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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ________
COMMISSION FILE NO. 0-17541
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PRESSTEK, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0415170
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
55 EXECUTIVE DRIVE, HUDSON, NEW HAMPSHIRE 03051-3907
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(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (603) 595-7000
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.01 PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of March 15, 2001, was approximately
$338,000,000.
As of March 15, 2001, there were 33,259,806 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference:
Parts of the definitive Proxy Statement (which is expected to be filed within
120 days after the Company's fiscal year end) for the Registrant's Annual
Meeting of Stockholders to be held on June 5, 2001 are incorporated by reference
into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
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GENERAL
Presstek, Inc. (the "Company", "Presstek", "we" or "us") is a manufacturer,
developer and marketer of non-photographic, digital imaging and printing plate
technologies for the printing and graphic arts industries. Presstek's products
and applications incorporate its patented, proprietary PEARL(R) and DI(R)
digital imaging technologies and utilize PEARL consumables for computer-to-plate
("CTP") and direct-to-press applications. The Company's patented DI and PEARL
thermal laser diode product family enables its customers to produce high
quality, full-color lithographic printed materials more quickly and cost
effectively. In the late 1980's, the Company developed a direct imaging system
that would allow digitally formatted file data to be used to image a plate
directly on the printing press. Presstek's technology and products use thermal
energy generated by lasers to reproduce digital files directly onto printing
plates. This eliminates the daylight sensitive, photomechanical and chemical
processes associated with other imaging methods.
The Company's development work ultimately led to the commercialization of its
patented, proprietary PEARL direct imaging technology. This direct imaging
technology, which uses high powered semiconductor laser diodes and thermal
ablation printing plate materials, is currently being used in a variety of both
on-press and off-press applications. The Company believes that both PEARL and DI
represent technological advances for the worldwide printing and publishing
industry, since they can be used for both on-press and off-press applications.
This capability provides a number of new applications for direct imaging systems
and proprietary thermal based digital media and consumable printing plates. The
Company's past investments in its proprietary digital imaging technologies have
resulted in more than 200 patents issued or allowed and more than 130
applications pending throughout the world. The Company believes these patents,
combined with its thirteen years of experience in developing digital imaging
systems, place the Company in a significant position in its chosen markets. See
"Patents and Proprietary Rights".
In April 2000 the Company incorporated an Arizona subsidiary, LaserTel, Inc.
("LaserTel") for the purpose of securing its supply of laser diodes. LaserTel is
located in the former Delta V Technologies, Inc. ("Delta V") facility in Tucson,
Arizona, and is primarily engaged in the manufacture and development of the
Company's high-powered laser diodes. While the Company established LaserTel
primarily to gain some control over the source of laser diodes, the nature of
LaserTel's technology and the Company's available capacity have enabled LaserTel
to find additional market applications for its laser technology. As a result,
LaserTel is currently developing laser prototypes for qualification in the
telecommunications, defense, and medical industries. LaserTel has particular
experience in the design and fabrication of multi-mode high power laser diodes.
This experience spans ten years of development activity at Presstek and is
expected to support applications in telecommunications as well as graphic arts.
There can be no assurance, however that these products will be commercially
successful or produce significant revenues for the Company or LaserTel.
The Company operates in two reportable segments, the Digital Imaging Products
segment and the LaserTel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The LaserTel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
Information about the Company's business segments and geographic information are
included in Note 10 of notes to the financial statements. The Company operated
in one business segment for fiscal 1999 and 1998.
Presstek was incorporated in Delaware in 1987 and has its principal offices at
55 Executive Drive in Hudson, New Hampshire.
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STRATEGY, BACKGROUND AND STRATEGIC RELATIONSHIPS
The Company's business strategy is based in part on strategic alliances and
relationships with companies in the graphic arts industry and the packaging
industry. This strategy includes licensing intellectual property; specialized
product development based on the Company's proprietary technologies; and the
manufacture of imaging systems for inclusion in other manufacturers' products.
The manufacture of the Company's own end user and private label products, as
well as the manufacture of proprietary thermal plate materials for use in
Presstek's and other manufacturers' imaging hardware and printing presses, is
also an important aspect of the business strategy.
HEIDELBERG
This strategy led to the development of an important and long-term relationship
with Heidelberger Druckmaschinen AG ("Heidelberg"), one of the world's largest
manufacturer of printing presses and printing equipment, based in Germany. This
relationship was formalized with the signing of a Master Agreement and a
Technology License Agreement in January 1991, which covered the integration of
the PEARL Direct Imaging technology into various presses manufactured by
Heidelberg. The manufacture of components, at specified rates, for these presses
and the commercialization of such presses are also covered by the agreements.
The Master Agreement and Technology License Agreement are sometimes collectively
referred to hereafter as the "Heidelberg Agreements". Under the Heidelberg
Agreements, Heidelberg is required to pay royalties to the Company based on the
net sales prices of various specified types of Heidelberg presses on which the
Company's PEARL Direct Imaging technology is used. Heidelberg has been provided
with certain rights for use of the PEARL Direct Imaging technology for the
Quickmaster DI format size. The Heidelberg Agreements have been modified to
provide Heidelberg with a fixed royalty rate for the Company's PEARL Direct
Imaging systems used in the Quickmaster DI. The Heidelberg Agreements expire in
December 2011 subject to certain early termination and extension provisions.
In fiscal 1998 and 1999 the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company resumed production with initial low level shipments
of its direct imaging systems late in the third quarter of fiscal 1999, and
increased production levels in fiscal 2000 in line with the actual rate of
Quickmaster DI's produced by Heidelberg.
Sales to Heidelberg represented approximately 57%, 39%, and 57% of revenues for
fiscal 2000, 1999 and 1998, respectively. The loss of Heidelberg as a customer
would have a material adverse effect on the Company's business and results of
operations.
OTHER STRATEGIC RELATIONSHIPS
In addition to its association with Heidelberg, the Company has also developed
and expanded business relationships with other companies in the industry.
Certain of these relationships involve new products that became available late
in fiscal 2000 or are expected to become available in the first half of fiscal
2001.
In fiscal 2000, Presstek and Ryobi Limited ("Ryobi") of Japan completed the
development of an A3 format size four-color sheet-fed press, which was
introduced in May 2000, and will be marketed by Ryobi as the 3404DI.
Incorporating Presstek's dual plate cylinder concept, this press also features
the Company's internal automated plate cylinder design, ProFire(TM) technology,
and PEARLdry(TM) spooled plates. The small format of this press is designed to
appeal to quick printers, in-plant printers, and copy centers looking to expand
their service with offset color printing.
In September 2000, the Company entered into a supply and distribution agreement
with Xerox Corporation ("Xerox") to supply a series of three Presstek enabled DI
presses and related consumables. Under this relationship, Xerox will market,
distribute and service these presses and consumables worldwide on a co-branded
basis.
The products included in the Xerox Agreement are four and five color versions of
a B3 format sheet-fed press. This press, which was introduced in May 2000,
incorporates the Company's internal automated plate cylinder
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design, ProFire technology, and PEARLdry spooled plates. This press accommodates
a large number of commercial printing applications. The five-color press is
designed to give printers the flexibility to produce custom versions, custom
colors, and special finishes within a single print run. Xerox will market this
press as the DocuColor 400 DI. Also included in the Xerox Agreement is an A3
format size four-color sheet-fed press which will be marketed as the DocuColor
233 DI. According to the terms of the Xerox Agreement, Xerox has, subject to
certain performance criteria, exclusive marketing and sales rights to the
DocuColor 400 DI presses and sales and distribution rights to the DocuColor 233
DI. The Agreement also covers distribution of PEARLdry spooled printing plates.
The Company's relationship with Xerox is in its early stages. Due to a number of
factors, there has been a three to four month delay in the delivery of presses
to Xerox versus that which had been planned under the original terms of the
Xerox Agreement. Initial press shipments, customer support training programs and
other activities are progressing, but at this time, there can be no assurance
that additional delays will not result in reduced press shipments to Xerox in
fiscal 2001.
KBA-Planeta AG, a supplier of medium and large format sheet-fed offset printing
presses, manufactures and markets a digital offset press, the 74 Karat. This
press uses Presstek's direct imaging and related intellectual property under
license, and Presstek's patented thermal ablation printing plates.
The Company entered into an agreement with Sakurai's Graphic Systems ("Sakurai")
of Japan to provide the newest version of its DI technology for Sakurai's larger
format multicolor offset press. When used in DI mode, this press will also use
the Company's no process plate media. The Company is currently developing a
prototype system incorporating its ProFire technology. Because this relationship
is in the early stages, there can be no assurance that the Company will
successfully complete or commercialize this product.
Presstek and Akiyama Printing Machinery Manufacturing Corp., ("Akiyama") of
Japan, have also jointly announced a development program to create a DI version
of Akiyama's J Print press for the book printing market. The new J Print press
will incorporate the Company's direct imaging and digital plate media
technologies. The project is currently in the design phase, but there can be no
assurance that it will progress to a prototype program in 2001.
The Company is pursuing other business relationships that it believes may result
in broader use of the Company's digital imaging and printing plate technologies
in existing, as well as new applications. Through its LaserTel subsidiary, the
Company is also broadening its range of laser applications into the
telecommunications, defense, and medical markets. There can be no assurance,
however, that the Company, any Company product or any products incorporating the
Company's technology will be able to compete successfully in these markets.
THE COMPANY'S PEARL AND DI DIGITAL IMAGING SYSTEMS
The Company's PEARL digital imaging system is composed of a series of solid
state semiconductor laser diodes held in a fixed array that can range in size,
depending on the application, from as few as 8 diodes to as many as 32 or more
diodes. Each diode is under computer control and can be turned off and on at
high speeds, usually measured in microseconds. When the diode is turned on, it
creates a miniature, precise, micron-measured beam of high-power, infrared laser
light. The beam is focused on a specific area on the surface of the thermal
printing plate causing this area of the plate to instantaneously heat up,
creating an imaging by ablation effect. This ablation effect creates an
ink-receptive surface, or a water receptive surface in the case of positive
writing plates. This laser-based imaging concept is used on both the Company's
direct-to-press and CTP systems.
