Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the quarterly period ended April 3, 2010
|
||
Or
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||
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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|
For
the transition period
from to
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Commission
file number 0-17541
PRESSTEK,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
(State
or other Jurisdiction of
Incorporation
or Organization)
|
02-0415170
(I.R.S.
Employer Identification No.)
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10
Glenville Street
Greenwich,
Connecticut
(Address
of Principal Executive Offices)
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06831
(Zip
Code)
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(203)
769-8056
Registrant’s
telephone number, including area code
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 þ No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large
accelerated filer o
Accelerated filer o Non-accelerated
filer o
Smaller reporting company þ
(do not check
if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
þ
As of May
10, 2010, there were 36,878,286 shares of the Registrant’s Common Stock, $0.01
par value, outstanding.
PRESSTEK,
INC.
INDEX
PAGE
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|||||
PART
I
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FINANCIAL
INFORMATION
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||||
Consolidated
Financial Statements
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|||||
3 | |||||
4 | |||||
5 | |||||
6 | |||||
20 | |||||
32 | |||||
OTHER
INFORMATION
|
|||||
33 | |||||
34 | |||||
35 | |||||
This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. See “Information Regarding
Forward-Looking Statements” under Part 1 – Item 2 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” of the Quarterly
Report on Form 10-Q.
DI
is a registered trademark of Presstek, Inc.
ITEM 1. CONSOLIDATED FINANCIAL
STATEMENTS
|
||||||||
PRESSTEK,
INC. AND SUBSIDIARIES
|
||||||||
(in
thousands, except share data)
|
||||||||
(Unaudited)
|
||||||||
April
3,
|
January
2,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 3,477 | $ | 5,843 | ||||
Accounts
receivable, net
|
22,178 | 22,605 | ||||||
Inventories
|
28,687 | 30,378 | ||||||
Assets
of discontinued operations
|
- | 12,624 | ||||||
Deferred
income taxes
|
243 | 243 | ||||||
Other
current assets
|
3,002 | 2,598 | ||||||
Total
current assets
|
57,587 | 74,291 | ||||||
Property,
plant and equipment, net
|
23,643 | 24,307 | ||||||
Intangible
assets, net
|
4,735 | 4,316 | ||||||
Deferred
income taxes
|
1,349 | 1,140 | ||||||
Other
noncurrent assets
|
1,378 | 481 | ||||||
Total
assets
|
$ | 88,692 | $ | 104,535 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Line
of credit
|
$ | 8,849 | $ | 17,910 | ||||
Accounts
payable
|
10,394 | 9,887 | ||||||
Accrued
expenses
|
7,442 | 8,049 | ||||||
Deferred
revenue
|
5,878 | 6,497 | ||||||
Liabilities
of discontinued operations
|
- | 5,203 | ||||||
Total
current liabilities
|
32,563 | 47,546 | ||||||
Other
long-term liabilities
|
131 | 141 | ||||||
Total
liabilities
|
32,694 | 47,687 | ||||||
Stockholders'
equity
|
||||||||
Preferred
stock, $0.01 par value, 1,000,000 shares authorized, no shares
issued
|
- | - | ||||||
Common
stock, $0.01 par value, 75,000,000 shares authorized, 36,877,452
and
|
||||||||
36,854,802
shares issued and outstanding at April 3, 2010 and
|
||||||||
January
2, 2010, respectively
|
368 | 368 | ||||||
Additional
paid-in capital
|
120,560 | 120,005 | ||||||
Accumulated
other comprehensive loss
|
(4,593 | ) | (3,810 | ) | ||||
Accumulated
deficit
|
(60,337 | ) | (59,715 | ) | ||||
Total
stockholders' equity
|
55,998 | 56,848 | ||||||
Total
liabilities and stockholders' equity
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$ | 88,692 | $ | 104,535 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
- 3
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PRESSTEK,
INC. AND SUBSIDIARIES
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||||||||
(in
thousands, except per-share data)
|
||||||||
(Unaudited)
|
||||||||
Three
months ended
|
||||||||
April
3,
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April
4,
|
|||||||
2010
|
2009
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Revenue
|
||||||||
Equipment
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$ | 6,393 | $ | 4,987 | ||||
Consumables
|
21,495 | 21,909 | ||||||
Service
and parts
|
6,603 | 7,564 | ||||||
Total
revenue
|
34,491 | 34,460 | ||||||
Cost
of revenue
|
||||||||
Equipment
|
6,098 | 4,692 | ||||||
Consumables
|
11,846 | 11,685 | ||||||
Service
and parts
|
5,154 | 5,989 | ||||||
Total
cost of revenue
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23,098 | 22,366 | ||||||
Gross
profit
|
11,393 | 12,094 | ||||||
Operating
expenses
|
||||||||
Research
and development
|
1,081 | 1,260 | ||||||
Sales,
marketing and customer support
|
5,284 | 6,365 | ||||||
General
and administrative
|
5,077 | 5,972 | ||||||
Amortization
of intangible assets
|
210 | 254 | ||||||
Restructuring
and other charges
|
12 | 84 | ||||||
Total
operating expenses
|
11,664 | 13,935 | ||||||
Operating
loss
|
(271 | ) | (1,841 | ) | ||||
Interest
and other income (expense), net
|
(372 | ) | 460 | |||||
Loss
from continuing operations before income taxes
|
(643 | ) | (1,381 | ) | ||||
Benefit
for income taxes
|
(99 | ) | (275 | ) | ||||
Loss
from continuing operations
|
(544 | ) | (1,106 | ) | ||||
Loss
from discontinued operations, net of tax
|
(78 | ) | (85 | ) | ||||
Net
loss
|
$ | (622 | ) | $ | (1,191 | ) | ||
Loss
per share - basic
|
||||||||
Loss
from continuing operations
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$ | (0.02 | ) | $ | (0.03 | ) | ||
Loss
from discontinued operations
|
(0.00 | ) | (0.00 | ) | ||||
$ | (0.02 | ) | $ | (0.03 | ) | |||
Loss
per share - diluted
|
||||||||
Loss
from continuing operations
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$ | (0.02 | ) | $ | (0.03 | ) | ||
Loss
from discontinued operations
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(0.00 | ) | (0.00 | ) | ||||
$ | (0.02 | ) | $ | (0.03 | ) | |||
Weighted
average shares outstanding
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||||||||
Weighted
average shares outstanding - basic
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36,872 | 36,637 | ||||||
Dilutive
effect of options
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- | - | ||||||
Weighed
average shares outstanding - diluted
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36,872 | 36,637 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
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- 4
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PRESSTEK,
INC. AND SUBSIDIARIES
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||||||||
(in
thousands)
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||||||||
(Unaudited)
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||||||||
Three
months ended
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April
3,
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April
4,
|
|||||||
2010
|
2009
|
|||||||
Operating
activities
|
||||||||
Net
loss
|
$ | (622 | ) | $ | (1,191 | ) | ||
Add
loss from discontinued operations
|
78 | 85 | ||||||
Loss
from continuing operations
|
(544 | ) | (1,106 | ) | ||||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
|
1,083 | 937 | ||||||
Amortization
of intangible assets
|
210 | 254 | ||||||
Provision
for warranty costs
|
(25 | ) | 16 | |||||
Provision
(credit) for accounts receivable allowances
|
220 | (24 | ) | |||||
Stock
compensation expense
|
512 | 457 | ||||||
Accrual
for non-cash bonus plan
|
299 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
192 | 1,758 | ||||||
Inventories
|
295 | (683 | ) | |||||
Other
current assets
|
(514 | ) | (21 | ) | ||||
Deferred
income taxes
|
(209 | ) | (454 | ) | ||||
Other
noncurrent assets
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21 | 349 | ||||||
Accounts
payable
|
531 | 2,478 | ||||||
Accrued
expenses
|
(916 | ) | (646 | ) | ||||
Restructuring
and other charges
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12 | 84 | ||||||
Deferred
revenue
|
(622 | ) | (777 | ) | ||||
Net
cash provided by operating activities
|
545 | 2,622 | ||||||
Investing
activities
|
||||||||
Purchase
of property, plant and equipment
|
(574 | ) | (180 | ) | ||||
Investment
in patents and other intangible assets
|
(629 | ) | (33 | ) | ||||
Net
cash used in investing activities
|
(1,203 | ) | (213 | ) | ||||
Financing
activities
|
||||||||
Net
proceeds from issuance of common stock
|
43 | 57 | ||||||
Repayments
of term loan and capital lease
|
- | (1,620 | ) | |||||
Payments
of loan origination costs
|
(823 | ) | ||||||
Net
borrowings (repayments) under line of credit agreement
|
(9,061 | ) | 72 | |||||
Net
cash used in financing activities
|
(9,841 | ) | (1,491 | ) | ||||
Cash
provided by (used in) discontinued operations
|
||||||||
Operating
activities
|
1,411 | (586 | ) | |||||
Investing
activities
|
7,405 | (28 | ) | |||||
Net
cash provided by (used in) discontinued operations
|
8,816 | (614 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
(683 | ) | 220 | |||||
Net
increase (decrease) in cash and cash equivalents
|
(2,366 | ) | 524 | |||||
Cash
and cash equivalents, beginning of period
|
5,843 | 4,738 | ||||||
Cash
and cash equivalents, end of period
|
$ | 3,477 | $ | 5,262 | ||||
Supplemental
disclosure of cash flow information
|
||||||||
Cash
paid for interest
|
$ | 388 | $ | 120 | ||||
Cash
paid for income taxes
|
$ | 52 | $ | 95 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
- 5
-
PRESSTEK,
INC. AND SUBSIDIARIES
April 3,
2010
(Unaudited)
1. BASIS
OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
In the
opinion of management, the accompanying consolidated financial statements of
Presstek, Inc. and its subsidiaries (“Presstek,” the “Company,” “we” or “us”)
contain all adjustments, including normal recurring adjustments, necessary to
present fairly Presstek’s financial position as of April 3, 2010 and January 2,
2010, its results of operations for the three months ended April 3, 2010 and
April 4, 2009 and its cash flows for the three months ended April 3, 2010 and
April 4, 2009, in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”) and the interim reporting requirements of Form
10-Q. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted.
