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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 30, 2002
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
COMMISSION FILE NO. 0-17541
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PRESSTEK, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0415170
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
55 EXECUTIVE DRIVE, HUDSON, NEW HAMPSHIRE 03051-4903
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(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (603) 595-7000
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 7, 2002, there were 34,124,231 shares of the registrant's common
stock, $.01 par value per share, outstanding.
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PRESSTEK, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of March 30, 2002 (unaudited) and
December 29, 2001 3
Statements of Operations for the three months ended
March 30, 2002 and March 31, 2001 (unaudited) 4
Statements of Cash Flows for the three months ended
March 30, 2002 and March 31, 2001 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRESSTEK, INC.
MAR 30 DEC 29
BALANCE SHEETS 2002 2001
(In thousands, except share data) (UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,835 $ 2,492
Accounts receivable, net of allowance for losses
of $2,083 and $2,420 in fiscal 2002 and 2001, respectively 16,128 18,117
Inventories 17,530 17,818
Advances to suppliers -- 303
Other current assets 1,095 815
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Total current assets 42,588 39,545
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PROPERTY, PLANT AND EQUIPMENT, NET 58,953 61,235
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OTHER ASSETS:
Patent application costs and license rights, net 4,276 4,358
Other 1,579 1,706
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Total other assets 5,855 6,064
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TOTAL $ 107,396 $ 106,844
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 967
Current portion of long-term debt 2,381 2,343
Accounts payable 3,830 2,067
Accrued expenses 5,926 5,920
Deferred revenues 1,593 1,507
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Total current liabilities 13,730 12,804
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LONG-TERM DEBT, NET OF CURRENT PORTION 13,445 14,055
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or outstanding -- --
Common stock, $.01 par value; authorized 75,000,000 shares;
issued and outstanding 34,124,231 shares at
March 30, 2002; 34,115,906 shares at December 29, 2001 341 341
Additional paid-in capital 97,395 97,342
Accumulated deficit (17,515) (17,698)
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Total stockholders' equity 80,221 79,985
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TOTAL $ 107,396 $ 106,844
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See notes to financial statements
3
PRESSTEK, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
MAR 30 MAR 31
FOR THE THREE MONTHS ENDED 2002 2001
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REVENUES:
Product sales $ 19,347 $ 23,641
Royalties and fees from licensees 1,450 2,124
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Total revenues 20,797 25,765
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COSTS AND EXPENSES:
Cost of products sold 12,528 15,442
Research and product development 3,119 2,935
Sales, marketing and customer support 2,438 3,140
General and administrative 2,328 3,072
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Total costs and expenses 20,413 24,589
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INCOME FROM OPERATIONS 384 1,176
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OTHER INCOME (EXPENSE)
Interest, net (231) (218)
Other, net 30 15
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Total other income (expense) (201) (203)
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INCOME BEFORE INCOME TAXES 183 973
PROVISION FOR INCOME TAXES -- --
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NET INCOME $ 183 $ 973
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EARNINGS PER SHARE - BASIC $ 0.01 $ 0.03
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EARNINGS PER SHARE - DILUTED $ 0.01 $ 0.03
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 34,122 34,064
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 34,164 34,621
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See notes to financial statements
4
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
MAR 30 MAR 31
FOR THE THREE MONTHS ENDED 2002 2001
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CASH FLOWS - OPERATING ACTIVITIES:
Net Income $ 183 $ 973
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,447 2,053
Provision for warranty and other costs 39 442
Provision for losses on accounts receivable -- 300
Other, net 109 165
Changes in operating assets and liabilities:
Accounts receivable 1,989 429
Inventories 288 (2,250)
Advances to suppliers and other current assets 23 (283)
Accounts payable 1,763 857
Accrued expenses (27) 565
Deferred revenue 86 (1,841)
Other assets (139) (173)
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Net cash provided by operating activities 6,761 1,237
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CASH FLOWS - INVESTING ACTIVITIES:
Property, plant and equipment purchases (100) (5,510)
Proceeds from sale of equipment 169 --
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Net cash provided by (used in) investing activities 69 (5,510)
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CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from stock option exercises 53 528
Repayments of revolving line of credit (967) --
Repayments of mortgage term loan (262) (147)
Repayments of lease line of credit (311) (286)
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Net cash provided by (used in) financing activities (1,487) 95
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,343 (4,178)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 2,492 11,972
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CASH AND CASH EQUIVALENTS END OF PERIOD $ 7,835 $ 7,794
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 245 $ 341
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Income taxes $ -- $ 46
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See notes to financial statements
5
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 30, 2002
1. BASIS OF PRESENTATION
---------------------
Presstek, Inc. (the "Company" or "Presstek", ) is a manufacturer, developer and
marketer of digital laser imaging and chemistry-free plate technologies for the
printing and graphic arts industries. Presstek's products and applications
incorporate its patented Direct Imaging (DI(R)) technologies and consumables for
computer-to-plate ("CTP") and direct-to-press applications.
