Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 25,1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
Commission file number 0-9321
PRINTRONIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2903992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17500 Cartwright
P.O. Box 19559
Irvine, California 92623
(Address of principal executive offices) (Zip Code)
(949) 863-1900
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class of Common Stock Outstanding at January 22, 1999
$0.01 par value 6,662,909
PRINTRONIX, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
December 25, 1998 and March 27, 1998
Asset (3)
Liabilities and Stockholders' Equity (4)
Consolidated Statements of Operations for the Three
and Nine Months Ended December 25, 1998 and
December 26, 1997 (5)
Consolidated Statements of Cash Flows for the
Nine Months Ended December 25, 1998 and
December 26, 1997 (6)
Condensed Notes to Consolidated Financial Statements (8)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (10)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (15)
Item 6. Exhibits and Reports on Form 8-K (15)
Signatures (16)
Index to Exhibits (17)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRINTRONIX, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands)
December 25, 1998 March 27, 1998
(Unaudited)
-------------- -------------
ASSETS:
Current assets:
Cash and cash equivalents $ 9,820 $ 10,264
Accounts receivable, net of allowances
for doubtful accounts of $1,992 and
$1,920 as of December 25, 1998 and
March 27, 1998, respectively 25,496 26,739
Inventories:
Raw materials, subassemblies and
work in process 13,268 15,782
Finished goods 1,735 1,826
---------- ----------
15,003 17,608
Prepaid expenses 724 1,015
---------- ----------
Total current assets 51,043 55,626
---------- ----------
Property and equipment, at cost:
Machinery and equipment 28,717 32,740
Furniture and fixtures 18,617 18,435
Land 8,100 8,100
Building and improvements 8,853 7,046
Leasehold improvements 2,172 2,104
---------- ----------
66,459 68,425
Less accumulated depreciation
and amortization (34,771) (37,159)
---------- ----------
31,688 31,266
---------- ----------
Intangible assets, net 986 1,166
Other assets 954 806
---------- ----------
Total assets $ 84,671 $ 88,864
====== ======
See accompanying notes to consolidated financial statements
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - continued
(Amounts in thousands, except share data)
December 25, 1998 March 27, 1998
(Unaudited)
--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,424 $ 9,988
Accrued expenses:
Payroll and employee benefits 5,860 4,590
Warranty 1,681 1,681
Other 1,503 1,385
Income taxes 2,005 760
Environmental 214 214
---------- ----------
Total current liabilities 20,687 18,618
---------- ----------
Other long-term liabilities 915 1,009
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01-
Authorized 30,000,000 shares,
issued and outstanding
6,673,123 and 7,649,901
shares as of December 25, 1998 and
March 27, 1998, respectively 67 77
Additional paid-in capital 26,403 30,054
Retained earnings 36,599 39,106
---------- ----------
Total stockholders' equity 63,069 69,237
---------- ----------
Total liabilities and
stockholders' equity $ 84,671 $ 88,864
====== ======
See accompanying notes to consolidated financial statements
PRINTRONIX, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except share data)
Three Months Ended Nine Months Ended
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
1998 1997 1998 1997
(Unaudited) (Unaudited)
--------- --------- --------- --------
Net sales $ 45,840 $ 42,528 $133,271 $126,983
Cost of sales 30,987 28,718 90,124 87,057
---------- --------- ---------- ---------
Gross profit 14,853 13,810 43,147 39,926
Operating expenses:
Engineering and development 4,779 3,884 13,382 11,457
Sales and marketing 4,210 3,886 12,192 11,268
General and administrative 2,140 2,012 6,796 5,685
---------- --------- ---------- ---------
Total operating expenses 11,129 9,782 32,370 28,410
---------- --------- ---------- ---------
Income from operations 3,724 4,028 10,777 11,516
Other income, net (64) (570) (555) (1,287)
---------- --------- ---------- ---------
Income before provisions for 3,788 4,598 11,332 12,803
for income taxes
Provision for income taxes 755 69 2,260 896
Net income $ 3,033 $ 4,529 $ 9,072 $ 11,907
----------- --------- ----------- ---------
Net income per common share
Basic $ 0.45 $ 0.56 $ 1.27 $ 1.50
Diluted $ 0.44 $ 0.54 $ 1.23 $ 1.44
======= ======= ======= ======
Weighted average common shares
Basic 6,801,359 8,048,214 7,137,914 7,945,801
Diluted 6,953,647 8,448,505 7,367,488 8,296,862
========= ========= ========= =========
See accompanying notes to consolidated financial statements
PRINTRONIX, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Nine Months Ended
Dec. 25, Dec. 26,
1998 1997
(Unaudited)
----------- ----------
Cash flows from operating activities
Net income $ 9,072 $11,907
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,706 5,340
Compensation expense related to restricted -- 1,191
stock plan
Loss on sale of equipment 171 69
Changes in assets and liabilities:
Accounts receivable 1,243 (1,255)
Inventories 2,605 1,678
Accounts payable (564) (533)
Payroll and employee benefits 1,270 578
