Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction 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
P.O. Box 19559
Irvine, California 92623
(Address of principal executive offices) (Zip Code)
(949) 863-1900
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class of Common Stock Outstanding at October 23, 1998
$0.01 par value 6,836,616
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement Regarding Financial Information (2)
Consolidated Balance Sheets
Assets (3)
Liabilities and Stockholders' Equity (4)
Consolidated Statements of Operations (5)
Consolidated Statements of Cash Flows (6)
Condensed Notes to Consolidated Financial Statements (8)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (10)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (14)
Item 4. Submission of Matters to a Vote of Security Holders (14)
Item 5. Other Matters (14)
Item 6. Exhibits and Reports on Form 8-K (15)
Signatures (16)
Index to Exhibits (17)
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
FORM 10-Q
---------
FOR THE QUARTER ENDED SEPTEMBER 25, 1998
----------------------------------------
PART I. FINANCIAL INFORMATION
---------------------------------
Item 1. Financial Statements
--------------------------------
STATEMENT REGARDING FINANCIAL INFORMATION
-----------------------------------------
The financial statements included herein have been prepared by Printronix, Inc.
(the "Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information normally included in
the financial statements prepared in accordance with generally accepted
accounting principles has been omitted pursuant to such rules and regulations.
However, the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that the financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's annual report on Form 10-K for the fiscal
year ended March 27, 1998, as filed with the Securities and Exchange
Commission.
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
Assets
(Amounts in thousands)
<TABLE>
<CAPTION>
September 25, 1998 March 27, 1998
(Unaudited)
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalentS $12,042 $10,264
Accounts receivable, net of allowances
for doubtful accounts of $2,330 and
$1,920 as of September 25, 1998 and
March 27, 1998, respectively 22,080 26,739
Inventories:
Raw materials, subassemblies and
work in process 13,988 15,782
Finished goods 2,335 1,826
----------- -----------
16,323 17,608
Prepaid expenses 748 1,015
----------- -----------
Total current assets 51,193 55,626
----------- -----------
Property and equipment, at cost:
Machinery and equipment 29,462 32,740
Furniture and fixtures 18,866 18,435
Land 8,100 8,100
Building and improvements 7,524 7,046
Leasehold improvements 2,126 2,104
----------- -----------
66,078 68,425
Less accumulated depreciation
and amortization (35,254) (37,159)
----------- -----------
30,824 31,266
----------- -----------
Intangible assets, net 1,046 1,166
Other assets 872 806
----------- -----------
Total assets $83,935 $88,864
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statementS
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - continued
---------------------------------------
Liabilities and Stockholders' Equity
------------------------------------
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
September 25, 1998 March 27, 1998
(Unaudited)
--------------- --------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,318 $ 9,988
Accrued expenses:
Payroll and employee benefits 5,490 4,590
Warranty 1,681 1,681
Other 1,299 1,385
Income taxes 1,763 760
Environmental 214 214
----------- -----------
Total current liabilities 19,765 18,618
----------- -----------
Other long-term liabilities 936 1,009
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01-
Authorized 30,000,000 shares,
issued and outstanding
6,936,616 and 7,649,901
shares as of September 25, 1998 and
March 27, 1998, respectively 69 77
Additional paid-in capital 27,342 30,054
Retained earnings 35,823 39,106
----------- -----------
Total stockholders' equity 63,234 69,237
----------- -----------
Total liabilities and
stockholders' equity $83,935 $88,864
=========== === =======
</TABLE>
See accompanying notes to consolidated financial statementS
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
(Unaudited) (Unaudited)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $41,728 $40,788 $87,431 $84,455
Cost of sales 28,198 27,596 59,137 58,339
-------- -------- -------- --------
Gross profit 13,530 13,192 28,294 26,116
Operating expenses:
Engineering and development 4,342 3,722 8,603 7,573
Sales and marketing 3,883 3,770 7,982 7,382
General and administrative 2,201 1,963 4,656 3,673
-------- -------- -------- --------
Total operating expenses 10,426 9,455 21,241 18,628
-------- -------- -------- --------
Income from operations 3,104 3,737 7,053 7,488
Other income, net (286) (404) (491) (717)
-------- -------- -------- --------
Income before provision
for income taxes 3,390 4,141 7,544 8,205
Provision for income taxes 655 402 1,505 827
-------- -------- -------- --------
Net income $ 2,735 $ 3,739 $ 6,039 $ 7,378
======== ======== ======== ========
Net income per common share
Basic $ 0.38 $ 0.47 $ 0.83 $ 0.93
Diluted $ 0.37 $ 0.45 $ 0.80 $ 0.90
======== ======== ======== ========
Weighted average common shares
