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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 29, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
COMMISSION FILE NO. 0-17541
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PRESSTEK, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0415170
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
55 EXECUTIVE DRIVE, HUDSON, NEW HAMPSHIRE 03051-4903
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(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, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of March 15, 2002, was approximately
$188,000,000.
As of March 15, 2002, there were 34,124,231 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference:
Parts 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 14, 2002 are incorporated by
reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
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GENERAL
Presstek, Inc. (the "Company", "Presstek", "we" or "us") is a manufacturer,
developer and marketer of digital laser imaging and chemistry-free plate
technologies for the printing and graphic arts industries. Presstek's products
and applications incorporate its patented Direct Imaging (DI(R)) technologies
and consumables for computer-to-plate ("CTP") and direct-to-press applications.
The Company's patented DI thermal laser diode product family enables its
customers to produce high quality, full-color lithographic printed materials
more quickly and cost effectively than conventional methods. Using digital
information and high-powered semiconductor laser diodes to create images in its
proprietary printing plate materials, Presstek's patented DI technologies are
marketed to leading press manufacturers and used in the Company's Dimension
series of CTP systems. Presstek's Dimension CTP systems incorporate its
proprietary ProFire(TM) laser imaging technology and use its chemistry free
printing plate, Anthem(TM). Presstek's DI technology eliminates photographic
darkrooms, film, and chemical processing, which results in reduced turnaround
time and lowers the cost of production for commercial printers.
Presstek's abbreviated CTP workflow and automated DI printing technology not
only complement digital publishing technology, they also help printers meet the
short-run color demands of the marketplace. By significantly increasing the
efficiency with which jobs are prepared for print, Presstek technology makes
shorter printing runs feasible at lower costs. The Company's technology utilizes
the offset lithographic method of applying ink to paper that is universally
accepted by printers and consumers, and produces the versatile, high-quality
characteristics they require.
BUSINESS OVERVIEW
Beginning in the late 1980's, the Company developed a direct imaging system that
allows digitally formatted file data to be used to image a plate directly on the
printing press. Presstek's technology and products use thermal energy generated
by lasers to reproduce digital files directly onto printing plates, without the
daylight sensitive, photomechanical and chemical processes associated with other
imaging methods. The Company's development work ultimately led to the
commercialization of its patented DI imaging technology. This direct imaging
technology is currently being used in a variety of both on-press and off-press
applications. This capability provides a number of new applications for direct
imaging systems and proprietary thermal-based digital media and consumable
printing plates.
In April 2000 the Company incorporated an Arizona subsidiary, Lasertel, Inc.
("Lasertel") for the purpose of securing its supply of laser diodes. Lasertel is
located in Tucson, Arizona, and is primarily engaged in the manufacture and
development of the Company's high-powered laser diodes. In June 2001, the
Company announced a repositioning of its Lasertel subsidiary in order to reduce
its costs and to focus its efforts on supplying high quality diodes to the
Company. As a result, Lasertel has narrowed its plans to market its laser
products to the telecommunications industry but has continued to develop laser
prototypes for qualification in the defense, medical, and graphics industries.
There can be no assurance, however that any of these prototypes, if and when
marketed, will be commercially successful or produce significant revenues for
the Company or Lasertel.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
Information about the Company's business segments and geographic information are
included in Note 12 of notes to the financial statements.
2
The Company, incorporated in Delaware in 1987, has its principal offices at 55
Executive Drive, Hudson, New Hampshire, 03051. The Company's general telephone
number is 603-595-7000, and its web site can be found at www.presstek.com.
THE COMPANY'S DI DIGITAL IMAGING SYSTEMS
Presstek's DI products use thermal energy generated by lasers to image thermal
printing plates. This thermal imaging process utilizes the heat from lasers to
remove the top surface of the plate to create an ink receptive image, or to
reveal a water receptive surface in the case of a positive writing plate.
Because it is daylight-safe, thermal imaging eliminates the need for safelights
and darkrooms, which are required in systems that employ visible light lasers
and photosensitive plates. Because DI relies on a physical reaction of the laser
and plate materials, rather than a chemical reaction, Presstek's thermal
technology also eliminates post-imaging chemical processing. Freedom from the
constraints of other imaging methods allows the Company to apply its technology
within the limited confines of a printing press, and accommodates the highly
automated features of today's DI presses. It is the interaction of the essential
components of lasers, plate materials, and press design, working in concert,
which results in the improved efficiencies and performance of Presstek's
proprietary products.
The Company's DI digital imaging system is composed of a series of solid state
semiconductor laser diodes held in a fixed array that can range in size,
depending on the application, from as few as 8 diodes to as many as 32 or more
diodes. Each diode is under computer control and can be turned off and on at
high speeds, usually measured in microseconds. When the diode is turned on, it
creates a miniature, precise, beam of high-power, infrared laser light. The beam
is focused on a specific area on the surface of the thermal printing plate
causing this area of the plate to instantaneously heat up, creating an image by
ablation. This ablation effect creates an ink-receptive surface, or a water
receptive surface in the case of positive writing plates. This laser-based
imaging concept is used on both the Company's direct-to-press and CTP systems.
While many companies have experience using lasers in computer-to-plate, or CTP
applications, Presstek's multiple laser diode arrays have been working more
reliably and at lower operating costs in the harsh environments of on-press
imaging. Since 1993, Presstek has shipped over 135,000 laser diodes and
experienced a failure rate of less than 1%.
The Company's next-generation DI technology, the ProFire integrated imaging
system, introduced in May 2000, integrates the lasers, laser drivers, digital
electronics, and motion control into one modular package design that can be
adapted to many CTP devices or direct imaging presses. The ProFire system has
three major components: the FirePower(TM) 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(TM) digital
controller and data server. This modular system allows the Company to expand the
number of diodes mounted on a fixed array, increasing image size, speed and
overall imaging performance. FirePower lasers are incorporated in Presstek's
ProFire imaging modules, which combine lasers, electronics and motion control in
a compact package for efficient manufacturing and ease of incorporation into DI
press designs and CTP systems. The compact ProFire unit fits within the side
rails of most printing presses, and is more easily incorporated into CTP
products for off-press imaging. The Company's current generation of
semiconductor lasers has quadrupled the output of preceding lasers for faster
imaging times and improved accuracy. Presstek's Lasertel subsidiary assures the
Company of a steady supply of lasers and the scientific expertise to advance its
technology.
The Company continues to develop and commercialize its DI digital imaging
systems for on-press applications. There can be no assurance, however, that the
Company will be able to successfully commercialize additional products that
incorporate this technology.
3
THE DIMENSION CTP PRODUCT LINE
The Dimension platesetter is a CTP imaging device that can image both the
Company's wet and dry thermal plates in an A3 (2-page), A2 (4-page) or A1
(8-page) format size. The Dimension utilizes Presstek's ProFire direct imaging
technology, and can produce completely imaged printing plates, ready to be
mounted on a printing press, within 3 to 5 minutes depending on the plate size.
Presstek's thermal ablative plates employ chemical-free processing. Presstek's
Anthem plates for CTP require only a rinse with water after imaging and they are
ready to print. This simplified workflow results not only in higher levels of
automation and repeatability, but in lower cost per finished plate and smaller
overall work space requirements for platemaking operation. For the broad base of
installed conventional printing presses, the Dimension series of CTP systems is
designed to allow printers to realize many of the benefits of DI before
investing in a new digital press.
The Company continues to develop and commercialize its CTP systems. There can be
no assurance, however, that the Company will be able to successfully
commercialize these or other products, or enter into any additional arrangements
which will result in the broader distribution of its Dimension product line.
THE COMPANY'S DI AND CTP PRINTING PLATES
The Company's DI and CTP printing plates are available in waterless form, such
as PEARLdry(R) Plus for the Quickmaster DI, the Ryobi 3404DI, the Karat 46 DI,
and the DocuColor 233 and 400 DI, or Anthem, the Company's wet offset thermal
plate for CTP imaging. All of these plates are based on the Company's
proprietary thermal ablation imaging technology, where the plates respond to
heat and not to light. Presstek's plates are imaged by the ablation of a special
metalized layer that is heated by the laser light source. The Company's plate
materials have a wide infrared spectral sensitivity range (800 to 1200
nanometers) and can be used with a variety of semiconductor diode laser imaging
systems with sufficient power to ablate the surface layers. These plates also
utilize unique chemically free processing methods.
The current PEARLdry Plus plate is a second-generation product based on the
Company's PEARLdry technology. The plate uses a specially formulated silicone
material that is coated over the metalized infrared absorbing layer.
Environmentally friendly, thin-film deposition processes produce the ultra-thin
film coatings that facilitate ablative imaging without excessive residue and are
the foundation of the Company's PEARLdry Plus plates for waterless printing. The
silicone layer is oleophobic and when the imaging laser causes the ablation
process to occur, the resulting hole created by the laser in the metal layer
becomes ink receptive. Presstek's PEARLdry Plus spooled plates are used in a
number of highly automated DI presses. The Dimension CTP platesetter and other
direct-to-plate systems also are able to image the Company's PEARLdry Plus
plate.
The Company's Anthem plate is the first in what the Company believes will be a
family of plates for wet offset lithography. Anthem plates for CTP feature
Presstek's patented polymer-ceramic technology and combine ablative imaging and
chemically free cleaning with run lengths of up to 100,000 impressions. The
Anthem plate runs with a wide range of fountain chemistry and inks and can be
imaged on many thermal CTP systems. The product durability is built in as part
of the manufacturing process, providing consistent performance and wide
latitude. Anthem's market includes a broad base of installed conventional wet
offset presses, currently the largest segment of the printing industry. The
Company believes this wet offset plate product has broad market potential due to
the compatibility with a wide variety of print conditions that Anthem enjoys.
There can be no assurance however, that printers currently equipped with
conventional wet offset presses will purchase CTP systems that use Anthem
plates.
In early 2002 the Company announced a new process-free plate product development
program, Applause. This plate is expected to be available for both on-press and
off-press applications, with run lengths up to 100,000 impressions. The Company
is expected to demonstrate a prototype of this plate at the IPEX 2002 trade show
in the United Kingdom. As this product is currently in development, there can be
no assurance that Presstek will successfully complete development or
commercialize this product.
The Company continues to develop thermal consumable plate products that can be
imaged by both its own DI systems as well as high-energy laser-based CTP and
direct-to-press systems offered by companies such as Creo Inc. and others. There
can be no assurance however, that the Company will be able to successfully
commercialize products that incorporate this technology.
4
THE COMPANY'S SEMICONDUCTOR LASER DIODE PRODUCTS
The Company's high-powered semiconductor laser diode products are designed to
achieve greater imaging speed and resolution, without adding to the size and
cost of the diode array. The graphic arts industry requires lasers with a high
degree of power, uniformity, and reliability at a low unit cost. Presstek
believes its FirePower semi-conductor laser diode not only changes the standards
in the graphic arts markets, but is a new innovation to the semiconductor laser
industry as well. Each FirePower diode quadruples laser power by sending the
output of four optical fibers through a single lens assembly. Writing speed and
accuracy are increased without additional space and costs. These four-channel
lasers also incorporate a number of packaging innovations that reduce the size
of the device and facilitate incorporation into the ProFire imaging module.
Lasertel is also developing laser prototypes for qualification in the defense
and medical industries. There can be no assurance, however, that any of these
prototypes, if and when marketed, will be commercially successful or produce
significant revenues for the Company or Lasertel.
MANUFACTURING
The Company operates manufacturing sites in Hudson, New Hampshire and Tucson,
Arizona.
Presstek's DI and CTP systems are manufactured at the Company's facility located
at 55 Executive Drive in Hudson, New Hampshire. The Company uses a number of
outside vendors who supply many of the products' components and assemblies,
which are assembled by the Company into completed systems - either
computer-to-press, direct imaging systems used in the Quickmaster DI, the Ryobi
3404DI, DocuColor 233 DI and 400 DI, or CTP imaging systems, such as the
Dimension. These systems use semiconductor laser diode devices built to the
Company's specifications and currently supplied by the Company's Lasertel
subsidiary in Tucson, Arizona. The Company believes there are other sources
available to manufacture the laser diodes to specification, if required in the
future.
The Company's PEARLdry Plus plate products are also manufactured at its Hudson
facility, using equipment which includes the Company's thin film vacuum
deposition coater, plate converting and finishing equipment, and an atmospheric
coater. The Company's Anthem thermal plate is currently manufactured by one
source under an existing supply agreement. The Company may enter into
manufacturing agreements with third parties as it more vertically integrates the
manufacturing of its digital plate products, and believes there currently are
other sources available to manufacture these consumable products.
The Company's Lasertel subsidiary 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 a state-of-the-art molecular beam epitaxy
reactor which grows the crystal wafers, and extends through the final polishing
techniques for the optical fiber.
Some of the Company's products are manufactured under agreements with two press
manufacturers, located in the Czech Republic and Japan. The Company believes
there are other sources available to manufacture these products; however, if the
supply of these presses were to be delayed, or import restrictions from these
countries be imposed, the Company's ability to ship products in a timely manner
could be adversely affected. The Company's manufacturer in the Czech Republic
joined in a bankruptcy petition filed by its creditors in February 2002, which
could adversely affect the Company.
MARKETING, DISTRIBUTION AND CUSTOMER SUPPORT
The Company's sales strategy is designed to distribute Presstek DI and CTP
products and the related consumables to customers through "direct" distribution
via independent distributors, or by way of "indirect" distribution using
strategic partnerships with original equipment manufacturers ("OEM's").
To meet its direct distribution strategy, the Company has established a
worldwide distribution network through which it markets and sells its CTP
equipment and PEARL and Anthem thermal plate products. The network currently
includes approximately 32 independent graphic arts dealers in 18 countries,
including three national distributors, the Pitman Company, Enovation
Corporation, and xpedx Graphic Systems, and several regional
5
dealers in the United States. The Company also markets and sells its DI
consumable products through its Presstek.com web site. The Company has also
entered into OEM arrangements or reseller relationships with respect to the
Ryobi 3404DI, the DocuColor 233 DI and 400 DI, and related consumables with
companies such as Xerox and Ryobi. These agreements permit these OEM resellers
to sell PEARL and DI-based equipment and consumable product under their own
label.
By using this approach to distribution, the Company has attempted to maximize
the number of systems using Presstek technology, which require Presstek
consumables. Additionally, the Company has developed a fully staffed, global
service team dedicated to servicing the products delivered through the
distribution systems.
Market acceptance for any products incorporating the Company's various
technologies and proprietary know-how will require substantial marketing efforts
and the expenditure of significant sums, either by the Company, and/or its
strategic and OEM partners. There can be no assurance that any existing or new
products will achieve market acceptance or become commercially viable.
STRATEGY, BACKGROUND AND STRATEGIC RELATIONSHIPS
The Company's business strategy is based in part on strategic alliances and
relationships with companies in the printing and graphic arts industry. This
strategy includes licensing intellectual property; specialized product
development based on the Company's proprietary technologies; the manufacture of
imaging systems for inclusion in other manufacturers' products; and the
manufacture and marketing of the Company's own proprietary thermal plate
materials for use in Presstek's and other manufacturers' imaging hardware and
printing presses.
HEIDELBERGER DRUCKMASCHINEN AG
This strategy led to the development of an important and long-term relationship
with Heidelberger Druckmaschinen AG ("Heidelberg"), one of the world's largest
manufacturers of printing presses and printing equipment, based in Germany. This
relationship was formalized with the signing of a Master Agreement and a
Technology License Agreement (the "Heidelberg Agreements") in January 1991,
which covered the integration of the DI technology into various presses
manufactured by Heidelberg. The manufacture of components, at specified rates,
for these presses and the commercialization of such presses are also covered by
the agreements.
Under the Heidelberg Agreements, Heidelberg is required to pay royalties to the
Company based on the net sales prices of various specified types of Heidelberg
presses on which the Company's DI technology is used. Heidelberg has been
provided with certain rights for use of the DI technology for the Quickmaster DI
format size. The Heidelberg Agreements expire in December 2011 subject to
certain early termination and extension provisions.
In July 2001, the Company settled its outstanding arbitration proceedings with
Heidelberg. Under the terms of the settlement, the Company and Heidelberg agreed
that the licensing arrangements for the Heidelberg Quickmaster 46DI shall be
non-exclusive. Also under the terms of the settlement, the Company agreed to
reduce the royalty payable by Heidelberg for imaging kits delivered with the
Heidelberg Quickmaster 46DI by approximately $9,000 per kit. This reduced
royalty rate will become effective for imaging kits delivered after May 1, 2002.
In addition, in consideration for the resolution of certain issues that formed
part of the arbitration proceedings, Heidelberg made a one-time payment of
$750,000 to the Company in the fourth quarter of 2001.
Additionally, pursuant to the terms of the settlement, the Company and
Heidelberg agreed to license on a non-exclusive basis certain know-how and
patent rights. The Company also licensed to Heidelberg the right to use the DI
trademark in connection with its press and imaging products. The settlement did
not resolve patent infringement claims between the parties with respect to the
Heidelberg Speedmaster 74-DI press but established a mechanism to do so upon
resolution of the Company's outstanding patent litigation with Creo Inc.. For a
description of the action with Creo Inc., see Item 3, Legal Proceedings.
6
Sales to Heidelberg represented approximately 42%, 57%, and 39% of revenues for
fiscal 2001, 2000 and 1999, respectively. The loss of Heidelberg as a customer
would have a material adverse effect on the Company's business and results of
operations.
OTHER STRATEGIC RELATIONSHIPS: RYOBI, XEROX, KOENIG & BAUER, KODAK-POLYCHROME
GRAPHICS, SAKURAI, AND ADAST
In addition to its association with Heidelberg, the Company has also developed
and expanded business relationships with other companies in the industry.
Certain of these relationships involve new products that became available late
in fiscal 2000 and in fiscal 2001.
In fiscal 2000, Presstek and Ryobi Limited ("Ryobi") of Japan completed the
development of an A3 format size four-color sheet-fed press, which was
introduced in May 2000, and is marketed by Ryobi as the 3404DI. Incorporating
Presstek's dual plate cylinder concept, this press also features the Company's
internal automated plate cylinder design, ProFire technology, and PEARLdry
spooled plates. The small format of this press is designed to appeal to quick
printers, in-plant printers, and copy centers looking to expand their services
with offset color printing. As of December 31, 2001, there were approximately 70
of these presses installed worldwide.
In September 2000, the Company entered into a supply and distribution agreement
with Xerox Corporation ("Xerox") to supply a series of three Presstek enabled DI
presses and related consumables. Under this agreement, as amended in May 2001
through February 2002, Xerox will market, distribute and service these presses
and consumables in certain geographic markets on a co-branded basis.
