e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission File No. 0-17541
PRESSTEK, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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02-0415170 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
55 Executive Drive, Hudson, New Hampshire 03051-4903
(Address of principal executive offices including zip
code)
Registrant’s 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, $0.01 par value
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. (See definition of “accelerated filer and large
accelerated filer” in
Rule 12b-2 of the
Act).
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of common stock held by
non-affiliates of the registrant as of July 2, 2005 was
$386,209,548.74.
The number of shares outstanding of the registrant’s common
stock as of March 7, 2006 was 35,515,647.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement (which is expected to
be filed within 120 days after the Company’s fiscal
year end) for the registrant’s Annual Meeting of
Stockholders to be held on June 7, 2006 are incorporated by
reference into Part III of this
Form 10-K.
PRESSTEK, INC.
ANNUAL REPORT ON
FORM 10-K
For the Fiscal Year Ended December 31, 2005
PART I
General
Presstek is a market-focused company primarily engaged in the
design, manufacture, sales and service of high-technology
digital imaging solutions to the graphic arts industry
worldwide. We are helping to lead the industry’s
transformation from analog print production methods to digital
imaging technology. We are a leader in the development of
advanced printing systems using digital imaging equipment and
consumables-based solutions that economically benefit the user
through a streamlined workflow and chemistry free,
environmentally responsible operation. We are also a leading
sales and service channel in the small to mid-sized commercial,
quick and in-plant printing markets offering a wide range of
solutions to over 20,000 customers worldwide.
Presstek’s business model is a capital equipment and
consumables (razor and blade) model. In this model, almost 70%
of our revenue is recurring revenue. Our model is designed so
that each placement of either a Direct Imaging Press or a
Computer to Plate system results in recurring aftermarket
revenue for consumables and service.
Through our various operations, we:
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provide advanced print solutions through the development and
manufacture of digital laser imaging equipment and advanced
technology chemistry-free printing plates, which we call
consumables, for commercial and in-plant print providers
targeting the growing market for high quality, fast turnaround
short-run color printing; |
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are a leading sales and services company delivering Presstek
digital solutions and solutions from other manufacturing
partners through our direct sales and service force and through
distribution partners worldwide; |
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manufacture semiconductor solid state laser diodes for Presstek
imaging applications and for use by external
applications; and |
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manufacture and distribute printing plates for conventional
print applications. |
Background
We are innovators in imaging technology. Our primary market
focus is the segment for commercial print services within the
graphic arts industry. We recognized that the model for
commercial print was moving to increasingly shorter runs and
higher use of color, and that print providers were ill-equipped
to deal with this changing model. The changing model has led to
a growing trend from analog to digital in the industry. We are
capitalizing on this analog to digital transformation and have
developed digital imaging technology to address the growing
demand for high quality, fast turnaround, short-run color in
commercial print applications. We have incorporated our
technology into two types of applications for off-set printing:
Direct Imaging on-press applications, which we refer to as DI,
and for
computer-to-plate
off-press applications, which we refer to as CTP.
Using DI technology, digital images are sent to a
specially-designed digital offset printing press that
incorporates our laser imaging system and our high performance
printing plates. Our laser imaging systems then image our
printing plates directly on the press. This unique approach
results in a highly streamlined digital workflow and allows the
user to treat the printing press more like a computer
peripheral. We have incorporated this same digital imaging
technology into CTP, or Computer to Plate applications. Using
our CTP technology, digital images are sent to plate-imaging
devices, the plates are imaged by our laser imaging systems
again using our high performance printing plates and then
mounted on a traditional offset printing press.
Presstek’s 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.
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We have been a pioneer in the advancement of digital imaging
solutions for commercial printing applications. We:
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invented on-press Direct Imaging technology; |
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invented the chemistry-free imaging of printing plates; |
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have dramatically streamlined the workflow in commercial print
operations through our many innovations; |
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have developed workflows that require less craft in the printing
process through the application of our technology; and |
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continue to innovate with our recent announcement of the latest
generation of a larger format, more automated Direct Imaging
press known as the 52DI. |
Following our invention of the world’s first DI press, we
have used our advanced technology to develop a family of new
generation DI printing presses and printing plates. Today, our
groundbreaking DI technology is marketed both directly by us and
through a number of original equipment manufacturer
(“OEM”) and distribution partners. We manufacture the
laser-based digital imaging assemblies, complete with software,
along with our advanced technology printing plates, for
incorporation into our Direct Imaging presses. Similar digital
imaging technologies are used in our CTP systems that
incorporate our printing plates, which our Presstek business
segment designs and manufactures.
At our Presstek facility in Hudson, New Hampshire, we
manufacture several models of our advanced printing plates, such
as
PearlDry®
and
Applause®
along with the imaging kits that are incorporated into DI
presses, as well as entire CTP units, such as the Dimension or
Vector lines of platesetters. At our Precision Lithograining
manufacturing facility in South Hadley, Massachusetts, we
manufacture our aluminum-based printing plates, which are
comprised of our process-free plates, such as
Anthem®
and
Freedom®,
as well as traditional analog printing plates.
The digital products that we offer are designed to capitalize on
the growing trend within the graphic arts industry of the
conversion from analog, or traditional, printing processes to
digital printing processes. Conversion from analog to digital
often requires an extensive investment by customers in a new
generation of equipment. As the graphic arts industry joins
other industries, such as the photographic and music industries,
in converting from analog to digital, we want to provide
solutions to these customers not only to meet their current
needs, but also to assist them in the conversion. To do this, we
expanded our product offerings beyond our own designed and
manufactured products.
In addition to our digital products, we also market and sell
traditional offset printing presses and related products, such
as digital platemakers, which are a type of CTP, and plates to
customers. We have several strategic partnerships with companies
like Mitsubishi, Agfa and Ryobi, who supply consumables and
equipment that we sell to complement our catalog of Presstek
manufactured products. As the industry continues to transition
to digital, our goal is to be the supplier of choice for small
to mid-sized commercial and in-plant shops, and all print
providers seeking high-quality digital technology products that
will facilitate their transition.
We also have an extensive service organization throughout the
United States, Canada and Western Europe. In addition to
servicing equipment that is manufactured by or for Presstek, our
service organization also provides service for equipment
manufactured by other companies, including our strategic
partners.
We deliver our products through multiple channels to market:
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we use our direct sales and service operation to deliver our
solutions and those of other partner manufacturers primarily in
the U.S., Canada and the United Kingdom; |
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we have a well developed graphic arts dealer network to deliver
our products in continental Europe and worldwide; and |
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we use OEMs to deliver our products to markets worldwide. |
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Our ability to expand our product and service offerings to
include equipment that we do not design or manufacture and
traditional, non-digital consumables and deliver these products
and services directly to end-user customers is largely based
upon the ABDick and Precision Lithograining acquisitions that
occurred in 2004.
ABDick
On November 5, 2004, the Company, through its wholly-owned
subsidiary, ABD International, Inc., which we refer to as
ABDick, completed the acquisition of certain assets and assumed
certain liabilities of The A.B. Dick Company, which were
acquired through a Section 363 sale in the United States
Bankruptcy Court. The business we acquired manufactured,
marketed and serviced offset printing and CTP systems as well as
related supplies for the graphic arts and printing industries.
We refer to the acquired business as the ABDick business.
Following the acquisition we began integrating the ABDick
business into Presstek’s operations. As part of this
integration, we implemented a new internal management reporting
structure. As announced on August 8, 2005, the Niles,
Illinois facility was closed as planned on December 31,
2005, and the Company moved certain executives from Niles to the
Company’s headquarters in Hudson, New Hampshire. As of
December 31, 2005, we had substantially completed the
integration. Any remaining activities associated with this
initiative are expected to be completed in fiscal 2006.
After the acquisition of the ABDick business, but prior to its
integration into Presstek, we reported the financial performance
of the ABDick business in a separate segment called the ABDick
segment. In the third quarter of fiscal 2005, we implemented a
new internal management reporting structure in connection with
organizational changes related to the integration of the
acquired ABDick business into our Presstek business segment.
Accordingly, the results of operations and balance sheet
information for the former ABDick segment have been combined
with those of the former Presstek segment and are now reported
together as the Presstek business segment. Any future changes to
this organizational structure may result in changes to the
business segments currently disclosed.
In consideration for our acquisition of the ABDick business, we
paid the previous owners $40.0 million in cash, net of cash
acquired. As part of this transaction, we have paid
$5.1 million for legal, audit and other transaction costs
related to the acquisition, and accrued, as purchase price
adjustments, an aggregate of $3.0 million for integration
costs, primarily related to the consolidation of the former
Rochester, New York manufacturing operations of The A.B. Dick
Company into the existing manufacturing facility at our
corporate headquarters in Hudson, New Hampshire, and the closing
of the Niles, Illinois office facility of The A.B. Dick Company.
The aggregate purchase price recorded by us is
$48.1 million.
As a result of this integration effort, Presstek is a stronger,
more market-driven, customer-focused organization. We acquired a
direct sales and service capability in the United States, Canada
and the United Kingdom through which we are building more
efficient and effective channels to market. In addition, we
expect to see a positive financial impact as a result of the
business synergies achieved through this integration effort.
Precision
On July 30, 2004, we acquired the stock of Precision
Lithograining Corp., which we refer to as Precision. In
consideration, we paid $12.1 million in cash, net of cash
acquired, and incurred integration costs of $0.4 million,
for an aggregate purchase price of $12.5 million. Precision
manufactures Anthem, Freedom and Aurora chemistry-free digital
print plates, and is also a provider of other conventional and
digital printing plates for both web and sheet-fed printing
applications. The products manufactured by Precision are
distributed through Presstek’s distribution network or
through independent dealers throughout the Western Hemisphere.
With this acquisition, we substantially increased our
manufacturing capabilities and obtained the ability to
manufacture analog printing plates. We report the financial
performance of Precision as a separate reporting segment.
Presstek, Inc. was incorporated in Delaware in 1987. Our
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.
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Business Overview
2005 was a pivotal year for us, as our capabilities, product
offerings, and size greatly expanded: we went through a number
of strategic transformations that fundamentally changed our
company. As a company, in 2005 we took much greater charge of
the commercialization and delivery of our technology to
customers. We transformed into a company focused on developing
and manufacturing our advanced technology digital plates and
imaging equipment as well as the delivery of this advanced
technology to customers through a direct sales and service
organization. Previously, we had been heavily reliant upon
strategic partners for their sales, distribution and service.
In 2004, we greatly expanded our product offering to include new
generation DI press and CTP systems. Through our acquisition of
the ABDick business in late 2004, we added greatly enhanced
capabilities in the form of direct sales and service channels,
additional engineering and manufacturing capabilities and
non-Presstek manufactured digital and analog equipment and
consumables.
In 2005, we completed integration of these new capabilities into
our core business, benefiting from both organizational synergies
and a well-established and respected direct channel to market.
As a result of this activity, we now have
“end-to-end”
solutions for the graphic arts industry, encompassing each step
of the development, manufacture, distribution and service of its
core products.
In the spring of 2005, we began integrating the operations that
we acquired through the acquisition of the ABDick business, so
that we could leverage the large customer footprint in North
America and the UK as a market for our Presstek manufactured
digital products. As part of this process, we also realigned the
distribution channel for our Direct Imaging Press line of
products.
Prior to the acquisition of the ABDick business, we had a
limited European distribution operation, managed out of the
U.S. that relied on strategic relationships with
independent dealers and sales agents. In March of 2005, we
restructured our European operations to better leverage our
newly acquired capabilities in the UK. Built on an existing
UK-based sales and service operation acquired in 2004 as part of
the acquisition of the ABDick business, this move was designed
to not only increase our presence in Europe, but also enhance
the support we provide to our established base of European
customers. By the end of 2005, we completed the reorganization
of the European operations and relocated into a new business
center just outside of London’s Heathrow airport. From this
facility, we offer customer support and training, as well as a
demonstration facility for products.
Beginning in April of 2005, we began to offer Presstek’s
market-leading digital products through our newly acquired North
American sales force. For the first time, we were able to sell
Direct Imaging presses using our DI technology, along with our
CTP equipment and related consumables directly to end-user
customers. This transition to direct customer sales demonstrated
early success, with the sale of DI presses to end-user customers
in the first quarter following sales and service training. This
was followed in July of 2005 by the commercial release of an
entry-level CTP solution, the Vector TX52, specifically designed
to meet market demands for lower-cost CTP solutions. These
actions in 2005 produced a record level of digital sales for
Presstek.
During the same time period, we began to take advantage of the
resources available in our newly-acquired service organization
to position us for more opportunities. In the first part of
2005, we began training the service organization so that they
might gain a digital equipment competence. As a result of these
efforts, we brought back to Presstek the previously outsourced
service of much of our digital equipment. With the gained
competence, we now are able to offer a full range of service of
both digital and analog equipment throughout North America and
the UK, and through dealer service organizations in continental
Europe.
With the added sales and service capabilities resulting from the
acquisition of the ABDick business, we believe we are better
positioned to facilitate the sales of our proprietary equipment,
while offering a full portfolio of products designed to meet the
needs of today’s print service providers.
With the acquisition of Precision in the third quarter of fiscal
2004, we were able to offer an enhanced product portfolio and,
for the first time, we released a Presstek-designed and
manufactured plate that was intended to run on the CTP devices
of other manufacturers. This first open-platform chemistry-free
printing plate product, Aurora, uses our patented technology,
and was announced in September 2005. The Aurora plate is
designed to operate with
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Screen and Kodak CTP engines, providing access to a substantial
portion of the thermal CTP marketplace for Presstek consumables.
Changes made at Lasertel in 2005 have also better positioned it
for future opportunities. In January of 2005, Lasertel announced
the purchase of a new generation Solid Source Molecular Beam
Epitaxy
(“SS-MBE”)
reactor to produce its high-quality semiconductor lasers. Its
innovative design enables the multi-wafer reactor to deliver
higher throughput and lower costs per wafer. This new reactor
will position Lasertel to produce products more efficiently.
In addition, by modifying its relationships with customers,
Lasertel is better positioned for future opportunities. Lasertel
had advanced funds to a customer in exchange for the customer
meeting certain minimum purchase requirements. These advances
were secured by all of the property of the vendor, including the
vendor’s intellectual property. In July of 2005, Lasertel
formed a significant alliance to provide laser diode components
and assemblies to SELEX Sensors and Airborne Systems which we
refer to as SELEX. As part of this alliance, SELEX committed to
meet the minimum purchase requirements of the vendor to whom
Lasertel had advanced money and Lasertel was assigned all of the
intellectual property of the vendor. This expansion of
Lasertel’s manufacturing capability into the defense sector
has the potential to open further business opportunities for us
in the laser imaging market.
Information about our business segments and geographic areas is
included in Note 17 and information about our major
customers is included in Note 18 to our financial
statements appearing elsewhere in this Annual Report on
Form 10-K.
Our Business Segments
We operate in three reportable segments: the Presstek segment,
the Precision segment, and the Lasertel segment. The Presstek
segment is primarily engaged in the development, manufacture,
sale and servicing of digital imaging systems and printing plate
technologies for
direct-to-press, or
on-press applications, and CTP, or off-press applications for
the graphic arts and printing industries, primarily serving the
short-run, full-color market segment. 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 Lasertel segment is primarily
engaged in the manufacture and development of high-powered laser
diodes for sale to the Presstek segment and to external
customers.
The Presstek Segment
The Presstek segment is the core of our operations, serving as
the central engine of innovation for research, new product
development and manufacturing as well as the center for
marketing, sales and service of our imaging systems,
chemistry-free Direct Imaging printing plates and our CTP
systems.
In addition, the Presstek segment serves as the central
organization under which each of our subsidiaries function, and
the Presstek segment sets the strategic and research direction
and priorities for the entire Company.
The Presstek segment manufactures the imaging systems and
related assemblies that are incorporated into DI presses and our
CTP units. The imaging systems that are designated for DI
presses are shipped to various DI press manufacturers with whom
we have OEM agreements. The imaging systems that are designated
for CTP units are then incorporated into our CTP units, which
are manufactured at our Hudson, New Hampshire facility.
We manufacture the plates that are used on DI presses and
certain of our CTP units at our Hudson, New Hampshire and South
Hadley, Massachusetts facilities. Mitsubishi and Agfa
manufacture plates that are imaged on our Digital PlateMaster,
or DPM, series CTP devices.
Our products are sold into the market to end-user customers
through either our direct sales force or through OEM partners,
strategic partners or our dealer channel. By employing this
combination of internal and external sales organizations, we are
able to sell our products worldwide.
Our direct sales force sells our Presstek manufactured digital
print solutions as well as other provided by marketing partners
solutions, to print service providers, commercial, quick, and
in-plant printers around the world.
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We also have an established catalog of supplies and consumables,
many of which complement the Presstek segment equipment
offerings. The Presstek 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 manufactured by third parties. Thus, the
Presstek segment products provide the foundation for a
comprehensive digital migration path to address the full range
of customer needs.
Our equipment is serviced by either our direct service
organization, or by OEM partners, strategic partners, or our
dealer channel. Our direct service organization is trained to
service Presstek-branded digital products as well as traditional
analog equipment manufactured by third parties. Our direct
service organization primarily serves customers consisting of
small to mid-sized printing shops in the graphic arts industry
located in North America and the UK.
As a result, customers served by the Presstek segment provide
opportunities for increased distribution of Presstek products
and technologies. With direct 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 20,000 print service providers and in-plant print
operations.
The Lasertel Segment
Our Lasertel segment is a world-class developer and manufacturer
of high-quality, high-powered laser diodes for Presstek-branded
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 and industrial
applications. In December of 2005, Lasertel received
ISO 9001:2000 certification. An ISO 9001:2000
certification recognizes the quality of a company’s
management system. ISO is a non-governmental federation of the
national standard boards of countries from all regions of the
world that set the standards and requirements for
state-of-the-art
products, services, processes, materials and systems, as well as
for good conformity assessment, managerial and organizational
practice.
The Precision Segment
The Precision segment is a designer, manufacturer, and seller 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-branded proprietary
chemistry-free digital plates using Presstek’s
award-winning technology for sale to Presstek and Presstek
customers; Presstek proprietary chemistry-free digital plates
using Presstek’s 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 segment’s graphic arts
products are distributed on a worldwide basis by us as well as
through OEM partners and a network of independent dealers.
Strategy
Our business strategy revolves around employing innovative
digital imaging technology to address specific and
well-understood opportunities primarily in the graphic arts
marketplace, while at the same time supplying the small to
mid-sized commercial, quick and in-plant printer with a full
range of print solutions. In this way, we can capitalize on the
needs of customers who have not yet fully transitioned to a
digital model to assist them with their transition from analog
to digital technology.
This strategy reflects several strategic imperatives:
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1. Our primary focus is on the growth of our consumables
product. |
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The graphic arts industry is in the midst of a fundamental
structural change from analog to digital operations. We provide
digital print solutions that use our chemistry-free and
process-free printing plates for both DI, or on press, and CTP,
or off press, applications. Presstek-manufactured digital
equipment such as CTP systems and DI presses allow us to build a
substantial installed base of digital consumable customers. We
refer to the installed base of DI presses and CTP units as
consumable burning engines, or CBEs. One method of growing the
market for consumables involves further expanding the base of
our installed CBEs. |
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With our direct sales and service force and our distribution
network, we are positioned to expand our customer base and
assist customers in evolving from analog to digital processes,
creating additional market opportunities for the CBEs and
consumables that we manufacture. Another method of growing the
market for consumables is to develop consumables that can be
imaged by non-Presstek devices, reaching beyond our own
manufactured systems and penetrating the installed base of CTP
devices in all market segments with our chemistry-free and
process-free offerings. The first step in executing this
strategy was the launch of Aurora, our open-platform
chemistry-free printing plate that uses our patented technology.
The Aurora plate is designed to be used with CBEs manufactured
by CTP market leaders such as Screen and Kodak. |
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2. We focus on select market segments. |
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Large print providers have been the vanguard in adopting digital
technology and have driven the industry’s digital
transformation of the commercial printing segment of the graphic
arts industry. The small and medium-sized commercial and quick
print providers and in-plant print operations are currently
converting to digital systems and processes. With our innovative
digital printing solutions and the strength of our direct sales
and service force, 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 among small and medium sized print providers. |
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Three unique types of businesses have demonstrated success with
Presstek digital solutions. |
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Small to mid-sized commercial printers that need to adjust their
production capacity, level of productivity and output quality
while improving profitability have demonstrated success with our
digital products. These printers are often acquiring their first
four-color press. 2004 research from InfoTrends/ CAP Ventures
indicates that there are approximately 25,000 print
establishments in the United States that fall within this
category. |
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Digital printers, shops that operate toner-based digital
equipment, are acquiring DI presses as complementary devices.
They are using DI presses for applications that require run
lengths greater than 500, a higher level of quality and are
printed on a wider range of materials. |
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In-plant print shops that operate within corporations, colleges
and universities and government agencies are attracted to the
ease-of-use and
environmentally responsible nature of our solutions. 2004
research from InfoTrends/ CAP Ventures indicates that there are
approximately 9,600 in-plant establishments in the United
States. |
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3. Because we compete on the basis of technology and
innovation, we deliver differentiated products. |
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We have been technology innovators since our 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.
We will also introduce a range of Presstek-branded products in
2006 and beyond, beginning with the Presstek 52DI press in the
spring of 2006. This will extend Presstek brand awareness and
increase the strength of the brand as well as offer us more
control over the sales and service process. |
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The Presstek 52DI is a landscape format 52cm direct imaging
press with a maximum speed of 10,000 sheets per hour. This press
is highly automated and designed to deliver superior economics,
faster turnaround times for printed jobs, require lower skilled
operators and reduced paper waste. The Presstek 52DI images all
four printing plates simultaneously on press. The press’
unique design with Zero Transfer Print technology, results in
perfect registration on each sheet, an exceptionally fast
make-ready time and reliable handling across a wide range of
printed substrates. |
|
|
| |
4. We provide environmentally responsible solutions
through our application of technology. |
|
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| |
Our thermally imaged 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. |
7
Technology and
Products
Direct Imaging Technology
Beginning in the late 1980s, we pioneered a direct imaging
system known as Direct Imaging, which we refer to as DI, that
employs lasers to digitally image a process-free printing plate
directly on off-set printing presses. We have eliminated much of
the pre-press processing of the data file and the offline
imaging of a printing plate, essentially allowing us to treat
the printing press as a computer peripheral. Previously, all
platemaking and pre-press activities had occurred as a separate
and specialized activity in the printing operation primarily
using analog film-based technology, chemical processing and
manual processes.
Conventional or analog printing plates are produced using labor
and chemical-intensive, multi-step processes. 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, by imaging
process-free plates directly on a printing press, Presstek
products eliminate the reliance on the chemical processing that
is generally associated with imaging traditional printing
plates. In addition to being overall more efficient to operate
our DI presses are also more environmentally responsible than
traditional methods of printing. The result is a higher quality,
faster turnaround print work with a lower cost of operation that
is also environmentally safe.
The laser diodes 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 (“MEPs”), which
contain four lasers per module. These MEPs are then sent to our
manufacturing facility in Hudson, New Hampshire.
We assemble Lasertel-manufactured laser imaging modules into
imaging kits that are designed for particular press
manufacturers or CTP units. These kits are then incorporated
into DI printing presses, primarily manufactured by Ryobi
Limited of Japan.
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 2004, 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.
These technologies will be incorporated in a larger format
Presstek-branded DI press, the Presstek 52DI, in the spring of
2006 — the first Presstek-branded DI product.
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
systems, which we refer to as CTP, which we manufacture in our
Hudson, New Hampshire facility. Unlike the DI press, where the
plate is imaged on the press, CTP systems allow printers to
employ Presstek’s digital technology on conventional
printing presses. Presstek’s line of CTP systems
incorporate our advanced imaging technology to transfer a
digital image onto our high performance printing plates, which,
once imaged, can be mounted on a conventional offset printing
press, avoiding the multiple steps and chemical processes
traditionally associated with analog plates. In manufacturing
these devices, we assemble Lasertel-manufactured laser imaging
modules into imaging kits, which, in turn, become components of
the particular CTP device. Currently, we manufacture three types
of CTP products: Dimension; Vector; and Digital PlateMaster or
DPM. These advanced
8
CTP systems use chemistry free printing plates manufactured by
Presstek in both Hudson, NH and our Precision operation in
western Massachusetts, to deliver more efficient printing
solutions to customers who have an installed base of
conventional offset printing presses.
Dimension
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 Excel utilizes our ProFire Excel laser imaging
technology, and can produce completely imaged printing plates,
ready to be mounted on a printing press, within three to five
minutes depending on the system configuration. The Dimension
Excel is available in both standard and high-productivity models.
Vector TX52
In July of 2005, we made a new generation of CTP devices
commercially available that are based on our new Sure Fire
imaging system, which we call the Vector series of CTP devices.
The most recent version of the Vector series, which we call the
Vector TX52, is designed to image our Freedom thermally imaged
chemistry free printing plate. The Vector line is priced for
ease of entry and 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 is part of the family of
Presstek fully integrated, chemistry-free thermal metal CTP
systems on the market.
The Digital PlateMaster
Digital PlateMaster is a high-resolution platesetter designed
for use with small-formal portrait presses. Producing
press-ready plates from a desktop computer eliminates many steps
from the pre-press process. With
ThinDrumtm
technology, less drum surface area comes into contact with the
plate. A support “rib” forms the plate into the
optimal cylindrical shape for imaging; and because it is the
reverse side of the plate that’s supported, the possibility
of the plate’s surface being scratched is eliminated. This
innovative design provides superior image definition and
repeatability while maintaining high output speeds.
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 and Vector product lines.
Printing Plates
General
Offset printing is the most widely used method of producing
printed materials for commercial applications. The majority of
quality, full color printing materials with which the average
consumer comes into daily contact (such as magazines, brochures,
catalogs and direct mail pieces) are produced using the offset
printing process. Our products are designed for offset printing.
We manufacture printing plates for both on press Direct Imaging,
or DI, and offline Computer to Plate, or CTP, printing
applications. DI plates include PearlDry, PearlDry Plus and
ProFire Digital Media and are all waterless plates that are
manufactured in our Hudson, New Hampshire facility. Our CTP
plate portfolio consists of Applause, PearlDry, Anthem, Aurora
and Freedom. Applause and PearlDry are manufactured in Hudson,
while the other CTP plates are manufactured at our Precision
facility in South Hadley, Massachusetts. Our plates are based on
our patented chemistry-free thermal imaging technology. Our
printing plates respond to heat generated by high-powered lasers
(thermal imaging) using a process known as ablation to enable
chemistry-free plate production. Presstek has a rich portfolio
of intellectual property and considerable know-how focused on
the application of chemistry free plate imaging. We pioneered
chemistry free imaging in commercial print applications and we
have more than 15 years of successful marketing of our
technology to end users. We are on our fifth generation of
chemistry free
9
and process free plate imaging systems for commercial print
applications- a statement that offers Presstek a unique
competitive advantage in the market place.
