% of
revenue for fiscal 2004, an increase of $8.7 million, as
compared to $4.4 million or 5% of revenue for fiscal 2003.
This increase is due primarily to service maintenance agreements
associated with the ABDick segment of $6.6 million and a
increase of $2.0 million in installation and service
maintenance agreements related to the Presstek Segment.
Royalties and license fees for fiscal 2004 were
$0.5 million, a decrease of $2.2 million or 81%,
compared with royalties and license fees of $2.7 million in
fiscal 2003, primarily as a result of the termination of the
Xerox distribution agreement in 2003 which represented
$1.7 million in license fees for fiscal 2003 and a decrease
of $.6 million in royalties earned on the Quickmaster DI.
Heidelberg has indicated, that it has a sufficient inventory of
direct imaging kits on hand to support its current production
requirements. We do not believe that orders from Heidelberg for
direct imaging kits will resume during fiscal 2005.
Revenue for the Presstek segment was $94.3 million for
fiscal 2004, an increase of $8.8 million or 10%, as
compared to $85.5 million for fiscal 2003. This increase
results primarily from volume increases of $5.1 million in
equipment sales and $3.8 million in consumable sales, a
increase of $2.0 million in service revenue and offset
partially by a decrease of $2.1 million in royalties and
license fees.
Revenue for the Lasertel segment was $2.9 million for
fiscal 2004, an increase of $1.2 million or 71%, as
compared to $1.7 million for fiscal 2003 and primarily
related to the sale of products for defense industry
applications.
Revenue for the Precision segment was $8.4 million for
fiscal 2004, which consists entirely of consumable sales and
includes both analog and digital plates. This revenue reflects
the results of Precision since the date of acquisition on
July 30, 2004.
Revenue for the ABDick segment was $24.3 million for fiscal
2004, which consists of $6.7 million in equipment sales,
$11.0 million in consumable sales and $6.6 million in
service revenue. This revenue reflects the results of ABDick
since the date of acquisition on November 5, 2004.
Revenue for the Presstek segment included:
|
|
|
|
|
Revenue generated under the Companys agreements with
Pitman Company and its distributors was $14.8 million for
fiscal 2004, an decrease of $0.3 million or 2%, as compared
to $15.1 million for fiscal 2003. Revenue from Pitman
represented 11% and 17% of total revenue for fiscal 2004 and
2003, respectively. |
|
|
|
Revenue generated under the Companys agreements with
Heidelberg and its distributors was $12.5 million for
fiscal 2004, a decrease of $5.8 million or 32%, as compared
to $18.3 million for fiscal 2003. Revenue from Heidelberg
represented 9% and 21% of total revenue for fiscal 2004 and
2003, respectively. |
|
|
|
Revenue generated under the Companys agreements with KBA
and its distributors was $7.6 million for fiscal 2004, an
decrease of $1.4 million or 16%, as compared to
$9.0 million for fiscal 2003. Revenue from KBA represented
6% and 10% of total revenue for both fiscal 2004 and 2003,
respectively. This decrease is primarily the result of decreased
press sales to KBA. |
|
|
|
Revenue generated under the Companys agreements with KPG
was $13.6 million for fiscal 2004, an increase of
$9.9 million or 268%, as compared to $3.7 million for
fiscal 2003. Revenue from KPG represented 10% and 4% of total
revenue for fiscal 2004 and 2003, respectively. |
In July 2003, we entered into OEM consumable supply agreements
with Heidelberg and Heidelberg USA that provide us with certain
preferred supplier rights, which vary based on territory, time
period and sales volume. Under the terms of the OEM agreements,
which include minimum volume commitments from Heidelberg and
Heidelberg USA, we will manufacture and supply Heidelberg
branded consumable plate products for the
21
Heidelberg Quickmaster DI press. Shipments to Heidelberg of the
branded consumable product began in August 2003. The OEM
consumables supply agreement between Presstek and Heidelberg USA
is scheduled to terminate on or about May 15, 2005.
Cost of product revenue for fiscal 2004 of $78.3 million
consists of the costs of material, labor and overhead, shipping
and handling costs and warranty expenses. Cost of product
revenue for fiscal 2004 increased $30.1 million or 62%,
compared with $48.2 million in fiscal 2003. Gross margin as
a percentage of product revenue was 33% for fiscal 2004,
compared with 40% for fiscal 2003. The decrease in gross margin
in 2004 is primarily the result of the two new business
segments, Precision and ABDick both of which traditionally have
lower gross margins than Pressteks core business.
Cost of product revenue for the Presstek segment was
$52.0 million or 60% of product revenue for fiscal 2004, an
increase of $6.7 million or 15% as compared to
$45.3 million or 58% of product revenue for fiscal 2003.
These increase relate primarily to the increase in product costs
driven by increased product sales.
Gross margin as a percentage of total product revenue for the
Presstek segment was 40% for fiscal 2004, as compared to 42% for
fiscal 2003. The gross margin decrease for fiscal 2004 was
primarily the result of product mix changes, as equipment
margins are generally lower than historical average margins,
price reductions in our CTP Dimension equipment, and to a lesser
extent, the reduction in sales of direct imaging systems to
Heidelberg for use in Quickmaster DI as well as increased
facilities and distribution costs of $1.2 million. In
fiscal 2004 and 2003, we recorded net warranty costs of
$1.1 million and $1.2 million, respectively, primarily
related to the Dimension platesetter product.
Cost of product revenue for the Lasertel segment was
$4.1 million for fiscal 2004, an increase of
$1.1 million or 37%, as compared to $3.0 million for
fiscal 2003. The increase in manufacturing costs was primarily
the result of increased volume associated with the production of
laser diodes for both Presstek and external customers. As the
Lasertel factory is operating at approximately 30% of capacity,
the unabsorbed manufacturing overhead and total manufacturing
costs associated with the production of these diodes is higher
than the associated revenue. Lasertel margins would be expected
to improve if more production overhead is absorbed by higher
sales volume, either to Presstek or external customers.
Cost of product revenue for the Precision segment was
$8.2 million for fiscal 2004, and included
$1.0 million in charges related to capacity and a quality
improvement program implemented in the fourth quarter of fiscal
2004. This amount reflects costs incurred since the date of
acquisition on July 30, 2004.
Cost of product revenue for the ABDick segment was
$14.0 million for fiscal 2004. The gross margin as a
percentage of product revenue for the ABDick segment was 21% for
fiscal 2004. This amount reflects costs incurred since the date
of acquisition on November 5, 2004.
Cost of service revenue for fiscal 2004 of $9.1 million
consists of the costs of spare parts, labor and overhead
associated with the on going service of products. Cost of
service revenue for fiscal 2004 increased $6.2 million or
214%, compared with $2.9 million in fiscal 2003.
Cost of service revenue for the Presstek segment was
$4.3 million or 67% of service revenue for fiscal 2004, an
increase of $1.4 million or 48% as compared to
$2.9 million or 67% of service revenue for fiscal 2003.
This increase relates primarily to the increase in service costs
driven by service revenue.
Cost of service revenue for the ABDick segment was
$4.8 million for fiscal 2004. The gross margin as a
percentage of service revenue for the ABDick segment was 27% for
fiscal 2004. This amount reflects costs incurred period since
the acquisition on November 5, 2004.
22
|
|
|
Research and Product Development |
Research and product development expenses for fiscal 2004 of
$6.5 million consisted primarily of payroll and related
expenses for personnel, parts and supplies, and contracted
services required to conduct our equipment, consumables and
high-powered laser diode product development efforts. Research
and product development expenses for fiscal 2004 decreased
$0.6 million or 9% as compared to $7.1 million for
fiscal 2003.
Research and product development expenses for the Presstek
segment were $5.4 million or 6% of Presstek revenue, a
decrease of $0.9 million, as compared to $6.3 million
or 7% of revenue for fiscal 2003. This decrease related
primarily to a reduced expenses for salaries and benefits
totaling approximately $402,000 as a result of headcount
reductions in the third quarter of 2003, as well as reduced
development costs of approximately $571,000 related to
finalizing the development of our Pro Fire Excel product, offset
partially by an increase of $223,000 in parts and supplies and
professional and contractor services.
Research and product development expenses for the Lasertel
segment were $557,000 for fiscal 2004, a decrease of $244,000,
as compared to $801,000 for fiscal 2003. This decrease relates
primarily to reduced expenditures in salaries and benefits
totaling $90,000, parts and supplies totaling $90,000, and
professional and contractor services totaling $48,000.
Research and product development expenses for the Precision
segment were $249,000 for fiscal 2004. This amount reflects
those costs incurred since the acquisition on July 30, 2004.
Research and product development expenses for the ABDick segment
were $ 279,000 for fiscal 2004. This amount reflects those costs
incurred since the acquisition on November 5, 2004.
|
|
|
Sales, Marketing and Customer Support |
Sales, marketing and customer support expenses for fiscal 2004
of $17.7 million consisted primarily of payroll and related
expenses for personnel, advertising, trade shows, promotional
expenses, and travel costs related to our sales, marketing and
customer support activities. Sales, marketing and customer
support expenses for fiscal 2004 increased by $5.4 million
or 44% as compared to $12.3 million for fiscal 2003. This
increase was primarily due to the addition of $4.0 million
in costs for 2004 related to two new business segments,
Precision and ABDick in fiscal 2004.
Sales, marketing and customer support expenses for the Presstek
segment were $13.1 million or 14% of Presstek revenue for
fiscal 2004, an increase of $1.2 million, as compared to
$11.9 million, or 14% of fiscal 2003 revenue. This increase
is primarily the result of an increase in salaries and related
benefits of approximately $605,000 as a result of an increase in
headcount, as well as professional fees of $422,000 associated
with promotional activities directed at product distribution,
and increased travel and related expenses of $150,000 for
customer support activities.
Sales, marketing and customer support expenses for the Lasertel
segment were $438,000 for fiscal 2004, an increase of $76,000 as
compared to $362,000 for fiscal 2003. This increase relates
primarily to increased salaries and related benefits of
approximately $26,000 and increased travel and trade show
expenses of $60,000 related to marketing and promotional
activities.
Sales, marketing and customer support expenses for the Precision
segment were $202,000 for fiscal 2004. This amount reflects
costs incurred since the acquisition on July 30, 2004.
Sales, marketing and customer support expenses for the ABDick
segment were $3.9 million for fiscal 2004. This amount
reflects costs incurred since the acquisition on
November 5, 2005.
|
|
|
General and Administrative |
General and administrative expenses for fiscal 2004 of
$13.8 million consisted primarily of payroll and related
expenses for personnel, and contracted professional services
necessary to conduct our finance, information systems, human
resources, and administrative activities. General and
administrative expenses for fiscal 2004 increased by
$4.4 million or 47% as compared to $9.4 million for
fiscal 2003. This increase was primarily due to the addition of
$2.9 million in costs for fiscal 2004 related to two new
business segments, Precision and ABDick.
23
General and administrative expenses for the Presstek segment
were $10.0 million or 11% of Presstek revenue for fiscal
2004, a increase of $1.6 million, as compared to
$8.4 million or 10% of revenue for fiscal 2003. This
increase relates primarily to increased legal fees of $500,000
related to the favorable outcome of a shareholder lawsuit and
$600,000 in expenses related to compliance with Sarbanes-Oxley
Section 404 requirements.
General and administrative expenses for the Lasertel segment
were $908,000 for fiscal 2004, a decrease of $72,000, as
compared to $980,000 for fiscal 2003. This decrease relates
primarily to the reduction of depreciation and amortization
expense of $117,000 associated with fully depreciated
information technology equipment, offset partially by higher
professional fees of $25,000.
General and administrative expenses for the Precision segment
were $333,000 for fiscal 2004. This amount reflects costs
incurred since the acquisition on July 30, 2004.
General and administrative expenses for the ABDick segment were
$2.6 million for fiscal 2004, which includes acquisition
related charges totaling approximately $1.0 million. The
remaining $1.6 million in expenses reflect those incurred
since the date of acquisition.
|
|
|
Special Charges and Discontinued Programs |
In the second quarter of fiscal 2002, Presstek initiated a
process to evaluate its resources and strategically re-focus the
business. During this process, we evaluated all aspects of the
business, and concluded to reposition and rescale our resources.
As part of this exercise, we initiated various repositioning
actions during the second quarter of fiscal 2002. These actions
included the following: (i) creation of market-focused
Direct Imaging and Computer-to-Plate product lines;
(ii) creation of a new senior management organization;
(iii) discontinuation of certain programs; and
(iv) consolidation of our Hampshire Drive research and
development facility into the main Executive Drive facility in
Hudson, New Hampshire.
In the second quarter of fiscal 2003, we recorded special
charges of $550,000 related to severance and fringe benefit
costs associated with the reduction of approximately 43
employees, primarily in manufacturing, research and development
and administration in April 2003, of which $471,000 was recorded
by the Presstek segment and $79,000 by the Lasertel segment. In
2004, the Company reversed $392,000 related to severance accrued
in fiscal 2003 and 2002.
We paid $2.7 million in fiscal 2003 as a result of the
forgoing repositioning actions, and anticipate the remaining
payments related to the discontinued programs and special
charges will be completed by May 2005.
|
|
|
Other Income (Expense), net |
Other income (expense), net consists primarily of expense
related to interest rate swap contracts and for foreign currency
transactions related to our accounts receivable balance. Other
expense, net was $265,000 for fiscal 2004, an increase of
$474,000 as compared to $209,000 in other income, net for fiscal
2003.
Interest income was $318,000 for fiscal 2004, a decrease of
$13,000 as compared to $331,000 for fiscal 2003, primarily as a
result of decreased cash balances available for investment.
Interest expense was $923,000 for fiscal 2004, an increase of
$216,000 as compared to $707,000 for fiscal 2003, primarily as a
result of higher average debt balances attributable to the two
acquisitions and higher interest rates on borrowings.
|
|
|
Provision for Income Taxes |
We recorded a provision for federal and state income taxes in
fiscal 2004 of $200,000 using an effective tax rate of 5%. The
rate differs from the statutory rate primarily due to the
partial reversal of the valuation allowance related to net
operating loss carryovers. The increase in the provision relates
to the recognition of non-cash deferred tax liability for
goodwill, foreign taxes and alternative minimum taxes. We did
not record a provision for federal or state income taxes in
fiscal 2003, due to net operating loss carryforwards used in the
period.
24
|
|
|
Income (Loss) from Continuing Operations |
As a result of the foregoing, we had income from continuing
operations of $4.0 million for fiscal 2004, as compared to
a income from continuing operations of $6.7 million for
fiscal 2003.
|
|
|
Fiscal 2003 versus Fiscal
2002 |
Revenue for fiscal 2003 of $87.2 million consisted of
product sales, service revenue, royalties and license fees.
Revenue for fiscal 2003 increased $3.8 million or 5% as
compared to $83.5 million for fiscal 2002.
Product sales for the Presstek segment, including equipment and
consumables, were $78.4 million for fiscal 2003, an
increase of $2.6 million or 3%, as compared to
$75.8 million for fiscal 2002. This increase in product
sales was due primarily to volume increases of $3.2 million
in our CTP Dimension products and press products. These
increases were partially offset by volume decreases of direct
imaging kits sold to Heidelberg for use in the Quickmaster DI
and decreased press shipments to Xerox, as well as volume
decreases in the sale of our consumable products.
The revenue generated from the sale of consumable products was
$51.8 million for fiscal 2003, a decrease of
$1.4 million or 3%, as compared to $53.2 million for
fiscal 2002. This decrease in revenue from consumables was
primarily the result of volume decreases of our Quickmaster DI
consumables, as well as price reductions on sales of these
consumables through select dealers in our European distribution
channel. Consumable product revenue included sales under the
Companys agreements with Heidelberg and its distributors
of $15.7 million and $21.8 million for fiscal 2003 and
2002, respectively.
Revenue generated from services related to customer support,
including installation and service contract revenue, was
$4.4 million or 5% of revenue for fiscal 2003, an increase
of $1.2 million, as compared to $3.2 million or 4% of
revenue for fiscal 2002. This increase was due primarily to an
increase in the sale of service maintenance agreements related
to our CTP Dimension products.
Royalties and license fees for fiscal 2003 were
$2.7 million, a decrease of $1.8 million or 40%, as
compared to royalties and license fees of $4.5 million for
fiscal 2002, primarily as a result of decreased shipments to
Heidelberg of direct imaging kits used in the Quickmaster DI.
Heidelberg has indicated, that as a result of the global
economic slowdown, it had a sufficient inventory of direct
imaging kits on hand to support its production requirements. We
currently have no orders from Heidelberg for direct imaging kits
used in the Quickmaster DI.
Revenue generated under the Companys agreements with
Heidelberg and its distributors was $18.3 million for
fiscal 2003, a decrease of $11.9 million or 39%, as
compared to $30.2 million for fiscal 2002. Revenue from
Heidelberg represented 21% and 36% of total revenue for fiscal
2003 and 2002, respectively.
Revenue generated under the Companys agreements with KBA
and its distributors was $9.0 million for fiscal 2003, an
increase of $5.6 million or 165%, as compared to
$3.4 million for fiscal 2002. Revenue from KBA represented
10% and 4% of total revenue for fiscal 2003 and 2002,
respectively. These increases were primarily the result of
increased press sales to KBA.
In July 2003, we entered into OEM consumable supply agreements
with Heidelberg and Heidelberg USA that provide us with certain
preferred supplier rights, which vary based on territory, time
period and sales volume. Under the terms of the OEM agreements,
which include minimum volume commitments from Heidelberg and
Heidelberg USA, we manufacture and supply Heidelberg branded
consumable plate products for the Heidelberg Quickmaster DI
press. Shipments to Heidelberg of the branded consumable product
began in August 2003.
In March 2003, we expanded the product offerings to select
dealers in our European distribution channel to include the sale
of Quickmaster DI consumables. In connection with this offering,
we reduced pricing on our full line of spooled consumables
distributed through this distribution channel by up to 20%.
While the expected lost revenue resulting from the price
reduction may be offset by increased revenue from increased
volume of spooled consumable sales derived from additional
presses installed and increased usage of spooled consumables,
there can be no assurance that this expected lost revenue will
be offset. In addition, market conditions may require us to
25
expand the regions in which we offer reduced prices, or to
further reduce our spooled consumable prices, which could
further reduce our revenues in 2005 and beyond. This could have
a material adverse effect on our business, results of operations
and financial position.
In March 2003, we terminated our supply and distribution
agreement with Xerox for DocuColor DI presses. Xerox will no
longer sell the DocuColor 233 DI-4, the DocuColor 400 DI-4 and
the DocuColor 400 DI-5 presses and related consumables. The
revenue generated from the sale of these presses was not
material in fiscal 2003 or fiscal 2002, and as a result, the
termination of this agreement has not had, and is not expected
to have a material adverse effect on our business, results of
operations and financial condition.
Revenue for the Lasertel segment was $1.7 million for
fiscal 2003, and primarily related to the sale of products for
defense industry applications. Product sales to external
customers for fiscal 2002 were not material.
Cost of product revenue consists of the costs of material, labor
and overhead, shipping and handling costs and warranty expenses.
Cost of products revenue for the Presstek segment was
$45.3 million or 58% of Presstek product revenue for fiscal
2003, a decrease of $1.7 million or 4% as compared to
$47.0 million or 62% of Presstek product revenue for fiscal
2002. Included in cost of products revenue for the Presstek
segment for fiscal 2002 was a charge of $3.0 million,
$2.0 million for inventory write-downs and
$1.0 million for other charges associated with discontinued
programs recorded in fiscal 2002 as part of the 2002
restructuring.
Gross margin as a percentage of product revenue for the Presstek
segment was 42% for fiscal 2003, as compared to 38% for fiscal
2002. The gross margin increase for fiscal 2003 was primarily
the result of a decrease in inventory write-downs and other
charges associated with discontinued programs, and reduced
warranty costs. In fiscal 2003 and 2002, we recorded net
warranty costs of $1.2 million and $1.9 million,
respectively, primarily related to the Dimension platesetter
product. Also in fiscal 2002, gross margin was unfavorably
impacted by the charge related to inventory write-downs and
other charges for discontinued programs noted above.
Cost of product revenue for the Lasertel segment was
$3.0 million for fiscal 2003, a decrease of
$2.8 million or 48%, as compared to $5.8 million for
fiscal 2002. The decrease in manufacturing costs of
$2.2 million was primarily the result of yield improvements
in 2003, as well as a reduction in inventory write-downs for
discontinued programs as a result of a $688,000 charge recorded
in the second quarter of fiscal 2002.
Cost of service revenue for fiscal 2003 of $2.9 million
consists of the costs of spare parts, material, labor and
overhead. Cost of service revenue for fiscal 2003 increased
$1.0 million or 53%, compared with $1.9 million in
fiscal 2002 for the Presstek segment. These increases relate
primarily to the increase in service costs driven by service
revenue.
|
|
|
Research and Product Development |
Research and product development expenses consist primarily of
payroll and related expenses for personnel, parts and supplies,
and contracted services required to conduct our equipment,
consumables and high-powered laser diode product development
efforts.
Research and product development expenses for the Presstek
segment were $6.3 million or 7% of revenue for fiscal 2003,
a decrease of $2.8 million, as compared to
$9.1 million or 11% of revenue for fiscal 2002. This
decrease related primarily to a reduction in the number of
development programs which resulted in reduced expenditures in
salaries and benefits of $2.2 million, parts and supplies
of $585,000, and professional and contractor services of
$127,000. Pressteks product development cycle centers
around major industry trade shows, and as a result, our research
and product development expenses vary in accordance with our
product development cycle.
Research and product development expenses for the Lasertel
segment were $801,000 for fiscal 2003, an increase of $591,000,
as compared to $210,000 for fiscal 2002. This increase related
primarily to additional
26
research and product development activities undertaken in the
industrial markets which resulted in increased expenditures in
salaries and benefits of $227,000 and increased parts and
supplies of $260,000.
|
|
|
Sales, Marketing and Customer Support |
Sales, marketing and customer support expenses consist primarily
of payroll and related expenses for personnel, advertising,
trade shows and other promotional expenses, and travel costs
related to our sales, marketing and customer support activities.
Sales, marketing and customer support expenses for the Presstek
segment were $11.9 million or 14% of Presstek revenue for
fiscal 2003, an increase of $1.3 million, as compared to
$10.6 million, or 13% of fiscal 2002 revenue. This increase
was primarily the result of an increase of $1.1 million in
salaries and related benefits, as well as professional fees
increase of $365,000 associated with promotional activities
directed at product distribution, offset in part by reduced
travel and related expenses for customer support activities.
Sales and marketing expenses for the Lasertel segment were
$362,000 for fiscal 2003, an increase of $153,000 as compared to
$209,000 for fiscal 2002. This increase related primarily to
increased professional services of $51,000 for marketing and
promotional activities, as well as increased travel and trade
show expenses of $87,000.
|
|
|
General and Administrative |
General and administrative expenses consist primarily of payroll
and related expenses for personnel, and contracted professional
services necessary to conduct our finance, information systems,
human resources, and administrative activities.
General and administrative expenses for the Presstek segment
were $8.4 million or 10% of revenue for fiscal 2003, a
decrease of $466,000, as compared to $8.8 million or 11% of
revenue for fiscal 2002. This decrease related primarily to
decreased legal fees of $386,000 as a result of the resolution
of patent litigation with Creo Products, Inc., as well as
decreases in salaries and benefits of $214,000 as a result of a
decrease in head count in the second quarter of fiscal 2003.
General and administrative expenses for the Lasertel segment
were $980,000 for fiscal 2003, a decrease of $382,000, as
compared to $1.4 million for fiscal 2002. This decrease
related primarily to the reduction of professional services and
fees.
|
|
|
Special Charges and Discontinued Programs |
In the second quarter of fiscal 2002, Presstek initiated a
process to evaluate its resources and strategically re-focus the
business. During this process, we evaluated all aspects of the
business, and concluded to reposition and rescale our resources.
As part of this exercise, we initiated various repositioning
actions during the second quarter of fiscal 2002. These actions
included the following: (i) creation of market-focused
Direct Imaging and Computer-to-Plate product lines;
(ii) creation of a new senior management organization;
(iii) discontinuance of certain programs; and
(iv) consolidation of our Hampshire Drive research and
development facility into the main Executive Drive facility in
Hudson, New Hampshire.