The products included in the Xerox Agreement are four and five color versions of
a B3 format sheet-fed press. These presses, which were introduced in May 2000,
incorporate the Company's internal automated plate cylinder design, ProFire
technology, and PEARLdry spooled plates, and serve the needs of a large number
of commercial printing applications. The five-color press is designed to give
printers the flexibility to produce custom versions, custom colors, and special
finishes within a single print run. Xerox markets these presses as the DocuColor
400 DI. Also included in the Xerox Agreement is an A3 format size four-color
sheet-fed press which is marketed by Xerox as the DocuColor 233 DI.
According to the modified terms of the Xerox Agreement, Xerox has non-exclusive
worldwide marketing and sales rights to the DocuColor 400 DI presses and
semi-exclusive sales and distribution rights in the United States and Canada to
the DocuColor 233 DI. The Agreement also covers the distribution of PEARLdry
spooled printing plates. The Company's relationship with Xerox is in its early
stages. There was a delay in the delivery of presses to Xerox versus what had
been planned under the original terms of the Xerox Agreement. Initial press
shipments, customer support training programs and other activities are
progressing, but at this time, the Company has no material volume of press
shipments to Xerox planned for fiscal 2002. Sales to Xerox represented
approximately 14% of revenues for fiscal 2001. As part of the agreement with
Xerox, the Company obtained UL certification from Underwriters Laboratories for
the DocuColor 400DI in November 2001 and for the DocuColor 233DI in March 2002.
In December 2001, the Company signed an agreement with Koenig & Bauer, AG
("KBA"), an international supplier of printing presses, of Wurzburg, Germany.
Under the terms of the agreement, KBA will market and sell the 46 Karat press,
an A3 format size four-color sheet-fed DI press, in certain geographic markets.
Similar to the Heidelberg, Ryobi, and Xerox presses that use PEARLdry spooled
plates, the 46 Karat delivers fully automated plate advancing, imaging, ink
presetting, and printing. In addition, KBA is expected to distribute and sell
the Dimension400 computer-to-plate system, and the Company's Anthem plate in
Europe. KBA also manufactures and markets a digital offset press, the 74 Karat,
which uses Presstek's direct imaging and PEARLdry plates, and related
intellectual property under license. Regulations regarding chemical waste and
disposal, the new European economy, the suitability of DI for printing variable
quantities in different languages, and increasing investment in the Eastern
European countries are all anticipated to have a positive effect on the sales of
DI presses in Europe. PEARLdry Plus plates for the 46 Karat will be marketed
directly by KBA and through Presstek's European distributor network.
In December 2001, the Company entered into an agreement with Kodak-Polychrome
Graphics ("KPG") of Japan, granting KPG certain exclusive rights to sell
products using Presstek's chemical-free thermal plate
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technology in Japan, through its own dealer network and under its own brand
name. The program is expected to begin in the first half of 2002.
In 2000, the Company entered into an agreement with Sakurai Graphic Systems
("Sakurai") of Japan to provide its ProFire DI technology for Sakurai's larger
format multicolor offset press. When used in DI mode, this press will also use
the Company's no process plate media. Press manufacturer Sakurai completed
development of its Sakurai Oliver 574EPII DI press and began beta testing in
2001. This multi-color press provides conventional wet offset printing, plus an
option to run in DI mode, so printers can choose the optimal imaging method for
each job. Presstek is currently developing Applause, a new wet offset plate that
requires no processing, for use on the Oliver 574EPII DI and other hybrid DI
presses. The Company expects that this product will encourage the development of
future hybrid presses. The Sakurai press is currently in beta testing, however
there can be no assurance that the Company will successfully commercialize this
product.
In April 2001, the Company entered into a new agreement with Adamovske Strojirny
a.s. ("Adast") pursuant to which Adast agreed to manufacture both the four color
and five color B3 size sheet-fed presses for sale by Presstek. In late February
2002, Adast announced it had joined in a bankruptcy petition filed by its
creditors. A bankruptcy trustee was appointed in early March 2002. Adast has
indicated that it is continuing to operate under bankruptcy protection and that
it is in negotiations with various parties to obtain interim financing. While
the Company has an adequate supply of Adast presses and spare parts to meet the
projected needs of its customers in the near term, there can be no assurance
that Adast's bankruptcy will not have an adverse impact on the Company.
The Company is pursuing other business relationships that it believes may result
in broader use of the Company's digital imaging and printing plate technologies,
in existing as well as new applications. There can be no assurance, however,
that the Company, any Company product or any products incorporating the
Company's technology will be able to compete successfully in these markets.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
As of March 15, 2002, the Company and its subsidiaries have in force 105 U.S.
patents, (including 3 design patents), 102 foreign patents, and had received
notices of allowance for 12 additional patents consisting of 2 U.S. and 10
foreign. These patents, which expire from 2008 through 2022, are all believed to
be material to Presstek's business. The Company has applied for and is pursuing
its applications for 21 additional U.S. patents and 121 foreign patents. The
Company also holds four registered trademarks, DI, Dimension, PEARLdry, and
PEARL. The Company anticipates that it 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 which the Company's patents, trademarks or copyrights may afford the
Company.
There is rapid technological development in the electronic image reproduction
industries, resulting in extensive patent filings and a rapid rate of issuance
of new patents. Although the Company believes that its technology has been
independently developed, and that the products it markets and proposes to market
will not infringe on the patents, or violate other proprietary rights of others,
it is possible that such infringement of existing or future patents, or
violation of proprietary rights may occur. In such event the Company may be
required to modify its design or obtain a license. No assurance can be given
that the Company will be able to do so in a timely manner, upon acceptable terms
and conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect on the Company. Furthermore, there can be no assurance
that the Company will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, the Company may be unable, for financial or other reasons, to
enforce its rights under any of its patents. The Company has agreements with
several of its strategic partners which require the Company 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.
The Company intends to rely on proprietary know-how and to employ various
methods to protect its source code, concepts, trade secrets, ideas and
documentation of its proprietary software and laser diode technology. However,
such methods may not afford complete protection and there can be no assurance
that others will not independently develop such know-how or obtain access to the
Company's know-how or software codes, concepts, trade secrets, ideas, and
documentation.
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Although the Company has and expects to have confidentiality agreements with its
employees and appropriate vendors, there can be no assurance that such
arrangements will adequately protect the Company's trade secrets and proprietary
know how.
COMPETITION
The Company believes that its imaging, thermal plate and other intellectual
property, its proprietary technologies, its thermal plate manufacturing
facilities, along with its strategic alliances and worldwide distribution
network provide it with a competitive advantage. However, the Company is also
aware of a number of other companies that address markets in which Presstek
products are used and are competitive to the Company's proprietary 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, Heidelberg, and Xerox. IBM
and Agfa Gevaert N. V. are also marketing product versions manufactured by these
companies. These electrophotographic imaging systems use either wet or dry
toners to create one to four color images on paper and typically offer
resolutions of between 400 and 1200 dots per inch.
The Company is aware that most of the major entities in the graphic arts
industry have developed and/or are developing and marketing, off-press CTP
imaging systems. To date, these devices, for the most part, utilize printing
plates that require a post imaging photochemical developing step and/or other
post processing steps such as heat treatment. Potential competitors in this area
include, among others, Agfa-Gevaert N.V., Creo Inc., DaiNippon Screen Mfg.,
Ltd., Heidelberg, combinations of these companies, and other smaller or
lesser-known companies. The Company's Dimension CTP, off-press plate imaging
system is, in the Company's opinion, a further technological advancement because
it eliminates the need for post chemical processing. The Company believes
however, that some of the graphic arts companies mentioned above are working on
or have developed other plate concepts that would eliminate the need for post
image chemical processing.
The Company also anticipates competition from printing plate companies that
manufacture, or have the potential to manufacture digital thermal plates. Such
companies include, among others, Agfa-Gevaert N.V., KPG, and Fuji Photo Film
Co., Ltd.
Products incorporating the Company's technologies can also be expected to face
competition from products using conventional methods of creating and printing
printing plates. While these methods are considered by the Company to be more
costly, less efficient and are not as environmentally conscious as those being
implemented by the Company, 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.
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 the Company or Lasertel, and have established
records in the development, sale and service of products. Lasertel's products
also can 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. There can be no assurance that the Company or Lasertel,
any of their products or any products incorporating the Company's technology
will be able to compete successfully in the future.
RESEARCH AND DEVELOPMENT
Research and product development expenses, related to the Company's continued
development of products incorporating its DI technologies, including its
semiconductor laser diodes, were $11.7 million, $15.9 million and $17.2 million
in fiscal 2001, 2000 and 1999 respectively.
9
BACKLOG
As of March 15, 2002, the Company had a backlog of products and royalties under
contract aggregating approximately $22.4 million compared to a backlog of
approximately $25.8 million as of March 19, 2001. Substantially all backlog of
products as of March 15, 2002 is expected to ship in 2002.
EMPLOYEES
As of March 15, 2002, the Company and its Lasertel subsidiary had 313 employees.
Of these 313 employees, 87 are engaged primarily in engineering, research and
development, 43 are engaged in sales, marketing and customer support; 142 are
engaged primarily in manufacturing, manufacturing engineering and quality
control; and 41 are engaged primarily in corporate management, administration
and finance. None of the Company's employees is represented by a labor union.
The Company considers its relationship with its employees to be good.
GLOSSARY
Set forth below is a glossary of certain terms used in this report:
A1 (8-page) a printing term referring to a standard
paper size capable of printing eight 8.5" x
11" pages on a sheet of paper
A2 (4-page) a printing term referring to a standard
paper size capable of printing four 8.5" x
11" pages on a sheet of paper
A3/B3 (2-page) a printing term referring to a standard
paper size capable of printing two 8.5" x
11" pages on a sheet of paper
Ablation a controlled detachment/vaporization caused
by a thermal event. This process is used
during the imaging of the Company's
PEARL(R) and Anthem(TM) consumables
Anthem(TM) the Company's line of wet offset digital
plates with a unique polymer-ceramic
construction
Computer-to-plate (CTP) a general term referring to the exposure of
(direct-to-plate) lithographic plate material from a digital
database, off-press
Direct Imaging (DI(R)) 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
Dots per inch (dpi) a measurement of the resolving power or the
addressability of an imaging device
Heidelberg Heidelberger Druckmaschinen AG, one of the
world's largest printing press
manufacturers, headquartered in Heidelberg,
Germany
Hydrophobic/Hydrophilic used in lithographic printing to describe
whether a material will reject water
(hydrophobic) or will be water receptive
(hydrophilic)
Infrared light lying outside of the visible spectrum
beyond its red-end, characterized by longer
wavelengths; used in the Company's thermal
imaging process
10
Large format a printing term referring to printing
layouts that include four or more pages on
a single sheet of paper
Lithography printing from a single plane surface under
the principle that the image area carries
ink and the non-image area does not, and
that ink and water do not mix
Off-press making a printing plate from either an
analog or digital source independent of the
press on which it will be used
Oleophilic/Oleophobic used in printing to describe whether a
material will be ink receptive (oleophilic)
or reject ink (oleophobic)
On-demand a manufacturing philosophy which when
applied to printing provides faster
service, shorter run lengths and less
inventory
On-press the use of Presstek's direct imaging
technologies to make a plate directly from
a digital file on the press
PEARL(R) the name associated with Presstek's first
generation laser imaging technologies and
related products and consumables
ProFire(TM) imaging systems the Presstek components require to convert
a conventional printing press into a direct
imaging press, including laser diode
arrays, computers, electronics
Dimension(R) the Company's product line of CTP,
off-press platemaking equipment
Platemaking the process of applying a printable image
to a printing plate
Prepress graphic arts operations and methodologies
that occur prior to the printing process;
typically these include photography,
scanning, image assembly, color correction,
exposure of image carriers (film and/or
plate), proofing and processing
Quickmaster DI the second generation of direct imaging,
waterless presses, highly automated with
roll-fed PEARLdry Plus plate material, a
joint development effort between Heidelberg
and Presstek
Semiconductor laser diode a high-powered, infrared imaging technology
employed in the DI imaging systems
Short-run markets/printing a graphic arts classification used to
denote an emerging trend for lower print
quantities
Thermal a method of digitally exposing a material
via the heat generated from a laser beam
Vacuum deposition process a technology to accurately, uniformly coat
substrates in a controlled environment
Waterless a lithographic printing method that uses
dry offset printing plates and inks and
does not require a dampening system
11
ITEM 2. PROPERTIES
----------
The Company's corporate offices, administrative, marketing and manufacturing
operations are located at 55 Executive Drive in Hudson, New Hampshire in a
165,000 square foot facility, which the Company owns.
The Company also owns a 75,000 square foot facility in Tucson, Arizona, which is
leased by the Company's Lasertel subsidiary. The properties owned by the Company
in Hudson, New Hampshire and Tucson, Arizona are secured by two ten-year
mortgage term loans in the principal amount of $6.9 and $4.0 million,
respectively. These properties were acquired for an aggregate cost of $22.0
million.
The Company leases approximately 50,000 square feet of property at 18 Hampshire
Drive in Hudson, New Hampshire for its equipment and consumable product research
and development operations. The lease of these premises expires in May 2003. The
base rent, subject to adjustment annually is currently $21,875 per month, plus a
pro rata share of real estate taxes, utilities, and certain other expenses.
The Company believes its facilities are in good condition and are adequate for
its current operations.
ITEM 3. LEGAL PROCEEDINGS
-----------------
In March 2000, the Company entered into an agreement with the plaintiffs in
several class actions lawsuits consolidated under the common caption "Bill
Berke, et al. v. Presstek, Inc., et al." in the United States District Court,
District of New Hampshire to settle the class action lawsuit. The Company also
executed a memorandum of understanding with respect to the settlement of the
derivatives lawsuits, filed on behalf of the Company, one in the Chancery Court
of the State of Delaware and the other in the United States District Court,
District of New Hampshire. Under the terms of the class action settlement, $22.0
million, in the form of 1,245,246 shares of the Company's common stock, was to
be paid to the class. The Company issued 808,050 of such shares in the first
quarter of fiscal 2001 and issued 437,196 of such shares in the fourth quarter
of fiscal 2000. In the memorandum of understanding in the derivative litigation,
the Company agreed to issue 60,582 shares of common stock and agreed to certain
therapeutic improvements to its internal policies. The Company issued the 60,582
shares in the third quarter of fiscal 2000. As a result of these issuances, all
required shares of common stock to be issued under both the class action
settlement and the memorandum of understanding in the derivative litigation have
been issued. The Company recorded a charge of $23.2 million in the fourth
quarter of fiscal 1999 related to the settlements. See Note 15 of notes to the
financial statements and Item 5 of Part II of this report.
In August 1999 Creo Inc., ("Creo"), filed an action in the United States
District Court for the District of Delaware against the Company asserting that
Creo has a "reasonable apprehension that it will be sued by Presstek for
infringement" of two of the Company's patents and seeking a declaration that
Creo's products "do not and will not infringe any valid and enforceable claims"
of the patents in question. In September 1999, the Company filed a counterclaim
against Creo for patent infringement. The Company claimed that Creo infringed
two direct imaging patents owned by the Company which had recently been the
subject of re-examination by the U.S. Patent and Trademark Office. This action
went to trial before the court without a jury during the week of June 25, 2001.
The court issued a decision on September 11, 2001, in which it affirmed the
validity and enforceability of the Company's on-press imaging patents, but held
that the current Creo DOP System did not infringe the patents. The Company
disagrees with the Court's conclusion on infringement. Creo has appealed the
Court's decision that the patents are valid and enforceable, and the Company has
cross-appealed the finding of non-infringement by the current Creo DOP System.
In December of 1999 a complaint was filed by PPG, Inc. ("PPG") against Delta V
Technologies, Inc. ("Delta V") in the United States District Court for the
Western District of Pennsylvania alleging that Delta V sold to PPG certain
vacuum coating equipment that did not meet certain product specifications. An
amended complaint was filed in April of 2000. In the suit, PPG seeks damages in
excess of $7.0 million. In addition to naming Delta V as a defendant in the
complaint, PPG also named Presstek as a defendant, seeking damages from Presstek
and attempting to hold Presstek liable for the alleged breach of contract by its
subsidiary, Delta V, on a theory of indirect liability. Motions to dismiss for
improper venue were denied, but venue was transferred to the United States
District Court for the Middle District of Pennsylvania. Presstek (and Delta V)
have answered
12
the complaint and Delta V has asserted a counterclaim against PPG and a
cross-claim against Circonix, a Delta V subcontractor for the vacuum coater
project. A motion by Circonix to dismiss PPG's complaint was denied and Circonix
has subsequently filed an interlocutory appeal. In addition, on October 29,
2001, Circonix filed cross-claims against Presstek and Delta V. On February 1,
2002, Circonix filed a voluntary petition of bankruptcy in the United States
Bankruptcy Court, staying the litigation of the claims against Circonix. The
Company intends to continue to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRST". The following table sets forth the high and low sale 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 29, 2001 HIGH LOW
---------------------------------------- -------- --------
First quarter $14.44 $ 8.75
Second quarter 15.21 8.88
Third quarter 12.50 3.51
Fourth quarter 9.94 4.67
FISCAL YEAR ENDED DECEMBER 30, 2000 HIGH LOW
---------------------------------------- -------- --------
First quarter $28.75 $12.75
Second quarter 24.25 15.13
Third quarter 21.50 10.88
Fourth quarter 19.81 5.88
On March 15, 2002 there were 3,309 holders of record of the Company's common
stock.
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its common stock. The
payment of cash dividends in the future is within the discretion of the
Company's Board of Directors, and will depend upon the Company's earnings, its
capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash dividends in the
foreseeable future, but instead intends to retain all earnings, if any, for use
in the Company's business operations.
ISSUANCE OF UNREGISTERED SECURITIES
Pursuant to the terms of the settlement agreement related to the consolidated
class action settlement, and in consideration for the execution of such
settlement, the Company agreed to issue an aggregate of 1,245,246 shares of its
common stock to the various class action plaintiffs and their lawyers. The
number of shares was determined by calculating the aggregate number of shares of
common stock of the Company obtained by dividing $11.0 million by the volume
weighted average price of the Company's common stock for all trading days in
April 2000 and the aggregate number of shares of common stock of the Company
obtained by dividing $11.0 million by the volume weighted average price of the
Company's common stock for all trading days in October 2000. In addition, in
connection with the settlement of the derivative lawsuit initiated against the
Company, the Company agreed to issue 60,582 shares of common stock. Thus between
both the class action settlement and the derivative suit settlement, the Company
agreed to issue, in the aggregate, 1,305,828 shares of common stock. On August
2, 2000 the Company issued 60,582 shares of common stock. On November 15, 2000
the Company issued 437,196 of these shares of common stock. On March 30, 2001,
the Company issued the remaining 808,050 shares of common stock. All such shares
were issued pursuant to an exemption from registration provided by Section
3(a)(10) of the Securities Act of 1933, as the issuance of such shares was
approved at a fairness hearing before the United States District Court of New
Hampshire in June 2000.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data of the Company has been derived from the
financial statements of the Company, appearing elsewhere herein (except for the
statements of operations data for the fiscal years ended January 2, 1999 and
January 3, 1998 and the balance sheet data at January 1, 2000, January 2, 1999
and January 3, 1998, which is not included in such financial statements). All
references to common shares and earnings (loss) per share data have been
restated retroactively to reflect the fiscal 1997 stock split, effected in the
form of a stock dividend.