In April 2000 the Company incorporated an Arizona subsidiary, Lasertel, Inc.
("Lasertel") for the purpose of securing its supply of laser diodes. Lasertel is
primarily engaged in the manufacture and development of the Company's
high-powered laser diodes.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the financial statements include
the thirteen week periods ended March 30, 2002 ("the first quarter of fiscal
2002") and March 31, 2001 ("the first quarter of fiscal 2001").
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
information included in the quarterly report should be read in conjunction with
the Company's audited financial statements and related notes thereto for the
fiscal year ended December 29, 2001. The December 29, 2001 information has been
derived directly from the annual financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments were normal and recurring. Operating
results for the three months ended March 30, 2002 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 28,
2002.
Certain accounts in the March 31, 2001 financial statements have been
reclassified for comparative purposes to conform to the presentation in the
March 30, 2002 financial statements.
2. INVENTORIES
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Inventories consisted of the following at March 30, 2002 and December 29, 2001:
(In thousands) 2002 2001
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Raw materials $ 5,119 $ 4,458
Work in process 4,775 4,530
Finished goods 7,636 8,830
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Total inventories $ 17,530 $ 17,818
=========================================== =============== ===============
6
3. PROPERTY, PLANT AND EQUIPMENT, NET
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Property, plant and equipment, net consisted of the following at March 30, 2002
and December 29, 2001:
(In thousands) 2002 2001
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At cost:
Land and improvements $ 2,038 $ 2,038
Buildings and leasehold improvements 26,245 26,245
Production equipment and other 48,812 49,147
Office furniture and equipment 5,132 5,119
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82,227 82,549
Less accumulated depreciation (23,274) (21,314)
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Total, property, plant and equipment, net $ 58,953 $ 61,235
=========================================== =============== ===============
4. ACCRUED EXPENSES
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Accrued expenses consisted of the following at March 30, 2002 and December 29,
2001:
(In thousands) 2002 2001
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Accrued payroll and benefits $ 2,219 $ 1,811
Accrued warranty 593 793
Net current liabilities of
discontinued operations 1,507 1,521
Other current liabilities 1,607 1,795
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Total accrued expenses $ 5,926 $ 5,920
=========================================== =============== ===============
5. LONG-TERM DEBT
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Long-term debt consisted of the following at March 30, 2002 and December 29,
2001:
(In thousands) 2002 2001
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Mortgage term loans $ 8,218 $ 8,480
Lease line of credit 7,608 7,918
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15,826 16,398
Less current portion (2,381) (2,343)
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Total long-term debt, net of current portion $ 13,445 $ 14,055
=========================================== =============== ===============
In addition to the mortgage term loans and the lease line of credit, the Company
has a revolving line of credit loan with Citizens Bank New Hampshire, which
expires in September 2002 under which the Company may borrow $16.0 million. The
revolving line of credit is subject to a borrowing base formula based on
eligible accounts receivable and inventories, as defined by the loan agreement,
and reduced by the amount of all letters of credit outstanding. The revolving
line of credit loan is secured by substantially all of the Company's assets,
with interest payable at the LIBOR rate plus 1.50% (3.38% at March 30, 2002). As
of March 30, 2002, the Company had $7.8 million outstanding under a standby
letter of credit, and $8.2 million available under the revolving line of credit
loan, subject to the borrowing base formula.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet various
restrictive covenants on a quarterly and annual basis, including maximum funded
debt to EBITDA and minimum fixed charge coverage covenants. The Company was not
in compliance with these two covenants at March 30, 2002 as a result of the $2.1
million write-off related to advances made to Adast, recorded in December 2001.
In March 2002, the Company received notice from its lenders waiving the
non-compliance with these covenants for the first quarter of fiscal 2002 and
amending the terms of certain covenants for the second quarter of fiscal 2002.
7
6. INCOME TAXES
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The Company did not record a provision for income taxes as a result of the
utilization of net operating loss carryforwards for the first quarters of fiscal
2002 and fiscal 2001.
7. EARNINGS PER SHARE
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Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed giving effect to all diluted potential common
shares that were outstanding during the period. Diluted potential common shares
consist of the incremental common shares issuable upon exercise of stock options
and warrants that have an exercise price that is less than the average market
price of the common shares for the period.
