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PRINTRONIX
EXHIBIT 13
2000 ANNUAL REPORT
(ARTWORK)
PRINTRONIX
THE INSIDE STORY
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Selected Financial Data
<TABLE>
<CAPTION>
$ in thousands, except per share data
------------------------------------------------------------------------
Fiscal years ended March 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $159,261 $173,290 $170,391 $179,702 $190,240
Net income 6,771 11,671 15,064 12,364 10,472
Diluted net income per share 0.82 1.40 1.83 1.71 1.56
Fully taxed diluted net income per share $ 0.59 $ 1.02 $ 1.35 $ 1.49 $ 1.56
SELECTED BALANCE SHEET DATA
Cash, net of debt $ 6,281 $ 12,766 $ 10,264 $ 11,911 $ 1,480
Working capital 35,285 40,247 37,008 32,899 19,227
Total assets 69,130 80,653 88,864 88,866 111,421
Stockholders' equity per share $ 6.40 $ 7.91 $ 9.05 $ 10.09 $ 11.34
</TABLE>
NET INCOME
96 6,771
97 11,671
98 15,064
99 12,364
00 10,472
NET SALES
96 159,261
97 173,290
98 170,391
99 179,702
00 190,240
FULLY TAXED DILUTED
NET INCOME PER SHARE
96 0.59
97 1.02
98 1.35
99 1.49
00 1.56
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To our stockholders:
The start of a new millennium brings with it a look back at the prior year, and
the anticipation of new opportunities in the year ahead. As you may notice in
this report, Printronix is moving in new directions - developing new global
printing solutions, increasing global support and leveraging our advantage in
e-business printing.
Printronix's 26th year in business was successful in many areas. We ended FY2000
with sales growth up 5.9% over the previous year.
Notable accomplishments during FY2000 included
o The introduction of the new T5000 family of thermal bar code/label printers,
opening a new growth opportunity
o Consolidation of our Irvine, CA, operation into one new facility, enabling
us to bring new products to market faster
o The addition of a new customer support facility in Memphis, TN, enhancing
customer support in the U.S.
o The expansion of network management capabilities for all three Printronix
printing technologies, - thermal, laser, and line matrix - enhancing
enterprise printer management
OVERALL, PRINTRONIX IS IN AN EXCELLENT POSITION TO MAXIMIZE GROWTH POTENTIAL.
Global expansion remains a primary Printronix strategic objective, and we made
good progress in that area in the past year. Asia Pacific sales increased 36.7%
over the previous year, while sales to Europe/Middle East/Africa grew by 2.4%
and Americas by 4.1%. The long-term potential for continued growth in global
sales is good, and Printronix maintains a strategic focus on emerging markets
where growth opportunities are highest.
The Printronix cash position also reflects the company's financial health.
Printronix ended FY2000 with $1.5 million in net cash, inclusive of funding our
new facility in Irvine, CA and repurchasing 573,442 shares of Printronix stock.
The company's balance sheet remains strong, with cash flow that can fund
research and development, new marketing initiatives and sales growth.
The launch of our new T5000 thermal printers in the December quarter offers
perhaps the greatest growth potential. The Printronix-designed and manufactured
T5000 fits perfectly into our global strategy, thanks to the inclusion of
Printronix System Architecture, or PSA(R)2. This is the common platform that
allows global, unified management of all three Printronix printing technologies
- thermal, laser and line matrix - in an enterprise environment. The T5000 also
offers our unique Online Data Validation (ODV(TM)) capability that ensures that
all bar codes are scannable. Our 1998 acquisition of RJS, with its bar code
verifier technology, made this strategic addition possible.
We are committed to being a part of e-business growth. In 1999, we began to
position our PrintNet(R)Plus and PSA2 technologies to serve the global
e-business enterprise. With businesses ramping up to high-speed networks and
Enterprise Resource Planning (ERP), and with e-commerce creating a greater need
for bar code printing, leveraging our advantages in the connected business
environment was crucial.
Above all, Printronix remains committed to quality and innovation. With 10.1% of
our revenue supporting development, we continue to design and build printers,
applications and management tools that exceed expectations for reliability,
performance and value. And we continue to enhance the level of customer support
around the world. These are the reasons behind the company's success.
Printronix is adapting to new opportunities by developing new business models,
moving into new markets, working with alliance partners and delivering customer
satisfaction. With the vision of our Board of Directors, the unrelenting drive
of our personnel and the cooperation of our strategic allies, Printronix will
continue to strive for excellence for customers, employees and stockholders.
Robert A. Kleist
President and Chief Executive Officer
July 1, 2000
1
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WELCOME TO THE MIND OF PRINTRONIX Enjoy Your Stay
(Art work)
2
<PAGE> 5
DISCLAIMER: The Printronix computer network remains 100% secure. No parties
illegally entered our computer systems at any time. No PC's were harmed in the
creation of this annual report.
OK YOU'RE IN. THE FIREWALL WAS A BIT TRICKY...
but you're deep within the Printronix internal network. It's all here -
confidential files, hush-hush e-mails, schematics - the works on how Printronix
has become synonymous with business printing in the internet age. There'll be
some friendly eyes keeping tabs and giving you advice, but it should still be a
wild ride. Hang on, true believer, and let's see what you find!
[Confidential-Eyes Only:] [e-business startegy.doc...] ...decrypting....
The decoding algorithm worked like a charm, and wow. This is big stuff.
Confidential documentation of the Printronix plans to give the world of
e-business printing solutions it doesn't even know it needs yet. Right away, you
see that these people understand something many e-business "gurus" don't:
there's no such thing as a paperless office. Reports. Invoices. They need to be
printed. And in the age of e-commerce, printing bar code shipping labels has
never been more important. Check this out:
(Art work)
Everyone - We have reached all our goals in optimizing Printronix printing
solutions for SAP(TM) R/3 systems. Thanks to the work of our development teams,
we now offer the most seamless integration with the SAP-powered enterprise, and
direct printing from ABAP/4 applications, whether the printer is line matrix,
laser, or thermal. Since many consider SAP R/3 the state-of-the-art in
Enterprise Resource Planning (ERP) around the world, this puts Printronix in a
familiar place - at the forefront of e-business. As we develop printing
solutions for other ERP platforms, our position will only be enhanced.
(Art work)
Instant message from John F.
While you're inside, have a closer look at PSA(R)2, Printronix System
Architecture. It's a common printing platform that's giving Printronix a real
strategic advantage.
Good luck!
John F.
3
<PAGE> 6
It seems PRINTRONIX is much more than a printer company. [Quite right!]
You stumble upon a diagram that tells you how Printronix System Architecture, or
PSA2 works, and it all fall together.
PSA2 is a powerful tool for optimizing e-business printing, and in 2000 it will
be promoted as one of the major benefits of the Printronix total printing
solution. From what you can tell, this printing architecture allows all
installed Printronix printers to run from the same interface, using the same
language and accepting the same new applications as businesses grow and networks
adapt.
The importance of that makes you pause for a second. Complete cross-printer
compatibility within the connected enterprise. Nearly "plug-and-play" operation.
You whistle softly. When it's widely adopted, PSA2 should provide a powerful
competitive edge.
[Confidential - Subject to non-disclosure:]
[globalconnectivity.ex1]
...decrypting....
You're good. A few deft keystrokes and you're into a critical Printronix report.
Something centered on a map of the world. Try drilling down a few more levels
and...
That's it. It's all about Printronix's work to allow businesses to control all
their printers around the world from any location, via their private network.