DI
PearlDry Plus
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.
PearlDry
PearlDry is used for DI press applications that require an
aluminum-backed plate such as the 74Karat DI press manufactured
by Koenig and Bauer (“KBA”) of Germany. The plate uses
a specially formulated silicone material that is coated over the
metalized infrared absorbing layer that is then bonded to an
aluminum base. 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 plates for waterless printing.
ProFire Digital Media
ProFire Digital Media is designed to work as a system with the
laser imaging and press components of ProFire Excel enabled DI
presses. In conjunction with ProFire Excel imaging ProFire
Digital Media allows new DI presses to produce a very high
resolution, 16 micron spot and supports the highest level
of print quality — up to
300-line screen and
stochastic (FM) screening. This third generation plate is
formulated in a similar fashion to PearlDry and is optimized to
work with ProFire Excel Imaging.
CTP
Anthem
Anthem plates for CTP systems feature our patented
polymer-ceramic technology and combine ablative imaging and
chemistry-free cleaning (a simple water wash) 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. Anthem’s market includes a broad base
of installed conventional wet offset presses, currently the
largest segment of the printing industry.
Applause
The Applause plate was our first completely process-free plate
product. We believe Applause is unique in that it is truly the
world’s 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 existing press chemistries.
Freedom
The Freedom plate is the latest chemistry-free plate product,
introduced in September 2003. Freedom operates n conjunction
with Presstek’s Vector line of CTP solutions. 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.
10
Aurora
In 2005, we introduced Aurora, our first chemistry-free CTP
thermal plate designed to operate with CTP systems from market
leaders Screen and Kodak. This further extends the opportunity
for printers to leverage innovative Presstek chemistry-free
technology with their existing installed base of CTP systems
eliminating the need to purchase, store and dispose of toxic
chemicals.
Our Aurora process-free thermal printing plate delivers the
performance of traditional CTP plates, with the benefits of
chemistry-free imaging technology for standard 2-page, 4-page
and 8-page formats. The Aurora’s surface structure results
in fast make-ready, excellent durability and greater ink/water
latitude, while delivering the performance characteristics and
stability of conventional aluminum plates.
Analog
Publica
Precision’s Publica line of plates are analog plates
designed for the needs of the newspaper industry and other
high-volume web printing applications.
Qualis
Precision’s Qualis line of plates are analog plates that
offer high-quality, value-priced aqueous-based printing plates
to the high-volume commercial printing segment.
Express
Precision’s Express line of plates are analog plates
designed for the needs of book printers.
Fuchsia
Precision’s Fuchsia line of plates are analog plates that
offer excellent performance and value to a wide range of offset
printing applications.
We continue to develop thermal consumable plate products that
can be imaged by both our own DI systems and 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 laser diodes 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 products,
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; and South Hadley, Massachusetts. In general, we strive
to employ the latest manufacturing techniques in our equipment
assembly and plate manufacturing operations. 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 full
integration of the new capabilities we acquired as a result of
the 2004 Precision and ABDick acquisitions, 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.
11
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
Presstek 52DI, or CTP imaging systems, such as the
Dimension and Vector TX52. These systems use semiconductor laser
diode devices built to our specifications and supplied by
Lasertel. We believe other sources would be available to
manufacture the laser diodes to specification, in the future, if
required.
Our 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. Our 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.
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 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.
This facility also manufactures the ABDick-branded DPM line of
polyester platesetters and the Vector TX52, for which we use a
number of outside vendors who supply components and
sub-assemblies that are integrated into completed systems.
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.
Lasertel’s 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
consists of 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.
Our press products are manufactured under agreements with a
press manufacturers located primarily in Japan. 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.
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 have increased and are
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
operations cost-effective. Likewise, we cannot assure you that
we will be able to obtain alternative supplies for our laser
diodes or other critical components should our current supply
channels prove inadequate.
Marketing, Distribution and Customer
Support
Our sales strategy through 2005 was designed to emphasize the
distribution of Presstek DI and CTP products and the related
consumables, as well as a full catalog of conventional products,
to customers through our direct sales force, independent graphic
arts dealers and strategic OEM partnerships. The addition of our
direct sales force has greatly enhanced our marketing,
distribution and service capabilities and given us direct access
to end-user customers of our solutions and services.
12
We employ multiple technologies to solve customer problems. We
are developing many of these technologies ourselves, and others
we acquire through partnerships. We intend to deliver these
solutions through multiple channels, including a high performing
value-added dealer network, our direct sales and service force,
and our strategic OEM partners. We have an established worldwide
distribution network through which we market and sell DI
presses, CTP equipment, thermal plate products as well as analog
plates manufactured at Precision, and a full catalog of
conventional printing products. In addition, we have a worldwide
service organization through which we provide service to
products manufactured by Presstek and third-party vendors. Our
direct sales force represents our primary access to lead the
analog-to-digital
migration of our large installed customer base of smaller print
establishments. In addition to our direct sales force, our
distribution network is supplemented with over 30 independent
graphic arts dealers in 18 countries, including, in the United
States, two national distributors, the Pitman Company and xpedx
Graphic Systems, and several regional dealers. We also market
and sell our full catalog of products through our Presstek.com
Web site as well as shop.abdick.com, an established
e-commerce portal for
the printing industry.
In addition, we have OEM agreements or reseller relationships
with Ryobi, KBA, Kodak 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.
By using this direct and indirect approach to distribution, we
have attempted to maximize the number of systems using our
technology that require Presstek consumables. 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. We have
positioned ourselves to capture revenue from conventional
printing products as the industry continues its migration to
digital.
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.
Strategic
Relationships
Our 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 Presstek’s
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 small
commercial printers, digital printers, quick printers, in-plant
printers, and copy centers looking to expand their services with
offset color printing. In addition, Ryobi provides a range of
duplicators and 2- and 4-tower presses sold under the ABDick
brand. Ryobi has also designed for us the Presstek DI 52,
which will be manufactured to our specifications and plans.
We also have strategic supply relationships with Kodak,
Mitsubishi Imaging (MPM), Inc., which we call Mitsubishi, and
Agfa-Gevaert N.V., who we call Agfa. Presstek purchases certain
plate material from each of these companies that is imaged in
some of our CTP solutions and in conventional printing
applications.
We also developed a long-term relationship with Heidelberg, the
world’s largest manufacturer of printing presses and
printing equipment, based in Germany. In August 2005, we
extended our OEM consumables supply agreements in the United
Kingdom, Sweden, Germany and Switzerland with Heidelberg and
with Heidelberg USA to 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
13
Heidelberg USA, we will 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. The OEM consumables supply
agreement between Presstek and Heidelberg USA is scheduled to
terminate on or about November 1, 2008.
We also have other strategic relationships for the distribution
of our proprietary plates and equipment with other entities
within the graphic arts industry.
We also have strategic relationships with the suppliers of our
raw materials, including aluminum and rolled polyester, which
serve as the base of our plates.
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 of our products, 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, strategic
alliances, worldwide distribution network and knowledge of the
marketplace provide us with a competitive advantage. However,
several other companies address markets in which our 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. These technologies are best suited for
ultra-short runs of less than 300 copies.
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,
Kodak, DaiNippon Screen Mfg., Ltd., Fuji, and Heidelberg,
combinations of these companies, and other smaller or
lesser-known companies. Many of these devices utilize printing
plates that require a post-imaging photochemical developing step
and/or other post processing steps such as heat treatment.
We are beginning to see competition from printing plate
companies that manufacture, or have the potential to
manufacture, digital thermal plates. Such companies include,
among others, Agfa, Kodak, and Fuji Photo Film Co., Ltd., who we
call Fuji. Of these competitors, Kodak is the only one that is
also a strategic partner for digital products.
Kodak is marketing a competitive plate product as an alternative
to Presstek’s PearlDry for both the Ryobi and Quickmaster
DI platforms. These competitive plates could have an impact on
the revenue generated by Presstek under its agreements with
Heidelberg and Ryobi. 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 Fuji and Kodak (formerly
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, Kodak and Fuji. 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 and producing printed product.
While these methods are considered to be more costly, less
efficient and not as environmentally conscious as those we
implement, 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.
14
The broad portfolio of equipment, supplies, and service added to
our portfolio through the acquisition of the ABDick business 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, Kodak, Service On Demand and some independent
providers; for Dealers: xpedx, Pitman and Enovation.
Lasertel’s 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, or Precision, or 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 December 31, 2005, our
worldwide patent portfolio included over 550 patents. We believe
these patents, which expire from 2008 through 2027, are material
in the aggregate to our business. We have applied for and are
pursuing applications for 14 additional U.S. patents and 32
foreign patents. We have registered, or applied to register,
certain trademarks in the U.S. 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 U.S. patent assigned to Precision, which will
expire in 2017 and one active patent assigned to Lasertel, which
will expire in 2012.
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 Presstek’s intellectual property, and to
defend the validity of the patents or otherwise ensure the
technology’s 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, we filed an action against Fuji Photo Film
Corporation, Ltd., in the District Court of Mannheim, Germany
for patent infringement. In this action, we allege that Fuji has
manufactured and distributed a product that violates a Presstek
European Patent. We are seeking 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. A trial
on the matter was held in November 2004, and we await a final
determination from the Court.
15
In February 2005, we filed an action against Creo in the
U.S. District for the District of New Hampshire for patent
infringement. In this action, we allege that Creo has
manufactured and distributed a product that violates a Presstek
U.S. Patent. We are seeking 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.
We intend to rely on proprietary know-how and to employ various
methods to protect our source code, concepts, trade secrets,
ideas and documentation of 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, 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 development expenses related to our continued
development of products incorporating DI and CTP technologies,
including our semiconductor laser diodes, were
$7.3 million, $6.5 million and $7.1 million in
fiscal 2005, fiscal 2004 and fiscal 2003, respectively. These
research and development expenditures are primarily related to
the Presstek segment.
Backlog
At February 25, 2006, we had a backlog of products under
contract aggregating approximately $12.1 million, of which
the Company expects to ship substantially all in 2006. This
amount compares to a consolidated backlog of approximately
$18.6 million at February 25, 2005.
Employees
At December 31, 2005, we had 971 employees worldwide. Of
these, 43 are engaged primarily in engineering, research and
development; 220 are engaged in sales and marketing, 388 are
engaged in service and customer support, 216 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 us 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:
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A1 (8-page) |
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a printing term referring to a standard paper size capable of
printing eight 8.5” x 11” pages on a sheet of paper |
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A2 (4-page) |
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a printing term referring to a standard paper size capable of
printing four 8.5” x 11” pages on a sheet of paper |
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A3/B3 (2-page) |
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a printing term referring to a standard paper size capable of
printing two 8.5” x 11” pages on a sheet of paper |
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Ablation |
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a controlled detachment/vaporization caused by a thermal event,
this process is used during the imaging of Presstek’s PEARL
and Anthem consumables |
16
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Anthem |
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Presstek’s line of wet offset digital plates with a unique
polymer-ceramic construction |
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Applause |
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Presstek’s process-free wet offset digital plate |
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Computer-to-plate (CTP) |
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a general term referring to the exposure of lithographic plate
material from a digital database, off-press |
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Direct Imaging (DI) |
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Presstek’s registered trademark for digital imaging systems
that allow image carriers (film and plates) to be imaged from a
digital database, on and off-press |
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Dots per inch (dpi) |
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a measurement of the resolving power or the addressability of an
imaging device |
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Heidelberg |
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Heidelberger Druckmaschinen AG, one of the world’s largest
printing press manufacturers, headquartered in Heidelberg,
Germany |
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Infrared |
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light lying outside of the visible spectrum beyond its red-end,
characterized by longer wavelengths; used in our thermal imaging
process |
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KBA |
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Koenig & Bauer, AG, one of the world’s largest
printing press manufacturers, headquartered in Wurzburg, Germany |
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Kodak |
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Eastman Kodak Company, a leading supplier of digital,
conventional and business solutions for the graphic arts
industry, headquartered in Rochester, New York |
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Lithography |
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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 |
| |
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Off-press |
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making a printing plate from either an analog or digital source
independent of the press on which it will be used |
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On-press |
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the use of Presstek’s direct imaging technologies to make a
plate directly from a digital file on the press |
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PEARL |
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the name associated with Presstek’s first generation laser
imaging technologies and related products and consumables |
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ProFire and ProFire Excel imaging systems |
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the Presstek components required to convert a conventional
printing press into a direct imaging press, including laser
diode arrays, computers, electronics |
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Dimension |
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Presstek’s product line of CTP off-press platemaking
equipment |
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Platemaking |
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the process of applying a printable image to a printing plate |
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Prepress |
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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 |
| |
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Quickmaster DI |
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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 |
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Ryobi |
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Ryobi Limited of Japan, a printing press manufacturer
headquartered in Japan |
17
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Ryobi 3404DI |
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an A3 format size four-color sheet-fed press, incorporating
Presstek’s dual plate cylinder concept and PearlDry Plus
spooled plates, a joint development effort between Ryobi and
Presstek |
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Semiconductor laser diode |
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a high-powered, infrared imaging technology employed in the DI
imaging systems |
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Short-run markets/printing |
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a graphic arts classification used to denote an emerging trend
for lower print quantities |
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Thermal |
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a method of digitally exposing a material via the heat generated
from a laser beam |
| |
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Vacuum deposition process |
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a technology to accurately, uniformly coat substrates in a
controlled environment |
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Waterless |
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a lithographic printing method that uses dry offset printing
plates and inks and does not require a dampening system |
Item 1A. Risk
Factors
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:
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• |
our expectations for our financial and operating performance in
2006 and beyond; |
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• |
the adequacy of internal cash and working capital for our
operations; |
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• |
our ability to supply sufficient product for anticipated demand
and production delays associated with such demand; |
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• |
availability of component materials; |
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• |
management’s plans and goals with regard to our shipping
and production capabilities, including the adequacy of our
facilities for present and expected future operations; |
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• |
the availability of alternative suppliers and manufacturers; |
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• |
manufacturing constraints or difficulties; |
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• |
the introduction of competitive products into the marketplace; |
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• |
management’s plans and goals for our subsidiaries; |
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• |
the ability of our subsidiaries to generate positive cash flows
in the near-term; |
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• |
our subsidiaries’ ability to produce commercially
competitive products; |
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• |
the strength of our various strategic partnerships both on
manufacturing and distribution; |
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• |
our ability to secure other strategic alliances and
relationships; |
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• |
our expectations regarding our strategy for growth, including
statements regarding our expectations for continued product mix
improvement; |
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• |
our expectations regarding the balance, independence and control
of our business; |
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• |
the resulting and expected effects and benefits from our
transformation efforts; |
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• |
our expectations regarding the strength and improvement of our
fundamentals, including management of our financial controls; |
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• |
our expectations relating to the Heidelberg overstock position; |
18
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• |
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; |
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• |
the expansion of our products and technology; |
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• |
the status of our technology leadership in our market/industry; |
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• |
the commercialization and marketing of our technology; |
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• |
our expectations regarding the sale of our products and use of
our technology; |
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• |
our current plans for product development and the expected
market acceptance of recently introduced products and the likely
acceptance of planned future products; |
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• |
the expected growth in market share; |
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• |
the effects, market acceptance or pricing of competitive
products, including the possibility of a competitive plate
product being introduced by a strategic partner; |
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• |
the placement of orders for direct imaging kits; |
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• |
our expectations regarding reductions in warranty costs; |
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• |
statements regarding the profitability of process-free CTP; |
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• |
the adequacy of our intellectual property protections and our
ability to protect and enforce our intellectual property
rights; and |
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• |
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 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 our strategic partners. 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
19
terminate our relationship with them for a variety of reasons.
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. There can be no assurance that
similar events will not occur with our other strategic partners.
Though we take precautions designed to achieve success, 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 any of our other
strategic, manufacturing or distribution partners will be
successful. The loss of 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.
The acquisition of the ABDick business may affect our
relationship with our third-party distribution and service
partners, which may negatively impact our sales and distribution
channels.
Prior to the addition of the ABDick business, 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. With the addition of ABDick, we utilize our
newly-acquired distribution and service organization as a new
channel through which to sell and service Presstek 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.
If we are unable to manage acquisitions successfully it
could harm our financial results, business and prospects.
The operations of Presstek have substantially changed over the
last eighteen months as a result of the additions of Precision
and the ABDick business. As part of our business strategy, over
the next few years, we may further expand our business through
the acquisition of complementary businesses worldwide. Though we
would not undertake an acquisition that would knowingly be
problematic, 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:
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• |
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. |
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• |
The execution of our integration plans may divert the attention
of our management from operating our existing business. |
| |
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• |
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. |
20
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.
Many of 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 these 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 customer’s
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
customer’s 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 Presstek Europe
subsidiary. We believe that our future success is dependent upon
expansion of global distribution channels. We cannot be certain
that we will be able to maintain our current relationships or
establish new relationships with additional distribution
partners on a timely basis, or at all. 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.
21
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
management’s 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. 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 management’s 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 operations.
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 two of the past five fiscal years. At
December 31, 2005 we had an accumulated deficit of
$7.9 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, 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 year to year. Failure
to sustain profitability may adversely affect the market price
of our common stock and could have a materially adverse impact
on the value of an investment in us.
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
22
operating results for that quarter. In addition, our quarterly
operating results may fluctuate for many reasons, including,
without limitation:
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• |
a long and unpredictable sales cycle; |
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• |
changes in demand for our products and consumables, including
seasonal differences; and |
| |
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• |
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
requirement 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 Kodak 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
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, or our other products, 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
extensive 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. There can be no assurance
23
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 Annual Report
on Form 10-K,
while no material weaknesses were identified, insignificant
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 in our internal controls, some of which
require disclosure in future reports.
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 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 management’s 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.
24
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 December 31, 2005,
Lasertel recorded a net loss of $6.8 million. Lasertel
continues to need 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. Lasertel’s 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 Lasertel’s 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 industry, 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
the 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 operations 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 them concerning our intellectual
property, and to defend the validity of the patents or otherwise
ensure the technology’s availability to the strategic
partner. The costs of an indemnification claim under any such
agreement could have a material adverse effect on our business.
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 U.S. 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, and from possessing such infringing
material, as well as for the payment of damages associated with
the part 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
25
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 Creo’s
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
court’s 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 court’s 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 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 Kodak.
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., Kodak and Fuji Photo Film Co., Ltd.
Heidelberg is marketing a competitive plate product as an
alternative to Presstek’s 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.
26
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.
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
court’s dismissal on November 4, 2004. On
January 27, 2005, the plaintiffs of this matter withdrew
their appeal and the matter was permanently closed in
Presstek’s 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.
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.
Our success 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, Moosa E. Moosa, our Executive Vice President
and Chief Financial Officer, Michael McCarthy, our Senior Vice
President, and Peter Bouchard, our Vice President of Marketing.
The loss or interruption of the services of any or all of
Messrs. Marino, Moosa, McCarthy or Bouchard could have an
adverse effect on our business and prospects.
Our success is 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.
27
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; |
| |
| |
• |
significant 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 1B. Unresolved
Staff Comments
None.
28
The following table summarizes our significant occupied
properties:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Square footage | |
|
Ownership status/ |
| Location |
|
Functions |
|
(approximate) | |
|
lease expiration |
| |
|
|
|
| |
|
|
|
Hudson, New Hampshire
|
|
Corporate headquarters, manufacturing, research and development,
marketing, demonstration activities, administrative and customer
support |
|
|
165,000 |
|
|
Owned |
| |
|
South Hadley, Massachusetts (two buildings)
|
|
Manufacturing, research and development, administrative support |
|
|
100,000 |
|
|
Owned |
| |
|
Tucson, Arizona
|
|
Manufacturing, research and development, administrative supports |
|
|
75,000 |
|
|
Owned |
| |
|
Des Plaines, Illinois
|
|
Distribution center |
|
|
127,000 |
|
|
Lease expires in February 2008 |
| |
|
Des Plaines, Illinois
|
|
Sales, service |
|
|
10,000 |
|
|
Lease expires in October 2007 |
| |
|
Fresno, California
|
|
Distribution center |
|
|
13,000 |
|
|
Lease expires in July 2007 |
| |
|
Harrisburg, Pennsylvania
|
|
Distribution center |
|
|
15,000 |
|
|
Lease expires in December 2006 |
| |
|
Mississauga, Ontario
|
|
Sales, service |
|
|
28,000 |
|
|
Lease expires in March 2010 |
| |
|
Vancouver, British Columbia
|
|
Sales, service |
|
|
10,500 |
|
|
Lease expires in December 2007 |
| |
|
Heathrow, United Kingdom
|
|
European headquarters, sales, service |
|
|
14,500 |
|
|
Lease expires in November 2020, with an option to cancel in
November 2010 |
Our Hudson, New Hampshire facility, in its capacity as corporate
headquarters, is utilized by all of our operating segments.
Our Presstek segment utilizes the facilities in New Hampshire,
Illinois, New York, Pennsylvania, California, Ontario, British
Columbia and the United Kingdom.
Our Precision segment utilizes the facilities in Massachusetts.
Our Lasertel segment utilizes the facilities in Arizona.
In addition to the properties referenced above, we also lease a
number of small sales and marketing offices in the United States
and internationally. At December 31, 2005, we were
productively utilizing substantially all of the space in our
facilities. We believe that our existing facilities are adequate
for our needs for at least the next twelve months.
All of the properties we own are secured by our five-year,
$80.0 million credit facilities.
We believe that our existing facilities are well maintained, in
good operating condition and are adequate for our current and
expected future operations.
29
|
|
| Item 3. |
Legal Proceedings |
In March 2005, we filed an action against Creo, in the United
States District Court for the District of New Hampshire for
patent infringement. In this action, we allege that Creo has
distributed a product that violates a Presstek United States
patent. We are seeking 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, we filed an action against Fuji Photo Film
Corporation, Ltd., in the District Court of Mannheim, Germany
for patent infringement. In this action, we allege 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. We are seeking 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 are currently awaiting a final determination
from the court.
In August 2003, we were 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 us and
two of our former officers. This lawsuit was dismissed by the
court, on October 4, 2004. The plaintiffs have appealed the
court’s dismissal on November 4, 2004. On
January 27, 2005, the plaintiffs withdrew their appeal and
the matter was permanently closed in our favor.
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.
PART II
|
|
| Item 5. |
Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchasers of
Equity Securities |
Our 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 December 31, 2005 |
|
High |
|
Low |
| |
|
|
|
|
| |
First quarter
|
|
$ |
10.75 |
|
|
$ |
7.27 |
|
| |
Second quarter
|
|
$ |
11.75 |
|
|
$ |
7.05 |
|
| |
Third quarter
|
|
$ |
13.74 |
|
|
$ |
11.14 |
|
| |
Fourth quarter
|
|
$ |
13.20 |
|
|
$ |
8.73 |
|
| |
|
Fiscal Year Ended January 1, 2005
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
First quarter
|
|
$ |
12.20 |
|
|
$ |
7.25 |
|
| |
Second quarter
|
|
$ |
12.05 |
|
|
$ |
9.00 |
|
| |
Third quarter
|
|
$ |
10.24 |
|
|
$ |
8.15 |
|
| |
Fourth quarter
|
|
$ |
10.99 |
|
|
$ |
8.56 |
|
30
On March 7, 2006, there were 2,536 holders of record of our
common stock. The closing price of our common stock was
$11.58 per share on March 7, 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
(d) Maximum Number | |
| |
|
|
|
|
|
|
|
(or Approximate | |
| |
|
|
|
|
|
(c) Total Number of | |
|
Dollar value) of | |
| |
|
|
|
|
|
Shares (or Units) of | |
|
Shares (or Units) that | |
| |
|
(a) Total Number of | |
|
(b) Average Price | |
|
Publicly | |
|
May Yet Be | |
| |
|
Shares (or Units) | |
|
Paid Per Share | |
|
Announced | |
|
Purchased Under the | |
| Period |
|
Purchased | |
|
(or Unit) | |
|
Plans of Programs | |
|
Plans or Programs | |
| |
|
| |
|
| |
|
| |
|
| |
|
Oct. 2 — Nov. 1, 2005
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Nov. 2 — Dec. 3, 2005
|
|
|
15,000 |
* |
|
$ |
0.01 |
|
|
|
— |
|
|
|
— |
|
|
Dec. 4 — Dec. 31, 2005
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total
|
|
|
15,000 |
|
|
$ |
150.00 |
|
|
|
— |
|
|
|
— |
|
|
|
| * |
Consists of 15,000 shares repurchased by us pursuant to a
repurchase right contained in an employment agreement between us
and one of our former executives. |
Dividend Policy
To date, we have not paid any cash dividends on our common
stock. Under the terms of our credit facilities, we are
prohibited from declaring or distributing dividends to
shareholders. 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, including the current prohibition on
such dividends described above. 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 selected consolidated financial data set forth below is
derived from our audited consolidated financial statements as of
and for the fiscal years ended December 31, 2005,
January 1, 2005 and January 3, 2004, December 28,
2002 and December 29, 2001. This information should be read
in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
included as Part II Item 7 of this Annual Report on
Form 10-K and our
consolidated financial statements and notes thereto included in
Part II Item 8 of this Annual Report on
Form 10-K. The
historical results provided below are not necessarily indicative
of future results.
We operate and report on a 52- or
53-week, fiscal year
ending on the Saturday closest to December 31. Accordingly,
the selected consolidated financial data include the financial
results for the 52-week
fiscal year ended December 31, 2005, the
52-week fiscal year
ended January 1, 2005, the
53-week fiscal year
ended January 3, 2004, the
52-week fiscal year
ended December 28, 2002 and the
52-week fiscal year
ended December 29, 2001.
