form10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
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R
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ANNUAL
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended January 3, 2009
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or
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period
from to
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_____________________________
Commission
File No. 0-17541
PRESSTEK,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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02-0415170
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.Employer
Identification No.)
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10
Glenville Street, Greenwich, Connecticut 06831
(Address
of principal executive offices including zip code)
Registrant’s
telephone number, including area code:
(203)
769-8056
Securities registered pursuant
to Section 12(b) of the Act:
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Title
Of Each Class
[Missing Graphic Reference]
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Name
Of Each Exchange On Which Registered
[Missing Graphic Reference]
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Common
stock, par value $0.01 per share
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The
NASDAQ Global Market
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes £ No
R
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ No
R
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 R 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. R
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act).
Large
accelerated filer £ Accelerated
filer R Non-accelerated
filer £ Smaller
reporting company £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes£ No
R
The
aggregate market value of common stock held by non-affiliates of the registrant
as of June 28, 2008 was $146,247,060.
The
number of shares outstanding of the registrant’s common stock as of March 16,
2009 was 36,664,244.
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Documents
Incorporated by Reference
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Portions
of the registrant’s definitive proxy statement to be delivered to stockholders
in connection with the Annual Meeting of Stockholders scheduled for June 3, 2009
are incorporated by reference into Part III.
PRESSTEK,
INC.
ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED
JANUARY 3, 2009*
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PAGE
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PART
1
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Item
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Business.
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3
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Risk
Factors.**
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18
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Unresolved
Staff Comments.
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26
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Properties.
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27
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Legal
Proceedings.
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28
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Submission
of Matters to a Vote of Security Holders.
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28
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PART
II
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Item
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
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29
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Selected
Financial Data.
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29
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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31
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Quantitative
and Qualitative Disclosures About Market Risk.
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51
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Financial
Statements and Supplementary Data.
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52
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
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87
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Controls
and Procedures.
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87
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Other
Information.
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93
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PART
III
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Item
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Directors,
Executive Officers and Corporate Governance.
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93
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Executive
Compensation.
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94
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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94
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Certain
Relationships and Related Transactions, and Director
Independence.
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94
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Principal
Accountant Fees and Services.
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95
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PART
IV
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Item
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Exhibits
and Financial Statement Schedules.
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95
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96
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*
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Capitalized
terms not defined herein shall have the same meanings ascribed to them in
the Glossary of Item 1.
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**
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See
Part I – Item 1A for cautionary statements regarding forward-looking
statements included in this Annual Report on Form
10-K.
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PART
I
General
Presstek,
Inc. and its subsidiaries (collectively, “Presstek,” “we,” “us,” “our,” or the
“Company”) maintain principal executive offices at 10 Glenville Street,
Greenwich, CT 06831. The Company’s website is www.presstek.com.
Presstek
was organized as a Delaware corporation in 1987. The Company is a leading
manufacturer and marketer of environmentally-friendly digital-based offset
printing solutions. These products are engineered to provide a streamlined
workflow that shortens the print cycle time, reduces overall production costs,
and meets the market’s increasing demand for fast turnaround high-quality color
printing. Presstek’s subsidiary, Lasertel, Inc. (“Lastertel”), manufactures
semiconductor laser diodes for Presstek and external customer
applications. This subsidiary is now classified as a discontinued
operation; please refer to for page 6 for further detail.
Our
products include Digital Imaging (DI®) digital
offset presses, chemistry-free computer-to-plate (“CTP”) systems, workflow
solutions, thermal printing plates, and a complete line of prepress and press
room consumables. Presstek also offers a range of technical services for its
customers.
Background
Since its
incorporation in 1987 Presstek has served the commercial print segment of the
graphics communications industry by offering innovative digital offset printing
solutions for commercial printing applications. We:
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invented
the technology that enables DI®
presses;
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invented
chemistry-free printing plates;
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have
significantly streamlined the print production
workflow;
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have
helped transition offset printing from a craft-based manual process to an
automated manufacturing process;
and
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plan
to continue to innovate by providing high quality fully integrated digital
solutions and services while forming all encompassing relationships with
our customers.
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Primary
Markets
Presstek
serves the global print market. The two primary opportunities for Presstek’s
solutions lie in the commercial and corporate segments.
Commercial
markets include companies that provide printing and print-related services, such
as design, prepress, and bindery, on a print-for-pay basis. Many firms in the
commercial printing industry have some type of process expertise or geographic
focus. This market is further segmented by employee size (i.e. < 10, 10 – 19,
20 – 49, 50 – 99, 100 +) and by equipment capability (e.g. format size 2-page,
4-page, 8-page; type of equipment - sheet-fed or web press).
The
corporate market includes in-plant print shops and data center printing
departments that provide copying and printing services to support the primary
business of a company or organization. These are companies whose primary
business includes anything other than printing (e.g. insurance, manufacturing,
financial services, education, or government).
Historically,
Presstek has primarily served smaller commercial printers with less than 20
employees as well as the in-plant printing market.
Presstek
believes that new product developments will enable equipment placements in
select vertical markets such as mailing and fulfillment and small format
packaging.
Market
Trends
The
printing market is shifting to increasingly faster production of smaller order
quantities (shorter runs) with an increasing use of color. Key trends include
the following:
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45%
of all printed work in the world is short-run and time
sensitive;
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By
2010, 33% of all print jobs are expected to require a 24-hour
turnaround;
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80%
of four-color jobs are now produced in runs of less than 5,000;
and
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Approximately
90% of digital printing is non-personalized, and can be produced on a
DI®
press
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Providing
Solutions for New Market Requirements
Presstek
offers a range of products to meet these changing market demands including
DI®
digital offset presses and chemistry-free CTP systems. Presstek’s DI® presses
incorporate Presstek’s ProFire® Excel
laser imaging technology, unique press design, and thermal plates to create an
optimized solution for press runs from 250 to 20,000 sheets.
Market
studies indicate the number of print jobs with run lengths of 20,000 and below
are increasing, while the frequency of longer run length jobs is decreasing.
DI®
presses fit well into print businesses that are experiencing this trend. These
businesses, which include commercial print shops, quick printers, franchise
shops, digital printers and in-plants, utilize DI® presses
to profitably meet this run length requirement according to research from
industry consulting firm InfoTrends.
Presstek’s
DI®
presses are automated print production systems. Digital files are sent to the
offset printing press where all four printing plates are imaged on press in
precise register, resulting in a highly streamlined digital workflow that is
designed to allow the fastest way to finished offset press sheets. With our CTP
solutions, digital files are sent directly from the prepress workflow to the
plate-imaging device; the plates are imaged off line, and then mounted on a
conventional offset press. Presstek introduced the concept of chemistry-free
printing to the market and continues the active pursuit of this more
environmentally friendly and efficient manner of producing offset printing
plates.
Organizational
Structure
To better
address the worldwide print market, Presstek has aligned its resources into
three strategic product lines. This structure allows the Company to continue to
focus on its traditional base of small commercial and in-plant customers, while
expanding the range of products it can bring to market around the world. This
structure is also designed to better position the Company to more effectively
address the needs of larger commercial printers. These strategic product lines
are:
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Digital
Printing, which includes digital presses, consumables and
workflow;
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CTP,
which is responsible for digital platemaking systems, consumables and
workflow; and
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Traditional,
which operates as a dealer for Presstek products such as polyester CTP
platemaking and other partners products for our
customers.
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Geographic
Structure
Presstek
supplies equipment, service and supplies to support the worldwide print market;
currently 69% of Presstek’s revenues come from North America, 27% from Europe;
2% from Asia Pacific and 2% from other various regions. To facilitate growth
Presstek has established three sales regions to bring integrated solutions to
local markets. The three sales regions are:
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EAME
(Europe, Africa, Middle East);
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Americas
(North America and Latin America);
and
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Our Business
Segments
We
operate in two reportable segments: the Presstek segment, and the Lasertel
segment. The Presstek segment is primarily engaged in the development,
manufacture, sales, distribution, and servicing of digital offset printing
solutions for the graphic arts industries. The Lasertel segment is primarily
engaged in the manufacture and development of high-powered laser diodes for a
variety of industry segments.
On
September 24, 2008, the Company’s Board of Directors approved a plan to market
the Lasertel subsidiary for sale. The financial statements have been restated to
reflect the Lasertel segment as discontinued operations as presented in this
Annual Report on Form 10-K.
For an
analysis of our revenue from sales to external customers, operating profit and
assets by business segment as well as revenue from sales to external customer
and long-lived assets by geographic area, see Note 16 of the Notes to the
Consolidated Financial Statements included in this Annual Report on Form
10-K.
The
Presstek Segment
The
Presstek segment provides research, new product development, systems
integration, equipment manufacturing and plate manufacturing. It also serves as
the center for marketing, sales and service for our digital offset printing
solutions as well as the distribution of our third-party products.
Our
products are sold to end-user customers through either our direct sales force,
our dealer channel, or through original equipment manufacturer (“OEM”) partners.
We also have an established portfolio of pressroom supplies and consumables
which is sold through our direct sales channel and our web
storefront.
Presstek
branded equipment is serviced either by our direct service organization or by
our dealer channel. Our direct service organization primarily serves customers
located in the United States, Canada, and the U.K.
Manufacturing
At our
165,000-square-foot facility in Hudson, NH, we manufacture ProFire® Digital
Media, PearlDry® Plus,
and PearlDry® printing
plates. The ProFire® Excel
imaging kits that are incorporated into DI® presses
are also assembled in Hudson. The Dimension® Excel
series, Vector FL52 and the ABDick®-branded
Digital PlateMaster® system
are also assembled at our Hudson, NH facility.
Plate
manufacturing at our Hudson facility uses vacuum deposition technology to create
ultra-thin imaging layers. We have a state-of-the-art solution coater capable of
handling aqueous or solvent-based fluids with best available environmental
controls throughout the process. Polyethylene terephthalate substrates are
laminated to aluminum webs (“spools”) using electron beam curing technology.
This eliminates the need for environmental emissions from a drying process. We
utilize full converting capability, which provides high-speed slitting,
spooling, formatting and final packaging.
At our
100,000-square-foot facility located in South Hadley, MA, we manufacture
aluminum-based printing plates, including chemistry-free Presstek-branded
Anthem® Pro,
Freedom® Pro and
Aurora® Pro
digital printing plates. The aluminum plate manufacturing includes in-line
graining, anodizing, silicating, and multiple layer coatings. Raw aluminum is
processed into lithographic printing plates for digital markets.
Distribution
Our sales
strategy is designed to emphasize the distribution of Presstek’s DI® presses
and CTP solutions and related consumables, as well as a full portfolio of
conventional products. These products are offered to customers through our
direct sales force, independent graphic arts dealers and strategic OEM
partnerships. We have an established distribution network in North America, and
in Europe. We are currently strengthening our position by growing our dealer
network on a global basis.
Service
and Support
Presstek
also has an established service organization throughout the United States,
Canada and the United Kingdom to service its equipment. In other regions,
Presstek authorized dealers are the primary source of service, with Presstek
providing training and advanced technical support.
The
Lasertel Segment
Our
Lasertel segment is a developer and manufacturer of high-powered laser diodes.
These diodes are used in Presstek’s DI® presses
and the Dimension Series of CTP systems. Lasertel also provides diodes to
external customers in a range of industries (i.e. defense, industrial, medical,
and graphics).
Lasertel
operates in a leased 40,000 square-foot facility located in Tucson, AZ. The
facility includes 10,000 square feet of clean room space and complete processing
equipment for semiconductor laser manufacturing. Lasertel is a vertically
integrated manufacturer of laser diode based components and
systems.
In
September of 2008, Lasertel received International Organization for
Standardization (“ISO”) 13485:2003 certification. In combination with its
existing ISO 9001:2000 certification, these certifications enable Lasertel to be
a manufacturer of medical components and systems. ISO is a non-governmental
federation of the national standard boards of countries from all regions of the
world that set the standards and requirements for state-of-the-art products,
services, processes, materials and systems, as well as for good conformity
assessment, managerial and organizational practice.
On
September 24, 2008, the Company’s Board of Directors approved a plan to market
the Lasertel subsidiary for sale. The financial statements have been restated to
reflect the Lasertel segment as discontinued operations as presented in this
Annual Report on Form 10-K.
Strategy
Our
vision is to provide high quality, fully integrated digital solutions and
services that enable us to form an all-encompassing relationship with our
customers. Our business strategy is to offer innovative digital imaging and
plate technologies that address the opportunities of today and tomorrow in the
graphic arts and commercial printing markets across the globe.
This
strategy includes several imperatives:
1. Focus on the growth of our
consumables product line.
Presstek
provides digital offset solutions that aid printers in meeting the changing
needs of today’s market – shorter run lengths, faster turn-around times, and
more color. Our DI® press
and CTP solutions use our chemistry-free printing plates. With our direct sales
force and network of distribution partners, we feel we are well positioned to
expand our installation base of these solutions. Another step in growing our
consumables business is to develop printing plates (consumables) that can be
imaged on non-Presstek manufactured devices, an open systems approach. The first
step in executing this strategy was the launch of Aurora® Pro, our
open-platform, chemistry-free printing plate, which is designed to be used on
thermal CTP systems marketed by other manufacturers and was introduced at the
end of fiscal 2008. We plan to introduce a longer-run positive
working digital plate in 2009 that will assist our efforts in moving
aggressively up market. The Company also believes that with this strategy, it
can stem the erosion of its traditional consumables (ink, pressroom and proofing
supplies, etc.) by selling these products along with our digital plates and has
dedicated plate resources to this effort.
2.
Emphasize attractive market segments.
Large
print providers were the first to adopt digital technology, and they have driven
the digital transformation of the commercial printing market. Today the benefits
of a digital workflow are well understood and all segments of the commercial
print market are adopting digital technologies. With our range of digital
solutions and the strength of our direct sales and service force, we have
experienced most of our success in the following market segments:
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a.
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Commercial
printers (generally those with less than 20 employees) that need to
increase their production capacity, level of productivity and output
quality while improving profitability have demonstrated success with our
digital offset products. These printers are often acquiring their first
four-color offset press when they acquire a Presstek
product.
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b.
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Digital
printers and copy shops, facilities that primarily operate toner-based
digital printing equipment, are acquiring DI®
presses as complementary devices. They are using DI®
presses for jobs that require run lengths greater than 250 copies, a
higher level of quality, or a substrate (coated stock, thick stock,
plastics, etc.) that cannot be effectively produced on a toner based
device. They are also combining digital toner devices and DI®
presses into one workflow to create certain print jobs more profitably.
For example, they may produce a high quality four-color direct mail piece
on the DI®
press, then add a personalized message or pURL (personal URL) using their
toner device. The result is a high-quality personalized piece affordably
produced.
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c.
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In-plant
print shops that operate within corporations, colleges and universities
and government agencies are attracted to the ease-of-use, compact
footprint and environmentally responsible nature of our solutions. It is
becoming increasing important that these shops be self sustaining. The
productivity, efficiency and versatility of Presstek solutions helps
in-plants reach this goal.
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d.
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During
2008 Presstek was successful in placing several DI®
presses in a number of larger print shops. We believe this is because
DI®
presses are engineered to produce runs between 250 and 20,000 images at a
very low cost. While at the same time market demands are shifting so that
run lengths in this range are increasing, it is leaving a gap in the
production portfolio of many larger commercial print shops. They can
efficiently produce very short-runs (less than 250) on their toner
devices, and runs of 20,000 or more on their conventional offset
presses. Larger print shops, however, can be more profitable
producing a run of 250 to 20,000 on a Presstek’s DI®.
Presstek believes that larger printers will look at DI®
presses to fill this production gap in their equipment
portfolio.
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3.
Focus on key growth areas.
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a.
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Growth within the
existing market segments that Presstek serves today. Historically
Presstek has served print shops with less than 20 employees, and this
segment makes up approximately 75% of the industry (i.e. number of
printers). Many of these printers have not yet fully embraced digital
printing technologies. In addition, owners of existing DI®
presses and CTP systems will be looking to add capacity or to upgrade
their capabilities (i.e. upgrade a 34DI®
press to a 52DI®, a
semi-automated CTP system to a fully automated solution, or add a PathWay
web-to-print solution).
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b.
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Growth up-market to
larger print shops. As print buyers request shorter runs with
faster turnaround times, larger shops often need to outsource these jobs
or run them inefficiently on their larger offset presses or toner presses.
A Presstek’s DI®
press is a good solution for these shops, because it is an offset printing
solution that allows color to be matched to the output of their larger
presses. The DI®
press may also open up new applications for the larger print
shop.
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c.
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Growth of CTP
consumables. It is estimated that the worldwide digital printing
plate market in fiscal 2008 was $3.9 billion. This market is expected to
grow by as much as 36% to $5.3 billion by 2012 based on research from
Vantage Strategic Marketing. Presstek plans to further penetrate this
large consumables market by expanding its range of CTP plates. These
plates will work on both Presstek and third party imaging devices. Aurora
Pro is an example of a product that fits into this area of
growth.
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d.
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Growth in geographic
regions. The largest portion of Presstek’s sales has historically
come from the United States and Canada. The largest portion of the
worldwide print market, however, is outside North America. Presstek has
established three sales regions; Americas, EAME, and Asia Pacific, to
establish proper distribution by region and to help develop solutions that
fit each market’s specific
requirements.
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4.
Enable customers to better compete by offering diverse range of
products.
Because
our goal is to provide high quality, fully integrated digital solutions and
services that form an all-encompassing relationship with our customers, we
deliver solutions that allow printers to differentiate their print businesses in
a competitive marketplace. Presstek’s products can be divided into two primary
categories: DI® presses
and CTP systems, along with the supplies and services that they require. Ease of
use, environmentally friendly chemistry-free imaging, and a small footprint are
common benefits of the two product lines.
Our
DI®
presses, the Presstek 52DI® and
Presstek 34DI®, allow
printers to offer high-quality offset printing on a wide range of substrates at
run lengths starting at 250 sheets for a highly competitive cost per sheet.
DI®
presses are able to do this because of their short make-ready time and reduction
of production steps, which is possible because of three Presstek
technologies—laser imaging, press design, and DI® plate
technology—working in unison to create an optimized printing
system.
Presstek
offers a full range of CTP systems, from a two-page polyester system to an
eight-page thermal plate system. In fiscal 2007, Presstek upgraded the Dimension
Excel Series to include full automation. In fiscal 2008, Presstek added the
Dimension Pro and Compass series platesetters suitable to the needs of larger
print providers.
Presstek
has also expanded its workflow offerings by partnering with third parties. This
allows users to better implement Presstek’s DI® and CTP
solutions while improving the flow of jobs through production. An example of
this is the agreement signed with Press-sense to offer a web-to-print solution;
Presstek markets this product as PathWay. An agreement has also been signed with
EskoArtwork to offer an integrated PDF workflow; we have branded this product
Latitude.
5.
Provide solutions that meet the growth in demand for short-run, fast turnaround
high-quality color printing.
According
to market research commissioned by Presstek and conducted by industry consultant
Dr. Joseph Webb of Strategies for Management, “Much of the print industry’s
decline in shipment volume has been in long-run printed documents. Short-run
printing is actually mainstream. Short-run printing weighs on the capital base
that was purchased to produce long-run printing, and until that installed base
is replaced, profits are negatively affected.” Dr. Webb concludes, “Presstek has
a unique opportunity and position in the reshaping of the printing industry's
workflow and production methods. Presstek as a company, and print as a medium,
are at a fascinating crossroads of technology, market opportunities, and
competition. The Company's products allow printers to compress their workflow to
eliminate costly steps, leveraging the modern content creator’s capabilities to
make better, richer, and more predictable printable files.”
6.
Provide environmentally responsible solutions through our application of
technology.
Our
thermally imaged chemistry-free plate technologies are designed to provide both
a streamlined workflow and an environmentally responsible solution. Besides
contributing to a cleaner and safer printing operation, environmental
responsibility is sound business practice in that our DI® and CTP
solutions reduce labor needs, reduce space requirement, eliminate plate-oriented
waste disposal, and result in fewer manufacturing process errors.
Technology
Imaging
Technology
Presstek
developed the imaging technology for the world's first DI® press.
Over the past 20 years, we have continuously improved on this technology. Today
we offer our fourth generation of imaging technology which we call ProFire® Excel.
The ProFire® Excel
system has three major components: the 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 digital controller and data
server. The image data board of the ProFire® Excel
controls 16-micron diodes with patented Image Plus technology. Among the
advantages of Image Plus is a writing mode that increases image quality while
significantly reducing moiré patterns in standard screen sets, allowing for a
range of FM (stochastic) screening options.
The laser
diodes that we use for our imaging system are manufactured at Lasertel. Lasertel
manufactures epitaxial wafers, which are subsequently processed into chips or
bars. Lasertel then assembles these devices into fiber-coupled modules called
multiple emitter packages (“MEPs”), which contain four lasers per module. These
MEPs are then sent to our manufacturing facility in Hudson, NH. We assemble
Lasertel-manufactured laser imaging modules into imaging kits that are designed
for DI® press or
Dimension Excel CTP units. These kits are then incorporated into DI® printing
presses, by our manufacturing partner, or into CTP systems assembled at our
Hudson, NH facility.
Before
direct-to-plate imaging, platemaking and pre-press activities had occurred as a
separate and specialized activity in the printing operation, primarily using
analog film-based technology, chemical processing and manual skill-based
processes. Conventional or analog printing plates are produced using labor and
chemical-intensive, multi-step processes. By consolidating or eliminating
process steps required to prepare a digital file for printing, Presstek’s
DI®
presses and CTP systems deliver efficiencies that allow increased print
productivity at a lower cost and with better quality than conventional offset
methods. At the same time, by imaging chemistry-free plates, Presstek products
eliminate the reliance on the chemical processing that is generally associated
with imaging traditional printing plates. In addition to being more efficient to
operate, our solutions are more environmentally responsible than traditional
methods of printing. The result is higher quality, faster turnaround offset
printing with a lower cost of operation that is also environmentally
safe.
Plate
Technology
We
manufacture digital printing plates for both on-press imaging with DI® presses
and CTP printing applications. Our plates are based on our patented
chemistry-free thermal imaging technology. Our printing plates respond to heat
generated by high-powered lasers (thermal imaging) using ablation and
sub-ablation processes.
Thermal
ablation refers to the process in which the thermal laser ablates (removes)
areas of the emulsion while the plate is being imaged. This is the method
employed in Presstek’s plates. Plates that are imaged using thermal ablation
typically consist of a basic substrate such as a grained aluminum plate or
polyester, an oleophilic (ink receptive) imaging layer, and an ink-rejecting
micro porous hydrophilic layer.
The
high-powered laser of the imaging system selectively burns tiny holes in the
thin plate coating, causing it to burst away from the base. This technique thus
requires the imaging system to be equipped with a means of collecting the
debris, typically a vacuum with filters. The result is a high-contrast image
that can be examined and measured prior to mounting on a printing
press.
DI®
Presses
Presstek
52DI®
Press
The
Presstek 52DI®
is a landscape format 52cm direct imaging press with a maximum sheet size of
20.47” x 14.76”. The 52DI®
has a maximum image area of 20.07” x 14.17”, one of the largest in its class.
This press is highly automated and designed to deliver superior economics and
faster turnaround times, require lower skilled operators and reduced paper
waste. The Presstek 52DI®
images all four chemistry-free printing plates on press in 4.5 minutes in
precise register at 2540 dpi and supports up to 300 lpi and FM screening. The
press design which features Zero Transfer Printing technology, results in
consistent quality, an exceptionally fast make-ready time and reliable handling
across a wide range of substrates. The 52DI®
has a maximum operating speed of 10,000 full size sheets per hour which is the
equivalent of 20,000 letter-sized sheets.
Presstek
34DI®
Press
The
Presstek 34DI®
is a portrait format 34cm direct imaging press with a maximum sheet size of
13.39” x 18.11” and a maximum image area of 12.99” x 17.22”. This press is
highly automated and designed to deliver superior economics, faster turnaround
times, require lower skilled operators and reduced paper waste. The Presstek
34DI®
images all four chemistry-free printing plates on press in 4.5 minutes in
precise register at 2540 dpi and supports up to 300 lpi and FM screening. The
press’ design using Zero Transfer Printing technology, results in consistent
quality, an exceptionally fast make-ready time and reliable handling across a
wide range of substrates. The 34DI®
has a maximum operating speed of 7,000 full size sheets per hour which is the
equivalent of 14,000 letter-sized sheets. The 34DI®
is available as the 34DI®-X,
a high productivity model and the 34DI®-E
an entry-level configuration.
Both the
Presstek 52DI®
and 34DI®
can be equipped with the DI® Ultra
Violet (“UV”) option. The UV option converts a standard DI® press to
a UV press. UV presses are well suited for printing on non-porous materials such
as plastics and foils.
DI® Plates
ProFire® Digital
Media
ProFire®
Digital Media is designed to work as a system with the laser imaging and press
components of ProFire® and
ProFire® Excel
enabled DI® presses
(such as the Presstek 34 and 52DI®).
ProFire® Digital
Media for DI® presses
is rated for 20,000 impressions. It is manufactured with an ink-accepting
polyester base layer, a middle layer of titanium, and a top layer of silicone.
During imaging, the heat from lasers removes the top two layers of the plate,
exposing the ink receptive polyester layer. Areas that remain covered with the
top layer of silicone will repel the ink. The imaging process is a highly
consistent, heat sensitive, physical reaction without the variables of exposure
and chemistry. The result is sharper and better-defined details and halftone
dots. When operating with ProFire® Excel imaging enabled
presses, the Presstek 52DI®
and 34DI®,
ProFire® Digital
Media supports 300lpi and FM screening.
PearlDry® Plus
Formulated
in a similar fashion as ProFire® Digital
media, PearlDry® Plus is
designed to work in conjunction with previous generation DI® presses.
In conjunction with Presstek’s DI® imaging,
PearlDry® Plus
allows presses to produce a high resolution, 21 micron spot and supports print
quality up to 200-line screen. For DI®
applications PearlDry® Plus is
delivered in polyester-based spools. PearlDry® Plus is
rated for 20,000 impressions.
PearlDry®
PearlDry® is used
for direct-to-press applications that require an aluminum-backed plate such as
the 74Karat press manufactured by Koenig & Bauer, AG of Germany (“KBA”). The
plate uses a specially formulated silicone material that is coated over the
metalized infrared absorbing layer that is then bonded to an aluminum
base.
CTP
Products
Compass
Series
The
Compass Series of platesetters includes the 4-page Compass 4000 Series and the
8-page Compass 8000 Series. These highly productive platesetters range in
production speeds from 15 to 38 plates per hour. Presstek Compass platesetters,
imaging up to 250 lpi (100 l/cm), are optimized for use with Presstek’s Aurora
Pro chemistry-free plates and also image a range of other low energy (830 nm
laser) third-party thermal plates. Users can add several options to further
increase automation and productivity; including single or multiple cassette
autoloaders and inline standard or custom plate punches.
Dimension
Pro800
The
Presstek’s Dimension Pro 800 is an entry-level to mid-range eight-page CTP
solution. Dimension Pro images plates up to 45” x 33”, at speeds of up to 11
plates per hour with Presstek’s Anthem® Pro
plate and up to 15 plates per hour with Presstek’s Aurora Pro
plate.
Dimension
Excel
The
Dimension Excel series of platesetters are CTP imaging devices that are
engineered to image our chemistry-free Anthem® Pro
thermal plates in an A2 (4-page) format size. The Dimension Excel is available
in both standard (Dimension425) and automated (Dimension450-AL) configurations.
The standard model offers operator attended throughput of up to 11 plates per
hour, while automated models provide an operating speed of up to 17 plates an
hour without any operator intervention.
Vector
FL52
The
Vector FL52 platesetter is a CTP imaging system that is engineered to image our
chemistry-free Freedom thermal plates. The Vector FL52 is a two-page (52 cm and
under) metal CTP system that can produce up to 16 plates per hour.
Digital PlateMaster®
Digital
PlateMaster® (“DPM”)
is an easy-to-use platesetter that is equipped with an integrated Harlequin RIP
and uses conventional polyester-based plates. DPM is designed for use with
small-format portrait presses. The internal plate processor and daylight-loading
materials cassette help facilitate plate production. DPM also supports
paper-based printing plates.
CTP
Plates
Anthem® Pro
Anthem® Pro
delivers improved print performance with the addition of Presstek's exclusive
PRO graining technology. Anthem® Pro
plates feature our patented polymer-ceramic technology and combine ablative
imaging and chemistry-free cleaning (a simple water wash) with run lengths of up
to 100,000 impressions. The Anthem® Pro
plate runs with a wide range of fountain chemistry and inks.
Freedom
Pro
The
Freedom Pro plate operates in conjunction with Presstek’s Vector FL52 CTP
solution. Like our Anthem® Pro
plate, Freedom Pro requires only a simple wash with water before printing. The
unique surface structure of the plate results in a fast make-ready and greater
ink/water latitude. In addition, Freedom Pro accommodates a wide range of inks
and fountain solutions.
Aurora
Pro
Aurora
Pro is Presstek’s first chemistry-free CTP thermal plate designed to operate
with thermal CTP systems from other manufacturers. This further extends the
opportunity for printers to leverage innovative Presstek chemistry-free
technology with their existing installed base of CTP systems, eliminating the
need to purchase, store and dispose of toxic chemicals.
Workflow
Products
Latitude
Presstek
Latitude is a scalable highly automated and advanced prepress workflow solution
powered by EskoArtwork Odystar. Based on native PDF 1.7 format, it supports the
latest standards in JDF and Certified PDF. It offers a complete range of
prepress tools, from preflight, PDF certification and automated document
correction all the way to advanced trapping, imposition, proofing and screening.
It is designed to automate the daily work in a prepress production environment.
In addition to driving output devices, it provides extremely flexible workflow
tools that automate many processes and communications.
Momentum
RIP
Momentum
RIP is designed to drive Presstek’s CTP and DI® systems
as well as ABDick branded CTP systems. Momentum comes complete with input and
output mechanisms that allow flexibility for controlling jobs. Momentum is based
on Harlequin RIP technology.
Momentum
Pro Integrated
Presstek
Momentum Pro is a fully integrated workflow and RIP. Building on Momentum RIP
technology, the Momentum Pro workflow is designed to streamline and automate the
production process using Certified PDF tools. The workflow can be used as a
centralized PDF creation and preflight system, ensuring consistent output to
multiple devices. Momentum Pro is a simple, easy-to-use and affordable PDF
workflow solution for small to mid-size printers.
PathWay
Presstek
PathWay is a web-to-print business solution powered by Press-sense. It is
designed to create a customer-driven, automated workflow that allows printers to
receive, process, print and deliver orders in one low-cost, streamlined
operation. It is an end-to-end process that facilitates document creation,
customization, quoting, ordering, printing and delivery. PathWay is an ideal way
for printers to attract and retain customers, expand the geographic reach of
their business, respond to the on demand marketplace, and grow sales
volume—while increasing the productivity and profitability of their
business.
Lasertel
Diode Products
The
graphic arts industry continues to demand a high degree of speed, imaging
resolution and accuracy without increasing costs. Our high-powered laser diodes
are designed to achieve greater imaging power, uniformity and reliability with a
low unit cost for the diode array. Writing speed and accuracy are increased,
without increasing space and costs, by combining four fiber channels into a
single optical module. These diodes, manufactured at our Lasertel subsidiary,
also incorporate a number of packaging innovations that reduce the size of the
device and facilitate incorporation into the ProFire® Excel
imaging module. In addition to manufacturing Presstek products, Lasertel also
manufactures products for third-party customers in the industrial, medical,
defense and telecommunications sectors.
Competition
The
markets for our products are characterized by evolving industry standards and
business models, rapid software and hardware technology developments and
frequent new product introductions. Our future success will depend on our
ability to enhance our existing products, introduce new products in a timely and
cost-effective manner, meet changing customer needs, extend our core technology
into new applications, and anticipate and respond to emerging standards,
business models and other technological changes.
We
believe that our patented technologies, other intellectual property, thermal
plate manufacturing facilities, strategic alliances, distribution network and
knowledge of the marketplace puts us in a strong position to compete in today’s
market. Several other companies, however, address markets in which our products
are used and have products that are competitive.
Most of
the companies marketing competitive products, or with the potential to do so,
are well established, have substantially greater financial, marketing and
distribution resources than Presstek and its subsidiaries, and have established
records in the development, sale and servicing of products. There can be no
assurance that Presstek, Lasertel, or any of our products or any products
incorporating our technology, will be able to compete successfully in the
future.