Accrued income taxes 1,245 81
Other 165 311
----------- ----------
Net cash provided by operating activities 20,913 19,367
----------- ----------
Cash flows from investing activities
Purchase of property and equipment (4,678) (5,433)
Construction of new building (1,776) (173)
Proceeds from disposition of equipment 335 225
----------- ----------
Net cash used in investing activities (6,119) (5,381)
----------- ----------
See accompanying notes to consolidated financial statements
PRINTRONIX, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - continued
(Amounts in thousands)
Nine Months Ended
Dec. 25, Dec. 26,
1998 1997
(Unaudited)
-------- --------
Cash flows from financing activities
Repurchase and retirement of common stock (15,858) ( 8,813)
Proceeds from issuance of common stock 620 702
Net cash used in financing activities (15,238) (8,111)
---------- ----------
Net (decrease) increase in cash and cash (444) 5,875
cash equivalents
Cash and cash equivalents at 10,264 12,766
beginning of period ---------- ----------
Cash and cash equivalents at end of period $ 9,820 $ 18,641
======== ========
- -------------------------------------
Supplementary disclosures of cash flow information
Taxes paid $ 602 $ 866
Interest paid $ -- $ 21
See accompanying notes to consolidated financial statements
PRINTRONIX, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
DECEMBER 25, 1998
(Unaudited)
1) Basis of Presentation
The unaudited consolidated financial statements included herein
have been prepared by Printronix, Inc. (the "Company"), pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations.
In the opinion of management, the consolidated financial statements
reflect all adjustments (which include only normal recurring
adjustments) considered necessary to present fairly the financial
position and results of operations as of and for the periods
presented. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's latest Annual Report on
Form 10-K for the fiscal year ended March 27, 1998, as filed with
the Securities and Exchange Commission. The results of operations
for such interim periods are not necessarily indicative of the
results for the full year.
Certain amounts from the prior year consolidated financial
statements have been reclassified to conform to the current year
presentation.
2) Bank Borrowings and Debt Arrangements
At December 25, 1998 and March 27, 1998, the Company ended the
quarter with no outstanding debt against its unsecured lines of
credit.
PRINTRONIX, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
DECEMBER 25, 1998
(Unaudited)
3) Earnings per Share
The number of shares used in computing diluted earnings per share
equals the total of the weighted-average number of common shares
outstanding during the periods presented plus the dilutive effect
of stock options. The dilutive effect of stock options represents
additional shares which may be issued in connection with their
exercise, reduced by the number of shares which could be
repurchased with the proceeds at the average market price per share
computed on a quarterly basis during the year.
The reduction in the number of shares outstanding from 1997 to 1998
is due to the Company's authorized share repurchase program (See
Note 4). The following table shows the calculation for basic and
diluted shares outstanding:
Three Months Ended Nine Months Ended
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
1998 1997 1998 1997
--------- --------- --------- ---------
Basic weighted-average
common shares outstanding 6,801,359 8,048,214 7,137,914 7,945,801
Effect of dilutive
stock options 152,288 400,291 229,574 351,061
--------- --------- --------- ---------
Diluted weighted-average
common shares outstanding 6,953,647 8,448,505 7,367,488 8,296,862
========= ========= ========= =========
4) Common Stock
As authorized by the Board of Directors, the Company repurchased
and retired 264,000 shares of common stock during the quarter at
prices ranging from $11.25 to $16.00 per share, at a cost of $3.3
million. Purchases of an additional 55,000 shares of common stock
were made subsequent to the end of the quarter and future purchases
of up to 127,600 shares of common stock may be made at the
Company's discretion.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PRINTRONIX, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
Revenues and Backlog
For the three months ended December 25, 1998, consolidated revenues
reached a record high of $45.8 million, an increase of 7.8% over the
same period for 1997. The growth is primarily attributable to
increased sales in EMEA, Asia Pacific and by the Company's subsidiary,
RJS, acquired in January 1998. Sales in the Americas were flat.
Americas distribution sales increased 11.7% to $13.9 million, but OEM
sales were down 12.4% to $11.2 million compared to the same quarter
for 1997. The decrease in OEM sales is primarily due to sales to
smaller OEM customers. EMEA sales increased 13.6% to $16.4 million
over the same quarter last year. Sales in Asia Pacific, primarily
China and India, increased 28.0% to $3.7 million compared to the third
quarter of last year and resulted in a record quarter for that region.
Sales by RJS were $0.7 million for the three months ended December 25,
1998.
