-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ImiB0fyxJtRIvjG5ha4JESyYYXiHc3hQMx/XEfESUMdQooknATQuxkOghsKsH7d6 qoLl795SOtNfb9zUfks0rw== 0000892569-97-001695.txt : 19970627 0000892569-97-001695.hdr.sgml : 19970627 ACCESSION NUMBER: 0000892569-97-001695 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970328 FILED AS OF DATE: 19970626 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRINTRONIX INC CENTRAL INDEX KEY: 0000311505 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 952903992 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-09321 FILM NUMBER: 97630195 BUSINESS ADDRESS: STREET 1: 17500 CARTWRIGHT RD STREET 2: P O BOX 19559 CITY: IRVINE STATE: CA ZIP: 92713 BUSINESS PHONE: 7148631900 MAIL ADDRESS: STREET 1: ATTN GENERAL ACCOUNTING STREET 2: PO BOX 19559 CITY: IRVINE STATE: CA ZIP: 92713 10-K405 1 FORM 10-K405 FOR THE YEAR ENDED MARCH 28, 1997 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 28, 1997 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission File Number 0-9321 ------ PRINTRONIX, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-2903992 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 17500 CARTWRIGHT ROAD P.O. BOX 19559, IRVINE, CALIFORNIA 92623 (Address of Principal Executive Offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 863-1900 ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01, INCLUDING COMMON SHARE PURCHASE RIGHTS Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] On May 12, 1997, there were 7,866,047 shares of the Registrant's Common Stock outstanding. The aggregate market value of the Common Stock (based upon the closing price of $12.75 per share in the over-the-counter market on May 12, 1997) held by non-affiliates of the Registrant was approximately $78,274,188. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended March 28, 1997 are incorporated by reference into Parts I, II and IV of this report. Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on August 12, 1997 are incorporated by reference into Part III of this report. ================================================================================ 2 PART I ITEM 1. BUSINESS Certain geographic information for Item 1 is contained in the Company's 1997 Annual Report to Stockholders on page 22, which information is incorporated herein by reference (and except for that page, the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997 is not deemed filed as part of this report). GENERAL Printronix, Inc. designs, manufactures, and markets medium and high speed printers used on a wide range of computer systems and associated networks. Printronix printers produce "hard copy" output using line matrix, laser and thermal printing technologies. The Company's products are designed primarily for business and industrial applications where performance and reliability are paramount. All of the Company's printers have extensive graphics capabilities allowing them to support most popular graphics languages while printing most output types such as text, reports, tabular data, computer graphics, bar codes, forms, labels, logos, etc. Printronix, Inc. was incorporated in California in 1974 and was reincorporated in Delaware in December 1986. Unless the context otherwise requires, the terms "Company" and "Printronix" refer to Printronix, Inc. and its consolidated subsidiaries. COMPUTER PRINTERS Computer printers are output devices that use electromechanical techniques to convert digitized information sent from a host computer to printed form. The printed output produced can then be read by humans and/or machines, depending upon the format of the output. Such devices can print on paper and other substances, such as card stock or mylar, by means of impact or non-impact technologies. Impact printers are generally classified as being either text or graphics printers and as either serial or line printers. Text printers print a predetermined set of fully formed characters. Graphics printers print dots anywhere on the paper and are used for text and graphics applications. Serial printers print one character at a time and line printers print one line at a time. Impact printers can print both single-part and multi-part forms. Graphic printers form characters by printing dots in combinations of patterns. Such printers are called dot matrix or line matrix printers. Dot matrix or serial matrix printers create characters one at a time in horizontal sweeps across the page. Printronix manufactures line matrix printers, which print a complete line of dots, thus combining the flexibility of the matrix printing technique with the reliability and durability of a line printer. Non-impact printers print on paper by means of thermal, electrostatic, inkjet, laser, LED, and other techniques that deliver high resolution printed output for letter quality and graphics applications, but print only single-part forms. TECHNOLOGY Printronix products include line matrix printers, laser printers and thermal printers. This product line is unified by a common printer controller architecture called PSA(TM), Printronix System Architecture. This architecture permits all three printing technologies to be application compatible by supporting common graphics languages and computer host communication protocols. LINE MATRIX PRINTERS -------------------- The newest Printronix line matrix printers, the ProLine Series 5, operate at 500, 800, 1200, and 1400 lines per minute as summarized on the following page. The older models, MVP, P3000 series, P6000 series, P4000 series and P9000 series have been phased out of production. -2- 3 Printing is accomplished as the hammer bank shuttles a small distance back and forth, enabling the hammers to place dots anywhere along a row across the paper. Successive dot rows are produced by the paper advancing while the hammer bank reverses for printing the next dot row. Dots overlap horizontally and vertically to produce graphics as well as alphanumeric characters.
---------------------------------------------------------------------------------------- LINE MATRIX PRINTER MODEL SPEED (LINES PER MINUTE) HAMMERS ---------------------------------------------------------------------------------------- MVP Series 200 22 ---------------------------------------------------------------------------------------- P6040/P6240 400 44 ---------------------------------------------------------------------------------------- P3000 Series 400 34 ---------------------------------------------------------------------------------------- P6080/P6280 800 66 ---------------------------------------------------------------------------------------- P4000 Series 800 47 ---------------------------------------------------------------------------------------- P9000 Series 1200 88 ---------------------------------------------------------------------------------------- P5000 Series 500, 800, 1200, 1400 28, 49, 91, 91 ----------------------------------------------------------------------------------------
The dot placement of Printronix line matrix printers is very precise, permitting accurate character alignment. The combination of precise dot placement anywhere on the page and the use of overlapping dots rather than fully formed characters enables Printronix printers, under computer control, to produce graphic output. Another key feature of the line matrix technology is that hammer energy is optimized to print dots only, resulting in improved print quality on multi-part forms. LASER PRINTERS -------------- The Company's laser printers create images on paper electrographically like a copier machine. The image is fixed to the paper with toner in the same manner as copiers. The intelligent controllers that are designed by the Company are integrated with print engines purchased from outside suppliers. Both models are available with optional power stackers.
---------------------------------------------------------------------------------- LASER MODEL PAPER SPEED (PAGES PER MINUTE) ---------------------------------------------------------------------------------- L1024 A-Size Continuous Form 24 PPM ---------------------------------------------------------------------------------- L5031 13.6 Inch Continuous Form and 31 PPM B-Size Cut Sheet ----------------------------------------------------------------------------------
THERMAL PRINTERS ---------------- The Company's thermal printers create images on paper by heating thermal sensitive media. The image is created either by heating an ink-based ribbon which transfers its ink to the paper label material (transfer) or by heating paper label material in which the thermally sensitive ink is already impregnated (direct). This type of printer is especially useful in "on-demand" label applications. These models use print engines purchased from outside suppliers and are integrated with Printronix System Architecture, (PSA).
----------------------------------------------------------------------------------------------------------- DIRECT OR SPEED THERMAL MODEL PAPER TRANSFER (INCHES PER SECOND) DPI (DOTS PER INCH) ----------------------------------------------------------------------------------------------------------- T1006 6.3 Inch Label Both 6 IPS 203 ----------------------------------------------------------------------------------------------------------- T3204 4.1 Inch Label Both 10 IPS 203 ----------------------------------------------------------------------------------------------------------- T3306 6.4 Inch Label Both 8 IPS 300 ----------------------------------------------------------------------------------------------------------- T3308 8.5 Inch Label Both 5 IPS 300 -----------------------------------------------------------------------------------------------------------
-3- 4 PRODUCTS Line matrix models include the new ProLine Series 5(TM) family with speeds ranging from 500 to 1400 lines per minute. The new ProLine Series models were introduced in fiscal 1996 and replace the Company's previous generation models in the MVP, P3000, P4000, P6000, and P9000 series. The Company started shipping two new ProLine models in March 1997, just 18 months after the ProLine family was introduced. We upgraded the 475 line per minute model to 500 lines per minute for the same list price. The second model was a 1,400 line per minute model with a power stacker. Applications for line matrix printers include reports, multi-part forms, bar codes, labels and program listings. The L5031 continuous form laser printer operates at up to 31 pages per minute. The L5031 has a unique flash fusing process, known as DuraFusion(TM), which produces output of exceptional durability and quality. Unlike other laser printers, the L5031 can print on a wide variety of media including synthetics and plastic cards. The L5031's wide carriage, duty cycle and durability of the output makes it particularly well suited for high volume utility type billing and labeling applications. The L1024 continuous form laser printer operates at up to 24 pages per minute. Utilizing the more conventional heat/pressure fusing process, the L1024, with its 8-1/2 inch wide carriage and more modest duty cycle, is primarily used for medium volume billing and labeling applications. The new ThermaLine(TM) family of thermal printers is dedicated to bar code/label printing applications. Ranging in print width from 4.1 to 8.5 inches and in speed from 10 to 5 inches per second, ThermaLine printers address a wide range of label printing applications in the manufacturing, distribution, retail and healthcare sectors. The Company's ProLine Series 5, LaserLine and ThermaLine printers employ the Printronix System Architecture (PSA)(TM) design which provides software compatibility among its printer families. All of the Company's printers support Printronix IGP/PGL(R) and IGP/VGL bar code label printing languages. MARKETING AND CUSTOMERS The market for the Company's products is related to the market for computer and bar code systems. Printronix printers are marketed worldwide directly to original equipment manufacturers (OEM) and to end users through a network of full-service distributors and resellers. The Company's 10 largest customers accounted for an aggregate of approximately 62, 64, and 66 percent of net sales during the fiscal years ended March 1997, 1996, and 1995, respectively. During fiscal 1997, the Company sold its products to major OEMs, and distributors/resellers, which accounted for approximately 47 percent and 53 percent of net sales, respectively. In fiscal 1997, the Company had two customers which individually represented 10 percent or more of consolidated net sales. Sales to the largest customer, IBM, represented 29 percent, 30 percent and 29 percent of net sales for fiscal years 1997, 1996 and 1995, respectively. On a geographic basis, fiscal 1997 sales to the largest customer