As a result of these actions, we recorded a charge of
$3.7 million to cost of products revenue in fiscal 2002.
This included $2.7 million for inventory write-downs and
$1.0 million for other charges related to discontinued
programs, $3.0 million of which was recorded by the
Presstek segment, and $688,000 by the Lasertel segment.
In addition, the Presstek segment recorded special charges of
$6.0 million in fiscal 2002. The special charges included
$850,000 related to severance and fringe benefit costs
associated with the reduction of approximately
50 employees, primarily in manufacturing and research and
development, $1.9 million related to the write-down of
equipment and lease termination costs as a result of the
Hampshire Drive consolidation, $1.6 million related
primarily to other asset write-downs and costs associated with
the repositioning, and $1.5 million related to executive
contractual obligations, as a result of a separation agreement
with Robert W. Hallman, former President and Chief Executive
Officer of Presstek and the resignation agreement with Richard
A. Williams, former Chief
27
Scientific Officer of Presstek. Under the terms of the
separation agreement with Mr. Hallman, effective
April 30, 2002, Presstek agreed to pay Mr. Hallman a
separation payment equal to three times his current then annual
salary, payable bi-weekly over 36 months, until May 2005.
Under the terms of the resignation agreement with
Mr. Williams, effective January 8, 2003, Presstek
agreed to pay Mr. Williams a severance payment equal to
$200,000 in 2003 and $100,000 in 2004, payable bi-weekly, until
December 2004.
In the second quarter of fiscal 2003, we recorded special
charges of $550,000 related to severance and fringe benefit
costs associated with the reduction of approximately
43 employees, primarily in manufacturing, research and
development and administration in April 2003, of which $471,000
was recorded by the Presstek segment and $79,000 by the Lasertel
segment.
We paid $2.7 million in fiscal 2003 as a result of the
forgoing repositioning actions, and anticipate the remaining
payments related to the discontinued programs and special
charges will be completed by May 2005. For more detail, see
Note 12 to the Companys financial statements
appearing elsewhere herein.
During the third quarter of fiscal 2003, we filed a joint motion
for dismissal from a lawsuit that PPG, Inc. brought against our
subsidiary Delta V Technologies, Inc., whose operations
were discontinued in fiscal 1999. As a result of the dismissal,
we reversed all previously recorded liabilities associated with
this discontinued operation in the third quarter of fiscal 2003,
resulting in income of $1.4 million from discontinued
operations in fiscal 2003.
|
|
|
Other Income (Expense), net |
Other income (expense), net consists primarily of net interest
expense, and other miscellaneous expenses. Interest expense, net
was $376,000 for fiscal 2003, a decrease of $496,000 as compared
to $872,000 for fiscal 2002.
Interest income was $331,000 for fiscal 2003, an increase of
$145,000 as compared to $186,000 for fiscal 2002, primarily as a
result of increased cash balances available for investment.
Interest expense was $707,000 for fiscal 2003, a decrease of
$351,000 as compared to $1.1 million for fiscal 2002,
primarily as a result of lower average debt balances and lower
interest rates on borrowings.
|
|
|
Provision for Income Taxes |
We did not record a provision for federal or state income taxes
in fiscal 2003, due to the utilization of net operating loss
carryforwards. We did not record a provision for federal or
state income taxes in fiscal 2002, due to net operating losses
incurred in the period.
|
|
|
Income (Loss) from Continuing Operations |
As a result of the foregoing, we had income from continuing
operations of $6.7 million for fiscal 2003, as compared to
a loss from continuing operations of $8.3 million for
fiscal 2002.
Liquidity and Capital
Resources
We finance our operating and capital investment requirements
primarily through cash flows from operations and borrowings. At
January 1, 2005, we had cash and cash equivalents of
$8.7 million and working capital of $41.0 million as
compared to cash and cash equivalents of $28.2 million and
working capital of $42.5 million at January 3, 2004.
The decrease in cash and cash equivalents of $19.5 million
for fiscal 2004 was primarily due to net cash used for the
acquisitions of Precision and ABDick of $12.2 million and
$43.2 million, respectively, partially offset by net cash
provided by operating activities of $6.0 million,
additional net borrowings of $27.0 million, and other
financing activities of $5.2 million.
During 2004, we generated cash from operating activities of
$6.0 million for the fiscal year ended January 1, 2005
as compared to $13.9 million for the fiscal year ended
January 3, 2004. The primary sources of cash from
continuing operating activities were net income of
$3.9 million, non-cash charges of depreciation and
28
amortization of $9.2 million, and other non-cash charges
for warranty and accounts receivable and other non-cash charges
of $3.0 million, offset by an increase in working capital,
net of acquisitions and the change in cash balances of
$10.0 million.
Working capital changes primarily included increases in
inventories and accounts receivable of $6.5 million and
$6.5 million, respectively, as well as a decrease in
accounts payable of $4.5 million and an increase in accrued
expenses and deferred revenue of $7.9 million. The increase
in trade receivables of $6.5 million relates to the revenue
increase primarily in the Presstek segment, and the incremental
increase in revenue of the Precision segment since the
acquisition date. The increase in inventories was primarily
attributable to the impact of transitioning to new products in
the Presstek segment. The decrease in accounts payable was
primarily due to the timing of purchases and payments to
suppliers. The increase in accrued expenses was primarily due to
increased salaries and benefits of $4.0 million and
$3.3 million in other current liabilities.
During 2004, we used cash of $57.7 million for investing
activities, primarily for the acquisition of Precision, of
$12.2 million and the acquisition of ABDick of
approximately $43.2 million, as well as, additions to plant
and equipment used in the business of $2.2 million.
Net cash provided by financing activities for the fiscal year
ended January 1, 2005 totaled $32.2 million, and
consisted primarily of cash received from the exercise of stock
options in the amount of $5.2 million, proceeds received as
a result of the refinancing of our credit facilities of
$35.0 million, offset by payments made on our term loan of
$14.5 million.
In November 2004, in connection with the acquisition of certain
assets from The ABDick Company, we replaced our then current
credit facilities with $80.0 million in Senior Secured
Credit Facilities (the Facilities) from three
lenders. The terms of the Facilities include a
$35.0 million five year secured term loan (the New
Term Loan) and a $45.0 million five year secured
revolving line of credit (the New Revolver), which
have replaced the Term Loan and Revolver entered into in October
2003. At January 1, 2005, we had $27.2 million
available under the revolving line of credit loan, reduced by
$11.0 million outstanding under letters of credit.
Principal payments on the New Term Loan will be made in
consecutive quarterly installments beginning on March 31,
2005 initially in the amount of $250,000, and continuing
quarterly thereafter in the amount of $1,750,000, with a final
settlement of all remaining principal and unpaid interest on
November 4, 2009. The Facilities were used to partially
finance the acquisition of certain assets from The ABDick
Company, and will be available for working capital requirements,
capital expenditures, acquisitions, and general corporate
purposes. Borrowings under the Facilities bear interest at
either (i) the LIBOR rate plus applicable margins or
(ii) the Prime Rate, as defined in the agreement, plus
applicable margins. The applicable margins range from 1.25% to
4.0% for LIBOR, or 0% to 1.75% for the Prime Rate, based on
certain financial performance.
Under the terms of the New Revolver and New Term Loan, we are
required to meet various financial covenants on a quarterly and
annual basis, including maximum funded debt to EBITDA and
minimum fixed charge coverage covenants. As of January 1,
2005, we were in compliance with all financial covenants.
We have future contractual payment obligations through 2009 that
primarily relate to debt, royalty obligations, executive
contractual obligations and operating leases. The following
table represents our future commitments at January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
Total | |
|
Less Than 1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years |
|
|
| |
|
| |
|
| |
|
| |
|
|
Credit facilities
|
|
$ |
41,822 |
|
|
$ |
12,322 |
|
|
$ |
21,000 |
|
|
$ |
8,500 |
|
|
$ |
|
|
Royalty obligation
|
|
|
10,027 |
|
|
|
1,200 |
|
|
|
8,827 |
|
|
|
|
|
|
|
|
|
Executive contractual obligations
|
|
|
2,548 |
|
|
|
1,463 |
|
|
|
1,085 |
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4,209 |
|
|
|
3,177 |
|
|
|
969 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
58,606 |
|
|
$ |
18,162 |
|
|
$ |
31,881 |
|
|
$ |
8,563 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, under our credit facilities, interest expense will
range from $0.3 million to $2.2 million per year over
the term of the facility.
29
Our anticipated capital expenditures for fiscal 2005 are
approximately $10.0 million, of which $5 million
relate primarily to the purchase of capital equipment to be used
in the production of our DI and CTP equipment and consumable
products.
Heidelberg is marketing a competitive plate product as an
alternative to Pressteks PEARLdry for the
Quickmaster DI. CREO is also marketing a competitive plate
product as an alternative to Pressteks PEARLdry for both
the Ryobi and Quickmaster DL platforms. These competitive
plates have impacted the revenue generated by Presstek under its
agreement with Heidelberg and Ryobi, including the OEM
consumables supply agreements with Heidelberg and Heidelberg USA
entered into in July 2003. They could also lead to downward
pricing pressure on our full line of spooled consumable
products, which could have a material adverse effect on our
business, results of operations and financial condition.
Presstek has initiated patent infringement action against the
Heidelberg and Creo products in the Federal Republic of Germany
and the United States, respectively.
We believe that existing funds, cash flows from operations, and
cash available under our New Revolver should be sufficient to
satisfy working capital requirements and capital expenditures
through the next twelve months. There can be no assurance,
however, that we will not require additional financing, or that
such additional financing, if needed, will be available on
acceptable terms.
Inflation has not had, and is not expected to have, a material
impact on our financial conditions or results of operations.
|
|
|
Net Operating Loss
Carryforwards |
As of January 1, 2005, we had net operating loss
carryforwards totaling approximately $84.2 million, of
which $49.2 million resulted from stock option compensation
deductions for tax purposes and $35 million resulted from
operating losses. To the extent net operating losses resulting
from stock option compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital.
The amount of the net operating loss carryforwards that may be
utilized in any future period may be subject to certain
limitations, based upon changes in the ownership of our common
stock.
Critical Accounting Policies and
Estimates
Pressteks Managements Discussion and Analysis of its
Financial Condition and Results of Operations are based upon our
consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles as
adopted in the United States. The preparation of these financial
statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, Presstek evaluates its
estimates, including those related to product returns,
allowances for doubtful accounts, inventories, long-lived
assets, warranty obligations, and litigation. Presstek bases its
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements. For a complete
discussion of our accounting policies, see Note 1 to our
consolidated financial statements appearing elsewhere herein.
The Company generates revenue through four main sources;
equipment sales, laser diode sales, consumable sales and the
sale of installation services, training, support services and
equipment maintenance contracts.
30
The Company recognizes revenue when persuasive evidence of an
agreement exists, delivery has occurred or services have been
rendered, the price to the customer is fixed or determinable,
and collection is reasonably assured, and no future services are
required.
The Company records revenue for product sales net of estimated
returns, which are adjusted periodically, based upon historical
rates of return. Equipment revenue and any related royalties for
products sold to original equipment manufacturers is recognized
at the time of shipment. Contracts with OEMs do not
include price protection or product return rights. Revenue for
equipment sold to distributors, whereby the distributor is
responsible for installation, is recognized at shipment. Revenue
for equipment sold to distributors whereby the Company is
responsible for installation, for which the installation is not
deemed inconsequential, is recognized upon completion of
installation and customer acceptance. Contracts with
distributors do not include price protection or product return
rights, however the Company may elect in certain circumstances
to accept returns for product. Revenue for installation services
is recognized after installation has occurred. Revenue related
to service maintenance agreements is recognized ratably over the
duration of the particular contract. Revenue for training and
support services is recognized upon completion of the training
and services. Certain fees and other reimbursements are
recognized as revenue when the related services have been
performed or the revenue otherwise earned. Deferred revenue
includes certain customer advances received as a result of the
Companys distribution agreements and service maintenance
agreements. This revenue is recognized as product is shipped or
services are performed. The Company may enter into multiple
element arrangements and follows Emerging Issues Task Force
(EITF) No. 00-21, Revenue Arrangements with
Multiple Arrangements. Based upon the criteria contained
in EITF No. 00-21, the Company has determined that its
deliverables within multiple-elements revenue arrangements
represent separate units of accounting. Revenue is allocated to
the separate units of accounting based on the relative fair
values of the individual units of accounting. A general right of
return or cancellation does not exist once the product is
delivered to the customer.
The Company accounts for shipping and handling fees passed on to
customers as revenue.
|
|
|
Allowance for Doubtful
Accounts |
Presstek evaluates its accounts receivable on an ongoing basis
and establishes an allowance for doubtful accounts based on
specific customer circumstances and on its historical rate of
write-offs. We include any accounts receivable balances that are
determined to be uncollectible, along with a general reserve, in
an overall allowance for doubtful accounts. After reasonable
attempts to collect a receivable have failed, the receivable is
written off against the allowance. We believe the allowance for
doubtful accounts as of January 1, 2005 is adequate.
However, actual write-offs might exceed the recorded allowance.
Presstek warrants its products against defects in material and
workmanship for various periods, determined by the product,
generally from a period of ninety days to a period of one year
from the date of installation. We provide for the estimated cost
of product warranties at the time revenue is recognized. While
we engage in product quality programs and processes, our
warranty obligation is affected by product failure rates,
material usage and service costs incurred in correcting a
product failure. Should actual product failure rates, material
usage or service costs differ from our estimates, revisions to
the estimated warranty liability would be required.
Inventories are valued at the lower of cost or net realizable
value, with cost determined using the first-in, first-out
method. We assess the recoverability of inventory to determine
whether adjustments for impairment are required. Inventory that
is in excess of future requirements is written down to its
estimated value based upon forecasted demand for its products.
If actual demand is less favorable than what has been forecasted
by management, additional inventory write-downs may be required.
31
|
|
|
Goodwill and Other Intangible
Assets |
Presstek has goodwill and net intangible assets excluding
patents of $26.5 million at January 1, 2005. We are
required to evaluate the impairment annually of goodwill and
identifiable intangible assets and property and equipment, or
more frequently when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable
through the estimated undiscounted future cash flows from the
use of these assets. An impairment charge would be recorded if
such as assessment were to indicate that the fair value of such
assets was less than the carrying value. Judgment is required in
determining whether an event has occurred that may impair the
value of goodwill or identifiable intangible assets. Factors
that could indicate that an impairment may exist include
significant underperformance relative to plan or long-term
projections, strategic changes in business strategy, significant
negative industry or economic trends or a significant decline in
our stock price for a sustained period of time. We must make
assumptions about future cash flows, future operating plans,
discount rates and other factors in the models and valuation
reports. Different assumptions and judgment determination could
yield different conclusions that would result in an impairment
charge to income in the period that such change or determination
was made. For purposes of the annual impairment test, which will
occur on July 2, 2005, goodwill of $5.4 million has
been assigned to the Precision business segment and
$13.5 million has been assigned to the ABDick business
segment.
|
|
|
Accounting for Income
Taxes |
As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes in each
of the jurisdictions in which we operate. To do this, we
estimate our actual current tax liabilities, while also
assessing temporary differences resulting from differing
treatment of items, such as depreciation and expense accruals,
for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within
our consolidated balance sheet. We must then assess the
likelihood that our deferred tax assets will be recovered from
future taxable income. To the extent we believe that recovery is
not likely, we must establish a valuation allowance. To the
extent we establish a valuation allowance or increase this
allowance in a period, we must include an expense within the tax
provision in the statement of operations. To the extent we
reverse any portion of the valuation allowance, we must
recognize a benefit within the tax provision in the statement of
operations or to additional paid-in capital for the benefit of
deductions for stock option exercises.
Significant management judgment is required in determining our
provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance recorded against our net
deferred tax assets. In determining whether to establish a
valuation reserve for its deferred tax loss assets Presstek
considered its historic lack of substantial taxable profits, its
internal projections concerning future taxable operations, the
assumptions underlying such projections and the likelihood of
achieving such future taxable operations. Presstek determined
that there is sufficient uncertainty with respect to its ability
to achieve profitable operations in future periods that we
cannot justify the recording of an income tax asset and,
accordingly, we established a valuation reserve in the full
amount of its deferred tax assets. As a result of the
acquisitions of Precision and ABDick, we recorded a deferred tax
liability that relates to the U.S. goodwill which is considered
indefinite-lived.
|
|
|
Recently Issued Accounting
Standards |
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43,
Chapter 4, SFAS No. 151 amends the guidance in
Accounting Research Bulletin (ARB) No. 43,
Chapter 4, Inventory Pricing, to clarify the
abnormal amounts of idle facility expense, freight, handling
costs, and spoilage. This statement requires that those items be
recognized as current period charges regardless of whether they
meet the criterion of so abnormal which was the
criterion specified in ARB No. 43. In addition, this
Statement requires that allocation of fixed production overheads
to the cost of the production be based on normal capacity of the
production facilities. This pronouncement is effective for the
Company beginning October 1, 2005. The Company has not yet
assessed the impact of adopting this new standard.
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. This Statement is a revision of
SFAS No. 123, Accounting for Stock-Based Compensation,
and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related
implementation guidance.
32
SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, be recognized in the
income statement based on their fair values. Pro forma
disclosure is no longer an alternative. SFAS 123R is
effective for the first interim or annual reporting period that
begins after June 15, 2005.
The Company is currently evaluating the two methods of adoption
allowed by SFAS 123R; the modified-prospective transition
method and the modified-retrospective transition method.
Adoption of SFAS 123R will materially increase stock
compensation expense and decrease net income. In addition,
SFAS 123R requires that the excess tax benefits related to
stock compensation be reported as a cash inflow from financing
activities rather than as a reduction of taxes paid in cash from
operations.
Off-Balance Sheet
Arrangements
We have no off-balance sheet arrangements.
FORWARD-LOOKING STATEMENTS AND RISK
FACTORS
Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995:
Certain statements contained in this Annual Report on
Form 10-K constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995, including statements regarding the following:
|
|
|
|
|
our expectations for our financial and operating performance in
2005 and beyond; |
|
|
|
the adequacy of internal cash and working capital for our
operations; |
|
|
|
our ability to supply sufficient product for anticipated demand
and production delays associated with such demand; |
|
|
|
availability of component materials; |
|
|
|
managements plans and goals with regard to our shipping
and production capabilities, including the adequacy of our
facilities for present and expected future operations; |
|
|
|
the availability of alternative suppliers and manufacturers; |
|
|
|
timing of product roll-out and acceptance by the market; |
|
|
|
manufacturing constraints or difficulties; |
|
|
|
the introduction of competitive products into the marketplace; |
|
|
|
managements plans and goals for our subsidiaries; |
|
|
|
the ability of our subsidiaries to generate positive cash flows
in the near term; |
|
|
|
our subsidiaries ability to produce commercially
competitive products; |
|
|
|
the strength of our various strategic partnerships both on
manufacturing and distribution; |
|
|
|
our ability to secure other strategic alliances and
relationships; |
|
|
|
our expectations regarding the Companys strategy for
growth, including statements regarding the Companys
expectations for continued product mix improvement; |
|
|
|
the Companys expectations regarding the balance,
independence and control of its business; |
|
|
|
the resulting and expected effects and benefits from the
Companys transformation efforts; |
|
|
|
the Companys expectation regarding the strength and
improvement of the Companys fundamentals, including
management of its financial controls; |
|
|
|
the Companys expectations relating to the Heidelberg
overstock position; |
33
|
|
|
|
|
our expectations and plans regarding market penetration,
including the strength and scope of our distribution channels
and our expectations regarding sales of DI presses or CTP
devices; |
|
|
|
the expansion of our products and technology; |
|
|
|
the status of the Companys technology leadership; |
|
|
|
the commercialization and marketing of the Companys
technology; |
|
|
|
our expectations regarding the sale of our products and use of
our technology; |
|
|
|
our current plans for product development and the expected
market acceptance of recently introduced products and the likely
acceptance of planned future products; |
|
|
|
the expected growth in market share; |
|
|
|
our expectations regarding performance of existing, planned and
recently introduced products; |
|
|
|
the effects, market acceptance, or pricing of competitive
products, including the possibility of a competitive plate
product being introduced by a strategic partner; |
|
|
|
the placement of orders for direct imaging kits; |
|
|
|
our expectations regarding reductions in warranty costs; |
|
|
|
statements regarding the profitability of process-free CTP; |
|
|
|
the adequacy of our intellectual property protections and our
ability to protect and enforce our intellectual property rights;
and |
|
|
|
the expected effect of adopting recently issued accounting
standards, among others. |
Such forward-looking statements involve a number of known and
unknown risks, uncertainties and other factors which may cause
our actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such
factors that could cause or contribute to such differences
include those discussed below, as well as those discussed
elsewhere in this report. The words looking forward,
looking ahead, believe(s),
should, plan, expect(s),
project(s), anticipate(s),
may, likely, potential,
opportunity and similar expressions identify
forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date, the statements were made and readers are
advised to consider such forward-looking statements in light of
the risks set forth below. Presstek undertakes no obligation to
update any forward-looking statements contained in this Annual
Report on Form 10-K.
We are substantially dependent on Heidelberg for a portion
of our revenue and the loss of Heidelberg as a customer or a
significant reduction in revenue from sales to Heidelberg would
adversely affect our business. We have had an important
long-term relationship with Heidelberg. Since entering into our
strategic alliance with Heidelberg, our sales of products to
Heidelberg have constituted a material portion of our total
revenue. For our 2004, 2003 and 2002 fiscal years our sales to
Heidelberg accounted for approximately 9%, 21%, and 36%,
respectively of our total revenue. There can be no assurance
that our relationship with Heidelberg will continue. The loss of
Heidelberg as a customer, or a material decrease in the revenue
we receive from direct imaging kit sales or consumable sales to
Heidelberg, would have a material adverse affect on our
business, results of operations and financial condition.
Heidelberg is marketing a competitive plate product, as an
alternative to Pressteks PEARLdry for the
Quickmaster DI. The introduction of a competitive plate
could reduce the revenue generated by Presstek under its
agreements with Heidelberg, including the OEM agreements entered
into in July 2003. It could also lead to downward pricing
pressure on our full line of spooled consumable products, which
could have a material adverse effect on our business, results of
operations or financial condition.
We currently have no orders from Heidelberg for direct imaging
kits used in the Quickmaster DI. Heidelberg has recently
indicated, as a result of the global economic slowdown, that it
had a sufficient inventory of direct imaging kits on hand to
support its production requirements for six months. We have no
reason to believe that orders for direct imaging kits will
resume in fiscal 2005.
34
We are substantially dependent on our strategic alliance,
as well as our manufacturing and distribution relationships to
develop and grow our business. The loss or failure of one or
more of our strategic partners could significantly harm our
business. Our business strategy to date has included
entering into strategic alliances with major companies in the
graphic arts industry and other markets. The implementation of
this strategy has included, among other things, licensing our
intellectual property, developing specialized products based on
our proprietary technologies and manufacturing imaging systems
for inclusion in other manufacturers products. Our
strategy has also involved identifying strategic manufacturing
and distribution partners to aid in developing new market
channels for our products. This strategy led to the development
of our relationship with Heidelberg. It also led to the
development of relationships with other strategic partners,
including KBA, Ryobi and KPG. We are dependent on many of these
partners for future sales of both existing and planned products.
This means that the timetable for finalizing development,
commercialization and distribution of both existing and planned
products is dependent upon the needs and circumstances of our
strategic partners. We have experienced and will continue to
experience technical difficulties from time to time, which may
prevent us from meeting certain production and distribution
targets. Any delay in meeting production and distribution
targets with our strategic partners may harm our relationships
with them and may cause them to terminate their relationship
with us. Our strategic partners may not develop markets for our
products at the pace or in the manner we expect, which may have
an adverse effect on our business. They may also terminate their
relationships with us for circumstances beyond our control,
including factors unique to their businesses or their business
decisions. In addition, we may mutually agree with one or more
of our partners to terminate our relationship with them for a
variety of reasons. For example, in March 2003, we agreed with
Xerox to terminate our supply and distribution agreement with
them for DocuColor DI presses. As a result, Xerox no longer
sells the DocuColor 233 DI-4, the DocuColor 400 DI-4 and the
DocuColor DI-5 presses and related consumables. While we do not
believe the termination of our relationship with Xerox has had a
material adverse impact on our business, we cannot assure you
that the termination of any of our other relationships with our
strategic partners will not have an adverse impact on our
business in the future.