The
results of the three months ended April 3, 2010 are not necessarily indicative
of the results to be expected for the year ending January 1,
2011. The information contained in this Quarterly Report on Form 10-Q
should be read in conjunction with the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” “Quantitative and Qualitative
Disclosures About Market Risk” and the consolidated financial statements and
notes thereto included in the Company’s Annual Report on Form 10-K for the year
ended January 2, 2010, filed with the U.S. Securities and Exchange Commission
(“SEC”) on March 24, 2010.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Intercompany transactions and balances have been
eliminated.
The
Company operates and reports on a 52- or 53-week, fiscal year ending on the
Saturday closest to December 31. Accordingly, the accompanying consolidated
financial statements include the thirteen week periods ended April 3, 2010 (the
“first quarter and first three months of fiscal 2010” or the “three months ended
April 3, 2010”) and April 4, 2009 (the “first quarter and first three months of
fiscal 2009” or the “three months ended April 4, 2009”).
- 6
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
Use
of Estimates
The
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to product returns; warranty
obligations; allowances for doubtful accounts; slow-moving and obsolete
inventories; income taxes; intangible assets, long-lived assets and deferred tax
assets; stock-based compensation and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
For a
complete discussion of our critical accounting policies and estimates, refer to
our Annual Report on Form 10-K for the fiscal year ended January 2, 2010, which
was filed with the SEC on March 24, 2010. There were no significant
changes to the Company’s critical accounting policies during the three months
ended April 3, 2010.
2.
DISCONTINUED OPERATIONS
The
Company accounts for its discontinued operations under the provisions of FASB
Accounting Standards Codification Topic 360. Accordingly, results of operations
and the related charges for discontinued operations have been classified as
“Loss from discontinued operations, net of tax” in the accompanying Consolidated
Statements of Operations. Assets and liabilities of discontinued operations have
been reclassified and reflected on the accompanying Consolidated Balance Sheets
as “Assets of discontinued operations” and “Liabilities of discontinued
operations”. For comparative purposes, all prior periods presented have been
reclassified on a consistent basis.
Lasertel
On March
5, 2010, Presstek sold Lasertel to SELEX Galileo Inc. (“SELEX”). The sale of
Lasertel to SELEX was for approximately $8 million in cash, certain net working
capital adjustments that still need to be finalized and, in addition, Presstek
was able to retain approximately $2 million of laser diodes inventory for
Presstek’s future production requirements. Lasertel, as a subsidiary of SELEX,
and in accordance with a supply agreement established between Lasertel and
Presstek on March 5, 2010, will manufacture semiconductor laser diodes for
Presstek for an initial period of three years. The net cash proceeds from this
sale were used to pay down debt. SELEX also assumed the current lease on the
Lasertel property in Tucson, Arizona.
Lasertel
incurred an operating loss of $0.6 million during the first quarter of fiscal
2010 prior to the sale date. Presstek recorded a gain on the disposition of
Lasertel of $0.5 million, bringing the aggregate loss from discontinued
operations for the first quarter of 2010 to $0.1 million.
- 7
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
Results
of operations of the discontinued business of Lasertel consist of the following
(in thousands, except per-share data):
Three
months ended
|
||||||||
April
3,
2010
|
April
4,
2009
|
|||||||
Revenues
from external customers
|
$ | 1,394 | $ | 1,975 | ||||
Loss
before income taxes
|
(78 | ) | (107 | ) | ||||
Benefit
from income taxes
|
-- | (22 | ) | |||||
Loss
from discontinued operations
|
(78 | ) | (85 | ) | ||||
Earnings
(loss) per share
|
0.00 | 0.00 |
Assets
and liabilities of the discontinued business of Lasertel consist of the
following (in thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Cash
and cash equivalents
|
$ | -- | $ | 585 | ||||
Receivables,
net
|
2,938 | |||||||
Inventories
|
3,774 | |||||||
Other
current assets
|
212 | |||||||
Property,
plant & equipment, net
|
4,377 | |||||||
Intangible
assets, net
|
696 | |||||||
Other
noncurrent assets
|
42 | |||||||
Total
assets
|
$ | -- | $ | 12,624 | ||||
Accounts
payable
|
$ | -- | $ | 729 | ||||
Accrued
expenses
|
459 | |||||||
Deferred
gain
|
4,015 | |||||||
Total
liabilities
|
$ | -- | $ | 5,203 |
3. ACCOUNTS
RECEIVABLE, NET
The
components of Accounts receivable, net are as follows (in
thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Accounts
receivable
|
$ | 25,560 | $ | 26,155 | ||||
Less
allowances
|
(3,382 | ) | (3,550 | ) | ||||
$ | 22,178 | $ | 22,605 |
- 8
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
4. INVENTORIES
The
components of Inventories are as follows (in thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Raw
materials
|
$ | 4,229 | $ | 4,485 | ||||
Work
in process
|
1,007 | 1,093 | ||||||
Finished
goods
|
23,451 | 24,800 | ||||||
$ | 28,687 | $ | 30,378 |
5. PROPERTY,
PLANT AND EQUIPMENT, NET
The
components of Property, plant and equipment, net, are as follows (in
thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Land
and improvements
|
$ | 1,301 | $ | 1,301 | ||||
Buildings
and leasehold improvements
|
22,412 | 22,443 | ||||||
Production
and other equipment
|
44,865 | 44,900 | ||||||
Office
furniture and equipment
|
9,838 | 9,865 | ||||||
Construction
in process
|
926 | 571 | ||||||
Total
property, plant and equipment, at cost
|
79,342 | 79,080 | ||||||
Accumulated
depreciation and amortization
|
(55,699 | ) | (54,773 | ) | ||||
Net
property, plant and equipment
|
$ | 23,643 | $ | 24,307 |
Construction
in process is generally related to production equipment not yet placed into
service.
The
Company recorded depreciation expense of $1.1 million in the first quarter of
fiscal 2010 and $0.9 million in the first quarter of fiscal
2009. Under the Company’s financing arrangements (see Note 6), all
property, plant and equipment are pledged as security.
- 9
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
6. FINANCING
ARRANGEMENTS
The
components of the Company’s outstanding borrowings at April 3, 2010 and January
2, 2010 are as follows (in thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Line
of credit
|
$ | 8,849 | $ | 17,910 |
On March
5, 2010, the Company entered into a Revolving Credit and Security Agreement
(“Credit Agreement”) among the Company, PNC Bank, National Association (“PNC”),
as Lender and as administrative agent for Lenders (PNC, in such agency capacity,
the “Agent”).
The
Credit Agreement replaces the Company's Amended and Restated Credit Agreement,
dated as of November 5, 2004, as amended, among the Company and RBS Citizens,
National Association, as Administrative Agent and Lender, KeyBank National
Association and TD Bank, N.A.
The new
Credit Agreement, maturing in three years from the date of the Credit Agreement,
provides for funding of up to $25.0 million. Borrowing availability
under the Revolver is determined on a percentage of eligible accounts receivable
and inventory of the Company and certain of its subsidiaries. The
Company may terminate the Credit Agreement at any time prior to the maturity
date upon thirty (30) days’ prior written notice and upon payment in full of all
outstanding obligations under the Credit Agreement. If the Company
terminates the Credit Agreement within the first 35 months after the date on
which the Credit Agreement is entered into, the Company must pay an early
termination fee as specified in the Credit Agreement. The Credit Agreement
requires the Company to prepay a portion of borrowings under the Credit
Agreement out of the proceeds of certain dispositions of property.
Borrowings
under the Credit Agreement bear interest at the Revolving Interest Rate. The
Revolving Interest Rate is defined in the Credit Agreement as an interest rate
per annum equal to (i) the sum of the Alternate Base Rate plus two and one
half percent (2.50%) with respect to domestic rate loans and (ii) the sum
of three and one-half percent (3.50%) plus the greater of (a) the
Eurodollar rate, and (b) one percent (1.0%) with respect to Eurodollar rate
loans, as applicable. The Alternate Base Rate is defined as a rate per
annum, for any day, equal to the higher of (i) PNC’s published reference
rate, (ii) the Federal Funds Open rate in effect on such day plus one half
of one percent (0.50%) and (iii) the Daily LIBOR Rate in effect on such day
plus one percent (1.0%). The Credit Agreement requires monthly interest
payments with respect to domestic rate loans and at the end of each interest
period with respect to Eurodollar rate loans.
Borrowings
under the Credit Agreement are secured by all of the assets of the Company and
certain of its domestic and foreign subsidiaries that guaranty the obligations
of the Company, including all receivables, equipment, general intangibles,
inventory, investment property, subsidiary stock, owned real property and
leasehold interests of the Company.
At April
3, 2010 and January 2, 2010, the Company had outstanding balances on its lines
of credit of $8.8 million and $17.9 million, respectively, with interest rates
of 4.8% and 7.25%, respectively. The amounts available under the
credit lines at April 3, 2010 and January 2, 2010 were $3.7 million and $6.8
million, respectively.
