PRINTRONIX, INC.
SECURITIES AND EXCHANGE COMMISSION
FINANCIAL STATEMENT REVIEW
FISCAL YEAR ENDED MARCH 25, 1995
Terry Hatfield
Branch Chief
Security and Exchange Commission
Washington. D.C. 20549
Dear Mr. Hatfield:
The following comments are in response to the additional clarification and
supplemental information requested in your letter dated February 23, 1995
regarding the Printronix, Inc. Annual Report on Form 10-K for the Fiscal Year
Ended March 25, 1994 and should be read in light of that report. The Company
requests that an amended filing for the above period be waived and that the
provided supplemental information be incorporated into future filings based
on the following:
The SEC financial statement only review appears to be primarily intended
to clarify certain accounting issues and disclosures within the
Company's fiscal 1994 Annual Report on Form 10-K. The Company maintains
the omission of such information from the fiscal 1994 financial
statements, individually or in aggregate, does not appear to be of a
material nature or to be considered misleading to a reader of the
financial statements.
The request for supplemental information coincides with the commencement
of our annual reporting process for the Fiscal 1995 Annual Report on Form
10-K which will include the proposed disclosures and will be filed within
approximately 90 days of our fiscal year ended March 31, 1995.
SEC COMMENT RESPONSE
Selected Financial Data, Annual Report (Inside Front Cover)
1. We have reviewed Item 301 of Regulation S-K related to the presentation
of Selected Financial Data, and per your instructions will revise the
presentation in future filings.
Management's Discussion & Analysis of Results of Operations and Financial
Condition, Annual Report, pages 8-9
2. In response to SEC comment number 2, relating to the consistent
chronological presentation of financial information, the Company agrees with
the comment, however, as the nature of the change in the presentation is
not likely to mislead a reader of the financial statements, we will revise
the disclosure in future filings.
3. See response at item number 13.
4. In response to SEC comment number 4, the Company proposes to revise the
Management's Discussion and Analysis contained in the Annual Report on
Form 10-K to include the following:
Net sales- Foreign sales, including export sales from the United States,
grew to $40.9 million in 1994, a $7.6 million or 22.9% increase compared to
1993 sales of $33.3 million. This increase in foreign sales compares to
growth of $6.7 million or 19.6% in 1993. The higher revenue resulted
primarily from increased sales to OEM customers outside the United States
(see note 4).
As the Company's foreign operations and export sales are disclosed in Note 4
to the fiscal 1994 consolidated financial statements on Form 10-K, revision
of such financial statements does not appear necessary. The Company will
incorporate all required information on foreign operations and export sales
into the Management's Discussion and Analysis for the fiscal year ended
March 31, 1995 Annual Report on 10-K.
Warranty
5. In response to SEC comment number 5, related to disclosure of the
Company's accounting policy with regard to warranty obligations, we propose
to add the following information to Note 1- Summary of Significant Accounting
Policies in the notes to the financial statements:
Warranty Costs- The Company's financial statements reflect accruals for
potential warranty claims based on the Company's claim experience. Estimated
product warranty costs are accrued at the time products are sold.
As the nature of the change in presentation is not likely to mislead a reader
of the financial statements, we will revise the footnote disclosure in future
filings.
Sales Returns
6. In response to SEC comment number 6 related to the disclosure of sales
returns, the Company proposes to revise Note 1-Summary of Significant Accounting
Policies, Sales Recognition,in the notes to the financial statement as follows:
Sales Recognition- Sales are recorded as of the date shipments are made to
customers. The Company's products are sold primarily to customers in the
computer industry. Accordingly, the majority of the Company's accounts
receivable are concentrated among such customers within the computer
industry. Sales returns and allowances are reflected as a reduction in sales
and reflected in inventory at cost or expected net realizable value,
whichever is lower. Every six months the Company allows domestic distributors
a stock rotation, whereby 2% of the prior six months sales can be returned,
subject to various limitations, in exchange for other products. The Company's
sales returns are not material to the financial statements taken as a whole,
as they are limited to the utilized portion of the 2% stock rotation for
domestic distributor revenue. Products that are defective upon arrival are
handled under the Company's warranty policy.
As the nature of change in presentation is not likely to mislead a reader
of the financial statements, we will revise the footnote disclosure in future
filings.
Consolidated Statements of Operations, Annual report page 11
7. In response to SEC comment number 7, the Company's service revenue for
the fiscal year ended March 25, 1994 was 6.4% of total sales and did not
exceed 8% of sales for the years ended March 26, 1993 and March 27,1992.
Service revenue consists primarily of customer service, parts repair and
maintenance contract revenue. As the service revenue is not a material
component of the Company's business and is less than the 10% threshold for
presentation as a separate line item on the face of the income statement,
further disclosures including the amount of expenses relating to such
revenue, does not appear to be necessary.