We are also unable to control factors related to the businesses
of our strategic partners. As an example, in February 2002,
Adast, a past manufacturing partner of ours, announced that it
had joined a bankruptcy petition filed by its creditors. As a
result of this development, we adjusted our fiscal 2001 fourth
quarter net income and balance sheet to include an additional
write-off of approximately $2.1 million to cover
prepayments made to Adast for work in-progress. There can be no
assurance that similar events will not occur with our other
strategic partners.
Given the uncertainties surrounding many of our strategic
partners, there can be no assurance that our existing strategic
relationships will prove successful. There can also be no
assurance that our existing relationships with Heidelberg, KBA,
Ryobi, or KPG or any of our other strategic, manufacturing or
distribution partners will be successful. The loss of
Heidelberg, KBA, Ryobi, KPG or other principal customers or
strategic partners could have a materially adverse effect on our
business, results of operations and financial condition.
While we continue to explore possibilities for additional
strategic relationships and alliances, there can be no assurance
we will be successful in this regard. Our failure to develop new
relationships and alliances could have a significant adverse
effect on our business.
Our acquisition of ABDick may affect our relationship with
our third-party distribution and service partners, which may
negatively affect our sales and distribution channels.
Prior to the addition of ABDick, distribution and service of our
CTP products was performed by our third-party partners,
including Pitman and xpedex and a series of independent dealers.
Additionally, the distribution and service of our DI products
were provided by OEM and other third party partners, including
Heidelberg, KBA and KPG. With the addition of ABDick, we plan to
utilize our newly-acquired distribution and service organization
as a new channel through which to sell and service our products,
as a supplement to our existing distribution network. At this
time, we are not aware of any conflicts between our existing
channel and/or OEM partners associated with the initiation of
this channel. However, there can be no guarantees that the
establishment of this new distribution channel will not cause
conflict with our existing distribution and OEM partners, which
could have an adverse effect on our relationship with our
distribution and/or OEM partners, which could result in our
sales being negatively affected.
35
Any failure by us to manage acquisitions successfully
could harm our financial results, business and
prospects. The operations of Presstek have substantially
changed over the last twelve months as a result of the
acquisitions of Precision and ABDick and will continue to evolve
through 2005 as we integrate these two businesses. As part of
our business strategy, over the next few years, we may further
expand our business through the acquisition of complementary
businesses worldwide. We cannot assure you that we will be able
successfully to integrate any future acquisitions, which could
adversely impact our long-term competitiveness and profitability.
Any future acquisitions will involve a number of risks that
could harm our financial condition, results of operations and
competitive position. In particular:
|
|
|
|
|
The integration process could disrupt the activities of the
businesses that are being combined. The combination of the
businesses or plants may require, among other things,
coordination of administrative and other functions and
consolidation of production capacity. Plant consolidation may
strain our ability to deliver products of acceptable quality in
a timely manner from consolidated facilities. We may experience
attrition among the skilled labor force at the companies
acquired in reaction to being acquired and in reaction to our
consolidation of plants. |
|
|
|
The execution of our integration plans may divert the attention
of our management from operating our existing business. |
|
|
|
We may assume known and unanticipated liabilities and
contingencies. |
|
|
|
Future acquisitions could cause a reduction of our reported
earnings because of the use of capital, the issuance of
additional securities or debt, increased interest expense,
goodwill write-offs and an increased income tax rate. |
With respect to our strategic plan to grow in part through
acquisitions, we cannot assure you that we will be able to
identify suitable acquisitions at acceptable prices or that we
will have access to sufficient capital to take advantage of
desirable acquisitions. We cannot assure you that our future
acquisitions will have revenues, profits or productivity
comparable to those of our past acquisitions. Future
acquisitions may require substantial capital. Although we expect
to use borrowings under our senior credit facility to pursue
these opportunities, we cannot assure you that such borrowings
will be available in sufficient amounts or that other financing
will be available in amounts and on terms that we deem
acceptable. Our financial performance and the condition of the
capital markets will affect the value of our common stock, which
could make it a less attractive form of consideration for making
acquisitions.
Our lengthy and variable sales cycle makes it difficult
for us to predict when or if sales will occur and therefore we
may experience an unplanned shortfall in revenues. Our
products have a lengthy and unpredictable sales cycle that
contributes to the uncertainty of our operating results.
Customers view the purchase of our products as a significant
capital outlay and, therefore, a strategic decision. As a
result, customers generally evaluate our products and determine
their impact on existing infrastructure over a lengthy period of
time. Our sales cycle has historically ranged from approximately
one to six months based on the customers need to rapidly
implement a solution and whether the customer is new or is
extending an existing implementation. The sale of our products
may be subject to delays if the customer has lengthy internal
budgeting, approval and evaluation processes. We may incur
significant selling and marketing expenses during a
customers evaluation period. Larger customers may purchase
our products as part of multiple simultaneous purchasing
decisions, which may result in additional unplanned
administrative processing and other delays in the recognition of
our revenues. If revenues forecasted from a specific customer
for a particular quarter are not realized or are delayed to
another quarter, we may experience an unplanned shortfall in
revenues, which could have a material adverse effect on our
business, results of operation and financial condition.
We may not be able to increase revenues if we do not
expand our sales and distribution channels. We will need
to expand our global sales operations in order to increase
market awareness and acceptance of our line of products and
generate increased revenues. We market and distribute our
products indirectly through our global partner and distributor
network and directly in Europe through our ABDick UK subsidiary.
We believe that our future success is dependent upon expansion
of global distribution channels. We cannot be certain that we
will be
36
able to maintain our current relationships or establish new
relationships with additional distribution partners on a timely
basis, or at all. With the addition of ABDick, we plan to
utilize our newly-acquired distribution and service organization
as a new channel through which to sell and service our products,
as a supplement to our existing distribution network. At this
time, we are not aware of any conflicts between our existing
channel and/or OEM partners associated with the initiation of
this channel. However, there can be no guarantees that the
establishment of this new distribution channel will not cause
conflict with our existing distribution and OEM partners, which
could have an adverse effect on our relationship with our
distribution and/or OEM partners, which could result in our
sales being negatively affected.
In March 2003, we expanded our product offerings to select
dealers in our European distribution channel to include the sale
of Quickmaster DI consumables. In connection with this offering,
we reduced pricing on our full line of spooled consumables
distributed through this distribution channel by up to 20%.
While the expected lost revenue resulting from the price
reduction may be offset by increased revenue from increased
volume of spooled consumable sales derived from additional
presses installed and increased usage of spooled consumables,
there can be no assurance that the expected lost revenue will be
offset. In addition, market conditions may require us to expand
the regions in which we offer reduced prices, or to further
reduce our spooled consumable prices, which could further reduce
our revenues in 2005 and beyond. Though this has not had a
material adverse effect on our business, this could have a
material adverse effect on our business, results of operations
and financial position.
Our growth strategy may include licenses or acquisitions
of technologies or businesses, which entail a number of
risks. As part of our strategy to grow our business, we
may pursue licenses of technologies from third parties or
acquisitions of complementary products lines or companies, and
such transactions entail a number of risks. We may expend
significant costs in investigating and pursuing such
transactions, and such transactions may not be consummated. If
such transactions are consummated, we may not be successful in
integrating the acquired technology or business into our
existing business to achieve the desired synergies. Integrating
acquired technologies or businesses may also require a
substantial commitment of our managements time and
attention. We may expend significant funds to acquire such
technologies or businesses, and we may incur unforeseen
liabilities in connection with any acquisition of a technology
or business. For instance, as a result of our acquisition of
certain assets from The ABDick Company completed in November
2004, we expect to incur an additional $1.5 million in
integration and restructuring costs over the next several
quarters, in addition to the $2.6 million in
acquisition-related expenses already incurred. Any of the
foregoing risks could result in a material adverse effect on our
business, results of operations and financial conditions.
We face risks associated with our efforts to expand into
international market and such risks could result in diversion of
our managements attention from our existing business
and/or cause us to incur additional expected and unexpected
costs associated with penetrating, operating in and servicing
such markets, any of which could have a material adverse effect
on our financial condition and results of operation. We
intend to expand our global sales operations and enter
additional international markets, which will require significant
management attention and financial resources. International
sales are subject to a variety of risks, including difficulties
in establishing and managing international distribution
channels, in serving and supporting products sold outside the
United States and in translating products and related materials
into foreign languages. International operations are also
subject to difficulties in collecting accounts receivable,
staffing and managing personnel and enforcing intellectual
property rights. Other factors that can adversely affect
international operations include fluctuations in the value of
foreign currencies and currency exchange rates, changes in
import/export duties and quotas, introduction of tariff or
non-tariff barriers and economic or political changes in
international markets. If our international sales increase, our
revenues may also be affected to a greater extent by seasonal
fluctuations resulting from lower levels of sales that typically
occur during the summer months in Europe and other parts of the
world. There can be no assurance that these factors will not
have a material adverse effect on our future international sales
and, consequently, on our business, results of operations and
financial condition.
We have experienced losses in the past, could incur
substantial losses in the future, and may not be able to
maintain profitability. We have incurred substantial net
losses from continuing operations in three of the past five
fiscal years. We incurred net losses from continuing operations
of approximately $8.3 million for fiscal 2002, and
$3.8 million for fiscal 2001. As of January 1, 2005 we
had an accumulated deficit of approximately
37
$14 million. We may need to generate significant increases
in revenues to maintain profitability, and we may not be able to
do so. If our revenues grow more slowly than we anticipate, due
to potential competitive pricing pressures, or if our operating
expenses increase more than we expect or cannot be reduced in
the event of lower revenues, our business will be materially
adversely affected. Even if we maintain profitability in the
future on a quarterly or annual basis, we may not be able to
sustain or increase such profitability. Failure to sustain
profitability may adversely affect the market price of our
common stock.
Our quarterly revenues and operating results are likely to
fluctuate significantly. Our quarterly revenues and
operating results are sometimes difficult to predict, have
varied in the past, and are likely to fluctuate significantly in
the future. We typically realize a significant percentage of our
revenues for a fiscal quarter in the third month of the quarter.
Accordingly, our quarterly results may be difficult to predict
prior to the end of the quarter. Any inability to obtain
sufficient orders or to fulfill shipments in the period
immediately preceding the end of any particular quarter may
cause the results for that quarter to fail to meet our revenue
targets. In addition, we base our current and future expense
levels in part on our estimates of future revenues. Our expenses
are largely fixed in the short term and we may not be able to
adjust our spending quickly if our revenues fall short of our
expectations. Accordingly, a revenue shortfall in a particular
quarter would have an adverse effect on our operating results
for that quarter. In addition, our quarterly operating results
may fluctuate for many reasons, including, without limitation:
|
|
|
|
|
A long and unpredictable sales cycle; |
|
|
|
changes in demand for our products and consumables, including
seasonal differences; and |
|
|
|
changes in the mix of our products and consumables. |
We are dependent on third party suppliers for critical
components and our inability to maintain an adequate supply of
advanced laser diodes and other critical components could
adversely affect us. We are dependent on third party
suppliers for critical components and our increased demand for
these components may strain the ability of our third-party
suppliers to deliver such critical components in a timely
manner. For example, our requirements for advanced technology
laser diodes for use in products incorporating our DI technology
has increased and is expected to further increase in the future.
Although we have established our subsidiary, Lasertel, to help
us meet our demand for laser diodes, we are still dependent on
other third party manufacturers to supply us with other
necessary components. If we are unable for any reason to secure
an uninterrupted source of other critical components at prices
acceptable to us, our operations could be materially adversely
affected. We cannot assure you that Lasertel will be able to
manufacture advanced laser diodes in quantities that will
fulfill our future needs, or with manufacturing volumes or
yields that will make our operation cost effective. Likewise, we
cannot assure you that we will be able to obtain alternative
suppliers for our laser diodes or other critical components
should our current supply channels prove inadequate.
Our manufacturing capabilities may be insufficient to meet
the demand for our products. If demand for our products
grows beyond our expectations, our current manufacturing
capabilities may be insufficient to meet this demand, resulting
in production delays and a failure to deliver products in a
timely fashion. We may be forced to seek alternative
manufacturers for our products. There can be no assurance that
we will successfully be able to do so. As we introduce new
products, we may face production and manufacturing delays due to
technical and other unforeseen problems. Any manufacturing delay
could have an adverse effect on our business, the success of any
product affected by the delay, and our revenue, and may harm our
relationships with our strategic partners.
Recently introduced products that incorporate our
technology may not be commercially successful and may not gain
market acceptance. Achieving market acceptance for any
products incorporating our technology requires substantial
marketing and distribution efforts and expenditure of
significant sums of money and allocation of significant
resources, either by us, our strategic partners or both. We may
not have sufficient resources to do so. Additionally, there can
be no assurance that products introduced by our strategic
partners, such as the 46 Karat DI presses, and the KPG DI
presses, or our product offerings such as our Anthem plates, and
Dimension 400 and Dimension 800 platesetters, will achieve
widespread market acceptance or that any of our other current
products or any future products that we may develop or any
future products produced by others that
38
incorporate our technologies will achieve market acceptance or
become commercially successful. We recently announced the
commercial release of our new Applause plate. There can be no
assurance that this plate will, or that will achieve market
acceptance. If our new product offerings do not achieve
anticipated market acceptance, we may not achieve anticipated
revenue.
Recently introduced products that incorporate our
technology may result in substantial support costs and warranty
expenditures. Introducing new products carries
substantial risk. While we do substantial testing on our new
products before introducing them to our customers, no amount of
testing can replace or approximate actual field conditions at
our customer locations. As a result, when we introduce new
products we can incur increased expenditures in ensuring that
the new product meets and performs in accordance with its
specifications. We cannot, however, always estimate precisely
the expected costs that may arise out of new product
installations. As an example of this, we incurred increased
warranty and support costs in fiscal 2002 and 2001 due to
unanticipated product performance issues associated with our new
Dimension product line. There can be no assurance that we will
not incur increased warranty, support and other costs associated
with new product introductions in the future. In addition, the
occurrence of these expenditures may have a material adverse
effect on our business, results of operations and financial
condition.
If the United States and global economies slow down, the
demand for our products could decrease and our revenue may be
materially adversely affected. The demand for our
products is dependent upon various factors, many of which are
beyond our control. For example, general economic conditions
affect or delay the overall capital spending by businesses and
consumers, particularly for capital equipment such as presses.
An economic slowdown in the U.S. and abroad could result in a
decrease in spending and spending projections on capital
equipment that could impact the demand for our products. If, as
a result of general economic uncertainty or otherwise, companies
reduce their product spending levels, such a decrease in
spending could substantially reduce demand for our products,
substantially harm our business, and have a material adverse
effect on our business, results of operations and financial
condition.
If we fail to maintain an effective system of internal
controls, we may not be able to accurately report our financial
results or prevent fraud. As a result, investors may lose
confidence in our financial reporting and the price of our
common stock may be negatively affected. The
Sarbanes-Oxley Act of 2002 requires that we report annually on
the effectiveness of our internal control over financial
reporting. Among other things, we must perform systems and
processes evaluation and testing. We must also conduct an
assessment of our internal controls to allow management to
report on, and our independent registered public accounting firm
to attest to, our assessment of our internal control over
financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act. In connection with the assessment of our
internal control over financial reporting for this
Form 10-K, while no material weaknesses were identified,
deficiencies in areas of our internal controls which need
improvement were discovered. In addition, in the future, our
continued assessment, or the subsequent assessment by our
independent registered public accounting firm, may reveal
additional deficiencies, or material weaknesses in our internal
controls which need to be disclosed in future reports. As our
assessment of internal control over financial reporting in
connection with this Form 10-K excluded ABDick and
Precision, the subsequent assessment of internal controls
including ABDick and Precision may reveal such deficiencies
and/or material weaknesses. Disclosures of material weaknesses
could cause investors to lose confidence in our financial
reporting and may negatively affect the price of our common
stock. Moreover, effective internal controls are necessary to
produce reliable financial reports and to prevent fraud. If we
have deficiencies in our internal controls over financial
reporting, it may negatively impact our business and operations.
The expansion of Lasertel into areas other than the
production of laser diodes for our printing business may be
unsuccessful. Lasertel, which was formed for the purpose
of supplying us with laser diodes, has also explored other
markets for its laser technology. These efforts to develop other
markets were scaled back, in part, in June 2001, as we announced
a repositioning of Lasertel in order to reduce its costs and
focus its efforts on supplying us with high quality laser
diodes. While the plans to market its laser products to the
telecommunications industry were delayed, Lasertel has developed
laser products for the defense industry and has continued its
plans to develop laser prototypes for qualification in the
defense and industrial industries. There can be no assurance
that these products or prototypes will gain acceptance in these
industries and likewise, there can be no assurance that these
products will be commercially successful. Our executive team has
limited experience in the
39
telecommunications, defense and industrial industries and there
can be no assurance that Lasertel will be able to successfully
exploit any opportunities that may arise.
The failure of Lasertel to develop, commercialize or sell its
products or future products to various other industries could
distract its managements attention and/or have an adverse
impact on its financial condition or results of operations, any
of which could materially adversely affect our financial
condition. Conversely, any success that Lasertel achieves in
developing, commercializing or selling its products or future
products to various other industries could cause delays in
manufacturing of the laser diodes that it supplies to us, which
could harm our business and could have an adverse effect on our
financial condition or results of operations.
Lasertel may require additional working capital infusions
from us, which may have a material adverse effect on our
business. Lasertel has required and may continue to
require a significant amount of capital investment by Presstek
in order to fund its operations. For the fiscal year ended
January 1, 2005, Lasertel recorded a net loss of
$5.6 million. Lasertel continues to require us to advance
cash and resources in order to ensure its continued operation.
Lasertel has only had sales to a limited number of third parties
to date, and any loss of such customers or significant reduction
in their purchases from Lasertel could increase its reliance
upon us for capital and resources. Further, Lasertel has
advanced $1.1 million to one of its customers, the loan
being secured by, among other things a lien on the assets of the
customer. Failure by this customer to repay this advance could
have a adverse affect on Lasertels operations.
Lasertels capital and working capital needs may exceed our
ability to provide such funds, requiring us to borrow against
our credit facilities or seek to obtain outside financing for
Lasertels operations. This could have a material adverse
effect on our business, results of operations and financial
condition.
Our success is dependent on our ability to maintain and
protect our proprietary rights. Our future success will
depend, in large part, upon our intellectual property rights,
including patents, trademarks, trade secrets, proprietary
know-how, source codes and continuing technological innovation.
We have been issued a number of U.S. and foreign patents and we
intend to register for additional patents where we deem
appropriate. We also hold seven registered trademarks and we may
register additional trademarks where we deem appropriate. There
can be no assurance, however, as to the issuance of any
additional patents or trademarks or the breadth or degree of
protection that our patents, trademarks or other intellectual
property may afford us. The steps we have taken to protect our
intellectual property may not adequately prevent
misappropriation or ensure that others will not develop
competitive technologies or products. Further, the laws of
certain territories in which our products are or may be
developed, manufactured or sold, may not protect our products
and intellectual property rights to the same extent as the laws
of the United States.
There is rapid technological development in the electronic image
reproduction industries, resulting in extensive patent filings
and a rapid rate of issuance of new patents. Although we believe
that our technology has been independently developed and that
the products we market do not infringe the patents or violate
other proprietary rights of others, it is possible that such
infringement of existing or future patents or violation of
proprietary rights may occur. In this regard, third parties may
in the future assert claims against us concerning our existing
products or with respect to future products under development by
us. In such event, we may be required to modify our product
designs or obtain a license. No assurance can be given that we
would be able to do so in a timely manner, upon acceptable terms
and conditions or even at all. The failure to do any of the
foregoing could have a material adverse effect on our business,
results of operation and financial condition. Furthermore, we
have agreements with several of our strategic partners which
require us to indemnify the strategic partner from claims made
by third parties against our intellectual property, and to
defend the validity of the patents or otherwise ensure the
technologys availability to the strategic partner. An
indemnification claim under any such agreement could have a
material adverse effect on our business.
In August 2003, the Company was served with a purported
securities class action lawsuit filed on June 2, 2003 in
the United States District Court for the Districts of New
Hampshire against the Company and two of its former officers.
This lawsuit was dismissed by the court on October 4, 2004.
However, the plaintiffs in the case have appealed the
courts dismissal on November 4, 2004. On
January 27, 2005, the plaintiffs of this matter withdrew
their appeal and the matter was permanently closed in
Pressteks favor.
40
In March 2005, Presstek filed an action against Creo, Inc., in
the United States District Court for the District of New
Hampshire for patent infringement. In this action, Presstek
alleges that Creo has distributed a product that violates a
Presstek US Patent. Presstek seeks an order from the court
that Creo refrain from offering the infringing product for sale,
from using the infringing material or introducing it for the
named purposes, or from possessing such infringing material, and
for the payment of damages associated with the infringement.
In September 2003, Presstek filed an action against Fuji Photo
Film Corporation, Ltd., in the District Court of Mannheim,
Germany for patent infringement. In this action, Presstek
alleges that Fuji has manufactured and distributed a product
that violates Presstek European Patent 0 644 047 registered
under number DE 694 17 129 with the German Patent and Trademark
Office. Presstek seeks an order from the court that Fuji refrain
from offering the infringing product for sale, from using the
infringing material or introducing it for the named purposes,
and from possessing such infringing material.
We may take legal action to determine the validity and scope of
third party rights or to defend against any allegations of
infringement. In the course of pursuing or defending any of
these actions we could incur significant costs and diversion of
our resources. Due to the competitive nature of our industry, it
is unlikely that we could increase our product prices to cover
such costs. There can be no assurance that we will have the
financial or other resources necessary to successfully defend a
patent infringement or proprietary rights violation action.
Moreover, we may be unable, for financial or other reasons, to
enforce our rights under any patents we may own. As an example
of the cost and uncertainty of patent litigation, in August 1999
Creo filed an action in the United States District Court for the
District of Delaware against us seeking a declaration that
Creos products do not and will not infringe any valid and
enforceable claims of any of our patents in question. We
counterclaimed against Creo for patent infringement of certain
of our patents. The matter went to trial in June 2001, and in
September 2001, the court affirmed the validity and
enforceability of our on-press imaging patents, but held that
the current Creo DOP System did not infringe on our patents.
Creo appealed the courts decision that our patents were
valid and enforceable, and we cross-appealed the finding of
non-infringement by the current Creo DOP System. On
September 17, 2002, the United States Court of Appeals for
the Federal Circuit affirmed the lower courts decision
that our patents are valid and enforceable, but that they are
not infringed by the current Creo DOP System. We incurred higher
than expected legal expenses in fiscal 2002 and fiscal 2001 due
to this litigation. Any similar litigation in the future is
expected to be costly, yield uncertain results and could have a
material effect on our business, results of operations and
financial condition.
We also rely on proprietary know-how and employ various methods
to protect the source codes, concepts, trade secrets, ideas and
documentation relating to our proprietary software and laser
diode technology. However, such methods may not afford complete
protection and there can be no assurance that others will not
independently develop such know-how or obtain access to our
know-how or software codes, concepts, trade secrets, ideas and
documentation. Although we have and expect to have
confidentiality agreements with our employees and appropriate
vendors, there can be no assurance, however, that such
arrangements will adequately protect our trade secrets and
proprietary know-how.
We face substantial competition in the sale of our
products. We compete with manufacturers of conventional
presses and products utilizing existing plate-making technology,
as well as presses and other products utilizing new
technologies, including other types of direct-to-plate solutions
such as companies that employ electrophotography as their
imaging technology. Canon Inc., Hewlett Packard Company, Kodak
and Xerox Corporation are companies that have introduced color
electrophotographic copier products. Various companies are
marketing product versions manufactured by these companies.