31
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended |
| |
|
|
| |
|
December 31, |
|
January 1, |
|
January 3, |
|
December 28, |
|
December 29, |
| |
|
2005 |
|
2005(1) |
|
2004(2) |
|
2002(3) |
|
2001(4) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands, except per-share data) |
|
Revenue
|
|
$ |
274,140 |
|
|
$ |
129,851 |
|
|
$ |
87,232 |
|
|
$ |
83,453 |
|
|
$ |
102,303 |
|
| |
Cost of revenue
|
|
|
192,144 |
|
|
|
87,387 |
|
|
|
51,151 |
|
|
|
54,639 |
|
|
|
64,395 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
81,996 |
|
|
|
42,464 |
|
|
|
36,081 |
|
|
|
28,814 |
|
|
|
37,908 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
7,335 |
|
|
|
6,460 |
|
|
|
7,061 |
|
|
|
9,303 |
|
|
|
11,719 |
|
| |
Sales, marketing and customer support
|
|
|
40,396 |
|
|
|
17,675 |
|
|
|
12,272 |
|
|
|
10,767 |
|
|
|
13,311 |
|
| |
General and administrative
|
|
|
21,187 |
|
|
|
12,471 |
|
|
|
8,399 |
|
|
|
9,345 |
|
|
|
14,701 |
|
| |
Amortization of intangible assets
|
|
|
2,724 |
|
|
|
1,315 |
|
|
|
964 |
|
|
|
867 |
|
|
|
794 |
|
| |
Restructuring and special charges (credits)
|
|
|
874 |
|
|
|
(392 |
) |
|
|
550 |
|
|
|
5,961 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
72,516 |
|
|
|
37,529 |
|
|
|
29,246 |
|
|
|
36,243 |
|
|
|
40,525 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
9,480 |
|
|
|
4,935 |
|
|
|
6,835 |
|
|
|
(7,429 |
) |
|
|
(2,617 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest, net
|
|
|
(2,329 |
) |
|
|
(605 |
) |
|
|
(376 |
) |
|
|
(872 |
) |
|
|
(1,136 |
) |
| |
Other, net
|
|
|
109 |
|
|
|
(265 |
) |
|
|
209 |
|
|
|
21 |
|
|
|
(63 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(2,220 |
) |
|
|
(870 |
) |
|
|
(167 |
) |
|
|
(851 |
) |
|
|
(1,199 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
7,260 |
|
|
|
4,065 |
|
|
|
6,668 |
|
|
|
(8,280 |
) |
|
|
(3,816 |
) |
|
Provision for income taxes
|
|
|
1,174 |
|
|
|
200 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
6,086 |
|
|
|
3,865 |
|
|
|
6,668 |
|
|
|
(8,280 |
) |
|
|
(3,816 |
) |
|
Income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
1,429 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
6,086 |
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
$ |
(8,280 |
) |
|
$ |
(3,816 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from continuing operations
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
| |
Income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
0.04 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from continuing operations
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
| |
Income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
0.04 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.11 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
35,153 |
|
|
|
34,558 |
|
|
|
34,167 |
|
|
|
34,124 |
|
|
|
34,096 |
|
| |
Diluted
|
|
|
35,572 |
|
|
|
35,357 |
|
|
|
34,400 |
|
|
|
34,124 |
|
|
|
34,096 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of |
| |
|
|
| |
|
December 31, |
|
January 1, |
|
January 3, |
|
December 28, |
|
December 29, |
| |
|
2005 |
|
2005 |
|
2004 |
|
2002 |
|
2001 |
| |
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$ |
41,392 |
|
|
$ |
41,117 |
|
|
$ |
42,512 |
|
|
$ |
28,572 |
|
|
$ |
26,741 |
|
|
Total assets
|
|
$ |
181,487 |
|
|
$ |
171,318 |
|
|
$ |
106,528 |
|
|
$ |
101,796 |
|
|
$ |
106,844 |
|
|
Total debt and capital lease obligations
|
|
$ |
35,643 |
|
|
$ |
41,822 |
|
|
$ |
14,464 |
|
|
$ |
16,707 |
|
|
$ |
16,398 |
|
|
Stockholders’ equity
|
|
$ |
98,633 |
|
|
$ |
89,402 |
|
|
$ |
80,183 |
|
|
$ |
71,766 |
|
|
$ |
79,985 |
|
|
|
| (1) |
Amounts include results of operations of ABD International, Inc.
(which acquired certain assets and assumed certain liabilities
of The A.B. Dick Company on November 5, 2004) and Precision
Lithograining Corp. (acquired July 30, 2004) for the
periods subsequent to their respective acquisitions. |
| |
| (2) |
The income from discontinued operations amount relates to the
operations of Delta V Technologies, Inc., which were shut down
in fiscal 1999. |
| |
| (3) |
The cost of revenue amount reported for the fiscal year ended
December 28, 2002 includes $3.7 million of inventory
writedowns and other charges related to discontinued programs. |
| |
| (4) |
The general and administrative amount reported for the fiscal
year ended December 29, 2001 includes $2.1 million
related to the writeoff of pre-payments made to a press supplier
as a result of the supplier’s bankruptcy petition in 2002. |
32
|
|
| Item 7. |
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations |
The following Management’s Discussion and Analysis should
be read in connection with “Item 1. Business”,
“Item 1A. Risk Factors”, “Item 6.
Selected Financial Data”, “Item 7A. Quantitative
and Qualitative Disclosures about Market Risks” and the
Company’s Consolidated Financial Statements and Notes
thereto included in this Annual Report on
Form 10-K.
Overview
We are a market-focused company primarily engaged in the design,
manufacture, sales and service of high-technology digital
imaging solutions to the graphic arts industry worldwide. We are
helping to lead the industry’s transformation from analog
print production methods to digital imaging technology. We are a
leader in the development of advanced printing systems using
digital imaging equipment and consumables-based solutions that
economically benefit the user through a streamlined workflow and
chemistry free, environmentally responsible operation. We are
also a leading sales and service channel in the small to
mid-sized commercial, quick and in-plant printing markets
offering a wide range of solutions to over 20,000 customers
worldwide.
Presstek’s business model is a capital equipment and
consumables (razor and blade) model. In this model, almost 70%
of our revenue is recurring revenue. Our model is designed so
that each placement of either a Direct Imaging Press or a
Computer to Plate system results in recurring aftermarket
revenue for consumables and service.
Through our various operations, we:
|
|
|
| |
• |
provide advanced print solutions through the development and
manufacture of digital laser imaging equipment and advanced
technology chemistry-free printing plates, which we call
consumables, for commercial and in-plant print providers
targeting the growing market for high quality, fast turnaround
short-run color printing; |
| |
| |
• |
are a leading sales and services company delivering Presstek
digital solutions and solutions from other manufacturing
partners through our direct sales and service force and through
distribution partners worldwide; |
| |
| |
• |
manufacture semiconductor solid state laser diodes for Presstek
imaging applications and for use by external
applications; and |
| |
| |
• |
manufacture and distribute printing plates for conventional
print applications. |
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.
In addition to marketing, selling and servicing our proprietary
digital products, we also market, sell and service traditional,
or analog products for the commercial print market. This analog
equipment is manufactured by third party strategic partners and
the analog consumables are manufactured by either us or our
strategic partners. The addition of these non-proprietary
products and our ability to directly sell and service them is
made possible by acquisitions we completed in 2005: ABDick and
Precision.
On November 5, 2004, we, through our wholly-owned
subsidiary, ABD International, Inc. completed the acquisition of
certain assets and assumed certain liabilities of the The A.B.
Dick Company, which we acquired
33
through a Section 363 sale in the United States Bankruptcy
Court. We refer to the business that we acquired as the ABDick
business. The business we acquired manufactures, markets and
services offset systems, CTP systems and related supplies for
the graphics arts and printing industries. In 2005, we
substantially completed the integration of the operations of the
ABDick business into Presstek.
On July 30, 2004, we acquired all the stock of Precision
Lithograining Corporation, an independent plate manufacturer
located in South Hadley, Massachusetts, which we refer to as
Precision. 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.
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. Lasertel’s
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.
After the acquisition of the ABDick business, but prior to its
integration into Presstek, we reported the financial performance
of the ABDick business in a separate segment called the ABDick
segment. In the third quarter of fiscal 2005, we implemented a
new internal management reporting structure in connection with
organizational changes related to the integration of the
acquired ABDick business into our Presstek business segment.
Accordingly, the results of operations and balance sheet
information for the former ABDick segment have been combined
with those of the former Presstek segment and are now reported
together as the Presstek business segment. Any future changes to
this organizational structure may result in changes to the
business segments currently disclosed.
Our operations are currently organized into three business
segments: (i) Presstek; (ii) Precision; and
(iii) Lasertel. Segment operating results are based on the
current organizational structure reviewed by our management to
evaluate the results of each business. A description of the
types of products and services provided by each business segment
follows.
|
|
|
| |
• |
Presstek is primarily engaged in the development,
manufacture, sale and servicing of our patented digital imaging
systems and patented printing plate technologies as well as
traditional, analog systems and related equipment and supplies
for the graphic arts and printing industries, primarily the
short-run, full-color market segment. |
| |
| |
• |
Precision manufactures chemistry-free digital and
conventional printing plates for both web and sheet-fed printing
applications for sale to Presstek and to external customers. |
| |
| |
• |
Lasertel manufactures and develops high-powered laser
diodes for Presstek and for sale to external customers. |
We generate revenue through four main sources: (i) the sale
of our equipment, including DI presses and CTP devices, as well
as imaging kits, which are incorporated by leading press
manufacturers into direct imaging presses for the graphic arts
industry; (ii) the sale of high-powered laser diodes for
the graphic arts, defense and industrial sectors; (iii) the
sale of our proprietary and non-proprietary consumables and
supplies; and (iv) the servicing of offset printing systems
and analog and CTP systems and related equipment.
Our business strategy is centered on maximizing the sale of
consumable products, such as printing plates, and therefore our
business efforts focus on the sale of “consumable burning
engines” such as our DI presses and CTP devices. Our
strategy to grow our consumables has two parts. The first part
is to increase the number of our DI and CTP units in the field.
By increasing the number of consumable burning engines will
increase the demand for our consumables.
We rely on partnerships with press manufacturers such as Ryobi
Limited, Heidelberger Druckmaschinen AG, or Heidelberg, and
Koenig & Bower AG, or KBA, to market printing presses
and press solutions that use our proprietary consumables. We
also rely on distribution partners, such as Eastman Kodak to
sell, distribute and service press systems and the related
proprietary consumable products.
34
Another method of growing the market for consumables is to
develop consumables that can be imaged by non-Presstek devices.
In addition to expanding our base of our consumable burning
engines, 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. The first step in executing this
strategy was the launch of our non-proprietary Aurora
chemistry-free printing plate designed to be used with
Consumable burning engines manufactured by thermal CTP market
leaders Screen and Kodak. We continue to work with other CTP
manufacturers to qualify our consumables on their systems. We
believe this shift in strategy fundamentally enhances our
ability to expand and control our business.
We operate and report on a 52- or
53-week, fiscal year
ending on the Saturday closest to December 31. Accordingly,
the consolidated financial statements include the financial
reports for the 52-week
fiscal year ended December 31, 2005, which we refer to as
fiscal 2005, the
52-week fiscal year
ended January 1, 2005, which we refer to as fiscal 2004,
and the 53-week fiscal
year ended January 3, 2004, which we refer to as fiscal
2003.
We intend the discussion of our financial condition and results
of operations that follows to provide information that will
assist in understanding our consolidated financial statements,
the changes in certain key items in those financial statements
from year to year, and the primary factors that accounted for
those changes, as well as how certain accounting principles,
policies and estimates affect our consolidated financial
statements.
The discussion of results of operations at the consolidated
level is presented together with results of operations by
business segment.
35
RESULTS OF OPERATIONS
Results of operations in dollars and as a percentage of revenue
were as follows (in thousands of dollars):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
December 31, 2005 | |
|
January 1, 2005 | |
|
January 3, 2004 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
| |
|
|
|
revenue | |
|
|
|
revenue | |
|
|
|
revenue | |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product
|
|
$ |
225,619 |
|
|
|
82.3 |
|
|
$ |
116,788 |
|
|
|
89.9 |
|
|
$ |
82,853 |
|
|
|
95.0 |
|
| |
Service and parts
|
|
|
48,521 |
|
|
|
17.7 |
|
|
|
13,063 |
|
|
|
10.1 |
|
|
|
4,379 |
|
|
|
5.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total revenue
|
|
|
274,140 |
|
|
|
100.0 |
|
|
|
129,851 |
|
|
|
100.0 |
|
|
|
87,232 |
|
|
|
100.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of product
|
|
|
159,282 |
|
|
|
58.1 |
|
|
|
78,252 |
|
|
|
60.3 |
|
|
|
48,235 |
|
|
|
55.3 |
|
| |
Cost of service and parts
|
|
|
32,862 |
|
|
|
12.0 |
|
|
|
9,135 |
|
|
|
7.0 |
|
|
|
2,916 |
|
|
|
3.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
192,144 |
|
|
|
70.1 |
|
|
|
87,387 |
|
|
|
67.3 |
|
|
|
51,151 |
|
|
|
58.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
81,996 |
|
|
|
29.9 |
|
|
|
42,464 |
|
|
|
32.7 |
|
|
|
36,081 |
|
|
|
41.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
7,335 |
|
|
|
2.7 |
|
|
|
6,460 |
|
|
|
5.0 |
|
|
|
7,061 |
|
|
|
8.1 |
|
| |
Sales, marketing and customer support
|
|
|
40,396 |
|
|
|
14.7 |
|
|
|
17,675 |
|
|
|
13.6 |
|
|
|
12,272 |
|
|
|
14.1 |
|
| |
General and administrative
|
|
|
21,187 |
|
|
|
7.7 |
|
|
|
12,471 |
|
|
|
9.6 |
|
|
|
8,399 |
|
|
|
9.7 |
|
| |
Amortization of intangible assets
|
|
|
2,724 |
|
|
|
1.0 |
|
|
|
1,315 |
|
|
|
1.0 |
|
|
|
964 |
|
|
|
1.1 |
|
| |
Restructuring and special charges (credits)
|
|
|
874 |
|
|
|
0.3 |
|
|
|
(392 |
) |
|
|
(0.3 |
) |
|
|
550 |
|
|
|
0.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total operating expenses
|
|
|
72,516 |
|
|
|
26.4 |
|
|
|
37,529 |
|
|
|
28.9 |
|
|
|
29,246 |
|
|
|
33.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
9,480 |
|
|
|
3.5 |
|
|
|
4,935 |
|
|
|
3.8 |
|
|
|
6,835 |
|
|
|
7.8 |
|
|
Interest and other expense, net
|
|
|
(2,220 |
) |
|
|
(0.9 |
) |
|
|
(870 |
) |
|
|
(0.7 |
) |
|
|
(167 |
) |
|
|
(0.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
7,260 |
|
|
|
2.6 |
|
|
|
4,065 |
|
|
|
3.1 |
|
|
|
6,668 |
|
|
|
7.7 |
|
|
Provision for income taxes
|
|
|
1,174 |
|
|
|
0.4 |
|
|
|
200 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
6,086 |
|
|
|
2.2 |
|
|
|
3,865 |
|
|
|
3.0 |
|
|
|
6,668 |
|
|
|
7.7 |
|
|
Income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,429 |
|
|
|
1.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,086 |
|
|
|
2.2 |
|
|
$ |
3,865 |
|
|
|
3.0 |
|
|
$ |
8,097 |
|
|
|
9.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 Compared to Fiscal
2004
Revenue
Consolidated Revenue
Consolidated revenues were $274.1 million in fiscal 2005,
an increase of $144.2 million, or 111.1%, from
$129.9 million of consolidated revenues in fiscal 2004.
Revenue growth in fiscal 2005 reflects the impact of our
acquisition strategy launched in 2004 with the Precision and
ABDick acquisitions and our success in integrating these
operations into our business in 2005. We grew our digital
technology base significantly in fiscal 2005, with digital
revenues increasing from $104.5 million in fiscal 2004 to
$165.6 million in fiscal 2005, an increase of 58%. Revenue
into the European market increased from $34.4 million in
fiscal 2004 to $57.2 million in fiscal 2005, an increase of
66.0%, largely due to our increased European footprint resulting
from the ABDick acquisition and the integration of the Presstek
European distributor business with the former A.B. Dick UK
Limited operation.
Product equipment revenues were $83.5 million in fiscal
2005, an increase of $43.0 million, or 105.9%, from fiscal
2004. The current year increase is primarily attributable to the
Presstek segment and the ABDick acquisition, which
36
business’s direct sales channel favorably impacted our
installed base of DI and CTP presses, referred to as consumable
burning engines, or CBEs, sold in the current period. We
increased digital equipment sales by approximately
300 units, or $23.1 million, in the current fiscal
year.
Revenues generated from consumable product sales were
$141.8 million in fiscal 2005, an increase of
$66.1 million, or 87.2%, from the prior fiscal year. The
current year increase is attributable primarily to incremental
revenues associated with the Precision and ABDick acquisitions.
Service and parts revenues were $48.5 million in fiscal
2005, an increase of $35.5 million, or 271.4%, from the
prior fiscal year. The current year increase is attributable
primarily to incremental revenue derived from the ABDick
acquisition.
Segment Revenue
In fiscal 2005, we implemented a new internal management
reporting structure in connection with organizational changes
related to the integration of the ABDick business into our
Presstek business. We analyzed the impact of this integration on
our operating segments and concluded that the results of
operations and balance sheet information for the former ABDick
segment should be combined with those of the former Presstek
segment and reported as the new Presstek business segment.
Accordingly, the historical results of the Presstek segment
included herein have been restated to include the results of the
former ABDick segment. As part of the integration,
Presstek-Europe was reorganized to combine the Presstek European
distributor business with the former ABDick-UK operation to
enhance the customer support base for the region.
The following business segment revenue information includes
intersegment revenues for the Precision and Lasertel segments.
Intersegment revenues are eliminated in consolidation.
Presstek Segment
Revenue for the Presstek segment was $255.4 million in
fiscal 2005, an increase of $136.8 million, or 115.4%,
compared to $118.6 million in fiscal 2004. This revenue
increase is primarily attributable to the incremental sales
generated from the acquisition of the ABDick business and the
introduction of Presstek technology products into those new
distribution channels. Equipment, consumables and service/parts
revenues increased by $42.0 million, $59.6 million and
$35.5 million, respectively.
Digital revenues in the Presstek segment increased 59.2% from
$101.6 million in fiscal 2004 to $161.8 million in
fiscal 2005. A primary factor in the increase in digital
revenues in fiscal 2005 was an 84% increase in sales of CBEs.
Product equipment revenue was also favorably impacted by the
direct sales channel acquired in the ABDick acquisition and the
launch of the Vector TX 52, a new generation of CTP system, into
U.S. and European markets, which contributed $1.2 million
in incremental revenue in the current year.
In fiscal 2005, we experienced organic growth in several
consumable digital product lines, including Profire Digital
Media plates, which increased $1.9 million, or 414% year
over year. In addition, we entered into several strategic
consumable relationships, including those with Heidleberg naming
the Quickmaster DI as a preferred plate and Screen USA to market
consumable plate products in non-Presstek proprietary CTP
systems.
In fiscal 2005, we brought back to Presstek the previously
outsourced service of our digital equipment and introduced DI
training to service engineers and customer support to drive
digital service growth. Our digital service contract mix
increased from 18% to 24% in fiscal 2005.
Precision Segment
Revenue for the Precision segment was $25.2 million in
fiscal 2005, an increase of $14.0 million, or 124.5%,
compared to $11.2 million in fiscal 2004. This increase
reflects full-year financial results for the Precision segment
in fiscal 2005, compared to the results of the Precision segment
for the period subsequent to its acquisition in July 2004.
37
Lasertel Segment
Revenue for the Lasertel segment was $7.8 million in both
fiscal 2005 and fiscal 2004. Revenue earned from external
customers increased $0.9 million, from $2.9 million in
fiscal 2004 to $3.8 million in fiscal 2005, primarily due
to the addition of two significant new customers in the defense
and industrial fields.
Cost of Revenue
Consolidated Cost of
Revenue
Consolidated cost of product, consisting of costs of material,
labor and overhead, shipping and handling costs and warranty
expenses, was $159.3 million in fiscal 2005, an increase of
$81.0 million, or 103.6%, from $78.3 million in fiscal
2004. The increase is primarily attributable to additional cost
of product associated with the Precision and ABDick businesses
acquisitions and higher revenues in the current year.
Consolidated cost of service and parts was $32.9 million in
fiscal 2005 and $9.1 million in fiscal 2004. These amounts
represent the costs of spare parts, labor and overhead
associated with the ongoing service of products. These increases
are attributable primarily to the addition of the ABDick
business in November 2004.
Segment Cost of
Revenue
Cost of revenue for the Presstek segment was $170.5 million
in fiscal 2005, an increase of $98.5 million, compared to
$72.0 million in fiscal 2004. The increase relates
primarily to the addition of ABDick and higher production costs
driven by increased equipment, consumable and parts sales.
Cost of revenue for the Precision segment was $22.7 million
in fiscal 2005, compared to $11.1 million in fiscal 2004.
The increase reflects full-year financial results for the
Precision segment in fiscal 2005, compared to the results of the
Precision segment for the period subsequent to its acquisition
in July 2004.
Cost of revenue for the Lasertel segment was $9.1 million
in fiscal 2005, compared to $9.5 million in fiscal 2004.
The decrease in fiscal 2005 relates to production efficiency
gains, yield improvements, and, to a lesser extent, a change in
the lives of certain machinery and equipment from five to seven
years, resulting in a reduction of depreciation costs of
$0.4 million in both the fourth quarter and fiscal 2005.
This change in estimate positively impacted net income by
$0.3 million and earnings per share on both a basic and
diluted basis by $0.01 in both the fiscal 2005 fourth quarter
and year.
Consolidated Gross Margin
Consolidated gross margin as a percentage of total revenue was
29.9% in fiscal 2005, compared to 32.7% in fiscal 2004. Gross
margin as a percentage of product revenue was 29.4% in fiscal
2005, compared to 33.0% in fiscal 2004. The product gross margin
percentage decrease in fiscal 2005 is primarily the result of
the addition of the Precision and ABDick businesses, together
with a higher mix of equipment revenues, which historically
carry lower gross margins than Presstek’s core business. As
the impact of integrating the manufacturing operations of
Presstek, Precision, and ABDick is fully realized in fiscal
2006, we expect gross margins to improve.
Gross margin as a percentage of service and parts revenue was
32.3% and 30.1% in fiscal 2005 and 2004, respectively. The
service and parts gross margin percentage increase in fiscal
2005 is attributable to integration savings resulting from
consolidating operations and a shift from an outsourced service
provider to internal services.
Research and Development
Research and development expenses primarily consist of payroll
and related expenses for personnel, parts and supplies, and
contracted services required to conduct our equipment,
consumables and laser diode development efforts. Our research
and development team also contribute to the development,
presentation, and launch of new technology products at key
industry shows in the U.S. and Europe.
Consolidated research and development expenses were
$7.3 million in fiscal 2005, an increase of
$0.8 million, or 13.5%, from $6.5 million in fiscal
2004. The increase is attributable to additional costs
associated with the Precision and ABDick business acquisitions,
partially offset by development supplies costs incurred in
fiscal 2004
38
in preparation for the Drupa trade show that were not incurred
in 2005. As a percentage of revenue, research and development
expenses declined from 5.0% to 2.7% in fiscal 2005 and we expect
this decline to continue in future periods as total revenue
increases.
Research and development expenses for the Presstek segment were
$6.0 million in fiscal 2005, an increase of
$0.3 million, or 5.9%, compared to $5.7 million in
fiscal 2004. This increase is due to increased salary and
benefits costs, partially offset by $0.6 million of
development parts and supply costs incurred in fiscal 2004 in
preparation for the Drupa trade show that were not incurred in
fiscal 2005.
Research and development expenses for the Precision segment were
$0.4 million and $0.2 million in fiscal 2005 and
fiscal 2004, respectively. The change in 2005 from the prior
year is primarily attributable to a full year of Precision
operations in fiscal 2005.
Research and development expenses for the Lasertel segment were
$0.9 million in fiscal 2005, an increase of
$0.3 million, compared to $0.6 million in fiscal 2004.
This increase relates primarily to increased salary and benefits
costs from additional development personnel associated with new
product activities, combined with increased development parts
and supplies expenses.
While we expect to continue to invest an estimated
$7.0 million internally in research and development in
fiscal 2006, our strategy is to identify and collaborate with
third parties in development activities designed to leverage
Presstek technology and innovation.
Sales, Marketing and Customer
Support
Sales, marketing and customer support expenses primarily consist
of payroll and related expenses for personnel, advertising,
trade shows, promotional expenses, and travel costs associated
with sales, marketing and customer support activities.
Consolidated sales, marketing and customer support expenses were
$40.4 million in fiscal 2005, an increase of
$22.7 million, or 128.6%, from $17.7 million in fiscal
2004. The increases are primarily attributable to the Precision
and ABDick acquisitions, partially offset by operating costs of
$0.4 million incurred in fiscal 2004 in preparation for the
Drupa trade show that were not incurred in 2005.
Sales, marketing and customer support expenses for the Presstek
segment were $39.6 million in fiscal 2005, an increase of
$22.6 million, compared to $17.0 million in fiscal
2004. The increase in fiscal 2005 is attributable to the ABDick
acquisition, partially offset by operating costs of
$0.4 million incurred in fiscal 2004 in preparation for the
Drupa trade show that were not incurred in 2005.
Sales, marketing and customer support expenses for the Precision
segment were $0.3 million and $0.2 million in fiscal
2005 and fiscal 2004, respectively.
Sales and marketing expenses for the Lasertel segment were
$0.4 million in both fiscal 2005 and fiscal 2004. These
costs reflect a continuing drive to enhance external revenues
from customers in the defense and industrial fields.
In fiscal 2005, we strengthened capacity and capability within
the sales, marketing and customer support area through
reorganization, training in advanced technology products and
services, and changes in key personnel. In fiscal 2006, we
expect expenses in this area to increase in absolute dollars as
we continue to pursue initiatives designed to drive penetration
of Presstek technology.
General and Administrative
Consolidated general and administrative expenses, primarily
comprised of payroll and related expenses for personnel, and
contracted professional services necessary to conduct our
finance, information systems, human resources and administrative
activities, were $21.2 million in fiscal 2005, an increase
of $8.7 million, or 69.9%, compared to $12.5 million
in fiscal 2004. The increase is primarily attributable to the
acquisitions of ABDick and Precision, combined with salaries,
benefits, professional fees and integration costs incurred by
the Presstek segment.
General and administrative expenses were 7.7% of total revenue
in fiscal 2005 compared to 9.6% in fiscal 2004. The decrease in
fiscal 2005 reflects integration savings associated with the
consolidation of operations of both
39
Precision and ABDick, as well as overall revenue growth of
111.1% in the period due to such acquisitions. We expect to see
general and administrative expenses decrease as a percentage of
revenue in future periods as our strategy is to position the
growth of general and administrative expenses at lower rates
than the growth of revenue and as the full-year impact of
integration actions is realized.
General and administrative expenses for the Presstek segment
were $19.7 million in fiscal 2005, an increase of
$8.4 million, or 73.7%, compared to $11.3 million in
fiscal 2004. This increase is primarily attributable to
additional general and administrative costs associated with the
ABDick acquisition, coupled with higher salary and benefit costs
and increased fees for professional services.
General and administrative expenses for the Precision segment
were $0.6 million and $0.2 million in fiscal 2005 and
fiscal 2004, respectively. The change in 2005 from the prior
year is primarily attributable to a full year of results for
this segment included in fiscal 2005.
General and administrative expenses for the Lasertel segment
were $0.8 million in fiscal 2005 and $0.9 million in
fiscal 2004.
Amortization of Intangible
Assets
Amortization expense of $2.7 million and $1.3 million
in fiscal 2005 and fiscal 2004, respectively, relates to
intangible assets recorded in connection with the Company’s
2004 ABDick and Precision acquisitions, patents and other
purchased intangible assets.
