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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the quarterly period ended June 29, 2002
OR
- --- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________
COMMISSION FILE NO. 0-17541
---------------------------
PRESSTEK, INC.
--------------
(Exact name of registrant as specified in its charter)
DELAWARE 02-0415170
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
--------------
----------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 08, 2002, there were 34,125,481 shares of the registrant's common
stock, $.01 par value per share, outstanding.
PRESSTEK, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of June 29, 2002 (unaudited) and
December 29, 2001 3
Statements of Operations for the three and six months ended
June 29, 2002 and June 30, 2001 (unaudited) 4
Statements of Cash Flows for the six months ended June 29,
2002 and June 30, 2001 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 21
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRESSTEK, INC.
JUNE 29 December 29
BALANCE SHEETS 2002 2001
(In thousands, except share data) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,931 $ 2,492
Accounts receivable, net of allowance for losses
of $2,220 and $2,420 in fiscal 2002 and 2001, respectively 12,927 18,117
Inventories 16,828 17,818
Advances to suppliers -- 303
Other current assets 1,096 815
- ----------------------------------------------------------------------------------------------------
Total current assets 43,782 39,545
- ----------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 55,501 61,235
- ----------------------------------------------------------------------------------------------------
OTHER ASSETS:
Patent application costs and license rights, net 4,140 4,358
Other 121 1,706
- ----------------------------------------------------------------------------------------------------
Total other assets 4,261 6,064
- ----------------------------------------------------------------------------------------------------
TOTAL $ 103,544 $ 106,844
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 967
Current portion of long-term debt 2,954 2,343
Accounts payable 4,425 2,067
Accrued expenses 10,320 5,920
Deferred revenues 1,932 1,507
- ----------------------------------------------------------------------------------------------------
Total current liabilities 19,631 12,804
- ----------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 15,205 14,055
- ----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or outstanding -- --
Common stock, $.01 par value; authorized 75,000,000 shares;
Issued and outstanding 34,125,481 shares at
June 29, 2002; 34,115,906 shares at December 29, 2001 341 341
Additional paid-in capital 97,403 97,342
Accumulated deficit (29,036) (17,698)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 68,708 79,985
- ----------------------------------------------------------------------------------------------------
TOTAL $ 103,544 $ 106,844
====================================================================================================
See notes to financial statements
3
PRESSTEK, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three and Six Months Ended
(In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
- -----------------------------------------------------------------------------------------------------------------
JUNE 29 June 30 JUNE 29 June 30
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------
REVENUES:
Product sales $ 17,675 $ 24,908 $ 37,022 $ 48,549
Royalties and fees from licensees 1,618 2,223 3,068 4,347
- -----------------------------------------------------------------------------------------------------------------
Total revenues 19,293 27,131 40,090 52,896
- -----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of products sold 15,755 15,991 28,283 31,433
Research and product development 2,606 3,430 5,725 6,365
Sales, marketing and customer support 3,104 3,435 5,542 6,575
General and administrative 3,151 3,819 5,479 6,891
Special charges 5,961 -- 5,961 --
- -----------------------------------------------------------------------------------------------------------------
Total costs and expenses 30,577 26,675 50,990 51,264
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (11,284) 456 (10,900) 1,632
- -----------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE), NET:
Interest, net (224) (312) (455) (530)
Other, net (13) (39) 17 (24)
- -----------------------------------------------------------------------------------------------------------------
Total other expense, net (237) (351) (438) (554)
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (11,521) 105 (11,338) 1,078
PROVISION FOR INCOME TAXES -- -- -- --
NET INCOME (LOSS) $(11,521) $ 105 $(11,338) $ 1,078
=================================================================================================================
EARNINGS (LOSS) PER SHARE -- BASIC: $ (0.34) $ 0.00 $ (0.33) $ 0.03
=================================================================================================================
EARNINGS (LOSS) PER SHARE -- DILUTED $ (0.34) $ 0.00 $ (0.33) $ 0.03
=================================================================================================================
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING -- BASIC 34,125 34,101 34,123 34,083
=================================================================================================================
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING -- DILUTED 34,125 34,662 34,123 34,641
=================================================================================================================
See notes to financial statements
4
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
JUNE 29 June 30
FOR THE SIX MONTHS ENDED 2002 2001
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS -- OPERATING ACTIVITIES:
Net Income (loss) $(11,338) $ 1,078
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,907 4,323
Provision for warranty and other costs 352 983
Special charges and discontinued programs 10,696 --
Provision for losses on accounts receivable 282 600
Other, net 232 66
Changes in operating assets and liabilities:
Accounts receivable 4,915 (4,708)
Inventories (1,722) (6,061)
Advances to suppliers and other current assets 22 862
Accounts payable 2,358 376
Accrued expenses (916) (1,413)
Deferred revenue 424 170
Other assets (229) (91)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 9,983 (3,815)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS -- INVESTING ACTIVITIES:
Purchases of property, plant and equipment (600) (7,319)
Proceeds from sale of equipment 203 --
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (397) (7,319)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS -- FINANCING ACTIVITIES:
Net proceeds from stock option exercises 61 571
Proceeds under line of credit -- 2,269
Repayments under line of credit (967) --
Repayments of mortgage term loan (527) (375)
Proceeds under lease line of credit 3,000 --
Repayments of lease line of credit (714) (579)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 853 1,886
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,439 (9,248)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 2,492 11,972
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 12,931 $ 2,724
===========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 518 $ 694
===========================================================================================================
Income taxes $ -- $ 46
===========================================================================================================
See notes to financial statements
5
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 29, 2002
1. BASIS OF PRESENTATION
Presstek, Inc. (the "Company" or "Presstek") is a manufacturer, developer and
marketer of digital laser imaging and chemistry-free plate technologies for the
printing and graphic arts industries. Presstek's products and applications
incorporate its patented Direct Imaging (DI(R)) technologies and consumables for
computer-to-plate ("CTP") and direct-to-press applications.