We are also aware that there is a trend in the graphic arts
industry to create stand-alone computer-to-plate imaging devices
for single and multi-color applications. Most of the major
corporations in the graphic arts industry have developed and/or
are developing and marketing off press computer-to-plate imaging
systems. To date, devices manufactured by our competitors, for
the most part, utilize printing plates that require a post
imaging photochemical developing step, and in some cases, also
require a heating process. Potential competitors in this area
include, among others, Agfa Gevaert N.V., Dai Nippon Screen
Manufacturing Ltd., Heidelberg and Creo.
41
We also anticipate competition from plate manufacturing
companies that manufacture printing plates, or have the
potential to manufacture digital thermal plates. These companies
include Agfa Gevaert N.V., KPG and Fuji Photo Film Co., Ltd.
Heidelberg is marketing a competitive plate product as an
alternative to Pressteks PEARLdry for the Quickmaster DI.
The introduction of a competitive plate could reduce the revenue
generated by Presstek under its relationship with Heidelberg,
and could have a material adverse effect on our business,
results of operations and financial condition.
Products incorporating our technologies can also be expected to
face competition from conventional methods of printing and
creating printing plates. Most of the companies marketing
competitive products, or with the potential to do so, are well
established, have substantially greater financial, marketing and
distribution resources than us and have established reputations
for success in the development, sale and service of products.
There can be no assurance that we will be able to compete
successfully in the future.
While we believe we have strong intellectual property protection
covering many of our technologies, there is no assurance that
the breadth or degree of such protection will be sufficient to
prohibit or otherwise delay the introduction of competitive
products or technologies. The introduction of competitive
products and technologies may have a material adverse effect on
our business, results of operations and financial condition.
We may not be able to adequately respond to changes in
technology affecting the printing industry. Our
continuing product development efforts have focused on refining
and improving the performance of our PEARL and DI technology and
our consumables and we anticipate that we will continue to focus
such efforts. The printing and publishing industry has been
characterized in recent years by rapid and significant
technological changes and frequent new product introductions.
Current competitors or new market entrants could introduce new
or enhanced products with features, which render our
technologies, or products incorporating our technologies,
obsolete or less marketable. Our future success will depend, in
part, on our ability to:
|
|
|
|
|
use leading technologies effectively; |
|
|
|
continue to develop our technical expertise and patented
position; |
|
|
|
enhance our current products and develop new products that meet
changing customer needs; |
|
|
|
time new product introductions in a way that minimizes the
impact of customers delaying purchases of existing products in
anticipation of new product releases; |
|
|
|
adjust the prices of our existing products to increase customer
demand; |
|
|
|
successfully advertise and market our products; and |
|
|
|
influence and respond to emerging industry standards and other
technological changes. |
We must respond to changing technology and industry standards in
a timely and cost-effective manner. We may not be successful in
effectively using new technologies, developing new products or
enhancing our existing products and technology on a timely
basis. Our new technologies or enhancements may not achieve
market acceptance. Our pursuit of new technologies may require
substantial time and expense. We may need to license new
technologies to respond to technological change. These licenses
may not be available to us on terms that we can accept. Finally,
we may not succeed in adapting our products to new technologies
as they emerge.
Ongoing litigation could have an adverse impact on our
business. From time to time in the ordinary course of
our business, we may be subject to lawsuits. For instance, on
September 16, 2003, Presstek filed an action against Fuji
Photo Film Corporation, Ltd. in the District Court of Mannheim,
Germany for patent infringement. Also, in August 2003, the
Company was served with a purported securities class action
lawsuit filed on June 2, 2003 in the United States District
Court for the Districts of New Hampshire against the Company and
two of its former officers. This lawsuit was dismissed by the
court on October 4, 2004. The plaintiffs have appealed the
courts dismissal on November 4, 2004. On
January 27, 2005, the plaintiffs of this matter withdrew
their appeal and the matter was permanently closed in
Pressteks favor. While the foregoing suit was resolved in
favor of Presstek, an unfavorable outcome in connection with a
future lawsuit could have a material adverse effect on our
business, results of operations and financial condition.
42
In August 2003, the Company was served with a purported
securities class action lawsuit filed on June 2, 2003 in
the United States District Court for the District of New
Hampshire against the Company and two of its former officers.
This lawsuit was dismissed by the court on October 4, 2004.
However, the plaintiffs in the case have appealed the
courts dismissal on November 4, 2004. On
January 27, 2005, the plaintiffs of this matter withdrew
their appeal and the matter was permanently closed in
Pressteks favor.
In March 2005, Presstek filed an action against Creo, Inc., in
the United States District Court for the District of New
Hampshire for patent infringement. In this action, Presstek
alleges that Creo has distributed a product that violates a
Presstek US Patent. Presstek seeks an order from the court that
Creo refrain from offering the infringing product for sale, from
using the infringing material or introducing it for the named
purposes, or from possessing such infringing material, and for
the payment of damages associated with the infringement.
Presstek is party to other litigation that it considers routine
and incidental to its business however it does not expect the
results of any of these actions to have a material adverse
effect on its business, results of operation or financial
condition.
The loss or unavailability of our key personnel would have
a material adverse effect on our business. The success
of Presstek is largely dependent on the personal efforts of our
senior management team. We have recently entered into three-year
employment agreements with Ed Marino, our President and Chief
Executive Officer, and Moosa E. Moosa, our Executive VP and
Chief Financial Officer. The loss or interruption of the
services of either or both of Messrs. Marino or Moosa could
have an adverse effect on our business and prospects.
Our success may also be dependent on our ability to hire and
retain additional qualified engineering, technical, sales,
marketing and other personnel. Competition for qualified
personnel in our industry can be intense, and there can be no
assurance that we will be able to hire or retain additional
qualified personnel.
Our stock price has been and could continue to be
extremely volatile. The market price of our common stock
has been subject to significant fluctuations. The securities
markets, and the Nasdaq National Market in particular, have
experienced, and are likely to experience in the future,
significant price and volume fluctuations that could adversely
affect the market price of our common stock without regard to
our operating performance. In addition, the trading price of our
common stock could be subject to significant fluctuations in
response to:
|
|
|
|
|
actual or anticipated variations in our quarterly operating
results; |
|
|
|
announcements by us or other industry participants; |
|
|
|
changes in national or regional economic conditions; |
|
|
|
changes in securities analysts estimates for us, our
competitors or our industry or our failure to meet
analysts expectations; and |
|
|
|
general market conditions. |
These factors may materially and adversely affect our stock
price, regardless of our operating performance.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
As a result of our acquisition of ABDick, we are exposed to
changes in foreign exchange rates. Any foreign currency
transactions, defined as a transaction denominated in a currency
other than the U.S. dollar, will be reported in
U.S. dollars at the applicable exchange rate. Assets and
liabilities are translated into U.S. dollars at exchange
rates in effect at the balance sheet date and income and expense
items are translated at average rates for the period. The
primary foreign currency denominated transactions include
revenue and expenses and the resultant accounts receivable and
accounts payable balances reflected on the balance sheet.
Therefore, the change in the value of the U.S. dollar as
compared to foreign currencies will have either a positive or
negative effect on our financial position and results of
operations. We also have some exposure to foreign currency
exchange rate risk as a limited number of our sales and purchase
transactions are denominated in the European euro and the
Japanese yen. In addition, some of our customers and strategic
partners are not located in the United States. As a result,
these customers and strategic partners are themselves subject to
fluctuations in foreign exchange rates. If their home country
currency were to decrease in value relative to the United States
dollar, their ability to purchase and market our products could
be adversely affected and our products may become less
competitive to them. This may have an adverse impact on our
business. Likewise, some of our suppliers are not located in the
United States
43
and thus, such suppliers are subject to foreign exchange rate
risks in transactions with us. Decreases in the value of their
home country currency, versus that of the United States dollar,
could cause fluctuations in supply pricing which could have an
adverse effect on our business.
We also are exposed to market risk from changes in interest
rates primarily as a result of our borrowing activities, and to
a lesser extent, our investing activities. Our long-term
borrowings are in variable rate instruments, with interest rates
tied to either the prime rate or the London Interbank Offered
Rate (LIBOR). A 100 basis point change in these
rates would have an impact of approximately $418,000 on our
annual interest expense, assuming consistent levels of floating
rate debt with those held as of the end of fiscal 2004.
Item 8. Financial
Statements and Supplementary Data
The financial statements required by Item 8 of
Form 10-K are incorporated herein by reference from
Item 15 of this report.
Item 9. Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
Item 9A. Controls
and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on
Form 10-K, we have, under the supervision and with the
participation of management, including the Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of Pressteks disclosure controls and procedures. Based on
this evaluation, Pressteks Chief Executive Officer and the
Chief Financial Officer concluded that, as of the Evaluation
Date, Pressteks disclosure controls and procedures were
effective to provide reasonable level of assurance that the
information relating to Presstek (including its consolidated
subsidiaries) required to be disclosed by Presstek in the
reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the requisite time periods specified in the Securities
and Exchange Commissions rules and forms, including
ensuring that such material information is accumulated and
communicated to Pressteks management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
(b) Managements Annual Report on Internal Control
Over Financial Reporting
The management of Presstek is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f).
Pressteks internal control system was designed to provide
reasonable assurance to Pressteks management and the Board
of Directors regarding the preparation and fair presentation of
published financial statements.
Pressteks management assessed the effectiveness of
Pressteks internal control over financial reporting as of
January 1, 2005. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on managements
assessment, it believes that, as of January 1, 2005,
Pressteks internal control over financial reporting is
effective based on those criteria.
For purposes of evaluating the internal controls over financial
reporting, management determined that the internal control over
financial reporting of Precision and ABDick would be excluded
from the fiscal 2004 internal control assessment, as permitted
by the Securities and Exchange Commission.
In July 2004, Precision was acquired for an aggregate purchase
price of approximately $12.2 million, net of cash acquired.
Precision contributed approximately 6% of the Companys
total revenue in fiscal 2004 and accounted for approximately 11%
of the total assets at January 1, 2005. In November 2004,
ABDick was acquired for an aggregate purchase price of
approximately $43.2 million, net of cash acquired. ABDick
contributed approximately 19% of the Companys total
revenue in fiscal 2004 and accounted for approximately 39% of
its total assets at January 1, 2005.
44
Managements assessment of the effectiveness of its
internal control over financial reporting as of January 1,
2005 has been audited by BDO Seidman, LLP, an independent
registered public accounting firm, as stated in their
attestation report which is included herein.
(c) Changes in Internal Controls Over Financial Reporting
There were no significant changes in Pressteks internal
controls over financial reporting during the quarter ended
January 1, 2005 that has materially affected, or is
reasonably likely to affect, our internal control over financial
reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
Presstek, Inc.
Hudson, New Hampshire
We have audited managements assessment, included in the
accompanying Managements Annual Report on Internal Control
Over Financial Reporting, included in Item 9A of the Annual
Report on Form 10-K, that Presstek, Inc. and its
subsidiaries (the Company) maintained effective
internal control over financial reporting as of January 1,
2005, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal controls over
financial reporting. Our responsibility is to express an opinion
on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.
As indicated in the accompanying Managements Report on
Internal Control Over Financial Reporting, management excluded
from their assessment the internal control over financial
reporting at Precision Lithograining Corporation
(Precision) which was acquired on July 30, 2004
and whose financial statements reflect total assets and revenues
constituting 11% and 6%, respectively, and ABDick Company
(ABDick) which was acquired on November 5, 2004
and whose financial statements reflect total assets and revenues
constituting 39% and 19%, respectively, of the related
consolidated financial statement amounts as of and for the year
ended
45
January 1, 2005. Accordingly, our audit did not include the
internal control over financial reporting at Precision and
ABDick.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of January 1, 2005 is fairly stated, in all material
respects, based on the criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 1, 2005, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We have also audited, in accordance with standards of the Public
Company Accounting Oversight Board (United States), the
consolidated financial statements of Presstek, Inc. and its
subsidiaries as of January 1, 2005 and January 3, 2004
and the related consolidated statements of operations, changes
in stockholders equity and comprehensive income (loss) and
cash flows for each of the three years ended January 1,
2005, January 3, 2004 and December 28, 2002,
respectively, and our report dated March 16, 2005 expressed
an unqualified opinion on those financial statements.
|
|
|
/s/ BDO Seidman, LLP
|
|
|
|
BDO Seidman, LLP |
Boston, Massachusetts
March 16, 2005
46
Item 9B. Other
Information
None.
PART III
Item 10. Directors
and Executive Officers of the Registrant
The policies comprising the Companys code of ethics are
set forth in the Companys Code of Business Conduct and
Ethics. These policies satisfy the SECs requirements for a
code of ethics, and apply to all directors, officers
and employees. The Code of Business Conduct and Ethics can be
found on the Companys website at www.presstek.com.
The remaining information required by this item will be set
forth under the captions Election of Directors,
Board of Directors Meetings and Committees,
Board of Directors and Committee Independence,
Executive Officers and Section 16(a)
Beneficial Ownership Reporting Compliance in the
definitive proxy statement that the Company expects to file with
the Securities Exchange Commission within 120 days of the
fiscal year ended January 1, 2005 for the Annual Meeting of
Stockholders to be held on June 7, 2005 (the Proxy
Statement) and such information is incorporated herein by
reference.
|
|
Item 11. |
Executive Compensation |
The information required by this item will be set forth under
the captions Executive Compensation,
Employment Agreements and Termination of Employment
Agreements, Options and Stock Plans,
Compensation of Directors, and Compensation
Committee Interlocks and Insider Participation in the
Proxy Statement and is incorporated herein by reference.
|
|
Item 12. |
Security Ownership of Certain
Beneficial Owners and Management |
Securities Authorized for Issuance Under Equity Compensation
Plans
We have securities authorized for issuance under equity
compensation plans. Information concerning securities authorized
for issuance under our equity compensation plans and further
information required by this item will be set forth under the
captions Equity Compensation Plan Information and
Voting Security Ownership of Certain Beneficial Owners and
Management in the Proxy Statement, and is incorporated
herein by reference.
|
|
Item 13. |
Certain Relationships and Related
Transactions |
The information required by this item will be set forth under
the caption Certain Relationships and Related
Transactions in the Proxy Statement, and is incorporated
herein by reference.
|
|
Item 14. |
Principal Accountant Fees and
Services |
The information required by this item will be set forth under
the captions Ratification of Selection of Auditors
and Policy on Audit Committee Pre-Approval of Audit and
Permissible Non-Audit Services of Independent Auditors in
the Proxy Statement, and is incorporated herein by reference.
47
PART IV
|
|
Item 15. |
Exhibits and Financial Statement
Schedules |
|
|
|
|
|
|
|
|
|
Page |
|
|
|
|
|
(a)(1)
|
|
Consolidated Financial Statements (located herein after the
signature page) |
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
F-2 |
|
|
Consolidated Balance Sheets as of January 1, 2005 and
January 3, 2004 |
|
F-3 |
|
|
Consolidated Statements of Operations for the fiscal years ended
January 1, 2005, January 3, 2004, and
December 28, 2002 |
|
F-4 |
|
|
Consolidated Statements of Changes in Stockholders Equity
for the fiscal years ended January 1, 2005, January 3,
2004, and December 28, 2002 |
|
F-5 |
|
|
Consolidated Statements of Cash Flows for the fiscal years ended
January 1, 2005, January 3, 2004, and
December 28, 2002 |
|
F-6 |
|
|
Notes to Consolidated Financial Statements |
|
F-7 |
(a)(2)
|
|
Financial Statement Schedule |
|
|
|
|
Schedule II Valuation and Qualifying Accounts |
|
FS-1 |
|
|
All other schedules are omitted because they are not applicable,
or the required information is shown in the financial statements
or notes thereto. |
|
|
(a)(3)
|
|
Exhibits |
|
|
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
3 |
(a) |
|
Amended and Restated Certificate of Incorporation of Presstek,
Inc., as amended. (Previously filed as Exhibit 3 to
Pressteks Quarterly Report on Form 10-Q for the
Quarter ended June 29, 1996, hereby incorporated by
reference.) |
|
3 |
(b) |
|
By-laws of Presstek, Inc. (Previously filed as an exhibit with
Pressteks Form 10-K for the fiscal year ended
December 30, 1995, filed March 29, 1996, hereby
incorporated by reference.) |
|
2 |
(a) |
|
Stock Purchase Agreement among Presstek, Inc., Precision
Lithograining, Inc. and SDK Realty Co. dated June 2,
2004 (Previously filed as Exhibit 2.1 to Pressteks
Form 8-K filed on July 30, 2004, hereby incorporated
by reference) |
|
2 |
(b) |
|
Asset Purchase Agreement among Presstek, Inc., Silver
Acquisitions Corp., Paragon Corporate Holdings, Inc.,
A.B. Dick Company, A.B. Dick Company of Canada, Ltd.
And Interactive Media Group, Inc., dated July 13, 2004
(Previously filed as Exhibit 2.1 to Pressteks
Form 8-K filed on July 13, 2004, hereby incorporated
by reference) |
|
2 |
(c) |
|
Second Amendment to Asset Purchase Agreement between the Company
and A.B. Dick Company dated November 5, 2004
(Previously filed as Exhibit 2.1 to Pressteks
Form 8-K filed on November 12, 2004, hereby
incorporated by reference) |
|
2 |
(d) |
|
Amendment to Asset Purchase Agreement between the Company and
A.B. Dick Company dated August 20, 2004 (Previously
filed as Exhibit 2.2 to Pressteks Form 8-K filed
on November 12, 2004, hereby incorporated by reference) |
|
10 |
(a) |
|
Confidentiality Agreement between Presstek, Inc. and
Heidelberger Druckmaschinen A.G., effective December 7,
1989 as amended. (Previously filed as Exhibit 10(i) of
Pressteks Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, hereby incorporated by
reference.) |
|
10 |
(b) |
|
Master Agreement effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and Presstek,
Inc. (Previously filed as an exhibit to Pressteks
Form 8-K, dated January 1, 1991, hereby incorporated
by reference.) |
|
10 |
(c) |
|
Technology License effective January 1, 1991, by and
between Heidelberger Druckmaschinen Aktiengesellschaft and
Presstek, Inc. (Previously filed as an exhibit to
Pressteks Form 8-K, dated January 1, 1991,
hereby incorporated by reference.) |
48
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
10 |
(d) |
|
Memorandum of Performance No. 3 dated April 27, 1993,
to the Master Agreement, Technology License, and Supply
Agreement between Presstek, Inc. and Heidelberger Druckmaschinen
Aktiengesellschaft. (Previously filed as an exhibit to
Pressteks Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, hereby incorporated by
reference.) |
|
10 |
(e) |
|
Modification to Memorandum of Performance No. 3 dated
April 27, 1993, to the Master Agreement, Technology
License, and Supply Agreement between Presstek, Inc. and
Heidelberger Druckmaschinen Aktiengesellschaft. (Previously
filed as an exhibit to Pressteks Annual report on
Form 10-K for the fiscal year ended December 31, 1994,
hereby incorporated by reference.) |
|
10 |
(f)* |
|
Memorandum of Understanding No. 4 dated November 9,
1995, to the Master Agreement and Technology License and Supply
Agreement between Presstek, Inc. and Heidelberger Druckmaschinen
Aktiengesellschaft. (Previously filed as Exhibit 10.k to
Pressteks Form 10-K for the fiscal year ended
December 30, 1995, filed March 29, 1996, hereby
incorporated by reference.) |
|
10 |
(g)** |
|
1991 Stock Option Plan. (Previously filed as an exhibit to
Pressteks Annual report on Form 10-K for the fiscal
year ended December 31, 1991, hereby incorporated by
reference.) |
|
10 |
(h)** |
|
1994 Stock Option Plan. (Previously filed as an exhibit to
Pressteks Annual report on Form 10-K for the fiscal
year ended December 31, 1994, hereby incorporated by
reference.) |
|
10 |
(i)** |
|
Non-Employee Director Stock Option Plan. (Previously filed as
Exhibit 10.0 to Pressteks Form 10-K for the
fiscal year ended January 2, 1999, filed March 2,
1999, hereby incorporated by reference.) |
|
10 |
(j)** |
|
1997 Interim Stock Option Plan. (Previously filed as
Exhibit 10.1 to Pressteks Quarterly report on
Form 10-Q for the quarter ended September 27, 1997,
filed November 7, 1997, hereby incorporated by reference.) |
|
10 |
(k)** |
|
1998 Stock Incentive Plan. (Previously filed as
Exhibit A to Pressteks April 23, 1998 Proxy
Statement, filed April 24, 1998, hereby incorporated by
reference.) |
|
10 |
(l)* |
|
Memorandum of Understanding No. 5 dated March 7, 1997
between Presstek, Inc. and Heidelberger Druckmaschinen
Aktiengesellschaft. (Previously filed as Exhibit 10(T) to
Pressteks Annual Report on Form 10-K for the fiscal
year ended December 28, 1996 filed March 31, 1997,
hereby incorporated by reference.) |
|
10 |
(m)* |
|
Master Supply and Distribution Agreement by and between
Presstek, Inc. and Xerox Corporation dated September 22,
2000. (Previously filed as Exhibit 10.1 to Pressteks
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.) |
|
10 |
(n) |
|
Amended Master Supply and Distribution Agreement by and between
Presstek, Inc. and Xerox Corporation dated May 11, 2001.
(Previously filed as Exhibit 10.1 to Pressteks
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001, filed August 14, 2001, hereby
incorporated by reference.) |
|
10 |
(o)* |
|
Agreement between Presstek, Inc. and Adamovski
Strojírny a.s. dated as of April 24, 2001.
(Previously filed as Exhibit 10.2 to Pressteks
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001, filed August 14, 2001 hereby
incorporated by reference.) |
|
10 |
(p)* |
|
Settlement Agreement made as of July 13, 2001 by and
between Heidelberger Druckmaschinen Aktiengesellschaft and
Presstek, Inc. (Previously filed as Exhibit 10.3 to
Pressteks Quarterly Report on Form 10-Q for the
quarter ended September 29, 2001, filed November 13,
2001, hereby incorporated by reference.) |
|
10 |
(q)* |
|
Letter Agreement dated September 19, 2001 between Xerox
Corporation and Presstek, Inc. amending the Amended Master
Supply and Distribution Agreement by and among, Presstek, Inc.
and Xerox Corporation dated May 11, 2001. (Previously filed
as Exhibit 10.1 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended September 29, 2001,
filed November 13, 2001, hereby incorporated by reference.) |
49
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
10 |
(r)** |
|
Resignation Agreement and General Release by and between
Presstek, Inc. and Neil M. Rossen, dated November 14,
2001 and effective as of December 31, 2001. (Previously
filed as Exhibit 10.1 to Pressteks Quarterly Report
on Form 10-Q for the quarter ended March 30, 2002,
filed May 14, 2002, hereby incorporated by reference.) |
|
10 |
(s)** |
|
Separation Agreement by and between Presstek, Inc. and
Robert W. Hallman dated as of April 26, 2002, and
effective as of April 30, 2002. (Previously filed as
Exhibit 10.1 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended June 29, 2002, filed
August 13, 2002, hereby incorporated by reference.) |
|
10 |
(t)* |
|
Agreement for Manufacture & Sale of Sun
Press between Presstek, Inc. and Ryobi Limited, dated as
of April 5, 2002. (Previously filed as Exhibit 10.4 to
Pressteks Quarterly Report on Form 10-Q for the
quarter ended June 29, 2002, filed on August 13, 2002,
hereby incorporated by reference.) |
|
10 |
(u)** |
|
2002 Employee Stock Purchase Plan of Presstek, Inc.
(Previously filed as Exhibit 4.3 to Pressteks
Registration Statement on Form S-8 filed with the
Commission on August 9, 2002, hereby incorporated by
reference.) |
|
10 |
(v)** |
|
Description of Pressteks Non-Employee Director
Compensation Arrangements approved by Pressteks Board of
Directors on July 17, 2002 and amended by Pressteks
Board of Directors on December 17, 2002. (Previously filed
as Exhibit 10(hh) to Pressteks Form 10-K for the
fiscal year ended December 28, 2002, filed March 28,
2003, hereby incorporated by reference.) |
|
10 |
(w)** |
|
Retirement Agreement by and between Presstek, Inc. and
Richard A. Williams dated January 7, 2003. (Previously
filed as Exhibit 10(ll) to Pressteks Form 10-K
for the fiscal year ended December 28, 2002, filed
March 28, 2003, hereby incorporated by reference.) |
|
10 |
(x) |
|
Distribution Agreement by and between Presstek, Inc. and Kodak
Polychrome Graphics LLC dated March 18, 2003. (Previously
filed as Exhibit 10.1 to Pressteks Quarterly Report
on Form 10-Q for the quarter ended March 29, 2003,
filed May 13, 2003, hereby incorporated by reference.) |
|
10 |
(y) |
|
Restated Amended Master Supply and Distribution Agreement by and
between Presstek, Inc. and Xerox Corporation dated
March 18, 2003. (Previously filed as Exhibit 10.1 to
Pressteks Quarterly Report on Form 10-Q for the
quarter ended March 29, 2003, filed May 13, 2003,
hereby incorporated by reference.) |
|
10 |
(z)** |
|
2003 Stock Option and Incentive Plan of Presstek, Inc.
(Previously filed as Exhibit 10.1 to Pressteks
Quarterly Report on Form 10-Q for the quarter ended
June 28, 2003, filed August 12, 2003, hereby
incorporated by reference.) |
|
10 |
(aa)* |
|
OEM Consumables Supply Agreement by and between Presstek,
Inc. and Heidelberg Druckmaschinen, AG., dated July 1,
2003. (Previously filed as Exhibit 10.1 to Pressteks
Quarterly Report on Form 10-Q for the quarter ended
September 27, 2003, filed November 12, 2003, hereby
incorporated by reference.) |
|
10 |
(bb)* |
|
OEM Consumables Supply Agreement by and between Presstek,
Inc. and Heidelberg U.S.A., Inc. dated July 1, 2003.