The basic and diluted earnings per share at March 30, 2002 and March 31, 2001:
(In thousands, except per share data) 2002 2001
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Net income $ 183 $ 973
==================================================== ========== ==========
Weighted average common shares
Outstanding - Basic 34,122 34,064
Effect of assumed conversion
of stock options 42 557
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Weighted average common shares
Outstanding - Diluted 34,164 34,621
==================================================== ========== ==========
Earnings per share - Basic $ 0.01 $ 0.03
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Earnings per share - Diluted $ 0.01 $ 0.03
==================================================== ========== ==========
Options and warrants to purchase 2,662,161 shares of common stock at exercise
prices ranging from $6.94 to $26.94 per share were outstanding during a portion
of the first quarter of fiscal 2002, but were not included in the computation of
diluted earnings per share as the exercise prices of the options and warrants
were greater than the average market price of the common shares. These options
and warrants, which expire from December 31, 2002 through March 26, 2012, were
all outstanding at March 30, 2002.
Options and warrants to purchase 1,696,626 shares of common stock at exercise
prices ranging from $11.69 to $26.94 per share were outstanding during a portion
of the first quarter of fiscal 2001, but were not included in the computation of
diluted earnings per share as the exercise prices of the options and warrants
were greater than the average market price of the common shares. These options
and warrants, which expire from January 2, 2002 through March 19, 2011, were all
outstanding at March 31, 2001.
8. COMPREHENSIVE INCOME
--------------------
Comprehensive income is comprised of net income and all changes in stockholder's
equity except those due to investments by owners and distributions to owners.
For the first quarters of fiscal 2002 and fiscal 2001 there were no differences
between net income and comprehensive income.
9. SEGMENT INFORMATION
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The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of its proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of the Company's high-powered laser diodes.
8
The accounting policies of the reportable segments are consistent with those of
the Company. Sales between the segments are recorded at prices which approximate
pricing for sales conducted at an arm's length basis. The segments are measured
on operating profits or losses before net interest income, minority interest and
income taxes.
A summary of the Company's operations by segment for the first quarter of fiscal
2002 and the first quarter of fiscal 2001 were as follows:
DIGITAL
IMAGING INTER-
(In thousands) PRODUCTS LASERTEL SEGMENT TOTAL
---------------------------------- -------- -------- ------- --------
FIRST QUARTER ENDED MARCH 30, 2002
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NET REVENUES $ 20,797 $ 292 $ (292) $ 20,797
INCOME (LOSS) FROM OPERATIONS 2,011 (1,627) 384
TOTAL ASSETS 84,024 23,372 107,396
DEPRECIATION AND AMORTIZATION 1,820 627 2,447
CAPITAL EXPENDITURES 82 18 100
First quarter ended March 31, 2001
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Net revenues $ 25,765 $ 588 $ (588) $ 25,765
Income (loss) from operations 3,965 (2,789) 1,176
Total assets 97,534 19,458 116,992
Depreciation and amortization 1,842 211 2,053
Capital expenditures 1,270 4,240 5,510
10. RECENTLY ISSUED ACCOUNTING STANDARDS
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Effective December 30, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Intangible Assets" ("SFAS 142"),
which supersedes APB Opinion No. 17, "Intangible Assets". SFAS 142 eliminates
the current requirement to amortize goodwill and indefinite-lived intangible
assets, addresses the amortization of intangible assets with a defined life and
addresses the impairment testing and recognition for goodwill and intangible
assets. SFAS 142 applies to goodwill and intangible assets arising from
transactions completed before and after the Statement's effective date. SFAS 142
is effective for fiscal 2002. The adoption of SFAS 142 has had no impact on the
Company's results of operations or financial position.
Effective December 30, 2001, the Company also adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and the accounting and reporting provisions of APB
No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." SFAS 144 is effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. The adoption of SFAS 144 has had no
impact on the Company's results of operations or financial position.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
Company has not yet determined the impact the adoption of SFAS 143 will have on
its financial statements.
9
11. SUBSEQUENT EVENTS
-----------------
In April 2002 the Company entered into a Separation Agreement and Release (the
"Hallman Agreement") with Robert W. Hallman, former President and Chief
Executive Officer of the Company. Pursuant to the Hallman Agreement, effective
as of April 30, 2002, Mr. Hallman resigned from all positions held by him with
the Company and any of its subsidiaries, including his position as a Director
of Presstek. Under the Hallman Agreement, the Company agreed to pay Mr. Hallman
a separation payment equal to three times his current annual salary. The
separation payment is payable bi-weekly over 36 months until May 2005. In
addition, under the Hallman Agreement, the Company agreed to amend four of Mr.
Hallman's outstanding stock options granted under the Company's 1994 Stock
Option Plan and 1998 Stock Incentive Plan. In particular, the options were
amended to provide that, as of April 30, 2002, all of the shares underlying such
options are fully vested and immediately exercisable and that each of the
options will remain exercisable by Mr. Hallman until their expiration date. In
consideration for the payments and other benefits under the Hallman Agreement,
Mr. Hallman agreed for a period of five (5) years commencing on April 30, 2002,
not to engage in any business activity on behalf of an entity which is a direct
competitor of the Company and agreed not to recruit, solicit or offer employment
to any employee of the Company. The Company will record a charge of $1.2 million
in the second quarter of fiscal 2002 relating to the severance payments under
the Hallman Agreement.