Basic 7,164,310 7,884,334 7,306,191 7,894,594
Diluted 7,386,714 8,258,306 7,563,837 8,208,201
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statementS
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Sept. 25, Sept. 26,
1998 1997
(Unaudited)
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 6,039 $ 7,378
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,809 3,571
Compensation expense related to restricted stock plan -- 794
Loss on sale of equipment 86 33
Changes in assets and liabilities:
Accounts receivable 4,659 2,159
Inventories 1,285 1,132
Accounts payable (670) (18)
Payroll and employee benefits 900 643
Accrued income taxes 1,003 404
Other 42 624
------- -------
Net cash provided by operating activities 17,153 16,720
------- -------
Cash flows from investing activities
Purchase of property and equipment (3,159) (3,896)
Purchase of building and improvements (456) (83)
Proceeds from disposition of equipment 282 162
------- -------
Net cash used in investing activities (3,333) (3,817)
------- -------
</TABLE>
See accompanying notes to consolidated financial statementS
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
-------------------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Sept 25, Sept 26,
1998 1997
(Unaudited)
------- -------
<S> <C> <C>
Cash flows from financing activities
Repurchase and retirement of common stock (12,554) ( 2,476)
Proceeds from issuance of common stock 512 520
------- -------
Net cash used in financing activities (12,042) (1,956)
------- -------
Net increase in cash and cash equivalents 1,778 10,947
Cash and cash equivalents at beginning of period 10,264 12,766
------- -------
Cash and cash equivalents at end of period $12,042 $23,713
======= =======
- -------------------------------------
Supplementary disclosures of cash flow information
Taxes paid $743 $274
Interest paid $ -- $ 20
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 25, 1998
------------------
(Unaudited)
1) Management Opinion
In the opinion of management, the consolidated financial statements reflect
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position and results of operations as of
and for the periods presented.
2) Reclassifications
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period's presentation.
3) Bank Borrowings and Debt Arrangements
The Company ended the quarter with no outstanding debt against its unsecured
lines of credit.
4) Earnings per Share
The number of shares used in computing diluted earnings per share equals the
total of the weighted average number of common shares outstanding during the
periods presented plus the dilutive effect of stock options. The dilutive
effect of stock options represents additional shares which may be issued in
connection with their exercise, reduced by the number of shares which could
be repurchased with the proceeds at the average market price per share
computed on a quarterly basis during the year. The following table shows the
calculation for basic and diluted shares outstanding:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic weighted-average
common shares outstanding 7,164,310 7,884,334 7,306,191 7,894,594
Effect of dilutive
stock options 222,404 373,972 257,646 313,607
Diluted weighted-average -------- -------- -------- --------
common shares outstanding 7,386,714 8,258,306 7,563,837 8,208,201
========= ========= ========= =========
</TABLE>
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 25, 1998
------------------
(Unaudited)
5) Common Stock
As authorized by the Board of Directors, the Company repurchased and retired
395,000 shares of common stock during the quarter at prices ranging from
$14.00 to $16.00 per share, at a cost of $5.9 million. Purchases of an
additional 120,000 shares of common stock were made subsequent to the end
of the quarter and future purchases of up to 326,600 shares of common stock
may be made at the Company's discretion.
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Reference is made to the Company's annual report on Form 10-K for the fiscal
year ended March 27, 1998 for a detailed discussion and analysis of the
Company's financial condition and results of operations for the periods
covered by that report.
RESULTS OF OPERATIONS
Revenues and Backlog
Net sales for the quarter ended September 25, 1998 increased $0.9 million,
or 2.2%, over the same quarter in the prior year. Increased sales to the
Company's largest customer and sales by the Company's subsidiary, RJS, which
was acquired in January 1998, contributed most of the sales growth. Net
sales decreased $4.0 million, or 8.8%, compared with the prior quarter, as a
result of generally slow sales during the summer months and lower sales to
the Company's largest customer.
Americas (North, Central, and South Americas) sales ended the quarter at
$25.1 million, compared to $24.6 million in the year-ago quarter and $27.8
million last quarter. EMEA (Europe, Middle East, and Africa) sales for the
quarter increased to $13.9 million compared to $13.1 in the year-ago quarter
and decreased from $15.3 million in the previous quarter. Sales to the Asia
Pacific market decreased to $2.7 million in the current quarter compared to
$3.1 million in the same quarter in the previous year and increased $0.01
million from the previous quarter.