That's a real solution, and you dig for more data.
PrintNet Plus. That's the second part of the company's strategy to become the
world's leading creator of industrial printing solutions. From what you're
reading, it's a global printing management system that allows IT managers (or
anyone with the right password) to control and manage every Printronix printer
in a company from the networked desktop.
The map tells the story. With PrintNet Plus and Printronix Printer Manager, and
a Web browser, you could initiate and pause print jobs, distribute
configurations, troubleshoot, even validate bar codes for locations in Sydney,
New York and Tokyo - all while you're working in Chicago!
instant message From Anonymous
I see what you're up to... and I applaud it. I need to tell you about my
company's experience with Printronix. I work for a major retailer, and we
weren't even working with Printronix when their salespeople came to our offices.
At the time, we were having trouble with our printers in Latin America. The
Printronix reps installed and launched PrintNet Plus, and they showed us how we
could solve our printing problems remotely, right from the desktop. We were so
impressed, we became a Printronix customer on the spot.
Good luck!
Anonymous
4
<PAGE> 7
(Art work)
You've got to make sure this story gets told. You quickly compose a message:
(Art work)
Someone has finally brought real-time, global printer connectivity to the
industrial printer market: Printronix. PrintNet Plus is beautifully designed for
connecting a global enterprise needing reliable documents with secure, remote
management. Printronix owns the "brain" that leverages the full power of the
enterprise network. Let's do some real-world testing. More from the front lines
as I find it...
5
<PAGE> 8
(Art work)
Some things just can't be kept secret.
Which company is uniting visionary printer innovation with the world-changing
power of the internet?
PRINTRONIX
(art work)
To do: Go to Printronix Web Site, www.printronix.com, to get even more
information.
6
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(Encryption failing)))))
[CONFIDENTIAL-EYES ONLY: thermal.doc] ...decrypting....
That was odd. It seemed like the system deliberately let you past the security
protocols. You dig through nested file sets thinking there must be something
pretty good in here...
BINGO
On the surface, it looks like other thermal printers you've seen. But then you
take a closer look and realize that, for the third time, Printronix has
surprised you. They've reinvented THERMAL PRINTING with the new T5000.
It's clear that the T5000 is packed with features the competition is only
dreaming about. You command the system to bring up a list of the printer's
value-added features and it goes nuts:
o PSA architecture
o Remote Configuration and management with PrintNet Plus
o Online Data Validation (ODV) - a printing quality solution that ensures
viable bar code labels by checking scannability in real-time
o IPDS capability (even over Ethernet connections) for IBM users
o Connectivity via parallel, serial, coax/twinax or Ethernet
o 4 Mb Flash and 8 Mb DRAM standard memory for high throughput font storage
o Device Type Interface for direct printing from SAP R/3 applications
Two facts catch your eye. With Online Data Validation, the thousands of bar code
labels a distribution center prints every day can be checked for scannability
before they're ever used. A major benefit in e-commerce.
The other is Intelligent Printer Data Stream (IPDS), a language that makes
network printing control easier and faster. Printronix has the only integrated
thermal IPDS solution for the IBM market. Yet another advantage: these guys have
built a thermal machine of such quality and intelligent design, it puts
Printronix at the forefront of thermal innovation.
instant Message From Anonymous
It was me who helped you get past that last security level. I think it's time
someone saw the extraordinary improvements Printronix is making in thermal
printing, like ONLINE DATA VALIDATION. Spread the word!
A Proud Employee
7
<PAGE> 10
You're Cautious, so you decide you've seen enough for one day. But before you
go, you send a message to let others know what you've seen.
(Art work)
I've tempted fate long enough, and it's time to be going. But what a trip! With
its e-business solutions, PrintNet's power to connect the distant printers of a
global company (not to mention worldwide locations and support for multiple
foreign languages), and its revolutionary T5000 thermal printer, Printronix is
giving business the tools they need to reach the next level of productivity.
When you add its recognized product excellence and expertise - in thermal,
laser, and line matrix - to the mix, you've got a company to be reckoned with.
It'll be fun to watch Printronix grow in the years to come.
I thought I knew Printronix. Boy, do I know better now. Later.
X.
And you're out.
But you'll be back...
8
<PAGE> 11
Management's Discussion and Analysis of Results of Operations and Financial
Condition
General
Founded in 1974, Printronix, Inc. is the leading industry supplier in the
design, manufacture and marketing of a full range of line matrix, laser and
thermal printers for business and industrial applications. Printronix printers
are designed for use in high-volume applications and in environments that demand
high levels of reliability and durability. The products are marketed worldwide
through original equipment manufacturers (OEMs), full service distributors and
value added resellers (VARs). Printronix is located in Irvine, California, with
operations in Singapore, Holland and Memphis, Tennessee. Printronix can be
accessed on the Internet at www.printronix.com. Printronix common stock is
traded on NASDAQ under the symbol PTNX.
Fiscal 2000 revenue increased 5.9% compared with the prior fiscal year as a
result of the Company's commitment to continuous product development and market
expansion. This increase was the result of expansion of distribution channel
partners, economic recovery of the Asia Pacific region and enhanced product
capabilities. These enhancements included SAP(TM) and Windows drivers, and the
network management capability offered by PrintNet(R) Plus, all of which
contributed to increase the Company's line matrix market share to 61% worldwide.
Revenue growth also reflects the success of the Company's Major Accounts
Development program and its commitment to build its presence industrializing
countries, including the Asia Pacific region where sales were up 36.7% over the
prior year.
Even as revenue increased, the Company increased its spending on engineering and
development and sales and marketing as it continued to implement its global
growth strategy. The Company opened additional regional sales offices in
selected industrializing countries. The Company launched its new T5000 thermal
product line late in the third quarter of fiscal 2000. During fiscal 1999, the
Company fully utilized the net operating loss carryforwards it had enjoyed in
prior years. As a result, the effective tax rate for fiscal 2000 increased to
33% compared with 20% in fiscal 1999. As a result of its growth strategy and
expiring net operating loss carryforwards, the increase in revenues was more
than offset by higher operating expenses and income taxes. Income before taxes
increased by 1.6% compared with the prior fiscal year.
Forward-Looking Statements
Except for historical information, the Annual Report and Form 10-K contains
"forward-looking statements" about Printronix, within the meaning of the Private
Securities Reform Act of 1995. Terms such as "objectives," "believes,"
"expects," "plans," "intends," "estimates," "anticipates," and variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including: adverse
business conditions and a failure to achieve growth in the computer industry and
in the economy in general; the ability of the Company to achieve growth in the
Asia Pacific market; adverse political and economic events in the Company's
markets; ability of the Company to hold or increase market share with respect to
line matrix printers; the ability of the Company to successfully compete against
entrenched competition in the thermal printer market; the ability of the Company
to attract and retain key personnel; and the ability of the Company to continue
to develop and market new and innovative products superior to those of the
competition and to keep pace with technological change.