Restructuring Expenses
During fiscal 1993, the Company reserved for a total of $2.6 million in
restructuring expenses to provide for improved financial performance at lower
sales levels. Although the Company's operating losses were gradually
decreasing through this period, management determined that significant changes
in the Company's operations would need to be implemented immediately if the
Company were to remain competitive and improve its future financial position.
Restructuring Expenses-continued
Restructuring Reserve Summary ($ in Millions)
Income Balance Sheet
------ -------------
Statement
---------
Original Res@ Res@ Res@ Est@
Reserve Sep92 Mar93 Mar94 Mar95
1) Severance $1.024 $1.024 $0.302 ----- -----
2) Facility
Consolidation
- Manufacturing $1.100 ----- $1.100 $0.282 -----
- Lease Obligations $0.500 ----- $0.500 $0.200 $0.100
- Environmental Issue ----- ----- ----- $0.250 -----
------- ------ ------ ------ ------
$1.600 ----- $1.600 $0.732 $0.100
Total $2.624 $1.024 $1.902 $0.732 $0.100
The first phase of the restructuring plan called for an approximate 10%
reduction in worldwide personnel and was reserved for in September 1992 at
$1.024 million. By December 1992, Company personnel had declined to 818
employees from approximately 900 employees in September 1992 when the reserve
was made. By March of 1993, approximately $.302 million of severance reserve
remained to complete further planned staff reorganizations.
The second phase of the restructuring plan called for a substantial
downsizing of the Company's excess manufacturing and administrative office
capacity and consisted of consolidating certain domestic manufacturing
operations into a single factory in Irvine, California, transferring the mature
line matrix hammerbank production, including a significant portion of domestic
machinery and equipment, to the Singapore manufacturing facility, and
vacating excess administrative office space. Approximately $1.100 million was
reserved to provide for costs associated with the manufacturing
consolidation and included costs for waste removal, general clean-up, and the
close down of the Company's hammerbank production facility along with writing
off abandoned equipment and leasehold improvements. As part of the
administrative consolidation, excess office facilities were vacated and
related lease agreements terminated. Accordingly, approximately $0.500
million was recognized to provide for future lease payment obligations
through 1996.
Restructuring Expenses-continued
By March 1994, a substantial amount of the manufacturing facility
consolidations had been completed at which time the restructuring reserve was
reviewed for reasonableness. Approximately $0.200 million still remained for
lease obligations through 1996 and approximately $0.282 million was required
to complete planned manufacturing facility consolidations by December 1994.
The remaining balance of $0.250 million was estimated to provide for additional
costs associated with an environmental issue related to the closing down of the
Company's hammerbank facility (See Note 2 Commitments and Contingencies in
the Company's Annual Report for the period ended March 25, 1994).
The Company expects that all restructuring costs will be complete by the end
of the fiscal year ended March 31, 1995, except for remaining lease
obligations which will be less than $0.100 million. Expenses reserved for
the environmental issue will either be reclassified to other liabilities or be
identified as a separate component in current liabilities if deemed
appropriate. The Company estimates that total cost savings from this
restructuring approximate $5.000 million per year from reductions in labor,
utilities, rent and other overhead costs.
As the nature of this disclosure is not likely to mislead a reader of the
financial statements, and as the restructuring reserve balance is not
expected to be material at March 31, 1995, we will provide for any further
footnote disclosure in future filings.
Interest Expense, Net / Other income, Net
8. In response to SEC comment number 8, the Company incurs interest expense
primarily on its bank line of credit and on the amortization of capital leases.
Interest income, which is offset against interest expense for financial
reporting purposes, is generated from short-term securities classified as
cash equivalents. As the Company held no significant income producing
investments during fiscal year 1994, the interest income generated is
immaterial to the financial statements and therefore presented net with
interest expense. Other income, net, consists primarily of license income
and other miscellaneous income items offset by the gain or loss on the sale
of fixed assets. As no components of this line item are material to the
financial statements, they are presented net on the face of the income
statement.
Consolidated Statements of Cash Flows, Annual Report page 12
9. In response to SEC comment number 9, the Company's line of credit during
fiscal year 1994 was due on demand, and therefore qualifies for net reporting
under the requirements of SFAS 95 paragraph 13. Per your instructions the
investing activities line item titled,"Purchase of property and equipment,
net", will be presented gross of fixed asset purchases and dispositions in
future filings.
Summary of Significant Accounting Policies-Note 1, page 13
Cash Equivalents
10. In response to SEC comment number 10, the Company will revise Note 1-
Summary of Significant Accounting policies, Cash Equivalents, in the notes to
the consolidated financial statements to include the phrase, at the time of
purchase, in all future filings.
