ITEM 2. PROPERTIES ----------
The Company leases approximately 96,000 square feet of office, engineering and manufacturing space located at 300 Griffin Park, Methuen, Massachusetts. The lease covering these properties expires in April 2003. In addition, the Company is leasing approximately 78,000 square feet in Rochester, New York, the lease for which expires in November, 2002. The Company also leases an aggregate of approximately 89,000 square feet of additional space at its other locations including those in the U.K., France, Germany, Italy, Japan, Australia, Spain, Hong Kong and Taiwan.
During 1998 the Company expanded the building it owns, which is adjacent to the Methuen, Massachusetts corporate headquarters. This facility now has 70,000 square feet of space and houses its' information technology function, administrative staff and additional touchscreen manufacturing and warehouse space.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
The Company had been involved in an international arbitration entitled MicroTouch Systems, Inc. v. Nissha Printing Co. Ltd. ("Nissha"), which was under the auspices of the International Chamber of Commerce ("ICC"). The case was based on the Company's claims that Nissha breached non competition provisions and other terms of a distribution agreement between the Company and Nissha.
In January 1997, the Company was informed that while it had won the case based on the merits of its claims, any recovery of damages was time barred under the terms of the original agreement between the two parties in the dispute. As a result, the Company was required to pay a portion ($595,000) of Nissha's fees and costs associated with the arbitration. The Company expensed these fees and costs awarded to Nissha as part of its second quarter 1997 financial results.
During the period from mid 1995 to early 1997, the Company was involved in a case entitled Elo Touch Systems, Inc. v. The Graphics Technology Company, Inc., MicroTouch Systems, Inc. et al, which was in the United States District Court in Knoxville, Tennessee. The case arose from claims by Elo Touch Systems ("Elo") that The Graphics Technology Company, Inc. (the predecessor to the Company's Touch Technology business) manufactured and sold, and that the Company intended to manufacture and sell in the future, certain products which infringe certain patent rights held by Elo. This case was settled by a cross-licensing agreement reached among the parties during 1997.
The Company was a plaintiff in a pending case entitled MicroTouch Systems, Inc. and Peptek, Inc. v. Elo Touch Systems, Inc. which was in the United States District Court in Knoxville, Tennessee. The case arose from claims by the Company and Peptek, Inc. ("Peptek") that Elo manufactured and sold products that infringed certain patent rights held by Peptek and exclusively licensed to the Company. This case was settled by a cross-licensing agreement reached among the parties during 1997.
The Company is a defendant in a case entitled Behne v. MicroTouch Systems, Inc., which is in the United States District Court in the Northern District of California. The case arose from claims by Ms. Behne, a former employee of MicroTouch that the Company had discriminated against her during her employment at the Company. The case is scheduled for hearing in late February/early March, 1999. The Company believes that the claims are without merit but no assurances can be given as to the outcome of this legal matter.
In addition to the matters described above, the Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for loss contingencies that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of amounts provided will not have a material adverse effect on the financial position or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
The Company submitted no matters to a vote of its shareholders during the fourth quarter of 1998.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER -------------------------------------------------------------------- MATTERS -------
The Company's common stock is quoted on the Nasdaq Stock Market under the symbol "MTSI." The following table sets forth the range of high and low sales prices per share.
The Company has never paid a cash dividend on its common stock and currently expects that future earnings will be retained for use in its business. As of January 28, 1999, the Company had 289 stockholders of record.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the five years in the period ended December 31, 1998 have been derived from the Company's consolidated financial statements. The consolidated financial statements for each of the five years in the period ended December 31, 1998 have been audited by Arthur Andersen LLP, independent public accountants. This data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and other financial information appearing elsewhere in this document.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The discussion contained in this section as well as elsewhere in this Annual Report on Form 10-K may contain forward-looking statements based on the current expectations of the Company's management. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
The following table sets forth for the fiscal periods indicated, the percentage of total revenues represented by certain items in MicroTouch's statement of operations:
Years Ended December 31, 1998 and 1997
Net Sales. Net sales in the fiscal year ended December 31, 1998 increased from the corresponding period of 1997 by $15.9 million, or 12%, to $144.4 million. The increase in net sales primarily reflects increased international sales volume. Sales from international operations were $68.9 million or 48% of total sales and represented an increase of $15.0 million or 28% over international sales in the comparable period of 1997. This increase primarily reflects higher touchscreen volume into the European and Asia Pacific (excluding Japan) markets.
Gross Profit. Gross profit for the fiscal year ended December 31, 1998 increased over the fiscal year ended December 31, 1997 by $10.5 million or 23%, to $55.4 million. As a percentage of net sales, gross profit increased from 35.0% in the fiscal year ended December 31, 1997 to 38.4% in the fiscal year ended December 31, 1998. The increase in gross margin percent primarily reflects the impact of a $2.3 million (pretax) special non-recurring charge related to the Company's whiteboard products in 1997, as well as increased touchscreen product yields and improved manufacturing efficiencies in 1998.