represented 31 percent of domestic net sales and 25 percent of international net sales. Sales to the second largest customer represented 10 percent, 10 percent and 11 percent of consolidated net sales for fiscal years 1997, 1996, and 1995, respectively. A significant decline in sales to either customer could have an adverse effect on the Company's operations. -4- 5 COMPETITION The Company has a wide range of printers that compete in the overall market for medium and high speed computer printers. The overall market includes serial, line matrix, band, laser and thermal transfer printers. This overall market includes a large captive market which consists of computer systems manufacturers that formerly produced their own printers and in the past have not bought from independent printer manufacturers. Due to the increasing competitive nature and the level of investment now required for ongoing printer development, most of these OEMs are now buying from independent manufacturers. The Company competes on a direct basis with several companies of varying sizes, including some of the largest businesses in the United States and Japan, in the non-captive market. Competing products include high end serial printers, medium and high speed line printers, laser printers, thermal printers, and other non-impact technologies. Competitive factors in the Company's markets include reliability, durability, price, print quality, versatility of special performance features, and after-sales support. The Company believes that its printers are highly competitive with regard to price/performance and cost of ownership, and that the Company rates highly in after-sales support. The Company has periodically evaluated other printing technologies and intends to continue to do so. Introduction of products with superior performance or substantially lower prices could adversely affect the Company's business. ORDER BACKLOG The Company's order backlog at March 28, 1997 was approximately $13.4 million, compared with $23.7 million at March 29,1996 and $17.6 million at March 31, 1995. The decrease over prior years reflects the continuing conversion of the Company's customers to a just-in-time delivery process. The backlog represents orders for which the majority of products have a delivery date and expected ship date of three months or less. RAW MATERIALS The Company purchases basic mechanical and standard electronic components from numerous outside vendors. Most of those components used in the Company's impact printers are immediately available from alternate sources. The Company also purchases certain components from sole sources and has no reason to believe that it will be unable to obtain those components. However, if the Company were to lose any sole source for a component, there could be a delay in shipment of printers using those components until an alternate source begins production. The Company's laser and thermal printer products are designed to use specific print engines and printer assemblies manufactured by outside vendors. The Company has entered into written purchase agreements for these printer components and has no reason to believe that it will be unable to obtain the materials required. ENGINEERING AND DEVELOPMENT The Company operates in an industry which is subject to rapid technological change, and its ability to compete successfully depends upon, among other things, its ability to react to change. Accordingly, the Company is committed to the development of new products. During fiscal 1997, 1996, and 1995, its engineering and development expenditures incurred were approximately $14.3 million, $13.7 million, and $12.7 million, respectively. Substantially all expenditures were Company sponsored. A substantial portion of engineering and development expenditures were associated with the continued development of lower cost line matrix printers, software and hardware development of the Printronix System Architecture for laser, thermal and line matrix printers. -5- 6 PATENTS AND LICENSES The Company has been issued 34 United States patents, and related foreign patents (primarily in Canada, the United Kingdom, France and Germany) associated with various aspects of its printers. Two of the foreign patents will expire in July and September 1997, respectively. Three of the United States patents will expire during 1997, one in September and two in December. The Company believes that its patented line matrix printing technology has competitive value and intends to continue its practice of enforcing its patent rights against potential infringers where it deems appropriate. Although there can be no assurance that the Company will be successful in defending its rights to any of its patents, the Company believes that its patents are valid. The Company has no material licenses from others pertaining to the manufacture of its products, including those under development, and believes that none are currently required. The Company believes that, based on industry practice, any such licenses as might be required in the future could be obtained on terms which would not have a material effect on it. However, the Company does have licenses for the use of IPDS, POSTSCRIPT and PCL5 graphic languages. PCL 5 is a trademark of Hewlett-Packard Corporation. IPDS is a registered trademark of International Business Machines Corporation. EMPLOYEES The Company had 866 employees as of March 28, 1997 including 502 in the United States, 304 in Singapore and 60 in Europe. None of the Company's employees in North America or Singapore is subject to a collective bargaining agreement. Printronix Nederland BV is a member of the Employers Union F.M.E., and some of its employees have elected to become members of an employee union. This employee union is not government sponsored and is supported by contributions from its members. The Company believes that its relationship with its employees is good. FOREIGN OPERATIONS The Company has manufacturing facilities in Singapore, wherein line matrix printer products and some printed circuit board assemblies are produced. In the Netherlands, the Company has a facility that provides product support, customer service, product distribution and assembly of selected models of laser and thermal printers. International sales represented approximately 44 percent, 41 percent, and 38 percent of the Company's total sales in fiscal years 1997, 1996, and 1995, respectively. The Company has sales offices within Germany, France, the United Kingdom and Singapore. The Company is not aware of any significant risks with respect to its foreign business other than those inherent in the competitive nature of the business and fluctuations in foreign currency exchange rates. Selected financial information regarding foreign and export sales by geographic area is set forth in Note 6 of Notes to Consolidated Financial Statements. ITEM 2. PROPERTIES The Company's executive, manufacturing, engineering, administrative and marketing offices are located in a total of approximately 169,000 square feet of leased facilities in Irvine, California. The Company's foreign operations are located in the Netherlands and Singapore. The Netherlands operations are in leased facilities of approximately 34,000 square feet. The Singapore operations were moved to a new 74,000 square foot state-of-the-art building purchased in fiscal 1997 for approximately $3.8 million with an additional $3.0 million spent in capital improvements. The Company also leases several small offices, generally on short-term leases, throughout the United States and Europe for sales or service. See Note 7 of Notes to Consolidated Financial Statements for a summary of the expiration dates and lease or rental commitments. -6- 7 ITEM 3. LEGAL PROCEEDINGS ENVIRONMENTAL ASSESSMENT ------------------------ In January 1994, the Company was notified by the California Regional Water Quality Control Board - Santa Ana Region (the "Board") that groundwater monitoring reports indicated that the groundwater under one of the Company's former production plants was contaminated with various chlorinated volatile organic compounds (VOCs). Evidence adduced from site studies undertaken to date indicates that compounds containing the VOCs were used by the prior tenant during its long-term occupancy of the site. The tests also indicate that the composition of the soil is such that off-site migration of contamination is very slow and contamination is most likely confined to the site. Investigation indicates that the prior occupant is a well established business enterprise which has substantial assets and is affiliated with a publicly traded company. In March 1996, the Company received a request from the Board for information regarding chemicals used by the Company or others on property adjacent to the former production plant site. Although, the Company previously occupied a small portion of this adjacent property primarily for office space and a machine shop, initial review indicates that the Company did not use compounds containing VOCs on this adjacent property. There are presently no Board remediation orders outstanding against the Company. As of March 28, 1997, the Company has reserved $214,000 to cover further legal fees or any additional expenses related to environmental tests which could be requested by the Board at the site. To date, the Company has incurred only minimal expense in its initial response to the Board's request for information and for environmental testing. However, the Company could be subject to charges related to remediation of the site. These charges on a preliminary (and very general) basis, could be estimated as follows: Remediation involves a two-step procedure. The first step would include the installation of a soil vapor extraction system. The cost of installation could range from $50,000 to $100,000. There would also be annual operating costs of up to $50,000 for a period of several years. The second step would be the installation of a pump and water treatment system to cleanse the groundwater. The cost of installation would range from $100,000 to $200,000. The annual operating costs would range up to $100,000 for a period which cannot now be ascertained. The Company is convinced that it bears no responsibility for any contamination at the site and intends to vigorously defend any action which might be brought against it in respect thereto. Furthermore, the Company believes it has adequately accrued for any future expenditures in connection with further legal fees or additional environmental tests that could be requested by the Board at the site, and that such expenditures will not have a materially adverse effect on its financial condition or results of operations. However, because of the uncertainty of this matter there is no assurance the actual costs will not exceed management's estimate. PRINTRONIX, INC. V. KENTEK INFORMATION SYSTEMS, INC. ---------------------------------------------------- On May 16, 1996, the company filed suit against Kentek Information Systems, Inc. ("Kentek") in the United States District Court for the Central District of California. On or about June 19, 1996, the case was transferred to the United States District Court for the District of Colorado. The suit alleged that Kentek had discriminated against the Company in the prices that it charged the Company for the purchase of consumable products, in violation of the Robinson-Patman Act, and in breach of a contract between the parties governing the purchase of such consumables. The suit sought damages of $2.5 million for breach of contract and violation of the Robinson-Patman Act (damages for which are trebled) and sought an injunction against further price discrimination. On December 23, 1996, Kentek's counterclaims against the Company were filed. The counterclaims alleged that the Company is in breach of contract for failing to exercise its best efforts in the sale of Kentek products and the Company misrepresented its intentions to perform under the contract in the course of negotiations. The counterclaims sought damages and punitive damages in unspecified amounts. By agreement dated May 12, 1997, the parties have settled the lawsuit. The settlement provides for the dismissal of all claims with prejudice, release of certain claims, a reduction in prices charged to the Company for consumables, retroactive to January 6, 1996 and continuing thereafter as provided in the contract, and certain other credits. The terms of the settlement will not have a material impact on the Company. The parties have expressly denied liability to one another. -7- 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matter during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages as of May 12, 1997 are as follows: Robert A. Kleist 68 President, Chief Executive Officer and Director J. Edward Belt, Ph.D. 63 Senior Vice President, Engineering, Chief Technical Officer, and Assistant Corporate Secretary George L. Harwood 52 Senior Vice President, Finance and Information Systems (IS), Chief Financial Officer, and Corporate Secretary C. Victor Fitzsimmons 49 Senior Vice President, Worldwide Manufacturing Richard A. Steele 52 Senior Vice President, Sales and Marketing
