Presstek releases 2006 annual report
Presstek Incorporated filed its annual report Wednesday – delayed because of a “weakness” in its financial reporting controls – posting profits of $9.7 million (or 36 cents a diluted share) in 2006 – nearly a 50-percent gain from the previous year.
But that profit was primarily due to a tax accounting decision resulting in an $11.2 million benefit. Sales were relatively flat at $265.7 million, a 2.5-percent increase over the previous year.
The Hudson-based provider of digital printing equipment said that it will implement a series of changes to strengthen its accounting procedures, but warns it might delay filing its first quarterly report.
The company announced that it would delay its filing back on March 13 because of its difficulty in accounting for losses due to continuing analog operations after a chemical spill in its plant in South Hadley, Mass., which it took over when it bought Precision Lithograining for $12.1 million in July of 2004. The spill caused the neighborhood to be evacuated and schools to be closed. Presstek reopened the digital part of the plant in a week, but at the end of 2006 it announced it would not undertake the environmental expense to reopen analog operations, in light of its announced strategy to switch to chemical-free digital printing equipment.
Presstek could not determine liability for the incident, but included the known clean-up costs in the $3.2 million cost for discontinuing its analog operations. In addition, the company took a $4 million loss of good will in its assets.
Even with that charge, the company did post a profit, but that profit included an $11.2 million deferred tax benefit from the reversal of a previously recorded valuation allowance on its deferred tax assets. Based on a “detailed analysis” conducted during 2006, the company concluded that “it is more likely than not” that the deferred tax assets will be realized in the future.
Without the lion’s share of that tax benefit ($10.6 million) factored into last year’s profit, the company would have lost $900,000. It would have made $2.37 million on its continuing operation, but that profit would still have been $5.7 million less than the previous year.
The company’s weak performance in the third quarter of last year caused stock prices to sink to about half of what it was at its peak last summer, and has led to a class action suit filed in October, which also named president Edward Marino and former CFO Moosa Moosa. (The company incurred some $2.4 million in legal expenses in 2006 from the law firm of one of its board members, but it’s unclear how much of this was due to the class action suit, and how much related to other matters, such as two open patent lawsuits.)
The latest litigation salvo in the class action was fired on Monday, in response to Presstek’s effort to dismiss the suit. Presstek contended that the suit was based on “irrelevant press release clippings, unattributed Internet chat room gossip and unsupported legal conclusions.”
In its recent filing the plaintiffs reiterated that the company had previously touted a 10-percent increase in annual growth, even though it knew of problems with one if its new products. When the company announced the flat sales, the stock price plummeted to under $6 a share, at which it has been hovering ever since.
While the March filing delay didn’t affect the stock price, it did result in a delisting warning from the Nasdaq stock exchange. In February, the company had replaced CFO Moosa Moosa with Jeffrey Cook.
In its latest filing, it said that its “disclosure controls and procedures were not effective” and it hired Cook to help “remediate” the situation.
“The company did not maintain a sufficient complement of personnel with the appropriate level of accounting knowledge, experience and training,” said the filing. “As a result, the Company did not prepare adequate contemporaneous documentation that would provide a sufficient basis for an effective evaluation and review of the accounting for transactions that are significant or non-routine.”
The company also appointed a new financial reporting manager, created a financial reporting task force, added four personnel to its accounting department and plans to hire a director of internal audit.
However, such administrative shuffling could result in the company failing to meet May 10 filing deadline for the first quarterly filing in 2007. — BOB SANDERS