Research and Development. Research and development expenses for the fiscal year ended December 31, 1998 increased over the corresponding period of 1997 by $2.9 million, or 37%, to $10.9 million. As a percentage of net sales, research and development expenses increased from 6.2% in the fiscal year ended December 31, 1997 to 7.6% in the fiscal year ended December 31, 1998. The increase in spending both on an absolute dollar basis and as a percentage of net sales reflects the initiation of a program to develop a next generation capacitive product line with improved performance and cost savings over the existing product line, as well as advancing its resistive technology. The Company expects that total research and development expenses will most likely increase in the future on an absolute spending basis and as a percentage of net sales primarily due to the research on the Company's core touchscreen technology.
Sales and Marketing. Sales and marketing expenses for the fiscal year ended December 31, 1998 increased over the corresponding period of 1997 by $2.5 million, or 13%, to $21.2 million. As a percentage of net sales, sales and marketing expenses increased slightly from 14.6% for the fiscal year ended December 31, 1997 to 14.7% for the corresponding period of 1998. The increase in absolute spending in 1998 was also the result of sales costs associated with supporting large OEM customers and expanding the Company's Internet presence, as well as the development of a remote sales information systems sales program.
General and Administrative. General and administrative expenses for the fiscal year ended December 31, 1998 increased from the corresponding period of 1997 by $2.1 million, or 26%, to $10.0 million. As a percentage of net sales, general and administrative expenses increased from 6.2% for the fiscal year ended December 31, 1997 to 6.9% for the corresponding period of 1998, primarily as a result of spending to improve systems supporting the Company's infrastructure in the Information Technology and E-commerce areas and legal expenses.
Amortization of Intangible Assets. For the fiscal year ended December 31, 1998, operating expenses included $502,000 of amortization relating to various acquisitions and purchases of technologies, as compared to $477,000 for the corresponding period of 1997.
Operating Income. Operating income for the fiscal year ended December 31, 1998 of $12.8 million represented an increase of $3.0 million, or 31%, over the fiscal year ended December 31, 1997. This increase is primarily due to the revenue increase discussed above and the absence of the previously discussed special whiteboard restructuring charge of $2.3 million taken in 1997.
Other Income, net. Other income in the fiscal year ended December 31, 1998 was $1.0 million as compared to $.6 million for the corresponding period of 1997. Other income in the 1998 period included $1.5 million in interest income, net of interest expenses, as compared to $1.4 million of net interest income for the fiscal year ended December 31, 1997. Foreign exchange losses were $340,000 in the fiscal year ended December 31, 1998, primarily due to currency fluctuations in the Far East, as compared to a loss of $999,000 for the corresponding period of 1997.
Arbitration Costs. During 1997, the Company expensed a final payment amounting to $595,000 in its international arbitration versus Nissha Printing Company Ltd. (See Note 8 to Consolidated Financial Statements)
Provision for Income Taxes. The Company's effective tax rate for the fiscal years ended December 31, 1998 and 1997 was 32.0% and 34.2%, respectively. The effective tax rates differed from the federal statutory rate of 34% primarily as a result of the provision for state income taxes partially offset by the benefit related to tax-exempt interest income.
Geographic Segments. Domestic pre-tax income of $9.3 million represented an increase of $1.8 million or 24% over 1997. This increase in pre-tax profit primarily reflects the impact of the $2.3 million non-recurring charge taken in 1997. International pretax income of $4.4 million represented an increase of $2.2 million or 100% over the corresponding period of 1997 on the strength of the previously discussed international sales increases and improved gross margins.
Years Ended December 31, 1997 and 1996
Net Sales. Net sales in the fiscal year ended December 31, 1997 increased from the corresponding period of 1996 by $33.4 million, or 35.2%, to $128.5 million. The increase in net sales primarily reflects increased international sales volume as well as increased domestic touchscreen volume. Sales from international operations were $53.9 million and represented an increase of $22.5 million or 71.7% over the comparable period of 1996. This increase primarily reflects higher volume into the Japanese market due to the one-time Nagano Olympics project, as well as increased touchscreen volume in Europe.
Gross Profit. Gross profit for the fiscal year ended December 31, 1997 increased over the fiscal year ended December 31, 1996 by $8.9 million or 24.6%, to $44.9 million. As a percentage of net sales, gross profit decreased from 37.9% in the fiscal year ended December 31, 1996 to 35.0% in the fiscal year ended December 31, 1997. The decrease in gross margin percent primarily reflects the impact of a $2.3 million (pretax) special fourth quarter non-recurring charge for the Company's whiteboard operation, as well as the effect of lower margin whiteboard sales throughout the year. The non-recurring charge consisted primarily of a $1.0 million writedown of inventory and a $1.2 million write-off of capitalized software development costs.
Research and Development. Research and development expenses for the fiscal year ended December 31, 1997 increased over the corresponding period of 1996 by $0.8 million, or 10.5%, to $8.0 million. As a percentage of net sales, research and development expenses decreased from 7.6% in the fiscal year ended December 31, 1996 to 6.2% in the fiscal year ended December 31, 1997. The decrease as a percentage of net sales reflects the achievement of technological feasibility in 1996 of the Company's initial whiteboard development project.
Sales and Marketing. Sales and marketing expenses for the fiscal year ended December 31, 1997 increased over the corresponding period of 1996 by $5.2 million, or 38.3%, to $18.8 million. As a percentage of net sales, sales and marketing expenses increased slightly from 14.2% for the fiscal year ended December 31, 1996 to 14.6% for the corresponding period of 1997, primarily as a result of spending to introduce the Ibid whiteboard product line. The increase in absolute spending in 1997 was also the result of sales costs associated with growth in the touchscreen business and marketing programs to reinforce the Company's worldwide leadership position in the touchscreen market.