The Company also operates Lasertel, Inc. ("Lasertel"), a subsidiary located in
Tucson, Arizona. Lasertel is primarily engaged in the manufacture and
development of the Company's high-powered laser diodes.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sale of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the financial statements include
the thirteen-week periods ended June 29, 2002 ("the second quarter of fiscal
2002") and June 30, 2001 ("the second quarter of fiscal 2001"), and the
twenty-six week periods ended June 29, 2002 ("the first six months of fiscal
2002"), and June 30, 2001 ("the first six months of fiscal 2001").
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
information included in the quarterly report should be read in conjunction with
the Company's audited financial statements and related notes thereto for the
fiscal year ended December 29, 2001. The December 29, 2001 information has been
derived directly from the annual financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments were normal and recurring. Operating
results for the three and six months ended June 29, 2002 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 28, 2002.
Certain accounts in the June 30, 2001 financial statements have been
reclassified for comparative purposes to conform to the presentation in the June
29, 2002 financial statements.
2. INVENTORIES
Inventories consisted of the following at June 29, 2002 and December 29, 2001:
JUNE 29 December 29
(In thousands) 2002 2001
- --------------------------------------------------------------------------------
Raw materials $ 5,570 $ 4,458
Work in process 5,373 4,530
Finished goods 5,885 8,830
- --------------------------------------------------------------------------------
Total inventories $16,828 $17,818
================================================================================
The June 29, 2002 inventories reflect a write-down of $2.7 million for inventory
related to certain discontinued programs.
6
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following at June 29, 2002
and December 29, 2001:
JUNE 29 December 29
(In thousands) 2002 2001
- --------------------------------------------------------------------------------
At cost:
Land and improvements $ 2,038 $ 2,038
Buildings and leasehold improvements 26,245 26,245
Production equipment and other 47,325 49,147
Office furniture and equipment 5,331 5,119
- --------------------------------------------------------------------------------
80,939 82,549
Less accumulated depreciation (25,438) (21,314)
- --------------------------------------------------------------------------------
Total property, plant and equipment, net $ 55,501 $ 61,235
================================================================================
The June 29, 2002 property, plant and equipment balances reflect a write-down of
$1.7 million for equipment and leasehold improvements as a result of the
consolidation of facilities.
4. ACCRUED EXPENSES
Accrued expenses consisted of the following at June 29, 2002 and December 29,
2001:
JUNE 29 December 29
(In thousands) 2002 2001
- -------------------------------------------------------------------------------
Accrued payroll and benefits $ 1,918 $1,811
Accrued warranty 669 793
Accrued special charges and discontinued programs 4,711 --
Net current liabilities of discontinued operations 1,496 1,521
Other current liabilities 1,526 1,795
- -------------------------------------------------------------------------------
Total accrued expenses $10,320 $5,920
===============================================================================
5. LONG-TERM DEBT
Long-term debt consisted of the following at June 29, 2002 and December 29,
2001:
JUNE 29 December 29
(In thousands) 2002 2001
- --------------------------------------------------------------------------------
Mortgage term loans $ 7,953 $ 8,480
Lease line of credit 10,206 7,918
- --------------------------------------------------------------------------------
18,159 16,398
Less current portion (2,954) (2,343)
- --------------------------------------------------------------------------------
Total long-term debt, net of current portion $ 15,205 $ 14,055
================================================================================
In addition to the mortgage term loans and the lease line of credit, the Company
has a revolving line of credit loan with Citizens Bank New Hampshire,
("Citizens") which expires in September 2002, under which the Company may borrow
a maximum of $16.0 million. The revolving line of credit is subject to a
borrowing base formula based on eligible accounts receivable and inventories, as
defined by the loan agreement, and reduced by the amount of all letters of
credit outstanding. The revolving line of credit loan is secured by
substantially all of the Company's assets, with interest payable at the LIBOR
rate plus 1.50% (3.36% at June 29, 2002). As of June 29, 2002, the Company had
$10.5 million available under the revolving line of credit loan, reduced by $6.5
million outstanding under standby letters of credit. The Company received a
commitment letter from Citizens extending its revolving line of credit loan
through October 2003.
On May 1, 2002, the Company borrowed an additional $3.0 million against its
lease line of credit facility with Keybank National Association. The borrowing
is secured by certain equipment valued at $5.0 million, with
7
interest payable at the LIBOR rate plus 4.25% (6.11% at June 29, 2002).
Principal and interest is due and payable in sixty equal monthly installments of
$58,126, beginning on June 1, 2002.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet various
restrictive covenants on a quarterly and annual basis, including maximum funded
debt to EBITDA and minimum fixed charge coverage covenants. The Company's
lenders waived the terms of certain covenants for the second quarter of fiscal
2002. As a result of the losses recorded in the second quarter of fiscal 2002,
however, the Company was not in compliance with the amended covenants at June
29, 2002. In July 2002, the Company received waivers from its lenders concerning
the non-compliance with these covenants for the second quarter of fiscal 2002.
6. INCOME TAXES
The Company did not record a provision for income taxes, as a result of tax
losses incurred in the second quarter and first six months of fiscal 2002.
The Company did not record a provision for income taxes, as a result of the
utilization of net operating loss carry forwards in the second quarter and
first six months of fiscal 2001.
7. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed giving effect to all diluted potential common
shares that were outstanding during the period. Diluted potential common shares
consist of the incremental common shares issuable upon exercise of stock options
and warrants that have an exercise price that is less than the average market
price of the common shares for the period.
The following represents the calculation of basic and diluted earnings (loss)
per share for the three and six months ended June 29, 2002 and June 30, 2001:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 29 June 30 JUNE 29 June 30
(In thousands, except per share data) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Net income (loss) $(11,521) $ 105 $(11,338) $ 1,078
- -----------------------------------------------------------------------------------------------------
Weighted average common shares
Outstanding -- Basic 34,125 34,101 34,123 34,083
Effect of assumed conversion
of stock options -- 561 -- 558
- -----------------------------------------------------------------------------------------------------
Weighted average common shares
Outstanding -- Diluted 34,125 34,662 34,123 34,641
Earnings (loss) per share -- Basic: $ (0.34) $ 0.00 $ (0.33) $ 0.03
=====================================================================================================
Earnings (loss) per share -- Diluted: $ (0.34) $ 0.00 $ (0.33) $ 0.03
=====================================================================================================
All options and warrants outstanding during the second quarter and first six
months of fiscal 2002 were not included in the computation of diluted earnings
per share as their effect would be anti-dilutive.