14
SELECTED FINANCIAL DATA
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
DEC 29 Dec 30 Jan 1 Jan 2 Jan 3
FOR THE FISCAL YEARS ENDED 2001 2000 2000 1999 1998
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
REVENUES: $ 102,303 $ 87,294 $ 54,964 $ 74,165 $ 89,793
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Cost of products sold 64,395 46,747 33,326 46,606 43,854
Engineering and product development 11,719 15,897 17,190 14,994 10,539
Sales, marketing and customer support 13,004 9,613 5,934 5,620 4,302
General and administrative(1) 15,802 9,635 6,487 9,264 5,279
Provision for settlement of shareholder litigation(2) - - 23,200 - -
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Total costs and expenses 104,920 81,892 86,137 76,484 63,974
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS (2,617) 5,402 (31,173) (2,319) 25,819
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest, net (1,136) (99) 501 623 374
Other, net (63) 147 38 109 (244)
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Other income (expense), net (1,199) 48 539 732 130
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (3,816) 5,450 (30,634) (1,587) 25,949
PROVISION FOR INCOME TAXES(3) - 150 - - 9,460
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (3,816) 5,300 (30,634) (1,587) 16,489
DISCONTINUED OPERATIONS:(4)
Income (loss) from discontinued operations - 600 (448) (1,094) (2,117)
Loss on disposal of discontinued operations - - (8,534) - -
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS - 600 (8,982) (1,094) (2,117)
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS) $ (3,816) $ 5,900 $ (39,616) $ (2,681) $ 14,372
======================================================= ============== ============== ============== ============== ==============
EARNINGS (LOSS) PER SHARE - BASIC:
From continuing operations $ (0.11) $ 0.16 $ (0.95) $ (0.05) $ 0.53
From discontinued operations $ 0.00 $ 0.02 $ (0.28) $ (0.03) $ (0.07)
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
EARNINGS (LOSS) PER SHARE - BASIC $ (0.11) $ 0.18 $ (1.23) $ (0.08) $ 0.46
======================================================= ============== ============== ============== ============== ==============
EARNINGS (LOSS) PER SHARE - DILUTED:
From continuing operations $ (0.11) $ 0.15 $ (0.95) $ (0.05) $ 0.50
From discontinued operations $ 0.00 $ 0.02 $ (0.28) $ (0.03) $ (0.06)
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.11) $ 0.17 $ (1.23) $ (0.08) $ 0.44
======================================================= ============== ============== ============== ============== ==============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING - BASIC 34,096 32,826 32,336 31,986 31,300
======================================================= ============== ============== ============== ============== ==============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING - DILUTED 34,096 35,320 32,336 31,986 32,695
======================================================= ============== ============== ============== ============== ==============
BALANCE SHEET DATA
AS OF DEC 29 Dec 30 Jan 1 Jan 2 Jan 3
(in thousands) 2001 2000 2000 1999 1998
------------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Working capital $ 26,741 $ 32,287 $ 25,373 $ 37,080 $ 32,962
Total assets 106,844 115,902 94,633 106,670 99,655
Long-term debt, including short-term portion 16,398 18,470 9,854 6,444 4,800
Other long-term liabilities - - 22,950 - -
Stockholders' equity 79,985 83,143 49,855 87,453 85,990
(1) Includes a $2.1 million write-off recorded in fiscal 2001 for pre-payments
made as a result of a supplier's bankruptcy petition in 2002.
(2) Provision for the proposed settlements with the plaintiffs in the class
actions and related derivative suits filed in 1996. See Note 15 of notes to
the financial statements.
(3) Tax expense in fiscal 1997 represented charges in lieu of income taxes,
although no tax was payable as a result of stock compensation deductions.
Accordingly, no tax benefit was recorded in fiscal 1998, fiscal 1999, or
fiscal 2001. See Note 9 of notes to the financial statements.
(4) Relates to the operations of Delta V Technologies, Inc., which were
shut-down in fiscal 1999. See Note 3 of notes to the financial statements.
15
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 6. Selected Financial Data", "Item 7A.
Quantitative and Qualitative Disclosures about Market Risks", the Company's
Consolidated Financial Statements and Notes thereto and the information
described under the caption "Risk Factors" below.
BACKGROUND
Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware in 1987,
is a manufacturer, developer and marketer of digital laser imaging and
chemistry-free plate technologies for the printing and graphic arts industries.
Presstek's products and applications incorporate its patented Direct Imaging
(DI(R)) technologies and consumables for computer-to-plate ("CTP") and
direct-to-press applications. The Company's patented DI thermal laser diode
product family enables its customers to produce high quality, full-color
lithographic printed materials more quickly and cost effectively than
conventional methods. Using digital information and high-powered semiconductor
laser diodes to create images in its proprietary printing plate materials,
Presstek's patented DI technologies are marketed to leading press manufacturers
and used in the Company's Dimension series of CTP systems. Presstek's Dimension
systems incorporate its proprietary ProFire(TM) laser imaging technology and use
its complementary chemistry-free thermal printing plate, Anthem(TM). Presstek's
DI technology eliminates photographic darkrooms, film, and chemical processing,
which results in reduced turnaround time and lowers the cost of production for
commercial printers.
The Company is also engaged in the development of additional DI products that
incorporate its patented, proprietary, digital imaging system and process-free
thermal ablation printing plate technologies for CTP and direct-to-press
applications.
The Company operates and reports on a 52/53 week fiscal year, ending on the
Saturday closest to December 31. Accordingly, the financial statements include
the 52 week fiscal years ended December, 29, 2001 ("fiscal 2001"), December 30,
2000 ("fiscal 2000") and January 1, 2000 ("fiscal 1999").
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL
Presstek's management's discussion and analysis of its financial condition and
results of operations are based upon Presstek's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, Presstek
evaluates its estimates, including those related to product returns, bad debts,
inventories, income taxes, warranty obligations, and litigation. Presstek bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Presstek believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
REVENUE RECOGNITION
Presstek records revenue for product sales and related royalties at the time of
shipment, net of estimated returns, which are adjusted periodically based upon
historical rates of return. Certain fees and other reimbursements are recognized
as revenue when the related services have been performed or the revenues
otherwise earned. Revenues from fixed-price and modified fixed-price research
and development contracts are recognized using the percentage-of-completion
method, measured by the percentage of costs incurred to date compared to the
estimated total of direct costs for each contract. As contracts may extend over
one or more accounting periods, revisions in costs and earnings estimated during
the course of the work are reflected during the accounting period in which the
facts that required such revisions become known.
BAD DEBT
Presstek maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of Presstek's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
PRODUCT WARRANTIES
Presstek provides for the estimated cost of product warranties at the time
revenue is recognized. While Presstek engages in product quality programs and
processes, Presstek's 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
Presstek's estimates, revisions to the estimated warranty liability would be
required.
INVENTORY
Presstek's write-downs for excess and obsolete inventory are primarily based
upon forecasted demand for its products. If actual demand is less favorable than
what has been projected by management, additional inventory write-downs may be
required.
RESULTS OF OPERATIONS
FISCAL 2001 VERSUS FISCAL 2000
REVENUES
The Company's revenues of $102.3 million and $87.3 million for fiscal 2001 and
2000 respectively, were primarily related to the Digital Imaging Products
segment, and consisted of product sales, royalties, and license fees. Revenues
for fiscal 2001 increased $15.0 million or 17% as compared to fiscal 2000.
16
Product sales for fiscal 2001 were $93.6 million as compared to $78.1 million
for fiscal 2000, an increase of $15.5 million or 20%. This increase in product
sales was due primarily to volume increases of presses shipped to Xerox and
marketed as the DocuColor 400DI and the DocuColor 233DI, volume increases in
shipments of direct imaging systems used in the Ryobi 3404DI, as well as volume
increases in sales of the Company's Dimension computer-to-plate imaging
products. These increases were offset in part by volume and price decreases of
imaging kits sold to Heidelberg and used in the Quickmaster DI. Prices of kits
sold to Heidelberg decreased by approximately 10%, with minimal gross margin
impact, commencing in the third quarter of fiscal 2001, as Heidelberg began
manufacturing certain non-strategic components of the direct imaging kit.
Revenues generated from the sale of the Company's consumable products were $46.9
million for fiscal 2001, an increase of $2.0 million or 4%, as compared to $44.9
million for fiscal 2000. This increase is a result of the increase in the
installed base of equipment using the Company's proprietary consumable products.
These consumable product revenues included $20.9 million and $18.7 million for
fiscal 2001 and 2000, respectively, sold under the Company's agreements with
Heidelberg and its distributors. The Lasertel segment's third party revenues
were not material in fiscal 2001. In addition, the Lasertel segment booked a
$1.5 million revenue reversal in the fourth quarter of fiscal 2001 related to a
sale recorded in fiscal 2000, which was reversed as a result of a customer
return related to product quality.
Royalties and license fees decreased $500,000 or 5% for fiscal 2001, to $8.7
million as compared to royalties and license fees of $9.2 million for fiscal
2000. Royalties decreased $2.1 million or 27% comparing fiscal 2001 to fiscal
2000, as a result of decreased shipments to Heidelberg of direct imaging systems
used in the Quickmaster DI. This decrease was offset by an increase of $1.7
million in fees from licensees primarily as a result of distribution fees
received from Xerox and settlement fees received from Heidelberg in connection
with the settlement of outstanding arbitration proceedings with Heidelberg.
Revenues generated under the Company's agreements with Heidelberg and its
distributors decreased $6.8 million or 14% to $42.6 million, or 42% of total
revenues for fiscal 2001, as compared to $49.4 million, or 57% of total revenues
for fiscal 2000.
In connection with the settlement of its outstanding arbitration proceedings
with Heidelberg, the Company agreed to reduce the royalty payable by Heidelberg
for imaging kits delivered in connection with the Heidelberg Quickmaster 46DI by
approximately $9,000 per kit. This reduced royalty rate will become effective
for imaging kits delivered after May 1, 2002.
COST OF PRODUCTS SOLD
Cost of products sold consists of the costs of material, labor and overhead,
shipping and handling costs and warranty expenses. Cost of products sold for the
Digital Imaging Products segment for fiscal 2001 were $57.6 million, an increase
of $13.5 million or 31% as compared to $44.1 million for fiscal 2000. The gross
margin on product sales for the Digital Imaging Products segment decreased to
39% for fiscal 2001 from 42% for fiscal 2000, primarily as a result of the lower
margins on press and Dimension CTP products, and increased warranty expenses
associated with a new product introduction. Cost of products sold for the
Lasertel segment were $6.8 million for fiscal 2001 as compared to $2.6 million
for fiscal 2000, respectively. The increase of $4.2 million for fiscal 2001
reflects a full year of costs incurred by the Lasertel segment and includes
increases in salaries, as a result of headcount additions, depreciation, and
other costs associated with the increased manufacturing volume of laser diodes
for the Company.
17
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts. Research and product development expenses, all of which are incurred by
the Digital Imaging Products segment, decreased $4.2 million to $11.7 million or
11% of its revenues for fiscal 2001, as compared to $15.9 million or 18% of the
Digital Imaging Products' fiscal 2000 revenues. The decrease is primarily the
result of reduced expenditures for parts and components, as well as a reduction
of professional services contracted externally for the development of prototypes
of the Company's products previously introduced in fiscal 2000 at the industry's
major trade show, Drupa. The Company's product development cycle centers around
major industry trade shows, such as Drupa held every four or five years. As a
result, the Company's research and product development expenses vary in
accordance with its product development cycle. The Company believes its research
and development expenses for fiscal 2002 will approximate fiscal 2001 levels.
SALES, MARKETING AND CUSTOMER SUPPORT
Sales, marketing and customer support expenses consist primarily of payroll and
related expenses for personnel, advertising, trade shows and other promotional
expenses, and travel costs related to the Company's sales, marketing and
customer support activities. Sales, marketing and customer support expenses for
the Digital Imaging Products segment increased $2.7 million to $12.3 million, or
12% of its fiscal 2001 revenues, compared to $9.6 million or 11% of its fiscal
2000 revenues. The increase related primarily to increases in salaries and
related expenses as a result of headcount growth required for the Company's
expansion of its customer support organization, and increased expenditures for
promotional activities related to the Company's digital imaging press products.
Sales and marketing expenses for the Lasertel segment increased to $747,000 for
fiscal 2001 as compared to $23,000 for fiscal 2000. The increase for fiscal 2001
reflects a full year of costs incurred for the Lasertel segment, and relates
primarily to increases in salaries as a result of headcount growth and increases
in promotional activities and advertising expenses to support Lasertel's
expanded marketing activities in the defense, medical and graphics industries.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services to conduct the
finance, information systems, human resources, and executive activities of the
Company. General and administrative expenses also include outside legal and
accounting fees and the provision for bad debts. General and administrative
expenses for the Digital Imaging Products segment increased $4.8 million to
$13.4 million or 13% of fiscal 2001 revenues compared to $8.6 million or 10% of
fiscal 2000 revenues. The increase relates primarily to increases in legal fees
as a result of conducting the trial phase of the Company's patent litigation
with Creo Inc., as well as a $2.1 million write-off for prepayments made to
Adast, a supplier of B3 size sheet-fed presses. Adast joined in a bankruptcy
petition filed by its creditors in February 2002. The general and administrative
expenses for the Lasertel segment increased $1.4 million, to $2.4 million for
fiscal 2001 as compared to $1.0 million for fiscal 2000. The increase for fiscal
2001 reflects a full year of costs for the Lasertel segment, and resulted
primarily from increases in salaries and benefits as a result of headcount
growth, and to support Lasertel's expanded information systems, administration
and finance requirements.
OTHER INCOME (EXPENSE), NET
Other income (expense), net includes primarily interest income and expense.
Other expense, net increased $1.2 million, to $1.2 million or 1% of revenues for
fiscal 2001 compared to other income, net, of $48,000 or 1% of revenues
for fiscal 2000. Interest income decreased $639,000, to $231,000 for fiscal 2001
as compared to $870,000 for fiscal 2000. The decrease is primarily attributed to
the decrease in average cash balances available for investment and the decrease
in interest rates for the period. Interest expense increased $400,000, to $1.4
million as compared to $1.0 million for the comparable period in fiscal 2000.
The increase is primarily attributed to the increased borrowings related to the
Company's lease line of credit facility with Keybank National Association, and
its mortgage loan and line of credit facility with Citizens Bank, offset by
lower interest rates.
18
PROVISION FOR INCOME TAXES
The Company did not record a provision for federal or state income taxes in
fiscal 2001 or 1999, due to net operating losses. The Company did not record a
provision for federal income taxes in fiscal 2000 as a result of utilization of
net operating loss carryforwards. The Company recorded a provision of $150,000
for state income taxes in fiscal 2000.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company had a loss from continuing operations,
of $3.8 million for fiscal 2001, as compared to income from continuing
operations of $5.3 million for fiscal 2000.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
In fiscal 1999, the Company shut-down the operations of its Delta V subsidiary.
Located in Tucson, Arizona, Delta V was engaged in the development, manufacture,
and sale of vacuum deposition coating equipment for vacuum coating applications.
The Company shut down the operations of Delta V as of the end of the fiscal
1999. As a result the Company booked an $8.5 million loss on disposal of
discontinued operations in fiscal 1999. This included actual closing costs and
operating losses incurred in the fourth quarter of fiscal 1999 of $2.2 million,
a provision for anticipated closing costs of $1.6 million, $6.1 million related
to the write off of goodwill and other intangible assets, and a write off of
other assets of $1.6 million. These costs were partially offset by proceeds of
$3.0 million received from Minnesota Mining and Manufacturing Co., ("3M") for
the licensing of Delta V's intellectual property relating to vacuum-deposited
polymer multi-layer technology. Delta V is reported separately as a discontinued
operation, and prior periods have been restated in the Company's financial
statements, related footnotes and the management's discussion and analysis to
conform to this presentation.
The results of operations of Delta V are presented as discontinued operations.
Income from Delta V's discontinued operations were $600,000 for fiscal 2000, as
a result of payments received from 3M for the licensing of the Company's
intellectual property relating to vacuum-deposited polymer multi-layer
technology. There was no income or loss from discontinued operations in fiscal
2001.
FISCAL 2000 VERSUS FISCAL 1999
REVENUES
Revenues for fiscal 2000 and 1999 of $87.3 million and $55.0 million,
respectively, consisted of product sales, royalties, license fees and product
development reimbursements. Revenues for fiscal 2000 increased $32.3 million or
59% as compared to fiscal 1999. Product sales for fiscal 2000 were $78.1 million
as compared to $47.9 million for fiscal 1999, an increase of $30.2 million or
63%. The increase was due primarily to volume increases of shipments to
Heidelberg for direct imaging systems used in the Quickmaster DI, as well as
initial sales of the Company's CTP Dimension platesetter products, and volume
increases of the Company's thermal consumable products. The revenues generated
from the sale of the Company's PEARLdry and other consumable products were $44.9
million for fiscal 2000, an increase of $7.8 million or 21%, as compared to
$37.1 million for fiscal 1999. These consumable product revenues included $18.7
million and $17.2 million for fiscal 2000 and 1999, respectively, sold under the
Company's agreements with Heidelberg and its distributors.
Royalties and fees from licensees for fiscal 2000 of $9.2 million increased $2.2
million or 31% as compared to royalties and fees of $7.0 million for fiscal
1999. Royalties increased $7.2 million or 1,118% comparing fiscal 2000 to fiscal
1999, as a result of increased shipments to Heidelberg of direct imaging systems
used in the Quickmaster DI. This increase was offset by a decrease of $5.1
million in engineering fees primarily due to the reduction of fees from Fuji
Photo Film Co., Ltd. for fiscal 2000, as compared to fiscal 1999.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $49.4 million in fiscal 2000, an increase of $27.8 million or
129% from fiscal 1999 revenues of $21.6 million. Revenues from Heidelberg
represented 57% and 39% of total revenues for the fiscal years 2000 and 1999,
respectively.