- 10
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
Under the
terms of the Credit Agreement, the Company is required to comply with certain
financial and non-financial covenants. Among other restrictions, the
Company is restricted in its ability to pay dividends, incur additional debt and
make acquisitions and divestitures, with certain exceptions. The key
financial covenants include a requirement for the Company to maintain at the end
of each fiscal quarter, commencing with the fiscal quarter ending January 1,
2011, a fixed charge coverage ratio of not less than 1.0 to 1.0 and a limit on
capital expenditures of $385,000 for the remainder of the Company’s first fiscal
quarter in 2010, $1,238,000, $1,139,000 and $614,000 for the second, third and
fourth fiscal quarters of the Company for the remainder of 2010, respectively,
and $4,000,000 in each fiscal year thereafter.
The
weighted average interest rate on the Company’s short-term borrowings was 4.80%
at April 3, 2010.
A copy of
the Credit Agreement is filed as Exhibit 10.1 to this report.
7. ACCRUED
EXPENSES
The
components of accrued expenses are as follows (in thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Accrued
payroll and employee benefits
|
$ | 2,173 | $ | 1,732 | ||||
Accrued
warranty
|
1,173 | 1,260 | ||||||
Accrued
restructuring and other charges
|
72 | 405 | ||||||
Accrual
for non-cash bonus plan
|
299 | - | ||||||
Accrued
legal
|
236 | 828 | ||||||
Accrued
professional fees
|
835 | 827 | ||||||
Other
|
2,654 | 2,997 | ||||||
$ | 7,442 | $ | 8,049 |
The
Company’s 2010 bonus plan states that employee bonuses will be issued in stock
upon the achievement of the 2010 full-year targets. As of April 3,
2010, the Company had an accrued expense related to its non-cash bonus plan of
$299,000. No bonus expenses were included in the 2009
results.
8. ACCRUED
WARRANTY
Product
warranty activity in the first three months of fiscal 2010 is as follows (in
thousands):
Balance
at January 2, 2010
|
$ | 1,260 | ||
Accruals
for warranties
|
(24 | ) | ||
Utilization
of accrual for warranty costs
|
(63 | ) | ||
Balance
at April 3, 2010
|
$ | 1,173 |
- 11
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
9. DEFERRED
REVENUE
The
components of Deferred revenue are as follows (in thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Deferred
service revenue
|
$ | 5,043 | $ | 5,645 | ||||
Deferred
product revenue
|
835 | 852 | ||||||
$ | 5,878 | $ | 6,497 |
10. RESTRUCTURING
AND OTHER CHARGES
During
the first three months of 2010, the Company utilized $0.3 million related to
restructuring reserves in the United States and United Kingdom.
The
expenses incurred in the first quarter of 2010 are expected to be fully paid by
the second quarter of 2010. These amounts are recorded on the
restructuring and other charges line in the consolidated statements of
operations.
The
activity for the first three months of fiscal 2010 related to the Company’s
restructuring accruals is as follows (in thousands):
Balance
January
2,
2010
|
Charged
to expense
|
Utilization
|
Balance
April
3,
2010
|
|||||||||||||
Severance
and fringe benefits
|
$ | 405 | $ | 12 | $ | (345 | ) | $ | 72 | |||||||
Executive
contractual obligations
|
-- | -- | -- | -- | ||||||||||||
Other
exit costs
|
-- | -- | -- | -- | ||||||||||||
$ | 405 | $ | 12 | $ | (345 | ) | $ | 72 |
- 12
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
11. STOCK-BASED
COMPENSATION
The
Company has equity incentive plans that are administered by the Compensation
Committee of the Board of Directors (the “Committee”). The Committee oversees
and approves which employees receive grants, the number of shares or options
granted and the exercise prices and other terms of the awards.
2008
Omnibus Incentive Plan
The 2008
Omnibus Incentive Plan (the “2008 Plan”), approved by the stockholders of the
Company on June 11, 2008, provides for the award of stock options, stock
issuances and other equity interests in the Company to employees, officers,
directors (including non-employee directors), consultants and advisors of the
Company and its subsidiaries. A total of 3,000,000 shares of common
stock, subject to anti-dilution adjustments, have been reserved under this plan.
Awards granted under this plan may have varying vesting and termination
provisions and can have no longer than a ten year contractual life. There were
969,723 options granted under this plan for the three months ended April 3, 2010
and 75,000 options granted under the 2008 Plan for the three months ended April
4, 2009. At April 3, 2010, there were 1,960,447 options outstanding
and 1,037,886 shares available for future grants under this plan.
Employee
Stock Purchase Plan
The
Company’s Employee Stock Purchase Plan (“ESPP”) is designed to provide eligible
employees of the Company and its participating U.S. subsidiaries an opportunity
to purchase common stock of the Company through accumulated payroll deductions.
The purchase price of the stock is equal to 85% of the fair market value of a
share of common stock on the first day or last day of each three-month offering
period, whichever is lower. All employees of the Company or participating
subsidiaries who customarily work at least 20 hours per week and do not own five
percent or more of the Company’s common stock are eligible to participate in the
ESPP. A total of 950,000 shares of the Company’s common stock, subject to
adjustment, have been reserved for issuance under this plan. The Company issued
20,983 shares of common stock under its ESPP for the three months ended April 3,
2010. The Company issued 28,421 shares of common stock under its ESPP for the
three months ended April 4, 2009.
Restricted
Stock and Non-plan Stock Options
In the
second quarter of fiscal 2007, the Company granted 300,000 shares of restricted
stock and 1,000,000 stock options to its President and Chief Executive Officer
(“CEO”) under a non-plan, non-qualified stock option agreement. The award of
restricted stock vested on May 10, 2007, the effective date of the CEO’s
employment agreement with the Company. The stock options granted under the stock
option agreement provide for vesting of 200,000 options on May 10, 2007, 200,000
on January 1, 2008, 200,000 on January 1, 2009, 200,000 on January 1, 2010 and
200,000 on January 1, 2011, subject to service conditions only.
Stock-Based
Compensation
Stock-based
compensation associated with stock option grants to all officers, directors, and
employees is included as a component of “General and administrative expense” in
the Company’s Consolidated Statements of Operations.
- 13
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
Stock
based compensation expense for the three months ended April 3, 2010 and April 4,
2009 is as follows (in thousands):
Three
months ended
|
||||||||
Stock option plan
|
April
3,
2010
|
April
4,
2009
|
||||||
2003
Plan
|
$ | 97 | $ | 110 | ||||
2008
Plan
|
277 | 205 | ||||||
1998
Plan
|
1 | 3 | ||||||
ESPP
|
8 | 10 | ||||||
Non-plan,
non-qualified
|
129 | 129 | ||||||
Total
|
$ | 512 | $ | 457 |
As of
April 3, 2010, there was $3.2 million of unrecognized compensation expense
related to stock option grants. The weighted average period over which the
remaining unrecognized compensation expense will be recognized is 1.7
years.
Valuation
Assumptions
ESPP
The fair
value of the rights to purchase shares of common stock under the Company’s ESPP
was estimated on the commencement date of the offering period using the
Black-Scholes valuation model with the following assumptions:
Three
months ended
|
||||||||
April
3,
2010
|
April
4,
2009
|
|||||||
Risk-free
interest rate
|
0.15 | % | 0.00 | % | ||||
Volatility
|
72.45 | % | 162.48 | % | ||||
Expected
life (in years)
|
0.25 | 0.25 | ||||||
Dividend
yield
|
-- | -- |
Based on
the above assumptions, the weighted average fair values of each stock purchase
right under the Company’s ESPP for the first three months of 2010 and 2009 was
$0.53 and $0.89, respectively.
- 14
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
Plan
Options
The fair
value of the options to purchase common stock granted in the first three months
of fiscal 2010 and fiscal 2009 were under the 2008 Plan and was estimated on the
respective grant dates using the Black-Scholes valuation model with the
following assumptions:
Three
months ended
|
||||||||
April
3,
2010
|
April
4,
2009
|
|||||||
Risk-free
interest rate
|
2.61 | % | 2.46 | % | ||||
Volatility
|
76.4 | % | 68.48 | % | ||||
Expected
life (in years)
|
5.83 | 5.67 | ||||||
Dividend
yield
|
-- | -- |
Based on
the above assumptions, the weighted average fair value of each option to
purchase a share of the Company’s common stock granted in the first three months
of fiscal 2010 and fiscal 2009 under the 2008 Plan was $1.66 and $2.02,
respectively.
Restricted
Stock Award
There
were no restricted stock grants in the first three months of fiscal 2010 and
2009.
Non-Plan
Stock Options
There
were no non-plan options granted in the first three months of fiscal 2010 and
2009.
Expected
volatilities are based on historical volatilities of Presstek’s common
stock. The expected life represents the weighted average period of
time that options granted are expected to be outstanding giving consideration to
vesting schedules, the Company’s historical exercise patterns and the ESPP
purchase period. The risk-free rate is based on a U.S. Treasury
securities rate for the period corresponding to the expected life of the options
or ESPP purchase period.
Stock
Option Activity
Stock
option activity for the three months ended April 3, 2010 is summarized as
follows:
Shares
|
Weighted
average
exercise
price
|
Weighted
average remaining contractual life
|
Aggregate
intrinsic value
|
|||||||
Outstanding
at January 2, 2010
|
4,293,741 | $ | 6.77 |
6.05
years
|
$0.1
million
|
|||||
Granted
|
969,723 | $ | 2.47 | |||||||
Exercised
|
1,667 | $ | 3.38 | |||||||
Canceled/expired
|
40,108 | $ | 5.91 | |||||||
Outstanding
at April 3, 2010
|
5,221,689 | $ | 5.98 |
6.52
years
|
$2.8
million
|
|||||
Exercisable
at April 3, 2010
|
3,244,331 | $ | 7.27 |
5.15
years
|
$0.3
million
|
- 15
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
During
the three months ended April 3, 2010, the total intrinsic value of stock options
exercised was approximately $2 thousand.