On May 1, 2002, the Company borrowed an additional $3.0 million against its
lease line of credit facility with Keybank National Association. This borrowing
bears a fixed rate of interest of 6.09% per annum, adjusted for the LIBOR index,
plus 425 basis points. Principal and interest is due and payable in sixty equal
monthly installments of $58,126, beginning on June 1, 2002. This borrowing is
secured by certain of the Company's equipment valued at $5.0 million.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding the Company's expectations for its
financial and operating performance in 2002 and beyond, the adequacy of internal
cash for the Company's operations, the ability of the Company to manage its
working capital and inventory levels, availability of component materials,
management's plans and goals with regard to the Company's shipping and
production capabilities, management's plans and goals for the Company's Lasertel
subsidiary, the expected capital requirements of Lasertel, expected sales of the
Company's products, the ability of Lasertel to generate positive cash flows in
the near term, the strength of the Company's various strategic partnerships both
on manufacturing and distribution, the expected impact of the Adast bankruptcy
on the Company, among others. Such forward-looking statements involve a number
of known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors that could cause or
contribute to such differences include continued support from the Company's
banks, the Company's ability to receive waivers from its banks for any debt
covenant violations, the Company's dependency on its strategic partners (both on
manufacturing and distribution), shortages of critical or sole-source component
supplies, the availability and quality of Lasertel's laser diodes, manufacturing
constraints or difficulties, (as well as manufacturing difficulties experienced
by our sub-manufacturing partners and their capacity constraints), the impact of
general market factors in the print industry generally and the economy as a
whole, market acceptance of and demand for the Company's products and resulting
revenues and other risks detailed in the Company's Annual Report on Form 10-K
for the fiscal year ended December 29, 2001 on file with the Securities and
Exchange Commission, as well as those discussed elsewhere in this report. The
words "looking forward," "looking ahead," "believe(s)," "should," "plan,"
"expect(s)," "project(s)," "anticipate(s)," "may," "likely," "potential,"
"opportunity" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statements were made and readers
are advised to consider such forward-looking statements in light of the risks
discussed above. Presstek undertakes no obligation to update any forward-looking
statements contained in this Quarterly Report on Form 10-Q.
BACKGROUND
Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware in 1987,
is a manufacturer, developer and marketer of digital laser imaging and
chemistry-free plate technologies for the printing and graphic arts industries.
Presstek's products and applications incorporate its patented Direct Imaging
(DI(R)) technologies and consumables for computer-to-plate ("CTP") and
direct-to-press applications. The Company's patented DI thermal laser diode
product family enables its customers to produce high quality, full-color
lithographic printed materials more quickly and cost effectively than
conventional methods. Using digital information and high-powered semiconductor
laser diodes to create images in its proprietary printing plate materials,
Presstek's patented DI technologies are marketed to leading press manufacturers
and used in the Company's Dimension series of CTP systems. Presstek's Dimension
systems incorporate its proprietary ProFire(TM) laser imaging technology and use
its complementary chemistry-free thermal printing plate, Anthem(TM). Presstek's
DI technology eliminates photographic darkrooms, film, and chemical processing,
which results in reduced turnaround time and lowers the cost of production for
commercial printers.
The Company is also engaged in the development of additional DI products that
incorporate its patented, proprietary, digital imaging system and process-free
thermal ablation printing plate technologies for CTP and direct-to-press
applications.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
11
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the financial statements include
the thirteen week periods ended March 30, 2002 ("the first quarter of fiscal
2002") and March 31, 2001 ("the first quarter of fiscal 2001").
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL
Presstek's management's discussion and analysis of its financial condition and
results of operations are based upon Presstek's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, Presstek
evaluates its estimates, including those related to product returns, bad debts,
inventories, income taxes, warranty obligations, and litigation. Presstek bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Presstek believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
REVENUE RECOGNITION
Presstek records revenue for product sales and related royalties at the time of
shipment, net of estimated returns, which are adjusted periodically based upon
historical rates of return. Certain fees and other reimbursements are recognized
as revenue when the related services have been performed or the revenues
otherwise earned. Revenues from fixed-price and modified fixed-price research
and development contracts are recognized using the percentage-of-completion
method, measured by the percentage of costs incurred to date compared to the
estimated total of direct costs for each contract. As contracts may extend over
one or more accounting periods, revisions in costs and earnings estimated during
the course of the work are reflected during the accounting period in which the
facts that required such revisions become known.