Currency restrictions in place in China delayed the shipment of $0.5 million
of product to the third fiscal quarter. Despite the generally slow Asia
Pacific market conditions, sales to India increased 73.5% over the prior
quarter and increased 13.5% over the year ago quarter.
Sales to OEM customers for the quarter decreased to $19.7 million as compared
to $23.4 million in the previous quarter and $19.9 in the same quarter in
the previous year. Sales to distributors were $22.0 million for the quarter
compared to $22.3 in the previous quarter and $20.9 million in the same
quarter in the previous year. Sales to OEM customers decreased in the
current quarter due to decreased sales to the Company's largest customer.
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
Revenues and Backlog - Continued
Sales to the largest customer, IBM, represented 31% of total sales for the
second quarter as compared to 26% in the year-ago quarter and compared to
31.5% in the previous quarter. Sales to the second largest customer
represented 8.4% of total sales for the quarter as compared to 9.5% in the
year-ago quarter and 8.1% in the previous quarter.
Order backlog at quarter-end was $16.7 million compared to $6.6 million at
the end of the previous quarter and $20.8 million at the end of the year-ago
quarter. June 26, 1998 backlog levels reflect orders placed for only a
portion of the second quarter of fiscal 1999 by the Company's largest
customer. The decreased backlog compared to the prior year is impacted by
customers' increasing reliance on the Company's ability to ship with ever
decreasing lead times.
Gross Profit
Quarterly gross profit as a percentage of sales at 32.4% increased slightly
compared to 32.3% in the previous quarter and was due to continuous improvement
programs and cost reductions which offset the lower production volumes. As a
percentage of sales, gross margin was unchanged from the year-ago quarter as
continuous improvement and cost reductions offset price reductions granted in
the beginning of the third fiscal quarter last year.
Operating Expenses and Other Income and Taxes
Engineering expenses for the quarter were flat at $4.3 million as compared to
the previous quarter. Engineering expenses increased 16%, or $0.6 million,
from $3.7 million in the year-ago quarter. As a percent of sales, engineering
and development expenses increased to approximately 10.4% for the current
quarter, up from 9.1% in the year-ago quarter and 9.3% in the prior quarter.
Sales and marketing expenses decreased $0.2 million to $3.9 million for the
current quarter as compared to the previous quarter and increased $0.1 million
compared with the same quarter in the previous year. At approximately 9%
percent of sales, sales and marketing expenses decreased from the prior quarter
but increased from the year-ago quarter. Higher Engineering and Sales and
Marketing spending reflects the Company's commitment to product development
of the Printronix P5000 series line matrix, LaserLine and ThermaLine industrial
strength printers.
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
Operating Expenses and Other Income and Taxes -Continued
General and administrative expenses decreased to $2.2 million compared with
$2.5 million in the prior quarter and $2.0 million in the prior year quarter.
As a percent of sales, general and administrative expenses increased to 5.3%
compared with the year-ago quarter with higher depreciation and maintenance
expense related to the Company's new information system and increased
administrative labor. As a percentage of sales, general and administrative
expenses were approximately flat compared with the prior quarter but decreased
overall due to lower provision for bad debts.
The income tax provision decreased to $0.7 million compared to $0.9 million in
the previous quarter and $0.4 million in the year-ago quarter. The Company
has net operating loss carryforwards and has been paying minimal income taxes.
These carryforwards are expected to be fully utilized during the current fiscal
year. The Company estimates that its effective income tax rate for fiscal year
1999 will be approximately 20% and has increased the quarterly provision
accordingly. Once the net operating loss carryforwards are fully utilized, the
Company estimates its world-wide effective tax rate will be approximately 30%.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the quarter with cash and cash equivalents of $12.0 million
compared to $12.7 million last quarter. The current cash position includes the
purchase and retirement of 395,000 shares of Printronix common stock at an
average share price of $14.91, totaling $5.9 million for the quarter, funded
by current operating activity.
The Company believes that its internally-generated funds, together with
available financing, will be adequate in providing its working capital
requirements, capital expenditures, and engineering development needs through
the current fiscal year.
Year 2000 Considerations
The Company's products are Year 2000 compliant.