For the nine months ended December 25, 1998, sales increased to $133.3
million, a 5.0% increase over the same period last year. The increase
in sales is due to strong sales to the Company's largest OEM customer,
primarily in EMEA, sales in the Americas distribution channel and
sales by RJS. EMEA year to date sales increased to $45.6 million, a
6.5% increase compared to the same period for 1997. Although sales in
Asia Pacific were relatively unchanged at $8.9 million, sales in China
and India increased 73.5% and 50.7%, respectively. Sales in the
Americas increased to $76.5 million compared to $75.3 million for the
prior year mainly due to higher distribution sales. Sales by RJS were
$2.2 million for the nine months ended December 25, 1998.
Revenue growth by product for the three months ended December 25,
1998, was the result of increased sales for the line matrix, thermal
and laser printers compared to the same period for 1997. Line matrix
revenue for the third quarter was $38.4 million, an increase of 5.3%
over the same period for the prior year. Thermal sales for the
current quarter were $1.3 million, an increase of 26.0% compared to
the same period last year. Laser sales were $5.5 million for the
third quarter, an increase of 8.8% over the same quarter for 1997.
Sales by RJS were $0.7 million for the three months ended December 25,
1998.
For the nine months ended December 25, 1998, line matrix revenue was
$111.6 million, an increase of 3.3% compared to the same period for
1997. Year to date thermal sales were $3.3 million, an increase of
14.5% over the same period for 1997. Laser sales were $16.2 million
which was relatively unchanged from the same period last year. Sales
by RJS were $2.2 million for the nine months ended December 25, 1998.
Sales to the largest customer, IBM, represented 30.4% of total sales
for the three months ended December 25, 1998, compared to 32.8% for
the same quarter last year. For the nine months ended December 25,
1998, sales to IBM were 31.3% of total sales compared to 29.4% for the
same period last year.
Sales to the second largest customer for the three and nine months
ended December 25, 1998, were 8.0% and 8.4% of total sales,
respectively, compared to 9.8% and 9.2% for the same periods for 1997.
Order backlog at December 25, 1998, and December 26, 1997, was $12.4
million. The order backlog at the end of the second quarter of 1998
was $16.7 million, reflecting higher orders placed by the Company's
largest customer to support the typically high third quarter sales.
Gross Profit
Gross profit for the quarter ended December 25, 1998, was 32.4% of
sales compared to 32.5% for the same quarter last year. For the nine
months ended December 25, 1998, gross profit increased to 32.4%
compared to 31.4% for the corresponding period of 1997. The higher
margin on a year to date basis is primarily attributable to
manufacturing efficiencies.
Operating Expenses, Other Income and Taxes
For the three and nine months ended December 25, 1998, total operating
expenses increased 13.8% and 13.9%, respectively, compared to the same
period for 1997. Higher engineering and development and sales and
marketing expenses were attributable to the Company's commitment to
product development of the Company's P5000 Series line matrix,
LaserLine and Thermaline industrial strength printers, as well as the
acquisition of RJS, in January 1998.
For the three months ended December 25, 1998, engineering and
development expenses were $4.8 million, an increase of 23.0% compared
to the same quarter for 1997. As a percentage of sales, engineering
and development expenses were 10.4% for the current quarter and 9.1%
for the same quarter last year. Expenses for sales and marketing
increased 8.3% to $4.2 million compared to the same period for 1997.
General and administrative expenses remained relatively unchanged at
$2.1 million for the quarter.
For the nine months ended December 25, 1998, engineering and
development expenses increased to $13.4 million, an increase of 16.8%
over the same period last year. Engineering and development expenses
were 10.0% of sales compared to 9.0% of sales for the same period last
year. Expenses for sales and marketing were $12.2 million, an
increase of 8.2% over the same period for the prior year. Sales and
marketing expenses were 9.1% of sales compared to 8.9% for the same
period last year. General and administrative expenses increased 19.5%
to $6.8 million over the prior year due to the acquisition of RJS,
including goodwill amortization expense, as well as, higher
depreciation and operating expenses related to the Company's new
information system, increase in bad debt provision and increased
administrative labor. As a percentage of sales, general and
administrative expenses were 5.1% compared to 4.5% for the
corresponding period last year.
Other income decreased for the three and nine months ended December
25, 1998, primarily due to foreign currency remeasurement losses in
1998 compared to gains in 1997. In addition, interest income was
lower in 1998 due to lower average cash balances compared to 1997.
