Form 10-K
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
R
|
ANNUAL
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
|
For
the fiscal year ended December 30, 2006
|
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
PRESSTEK,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
02-0415170
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.Employer
Identification No.)
|
55
Executive Drive, Hudson, New Hampshire 03051-4903
(Address
of principal executive offices including zip code)
Registrant’s
telephone number, including area code:
(603)
595-7000
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
|
Name
of each exchange on which registered
|
Common
stock, par value $0.01 per share
|
|
The
NASDAQ Global Market
|
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. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Act).
Large
accelerated filer £ Accelerated
filer R
Non-accelerated filer £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes£
No
R
The
aggregate market value of common stock held by non-affiliates of the registrant
as of July 1, 2006 was $321,426,856.
The
number of shares outstanding of the registrant’s common stock as of April 2,
2007 was 35,678,781.
Documents
Incorporated by Reference
Portions
of the definitive Proxy Statement (which is expected to be filed within 120
days
after the Company’s fiscal year end) for the registrant’s Annual Meeting of
Stockholders to be held on June 7, 2007 are incorporated by reference into
Part
III of this Form 10-K.
PRESSTEK,
INC.
ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30,
2006
|
|
|
PAGE
|
PART
1
|
|
|
|
Item
|
|
|
|
1.
|
|
Business
|
3
|
1A.
|
|
Risk
Factors
|
19
|
1B.
|
|
Unresolved
Staff Comments
|
31
|
2.
|
|
Properties
|
32
|
3.
|
|
Legal
Proceedings
|
33
|
4.
|
|
Submission
of Matters to a Vote of Security Holders
|
34
|
|
|
|
|
PART
II
|
|
|
|
Item
|
|
|
|
5.
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
35
|
6.
|
|
Selected
Financial Data
|
36
|
7.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
38
|
7A.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
56
|
8.
|
|
Financial
Statements and Supplementary Data
|
58
|
9.
|
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
99
|
9A.
|
|
Controls
and Procedures
|
99
|
9B.
|
|
Other
Information
|
104
|
|
|
|
|
PART
III
|
|
|
|
Item
|
|
|
|
10.
|
|
Directors,
Executive Officers and Corporate Governance
|
104
|
11.
|
|
Executive
Compensation
|
104
|
12.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
104
|
13.
|
|
Certain
Relationships and Related Transactions, and Director
Independence
|
104
|
14.
|
|
Principal
Accounting Fees and Services
|
104
|
|
|
|
|
PART
IV
|
|
|
|
Item
|
|
|
|
15.
|
|
Exhibits
and Financial Statement Schedules
|
105
|
|
|
|
|
|
|
|
|
See
Part
I - Item 1A of this Annual Report for cautionary statements regarding
forward-looking statements included in this report.
PART
I
Item
1. Business
Overview
General
Presstek
is a market-focused company primarily engaged in the design, manufacture, sales
and service of high-technology digital imaging solutions to the worldwide
graphic arts industry. We are helping to lead the industry’s transformation from
analog to digital print production methods. We are a leader in the development
of advanced offset printing systems using digital imaging technology and
consumables-based solutions designed to economically benefit the user through
a
more streamlined workflow and environmentally responsible operation. We are
also
a leading sales and service channel in the commercial, quick and in-plant
printing markets offering a wide range of solutions to customers
worldwide.
Presstek’s
business model is a capital equipment and consumables (razor and blade) model.
In this model, almost 63% of our revenue is recurring revenue. Our model is
designed so that each placement of either a Direct Imaging (DI®) Press or a
Computer-to-Plate (CTP) system results in recurring aftermarket revenue for
consumables and service.
Through
our various operations, we:
· |
provide
advanced digital offset printing solutions through the development
and
manufacture of digital laser imaging equipment and advanced technology
chemistry-free printing plates, which we call consumables, targeting
the
growing market for high quality, fast turnaround color
printing;
|
· |
are
a leading sales and services company delivering Presstek digital
solutions
and solutions from other manufacturing partners through our direct
sales
and service force and through distribution partners
worldwide;
|
· |
manufacture
semiconductor solid state laser diodes for Presstek imaging applications
and for use by external applications;
and
|
· |
distribute
printing plates for conventional print applications through original
equipment manufacturing (OEM) and private-labeling
relationships.
|
Background
We
are Innovators
We
are
innovators in imaging technology solutions. Our primary market focus is on
the
commercial print segment within the graphic arts industry. We have served that
market by pioneering the advancement of digital offset printing solutions for
commercial printing applications. We:
· |
invented
on-press Direct Imaging technology;
|
· |
invented
chemistry-free imaging of printing
plates;
|
· |
through
our many innovations, have significantly streamlined the print production
workflow;
|
· |
have
implemented workflows that transition printing from a skilled craft
to a
manufacturing process;
|
· |
continue
to innovate with our recent announcement of the Presstek 52DI, a
highly-automated landscape format DI press that offers a larger sheet
size
for higher production environments.
|
Primary
Market and Its Changing Requirements
Presstek
pioneered these digital offset solutions because we recognized that the
commercial printing market was shifting to increasingly faster production of
smaller order quantities (shorter runs) with a higher use of color. Print
providers were not well equipped to meet this changing model. To meet this
market change, printers are now adapting digital workflows, which are designed
to provide a faster process to finished press sheets with less production steps
and manual intervention. Presstek is capitalizing on this transformation and
have developed digital offset printing solutions to address the growing demand
for high quality, fast turnaround, color printing in commercial
applications.
Providing
Solutions for New Market Requirements
We
have
incorporated our digital imaging technology into two types of applications
for
offset printing: Direct Imaging on-press applications, which we refer to as
DI,
and computer-to-plate off-press applications, which we refer to as
CTP.
Using
DI
technology, electronic computer files are sent to a specially designed digital
offset printing press that incorporates our laser imaging system, unique press
design, and high performance printing plates. Our laser imaging systems then
image our printing plates directly on the press. This unique approach results
in
a highly streamlined digital workflow and is designed to allow the user the
fastest way to finished press sheets. We have incorporated this same digital
imaging technology into CTP applications. Using our CTP technology, electronic
computer files are sent to plate-imaging devices, the plates are imaged by
our
laser imaging systems again using our high performance printing plates and
then
mounted on a conventional offset printing press.
Solutions
that Benefit the Target Market
Presstek’s
digital offset printing solutions are designed to make the printer more
profitable and productive by removing steps and cost from the printing process.
These systems enable customers to produce high quality, full color offset
printing more quickly and safely than chemistry-based conventional methods.
Presstek’s digital offset solutions eliminate the chemistry, reduces the time it
takes to print, and lowers the total cost of production for commercial printers.
Presstek’s digital offset solutions are engineered to help printers address the
requirements of today’s market.
Providing
Migration Path for Adopting Digital Solutions
As
the
graphic arts industry joins other industries, such as the photographic and
music
industries, in converting from analog to digital, we recognize that not everyone
is ready to convert all at once to an all-digital workflow. To better serve
those who need to migrate to an all-digital model in stages, we expanded our
product offerings beyond our own designed and manufactured digital
products.
In
addition to our digital products, we also market conventional offset printing
presses and related products, which were added through the ABDick acquisition
that occurred in 2004. And we complement our portfolio of Presstek manufactured
products with consumables and equipment that we source from several strategic
partnerships: including companies such as Mitsubishi, Agfa, Kodak and Ryobi.
As
the industry continues to transition to digital, our goal is to be the supplier
of choice helping facilitate the journey for commercial printers with
high-quality digital solutions.
Manufacturing
We
manufacture the laser-based digital imaging assemblies, complete with software,
along with our advanced technology printing plates, for incorporation into
our
DI presses. Similar digital imaging and plate technologies are used in our
CTP
systems.
At
our
Presstek facility in Hudson, New Hampshire, we manufacture several models of
our
advanced printing plates, such as ProFire Digital Media®, PearlDry Plus®,
PearlDry® and Applause®, along with the imaging kits that are incorporated into
DI presses, as well as the ABDick-branded Digital PlateMaster® system and
complete CTP systems, such as the Dimension Excel® series or Vector TX52®
platesetters. At our South Hadley, Massachusetts manufacturing facility, we
manufacture our aluminum-based printing plates, which are comprised of our
chemistry-free plates, such as Anthem Pro® and Freedom® plates.
Service
and Support
Presstek
also has an extensive service organization throughout the United States, Canada
and Western Europe. In addition to servicing equipment that is manufactured
by
or for Presstek, our service organization also provides service for equipment
manufactured by other companies, including our strategic partners.
Go-to-Market
Strategy
We
deliver our solutions through multiple channels to market:
· |
in
the United States., Canada we use a mix of direct sales and service
as
well as a network of graphic arts
dealers;
|
· |
in
the United Kingdom we use our direct sales and service
operation;
|
· |
in
continental Europe and worldwide; we have developed a network of
graphic
art dealers and;
|
· |
we
use OEMs to deliver our products to markets
worldwide.
|
ABDick
On
November 5, 2004, the Company, through its wholly-owned subsidiary, ABD
International, Inc., which we refer to as ABDick, completed the acquisition
of
certain assets and assumed certain liabilities of The A.B. Dick Company, which
were acquired through a Section 363 sale in the United States Bankruptcy Court.
The business we acquired manufactures, markets and services offset printing
and
CTP systems as well as related supplies for the graphic arts and printing
industries. We refer to the acquired business as the ABDick
business.
Following
the acquisition we began integrating the ABDick business into Presstek’s
operations. In the third quarter of fiscal 2005, we implemented a new internal
management reporting structure in connection with organizational changes related
to the integration of the acquired ABDick business into our Presstek business
segment. As of December 30, 2006, we have completed the integration.
Accordingly, the results of operations and balance sheet information for the
former ABDick segment have been combined with those of the former Presstek
segment and, commencing with this report on Form 10-K, are now reported together
as the Presstek business segment. Any future changes to this organizational
structure may result in changes to the business segments currently
disclosed.
As
a
result of this acquisition and integration, Presstek is a stronger, more
market-driven, customer-focused organization. We acquired a direct sales and
service capability in the United States, Canada and the United Kingdom through
which we are building more efficient and effective channels to
market.
Precision
On
July
30, 2004, we acquired the stock of Precision Lithograining Corp., which we
refer
to as Precision. With this acquisition, we substantially increased our
manufacturing capabilities and obtained the ability to manufacture analog and
digital printing plates. 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, Massachusetts of Precision-branded analog
plates used in newspaper printing applications (the “analog newspaper business”)
effective immediately. Manufacturing operations of analog plates used in
newspaper applications had been suspended due to an incident that occurred
on
Monday, October 30, 2006, at the South Hadley facility that involved a chemical
release and the resulting closure of the facility. This decision did not affect
the Company’s production of chemistry-free digital printing plates, which occurs
at another facility at the South Hadley complex that was not affected by the
incident. Accordingly, the results of operations for the years ended December
31, 2005 and January 1, 2005 of the analog newspaper business are classified
as
discontinued operations.
The
facility in South Hadley, Massachusetts continues to manufacture Anthem Pro,
Freedom and Aurora® chemistry-free digital printing plates. The products
manufactured in South Hadley are distributed through Presstek’s distribution
network. Through the third quarter of 2006, we reported the financial
performance of Precision as a separate reporting segment. We now report the
financial performance of Precision as part of the Presstek
operations.
Presstek,
Inc. was incorporated in Delaware in 1987. Our headquarters are located at
55
Executive Drive, Hudson, New Hampshire, 03051. Our general telephone number
is
603-595-7000, and our Web site can be found at www.presstek.com.
Business
Overview
Prior
to
2005, Presstek had primarily distributed its technology through other graphic
arts companies who would then integrate, sell and support it through their
market channels. Since 2005, Presstek has been strategically transforming its
business, with the goal of providing commercial printers with “end-to-end”
solutions; including the development, manufacture, distribution and service
of
its core products. The achievement of this goal means that Presstek will be
able
to better provide a more comprehensive digital migration path to address the
full range of customer needs. In 2006, Presstek began to realize the benefits
of
this transformation by introducing its first Presstek-branded DI presses to
market. This single minded focus on our customers and core products has resulted
in the achievement of record DI press revenue and unit shipments in 2006.
Strategic
Transformation Activity
Acquisition
of Customer Base
The
acquisition of the ABDick business in late 2004 brought with it a sizable ABDick
customer base in North America and the UK. This customer base is composed of
commercial, quick and in-plant printers; which are Presstek’s primary target
market. This is a base that requires conventional equipment, consumables and
supplies; and contains ideal prospects to transition to a digital production
process. This gives us the opportunity to leverage our Presstek manufactured
digital products as well as provide the ABDick-branded products to a
longstanding, loyal customer base.
Increased
Control Over Delivery
As
a
company, in 2005 we took a much greater role in the commercialization and
delivery of our solutions to customers. Previously, we had been heavily reliant
upon strategic partners for their sales, distribution and service.
North
America and UK
Through
our acquisition of the ABDick business, we gained access to an established
direct sales and service channel in North America and the UK. Beginning in
2005,
we began to offer Presstek manufactured solutions through this channel. For
the
first time, we were able to sell Direct Imaging presses, along with our CTP
equipment and related consumables directly to end-user customers.
Europe
Prior
to
the 2004 ABDick acquisition, we had a limited European distribution operation
managed out of the U.S., which relied on strategic relationships with
independent dealers and sales agents. In 2006, we realigned and expanded our
European distribution channel and we established a European base of operations
in the London area to support that expansion. In the first quarter of 2006,
we
announced the opening of Presstek's new European business center west of London.
The new facility serves as the central base of European operations and was
established to support the anticipated growth and meet the needs of Presstek's
expanding customer base across the region. From this facility, we offer customer
support and training, as well as a demonstration facility for
products.
Further
progress was made in our pan-European expansion with the opening of a network
of
Presstek-authorized DI centers to provide sales, service and support for
Presstek DI presses. To date, Presstek and select distribution partners have
established DI centers in the Czech Republic, Denmark, Germany, Hungary, Italy,
Russia and the United Kingdom. In addition, sales and service support are
provided in Scandinavia, Benelux, Turkey, Greece, France, Spain, Portugal and
Switzerland through Presstek’s network of factory trained sales and service
professionals.
Rest
of World
Presstek
reaches into Asia Pacific, Africa and Middle Eastern markets through a network
of distributors. In 2006, we realigned and expanded our Latin American
distribution channel in Mexico, and entered the Brazilian market with one of
its
premier distributors. According to the industry research organization, Pira
International, Brazil is one of the top ten global printing
markets.
Expanded
Product Line
Our
goal
is to support printers in transitioning to a digital workflow by offering
quality digital offset solutions for both on- and off-press imaging. In
addition, we also market conventional offset printing presses and related
products, which were added to our product portfolio through the ABDick
acquisition in 2004. We also complement our catalog of Presstek and ABDick
branded products with consumables and equipment that we source from several
strategic partnerships; including those with Mitsubishi, Kodak, Agfa and
Ryobi.
In
2004,
we also greatly expanded our digital product offering to include new generation
DI press and CTP systems. The acquisition of Precision in the third quarter
of
2004 enabled us to offer a Presstek-designed and manufactured plate that was
intended to run on CTP devices from other manufacturers. This first
open-platform chemistry-free printing plate, branded Aurora, was announced
in
September 2005.
July
of
2005 marked the commercial release of an entry-level CTP solution, the Vector
TX52, specifically designed to meet market demands for lower-cost CTP solutions.
In
2006
we brought two Presstek-branded DI presses to market; the Presstek 52DI and
Presstek 34DI. This extends Presstek brand awareness and increases the strength
of the brand as well as offers us more control over the sales and service
process. We delivered these products through our direct sales and service
channels in North American and the UK. In addition, we also realigned and
expanded our distribution channels in Continental Europe, Mexico and Brazil
to
deliver the sales and service of the Presstek-branded presses and CTP line
of
products. The new generation chemistry-free plate for the Dimension Excel series
of platesetters, called Anthem Pro, was also made commercially available through
this multi-channel distribution strategy.
Lasertel
Founded
in April 2000, our Lasertel subsidiary is a world-class developer and
manufacturer of high-quality, high-powered laser diodes for Presstek-branded
imaging systems as well as third-party systems. The Lasertel segment provides
Presstek with state-of-the-art laser imaging capabilities that differentiate
us
by bringing innovation to the rapidly evolving graphic arts marketplace.
The
2005
purchase of a high capacity molecular beam epitaxy (“MBE”) reactor has enabled
Lasertel to improve yields and increase revenue substantially during 2006.
Growth in the defense sector has been particularly strong, and the supply
agreement signed with Selex Sensors and Airborne Systems in 2005 has continued
to be a major source of revenue. During 2006 the performance and reliability
of
Lasertel products was demonstrated by the use of a Lasertel diode
laser on the space shuttle. The laser manufactured by Lasertel is used
in a system enabling the crew of the space shuttle and engineers on the ground
to
determine the health of Discovery’s heat shield. The success of the system led
to its use on shuttle missions.
The
development of products for highly demanding applications such as the space
shuttle enables Lasertel to continue to improve on existing products and develop
new products designed for use in the laser imaging market.
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, sale and servicing of digital imaging systems and printing plate
technologies for direct-to-press, or on-press applications, and CTP, or
off-press applications for the graphic arts industries, primarily serving the
segment of the market that requires high quality, fast turnaround color
printing. The Lasertel segment is primarily engaged in the manufacture and
development of high-powered laser diodes for sale to the Presstek segment and
to
external customers.
The
Presstek Segment
The
Presstek segment is the core of our operations, serving as the central engine
of
innovation for research, new product development and manufacturing as well
as
the center for marketing, sales and service for our digital offset printing
solutions. In addition, the Presstek segment serves as the central organization
under which our subsidiary functions and the Presstek segment sets the strategic
and research direction and priorities for the entire company.
The
Presstek segment manufactures the imaging systems and related assemblies that
are incorporated into DI presses and CTP systems. The imaging systems that
are
designated for DI presses are shipped to our DI press manufacturing partner
with
whom we have OEM and exclusive manufacturing agreements. The Presstek 52DI
is
currently distributed exclusively by Presstek, while the Presstek 34DI is
distributed directly and under an OEM agreement by Ryobi. The imaging systems
that are designated for CTP units are incorporated into our CTP units, which
are
manufactured at our Hudson, New Hampshire facility.
We
manufacture the printing plates that are used on DI presses and chemistry-free
CTP units at our Hudson, New Hampshire and South Hadley, Massachusetts
facilities. Mitsubishi and Agfa manufacture plates that are imaged on our ABDick
Digital PlateMaster, or DPM, series CTP devices.
Our
products are sold into the market to end-user customers through either our
direct sales force or through OEM partners, strategic partners or our dealer
channel. By employing this combination of internal and external sales
organizations, we are able to deliver higher sales potential for our products
worldwide. Presstek’s direct sales force also offers other offset printing
solutions provided by marketing partners.
We
also
have an established catalog of supplies and consumables, many of which
complement the Presstek segment equipment offerings. The Presstek segment has
an
equipment line of CTP devices; workflow modules; conventional duplicators and
printing presses; post-press bindery and finishing equipment; and other
ancillary devices manufactured by third parties. Thus, the Presstek segment
products provide the foundation for a comprehensive digital migration path
to
address the full range of customer needs.
Presstek
branded equipment is serviced by either our direct service organization or
by
our dealer channel. Our direct service organization is trained to service
Presstek-branded digital products as well as conventional analog equipment
manufactured by third parties. Our direct service organization primarily serves
customers consisting of commercial printing shops in the graphic arts industry
located in North America and the UK.
The
Lasertel Segment
Our
Lasertel segment is a world-class developer and manufacturer of high-quality,
high-powered laser diodes for Presstek-branded imaging systems as well as
third-party systems. The Lasertel segment provides Presstek with
state-of-the-art laser imaging capabilities that differentiate us by bringing
innovation to the rapidly evolving graphic arts marketplace. In addition, the
Lasertel segment provides external customers with a wide range of laser diodes
for defense and industrial applications. In December of 2005, Lasertel received
ISO 9001:2000 certification. An ISO 9001:2000 certification recognizes the
quality of a company’s management system. ISO is a non-governmental federation
of the national standard boards of countries from all regions of the world
that
set the standards and requirements for state-of-the-art products, services,
processes, materials and systems, as well as for good conformity assessment,
managerial and organizational practice.
Information
about our business segments and geographic areas is included in Note 17 and
information about our major customers is included in Note 18 in the footnotes
to
our consolidated financial statements appearing elsewhere in this Annual Report
on Form 10-K and is incorporated herein by reference.
Strategy
Our
business strategy revolves around employing innovative digital imaging
technology to address specific and well-understood opportunities primarily
in
the graphic arts marketplace, while at the same time supplying the
commercial,
quick and in-plant printer with a full range of printing solutions. In this
way,
we can capitalize on the needs of customers who have not yet fully transitioned
to a digital model.
This
strategy reflects several strategic imperatives:
1.
Our
primary focus is on the growth of our consumables product.
Presstek
provides digital offset solutions that aid the printer in transitioning from
an
analog to digital workflow. Our DI press, (on-press) imaging and CTP (off-press)
imaging products use our chemistry-free printing plates. We refer to these
systems as consumable burning engines, which we call CBEs. With our direct
sales
force and network of distribution partners we feel we are well positioned to
expand our installation base of CBEs. Another step in growing our consumable
business is to develop consumables that can be imaged on non-Presstek
manufactured devices. The first step in executing this strategy was the launch
of Aurora, our open-platform, chemistry-free printing plate, which is designed
to be used on specific CTP systems (CBEs) marketed by major third-party
manufacturers.
2.
We
focus on select market segments.
Large
print providers have been the vanguard in adopting digital technology and have
driven the industry’s digital transformation of the commercial printing segment
of the graphic arts industry. The commercial and quick print providers and
in-plant print operations are currently converting to digital systems and
processes. With our innovative digital offset printing solutions and the
strength of our direct sales and service force, we believe that we can leverage
the depth and breadth of our products, services, supplies, internal skills
and
strategic partnerships to address these new and emerging market demands among
commercial print providers.
Three
unique types of businesses have demonstrated success with Presstek digital
solutions, including:
a. |
Commercial
printers that need to adjust their production capacity, level of
productivity and output quality while improving profitability have
demonstrated success with our digital products. These printers are
often
acquiring their first four-color press. 2005 research from InfoTrends
indicates that there are approximately 24,000 print establishments
in the
United States that fall within this
category.
|
b. |
Digital
printers and copy shops, facilities that operate toner-based digital
copier equipment, are acquiring DI presses as complementary devices.
They
are using DI presses for applications that require run lengths greater
than 250 copies. The DI press offers a lower production cost with
a higher
level of quality and the ability to print on a wider range of substrates.
2005 research from InfoTrends indicates that there are approximately
6,500
print establishments in the United States that fall within this
category.
|
c. |
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.
2005
research from InfoTrends indicates that there are approximately 10,000
in-plant establishments in the United
States.
|
3.
Because
we compete on the basis of technology and innovation, we deliver differentiated
solutions.
We
have
been technology innovators since our inception, providing digital laser
technology that is directly responsible for what is estimated to be over 90%
of
worldwide DI installations. As we expand and refine our product offerings,
we
will strive to lead the market with high performance solutions. We also
introduced a range of Presstek-branded DI products in the spring 2006 - the
Presstek 52DI press and the Presstek 34DI press. This extends Presstek brand
awareness and increases the strength of the brand, as well as offers us more
control over the sales and service process.
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, faster turnaround times for printed
jobs, require lower skilled operators and reduced paper waste. The Presstek
52DI
images all four printing plates on press in 4.5 minutes. The press’ design using
Zero Transfer Printing technology, results in consistent quality, an
exceptionally fast makeready time and reliable handling across a wide range
of
printed substrates; capabilities that are important to our primary target
market. The 52DI has a maximum operating speed of 10,000 full size sheets per
hour.
The
Presstek 34DI, based on the same technology platform as the 52DI, offers a
two-page, four-color, 34 cm portrait format digital offset press - which
produces 7,000 sheets per hour. The 34DI has a maximum sheet size of 13.39” x
18.11”. Maximum image area on the 34DI is 12.99” x 17.72”.
4. |
We
provide solutions that meet the growth 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 shipments volume has been in long-run printed documents. Short-run
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.”
5.
We
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 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, reduces space requirements, eliminates plate-oriented waste
disposal, and results in fewer manufacturing process errors.
Technology
and Products
Direct
Imaging Technology
Beginning
in the late 1980s, we set out with
the
mission to find a smarter way to print. The vision was to make the printing
press as easy to use as a computer peripheral, like a desktop printer. Presstek
developed the world's first Direct Imaging, which we refer to as DI®, printing
technology and no-process digital printing plate. The
result is an offset printing process that is more productive, easier, faster
and
environmentally friendly.
Before
Direct Imaging, all platemaking and pre-press activities had occurred as a
separate and specialized activity in the printing operation primarily using
analog film-based technology, chemical processing and manual 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, DI delivers
efficiencies that allow increased print productivity at lower cost and with
better quality than conventional offset print methods. At the same time, by
imaging chemistry-free plates directly on a printing press, Presstek products
eliminate the reliance on the chemical processing that is generally associated
with imaging traditional printing plates. In addition to being overall more
efficient to operate, our DI presses are also more environmentally responsible
than traditional methods of printing. The result is a higher quality, faster
turnaround print work with a lower cost of operation that is also
environmentally safe.
The
laser
diodes that we use for our imaging system are manufactured at Lasertel. Lasertel
manufactures epitaxial wafers, which are subsequently processed into chips
or
bars. Lasertel then assembles these devices into fiber-
coupled
modules called multiple emitter packages (“MEPs”), which contain four lasers per
module. These MEPs are then sent to our manufacturing facility in Hudson, New
Hampshire.
We
assemble Lasertel-manufactured laser imaging modules into imaging kits that
are
designed for DI press or CTP units. These kits are then incorporated into DI
printing presses, by our manufacturing partner, or in CTP systems in our Hudson,
NH facility.
Our
most
recent advance in DI technology, which we refer to as the ProFire Excel system,
has significantly improved the resolution and print quality of our digital
offset printing presses. The ProFire Excel integrated imaging system, introduced
in May 2004, integrates lasers, laser drivers, digital electronics, and motion
control into one modular package design for direct imaging presses. The ProFire
Excel system has three major components: the FirePower
laser diode system,
made up
of unique four-beam laser diodes and laser drivers, the integrated
motion system that
controls the placement of the laser diodes, and the FireStation
digital controller and data server.
The
image data board of the ProFire Excel controls 16-micron diodes with patented
Image Plus technology. Among the advantages of Image Plus is a writing mode
that
increases image quality while significantly reducing moiré patterns in standard
screen sets, allowing for a range of FM (stochastic) screening
options.
Presstek
34DI and 52DI
These
technologies have been incorporated in the Presstek 34DI and Presstek 52DI
- the
first Presstek-branded DI products.
CTP
Products
We
also
implement our imaging technology in computer-to-plate systems, which we refer
to
as CTP. Unlike the DI press, where the plate is imaged on the press, CTP systems
allow printers to employ Presstek’s digital technology in conjunction with
conventional printing presses. Presstek’s line of CTP systems incorporate our
advanced imaging technology to transfer a digital image onto our high
performance printing plates, which, once imaged, can be mounted on a
conventional offset printing press, avoiding the multiple steps and chemical
processes traditionally associated with analog plates. Currently, we manufacture
three series of CTP products: Dimension/Dimension Excel; Vector TX52; and
Digital PlateMaster or DPM. The Dimension Series and Vector TX2 CTP systems
use
chemistry free printing plates and laser imaging modules that are manufactured
by Presstek. The DPM uses chemistry-based plates which we purchase through
an
OEM relationship.
Dimension
Excel
The
Dimension Excel series of platesetters are CTP imaging devices that engineered
to image our chemistry-free Anthem Pro thermal plates in an A3 (2-page), or
A2
(4-page) format size. The Dimension Excel utilizes our ProFire Excel laser
imaging technology, and can produce completely imaged printing plates, ready
to
be mounted on a printing press, within four to six minutes depending on the
system configuration. The Dimension Excel is available in both standard and
high-productivity models.
Dimension800
The
Dimension800 is a CTP platesetter that images our Anthem Pro thermal plates
in
an A1 (8-page) or smaller format size. Utilizing Presstek’s ProFire® imaging
technology for chemistry-free operation, this is one of the most compact and
efficient eight-page platesetters available.
Vector
TX52
The
Vector TX52 platesetter is a CTP imaging system that is engineered to image
our
chemistry-free Freedom thermal plates. The Vector TX52 is a two-page (52 cm
and
under) metal CTP system that utilizes our SureFire laser imaging technology.
The
Vector TX52 can produce completely imaged printing plates, ready to be mounted
on a printing press, within four minutes. It is an easy to use metal based
system that is designed to offer the advantages of metal CTP plate manufacturing
to small-sized and inplant printers.
The
Digital PlateMaster
Digital
PlateMaster (DPM) is an easy-to-use platesetter that is equipped with an
integrated Harlequin RIP that uses conventional polyester-based plates. The
DPM
is designed for use with small-format portrait presses. The internal plate
processor and daylight-loading materials cassette help facilitate plate
production. The DPM also supports paper-based printing plates.
Printing
Plates
General
Background
Offset
printing is the most widely used method of producing printed materials for
commercial applications. The majority of quality, full color printing materials
with which the average consumer comes into daily contact (such as magazines,
brochures, catalogs and direct mail pieces) are produced using the offset
printing process. Our products are designed for offset printing.
We
manufacture digital printing plates for both on-press Direct Imaging, or DI,
and
off-press Computer-to-Plate, or CTP, printing applications. DI plates include
ProFire Digital Media, PearlDry Plus and PearlDry; these plates are manufactured
in our Hudson, New Hampshire facility. Our CTP plate portfolio consists of
PearlDry, Anthem Pro, Aurora and Freedom. PearlDry is manufactured in Hudson,
while the other CTP plates are manufactured at our facility in South Hadley,
Massachusetts.
Our
plates are based on our patented chemistry-free thermal imaging technology.
Our
printing plates respond to heat generated by high-powered lasers (thermal
imaging) using a process known as ablation to enable chemistry-free plate
production. Presstek has a rich portfolio of intellectual property and
considerable know-how focused on the application of chemistry free plate
imaging. We pioneered chemistry free imaging in commercial printing applications
and we have more than 15 years of experience marketing of our technology to
end
users. We are on our fifth generation of chemistry-free and process-free plate
imaging systems for commercial printing applications, which we believe provides
Presstek a significant competitive advantage in the marketplace.
DI
ProFire
Digital Media
ProFire
Digital Media is designed to work as a system with the laser imaging and press
components of ProFire Excel enabled DI presses (such as the Presstek 34 and
52DI). In conjunction with ProFire Excel imaging ProFire Digital Media allows
new DI presses to produce a very high resolution, 16 micron spot and supports
the highest level of print quality, up to 300-line screen and stochastic (FM)
screening
ProFire
Digital Media for DI presses is rated for 20,000 impressions. ProFire Digital
Media 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.
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
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
PearlDry
is used for DI press applications that require an aluminum-backed plate such
as
the 74Karat DI press manufactured by Koenig and Bauer (“KBA”) of Germany. The
plate uses a specially formulated silicone material that is coated over the
metalized infrared absorbing layer that is then bonded to an aluminum base.
Environmentally friendly, thin-film vacuum deposition processes produce the
ultra-thin film coatings that facilitate ablative imaging without excessive
residue and are the foundation of PearlDry plates for waterless
printing.
CTP
Anthem
Pro
In
April
2006, we
introduced the Presstek Anthem Pro, a new generation chemistry-free thermally
imaged digital plate. The Anthem Pro delivers improved print performance with
the addition of Presstek's exclusive PRO graining technology. Anthem
Pro plates for CTP systems feature our patented polymer-ceramic technology
and
combine ablative imaging and chemistry-free cleaning (a simple water wash)
with
run lengths of up to 100,000 impressions. The Anthem Pro plate runs with a
wide
range of fountain chemistry and inks. Anthem Pro’s market includes a broad base
of installed conventional wet offset presses, currently the largest segment
of
the printing industry.
Freedom
The
Freedom plate operates in conjunction with Presstek’s Vector TX52 line of CTP
solutions. Like our Anthem Pro plate, Freedom requires only a simple wash with
water before printing. The unique surface structure of the plate results in
a
fast makeready and greater ink/water latitude. In addition, Freedom plates
accommodate a wide range of industry standard inks and fountain solutions.
Freedom plates deliver the performance characteristics and stability of
conventional aluminum plates.
Applause
Applause
is our first completely process-free plate product. We believe Applause is
unique in that it is truly the world’s first commercially available no-process
plate. Unlike other digital plate products, Applause is designed to require
no
intermediate steps between imaging and printing. Other benefits of Applause
include excellent ink/water latitude, high resolution, and compatibility with
existing press chemistries.
Aurora
In
2005,
we introduced Aurora, our first chemistry-free CTP thermal plate designed to
operate with CTP systems from market leaders in CTP plate imaging systems.
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.
Lasertel
Diode Products
The
graphic arts industry continues to demand a high degree of speed, imaging
resolution and accuracy without increasing costs. Our high-powered laser diodes
are designed to achieve greater imaging power, uniformity and reliability at
a
low unit cost for the diode array. Writing speed and accuracy are increased,
without increasing space and costs, by combining four fiber channels into a
single optical module. These diodes, manufactured at our Lasertel subsidiary,
also incorporate a number of packaging innovations that reduce the size of
the
device and facilitate incorporation into the ProFire Excel imaging module.
In
addition to manufacturing Presstek products, Lasertel also manufactures products
for third-party customers in the industrial, medical and defense
sectors.