The Company also recently commercialized its next-generation DI technology, the
ProFire integrated imaging system. The ProFire imaging system, introduced in May
2000, integrates the lasers, laser drivers, digital electronics, and motion
control into one modular package design that can be adapted to many CTP devices
or direct imaging presses. The ProFire system has three major components: the
FirePower(TM) laser diode system, made up of unique four-beam laser diodes and
laser drivers, the integrated motion system that controls the placement of the
laser diodes, and the FireStation(TM) digital controller and data server. This
modular system allows the Company to expand the number of diodes mounted on a
fixed array, increasing speed and overall imaging performance. Due to its
compact size, the integrated imaging module fits within the side rails of most
printing presses. The drop-in module is also more easily incorporated into CTP
products for off-press imaging.
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THE DIMENSION PRODUCT LINE
The Dimension platesetter is a CTP imaging device that can image both the
Company's wet and dry thermal offset plates in an A3 (2-up), A2 (4-up) or A1
(8-up) format size. The Dimension utilizes Presstek's ProFire direct imaging
technology, and can produce completely imaged printing plates, ready to be
mounted on a printing press, within 3 to 5 minutes depending on the plate size.
Anthem plates require a simple water wash after imaging to prepare the plate for
mounting on the press. Alternatively, if the Dimension is imaging PEARLdry
plates, the user must first wipe the ablated debris from the imaging process off
the surface of the plate. For operators of conventional printing presses, the
Dimension series of CTP systems is designed to allow printers to realize many of
the benefits of Direct Imaging before investing in a new press.
The Company continues to develop and commercialize its PEARL and DI CTP systems.
There can be no assurance however that the Company will be able to successfully
commercialize these or other products, or enter into any additional arrangements
which will result in the further commercialization of its Dimension product
line.
THE COMPANY'S PEARL DIGITAL MEDIA AND PLATES
The Company's PEARL digital media and plates are available in waterless form,
such as PEARLdry for the Quickmaster DI, the Ryobi 3404DI, and the DocuColor 233
and 400 DI, or Anthem(TM), the Company's thermal plate for CTP imaging. All of
these plates are based on the Company's proprietary thermal ablation imaging
technology, which means the plates respond to heat and not to light. Presstek's
plates are able to convert the laser light into heat because of a special
metalized layer that is sensitive to the wave length of the laser light source.
The Company's plate materials have a wide infrared spectral sensitivity range
(800 to 1200 nanometers) and can be used with a variety of both "YAG" and
semiconductor diode laser imaging systems. These plates also utilize unique
chemically free processing methods.
The Company's latest plate technology, Anthem, is the first in what the Company
believes will be a family of plates for wet offset lithography. Anthem plates
use a grained anodized aluminum plate based on Presstek's patented imaging
technology and combine ablative imaging and chemically free cleaning with run
lengths of up to 100,000 impressions. The Anthem plate runs with a wide range of
fountain chemistry and inks and can be imaged on many thermal CTP systems. The
physical and chemical durability are built in as part of the manufacturing
process, providing consistent performance and wide latitude. Anthem's market
includes a broad base of installed conventional wet offset presses, currently
the largest segment of the printing industry. The Company believes this wet
offset plate product has broad market potential due to the large number of wet
offset printing presses installed on a worldwide basis. There can be no
assurance, however, that printers currently equipped with conventional wet
offset presses will purchase CTP systems that use Anthem plates.
The current PEARLdry plate is a second-generation product based on the Company's
PEARLdry technology. The plate uses a specially formulated silicone material
that is coated over the metalized infrared absorbing layer. The silicone layer
is oleophobic and when the imaging laser causes the ablation process to occur,
the resulting hole created by the laser in the silicone becomes ink receptive.
Presstek's PEARLdry plates are used in the Quickmaster DI, the GTO-DI, the Ryobi
3404DI, the DocuColor 233 DI and 400 DI, the Adast 705C DI, the KBA 74 Karat,
and the Kammann CD imaging system. The Company's Dimension platesetter and other
direct-to-plate systems also are able to image the Company's PEARLdry plate.
The Company continues to develop thermal consumable plate products that can be
imaged by both its own Direct Imaging systems as well as high-energy
laser-based, CTP and direct-to-press systems offered by companies such as Creo
Products, Inc. and others. There can be no assurance, however, that the Company
will be able to successfully commercialize products that incorporate this
technology.
MANUFACTURING
The Company operates manufacturing sites in Hudson, New Hampshire and Tucson,
Arizona.
Presstek's direct imaging systems and CTP systems are manufactured at the
Company's facility located at 55 Executive Drive in Hudson, New Hampshire. The
Company uses a number of outside vendors who supply many of the products'
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components and assemblies, which are assembled by the Company into completed
systems - either computer-to-press, direct imaging systems used in the
Quickmaster DI, Ryobi 3404DI, DocuColor 233 DI and 400 DI, or CTP imaging
systems, such as the Dimension. These systems use semiconductor laser diode
devices built to the Company's specifications and currently supplied by one
external source pursuant to a supply agreement, and by the Company's LaserTel
subsidiary in Tucson, Arizona. The Company believes there are other sources
available to manufacture the laser diodes to specification, if required in the
future.
The Company's PEARL digital plate products are also manufactured at its Hudson
facility, using equipment which includes the Company's thin film vacuum
deposition coater, plate converting and finishing equipment, and a new
atmospheric coater. The Company's Anthem thermal plate is currently manufactured
by one source under an existing supply agreement. The Company may still need to
enter into manufacturing agreements with third parties as it more vertically
integrates the manufacturing of its PEARL digital plate products, and believes
there currently are other sources available to manufacture these consumable
products.
Some of the Company's products are manufactured under agreements with two press
manufacturers, located in the Czech Republic and Japan. The Company believes
there are other sources available to manufacture these products, however if the
supply of these presses were to be delayed, or import restrictions from these
countries be imposed, the Company's ability to ship products in a timely manner
could be adversely affected.
MARKETING, DISTRIBUTION AND CUSTOMER SUPPORT
The Company's business strategy is designed to distribute Presstek products (and
the related consumables) to customers through "direct" distribution via
independent distributors, or by way of "indirect" distribution using strategic
partnerships with original equipment manufacturers ("OEM's").
To meet its direct distribution strategy, the Company has established a
worldwide distribution network through which it markets and sells its CTP and
PEARL thermal plate products. The network currently includes approximately 33
independent graphic arts dealers in 17 countries, including three national
distributors, the Pitman Company, PrimeSource Corporation, and xpedx Graphic
Systems, and several regional dealers in the United States. The Company also
markets and sells its consumable products through its Presstek.com web site. The
Company has also entered into OEM arrangements or reseller relationships with
respect to the Ryobi 3404DI, the DocuColor 233 DI and 400 DI, and related
consumables with companies such as Xerox and Ryobi. These agreements permit
these OEM resellers to sell PEARL and DI-based equipment and consumables
products under their own label.
By using this two-pronged approach to distribution, the Company has attempted to
maximize the number of systems using Presstek technology, which require Presstek
consumables. Additionally, the Company has developed a fully staffed, global
service team dedicated to servicing the products delivered through the
distribution systems.
Market acceptance for any products incorporating the Company's various
technologies and proprietary know-how will require substantial marketing efforts
and the expenditure of significant sums, either by the Company, and/or its
strategic and OEM partners. There can be no assurance that any existing or new
products will achieve market acceptance or become commercially viable.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
As of March 8, 2001, the Company and its subsidiary hold ninety U.S. patents,
(including three design patents), ninety foreign patents, and had received
notices of allowance for twenty-five additional patents consisting of six U.S.
and nineteen foreign. These patents, which expire from 2008 through 2020, are
all believed to be material to Presstek's business. The Company has applied for
and is pursuing its applications for twenty additional U.S. patents and one
hundred thirty-two foreign patents. The Company also holds two registered
trademarks,
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PEARL and DI. The Company anticipates that it will apply for additional patents,
trademarks, and copyrights, as deemed appropriate. There can be no assurance as
to the issuance of any such patents or trademarks or the breadth or degree of
protection which the Company's patents, trademarks or copyrights may afford the
Company.
There is rapid technological development in the electronic image reproduction
industries, resulting in extensive patent filings and a rapid rate of issuance
of new patents. Although the Company believes that its technology has been
independently developed, and that the products it markets and proposes to market
will not infringe on the patents, or violate other proprietary rights of others,
it is possible that such infringement of existing or future patents, or
violation of proprietary rights may occur. In such event the Company may be
required to modify its design or obtain a license. No assurance can be given
that the Company will be able to do so in a timely manner, upon acceptable terms
and conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect on the Company. Furthermore, there can be no assurance
that the Company will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, the Company may be unable, for financial or other reasons, to
enforce its rights under any of its patents. The Company has agreements with
several of its strategic partners which require the Company to indemnify the
strategic partner from claims made by third parties against Presstek's
intellectual property, and to defend the validity of the patents or otherwise
ensure the technology's availability to the strategic partner.
The Company intends to rely on proprietary know-how and to employ various
methods to protect its source code, concepts, ideas and documentation of its
proprietary software. However, such methods may not afford complete protection
and there can be no assurance that others will not independently develop such
know-how or obtain access to the Company's know-how or software codes, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees and appropriate vendors, there can
be no assurance that such arrangements will adequately protect the Company's
trade secrets.
COMPETITION
The Company believes that its imaging, thermal plate and other intellectual
property, its proprietary technologies, its thermal plate manufacturing
facilities, along with its strategic alliances and worldwide distribution
network provide it with a competitive advantage. However, the Company is also
aware of a number of other companies that address markets in which Presstek
products are used and are competitive to the Company's proprietary direct
imaging thermal plate technologies and related capabilities.
In the area of direct imaging and the short-run, on-demand market, potentially
competitive companies use electro-photographic technology, sometimes referred to
as xerography, as the basis of their product lines. These companies include,
among others, Canon Inc., Indigo N.V., Xeikon N.V., and Xerox Corporation.
Agfa-Gevaert N.V, IBM, and Creo Products, Inc. are marketing product versions
manufactured by these companies. These electro-photographic imaging systems use
either wet or dry toners to create one to four color images on paper and
typically offer resolutions of between 400 and 800 dots per inch.