Results of Operations
NET SALES
Fiscal 2000 revenue of $190.2 million increased $10.5 million, or 5.9%, compared
with fiscal 1999. The increase was due to strong distribution sales in the
Americas and Asia Pacific, and sales by the Company's subsidiary, RJS Systems
International ("RJS"). Sales to the Americas increased 4.1% to $109.5 million
compared with last year. Americas distribution sales increased 9.3% to $56.3
million due to channel expansion. Americas OEM sales decreased 1.0% to $53.2
million. Americas OEM sales were impacted in fiscal 2000 by acquisition-related
activity and internal reorganization by some OEM customers, which began in
fiscal 1999. Increased sales to the Company's largest OEM customer were more
than offset by lower sales to the Company's smaller OEM customers. Sales to Asia
Pacific were $17.8 million, an increase of 36.7% compared with a year ago,
mainly due to sales in the ASEAN countries relating to the return to economic
growth in that region. Sales to Europe, Middle East and Africa ("EMEA")
increased 2.4% to $62.9 million compared with fiscal 1999. Sales by channel
were unchanged at 46% OEM and 54% distribution.
Revenue growth by product for fiscal year 2000 was primarily attributable to
increased sales of Printronix P5000 Series line matrix printers and sales by
RJS. Line matrix sales were $155.8 million, an increase of 3.8%, compared with
last year. Thermal sales were $5.9 million, an increase of 32.2% over last year,
and laser sales were $23.4 million, an increase of 5.4%. Sales by RJS increased
72.7% to $5.1 million compared with $2.9 million in fiscal 1999 due in part to a
large order from the U.S. Postal Service for bar code verifiers.
A distribution and printer configuration facility was started in Memphis,
Tennessee, during the fourth quarter of fiscal 1999 to provide faster delivery
and support to the Eastern two-thirds of the United States. Like other
Printronix plants, it can configure a printer to order and ship it within 24
hours. Its location saves an average of 2 1/2 days shipping time for that region
compared with previous shipments from Irvine, California. The Memphis plant
began shipping spares and consumables during the fourth quarter of fiscal 1999
and began shipment of printers during the first quarter of fiscal 2000.
9
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Fiscal 1999 revenue of $179.7 million increased $9.3 million, or 5.5%, compared
with fiscal 1998. The increase was the result of higher sales to the Company's
largest OEM customer, primarily in EMEA, strong distribution sales in the
Americas and Asia Pacific. Americas distribution sales increased $6.6 million to
$55.7 million, sales to EMEA increased $3.6 million to $61.5 million and sales
to Asia Pacific increased $1.0 million to $13.0 million.
GROSS PROFIT
Gross profit as a percentage of sales was 33.0% in fiscal 2000 compared with
32.8% and 31.7% in fiscal 1999 and 1998, respectively. The increase in gross
profit percentage in fiscal 2000 and fiscal 1999 was the result of higher
volumes, manufacturing efficiencies and cost reductions on the P5000 Series line
matrix printers. For fiscal 2000, gross profit percentage was impacted by start
up costs for the new T5000 thermal product line and unfavorable product mix.
OPERATING EXPENSES
Operating expenses consist of engineering and development, sales and marketing,
and general and administrative costs. Over the past three years, these expenses
have increased due to the Company's commitment to product development of the
P5000 Series line matrix, ThermaLine and LaserLine industrial strength printers.
Operating expenses for fiscal 2000 were $47.5 million compared with $44.4
million and $39.8 million for fiscal 1999 and 1998, respectively.
In fiscal 2000, the Company spent $19.3 million on engineering and development,
compared with $18.1 million in fiscal 1999 and $15.6 million (excluding a
one-time acquisition related charge of $0.9 million) for fiscal 1998. As a
percentage of sales, engineering and development expenses remained flat at 10.1%
compared with 1999 and increased from 9.2% for fiscal 1998. Significant
engineering expenditures were made to develop and bring new products to market,
including the new Printronix designed and manufactured T5000 thermal printer,
Online Data Validation (ODV(TM)) capability that ensures all barcodes are
scannable, and expanded network management capabilities to all three printing
technologies.
Sales and marketing expenses increased to $18.7 million, compared with $16.7
million for fiscal 1999 and $15.2 million for fiscal 1998. As a percentage of
sales, sales and marketing expenses increased to 9.9% from 9.3% and 8.9% for
fiscal 1999 and 1998, respectively. Sales expenses increased largely due to
expansion of distribution channels, implementing new sales and marketing
programs, increasing the number of regional sales offices, and higher travel
costs as a result of the Company's Major Accounts Development program and
rollout of the new T5000 thermal product line. During fiscal 1999, the Company
established a separate marketing organization to increase its marketing
capabilities and develop worldwide marketing programs to enable sales growth of
existing products as well as those under development. These programs have
continued through fiscal 2000.
General and administrative spending decreased to $9.4 million in fiscal 2000
compared with $9.6 million for fiscal 1999, and as a percentage of sales,
expenses decreased to 5.0% from 5.3%. General and administrative expenses
decreased in fiscal 2000 due to lower bad debt reserves and lower labor and
consulting expenses. For fiscal 1999, general and administrative spending
increased to $9.6 million compared with $8.0 million in fiscal 1998, and as a
percentage of sales, expenses increased to 5.3% from 4.7%. General and
administrative expenses increased in fiscal 1999 primarily due to the
acquisition of RJS, including goodwill amortization, and higher administrative
labor costs.
OTHER INCOME AND EXPENSES
Foreign currency remeasurement gains were $0.4 million in fiscal 2000 compared
with gains of $0.1 million in fiscal 1999 and gains of $0.7 million in fiscal
1998. Foreign currency remeasurement gains were due to strengthening of the US
dollar against the Singapore dollar and various European foreign currencies.
Interest and other income, net, decreased $0.8 million in fiscal 2000 compared
with fiscal 1999 due to lower average cash balances during the year and interest
expense on the Company's line of credit borrowings. Interest and other income,
net, decreased $0.2 million in fiscal 1999 compared with fiscal 1998 due to
lower average cash balances during the year.
INCOME TAXES
For Federal income tax purposes, the Company has had net operating loss
carryforwards and has been paying minimal income taxes. These carryforwards were
fully utilized during fiscal 1999. For California income tax purposes, the net
operating loss carryforwards were fully utilized in fiscal 1997. The provision
for taxes also includes certain state and foreign income taxes. The effective
tax rate was 20% and 5% for fiscal 1999 and 1998, respectively. For fiscal 2000,
the effective fully taxed rate was 33%.
Liquidity and Capital Resources
During fiscal 2000, the Company generated $22.2 million in cash from operating
activities. The major uses of funds were the repurchase of Printronix common
stock totaling $10.4 million, and capital expenditures of $25.1 million. Capital
expenditures related to machinery and equipment totaled $13.1 million and $12.0
million for buildings and improvements which included construction of the new
corporate facility in Irvine. Cash and equivalents were $15.0 million at the end
of fiscal 2000, compared with $11.9 million at the end of fiscal 1999.
Fiscal 2000 year-end inventory was higher than fiscal 1999 due to stocking of
the new distribution facility in Memphis and initial production of the new T5000
thermal printers.
10
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On February 22, 1999, the Company entered into a new unsecured line of credit
for $22.5 million. This line of credit replaced the previous line of credit of
$7.5 million. The increase in the line of credit was intended to supplement the
cash flow requirements to construct the new building in Irvine (See Note 3).
Unsecured lines of credit at March 31, 2000, totaled $25.1 million, of which
$9.8 million was available for borrowing (See Note 4).
At the end of fiscal 2000, 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 9).
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 2001.
Year 2000 Consideration
Prior to calendar year end 2000, the Company completed an assessment of the Year
2000 impact on the Company's information systems, business operations and key
business partners. The assessment phases of the Company's information system and
hardware included the identification of the systems or processes to be reviewed,
evaluation of current systems or processes, risk assessment and development of
contingency plans. The scope of the assessment addressed the information
technology systems, such as the accounting and financial reporting systems,
mainframe computers, personal computers, and the distributed network, and also
addressed the other technology systems, such as facilities, plant equipment, lab
and test equipment, distribution systems, security systems, communication
systems and key services provided by third parties and key business partners.