Manufacturing
We
operate manufacturing sites in Hudson, New Hampshire; Tucson, Arizona;
DesPlaines, Illinois; and South Hadley, Massachusetts. In general, we strive
to
employ the latest manufacturing techniques in our equipment assembly and plate
manufacturing operations. Strategic procurement initiatives are in place to
qualify and consolidate vendors, and establish active vendor report card
programs to improve incoming quality and reduce product costs. Having completed
the integration of the capabilities we acquired as a result of the 2004
Precision and ABDick acquisitions, we are continually evaluating similar
operations in different plants to leverage our capabilities and achieve
economies of scale. We also continually assess outside manufacturing capacity
and review our existing manufacturing technologies when deciding whether to
manufacture or to buy a product or component.
We
use a
number of outside vendors who supply components and sub-assemblies which are
integrated into completed systems. These systems use semiconductor laser diode
devices built to our specifications and supplied by Lasertel. We believe other
sources would be available to manufacture the laser diodes to specification,
in
the future, if required.
Our
DI
imaging kits, CTP systems, and our ProFire Digital Media, PearlDry Plus,
PearlDry, and Applause printing plate products are manufactured at our
165,000-square-foot state-of-the-art facility located in Hudson, New Hampshire.
Our equipment manufacturing employs the latest techniques in the assembly
process, including point-of-use issue of parts, single flow process, and
multiple operations done by each assembler.
Plate
manufacturing at our Hudson facility uses vacuum deposition technology to create
ultra-thin imaging layers. We have a state-of-the-art solution coater capable
of
handling aqueous or solvent based fluids with best available environmental
controls throughout the process. PET substrates are laminated to aluminum webs
(spools) using electron beam curing technology. This eliminates the need for
environmental emissions from a drying process. We utilize full converting
capability, which provides high-speed slitting, spooling, formatting and final
packaging.
The
Hudson facility also manufactures three series of CTP products:
Dimension/Dimension Excel; Vector TX52; and Digital PlateMaster or DPM. To
manufacture the ABDick-branded DPM, we use a number of outside vendors who
supply components and sub-assemblies that are integrated into completed
systems.
Lasertel
operates a 75,000-square-foot facility located in Tucson, Arizona. The facility
includes 10,000 square feet of clean room space, and complete process equipment
for semiconductor laser manufacturing. Lasertel’s manufacturing process begins
with molecular beam epitaxy reactors to grow semiconductor laser wafers, and
extends through the final polishing techniques for the optical
fiber.
The
facility located in South Hadley, Massachusetts consists of 50,000 square feet
in a single building, and performs aluminum plate manufacturing including
in-line graining, anodizing, silicating, and multiple layer coatings. Raw
aluminum is processed into lithographic printing plates for the digital
markets.
Marketing,
Distribution and Customer Support
Our
sales
strategy through 2006 was designed to emphasize the distribution of Presstek
DI
and CTP products and the related consumables, as well as a full catalog of
conventional products, to customers through our direct sales force, independent
graphic arts dealers and strategic OEM partnerships. The addition of our direct
sales force in 2005 has greatly enhanced our marketing, distribution and service
capabilities and given us direct access to end-user customers of our solutions
and services.
We
offer
multiple solutions to solve customer needs and requirements. We are developing
many of these technologies ourselves, and others we acquire through
partnerships. We intend to deliver these solutions through multiple channels,
including a high performing value-added dealer network, our direct sales and
service force, and our strategic OEM partners. We have an established worldwide
distribution network through which we market and sell DI presses, CTP equipment,
thermal plate products, and a full catalog of conventional printing products.
In
addition, we have a service organization through which we provide service to
products manufactured by Presstek and third-party vendors. This integrated
service strategy provides dedicated service for the products delivered
through
our distribution network. We have positioned ourselves to capture revenue from
the sales and service of digital and conventional printing products as the
industry continues its migration to digital processes.
Our
direct sales force represents our primary access to lead the analog-to-digital
migration of our large installed customer base of smaller print establishments.
In addition to our direct sales force, our distribution network is supplemented
with over 38 independent graphic arts dealers in 23 countries. We also market
and sell our full catalog of products through our shop.presstek.com web site
for
the printing industry.
Concurrently,
we have a business strategy that is based in part on strategic alliances and
relationships with leading companies in the printing and graphic arts industry.
This strategy includes licensing intellectual property; specialized product
development based on our proprietary technologies; the manufacturing of imaging
systems for inclusion in other manufacturers’ products; the sale, distribution
and marketing of our own consumables as well as consumables manufactured by
others; and the manufacturing of our patented thermal plate materials for use
in
Presstek’s and other manufacturers’ imaging hardware and printing
presses.
In
conjunction with Ryobi, an international supplier of printing presses
headquartered in Japan, we developed the Presstek 52DI and 34DI presses. Both
presses incorporate our dual plate cylinder concept, and feature our internal
automated plate cylinder design, ProFire Excel imaging technology, and our
ProFire Digital Media. The small format and high level of automation of this
press is designed to appeal to our target markets.
The
Presstek 52DI is currently distributed exclusively by Presstek. The Presstek
34DI is currently distributed by us and by Ryobi as the Ryobi 3404DI. Ryobi
also
provides Presstek a range of duplicators and 2- and 4-tower presses sold under
the ABDick brand.
The
maturation of Presstek through its organic growth and acquisitions has enabled
us to effectively move forward with our direct distribution model. The
establishment of a direct distribution model has allowed us to precisely control
the sales and service of our company’s flagship products. Not only has Presstek
benefited from this shift, our customers receive the benefit of dealing directly
with the manufacturer, thereby increasing customer satisfaction.
For
parts
and consumables, we have OEM relationships with KBA, Heidelberg and
Kodak.
We
also
have the following strategic relationships:
· |
for
the sourcing of our raw materials, including aluminum and rolled
polyester, which serve as the base of our
plates
|
· |
for
the purpose of purchasing certain plate material that are imaged
in some
of our CTP solutions and in conventional printing applications. The
companies are Kodak, Mitsubishi Imaging (MPM), Inc., which we call
Mitsubishi, and Agfa-Gevaert N.V., who we call
Agfa
|
· |
for
the distribution of our proprietary plates and equipment with other
entities within the graphic arts
industry
|
Market
acceptance for any products incorporating our various technologies and
proprietary know-how will require substantial marketing efforts and the
expenditure of significant sums, either by us, and/or our strategic and OEM
partners. There can be no assurance that any existing or new products will
achieve market acceptance or become commercially viable.
We
are
pursuing other business relationships that we believe may result in broader
use
of our digital imaging and printing plate technologies in existing as well
as
new applications. There can be no assurance, however, that any of our products,
or any products incorporating our technology, will be able to compete
successfully in these markets.
Competition
We
believe that our patented technologies, other intellectual property, thermal
plate manufacturing facilities, strategic alliances, worldwide distribution
network and knowledge of the marketplace provide us with a competitive
advantage.
However, several other companies address markets in which our products are
used
and have products that are competitive to our patented direct imaging thermal
plate technologies and related capabilities.
In
the
area of direct imaging and the short-run, on-demand market, potentially
competitive companies use electrophotographic technology, sometimes referred
to
as xerography, as the basis of their product lines. These companies include,
among others, Canon Inc., Hewlett Packard Company, Kodak, and Xerox. These
electrophotographic imaging systems use either wet or dry toners to create
one
to four (or more) color images on paper and typically offer resolutions of
between 400 and 1200 dots per inch. These technologies are best suited for
ultra-short runs of less than 250 copies.
In
2005,
DaiNippon Screen Mfg., Ltd., known as Screen, introduced the TruePress 344
press. This press images photographic printing plates from a cassette and then
develops them on press prior to printing. The maximum resolution is 2400 dpi
with a maximum screen ruling of 175 lpi. This is Screen’s second attempt at
bringing a direct imaging press to market, while the Presstek DI technology
is a
field-proven technology with approximately 3,000 placements in market. The
current Presstek DI press also produces a higher quality press sheet with the
maximum resolution being 2540 dpi with a maximum screen ruling of 300 lpi and
FM
screening.
Most
of
the major companies in the graphic arts industry have developed or are
developing off-press CTP imaging systems. Potential competitors in this area
include, among others, Agfa, Kodak, DaiNippon Screen Mfg., Ltd., Fuji, and
Heidelberg, combinations of these companies, and other smaller or lesser-known
companies. Many of these devices utilize printing plates that require a
post-imaging photochemical developing step and/or other post processing steps
such as heat treatment.
We
are
beginning to see competition from printing plate companies that manufacture,
or
have the potential to manufacture, digital thermal plates. Such companies
include, among others, Agfa, Kodak, and Fuji Photo Film Co., Ltd., who we call
Fuji.
Kodak
is
marketing a competitive plate product as an alternative to Presstek’s PearlDry
and PearlDry Plus for both the Ryobi and Quickmaster DI platforms. These
competitive plates could have an impact on the revenue generated by Presstek
under its agreements with Heidelberg and Ryobi. They could also lead to downward
pricing pressure on our full line of spooled consumable products, which could
have a material adverse effect on our business, results of operations and
financial condition. Presstek has initiated patent infringement action against
Fuji and Creo (subsequently acquired by Kodak) products in the Federal Republic
of Germany and the United States, respectively.
Some
of
the graphic arts companies, including Agfa, Kodak and Fuji, have announced
or
released plates that reportedly eliminate the need for post image chemical
processing. We cannot currently estimate the impact these competitive plates
will have on our financial condition and results of operations.
Products
incorporating our technologies can also be expected to face competition from
products using conventional methods of creating and printing plates and
producing printed product. While these methods are considered to be more costly,
less efficient and not as environmentally conscious as those we implement,
they
do offer their users the ability to continue to employ their existing means
of
print and plate production. Companies offering these more traditional means
and
methods are also refining these technologies to make them more acceptable to
the
market.
The
broad
portfolio of equipment, supplies, and service added to our portfolio through
the
acquisition of the ABDick business has several competitors. In addition to
those
mentioned above, competitors include for Prepress: ECRM and RIPit; for Press:
Ryobi, Hamada, Xerox, Canon, Ricoh and HP; for Service: GBC, Kodak, Service
On
Demand and some independent providers; for Dealers: xpedx, Pitman and Enovation.
Lasertel’s
products can also be expected to face competition from a number of companies
marketing competitive high-powered laser diode products such as Coherent Inc.
and JDS Uniphase Corporation.
Most
of
the companies marketing competitive products, or with the potential to do so,
are well established have substantially greater financial, marketing and
distribution resources than Presstek and its subsidiaries, and have established
records in the development, sale and service of products. There can be no
assurance that Presstek,
Lasertel,
or any of our products or any products incorporating our technology, will be
able to compete successfully in the future.
While
we
believe we have strong intellectual property protection covering many of our
technologies, there is no assurance that the breadth or degree of such
protection will be sufficient to prohibit or otherwise delay the introduction
of
competitive products or technologies. The introduction of competitive products
and technologies may have a material adverse effect on our business, results
of
operations and financial condition.
Patents,
Trademarks and Proprietary Rights
Our
general policy has been to seek patent protection for those inventions and
improvements likely to be incorporated into our products and services or where
proprietary rights will improve our competitive position. As of December 30,
2006, our worldwide patent portfolio included over 500 patents. We believe
these
patents, which expire from 2008 through 2027, are material in the aggregate
to
our business. We have applied for and are pursuing applications for 9 additional
U.S. patents and 31 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 U.S. patent
assigned to Precision, which will expire in 2017 and one active patent assigned
to Lasertel, which will expire in 2012.
In
September 2003, we filed an action against Fuji Photo Film Corporation, Ltd.,
in
the District Court of Mannheim, Germany for patent infringement. In this action,
we allege that Fuji has manufactured and distributed a product that violates
a
Presstek European Patent. We are seeking an order from the court that Fuji
refrain from offering the infringing product for sale, from using the infringing
material or introducing it for the named purposes, and from possessing such
infringing material. A trial on the matter was held in November 2004 and March
2005, and we are currently awaiting a final determination from the
court.
In
March
2005, we filed an action against Creo, Inc. (subsequently acquired by Kodak)
in
the U.S. District for the District of New Hampshire for patent infringement.
In
this action, we allege that Creo has manufactured and distributed a product
that
violates a Presstek U.S. Patent. We are seeking an order from the court holding
that Creo has infringed the patent, permanently enjoining Kodak from infringing,
inducing others to infringe or contributing to the infringement of the Patent,
and seeking damages from Creo for the infringement.
We
intend
to rely on proprietary know-how and to employ various methods to protect our
source code, concepts, trade secrets, ideas and documentation of our proprietary
software and laser diode technology. However, such methods may not afford
complete protection and there can be no assurance that others will not
independently develop such know-how or obtain access to our know-how, software
codes, concepts, trade secrets, ideas, and documentation.
Research
and Development
Research
and development expenses related to our continued development of products
incorporating DI and CTP technologies, including our semiconductor laser diodes,
were $6.4 million, $7.3 million and $6.5 million in fiscal 2006, fiscal 2005
and
fiscal 2004, respectively. These research and development expenditures are
primarily related to the Presstek segment.
Backlog
At
February 25, 2007, we had a backlog of products under contract aggregating
approximately $10.3 million, of which the Company expects to ship substantially
all in 2007. This amount compares to a consolidated backlog of approximately
$12.1 million at February 25, 2006.
Employees
At
December 31, 2006, we had 891 employees worldwide. Of these, 39 are engaged
primarily in engineering, research and development; 212 are engaged in sales
and
marketing, 344 are engaged in service and customer support, 207 are engaged
primarily in manufacturing, manufacturing engineering and quality control;
and
89 are engaged primarily in corporate management, administration and finance.
None of our employees is represented by a labor union. We consider the
relationship with our employees to be good.
Investor
Information
Financial
and other information about us is available on our website, www.presstek.com.
We make
available, free of charge on our website, our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments
to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after we electronically file
such
material with, or furnish it to, the SEC.
Glossary
Set
forth
below is a glossary of certain terms used in this report:
A1
(8-page)
|
a
printing term referring to a standard paper size capable of printing
eight
8.5” x 11” pages on a sheet of paper
|
|
|
A2
(4-page)
|
a
printing term referring to a standard paper size capable of printing
four
8.5” x 11” pages on a sheet of paper
|
|
|
A3/B3
(2-page)
|
a
printing term referring to a standard paper size capable of printing
two
8.5” x 11” pages on a sheet of paper
|
|
|
Ablation
|
a
controlled detachment/vaporization caused by a thermal event, this
process
is used during the imaging of Presstek’s PEARL and Anthem Pro
consumables
|
|
|
Anthem
Pro
|
Presstek’s
line of wet offset digital plates with a unique polymer-ceramic
construction
|
|
|
Computer-to-plate
(CTP)
|
a
general term referring to the exposure of lithographic plate material
from
a digital database, off-press
|
|
|
Creo,
Inc.
|
A
company acquired by Kodak
|
|
|
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
|
|
|
Heidelberg
|
Heidelberger
Druckmaschinen AG, one of the world’s largest printing press
manufacturers, headquartered in Heidelberg, Germany
|
|
|
Infrared
|
light
lying outside of the visible spectrum beyond its red-end, characterized
by
longer wavelengths; used in our thermal imaging process
|
|
|
KBA
|
Koenig
& Bauer, AG, one of the world’s largest printing press manufacturers,
headquartered in Wurzburg, Germany
|
|
|
Kodak
|
Eastman
Kodak Company, a leading supplier of digital, conventional and business
solutions for the graphic arts industry, headquartered in Rochester,
New
York
|
|
|
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
|
|
|
Dimension
|
Presstek’s
product line of CTP off-press platemaking equipment
|
|
|
Platemaking
|
the
process of applying a printable image to a printing
plate
|
|
|
Prepress
|
graphic
arts operations and methodologies that occur prior to the printing
process; typically these include photography, scanning, image assembly,
color correction, exposure of image carriers (film and/or plate),
proofing
and processing
|
|
|
Quickmaster
DI
|
the
second generation of direct imaging, waterless presses, highly automated
with roll-fed PearlDry Plus plate material, a joint development effort
between Heidelberg and Presstek
|
|
|
Ryobi
|
Ryobi
Limited of Japan, a printing press manufacturer headquartered in
Japan
|
|
|
Ryobi
3404DI
|
an
A3 format size four-color sheetfed 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
|
Item
1A.
Risk Factors
Certain
statements contained in this Annual Report on Form 10-K constitute
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding the
following:
· |
our
expectations for our financial and operating performance in 2007
and
beyond;
|
· |
the
adequacy of internal cash and working capital for our
operations;
|
· |
our
ability to supply sufficient product for anticipated demand and production
delays associated with such demand;
|
· |
availability
of component materials;
|
· |
management’s
plans and goals with regard to our shipping and production capabilities,
including the adequacy of our facilities for present and expected
future
operations;
|
· |
the
availability of alternative suppliers and
manufacturers;
|
· |
manufacturing
constraints or difficulties;
|
· |
the
introduction of competitive products into the
marketplace;
|
· |
management’s
plans and goals for our
subsidiaries;
|
· |
the
ability of our subsidiaries to generate positive cash flows in the
near-term;
|
· |
our
subsidiaries’ ability to produce commercially competitive
products;
|
· |
the
strength of our various strategic partnerships both on manufacturing
and
distribution;
|
· |
our
ability to secure other strategic alliances and
relationships;
|
· |
our
expectations regarding our strategy for growth, including statements
regarding our expectations for continued product mix
improvement;
|
· |
our
expectations regarding the balance, independence and control of our
business;
|
· |
the
resulting and expected effects and benefits from our transformation
efforts;
|
· |
our
expectations regarding the strength and improvement of our fundamentals,
including management of our financial
controls;
|
· |
our
expectations and plans regarding market penetration, including the
strength and scope of our distribution channels and our expectations
regarding sales of DI presses or CTP
devices;
|
· |
the
expansion of our products and
technology;
|
· |
the
status of our technology leadership in our
market/industry;
|
· |
the
commercialization and marketing of our
technology;
|
· |
our
expectations regarding the sale of our products and use of our
technology;
|
· |
our
current plans for product development and the expected market acceptance
of recently introduced products and the likely acceptance of planned
future products;
|
· |
the
expected growth in market share;
|
· |
the
effects, market acceptance or pricing of competitive products, including
the possibility of a competitive plate product being introduced by
a
strategic partner;
|
· |
the
placement of orders for direct imaging
kits;
|
· |
our
expectations regarding reductions in warranty
costs;
|
· |
statements
regarding the profitability of process-free
CTP;
|
· |
the
adequacy of our intellectual property protections and our ability
to
protect and enforce our intellectual property rights;
and
|
· |
the
expected effect of adopting recently issued accounting standards,
among
others.
|
Such
forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this report. The words
“looking forward,” “looking ahead,” “believe(s),” “should,” “plan,” “expect(s),”
“project(s),” “anticipate(s),” “may,” “likely,” “potential,” “opportunity” and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date, the statements were made and readers are advised to
consider such forward-looking statements in light of the risks set forth below.
Presstek undertakes no obligation to update any forward-looking statements
contained in this Annual Report on Form 10-K.
Significant
factors that could impact the Company’s financial condition or results of
operations include, without limitation, the following:
We
are substantially dependent on our strategic alliances, as well as our
manufacturing and distribution relationships to develop and grow our business.
The loss or failure of one or more of our strategic partners could significantly
harm our business.
Our
business strategy to date has included entering into strategic alliances with
major companies in the graphic arts industry and other markets. The
implementation of this strategy has included, among other things, licensing
our
intellectual property, developing specialized products based on our proprietary
technologies and manufacturing imaging systems for inclusion in other
manufacturers’ products. Our strategy has also involved identifying strategic
manufacturing and distribution partners to aid in developing new market channels
for our products. This strategy led to the development of our relationship
with
our strategic partners. We are dependent on many of these partners for future
sales of both existing and planned products. This means that the timetable
for
finalizing development, commercialization and distribution of both existing
and
planned products is dependent upon the needs and circumstances of our strategic
partners. We have experienced and will continue to experience technical
difficulties from time to time, which may prevent us from meeting certain
production and distribution targets. Any delay in meeting production and
distribution targets with our strategic partners may harm our relationships
with
them and may cause them to terminate their relationship with us. Our strategic
partners may not develop markets for our products at the pace or in the manner
we expect, which may have an adverse effect on our business. They may also
terminate their relationships with us for circumstances beyond our control,
including factors unique to their businesses or their business decisions. In
addition, we may mutually agree with one or more of our partners to terminate
our relationship with them for a variety of reasons. We cannot assure you that
the termination of any of our other relationships with our strategic partners
will not have an adverse impact on our business in the future.
We
are
also unable to control factors related to the businesses of our strategic
partners. There can be no assurance that similar events will not occur with
our
other strategic partners.
Though
we
take precautions designed to achieve success, given the uncertainties
surrounding many of our strategic partners, there can be no assurance that
our
existing strategic relationships will prove successful. There can also be no
assurance that our existing relationships with any of our other strategic,
manufacturing or distribution partners will be successful. The loss of principal
customers or strategic partners could have a materially adverse effect on our
business, results of operations and financial condition.
While
we
continue to explore possibilities for additional strategic relationships and
alliances, there can be no assurance we will be successful in this regard.
Our
failure to develop new relationships and alliances could have a significant
adverse effect on our business.
The
move to a direct-sales and distribution business may affect our relationship
with our third-party distribution and service partners, which may negatively
impact our sales and distribution channels.
Prior
to
the addition of the ABDick business, distribution and service of our CTP
products was performed by our third-party partners, including Pitman and Xpedx
and a series of independent dealers. Additionally, the distribution and service
of our DI products were provided by OEM and other third party partners. With
the
addition of ABDick, we utilize our newly-acquired sales, distribution and
service organization as a new channel through which to sell and service Presstek
products, as a supplement to our existing distribution network. At this time,
we
are not aware of any conflicts between our existing channel and/or OEM partners
associated with the initiation of this channel. However, there can be no
guarantees that the establishment of this new distribution channel will not
cause conflict with our existing distribution and OEM partners, which could
have
an adverse effect on our relationship with our distribution and/or OEM partners,
which could result in our sales being negatively affected.
If
we are unable to manage acquisitions successfully it could harm our financial
results, business and prospects.
The
operations of Presstek have substantially changed over the last thirty months
as
a result of the additions of Precision and the ABDick business. As part of
our
business strategy, over the next few years, we may further expand our business
through the acquisition of complementary businesses worldwide. Though we would
not
undertake
an acquisition that would knowingly be problematic, we cannot assure you that
we
will be able successfully to integrate any future acquisitions, which could
adversely impact our long-term competitiveness and profitability.
Any
future acquisitions will involve a number of risks that could harm our financial
condition, results of operations and competitive position. In
particular:
· |
The
integration process could disrupt the activities of the businesses
that
are being combined. The combination of the businesses or plants may
require, among other things, coordination of administrative and other
functions and consolidation of production capacity. Plant consolidation
may strain our ability to deliver products of acceptable quality
in a
timely manner from consolidated facilities. We may experience attrition
among the skilled labor force at the companies acquired in reaction
to
being acquired and in reaction to our consolidation of
plants.
|
· |
The
execution of our integration plans may divert the attention of our
management from operating our existing
business.
|
· |
We
may assume known and unanticipated liabilities and
contingencies.
|
· |
Future
acquisitions could cause a reduction of our reported earnings because
of
the use of capital, the issuance of additional securities or debt,
increased interest expense, goodwill write-offs and an increased
income
tax rate.
|
With
respect to our strategic plan to grow, in part, through acquisitions, we cannot
assure you that we will be able to identify suitable acquisitions at acceptable
prices or that we will have access to sufficient capital to take advantage
of
desirable acquisitions. We cannot assure you that our future acquisitions will
have revenues, profits or
productivity
comparable to those of our past acquisitions. Future acquisitions may require
substantial capital. Although we expect to use borrowings under our senior
credit facility to pursue these opportunities, we cannot assure you that such
borrowings will be available in sufficient amounts or that other financing
will
be available in amounts and on terms that we deem acceptable. Our financial
performance and the condition of the capital markets will affect the value
of
our common stock, which could make it a less attractive form of consideration
for making acquisitions.
Our
lengthy and variable sales cycle makes it difficult for us to predict when
or if
sales will occur and therefore we may experience an unplanned shortfall in
revenues.
Many
of
our products have a lengthy and unpredictable sales cycle that contributes
to
the uncertainty of our operating results. Customers view the purchase of our
products as a significant capital outlay and, therefore, a strategic decision.
As a result, customers generally evaluate these products and determine their
impact on existing infrastructure over a lengthy period of time. Our sales
cycle
has historically ranged from approximately one to six months based on the
customer’s need to rapidly implement a solution and whether the customer is new
or is extending an existing implementation. The sale of our products may be
subject to delays if the customer has lengthy internal budgeting, approval
and
evaluation processes. We may incur significant selling and marketing expenses
during a customer’s evaluation period. Larger customers may purchase our
products as part of multiple simultaneous purchasing decisions, which may result
in additional unplanned administrative processing and other delays in the
recognition of our revenues. If revenues forecasted from a specific customer
for
a particular quarter are not realized or are delayed to another quarter, we
may
experience an unplanned shortfall in revenues, which could have a material
adverse effect on our business, results of operation and financial
condition.
We
may not be able to increase revenues if we do not expand our sales and
distribution channels.
We
will
need to expand our global sales operations in order to increase market awareness
and acceptance of our line of products and generate increased revenues. We
market and distribute our products indirectly through our global
partner
and distributor network and directly in Europe through our Presstek Europe
subsidiary. We believe that our future success is dependent upon expansion
of
global distribution channels. We cannot be certain that we will be able to
maintain our current relationships or establish new relationships with
additional distribution partners on a timely basis, or at all. We plan to
utilize our newly-acquired distribution and service organization as a new
channel through which to sell and service our products, as a supplement to
our
existing distribution network. At this time, we are not aware of any conflicts
between our existing channel and/or OEM partners associated with the initiation
of this channel. However, there can be no guarantees that the establishment
of
this new distribution channel will not cause conflict with our existing
distribution and OEM partners, which could have an adverse effect on our
relationship with our distribution and/or OEM partners, which could result
in
our sales being negatively affected.
Our
growth strategy may include licenses or acquisitions of technologies or
businesses, which entail a number of risks.
As
part
of our strategy to grow our business, we may pursue licenses of technologies
from third parties or acquisitions of complementary products lines or companies,
and such transactions entail a number of risks. We may expend significant costs
in investigating and pursuing such transactions, and such transactions may
not
be consummated. If such transactions are consummated, we may not be successful
in integrating the acquired technology or business into our existing business
to
achieve the desired synergies. Integrating acquired technologies or businesses
may also require a substantial commitment of our management’s time and
attention. We may expend significant funds to acquire such technologies or
businesses, and we may incur unforeseen liabilities in connection with any
acquisition of a technology or business. Any of the foregoing risks could result
in a material adverse effect on our business, results of operations and
financial conditions.
We
face risks associated with our efforts to expand into international market
and
such risks could result in diversion of our management’s attention from our
existing business and/or cause us to incur additional expected and unexpected
costs associated with penetrating, operating in and servicing such markets,
any
of which could have a material adverse effect on our financial condition and
results of operations.
We
intend
to expand our global sales operations and enter additional international
markets, which will require significant management attention and financial
resources. International sales are subject to a variety of risks, including
difficulties in establishing and managing international distribution channels,
in serving and supporting products sold outside the United States and in
translating products and related materials into foreign languages. International
operations are also subject to difficulties in collecting accounts receivable,
staffing and managing personnel and enforcing intellectual property rights.
Other factors that can adversely affect international operations include
fluctuations in the value of foreign currencies and currency exchange rates,
changes in import/export duties and quotas, introduction of tariff or non-tariff
barriers and economic or political changes in international markets. If our
international sales increase, our revenues may also be affected to a greater
extent by seasonal fluctuations resulting from lower levels of sales that
typically occur during the summer months in Europe and other parts of the world.
There can be no assurance that these factors will not have a material adverse
effect on our future international sales and, consequently, on our business,
results of operations and financial condition.
We
have experienced losses in the past, could incur substantial losses in the
future, and may not be able to maintain
profitability.
We
have
incurred substantial net losses from continuing operations in one of the past
five fiscal years. At December 30, 2006 we had retained earnings of $1.8
million. We may need to generate significant increases in revenues to maintain
profitability, and we may not be able to do so. If our revenues grow more slowly
than we anticipate, or if our operating expenses increase more than we expect
or
cannot be reduced in the event of lower revenues, our business will be
materially adversely affected. Even if we maintain profitability in the future
on a quarterly or annual basis, we may not be able to sustain or increase such
profitability year to year. Failure to sustain profitability may adversely
affect the market price of our common stock and could have a materially adverse
impact on the value of an investment in us.
Our
quarterly revenues and operating results are likely to fluctuate
significantly.
Our
quarterly revenues and operating results are sometimes difficult to predict,
have varied in the past, and are likely to fluctuate significantly in the
future. We typically realize a significant percentage of our revenues for a
fiscal quarter in the third month of the quarter. Accordingly, our quarterly
results may be difficult to predict prior to the end of the quarter. Any
inability to obtain sufficient orders or to fulfill shipments in the period
immediately preceding the end of any particular quarter may cause the results
for that quarter to fail to meet our revenue targets. In addition, we base
our
current and future expense levels in part on our estimates of future revenues.
Our expenses are largely fixed in the short-term and we may not be able to
adjust our spending quickly if our revenues fall short of our expectations.
Accordingly, a revenue shortfall in a particular quarter would have an adverse
effect on our operating results for that quarter. In addition, our quarterly
operating results may fluctuate for many reasons, including, without
limitation:
· |
a
long and unpredictable sales cycle;
|
· |
changes
in demand for our products and consumables, including seasonal
differences; and
|
· |
changes
in the mix of our products and
consumables.
|
We
are dependent on third party suppliers for critical components and our inability
to maintain an adequate supply of advanced laser diodes and other critical
components could adversely affect us.
We
are
dependent on third-party suppliers for critical components and our increased
demand for these components may strain the ability of our third-party suppliers
to deliver such critical components in a timely manner. For
example,
our requirement for advanced technology laser diodes for use in products
incorporating our DI technology has increased and is expected to further
increase in the future. Although we have established our subsidiary, Lasertel,
to help us meet our demand for laser diodes, we are still dependent on other
third-party manufacturers to supply us with other necessary components. If
we
are unable for any reason to secure an uninterrupted source of other critical
components at prices acceptable to us, our operations could be materially
adversely affected. We cannot assure you that Lasertel will be able to
manufacture advanced laser diodes in quantities that will fulfill our future
needs, or with manufacturing volumes or yields that will make our operation
cost
effective. Likewise, we cannot assure you that we will be able to obtain
alternative suppliers for our laser diodes or other critical components should
our current supply channels prove inadequate.
Our
manufacturing capabilities may be insufficient to meet the demand for our
products.
If
demand
for our products grows beyond our expectations, our current manufacturing
capabilities may be insufficient to meet this demand, resulting in production
delays and a failure to deliver products in a timely fashion. We may be forced
to seek alternative manufacturers for our products. There can be no assurance
that we will successfully be able to do so. As we introduce new products, we
may
face production and manufacturing delays due to technical and other unforeseen
problems. Any manufacturing delay could have an adverse effect on our business,
the
success of any product affected by the delay, and our revenue, and may harm
our
relationships with our strategic partners.
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 affect occurred,
it
could increase manufacturing costs, detrimentally affecting margins, or cause
a
delay in the finishing and shipping of products. Any manufacturing delay could
have an adverse effect on our business, the success of any product affected
by
the delay, and our revenue, and may harm our relationships with our strategic
partners.
Recently
introduced products that incorporate our technology may not be commercially
successful and may not gain market acceptance.
Achieving
market acceptance for any products incorporating our technology requires
substantial marketing and distribution efforts and expenditure of significant
sums of money and allocation of significant resources, either by us, our
strategic partners or both. We may not have sufficient resources to do so.
Additionally, there can be no assurance that products introduced by our
strategic partners, such as the 46 Karat DI presses, or our product offerings
such as our Applause or Anthem plates, and Dimension 400, Dimension 800 and
Vector TX 52 platesetters, will achieve widespread market acceptance or that
any
of our other current products or any future products that we may develop or
any
future products produced by others that incorporate our technologies will
achieve market acceptance or become commercially successful. We recently
announced the commercial release of our new DI 52 printing press. There can
be
no assurance that this press, or our other products, will achieve market
acceptance. If our new product offerings do not achieve anticipated market
acceptance, we may not achieve anticipated revenue.
Recently
introduced products that incorporate our technology may result in substantial
support costs and warranty expenditures.
Introducing
new products carries substantial risk. While we do extensive testing on our
new
products before introducing them to our customers, no amount of testing can
replace or approximate actual field conditions at our customer locations. As
a
result, when we introduce new products we can incur increased expenditures
in
ensuring that the new product meets and performs in accordance with its
specifications. We cannot, however, always estimate precisely the expected
costs
that may arise out of new product installations. There can be no assurance
that
we will not incur increased warranty, support and other costs associated with
new product introductions in the future. In addition, the occurrence of these
expenditures may have a material adverse effect on our business, results of
operations and financial condition.
If
the United States and global economies slow down, the demand for our products
could decrease and our revenue may be materially adversely
affected.
The
demand for our products is dependent upon various factors, many of which are
beyond our control. For example, general economic conditions affect or delay
the
overall capital spending by businesses and consumers, particularly for capital
equipment such as presses. An economic slowdown in the U.S. and abroad could
result in a decrease in spending and spending projections on capital equipment
that could impact the demand for our products. If, as a result of general
economic uncertainty or otherwise, companies reduce their product spending
levels, such a decrease in spending could substantially reduce demand for our
products, substantially harm our business, and have a material adverse effect
on
our business, results of operations and financial condition.