(Previously filed as Exhibit 10.2 to Pressteks
Quarterly Report on Form 10-Q for the quarter ended
September 27, 2003, filed November 12, 2003, hereby
incorporated by reference.) |
|
10 |
(cc) |
|
Credit Agreement by and among Presstek, Inc., Lasertel Inc.,
Citizens Bank New Hampshire and Keybank National Association
dated October 15, 2003. (Previously filed as
Exhibit 10.3 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
|
10 |
(dd) |
|
Revolving Note dated October 15, 2003 made by Presstek,
Inc. in favor of Citizens Bank New Hampshire. (Previously filed
as Exhibit 10.4 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
50
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
10 |
(ee) |
|
Revolving Note dated October 15, 2003 made by Presstek,
Inc. in favor of Keybank National Association. (Previously filed
as Exhibit 10.5 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
|
10 |
(ff) |
|
Term Note dated October 15, 2003 made by Presstek, Inc. in
favor of Citizens Bank New Hampshire. (Previously filed as
Exhibit 10.6 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
|
10 |
(gg) |
|
Term Note dated October 15, 2003 made by Presstek, Inc. in
favor of Keybank National Association. (Previously filed as
Exhibit 10.7 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
|
10 |
(hh) |
|
Swing Line Note dated October 15, 2003 made by Presstek,
Inc. in favor of Citizens Bank New Hampshire. (Previously filed
as Exhibit 10.8 to Pressteks Quarterly Report on
Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
|
10 |
(ii) |
|
Security Agreement by and between Presstek, Inc. and Citizens
Bank New Hampshire dated October 15, 2003. (Previously
filed as Exhibit 10.9 to Pressteks Quarterly Report
on Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
|
10 |
(jj) |
|
Security Agreement by and between Lasertel, Inc. and Citizens
Bank New Hampshire dated October 15, 2003. (Previously
filed as Exhibit 10.10 to Pressteks Quarterly Report
on Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
|
10 |
(kk) |
|
Security Agreement (Intellectual Property) by and between
Presstek, Inc. and Citizens Bank New Hampshire dated
October 15, 2003. (Previously filed as Exhibit 10.11
to Pressteks Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003, filed November 12,
2003, hereby incorporated by reference.) |
|
10 |
(ll) |
|
Security Agreement (Intellectual Property) by and between
Lasertel, Inc. and Citizens Bank New Hampshire dated
October 15, 2003. (Previously filed as Exhibit 10.12
to Pressteks Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003, filed November 12,
2003, hereby incorporated by reference.) |
|
10 |
(mm) |
|
Mortgage and Security Agreement between Presstek, Inc. and
Citizens Bank New Hampshire dated October 15, 2003.
(Previously filed as Exhibit 10.13 to Pressteks
Quarterly Report on Form 10-Q for the quarter ended
September 27, 2003, filed November 12, 2003, hereby
incorporated by reference.) |
|
10 |
(nn) |
|
Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing by and among Presstek, Inc., First American Title
Insurance Company and Citizens Bank New Hampshire dated
October 15, 2003. (Previously filed as Exhibit 10.14
to Pressteks Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003, filed November 12,
2003, hereby incorporated by reference.) |
|
10 |
(oo)** |
|
Employment Agreement by and between Presstek, Inc. and
Edward J. Marino dated November 19, 2003 (Previously
filed as Exhibit 10(oo) to Pressteks Form 10-K
for the fiscal year ended January 3, 2004, filed
March 18, 2004, hereby incorporated by reference.) |
|
10 |
(pp)** |
|
Employment Agreement by and between Presstek, Inc. and
Moosa E. Moosa dated December 31, 2003 (Previously
filed as Exhibit 10(pp) to Pressteks Form 10-K
for the fiscal year ended January 3, 2004, filed
March 18, 2004, hereby incorporated by reference.) |
|
10 |
(qq) |
|
Amendment to Employment Agreement by and between Pressteck, Inc.
and Moosa E. Moosa dated January 10, 2004 (Previously
filed as Exhibit 10(qq) to Pressteks Form 10-K
for the fiscal year ended January 3, 2004, filed
March 18, 2004, hereby incorporated by reference.) |
51
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
| |
|
|
|
10 |
(rr) |
|
Debtor-in-Possession Revolving Credit Agreement by and among
A.B. Dick Company, Paragon Corporate Holdings, Inc.,
RayBank National Association and Presstek, Inc. dated
July 13, 2004 (Previously filed as Exhibit 10.1 to
Pressteks Form 8-K filed on July 13, 2004,
hereby incorporated by reference) |
|
10 |
(ss) |
|
Amended and Restated Credit Agreement among the Company, the
Guarantors, Citizens Bank New Hampshire, KeyBank National
Association and Bank North N.A. dated November 5, 2004
(Previously filed as Exhibit 99.1 to Pressteks
Form 8-K filed on November 12, 2004, hereby
incorporated by reference) |
|
10 |
(tt)** |
|
Employment Agreement by and between Presstek, Inc. and
Susan A. McLaughlin dated January 24, 2005 (Previously
filed as Exhibit 99.1 to Pressteks Form 8-K,
filed January 28, 2005, hereby incorporated by reference.) |
|
10 |
(uu)** |
|
Employment Agreement by and between Presstek, Inc. and
Edward J. Marino dated February 2, 2005 (Previously
filed as Exhibit 99.1 to Pressteks Form 8-K ,
filed February 8, 2005, hereby incorporated by reference.) |
|
10 |
(vv)** |
|
Employment Agreement by and between Presstek, Inc. and
Moosa E. Moosa dated February 2, 2005 (Previously
filed as Exhibit 99.2 to Pressteks Form 8-K ,
filed February 8, 2005, hereby incorporated by reference.) |
|
21 |
|
|
Subsidiaries of the Presstek, Inc. (filed herewith.) |
|
23.1 |
|
|
Consent of BDO Seidman, LLP (filed herewith.) |
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to
Section 240.13a-14 or Section 240.15d-14 of the
Securities Exchange Act of 1934, as amended (filed and furnished
herewith.) |
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to
Section 240.13a-14 or Section 240.15d-14 of the
Securities Exchange Act of 1934, as amended (filed and furnished
herewith.) |
|
32.1 |
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed and furnished herewith.) |
|
32.2 |
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed and furnished herewith.) |
|
|
* |
The SEC has granted Pressteks request of confidential
treatment with respect to a portion of this exhibit. |
|
** |
Denotes management employment contracts or compensatory plans. |
|
|
Item 15(b) |
Filed Exhibits. |
See response to Item 15(a)(3).
|
|
Item 15(c) |
Financial Statements Excluded from
Annual Report to Shareholders. |
None.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
Edward J. Marino |
|
Chief Executive Officer and President |
Dated: March 17, 2005
This report has been signed by the following persons, pursuant
to the requirements of the Securities Exchange Act of 1934, on
behalf of the registrant and in the capacities and on the dates
indicated below:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Edward J. Marino
Edward
J. Marino |
|
Chief Executive Officer, President, and Director (Principal
Executive Officer) |
|
March 17, 2005 |
|
/s/ Moosa E. Moosa
Moosa
E. Moosa |
|
Executive Vice President, and Chief Financial Officer (Principal
Financial and Accounting Officer) |
|
March 17, 2005 |
|
/s/ Dr. Lawrence
Howard
Dr. Lawrence
Howard |
|
Director |
|
March 17, 2005 |
|
/s/ John W. Dreyer
John
W. Dreyer |
|
Director |
|
March 17, 2005 |
|
/s/ Daniel S. Ebenstein,
Esq
Daniel
S. Ebenstein, Esq |
|
Director |
|
March 17, 2005 |
|
/s/ Michael D. Moffitt
Michael
D. Moffitt |
|
Director |
|
March 17, 2005 |
|
/s/ Donald C. Waite III
Donald
C. Waite III |
|
Director |
|
March 17, 2005 |
|
/s/ Steven N. Rappaport
Steven
N. Rappaport |
|
Director |
|
March 17, 2005 |
53
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
Report of Independent Registered Public Accounting Firm
|
|
|
F-2 |
|
Consolidated Balance Sheets as of January 1, 2005 and
January 3, 2004
|
|
|
F-3 |
|
Consolidated Statements of Operations for the fiscal years ended
January 1, 2005, January 3, 2004, and
December 28, 2002
|
|
|
F-4 |
|
Consolidated Statements of Changes in Stockholders Equity
and Comprehensive Income (Loss) for the fiscal years ended
January 1, 2005, January 3, 2004, and
December 28, 2002
|
|
|
F-5 |
|
Consolidated Statements of Cash Flows for the fiscal years ended
January 1, 2005, January 3, 2004, and
December 28, 2002
|
|
|
F-6 |
|
Notes to Consolidated Financial Statements
|
|
|
F-7 |
|
Financial Statement Schedule:
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
and Reserves
|
|
|
FS-1 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
Presstek, Inc.
Hudson, New Hampshire
We have audited the accompanying consolidated balance sheets of
Presstek, Inc. and its subsidiaries as of January 1, 2005
and January 3, 2004, and the related consolidated
statements of operations, changes in stockholders equity,
and comprehensive income (loss) and cash flows for the fiscal
years ended January 1, 2005, January 3, 2004, and
December 28, 2002. We have also audited the consolidated
financial statement schedule listed in the accompanying index.
These consolidated financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements and schedule are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of
the consolidated financial statements and schedule. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly in all material respects, the financial
position of Presstek, Inc. and its subsidiaries at
January 1, 2005 and January 3, 2004, and the results
of their operations and their cash flows for the fiscal years
ended January 1, 2005, January 3, 2004, and
December 28, 2002, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the schedule presents fairly, in all
material respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of January 1, 2005, based on the
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated March 16, 2005 expressed an unqualified opinion
thereon.
|
|
|
/s/ BDO Seidman, LLP
|
|
|
|
BDO Seidman, LLP |
Boston, Massachusetts
March 16, 2005
F-2
PRESSTEK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan 1, | |
|
Jan 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
8,739 |
|
|
$ |
28,196 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
$2,444 and $1,892 in fiscal 2004 and 2003, respectively
|
|
|
38,946 |
|
|
|
14,922 |
|
|
Inventories
|
|
|
44,229 |
|
|
|
12,354 |
|
|
Other current assets
|
|
|
1,499 |
|
|
|
1,064 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
93,413 |
|
|
|
56,536 |
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
47,372 |
|
|
|
45,732 |
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Patent application costs and license rights, net
|
|
|
2,839 |
|
|
|
3,419 |
|
|
Other amortizable intangibles, net
|
|
|
7,621 |
|
|
|
|
|
|
Goodwill
|
|
|
18,888 |
|
|
|
|
|
|
Other assets
|
|
|
1,185 |
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
30,533 |
|
|
|
4,260 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
171,318 |
|
|
$ |
106,528 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$ |
6,822 |
|
|
$ |
|
|
|
Current portion of long-term debt
|
|
|
5,500 |
|
|
|
2,143 |
|
|
Accounts payable
|
|
|
13,514 |
|
|
|
4,750 |
|
|
Accrued expenses
|
|
|
16,000 |
|
|
|
6,442 |
|
|
Deferred revenue
|
|
|
10,580 |
|
|
|
689 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
52,416 |
|
|
|
14,024 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT, NET OF CURRENT PORTION
|
|
|
29,500 |
|
|
|
12,321 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized 1,000,000 shares, no
shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; authorized 75,000,000 shares;
issued and outstanding 34,896,985 shares at January 1, 2005
and 34,202,175 shares at January 3, 2004
|
|
|
349 |
|
|
|
342 |
|
|
Additional paid-in capital
|
|
|
102,962 |
|
|
|
97,769 |
|
|
Accumulated deficit
|
|
|
(14,016 |
) |
|
|
(17,881 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
107 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
89,402 |
|
|
|
80,183 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
171,318 |
|
|
$ |
106,528 |
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements
F-3
PRESSTEK, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended | |
|
|
| |
|
|
Jan 1, | |
|
Jan 3, | |
|
Dec 28, | |
|
|
2005 | |
|
2004 | |
|
2002 | |
|
|
| |
|
| |
|
| |
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue
|
|
$ |
116,276 |
|
|
$ |
80,164 |
|
|
$ |
75,809 |
|
|
Service revenue
|
|
|
13,063 |
|
|
|
4,379 |
|
|
|
3,179 |
|
|
Royalties and license fees
|
|
|
512 |
|
|
|
2,689 |
|
|
|
4,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
129,851 |
|
|
|
87,232 |
|
|
|
83,453 |
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
78,252 |
|
|
|
48,235 |
|
|
|
52,697 |
|
|
Cost of service revenue
|
|
|
9,135 |
|
|
|
2,916 |
|
|
|
1,942 |
|
|
Research and product development
|
|
|
6,460 |
|
|
|
7,061 |
|
|
|
9,303 |
|
|
Sales, marketing and customer support
|
|
|
17,675 |
|
|
|
12,272 |
|
|
|
10,767 |
|
|
General and administrative
|
|
|
13,786 |
|
|
|
9,363 |
|
|
|
10,212 |
|
|
Special charges (credits)
|
|
|
(392 |
) |
|
|
550 |
|
|
|
5,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
124,916 |
|
|
|
80,397 |
|
|
|
90,882 |
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
4,935 |
|
|
|
6,835 |
|
|
|
(7,429 |
) |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
318 |
|
|
|
331 |
|
|
|
186 |
|
|
Interest expense
|
|
|
(923 |
) |
|
|
(707 |
) |
|
|
(1,058 |
) |
|
Other income (expense), net
|
|
|
(265 |
) |
|
|
209 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(870 |
) |
|
|
(167 |
) |
|
|
(851 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
|
|
|
4,065 |
|
|
|
6,668 |
|
|
|
(8,280 |
) |
PROVISION FOR INCOME TAXES
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
|
3,865 |
|
|
|
6,668 |
|
|
|
(8,280 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME FROM DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
1,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE BASIC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
From discontinued operations
|
|
$ |
0.00 |
|
|
$ |
0.04 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE BASIC
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE DILUTED:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
From discontinued operations
|
|
$ |
0.00 |
|
|
$ |
0.04 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE DILUTED
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC
|
|
|
34,558 |
|
|
|
34,167 |
|
|
|
34,124 |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED
|
|
|
35,357 |
|
|
|
34,400 |
|
|
|
34,124 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements
F-4
PRESSTEK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended January 1, 2005, January 3, 2004, and December 28, 2002 | |
|
|
| |
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Common Stock | |
|
Additional | |
|
Retained | |
|
Other | |
|
Total | |
|
|
| |
|
Paid-in | |
|
Earnings | |
|
Comprehensive | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
(Deficit) | |
|
Income (Loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
BALANCE AT DECEMBER 29, 2001
|
|
|
34,116 |
|
|
|
341 |
|
|
|
97,342 |
|
|
|
(17,698 |
) |
|
|
|
|
|
|
79,985 |
|
Net loss and comprehensive loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,280 |
) |
|
|
|
|
|
|
(8,280 |
) |
Net proceeds from the issuance of common stock
|
|
|
9 |
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 28, 2002
|
|
|
34,125 |
|
|
|
341 |
|
|
|
97,403 |
|
|
|
(25,978 |
) |
|
|
|
|
|
|
71,766 |
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,097 |
|
|
|
|
|
|
|
8,097 |
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss related to interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock
|
|
|
77 |
|
|
|
1 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 3, 2004
|
|
|
34,202 |
|
|
|
342 |
|
|
|
97,769 |
|
|
|
(17,881 |
) |
|
|
(47 |
) |
|
|
80,183 |
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,865 |
|
|
|
|
|
|
|
3,865 |
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized loss related to interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
47 |
|
|
|
Accumulated currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock
|
|
|
695 |
|
|
|
7 |
|
|
|
5,193 |
|
|
|
|
|
|
|
|
|
|
|
5,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2005
|
|
|
34,897 |
|
|
$ |
349 |
|
|
$ |
102,962 |
|
|
$ |
(14,016 |
) |
|
$ |
107 |
|
|
$ |
89,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements
F-5
PRESSTEK, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended | |
|
|
| |
|
|
Jan 1, | |
|
Jan 3, | |
|
Dec 28, | |
|
|
2005 | |
|
2004 | |
|
2002 | |
|
|
| |
|
| |
|
| |
CASH FLOWS OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
|
|
Less income from discontinued operations
|
|
|
|
|
|
|
(1,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
3,865 |
|
|
|
6,668 |
|
|
|
(8,280 |
) |
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges and discontinued programs
|
|
|
(392 |
) |
|
|
550 |
|
|
|
9,646 |
|
|
|
|
Depreciation and amortization
|
|
|
9,106 |
|
|
|
8,867 |
|
|
|
9,422 |
|
|
|
|
Provision for warranty and other costs
|
|
|
1,109 |
|
|
|
1,228 |
|
|
|
1,938 |
|
|
|
|
Provision for losses on accounts receivable
|
|
|
1,949 |
|
|
|
1,358 |
|
|
|
901 |
|
|
|
|
Other non-cash charge, net
|
|
|
345 |
|
|
|
2 |
|
|
|
294 |
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,513 |
) |
|
|
(1,172 |
) |
|
|
2,117 |
|
|
|
|
Inventories
|
|
|
(6,471 |
) |
|
|
(639 |
) |
|
|
3,391 |
|
|
|
|
Other current assets
|
|
|
321 |
|
|
|
(510 |
) |
|
|
564 |
|
|
|
|
Accounts payable
|
|
|
(4,538 |
) |
|
|
1,419 |
|
|
|
1,264 |
|
|
|
|
Accrued expenses
|
|
|
6,892 |
|
|
|
(3,510 |
) |
|
|
(3,221 |
) |
|
|
|
Deferred service revenue
|
|
|
992 |
|
|
|
300 |
|
|
|
(68 |
) |
|
|
|
Other non-current assets
|
|
|
(691 |
) |
|
|
(708 |
) |
|
|
(1,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing
operations
|
|
|
5,974 |
|
|
|
13,853 |
|
|
|
16,952 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment purchases
|
|
|
(2,194 |
) |
|
|
(1,344 |
) |
|
|
(1,497 |
) |
|
|
|
Proceeds from the disposal of equipment
|
|
|
5 |
|
|
|
|
|
|
|
213 |
|
|
|
|
Precision acquisition, net of cash acquired
|
|
|
(12,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
ABDick acquisition, net of cash acquired
|
|
|
(43,229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations
|
|
|
(57,657 |
) |
|
|
(1,344 |
) |
|
|
(1,284 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock
|
|
|
5,200 |
|
|
|
367 |
|
|
|
61 |
|
|
|
|
Proceeds from term loan
|
|
|
35,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
Repayments of term loan
|
|
|
(14,464 |
) |
|
|
(7,953 |
) |
|
|
(1,063 |
) |
|
|
|
Net proceeds from line of credit
|
|
|
6,822 |
|
|
|
|
|
|
|
2,033 |
|
|
|
|
Repayments of lease line of credit
|
|
|
|
|
|
|
(9,290 |
) |
|
|
(1,628 |
) |
|
|
|
Debt financing costs
|
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities of
continuing operations
|
|
|
32,226 |
|
|
|
(1,876 |
) |
|
|
(597 |
) |
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(19,457 |
) |
|
|
10,633 |
|
|
|
15,071 |
|
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD
|
|
|
28,196 |
|
|
|
17,563 |
|
|
|
2,492 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS END OF PERIOD
|
|
$ |
8,739 |
|
|
$ |
28,196 |
|
|
$ |
17,563 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$ |
923 |
|
|
$ |
707 |
|
|
$ |
1,057 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to
consolidated financial statements
F-6
PRESSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|
|
1. |
Business and Summary of Significant
Accounting Policies |
Nature of Business Presstek, Inc.
(Presstek, the Company, we
or us) is a market focused high technology company
that manufactures and distributes proprietary and
non-proprietary solutions for the graphic arts industries. We
are a leader in the development of chemistry-free,
environmentally responsible digital imaging capital goods and
consumables. We develop and manufacture products that transfer
digital images onto our proprietary printing plates using
digital laser imaging equipment and chemistry-free or
process-free plate technologies for, primarily, small and
medium-sized commercial print providers. Through our
subsidiaries, we also manufacture and distribute proprietary and
non-proprietary digital and analog solutions for the graphic
arts industry.
In April 2000, we incorporated an Arizona subsidiary, Lasertel,
Inc. (Lasertel) and established operations for the
purpose of securing our supply of laser diodes. Lasertel is
engaged in the manufacture and development of high-powered laser
diodes for the Company and external customers.
On July 30, 2004, the Company acquired the stock of
Precision Lithograining, Corp. (Precision), an
independent plate manufacturer and its affiliated company SDK
Realty Corp., of South Hadley, Massachusetts, for approximately
$12.2 million in cash, net of cash acquired. Precision
manufactures our Anthem and Freedom digital printing plates, and
also designs, manufactures, markets and sells other conventional
and digital printing plates for both web and sheet-fed printing
applications to other external customers.
On November 5, 2004, the Company completed the acquisition
of certain assets and the assumption of certain liabilities of
the A.B. Dick Company (ABDick) for approximately
$43.2 million, net of cash acquired. ABDick manufactures,
distributes, markets and services offset systems and digital
platemaking systems and related supplies for the graphic arts
and printing industries.
Presstek operates in four reportable segments, the Presstek
segment, the Lasertel segment, the Precision segment, and the
ABDick segment. The Presstek segment is primarily engaged in the
development, manufacture and sale of our patented digital
imaging systems and printing plate technologies for
direct-to-press, or on-press applications, and CTP, or off-press
applications. The Lasertel segment is primarily engaged in the
manufacture and development of high-powered laser diodes for
Presstek and for sale to external customers. The Precision
segment is primarily engaged in the manufacture and sale of
conventional and digital printing plates for both web and
sheet-fed printing applications. The ABDick segment
manufactures, distributes, markets and services equipment and
supplies for the graphic arts and printing industries.
Basis of Presentation The consolidated
financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The results of the
acquisitions of Precision and ABDick are included in the
consolidated financial statements of the Company since their
respective acquisition dates.
Fiscal Year The Company operates and reports
on a 52- or 53-week, fiscal year ending on the Saturday closest
to December 31. Accordingly, the financial statements
include the 52 week fiscal year ended January 1,
2005, (fiscal 2004), 53-week fiscal year ended
January 3, 2004, (fiscal 2003), and the 52-week
fiscal year ended December 28, 2002, (fiscal
2002).