The Company is aware that most of the major entities in the graphic arts
industry have developed and/or are developing and marketing, off-press CTP
imaging systems. To date, these devices, for the most part, utilize printing
plates that require a post imaging photochemical developing step and/or other
post processing steps such as heat treatment. Potential competitors in this area
include, among others, Agfa-Gevaert N.V., Creo Products, Inc., DaiNippon Screen
Mfg., Ltd., Heidelberger Druckmaschinen AG, Krause GmbH, combinations of these
companies, and other smaller or lesser known companies. The Company's Dimension
CTP, off-press plate imaging system is, in the Company's opinion, a further
technological advancement because it eliminates the need for post chemical
processing. The Company believes however, that some of the graphic arts
companies mentioned above are likely to be working on similar plate concepts
that would eliminate the need for post image chemical processing.
The Company also anticipates competition from printing plate companies that
manufacture, or have the potential to manufacture digital thermal plates. Such
companies include, among others, Agfa-Gevaert N.V., Kodak Polychrome Graphics
LLC, and Fuji Photo Film Co., Ltd.
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Products incorporating the Company's technologies can also be expected to face
competition from products used by conventional methods of printing and creating
printing plates. While these methods are considered by the Company to be more
costly, less efficient and are not as environmentally conscious as those being
implemented by the Company, they do offer their users the ability to continue to
employ their existing means of print and plate production. Companies offering
these more traditional means and methods are also refining these technologies to
make them more acceptable to the market.
Most of the companies marketing competitive products or with the potential to do
so are well established, have substantially greater financial, marketing and
distribution resources than the Company, and have established records in the
development, sale and service of products. There can be no assurance that the
Company, any Company product or any products incorporating the Company's
technology will be able to compete successfully in the future.
RESEARCH AND DEVELOPMENT
Research and product development expenses, related to the Company's continued
development of products incorporating its PEARL and DI technologies, were $15.9
million, $17.2 million and $15.0 million in fiscal 2000, 1999 and 1998
respectively.
BACKLOG
As of March 19, 2001, the Company had a backlog of products and royalties under
contract aggregating approximately $25.8 million compared to a backlog of
approximately $19.3 million as of March 10, 2000. Substantially all backlog of
products as of March 19, 2001 is expected to ship in 2001.
EMPLOYEES
As of March 10, 2001, the Company and its LaserTel subsidiary had three hundred
seventy-one employees. None of the Company's employees is represented by a labor
union. One hundred-three are engaged primarily in engineering, research and
development, fifty-five are engaged in sales, marketing and customer support;
one hundred sixty-seven are engaged primarily in manufacturing, manufacturing
engineering and quality control; and forty-six are engaged primarily in
corporate management, administration and finance. The Company considers its
relationship with its employees to be good.
Set forth below is a glossary of certain terms used in this report:
A1 (8-up) 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-up) 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-up) a printing term referring to a standard paper size
capable of printing two 8.5" x 11" pages on a sheet of
paper
Ablation a controlled detachment/vaporization caused by a
thermal event This process is used during the imaging
of the Company's PEARL(R)consumables
Computer-to-plate (CTP) a general term referring to the exposure of
(direct-to-plate) lithographic plate material from a digital database,
off-press
Dampening solution Traditional lithographic printing chemical bath used
to coat the non-image areas of a printing plate
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Direct Imaging (DI(R)) digital imaging systems that allow image information
technologies 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
Effluents waste materials that flow from photographic processing
equipment, which are often toxic in nature
GTO-DI the first generation of direct imaging, waterless
presses available in two, four and five printing
station configurations, a joint effort between
Heidelberg and Presstek
Halftone a printing reproduction process which converts the
image into dots of various sizes and equal spacing
between centers
Heidelberg Heidelberger Druckmaschinen AG, one of the world's
largest printing press manufacturers, headquartered in
Heidelberg, Germany
Hydrophobic/Hydrophilic used in lithographic printing to describe whether a
material will reject water (hydrophobic) or will be
water receptive (hydrophilic)
Infrared lying outside of the visible spectrum beyond its
red-end characterized by longer wavelengths; used in
the Company's thermal imaging process
Large format a printing term referring to printing layouts that
include four or more pages on a single sheet of paper
Lithographic printing from a single plane surface under the
principle that image area carries ink and the
non-image area does not, and that ink and water
differentiate
Off-press making a printing plate from either an analog or
digital source independently of the press on which it
will be used
Oleophilic/Oleophobic used in printing to describe whether a material will
be ink receptive (oleophilic) or reject ink
(oleophobic)
On-demand a manufacturing philosophy when applied to printing
provides faster service, shorter run lengths and less
inventory
On-press the use of Presstek's direct imaging technologies to
make a plate directly from a digital file on the press
PEARL(R) the name associated with Presstek's current laser
imaging technologies and related products and
consumables
PEARL imaging systems the Presstek components required to convert a
ProFire(TM) conventional printing press into a direct imaging
press, including laser diode arrays, computers,
electronics
Dimension(TM) the Company's product line of CTP, off-press plate
making equipment
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Photosensitive silver halide or photo-polymer coatings exposed by a
reaction to light requiring a subsequent chemical
development and stabilization process
Plate making 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
Quickmaster DI the second generation of direct imaging, waterless
presses, highly automated with roll-fed PEARL plate
material, a joint development effort between
Heidelberg and Presstek
Semiconductor a high-powered, infrared imaging technology employed
laser diode in the PEARL imaging system
Short-run markets/ a graphic arts classification used to denote an
printing emerging trend for lower print quantities
Thermally-based a method of digitally exposing a material via the heat
generated from a laser beam
Vacuum deposition a technology to accurately, uniformly coat substrates
process in a controlled environment
Waterless a lithographic printing method that uses dry offset
printing plates and inks and does not require a
dampening system
"YAG" laser One of the more commonly used laser sources for
direct-to-plate imaging systems
ITEM 2. PROPERTIES
----------
The Company's corporate offices, administrative, marketing and manufacturing
operations are located at 55 Executive Drive in Hudson, New Hampshire in a
165,000 square foot facility, which the Company owns.
The Company also owns a 75,000 square foot facility in Tucson, Arizona, which
was previously occupied by Delta V Technologies, Inc., a discontinued operation,
and is now occupied by the Company's LaserTel subsidiary. Properties owned by
the Company in Hudson, New Hampshire and Tuscon, Arizona, with an aggregate cost
of $22.0 million, are secured by two ten-year mortgage term loans in the
principle amount of $6.9 and $4.0 million, respectively.
The Company leases approximately 50,000 square feet of property at 18 Hampshire
Drive in Hudson, New Hampshire for its equipment and consumable product research
and development operations. The lease of these premises expires in May 2003. The
base rent, subject to adjustment annually is currently $16,667 per month, plus a
pro rata share of real estate taxes, utilities, and certain other expenses.
The Company leases 36,000 square feet of property at 9 Commercial Street in
Hudson, New Hampshire, for general warehousing under a tenant-at-will
arrangement, with a base rent of $16,354, per month, plus a pro rata share of
real estate taxes, utilities and certain other expenses. The Company sub-leases
18,000 square feet of this facility under a tenant-at-will arrangement. The
Company intends to vacate this facility in the near future.
The Company leases certain other property in Hudson, New Hampshire which is not
considered to be material.
10
ITEM 3. LEGAL PROCEEDINGS
-----------------
In March 2000, the Company entered into an agreement with the plaintiffs in
several class actions lawsuits consolidated under the common caption "Bill
Berke, et al. v. Presstek, Inc., et al." in the United States District Court,
District of New Hampshire to settle the class action lawsuit. The Company also
executed a memorandum of understanding with respect to the settlement of the
derivatives lawsuits, filed on behalf of the Company, one in the Chancery Court
of the State of Delaware and the other in the United States District Court,
District of New Hampshire. Under the terms of the class action settlement, $22.0
million, in the form of 1,245,246 shares of the Company's common stock, will be
paid to the class. The Company issued 437,196 of such shares in the fourth
quarter of fiscal 2000 and expects to distribute the remaining 808,050 shares of
common stock in the fiscal year ending December 29, 2001. In the memorandum of
understanding in the derivative litigation, the Company agreed to issue 60,582
shares of common stock and certain therapeutic improvements to its internal
policies, some of which have already been instituted. The Company issued 60,582
of such shares in the third quarter of fiscal 2000. The Company recorded a
charge of $23.2 million in the fourth quarter of fiscal 1999 related to the
settlements, $22.9 million of which was recorded as a long-term liability. See
Note 13 of notes to the financial statements and Item 5 of Part II of this
report.
In August 1999 Creo Products, Inc., ("Creo"), filed an action in the United
States District Court for the District of Delaware against the Company asserting
that Creo has a "reasonable apprehension that it will be sued by Presstek for
infringement" of two of the Company's patents and seeking a declaration that
Creo's products "do not and will not infringe any valid and enforceable claims"
of the patents in question. In September 1999, the Company filed a counterclaim
against Creo for patent infringement. The Company claims that Creo has infringed
two direct imaging patents owned by the Company which were recently the subject
of re-examination by the U. S. Patent and Trademark Office. Presstek intends to
vigorously enforce its patent rights.
In December of 1999 a complaint was filed by PPG, Inc. ("PPG") against Delta V
in the United States District Court for the Western District of Pennsylvania
alleging that Delta V sold to PPG certain vacuum coating equipment that did not
meet certain product specifications. An amended complaint was filed in April of
2000. In the suit, PPG seeks damages in excess of $7.0 million. In addition to
naming Delta V as a defendant in the complaint, PPG also named Presstek as a
defendant, seeking damages from Presstek and attempting to hold Presstek liable
for the alleged breach of contract by its subsidiary, Delta V, on a theory of
indirect liability. Motions to dismiss for lack of venue have been filed,
briefed and argued, and a decision on these motions is pending before the court.
The Company intends to continue to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "PRST". The following table sets forth the high and low sale prices per
share of common stock for each full quarterly period within the two most
recently completed fiscal years as reported by the Nasdaq National Market.