The assessment of key business partners included inquiries of key suppliers and
customers related to their own Year 2000 issues. The Company did not experience
any significant Year 2000 issues and there has been no interruption to business
as a result of any related issues. The Company is not aware of any continued
exposure to issues related to Year 2000.
In fiscal 2000, 1999 and 1998, the cost of Year 2000 assessment efforts and
remediation projects was not material and was funded from current operations.
The Company does not anticipate any further expenditures related to Year 2000
issues.
Market Risk
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. The Company's Singapore and European operations may be
impacted by the foreign currency fluctuations. 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. The impact of foreign currency fluctuations has not been
material to the Company.
The Company is exposed to market risks related to fluctuations in variable
interest rates on its revolving line of credit. For variable rate debt, changes
in interest rates generally do not influence fair market value, but do affect
future earnings and cash flows.
The Company implemented a foreign currency hedging program as of April 2000 in
order to mitigate currency rate fluctuation exposure related to foreign currency
cash inflows. The Company entered into foreign currency forward exchange
contracts with maturities from 30 to 180 days. All contracts are with a major
financial institution. As of March 31, 2000, the Company did not have any
foreign currency forward exchange contracts outstanding. The Company does not
use the contracts for speculative or trading purposes.
Supplemental Information
Fiscal year 2000 utilized a fifty-three week fiscal year period, while fiscal
years 1999 and 1998 utilized a fifty-two week fiscal year period.
For fiscal 2002, the Company will be required to adopt SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The adoption of this
pronouncement is not expected to have a material impact on the Company's
presentation of financial position or results of operations.
On December 3, 1999, the Securities and Exchange Commission Staff released Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide guidance on
the recognition, presentation and disclosure of revenue in financial statements.
SAB No. 101 provides a framework by which to recognize revenue in the financial
statements. The Company plans to adopt this SAB in fiscal 2001 and believes that
adherence to this SAB will not have a material impact on the Company's financial
statements.
The Company believes that the effects of inflation on its operations and
financial condition are minimal.
11
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Consolidated Balance Sheets
As of March 31, 2000 and March 26, 1999
<TABLE>
<CAPTION>
$ in thousands, except share and per share data
--------------------------------------------------------------------------------------------
March 31, March 26,
2000 1999
--------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,980 $ 11,911
Accounts receivable, net of allowance for doubtful
accounts of $2,434 in 2000 and $2,302 in 1999 21,763 23,954
Inventories:
Raw materials, subassemblies and work in process 15,959 13,416
Finished goods 1,732 2,037
--------------------------
17,691 15,453
Prepaid Expenses 1,231 1,044
Deferred income tax assets 3,721 1,101
--------------------------
Total Current Assets 59,386 53,463
--------------------------
Property, plant and equipment, at cost:
Machinery and equipment 29,187 25,320
Furniture and fixtures 25,374 19,529
Land 8,100 8,100
Buildings and improvements 22,689 11,266
Leasehold improvements 1,189 1,819
--------------------------
86,539 66,034
Less: Accumulated depreciation and amortization (35,472) (31,798)
--------------------------
51,067 34,236
Intangible assets, net 663 908
Other assets 305 259
--------------------------
Total Assets $ 111,421 $ 88,866
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 13,500 $ --
Accounts payable 12,121 12,209
Accrued expenses:
Payroll and employee benefits 5,321 4,531
Warranty 1,559 2,001
Other 4,958 1,512
Income taxes 2,486 97
Environmental 214 214
--------------------------
Total Current Liabilities 40,159 20,564
--------------------------
Other long-term liabilities -- 1,568
Minority interest in subsidiary 317 283
Commitments and contingencies (See Note 9)
Stockholders' Equity:
Common stock, $0.01 par value
(Authorized 30,000,000 shares; issued and outstanding
6,257,417 shares in 2000 and 6,583,366 shares in 1999) 63 66
Additional paid-in capital 30,238 28,338
Retained earnings 40,644 38,047
--------------------------
Total Stockholders' Equity 70,945 66,451
--------------------------
Total Liabilities and Stockholders' Equity $ 111,421 $ 88,866
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
12
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Consolidated Statements of Income
For each of the three years in the period ended March 31, 2000
<TABLE>
<CAPTION>
$ in thousands, except share and per share data
--------------------------------------------------------------------------------------------------------------------------
March 31, March 26, March 27,
2000 % 1999 % 1998 %
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $190,240 $179,702 $170,391
Cost of sales 127,391 120,802 116,461
------------------------------------------------------------------------
Gross profit 62,849 33.0% 58,900 32.8% 53,930 31.7%
------------------------------------------------------------------------
Operating expenses:
Engineering and development 19,307 10.1% 18,092 10.1% 15,621 9.2%
In-process engineering charge -- 0.0% -- 0.0% 942 0.6%
Sales and marketing 18,746 9.8% 16,736 9.3% 15,191 8.9%
General and administrative 9,437 5.0% 9,584 5.3% 8,032 4.7%
------------------------------------------------------------------------
Total operating expenses 47,490 24.9% 44,412 24.7% 39,786 23.4%
------------------------------------------------------------------------
Income from operations 15,359 8.1% 14,488 8.1% 14,144 8.3%
Foreign currency remeasurement gain 361 146 732
Interest and other income (expense), net (55) 726 926
Gain on issuance of subsidiary stock -- 53 --
------------------------------------------------------------------------
Income before taxes and minority interest 15,665 8.2% 15,413 8.6% 15,802 9.3%
Provision for income taxes 5,159 3,078 786
Minority interest in income (loss) of subsidiary 34 (29) (48)
------------------------------------------------------------------------
Net income $10,472 5.5% $12,364 6.9% $15,064 8.8%
========================================================================
Net income per common share:
Basic $ 1.64 $ 1.76 $ 1.91
Diluted $ 1.56 $ 1.71 $ 1.83
Weighted average number of common shares
outstanding:
Basic 6,373,158 7,030,683 7,884,024
Diluted 6,731,915 7,242,789 8,229,279
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 16
Consolidated Statements of Stockholders' Equity
For each of the three years in the period ended March 31, 2000
<TABLE>
<CAPTION>
$ in thousands, except share data
----------------------------------------------------------------------------------------------------------------------
Common Stock
-----------------------
Additional
Number of Paid-in Retained
Shares Amount Capital Earnings
------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 28, 1997 8,032,303 $80 $30,887 $32,541
Exercise of stock options 358,998 4 812 --
Compensation expense for restricted stock -- -- 1,257 --
Repurchase and retirement of shares of common stock (741,400) (7) (2,902) (8,499)
Net income -- -- -- 15,064
------------------------------------------------------
BALANCE, MARCH 27, 1998 7,649,901 77 30,054 39,106
Exercise of stock options 199,465 2 862 --
Compensation expense for restricted stock -- -- 333 --
Repurchase and retirement of shares of common stock (1,266,000) (13) (4,996) (13,423)
Utilization of NOLs related to non-qualified stock options -- -- 2,085 --
Net income -- -- -- 12,364
------------------------------------------------------
BALANCE, MARCH 26, 1999 6,583,366 66 28,338 38,047
Exercise of stock options 247,493 3 2,587 --
Repurchase and retirement of shares of common stock (573,442) (6) (2,522) (7,875)
Utilization of NOLs related to non-qualified stock options -- -- 1,835 --
Net income -- -- -- 10,472
------------------------------------------------------
BALANCE, MARCH 31, 2000 6,257,417 $63 $30,238 $40,644
======================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE> 17
Consolidated Statements of Cash Flow
For each of the three years in the period ended March 31, 2000
<TABLE>
<CAPTION>
$ in thousands