Use of Estimates The Company prepares its
financial statements in accordance with accounting principles
generally accepted in the United States. The preparation of
these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets and
liabilities and related disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting
period. The Company evaluates its estimates, including those
related to product returns, bad debts, inventories, income
taxes, warranty obligations, and litigation on an on-going
basis. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying
F-7
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Significant Risks and Uncertainties There is
rapid technological development in the electronic image
reproduction industries, resulting in extensive patent filings
and a rapid rate of issuance of new patents. Although the
Company believes that its technology has been independently
developed, and that the products it markets and proposes to
market will not infringe on the patents, or violate other
proprietary rights of others, it is possible that such
infringement of existing or future patents, or violation of
proprietary rights may occur. In such event the Company may be
required to modify its design or obtain a third party license.
No assurance can be given that the Company will be able to do so
in a timely manner, upon acceptable terms and conditions, or at
all. The failure to do any of the foregoing could have a
material adverse effect on the Companys business.
Furthermore, there can be no assurance that the Company will
have the financial or other resources necessary to successfully
defend a patent infringement or proprietary rights violation
action. Moreover, the Company may be unable, for financial or
other reasons, to enforce its rights under any of its patents.
The Companys press products are manufactured under
agreements with press manufacturers located in Japan and
Germany. The Company believes that there are other sources
available to manufacture these products; however, if the supply
of these presses were to be delayed, or if import restrictions
were imposed, its ability to ship products in a timely manner
could be adversely affected, which could have a material adverse
effect on our business, results of operations and financial
condition.
While the Companys alliance with Heidelberg has been an
important one, there are substantial risks associated with this
relationship. Unlike our distribution relationships with
companies such as Ryobi, we have no distribution rights to the
Quickmaster DI, and must rely on Heidelberg to sell this
press. We currently have no orders from Heidelberg for direct
imaging kits used in the Quickmaster DI. Heidelberg has
indicated, as a result of the global economic slowdown, that it
has an inventory of direct imaging kits on hand to support its
production requirements for six months. We do not believe that
orders for direct imaging kits will resume in fiscal 2005. Sales
to Heidelberg and its distributors represented approximately 9%,
21%, and 36% of revenue for fiscal 2004, 2003, and 2002,
respectively. As a result of our expanded strategic partnerships
and distribution channels, our sales to Heidelberg comprise a
less significant share of total sales for fiscal 2004. The loss
of Heidelberg and its distributors as customers, however, would
have a material adverse effect on our business, results of
operations and financial condition.
Revenue Recognition The Company generates
revenue through four main sources; equipment sales, laser diode
sales, consumable sales and the sale of installation services,
training, support services and equipment maintenance contracts.
The Company recognizes revenue when persuasive evidence of an
agreement exists, delivery has occurred or services have been
rendered, the price to the customer is fixed or determinable,
and collection is reasonably assured, and no future services are
required.
The Company records revenue for product sales net of estimated
returns, which are adjusted periodically, based upon historical
rates of return. Equipment revenue and any related royalties for
products sold to original equipment manufacturers
(OEMs) is recognized at the time of shipment.
Contracts with OEMs do not include price protection or
product return rights. Revenue for equipment sold to
distributors, whereby the distributor is responsible for
installation, is recognized at shipment. Revenue for equipment
sold to distributors whereby the Company is responsible for
installation, for which the installation is not deemed
inconsequential, is recognized upon completion of installation
and customer acceptance. Contracts with distributors do not
include price protection or product return rights, however, the
Company may elect in certain circumstances to accept returns for
product. Revenue for installation services is recognized after
installation has occurred. Revenue related to service
maintenance agreements is recognized ratably over the duration
of the particular contract. Revenue for training and support
services is recognized upon completion of the training and
services. Certain fees and other reimbursements are recognized
as revenue when the related services have been performed or the
revenue otherwise earned. Deferred revenue includes certain
customer advance payments received as a result of the
Companys distribution agreements and service maintenance
agreements. This revenue is recognized as product is shipped or
services are performed. The Company may enter into multiple
element arrangements. The
F-8
Company follows Emerging Issues Task Force (EITF)
No. 00-21, Revenue Arrangements with Multiple
Deliverables. Based upon the criteria contained in EITF
No. 00-21, the Company has determined that its deliverables
within multiple-elements revenue arrangements represent separate
units of accounting. Revenue is allocated to the separate units
of accounting based on the relative fair values of the
individual units of accounting. A general right of return or
cancellation does not exist once the product is delivered to the
customer.
The Company accounts for shipping and handling fees passed on to
customers as revenue.
Fair Value of Financial Instruments The
carrying values of cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term
maturity of these instruments. The carrying amounts of the
Companys bank borrowings, refinanced in 2004 under its
credit agreement, approximates fair value because the interest
rates are based on floating rates identified by reference to
market rates. At January 1, 2005 and January 3, 2004,
the fair value of the Companys long-term debt approximated
carrying value.
Cash Equivalents For purposes of reporting
cash flows, the Company considers all savings deposits,
certificates of deposit, money market funds, and highly liquid
debt instruments with original maturities of three months or
less to be cash equivalents.
Concentration of Credit Risk Financial
instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash
equivalents and accounts receivable. The Company invests in
high-quality money market instruments, securities of the U.S.
government, and high-quality corporate issues. Accounts
receivable are generally unsecured and are derived from the
Companys customers located around the world. The Company
performs ongoing credit evaluations of its customers and
maintains an allowance for potential credit losses. The Company
has advanced $1.1 million to a customer, which can be
earned as a discount on future sales over the next three years.
The Company has a security interest in the customers
assets should payment not be made in accordance with the terms
of the agreement.
Accounts Receivable and Allowance for Doubtful
Accounts The Companys accounts receivable
are customer obligations due under normal trade terms, carried
at their face value less an allowance for doubtful accounts.
The Company evaluates its accounts receivable on an ongoing
basis and establishes an allowance for doubtful accounts based
on specific customer circumstances and on its historical rate of
write-offs. The Company includes any accounts receivable
balances that are determined to be uncollectible, along with a
general reserve, in an overall allowance for doubtful accounts.
After reasonable attempts to collect a receivable have failed,
the receivable is written off against the allowance. The Company
believes the allowance for doubtful accounts as of
January 1, 2005 is adequate, however, actual write-offs
might exceed the recorded allowance.
Inventories Inventories are valued at the
lower of cost or net realizable value, with cost determined
using the first-in, first-out method. The Company assesses the
recoverability of inventory to determine whether adjustments for
impairment are required. Inventory that is in excess of future
requirements is written down to its estimated value based upon
forecasted demand for its products. If actual demand is less
favorable than what has been forecasted by management,
additional inventory write-downs may be required.
Property, Plant and Equipment Property, plant
and equipment are stated at cost and are depreciated using a
straight-line method over their estimated useful lives as
indicated in the following table:
|
|
|
|
|
|
|
Estimated | |
|
|
Useful Lives | |
|
|
| |
Buildings and improvements
|
|
|
25 - 30 years |
|
Leasehold improvements
|
|
|
Term of the lease |
|
Production equipment and other
|
|
|
5 - 10 years |
|
Office furniture and equipment
|
|
|
3 - 7 years |
|
Goodwill and Other Intangible Assets Goodwill
is the amount by which the cost of acquired net assets in a
business acquisition exceeded the fair value of net identifiable
assets on the date of purchase. Presstek has goodwill and net
intangible assets excluding patents of $26.5 million at
January 1, 2005. We are required to
F-9
evaluate the impairment annually of goodwill, or more frequently
when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through the
estimated undiscounted future cash flows from the use of these
assets. An impairment charge would be recorded if such an
assessment were to indicate that the fair value of such assets
was less than the carrying value. Judgment is required in
determining whether an event has occurred that may impair the
value of goodwill or identifiable intangible assets. Factors
that could indicate that an impairment may exist include
significant underperformance relative to plan or long-term
projections, strategic changes in business strategy, significant
negative industry or economic trends or a significant decline in
our stock price for a sustained period of time. We must make
assumptions about future cash flows, future operating plans,
discount rates and other factors in the models and valuation
reports. Different assumptions and judgment determination could
yield different conclusions that would result in an impairment
charge to income in the period that such change or determination
was made. For purposes of the annual impairment test, which will
occur on July 2, 2005, goodwill of $5.4 million has
been assigned to the Precision business segment and
$13.5 million has been assigned to the ABDick business
segment.
The following table is a summary of goodwill and other
intangible assets as of January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying | |
|
Accumulated | |
|
|
|
|
Amount | |
|
Amortization | |
|
Useful Life | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
2,360 |
|
|
|
171 |
|
|
|
2-3 years |
|
Customer relationships
|
|
|
4,700 |
|
|
|
117 |
|
|
|
7-10 years |
|
Software license
|
|
|
1,203 |
|
|
|
778 |
|
|
|
3 years |
|
Organizational fees
|
|
|
339 |
|
|
|
7 |
|
|
|
5 years |
|
Non-compete covenants
|
|
|
245 |
|
|
|
153 |
|
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,847 |
|
|
$ |
1,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
18,984 |
|
|
$ |
96 |
|
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
The Company amortizes intangible assets with finite lives over
the above estimated useful lives of the respective intangible
assets. Amortization expense of intangible assets amounted to
$347,000 in 2004 and is included in general and administrative
expenses in the accompanying consolidated statements of
operations. The following is a summary of estimated aggregate
amortization expense of intangible assets for each of the five
succeeding fiscal years as of January 1, 2005:
|
|
|
|
|
|
|
(In thousands) | |
|
|
| |
2005
|
|
$ |
1,573 |
|
2006
|
|
|
1,521 |
|
2007
|
|
|
1,304 |
|
2008
|
|
|
596 |
|
2009
|
|
|
584 |
|
Thereafter
|
|
|
2,043 |
|
|
|
|
|
|
|
$ |
7,621 |
|
|
|
|
|
Patent Application Costs and License Rights
Patent application costs represent the cost of preparing and
filing applications to patent the Companys proprietary
technologies, in addition to certain patent and license rights
obtained in the Companys acquisitions. Such costs are
amortized over a period ranging from five to seven years,
beginning on the date the patents or rights are issued or
acquired. Amortization expense relating to patent application
costs and license rights for fiscal 2004, 2003, and 2002, was
$968,000, $890,000, and $853,000, respectively. At
January 1,2005, $923,000 in patent application costs have
not been put into service.
F-10
At January 1, 2005 and January 3, 2004, the
Companys gross carrying amount for Patent Application
Costs and License Rights was $8.1 million and
$7.9 million, respectively. The accumulated amortization at
January 1, 2005 and January 3, 2004 was
$5.3 million and $4.5 million, respectively. The
following table summarizes the Companys projected
amortization expense:
|
|
|
|
|
|
|
(In thousands) | |
|
|
| |
2005
|
|
$ |
872 |
|
2006
|
|
|
827 |
|
2007
|
|
|
462 |
|
2008
|
|
|
356 |
|
2009
|
|
|
228 |
|
Thereafter
|
|
|
94 |
|
|
|
|
|
|
|
$ |
2,839 |
|
|
|
|
|
Long Lived Assets Long-lived assets, such as
amortizable intangible assets and property and equipment are
evaluated for impairment when events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. An impairment loss would be
recognized when estimated undiscounted future cash flows
expected to result from the use of these assets and their
eventual disposition is less than their carrying amount.
Impairment, if any, is assessed using discounted cash flows.
When any such impairment exists, the related assets will be
written down to fair value. Management believes that no such
impairment existed at January 1, 2005.
Product Warranties The Company warrants its
products against defects in material and workmanship for various
periods, determined by the product, generally from a period of
ninety days to a period of one year from the date of
installation. The Companys typical warranties require it
to repair or replace defective products during the warranty
period at no cost to the customer. The Company provides for the
estimated cost of product warranties, based on historical
experience, at the time revenue is recognized. The Company
periodically assesses the adequacy of its recorded warranty
liability and adjusts the amounts as necessary. While the
Company believes that its estimated liability for product
warranties is adequate and that the judgment applied is
appropriate, the estimated liability for product warranties
could differ materially from future actual warranty costs.
Changes in the Companys warranty liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance, beginning of year
|
|
$ |
935 |
|
|
$ |
1,089 |
|
|
$ |
793 |
|
Warranties issued
|
|
|
1,109 |
|
|
|
1,228 |
|
|
|
1,938 |
|
Charges
|
|
|
(1,367 |
) |
|
|
(1,382 |
) |
|
|
(1,642 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$ |
677 |
|
|
$ |
935 |
|
|
$ |
1,089 |
|
|
|
|
|
|
|
|
|
|
|
Shipping and Handling Costs Shipping and
handling costs billed to customers are recorded as revenue. The
costs associated with shipping goods to customers are recorded
as a cost of sales.
Research and Development Costs Research and
development costs are expensed as incurred for financial
reporting purposes.
Advertising Costs Advertising costs are
expensed as incurred for financial reporting purposes.
Advertising expense was $559,000, $423,000 and $479,000 for
2004, 2003 and 2002, respectively.
Stock-Based Compensation The Company accounts
for stock options granted to employees under the provisions of
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), as permitted by Statement of
Financial Accounting Standards No. 123,
(SFAS 123) Accounting for Stock-Based
Compensation. APB 25 provides for compensation cost
to be recognized over the vesting
F-11
period of the options based on the difference, if any, between
the fair market value of the Companys stock and the option
price on the grant date. As the Company has only issued fixed
term stock option grants at or above the quoted market price on
the date of the grant which vest solely on the basis of the
passage of time, there is no compensation expense recognized in
the accompanying financial statements. The Company adopted the
disclosure provisions of SFAS 123 as amended Statement of
Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation Transition and
Disclosure that require the Company to provide pro forma
disclosure of net income (loss) and net income (loss) per share
as if the optional fair value method had been applied to
determine compensation costs for the Companys stock option
plans.
Accordingly, the Companys net income (loss) and net income
(loss) per share would have been charged to the pro forma
amounts indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per | |
|
|
share data) | |
Net income (loss), as reported
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
Total stock-based employee compensation expense
|
|
|
(2,074 |
) |
|
|
(2,942 |
) |
|
|
(4,707 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
1,791 |
|
|
$ |
5,155 |
|
|
$ |
(12,987 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, as reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.05 |
|
|
$ |
0.15 |
|
|
$ |
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
.05 |
|
|
$ |
0.15 |
|
|
$ |
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
The above pro forma net income (loss) and net income (loss) per
share do not consider any related tax benefit from option
exercises in fiscal 2004, 2003, or 2002.
The Company used the Black-Scholes option-pricing model to
estimate the weighted average grant date fair value of $5.85,
$3.59, and $3.78 for each stock option issued in fiscal 2004,
2003, and 2002, respectively, using the following weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Dividend yield
|
|
|
none |
|
|
|
none |
|
|
|
none |
|
Expected volatility
|
|
|
63.38 |
% |
|
|
69.00 |
% |
|
|
74.57 |
% |
Risk free interest rate
|
|
|
3.71 |
% |
|
|
3.51 |
% |
|
|
3.43 |
% |
Expected option life
|
|
|
5.10 |
|
|
|
5.49 |
|
|
|
6.45 |
|
Comprehensive Income (Loss) Comprehensive
income (loss) is comprised of net income and all changes in
stockholders equity except those due to investments by
owners. In fiscal 2004, comprehensive income includes $47,000
related to the change in value of derivatives used to hedge
interest rate exposure and $107,000 related to the
Companys foreign subsidiaries. In fiscal 2003,
comprehensive loss was $47,000 related to the change in value of
derivatives used to hedge interest rate exposure. In fiscal
2002, comprehensive income (loss) was comprised solely of
net income (loss).
|
|
|
Foreign Currency Translation |
The local currency is the functional currency of our foreign
subsidiaries. Assets and liabilities are translated into
U.S. dollars at exchange rates in effect at the balance
sheet date. Income and expense items are translated at average
rates for the period.
F-12
Gains and losses from foreign currency transactions are included
in other income (expense), net, and consisted of losses of
$133,000 in fiscal 2004 and gains of $196,000 in fiscal 2003.
The Company entered into interest rate swap agreements with its
lenders in October 2003, which was intended to protect the
Companys long-term debt against fluctuations in LIBOR
rates. Under the interest rate swaps LIBOR is set at a minimum
of 1.15% and a maximum of 4.25%. Because the interest rate swap
agreement did not qualify as a hedge for accounting purposes
under SFAS No. 133, and related amendments, including
SFAS 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, the Company recorded expense
of $133,000 in fiscal 2004 to mark to market these interest rate
swap agreements. The adjustment to fair value of the interest
rate swap agreement was recorded as a component of other income
(expense).
Basic and Diluted Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted earnings (loss) per
share is computed giving effect to all potential dilutive common
shares that were outstanding during the period. Potential
dilutive common shares consist of the incremental common shares
issuable upon the exercise of warrants and stock options. For
fiscal 2002, potentially dilutive securities that related to
shares issuable upon the exercise of warrants to purchase
200,000 shares of common stock at $20.81 and stock options
to purchase 3,639,801 shares of common stock at exercise prices
ranging from $2.85 to $26.94 granted by the Company were
excluded, as their effect was anti-dilutive.
|
|
|
Effect of New Accounting Pronouncements |
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of
ARB No. 43, Chapter 4, SFAS No. 151
amends previous accounting guidance to clarify the abnormal
amounts of idle facility expense, freight, handling costs, and
spoilage. This statement requires that those items be recognized
as current period charges regardless of whether they meet the
criterion of so abnormal which was the criterion
specified previously. In addition, this Statement requires that
allocation of fixed production overheads to the cost of the
production be based on normal capacity of the production
facilities. This pronouncement is effective for the Company
beginning October 1, 2005. The Company has not yet assessed
the impact on its consolidated financial statements of adopting
this new standard.
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment. This Statement is a revision of
SFAS No. 123, and supersedes APB 25, and its
related interpretations. SFAS 123R requires all share-based
payments to employees, including grants of employee stock
options to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative.
SFAS 123R is effective for the Company for the first
interim or annual reporting period that begins after
June 15, 2005.
The Company is currently evaluating the two methods of adoption
allowed by SFAS 123R; the modified-prospective transition
method and the modified-retrospective transition method.
Management expects that the adoption of SFAS 123R will
materially increase stock compensation expense and decrease net
income. In addition, SFAS 123R requires that the excess tax
benefits related to stock compensation be reported as a cash
inflow from financing activities rather than as a reduction of
taxes paid in cash from operations.
2. Discontinued
Operations
During the third quarter of fiscal 2003, the Company filed a
joint motion for dismissal of a lawsuit that PPG, Inc.
(PPG) brought against the Companys subsidiary,
Delta V Technologies, Inc., whose operations were
discontinued in fiscal 1999. As a result of the dismissal, the
Company reversed all previously recorded liabilities associated
with this discontinued operation in the third quarter of fiscal
2003, resulting in net income of $1.4 million from
discontinued operations in fiscal 2003.
F-13
3. Acquisitions
On July 30, 2004, the Company acquired the stock of
Precision Lithograining Corporation and its affiliated company
SDK Realty Corp., (collectively, Precision)
located in South Hadley, Massachusetts, an independent plate
manufacturer, for an aggregate purchase price of approximately
$12.2 million in cash, net of cash acquired. Precision
provides the Company with its Anthem and Freedom printing
plates, and is also a provider of other conventional and digital
printing plates for both web and sheet-fed printing applications
The following table summarizes the preliminary estimated fair
value assigned to the assets acquired and liabilities assumed at
the date of acquisition:
|
|
|
|
|
|
|
|
Assets Acquired/ | |
|
|
(Liabilities Assumed) | |
|
|
| |
|
|
(In thousands) | |
Cash and accounts receivable
|
|
$ |
2,725 |
|
Inventory
|
|
|
2,529 |
|
Property, plant and equipment
|
|
|
6,065 |
|
Trade names
|
|
|
260 |
|
Customer relationships
|
|
|
900 |
|
Non-compete covenants
|
|
|
100 |
|
Goodwill (deductible for tax purposes)
|
|
|
5,422 |
|
Accounts payable and accrued expenses
|
|
|
(5,697 |
) |
|
|
|
|
|
Total purchase price
|
|
|
12,304 |
|
|
Less: cash acquired
|
|
|
(65 |
) |
|
|
|
|
|
Net cash paid
|
|
$ |
12,239 |
|
|
|
|
|
The acquisition of Precision is accounted for as a purchase
under SFAS No. 141. Accordingly, the operating results
of Precision have been included in the Companys
consolidated financial statements since the July 30, 2004
acquisition date as part of the Precision segment. The Company
has allocated goodwill of $5.4 million to the Precision
segment based on the estimated future revenue of the acquired
business. The Company estimated the useful lives of the acquired
other intangible assets to be 2 to 7 years and has
included them in other intangible assets, net, in the
accompanying consolidated balance sheet at January 1, 2005.
The values assigned to inventory, property, plant and equipment
and intangible assets were based upon the results of an
independent appraisal.
On November 5, 2004, the Company completed the acquisition
of certain assets and the assumption of certain liabilities of
ABDick for a preliminary aggregate purchase price of
approximately $43.2 million, net of cash acquired. The
purchase price consisted of $40.0 million in cash and
$3.2 million of transaction costs. ABDick manufactures and
markets offset systems and digital platemaking systems and
related supplies for the graphic arts and printing industries.
The aggregate purchase price is preliminary as management is in
the process of finalizing restructuring plans for ABDicks
operations, the results of which could impact the final amount
of exit costs. Management is currently finalizing plans to
streamline and integrate the operations of ABDick with its
current operations. The restructuring plan is expected to be
substantially complete by June 2005. Total costs, primarily for
severance and lease commitments, are expected to be
approximately $1.5 million. Although the Company believes
its estimated exit costs to be reasonable, actual spending for
exit activities may differ from current estimated exit costs,
which may impact the final aggregate purchase price. In
addition, the Company may incur certain direct acquisition costs
subsequent to January 1, 2005, which will increase the
total amount of direct acquisition costs included in the
aggregate purchase price. As of January 1, 2005, no exit
costs had been paid.
F-14
The following table summarizes the preliminary estimated fair
value assigned to the assets acquired and liabilities assumed at
the date of acquisition:
|
|
|
|
|
|
|
|
Assets Acquired/ | |
|
|
(Liabilities Assumed) | |
|
|
| |
|
|
(In thousands) | |
Cash and accounts receivable
|
|
$ |
17,066 |
|
Inventory
|
|
|
22,705 |
|
Other current assets
|
|
|
756 |
|
Property, plant and equipment
|
|
|
1,375 |
|
Trade names
|
|
|
2,100 |
|
Customer relationships
|
|
|
3,800 |
|
Software license
|
|
|
450 |
|
Other long term assets
|
|
|
109 |
|
Goodwill (deductible for tax purposes)
|
|
|
13,466 |
|
Accounts payable and accrued expenses
|
|
|
(9,433 |
) |
Deferred revenue
|
|
|
(8,899 |
) |
|
|
|
|
|
Total purchase price
|
|
|
43,495 |
|
|
Less: cash acquired
|
|
|
(266 |
) |
|
|
|
|
|
Net cash paid
|
|
$ |
43,229 |
|
|
|
|
|
The acquisition of ABDick is accounted for as a purchase under
SFAS No. 141. Accordingly, the operating results of
ABDick have been included in the Companys consolidated
financial statements since the acquisition date as part of the
ABDick segment. The Company has allocated goodwill of
$13.5 million to the ABDick segment based on the estimated
future revenue of the acquired business. The Company estimated
the useful lives of the acquired intangible assets to be 3 to
10 years and has included them in other intangible assets,
net, in the accompanying consolidated balance sheet at
January 1, 2005. The values assigned to inventory,
property, plant and equipment, intangible assets and deferred
revenue were based upon the results of an independent appraisal.
