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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________ to ________________
Commission File Number 0-20215
MICROTOUCH SYSTEMS, INC.
(Exact name of Registrant as specified in its Charter)
Massachusetts 04-2802971
- ------------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Griffin Park, Methuen, MA 01844
- ----------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: 978-659-9000
- ------------------------------ ------------
Indicate by check mark whether the Registrant (1) has filed all reports 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 last 90 days.
Yes X No _____
-----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practical date.
As of April 15, 1999 there were outstanding: 7,042,601 shares of common stock of
the Registrant.
Total number of pages: 15
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MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations - Three
Months Ended March 31, 1999 and 1998 4
Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 1999 5
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1999 and 1998 6
Consolidated Statements of Comprehensive Income -
Three Months Ended March 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
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MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN 000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 6,412 $ 5,471
Marketable securities.......................................... 22,046 32,191
Accounts receivable, net of allowances of $4,580 at March 31,
1999 and $4,955 at December 31, 1998.......................... 23,429 23,265
Inventories.................................................... 15,226 15,954
Deferred income taxes.......................................... 6,482 6,837
Prepaid expenses and other current assets...................... 1,212 1,217
------ -------
Total current assets........................................ 74,807 84,935
Property and equipment, net....................................... 18,399 17,452
Other assets...................................................... 2,237 1,958
------ -------
$ 95,443 $ 104,345
====== =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Notes payable.................................................. $ --- $ 3,760
Accounts payable............................................... 5,798 9,336
Accrued payroll and related costs.............................. 2,186 3,011
Accrued expenses............................................... 12,776 9,768
------- -------
Total current liabilities............................... 20,760 25,875
Long-term notes payable........................................... 84 101
------- -------
Total Liabilities....................................... 20,844 25,976
Stockholders' equity
Preferred stock, $.01 par value per share--
500,000 shares authorized, none issued and outstanding
at March 31, 1999 and December 31, 1998................... --- ---
Common stock, $.01 par value per share--authorized -
20,000,000 at March 31, 1999 and December 31, 1998;
8,291,878 and 8,256,128 issued at March 31, 1999 and
December 31,1998......................................... 82 82
Additional paid-in capital..................................... 62,790 62,613
Treasury stock at cost - 1,196,876 and 959,576 shares at
March 31, 1999 and December 31, 1998.................... (16,559) (13,503)
Accumulated other comprehensive income/(loss) (Note 1) (1,996) (1,382)
Retained earnings............................................. 30,282 30,559
------- -------
Total stockholders' equity.............................. 74,599 78,369
------- -------
$ 95,443 $ 104,345
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Net sales.................................................. $ 36,728 $ 35,727
Cost of sales.............................................. 23,090 22,684
------------ -------------
Gross profit............................................. 13,638 13,043
Operating expenses:
Research and development................................. 3,258 2,564
Sales and marketing...................................... 5,363 5,042
General and administrative............................... 2,508 2,273
Amortization of intangible assets........................ 114 134
------------ -------------
Total operating expenses.............................. 11,243 10,013
------------ -------------
Operating income......................................... 2,395 3,030
Other income............................................... 501 308
Litigation expense......................................... 3,303 --
------------ -------------
Income/(loss) before provision for income taxes............ (407) 3,338
Provision/(benefit) for income taxes....................... (130) 1,068
------------ -------------
Net income/(loss).......................................... (277) 2,270
============ =============
Earnings/(loss) per share:
Basic.................................................... $ (0.04) $ 0.29
Diluted.................................................. $ (0.04) $ 0.28
Weighted average common shares and dilutive potential
common shares outstanding:
Basic.................................................... 7,289 7,866
Diluted.................................................. 7,289 8,132
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31,1999
(AMOUNTS IN 000S EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Stock Paid-in Comprehensive Retained Treasury Stock Stockholders'
----------------------- -----------------
Shares Amount Capital Income/(Loss) Earnings Shares Amount Equity
----------- --------- ---------- -------------- ---------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 8,256,128 $82 $62,613 $(1,382) $30,559 (959,576) ($13,503) $78,369