Officers are appointed by and hold office at the pleasure of the Board of Directors. Mr. Kleist is one of the founders of the Company and has served as a director and its President and Chief Executive Officer since its formation in 1974. In addition, Mr. Kleist served as Chief Financial Officer from February 1987 to October 1988, a position he also held from August 1985 until January 1986. Mr. Kleist is a director of Seagate Technology, a manufacturer of computer disk drives. Dr. Belt joined the Company in December 1985 as Vice President, Engineering, Line Matrix Division. In February 1987, he was appointed Senior Vice President, Engineering and Chief Technical Officer. Dr. Belt was appointed to the additional position of Assistant Corporate Secretary in August 1989. From October 1984 to December 1985, Dr. Belt was Manager of Engineering, Large Communication Systems Division of Rolm Corp. From December 1979 to October 1984, he was Manager of Engineering, Schlumberger Sentry. In prior years, Dr. Belt has held engineering management positions at General Electric Co. and Pertec Computer Corp. He was also a founder and Engineering Vice President of Courier Terminal Systems in 1969. Mr. Harwood joined the Company in October 1988 as Senior Vice President, Finance and Chief Financial Officer. Mr. Harwood was appointed to the additional office of Corporate Secretary in January 1989. In October 1994, Mr. Harwood assumed responsibility for the Company's Information Systems. From December 1984 to October 1988, Mr. Harwood was Chief Financial Officer and Vice President, Finance at Qume Corporation. From December 1982 to December 1984, Mr. Harwood was Group Controller of ITT Automotive Products, Worldwide. In prior years, Mr. Harwood has held various senior financial positions at ITT in Brussels, London and Zambia. Mr. Harwood is a Fellow of the Institute of Chartered Accountants in England and has had seven years of public accounting experience, primarily at Price Waterhouse. Mr. Fitzsimmons joined the Company in September 1985 as Director of Information Systems. In December 1988, he was appointed Vice President, Information Systems. In May 1990, Mr. Fitzsimmons assumed responsibility for Printronix B.V., the Company's Netherlands subsidiary. Mr. Fitzsimmons was appointed to the additional office of Vice President, Irvine Manufacturing in October 1990. In July 1991, he assumed responsibility for Printronix A.G., the Company's Singapore subsidiary. From May 1992 to October 1994 Mr. Fitzsimmons was Senior Vice President, Manufacturing and Information Systems. In October 1994, he was appointed Senior Vice President, Worldwide Manufacturing. From September 1979 to September 1985, Mr. Fitzsimmons held various senior IS positions at Magnavox Government and Industrial Electronics Company. -8- 9 Mr. Steele joined the Company in July 1991 as Senior Vice President, Sales and Marketing. From May 1990 to June 1991, Mr. Steele was Senior Vice President, Sales and Marketing at DataWare. From May 1989 to May 1990, Mr. Steele was Vice President, Sales and Marketing at Talaris. From April 1972 to January 1987, Mr. Steele held various positions including District Sales Manager, National Sales Manager and Vice President, Sales and Marketing at Datagraphix. In January 1987, Datagraphix became Anacomp, Inc. and Mr. Steele was appointed Senior Vice President, Sales and Marketing, a position he held until October 1988. In prior years, Mr. Steele held various positions in sales management and systems engineering at IBM. PART II Information for Items 5, 6, 7 and 8 is contained in the Company's 1997 Annual Report to Stockholders on the following pages, which information is incorporated herein by reference (and except for these pages, the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997 is not deemed filed as part of this report):
ANNUAL REPORT TO STOCKHOLDERS ITEM NO. TITLE PAGE REFERENCE -------- ----- -------------- Item 5. Market for Registrant's Common Equity and Related 15, 24, back cover Stockholder Matters Item 6. Selected Financial Data inside cover Item 7. Management's Discussion and Analysis of 8-10 Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data 11-24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Information required under Item 10 "Directors and Executive Officers of the Registrant" (except for certain information concerning the Executive Officers provided in Part I of this report), Item 11 "Executive Compensation," Item 12 "Security Ownership of Certain Beneficial Owners and Management," and Item 13 "Certain Relationships and Related Transactions" has been omitted from this report. Such information is hereby incorporated by reference from Printronix's Proxy Statement for its Annual Meeting of Stockholders to be held on August 12, 1997, which the Company intends to file with the Securities and Exchange Commission not later than July 10, 1997. -9- 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Index to Financial Statements
Page in Annual Report* -------------- 1. Financial Statements included in Part II of this report: Report of Independent Public Accountants 24 Consolidated Balance Sheets as of March 28, 1997 and March 29, 1996 11 Consolidated Statements of Income for each of the three years in the period ended March 28, 1997 12 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended March 28, 1997 13 Consolidated Statements of Cash Flows for each of the three years in the period ended March 28, 1997 14 Notes to Consolidated Financial Statements 15-23
- -------------- * Incorporated by reference from the indicated pages of the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997 (and except for these pages, the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997, is not deemed filed as part of this report).
Page in this report ------------------- 2. Schedules supporting the Consolidated Financial Statements: Report of Independent Public Accountants on Schedules 11 Schedule II - Valuation and Qualifying Accounts 13
All schedules except Schedule II have been omitted for the reason that the required information is shown in financial statements or notes thereto, the amounts involved are not significant or the schedules are not applicable. (b) Reports on Form 8-K None (c) Exhibits Reference is made to the Index of Exhibits beginning at page 14 of this report, which index is incorporated herein by reference. (d) Other Financial Statements There are no financial statements required to be filed by Regulation S-X which are excluded from the annual report to stockholders by Rule 14a-3(b)(1). -10- 11 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Printronix, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements included in Printronix, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated April 24, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit 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. ARTHUR ANDERSEN LLP Orange County, California April 24, 1997 -11- 12 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. Dated: June 25, 1997 PRINTRONIX, INC. BY /s/ ROBERT A. KLEIST --------------------------- Robert A. Kleist, President Pursuant to the requirements 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT A. KLEIST President, Chief Executive June 25, 1997 ---------------------------- Officer and Director Robert A. Kleist (Principal Executive Officer) /s/ GEORGE L. HARWOOD Senior Vice President, June 25, 1997 ---------------------------- Finance & IS, Chief George L. Harwood Financial Officer and Corporate Secretary (Principal Accounting and Financial Officer) /s/ BRUCE T. COLEMAN Director June 25, 1997 ---------------------------- Bruce T. Coleman /s/ JOHN R. DOUGERY Director June 25, 1997 ---------------------------- John R. Dougery /s/ RALPH GABAI Director June 25, 1997 ---------------------------- Ralph Gabai /s/ ERWIN A. KELEN Director June 25, 1997 ---------------------------- Erwin A. Kelen
-12- 13 PRINTRONIX, INC. AND SUBSIDIARIES ----------------------- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED MARCH 28, 1997
Additions ----------------------- Balance at Charged to Charged Balance Beginning Cost and to Other at End Description of Period Expenses Accounts Deductions of Period - ----------- --------- -------- -------- ---------- --------- YEAR ENDED MARCH 28, 1997 Allowance for doubtful accounts $937,000 $961,000 $ -- $888,000(A) $1,010,000 ======== ======== ======== ======== ========== YEAR ENDED MARCH 29, 1996 Allowance for doubtful accounts $908,000 $141,000 $ -- $112,000(A) $ 937,000 ======== ======== ======== ======== ========== YEAR ENDED MARCH 31, 1995 Allowance for doubtful accounts $677,000 $330,000 $ -- $ 99,000(A) $ 908,000 ======== ======== ======== ======== ==========
DESCRIPTIONS OF OTHER ADDITIONS AND DEDUCTIONS: (A) -- Write-off of bad debt -13- 14 INDEX OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 3.1 Certificate of Incorporation of Printronix, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal year ended March 27, 1987). 3.2 By-laws of Printronix, Inc. currently in effect (incorporated by reference to Exhibit 3.2 to the Company's Report on Form 10-K for fiscal year ended March 31, 1989). 4.1 Copies of certain instruments, which in accordance with paragraph (b)(4)(iii) of Item 601 of Regulation S-K are not required to be filed as exhibits to Form 10-K, have not been filed by Printronix. Printronix agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. 4.2 Common Shares Rights Agreement dated as of March 17, 1989 between Printronix, Inc. and Chemical Trust Company of California, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed on or about March 17, 1989). 10.1 Printronix, Inc. 1980 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibits 4.1 and 4.2 to Post-Effective Amendment No. 5 to Registration Statement No. 2-70035 on Form S-8). 10.2 Printronix, Inc. 1984 Stock Incentive Plan, as amended (incorporated by reference to Exhibits 4.3 and 4.4 to Registration Statement No. 33-14288 on Form S-8). 10.3 Form of Indemnification Agreement between Printronix, Inc. and its directors (incorporated by reference to Exhibit 10.4 to the Company's Report on Form 10-K for the fiscal year ended March 27, 1987). 10.4 Printronix, Inc. Executive Health Insurance Plan (incorporated by reference to Exhibit 10.5 to the Company's Report on Form 10-K for the fiscal year ended March 29, 1985). 10.5 Restricted Stock Purchase Agreement dated July 6, 1990 between the Company and Robert A. Kleist (incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-K for the fiscal year ended March 29, 1991). 10.6 Restricted Stock Purchase Agreement dated July 6, 1990 between the Company and J. Edward Belt (incorporated by reference to Exhibit 10.8 to the Company's Report on Form 10-K for the fiscal year ended March 29, 1991). 10.7 Restricted Stock Purchase Agreement dated July 6, 1990 between the Company and George L. Harwood (incorporated by reference to Exhibit 10.9 to the Company's Report on Form 10-K for the fiscal year ended March 29, 1991). 10.8 Restricted Stock Purchase Agreement dated May 7, 1992 between the Company and C. Victor Fitzsimmons (incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-K for the fiscal year ended March 27, 1992).
-14- 15 INDEX OF EXHIBITS (CONTINUED)
EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 10.9 Restricted Stock Purchase Agreement dated May 7, 1992 between the Company and Richard A. Steele (incorporated by reference to Exhibit 10.11 to the Company's Report on Form 10-K for the fiscal year ended March 27, 1992). 10.10 Printronix, Inc. 1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-K for the fiscal year ended March 25, 1994). 11 Computation of net income per share. 13 The Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997, (with the exception of the information incorporated by reference into Items 5, 6, 7 and 8 of this report, the Annual Report to Stockholders is not deemed to be filed as part of this report). 21 List of Printronix's subsidiaries. 23 Consent of Independent Public Accountants, Arthur Andersen LLP, to the incorporation of their reports herein to Registration Statement Nos. 2-70035, 33-14288 and 33-83156. 27 Financial Data Schedule ("This schedule contains summary financial information extracted from the Company's Annual Report for the fiscal year ended March 28, 1997 and is qualified in its entirety by reference to such financial statements.")