The income tax provision increased to $0.8 million from $0.1 million
for the same quarter last year. The Company has net operating loss
carryforwards and has been paying minimal income taxes. These
carryforwards are expected to be fully utilized during the current
fiscal year. The Company estimates that its effective income tax rate
for fiscal year 1999 will be approximately 20%, up from 5% in the
prior year. Once the net operating loss carryforwards are fully
utilized, the Company estimates its fully taxed rate will be
approximately 30%.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the quarter with cash and cash equivalents of $9.8
million compared to $18.6 million for the same quarter last year. The
Company's current cash position compared to the prior year quarter
results primarily from the purchase and retirement of 1,076,000 shares
of Printronix common stock at an average share price of $14.74,
totaling $15.9 million for the first nine months of the fiscal year,
funded by current operating activity. In addition, the Company
purchased land for the new corporate facilities for $8.1 million and
acquired RJS for $2.9 million in the fourth quarter of fiscal 1997.
Construction has begun which will consolidate into one facility the
corporate headquarters, research and development and U.S.
manufacturing operations, which are currently housed in five buildings
in the area.
The Company believes that its internally-generated funds, together
with available financing, will be adequate in providing its working
capital requirements, capital expenditures, and engineering
development needs through the current fiscal year.
Year 2000 Considerations
The Company's products are Year 2000 compliant. No Printronix printer
or Printronix application software performs relative date calculations
using internal clocks. Such clocks are not necessary for the printer
to operate because the printer is only concerned with converting host
data into printed images. Therefore, all Printronix products are Year
2000 compliant.
The Company has completed an assessment of the impact of the Year 2000
on its information systems and hardware. The assessment phases of the
Company's information systems and hardware included the identification
of the systems or processes to be reviewed, evaluation of current
systems or processes, risk assessment, and development of conversion
plans. The Company has partially completed an assessment of the
impact on its significant business partners and expects to finish the
assessment by June 1999. The assessment includes inquiries of key
vendors and customers related to their own Year 2000 issues. The
scope of the assessment addresses the information technology systems,
such as the accounting and financial reporting systems, mainframe
computers, personal computers, and the distributed network, and also
addresses the non-information technology systems, such as facilities,
plant equipment, lab and test equipment, distribution systems,
security systems, communication systems, key services provided by
third parties and key vendors and customers. The Company's objective
is to be fully Year 2000 compliant by mid calendar year 1999 and to
develop
contingency plans in the event it fails to complete its Year
2000 projects. To date, the Company has not had to accelerate the
replacement of systems due to Year 2000 issues.
The Company's business critical operating system, accounting and
financial reporting systems, including manufacturing and sales, were
converted to a certified Year 2000 enterprise wide software package in
August 1997, with the exception of the customer service and fixed
asset systems. The customer service system is expected to be
converted by the mid calendar year 1999. The fixed asset system is
expected to be converted by April 1999.
The Company has determined the telephone communications system is not
fully Year 2000 compliant; however; the cost to upgrade to full
compliance is immaterial. A detailed plan to become Year 2000 system
compliant is in effect and the project is on schedule.
Based upon its assessment and the vendors' and customers'
representations, the Company believes the systems of its key vendors
and customers are either Year 2000 compliant or will be made so by mid
calendar year 1999.
The Company believes the most significant Year 2000 compliance risk is
that key customers and vendors may fail to complete their remediation
efforts in a timely manner. Any significant disruption of business
with key customers and vendors could have a material adverse impact on
the Company's revenues, income, cash flows or financial condition.
In fiscal 1998 and 1999, the cost of Year 2000 assessment efforts and
remediation projects was not material and was funded from current
operations. Future expenditures are not expected to be material and
will be funded from operations.
The Company has not yet developed a contingency plan in the event it
fails to complete its Year 2000 projects as planned. The Company also
has not yet developed a contingency plan in the event its key
customers and vendors are not Year 2000 compliant. The Company expects
to develop a contingency plan addressing these issues by the end of
June 1999.
Forward-Looking Statements
Certain statements contained in this filing may be considered forward-
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which provides a new "safe harbor" for
these types of statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Company.
These forward-looking statements are subject to certain risks and
uncertainties, including those identified above, which could cause
actual results to differ materially from historical results or those
anticipated. 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. The most significant among these risks
and uncertainties is the impact of the Year 2000.
PART II. OTHER INFORMATION
PRINTRONIX, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
See "Item3. Legal Proceedings" reported in Part I of the Company's
Report on Form 10K for the fiscal year end March 27, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports.
No reports on Form 8-K have been filed by the Registrant for the
quarterly period covered by this report.
PRINTRONIX, INC. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PRINTRONIX, INC.
(Registrant)
Date: February 8, 1999 By: George L. Harwood
George L. Harwood
SR. Vice-President, Finance,
Chief Financial Officer, and
Secretary
(Principal Financial Officer
PRINTRONIX, INC. AND SUBSIDIARIES
Index to Exhibits to Form 10-Q
DECEMBER 25, 1998
EXHIBIT
NUMBER DESCRIPTION PAGE
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27 Financial Data Schedule Filed only with
EDGAR version