FISCAL YEAR ENDED DECEMBER 30, 2000 HIGH LOW
----------------------------------- ------------ ------------
First quarter $28 3/4 $12 3/4
Second quarter 24 1/4 15 1/8
Third quarter 21 1/2 10 7/8
Fourth quarter 19 13/16 5 7/8
FISCAL YEAR ENDED JANUARY 1, 2000 HIGH LOW
----------------------------------- ------------ ------------
First quarter $11 7/16 $ 6 13/16
Second quarter 9 7/8 6 1/2
Third quarter 7 15/16 5
Fourth quarter 19 7/8 5 15/16
11
On March 15, 2001 there were 1,114 holders of record of the Company's common
stock.
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its common stock. The
payment of cash dividends, if any in the future is within the discretion of the
Company's Board of Directors and will depend upon the Company's earnings, its
capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash dividends in the
foreseeable future, but instead intends to retain all earnings, if any, for use
in the Company's business operations.
ISSUANCE OF UNREGISTERED SECURITIES
Pursuant to the terms of the settlement agreement related to the consolidated
class action settlement, and in consideration for the execution of such
settlement, the Company agreed to issue an aggregate of 1,245,246 shares of its
common stock to the various class action plaintiffs and their lawyers. The
number of shares was determined by calculating the aggregate number of shares of
common stock of the Company obtained by dividing $11.0 million by the volume
weighted average price of the Company's common stock for all trading days in
April 2000 and the aggregate number of shares of common stock of the Company
obtained by dividing $11.0 million by the volume weighted average price of the
Company's common stock for all trading days in October 2000. In addition, in
connection with the settlement of the derivative lawsuit initiated against the
Company, the Company agreed to issue 60,582 shares of common stock. Thus between
both the class action settlement and the derivative suit settlement, the Company
agreed to issue, in the aggregate, 1,305,828 shares of common stock. On August
2, 2000 the Company issued 60,582 shares of common stock. Likewise, on November
15, 2000 the Company issued 437,196 of these shares of common stock. All such
shares were issued pursuant to an exemption from registration provided by
Section 3(a)(10) of the Securities Act of 1933, as the issuance of such shares
was approved at a fairness hearing before the United States District Court of
New Hampshire in June 2000. The Company expects to distribute the remaining
808,050 shares of common stock in the fiscal year ending December 29, 2001.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data of the Company has been derived from the
financial statements of the Company, appearing elsewhere herein (except for the
statements of operations data for the fiscal years ended January 3, 1998 and
December 28, 1996 and the balance sheet data at January 2, 1999, January 3,
1998, and December 28, 1996, which is not included in such financial
statements). All references to common shares and earnings (loss) per share data
have been restated retroactively to reflect the fiscal 1997 stock split,
effected in the form of a stock dividend.
12
SELECTED FINANCIAL DATA
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
DEC 30 JAN 1 JAN 2 JAN 3 DEC 28
FOR THE FISCAL YEARS ENDED 2000 2000 1999 1998 1996
- ---------------------------------------------------- -------- -------- -------- -------- --------
REVENUES: $ 87,294 $ 54,964 $ 74,165 $ 89,793 $ 46,678
- ---------------------------------------------------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Costs of products sold 46,747 33,326 46,606 43,854 20,409
Engineering and product development 15,897 17,190 14,994 10,539 8,798
Sales, marketing and customer support 9,613 5,934 5,620 4,302 2,588
General and administrative 9,635 6,487 9,264 5,279 3,832
Provision for settlement of
shareholder litigation(1) -- 23,200 -- -- --
- ---------------------------------------------------- -------- -------- -------- -------- --------
Total costs and expenses 81,892 86,137 76,484 63,974 35,627
- ---------------------------------------------------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 5,402 (31,173) (2,319) 25,819 11,051
- ---------------------------------------------------- -------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Dividend and interest, net (99) 501 623 374 782
Other, net 147 38 109 (244) (228)
- ---------------------------------------------------- -------- -------- -------- -------- --------
Other income, net 48 539 732 130 554
- ---------------------------------------------------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 5,450 (30,634) (1,587) 25,949 11,605
PROVISION FOR INCOME TAXES(2) 150 -- -- 9,460 3,984
- ---------------------------------------------------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 5,300 (30,634) (1,587) 16,489 7,621
DISCONTINUED OPERATIONS:(3)
Loss from discontinued operations 600 (448) (1,094) (2,117) (500)
Loss on disposal of discontinued operations -- (8,534) -- -- --
- ---------------------------------------------------- -------- -------- -------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS 600 (8,982) (1,094) (2,117) (500)
- ---------------------------------------------------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 5,900 $(39,616) $ (2,681) $ 14,372 $ 7,121
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC:
From continuing operations $ 0.16 $ (0.95) $ (0.05) $ 0.53 $ 0.26
==================================================== ======== ======== ======== ======== ========
From discontinued operations $ 0.02 $ (0.28) $ (0.03) $ (0.07) $ (0.02)
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.18 $ (1.23) $ (0.08) $ 0.46 $ 0.24
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED:
From continuing operations $ 0.15 $ (0.95) $ (0.05) $ 0.50 $ 0.23
==================================================== ======== ======== ======== ======== ========
From discontinued operations $ 0.02 $ (0.28) $ (0.03) $ (0.06) $ (0.02)
==================================================== ======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.17 $ (1.23) $ (0.08) $ 0.44 $ 0.21
==================================================== ======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 32,826 32,336 31,986 31,300 29,858
==================================================== ======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 35,320 32,336 31,986 32,695 33,163
==================================================== ======== ======== ======== ======== ========
BALANCE SHEET DATA
(In thousands)
DEC 30 Jan 1 Jan 2 Jan 3 Dec 28
AS OF 2000 2000 1999 1998 1996
- ---------------------------------------------------- -------- -------- -------- -------- --------
Working Capital $ 32,287 $ 25,373 $ 37,080 $ 32,962 $ 29,179
Total Assets 115,902 94,633 106,670 99,655 66,618
Short-Term Debt 1,989 1,024 522 4,800 --
Long-Term Debt 16,481 8,830 5,922 -- --
Other Long-Term Liabilities -- 22,950 -- -- --
Stockholders' Equity 83,143 49,855 87,453 85,990 57,443
Cash Dividends -- -- -- -- --
1 Provision for the proposed settlements with the plaintiffs in the class
actions and related derivative suits filed in 1996. See Note 13 of notes to
the financial statements.
2 Tax expense in fiscal 1997 and 1996 represented charges in lieu of income
taxes, although no tax was payable as a result of stock compensation
deductions. Accordingly, no tax benefit was recorded in fiscal 1999 or fiscal
1998. See Note 5 of notes to the financial statements.
3 Relates to the operations of Delta V Technologies, Inc., which were
discontinued in fiscal 1999. See Note 3 of notes to the financial statements.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following Management's Discussion and Analysis should be read in connection
with "Item 1. Business", "Item 6. Selected Financial Data", "Item 7A.
Quantitative and Qualitative Disclosures about Market Risks", the Company's
Consolidated Financial Statements and Notes thereto and the information
described under the caption "Risk Factors" below.
BACKGROUND
Presstek, Inc. (the "Company" or "Presstek"), incorporated in Delaware in 1987,
is a leading developer of non-photographic, digital imaging and printing plate
technologies for the printing and graphic arts industries. Presstek's products
and applications incorporate its patented, proprietary PEARL(R) and DI(R)
digital imaging technologies and utilize PEARL consumables for computer-to-plate
("CTP") and direct-to-press applications. The Company's patented DI and PEARL
thermal laser diode product family, enables its customers to produce high
quality, full-color lithographic printed materials more quickly and cost
effectively. In the late 1980's, the Company developed a direct imaging system
that would allow digitally formatted file data to be used to image a plate
directly on the printing press. Presstek's technology and products use thermal
energy generated by lasers to reproduce digital files directly onto printing
plates. This eliminates the daylight sensitive, photomechanical and chemical
processes associated with other imaging methods.
The Company is also engaged in the development of additional PEARL and 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.
In fiscal 2000, Presstek and Ryobi Limited ("Ryobi") of Japan completed the
development of an A3 format size four-color sheet-fed press, which was
introduced in May 2000, and will be marketed by Ryobi as the 3404DI.
Incorporating Presstek's dual plate cylinder concept, this press also features
the Company's internal automated plate cylinder design, ProFire(TM) technology,
and PEARLdry(TM) spooled plates. The small format of this press is designed to
appeal to quick printers, in-plant printers, and copy centers looking to expand
their service with offset color printing.
During fiscal 2000 the Company entered into an agreement with Xerox Corporation
("Xerox") to supply Xerox with a series of three Presstek enabled DI presses and
related consumables, which will be marketed, distributed and serviced worldwide
on a co-branded basis. The products included in the Xerox relationship are four
and five color versions of a B3 size sheet-fed press, which will be marketed as
the DocuColor 400 DI and an A3 size four-color sheet-fed press, which will be
marketed as the DocuColor 233 DI. These presses incorporate the Company's
internal automated plate cylinder design, the ProFire imaging technology and
PEARLdry spooled, printing plates. The Company's relationship with Xerox is in
its early stages. Due to a number of factors, there has been a three to four
month delay in the delivery of presses to Xerox versus that which had been
planned under the Xerox Agreement. Initial press shipments, customer support
training programs and other activities are progressing, but at this time, there
can be no assurance that additional delays will not result in reduced press
shipments to Xerox in fiscal 2001.
The Company also has agreements with a number of other companies including
Adamovske Strojirny a. s. ("Adast"), Nilpeter A/S, Werner Kammann
Maschinenfabrik GmbH, Sakurai Graphic Systems Corp., and Akiyama Printing
Machinery Manufacturing Corporation. These agreements typically are for the use
of the Company's direct imaging systems, technology licenses, and/or thermal
plate materials. They include a variety of "direct-to" offset printing
applications ranging from high quality label production and printing on aluminum
cans to the production of standard four-color printing.
In April 2000 the Company incorporated an Arizona subsidiary, LaserTel, Inc.
("LaserTel") for the purpose of securing its supply of laser diodes. LaserTel is
located in the former Delta V Technologies, Inc. ("Delta V") facility in Tucson,
Arizona, and is primarily engaged in the manufacture and development of the
Company's high-powered laser diodes. While the Company established LaserTel
primarily to gain some control over the source of laser diodes, the nature of
LaserTel's technology and the Company's available capacity have enabled LaserTel
to find additional market applications for its laser technology. As a result,
LaserTel is also currently developing laser prototypes for qualification to the
telecommunications, defense, and medical industries. LaserTel has particular
experience in the design and fabrication of multi-mode high power laser diodes.