Options and warrants to purchase 1,614,001 and 1,634,001 shares of common stock
at exercise prices ranging from $11.75 to $26.94 per share were outstanding
during a portion of the second quarter and first six months of fiscal 2001,
respectively, but were not included in the computation of diluted earnings per
share as the exercise prices of the options and warrants were greater than the
average market price of the common shares. These options and warrants which,
expire from January 2, 2002 through June 11, 2011, were all outstanding at June
30, 2001.
8
8. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and all changes in
stockholder's equity except those due to investments by owners and distributions
to owners. For the second quarter and first six months of both fiscal 2002 and
fiscal 2001 there were no differences between net income (loss) and
comprehensive income (loss).
9. SEGMENT INFORMATION
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of its proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The Lasertel segment is primarily engaged in the
manufacture and development of the Company's high-powered laser diodes.
The accounting policies of the reportable segments are consistent with those of
the Company. Sales between the segments are recorded at prices which approximate
pricing for sales conducted at an arm's length basis. The segments are measured
on operating profits or losses before net interest income, minority interest and
income taxes. As a result of product returns related to the Company's
high-powered laser diodes, the Company's Lasertel segment reported negative
revenues for the second quarter of fiscal 2002.
A summary of the Company's operations by segment for the three and six months
ended June 29, 2002 and June 30, 2001 were as follows:
DIGITAL
IMAGING INTER-
(In thousands) PRODUCTS LASERTEL SEGMENT TOTAL
- ---------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 29, 2002
Revenues $ 19,292 $ (58) $ 59 $ 19,293
Loss from operations (8,664) (2,620) (11,284)
Total assets 80,673 22,871 103,554
Depreciation and amortization 1,789 671 2,460
Capital expenditures 304 196 500
THREE MONTHS ENDED JUNE 30, 2001
Revenues $ 27,128 $ 627 $ (624) $ 27,131
Income (loss) from operations 3,312 (2,856) 456
Total assets 97,970 21,008 118,978
Depreciation and amortization 1,865 405 2,270
Capital expenditures 644 1,165 1,809
SIX MONTHS ENDED JUNE 29, 2002
Revenues $ 40,089 $ 234 $ (233) $ 40,090
Loss from operations (6,653) (4,247) (10,900)
Total assets 80,673 22,871 103,544
Depreciation and amortization 3,609 1,298 4,907
Capital expenditures 386 214 600
SIX MONTHS ENDED JUNE 30, 2001
Revenues $ 52,893 $ 1,215 $ (1,212) $ 52,896
Income (loss) from operations 7,277 (5,645) 1,632
Total assets 97,970 21,008 118,978
Depreciation and amortization 3,707 616 4,323
Capital expenditures 1,914 5,405 7,319
9
10. DISCONTINUED PROGRAMS AND SPECIAL CHARGES
In the second quarter of fiscal 2002, the Company initiated a process to
evaluate the Company's resources and strategically re-focus the Company. During
this process, the Company evaluated all aspects of the business, and concluded
to reposition and rescale its resources. As part of this exercise, the Company
initiated various repositioning actions during the second quarter of fiscal
2002. These actions included the following: (i) creation of market-focused
Direct Imaging ("DI") and Computer-to-Plate ("CTP") product lines; (ii) creation
of a new senior management organization; (iii) discontinuance of certain
programs; and (iv) the consolidation of the Company's Hampshire Drive research
and development facility into the main Executive Drive facility in Hudson, NH.
As a result of these actions, the Company recorded a charge of $4.7 million to
cost of sales in the second quarter of fiscal 2002 for inventory write-downs
($2.7 million) and other charges related to discontinued programs. In addition,
the Company recorded special charges of $6.0 million in the second quarter of
fiscal 2002. The special charges include $1.0 million related to severance and
fringe benefit costs associated with the reduction of approximately 50
employees, primarily in manufacturing and research and development, $2.0 million
related to the write-down of equipment and lease termination costs as a result
of the Hampshire Drive consolidation, $1.8 million related primarily to other
asset write-downs and costs associated with the repositioning, and $1.2 million
related to executive contractual obligations, as a result of a separation
agreement with Robert W. Hallman, former President and Chief Executive Officer
of the Company. Pursuant to the separation agreement, effective April 30, 2002,
the Company agreed to pay Mr. Hallman a separation payment equal to three times
his current annual salary, payable bi-weekly over 36 months, until May 2005.
The repositioning activity and workforce reduction, which was initiated in June,
was substantially complete at the end of the second quarter of fiscal 2002. The
Hampshire drive consolidation is expected to be complete by the end of the third
quarter of fiscal 2002. As of June 29, 2002, the Company's accrued expenses
included $4.7 million related to the special charges and discontinued programs,
and the Company had paid $258,000 as a result of the forgoing repositioning
actions. The Company anticipates the payments related to the discontinued
programs and special charges to be completed by May 2005.
11. RECENTLY ISSUED ACCOUNTING STANDARDS
Effective December 30, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Intangible Assets" ("SFAS 142"),
which supersedes APB Opinion No. 17, "Intangible Assets". SFAS 142 eliminates
the current requirement to amortize goodwill and indefinite-lived intangible
assets, addresses the amortization of intangible assets with a defined life and
addresses the impairment testing and recognition for goodwill and intangible
assets. SFAS 142 applies to goodwill and intangible assets arising from
transactions completed before and after the Statement's effective date. SFAS 142
is effective for fiscal 2002. The adoption of SFAS 142 has had no impact on the
Company's results of operations or financial position.