Restructuring and Special Charges/
Credits
In fiscal 2005, we charged $0.9 million of restructuring
and special charges related to Precision and ABDick to results
of operations. These charges consisted of severance and fringe
benefit costs, executive and other contractual obligations, and
a settlement with previously terminated employees. In fiscal
2005, we also incurred net costs of $1.5 million associated
with the integration of ABDick into Presstek. These costs were
recorded as an adjustment to the purchase price of the
acquisition. We have already benefited from the resulting cost
reductions and expect the full impact to be realized in fiscal
2006. On an annualized basis, restructuring benefits have
exceeded $8.5 million.
In fiscal 2004, we reversed $0.4 million of excess
restructuring charges related to estimated severance and fringe
benefits accrued in fiscal 2003 and 2002 as a result of lower
actual fringe benefit costs.
Interest and Other Income/ Expense,
Net
Interest expense was $2.5 million in fiscal 2005, an
increase of $1.6 million from $0.9 million in fiscal
2004. The increase in interest expense is primarily attributable
to higher average debt balances related to financing the two
acquisitions completed in 2004 and higher interest rates on
borrowings. Effective August 31, 2005, we amended our debt
facilities to reduce the current applicable LIBOR Margin to
2.5%, from the previous Applicable LIBOR Margin of 3.5%.
We recorded interest income of $0.1 million and
$0.3 million in fiscal 2005 and fiscal 2004, respectively.
The decrease in fiscal 2005 is principally a result of decreased
cash balances available for investment.
The primary components of other income (expense), net, are gains
or losses on foreign currency transactions and disposals of
long-lived assets. In fiscal 2005 and fiscal 2004, we recorded
losses on foreign currency transactions of $3,000 and $133,000,
respectively. We recognized losses on the disposals of
long-lived assets totaling $153,000 and $24,000 in fiscal 2005
and fiscal 2004, respectively.
Provision for Income Taxes
Our effective tax rate was 16.2% in fiscal 2005 and 4.9% in
fiscal 2004. The variance from the federal statutory rate for
fiscal 2005 was primarily due to the recognition of a non-cash
deferred tax liability for goodwill, foreign taxes, and
alternative minimum taxes.
40
In fiscal 2004, our effective tax rate differed from the federal
statutory rate primarily due to state, foreign and alternative
minimum tax, offset by increases in the valuation allowance.
At December 31, 2005, we had net deferred tax assets of
approximately $36 million which were subject to
consideration of a valuation allowance. A full valuation
allowance has been provided against the net deferred tax assets
in the U.S. due to the uncertainty of their realization. In
the future, continued sustained profitability will cause us to
reassess the need for the valuation allowance. We may be
required to recognize these deferred tax assets through the
reduction of the valuation allowance which would result in a
material benefit to our results of operations and adjustments to
recorded goodwill and shareholder equity in the period in which
the benefit is determined.
Fiscal 2004 Compared to Fiscal
2003
Revenue
Consolidated Revenue
Consolidated revenues were $129.9 million in fiscal 2004,
an increase of $42.7 million, or 48.9%, from
$87.2 million of consolidated revenues in fiscal 2003.
Revenue growth in fiscal 2004 was primarily the result of the
addition of the ABDick and Precision businesses, coupled with
$9.9 million of organic growth. The ABDick and Precision
business contributed $32.8 million of revenue for the
periods subsequent to their respective acquisitions.
Product equipment sales were $40.5 million in fiscal 2004,
an increase of $11.6 million, or 40.3%, from fiscal 2003.
Revenues generated from consumable product sales were
$75.7 million in fiscal 2004, an increase of
$23.9 million, or 46.2% from the prior fiscal year. The
current year increases are primarily attributable to the
addition of the ABDick and Precision businesses, and, to a
lesser extent, organic growth.
Segment Revenue
The following revenue information for each of our business
segments includes intersegment revenues. These intersegment
revenues are eliminated in consolidation.
Revenue for the Presstek segment was $118.6 million in
fiscal 2004, an increase of $33.1 million, or 38.7%,
compared to $85.5 million in fiscal 2003. This revenue
increase is primarily attributable to the addition of ABDick,
which contributed $24.3 million of revenues in the fiscal
2004 period subsequent to its acquisition, coupled with organic
growth.
Revenue for the Precision segment was $11.2 million in
fiscal 2004. We acquired Precision in July 2004; accordingly,
there is no comparative historical financial information for
fiscal 2003.
Revenue for the Lasertel segment was $7.8 million in fiscal
2004, an increase of $1.0 million, or 14.1%, compared to
$6.8 million in fiscal 2003. This increase was primarily
related to the sale of products used in applications for the
defense industry.
Cost of Revenue
Consolidated Cost of
Revenue
Consolidated cost of product, consisting of costs for material,
labor and overhead, shipping and handling costs and warranty
expenses, was $78.3 million in fiscal 2004, an increase of
$30.1 million, or 62.2%, from $48.2 million in fiscal
2003. The increase is primarily attributable to additional cost
of product associated with the acquired Precision and ABDick
businesses.
Consolidated cost of service and parts was $9.1 million in
fiscal 2004 and $2.9 million in fiscal 2003. These amounts
represent the costs of spare parts, labor and overhead
associated with the ongoing service of products. These increases
are primarily attributable to the acquired ABDick business,
which incurred $4.8 million of cost in the fiscal 2004
period subsequent to its acquisition by us.
41
Segment Cost of
Revenue
Cost of revenue for the Presstek segment was $72.0 million
in fiscal 2004, an increase of $24.3 million, or 51.0%,
compared to $47.7 million in fiscal 2003. The increase
relates primarily to additional costs associated with the
acquired ABDick business.
Cost of revenue for the Precision segment was $11.1 million
in fiscal 2004.
Cost of revenue for the Lasertel segment was $9.5 million
in fiscal 2004, compared to $8.5 million in fiscal 2003.
The increase is primarily due to laser diode production volumes
in fiscal 2004, compared to the prior year.
Consolidated Gross Margin
Consolidated gross margin as a percentage of total revenue was
32.7% in fiscal 2004, compared to 41.4% in fiscal 2003. Gross
margin as a percentage of product revenue was 33.0% in fiscal
2004, compared to 41.8% in fiscal 2003. Gross margin as a
percentage of service and parts revenue was 30.1% and 33.4% in
fiscal 2004 and 2003, respectively. The decrease in gross margin
in 2004 is primarily the result of the acquired ABDick and
Precision businesses, which have traditionally lower gross
margins than Presstek’s core business.
Research and Development
Research and development expenses primarily consist of payroll
and related expenses for personnel, parts and supplies, and
contracted services required to conduct our equipment,
consumables and laser diode development efforts.
Consolidated research and development expenses were
$6.5 million in fiscal 2004, a decrease of
$0.6 million, or 8.5%, from $7.1 million in fiscal
2003.
Research and development expenses for the Presstek segment were
$5.7 million in fiscal 2004, a decrease of
$0.6 million, or 9.7%, compared to $6.3 million in
fiscal 2003. This decrease is due to reduced salaries and
benefits approximating $0.4 million resulting from
headcount reductions in the third quarter of 2003, coupled with
$0.6 million of reduced development costs related to
finalizing the development of our Pro Fire Excel product. These
reductions were partially offset by $0.2 million of
increased costs related to parts and supplies and professional
and contractor services.
Research and development expenses for the Precision segment were
$0.2 million in fiscal 2004.
Research and development expenses for the Lasertel segment were
$0.6 million in fiscal 2004, a decrease of
$0.2 million, compared to $0.8 million in fiscal 2003.
This decrease is attributable to $0.1 million of reduced
salary and benefit expenses and $0.1 million of reduced
costs for parts and supplies and professional and contractor
services.
Sales, Marketing and Customer
Support
Sales, marketing and customer support expenses primarily consist
of payroll and related expenses for personnel, advertising,
trade shows, promotional expenses, and travel costs related to
our sales, marketing and customer support activities.
Consolidated sales, marketing and customer support expenses were
$17.7 million in fiscal 2004, an increase of
$5.4 million, or 44.0%, from $12.3 million in fiscal
2003. The increase is primarily attributable to the addition of
the ABDick and Precision business, which accounted for
$4.0 million of expenses for the fiscal 2004 periods
subsequent to their respective acquisitions.
Sales, marketing and customer support expenses for the Presstek
segment were $17.0 million in fiscal 2004, an increase of
$5.1 million, compared to $11.9 million in fiscal
2003. The increase is primarily attributable to the acquired
ABDick business.
Sales, marketing and customer support expenses for the Precision
segment were $0.2 million in fiscal 2004.
Sales and marketing expenses for the Lasertel segment were
$0.4 million in both fiscal 2004 and fiscal 2003.
42
General and Administrative
Consolidated general and administrative expenses, primarily
comprised of payroll and related expenses for personnel, and
contracted professional services necessary to conduct our
finance, information systems, human resources and administrative
activities, were $12.5 million in fiscal 2004, an increase
of $4.1 million, or 48.5%, compared to $8.4 million in
fiscal 2003. The increase is primarily attributable to the
addition of the ABDick and Precision businesses, which accounted
for $2.9 million of increased general and administrative
expense for the periods in fiscal 2004 subsequent to their
respective acquisitions.
General and administrative expenses for the Presstek segment
were $11.3 million in fiscal 2004, an increase of
$3.9 million, or 52.9%, compared to $7.4 million in
fiscal 2003. The primary components of this increase are
$2.6 million of expenses attributable to the acquired
ABDick business, $0.6 million of expenses related to
compliance with Section 404 of the Sarbanes-Oxley Act of
2002 and increased legal fees related to the shareholder suit
aggregating $0.5 million.
General and administrative expenses for the Precision segment
were $0.2 million in fiscal 2004.
General and administrative expenses for the Lasertel segment
were $0.9 million in fiscal 2004 and $1.0 million in
fiscal 2003. The decrease is primarily attributable to lower
professional services expenses in fiscal 2004.
Amortization of Intangible
Assets
Amortization expense of $1.3 million in fiscal 2004 relates
to intangible assets recorded in connection with our 2004 ABDick
and Precision acquisitions, patents and other purchased
intangible assets. Amortization expense of $1.0 million in
fiscal 2003 primarily relates to in-service patents.
Restructuring and Special
Charges/Credits
In fiscal 2004, we reversed $0.4 million in excess amounts
originally accrued in fiscal 2003 and 2002 for severance. In
fiscal 2003, we recorded $0.6 million of restructuring and
special charges related to severance and fringe benefit costs
associated with the reduction of approximately 43 employees,
primarily in manufacturing, research and development and
administration, of which $0.5 million was recorded by the
Presstek segment and $0.1 million was recorded by the
Lasertel segment.
Interest and Other Income/Expense,
Net
Interest expense was $0.9 million and $0.7 million in
fiscal 2004 and fiscal 2003, respectively. The increase is
primarily attributable to higher average debt balances in fiscal
2004 as a result of the business acquisitions, coupled with
higher interest rates on outstanding borrowings.
We recorded interest income of $0.3 million in both fiscal
2004 and fiscal 2003.
The primary components of other income (expense), net, are gains
or losses on foreign currency transactions and disposals of
long-lived assets. In fiscal 2004, we recorded losses on foreign
currency transactions and disposals of long lived assets
totaling $133,000 and $24,000, respectively. The 2003 amount is
primarily comprised of gains on foreign currency transactions
totaling $196,000.
Provision for Income Taxes
The Company’s effective tax rate was 4.9% in fiscal 2004.
The rate differs from the statutory rate primarily as a result
of the partial reversal of the valuation allowance related to
net operating loss carryforwards. The increase in the provision
relates to the recognition of a non-cash deferred tax liability
for goodwill, foreign taxes and alternative minimum taxes. We
did not record any income tax expense in fiscal 2003 due to net
operating loss carryforwards used in the period.
43
Liquidity and Capital
Resources
We finance our operating and capital investment requirements
primarily through cash flows from operations and borrowings. At
December 31, 2005, we had $5.6 million of cash and
$41.4 million of working capital, compared to
$8.7 million of cash and $41.1 million of working
capital at January 1, 2005.
Our operating activities provided $11.7 million of cash in
the year ended December 31, 2005. Cash provided by
operating activities primarily came from net income, after
adjustments for non-cash depreciation, amortization,
restructuring and special charges, provisions for warranty costs
and accounts receivable allowances, stock compensation expense
and losses on the disposal of assets. Net income and non-cash
items were further benefited from an increase of
$9.2 million in accounts payable, primarily related to the
timing of purchases and payments to suppliers. These amounts
were partially offset by increases of $7.3 million and
$7.1 million in accounts receivable and inventories,
respectively, and decreases of $2.5 million and
$1.9 million in accrued expenses and deferred revenue,
respectively. Accounts receivable increases in the current year
are primarily attributable to increased revenues in fiscal 2005
compared to the prior fiscal year and an increase in days sales
outstanding from 39 in 2004 to 53 in fiscal 2005, driven
principally by the timing of funding from equipment leasing
partners. Higher inventory levels at December 31, 2005,
reflected in a decrease in inventory turns from 4.8 in 2004 to
3.8 in 2005, were primarily attributable to manufacturing
consolidation actions, raw materials and parts associated with
the production ramp-up
of the Vector TX52, and additional Lasertel inventory related to
increased external sales.
We used net cash of $11.6 million for investing activities
in fiscal 2005, primarily comprised of $6.1 million of
additions to property, plant and equipment, $2.2 million of
investments in patents and other intangible assets and
$3.5 million of transaction and accrued integration costs
paid related to the acquisition of the ABDick business. Our
additions to property, plant and equipment primarily relate to
production equipment, investments in infrastructure improvements
and leasehold improvements related to our new facilities in
Canada and the United Kingdom. Our investment in patents and
other intangible assets includes $0.8 million of payments
to a manufacturer under an agreement whereby the manufacturer
will design and prototype a product incorporating Presstek
products and technology.
Our financing activities used $3.2 million of net cash,
comprised of payments on our current term loan and capital lease
aggregating $5.5 million and $0.8 million of net
payments on our current line of credit. These amounts were
partially offset by $3.1 million of cash received from the
exercise of stock options and purchase of common stock under our
employee stock purchase program.
In November 2004, in connection with the acquisition of the
ABDick business, we replaced our then current credit facilities
with $80.0 million in Senior Secured Credit Facilities,
referred to as the Facilities, from three lenders. The terms of
the Facilities include a $35.0 million five year secured
term loan, referred to as the Term Loan, and a
$45.0 million five year secured revolving line of credit,
referred to as the Revolver, which replaced our then-existing
term loan and revolver entered into in October 2003. At
December 31, 2005, we had $11.6 million outstanding
under letters of credit, thereby reducing the amount available
under the Revolver to $27.4 million. At December 31,
2005 and January 1, 2005, the interest rates on the
outstanding balance of the Revolver were 6.9% and 5.8%,
respectively. Principal payments on the Term Loan will be made
in consecutive quarterly installments which began on
March 31, 2005 initially in the amount of
$0.25 million, and which will continue quarterly thereafter
in the amount of $1.75 million, 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 the business 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 London
InterBank Offered Rate, or LIBOR, 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 up to 1.75% for the Prime Rate, based on
certain financial performance. At December 31, 2005 and
January 1, 2005, the effective interest rates on the Term
Loan were 7.5% and 5.7%, respectively. Effective August 31,
2005, we amended our Facilities to reduce the current Applicable
LIBOR Margin to 2.5%, from the previous Applicable LIBOR Margin
of 3.5%.
Under the terms of the Revolver and Term Loan, we are required
to meet various financial covenants on a quarterly and annual
basis, including maximum funded debt to EBITDA, a
non-U.S. GAAP
measurement that we define as
44
earnings before interest, taxes, depreciation, amortization and
restructuring and special charges, and minimum fixed charge
coverage covenants. As of December 31, 2005, we were in
compliance with all financial covenants.
On November 23, 2005, we purchased equipment under a
capital lease arrangement qualifying under
SFAS No. 13, Accounting for Leases
(“SFAS 13”). The lease has a three-year term and
expires in November 2008, at which time we may purchase the
time collection system for a minimal amount. The lease carries
an interest rate of 6.95% per year. The equipment is
included as a component of property, plant and equipment and the
current and long-term principal amounts of the lease obligation
are included as components of current portion of long-term debt
and capital lease obligation and long-term debt and capital
lease obligation in our consolidated balance sheet at
December 31, 2005.
We believe that existing funds, cash flows from operations, and
cash available under our 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, would be available on
acceptable terms.
Our anticipated capital expenditures for fiscal 2006 range
between $5.0 million and $7.0 million, including
expenditures related to our computer systems infrastructure and
equipment to be used in the production of our DI and CTP
equipment and consumable products.
We believe that existing funds, cash flows from operations, and
cash available under our 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.
45
Contractual Obligations
Our contractual obligations at December 31, 2005 consist of
the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Payments Due by Period | |
| |
|
|
|
| |
| |
|
|
|
Less than | |
|
One to Three | |
|
Three to | |
| |
|
Total | |
|
One Year | |
|
Years | |
|
Five Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
Senior Secured Credit Facilities
|
|
$ |
35,536 |
|
|
$ |
13,036 |
|
|
$ |
14,000 |
|
|
$ |
8,500 |
|
|
Estimated interest payments on Senior Secured Credit Facilities
|
|
|
4,995 |
|
|
|
2,049 |
|
|
|
2,499 |
|
|
|
447 |
|
|
Capital lease, including contractual interest
|
|
|
118 |
|
|
|
37 |
|
|
|
81 |
|
|
|
— |
|
|
Minimum royalty obligation
|
|
|
600 |
|
|
|
600 |
|
|
|
— |
|
|
|
— |
|
|
Executive contractual obligations
|
|
|
2,164 |
|
|
|
1,229 |
|
|
|
935 |
|
|
|
— |
|
|
Operating leases
|
|
|
5,467 |
|
|
|
1,685 |
|
|
|
2,016 |
|
|
|
1,766 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total contractual obligations
|
|
$ |
48,880 |
|
|
$ |
18,636 |
|
|
$ |
19,531 |
|
|
$ |
10,713 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The amounts above related to estimated interest payments on our
Senior Secured Credit Facilities are based upon the interest
rates in effect at December 31, 2005. Actual interest
amounts could differ from the estimates above.
In fiscal 2000, we entered into an agreement with Fuji Photo
Film Co., Ltd., whereby minimum royalty payments to Fuji are
required based on specified sales volumes of our A3 format
size four-color sheet-fed press. The agreement provides for
payment of a total of $14.0 million in royalties, including
an aggregate minimum of $6.0 million over its term. As of
December 31, 2005, the Company had paid Fuji
$5.4 million related to this agreement. We currently expect
future sales volume to be sufficient to satisfy minimum
commitments under the agreement. In the event of a volume
shortfall over the term of the agreement, we are obligated to
fund the shortfall as a lump-sum payment. Were such lump-sum
payment required, we do not believe the amount of the payment
will be material.
We have employment agreements with certain of our employees,
some of which include change of control agreements that provide
them with benefits should their employment with us be terminated
other than for cause or their disability or death, or if they
resign for good reason, as defined in these agreements, within a
certain period of time from the date of any change of control of
us.
From time to time we have engaged in sales of equipment that is
leased by or intended to be leased by a third party purchaser to
another party. In certain situations, we may retain recourse
obligations to a financing institution involved in providing
financing to the ultimate lessee in the event the lessee of the
equipment defaults on its lease obligations. In certain such
instances, we may refurbish and remarket the equipment on behalf
of the financing company, should the ultimate lessee default on
payment of the lease. In certain circumstances, should the
resale price of such equipment fall below certain predetermined
levels, we would, under these arrangements, reimburse the
financing company for any such shortfall in sale price (a
“shortfall payment”). The maximum contingent
obligation under these shortfall payment arrangements is
estimated to be $0.5 million at December 31, 2005. As
of December 31, 2005, there were no defaults by ultimate
lessees.
Effect of Inflation
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
At December 31, 2005, we had net operating loss
carryforwards for tax purposes totaling $77.5 million, of
which $49.2 million resulted from stock option compensation
deductions for U.S. federal tax purposes and
$28.3 million resulted from operating losses. To the extent
that net operating losses resulting from stock option
compensation
46
deductions become realizable, the benefit will be credited
directly to additional paid-in capital. The amount of 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
General
Our Management’s Discussion and Analysis of Financial
Condition and Results of Operations is 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, we evaluate our estimates,
including those related to product returns, warranty
obligations, allowances for doubtful accounts, slow-moving and
obsolete inventories, long-lived assets and litigation. We base
our 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.
Revenue Recognition
The Company recognizes revenue principally from the sale of
products (equipment, laser diodes, consumables) and services
(installation, training, support, spare parts and equipment
maintenance contracts). Revenue is recognized when persuasive
evidence of a sales arrangement exists, delivery has occurred or
services have been rendered, the price to the customer is fixed
or determinable, collection is reasonably assured and no future
services related to the installation are required. When a sales
arrangement contains multiple elements, such as equipment and
services, revenue is allocated to each element based on its
relative fair value. When the fair value of an undelivered
element cannot be determined, the Company defers revenue for the
delivered elements until the undelivered elements are delivered.
A general right of return or cancellation does not exist once
product is delivered to the customer; however, the Company may
elect, in certain circumstances, to accept returns of product.
Product revenues are recorded net of estimated returns, which
are adjusted periodically, based upon historical rates of
return. The estimated cost of post-sale obligations, including
product warranties, is accrued based on historical experience at
the time revenue is recognized.
The Company records amounts invoiced to customers in excess of
revenue recognized as deferred revenue until all revenue
recognition criteria are met.
The Company accounts for shipping and handling fees passed on to
customers as revenue. Shipping and handling costs are reported
as components of cost of revenue (product) and cost of
revenue (service and parts).
|
|
| |
End-User Customers — Under the Company’s
standard terms and conditions of sale of equipment, title and
risk of loss is transferred to third-party end-user customers
upon completion of installation and revenue is recognized
accordingly, unless customer acceptance is uncertain or
significant deliverables remain. Sales of other products,
including printing plates, are recognized at the time of
shipment. |
| |
| |
OEM Relationships — Product revenue and any
related royalties for products sold to companies with whom we
have an OEM relationship are recognized at the time of shipment.
Contracts with companies with whom we have OEM relationships do
not include price protection or product return rights; however,
the Company may elect, in certain circumstances, to accept
returns of product. |
47
|
|
| |
Distributor Relationships — Revenue for product
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. Except in the case of termination of
the contract, which includes product return rights, contracts
with distributors do not include price protection or product
return rights; however, the Company may elect, in certain
circumstances, to accept returns of product. |
| |
| |
Services and Parts |
| |
Revenue for installation services, including time and material
contracts, is recognized as services are rendered. Revenue
associated with maintenance or extended service agreements is
recognized ratably over the contract period. Revenue associated
with training and support services is recognized as services are
rendered. Certain fees and other reimbursements are recognized
as revenue when the related services have been performed or the
revenue is otherwise earned. |
| |
| |
Sales Transactions Financed with
Recourse Clauses |
| |
From time to time the Company has engaged in sales of equipment
that is leased by or intended to be leased by a third party
purchaser to another party. In certain situations, the Company
may retain recourse obligations to a financing institution
involved in providing financing to the ultimate lessee in the
event the lessee of the equipment defaults on its lease
obligations. In certain such instances, the Company may
refurbish and remarket the equipment on behalf of the financing
company, should the ultimate lessee default on payment of the
lease. In certain circumstances, should the resale price of such
equipment fall below certain predetermined levels, the Company
would, under these agreements, reimburse the financing company
for any such shortfall in sale price. When such recourse
obligations are of such a magnitude to indicate that substantial
risk of ownership of the equipment has not transferred to the
third party purchaser, the Company would record the transaction
as a financing transaction to the extent they are material
individually or in the aggregate to the operating results of the
period in which the transactions occur. |
Allowance for Doubtful
Accounts
The Company’s accounts receivable are customer obligations
due under normal trade terms, carried at face value less an
allowance for doubtful accounts. The Company evaluates its
allowance for doubtful accounts on an ongoing basis and adjusts
for potential credit losses when it determines that receivables
are at risk for collection based upon the length of time
receivables are outstanding, past transaction history and
various other criteria. Receivables are written off against
reserves in the period they are determined to be uncollectible.
Product Warranties
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 or shipment. 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.
Inventory Valuation
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.
48
Property, Plant and Equipment,
Net
Property, plant and equipment are stated at cost and are
depreciated using a straight-line method over their respective
estimated useful lives. Leasehold improvements are amortized
over the shorter of the remaining term of the lease or the life
of the related asset. The estimated useful lives assigned to the
Company’s other property, plant and equipment are as
follows:
| |
|
|
|
Buildings and improvements
|
|
25 - 30 years |
|
Production equipment and other
|
|
5 - 10 years |
|
Office furniture and equipment
|
|
3 - 7 years |
The Company periodically reviews the remaining lives of
property, plant and equipment as a function of the original
estimated lives assigned to these assets for purposes of
recording appropriate depreciation expense. Factors that could
impact the estimated useful life of a fixed asset, in addition
to physical deterioration from the passage of time and
depletion, include, but are not limited to, plans of the
enterprise and anticipated use of the assets. During the fourth
quarter of 2005, as part of its periodic review process, the
Company performed a review of the machinery and equipment of its
Lasertel subsidiary and related assumptions and expectations for
this machinery and equipment. As a result of this review, the
Company determined that the original estimated useful life of
five years assigned to certain assets at the time of purchase
should be extended to seven years. The effect of this change in
accounting estimate resulted in a reduction to depreciation
expense of $0.4 million in the fourth quarter of 2005, and
contributed $0.3 million to net income and $0.01 to
reported basic and diluted earnings per share for fiscal 2005.
Acquisitions
In accordance with the purchase method of accounting, the fair
values of assets acquired and liabilities assumed are determined
and recorded as of the date of the acquisition. The Company
utilizes an independent valuation specialist to determine the
fair values of identifiable intangible assets acquired in order
to determine the portion of the purchase price allocable to
these assets. Costs to acquire the business, including
transaction costs, are allocated to the fair value of net assets
acquired. Any excess of the purchase price over the estimated
fair value of the net assets acquired is recorded as goodwill.
As part the allocation of purchase price, the Company records
liabilities, including lease termination costs and certain
employee severance costs, in accordance with Emerging Issues
Task Force Issue
No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination. Throughout the allocation period,
these accruals are reviewed and adjusted for changes in cost and
timing assumptions.
Goodwill and Intangible
Assets
Presstek has goodwill and net intangible assets of
$35.1 million at December 31, 2005. Goodwill and
intangible assets with indefinite lives are tested annually for
impairment in accordance with the goodwill provisions of
SFAS 142. Intangible assets with estimated lives and other
long-lived assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of an
asset or asset group may not be recoverable in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“SFAS 144”).