As
of December 30, 2006, we identified a material weakness in internal control
over
financial reporting, and concluded that our disclosure controls were not
effective. If we fail to 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 be misled and lose confidence in
our
financial reporting and disclosures, and the price of our common stock may
be
negatively affected.
The
Sarbanes-Oxley Act of 2002 requires that we report annually on the effectiveness
of our internal control over financial reporting. Among other things, we must
perform systems and process evaluation and testing. We must also conduct an
assessment of our internal controls to allow management to report on, and our
independent registered public accounting firm to attest to, our assessment
of
our internal control over financial reporting, as required by Section 404 of
the
Sarbanes-Oxley Act. A
“significant deficiency” means a deficiency in the design or operation of
internal control that adversely affects our ability to initiate, authorize,
record, process or report external financial data reliably in accordance with
generally accepted accounting principles such that there is more than a remote
likelihood that a misstatement of the annual or interim financial statements
that is more than inconsequential will occur and not be detected. A “material
weakness” is a significant deficiency, or a combination of significant
deficiencies, that result in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will occur and not
be
detected by management before the financial statements are
published.
In
connection with the assessment of our internal control over financial reporting
for this Annual Report on Form 10-K, as further described in Item 9A, management
and our registered public accounting firm determined that as of December 30,
2006 our disclosure controls and procedures were ineffective because of the
material weakness in our internal control over financial reporting. In addition,
in the future, our continued assessment, or the subsequent assessment by our
independent registered public accounting firm, may reveal additional
deficiencies in our internal controls and disclosure controls, some of which
may
require disclosure in future reports.
Although
we have made and are continuing to make improvements in our internal controls,
if we are unsuccessful in remediating the material weakness impacting our
internal control over financial reporting and disclosure controls, 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 and may negatively affect the price of our common stock.
Moreover, effective internal and disclosure controls are necessary to produce
accurate, reliable financial reports and to prevent fraud. If we continue to
have deficiencies in our internal control over financial reporting and
disclosure controls, they may negatively impact our business and
operations.
The
expansion of Lasertel into areas other than the production of laser diodes
for
our printing business may be unsuccessful.
Lasertel,
which was formed for the purpose of supplying us with laser diodes, has also
explored other markets for its laser technology. These efforts to develop other
markets were scaled back, in part, in June 2001, as we announced a restructuring
of Lasertel in order to reduce its costs and focus its efforts on supplying
us
with high quality laser diodes. While the plans to market its laser products
to
the telecommunications industry were delayed, Lasertel has developed laser
products for the defense industry and has continued its plans to develop laser
prototypes for
qualification
in the defense and industrial industries.
There can be no assurance that these products or prototypes will gain acceptance
in these industries and likewise, there can be no assurance that these products
will be commercially successful. Our executive team has limited experience
in
the telecommunications, defense and industrial industries and there can be
no
assurance that Lasertel will be able to successfully exploit any opportunities
that may arise.
The
failure of Lasertel to develop, commercialize or sell its products or future
products to various other industries could distract its management’s attention
and/or have an adverse impact on its financial condition or results of
operations, any of which could materially adversely affect our financial
condition. Conversely, any success that Lasertel achieves in developing,
commercializing or selling its products or future products to various other
industries
could cause delays in manufacturing of the laser diodes that it supplies to
us,
which could harm our business and could have an adverse effect on our financial
condition or results of operations.
Lasertel
may require additional working capital infusions from us, which may have a
material adverse effect on our business.
Lasertel
has required and will continue to require a significant amount of capital
investment by Presstek in order to fund its operations. For the fiscal year
ended December 30, 2006, Lasertel recorded a net loss from operations of $1.1
million. Lasertel has only had sales to a limited number of third parties to
date, and any loss of such customers or significant reduction in their purchases
from Lasertel could increase its reliance upon us for capital and resources.
Lasertel’s capital and working capital needs may exceed our ability to provide
such funds, requiring us to borrow against our credit facilities or seek to
obtain outside financing for Lasertel’s operations. This could have a material
adverse effect on our business, results of operations and financial
condition.
Our
success is dependent on our ability to maintain and protect our proprietary
rights.
Our
future success will depend, in large part, upon our intellectual property
rights, including patents, trademarks, trade secrets, proprietary know-how,
source codes and continuing technological innovation. We have been issued a
number of U.S. and foreign patents and we intend to register for additional
patents where we deem appropriate. We also hold seven registered trademarks
and
we may register additional trademarks where we deem appropriate. There can
be no
assurance, however, as to the issuance of any additional patents or trademarks
or the breadth or degree of protection that our patents, trademarks or other
intellectual property may afford us. The steps we have taken to protect our
intellectual property may not adequately prevent misappropriation or ensure
that
others will not develop competitive technologies or products. Further, the
laws
of certain territories in which our products are or may be developed,
manufactured or sold, may not protect our products and intellectual property
rights to the same extent as the laws of the United States.
There
is
rapid technological development in the electronic image reproduction industry,
resulting in extensive patent filings and a rapid rate of issuance of new
patents. Although we believe that our technology has been independently
developed
and that the products we market do not infringe the patents or violate the
proprietary rights of others, it is possible that such infringement of existing
or future patents or violation of proprietary rights may occur. In this regard,
third parties may in the future assert claims against us concerning our existing
products or with respect to future products under development by us. In such
event, we may be required to modify our product designs or obtain a license.
No
assurance can be given that we would be able to do so in a timely manner, upon
acceptable terms and conditions or even at all. The failure to do any of the
foregoing could have a material adverse effect on our business, results of
operations and financial condition. Furthermore, we have agreements with several
of our strategic partners which require us to indemnify the strategic partner
from claims made by third parties against them concerning our intellectual
property, and to defend the validity of the patents or otherwise ensure the
technology’s availability to the strategic partner. The costs of an
indemnification claim under any such agreement could have a material adverse
effect on our business.
In
March
2005, we filed an action against Creo, Inc. (subsequently acquired by Kodak)
in
the U.S. District for the District of New Hampshire for patent infringement.
In
this action, we allege that Creo has manufactured and distributed a product
that
violates a Presstek U.S. Patent. We are seeking an order from the court holding
that Creo
has
infringed the patent, permanently enjoining Kodak from infringing, inducing
others to infringe or contributing to the infringement of the Patent, and
seeking damages from Creo for the infringement.
In
September 2003, Presstek filed an action against Fuji Photo Film Corporation,
Ltd., in the District Court of Mannheim, Germany for patent infringement. In
this action, Presstek alleges that Fuji has manufactured and distributed a
product that violates Presstek European Patent 0 644 047 registered under number
DE 694 17 129 with the German Patent and Trademark Office. Presstek seeks an
order from the court that Fuji refrain from offering the infringing product
for
sale, from using the infringing material or introducing it for the named
purposes, and from possessing such infringing material.
We
may
take legal action to determine the validity and scope of third party rights
or
to defend against any allegations of infringement. In the course of pursuing
or
defending any of these actions we could incur significant costs and diversion
of
our resources. Due to the competitive nature of our industry, it is unlikely
that we could increase our product prices to cover such costs. There can be
no
assurance that we will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, we may be unable, for financial or other reasons, to enforce
our rights under any patents we may own. As an example of the cost and
uncertainty of patent litigation, in August 1999 Creo filed an action in the
United States District Court for the District of Delaware against us seeking
a
declaration that Creo’s products do not and will not infringe any valid and
enforceable claims of any of our patents in question. We counterclaimed against
Creo for patent infringement of certain of our patents. The matter went to
trial
in June 2001, and in September 2001, the court affirmed the validity and
enforceability of our on-press imaging patents, but held that the current Creo
DOP System did not infringe on our patents. Creo appealed the court’s decision
that our patents were valid and enforceable, and we cross-appealed the finding
of non-infringement by the current Creo DOP System. On September 17, 2002,
the
United States Court of Appeals for the Federal Circuit affirmed the lower
court’s decision that our patents are valid and enforceable, but that they are
not infringed by the current Creo DOP System. We incurred higher than expected
legal expenses in fiscal 2002 and 2001 due to this litigation. Any similar
litigation in the future is expected to be costly, yield uncertain results
and
could have a material effect on our business, results of operations and
financial condition.
We
also
rely on proprietary know-how and employ various methods to protect the source
codes, concepts, trade secrets, ideas and documentation relating to our
proprietary software and laser diode technology. However, such methods may
not
afford complete protection and there can be no assurance that others will not
independently develop such know-how or obtain access to our know-how or software
codes, concepts, trade secrets, ideas and documentation. Although we have and
expect to have confidentiality agreements with our employees and appropriate
vendors, there can be no assurance, however, that such arrangements will
adequately protect our trade secrets and proprietary know-how.
We
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. Our business activities, especially those at our Precision segment,
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 our production of plates could be delayed indefinitely, either
of
which could materially harm our business, financial condition and results of
operations.
On
October 30, 2006, a chemical was released from a mixing tank into a holding
pool
at our Precision segment manufacturing plant in Massachusetts, which caused
us
to temporarily cease digital and analog aluminum plate manufacturing operations
at this location. The chemical release was contained on-site, there were no
reported injuries, neighboring properties were not damaged and there are no
requirements for soil or groundwater remediation. At this time, the cause of
the
event is undetermined. Digital plate manufacturing was restarted on November
6,
2006. 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, Massachusetts of Precision-branded analog plates used in newspaper
applications.
We
face substantial competition in the sale of our
products.
We
compete with manufacturers of conventional presses and products utilizing
existing plate-making technology, as well as presses and other products
utilizing new technologies, including other types of direct-to-plate solutions
such as companies that employ electrophotography as their imaging technology.
Canon Inc., Hewlett Packard Company, Kodak and Xerox Corporation are companies
that have introduced color electrophotographic copier products. Various
companies are marketing product versions manufactured by these
companies.
We
are
also aware that there is a trend in the graphic arts industry to create
stand-alone computer-to-plate imaging devices for single and multi-color
applications. Most of the major corporations in the graphic arts industry have
developed and/or are developing and marketing off press computer-to-plate
imaging systems. To date, devices manufactured by our competitors, for the
most
part, utilize printing plates that require a post imaging photochemical
developing step, and in some cases, also require a heating process. Potential
competitors in this area include, among others, Agfa Gevaert N.V., Dai Nippon
Screen Manufacturing Ltd., Heidelberg and Kodak.
We
also
anticipate competition from plate manufacturing companies that manufacture
printing plates, or have the potential to manufacture digital thermal plates.
These companies include Agfa Gevaert N.V., Kodak and Fuji Photo Film Co., Ltd.
Heidelberg is marketing a competitive plate product as an alternative to
Presstek’s PEARLdry for the Quickmaster DI. The introduction of a competitive
plate could reduce the revenue generated by Presstek under its relationship
with
Heidelberg, and could have a material adverse effect on our business, results
of
operations and financial condition.
Products
incorporating our technologies can also be expected to face competition from
conventional methods of printing and creating printing plates. Most of the
companies marketing competitive products, or with the potential to do so, are
well established, have substantially greater financial, marketing and
distribution resources than us and have established reputations for success
in
the development, sale and service of products. There can be no assurance that
we
will be able to compete successfully in the future.
While
we
believe we have strong intellectual property protection covering many of our
technologies, there is no assurance that the breadth or degree of such
protection will be sufficient to prohibit or otherwise delay the introduction
of
competitive products or technologies. The introduction of competitive products
and technologies may have a material adverse effect on our business, results
of
operations and financial condition.
We
may not be able to adequately respond to changes in technology affecting the
printing industry.
Our
continuing product development efforts have focused on refining and improving
the performance of our PEARL and DI technology and our consumables and we
anticipate that we will continue to focus such efforts. The printing and
publishing industry has been characterized in recent years by rapid and
significant technological changes and frequent new product introductions.
Current competitors or new market entrants could introduce new or enhanced
products with features, which render our technologies, or products incorporating
our technologies, obsolete or less marketable. Our future success will depend,
in part, on our ability to:
· |
use
leading technologies effectively;
|
· |
continue
to develop our technical expertise and patented
position;
|
· |
enhance
our current products and develop new products that meet changing
customer
needs;
|
· |
time
new product introductions in a way that minimizes the impact of customers
delaying purchases of existing products in anticipation of new product
releases;
|
· |
adjust
the prices of our existing products to increase customer
demand;
|
· |
successfully
advertise and market our products; and
|
· |
influence
and respond to emerging industry standards and other technological
changes.
|
We
must
respond to changing technology and industry standards in a timely and
cost-effective manner. We may not be successful in effectively using new
technologies, developing new products or enhancing our existing products and
technology on a timely basis. Our new technologies or enhancements may not
achieve market acceptance. Our pursuit of new technologies may require
substantial time and expense. We may need to license new technologies to
respond
to technological change. These licenses may not be available to us on terms
that
we can accept. Finally, we may not succeed in adapting our products to new
technologies as they emerge.
Ongoing
litigation could have an adverse impact on our
business.
From
time
to time in the ordinary course of our business, we may be subject to
lawsuits.
On
October 26, 2006, we were served with a complaint naming the Company, together
with certain of its 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 purchases 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 thereunder. While we believe the allegations are without
merit
and intend to vigorously defend against them, we cannot assure an outcome that
is favorable to us, and an unfavorable outcome in connection with this or a
future lawsuit could have a material adverse effect on our business, results
of
operations and financial condition.
Presstek
is party to other litigation that it considers routine and incidental to its
business; however, it does not expect the results of any of these actions to
have a material adverse effect on its business, results of operation or
financial condition.
The
loss or unavailability of our key personnel would have a material adverse effect
on our business.
Our
success is largely dependent on the personal efforts of our senior management
team. We have employment agreements with Edward J. Marino, our President and
Chief Executive Officer, Jeffrey A. Cook, our Senior Vice President and Chief
Financial Officer, and certain other executives. 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 be dependent on our ability to hire and retain additional
qualified engineering, technical, sales, marketing and other personnel.
Competition for qualified personnel in our industry can be intense, and there
can be no assurance that we will be able to hire or retain additional qualified
personnel.
Our
stock price has been and could continue to be extremely
volatile.
The
market price of our common stock has been subject to significant fluctuations.
The securities markets, and the Nasdaq National Market in particular, have
experienced, and are likely to experience in the future, significant price
and
volume fluctuations that could adversely affect the market price of our common
stock without regard to our operating performance. In addition, the trading
price of our common stock could be subject to significant fluctuations in
response to:
· |
actual
or anticipated variations in our quarterly operating
results;
|
· |
significant
announcements by us or other industry participants;
|
· |
changes
in national or regional economic conditions;
|
· |
changes
in securities analysts’ estimates for us, our competitors or our industry,
or our failure to meet analysts’ expectations;
and
|
· |
general
market conditions.
|
These
factors may materially and adversely affect our stock price, regardless of
our
operating performance.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
The
following table summarizes our significant occupied properties:
Location
|
|
Functions
|
|
Square
footage (approximate)
|
|
Ownership
status/
lease
expiration
|
|
|
|
|
|
|
|
Hudson,
New Hampshire
|
|
Corporate
headquarters, manufacturing, research and development, marketing,
demonstration activities, administrative and customer
support
|
|
165,000
|
|
Owned
|
|
|
|
|
|
|
|
South
Hadley, Massachusetts (two buildings)
|
|
Manufacturing,
research and development, administrative support
|
|
100,000
|
|
Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tucson,
Arizona
|
|
Manufacturing,
research and development, administrative supports
|
|
75,000
|
|
Owned
|
|
|
|
|
|
|
|
Des
Plaines, Illinois
|
|
Distribution
center
|
|
127,000
|
|
Lease
expires in February 2008
|
|
|
|
|
|
|
|
Des
Plaines, Illinois
|
|
Sales,
service
|
|
10,000
|
|
Lease
expires in October 2007
|
|
|
|
|
|
|
|
Fresno,
California
|
|
Distribution
center
|
|
13,000
|
|
Lease
expires in July 2007
|
|
|
|
|
|
|
|
Harrisburg,
Pennsylvania
|
|
Distribution
center
|
|
15,000
|
|
Lease
expires in June 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mississauga,
Ontario
|
|
Sales,
service
|
|
28,000
|
|
Lease
expires in March 2010
|
|
|
|
|
|
|
|
Vancouver,
British Columbia
|
|
Sales,
service
|
|
10,500
|
|
Lease
expires in December 2007
|
|
|
|
|
|
|
|
Heathrow,
United Kingdom
|
|
European
headquarters, sales, service
|
|
20,000
|
|
Lease
expires in November 2020, with an option to cancel in November
2010
|
|
|
|
|
|
|
|
Our
Hudson, New Hampshire facility, in its capacity as corporate headquarters,
is
utilized by all of our operating segments.
Our
Presstek segment utilizes the facilities in New Hampshire, Massachusetts,
Illinois, New York, Pennsylvania, California, Ontario, British Columbia and
the
United Kingdom.
Our
Lasertel segment utilizes the facilities in Arizona.
In
addition to the properties referenced above, we also lease a number of small
sales and marketing offices in the United States and internationally. At
December 30, 2006, we were productively utilizing substantially all of the
space
in our facilities, with the exception of the Massachusetts facility, of which
one of the two buildings is not being fully utilized. This building was subject
to a chemical release on October 30, 2006 and has not been fully utilized
subsequent to this event. We believe that our existing facilities are adequate
for our needs for at least the next twelve months.
All
of
the properties we own are secured by our five-year, $80.0 million credit
facilities.
We
believe that our existing facilities are well maintained, in good operating
condition and are adequate for our current and expected future
operations.
Item
3. Legal
Proceedings
On
October 26, 2006, the Company was served with a complaint naming the Company,
together with certain of its 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 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. The Company believes the allegations are without merit and
intends to vigorously defend against them.
In
March
2005, we filed an action against Creo, Inc. (subsequently acquired by Kodak)
in
the U.S. District for the District of New Hampshire for patent infringement.
In
this action, we allege that Creo has distributed a product that violates a
Presstek U.S. Patent. We are seeking an order from the court that Creo refrain
from offering the infringing product for sale, from using the infringing
material or introducing it for the named purposes, or from possessing such
infringing material, and for the payment of damages associated with the
infringement.
In
September 2003, Presstek filed an action against Fuji Photo Film Corporation,
Ltd., in the District Court of Mannheim, Germany for patent infringement. In
this action, Presstek alleges that Fuji has manufactured and distributed a
product that violates Presstek European Patent 0 644 047 registered under number
DE 694 17 129 with the German Patent and Trademark Office. Presstek seeks an
order from the court that Fuji refrain from offering the infringing product
for
sale, from using the infringing material or introducing it for the named
purposes, and from possessing such infringing material. A trial was held in
November 2004 and March 2005, and we await a final determination from the
Courts.
In
our
Quarterly Report on Form 10-Q filed with the SEC on August 10, 2006, we reported
that we had brought an action against the Office of the Treasurer of the State
of Illinois. As disclosed in our Quarterly Report on Form 10-Q filed with the
SEC on November 9, 2006, as part of our settlement with an unrelated party,
we
withdrew our legal action against the Illinois State Treasurer’s
Office.
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.
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 National Market under the symbol “PRST”.
The following table sets forth the high and low bid prices per share of common
stock for each full quarterly period within the two most recently completed
fiscal years as reported by the Nasdaq National Market.
|
High
|
|
Low
|
Fiscal
year ended December 30, 2006
|
|
|
|
First
quarter
|
$
12.72
|
|
$
8.90
|
Second
quarter
|
$
12.05
|
|
$
8.93
|
Third
quarter
|
$
10.62
|
|
$
4.83
|
Fourth
quarter
|
$
6.89
|
|
$
5.09
|
|
|
|
|
Fiscal
year ended December 31, 2005
|
|
|
|
First
quarter
|
$
10.75
|
|
$
7.27
|
Second
quarter
|
$
11.75
|
|
$
7.05
|
Third
quarter
|
$
13.74
|
|
$
11.14
|
Fourth
quarter
|
$
13.20
|
|
$
8.73
|
On
April
2, 2007, there were 2,342 holders of record of our common stock. The closing
price of our common stock was $6.04 per share on April 2, 2007.
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.
Performance
Graph
The
Stock
Performance Graph set forth below compares the cumulative total return on the
Company’s Common Stock from December 28, 2001 through December 30, 2006, with
the cumulative total return for the Nasdaq Stock Market Index and the SIC Code
Printing Trades Machinery and Equipment Index which consists of the returns
of
Baldwin Technology (AMEX: BLD) and Delphax Technologies, Inc. (Nasdaq: DLPX).
The comparison assumes that $100 was invested on December 28, 2001 in the
Company’s Common Stock, the Nasdaq Stock Market Index and the stock of the SIC
Code Printing Trades Machinery and Equipment Index and assumes the reinvestment
of all dividends, if any.
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, Massachusetts of
Precision-branded analog plates used in newspaper applications. The results
of
operations for the years ended December 31, 2005 and January 1, 2005 have been
restated to reflect the analog newspaper business 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
|
|
|
|
December
30,
|
|
|
December
31,
|
|
|
January
1,
|
|
|
January
3,
|
|
|
December
28,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
(1)
|
|
|
2004
(2)
|
|
|
2002
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
265,694
|
|
$
|
259,134
|
|
$
|
121,453
|
|
$
|
87,232
|
|
$
|
83,453
|
|
Cost
of revenue
|
|
|
186,716
|
|
|
176,814
|
|
|
78,180
|
|
|
51,151
|
|
|
54,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
78,978
|
|
|
82,320
|
|
|
43,273
|
|
|
36,081
|
|
|
28,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
6,409
|
|
|
7,335
|
|
|
6,460
|
|
|
7,061
|
|
|
9,303
|
|
Sales,
marketing and customer support
|
|
|
39,970
|
|
|
40,241
|
|
|
17,574
|
|
|
12,272
|
|
|
10,767
|
|
General
and administrative
|
|
|
19,938
|
|
|
20,970
|
|
|
12,399
|
|
|
8,399
|
|
|
9,345
|
|
Amortization
of intangible assets
|
|
|
2,980
|
|
|
2,595
|
|
|
1,261
|
|
|
964
|
|
|
867
|
|
Restructuring
and special charges (credits)
|
|
|
5,481
|
|
|
874
|
|
|
(392
|
)
|
|
550
|
|
|
5,961
|
|
Total
operating expenses
|
|
|
74,778
|
|
|
72,015
|
|
|
37,302
|
|
|
29,246
|
|
|
36,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4,200
|
|
|
10,305
|
|
|
5,971
|
|
|
6,835
|
|
|
(7,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
(1,826
|
)
|
|
(2,220
|
)
|
|
(870
|
)
|
|
(167
|
)
|
|
(851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
income taxes
|
|
|
2,374
|
|
|
8,085
|
|
|
5,101
|
|
|
6,668
|
|
|
(8,280
|
)
|
Provision
(benefit) for income taxes
|
|
|
(10,643
|
)
|
|
1,164
|
|
|
166
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
13,017
|
|
|
6,921
|
|
|
4,935
|
|
|
6,668
|
|
|
(8,280
|
)
|
Income
(loss) from discontinued operations, net of income tax
|
|
|
(3,273
|
)
|
|
(835
|
)
|
|
(1,070
|
)
|
|
1,429
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
9,744
|
|
$
|
6,086
|
|
$
|
3,865
|
|
$
|
8,097
|
|
$
|
(8,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.36
|
|
$
|
0.20
|
|
$
|
0.14
|
|
$
|
0.20
|
|
$
|
(0.24
|
)
|
Income
(loss) from discontinued operations
|
|
|
(0.09
|
)
|
|
(0.03
|
)
|
|
(0.03
|
)
|
|
0.04
|
|
|
-
|
|
|
|
$
|
0.27
|
|
$
|
0.17
|
|
$
|
0.11
|
|
$
|
0.24
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.36
|
|
$
|
0.19
|
|
$
|
0.14
|
|
$
|
0.20
|
|
$
|
(0.24
|
)
|
Income
(loss) from discontinued operations
|
|
|
(0.09
|
)
|
|
(0.02
|
)
|
|
(0.03
|
)
|
|
0.04
|
|
|
-
|
|
|
|
$
|
0.27
|
|
$
|
0.17
|
|
$
|
0.11
|
|
$
|
0.24
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,565
|
|
|
35,153
|
|
|
34,558
|
|
|
34,167
|
|
|
34,124
|
|
Diluted
|
|
|
35,856
|
|
|
35,572
|
|
|
35,357
|
|
|
34,400
|
|
|
34,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
|
|
|
|
December
30,
|
|
|
December
31,
|
|
|
January
1,
|
|
|
January
3,
|
|
|
December
28,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$
|
47,498
|
|
$
|
41,392
|
|
$
|
41,117
|
|
$
|
42,512
|
|
$
|
28,572
|
|
Total
assets
|
|
$
|
198,014
|
|
$
|
181,487
|
|
$
|
171,318
|
|
$
|
106,528
|
|
$
|
101,796
|
|
Total
debt and capital lease obligations
|
|
$
|
37,572
|
|
$
|
35,643
|
|
$
|
41,822
|
|
$
|
14,464
|
|
$
|
16,707
|
|
Stockholders'
equity
|
|
$
|
111,237
|
|
$
|
98,633
|
|
$
|
89,402
|
|
$
|
80,183
|
|
$
|
71,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amounts include results of operations of ABD International, Inc.
(which
acquired certain assets and assumed certain liabilities of
|
The
A.B. Dick Company on November 5, 2004) and Precision Lithograining
Corp.
(acquired July 30, 2004) for the periods subsequent
|
to
their respective acquisitions.
|
(2)
The income from discontinued operations amount relates to the operations
of Delta V Technologies, Inc., which were shut down
|
in
fiscal 1999.
|
(3)
The cost of revenue amount reported for the fiscal year ended December
28,
2002 includes $3.7 million of inventory writedowns and
|
other
charges related to discontinued programs.
|
|
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following Management’s Discussion and Analysis should be read in connection with
“Item 1. Business”, “Item 1A. Risk Factors”, “Item 6. Selected Financial Data”,
“Item 7A. Quantitative and Qualitative Disclosures about Market Risks” and the
Company’s Consolidated Financial Statements and Notes thereto included in this
Annual Report on Form 10-K.
Overview
We
are a
market-focused company primarily engaged in the design, manufacture, sales
and
service of high-technology digital imaging solutions to the graphic arts
industry worldwide. We are helping to lead the industry’s transformation from
analog print production methods to digital imaging technology. We are a leader
in the development of advanced printing systems using digital imaging equipment
and consumables-based solutions that economically benefit the user through
a
streamlined workflow and chemistry free, environmentally responsible operation.
We are also a leading sales and service channel in the small to mid-sized
commercial, quick and in-plant printing markets offering a wide range of
solutions to over 20,000 customers worldwide.
Presstek’s
business model is a capital equipment and consumables (razor and blade) model.
In this model, approximately 63% of our revenue is recurring revenue. Our model
is designed so that each placement of either a Direct Imaging Press or a
Computer to Plate system results in recurring aftermarket revenue for
consumables and service.
Through
our various operations, we:
· |
provide
advanced print solutions through the development and manufacture
of
digital laser imaging equipment and advanced technology chemistry-free
printing plates, which we call consumables, for commercial and in-plant
print providers targeting the growing market for high quality, fast
turnaround short-run color
printing;
|
· |
are
a leading sales and services company delivering Presstek digital
solutions
and solutions from other manufacturing partners through our direct
sales
and service force and through distribution partners
worldwide;
|
· |
manufacture
semiconductor solid state laser diodes for Presstek imaging applications
and for use in external applications;
and
|
· |
distribute
printing plates for conventional print
applications.
|
We
have
developed a proprietary system by which digital images are transferred onto
printing plates for Direct Imaging on-press applications and for
computer-to-plate applications. We refer to Direct Imaging as DI and
computer-to-plate as CTP. Our digital imaging systems enable customers to
produce high-quality, full color lithographic printed materials more quickly
and
cost effectively than conventional methods that employ more complicated
workflows and toxic chemical processing. This results in reduced printing cycle
time and lowers the effective cost of production for commercial printers. Our
solutions make it more cost effective for printers to meet the increasing demand
for shorter print runs, higher quality color and faster turn-around
times.
Our
ground breaking DI technology is marketed to leading press manufacturers. Our
Presstek business segment supplies these manufacturers with imaging kits
complete with optical assemblies and software which are integrated into the
manufacturers’ presses. The result is a DI press, which is designed to image our
printing plates. Similar digital imaging technologies are used in our CTP
systems. Our Presstek business segment designs and manufactures CTP systems
that
incorporate our imaging technology and image our chemistry free printing
plates.
In
addition to marketing, selling and servicing our proprietary digital products,
we also market, sell and service
traditional,
or analog products for the commercial print market. This analog equipment is
manufactured by third party strategic partners and analog consumables are
manufactured by either us or our strategic partners. The addition of these
non-proprietary products and our ability to directly sell and service them
is
made possible by acquisitions we completed in 2004: ABDick and
Precision.
On
November 5, 2004, we, through our wholly-owned subsidiary, ABD International,
Inc. completed the acquisition of certain assets and assumed certain liabilities
of the The A.B. Dick Company, which we acquired through a Section 363 sale
in
the United States Bankruptcy Court. We refer to the business that we acquired
as
the ABDick business. The business we acquired manufactures, markets and services
offset systems, CTP systems and related supplies for the graphics arts and
printing industries. In 2005, we substantially completed the integration of
the
operations of the ABDick business into Presstek.
On
July
30, 2004, we acquired all the stock of Precision Lithograining Corporation,
an
independent plate manufacturer located in South Hadley, Massachusetts, which
we
refer to as Precision. Precision manufactures our Anthem and Freedom digital
printing plates and prior to December 28, 2006, the date on which the company
discontinued operations related to Precision’s newspaper analog business, it
provided conventional analog printing plates for web and sheet-fed applications
to external customers.
Lasertel,
Inc., a subsidiary of Presstek, is primarily engaged in the manufacture and
development of high-powered laser diodes for Presstek and for sale to external
customers. Lasertel’s products include semiconductor lasers and active
components for the graphics, defense, industrial, and medical industries.
Lasertel offers high-powered laser diodes in both standard and customized
configurations, including chip on sub-mount, un-mounted bars, and fiber-coupled
devices, to support various applications.
Our
operations are organized based on the market application of our products and
related services and consist of two reportable 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 as well as traditional, analog systems and related equipment
and supplies for the graphic arts and printing industries, primarily the
short-run, full-color market segment. The Lasertel segment manufactures and
develops high-powered laser diodes for Presstek and for sale to external
customers.
We
generate revenue through four main sources: (i) the sale of our equipment,
including DI presses and CTP devices, as well as imaging kits, which are
incorporated by leading press manufacturers into direct imaging presses for
the
graphic arts industry; (ii) the sale of high-powered laser diodes for the
graphic arts, defense and industrial sectors; (iii) the sale of our proprietary
and non-proprietary consumables and supplies; and (iv) the servicing of offset
printing systems and analog and CTP systems and related equipment.
Our
business strategy is centered on maximizing the sale of consumable products,
such as printing plates, and therefore our business efforts focus on the sale
of
“consumable burning engines” such as our DI presses and CTP devices. Our
strategy to grow our consumables has two parts. The first part is to increase
the number of our DI and CTP units in the field. By increasing the number of
consumable burning engines we expect to increase the demand for our
consumables.
We
rely
on partnerships with press manufacturers such as Ryobi Limited, Heidelberger
Druckmaschinen AG, or Heidelberg, and Koenig & Bower AG, or KBA, to market
printing presses and press solutions that use our proprietary consumables.
We
also rely on distribution partners, such as Eastman Kodak to sell, distribute
and service press systems and the related proprietary consumable
products.
Another
method of growing the market for consumables is to develop consumables that
can
be imaged by non-Presstek devices. In addition to expanding our base of our
consumable burning engines, an element of our focus is to reach beyond our
proprietary systems and penetrate the installed base of CTP devices in all
market segments with our chemistry free and process-free offerings. The first
step in executing this strategy was the launch of our non-proprietary Aurora
chemistry-free printing plate designed to be used with consumable burning
engines manufactured by thermal CTP market leaders Screen and Kodak. We continue
to work with other CTP
manufacturers
to qualify our consumables on their systems. We believe this shift in strategy
fundamentally enhances our ability to expand and control our business.
We
operate and report on a 52- or 53-week, fiscal year ending on the Saturday
closest to December 31. Accordingly, the consolidated financial statements
include the financial reports for the 52-week fiscal year ended December 30,
2006, which we refer to as “fiscal 2006”, the 52-week fiscal year ended December
31, 2005, which we refer to as “fiscal 2005”, and the 52-week fiscal year ended
January 1, 2005, which we refer to as “fiscal 2004”.
We
intend
the discussion of our financial condition and results of operations that follows
to provide information that will assist in understanding our consolidated
financial statements, the changes in certain key items in those financial
statements from year to year, and the primary factors that accounted for those
changes, as well as how certain accounting principles, policies and estimates
affect our consolidated financial statements.
The
discussion of results of operations at the consolidated level is presented
together with results of operations by business segment.