Effective December 30, 2001, the Company also adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and the accounting and reporting provisions of APB
No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." SFAS 144 is effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. The adoption of SFAS 144 has had no
impact on the Company's results of operations or financial position.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"). This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. The Company has not yet determined the
impact the adoption of SFAS 143 will have on its financial statements.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding the Company's expectations for its
financial and operating performance in 2002 and beyond, the adequacy of internal
cash for the Company's operations, the ability of the Company to manage its
working capital and inventory levels, availability of component materials,
management's plans and goals with regard to the Company's shipping and
production capabilities, the expected timing, effects and benefits of the
reorganization and repositioning of the Company's business and the
discontinuance of certain programs, including any cost savings related thereto,
management's plans and goals for the Company's Lasertel subsidiary, the expected
capital requirements of Lasertel, the strength of the Company's various
strategic partnerships both on manufacturing and distribution, among others.
Such forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors that could cause or contribute to such
differences include continued support from the Company's banks, the Company's
ability to receive waivers from its banks for any debt covenant violations, the
Company's ability to extend and/or amend the terms of the Company's loan
facilities, the Company's dependency on its strategic partners (both on
manufacturing and distribution), shortages of critical or sole-source component
supplies, the availability and quality of Lasertel's laser diodes, manufacturing
constraints or difficulties, (as well as manufacturing difficulties experienced
by our sub-manufacturing partners and their capacity constraints), the impact of
general market factors in the print industry generally and the economy as a
whole, market acceptance of and demand for the Company's products and resulting
revenues and other risks detailed in the Company's reports on file with the
Securities Exchange Commission including its Annual Report on Form 10-K for the
fiscal year ended December 29, 2001, as well as those discussed elsewhere in
this report. The words "looking forward," "looking ahead," "believe(s),"
"should," "plan," "expect(s)," "project(s)," "anticipate(s)," "may," "likely,"
"potential," "opportunity" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statements were
made and readers are advised to consider such forward-looking statements in
light of the risks discussed above. Presstek undertakes no obligation to update
any forward-looking statements contained in this Quarterly Report on Form 10-Q.
BACKGROUND
Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware in 1987,
is a manufacturer, developer and marketer of digital laser imaging and
chemistry-free plate technologies for the printing and graphic arts industries.
Presstek's products and applications incorporate its patented Direct Imaging
(DI(R)) technologies and consumables for computer-to-plate ("CTP") and
direct-to-press applications. The Company's patented DI thermal laser diode
product family enables its customers to produce high quality, full-color
lithographic printed materials more quickly and cost effectively than
conventional methods. Using digital information and high-powered semiconductor
laser diodes to create images in its proprietary printing plate materials,
Presstek's patented DI technologies are marketed to leading press manufacturers
and used in the Company's Dimension series of CTP systems. Presstek's Dimension
systems incorporate its proprietary ProFire(TM) laser imaging technology and use
its complementary chemistry-free thermal printing plate, Anthem(TM). Presstek's
DI technology eliminates photographic darkrooms, film, and chemical processing,
which results in reduced turnaround time and lowers the cost of production for
commercial printers.
The Company is also engaged in the development of additional DI products that
incorporate its patented, proprietary, digital imaging system and process-free
thermal ablation printing plate technologies for CTP and direct-to-press
applications.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the Lasertel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press
11
applications. The Lasertel segment is primarily engaged in the manufacture and
development of Presstek's high-powered laser diodes.
The Company operates and reports on a 52/53 week fiscal year ending on the
Saturday closest to December 31. Accordingly, the financial statements include
the thirteen-week periods ended June 29, 2002 ("the second quarter of fiscal
2002") and June 30, 2001 ("the second quarter of fiscal 2001"), and the
twenty-six week periods ended June 29, 2002 ("the first six months of fiscal
2002"), and June 30, 2001 ("the first six months of fiscal 2001").
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
Presstek's management's discussion and analysis of its financial condition and
results of operations are based upon Presstek's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, Presstek
evaluates its estimates, including those related to product returns, bad debts,
inventories, income taxes, warranty obligations, and litigation. Presstek bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Presstek believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition
Presstek records revenue for product sales and related royalties at the time of
shipment or installation, net of estimated returns, which are adjusted
periodically based upon historical rates of return. Certain fees and other
reimbursements are recognized as revenue when the related services have been
performed or the revenues otherwise earned.
Bad Debt
Presstek maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of Presstek's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Product Warranties
Presstek provides for the estimated cost of product warranties at the time
revenue is recognized. While Presstek engages in product quality programs and
processes, Presstek's warranty obligation is affected by product failure rates,
material usage and service costs incurred in correcting a product failure.
Should actual product failure rates, material usage or service costs differ from
Presstek's estimates, a revision to the estimated warranty liability would be
required.
Inventory
Presstek's write-downs for excess and obsolete inventory are primarily based
upon forecasted demand for its products. If actual demand is less favorable than
what has been projected by management, additional inventory write-downs may be
required. The Company recorded a write-down of $2.7 million for inventory
related to certain discontinued programs in the second quarter of fiscal 2002.
12
RESULTS OF OPERATIONS
Revenues
Revenues for the second quarter and first six months of fiscal 2002 of $19.3
million and $40.1 million, respectively, consisted of product sales, customer
support revenues, and royalties and license fees. Revenues for the second
quarter and first six months of fiscal 2002 decreased $7.8 million or 29% and
$12.8 million or 24% as compared to $27.1 million and $52.9 million for the
second quarter and first six months of fiscal 2001, respectively. Revenues
generated for the second quarter and first six months of fiscal 2002 and fiscal
2001 relate primarily to the Digital Imaging Products segment, as there were no
material external revenues generated by the Lasertel segment. The Company's
revenues for the second quarter and first six months of fiscal 2002 were
negatively impacted by the general down-turn in the capital equipment market and
the economy as a whole.