BAD DEBT
Presstek maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of Presstek's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
PRODUCT WARRANTIES
Presstek provides for the estimated cost of product warranties at the time
revenue is recognized. While Presstek engages in product quality programs and
processes, Presstek's warranty obligation is affected by product failure rates,
material usage and service costs incurred in correcting a product failure.
Should actual product failure rates, material usage or service costs differ from
Presstek's estimates, revisions to the estimated warranty liability would be
required.
12
INVENTORY
Presstek's write-downs for excess and obsolete inventory are primarily based
upon forecasted demand for its products. If actual demand is less favorable than
what has been projected by management, additional inventory write-downs may be
required.
STRATEGIC RELATIONSHIPS
In December 2001, the Company signed an agreement with Koenig & Bauer, AG
("KBA"), an international supplier of printing presses, of Wurzburg, Germany.
Under the terms of the agreement, KBA is to market and sell the 46 Karat press,
an A3 format size four-color sheet-fed DI press, in certain geographic markets.
Similar to the Heidelberg, Ryobi, and Xerox presses that use PEARLdry spooled
plates, the 46 Karat delivers fully automated plate advancing, imaging, ink
presetting, and printing. In addition, KBA is expected to distribute and sell
the Dimension400 computer-to-plate system, and the Company's Anthem plate in
Europe. KBA also manufactures and markets a digital offset press, the 74 Karat,
which uses Presstek's direct imaging and PEARLdry plates, and related
intellectual property under license. Regulations regarding chemical waste and
disposal, the new European economy, the suitability of DI for printing variable
quantities in different languages, and increasing investment in the Eastern
European countries are all anticipated to have a positive effect on the sales of
DI presses in Europe. PEARLdry Plus plates for the 46 Karat will be marketed
directly by KBA and through Presstek's European distributor network.
In April 2001, the Company entered into an agreement with Adamovske Strojirny
a.s. ("Adast") pursuant to which Adast agreed to manufacture both the four color
and five color B3 size sheet-fed presses for sale by Presstek. In late February
2002, Adast announced it had joined in a bankruptcy petition filed by its
creditors. A bankruptcy trustee was appointed in early March 2002. Adast has
indicated that it is continuing to operate under bankruptcy protection and that
it is in negotiations with various parties to obtain interim financing. While
the Company has an adequate supply of Adast presses and spare parts to meet the
projected needs of its customers in the near term, there can be no assurance
that Adast's bankruptcy will not have an adverse impact on the Company.
RESULTS OF OPERATIONS
REVENUES
The Company's revenues of $20.8 million and $25.8 million for the first quarter
of fiscal 2002 and fiscal 2001, respectively, were related to the Digital
Imaging Products segment, and consisted of product sales, installation and
customer support revenues, royalties and license fees. The Lasertel segment
reported no third party revenues for the first quarters of fiscal 2002 or 2001.
Product sales for the first quarter of fiscal 2002 were $19.4 million as
compared to $23.7 million for the first quarter of fiscal 2001, a decrease of
$4.3 million or 18%. This decrease in product sales was due primarily to volume
and price decreases of direct imaging kits sold to Heidelberg Druckmaschinen AG
("Heidelberg") for use in the Quickmaster DI, volume decreases of press
shipments to Xerox Corporation for the DocuColor 233DI and the DocuColor 400DI.
Effective in the third quarter of 2001, prices of direct imaging kits sold to
Heidelberg were reduced approximately 10%. These decreases were partially offset
by volume increases of direct imaging kits sold to Ryobi Limited for use in the
Ryobi 3404DI, as well as volume increases of the Company's CTP Dimension
platesetter products and thermal consumable products. The revenues generated
from the sale of the Company's PEARLdry and other consumable products were $13.7
million for the first quarter of fiscal 2002, an increase of $1.2 million or
9.6%, as compared to $12.5 million for the first quarter of fiscal 2001. These
consumable product revenues included $5.8 million and $5.1 million for the first
quarter of fiscal 2002 and fiscal 2001, respectively, sold under the Company's
agreements with Heidelberg and its distributors.
13
Royalties and fees from licensees for the first quarter of fiscal 2002 of $1.5
million decreased $674,000 or 32% as compared to royalties and fees of $2.1
million for the first quarter of fiscal 2001. Royalties decreased $1.0 million
or 62% comparing the first quarter of fiscal 2002 to the first quarter of fiscal
2001, primarily as a result of decreased shipments to Heidelberg of direct
imaging systems used in the Quickmaster DI.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $7.9 million in the first quarter of fiscal 2002, a decrease
of $3.4 million or 30% from revenues of $11.3 million for the first quarter of
fiscal 2001. Revenues from Heidelberg represented 38% and 44% of total revenues
for the first quarter of fiscal 2002 and fiscal 2001, respectively.