19
In fiscal 1998 and 1999 the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company resumed production with initial low level shipments
of its direct imaging systems late in the third quarter of fiscal 1999, and
increased production levels in fiscal 2000 in line with the actual rate of
Quickmaster DI's made by Heidelberg.
COST OF PRODUCTS SOLD
Cost of products sold consists of the costs of material, labor and overhead as
well as future warranty costs associated with product sales. Cost of products
sold for fiscal 2000 was $46.7 million, an increase of $13.4 million or 40% as
compared to $33.3 million for fiscal 1999. The gross margin increase on product
sales to 40% for fiscal 2000 from 30% for fiscal 1999 is primarily the result of
economies of scale related to increased manufacturing volumes of proprietary
digital media and consumable products, as well as increased production of its
direct imaging systems sold to Heidelberg for use in its Quickmaster DI.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts. Research and product development expenses were $15.9 million or 18% of
revenues for fiscal 2000 as compared to $17.2 million or 31% of fiscal 1999
revenues. The decrease of $1.3 million is primarily the result of the conclusion
of the development efforts associated with the Company's contract with Fuji
Photo Film, Inc.
SALES, MARKETING AND CUSTOMER SUPPORT
Sales, marketing and customer support expenses consist primarily of payroll and
related expenses for personnel, advertising, trade shows, promotional expenses,
and travel costs. Sales, marketing and customer support expenses were $9.6
million, or 11% of fiscal 2000 revenues, compared to $5.9 million or 11% of
fiscal 1999 revenues. The increase of $3.7 million resulted primarily from
increased expenditures associated with the Company's attendance at the GraphExpo
trade show in September, and the Drupa 2000 trade show in May. Increases in
salaries as a result of head count growth and increases in professional services
relate to the Company's continued expansion of its worldwide sales, distribution
and customer support network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services. General and
administrative expenses for fiscal 2000 were $9.6 million or 11% of fiscal 2000
revenues compared to $6.5 million or 12% of fiscal 1999 revenues. The increase
of $2.1 million for the Digital Imaging Products segment related primarily to
increases in salaries as a result of headcount growth, legal fees as a result of
patent litigation, and increases in other professional services necessary to
conduct the finance, information systems, and administrative functions. The
general and administrative expenses for the Lasertel segment were $1.0 million
for fiscal 2000, and relate primarily to salaries and other professional
services incurred as a result of the start-up of Lasertel in April 2000.
OTHER INCOME AND EXPENSE
Other income net, was $48,000 or less than 1% of revenues for fiscal 2000
compared to other income net, of $539,000 or 1% of revenues for fiscal 1999.
Dividend and interest income was $870,000 for fiscal 2000 as compared to $1.0
million for the comparable period for fiscal 1999. The decrease of $130,000 is
primarily attributed to the decrease in average cash balances available for
investments. Interest expense was $969,000 as compared to $522,000 for the
comparable period for fiscal 1999. The increase of $447,000 is primarily
attributed to the increased borrowings related to the Company's lease line of
credit facility with Keybank National Association.
PROVISION FOR INCOME TAXES
The Company did not record a provision for or a charge in lieu of United States
federal income taxes for fiscal 2000, as a result of net operating loss
carryforwards other than those generated from deductions related to stock
compensation for the period. The Company recorded a provision of $150,000 for
state income taxes for
20
fiscal 2000. The Company did not record a provision for or a charge in lieu of
United States federal income taxes or state income taxes for fiscal 1999, as a
result of the net operating losses incurred prior to tax deductions related to
stock compensation for the period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company had income from continuing operations,
of $5.3 million for fiscal 2000, as compared to a loss from continuing
operations of $30.6 million for fiscal 1999.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
The results of operations of Delta V are presented as discontinued operations.
Income from Delta V's discontinued operations was $600,000 for fiscal 2000, as a
result of payments received from 3M for the licensing of the Company's
intellectual property relating to vacuum-deposited polymer multilayer
technology, as compared to losses of $9.0 million for fiscal 1999, including a
loss on disposal of its discontinued operations of $8.5 million. The loss on
disposal of discontinued operations included actual closing costs and operating
losses incurred in the fourth quarter of fiscal 1999 of $2.2 million, a
provision for anticipated closing costs of $1.6 million, $6.1 million related to
the write off of goodwill and other intangible assets, and a reduction in other
asset values of $1.6 million. These costs were partially offset by proceeds of
$3.0 million received from 3M for the licensing of the Company's intellectual
property relating to vacuum-deposited polymer multi-layer technology.
21
LIQUIDITY AND CAPITAL RESOURCES
At December 29, 2001, the Company had cash and cash equivalents of $2.5 million
and working capital of $26.7 million as compared to cash and cash equivalents of
$12.0 million and working capital of $32.3 million at December 30, 2000.
The $9.5 million reduction in cash in fiscal 2001 resulted primarily from
investments in capital equipment of $9.6 million primarily to fund the startup
of its Lasertel subsidiary, cash used in financing activities of $447,000,
offset by cash provided by operating activities of continuing operations of
$977,000.
Net cash provided by operating activities of continuing operations was $977,000
for the fiscal year ended December 29, 2001, as a result of net losses from
continuing operations of $3.8 million, increases in accounts receivable of $2.1
million reflecting increased sales volume, and increases in inventories of $5.8
million reflecting an increase in presses purchased as a result of the Company's
agreements with certain of its customers, as well as increased production
requirements, decreases in accounts payable, accrued expenses and deferred
revenues of $8.6 million, offset by non-cash items of depreciation and
amortization of $9.0 million, other non-cash items of $1.0 million, provisions
for warranty costs and losses on accounts receivable of $4.9 million, and a
decrease in advances to suppliers and other current assets of $6.5 million. The
decrease in advances to suppliers was as a result of product receipts for which
the Company made advanced payments in connection with certain supply agreements,
as well as a $2.1 million write-off of prepayments made to a supplier who joined
in a bankruptcy petition filed by its creditors in February 2002.
Net cash used in investing activities of continuing operations was $10.0 million
for the fiscal year ended December 29, 2001, and consisted primarily of
additions to property, plant and equipment used in the Company's business of
$9.7 million, and increases in other assets of $320,000. These additions
included $7.0 million in equipment purchases related to the manufacture of laser
diodes at the Company's Lasertel subsidiary.
Net cash used in financing activities during the fiscal year ended December 29,
2001 totaled $447,000, and consisted primarily of payments on the mortgage term
loans and lease line of credit of $2.1 million, offset by proceeds from the
Company's line of credit of $967,000, as well as proceeds from the issuance of
common stock in connection with stock option exercises of $658,000.
The Company's long term debt consists of two mortgage term loans from Citizens
Bank New Hampshire ("Citizens"), and a lease line of credit facility from
Keybank National Association ("Keybank").
The first mortgage term loan is a fiscal 1998 ten-year mortgage term loan from
Citizens in the amount of $6.9 million and bears a fixed rate of interest of
7.12% per year during the first five years, and a variable rate of interest at
the LIBOR rate plus 2%, (3.88% at December 29, 2001) for the remaining five
years. Principal and interest payments during the first five years of the loan
will be made in 60 monthly installments of $80,500. During the remaining five
years, principal and interest payments will be made on a monthly basis in the
amount of one-sixtieth of the outstanding principal amount as of the first day
of the second five year period, plus accrued interest through the monthly
payment date. All outstanding principal and accrued interest is due and payable
on February 6, 2008.
22
The second mortgage term loan is a fiscal 2000 ten-year mortgage term loan in
the amount of $4.0 million and bears a fixed rate of interest equal to 7.95% per
year during the first five years, a fixed rate of interest equal to United
States Treasury Notes or Bills with a maturity date closest to the end of the
second five years, plus 225 basis points for the remaining five years. During
the first five years, principal and interest payments will be made in 60 monthly
installments including principal of $34,993 plus interest. During the remaining
five years, principal and interest payments will be made on a monthly basis in
the amount of one-sixtieth of the outstanding principal amount as of the first
day of the second five year period, plus accrued interest through the monthly
payment date. All outstanding principal and accrued and unpaid interest is due
and payable on October 30, 2010.
The two mortgage term loans are secured by land and buildings with a cost of
approximately $22.0 million.
The Company also has in place a $15.0 million lease line of credit facility from
Keybank pursuant to a 1999 loan agreement. In fiscal 2000, and fiscal 1999, the
Company borrowed $6.0 million and $4.0 million, respectively, against the lease
line of credit facility. The $10.0 million in borrowings to date is secured by
equipment with a book value at December 29, 2001 of $13.4 million. This loan
bears a variable rate of interest based upon the revolving prime rate,
(currently 4.75%) with a fixed rate conversion provision. Principal and interest
under the lease line are payable in 84 monthly installments which began in July
31, 2000 for the $6.0 million in borrowings, and October 1999 for the initial
$4.0 million in borrowings. The Company has available an additional $5.0 million
lease line of credit from Keybank, which expires on April 30, 2002.
In addition to the mortgage term loans and the lease line of credit the Company
has a revolving line of credit loan, which expires in September 2002 with
Citizens under which the Company may borrow up to $16.0 million. The revolving
line of credit is subject to a borrowing base formula based on eligible accounts
receivable and inventories, as defined by the loan agreement, and reduced by the
amount of all letters of credit outstanding. The revolving line of credit loan
is secured by substantially all of the Company's assets, with interest payable
at the LIBOR rate plus 1.50% (3.38% at December 29, 2001). As of December 29,
2001, the Company had $7.8 million outstanding under a standby letter of credit,
and $7.2 million available under the revolving line of credit loan, subject to
the borrowing base formula.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet various
restrictive covenants on a quarterly and annual basis, including maximum funded
debt to EBITDA and minimum fixed charge coverage covenants. The Company was not
in compliance with these two covenants at December 29, 2001 as a result of the
$2.1 million write-off for pre-payments made to Adast. In March 2002, the
Company received notice from its lenders waiving non-compliance with these
covenants. See note 16 of notes to the financial statements.
The Company has future contractual payments primarily related to debt, royalty
obligations, and operating leases, from 2002 through 2010. The Company's future
commitments under its credit facilities total $16.4 million at December 29,
2001, of which $2.3 million will be paid in 2002. The future commitments under
the Company's royalty agreement with Fuji Photo Film Co., Ltd., total $13.0
million at December 29, 2001, of which $1.4 million is expected to be paid in
2002. The Company also has future minimum rental commitments under various
non-cancelable operating leases of $407,000 at December 29, 2001. The related
lease agreements expire on various dates over the next three years. The Company
expects to make payments of $279,000 under its non-cancelable operating lease
agreements during 2002.
Although the Company believes that existing funds, cash flows from operations,
and cash available under its revolving line of credit and lease line of credit
should be sufficient to satisfy working capital requirements and capital
expenditures through the term of its current loan agreement, there can be no
assurance that the Company will be able to renew its existing loan agreement,
will not require additional financing, or that such additional financing, if
needed, will be available on acceptable terms.
The Company's anticipated capital expenditures for fiscal 2002 are approximately
$4.0 million, and primarily relate to the purchase of capital equipment to be
used in the production of the Company's DI and CTP equipment and consumable
products.
EFFECT OF INFLATION
Inflation has not had, and is not expected to have, a material impact upon the
Company's operations.
NET OPERATING LOSS CARRYFORWARDS
As of December 29, 2001, the Company had net operating loss carryforwards
totaling approximately $93.0 million, of which $64.3 million resulted from stock
option compensation deductions for tax purposes and $28.7 million from operating
losses. To the extent net operating losses resulting from stock option
compensation deductions become realizable, the benefit will be credited directly
to additional paid in capital. The amount of the net operating loss
carryforwards that may be utilized in any future period may be subject to
certain limitations, based upon changes in the ownership of the Company's common
stock.
23
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"),
which supersedes APB Opinion No. 16, "Business Combinations". SFAS 141
eliminates the pooling-of-interests method of accounting for business
combinations and modifies the application of the purchase accounting method. The
elimination of the pooling-of-interests method is effective for transactions
initiated after June 30, 2001. The remaining provisions of SFAS 141 are
effective for transactions accounted for using the purchase method that are
completed after June 30, 2001.
In July 2001, the FASB also issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Intangible Assets" ("SFAS 142"), which supersedes APB
Opinion No. 17, "Intangible Assets". SFAS 142 eliminates the current requirement
to amortize goodwill and indefinite-lived intangible assets, addresses the
amortization of intangible assets with a defined life and addresses the
impairment testing and recognition for goodwill and intangible assets. SFAS 142
applies to goodwill and intangible assets arising from transactions completed
before and after the Statement's effective date. SFAS 142 is effective for
fiscal 2002. The Company will adopt SFAS 142 in fiscal 2002. The Company has not
yet determined the impact the adoption of SFAS 142 will have on its financial
statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
Company has not yet determined the impact the adoption of SFAS 143 will have on
its financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", and the accounting and reporting provisions of APB No. 30, "Reporting the
Results of Operations for a Disposal of a Segment of a Business." SFAS 144 is
effective for fiscal years beginning after December 15, 2001, with earlier
application encouraged. The Company is required to adopt SFAS 144 in fiscal
2002. The Company has not yet determined the impact the adoption of SFAS 144
will have on its financial statements.
RISK FACTORS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Certain statements contained in this Annual Report to Stockholders and in the
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 Company's expectations for its financial and operating
performance in 2002 and beyond, the adequacy of internal cash and working
capital for the Company's operations, the Company's ability to supply sufficient
product for anticipated demand, production delays associated with this demand,
availability of component materials, management's plans and goals with regard to
the Company's shipping and production capabilities, the availability of
alternative suppliers and manufacturers, management's plans and goals for the
Company's Lasertel subsidiary, the expected capital requirements of Lasertel,
the ability of Lasertel to generate positive cash flows in the near term, the
strength of the Company's various strategic partnerships both on manufacturing
and distribution, the ability of the Company to secure other strategic alliances
and relationships, the expected impact of the Adast bankruptcy on the Company,
the Company's expectations regarding its strategy for growth, the Company's
expectations and plans regarding market penetration and expansion of its
products and technology, the Company's expectations regarding the sale of its
products and use of its technology, the Company's current plans for product
development and the expected market acceptance of recently introduced products
and the likely acceptance of planned future products, and the Company's
expectations regarding performance of existing, planned and recently introduced
products, among others. Such forward-looking statements involve a number of
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company 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
24
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 to Stockholders and the Annual Report on Form 10-K.
References to "we", "us", "our" or "ours" refer to the Company and its
subsidiaries.
WE ARE SUBSTANTIALLY DEPENDENT ON HEIDELBERG FOR A MATERIAL PORTION OF OUR
REVENUE AND THE LOSS OF HEIDELBERG AS A CUSTOMER WOULD ADVERSELY EFFECT OUR
BUSINESS. We have had an important long-term relationship with Heidelberg. Since
entering into our strategic alliance with Heidelberg, our sales of products to
Heidelberg have constituted a material portion of our total revenues. For the
fiscal year ended December 29, 2001, our sales to Heidelberg accounted for
approximately 42% of our total revenues. There can be no assurance that our
relationship with Heidelberg will continue. The loss of Heidelberg as a customer
would adversely affect our business. In July 2001, we settled our outstanding
arbitration proceedings with Heidelberg. Pursuant to the terms of the
settlement, the Company and Heidelberg agreed that the licensing arrangements
for the Heidelberg Quickmaster 46DI shall be non-exclusive. As a result of the
recognition of the non-exclusivity of the license, the Company agreed to reduce
the royalty payable by Heidelberg for imaging kits delivered in connection with
the Heidelberg Quickmaster 46DI by approximately $9,000 per kit. This reduced
royalty rate will become effective for kits delivered after May 1, 2002. Not all
of our issues with Heidelberg were resolved, however. The settlement did not
resolve patent infringement claims between the parties with respect to the
Heidelberg Speedmaster 74-DI press but established a mechanism to do so upon
resolution of the Company's outstanding patent litigation with Creo Inc. There
can be no assurance that our outstanding patent litigation with Creo Inc. will
be resolved on terms acceptable to us or that will result in a benefit to us
under our settlement agreement with Heidelberg. In addition, there can be no
assurance that we will not have similar disputes with Heidelberg in the future
and likewise, there can be no assurance that any disputes that do arise will be
resolved in our favor.
WE ARE SUBSTANTIALLY DEPENDENT ON OUR STRATEGIC ALLIANCES AND MANUFACTURING AND
DISTRIBUTION RELATIONSHIPS TO DEVELOP AND GROW OUR BUSINESS AND THE LOSS OR
FAILURE OF ONE OR MORE OF OUR STRATEGIC PARTNERS COULD SIGNIFICANTLY HARM OUR
BUSINESS. Our strategy to date has been, in part, to enter into strategic
alliances with major companies in the graphic arts industry and other markets.
This strategy has included, among other things, licensing our intellectual
property, developing specialized products based on our proprietary technologies
and manufacturing imaging systems for inclusion in other manufacturers'
products. Our strategy has also involved identifying strategic manufacturing and
distribution partners to aid in developing new market channels for our products.
This strategy led to the development of our relationship with Heidelberg. It
also led to the development of relationships with other strategic partners,
including Xerox, KBA, Ryobi, KPG, Sakurai and Adast for which we are dependent
on for future sales of both existing and planned products. This dependency 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 relationship with them and may cause them to terminate their
relationship with us. They may terminate their relationship with us for
circumstances beyond our control, including factors unique to their business or
their business decisions. In addition, 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.
We are also unable to control factors related to the business of our strategic
partners. As an example, in February 2002, Adast, a manufacturing partner of
ours, announced that it had joined a bankruptcy petition filed by its creditors.
As a result of this development, the Company adjusted its fiscal 2001 fourth
quarter net income and balance sheet to include an additional write-off of
approximately $2.1 million to cover prepayments made to Adast for work-in
progress. As a result of this charge, the Company was not in compliance with its
loan covenants at December 29, 2001. There can be no assurance that Adast's
bankruptcy will not have an adverse impact on the Company.
25
Likewise, there can be no assurance that similar events will not occur with our
other strategic partners.
As a result of the uncertainties surrounding many of our strategic partners,
there can be no assurance that our existing strategic relationships will prove
successful. There can be no assurance that our relationships with Xerox, KBA,
Ryobi, Sakurai or KPG or any of our other strategic, manufacturing and
distribution partners will be successful. The loss of Xerox, KBA, Ryobi,
Sakurai, KPG or other principal customers or strategic partners could materially
adversely affect our business.
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.