RESULTS
OF OPERATIONS
Results
of operations in dollars and as a percentage of revenue were as follows (in
thousands of dollars):
|
|
Fiscal
year ended
|
|
|
|
December
30, 2006 1
|
|
December
31, 20051
|
|
January
1, 20051
|
|
|
|
|
|
%
of
revenue
|
|
|
|
%
of
revenue
|
|
|
|
%
of
revenue
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
220,724
|
|
|
83.1
|
|
$
|
210,613
|
|
|
81.3
|
|
$
|
108,390
|
|
|
89.2
|
|
Service
and parts
|
|
|
44,970
|
|
|
16.9
|
|
|
48,521
|
|
|
18.7
|
|
|
13,063
|
|
|
10.8
|
|
Total
revenue
|
|
|
265,694
|
|
|
100.0
|
|
|
259,134
|
|
|
100.0
|
|
|
121,453
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
154,250
|
|
|
58.1
|
|
|
143,952
|
|
|
55.5
|
|
|
69,045
|
|
|
56.9
|
|
Service
and parts
|
|
|
32,466
|
|
|
12.2
|
|
|
32,862
|
|
|
12.7
|
|
|
9,135
|
|
|
7.5
|
|
Total
cost of revenue
|
|
|
186,716
|
|
|
70.3
|
|
|
176,814
|
|
|
68.2
|
|
|
78,180
|
|
|
64.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
78,978
|
|
|
29.7
|
|
|
82,320
|
|
|
31.8
|
|
|
43,273
|
|
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
6,409
|
|
|
2.4
|
|
|
7,335
|
|
|
2.8
|
|
|
6,460
|
|
|
5.3
|
|
Sales,
marketing and customer support
|
|
|
39,970
|
|
|
15.0
|
|
|
40,241
|
|
|
15.6
|
|
|
17,574
|
|
|
14.5
|
|
General
and administrative
|
|
|
19,938
|
|
|
7.5
|
|
|
20,970
|
|
|
8.1
|
|
|
12,399
|
|
|
10.2
|
|
Amortization
of intangible assets
|
|
|
2,980
|
|
|
1.1
|
|
|
2,595
|
|
|
1.0
|
|
|
1,261
|
|
|
1.0
|
|
Restructuring
and other charges (credits)
|
|
|
5,481
|
|
|
2.1
|
|
|
874
|
|
|
0.3
|
|
|
(392
|
)
|
|
(0.3
|
)
|
Total
operating expenses
|
|
|
74,778
|
|
|
28.1
|
|
|
72,015
|
|
|
27.8
|
|
|
37,302
|
|
|
30.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4,200
|
|
|
1.6
|
|
|
10,305
|
|
|
4.0
|
|
|
5,971
|
|
|
4.9
|
|
Interest
and other expense, net
|
|
|
(1,826
|
)
|
|
(0.7
|
)
|
|
(2,220
|
)
|
|
(0.9
|
)
|
|
(870
|
)
|
|
(0.7
|
)
|
Income
from continuing operations before income taxes
|
|
|
2,374
|
|
|
0.9
|
|
|
8,085
|
|
|
3.1
|
|
|
5,101
|
|
|
4.2
|
|
Provision
(benefit) for income taxes
|
|
|
(10,643
|
)
|
|
(4.0
|
)
|
|
1,164
|
|
|
0.4
|
|
|
166
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
13,017
|
|
|
4.9
|
|
|
6,921
|
|
|
2.7
|
|
|
4,935
|
|
|
4.1
|
|
Loss
from discontinued operations
|
|
|
(3,273
|
)
|
|
(1.2
|
)
|
|
(835
|
)
|
|
(0.3
|
)
|
|
(1,070
|
)
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,744
|
|
|
3.7
|
|
$
|
6,086
|
|
|
2.4
|
|
$
|
3,865
|
|
|
3.2
|
|
1
-
Operating results related to the Precision analog newspaper business have been
reclassified to discontinued operations for all periods presented. See Note
3 of
Notes to Consolidated Financial Statements.
Fiscal
2006 Compared to Fiscal 2005
Revenue
Consolidated
Revenue
Consolidated
revenues were $265.7 million in fiscal 2006, an increase of $6.6 million, or
2.5%, from $259.1 million in fiscal 2005. Equipment revenues increased $13.7
million over fiscal 2005 resulting from strong DI unit sales, including the
introduction of the new 52DI press. Partially offsetting increases in equipment
revenue was a decline in both consumables and service revenues ($3.6 million
each) driven principally from a continuing slowdown in analog sales. Consistent
with our strategy of migrating our customer base to digital solutions, digital
product sales improved from $143.4 million in 2005 to $170.5 million in 2006,
an
increase of 18.9% year over year. As a percentage of total product revenues,
sales of digital solutions increased from approximately 68% in 2005 to
approximately 77% in 2006.
Equipment
revenues were $97.6 million in 2006 compared to $83.9 million in 2005, an
increase of $13.7 million, or 16.4%. Growth in equipment revenues was due
primarily to a 72.8% increase in the number of DI presses sold in fiscal 2006
compared to fiscal 2005, driven largely by growth in our 34DI product sales
and
the introduction of the new 52DI press. Total DI equipment sales were strong
in
both the North American and European markets during 2006, as revenues improved
by $12.2 million, or 46.7%, and $12.3 million, or 220.0%, respectively. Fiscal
2006 equipment revenues were also favorably impacted by the launch of a new
generation CTP system, the Vector TX52, in the fourth quarter of 2005. The
Vector TX52 accounted for $4.1 million of revenue in fiscal 2006, an increase
of
$2.0 million, or 96.0%, compared to fiscal 2005. Offsetting these items were
lower DPM and Dimension sales, which declined by $3.7 million, or 51.5%, and
$3.4 million, or 25.8%, respectively. Sales of these units were impacted by
competitive pressures, as well as quality issues on both equipment units and
related consumable plates (AnthemPro). Analog equipment revenues also declined
from $22.7 million in 2005 to $14.0 million in 2006. This decline reflects
the
transition of our customer base from analog to digital solutions, however,
we do
anticipate that sales of analog solutions will level off and stabilize as a
percentage of our total revenue in the near term. Overall, digital equipment
sales in the Presstek segment increased 34.8% from $57.0 million in 2005 to
$76.8 million in 2006. On a consolidated basis, digital sales as a percentage
of
total equipment revenues in 2006 accounted for 85.6% of sales compared to 72.5%
in 2005.
Revenue
for the Lasertel segment of $11.5 million in 2006 represented a year over year
increase of 47.8%, or $3.7 million, due primarily to the addition of two new
customers, as well as higher sales to the Presstek segment.
Revenues
generated from consumables sales decreased 3.0% year over year, from $126.8
million in 2005 to $123.1 million in 2006. The decrease in sales was primarily
attributable to the anticipated slowdown in the analog market resulting from
the
continued migration of our customer base from analog to digital solutions.
Total
analog consumables sales declined from $44.5 million in 2005 to $36.1 million
in
2006, a decrease of 18.9%. Partially offsetting this decline were improved
sales
of digital products, which increased from $82.4 million in 2005 to $87.0 million
in 2006. This increase was primarily due to increased placements of DI and
CTP
equipment and strengthening relationships with OEM partners. These increases
were partially offset by declines in older technology digital lines such as
DPM
consumables. Overall, digital sales of consumables products increased $4.6
million year over year, or 5.6%, from $82.4 million in fiscal 2005 to $87.0
million in fiscal 2006. As a percentage of total consumables revenues, digital
sales accounted for 70.6% of sales in 2006 compared to 65.0% in
2005.
Service
and parts revenues were $45.0 million in 2006, a decrease of $3.5 million,
or
7.3%, compared to $48.5 million in 2005. The decrease in revenue was due
primarily to the elimination of certain legacy service contracts, as well as
a
reduction in billable service and analog parts sales as our customer base
continues to migrate to digital solutions.
Cost
of Revenue
Consolidated
cost of product, consisting of costs of material, labor and overhead, shipping
and handling costs and warranty expenses, was $154.2 million in fiscal 2006,
an
increase of $10.3 million, or 7.2%, compared to fiscal 2005. This increase
was
primarily the result of increased product revenues year over year. In
addition, Presstek recorded
$0.6 million of incremental warranty costs related to the Vector TX52 and
AnthemPro plate quality issues experienced during 2006.
Consolidated
cost of service and parts revenues was $32.5 million in fiscal 2006, slightly
lower than the $32.9 million reported in 2005. These amounts represent the
costs
of spare parts, labor and overhead associated with the ongoing service of
products. Costs in 2006 were impacted by higher fuel expenses, as well as
increased technology costs related to an upgrade of the communications and
logistics capabilities of our service technicians and engineers. These costs
were offset by the termination of 47 service personnel in North America and
the
use of independent service contractors during the second half of 2006, the
result of a restructuring plan intended to realign our service costs with a
declining analog revenue base.
Gross
Margin
Consolidated
gross margin as a percentage of total revenue was 29.7% in 2006 compared to
31.8% in 2005. Gross margin as a percentage of product revenue was 30.1%
compared to 31.7% in 2005. The product gross margin decrease reflects a heavier
mix of equipment revenues as a percentage of total sales, which historically
carry significantly lower margins than Presstek’s consumables line of products,
increased warranty costs related to quality issues experienced with our Vector
TX52 and AnthemPro plates, partially offset by improved margins in our Lasertel
segment.
Gross
margin as a percentage of service and parts revenues decreased from 32.3% in
2005 to 27.8% in 2006. The decrease in margin percentage is principally due
to a
decline in the analog contract revenue base, which despite restructuring action
taken to realign fixed service delivery costs in the second half of 2006,
negatively impacted margins. We are currently working to transition our legacy
analog service contracts to a time and materials model which, in the short-term,
due to fixed price arrangements on these contracts, has exerted additional
downward pressure on our service margins.
Research
and Development
Research
and development expenses primarily consist of payroll and related expenses
for
personnel, parts and supplies, and contracted services required to conduct
our
equipment, consumables and laser diode development efforts.
Consolidated
research and development expenses were $6.4 million in fiscal 2006 compared
to
$7.3 million in fiscal 2005. The decrease is principally attributable to
efficiencies realized from the integration of the acquired ABDick business
into
the company during the fourth quarter of 2005.
Research
and development expenses for the Presstek segment were $5.3 million in 2006,
a
decrease of $1.1 million compared to 2005. This decrease is primarily
attributable to efficiencies realized from the integration of the ABDick
business into this segment.
Research
and development expenses for the Lasertel segment were $1.1 million in 2006
compared to $0.9 million in 2005. The increase reflects increased development
costs associated with specialized new products for third party foreign
customers.
Sales,
Marketing and Customer Support
Sales,
marketing and customer support expenses primarily consist of payroll and related
expenses for personnel, advertising, trade shows, promotional expenses, and
travel costs associated with sales, marketing and customer support
activities.
To
improve operations, we took steps in both fiscal 2005 and 2006 to strengthen
capacity and capability within the sales, marketing and customer support area
through reorganization, training in advanced technology products and services,
and changes in key personnel. We also eliminated costs, primarily for customer
support and marketing personnel by integrating U.S. marketing and customer
support operations within the Presstek segment. As we continue to pursue
initiatives designed to drive penetration of Presstek technology in the
marketplace, we expect expenses in this area to increase in absolute dollars
in
future periods.
Consolidated
sales, marketing and customer support expenses of $40.0 million in fiscal 2006
were relatively unchanged from expenses of $40.2 million in fiscal
2005.
Sales,
marketing and customer support expenses for the Presstek segment were $39.5
million and $39.9 million in 2006 and 2005, respectively.
Sales,
marketing and customer support expenses for the Lasertel segment increased
from
$0.3 million in 2005 to $0.5 million in 2006.
General
and Administrative
Consolidated
general and administrative expenses, primarily comprised of payroll and related
expenses for personnel, and contracted professional services necessary to
conduct our finance, information systems, human resources and administrative
activities, were $19.9 million in 2006 compared to $21.0 million in 2005. This
decrease is primarily attributable to cost savings realized by the integration
of the ABDick U.S. operations into Presstek. As a percentage of total sales,
consolidated general and administrative expenses declined from 8.1% in 2005
to
7.5% in 2006. We anticipate that general and administrative expenses will
continue to decrease as a percentage of revenue in future periods, as our
strategy is to position the growth of general and administrative expenses at
lower rates than the growth of revenue and as the impact of integration actions
is fully realized.
General
and administrative expenses for the Presstek segment were $18.9 million in
fiscal 2006, compared to $20.1 million in fiscal 2005. The decrease in expense
is primarily attributable to the elimination of redundant costs resulting from
the integration of the ABDick U.S. operations into the segment.
General
and administrative expenses for the Lasertel segment increased $0.3 million
to
$1.1 million in fiscal 2006 from $0.8 million in fiscal 2005. This increase
was
due primarily to a change in allowance for doubtful accounts arising from
certain customer accounts.
Amortization
of Intangible Assets
Intangible
asset amortization expense increased from $2.6 million in 2005 to $3.0 million
in 2006. Amortization relates to intangible assets recorded in connection with
the Company’s 2004 ABDick and Precision acquisitions, patents and other
purchased intangible assets.
Restructuring
and Other Charges (Credits)
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 litigation matter, $2.8 million
related to impairment of goodwill resulting from 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.
In
fiscal
2005, we recognized $0.9 million of restructuring and other charges related
to
Precision and ABDick. These charges included severance and fringe benefit costs,
executive and other contractual obligations, and a settlement with previously
terminated employees.
Interest
and Other Income (Expense), Net
Net
interest expense was $2.2 million in fiscal 2006 compared to $2.3 million in
fiscal 2005. The decrease in the current year period is attributable to lower
outstanding long-term debt resulting from the repayments of
principal.
On
September 7, 2006, an agreement related to the ABDick acquisition under which
we
were reimbursed $1.2 million was approved by the United States Bankruptcy Court
for the District of Delaware. The net amount, after reductions for legal fees
and additional adjustments for settlement of various assets and liabilities
related to this action, totaled $0.3 million, and is included as a component
of
Interest and other income (expense), net, in our Consolidated Statements of
Operations for the year ended December 30, 2006. The balance of other income
(expense), net relates to gains or losses on foreign currency transactions
for
all periods presented.
Provision
(Benefit) for Income Taxes
Our
effective tax rate was (448.3%) in fiscal 2006 and 14.4% in fiscal 2005. 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.
The
variance from the federal statutory rate for fiscal 2005 was primarily due
to
the utilization of net operating losses previously offset by a valuation
allowance, foreign taxes, and alternative minimum taxes.
In
fiscal
2006, in accordance with Statement of Financial Accounting Standards 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 conducted during fiscal 2006, the Company concluded that
evidence exists to support the U.S. valuation allowance reversal as of December
30, 2006.
During
2007, we expect our income tax provision to reflect statutory federal and state
tax rates.
Fiscal
2005 Compared to Fiscal 2004
Revenue
Consolidated
Revenue
Consolidated
revenues were $259.1 million in fiscal 2005, an increase of $137.6 million,
or
113.4%, from $121.5 million of consolidated revenues in fiscal 2004. Revenue
growth in fiscal 2005 reflects the impact of our acquisition strategy launched
in 2004 with the Precision and ABDick acquisitions and our success in
integrating these operations into our business in 2005. We grew our digital
technology base significantly in fiscal 2005, with digital product revenues
increasing from $98.6 million in fiscal 2004 to $143.4 million in fiscal 2005,
an increase of 45.4%.
Product
equipment revenues, including royalties, were $83.9 million in fiscal 2005,
an
increase of $42.0 million, or 100.4%, from fiscal 2004. The fiscal 2005 increase
is primarily attributable to the ABDick acquisition, which business’s direct
sales channel favorably impacted our installed base of DI and CTP presses,
referred to as consumable burning engines, or CBEs, sold in the current period.
We increased digital equipment sales by approximately 300 units, or $23.1
million, in fiscal 2005.
Revenues
generated from consumable product sales were $126.8 million in fiscal 2005,
an
increase of $60.2 million, or 90.5%, from the prior fiscal year. The increase
is
attributable primarily to incremental revenues associated with the Precision
and
ABDick acquisitions.
Service
and parts revenues were $48.5 million in fiscal 2005, an increase of $35.5
million, or 271.4%, from the prior fiscal year. The increase is attributable
primarily to incremental revenue derived from the ABDick
acquisition.
Segment
Revenue
The
following business segment revenue information includes intersegment revenues
for the Lasertel segment. Intersegment revenues are eliminated in
consolidation.
Presstek
Segment
Revenue
for the Presstek segment was $255.4 million in fiscal 2005, an increase of
$136.8 million, or 115.3%, compared to $118.6 million in fiscal 2004. This
revenue increase is primarily attributable to the incremental sales generated
from the acquisition of the ABDick business and the introduction of Presstek
technology products into those new distribution channels. Equipment, consumables
and service/parts revenues increased by $41.2 million, $60.2 million and $35.4
million, respectively.
Digital
product revenues in the Presstek segment increased 45.8% from $95.8 million
in
fiscal 2004 to $139.6 million in fiscal 2005. A primary factor in the increase
in digital revenues in fiscal 2005 was an 84% increase in sales of CBEs. Product
equipment revenue was also favorably impacted by the direct sales channel
acquired in the ABDick acquisition and the launch of the Vector TX52, a new
generation of CTP system, into U.S. and European markets, which contributed
$1.2
million in incremental revenue in fiscal 2005.
In
fiscal
2005, we experienced organic growth in several consumable digital product lines,
including Profire Digital Media plates, which increased $1.9 million, or 414%
year over year. In addition, we entered into several strategic consumable
relationships, including those with Heidleberg naming the Quickmaster DI as
a
preferred plate and Screen USA to market consumable plate products in
non-Presstek proprietary CTP systems.
In
fiscal
2005, we brought back to Presstek the previously outsourced service of our
digital equipment and introduced DI training to service engineers and customer
support to drive digital service growth. Our digital service contract mix
increased from 18% to 24% in fiscal 2005.
Lasertel
Segment
Revenue
for the Lasertel segment was $7.8 million in both fiscal 2005 and fiscal 2004.
Revenue earned from external customers increased $0.9 million, from $2.9 million
in fiscal 2004 to $3.8 million in fiscal 2005, primarily due to the addition
of
two significant new customers in the defense and industrial fields.
Cost
of Revenue
Consolidated
Cost of Revenue
Consolidated
cost of product, consisting of costs of material, labor and overhead, shipping
and handling costs and warranty expenses, was $144.0 million in fiscal 2005,
an
increase of $74.9 million, or 108.5%, from $69.0 million in fiscal 2004. The
increase is primarily attributable to additional cost of product associated
with
the Precision and ABDick businesses acquisitions and higher revenues in fiscal
2005.
Consolidated
cost of service and parts was $32.9 million in fiscal 2005 and $9.1 million
in
fiscal 2004. These amounts represent the costs of spare parts, labor and
overhead associated with the ongoing service of products. These increases are
attributable primarily to the addition of the ABDick business in November
2004.
Segment
Cost of Revenue
Cost
of
revenue for the Presstek segment was $170.5 million in fiscal 2005, an increase
of $98.5 million, compared to $72.0 million in fiscal 2004. The increase relates
primarily to the addition of ABDick and higher production costs driven by
increased equipment, consumable and parts sales.
Cost
of
revenue for the Lasertel segment was $9.1 million in fiscal 2005, compared
to
$9.5 million in fiscal 2004. The decrease in fiscal 2005 relates to production
efficiency gains, yield improvements, and, to a lesser extent, a change in
the
lives of certain machinery and equipment from five to seven years, resulting
in
a reduction of depreciation costs of $0.4 million in both the fourth quarter
and
fiscal 2005. This change in estimate positively impacted net income by $0.3
million and earnings per share on both a basic and diluted basis by $0.01 in
both the fiscal 2005 fourth quarter and year.
Consolidated
Gross Margin
Consolidated
gross margin as a percentage of total revenue was 31.8% in fiscal 2005, compared
to 35.6% in fiscal 2004. Gross margin as a percentage of product revenue was
31.7% in fiscal 2005, compared to 36.3% in fiscal 2004. The product gross margin
percentage decrease in fiscal 2005 is primarily the result of the addition
of
the Precision and ABDick businesses, together with a higher mix of equipment
revenues, which historically carry lower gross margins than Presstek’s core
business.
Gross
margin as a percentage of service and parts revenue was 32.3% and 30.1% in
fiscal 2005 and 2004, respectively. The service and parts gross margin
percentage increase in fiscal 2005 is attributable to integration savings
resulting from consolidating operations and a shift from an outsourced service
provider to internal services.
Research
and Development
Research
and development expenses primarily consist of payroll and related expenses
for
personnel, parts and supplies, and contracted services required to conduct
our
equipment, consumables and laser diode development efforts. Our research and
development team also contribute to the development, presentation, and launch
of
new technology products at key industry shows in the U.S. and
Europe.
Consolidated
research and development expenses were $7.3 million in fiscal 2005, an increase
of $0.8 million, or 13.5%, from $6.5 million in fiscal 2004. The increase is
attributable to additional costs associated with the Precision and ABDick
business acquisitions, partially offset by development supplies costs incurred
in fiscal 2004 in preparation for the Drupa trade show that were not incurred
in
2005. As a percentage of revenue, research and development expenses declined
from 5.3% to 2.8% in fiscal 2005.
Research
and development expenses for the Presstek segment were $6.4 million in fiscal
2005, an increase of $0.5 million, or 9.3%, compared to $5.9 million in fiscal
2004. This increase is due to increased salary and benefits costs, partially
offset by $0.6 million of development parts and supply costs incurred in fiscal
2004 in preparation for the Drupa trade show that were not incurred in fiscal
2005.
Research
and development expenses for the Lasertel segment were $0.9 million in fiscal
2005, an increase of $0.3 million, compared to $0.6 million in fiscal 2004.
This
increase relates primarily to increased salary and benefits costs from
additional development personnel associated with new product activities,
combined with increased development parts and supplies expenses.
Sales,
Marketing and Customer Support
Sales,
marketing and customer support expenses primarily consist of payroll and related
expenses for personnel, advertising, trade shows, promotional expenses, and
travel costs associated with sales, marketing and customer support
activities.
Consolidated
sales, marketing and customer support expenses were $40.2 million in fiscal
2005, an increase of $22.6 million, or 129.0%, from $17.6 million in fiscal
2004. The increases are primarily attributable to the Precision and ABDick
acquisitions, partially offset by operating costs of $0.4 million incurred
in
fiscal 2004 in preparation for the Drupa trade show that were not incurred
in
2005.
Sales,
marketing and customer support expenses for the Presstek segment were $39.8
million in fiscal 2005, an increase of $22.7 million, compared to $17.1 million
in fiscal 2004. The increase in fiscal 2005 is attributable to the ABDick
acquisition, partially offset by operating costs of $0.4 million incurred in
fiscal 2004 in preparation for the Drupa trade show that were not incurred
in
2005.
Sales
and
marketing expenses for the Lasertel segment were $0.4 million in both fiscal
2005 and fiscal 2004. These costs reflect a continuing drive to enhance external
revenues from customers in the defense and industrial fields.
General
and Administrative
Consolidated
general and administrative expenses, primarily comprised of payroll and related
expenses for personnel, and contracted professional services necessary to
conduct our finance, information systems, human resources and administrative
activities, were $21.0 million in fiscal 2005, an increase of $8.6 million,
or
69.1%, compared to $12.4 million in fiscal 2004. The increase is primarily
attributable to the acquisitions of ABDick and Precision, combined with
salaries, benefits, professional fees and integration costs incurred by the
Presstek segment.
General
and administrative expenses were 8.1% of total revenue in fiscal 2005 compared
to 10.2% in fiscal 2004. The decrease in fiscal 2005 reflects integration
savings associated with the consolidation of operations of both Precision and
ABDick, as well as overall revenue growth of 113.4% in the period due to such
acquisitions.
General
and administrative expenses for the Presstek segment were $20.1 million in
fiscal 2005, an increase of $8.6 million, or 75.2%, compared to $11.5 million
in
fiscal 2004. This increase is primarily attributable to additional general
and
administrative costs associated with the ABDick acquisition, coupled with higher
salary and benefit costs and increased fees for professional
services.
General
and administrative expenses for the Lasertel segment were $0.8 million in fiscal
2005 and $0.9 million in fiscal 2004.
Amortization
of Intangible Assets
Amortization
expense of $2.6 million and $1.3 million in fiscal 2005 and fiscal 2004,
respectively, relates to intangible assets recorded in connection with the
Company’s 2004 ABDick and Precision acquisitions, patents and other purchased
intangible assets.
Restructuring
and Other Charges/Credits
In
fiscal
2005, we charged $0.9 million of restructuring and other charges related to
Precision and ABDick to results of operations. These charges consisted of
severance and fringe benefit costs, executive and other contractual obligations,
and a settlement with previously terminated employees. In fiscal 2005, we also
incurred net costs of $1.5 million associated with the integration of ABDick
into Presstek. These costs were recorded as an adjustment to the purchase price
of the acquisition.
In
fiscal
2004, we reversed $0.4 million of excess restructuring charges related to
estimated severance and fringe benefits accrued in fiscal 2003 and 2002 as
a
result of lower actual fringe benefit costs.
Interest
and Other Income/Expense, Net
Interest
expense was $2.5 million in fiscal 2005, an increase of $1.6 million from $0.9
million in fiscal 2004. The increase in interest expense is primarily
attributable to higher average debt balances related to financing the two
acquisitions
completed in 2004 and higher interest rates on borrowings. Effective August
31,
2005, we amended our debt facilities to reduce the current applicable LIBOR
Margin to 2.5%, from the previous Applicable LIBOR Margin of 3.5%.
We
recorded interest income of $0.1 million and $0.3 million in fiscal 2005 and
fiscal 2004, respectively. The decrease in fiscal 2005 is principally a result
of decreased cash balances available for investment.
The
primary components of other income (expense), net, are gains or losses on
foreign currency transactions and disposals of long-lived assets. In fiscal
2005
and fiscal 2004, we recorded losses on foreign currency transactions of $3,000
and $133,000, respectively. We recognized losses on the disposals of long-lived
assets totaling $153,000 and $24,000 in fiscal 2005 and fiscal 2004,
respectively.
Provision
for Income Taxes
Our
effective tax rate was 14.4% in fiscal 2005 and 3.3% in fiscal 2004. The
variance from the federal statutory rate for fiscal 2005 was primarily due
to
the recognition of a non-cash deferred tax liability for goodwill, foreign
taxes, and alternative minimum taxes.
In
fiscal
2004, our effective tax rate differed from the federal statutory rate primarily
due to state, foreign and alternative minimum tax, offset by changes in the
valuation allowance.
At
December 31, 2005, we had net deferred tax assets of approximately $36.0 million
which were subject to consideration of a valuation allowance. A full valuation
allowance was provided against the net deferred tax assets in the U.S. due
to
the uncertainty of their realization.
Discontinued
Operations
The
Company accounts for its discontinued operations under the provisions of SFAS
No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets,
(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
Income. 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 classified on a
consistent basis.
Precision
Lithograining Corp. - Analog Newspaper Business
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,
Massachusetts 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):
|
December
30, 2006
|
December
31, 2005
|
January
1, 2005
|
Revenue
|
$
10,816
|
$
15,006
|
$
8,398
|
Loss
before income taxes
|
(2,267)
|
(825)
|
(1,036)
|
Provision
(benefit) for income taxes
|
(771)
|
10
|
34
|
Loss
from discontinued operations
|
(1,496)
|
(835)
|
(1,070)
|
Loss
from disposal of discontinued operations, net of tax benefit of $915
for
the year ended December 30, 2006
|
(1,777)
|
--
|
--
|
Net
loss from discontinued operations
|
$
(3,273)
|
$
(835)
|
$
(1,070)
|
Loss
per diluted share
|
$
(0.09)
|
$
(0.02)
|
$
(0.03)
|
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 (credits) of continuing operations, and the
remaining charges included in the loss from discontinued operations for fiscal
2006.
Liquidity
and Capital Resources
We
finance our operating and capital investment requirements primarily through
cash
flows from operations and borrowings. At December 30, 2006, we had $9.4 million
of cash and $47.5 million of working capital, compared to $5.6 million of cash
and $41.4 million of working capital at December 31, 2005.
Continuing
Operations
Our
operating activities provided $12.8 million of cash in fiscal 2006. Cash
provided by operating activities came from net income, after adjustments for
non-cash depreciation, amortization, restructuring and merger-related expenses,
provisions for warranty costs and accounts receivable allowances, stock
compensation expense, deferred income taxes, and losses on the disposal of
assets. Cash provided by operating activities were further benefited from a
decrease in inventory levels of $2.2 million and an increase of $9.2 million
in
accounts payable. The decrease in inventory levels reflects our continued focus
on inventory management. Accounts payable increases primarily relate to the
timing of purchases and payments to suppliers. These amounts were partially
offset by an increase of $10.9 million in accounts receivable, a decrease of
$6.5 million in accrued expenses, an increase of $1.4 million of other current
assets, and a decrease in deferred revenue of $0.7 million. Accounts receivable
increases at December 30, 2006 are primarily attributable to increased revenue
activity in the third month of the fourth quarter, timing of funding for
equipment sold under third party and in-house leasing arrangements, and
increased dealer sales in Europe which carry longer terms. Days sales
outstanding were 62 at December 30, 2006 and 53 at December 31, 2005. The
decrease in accrued expense relates to payments of, and adjustments to,
previously accrued payroll-related costs, and adjustments to restructuring
and
related accruals. The decrease in deferred revenue relates to a reduction in
service contracts resulting from the continuing erosion of our analog customer
base.
We
used
$7.7 million of net cash for investing activities during 2006, comprised of
$4.0
million of additions to property, plant and equipment, $2.8 million of
investments in patents and other intangible assets and $0.8 million of
transaction and accrued integration costs paid related to the acquisition of
the
ABDick business. Our additions to property, plant and equipment primarily relate
to production equipment and investments in our infrastructure, including costs
related to the implementation of a new service management system.
Our
financing activities generated $4.1 million of net cash, comprised of $2.1
million of cash received from the exercise of stock options and purchase of
common stock under our employee stock purchase program and $9.0 million of
net
borrowings under our current line of credit. These amounts were offset by
payments on our current term loan and capital lease aggregating $7.0
million.
Discontinued
Operations
Operating
activities of discontinued operations used $4.5 million in cash in fiscal 2006.
Cash used by operating activities reflect a net loss of $2.1 million, after
adjustments for non-cash depreciation, amortization, provisions for warranty
and
accounts receivable allowances, and losses on disposal of assets. Cash used
by
operating activities also included an increase of $1.0 million in accounts
payable and $1.4 million in accrued expenses related to facility closure and
other response actions.
In
fiscal
2006, investing activities of discontinued operations of $.4 million relate
to
capital expenditures associated with discontinued operations.
Our
current senior secured credit facilities, referred to as the Facilities, include
a $35.0 million five year secured term loan, referred to as the Term Loan,
and a
$45.0 million five year secured revolving line of credit, referred to as the
Revolver, which replaced our then-existing term loan and revolver entered into
in October 2003. At December 30, 2006, we had $12.3 million outstanding under
letters of credit, thereby reducing the amount available under the Revolver
to
$17.7 million. At December 30, 2006 and December 31, 2005, the interest rates
on
the outstanding balance of the Revolver were 7.1% and 6.9%, respectively.
Principal payments on the Term Loan are made in consecutive quarterly
installments of $1.75 million, with a final settlement of all remaining
principal and unpaid interest on November 4, 2009. The Facilities were used
to
partially finance the acquisition of the business of ABDick, and 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 December 30, 2006 and December 31, 2005, the effective interest
rates on the Term Loan were 7.1% 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-U.S. GAAP measurement that we define as
earnings
before interest, taxes, depreciation, amortization and restructuring and other
charges (credits), and minimum fixed charge coverage covenants. At December 30,
2006, 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
(“SFAS
149”), the Company recorded a reduction to expense of $40,000, $28,000 and
$133,000 in fiscal 2006, fiscal 2005 and fiscal 2004, respectively, to mark
these interest rate swap agreements to market.
On
November 23, 2005, we purchased equipment under a capital lease arrangement
qualifying under Statement of Financial Accounting Standards (“SFAS”) No. 13,
Accounting
for Leases
(“SFAS
13”). The equipment is included as a component of property, plant and equipment
and the current and long-term principal amounts of the lease obligation are
included in our Consolidated Balance Sheets.
We
believe that existing funds, cash flows from operations, and cash available
under our Revolver should be sufficient to satisfy working capital requirements
and capital expenditures through at least the next twelve months. There can
be
no assurance, however, that we will not require additional financing, or that
such additional financing, if needed, would be available on acceptable
terms.
Contractual
Obligations
Our
contractual obligations at December 30, 2006 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
|
$
37,500
|
$
22,000
|
$
15,500
|
$
--
|
$
--
|
Estimated
interest payments on Senior Secured Credit Facilities
|
3,855
|
2,499
|
1,356
|
--
|
--
|
Capital
lease, including contractual interest
|
72
|
37
|
35
|
--
|
--
|
Royalty
obligation
|
7,616
|
880
|
1,604
|
1,320
|
3,812
|
Executive
contractual obligations
|
2,532
|
1,532
|
1,000
|
--
|
--
|
Operating
leases
|
5,293
|
2,463
|
2,444
|
386
|
--
|
|
|
|
|
|
|
Total
contractual obligations
|
$
56,868
|
$
29,411
|
$
21,939
|
$
1,706
|
$
3,812
|
The
amounts above related to estimated interest payments on the Facilities are
based
upon the interest rates in effect at December 30, 2006. Actual interest amounts
could differ from the estimates above.
In
fiscal
2000, we entered into an agreement with Fuji Photo Film Co., Ltd., whereby
minimum royalty payments to Fuji are required based on specified sales volumes
of our A3 format size four-color sheet-fed press. The agreement provides for
total royalty payments to be no less than $6 million and not greater than $14
million over the life of the agreement.
As of December 30, 2006, the Company had paid Fuji $6.4 million related to
this
agreement. We currently expect future sales volume to be sufficient to satisfy
minimum commitments under the agreement. In the event of a volume shortfall
over
the term of the agreement, we are obligated to fund the shortfall as a lump-sum
payment. Were such lump-sum payment required, we do not believe the amount
of
the payment will be material.
We
have
employment agreements with certain of our employees, some of which include
change of control agreements that provide them with benefits should their
employment with us be terminated other than for cause or their disability or
death, or if they resign for good reason, as defined in these agreements, within
a certain period of time from the date of any change of control of
us.