General and Administrative. General and administrative expenses for the fiscal year ended December 31, 1997 increased from the corresponding period of 1996 by $1.6 million, or 24.9%, to $7.9 million. As a percentage of net sales, general and administrative expenses decreased from 6.7% for the fiscal year ended December 31, 1996 to 6.2% for the corresponding period of 1997, primarily as a result of the revenue increase and tight spending controls. The increase on an absolute spending basis primarily reflects the expansion of infrastructure to support both the domestic and international revenue growth.
Amortization of Intangible Assets. For the fiscal year ended December 31, 1997, operating expenses included $477,000 of amortization relating to various acquisitions and purchases of technologies, as compared to $460,000 for the corresponding period of 1996.
Operating Income. Operating income for the fiscal year ended December 31, 1997 of $9.8 million represented an increase of $1.3 million, or 15.6%, over the fiscal year ended December 31, 1996. This increase is primarily due to the revenue increase discussed above, partially offset by the previously discussed special whiteboard restructuring charge of $2.3 million (pretax).
Other Income, net. Other income in the fiscal year ended December 31, 1997 was $0.6 million as compared to $1.5 million for the corresponding period of 1996. Other income in the 1997 period included $1.4 million in interest income, net of interest expenses, as compared to $1.3 million of net interest income for the fiscal year ended December 31, 1996. Foreign exchange losses were $999,000 in the fiscal year ended December 31, 1997, primarily due to currency fluctuations in the Far East, as compared to a gain of $143,000 for the corresponding period of 1996.
Arbitration Costs. During 1997, the Company expensed a final payment amounting to $595,000 in its international arbitration versus Nissha Printing Company Ltd. as compared to $1.0 million in arbitration costs incurred in the corresponding period of 1996. (See Note 8 to Consolidated Financial Statements.)
Provision for Income Taxes. The Company's effective tax rate for the fiscal years ended December 31, 1997 and 1996 was 34.2% and 36.3%, respectively. The effective tax rates differed from the federal statutory rate of 34% primarily as a result of the provision for state income taxes and the inability of the Company to record a tax benefit from certain foreign operating loss carryforwards, partially offset by the benefit related to the Company's foreign sales corporation and tax-exempt interest income.
Geographic Segments. Domestic pretax income for the fiscal year ended December 31, 1997 of $7.5 million decreased 20.0% over the comparable period of 1996 due primarily to the $2.3 million nonrecurring charge recorded in 1997 (discussed above) as well as the effect of lower gross margins. International pretax income of $2.2 million represented an increase of $2.7 million over the $462,000 loss for the corresponding period of 1996 on the strength of the previously discussed international sales increases.
Liquidity and Capital Resources
As of December 31, 1998, the Company had net working capital of $59.1 million, including approximately $37.7 million in cash and marketable securities. The Company reported a net cash flow from operating activities of $18.7 million for the fiscal year ended December 31, 1998. Additionally, the Company maintains a $6.0 million bank line of credit, including letters of credit, in the U.S. and a $2.5 million bank line of credit in the U.K. As of December 31, 1998, the Company had $2.3 million outstanding under the U.S. line of credit and $1.5 million outstanding under the U.K. line of credit.
The Company's capital expenditures were approximately $9.5 million in 1998.
In November, 1998 the Board of Directors of the Company extended for the second time a repurchase program of the Company's common stock, originally approved in December, 1997 and extended in August, 1998. The amount of common stock to be repurchased under the 1997 program is not to exceed $13.0 million. In the fiscal year ended December, 1998, the Company repurchased approximately 763,000 shares at an aggregate cost of $10.5 million under this program. These shares have been and will be used for the Company's stock option plans, employee stock purchase plan and for other corporate purposes, possibly including acquisitions.
Pending operational needs, the Company has invested its cash in investment grade, short term, interest-bearing securities. The Company believes that these investments, together with anticipated cash flows from operations pursuant to its current operating plan, will be sufficient to meet the Company's working capital and capital expenditure requirements at least through 2000. While the Company regularly evaluates acquisition candidates, conducts preliminary discussions regarding acquisitions and intends to pursue acquisition opportunities available to it, there can be no assurance that any such acquisition will be made or, if made, whether such acquisition will be financially successful.
Foreign Exchange Exposure
Significant portions of the Company's operations are conducted in foreign countries, including the United Kingdom of Great Britain, Germany, France, Italy, Spain, Australia, Taiwan, Japan, Hong Kong and Korea. Exchange rate fluctuations between the U.S. dollar and the currencies of these countries, including various European currencies and the Australian dollar, result in fluctuations in the amounts relating to foreign operations reported in the Company's consolidated financial statements. In general, the Company's policy is not to enter into derivative financial instruments or other financial instruments to manage foreign currency exchange rate risk. The Company can provide no assurances that it will not enter into such financial instruments in the future.