The following table sets forth supplemental unaudited pro forma
financial information that assumes the acquisitions of Precision
and ABDick were complete at the beginning of fiscal 2002. The
unaudited pro forma results include estimates and assumptions
regarding increased amortization of intangible assets related to
the acquisition. However, pro forma results are not necessarily
indicative of the results that would have occurred if the
acquisitions had occurred on the date indicated, or that may
result in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Pro forma revenue
|
|
$ |
290,171 |
|
|
$ |
304,655 |
|
|
$ |
307,018 |
|
Pro forma net income
|
|
|
1,355 |
|
|
|
11,930 |
|
|
|
(8,567 |
) |
Pro forma earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.04 |
|
|
$ |
.35 |
|
|
$ |
(.25 |
) |
|
Diluted
|
|
$ |
.04 |
|
|
$ |
.35 |
|
|
$ |
(.25 |
) |
F-15
4. Inventories
Inventories consisted of the following at January 1, 2005
and January 3, 2004:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Raw materials
|
|
$ |
9,424 |
|
|
$ |
2,782 |
|
Work in process
|
|
|
5,458 |
|
|
|
2,939 |
|
Finished goods
|
|
|
29,347 |
|
|
|
6,633 |
|
|
|
|
|
|
|
|
Total inventories
|
|
$ |
44,229 |
|
|
$ |
12,354 |
|
|
|
|
|
|
|
|
5. Property,
Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at
January 1, 2005 and January 3, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
At cost:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$ |
2,352 |
|
|
$ |
2,038 |
|
Buildings and leasehold improvements
|
|
|
27,695 |
|
|
|
24,518 |
|
Production equipment
|
|
|
52,024 |
|
|
|
46,931 |
|
Office furniture, equipment and other
|
|
|
5,527 |
|
|
|
4,831 |
|
|
|
|
|
|
|
|
|
|
|
87,598 |
|
|
|
78,318 |
|
|
Less accumulated depreciation
|
|
|
(40,226 |
) |
|
|
(32,586 |
) |
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$ |
47,372 |
|
|
$ |
45,732 |
|
|
|
|
|
|
|
|
Depreciation expense for fiscal 2004 and 2003 was
$7.8 million and $7.9 million, respectively. All
property and equipment is pledged as security for long-term
debt. See Note 7.
6. Accrued
Expenses
Accrued expenses consisted of the following at January 1,
2005 and January 3, 2004:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Accrued payroll and benefits
|
|
$ |
6,141 |
|
|
$ |
2,154 |
|
Accrued warranty
|
|
|
1,472 |
|
|
|
935 |
|
Accrued special charges
|
|
|
1,652 |
|
|
|
1,055 |
|
Accrued royalties
|
|
|
1,247 |
|
|
|
1,057 |
|
Other current liabilities
|
|
|
5,488 |
|
|
|
1,241 |
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$ |
16,000 |
|
|
$ |
6,442 |
|
|
|
|
|
|
|
|
The accrued warranty balance at January 1, 2005 of
$1,472,000 includes $795,000 of acquisition related beginning
balance.
F-16
7. Long-Term
Debt and Line of Credit
Borrowings consisted of the following at January 1, 2005
and January 3, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Term Loan
|
|
$ |
35,000 |
|
|
$ |
14,464 |
|
Line of credit
|
|
|
6,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,822 |
|
|
|
14,464 |
|
|
Less current portion
|
|
|
(12,322 |
) |
|
|
(2,143 |
) |
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
29,500 |
|
|
$ |
12,321 |
|
|
|
|
|
|
|
|
In October 2003, the Company replaced its then existing credit
facilities, entering into a $50.0 million senior secured
credit facility jointly with two lenders. This new credit
facility included a $35.0 million revolving line of credit
(the Revolver) and a $15.0 million term loan
(the Term Loan). These credit facilities were
secured by all of the Companys assets, and bore interest,
at the Companys election, at either the Prime Rate or the
LIBOR rate, plus an applicable margin based on certain financial
ratios, ranging from a minimum of .25% to a maximum of 2.5%.
On November 5, 2004, in connection with the acquisition of
ABDick, the Company replaced its current credit facilities with
$80.0 million in Senior Secured Credit Facilities (the
Facilities) from three lenders. The terms of the
Facilities include a $35.0 million five year secured term
loan (the New Term Loan) and a $45.0 million
five year secured revolving line of credit (the New
Revolver). The Facilities were used to partially finance
the acquisition of ABDick, and will be available for working
capital requirements, capital expenditures, acquisitions, and
general corporate purposes. Borrowings under the facilities bear
interest at either (i) the LIBOR rate plus applicable
margins or (ii) the Prime Rate, as defined in the
agreement, plus applicable margins. The applicable margins range
from 1.25% to 4.0% for LIBOR, or 0% to 1.75% for Prime Rate,
based on certain financial performance. At January 1, 2005,
the effective interest rate was 5.7%.
The New Revolver is a five-year loan, expiring in November 2009,
under which the Company may borrow a maximum of
$45.0 million, reduced by the amount of all letters of
credit outstanding. Advances under the New Revolver may be used
to finance working capital requirements, capital expenditures,
and future acquisitions as permitted under the loan agreement.
At January 1, 2005, the Company had $27.2 million
available under the revolving line of credit loan, reduced by
$11.0 million outstanding under letters of credit. At
January 1, 2005, the effective interest rate was 5.8%.
The New Term Loan is a five-year loan in the amount of
$35.0 million. Principal payments on the New Term Loan will
be made in consecutive quarterly installments beginning on
March 31, 2005 initially in the amount of $250,000, and
continuing quarterly thereafter in the amount of $1,750,000,
with a final settlement of all remaining principal and unpaid
interest on November 4, 2009. At January 1, 2005, the
effective interest rate was 5.7%.
Under the terms of the New Revolver and New Term Loan, the
Company is required to meet various financial covenants on a
quarterly and annual basis, including maximum funded debt to
EBITDA and minimum fixed charge coverage covenants. As of
January 1, 2005, the Company was in compliance with all
financial covenants.
F-17
As of January 1, 2005, aggregate debt maturities for
long-term debt were as follows:
|
|
|
|
|
|
|
(In thousands) | |
2005
|
|
$ |
12,322 |
|
2006
|
|
|
7,000 |
|
2007
|
|
|
7,000 |
|
2008
|
|
|
7,000 |
|
2009
|
|
|
8,500 |
|
|
|
|
|
Total long-term debt maturities
|
|
$ |
41,822 |
|
|
|
|
|
8. Stockholders
Equity
Preferred Stock The Companys
certificate of incorporation empowers the Board of Directors,
without stockholder approval, to issue up to
1,000,000 shares of $.01 par value preferred stock,
with dividend, liquidation, conversion, and voting or other
rights to be determined upon issuance by the Board of Directors.
No preferred stock has been issued to date.
Employee Stock Option Plans As of
January 1, 2005 the Company had three stock option plans in
effect, the 1994 Stock Option Plan (the
1994 Plan), the 1998 Stock Incentive Plan
(the 1998 Incentive Plan), and the
2003 Stock Option and Incentive Plan (the
2003 Plan).
Previously adopted plans, including the 1988 Stock Option
Plan (the 1988 Option Plan) expired on
August 21, 1998, the 1991 Stock Option Plan (the
1991 Plan) expired on August 18, 2001, and
the 1997 Interim Stock Option Plan (the
1997 Plan) expired on September 22, 2002.
No future grants will be issued under these expired plans,
however at January 1, 2005, options outstanding under the
1991 Plan and the 1997 Plan totaled 71,225 and
106,875, respectively, and will expire according to the
specified expiration terms of the individual option grant. There
were no options outstanding under the 1988 Option Plan at
January 1, 2005.
The 1994 Plan, which expired April 8, 2004, provides
for the award of options to key employees and other persons to
purchase up to 2,500,000 shares of the Companys
common stock. Options granted under this plan may be either
Incentive Stock Options (ISOs) or Nonqualified
Options (NQOs). Generally, ISOs may only be granted
to employees of the Company, at an exercise price of not less
than fair market value of the stock at the date of grant. NQOs
may be granted to any person, at any exercise price not less
than par value, within the discretion of the Board of Directors
or a committee appointed by the Board of Directors
(Committee). Under the 1994 Plan, any options
granted generally will become exercisable in increments over a
period not to exceed ten years from the date of grant, to be
determined by the Board of Directors or Committee. These options
generally will expire not more than ten years from the date of
grant. At January 1, 2005 options outstanding totaled
949,076 and will expire according to the specified expiration
terms of the individual option grants.
The 1998 Incentive Plan provides for the award of stock options,
restricted stock, deferred stock, and other stock based awards
to officers, directors, employees, and other key persons
(collectively awards). A total of
3,000,000 shares of common stock, subject to anti-dilution
adjustments, have been reserved under this plan. Options under
the 1998 Incentive Plan become exercisable upon the earlier of a
date set by the Board of Directors or Compensation Committee at
the time of grant or the close of business on the day before the
tenth anniversary of the stock options date of grant.
Options become exercisable the day before the fifth anniversary
of the date of grant in the case of an ISO. At January 1,
2005, options outstanding totaled 1,518,550 and will expire
according to the specified expiration terms of the individual
option grants.
The 2003 Plan provides for the award of stock options,
stock issuances and other equity interests in the Company to
employees, officers, directors (including those directors who
are not an employee or officer of the Company), such directors
being referred to as Non-Employee Directors, consultants and
advisors of the Company and its Subsidiaries, all of whom are
eligible to receive awards under the plan. The 2003 Plan
provides for an automatic annual grant of 7,500 stock
options to all active Non-Employee Directors on an annual basis.
A total of 2,000,000 shares of common stock, subject to
anti-dilution adjustments have been reserved under this plan.
F-18
Options under the 2003 Plan become exercisable at such
times and subject to such terms and conditions as the Board of
Directors or Committee may specify in the applicable option
agreement at the time of grant. At January 1, 2005, options
outstanding totaled 45,000 and will expire according to the
specified expiration terms of the individual option grants.
Employee Stock Purchase Plan The
Companys 2002 Employee Stock Purchase Plan
(ESPP) provides for all eligible employees of the
Company and its participating subsidiaries to purchase shares of
the Companys common stock through payroll deductions at
85% of the fair market value of the Companys common stock
on specified days. A total of 950,000 shares of the
Companys common stock subject to adjustment, have been
reserved for issuance under this plan. At January 1, 2005,
a total of 862,146 shares remain available for issuance.
Director Stock Option Plan The Companys
Non-Employee Director Stock Option Plan (the Director
Plan) that expired on December 31, 2003 allowed only
non-employee directors of the Company to receive grants under
the plan. The Director Plan provided that eligible directors
automatically receive a grant of options to purchase
5,000 shares of common stock at fair market value upon
first becoming a director and, thereafter, an annual grant, in
January of each year, of options to purchase 2,500 shares
at fair market value. Options granted under this plan become
100% exercisable after one year and terminate five years from
date of grant. At January 1, 2005 options outstanding
totaled 62,500 and will expire according to the specified
expiration terms of the individual option grants.
The following table summarizes information about all stock
options outstanding at January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
Average | |
|
Exercisable | |
|
Average | |
Range of |
|
Outstanding | |
|
Contractual | |
|
Exercise | |
|
as of | |
|
Exercise | |
Exercise Prices |
|
as of 01/01/05 | |
|
Years | |
|
Price | |
|
01/01/05 | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$0.00 - $5.22
|
|
|
231,200 |
|
|
|
6.6 |
|
|
$ |
4.34 |
|
|
|
176,450 |
|
|
$ |
4.29 |
|
$5.23 - $6.00
|
|
|
661,750 |
|
|
|
6.6 |
|
|
$ |
5.28 |
|
|
|
513,187 |
|
|
$ |
5.28 |
|
$6.01 - $6.75
|
|
|
428,300 |
|
|
|
7.2 |
|
|
$ |
6.33 |
|
|
|
198,050 |
|
|
$ |
6.33 |
|
$6.76 - $8.00
|
|
|
338,425 |
|
|
|
5.7 |
|
|
$ |
7.22 |
|
|
|
264,925 |
|
|
$ |
7.19 |
|
$8.01 - $13.70
|
|
|
418,975 |
|
|
|
5.7 |
|
|
$ |
9.82 |
|
|
|
272,475 |
|
|
$ |
9.77 |
|
$13.71 - $23.00
|
|
|
674,576 |
|
|
|
3.9 |
|
|
$ |
14.57 |
|
|
|
670,076 |
|
|
$ |
14.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,753,226 |
|
|
|
5.8 |
|
|
$ |
8.57 |
|
|
|
2,095,163 |
|
|
$ |
9.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Information concerning all stock option activity under the 1988,
1991, 1994, 1997, 1998, the Director and 2003 Plans for the
fiscal years ended January 1, 2005, January 3, 2004,
and December 28, 2002 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
Option | |
|
Option Price | |
|
Average Price | |
|
|
Shares | |
|
Per Share | |
|
Per Share | |
|
|
| |
|
| |
|
| |
Outstanding at December 29, 2001
|
|
|
3,305,487 |
|
|
$ |
5.50 - $26.94 |
|
|
$ |
10.62 |
|
Granted
|
|
|
1,508,900 |
|
|
$ |
2.85 - $8.79 |
|
|
$ |
5.72 |
|
Exercised
|
|
|
(9,575 |
) |
|
$ |
6.88 - $7.78 |
|
|
$ |
7.25 |
|
Cancelled/Expired
|
|
|
(1,165,011 |
) |
|
$ |
5.82 - $19.19 |
|
|
$ |
9.87 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 28, 2002
|
|
|
3,639,801 |
|
|
$ |
2.85 - $26.94 |
|
|
$ |
8.84 |
|
Granted
|
|
|
385,000 |
|
|
$ |
4.36 - $8.21 |
|
|
$ |
5.84 |
|
Exercised
|
|
|
(20,200 |
) |
|
$ |
6.30 - $6.88 |
|
|
$ |
6.71 |
|
Cancelled/ Expired
|
|
|
(552,125 |
) |
|
$ |
2.85 - $26.94 |
|
|
$ |
9.83 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2004
|
|
|
3,452,476 |
|
|
$ |
2.88 - $22.75 |
|
|
$ |
8.36 |
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
76,750 |
|
|
$ |
9.00 - $11.80 |
|
|
$ |
10.08 |
|
Exercised
|
|
|
(663,450 |
) |
|
$ |
2.88 - $10.75 |
|
|
$ |
7.53 |
|
Cancelled/ Expired
|
|
|
(112,550 |
) |
|
$ |
3.09 - $16.31 |
|
|
$ |
9.25 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2005
|
|
|
2,753,226 |
|
|
$ |
2.88 - $22.75 |
|
|
$ |
8.57 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable under the Companys stock option plans
at January 1, 2005, January 3, 2004, and
December 28, 2002 were 2,095,163, 2,253,212, and 2,154,460,
respectively.
The proceeds to the Company from stock options exercised under
the Companys stock option plans during fiscal years 2004,
2003, and 2002, totaled $5.2 million, $367,000, and
$61,000, respectively.
In addition to the above mentioned plans, as of January 1,
2005, the Companys Lasertel subsidiary has in place a
stock option plan, the Lasertel Inc. 2000 Stock Incentive Plan
(the Lasertel Plan). The Lasertel Plan, as amended
in fiscal 2001, provides for the award of non-qualified options
to employees and other key individuals of Lasertel and Presstek,
to purchase up to 2,100,000 shares of Lasertels common
stock. These options generally vest over a period of four years
with termination dates generally ten years from date of grant
and are subject to earlier termination as provided in the
Lasertel Plan.
F-20
Information concerning all stock option activity under the
Lasertel Plan for fiscal years ended January 1, 2005,
January 3, 2004, and December 28, 2002 is summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
Option | |
|
Option Price | |
|
Average Price | |
|
|
Shares | |
|
Per Share | |
|
Per Share | |
|
|
| |
|
| |
|
| |
Outstanding at December 29, 2001
|
|
|
1,237,244 |
|
|
$ |
0.10 - $1.00 |
|
|
$ |
0.16 |
|
Granted
|
|
|
89,500 |
|
|
$ |
0.15 - $0.15 |
|
|
$ |
0.15 |
|
Exercised
|
|
|
(496,119 |
) |
|
$ |
0.10 - $1.00 |
|
|
$ |
0.10 |
|
Cancelled/Expired
|
|
|
(266,450 |
) |
|
$ |
0.10 - $1.00 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 28, 2002
|
|
|
564,175 |
|
|
$ |
0.10 - $1.00 |
|
|
$ |
0.19 |
|
Granted
|
|
|
46,550 |
|
|
$ |
0.15 - $0.15 |
|
|
$ |
0.15 |
|
Exercised
|
|
|
(12,500 |
) |
|
$ |
0.10 - $0.25 |
|
|
$ |
0.15 |
|
Cancelled/Expired
|
|
|
(54,788 |
) |
|
$ |
0.10 - $1.00 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2004
|
|
|
543,437 |
|
|
$ |
0.10 - $1.00 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
12,750 |
|
|
$ |
0.15 - $0.15 |
|
|
$ |
0.15 |
|
Exercised
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Cancelled/Expired
|
|
|
(312,487 |
) |
|
$ |
0.10 - $0.50 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2005
|
|
|
243,700 |
|
|
$ |
0.10 - $1.00 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
The Lasertel Plan contains a provision that in the event that a
public offering of Lasertels common stock has not occurred
prior to August 31, 2004, Lasertel is obligated to
repurchase, at their then fair value, all of the Lasertel common
stock issued and outstanding as a result of the exercise of the
options under the Lasertel Plan, provided such shares of
Lasertel common stock have been issued and outstanding for at
least six months. Fair value is to be determined by an
independent third party. Lasertel was valued in 2002 by an
independent third party and assessed to have an enterprise value
of between $21.0 million to $28.7 million based on
related companies transactions and a projection of future
operations. Since the enterprise value is lower than
Lasertels outstanding debt to Presstek, net of Presstek
receivables which in total at January 1, 2005 was
$43.6 million, the Company has determined that fair value
as of January 1, 2005 was not material. Pursuant to the
terms of the stock option agreements, the Company is in the
process of having an independent appraisal completed. There have
been no changes in the operations or financial position of
Lasertel that would cause the Company to believe that the fair
value of Lasertel would be materially different at
January 1, 2005 than the 2002 appraised value.
In May 2000, warrants to purchase 300,000 shares of
Pressteks Companys common stock were issued at a
price of $20.81 in exchange for consulting services. These
warrants were valued at $2.5 million, with the
Black-Scholes pricing model using the following assumptions; no
dividend yield; expected volatility of 70%; risk free interest
rate of 6.0%; and an expected term of three years. The valuation
was recorded as a long-term asset through May of 2002, and was
being amortized over the five-year term of the consulting
agreement. In June 2002, as a result of the termination of the
consulting agreement, the balance of $1.4 million was
written down as part of the special charge recorded in fiscal
2002. See Note 13. Amortization expense recorded in fiscal
year 2002 was $207,000. No amortization expense was recorded in
fiscal 2004 or 2003, respectively. All warrants to purchase
shares of the Companys common stock expired as of
January 1, 2005.
9. Income
Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. This
standard requires, among other things, recognition of future tax
effects, measured by enacted tax rates, attributable to
deductible temporary differences between the financial statement
and income tax bases of assets and liabilities.
F-21
The Company recorded an income tax provision of $200,000 for
fiscal 2004. There was no tax provision recorded for fiscal 2003
or 2002. The provision for fiscal 2004 relates to the
recognition of non-cash deferred tax liability related to
differing book and tax basis of goodwill, foreign taxes and
alternative minimum tax.
Income (loss) before income tax provision for fiscal 2004, 2003
and 2002 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Income (loss) before income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
3,954 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
|
Foreign
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,065 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
Deferred income taxes reflect the impact of temporary
differences between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax
laws and regulations. Deferred tax assets and liabilities
consisted of the following at January 1, 2005,
January 3, 2004, and December 28, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ |
29,000 |
|
|
$ |
30,400 |
|
|
$ |
31,300 |
|
|
Tax credits
|
|
|
4,900 |
|
|
|
5,100 |
|
|
|
4,600 |
|
|
Warranty provisions, litigation and other accruals
|
|
|
4,400 |
|
|
|
3,800 |
|
|
|
4,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
38,300 |
|
|
|
39,300 |
|
|
|
40,600 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable and depreciable assets
|
|
|
320 |
|
|
|
100 |
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
3,900 |
|
|
|
3,300 |
|
|
|
3,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
4,220 |
|
|
|
3,400 |
|
|
|
3,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,080 |
|
|
|
35,900 |
|
|
|
37,000 |
|
Less valuation allowance
|
|
|
(34,200 |
) |
|
|
(35,900 |
) |
|
|
(37,000 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities) net
|
|
$ |
(120 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance decreased $2.5 million in fiscal
2004 and $1.1 million in fiscal 2003, and increased
$800,000 in fiscal 2002.
The difference between income taxes at the United States federal
income tax rate and the effective income tax rate was primarily
a result of the change in the valuation allowance.
As of January 1, 2005, the Company had net operating loss
carryforwards totaling approximately $84.2 million, of
which $49.2 million resulted from compensation deductions
for tax purposes relating to stock option compensation and
$35 million resulted from operating losses, which expire at
various dated through 2020. To the extent net operating losses
resulting from stock option compensation deductions become
realizable, the benefit will be credited directly to additional
paid in capital. In addition, as of January 1, 2005, the
Company had federal research and development tax credit
carryforwards of approximately $4.5 million, which expire
at various dates through 2020. Under current tax law, the
utilization of net operating losses and research and development
tax credit carryforwards may be subject to annual limitations in
the event of certain changes in ownership.
As required by SFAS No. 109, the Company has evaluated
the positive and negative evidence bearing upon the
realizability of the Companys deferred tax assets, which
consist principally of net operating loss and tax credit
carryforwards. As of January 1, 2005, management evaluated
the deferred tax asset valuation allowance and determined a
complete reserve was needed based on the Companys recent
profitability and expected future profitability. The Company
recognized a non-cash income tax expense of $120,000 related to
the deferred tax
F-22
liability resulting from amortization for tax purposes of
goodwill that arose as a result of the acquisitions in 2004. As
of January 3, 2004 and December 28, 2002 the Company
had reserved for all the deferred tax assets by recording a
valuation allowance of approximately $35.9 million and
$37.0 million, respectively.
The Companys valuation reserve is based on numerous
factors including the Companys history of prior
profitability, current profitability, current economic
conditions and forecasted profitability over the next several
years. Significant management judgment is required in
determining the provision for income taxes, the deferred tax
assets and liabilities and any valuation allowance recorded
against the net deferred tax assets. The valuation allowance is
based on managements estimates of taxable income by
jurisdiction in which the Company operates and the period over
which the deferred tax assets will be recoverable. In the event
that actual results differ from these estimates or the Company
adjusts these estimates in future periods, the Company may need
to establish an additional valuation allowance. Establishing new
or additional valuation allowances could materially adversely
impact the Companys financial position and results of
operations.
The components of the Companys tax provision are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 |
|
2002 |
|
|
| |
|
|
|
|
|
|
(In thousands) |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
40 |
|
|
$ |
|
|
|
$ |
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$ |
80 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
96 |
|
|
$ |
|
|
|
$ |
|
|
|
State
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
$ |
120 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
200 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the statutory federal tax rate to the
Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Statutory rate:
|
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
Amortizable tax goodwill
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(33.1 |
) |
|
|
(34.0 |
) |
|
|
(34.0 |
) |
|
Other
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
5.2 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
F-23
10. Earnings
(Loss) Per Share
The following represents the calculation of basic and diluted
earnings (loss) per share for fiscal 2004, 2003, and 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Income (loss) from continuing operations
|
|
$ |
3,865 |
|
|
$ |
6,668 |
|
|
$ |
(8,280 |
) |
Income from discontinued operations
|
|
|
|
|
|
|
1,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding Basic
|
|
|
34,558 |
|
|
|
34,167 |
|
|
|
34,124 |
|
Effect of assumed conversion of stock options
|
|
|
799 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding Diluted
|
|
|
35,357 |
|
|
|
34,400 |
|
|
|
34,124 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
From discontinued operations
|
|
|
0.00 |
|
|
|
0.04 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share Basic
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
From discontinued operations
|
|
|
0.00 |
|
|
|
0.04 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share Diluted
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
Options to purchase 864,676 shares of common stock as exercise
prices ranging from $9.92 to $22.75 per share were not included
in the computation of diluted earnings per share for fiscal
2004, as the exercise prices of the options were greater than
the average market price of the common shares. these options,
which expire between January 3, 2005 and July 1, 2014,
were all outstanding at the end of fiscal 2004.