From
time
to time we have engaged in sales of equipment that is leased by or intended
to
be leased by a third party purchaser to another party. In certain situations,
we
may retain recourse obligations to a financing institution involved in providing
financing to the ultimate lessee in the event the lessee of the equipment
defaults on its lease obligations. In certain such instances, we may refurbish
and remarket the equipment on behalf of the financing company, should the
ultimate lessee default on payment of the lease. In certain circumstances,
should the resale price of such equipment fall below certain predetermined
levels, we would, under these arrangements, reimburse the financing company
for
any such shortfall in sale price (a “shortfall payment”). The maximum contingent
obligation under these shortfall payment arrangements is estimated to be $0.2
million at December 30, 2006. As of December 30, 2006, there were no defaults by
ultimate lessees.
Effect
of Inflation
Inflation
has not had, and is not expected to have, a material impact on our financial
conditions or results of operations.
Net
Operating Loss Carryforwards
At
December 30, 2006, we had net operating loss carryforwards for tax purposes
totaling $74.3 million, of which $60.7 million resulted from stock option
compensation deductions for U.S. federal tax purposes and $13.6 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
1 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 based on its relative fair
value. The fair value of any undelivered elements, such as warranty, training
and services, are deferred until delivery has occurred or services have been
rendered. A general right of return or cancellation does not exist once product
is delivered to the customer; however, the Company may elect, in certain
circumstances, to accept returns of product. Product revenues are recorded
net
of estimated returns, which are adjusted periodically, based upon historical
rates of return. The estimated cost of post-sale obligations, including product
warranties, is accrued at the time revenue is recognized based on historical
experience.
The
Company records amounts invoiced to customers in excess of revenue recognized
as
deferred revenue until all revenue recognition criteria are met.
The
Company accounts for shipping and handling fees passed on to customers as
revenue. Shipping and handling costs are reported as components of cost of
revenue (product) and cost of revenue (service and parts).
Products
End-User
Customers - Under the
Company’s standard terms and conditions of sale of equipment, title and risk of
loss are transferred to third-party 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.
OEM
Relationships - Product
revenue and any related royalties for products sold to companies with whom
we
have an OEM relationship are recognized at the time of shipment as installation
is not required and title and risk of loss pass to the buyer at such point.
Contracts with companies with whom we have OEM relationships do not include
price protection or product return rights; however, the Company may elect,
in
certain circumstances, to accept returns of product.
Distributor
Relationships
-
Revenue for product sold to distributors, whereby the distributor is responsible
for installation, is recognized at the time of shipment. Revenue for equipment
sold to distributors whereby the Company is responsible for installation, is
recognized upon completion of installation. Except in the case of termination
of
the contract, which includes product return rights, contracts with distributors
do not include price protection or product return rights; however, the Company
may elect, in certain circumstances, to accept returns of product.
Services
and Parts
Revenue
for installation services, including time and material contracts, is recognized
as services are rendered. Revenue associated with maintenance or extended
service agreements is recognized ratably over the contract period. Revenue
associated with training and support services is recognized as services are
rendered. Certain fees and other reimbursements are recognized as revenue when
the related services have been performed or the revenue is otherwise
earned.
Sales
Transactions Financed with Recourse Clauses
From
time
to time the Company has engaged in sales of equipment that is leased by or
intended to be leased by a third party purchaser to another party. In certain
situations, the Company may retain recourse obligations to a financing
institution involved in providing financing to the ultimate lessee in the event
the lessee of the equipment defaults on its lease obligations. In certain such
instances, the Company may refurbish and remarket the equipment on behalf of
the
financing company, should the ultimate lessee default on payment of the lease.
In
certain circumstances, should the resale price of such equipment fall below
certain predetermined levels, the Company would, under these agreements,
reimburse the financing company for any such shortfall in sale price.
Sales
Transactions Financed by the Company
In
fiscal
2006, the Company periodically entered into sales-type leases resulting from
the
marketing of the Company’s and complementary third-party products. These
transactions typically have seven year terms and are collateralized by a
security interest in the underlying assets. These transactions are accounted
for
in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13,
Accounting
for Leases
(“SFAS
13”). The long-term portion of financing receivables is included in Other
noncurrent assets in the Company’s Consolidated Balance Sheet at December 30,
2006.
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.
Acquisitions
In
accordance with the purchase method of accounting, the fair values of assets
acquired and liabilities assumed are determined and recorded as of the date
of
the acquisition. The Company utilizes an independent valuation specialist to
determine the fair values of identifiable intangible assets acquired in order
to
determine the portion of the purchase price allocable to these assets. Costs
to
acquire the business, including transaction costs, are allocated to the fair
value of net assets acquired. Any excess of the purchase price over the
estimated fair value of the net assets acquired is recorded as
goodwill.
As
part
the allocation of purchase price, the Company records liabilities, including
lease termination costs and certain employee severance costs, in accordance
with
Emerging Issues Task Force Issue No. 95-3, Recognition
of Liabilities in Connection with a Purchase Business
Combination.
Throughout the allocation period, these accruals are reviewed and adjusted
for
changes in cost and timing assumptions.
Goodwill
and Intangible Assets
Presstek
has goodwill and net intangible assets of $29.0 million at December 30, 2006.
Goodwill and intangible assets with indefinite lives are tested annually for
impairment in accordance with the goodwill provisions of SFAS 142. Intangible
assets with estimated lives and other long-lived assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable in accordance with
SFAS
No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(“SFAS
144”). Recoverability of intangible assets with estimated lives and other
long-lived assets is measured by comparison of the carrying amount of an asset
or asset group to future net undiscounted pretax cash flows expected to be
generated by the asset or asset group. If these comparisons indicate that an
asset is not recoverable, the Company will recognize an impairment loss for
the
amount by which the carrying value of the asset or asset group exceeds the
related estimated fair value. Estimated fair value is based on either discounted
future pretax operating cash flows or appraised values, depending on the nature
of the asset. The Company determines the discount rate for this analysis
based
on
the expected internal rate of return of the related business and does not
allocate interest charges to the asset or asset group being measured.
Considerable judgment is required to estimate discounted future operating cash
flows. Judgment is also required in determining whether an event has occurred
that may impair the value of goodwill or identifiable intangible assets. Factors
that could indicate that an impairment may exist include significant
underperformance relative to plan or long-term projections, strategic changes
in
business strategy, significant negative industry or economic trends or a
significant decline in our stock price for a sustained period of time. We must
make assumptions about future cash flows, future operating plans, discount
rates
and other factors in the models and valuation reports. To the extent these
future projections and estimates change, the estimated amounts of impairment
could differ from current estimates.
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
|
7
-
10 years
|
Software
licenses
|
3
years
|
Non-compete
covenants
|
5
years
|
Accounting
for Income Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes.
The
asset and liability approach underlying SFAS No. 109 requires the recognition
of
deferred tax liabilities and assets for the expected future tax consequences
of
temporary differences between the carrying amounts and tax basis of the
Company’s assets and liabilities. A valuation allowance is provided against
deferred tax assets for amounts if, based on the weight of available evidence,
it is more likely than not that some or all of the deferred tax assets will
not
be realized.
We
monitor the realization of our deferred tax assets based on changes in
circumstances; for example, recurring periods of income for tax purposes
following historical periods of cumulative losses or changes in tax laws or
regulations. Our income tax provisions and our assessment of the realizability
of our deferred tax assets involve significant judgments and estimates.
The
Company does not provide for U.S. income taxes on the undistributed earnings
of
its foreign subsidiaries, which the Company considers to be permanently
reinvested.
Recently
Issued Accounting Standards
In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109
("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income
taxes by prescribing the recognition threshold a tax position is required to
meet before being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006 and is required to be adopted by
Presstek in the first quarter of fiscal 2007. The cumulative effects, if any,
of
applying
FIN 48 will be recorded as an adjustment to retained earnings as of the
beginning of the period of adoption. Presstek is currently evaluating the effect
that the adoption of FIN 48 will have on its consolidated results of
operations and financial condition but does not expect it to have a material
impact.
In
September 2006, the SEC issued SAB No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
("SAB 108"). SAB 108 provides guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an
approach that requires quantification of financial statement errors based on
the
effects of each of the company's balance sheet and statement of operations
and
the related financial statement disclosures. SAB 108 is effective for fiscal
years ending after November 15, 2006. Upon initial application, SAB 108 permits
a one-time cumulative effect adjustment to beginning retained
earnings.
The
adoption of SAB 108 did not have a material impact on its consolidated
results of operations and financial condition.
In
fiscal
2006 the Company adopted SFAS No. 151, Inventory
Costs
(“SFAS
151”), an amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4,
Inventory
Pricing.
SFAS
151 amends previous guidance regarding treatment of abnormal amounts of idle
facility expense, freight, handling costs and spoilage. This Statement requires
that those items be recognized as current period charges regardless of whether
they meet the criterion of “so abnormal” which was the criterion specified in
ARB No. 43. In addition, this Statement requires that the allocation
of
fixed production overheads to the cost of the
production be based on normal capacity of the production facilities. The
adoption of SFAS 151 did not have a material impact on the Company.
In
fiscal
2006, the Company adopted Financial Accounting Standards Board (“FASB”) issued
SFAS No. 154, Accounting
Changes and Error Corrections
(“SFAS
154”), which replaces APB Opinion No. 20, Accounting
Changes
and SFAS
No. 3, Reporting
Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion
No. 28.
SFAS
154 provides guidance on the accounting for and reporting of accounting changes
and error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. There was no financial
statement impact in 2006.
In
June
2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
No. 06-3, How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross versus Net
Presentation)
(“EITF
06-3”). EITF 06-3 is effective for periods beginning after December 15, 2006,
with earlier application permitted. EITF 06-3 requires disclosure of the
accounting policy for any tax assessed by a governmental authority that is
directly imposed on a revenue-producing transaction (i.e., sales, use, value
added) on a gross basis (included in revenues and costs) or net basis (excluded
from revenues and costs). The Company excludes these amounts from its revenues
and costs; accordingly, no additional disclosure will be required.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements
("SFAS 157"). SFAS 157 provides guidance for using fair value to
measure assets and liabilities. It also responds to investors' requests for
expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and
the
effect of fair value measurements on earnings. SFAS 157 applies whenever
other standards require (or permit) assets or liabilities to be measured at
fair
value, and does not expand the use of fair value in any new circumstances.
SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and is required to be adopted by the
Company in fiscal 2008. Presstek is currently evaluating the effect that the
adoption of SFAS 157 will have on its consolidated results of operations
and financial condition but does not expect it to have a material
impact.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159 ("SFAS 159"), The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
amendment of FASB Statement No 115.
SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. Early adoption is permitted, provided the company
also
elects to apply the provisions of SFAS 157. Presstek is currently evaluating
the
effect that the adoption of SFAS 159 will have on its consolidated results
of operations and financial condition but does not expect it to have a material
impact.
Off-Balance
Sheet Arrangements
We
do not
participate in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (“SPEs”), which would have been
established for the purpose of facilitating off-balance sheet arrangements
or
other contractually narrow or limited purpose. As of December 30, 2006, we
were
not involved in any unconsolidated SPE transactions.
Item
7A.
Quantitative and Qualitative Disclosures About Market
Risk
We
are
exposed to a variety of market risks, including changes in interest rates
primarily as a result of our borrowing activities, commodity price risk, and
to
a lesser extent, our investing activities and foreign currency fluctuations.
The
Company has established procedures to manage its fluctuations in interest rates
and foreign currency exchange rates.
Our
long-term borrowings are in variable rate instruments, with interest rates
tied
to either the Prime Rate or the LIBOR. A 100 basis point change in these rates
would have an impact of approximately $0.2 million on our annual interest
expense, assuming consistent levels of floating rate debt with those held at
the
end of fiscal 2006.
Commodity
price movements create a market risk by affecting the price we must pay for
certain raw materials. The Company purchases aluminum for use in manufacturing
consumables products and is embedded in certain components we purchase from
major suppliers. From time to time, we enter into agreements with certain
suppliers to manage price risks within a specified range of prices; however,
our
suppliers generally pass on significant
commodity
price changes to us in the form of revised prices on future purchases. In
general, the Company has not used commodity forward or option contracts to
manage this market risk.
The
Company operates foreign subsidiaries in Canada and Europe and is exposed to
foreign currency exchange rate risk inherent in our sales commitments,
anticipated sales, anticipated purchases and assets and liabilities denominated
in currencies other than the U.S. dollar. Presstek routinely evaluates whether
the foreign exchange risk associated with its foreign currency exposures acts
as
a natural foreign currency hedge for other offsetting amounts denominated in
the
same currency. In general, the Company does not hedge the net assets or net
income of its foreign subsidiaries. In addition, certain key customers and
strategic partners are not located in the United States. As a result, these
parties may be subject to fluctuations in foreign exchange rates. If their
home
country currency were to decrease in value relative to the United States dollar,
their ability to purchase and market our products could be adversely affected
and our products may become less competitive to them. This may have an adverse
impact on our business. Likewise, certain major suppliers are not located in
the
United States and thus, such suppliers are subject to foreign exchange rate
risks in transactions with us. Decreases in the value of their home country
currency, versus that of the United States dollar, could cause fluctuations
in
supply pricing which could have an adverse effect on our business.
PART
II
Item
8. Financial
Statements and Supplementary Data
|
Page
|
|
|
Reports
of Independent Registered Public Accounting Firms
|
59
|
Consolidated
Balance Sheets as of December 30, 2006 and December 31,
2005
|
61
|
Consolidated
Statements of Income for the fiscal years ended December 30, 2006,
December 31, 2005 and January 1, 2005
|
62
|
Consolidated
Statements of Changes in Stockholders’ Equity and Comprehensive Income for
the fiscal years ended December 30, 2006, December 31, 2005 and January
1,
2005
|
63
|
Consolidated
Statements of Cash Flows for the fiscal years ended December 30,
2006,
December 31, 2005 and January 1, 2005
|
64
|
Notes
to Consolidated Financial Statements
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders
Presstek,
Inc.:
We
have
audited the accompanying consolidated balance sheet of Presstek, Inc. and its
subsidiaries as of December 30, 2006 and the related consolidated statements
of
income, changes in stockholders’ equity and comprehensive income and cash flows
for the fiscal year ended December 30, 2006. In connection with our audit of
the
consolidated financial statements, we also have audited the 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audit provides a reasonable basis
for
our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly
in all material respects, the financial position of Presstek, Inc. and its
subsidiaries at December 30, 2006 and the results of their operations and cash
flows for the fiscal year ended December 30, 2006, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As
discussed in note 2 to the consolidated financial statements, Presstek, Inc.
adopted Statement of Financial Accounting Standards No. 123(R) Share-Based
Payment
effective January 1, 2006 utilizing the modified prospective application
transition method.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 30, 2006, based on the criteria
established in Internal
Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated April 24, 2007 expressed an unqualified opinion on
management’s assessment of, and an adverse opinion on the effective operation
of, internal control over financial reporting.
/s/
KPMG
LLP
Boston,
Massachusetts
April
24,
2007
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders
Presstek,
Inc.
Hudson,
New Hampshire
We
have
audited the accompanying consolidated balance sheets of Presstek, Inc. and
its
subsidiaries as of December 31, 2005 and the related consolidated statements
of
income, changes in stockholders’ equity and comprehensive income and cash flows
for the fiscal years ended December 31, 2005 and January 1, 2005. We have
also
audited the accompanying financial statement Schedule II for the years then
ended. These consolidated financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on
our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements and schedule are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements and
schedule. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements and schedule. We believe
that our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly
in all material respects, the financial position of Presstek, Inc. and its
subsidiaries at December 31, 2005 and the results of their operations and
their
cash flows for the fiscal years ended December 31, 2005 and January 1, 2005
in
conformity with accounting principles generally accepted in the United States
of
America. Also in our opinion, the related financial statements schedule,
when considered in relation to the basic financial statements taken as a
whole,
presents fairly, in all material respects, the information set forth
therein.
Also,
in
our opinion, the schedule presents fairly, in all material respects, the
information set forth therein.
/s/
BDO
Seidman,
LLP
BDO
Seidman, LLP
Boston,
Massachusetts
March
16,
2006, except for the effects of the
discontinued
operation as to which the date is April 24, 2007
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
|
|
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(in
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
December
30,
|
|
|
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9,449
|
|
$
|
5,615
|
|
Accounts
receivable, net
|
|
|
53,158
|
|
|
42,194
|
|
Inventories,
net
|
|
|
46,050
|
|
|
48,463
|
|
Assets
of discontinued operations
|
|
|
3,321
|
|
|
3,514
|
|
Deferred
income taxes
|
|
|
4,162
|
|
|
-
|
|
Other
current assets
|
|
|
2,600
|
|
|
1,175
|
|
Total
current assets
|
|
|
118,740
|
|
|
100,961
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
42,194
|
|
|
45,147
|
|
Intangible
assets, net
|
|
|
8,741
|
|
|
11,303
|
|
Goodwill
|
|
|
20,280
|
|
|
23,089
|
|
Assets
of discontinued operations
|
|
|
-
|
|
|
774
|
|
Deferred
income taxes
|
|
|
7,515
|
|
|
-
|
|
Other
noncurrent assets
|
|
|
544
|
|
|
213
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
198,014
|
|
$
|
181,487
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Current
portion of long-term debt and capital lease obligation
|
|
$
|
7,037
|
|
$
|
7,037
|
|
Line
of credit
|
|
|
15,000
|
|
|
6,036
|
|
Accounts
payable
|
|
|
27,126
|
|
|
20,114
|
|
Accrued
expenses
|
|
|
10,471
|
|
|
16,570
|
|
Deferred
revenue
|
|
|
7,901
|
|
|
8,579
|
|
Liabilities
of discontinued operations
|
|
|
3,707
|
|
|
1,233
|
|
Total
current liabilities
|
|
|
71,242
|
|
|
59,569
|
|
|
|
|
|
|
|
|
|
Long-term
debt and capital lease obligation, less current portion
|
|
|
15,535
|
|
|
22,570
|
|
Deferred
income taxes
|
|
|
-
|
|
|
715
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
86,777
|
|
|
82,854
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (See Note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value, 1,000,000 shares authorized, no shares
issued
|
|
|
-
|
|
|
-
|
|
Common
stock, $0.01 par value, 75,000,000 shares authorized, 35,662,318
and
|
|
|
|
|
|
|
|
35,366,024
shares issued and outstanding at December 30, 2006 and
|
|
|
|
|
|
|
|
December
31, 2005, respectively
|
|
|
357
|
|
|
354
|
|
Additional
paid-in capital
|
|
|
108,769
|
|
|
106,268
|
|
Accumulated
other comprehensive income (loss)
|
|
|
297
|
|
|
(59
|
)
|
Retained
earnings (accumulated deficit)
|
|
|
1,814
|
|
|
(7,930
|
)
|
Total
stockholders' equity
|
|
|
111,237
|
|
|
98,633
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
198,014
|
|
$
|
181,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF INCOME
|
(in
thousands, except per-share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
|
|
December
30,
|
|
|
December
31,
|
|
|
January
1,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
220,724
|
|
$
|
210,613
|
|
$
|
108,390
|
|
Service
and parts
|
|
|
44,970
|
|
|
48,521
|
|
|
13,063
|
|
Total
revenue
|
|
|
265,694
|
|
|
259,134
|
|
|
121,453
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
154,250
|
|
|
143,952
|
|
|
69,045
|
|
Service
and parts
|
|
|
32,466
|
|
|
32,862
|
|
|
9,135
|
|
Total
cost of revenue
|
|
|
186,716
|
|
|
176,814
|
|
|
78,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
78,978
|
|
|
82,320
|
|
|
43,273
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
6,409
|
|
|
7,335
|
|
|
6,460
|
|
Sales,
marketing and customer support
|
|
|
39,970
|
|
|
40,241
|
|
|
17,574
|
|
General
and administrative
|
|
|
19,938
|
|
|
20,970
|
|
|
12,399
|
|
Amortization
of intangible assets
|
|
|
2,980
|
|
|
2,595
|
|
|
1,261
|
|
Restructuring
and other charges (credits)
|
|
|
5,481
|
|
|
874
|
|
|
(392
|
)
|
Total
operating expenses
|
|
|
74,778
|
|
|
72,015
|
|
|
37,302
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4,200
|
|
|
10,305
|
|
|
5,971
|
|
Interest
and other income (expense), net
|
|
|
(1,826
|
)
|
|
(2,220
|
)
|
|
(870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
|
2,374
|
|
|
8,085
|
|
|
5,101
|
|
Provision
(benefit) for income taxes
|
|
|
(10,643
|
)
|
|
1,164
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
13,017
|
|
|
6,921
|
|
|
4,935
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(3,273
|
)
|
|
(835
|
)
|
|
(1,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,744
|
|
$
|
6,086
|
|
$
|
3,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basic
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
0.36
|
|
$
|
0.20
|
|
$
|
0.14
|
|
Loss
from discontinued operations
|
|
|
(0.09
|
)
|
|
(0.03
|
)
|
|
(0.03
|
)
|
|
|
$
|
0.27
|
|
$
|
0.17
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - diluted
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
0.36
|
|
$
|
0.19
|
|
$
|
0.14
|
|
Loss
from discontinued operations
|
|
|
(0.09
|
)
|
|
(0.02
|
)
|
|
(0.03
|
)
|
|
|
$
|
0.27
|
|
$
|
0.17
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
35,565
|
|
|
35,153
|
|
|
34,558
|
|
Dilutive
effect of stock options
|
|
|
291
|
|
|
419
|
|
|
799
|
|
Weighed
average shares outstanding - diluted
|
|
|
35,856
|
|
|
35,572
|
|
|
35,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
PRESSTEK,
INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
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 January 3, 2004
|
|
|
34,202
|
|
$
|
342
|
|
$
|
97,769
|
|
$
|
(47
|
)
|
$
|
(17,881
|
)
|
$
|
80,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
695
|
|
|
7
|
|
|
5,193
|
|
|
-
|
|
|
-
|
|
|
5,200
|
|
Realization
of loss related to interest rate swaps
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
47
|
|
|
-
|
|
|
47
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
107
|
|
|
-
|
|
|
107
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,865
|
|
|
3,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2005
|
|
|
34,897
|
|
|
349
|
|
|
102,962
|
|
|
107
|
|
|
(14,016
|
)
|
|
89,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
469
|
|
|
5
|
|
|
3,306
|
|
|
-
|
|
|
-
|
|
|
3,311
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(166
|
)
|
|
-
|
|
|
(166
|
)
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,086
|
|
|
6,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,744
|
|
|
9,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 30, 2006
|
|
|
35,662
|
|
$
|
357
|
|
$
|
108,769
|
|
$
|
297
|
|
$
|
1,814
|
|
$
|
111,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
30,
|
|
|
December
31,
|
|
|
January
1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
$
|
9,744
|
|
$
|
6,086
|
|
$
|
3,865
|
|
|
|
|
|
|
|
Adjustments
to accumulated other comprehensive income (loss)
|
|
|
|
|
|
356
|
|
|
(166
|
)
|
|
154
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
$
|
10,100
|
|
$
|
5,920
|
|
$
|
4,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
PRESSTEK,
INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
|
|
December
30,
|
|
|
December
31,
|
|
|
January
1,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,744
|
|
$
|
6,086
|
|
$
|
3,865
|
|
Add
loss from discontinued operations
|
|
|
3,273
|
|
|
835
|
|
|
1,070
|
|
Income
from continuing operations
|
|
|
13,017
|
|
|
6,921
|
|
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,964
|
|
|
8,132
|
|
|
7,762
|
|
Amortization
of intangible assets
|
|
|
2,953
|
|
|
2,595
|
|
|
1,261
|
|
Restructuring
and other charges (credits)
|
|
|
5,481
|
|
|
874
|
|
|
(392
|
)
|
Provision
for warranty costs
|
|
|
3,400
|
|
|
1,558
|
|
|
1,109
|
|
Provision
for accounts receivable allowances
|
|
|
391
|
|
|
1,604
|
|
|
2,474
|
|
Stock
compensation expense
|
|
|
374
|
|
|
148
|
|
|
-
|
|
Deferred
income taxes
|
|
|
(11,677
|
)
|
|
715
|
|
|
120
|
|
Loss
on disposal of assets
|
|
|
72
|
|
|
153
|
|
|
24
|
|
Changes
in operating assets and liabilities, net of effects from business
acquisitions and divestures:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(10,947
|
)
|
|
(8,588
|
)
|
|
(6,474
|
)
|
Inventories
|
|
|
2,214
|
|
|
(7,707
|
)
|
|
(4,939
|
)
|
Other
current assets
|
|
|
(1,445
|
)
|
|
214
|
|
|
324
|
|
Other
noncurrent assets
|
|
|
39
|
|
|
(43
|
)
|
|
(304
|
)
|
Accounts
payable
|
|
|
9,163
|
|
|
7,516
|
|
|
(4,633
|
)
|
Accrued
expenses
|
|
|
(6,522
|
)
|
|
(3,390
|
)
|
|
7,454
|
|
Deferred
revenue
|
|
|
(692
|
)
|
|
(1,940
|
)
|
|
1,039
|
|
Net
cash provided by operating activities
|
|
|
12,785
|
|
|
8,762
|
|
|
9,760
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(4,033
|
)
|
|
(6,100
|
)
|
|
(2,087
|
)
|
Business
acquisitions, net of cash acquired
|
|
|
(832
|
)
|
|
(3,467
|
)
|
|
(57,317
|
)
|
Investment
in patents and other intangible assets
|
|
|
(2,791
|
)
|
|
(2,176
|
)
|
|
(387
|
)
|
Proceeds
from the sale of long-lived assets
|
|
|
-
|
|
|
124
|
|
|
5
|
|
Net
cash used in investing activities
|
|
|
(7,656
|
)
|
|
(11,619
|
)
|
|
(59,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
2,130
|
|
|
3,113
|
|
|
5,200
|
|
Proceeds
from term loan
|
|
|
-
|
|
|
-
|
|
|
35,000
|
|
Repayments
of term loan and capital lease
|
|
|
(7,035
|
)
|
|
(5,503
|
)
|
|
(14,464
|
)
|
Net
borrowings (repayments) under line of credit agreement
|
|
|
8,964
|
|
|
(786
|
)
|
|
6,822
|
|
Debt
financing costs
|
|
|
-
|
|
|
-
|
|
|
(332
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
4,059
|
|
|
(3,176
|
)
|
|
32,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) discontinued operations
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
(4,531
|
)
|
|
2,968
|
|
|
(3,399
|
)
|
Investing
activities
|
|
|
(396
|
)
|
|
(29
|
)
|
|
1,742
|
|
Financing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
cash used in discontinued operations
|
|
|
(4,927
|
)
|
|
2,939
|
|
|
(1,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(427
|
)
|
|
(30
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
3,834
|
|
|
(3,124
|
)
|
|
(19,457
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
5,615
|
|
|
8,739
|
|
|
28,196
|
|
Cash
and cash equivalents, end of period
|
|
$
|
9,449
|
|
$
|
5,615
|
|
$
|
8,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
2,364
|
|
$
|
2,459
|
|
$
|
923
|
|
Cash
paid for income taxes
|
|
$
|
1,252
|
|
$
|
327
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
PRESSTEK,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
NATURE OF THE BUSINESS
Presstek,
Inc. and subsidiaries (“Presstek”, the “Company”, “we”) is a market-focused
company primarily engaged in the design, manufacture, sales and service of
high-technology digital imaging solutions to the graphic arts industry
worldwide. We are helping to lead the industry’s transformation from analog
print production methods to digital imaging technology. We are a leader in
the
development of advanced printing systems using digital imaging equipment and
consumables-based solutions that economically benefit the user through a
streamlined workflow and chemistry free, environmentally responsible operation.
We are also a leading sales and service channel in the small to mid-sized
commercial, quick and in-plant printing markets offering a wide range of
solutions to over 20,000 customers worldwide.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
The
Company has made certain organizational realignments in order to more closely
align its financial reporting with its current business structure. Effective
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,
Massachusetts 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, and the
results of operations and associated footnotes for the years ended December
31,
2005 and January 1, 2005 have been reclassified for this reporting
change.
On
November 5, 2004, the Company, through its wholly-owned subsidiary, ABD
International, Inc. (“ABDick”) completed the acquisition of certain assets and
the assumption of certain liabilities of The A.B. Dick Company, which the
Company acquired through a Section 363 sale in the United States Bankruptcy
Court. On July 30, 2004, the Company acquired the stock of Precision
Lithograining Corp. (“Precision”). The results of these acquired entities are
included in the Company’s Consolidated Statements of Income and Cash Flows for
the periods subsequent to their respective acquisitions.
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.
The
Company operates and reports on a 52- or 53-week fiscal year ending on the
Saturday closest to December 31. Accordingly, the financial statements presented
herein include the financial results for the 52-week fiscal year ended December
30, 2006 (“fiscal 2006”), the 52-week fiscal year ended December 31, 2005
(“fiscal 2005”) and the 52-week fiscal year ended January 1, 2005 (“fiscal
2004”).
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 based on its relative fair
value. The fair value of any undelivered elements, such as warranty, training
and services, are deferred until delivery has occurred or services have been
rendered. A general right of return or cancellation does not exist once product
is delivered to the customer; however, the Company may elect, in certain
circumstances, to accept returns of product. Product revenues are recorded
net
of estimated returns, which are adjusted periodically, based upon historical
rates of return. The estimated cost of post-sale obligations, including product
warranties, is accrued at the time revenue is recognized based on historical
experience.
The
Company records amounts invoiced to customers in excess of revenue recognized
as
deferred revenue until all revenue recognition criteria are met.
The
Company accounts for shipping and handling fees passed on to customers as
revenue. Shipping and handling costs are reported as components of cost of
revenue (product) and cost of revenue (service and parts).
Products
End-User
Customers - Under the
Company’s standard terms and conditions of sale of equipment, title and risk of
loss are transferred to third-party 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.
OEM
Relationships - Product
revenue and any related royalties for products sold to companies with whom
we
have an OEM relationship are recognized at the time of shipment as installation
is not required and title and risk of loss pass to the buyer at such point.
Contracts with companies with whom we have OEM relationships do not include
price protection or product return rights; however, the Company may elect,
in
certain circumstances, to accept returns of product.
Distributor
Relationships
-
Revenue for product sold to distributors, whereby the distributor is responsible
for installation, is recognized at the time of shipment. Revenue for equipment
sold to distributors whereby the Company is responsible for installation, is
recognized upon completion of installation. Except in the case of termination
of
the contract, which includes product return rights, contracts with distributors
do not include price protection or product return rights; however, the Company
may elect, in certain circumstances, to accept returns of product.
Services
and Parts
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.
Sales
Transactions Financed with Recourse Clauses
The
Company has engaged in sales of equipment that is leased by or intended to
be
leased by a third party purchaser to another party. In certain situations,
the
Company may retain recourse obligations to a financing institution involved
in
providing financing to the ultimate lessee in the event the lessee of the
equipment defaults on its lease obligations. In certain such instances, the
Company may refurbish and remarket the equipment on behalf of the financing
company, should the ultimate lessee default on payment of the lease. In certain
circumstances, should the resale price of such equipment fall below certain
predetermined levels, the Company would, under these agreements, reimburse
the
financing company for any such shortfall in sale price.
Sales
Transactions Financed by the Company
In
fiscal
2006, the Company periodically entered into sales-type leases resulting from
the
marketing of the Company’s and complementary third-party products. These
transactions typically have seven year terms and are collateralized by a
security interest in the underlying assets. These transactions are accounted
for
in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13,
Accounting
for Leases
(“SFAS
13”). The long-term portion of financing receivables is included in Other
noncurrent assets in the Company’s Consolidated Balance Sheet at December 30,
2006.
Fair
Value of Financial Instruments
The
carrying values of cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short-term maturity of these instruments.
The
carrying amounts of the Company’s bank borrowings under its credit agreement,
approximate fair value because the interest rates are based on floating rates
identified by reference to market rates. The carrying amount of the Company’s
capital lease approximates fair value because the amount financed is equivalent
to the fair value of the long-lived asset acquired in the transaction. At both
December 30, 2006 and December 31, 2005, the fair value of the Company’s
long-term debt approximated carrying value.
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,
Net
Inventories
include material, direct labor and related manufacturing overhead, and are
stated at the lower of cost (determined on a first-in, first-out basis) or
net
realizable value. The Company assesses the recoverability of inventory to
determine whether adjustments for impairment are required. Inventory that is
in
excess of future requirements is written down to its estimated 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
|
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 and Statement of Financial
Accounting Standard No. 141 Business
Combinations
(“SFAS
141”), 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
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
December 30, 2006 and December 31, 2005, the Company had recorded $0.7 million
and $1.5 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
|
7
-
10 years
|
Software
licenses
|
3
years
|
Non-compete
covenants
|
5
years
|
Goodwill
is recorded when the consideration paid for acquisitions exceeds the fair value
of net tangible and identifiable intangible assets acquired. In accordance
with
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill
and Other Intangible Assets
(“SFAS
142”), goodwill is not amortized, but rather, is tested at least annually for
impairment at the reporting unit level. The Company has recorded goodwill
aggregating $20.3 million and $23.1 million at December 30, 2006 and December
31, 2005, respectively, related to the ABDick and Precision
acquisitions.