------------------------------------------------------------------------------------------------------------------------
March 31, March 26, March 27,
2000 1999 1998
---------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,472 $ 12,364 $ 15,064
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,080 7,592 7,533
Compensation expense for restricted stock -- 333 1,257
In-process engineering charge -- -- 942
Loss on sale of property and equipment 120 282 222
Gain on issuance of subsidiary stock -- (53) --
Minority interest in income (loss) of subsidiary 34 (29) (48)
Changes in assets and liabilities:
Accounts receivable 2,191 2,785 (3,045)
Inventories (2,238) 2,155 3,079
Other long-term assets (46) (152) (353)
Accounts payable (88) 2,221 1,146
Accrued warranty expenses (442) 320 100
Accrued income taxes 3,718 1,868 119
Other long-term liabilities (3,787) (74) 14
Other current assets and liabilities, net 4,154 39 268
--------------------------------------
Net cash provided by operating activities 22,168 29,651 26,298
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery, equipment, furniture and fixtures (13,128) (6,786) (6,904)
Purchase of land -- -- (8,100)
Purchase and construction of buildings and leasehold improvements (11,957) (4,233) (498)
Acquisition of RJS -- -- (2,900)
Proceeds from disposition of property and equipment 299 416 194
--------------------------------------
Net cash used in investing activities (24,786) (10,603) (18,208)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of short term debt, net of repayment 13,500 -- --
Repurchase and retirement of common stock (10,403) (18,432) (11,408)
Proceeds from exercise of stock options 2,590 864 816
Proceeds from issuance of subsidiary stock -- 167 --
--------------------------------------
Net cash provided by (used) in financing activities 5,687 (17,401) (10,592)
--------------------------------------
Net increase (decrease) in cash and cash equivalents 3,069 1,647 (2,502)
Cash and cash equivalents at beginning of year 11,911 10,264 12,766
--------------------------------------
Cash and cash equivalents at end of year $ 14,980 $ 11,911 $ 10,264
======================================
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid $ 1,299 $ 1,187 $ 924
Interest paid $ 310 $ 99 $ 80
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 18
Notes to Consolidated Financial Statements
As of March 31, 2000 and March 26, 1999 and for each of
the three years in the period ended March 31, 2000
Note (1) Summary of Significant Accounting Policies
GENERAL
Printronix, Inc. ("the Company") 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 line matrix, 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 labels to bar codes. The Company also produces and
markets PrintNet(R) Plus, bar code verifiers through its RJS subsidiary, and
Intelligent Graphics Printing (IGP(TM)) 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 and
its wholly and majority-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. Fiscal year 2000 utilized a fifty-three week fiscal year
period, while fiscal years 1999 and 1998 utilized a fifty-two week fiscal year
period.
CASH EQUIVALENTS
For cash flow reporting purposes, the Company considers all highly liquid
temporary cash investments with original 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's consolidated balance sheets include the following financial
instruments: cash, accounts receivable and short-term debt. The Company
considers the carrying amounts in the financial statements to approximate fair
value for cash and accounts receivable because of the relatively short period of
time between origination and their expected realization. The carrying value of
short-term debt approximates fair value as it bears interest at rates currently
available to the Company.
INVENTORIES
Inventories, which include material, labor and overhead costs, are valued at the
lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT 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 15 years
Furniture and fixtures 3 to 20 years
Buildings and improvements 30 years
Leasehold improvements Lesser of useful life or term of lease
The change in asset lives from prior year is due to the new machinery,
equipment, furniture and fixtures acquired during the construction of the new
corporate facility, which was completed in October 1999. Lives of previously
existing assets remained the same. 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. Depreciation expense and amortization was $7.8 million, $7.3 million
and $7.5 million for the fiscal 2000, 1999 and 1998, respectively.
INTANGIBLE ASSETS
The Company recorded certain intangible assets of $1.2 million resulting from
the purchase of RJS in fiscal 1998. The intangible assets are being amortized
over a period of five years using the straight-line basis. Amortization expense
of $0.2 million was charged to operations in fiscal 2000 and 1999, and less than
$0.1 million in fiscal 1998.
LONG-TERM ASSETS
The carrying value of long-term assets is periodically reviewed by management,
and impairment losses, if any, are recognized when the expected non-discounted
future operating cash flows derived from such assets are less than their
carrying value.
SALES RECOGNITION
Sales are recorded as of the date shipments are made to customers. The Company's
products are sold primarily to computer system companies, system integrators,
VARs and distributors 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. The Company has not experienced sales returns of a material amount.
Products that are defective upon arrival are handled under the Company's
warranty policy.
16
<PAGE> 19
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 on-site 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. Income 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.
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. Expenses included an increase in salary due to an industry
shortage of engineers and computer scientists.
ADVERTISING
The Company expenses advertising costs including promotional literature,
brochures and trade shows as incurred. Advertising expense was $2.4 million,
$1.9 million and $2.1 million for fiscal 2000, 1999 and 1998, respectively.
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
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." 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.
NET INCOME PER COMMON SHARE
During the year ended March 27, 1998, the Company adopted SFAS No. 128,
"Earnings per Share." In accordance with SFAS No. 128, basic net income per
common share is computed using the weighted average number of shares of common
stock outstanding and diluted net income per common share is computed using the
weighted average number of shares of common stock outstanding and potential
shares outstanding, if dilutive.
<TABLE>
<CAPTION>
$ in thousands, except share and per share data
March 31, 2000 March 26, 1999 March 27, 1998
-------------------------------------------------
<S> <C> <C> <C>
Numerator: Net income $ 10,472 $ 12,364 $ 15,064
Denominator for basic net income per share 6,373,158 7,030,683 7,884,024
Basic net income per share $ 1.64 $ 1.76 $ 1.91
Effect of dilutive securities:
Weighted average shares outstanding 6,373,158 7,030,683 7,884,024
Stock options 358,757 212,106 345,255
---------- ---------- ----------
Denominator for dilutive net income per share 6,731,915 7,242,789 8,229,279
Diluted net income per share $ 1.56 $ 1.71 $ 1.83
</TABLE>
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 (APB) No. 25, "Accounting for Stock Issued to Employees." Under the
intrinsic value based method, compensation is the excess, if any, of the fair
market 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 (See Note 6).
NEW PRONOUNCEMENTS
For fiscal 2002, the Company will be required to adopt SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities." The adoption of this
pronouncement is not expected to have a material impact on the Company's
presentation of financial position or results of operations.
17
<PAGE> 20
On December 3, 1999, the Securities and Exchange Commission Staff released Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition, to provide guidance on
the recognition, presentation and disclosure of revenue in financial statements.
SAB No. 101 provides a framework by which to recognize revenue in the financial
statements. The Company plans to adopt this SAB in fiscal 2001 and believes that
adherence to this SAB will not have a material impact on the Company's financial
statements.
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.
RECLASSIFICATIONS
Certain amounts for previous fiscal years have been reclassified to conform with
the fiscal 2000 presentation.