Readiness for Year 2000
The Company has taken actions to understand the nature and extent of the work required to make its systems, products and infrastructure Year 2000 compliant. The Company does not believe that any material year 2000 issues exist with software or embedded technology contained within its product offerings. System hardware, software and microprocessor controlled equipment that support the Company's infrastructure have been inventoried and assessed for Year 2000 compliance. To the extent necessary to address material year 2000 issues, the Company is in the process of obtaining and installing current releases or upgrades from software vendors. All business systems have been upgraded and are believed to be compliant. Work continues on international facilities systems, and these conversions are expected to be completed by the end of the second quarter of 1999. During the second quarter of 1999, the Company also plans to conduct a testing program to confirm that all installed software upgrades, which have been represented by software vendors as compliant, will indeed function with dates posted as 2000. Because the upgrades are being installed by existing employees and consultants of the Company in conjunction with their normal duties, and the software upgrades would have been purchased in the normal course of business, the Company has not segregated the cost of making these systems compliant. Based on available information, including assurances from software vendors that their products are compliant, the Company believes that it will be able to manage its total Year 2000 transition without any material adverse effect on its business operations, products, operating results or financial condition.
The Company has not fully determined the extent to which the systems of customers and vendors with whom the Company has material relationships may not be compliant. There can be no assurance that the systems of other companies which the Company deals with will be converted on a timely basis. No assurance can be given that such failure to convert by another company will not have a material negative effect on the Company's consolidated financial position, results of operations or cash flows.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. Financial Statements
Page No.
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1998
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1998
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 1998
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MicroTouch Systems, Inc:
We have audited the accompanying consolidated balance sheets of MicroTouch Systems, Inc. (a Massachusetts corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, cash flows and comprehensive income for each of the three years in the period ended December 31, 1998. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MicroTouch Systems, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP
Boston, Massachusetts January 22, 1999
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in 000s, except share data)
The accompanying notes are an integral part of these consolidated financial statements.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in 000s, except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 (Amounts in 000s except share data)
The accompanying notes are an integral part of these consolidated financial statements.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in 000s)
The accompanying notes are an integral part of these consolidated financial statements.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Summary of Significant Accounting Policies
a) Nature of the Business
MicroTouch Systems, Inc. develops, manufactures and sells touch and pen input systems, including touch sensitive screens, digitizers for pen computers, ThruGlass products, kiosk systems and electronic P.C. whiteboards.
b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MicroTouch Systems, Inc. and its wholly owned subsidiaries (together the "Company"). All significant intercompany accounts, transactions and profits have been eliminated.
c) Earnings per Share
Basic earnings per share data are computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of common shares outstanding during the year and dilutive potential common shares. Dilutive potential common shares consist of stock options and are calculated using the treasury stock method.
Effective January 1, 1997 the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. The calculation of basic and diluted earnings per share is as follows:
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
d) Cash and Cash Equivalents
The Company held no liquid investments with original maturities of less than 90 days at December 31, 1997 or December 31, 1998. Cash equivalents are stated at cost, which approximates market value.
e) Marketable Securities
Marketable securities consist of investment-grade, federal tax-exempt municipal bonds. The aggregate market value, cost basis, and unrealized gains and losses of securities available for sale, by major security type, as of December 31, 1998 and 1997 are as follows:
Securities available for sale in the accompanying balance sheet at December 31, 1998 and 1997 include $7,782,000 and $7,341,000, respectively, with contractual maturities of one year or less, $23,346,000 and $17,933,000, respectively, with contractual maturities of one through five years and $1,063,000 and none, respectively, with maturities of more than five years. Expected maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of call options that enable the issuer to redeem these securities at an earlier date.
f) Inventories
Inventories, consisting of material, material overhead, labor and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market and consist of the following:
g) Property and Equipment
The Company provides for depreciation and amortization, using the straight-line method, through charges to operations in amounts that allocate the cost of property and equipment over their estimated useful lives. The estimated useful life for property and equipment is 3 to 5 years except for a building owned by the Company, the life of which is 25 years.
Maintenance and repairs are charged to operations as incurred. When property and equipment is sold or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts, and the resulting gain or loss, if any, is included in the results of operations.
h) Revenue Recognition
The Company recognizes product revenue upon shipment. Service revenues are recognized as the services are provided. The Company provides allowances for estimated sales returns and bad debts and provides for the estimated cost of warranty at the time of product shipment.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
1) Summary of Significant Accounting Policies - (Continued)
i) Foreign Currency Translation
The Company translates the assets and liabilities of its foreign subsidiaries at the exchange rates in effect at year end. Revenues and expenses are translated using exchange rates in effect during the year. Gains and losses from foreign currency translation are credited or charged to cumulative translation adjustment included in stockholders' equity in the accompanying consolidated balance sheets. Gains and losses from foreign currency transactions are included in other income and amounted to a gain of approximately $143,000 for the year ended December 31,1996, a loss of approximately $999,000 for the year ended December 31, 1997 and a loss of approximately $340,000 for the year ended December 31, 1998.
j) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates.
k) Disclosures About Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires that disclosure be made of estimates of the fair value of each class of financial instrument. Financial instruments held by the Company as of December 31, 1998 consist primarily of cash equivalents and marketable securities, short- term trade receivables, payables and notes payable for which the carrying amounts approximate fair values.