Exercise of stock options 35,750 169 169
Compensation expense related
to common stock options 8 8
Effect of exchange rate changes (642) (642)
Unrealized gain on securities
available for sale, net of tax 28 28
Purchase of treasury stock (237,300) (3,056) (3,056)
Net loss (277) (277)
------------------------------------------------------------------------------------------------
Balance March 31, 1999 8,291,878 $82 $62,790 $(1,996) $30,282 (1,196,876) $(16,559) $74,599
================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (277) $ 2,270
Adjustments to reconcile net income to net cash provided by (used
in) operating activities--
Depreciation and amortization 1,150 1,056
Deferred income taxes 355 1,092
Compensation expense related to common stock options 8 176
(Increase)/decrease in assets--
Accounts receivable (164) (3,830)
Inventories 728 589
Prepaid expenses and other assets (388) (521)
Increase/(decrease) in liabilities--
Accounts payable (3,538) 445
Accrued expenses 2,183 (164)
------------- -------------
Net cash provided by operating activities 57 1,113
Cash flows provided by/(used in) investing activities:
Purchase of property and equipment, net (1,895) (1,759)
Sale and maturity of marketable securities 10,611 3,825
Purchase of marketable securities (526) (4,415)
------------- -------------
Net cash provided by/(used in) investing activities 8,190 (2,349)
Cash flows provided by financing activities:
Exercise of stock options and sale of common stock, net 169 3
Purchase of treasury stock (3,056) (2,941)
Increase/(decrease) in notes payable (3,760)
Increase/(decrease) in long term debt (17) ---
------------- -------------
Net cash used in financing activities (6,664) (2,938)
Effect of exchange rates on cash (642) 597
------------- -------------
Net increase/(decrease) in cash and cash equivalents 941 (3,577)
Cash and cash equivalents, beginning of period 5,471 9,477
------------- -------------
Cash and cash equivalents, end of period $ 6,412 $ 5,900
============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 43 $ 6
============= =============
Income taxes paid $ 562 $ 20
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
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MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS COMPREHENSIVE INCOME
(UNAUDITED)
(AMOUNTS IN 000'S)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1999 1998
------------ ------------
Net Income/(Loss) $ (277) $ 2,270
Currency translation adjustment (642) 597
Unrealized gain/( loss ) on marketable
securities, net of tax 28 (6)
============ ============
Comprehensive Income/(Loss) $ (891) $ 2,861
============ ============
7
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MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(1) Nature of Business
------------------
MicroTouch Systems, Inc. develops, manufactures and sells touch sensitive
input systems including touch-sensitive screens, digitizers for pen computers
and kiosk enclosures, as well as electronic digital PC-based whiteboards.
(2) Consolidated Financial Statements
---------------------------------
The accompanying consolidated financial statements include the accounts of
MicroTouch Systems, Inc. and its wholly-owned subsidiaries (the Company). All
significant intercompany accounts, transactions and profits have been
eliminated.
Certain reclassifications have been made to the 1998 Financial Statements
to conform to current year presentation.
(3) Interim Consolidated Financial Statements
-----------------------------------------
The accompanying consolidated financial statements as of March 31,
1999 and for the three- month periods ended March 31, 1999 and 1998 include the
accounts of the Company, and are unaudited; however, these statements, prepared
in accordance with generally accepted accounting principles, reflect, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of March 31,
1999, and the results of operations and cash flows for the three-month periods
ended March 31, 1999 and 1998. The results of operations for the three-month
period ended March 31, 1999 are not necessarily indicative of the results to be
expected for any other interim period or the entire year.
These consolidated financial statements do not include all disclosures
associated with annual consolidated financial statements and, accordingly,
should be read in conjunction with the footnotes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
(4) 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. The effect of stock options is antidilutive in loss periods.
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:
8
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
March 31,
-------------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net Income/(Loss): $ (277,000) $2,270,000
---------- ----------
Weighted Average Common Shares
Outstanding: 7,289,000 7,866,000
---------- ----------
Basic Earnings/(Loss) Per Share $ (0.04) $ 0.29
---------- ----------
DILUTED EARNINGS PER SHARE
Net Income/(Loss): $ (277,000) $2,270,000
---------- ----------
Weighted Average Common Shares
Outstanding: 7,289,000 7,866,000
----------
Weighted Average Number of Dilutive
Potential Common Shares: - 0 - 266,000
---------- ----------
Weighted Average Number of Shares
Outstanding as Adjusted: 7,289,000 8,132,000
---------- ----------
Diluted Earnings/(Loss) Per Share: $ (0.04) $ 0.28
---------- ----------
</TABLE>
(5) 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 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.
(6) Segment Information
-------------------
Effective December 31, 1998 the Company adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
No. 131). 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.