Recoverability of intangible assets with estimated lives and
other long-lived assets is measured by comparison of the
carrying amount of an asset or asset group to future net
undiscounted pretax cash flows expected to be generated by the
asset or asset group. If these comparisons indicate that an
asset is not recoverable, the Company will recognize an
impairment loss for the amount by which the carrying value of
the asset or asset group exceeds the related estimated fair
value. Estimated fair value is based on either discounted future
pretax operating cash flows or appraised values, depending on
the nature of the asset. The Company determines the discount
rate for this analysis based on the expected internal rate of
return of the related business and does not allocate interest
charges to the asset or asset group being measured. Considerable
judgment is required to estimate discounted future operating
cash flows. Judgment is also required in determining whether an
event has occurred that may impair the
49
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.
Patents represent the cost of preparing and filing applications
to patent the Company’s proprietary technologies, in
addition to certain patent and license rights obtained in the
Company’s acquisitions or other related transactions. 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.
From time to time the Company enters into agreements with third
parties under which the third party will design and prototype a
product incorporating Presstek products and technology. The
capitalized costs associated with these types of agreements will
be amortized over the estimated sales life-cycle and future cash
flows from sales of the product. The Company does not amortize
capitalized costs related to either patents or purchased
intellectual property until the respective asset has been placed
into service.
The Company amortizes license agreements and loan origination
fees over the term of the respective agreement. The amortizable
lives of the Company’s other intangible assets are as
follows:
| |
|
|
|
Trade names
|
|
2 - 3 years |
|
Customer relationships
|
|
7 - 10 years |
|
Software licenses
|
|
3 years |
|
Non-compete covenants
|
|
5 years |
Accounting for Income Taxes
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. A
valuation allowance against deferred tax assets is recorded if,
based on the weight of available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized.
We monitor the realization of our deferred tax assets based on
changes in circumstances; for example, recurring periods of
income for tax purposes following historical periods of
cumulative losses or changes in tax laws or regulations. Our
income tax provisions and our assessment of the realizability of
our deferred tax assets involve significant judgments and
estimates. If we continue to generate taxable income through
profitable operations in future years we may be required to
recognize these deferred tax assets through the reduction of the
valuation allowance which would result in a material benefit to
our results of operations in the period in which the benefit is
determined, excluding the recognition of the portion of the
valuation allowance which relates to net deferred tax assets
acquired in a business combination and stock compensation.
The Company does not provide for U.S. income taxes on the
undistributed earnings of its foreign subsidiaries, which the
Company considers to be permanent investments.
Recently Issued Accounting
Standards
In May 2005, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 154, Accounting
Changes and Error Corrections (“SFAS 154”),
which replaces APB Opinion No. 20, Accounting
Changes and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements — An Amendment
of APB Opinion No. 28. SFAS 154 provides guidance
on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application, or
the latest practicable date, as the required method for
reporting a change in accounting principle and the reporting of
a correction of an error. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005 and is required to
be adopted by Presstek in the first quarter of fiscal 2006.
50
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (“SFAS 123R”), which
replaces SFAS 123, and supersedes APB 25.
SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning
with the first interim or annual period after June 15,
2005. In April 2005, the SEC postponed the effective date
of SFAS 123R until the issuer’s first fiscal year
beginning after June 15, 2005.
In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 (“SAB 107”) regarding
the SEC’s interpretation of SFAS 123R and the
valuation of share-based payments for public companies. In
accordance with this rule, the Company will adopt SFAS 123R
in the first quarter of fiscal 2006 and will adopt this guidance
using the modified prospective method. On December 31,
2005, in accordance with the provisions of its option plans, the
Company accelerated the vesting of all of its outstanding
options to purchase common stock and, accordingly, had no
unvested options as of that date. Any stock compensation expense
in future periods would relate to options or warrants to
purchase common stock issued subsequent to December 31,
2005.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs (“SFAS 151”), an amendment
of Accounting Research Bulletin (“ARB”) No. 43,
Chapter 4, Inventory Pricing. SFAS 151 amends
previous guidance regarding treatment of 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 the 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 for fiscal periods beginning October 1, 2005. We
are currently reviewing the impact of implementing SFAS 151
on our consolidated balance sheet, statement of income and
statement of cash flows.
Off-Balance Sheet
Arrangements
We do not participate in transactions that generate
relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities (“SPEs”), which
would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purpose. As of December 31, 2005, we were not
involved in any unconsolidated SPE transactions.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including changes
in interest rates primarily as a result of our borrowing
activities, commodity price risk, and to a lesser extent, our
investing activities and foreign currency fluctuations. The
Company has established procedures to manage its fluctuations in
interest rates and foreign currency exchange rates.
Our long-term borrowings are in variable rate instruments, with
interest rates tied to either the Prime Rate or the LIBOR. A
100 basis point change in these rates would have an impact
of approximately $0.4 million on our annual interest
expense, assuming consistent levels of floating rate debt with
those held at the end of fiscal 2005.
Commodity price movements create a market risk by affecting the
price we must pay for certain raw materials. The Company
purchases aluminum for use in manufacturing consumables products
and is embedded in certain components we purchase from major
suppliers. From time to time, we enter into agreements with
certain suppliers to manage price risks within a specified range
of prices; however, our suppliers generally pass on significant
commodity price changes to us in the form of revised prices on
future purchases. In general, the Company has not used commodity
forward or option contracts to manage this market risk.
51
The Company operates foreign subsidiaries in Canada and Europe
and is exposed to foreign currency exchange rate risk inherent
in our sales commitments, anticipated sales, anticipated
purchases and assets and liabilities denominated in currencies
other than the U.S. dollar. Presstek routinely evaluates
whether the foreign exchange risk associated with its foreign
currency exposures acts as a natural foreign currency hedge for
other offsetting amounts denominated in the same currency. In
general, the Company does not hedge the net assets or net income
of its foreign subsidiaries. In addition, certain key customers
and strategic partners are not located in the United States. As
a result, these parties may be 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,
certain major suppliers are not located in the United States 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.
52
PART II
|
|
| Item 8. |
Financial Statements and
Supplementary Data |
53
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 December 31, 2005
and January 1, 2005, and the related consolidated
statements of income, changes in stockholders’ equity and
comprehensive income and cash flows for the fiscal years ended
December 31, 2005, January 1, 2005, and
January 3, 2004. These consolidated financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements 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 are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. 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. 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
December 31, 2005 and January 1, 2005, and the results
of its operations and its cash flows for the fiscal years ended
December 31, 2005, January 1, 2005 and January 3,
2004, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 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, 2006 expressed an unqualified
opinion thereon.
|
|
| |
/s/ BDO Seidman, LLP
|
| |
|
| |
BDO Seidman, LLP |
Boston, Massachusetts
March 16, 2006
54
PRESSTEK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
January 1, |
| |
|
2005 |
|
2005 |
| |
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
5,615 |
|
|
$ |
8,739 |
|
| |
Accounts receivable, net
|
|
|
44,088 |
|
|
|
38,946 |
|
| |
Inventories, net
|
|
|
50,083 |
|
|
|
44,229 |
|
| |
Other current assets
|
|
|
1,175 |
|
|
|
1,499 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
100,961 |
|
|
|
93,413 |
|
|
Property, plant and equipment, net
|
|
|
45,250 |
|
|
|
47,372 |
|
|
Intangible assets, net
|
|
|
11,974 |
|
|
|
10,460 |
|
|
Goodwill
|
|
|
23,089 |
|
|
|
18,888 |
|
|
Other noncurrent assets
|
|
|
213 |
|
|
|
1,185 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
181,487 |
|
|
$ |
171,318 |
|
| |
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
| |
Current portion of long-term debt and capital lease obligation
|
|
$ |
7,037 |
|
|
$ |
5,500 |
|
| |
Line of credit
|
|
|
6,036 |
|
|
|
6,822 |
|
| |
Accounts payable
|
|
|
21,199 |
|
|
|
13,394 |
|
| |
Accrued expenses
|
|
|
16,718 |
|
|
|
16,060 |
|
| |
Deferred revenue
|
|
|
8,579 |
|
|
|
10,520 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
59,569 |
|
|
|
52,296 |
|
|
Long-term debt and capital lease obligation, less current portion
|
|
|
22,570 |
|
|
|
29,500 |
|
|
Deferred income taxes
|
|
|
715 |
|
|
|
120 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
82,854 |
|
|
|
81,916 |
|
| |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 20)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
| |
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued
|
|
|
— |
|
|
|
— |
|
| |
Common stock, $0.01 par value, 75,000,000 shares
authorized, 35,366,024 and 34,896,985 shares issued and
outstanding at December 31, 2005 and January 1, 2005,
respectively
|
|
|
354 |
|
|
|
349 |
|
| |
Additional paid-in capital
|
|
|
106,268 |
|
|
|
102,962 |
|
| |
Accumulated other comprehensive income (loss)
|
|
|
(59 |
) |
|
|
107 |
|
| |
Accumulated deficit
|
|
|
(7,930 |
) |
|
|
(14,016 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
98,633 |
|
|
|
89,402 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total liabilities and stockholders’ equity
|
|
$ |
181,487 |
|
|
$ |
171,318 |
|
| |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
55
PRESSTEK, INC.
CONSOLIDATED STATEMENTS OF
INCOME
(In thousands, except per-share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal year ended |
| |
|
|
| |
|
December 31, |
|
January 1, |
|
January 3, |
| |
|
2005 |
|
2005 |
|
2004 |
| |
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product
|
|
$ |
225,619 |
|
|
$ |
116,788 |
|
|
$ |
82,853 |
|
| |
Service and parts
|
|
|
48,521 |
|
|
|
13,063 |
|
|
|
4,379 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total revenue
|
|
|
274,140 |
|
|
|
129,851 |
|
|
|
87,232 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product
|
|
|
159,282 |
|
|
|
78,252 |
|
|
|
48,235 |
|
| |
Service and parts
|
|
|
32,862 |
|
|
|
9,135 |
|
|
|
2,916 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total cost of revenue
|
|
|
192,144 |
|
|
|
87,387 |
|
|
|
51,151 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
81,996 |
|
|
|
42,464 |
|
|
|
36,081 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
7,335 |
|
|
|
6,460 |
|
|
|
7,061 |
|
| |
Sales, marketing and customer support
|
|
|
40,396 |
|
|
|
17,675 |
|
|
|
12,272 |
|
| |
General and administrative
|
|
|
21,187 |
|
|
|
12,471 |
|
|
|
8,399 |
|
| |
Amortization of intangible assets
|
|
|
2,724 |
|
|
|
1,315 |
|
|
|
964 |
|
| |
Restructuring and special charges (credits)
|
|
|
874 |
|
|
|
(392 |
) |
|
|
550 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
72,516 |
|
|
|
37,529 |
|
|
|
29,246 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
9,480 |
|
|
|
4,935 |
|
|
|
6,835 |
|
|
Interest and other income (expense), net
|
|
|
(2,220 |
) |
|
|
(870 |
) |
|
|
(167 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
7,260 |
|
|
|
4,065 |
|
|
|
6,668 |
|
|
Provision for income taxes
|
|
|
1,174 |
|
|
|
200 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
6,086 |
|
|
|
3,865 |
|
|
|
6,668 |
|
|
Income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
1,429 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
6,086 |
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share — basic
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
| |
Income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
0.04 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share — diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.20 |
|
| |
Income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
0.04 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average shares outstanding — basic
|
|
|
35,153 |
|
|
|
34,558 |
|
|
|
34,167 |
|
| |
Dilutive effect of options
|
|
|
419 |
|
|
|
799 |
|
|
|
233 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighed average shares outstanding — diluted
|
|
|
35,572 |
|
|
|
35,357 |
|
|
|
34,400 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
56
PRESSTEK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Accumulated |
|
Retained |
|
|
| |
|
Common stock |
|
Additional |
|
other |
|
earnings |
|
|
| |
|
|
|
paid-in |
|
comprehensive |
|
(accumulated |
|
|
| |
|
Shares |
|
Par value |
|
capital |
|
income (loss) |
|
deficit) |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2002
|
|
|
34,125 |
|
|
$ |
341 |
|
|
$ |
97,403 |
|
|
$ |
— |
|
|
$ |
(25,978 |
) |
|
$ |
71,766 |
|
|
Issuance of common stock
|
|
|
77 |
|
|
|
1 |
|
|
|
366 |
|
|
|
— |
|
|
|
— |
|
|
|
367 |
|
|
Unrealized loss related to interest rate swaps(1)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(47 |
) |
|
|
— |
|
|
|
(47 |
) |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,097 |
|
|
|
8,097 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2004
|
|
|
34,202 |
|
|
|
342 |
|
|
|
97,769 |
|
|
|
(47 |
) |
|
|
(17,881 |
) |
|
|
80,183 |
|
|
Issuance of common stock
|
|
|
695 |
|
|
|
7 |
|
|
|
5,193 |
|
|
|
— |
|
|
|
— |
|
|
|
5,200 |
|
|
Realization of loss related to interest rate swaps(1)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47 |
|
|
|
— |
|
|
|
47 |
|
|
Currency translation adjustments(1)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
107 |
|
|
|
— |
|
|
|
107 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,865 |
|
|
|
3,865 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
34,897 |
|
|
|
349 |
|
|
|
102,962 |
|
|
|
107 |
|
|
|
(14,016 |
) |
|
|
89,402 |
|
|
Issuance of common stock
|
|
|
469 |
|
|
|
5 |
|
|
|
3,306 |
|
|
|
— |
|
|
|
— |
|
|
|
3,311 |
|
|
Currency translation adjustments(1)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(166 |
) |
|
|
— |
|
|
|
(166 |
) |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,086 |
|
|
|
6,086 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
35,366 |
|
|
$ |
354 |
|
|
$ |
106,268 |
|
|
$ |
(59 |
) |
|
$ |
(7,930 |
) |
|
$ |
98,633 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income is calculated as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
| |
| |
|
December 31, | |
|
January 1, | |
|
January 3, | |
| |
|
2005 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Net income
|
|
$ |
6,086 |
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
Adjustments to accumulated other comprehensive income (loss)(1)
|
|
|
(166 |
) |
|
|
154 |
|
|
|
(47 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Comprehensive income
|
|
$ |
5,920 |
|
|
$ |
4,019 |
|
|
$ |
8,050 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
57
PRESSTEK, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal year ended |
| |
|
|
| |
|
December 31, |
|
January 1, |
|
January 3, |
| |
|
2005 |
|
2005 |
|
2004 |
| |
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
6,086 |
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
| |
Less income from discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
(1,429 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
|
6,086 |
|
|
|
3,865 |
|
|
|
6,668 |
|
| |
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation
|
|
|
8,225 |
|
|
|
7,791 |
|
|
|
7,903 |
|
| |
|
Amortization of intangible assets
|
|
|
2,724 |
|
|
|
1,315 |
|
|
|
964 |
|
| |
|
Restructuring and special charges (credits)
|
|
|
874 |
|
|
|
(392 |
) |
|
|
550 |
|
| |
|
Provision for warranty costs
|
|
|
1,558 |
|
|
|
1,109 |
|
|
|
1,228 |
|
| |
|
Provision for accounts receivable allowances
|
|
|
1,397 |
|
|
|
1,949 |
|
|
|
1,358 |
|
| |
|
Stock compensation expense
|
|
|
148 |
|
|
|
— |
|
|
|
— |
|
| |
|
Loss on disposal of assets
|
|
|
153 |
|
|
|
24 |
|
|
|
— |
|
| |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(7,344 |
) |
|
|
(6,427 |
) |
|
|
(1,172 |
) |
| |
|
|
Inventories
|
|
|
(7,054 |
) |
|
|
(6,351 |
) |
|
|
(639 |
) |
| |
|
|
Other current assets
|
|
|
214 |
|
|
|
324 |
|
|
|
(510 |
) |
| |
|
|
Other noncurrent assets
|
|
|
(43 |
) |
|
|
(304 |
) |
|
|
(309 |
) |
| |
|
|
Accounts payable
|
|
|
9,218 |
|
|
|
(4,517 |
) |
|
|
1,419 |
|
| |
|
|
Accrued expenses
|
|
|
(2,486 |
) |
|
|
6,936 |
|
|
|
(3,508 |
) |
| |
|
|
Deferred revenue
|
|
|
(1,940 |
) |
|
|
1,039 |
|
|
|
300 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by operating activities
|
|
|
11,730 |
|
|
|
6,361 |
|
|
|
14,252 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchase of property, plant and equipment
|
|
|
(6,129 |
) |
|
|
(2,194 |
) |
|
|
(1,344 |
) |
| |
Business acquisitions, net of cash acquired
|
|
|
(3,467 |
) |
|
|
(55,468 |
) |
|
|
— |
|
| |
Investment in patents and other intangible assets
|
|
|
(2,176 |
) |
|
|
(387 |
) |
|
|
(399 |
) |
| |
Proceeds from the sale of long-lived assets
|
|
|
124 |
|
|
|
5 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in investing activities
|
|
|
(11,648 |
) |
|
|
(58,044 |
) |
|
|
(1,743 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net proceeds from issuance of common stock
|
|
|
3,113 |
|
|
|
5,200 |
|
|
|
367 |
|
| |
Proceeds from term loan
|
|
|
— |
|
|
|
35,000 |
|
|
|
15,000 |
|
| |
Repayments of term loan and capital lease
|
|
|
(5,503 |
) |
|
|
(14,464 |
) |
|
|
(7,953 |
) |
| |
Net borrowings (repayments) under line of credit agreement
|
|
|
(786 |
) |
|
|
6,822 |
|
|
|
— |
|
| |
Repayments of lease line of credit
|
|
|
— |
|
|
|
— |
|
|
|
(9,290 |
) |
| |
Debt financing costs
|
|
|
— |
|
|
|
(332 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(3,176 |
) |
|
|
32,226 |
|
|
|
(1,876 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(30 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(3,124 |
) |
|
|
(19,457 |
) |
|
|
10,633 |
|
|
Cash and cash equivalents, beginning of period
|
|
|
8,739 |
|
|
|
28,196 |
|
|
|
17,563 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
5,615 |
|
|
$ |
8,739 |
|
|
$ |
28,196 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
58
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal year ended |
| |
|
|
| |
|
December 31, |
|
January 1, |
|
January 3, |
| |
|
2005 |
|
2005 |
|
2004 |
| |
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for interest
|
|
$ |
2,459 |
|
|
$ |
923 |
|
|
$ |
707 |
|
| |
Cash paid for income taxes
|
|
$ |
327 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Supplemental disclosure of cash flows related to business
acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The acquisitions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair value of assets acquired and adjustments to final purchase
price allocations, excluding cash
|
|
$ |
2,830 |
|
|
$ |
79,497 |
|
|
|
|
|
| |
|
Payments in connection with the acquisitions, net of cash
acquired
|
|
|
(3,467 |
) |
|
|
(55,468 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Liabilities assumed and adjustments to final purchase price
allocations
|
|
$ |
(637 |
) |
|
$ |
24,029 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and
financing activities
On July 2, 2005, the Company entered into a series of
agreements with a customer and a material end-user whereby the
Company received ownership of certain assets of the customer,
comprised of patents, intellectual property and know-how, as
well as the customer’s rights under a supply contract it
had with the material end-user, in exchange for the
Company’s rights to its accounts receivable for trade and
advances by the Company to the customer. A summary of the
transaction is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal year |
|
|
|
|
| |
|
ended |
|
|
|
|
| |
|
December 31, |
|
|
|
|
| |
|
2005 |
|
|
|
|
| |
|
|
|
|
|
|
|
Consideration by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts receivable
|
|
$ |
888 |
|
|
|
|
|
|
|
|
|
| |
Other noncurrent assets
|
|
|
920 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total non-cash consideration
|
|
$ |
1,808 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets received by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Patents
|
|
$ |
1,677 |
|
|
|
|
|
|
|
|
|
| |
Customer contracts/customer list
|
|
|
131 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total non-cash assets received
|
|
$ |
1,808 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
On November 23, 2005, the Company entered into a capital
lease to obtain equipment. A summary of this transaction is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital lease financing entered into by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Current portion of long-term debt and capital lease obligations
|
|
$ |
40 |
|
|
|
|
|
|
|
|
|
| |
|
Long-term debt and capital lease obligations
|
|
|
70 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
110 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset financed through capital lease by the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Property, plant and equipment
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
59
PRESSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|
|
| 1. |
NATURE OF THE BUSINESS |
Presstek, Inc. (“Presstek”, the “Company”,
“we”) is a market-focused company primarily engaged in
the design, manufacture, sales and service of high-technology
digital imaging solutions to the graphic arts industry
worldwide. We are helping to lead the industry’s
transformation from analog print production methods to digital
imaging technology. We are a leader in the development of
advanced printing systems using digital imaging equipment and
consumables-based solutions that economically benefit the user
through a streamlined workflow and chemistry free,
environmentally responsible operation. We are also a leading
sales and service channel in the small to mid-sized commercial,
quick and in-plant printing markets offering a wide range of
solutions to over 20,000 customers worldwide.
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES |
Principles of Consolidation and
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.
On November 5, 2004, the Company, through its wholly-owned
subsidiary, ABD International, Inc. (“ABDick”)
completed the acquisition of certain assets and the assumption
of certain liabilities of The A.B. Dick Company, which the
Company acquired through a Section 363 sale in the United
States Bankruptcy Court. On July 30, 2004, we acquired the
stock of Precision Lithograining Corp. (“Precision”).
The results of these acquired entities are included in the
Company’s Consolidated Statements of Income and of Cash
Flows for the periods subsequent to their respective
acquisitions.
The Company’s operations are currently organized into three
business segments: (i) Presstek; (ii) Precision; and
(iii) Lasertel. The Presstek segment is primarily engaged
in the development, manufacture, sale and servicing of digital
imaging systems and patented printing plate technologies for
direct-to-press, or
on-press applications, and CTP, or off-press applications, for
the graphic arts and printing industries, primarily serving the
short-run, full-color market segment. The Precision segment is
primarily engaged in the development, manufacture and sale of
our patented digital plates, as well as digital analog plates
for other customers. The Lasertel segment is primarily engaged
in the manufacture and development of high-powered laser diodes
for sale to Presstek and to external customers. The Company
implemented a new internal management reporting structure in
connection with organizational changes related to the
integration of the ABDick business into the Company’s
Presstek business. The Company analyzed the impact of this
integration on its operating segments and concluded that the
results of operations and balance sheet information for the
former ABDick segment should be combined with those of the
former Presstek segment and reported as the new Presstek
business segment. Accordingly, the historical results of the
Presstek segment included herein have been restated to include
the results of the former ABDick segment. Any future changes to
this organizational structure may result in changes to the
business segments currently disclosed.
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 presented herein include the financial
results for the 52-week
fiscal year ended December 31, 2005 (“fiscal
2005”), the
52-week fiscal year
ended January 1, 2005 (“fiscal 2004”) and the
53-week fiscal year
ended January 3, 2004 (“fiscal 2003”).
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 assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements. Estimates and assumptions also affect the amount of
revenues and expenses during the reported period. Management
believes the most judgmental estimates include those related to
product returns, warranty obligations, allowance for doubtful
accounts, slow-moving and obsolete inventories,
60
income taxes, the valuation of goodwill, other intangible assets
and tangible long-lived assets and warranty obligations. The
Company bases its estimates and judgments on historical
experience and various other appropriate factors, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities and the amounts of revenues and
expenses that are not readily apparent from other sources.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue principally from the sale of
products (equipment, consumables, laser diodes) and services
(equipment maintenance contracts, installation, training,
support, and spare parts). Revenue is recognized when persuasive
evidence of a sales arrangement exists, delivery has occurred or
services have been rendered, the price to the customer is fixed
or determinable, collection is reasonably assured and no future
services related to the installation are required. When a sales
arrangement contains multiple elements, such as equipment and
services, revenue is allocated to each element based on its
relative fair value. When the fair value of an undelivered
element cannot be determined, the Company defers revenue for the
delivered elements until the undelivered elements are delivered.
A general right of return or cancellation does not exist once
product is delivered to the customer; however, the Company may
elect, in certain circumstances, to accept returns of product.
Product revenues are recorded net of estimated returns, which
are adjusted periodically, based upon historical rates of
return. The estimated cost of post-sale obligations, including
product warranties, is accrued at the time revenue is recognized
based on historical experience.
The Company records amounts invoiced to customers in excess of
revenue recognized as deferred revenue until all revenue
recognition criteria are met.
The Company accounts for shipping and handling fees passed on to
customers as revenue. Shipping and handling costs are reported
as components of cost of revenue (product) and cost of
revenue (service and parts).
|
|
|
| |
|
End-User Customers — Under the Company’s
standard terms and conditions of sale of equipment, title and
risk of loss is transferred to third-party end-user customers
upon completion of installation and revenue is recognized
accordingly, unless customer acceptance is uncertain or
significant deliverables remain. Sales of other products,
including printing plates, are recognized at the time of
shipment. |
| |
| |
|
OEM Relationships — Product revenue and any
related royalties for products sold to companies with whom we
have an OEM relationship are recognized at the time of shipment.
Contracts with companies with whom we have OEM relationships do
not include price protection or product return rights; however,
the Company may elect, in certain circumstances, to accept
returns of product. |
| |
| |
|
Distributor Relationships — Revenue for product
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.
Except in the case of termination of the contract, which
includes product return rights, contracts with distributors do
not include price protection or product return rights; however,
the Company may elect, in certain circumstances, to accept
returns of product. |
|
|
|
| |
|
Revenue for installation services, including time and material
contracts, is recognized as services are rendered. Revenue
associated with maintenance or extended service agreements is
recognized ratably over the contract period. Revenue associated
with training and support services is recognized as services are
rendered. Certain fees and other reimbursements are recognized
as revenue when the related services have been performed or the
revenue is otherwise earned. |
|
|
|
Sales Transactions Financed with
Recourse Clauses |
|
|
|
| |
|
From time to time the Company has engaged in sales of equipment
that is leased by or intended to be leased by a third party
purchaser to another party. In certain situations, the Company
may retain recourse obligations to a |
61
|
|
|
| |
|
financing institution involved in providing financing to the
ultimate lessee in the event the lessee of the equipment
defaults on its lease obligations. In certain such instances,
the Company may refurbish and remarket the equipment on behalf
of the financing company, should the ultimate lessee default on
payment of the lease. In certain circumstances, should the
resale price of such equipment fall below certain predetermined
levels, the Company would, under these agreements, reimburse the
financing company for any such shortfall in sale price. When
such recourse obligations are of such a magnitude to indicate
that substantial risk of ownership of the equipment has not
transferred to the third party purchaser, the Company would
record the transaction as a financing transaction to the extent
they are material individually or in the aggregate to the
operating results of the period in which the transactions occur. |
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
Company’s bank borrowings under its credit agreement,
approximate fair value because the interest rates are based on
floating rates identified by reference to market rates. The
carrying amount of the Company’s capital lease approximates
fair value because the amount financed is equivalent to the fair
value of the long-lived asset acquired in the transaction. At
both December 31, 2005 and January 1, 2005, the fair
value of the Company’s long-term debt approximated carrying
value.