DI®
Presses
Potential
competition for DI® presses
comes from several areas including manufacturers of high-end electrophotographic
technology and manufacturers of conventional offset printing
presses.
Manufacturers
of high-end electrophotographic technology include, among others, Canon Inc.,
Hewlett Packard Company, Ricoh Company, Ltd., Eastman Kodak Company (“Kodak”),
and Xerox Corporation. These electrophotographic imaging systems use either
liquid or dry toners to create one to four (or more) color images on paper and
typically offer resolutions of between 400 and 1200 dots per inch. These
technologies are generally best suited for ultra-short-runs of less than 250
copies or for printing variable data.
Manufacturers
of conventional offset printing presses include Heidelberger Druckmaschinen AG
(“Heidelberg”), KBA, Sakurai USA, Inc.'s, Ryobi Limited
(“Ryobi”), Manroland AG, and others. The level of automation on new presses is
improving and when combined with an automated CTP system an effective workflow
can be established. We believe that conventional offset is best suited for
production runs of 20,000 or longer. The quality of print from a conventional
offset press will depend on the skill of the operator as well as the process the
print establishment uses to deliver the plate to the press.
DaiNippon
Screen Mfg., Ltd. (“Screen”), offers the TruePress 344 press. This press is an
A3 four color digital offset press that prints up to 7,000 impressions per hour
and with a conventional wet offset process.
The
Presstek 34DI® also
competes against the Ryobi 3404DI for end user sales. Ryobi is an OEM partner of
Presstek’s and the Ryobi 3404DI uses Presstek’s imaging technology, printing
plates and press design.
VIM
Technologies, Ltd., an Israeli company (“VIM”), has been selling a plate for
DI®
presses that the Company believes infringes on the Company’s legally protected
patent rights. As discussed below, the Company has initiated patent infringement
actions against VIM and others in the United States and Germany for patent
infringement.
These
competitive plates could have an impact on Presstek’s revenue. They could also
lead to downward pricing pressure on our full line of spooled consumable
products, which could have a material adverse effect on our business, results of
operations and financial condition.
Computer-to-Plate
Most of
the major companies in the industry have developed or source off-press CTP
imaging systems. Potential competitors in this area include, among others, Agfa,
Kodak, Screen, Fuji Photo Film Co., Ltd. (“Fuji”), and Heidelberg, combinations
of these companies, and other smaller or lesser-known companies. Many of these
devices utilize printing plates that require a post-imaging photochemical
developing step and/or other post processing steps such as heat
treatment.
We are
seeing competition from printing plate companies that manufacture, or have the
potential to manufacture, digital thermal plates. Such companies include, among
others, Agfa, Kodak, and Fuji. Some companies, including Agfa, Kodak, and Fuji,
have announced or released plates that reportedly eliminate the need for post
image chemical processing.
Products
incorporating our technologies can also be expected to face competition from
products using conventional methods of creating and printing plates and
producing printed product. While these methods are considered to be more costly,
less efficient and not as environmentally conscious as those we implement, they
do offer their users the ability to continue to employ their existing means of
print and plate production. Companies offering these more traditional means and
methods are also refining these technologies to make them more acceptable to the
market.
Supplies
The broad
portfolio of equipment, supplies, and service added to our portfolio through the
acquisition of assets of the A.B. Dick Company (the “A.B. Dick Acquisition”) has
several competitors. In addition to those mentioned above, competitors include
for Prepress: ECRM and RIPit; for Press: Ryobi, Hamada, Xerox Corporation, Canon
Inc., Ricoh Company, Ltd., and Hewlett Packard Company; for Service: General
Binding Corp., Kodak, Service On Demand and some independent providers; for
Dealers: xpedx, Pitman and Enovation.
Lasertel
Lasertel’s
products can also be expected to face competition from a number of companies
marketing competitive, high-powered laser diode products such as Coherent Inc.
and JDS Uniphase Corporation.
Patents, Trademarks and
Proprietary Rights
Our
general policy has been to seek patent protection for those inventions and
improvements likely to be incorporated into our products and services or where
proprietary rights will improve our competitive position. As of January 3, 2009,
our worldwide patent portfolio included over 500 patents. We believe these
patents, which expire from 2009 through 2026, are material in the aggregate to
our business. We have applied for and are pursuing applications for 7 additional
U.S. patents and 26 foreign patents. We have registered, or applied to register,
certain trademarks in the U.S. and other countries, including Presstek, DI®,
Dimension, ProFire®,
Anthem®,
Applause and PearlDry®. We
anticipate that we will apply for additional patents, trademarks, and
copyrights, as deemed appropriate.
In
addition to the Presstek patents indicated, there is currently one active patent
assigned to Lasertel, which will expire in 2012.
We rely
on proprietary know-how and to employ various methods to protect our source
code, concepts, trade secrets, ideas and the documentation of our proprietary
software and laser diode technology. Such methods, however, may not afford
complete protection and there can be no assurance that others will not
independently develop such know-how or obtain access to our know-how, software
codes, concepts, trade secrets, ideas, and documentation. We also protect our
intellectual property by instituting legal proceedings against parties suspected
of infringing on the Company’s legally protected patent and trademark
rights.
In
February 2008, we filed a complaint with the International Trade Commission
(“ITC”) against VIM and its manufacturing partner Hanita Coatings RCA, Ltd.
(“Hanita Coatings”) for infringement of certain of our patent and trademark
rights. Presstek also sued four U.S. based distributors of VIM products: Spicers
Paper, Inc., Guaranteed Service & Supplies, Inc., Ohio Graphco Inc., and
Recognition Systems Inc., as well as one Canadian based distributor, AteCe
Canada. The Company has settled with Ohio Graphco Inc., which has agreed to
cease the importation, use and sale of VIM plates and also agreed to cooperate
with the ITC in its investigation of VIM’s alleged patent infringement. Presstek
is seeking, among other things, an order from the ITC forbidding the importation
and sale of the VIM printing plates in the United States; such an order would be
enforced at all U.S. borders by the U.S. Customs Service. In March of 2008, the
ITC notified Presstek that it was instituting an investigation related to the
Complaint, and a hearing before the ITC is currently scheduled for April 2009.
In April 2008 we filed a complaint against VIM in a German court for patent
infringement. In addition, in December 2008 we filed a complaint in U.S.
District Court in New Hampshire against a VIM distributor for patent
infringement associated with the distributor’s sale of infringing
product.
Research and
Development
Research
and development expenses related to our continued development of products
incorporating DI® and CTP
technologies, were $5.1 million, $5.0 million and $5.3 million in fiscal 2008,
fiscal 2007 and fiscal 2006, respectively. These research and development
expenditures are related to the continuing operations of the Presstek
segment.
Environmental
Protection
The
Company is subject to various laws and governmental regulations concerning
environmental matters. The U.S. federal environmental legislation and state
regulatory programs having an impact on the Company include; the Toxic
Substances Control Act; the Resource Conservation and Recovery Act; the Clean
Air Act;, the Clean Water Act; and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
It is the
Company’s policy to carry out its business activities in a manner consistent
with sound health, safety and environmental management practices, and to comply
with applicable health, safety and environmental laws and regulations. The
Company continues to engage in programs for environmental, health and safety
protection and control.
Based
upon information presently available, future costs associated with environmental
compliance are not expected to have a material effect on the Company's capital
expenditures, results of operations or competitive position. Such costs,
however, could be material to results of operations in a particular future
quarter or year.
Backlog
Employees
At
January 3, 2009, we had 622 employees worldwide. Of these, 29 are engaged
primarily in engineering, research and development; 159 are engaged in sales and
marketing; 245 are engaged in service and customer support; 115 are engaged
primarily in manufacturing, manufacturing engineering and quality control; and
74 are engaged primarily in corporate management, administration and
finance.
Available
Information
Financial
and other information about us is available on our website, www.presstek.com. We make
available, free of charge on our website, our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the U.S. Securities and Exchange Commission (the
“SEC”).
Glossary
Set forth
below is a glossary of certain terms used in this Annual Report on Form
10-K:
|
A1
|
a
printing term referring to a standard paper size capable of printing eight
8.5” x 11” pages on a sheet of paper
|
|
|
|
|
A2
|
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
|
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 Presstek’s PEARL and Anthem®
Pro consumables
|
|
|
|
|
Bindery
|
operations
done after printing that are required to finish the job. Can include
punching, folding, perforating, trimming and slitting.
|
|
|
|
|
Computer-to-plate
(CTP)
|
a
general term referring to the exposure of lithographic plate material from
a digital database, off-press
|
|
|
|
|
Direct
Imaging (DI®)
|
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
|
|
|
|
|
FM
screening
|
referred
to as stochastic screening. A process that converts images into small dots
of variable spacing rather than regularly spaced dots or lined screens.
This technique of laying down halftone dots can produce superior color
results.
|
|
|
|
|
Infrared
|
light
lying outside of the visible spectrum beyond its red-end, characterized by
longer wavelengths; used in our thermal imaging process
|
|
|
|
|
Lithography
|
printing
from a single plane surface under the principle that the image area
carries ink and the non-image area does not, and that ink and water do not
mix
|
|
|
|
|
Off-press
|
making
a printing plate from either an analog or digital source independent of
the press on which it will be used
|
|
|
|
|
On-press
|
the
use of Presstek’s direct imaging technologies to make a plate directly
from a digital file on the press
|
|
|
|
|
PEARL
|
the
name associated with Presstek’s first generation laser imaging
technologies and related products and consumables
|
|
|
|
|
ProFire®
and ProFire®
Excel
imaging
systems
|
the
Presstek components required to convert a conventional printing press into
a direct imaging press, including laser diode arrays, computers,
electronics
|
|
|
|
|
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
|
|
|
|
|
Ryobi
3404DI
|
an
A3 format size four-color sheet-fed press, incorporating Presstek’s dual
plate cylinder concept and PearlDry®
Plus spooled plates, a joint development effort between Ryobi and
Presstek
|
|
|
|
|
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 growth market for
lower print quantities. InfoTrends, Inc. has examined the market to better
understand which run lengths are increasing and which are decreasing. The
findings: run lengths above 10,000 sheets are clearly in decline. Run
lengths between 5,000 and 9,999 are essentially stable with a slight
increase. Run lengths below 5,000 show significant increases, especially
in the range of 500 – 999 sheets.
|
|
|
|
|
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
|
Certain
of the statements contained in this Annual Report on Form 10-K (other than the
historical financial data and other statements of historical fact), including,
without limitation, statements as to management’s expectations and beliefs, are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act. Words such as “believe(s),”
“should,” “plan,” “expect(s),” “project(s),” “anticipate(s),” “may,” “likely,”
“potential,” “opportunity” and similar expressions identify forward-looking
statements. Forward-looking statements are made based upon management’s good
faith expectations and beliefs concerning future developments and their
potential effect upon the Company. There can be no assurance that future
developments will be in accordance with such expectations or that the effect of
future developments on the Company will be those anticipated by
management.
Such
forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this Annual Report on
Form 10-K. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statements were
made and readers are advised to consider such forward-looking statements in
light of the risks set forth below. Presstek undertakes no obligation to update
any forward-looking statements contained in this Annual Report on Form
10-K.
Significant
factors that could cause actual results to differ materially from management’s
expectations or otherwise impact the Company’s financial condition or results of
operations include, without limitation, the following:
Current economic conditions and
market disruptions may adversely affect the Company’s business and results of
operations. Adverse
economic conditions in the United States and internationally, leading to reduced
capital spending, may adversely impact our business.
A
substantial portion of our business depends on our customers’ demand for our
products and services, the overall economic health of our current and
prospective customers, and general economic conditions. As widely reported,
financial markets throughout the world have been experiencing extreme disruption
in recent months, including extreme volatility in securities prices, severely
diminished liquidity and credit availability, rating downgrades of certain
investments and declining valuations of others, failure and potential failures
of major financial institutions and unprecedented government support of
financial institutions. These developments and the related general economic
downturn have and will adversely impact the Company’s business and financial
condition in a number of ways, including impacts beyond those typically
associated with other recent downturns in the U.S. and foreign
economies. The slowdown will likely lead to reduced capital spending by end
users, which has already adversely affected and may continue to adversely affect
the Company’s product sales. If the slowdown is severe enough, it could
necessitate further testing for impairment of goodwill, other intangible assets,
and long-lived assets and may negatively impact the valuation allowance with
respect to our deferred tax assets. In addition, cost reduction actions may be
necessary which would lead to additional restructuring charges. The current
tightening of credit in financial markets and the general economic downturn will
likely adversely affect the ability of the Company’s customers, suppliers,
outsource manufacturers and channel partners (e.g., distributors and resellers)
to obtain financing for significant purchases. The tightening could result in a
decrease in or cancellation of orders for the Company’s products and services,
could negatively impact the Company’s ability to collect its accounts receivable
on a timely basis, could result in additional reserves for uncollectible
accounts receivable being required, and in the event of continued contraction in
the Company’s sales, could lead to dated inventory and require additional
reserves for obsolescence. Significant volatility and fluctuations in the
rates of exchange for the U.S. dollar against currencies such as the euro, the
British pound and the Japanese yen could negatively impact the Company’s
customer pricing, purchase price of sourced product, and adversely affect the
Company’s results.
The
Company is unable to predict the duration and severity of the current economic
downturn and disruption in financial markets or their effects on the Company’s
business and results of operations, but the consequences may be materially
adverse and more severe than other recent economic slowdowns.
We
are substantially dependent on our manufacturing and distribution relationships
to develop and grow our business. The loss or failure of one or more of these
partners could significantly harm our business.
Our
business strategy includes working with manufacturing and distribution partners
to produce our products on an OEM basis and to aid in developing new market
channels for our products. We are dependent on many of these partners for future
sales of both existing and planned products. This means that the timetable for
finalizing development, commercialization and distribution of both existing and
planned products is dependent upon the needs and circumstances of our partners.
Any delay in meeting production and distribution targets with our partners may
harm our relationships with them and may cause them to terminate their
relationship with us. Our partners may not develop markets for our products at
the pace or in the manner we expect, which may have an adverse effect on our
business. They may also terminate their relationships with us for circumstances
beyond our control, including factors unique to their businesses or their
business decisions, or due to factors associated with the current global
economic downturn. In addition, we may mutually agree with one or more of our
partners to terminate our relationship with them for a variety of reasons. We
cannot assure you that the termination of any of our relationships with our
manufacturing and distribution partners will not have an adverse impact on our
business in the future.
If
we are unable to manage acquisitions successfully it could harm our financial
results, business and prospects.
As part
of our business strategy, we may expand our business through the acquisition of
other businesses. We will need to integrate acquired businesses with our
existing operations. We cannot assure you that we will effectively assimilate
the business or product offerings of acquired companies into our business or
product offerings. Integrating the operations and personnel of acquired
companies into our existing operations may result in difficulties and expense,
disrupt our business or divert management’s time and attention. If we are unable
to successfully integrate future acquisitions, it could adversely impact our
competitiveness and profitability. Acquisitions involve numerous other risks,
including potential exposure to unknown liabilities of acquired companies and
the possible loss of key employees and customers of the acquired business. In
connection with acquisitions or joint venture investments outside the U.S., we
may be subject to the risk of foreign currency fluctuations
Our
business strategy may include the licensing or acquisition of technologies,
which entail a number of risks.
As part
of our strategy to grow our business, we may license technologies from third
parties. We may not be successful in integrating the acquired technology into
our existing business to achieve the desired results.
Our
lengthy and variable sales cycle makes it difficult for us to predict when or if
sales will occur and therefore we may experience an unplanned shortfall in
revenues.
Many of
our products have a lengthy and unpredictable sales cycle that contributes to
the unpredictability of our operating results; this issue has been compounded by
the recent economic downturn. Customers view the purchase of our products as a
significant capital outlay and, therefore, a strategic decision. As a result,
customers generally evaluate these products and determine their impact on
existing infrastructure over a lengthy period of time. The sale of our products
may be subject to delays if the customer has lengthy internal budgeting,
approval and evaluation processes. The recent severe economic downturn has
significantly impacted this decision-making process of many of our customers and
prospective customers, and some businesses are either deferring or canceling
significant capital purchasing decisions due to the uncertainty of their own
financial futures. If revenues anticipated during a particular period are not
realized or are delayed, we may experience a shortfall in anticipated revenues,
which could have an adverse effect on our business, results of operations and
financial condition.
We
face risks associated with our efforts to expand into international
markets.
We intend
to expand our global sales operations and enter additional international
markets, in order to increase market awareness and acceptance of our line of
products and generate increased revenues, which will require significant
management attention and financial resources. International sales are subject to
a variety of risks, including difficulties in establishing and managing
international distribution channels, in serving and supporting products sold
outside the United States and in translating products and related materials into
foreign languages. International operations are also subject to difficulties in
collecting accounts receivable, staffing and managing personnel and enforcing
intellectual property rights. Other factors that can adversely affect
international operations include fluctuations in the value of foreign currencies
and currency exchange rates, changes in import/export duties and quotas,
introduction of tariff or non-tariff barriers and economic or political changes
in international markets.
If our
international sales increase, our revenues may also be affected to a greater
extent by seasonal fluctuations resulting from lower levels of sales that
typically occur during the summer months in Europe and other parts of the world.
There can be no assurance that these factors will not have an adverse effect on
our business, results of operations and financial condition.
We
have experienced losses in the past, could incur substantial losses in the
future, and may not be able to maintain profitability.
While the
Company achieved a net profit from continuing operations in the fiscal year
ending January 3, 2009, the Company has sustained significant losses in prior
years. The ability of the Company to generate profits in fiscal year 2009 and
beyond is dependent upon its ability to generate revenues and effectively manage
costs. We may need to generate significant increases in revenues to generate
profits, and we may not be able to do so. If our revenues grow more slowly than
we anticipate or decrease, or if our operating expenses increase more than we
expect or cannot be reduced in the event of lower revenues, our business will be
adversely affected. Even if we maintain profitability in the future on a
quarterly or annual basis, we may not be able to sustain or increase such
profitability year to year.
We
have a material amount of intangible assets, such as goodwill and trademarks,
and if we are required to write-down any of these intangible assets, it would
reduce our net income, which in turn could have a material adverse effect on our
results of operations.
We have a
significant amount of intangible assets, such as goodwill and trademarks. Under
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other
Intangible Assets (“SFAS 142”) goodwill and indefinite lived intangible assets
are no longer amortized, but instead are subject to a periodic impairment
evaluation. Intangible assets with estimated lives and other long-lived assets
are reviewed for impairment when events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be recoverable in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (“SFAS 144”). Recoverability of intangible assets with
estimated lives and other long-lived assets is measured by comparison of the
carrying amount of an asset or asset group to future net undiscounted pretax
cash flows expected to be generated by the asset or asset group. If these
comparisons indicate that an asset is not recoverable, the Company will
recognize an impairment loss for the amount by which the carrying value of the
asset or asset group exceeds the related estimated fair value. Reductions in our net
income caused by the write-down of any of these intangible assets could
materially and adversely affect our results of operations. The Company conducts
ongoing assessments of its goodwill and other intangible assets and determined
no adjustments were necessary at January 3, 2009. The Company will continue to
assess the valuation of goodwill and other intangible assets throughout 2009.
Depending on market and economic conditions, goodwill and other intangible
assets impairment could be identified in 2009, which would result in impairment
charges.
Our
quarterly revenues and operating results are likely to fluctuate
significantly.
Our
quarterly revenues and operating results are sometimes difficult to predict,
have varied in the past, and are likely to fluctuate significantly in the
future. We typically realize a significant percentage of our revenues for a
fiscal quarter in the third month of the quarter. Accordingly, our quarterly
results may be difficult to predict prior to the end of the quarter. In
addition, we base our current and future expense levels in part on our estimates
of future revenues. Our expenses are largely fixed in the short-term and we may
not be able to adjust our spending quickly if our revenues fall short of our
expectations. Accordingly, a revenue shortfall in a particular quarter would
have an adverse effect on our operating results for that quarter. In addition,
our quarterly operating results may fluctuate for many reasons, including,
without limitation:
|
·
|
a
long and unpredictable sales cycle;
|
|
·
|
changes
in demand for our products and consumables, including seasonal
differences;
|
|
·
|
changes
in the mix of our products and consumables;
and
|
|
·
|
the
continued global economic downturn.
|
The
current capital and credit market conditions may adversely affect our access to
capital, cost of capital and business operations.
Recently,
the general economic and capital market conditions in the United States and
other parts of the world have deteriorated significantly and have adversely
affected access to capital and increased the cost of capital. If these
conditions continue or become worse, our future cost of debt and equity capital
and access to capital markets could be adversely affected. In this regard, the
Company may require additional financing following the expiration of our
existing credit lines in November 2009. Any inability to obtain adequate
financing from debt and equity sources could force us to self-fund capital
expenditures and strategic initiatives, forgo some opportunities, or possibly
discontinue certain operations.
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 demand for
these components may strain the ability of our third party suppliers to deliver
such critical components in a timely manner. For example, we have a requirement
for advanced technology laser diodes for use in products incorporating our
DI®
technology. Although we have established our subsidiary, Lasertel, to help us
meet our demand for laser diodes, we are still dependent on other third-party
manufacturers to supply us with other necessary components. If we are unable for
any reason to secure an uninterrupted source of other critical components at
prices acceptable to us, our operations could be materially adversely affected.
We cannot be certain 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. While we are
currently marketing Lasertel for sale, and expect that a purchaser of Lasertel
will enter into a laser supply agreement with the Company, there can be no
assurance that any purchaser of Lasertel will become a dependable supplier of
laser diodes and satisfy the Company’s supply requirements. There can be no
assurance that we will be able to obtain alternative suppliers for our laser
diodes or other critical components should our current supply channels prove
inadequate.
Our
manufacturing capabilities may be insufficient to meet the demand for our
products.
If demand
for our products grows beyond our expectations, our current manufacturing
capabilities may be insufficient to meet this demand, resulting in production
delays and a failure to deliver products in a timely fashion. We may be forced
to seek alternative manufacturers for our products. There can be no assurance
that we will successfully be able to do so. As we introduce new products, we may
face production and manufacturing delays due to technical and other unforeseen
problems. Any manufacturing delay could have a material adverse effect on our
business, the success of any product affected by the delay, and our
revenue.
In
addition, many of our manufacturing processes are extremely sophisticated and
demand specific environmental conditions. Though we take precautions to avoid
interruptions in manufacturing and to ensure that the products that are
manufactured meet our exacting performance standards, our yields may be affected
by difficulties in our manufacturing processes. If such an effect occurred, it
could increase manufacturing costs, detrimentally impacting margins, or cause a
delay in the finishing and shipping of products. Any manufacturing delay could
have a materially adverse effect on our business, the success of any product
affected by the delay, and our revenue.
New
products may not be commercially successful and may not gain market
acceptance.
Achieving
market acceptance for any product requires substantial marketing and
distribution efforts and expenditure of significant sums of money and allocation
of significant resources. We may not have sufficient resources to do so.
Additionally, there can be no assurance that our existing and new product
offerings will maintain/achieve 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. In addition, if our new
product offerings do not achieve anticipated market acceptance, we may not
achieve anticipated revenue.
New
products that incorporate our technology may result in substantial support costs
and warranty expenditures.
Introducing
new products carries substantial risk. While we do extensive testing on our new
products before introducing them to our customers, no amount of testing can
replace or approximate actual field conditions at our customer locations. As a
result, when we introduce new products we can incur increased expenditures in
ensuring that the new product meets and performs in accordance with its
specifications. We cannot, however, always estimate precisely the expected costs
that may arise out of new product installations. There can be no assurance that
we will not incur increased warranty, support and other costs associated with
new product introductions in the future.
If
we fail to establish and maintain an effective system of internal and disclosure
controls, we may not be able to accurately report our financial results or
prevent fraud. As a result, investors may lose confidence in our financial
reporting and disclosures.
The
Sarbanes-Oxley Act of 2002 and SEC rules require that management report annually
on the effectiveness of our internal control over financial reporting. Among
other things, management must conduct an assessment of our internal control over
financial reporting to allow management to report on, and our independent
registered public accounting firm to audit, the effectiveness of our internal
control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act. A “significant deficiency” is defined as “a deficiency, or a
combination of deficiencies, in internal control over financial reporting that
is less severe than a material weakness yet important enough to merit attention
by those responsible for oversight of the company's financial reporting.” A
“material weakness” is defined as “a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company's annual or
interim financial statements will not be prevented or detected on a timely
basis.”
Management’s
Report on Internal Control over Financial Reporting included in this Annual
report on Form 10-K, concludes that as of January 3, 2009 our internal control
over financial reporting was not effective. Accordingly, as set forth in Item 9A
of this Annual report on Form 10-K, our Chief Executive Officer and our Chief
Financial Officer also determined that our disclosure controls and procedures
were not effective. In addition, in the future, our continued assessment, or the
subsequent assessment by our independent registered public accounting firm, may
reveal additional deficiencies in our internal control over financial reporting
and our disclosure controls or procedures, some of which may require disclosure
in future reports.
Although
we have remediated three of the four material weaknesses reported in our 2007
Annual Report on Form 10-K and are continuing to make improvements in our
internal control over financial reporting, if we are unsuccessful in remediating
the material weakness impacting our internal control over financial reporting,
or if we discover other deficiencies, it may adversely impact our ability to
report accurately and in a timely manner our financial condition and results of
operations in the future, which may cause investors to lose confidence in our
financial reporting. Moreover, effective internal and disclosure controls are
necessary to produce accurate, reliable financial reports and to detect or
prevent fraud. If we continue to have deficiencies in our internal control over
financial reporting and disclosure controls and procedures, that may negatively
impact our business and operations
The
expansion of Lasertel into areas other than the production of laser diodes for
our printing business may be unsuccessful.
Lasertel,
which was formed for the purpose of supplying us with laser diodes, has also
explored other markets for its laser technology. Lasertel has developed laser
products for the defense industry and has continued its plans to develop laser
prototypes for qualification in the medical and industrial industries. There can
be no assurance that these products or prototypes will gain acceptance in these
industries and likewise, there can be no assurance that these products will be
commercially successful.
The
failure of Lasertel to develop, commercialize or sell its products or future
products to various other industries could distract its management’s attention
and/or have an adverse impact on its financial condition or results of
operations, any of which could materially adversely affect our financial
condition. Conversely, any success that Lasertel achieves in developing,
commercializing or selling its products or future products to various other
industries could cause delays in manufacturing of the laser diodes that it
supplies to us, which could harm our business and could have an adverse effect
on our financial condition or results of operations.
We
may be unsuccessful in our efforts to sell our Lasertel subsidiary
We are
currently marketing Lasertel for sale and expect to complete the sale during
2009. It is possible that the marketing and sales process could be disruptive to
the management of both Lasertel and the Company and could have an adverse effect
on the customer relationships and financial results of Lasertel. It is also
possible that the Company will be unable to sell Lasertel and that the Lasertel
financial results will continue to be consolidated into the Company’s results.
Since Lasertel has historically operated at a loss, this could have an adverse
effect on the consolidated financial results of the Company.
Our
success is dependent on our ability to maintain and protect our proprietary
rights.
Our
future success will depend, in large part, upon our intellectual property
rights, including patents, trademarks, trade secrets, proprietary know-how,
source codes and continuing technological innovation. We have been issued a
number of U.S. and foreign patents and we intend to register for additional
patents where we deem appropriate. We also hold several registered trademarks
and we may register additional trademarks where we deem appropriate. There can
be no assurance, however, as to the issuance of any additional patents or
trademarks or the breadth or degree of protection that our patents, trademarks
or other intellectual property may afford us. The steps we have taken to protect
our intellectual property may not adequately prevent misappropriation or ensure
that others will not develop competitive technologies or products. Further, the
laws of certain territories in which our products are or may be developed,
manufactured or sold, may not protect our products and intellectual property
rights to the same extent as the laws of the United States.
There is
rapid technological development in the electronic image reproduction industry,
resulting in extensive patent filings and a rapid rate of issuance of new
patents. Although we believe that our technology has been independently
developed and that the products we market do not infringe the patents or violate
the proprietary rights of others, it is possible that such infringement of
existing or future patents or violation of proprietary rights may
occur.
In this
regard, third parties may in the future assert claims against us concerning our
existing products or with respect to future products under development by us. In
such event, we may be required to modify our product designs or obtain a
license. No assurance can be given that we would be able to do so in a timely
manner, upon acceptable terms and conditions or even at all. The failure to do
any of the foregoing could have a material adverse effect on our business,
results of operations and financial condition. Furthermore, we have agreements
with several of our partners which require us to indemnify the partner from
claims made by third parties against them concerning our intellectual property,
and to defend the validity of the patents or otherwise ensure the technology’s
availability to the partner. The costs of an indemnification claim under any
such agreement could have a material adverse effect on our
business.
We have
taken, are currently taking, and may take in the future, legal action to protect
our patent and trademark rights from infringement by others. We have also
defended actions brought against us relating to the validity of our patent
rights. In the course of pursuing or defending any of these actions we could
incur significant costs and diversion of our resources. Due to the competitive
nature of our industry, it is unlikely that we could increase our product prices
to cover such costs. There can be no assurance that we will have the financial
or other resources necessary to successfully defend a patent infringement or
proprietary rights violation action. Moreover, we may be unable, for financial
or other reasons, to enforce our rights under any patents we may own. Such
litigation is costly and is subject to uncertain results that could have a
material effect on our business, results of operations and financial
condition.
We also
rely on proprietary know-how and employ various methods to protect the source
codes, concepts, trade secrets, ideas and documentation relating to our
proprietary software and laser diode technology. Such methods, however, may not
afford complete protection and there can be no assurance that others will not
independently develop such know-how or obtain access to our know-how or software
codes, concepts, trade secrets, ideas and documentation. Although we have and
expect to have confidentiality agreements with our employees and appropriate
vendors, there can be no assurance, however, that such arrangements will
adequately protect our trade secrets and proprietary know-how.
We
use hazardous materials in the production of many of our products at our various
manufacturing facilities.
As a
manufacturing company, we are subject to environmental, health and safety laws
and regulations, including those governing the use of hazardous materials. The
cost of compliance with environmental, health and safety regulations is
substantial. Some of our business activities involve the controlled use of
hazardous materials and we cannot eliminate the risk or potential liability of
accidental contamination, release or injury from these materials. In the event
of an accident or environmental discharge, we may be held liable for any
resulting damages, which may exceed our financial resources and the limits of
any insurance coverage, and our production of plates could be delayed
indefinitely, which could materially harm our business, financial condition and
results of operations.
We
face competition in the sale of our products.
We
compete with manufacturers of conventional presses and products utilizing
existing plate-making technology, as well as presses and other products
utilizing new technologies, including other types of direct-to-plate solutions
such as companies that employ electrophotography as their imaging technology.
Canon Inc., Hewlett Packard Company, Kodak and Xerox Corporation are companies
that have introduced color electrophotographic copier products. Various
companies are marketing product versions manufactured by these
companies.
We also
compete with stand-alone CTP imaging devices for single and multi-color
applications. Most of the major corporations in the graphic arts industry have
developed and are marketing off press CTP 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. Competitors in this area include, among others, Agfa
Gevaert N.V., Screen, Heidelberg and Kodak.
We also
have competition from plate manufacturing companies that manufacture printing
plates, including digital thermal plates. These companies include Agfa Gevaert
N.V., Kodak and Fuji. The introduction of a competitive plate could reduce the
revenue generated by Presstek and could have a material adverse effect on our
business, results of operations and financial condition.
Products
incorporating our technologies can also be expected to face competition from
conventional methods of printing and creating printing plates. Most of the
companies marketing competitive products, or with the potential to do so, are
well established, have substantially greater financial, marketing and
distribution resources than us and have established reputations for success in
the development, sale and service of products. There can be no assurance that we
will be able to compete successfully in the future.
While we
believe we have strong intellectual property protection covering many of our
technologies, there is no assurance that the breadth or degree of such
protection will be sufficient to prohibit or otherwise delay the introduction of
competitive products or technologies. The introduction of competitive products
and technologies may have a material adverse effect on our business, results of
operations and financial condition.
We
may not be able to adequately respond to changes in technology affecting the
printing industry.
The
printing and publishing industry has been characterized in recent years by rapid
and significant technological changes and frequent new product introductions.
Current competitors or new market entrants could introduce new or enhanced
products with features, which render our technologies, or products incorporating
our technologies, obsolete or less marketable. Our future success will depend,
in part, on our ability to respond to changing technology and industry standards
in a timely and cost-effective manner. We may not be successful in effectively
using new technologies, developing new products or enhancing our existing
products and technology on a timely basis. Our new technologies or enhancements
may not achieve market acceptance. Our pursuit of new technologies may require
substantial time and expense.