There
were no options exercised during the first quarter of fiscal 2009.
12. INTEREST
AND OTHER INCOME (EXPENSE)
The
components of Interest and other income (expense), net, are as follows (in
thousands):
Three
months ended
|
||||||||
April
3,
2010
|
April
4,
2009
|
|||||||
Interest
income
|
$ | 1 | $ | 18 | ||||
Interest
expense
|
(302 | ) | (74 | ) | ||||
Other
income (expense), net
|
(71 | ) | 516 | |||||
$ | (372 | ) | $ | 460 |
The
amounts reported as Interest and other income (expense), net include among other
items $0.1 million and $0.8 million, respectively, for losses on foreign
currency transactions for the three months ended April 3, 2010 and April 4,
2009, and a $1.2 million gain from settlement of a lawsuit for the three months
ended April 4, 2009. Included in interest expense is the amortization
of loan origination costs incurred in connection with the establishment of our
new credit facility. The costs were capitalized and are being amortized over the
three year period of the credit agreement.
13. INCOME
TAXES
The
Company provides for income taxes at the end of each interim period based on the
estimated effective tax rate for the full fiscal year. Cumulative
adjustments to the tax provision are recorded in the interim period in which a
change in the estimated annual effective rate is determined.
The
Company’s tax benefit was $0.1 million and $0.3 million for the three months
ended April 3, 2010 and April 4, 2009, respectively, on pre-tax loss from
continuing operations of $0.6 million and $1.4 million for the respective
periods. The tax benefit of $0.1 million for the three month period ended April
3, 2010 primarily relates to net operating losses incurred by the Company’s
European subsidiaries that are expected to be utilized in future
periods.
The
Company reviews the carrying amount of its deferred tax assets each reporting
period to determine if the establishment of a valuation allowance is
necessary. Consideration is given to all positive and negative
evidence related to the realization of the deferred tax assets.
In
analyzing the available evidence, management evaluated historical financial
performance, length of statutory carry forward periods, experience with
operating loss and tax credit carry forwards not expiring unused, tax planning
strategies and reversals of temporary differences. The Company’s
evaluation is based on current tax laws. Changes in existing laws and future
results that differ from expectations may result in significant changes to the
deferred tax assets valuation allowance.
At April
3, 2010, our deferred tax assets, net of valuation allowance, amounted to $1.6
million which is associated with the Company’s European and Canadian
entities.
- 16
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
14. COMPREHENSIVE
LOSS
Comprehensive
loss is comprised of net loss, and all changes in equity of the Company
during
the
period from non-owner sources. These changes in equity are recorded
as adjustments to accumulated other comprehensive loss in the Company’s
Consolidated Balance Sheets.
The
primary component of accumulated other comprehensive loss is unrealized gains or
losses on foreign currency translation. The components of
comprehensive loss are as follows (in thousands):
Three
months ended
|
||||||||
April
3,
2010
|
April
4,
2009
|
|||||||
Net
loss
|
$ | (622 | ) | $ | (1,191 | ) | ||
Changes
in accumulated other comprehensive income:
|
||||||||
Unrealized
foreign currency translation gains (losses)
|
(783 | ) | 222 | |||||
Comprehensive
loss
|
$ | (1,405 | ) | $ | (969 | ) |
15. SEGMENT
AND GEOGRAPHIC INFORMATION
Presstek
is a market-focused high technology company that designs, manufactures and
distributes proprietary and non-proprietary solutions to the graphic arts
industries, primarily serving short-run, full-color customers. The Company’s
operations are organized based on the market application of our products and
related services and until quarter ending April 3, 2010 consisted of two
business segments: Presstek and Lasertel. The Presstek segment is primarily
engaged in the development, manufacture, sale and servicing of our patented
digital imaging systems and patented printing plate technologies and related
equipment and supplies for the graphic arts and printing industries, primarily
serving the short-run, full-color market segment. Lasertel manufactures and
develops high-powered laser diodes for sale to Presstek and external
customers.
The
Lasertel segment was reclassified as discontinued operations in the third
quarter of fiscal 2008, once the operations became held for sale. On March 5,
2010, Presstek sold the Lasertel subsidiary to SELEX. Subsequent to the sale
date, the Company will conduct business in only one industry segment, the
Presstek segment. See Note 2.
- 17
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
The
Company’s classification of revenue from continuing operations by geographic
area is determined by the location of the Company’s customer. The
following table summarizes revenue information by geographic area (in
thousands):
Three
months ended
|
||||||||
April
3,
2010
|
April
4,
2009
|
|||||||
United
States
|
$ | 22,332 | $ | 22,106 | ||||
United
Kingdom
|
4,462 | 4,292 | ||||||
All
other
|
7.697 | 8,062 | ||||||
$ | 34,491 | $ | 34,460 |
The
Company’s long-lived assets by geographic area are as follows (in
thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
United
States
|
$ | 28,007 | $ | 27,296 | ||||
United
Kingdom
|
1,744 | 1,620 | ||||||
Canada
|
1,354 | 1,328 | ||||||
$ | 31,105 | $ | 30,244 |
- 18
-
PRESSTEK, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
16. RELATED
PARTIES
The
Company engages the services of Amster, Rothstein & Ebenstein, a law firm of
which Board member Daniel S. Ebenstein is a partner. Expenses
incurred for services from this law firm were $22,000 (including $5,000 of
pass-through expenses), and $0.4 million (including $0.2 million of pass-through
expenses) for the three months ended April 3, 2010 and April 4, 2009,
respectively.
17. COMMITMENTS
AND CONTINGENCIES
Commitments &
Contingencies
The
Company has change of control agreements with certain of its senior management
employees that provide them with benefits should their employment with the
Company be terminated other than for cause, as a result of disability or death,
or if they resign for good reason, as defined in these agreements, within a
certain period of time from the date of any change of control of the
Company.
From time
to time the Company has engaged in sales of equipment that is leased by or
intended to be leased by a third party purchaser to another party. In
certain situations, the Company may retain recourse obligations to a financing
institution involved in providing financing to the ultimate lessee in the event
the lessee of the equipment defaults on its lease obligations. In
certain such instances, the Company may refurbish and remarket the equipment on
behalf of the financing company, should the ultimate lessee default on payment
of the lease. In certain circumstances, should the resale price of
such equipment fall below certain predetermined levels, the Company would, under
these arrangements, reimburse the financing company for any such shortfall in
sale price (a “shortfall payment”). Generally, the Company’s
liability for these recourse agreements is limited to 9.5% or less of the amount
outstanding. The maximum amount for which the Company may be liable
to the financial institution for the shortfall payment was approximately $1.2
million at April 3, 2010.
Litigation
On
February 4, 2008, the Company received from the SEC a formal order of
investigation relating to the previously disclosed SEC inquiry regarding the
Company's announcement of preliminary financial results for the third quarter of
fiscal 2006. The Company is cooperating fully with the SEC's
investigation. On July 22, 2009 the Company received a “Wells” Notice
from the staff of the SEC informing the Company that the staff intends to
recommend that the SEC bring a civil injunctive action against the Company
alleging that the Company violated Section 10(b) and 13(a) of the Securities
Exchange Act of 1934, Rule 10b-5 and regulation Fair Disclosure
thereunder. The SEC staff also informed the Company that in
connection with the contemplated charges, the staff may seek a permanent
injunction and civil penalties. During the third quarter of 2009, the Company
accrued the amount of $400,000 for a potential civil penalty, which the Company
has determined to be the probable amount of penalties based upon discussions
with the SEC staff. On March 9, 2010 the Company announced that it had reached a
settlement of the SEC investigation and agreed to pay a civil penalty of
$400,000. The settlement is subject to U.S. District Court
approval.
On
September 10, 2008 a purported shareholder derivative claim against certain
current and former directors and officers of the Company was filed in the United
States District Court for the District of New Hampshire. The complaint alleges
breaches of fiduciary duty by the defendants and seeks unspecified damages. On
September 25, 2008 the parties reached agreement on a settlement of the claim,
subject to documentation and receipt of court approval. On January
21, 2010, the Court approved the settlement and dismissed the
case.
- 19
-
PRESSTEK,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 3,
2010
(Unaudited)
In
February 2008 we filed a complaint with the ITC against VIM and its
manufacturing partner Hanita Coatings for infringement of Presstek’s patent and
trademark rights. Presstek also sued four U.S. based distributors of VIM
products: Spicers Paper, Inc., Guaranteed Service & Supplies, Inc., Ohio
Graphco Inc., and Recognition Systems Inc., as well as one Canadian based
distributor, AteCe Canada. The Company has settled with Ohio Graphco Inc., which
has agreed to cease the importation, use and sale of VIM plates and also agreed
to cooperate with the ITC in its investigation of VIM’s alleged patent
infringement. Presstek sought, among other things, an order from the ITC
forbidding the importation and sale of the VIM printing plates in the United
States; such an order would be enforced at all U.S. borders by the U.S. Customs
Service. On November 30, 2009 the ITC determined that VIM infringed Presstek’s
valid and enforceable patents and ordered that the importation of the infringing
VIM products into the United States be banned. The ITC order took
effect on January 30, 2010 following a required 60-day Presidential review
period.