-15- EX-11 2 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 PRINTRONIX, INC. COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Years Ended March, ------------------------------------- 1997 1996 1995 ----------- ---------- ---------- Net earnings $11,671,000 $6,771,000 $7,160,000 Weighted average number of common shares outstanding 7,913,010 7,689,978 7,229,128 Dilutive stock options using the treasury stock method 418,554 556,476 844,454 ----------- ---------- ---------- $ 8,331,564 $8,246,454 $8,073,582 =========== ========== ========== Net earnings per common share $ 1.40 $ 0.82 $ 0.89 =========== ========== ==========
EX-13 3 PORTIONS OF THE ANNUAL REPORT 1 EXHIBIT 13 Printronix 1997 Annual Report global strategy industrial-strength printing emerging markets technology leader 2 Highlights for the Year o Sales up 9% to $173 million, gross margins improved from 23.5% to 26.5% o Worldwide line matrix market share increased to 50% o Completed line matrix product line conversion to ProLine Series 5, enhanced product line with 500 lines per minute and 1,400 lines per minute speeds, and power stacker o First Printronix printers with Asian language printing capabilities introduced to Asian markets, Arabic printer introduced to Middle East markets o New regional manufacturing headquarters opened in Singapore supporting Asia Pacific marketing and sales strategy o Worldwide web site start-up, essential for global/customer strategy Selected Financial Data
$ in thousands, except share data Fiscal Years ended March, 1997 1996 1995 1994 1993 Results of Operations Net sales $173,290 $159,261 $146,589 $107,419 $ 93,864 Income (loss) from operations 11,699 6,345 7,980 2,302 (4,027) Net income (loss) 11,671 6,771 7,160 1,869 (2,340) Earnings (loss) per share $ 1.40 $ 0.82 $ 0.89 $ 0.25 $ (0.34) Selected Balance Sheet Data Working capital $ 40,247 $ 35,285 $ 31,815 $ 22,939 $ 21,748 Long-term liabilities 720 817 1,485 1,850 2,214 Total assets 80,653 69,130 61,675 51,916 48,276 Stockholders' equity $ 63,508 $ 50,073 $ 41,542 $ 32,366 $ 30,443
3 Long the technology leader, Printronix is also a market leader today with 50% of world market share in line matrix printers, and niche market positions in industrial-strength Laser printers and thermal printers. The Company's strategy is to grow where the market is growing -- globally, with emphasis on emerging countries whose economies are expanding rapidly to meet the demands of burgeoning, increasingly sophisticated populations. Our goal is basic: On-time delivery of quality products that don't come back to customers that do -- worldwide! 4 To Our Shareholders Fiscal 1997 set a new record in revenue and net income for Printronix -- our 5th consecutive growth year. The results confirmed the value of our fiscal 1996 transition to the next-generation ProLine Series 5 line matrix printers, which accounted for 67% of total sales. We also set the stage through opening of our new manufacturing complex in Singapore and significant progress on our new worldwide information system for full implementation of the Company's global marketing strategy, which we believe will propel Printronix successfully into the future. Revenue for fiscal 1997 grew 9% to $173.3 million as compared to fiscal 1996, while net income increased 72% to $11.7 million and earnings per share were $1.40 vs. $0.82. The gross margin increased to 26.5% from 23.5% and the net margin was 6.7% vs. 4.3%. Margin increases came from higher sales, manufacturing efficiencies and overcoming startup costs on the ProLine Series 5 printers. We are working steadily to increase margins even further while providing competitive products. With this success and our industry leading market share in line matrix printers, analysts ask us where new growth will occur. Our answer is basic. Through continuing investment and product enhancement, we are actively seeking to increase our market share worldwide with strategic attention focused on high-growth, emerging economies. Introduced in late fiscal 1996, ProLine Series 5 printers were already enhanced in late fiscal 1997 and we have a continuing R&D imperative to refine and upgrade our product offerings. R&D comprised over 8% of revenue in fiscal 1997, which is estimated to be nearly double the expenditures of key competitors. [PHOTOGRAPH] The Laser Line(TM) family provides continuous forms printing with unsurpassed data intergrity for IS and industrial applications, where laser quality images are paramount. Printronix is the leading industry supplier in the design, manufacturing and marketing of a full range of line matrix, laser and thermal printers for business and industrial applications. We distribute worldwide to OEMs, distributors and resellers. The Thermaline(TM) family offers top quality production of bar coded thermal labels on a wide variety of materials for both on-demand and batch printing applications. 5 We also are making a major investment in upgrading the Company's information system to support and control growth on a worldwide basis by installing in mid 1997 a complete new systems solution and set of applications developed by the market-leading German company, SAP. When completed, this new information system will provide all functions worldwide with integrated, real-time, online information, while attending to the specific needs of the individual regions and countries in which we operate. This project is directed to providing even greater response to our customers. The industry trend of outsourcing printer manufacturing by major computer hardware companies, to which we responded by doubling R&D, has benefited Printronix significantly. We have become a vital supplier to many of the leading computer system original equipment manufacturers (OEM) around the world. Sales to OEMs comprised 47% of total revenues in fiscal 1997. {PHOTOGRAPH] "Printronix is a clear market Leader with 50% of world market share in Line matrix printers." The ProLine Series 5 is the fifth generation successor to the line matrix technology that we invented, when the Company was founded over 20 years ago. Some of those original printers are still in operation. Today, ProLine Series 5 printers are the predominant choice for print jobs that demand the utmost in reliability and durability. 6 At our Asia Pacific regional operations in Singapore, we opened a new $7-million manufacturing and distribution facility in November 1996, outfitted with the latest computer-aided manufacturing equipment to enhance our manufacturing and distribution presence for Southeast Asia, paralleling our capabilities in California. We plan to serve Asia Pacific markets with their rapidly growing economies from this Singapore facility. In the Netherlands, we receive and warehouse manufactured printers called "printer plains," which we customize to order for quick shipment to Europe, Middle East and Africa markets. Sales in fiscal 1997 grew 3% in the Americas, but at the rate of 17% in Europe, the Middle East and Africa, and at the even higher rate of 26% in the Asia Pacific region. Asia Pacific accounted for 6% of revenue in fiscal 1997, but it has the potential to account for up to 30% of revenue in five years based upon the dynamics of the region's economies. Sales outside the United States totaled 44% in fiscal 1997. The facts pointing to the future are clear. Analysis shows that emerging markets, which we have targeted through our global strategy, have 85% of the world's population and the highest gross domestic product growth rates. Our marketing efforts now include China, Indonesia, Thailand, Korea, Malaysia, the Philippines, Singapore, Pakistan, and India. [PHOTOGRAPH] MARKETS The Netherlands is our focal point for staging, customizing and quick-shipping of printers destined for the growth in Europe, Africa and Middle East markets. In the United States and Western Europe, we have a leading market share, while growth is steady but slow. We are focusing new energies on emerging countries with higher gross domestic product growth rates to capture our fair share in these markets. 7 Our printers are useful throughout the world -- as long as they print the local language. A major enhancement in fiscal 1997 was our introduction of software supporting Asian language characters -- a highly complex print set used in Asian markets. We produced ideographs for Japan, South Korea, Taiwan and China. Local language fonts are also offered in Thai, Malay, Greek, Cyrillic and Turkish. We also introduced Arabic in the Middle East, a solid accomplishment for our software designers since that context-sensitive language changes meaning depending upon a characters adjacency and connection to other characters. All of our printers are engineered using Printronix System Architecture (PSA), a design platform that allows varied customizing and addition of options and features via software. PSA allows applications to be compatible among our line matrix, laser and thermal printers and protects the user's investment in application software. It also increases our ability to tailor printers for specific markets within our global sales strategy, as well as to provide customers with the means to upgrade their printers as new features are developed -- an important consideration given the extended useful life of our printers. [PHOTOGRAPH] "The Company's strategy is to grow where the market is growing - globally, with emphasis on emerging countries." International font sets driven by advanced sortware make our core Printronix printer platforms easy to use by customers in an increasing number of countries with emerging economies - from Asia through India and the Middle East to the developing countries of Central and Eastern Europe Singapore is our base for manufacturing and shippping printers for the newer rapidly growing Southeast Asia and Pacific Rim markets. 8 Backlog at the end of fiscal 1997 was down 43% from the prior year end, which signaled the successful implementation of our conversion of many customers to a just-in-time delivery process. Besides lowering the customers' inventory costs, we are better able to match manufacturing runs with real end user customer orders and to gain a clearer view of shifts in market demand. The shift to just-in-time also helped Printronix sharpen its skills at quick response and delivery -- an increasingly important competitive consideration by customers weighing alternate products. For those customers that require just-in-time delivery, the average time from order receipt to product shipment was four days at the end of fiscal 1997, down from eighteen days a year ago. Approximately 32% of revenue shipped under the just-in-time program in the fourth quarter of fiscal year 1997. Like other measures of customer services, we are working to shorten delivery times even more. We initiated a worldwide web site in fiscal 1997 and are working to refine it to make customer and product information -- and, in time, direct product ordering -- quickly available to our customers anywhere in the world on a 24-hour basis. The site also will enable the downloading of important software upgrades by customers, keeping their Printronix products current. [PHOTOGRAPH] CUSTOMER SERVICE www.printronix.com. Our worldwide web site is being steadily expanded to provide quick customer access to critical product information, new software updates and, in the future, direct product ordering. "Deliverability" and "supportability" are the key issues separating competitors doing business worldwide. With Printronix quality acknowledged, we are working to ship products in under four days - leading to next-day response once our information system and intranet are implemented. 9 Besides basic product quality, customer service is our most important focus and attention to it pervades every aspect of our operations, from design to delivery. With all this activity and investment, Printronix ended fiscal 1997 with ample cash, growing cash flow, and no debt, and will continue to focus on maintaining our growth in the industry. The people who have made this happen must be commended -- our employees, management team and industry partners and affiliates. We also thank our customers, who continue to choose Printronix products for their printing needs, and our Board of Directors, for its wise counsel as we expand our business and make important changes throughout our operations. We look forward to reporting another positive year for fiscal 1998. Robert A. Kleist President and Chief Executive Officer Letter captions: [PHOTOGRAPH} products "On-time delivery of quality products that don't come back to customers that do." Printers are completed, outfitted to customer specifications and shipped to order quickly from California to the Americas, from The Netherlands to all of Europe, the Middle East and Africa and from Singapore to all of the Asia-Pacific region for On-time delivery of Printronix products. 