We may
need to license new technologies to respond to technological change. These
licenses may not be available to us on terms that we can accept. Finally, we may
not succeed in adapting our products to new technologies as they
emerge.
A
pending investigation by the SEC could have an adverse impact on our
business.
The SEC
has initiated a formal investigation primarily relating to our announcement of
preliminary financial results for the third quarter of fiscal 2006. The SEC
investigation requires management time and the expenditure of significant legal
expense. In addition, the Company faces the risk that the investigation will
result in fines and/of penalties assessed against the Company for which there is
inadequate insurance coverage. The result of this matter could have a material
adverse effect on our business, results of operations and financial
condition.
Changes
in accounting standards could affect our financial results.
New
accounting standards or pronouncements that may become applicable to us from
time to time, or changes in the interpretation of existing standards and
pronouncements, could have a significant effect on our reported results for the
affected periods.
The
loss or unavailability of our key personnel would have a material adverse effect
on our business.
Our
success is largely dependent on the personal efforts of our senior management
team. The loss or interruption of the services of any or all of these
individuals could have an adverse effect on our business and
prospects.
Our
success is also dependent on our ability to hire and retain additional qualified
engineering, technical, sales, marketing, accounting and finance and other
personnel. The success of our transition of certain accounting functions to our
Greenwich, CT offices from Hudson, NH is highly dependent on the hiring of
qualified personnel. Competition for qualified personnel in our industry can be
intense, and there can be no assurance that we will be able to hire or retain
additional qualified personnel.
Our
stock price has been and could continue to be extremely volatile.
The
market price of our common stock has been subject to significant fluctuations.
The securities markets have experienced, and may experience in the future,
significant price and volume fluctuations that could adversely affect the market
price of our common stock without regard to our operating performance. In
addition, the trading price of our common stock could be subject to significant
fluctuations in response to:
|
·
|
actual
or anticipated variations in our quarterly operating
results;
|
|
·
|
significant
announcements by us or other industry
participants;
|
|
·
|
changes
in national or regional economic
conditions;
|
|
·
|
changes
in securities analysts’ estimates for us, our competitors or our industry,
or our failure to meet analysts’ expectations;
and
|
|
·
|
general
market conditions.
|
These
factors may materially and adversely affect our stock price, regardless of our
operating performance.
None.
The
following table summarizes our significant occupied properties:
|
Location(1)
|
|
Functions
|
|
Square
footage (approximate)
|
|
Ownership
status/
lease
expiration
|
|
|
|
|
|
|
|
|
|
Hudson,
NH
|
|
Manufacturing,
research and development, marketing, demonstration activities,
administrative and customer support
|
|
165,000
|
|
Owned
|
|
|
|
|
|
|
|
|
|
South
Hadley, MA (two buildings)
|
|
Manufacturing,
research and development, administrative support
|
|
100,000
|
|
Owned
|
|
|
|
|
|
|
|
|
|
Tucson,
AZ(2)
|
|
Manufacturing,
research and development, administrative support
|
|
40,000
|
|
Lease
expires in July 2018
|
|
|
|
|
|
|
|
|
|
Greenwich,
CT
|
|
Corporate
headquarters, executive offices
|
|
11,500
|
|
Lease
expires in May 2013
|
|
|
|
|
|
|
|
|
|
Des
Plaines, IL
|
|
Distribution
center
|
|
127,000
|
|
Lease
expires in February 2013
|
|
|
|
|
|
|
|
|
|
Heathrow,
United Kingdom
|
|
European
headquarters, sales, service
|
|
20,000
|
|
Lease
expires in November 2020, with an option to cancel in November
2010
|
|
|
|
|
|
|
|
|
(1) Our
Presstek segment utilizes the facilities in NH, MA, CT, IL, and the United
Kingdom.
(2) Our
discontinued Lasertel segment utilizes the facilities in AZ.
In
addition to the properties referenced above, we also lease a number of small
sales and marketing offices in the United States and internationally. At January
3, 2009, we were productively utilizing all of the space in our facilities. We
believe that our existing facilities are adequate for our needs for at least the
next twelve months.
All of
the properties we own are pledged as security for our five-year, $80.0 million
credit facilities.
We
believe that our existing facilities are well maintained, in good operating
condition and are adequate for our current and expected future
operations.
On
October 26, 2006, the Company was served with a complaint naming the Company,
together with certain of its former executive officers, as defendants in a
purported securities class action suit filed in the United States District Court
for the District of New Hampshire. The suit claims to be brought on behalf of
purchasers of Presstek’s common stock during the period from July 27, 2006
through September 29, 2006. The complaint alleges, among other things, that the
Company and the other defendants violated Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated there under based on allegedly false
forecasts of fiscal third quarter and annual 2006 revenues. As relief, the
plaintiff seeks an unspecified amount of monetary damages, but makes no
allegation as to losses incurred by any purported class member other than
himself, court costs and attorneys’ fees. On September 25, 2008, the parties
reached a settlement of the action, subject to confirmatory discovery by
plaintiffs and court approval.
On
September 10, 2008, a purported shareholder derivative claim against certain
current and former directors and officers of the Company was filed in the United
States District Court for the District of New Hampshire. The complaint alleges
breaches of fiduciary duty by the defendants and seeks unspecified damages. On
September 25, 2008, the parties reached agreement on a settlement of the claim,
subject to receipt of court approval.
On June
4, 2008, the Commonwealth of Massachusetts filed a complaint in the Superior
Court of Massachusetts, Hampshire County against the Company and one of its
subsidiaries seeking recovery of response costs related to the October 30, 2006
chemical release in South Hadley, MA noted above. In October 2008, the case was
settled and the complaint was dismissed.
In
February 2008 we filed a complaint with the ITC against VIM and its
manufacturing partner Hanita Coatings for infringement of Presstek’s patent and
trademark rights. Presstek also sued four U.S. based distributors of VIM
products: Spicers Paper, Inc., Guaranteed Service & Supplies, Inc., Ohio
Graphco Inc., and Recognition Systems Inc., as well as one Canadian based
distributor, AteCe Canada. The Company has settled with Ohio Graphco Inc., which
has agreed to cease the importation, use and sale of VIM plates and also agreed
to cooperate with the ITC in its investigation of VIM’s alleged patent
infringement. Presstek is seeking, among other things, an order from the ITC
forbidding the importation and sale of the VIM printing plates in the United
States; such an order would be enforced at all U.S. borders by the U.S. Customs
Service. In March of 2008, the ITC notified Presstek that it was instituting an
investigation related to the Complaint, and a hearing before the ITC is
currently scheduled for April 2009. In April 2008 we filed a Complaint against
VIM in a German court for patent infringement. In addition, in December 2008 we
filed a complaint in U.S. District Court in New Hampshire against a VIM
distributor for patent infringement associated with the distributor’s sale of
infringing product.
On
February 4, 2008, the Company received from the SEC a formal order of
investigation relating to the previously disclosed SEC inquiry regarding the
Company's announcement of preliminary financial results for the third quarter
of fiscal 2006. The Company is cooperating fully with the SEC’s
investigation.
Presstek
is a party to other litigation that it considers routine and incidental to its
business however it does not expect the results of any of these actions, nor the
settlement actions as noted above, to have a material adverse effect on its
business, results of operation or financial condition.
Item 4. Submission of Matters to a Vote of
Security Holders.
Not
applicable.
PART
II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchasers of Equity
Securities.
|
Our
common stock is quoted on The NASDAQ Global Market under the symbol “PRST”. The
following table sets forth the high and low closing sales prices per share of
common stock for each full quarterly period within the two most recently
completed fiscal years as reported by The NASDAQ Global Market.
|
|
|
High
|
|
|
Low
|
|
|
Fiscal
year ended January 3, 2009
|
|
|
|
|
|
|
|
First
quarter
|
|
$ |
5.12 |
|
|
$ |
4.28 |
|
|
Second
quarter
|
|
$ |
6.57 |
|
|
$ |
4.00 |
|
|
Third
quarter
|
|
$ |
6.28 |
|
|
$ |
4.48 |
|
|
Fourth
quarter
|
|
$ |
5.64 |
|
|
$ |
1.18 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended December 29, 2007
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$ |
6.53 |
|
|
$ |
5.47 |
|
|
Second
quarter
|
|
$ |
8.38 |
|
|
$ |
5.88 |
|
|
Third
quarter
|
|
$ |
8.70 |
|
|
$ |
6.14 |
|
|
Fourth
quarter
|
|
$ |
7.50 |
|
|
$ |
4.60 |
|
On March
16, 2009, there were 2,183 holders of record of our common stock. The closing
price of our common stock was $1.64 per share on March 16, 2009.
Dividend
Policy
To date,
we have not paid any cash dividends on our common stock. Under the terms of our
credit facilities, we are prohibited from declaring or distributing dividends to
shareholders. The payment of cash dividends in the future is within the
discretion of our Board of Directors, and will depend upon our earnings, capital
requirements, financial condition and other relevant factors, including the
current prohibition on such dividends described above. The Board of Directors
does not intend to declare any cash dividends in the foreseeable future, but
instead intends to retain all earnings, if any, for use in our business
operations.
Issuer Purchases of Equity
Securities
We did
not repurchase any of our equity securities during fiscal 2008.
Item 6. Selected Financial
Data.
The
selected consolidated financial data set forth below should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” included as Part II Item 7 of this Annual Report on
Form 10-K and our consolidated financial statements and notes thereto included
in Part II Item 8 of this Annual Report on Form 10-K. On December 28, 2006, the
Audit Committee of the Company’s Board of Directors ratified a plan submitted by
management to terminate production in South Hadley, MA of Precision-branded
analog plates used in newspaper applications. On September 24, 2008, the
Company’s Board of Directors approved a plan to market the Lasertel subsidiary
for sale. The results of operations for the years ended December 30, 2006 and
December 29, 2007 have been restated to reflect the analog newspaper business
and Lasertel segment as discontinued operations for all periods presented. The
historical results provided below are not necessarily indicative of future
results.
|
(in
thousands, except per-share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
|
|
|
January
3,
|
|
|
December
29,
|
|
|
December
30,
|
|
|
December
31,
|
|
|
January
1,
|
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2005
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
193,252 |
|
|
$ |
246,573 |
|
|
$ |
258,936 |
|
|
$ |
255,344 |
|
|
$ |
118,576 |
|
|
Cost
of revenue
|
|
|
124,511 |
|
|
|
177,346 |
|
|
|
181,799 |
|
|
|
172,208 |
|
|
|
74,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
68,741 |
|
|
|
69,227 |
|
|
|
77,137 |
|
|
|
83,136 |
|
|
|
44,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
5,144 |
|
|
|
4,969 |
|
|
|
5,320 |
|
|
|
6,452 |
|
|
|
5,903 |
|
|
Sales,
marketing and customer support
|
|
|
29,937 |
|
|
|
39,194 |
|
|
|
39,451 |
|
|
|
39,808 |
|
|
|
17,136 |
|
|
General
and administrative
|
|
|
25,496 |
|
|
|
33,172 |
|
|
|
18,879 |
|
|
|
20,135 |
|
|
|
11,491 |
|
|
Amortization
of intangible assets
|
|
|
1,084 |
|
|
|
2,168 |
|
|
|
2,697 |
|
|
|
2,388 |
|
|
|
1,261 |
|
|
Restructuring
and special charges (credits)
|
|
|
2,108 |
|
|
|
2,714 |
|
|
|
5,481 |
|
|
|
874 |
|
|
|
(392 |
) |
|
Total
operating expenses
|
|
|
63,769 |
|
|
|
82,217 |
|
|
|
71,828 |
|
|
|
69,657 |
|
|
|
35,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
4,972 |
|
|
|
(12,990 |
) |
|
|
5,309 |
|
|
|
13,479 |
|
|
|
9,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
938 |
|
|
|
(1,254 |
) |
|
|
(984 |
) |
|
|
(1,345 |
) |
|
|
(872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
income taxes
|
|
|
5,910 |
|
|
|
(14,244 |
) |
|
|
4,325 |
|
|
|
12,134 |
|
|
|
8,251 |
|
|
Provision
(benefit) for income taxes
|
|
|
2,780 |
|
|
|
(3,889 |
) |
|
|
(9,891 |
) |
|
|
2,727 |
|
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
3,130 |
|
|
|
(10,355 |
) |
|
|
14,216 |
|
|
|
9,407 |
|
|
|
6,869 |
|
|
Income
(loss) from discontinued operations, net of income tax
|
|
|
(2,606 |
) |
|
|
(1,849 |
) |
|
|
(4,472 |
) |
|
|
(3,321 |
) |
|
|
(3,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
524 |
|
|
$ |
(12,204 |
) |
|
$ |
9,744 |
|
|
$ |
6,086 |
|
|
$ |
3,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
0.09 |
|
|
$ |
(0.29 |
) |
|
$ |
0.40 |
|
|
$ |
0.27 |
|
|
$ |
0.20 |
|
|
Income
(loss) from discontinued operations
|
|
|
(0.08 |
) |
|
|
(0.05 |
) |
|
|
(0.13 |
) |
|
|
(0.10 |
) |
|
|
(0.09 |
) |
|
|
|
$ |
0.01 |
|
|
$ |
(0.34 |
) |
|
$ |
0.27 |
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
0.09 |
|
|
$ |
(0.29 |
) |
|
$ |
0.40 |
|
|
$ |
0.26 |
|
|
$ |
0.19 |
|
|
Income
(loss) from discontinued operations
|
|
|
(0.08 |
) |
|
|
(0.05 |
) |
|
|
(0.13 |
) |
|
|
(0.09 |
) |
|
|
(0.08 |
) |
|
|
|
$ |
0.01 |
|
|
$ |
(0.34 |
) |
|
$ |
0.27 |
|
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,596 |
|
|
|
36,199 |
|
|
|
35,565 |
|
|
|
35,153 |
|
|
|
34,558 |
|
|
Diluted
|
|
|
36,605 |
|
|
|
36,199 |
|
|
|
35,856 |
|
|
|
35,572 |
|
|
|
35,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
|
|
|
|
|
January
3,
|
|
|
December
29,
|
|
|
December
30,
|
|
|
December
31,
|
|
|
January
1,
|
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2005
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
35,199 |
|
|
$ |
35,337 |
|
|
$ |
43,151 |
|
|
$ |
37,558 |
|
|
$ |
37,179 |
|
|
Total
assets
|
|
$ |
157,513 |
|
|
$ |
192,827 |
|
|
$ |
198,014 |
|
|
$ |
181,487 |
|
|
$ |
171,318 |
|
|
Total
debt and capital lease obligations
|
|
$ |
16,489 |
|
|
$ |
35,535 |
|
|
$ |
37,572 |
|
|
$ |
35,643 |
|
|
$ |
41,822 |
|
|
Stockholders'
equity
|
|
$ |
102,531 |
|
|
$ |
106,892 |
|
|
$ |
111,237 |
|
|
$ |
98,633 |
|
|
$ |
89,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts
include results of operations of ABD International, Inc. (which acquired
certain assets and assumed certain liabilities of
|
|
|
The
A.B. Dick Company on November 5, 2004) and Precision Lithograining Corp.
(acquired July 30, 2004) for the periods subsequent
|
|
|
to
their respective acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The
following Management’s Discussion and Analysis should be read in connection with
“Item 1. Business”, “Item 1A. Risk Factors”, “Item 6. Selected Financial Data”,
“Item 7A. Quantitative and Qualitative Disclosures about Market Risks” and the
Company’s Consolidated Financial Statements and Notes thereto included in this
Annual Report on Form 10-K. Certain terms used in the discussion below are
defined in Item 1 of this Annual Report on Form 10-K.
Overview of the
Company
The
Company is a provider of high-technology, digital-based printing solutions to
the commercial print segment of the graphics communications industry. The
Company designs, manufactures and distributes proprietary and non-proprietary
solutions aimed at serving the needs of a wide range of print service providers
worldwide. Our proprietary digital imaging and advanced technology consumables
offer superior business solutions for commercial printing focusing on the
growing need for short-run, high quality color applications. We are helping to
lead the industry’s transformation from analog print production methods to
digital imaging technology. We are a leader in the development of advanced
printing systems using digital imaging equipment, workflow and consumables-based
solutions that economically benefit the user through streamlined operations and
chemistry-free, environmentally responsible solutions. We are also a leading
sales and service channel across a broadly served market in the small to
mid-sized commercial, quick and in-plant printing segments.
Presstek’s
business model is a capital equipment and consumables model. In this model,
approximately two-thirds of our revenue is recurring revenue. Our model is
designed so that each placement of either a DI® press or
a CTP system generally results in recurring aftermarket revenue for consumables
and service.
Through
our various operations, we:
|
·
|
provide
advanced digital print solutions through the development and manufacture
of digital laser imaging equipment and advanced technology chemistry-free
printing plates, which we call consumables, for commercial and in-plant
print providers targeting the growing market for high quality, fast
turnaround short-run color printing;
|
|
·
|
are
a leading sales and services company delivering Presstek digital solutions
and solutions from other manufacturing partners through our direct sales
and service force and through distribution partners
worldwide;
|
|
·
|
manufacture
semiconductor solid state laser diodes for Presstek imaging applications
and for use in external applications; and
|
|
·
|
manufacture
and distribute printing plates for conventional print
applications.
|
We have
developed DI®
solution, a proprietary system by which digital images are transferred onto
printing plates for direct imaging on-press applications. Our advanced DI®
technology is integrated into a direct imaging press to produce a waterless,
easy to use, high quality printing press that is fully automated and provides
our users with competitive advantages over alternative print technologies. We
believe that our process results in a DI® press
which, in combination with our proprietary printing plates and streamlined
workflow, produces a superior print solution. By combining advanced digital
technology with the reliability and economic advantages of offset printing, we
believe our customers are better able to grow their businesses, generate higher
profits and better serve the needs of their customers.
Similar
digital imaging technologies are used in our CTP systems. Our Presstek segment
also designs and manufactures CTP systems that incorporate our technology to
image our chemistry-free printing plates. Our chemistry-free digital imaging
systems enable customers to produce high-quality, full color lithographic
printed materials more quickly and cost effectively than conventional methods
that employ more complicated workflows and toxic chemical processing. This
results in reduced printing cycle time and lowers the effective cost of
production for commercial printers. Our solutions make it more cost effective
for printers to meet the increasing demand for shorter print runs, higher
quality color and faster turn-around times.
We have
executed a major transformation in the way we go to market. In the past, we had
been reliant on OEM partners to deliver our business solutions to customers.
Today, more than 90% of our sales are through our own distribution
channels.
In
addition to marketing, selling and servicing our proprietary digital products,
we also market, sell and service traditional (or analog) products for the
commercial print market. This analog equipment is manufactured by third party
strategic partners and the analog consumables are manufactured by either us or
our strategic partners. The addition of these non-proprietary products and our
ability to directly sell and service them was made possible by the A.B. Dick
Acquisition and Precision acquisition, which we completed in 2004.
Our
operations are currently organized into two segments: (i) Presstek and (ii)
Lasertel. Segment operating results are based on the current organizational
structure as reviewed by our management to evaluate the results of each
business. A description of the types of products and services provided by each
business segment follows.
|
·
|
Presstek is primarily
engaged in the development, manufacture, sale and servicing of our
business solutions using patented digital imaging systems and patented
printing plate technologies. We also provide traditional, analog systems
and related equipment and supplies for the graphic arts and printing
industries.
|
|
·
|
Lasertel manufactures
and develops high-powered laser diodes and related laser products for
Presstek and for sale to external
customers.
|
On
September 24, 2008, the Board of Directors approved a plan to market the
Lasertel subsidiary for sale; as such the Company has presented the results of
operations of this subsidiary within discontinued operations.
We
generate revenue through four main sources: (i) the sale of our equipment and
related workflow software, including DI® presses
and CTP devices, (ii) the sale of high-powered laser diodes for the graphic
arts, defense and industrial sectors; (iii) the sale of our proprietary and
non-proprietary consumables and supplies; and (iv) the servicing of offset
printing systems and analog and CTP systems and related equipment.
Strategy
Our
business strategy is centered on maximizing the sale of consumable products,
such as printing plates, and therefore our business efforts focus on the sale of
“consumable burning engines” such as our DI® presses
and CTP devices, as well as the servicing of customers using our business
solutions. Our strategy centers on increasing the number of our DI® and CTP
units, which increases the demand for our consumables.
To
complement our direct sales efforts, in certain territories, we maintain
relationships with key press manufacturers such as Ryobi, Heidelberg, and KBA,
who market printing presses and/or press solutions that use our proprietary
consumables.
Another
method of growing the market for consumables is to develop consumables that can
be imaged by non-Presstek devices. In addition to expanding the base of our
DI®
and CTP units, an element of our focus is to reach beyond our proprietary
systems and penetrate the installed base of CTP devices in all market segments
with our chemistry-free and process-free offerings. The first step in executing
this strategy was the launch of our Aurora chemistry-free printing plate
designed to be used with CTP units manufactured by thermal CTP market leaders,
such as Screen and Kodak. We continue to work with other CTP manufacturers to
qualify our consumables on their systems. We believe this shift in strategy
fundamentally enhances our ability to expand and control our
business.
Since
2007, management has been taking steps to improve the Company’s cost structure
and strengthen its balance sheet in order to enable Presstek to increase
profitability on improved revenue growth when economic conditions in the United
States and elsewhere recover. Our improved level of profitability and balance
sheet improvements to date are, in large part, the result of our Business
Improvement Plan (the “BIP”) as described in more detail below, as well as our
review and strengthening of inventory and accounts receivable.
2008
Highlights
In fiscal
2008, deteriorating worldwide economic conditions caused significant volatility
in many markets which adversely impacted our business. Overall commercial print
industry volume is down as companies have cut back on general advertising and
promotional materials, and uncertainty regarding the economy and tightening
credit markets have led to delays in capital purchase decisions. As a result of
this volatility, as well as continuing erosion due to technological changes in
our traditional product business, revenues in fiscal 2008 of $193.3 million were
down $53.3 million, or 21.6%, compared to the prior year.
The BIP
plan resulted in significant reductions in costs, improved operating
efficiencies, greater cash flow, and helped reduce debt levels. The cost
benefits from this plan, as discussed below, have been very important in
returning the Company to profitability in fiscal 2008 despite the challenging
economic headwinds. Additional cost reduction actions, however, were implemented
during the latter part of fiscal 2008 as the Company aggressively addressed
current and expected future economic conditions.
Management
Objectives
Our
vision is to provide high quality, fully integrated digital solutions and
services that enable us to form an all-encompassing relationship with our
customers. Our business strategy is to offer innovative digital imaging and
plate technologies that address the opportunities of today and tomorrow in the
graphic arts and commercial printing markets across the globe.
This
strategy includes several imperatives: (1) focus on the growth of our
consumables product line; (2) emphasize attractive market segments such as
larger print providers; (3)focus on growing existing segments such as print
shops with less than 20 employees, (4) enable customers to better compete by
offering a more diverse range of products; (5) continue to expand solutions that
meet the growth in demand for short-run, fast turnaround high-quality color
printing; and (6) provide environmentally responsible solutions through our
application of technology.
Business
Improvement Plan
In the
fourth quarter of fiscal 2007, we announced the BIP. The plan involves virtually
every aspect of the business and includes pricing actions, improved
manufacturing efficiencies, increased utilization of field service resources,
right-sizing of operating expenses, and cash flow improvements driven by working
capital reductions and the sale of selected real estate assets.
The BIP
plan, as well as additional cost actions implemented during the fourth quarter
of fiscal 2008, accounted for a majority of the $2.1 million of restructuring
charges recorded during fiscal 2008. Since the second quarter of fiscal 2007,
headcount has been reduced by 16.3%, leased facilities have been consolidated;
operating expenses, excluding special charges, have been reduced from $21.5
million in the second quarter of fiscal 2007 to $16.4 million in the fourth
quarter of fiscal 2008, a decline of 23.6%; working capital has decreased from
$39.8 million at June 30, 2007 to $35.2 million at January 3, 2009; short term
debt decreased by 41% ($11.5 million) ; and in the third quarter of fiscal 2008
the Company completed the sale of real estate located in Tucson, AZ for $8.75
million, of which the net proceeds were used to pay down debt. The sale of this
property included a leaseback of a portion of the facility for the Lasertel
operations.
Internal
Review
Beginning
in the third quarter of fiscal 2007, we commenced a self-initiated internal
review of certain practices and procedures surrounding inventory, accounts
receivable and commercial receivable terms. We conducted a worldwide review of
accounts receivable; conducted a worldwide physical inventory to assess the
existence and valuation of inventory; and reviewed revenue practices surrounding
the commercial terms granted in certain transactions, resulting in an enhanced
revenue recognition policy. The culmination of these actions resulted in
increased professional fees during the latter part of fiscal 2007 and a negative
impact to revenue in the fourth quarter of fiscal 2007 and the first quarter of
fiscal 2008 largely due to the disruption in our European operations related to
the business reviews, as well as tightened commercial receivable
terms.
General
We
operate and report on a 52- or 53-week, fiscal year ending on the Saturday
closest to December 31. Accordingly, the consolidated financial statements
include the financial reports for the 53-week fiscal year ended January 3, 2009,
which we refer to as “fiscal 2008”, the 52-week fiscal year ended December 29,
2007, which we refer to as “fiscal 2007” and the 52-week fiscal year ended
December 30, 2006, which we refer to as “fiscal 2006”.
We intend
the discussion of our financial condition and results of operations that follows
to provide information that will assist in understanding our consolidated
financial statements, the changes in certain key items in those financial
statements from year to year, and the primary factors that accounted for those
changes, as well as how certain accounting principles, policies and estimates
affect our consolidated financial statements.
The
discussion of results of operations at the consolidated level is presented
below.
Result of
Operation
Results
of operations in dollars and as a percentage of revenue were as follows (in
thousands of dollars):
|
|
|
Fiscal
year ended
|
|
|
|
|
January
3, 2009
|
|
|
December
29, 2007
|
|
|
December
30, 2006
|
|
|
|
|
|
|
|
%
of
revenue
|
|
|
|
|
|
%
of
revenue
|
|
|
|
|
|
%
of
revenue
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$ |
158,743 |
|
|
|
82.1 |
|
|
$ |
207,605 |
|
|
|
84.2 |
|
|
$ |
213,966 |
|
|
|
82.6 |
|
|
Service
and parts
|
|
|
34,509 |
|
|
|
17.9 |
|
|
|
38,968 |
|
|
|
15.8 |
|
|
|
44,970 |
|
|
|
17.4 |
|
|
Total
revenue
|
|
|
193,252 |
|
|
|
100.0 |
|
|
|
246,573 |
|
|
|
100.0 |
|
|
|
258,936 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
99,088 |
|
|
|
51.2 |
|
|
|
145,724 |
|
|
|
59.1 |
|
|
|
149,333 |
|
|
|
57.7 |
|
|
Service
and parts
|
|
|
25,423 |
|
|
|
13.2 |
|
|
|
31,622 |
|
|
|
12.8 |
|
|
|
32,466 |
|
|
|
12.5 |
|
|
Total
cost of revenue
|
|
|
124,511 |
|
|
|
64.4 |
|
|
|
177,346 |
|
|
|
71.9 |
|
|
|
181,799 |
|
|
|
70.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
68,741 |
|
|
|
35.6 |
|
|
|
69,227 |
|
|
|
28.1 |
|
|
|
77,137 |
|
|
|
29.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
5,144 |
|
|
|
2.6 |
|
|
|
4,969 |
|
|
|
2.0 |
|
|
|
5,320 |
|
|
|
2.1 |
|
|
Sales,
marketing and customer support
|
|
|
29,937 |
|
|
|
15.5 |
|
|
|
39,194 |
|
|
|
15.9 |
|
|
|
39,451 |
|
|
|
15.2 |
|
|
General
and administrative
|
|
|
25,496 |
|
|
|
13.2 |
|
|
|
33,172 |
|
|
|
13.4 |
|
|
|
18,879 |
|
|
|
7.3 |
|
|
Amortization
of intangible assets
|
|
|
1,084 |
|
|
|
0.6 |
|
|
|
2,168 |
|
|
|
0.9 |
|
|
|
2,697 |
|
|
|
1.0 |
|
|
Restructuring
and other charges
|
|
|
2,108 |
|
|
|
1.1 |
|
|
|
2,714 |
|
|
|
1.1 |
|
|
|
5,481 |
|
|
|
2.1 |
|
|
Total
operating expenses
|
|
|
63,769 |
|
|
|
33.0 |
|
|
|
82,217 |
|
|
|
33.3 |
|
|
|
71,828 |
|
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
4,972 |
|
|
|
2.6 |
|
|
|
(12,990 |
) |
|
|
(5.3 |
) |
|
|
5,309 |
|
|
|
2.1 |
|
|
Interest
and other income (expense), net
|
|
|
938 |
|
|
|
0.5 |
|
|
|
(1,254 |
) |
|
|
(0.5 |
) |
|
|
(984 |
) |
|
|
(0.4 |
) |
|
Income
(loss) from continuing operations before income taxes
|
|
|
5,910 |
|
|
|
3.1 |
|
|
|
(14,244 |
) |
|
|
(5.8 |
) |
|
|
4,325 |
|
|
|
1.7 |
|
|
Provision
(benefit) for income taxes
|
|
|
2,780 |
|
|
|
1.4 |
|
|
|
(3,889 |
) |
|
|
(1.6 |
) |
|
|
(9,891 |
) |
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
3,130 |
|
|
|
1.6 |
|
|
|
(10,355 |
) |
|
|
(4.2 |
) |
|
|
14,216 |
|
|
|
5.5 |
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(2,606 |
) |
|
|
(1.3 |
) |
|
|
(1,849 |
) |
|
|
(0.7 |
) |
|
|
(4,472 |
) |
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
524 |
|
|
|
0.3 |
|
|
$ |
(12,204 |
) |
|
|
(4.9 |
) |
|
$ |
9,744 |
|
|
|
3.8 |
|
Fiscal
2008 Compared to Fiscal 2007
Revenue
Consolidated
revenues were $193.3 million in fiscal 2008, a decrease of $53.3 million, or
21.6%, from $246.6 million in fiscal 2007, due in large part to deterioration in
the global economy, as well as the continuing decline in our traditional lines
of business. Specifically, sales of Presstek’s “growth” portfolio of products,
defined as 34DI® and
52DI® digital
offset solutions and the Presstek family of chemistry free CTP solutions,
decreased $24.3 million, or 20.3%, from $119.8 million in fiscal 2007 to $95.5
million in fiscal 2008. The global economic issues have heavily impacted the
sale of capital equipment, particularly the smaller size printers. It has also
resulted in lower volumes of printed materials, and thus impacted consumable and
service revenues. Sales of Presstek branded DI® plates
increased by $0.9 million, or 5%, during 2008, as the number of DI®
installations continues to grow.
Equipment
revenues were $52.7 million in fiscal 2008 compared to $87.7 million in fiscal
2007, a decrease of $35.0 million, or 39.9%, resulting primarily from the impact
of the global economic downturn. In addition, European sales were negatively
impacted in the first quarter of fiscal 2008 due to a disruption in operations
related to the company’s business reviews conducted in the fourth quarter of
fiscal 2007. Revenues from the sale of DI®
equipment in fiscal 2008 of $42.0 million reflect a decrease of $22.0 million,
or 34.4%, compared to 2007. Unit sales of DI® presses
declined from 177 in fiscal 2007 to 126 in fiscal 2008. Sales of our remaining
growth portfolio of equipment, Presstek’s CTP platesetters and Vector TX52
machines, declined from $13.1 million in fiscal 2007 to $9.2 million in fiscal
2008. Equipment sales of our “traditional” line of products, defined as
QMDI® presses,
polyester CTP platesetters, and conventional equipment, were all lower in fiscal
2008 compared to 2007 due primarily to the ongoing transition of our customer
base to more modern digital technologies. As a percentage of total equipment
revenue, net sales of growth portfolio products increased from 82.5% of revenue
in fiscal 2007 to 88.9% of revenue in fiscal 2008.