Note (2) Acquisitions
In January 1998, the Company, through a 91.5% majority-owned subsidiary,
acquired the assets, rights to the bar code verification business and the RJS
name, and assumed certain liabilities from Eltron by a cash payment of $2.9
million in a business combination accounted for as a purchase. RJS is primarily
engaged in bar code verification products. The results of operations of RJS are
included in the consolidated financial statements since the date of acquisition.
The fair value of assets acquired exceeded the purchase price by $0.9 million
based upon appraised values and the excess has been allocated to reduce the
value of non current assets acquired. The acquisition also resulted in a $1.2
million intangible asset (See Note 1). Fiscal 1998 results included a one-time
charge for in-process engineering expenses of $0.9 million before tax benefit,
or $0.6 million after tax. During fiscal 1999, the ownership interest in RJS was
reduced to 84.4%, which resulted from the issuance of additional shares of
subsidiary stock.
Note (3) New Corporate Facility
In fiscal 1998, the Company purchased land in Irvine, California, for $8.1
million to build a new corporate facility. During the third quarter of fiscal
2000, the Company's new facility was completed and occupied with no interruption
to business. The new facility consolidated into one complex, the corporate
facility, research and development and U.S. manufacturing operations, which were
previously housed in five separate buildings. Capital expenditures related to
the construction of the building were $11.3 million in fiscal 2000 and $4.1
million in fiscal 1999. Capital expenditures for equipment and machinery and
furniture and fixtures related to the new facility were $0.4 million and $4.8
million, respectively, during fiscal 2000.
Note (4) Bank Borrowings and Debt Arrangements
At March 27, 1998, the Company maintained an unsecured line of credit of $7.5
million with a United States bank. The line of credit agreement generally
provided for interest at the prime rate or LIBOR plus 2.0%, contained certain
standard financial and non-financial covenants, provided for an annual
commitment fee of 0.5% of the unused portion of the line, and was renewable in
August of 1998. This line of credit remained in place until February 22, 1999,
when the Company entered into a new line of credit agreement for $22.5 million
with the same bank. The line of credit agreement generally provides for interest
at the prime rate or LIBOR plus 1.375%, contains certain standard financial and
non-financial covenants, provides for an annual commitment fee of 0.375% of the
unused portion of the line, and is renewable in September of 2002. At the end of
fiscal 2000, there was a balance of $13.5 million borrowed against this line of
credit. At the end of fiscal 1999, there were no cash borrowings against this
line of credit (See Note 10).
At March 31, 2000, one of the Company's foreign subsidiaries maintained
unsecured lines of credit with foreign banks of $2.6 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 0.75% to 1.0% above the bank's cost of raising
capital. At the end of fiscal years 2000 and 1999, there were no cash borrowings
against these lines of credit.
The weighted average interest rate on borrowings outstanding at year end fiscal
2000 was 7.88%. The total interest cost on the line of credit for fiscal 2000
was $0.3 million.
Note (5) 401(k) Savings, Profit-Sharing and Bonus Plans
Effective January 1, 1985, the Company adopted a 401(k) Savings and Investment
Plan (the "401(k) Plan"), for all eligible employees, 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 3% of
salary or $2,000 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 $0.7 million for
fiscal 2000 and $0.5 million for fiscal 1999 and 1998.
18
<PAGE> 21
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 contingent upon achieving specific operating performance targets established
by the Board of Directors. Company contributions to these plans were $3.2
million for fiscal 2000, and $3.0 million for fiscal 1999 and 1998.
Note (6) Stock Incentive Plan and Common Share Purchase Rights
STOCK INCENTIVE PLAN
The Company has one stock incentive plan under which options may be granted to
purchase shares of its common stock. A total of 1,825,000 shares is authorized
for issuance under this plan.
Options under the plan 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% per year,
and expire five years from the date of grant.
The following is a summary of the transactions, including restricted stock, as
discussed below, relating to the plan for fiscal 2000, 1999, and 1998.
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Common Stock Options Exercise Exercise Exercise
and Restricted Stock Shares Price Shares Price Shares Price
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning, outstanding 973,405 $11.66 883,046 $10.35 782,437 $ 9.04
Granted 288,500 12.76 306,625 11.44 485,525 11.41
Exercised (256,493) 10.40 (199,465) 5.42 (358,998) 8.84
Canceled (20,637) 11.85 (16,801) 12.79 (25,918) 11.48
-------- -------- --------
Ending, outstanding 984,775 $12.30 973,405 $11.66 883,046 $10.35
-------- -------- --------
Options exercisable 380,508 413,549 377,200
-------- -------- --------
Weighted average fair
value of options granted $ 5.53 $ 4.62 $ 8.15
</TABLE>
As of March 31, 2000, options to acquire 114,961 shares remained available for
grant.
A detail of options outstanding and exercisable as of March 31, 2000, is
presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------- ------------------------
Weighted Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
--------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
$ 11.00 - $11.00 338,849 2.51 $11.00 179,632 $11.00
11.38 - 11.88 246,425 3.87 11.39 8,600 11.75
12.00 - 13.50 259,145 2.05 12.32 137,703 12.31
13.63 - 22.38 140,356 3.18 17.01 54,573 15.47
--------------------------------------------------------------------- ------------------------
$ 11.00 - $22.38 984,775 2.83 $12.30 380,508 $12.13
</TABLE>
Had compensation cost for these plans been determined consistent with SFAS No.
123, "Accounting for Stock-based Compensation," the Company's net income and
diluted net income per share would have been reduced to the following pro forma
amounts for the three fiscal years ended March 31, 2000:
<TABLE>
<CAPTION>
$ in thousands, except per share data
MARCH 31, MARCH 26, MARCH 27,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income as reported $10,472 $12,364 $15,064
Pro forma $9,028 $9,660 $13,310
Diluted net income per share as reported $1.56 $1.71 $1.83
Pro forma $1.34 $1.33 $1.62
</TABLE>
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: no dividend yield, average volatility of 45% for fiscal
19
<PAGE> 22
2000, 51% for fiscal 1999 and 54% for fiscal 1998, weighted average risk-free
interest rate of approximately 6.0%, 4.8% and 5.8% for fiscal 2000, 1999 and
1998, respectively, and an average expected life of 3.8 years for fiscal 2000,
3.3 years for fiscal 1999 and 3.2 years for fiscal 1998.
Under the now expired 1984 Stock Incentive Plan ("the 1984 Plan") and the 1994
Stock Incentive Plan ("the 1994 Plan"), grants of restricted stock can be made
at any price. In fiscal 1991 and fiscal 1993, 258,750 shares and 112,500 shares
were issued, respectively, under the 1984 Plan. Additionally, 236,000 shares and
30,000 shares were issued in fiscal 1998 and 1999, respectively, under the 1994
Plan. The shares issued under both plans are subject to certain repurchase
agreements if certain annual performance criteria are not met. The options lapse
over an extended period not exceeding seven years for the 1984 Plan and two
years for the 1994 Plan beginning in fiscal 1999. All repurchase agreements on
shares issued in fiscal 1991 and fiscal 1993 expired prior to March 27, 1998.
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 1998 and 1997, 92,816 shares, or 25%, of
the issued shares vested, with $1.3 million and $1.1 million, respectively,
charged to operations under the 1984 Plan. In fiscal 1999, 266,000 shares, or
100%, of the issued shares vested, with $0.3 million charged to operations under
the 1994 Plan.