The Company has completed an assessment of the impact of the Year 2000 on its
information systems, and hardware. The Company has partially completed an
assessment of the impact on its significant business partners and expects to
finish the assessment by March 1999. The assessment phases include the
identification of the systems or processes to be reviewed, evaluation of current
systems or processes, risk assessment, and development of conversion plans. The
scope of the assessment addresses the information technology systems, such as
the accounting and financial reporting systems, mainframe computers, personal
computers, and the distributed network, and also addresses the non-information
technology systems, such as facilities, plant equipment, lab and test equipment,
distribution systems, security systems, communication systems, key services
provided by third parties and key vendors and customers.
The Company's objective is to be fully Year 2000 compliant by mid calendar year
1999 and develop contingency plans in the event it fails to complete its Year
2000 projects. To date, the Company has not had to accelerate the replacement
of systems due to Year 2000 issues.
The Company's business critical operating system, accounting and financial
reporting systems, including manufacturing and sales, were converted to a
certified Year 2000 enterprise wide software package in August 1997, with the
exception of the customer service and fixed asset systems. The customer service
system will be converted by the end of calendar year 1998. The fixed asset
system will be converted by mid calendar year 1999.
The Company has determined the telephone communications system is not fully Year
2000 compliant; however; the cost to upgrade to full compliance is immaterial.
A detailed plan to become Year 2000 system compliant is in effect and the
project is on schedule.
Based upon its assessment and the vendors' representations, the Company believes
the systems of its key vendors are either Year 2000 compliant or will be made so
by mid calendar year 1999.
In fiscal 1998 and 1999, the cost of Year 2000 assessment efforts and
remediation projects was not material and was funded by current operations.
Future expenditures are not expected to be material and will be funded from
operations.
The Company believes the most significant Year 2000 compliance risk is that key
customers may fail to complete their remediation efforts in a timely manner.
Any significant disruption of business with key customers could have a material
adverse impact on the Company's results of operations, liquidity or financial
condition.
The Company has not yet developed a contingency plan in the event it fails to
complete its Year 2000 projects as planned. The Company also has not yet
developed a contingency plan in the event its key customers are not Year 2000
compliant. The Company will develop a contingency plan addressing these issues
by the end of March 1999.
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
-------------------------------
Item 1. Legal Proceedings
-----------------------------
See "Item 3. Legal Proceedings" reported in Part I of the Company's Report on
Form 10K for the fiscal year ended March 27, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
--------------------------------------------------------------
The annual meeting of stockholders of the Company was held on August 11, 1998,
at which five persons, constituting the entire board of directors, were elected
to serve until the next annual meeting of stockholders. The names of the persons
elected as directors are as follows:
Shares For Shares Withheld
Robert A. Kleist 6,742,674 24,750
Bruce T. Coleman 6,742,674 24,750
John R. Dougery 6,742,674 24,750
Ralph Gabai 6,742,674 24,750
Erwin A. Kelen 6,742,674 24,750
Item 5. Other Matters
-------------------------
On September 2, 1998, the Company announced the appointment of Ralph Gabai to
the newly-created position of Senior Vice President of Marketing and Chris
Whitney Halliwell to the Company's Board of Directors. Mr. Gabai, a member of
the Board of Directors since 1988, has stepped down from the Board to assume
the new position; Ms. Halliwell has filled the vacancy on the Board.
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------------------
(a) Exhibits.
27. Financial Data Schedule
(b) Reports.
No reports on Form 8-K have been filed by the Registrant for the quarterly
period covered by this report.
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTRONIX, INC.
(Registrant)
Date: November 6, 1998 By: George L. Harwood
George L. Harwood
Sr. Vice-President, Finance,
Chief Financial Officer, and
Secretary
(Principal Financial Officer
and Duly Authorized Officer)
<PAGE>
PRINTRONIX, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q
------------------------------
SEPTEMBER 25, 1998
------------------
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
27 Financial Data Schedule Filed only with
EDGAR version
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-26-1999
<PERIOD-START> JUN-27-1998
<PERIOD-END> SEP-25-1998
<CASH> 12,042
<SECURITIES> 0
<RECEIVABLES> 24,410
<ALLOWANCES> 2,330
<INVENTORY> 16,323
<CURRENT-ASSETS> 51,193
<PP&E> 66,078
<DEPRECIATION> 35,254
<TOTAL-ASSETS> 83,935
<CURRENT-LIABILITIES> 19,764
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 63,165
<TOTAL-LIABILITY-AND-EQUITY> 83,935
<SALES> 41,728
<TOTAL-REVENUES> 41,728
<CGS> 28,198
<TOTAL-COSTS> 38,624
<OTHER-EXPENSES> (286)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,390
<INCOME-TAX> 655
<INCOME-CONTINUING> 2,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,735
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
</TABLE>