Consumable
product revenues decreased from $119.9 million in fiscal 2007 to $106.0 million
in fiscal 2008, a reduction of $13.9 million, or 11.6%. The decrease in revenues
resulted primarily from the anticipated decline in Presstek’s “traditional
portfolio” of product, defined as QMDI® plates,
other DI® plates,
polyester plates, and conventional consumables, and was consistent with industry
trends. Sales of traditional plates declined from $47.2 million in fiscal 2007
to $38.9 million in fiscal 2008, a decrease of 17.6%. Sales of conventional
consumables declined from $35.2 million in fiscal 2007 to $30.2 million in
fiscal 2008. Presstek’s “growth portfolio” of consumables, defined as 52DI,
34DI, and chemistry-free CTP plates, declined slightly (from $37.5 million in
fiscal 2007 to $37.0 million in fiscal 2008) due to lower print volumes related
to the economic slowdown. Sales of 52DI® plates,
however, increased 84% from $1.6 million in fiscal 2007 to $2.9 million in
fiscal 2008.
Service
and parts revenues declined from $39.0 million in fiscal 2007 to $34.5 million
in fiscal 2008, a decrease of 11.4%. Lower revenues resulted primarily from the
anticipated shift away from our less profitable legacy service base which, in
the short term, is declining faster than our digital service business is
accelerating. In addition, lower print volume, as mentioned above, also had a
negative impact on service revenue.
Cost
of Revenue
Consolidated
cost of revenue was $124.6 million in fiscal 2008, a decrease of $52.7 million,
or 29.7%, compared to fiscal 2007.
Cost of
product, consisting of costs of material, labor and overhead, shipping and
handling costs and warranty expenses, was $99.2 million in fiscal 2008 compared
to $145.7 million in fiscal 2007. In fiscal 2007, the Company recorded $6.0
million of charges consisting primarily of $2.3 million for the write-off of
excess and obsolete inventory, $2.5 million of inventory write-downs related to
the Vector TX52, $0.6 million of warranty-related expenses, and $0.6 million of
other adjustments. Lower cost of sales was primarily due to reduced sales
volume, benefits resulting from our BIP including manufacturing productivity
improvements, procurement savings, and rationalization of our service business,
the impact of favorable product mix and lower freight costs.
Cost of
service in fiscal 2007, was $31.6 million, including a $1.1 million write down
of field service parts inventory, compared to $25.4 million in fiscal 2008.
These amounts represent the costs of spare parts, labor and overhead associated
with the ongoing service of products. Service costs in fiscal 2008 were
favorably impacted by the improved utilization of the field service organization
in North America, as well as improved controls over the field service parts
inventory. These actions were the result of our BIP which included a realignment
of our service organization with a declining analog revenue base.
Gross
Profit
Consolidated
gross profit as a percentage of total revenue was 35.5% in fiscal 2008 compared
to 28.1% in fiscal 2007. The year over year improvement is driven by several
factors, including favorable product mix, benefits from the BIP, the improvement
of numerous operating disciplines which negatively impacted our 2007 results
(ex. excess and obsolete inventory, field service parts inventory charges) and
the absence in fiscal 2008 of significant warranty charges recorded during 2007
related to product portfolio changes.
Gross
profit as a percentage of product revenue was 37.5% in fiscal 2008 compared to
29.8% in fiscal 2007. This improvement reflects the benefits described in the
previous paragraph. 2008 margins were also favorably impacted by a higher mix of
DI®
revenues, which are predominately higher margin products than our CTP and
traditional lines of business, as well as improved production efficiencies in
our plate manufacturing.
Gross
profit as a percentage of service revenue was 26.3% in fiscal 2008 compared to
18.9% in fiscal 2007. Service margins in 2007 were negatively impacted by
charges for losses on field service parts inventory of $1.1 million. Higher
service margins in fiscal 2008 also reflect the impact of cost savings resulting
from our BIP.
Research
and Development
Research
and development expenses consist primarily of payroll and related expenses for
personnel, parts and supplies, and contracted services required to conduct our
equipment, consumables and laser diode development efforts.
Research
and development expenses of $5.1 million in fiscal 2008 were essentially
unchanged from $5.0 million in the prior year period.
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 associated with sales, marketing and customer support
activities.
Consolidated
sales, marketing and customer support expenses were $29.9 million in fiscal 2008
compared to $39.2 million in fiscal 2007, a decrease of $9.3 million, or 23.6%.
Lower expenses in fiscal 2008 were due primarily to the favorable impact of our
BIP, lower advertising costs, and lower commission expense resulting from lower
sales volume.
General
and Administrative
Consolidated
general and administrative expenses consist primarily of payroll and related
expenses for personnel and contracted professional services necessary to conduct
our finance, information systems, legal, human resources and administrative
activities. General and Administrative costs also include stock based
compensation expenses, as well as bad debt reserves.
General
and administrative expenses were $25.4 million in fiscal 2008 compared to $33.2
million in the comparable prior year period, a decrease of $7.8 million, or
23.6%. The decrease resulted from lower litigation costs and legal fees of $2.8
million and $0.7 million of lower stock compensation related to stock
option grants to officers, directors and employees. In addition, 2007 included a
one-time $1.5 million restricted stock grant to our CEO and $2.1 million of
audit and accounting costs related to an extensive worldwide review
of inventory and receivables, as well as certain European business processes and
revenue recognition practices. This was partially offset by
additional bad debt expense incurred in fiscal 2008 resulting from the impact of
worsening global economic conditions.
Amortization
of Intangible Assets
Amortization
expense of $1.1 million in fiscal 2008 declined from $2.2 million in the
comparable prior year period. These expenses relate to intangible assets
recorded in connection with the Company’s 2004 acquisition of assets of the A.B.
Dick Company, patents and other purchased intangible assets. The year over year
decline in amortization resulted primarily from the A.B. Dick name and A.B. Dick
patents, which became fully amortized during the third quarter of fiscal
2007.
Restructuring
and Other Charges
Consolidated
restructuring and other charges of $2.1 million in fiscal 2008 decreased from
$2.7 million in fiscal 2007. Expenses incurred in fiscal 2008 include
restructuring costs related to the implementation of our BIP, severance and
separation expenses of employment contracts of former executives and other
employees, and costs related to the transfer of certain corporate functions from
the Hudson, NH facility to the Greenwich, CT facility. Expenses incurred in
fiscal 2007 include restructuring costs related to the implementation of our
BIP, and cost of severance and separation expenses for employment contracts of
former executives.
Interest
and Other Income (Expense), Net
Consolidated
net interest and other income in fiscal 2008 was $0.9 million compared to
expense of $1.3 million in the comparable prior year period. The year over year
improvement was due primarily to a $1.2 million reduction in interest expense
resulting from lower debt levels, and increased foreign currency transaction
gains of $0.9 million.
Provision
(Benefit) for Income Taxes
Our
effective tax rate was 47.0% in fiscal 2008 and 27.3% in fiscal 2007. The
variance from the federal statutory rate for fiscal 2008 was primarily due to an
increase in the valuation allowance provided against our net deferred tax assets
in the United States.
Fiscal 2007 Compared to
Fiscal 2006
Revenue
Consolidated
revenues were $246.6 million in fiscal 2007, a decrease of $12.4 million, or
4.8%, from $258.9 million in 2006. Equipment revenues reflected a decrease of
$3.1 million, or 3.5%, compared to 2006, as strong sales of 52DI® presses
were not enough to offset significant declines in our analog and CTP product
lines, particularly lower sales of DPM machines. Consumables revenues declined
by $3.2 million, or 2.6%, due primarily to lower sales of QMDI® plates.
Revenues in our service business were lower by $6.0 million, or 13.3%, in fiscal
2007 due to lower contract service revenues resulting from the transition of our
customer base from analog to digital solutions. Overall, sales of Presstek’s
“growth” portfolio of products, defined as 34DI® and
52DI® digital
offset solutions, and the Presstek family of chemistry free CTP solutions,
increased $16.7 million, or 16.2%, from $103.1 million in 2006 to $119.8 million
in fiscal 2007.
Equipment
revenues were $87.7 million in fiscal 2007 compared to $90.8 million in 2006, a
decrease of $3.1 million, or 3.5%. Gross sales of Presstek’s growth portfolio of
equipment increased to $77.1 million in fiscal 2007 from $69.3 million in 2006.
Revenues from the sale of DI®
equipment in fiscal 2007 of $64.0 million reflects an increase of $10.0 million,
or 18.4%, compared to 2006 due to strong marketplace demand for the 52DI® press,
which was first introduced in the third quarter of fiscal 2006. Total unit sales
of the 52DI® press
reached 59 in fiscal 2007, and 52DI® revenues
as a percentage of total DI® press
revenue increased from 10.0% in fiscal 2006 to 44.1% in fiscal 2007. Sales of
our remaining growth portfolio of equipment, Presstek’s CTP platesetters and
Vector TX52 machines, declined from $15.3 million in fiscal 2006 to $13.1
million in fiscal 2007, a decrease of 14.2%, due in part to the company’s
continued emphasis on marketing higher margin DI® presses,
as well as a large decline in the sale of DPM machines consistent with industry
trends. In addition, unit sales of the Vector TX52 were negatively impacted
early in fiscal 2007 from the carry-over impact of quality issues experienced
during the second half of fiscal 2006. These issues have since been successfully
resolved. Equipment sales of our “traditional” line of products, defined as
QMDI® presses,
polyester CTP platesetters, and conventional equipment, were all lower in fiscal
2007 compared to 2006 due to the ongoing transition of our customer base from
analog to digital technologies. Gross revenues from our traditional equipment
products decreased from $25.8 million in 2006 to $16.2 million in fiscal 2007, a
decline of 37.2%. As a percentage of total equipment revenue within the Presstek
segment, net sales of growth portfolio products increased from 73.0% of revenue
in 2006 to 82.6% of revenue in fiscal 2007.
Consumables
product revenues decreased from $123.1 million in 2006 to $119.9 million in
fiscal 2007, a reduction of $3.2 million, or 2.6%. The decline in revenues
resulted from the anticipated slowdown of certain products in Presstek’s
traditional line, including QMDI® plates
and conventional consumables, and was consistent with industry trends. QMDI® plates
declined from $24.6 million in 2006 to $19.5 million in fiscal 2007, a decrease
of 20.5%. Sales of conventional consumables declined from $40.6 million in
fiscal 2006 to $35.1 million in the comparable 2007 period. Partially offsetting
this decline were sales of Presstek’s “growth portfolio” of consumables, defined
as 52DI, 34DI, and chemistry-free CTP plates, which grew from $30.4 million in
2006 to $37.5 million in fiscal 2007, an increase of $7.1 million, or
23.5%.
Service
and parts revenues declined from $45.0 million in 2006 to $39.0 million in
fiscal 2007, a decrease of 13.3%. Lower revenues resulted primarily from the
anticipated shift away from our less profitable legacy service contract base
which, in the short term, is declining faster than our digital service business
is accelerating.
Cost
of Revenue
Consolidated
cost of revenue was $177.3 million in fiscal 2007, a decrease of $4.5 million,
or 2.5%, compared to fiscal 2006. Product cost of revenue in fiscal 2007
includes $5.4 million of charges related to excess and obsolete inventory,
warranty, and accrued purchase commitments related to product portfolio changes,
planned changes for the Vector TX52 product line, physical inventory results,
and other adjustments. Service and parts cost of revenue in fiscal 2007 includes
a charge of $1.1 million related to write-downs of field service parts
inventory.
Cost of
product was $145.7 million in fiscal 2007 compared to $149.3 million in the same
prior year period. In fiscal 2007, the Company recorded inventory-related
charges of $4.9 million, consisting of $2.3 million for the write-off of excess
and obsolete inventory, $2.5 million of inventory write-downs related to the
Vector TX52, $0.6 million of warranty-related expenses, and other adjustments.
Offsetting these costs were lower costs related to favorable equipment product
mix, production efficiencies in our plate manufacturing processes, and lower
freight costs.
Cost of
service in fiscal 2007, including the previously discussed $1.1 million write
down of field service parts inventory, was $31.6 million compared to $32.5
million same prior year period. These amounts represent the costs of spare
parts, labor and overhead associated with the ongoing service of products.
Service costs were favorably impacted by the improved utilization of the field
service organization in North America, the result of a restructuring plan
intended to realign our service organization with a declining analog revenue
base.
Gross
Profit
Consolidated
gross profit as a percentage of total revenue was 28.1% in fiscal 2007 compared
to 29.8% in 2006. Gross margins were negatively impacted in fiscal 2007 by
excess and obsolete inventory and warranty charges related to product portfolio
changes and field service parts inventory changes.
Gross
profit as a percentage of product revenue was 29.8% in fiscal 2007 compared to
30.2% in fiscal 2006. Gross margins were negatively impacted in fiscal 2007 by
excess and obsolete inventory and warranty charges related principally to
product portfolio changes and field service parts inventory changes. Offsetting
this somewhat was the favorable impact of a higher mix of DI®
revenues, which are predominately higher margin products than our CTP and
traditional lines of business, as well as improved production efficiencies in
our plate manufacturing.
Gross
profit as a percentage of service revenue was 18.9% in fiscal 2007 compared to
27.8% in 2006. Service margins in fiscal 2007 were negatively impacted by
charges for losses on field service parts inventory of $1.1 million. Lower
service margins also reflect the declining analog contract revenue base, which
more than offset cost savings resulting from reductions in field service
personnel.
Research
and Development
Research
and development expenses consist primarily of payroll and related expenses for
personnel, parts and supplies, and contracted services required to conduct our
equipment and consumables development efforts.
Research
and development expenses were $5.0 million in fiscal 2007 compared to $5.3
million in 2006. The decrease was due to lower payroll related expenses
resulting from turnover of personnel.
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 associated with sales, marketing and customer support
activities.
Sales,
marketing and customer support expenses of $39.2 million in fiscal 2007
decreased $0.3 million from the comparable prior year period due primarily to
lower payroll, commission, and travel and entertainment expenses, offset
somewhat by increased marketing costs in Europe necessary to support planned
growth.
General
and Administrative
General
and administrative expenses consist primarily of payroll and related expenses
for personnel and contracted professional services necessary to conduct our
finance, information systems, legal, human resources and administrative
activities. General and Administrative costs also include stock based
compensation expenses, as well as bad debt reserves.
General
and administrative expenses were $33.2 million in fiscal 2007 compared to $18.9
million in 2006. General and administrative expense increases were primarily the
result of higher patent defense and litigation activities of $4.6 million;
increased bad debt expense of $2.0 million and increased professional fees of
$3.4 million related primarily to various detailed financial reviews conducted
during the year. General and administrative expenses in fiscal 2007 also include
an increase of $2.1 million in stock compensation related to stock option grants
to officers, directors and employees compared to the same period in fiscal 2006,
as well as a $1.5 million increase in expense related to restricted stock
compensation granted to our CEO.
Amortization
of Intangible Assets
Amortization
expense of $2.2 million in fiscal 2007 declined from $2.7 million in the
comparable prior year period. These expenses relate to intangible assets
recorded in connection with the Company’s 2004 acquisition of the business of
the A.B. Dick Company, patents and other purchased intangible
assets.
Restructuring
and Other Charges
Consolidated
restructuring and other charges of $2.7 million in fiscal 2007 decreased from
$5.5 million in 2006. 2007 restructuring expenses represent the cost of
severance and separation expenses for employment contracts of former executives,
as well as costs related to implementation of the BIP. The BIP costs include the
consolidation of the Canadian back-office operations and certain Des Plaines, IL
activities into the Hudson, NH operations, and include restructuring costs
relating to severance, operating lease run-out and inventory
consolidation.
In fiscal
2006, the Company recognized restructuring and other charges of $5.5 million.
These charges included $2.3 million related to impairment of intangible assets
associated with patent defense costs on the Creo/Kodak litigation matter, $2.8
million related to impairment of goodwill resulting from SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (“SFAS 144”) valuation adjustments of long
lived assets at Precision as a result of the decision to discontinue its
newspaper analog business, $0.5 million for merger-related costs primarily
related to additional professional fees, and $0.3 million related to the
impairment of other assets. In addition, approximately $0.4 million of
previously established accruals at the Presstek segment were recognized in
income in fiscal 2006 due principally to changes in the scope of previously
announced severance programs.
Interest
and Other Income (Expense), Net
Consolidated
net interest and other expense in fiscal 2007 was ($1.3) million compared to
($1.0) million in the comparable prior year period. Increased expense in fiscal
2007 was due primarily to higher interest expense resulting from higher balances
on our revolving credit facility, as well as higher interest rates. Offsetting
this somewhat were gains on foreign currency translation.
Provision
(Benefit) for Income Taxes
Our
effective tax rate was 27.3% in fiscal 2007 and (228.6%) in fiscal
2006. The variance from the federal statutory rate for fiscal 2006
was primarily due to the reversal of valuation allowance provided against our
net deferred tax assets in the U.S.
In fiscal
2006, in accordance with SFAS No. 109, “Accounting for Income
Taxes”, (“FAS 109”), the Company recognized through its tax provision a
$11.2 million deferred tax benefit from the reversal of the previously recorded
valuation allowance established on its U.S. federal, state and local deferred
tax assets, except for that portion where the evidence does not yet support a
reversal. To support the determination that is more likely than not that
the Company’s deferred tax assets will be realized in the future, FAS 109
requires that the Company consider all available positive and negative
evidence. Based on a detailed analysis, the Company concluded that
evidence exists to support the U.S. valuation allowance reversal as of December
30, 2006.
Discontinued
Operations
The
Company accounts for its discontinued operations under the provisions of SFAS
144. Accordingly, results of operations and the related charges for discontinued
operations have been classified as “Loss from discontinued operations, net of
income taxes” in the accompanying Consolidated Statements of Operations. Assets
and liabilities of discontinued operations have been reclassified and reflected
on the accompanying Consolidated Balance Sheets as “Assets of discontinued
operations” and “Liabilities of discontinued operations”. For comparative
purposes, all prior periods presented have been reclassified on a consistent
basis.
Precision
During
December 2006, the Company terminated production in South Hadley, MA of
Precision-branded analog plates used in newspaper applications.
Results
of operations of the discontinued analog newspaper business of Precision consist
of the following (in thousands, except per-share data):
|
|
|
January
3, 2009
|
|
|
December
29, 2007
|
|
|
December
30, 2006
|
|
|
Revenue
|
|
$ |
-- |
|
|
$ |
196 |
|
|
$ |
10,816 |
|
|
Income
(Loss) before income taxes
|
|
|
93 |
|
|
|
(108 |
) |
|
|
(2,267 |
) |
|
Provision
(benefit) for income taxes
|
|
|
-- |
|
|
|
(54 |
) |
|
|
(771 |
) |
|
Income
(Loss) from discontinued operations
|
|
|
93 |
|
|
|
(54 |
) |
|
|
(1,496 |
) |
|
Loss
from disposal of discontinued operations, net of tax benefit
of $915 for the year ended December 30, 2006
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,777 |
) |
|
Net
Income (Loss) from discontinued operations
|
|
$ |
93 |
|
|
$ |
(54 |
) |
|
$ |
(3,273 |
) |
|
Loss
per diluted share
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.09 |
) |
As of
December 30, 2006, and in accordance with SFAS 144 and SFAS 142, the Company
reviewed the potential impairment of long-lived assets associated with the
analog newspaper business and goodwill of the Precision reporting unit and
determined that impairment charges aggregating $4.0 million were required. Of
this amount $2.8 million relates to the impairment of goodwill, $0.3 million
relates to the acceleration of depreciation on fixed assets abandoned, $0.6
million relates to the acceleration of amortization on certain intangible assets
and $0.3 million relates to the adjustment of inventory on hand to the lower of
cost or market. Impairment charges of the reporting unit goodwill resulting from
the abandonment of the analog newspaper business are reflected within
restructuring and other charges of continuing operations, and the remaining
charges included in the loss from discontinued operations for fiscal 2006. There
have been no further impairment charges incurred during fiscal years 2008 and
2007 relating to this matter.
Lasertel
On
September 24, 2008, the Board of Directors approved a plan to market the
Lasertel subsidiary for sale as the Lasertel business is not a core focus for
the Presstek graphics business. Although Lasertel is a supplier of diodes for
the Company, it has grown its presence in the external market, and management
believes that Lasertel would be in a better position to realize its full
potential in conjunction with other companies or investors who can focus
resources on the external market. The process of identifying and working with
interested potential buyers of Lasertel is well underway. The disposal of this
asset group is currently anticipated to be a stock sale with a Section 338
election and to occur within a one year period. As such, the Company has
presented the results of operations of this subsidiary within discontinued
operations, and classified the assets as “Assets of discontinued operations” and
liabilities as “Liabilities of discontinued operations”. The Lasertel business
will continue to operate as it previously operated, including its marketing and
new business/product development activities. Presstek has no intentions to shut
down the business.
Results
of operations of the discontinued business of Lasertel consist of the following
(in thousands, except per-share data):
|
|
|
January
3, 2009
|
|
|
December
29, 2007
|
|
|
December
30, 2006
|
|
|
Revenue
|
|
$ |
8,686 |
|
|
$ |
8,270 |
|
|
$ |
6,758 |
|
|
Loss
before income taxes
|
|
|
(4,336 |
) |
|
|
(2,924 |
) |
|
|
(1,951 |
) |
|
Provision
(benefit) for income taxes
|
|
|
(1,637 |
) |
|
|
(1,129 |
) |
|
|
(752 |
) |
|
Net
loss from discontinued operations
|
|
$ |
(2,699 |
) |
|
$ |
(1,795 |
) |
|
$ |
(1,199 |
) |
|
Loss
per diluted share
|
|
$ |
(0.08 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
Liquidity and Capital
Resources
We
finance our operating and capital investment requirements primarily through cash
flows from operations and borrowings. At January 3, 2009, we had $4.7 million of
cash and cash equivalents and $35.2 million of working capital, compared to
$12.6 million of cash and cash equivalents and $35.3 million of working capital
at December 29, 2007.
Continuing
Operations
Our
operating activities provided $15.2 million of cash in fiscal 2008. Cash
provided by operating activities came from net income from continuing operations
of $3.1 million; $12.7 million of adjustments to net income from continuing
operations including non-cash depreciation, amortization, restructuring,
provisions for warranty costs and accounts receivable allowances, stock
compensation expense, deferred income taxes, and losses on the disposal of
assets; and $0.5 million of other movements. Although a decrease in accounts
receivable of $8.6 million plus a decrease in inventories of $7.0 million
provided $15.6 million benefit to cash flow, this was more than offset by a
decrease of $11.5 million in accrued expenses and a decrease of $5.3 million in
accounts payable. The decrease in accounts receivable and inventory reflects the
lower revenue in fiscal 2008 compared to 2007 as well as our continued focus on
cash management. Accrued expenses decreased primarily due to a reduction in
accounting fees and settlement of legal claims.
We used
$1.9 million of net cash for investing activities during 2008, comprised of $1.8
million of additions to property, plant and equipment and $0.1 million of
investments in patents and other intangible assets. Our additions to property,
plant and equipment primarily relate to production equipment and investments in
our infrastructure.
We used
$18.7 million in our financing activities, comprised of $7.6 million related to
payments made under our current line of credit and $11.4 million related to
payments on our current Term Loan and capital lease. These amounts were offset
by cash received from the exercise of stock options and purchase of common stock
under our employee stock purchase program aggregating $0.3 million.
Discontinued
Operations
Operating
activities of discontinued operations used $3.5 million in cash in fiscal 2008.
Cash provided by operating activities came from net income, after adjustments
for non-cash depreciation, amortization, provisions for warranty, costs and
accounts receivable allowances. In addition, cash used in operating activities
consisted of $0.1 million relating to the increase in accounts receivable, $0.4
million relating to the increase in inventory, $0.1 million decrease in other
current assets, $0.4 million decrease in accounts payable and a $0.1 million
decrease in deferred revenue and $0.2 million decrease in accrued
expenses.
Investing
activities of discontinued operations provided $7.2 million made up of $7.9
million of net cash proceeds provided through the sale of property and $0.7 of
cash used for additions of fixed assets.
Sale-Leaseback
On July
14, 2008, the Company completed a sale-leaseback transaction of its property
located in Tucson, AZ (the “Property”). The Company sold the Property to an
independent third party for approximately $8.75 million, or $8.4 million net of
expenses incurred in connection with the sale, resulting in a gain of
approximately $4.6 million. Concurrent with the sale, the Company entered in to
an agreement to lease a portion of the property back from the purchaser for a
term of 10 years. The lease, which management deemed to be an operating lease,
has approximately $5.8 million in future minimum lease payments. The gain
associated with the transaction was deferred at the inception of the arrangement
and is expected to be amortized ratably over the lease term.
Liquidity
Our
current senior secured credit facilities (the “Facilities”), include a $35.0
million five year secured term loan (the “Term Loan”), and a $45.0 million five
year secured revolving line of credit (the “Revolver”). At January 3, 2009, the
outstanding balance on the revolver was $12.4 million and we had $1.3 million
outstanding under letters of credit, thereby reducing the amount available under
the Revolver to $31.3 million. At January 3, 2009 and December 29, 2007, the
interest rates on the outstanding balance of the Revolver were 2.69% and 7.5%,
respectively. Prior to an amendment to the Facilities in the third quarter of
fiscal 2008, principal payments on the Term Loan were payable in consecutive
quarterly installments of $1.75 million, with a final settlement of all
remaining principal and unpaid interest on November 4, 2009. In the third
quarter of fiscal 2008, the Company used the net proceeds of the sale of its
Arizona property to pay down the principal balance of the Term Loan and entered
into an amendment to the Facilities dated July 29, 2008 which amended the
payment schedule of the Term Loan to reduce the required quarterly installments
of principal to $810,000, payable in January, March, June, and September of
2009, with no installment due in September of 2008 and a final installment of
all remaining principal (approximately $834,000) due on November 4,
2009.
The
Facilities were used to partially finance the A.B. Dick Acquisition, and are
available for working capital requirements, capital expenditures, acquisitions,
and general corporate purposes. Borrowings under the Facilities bear interest at
either (i) the London InterBank Offered Rate, or LIBOR, plus applicable margins
or (ii) the Prime Rate, as defined in the agreement, plus applicable margins.
The applicable margins range from 1.25% to 4.0% for LIBOR, or up to 1.75% for
the Prime Rate, based on certain financial performance. At January 3, 2009 and
December 29, 2007, the effective interest rates on the Term Loan were 1.30% and
7.5%, respectively.
Under the
terms of the Revolver and Term Loan, we are required to meet various financial
covenants on a quarterly and annual basis, including maximum funded debt to
EBITDA, a non-generally accepted accounting principles in the United States
measurement that is defined in the Facilities as earnings before interest,
taxes, depreciation, amortization and restructuring and other charges (credits),
and minimum fixed charge coverage covenants. At January 3, 2009, we were in
compliance with all financial covenants.
The
Company entered into interest rate swap agreements with its lenders in October
2003, which were intended to protect the Company’s long-term debt against
fluctuations in LIBOR rates. Under the interest rate swaps LIBOR was set at a
minimum of 1.15% and a maximum of 4.25%. Because the interest rate swap
agreement did not qualify as a hedge for accounting purposes under SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”), and related amendments,
including SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, the Company recorded an
increase to the expense of $7,550, in fiscal 2008 and a reduction to expense of
$22,500 and $40,000 in fiscal 2007 and fiscal 2006, respectively, to mark these
interest rate swap agreements to market. The swap agreements expired in October
2008.
As of
January 3, 2009, our Revolver and the Term Loan had outstanding balances of
$12.4M and $4.1 M, respectively. These credit facilities will expire in November
2009. The Company is currently evaluating its financing options, and fully
intends to have a new revolving line of credit in place by November 2009 to be
used for working capital and other operating purposes. In the event that we are
unable to have a new revolving line of credit in place by November 2009, we
expect to be able to pay off our existing Revolver and Term Loan through a
combination of the $4.7 million in cash at January 3, 2009, $1.2 million in cash
received in January from our settlement with Continental Casualty Company, net
cash generated from operations, and if needed, cash received from other sources.
Other sources could include cash received from the sale of our Lasertel
business, financing from new asset based lending agreements, and the
sale-leaseback of currently owned property.
We
believe that existing funds, cash flows from operations, and cash available from
other sources as discussed above will be sufficient to satisfy cash requirements
through at least the next 12 months. However, any inability to obtain adequate
financing from debt and equity sources could force us to self-fund capital
expenditures and strategic initiatives, forgo certain opportunities, or possibly
discontinue certain of our operations. Similarly, we cannot be assured
that such financing, as needed, would be available on acceptable
terms.
Contractual
Obligations
Our
contractual obligations at January 3, 2009 consist of the following (in
thousands):
|
|
|
|
|
|
Payments
due by period
|
|
|
|
|
Total
|
|
|
Less
than one year
|
|
|
One
to three years
|
|
|
Three
to five years
|
|
|
Five
or more years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Credit Facilities
|
|
$ |
16,489 |
|
|
$ |
16,489 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
Purchase
Commitments
|
|
|
6,228 |
|
|
|
4,137 |
|
|
|
2,091 |
|
|
|
-- |
|
|
|
-- |
|
|
Royalty
obligation
|
|
|
5,104 |
|
|
|
766 |
|
|
|
1,488 |
|
|
|
1,161 |
|
|
|
1,689 |
|
|
Operating
leases
|
|
|
12,307 |
|
|
|
2,684 |
|
|
|
3,982 |
|
|
|
2,780 |
|
|
|
2,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations
|
|
$ |
40,128 |
|
|
$ |
24,076 |
|
|
$ |
7,561 |
|
|
$ |
3,941 |
|
|
$ |
4,550 |
|
In fiscal
2000, we entered into an agreement with Fuji, whereby minimum royalty payments
to Fuji are required based on specified sales volumes of our A3 format size
four-color sheet-fed press. The agreement provides for total royalty payments to
be no less than $6 million and not greater than $14 million over the life of the
agreement. As of January 3, 2009, the Company had paid Fuji $8.9 million related
to this agreement.
From time
to time we have engaged in sales of equipment that is leased by or intended to
be leased by a third party purchaser to another party. In certain situations, we
may retain recourse obligations to a financing institution involved in providing
financing to the ultimate lessee in the event the lessee of the equipment
defaults on its lease obligations. In certain such instances, we may refurbish
and remarket the equipment on behalf of the financing company, should the
ultimate lessee default on payment of the lease. In certain circumstances,
should the resale price of such equipment fall below certain predetermined
levels, we would, under these arrangements, reimburse the financing company for
any such shortfall in sale price (a “shortfall payment”). The maximum contingent
obligation under these shortfall payment arrangements is estimated to be $1.9
million at January 3, 2009.
Effect
of Inflation
Inflation
has not had a material impact on our financial conditions or results of
operations, although this risk is discussed under Item 1 of this Form
10-K.
Net
Operating Loss Carryforwards
At
January 3, 2009, we had net operating loss carryforwards for tax purposes
totaling $77.5 million, of which $61.5 million resulted from stock option
compensation deductions for U.S. federal tax purposes and $16.0 million resulted
from operating losses. To the extent that net operating losses resulting from
stock option compensation deductions result in reduction of current taxes
payable, the benefit will be credited directly to additional paid-in capital.
The Company’s ability to utilize its net operating loss and credit carryforwards
may be limited in the future if the Company experiences an ownership change, as
defined by the Internal Revenue Code. An ownership change occurs when the
ownership percentage of 5% or greater of stockholders changes by more than 50%
over a three year period.
Critical
Accounting Policies and Estimates
General
Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles as adopted
in the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities and related disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates and assumptions
also affect the amount of reported revenue and expenses during the period.
Management believes the most judgmental estimates include those related to
product returns; warranty obligations; allowances for doubtful accounts;
slow-moving and obsolete inventories; income taxes; the valuation of goodwill,
intangible assets, long-lived assets and deferred tax assets; stock-based
compensation and litigation. We base our estimates and assumptions on historical
experience and various other appropriate factors, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenue and expenses that are not readily apparent from other
sources. Actual results could differ from those estimates.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements. For a complete discussion of our accounting policies, see Note 2 to
our consolidated financial statements appearing elsewhere herein.
Revenue
Recognition
The
Company recognizes revenue principally from the sale of products (equipment,
consumables, laser diodes) and services (equipment maintenance contracts,
installation, training, support, and spare parts). Revenue is recognized when
persuasive evidence of a sales arrangement exists, delivery has occurred or
services have been rendered, the price to the customer is fixed or determinable
and collection is reasonably assured. In accordance with Staff Accounting
Bulletin (“SAB”) No. 104 Revenue Recognition (“SAB
104”) and Emerging Issues Task Force (“EITF”) Issue 00-21 Revenue Arrangements with Multiple
Deliverables (“EITF 00-21”), when a sales arrangement contains multiple
elements, such as equipment and services, revenue is allocated to each element
using the residual method.