l) Capitalized Software Development Costs
Software development costs for new software and for enhancements to existing software are expensed as incurred prior to the establishment of technological feasibility and subsequent to general release of the product. Otherwise software development costs have been capitalized and will be amortized over the estimated life of the product. As of December 31, 1997 the Company had approximately $30,000 of capitalized software included in Other Assets in the accompanying balance sheet. There were no capitalized software costs as of December 31, 1998. In December, 1997 the Company wrote off $1.2 million of development costs associated with its whiteboard products.
m) Other Assets
The Company periodically assesses the realizability of its long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of. At each balance sheet date, the Company evaluates the realizability of goodwill based on expectations of non-discounted future cash flows for each subsidiary having a material goodwill balance. If the sum of the expected non-discounted cash flows is less than the carrying amount of goodwill, the Company would recognize an impairment loss. Based on its review, the Company does not believe that any material impairment of its long-lived assets has occurred at December 31, 1998.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
n) Comprehensive Income
Effective January 1, 1998 the Company adopted the provisions of SFAS No. 130, Reporting Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. Comprehensive income includes all non-owner related changes in a company's equity including, among other things, foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available-for-sale. Because cumulative translation adjustments are considered a component of permanently invested unremitted earnings of subsidiaries outside of the United States, no taxes are provided on such amounts.
o) Recent Accounting Pronouncements
In March, 1998 The American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met. The Company does not believe that adoption of SOP 98-1 will have a material impact on the Company's financial statements.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-up Activities. SOP 98-5 requires all costs associated with pre-opening, pre-operating and organization activities to be expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999. The Company believes that adoption of SOP 98-5 will have no material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedge allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantially modified after December 31, 1997 (and, at the Company's election, before January 1, 1998). The Company does not expect that the adoption of this statement will have a material impact on the Company's financial position and results of operations. The Company does not believe SFAS No. 133 is currently applicable but will continue to review the impact on its financial position or results of operation.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2) Line of Credit
The Company has demand bank lines of credit in the U.S. totalling $6,000,000, including letters of credit, under which the Company may borrow on an unsecured basis at the bank's prime rate. There was nothing outstanding under these lines at December 31, 1997 and $2,264,000 outstanding under the lines at December 31, 1998.
The Company has a demand bank line of credit in the United Kingdom in the amount of approximately $2,500,000 under which the Company may borrow on a secured basis at a negotiated rate. There was nothing outstanding under this line at December 31, 1997 and $1,500,000 outstanding under this line at December 31, 1998.
3) Stockholders' Equity
a) Equity Incentive Plans
On April 17, 1992, the stockholders of the Company approved, effective January 1, 1992, the 1992 Equity Incentive Plan (the 1992 Plan) which replaced the Company's 1983 Incentive Stock Option Plan (the 1983 Plan). On June 25, 1997 and June 25, 1998, the 1992 Plan was amended by the stockholders of the Company.
The 1992 Plan, as amended, authorizes the grant of stock options (incentive and non-qualified), stock appreciation rights (SARs), performance shares or restricted stock (the Awards) for the purchase of an aggregate of 2,750,000 shares of common stock, including shares that are issuable pursuant to outstanding stock options under the 1983 Plan. The Board of Directors has appointed the Compensation Committee (the Committee) to administer the 1992 Plan. Awards under the 1992 Plan are granted at the discretion of the Committee, which shall determine the eligible persons to whom, and the times at which, Awards shall be granted, the type of Award to be granted and all other related terms, conditions and provisions of each Award granted. In the case of incentive stock options, the exercise price will not be less than the fair market value of the common stock on the date of Award. In the case of non-qualified stock options, the exercise price will not be less than 50% of the fair market value of the common stock on the date of the award.
The Committee may award SARs in tandem with an option (at or after the award of the option) or alone and unrelated to an option. SARs in tandem with an option shall terminate to the extent that the related option is exercised, and the related option shall terminate to the extent that the tandem SARs are exercised. SARs granted in tandem with options shall have an exercise price of not less than the exercise price of the related option.
The Committee may award performance shares and determine the performance cycles and performance goals. The value of performance shares will be equal to the fair market value of the common stock on the date the performance shares are earned.
The Committee may award shares of restricted stock and determine the duration of the restricted period during which, and the conditions under which, the shares may be forfeited to the Company and the other terms and conditions of such Awards. Shares of restricted stock shall be issued for no cash consideration or such minimum consideration as may be required by applicable law.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3) Stockholders' Equity - (Continued)
In 1993, options to purchase 200,000 shares were granted to the Company's Chairman of the Board of Directors under a 10 year performance incentive agreement pursuant to the 1992 Plan. These options became exercisable in various installments based on the achievement of certain financial milestones over five years. As of December 31, 1998, 160,000 shares have been exercised and the remaining 40,000 shares were exercisable under this grant.
Options to purchase 1,425,900 shares of common stock are outstanding under the 1992 Plan at December 31, 1998 and have generally vested at a rate of 25% per year for four years. Options granted after July 31, 1998 vest at a rate of 20% in the first year, 40% in the second year and 40% in the third year. Options to purchase 3,200 shares of common stock were subject to this vesting schedule at December 31, 1998. At December 31, 1998, no SARs, performance shares or other restricted stock have been awarded under the 1992 Plan. As of December 31, 1998, 438,364 shares of common stock are available for future awards under the 1992 Plan.