Product sales for the second quarter and first six months of fiscal 2002 were
$17.7 million and $37.0 million respectively, compared to $24.9 million and
$48.5 million for the second quarter and first six months of fiscal 2001, a
decrease of $7.2 million or 29% and $11.5 million or 24%, respectively. These
decreases in product sales were due primarily to volume and price decreases of
direct imaging kits sold to Heidelberg Druckmaschinen AG ("Heidelberg") for use
in the Quickmaster DI, volume decreases of direct imaging kits sold to Ryobi
Limited for use in the Ryobi 3404DI, and volume decreases of press shipments to
Xerox Corporation for the DocuColor 233DI and the DocuColor 400DI. For the first
six months of fiscal 2002, the decrease in product sales was also due to volume
decreases of the Company's CTP Dimension platesetter products. These decreases
were partially offset by volume increases of the Company's thermal consumable
products. The revenues generated from the sale of consumable products were $12.1
million and $25.9 million for the second quarter and first six months of fiscal
2002, respectively, an increase of $1.0 million or 9% and $2.3 million or 10%,
as compared to $11.1 million and $23.6 million for the second quarter and first
six months of fiscal 2001, respectively. These consumable product revenues
include $4.6 million and $10.5 million for the second quarter and first six
months of fiscal 2002 respectively, and $5.7 million and $10.8 million for the
comparable period in fiscal 2001, respectively, sold under the Company's
agreements with Heidelberg and its distributors.
Royalties and fees from licensees for the second quarter and first six months of
fiscal 2002 of $1.6 million and $3.1 million respectively, decreased $605,000 or
27% and $1.3 million or 29%, as compared to royalties and fees from licensees of
$2.2 million and $4.3 million for the second quarter and first six months of
fiscal 2001. Royalties decreased $799,000 or 48% and $1.8 million or 55% for the
second quarter and first six months of fiscal 2002 respectively, compared to the
same periods of fiscal 2001, primarily as a result of decreased shipments to
Heidelberg of direct imaging systems used in the Quickmaster DI. These decreases
were partially offset by increases in customer support revenues of $195,000 or
155% and $540,000 or 281%, for the second quarter and first six months of fiscal
2002, respectively, as compared to customer support revenues of $126,000 and
$192,000 for the same periods of fiscal 2001.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $7.3 million, and $15.2 million for the second quarter and
first six months of fiscal 2002, a decrease of $5.1 million or 41% and $8.6
million or 36%, respectively, as compared to $12.4 million and $23.8 million for
the comparable periods in fiscal 2001. Revenues from Heidelberg represented 38%
and 45% of total revenues for the first six months of fiscal 2002 and fiscal
2001, respectively.
In connection with the settlement of its outstanding arbitration proceedings
with Heidelberg, the Company agreed to reduce the royalty payable by Heidelberg
for imaging kits delivered in connection with the Heidelberg Quickmaster 46 DI
by approximately $9,000 per kit. This reduced royalty rate became effective for
imaging kits ordered and delivered after May 1, 2002.
Cost of Products Sold
Cost of products sold consists of the costs of material, labor and overhead,
shipping and handling costs and warranty expenses. Cost of products sold for the
Digital Imaging Products segment were $13.8 million or 72% of revenue for the
second quarter of fiscal 2002, a decrease of $200,000 or 1%, as compared to
$14.0 million or 52% of revenue for the comparable period in fiscal 2001. Cost
of products sold for the first six months of fiscal 2002 were $25.4 million or
63% of revenue, a decrease of $2.2 million or 8%, as compared to $27.6 million
or 52% of revenue for the comparable period in fiscal 2001. Included in cost of
products sold for the
13
second quarter of fiscal 2002 is a charge of $4.0 million related to the
inventory write-downs and other charges associated with discontinued programs.
Gross margin as a percentage of total revenues for the Digital Imaging Products
segment was 29% and 37% for the second quarter and first six months of fiscal
2002. Excluding the inventory write-downs and other charges for discontinued
programs, gross margin for the Digital Imaging Products segment would have been
49% and 47% for the second quarter and first six months of fiscal 2002,
respectively, as compared to 48% for the second quarter and first six months of
fiscal 2001, respectively. Excluding the inventory write-downs and other charges
for discontinued programs, the gross margin increase for the second quarter of
fiscal 2002 was primarily as a result of yield improvements related to the
manufacturing of the Company's consumable products, and a favorable product
mix.
Cost of products sold for the Lasertel segment for the second quarter and first
six months of fiscal 2002 included $1.9 million and $2.9 million, respectively,
in manufacturing costs. Included in cost of products sold for the second quarter
of 2002 is a charge of $688,000 related to inventory write-downs associated with
discontinued programs. Excluding the inventory write-downs, manufacturing costs
were $1.2 million and $2.2 million, respectively, for the second quarter and
first six months of 2002, a decrease of $700,000 and $1.6 million, respectively,
as compared to $1.9 million and $3.8 million for the second quarter and first
six months of fiscal 2001. The decrease in manufacturing costs was primarily as
a result of reduced salaries and benefits related to head count reductions in
the first quarter of fiscal 2002.
Research and Product Development
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts. Research and product development expenses for the Digital Imaging
Products segment, were $2.4 million or 12% of revenue for the second quarter of
fiscal 2002, a decrease of $1.0 million as compared to $3.4 million or 13% of
revenue for the comparable period in fiscal 2001. Research and product
development expenses for the first six months of fiscal 2002 were $5.3 million
or 13% of revenue, a decrease of $1.1 million as compared to $6.4 million or 12%
of revenue for the comparable period in fiscal 2001. These decreases relate
primarily to reduced salaries as a result of head count reductions in the first
six months of fiscal 2002, as well as reduced professional and contracted
services as part of the Company's cost reduction programs put into place in the
third quarter of fiscal 2001. The Company's product development cycle centers
around major industry trade shows, such as Drupa held every four of five years.
As a result, the Company's research and product development expenses vary in
accordance with its product development cycle.
Research and product development expenses for the Lasertel segment were $198,000
or 1% of revenues for the second quarter of fiscal 2002, and $461,000 or 1% of
revenues for the first six months of fiscal 2002. These expenses related
primarily to salaries, benefits, and the costs of parts and supplies to support
Lasertel's research activities in the graphics industry. Research and product
development expenses for the Lasertel segment were not material in the first
quarter and first six months of fiscal 2001.