Product
revenue
End-Users - Under the Company’s standard
terms and conditions of sale of equipment, title and risk of loss are
transferred to end-user customers upon completion of installation and revenue is
recognized at that time, unless customer acceptance is uncertain or significant
deliverables remain. Sales of other products, including printing plates, are
generally recognized at the time of shipment.
OEMs - Product revenue and
any related royalties for products sold to Original Equipment Manufacturers
(“OEM”) are recognized at the time of shipment as installation is not required
and title and risk of loss generally pass at shipment. OEM contracts do not
generally include price protection or product return rights; however, the
Company may elect, in certain circumstances, to accept returns of
product.
Distributors - Revenue for
product sold to distributors, whereby the distributor is responsible for
installation, is recognized at shipment, unless other revenue recognition
criteria have not been met. Revenue for product sold to distributors under
contracts which involve Company installation of equipment is recognized upon
installation, unless end-user customer acceptance is uncertain, significant
deliverables remain, or other revenue recognition criteria have not been met.
Except in cases of contract termination (which may include limited product
return rights), distributor contracts do not generally include price protection
or product return rights; however, the Company may elect, in certain
circumstances, to accept returns of product.
Service and parts
revenue
Revenue
for installation services, including time and material billings, are recognized
as services are rendered. Revenue associated with maintenance or extended
service agreements is recognized ratably over the contract period. Revenue
associated with training and support services is recognized as services are
rendered. Certain fees and other reimbursements are recognized as revenue when
the related services have been performed or the revenue is otherwise
earned.
Leases
The
Company may offer customer financing to assist customers in the acquisition of
Presstek products. At the time a financing transaction is consummated, which
qualifies as a sales-type lease, the Company records equipment revenue equal to
the net present value of future lease payments. Any remaining balance is
recognized as finance income using the effective interest method over the term
of the lease. Leases not qualifying as sales-type leases are accounted for as
operating leases. The company recognizes revenue from operating leases on an
accrual basis as the rental payments become due.
Multiple element
arrangements
In
accordance with SAB 104 and EITF 00-21, when a sales arrangement contains
multiple elements, such as equipment, consumables or services, revenue is
allocated to each element using the residual method.
Rights of
return
A general
right of return or cancellation does not exist once product is delivered to the
customer; however, the Company may elect, in certain circumstances, to accept
returns of product. Product revenues are recorded net of estimated returns,
which are adjusted periodically, based upon historical rates of
return.
Shipping and
handling
The
Company accounts for shipping and handling fees passed on to customers as
revenue. Shipping and handling costs are reported as components of cost of
revenue (product) and cost of revenue (service and parts).
Allowance
for Doubtful Accounts
The
Company’s accounts receivable are customer obligations due under normal trade
terms, carried at face value less an allowance for doubtful accounts. The
Company evaluates its allowance for doubtful accounts on an ongoing basis and
adjusts for potential credit losses when it determines that receivables are at
risk for collection based upon the length of time receivables are outstanding,
past transaction history and various other criteria. Receivables are written off
against reserves in the period they are determined to be
uncollectible.
Inventory
Valuation
Inventories
are valued at the lower of cost or net realizable value, with cost determined
using the first-in, first-out method. We assess the recoverability of inventory
to determine whether adjustments for impairment are required.
Inventory
that is in excess of future requirements is written down to its estimated market
value based upon forecasted demand for its products. If actual demand is less
favorable than what has been forecasted by management, additional inventory
write-downs may be required.
Goodwill
and Intangible Assets
In
accordance with the provisions of SFAS 142, goodwill is tested at least
annually, on the first business day of the third quarter, for impairment, or
more frequently, if indicators of potential impairment arise. The Company’s
impairment review is based on a fair value test. The Company uses its judgment
in assessing whether assets may have become impaired between annual impairment
tests. Indicators such as unexpected adverse business conditions, economic
factors, unanticipated technological change or competitive activities, loss of
key personnel and acts by governments and courts may signal that an asset has
been impaired. Should the fair value of goodwill, as determined by the Company
at any measurement date, fall below its carrying value, a charge for impairment
of goodwill will be recorded in the period. The Company conducts ongoing
assessments of the valuation of goodwill and determined no goodwill impairment
existed during the year ended January 3, 2009. The Company will continue to
assess the valuation of goodwill throughout 2009. Depending on market and
economic conditions, goodwill impairment could be identified in 2009 which would
result in a non-cash impairment charge.
Intangible
assets with estimated lives and other long-lived assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable in accordance with SFAS
No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (“SFAS 144”). Recoverability
of intangible assets with estimated lives and other long-lived assets is
measured by comparison of the carrying amount of an asset or asset group to
future net undiscounted pretax cash flows expected to be generated by the asset
or asset group. If these comparisons indicate that an asset is not recoverable,
the Company will recognize an impairment loss for the amount by which the
carrying value of the asset or asset group exceeds the related estimated fair
value. Estimated fair value is based on either discounted future pretax
operating cash flows or appraised values, depending on the nature of the asset.
The Company determines the discount rate for this analysis based on the expected
internal rate of return of the related business and does not allocate interest
charges to the asset or asset group being measured. Considerable judgment is
required to estimate discounted future operating cash flows.
Patents
represent the cost of preparing and filing applications to patent the Company’s
proprietary technologies, in addition to certain patent and license rights
obtained in the Company’s acquisitions or other related transactions. Such costs
are amortized over a period ranging from five to seven years, beginning on the
date the patents or rights are issued or acquired.
From time
to time, the Company enters into agreements with third parties under which the
party will design and prototype a product incorporating Presstek products and
technology. The capitalized costs associated with rights or intellectual
property under these agreements will be amortized over the estimated sales
life-cycle and future cash flows of the product. The Company does not amortize
capitalized costs related to either patents or purchased intellectual property
until the respective asset has been placed into service.
The
Company amortizes license agreements and loan origination fees over the term of
the respective agreement.
The
amortizable lives of the Company’s other intangible assets are as
follows:
|
Trade
names
|
|
|
2 –
3 |
|
years
|
|
Customer
relationships
|
|
|
2 –
10 |
|
years
|
|
Software
licenses
|
|
|
3 |
|
years
|
|
Non-compete
covenants
|
|
|
5 |
|
years
|
Stock-Based
Compensation
On January 1, 2006,
we adopted SFAS No.123(R), Share-Based
Payment
(“SFAS 123R”), using the modified prospective transition method. We recognize
the fair value of stock compensation in our consolidated financial statements
over the requisite service period, generally on a straight-line basis for
time-vested awards. Under the fair value recognition provisions of SFAS
123R, stock-based compensation cost is measured at the grant date based on the
value of the award and is recognized as expense over the service period.
Further, we have elected under SFAS 123R to recognize the fair value of awards
with pro-rata vesting on a straight-line basis. Previously, we had followed
Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, which resulted in the accounting
for employee share options at their intrinsic value in the consolidated
financial statements.
Under SFAS 123R, our stock-based
compensation is affected by our stock price as well as valuation assumptions,
including the volatility of our stock price, expected term of the option,
risk-free interest rate and expected dividends. We utilize the Black-Scholes
valuation model for estimating the fair value on the date of grant of employee
stock options. We estimate volatility primarily using the historical volatility
of Presstek common stock over the expected term. Any
changes in these assumptions may materially affect the estimated fair value of
the stock-based award.
Accounting
for Income Taxes
The
process of accounting for income taxes involves calculating our current tax
obligation or refund and assessing the nature and measurements of temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences and our net operating loss (“NOL”) and credit
carryforwards, result in deferred tax assets and liabilities. In each period, we
assess the likelihood that our deferred tax assets will be recovered from
existing deferred tax liabilities or future taxable income in each jurisdiction.
To the extent we believe that we would not meet the test that recovery is “more
likely than not”, we would establish a valuation allowance. To the extent that
we establish a valuation allowance or change this allowance in a period, we
would adjust our tax provision or tax benefit in the consolidated statement of
operations. We use our judgment to determine our provision or benefit for income
taxes, including estimates associated with uncertain tax positions and any
valuation allowance recorded against our deferred tax assets based on the weight
of all positive and negative factors, including cumulative trends in
profitability.
We have
accumulated U.S. federal and state income tax NOL carryforwards, research and
experimentation tax credit carryforwards and alternative minimum tax credit
carryforwards. In the fourth quarter of fiscal 2006, we reversed the valuation
allowance on a deferred tax asset on our balance sheet primarily representing
NOLs from our U.S. operations. Previously, we had recorded a valuation allowance
against deferred tax assets on our balance sheet until it was “more likely than
not” that the tax assets related to either our U.S. or international operations
would be realized.
We assess
our ability to utilize our NOL and tax credit carryforwards in future periods
and record any resulting adjustments that may require deferred income tax
expense. In addition, we reduce the deferred income tax asset for the benefits
of NOL and tax credit carryforwards utilized currently. The future impact on net
income may therefore be positive or negative, depending on the net result of
such adjustments and charges.
Based
upon a review of historical operating performance through 2008, and our
expectation that we will generate profits in the U.S. and our international
operations in the foreseeable future, we continue to believe it is more likely
than not that the U.S. and international deferred tax assets, net of valuation
allowance, will be fully realized.
Recently
Issued Accounting Standards
In 2009,
the Company will adopt the remaining provisions of Statement of Financial
Accounting Standards No. 157, Fair Value Measurements,
(“SFAS 157”) for non-financial assets. The adoption of these provisions will not
have an impact on the Company’s statements of operations or statement of
financial position.
In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations. This
statement replaces SFAS 141, Business Combinations, but
retains the fundamental requirements of the statement that the acquisition
method of accounting be used for all business combinations and for an acquirer
to be identified for each business combination. The statement seeks
to improve financial reporting by establishing principles and requirements for
how the acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase option and c)
determines what information to disclose. This statement is effective
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company will apply the provisions of SFAS
141(R) to any acquisition after January 3, 2009.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB 51. This
statement amends Accounting Research Bulletin (ARB) 51, Consolidated Financial Statements,
to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. The statement clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This statement is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008. The adoption of SFAS 160
will not impact the Company’s consolidated financial position and results of
operations because the Company does not have any noncontrolling
interests.
In March
2008, the Financial Accounting Standards Boards (“FASB”) issued Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities, (“SFAS 161”), which requires enhanced
disclosures related to derivative instruments and hedging activities. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, and the disclosure
requirements will be applicable for the Company’s 2009 consolidated financial
statements.
Off-Balance
Sheet Arrangements
We do not
participate in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (“SPEs”), which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purpose. As of January 3, 2009, we were
not involved in any unconsolidated SPE transactions.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
We are
exposed to a variety of market risks, including changes in interest rates
primarily as a result of our borrowing activities, commodity price risk, and to
a lesser extent, our investing activities and foreign currency
fluctuations.
Our
borrowings are in variable rate instruments, with interest rates tied to either
the Prime Rate or the LIBOR. A 100 basis point change in these rates would have
an impact of approximately $0.03 million on our annual interest expense,
assuming consistent levels of floating rate debt with those held at the end of
fiscal 2008.
Commodity
price movements create a market risk by affecting the price we must pay for
certain raw materials. The Company purchases aluminum for use in manufacturing
consumables products and is embedded in certain components we purchase from
major suppliers. From time to time, we enter into agreements with certain
suppliers to manage price risks within a specified range of prices; however, our
suppliers generally pass on significant commodity
price changes to us in the form of revised prices on future purchases. The
Company has not used commodity forward or option contracts to manage this market
risk.
The
Company operates foreign subsidiaries in Canada and Europe and is exposed to
foreign currency exchange rate risk inherent in our sales commitments,
anticipated sales, anticipated purchases and assets and liabilities denominated
in currencies other than the U.S. dollar. Presstek routinely evaluates whether
the foreign exchange risk associated with its foreign currency exposures acts as
a natural foreign currency hedge for other offsetting amounts denominated in the
same currency. The Company has not hedged the net assets or net income of its
foreign subsidiaries. In addition, certain key customers and strategic partners
are not located in the United States. As a result, these parties may be subject
to fluctuations in foreign exchange rates. If their home country currency were
to decrease in value relative to the U.S. dollar, their ability to purchase and
market our products could be adversely affected and our products may become less
competitive to them. This may have an adverse impact on our business. Likewise,
certain major suppliers are not located in the United States and thus, such
suppliers are subject to foreign exchange rate risks in transactions with us.
Decreases in the value of their home country currency, versus that of the U.S.
dollar, could cause fluctuations in supply pricing which could have an adverse
effect on our business.
PART
II
Item 8. Financial Statements and
Supplementary Data.
|
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
Consolidated
Balance Sheets as of January 3, 2009 and December 29, 2007
|
|
|
Consolidated
Statements of Operations for the fiscal years ended January 3, 2009,
December 29, 2007 and December 30, 2006
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity and Comprehensive Income for
the fiscal years ended January 3, 2009, December 29, 2007 and December 30,
2006
|
|
|
Consolidated
Statements of Cash Flows for the fiscal years ended January 3, 2009,
December 29, 2007 and December 30, 2006
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Board
of Directors and Stockholders
Presstek,
Inc.:
We have
audited the accompanying consolidated balance sheets as of January 3, 2009 and
December 29, 2007 of Presstek, Inc. and subsidiaries (the Company) and the
related consolidated statements of operations, changes in stockholders’ equity
and comprehensive income, and cash flows for each of the fiscal years in the
three-year period ended January 3, 2009. In connection with our audits of the
consolidated financial statements, we also have audited financial statement
schedule II. These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of January 3,
2009 and December 29, 2007, and the results of their operations and their
cash flows for each of the fiscal years in the three-year period ended January
3, 2009, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the related financial statement schedule II, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of January 3, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 24, 2009 expressed an
adverse opinion on the effectiveness of the Company’s internal control over
financial reporting.
/s/ KPMG
LLP
Boston,
Massachusetts
March 24,
2009
|
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
(in
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
January
3,
|
|
|
December
29,
|
|
|
|
|
2009
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,738 |
|
|
$ |
12,558 |
|
|
Accounts
receivable, net
|
|
|
30,757 |
|
|
|
41,094 |
|
|
Inventories
|
|
|
37,607 |
|
|
|
45,010 |
|
|
Assets
of discontinued operations
|
|
|
13,332 |
|
|
|
16,689 |
|
|
Deferred
income taxes
|
|
|
7,066 |
|
|
|
6,740 |
|
|
Other
current assets
|
|
|
4,095 |
|
|
|
4,594 |
|
|
Total
current assets
|
|
|
97,595 |
|
|
|
126,685 |
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
25,530 |
|
|
|
29,049 |
|
|
Intangible
assets, net
|
|
|
4,174 |
|
|
|
5,209 |
|
|
Goodwill
|
|
|
19,114 |
|
|
|
19,891 |
|
|
Deferred
income taxes
|
|
|
10,494 |
|
|
|
11,124 |
|
|
Other
noncurrent assets
|
|
|
606 |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
157,513 |
|
|
$ |
192,827 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and capital lease obligation
|
|
$ |
4,074 |
|
|
$ |
7,035 |
|
|
Line
of credit
|
|
|
12,415 |
|
|
|
20,000 |
|
|
Accounts
payable
|
|
|
12,031 |
|
|
|
17,312 |
|
|
Accrued
expenses
|
|
|
13,244 |
|
|
|
23,212 |
|
|
Deferred
revenue
|
|
|
7,300 |
|
|
|
7,100 |
|
|
Liabilities
of discontinued operations
|
|
|
5,748 |
|
|
|
2,776 |
|
|
Total
current liabilities
|
|
|
54,812 |
|
|
|
77,435 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and capital lease obligation, less current portion
|
|
|
- |
|
|
|
8,500 |
|
|
Other
long-term liabilities
|
|
|
170 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
54,982 |
|
|
|
85,935 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (See Note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value, 1,000,000 shares authorized, no shares
issued
|
|
|
- |
|
|
|
- |
|
|
Common
stock, $0.01 par value, 75,000,000 shares authorized, 36,637,181
and
|
|
|
36,565,474
shares issued and outstanding at January 3, 2009 and
|
|
|
|
|
|
|
December
29, 2007, respectively
|
|
|
366 |
|
|
|
366 |
|
|
Additional
paid-in capital
|
|
|
117,985 |
|
|
|
115,884 |
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(5,954 |
) |
|
|
1,032 |
|
|
Accumulated
deficit
|
|
|
(9,866 |
) |
|
|
(10,390 |
) |
|
Total
stockholders' equity
|
|
|
102,531 |
|
|
|
106,892 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
157,513 |
|
|
$ |
192,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
(in
thousands, except per-share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
|
|
|
January
3,
|
|
|
December
29,
|
|
|
December
30,
|
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$ |
158,743 |
|
|
$ |
207,605 |
|
|
$ |
213,966 |
|
|
Service
and parts
|
|
|
34,509 |
|
|
|
38,968 |
|
|
|
44,970 |
|
|
Total
revenue
|
|
|
193,252 |
|
|
|
246,573 |
|
|
|
258,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
99,088 |
|
|
|
145,724 |
|
|
|
149,333 |
|
|
Service
and parts
|
|
|
25,423 |
|
|
|
31,622 |
|
|
|
32,466 |
|
|
Total
cost of revenue
|
|
|
124,511 |
|
|
|
177,346 |
|
|
|
181,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
68,741 |
|
|
|
69,227 |
|
|
|
77,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
5,144 |
|
|
|
4,969 |
|
|
|
5,320 |
|
|
Sales,
marketing and customer support
|
|
|
29,937 |
|
|
|
39,194 |
|
|
|
39,451 |
|
|
General
and administrative
|
|
|
25,496 |
|
|
|
33,172 |
|
|
|
18,879 |
|
|
Amortization
of intangible assets
|
|
|
1,084 |
|
|
|
2,168 |
|
|
|
2,697 |
|
|
Restructuring
and other charges
|
|
|
2,108 |
|
|
|
2,714 |
|
|
|
5,481 |
|
|
Total
operating expenses
|
|
|
63,769 |
|
|
|
82,217 |
|
|
|
71,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
4,972 |
|
|
|
(12,990 |
) |
|
|
5,309 |
|
|
Interest
and other income (expense), net
|
|
|
938 |
|
|
|
(1,254 |
) |
|
|
(984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
5,910 |
|
|
|
(14,244 |
) |
|
|
4,325 |
|
|
Provision
(benefit) for income taxes
|
|
|
2,780 |
|
|
|
(3,889 |
) |
|
|
(9,891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
3,130 |
|
|
|
(10,355 |
) |
|
|
14,216 |
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(2,606 |
) |
|
|
(1,849 |
) |
|
|
(4,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
524 |
|
|
$ |
(12,204 |
) |
|
$ |
9,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share - basic
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
0.09 |
|
|
$ |
(0.29 |
) |
|
$ |
0.40 |
|
|
Loss
from discontinued operations
|
|
|
(0.08 |
) |
|
|
(0.05 |
) |
|
|
(0.13 |
) |
|
|
|
$ |
0.01 |
|
|
$ |
(0.34 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share - diluted
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
0.09 |
|
|
$ |
(0.29 |
) |
|
$ |
0.40 |
|
|
Loss
from discontinued operations
|
|
|
(0.08 |
) |
|
|
(0.05 |
) |
|
|
(0.13 |
) |
|
|
|
$ |
0.01 |
|
|
$ |
(0.34 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
36,596 |
|
|
|
36,199 |
|
|
|
35,565 |
|
|
Dilutive
effect of stock options
|
|
|
9 |
|
|
|
- |
|
|
|
291 |
|
|
Weighed
average shares outstanding - diluted
|
|
|
36,605 |
|
|
|
36,199 |
|
|
|
35,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
AND
COMPREHENSIVE INCOME
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
other
|
|
|
earnings
|
|
|
|
|
|
|
|
Common
stock
|
|
|
paid-in
|
|
|
comprehensive
|
|
(accumulated |
|
|
|
|
Shares
|
|
|
Par
value
|
|
|
capital
|
|
|
income
(loss)
|
|
|
deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
35,366 |
|
|
|
354 |
|
|
|
106,268 |
|
|
|
(59 |
) |
|
|
(7,930 |
) |
|
$ |
98,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
296 |
|
|
|
3 |
|
|
|
2,127 |
|
|
|
- |
|
|
|
- |
|
|
|
2,130 |
|
|
Foreign
currency translation adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
356 |
|
|
|
- |
|
|
|
356 |
|
|
Share
based compensation under SFAS No. 123(R)
|
|
|
- |
|
|
|
- |
|
|
|
374 |
|
|
|
- |
|
|
|
- |
|
|
|
374 |
|
|
Net
income (loss)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,744 |
|
|
|
9,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 30, 2006
|
|
|
35,662 |
|
|
|
357 |
|
|
|
108,769 |
|
|
|
297 |
|
|
|
1,814 |
|
|
|
111,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
903 |
|
|
|
9 |
|
|
|
3,126 |
|
|
|
- |
|
|
|
- |
|
|
|
3,135 |
|
|
Foreign
currency translation adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
735 |
|
|
|
- |
|
|
|
735 |
|
|
Share
based compensation under SFAS No. 123(R)
|
|
|
- |
|
|
|
- |
|
|
|
3,989 |
|
|
|
- |
|
|
|
- |
|
|
|
3,989 |
|
|
Net
income (loss)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,204 |
) |
|
|
(12,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 29, 2007
|
|
|
36,565 |
|
|
|
366 |
|
|
|
115,884 |
|
|
|
1,032 |
|
|
|
(10,390 |
) |
|
|
106,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
72 |
|
|
|
- |
|
|
|
298 |
|
|
|
- |
|
|
|
- |
|
|
|
298 |
|
|
Foreign
currency translation adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,986 |
) |
|
|
- |
|
|
|
(6,986 |
) |
|
Share
based compensation under SFAS No. 123(R)
|
|
|
- |
|
|
|
- |
|
|
|
1,803 |
|
|
|
- |
|
|
|
- |
|
|
|
1,803 |
|
|
Net
income (loss)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
524 |
|
|
|
524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 3, 2009
|
|
|
36,637 |
|
|
$ |
366 |
|
|
$ |
117,985 |
|
|
$ |
(5,954 |
) |
|
$ |
(9,866 |
) |
|
$ |
102,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss) is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
3,
|
|
|
December
29,
|
|
December
30, |
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
|
|
|
$ |
524 |
|
|
$ |
(12,204 |
) |
|
$ |
9,744 |
|
|
|
|
|
|
|
|
|
|
Adjustments
to accumulated other comprehensive income
|
|
|
(6,986 |
) |
|
|
735 |
|
|
|
356 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
|
|
|
|
$ |
(6,462 |
) |
|
$ |
(11,469 |
) |
|
$ |
10,100 |
|
|
|
|
|
|
|
|
|
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
|
|
|
January
3,
|
|
December
29,
|
|
December
30,
|
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
524 |
|
|
$ |
(12,204 |
) |
|
$ |
9,744 |
|
|
Add
loss from discontinued operations
|
|
|
2,606 |
|
|
|
1,849 |
|
|
|
4,472 |
|
|
Income
(loss) from continuing operations
|
|
|
3,130 |
|
|
|
(10,355 |
) |
|
|
14,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
Depreciation
|
|
|
4,519 |
|
|
|
5,564 |
|
|
|
5,618 |
|
|
Amortization
of intangible assets
|
|
|
1,084 |
|
|
|
2,168 |
|
|
|
2,670 |
|
|
Restructuring
and other charges
|
|
|
1,686 |
|
|
|
2,714 |
|
|
|
5,481 |
|
|
Writedown
of asset to net realizable value
|
|
|
422 |
|
|
|
- |
|
|
|
- |
|
|
Provision
for warranty costs
|
|
|
40 |
|
|
|
3,517 |
|
|
|
3,400 |
|
|
Provision
for accounts receivable allowances
|
|
|
1,915 |
|
|
|
1,671 |
|
|
|
188 |
|
|
Stock
compensation expense
|
|
|
1,803 |
|
|
|
3,989 |
|
|
|
374 |
|
|
Deferred
income taxes
|
|
|
1,081 |
|
|
|
(6,187 |
) |
|
|
(11,677 |
) |
|
Loss
on disposal of assets
|
|
|
127 |
|
|
|
572 |
|
|
|
72 |
|
|
Changes
in operating assets and liabilities, net of effects from business
acquisitions and divestures:
|
|
|
Accounts
receivable
|
|
|
8,556 |
|
|
|
6,841 |
|
|
|
(8,864 |
) |
|
Inventories
|
|
|
7,049 |
|
|
|
(2,082 |
) |
|
|
3,155 |
|
|
Other
current assets
|
|
|
546 |
|
|
|
(2,137 |
) |
|
|
(1,367 |
) |
|
Other
noncurrent assets
|
|
|
(219 |
) |
|
|
98 |
|
|
|
39 |
|
|
Accounts
payable
|
|
|
(5,336 |
) |
|
|
(8,736 |
) |
|
|
9,220 |
|
|
Accrued
expenses
|
|
|
(11,460 |
) |
|
|
7,364 |
|
|
|
(6,076 |
) |
|
Deferred
revenue
|
|
|
219 |
|
|
|
(816 |
) |
|
|
(694 |
) |
|
Net
cash provided by operating activities
|
|
|
15,162 |
|
|
|
4,185 |
|
|
|
15,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(1,777 |
) |
|
|
(2,514 |
) |
|
|
(3,391 |
) |
|
Business
acquisitions, net of cash acquired
|
|
|
- |
|
|
|
(119 |
) |
|
|
(832 |
) |
|
Investment
in patents and other intangible assets
|
|
|
(146 |
) |
|
|
(204 |
) |
|
|
(2,791 |
) |
|
Net
cash used in investing activities
|
|
|
(1,923 |
) |
|
|
(2,837 |
) |
|
|
(7,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
298 |
|
|
|
3,135 |
|
|
|
2,130 |
|
|
Repayments
of term loan and capital lease
|
|
|
(11,461 |
) |
|
|
(7,037 |
) |
|
|
(7,035 |
) |
|
Net
borrowings (repayments) under line of credit agreement
|
|
|
(7,585 |
) |
|
|
5,000 |
|
|
|
8,964 |
|
|
Net
cash provided by (used in) financing activities
|
|
|
(18,748 |
) |
|
|
1,098 |
|
|
|
4,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
(3,514 |
) |
|
|
273 |
|
|
|
(7,282 |
) |
|
Investing
activities
|
|
|
7,240 |
|
|
|
(532 |
) |
|
|
(1,038 |
) |
|
Financing
activities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net
cash provided by (used in) discontinued operations
|
|
|
3,726 |
|
|
|
(259 |
) |
|
|
(8,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(6,037 |
) |
|
|
824 |
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(7,820 |
) |
|
|
3,011 |
|
|
|
4,053 |
|
|
Cash
and cash equivalents, beginning of year
|
|
|
12,558 |
|
|
|
9,547 |
|
|
|
5,494 |
|
|
Cash
and cash equivalents, end of year
|
|
$ |
4,738 |
|
|
$ |
12,558 |
|
|
$ |
9,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
1,605 |
|
|
$ |
3,106 |
|
|
$ |
2,364 |
|
|
Cash
paid for income taxes
|
|
$ |
727 |
|
|
$ |
236 |
|
|
$ |
1,252 |
|
|
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The
accompanying notes are an integral part of these consolidated financial
statements.
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PRESSTEK,
INC.
1.
NATURE OF THE BUSINESS
Presstek,
Inc. and its subsidiaries (collectively, the “Company”) is a market-focused
company primarily engaged in the design, manufacture, sales and service of
high-technology digital imaging solutions to the graphic arts industry
worldwide. The Company is helping to lead the industry’s transformation from
analog print production methods to digital imaging technology. The Company is a
leader in the development of advanced printing systems using digital imaging
equipment and consumables-based solutions that economically benefit the user
through a streamlined workflow and chemistry free, environmentally responsible
operation. The Company is also a leading sales and service channel in the small
to mid-sized commercial, quick and in-plant printing markets.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
and Basis of Presentation
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
The
Company has made certain organizational realignments in order to more closely
align its financial reporting with its current business structure. During
December 2006, the Company terminated production in South Hadley, MA of
Precision-branded analog plates used in newspaper applications (the “analog
newspaper business”). Accordingly, the financial results of the analog newspaper
business are reported as discontinued operations. The Lasertel segment has been
presented as discontinued operations in the third quarter of fiscal 2008 as the
operations are currently held for sale. The Lasertel business will continue to
operate as normal, as will all of its marketing and new business/product
development activities. Presstek has no intentions to shut down the
business.
The
Company’s operations are currently organized into two business segments:
Presstek and Lasertel. The Presstek segment is primarily engaged in the
development, manufacture, sale and servicing of the Company’s patented digital
imaging systems and patented printing plate technologies as well as traditional,
analog systems and related equipment and supplies for the graphic arts and
printing industries, primarily serving the short-run, full-color market segment.
The Lasertel segment manufactures and develops high-powered laser diodes and
related laser products for the Presstek segment and for sale to external
customers and as stated above is now presented as discontinued
operations.
The
Company operates and reports on a 52- or 53-week fiscal year ending on the
Saturday closest to December 31. Accordingly, the financial statements presented
herein include the financial results for the 53-week fiscal year ended January
3, 2009 (“fiscal 2008”), the 52-week fiscal year ended December 29, 2007
(“fiscal 2007”) and the 52-week fiscal year ended December 30, 2006 (“fiscal
2006”).
Use of
Estimates
The
Company prepares its financial statements in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”). The preparation of these financial
statements requires management to make estimates and assumptions that affect
reported amounts and related disclosures. Management believes the most
judgmental
estimates
include those related to product returns; warranty obligations; allowance for
doubtful accounts; slow-moving and obsolete inventories; income taxes; the
valuation of goodwill, intangible assets, long-lived assets and deferred tax
assets; stock-based compensation; and litigation. The Company bases its
estimates and judgments on historical experience and various other appropriate
factors, the results of which form the basis for making judgments about the
carrying values of assets and liabilities and the amounts of revenues and
expenses that are not readily apparent from other sources. Actual results could
differ from those estimates.
Revenue
Recognition
The
Company recognizes revenue principally from the sale of products (equipment,
consumables, laser diodes) and services (equipment maintenance contracts,
installation, training, support, and spare parts). Revenue is recognized when
persuasive evidence of a sales arrangement exists, delivery has occurred or
services have been rendered, the price to the customer is fixed or determinable
and collection is reasonably assured. In accordance with Staff Accounting
Bulletin (“SAB”) No. 104 Revenue Recognition (“SAB
104”) and Emerging Issues Task Force (“EITF”) Issue 00-21 Revenue Arrangements with Multiple
Deliverables (“EITF 00-21”), when a sales arrangement contains multiple
elements, such as equipment and services, revenue is allocated to each element
using the residual method.
Product
revenue
End-Users - Under the Company’s standard
terms and conditions of sale of equipment, title and risk of loss are
transferred to end-user customers upon completion of installation and revenue is
recognized at that time, unless customer acceptance is uncertain or significant
deliverables remain. Sales of other products, including printing plates, are
generally recognized at the time of shipment.
OEMs - Product revenue and
any related royalties for products sold to Original Equipment Manufacturers
(“OEM”) are recognized at the time of shipment as installation is not required
and title and risk of loss pass at shipment. OEM contracts do not generally
include price protection or product return rights; however, the Company may
elect, in certain circumstances, to accept returns of product.
Distributors - Revenue for
product sold to distributors, whereby the distributor is responsible for
installation, is recognized at shipment, unless other revenue recognition
criteria have not been met. Revenue for product sold to distributors under
contracts which involve Company installation of equipment is recognized upon
installation, unless end-user customer acceptance is uncertain, significant
deliverables remain, or other revenue recognition criteria have not been met.
Except in cases of contract termination (which may include limited product
return rights), distributor contracts do not generally include price protection
or product return rights; however, the Company may elect, in certain
circumstances, to accept returns of product.
Service and parts
revenue
Revenue
for installation services, including time and material billings, are recognized
as services are rendered. Revenue associated with maintenance or extended
service agreements is recognized ratably over the contract period. Revenue
associated with training and support services is recognized as services are
rendered.
Leases
The
Company may offer customer financing to assist customers in the acquisition of
Presstek products. At the time a financing transaction is consummated, which
qualifies as a sales-type lease, the Company records equipment revenue equal to
the net present value of future lease payments. Any remaining balance is
recognized as finance income using the effective interest method over the term
of the lease. Leases not qualifying as sales-type leases are accounted for as
operating leases. The company recognizes revenue from operating leases on an
accrual basis as the rental payments become due.