In connection with the settlement of its outstanding arbitration proceedings
with Heidelberg, the Company agreed to reduce the royalty payable by Heidelberg
for imaging kits delivered in connection with the Heidelberg Quickmaster 46 DI
by approximately $9,000 per kit. This reduced royalty rate will become effective
for imaging kits delivered after May 1, 2002.
COST OF PRODUCTS SOLD
Cost of products sold consists of the costs of material, labor and overhead,
shipping and handling costs and warranty expenses. Cost of products sold for the
Digital Imaging Products segment for the first quarter of fiscal 2002 was $11.6
million as compared to $13.5 million for the first quarter of fiscal 2001, a
decrease of $1.9 million or 14%. The gross margin on product sales for the
Digital Imaging Products segment decreased to 40% for the first quarter of
fiscal 2002, from 43% for the first quarter of fiscal 2001. This decrease was
primarily a result of the decrease in shipments of direct imaging kits sold to
Heidelberg for use in the Quickmaster DI, and lower margins for the Company's
Dimension CTP products.
Cost of products sold for the Lasertel segment for the first quarter of fiscal
2002 were $900,000, as compared to $1.9 million in the first quarter of
fiscal 2001. The decrease of $1.0 million or 53% was primarily as a result of
reduced salaries and benefits related to head count reductions in the first
quarter of fiscal 2002.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts. Research and product development expenses for the Digital Imaging
Products segment were $2.8 million or 13% of revenues for the first quarter of
fiscal 2002 as compared to $2.9 million or 11% of revenues for the first quarter
of fiscal 2001. The decrease of $100,000 relates primarily to reduced salaries
as a result of head count reductions in the first quarter of fiscal 2002, as
well as reduced professional and contracted services as part of the Company's
cost reduction programs put into place in the third quarter of fiscal 2001.
These reductions were offset by an increase in spending for parts and supplies
related to ongoing development programs. The Company's product development cycle
centers around major industry trade shows, such as Drupa held every four of five
years. As a result, the Company's research and product development expenses vary
in accordance with its product development cycle.
Research and product development expenses for the Lasertel segment were $263,000
or 1% of revenues for the first quarter of fiscal 2002. These expenses related
primarily to salaries, benefits, and the costs of parts and supplies to support
Lasertel's research activities in the graphics industry. Research and product
development expenses were negligible for the Lasertel segment in the first
quarter of fiscal 2001.
14
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 related to the Company's sales, marketing and customer support
activities. Sales, marketing and customer support expenses for the Digital
Imaging Products segment were $2.4 million, or 12% of revenues for the first
quarter of fiscal 2002 as compared to $3.0 million or 12% of revenues for the
first quarter of fiscal 2001. The decrease of $600,000 relates primarily to
reduced salaries, benefits, and related travel costs as a result of head count
reductions in the first quarter of fiscal 2002, as well as reduced professional
and contracted services.
Sales, marketing and customer support expenses for the Lasertel segment were
$83,000 or less than 1% of revenues for the first quarter of fiscal 2002 as
compared to $136,000 or less than 1% of revenues for the first quarter of fiscal
2001. These expenses relate primarily to salaries, benefits and advertising
expenses to support Lasertel's marketing activities in the defense, medical and
graphics industries. The decrease of $53,000 relates primarily to reduced
salaries and benefits as a result of head count reductions in the first quarter
of fiscal 2002.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services necessary to
conduct the finance, information systems, human resources and administrative
activities of the Company. General and administrative expenses for the Digital
Imaging Products segment were $2.0 million or 10% of revenues for the first
quarter of fiscal 2002, as compared to $2.3 million or 9% of revenues for the
first quarter of fiscal 2001. The decrease of $300,000 relates primarily to
decreases in legal fees as a result of the settlement of the Company's
arbitration proceedings with Heidelberg in July 2001.
General and administrative expenses for the Lasertel segment were $338,000 or 1%
of revenues for the first quarter of fiscal 2002 as compared to $753,000 or 3%
of revenues for the first quarter of fiscal 2001. The decrease of $415,000
relates primarily to reduced salaries and benefits as a result of head count
reductions in the first quarter of fiscal 2002.
OTHER INCOME (EXPENSE)
Other income (expense) includes primarily interest income and expense. Other
expense, net was $201,000 or 1% of revenues for the first quarter of fiscal 2002
as compared to other expense, net of $203,000 or 1% of revenues for the first
quarter of fiscal 2001. Interest income was $14,000 for the first quarter of
fiscal 2002 as compared to $123,000 for the first quarter of fiscal 2001. The
decrease of $109,000 is primarily attributed to the decrease in interest rates
for the period. Interest expense was $245,000 for the first quarter of fiscal
2002 as compared to $341,000 for the first quarter of fiscal 2001. The decrease
of $96,000 is primarily attributed to lower interest rates on borrowings.
PROVISION FOR INCOME TAXES
The Company did not record a provision for income taxes as a result of the
utilization of net operating loss carryforwards for the first quarters of fiscal
2002 and fiscal 2001.