Sales, Marketing and Customer Support
Sales, marketing and customer support expenses consist primarily of payroll and
related expenses for personnel, advertising, trade shows, promotional expenses,
and travel costs related to the Company's sales, marketing and customer support
activities. Sales, marketing and customer support expenses for the Digital
Imaging Products segment were $3.0 million or 16% of revenue for the second
quarter of fiscal 2002, a decrease of $115,000 as compared to $3.1 million or
11% of revenue for the comparable period in fiscal 2001. Sales, marketing and
customer support expenses for the first six months of fiscal 2002 were $5.4
million, or 13% of revenue, a decrease of $764,000 as compared to $6.1 million
or 12% of revenue for the comparable period in fiscal 2001. This decrease
relates primarily to reduced salaries, benefits, and related travel costs as a
result of head count reductions in the first quarter of fiscal 2002, as well as
reduced professional and contracted services.
Sales and marketing expenses for the Lasertel segment were $75,000 or less than
1% of revenues for the second quarter of fiscal 2002, a decrease of $216,000 as
compared to $291,000 or less than 1% of revenues for the comparable period in
fiscal 2001. Sales and marketing expenses for the Lasertel segment were $158,000
or less than 1% of revenues for the first six months of fiscal 2002, a decrease
of $269,000 as compared to $427,000 for the comparable period in fiscal 2001.
These expenses relate primarily to salaries,
14
benefits and advertising expenses to support Lasertel`s marketing activities in
the defense, medical and graphics industries. These decreases relate primarily
to reduced salaries and benefits as a result of head count reductions in the
first quarter of fiscal 2002.
General and Administrative
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services necessary to
conduct the finance, information systems, human resources and administrative
activities of the Company. General and administrative expenses for the Digital
Imaging Products segment were $2.8 million or 15% of revenues for the second
quarter of fiscal 2002, a decrease of $391,000 as compared to $3.2 million or
12% of revenues for the comparable period in fiscal 2001. General and
administrative expenses for the first six months of fiscal 2002 were $4.8
million or 12% of revenue, a decrease of $719,000 as compared to $5.5 million or
10% of revenue for the comparable period in fiscal 2001. These decreases relate
primarily to decreases in legal fees as a result of the settlement of the
Company's arbitration proceedings with Heidelberg in July 2001.
General and administrative expenses for the Lasertel segment were $329,000 or 2%
of revenue for the second quarter of fiscal 2002, a decrease of $277,000 as
compared to $606,000 or 2% of revenues for the comparable period in fiscal 2001.
General and administrative expenses for the Lasertel segment were $667,000 or 2%
of revenues for the first six months of fiscal 2002, a decrease of $692,000 as
compared to $1.4 million or 3% of revenue for the comparable period in fiscal
2001. These decreases relate primarily to reduced salaries and benefits as a
result of head count reductions in the first quarter of fiscal 2002.
Special Charges
In the second quarter of fiscal 2002, the Company initiated a process to
evaluate the Company's resources and strategically re-focus the Company. During
this process, the Company evaluated all aspects of the business, and concluded
to reposition and rescale its resources. As part of this exercise, the Company
initiated various repositioning actions during the second quarter of fiscal
2002. These actions included the following: (i) creation of market-focused
Direct Imaging ("DI") and Computer-to-Plate ("CTP") product lines; (ii) creation
of a new senior management organization; (iii) discontinuance of certain
programs; and (iv) the consolidation of the Company's Hampshire Drive research
and development facility into the main Executive Drive facility in Hudson, NH.
As a result of these actions, the Company recorded special charges of $6.0
million in the second quarter of fiscal 2002. The special charges include $1.0
million related to severance and fringe benefit costs associated with the
reduction of approximately 50 employees, primarily in manufacturing and research
and development, $2.0 million related to the write-down of equipment and lease
termination costs as a result of the Hampshire Drive consolidation, $1.8 million
related primarily to other asset write-downs and costs associated with the
repositioning, and $1.2 million related to executive contractual obligations, as
a result of a separation agreement (the "Hallman Agreement") with Robert W.
Hallman, former President and Chief Executive Officer of the Company. Pursuant
to the Hallman agreement, effective April 30, 2002, the Company agreed to pay
Mr. Hallman a separation payment equal to three times his current annual salary,
payable bi-weekly over 36 months, until May 2005. In addition, under the Hallman
Agreement, the Company agreed to amend four of Mr. Hallman's outstanding stock
options granted under the Company's 1994 Stock Option Plan and 1998 Stock
Incentive Plan. In particular, the options were amended to provide that, as of
April 30, 2002, all of the shares underlying such options are fully vested and
immediately exercisable and that each of the options will remain exercisable by
Mr. Hallman until their expiration date. In consideration for the payments and
other benefits under the Hallman Agreement, Mr. Hallman agreed for a period of
five (5) years commencing on April 30, 2002, not to engage in any business
activity on behalf of an entity which is a direct competitor of the Company and
agreed not to recruit, solicit or offer employment to any employee of the
Company.
The repositioning activity and workforce reduction, which was initiated in June,
was substantially complete at the end of the second quarter of 2002. The
Hampshire drive consolidation is expected to be complete by the end of the third
quarter of fiscal 2002. Through June 29, 2002, the Company had paid $258,000 as
a result of the forgoing repositioning actions.
Other Income and Expense
Other expense, net was $237,000 or 1% of revenues for the second quarter of
fiscal 2002 as compared to other expense net, of $351,000 or 1% of revenue for
the comparable period in fiscal 2001. Other expense, net was $438,000 or 1% of
revenue for the first six months of fiscal 2002 as compared to other expense,
net of $554,000 or 1% of revenue for the comparable period in fiscal 2001.
15
Interest, net was $224,000 for the second quarter of fiscal 2002, a decrease of
$88,000, as compared to $312,000 for the comparable period in fiscal 2001.