Effective February 8, 1994, the Board of Directors adopted the 1994 Director Stock Option Plan (the 1994 Plan). This 1994 Plan was approved by the stockholders of the Company at the annual stockholders' meeting held on June 16, 1995. The 1994 Plan authorizes the grant of non qualified stock options to all directors of the Company who are not employees of the Company or any of its subsidiaries. An aggregate of 200,000 shares of common stock have been authorized for issuance under the 1994 Plan. The Board of Directors administers the 1994 Plan. Under the terms of the 1994 Plan, as amended, each non-employee director, upon initial election to the Board of Directors, shall receive options to purchase 10,000 shares of common stock. In lieu of grants upon election, current directors received initial grants upon the effective date of the adoption of the 1994 Plan. Immediately following the annual meeting of the stockholders each year, each non-employee director of the Company continuing in office shall automatically be granted options to purchase 5,000 shares of common stock. Options are granted at an exercise price equal to the fair market value of the underlying common stock and have generally vested over two years. Options granted on or after June 24, 1998 vest over three years. Options to purchase 25,000 shares of common stock were subject to this vesting schedule as of December 31, 1998.
Options to purchase 97,500 shares of common stock are outstanding under the 1994 Plan at December 31, 1998. As of December 31, 1998, 82,500 shares of common stock are available for future grants under the 1994 Plan.
Effective July 31, 1998, the Board of Directors approved the 1998 Stock Option Plan (the 1998 Plan). The 1998 Plan authorizes the grant of non-qualified stock options (the Awards) for the purchase of an aggregate of 1,000,000 shares of common stock. The Board of Directors has appointed the Compensation Committee (the Committee) to administer the 1998 Plan. Awards under the 1998 Plan are granted at the discretion of the Committee, which shall determine the eligible persons to whom, and the times at which, Awards shall be granted, the amount of the Award to be granted and all other related terms, conditions and provisions of each Award granted. The exercise price of each non-qualified stock option granted will not be less than the fair market value of the common stock on the date of the award. Options generally vest over 3 years.
Options to purchase 27,600 shares of common stock were outstanding under the 1998 Plan at December 31, 1998. As of December 31, 1998 972,400 shares of common stock are available for future grants under the 1998 Plan.
The Company has also granted other non-qualified stock options to purchase shares of common stock, of which options to purchase 15,000 shares of common stock are outstanding at December 31, 1998.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3) Stockholders' Equity - (Continued)
The following is a summary of the stock option activity for the years ended December 31, 1996, 1997 and 1998:
331,650 of the 1,566,000 options outstanding at December 31, 1998 have an exercise price of between $1.75 and $14.50, with a weighted average exercise price of $7.27 and a remaining contractual life of 5 years. Of these options, 280,400 are exercisable. 278,812 options have exercise prices between $14.56 and $15.25 with a weighted average exercise price of $14.89 and a weighted average remaining contractual life of 7 years. 130,618 of these options are exercisable. 356,245 options have an exercise price of $15.50 and a weighted average remaining contractual life of 6 years. Of these options, none are exercisable. 430,043 options have exercise prices between $15.56 and $19.75 with a weighted average exercise price of $18.07 and a remaining contractual life of 7 years. 106,201 of these options are exercisable. The remaining 169,250 options have exercise prices of between $20.56 and $31.50 with a weighted average exercise price of $23.77 and a weighted average remaining contractual life of 8 years. 56,563 of these options are exercisable.
Effective January 1, 1996, the Company adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected to continue to account for stock options at intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis. Had compensation costs for the stock option plans been determined using the fair value method, the Company's pro forma net income, basic and diluted earnings per share would have been $7.0 million, $.91 and $.89 respectively for the fiscal year ended December 31, 1998, $3.9 million, $.49 and $.47, respectively for the fiscal year ended December 31, 1997 and $4.4 million, $.57 and $.55, respectively for the fiscal year ended December 31, 1996. Consistent with SFAS No. 123, pro forma net income and earnings per share have not been calculated for options granted prior to January 1, 1995. Pro forma compensation cost may not be representative of that to be expected in future years.
The Company has computed the pro forma disclosures required under SFAS No. 123 using the Black-Sholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions used for 1998 are as follows: risk free interest rate of 5.7%, expected dividend yield of zero, expected option life of 5 years and expected volatility of 66%. The weighted average assumptions used for 1997 are as follows: risk free interest rate of 6.3%, expected dividend yield of zero, expected option life of 5 years and expected volatility of 69%. The weighted average assumptions used for 1996 are as follows: risk free interest rate of 6.2%, expected dividend yield of zero and expected option life of 6 years and expected volatility of 65%. The weighted average fair values of all options granted in 1996, 1997 and 1998 were $9.56, $9.79 and $7.22, respectively.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3) Stockholders' Equity - (Continued)
b) Shareholder Rights Plan. In January 1996, the Company adopted a Shareholder Rights Plan and declared a dividend distribution of one right for each outstanding share of the Company's common stock to stockholders of record on January 19, 1996 and authorized the issuance of one right for each share of the Company's common stock issued between January 19, 1996 and the date on which the right becomes separable from the common stock. Each right entitles the shareholders to buy from the Company 1/100 of a share of Series A Junior Participating Preferred Stock, $.10 par value, at a purchase price of $75 per right. The rights will be exercisable or separable from the common stock until ten business days after a party acquires beneficial ownership of 20% or more of the Company's common stock or announces a tender offer for at least 20% of its common shares outstanding.