Impairment
of Goodwill and Long-Lived Assets
In
accordance with the provisions of SFAS 142, goodwill and intangible assets
with
indefinite lives are tested at least annually, on the first day of the third
quarter, for impairment unless a triggering event occurs. The Company’s
impairment review is based on a fair value test. The Company uses its judgment
in assessing whether assets may have become impaired between annual impairment
tests. Indicators such as unexpected adverse business conditions, economic
factors, unanticipated technological change or competitive activities, loss
of
key personnel and acts by governments and courts may signal that an asset has
been impaired. Should the fair value of goodwill, as determined by the Company
at any measurement date, fall below its carrying value, a charge for impairment
of goodwill will be recorded in the period.
Intangible
assets with estimated lives and other long-lived assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable in accordance with
SFAS
No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(“SFAS
144”). Recoverability of intangible assets with estimated lives and other
long-lived assets is measured by comparison of the carrying amount of an asset
or asset group to future net undiscounted pretax cash flows expected to be
generated by the asset or asset group. If these comparisons indicate that an
asset is not recoverable, the Company will recognize an impairment loss for
the
amount by which the carrying value of the asset or asset group exceeds the
related estimated fair value. Estimated fair value is based on either discounted
future pretax operating cash flows or appraised values, depending on the nature
of the asset. The Company determines the discount rate for this analysis based
on the expected internal rate of return of the related business and does not
allocate interest charges to the asset or asset group being measured.
Considerable judgment is required to estimate discounted future operating cash
flows.
Product
Warranties
The
Company warrants its products against defects in material and workmanship for
various periods generally from a period of ninety days to one year from the
date
of installation or shipment. The Company’s typical warranties require it to
repair or replace defective products during the warranty period at no cost
to
the customer. The Company provides for the estimated cost of product warranties,
based on historical experience, at the time revenue is recognized. The Company
periodically assesses the adequacy of its recorded warranty liability and
adjusts the amounts as necessary. The estimated liability for product warranties
could differ materially from future actual warranty costs.
Research
and Development Costs
Research
and development costs include payroll and related expenses for personnel, parts
and supplies, and contracted services. 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 Income. Advertising expenses were $0.8 million in fiscal 2006 and $0.6
million in both fiscal 2005 and fiscal 2004.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes.
The
asset and liability approach underlying SFAS No. 109 requires the recognition
of
deferred tax assets and liabilities for the expected future tax consequences
of
temporary differences between the carrying amounts and tax basis of the
Company’s assets and liabilities. A valuation allowance is provided against
deferred tax assets for amounts if, based on the weight of available evidence,
it is more likely than not that some or all of the deferred tax assets will
not
be realized.
The
Company monitors the realization of deferred tax assets based on changes in
circumstances; for example, recurring periods of income for tax purposes
following historical periods of cumulative losses or changes in tax laws or
regulations. The income tax provisions and assessment of the realizability
of
deferred tax assets involve significant judgments and estimates.
Following
an assessment of positive and negative evidence regarding the realization of
net
deferred tax assets, in fiscal 2006 the Company determined that its valuation
allowance against U.S. deferred tax assets should be reversed, resulting in
a
$11.2 million benefit reflected in the Provision/Benefit for Income Taxes in
the
consolidated statement of income in that period. Management’s assessment
included consideration of recurring periods of historical income, estimates
of
future taxable income, scheduled reversals of deferred tax assets and
liabilities, and other factors. See Note 14.
The
Company does not provide for U.S. income taxes on the undistributed earnings
of
its foreign subsidiaries, which the Company considers to be permanently
reinvested.
Stock-Based
Compensation
Prior
to
January 1, 2006, the Company’s employee stock compensation plans were accounted
for in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees
(“APB
25”) and related interpretations. Generally, no employee stock-based
compensation cost was recognized in the statement of operations prior to January
1, 2006, as stock options granted under the plans had fixed terms, including
an
exercise price equal to the market value of the underlying common stock on
the
date of grant. 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. In
December 2005, prior to the adoption of SFAS 123R, the Company accelerated
the
vesting of all outstanding employee stock options as of December 31, 2005 in
order to avoid fair value-based compensation charges for those options in future
periods.
The
following table illustrates the effect on net income and earnings per share
if
the Company had applied the fair value-based method of SFAS 123 to its awards
for the purpose of recording expense for stock-based compensation
in
each
period presented (in thousands, except per share data):
|
|
December
31, 2005
|
|
January
1, 2005
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$
|
6,086
|
|
$
|
3,865
|
|
Add:
stock-based compensation expense recognized
|
|
|
148
|
|
|
--
|
|
Deduct:
total stock-based employee compensation determined under the
fair-value-based method for all awards, net of related tax
effects
|
|
|
(4,011
|
)
|
|
(2,074
|
)
|
Pro
forma net income
|
|
$
|
2,223
|
|
$
|
1,791
|
|
|
|
|
|
|
|
|
|
Earnings
per common share, as reported:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
$
|
0.11
|
|
Diluted
|
|
$
|
0.17
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
Pro
forma earnings per common share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.06
|
|
$
|
0.05
|
|
The
Company used the Black-Scholes valuation model to calculate the compensation
expense related to rights to purchase shares of common stock under the Company’s
2002 Employee Stock Purchase Plan (the “ESPP”) and options to purchase common
stock under the Company’s 2003 Stock Option and Incentive Plan (the “2003 Plan”)
in fiscal 2006. This is consistent with the valuation techniques previously
utilized for options in footnote disclosures required under SFAS No. 123,
Accounting
for Stock-Based Compensation
(“SFAS
123”), as amended by SFAS 148, Accounting
for Stock-Based Compensation - Transition and Disclosure - an amendment of
FASB
Statement No. 123.
For
options to purchase common stock granted after the adoption of SFAS 123R, the
Company is required to utilize an estimated forfeiture rate when calculating
the
expense for the period, whereas SFAS 123 permitted companies to record
forfeitures based on actual forfeitures, which was Presstek’s historical policy
under SFAS 123. An estimated forfeiture rate is calculated based on then-current
facts and circumstances at the time the Company grants options to purchase
its
common stock. For further information regarding the assumptions used in
determining stock-based compensation expense related to the Company’s ESPP and
options to purchase common stock, see Note 16.
Comprehensive
Income
Comprehensive
income is comprised of net income, plus all changes in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including any foreign currency translation adjustments,
unrealized gains and losses on marketable securities, or changes in derivative
values. These changes in equity are recorded as adjustments to Accumulated
other
comprehensive income (loss) in the Company’s Consolidated Financial Statements.
The primary components of Accumulated other comprehensive income (loss) are
unrealized gains or losses on foreign currency translation.
Foreign
Currency Translation
The
Company’s foreign subsidiaries use the local currency as their functional
currency. Accordingly, assets and liabilities are translated into U.S. dollars
at current rates of exchange in effect at the balance sheet date. The resulting
unrealized gains or losses are reported under the caption Accumulated other
comprehensive income (loss) in the Company’s Consolidated Financial Statements.
Revenues and expenses from these subsidiaries are translated at average monthly
exchange rates in effect for the periods in which the transactions occur.
Gains
and
losses arising from foreign currency transactions are reported as a component
of
Interest and other income (expense), net in the Company’s Consolidated
Statements of Income. The Company reported gains on foreign
currency
transactions of approximately $165,000 in fiscal 2006, and losses on foreign
currency transactions of approximately $3,000 and $133,000 in fiscal 2005 and
fiscal 2004, respectively.
Derivatives
The
Company entered into interest rate swap agreements with its lenders in October
2003, which were intended to protect the Company’s long-term debt against
fluctuations in LIBOR rates. Under the interest rate swaps LIBOR was set at
a
minimum of 1.15% and a maximum of 4.25%. Because the interest rate swap
agreement did not qualify as a hedge for accounting purposes under SFAS No.
133,
Accounting
for Derivative Instruments and Hedging Activities
(“SFAS
133”), and related amendments, including SFAS No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities
(“SFAS
149”), the Company recorded a reduction to interest expense of $40,000, $28,000
and $133,000 in fiscal 2006, fiscal 2005 and fiscal 2004, 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).
Earnings
(Loss) per Share
Earnings
per share is computed under the provisions of SFAS No. 128, Earnings
per Share
(“SFAS
128”). 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
1,425,700 and 843,000 options to purchase common stock were excluded from the
calculation of diluted earnings per share for fiscal 2006 and fiscal 2005,
respectively, as their effect would be antidilutive. Approximately 865,000
options and warrants to purchase common stock were excluded from the calculation
of diluted earnings per share for fiscal 2004, as their effect would be
antidilutive. Warrants had expired as of January 1, 2005.
Reclassifications
Certain
amounts in prior periods have been reclassified to conform to current
presentation.
Recent
Accounting Pronouncements
In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109
("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income
taxes by prescribing the recognition threshold a tax position is required to
meet before being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006 and is required to be adopted by
Presstek in the first quarter of fiscal 2007. The cumulative effects, if any,
of
applying FIN 48 will be recorded as an adjustment to retained earnings as
of the beginning of the period of adoption. Presstek is currently evaluating
the
effect that the adoption of FIN 48 will have on its consolidated results of
operations and financial condition but does not expect it to have a material
impact.
In
September 2006, the SEC issued SAB No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
("SAB 108"). SAB 108 provides guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an
approach that requires quantification of financial statement errors based on
the
effects of each of the company's balance sheet and statement of operations
and
the related financial statement disclosures. SAB 108 is effective for fiscal
years ending after November 15, 2006. Upon initial application, SAB 108 permits
a one-time cumulative effect adjustment to beginning retained
earnings.
The
adoption of SAB 108 did not have a material impact on its consolidated
results of operations and financial condition.
In
fiscal
2006 the Company adopted SFAS No. 151, Inventory
Costs
(“SFAS
151”), an amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4,
Inventory
Pricing.
SFAS
151 amends previous guidance regarding treatment of abnormal amounts of idle
facility expense, freight, handling costs and spoilage. This Statement requires
that those items be recognized as current period charges regardless of whether
they meet the criterion of “so abnormal” which was the criterion specified in
ARB No. 43. In addition, this Statement requires that the allocation of fixed
production overheads to the cost of the production be based on normal capacity
of the production facilities. The adoption of SFAS 151 did not have a material
impact on the Company.
In
fiscal
2006, the Company adopted Financial Accounting Standards Board (“FASB”) issued
SFAS No. 154, Accounting
Changes and Error Corrections
(“SFAS
154”), which replaces APB Opinion No. 20, Accounting
Changes
and SFAS
No. 3, Reporting
Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion
No. 28.
SFAS
154 provides guidance on the accounting for and reporting of accounting changes
and error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. There was no financial
statement impact in 2006.
In
June
2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
No. 06-3, How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is, Gross versus Net
Presentation)
(“EITF
06-3”). EITF 06-3 is effective for periods beginning after December 15, 2006,
with earlier application permitted. EITF 06-3 requires disclosure of the
accounting policy for any tax assessed by a governmental authority that is
directly imposed on a revenue-producing transaction (i.e., sales, use, value
added) on a gross basis (included in revenues and costs) or net basis (excluded
from revenues and costs). The Company excludes these amounts from its revenues
and costs; accordingly, no additional disclosure will be required.
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements
("SFAS 157"). SFAS 157 provides guidance for using fair value to
measure assets and liabilities. It also responds to investors' requests for
expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and
the
effect of fair value measurements on earnings. SFAS 157 applies whenever
other standards require (or permit) assets or liabilities to be measured at
fair
value, and does not expand the use of fair value in any new circumstances.
SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and is required to be adopted by the
Company in fiscal 2008. Presstek is currently evaluating the effect that the
adoption of SFAS 157 will have on its consolidated results of operations
and financial condition but does not expect it to have a material
impact.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159 ("SFAS 159"), The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
amendment of FASB Statement No 115.
SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. Early adoption is permitted, provided the company
also
elects to apply the provisions of SFAS 157. Presstek is currently evaluating
the
effect that the adoption of SFAS 159 will have on its consolidated results
of operations and financial condition but does not expect it to have a material
impact.
3.
DISCONTINUED OPERATIONS
The
Company accounts for its discontinued operations under the provisions of SFAS
No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets,
(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
Income. 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
Lithograining Corp. - Analog Newspaper Business
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,
Massachusetts 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):
|
|
December
30, 2006
|
|
December
31, 2005
|
|
January
1, 2005
|
|
Revenue
|
|
$
|
10,816
|
|
$
|
15,006
|
|
$
|
8,398
|
|
Loss
before income taxes
|
|
|
(2,267
|
)
|
|
(825
|
)
|
|
(1,036
|
)
|
Provision
(benefit) for income taxes
|
|
|
(771
|
)
|
|
10
|
|
|
34
|
|
Loss
from discontinued operations
|
|
|
(1,496
|
)
|
|
(835
|
)
|
|
(1,070
|
)
|
Loss
from disposal of discontinued operations, net of tax benefit of $915
for
the year ended December 30, 2006
|
|
|
(1,777
|
)
|
|
--
|
|
|
--
|
|
Net
loss from discontinued operations
|
|
$
|
(3,273
|
)
|
$
|
(835
|
)
|
$
|
(1,070
|
)
|
Loss
per diluted share
|
|
$
|
(0.09
|
)
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
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 (credits) of continuing operations, and the
remaining charges included in the loss from discontinued operations for fiscal
2006.
Assets
and liabilities of discontinued operations consist of the following (in
thousands):
|
|
December
30, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Receivables,
net
|
|
$
|
1,875
|
|
$
|
1,894
|
|
Inventories,
net
|
|
|
1,446
|
|
|
1,620
|
|
Total
current assets
|
|
$
|
3,321
|
|
$
|
3,514
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$
|
--
|
|
$
|
103
|
|
Intangible
assets, net
|
|
|
--
|
|
|
671
|
|
Total
noncurrent assets
|
|
$
|
--
|
|
$
|
774
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,126
|
|
$
|
1,085
|
|
Accrued
expenses
|
|
|
1,581
|
|
|
148
|
|
Total
current liabilities
|
|
$
|
3,707
|
|
$
|
1,233
|
|
|
|
|
|
|
|
|
|
4.
BUSINESS ACQUISITIONS
ABDick
On
November 5, 2004, the Company, through its wholly-owned subsidiary, ABDick,
completed the acquisition of certain assets and assumed certain liabilities
of
The A.B. Dick Company, which the Company acquired through a Section 363 sale
in
the United States Bankruptcy Court. The acquired business manufactured, marketed
and
serviced
offset systems and computer-to-plate (“CTP”) systems and related supplies for
the graphics arts and printing industries. In consideration, the Company paid
the previous owners approximately $40.0 million in cash.
As
part
of this acquisition, the Company paid $5.1 million of transaction costs for
legal, audit and other transaction costs, and accrued, as purchase price
adjustments, an aggregate of $3.0 million for costs primarily related to the
consolidation of ABDick’s Rochester, New York manufacturing operations into the
Company’s existing manufacturing facility at its corporate headquarters in
Hudson, New Hampshire, and the closing of ABDick’s Niles, Illinois office
facility (the “integration cost accruals”). The consolidation of the Rochester,
New York manufacturing operations was substantially completed in the third
quarter of 2005.
On
August
8, 2005, as part of its previously announced plan to achieve cost savings with
regard to the ABDick operating segment, Presstek announced that in order to
consolidate operations, the Company would close its Niles office facility by
December 31, 2005. The Niles facility was closed as planned on December 31,
2005. The Company transferred certain executives of ABDick from the Niles
facility to the Company’s headquarters in Hudson. ABDick’s inside sales staff
and other limited customer service operations were moved to a new facility
in
the Chicago, Illinois area. These activities were expected to result in the
Company incurring miscellaneous incremental transition expenses (before any
expected savings anticipated from the consolidation) aggregating approximately
$0.75 million in cash as charges to earnings. In the fiscal 2005 period
subsequent to the announcement, the Company recorded $0.3 million of
miscellaneous incremental transition expenses, all of which were recorded in
the
fourth quarter. An additional $0.1 million of expense was recorded in fiscal
2006 as restructuring charges within the Statement of Income to finalize the
transition.
In
fiscal
2004, the Company had recorded integration cost accruals aggregating $1.5
million. In fiscal 2005, the Company had recorded additional integration cost
accruals aggregating $2.4 million, comprised of $2.3 million of additional
severance and fringe benefits costs and $0.1 million of lease termination and
related costs. In fiscal 2005, the Company performed the analysis required
to
finalize the purchase price allocation for the ABDick acquisition. As a result
of this analysis, the Company identified $0.9 million of excess integration
cost
accruals and, accordingly, adjusted the amounts recorded to reflect the lower
estimated requirements, with a corresponding offset to goodwill. These amounts
are reflected in the table below. Of the net $3.0 million accrued for these
integration activities, $2.7 million was recorded for severance and related
costs primarily for personnel located at the Niles and Rochester facilities
and
affected by the consolidation of operations and $0.3 million was recorded for
costs related to the affected facilities. The Company also expects to invest
a
total of approximately $1.25 million in capital expenditures relating to
facilities used by the operations affected by the consolidation. At December
31,
2005 and December 30, 2006, the Company had recorded $0.4 million and $0.5
million, respectively, of capitalized costs, primarily for the installation
of
new office space at the Hudson headquarters facility and additional computer
hardware and software required to support this transition. All of these accruals
and charges relate to and were recorded by the Company’s Presstek operating
segment.
A
summary
of the transaction and the allocation of the purchase price are as follows
(in
thousands):
Consideration
|
|
|
|
|
Net
cash paid
|
|
$
|
40,000
|
|
Transaction
costs
|
|
|
5,121
|
|
Integration
costs
|
|
|
3,029
|
|
Total
consideration
|
|
|
48,150
|
|
|
|
|
|
|
Allocation
of consideration to assets acquired (liabilities assumed)
|
|
|
|
|
Accounts
receivable
|
|
|
16,930
|
|
Inventories
|
|
|
21,172
|
|
Other
current assets
|
|
|
646
|
|
Property,
plant and equipment
|
|
|
1,375
|
|
Other
noncurrent assets
|
|
|
109
|
|
Accounts
payable and accrued expenses
|
|
|
(7,472
|
)
|
Deferred
revenue
|
|
|
(8,899
|
)
|
Fair
value of net tangible assets acquired
|
|
|
23,861
|
|
|
|
|
|
|
Excess
of consideration over fair value of net tangible assets
acquired
|
|
|
24,289
|
|
|
|
|
|
|
Allocation
of excess consideration to identifiable intangible assets
|
|
|
|
|
Trade
names (estimated life of 3 years)
|
|
|
2,100
|
|
Customer
relationships (estimated life of 10 years)
|
|
|
3,800
|
|
Software
license (estimated life of 3 years)
|
|
|
450
|
|
|
|
|
6,350
|
|
|
|
|
|
|
Allocation
of excess consideration to goodwill
|
|
$
|
17,939
|
|
The
weighted average life of the identifiable intangible assets recorded in
connection with this transaction is 7.2 years.
The
activity related to the Company’s integration cost accruals for the periods
subsequent to the acquisition date is as follows (in thousands):
|
|
Fiscal
2006 Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December
31,
2005
|
|
Utilization
|
|
Currency
Translation
|
|
Balance
December
30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and fringe benefits
|
|
$
|
1,242
|
|
$
|
(761
|
)
|
$
|
6
|
|
$
|
487
|
|
Lease
termination and other costs
|
|
|
95
|
|
|
(71
|
)
|
|
--
|
|
|
24
|
|
|
|
$
|
1,337
|
|
$
|
(832
|
)
|
$
|
6
|
|
$
|
511
|
|
|
|
Fiscal
2005 Activity
|
|
|
|
|
|
Purchase
accounting
adjustments
offset to goodwill
|
|
|
|
|
|
|
|
Balance
January
1,
2005
|
|
Additions
|
|
Reversals
- changes in estimate
|
|
Utilization
|
|
Balance
December
31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and fringe benefits
|
|
$
|
795
|
|
$
|
2,340
|
|
$
|
(380
|
)
|
$
|
(1,513
|
)
|
$
|
1,242
|
|
Lease
termination and other costs
|
|
|
703
|
|
|
75
|
|
|
(504
|
)
|
|
(179
|
)
|
|
95
|
|
|
|
$
|
1,498
|
|
$
|
2,415
|
|
$
|
(884
|
)
|
$
|
(1,692
|
)
|
$
|
1,337
|
|
|
|
Fiscal
2004 Activity
|
|
|
|
Balance
January
3,
2004
|
|
Purchase
accounting
adjustments
offset to goodwill
|
|
Utilization
|
|
Balance
January
1,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and fringe benefits
|
|
$
|
--
|
|
$
|
795
|
|
$
|
--
|
|
$
|
795
|
|
Lease
termination and other costs
|
|
|
--
|
|
|
703
|
|
|
--
|
|
|
703
|
|
|
|
$ |
|
|
$
|
1,498
|
|
$
|
--
|
|
$
|
1,498
|
|
Precision
On
July
30, 2004, the Company acquired the stock of Precision for an aggregate cash
purchase price of $12.1 million, net of cash acquired. A summary of the
transaction and the final allocation of the purchase price are as follows (in
thousands):
Consideration
|
|
|
|
Net
cash paid
|
|
$
|
12,127
|
|
Integration
costs
|
|
|
400
|
|
Total
consideration
|
|
|
12,527
|
|
|
|
|
|
|
Allocation
of consideration to assets acquired (liabilities assumed)
|
|
|
|
|
Accounts
receivable
|
|
|
2,636
|
|
Inventories
|
|
|
2,695
|
|
Property,
plant and equipment
|
|
|
6,065
|
|
Accounts
payable and accrued expenses
|
|
|
(5,279
|
)
|
Fair
value of net tangible assets acquired
|
|
|
6,117
|
|
|
|
|
|
|
Excess
of consideration over fair value of net tangible assets
acquired
|
|
|
6,410
|
|
|
|
|
|
|
Allocation
of excess consideration to identifiable intangible assets
|
|
|
|
|
Customer
relationships (estimated life of 7 years)
|
|
|
900
|
|
Trade
names (estimated life of 2 years)
|
|
|
260
|
|
Non-compete
covenants (estimated life of 5 years)
|
|
|
100
|
|
|
|
|
1,260
|
|
|
|
|
|
|
Allocation
of excess consideration to goodwill (deductible for tax
purposes)
|
|
$
|
5,150
|
|
Financial
results of the analog newspaper business of Precision are reported as
discontinued operations in the accompanying Consolidated Statements of Income
(see Note 3).
The
Company did not incur any transaction costs related to the acquisition of
Precision. The weighted average life of the identifiable intangible assets
recorded in connection with this transaction is 5.8 years.
Pro
forma results of operations
The
following pro forma results of operations for fiscal 2004 have been prepared
as
though the acquisitions of ABDick and Precision digital business had occurred
on
January 4, 2004, the first day of fiscal 2004. This pro forma financial
information does not purport to be indicative of the results of operations
that
would have been attained had the acquisitions been made as of January 4, 2004
or
of results of operations that may occur in future periods (in thousands, except
per share data):
|
|
Fiscal
2004
|
|
|
|
|
|
Revenue
|
|
$
|
271,990
|
|
Net
income from continuing operations
|
|
$
|
3,433
|
|
Earnings
per share from continuing operations (basic)
|
|
$
|
0.10
|
|
Earnings
per share from continuing operations (diluted)
|
|
$
|
0.10
|
|
5.
ACCOUNTS RECEIVABLE, NET OF ALLOWANCES
The
components of accounts receivable, net of allowances, in the Consolidated
Balance Sheets are as follows (in thousands):
|
|
December
30,
2006
|
|
December
31,
2005
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
56,152
|
|
$
|
45,488
|
|
Less
allowances
|
|
|
(2,994
|
)
|
|
(3,294
|
)
|
|
|
$
|
53,158
|
|
$
|
42,194
|
|
The
activity related to the Company’s allowances for losses on accounts receivable
for fiscal 2006, fiscal 2005 and fiscal 2004 is as follows (in
thousands):
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
3,294
|
|
$
|
4,304
|
|
$
|
1,892
|
|
Charged
to costs and expenses
|
|
|
391
|
|
|
1,604
|
|
|
2,474
|
|
Charged
to other accounts:
|
|
|
|
|
|
|
|
|
|
|
Purchase
accounting adjustments
|
|
|
--
|
|
|
(30
|
)
|
|
--
|
|
Acquired
balance in business combinations
|
|
|
--
|
|
|
--
|
|
|
1,964
|
|
Deductions
and write-offs
|
|
|
(691
|
)
|
|
(2,584
|
)
|
|
(2,026
|
)
|
Balance
at end of period
|
|
$
|
2,994
|
|
$
|
3,294
|
|
$
|
4,304
|
|
6.
INVENTORIES, NET
The
components of inventories in the Consolidated Balance Sheets are as follows
(in
thousands):
|
|
December
30,
2006
|
|
December
31,
2005
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
3,434
|
|
$
|
6,325
|
|
Work
in process
|
|
|
7,102
|
|
|
8,953
|
|
Finished
goods
|
|
|
35,514
|
|
|
33,185
|
|
|
|
$
|
46,050
|
|
$
|
48,463
|
|
7.
PROPERTY, PLANT AND EQUIPMENT, NET
The
components of property, plant and equipment, net, in the Consolidated Balance
Sheets are as follows (in thousands):
|
|
December
30,
2006
|
|
December
31,
2005
|
|
|
|
|
|
|
|
Land
and improvements
|
|
$
|
2,286
|
|
$
|
2,241
|
|
Buildings
and leasehold improvements
|
|
|
29,428
|
|
|
28,902
|
|
Production
and other equipment
|
|
|
56,462
|
|
|
51,879
|
|
Office
furniture and equipment
|
|
|
7,263
|
|
|
6,668
|
|
Construction
in process
|
|
|
1,886
|
|
|
3,882
|
|
Total
property, plant and equipment, at cost
|
|
|
97,325
|
|
|
93,572
|
|
Accumulated
depreciation and amortization
|
|
|
(55,131
|
)
|
|
(48,425
|
)
|
Net
property, plant and equipment
|
|
$
|
42,194
|
|
$
|
45,147
|
|
Construction
in process is primarily related to production equipment not yet placed into
service. The amount reported at December 30, 2006 includes $1.4 million related
to a new service management system, which is in the implementation phase. The
Company is capitalizing all applicable costs in accordance with AICPA Statement
of Position No. 98-1, Accounting
for Costs of Computer Software Developed or Obtained for Internal
Use,
and
estimates that the total cost of implementation will approximate $1.8
million.
Property,
plant and equipment at December 30, 2006 includes $110,000 in equipment and
related accumulated depreciation of $38,000 associated with a capital
lease.
The
Company recorded depreciation expense of $7.0 million, $8.1 million and $7.8
million in fiscal 2006, fiscal 2005 and fiscal 2004, respectively. Under the
Company’s financing arrangements (See Note 9), all property, plant and equipment
is pledged as security.
8.
GOODWILL AND OTHER INTANGIBLE ASSETS
The
changes in the carrying amounts of goodwill for the fiscal year ended December
30, 2006 are as follows (in thousands):
|
|
|
|
Balance
at January 1, 2005
|
|
$
|
18,888
|
|
Purchase
accounting adjustments for prior period acquisitions
|
|
|
4,201
|
|
Balance
at December 31, 2005
|
|
$
|
23,089
|
|
Purchase
accounting adjustments for prior period acquisitions
|
|
|
--
|
|
Impairment
adjustments
|
|
|
(2,809
|
)
|
Balance
at December 30, 2006
|
|
$
|
20,280
|
|
The
impairment of goodwill is discussed in detail in Note 3.
The
components of the Company’s identifiable intangible assets are as follows (in
thousands):
|
|
December
30, 2006
|
|
December
31, 2005
|
|
|
|
Cost
|
|
Accumulated
amortization
|
|
Cost
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and intellectual property
|
|
$
|
11,277
|
|
$
|
7,206
|
|
$
|
10,840
|
|
$
|
6,173
|
|
Trade
names
|
|
|
2,360
|
|
|
1,776
|
|
|
2,360
|
|
|
1,001
|
|
Customer
relationships
|
|
|
4,583
|
|
|
1,443
|
|
|
4,641
|
|
|
705
|
|
Software
licenses
|
|
|
450
|
|
|
325
|
|
|
450
|
|
|
175
|
|
License
agreements
|
|
|
750
|
|
|
169
|
|
|
750
|
|
|
11
|
|
Non-compete
covenants
|
|
|
100
|
|
|
48
|
|
|
100
|
|
|
28
|
|
Loan
origination fees
|
|
|
332
|
|
|
144
|
|
|
332
|
|
|
77
|
|
|
|
$
|
19,852
|
|
$
|
11,111
|
|
$
|
19,473
|
|
$
|
8,170
|
|
The
Company recorded amortization expense for its identifiable intangible assets
of
$3.0 million, $2.6 million and $1.3 million in fiscal 2006, fiscal 2005 and
fiscal 2004, respectively. As of December 30, 2006, there was $0.7 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 December 30, 2006, are as follows (in
thousands):
Fiscal
2007
|
|
$
|
2,252
|
|
Fiscal
2008
|
|
|
1,275
|
|
Fiscal
2009
|
|
|
1,129
|
|
Fiscal
2010
|
|
|
961
|
|
Fiscal
2011
|
|
|
744
|
|
Thereafter
|
|
|
1,664
|
|
As
of
July 2, 2005, the Company’s Lasertel subsidiary had advanced $0.9 million (the
“Advance”) to a customer (the “Customer”), of which $0.7 million was secured by,
among other things, a lien on the assets of the Customer, including intellectual
property. In addition, Lasertel had an accounts receivable balance of $0.9
million (the “Receivables”) with the Customer. In a series of agreements with
the Customer and a material end user to whom the Customer had been providing
products under a supply contract (the “Supply Contract”), in exchange for the
Customer’s Advance and Receivables, Lasertel received ownership of certain
assets of the Customer, which were comprised of all of the Customer’s patents,
intellectual property and know-how (as well as all updates thereto) (the
“Assets”) as well as having the Customer’s rights under the Supply Contract
assigned to Lasertel. In connection with this transaction, the Company recorded
$1.7 million and $0.1 million of patents and customer contracts, respectively,
which are amortized over their estimated useful lives, which range from nine
months to seven years.
These
amounts are included in the tables above. The value of the Assets, as well
as
the rights assigned under the Supply Contract, approximates the $1.8 million
in
Advances and Receivables.
9.
FINANCING ARRANGEMENTS
The
components of the Company’s outstanding borrowings at December 30, 2006 and
December 31, 2005 are as follows (in thousands):
|
|
December
30, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Term
loan
|
|
$
|
22,500
|
|
$
|
29,500
|
|
Line
of credit
|
|
|
15,000
|
|
|
6,036
|
|
Capital
lease
|
|
|
72
|
|
|
107
|
|
|
|
|
37,572
|
|
|
35,643
|
|
Less
current portion
|
|
|
(22,037
|
)
|
|
(13,073
|
)
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
15,535
|
|
$
|
22,570
|
|
In
November 2004, in connection with the acquisition of the business of the A.B.
Dick Company, the Company replaced its then-current credit facilities, which
it
had entered into in October 2003, with $80.0 million in Senior Secured Credit
Facilities (the “Facilities”) from three lenders. The terms of the Facilities
include a $35.0 million five-year secured term loan (the “Term Loan”) and a
$45.0 million five-year secured revolving line of credit (the “Revolver”). The
Company granted a security interest in all of its assets in favor of the lenders
under the Facilities. In addition, under the Facilities agreement, the Company
is prohibited from declaring or distributing dividends to
shareholders.
The
Company has the option of selecting an interest rate for the Facilities equal
to
either: (a) the then applicable London Inter-Bank Offer Rate plus 1.25% to
4.0%
per annum, depending on certain results of the Company’s financial performance;
or (b) the Prime Rate, as defined in the Facilities agreement, plus up to 1.75%
per annum, depending on certain results of the Company’s financial performance.
Effective August 31, 2005, the Company amended its Facilities to reduce the
current Applicable LIBOR Margin to 2.5%, from the previous Applicable LIBOR
Margin of 3.5%.
The
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 a reduction to
interest expense of $40,000, $28,000 and $133,000 in fiscal 2006, fiscal 2005
and fiscal 2004, respectively, to mark these interest rate swap agreements
to
market.
The
Facilities were used to partially finance the ABDick acquisition, and are
available to the Company for working capital requirements, capital expenditures,
business acquisitions and general corporate purposes.
At
December 30, 2006 and December 31, 2005, the Company had outstanding balances
on
the Revolver of $15.0 million and $6.0 million, respectively, with interest
rates of 7.1% and 6.9%, respectively. At December 30, 2006, there were $12.3
million of outstanding letters of credit, thereby reducing the amount available
under the Revolver to $17.7 million at that date.
The
Term
Loan required an initial principal payment of $0.25 million on March 31, 2005,
and requires subsequent quarterly principal payments of $1.75 million, with
a
final settlement of all remaining principal and unpaid interest on November
4,
2009. At December 30, 2006 and December 31, 2005, outstanding balances under
the
Term Loan were $22.5 million and $29.5 million, respectively, with interest
rates of 7.1% and 7.5%, respectively.
On
November 23, 2005, the Company acquired equipment of $110,000 qualifying for
capital lease treatment under SFAS 13. The lease has a three-year term and
expires in November 2008, at which time the Company may purchase the system
for
a minimal amount. The lease carries an interest rate of 6.95% per year. The
equipment is reflected in property, plant and equipment and the current and
long-term principal amounts of the lease obligation are included as components
of current portion of long-term debt and capital lease obligation and long-term
debt and capital lease obligation in the Company’s Consolidated Balance Sheets
at December 30, 2006 and December 31, 2005.
The
Company’s Revolver and Term Loan principal and capital lease repayment
commitments are as follows (in thousands):
2007
|
|
$
|
22,037
|
|
2008
|
|
|
7,035
|
|
2009
|
|
|
8,500
|
|
The
weighted average interest rate on the Company’s short-term borrowings was 7.1%
at December 30, 2006.