Options to purchase 1,930,116 shares of common stock at
exercise prices ranging from $6.30 to $22.75 per share were
not included in the computation of diluted earnings per share
for fiscal 2003, as the exercise prices of the options were
greater than the average market price of the common shares.
These options, which expire between January 4, 2004 and
December 31, 2013, were all outstanding at the end of
fiscal 2003.
Options to purchase 3,639,801 shares of common stock at exercise
prices ranging from $2.86 to $26.94 per share for fiscal 2002
and warrants to purchase 200,000 shares of common stock at a
price of $20.81 have been excluded from the fiscal 2002
calculations of diluted earnings per share, as their effect
would be anti-dilutive.
11. Related
Parties
During fiscal 2004, the Company paid the law firm of Amster,
Rothstein & Ebenstein (Amster),
approximately $195,000 in legal fees and expenses, while
representing the Company on various intellectual property
matters. Of the $195,000 paid to Amster, approximately $60,000
were reimbursements for disbursements made by Amster on our
behalf to foreign counsel for various intellectual property
matters. Mr. Daniel Ebenstein, who has been a director of
the Company since November 1999, is a partner of Amster and
shares in the profits of that firm. The Company paid Amster
approximately $94,000, and $632,000 in fiscal 2003 and 2002,
respectively.
During fiscal 2003 and 2002, the Company paid R.H. Ventures,
Inc. (RH), $144,000 pursuant to an agreement with
Mr. Robert Howard, an executive of RH, who served as the
Companys Chairman Emeritus from October 1998 to December
2000, when he resigned from this position. This agreement
terminated at the end of fiscal 2003.
F-24
In March 2004, the Companys director, Mr. John Evans
died. Prior to his death, Mr. Evans provided consulting
services if and when requested by the Company, and was paid
based on the actual number of days he provided such services
including his related expenses. Mr. Evans had been a
director of the Company since October 1997. The Company paid
Mr. Evans $23,700 in fiscal 2003. Prior to his death, there
were no consulting fees paid to Mr. Evans or his estate
during fiscal 2004.
During fiscal 2004 and 2003, the Company made payments totaling
$100,006 and $204,306, respectively, to Mr. Richard A.
Williams, the Companys former Chairman of the Board of
Directors, pursuant to his retirement agreement.
During fiscal 2002, the Company made payments to
Mr. Michael Moffitt, a director, totaling approximately
$133,000 for consulting services. Mr. Moffitt provides
consulting services if and when requested by the Company, and is
paid based on the actual number of days he provides such
services including his related expenses. Mr. Moffitt has
been a director of the Company since June 2000.
The Company has a receivable from a former executive and
director in the amount of $202,000, resulting from advances made
in a prior year. Although the Company intends to pursue
collection of this receivable, it has provided a reserve against
this amount in 2002 because of questions concerning its
collection. As of January 1, 2005, this receivable remains
fully reserved.
12. Segment
Information, Major Customers and Concentrations of Credit
Risk
The Company operates in four reportable segments; the Presstek
segment, the Lasertel segment, the Precision segment, and the
ABDick segment. The Presstek segment is primarily engaged in the
development, manufacture and sales of its patented digital
imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily
engaged in the manufacture and development of the Companys
high-powered laser diodes. The Precision segment is primarily
engaged in the manufacture and sale of digital and conventional
printing plate technologies. The ABDick segment is primarily
engaged in the manufacture and sale of offset and digital
platemaking systems and related services for the graphic arts
and printing industries.
Segment information is presented in accordance with
SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This standard is based
on a management approach, which requires segmentation based upon
the Companys internal organization and disclosure of
revenue and operating income based upon internal accounting
methods. The accounting policies of the reportable segments are
consistent with those of the Company. Sales between the segments
are recorded at prices that approximate pricing for sales
conducted at an arms length basis. The segments are
measured on operating profits or losses before net interest
income, minority interest and income taxes. The Company does not
internally report its interest income or provision for income
taxes by segment.
F-25
A summary of the Companys operations by segment for the
years ended January 1, 2005, January 3, 2004, and
December 28, 2002 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter- | |
|
|
|
|
Presstek | |
|
Lasertel | |
|
Precision | |
|
ABDick | |
|
Segment | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Year ended January 1, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
95,032 |
|
|
$ |
7,765 |
|
|
$ |
11,248 |
|
|
$ |
24,292 |
|
|
$ |
(8,486 |
) |
|
$ |
129,851 |
|
Income (loss) from operations
|
|
|
10,247 |
|
|
|
(3,152 |
) |
|
|
(720 |
) |
|
|
(1,440 |
) |
|
|
|
|
|
|
4,935 |
|
Total assets
|
|
|
70,866 |
|
|
|
14,260 |
|
|
|
18,555 |
|
|
|
67,637 |
|
|
|
|
|
|
|
171,318 |
|
Goodwill and other intangibles, net
|
|
|
332 |
|
|
|
|
|
|
|
6,637 |
|
|
|
19,540 |
|
|
|
|
|
|
|
26,509 |
|
Depreciation and amortization
|
|
|
5,753 |
|
|
|
2,681 |
|
|
|
299 |
|
|
|
451 |
|
|
|
|
|
|
|
9,184 |
|
Capital expenditures
|
|
|
742 |
|
|
|
981 |
|
|
|
467 |
|
|
|
7 |
|
|
|
|
|
|
|
2,197 |
|
Year ended January 3, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
85,497 |
|
|
$ |
6,804 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(5,069 |
) |
|
$ |
87,232 |
|
Income (loss) from operations
|
|
|
10,285 |
|
|
|
(3,450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,835 |
|
Total assets
|
|
|
92,484 |
|
|
|
14,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,528 |
|
Depreciation and amortization
|
|
|
6,137 |
|
|
|
2,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,867 |
|
Capital expenditures
|
|
|
1,044 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,344 |
|
Year ended December 28, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
83,417 |
|
|
$ |
2,959 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,923 |
) |
|
$ |
83,453 |
|
Income (loss) from operations
|
|
|
397 |
|
|
|
(7,826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,429 |
) |
Total assets
|
|
|
85,676 |
|
|
|
16,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,796 |
|
Depreciation and amortization
|
|
|
6,797 |
|
|
|
2,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,422 |
|
Capital expenditures
|
|
|
1,006 |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,497 |
|
The geographic information included in the following table for
fiscal 2004, 2003, and 2002 attributes revenue to the geographic
locations based on the location of the Companys customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Geographic Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
91,230 |
|
|
$ |
41,910 |
|
|
$ |
33,211 |
|
|
Canada
|
|
|
4,249 |
|
|
|
1,773 |
|
|
|
2,678 |
|
|
Germany
|
|
|
13,541 |
|
|
|
19,276 |
|
|
|
25,083 |
|
|
Japan
|
|
|
6,209 |
|
|
|
7,594 |
|
|
|
6,886 |
|
|
United Kingdom
|
|
|
7,747 |
|
|
|
3,583 |
|
|
|
3,948 |
|
|
All other
|
|
|
6,875 |
|
|
|
13,096 |
|
|
|
11,647 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
129,851 |
|
|
$ |
87,232 |
|
|
$ |
83,453 |
|
|
|
|
|
|
|
|
|
|
|
The Companys long-lived assets totaled $47.4 million,
$45.7 million and $52.3 million in the United States
for fiscal 2004, 2003, and 2002, respectively. For fiscal 2004,
the long-lived assets totaled $.2 million outside of the
United States. There were no long-lived assets outside of the
United States in fiscal 2003 or 2002. No individual country
outside of the United States exceeded 10% of the Companys
long-lived assets.
Revenue generated under the Companys agreements with
Heidelberg and its distributors, Pitman Company, and KPG and its
distributors totaled $12.5 million, $14.8 million and
$13.6 million, respectively for fiscal 2004 with accounts
receivable balances of $2.4 million, $2.6 million, and
$3.1 million, respectively, at January 1, 2005
F-26
Revenue generated under the Companys agreements with
Heidelberg and its distributors, Pitman Company, and Koeing
& Bauer and its distributors totaled $18.3 million,
$15.1 million and $9.0 million, respectively for
fiscal 2003, with accounts receivable balances of
$1.7 million, $1.9 million, and $1.7 million,
respectively, at January 3, 2004.
Revenue generated under the Companys agreements with
Heidelberg and its distributors, and Pitman Company totaled
$30.2 million and $15.0 million, respectively for
fiscal 2002, with accounts receivable balances of
$5.5 million and $1.9 million, respectively, at
December 28, 2002.
No other customer represented more than ten percent of the
Companys revenue in fiscal 2004, 2003, and 2002.
13. Discontinued
Programs and Special Charges
In the second quarter of fiscal 2002, the Company initiated a
process to evaluate the Companys resources and
strategically re-focus the Company. During this process, the
Company evaluated all aspects of the business, and concluded to
reposition and rescale its resources. As part of this exercise,
the Company initiated various repositioning actions during the
second quarter of fiscal 2002. These actions included the
following: (i) creation of market-focused DI and CTP
product lines; (ii) creation of a new senior management
organization; (iii) discontinuance of certain programs; and
(iv) the consolidation of the Companys Hampshire
Drive research and development facility into the main Executive
Drive facility in Hudson, New Hampshire.
As a result of these actions, the Company recorded a charge of
$3.7 million to cost of revenue in 2002, which included
$2.7 million for inventory write-downs and
$1.0 million for other charges related to discontinued
programs, $3.0 million of which was recorded by the
Presstek segment, and $688,000 by the Lasertel segment.
In addition, the Company recorded special charges of
$6.0 million in the second quarter of fiscal 2002. The
special charges included $850,000 related to severance and
fringe benefit costs associated with the reduction of
approximately 50 employees, primarily in manufacturing and
research and development, $1.9 million related to the
write-down of equipment and lease termination costs as a result
of the Hampshire Drive consolidation, $1.6 million related
primarily to other asset write-downs and costs associated with
the repositioning, and $1.5 million related to executive
contractual obligations, as a result of a separation agreement
with Robert W. Hallman, former President and Chief Executive
Officer of the Company. Under the terms of the separation
agreement with Mr. Hallman, effective April 30, 2002,
the Company agreed to pay Mr. Hallman a separation payment
equal to three times his current then annual salary, payable
bi-weekly over 36 months, until May 2005. Under the terms
of the resignation agreement with Mr. Williams, effective
January 8, 2003, the Company agreed to pay
Mr. Williams a severance payment equal to $200,000 in 2003
and $100,000 in 2004, payable bi-weekly, until December 2004.
The repositioning activity and workforce reduction, which was
initiated in June 2002, was substantially complete at the end of
the second quarter of fiscal 2002. The consolidation of the
Hampshire Drive facility was completed in the third quarter of
fiscal 2002.
In the second quarter of fiscal 2003, the Company expanded its
repositioning actions to reduce costs, which had been initiated
in the second quarter of fiscal 2002. The Company recorded a
charge of $550,000 in the second quarter of fiscal 2003,
primarily related to severance and benefit costs associated with
the reduction of approximately 43 employees, in April 2003.
In fiscal 2004, the Company reversed $392,000 in excess special
charges related to severance accrued in fiscal 2003 and 2002.
F-27
The following tables summarize the charge for discontinued
programs and special charges (excluding the ABDick plan charges
of $1.5 million) recorded in fiscal 2004, 2003 and 2002 and
their respective balances at January 1, 2005,
January 3, 2004 and December 28, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Fiscal |
|
Fiscal | |
|
Fiscal | |
|
Balance at | |
|
|
Jan 3 | |
|
2004 |
|
2004 | |
|
2004 | |
|
Jan 1 | |
Fiscal 2004 |
|
2004 | |
|
Expense |
|
Utilization | |
|
Adjustment | |
|
2005 | |
|
|
| |
|
|
|
| |
|
| |
|
| |
Accrued special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive contractual obligations
|
|
$ |
699 |
|
|
$ |
|
|
|
$ |
(469 |
) |
|
$ |
(76 |
) |
|
$ |
154 |
|
Severance and fringe benefits
|
|
|
356 |
|
|
|
|
|
|
|
(40 |
) |
|
|
(316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued special charges and discontinued programs
|
|
$ |
1,055 |
|
|
$ |
|
|
|
$ |
(509 |
) |
|
$ |
(392 |
) |
|
$ |
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
|
Balance at | |
|
|
Dec 28 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
Jan 3 | |
Fiscal 2003 |
|
2002 | |
|
Expense | |
|
Utilization | |
|
Adjustment | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued programs
|
|
$ |
1,501 |
|
|
$ |
|
|
|
$ |
(1,501 |
) |
|
$ |
|
|
|
$ |
|
|
Deferred revenue associated with discontinued programs
|
|
|
120 |
|
|
|
|
|
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$ |
1,621 |
|
|
$ |
|
|
|
$ |
(1,621 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and other asset write downs
|
|
$ |
39 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(39 |
) |
|
$ |
|
|
Executive contractual obligations
|
|
|
1,257 |
|
|
|
|
|
|
|
(558 |
) |
|
|
|
|
|
|
699 |
|
Severance and fringe benefits
|
|
|
262 |
|
|
|
550 |
|
|
|
(456 |
) |
|
|
|
|
|
|
356 |
|
Lease termination and other miscellaneous costs
|
|
|
167 |
|
|
|
|
|
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued special charges
|
|
$ |
1,725 |
|
|
$ |
550 |
|
|
$ |
(1,181 |
) |
|
$ |
(39 |
) |
|
$ |
1,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued special charges and discontinued programs
|
|
$ |
3,346 |
|
|
$ |
550 |
|
|
$ |
(2,802 |
) |
|
$ |
(39 |
) |
|
$ |
1,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
|
Balance at | |
|
|
Dec 29 | |
|
2002 | |
|
2002 | |
|
2002 | |
|
Dec 28 | |
Fiscal 2002 |
|
2001 | |
|
Expense | |
|
Utilization | |
|
Adjustment | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-downs
|
|
$ |
|
|
|
$ |
2,711 |
|
|
$ |
(2,711 |
) |
|
$ |
|
|
|
$ |
|
|
Discontinued programs
|
|
|
|
|
|
|
2,024 |
|
|
|
(523 |
) |
|
|
|
|
|
|
1,501 |
|
Deferred revenue associated with discontinued programs
|
|
|
1,400 |
|
|
|
|
|
|
|
(230 |
) |
|
|
(1,050 |
) |
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$ |
1,400 |
|
|
$ |
4,735 |
|
|
$ |
(3,464 |
) |
|
$ |
(1,050 |
) |
|
$ |
1,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and other asset write downs
|
|
$ |
|
|
|
$ |
3,017 |
|
|
$ |
(3,017 |
) |
|
$ |
39 |
|
|
$ |
39 |
|
Executive contractual obligations
|
|
|
|
|
|
|
1,275 |
|
|
|
(342 |
) |
|
|
324 |
|
|
|
1,257 |
|
Severance and fringe benefits
|
|
|
|
|
|
|
944 |
|
|
|
(682 |
) |
|
|
|
|
|
|
262 |
|
Lease termination and other miscellaneous costs
|
|
|
|
|
|
|
725 |
|
|
|
(195 |
) |
|
|
(363 |
) |
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued special charges
|
|
$ |
|
|
|
$ |
5,961 |
|
|
$ |
(4,236 |
) |
|
$ |
|
|
|
$ |
1,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued special charges and discontinued programs
|
|
$ |
1,400 |
|
|
$ |
10,696 |
|
|
$ |
(7,700 |
) |
|
$ |
(1,050 |
) |
|
$ |
3,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
The Company paid $.5 million, $2.7 million and
$1.7 million in fiscal 2004, 2003 and 2002, respectively,
as a result of the forgoing repositioning actions, and
anticipates the remaining payments related to the discontinued
programs and special charges will be completed by May 2005.
14. Commitments
and Contingencies
The Company and its subsidiaries lease certain of its facilities
and equipment under non-cancelable operating leases and has a
future lease commitment of approximately $4.2 million, as
of January 1, 2005. The future minimum rental payments
under these leases are as follows at January 1, 2005:
|
|
|
|
|
|
|
(In thousands) | |
2005
|
|
$ |
3,177 |
|
2006
|
|
|
786 |
|
2007
|
|
|
183 |
|
2008
|
|
|
35 |
|
2009
|
|
|
27 |
|
|
|
|
|
Total
|
|
$ |
4,209 |
|
|
|
|
|
Total rent expense under operating lease arrangements was
approximately $872,000, $251,000 and $449,000 in fiscal years
2004, 2003 and 2002, respectively.
The Company has employment agreements with certain key executive
officers. The agreements provide for minimum salary levels,
subject to periodic review by the Companys Board of
Directors or Compensation Committee. The employment agreements
also contain certain termination and change in control
provisions, as defined in the agreements. The Companys
maximum contingent liability under such agreements as of
January 1, 2005 would be $1.7 million. In January
2005, these agreements were modified. In February 2005, the
Company entered into employment agreements with a new executive
officer. This agreement contains certain termination and change
in control provisions, as defined in the agreement. Under these
modified and new employment agreements, the Companys
maximum contingent liability would be $2.8 million.
The Company entered into an agreement in fiscal 2000 with Fuji
Photo Film Co., Ltd. (Fuji), whereby minimum royalty
payments to Fuji are required based on specified sales volumes
of the Companys A3 format size four-color sheet-fed press.
The agreement provides for payment of a total of
$14.0 million in royalties, of which a minimum of
$6.0 million is required to be paid by June 2005. The
remaining commitment under the agreement is payable at specified
rates based on units shipped. The Companys maximum
remaining liability under the royalty agreement is
$10 million as of January 1, 2005.
15. Heidelberg
Agreements
In January 1991, the Company entered into a Master Agreement and
a Technology License Agreement (collectively referred to as the
Heidelberg Agreements) with Heidelberg. Heidelberger
Druckmaschinen AG (Heidelberg), one of the
worlds largest manufacturers of printing presses and
printing equipment, based in Germany, which covered the
integration of the DI technology into various presses
manufactured by Heidelberg.
Under the Heidelberg Agreements, Heidelberg is required to pay
royalties to the Company based on the net sales prices of
various specified types of Heidelberg presses on which the
Companys DI technology is used. Heidelberg has been
provided with certain rights for use of the DI technology for
the Quickmaster DI format size. The Heidelberg Agreements expire
in December 2011 subject to certain early termination and
extension provisions.
In July 2003, we entered into OEM consumables supply agreements
with Heidelberg and Heidelberg, USA that provide the Company
with certain preferred supplier rights, which vary based on
territory, time period and sales volume. Under the terms of the
OEM agreements, which include minimum volume commitments from
Heidelberg and Heidelberg, USA, the Company will manufacture and
supply Heidelberg branded consumable plate products for the
Heidelberg Quickmaster DI press. Shipments to Heidelberg of the
branded consumable
F-29
product began in August 2003. The OEM consumables supply
agreement between Presstek and Heidelberg USA is scheduled to
terminate on or about May 15, 2005.
16. Other
Information
In September 2003, Presstek filed an action against Fuji Photo
Film Corporation, Ltd., in the District Court of Mannheim,
Germany for patent infringement. In this action, Presstek
alleges that Fuji has manufactured and distributed a product
that violates Presstek European Patent 0 644 047
registered under number DE 694 17 129 with the
German Patent and Trademark Office. Presstek seeks an order from
the court that Fuji refrain from offering the infringing product
for sale, from using the infringing material or introducing it
for the named purposes, and from possessing such infringing
material.
In August 2003, the Company was served with a purported
securities class action lawsuit filed on June 2, 2003 in
the United States District Court for the Districts of New
Hampshire against the Company and two of its former officers.
This lawsuit was dismissed by the court on October 4, 2004.
However, the plaintiffs in the case have appealed the
courts dismissal on November 4, 2004. On
January 27, 2005, the plaintiffs of this matter withdrew
their appeal and the matter was permanently closed in
Pressteks favor.
In March 2005, Presstek filed an action against CREO, Inc., in
the United States District Court for the District of New
Hampshire for patent infringement. In this action, Presstek
alleges that CREO has distributed a product that violates a
Presstek US Patent. Presstek seeks an order from the court that
CREO refrain from offering the infringing product for sale, from
using the infringing material or introducing it for the named
purposes, or from possessing such infringing material, and for
the payment of damages associated with the infringement.
Presstek is a party to other litigation that it considers
routine and incidental to its business however it does not
expect the results of any of these actions to have a material
adverse effect on its business, results of operation or
financial condition.
F-30
|
|
17. |
Financial Statements and
Supplementary Data |
Selected Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004 |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Total revenue
|
|
$ |
23,314 |
|
|
$ |
22,697 |
|
|
$ |
29,750 |
|
|
$ |
54,090 |
|
Gross profit
|
|
$ |
8,782 |
|
|
$ |
9,144 |
|
|
$ |
10,003 |
|
|
$ |
14,535 |
|
Net income (loss)
|
|
$ |
1,899 |
|
|
$ |
1,447 |
|
|
$ |
2,707 |
|
|
$ |
(2,188 |
) |
Earnings per share Basic
|
|
$ |
0.06 |
|
|
$ |
0.04 |
|
|
$ |
0.08 |
|
|
$ |
(.06 |
) |
Earnings per share Diluted
|
|
$ |
0.05 |
|
|
$ |
0.04 |
|
|
$ |
0.08 |
|
|
$ |
(.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2003 |
|
Q1 | |
|
Q2 | |
|
Q3 | |
|
Q4 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Total revenue
|
|
$ |
22,442 |
|
|
$ |
22,519 |
|
|
$ |
19,758 |
|
|
$ |
22,513 |
|
Gross profit
|
|
$ |
9,490 |
|
|
$ |
9,629 |
|
|
$ |
7,653 |
|
|
$ |
9,309 |
|
Income from continuing operations
|
|
$ |
1,790 |
|
|
$ |
1,825 |
|
|
$ |
1,008 |
|
|
$ |
2,045 |
|
Income from discontinued operations (1)
|
|
|
|
|
|
|
|
|
|
$ |
1,429 |
|
|
|
|
|
Net income
|
|
$ |
1,790 |
|
|
$ |
1,825 |
|
|
$ |
2,437 |
|
|
$ |
2,045 |
|
Earnings per share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
|
From discontinued operations (1)
|
|
|
|
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
Earnings per share Basic
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.06 |
|
Earnings (loss) per share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
|
From discontinued operations (1)
|
|
|
|
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
Earnings per share Diluted
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.07 |
|
|
$ |
0.06 |
|
|
|
(1) |
As a result of the dismissal of a lawsuit filed by PPG against
our subsidiary Delta V, whose operations were discontinued in
1999, we reversed all previously recorded liabilities, resulting
in income from discontinued operations of $1.4 million, in
the third quarter of fiscal 2003. |
F-31
PRESSTEK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Charged to | |
|
Charged to | |
|
Charges Add | |
|
Balance at | |
Fiscal | |
|
|
|
Beginning of | |
|
Costs and | |
|
Other Account | |
|
(Deduct) | |
|
End of | |
Year | |
|
Description |
|
Fiscal Year | |
|
Expenses | |
|
Describe | |
|
Describe | |
|
Fiscal Year | |
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(In thousands) | |
|
2002 |
|
|
Allowance for losses on accounts receivable |
|
$ |
2,420 |
|
|
$ |
945 |
|
|
$ |
|
|
|
$ |
(1,198 |
)(1) |
|
$ |
2,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty reserve |
|
|
793 |
|
|
|
1,938 |
|
|
|
|
|
|
|
(1,642 |
)(2) |
|
|
1,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
Allowance for losses on accounts receivable |
|
$ |
2,167 |
|
|
$ |
1,358 |
|
|
$ |
|
|
|
$ |
(1,633 |
)(1) |
|
$ |
1,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty reserve |
|
|
1,089 |
|
|
|
1,228 |
|
|
|
|
|
|
|
(1,382 |
)(2) |
|
|
935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
Allowance for losses on accounts receivable |
|
$ |
1,892 |
|
|
$ |
1,935 |
|
|
$ |
66 |
(3) |
|
$ |
(1,317 |
)(1) |
|
$ |
2,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty reserve |
|
|
935 |
|
|
|
1,109 |
|
|
|
|
|
|
|
1,367 |
(2) |
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Allowance for losses |
|
(2) |
Warranty expenditures |
|
(3) |
Adjustment to acquisition related beginning balance |
FS-1