This experience spans ten years of development activity at Presstek and is
expected to support applications in
14
telecommunications as well as graphic arts. There can be no assurance, however
that these products will be commercially successful or produce significant
revenues for the Company or LaserTel.
In fiscal 1999 the Company discontinued the operations of its Delta V subsidiary
to allow the Company to further focus its efforts on the core business of
digital imaging and plate manufacturing. Located in Tucson, Arizona, Delta V was
engaged in the development, manufacture, and sale of vacuum deposition coating
equipment for vacuum coating applications. The Company concluded the operations
of Delta V as of the end of the fiscal 1999. As a result of the divestiture of
Delta V, the Company incurred an $8.5 million loss on disposal of discontinued
operations for the fiscal year ended January 1, 2000. This included actual
closing costs and operating losses incurred in the fourth quarter of fiscal 1999
of $2.2 million, a provision for anticipated closing costs of $1.6 million, $6.1
million related to the write off of goodwill and other intangibles assets, and a
reduction in other asset values of $1.6 million. These costs were partially
offset by proceeds of $3.0 million received from Minnesota Mining and
Manufacturing Co., ("3M") for the licensing of the Company's intellectual
property relating to vacuum-deposited polymer multi-layer technology. Delta V is
reported separately as a discontinued operation, and prior periods have been
restated in the Company's financial statements, related footnotes and the
management's discussion and analysis to conform to this presentation.
The Company operates and reports on a 52/53 week fiscal year, ending on the
Saturday closest to December 31. Accordingly, the financial statements include
the 52 week fiscal years ended December 30, 2000 ("fiscal 2000"), January 1,
2000 ("fiscal 1999") and January 2, 1999 ("fiscal 1998").
The Company operates in two reportable segments, the Digital Imaging Products
segment and the LaserTel segment. The Digital Imaging Products segment is
primarily engaged in the development, manufacture and sales of proprietary
digital imaging systems and printing plate technologies for CTP and
direct-to-press applications. The LaserTel segment is primarily engaged in the
manufacture and development of Presstek's high-powered laser diodes.
RESULTS OF OPERATIONS
The LaserTel segment's results of operations were not material to the Company's
results of operations for fiscal 2000. With the exception of general and
administrative expenses, the following discussions relate only to the Company's
Digital Imaging Products segment.
FISCAL 2000 VERSUS FISCAL 1999
REVENUES
Revenues for fiscal 2000 and 1999 of $87.3 million and $55.0 million,
respectively, consisted of product sales, royalties, license fees and product
development reimbursements. Revenues for fiscal 2000 increased $32.3 million or
59% as compared to fiscal 1999. Product sales for fiscal 2000 were $78.1 million
as compared to $47.9 million for fiscal 1999, an increase of $30.2 million or
63%. The increase was due primarily to volume increases of shipments to
Heidelberg for direct imaging systems used in the Quickmaster DI, as well as
initial sales of the Company's CTP Dimension platesetter products, and volume
increases of the Company's thermal consumable products. The revenues generated
from the sale of the Company's PEARLdry and other consumable products were $44.9
million for fiscal 2000, an increase of $7.8 million or 21%, as compared to
$37.1 million for fiscal 1999. These consumable product revenues included $18.7
million and $17.2 million for fiscal 2000 and 1999, respectively, sold under the
Company's agreements with Heidelberg and its distributors.
Royalties and fees from licensees for fiscal 2000 of $9.2 million increased $2.2
million or 31% as compared to royalties and fees of $7.0 million for fiscal
1999. Royalties increased $7.2 million or 1,118% comparing fiscal 2000 to fiscal
1999, as a result of increased shipments to Heidelberg of direct imaging systems
used in the Quickmaster DI. This increase was offset by a decrease of $5.1
million in engineering fees primarily due to the reduction of fees from Fuji
Photo Film Co., Ltd. for fiscal 2000, as compared to fiscal 1999.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $49.4 million in fiscal 2000, an increase of $27.8 million or
129% from fiscal 1999 revenues of $21.6 million. Revenues from Heidelberg
represented 57% and 39% of total revenues for the fiscal years 2000 and 1999,
respectively.
15
In fiscal 1998 and 1999 the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company resumed production with initial low level shipments
of its direct imaging systems late in the third quarter of fiscal 1999, and
increased production levels in fiscal 2000 in line with the actual rate of
Quickmaster DI's made by Heidelberg.
COST OF PRODUCTS SOLD
Cost of products sold consists of the costs of material, labor and overhead as
well as future warranty costs associated with product sales. Cost of products
sold for fiscal 2000 was $46.7 million, an increase of $13.4 million or 40% as
compared to $33.3 million for fiscal 1999. The gross margin increase on product
sales to 40% for fiscal 2000 from 30% for fiscal 1999 is primarily the result of
economies of scale related to increased manufacturing volumes of proprietary
digital media and consumable products, as well as increased production of its
direct imaging systems sold to Heidelberg for use in its Quickmaster DI.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts. Research and product development expenses were $15.9 million or 18% of
revenues for fiscal 2000 as compared to $17.2 million or 31% of fiscal 1999
revenues. The decrease of $1.3 million is primarily the result of the conclusion
of the development efforts associated with the Company's contract with Fuji
Photo Film, Inc.
SALES, MARKETING AND CUSTOMER SUPPORT
Sales, marketing and customer support expenses consist primarily of payroll and
related expenses for personnel, advertising, trade shows, promotional expenses,
and travel costs. Sales, marketing and customer support expenses were $9.6
million, or 11% of fiscal 2000 revenues, compared to $5.9 million or 11% of
fiscal 1999 revenues. The increase of $3.7 million resulted primarily from
increased expenditures associated with the Company's attendance at the GraphExpo
trade show in September, and the Drupa 2000 trade show in May. Increases in
salaries as a result of head count growth and increases in professional services
relate to the Company's continued expansion of its worldwide sales, distribution
and customer support network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services. General and
administrative expenses for fiscal 2000 were $9.6 million or 11% of fiscal 2000
revenues compared to $6.5 million or 12% of fiscal 1999 revenues. The increase
of $2.1 million for the Digital Imaging Products segment related primarily to
increases in salaries as a result of headcount growth, legal fees as a result of
patent litigation, and increases in other professional services necessary to
conduct the finance, information systems, and administrative functions. The
general and administrative expenses for the LaserTel segment were $1.0 million
for fiscal 2000, and relate primarily to salaries and other professional
services incurred as a result of the start-up of LaserTel in April 2000.
OTHER INCOME AND EXPENSE
Other income net, was $48,000 or less than 1% of revenues for fiscal 2000
compared to other income net, of $539,000 or 1% of revenues for fiscal 1999.
Dividend and interest income was $870,000 for fiscal 2000 as compared to $1.0
million for the comparable period for fiscal 1999. The decrease of $130,000 is
primarily attributed to the decrease in average cash balances available for
investments. Interest expense was $969,000 as compared to $522,000 for the
comparable period for fiscal 1999. The increase of $447,000 is primarily
attributed to the increased borrowings related to the Company's lease line of
credit facility with Keybank National Association.
PROVISION FOR INCOME TAXES
The Company did not record a provision for or a charge in lieu of United States
federal income taxes for fiscal 2000, as a result of net operating loss
carryforwards other than those generated from deductions related to stock
compensation for the period. The Company recorded a provision of $150,000 for
state income taxes for
16
fiscal 2000. The Company did not record a provision for or a charge in lieu of
United States federal income taxes or state income taxes for fiscal 1999, as a
result of the net operating losses incurred prior to tax deductions related to
stock compensation for the period.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company had income from continuing operations,
of $5.3 million for fiscal 2000, as compared to losses from continuing
operations of $30.6 million for fiscal 1999.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
The results of operations of Delta V are presented as discontinued operations.
Income from Delta V's discontinued operations was $600,000 for fiscal 2000, as a
result of payments received from 3M for the licensing of the Company's
intellectual property relating to vacuum-deposited polymer multilayer
technology, as compared to losses of $9.0 million for fiscal 1999, including a
loss on disposal of its discontinued operations of $8.5 million. The loss on
disposal of discontinued operations included actual closing costs and operating
losses incurred in the fourth quarter of fiscal 1999 of $2.2 million, a
provision for anticipated closing costs of $1.6 million, $6.1 million related to
the write off of goodwill and other intangible assets, and a reduction in other
asset values of $1.6 million. These costs were partially offset by proceeds of
$3.0 million received from 3M for the licensing of the Company's intellectual
property relating to vacuum-deposited polymer multi-layer technology.
FISCAL 1999 VERSUS FISCAL 1998
REVENUES
Revenues for fiscal 1999 and 1998 of $55.0 million and $74.2 million,
respectively, consisted of product sales, royalties, fees and other
reimbursements. Revenues for fiscal 1999 decreased $19.2 million or 26% as
compared to fiscal 1998. Product sales for fiscal 1999 were $47.9 million as
compared to $60.8 million in fiscal 1998, a decrease of $12.9 million or 21%.
The decrease was due primarily to a decrease of shipments to Heidelberg for
direct imaging systems used in the Quickmaster DI, and a decrease in sales of
custom printing press products. These decreases were partially offset by an
increase in sales of the Company's proprietary digital media and consumable
products. The revenues generated from the sale of the Company's PEARLdry and
other consumable products were $37.1 million for fiscal 1999, an increase of
$8.8 million or 31%, as compared to $28.3 million in fiscal 1998. These
consumable product revenues included $17.2 million and $11.4 million for fiscal
1999 and 1998, respectively, sold under the Company's agreements with Heidelberg
and its distributors.
Royalties and fees from licensees for fiscal 1999 of $7.0 million decreased $6.3
million or 47% as compared to royalties and fees of $13.3 million for fiscal
1998. Royalties decreased $7.0 million or 91% comparing fiscal 1999 to fiscal
1998 offset by an increase in engineering fees primarily from Fuji Photo Film
Co., Ltd., of $634,000 or 11% in fiscal 1999. The decrease is primarily the
result of the decreased shipments of direct imaging systems to Heidelberg for
use in the Quickmaster DI.