Cash and Cash
Equivalents
All cash investments, which may include savings deposits,
certificates of deposit, money market funds and highly liquid
debt instruments, have original maturities of three months or
less and are classified as 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 may invest 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 Company’s customers located around the world. The
Company performs ongoing credit evaluations of its customers and
maintains an allowance for potential credit losses.
Accounts Receivable, Net of
Allowance for Doubtful Accounts
The Company’s accounts receivable are customer obligations
due under normal trade terms, carried at face value less an
allowance for doubtful accounts. The Company evaluates its
allowance for doubtful accounts on an ongoing basis and adjusts
for potential credit losses when it determines that receivables
are at risk for collection based upon the length of time
receivables are outstanding, past transaction history and
various other criteria. Receivables are written off against
reserves in the period they are determined to be uncollectible.
Inventories, Net
Inventories include material, direct labor and related
manufacturing overhead, and are stated at the lower of cost
(determined on a
first-in, first-out
basis) or net realizable value. 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,
Net
Property, plant and equipment are stated at cost and are
depreciated using a straight-line method over their respective
estimated useful lives. Leasehold improvements are amortized
over the shorter of the remaining term of
62
the lease or the life of the related asset. The estimated useful
lives assigned to the Company’s other property, plant and
equipment are as follows:
| |
|
|
|
Buildings and improvements
|
|
25 - 30 years |
|
Production equipment and other
|
|
5 - 10 years |
|
Office furniture and equipment
|
|
3 - 7 years |
The Company periodically reviews the remaining lives of
property, plant and equipment as a function of the original
estimated lives assigned to these assets for purposes of
recording appropriate depreciation expense. Factors that could
impact the estimated useful life of a fixed asset, in addition
to physical deterioration from the passage of time and
depletion, include, but are not limited to, plans of the
enterprise and anticipated use of the assets. During the fourth
quarter of 2005, as part of its periodic review process, the
Company performed a review of the machinery and equipment of its
Lasertel subsidiary and related assumptions and expectations for
this machinery and equipment. As a result of this review, the
Company determined that the original estimated useful life of
five years assigned to certain assets at the time of purchase
should be extended to seven years. The effect of this change in
accounting estimate resulted in a reduction to depreciation
expense of $0.4 million in the fourth quarter of 2005, and
contributed $0.3 million to net income and $0.01 to
reported basic and diluted earnings per share for fiscal 2005.
Acquisitions
In accordance with the purchase method of accounting, the fair
values of assets acquired and liabilities assumed are determined
and recorded as of the date of the acquisition. The Company
utilizes an independent valuation specialist to determine the
fair values of identifiable intangible assets acquired in order
to determine the portion of the purchase price allocable to
these assets. Costs to acquire the business, including
transaction costs, are allocated to the fair value of net assets
acquired. Any excess of the purchase price over the estimated
fair value of the net assets acquired is recorded as goodwill.
As part the allocation of purchase price, the Company records
liabilities, including lease termination costs and certain
employee severance costs, in accordance with Emerging Issues
Task Force Issue
No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination. Throughout the allocation period,
these accruals are reviewed and adjusted for changes in cost and
timing assumptions.
Intangible Assets and
Goodwill
Intangible assets consist of patents, intellectual property,
license agreements and certain identifiable intangible assets
resulting from business combinations, including trade names,
customer relationships, non-compete covenants, software licenses
and loan origination fees.
Patents represent the cost of preparing and filing applications
to patent the Company’s proprietary technologies, in
addition to certain patent and license rights obtained in the
Company’s acquisitions or other related transactions. 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.
From time to time the Company enters into agreements with third
parties under which the third party will design and prototype a
product incorporating Presstek products and technology. The
capitalized costs associated with these types of agreements will
be amortized over the estimated sales life-cycle and future cash
flows from sales of the product. The Company does not amortize
capitalized costs related to either patents or purchased
intellectual property until the respective asset has been placed
into service.
At December 31, 2005 and January 1, 2005, the Company
had recorded $1.5 million and $0.9 million,
respectively, of costs related to patents and intellectual
property not yet in service.
The Company amortizes license agreements and loan origination
fees over the term of the respective agreement.
63
The amortizable lives of the Company’s other intangible
assets are as follows:
| |
|
|
|
Trade names
|
|
2 - 3 years |
|
Customer relationships
|
|
7 - 10 years |
|
Software licenses
|
|
3 years |
|
Non-compete covenants
|
|
5 years |
Goodwill is recorded when the consideration paid for
acquisitions exceeds the fair value of net tangible and
identifiable intangible assets acquired. In accordance with
Statement of Financial Accounting Standards (“SFAS”)
No. 142, Goodwill and Other Intangible Assets
(“SFAS 142”), goodwill is not amortized, but
rather, is tested annually for impairment. The Company has
recorded goodwill aggregating $23.1 million and
$18.9 million at December 31, 2005 and January 1,
2005, related to the ABDick and Precision acquisitions.
Impairment of Goodwill and
Long-Lived Assets
In accordance with the goodwill provisions of SFAS 142,
goodwill and intangible assets with indefinite lives are tested
annually, on the first day of the third quarter, for impairment.
The Company’s impairment review is based on a fair value
test. The Company uses its judgment in assessing whether assets
may have become impaired between annual impairment tests.
Indicators such as unexpected adverse business conditions,
economic factors, unanticipated technological change or
competitive activities, loss of key personnel and acts by
governments and courts may signal that an asset has been
impaired. Should the fair value of goodwill, as determined by
the Company at any measurement date, fall below its carrying
value, a charge for impairment of goodwill will be recorded in
the period.
Intangible assets with estimated lives and other long-lived
assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“SFAS 144”).
Recoverability of intangible assets with estimated lives and
other long-lived assets is measured by comparison of the
carrying amount of an asset or asset group to future net
undiscounted pretax cash flows expected to be generated by the
asset or asset group. If these comparisons indicate that an
asset is not recoverable, the Company will recognize an
impairment loss for the amount by which the carrying value of
the asset or asset group exceeds the related estimated fair
value. Estimated fair value is based on either discounted future
pretax operating cash flows or appraised values, depending on
the nature of the asset. The Company determines the discount
rate for this analysis based on the expected internal rate of
return of the related business and does not allocate interest
charges to the asset or asset group being measured. Considerable
judgment is required to estimate discounted future operating
cash flows.
Product Warranties
The Company warrants its products against defects in material
and workmanship for various periods generally from a period of
ninety days to one year from the date of installation or
shipment. The Company’s 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. The estimated
liability for product warranties could differ materially from
future actual warranty costs.
Research and Development
Costs
Research and development costs include payroll and related
expenses for personnel, parts and supplies, and contracted
services required to conduct our equipment, consumables and
laser diode development efforts. Research and development costs
are charged to expense when incurred.
64
Advertising Costs
Advertising costs are expensed as incurred and are reported as a
component of “Sales, marketing and customer support”
expenses in the Company’s Consolidated Statements of
Income. Advertising expenses were $0.6 million in both
fiscal 2005 and fiscal 2004 and $0.4 million in fiscal 2003.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. A
valuation allowance against deferred tax assets is recorded if,
based on the weight of available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized.
The Company monitors the realization of its deferred tax assets
based on changes in circumstances; for example, recurring
periods of income for tax purposes following historical periods
of cumulative losses or changes in tax laws or regulations. The
Company’s income tax provisions and its assessment of the
realizability of its deferred tax assets involve significant
judgments and estimates. If the Company continued to generate
taxable income through profitable operations in future years it
may be required to recognize these deferred tax assets through
the reduction of the valuation allowance which would result in a
material benefit to its results of operations in the period in
which the benefit is determined, excluding the recognition of
the portion of the valuation allowance which relates to net
deferred tax assets acquired in a business combination and stock
compensation.
The Company does not provide for U.S. income taxes on the
undistributed earnings of its foreign subsidiaries, which the
Company considers to be permanent investments.
Stock-Based
Compensation
The Company accounts for stock options granted to employees
under the provisions of Accounting Principles Board
(“APB”) Opinion No. 25, Accounting for Stock
Issued to Employees (“APB 25”), as permitted
by Statement of Financial Accounting Standards
(“SFAS”) No. 123, Accounting for Stock-Based
Compensation (“SFAS 123”). APB 25
prescribes that compensation cost be recognized for the
difference, if any, between the fair market value of the
Company’s stock and the option price on the grant date (the
“compensatory value”).
The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair
value-based method of SFAS 123 to its awards for the
purpose of recording expense for stock-based compensation in
each period presented (in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Net income, as reported
|
|
$ |
6,086 |
|
|
$ |
3,865 |
|
|
$ |
8,097 |
|
|
Add: stock-based compensation expense recognized
|
|
|
148 |
|
|
|
— |
|
|
|
— |
|
|
Deduct: total stock-based employee compensation determined under
the fair-value-based method for all awards, net of related tax
effects
|
|
|
(4,011 |
) |
|
|
(2,074 |
) |
|
|
(2,942 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
2,223 |
|
|
$ |
1,791 |
|
|
$ |
5,155 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share, as reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
| |
Diluted
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
Pro forma earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.15 |
|
| |
Diluted
|
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.15 |
|
65
The weighted average fair values of options to purchase common
stock granted in fiscal 2005, 2004 and 2003 were $4.66, $5.85
and $3.59, respectively. The fair value of each option to
purchase common stock is estimated on the date of grant using
the Black-Scholes option-pricing model, with the following
weighted average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Dividend yield
|
|
|
None |
|
|
|
None |
|
|
|
None |
|
|
Expected volatility
|
|
|
55.05 |
% |
|
|
63.38 |
% |
|
|
69.00 |
% |
|
Risk-free interest rate
|
|
|
4.55 |
% |
|
|
3.71 |
% |
|
|
3.51 |
% |
|
Expected option life (in years)
|
|
|
4.27 |
|
|
|
5.10 |
|
|
|
5.49 |
|
Comprehensive Income
Comprehensive income is comprised of net income, plus all
changes in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources, including any foreign currency translation adjustments,
unrealized gains and losses on marketable securities, or changes
in derivative values. These changes in equity are recorded as
adjustments to “Accumulated other comprehensive income
(loss)” in the Company’s Consolidated Financial
Statements. The primary components of “Accumulated other
comprehensive income (loss)” are unrealized gains or losses
on foreign currency translation and changes in the value of
derivatives used to hedge interest rate exposure.
Foreign Currency
Translation
The Company’s foreign subsidiaries use the local currency
as their functional currency. Accordingly, assets and
liabilities are translated into U.S. dollars at current
rates of exchange in effect at the balance sheet date. The
resulting unrealized gains or losses are reported under the
caption “Accumulated other comprehensive income
(loss)” in the Company’s Consolidated Financial
Statements. Revenues and expenses from these subsidiaries are
translated at average monthly exchange rates in effect for the
periods in which the transactions occur. Gains and losses
arising from these foreign currency transactions are reported as
a component of “Interest and other income (expense),
net” in the Company’s Consolidated Statements of
Income. The Company reported losses on foreign currency
transactions of approximately $3,000 and $133,000 in fiscal 2005
and 2004, respectively, and a gain of approximately $196,000 in
fiscal 2003.
Derivatives
The Company entered into interest rate swap agreements with its
lenders in October 2003, which were intended to protect the
Company’s long-term debt against fluctuations in LIBOR
rates. Under the interest rate swaps LIBOR was 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, Accounting for Derivative
Instruments and Hedging Activities
(“SFAS 133”), and related amendments,
including SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities (“SFAS 149”), the Company recorded a
reduction to expense of $28,000 in fiscal 2005 and an expense of
$133,000 in fiscal 2004 to mark these interest rate swap
agreements to market. The adjustment to fair value of the
interest rate swap agreement was recorded as a component of
other income (expense).
Earnings per Share
Earnings per share is computed under the provisions of
SFAS 128, “Earnings per Share”. Accordingly,
basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock
outstanding during the period. For periods in which there is net
income, diluted earnings per share is determined by using the
weighted average number of common and dilutive common equivalent
shares outstanding during the period unless the effect is
antidilutive. Potential dilutive common shares consist of the
incremental common shares issuable upon the exercise of stock
options and warrants.
66
Approximately 843,000, 865,000 and 1,930,000 options and
warrants to purchase common stock were excluded from the
calculation of diluted earnings per share for the fiscal years
ended December 31, 2005, January 1, 2005 and
January 2, 2004, respectively, as their effect would be
antidilutive. The warrants had expired as of January 1,
2005.
Reclassifications
Certain amounts in prior periods have been reclassified to
conform to current presentation.
Recent Accounting
Pronouncements
In May 2005, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 154, Accounting
Changes and Error Corrections (“SFAS 154”),
which replaces APB Opinion No. 20, Accounting Changes
and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements — An Amendment of APB
Opinion No. 28. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the
latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction
of an error. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after
December 15, 2005 and is required to be adopted by Presstek
in the first quarter of fiscal 2006.
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (“SFAS 123R”), which
replaces SFAS 123, and supersedes APB 25.
SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning
with the first fiscal period after June 15, 2005.
In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 (“SAB 107”) regarding
the SEC’s interpretation of SFAS 123R and the
valuation of share-based payments for public companies. In
accordance with this rule, the Company will adopt SFAS 123R
in the first quarter of fiscal 2006 using the modified
prospective method. On December 31, 2005, in accordance
with the provisions of its option plans, the Company accelerated
the vesting of all of its outstanding options to purchase common
stock and, accordingly, had no unvested options as of that date.
Any stock compensation expense in future periods would relate to
options or warrants to purchase common stock issued subsequent
to December 31, 2005.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs (“SFAS 151”), an amendment
of Accounting Research Bulletin (“ARB”) No. 43,
Chapter 4, Inventory Pricing. SFAS 151 amends
previous guidance regarding treatment of 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 the 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 for fiscal periods beginning October 1, 2005. The
Company is currently reviewing the impact of implementing
SFAS 151 on our consolidated balance sheet, statement of
income and statement of cash flows.
ABDick
On November 5, 2004, the Company, through its wholly-owned
subsidiary, ABDick, completed the acquisition of certain assets
and assumed certain liabilities of The A.B. Dick Company, which
the Company acquired through a Section 363 sale in the
United States Bankruptcy Court. The acquired business
manufactured, marketed and serviced offset systems and
computer-to-plate
(“CTP”) systems and related supplies for the graphics
arts and printing industries. In consideration, the Company paid
the previous owners approximately $40.0 million in cash. As
part of this acquisition, the Company paid $5.1 million of
transaction costs for legal, audit and other transaction costs,
and accrued, as purchase price adjustments, an aggregate of
$3.0 million for integration costs (the “integration
cost accruals”), primarily related to the consolidation of
ABDick’s Rochester, New York manufacturing operations into
the Company’s existing manufacturing facility at its
corporate headquarters in
67
Hudson, New Hampshire, and the closing of ABDick’s Niles,
Illinois office facility. The consolidation of the Rochester,
New York manufacturing operations was substantially completed in
the third quarter of 2005.
On August 8, 2005, as part of its previously announced plan
to achieve cost savings with regard to the ABDick operating
segment, Presstek announced that in order to consolidate
operations, the Company would close its Niles office facility by
December 31, 2005. The Niles facility was closed as planned
on December 31, 2005. The Company transferred certain
executives of ABDick from the Niles facility to the
Company’s headquarters in Hudson. ABDick’s inside
sales staff and other limited customer service operations were
moved to a new facility in the Chicago, Illinois area. The
remaining activities associated with this initiative are
expected to be completed in fiscal 2006. These activities will
result in the Company incurring miscellaneous incremental
transition expenses (before any expected savings anticipated
from the consolidation) aggregating approximately
$0.75 million in cash as charges to earnings. In the fiscal
2005 period subsequent to the announcement, the Company recorded
$0.3 million of miscellaneous incremental transition
expenses, all of which were recorded in the fourth quarter.
In fiscal 2004, the Company had recorded integration cost
accruals aggregating $1.5 million. In fiscal 2005, the
Company had recorded additional integration cost accruals
aggregating $2.4 million, comprised of $2.3 million of
additional severance and fringe benefits costs and
$0.1 million of lease termination and related costs. In
fiscal 2005, the Company performed the analysis required to
finalize the purchase price allocation for the ABDick
acquisition. As a result of this analysis, the Company
identified $0.9 million of excess integration cost accruals
and, accordingly, adjusted the amounts recorded to reflect the
lower estimated requirements, with a corresponding offset to
goodwill. These amounts are reflected in the table below. Of the
net $3.0 million accrued for these integration activities,
$2.7 million was recorded for severance and related costs
primarily for personnel located at the Niles and Rochester
facilities and affected by the consolidation of operations and
$0.3 million was recorded for costs related to the affected
facilities. The Company also expects to invest a total of
approximately $1.25 million in capital expenditures
relating to facilities used by the operations affected by the
consolidation. At December 31, 2005, the Company had
recorded $0.4 million of capitalized costs, primarily for
the installation of new office space at the Hudson headquarters
facility and additional computer hardware and software required
to support this transition. All of these accruals and charges
relate to and were recorded by the Company’s Presstek
operating segment.
68
A summary of the transaction and the allocation of the purchase
price are as follows (in thousands):
| |
|
|
|
|
|
|
|
Consideration
|
|
|
|
|
| |
Net cash paid
|
|
$ |
40,000 |
|
| |
Transaction costs
|
|
|
5,121 |
|
| |
Integration costs
|
|
|
3,029 |
|
| |
|
|
|
| |
|
Total consideration
|
|
|
48,150 |
|
| |
|
|
|
|
Allocation of consideration to assets acquired (liabilities
assumed)
|
|
|
|
|
| |
Accounts receivable
|
|
|
16,930 |
|
| |
Inventories
|
|
|
21,172 |
|
| |
Other current assets
|
|
|
646 |
|
| |
Property, plant and equipment
|
|
|
1,375 |
|
| |
Other noncurrent assets
|
|
|
109 |
|
| |
Accounts payable and accrued expenses
|
|
|
(7,472 |
) |
| |
Deferred revenue
|
|
|
(8,899 |
) |
| |
|
|
|
| |
|
Fair value of net tangible assets acquired
|
|
|
23,861 |
|
| |
|
|
|
|
Excess of consideration over fair value of net tangible assets
acquired
|
|
|
24,289 |
|
| |
|
|
|
|
Allocation of excess consideration to identifiable intangible
assets
|
|
|
|
|
| |
Trade names (estimated life of 3 years)
|
|
|
2,100 |
|
| |
Customer relationships (estimated life of 10 years)
|
|
|
3,800 |
|
| |
Software license (estimated life of 3 years)
|
|
|
450 |
|
| |
|
|
|
| |
|
|
6,350 |
|
| |
|
|
|
|
Allocation of excess consideration to goodwill (deductible for
tax purposes)
|
|
$ |
17,939 |
|
| |
|
|
|
The values assigned to inventory, property, plant and equipment
and identifiable intangible assets were based upon the results
of an independent appraisal. The weighted average life of the
identifiable intangible assets recorded in connection with this
transaction is 7.2 years.
The activity related to the Company’s integration cost
accruals for the periods subsequent to the acquisition date is
as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal 2005 activity | |
| |
|
| |
| |
|
|
|
Purchase accounting | |
|
|
| |
|
|
|
adjustments offset to | |
|
|
| |
|
|
|
goodwill | |
|
|
| |
|
|
|
| |
|
|
| |
|
Balance | |
|
|
|
Reversals — | |
|
|
|
Balance | |
| |
|
January 1, | |
|
|
|
changes in | |
|
|
|
December 31, | |
| |
|
2005 | |
|
Additions | |
|
estimate | |
|
Utilization | |
|
2005 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Severance and fringe benefits
|
|
$ |
795 |
|
|
$ |
2,340 |
|
|
$ |
(380 |
) |
|
$ |
(1,513 |
) |
|
$ |
1,242 |
|
|
Lease termination and other costs
|
|
|
703 |
|
|
|
75 |
|
|
|
(504 |
) |
|
|
(179 |
) |
|
|
95 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,498 |
|
|
$ |
2,415 |
|
|
$ |
(884 |
) |
|
$ |
(1,692 |
) |
|
$ |
1,337 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal 2004 activity | |
| |
|
| |
| |
|
|
|
Purchase | |
|
|
| |
|
|
|
accounting | |
|
|
| |
|
Balance |
|
adjustments | |
|
|
|
Balance | |
| |
|
January 3, |
|
offset to | |
|
|
|
January 1, | |
| |
|
2004 |
|
goodwill | |
|
Utilization |
|
2005 | |
| |
|
|
|
| |
|
|
|
| |
|
Severance and fringe benefits
|
|
$ |
— |
|
|
$ |
795 |
|
|
$ |
— |
|
|
$ |
795 |
|
|
Lease termination and other costs
|
|
|
— |
|
|
|
703 |
|
|
|
— |
|
|
|
703 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
— |
|
|
$ |
1,498 |
|
|
$ |
— |
|
|
$ |
1,498 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
69
Precision
On July 30, 2004, the Company acquired the stock of
Precision for an aggregate cash purchase price of
$12.1 million, net of cash acquired. Precision manufactures
Anthem, Freedom and Aurora chemistry-free digital print plates,
and is also a provider of other conventional and digital
printing plates for both web and sheet-fed printing
applications. A summary of the transaction and the final
allocation of the purchase price are as follows (in thousands):
| |
|
|
|
|
|
|
|
Consideration
|
|
|
|
|
| |
Net cash paid
|
|
$ |
12,127 |
|
| |
Integration costs
|
|
|
400 |
|
| |
|
|
|
| |
|
Total consideration
|
|
|
12,527 |
|
| |
|
|
|
|
Allocation of consideration to assets acquired (liabilities
assumed)
|
|
|
|
|
| |
Accounts receivable
|
|
|
2,636 |
|
| |
Inventories
|
|
|
2,695 |
|
| |
Property, plant and equipment
|
|
|
6,065 |
|
| |
Accounts payable and accrued expenses
|
|
|
(5,279 |
) |
| |
|
|
|
| |
|
Fair value of net tangible assets acquired
|
|
|
6,117 |
|
| |
|
|
|
|
Excess of consideration over fair value of net tangible assets
acquired
|
|
|
6,410 |
|
| |
|
|
|
|
Allocation of excess consideration to identifiable intangible
assets
|
|
|
|
|
| |
Customer relationships (estimated life of 7 years)
|
|
|
900 |
|
| |
Trade names (estimated life of 2 years)
|
|
|
260 |
|
| |
Non-compete covenants (estimated life of 5 years)
|
|
|
100 |
|
| |
|
|
|
| |
|
|
1,260 |
|
| |
|
|
|
|
Allocation of excess consideration to goodwill (deductible for
tax purposes)
|
|
$ |
5,150 |
|
| |
|
|
|
The Company did not incur any transaction costs related to the
acquisition of Precision. The values assigned to inventory,
property, plant and equipment and identifiable intangible assets
were based upon the results of an independent appraisal. The
weighted average life of the identifiable intangible assets
recorded in connection with this transaction is 5.8 years.
Pro forma results of
operations
The following pro forma results of operations for the fiscal
2004 and fiscal 2003 have been prepared as though the
acquisitions of ABDick and Precision had occurred on
December 28, 2002, the first day of fiscal 2003. This pro
forma financial information does not purport to be indicative of
the results of operations that would have been attained had the
acquisitions been made as of December 29, 2002 or of
results of operations that may occur in future periods (in
thousands, except per share data):
| |
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Revenue
|
|
$ |
290,171 |
|
|
$ |
304,655 |
|
|
Net income
|
|
$ |
1,355 |
|
|
$ |
11,930 |
|
|
Earnings per share (basic)
|
|
$ |
0.04 |
|
|
$ |
0.35 |
|
|
Earnings per share (diluted)
|
|
$ |
0.04 |
|
|
$ |
0.35 |
|
70
|
|
| 4. |
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 Company’s 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.
|
|
| 5. |
ACCOUNTS RECEIVABLE AND RELATED
ALLOWANCES, NET |
The components of accounts receivable, net of allowances, in the
Consolidated Balance Sheets are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 1, | |
| |
|
2005 | |
|
2005 | |
| |
|
| |
|
| |
|
Accounts receivable
|
|
$ |
47,495 |
|
|
$ |
43,570 |
|
|
Less allowances
|
|
|
(3,407 |
) |
|
|
(4,624 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
44,088 |
|
|
$ |
38,946 |
|
| |
|
|
|
|
|
|
The activity related to the Company’s allowances for losses
on accounts receivable for fiscal 2005, 2004 and 2003 is as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Balance at beginning of period
|
|
$ |
4,624 |
|
|
$ |
1,892 |
|
|
$ |
2,167 |
|
|
Charged to costs and expenses
|
|
|
1,397 |
|
|
|
1,935 |
|
|
|
1,358 |
|
|
Charged to other accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchase accounting adjustments
|
|
|
(30 |
) |
|
|
— |
|
|
|
— |
|
| |
Acquired balance in business combinations
|
|
|
— |
|
|
|
2,114 |
|
|
|
— |
|
|
Deductions and write-offs
|
|
|
(2,584 |
) |
|
|
(1,317 |
) |
|
|
(1,633 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
3,407 |
|
|
$ |
4,624 |
|
|
$ |
1,892 |
|
| |
|
|
|
|
|
|
|
|
|
The components of inventories in the Consolidated Balance Sheets
are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 1, | |
| |
|
2005 | |
|
2005 | |
| |
|
| |
|
| |
|
Raw materials
|
|
$ |
7,945 |
|
|
$ |
9,424 |
|
|
Work in process
|
|
|
8,953 |
|
|
|
5,458 |
|
|
Finished goods
|
|
|
33,185 |
|
|
|
29,347 |
|
| |
|
|
|
|
|
|
| |
|
$ |
50,083 |
|
|
$ |
44,229 |
|
| |
|
|
|
|
|
|
The inventory amounts above include the effect of
$16.5 million and $17.7 million at December 31,
2005 and January 1, 2005, respectively, of reserves for
excess and obsolete inventories.
71
|
|
| 7. |
PROPERTY, PLANT AND EQUIPMENT,
NET |
The components of property, plant and equipment, net, in the
Consolidated Balance Sheets are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 1, | |
| |
|
2005 | |
|
2005 | |
| |
|
| |
|
| |
|
Land and improvements
|
|
$ |
2,241 |
|
|
$ |
2,352 |
|
|
Buildings and leasehold improvements
|
|
|
28,902 |
|
|
|
27,695 |
|
|
Production and other equipment
|
|
|
52,018 |
|
|
|
51,106 |
|
|
Office furniture and equipment
|
|
|
6,668 |
|
|
|
5,527 |
|
|
Construction in process
|
|
|
3,882 |
|
|
|
918 |
|
| |
|
|
|
|
|
|
| |
Total property, plant and equipment, at cost
|
|
|
93,711 |
|
|
|
87,598 |
|
|
Accumulated depreciation and amortization
|
|
|
(48,461 |
) |
|
|
(40,226 |
) |
| |
|
|
|
|
|
|
| |
|
Net property, plant and equipment
|
|
$ |
45,250 |
|
|
$ |
47,372 |
|
| |
|
|
|
|
|
|
Construction in process is primarily related to production
equipment not yet placed into service. The Company does not
anticipate additional material incremental costs related to any
amounts currently reported as construction in process.