NET INCOME
As a result of the foregoing, the Company had net income of $183,000 for the
first quarter of fiscal 2002, as compared to net income of $973,000 for the
first quarter of fiscal 2001.
15
LIQUIDITY AND CAPITAL RESOURCES
At March 30, 2002, the Company had cash and cash equivalents of $7.8 million and
working capital of $28.9 million as compared to cash and cash equivalents of
$2.5 million and working capital of $26.7 million at December 29, 2001. The
increase in cash of $5.3 million for the first quarter of fiscal 2002 was
primarily attributable to strict working capital management. Cash provided by
operating activities during the quarter of $6.8 million was offset in part by
cash used to repay borrowings of $1.5 million.
Net cash provided by operating activities was $6.8 million for the first quarter
of fiscal 2002, primarily as a result of net income of $183,000, non-cash items
of depreciation and amortization of $2.4 million, decreases in accounts
receivable and inventories of $2.0 million and $288,000, respectively, and
decreases in accounts payable of $1.8 million.
Net cash provided by investing activities was $69,000 for the first quarter
ended March 30, 2002, and consisted of equipment purchases used in the Company's
business of $100,000, offset by proceeds of $169,000 received for the sale of
equipment used in the Company's business.
Net cash used in financing activities was $1.5 million for the first quarter
ended March 30, 2002, and consisted primarily of repayments of the Company's
mortgage term loan and other credit facilities of $1.5 million, offset by the
proceeds received from stock option exercises of $53,000.
The Company's long term debt consists of two mortgage term loans from Citizens
Bank New Hampshire ("Citizens"), and a lease line of credit facility from
Keybank National Association ("Keybank").
The first mortgage term loan is a fiscal 1998 ten-year mortgage term loan from
Citizens in the amount of $6.9 million and bears a fixed rate of interest of
7.12% per year during the first five years, and a variable rate of interest at
the LIBOR rate plus 2%, (3.88% at March 30, 2002) for the remaining five years.
Principal and interest payments during the first five years of the loan will be
made in 60 monthly installments of $80,500. During the remaining five years,
principal and interest payments will be made on a monthly basis in the amount of
one-sixtieth of the outstanding principal amount as of the first day of the
second five year period, plus accrued interest through the monthly payment date.
All outstanding principal and accrued interest is due and payable on February 6,
2008.
The second mortgage term loan is a fiscal 2000 ten-year mortgage term loan in
the amount of $4.0 million and bears a fixed rate of interest equal to 7.95% per
year during the first five years, a fixed rate of interest equal to United
States Treasury Notes or Bills with a maturity date closest to the end of the
second five years, plus 225 basis points for the remaining five years. During
the first five years, principal and interest payments will be made in 60 monthly
installments including principal of $34,993 plus interest. During the remaining
five years, principal and interest payments will be made on a monthly basis in
the amount of one-sixtieth of the outstanding principal amount as of the first
day of the second five year period, plus accrued interest through the monthly
payment date. All outstanding principal and accrued and unpaid interest is due
and payable on October 30, 2010.
The two mortgage term loans are secured by land and buildings with a cost of
approximately $22.0 million.
The Company also has in place a $13.0 million lease line of credit facility from
Keybank pursuant to a 1999 loan agreement. The Company originally had in place a
$15.0 million lease line of credit from Keybank, but $2.0 million of such
available credit expired on April 30, 2002. In fiscal 2000 and fiscal 1999, the
Company borrowed $6.0 million and $4.0 million, respectively, against the lease
line of credit facility. On May 1, 2002, the Company borrowed an additional $3.0
million against this line. The $13.0 million in borrowings to date is secured by
equipment with a cost at March 30, 2002 of $18.4 million. The first $10.0
million in borrowings bears a variable rate of interest based upon the revolving
prime rate, (currently 4.75%) with a fixed rate conversion provision. Principal
and interest under the first $10.0 million in borrowings under the lease line
are payable in 84
16
monthly installments which began in October 1999 for the initial $4.0 million in
borrowings, and in July 2000 for the next $6.0 million in borrowings.
The additional $3.0 million in borrowings bears a fixed rate of interest of
6.09% per annum, adjusted for the LIBOR index, plus 425 basis points. Principal
and interest is due and payable in sixty equal monthly installments of $58,126,
beginning on June 1, 2002.