Presstek
is a party to other litigation that it considers routine and incidental to its
business however it does not expect the results of any of these actions to have
a material adverse effect on its business, results of operation or financial
condition.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The
following discussion of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and related
notes thereto included elsewhere in this Quarterly Report on Form
10-Q. This discussion contains forward-looking statements, which
involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks described below in the section entitled
“Information Regarding Forward-Looking Statements” and in “Part I, Item 1A, Risk
Factors” of our Annual Report on Form 10-K for the year ended January 2, 2010,
as filed with the SEC on March 24, 2010.
Overview
of the Company
The
Company is a provider of high-technology, digital-based printing solutions to
the commercial print segment of the graphics communications industry. The
Company designs, manufactures and distributes proprietary and non-proprietary
solutions aimed at serving the needs of a wide range of print service providers
worldwide. Our proprietary digital imaging and advanced technology consumables
offer superior business solutions for commercial printing focusing on the
growing need for short-run, high quality color applications. We are helping to
lead the industry’s transformation from analog print production methods to
digital imaging technology. We are a leader in the development of advanced
printing systems using digital imaging equipment, workflow and consumables-based
solutions that economically benefit the user through streamlined operations and
chemistry-free, environmentally responsible solutions. We are also a leading
sales and service channel across a broadly served market in the small to
mid-sized commercial, quick and in-plant printing segments.
Presstek’s
business model is a capital equipment and consumables model. In this model,
approximately two-thirds (on average) of our revenue is recurring revenue. Our
model is designed so that each placement of either a DI® press
or a CTP system generally results in recurring aftermarket revenue for
consumables and service. We also provide consumables for use on
equipment purchased by end users from other manufacturers and
suppliers.
Commencing
with the second quarter of the fiscal year to end January 1, 2011 (“fiscal
2010”), the Company’s reports filed with the SEC will reflect that the Company
conducts business in one industry segment as a result of its sale of Lasertel on
March 5, 2010. Prior to March 5, 2010, we conducted business in two
segments as reflected in
- 20
-
this
report: (i) Presstek and (ii) Lasertel. Segment operating results are based on
the current organizational structure as reviewed by our management to evaluate
the results of each business. A description of the types of products and
services provided by each business segment follows.
·
|
Presstek is primarily
engaged in the development, manufacture, sale, distribution, and servicing
of our business solutions using patented digital imaging systems and
patented printing plate technologies. We also provide
traditional, analog systems and related equipment and supplies for the
graphic arts and printing
industries.
|
·
|
Lasertel manufactures
and develops high-powered laser diodes and related laser products for
Presstek and for sale to external
customers.
|
On
September 24, 2008, the Board of Directors approved a plan to sell the Lasertel
subsidiary; as such the Company has presented the results of operations of this
subsidiary within discontinued operations.
Through
our Presstek segment we generate revenue through three main sources: (i) the
sale of our equipment and related workflow software, including DI®
presses and CTP devices, (ii) the sale of our proprietary and non-proprietary
consumables and supplies; and (iii) the servicing of offset printing systems and
analog and CTP systems and related equipment. Prior to its sale on
March 5, 2010, our Lasertel segment generated revenue through the sale of
high-powered laser diodes for the graphic arts, defense and industrial
sectors.
Strategy
Our
business strategy is centered on maximizing the sale of consumable products,
such as printing plates, and therefore our business efforts focus on the sale of
“consumable burning engines” such as our DI®
presses and CTP devices, as well as the servicing of customers using our
business solutions. Our strategy centers on increasing the number of our DI® and
CTP units, which increases the demand for our consumables.
General
We
operate and report on a 52- or 53-week, fiscal year ending on the Saturday
closest to December 31. Accordingly, the accompanying consolidated financial
statements include the thirteen week periods ended April 3, 2010 (the “first
quarter and first three months of fiscal 2010” or “the three months ended April
3, 2010”) and April 4, 2009 (the “first quarter and first three months of fiscal
2009” or “the three months ended April 4, 2009”).
We intend
the discussion of our financial condition and results of operations that follows
to provide information that will assist in understanding our consolidated
financial statements, the changes in certain key items in those financial
statements from year to year, and the primary factors that accounted for those
changes, as well as how certain accounting principles, policies and estimates
affect our consolidated financial statements.
- 21
-
RESULTS
OF OPERATIONS
Results
of operations in dollars and as a percentage of revenue were as follows (in
thousands of dollars):
Three
months ended
|
||||||||||||||||
April
3,
2010
|
April
4,
2009
|
|||||||||||||||
%
of
revenue
|
%
of
revenue
|
|||||||||||||||
Revenue:
|
||||||||||||||||
Equipment
|
$ | 6,393 | 18.5 | $ | 4,987 | 14.5 | ||||||||||
Consumables
|
21,495 | 62.4 | 21,909 | 63.6 | ||||||||||||
Service
and parts
|
6,603 | 19.1 | 7,564 | 21.9 | ||||||||||||
Total
revenue
|
34,491 | 100.0 | 34,460 | 100.0 | ||||||||||||
Cost
of revenue:
|
||||||||||||||||
Equipment
|
6,098 | 17.7 | 4,692 | 13.6 | ||||||||||||
Consumables
|
11,846 | 34.4 | 11,685 | 33.9 | ||||||||||||
Service
and parts
|
5,154 | 14.9 | 5,989 | 17.4 | ||||||||||||
Total
cost of revenue
|
23,098 | 67.0 | 22,366 | 64.9 | ||||||||||||
Gross
profit
|
11,393 | 33.0 | 12,094 | 35.1 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
1,081 | 3.1 | 1,260 | 3.7 | ||||||||||||
Sales,
marketing and customer support
|
5,284 | 15.3 | 6,365 | 18.5 | ||||||||||||
General
and administrative
|
5,077 | 14.8 | 5,972 | 17.3 | ||||||||||||
Amortization
of intangible assets
|
210 | 0.6 | 254 | 0.7 | ||||||||||||
Restructuring
and other charges
|
12 | - | 84 | 0.2 | ||||||||||||
Total
operating expenses
|
11,664 | 33.8 | 13,935 | 40.4 | ||||||||||||
Operating
loss
|
(271 | ) | (0.8 | ) | (1,841 | ) | (5.3 | ) | ||||||||
Interest
and other income (expense), net
|
(372 | ) | (1.1 | ) | 460 | 1.3 | ||||||||||
L
Loss from continuing operations before income taxes
|
(643 | ) | (1.9 | ) | (1,381 | ) | (4.0 | ) | ||||||||
Benefit
for income taxes
|
(99 | ) | (0.3 | ) | (275 | ) | (0.8 | ) | ||||||||
Loss
from continuing operations
|
(544 | ) | (1.6 | ) | (1,106 | ) | (3.2 | ) | ||||||||
Loss
from discontinued operations, net of tax
|
(78 | ) | (0.2 | ) | (85 | ) | (0.2 | ) | ||||||||
Net
loss
|
$ | (622 | ) | (1.8 | ) | $ | (1,191 | ) | (3.4 | ) |
- 22
-
Three months ended April 3,
2010 compared to three months ended April 4, 2009
Revenue
Consolidated
revenues were $34.5 million in the first quarter of 2010, the same level that
was achieved in the 2009 first quarter. The flat revenue level was
caused by increases in equipment sales, “growth” DI plates and thermal CTP
plates and favorable exchange impacts; offset by year-on-year declines in
“traditional” consumables and service revenues.
Equipment
revenues increased by 28.2% to $6.4 million in the first quarter of 2010 from
$5.0 million in the prior year first quarter. During the past two
years equipment sales have been significantly impacted by the deterioration of
the economy. However, we are starting to see signs of recovery in the
graphics capital equipment market over the past two quarters. Gross
revenue of “growth” portfolio DI presses and peripherals increased to $4.8
million in the current year first quarter from $3.5 million in the first quarter
of 2009. Gross revenue of our remaining “growth” portfolio of
equipment, Dimension Excel, Dimension Pro, Compass, and Vector platesetters,
declined from $1.1 million in the first quarter of 2009 to $0.9 million in the
current year quarter. Equipment sales of our “traditional” line of
products, defined as QMDI presses, polyester CTP platesetters, and conventional
equipment, were also lower in the first quarter of 2010 compared to 2009 first
quarter due to the on-going transition of our customer base from analog to
digital technologies. Gross revenues from our “traditional” line of
equipment products declined from $1.1 million in the 2009 first quarter to $1.0
million in the current year’s quarter. As a percentage of gross
equipment revenue, sales of “growth” portfolio products increased to 84.8% of
revenue in the first fiscal quarter of 2010 from 79.1% in the first fiscal
quarter of 2009.
Consumables
product revenues declined from $21.9 million in the first quarter of 2009 to
$21.5 million in the current year quarter due primarily to the increases in our
“growth” plate portfolio being more than offset by lower sales of our
“traditional” portfolio of consumables. Sales of
Presstek’s “growth” portfolio of consumables, defined as 52DI, 34DI, and thermal
CTP plates, increased to $8.0 million in the current quarter from $7.5 million
in the first quarter of 2009. Overall sales of Presstek’s “growth”
portfolio of DI plates increased to $4.3 million in the first quarter of 2010
from $4.0 million in the prior year. Sales of thermal CTP plates
increased by 10% in the 2010 first quarter from $3.4 million in the first
quarter of 2009. Sales of Presstek’s “traditional” plate
products, consisting of QMDI, other DI, and polyester plates, declined from $8.2
million in first quarter 2009 to $7.8 million in the current year’s quarter,
while sales of other “traditional” consumables products declined from $6.3
million to $5.6 million in the quarter.
Service
and parts revenues were $6.6 million in the first quarter of 2010 reflecting a
decrease of $1.0 million, or 13%, from the prior year. The decrease
is due primarily to the impacts on service of the overall decrease in equipment
placements that occurred in 2009 and a general trend by customers to delay
service calls and maintenance to save money in a difficult economy.