Property, plant and equipment at December 31, 2005 includes
$110,000 in equipment and related accumulated depreciation of
$3,000 associated with a capital lease.
The Company recorded depreciation expense of $8.2 million,
$7.8 million and $7.9 million in fiscal 2005, fiscal
2004 and fiscal 2003, respectively. Under the Company’s
financing arrangements (See Note 9), all property, plant
and equipment is pledged as security.
|
|
| 8. |
GOODWILL AND OTHER INTANGIBLE
ASSETS |
The changes in the carrying amounts of goodwill recorded by the
Company’s business segments for the fiscal year ended
December 31, 2005 are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Presstek | |
|
Precision | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
Balance at January 1, 2005
|
|
$ |
13,466 |
|
|
$ |
5,422 |
|
|
$ |
18,888 |
|
|
Purchase accounting adjustments for prior period acquisitions
|
|
|
4,473 |
|
|
|
(272 |
) |
|
|
4,201 |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
17,939 |
|
|
$ |
5,150 |
|
|
$ |
23,089 |
|
| |
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments to goodwill in fiscal 2005 are
primarily comprised of $1.5 million of net costs for the
consolidation of the acquired ABDick operations in Niles,
Illinois and Rochester, New York, into the Company’s
operations at its Hudson, New Hampshire corporate headquarters,
$1.6 million of additional transaction costs incurred, such
as legal, audit and valuation fees, and $1.4 million of
final adjustments to the fair values of assets acquired and
liabilities assumed, primarily valuation adjustments to acquired
inventories and current liabilities. The fiscal 2005 fourth
quarter adjustments included in these amounts are primarily
comprised of $0.1 million of increases to accounts
receivable, $1.5 million of reductions to inventories,
$0.1 million of reductions to other current assets,
$0.4 million of increases to accounts payable and
$1.2 million of reductions to accrued expenses, including
$0.9 million of reversals of integration cost accruals. The
adjustments to Precision goodwill primarily relate to
finalization of the valuation of acquired inventories and
current liabilities.
72
The components of the Company’s identifiable intangible
assets are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2005 | |
|
January 1, 2005 | |
| |
|
| |
|
| |
| |
|
|
|
Accumulated | |
|
|
|
Accumulated | |
| |
|
Cost | |
|
amortization | |
|
Cost | |
|
amortization | |
| |
|
| |
|
| |
|
| |
|
| |
|
Patents and intellectual property
|
|
$ |
10,840 |
|
|
$ |
6,173 |
|
|
$ |
8,135 |
|
|
$ |
5,296 |
|
|
Trade names
|
|
|
2,360 |
|
|
|
1,001 |
|
|
|
2,360 |
|
|
|
171 |
|
|
Customer relationships
|
|
|
5,483 |
|
|
|
876 |
|
|
|
4,700 |
|
|
|
117 |
|
|
Software licenses
|
|
|
450 |
|
|
|
175 |
|
|
|
1,203 |
|
|
|
778 |
|
|
License agreements
|
|
|
750 |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
Non-compete covenants
|
|
|
100 |
|
|
|
28 |
|
|
|
245 |
|
|
|
153 |
|
|
Loan origination fees
|
|
|
332 |
|
|
|
77 |
|
|
|
339 |
|
|
|
7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
20,315 |
|
|
$ |
8,341 |
|
|
$ |
16,982 |
|
|
$ |
6,522 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded amortization expense for its identifiable
intangible assets of $2.7 million, $1.3 million and
$1.0 million in fiscal 2005, 2004 and 2003, respectively.
Estimated future amortization expense for the Company’s
in-service patents and all other identifiable intangible assets
recorded by the Company at December 31, 2005, are as
follows (in thousands):
| |
|
|
|
|
|
Fiscal 2006
|
|
$ |
3,017 |
|
|
Fiscal 2007
|
|
$ |
2,228 |
|
|
Fiscal 2008
|
|
$ |
1,251 |
|
|
Fiscal 2009
|
|
$ |
1,104 |
|
|
Fiscal 2010
|
|
$ |
941 |
|
|
Thereafter
|
|
$ |
1,891 |
|
As of July 2, 2005, the Company’s Lasertel subsidiary
had advanced $0.9 million (the “Advance”) to a
customer (the “Customer”), of which $0.7 million
was secured by, among other things, a lien on the assets of the
Customer, including intellectual property. In addition, Lasertel
had an accounts receivable balance of $0.9 million (the
“Receivables”) with the Customer. In a series of
agreements with the Customer and a material end user to whom the
Customer had been providing products under a supply contract
(the “Supply Contract”), in exchange for the
Customer’s Advance and Receivables, Lasertel received
ownership of certain assets of the Customer, which were
comprised of all of the Customer’s patents, intellectual
property and know-how (as well as all updates thereto) (the
“Assets”) as well as having the Customer’s rights
under the Supply Contract assigned to Lasertel. In connection
with this transaction, the Company recorded $1.7 million
and $0.1 million of patents and customer contracts,
respectively, which are amortized over their estimated useful
lives, which range from nine months to seven years. These
amounts are included in the tables above. The value of the
Assets, as well as the rights assigned under the Supply
Contract, approximates the $1.8 million in Advances and
Receivables, based upon the valuation performed by an
independent appraisal firm.
73
|
|
| 9. |
FINANCING ARRANGEMENTS |
The components of the Company’s outstanding borrowings at
December 31, 2005 and January 1, 2005 are as follows
(in thousands):
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 1, | |
| |
|
2005 | |
|
2005 | |
| |
|
| |
|
| |
|
Term loan
|
|
$ |
29,500 |
|
|
$ |
35,000 |
|
|
Line of credit
|
|
|
6,036 |
|
|
|
6,822 |
|
|
Capital lease
|
|
|
107 |
|
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
|
35,643 |
|
|
|
41,822 |
|
| |
Less current portion
|
|
|
(13,073 |
) |
|
|
(12,322 |
) |
| |
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
22,570 |
|
|
$ |
29,500 |
|
| |
|
|
|
|
|
|
In November 2004, in connection with the acquisition of the
business of the A.B. Dick Company, the Company replaced its
then-current credit facilities, which it had entered into in
October 2003, 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 “Term Loan”) and a
$45.0 million five-year secured revolving line of credit
(the “Revolver”). The Company granted a security
interest in all of its assets in favor of the lenders under the
Facilities. In addition, under the Facilities agreement, the
Company is prohibited from declaring or distributing dividends
to shareholders.
The Company has the option of selecting an interest rate for the
Facilities equal to either: (a) the then applicable London
Inter-Bank Offer Rate plus 1.25% to 4.0% per annum,
depending on certain results of the Company’s financial
performance; or (b) the Prime Rate, as defined in the
Facilities agreement, plus up to 1.75% per annum, depending
on certain results of the Company’s financial performance.
Effective August 31, 2005, the Company amended its
Facilities to reduce the current Applicable LIBOR Margin to
2.5%, from the previous Applicable LIBOR Margin of 3.5%.
The Facilities were used to partially finance the ABDick
acquisition, and are available to the Company for working
capital requirements, capital expenditures, business
acquisitions and general corporate purposes.
At December 31, 2005 and January 1, 2005, the Company
had outstanding balances on the Revolver of $6.0 million
and $6.8 million, respectively, with interest rates of 6.9%
and 5.8%, respectively. At December 31, 2005, there were
$11.6 million of outstanding letters of credit, thereby
reducing the amount available under the Revolver to
$27.4 million at that date.
The Term Loan required an initial principal payment of
$0.25 million on March 31, 2005, and requires
subsequent quarterly principal payments of $1.75 million,
with a final settlement of all remaining principal and unpaid
interest on November 4, 2009. At December 31, 2005 and
January 1, 2005, outstanding balances under the Term Loan
were $29.5 million and $35.0 million, respectively,
with interest rates of 7.5% and 5.7%, respectively.
On November 23, 2005, the Company acquired equipment of
$110,000 qualifying for capital lease treatment under
SFAS No. 13, Accounting for Leases
(“SFAS 13”). The lease has a three-year term
and expires in November 2008, at which time the Company may
purchase the system for a minimal amount. The lease carries an
interest rate of 6.95% per year. The equipment is reflected
in property, plant and equipment and the current and long-term
principal amounts of the lease obligation are included as
components of current portion of long-term debt and capital
lease obligation and long-term debt and capital lease obligation
in the Company’s Consolidated Balance Sheet at
December 31, 2005.
74
The Company’s Revolver and Term Loan principal and capital
lease principal and interest repayment commitments are as
follows (in thousands):
| |
|
|
|
|
|
2006
|
|
$ |
13,073 |
|
|
2007
|
|
$ |
7,041 |
|
|
2008
|
|
$ |
7,040 |
|
|
2009
|
|
$ |
8,500 |
|
The weighted average interest rate on the Company’s
short-term borrowings was 7.2% at December 31, 2005.
Under the terms of the Revolver and Term Loan, the Company is
required to meet various financial covenants on a quarterly and
annual basis, including maximum funded debt to EBITDA (earnings
before interest, taxes, depreciation, amortization and
restructuring and special charges) and minimum fixed charge
coverage covenants. At December 31, 2005, the Company was
in compliance with all financial covenants.
The components of the Company’s accrued expenses in the
Consolidated Balance Sheets at December 31, 2005 and
January 1, 2005 are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 1, | |
| |
|
2005 | |
|
2005 | |
| |
|
| |
|
| |
|
Accrued payroll and employee benefits
|
|
$ |
8,266 |
|
|
$ |
6,141 |
|
|
Accrued warranty
|
|
|
1,483 |
|
|
|
1,472 |
|
|
Accrued integration costs
|
|
|
1,337 |
|
|
|
1,498 |
|
|
Accrued restructuring and special charges
|
|
|
482 |
|
|
|
154 |
|
|
Accrued royalties
|
|
|
344 |
|
|
|
1,247 |
|
|
Other
|
|
|
4,806 |
|
|
|
5,548 |
|
| |
|
|
|
|
|
|
| |
|
$ |
16,718 |
|
|
$ |
16,060 |
|
| |
|
|
|
|
|
|
|
|
| 11. |
ACCRUED WARRANTY AND DEFERRED
REVENUES |
Accrued Warranty
The Company provides for the estimated cost of product
warranties, based on historical experience, at the time revenue
is recognized. Presstek warrants its products against defects in
material and workmanship for various periods, determined by the
product, generally for a period of from ninety days to one year
from the date of installation. Typical warranties require the
Company to repair or replace defective products during the
warranty period at no cost to the customer. Presstek engages in
extensive product quality programs and processes, including
monitoring and evaluation of component supplies; however,
product warranty terms, product failure rates, and material
usage and service delivery costs incurred in correcting a
product failure may affect the estimated warranty obligation. If
actual product failure rates, material usage or service delivery
costs differ from current estimates, the Company will adjust the
warranty liability. Accruals for product warranties are
reflected as a component of accrued expenses in the
Company’s Consolidated Balance Sheets.
Product warranty activity in fiscal 2005, fiscal 2004 and fiscal
2003 is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Balance at beginning of period
|
|
$ |
1,472 |
|
|
$ |
935 |
|
|
$ |
1,089 |
|
|
Accruals for warranties
|
|
|
1,558 |
|
|
|
1,109 |
|
|
|
1,228 |
|
|
Assumed warranty liabilities — business acquisitions
|
|
|
— |
|
|
|
795 |
|
|
|
— |
|
|
Charges to accrual for warranty costs
|
|
|
(1,547 |
) |
|
|
(1,367 |
) |
|
|
(1,382 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
1,483 |
|
|
$ |
1,472 |
|
|
$ |
935 |
|
| |
|
|
|
|
|
|
|
|
|
75
Deferred Revenues
Deferred revenues consist of amounts received or billed in
advance for products for which revenue recognition criteria has
not yet been met or service contracts where services have not
yet been rendered. Deferred amounts are recognized as elements
are delivered or, in the case of services, recognized ratably
over the contract life, generally one year, or as services are
rendered.
The components of deferred revenue are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 1, | |
| |
|
2005 | |
|
2005 | |
| |
|
| |
|
| |
|
Deferred service revenue
|
|
$ |
7,951 |
|
|
$ |
8,488 |
|
|
Deferred product revenue
|
|
|
628 |
|
|
|
2,032 |
|
| |
|
|
|
|
|
|
| |
|
$ |
8,579 |
|
|
$ |
10,520 |
|
| |
|
|
|
|
|
|
|
|
| 12. |
RESTRUCTURING AND SPECIAL
CHARGES |
In the first quarter of 2005, the Company recorded restructuring
and special charges aggregating $1.0 million for the
Presstek and Precision business segments. Of this amount,
$0.9 million related to the Presstek segment and
$0.1 million related to the Precision segment. These
charges included severance and fringe benefit costs, executive
and other contractual obligations and a settlement with
previously terminated employees. In the third quarter, the
Precision segment reversed its remaining accrual balance of
$73,000. In the fourth quarter of 2005, the Presstek segment
reversed $35,000 of excess accrual amounts related to severance
accruals. These adjustments reduced the expense reported for the
year ended December 31, 2005 to $0.9 million. At
December 31, 2005, the remaining accrual balance related to
the Presstek segment. The Company accrued for severance and
fringe benefit costs relating to the elimination of 14
positions, comprised of five technical and customer support
positions, five manufacturing positions and four management and
support positions. At December 31, 2005, ten employees had
been terminated under this plan.
In fiscal 2004, the Company reversed $0.4 million in excess
special charges related to severance accrued in fiscal 2003 and
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 $0.6 million 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.
The activity for fiscal 2005, fiscal 2004 and fiscal 2003
related to the Company’s restructuring and special charges
accruals is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal 2005 Activity |
| |
|
|
| |
|
Balance |
|
|
|
Balance |
| |
|
January 1, |
|
Charged to |
|
|
|
December 31, |
| |
|
2005 |
|
Expense |
|
Reversals |
|
Utilization |
|
2005 |
| |
|
|
|
|
|
|
|
|
|
|
|
Executive contractual obligations
|
|
$ |
154 |
|
|
$ |
282 |
|
|
$ |
— |
|
|
$ |
(436 |
) |
|
$ |
— |
|
|
Severance and fringe benefits
|
|
|
— |
|
|
|
700 |
|
|
|
(108 |
) |
|
|
(110 |
) |
|
|
482 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
154 |
|
|
$ |
982 |
|
|
$ |
(108 |
) |
|
$ |
(546 |
) |
|
$ |
482 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal 2004 Activity |
| |
|
|
| |
|
Balance |
|
|
|
Balance |
| |
|
January 3, |
|
Charged to |
|
|
|
January 1, |
| |
|
2004 |
|
Expense |
|
Reversals |
|
Utilization |
|
2005 |
| |
|
|
|
|
|
|
|
|
|
|
|
Executive contractual obligations
|
|
$ |
699 |
|
|
$ |
— |
|
|
$ |
(76 |
) |
|
$ |
(469 |
) |
|
$ |
154 |
|
|
Severance and fringe benefits
|
|
|
356 |
|
|
|
— |
|
|
|
(316 |
) |
|
|
(40 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,055 |
|
|
$ |
— |
|
|
$ |
(392 |
) |
|
$ |
(509 |
) |
|
$ |
154 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal 2003 Activity | |
| |
|
| |
| |
|
Balance | |
|
|
|
Balance | |
| |
|
December 28, | |
|
Charged to | |
|
|
|
January 3, | |
| |
|
2002 | |
|
Expense | |
|
Reversals | |
|
Utilization | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Executive contractual obligations
|
|
$ |
1,257 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(558 |
) |
|
$ |
699 |
|
|
Severance and fringe benefits
|
|
|
262 |
|
|
|
550 |
|
|
|
— |
|
|
|
(456 |
) |
|
|
356 |
|
|
Equipment and other asset writedowns
|
|
|
39 |
|
|
|
— |
|
|
|
(39 |
) |
|
|
— |
|
|
|
— |
|
|
Lease termination and other miscellaneous costs
|
|
|
167 |
|
|
|
— |
|
|
|
— |
|
|
|
(167 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,725 |
|
|
$ |
550 |
|
|
$ |
(39 |
) |
|
$ |
(1,181 |
) |
|
$ |
1,055 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company anticipates that the payments related to the above
initiatives will be completed in 2006.
|
|
| 13. |
INTEREST AND OTHER INCOME AND
EXPENSE |
The components of “Interest and other income (expense),
net”, in the Company’s Consolidated Statements of
Income are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Interest expense
|
|
$ |
(2,459 |
) |
|
$ |
(923 |
) |
|
$ |
(707 |
) |
|
Interest income
|
|
|
130 |
|
|
|
318 |
|
|
|
331 |
|
|
Other income (expense), net
|
|
|
109 |
|
|
|
(265 |
) |
|
|
209 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(2,220 |
) |
|
$ |
(870 |
) |
|
$ |
(167 |
) |
| |
|
|
|
|
|
|
|
|
|
The amounts reported as other income (expense), net, primarily
relate to gains or losses on foreign currency transactions and
losses on the disposal of long-lived assets for all periods
presented.
The components of the income tax provision are as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal |
| |
|
2005 | |
|
2004 | |
|
2003 |
| |
|
| |
|
| |
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
175 |
|
|
$ |
40 |
|
|
$ |
— |
|
| |
State
|
|
|
186 |
|
|
|
40 |
|
|
|
— |
|
| |
Foreign
|
|
|
218 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
579 |
|
|
|
80 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
475 |
|
|
|
96 |
|
|
|
— |
|
| |
State
|
|
|
120 |
|
|
|
24 |
|
|
|
— |
|
| |
Foreign
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
595 |
|
|
|
120 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
1,174 |
|
|
$ |
200 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
The deferred income tax provisions of $0.6 million in
fiscal 2005 and $0.1 million in fiscal 2004 were created by
taxable temporary differences related to certain goodwill for
which the period the differences will reverse is indefinite.
Following the adoption of SFAS 142, taxable temporary
differences creating deferred tax liabilities as a result of
different treatment of goodwill for book and tax purposes cannot
offset deductible temporary differences that create deferred tax
assets in determining the valuation allowance. As a result, a
deferred tax provision is required to increase the
Company’s valuation allowance.
77
For financial reporting purposes, income before income taxes
includes the following components (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
U.S.
|
|
$ |
6,778 |
|
|
$ |
3,954 |
|
|
$ |
8,097 |
|
|
Foreign
|
|
|
482 |
|
|
|
111 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
7,260 |
|
|
$ |
4,065 |
|
|
$ |
8,097 |
|
| |
|
|
|
|
|
|
|
|
|
The cumulative amount of undistributed earnings of foreign
subsidiaries, which is intended to be permanently reinvested and
for which U.S. income taxes have not been provided, totaled
approximately $0.6 million at December 31, 2005.
Deferred tax assets/liabilities consist of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
January 1, | |
|
January 3, | |
| |
|
2005 | |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net operating loss carryforwards
|
|
$ |
26,500 |
|
|
$ |
29,000 |
|
|
$ |
30,400 |
|
| |
Tax credits
|
|
|
5,300 |
|
|
|
4,900 |
|
|
|
5,100 |
|
| |
Warranty provisions, litigation and other accruals
|
|
|
5,900 |
|
|
|
4,400 |
|
|
|
3,800 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Gross deferred tax assets
|
|
|
37,700 |
|
|
|
38,300 |
|
|
|
39,300 |
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortizable and depreciable assets
|
|
|
715 |
|
|
|
320 |
|
|
|
100 |
|
| |
Accumulated depreciation and amortization
|
|
|
2,000 |
|
|
|
3,900 |
|
|
|
3,300 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
34,985 |
|
|
|
34,080 |
|
|
|
35,900 |
|
|
Less valuation allowance
|
|
|
(35,700 |
) |
|
|
(34,200 |
) |
|
|
(35,900 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$ |
(715 |
) |
|
$ |
(120 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
For fiscal 2003, the Company provided a full valuation allowance
for its deferred tax assets in the United States due to the
uncertainty of realization of those assets as a result of the
recurring and cumulative losses from operations.
The Company monitors the realization of its deferred tax assets
based on changes in circumstances; for example, recurring
periods of income for tax purposes following historical periods
of cumulative losses or changes in tax laws or regulations. The
Company’s income tax provisions and its assessment of the
realizability of its deferred tax assets involve significant
judgments and estimates. If the Company generates taxable income
through profitable operations in future years it may be required
to recognize these deferred tax assets through the reduction of
the valuation allowance, which would result in a material
benefit to its results of operations in the period in which the
benefit is determined, excluding the recognition of the portion
of the valuation allowance which relates to net deferred tax
assets acquired in a business combination and stock
compensation. The valuation allowance with respect to acquired
tax assets of $0.4 million, when subsequently released,
will reduce goodwill, other intangible assets and, to the extent
remaining, the provision for income tax.
78
A reconciliation of the Company’s effective tax rate to the
statutory federal rate is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Federal statutory tax rate
|
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
State tax, net of federal benefit
|
|
|
2.6 |
|
|
|
— |
|
|
|
— |
|
|
Alternative minimum tax
|
|
|
2.4 |
|
|
|
1.1 |
|
|
|
— |
|
|
Other
|
|
|
2.0 |
|
|
|
— |
|
|
|
— |
|
|
Change in valuation allowance
|
|
|
(24.8 |
) |
|
|
(30.2 |
) |
|
|
(34.0 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
16.2 |
% |
|
|
4.9 |
% |
|
|
— |
% |
| |
|
|
|
|
|
|
|
|
|
At December 31, 2005 and January 1, 2005, the Company
had federal net operating loss carryforwards of
$77.5 million and $84.2 million, respectively, of
which $49.2 million relates to tax deductions from stock
compensation at both dates. The tax benefit of
$17.0 million at both December 31, 2005 and
January 1, 2005, related to the stock compensation, when
realized, will be accounted for as additional paid-in capital
rather than as a reduction of the provision for income tax. At
December 31, 2005, approximately $50,000 in additional
paid-in capital was realized as a result of a current year tax
benefit from stock compensation. At December 31, 2005, the
Company had federal research and development credit
carryforwards of $4.5 million. The net operating loss and
credit carryforwards will expire at various dates through 2022
if not utilized.
The Company’s certificate of incorporation empowers the
Board of Directors, without stockholder approval, to issue up to
1,000,000 shares of $0.01 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.
|
|
| 16. |
STOCK-BASED COMPENSATION
PLANS |
The Company has equity incentive plans that are administered by
the Compensation and Stock Plan Committee of the Board of
Directors (the “Committee”). The Committee oversees
and approves which employees receive grants, the number of
shares or options granted and the exercise prices of the shares
covered by each grant.
The 1998 Stock Incentive Plan (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. Any future options granted under the 1998
Incentive Plan will become exercisable upon the earlier of a
date set by the Board of Directors or 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. Any future
options granted as incentive stock options, or ISO’s,
become exercisable the day before the fifth anniversary of the
date of grant. At December 31, 2005, there were 1,283,125
options outstanding and 1,327,150 shares available for
future grants under the 1998 Incentive Plan. The options will
expire at various dates as prescribed by the individual option
grants.
The 2003 Stock Option and Incentive Plan (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. The 2003 Plan
provides for an automatic annual grant of 7,500 stock options to
all active Non-Employee Directors. A total of
2,000,000 shares of common stock, subject to anti-dilution
adjustments, has been reserved under this plan. Any future
options granted under the 2003 Plan will become exercisable at
such times and subject to such terms and conditions as the Board
of Directors or Committee may specify at the time of each grant.
At December 31, 2005, there were 943,800 options
outstanding and 1,056,200 shares available for future
grants under the 2003 Plan. The options will expire at various
dates as prescribed by the individual option grants.
79
The Company had previously adopted equity incentive plans that
had expired as of December 31, 2005 and, accordingly, no
future grants may be issued under these plans. These plans
include the 1991 Stock Option Plan (the “1991 Plan”),
which expired on August 18, 2001; the 1994 Stock Option
Plan (the “1994 Plan”), which expired on April 8,
2004; and the 1997 Interim Stock Option Plan (the “1997
Plan”), which expired on September 22, 2002. At
December 31, 2005 there were 51,400 options outstanding
under the 1991 Plan, 698,825 options outstanding under the 1994
Plan and 86,825 options understanding under the 1997 Plan.
Employee Stock Purchase
Plan
The Company’s 2002 Employee Stock Purchase Plan (the
“ESPP”) is designed to provide eligible employees of
the Company and its participating U.S subsidiaries an
opportunity to purchase common stock of the Company through
accumulated payroll deductions. The purchase price of the stock
is equal to 85% of the fair market value of a share of common
stock on the first day or last day of each three-month offering
period, whichever is lower. All employees of the company or
participating subsidiaries who customarily work at least
20 hours per week and do not own five percent or more of
the Company’s common stock are eligible to participate in
the ESPP. A total of 950,000 shares of the Company’s
common stock, subject to adjustment, have been reserved for
issuance under this plan. In 2005, 2004 and 2003, approximately
36,000, 23,000 and 36,000 shares were issued, respectively,
under the ESPP. The 2005 amount includes approximately
8,600 shares in transit at December 31, 2005. These
shares were issued on January 4, 2006. At December 31,
2005, there were approximately 826,000 shares available for
issuance under this plan.
Director Stock Option
Plan
The Company’s Non-Employee Director Stock Option Plan (the
“Director Plan”) provided for the issuance of options
to purchase 5,000 shares of the Company’s common
stock upon being named a Director of the Company and the
automatic issuance, in January of each year, of options to
purchase 2,500 shares of the Company’s common
stock, to each non-employee Director of the Company, with
exercise prices equal to the fair market value of the stock at
the date of grant. Options granted under this plan became
exercisable one year from the date of grant and will terminate
five years from the date of grant. At December 31, 2005,
there were 37,500 options outstanding under the Director Plan.
This Plan expired on December 31, 2003 and, accordingly, no
future grants may be issued under this plan.