As the nature of the change in presentation is not likely to mislead a reader
of the financial statements, we will revise the footnote disclosure in future
filings.
Income on Maintenance Contracts
11. In response to SEC comment number 11, relating to revenue recognition on
product maintenance contracts, the Company sells the service obligation on
all maintenance contracts to third party providers at the time the contract
is sold to the customer. The third party provider is then responsible for
the performance of all contract maintenance services needed to maintain the
product for the contract period. Although Printronix, Inc. continues to act
as a contact between the customer and the third party provider during the
contract period for the purpose of dispatching customer service requests,
the Company assumes no further risk related to the services to be performed
under the maintenance contract once it is transferred/sold to the third
party provider.
The Company's contract maintenance costs consist primarily of processing and
reselling the contract to the third party provider and are substantially
complete at the time the contract is sold to the customer. Furthermore, costs
incurred by the Company after the contract is transferred to the third
party relate primarily to phone support provided to dispatch customer service
requests to alert the third party of needed services. These costs are minimal
and are accrued for at the time the income is recognized.
Income on Maintenance Contracts-continued
Consistent with paragraphs 10 and 19 of FTB90-1, the Company has
substantially completed what it must do to be entitled to the benefits of the
revenue at the time the contract is sold to the third party provider as
the majority of the costs to the Company have been incurred or are accrued
for and the Company retains no material risk related to the maintenance
contract once it is transferred to the third party. In addition, revenue
generated from maintenance contracts represented 1.6% of total sales for
the fiscal year-ended March 25, 1994, and therefore was not a significant
part of the Company's overall business.
Based on the above, it appears the Company has complied with the revenue
recognition criteria of FTB90-1 at the time the maintenance contract is
transferred to the third party, and therefore, deferral of the revenue
over the contract period does not appear to be required. In addition, the
revenue generated from maintenance contracts is immaterial to the Company's
financial statements taken as a whole. The Company will revise Note 1-Summary
of Significant Accounting Policies for the fiscal year-ended March 31, 1995
Form 10-K to more clearly reflect the nature of the Company's maintenance
contract business.
Foreign Currency Translation
12. In response to SEC comment number 12, the Company's accounts for foreign
subsidiaries are remeasured from the local currency to the Company's functional
currency (U.S. dollars) in compliance with SFAS No. 52. The Company proposes
to revise Note 1-Summary of Significant Accounting Policies, Foreign Currency
Translation to read as follows:
Foreign Currency 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 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. Gains and losses
from remeasurement are recognized currently in income. Prior to fiscal 1991,
certain of the Company's foreign subsidiaries utilized a functional currency
other than the United States dollar and the accounts were translated at
current exchange rates with any differences reflected in the cumulative foreign
currency translation adjustment in the accompanying consolidated balance
sheets. In fiscal 1993, the Company had substantially liquidated its
investments in this related foreign subsidiary. Accordingly, under the
provisions of SFAS No. 52 "Foreign Currency Translation," the cumulative
foreign currency translation adjustment of $ 2,003 was recognized as a gain
in the statement of operations.
1994 1993 1992
Cumulative foreign currency
translation adjustments $ --- $2,003 $ ---
Foreign currency exchange loss
on building, held for sale --- (402) ---
Operating foreign currency
exchange loss (68) (161) (302)
------ ------- -------
Total $ (68) $1,440 $ (302)
As requested in your letter, the Company will revise the presentation of this
note to the consolidated financial statements in future filings.
Commitments and Contingencies-Note 2
13. In response to SEC comment numbers 3 and 13 the Company has disclosed
in Note 2 to the fiscal year ended March 25, 1994 annual Report on Form 10-K
an investigation by the California Regional Water Quality Control
Board-Santa Ana Region ("Board") of a site formerly occupied by the Company.
Commitments and Contengencies-Note 2-continued
The site studies undertaken to date indicate the presence of trichloroethene
("TCE") at the subject site. Evidence adduced indicates that compounds
containing TCE 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. Accordingly, the Board is presently devoting its
attention to the predecessor occupant of the site. Investigation indicates
that the prior occupant is a well-established business enterprise which has
substantial assets and is affiliated with a publicly traded company.
The Company had reserved $250,000 in respect to this matter. This amount was
expected to be more than adequate to cover legal fees and expenses of
environmental tests as described in the Company's 1994 Annual report on Form
10-K. Far less than that amount was expended by the Company in its initial
response to the Board's request for information and for environmental testing.
The Company is convinced that it bears no responsibility for any containment
at the site and intends to vigorously defend any action which might be brought
against it in respect thereto.
Because of the focus of the Board's investigation, there are no further
orders outstanding against the Company. Therefore, there are no recurring
costs, capital expenditures or other mandated expenditures.