Revenues generated under the Company's agreements with Heidelberg and its
distributors were $21.6 million in fiscal 1999, a decrease of $20.5 million or
49% from fiscal 1998 revenues of $42.1 million. Revenues from Heidelberg
represented 39% and 57% of total revenues for the fiscal years 1999 and 1998,
respectively.
In fiscal 1998 and 1999, the Company materially reduced production levels of
direct imaging systems used in the Quickmaster DI press, based on requirements
from Heidelberg. The Company received orders in fiscal 1999 from Heidelberg in
connection with its direct imaging systems used in the Quickmaster DI. Based on
the delivery schedule for these orders, the Company resumed production with
initial low level shipments of its direct imaging systems late in the third
quarter of fiscal 1999.
17
COST OF PRODUCTS SOLD
Cost of products sold consists of the costs of material, labor and overhead as
well as future warranty costs associated with product sales. Cost of products
sold for fiscal 1999 were $33.3 million, a decrease of $13.3 million or 29% as
compared to fiscal 1998. The gross margin increase to 30% for fiscal 1999 from
23% for fiscal 1998. This increase is primarily the result of economies related
to increased manufacturing volumes of proprietary digital media and consumable
products, a reduction in allowances provided as a result of product requirement
changes and inventory obsolescence, offset by inefficiencies related to reduced
manufacturing volumes of direct imaging systems sold to Heidelberg for use in
its Quickmaster DI.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses consist primarily of payroll and
related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts.
Research and product development expenses were $17.2 million or 31% of revenues
for fiscal 1999 as compared to $15.0 million or 20% of fiscal 1998 revenues. The
increase resulted principally from increased expenditures for labor and
professional services related to the Company's continued development of products
incorporating its PEARL and DI technologies. Included in these development
efforts were significant expenditures for the Company's digital plate media and
consumable products, as well as expenditures for its next generation ProFire
integrated imaging system and other product development efforts. These increased
expenditures were also a result of increased engineering programs related to the
development contract with Fuji Photo Film Co., Ltd.
SALES, MARKETING AND CUSTOMER SUPPORT
Sales, marketing and customer support expenses consist primarily of payroll and
related expenses for personnel, advertising and promotional expenses, and travel
costs. Sales, marketing and customer support expenses were $5.9 million or 11%
of revenues for fiscal 1999 compared to $5.6 million or 8% of fiscal 1998
revenues. The increase resulted primarily from increased expenditures for labor
and professional services, and other related costs associated with the Company's
attendance at trade shows and the continued expansion of its worldwide sales,
distribution and customer support network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of payroll and related
expenses for personnel, and contracted professional services. General and
administrative expenses for fiscal 1999 were $6.5 million or 12% of revenues
compared to $9.3 million or 12% of fiscal 1998 revenues. The decrease of $2.8
million related primarily to decreases in expenditures for contracted
professional services required to conduct the finance, information systems, and
administrative functions of the Company, as well as, the reduction in the
provision for uncollectable accounts. The Company recorded a charge of $2.2
million for certain disputed and uncollectable accounts in fiscal 1998.
PROVISION FOR THE SETTLEMENT OF SHAREHOLDER LITIGATION
The Company recorded a charge of $23.2 million in fiscal 1999 related to the
proposed settlement of the class action and derivative lawsuits, filed in the
United States District Court for the District of New Hampshire in 1996, on
behalf of the Company's shareholders. The charge included the $22.9 million
settlement and related administrative costs of $250,000.
OTHER INCOME AND EXPENSE
Other income was $539,000 or 1% of revenues for fiscal 1999 compared to $732,000
or 1% of revenues for fiscal 1998. The decrease of $193,000 was primarily the
result of a decrease in average cash balances available for investment, as well
as increased interest expense incurred on the Company's lease line of credit
with Keybank National Association.
18
PROVISION FOR INCOME TAXES
The Company did not record provisions for or a charge in lieu of United States
federal income taxes or state income taxes in fiscal 1999 or 1998, as a result
of net operating losses incurred prior to tax deductions related to stock
compensation.
LOSS FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company incurred losses from continuing
operations in fiscal 1999 of $30.6 million, as compared to losses from
continuing operations of $1.6 million for fiscal 1998.
LOSS FROM DISCONTINUED OPERATIONS
The results of operations of Delta V are presented as discontinued operations.
For fiscal 1999 the Company incurred a loss from discontinued operations of
$448,000, as compared to a loss of $1.1 million for fiscal 1998. In addition,
for fiscal 1999 the Company recorded a loss on disposal of its discontinued
operations of $8.5 million. This included actual closing costs and operating
losses incurred in the fourth quarter of fiscal 1999 of $2.2 million, a
provision for anticipated closing costs of $1.6 million, $6.1 million related to
the write off of goodwill and other intangible assets, and a reduction in other
asset values of $1.6 million. These costs were partially offset by proceeds of
$3.0 million received from 3M for the licensing of the Company's intellectual
property relating to vacuum-deposited polymer multi-layer technology.
LIQUIDITY AND CAPITAL RESOURCES
At December 30, 2000, the Company had cash and cash equivalents of $12.0 million
and working capital of $32.3 million as compared to cash and cash equivalents of
$18.7 million and working capital of $25.4 million at January 1, 2000.
Net cash used for operating activities of continuing operations was $2.3 million
for the fiscal year ended December 30, 2000, as a result of net income from
continuing operations of $5.3 million, adjusted for non-cash items of
depreciation and amortization of $6.7 million, offset by an increase in accounts
receivable of $6.0 million reflecting higher sales volume, and increases in
inventories of $4.8 million as a result of greater production requirements.
Advances to suppliers and other current assets increased by $6.7 million,
primarily reflecting advanced payments made in connection with certain supply
agreements.
Net cash used for investing activities of continuing operations was $16.0
million for the fiscal year ended December 30, 2000, and consisted primarily of
additions to property, plant and equipment used in the Company's business of
$15.2 million. These additions included $1.8 million for additional plate
manufacturing equipment which is expected to reduce the cost of manufacturing
the Company's proprietary digital media and consumable products and enhance the
Company's development capabilities, $4.4 million related to the construction of
the second phase of its 55 Executive Drive facility, as well as $6.5 million in
equipment purchases related to the manufacture of laser diodes at the Company's
LaserTel subsidiary.
Net cash provided by financing activities during the fiscal year ended December
30, 2000 totaled $10.6 million, and consisted primarily of proceeds from the
Company's lease line of credit and mortgage term loan of $10.0 million, as well
as proceeds from the issuance of common stock of $2.0 million, offset by
payments on the mortgage term loan and the lease line of credit of $1.3 million.
In June 2000, the Company borrowed the remaining $6.0 million under a $10.0
million lease line of credit facility from Keybank National Association. The
$10.0 million in borrowings is secured by equipment valued at $13.4 million. The
loan bears a variable rate of interest based upon the prime rate, currently 8.5%
with a fixed rate conversion provision. Principal and interest under the lease
line are payable in 84 monthly installments beginning on July 31, 2000 for the
$6.0 million in borrowings. Payments on the initial $4.0 million borrowed in
September 1999 commenced in October 1999. The Company has received a commitment
for an additional $5.0 million lease line of credit from Keybank, which expires
on April 30, 2001.
19
On October 30, 2000 the Company renewed its credit facilities with Citizens Bank
New Hampshire ("Citizens"). These credit facilities, which expire in September
2002, include renewal of the current ten-year mortgage term loan in the amount
of $6.9 million, an additional ten-year mortgage term loan in the amount of $4.0
million, and a revolving line of credit loan.
The ten-year mortgage term loan in the amount of $6.9 million bears a fixed rate
of interest of 7.12% per year during the first five years, a variable rate of
interest at the LIBOR rate plus 2%, (8.56% at December 30, 2000) for the
remaining five years. Principal and interest payments during the first five
years of the loan will be made in 60 monthly installments of $80,500. During the
remaining five years, principal and interest payments will be made on a basis in
the amount of one-sixtieth of the outstanding principal amount as of the first
day of the second five year period, plus accrued interest through the monthly
payment date. All outstanding principal and accrued interest is due and payable
on February 6, 2008.
The ten-year mortgage term loan in the amount of $4.0 million bears a fixed rate
of interest equal to 7.95% per year during the first five years, a fixed rate of
interest equal to United States Treasury Notes or Bills with a maturity date
closest to the end of the second five years plus 225 basis points, for the
remaining five years. During the first five years, principal and interest shall
be paid in 60 monthly installments of $48,425. During the remaining five years,
principal and interest payments will be made on a monthly basis in the amount of
one-sixtieth of the outstanding principal amount as of the first day of the
second five year period, plus accrued interest through the monthly payment date.
All outstanding principal and accrued and unpaid interest is due and payable on
October 30, 2010. The ten-year mortgage term loans are secured by land and
buildings with a cost of approximately $22.0 million.
The revolving line of credit loan, under which the Company may borrow $16.0
million, is subject to certain restrictions based on applicable percentages of
accounts receivable and inventory, as defined by the loan agreement, and 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% (8.06% at December 30, 2000). As of December 30,
2000, the Company had $6.0 million outstanding under a standby letter of credit,
and $10.0 million available under the revolving line of credit loan.
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 certain
covenants on a quarterly and annual basis. At December 30, 2000 the Company was
in compliance with all financial covenants.
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 for
the next twelve months.
The Company's anticipated capital expenditures for fiscal 2001 are approximately
$17.0 million, and primarily relate to building improvements and capital
equipment for LaserTel's potential expansion. The Company is currently exploring
various financing alternatives with respect to LaserTel's capital requirements,
however there can be no assurance that the Company will obtain additional
financing.
EFFECT OF INFLATION
Inflation has not had, and is not expected to have, a material impact upon the
Company's operations.
NET OPERATING LOSS CARRYFORWARDS
As of December 30, 2000, the Company had net operating loss carryforwards
totaling approximately $78.7 million of which $47.7 million resulted from stock
compensation deductions for tax purposes relative to stock option plans and
$31.0 million resulted from operating losses. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital. The amount of
the net operating loss carryforwards that may be utilized in any future period
may be subject to certain limitations, based upon changes in the ownership of
the Company's common stock.