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 put strain on the ability of our third-party suppliers to deliver critical
components in a timely manner. For example, our requirements for advanced
technology laser diodes for use in products incorporating our DI technology has
increased and is expected to increase in the future. Although we have
established Lasertel to help us meet our demand for laser diodes, we are still
dependent on other third party manufacturers for our supply of 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 ineffective.
WE HAVE A HISTORY OF LOSSES AND MAY INCUR FUTURE LOSSES. Although we achieved
net income of $5.9 million for the fiscal year ended December 30, 2000, we
sustained net losses of $3.8 million, $39.6 million and $2.7 million during our
fiscal years ended December 29, 2001, January 1, 2000 and January 2, 1999,
respectively. We cannot assure you that we will be profitable or that we will
not sustain significant losses in the future.
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
DocuColor 233 DI, DocuColor 400 DI and the 46 Karat DI presses, or our new
product offerings such as our Anthem(TM) plates, Dimension 400(TM) and Dimension
800(TM) 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.
RECENTLY INTRODUCED PRODUCTS THAT INCORPORATE OUR TECHNOLOGY MAY RESULT IN
SUBSTANTIAL SUPPORT COSTS AND WARRANTY EXPENDITURES. Introducing new products
carries substantial risk. While we do substantial testing on our new products
before introducing them to our customers, no amount of testing can replace or
approximate actual field conditions at our customer locations. As a result, when
we introduce new products we can incur increased expenditures in ensuring that
the new product meets and performs in accordance with its specifications. We can
not, however, always estimate precisely the expected costs that may arise out of
new product installations. As an example of this, we incurred increased warranty
and support costs in fiscal 2001 due to unanticipated product performance issues
associated with our new Dimension product line. There can be no assurance that
we will not incur increased warranty, support and other costs associated with
new product introductions in the future. In addition, the occurrence of these
expenditures may have an adverse effect on our business and financial condition.
OUR MANUFACTURING CAPABILITIES MAY BE INSUFFICIENT TO MEET THE DEMAND FOR OUR
PRODUCTS. If demand for our products grows, 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
26
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
and our revenues and may harm our relationships with our strategic partners.
OUR BUSINESS IS DEPENDENT ON GENERAL MARKET FACTORS AFFECTING OUR INDUSTRY AND
THE ECONOMY AS A WHOLE. We are dependent on market conditions that affect our
industry generally, and additionally, are also dependent on general economic and
market conditions as a whole. A downturn in our industry or the economy as a
whole could have a materially adverse effect on our business.
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 continued its plans to
develop laser prototypes for qualification in the defense, medical and graphics
industries. There can be no assurance that these 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 medical industries and there can be no
assurance that Lasertel will be able to successfully exploit any opportunities
that may arise.
LASERTEL MAY REQUIRE ADDITIONAL WORKING CAPITAL INFUSIONS FROM US, WHICH MAY
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Our subsidiary, Lasertel, was
established to help us meet our demand for laser diodes. Lasertel has required
and may continue to require a significant amount of capital investment by the
Company in order to fund its operations. For the fiscal year ended December
29,2001, Lasertel recorded a net loss of $11.3 million. Lasertel continues to
require us to advance cash and resources in order to ensure its continued
operation. Lasertel's capital and working capital needs may exceed the Company's
ability to provide such funds, requiring the Company to borrow against its
credit facilities or seek to obtain outside financing for Lasertel's operations.
This could have a material adverse effect on our business.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MAINTAIN AND PROTECT OUR PROPRIETARY
RIGHTS. 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 four
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 which
our patents, trademarks or copyrights may afford us.
There is rapid technological development in the electronic image reproduction
industries, resulting in extensive patent filings and a rapid rate of issuance
of new patents. Although we believe that our technology has been independently
developed and that the products we market do not infringe the patents or violate
other proprietary rights of others, it is possible that such infringement of
existing or future patents or violation of proprietary rights may occur. In 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 us. 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 patents we may own. As an example of the cost and
uncertainty of patent litigation, in August 1999 Creo Inc. 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 counter-claimed 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. We disagreed with the court on this
finding of non-infringement. Creo has subsequently appealed the court's decision
that the patents are valid and enforceable, and we cross-appealed the finding of
non-infringement by the Creo DOP system. The appeal and cross-appeal are
ongoing. There can be no assurance that we will be successful in this action. In
addition, there can be no assurance that in pursuing this action, there will not
be a financial impact to our business. We incurred higher than expected legal
expenses in fiscal 2001 due to this litigation, and we may continue to incur
elevated legal expenses in the future in connection with this action.
27
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 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, Heidelberg 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 direction in the graphic arts industry to
create stand-alone computer-to-plate imaging devices for single and multi-color
applications. Most of the major corporations in the graphic arts industry have
developed and/or are developing and marketing off press computer-to-plate
imaging systems. To date, devices manufactured by our competitors, for the most
part, utilize printing plates that require a post imaging photochemical
developing step, and in some cases, also require a heating process. Potential
competitors in this area include, among others, Agfa Gevaert N.V., Dai Nippon
Screen Manufacturing Ltd., Heidelberg, and Creo Inc.
We also anticipate competition from printing plate manufacturing companies that
manufacture, or have the potential to manufacture digital thermal plates. These
companies include Agfa Gevaert N.V., KPG and Fuji Photo Film Co., Ltd.
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.
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 do so. 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 ability to compete
successfully will depend in large measure on our ability to maintain a
technically competent research and development staff and to stay ahead of
technological changes and advances in our industry. There can be no assurance
that any refined or improved versions of current products or technologies or any
new products that may be introduced by us in the future will be commercially
successful.
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 certain
lawsuits. We are currently a defendant in a lawsuit commenced by PPG, Inc.
claiming that equipment sold by our now discontinued Delta V subsidiary did not
meet certain product specifications. Although we intend to vigorously defend
this action, we could be adversely affected if the plaintiff were to prevail on
its damage claim, which is in excess of $7.0 million. We are also a party in
ongoing patent litigation with Creo Inc. There can be no assurance that we will
be successful in this action, and any adverse result in this litigation will
have a material adverse impact on our business.
THE LOSS OR UNAVAILABILITY OF OUR KEY PERSONNEL WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS. The success of Presstek is largely dependent on the
personal efforts of Robert Hallman, our President and Chief Executive Officer,
and Richard Williams, our Chairman and Chief Scientific Officer. We have entered
into employment agreements with each of Mr. Hallman and Mr. Williams. The loss
or interruption of the
28
services of either Mr. Williams or Mr. Hallman could have a material adverse
effect on our business and prospects.
Our success may also be dependent on our ability to hire and retain additional
qualified engineering, technical, sales, marketing and other personnel.
Competition for qualified personnel in our industry is intense, and there can be
no assurance that we will be able to hire or retain additional qualified
personnel.
OUR STOCK PRICE HAS BEEN AND COULD CONTINUE TO BE EXTREMELY VOLATILE. The market
price of our common stock has been subject to significant fluctuations. The
securities markets have experienced, and are likely to experience in the future,
significant price and volume fluctuations that could adversely affect the market
price of our common stock without regard to our operating performance. In
addition, the trading price of our common stock could be subject to significant
fluctuations in response to:
- actual or anticipated variations in our quarterly operating results;
- announcements by us or other industry participants,
- changes in national or regional economic conditions;
- changes in securities analysts' estimates for us, our competitors'
or our industry or our failure to meet analysts' expectations; and
- general market conditions.
CERTAIN FACTORS MAY HAVE A DEPRESSIVE EFFECT ON THE MARKET PRICE FOR OUR COMMON
STOCK. As of March 15, 2002, we had 34,124,231 shares of our common stock
outstanding. Approximately 31,298,703 of our shares are currently freely
tradable without restriction under the Securities Act of 1933. All of the
remaining shares are eligible for sale, subject, in some cases, to affiliate and
other restrictions under Rule 144 of the Securities Act of 1933. The sale of a
significant number of these shares of common stock could adversely affect the
market price of our common stock.
There are currently outstanding options to purchase approximately 3.3 million
shares of our common stock at prices ranging from $5.50 - $26.94 per share.
Substantially all of these shares have been registered for resale and may be
sold, subject, in some cases, to volume and other limitations under Rule 144 of
the Securities Act of 1933. To the extent they are exercised or converted, the
percentage ownership of existing stockholders will be diluted and our stock
price could be adversely affected. This could also adversely affect the terms
upon which we may be able to obtain additional equity capital in the future,
since the holders of outstanding options can be expected to exercise them at a
time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than those provided in the outstanding options.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates primarily
as a result of its borrowing activities, and to a lesser extent, its investing
activities. The majority of the Company's long-term borrowings are in fixed rate
instruments, or variable rate instruments with fixed rate conversion provisions.
The Company does not enter into interest rate swap agreements or other
speculative or leveraged transactions. The Company currently has no material
exposure to interest rate fluctuations on its short-term investments.
The Company has limited exposure to foreign currency exchange rate risk as
substantially all of its transactions are denominated in U.S. dollars. Some of
the Company's customers and strategic partners are not located in the United
States, however. As a result, these customers and strategic partners are
themselves subject to fluctuations in foreign exchange rates. If their home
country currency were to decrease in value relative to the United States dollar,
their ability to purchase and market the Company's products could be adversely
affected and the Company's products may become less competitive to them. This
may have an adverse impact on the Company's business. Likewise, some of the
Company's suppliers are not located in the United States and thus, such
suppliers are subject to foreign exchange rate risks in transactions with the
Company. 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 the Company's business.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements required by Item 8 of Form 10-K are referenced in Item
14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item will be set forth under the captions
"Election of Directors", "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 29, 2001 for the Annual Meeting of
Stockholders to be held on June 14, 2002 (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 caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item will be set forth under the caption
"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.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a)(1) Financial Statements Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 29, 2001 and December 30, 2000 F-3
Statements of Operations for the fiscal years ended
December 29, 2001, December 30, 2000, and January 1, 2000 F-4
Statements of Changes in Stockholders' Equity for the fiscal
years ended December 29, 2001, December 30, 2000, and
January 1, 2000 F-5
Statements of Cash Flows for the fiscal years ended
December 29, 2001, December 30, 2000, and January 1, 2000 F-6
Notes to Financial Statements F-7
(a)(2) Financial Statement Schedule
Schedule II-Valuation and Qualifying Accounts and Reserves FS-1
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(a)(3) Exhibits
Exhibit
Number Description
3 (a) Amended and Restated Certificate of Incorporation of the Company,
as amended. (Previously filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 29, 1996,
hereby incorporated by reference.)
3 (b) By-laws of the Company. (Previously filed as an exhibit with the
Company's Form 10-K for the fiscal year ended December 30, 1995,
filed March 29, 1996, hereby incorporated by reference.)
10 (a) Confidentiality Agreement between the Company and Heidelberger
Druckmaschinen A.G., effective December 7, 1989 as amended.
(Previously filed as Exhibit 10(i) of the Company'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 the Company.
(Previously filed as an exhibit to the Company'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 the Company.
(Previously filed as an exhibit to the Company'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 the
Company and Heidelberger Druckmaschinen Aktiengesellschaft.
(Previously filed as an exhibit to the Company's 31
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 the Company and Heidelberger Druckmaschinen
Aktiengesellschaft. (Previously filed as an exhibit to the
Company'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 the Company and Heidelberger Druckmaschinen
Aktiengesellschaft. (Previously filed as Exhibit 10.k to the
Company's Form 10-K for the fiscal year ended December 30, 1995,
filed March 29, 1996, hereby incorporated by reference.)
10 (g) Lease relating to real property located at 18-20 Hampshire Dr.,
Hudson, New Hampshire. (Previously filed as Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, filed March 31, 1997, hereby incorporated by
reference.)
10 (h)** 1991 Stock Option Plan. (Previously filed as an exhibit to the
Company's Annual report on Form 10-K for the fiscal year ended
December 31, 1991, hereby incorporated by reference.)
10 (i)** 1994 Stock Option Plan. (Previously filed as an exhibit to the
Company's Annual report on Form 10-K for the fiscal year ended
December 31, 1994, hereby incorporated by reference.)
10 (j)** Non-Employee Director Stock Option Plan. (Previously filed as
Exhibit 10.0 to the Company's Form 10-K for the fiscal year ended
January 2, 1999, filed March 2, 1999, hereby incorporated by
reference.)
10 (k)** 1997 Interim Stock Option Plan. (Previously filed as Exhibit 10.1
to the Company's Quarterly report on Form 10-Q for the quarter
ended September 27, 1997, filed November 7, 1997, hereby
incorporated by reference.)
10 (l)** 1998 Stock Incentive Plan. (Previously filed as Exhibit A to the
Company's April 23, 1998 Proxy Statement, filed April 24, 1998,
hereby incorporated by reference.)
10 (m)* Memorandum of Understanding No. 5 dated March 7, 1997 between the
Company and Heidelberger Druckmaschinen Aktiengesellschaft.
(Previously filed as Exhibit 10.(T) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 28, 1996 filed
March 31, 1997, hereby incorporated by reference.)
10 (n) Amendment to Loan Agreement between the Company and Citizens Bank,
New Hampshire. (Previously filed as Exhibit 10.R to the Company's
Form 10-K for the fiscal year ended January 2, 1999, filed March 2,
1999, hereby incorporated by reference.)
10 (o)** Employment Agreement by and between the Company and Robert W.
Hallman. (Previously filed as Exhibit 10.1 to the Company's
Quarterly report on Form 10-Q for the quarter ended October 3,
1998, filed November 17, 1998, hereby incorporated by reference.)
10 (p) Master Security agreement and related Promissory Note, by and
between the Company and KeyCorp Leasing, a Division of Key
Corporate Capital, Inc., dated September 27, 1999. (Previously
filed as Exhibit 10(s) to the Company's Form 10-Q for the quarter
ended October 1, 1999, filed November 16, 1999, hereby incorporated
by reference.)
10 (q) Amendment to existing loan agreement with Citizens Bank, New
Hampshire, dated, March 22, 2000. (Previously filed as Exhibit
10(t) to the Company's Form 10-K for the fiscal year ended January
1, 2000, filed March 31, 2000, hereby incorporated by reference.)
10 (r) Amendment to existing loan agreement with Keybank Corporate
Capital, Inc., dated March 28,
32
2000. (Previously filed as Exhibit 10(u) to the Company's Form 10-K
for the fiscal year ended January 1, 2000, filed March 31, 2000,
hereby incorporated by reference.)
10 (s)* Master Supply and Distribution Agreement by and between Presstek,
Inc. and Xerox Corporation dated September 22, 2000. (Previously
filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000, filed November 14,
2000, hereby incorporated by reference.)
10 (t) Amendment to Loan Agreement and Related Loan Documents by and among
Presstek, Inc., Lasertel, Inc., and Citizens Bank New Hampshire
dated as of October 30, 2000. (Previously filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed November 14, 2000, hereby incorporated by
reference.)
10 (u) Guaranty Agreement by Lasertel, Inc., to the benefit of Citizens
Bank New Hampshire made as of October 30, 2000. (Previously filed
as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000, filed November 14, 2000,
hereby incorporated by reference.)
10 (v) Term Note dated October 30, 2000 made by Presstek, Inc. in favor of
Citizens Bank New Hampshire. (Previously filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10- Q for the quarter ended
September 30, 2000, filed November 14, 2000, hereby incorporated by
reference.)
10 (w) Security Agreement by and between Lasertel, Inc. and Citizens Bank
New Hampshire dated October 30, 2000. (Previously filed as Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.)
10 (x) Assignment of Lease Agreement by and between Presstek, Inc. and
Citizens Bank New Hampshire made as of October 30, 2000.
(Previously filed as Exhibit 10.6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000, filed
November 14, 2000, hereby incorporated by reference.)
10 (y) Mortgage and Security Agreement between Presstek, Inc. and Citizens
Bank New Hampshire dated October 30, 2000. (Previously filed as
Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.)
10 (z) Replacement Revolving Line of Credit Promissory Note dated October
30, 2000 issued by Presstek, Inc. in favor of Citizens Bank New
Hampshire. (Previously filed as Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000, filed November 14, 2000, hereby incorporated by reference.)
10 (aa) Stipulation of Settlement by and among Presstek, Inc. et al and
Representative Plaintiffs (on behalf of themselves and each of the
Class Members) dated March 23, 2000. (Previously filed as Exhibit
10.9 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000, filed November 14, 2000, hereby
incorporated by reference.)
10 (bb)** Amended and Restated Employment Agreement by and between the
Company and Richard A Williams, dated May 25, 2000, superceding all
other agreements between the Company and Richard A. Williams.
(Previously filed as Exhibit 10(ee) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 20, 2000, filed
March 30, 2001, hereby incorporated by reference.)
10 (cc)** Letter of Agreement between the Company and Robert W. Hallman,
dated May 25, 2000, amending certain portions of the Employment
Agreement by and between the Company and Robert W. Hallman,
previously filed as Exhibit 10.1 to the Company's Quarterly report
on Form 10-Q for the quarter ended October 3, 1998, filed November
17, 1998. (Previously filed as Exhibit 10(ff) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 30,
2000, filed March 30, 2001, hereby incorporated by reference.)
33
10 (dd)* 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 the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2001, filed Augusr 14,
2001, hereby incorporated by reference.)
10 (ee)* Agreement between Presstek, Inc. and Adamovski Strojirny a.s. dated
as of April 24, 2001. (Previously filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2001, filed August 14, 2001, hereby incorporated by reference.)
10 (ff) Amendment No. 4 to the Master Security Agreement by and between
Presstek, Inc. and Key Equipment Finance, a Division of Key
Corporate Capital, Inc. dated September 26, 2001. (Previously filed
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 29, 2001, filed November 13, 2001,
hereby incorporated by reference.)
10 (gg) Amendment to Loan Agreement and Related Documents by and between
Presstek, Inc. and Citizens' Bank New Hampshire dated as of October
19, 2001. (Previously filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 29,
2001, filed November 13, 2001, hereby incorporated by reference.)
10 (hh)* Settlement Agreement made as of July 13, 2001 by and between
Heidelberger Druckmaschinen Aktiengesellschaft and Presstek, Inc.
(Previously filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 29, 2001, filed
November 13, 2001, hereby incorporated by reference.)
10 (ii)* 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
Coroporation dated May 11, 2001. (Previously filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 29, 2001, filed November 13, 2001, hereby
incorporated by reference)
21 Subsidiaries of the Company (filed herewith.)
23 (a) Consent of BDO Seidman, LLP (filed herewith.)
* The SEC has granted the Company's request of confidential treatment
with respect to a portion of this exhibit.
** Denotes management employment contracts or compensatory plans.
Item 14 (b) Reports on Form 8-K None
Item 14 (c) See Item 14 (a) (3) above.
Item 14 (d) See Item 14 (a) (2) above.