10 Management's Discussion and Analysis of Results of Operations and Financial Condition Printronix, Inc. and Subsidiaries Results of Operations NET SALES Printronix fiscal 1997 revenue set a new company record for the second year in a row at $173.3 million, increasing 9% from fiscal 1996. This year's revenue increase came from sales growth in the Company's ProLine Series line matrix printers. The conversion of customers to the ProLine Series was completed in fiscal 1997. ProLine Series accounted for revenue of $116.2 million or 67% of fiscal 1997 sales. Sales of consumable products represent 11% of total revenue, an increase of $2.1 million or 12% over fiscal 1996. The Company continued to focus on all world markets with particular attention being paid to emerging markets in Asia Pacific and Eastern Europe. The sales operation has been reorganized into three geographic areas - the Americas - Europe, Middle East and Africa (EMEA) - and Asia Pacific. Sales outside the United States grew by 16% to $76.2 million in fiscal 1997. OEM sales grew to $81.6 million in fiscal 1997 compared to $73.8 million in fiscal 1996 an increase of 11%. 1997 was a year of change for four of the Company's largest customers. Two customers changed ownership, one has ended its plan to sell its printer business and the Company's second largest customer, Peak Technologies is in the process of being acquired by Moore Corp. During the period, sales to these customers generally continued strong due to specific programs at each customer. Fiscal 1996 revenue of $159.3 million was up $12.7 million or 9% over fiscal 1995 sales of $146.6 million. Year-to-year revenue growth came from line matrix and continuous form laser products. The introduction of the Company's fifth generation ProLine Series 5 line matrix products drove the $5.2 million growth in line matrix revenue. ProLine Series revenue was $23.3 million or 15% of sales. Higher sales of continuous form laser products also contributed to sales growth with the L5031 and L1024 products leading the $8.0 million increase in fiscal 1996 laser revenue. Sales outside the United States grew to $65.9 million in fiscal 1996, a $9.5 million or 17% increase compared with fiscal 1995 sales of $56.4 million. OEM sales grew to $73.8 million in fiscal 1996 compared to $68.4 million in fiscal 1995, an increase of 8%. CHARTS: Net Sales ( $millions) 93 93.9 94 107.4 95 146.6 96 159.3 97 173.3 GROSS PROFIT Gross profit as a percentage of sales was 27% in 1997 compared with 24% and 26% in fiscal years 1996 and 1995, respectively. The increase in gross profit percentage in 1997 resulted from higher sales volume, manufacturing efficiencies, and cost reductions on the new ProLine Series line matrix printers. Margins in the prior year were unfavorably impacted from both the start-up costs related to the development and production ramp-up of the ProLine Series product family and the manufacturing phase down of the mature line matrix products. The majority of start-up costs were related to establishing suppliers for new component parts, (including controller boards), developing new production processes for the printer hammerbank, integrating new equipment into the production process, and training employees. Manufacturing of the ProLine Series commenced in the second quarter of fiscal 1996 and was at full production by the first quarter of fiscal 1997. Meanwhile, production of the previous generations of line matrix printers was being phased out, with production ending in mid fiscal 1997. Sales Per Employee ($ thousands) 93 110 94 128 95 168 96 189 97 200 11 OPERATING EXPENSES Engineering and development spending increased to $14.3 million compared with $13.7 million in fiscal 1996, and as a percentage of sales, decreased to 8.3% from 8.6% in fiscal 1996. The growth in engineering spending reflects the Company's commitment to continuous improvement of the ProLine Series line matrix, LaserLine and ThermaLine industrial strength printers and also increasing the customer support and development around the world. In fiscal 1996, the Company spent $13.7 million on engineering and development compared with $12.7 million in fiscal 1995. The growth in engineering and development spending over fiscal 1995 resulted from additional investment required to launch and support products in all three of the Company's technologies introduced during fiscal 1996. Selling, general and administrative spending increased to $19.9 million compared with $17.5 million in fiscal 1996, while spending as a percentage of sales increased to 12% of sales compared with 11% in fiscal 1996. Spending increased over the prior year partly as a result of increased provision for bad debts and partly due to increased sales and marketing expenses. Selling, general and administrative expense, as a percentage of sales, fell to 11% in fiscal 1996 compared with 12% in fiscal 1995. Spending remained essentially flat with fiscal 1995 as the Company was able to control sales and marketing expenses for new products by minimizing administrative costs. OTHER INCOME AND EXPENSES Foreign currency remeasurement losses were $35,000 in fiscal 1997 compared with $45,000 in fiscal 1996 and $723,000 in fiscal 1995. Interest and other income in fiscal 1997, net of interest and other expenses, decreased $0.2 million compared with fiscal 1996 due to increased interest resulting from the $5.0 million loan to fund the purchase of the Singapore building. By fiscal year end 1997, all outstanding debt was paid off. Interest and other income in fiscal 1996, net of interest and other expenses increased $0.4 million compared with fiscal 1995 due to higher average cash balances, combined with a slight decline in interest expense resulting from declining debt levels. Operating Expense (%) 93 28.5 94 22.4 95 20.5 96 19.6 97 19.8 INCOME TAXES The Company currently has available a net operating loss carryforward of $24.7 million for Federal income tax purposes. Accordingly, there were no Federal taxes owed for fiscal years 1997, 1996, and 1995. The California net operating losses were fully utilized in the fourth quarter of fiscal 1997. The provision for taxes allows for certain state and foreign income taxes. Net Income ($ millions) 93 (2.3) 94 1.9 95 7.2 96 6.8 97 11.7 Liquidity and Capital Resources Cash, net of short term debt, totaled $12.8 million at the end of fiscal 1997 compared with $6.3 million for fiscal 1996. The increase in cash is due primarily to current year operating activity partially offset by capital expenditures. 12 The Company borrowed $5.0 million in the second quarter of fiscal 1997 to finance the purchase of the new Singapore manufacturing facility. This note was fully paid off in March 1997. Capital expenditures during fiscal 1997 consisted of $6.8 million for the purchase of a new manufacturing facility in Singapore. Additional expenditures of $6.1 million for manufacturing equipment in the Company's Irvine and Singapore facilities required for the production of new ProLine Series 5 products and $2.9 million in capital expenditures were incurred for personal computers, computer servers and an upgrade to a new client/server information system. Fiscal 1997 year-end inventory was lower than fiscal 1996 due to higher levels of line matrix printers in fiscal 1996 resulting partly from the production change over from the mature line matrix products to the ProLine Series and partly from additional inventory carried to ensure product availability during the move of the Singapore operations to the new state-of-the-art manufacturing facility purchased in early fiscal 1997. This decline in inventory levels was substantially offset by a similar decline in accounts payable. Unsecured lines of credit at March 28, 1997 totaled $10.7 million of which $8.9 million was available for borrowing. At the end of fiscal 1997, the Company continued to reserve $0.2 million for an environmental issue associated with the closing down of the Company's Irvine hammerbank factory in fiscal 1994 (see note 7). The Company believes that its internally-generated funds, together with available bank credit agreements, will adequately provide for working capital requirements, capital expenditures and engineering and development needs through fiscal 1998. Inventory Turns 93 3.9 94 4.6 95 6.1 96 5.8 97 6.0 SUPPLEMENTAL INFORMATION Fiscal years 1997 and 1996 utilized a fifty-two week period compared with a fifty-three week period for fiscal 1995. All stockholders' equity and share data presented have been retroactively adjusted to reflect stock splits effected in the form of two fifty percent (50%) stock dividends distributed in June 1996, and December 1994. Effective December 26, 1997, the Company will be required to adopt Statement of Financial Accounting Standard No. 128, "Earnings per Share." The impact of the adoption of this pronouncement is not expected to have a material impact on the Company's presentation of net income per share. Effective March 29, 1998, the Company will be required to adopt Statement of Financial Accounting Standard No. 129, "Capital Structure." The impact of the adoption of this pronouncement is not expected to be material to the Company's financial position or results of operations. The Company believes that the effects of inflation on its operations and financial condition are minimal. Capital Investment ($ millions) 93 4.0 94 5.0 95 5.3 96 9.8 97 15.8 13 Consolidated Balance Sheets Printronix, Inc. and Subsidiaries
$ in thousands, except share data As of March 28, 1997 and March 29, 1996 1996 1997 Assets Current Assets Cash and cash equivalents $ 12,766 $ 6,486 Accounts receivable, net of allowance for doubtful accounts of $1,010 in 1997 and $937 in 1996 23,086 23,576 Inventories Raw materials, subassemblies and work in process 15,640 18,969 Finished goods 4,388 3,741 ---------------------- 20,028 22,710 Prepaid expenses 792 753 ---------------------- Total Current Assets 56,672 53,525 ---------------------- Property and Equipment, at cost Machinery and equipment 32,690 33,010 Furniture and fixtures 13,581 12,864 Building 6,769 -- Leasehold improvements 2,008 3,448 ---------------------- 55,048 49,322 Less: Accumulated Depreciation and Amortization (31,520) (33,968) ---------------------- 23,528 15,354 Other Assets 453 251 ---------------------- Total Assets $ 80,653 $ 69,130 ---------------------- Liabilities and Stockholders' Equity Current Liabilities Short-term debt $-- $ 205 Accounts payable 8,621 11,846 Accrued expenses Payroll and employee benefits 4,087 3,492 Warranty 1,536 1,136 Environmental 214 214 Other 1,326 1,018 Income taxes 641 329 ---------------------- Total Current Liabilities 16,425 18,240 ---------------------- Other Long-Term Liabilities 720 817 ---------------------- Commitment and contingencies Stockholders' Equity Common stock, $0.01 par value (Authorized 12,000,000 shares; issued and outstanding 8,032,303 shares in 1997 and 7,823,366 shares in 1996) 80 78 Additional paid-in capital 30,887 29,125 Retained earnings 32,541 20,870 ---------------------- Total Stockholders' Equity 63,508 50,073 ---------------------- Total Liabilities and Stockholders' Equity $ 80,653 $ 69,130 ======================
The accompanying notes are an integral part of these consolidated balance sheets. 14 Consolidated Statements of Income Printronix, Inc. and Subsidiaries
$ in thousands, except share data For each of the three years March 28 March 29 March 31 in the period ended March 28, 1997 1997 % 1996 % 1995 % --------------------------------------------------------------------------------- Net sales $173,290 $159,261 $146,589 Cost of sales 127,347 121,765 108,621 --------------------------------------------------------------------------------- Gross profit 45,943 26.5% 37,496 23.5% 37,968 25.9% --------------------------------------------------------------------------------- Operating expenses Engineering and development 14,324 8.3% 13,694 8.6% 12,666 8.6% Selling, general & administrative 19,920 11.5% 17,457 11.0% 17,322 11.8% --------------------------------------------------------------------------------- 34,244 19.8% 31,151 19.6% 29,988 20.5% --------------------------------------------------------------------------------- Income from operations 11,699 6.8% 6,345 4.0% 7,980 5.4% Foreign currency remeasurement loss (35) (45) (723) Interest and other income, net 476 627 198 --------------------------------------------------------------------------------- Income before taxes 12,140 7.0% 6,927 4.3% 7,455 5.1% Provision for taxes 469 156 295 --------------------------------------------------------------------------------- Net income $11,671 6.7% $6,771 4.3% $7,160 4.9% ================================================================================= Net income per share Primary $1.40 $0.82 $0.90 Fully diluted $1.40 $0.82 $0.89 Weighted average common shares & common stock equivalents outstanding Primary 8,308,916 8,246,454 7,987,176 Fully diluted 8,331,564 8,246,454 8,073,582