20
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 was adopted in fiscal 2000 and did not have a material impact on the
Company's financial position or results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation an Interpretation of APB No. 25" ("FIN No. 44"). FIN No. 44
clarifies the application of Opinion No. 25 for certain issues including: (a)
the definition of employee for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting of an exchange of stock compensation awards in a business
combination. In general, FIN No. 44 was effective July 1, 2000. The adoption of
FIN No. 44 did not have a material impact on the Company's financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 (as amended
by SFAS No. 137) is effective for fiscal years beginning after June 15, 2000.
The Company does not presently enter into any transactions involving derivative
financial instruments and, accordingly, does not anticipate the new standard
will have any effect on its financial statements for the foreseeable future.
RISK FACTORS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
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 Company's
expectations for its financial and operating performance in 2001, the need for
additional capital to support operations and growth at the Company's LaserTel
subsidiary, the adequacy of internal cash for the Company's operations, the
Company's ability to supply sufficient product for anticipated demand,
production delays associated with this demand, availability of component
materials, management's plans and goals with regard to the Company's shipping
and production capabilities, the availability of alternative suppliers and
manufacturers, the strength of the Company's various strategic partnerships both
on manufacturing and distribution, the ability of the Company to secure other
strategic alliances and relationships, the Company's current plans for product
development and the expected market acceptance of recently introduced products
and the likely acceptance of planned future products, among others. Such
forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors that could cause or contribute to such
differences include those 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.
References to "we", "us", "our" or "ours" refer to the Company and its
subsidiaries.
WE ARE DEPENDENT ON OUR STRATEGIC ALLIANCES AND MANUFACTURING AND DISTRIBUTION
RELATIONSHIPS AND OUR INABILITY TO DEVELOP NEW MARKET CHANNELS WITH NEW OR
EXISTING STRATEGIC PARTNERS COULD HARM OUR BUSINESS. Our strategy to date has
been, in part, to enter into strategic alliances with major companies in the
graphic arts industry and other markets. This strategy has included, among other
things, licensing our intellectual property, developing specialized products
based on our proprietary technologies and manufacturing imaging systems for
inclusion in other manufacturers' products. Our strategy has also involved
identifying strategic partners to aid in developing new market channels for our
products.
Such a strategy led to the development of an important long-term relationship
with Heidelberg Druckmaschinen AG ("Heidelberg"). Since entering into our
strategic alliance with Heidelberg, our sales of products to Heidelberg have
constituted a material portion of our total revenues. For the fiscal year ended
December 30, 2000, our sales to Heidelberg accounted for approximately 57% of
our total revenues. There can be no assurance that our relationship with
Heidelberg will continue. The loss of Heidelberg as a customer would materially
adversely affect our business. In December 1999 we agreed with Heidelberg to
enter into arbitration to resolve certain issues between us concerning on-press
imaging. This arbitration is still in progress.
We are also dependent on other strategic partners, including Xerox, for future
sales of both existing and planned products. This dependency means that the
timetable for finalizing development, commercialization and distribution of both
existing and planned products is dependent upon the needs and circumstances of
our strategic partners. We have experienced and will continue to experience
technical difficulties from time to time which may prevent us from meeting
certain production and distribution targets. Any delay in meeting production and
distribution targets with our strategic partners may harm our relationship with
them and may cause them to terminate their relationship with us. They may
terminate their relationship with us for circumstances beyond our control,
including, factors unique to their business or their business decisions.
21
We are unable to control factors related to the business of our strategic
partners. As an example, in March 2001, Adamovske Strojirny a. s. ("Adast"), a
manufacturing partner of ours, announced that it has cash flow problems which
could potentially affect delivery of our presses. Adast's inability to resolve
their current short term financial situation could significantly reduce the
number of our presses that are produced and shipped under this relationship,
which could have a material adverse effect on our business.
As a result of the uncertainties surrounding many of our strategic partners,
there can be no assurance that our existing strategic relationships will prove
successful or that we will enter into additional strategic partnerships. There
can be no assurance that our relationship with Xerox, Adast or any of our other
strategic, manufacturing and distribution partners will be successful. The loss
of Xerox, Adast or other principal customers or strategic partners could
materially adversely affect our business.
WE ARE DEPENDENT ON THIRD PARTY SUPPLIERS FOR CRITICAL COMPONENTS AND OUR
INABILITY TO MAINTAIN AN ADEQUATE SUPPLY OF ADVANCED LASER DIODES AND OTHER
CRITICAL COMPONENTS COULD ADVERSELY EFFECT US. We are dependent on third party
suppliers for critical components and our increased demand for these components
may put strain on the ability of our third-party suppliers to deliver critical
components in a timely manner. For example, our requirements for advanced
technology laser diodes for use in products incorporating our PEARL and DI
technology has increased and is expected to increase in the future. Although we
have recently established LaserTel, a subsidiary that will focus its efforts on
helping us meet our demand for laser diodes, we are still substantially
dependent on third party manufacturers for our supply of laser diodes and other
necessary components. If we are unable for any reason to secure an uninterrupted
source of advanced laser diodes and 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. Likewise, we cannot
assure you that we will be able to obtain alternative suppliers for our laser
diodes or other critical components should our current supply channels prove
ineffective.
WE HAVE A HISTORY OF RECENT LOSSES AND MAY INCUR FUTURE LOSSES. Although we
achieved net income of $5.9 million for the fiscal year ended December 30, 2000,
we sustained net losses of $39.6 million and $2.7 million during our fiscal
years ended January 1, 2000 and January 2, 1999, respectively. We cannot assure
you that we will continue to be profitable in the future or that we will not
sustain significant losses in the future.
RECENTLY INTRODUCED PRODUCTS THAT INCORPORATE OUR TECHNOLOGY MAY NOT BE
COMMERCIALLY SUCCESSFUL AND MAY NOT GAIN MARKET ACCEPTANCE. Achieving market
acceptance for any products incorporating our technology requires substantial
marketing and distribution efforts and expenditure of significant sums of money
and allocation of significant resources, either by us, our strategic partners or
both. We may not have sufficient resources to do so. Likewise, there can be no
assurance that products recently introduced by our strategic partners, such as
the DocuColor 233 DI and DocuColor 400 DI presses, or our recent new product
offerings such as our Anthem(TM) plates and Dimension 400(TM) platesetter, 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.
OUR MANUFACTURING CAPABILITIES MAY BE INSUFFICIENT TO MEET THE DEMAND FOR OUR
PRODUCTS. If demand for our products grow, 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 affect on our business
and our revenues and may harm our relationships with our strategic partners.
22
OUR BUSINESS IS DEPENDENT ON GENERAL MARKET FACTORS AFFECTING OUR INDUSTRY AND
THE ECONOMY AS A WHOLE. We are dependent on market conditions that affect our
industry generally, and additionally, are also dependent on general economic and
market conditions as a whole. A downturn in our industry or the economy as a
whole, could have a materially adverse effect on our business.
THE EXPANSION OF OUR LASERTEL BUSINESS INTO AREAS OTHER THAN THE PRINTING
BUSINESS MAY BE UNSUCCESSFUL. Our subsidiary, LaserTel, which was formed for the
purpose of supplying us with laser diodes, is in the process of developing laser
prototypes for the telecommunications, defense and medical industries. There can
be no assurance that these prototypes will gain acceptance in these industries
and likewise, there can be no assurance that these products will be commercially
successful. Our executive team has limited experience in the telecommunications,
defense and medical industries and there can be no assurance that LaserTel will
be able to successfully exploit any opportunities that may arise.
OUR NEWLY INCORPORATED SUBSIDIARY, LASERTEL, MAY REQUIRE ADDITIONAL CAPITAL
INFUSIONS FROM US. Our subsidiary, LaserTel, which was incorporated to help us
meet our demand for laser diodes, may require a significant amount of capital
investment by the Company in order to establish and maintain its operations.
LaserTel's capital needs may exceed the Company's ability to provide such funds,
requiring the Company to borrow against its credit facilities or seek to obtain
outside financing for LaserTel's operations. This could have an adverse impact
on our business.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MAINTAIN AND PROTECT OUR PROPRIETARY
RIGHTS. We have been issued a number of U.S. and foreign patents and we intend
to register for additional patents where we deem appropriate. We also hold two
registered trademarks and we may register additional trademarks where we deem
appropriate. There can be no assurance, however, as to the issuance of any
additional patents or trademarks or the breadth or degree of protection which
our patents, trademarks or copyrights may afford us.
There is rapid technological development in the electronic image reproduction
industries, resulting in extensive patent filings and a rapid rate of issuance
of new patents. Although we believe that our technology has been independently
developed and that the products we market do not infringe the patents or violate
other proprietary rights of others, it is possible that such infringement of
existing or future patents or violation of proprietary rights may occur. In such
event, we may be required to modify our product designs or obtain a license. No
assurance can be given that we would be able to do so in a timely manner, upon
acceptable terms and conditions or even at all. The failure to do any of the
foregoing could have a material adverse effect on us. Furthermore, there can be
no assurance that we will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, we may be unable, for financial or other reasons, to enforce
our rights under any patents we may own. In August 1999 Creo Products Inc. filed
an action in the United States District Court for the District of Delaware
against us seeking a declaration that Creo's products do not and will not
infringe any valid and enforceable claims of any of our patents in question. We
have counter-claimed against Creo for patent infringement of certain of our
patents. This action is ongoing. There can be no assurance that we will be
successful in this action.
We also rely on proprietary know-how and employ various methods to protect the
source codes, concepts, ideas and documentation of our proprietary software.
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, ideas and documentation.
Although we have and expect to have confidentiality agreements with our
employees and appropriate vendors, there can be no assurance that such
arrangements will adequately protect our trade secrets.
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
23
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., Indigo N.V., Xeikon N.V. and Xerox
Corporation are companies that have introduced color electrophotographic copier
products. Various companies are marketing product versions manufactured by these
companies.
We are also aware that there is a direction in the graphic arts industry to
create stand-alone computer-to-plate imaging devices for single and multi-color
applications. Most of the major corporations in the graphic arts industry have
developed and/or are developing and marketing off press computer-to-plate
imaging systems. To date, devices manufactured by our competitors, for the most
part, utilize printing plates that require a post imaging photochemical
developing step, and in some cases, also require a heating process. Potential
competitors in this area include, among others, Agfa Gevaert N.V., Dai Nippon
Screen Manufacturing Ltd., Heidelberger Druckmaschinen AG, and Creo Products,
Inc.