In addition to the mortgage term loans and the lease line of credit the Company
has a revolving line of credit loan with Citizens, which expires in September
2002, under which the Company may borrow up to $16.0 million. The revolving line
of credit is subject to a borrowing base formula based on eligible accounts
receivable and inventories, as defined by the loan agreement, and reduced by the
amount of all letters of credit outstanding. The revolving line of credit loan
is secured by substantially all of the Company's assets, with interest payable
at the LIBOR rate plus 1.50% (3.38% at March 30, 2002). As of March 30, 2002,
the Company had $7.8 million outstanding under a standby letter of credit, and
$8.2 million available under the revolving line of credit loan, subject to the
borrowing base formula.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet various
restrictive covenants on a quarterly and annual basis, including maximum funded
debt to EBITDA and minimum fixed charge coverage covenants. The Company was not
in compliance with these two covenants at March 30, 2002 as a result of the $2.1
million write-off related to advances made to Adast recorded in December 2001.
In March 2002, the Company received notice from its lenders waiving the
non-compliance with these covenants for the first quarter of fiscal 2002 and
amending certain covenants for the second quarter of fiscal 2002.
The Company has future contractual payments primarily related to debt, royalty
obligations, and operating leases, from 2002 through 2010. The Company's future
commitments under its credit facilities total $15.8 million at March 30, 2002,
of which $1.7 million will be paid in 2002. The future commitments under the
Company's royalty agreement with Fuji Photo Film Co., Ltd., total $12.5 million
at March 30, 2002, of which $1.2 million is expected to be paid in 2002. The
Company also has future minimum rental commitments under various non-cancelable
operating leases of $339,000 at March 30, 2002. The related lease agreements
expire on various dates over the next three years. The Company expects to make
payments of $211,000 under its non-cancelable operating lease agreements for the
remainder of fiscal 2002.
Although the Company believes that existing funds, cash flows from operations,
and cash available under its revolving line of credit and lease line of credit
should be sufficient to satisfy working capital requirements and capital
expenditures through the term of its current loan agreement, there can be no
assurance that the Company will be able to renew its existing loan agreement,
will not require additional financing, or that such additional financing, if
needed, will be available on acceptable terms. Likewise there can be no
assurance that the Company will be able to manage its working capital and
elevated inventory levels successfully.
The Company's anticipated capital expenditures for fiscal 2002 are approximately
$4.0 million, and primarily relate to the purchase of capital equipment to be
used in the production of the Company's DI and CTP equipment and consumable
products.
EFFECT OF INFLATION
Inflation has not had, and is not expected to have, a material impact upon the
Company's operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective December 30, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Intangible Assets" ("SFAS 142"),
which supersedes APB Opinion No. 17, "Intangible
17
Assets". SFAS 142 eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life and addresses the impairment testing and recognition
for goodwill and intangible assets. SFAS 142 applies to goodwill and intangible
assets arising from transactions completed before and after the Statement's
effective date. SFAS 142 is effective for fiscal 2002. The adoption of SFAS 142
has had no impact on the Company's results of operations or financial position.
Effective December 30, 2001, the Company also adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and the accounting and reporting provisions of APB
No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." SFAS 144 is effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. The adoption of SFAS 144 has had no
impact on the Company's results of operations or financial position.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated retirement costs.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
Company has not yet determined the impact the adoption of SFAS 143 will have on
its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates primarily
as a result of its borrowing activities, and to a lesser extent, its investing
activities. The majority of the Company's long-term borrowings are in fixed rate
instruments, or variable rate instruments with fixed rate conversion provisions.
The Company does not enter into interest rate swap agreements or other
speculative or leveraged transactions. The Company currently has no material
exposure to interest rate fluctuations on its short-term investments.
The Company has limited exposure to foreign currency exchange rate risk, as
substantially all of its transactions are denominated in U.S. dollars. Some of
the Company's customers and strategic partners are not located in the United
States, however. As a result, these customers and strategic partners are
themselves subject to fluctuations in foreign exchange rates. If their home
country currency were to decrease in value relative to the United States dollar,
their ability to purchase and market the Company's products could be adversely
affected and the Company's products may become less competitive to them. This
may have an adverse impact on the Company's business. Likewise, some of the
Company's suppliers are not located in the United States and thus, such
suppliers are subject to foreign exchange rate risks in transactions with the
Company. Decreases in the value of their home country currency versus that of
the United States dollar could cause fluctuations in supply pricing which could
have an adverse effect on the Company's business.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Part I - Item 3 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 2001 filed with the Commission on March 29, 2002 for a
description of certain legal proceedings pending against the Company. All of
such information is hereby incorporated by reference in response to this item.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Resignation Agreement and General Release by and between Presstek, Inc.
and Neil M. Rossen, dated November 14, 2001 and effective as of
December 31, 2001 (Filed herewith).
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRESSTEK, INC.
(Registrant)
Date: May 14, 2002 /s/ Edward J. Marino
---------------------------
By: Edward J. Marino
President and
Chief Executive Officer
(Principal Executive and
Duly Authorized Officer)
Date: May 14, 2002 /s/ Moosa E. Moosa
---------------------------
By: Moosa E. Moosa
Vice President of Finance,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20