The accompanying notes are an integral part of these consolidated financial statements. 15 Consolidated Statements of Shareholders' Equity For each of the three years in the period ended March 28, 1997 Printronix, Inc. and Subsidiaries
$ in thousands, except share data --------------------------------- Common Stock ------------ Number of Additional Retained Shares Amount Paid-in Capital Earnings ------ ------ --------------- -------- B A L A N C E , M A R C H 2 5 , 1 9 9 4 6,971,484 $70 $ 25,357 $ 6,939 Exercise of stock options 487,460 5 1,194 -- Compensation expense for stock options and restricted stock -- -- 736 -- Purchase price of vested portion of restricted stock -- -- 83 -- Redemption and retirement of fractional common shares (102) -- (2) -- Net income -- -- -- 7,160 -------------------------------------------------------- B A L A N C E , M A R C H 3 1 , 1 9 9 5 7,458,842 75 27,368 14,099 Exercise of stock options 366,060 3 896 -- Compensation expense for restricted stock -- -- 784 -- Purchase price of vested portion of restricted stock -- -- 83 -- Repurchase and retirement of shares of common stock (1,536) -- (6) -- Net income -- -- -- 6,771 -------------------------------------------------------- B A L A N C E , M A R C H 2 9 , 1 9 9 6 7,823,366 78 29,125 20,870 Exercise of stock options 209,019 2 532 -- Compensation expense for restricted stock -- -- 1,147 -- Purchase price of vested portion of restricted stock -- -- 83 -- Redemption and retirement of fractional common shares (82) -- -- -- Net income -- -- -- 11,671 -------------------------------------------------------- B A L A N C E , M A R C H 2 8 , 1 9 9 7 8,032,303 $80 $ 30,887 $ 32,541 ========================================================
The accompanying notes are an integral part of these consolidated financial statements. 16 Consolidated Statements of Cash Flows Printronix, Inc. and Subsidiaries
$ in thousands March 28 March 29 March 31 For each of the three years in the period ended March 28, 1997 1997 1996 1995 ------------------------------------- Cash flows from operating activities: Net income $ 11,671 $ 6,771 $ 7,160 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,091 5,626 4,952 Loss/(gain) on sale of property and equipment 52 (12) 55 Compensation expense for stock options & restricted stock 1,147 784 736 Changes in assets and liabilities: Accounts receivable 490 (1,274) (2,939) Inventories 2,682 (3,612) (2,458) Accounts payable (3,225) 654 1,716 Accrued income taxes 312 (50) 178 Accrued restructuring expenses -- (93) (389) Accrued environmental expenses -- -- (36) Accrued warranty expenses 400 -- 367 Other long-term liabilities (97) (668) (109) Other current assets and liabilities, net 864 (905) 2,478 Other, net (202) 19 (105) ------------------------------------- Net cash provided by operating activities 21,185 7,240 11,606 ------------------------------------- Cash flows from investing activities: Purchase of property and equipment (9,024) (9,796) (5,262) Purchase of building (6,769) -- -- Proceeds from disposition of property and equipment 476 178 180 ------------------------------------- Net cash used in investing activities (15,317) (9,618) (5,082) ------------------------------------- Cash flows from financing activities: Payments under credit facility, net -- -- (543) Payments against debt borrowing (5,205) (460) (2,457) Issuance of term loan 5,000 -- -- Proceeds from exercise of stock options 617 985 1,219 Repurchase and retirement of common stock -- (6) (2) ------------------------------------- Net cash provided by (used in) financing activities 412 519 (1,783) ------------------------------------- Increase (decrease) in cash and cash equivalents 6,280 (1,859) 4,741 Cash and cash equivalents at beginning of year 6,486 8,345 3,604 ------------------------------------- Cash and cash equivalents at end of year $ 12,766 $ 6,486 $ 8,345 ------------------------------------- Supplementary disclosures of cash flow information: Interest paid $ 244 $ 534 $ 105 Taxes paid $ 119 $ 498 $ 112
The accompanying notes are an integral part of these consolidated financial statements. 17 Notes to Consolidated Financial Statements Printronix, Inc. and Subsidiaries As of March 28, 1997 and March 29, 1996 and for each of the three years in the period ended March 28, 1997 Note 1 Summary of Significant Accounting Policies GENERAL Printronix, Inc. was incorporated in California in 1974 and was reincorporated in Delaware in December 1986. The Company designs, manufactures, and markets medium and high speed printers which support a wide range of computer systems and software platforms. Printronix printers produce "hard copy" through the application of impact, laser, and thermal technologies. The Company's product line is designed primarily for business and industrial applications, quickly and reliably producing every type of printed computer output, from reports and graphics to bar code labels. The Company also produces and markets Intelligent Graphics Printing (IGPTM) which resides in the printer, enabling it to produce bar codes, forms, and logos. BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, Printronix, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. ACCOUNTING PERIOD The Company utilizes a fifty-two, fifty-three week fiscal year ending on the last Friday of March. The Company is reporting a fifty-two week fiscal year for the period ended March 28, 1997, compared with a fifty-two week fiscal year for the period ended March 29, 1996 and a fifty-three week fiscal year for the period ended March 31, 1995. CASH EQUIVALENTS For cash flow reporting purposes, the Company considers all highly liquid temporary cash investments with maturities of three months or less at the time of purchase to be cash equivalents. The effect of exchange rate changes on cash balances held in foreign currencies was not material for the periods presented. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT Depreciation and amortization of property and equipment are provided using the straight-line method over the following estimated useful lives: Machinery and equipment 3 to 5 years Furniture and fixtures 3 to 7 years Building 30 years Leasehold improvements Term of lease Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and betterments to property and equipment are capitalized at cost. When assets are disposed of, the applicable costs and accumulated depreciation and amortization thereon are removed from the accounts and any resulting gain or loss is included in operations. LONG-LIVED ASSETS Effective March 30, 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-lived Assets and for Long- lived Assets to be Disposed of." The adoption of SFAS No. 121 did not have a material impact on the Company's financial statements. SALES RECOGNITION Sales are recorded as of the date shipments are made to customers. The Company's products are sold primarily to customers in the computer and bar code industry and accordingly, the majority of the Company's accounts receivable are concentrated among such customers. Sales returns and allowances are reflected as a reduction in sales and reflected in inventory at cost or expected net realizable value, whichever is lower. Every six months the Company allows North American distributors a stock rotation, whereby 2% of the prior six months sales can be returned, subject to various limitations, in exchange for other products. The Company has not experienced sales returns of a material amount, as they are limited to the utilized portion of the 2% stock rotation for North American distributor revenue. Products that are defective upon arrival are handled under the Company's warranty policy. 18 INCOME ON MAINTENANCE CONTRACTS The Company generates income on extended maintenance contracts through the sale of the service obligation to a third party provider. The third party provider is responsible for the performance of all maintenance services for the contract period. The income on such contracts is recognized fully in the period the contract is sold to the third party provider as the Company assumes no further material obligation after the date of sale. Revenue generated from maintenance contracts was not material in any fiscal year presented. WARRANTY COSTS The Company's financial statements reflect accruals for potential warranty claims based on the Company's claim experience. FOREIGN CURRENCY REMEASUREMENT AND TRANSLATION The United States dollar is the functional currency for all of the Company's foreign subsidiaries. For these subsidiaries, the assets and liabilities have been remeasured at the end of the period exchange rates, except inventories and property and equipment which have been remeasured at historical rates. The statements of operations have been remeasured at average rates of exchange for the period, except cost of sales and depreciation which have been remeasured at historical rates. INCOME TAXES Provisions are made for the amount of income taxes on the reported operations of each year. Tax credits are treated as reductions of the applicable Federal income tax provisions in the years earned. On a quarterly basis, the Company provides for state and foreign income taxes based on an estimate of the effective rate for the entire year. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109. SFAS No. 109 requires the use of the asset and liability method for financial accounting and reporting for income taxes, and further prescribes that current and deferred tax balances be determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. ENGINEERING AND DEVELOPMENT Company-funded engineering and development costs are expensed as incurred. A substantial portion of the engineering and development expense is related to developing new products and making significant improvements to existing products or processes. DIVIDENDS The Company has not paid cash dividends on its stock. However, in 1989, the Company declared a dividend of one common share purchase right per share of common stock (see note 4 (b)). RECLASSIFICATIONS Certain amounts for previous fiscal years have been reclassified to conform with the fiscal 1997 presentation. EARNINGS PER COMMON SHARE Earnings per common share are calculated using the weighted average number of shares outstanding and the dilutive effects of stock options, using the treasury stock method. USE OF ESTIMATES 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 disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for stock-based compensation issued to employees using the intrinsic value based method as prescribed by the Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). Under the intrinsic value based method, compensation is the excess, if any, of the fair value of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. Compensation expense, if any, is recognized over the applicable service period, which is usually the vesting period. 