Multiple element
arrangements
In
accordance with SAB 104 and EITF 00-21, when a sales arrangement contains
multiple elements, such as equipment, consumables or services, revenue is
allocated to each element using the residual method.
Rights of
return
A general
right of return or cancellation does not exist once product is delivered to the
customer; however, the Company may elect, in certain circumstances, to accept
returns of product. Product revenues are recorded net of estimated returns,
which are adjusted periodically, based upon historical rates of
return.
Shipping and
handling
The
Company accounts for shipping and handling fees passed on to customers as
revenue. Shipping and handling costs are reported as components of cost of
revenue (product) and cost of revenue (service and parts).
Fair Value of Financial
Instruments
The
carrying values of cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short-term maturity of these instruments. The
carrying amounts of the Company’s bank borrowings under its credit agreement,
approximate fair value because the interest rates are based on floating rates
identified by reference to market rates. At both January 3, 2009 and December
29, 2007, the fair value of the Company’s long-term debt approximated carrying
value.
The
Company adopted SFAS No. 157, Fair Value Measurements
(“SFAS 157”) for financial assets and financial liabilities in the first
quarter of fiscal 2008, which did not have a material impact on the Company’s
consolidated financial statements. In accordance with Financial Accounting
Standards Board (“FASB”) Staff Position 157-2, Effective Date of FASB Statement
No. 157 (“FASB 157-2”), the Company has deferred application of SFAS
157 until January 4, 2009, the beginning of the next fiscal year, in relation to
nonrecurring nonfinancial assets and nonfinancial liabilities including goodwill
impairment testing, asset retirement obligations, long-lived asset impairments
and exit and disposal activities.
Cash and Cash
Equivalents
Cash and
cash equivalents include savings deposits, certificates of deposit and money
market funds that have original maturities of three months or less and are
classified as cash equivalents.
Concentration of Credit
Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash equivalents and accounts receivable. The Company
may invest in high-quality money market instruments, securities of the U.S.
government, and high-quality corporate issues. Accounts receivable are generally
unsecured and are derived from the Company’s customers located around the world.
The Company performs ongoing credit evaluations of its customers and maintains
an allowance for doubtful accounts.
Accounts Receivable, Net of
Allowances
The
Company’s accounts receivable are customer obligations due under normal trade
terms, carried at face value less allowances for doubtful accounts and sales
returns. The Company evaluates its allowances on an ongoing basis and adjusts
for potential uncollectible amounts when it determines that receivables are at
risk for collection based upon the length of time receivables are outstanding,
past transaction history and various other criteria. Receivables are written off
against the allowance in the period they are determined to be
uncollectible.
Inventories
Inventories
include material, direct labor and related manufacturing overhead, and are
stated at the lower of cost (determined on a first-in, first-out basis) or net
realizable value. The Company assesses the recoverability of inventory to
determine whether adjustments for impairment are required. Inventory that is in
excess of future requirements is written down to its estimated market value
based upon forecasted demand for its products. If actual demand is less
favorable than what has been forecasted by management, additional inventory
impairments may be required.
Property, Plant and
Equipment, Net
Property,
plant and equipment are stated at cost and are depreciated using a straight-line
method over their respective estimated useful lives. Leasehold improvements are
amortized over the shorter of the remaining term of the lease or the life of the
related asset. The estimated useful lives assigned to the Company’s other
property, plant and equipment categories are as follows:
|
Buildings
and improvements
|
|
|
25
– 30 |
|
years
|
|
Production
equipment and other
|
|
|
5 –
10 |
|
years
|
|
Office
furniture and equipment
|
|
|
3 –
7 |
|
years
|
|
Software
|
|
|
5 |
|
years
|
The
Company periodically reviews the remaining lives of property, plant and
equipment as a function of the original estimated lives assigned to these assets
for purposes of recording appropriate depreciation expense. Factors that could
impact the estimated useful life of a fixed asset, in addition to physical
deterioration from the passage of time and depletion, include, but are not
limited to, plans of the enterprise and anticipated use of the
assets.
Acquisitions
In
accordance with the purchase method of accounting, the fair values of assets
acquired and liabilities assumed are determined and recorded as of the date of
the acquisition. Costs to acquire the business, including transaction costs, are
allocated to the fair value of net assets acquired. Any excess of the purchase
price over the estimated fair value of the net assets acquired is recorded as
goodwill.
As part
of the allocation of purchase price, the Company records liabilities, including
lease termination costs and certain employee severance costs, in accordance with
Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination. Throughout the
allocation period, these accruals are reviewed and adjusted for changes in cost
and timing assumptions.
Intangible Assets and
Goodwill
Intangible
assets consist of patents, intellectual property, license agreements and certain
identifiable intangible assets resulting from business combinations, including
trade names, customer relationships, non-compete covenants, software licenses
and loan origination fees.
Patents
represent the cost of preparing and filing applications to patent the Company’s
proprietary technologies, in addition to certain patent and license rights
obtained in the Company’s acquisitions or other related transactions. Such costs
are amortized over a period ranging from five to seven years, beginning on the
date the patents or rights are issued or acquired.
From time
to time, the Company enters into agreements with third parties under which the
party will design and prototype a product incorporating Presstek products and
technology. The capitalized costs associated with rights or intellectual
property under these agreements will be amortized over the estimated sales
life-cycle and future cash flows of the product. The Company does not amortize
capitalized costs related to either patents or purchased intellectual property
until the respective asset has been placed into service.
At
January 3, 2009 and December 29, 2007, the Company had recorded $0.4 million and
$0.4 million, of costs related to patents and intellectual property not yet in
service.
The
Company amortizes license agreements and loan origination fees over the term of
the respective agreement.
The
amortizable lives of the Company’s other intangible assets are as
follows:
|
Trade
names
|
|
|
2 –
3 |
|
years
|
|
Customer
relationships
|
|
|
2 –
10 |
|
years
|
|
Software
licenses
|
|
|
3 |
|
years
|
|
Non-compete
covenants
|
|
|
5 |
|
years
|
Goodwill
is recorded when the consideration paid for acquisitions exceeds the fair value
of net tangible and identifiable intangible assets acquired. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible
Assets (“SFAS 142”), goodwill is not amortized, but rather, is tested at
least annually for impairment at the reporting unit level. The Company has
recorded goodwill aggregating $19.1 million and $19.9 million at January 3, 2009
and December 29, 2007, respectively, related to the A.B. Dick Acquisition and
Precision acquisition.
Impairment of Goodwill and
Long-Lived Assets
In
accordance with the provisions of SFAS 142, goodwill is tested at least
annually, on the first business day of the third quarter, for impairment, or
more frequently, if indicators of potential impairment arise. The Company’s
impairment review is based on a fair value test. The Company uses its judgment
in conducting ongoing assessments of whether assets may have become impaired
between annual impairment tests. Indicators such as unexpected adverse business
conditions, economic factors, unanticipated technological change or competitive
activities, loss of key personnel and acts by governments and courts may signal
that an asset has been impaired. Should the fair value of goodwill, as
determined by the Company at any measurement date, fall below its carrying
value, a charge for impairment of goodwill will be recorded in the period. The
Company determined no goodwill impairment existed during the year ended January
3, 2009. The Company will continue to assess whether indicators of impairment of
goodwill exist throughout 2009. Depending on market and economic conditions,
goodwill impairment could be identified in 2009 which would result in a non-cash
impairment charge.
Intangible
assets with estimated lives and other long-lived assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable in accordance with SFAS
No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (“SFAS 144”). Recoverability
of intangible assets with estimated lives and other long-lived assets is
measured by comparison of the carrying amount of an asset or asset group to
future net undiscounted pretax cash flows expected to be generated by the asset
or asset group. If these comparisons indicate that an asset is not recoverable,
the Company will recognize an impairment loss for the amount by which the
carrying value of the asset or asset group exceeds the related estimated fair
value. Estimated fair value is based on either discounted future pretax
operating cash flows or appraised values, depending on the nature of the asset.
The Company determines the discount rate for this analysis based on the expected
internal rate of return of the related business and does not allocate interest
charges to the asset or asset group being measured. Considerable judgment is
required to estimate discounted future operating cash flows.
Product
Warranties
The Company warrants its products
against defects in material and workmanship for various periods generally from a
period of ninety days to one year from the date of installation or shipment. The
Company’s typical warranties require it to repair or replace defective products
during the warranty period at no cost to the customer. The Company provides for
the estimated cost of product warranties, based on historical experience, at the
time revenue is recognized. The Company periodically assesses the adequacy of
its recorded warranty liability and adjusts the amounts as necessary. The
estimated liability for product warranties could differ materially from future
actual warranty costs.
Claims and
Litigation
The
Company evaluates claims for damages and records its estimate of liabilities
when such liabilities are considered probable and an amount or range can
reasonably be estimated.
Research and Development
Costs
Research
and development costs include payroll and related expenses for personnel, parts
and supplies, and contracted services. Research and development costs are
charged to expense when incurred.
Advertising
Costs
Advertising
costs are expensed as incurred and are reported as a component of Sales,
marketing and customer support expenses in the Company’s Consolidated Statements
of Operations. Advertising expenses were $0.8 million in fiscal 2008, $1.5
million in fiscal 2007 and $0.8 million in fiscal 2006.
Income
Taxes
The
process of accounting for income taxes involves calculating the current tax
obligation or refund and assessing the nature and measurements of temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences and net operating loss (“NOL”) and credit
carryforwards, result in deferred tax assets and liabilities. In each period,
the Company assesses the likelihood that the deferred tax assets will be
recovered from existing deferred tax liabilities or future taxable income in
each jurisdiction. To the extent the Company believes that it would not meet the
test that recovery is “more likely than not”, the Company would establish a
valuation allowance. To the extent that a valuation allowance is established or
changed in a period, the Company would adjust the tax provision or tax benefit
in the consolidated statement of operations. The Company uses judgment to
determine the provision or benefit for income taxes, including estimates
associated with uncertain tax positions and any valuation allowance recorded
against deferred tax assets based on the weight of all positive and negative
factors, including cumulative trends in profitability.
The
Company has accumulated U.S. federal and state income tax NOL carryforwards,
research and experimentation tax credit carryforwards and alternative minimum
tax credit carryforwards. In the fourth quarter of fiscal 2006, the Company
reversed the valuation allowance on a deferred tax asset on the balance sheet
primarily representing NOLs from U.S. operations. Previously, the Company had
recorded a valuation allowance against deferred tax assets on the balance sheet
until it was “more likely than not” that the tax assets related to either U.S.
or international operations would be realized.
The
Company assesses the ability to utilize NOL and tax credit carryforwards in
future periods and record any resulting adjustments that may require deferred
income tax expense. In addition, the Company reduces the deferred income tax
asset for the benefits of NOL and tax credit carryforwards utilized currently.
The future impact on net income may therefore be positive or negative, depending
on the net result of such adjustments and charges.
Based
upon a review of historical operating performance through 2008 and expected
profits in the U.S. and international operations in the foreseeable future, the
Company continues to believe it is more likely than not that the U.S. and
international deferred tax assets, net of valuation allowance, will be fully
realized except for certain tax credits that may expire before they are fully
realized.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No.123(R), Share-Based
Payment (“SFAS 123R”) using the modified prospective method, which
requires measurement of compensation cost at fair value on the date of grant and
recognition of compensation expense over the service period for awards expected
to vest. See Note 15 for further discussion.
Comprehensive
Income
Comprehensive
income is comprised of net income, plus all changes in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including any foreign currency translation adjustments,
unrealized gains and losses on marketable securities, or changes in derivative
values. These changes in equity are recorded as adjustments to accumulated other
comprehensive income in the Company’s Consolidated Financial Statements. The
components of accumulated other comprehensive income are unrealized gains or
losses on foreign currency translation.
Foreign Currency Translation
and Transactions
The
Company’s foreign subsidiaries use the local currency as their functional
currency. Accordingly, assets and liabilities are translated into U.S. dollars
at current rates of exchange in effect at the balance sheet date. The resulting
unrealized gains or losses are reported under the caption accumulated other
comprehensive income in the Company’s Consolidated Financial Statements.
Revenues and expenses from these subsidiaries are translated at average monthly
exchange rates in effect for the periods in which the transactions
occur.
Unrealized
gains and losses arising from foreign currency transactions are reported as a
component of Interest and other income (expense), net in the Company’s
Consolidated Statements of Operations.
Derivatives
The
Company entered into interest rate swap agreements with its lenders in October
2003, which were intended to protect the Company’s long-term debt against
fluctuations in LIBOR rates. Under the interest rate swaps LIBOR was set at a
minimum of 1.15% and a maximum of 4.25%. Because the interest rate swap
agreement did not qualify as a hedge for accounting purposes under SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”), and related amendments,
including SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, the Company recorded an
expense of $7,550 in fiscal 2008 and income of $22,500 and $40,000 in fiscal
2007 and fiscal 2006, respectively, to mark these interest rate swap agreements
to market. The adjustment to fair value of the interest rate swap agreement was
recorded in other income (expense). The swap agreements expired in October
2008.
Earnings (Loss) per
Share
Earnings
per share is computed under the provisions of SFAS No. 128, Earnings per Share.
Accordingly, basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the period. For periods in which there is net income, diluted earnings
per share is determined by using the weighted average number of common and
dilutive common equivalent shares outstanding during the period unless the
effect is antidilutive. Potential dilutive common shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants.
Approximately
4,170,000, 1,922,000 and 1,425,700 options to purchase common stock were
excluded from the calculation of diluted earnings per share for fiscal 2008,
fiscal 2007 and fiscal 2006, respectively, as their effect would be
antidilutive.
Reclassifications
Certain
amounts in prior periods have been reclassified to conform to current
presentation.
Recent Accounting
Pronouncements
In 2009
the Company will adopt the remaining provisions of Statement of Financial
Accounting Standards No. 157, “Fair Value Measurements”, (“SFAS 157”) for
non-financial assets. The adoption of these provisions will not have an impact
of the Company’s statements of operations or statement of financial
position.
In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations. This
statement replaces SFAS 141, Business Combinations, but
retains the fundamental requirements of the statement that the acquisition
method of accounting be used for all business combinations and for an acquirer
to be identified for each business combination. The statement seeks
to improve financial reporting by establishing principles and requirements for
how the acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase option and c)
determines what information to disclose. This statement is effective
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company will apply the provisions of SFAS
141(R) to any acquisition after January 3, 2009.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB 51. This
statement amends Accounting Research Bulletin (ARB) 51, Consolidated Financial Statements,
to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. The statement clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This statement is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008. The adoption of SFAS 160
will not impact the Company’s consolidated financial position and results of
operations because the Company does not have any noncontrolling
interests.
In March
2008, the Financial Accounting Standards Boards (“FASB”) issued Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities, (“SFAS 161”), which requires enhanced
disclosures related to derivative instruments and hedging activities. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, and the disclosure
requirements will be applicable for the Company’s 2009 consolidated financial
statements.
3.
DISCONTINUED OPERATIONS
The
Company accounts for its discontinued operations under the provisions of SFAS
144. Accordingly, results of operations and the related charges for discontinued
operations have been classified as “Loss from discontinued operations, net of
income taxes” in the accompanying Consolidated Statements of Operations. Assets
and liabilities of discontinued operations have been reclassified and reflected
on the accompanying Consolidated Balance Sheets as “Assets of discontinued
operations” and “Liabilities of discontinued operations”. For comparative
purposes, all prior periods presented have been reclassified on a consistent
basis.
Precision
During
December 2006, the Company terminated production in South Hadley, MA of
Precision-branded analog plates used in newspaper applications.
Results
of operations of the discontinued analog newspaper business of Precision consist
of the following (in thousands, except per-share data):
|
|
|
January
3,
2009
|
|
|
December
29, 2007
|
|
|
December
30, 2006
|
|
|
Revenue
|
|
$ |
-- |
|
|
$ |
196 |
|
|
$ |
10,816 |
|
|
Income
(Loss) before income taxes
|
|
|
93 |
|
|
|
(108 |
) |
|
|
(2,267 |
) |
|
Provision
(benefit) for income taxes
|
|
|
-- |
|
|
|
(54 |
) |
|
|
(771 |
) |
|
Income
(Loss) from discontinued operations
|
|
|
93 |
|
|
|
(54 |
) |
|
|
(1,496 |
) |
|
Income
(Loss) from disposal of discontinued operations, net of tax benefit
of $915 for the year ended December 30, 2006
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,777 |
) |
|
Net
Income (Loss) from discontinued operations
|
|
$ |
93 |
|
|
$ |
(54 |
) |
|
$ |
(3,273 |
) |
|
Loss
per diluted share
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.09 |
) |
As of
December 30, 2006, and in accordance with SFAS 144 and SFAS 142, the Company
reviewed the potential impairment of long-lived assets associated with the
analog newspaper business and goodwill of the Precision reporting unit and
determined that impairment charges aggregating $4.0 million were required. Of
this amount $2.8 million relates to the impairment of goodwill, $0.3 million
relates to the acceleration of depreciation on fixed assets abandoned, $0.6
million relates to the acceleration of amortization on certain intangible assets
and $0.3 million relates to the adjustment of inventory on hand to the lower of
cost or market. Impairment charges of the reporting unit goodwill resulting from
the abandonment of the analog newspaper business are reflected within
restructuring and other charges of continuing operations, and the remaining
charges included in the loss from discontinued operations for fiscal 2006. There
have been no further impairment charges incurred in fiscal 2007 and fiscal 2008
relating to this matter.
Assets
and liabilities of the discontinued analog newspaper business of Precision
consist of the following (in thousands):
|
|
|
January
3,
2009
|
|
|
December
29, 2007
|
|
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
$ |
2 |
|
|
$ |
15 |
|
|
Inventories,
net
|
|
|
-- |
|
|
|
-- |
|
|
Total
current assets
|
|
$ |
2 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
29 |
|
|
$ |
189 |
|
|
Accrued
expenses
|
|
|
17 |
|
|
|
699 |
|
|
Total
current liabilities
|
|
$ |
46 |
|
|
$ |
888 |
|
Lasertel
On
September 24, 2008, the Board of Directors approved a plan to market the
Lasertel subsidiary for sale as the Lasertel business is not a core focus for
the Presstek graphics business. Although Lasertel is a supplier of diodes for
the Company, it has grown its presence in the external market, and management
believes that Lasertel would be in a better position to realize its full
potential in conjunction with other companies or investors who can focus
resources on the external market. As such, the Company has presented the results
of operations of this subsidiary within discontinued operations, classified the
assets as “Assets of discontinued operations” and liabilities as “Liabilities of
discontinued operations”. The Lasertel business will continue to operate as it
previously operated, including its marketing and new business/product
development activities. Presstek has no intentions to shut down the
business.
Results
of operations of the discontinued business of Lasertel consist of the following
(in thousands, except per-share data):
|
|
|
January
3,
2009
|
|
|
December
29, 2007
|
|
|
December
30, 2006
|
|
|
Revenue
|
|
$ |
8,686 |
|
|
$ |
8,270 |
|
|
$ |
6,758 |
|
|
Loss
before income taxes
|
|
|
(4,336 |
) |
|
|
(2,924 |
) |
|
|
(1,951 |
) |
|
Provision
(benefit) for income taxes
|
|
|
(1,637 |
) |
|
|
(1,129 |
) |
|
|
(752 |
) |
|
Net
loss from discontinued operations
|
|
$ |
(2,699 |
) |
|
$ |
(1,795 |
) |
|
$ |
(1,199 |
) |
|
Loss
per diluted share
|
|
$ |
(0.08 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
Assets
and liabilities of the discontinued business of Lasertel consist of the
following (in thousands):
|
|
|
January
3,
2009
|
|
|
December
29, 2007
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
369 |
|
|
$ |
691 |
|
|
Receivables,
net
|
|
|
2,187 |
|
|
|
1,785 |
|
|
Inventories
|
|
|
4,478 |
|
|
|
4,074 |
|
|
Other
current assets
|
|
|
134 |
|
|
|
72 |
|
|
Property,
plant & equipment, net
|
|
|
5,263 |
|
|
|
8,974 |
|
|
Intangible
assets, net
|
|
|
899 |
|
|
|
1,078 |
|
|
Total
assets
|
|
$ |
13,330 |
|
|
$ |
16,674 |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
884 |
|
|
$ |
1,291 |
|
|
Accrued
expenses
|
|
|
448 |
|
|
|
501 |
|
|
Deferred
revenue
|
|
|
-- |
|
|
|
96 |
|
|
Deferred
gain on sale-leaseback transaction
|
|
|
4,370 |
|
|
|
-- |
|
|
Total
Liabilities
|
|
$ |
5,702 |
|
|
$ |
1,888 |
|
4.
ACCOUNTS RECEIVABLE, NET OF ALLOWANCES
The
components of accounts receivable, net of allowances, are as follows (in
thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$ |
33,233 |
|
|
$ |
43,632 |
|
|
Less
allowances
|
|
|
(2,476 |
) |
|
|
(2,538 |
) |
|
|
|
$ |
30,757 |
|
|
$ |
41,094 |
|
The
activity related to the Company’s allowances for losses, returns and deductions
on accounts receivable for fiscal 2008, fiscal 2007 and fiscal 2006 is as
follows (in thousands):
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
2,538 |
|
|
$ |
2,712 |
|
|
$ |
3,215 |
|
|
Charged
to costs and expenses
|
|
|
1,915 |
|
|
|
1,671 |
|
|
|
188 |
|
|
Deductions
and write-offs
|
|
|
(1,977 |
) |
|
|
(1,845 |
) |
|
|
(691 |
) |
|
Balance
at end of period
|
|
$ |
2,476 |
|
|
$ |
2,538 |
|
|
$ |
2,712 |
|
5.
INVENTORIES
The
components of inventories, are as follows (in thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
2,946 |
|
|
$ |
3,660 |
|
|
Work
in process
|
|
|
4,950 |
|
|
|
4,939 |
|
|
Finished
goods
|
|
|
29,711 |
|
|
|
36,411 |
|
|
|
|
$ |
37,607 |
|
|
$ |
45,010 |
|
6.
PROPERTY, PLANT AND EQUIPMENT, NET
The
components of property, plant and equipment, net, are as follows (in
thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
Land
and improvements
|
|
$ |
1,301 |
|
|
$ |
1,363 |
|
|
Buildings
and leasehold improvements
|
|
|
22,016 |
|
|
|
22,695 |
|
|
Production
and other equipment
|
|
|
42,363 |
|
|
|
42,204 |
|
|
Office
furniture and equipment
|
|
|
9,402 |
|
|
|
7,098 |
|
|
Construction
in process
|
|
|
1,098 |
|
|
|
2,355 |
|
|
Total
property, plant and equipment, at cost
|
|
|
76,180 |
|
|
|
75,715 |
|
|
Accumulated
depreciation and amortization
|
|
|
(50,650 |
) |
|
|
(46,666 |
) |
|
Net
property, plant and equipment
|
|
$ |
25,530 |
|
|
$ |
29,049 |
|
Construction
in process is primarily related to production equipment not yet placed into
service.
The
Company recorded depreciation expense of $4.5 million, $5.6 million and $5.7
million in fiscal 2008, fiscal 2007 and fiscal 2006, respectively. Under the
Company’s financing arrangements (See Note 8), all property, plant and equipment
is pledged as security.
7. GOODWILL AND OTHER INTANGIBLE
ASSETS
The
changes in the carrying amounts of goodwill are as follows (in
thousands):
|
|
|
|
|
|
Balance
at December 30, 2006
|
|
$ |
20,280 |
|
|
Purchase
accounting adjustments for prior period acquisitions
|
|
|
(389 |
) |
|
Impairment
adjustments
|
|
|
-- |
|
|
Balance
at December 29, 2007
|
|
$ |
19,891 |
|
|
Purchase
accounting adjustments for prior period acquisitions
|
|
|
(777 |
) |
|
Impairment
adjustments
|
|
|
-- |
|
|
Balance
at January 3, 2009
|
|
$ |
19,114 |
|
In
accordance with the provisions of SFAS 142, goodwill is tested at least
annually, on the first business day of the third quarter, for impairment, or
more frequently, if indicators of potential impairment arise. The Company
conducts ongoing assessments of whether indicators exist requiring an evaluation
of goodwill and determined no goodwill impairment existed during the year ended
January 3, 2009. The Company will continue to assess whether indicators of
impairment of goodwill exist throughout 2009. Depending on market and economic
conditions, goodwill impairment could be identified in 2009 which would result
in a non-cash impairment charge.
The
components of the Company’s identifiable intangible assets are as follows (in
thousands):
|
|
|
January
3, 2009
|
|
|
December
29, 2007
|
|
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and intellectual property
|
|
$ |
9,390 |
|
|
$ |
7,739 |
|
|
$ |
9,360 |
|
|
$ |
7,323 |
|
|
Trade
names
|
|
|
2,360 |
|
|
|
2,360 |
|
|
|
2,360 |
|
|
|
2,360 |
|
|
Customer
relationships
|
|
|
4,452 |
|
|
|
2,366 |
|
|
|
4,452 |
|
|
|
1,855 |
|
|
Software
licenses
|
|
|
450 |
|
|
|
450 |
|
|
|
450 |
|
|
|
450 |
|
|
License
agreements
|
|
|
750 |
|
|
|
368 |
|
|
|
750 |
|
|
|
296 |
|
|
Non-compete
covenants
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
Loan
origination fees
|
|
|
332 |
|
|
|
277 |
|
|
|
332 |
|
|
|
211 |
|
|
|
|
$ |
17,834 |
|
|
$ |
13,660 |
|
|
$ |
17,804 |
|
|
$ |
12,595 |
|
The
Company recorded amortization expense for its identifiable intangible assets of
$1.1 million, $2.2 million and $2.7 million in fiscal 2008, fiscal 2007 and
fiscal 2006, respectively. As of January 3, 2009, there was $0.4 million of
patents not yet in service. Estimated future amortization expense for the
Company’s in-service patents and all other identifiable intangible assets
recorded by the Company at January 3, 2009, are as follows (in
thousands):
|
Fiscal
2009
|
|
$ |
1,035 |
|
|
Fiscal
2010
|
|
|
906 |
|
|
Fiscal
2011
|
|
|
702 |
|
|
Fiscal
2012
|
|
|
405 |
|
|
Fiscal
2013
|
|
|
386 |
|
|
Thereafter
|
|
|
317 |
|
8.
FINANCING ARRANGEMENTS
The
components of the Company’s outstanding borrowings are as follows (in
thousands):
|
|
|
January
3, 2009
|
|
|
December
29, 2007
|
|
|
|
|
|
|
|
|
|
|
Term
loan
|
|
$ |
4,074 |
|
|
$ |
15,500 |
|
|
Line
of credit
|
|
|
12,415 |
|
|
|
20,000 |
|
|
Capital
lease
|
|
|
-- |
|
|
|
35 |
|
|
|
|
|
16,489 |
|
|
|
35,535 |
|
|
Less
current portion
|
|
|
(16,489 |
) |
|
|
(27,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
-- |
|
|
$ |
8,500 |
|
In
November 2004, in connection with the A.B. Dick Acquisition, the Company
replaced its then-current credit facilities, which it had entered into in
October 2003, with $80.0 million in Senior Secured Credit Facilities (the
“Facilities”) from three lenders. The terms of the Facilities include a $35.0
million five-year secured term loan (the “Term Loan”) and a $45.0 million
five-year secured revolving line of credit (the “Revolver”) which expires in
November 2009. The Company granted a security interest in all of its assets in
favor of the lenders under the Facilities. In addition, under the Facilities
agreement, the Company is prohibited from declaring or distributing dividends to
shareholders.
The
Company has the option of selecting an interest rate for the Facilities equal to
either: (a) the then applicable London Inter-Bank Offer Rate plus 1.25% to 4.0%
per annum, depending on certain results of the Company’s financial performance;
or (b) the Prime Rate, as defined in the Facilities agreement, plus up to 1.75%
per annum, depending on certain results of the Company’s financial performance.
Effective August 31, 2005, the Company amended its Facilities to reduce the
current applicable LIBOR margin to 2.5%, from the previous applicable LIBOR
margin of 3.5%.
The
Company entered into interest rate swap agreements with its lenders in October
2003, which were intended to protect the Company’s long-term debt against
fluctuations in LIBOR rates. Under the interest rate swaps LIBOR was set at a
minimum of 1.15% and a maximum of 4.25%. The Company recorded an increase to the
expense of $7,550, in fiscal 2008 and a reduction to expense of $22,500 and
$40,000 in fiscal 2007 and fiscal 2006, respectively, to mark these interest
rate swap agreements to market. The swap agreements expired in October
2008.
The
Facilities were used to partially finance the A.B. Dick Acquisition, and are
available to the Company for working capital requirements, capital expenditures,
business acquisitions and general corporate purposes.
At
January 3, 2009 and December 29, 2007, the Company had outstanding balances on
the Revolver of $12.4 million and $20.0 million, respectively, with interest
rates of 2.69% and 7.5%, respectively. At January 3, 2009, there were $1.3
million of outstanding letters of credit, thereby reducing the amount available
under the Revolver to $31.3 million at that date.
The Term
Loan required an initial principal payment of $0.25 million on March 31, 2005,
and requires subsequent quarterly principal payments of $1.75 million, with a
final settlement of all remaining principal and unpaid interest on November 4,
2009. In the third quarter of fiscal 2008, the Company used the net proceeds of
the sale of its Arizona property to pay down the principal balance of the Term
Loan and entered into an amendment to the Facilities dated July 29, 2008 which
amended the payment schedule of the Term Loan to reduce the required quarterly
installments of principal to $810,000, payable in January, March, June and
September of 2009, with no installment due in September of 2008 and a final
installment of all remaining principal (approximately $834,000) due on November
4, 2009. At January 3, 2009 and December 29, 2007, outstanding balances under
the Term Loan were $4.1 million and $15.5 million, respectively, with interest
rates of 1.30% and 7.5%, respectively. For further discussion see
Liquidity section in Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
The
Company’s Revolver and Term Loan principal commitments are as follows (in
thousands):
The
weighted average interest rate on the Company’s outstanding short-term
borrowings was 2.3% at January 3, 2009.
Under the
terms of the Revolver and Term Loan, the Company is required to meet various
financial covenants on a quarterly and annual basis, including maximum funded
debt to EBITDA (earnings before interest, taxes, depreciation, amortization and
restructuring and other charges) and minimum fixed charge coverage covenants. At
January 3, 2009, the Company was in compliance with all financial
covenants.
9.
ACCRUED EXPENSES
The
components of the Company’s accrued expenses are as follows (in
thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
Accrued
payroll and employee benefits
|
|
$ |
4,068 |
|
|
$ |
5,478 |
|
|
Accrued
warranty
|
|
|
2,102 |
|
|
|
3,534 |
|
|
Accrued
restructuring and other charges
|
|
|
799 |
|
|
|
1,592 |
|
|
Accrued
royalties
|
|
|
232 |
|
|
|
432 |
|
|
Accrued
income taxes
|
|
|
282 |
|
|
|
569 |
|
|
Accrued
legal
|
|
|
2,394 |
|
|
|
5,815 |
|
|
Accrued
professional fees
|
|
|
1,122 |
|
|
|
2,545 |
|
|
Other
|
|
|
2,245 |
|
|
|
3,247 |
|
|
|
|
$ |
13,244 |
|
|
$ |
23,212 |
|
10.
ACCRUED WARRANTY AND DEFERRED REVENUES
Accrued
Warranty
The
Company provides for the estimated cost of product warranties, based on
historical experience, at the time revenue is recognized. Presstek warrants its
products against defects in material and workmanship for various periods,
determined by the product, generally for a period of from ninety days to one
year from the date of installation. Typical warranties require the Company to
repair or replace defective products during the warranty period at no cost to
the customer. Presstek engages in extensive product quality programs and
processes, including monitoring and evaluation of component supplies; however,
product warranty terms, product failure rates, and material usage and service
delivery costs incurred in correcting a product failure may affect the estimated
warranty obligation. If actual product failure rates, material usage or service
delivery costs differ from current estimates, the Company will adjust the
warranty liability. Accruals for product warranties are reflected as a component
of accrued expenses in the Company’s Consolidated Balance Sheets.