34
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.
Dated: March 29, 2002 By: /s/ Robert W. Hallman
Robert W. Hallman
President and
Chief Executive Officer
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/ Richard A. Williams Chairman of the Board March 29, 2002
--------------------------- and Chief Scientific Officer
Richard A. Williams
/s/ Robert W. Hallman Chief Executive Officer, March 29, 2002
--------------------------- President, and Director
Robert W. Hallman (Principal Executive Officer)
/s/ Dr. Lawrence Howard Director March 29, 2002
---------------------------
Dr. Lawrence Howard
/s/ John W. Dreyer Director March 29, 2002
---------------------------
John W. Dreyer
/s/ John B. Evans Director March 29, 2002
---------------------------
John B. Evans
/s/ Edward J. Marino Director March 29, 2002
---------------------------
Edward J. Marino
/s/ Michael D. Moffitt Director March 29, 2002
---------------------------
Michael D. Moffitt
/s/ Daniel S. Ebenstein, Esq. Director March 29, 2002
---------------------------
Daniel S. Ebenstein, Esq.
/s/ Diane L. Bourque Vice President, Controller March 29, 2002
--------------------------- and Assistant Secretary
Diane L. Bourque (Principal Financial and
Accounting Officer)
35
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 29, 2001 and December 30, 2000 F-3
Statements of Operations for the fiscal years ended December 29, 2001,
December 30, 2000, and January 1, 2000 F-4
Statements of Changes in Stockholders' Equity for the fiscal years
ended December 29, 2001, December 30, 2000 and January 1, 2000 F-5
Statements of Cash Flows for the fiscal years ended December 29, 2001,
December 30, 2000, January 1, 2000 F-6
Notes to Financial Statements F-7
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and Reserves FS-1
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Presstek, Inc.
Hudson, New Hampshire
We have audited the accompanying balance sheets of Presstek, Inc. as of December
29, 2001 and December 30, 2000, and the related statements of operations,
changes in stockholders' equity, and cash flows for the fiscal years ended
December 29, 2001, December 30, 2000 and January 1, 2000. We have also audited
the financial statement schedule listed in the accompanying index. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements and schedule.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Presstek, Inc. at December 29, 2001
and December 30, 2000, and the results of its operations and its cash flows for
the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 2000,
in conformity with accounting principles generally accepted in the United States
of America.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
February 16, 2002, except for Note 16, as to which the date is March 19, 2002
F-2
PRESSTEK, INC.
BALANCE SHEETS Dec 29 Dec 30
(In thousands, except share data) 2001 2000
--------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,492 $ 11,972
Accounts receivable, net of allowance for losses
of $2,420 and $2,842 in fiscal 2001 and 2000, respectively 18,117 16,946
Inventories 17,818 12,045
Advances to suppliers 303 6,455
Other current assets 815 1,147
--------------------------------------------------------------------------------------------------------------------------
Total current assets 39,545 48,565
--------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 61,235 60,248
--------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Patent application costs and license rights, net 4,358 4,885
Other 1,706 2,204
--------------------------------------------------------------------------------------------------------------------------
Total other assets 6,064 7,089
--------------------------------------------------------------------------------------------------------------------------
TOTAL $ 106,844 $ 115,902
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 967 $ -
Current portion of long-term debt 2,343 1,989
Accounts payable 2,067 6,695
Accrued expenses 4,399 3,467
Deferred revenues 1,507 2,559
Net current liabilities of discontinued operations 1,521 1,568
--------------------------------------------------------------------------------------------------------------------------
Total current liabilities 12,804 16,278
--------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 14,055 16,481
--------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or outstanding - -
Common stock, $.01 par value; authorized 75,000,000 shares;
Issued and outstanding 34,115,906 shares at
December 29, 2001; 34,027,981 shares at December 30, 2000 341 340
Additional paid-in capital 97,342 96,685
Retained deficit (17,698) (13,882)
--------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 79,985 83,143
--------------------------------------------------------------------------------------------------------------------------
TOTAL $ 106,844 $ 115,902
==========================================================================================================================
See notes to financial statements
F-3
PRESSTEK, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
DEC 29 Dec 30 Jan 1
FOR THE FISCAL YEARS ENDED 2001 2000 2000
---------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Product sales $ 93,566 $ 78,121 $ 47,948
Royalties and fees from licensees 8,737 9,173 7,016
---------------------------------------------------------------------------------------------------------------------------------
Total revenues 102,303 87,294 54,964
---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of products sold 64,395 46,747 33,326
Research and product development 11,719 15,897 17,190
Sales, marketing and customer support 13,004 9,613 5,934
General and administrative 15,802 9,635 6,487
Provision for settlement of shareholder litigation - - 23,200
---------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 104,920 81,892 86,137
---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (2,617) 5,402 (31,173)
---------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest, net (1,136) (99) 501
Other, net (63) 147 38
---------------------------------------------------------------------------------------------------------------------------------
Total other income (expense), net (1,199) 48 539
---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,816) 5,450 (30,634)
PROVISION FOR INCOME TAXES - 150 -
---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (3,816) 5,300 (30,634)
---------------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations - 600 (448)
Loss on disposal of discontinued operations - - (8,534)
---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS - 600 (8,982)
---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (3,816) $ 5,900 $ (39,616)
=================================================================================================================================
EARNINGS (LOSS) PER SHARE - BASIC:
From continuing operations $ (0.11) $ 0.16 $ (0.95)
From discontinued operations $ 0.00 $ 0.02 $ (0.28)
---------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE - BASIC $ (0.11) $ 0.18 $ (1.23)
=================================================================================================================================
EARNINGS (LOSS) PER SHARE - DILUTED:
From continuing operations $ (0.11) $ 0.15 $ (0.95)
From discontinued operations $ 0.00 $ 0.02 $ (0.28)
---------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.11) $ 0.17 $ (1.23)
=================================================================================================================================
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING - BASIC 34,096 32,826 32,336
=================================================================================================================================
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING - DILUTED 34,096 35,320 32,336
=================================================================================================================================
See notes to financial statements
F-4
PRESSTEK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL RETAINED TOTAL
COMMON STOCK PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 2, 1999 32,276 $ 323 $ 67,296 $ 19,834 $ 87,453
Net loss for the fiscal year (39,616) (39,616)
Issuance of unregistered shares of common
stock relative to the acquisition of
R/H Consulting, Inc. 143 1 1,409 1,410
Issuance of common stock relative to the
exercise of incentive and non-qualified stock options 97 1 607 608
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 2000 32,516 325 69,312 (19,782) 49,855
Net income for the fiscal year 5,900 5,900
Issuance of warrants to purchase 300,000
shares of common stock 2,488 2,488
Issuance of unregistered shares of
common stock to settle the derivative lawsuit 61 1 949 950
Issuance of unregistered shares of common
stock to settle the class action lawsuit 1,245 12 21,988 22,000
Issuance of common stock relative to the
exercise of incentive and non-qualified stock options 206 2 1,948 1,950
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 30, 2000 34,028 340 96,685 (13,882) 83,143
Net loss for the fiscal year (3,816) (3,816)
Issuance of common stock relative to the exercise of
incentive and non-qualified stock options 88 1 657 658
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 29, 2001 34,116 $ 341 $ 97,342 $(17,698) $ 79,985
====================================================================================================================================
See notes to financial statements
F-5
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
DEC 29 Dec 30 Jan 1
FOR THE FISCAL YEARS ENDED 2001 2000 2000
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS - OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (3,816) $ 5,300 $(30,634)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) operating activities of continuing
operations:
Depreciation and amortization 9,003 6,653 5,682
Provision for warranty and other costs 3,877 862 290
Provision for losses on accounts receivable 990 686 1,790
Provision for shareholder litigation settlement - - 22,950
Other, net 995 324 41
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (2,161) (5,987) 7,191
Decrease (increase) in inventories (5,773) (4,831) 2,510
Decrease (increase) in advances to suppliers and other current assets 6,484 (6,743) 109
Increase (decrease) in accounts payable (4,628) 1,702 (1,818)
Increase (decrease) in accrued expenses (2,942) (2,415) 2,150
Increase (decrease) in deferred revenues (1,052) 2,459 100
Decrease in billings in excess of costs and estimated earnings
on uncompleted contracts - (44) (1,951)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities of continuing operations 977 (2,034) 8,410
Net cash provided by (used in) operating activities of discontinued operations (47) 988 (7,196)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 930 (1,046) 1,214
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS - INVESTING ACTIVITIES:
Acquisitions, net of cash acquired - - (494)
Property, plant and equipment purchases (9,643) (15,245) (11,812)
Proceeds from sale of land and equipment - 22 459
Increase in other assets (320) (978) (1,005)
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities of continuing operations (9,963) (16,201) (12,852)
Net cash provided by investing activities of discontinued operations - - 7,215
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,963) (16,201) (5,637)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from stock option exercises 658 1,950 608
Proceeds from mortgage term loan - 4,000 -
Repayments of mortgage term loan (890) (556) (518)
Proceeds from lease line of credit - 5,959 4,041
Repayments of lease line of credit (1,182) (787) (112)
Proceeds from revolving line of credit 967 - -
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (447) 10,566 4,019
------------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (9,480) (6,681) (404)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 11,972 18,653 19,057
------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 2,492 $ 11,972 $ 18,653
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,367 $ 813 $ 114
====================================================================================================================================
Income taxes $ 121 $ 55 $ -
====================================================================================================================================
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Warrants issued in exchange for consulting services rendered $ - $ 2,488 $ -
====================================================================================================================================
Issuance of unregistered shares of common stock in settlement of
the Derivative Lawsuit $ - $ 950 $ -
====================================================================================================================================
Issuance of unregistered shares of common stock in settlement of
the Class Action Lawsuit $ - $ 22,000 $ -
====================================================================================================================================
Common stock issued and net assets acquired relating
to the acquisition of R/H Consulting, Inc. $ - $ - $ 1,410
====================================================================================================================================
See notes to financial statements
F-6
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
NATURE OF BUSINESS - Presstek, Inc. ("Presstek", or "the Company") is a
manufacturer, developer and marketer of digital laser imaging and chemistry-free
plate technologies for the printing and graphic arts industries. Presstek's
products and applications incorporate its patented DI(R) direct imaging
technologies and consumables for computer-to-plate, ("CTP") and direct-to-press
applications.
In April 2000, the Company incorporated an Arizona subsidiary Lasertel, Inc.
("Lasertel") and established operations for the purpose of securing its supply
of laser diodes. Lasertel is primarily engaged in the manufacture and
development of the Company's high-powered laser diodes.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts of
the Company and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
As a result of a strategic decision to exit the vacuum coating deposition
equipment business, the shut-down of Delta V was recorded in the quarter ended
October 2, 1999, and the financial statements for all periods reflect Delta V as
a discontinued operation. All of the following notes, unless otherwise
indicated, refer to the continuing operations of Presstek.
FISCAL YEAR - The Company operates and reports on a 52/53 week fiscal year
ending on the Saturday closest to December 31. Accordingly, the financial
statements include the 52 week fiscal years ended December 29, 2001, ("fiscal
2001"), December 30, 2000 ("fiscal 2000") and January 1, 2000 ("fiscal 1999").
USE OF ESTIMATES - The Company prepares its financial statements in conformity
with generally accepted accounting principles. This requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Many of the Company's estimates and assumptions used in the financial statements
relate to the Company's products, which are subject to rapid technological
change. It is possible that changes may occur in the near term that would affect
management's estimates with respect to the carrying values of inventories,
property plant and equipment and patents.
CASH EQUIVALENTS - For purposes of reporting cash flows, the Company considers
all savings deposits, certificates of deposit, money market funds and deposits
purchased, and short term investments with a maturity of three months or less to
be cash equivalents. At December 29, 2001 and December 30, 2000 cash and cash
equivalents consisted of cash balances on deposit and money market funds.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, accounts receivable and advances to suppliers. The Company invests
in high-quality money market instruments, securities of the U.S government, and
high-quality corporate issues. Accounts receivable and advances to suppliers are
generally unsecured and are derived from the Company's customers and suppliers
located around the world. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses. Concentration of
credit risk with respect to accounts receivable results from a significant
portion of the Company's receivables concentrated with three major customers.
F-7
INVENTORIES - Inventories are valued at the lower of cost or market value, with
cost determined using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost
and are depreciated using a straight-line method over their estimated useful
lives (ranging from 3 to 30 years). Leasehold improvements are amortized over
the life of the lease.
PATENT APPLICATION COSTS AND LICENSE RIGHTS - Patent application costs 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. Such costs are amortized over a period
ranging from five to seven years, beginning on the date the patents or rights
are issued or acquired. Amortization expense relating to patent application
costs and license rights for fiscal 2001, 2000 and 1999, was $780,000, $779,000
and $516,000, respectively.
SOFTWARE DEVELOPMENT COSTS - Software development costs for products and certain
product enhancements are capitalized subsequent to the establishment of their
technological feasibility (as defined in Statement of Financial Accounting
Standards No. 86) based upon the existence of working models of the products
which are ready for initial customer testing. Costs incurred prior to such
technological feasibility or subsequent to a product's general release to
customers are expensed as incurred. During fiscal 2001, 2000 and 1999, the
Company did not incur material costs subject to capitalization. Amortization
expense reported in fiscal 1999 was $40,000. There was no amortization expense
for fiscal years 2001 or 2000. Amortization expense was based upon the ratio
that current gross revenues bear to total estimated gross revenues, which was an
amount greater than amortization on a straight-line method over the estimated
economic life of the product from three to five years. As of January 1, 2000,
all software development costs had been fully amortized.
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 lease line of credit agreement approximates fair value
because the interest rates are based on floating rates identified by reference
to market rates. At December 29, 2001 and December 30, 2000, the fair value of
the Company's long-term debt approximated carrying value.
RECLASSIFICATION - Certain prior fiscal years' accounts have been reclassified
for comparative purposes.
STOCK-BASED COMPENSATION - The Company accounts for stock options granted to
employees under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), as permitted by Statement
of Financial Accounting Standards No. 123, ("SFAS 123") "Accounting for
Stock-Based Compensation." APB 25 provides for compensation cost to be
recognized over the vesting period of the options based on the difference, if
any, between the fair market value of the Company's stock and the option price
on the grant date. SFAS 123 requires companies that follow APB 25 to provide pro
forma disclosure of the effect of applying the optional fair value method.
REVENUE RECOGNITION -The Company records revenue for product sales and related
royalties at the time of shipment, net of estimated returns. Certain fees and
other reimbursements are recognized as revenue when the related services have
been performed or the revenues otherwise earned. Revenues from fixed-price and
modified fixed-price research and development contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to
date compared to the estimated total of direct costs for each contract. As
contracts may extend over one or more accounting periods, revisions in costs and
earnings estimated during the course of the work are reflected during the
accounting period in which the facts that required such revisions become known.
Deferred revenues include certain customer advances received as a result of the
Company's supply and distribution agreements. These revenues are recognized as
product is shipped or services are performed.
SHIPPING AND HANDLING COSTS - Shipping and handling costs billed to customers
are recorded as revenue. The costs associated with shipping goods to customers
are recorded as a cost of sales.
F-8
PRODUCT WARRANTIES - The Company warrants its products against defects in
material and workmanship generally for a period of one year. Anticipated future
warranty costs are accrued by a charge to expense as products are shipped and
the related revenue recognized. At December 29, 2001 and December 30, 2000,
accrued expenses included accrued warranty costs of $793,000 and $598,000,
respectively.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are expensed as
incurred for financial reporting purposes.
COMPREHENSIVE INCOME - The Company accounts for Comprehensive Income in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 130
"Reporting Comprehensive Income". Comprehensive income is comprised of net
income and all changes in stockholders' equity except those due to investments
by owners. Net income (loss) was the same as comprehensive income (loss) for all
periods presented herein.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per share is
computed by dividing net income (loss) by the weighted average numbers of shares
of common stock outstanding during the period. Diluted earnings (loss) per
share is computed giving effect to all potential dilutive common shares that
were outstanding during the period. Potential dilutive common shares consist of
the incremental common shares issuable upon the exercise of stock options. For
fiscal 2001 and fiscal 1999 potentially dilutive securities that related to
shares issuable upon the exercise of stock options granted by the Company were
excluded, as their effect was antidilutive.
LONG LIVED ASSETS - Long-lived assets, such as intangible assets and property
and equipment, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to fair value. As a result of the divestiture of Delta V, the
Company recorded a charge of $6.1 million in fiscal 1999 related to the
write-down of goodwill and other intangibles. No other write-downs were
necessary for fiscal 2001, 2000 and 1999.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS 141"), which supersedes APB Opinion No. 16,
"Business Combinations". SFAS 141 eliminates the pooling-of-interests method of
accounting for business combinations and modifies the application of the
purchase accounting method. The elimination of the pooling-of-interests method
is effective for transactions initiated after June 30, 2001. The remaining
provisions of SFAS 141 are effective for transactions accounted for using the
purchase method that are completed after June 30, 2001.
In July 2001, the FASB also issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Intangible Assets" ("SFAS 142"), which supersedes APB
Opinion No. 17, "Intangible Assets". SFAS 142 eliminates the current requirement
to amortize goodwill and indefinite-lived intangible assets, addresses the
amortization of intangible assets with a defined life and addresses the
impairment testing and recognition for goodwill and intangible assets. SFAS 142
applies to goodwill and intangible assets arising from transactions completed
before and after the Statement's effective date. SFAS 142 is effective for
fiscal 2002. The Company will adopt SFAS 142 in fiscal 2002. The Company has not
yet determined the impact the adoption of SFAS 142 will have on its financial
statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
Company has not yet determined the impact the adoption of SFAS 143 will have on
its financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", and the accounting and reporting provisions of APB No. 30, "Reporting the
Results of Operations for a Disposal of a Segment of a Business." SFAS 144 is
effective for fiscal years beginning after December 15, 2001, with earlier
application
F-9
encouraged. The Company is required to adopt SFAS 144 as of December 30, 2001,
however, the Company has not yet determined the impact the adoption of SFAS 144
will have on its financial statements.
2. BUSINESS ACQUISITION
--------------------
In November 1999 the Company acquired 100% of the stock of R/H Consulting, Inc.
("R/H"). R/H was principally engaged in the research and development of laser
imageable printing plates. R/H was purchased for $500,000 in cash and 142,855
shares of the Company's common stock. The excess of the purchase price paid over
the book value of net assets acquired of $1.9 million has been allocated to the
patents acquired. The acquisition was accounted for as a purchase and
accordingly, the results of R/H's operations subsequent to November 1999 have
been included in the financial statements for fiscal 2001, fiscal 2000 and the
fourth quarter of fiscal 1999. The results of R/H's operations were not material
for 1999, and therefore pro forma information has not been presented.