We also anticipate competition from printing plate manufacturing companies that
manufacture, or have the potential to manufacture digital thermal plates. These
companies include Agfa, Kodak Polychrome Graphics and Fuji Photo Film Co., Ltd.
Products incorporating our technologies can also be expected to face competition
from conventional methods of printing and creating printing plates. Most of the
companies marketing competitive products or with the potential to do so are
well-established, have substantially greater financial, marketing and
distribution resources than us and have established reputations for success in
the development, sale and service of products. There can be no assurance that we
will be able to compete successfully in the future.
WE MAY NOT BE ABLE TO ADEQUATELY RESPOND TO CHANGES IN TECHNOLOGY AFFECTING THE
PRINTING INDUSTRY. Our continuing product development efforts have focused on
refining and improving the performance of our PEARL and DI technology and our
consumables and we anticipate that we will continue to do so. The printing and
publishing industry has been characterized in recent years by rapid and
significant technological changes and frequent new product introductions.
Current competitors or new market entrants could introduce new or enhanced
products with features which render our technologies, or products incorporating
our technologies, obsolete or less marketable. Our ability to compete
successfully will depend in large measure on our ability to maintain a
technically competent research and development staff and to stay ahead of
technological changes and advances in our industry. There can be no assurance
that any refined or improved versions of current products or technologies or any
new products that may be introduced by us in the future will be commercially
successful.
ONGOING LITIGATION COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS. From time to
time in the ordinary course of our business we may be subject to certain
lawsuits. We are currently a defendant in a lawsuit commenced by PPG, Inc.
claiming that equipment sold by our now discontinued Delta V subsidiary did not
meet certain product specifications. Although we intend to vigorously defend
this action, we could be adversely affected if the plaintiff were to prevail on
its damage claim, which is in excess of $7.0 million. We are also a party in
ongoing patent litigation with Creo Products Inc. There can be no assurance that
we will be successful in this action, and any adverse result in this litigation
will have a material adverse impact on our business.
THE LOSS OR UNAVAILABILITY OF OUR KEY PERSONNEL WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS. The success of Presstek is largely dependent on the
personal efforts of Robert Hallman, our President and Chief Executive Officer,
and Richard Williams, our Chairman and Chief Scientific Officer. We have entered
into employment agreements with each of Mr. Hallman and Mr. Williams. The loss
or interruption of the services of either Mr. Williams or Mr. Hallman could have
a material adverse effect on our business and prospects.
24
Our success may also be dependent on our ability to hire and retain additional
qualified engineering, technical, sales, marketing and other personnel.
Competition for qualified personnel in our industry is intense, and there can be
no assurance that we will be able to hire or retain additional qualified
personnel.
OUR STOCK PRICE HAS BEEN AND COULD CONTINUE TO BE EXTREMELY VOLATILE. The market
price of our common stock has been subject to significant fluctuations. The
securities markets have experienced, and are likely to experience in the future,
significant price and volume fluctuations which could adversely affect the
market price of our common stock without regard to our operating performance. In
addition, the trading price of our common stock could be subject to significant
fluctuations in response to:
- actual or anticipated variations in our quarterly operating results;
- announcements by us or other industry participants,
- changes in national or regional economic conditions;
- changes in securities analysts' estimates for us, our competitors'
or our industry or our failure to meet analysts' expectations; and
- general market conditions.
CERTAIN FACTORS MAY HAVE A DEPRESSIVE EFFECT ON THE MARKET PRICE FOR OUR COMMON
STOCK. As of March 15, 2001, we had 33,259,806 shares of our common stock
outstanding. Approximately 30,540,000 of our shares are currently freely
tradable without restriction under the Securities Act of 1933. All of the
remaining shares have been held by their holders for over one year and are
eligible for sale, subject, in some cases, to affiliate and other restrictions
under Rule 144 of the Securities Act of 1933. The sale of a significant number
of shares of common stock could adversely affect the market price of our common
stock.
There are currently outstanding options to purchase approximately $3.2 million
shares of our common stock at prices ranging from $5.88-$26.94 per share.
Substantially all of these shares have been registered for resale and may be
sold, subject, in some cases, to volume and other limitations under Rule 144 of
the Securities Act of 1933. To the extent they are exercised or converted, the
percentage ownership of existing stockholders will be diluted and our stock
price could be adversely affected. This could also adversely affect the terms
upon which we may be able to obtain additional equity capital in the future,
since the holders of outstanding options can be expected to exercise them at a
time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than those provided in the outstanding options.
In addition, in connection with the settlement of the consolidated class action
involving us, we are obligated to issue an additional 808,050 shares of common
stock. These shares, when issued, will not be restricted in the hands of the
holders and thus, the holders will be able to immediately sell the shares. This
could have a depressive effect on the market for our common stock.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates primarily
as a result of its borrowing activities, and to a lesser extent, its investing
activities. The majority of the Company's long-term borrowings are in fixed rate
instruments, or variable rate instruments with fixed rate conversion provisions.
The Company does not enter into interest rate swap agreements or other
speculative or leveraged transactions. The Company currently has no material
exposure to interest rate fluctuations on its short-term investments
The Company has limited exposure to foreign currency exchange rate risk as
substantially all of its transactions are denominated in U.S. dollars. Some of
the Company's customers and strategic partners are not located in the United
States, however. As a result, the Company's 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements required by Item 8 of Form 10-K are referenced in Item
14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item will be set forth under the captions
"Election of Directors", "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the definitive proxy statement that the
Company expects to file with the Securities Exchange Commission within 120 days
of the fiscal year ended December 30, 2000 for the Annual Meeting of
Stockholders to be held on June 5, 2001 (the "Proxy Statement") and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item will be set forth under the caption
"Voting Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement, and is
incorporated herein by reference.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a)(1) Financial Statements Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 30, 2000, and January 1, 2000 F-3
Statements of Operations for the fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999 F-4
Statements of Changes in Stockholders' Equity for the
fiscal years ended December 30, 2000, January 1, 2000
and January 2, 1999 F-5
Statements of Cash Flows for the fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999 F-6
Notes to Financial Statements F-7
(a)(2) Financial Statement Schedule
Schedule II-Valuation and Qualifying Accounts and Reserves FS-1
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(a)(3) Exhibits
Exhibit
Number Description
- ------ -----------
3(a) Amended and Restated Certificate of Incorporation of the Company, as
amended. (Previously filed as Exhibit 3 to the Company's Quarterly
Report on Form 10-Q for the Quarter ended June 29, 1996, hereby
incorporated by reference.)
3(b) By-laws of the Company. (Previously filed as an exhibit with the
Company's Form 10-K for the fiscal year ended December 30, 1995,
filed March 29, 1996, hereby incorporated by reference.)
10(a) Confidentiality Agreement between the Company and Heidelberger
Druckmaschinen A.G., effective December 7, 1989 as amended.
(Previously filed as Exhibit 10(i) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, hereby
incorporated by reference.)
10(b) Master Agreement effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company.
(Previously filed as an exhibit to the Company's Form 8-K, dated
January 1, 1991, hereby incorporated by reference.)
10(c) Technology License effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company.
(Previously filed as an exhibit to the Company's Form 8-K, dated
January 1, 1991, hereby incorporated by reference.)
10(d) Memorandum of Performance No. 3 dated April 27, 1993, to the Master
Agreement, Technology License, and Supply Agreement between the
Company and Heidelberger Druckmaschinen Aktiengesellschaft.
(Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the Quarter Ended June 30, 1993, hereby incorporated
by reference.)
27
10(e) Modification to Memorandum of Performance No. 3 dated April 27,
1993, to the Master Agreement, Technology License, and Supply
Agreement between the Company and Heidelberger Druckmaschinen
Aktiengesellschaft. (Previously filed as an exhibit to the Company's
Annual report on Form 10-K for the fiscal year ended December 31,
1994, hereby incorporated by reference.)
10(f)* Memorandum of Understanding No. 4 dated November 9, 1995, to the
Master Agreement and Technology License and Supply Agreement between
the Company and Heidelberger Druckmaschinen Aktiengesellschaft.
(Previously filed as Exhibit 10.k to the Company's Form 10-K for the
fiscal year ended December 30, 1995, filed March 29, 1996, hereby
incorporated by reference.)
10(g) Lease relating to real property located at 9 Commercial St., Hudson,
New Hampshire. (Previously filed as Exhibit 10(m) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28,
1996, filed March 31, 1997, hereby incorporated by reference.)
10(h) Lease relating to real property located at 18-20 Hampshire Dr.,
Hudson, New Hampshire. (Previously filed as Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, filed March 31, 1997, hereby incorporated by
reference.)
10(i)** Employment Agreement dated March 30, 1999 between the Company and
Richard Williams. (Previously filed as Exhibit 10.L to the Company's
Form 10-K for the fiscal year ended January 2, 1999, filed March 2,
1999, hereby incorporated by reference.)
10(j)** 1991 Stock Option Plan. (Previously filed as an exhibit to the
Company's Annual report on Form 10-K for the fiscal year ended
December 31, 1991, hereby incorporated by reference.)
10(k)** 1994 Stock Option Plan. (Previously filed as an exhibit to the
Company's Annual report on Form 10-K for the fiscal year ended
December 31, 1994, hereby incorporated by reference.)
10(l)** Non-Employee Director Stock Option Plan. (Previously filed as
Exhibit 10.0 to the Company's Form 10-K for the fiscal year ended
January 2, 1999, filed March 2, 1999, hereby incorporated by
reference.)
10(m)** 1997 Interim Stock Option Plan. (Previously filed as Exhibit 10.1 to
the Company's Quarterly report on Form 10-Q for the quarter ended
September 27, 1997, filed November 7, 1997, hereby incorporated by
reference.)
10(n)* Memorandum of Understanding No. 5 dated March 7, 1997 between the
Company and Heidelberger Druckmaschinen Aktiengesellschaft.
(Previously filed as Exhibit 10.(T) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 28, 1996, filed
March 31, 1997, hereby incorporated by reference.)
10(o) Amendment to Loan Agreement between the Company and Citizens Bank,
New Hampshire. (Previously filed as Exhibit 10.R to t