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
December 30, 2006, the Company was in compliance with all financial covenants.
10.
ACCRUED EXPENSES
The
components of the Company’s accrued expenses in the Consolidated Balance Sheets
at December 30, 2006 and December 31, 2005 are as follows (in
thousands):
|
|
December
30,
2006
|
|
December
31,
2005
|
|
|
|
|
|
|
|
Accrued
payroll and employee benefits
|
|
$
|
5,642
|
|
$
|
8,184
|
|
Accrued
warranty
|
|
|
1,729
|
|
|
1,481
|
|
Accrued
integration costs
|
|
|
511
|
|
|
1,337
|
|
Accrued
restructuring and other charges
|
|
|
233
|
|
|
482
|
|
Accrued
royalties
|
|
|
276
|
|
|
344
|
|
Accrued
income taxes
|
|
|
--
|
|
|
312
|
|
Other
|
|
|
2,080
|
|
|
4,430
|
|
|
|
$
|
10,471
|
|
$
|
16,570
|
|
11.
ACCRUED WARRANTY AND DEFERRED REVENUES
Accrued
Warranty
The
Company provides for the estimated cost of product warranties, based on
historical experience, at the time revenue is recognized. Presstek warrants
its
products against defects in material and workmanship for various periods,
determined by the product, generally for a period of from ninety days to one
year from the date of
installation.
Typical warranties require the Company to repair or replace defective products
during the warranty period at no cost to the customer. Presstek engages in
extensive product quality programs and processes, including monitoring and
evaluation of component supplies; however, product warranty terms, product
failure rates, and material usage and service delivery costs incurred in
correcting a product failure may affect the estimated warranty obligation.
If
actual product failure rates, material usage or service delivery costs differ
from current estimates, the Company will adjust the warranty liability. Accruals
for product warranties are reflected as a component of accrued expenses in
the
Company’s Consolidated Balance Sheets.
Product
warranty activity in fiscal 2006, fiscal 2005 and fiscal 2004 is as follows
(in
thousands):
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
1,481
|
|
$
|
1,466
|
|
$
|
935
|
|
Accruals
for warranties
|
|
|
3,400
|
|
|
1,558
|
|
|
1,109
|
|
Assumed
warranty liabilities - business acquisitions
|
|
|
--
|
|
|
--
|
|
|
795
|
|
Utilization
of accrual for warranty costs
|
|
|
(3,152
|
)
|
|
(1,543
|
)
|
|
(1,373
|
)
|
Balance
at end of period
|
|
$
|
1,729
|
|
$
|
1,481
|
|
$
|
1,466
|
|
Accruals
for warranties increased in 2006 as the Company experienced quality issues
related to the Vector TX52 and AnthemPro plates.
Deferred
Revenues
Deferred
revenues consist of amounts received or billed in advance for products for
which
revenue recognition criteria has not yet been met or service contracts where
services have not yet been rendered. Deferred amounts are recognized as elements
are delivered or, in the case of services, recognized ratably over the contract
life, generally one year, or as services are rendered.
The
components of deferred revenue are as follows (in thousands):
|
|
December
30,
2006
|
|
December
31,
2005
|
|
|
|
|
|
|
|
Deferred
service revenue
|
|
$
|
7,505
|
|
$
|
7,951
|
|
Deferred
product revenue
|
|
|
396
|
|
|
628
|
|
|
|
$
|
7,901
|
|
$
|
8,579
|
|
12.
RESTRUCTURING AND OTHER CHARGES (CREDITS)
A
summary
of restructuring and other charges follows:
|
|
December
30,
2006
|
|
December
31,
2005
|
|
January
1, 2005
|
|
|
|
|
|
|
|
|
|
Asset
impairment - goodwill
|
|
$
|
2,809
|
|
$
|
--
|
|
$
|
--
|
|
Impairment
of intangible assets - patent defense costs
|
|
|
2,297
|
|
|
--
|
|
|
--
|
|
Impairment
of other assets
|
|
|
260
|
|
|
--
|
|
|
--
|
|
Severance
and fringe benefits
|
|
|
115
|
|
|
592
|
|
|
(316
|
)
|
Executive
contractual obligations
|
|
|
--
|
|
|
282
|
|
|
(76
|
)
|
Total
net restructuring and other charges
|
|
$
|
5,481
|
|
$
|
874
|
|
$
|
(392
|
)
|
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 using
a
fair value test and charges totaling $2.8 million were recognized in the
accompanying statement of income in fiscal 2006.
Impairment
of intangible assets for patent defense costs associated with the Creo matter
(Note 20) 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.
Impairment
of other assets of $0.3 million was recognized in fiscal 2006 as the Company
determined that rights acquired under a product technology arrangement were
impaired due to commercialization uncertainty.
In
2006,
the Company also recognized charges of $0.5 million primarily for severance
costs related to workforce reductions and merger-related professional fees.
In
addition, the reduction of approximately $0.4 million of previously established
accruals at the Presstek segment were recorded in income in 2006 due mainly
to
changes in the scope of previously announced severance programs. At December
30,
2006, remaining accrual balances of $0.2 million related to severance programs
involving 10 manufacturing and administrative positions at the Presstek
segment.
In
2005,
the Company recognized charges of approximately $1.0 million related to
severance costs, executive and other contractual obligations, and a settlement
with previously terminated employees in the Presstek business segment. Also,
in
2005 approximately $0.1 million of previously established accruals at the
Presstek segment were returned to income due mainly to changes in the scope
of
previously announced severance programs. The Company accrued for severance
and
fringe benefit costs relating to the elimination of 14 positions, comprised
of
five technical and customer support positions, five manufacturing positions
and
four management and support positions. At December 31, 2005, ten employees
had
been terminated under this plan.
In
fiscal
2004, the Company returned approximately $0.4 million of previously established
accruals to income due to fewer employee separations than originally planned
associated with prior restructuring actions.
The
activity for fiscal 2006, fiscal 2005 and fiscal 2004 related to the Company’s
restructuring and other expense accruals is as follows (in
thousands):
|
|
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
|
|
|
|
Fiscal
2005 Activity
|
|
|
|
Balance
January
1,
2005
|
|
Charged
to
Expense
|
|
Reversals
|
|
Utilization
|
|
Balance
December
31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
contractual obligations
|
|
$
|
154
|
|
$
|
282
|
|
$
|
--
|
|
$
|
(436
|
)
|
$
|
--
|
|
Severance
and fringe benefits
|
|
|
--
|
|
|
700
|
|
|
(
108
|
)
|
|
(110
|
)
|
|
482
|
|
|
|
$
|
154
|
|
$
|
982
|
|
$
|
(108
|
)
|
$
|
(546
|
)
|
$
|
482
|
|
|
|
Fiscal
2004 Activity
|
|
|
|
Balance
January
3,
2004
|
|
Charged
to
Expense
|
|
Reversals
|
|
Utilization
|
|
Balance
January
1,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
contractual obligations
|
|
$
|
699
|
|
$
|
--
|
|
$
|
(76
|
)
|
$
|
(469
|
)
|
$
|
154
|
|
Severance
and fringe benefits
|
|
|
356
|
|
|
--
|
|
|
(316
|
)
|
|
(40
|
)
|
|
--
|
|
|
|
$
|
1,055
|
|
$
|
--
|
|
$
|
(392
|
)
|
$
|
(509
|
)
|
$
|
154
|
|
The
Company anticipates that payments related to the above restructuring actions
will be completed in 2007.
13.
INTEREST AND OTHER INCOME AND EXPENSE
The
components of Interest and other income (expense), net, in the Company’s
Consolidated Statements of Income are as follows (in thousands):
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(2,364
|
)
|
$
|
(2,459
|
)
|
$
|
(923
|
)
|
Interest
income
|
|
|
119
|
|
|
130
|
|
|
318
|
|
Other
income (expense), net
|
|
|
419
|
|
|
109
|
|
|
(265
|
)
|
|
|
$
|
(1,826
|
)
|
$
|
(2,220
|
)
|
$
|
(870
|
)
|
In
the
third quarter of fiscal 2006, the Company received certain unclaimed funds
from
the former ABDick estate and settled various other open items with the ABDick
estate, realizing a net gain of $0.3 million after legal costs. This gain is
included in Other income (expense), net, in the table above for fiscal 2006.
The
amount reported as Other income (expense), net, for fiscal 2006 also includes
$0.2 for gains on foreign currency transactions. The amounts reported as Other
income (expense), net, for fiscal 2005 and fiscal 2004 primarily relate to
gains
or losses on foreign currency transactions.
14.
INCOME TAXES
For
the
fiscal years ended December 30, 2006, December 31, 2005, and January 1, 2005,
income before income taxes from continuing operations includes the following
components (in thousands):
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
3,198
|
|
$
|
7,603
|
|
$
|
4,990
|
|
Foreign
|
|
|
(824
|
)
|
|
482
|
|
|
111
|
|
|
|
$
|
2,374
|
|
$
|
8,085
|
|
$
|
5,101
|
|
For
the
fiscal years ended December 30, 2006, December 31, 2005, and January 1, 2005,
the components of provision (benefit) for income taxes from continuing
operations were as follows (in thousands):
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
129
|
|
$
|
175
|
|
$
|
40
|
|
State
|
|
|
545
|
|
|
176
|
|
|
6
|
|
Foreign
|
|
|
37
|
|
|
218
|
|
|
--
|
|
|
|
$
|
711
|
|
$
|
569
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(10,274
|
)
|
|
475
|
|
|
96
|
|
State
|
|
|
(802
|
)
|
|
120
|
|
|
24
|
|
Foreign
|
|
|
(278
|
)
|
|
--
|
|
|
--
|
|
|
|
|
(11,354
|
)
|
|
595
|
|
|
120
|
|
Provision
for income taxes
|
|
$
|
(10,643
|
)
|
$
|
1,164
|
|
$
|
166
|
|
A
reconciliation of the Company’s effective tax rate to the statutory federal rate
is as follows:
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
Federal
statutory tax rate
|
|
|
34.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
State
tax, net of federal benefit
|
|
|
(7.2
|
)
|
|
3.6
|
|
|
0.6
|
|
Alternative
minimum tax
|
|
|
--
|
|
|
2.2
|
|
|
0.8
|
|
Other
|
|
|
(2.5
|
)
|
|
0.7
|
|
|
(0.7
|
)
|
Change
in valuation allowance
|
|
|
(472.6
|
)
|
|
(26.1
|
)
|
|
(31.4
|
)
|
|
|
|
(448.3)
|
%
|
|
14.4
|
%
|
|
3.3
|
%
|
In
fiscal
2006, the Company recognized a tax benefit of approximately $1.7 million
associated with the loss from discontinued operations. The Company also
recognized approximately $0.1 million as an increase to additional paid in
capital as a result of current year tax benefits from excess tax deductions
from
stock-based compensation.
Deferred
Income Taxes
Deferred
income taxes result from net operating loss 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 December 30, 2006, December 31, 2005, and January 1, 2005
were:
|
|
December
30,
2006
|
|
December
31,
2005
|
|
January
1,
2005
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
5,751
|
|
$
|
26,500
|
|
$
|
29,000
|
|
Tax
credits
|
|
|
3,757
|
|
|
5,300
|
|
|
4,900
|
|
Warranty
provisions, litigation and other accruals
|
|
|
4,162
|
|
|
5,900
|
|
|
4,400
|
|
Gross
deferred tax assets
|
|
|
13,670
|
|
|
37,700
|
|
|
38,300
|
|
Valuation
allowance
|
|
|
(261
|
)
|
|
(35,700
|
)
|
|
(34,200
|
)
|
Total
assets
|
|
|
13,409
|
|
|
2,000
|
|
|
4,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
|
|
Amortizable
and depreciable assets
|
|
|
(136
|
)
|
|
(715
|
)
|
|
(320
|
)
|
Accumulated
depreciation and amortization
|
|
|
(1,596
|
)
|
|
(2,000
|
)
|
|
(3,900
|
)
|
Total
liabilities
|
|
|
(1,732
|
)
|
|
(2,715
|
)
|
|
(4,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets (liabilities)
|
|
$
|
11,677
|
|
$
|
(715
|
)
|
$
|
(120
|
)
|
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
$261,000 as of December 30, 2006 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 continue to be maintained.
At
December 30, 2006, the Company had federal net operating loss carryforwards
of
approximately $74.3 million which will expire from 2008 to 2026. Approximately
$60.7 million of our net operating loss carryforwards was generated from excess
tax deductions from stock-based compensation, the tax benefit of which
(approximately $20.6 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
December 30, 2006 the Company had federal research and development credit
carryforwards of approximately $3.1 million. The net operating loss and
credit carryforwards will expire at various dates through 2022, if not utilized.
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.
At
December 30, 2006, the Company had a net operating loss approximating $0.9
million from its European operations headquarted in the United Kingdom. The
loss
carryforward can be carried forward indefinitely.
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 $0.3 million at December 30,
2006.
15.
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.
16.
STOCK-BASED COMPENSATION PLANS
Prior
to
January 1, 2006, the Company’s employee stock-based compensation plans were
accounted for in accordance with APB 25 and related interpretations. Generally,
no stock-based employee compensation cost was recognized in the statement of
operations prior to January 1, 2006, as stock options granted under the plans
had fixed terms, including an exercise price equal to the market value of the
underlying common stock on the date of grant.
On
December 31, 2005, the Company accelerated the vesting of all unvested
outstanding options to purchase common stock previously issued to directors
and
employees, including officers. This action mitigated approximately $1.3 million
in pre-tax compensation expense in fiscal 2006 and $0.7 million thereafter
related to these options. Under the pro forma disclosure requirements of SFAS
123, the Company recognized approximately $4.0 million of stock-based
compensation in fiscal 2005, including the expense relating to the accelerated
vesting of stock options.
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. As
a
result, the Company recorded approximately $106,000 of stock-based compensation
expense related to its ESPP in fiscal 2006. In addition, the Company recorded
approximately $268,000 of stock-based compensation expense in fiscal 2006
related to stock options issued in the third quarter of fiscal 2006 under the
2003 Plan. These amounts are included as a component of General and
administrative expense in the Company’s Consolidated Statements of Operations
for the fiscal year ended December 30, 2006. At December 30, 2006, there was
$0.4 million of unrecognized stock compensation expense.
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. Any
future options granted as incentive stock options, or ISO’s, become exercisable
the day before the fifth anniversary of the date of grant. At December 30,
2006,
there were 1,220,150 options outstanding and 1,338,875 shares available for
future grants under the 1998 Incentive Plan. The options will expire at various
dates as prescribed by the individual option grants.
The
2003
Stock Option and Incentive Plan (the “2003 Plan”) provides for the award of
stock options, stock issuances and other equity interests in the Company to
employees, officers, directors (including those directors who are not an
employee or officer of the Company, such directors being referred to as
Non-Employee Directors), consultants and advisors of the Company and its
subsidiaries. The 2003 Plan provides for an automatic annual grant of 7,500
stock options to all active Non-Employee Directors. A total of 2,000,000 shares
of common stock, subject to anti-dilution adjustments, has been reserved under
this plan. Any future options granted under the 2003 Plan will become
exercisable at such times and subject to such terms and conditions as the Board
of Directors or Committee
may
specify at the time of each grant. At December 30, 2006, there were 1,015,033
options outstanding and 914,567 shares available for future grants under the
2003 Plan. The options will expire at various dates as prescribed by the
individual option grants.
The
Company had previously adopted equity incentive plans that had expired as of
December 30, 2006 and, accordingly, no future grants may be issued under these
plans. These plans include the 1991 Stock Option Plan (the “1991 Plan”), which
expired on August 18, 2001; the 1994 Stock Option Plan (the “1994 Plan”), which
expired on April 8, 2004; and the 1997 Interim Stock Option Plan (the “1997
Plan”), which expired on September 22, 2002. At December 30, 2006 there were
45,900 options outstanding under the 1991 Plan, 569,967 options outstanding
under the 1994 Plan and 77,800 options outstanding under the 1997
Plan.
Employee
Stock Purchase Plan
The
Company’s 2002 Employee Stock Purchase Plan (the “ESPP”) is designed to provide
eligible employees of the Company and its participating U.S subsidiaries an
opportunity to purchase common stock of the Company through accumulated payroll
deductions. The purchase price of the stock is equal to 85% of the fair market
value of a share of common stock on the first day or last day of each
three-month offering period, whichever is lower. All employees of the company
or
participating subsidiaries who customarily work at least 20 hours per week
and
do not own five percent or more of the Company’s common stock are eligible to
participate in the ESPP. A total of 950,000 shares of the Company’s common
stock, subject to adjustment, have been reserved for issuance under this plan.
In fiscal 2006, fiscal 2005 and fiscal 2004, approximately 57,000, 36,000 and
23,000 shares were issued, respectively, under the ESPP. The 2006 and 2005
amounts include approximately 16,000 and 8,600 shares in transit at December
30,
2006 and December 31, 2005, respectively. These shares were issued on January
3,
2007 and January 4, 2006, respectively. At December 30, 2006, there were
approximately 769,000 shares available for issuance under this
plan.
Director
Stock Option Plan
The
Company’s Non-Employee Director Stock Option Plan (the “Director Plan”) provided
for the issuance of options to purchase 5,000 shares of the Company’s common
stock upon being named a Director of the Company and the automatic issuance,
in
January of each year, of options to purchase 2,500 shares of the Company’s
common stock, to each non-employee Director of the Company, with exercise prices
equal to the fair market value of the stock at the date of grant. Options
granted under this plan became exercisable one year from the date of grant
and
will terminate five years from the date of grant. At December 30, 2006, there
were 27,500 options outstanding under the Director Plan. This Plan expired
on
December 31, 2003 and, accordingly, no future grants may be issued under this
plan.
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
2006
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.74
|
%
|
Volatility
|
|
|
52.05
|
%
|
Expected
life (in years)
|
|
|
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 2006 was $1.34.
The
fair
value of the options to purchase common stock granted in fiscal 2006 under
the
2003 Plan was estimated on the respective grant dates using the Black-Scholes
valuation model with the following assumptions:
|
|
|
|
Stock
option assumptions
|
|
Fiscal
2006
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
5.05
|
%
|
Volatility
|
|
|
57.16
|
%
|
Expected
life (in years)
|
|
|
4.51
|
|
Dividend
yield
|
|
|
--
|
|
Based
on
the above assumptions, the weighted average fair value of the options to
purchase shares of the Company’s common stock granted in fiscal 2006 under the
2003 Plan was $4.62.
The
weighted average fair values of options to purchase common stock granted and
stock purchase rights granted under the ESPP in fiscal 2005 and 2004 were $4.66
and $5.85, respectively. The fair value of each option to purchase common stock
is estimated on the date of grant using the Black-Scholes option-pricing model,
with the following weighted average assumptions:
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.55
|
%
|
|
3.71
|
%
|
Volatility
|
|
|
55.05
|
%
|
|
63.38
|
%
|
Expected
option life (in years)
|
|
|
4.27
|
|
|
5.10
|
|
Dividend
yield
|
|
|
--
|
|
|
--
|
|
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 STRIPS (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
option activity for fiscal 2004, 2005 and 2006 is summarized as
follows:
|
|
Shares
|
|
Weighted
average
exercise
price
|
|
Weighted
average remaining contractual term
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 3, 2004
|
|
|
3,452,476
|
|
$
|
8.36
|
|
|
|
|
|
|
|
Granted
|
|
|
76,750
|
|
$
|
10.08
|
|
|
|
|
|
|
|
Exercised
|
|
|
(663,450
|
)
|
$
|
7.53
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(112,550
|
)
|
$
|
9.25
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2005
|
|
|
2,753,226
|
|
$
|
8.57
|
|
|
|
|
|
|
|
Granted
|
|
|
1,104,667
|
|
$
|
8.83
|
|
|
|
|
|
|
|
Exercised
|
|
|
(477,654
|
)
|
$
|
6.51
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(278,764
|
)
|
$
|
9.92
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
3,101,475
|
|
$
|
8.86
|
|
|
|
|
|
|
|
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
|
|
|
5.6
|
|
$
|
4.5
million
|
|
Exercisable
at December 30, 2006
|
|
|
2,813,017
|
|
$
|
9.00
|
|
|
5.4
|
|
$
|
4.5
million
|
|
The
following table summarizes information about stock options both outstanding
at
December 30, 2006:
Options
Outstanding and Exercisable
|
|
Outstanding
|
|
Exercisable
|
|
Range
of exercise prices
|
|
Shares
|
|
Weighted
average
remaining
contractual
life
(years)
|
|
Weighted
average exercise price
|
|
Shares
|
|
Weighted
average
exercise
price
|
|
$
|
2.88
|
-
|
$
|
5.22
|
|
|
127,267
|
|
|
5.4
|
|
$
|
4.24
|
|
|
127,267
|
|
$
|
4.24
|
|
$
|
5.23
|
-
|
$
|
6.00
|
|
|
575,400
|
|
|
5.1
|
|
$
|
5.27
|
|
|
575,400
|
|
$
|
5.27
|
|
$
|
6.01
|
-
|
$
|
6.75
|
|
|
248,925
|
|
|
5.2
|
|
$
|
6.35
|
|
|
248,925
|
|
$
|
6.35
|
|
$
|
6.76
|
-
|
$
|
8.00
|
|
|
340,133
|
|
|
5.5
|
|
$
|
7.39
|
|
|
301,800
|
|
$
|
7.36
|
|
$
|
8.01
|
-
|
$
|
10.00
|
|
|
790,325
|
|
|
8.5
|
|
$
|
8.98
|
|
|
685,325
|
|
$
|
8.88
|
|
$
|
10.01
|
-
|
$
|
15.00
|
|
|
659,800
|
|
|
3.5
|
|
$
|
12.71
|
|
|
659,800
|
|
$
|
12.71
|
|
$
|
15.01
|
-
|
$
|
23.00
|
|
|
214,500
|
|
|
3.4
|
|
$
|
16.17
|
|
|
214,500
|
|
$
|
16.17
|
|
$
|
2.88
|
-
|
$
|
23.00
|
|
|
2,956,350
|
|
|
5.6
|
|
$
|
9.01
|
|
|
2,813,017
|
|
$
|
9.00
|
|
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.
Stock
option activity under the Lasertel Plan for fiscal 2004, 2005 and 2006 is
summarized as follows:
|
|
Shares
|
|
Weighted
average
exercise
price
|
|
Weighted
average remaining contractual term
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 3, 2004
|
|
|
543,437
|
|
$
|
0.17
|
|
|
|
|
|
|
|
Granted
|
|
|
12,750
|
|
$
|
0.15
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(312,487
|
)
|
$
|
0.13
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2005
|
|
|
243,700
|
|
$
|
0.21
|
|
|
|
|
|
|
|
Granted
|
|
|
15,000
|
|
$
|
0.15
|
|
|
|
|
|
|
|
Exercised
|
|
|
(250
|
)
|
$
|
0.15
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(8,376
|
)
|
$
|
0.60
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
250,074
|
|
$
|
0.20
|
|
|
|
|
|
|
|
Granted
|
|
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(12,874
|
)
|
$
|
0.15
|
|
|
|
|
|
|
|
Outstanding
and exercisable at December 30, 2006
|
|
|
237,200
|
|
$
|
0.20
|
|
|
4.47
|
|
$
|
0.05
million
|
|
17.
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Presstek
is a market-focused high technology company that designs, manufactures and
distributes proprietary and non-proprietary solutions to the graphic arts
industries, primarily serving short-run, full-color customers. The Company’s
operations are 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.
On
December 28, 2006, the Audit Committee of the Board of Directors ratified a
plan
submitted by management to terminate production in South Hadley, Massachusetts
of Precision-branded analog plates used in newspaper applications (the “analog
newspaper business”), which operated as part of a former Precision segment. See
Note 3. The financial information of the analog newspaper business of Precision
has been reclassified into “Loss from discontinued operations” in the
accompanying Consolidated Statements of Income. As such, the remaining digital
operations of the Precision reporting unit have been included as part of the
Presstek segment as of December 30, 2006 and prior periods. Selected operating
results information for each business segment are as follows (in
thousands):
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
Presstek
|
|
$
|
258,936
|
|
$
|
255,344
|
|
$
|
118,576
|
|
Lasertel
|
|
|
11,469
|
|
|
7,760
|
|
|
7,765
|
|
Total
revenue, including inter-segment
|
|
|
270,405
|
|
|
263,104
|
|
|
126,341
|
|
Inter-segment
revenue
|
|
|
(4,711
|
)
|
|
(3,970
|
)
|
|
(4,888
|
)
|
|
|
$
|
265,694
|
|
$
|
259,134
|
|
$
|
121,453
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from external customers
|
|
|
|
|
|
|
|
|
|
|
Presstek
|
|
$
|
258,936
|
|
$
|
255,344
|
|
$
|
118,576
|
|
Lasertel
|
|
|
6,758
|
|
|
3,790
|
|
|
2,877
|
|
|
|
$
|
265,694
|
|
$
|
259,134
|
|
$
|
121,453
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
Presstek
|
|
$
|
5,310
|
|
$
|
13,965
|
|
$
|
9,609
|
|
Lasertel
|
|
|
(1,110
|
)
|
|
(3,660
|
)
|
|
(3,638
|
)
|
|
|
$
|
4,200
|
|
$
|
10,305
|
|
$
|
5,971
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
Presstek
|
|
$
|
8,288
|
|
$
|
8,374
|
|
$
|
6,530
|
|
Lasertel
|
|
|
1,629
|
|
|
2,353
|
|
|
2,493
|
|
|
|
$
|
9,917
|
|
$
|
10,727
|
|
$
|
9,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures and other additions to
property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
Presstek
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$
|
3,391
|
|
$
|
3,416
|
|
$
|
1,106
|
|
Equipment
obtained under capital lease
|
|
|
--
|
|
|
110
|
|
|
--
|
|
Total
Presstek
|
|
|
3,391
|
|
|
3,526
|
|
|
1,106
|
|
Lasertel
|
|
|
642
|
|
|
2,684
|
|
|
981
|
|
|
|
$
|
4,033
|
|
$
|
6,210
|
|
$
|
2,087
|
|
Intersegment
revenues and costs, which originate from the purchase of goods by the Presstek
segment that are manufactured by the Lasertel segment, are eliminated from
each
segment prior to review of segment results by the Company’s management.
Accordingly, the amounts of intersegment revenues allocable to each individual
segment have been excluded from the table above.
Asset
information for the Company’s business segments as of December 30, 2006 and
December 31, 2005 is as follows (in thousands):
|
|
December
30,
2006
|
|
December
31,
2005
|
|
|
|
|
|
|
|
Presstek
|
|
$
|
184,510
|
|
$
|
169,677
|
|
Lasertel
|
|
|
13,504
|
|
|
11,810
|
|
|
|
$
|
198,014
|
|
$
|
181,487
|
|
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
2006
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
173,585
|
|
$
|
159,907
|
|
$
|
83,232
|
|
United
Kingdom
|
|
|
29,744
|
|
|
34,726
|
|
|
7,747
|
|
Canada
|
|
|
14,699
|
|
|
14,543
|
|
|
3,849
|
|
Germany
|
|
|
8,775
|
|
|
13,138
|
|
|
13,541
|
|
Japan
|
|
|
6,168
|
|
|
8,096
|
|
|
6,209
|
|
All
other
|
|
|
32,723
|
|
|
28,724
|
|
|
6,875
|
|
|
|
$
|
265,694
|
|
$
|
259,134
|
|
$
|
121,453
|
|
The
Company’s long-lived assets by geographic area are as follows (in
thousands):
|
|
December
30,
2006
|
|
December
31,
2005
|
|
|
|
|
|
|
|
United
States
|
|
$
|
78,077
|
|
$
|
79,462
|
|
United
Kingdom
|
|
|
894
|
|
|
682
|
|
Canada
|
|
|
303
|
|
|
382
|
|
|
|
$
|
79,274
|
|
$
|
80,526
|
|
18.
MAJOR CUSTOMERS
No
customer accounted for greater than 10% of revenue in either fiscal 2006 or
fiscal 2005, or greater than 10% of the Company’s accounts receivable balance at
either December 30, 2006 or December 31, 2005.
Revenue
generated under the Company’s agreements with Heidelberg and its distributors,
Pitman Company, and Kodak and its distributors totaled $12.5 million, $14.8
million and $13.6 million, respectively in fiscal 2004, with accounts receivable
balances of $2.4 million, $2.6 million and $3.1 million, respectively, at
January 1, 2005.
19.
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, $0.6 million and
$0.2 million in fiscal 2006, fiscal 2005 and fiscal 2004, respectively.
Pursuant
to his retirement agreement, during fiscal 2004 the Company made payments
totaling $100,006 to Richard A. Williams, the Company’s Chief Scientific
Officer, who also served as Chairman of the Board of Directors. There were
no
payments made in either fiscal 2006 or fiscal 2005.
The
Company has an accounts receivable from a former executive and director totaling
$202,000, resulting from advances made to the individual in a prior year.
Although the Company intends to pursue collection of this receivable, it has
provided a reserve against this amount in 2002 because of questions concerning
its collection. As of December 30, 2006, this receivable remains fully
reserved.
20.
COMMITMENTS AND CONTINGENCIES
Commitments
The
Company conducts operations in certain facilities under long-term operating
leases. The Company also leases certain office and other equipment for use
in
its operations. These leases expire at various dates through 2010, with various
options to renew as negotiated between the Company and its landlords. It is
expected that in the normal course of business, leases that expire will be
renewed or replaced. Rent expense under these leases was $1.7 million in fiscal
2006, $4.2 million in fiscal 2005 and $0.9 million in fiscal 2004.
The
Company’s obligations under its non-cancelable operating leases at December 30,
2006 were as follows (in thousands):
Fiscal
2007
|
|
$
|
2,463
|
|
Fiscal
2008
|
|
|
1,572
|
|
Fiscal
2009
|
|
|
872
|
|
Fiscal
2010
|
|
|
386
|
|
The
Company entered into an agreement in fiscal 2000 with Fuji Photo Film Co.,
Ltd.
(“Fuji”), whereby minimum royalty payments to Fuji are required based on
specified sales volumes of the Company’s A3 format size four-color sheet-fed
press. The agreement provides for total royalty payments to be no less than
$6
million and not greater than $14 million over the life of the agreement. As
of
December 30, 2006, the Company had paid Fuji $6.4 million under the agreement.
The Company’s maximum remaining liability under the royalty agreement at
December 30, 2006, was $7.6 million.
Contingencies
On
October 30, 2006, a chemical was released from a mixing tank into a holding
pool
at our manufacturing plant in South Hadley, Massachusetts, which caused us
to
temporarily cease digital and analog aluminum plate manufacturing operations
at
this location. The chemical release was contained on-site, there were no
reported injuries, neighboring properties were not damaged and there were no
requirements for soil or groundwater remediation. Digital plate manufacturing
was restarted on November 6, 2006. On December 28, 2006, the Audit Committee
of
the Board of Directors ratified a plan to discontinue newspaper application
analog plate production at the facility. In connection with the chemical
release, the Company continues to work closely with federal, state, and local
agencies regulating public health and the environment to complete a full
assessment of the cause and impact of this incident and bring the matter to
closure. Expenses associated with and amounts accrued for this incident as
of
December 30, 2006 are reflected in the financial results of discontinued
operations (Note 3). It is possible that costs in excess of amounts accrued
may
be incurred. At this time, the Company has not ascertained the future liability,
if any, associated with a final resolution of this matter.
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 institution for the shortfall
payment was approximately $0.2 million at December 30, 2006.
Litigation
On
October 26, 2006, the Company was served with a complaint naming the Company,
together with certain of its 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 thereunder. The Company believes the allegations
are
without merit and intends to vigorously defend against them.
In
March
2005, Presstek filed an action against CREO, Inc., in the United States District
Court for the District of New Hampshire for patent infringement. In this action,
Presstek alleges that Creo has distributed a product that violates a Presstek
US
Patent. Presstek seeks an order from the court that Creo refrain from offering
the infringing product for sale, from using the infringing material or
introducing it for the named purposes, or from possessing such infringing
material, and for the payment of damages associated with the
infringement.
In
September 2003, Presstek filed an action against Fuji Photo Film Corporation,
Ltd., in the District Court of Mannheim, Germany for patent infringement. In
this action, Presstek alleges that Fuji has manufactured and distributed a
product that violates Presstek European Patent 0 644 047 registered under number
DE 694 17 129 with the German Patent and Trademark Office. Presstek seeks an
order from the court that Fuji refrain from offering the infringing product
for
sale, from using the infringing material or introducing it for the named
purposes, and from possessing such infringing material. A trial was held in
November 2004 and March 2005, and we await a final determination from the
Courts.
Presstek
is a party to other litigation that it considers routine and incidental to
its
business however it does not expect the results of any of these actions to
have
a material adverse effect on its business, results of operation or financial
condition.
21.