The rights are subject to adjustment and may be redeemed by the Company at a price of $0.01 per right at any time until the tenth day following the point at which they become exercisable. In the event that the Company is acquired in a merger or other business combination transaction, each right, other than those held by the acquiring party, will entitle its holders to purchase an amount of shares of the Company's common stock which equals the exercise price of the rights divided by one-half of the current market price of the common stock. The rights will expire, unless earlier redeemed or exchanged, on January 19, 2006, or earlier in certain circumstances.
4) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Provisions for income taxes recognize the tax effect of all revenue and expense transactions as well as any changes during the period in deferred tax assets and liabilities. The effects of changes in tax rates and laws on deferred tax assets and liabilities are reflected in net income in the period in which such changes are enacted.
The components of domestic and foreign income (loss) before the provision for income taxes are as follows:
The provision for federal and state income taxes consists of the following:
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4) Income Taxes - (Continued)
Significant items making up net deferred tax assets as of December 31, 1997 and 1998 are as follows:
The amount computed by applying the federal statutory income tax rate of 34% to income before provision for income taxes differs from the Company's provision for income taxes due to the following:
5) Commitments
a) Royalty Agreement
The Company is a party to a licensing agreement in which it has acquired the rights to various touch screen products and technologies. The licensing agreement provides for the payment of royalties based on annual product sales and sublicensing revenue and includes minimum royalty payment provisions. The agreement will be in effect until the expiration of the last-to-expire patent licensed under this agreement, which is in 2005.
b) Lease - Facility
During 1993, the Company entered into a lease agreement expiring in April 2003 under which the Company leases its main operating facility in Methuen, Massachusetts. In addition to the lease payments, the Company is also responsible for its share of real estate taxes and operating expenses, as defined. The Company also leases space in Rochester, New York under a lease expiring in November 2002. The Company also leases space at its operations in the United Kingdom, France, Germany, Italy, Australia, Japan, Spain, Hong Kong and Taiwan. Total rent expense under all leases for the years ended December 31, 1996, 1997 and 1998 was approximately $1,368,000, $1,889,000 and $1,543,000, respectively.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5) Commitments - (Continued)
Future minimum lease payments for all noncancelable leases are as follows:
c) Post-retirement Benefits
The Company does not offer any post-retirement or post-employment benefits to its employees.
6) Segment Information
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing their performance. The Company's chief operating decision maker is the Chief Executive Officer (CEO).
The Company operates in one industry segment consisting of the development, manufacture and sale of touch sensitive input systems. The Company's technologies are managed as one segment, or one strategic unit, because it offers similar products in similar markets and the factors determining strategic decisions are comparable for all products and markets.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Geographic area information for the years ended December 31, 1996, 1997 and 1998 is as follows:
Intercompany transfers to the Company's foreign subsidiaries are transacted at prices intended to allow the subsidiaries' earnings to be comparable to unaffiliated distributors. Sales to unaffiliated customers outside the United States, including U.S. export sales, were approximately $36,198,000 in 1996, which represented 38% of net sales, $57,409,000 in 1997, which represented 45% of net sales and $71,351,000 in 1998, which represented 49% of net sales.
No single customer represented more than 10% of total sales during the years ended December 31, 1997 or 1998.
7) Retirement Savings Plan
The Company has a 401(k) employee savings plan established in 1993 covering substantially all employees. Matching company contributions are at the discretion of the Board of Directors. Effective in 1998, the Board authorized matching contributions up to $900 of participants' contributions. Company contributions and other expenses of the Plan amounted to $89,000 in 1996, $156,000 in 1997 and $306,000 in 1998.
8) Legal Proceedings
The Company had been involved in an international arbitration entitled MicroTouch Systems, Inc. v. Nissha Printing Co. Ltd., ("Nissha") which was under the auspices of the International Chamber of Commerce ("ICC"). The case was based on the Company's claims that Nissha breached noncompetition provisions and other terms of a distribution agreement between the Company and Nissha.
In January 1997, the Company was informed that while it had won the case based on the merits of its claims, any recovery of damages was time barred under the terms of the original agreement between the two parties in the dispute. As a result, the Company was required to pay a portion of Nissha's fees and costs related to the arbitration, in the amount of $595,000. The Company expensed these fees and costs awarded to Nissha as a part of its second quarter 1997 financial results. This payment completes the Company's involvement in the matter.
The Company is a defendant in a case entitled Behne v. MicroTouch Systems, Inc., which is in the United States District Court in the Northern District of California. The case arose from claims by Ms. Behne, a former employee of MicroTouch that the Company had discriminated against her during her employment at the Company. The case is scheduled for hearing in late February/early March, 1999. The Company believes that the claims are without merit but no assurances can be given as to the outcome of this legal matter.
The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for matters that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of amounts provided will not have a material adverse effect on the financial position or results of operations of the Company.
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA
(Unaudited - in thousands, except per share amounts)
(a) Reflects non-recurring charge of $2.3 million related to the electronic whiteboard operation. This charge consisted primarily of a $1.0 million writedown of inventory and a $1.2 million write-off of capitalized software development costs.