Cost
of Revenue
Consolidated
cost of product, consisting of costs of material, labor and overhead, shipping
and handling costs and warranty expenses, was $17.9 million in the first quarter
of fiscal year 2010, compared to $16.4 million in the first quarter of fiscal
year 2009, an increase of 9.6%. The increase was due primarily to a
4% increase in product revenues and a shift in the product revenue mix in the
2010 first quarter to be more heavily weighted toward equipment sales, which
have a higher portion of cost related to them.
Consolidated
cost of service and parts was $5.2 million in the first quarter of fiscal year
2010, compared to $6.0 million in the same prior year period. These
amounts represent the costs of spare parts, labor and overhead associated with
the ongoing service of products. The reduction in overall cost is due
primarily to a declining revenue base, as well as lower parts
revenues.
- 23
-
Gross
Profit
Consolidated
gross profit as a percentage of total revenue was 33.0% in the first quarter of
fiscal 2010 compared to 35.1% in the first quarter of fiscal year
2009.
Gross
profit as a percentage of product revenues was 35.7% in the first quarter of
fiscal 2010 compared to 39.1% in the comparable prior year period. The reduction
versus the first quarter of fiscal 2009 was due primarily to an unfavorable mix
of products with a higher proportion of equipment revenue which typically has
lower margins and reduced productivity in our Hudson, NH manufacturing facility
due to reduced volume levels.
Gross
profit as a percentage of service revenues increased slightly from 20.8% in the
first quarter of fiscal 2009 to 21.9% in the first quarter of fiscal
2010.
Research
and Development
Research
and development expenses primarily consist of payroll and related expenses for
personnel, parts and supplies, and contracted services required to conduct our
equipment and consumables development efforts.
Research
and development expenses were $1.1 million in the first quarter of fiscal 2010
compared to $1.3 million in the first quarter of fiscal 2009. This
reduction was due primarily to lower parts and supplies expense related to
product development, lower payroll costs and reduced professional service
fees.
Sales,
Marketing and Customer Support
Sales,
marketing and customer support expenses primarily consist of payroll and related
expenses for personnel, advertising, trade shows, promotional expenses, and
travel costs associated with sales, marketing and customer support
activities.
Sales,
marketing and customer support expenses decreased from $6.4 million in the first
quarter of fiscal year 2009 to $5.3 million in the first quarter of 2010, a
decrease of $1.1 million, or 17.0%. The decline in expenses resulted
primarily from lower payroll costs, professional service fees and travel related
costs.
General
and Administrative
General
and administrative expenses are primarily comprised of payroll and related
expenses, including stock compensation, for personnel and contracted
professional services necessary to conduct our general management, finance,
information systems, human resources and administrative activities.
General
and administrative expenses were $5.1 million in the first quarter of fiscal
2010 compared to $6.0 million in 2009, a decrease of $0.9 million, or
15.0%. Lower expenses resulted primarily from lower payroll and
professional service costs; offset primarily by an increase in costs related to
the 2010 bonus plan, which is a non-cash expense.
Amortization
of Intangible Assets
Amortization
expense was $0.2 million in the first quarter of fiscal 2010, compared to $0.3
million in the prior year first quarter. These expenses relate to
intangible assets recorded in connection with the Company’s 2004 ABDick
acquisition, patents and other purchased intangible assets.
Restructuring
and Other Charges
We had
essentially no restructuring and other charges in the first quarter of
2010. In the first quarter of 2009, we recognized $0.1 million of
restructuring costs related to employee severance.
- 24
-
Interest
and Other Expense, Net
Net
interest and other expense was $0.4 million in the first quarter of 2010
compared to net interest and other income of $0.5 million in the first quarter
of 2009. Net interest expense of $0.3 million in the first quarter of
2010 reflected an increase of $0.2 million from the comparable prior year period
due to higher interest rates under the forbearance agreement with our prior
revolving credit facility lender. On March 5, 2010, we entered into a
new asset based revolving credit facility and repaid all amounts outstanding
under the prior revolving credit facility. The amounts reported as other income
(expense), net include among other items $0.1 million and $0.8 million,
respectively, for losses on foreign currency transactions for the three months
ended April 3, 2010 and April 4, 2009, respectively, and a $1.2 million gain
from settlement of a lawsuit for the three months ended April 4,
2009.
Provision
for Income Taxes
The
Company provides for income taxes at the end of each interim period based on the
estimated effective tax rate for the full fiscal year. Cumulative
adjustments to the tax provision are recorded in the interim period in which a
change in the estimated annual effective rate is determined.
The
Company’s tax benefit was $0.1 million and $0.3 million for the three months
ended April 3, 2010 and April 4, 2009, respectively, on pre-tax loss from
continuing operations of $0.6 million and $1.4 million for the respective
periods. The tax benefit of $0.1 million for the three month period ended April
3, 2010 primarily relates to net operating losses incurred by the Company’s
European subsidiaries that are expected to be utilized in future
periods.
The
Company reviews the carrying amount of its deferred tax assets each reporting
period to determine if the establishment of a valuation allowance is
necessary. Consideration is given to all positive and negative
evidence related to the realization of the deferred tax assets.
In
analyzing the available evidence, management evaluated historical financial
performance, length of statutory carry forward periods, experience with
operating loss and tax credit carry forwards not expiring unused, tax planning
strategies and reversals of temporary differences. The Company’s
evaluation is based on current tax laws. Changes in existing laws and future
results that differ from expectations may result in significant changes to the
deferred tax assets valuation allowance.
At April
3, 2010, our deferred tax assets, net of valuation allowance, amounted to $1.6
million which is associated with the Company’s European and Canadian
entities.
Discontinued
Operations
The
Company accounts for its discontinued operations under the provisions of FASB
Accounting Standards Codification Topic 360. Accordingly, results of operations
and the related charges for discontinued operations have been classified as
“Loss from discontinued operations, net of income taxes” in the accompanying
Consolidated Statements of Operations. Assets and liabilities of discontinued
operations have been reclassified and reflected on the accompanying Consolidated
Balance Sheets as “Assets of discontinued operations” and “Liabilities of
discontinued operations”. For comparative purposes, all prior periods presented
have been reclassified on a consistent basis.
Lasertel
On March
5, 2010, Presstek sold Lasertel to SELEX Galileo Inc. (“SELEX”). The sale of
Lasertel to SELEX was for approximately $8 million in cash, certain net working
capital adjustments that still need to be finalized and, in addition, Presstek
was able to retain approximately $2 million of laser diodes inventory for
Presstek’s future production requirements. Lasertel, as a subsidiary of SELEX,
and in accordance with a supply agreement established between Lasertel and
Presstek on March 5, 2010, will manufacture semiconductor laser diodes for Presstek
for an initial period of three years. The net cash proceeds from this sale were
used to pay down debt. SELEX also assumed the current lease on the Lasertel
property in Tucson, Arizona.
- 25
-
Lasertel
incurred an operating loss of $0.6 million during the first quarter of fiscal
2010 prior to the sale date. Presstek recorded a gain on the disposition of
Lasertel of $0.5 million, bringing the aggregate loss from discontinued
operations for the first quarter of 2010 to $0.1 million.
Results
of operations of the discontinued business of Lasertel consist of the following
(in thousands, except per-share data):
Three
months ended
|
||||||||
April
3,
2010
|
April
4,
2009
|
|||||||
Revenues
from external customers
|
$ | 1,394 | $ | 1,975 | ||||
Loss
before income taxes
|
(78 | ) | (107 | ) | ||||
Benefit
from income taxes
|
-- | (22 | ) | |||||
Loss
from discontinued operations
|
(78 | ) | (85 | ) | ||||
Earnings
(loss) per share
|
0.00 | 0.00 |
Assets
and liabilities of the discontinued business of Lasertel consist of the
following (in thousands):
April
3,
2010
|
January
2,
2010
|
|||||||
Cash
and cash equivalents
|
$ | -- | $ | 585 | ||||
Receivables,
net
|
2,938 | |||||||
Inventories
|
3,774 | |||||||
Other
current assets
|
212 | |||||||
Property,
plant & equipment, net
|
4,377 | |||||||
Intangible
assets, net
|
696 | |||||||
Other
noncurrent assets
|
42 | |||||||
Total
assets
|
$ | -- | $ | 12,624 | ||||
Accounts
payable
|
$ | -- | $ | 729 | ||||
Accrued
expenses
|
459 | |||||||
Deferred
gain
|
4,015 | |||||||
Total
liabilities
|
$ | -- | $ | 5,203 |
- 26
-
Liquidity
and Capital Resources
Financial Condition (Sources
and Uses of Cash)
We
finance our operating and capital investment requirements primarily through cash
flows from operations and borrowings. At April 3, 2010, we had $3.5
million of cash and cash equivalents and $25.0 million of working capital,
including $8.8 million of short-term debt, compared to $5.3 million of cash and
cash equivalents and $35.1 million of working capital, including $14.9 million
of short-term debt at April 4, 2009.
Continuing
Operations
Our
operating activities provided $0.5 million of cash in the three months ended
April 3, 2010. Cash provided by operating activities came from a net
gain after adjustments for non-cash depreciation, amortization, provisions for
warranty costs,accounts receivable allowances, stock compensation expense, and
non-cash bonus expense of $1.8 million, offset partially by a use of cash from
operating assets and liabilities. The use of cash related to
operating assets and liabilities was, in large part, due to a decrease of $0.6
million in deferred revenue and a decrease of $0.9 million in accrued expenses.