QUARTERLY RESULTS (UNAUDITED)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
(2)(3)(4)(5)
|
|
|
|
(in
thousands, except per-share data)
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
67,327
|
|
$
|
70,882
|
|
$
|
61,419
|
|
$
|
66,066
|
|
Gross
profit
|
|
$
|
20,785
|
|
$
|
20,763
|
|
$
|
18,044
|
|
$
|
19,386
|
|
Income
from continuing operations
|
|
|
2,978
|
|
|
2,579
|
|
|
(40
|
)
|
|
7,500
|
|
Income
(loss) from discontinued operations
|
|
|
(254
|
)
|
|
167
|
|
|
(383
|
)
|
|
(2,803
|
)
|
Net
income
|
|
$
|
2,724
|
|
$
|
2,746
|
|
$
|
(423
|
)
|
$
|
4,697
|
|
Earnings
per share from continuing operations - basic
|
|
|
0.09
|
|
|
0.07
|
|
|
0.00
|
|
|
0.21
|
|
Earnings
per share from discontinued operations - basic
|
|
|
(0.01
|
)
|
|
0.01
|
|
|
(0.01
|
)
|
|
(0.08
|
)
|
Earnings
per share - basic (1)
|
|
$
|
0.08
|
|
$
|
0.08
|
|
$
|
(0.01
|
)
|
$
|
0.13
|
|
Earnings
per share from continuing operations - diluted
|
|
|
0.09
|
|
|
0.07
|
|
|
0.00
|
|
|
0.21
|
|
Earnings
per share from discontinued operations - diluted
|
|
|
(0.01
|
)
|
|
0.01
|
|
|
(0.01
|
)
|
|
(0.08
|
)
|
Earnings
per share - diluted (1)
|
|
$
|
0.08
|
|
$
|
0.08
|
|
$
|
(0.01
|
)
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
66,097
|
|
$
|
65,897
|
|
$
|
61,294
|
|
$
|
65,846
|
|
Gross
profit
|
|
$
|
20,554
|
|
$
|
21,206
|
|
$
|
19,740
|
|
$
|
20,820
|
|
Income
from continuing operations
|
|
|
1,047
|
|
|
2,411
|
|
|
1,024
|
|
|
2,439
|
|
Income
(loss) from discontinued operations
|
|
|
(566
|
)
|
|
(72
|
)
|
|
(201
|
)
|
|
4
|
|
Net
income
|
|
$
|
481
|
|
$
|
2,339
|
|
$
|
823
|
|
$
|
2,443
|
|
Earnings
per share from continuing operations - basic
|
|
|
0.03
|
|
|
0.07
|
|
|
0.03
|
|
|
0.07
|
|
Earnings
per share from discontinued operations - basic
|
|
|
(0.02
|
)
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
0.00
|
|
Earnings
per share - basic (1)
|
|
$
|
0.01
|
|
$
|
0.07
|
|
$
|
0.02
|
|
$
|
0.07
|
|
Earnings
per share from continuing operations - diluted
|
|
|
0.03
|
|
|
0.07
|
|
|
0.03
|
|
|
0.07
|
|
Earnings
per share from discontinued operations - diluted
|
|
|
(0.02
|
)
|
|
(0.00
|
)
|
|
(0.01
|
)
|
|
0.00
|
|
Earnings
per share - diluted (1)
|
|
$
|
0.01
|
|
$
|
0.07
|
|
$
|
0.02
|
|
$
|
0.07
|
|
(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)
2005
amounts reflect the effect of a change in accounting estimate to increase the
useful lives of certain property, plant and equipment used by Lasertel from
five
to seven years. This change reduced depreciation expense by $0.4 million,
increased net income by $0.3 million and increased both basic and diluted
earnings per share by $0.01.
(3)
In
the fourth quarter of fiscal 2005, the Company finalized its purchase accounting
allocation related to the ABDick acquisition. Adjustments to the acquired
balance sheet and to properly reflect integration cost accruals for this
acquisition include $0.1 million of increases to accounts receivable, $1.5
million of reductions to inventories, $0.1 million of reductions to other
current assets, $0.4 million of increases to accounts payable and $1.2 million
of reductions to accrued expenses, including $0.9 million of reversals of
integration cost accruals. In accordance with SFAS 141, these adjustments were
offset to goodwill.
(4)
In
the fourth quarter of fiscal 2006, the Company recognized an expense of $2.8
million associated with the impairment of goodwill as a result of applying
SFAS
144 and 142.
(5)
In
the fourth quarter of fiscal 2006, the Company recorded an expense of $2.3
million relating to the impairment of intangible assets relating to patent
defense costs as the Company determined that the future economic benefits of
the
patent were not assured of being increased.
PRESSTEK,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
Charged
to
|
|
|
|
Deductions
|
|
Balance
at
|
|
|
|
beginning
|
|
costs
and
|
|
other
|
|
|
|
and
|
|
end
|
|
|
|
of
period
|
|
expenses
|
|
accounts
|
|
|
|
write-offs
|
|
of
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses on accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
3,294
|
|
$
|
391
|
|
$
|
-
|
|
|
|
|
$
|
(691
|
)
|
$
|
2,994
|
|
2005
|
|
$
|
4,304
|
|
$
|
1,604
|
|
$
|
(30
|
)
|
(1) |
|
$
|
(2,584
|
)
|
$
|
3,294
|
|
2004
|
|
$
|
1,892
|
|
$
|
2,474
|
|
$
|
1,964
|
|
(2) |
|
$
|
(2,026
|
)
|
$
|
4,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
for excess and obsolete inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
16,507
|
|
$
|
1,346
|
|
$
|
-
|
|
|
|
|
$
|
(3,858
|
)
|
$
|
13,995
|
|
2005
|
|
$
|
17,707
|
|
$
|
2,912
|
|
$
|
(3,074
|
)
|
(1) |
$
|
(1,038
|
)
|
$
|
16,507
|
|
2004
|
|
$
|
4,217
|
|
$
|
205
|
|
$
|
13,716
|
|
(2) |
$
|
(431
|
)
|
$
|
17,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Purchase accounting adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Acquired balance in business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not
applicable
Item
9A. Controls
and Procedures
(a) Evaluation
of Disclosure Controls and Procedures
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 December 30, 2006, the
Company’s disclosure controls and procedures were not effective because of the
material weakness identified as of such date discussed below. 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 December 30, 2006, based on the
framework and criteria established in Internal
Control - Integrated Framework,
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
A
significant deficiency means a deficiency in the design or operation of internal
control that adversely affects the Company’s ability to initiate, authorize,
record, process or report external financial data reliably in accordance with
generally accepted accounting principles such that there is more than a remote
likelihood that a misstatement of the annual or interim financial statements
that is more than inconsequential will occur and not be detected.
A
material weakness is a significant deficiency, or a combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will occur and not
be
detected by management before the financial statements are published. In its
assessment of the effectiveness in internal control over financial reporting
as
of December 30, 2006, the Company determined that there was a control deficiency
that constituted a material weakness, as described below.
The
Company did not maintain a sufficient complement of personnel with the
appropriate level of accounting knowledge, experience, and training in the
application of U.S. generally accepted accounting principles to analyze, review,
and monitor accounting for transactions that are significant or non-routine.
As
a result, the Company did not prepare adequate contemporaneous documentation
that would provide a sufficient basis for an effective evaluation and review
of
the accounting for transactions that are significant or non-routine. This
material weakness resulted in errors in the preliminary December 30, 2006
consolidated financial statements and more than a remote likelihood that a
material misstatement of the Company’s annual or interim financial statements
would not be prevented or detected.
Due
to
the material weakness described above, management has concluded that our
internal control over financial reporting was not effective as of December
30,
2006.
Management’s
assessment of the effectiveness of our internal control over financial reporting
as of December 30, 2006 has been audited by KPMG LLP, the Company’s
independent registered public accounting firm, as stated in their report which
appears on page 102.
(c)
Remediation Plan for Material Weakness in Internal Control over Financial
Reporting
The
Company is in the process of developing and implementing a remediation plan
to
address the material weakness described above. The Company has taken the
following actions to improve internal control over financial
reporting:
· |
A
new Senior Vice President and Chief Financial Officer was appointed,
effective February 28, 2007.
|
· |
The
Audit Committee of the Board of Directors, effective April 3, 2007,
established a Financial Reporting Task Force to immediately develop
a
corrective action plan to ensure full remediation of the material
weakness. This task force will report directly to the Audit Committee
and
be led by the Senior Vice President & Chief Financial Officer.
|
· |
The
Senior Vice President and Chief Financial Officer has been authorized
to
engage third party professionals to advise the Company in connection
with
the remediation of existing
deficiencies.
|
· |
During
March 2007, a new Financial Reporting Manager was appointed to manage
all
SEC related activities including accounting guidance and periodic
reporting.
|
· |
Since
December 30, 2006, the Finance organization has been strengthened
by the
addition of four personnel in the Financial Analysis and General
Accounting areas. The Company plans to continue to enhance the staffing
and competency level within the Finance organization.
|
· |
A
Director of Internal Audit position, reporting directly to the Audit
Committee, will be filled as quickly as possible. In addition to
other
duties, this position will be responsible for reviewing and validating
compliance with all remedial
actions.
|
In
addition, the following are specific remedial actions to be taken for matters
related to accounting for significant or non-routine transactions:
· |
Require
all significant or non-routine transactions to be thoroughly researched,
analyzed, and documented by qualified accounting personnel, and to
provide
for complete review of the resulting proposed accounting treatment
by the
Principal Accounting Officer prior to recording the transactions.
In
addition, all major transactions will require the additional review
and
approval of the Senior Vice President & Chief Financial
Officer.
|
· |
In
addition to the review performed by the Company’s management, implement an
additional review by subject matter experts for complex accounting
estimates and accounting treatments, where
appropriate.
|
· |
Develop
and implement focused monitoring controls and other procedures in
the
Internal Audit organization.
|
In
light
of the aforementioned material weakness, management conducted a thorough review
of all significant or non-routine transactions for the year ended December
30,
2006. As a result of this review, management believes that there are no material
inaccuracies or omissions of material fact and, to the best of its knowledge,
believes that the consolidated financial statements for the year ended December
30, 2006 fairly present in all material respects the financial condition and
results of operations for the Company in conformity with U.S. generally accepted
accounting principles.
We
anticipate the actions described above and resulting improvements in controls
will strengthen our internal control over financial reporting and will, over
time, address the material weakness identified as of December 30, 2006.
However, because the remedial actions relate to the hiring of additional
personnel and many of the controls in our system of internal controls rely
extensively on manual review and approval, the successful operation of these
controls for, at least, several quarters may be required prior to management
being able to conclude that the material weakness has been
remediated.
(d) Changes
in Internal Control Over Financial Reporting
During
the quarter ended December 30, 2006, there were no changes in the Company’s
internal control over financial reporting that have materially affected, or
are
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 management's assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting,
appearing under Item 9A(b), that Presstek, Inc. did not maintain effective
internal control over financial reporting as of December 30, 2006, because
of
the effect of the material weakness identified in management's assessment,
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. Our responsibility is to express
an
opinion on management's assessment and an opinion on the effectiveness of
Presstek, Inc.’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
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 control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included
in
management's assessment: The Company did not maintain a sufficient complement
of
personnel with the appropriate level of accounting knowledge, experience, and
training in the application of U.S. generally accepted accounting principles
to
analyze, review, and monitor accounting for transactions that are significant
or
non-routine. As a result, the Company did not prepare adequate contemporaneous
documentation that would provide a sufficient basis for an effective evaluation
and review of the accounting for transactions that are significant or
non-routine. This material weakness resulted in errors in the preliminary
December 30, 2006 consolidated financial statements and more than a remote
likelihood that a material misstatement of the Company’s annual or interim
financial statements would not be prevented or detected. We also have audited,
in accordance with the standards of the Public Company Accounting Oversight
Board (United States) the consolidated balance sheet as of December 30, 2006
and
the related consolidated statements of income, changes in stockholders’ equity
and comprehensive income and cash flows for the year ended December 30, 2006
of
Presstek, Inc. This material weakness was considered in determining the
nature, timing, and
extent
of
audit tests applied in our audit of the 2006 consolidated financial statements,
and this report does not affect our report dated April 24, 2007, which expressed
an unqualified opinion on those consolidated financial statements.
In
our
opinion, management’s assessment that Presstek, Inc. did not maintain effective
internal control over financial reporting as of December 30, 2006, is fairly
stated, in all material respects, based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also, in our opinion, because of the effect of the material weakness described
above on the achievement of the objectives of the control criteria, Presstek,
Inc. has not maintained effective internal control over financial reporting
as
of December 30, 2006, based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
/s/
KPMG
LLP
Boston,
Massachusetts
April
24,
2007
Item
9B. Other
Information
None.
PART
III
Item
10. Directors,
Executive Officers and Corporate Governance
The
policies comprising the Company’s code of ethics are set forth in the Company’s
Code of Business Conduct and Ethics. These policies satisfy the SEC’s
requirements for a “code of ethics,” and apply to all directors, officers and
employees. The Code of Business Conduct and Ethics can be found on the Company’s
website at www.presstek.com.
The
remaining information required by this item will be set forth under the captions
“Election of Directors”, “Board of Directors Meetings and Committees”, “Board of
Directors and Committee Independence”, “Executive Officers” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in the definitive proxy statement
that the Company expects to file with the Securities Exchange Commission within
120 days of the fiscal year ended December 30, 2006 for the Annual Meeting
of
Stockholders to be held on June 7, 2007 (the “Proxy Statement”) and such
information is incorporated herein by reference.
Item
11. Executive
Compensation
The
information required by this item will be set forth under the captions
“Executive Compensation”, “Employment Agreements and Termination of Employment
Agreements”, “Options and Stock Plans”, “Compensation of Directors”, and
“Compensation Committee Interlocks and Insider Participation” in the Proxy
Statement and is incorporated herein by reference.
Item
12. Security
Ownership of Certain Beneficial Owners and Management
We
have
securities authorized for issuance under equity compensation plans. Information
concerning securities authorized for issuance under our equity compensation
plans and further information required by this item will be set forth under
the
captions “Equity Compensation Plan Information” and “Voting Security Ownership
of Certain Beneficial Owners and Management” in the Proxy Statement, and is
incorporated herein by reference.
Item
13. Certain
Relationships and Related Transactions
The
information required by this item will be set forth under the caption “Certain
Relationships and Related Transactions” in the Proxy Statement, and is
incorporated herein by reference.
Item
14. Principal
Accounting Fees and Services
The
information required by this item will be set forth under the captions
“Ratification of Selection of Auditors” and “Policy on Audit Committee
Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Auditors” in the Proxy Statement, and is incorporated herein by
reference.
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 2004 -
2006
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.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
PRESSTEK,
INC.
|
|
|
|
/s/
Edward J. Marino
|
Edward
J. Marino
|
President
and Chief Executive Officer
|
Date:
April 24, 2007
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.
/s/
Edward J. Marino
|
President,
Chief Executive Officer and Director
|
April
24, 2007
|
Edward
J. Marino
|
|
|
|
|
|
|
|
|
/s/
Gerald N. Herman
|
Vice-President
and Corporate Controller
|
April
24, 2007
|
Gerald
N. Herman
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
/s/
John W. Dreyer
|
Chairman
of the Board
|
April
24, 2007
|
John
W. Dreyer
|
|
|
|
|
|
|
|
|
/s/
Daniel S. Ebenstein
|
Director
|
April
24, 2007
|
Daniel
S. Ebenstein, Esq.
|
|
|
|
|
|
|
|
|
/s/
Dr. Lawrence Howard
|
Director
|
April
24, 2007
|
Dr.
Lawrence Howard
|
|
|
|
|
|
|
|
|
/s/
Michael d. Moffitt
|
Director
|
April
24, 2007
|
Michael
D. Moffitt
|
|
|
|
|
|
|
|
|
/s/
Brian Mullaney
|
Director
|
April
24, 2007
|
Brian
Mullaney
|
|
|
|
|
|
|
|
|
/s/
Steven N. Rappaport
|
Director
|
April
24, 2007
|
Steven
N. Rappaport
|
|
|
|
|
|
|
|
|
/s/
Donald C. Waite, III
|
Director
|
April
24, 2007
|
Donald
C. Waite, III
|
|
|
Exhibit
Number
|
Description
|
|
|
3(a)
|
Amended
and Restated Certificate of Incorporation of Presstek, Inc., as amended.
(Previously filed as Exhibit 3 to Presstek’s Quarterly Report on Form 10-Q
for the Quarter ended June 29, 1996, hereby incorporated by
reference.)
|
3(b)
|
By-laws
of Presstek, Inc. (Previously filed as an exhibit with Presstek’s Form
10-K for the fiscal year ended December 30, 1995, filed March 29,
1996,
hereby incorporated by reference.)
|
2(a)
|
Stock
Purchase Agreement among Presstek, Inc., Precision Lithograining,
Inc. and
SDK Realty Co. dated June 2, 2004 (Previously filed as Exhibit 2.1
to
Presstek’s Form 8-K filed on July 30, 2004, hereby incorporated by
reference)
|
2(b)
|
Asset
Purchase Agreement among Presstek, Inc., Silver Acquisitions Corp.,
Paragon Corporate Holdings, Inc., A.B. Dick Company, A.B. Dick Company
of
Canada, Ltd. And Interactive Media Group, Inc., dated July 13, 2004
(Previously filed as Exhibit 2.1 to Presstek’s Form 8-K filed on July 13,
2004, hereby incorporated by reference)
|
2(c)
|
Second
Amendment to Asset Purchase Agreement between the Company and A.B.
Dick
Company dated November 5, 2004 (Previously filed as Exhibit 2.1 to
Presstek’s Form 8-K filed on November 12, 2004, hereby incorporated by
reference)
|
2(d)
|
Amendment
to Asset Purchase Agreement between the Company and A.B. Dick Company
dated August 20, 2004 (Previously filed as Exhibit 2.2 to Presstek’s Form
8-K filed on November 12, 2004, hereby incorporated by
reference)
|
10(a)
|
Confidentiality
Agreement between Presstek, Inc. and Heidelberger Druckmaschinen
A.G.,
effective December 7, 1989 as amended. (Previously filed as Exhibit
10(i)
of Presstek’s Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, hereby incorporated by reference.)
|
10(b)
|
Master
Agreement effective January 1, 1991, by and between Heidelberger
Druckmaschinen Aktiengesellschaft and Presstek, Inc. (Previously
filed as
an exhibit to Presstek’s Form 8-K, dated January 1, 1991, hereby
incorporated by reference.)
|
10(c)
|
Technology
License effective January 1, 1991, by and between Heidelberger
Druckmaschinen Aktiengesellschaft and Presstek, Inc. (Previously
filed as
an exhibit to Presstek’s Form 8-K, dated January 1, 1991, hereby
incorporated by reference.)
|
10(d)
|
Memorandum
of Performance No. 3 dated April 27, 1993, to the Master Agreement,
Technology License, and Supply Agreement between Presstek, Inc. and
Heidelberger Druckmaschinen Aktiengesellschaft. (Previously filed
as an
exhibit to Presstek’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993, hereby incorporated by reference.)
|
10(e)
|
Modification
to Memorandum of Performance No. 3 dated April 27, 1993, to the Master
Agreement, Technology License, and Supply Agreement between Presstek,
Inc.
and Heidelberger Druckmaschinen Aktiengesellschaft. (Previously filed
as
an exhibit to Presstek’s Annual report on Form 10-K for the fiscal year
ended December 31, 1994, hereby incorporated by reference.)
|
10(f)*
|
Memorandum
of Understanding No. 4 dated November 9, 1995, to the Master Agreement
and
Technology License and Supply Agreement between Presstek, Inc. and
Heidelberger Druckmaschinen Aktiengesellschaft. (Previously filed
as
Exhibit 10.k to Presstek’s Form 10-K for the fiscal year ended December
30, 1995, filed March 29, 1996, hereby incorporated by
reference.)
|
10(g)**
|
1991
Stock Option Plan. (Previously filed as an exhibit to Presstek’s Annual
report on Form 10-K for the fiscal year ended December 31, 1991,
hereby
incorporated by reference.)
|
10(h)**
|
1994
Stock Option Plan. (Previously filed as an exhibit to Presstek’s Annual
report on Form 10-K for the fiscal year ended December 31, 1994,
hereby
incorporated by reference.)
|
10(i)**
|
Non-Employee
Director Stock Option Plan. (Previously filed as Exhibit 10.0 to
Presstek’s Form 10-K for the fiscal year ended January 2, 1999, filed
March 2, 1999, hereby incorporated by reference.)
|
Exhibit
Number
|
Description
|
10(j)**
|
1997
Interim Stock Option Plan. (Previously filed as Exhibit 10.1 to Presstek’s
Quarterly report on Form 10-Q for the quarter ended September 27,
1997,
filed November 7, 1997, hereby incorporated by reference.)
|
10(k)**
|
1998
Stock Incentive Plan. (Previously filed as Exhibit A to Presstek’s April
23, 1998 Proxy Statement, filed April 24, 1998, hereby incorporated
by
reference.)
|
10(l)*
|
Memorandum
of Understanding No. 5 dated March 7, 1997 between Presstek, Inc.
and
Heidelberger Druckmaschinen Aktiengesellschaft. (Previously filed
as
Exhibit 10(T) to Presstek’s Annual Report on Form 10-K for the fiscal year
ended December 28, 1996 filed March 31, 1997, hereby incorporated
by
reference.)
|
10(m)*
|
Master
Supply and Distribution Agreement by and between Presstek, Inc. and
Xerox
Corporation dated September 22, 2000. (Previously filed as Exhibit
10.1 to
Presstek’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2000, filed November 14, 2000, hereby incorporated by
reference.)
|
10(n)
|
Amended
Master Supply and Distribution Agreement by and between Presstek,
Inc. and
Xerox Corporation dated May 11, 2001. (Previously filed as Exhibit
10.1 to
Presstek’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2001, filed August 14, 2001, hereby incorporated by
reference.)
|
10(o)*
|
Agreement
between Presstek, Inc. and Adamovski Strojírny a.s. dated as of April 24,
2001. (Previously filed as Exhibit 10.2 to Presstek’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001, filed August 14, 2001
hereby incorporated by reference.)
|
10(p)*
|
Settlement
Agreement made as of July 13, 2001 by and between Heidelberger
Druckmaschinen Aktiengesellschaft and Presstek, Inc. (Previously
filed as
Exhibit 10.3 to Presstek’s Quarterly Report on Form 10-Q for the quarter
ended September 29, 2001, filed November 13, 2001, hereby incorporated
by
reference.)
|
10(q)*
|
Letter
Agreement dated September 19, 2001 between Xerox Corporation and
Presstek,
Inc. amending the Amended Master Supply and Distribution Agreement
by and
among, Presstek, Inc. and Xerox Corporation dated May 11, 2001.
(Previously filed as Exhibit 10.1 to Presstek’s Quarterly Report on Form
10-Q for the quarter ended September 29, 2001, filed November 13,
2001,
hereby incorporated by reference.)
|
10(r)**
|
Resignation
Agreement and General Release by and between Presstek, Inc. and Neil
M.
Rossen, dated November 14, 2001 and effective as of December 31,
2001.
(Previously filed as Exhibit 10.1 to Presstek’s Quarterly Report on Form
10-Q for the quarter ended March 30, 2002, filed May 14, 2002, hereby
incorporated by reference.)
|
10(s)**
|
Separation
Agreement by and between Presstek, Inc. and Robert W. Hallman dated
as of
April 26, 2002, and effective as of April 30, 2002. (Previously filed
as
Exhibit 10.1 to Presstek’s Quarterly Report on Form 10-Q for the quarter
ended June 29, 2002, filed August 13, 2002, hereby incorporated by
reference.)
|
10(t)*
|
Agreement
for Manufacture & Sale of “Sun Press” between Presstek, Inc. and Ryobi
Limited, dated as of April 5, 2002. (Previously filed as Exhibit
10.4 to
Presstek’s Quarterly Report on Form 10-Q for the quarter ended June 29,
2002, filed on August 13, 2002, hereby incorporated by
reference.)
|
10(u)**
|
2002
Employee Stock Purchase Plan of Presstek, Inc. (Previously filed
as
Exhibit 4.3 to Presstek’s Registration Statement on Form S-8 filed with
the Commission on August 9, 2002, hereby incorporated by
reference.)
|
10(v)**
|
Description
of Presstek’s Non-Employee Director Compensation Arrangements approved by
Presstek’s Board of Directors on July 17, 2002 and amended by Presstek’s
Board of Directors on December 17, 2002. (Previously filed as Exhibit
10(hh) to Presstek’s Form 10-K for the fiscal year ended December 28,
2002, filed March 28, 2003, hereby incorporated by
reference.)
|
Exhibit
Number
|
Description
|
10(w)**
|
Retirement
Agreement by and between Presstek, Inc. and Richard A. Williams dated
January 7, 2003. (Previously filed as Exhibit 10(ll) to Presstek’s Form
10-K for the fiscal year ended December 28, 2002, filed March 28,
2003,
hereby incorporated by reference.)
|
10(x)
|
Distribution
Agreement by and between Presstek, Inc. and Kodak Polychrome Graphics
LLC
dated March 18, 2003. (Previously filed as Exhibit 10.1 to Presstek’s
Quarterly Report on Form 10-Q for the quarter ended March 29, 2003,
filed
May 13, 2003, hereby incorporated by reference.)
|
10(y)
|
Restated
Amended Master Supply and Distribution Agreement by and between Presstek,
Inc. and Xerox Corporation dated March 18, 2003. (Previously filed
as
Exhibit 10.1 to Presstek’s Quarterly Report on Form 10-Q for the quarter
ended March 29, 2003, filed May 13, 2003, hereby incorporated by
reference.)
|
10(z)**
|
2003
Stock Option and Incentive Plan of Presstek, Inc. (Previously filed
as
Exhibit 10.1 to Presstek’s Quarterly Report on Form 10-Q for the quarter
ended June 28, 2003, filed August 12, 2003, hereby incorporated by
reference.)
|
10(aa)*
|
OEM
Consumables Supply Agreement by and between Presstek, Inc. and Heidelberg
Druckmaschinen, AG., dated July 1, 2003. (Previously filed as Exhibit
10.1
to Presstek’s Quarterly Report on Form 10-Q for the quarter ended
September 27, 2003, filed November 12, 2003, hereby incorporated
by
reference.)
|
10(bb)*
|
OEM
Consumables Supply Agreement by and between Presstek, Inc. and Heidelberg
U.S.A., Inc. dated July 1, 2003. (Previously filed as Exhibit 10.2
to
Presstek’s Quarterly Report on Form 10-Q for the quarter ended September
27, 2003, filed November 12, 2003, hereby incorporated by
reference.)
|
10(cc)
|
Credit
Agreement by and among Presstek, Inc., Lasertel Inc., Citizens Bank
New
Hampshire and Keybank National Association dated October 15, 2003.
(Previously filed as Exhibit 10.3 to Presstek’s Quarterly Report on Form
10-Q for the quarter ended September 27, 2003, filed November 12,
2003,
hereby incorporated by reference.)
|
10(dd)
|
Revolving
Note dated October 15, 2003 made by Presstek, Inc. in favor of Citizens
Bank New Hampshire. (Previously filed as Exhibit 10.4 to Presstek’s
Quarterly Report on Form 10-Q for the quarter ended September 27,
2003,
filed November 12, 2003, hereby incorporated by reference.)
|
10(ee)
|
Revolving
Note dated October 15, 2003 made by Presstek, Inc. in favor of Keybank
National Association. (Previously filed as Exhibit 10.5 to Presstek’s
Quarterly Report on Form 10-Q for the quarter ended September 27,
2003,
filed November 12, 2003, hereby incorporated by reference.)
|
10(ff)
|
Term
Note dated October 15, 2003 made by Presstek, Inc. in favor of Citizens
Bank New Hampshire. (Previously filed as Exhibit 10.6 to Presstek’s
Quarterly Report on Form 10-Q for the quarter ended September 27,
2003,
filed November 12, 2003, hereby incorporated by reference.)
|
10(gg)
|
Term
Note dated October 15, 2003 made by Presstek, Inc. in favor of Keybank
National Association. (Previously filed as Exhibit 10.7 to Presstek’s
Quarterly Report on Form 10-Q for the quarter ended September 27,
2003,
filed November 12, 2003, hereby incorporated by reference.)
|
10(hh)
|
Swing
Line Note dated October 15, 2003 made by Presstek, Inc. in favor
of
Citizens Bank New Hampshire. (Previously filed as Exhibit 10.8 to
Presstek’s Quarterly Report on Form 10-Q for the quarter ended September
27, 2003, filed November 12, 2003, hereby incorporated by
reference.)
|
10(ii)
|
Security
Agreement by and between Presstek, Inc. and Citizens Bank New Hampshire
dated October 15, 2003. (Previously filed as Exhibit 10.9 to Presstek’s
Quarterly Report on Form 10-Q for the quarter ended September 27,
2003,
filed November 12, 2003, hereby incorporated by reference.)
|
10(jj)
|
Security
Agreement by and between Lasertel, Inc. and Citizens Bank New Hampshire
dated October 15, 2003. (Previously filed as Exhibit 10.10 to Presstek’s
Quarterly Report on Form 10-Q for the quarter ended September 27,
2003,
filed November 12, 2003, hereby incorporated by reference.)
|
Exhibit
Number
|
Description
|
10(kk)
|
Security
Agreement (Intellectual Property) by and between Presstek, Inc. and
Citizens Bank New Hampshire dated October 15, 2003. (Previously filed
as
Exhibit 10.11 to Presstek’s Quarterly Report on Form 10-Q for the quarter
ended September 27, 2003, filed November 12, 2003, hereby incorporated
by
reference.)
|
10(ll)
|
Security
Agreement (Intellectual Property) by and between Lasertel, Inc. and
Citizens Bank New Hampshire dated October 15, 2003. (Previously filed
as
Exhibit 10.12 to Presstek’s Quarterly Report on Form 10-Q for the quarter
ended September 27, 2003, filed November 12, 2003, hereby incorporated
by
reference.)
|
10(mm)
|
Mortgage
and Security Agreement between Presstek, Inc. and Citizens Bank New
Hampshire dated October 15, 2003. (Previously filed as Exhibit 10.13
to
Presstek’s Quarterly Report on Form 10-Q for the quarter ended September
27, 2003, filed November 12, 2003, hereby incorporated by
reference.)
|
10(nn)
|
Deed
of Trust, Assignment of Rents, Security Agreement and Fixture Filing
by
and among Presstek, Inc., First American Title Insurance Company
and
Citizens Bank New Hampshire dated October 15, 2003. (Previously filed
as
Exhibit 10.14 to Presstek’s Quarterly Report on Form 10-Q for the quarter
ended September 27, 2003, filed November 12, 2003, hereby incorporated
by
reference.)
|
10(oo)**
|
Employment
Agreement by and between Presstek, Inc. and Moosa E. Moosa dated
December
31, 2003 (Previously filed as Exhibit 10(pp) to Presstek’s Form 10-K for
the fiscal year ended January 3, 2004, filed March 18, 2004, hereby
incorporated by reference.)
|
10(pp)
|
Amendment
to Employment Agreement by and between Presstek, Inc. and Moosa E.
Moosa
dated January 10, 2004 (Previously filed as Exhibit 10(qq) to Presstek’s
Form 10-K for the fiscal year ended January 3, 2004, filed March
18, 2004,
hereby incorporated by reference.)
|
10(qq)
|
Debtor-in-Possession
Revolving Credit Agreement by and among A.B. Dick Company, Paragon
Corporate Holdings, Inc., KeyBank National Association and Presstek,
Inc.
dated July 13, 2004 (Previously filed as Exhibit 10.1 to Presstek’s Form
8-K filed on July 13, 2004, hereby incorporated by reference)
|
10(rr)
|
Amended
and Restated Credit Agreement among the Company, the Guarantors,
Citizens
Bank New Hampshire, KeyBank National Association and Bank North N.A.
dated
November 5, 2004 (Previously filed as Exhibit 99.1 to Presstek’s Form 8-K
filed on November 12, 2004, hereby incorporated by reference)
|
10(ss)**
|
Employment
Agreement by and between Presstek, Inc. and Susan A. McLaughlin dated
January 24, 2005 (Previously filed as Exhibit 99.1 to Presstek’s Form 8-K,
filed January 28, 2005, hereby incorporated by reference.)
|
10(tt)**
|
Employment
Agreement by and between Presstek, Inc. and Edward J. Marino dated
February 2, 2005 (Previously filed as Exhibit 99.1 to Presstek’s Form 8-K
, filed February 8, 2005, hereby incorporated by reference.)
|
10(uu)**
|
Employment
Agreement by and between Presstek, Inc. and Moosa E. Moosa dated
February
2, 2005 (Previously filed as Exhibit 99.2 to Presstek’s Form 8-K , filed
February 8, 2005, hereby incorporated by reference.)
|
10(vv)**
|
Employment
Agreement by and between Presstek, Inc. and Michael McCarthy dated
February 2, 2005 (Previously filed as Exhibit 10.4 to Presstek’s Form
10-Q, filed May 12, 2005, hereby incorporated by reference.)
|
10(ww)**
|
Employment
Agreement by and between Presstek, Inc. and Peter E. Bouchard dated
July
1, 2005 (Previously filed as Exhibit 99.1 to Presstek’s Form 8-K, filed
July 8, 2005, hereby incorporated by reference.)
|
10(xx)**
|
Employment
Agreement by and between Presstek, Inc. and William C. Keller dated
July
27, 2006 (Previously filed as Exhibit 99.1 to Presstek’s Form 8-K, filed
July 28, 2006, hereby incorporated by reference.)
|
Exhibit
Number
|
Description
|
|
|
10(yy)**
|
Employment
Agreement by and between Presstek, Inc. and Jeffrey Cook dated February
27, 2007 (Previously filed as Exhibit 99.1 to Presstek’s Form 8-K, filed
March 2, 2007, hereby incorporated by reference.)
|
21.1
|
Subsidiaries
of the Registrant (filed herewith.)
|
23.1
|
Consent
of KPMG LLP (filed herewith.)
|
23.2
|
Consent
of BDO Seidman, LLP (filed herewith.)
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 240.13a-14 or Section
240.15d-14 of the Securities Exchange Act of 1934, as amended (filed
herewith.)
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 240.13a-14 or Section
240.15d-14 of the Securities Exchange Act of 1934, as amended (filed
herewith.)
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (filed herewith.)
|
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (filed herewith.)
|
__________
* The
SEC
has granted Presstek’s request of confidential treatment with respect to a
portion of this exhibit.
** Denotes
management employment contracts or compensatory plans.