9
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(7) Litigation Expense
------------------
The Company has been a defendant in a case entitled Behne v. MicroTouch
Systems Inc., 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, regarding gender discrimination, retaliation and misrepresentation
during her employment at the Company. In March, 1999 a jury acquitted the
Company of the discrimination and retaliation claims, but awarded the plaintiff
approximately $2,600,000 in compensatory and puntitive damages under the
misrepresentation claim. While the matter is continuing in post-trial
proceedings, and the Company may choose to appeal the case, the Company has
established a reserve for the full amount of the judgement, as well as estimated
associated legal fees, in the amount of $3,303,000.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in MicroTouch's statements of
operations:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
QUARTER ENDED MARCH 31,
---------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 62.9 63.5
------------ ------------
Gross Profit 37.1 36.5
Operating Expenses:
Research & Development 8.9 7.2
Sales & Marketing 14.6 14.1
General & Administrative 6.8 6.3
Amortization of Intangible Assets 0.3 0.4
------------ ------------
Total Operating Expenses 30.6 28.0
Operating Income 6.5 8.5
Other Income/(Expense) (7.6) 0.8
Income/(Loss) Before Provision for Income Tax (1.1) 9.3
Net Income/(Loss) (0.1) % 6.4%
</TABLE>
NET SALES Net sales in the quarter ended March 31, 1999 increased over the
corresponding period of 1998 by $1,001,000 or 3%. The increase in net sales was
due to volume increases in North America, Asia Pacific and Japan, partially
offset by decreased gaming volume in Europe. International sales accounted for
44% of net sales for the period, representing a decrease from 52% in the first
quarter of 1998, due to the decline in European volume combined with the
increased sales in the U.S.
GROSS PROFIT Gross profit in the quarter ended March 31, 1999 increased from
the corresponding period of 1998 by $595,000 or 5% to $13,638,000. As a
percentage of net sales, gross profit increased from 36.5% in the first quarter
of 1998 to 37.1% in the first quarter of 1999. Gross profit percentage improved
across all products, despite the adverse effect of the implementation of a new
manufacturing process, designed to improve future operating efficiencies, at the
Methuen, MA manufacturing plant.
RESEARCH AND DEVELOPMENT Research and development expenses for the quarter
ended March 31, 1999 increased over the corresponding period of 1998 by $694,000
or 27%. As a percentage of net sales, research and development expenses
increased from 7.2% in the first quarter of 1998 to 8.9% in the first quarter of
1999. The increase in research and development expenses resulted primarily from
the initiation of a program to develop improvements in touchscreen technologies.
SALES AND MARKETING Sales and marketing expenses in the quarter ended March 31,
1999 increased over the corresponding period of 1998 by $321,000 or 6%, to
$5,363,000. The increase in sales and marketing expenses resulted primarily
from a general increase in spending levels to support sales growth, including
commissions on increased sales levels and increased marketing programs designed
to generate opportunities and expand market share in the Company's core
touchscreen business.
11
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GENERAL AND ADMINISTRATIVE General and administrative expenses in the quarter
ended March 31, 1999 increased from the corresponding period of 1998 by $235,000
or 10% to $2,508,000. As a percentage of net sales, general and administrative
expense increased slightly from 6.3% for the first quarter of 1998 to 6.8% for
the first quarter of 1999. The increased spending reflects higher Information
Technology expenses associated with the establishment of the Company's e-
commerce Website, Touchstore.com.
AMORTIZATION OF INTANGIBLE ASSETS For the quarter ended March 31, 1999,
operating expenses included $114,000 of amortization relating to various
acquisitions and purchases of technologies, as compared to $134,000 for the
quarter ended March 31, 1998.
OPERATING INCOME Operating income in the quarter ended March 31, 1999 decreased
from the corresponding period of 1998 by $635,000 or 21% to $2,395,000. As a
percentage of net sales, operating income decreased from 8.5% in the first
quarter of 1998 to 6.5% for the first quarter of 1999. The decrease in
operating income is primarily the result of increased operating expenses to
develop next generation technology and establish infrastructure to support
anticipated business growth. International operating income in the quarter
ended March 31, 1999 decreased by 33% from the corresponding period of 1998 due
primarily to the previously discussed European sales decline.
OTHER INCOME Other income in the quarter ended March 31, 1999 increased from
the corresponding period of 1998 by $193,000 or 63% to $501,000. This increase
was primarily due to a foreign currency gain of $191,000 as compared to a loss
of $57,000 in 1998. Interest income, net of interest expenses, on the Company's
cash and investment portfolio for the first quarter of 1999 was $310,000
compared to $374,000 for the first quarter of 1998, reflecting a decrease in the
size of the Company's investment portfolio, which is discussed under "Liquidity
and Capital Resources".