3. DISCONTINUED OPERATIONS
-----------------------
During fiscal 1999 the Company discontinued the operations of Delta V to allow
the Company to focus its efforts on the core business of digital imaging and
plate manufacturing. Located in Tucson, Arizona, Delta V was engaged in the
development, manufacture, and sale of vacuum deposition coating equipment for
vacuum coating applications. The Company shut-down the operations of Delta V at
the end of fiscal 1999.
As a result of the shut-down of Delta V, the Company booked an $8.5 million loss
on disposal of discontinued operations for fiscal 1999. This included actual
closing costs and operating losses incurred in the fourth quarter of fiscal 1999
of $2.2 million, a provision for anticipated closing costs of $1.6 million, $6.1
million related to the write off of goodwill and other intangible assets, and a
write-off of other assets of $1.6 million. These costs were partially offset by
proceeds of $3.0 million received from Minnesota Mining and Manufacturing Co.
("3M"), for the licensing of the Company's intellectual property relating to
vacuum-deposited polymer multi-layer technology.
Delta V is reported as a discontinued operation for all periods presented
herein.
Revenues and net income (loss) from discontinued operations for fiscal 2000 and
fiscal 1999 were as follows:
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------
Revenues $ - $ 7,248
Costs and expenses - 8,365
------------------------------------------------------------------------------------------------------------
Loss from operations - (1,117)
Other income 600 669
------------------------------------------------------------------------------------------------------------
Net Income (loss) from discontinued operations $ 600 $ (448)
============================================================================================================
There were no revenues or costs from discontinued operations during fiscal 2001.
Net current liabilities of discontinued operations at December 29, 2001 and
December 30, 2000 were $1.5 million and $1.6 million, respectively. The
remaining net current liabilities of discontinued operations represent primarily
product warranties and other liabilities related to Delta V's equipment
installations.
Net income from Delta V's discontinued operations of $600,000 for the fiscal
year 2000 resulted from subsequent payments received from 3M for the licensing
of the Company's intellectual property relating to vacuum-deposited polymer
multi-layer technology.
F-10
4. INVENTORIES
-----------
Inventories consisted of the following at December 29, 2001 and December 30, 2000:
(In thousands) 2001 2000
------------------------------------------------------------------------------------------------------------------------
Raw materials $ 4,458 $ 3,800
Work in process 4,530 5,082
Finished goods 8,830 3,163
------------------------------------------------------------------------------------------------------------------------
Total inventories $17,818 $12,045
========================================================================================================================
5. PROPERTY, PLANT AND EQUIPMENT, NET
----------------------------------
Property, plant and equipment, net consisted of the following at December 29, 2001 and December 30, 2000:
(In thousands) 2001 2000
------------------------------------------------------------------------------------------------------------------------
At cost:
Land and improvements $ 2,038 $ 2,038
Buildings and leasehold improvements 26,245 26,711
Production equipment and other 49,147 39,673
Office furniture and equipment 5,119 4,937
Construction in progress - 6,450
------------------------------------------------------------------------------------------------------------------------
82,549 79,809
Less accumulated depreciation (21,314) (19,561)
------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment, net $ 61,235 $ 60,248
========================================================================================================================
Certain property and equipment is pledged as security for long-term debt. See Note 7 of notes to the financial statements.
6. ACCRUED EXPENSES
----------------
Accrued expenses consisted of the following at December 29, 2001 and December 30, 2000:
(In thousands) 2001 2000
------------------------------------------------------------------------------------------------------------------------
Accrued payroll and benefits $ 1,811 $ 1,957
Accrued warranty 793 598
Other current liabilities 1,795 912
------------------------------------------------------------------------------------------------------------------------
Total accrued expenses $ 4,399 $ 3,467
========================================================================================================================
7. LONG-TERM DEBT
--------------
Long-term debt consisted of the following at December 29, 2001 and December 30, 2000:
(In thousands) 2001 2000
------------------------------------------------------------------------------------------------------------------------
Mortgage term loans $ 8,480 $ 9,369
Lease line of credit 7,918 9,101
------------------------------------------------------------------------------------------------------------------------
16,398 18,470
Less current portion (2,343) (1,989)
------------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 14,055 $ 16,481
========================================================================================================================
The Company's long term debt consists of two mortgage term loans from Citizens
Bank New Hampshire ("Citizens"), and a lease line of credit facility from
Keybank National Association ("Keybank").
The first mortgage term loan is a 1998 ten-year mortgage term loan from Citizens
in the amount of $6.9 million and bears a fixed rate of interest of 7.12% per
year during the first five years, and a variable rate of interest at the LIBOR
rate plus 2%, (3.88% at December 29, 2001) for the remaining five years.
Principal and interest payments during the first five years of the loan will be
made in 60 monthly installments of $80,500. During the remaining five years,
principal and interest payments will be made on a monthly basis in the amount of
one-sixtieth of the outstanding principal amount as of the first day of the
second five year period, plus accrued interest through the monthly payment date.
All outstanding principal and accrued interest is due and payable on February 6,
2008.
F-11
The second mortgage term loan is a 2000 ten-year mortgage term loan in the
amount of $4.0 million and bears a fixed rate of interest equal to 7.95% per
year during the first five years, a fixed rate of interest equal to United
States Treasury Notes or Bills with a maturity date closest to the end of the
second five years, plus 225 basis points for the remaining five years. During
the first five years, principal and interest payments will be made in 60 monthly
installments including principal of $34,993 plus interest. During the remaining
five years, principal and interest payments will be made on a monthly basis in
the amount of one-sixtieth of the outstanding principal amount as of the first
day of the second five year period, plus accrued interest through the monthly
payment date. All outstanding principal and accrued and unpaid interest is due
and payable on October 30, 2010.
The two mortgage term loans are secured by land and buildings with a cost of
approximately $22.0 million.
The Company also has in place a $15.0 million lease line of credit facility from
Keybank pursuant to a 1999 loan agreement. In fiscal 2000 and fiscal 1999, the
Company borrowed $6.0 million and $4.0 million, respectively, against the lease
line of credit facility. The $10.0 million in borrowings to date is secured by
equipment with a book value at December 29, 2001 of $13.4 million. This loan
bears a variable rate of interest based upon the revolving prime rate,
(currently 4.75%) with a future fixed rate conversion provision. Principal and
interest under the lease line are payable in 84 monthly installments which began
in July 2000 for the $6.0 million in borrowings, and October 1999 for the
initial $4.0 million in borrowings. The Company has available an additional $5.0
million lease line of credit from Keybank, which expires on April 30, 2002.
In addition to the mortgage term loans and the lease line of credit the Company
has a revolving line of credit loan with Citizens, which expires in September
2002, under which the Company may borrow $16.0 million. The revolving line of
credit is subject to a borrowing base formula based on eligible accounts
receivable and inventories, as defined by the loan agreement, and reduced by the
amount of all letters of credit outstanding. The revolving line of credit loan
is secured by substantially all of the Company's assets, with interest payable
at the LIBOR rate plus 1.50% (3.38% at December 29, 2001). As of December 29,
2001, the Company had $7.8 million outstanding under a standby letter of credit,
and $7.2 million available under the revolving line of credit loan, subject to
the borrowing base formula.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet various
restrictive covenants on a quarterly and annual basis, including maximum funded
debt to EBITDA and minimum fixed charge coverage covenants. The Company was not
in compliance with these two covenants at December 29, 2001. See note 16 of
notes to the financial statements.
As of December 29, 2001, aggregate debt maturities for long-term debt were as
follows:
(In thousands)
-------------------------------------------------------------------
2002 $ 2,343
2003 2,548
2004 2,634
2005 2,852
2006 2,833
Thereafter 3,188
-------------------------------------------------------------------
Total long-term debt maturities $16,398
===================================================================
8. STOCKHOLDERS' EQUITY
--------------------
PREFERRED STOCK - The Company's certificate of incorporation empowers the Board
of Directors, without stockholder approval, to issue up to 1,000,000 shares of
$.01 par value preferred stock, with dividend, liquidation, conversion, and
voting or other rights to be determined upon issuance by the Board of Directors.
EMPLOYEE STOCK OPTION PLANS - As of December 29, 2001 the Company had three
stock option plans in effect, namely, the 1994 Stock Option Plan (the "1994
Plan"), the 1997 Interim Stock Option Plan (the "1997 Plan") and the 1998 Stock
Incentive Plan (the "1998 Plan"). The 1988 Stock Option Plan (the "1988 Plan")
expired on August 21, 1998, and the 1991 Stock Option Plan (the "1991 Plan")
expired on August 18, 2001. No future grants will be issued under these plans,
however 8,100 and 480,000 shares respectively, remain outstanding and will
expire according to the specified expiration terms under the individual grants.
F-12
The 1994 Plan provides for the award of options, to key employees and other
persons, to purchase up to 2,500,000 shares of the Company's common stock.
Options granted under this plan may be either Incentive Stock Options ("ISOs")
or Nonqualified Options ("NQOs"). Generally, ISOs may only be granted to
employees of the Company, at an exercise price of not less than fair market
value of the stock at the date of grant. NQOs may be granted to any person, at
any exercise price not less than par value, within the discretion of the Board
of Directors or a committee appointed by the Board of Directors ("Committee").
The 1997 Plan provides for the award of options to key employees and other
persons, to purchase up to 250,000 shares of the Company's common stock. Only
NQOs may be granted under this plan.
Under the 1997 and 1994 Plans, any options granted will generally become
exercisable in increments over a period not to exceed ten years from the date of
grant, to be determined by the Board of Directors or Committee. These options
generally will expire not more than ten years from the date of grant.
The 1998 Plan provides for the award (collectively "awards") of stock options,
restricted stock, deferred stock, and other stock based awards to officers,
directors, employees, and other key persons. A total of 3,000,000 shares of
common stock, subject to anti-dilution adjustments have been reserved under this
plan. Options under the 1998 Plan 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. Options become exercisable the day before the fifth anniversary of the
date of grant in the case of an ISO.
DIRECTOR STOCK OPTION PLAN - The Company's Non-employee Director Stock Option
Plan (the "Director Plan") allows only non-employee directors of the Company to
receive grants under the plan. The plan provides that eligible directors
automatically receive a grant of options to purchase 5,000 shares of common
stock at fair market value upon first becoming a director and, thereafter, an
annual grant, in January of each year, of options to purchase 2,500 shares at
fair market value. Options granted under this plan become 100% exercisable after
one year and terminate five years from date of grant.
F-13
The following table summarizes information about all stock options outstanding
at December 29, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICES AS OF 12/29/01 CONTRACTUAL YEARS EXERCISE PRICE AS OF 12/29/01 EXERCISE PRICE
----------------------------------------------------------------------------------------------------------------------------------
$ 5.50 - $ 7.25 556,926 7.5 $ 6.71 218,451 $ 6.85
$ 7.26 - $ 7.78 709,960 2.8 $ 7.73 675,585 $ 7.74
$ 7.79 - $ 9.93 545,125 4.1 $ 9.24 405,562 $ 9.44
$ 9.94 - $13.50 268,350 6.9 $11.39 91,725 $11.13
$13.51 - $13.75 760,626 5.1 $13.75 708,026 $13.75
$13.76 - $26.94 464,500 5.3 $15.77 261,125 $15.41
---------------------- -------------------
3,305,487 5.0 $10.62 2,360,474 $10.73
====================== ===================
Information concerning all stock option activity under the 1988, 1991, 1994,
1997, 1998 and the Director Plans for the fiscal years ended December 29, 2001,
December 30, 2000 and January 1, 2000 is summarized as follows:
WEIGHTED AVERAGE
OPTION SHARES OPTION PRICE PER SHARE PRICE PER SHARE
------------------------------------------------------------------------------------------------------------------------------------
Outstanding at January 2, 1999 2,501,036 $ 3.55 - $44.75 $ 11.43
Granted 817,000 $ 5.88 - $15.88 $ 7.16
Exercised (96,533) $ 3.55 - $13.75 $ 6.30
Cancelled/Expired (137,700) $ 5.50 - $44.75 $ 21.48
------------------------------------------------------------------------------------------------------------------------------------
Outstanding at January 1, 2000 3,083,803 $ 4.85 - $16.81 $ 10.01
Granted 399,000 $ 10.00 - $26.94 $ 16.13
Exercised (206,502) $ 4.85 - $14.75 $ 9.44
Cancelled/Expired (83,464) $ 6.00 - $22.75 $ 11.82
------------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 30, 2000 3,192,837 $ 5.88 - $26.94 $ 10.77
Granted 331,500 $ 5.50 - $14.95 $ 9.15
Exercised (87,925) $ 6.50 - $ 8.00 $ 7.40
Cancelled/Expired (130,925) $ 6.88 - $21.00 $ 12.60
------------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 29, 2001 3,305,487 $ 5.50 - $26.94 $ 10.62
====================================================================================================================================
The incentive and non-qualified stock options summarized in the previous table
were granted under various vesting schedules ranging from immediate to five
years, with termination dates ranging from five to ten years from dates of grant
and may be subject to earlier termination as provided in the plans.
In September 1999, the Company extended the expiration dates to ten years for
all eligible stock options originally granted with expiration dates of six
years. As the market value on the date of extension was less than the exercise
price of the options, no compensation expense was recorded. The grants were
treated as newly issued for purposes of the pro forma disclosure of net loss and
loss per share indicated in the table below.
The proceeds to the Company from stock options exercised during fiscal years
2001, 2000, and 1999, totaled $658,000, $2.0 million, and $608,000,
respectively.
In addition to the above mentioned plans, as of December 29, 2001, the Company's
Lasertel subsidiary has in place a stock option plan, the Lasertel Inc. 2000
Stock Incentive Plan (the "Lasertel Plan"). The Lasertel Plan, as amended in
fiscal 2001, provides for the award of NQO's to employees and other key
individuals of Lasertel
F-14
and Presstek, to purchase up to 2,100,000 shares of Lasertel's common stock.
These options generally vest over a period of four years, with termination dates
generally ten years from date of grant and are subject to earlier termination as
provided in the Lasertel Plan.
In fiscal 2001, Lasertel granted options to purchase 297,450 shares of
Lasertel's common stock at exercise prices ranging from $0.15 to $1.00 per
share, which represented the estimated fair value of Lasertel's common stock at
the time of grant. Also in fiscal 2001, Lasertel cancelled 1,548,394 options. At
December 29, 2001 there were 1,236,744 options outstanding with a weighted
average exercise price of $0.16 per share. The proceeds to Lasertel from stock
options exercised during fiscal year 2001 totaled $8,000.
In fiscal 2000, Lasertel granted options to purchase 2,565,300 shares of
Lasertel common stock at exercise prices ranging from $.10 to $.75, which
represented the estimated fair value of Lasertel's common stock at the time of
grant. The options granted as of December 30, 2000 had a weighted average
exercise price of $.11 per share. No options were exercised in fiscal 2000.
The Lasertel Plan contains a provision that in the event that a public offering
of Lasertel's common stock has not occurred prior to a specified date during
2004, Lasertel is obligated to repurchase, at their then fair value, all of the
Lasertel common stock issued and outstanding as a result of the exercise of the
options under the Lasertel Plan, provided such shares of Lasertel common stock
have been issued and outstanding for at least six months. Fair value is to be
determined by an independent third party.
In May 2000, the Company issued warrants to purchase 300,000 shares of common
stock at a price of $20.81 in exchange for consulting services. These warrants
were valued at $2.5 million, using the Black-Scholes pricing model. The
valuation was recorded as a long-term asset, and is being amortized over the
five-year term of the consulting agreement. Amortization expense recorded in
fiscal years 2001 and 2000 was $498,000 and $415,000, respectively.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation", requires the Company to provide pro forma
disclosure of net income and earnings per share as if the optional fair value
method had been applied to determine compensation costs for the Company's Stock
Option plans. The Company has used the Black-Scholes option-pricing model to
estimate the fair value of $5.60, $11.81, and $9.25, respectively, for each
stock option issued in fiscal 2001, 2000, and 1999 using the following weighted
average assumptions: a risk-free interest rate of 4.95%, 6.13%, and 6.13%; an
expected option life of 6.29, 6.61 years and 6.68 years; expected volatility of
71.76%, 75.95%, and 79.6%; and no dividends paid.
Accordingly, the Company's net income (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated in the following table:
(In thousands, except per share data) 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------
Net income (loss)
As reported $ (3,816) $ 5,900 $ (39,616)
Pro forma $ (4,920) $ 2,904 $ (60,981)
Earnings (loss) per share - Basic
As reported $ (0.11) $ 0.18 $ (1.23)
Pro forma $ (0.14) $ 0.09 $ (1.89)
Earnings (loss) per share - Diluted
As reported $ (0.11) $ 0.17 $ (1.23)
Pro forma $ (0.14) $ 0.08 $ (1.89)
The above pro forma net income (loss) and net income (loss) per share do not
consider any related tax benefit in fiscal 2001, 2000 or 1999.
F-15
On March 30, 2001 and November 15, 2000, the Company issued 808,050 and 437,196
shares of common stock, respectively, pursuant to the settlement of the Class
Action Lawsuit. On August 2, 2000 the Company issued 60,582 shares of common
stock pursuant to the settlement of the Derivative Lawsuit. These shares have
been recorded in the financial statements as if issued in fiscal 2000. See Note
15 of notes to the financial statements.
In November 1999, the Company issued 142,855 shares of its common stock at
$9.875 to acquire the net assets of R/H for an aggregate cost of $1.4 million,
plus $500,000 paid to certain of its officers.
9. INCOME TAXES
------------
The Company utilizes an asset and liability approach for differences in
financial accounting and reporting for income taxes. The primary objectives of
accounting for income taxes are to (a) recognize the amount of tax payable for
the current fiscal year and (b) recognize the amount of deferred tax liability
or asset for the future tax consequences of events that have been reflected in
the Company's financial statements or tax returns.
The Company did not record a provision for income taxes in fiscal 2001 or 1999
due to operating losses. The Company did not record a provision for income taxes
in fiscal 2000 as a result of utilization of net operating loss carryforwards.
The Company recorded a provision of $150,000 for state income taxes for fiscal
2000.
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations.
Deferred tax assets and liabilities consisted of the following at December 29,
2001 and December 30, 2000:
(In thousands) 2001 2000
-------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 32,100 $ 27,000
Tax credits 4,800 4,600
Warranty provisions, litigation and other accruals 3,100 3,000
-------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 40,000 34,600
-------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Amortizable and depreciable assets 100 400
Accumulated depreciation and amortization 3,700 5,000
-------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 3,800 5,400
-------------------------------------------------------------------------------------------------------------
36,200 29,200
Less valuation allowance (36,200) (29,150)
-------------------------------------------------------------------------------------------------------------
Deferred tax assets - net $ - $ 50
=============================================================================================================
The $50,000 deferred tax asset was included in other current assets at December
30, 2000. The valuation allowance increased $7.1 million, $1.2 million and $15.2
million in fiscal 2001, 2000 and 1999, respectively.