Effective March 26, 1999, the Company and various of its employees and directors
who had purchased restricted stock entered into agreements amending the prior
purchase agreements and related promissory notes. Among other things, pursuant
to the amendment the shares previously purchased are no longer subject to a
right of repurchase by the Company and, by virtue of a no-prepayment provision
in the amended promissory note coupled with a pledge of the shares to secure
payment of the note, sale of the shares is precluded for a period of at least
two years from the amendment date.
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% or more, or announce an offer for 30% 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 is
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. Prior to expiration of the rights,
the plan under which the rights were granted was amended to, among other things,
extend the plan for an additional ten years and change the exercise price to
$70.00. The foregoing is a general description only and is subject to the
detailed terms and conditions set forth in the Amended and Restated Rights
Agreement, dated as of April 4, 1999, between the Company and ChaseMellon
Shareholder Services, L.L.C.
Note (7) Income Taxes
PROVISION FOR INCOME TAXES
The provision for income taxes for the three fiscal years ended March 31, 2000
consists of the following:
<TABLE>
<CAPTION>
$ in thousands
March 31, March 26, March 27,
2000 1999 1998
----------------------------------------
<S> <C> <C> <C>
Current
Federal $ 6,836 $2,549 $ 262
State 563 641 538
Foreign 380 464 294
Deferred (2,620) (576) (308)
---------------------------------------
Total $ 5,159 $3,078 $ 786
=======================================
</TABLE>
COMPONENTS OF INCOME BEFORE TAXES
The components of income before taxes for the three fiscal years ended March 31,
2000 consists of the following:
<TABLE>
<CAPTION>
$ in thousands
---------------------------------------
March 31, March 26, March 27,
2000 1999 1998
---------------------------------------
<S> <C> <C> <C>
United States $11,329 $ 8,211 $ 9,824
Foreign 4,302 7,231 6,026
---------------------------------------
Total $15,631 $15,442 $15,850
=======================================
</TABLE>
20
<PAGE> 23
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
The deferred income tax provision for the three fiscal years ended March 31,
2000 consists of the following:
<TABLE>
<CAPTION>
$ in thousands
March 31, March 26, March 27,
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
Capitalized research and development $ 30 $ (84) $ (308)
Tax depreciation under (over) depreciation
for financial reporting purposes 563 (306) (137)
Inventory costs capitalized for tax and
expensed for financial reporting 129 (430) (210)
Increase in liability reserves (770) (229) (670)
Utilization of net operating
losses and credits 1,632 2,424 4,618
AMT credit carryforward 519 (147) (255)
Valuation reserve (4,723) (1,804) (3,346)
---------------------------------------
Total $(2,620) $ (576) $ (308)
=======================================
</TABLE>
Deferred income taxes are not provided on the undistributed earnings (which
totaled approximately $39.2 million as of March 31, 2000) 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
The deferred income tax asset as of March 31, 2000 and March 26, 1999 consists
of the following:
<TABLE>
<CAPTION>
$ in thousands
March 31, March 26,
2000 1999
--------------------------
<S> <C> <C>
Capitalized research and development $ 362 $ 392
Tax depreciation under (over) depreciation
for financial reporting purposes (139) 424
Inventory costs capitalized for tax and
expensed for financial reporting 967 1,096
Liability reserves 2,431 1,661
Net operating loss carryforward -- 1,632
AMT credit carryforward 100 619
-----------------------
Gross deferred tax asset 3,721 5,824
Valuation reserve -- (4,723)
-----------------------
Total $ 3,721 $ 1,101
=======================
</TABLE>
At March 31, 2000, the Company had no available net operating loss carryforwards
for Federal income tax purposes.
RECONCILIATION OF EFFECTIVE TAX RATE TO STATUTORY FEDERAL TAX RATE OF 35%
Reconciliation of effective tax rate to statutory federal tax rate for the three
fiscal years ended March 31, 2000 consists of the following:
<TABLE>
<CAPTION>
$ in thousands
March 31, March 26, March 27,
2000 % 1999 % 1998 %
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision computed at
statutory rates $ 5,471 35.0 $ 5,395 35.0 $ 5,548 35.0
State income taxes,
net of Federal tax benefit 359 2.3 298 1.9 350 2.2
Rate increase (reductions)
due to foreign operations
(including carryback) (1,126) (7.2) (2,067) (13.4) (1,852) (11.6)
Other 455 2.9 (548) (3.5) (3,260) (20.6)
--------------------------------------------------------------------
Total $ 5,159 33.0 $ 3,078 20.0 $ 786 5.0
====================================================================
</TABLE>
The Company has a favorable pioneer tax status in Singapore for income generated
from the manufacture of new Printronix P5000 Series line matrix products. The
pioneer status started in April 1996, lasts for a duration of five years, and is
extendible to eight years. The pioneer status
21
<PAGE> 24
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 $0.9 million,
$1.4 million and $1.8 million for fiscal 2000, 1999 and 1998, respectively. The
diluted net income per share effects of this pioneer status was 13 cents, 19
cents and 22 cents for fiscal 2000, 1999 and 1998, respectively.
Note (8) Segment and Customer Data
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. Geographic segment data based upon the
principal location of the Company's operations is as follows:
For the three fiscal years ended March 31, 2000:
<TABLE>
<CAPTION>
$ in thousands
THE EUROPE, MIDDLE ASIA
AMERICAS EAST & AFRICA PACIFIC ELIMINATIONS CONSOLIDATED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 2000
Revenues:
Net sales $130,759 $40,214 $ 19,267 $ -- $190,240
Transfers between
geographic locations 8,723 854 35,077 (44,654) --
----------------------------------------------------------------------------
$139,482 $41,068 $ 54,344 $ (44,654) $190,240
Income from operations $ 8,456 $ 5,281 $ 1,622 $ -- $ 15,359
Identifiable assets $ 66,637 $ 5,391 $ 39,393 $ -- $111,421
March 26, 1999
Revenues:
Net sales $126,439 $39,372 $ 13,891 $ -- $179,702
Transfers between
geographic locations 8,636 1,287 36,584 (46,507) --
----------------------------------------------------------------------------
$135,075 $40,659 $ 50,475 $ (46,507) $179,702
Income from operations $ 9,363 $ 4,145 $ 980 $ -- $ 14,488
Identifiable assets $ 46,514 $ 6,057 $ 36,295 $ -- $ 88,866
March 27, 1998
Revenues:
Net sales $118,267 $39,235 $ 12,889 $ -- $170,391
Transfers between
geographic locations 10,957 1,949 42,128 (55,034) --
----------------------------------------------------------------------------
$129,224 $41,184 $ 55,017 $ (55,034) $170,391
Income from operations $ 8,264 $ 4,643 $ 1,237 $ -- $ 14,144
Identifiable assets $ 55,260 $13,750 $ 19,849 $ -- $ 88,864
</TABLE>
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 $25.9 million, $26.2
million and $22.1 million for fiscal 2000, 1999 and 1998, respectively. Export
sales are principally to Europe, Canada and Asia.
Sales based on the location of the customers were as follows for fiscal 2000,
1999 and 1998, respectively: The Americas - $109.5 million, $105.2 million and
$100.5 million; EMEA - $62.9 million, $61.5 million and $57.9 million; and Asia
Pacific - $17.8 million, $13.0 million and $12.0 million.