Stock option activity for fiscal 2003, 2004 and 2005 is
summarized as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted Average |
| |
|
Shares |
|
Exercise Price |
| |
|
|
|
|
|
Outstanding at December 28, 2002
|
|
|
3,639,801 |
|
|
$ |
8.84 |
|
| |
Granted
|
|
|
385,000 |
|
|
$ |
5.84 |
|
| |
Exercised
|
|
|
(20,200 |
) |
|
$ |
6.71 |
|
| |
Canceled/expired
|
|
|
(552,125 |
) |
|
$ |
9.83 |
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2004
|
|
|
3,452,476 |
|
|
$ |
8.36 |
|
| |
Granted
|
|
|
76,750 |
|
|
$ |
10.08 |
|
| |
Exercised
|
|
|
(663,450 |
) |
|
$ |
7.53 |
|
| |
Canceled/expired
|
|
|
(112,550 |
) |
|
$ |
9.25 |
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2005
|
|
|
2,753,226 |
|
|
$ |
8.57 |
|
| |
Granted
|
|
|
1,104,667 |
|
|
$ |
8.83 |
|
| |
Exercised
|
|
|
(477,654 |
) |
|
$ |
6.51 |
|
| |
Canceled/expired
|
|
|
(278,764 |
) |
|
$ |
9.92 |
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
3,101,475 |
|
|
$ |
8.86 |
|
| |
|
|
|
|
|
|
|
|
80
The following table summarizes information about stock options
both outstanding and exercisable at December 31, 2005:
|
|
|
Options Outstanding and Exercisable |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
|
| |
|
|
|
|
|
Remaining |
|
Weighted |
| |
|
|
|
Contractual Life |
|
Average |
| Range of exercise prices |
|
Shares |
|
(Years) |
|
Exercise Price |
| |
|
|
|
|
|
|
|
$ 0.01 - $ 5.22
|
|
|
|
|
186,300 |
|
|
|
6.76 |
|
|
$ |
3.99 |
|
|
$ 5.23 - $ 6.00
|
|
|
|
|
575,400 |
|
|
|
6.14 |
|
|
$ |
5.27 |
|
|
$ 6.01 - $ 6.75
|
|
|
|
|
303,675 |
|
|
|
6.18 |
|
|
$ |
6.34 |
|
|
$ 6.76 - $ 8.00
|
|
|
|
|
322,975 |
|
|
|
6.11 |
|
|
$ |
7.34 |
|
|
$ 8.01 - $10.00
|
|
|
|
|
812,425 |
|
|
|
8.86 |
|
|
$ |
8.85 |
|
|
$10.01 - $15.00
|
|
|
|
|
683,200 |
|
|
|
4.46 |
|
|
$ |
12.72 |
|
|
$15.01 - $23.00
|
|
|
|
|
217,500 |
|
|
|
4.38 |
|
|
$ |
16.16 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.01 - $23.00
|
|
|
|
|
3,101,475 |
|
|
|
6.40 |
|
|
$ |
8.86 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 31, 2005, the Company accelerated the vesting
of all unvested outstanding options to purchase common stock
previously issued to directors and employees, including
officers. This action was taken to mitigate compensation that
would have been required upon the effectiveness of
SFAS 123R beginning January 1, 2006. As a result of
these actions, the Company eliminated approximately
$1.3 million in pre-tax compensation expense in fiscal 2006
and $0.7 million thereafter related to these options. Stock
compensation expense in future periods will relate to options or
warrants to purchase common stock issued subsequent to
December 31, 2005.
In addition to the plans described above, the Company’s
Lasertel subsidiary has 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, to employees and other key individuals of Lasertel and
Presstek, of non-qualified options to purchase, in the
aggregate, up to 2,100,000 shares of Lasertel’s common
stock. Any future options granted under this plan will generally
vest over four years, with termination dates ten years from the
date of grant. These grants are subject to termination as
provided in the Lasertel Plan.
Stock option activity under the Lasertel Plan for fiscal 2003,
2004 and 2005 is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted Average |
| |
|
Shares |
|
Exercise Price |
| |
|
|
|
|
|
Outstanding at December 28, 2002
|
|
|
564,175 |
|
|
$ |
0.19 |
|
| |
Granted
|
|
|
46,550 |
|
|
$ |
0.15 |
|
| |
Exercised
|
|
|
(12,500 |
) |
|
$ |
0.15 |
|
| |
Canceled/expired
|
|
|
(54,788 |
) |
|
$ |
0.32 |
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2004
|
|
|
543,437 |
|
|
$ |
0.17 |
|
| |
Granted
|
|
|
12,750 |
|
|
$ |
0.15 |
|
| |
Exercised
|
|
|
— |
|
|
$ |
— |
|
| |
Canceled/expired
|
|
|
(312,487 |
) |
|
$ |
0.13 |
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2005
|
|
|
243,700 |
|
|
$ |
0.21 |
|
| |
Granted
|
|
|
15,000 |
|
|
$ |
0.15 |
|
| |
Exercised
|
|
|
(250 |
) |
|
$ |
0.15 |
|
| |
Canceled/expired
|
|
|
(8,376 |
) |
|
$ |
0.60 |
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
250,074 |
|
|
$ |
0.20 |
|
| |
|
|
|
|
|
|
|
|
81
|
|
| 17. |
BUSINESS SEGMENT AND GEOGRAPHIC
INFORMATION |
Presstek is a market-focused high technology company that
designs, manufactures and distributes proprietary and
non-proprietary solutions to the graphic arts industries,
primarily serving short-run, full-color customers. The
Company’s operations are currently organized into three
business segments: (i) Presstek; (ii) Precision; and
(iii) Lasertel. Segment operating results are based on the
current organizational structure reviewed by Presstek’s
management to evaluate the results of each business. A
description of the types of products and services provided by
each business segment follows.
|
|
| • |
Presstek is primarily engaged in the development,
manufacture, sale and servicing of our patented digital imaging
systems and patented printing plate technologies and related
equipment and supplies for the graphic arts and printing
industries, primarily serving the short-run, full-color market
segment. |
| |
| • |
Precision manufactures chemistry-free digital and
conventional printing plates for both web and sheet-fed printing
applications for sale to Presstek and external customers. |
| |
| • |
Lasertel manufactures and develops high-powered laser
diodes for sale to Presstek and external customers. |
82
Selected operating results information for each business segment
are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Presstek
|
|
$ |
255,344 |
|
|
$ |
118,576 |
|
|
$ |
85,497 |
|
| |
Precision
|
|
|
25,254 |
|
|
|
11,248 |
|
|
|
— |
|
| |
Lasertel
|
|
|
7,760 |
|
|
|
7,765 |
|
|
|
6,804 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total revenue, including inter-segment
|
|
|
288,358 |
|
|
|
137,589 |
|
|
|
92,301 |
|
| |
Inter-segment revenue
|
|
|
(14,218 |
) |
|
|
(7,738 |
) |
|
|
(5,069 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
274,140 |
|
|
$ |
129,851 |
|
|
$ |
87,232 |
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Presstek
|
|
$ |
255,344 |
|
|
$ |
118,576 |
|
|
$ |
85,497 |
|
| |
Precision
|
|
|
15,006 |
|
|
|
8,398 |
|
|
|
— |
|
| |
Lasertel
|
|
|
3,790 |
|
|
|
2,877 |
|
|
|
1,735 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
274,140 |
|
|
$ |
129,851 |
|
|
$ |
87,232 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Presstek
|
|
$ |
12,296 |
|
|
$ |
9,203 |
|
|
$ |
10,285 |
|
| |
Precision
|
|
|
844 |
|
|
|
(630 |
) |
|
|
— |
|
| |
Lasertel
|
|
|
(3,660 |
) |
|
|
(3,638 |
) |
|
|
(3,450 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
9,480 |
|
|
$ |
4,935 |
|
|
$ |
6,835 |
|
| |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Presstek
|
|
$ |
7,842 |
|
|
$ |
6,314 |
|
|
$ |
6,137 |
|
| |
Precision
|
|
|
754 |
|
|
|
299 |
|
|
|
— |
|
| |
Lasertel
|
|
|
2,353 |
|
|
|
2,493 |
|
|
|
2,730 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
10,949 |
|
|
$ |
9,106 |
|
|
$ |
8,867 |
|
| |
|
|
|
|
|
|
|
|
|
|
Capital expenditures and other additions to property, plant and
equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Presstek
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Capital expenditures
|
|
$ |
3,008 |
|
|
$ |
749 |
|
|
$ |
1,044 |
|
| |
|
Equipment obtained under capital lease
|
|
|
110 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total Presstek
|
|
|
3,118 |
|
|
|
749 |
|
|
|
1,044 |
|
| |
Precision
|
|
|
437 |
|
|
|
464 |
|
|
|
— |
|
| |
Lasertel
|
|
|
2,684 |
|
|
|
981 |
|
|
|
300 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
6,239 |
|
|
$ |
2,194 |
|
|
$ |
1,344 |
|
| |
|
|
|
|
|
|
|
|
|
Intersegment revenues and costs are eliminated from each segment
prior to review of segment results by the Company’s
management. Accordingly, the amounts of intersegment revenues
allocable to each individual segment have been excluded from the
table above.
83
Asset information for the Company’s business segments as of
December 31, 2005 and January 1, 2005 is as follows
(in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, 2005 | |
|
January 1, 2005 | |
| |
|
| |
|
| |
|
Presstek
|
|
$ |
150,491 |
|
|
$ |
138,503 |
|
|
Precision
|
|
|
19,186 |
|
|
|
18,555 |
|
|
Lasertel
|
|
|
11,810 |
|
|
|
14,260 |
|
| |
|
|
|
|
|
|
| |
|
$ |
181,487 |
|
|
$ |
171,318 |
|
| |
|
|
|
|
|
|
The Company’s classification of revenue by geographic area
is determined by the location of the Company’s customer.
The following table summarizes revenue information by geographic
area (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal | |
|
Fiscal | |
|
Fiscal | |
| |
|
2005 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
United States
|
|
$ |
170,499 |
|
|
$ |
91,230 |
|
|
$ |
41,910 |
|
|
United Kingdom
|
|
|
34,804 |
|
|
|
7,747 |
|
|
|
3,583 |
|
|
Canada
|
|
|
15,000 |
|
|
|
4,249 |
|
|
|
1,773 |
|
|
Germany
|
|
|
13,178 |
|
|
|
13,541 |
|
|
|
19,276 |
|
|
Japan
|
|
|
8,513 |
|
|
|
6,209 |
|
|
|
7,594 |
|
|
All other
|
|
|
32,146 |
|
|
|
6,875 |
|
|
|
13,096 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
274,140 |
|
|
$ |
129,851 |
|
|
$ |
87,232 |
|
| |
|
|
|
|
|
|
|
|
|
The Company’s long-lived assets by geographic area are as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, 2005 | |
|
January 1, 2005 | |
| |
|
| |
|
| |
|
United States
|
|
$ |
79,462 |
|
|
$ |
77,571 |
|
|
United Kingdom
|
|
|
682 |
|
|
|
278 |
|
|
Canada
|
|
|
382 |
|
|
|
56 |
|
| |
|
|
|
|
|
|
| |
|
$ |
80,526 |
|
|
$ |
77,905 |
|
| |
|
|
|
|
|
|
No customer accounted for greater than 10% of revenue in fiscal
2005, or greater than 10% of the Company’s accounts
receivable balance at December 31, 2005.
Revenue generated under the Company’s agreements with
Heidelberg and its distributors, Pitman Company, and Kodak and
its distributors totaled $12.5 million, $14.8 million
and $13.6 million, respectively in fiscal 2004, with
accounts receivable balances of $2.4 million,
$2.6 million and $3.1 million, respectively, at
January 1, 2005.
Revenue generated under the Company’s 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, in fiscal 2003, with accounts receivable balances
of $1.7 million, $1.9 million and $1.7 million,
respectively, at January 3, 2004.
The Company engages the services of Amster, Rothstein &
Ebenstein, a law firm of which a member of the Company’s
Board of Directors is a partner. Expenses incurred for services
from this law firm were $0.6 million, $0.2 million and
$0.1 million in fiscal 2005, fiscal 2004 and fiscal 2003,
respectively.
A former director of the Company, John Evans, provided
consulting services to the Company upon request and received
compensation for services rendered and related expenses.
Mr. Evans was a director of the Company from October 1997
through March 2004. The Company paid Mr. Evans $23,700 in
fiscal 2003. There were no consulting fees paid in fiscal 2005
or fiscal 2004.
84
During fiscal 2003, the Company paid R.H. Ventures, Inc.
(“RH Ventures”), $144,000 pursuant to an agreement
with Robert Howard, an executive of RH Ventures, who served as
the Company’s Chairman Emeritus from October 1998 to
December 2000, when he resigned from that position. This
agreement terminated at the end of fiscal 2003.
Pursuant to his retirement agreement, during fiscal 2004 and
fiscal 2003, the Company made payments totaling $100,006 and
$204,306, respectively, to Richard A. Williams, the
Company’s Chief Scientific Officer, who also served as
Chairman of the Board of Directors. There were no payments made
in fiscal 2005.
The Company has an accounts receivable from a former executive
and director totaling $202,000, resulting from advances made to
the individual 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 December 31, 2005, this receivable
remains fully reserved.
|
|
| 20. |
COMMITMENTS AND CONTINGENCIES |
Commitments
The Company conducts operations in certain facilities under
long-term operating leases. The Company also leases certain
office and other equipment for use in its operations. These
leases expire at various dates through 2010, with various
options to renew as negotiated between the Company and its
landlords. It is expected that in the normal course of business,
leases that expire will be renewed or replaced. Rent expense
under these leases was $4.2 million in fiscal 2005,
$0.9 million in fiscal 2004 and $0.3 million in fiscal
2003.
The Company’s obligations under its non-cancelable
operating leases at December 31, 2005 were as follows (in
thousands):
| |
|
|
|
|
|
Fiscal 2006
|
|
$ |
1,685 |
|
|
Fiscal 2007
|
|
$ |
1,073 |
|
|
Fiscal 2008
|
|
$ |
943 |
|
|
Fiscal 2009
|
|
$ |
841 |
|
|
Fiscal 2010
|
|
$ |
925 |
|
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 Company’s 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 April of 2006. If
this minimum payment amount is not received, the Company must
make a lump-sum payment (the “Lump-Sum”) amounting to
the difference between the amount paid and $6.0 million.
The Lump sum will serve as an advance of future royalty
payments. The remaining commitment under the agreement is
payable at specified rates based on units shipped. Once the Lump
Sum payment is made, there are no minimum obligations to make
payment to Fuji. As of December 31, 2005, the Company had
paid Fuji $5.4 million related to this agreement; the
minimum remaining liability at that date was $0.6 million.
The Company’s maximum remaining liability under the royalty
agreement at December 31, 2005, was $8.6 million.
Contingencies
The Company has change of control agreements with certain of its
employees that provide them with benefits should their
employment with the Company be terminated other than for cause
or their disability or death, or if they resign for good reason,
as defined in these agreements, within a certain period of time
from the date of any change of control of the Company.
From time to time the Company has engaged in sales of equipment
that is leased by or intended to be leased by a third party
purchaser to another party. In certain situations, the Company
may retain recourse obligations to a financing institution
involved in providing financing to the ultimate lessee in the
event the lessee of the equipment defaults on its lease
obligations. In certain such instances, the Company may
refurbish and remarket the equipment on behalf of the financing
company, should the ultimate lessee default on payment of the
lease. In certain
85
circumstances, should the resale price of such equipment fall
below certain predetermined levels, the Company would, under
these arrangements, reimburse the financing company for any such
shortfall in sale price (a “shortfall payment”).
Generally, the Company’s liability for these recourse
agreements is limited to 9.5% of the amount outstanding. The
maximum amount for which the Company was liable to the financial
institution for the shortfall payment was approximately
$0.5 million at December 31, 2005.
Litigation
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. 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.
However, the plaintiffs in the case have appealed the
court’s dismissal on November 4, 2004. On
January 27, 2005, the plaintiffs of this matter withdrew
their appeal and the matter was permanently closed in
Presstek’s favor.
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.
|
|
| 21. |
QUARTERLY RESULTS (Unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Third | |
|
Fourth | |
| |
|
First | |
|
Second | |
|
Quarter | |
|
Quarter | |
| |
|
Quarter | |
|
Quarter | |
|
(2) | |
|
(3)(4)(5)(6) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per-share data) | |
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenue
|
|
$ |
70,395 |
|
|
$ |
69,720 |
|
|
$ |
64,689 |
|
|
$ |
69,336 |
|
| |
Gross profit
|
|
$ |
20,142 |
|
|
$ |
21,284 |
|
|
$ |
19,630 |
|
|
$ |
20,940 |
|
| |
Net income
|
|
$ |
481 |
|
|
$ |
2,339 |
|
|
$ |
823 |
|
|
$ |
2,443 |
|
| |
Earnings per share — basic(1)
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
|
$ |
0.07 |
|
| |
Earnings per share — diluted(1)
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
|
$ |
0.07 |
|
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
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 (loss) per share — basic(1)
|
|
$ |
0.06 |
|
|
$ |
0.04 |
|
|
$ |
0.08 |
|
|
$ |
(0.06 |
) |
| |
Earnings (loss) per share — diluted(1)
|
|
$ |
0.05 |
|
|
$ |
0.04 |
|
|
$ |
0.08 |
|
|
$ |
(0.06 |
) |
|
|
| (1) |
Income (loss) per share is computed independently for each of
the quarters presented; accordingly, the sum of the quarterly
income (loss) per share may not equal the total computed for the
year. |
86
|
|
| (2) |
2004 amounts include results of operations of Precision for the
period subsequent to its acquisition. During this period,
revenues attributable to Precision were $3.1 million. |
| |
| (3) |
2004 amounts include results of operations of ABDick for the
period subsequent to its acquisition. During this period,
revenues attributable to ABDick were $24.3 million. |
| |
| (4) |
2004 amounts include results of operations of Precision for the
entire fourth quarter. During this period, revenues attributable
to Precision were $5.3 million. |
| |
| (5) |
2005 amounts reflect the effect of a change in accounting
estimate to increase the useful lives of certain property, plant
and equipment used by Lasertel from five to seven years. This
change reduced depreciation expense by $0.4 million,
increased net income by $0.3 million and increased both
basic and diluted earnings per share by $0.01. |
| |
| (6) |
In the fourth quarter of fiscal 2005, the Company finalized its
purchase accounting allocation related to the ABDick
acquisition. Adjustments to the acquired balance sheet and to
properly reflect integration cost accruals for this acquisition
include $0.1 million of increases to accounts receivable,
$1.5 million of reductions to inventories,
$0.1 million of reductions to other current assets,
$0.4 million of increases to accounts payable and
$1.2 million of reductions to accrued expenses, including
$0.9 million of reversals of integration cost accruals. In
accordance with SFAS 141, these adjustments were offset to
goodwill. |
87
|
|
| Item 9. |
Changes in and Disagreements with
Accountants on Accounting an 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
Presstek’s disclosure controls and procedures. Based on
this evaluation, Presstek’s Chief Executive Officer and the
Chief Financial Officer concluded that, as of the Evaluation
Date, Presstek’s disclosure controls and procedures were
effective to provide a 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 Commission’s rules and forms, including
ensuring that such material information is accumulated and
communicated to Presstek’s management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
(b) Management’s 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).
Presstek’s internal control system was designed to provide
reasonable assurance to Presstek’s management and the Board
of Directors regarding the preparation and fair presentation of
published financial statements.
Presstek’s management assessed the effectiveness of
Presstek’s internal control over financial reporting as of
December 31, 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 management’s
assessment, it believes that, as of December 31, 2005,
Presstek’s internal control over financial reporting is
effective based on those criteria.
Management’s assessment of the effectiveness of its
internal control over financial reporting as of
December 31, 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 Presstek’s internal
controls over financial reporting during the quarter ended
December 31, 2005 that have materially affected, or are
reasonably likely to affect, our internal control over financial
reporting.
88
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
Presstek, Inc.
Hudson, New Hampshire
We have audited management’s assessment, included in the
accompanying Management’s 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 December 31, 2005, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s 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 management’s assessment and an opinion on the
effectiveness of the Company’s 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
management’s 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 company’s 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 company’s
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
company’s 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.
In our opinion, management’s assessment that the Company
maintained effective internal control over financial reporting
as of December 31, 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 December 31, 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 December 31, 2005 and January 1,
2005 and the related consolidated statements of income, changes
in stockholders’ equity and comprehensive income and cash
flows for each of the three years ended December 31, 2005,
January 1, 2005 and January 3, 2004 respectively, and
our report dated March 16, 2006 expressed an unqualified
opinion on those financial statements.
|
|
| |
/s/ BDO Seidman, LLP
|
| |
|
| |
BDO Seidman, LLP |
Boston, Massachusetts
March 16, 2006
89
Item 9B. Other
Information
None.
PART III
|
|
| Item 10. |
Directors and Executive Officers of
the Registrant |
The policies comprising the Company’s code of ethics are
set forth in the Company’s Code of Business Conduct and
Ethics. These policies satisfy the SEC’s 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 Company’s 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 December 31, 2005 for the Annual Meeting
of Stockholders to be held on June 7, 2006 (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.
90
PART IV
|
|
| Item 15. |
Exhibits, Financial Statement
Schedule |
| |
|
|
|
|
|
(a)(1) and (2)
|
|
Financial Statements and Financial Statement Schedule |
|
|
| |
|
The consolidated financial statements of the Company are listed
in the index under Part II, Item 8, of this Annual
Report on Form 10-K. |
|
|
|
(3) Exhibits |
| |
|
The exhibits that are filed with this Annual Report on
Form 10-K, or that are incorporated herein by reference,
are set forth in the Exhibit Index hereto. |
|
|
91
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.
|
|
| |
PRESSTEK, INC. |
| |
| |
/s/ Edward J. Marino
|
| |
|
| |
Edward J. Marino |
| |
President and Chief Executive Officer |
Date: March 16, 2006
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Edward J. Marino
Edward J. Marino |
|
President, Chief Executive Officer and Director |
|
March 16, 2006 |
| |
/s/ Moosa E. Moosa
Moosa E. Moosa |
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer) |
|
March 16, 2006 |
| |
/s/ John W. Dreyer
John W. Dreyer |
|
Lead Director |
|
March 16, 2006 |
| |
/s/ Daniel S. Ebenstein
Daniel S. Ebenstein, Esq. |
|
Director |
|
March 16, 2006 |
| |
/s/ Dr. Lawrence Howard
Dr. Lawrence Howard |
|
Director |
|
March 16, 2006 |
| |
/s/ Michael D. Moffitt
Michael D. Moffitt |
|
Director |
|
March 16, 2006 |
| |
/s/ Brian Mullaney
Brian Mullaney |
|
Director |
|
March 16, 2006 |
| |
/s/ Steven N. Rappaport
Steven N. Rappaport |
|
Director |
|
March 16, 2006 |
| |
/s/ Donald C.
Waite, III
Donald C. Waite, III |
|
Director |
|
March 16, 2006 |
92
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
3 |
(a) |
|
Amended and Restated Certificate of Incorporation of Presstek,
Inc., as amended. (Previously filed as Exhibit 3 to
Presstek’s 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
Presstek’s 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 Presstek’s
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 Presstek’s
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 Presstek’s
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 Presstek’s 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
Presstek’s 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 Presstek’s
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
Presstek’s Form 8-K, dated January 1, 1991,
hereby incorporated by reference.) |
| |
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
Presstek’s 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 Presstek’s 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
Presstek’s 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
Presstek’s 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
Presstek’s 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 Presstek’s 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 Presstek’s Quarterly report on
Form 10-Q for the quarter ended September 27, 1997,
filed November 7, 1997, hereby incorporated by reference.) |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
10 |
(k)** |
|
1998 Stock Incentive Plan. (Previously filed as Exhibit A
to Presstek’s 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
Presstek’s 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 Presstek’s
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 Presstek’s
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 Presstek’s
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
Presstek’s 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 Presstek’s Quarterly Report on
Form 10-Q for the quarter ended September 29, 2001,
filed November 13, 2001, hereby incorporated by reference.) |
| |
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 Presstek’s 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
Presstek’s 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
Presstek’s 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 Presstek’s Registration
Statement on Form S-8 filed with the Commission on
August 9, 2002, hereby incorporated by reference.) |
| |
10 |
(v)** |
|
Description of Presstek’s Non-Employee Director
Compensation Arrangements approved by Presstek’s Board of
Directors on July 17, 2002 and amended by Presstek’s
Board of Directors on December 17, 2002. (Previously filed
as Exhibit 10(hh) to Presstek’s 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 Presstek’s 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 Presstek’s 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
Presstek’s 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 Presstek’s
Quarterly Report on Form 10-Q for the quarter ended
June 28, 2003, filed August 12, 2003, hereby
incorporated by reference.) |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
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 Presstek’s
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 Presstek’s 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 Presstek’s 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 Presstek’s Quarterly Report on
Form 10-Q for the quarter ended September 27, 2003,
filed November 12, 2003, hereby incorporated by reference.) |
| |
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 Presstek’s 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 Presstek’s 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 Presstek’s 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 Presstek’s 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 Presstek’s 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 Presstek’s 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 Presstek’s 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 Presstek’s 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 Presstek’s
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 Presstek’s 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 Moosa E.
Moosa dated December 31, 2003 (Previously filed as
Exhibit 10(pp) to Presstek’s Form 10-K for the
fiscal year ended January 3, 2004, filed March 18,
2004, hereby incorporated by reference.) |
| |
10 |
(pp) |
|
Amendment to Employment Agreement by and between Presstek, Inc.
and Moosa E. Moosa dated January 10, 2004 (Previously filed
as Exhibit 10(qq) to Presstek’s Form 10-K for the
fiscal year ended January 3, 2004, filed March 18,
2004, hereby incorporated by reference.) |
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
10 |
(qq) |
|
Debtor-in-Possession Revolving Credit Agreement by and among
A.B. Dick Company, Paragon Corporate Holdings, Inc., KeyBank
National Association and Presstek, Inc. dated July 13, 2004
(Previously filed as Exhibit 10.1 to Presstek’s
Form 8-K filed on July 13, 2004, hereby incorporated
by reference) |
| |
10 |
(rr) |
|
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 Presstek’s
Form 8-K filed on November 12, 2004, hereby
incorporated by reference) |
| |
10 |
(ss)** |
|
Employment Agreement by and between Presstek, Inc. and Susan A.
McLaughlin dated January 24, 2005 (Previously filed as
Exhibit 99.1 to Presstek’s Form 8-K, filed
January 28, 2005, hereby incorporated by reference.) |
| |
10 |
(tt)** |
|
Employment Agreement by and between Presstek, Inc. and Edward J.
Marino dated February 2, 2005 (Previously filed as
Exhibit 99.1 to Presstek’s Form 8-K , filed
February 8, 2005, hereby incorporated by reference.) |
| |
10 |
(uu)** |
|
Employment Agreement by and between Presstek, Inc. and Moosa E.
Moosa dated February 2, 2005 (Previously filed as
Exhibit 99.2 to Presstek’s Form 8-K , filed
February 8, 2005, hereby incorporated by reference.) |
| |
10 |
(vv)** |
|
Employment Agreement by and between Presstek, Inc. and Michael
McCarthy dated February 2, 2005 (Previously filed as
Exhibit 10.4 to Presstek’s Form 10-Q, filed
May 12, 2005, hereby incorporated by reference.) |
| |
10 |
(ww)** |
|
Employment Agreement by and between Presstek, Inc. and Peter E.
Bouchard dated July 1, 2005 (Previously filed as
Exhibit 99.1 to Presstek’s Form 8-K, filed
July 8, 2005, hereby incorporated by reference.) |
| |
21.1 |
|
|
Subsidiaries of the Registrant (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 Presstek’s request of confidential
treatment with respect to a portion of this exhibit. |
|
|
| ** |
Denotes management employment contracts or compensatory plans. |