OTHER EXPENSE - LITIGATION During the first quarter of 1999 the Company
recorded a charge of $3,303,000 in relation to a judgement against the Company
in a lawsuit in which a former employee of the Company sued for gender
discrimination, retaliation and misrepresentation. While the Company was
acquitted of the discrimination and retaliation claims, the jury awarded the
plaintiff approximately $2,600,000 in compensatory and punitive damages under
the misrepresentation claim. While the matter is continuing in post-trial
proceedings, the Company has established a reserve for the full amount of the
judgement, as well as estimated associated legal fees.
PROVISION FOR INCOME TAXES The Company's effective tax rate was 32% in the
first quarter of both 1999 and 1998. The effective tax rates in both periods
differed from the federal statutory rate of 34% primarily as a result of the
provision for state income taxes offset by the benefit related to the Company's
foreign sales corporation and tax exempt interest income.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had net working capital of $54,047,000,
including approximately $28,458,000 in cash, cash equivalents and marketable
securities. The Company reported net cash provided by operating activities of
$57,000 for the quarter ended March 31, 1999. Additionally, the Company
maintains bank lines of credit totaling $8.5 million. As of March 31, 1999, the
Company had no borrowings under its bank lines of credit. During the quarter
ended March 31, 1999 the major uses of cash were to pay down borrowings under
the Company's lines of credit, reduce obligations to vendors and purchase shares
of the Company's stock under the Company's stock buyback program, discussed
below.
In March, 1999 the Board of Directors of the Company extended for the third time
a repurchase program of the Company's common stock, originally approved in
December, 1997 and extended in August and November, 1998. The amount of common
stock to be repurchased under this program is not to exceed $18.0 million in the
aggregate. During the quarter ended March 31, 1999 the Company has
12
<PAGE>
repurchased approximately 237,000 shares at an aggregate cost of $3.1 million.
Since January, 1998 the Company has purchased approximately 1,000,000 shares at
an aggregate cost of approximately $13.6 million. These shares have been and
will be used for the Company's stock option plan, employee stock purchase plan
and for other corporate purposes, possibly including acquisitions.
During the current quarter the Company invested $1,895,000 in capital
expenditures. Major capital expenditures included investment in the Company's
touchscreen manufacturing operations and computer information systems to support
the infrastructure of its expanding worldwide operations.
Pending operational needs, the Company has invested its cash in investment
grade, interest-bearing securities. The Company believes that these cash
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 any such acquisition is completed, that cash
consideration will be offered by the Company.
The discussion contained in this section, as well as elsewhere in this Form 10-
Q, 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.
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.
SUPPLY EXPOSURE
Although the Company generally uses standard parts for its product, certain
components, such as ASICs and the coated glass used in the production of touch
sensors are currently available only from a single source. In the event that
suppliers are unable to fulfill the Company's requirements, the resulting
interruption in production would have an adverse impact on the Company's
operating results. The Company maintains an inventory of ASICs, coated glass
and other components in order to limit the potential impact of such
interruptions. While the Company believes that there are other companies that
are capable of manufacturing these sole source components, the inability to
obtain sufficient components as required, or to develop alternative sources if
and when needed, would adversely affect the Company's operating results.
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
13
<PAGE>
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 the 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 flow.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been a defendant in a case entitled Behne v. MicroTouch Systems
Inc., 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, regarding gender discrimination, retaliation and misrepresentation
during her employment at the Company. In March, 1999 a jury acquitted the
Company of the discrimination and retaliation claims, but awarded the plaintiff
approximately $2,600,000 in compensatory and puntitive damages under the
misrepresentation claim. While the matter is continuing in post-trial
proceedings, and the Company may choose to appeal the case, the Company has
established a reserve for the full amount of the judgement, as well as estimated
associated legal fees, in the amount of $3,303,000.
ITEM 5. OTHER INFORMATION
To be considered for inclusion in the proxy statement related to the Annual
Meeting of stockholders to be held in 2000, stockholder proposals must be
received no later than January 15, 2000. If the Company does not receive notice
by March 16, 2000 of any matter to be considered for presentation at the Annual
Meeting, although not included in the proxy statement, management proxies may
confer discretionary authority to vote on the matters presented at the Annual
Meeting by a stockholder in accordance with Rule 14a-4 under the Securities
Exchange Act of 1934, as amended. All stockholder proposals should be marked
for the attention of Chief Financial Officer, MicroTouch Systems, Inc., 300
Griffin Brook Park, Methuen, MA 01844.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27. Financial Data Schedule. Filed herewith.
(b) None
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MicroTouch Systems, Inc.
Dated: May 12, 1999 BY: /s/ Geoffrey P. Clear
------------------------
Geoffrey P. Clear
Vice President -
Finance & Administration,
Chief Financial Officer &
Treasurer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
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0
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