(b) Certain reclassifications have been made to the quarterly 1998 consolidated statements of operation to conform to the full year 1998 presentation.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III --------
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Nomination and Election of Directors," "Executive Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" contained in the registrant's Proxy Statement for the 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission by April 30, 1999, are incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" contained in the Proxy Statement for the 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission by April 30, 1999, is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Officers, Directors and Principal Stockholders" contained in the Proxy Statement for the 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission by April 30, 1999, is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ---------------------------------------------------------------
The following documents are filed as a part of this Report:
(a)(1) Index to Consolidated Financial Statements ------------------------------------------
The following consolidated financial statements of MicroTouch Systems, Inc. and subsidiaries are included pursuant to Item 8:
(a)(2) Index to Consolidated Financial Statement Schedules ---------------------------------------------------
The following consolidated financial statement schedules of MicroTouch Systems, Inc. and subsidiaries are included pursuant to Item 8:
Schedule II Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1998
Schedules not listed above have been omitted because they are not applicable, not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
(b) The Company filed no current reports on Form 8-K during the quarter ended December 31, 1998.
(c) Exhibits -------- 3.1 Restated Articles of Organization, as amended to date. (5) 3.2 Amended and Restated By-laws. (1) 4.1 Shareholder Rights Agreement (5) 10.1 1992 Equity Incentive Plan. (1) (4)
10.7 Lease Agreement between the Company and Griffin Brook Park Associates Joint Venture dated November 6, 1992. (2) 10.8 Letter Agreement with State Street Bank & Trust Co. dated August 29, 1994. (3) 10.9 Money Market Note dated August 29, 1994. (3) 10.10 Purchase Agreement between the Company and Griffin Brook Two Associates Joint Venture dated August 2, 1995. (5) 10.11 1994 Directors Stock Option Plan. (4) (5) 10.12 1995 Employee Stock Purchase Plan. (4) (5) 10.13 1998 Employee and Consultant Non-Qualified Stock Option Plan. Filed herewith 10.14 Letter Agreement with Barclays Bank PLC dated April 7, 1998. Filed herewith 21 Subsidiaries of the Registrant. 23 Consent of Independent Public Accountants. Filed herewith. 24 Power of Attorney (included on signature page). 27 Financial Data Schedule. Filed herewith.
(1) Filed as an exhibit to a Registration Statement on Form S-1 filed on June 26, 1992 (Registration No. 33-47874) and incorporated herein by reference. (2) Filed as an exhibit to the Annual Report on Form 10K filed for the year ended December 31, 1992 and incorporated herein by reference. (3) Filed as an exhibit to Form 10-Q filed for the quarter ended September 30, 1994 and incorporated herein by reference. (4) Indicates management contracts or compensatory plans in which the executive officers or directors of the Company participate. (5) Filed as an Exhibit to the Annual Report on Form 10K filed for the year ended December 31, 1995 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MICROTOUCH SYSTEMS, INC.
BY /s/ D. Westervelt Davis ----------------------------------- D. Westervelt Davis President, Chief Executive Officer and Director February 22, 1999
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Geoffrey P. Clear and William T. Whelan, and each of them his true and lawful attorneys-in-fact and agents, each acting alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10K, including amendments, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all his said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
3.1 Restated Articles of Organization as amended to date (5) 3.2 Amended and Restated By-laws. (1) 4.1 Shareholder Rights Agreement (5) 10.1 1992 Equity Incentive Plan. (1) (4) 10.5 License Agreement between the Company, Peptek, Inc. and Mr. Jim Zeeger dated July 1, 1988. (1) 10.7 Lease Agreement between the Company and Griffin Brook Park Associates Joint Venture dated November 6, 1992. (2) 10.8 Letter Agreement with State Street Bank & Trust Co. dated August 29, 1994. (3) 10.9 Money Market Note dated August 29, 1994. (3) 10.10 Purchase and Sale Agreement between the Company and Griffin Brook Two Associates Joint Venture dated August 2, 1995. (5) 10.11 1994 Directors Stock Option Plan. (4) (5) 10.12 1995 Employee Stock Purchase Plan (4) (5) 10.13 1998 Employee and Consultant Non-Qualified Stock Opton Plan. Filed herewith 10.14 Letter Agreement with Barclays Bank PLC dated April 7, 1998. Filed herewith 21 Subsidiaries of the Registrant. 23 Consent of Independent Public Accountants filed herewith. Filed herewith 24 Power of Attorney (included on signature page). 27 Financial Data Schedule. Filed herewith.
(1) Filed as an exhibit to a Registration Statement on Form S-1 filed on June 26, 1992 (Registration No. 33-47874) and incorporated herein by reference. (2) Filed as an exhibit to the Annual Report on Form 10K filed for the year ended December 31, 1992 and incorporated herein by reference. (3) Filed as an exhibit to Form 10-Q filed for the quarter ended September 30, 1994 and incorporated herein by reference. (4) Indicates management contracts or compensatory plans in which the executive officers or directors of the Company participate. (5) Filed as an Exhibit to the Annual Report on Form 10K filed for the year ended December 31, 1995 and incorporated herein by reference.
SCHEDULE II
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (Amounts in thousands)
(a) Effective January 1, 1997 the Company changed its accounting procedures to allow the value of product returns to be offset as a credit directly to sales, rather than charged against the sales return allowance as had been previously done. The actual value of product returns in 1997 and 1998 was $4.5 million and $4.9 million, respectively.