19 In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). This standard, if fully adopted, changes the methods of accounting for employee stock-based compensation plans to the fair value based method. For stock options and warrants, fair value is determined using an option pricing model that takes into account the stock price at the grant date, the exercise price and the expected life of the option or warrant. Compensation expense, if any, is recognized over the applicable service period, which is usually the vesting period. The adoption of the accounting methodology of SFAS No. 123 is optional and the Company has elected to continue accounting for stock-based compensation issued to employees using APB No. 25; however, pro forma disclosures, as if the Company adopted the cost recognition requirements under SFAS No. 123, are required to be presented. (See note 4) CAPITAL STOCK In June 1996, the Company completed a stock split effected in the form of a fifty percent (50%) stock dividend. Retroactive effect has been given to the stock split in all share, price, and per share data presented. In fiscal 1995, a similar stock split effected in the form of a fifty percent (50%) stock dividend was declared and was treated the same as noted above. NEW PRONOUNCEMENTS Effective December 26, 1997, the Company will be required to adopt Statement of Financial Accounting Standard No. 128, "Earnings per Share." The impact of the adoption of this pronouncement is not expected to have a material impact on the Company's presentation of net income per share. Effective March 29, 1998, the Company will be required to adopt Statement of Financial Accounting Standard No. 129, "Capital Structure." The impact of the adoption of this pronouncement is not expected to be material to the Company's financial position or results of operations. Note 2 Bank Borrowing and Debt Arrangements The Company maintains an unsecured line of credit of $7.5 million with a United States bank. The credit agreement generally provides for interest at the prime rate or LIBOR plus 2%, contains certain standard financial and non-financial covenants, provides for an annual commitment fee of 1/2 percent of the unused portion of the line, and is renewable in 1998. At the end of fiscal years 1997 and 1996, there were no cash borrowings against this line of credit. The Company entered into an agreement in fiscal 1997 to secure a five-year term loan of $5.0 million to acquire a manufacturing facility in Singapore. During the year, the Company borrowed $5.0 million on the term loan and by fiscal year end the entire balance was paid off. At March 28, 1997, one of the Company's foreign subsidiaries maintained unsecured lines of credit with foreign banks of $3.2 million which include a standby Letter of Credit of $1.8 million. These credit facilities are subject to parent guarantees, require payment of certain loan fees, and provide for interest at approximately 3/4 to 1 percent above the bank's cost of raising capital. At the end of fiscal years 1997 and 1996, there were no cash borrowings against this line of credit. In fiscal 1997 the Company paid down the remaining balance of short-term equipment financing. Outstanding borrowings related to this were $205,000 at the end of fiscal 1996. 20 Note 3 401(k) Savings and Profit Sharing Plans Effective January 1, 1985, the Company adopted a 401(k) Savings and Investment Plan (the "401(k) Plan"), for all employees working a minimum of 1,000 hours per year, which is designed to be tax deferred in accordance with the provisions of Section 401(k) of the Internal Revenue Code. All United States employees (including officers, but not outside directors) may contribute from 1% to 17% of compensation per week (subject to certain limitations) on a tax-free basis through a "salary reduction" arrangement. The Company matches employee contributions up to a maximum of 2% of salary or one thousand dollars per year, whichever is less. Employee contributions are always 100% vested. All Company contributions become fully vested after four full years of employment. Company contributions to the 401(k) Plan were $434,000, $306,000, and $286,000 for fiscal years 1997, 1996, and 1995, respectively. The Company also maintains a discretionary worldwide profit-sharing plan for qualified employees. Employees who have been with the Company for 90 days of continuous service are eligible to participate in the profit sharing plan. The Company allocates a percentage of pre-tax profits to a profit sharing pool which is then distributed to employees pro rata based on quarterly salary. In addition, certain executives are eligible to participate in a bonus plan which is subject to achieving specific operating performance targets established by the Board of Directors. Company contributions to these plans were $3.1 million, $2.4 million, and $2.6 million for fiscal years 1997, 1996, and 1995, respectively. Note 4 Stock Option Plans and Common Share Purchase Rights (A) STOCK AWARDS The Company has one stock option plan under which options may be granted to purchase shares of its common stock. A total of 1,125,000 shares are authorized for issuance under this plan. An additional plan which expired April 30, 1994 has options outstanding, but no further options may be granted under this plan. Options under the plans are generally granted at prices not less than the fair market value of the common stock on the date of grant and can become exercisable in installments at dates ranging from one to ten years from the date of grant, as determined by the Stock Option Committee of the Board of Directors. Generally, outstanding options become exercisable at the rate of 25 percent per year, and expire five years from the date of grant. The following is a summary of the transactions, including restricted stock, relating to the plans for fiscal years ended 1997, 1996, and 1995:
1997 1996 1995 ----------------- ------------------ -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Common Stock Options Shares Price Shares Price Shares Price -------------------------------------------------------------- Beginning, outstanding 963,332 $7.34 920,354 $3.16 1,220,335 $2.47 Granted 69,575 13.55 430,557 12.20 221,117 5.40 Exercised (209,019) 2.55 (366,060) 2.51 (487,460) 2.46 Canceled (41,451) 10.38 (21,519) 6.69 (33,638) 2.97 -------------------------------------------------------------- Ending, outstanding 782,437 $9.04 963,332 $7.34 920,354 $3.16 -------------------------------------------------------------- Options exercisable 294,837 180,251 309,804 -------------------------------------------------------------- Weighted average fair value of options granted $6.16 $5.94 -----------------
As of March 28, 1997 options to acquire 432,253 shares remained available to grant. 21 A detail of options outstanding and exercisable as of March 28, 1997 is presented below:
Options outstanding Options exercisable - --------------------------------------------------------------- ------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise prices Outstanding Life in Years Price Exercisable Price - --------------------------------------------------------------------------------------- $ 2.00 - $ 4.00 286,087 1.85 $ 3.32 172,880 $ 3.23 4.11 - 12.33 285,862 3.80 11.35 80,531 11.42 13.00 - 18.33 210,488 3.43 13.68 41,426 13.44 - --------------------------------------------------------------------------------------- $ 2.00 - $ 18.33 782,437 2.99 $ 9.04 294,837 $ 6.90 - ---------------------------------------------------------------------------------------
Under the 1984 Stock Incentive Plan, grants of restricted stock can be made at any price. The Company has sold stock to certain officers and key employees. The shares issued under the plan are subject to repurchase agreements which lapse over an extended period not exceeding seven years if certain Company profitability performance measures are met. In fiscal 1991, 258,750 shares were issued under the plan and an additional 112,500 shares were issued in fiscal 1993. The excess of the fair market value on the date of vesting over the purchase price is charged to operations as compensation expense as the restrictions lapse. As discussed in Note 1 above, the Company accounts for the above plans under APB No. 25. In each of fiscal 1997, 1996, and 1995, 92,816 or 25 percent of the issued shares vested, with $1,147,000, $784,000 and $681,000 respectively charged to operations. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts for the fiscal years ended March 28, 1997 and March 29, 1996:
1997 1996 ---- ---- Net Income as reported $11,671 $ 6,771 Pro forma $10,700 $ 6,178 Earnings per share as reported $ 1.40 $ 0.82 Pro forma $ 1.28 $ 0.75
The fair value of each option granted to employees and directors is estimated using the Black-Scholes option-pricing model on the date of grant using the following assumptions for fiscal years 1997 and 1996, respectively: no dividend yield, average volatility of 65 percent, weighted average risk-free interest rate of approximately 6.2 and 5.7 percent, and an average expected life of 2.4 years. 22 (B) COMMON SHARE PURCHASE RIGHTS On March 16, 1989, the Company declared a dividend payable on April 4, 1989 of 10,311,603 Common Share Purchase Rights. Each right, when exercisable, entitles a stockholder to buy one share of the Company's common stock at an exercise price of $15.55, subject to adjustment. The rights become exercisable ten days after certain persons or groups announce acquisition of 20 percent or more, or announce an offer for 30 percent or more, of the Company's common stock. The rights are nonvoting, expire in ten years and may be redeemed prior to becoming exercisable. In the event that the Company was acquired in a merger or other business combination, each outstanding right would entitle a holder to purchase, at the current exercise price, that number of shares of common stock of the surviving company having a market value equal to two times the exercise price of the right. The foregoing is a general description only and is subject to the detailed terms and conditions set forth in the Common Share Rights Agreement, dated as of March 17, 1989, between the Company and Chemical Trust Company of California. Note 5 Income Taxes
Tax Provision ($ in thousands) 1997 1996 1995 ------------------------------------ Current Federal $ 155 $ (6) $ 100 State 205 (22) 158 Foreign 289 184 37 Deferred (180) -- -- ------------------------------------ Total $ 469 $ 156 $ 295
Components of Income before Taxes ($ in thousands) 1997 1996 1995 ------------------------------------ United States $ 11,820 $ 4,215 $ 2,363 Foreign 320 2,712 5,092 ------------------------------------ Total $ 12,140 $ 6,927 $ 7,455
Amounts for tax provision and components of income before taxes shown in the two tables above are classified based on location of the taxing authority and not on geographic region. Deferred Income Tax Provision
($ in thousands) 1997 1996 1995 ---------------------------------- Tax depreciation (under) over depreciation for financial reporting purposes $ (191) $ 65 $ (72) Inventory costs capitalized for tax and expensed for financial reporting 198 (114) (50) (Increase) decrease in liability reserves (217) 1,176 (95) Utilization (nonutilization) of net operating losses and credits 3,263 (1,873) 1,352 Foreign tax credit expiration -- 2,700 -- AMT credit carryforward (180) -- -- Valuation reserve (3,053) (1,954) (1,135) ---------------------------------- Total $ (180) $ -- $ --
23 Deferred income taxes are not provided on the undistributed earnings (which totaled approximately $37.3 million as of March 28, 1997) of the Company's foreign subsidiaries as the Company intends to reinvest these earnings indefinitely outside of the United States. Deferred income taxes result from differences in the timing of reporting income and expenses for financial statement and income tax reporting purposes. Deferred Income Tax Asset
($ in thousands) 1997 1996 ----------------------- Tax depreciation over depreciation for financial reporting purposes $ 19 $ 210 Inventory costs capitalized for tax and expensed for financial reporting (456) (654) Liability reserves (762) (545) Net operating loss carryforward (8,674) (11,937) AMT credit carryforward (217) (37) ----------------------- Gross deferred tax asset (10,090) (12,963) Valuation reserve 9,873 12,926 ----------------------- Total $ (217) $ (37)
At March 28, 1997, the Company had available net operating loss carryforwards for Federal income tax purposes of approximately $24.7 million expiring in 2002 to 2010. Approximately $3.6 million of the valuation reserve for the net operating loss carryforward is related to deduction of stock options and will be allocated directly to capital when utilized. Reconciliation of Effective Tax Rate to Statutory Federal tax rate of 35% and 34%
1997 1996 1995 ------------------------------------------------------------------ ($ in thousands) amount % amount % amount % ------------------------------------------------------------------ Provision computed at statutory rates $ 4,248 35.0 $ 2,355 34.0 $ 2,534 34.0 State income taxes, net of Federal tax benefit/(provision) 180 1.5 (22) (0.3) 126 1.7 Book income from which Federal benefit is utilized (4,136) (34.0) (1,439) (20.8) (672) (9.0) Rate increase (reductions) due to foreign operations (including carryback) 177 1.4 (738) (10.7) (1,693) (22.7) ------------------------------------------------------------------ Total $ 469 3.9 $ 156 2.2 $ 295 4.0
The Company's pioneer tax status in Singapore expired in August 1995. The Company was subsequently granted pioneer tax status for income generated from the manufacture of new ProLine Series 5 line matrix products. The latest pioneer status will be effective as of a date no later than September 1996 and will last for a duration of 5 years, extendible to 8 years. The pioneer status mandates that the Company meet certain requirements, including meeting specific levels of capital investment and engineering headcount. Earnings generated there are exempt from tax liability through 2001, extendible to 2004. The aggregate dollar effect of the pioneer status was to reduce foreign taxes by $80,000, $694,000, and $1.0 million for the fiscal years 1997, 1996, and 1995, respectively. The primary and fully diluted net income per share effects of this pioneer status would be 1 cent, 8 cents, and 13 cents for fiscal years 1997, 1996, and 1995, respectively. 24 Note 6 Segment Data and Export Sales ($ in thousands) Printronix operates in one industry segment - the design, manufacture and marketing of medium and high speed printers which support a wide range of computer systems and software platforms. Regional segment data is as follows:
Europe, Africa The Americas & Middle East Asia Eliminations Consolidated ----------------------------------------------------------------- 1997 Revenues: Net sales $120,439 $ 41,731 $ 11,120 $-- $173,290 Transfers between geographic locations 18,307 601 42,658 (61,566) -- ------------------------------------------------------------ 138,746 42,332 53,778 (61,566) 173,290 Income from operations $ 6,217 $ 4,239 $ 1,243 $-- $ 11,699 Identifiable assets $ 44,993 $ 12,257 $ 23,403 $-- $ 80,653 1996 Revenues: Net sales $116,368 $ 34,712 $ 8,181 $-- $159,261 Transfers between geographic locations 18,487 403 38,737 (57,627) -- ------------------------------------------------------------ 134,855 35,115 46,918 (57,627) 159,261 Income from operations $ 2,811 $ 2,441 $ 1,093 $-- $ 6,345 Identifiable assets $ 43,380 $ 10,795 $ 14,955 $-- $ 69,130 1995 Revenues: Net sales $113,417 $ 27,414 $ 5,758 $-- $146,589 Transfers between geographic locations 11,038 446 40,392 (51,876) -- ------------------------------------------------------------ 124,455 27,860 46,150 (51,876) 146,589 Income from operations $ 3,620 $ 3,515 $ 845 $-- $ 7,980 Identifiable assets $ 40,899 $ 8,836 $ 11,940 $-- $ 61,675
Geographic information is based upon the principal location of the Company's operations and not necessarily on the location of the customers. Transfers between geographic locations are billed at manufacturing costs plus a margin representing a reasonable rate of return for activities performed. Certain operating expenses have been redistributed among geographic regions to reflect a reasonable allocation of operating expenses which support worldwide operations. The Americas' sales included export sales of approximately $23.5 million, $22.9 million, and $23.2 million for fiscal years 1997, 1996, and 1995, respectively. Export sales are principally to Europe, Canada, and Asia. Sales based on the location of the customers were as follows for fiscal years 1997, 1996, and 1995, respectively: Americas - $101.8 million, $99.0 million and $93.8 million, Europe, Africa, and the Middle East - $60.8 million, $51.8 million, and $47.5 million, and Asia - $10.7 million, $8.5 million, and $5.3 million. In fiscal 1997, the Company had two customers each of which represented 10 percent or more of consolidated net sales. Sales to the largest customer, IBM, represented 29 percent, 30 percent, and 29 percent of net sales for fiscal years 1997, 1996, and 1995, respectively. On a geographic basis, fiscal 1997 sales to IBM represented 31 percent of domestic and 25 percent of international net sales. Sales to the second largest customer represented 10 percent, 10 percent, and 11 percent of net sales for fiscal years 1997, 1996, and 1995, respectively. A significant decline in sales to either customer could have an adverse effect on the Company's operations. 25 Note 7 Commitments and Contingencies OPERATING LEASES The Company conducts its operations using leased facilities under non-cancelable operating leases which expire at various dates from fiscal years 1998 through 2026. Leases other than the land lease for the Company's building in Singapore expire at various dates through fiscal year 2005. The following is a summary of rental expense of non-cancelable building and equipment operating leases incurred for each of the three years in the period ended March 28, 1997:
($ in thousands) 1997 1996 1995 --------------------------------- Gross rental expenses $ 3,560 $ 3,703 $ 3,343 Less: sublease rental income (25) (82) (76) --------------------------------- Net rental expense $ 3,535 $ 3,621 $ 3,267
The minimum rental commitments required under existing non-cancelable operating leases for each fiscal year are as follows:
($ in thousands) 1998 1999 2000 2001 2002 Thereafter Total ------------------------------------------------------------------------------ $2,440 $1,129 $482 $327 $327 $5,940 $10,645
The minimum rental commitment for the land located at the Singapore manufacturing facility represents $6.8 million of the above $10.6 million commitment under non-cancelable operating leases. OTHER LONG-TERM LIABILITIES During fiscal 1996, the Company settled a tax issue related to a past acquisition. This issue is now closed and resulted in a Federal tax payment of $177,000 and interest of $491,000 which was charged against other long-term liabilities. The remaining amount in fiscal 1997 is a reserve for potential liabilities related to other ongoing tax issues. Environmental Assessment In January 1994, the Company was notified by the California Regional Water Quality Control Board - Santa Ana Region (the "Board") that groundwater monitoring reports indicated that the groundwater under one of the Company's former production plants was contaminated with various chlorinated volatile organic compounds (VOCs). Evidence adduced from site studies undertaken to date indicate that compounds containing the VOCs were not used by the Company during its tenancy, but were used by the prior tenant during its long-term occupancy of the site. The tests also indicate that the composition of the soil is such that off-site migration of contamination is very slow and contamination is most likely confined to the site. In March 1996, the Company received a request from the Board for information regarding chemicals used by the Company or others on property adjacent to the former production plan site. Although, the Company previously occupied a small portion of this adjacent property primarily for office space and a machine shop, initial review indicates that the Company did not use compounds containing VOCs on this adjacent property. Presently, the Board continues to investigate the source of the VOCs and there are currently no further orders outstanding against the Company. As of March 28, 1997, the Company has reserved $214,000 which is a reasonable estimate to cover further legal fees or any additional expenses related to environmental tests which could be requested by the Board at either site. To date, the Company has incurred only minimal expense in its initial response to the Board's request for information and for environmental testing. The Company is convinced that it bears no responsibility for any contamination at the sites and intends to vigorously defend any action which might be brought against it in respect thereto. Furthermore, the Company believes that it has adequately accrued for any future expenditures in connection with environmental matters and that such expenditures will not have a materially adverse effect on its financial condition or results of operation. Note 8 Subsequent Event Subsequent to year-end, the Company repurchased and retired 180,000 shares of its common stock for a total of $2.1 million. Purchases were made in accordance with the authorization of the Board of Directors. Future purchases of up to 820,000 shares may be made from time to time at the discretion of management. 26 Report of Independent Public Accountants To The Board of Directors and Stockholders of Printronix, Inc.: We have audited the accompanying consolidated balance sheets of Printronix, Inc. (a Delaware Corporation) and subsidiaries as of March 28, 1997 and March 29, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in all material respects, the financial position of Printronix, Inc. and subsidiaries as of March 28, 1997 and March 29, 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 28, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Orange County, California April 24, 1997 Quarterly Data (unaudited)
$ in thousands, except share data 1st quarter 2nd quarter 3rd quarter 4th quarter Fiscal 1997 Net sales $ 44,619 $ 43,193 $ 44,521 $ 40,957 Gross profit 10,983 11,192 11,915 11,853 Net income 2,492 2,401 3,240 3,538 Earnings per share - primary & fully diluted $ 0.30 $ 0.29 $ 0.39 $ 0.42 Stock Price High $ 18.67 $ 16.50 $ 16.50 $ 17.38 Low $ 11.12 $ 11.75 $ 12.38 $ 12.44
$in thousands, except share data 1st quarter 2nd quarter 3rd quarter 4thquarter FISCAL 1996 Net sales $ 42,212 $ 39,509 $ 37,091 $ 40,449 Gross profit 10,934 9,737 7,789 9,036 Net income 2,676 1,931 830 1,334 Earnings per share - primary & fully diluted $ 0.32 $ 0.23 $ 0.10 $ 0.16 Stock Price High $ 18.50 $ 25.50 $ 21.50 $ 15.33 Low $ 12.33 $ 16.00 $ 9.33 $ 10.50
Note: Earnings per share and stock price have been retroactively restated to reflect a 50% stock dividend payable June 10, 1996 to stockholders of record as of May 20, 1996. 27
Corporate Information Board of Directors Corporate Officers Bruce T. Coleman Robert A. Kleist Gordon B. Barrus Chief Executive Officer, President and Vice President, Advanced El Salto Advisors Chief Executive Officer Development (Advice and interim CEO services) J. Edward Belt Ph.D. Theodore A. Chapman John R. Dougery* Senior Vice President, Engineering, Vice President, Product General Partner, Dougery & Wilder Chief Technical Officer and Development (Venture capital investments) Assistant Corporate Secretary Norm E. Farb Ph.D. Ralph Gabai* George L. Harwood Vice President, Strategic Technology President and Chief Executive Senior Vice President, Officer, MicroNet Technology, Inc. Finance & IS, (Manufacturer of Storage Systems and Chief Financial Officer and J. Jeffrey Gibbons RAID Memory Systems) Corporate Secretary Vice President, Marketing Erwin A. Kelen* C. Victor Fitzsimmons Claus Hinge President, Kelen Ventures Senior Vice President, Worldwide Vice President, European Sales & (Venture Investments) Manufacturing Marketing Robert A. Kleist Richard A. Steele Philip F. Low President and Chief Executive Senior Vice President, Sales and Vice President, Singapore Officer, Printronix, Inc. Marketing Operations Juli A. Mathews *member of the Audit Committee Vice President, Human Resources Bruce E. Menn Vice President, Product Management
Corporate Directory Printronix Registrar and Stockholders Corporate Offices Transfer Agent As of March 28, 1997, there were 17500 Cartwright Road Chase Mellon 4,254 record holders of the P.O. Box 19559 Shareholder Services Company's Common Stock. Irvine, California 92623 400 S. Hope Street Tel: (714) 863-1900 Fourth Floor Fax: (714) 660-8682 Los Angeles, California 90071 Corporate and Investor Information Tel: (800) 647-4273 A copy of Printronix' annual report on Form 10-K filed with the Securities Legal Counsel and Exchange Commission Kirshman & Harris Annual Meeting (SEC) will be furnished without A Professional Corporation Annual meeting will be held charge to any stockholder. To obtain General Counsel at 9:00 a.m., August 12, 1997, at a copy, please write to: 11500 Olympic Boulevard Printronix Corporate Offices, Suite 605 located at 17500 Cartwright Road, Los Angeles, California 90064 Irvine, California. Investor Relations Department, Tel: (310) 312-4544 Printronix, Inc. 17500 Cartwright Road Printronix Common Stock P.O. Box 19559 Independent Auditors Traded OTC, NASDAQ, National Irvine, California 92623 Arthur Andersen LLP Market System, Stock Symbol: Tel : (714) 863-1900 18500 Von Karman Avenue PTNX Suite 1100 Irvine, California 92612 http://www.printronix.com Tel: (714) 757-3100
28 Printronix 17500 Cartwright Road P.O. Box 19559 Irvine, California 92623-9559 http://www.printronix.com EX-21 4 LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES --------------------
STATE OR OTHER JURISDICTION OF NAME INCORPORATION ---- --------------- Printronix Nederland B.V. The Netherlands Printronix Latinoamericana, S.A. de C.V. Mexico Printronix Foreign Sales Corporation B.V. The Netherlands Printronix GmbH Germany Printronix A.G. Switzerland
EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 [ARTHUR ANDERSEN LLP LETTERHEAD] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement Nos. 2-70035, 33-14288 and 33-83156. /s/ ARTHUR ANDERSEN LLP --------------------------- ARTHUR ANDERSEN LLP Orange County, California June 25, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS MAR-28-1997 MAR-30-1996 MAR-28-1997 12,766 0 24,096 1,010 20,028 56,672 55,048 31,520 80,653 16,425 0 0 0 80 63,428 80,653 173,290 173,290 127,347 161,591 35 0 241 12,140 469 11,671 0 0 0 11,671 1.40 1.40
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