The difference between income taxes at the United States federal income tax rate
and the effective income tax rate was primarily a result of an increase in the
valuation allowance for fiscal 2001, 2000, and 1999.
As of December 29, 2001, the Company had net operating loss carryforwards
totaling approximately $93.0 million, of which $64.3 million resulted from
compensation deductions for tax purposes relating to stock option compensation
and $28.7 million resulted from operating losses. To the extent net operating
losses resulting from stock option compensation deductions become realizable,
the benefit will be credited directly to additional paid in capital. The amount
of the net operating loss carryforwards that may be utilized to offset future
taxable income, when earned, may be subject to certain limitations, based upon
changes in the ownership of the Company's common stock.
F-16
The following is a breakdown of the net operating losses and their expiration
dates:
AMOUNT OF REMAINING NET
OPERATING LOSS CARRYFORWARDS
EXPIRATION DATE (In thousands)
------------------------------- ----------------------------------------
2005 $ 2,240
2006 5,020
2008 50
2009 500
2010 9,570
2011 22,710
2012 20,670
2013 1,080
2014 12,310
2015 5,000
2016 13,900
In addition, the Company has available tax credit carryforwards (adjusted to
reflect provisions of the Tax Reform Act of 1986) of approximately $4.8 million
which are available to offset future income tax liabilities when incurred.
10. EARNINGS (LOSS) PER SHARE
-------------------------
The following represents the calculation of basic and diluted earnings (loss)
per share for fiscal 2001, 2000 and 1999:
(In thousands, except per share data) 2001 2000 1999
------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ (3,816) $ 5,300 $ (30,634)
Income (loss) from discontinued operations - 600 (8,982)
------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (3,816) $ 5,900 $ (39,616)
========================================================================================================================
Weighted average common shares
outstanding - Basic 34,096 32,826 32,336
Effect of assumed conversion
of stock options - 2,494 -
------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding - Diluted 34,096 35,320 32,336
========================================================================================================================
Earnings (loss) per share - Basic:
From continuing operation $ (0.11) $ 0.16 $ (0.95)
From discontinued operations $ 0.00 $ 0.02 $ (0.28)
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - Basic $ (0.11) $ 0.18 $ (1.23)
========================================================================================================================
Earnings (loss) per share - Diluted:
From continuing operations $ (0.11) $ 0.15 $ (0.95)
From discontinued operations $ 0.00 $ 0.02 $ (0.28)
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - Diluted $ (0.11) $ 0.17 $ (1.23)
========================================================================================================================
All stock options outstanding have been excluded from the fiscal 2001 and 1999
calculations of diluted earnings per share, as their effect would be
anti-dilutive.
Options and warrants to purchase 318,250 shares of common stock at exercise
prices ranging from $18.50 to $26.94 per share were not included in the
computation of diluted earnings per share for fiscal 2000, as the exercise
prices of the options and warrants were greater than the average market price of
the common shares. These options and warrants, which expire between January 26,
2010 and September 29, 2010, were all outstanding at the end of fiscal 2000.
F-17
11. RELATED PARTIES
---------------
During fiscal 2001, 2000 and 1999, the Company recorded sales of equipment and
consumables to Pitman Company ("Pitman") of $14.3 million, $15.4 million and
$15.5 million, respectively. At December 29, 2001 and December 30, 2000, the
Company had accounts receivable from Pitman of $2.5 million and $2.0 million,
respectively. John Dreyer, who has been a director of the Company since February
1996, was Chairman of the Board and Chief Executive Officer and a director of
Pitman during the reporting period and retired in 2001.
On February 28, 1998 the Company made a loan to Robert E. Verrando in the
original amount of $200,000 at an interest rate of 8% per annum, with the
principal and accrued interest payable on demand. Due to the Company as a result
of the loan, and included in other current assets on December 29, 2001 and
December 30, 2000 was $202,000 and $185,000, respectively. Mr. Verrando was the
President and Chief Operating Officer of the Company from February 1996 to
January 1999 when he retired from these positions. He was Secretary of the
Company from September 1998 to December 2000, and he served as a Director of the
Company's Board of Directors from November 1987 to December 2000, when he
resigned from these positions. Mr. Verrando was an employee of the Company until
December 28, 2001.
The Company paid R.H. Ventures, Inc., ("RH"), $144,000 for consulting services
provided to the Company in fiscal 2001. Mr. Robert Howard, an executive of RH
served as the Company's Chairman Emeritus from October 1998 to December 2000,
when he resigned from this position. The Company paid Mr. Howard $181,000 in
fiscal 2000 and $133,000 in fiscal 1999.
12. SEGMENT INFORMATION AND MAJOR CUSTOMERS
---------------------------------------
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of its proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of the Company's high-powered laser diodes. The
Company operated in one business segment for fiscal 1999 and as a result, no
segment information is provided.
The accounting policies of the reportable segments are consistent with those of
the Company. Sales between the segments are recorded at prices which approximate
pricing for sales conducted at an arm's length basis. The segments are measured
on operating profits or losses before net interest income, minority interest and
income taxes.
A summary of the Company's operations by segment for the years ended December
29, 2001 and December, 30, 2000 were as follows:
(In thousands) DIGITAL IMAGING
PRODUCTS LASERTEL INTER-SEGMENT TOTAL
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 29, 2001
NET REVENUES $103,717 $ 2,046 $ (3,460) $102,303
INCOME (LOSS) FROM OPERATIONS 8,745 (11,362) (2,617)
TOTAL ASSETS 83,805 23,039 106,844
DEPRECIATION AND AMORTIZATION 7,205 1,798 9,003
CAPITAL EXPENDITURES 2,636 7,007 9,643
Year ended December 30, 2000
Net revenues $ 85,794 $ 1,670 $ (170) $ 87,294
Income (loss) from operations 7,555 (2,153) 5,402
Total assets 102,017 13,885 115,902
Depreciation and amortization 6,517 136 6,653
Capital expenditures 8,590 6,655 15,245
The geographic information included in the following table for fiscal 2001, 2000
and 1999 attributes revenues to the geographic locations based on the location
of the Company's customer.
F-18
(In thousands) 2001 2000 1999
------------------------------------------------------------------------------------------------------
Geographic Revenues:
United States $ 39,948 $ 28,544 $ 20,636
Germany 32,738 39,333 14,100
Japan 13,410 4,769 8,106
All Other 16,207 14,648 12,122
------------------------------------------------------------------------------------------------------
Total revenues $102,303 $ 87,294 $ 54,964
======================================================================================================
The Company's long-lived assets are located in the United States.
Revenues generated under the Company's agreements with Heidelberg and its
distributors, Pitman Company and Xerox Corporation, totaled $42.6 million, $14.3
million and $14.2 million, respectively for fiscal 2001, with accounts
receivable balances of $5.9 million, $2.5 million and $4.7 million,
respectively, at December 29, 2001.
Revenues generated under the Company's agreements with Heidelberg and its
distributors, and Pitman Company totaled $49.4 million, $15.4 million,
respectively for fiscal 2000, with accounts receivable balances of $9.5 million
and $2.0 million, respectively, at December 30, 2000. Revenues generated under
the Company's agreements with Heidelberg and its distributors, and Pitman
Company totaled $21.6 million, $15.5 million, respectively for fiscal 1999. No
other customer represented more than ten percent of the Company's revenues in
fiscal 2001, 2000 and 1999.
F-19
13. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases a number of its facilities under non-cancelable operating
leases, many of which contain renewal options. The agreements generally require
minimum monthly rents, adjusted annually, plus a pro rata share of real estate
taxes and certain other expenses. Total rental expenses as a result of these
agreements were $473,000, $424,000, and $449,000 for fiscal 2001, 2000 and 1999,
respectively.
As of December 29, 2001, future minimum lease payments under these agreements
were as follows:
2002 $ 279,000
2003 124,000
2004 4,000
---------------------------------------------------
Total $ 407,000
===================================================
The Company has employment agreements with certain key executive officers. The
agreements provide for minimum salary levels, subject to periodic review by the
Company's Board of Directors or Compensation Committee. The employment
agreements also contain certain termination and change in control provisions, as
defined in the agreements. The Company's maximum contingent liability under such
agreements as of December 29, 2001 would be $1.7 million.
The Company entered into an agreement in fiscal 2000 with Fuji Photo Film Co.,
Ltd. ("Fuji"), whereby minimum royalty payments to Fuji are required based on
specified sales volumes of the 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 June
2005. The remaining commitment under the agreement is payable at specified rates
based on units shipped. The Company's maximum remaining liability under the
royalty agreement is $13.0 million as of December 29, 2001.
14. HEIDELBERG AGREEMENTS
---------------------
In January 1991, the Company entered into a Master Agreement and a Technology
License Agreement (collectively referred to as the "Heidelberg Agreements") with
Heidelberg. Heidelberger Druckmaschinen AG ("Heidelberg"), one of the world's
largest manufacturers of printing presses and printing equipment, based in
Germany, which covered the integration of the DI technology into various presses
manufactured by Heidelberg.
Under the Heidelberg Agreements, Heidelberg is required to pay royalties to the
Company based on the net sales prices of various specified types of Heidelberg
presses on which the Company's DI technology is used. Heidelberg has been
provided with certain rights for use of the DI technology for the Quickmaster DI
format size. The Heidelberg Agreements expire in December 2011 subject to
certain early termination and extension provisions.
In July 2001, the Company settled its outstanding arbitration proceedings with
Heidelberg. Under the terms of the settlement, the Company and Heidelberg agreed
that the licensing arrangements for the Heidelberg Quickmaster 46DI shall be
non-exclusive. Also under the terms of the settlement, the Company agreed to
reduce the royalty payable by Heidelberg for imaging kits delivered with the
Heidelberg Quickmaster 46DI by approximately $9,000 per kit. This reduced
royalty rate will become effective for imaging kits delivered after May 1, 2002.
In addition, in consideration for the resolution of certain issues related to
prior lost revenue that formed part of the arbitration proceedings, Heidelberg
made a one-time payment of $750,000 to the Company in the fourth quarter of
2001.
Additionally, pursuant to the terms of the settlement, the Company and
Heidelberg agreed to license on a non-exclusive basis certain know-how and
patent rights. The Company also licensed to Heidelberg the right to use the DI
trademark in connection with its press and imaging products. The settlement did
not resolve patent infringement claims between the parties with respect to the
Heidelberg Speedmaster 74-DI press but established a mechanism to do so upon
resolution of the Company's outstanding patent litigation with Creo Products,
Inc. For a description of the action with Creo Products, Inc., see Item 3, Legal
Proceedings.
15. OTHER INFORMATION
-----------------
In March 2000, the Company entered into an agreement with the plaintiffs in
several class actions lawsuits consolidated under the common caption "Bill
Berke, et al. v. Presstek, Inc., et al." in the United States District Court,
District of New Hampshire to settle the class action lawsuit. The Company also
executed a memorandum of understanding with respect to the settlement of the
derivatives lawsuits, filed on behalf of the Company, one in the Chancery Court
of the State of Delaware and the other in the United States District Court,
F-20
District of New Hampshire. Under the terms of the class action settlement, $22.0
million, in the form of 1,245,246 shares of the Company's common stock, was to
be paid to the class. The Company issued 808,050 of such shares in the first
quarter of fiscal 2001 and issued 437,196 of such shares in the fourth quarter
of fiscal 2000. In the memorandum of understanding in the derivative litigation,
the Company agreed to issue 60,582 shares of common stock and agreed to certain
therapeutic improvements to its internal policies. The Company issued the 60,582
shares in the third quarter of fiscal 2000. As a result of these issuances all
shares of common stock required to be issued under both the class action
settlement and the memorandum of understanding in the derivative litigation have
been issued. These shares were recorded as issued in fiscal 2000. The Company
recorded a charge of $23.2 million in the fourth quarter of fiscal 1999 related
to the settlements.
In August 1999 Creo Inc., ("Creo"), filed an action in the United States
District Court for the District of Delaware against the Company asserting that
Creo has a "reasonable apprehension that it will be sued by Presstek for
infringement" of two of the Company's patents and seeking a declaration that
Creo's products "do not and will not infringe any valid and enforceable claims"
of the patents in question. In September 1999, the Company filed a counterclaim
against Creo for patent infringement. The Company claimed that Creo infringed
two direct imaging patents owned by the Company which had recently been the
subject of re-examination by the U.S. Patent and Trademark Office. This action
went to trial before the court without a jury during the week of June 25, 2001.
The court issued a decision on September 11, 2001, in which it affirmed the
validity and enforceability of the Company's on-press imaging patents, but held
that the current Creo DOP System did not infringe the patents. The Company
disagrees with the Court's conclusion on infringement. Creo has appealed the
Court's decision that the patents are valid and enforceable, and the Company has
cross-appealed the finding of non-infringement by the current Creo DOP System.
In December of 1999 a complaint was filed by PPG, Inc. ("PPG") against Delta V
in the United States District Court for the Western District of Pennsylvania
alleging that Delta V sold to PPG certain vacuum coating equipment that did not
meet certain product specifications. An amended complaint was filed in April of
2000. In the suit, PPG seeks damages in excess of $7.0 million. In addition to
naming Delta V as a defendant in the complaint, PPG also named Presstek as a
defendant, seeking damages from Presstek and attempting to hold Presstek liable
for the alleged breach of contract by its subsidiary, Delta V, on a theory of
indirect liability. Motions to dismiss for improper venue were denied, but venue
was transferred to the United States District Court for the Middle District of
Pennsylvania. Presstek (and Delta V) have answered the complaint and Delta V has
asserted a counterclaim against PPG and a cross-claim against Circonix, a Delta
V subcontractor for the vacuum coater project. A motion by Circonix to dismiss
PPG's complaint was denied and Circonix has subsequently filed an interlocutory
appeal. In addition, on October 29, 2001, Circonix filed cross-claims against
Presstek and Delta V. On February 1, 2002, Circonix filed a voluntary petition
of bankruptcy in the United States Bankruptcy Court, staying the litigation of
the claims against Circonix. The Company intends to continue to vigorously
defend this action.
16. SUBSEQUENT EVENTS
-----------------
In late February 2002, Adamovski Strojirny, a.s. (Adast) of the Czech Republic,
the Company's supplier of its B3-size sheet-fed press, joined in a bankruptcy
petition filed by its creditors on February 27, 2002. As a result the Company
booked a $2.1 million write-off in the fourth quarter of fiscal 2001 to cover
any exposure related to advances made by the Company to obtain equipment. As a
result of this charge, the Company was not in compliance with its loan covenants
at December 29, 2001, but has subsequently received notice from its lenders
waiving the Company's non-compliance.
F-21
17. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
FISCAL 2001 Q1 Q2 Q3 Q4
Total revenues $ 25,765 $ 27,131 $ 26,324 $ 23,083(1)
Total costs and expenses 24,589 26,675 28,788 24,868(2)
Net income (loss) $ 973 $ 105 $ (2,816) $ (2,078)
=====================================================================================
Earnings (loss) per share - Basic $ 0.03 $ 0.00 $ (0.08) $ (0.06)
=====================================================================================
Earnings (loss) per share - Diluted $ 0.03 $ 0.00 $ (0.08) $ (0.06)
=====================================================================================
Weighted average common shares
Outstanding - Basic 34,064 34,101 34,109 34,111
=====================================================================================
Weighted average common shares
outstanding - Diluted 34,621 34,662 34,109 34,111
=====================================================================================
Fiscal 2000 Q1 Q2 Q3 Q4
-------------------------------------------------------------------------------------
Total revenues $ 19,035 $ 21,216 $ 22,038 $ 25,005
Total costs and expenses 18,743 20,648 20,309 22,192
Net income from continuing operations 391 568 1,656 2,685
Net income from discontinued operations - - - 600(3)
Net income $ 391 $ 568 $ 1,656 $ 3,285
=====================================================================================
Earnings per share - Basic:
From continuing operations $ 0.01 $ 0.02 $ 0.05 $ 0.08
From discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.02
-------------------------------------------------------------------------------------
Earnings per share - Basic $ 0.01 $ 0.02 $ 0.05 $ 0.10
=====================================================================================
Earnings per share - Diluted:
From continuing operations $ 0.01 $ 0.02 $ 0.05 $ 0.08
From discontinued operations $ 0.00 $ 0.00 $ 0.00 $ 0.01
-------------------------------------------------------------------------------------
Earnings per share - Diluted $ 0.01 $ 0.02 $ 0.05 $ 0.09
=====================================================================================
Weighted average common shares
outstanding - Basic 32,561 32,601 32,659 33,443
=====================================================================================
Weighted average common shares
outstanding - Diluted 34,195 34,106 33,800 34,846
=====================================================================================
(1) Includes a $1.5 million sales reversal related to a return of a shipment
by the Company's Lasertel subsidiary.
(2) Includes a $2.1 million write-off recorded in fiscal 2001 against pre-
payments made as a result of a supplier's bankruptcy petition in 2002.
(3) Relates to the operations of Delta V Technologies, Inc., which were
shut-down in fiscal 1999. See Note 3 of notes to the financial
statements.
F-22
PRESSTEK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
CHARGED TO CHARGES
BALANCE AT CHARGED TO OTHER ADD BALANCE AT
FISCAL BEGINNING OF COSTS AND ACCOUNT (DEDUCT) END OF
YEAR DESCRIPTION FISCAL YEAR EXPENSES DESCRIBE DESCRIBE FISCAL YEAR
-----------------------------------------------------------------------------------------------------------------------------------
1999 Allowance for losses on
accounts receivable $ 2,536 $ 2,240 $ - $(1,474) (1) $ 3,302
===================================================================================================================================
Warranty reserve 930 290 - (263) (2) 957
===================================================================================================================================
2000 Allowance for losses on
accounts receivable $ 3,302 $ 686 $ - $(1,146) (1) $ 2,842
===================================================================================================================================
Warranty reserve 957 862 - (1,221) (2) 598
===================================================================================================================================
===================================================================================================================================
2001 Allowance for losses on
accounts receivable $ 2,842 $ 990 $ - $(1,412) (1) $ 2,420
===================================================================================================================================
===================================================================================================================================
Warranty reserve 598 3,877 - (3,682) (2) 793
===================================================================================================================================
(1) Allowance for losses
(2) Warranty expenditures
FS-1
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