Product
warranty activity in fiscal 2008, fiscal 2007 and fiscal 2006 is as follows (in
thousands):
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
3,534 |
|
|
$ |
1,729 |
|
|
$ |
1,481 |
|
|
Accruals
for warranties
|
|
|
40 |
|
|
|
3,517 |
|
|
|
3,400 |
|
|
Utilization
of accrual for warranty costs
|
|
|
(1,472 |
) |
|
|
(1,712 |
) |
|
|
(3,152 |
) |
|
Balance
at end of year
|
|
$ |
2,102 |
|
|
$ |
3,534 |
|
|
$ |
1,729 |
|
Deferred
Revenues
Deferred
revenues consist of amounts received or billed in advance for products for which
revenue recognition criteria has not yet been met or service contracts where
services have not yet been rendered. Deferred amounts are recognized as elements
are delivered or, in the case of services, recognized ratably over the contract
life, generally one year, or as services are rendered.
The
components of deferred revenue are as follows (in thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
Deferred
service revenue
|
|
$ |
6,507 |
|
|
$ |
6,718 |
|
|
Deferred
product revenue
|
|
|
793 |
|
|
|
382 |
|
|
|
|
$ |
7,300 |
|
|
$ |
7,100 |
|
11.
RESTRUCTURING AND OTHER CHARGES
A summary
of restructuring and other charges follows (in thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
December
30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairment – goodwill
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
2,809 |
|
|
Impairment
of intangible assets - patent defense costs
|
|
|
-- |
|
|
|
-- |
|
|
|
2,297 |
|
|
Impairment
of other assets
|
|
|
-- |
|
|
|
-- |
|
|
|
260 |
|
|
Severance
and fringe benefits
|
|
|
691 |
|
|
|
1,210 |
|
|
|
115 |
|
|
Executive
contractual obligations
|
|
|
536 |
|
|
|
1,466 |
|
|
|
-- |
|
|
Other
exit costs
|
|
|
881 |
|
|
|
38 |
|
|
|
-- |
|
|
Total
net restructuring and other charges
|
|
$ |
2,108 |
|
|
$ |
2,714 |
|
|
$ |
5,481 |
|
In fiscal
2008 the Company recognized $2.1 million in restructuring and other charges,
including severance and separation costs resulting from the implementation of
certain elements of the Business Improvement Plan (the “BIP”), exit costs
related to the termination of a leased facility, severance costs incurred in the
fourth quarter, and severance and retention bonuses related to the transfer of
certain of its corporate functions from the Hudson, NH facility to the
Greenwich, CT facility. The Company expects to incur additional
expense related to this move through the second quarter of 2009.
In fiscal
2007 the Company recognized $2.7 million of restructuring and other charges
consisting of expenses related to severance and separation costs under
employment contracts of former executives, as well as costs related to the
implementation of certain elements of the BIP including severance, operating
lease run-outs, and consolidation of distribution centers.
In
connection with the Company’s 2006 restructuring of the analog newspaper
business of Precision Lithograining, as more fully described in Note 3, an
impairment review of the Precision reporting unit goodwill was completed and
charges totaling $2.8 million were recognized in the accompanying Statement of
Operations in fiscal 2006.
Impairment
of intangible assets for patent defense costs associated with the Creo/Kodak
matter totaling $2.3 million were recognized as expense in fiscal 2006 as the
Company determined that the future economic benefits of the patent were not
assured of being increased.
The
activity for fiscal 2008, fiscal 2007 and fiscal 2006 related to the Company’s
restructuring and other expense accruals is as follows (in
thousands):
|
|
|
Fiscal
2008 Activity
|
|
|
|
|
Balance
December
29,
2007
|
|
|
Charged
to
Expense
|
|
|
Reversals
|
|
|
Utilization
|
|
|
Balance
January
3,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
contractual obligations
|
|
$ |
904 |
|
|
$ |
536 |
|
|
$ |
-- |
|
|
|
(978 |
) |
|
|
462 |
|
|
Severance
and fringe benefits
|
|
|
688 |
|
|
|
691 |
|
|
|
-- |
|
|
|
(1,042 |
) |
|
|
337 |
|
|
Other
exit costs
|
|
|
-- |
|
|
|
881 |
|
|
|
-- |
|
|
|
(881 |
) |
|
|
-- |
|
|
|
|
$ |
1,592 |
|
|
$ |
2,108 |
|
|
$ |
-- |
|
|
$ |
(2,901 |
) |
|
$ |
799 |
|
|
|
|
Fiscal
2007 Activity
|
|
|
|
|
Balance
December
30,
2006
|
|
|
Charged
to
Expense
|
|
|
Reversals
|
|
|
Utilization
|
|
|
Balance
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
contractual obligations
|
|
$ |
-- |
|
|
$ |
1,466 |
|
|
$ |
-- |
|
|
|
(562 |
) |
|
|
904 |
|
|
Severance
and fringe benefits
|
|
|
233 |
|
|
|
1,210 |
|
|
|
-- |
|
|
|
(755 |
) |
|
|
688 |
|
|
Other
exit costs
|
|
|
-- |
|
|
|
38 |
|
|
|
-- |
|
|
|
(38 |
) |
|
|
-- |
|
|
|
|
$ |
233 |
|
|
$ |
2,714 |
|
|
$ |
-- |
|
|
$ |
(1,355 |
) |
|
$ |
1,592 |
|
|
|
|
Fiscal
2006 Activity
|
|
|
|
|
Balance
December
31,
2005
|
|
|
Charged
to
Expense
|
|
|
Reversals
|
|
|
Utilization
|
|
|
Balance
December
30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and fringe benefits
|
|
|
482 |
|
|
|
324 |
|
|
|
( 390 |
) |
|
|
(183 |
) |
|
|
233 |
|
|
|
|
$ |
482 |
|
|
$ |
324 |
|
|
$ |
(390 |
) |
|
$ |
(183 |
) |
|
$ |
233 |
|
The
Company anticipates that payments related to the above restructuring actions
will be completed in 2009.
12.
INTEREST AND OTHER INCOME AND EXPENSE
The
components of Interest and other income (expense), net, in the Company’s
Consolidated Statements of Income are as follows (in thousands):
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
(946 |
) |
|
$ |
(2,142 |
) |
|
$ |
(1,511 |
) |
|
Interest
income
|
|
|
111 |
|
|
|
90 |
|
|
|
108 |
|
|
Other
income (expense), net
|
|
|
1,773 |
|
|
|
798 |
|
|
|
419 |
|
|
|
|
$ |
938 |
|
|
$ |
(1,254 |
) |
|
$ |
(984 |
) |
The
amount reported as Other income (expense), net, for fiscal 2008, 2007 and 2006
includes $1.4 million, $0.5 million and $0.2 million, respectively, for net
unrealized gains on foreign currency transactions.
13.
INCOME TAXES
For the
fiscal years ended January 3, 2009, December 29, 2007, and December 30, 2006,
income (loss) before income taxes from continuing operations includes the
following components (in thousands):
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
5,296 |
|
|
$ |
(15,899 |
) |
|
$ |
5,149 |
|
|
Foreign
|
|
|
614 |
|
|
|
1,655 |
|
|
|
(824 |
) |
|
|
|
$ |
5,910 |
|
|
$ |
(14,244 |
) |
|
$ |
4,325 |
|
For the
fiscal years ended January 3, 2009, December 29, 2007, and December 30, 2006,
the components of provision (benefit) for income taxes from continuing
operations were as follows (in thousands):
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(131 |
) |
|
$ |
138 |
|
|
$ |
129 |
|
|
State
|
|
|
293 |
|
|
|
456 |
|
|
|
545 |
|
|
Foreign
|
|
|
(121 |
) |
|
|
507 |
|
|
|
37 |
|
|
|
|
$ |
41 |
|
|
$ |
1,101 |
|
|
$ |
711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,326 |
|
|
|
(4,458 |
) |
|
|
(9,659 |
) |
|
State
|
|
|
128 |
|
|
|
(532 |
) |
|
|
(665 |
) |
|
Foreign
|
|
|
285 |
|
|
|
-- |
|
|
|
(278 |
) |
|
|
|
|
2,739 |
|
|
|
(4,990 |
) |
|
|
(10,602 |
) |
|
Provision
(benefit) for income taxes
|
|
$ |
2,780 |
|
|
$ |
(3,889 |
) |
|
$ |
(9,891 |
) |
A
reconciliation of the Company’s effective tax rate to the statutory federal rate
is as follows:
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
statutory tax rate
|
|
|
34.00 |
% |
|
|
34.00 |
% |
|
|
34.00 |
% |
|
Nondeductible
Officer’s compensation
|
|
|
1.90 |
|
|
|
(4.61 |
) |
|
|
-- |
|
|
State
tax, net of federal benefit
|
|
|
4.70 |
|
|
|
0.35 |
|
|
|
(1.84 |
) |
|
Alternative
minimum tax
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Other
|
|
|
(2.76 |
) |
|
|
(2.44 |
) |
|
|
(1.44 |
) |
|
Change
in valuation allowance
|
|
|
9.20 |
|
|
|
0.00 |
|
|
|
(259.41 |
) |
|
|
|
|
47.04 |
% |
|
|
27.30 |
% |
|
|
(228.69 |
)
% |
During
the years ended January 3, 2009, December 29, 2007, and December 30, 2006 the
Company recognized a tax benefit of approximately $1.6 million, $1.2 million,
and $1.5 million, respectively, associated with the loss from discontinued
operations
Deferred Income
Taxes
Deferred
income taxes result from net operating loss carryforwards, tax credit
carryforwards and temporary differences between the recognition of items for
income tax purposes and financial reporting purposes.
Principal
components of deferred income taxes as of January 3, 2009, December 29, 2007,
and December 30, 2006 were (in thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
December
30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$ |
5,745 |
|
|
$ |
7,439 |
|
|
$ |
5,751 |
|
|
Tax
credits
|
|
|
4,073 |
|
|
|
3,875 |
|
|
|
3,757 |
|
|
Warranty
provisions, litigation and other accruals
|
|
|
8,450 |
|
|
|
6,940 |
|
|
|
4,162 |
|
|
Accumulated
depreciation and amortization
|
|
|
2,507 |
|
|
|
712 |
|
|
|
-- |
|
|
Gross
deferred tax assets
|
|
|
20,775 |
|
|
|
18,966 |
|
|
|
13,670 |
|
|
Valuation
allowance
|
|
|
(795 |
) |
|
|
(250 |
) |
|
|
(261 |
) |
|
Total
deferred tax assets
|
|
|
19,980 |
|
|
|
18,716 |
|
|
|
13,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable
and depreciable assets
|
|
|
(2,420 |
) |
|
|
(852 |
) |
|
|
(136 |
) |
|
Accumulated
depreciation and amortization
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,596 |
) |
|
Total
deferred tax liabilities
|
|
|
(2,420 |
) |
|
|
(852 |
) |
|
|
(1,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets (liabilities)
|
|
$ |
17,560 |
|
|
$ |
17,864 |
|
|
$ |
11,677 |
|
On
December 30, 2006, the Company recognized through its tax provision, a $11.2
million reversal of its U.S. deferred tax asset valuation allowance. In
assessing the ability to realize its deferred tax assets, the Company considered
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized based on available positive and negative evidence.
The Company considered historical book income, the scheduled reversal of
deferred tax liabilities, and projected future book and taxable income in making
this assessment. Based upon a detailed analysis of historical and expected book
and taxable income, the Company determined that it is more likely than not that
certain U.S. deferred tax assets for which a valuation allowance had been
previously recorded will be realized in the future. The valuation allowance of
$0.8 million as of January 3, 2009 relates to certain federal research and
development credit carryforwards for which the Company has determined, based
upon historical results and projected future book and taxable income levels,
that a valuation allowance should be maintained.
The
Company’s net deferred tax assets include $0.8M related to Presstek Europe’s net
operating loss carryforward and temporary differences. The fiscal 2008
recognition of this deferred tax asset was applied to reduce goodwill in
accordance with purchase business combination requirements.
At
January 3, 2009, the Company had federal net operating loss carryforwards of
approximately $77.5 million which will expire from 2012 to
2027. Approximately $61.5 million of our net operating loss
carryforwards was generated from excess tax deductions from stock-based
compensation, the tax benefit of which (approximately $24.6 million) will be
credited to additional paid-in-capital when the deductions reduce current taxes
payable. Upon the adoption of FAS 123(R), the Company netted its deferred tax
asset and the related valuation allowance for the net operating loss
carryforward generated from excess tax deductions from stock-based
compensation.
At
January 3, 2009 the Company had federal research and development credit
carryforwards of approximately $3.4 million. The net operating loss and
credit carryforwards will expire at various dates through 2022, if not utilized.
The Company’s tax credit carryforwards include $0.3 million of federal minimum
tax credits which have no expiration and $0.3 million of state credits that
expire in 2012.
The
Company’s ability to utilize its net operating loss and credit carryforwards may
be limited in the future if the company experiences an ownership change, as
defined by the Internal Revenue Code. An ownership change occurs when the
ownership percentage of 5% or greater stockholders changes by more than 50% over
a three year period.
The
cumulative amount of undistributed earnings of foreign subsidiaries, which is
intended to be permanently reinvested and for which U.S. income taxes have not
been provided, totaled approximately $0.9 million at January 3,
2009.
On
December 31, 2006, the Company adopted FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”). The adoption of FIN 48 did not have
a material effect on our consolidated financial position or results of
operations. Our unrecognized tax benefits at January 3, 2009 related to various
foreign jurisdictions and U.S. tax credits. A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows (in
thousands):
|
Balance
at December 29, 2007
|
|
$ |
1,800 |
|
|
Increases
related to prior year tax positions
|
|
|
-- |
|
|
Decreases
related to prior year tax positions
|
|
|
(579 |
) |
|
Balance
at January 3, 2009
|
|
$ |
1,221 |
|
The
entire $1.2 million of unrecognized tax benefits at January 3, 2009 would reduce
income tax expense if ultimately recognized. We do not expect any significant
increases or decreases to our unrecognized tax benefits within 12 months of this
reporting date. Subsequent to adoption, interest and penalties incurred
associated with unresolved income tax positions will be included in income tax
expense. Accrued interest and penalties are insignificant.
We
conduct business globally and, as a result, file numerous consolidated and
separate income tax returns in the U.S. federal jurisdiction and various state
and foreign jurisdictions. In the normal course of business, the Company is
subject to examination by tax authorities throughout the world, including such
major jurisdictions as the U.S., United Kingdom and Canada. The Company is
subject to U.S. federal, state and local, or non-U.S. income tax examinations
for years after 2004. Carryforward attributes that were generated prior to 2004,
however may still be adjusted by a taxing authority upon examination if the
attributes have been or will be used in a future period.
14.
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 $0.01 par value
preferred stock, with dividend, liquidation, conversion and voting or other
rights to be determined upon issuance by the Board of Directors. No preferred
stock has been issued to date.
15.
STOCK-BASED COMPENSATION PLANS
Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS 123R, using the modified prospective method, which requires measurement of
compensation cost at fair value on the date of grant and recognition of
compensation expense over the service period for awards expected to
vest.
The
Company has equity incentive plans that are administered by the Compensation
Committee of the Board of Directors (the “Committee”). The Committee oversees
and approves which employees receive grants, the number of shares or options
granted and the exercise prices of the shares covered by each
grant.
Stock Incentive
Plans
The 1998
Stock Incentive Plan (the “1998 Incentive Plan”) provides for the award of stock
options, restricted stock, deferred stock, and other stock based awards to
officers, directors, employees, and other key persons (collectively “awards”). A
total of 3,000,000 shares of common stock, subject to anti-dilution adjustments,
have been reserved under this plan. Any future options granted under the 1998
Incentive Plan will become exercisable upon the earlier of a date set by the
Board of Directors or Committee at the time of grant or the close of business on
the day before the tenth anniversary of the stock options’ date of grant. At
January 3, 2009, there were 489,325 options outstanding under the 1998 Incentive
Plan. The options will expire at various dates as prescribed by the individual
option grants. This plan expired on April 6, 2008 and therefore no options will
be granted under this plan after this date.
The 2003
Stock Option and Incentive Plan (the “2003 Plan”) provides for the award of
stock options, stock issuances and other equity interests in the Company to
employees, officers, directors (including those directors who are not an
employee or officer of the Company, such directors being referred to as
Non-Employee Directors), consultants and advisors of the Company and its
subsidiaries. The 2003 Plan provides for an automatic annual grant of 7,500
stock options to all active Non-Employee Directors. A total of 2,000,000 shares
of common stock, subject to anti-dilution adjustments, have been reserved under
this plan. Any future options granted under the 2003 Plan will become
exercisable at such times and subject to such terms and conditions as the Board
of Directors or Committee may specify at the time of each grant. At January 3,
2009, there were 1,864,212 options outstanding under the 2003 Plan, and 80,388
options available for future grants under this plan. The options will expire at
various dates as prescribed by the individual option grants.
The 2008
Omnibus Incentive Plan (the “2008 Plan”), approved by the stockholders of the
Company on June 11, 2008, provides for the award of stock options, stock
issuances and other equity interests in the Company to employees, officers,
directors (including non-employee directors), consultants and advisors of the
Company and its subsidiaries. A total of 3,000,000 shares of common stock,
subject to anti-dilution adjustments, have been reserved under this plan. Awards
granted under this plan may have varying vesting and termination provisions and
can have no longer than a ten year contractual life. At January 3, 2009, there
were 799,609 options outstanding and 2,200,391 options available for future
grants under this plan.
The
Company had previously adopted equity incentive plans that had expired as of
January 3, 2009 and, accordingly, no future grants may be issued under these
plans. These plans include the 1991 Stock Option Plan (the “1991 Plan”), which
expired on August 18, 2001; the 1994 Stock Option Plan (the “1994 Plan”), which
expired on April 8, 2004; the 1997 Interim Stock Option Plan (the “1997 Plan”),
which expired on September 22, 2002; and the 1998 Stock Option Plan (the “1998
Plan”), which expired on April 6, 2008. At January 3, 2009, there were 33,400
options outstanding under the 1991 Plan, 143,367 options outstanding under the
1994 Plan, 14,175 options outstanding under the 1997 Plan and 489,325 options
outstanding under the 1998 Plan.
Employee Stock Purchase
Plan
The
Company’s 2002 Employee Stock Purchase Plan (the “ESPP”) is designed to provide
eligible employees of the Company and its participating U.S subsidiaries an
opportunity to purchase common stock of the Company through accumulated payroll
deductions. The purchase price of the stock is equal to 85% of the fair market
value of a share of common stock on the first day or last day of each
three-month offering period, whichever is lower. All employees of the company or
participating subsidiaries who customarily work at least 20 hours per week and
do not own five percent or more of the Company’s common stock are eligible to
participate in the ESPP. A total of 950,000 shares of the Company’s common
stock, subject to adjustment, have been reserved for issuance under this plan.
In fiscal 2008, fiscal 2007 and fiscal 2006, approximately 80,300, 65,700 and
57,000 shares were issued, respectively, under the ESPP. The 2008, 2007 and 2006
amounts include approximately 27,000, 16,000 and 16,000 shares in transit at
January 3, 2009, December 29, 2007 and December 30, 2006, respectively. These
shares were issued on January 5, 2009, December 31, 2007 and January 2, 2007,
respectively. At January 3, 2009, there were approximately 623,000 shares
available for issuance under this plan.
Non-Plan
Options
In fiscal
2007, the Company granted 300,000 shares of restricted stock and 1,000,000 stock
options to its President and Chief Executive Officer (“CEO”) under a non-plan,
non-qualified stock option agreement. The award of restricted stock vested on
May 10, 2007, the effective date of the CEO’s employment agreement with the
Company. The award of stock options vests 20% on the date of grant, and an
additional 20% vests on each of January 1, 2008, 2009, 2010 and 2011. Each
portion of the option that vests will remain exercisable for five years after
the applicable vesting date. As of January 3, 2009, 1,000,000 options remain
outstanding.
Valuation
Assumptions
The fair
value of the rights to purchase shares of common stock under the Company’s ESPP
was estimated on the commencement date of the offering period using the
Black-Scholes valuation model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Stock
purchase right assumptions
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
0.84 |
% |
|
|
4.03 |
% |
|
|
4.74 |
% |
|
Volatility
|
|
|
95.79 |
% |
|
|
51.77 |
% |
|
|
52.05 |
% |
|
Expected
life (in years)
|
|
|
0.25 |
|
|
|
0.25 |
|
|
|
0.25 |
|
|
Dividend
yield
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Based on
the above assumptions, the weighted average fair value of the stock purchase
rights under the Company’s ESPP for fiscal 2008, 2007 and 2006 was $1.09, $1.30
and $1.34, respectively.
The fair
value of the options to purchase common stock granted in fiscal 2008, 2007 and
2006 under the 2008 Plan, 2003 Plan and 1998 Plan was estimated on the
respective grant dates using the Black-Scholes valuation model with the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option assumptions
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.28 |
% |
|
|
4.25 |
% |
|
|
5.05 |
% |
|
Volatility
|
|
|
60.63 |
% |
|
|
60.97 |
% |
|
|
57.16 |
% |
|
Expected
life (in years)
|
|
|
5.67 |
|
|
|
5.56 |
|
|
|
4.51 |
|
|
Dividend
yield
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
The
weighted average grant date fair value of the options granted of the Company’s
common stock during fiscal years 2008, 2007 and 2006 was $2.50, $3.72 and $4.62,
respectively.
The fair
value of the 300,000 restricted shares of common stock granted in the second
quarter of fiscal 2007 was derived by obtaining the market value of the stock on
the award date and applying a discount to that value due to the sale
restrictions imposed by Rule 144 of the U.S. Securities and Exchange Commission
(the “SEC”). The market value was calculated using the average of the high and
low trading prices on the award date multiplied by the number of shares. A
discount rate of 17.2% was estimated using a Black-Scholes put option model with
the following assumptions:
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.9 |
% |
|
Volatility
|
|
|
50.0 |
% |
|
Expected
life (in years)
|
|
|
1.0 |
|
|
Dividend
yield
|
|
|
-- |
|
The fair
value of the options to purchase shares of common stock under the non-plan,
non-qualified stock option agreement with the Company’s President and CEO
granted in the second quarter of fiscal 2007 was estimated on the grant date
using the Black-Scholes valuation model with the following
assumptions:
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.3 |
% |
|
Volatility
|
|
|
48.0 |
% |
|
Expected
life (in years)
|
|
|
4.1 |
|
|
Dividend
yield
|
|
|
-- |
|
Based on
the above assumptions, the weighted average fair value of options was
$2.58.
Expected
volatilities are based on historical volatilities of Presstek’s common stock.
The expected life represents the weighted average period of time that options
granted are expected to be outstanding giving consideration to vesting
schedules, the Company’s historical exercise patterns and the ESPP purchase
period. The risk-free rate is based on the U.S. Treasury Separate Trading of
Registered Interest and Principal of Securities rate for the period
corresponding to the expected life of the options or ESPP purchase period. The
expense calculated using the Black-Scholes method is recognized on a straight
line basis over the term of the service period. Stock-based compensation
associated with stock option grants to all officers, directors, and employees is
included as a component of “General and administrative expense” in the Company’s
Consolidated Statements of Operations. Stock based compensation expense for the
twelve months ended January 3, 2009, December 29, 2007 and December 30, 2006 is
as follows (in thousands):
|
|
|
Twelve
months ended
|
|
|
Stock option plan
|
|
January
3,
2009
|
|
|
December
29, 2007
|
|
|
December
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Plan
|
|
$ |
319 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
2003
Plan
|
|
|
718 |
|
|
|
1,379 |
|
|
|
268 |
|
|
1998
Plan
|
|
|
171 |
|
|
|
7 |
|
|
|
-- |
|
|
ESPP
|
|
|
79 |
|
|
|
71 |
|
|
|
106 |
|
|
Restricted
Stock
|
|
|
-- |
|
|
|
1,500 |
|
|
|
-- |
|
|
Non-plan,
non-qualified
|
|
|
516 |
|
|
|
1,032 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,803 |
|
|
$ |
3,989 |
|
|
$ |
374 |
|
As of
January 3, 2009, there was $3.8 million of unrecognized compensation expense
related to stock option grants. The weighted average period over which the
remaining unrecognized compensation expense will be recognized is 2.4
years.
Stock
option activity for fiscal 2006, 2007 and 2008 is summarized as
follows:
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
Weighted
average remaining contractual term
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
3,101,475 |
|
|
$ |
8.86 |
|
|
|
|
Granted
|
|
|
143,333 |
|
|
$ |
9.12 |
|
|
|
|
Exercised
|
|
|
(246,883 |
) |
|
$ |
6.82 |
|
|
|
|
Canceled/expired
|
|
|
(41,575 |
) |
|
$ |
11.30 |
|
|
|
|
Outstanding
at December 30, 2006
|
|
|
2,956,350 |
|
|
$ |
9.01 |
|
|
|
|
Granted
|
|
|
2,203,333 |
|
|
$ |
5.40 |
|
|
|
|
Exercised
|
|
|
(836,950 |
) |
|
$ |
3.36 |
|
|
|
|
Canceled/expired
|
|
|
(506,166 |
) |
|
$ |
8.29 |
|
|
|
|
Outstanding
at December 29, 2007
|
|
|
3,816,567 |
|
|
$ |
8.26 |
|
|
|
|
Granted
|
|
|
1,019,609 |
|
|
$ |
5.14 |
|
|
|
|
Exercised
|
|
|
(2,500 |
) |
|
$ |
3.60 |
|
|
|
|
Canceled/expired
|
|
|
(489,588 |
) |
|
$ |
11.10 |
|
|
|
|
Outstanding
at January 3, 2009
|
|
|
4,344,088 |
|
|
$ |
7.24 |
|
6.59
years
|
$
0.006 million
|
|
Exercisable
at January 3, 2009
|
|
|
2,693,920 |
|
|
$ |
8.21 |
|
5.33
years
|
$0.006 million
|
The total
intrinsic value of stock options exercised during fiscal 2008, fiscal 2007 and
fiscal 2006 was $0.003 million, $0.8 million and $1.1 million,
respectively.
The
following table summarizes information about stock options outstanding at
January 3, 2009:
| |
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Range of exercise prices
|
|
|
Shares
|
|
|
Weighted
average
remaining
contractual
life
(years)
|
|
|
Weighted
average exercise price
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
| $ |
0.00 |
|
|
|
- |
|
|
$ |
4.96 |
|
|
|
221,967 |
|
|
|
7.55 |
|
|
|
3.85 |
|
|
|
80,967 |
|
|
|
4.04 |
|
| $ |
4.97 |
|
|
|
- |
|
|
$ |
9.92 |
|
|
|
3,685,371 |
|
|
|
6.94 |
|
|
|
6.70 |
|
|
|
2,176,203 |
|
|
|
7.30 |
|
| $ |
9.93 |
|
|
|
- |
|
|
$ |
14.88 |
|
|
|
233,750 |
|
|
|
5.08 |
|
|
|
11.28 |
|
|
|
233,750 |
|
|
|
11.28 |
|
| $ |
14.89 |
|
|
|
- |
|
|
$ |
19.85 |
|
|
|
203,000 |
|
|
|
0.82 |
|
|
|
16.12 |
|
|
|
203,000 |
|
|
|
16.12 |
|
| $ |
0.00 |
|
|
|
- |
|
|
$ |
19.85 |
|
|
|
4,344,088 |
|
|
|
6.59 |
|
|
$ |
7.24 |
|
|
|
2,693,920 |
|
|
$ |
8.21 |
|
In
addition to the plans described above, the Company’s Lasertel subsidiary has a
stock option plan, the Lasertel, Inc. 2000 Stock Incentive Plan (the “Lasertel
Plan”). The Lasertel Plan, as amended in fiscal 2001, provides for the award, to
employees and other key individuals of Lasertel and Presstek, of non-qualified
options to purchase, in the aggregate, up to 2,100,000 shares of Lasertel’s
common stock. Any future options granted under this plan will generally vest
over four years, with termination dates ten years from the date of grant. These
grants are subject to termination provisions as provided in the Lasertel
Plan.
16.
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Presstek
is a market-focused high technology company that designs, manufactures and
distributes proprietary and non-proprietary solutions to the graphic arts
industries, primarily serving short-run, full-color customers. The Company’s
operations are organized based on the market application of our products and
related services and consist of two business segments: Presstek and Lasertel.
The Presstek segment is primarily engaged in the development, manufacture, sale
and servicing of our patented digital imaging systems and patented printing
plate technologies and related equipment and supplies for the graphic arts and
printing industries, primarily serving the short-run, full-color market segment.
Lasertel manufactures and develops high-powered laser diodes for sale to
Presstek and external customers.
The
Lasertel segment has been reclassified as discontinued operations in the third
quarter of fiscal 2008 as the operations are currently held for sale. As such,
the Presstek Segment makes up the entire results of continuing operations. The
Lasertel business will continue to operate as previously operated, including its
marketing and new business/product development activities. Presstek has no
intentions to shut down the business.
Asset
information for the Company’s business segments is as follows (in
thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
Presstek
|
|
$ |
144,183 |
|
|
$ |
176,153 |
|
|
Lasertel
(assets of discontinued operations)
|
|
|
13,330 |
|
|
|
16,674 |
|
|
|
|
$ |
157,513 |
|
|
$ |
192,827 |
|
The
Company’s classification of revenue by geographic area is determined by the
location of the Company’s customer. The following table summarizes revenue
information by geographic area (in thousands):
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
123,484 |
|
|
$ |
150,703 |
|
|
$ |
170,160 |
|
|
United
Kingdom
|
|
|
20,732 |
|
|
|
27,426 |
|
|
|
28,706 |
|
|
Canada
|
|
|
9,010 |
|
|
|
15,410 |
|
|
|
14,699 |
|
|
Germany
|
|
|
8,398 |
|
|
|
6,187 |
|
|
|
8,645 |
|
|
Japan
|
|
|
2,810 |
|
|
|
5,451 |
|
|
|
5,845 |
|
|
All
other
|
|
|
28,818 |
|
|
|
41,396 |
|
|
|
30,881 |
|
|
|
|
$ |
193,252 |
|
|
$ |
246,573 |
|
|
$ |
258,936 |
|
The
Company’s long-lived assets by geographic area are as follows (in
thousands):
|
|
|
January
3,
2009
|
|
|
December
29,
2007
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
58,580 |
|
|
$ |
65,170 |
|
|
United
Kingdom
|
|
|
602 |
|
|
|
752 |
|
|
Canada
|
|
|
736 |
|
|
|
220 |
|
|
|
|
$ |
59,918 |
|
|
$ |
66,142 |
|
17.
MAJOR CUSTOMERS
No
customer accounted for greater than 10% of revenue in fiscal 2008, fiscal 2007
or fiscal 2006, or greater than 10% of the Company’s accounts receivable balance
at either January 3, 2009 or December 29, 2007.
18.
RELATED PARTIES
The
Company engages the services of Amster, Rothstein & Ebenstein, a law firm of
which a member of the Company’s Board of Directors is a partner. Expenses
incurred for services from this law firm were $2.4 million (including $0.5
million of pass-through expenses), $1.1 million and $2.4 million in fiscal 2008,
fiscal 2007 and fiscal 2006, respectively.
The
Company has had a long term relationship with Spinks Ink (“Spinks”), a
subsidiary of Superior Printing Ink Company, Inc. Spinks supplies ink and
related products to the Company. During fiscal 2008, the son of Board member
John W. Dreyer became employed by Spinks. Prior to Mr. Dreyer’s son becoming
employed with Spinks and subsequent thereto, all transactions with Spinks have
been conducted on an arm’s length basis. The total amount paid to Spinks in
fiscal 2008 was $0.3 million.
19.
COMMITMENTS AND CONTINGENCIES
Commitments
The
Company conducts operations in certain facilities under long-term operating
leases. The Company also leases certain office and other equipment for use in
its operations. These leases expire at various dates through 2018, with various
options to renew as negotiated between the Company and its landlords. It is
expected that in the normal course of business, leases that expire will be
renewed or replaced. Rent expense under these leases was $1.7 million in fiscal
2008, $1.9 million in fiscal 2007 and $1.7 million in fiscal 2006.
The
Company’s obligations under its non-cancelable operating leases at January 3,
2009 were as follows (in thousands):
|
Fiscal
2009
|
|
$ |
2,684 |
|
|
Fiscal
2010
|
|
|
2,162 |
|
|
Fiscal
2011
|
|
|
1,820 |
|
|
Fiscal
2012
|
|
|
1,828 |
|
|
Fiscal
2013
|
|
|
953 |
|
|
Thereafter
|
|
|
2,860 |
|
The
Company entered into an agreement in fiscal 2000 with 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
total royalty payments to be no less than $6 million and not greater than $14
million over the life of the agreement. As of January 3, 2009, the Company had
paid Fuji $8.9 million under the agreement. The Company’s maximum remaining
liability under the royalty agreement at January 3, 2009, was $5.1
million.