The change in accrued expenses was due mainly to the timing of transactions and
related payments.
We used
$1.2 million of net cash for investing activities in the first quarter of fiscal
2010 primarily comprised of additions to property, plant and equipment and
additions to developed technology costs. Our additions to property,
plant and equipment relate primarily to equipment provided to our CTP plate
customers.
Our
financing activities used $9.8 million of cash, comprised primarily of $9.1
million of cash repayments under our lines of credit, plus $0.8 million of cash
payments related to establishment of our new financing facility.
Discontinued
Operations
Operating
activities of discontinued operations provided $1.4 million in cash in the first
three months of fiscal 2010. Investing activities of discontinued operations
provided $7.4 million in cash associated with the net proceeds from the sale of
Lasertel to SELEX.
- 27
-
Liquidity
On March
5, 2010, the Company entered into a Revolving Credit and Security Agreement
among the Company, PNC Bank, National Association (“PNC”), as Lender and as
administrative agent for Lenders (PNC, in such agency capacity, the
“Agent”).
The
Credit Agreement replaces the Company's Amended and Restated Credit Agreement,
dated as of November 5, 2004, as amended, among the Company and RBS Citizens,
National Association, as Administrative Agent and Lender, KeyBank National
Association and TD Bank, N.A.
The new
Credit Agreement, maturing in three years from the date of the Credit Agreement,
provides for funding of up to $25.0 million. Borrowing availability
under the Revolver is determined on a percentage of eligible account receivables
and inventory of the Company and certain of its subsidiaries. The
Company may terminate the Credit Agreement at any time prior to the maturity
date upon thirty (30) days’ prior written notice and upon payment in full of all
outstanding obligations under the Credit Agreement. If the Company
terminates the Credit Agreement within the first 35 months after the date on
which the Credit Agreement is entered into, the Company must pay an early
termination fee as specified in the Credit Agreement. The Credit Agreement
requires the Company to prepay a portion of borrowings under the
Credit Agreement out of the proceeds of certain dispositions of
property.
Borrowings
under the Credit Agreement bear interest at the Revolving Interest Rate. The
Revolving Interest Rate is defined in the Credit Agreement as an interest rate
per annum equal to (i) the sum of the Alternate Base Rate plus two and one
half percent (2.50%) with respect to domestic rate loans and (ii) the sum
of three and one-half percent (3.50%) plus the greater of (a) the
Eurodollar rate, and (b) one percent (1.0%) with respect to Eurodollar rate
loans, as applicable. The Alternate Base Rate is defined as a rate per
annum, for any day, equal to the higher of (i) PNC’s published reference
rate, (ii) the Federal Funds Open rate in effect on such day plus one half
of one percent (0.50%) and (iii) the Daily LIBOR Rate in effect on such day
plus one percent (1.0%). The Credit Agreement requires monthly interest
payments with respect to domestic rate loans and at the end of each interest
period with respect to Eurodollar rate loans.
Borrowings
under the Credit Agreement are secured by all of the assets of the Company and
certain of its domestic and foreign subsidiaries that guaranty the obligations
of the Company, including all receivables, equipment, general intangibles,
inventory, investment property, subsidiary stock, owned real property and
leasehold interests of the Company.
At April
3, 2010 and January 2, 2010, the Company had outstanding balances on its lines
of credit of $8.8 million and $17.9 million, respectively, with interest rates
of 4.8% and 7.25%, respectively. The amounts available under the credit lines at
April 3, 2010 and January 2, 2010 were $3.7 million and $6.8 million,
respectively.
Under the
terms of the Credit Agreement, the Company is required to comply with certain
financial and non-financial covenants. Among other restrictions, the
Company is restricted in its ability to pay dividends, incur additional debt and
make acquisitions and divestitures, with certain exceptions. The key
financial covenants include a requirement for the Company to maintain at the end
of each fiscal quarter, commencing with the fiscal quarter ending January 1,
2011, a fixed charge coverage ratio of not less than 1.0 to 1.0 and a limit on
capital expenditures of $385,000 for the remainder of the Company’s first fiscal
quarter in 2010, $1,238,000, $1,139,000 and $614,000 for the second, third and
fourth fiscal quarters of the Company for the remainder of 2010, respectively,
and $4,000,000 in each fiscal year thereafter.
The
weighted average interest rate on the Company’s short-term borrowings was 4.80%
at April 3, 2010.
We
believe that existing funds, cash flows from operations, and cash available from
the line of credit will be sufficient to satisfy cash requirements through at
least the next twelve months.
A copy of
the Credit Agreement is filed as Exhibit 10.1 to this report.
- 28
-
Commitments and
Contingencies
The
Company has change of control agreements with certain of its senior management
employees that provide them with benefits should their employment with the
Company be terminated other than for cause, as a result of disability or death,
or if they resign for good reason, as defined in these agreements, within a
certain period of time from the date of any change of control of the
Company.
From time
to time the Company has engaged in sales of equipment that is leased by or
intended to be leased by a third party purchaser to another party. In certain
situations, the Company may retain recourse obligations to a financing
institution involved in providing financing to the ultimate lessee in the event
the lessee of the equipment defaults on its lease obligations. In certain such
instances, the Company may refurbish and remarket the equipment on behalf of the
financing company, should the ultimate lessee default on payment of the lease.
In certain circumstances, should the resale price of such equipment fall below
certain predetermined levels, the Company would, under these arrangements,
reimburse the financing company for any such shortfall in sale price (a
“shortfall payment”). Generally, the Company’s liability for these recourse
agreements is limited to 9.5% of the amount outstanding. The maximum amount for
which the Company was liable to the financial institutions for the shortfall
payments was approximately $1.2 million at April 3, 2010.
On
February 4, 2008, the Company received from the SEC a formal order of
investigation relating to the previously disclosed SEC inquiry regarding the
Company's announcement of preliminary financial results for the third quarter of
fiscal 2006. The Company is cooperating fully with the SEC's
investigation. On July 22, 2009 the Company received a “Wells” Notice
from the staff of the SEC informing the Company that the staff intends to
recommend that the SEC bring a civil injunctive action against the Company
alleging that the Company violated Section 10(b) and 13(a) of the Securities
Exchange Act of 1934, Rule 10b-5 and regulation Fair Disclosure
thereunder. The SEC staff also informed the Company that in
connection with the contemplated charges, the staff may seek a permanent
injunction and civil penalties. During the third quarter of 2009, the Company
accrued the amount of $400,000 for a potential civil penalty, which the Company
has determined to be the probable amount of penalties based upon discussions
with the SEC staff. On March 9, 2010 the Company announced that it had reached a
settlement of the SEC investigation and agreed to pay a civil penalty of
$400,000. The settlement is subject to U.S. District Court
approval.
Effect
of Inflation
Inflation
has not had a material impact on our financial conditions or results of
operations.
- 29
-
Information
Regarding Forward-Looking Statements
Statements
other than those of historical fact contained in this Quarterly Report on Form
10-Q constitute “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, including, without limitation,
statements regarding the following:
•
|
our
expectations regarding our ability to comply with the terms of our
financing agreement;
|
||
•
|
the
adequacy of internal cash and working capital for our
operations;
|
||
•
|
manufacturing
constraints and difficulties;
|
||
•
|
the
introduction of competitive products into the
marketplace;
|
||
•
|
the
ability of the Company and its divisions to generate positive cash flows
in the near-term, or to otherwise be profitable;
|
||
•
|
our
ability to produce commercially competitive products;
|
||
•
|
the
strength of our various strategic partnerships, both on manufacturing and
distribution;
|
||
•
|
our
ability to secure other strategic alliances and
relationships;
|
||
•
|
our
expectations regarding the Company’s strategy for growth, including
statements regarding the Company’s expectations for continued product mix
improvement;
|
||
•
|
our
expectations regarding the balance, independence and control of our
business;
|
||
•
|
our
expectations and plans regarding market penetration, including the
strength and scope of our distribution channels and our expectations
regarding sales of Direct Imaging presses or computer-to-plate
devices;
|
||
•
|
the
commercialization and marketing of our technology;
|
||
•
|
our
expectations regarding performance of existing, planned and recently
introduced products;
|
||
•
|
the
adequacy of our intellectual property protections and our ability to
protect and enforce our intellectual property rights;
|
||
•
|
the
expected effect of adopting recently issued accounting standards, among
others; and
|
||
•
|
the
recoverability of our intangible assets and other long-lived
assets.
|
- 30
-
Such
forward-looking statements involve a number of known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors that could cause or contribute to such
differences include:
•
|
market
acceptance of and demand for our products and resulting
revenues;
|
||||
•
|
our
ability to meet our stated financial objectives;
|
||||
•
|
our
dependency on our strategic partners, both on manufacturing and
distribution;
|
||||
•
|
the
introduction of competitive products into the marketplace;
|
||||
•
|
shortages
of critical or sole-source component supplies;
|
||||
•
|
the
availability and quality of laser diodes;
|
||||
•
|
the
performance and market acceptance of our recently-introduced products, and
our ability to invest in new product development;
|
||||
•
|
manufacturing
constraints or difficulties (as well as manufacturing difficulties
experienced by our sub-manufacturing partners and their capacity
constraints);
|
||||
•
|
the
impact of general market factors in the print industry in
general;
|
||||
•
|
our
ability to comply with the terms of our credit facilities;
|
||||
•
|
current
capital and credit market conditions and its potentially adverse affect on
our access to capital, cost of capital and business operations;
and
|
||||
•
|
Current
economic conditions and its affects on the Company’s business and results
from operations.
|
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 of this report and readers are advised to consider such
forward-looking statements in light of the risks set forth herein. Presstek
undertakes no obligation to update any forward-looking statements contained in
this Quarterly Report on Form 10-Q, except as required by law.