Interest income for the first six months of fiscal 2002 was $63,000, a decrease
of $101,000 as compared to $164,000 for the comparable period in fiscal 2001,
primarily as a result of lower interest rates. Interest expense was $273,000 for
the second quarter of fiscal 2002, a decrease of $80,000 as compared to $353,000
for the comparable period in 2001. Interest expense for the first six months of
fiscal 2002 was $518,000, a decrease of $176,000 as compared to $694,000 for the
comparable period in fiscal 2001, primarily as a result of lower interest rates
on borrowings.
Provision for Income Taxes
The Company did not record a provision for income taxes, as a result of tax
losses incurred in the second quarter and first six months of fiscal 2002.
The Company did not record a provision for income taxes, as a result of the
utilization of net operating loss carry forwards for the second quarter and
first six months of fiscal 2001.
Net Income (Loss)
As a result of the foregoing, the Company had net losses of $11.5 million and
$11.3 million for the second quarter and first six months of fiscal 2002,
respectively, as compared to net income of $105,000 and $1.1 million for the
second quarter and first six months of fiscal 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 2002, the Company had cash and cash equivalents of $12.9 million and
working capital of $24.2 million as compared to cash and cash equivalents of
$2.5 million and working capital of $26.7 million at December 29, 2001. The
increase in cash and cash equivalents of $10.4 million for the first six months
of fiscal 2002 was primarily attributable to cash provided by operating and
financing activities of $10.0 million and $853,000, respectively, offset by cash
used for investing activities of $397,000.
Net cash provided by operating activities was $10.0 million for the six months
ended June 29, 2002, primarily as a result of net losses of $11.3 million, and
an increase in inventories of $1.7 million, offset by special charges and
discontinued programs of $10.7 million, depreciation and amortization of $4.9
million, decreases in accounts receivable of $4.9 million as a result of an
improvement in days sales outstanding and a decrease in revenues, an increase in
accounts payable of $2.4 million and a decrease in accrued expenses of $916,000.
Net cash used for investing activities of $397,000 for the six months ended June
29, 2002 consisted primarily of additions to property, plant and equipment used
in the Company's business, net of proceeds from sales of equipment used in the
Company's business.
Net cash provided by financing activities for the six months ended June 29, 2002
totaled $853,000 and consisted primarily of proceeds of $3.0 million from
borrowings under the Company's lease line of credit facility with Keybank
National Association, offset by payments on the mortgage term loans and the
lease line of credit facility of $2.2 million.
The Company's long-term debt consists of two mortgage term loans from Citizens
Bank New Hampshire ("Citizens"), and a lease line of credit facility from
Keybank National Association ("Keybank").
On May 1, 2002, the Company borrowed an additional $3.0 million against its
lease line of credit facility with Keybank National Association. The borrowing
is secured by certain equipment valued at $5.0 million, with interest payable at
the LIBOR rate plus 4.25% (6.11% at June 29, 2002). Principal and interest is
due and payable in sixty equal monthly installments of $58,126, beginning on
June 1, 2002.
In addition to the mortgage term loans and the lease line of credit, the Company
has a revolving line of credit loan with Citizens Bank New Hampshire,
("Citizens") which expires in September 2002, under which the Company may borrow
a maximum of $16.0 million. The revolving line of credit is subject to a
borrowing base
16
formula based on eligible accounts receivable and inventories, as defined by the
loan agreement, and reduced by the amount of all letters of credit outstanding.
The revolving line of credit loan is secured by substantially all of the
Company's assets, with interest payable at the LIBOR rate plus 1.50% (3.36% at
June 29, 2002). As of June 29, 2002, the Company had $10.5 million available
under the revolving line of credit loan, reduced by $6.5 million outstanding
under standby letters of credit. The Company received a commitment letter from
Citizens extending its revolving line of credit loan through October 2003.
Under the terms of the mortgage term loans, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet various
restrictive covenants on a quarterly and annual basis, including maximum funded
debt to EBITDA and minimum fixed charge coverage covenants. The Company's
lenders waived the terms of certain covenants for the second quarter of fiscal
2002. As a result of the losses recorded in the second quarter of fiscal 2002,
however, the Company was not in compliance with the amended covenants at June
29, 2002. In July 2002, the Company received waivers from its lenders concerning
the non-compliance with these covenants for the second quarter of fiscal 2002.
The Company has future contractual payments primarily related to debt, royalty
obligations, and operating leases, from 2002 through 2010. The Company's future
commitments under its credit facilities total $18.2 million at June 29, 2002, of
which $3.0 million will be paid in 2002. The future commitments under the
Company's royalty agreement with Fuji Photo Film Co., Ltd., total $12.5 million
at June 29, 2002, of which $1.2 million is expected to be paid in 2002. The
Company also has future minimum rental commitments under various non-cancelable
operating leases of $270,000 at June 29, 2002. The related lease agreements
expire on various dates over the next three years. The Company expects to make
payments of $143,000 under its non-cancelable operating lease agreements for the
remainder of fiscal 2002.
Although the Company believes that existing funds, cash flows from operations,
and cash available under its revolving line of credit and lease line of credit
should be sufficient to satisfy working capital requirements and capital
expenditures through the term of its current loan agreement, there can be no
assurance that the Company will be able to renew its existing loan agreement,
will not require additional financing, or that such additional financing, if
needed, will be available on acceptable terms. Likewise there can be no
assurance that the Company will be able to manage its working capital and
elevated inventory levels successfully.
The Company's anticipated capital expenditures for the balance of fiscal 2002
are approximately $2.0 million, and primarily relate to the purchase of capital
equipment to be used in the production of the Company's DI and CTP equipment and
consumable products.