Contingencies
The
Company has change of control agreements with certain of its employees that
provide them with benefits should their employment with the Company be
terminated other than for cause or their disability or death, or if they resign
for good reason, as defined in these agreements, within a certain period of time
from the date of any change of control of the Company.
From time
to time the Company has engaged in sales of equipment that is leased by or
intended to be leased by a third party purchaser to another party. In certain
situations, the Company may retain recourse obligations to a financing
institution involved in providing financing to the ultimate lessee in the event
the lessee of the equipment defaults on its lease obligations. In certain such
instances, the Company may refurbish and remarket the equipment on behalf of the
financing company, should the ultimate lessee default on payment of the lease.
In certain circumstances, should the resale price of such equipment fall below
certain predetermined levels, the Company would, under these arrangements,
reimburse the financing company for any such shortfall in sale price (a
“shortfall payment”). Generally, the Company’s liability for these recourse
agreements is limited to 9.5% of the amount outstanding. The maximum amount for
which the Company was liable to the financial institutions for the shortfall
payments was approximately $1.9 million at January 3, 2009.
Litigation
On
October 26, 2006, the Company was served with a complaint naming the Company,
together with certain of its former executive officers, as defendants in a
purported securities class action suit filed in the United States District Court
for the District of New Hampshire. The suit claims to be brought on behalf of
purchasers of Presstek’s common stock during the period from July 27, 2006
through September 29, 2006. The complaint alleges, among other things, that the
Company and the other defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder based on
allegedly false forecasts of fiscal third quarter and annual 2006 revenues. As
relief, the plaintiff seeks an unspecified amount of monetary damages, but makes
no allegation as to losses incurred by any purported class member other than
himself, court costs and attorneys’ fees. On September 25, 2008 the parties
reached a settlement of the action, subject to confirmatory discovery by
plaintiffs and court approval.
On
September 10, 2008 a purported shareholder derivative claim against certain
current and former directors and officers of the Company was filed in the United
States District Court for the District of New Hampshire. The complaint alleges
breaches of fiduciary duty by the defendants and seeks unspecified damages. On
September 25, 2008 the parties reached agreement on a settlement of the claim,
subject to receipt of court approval.
On June
4, 2008 the Commonwealth of Massachusetts filed a complaint in the Superior
Court of Massachusetts, Hampshire County against the Company and one of its
subsidiaries seeking recovery of response costs related to the October 30, 2006
chemical release in South Hadley, MA noted above. In October 2008 the case was
settled and the complaint was dismissed.
On
February 4, 2008, the Company received from the SEC a formal order of
investigation relating to the previously disclosed SEC inquiry regarding the
Company's announcement of preliminary financial results for the third quarter of
fiscal 2006. The Company is cooperating fully with the SEC's
investigation.
Presstek
is a party to other litigation that it considers routine and incidental to its
business however it does not expect the results of any of these actions to have
a material adverse effect on its business, results of operation or financial
condition.
20.
SALE-LEASEBACK
On July
14, 2008, the Company completed a sale-leaseback transaction of its property
located in Tucson, AZ (the “Property”). The Property is used by the
Lasertel business. The Company sold the Property to an independent third party
for approximately $8.75 million, or $8.4 million net of expenses incurred in
connection with the sale, resulting in a gain of approximately $4.6 million.
Concurrent with the sale, the Company entered in to an agreement to lease a
portion of the property back from the purchaser for a term of 10 years. The
lease, which management deemed to be an operating lease, has approximately $5.8
million in future minimum lease payments. The gain associated with the
transaction was deferred and included in discontinued operations at the
inception of the arrangement and is expected to be amortized ratably over the
lease term.
21.
SUBSEQUENT EVENTS
In
October 2008, the Company filed a lawsuit in New Hampshire Superior Court
against Continental Casualty Company (“Continental”), alleging that Continental
had breached an insurance contract with the Company. In January 2009 the parties
settled this claim, resulting in a payment by Continental to the Company in the
amount of $1.2 million.
22.
QUARTERLY RESULTS (UNAUDITED)
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
(2)
|
|
|
Fourth
Quarter
(3)
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
50,794 |
|
|
$ |
51,606 |
|
|
$ |
48,534 |
|
|
$ |
42,318 |
|
|
Gross
profit
|
|
$ |
18,400 |
|
|
$ |
17,465 |
|
|
$ |
16,849 |
|
|
$ |
16,027 |
|
|
Income
(loss) from continuing operations
|
|
|
887 |
|
|
|
1,003 |
|
|
|
626 |
|
|
|
614 |
|
|
Income
(loss) from discontinued operations
|
|
|
(669 |
) |
|
|
(436 |
) |
|
|
(431 |
) |
|
|
(1,070 |
) |
|
Net
income (loss)
|
|
$ |
218 |
|
|
$ |
567 |
|
|
$ |
195 |
|
|
$ |
(456 |
) |
|
Earnings
(loss) per share from continuing operations – basic
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
Earnings
(loss) per share from discontinued operations – basic
|
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
Earnings
(loss) per share – basic (1)
|
|
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share from continuing operations – diluted
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
Earnings
(loss) per share from discontinued operations – diluted
|
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
Earnings
(loss) per share – diluted (1)
|
|
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
63,463 |
|
|
$ |
66,565 |
|
|
$ |
57,662 |
|
|
$ |
58,883 |
|
|
Gross
profit
|
|
$ |
17,854 |
|
|
$ |
17,464 |
|
|
$ |
15,108 |
|
|
$ |
18,801 |
|
|
Income
(loss) from continuing operations
|
|
|
(640 |
) |
|
|
(4,867 |
) |
|
|
(2,684 |
) |
|
|
(2,164 |
) |
|
Income
(loss) from discontinued operations
|
|
|
(338 |
) |
|
|
37 |
|
|
|
(932 |
) |
|
|
(616 |
) |
|
Net
income (loss)
|
|
$ |
(978 |
) |
|
$ |
(4,830 |
) |
|
$ |
(3,616 |
) |
|
$ |
(2,780 |
) |
|
Earnings
(loss) per share from continuing operations – basic
|
|
|
(0.02 |
) |
|
|
(0.13 |
) |
|
|
(0.07 |
) |
|
|
(0.06 |
) |
|
Earnings
(loss) per share from discontinued operations – basic
|
|
|
(0.01 |
) |
|
|
0.00 |
|
|
|
(0.03 |
) |
|
|
(0.02 |
) |
|
Earnings
(loss) per share – basic (1)
|
|
$ |
(0.03 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share from continuing operations – diluted
|
|
|
(0.02 |
) |
|
|
(0.13 |
) |
|
|
(0.07 |
) |
|
|
(0.06 |
) |
|
Earnings
(loss) per share from discontinued operations – diluted
|
|
|
(0.01 |
) |
|
|
0.00 |
|
|
|
(0.03 |
) |
|
|
(0.02 |
) |
|
Earnings
(loss) per share – diluted (1)
|
|
$ |
(0.03 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Income
(loss) per share is computed independently for each of the quarters
presented; accordingly, the sum of the quarterly income (loss) per share
may not equal the total computed for the
year.
|
|
|
(2) In
the third quarter of fiscal 2007, the Company identified revenue
transactions totaling $1.5 million that were incorrectly recorded in prior
periods. A determination was made that these errors were not material to
prior periods or the current period and a correction was made by reducing
revenue by $1.5 million and reducing gross profit by $0.2 million in the
third quarter.
|
|
|
(3) In
the fourth quarter of fiscal 2007, the Company recorded $2.5 million of
legal expenses relating to pending and threatened
litigation.
|
|
|
(4) In
the fourth quarter of fiscal 2007, the Company recorded approximately $1.7
million of accounting fees related primarily to the fiscal 2007 audit and
European review.
|
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
|
|
FROM CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Charged
to
|
|
|
Deductions
|
|
|
Balance
at
|
|
|
|
|
beginning
|
|
|
costs
and
|
|
|
and
|
|
|
end
|
|
|
|
|
of
period
|
|
|
expenses
|
|
|
write-offs
|
|
|
of
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses on accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
2,538 |
|
|
$ |
1,915 |
|
|
$ |
(1,977 |
) |
|
$ |
2,476 |
|
|
2007
|
|
$ |
2,712 |
|
|
$ |
1,671 |
|
|
$ |
(1,845 |
) |
|
$ |
2,538 |
|
|
2006
|
|
$ |
3,215 |
|
|
$ |
188 |
|
|
$ |
(691 |
) |
|
$ |
2,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
for excess and obsolete inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
13,530 |
|
|
$ |
437 |
|
|
$ |
(4,901 |
) |
|
$ |
9,066 |
|
|
2007
|
|
$ |
13,868 |
|
|
$ |
5,255 |
|
|
$ |
(5,593 |
) |
|
$ |
13,530 |
|
|
2006
|
|
$ |
16,391 |
|
|
$ |
786 |
|
|
$ |
(3,309 |
) |
|
$ |
13,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Purchase accounting adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
Not
applicable
|
(a)
|
Evaluation
of Disclosure Controls and
Procedures
|
The
Company carried out, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and Chief
Financial Officer, an evaluation of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended). Based on their evaluation, the Company’s Chief Executive
Officer and its Chief Financial Officer concluded that, as of January 3, 2009,
the Company’s disclosure controls and procedures were not effective because of
the material weakness identified as of such date discussed in Item
9A(b). Notwithstanding the existence of the material weakness
described below, management has concluded that the consolidated financial
statements in this Form 10-K fairly present, in all material respects, the
Company’s financial position, results of operations and cash flows for the
periods and dates presented.
(b)
Management’s Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies or procedures may
deteriorate.
With the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer, management conducted an evaluation of the effectiveness of our internal
control over financial reporting as of January 3, 2009, based on the framework
and criteria established in Internal Control – Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected in a timely basis. In its assessment of
the effectiveness of internal control over financial reporting as of January 3,
2009, the Company determined that the following material weakness
existed.
Accounting
Resources
The
Company did not maintain a sufficient complement of personnel with the
appropriate level of experience and training in the application of U.S.
generally accepted accounting principles (“U.S. GAAP”) to analyze, review, and
monitor the accounting for significant or non-routine transactions. This
deficiency resulted in a reasonable possibility that a material misstatement of
the Company’s annual or interim financial statements would not be prevented or
detected on a timely basis.
Because
of the material weakness described above, management has concluded that our
internal control over financial reporting was not effective as of January 3,
2009.
The
effectiveness of the Company’s internal control over financial reporting as of
January 3, 2009, has been audited by the Company’s independent registered public
accounting firm, whose report is included on page 91 of this Annual Report on
Form 10-K.
(c) Remediation
Plan for Material Weakness in Internal Control over Financial
Reporting
The
Company disclosed a material weakness related to accounting for significant or
non-routine transactions in the December 29, 2007 Form 10-K. This material
weakness was titled “Accounting Resources” in Item 9A(b) of the January 3, 2009
Form 10-K because one of the deficiencies that constituted this material
weakness that existed as of December 29, 2007 did not exist as of January 3,
2009.
The
Company is transitioning certain accounting activities to the Greenwich,
Connecticut office during 2009, and this has resulted in the loss of key
personnel prior to completion of the 2008 financial reporting cycle, which
contributed to the material weakness. Also, certain of the Company’s accounting
personnel were hired near the end of or after fiscal 2008 and did not have
sufficient knowledge of the Company to complete an effective review of all
transactions.
Our
management team continues to engage in substantial efforts to remediate the
material weakness noted above. The following remedial actions are
intended both to address the identified material weakness and to enhance our
overall internal control over financial reporting.
The
following remedial actions have been implemented through January 3,
2009:
|
·
|
The
Company improved the accounting resources by hiring a new Vice President
and Corporate Controller, Assistant Controller, European Finance Director,
and Cost Accounting Manager.
|
|
·
|
The
Company has implemented a process designed to ensure the timely analysis
and documentation of all significant or non-routine accounting
transactions by qualified accounting personnel. In addition, the analysis
and related documentation must be reviewed and approved by senior
management.
|
The
following remedial actions will be implemented after January 3,
2009:
|
·
|
A
new Director of Tax was appointed in January 2009, and will focus on
building a knowledgeable tax department in the Greenwich,
Connecticut office.
|
|
·
|
Effective
March 17, 2009, the Company established a Financial Resources Steering
Committee to develop and implement a corrective action plan to complete
remediation of the material weakness. The Steering Committee is
headed by the Chief Financial Officer, Vice President and Corporate
Controller, and the Vice President of Human
Resources.
|
|
·
|
A
new Financial Reporting Manager will be appointed to oversee accounting
for significant or non-routine transactions and to prepare SEC
filings.
|
|
·
|
The
Assistant Controller, under the direction of the Chief Financial Officer
and Vice President and Corporate Controller, has commenced a process to
recruit and train new accounting personnel for the accounting functions
being transferred to the Greenwich, Connecticut
office.
|
(d) Actions
to Address Previously Reported Material Weaknesses that no Longer Exist at
January 3, 2009
Management
applied substantial resources toward successful remediation of three material
weaknesses reported in the Company’s 2007 Annual Report on Form 10-K. The
following is a summary of the three material weaknesses that no longer exist as
January 3, 2009 and management’s remediation for each deficiency.
Revenue
Recognition
Our 2007
Annual Report on Form 10-K identified a material weakness because we did not
maintain adequate internal controls applicable to equipment revenue recognition
to ensure that sufficient documentation regarding terms and conditions of
equipment contracts and agreements were maintained to permit proper evaluation
relative to revenue recognition of such contracts and agreements in accordance
with U.S. GAAP. In addition, review controls over accounting for
equipment revenue transactions were not operating effectively to identify
accounting errors, and monitoring controls designed to ensure that an
appropriate review was properly performed were not operating
effectively. Since December 29, 2007 we have completed the following
remedial actions:
|
·
|
The
Company’s revenue recognition process was strengthened to
include:
|
|
o
|
Enhanced
documentation requirements to support revenue transactions and their
related accounting treatment;
|
|
o
|
Requirements
for additional senior financial and legal management approvals on
departures from standard terms and conditions on sales and service
agreements; and
|
|
o
|
Clarification
of revenue recognition treatment on distributor equipment
transactions.
|
|
·
|
Additional
training regarding revenue recognition practices was provided to all sales
personnel worldwide.
|
|
·
|
Internal
controls at our European operation have been strengthened and reinforced
through additional training and supervision, the addition of a full-time
European revenue analyst, and requirements for additional credit
approvals. In addition, certain personnel changes and realignment of work
responsibilities have been
implemented.
|
|
·
|
Revenue
recognition processes have been restructured to increase sales and
accounting personnel participation earlier in the sales process and to
improve communication of key terms and conditions in equipment
transactions.
|
|
·
|
Review
and monitoring controls over equipment transactions involving foreign
operations have been enhanced to include a timely review of the terms of
transactions by corporate accounting
personnel.
|
Based on
the foregoing and the results of our testing of the effectiveness of these
controls, we believe that the previously reported material weakness no longer
exists as of January 3, 2009.
Account
Reconciliations and Journal Entries
Our 2007
Annual Report on Form 10-K identified a material weakness because account
reconciliations and journal entries were not consistently reviewed and approved
with appropriate supporting documentation in order to ensure completeness and
accuracy. In addition, monitoring controls designed to ensure that account
reconciliations were properly performed were not operating effectively. Since
December 29, 2007 we have completed the following remedial actions:
|
·
|
Additional
training of Company personnel has been performed to ensure that key
account reconciliations are performed, documented, reviewed and approved
as part of the monthly financial closing
process.
|
|
·
|
The
Company improved the accounting resources by hiring a new Vice President
and Corporate Controller, Assistant Controller, and European Finance
Director.
|
|
·
|
Review
and monitoring controls over key account reconciliations have been
enhanced to include detailed reviews of monthly reconciliations and
supporting documentation by Senior Corporate Finance
personnel.
|
|
·
|
Management
review controls have been enhanced to ensure that all journal entries are
reviewed and approved with appropriate supporting
documentation.
|
Based on
the foregoing and the results of our testing of the effectiveness of these
controls, we believe that the previously reported material weakness no longer
exists as of January 3, 2009.
Inventory
Our 2007
Annual Report on Form 10-K identified a material weakness because calculations
that are performed to determine the inventory adjustments necessary relative to
excess and obsolete inventory and the capitalization of manufacturing variances
were not reviewed for completeness and accuracy at a sufficient level of
precision by someone independent of the preparer and the Company did not have
adequate controls to ensure the mathematical accuracy of spreadsheets that were
used to perform such calculations. Since December 29, 2007 we have completed the
following remedial actions:
|
·
|
An
independent review, by appropriate management personnel, is performed and
documented in a detailed manner to ensure that these complex calculations
are performed accurately.
|
|
·
|
The
Company has enhanced the spreadsheet controls over the mathematical
accuracy of spreadsheets for these inventory account
calculations.
|
|
·
|
The
Company improved the accounting resources by hiring a new Vice President
and Corporate Controller, Assistant Controller, European Finance Director,
and Cost Accounting Manager.
|
Based on
the foregoing and the results of our testing of the effectiveness of these
controls, we believe that these previously reported material weaknesses no
longer exists as of January 3, 2009.
(e)
Changes in Internal Control over Financial Reporting
Other
than the foregoing measures to remediate the material weaknesses described in
Item 9A(d) which were completed during the quarter ended January 3, 2009, there
was no change in the Company's internal control over financial reporting during
the quarter ended January 3, 2009, that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Presstek,
Inc.:
We have
audited Presstek, Inc.’s internal control over financial reporting as of January
3, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Presstek, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal
Control over Financial Reporting (Item 9Ab). Our responsibility is to
express an opinion on the Company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. A material
weakness related to accounting resources has been identified and included in
management’s assessment. We also have audited,
in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Presstek, Inc. and
subsidiaries as of January 3, 2009 and December 29, 2007 and the related
consolidated statements of operations, changes in stockholders’ equity and
comprehensive income, and cash flows for each of the fiscal years in the
three-year period ended January 3, 2009 of Presstek, Inc. and subsidiaries. The
material weakness was considered in determining the nature, timing, and extent
of audit tests applied in our audit of the 2009 consolidated financial
statements, and this report does not affect our report dated March 24, 2009,
which expressed an unqualified opinion on those consolidated financial
statements.
In our
opinion, because of the effect of the aforementioned material weakness on the
achievement of the objectives of the control criteria, Presstek, Inc. has not
maintained effective internal control over financial reporting as of January 3,
2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
/s/ KPMG
LLP
Boston,
Massachusetts
March 24,
2009
None.
Item
10. Directors, Executive
Officers and Corporate Governance.
Directors
Information
with respect to our directors and nominees may be found under the caption
“Election of Directors” of the Company’s proxy statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held on
June 3, 2009 (the “Proxy Statement”). Such information is incorporated herein by
reference.
Executive
Officers
The
Company’s executive officers as of the date of this Annual Report on Form 10-K
are as follows:
|
|
|
|
|
|
|
Executive
Officer
|
|
Position
|
|
Age
at January 3, 2009
|
|
Jeffrey
Jacobson
|
|
Chairman,
President and Chief Executive Officer
|
|
49
|
|
|
|
|
|
Jeffrey
A. Cook
|
|
Executive
Vice President and Chief Financial Officer
|
|
54
|
|
|
|
|
|
Mark
J. Levin
|
|
President,
Americas Region
|
|
52
|
|
|
|
|
|
Kathleen
McHugh
|
|
Vice
President and Chief Marketing Officer
|
|
50
|
|
|
|
|
|
Wayne
L. Parker
|
|
Vice
President, Corporate Controller and Chief Accounting
Officer
|
|
51
|
|
|
|
|
|
James
R. Van Horn
|
|
Vice
President, General Counsel and Secretary
|
|
52
|
Jeffrey Jacobson was
appointed President and Chief Executive Officer and a director of the Company in
May 2007, and added the title of Chairman on January 1, 2009. From April 2005
until April 2007, he was a Corporate Vice President and the Chief Operating
Officer of Kodak’s Graphic Communications Group, a division formed by the
integration of six different Kodak companies into a $3.6 billion global
enterprise. From April, 2000 through April, 2005, Mr. Jacobson served as Chief
Executive Officer of Kodak Polychrome Graphics, a $1.7 billion global joint
venture between Sun Chemical Corporation and Kodak. In all, Mr. Jacobson has 22
years of experience in the graphics arts industry. Mr. Jacobson is a board
member of the Electronic Document Systems Foundation, as well as a board member
of the New York University Graphic Communications Management and Technology
Advisory Board.
Jeffrey A. Cook was appointed
Senior Vice President, Chief Financial Officer in February 2007 and appointed
Executive Vice President in February 2008. From July 2005 until February 2007 he
was self-employed. Prior thereto, he served as Senior Vice President and Chief
Financial Officer of Kodak Polychrome Graphics, a joint venture between Kodak
and Sun Chemical Corporation.
Mark J. Levin was appointed
President, Americas Region in November 2007. From October 2005 until March 2007
he served as President-Commercial Group of Sun Chemical Corporation. From
October 2003 until October 2005 he served as President-Publication Inks of Sun
Chemical. Prior thereto, he served as Senior Vice President of
Heidelberg.
Kathleen McHugh was
appointed Vice President and Chief Marketing Officer in May, 2008. Ms. McHugh,
with over 20 years of industry experience, is focused on expanding Presstek’s
global presence in the growing digital color printing market. Ms. McHugh joined
Kodak in 1984, and most recently served as Vice President and Regional Business
Manager of Kodak’s U.S. and Canadian Prepress Solutions. Previously, Ms. McHugh
served as Kodak’s Vice President, Global Marketing, Prepress Solutions. From
1998 to 2005, Ms. McHugh held high level strategic and marketing roles in Kodak
Polychrome Graphics, a joint venture between Kodak and Sun Chemical
companies.
Wayne L Parker was appointed
Vice President, Corporate Controller and Chief Accounting Officer of the Company
in April, 2008. Mr. Parker is a CPA with extensive financial experience,
including compliance and audit, in major organizations across several
industries. Mr. Parker joined Presstek in May, 2007 as Director of Internal
Audit. Prior to joining Presstek, Mr. Parker served as Director, Sarbanes-Oxley
Compliance at Kodak Company’s Graphics Communications Group; and Director of
Internal Audit at Kodak Polychrome
Graphics.
James R. Van Horn was
appointed Vice President and General Counsel of the Company in October 2007 and
Secretary in December 2007. From January 2007 until October 2007 he served as a
consultant to Sun-Times Media Group, Inc. From March 2004 to January 2007 he
served as Vice President, General Counsel and Secretary of Sun-Times Media
Group, Inc. Prior thereto he served as Chief Administrative Officer, General
Counsel and Secretary of NUI
Corporation.
Audit
Committee
The
information in the Proxy Statement under the caption “Audit Committee” is
incorporated herein by reference.
Compliance
With Section 16(A) of the Exchange Act
The
information in the Proxy Statement under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance” is incorporated herein by
reference.
Code of
Ethics
The
policies comprising the Company’s code of ethics are set forth in the Company’s
Code of Business Conduct and Ethics. These policies contain provisions
satisfying all the elements of the SEC’s requirements for a “code of ethics,”
and apply to all directors, officers and employees, as well as the directors,
officers and employees of any of its subsidiaries. The Code of Business Conduct
and Ethics can be found on the Company’s website at www.presstek.com/about-investor-code.htm.
The Company will disclose any amendments to the Code of Business Conduct and
Ethics with regard to the provisions of the Code required by SEC requirements,
or any waivers from such provisions provided to any of the Company’s principal
executive, financial or accounting officers or controller (or persons performing
similar functions), on that website or in a report on Form 8-K.
The
information in the Proxy Statement under the captions “Executive Compensation”
and “Compensation of Directors” is incorporated herein by
reference.
The
information in the Proxy Statement under “Security Ownership of Certain
Beneficial Owners and Management” and “Securities Authorized for Issuance Under
Equity Compensation Plans Information” is incorporated herein by
reference.
The
information in the Proxy Statement under the captions “Related Person
Transactions” and “Board of Directors and Committee Independence” is
incorporated herein by reference.
Item 14. Principal Accounting Fees and
Services.
The
information in the Proxy Statement under the caption “Independent Audit Fees” is
incorporated herein by reference.
PART
IV
Item 15. Exhibits and Financial Statement
Schedules.
(a) (1)
Financial Statements
The
consolidated financial statements of the Company are listed in the index under
Part II, Item 8, of this Annual Report on Form 10-K.
(2)
Financial Statement Schedule
The
following financial statement schedule is filed as part of this report under
Schedule II (Valuation and Qualifying Accounts and Reserves) for the 2006 – 2008
fiscal years. All other schedules called for by Form 10-K are omitted because
they are inapplicable or the required information is contained in the
consolidated financial statements, or notes thereto, included
herein.
(3)
Exhibits
The
exhibits that are filed with this Annual Report on Form 10-K, or that are
incorporated herein by reference, are set forth in the Exhibit Index hereto,
which index is incorporated by reference herein.
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.
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PRESSTEK,
INC.
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/s/ Jeffrey Jacobson |
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Jeffrey
Jacobson
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Chairman,
President and Chief Executive
Officer
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Date:
March 24, 2009
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.
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/s/ Jeffrey Jacobson |
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Jeffrey
Jacobson
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Chairman,
President and Chief Executive Officer
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March
24, 2009
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(Principal
Executive Officer)
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/s/ Jeffrey A. Cook |
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Jeffrey
A. Cook
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Executive
Vice President and Chief Financial Officer
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March
24, 2009
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(Principal
Financial Officer)
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/s/ Wayne L. Parker |
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Wayne
L. Parker
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Vice
President – Corporate Controller
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March
24, 2009
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(Principal
Accounting Officer)
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/s/ John W. Dreyer |
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John
W. Dreyer
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Lead
Director
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March
24, 2009
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/s/ Edward E. Barr |
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Edward
E. Barr
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Director
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March
24, 2009
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/s/ Daniel S. Ebenstein, Esq. |
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Daniel
S. Ebenstein, Esq.
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Director
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March
24, 2009
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/s/ Dr. Lawrence Howard |
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Dr.
Lawrence Howard
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Director
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March
24, 2009
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/s/ Steven N. Rappaport |
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Steven
N. Rappaport
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Director
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March
24, 2009
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/s/ Frank D. Steenburgh |
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Frank
D. Steenburgh
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Director
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March
24, 2009
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/s/ Donald C. Waite, III |
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Donald
C. Waite, III
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Director
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March
24, 2009
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Exhibit
Number
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Description
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Reference
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2.1
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(i)
Asset Purchase Agreement among Presstek, Inc., Silver Acquisitions Corp.,
Paragon Corporate Holdings, Inc., A.B. Dick Company, A.B. Dick Company of
Canada, Ltd. And Interactive Media Group, Inc., dated July 13,
2004.
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Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K,
filed on July 13, 2004.
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(ii)
Amendment to Asset Purchase Agreement between the Presstek, Inc. and A.B.
Dick Company dated August 20, 2004.
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Incorporated
by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K,
filed on November 12, 2004.
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(iii)
Second Amendment to Asset Purchase Agreement between Presstek, Inc. and
A.B. Dick Company dated November 5, 2004.
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Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K,
filed on November 12, 2004.
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3.1
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Amended
and Restated Certificate of Incorporation of Presstek,
Inc.
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Incorporated
by reference to Exhibit 3(i) to the Company’s Quarterly Report on Form
10-Q for the quarter ended June 29, 1996.
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3.2
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By-laws
of Presstek, Inc.
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Incorporated
by reference to Exhibit 3(ii) to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 30, 1995.
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10.1**
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1998
Stock Incentive Plan.
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Incorporated
by reference to Exhibit A to the Company’s Definite Proxy Statement, filed
April 24, 1998.
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10.2**
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2002
Employee Stock Purchase Plan of Presstek, Inc.
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Incorporated
by reference to Exhibit 4.3 to the Company’s Registration Statement on
Form S-8, filed August 9, 2002.
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10.3**
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2003
Stock Option and Incentive Plan of Presstek, Inc.
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Incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q for the quarter ended June 28, 2003.
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10.4**
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2008
Omnibus Incentive Plan.
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Incorporated
by reference to Appendix A to the Company’s Definite Proxy Statement,
filed May 9, 2008.
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10.5*
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OEM
Consumables Supply Agreement by and between Presstek, Inc. and
Heidelberger Druckmaschinen, AG., dated July 1, 2003.
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Incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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10.6*
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OEM
Consumables Supply Agreement by and between Presstek, Inc. and Heidelberg
U.S.A., Inc. dated July 1, 2003.
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Incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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10.7
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(i)
Credit Agreement by and among Presstek, Inc., Lasertel Inc., Citizens Bank
New Hampshire and Keybank National Association dated October 15,
2003.
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Incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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(ii)
Amended and Restated Credit Agreement among the Presstek, Inc., Citizens
Bank New Hampshire, KeyBank National Association and Bank North N.A. dated
November 5, 2004.
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Incorporated
by reference to Exhibit 99.1 to the Company’s Form 8-K filed on November
12, 2004.
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(iii)
Amendment to the Amended and Restated Credit Agreement among the Presstek,
Inc., Citizens Bank New Hampshire, KeyBank National Association and Bank
North N.A. dated July 29, 2008.
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Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K,
filed July 31, 2008.
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10.8
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Security
Agreement by and between Presstek, Inc. and Citizens Bank New Hampshire
dated October 15, 2003.
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Incorporated
by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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10.9
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Security
Agreement by and between Lasertel, Inc. and Citizens Bank New Hampshire
dated October 15, 2003.
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Incorporated
by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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10.10
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Security
Agreement (Intellectual Property) by and between Presstek, Inc. and
Citizens Bank New Hampshire dated October 15, 2003.
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Incorporated
by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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10.11
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Security
Agreement (Intellectual Property) by and between Lasertel, Inc. and
Citizens Bank New Hampshire dated October 15, 2003.
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Incorporated
by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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10.12
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Mortgage
and Security Agreement between Presstek, Inc. and Citizens Bank New
Hampshire dated October 15, 2003.
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Incorporated
by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form
10-Q for the quarter ended November 12, 2003.
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10.13
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Deed
of Trust, Assignment of Rents, Security Agreement and Fixture Filing by
and among Presstek, Inc., First American Title Insurance Company and
Citizens Bank New Hampshire dated October 15, 2003.
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Incorporated
by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003.
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10.14
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Amendment
dated July 29, 2008, to the Amended Restated Credit Agreement among
Presstek, Inc., Citizens Bank New Hampshire, KeyBank National Association
and Bank North N.A. dated November 5, 2004.
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Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K,
filed July 31, 2008.
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10.15**
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Employment
Agreement by and between Presstek, Inc. and Jeffrey Cook dated February
27, 2007.
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Incorporated
by reference to Exhibit 10(u) to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 30, 2007.
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10.16**
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Nonqualified
Stock Option Agreement by and between Presstek, Inc. and Jeffrey Cook
dated February 27, 2007.
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Incorporated
by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K,
filed March 2, 2007.
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10.17**
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Employment
Agreement by and between Presstek, Inc. and Jeffrey Jacobson dated May 10,
2007.
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Incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2007.
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10.18**
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Non-Plan,
Non-qualified Stock Option Agreement by and between Presstek, Inc. and
Jeffrey Jacobson dated May 10, 2007.
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Incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q for the quarter end March 31, 2007.
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Forms
of Stock Option Agreement under 2008 Omnibus Incentive
Plan.
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Filed
with this report.
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10.20
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(i) Purchase and Sale Agreement and Escrow
Instruction by and between Presstek, Inc. and EJC Properties, LLLP dated
April 24, 2008.
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Filed
with this report.
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(ii) First Amendment to Purchase and Sale
Agreement and Escrow Instruction by and between Presstek, Inc. and EJC
Properties, LLLP dated June 27, 2008
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Filed
with this report.
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Subsidiaries
of the Registrant.
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Filed
with this report.
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Consent
of KPMG LLP.
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Filed
with this report.
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Certification
of Chief Executive Officer Pursuant to Section 240.13a-14 or Section
240.15d-14 of the Securities Exchange Act of 1934, as
amended.
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Filed
with this report.
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Certification
of Chief Financial Officer Pursuant to Section 240.13a-14 or Section
240.15d-14 of the Securities Exchange Act of 1934, as
amended.
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Filed
with this report.
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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Filed
with this report.
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Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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Filed
with this report.
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__________
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*
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The
SEC has granted Presstek’s request of confidential treatment with respect
to a portion of this exhibit.
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**
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Management
contract or compensatory plan or
arrangement.
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