- 31
-
Critical
Accounting Policies and Estimates
General
Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting
principles. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to product
returns; warranty obligations; allowances for doubtful accounts; slow-moving and
obsolete inventories; income taxes; the valuation of goodwill, intangible
assets, long-lived assets and deferred tax assets; stock-based compensation and
litigation. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
For a
complete discussion of our critical accounting policies and estimates, refer to
our Annual Report on Form 10-K for the fiscal year ended January 2, 2010 which
was filed with the SEC on March 24, 2010. There were no significant
changes to the Company’s critical accounting policies in the three months ended
April 3, 2010.
Off-Balance
Sheet Arrangements
We do not
participate in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (“SPEs”), which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purpose. At April 3, 2010, we
were not involved in any unconsolidated SPE transactions.
Item 4. Controls and Procedures
This
report includes the certifications of our Chief Executive Officer and Chief
Financial Officer required by Rule 13a-14 under the Securities Exchange Act of
1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes
information concerning the controls and procedures and evaluations thereof
referred to in those certifications.
Evaluation of Disclosure
Controls and Procedures
An
evaluation was performed under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures as the end of the period covered by
this quarterly report. Based on that evaluation, the Company’s
management, including the CEO and CFO, concluded that the Company’s disclosure
controls and procedures are effective as the end of the period covered by this
quarterly report.
Changes
in Internal Control over Financial Reporting
During
the first quarter of fiscal 2010, there has been no change in the Company’s
internal control over financial reporting that has materially affected or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
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PART II OTHER INFORMATION
Litigation
On
February 4, 2008, the Company received from the SEC a formal order of
investigation relating to the previously disclosed SEC inquiry regarding the
Company's announcement of preliminary financial results for the third quarter of
fiscal 2006. The Company is cooperating fully with the SEC's
investigation. On July 22, 2009 the Company received a “Wells” Notice
from the staff of the SEC informing the Company that the staff intends to
recommend that the SEC bring a civil injunctive action against the Company
alleging that the Company violated Section 10(b) and 13(a) of the Securities
Exchange Act of 1934, Rule 10b-5 and regulation Fair Disclosure
thereunder. The SEC staff also informed the Company that in
connection with the contemplated charges, the staff may seek a permanent
injunction and civil penalties. During the third quarter of 2009, the Company
accrued the amount of $400,000 for a potential civil penalty, which the Company
has determined to be the probable amount of penalties based upon discussions
with the SEC staff. On March 9, 2010 the Company announced that it had reached a
settlement of the SEC investigation and agreed to pay a civil penalty of
$400,000. The settlement is subject to U.S. District Court
approval.
On
September 10, 2008 a purported shareholder derivative claim against certain
current and former directors and officers of the Company was filed in the United
States District Court for the District of New Hampshire. The complaint alleges
breaches of fiduciary duty by the defendants and seeks unspecified damages. On
September 25, 2008 the parties reached agreement on a settlement of the claim,
subject to documentation and receipt of court approval. On January 21, 2010, the
Court approved the settlement and dismissed the case.
In
February 2008 we filed a complaint with the ITC against VIM and its
manufacturing partner Hanita Coatings for infringement of Presstek’s patent and
trademark rights. Presstek also sued four U.S. based distributors of VIM
products: Spicers Paper, Inc., Guaranteed Service & Supplies, Inc., Ohio
Graphco Inc., and Recognition Systems Inc., as well as one Canadian based
distributor, AteCe Canada. The Company has settled with Ohio Graphco Inc., which
has agreed to cease the importation, use and sale of VIM plates and also agreed
to cooperate with the ITC in its investigation of VIM’s alleged patent
infringement. Presstek sought, among other things, an order from the ITC
forbidding the importation and sale of the VIM printing plates in the United
States; such an order would be enforced at all U.S. borders by the U.S. Customs
Service. On November 30, 2009 the ITC determined that VIM infringed Presstek’s
valid and enforceable patents and ordered that the importation of the infringing
VIM products into the United States be banned. The ITC order took
effect on January 30, 2010 following a required 60-day Presidential review
period.
Presstek
is a party to other litigation that it considers routine and incidental to its
business however it does not expect the results of any of these routine and
incidental actions to have a material adverse effect on its business, results of
operation or financial condition.
Except as
noted with respect to the proceedings noted above, during the three months ended
April 3, 2010, there have been no material changes to legal proceedings from
those considered in our Annual Report on From 10-K for the year ended January 2,
2010, filed with the U.S. Securities and Exchange Commission (“SEC”) on March
24, 2010.
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Exhibit
No.
|
Description
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
10.1
|
Revolving
Credit and Security Agreement dated as of March 5, 2010 by and among PNC
Bank, National Association (as lender and as agent for other lenders) and
the Company (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed on March 10, 2010).
|
Canadian
Guarantor Security Agreement, dated as of March 19, 2010 of Presstek
Canada Corp./Corporation Presstek Canada in favor of PNC Bank, National
Association (as lender and agent).
|
|
Charge
Over Shares, dated March 5, 2010 between Presstek Overseas Corp. and PNC
Bank, National Association in favor of PNC Bank, National Association (as
lender and agent).
|
|
Composite
Guarantee and Debenture, dated March 5, 2010 between Presstek Europe
Limited and PNC Bank, National Association in favor of PNC Bank, National
Association (as lender and agent).
|
|
Guarantee,
dated March 19, 2010 of Presstek Canada Corp./Corporation Presstek Canada
in favor of PNC Bank, National Association (as lender and
agent).
|
|
Guarantor
Security Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and Presstek Overseas
Corp.
|
|
Guaranty
(Corporate), dated March 5, 2010 of ABD Canada Holdings, Inc. in favor of
PNC Bank, National Association (as lender and agent).
|
|
Guaranty
(Corporate), dated March 5, 2010 of Presstek Overseas Corp. in favor of
PNC Bank, National Association (as lender and agent).
|
|
Guaranty
(Corporate), dated March 5, 2010 of SDK Realty Corp. in favor of PNC Bank,
National Association (as lender and agent).
|
|
Guarantor
Security Agreement, dated as of March 5, 2010 between PNC Bank National
Association (as lender and agent) and ABD Canada Holdings,
Inc.
|
|
Guarantor
Security Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and SDK Realty Corp.
|
|
Pledge
Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and Presstek, Inc.
|
|
Pledge
Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and Presstek Overseas
Corp.
|
|
Mortgage,
Assignment of Leases and Rents, Security Agreement and Fixture Filing
(Massachusetts), dated as of March 5, 2010 between SDK Realty Corp. and
PNC Bank, National Association (as lender and agent).
|
|
Mortgage,
Assignment of Leases and Rents, Security Agreement and Fixture Filing (New
Hampshire), dated as of March 5, 2010 from Presstek, Inc. to PNC Bank,
National Association (as lender and
agent).
|
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-
PRESSTEK,
INC.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PRESSTEK,
INC.
(Registrant)
|
|
Date: May
13, 2010
|
/s/
Jeffrey A. Cook
|
Jeffrey
A. Cook
Executive
Vice President and Chief Financial Officer
(Duly
Authorized Officer and Principal Financial Officer)
|
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PRESSTEK,
INC.
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
10.1
|
Revolving
Credit and Security Agreement dated as of March 5, 2010 by and among PNC
Bank, National Association (as lender and as agent for other lenders) and
the Company (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed on March 10, 2010).
|
Canadian
Guarantor Security Agreement, dated as of March 19, 2010 of Presstek
Canada Corp./Corporation Presstek Canada in favor of PNC Bank, National
Association (as lender and agent).
|
|
Charge
Over Shares, dated March 5, 2010 between Presstek Overseas Corp. and PNC
Bank, National Association in favor of PNC Bank, National Association (as
lender and agent).
|
|
Composite
Guarantee and Debenture, dated March 5, 2010 between Presstek Europe
Limited and PNC Bank, National Association in favor of PNC Bank, National
Association (as lender and agent).
|
|
Guarantee,
dated March 19, 2010 of Presstek Canada Corp./Corporation Presstek Canada
in favor of PNC Bank, National Association (as lender and
agent).
|
|
Guarantor
Security Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and Presstek Overseas
Corp.
|
|
Guaranty
(Corporate), dated March 5, 2010 of ABD Canada Holdings, Inc. in favor of
PNC Bank, National Association (as lender and agent).
|
|
Guaranty
(Corporate), dated March 5, 2010 of Presstek Overseas Corp. in favor of
PNC Bank, National Association (as lender and agent).
|
|
Guaranty
(Corporate), dated March 5, 2010 of SDK Realty Corp. in favor of PNC Bank,
National Association (as lender and agent).
|
|
Guarantor
Security Agreement, dated as of March 5, 2010 between PNC Bank National
Association (as lender and agent) and ABD Canada Holdings,
Inc.
|
|
Guarantor
Security Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and SDK Realty Corp.
|
|
Pledge
Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and Presstek, Inc.
|
|
Pledge
Agreement, dated as of March 5, 2010 between PNC Bank, National
Association (as lender and agent) and Presstek Overseas
Corp.
|
|
Mortgage,
Assignment of Leases and Rents, Security Agreement and Fixture Filing
(Massachusetts), dated as of March 5, 2010 between SDK Realty Corp. and
PNC Bank, National Association (as lender and agent).
|
|
Mortgage,
Assignment of Leases and Rents, Security Agreement and Fixture Filing (New
Hampshire), dated as of March 5, 2010 from Presstek, Inc. to PNC Bank,
National Association (as lender and
agent).
|
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