In fiscal 2000, the Company had two customers, each of which represented a
significant percentage of consolidated net sales. Sales to the largest customer,
IBM, represented 30% of net sales for fiscal 2000 and 1999, and 28% of net sales
for fiscal 1998. Sales to the second largest customer represented 8%, 9% and 10%
of net sales for fiscal 2000, 1999 and 1998, respectively. A significant decline
in sales to either customer could have an adverse effect on the Company's
operations.
Note (9) Commitments and Contingencies
OPERATING LEASES
The Company conducts its foreign operations, Memphis operations and U.S. sales
offices using leased facilities under non-cancelable operating leases which
expire at various dates from fiscal 2001 through 2006 except the land lease for
the Company's building in Singapore which expires in fiscal 2026.
22
<PAGE> 25
The following is a summary of rental expense of non-cancelable building and
equipment operating leases incurred for the three fiscal years ended March 31,
2000:
<TABLE>
<CAPTION>
$ in thousands
March 31, 2000 March 26, 1999 March 27, 1998
-----------------------------------------------------
<S> <C> <C> <C>
Rental expense $2,189 $3,048 $2,949
</TABLE>
The minimum rental commitments required under existing non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
$ in thousands
2001 2002 2003 2004 2005 Thereafter Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,496 $1,132 $457 $256 $261 $3,596 $7,198
</TABLE>
The minimum rental commitment for the land located at the Singapore
manufacturing facility represents $4.1 million of the above $7.2 million
commitment under non-cancelable operating leases.
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 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.
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 31,
2000 and March 26, 1999, the Company has reserved $0.2 million 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 it bears no responsibility for any contamination at the
sites and intends to vigorously defend any action which might be brought against
it with 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 operations.
LEGAL MATTERS
The Company is involved in various claims and legal matters in the ordinary
course of business. The Company does not believe that these matters will have a
material adverse effect on the Company's consolidated financial statements.
OTHER CURRENT LIABILITIES
Other current liabilities include reserves for potential tax issues.
Note (10) Subsequent Events (Unaudited)
Subsequent to year end, a total of 28,032 shares of common stock was purchased
at fair market value and retired, at a cost of $0.5 million. To date, the
Company has repurchased and retired 2,611,638 shares of common stock at a cost
of $40.2 million. Future purchases of up to 391,126 shares may be made from time
to time at the discretion of management.
The Company implemented a foreign currency hedging program as of April 2000 in
order to mitigate currency rate fluctuation exposure related to foreign currency
cash inflows. The Company entered into foreign currency forward exchange
contracts with maturities from 30 to 180 days. All contracts are with a major
financial institution. As of March 31, 2000, the Company did not have any
foreign currency forward exchange contracts outstanding. The Company does not
use the contracts for speculative or trading purposes.
The Company has increased its credit facility with a United States bank to $27.5
million from $22.5 million. The $27.5 million consists of a $17.5 million seven
year mortgage secured by the Company's new corporate facility in Irvine and a
$10.0 million three year unsecured line of credit.
23
<PAGE> 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 31, 2000 and March 26,
1999, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended March 31, 2000.
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 auditing standards generally accepted
in the United States. 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 31, 2000 and March 26, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 2000 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Orange County, California
April 28, 2000
Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
$ in thousands, except share data
FISCAL 2000 1st quarter 2nd quarter 3rd quarter 4th quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $44,885 $45,279 $51,692 $48,384
Gross profit $14,921 $15,015 $17,064 $15,849
Net income $ 2,400 $ 2,133 $ 3,422 $ 2,517
Net income per common share
Basic $ 0.37 $ 0.33 $ 0.54 $ 0.40
Diluted $ 0.36 $ 0.32 $ 0.51 $ 0.38
Stock price
High $ 14.38 $ 19.63 $ 22.88 $ 23.38
Low $ 13.75 $ 14.00 $ 17.00 $ 8.13
</TABLE>
<TABLE>
<CAPTION>
$ in thousands, except share data
FISCAL 1999 1st quarter 2nd quarter 3rd quarter 4th quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $45,703 $41,728 $45,840 $46,431
Gross profit $14,764 $13,530 $14,853 $15,753
Net income $ 3,304 $ 2,735 $ 3,033 $ 3,292
Net income per common share
Basic $ 0.44 $ 0.38 $ 0.45 $ 0.49
Diluted $ 0.43 $ 0.37 $ 0.44 $ 0.48
Stock price
High $ 17.00 $ 16.50 $ 14.75 $ 14.88
Low $ 14.25 $ 13.75 $ 11.00 $ 11.00
</TABLE>
24
<PAGE> 27
CORPORATE INFORMATION
<TABLE>
<CAPTION>
BOARD OF DIRECTORS CORPORATE OFFICERS
<S> <C> <C>
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 & interim CEO services)
Theodore A. Chapman Claus Hinge
John R. Dougery * Senior Vice President, Engineering Vice President, European Sales &
Dougery Ventures and Chief Technical Officer Marketing
(Venture capital investments)
C. Victor Fitzsimmons Michael K. Jacobs
Chris Whitney Halliwell Senior Vice President, Vice President, Distribution Sales,
Principal, Chris Halliwell Worldwide Manufacturing Americas
Technology Consulting
(Marketing consulting) Ralph Gabai Philip Low
Senior Vice President, Marketing Vice President, Asia Operations
Erwin A. Kelen *
President, Kelen Ventures George L. Harwood Juli A. Mathews
(Venture investments) Senior Vice President, Vice President, Human Resources
Finance & IS, and Assistant Corporate Secretary
Robert A. Kleist Chief Financial Officer and
President and Chief Executive Corporate Secretary Bruce E. Menn
Officer, Printronix, Inc. Vice President, Customer Support
Richard A. Steele
Senior Vice President, Sales
* member of the Audit Committee
CORPORATE DIRECTORY
Printronix Corporate Offices Registrar and Transfer Agent CORPORATE AND INVESTOR INFORMATION
14600 Myford Road ChaseMellon Shareholder Services A copy of Printronix's annual report
P.O. Box 19559 P.O. Box 3315 on Form 10-K filed with the Securities
Irvine, California 92623-9559 South Hackensack, New Jersey 07660 and Exchange Commission (SEC) will
Tel: (714) 368-2300 Tel: (800) 356-2017 U.S. be furnished without charge to any
Fax: (714) 368-2600 Tel: (201) 329-8660 International stockholder.
http://www.chasemellon.com
Legal Counsel This publication includes certain
Kirshman, Harris & Branton Annual Meeting forward-looking statements reflecting
A Professional Corporation, Annual Meeting will be held at the Company's expectations and
General Counsel 9:00 a.m., August 22, 2000, at objectives in the near future. However,
315 S. Beverly Drive Printronix Corporate Offices, many factors which may affect the
Suite 315 located at 14600 Myford Road, actual results, including market and
Beverly Hills, California 90212 Irvine, California. economic conditions, industry
Tel: (310) 277-2323 competition, and changing regulations,
Printronix Common Stock are difficult to predict. Accordingly,
Independent Auditors Traded OTC, NASDAQ, National there is no assurance that the
Arthur Andersen LLP Market System, Stock Symbol: Company's expectations and objectives
18201 Von Karman Avenue PTNX will be realized. See the detailed
Suite 800 discussion in the Management's
Irvine, California 92615 Stockholders Discussion and Analysis.
Tel: (949) 757-3100 As of March 31, 2000, there were
2,143 record holders of the
Company's Common Stock.
</TABLE>
To obtain a copy of the annual report or Form 10-K, contact the Investor
Relations Dept. at the Printronix Corporate Office.