The Company believes that it will not be held responsible for any
contamination and that it would be misleading to recognize any amount at
this time in respect to remediation. However, in view of the Staff Accounting
Bulletins, the Company's environmental consultants advise that, on a preliminary
(and very general) basis, the cost of remediation of the site could be
estimated as follows:
Remediation involves a two-step procedure. The first step would include the
installation of a soil vapor extraction system. The cost of installation could
range from $50,000 to $100,000. There would also be annual operating costs of
up to $50,000 for a period of several years. The second step would be the
installation of a pump and water treatment system to cleanse the groundwater.
The cost of installation would range from $100,000 to $200,000. The annual
operating costs would range up to $100,000 for a period which cannot now be
ascertained.
Commitments and Contengencies-Note 2-continued
As the focus of the Board's investigation is currently not on the Company and
the future costs to the Company are not expected to be material, no changes
to the fiscal year ended March 25, 1994 Notes to the Consolidated Financial
Statements or Management's Discussion & Analysis appears necessary. The
Company will reevaluate the status of the environmental liability for the
fiscal year ended March 31, 1995 Form 10-K and revise the commitments
and contingencies disclosure if necessary.
Stock Option Plans and Common Share Purchase Rights-Note 5, Annual Report,
page 16
Common Share Purchase Rights (c)
14. In response to SEC comment number 14, the Company will revise the first
sentence of Note 5(c)- Common Share Purchase Rights in the notes to the
financial statements to read as follows:
(c) Common Share Purchase Rights- On March 16, 1989, the Company declared a
dividend payable on April 4, 1989, of 4,582,935 Common Share Purchase Rights.
As the nature of the change in presentation is not likely to mislead a reader
of the financial statements, we will revise the disclosure in future filings.
Bank Borrowing and Debt Arrangements-Note 6, Annual Report, page 16
15. In response to SEC comment number 15, the Company formed a new banking
relationship with Wells Fargo Bank in August 1994 replacing the credit
agreement with Silicon Valley Bank in effect at March 25, 1994. This
agreement with Wells Fargo, discussed in the Management's Discussion and
Analysis in the Company's Form 10-Q for the period ended September 23, 1994,
provides for an unsecured line of credit and therefore has no assets subject
to lien. As the Company has disclosed the conditions of its current line of
credit through quarterly reporting and any elements of the prior banking
relationship are no longer relevant, revision of the fiscal year end 1994 annual
report does not appear necessary. The Company will ensure all future
reporting relating to bank borrowing and debt arrangements contain disclosure
on any assets subject to liens.
16. In response to SEC comment 16, the Company disclosed the pay down of the
$2.2 million unsecured line of credit with foreign banks in the Management's
Discussion and Analysis of the Company's Form 10-Q for the period ended
June 24, 1994 . Under the terms of the credit agreement the line is
currently not subject to maturity at a specific date as long as the Company
meets certain financial covenants. The Company currently has no borrowings
against this line of credit and is in compliance with all financial covenants.
As the nature of the change in presentation is not likely to mislead a reader
of the financial statements, we will revise the disclosure in future filings.
Income Taxes-Note 7, Annual Report, page 17
17. In response to SEC comment number 17, the Company proposes to revise
Note 7 of the consolidated financial statements to include the following:
The components of income (loss) before income taxes are as follows:
(in thousands) Years ended March
1994 1993 1992
United States $2,555 $(7,888) $(11,458)
Foreign ( 501) 5,736 2,608
Total pre-tax income 2,054 (2,152) (8,850)
As the nature of the change in this presentation is not likely to mislead a
reader of the financial statements, we will revise the disclosure in future
filings.
18. In response to SEC comment number 18, the Company proposes to revise
Note 7 of the consolidated financial statements to include the following:
The Company has been granted pioneer status in Singapore through mid-1995,
and accordingly, is exempt from tax. The approximate aggregate dollar effect
of the pioneer status assuming a 27% tax rate is $620,000, $1,080,000, and
$689,000 for the years ended March 25, 1994, March 26, 1993, and March 27, 1992,
respectively. The income per share effect of the pioneer status would be as
follows:
March 25, March 26, March 27,
1994 1993 1992
Primary $ .19 $ .35 $.23
Fully diluted $ .19 $ .35 $.23
As the nature of the change in presentation is not likely to mislead a reader
of the financial statements, we will revise the disclosure in future filings.
Form 10-Q for the periods ended June 24, 1994, September 23, 1994 and
December 23, 1994
19. In response to SEC comment number 19, the Company will delete the
"unaudited" label accompanying the quarter-end balance sheet in the Form 10-Q
and insert the phrase "derived from audited financial statements" to describe
the year-end comparative data in all future quarterly filings with the SEC.
Sincerely,
Date: March 24, 1995 ________________________
George L. Harwood
Sr. Vice-President, Finance,
Chief Financial Officer, and
Secretary