EFFECT OF INFLATION
Inflation has not had, and is not expected to have, a material impact upon the
Company's operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective December 30, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Intangible Assets" ("SFAS 142"),
which supersedes APB Opinion No. 17, "Intangible Assets". SFAS 142 eliminates
the current requirement to amortize goodwill and indefinite-lived intangible
assets, addresses the amortization of intangible assets with a defined life and
addresses the impairment testing and recognition for goodwill and intangible
assets. SFAS 142 applies to goodwill and intangible assets arising from
transactions completed before and after the Statement's effective date. SFAS 142
is effective for fiscal 2002. The adoption of SFAS 142 has had no impact on the
Company's results of operations or financial position.
Effective December 30, 2001, the Company also adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", and the accounting and reporting provisions of APB
No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." SFAS 144 is effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. The adoption of SFAS 144 has had no
impact on the Company's results of operations or financial position.
17
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"). This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. The Company has not yet determined the
impact the adoption of SFAS 143 will have on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates primarily
as a result of its borrowing activities, and to a lesser extent, its investing
activities. The majority of the Company's long-term borrowings are in fixed rate
instruments, or variable rate instruments with fixed rate conversion provisions.
The Company does not enter into interest rate swap agreements or other
speculative or leveraged transactions. The Company currently has no material
exposure to interest rate fluctuations on its short-term investments.
The Company has limited exposure to foreign currency exchange rate risk, as
substantially all of its transactions are denominated in U.S. dollars. Some of
the Company's customers and strategic partners are not located in the United
States, however. As a result, these customers and strategic partners are
themselves subject to fluctuations in foreign exchange rates. If their home
country currency were to decrease in value relative to the United States dollar,
their ability to purchase and market the Company's products could be adversely
affected and the Company's products may become less competitive to them. This
may have an adverse impact on the Company's business. Likewise, some of the
Company's suppliers are not located in the United States and thus, such
suppliers are subject to foreign exchange rate risks in transactions with the
Company. Decreases in the value of their home country currency versus that of
the United States dollar could cause fluctuations in supply pricing which could
have an adverse effect on the Company's business.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
See Part I -- Item 3 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 2001 filed with the Commission on March 29, 2002 for a
description of certain legal proceedings pending against the Company. All of
such information is hereby incorporated by reference in response to this item.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 14, 2002, the Company held its Annual Meeting of Stockholders.
(b) Not Applicable.
(c) At such meeting, the stockholders of the Company voted:
(1) To elect seven (7) Directors to serve for the ensuing year. The
votes cast were as follows:
Votes Votes Broker Non
Nominees Votes For Against Withheld Abstained Votes
-------------------------------------------------------------------------------------------------------
Richard A. Williams 30,402,161 N/A 729,846 N/A N/A
Edward J. Marino 29,848,994 N/A 1,286,013 N/A N/A
Dr. Lawrence Howard 30,152,063 N/A 979,944 N/A N/A
John W. Dreyer 30,607,532 N/A 524,475 N/A N/A
Daniel S. Ebenstein 30,657,065 N/A 474,942 N/A N/A
John B. Evans 30,301,479 N/A 830,528 N/A N/A
Michael D. Moffitt 30,678,523 N/A 453,484 N/A N/A
(2) To ratify the selection of BDO Seidman, LLP, as the Company's
independent auditors for the fiscal year ending December 28, 2002.
The votes cast were as follows:
18
Votes Votes Broker Non
Votes For Against Withheld Abstained Votes
----------------------------------------------------------------------
30,700,445 356,508 N/A 75,054 N/A
(3) To approve and adopt the Company's 2002 Employee Stock Purchase Plan. The
votes cast were as follows:
Votes Votes Broker Non
Votes For Against Withheld Abstained Votes
----------------------------------------------------------------------
29,910,354 1,033,100 N/A 188,553 N/A
(d) Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Separation Agreement by and between Presstek, Inc. and
Robert W. Hallman dated as of April 26, 2002, and effective
as of April 30, 2002 (filed herewith).
10.2 Employment Agreement by and between Presstek, Inc. and
Edward J. Marino, dated April 3, 2002 (filed herewith).**
10.3 Employment Agreement by and between Presstek, Inc. and Moosa
E. Moosa, dated June 28, 2002 (filed herewith).**
10.4 Agreement for Manufacture & Sale of "Sun Press" between
Presstek, Inc. and Ryobi Limited, dated as of April 5, 2002
(filed herewith). *
10.5 2002 Employee Stock Purchase Plan of Presstek, Inc. (filed
as Exhibit 4.3 to the Company's Registration Statement on
Form S-8 filed with the Commission on August 9, 2002 and
incorporated herein by reference). **
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
* Confidential treatment requested as to omitted portions pursuant to Rule
24b-2 promulgated under the Securities and Exchange Act of 1934, as
amended.
** Denotes management employment contracts or compensatory plans.
(b) Reports on Form 8-K
None
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRESSTEK, INC.
(Registrant)
Date: August 13, 2002 /s/ Edward J. Marino
--------------------------------------
By: Edward J. Marino
President and
Chief Executive Officer
(Principal Executive and
Duly Authorized Officer)
Date: August 13, 2002 /s/ Moosa E. Moosa
--------------------------------------
By: Moosa E. Moosa
Vice President of Finance,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
EXHIBIT INDEX
No. Description
10.1 Separation Agreement by and between Presstek, Inc. and Robert W.
Hallman dated as of April 26, 2002, and effective as of April 30,
2002 (filed herewith).
10.2 Employment Agreement by and between Presstek, Inc. and Edward J.
Marino, dated April 3, 2002 (filed herewith).**
10.3 Employment Agreement by and between Presstek, Inc. and Moosa E.
Moosa, dated June 28, 2002 (filed herewith).**
10.4 Agreement for Manufacture & Sale of "Sun Press" between Presstek,
Inc. and Ryobi Limited, dated as of April 5, 2002 (filed
herewith). *
10.5 2002 Employee Stock Purchase Plan of Presstek, Inc. (filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-8
filed with the Commission on August 9, 2002 and incorporated
herein by reference). **
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
* Confidential treatment requested as to omitted portions pursuant to Rule
24b-2 promulgated under the Securities and Exchange Act of 1934, as
amended.
** Denotes management employment contracts or compensatory plans.
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