Form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
------------
[X] Quarterly Report Pursuant to Section 13 or 15(D) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended September 23, 2005
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.)
14600 Myford Road 92623
P.o. Box 19559, Irvine, California (Zip Code)
(Address of Principal Executive Offices)
(714) 368-2300
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OF COMMON STOCK OUTSTANDING AT OCTOBER 21, 2005
--------------------- -------------------------------
$0.01 par value 6,563,182
PRINTRONIX, INC.
INDEX TO FORM 10-Q
PAGE
PART I: FINANCIAL INFORMATION ----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 23, 2005 and March 25,
2005 3
Consolidated Statements of Operations for the three and six months
ended September 23, 2005 and September 24, 2004 5
Consolidated Statements of Cash Flows for the six months ended
September 23, 2005 and September 24, 2004 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 3. Quantitive and Qualitative Disclosures About Market Risk 33
Item 4. Controls and Procedures 34
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 6. Exhibits 35
SIGNATURES 36
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 23, 2005 and March 25, 2005
(dollar amounts in thousands)
(unaudited)
September 23, March 25,
2005 2005
--------- ---------
ASSETS: $ 29,228 $ 35,405
CURRENT ASSETS:
Cash and cash equivalents
Short-term investments 13,384 9,500
Accounts receivable, net of allowances for returns
and doubtful accounts of $2,395 as of
September 23, 2005, and $1,731 as of
March 25, 2005 15,649 18,207
Inventories:
Raw materials 7,664 7,354
Subassemblies 3,183 2,518
Work in process 188 261
Finished goods 3,255 2,960
--------- ---------
Total inventory 14,290 13,093
Prepaid expenses and other current assets 2,034 1,791
Deferred income tax assets, net 2,658 2,590
--------- ---------
TOTAL CURRENT ASSETS 77,243 80,586
--------- ---------
Property, plant, and equipment, at cost: 28,739 28,141
Machinery and equipment
Furniture and fixtures 25,515 24,996
Buildings and improvements 23,169 23,139
Land 8,100 8,100
Leasehold improvements 678 730
--------- ---------
86,201 85,106
Less: Accumulated depreciation and amortization (53,230) (52,180)
--------- ---------
Property, plant and equipment, net 32,971 32,926
Long-term deferred income tax assets, net 1,726 1,646
Other assets 520 308
--------- ---------
TOTAL ASSETS $ 112,460 $ 115,466
========= =========
3
The accompanying notes are an integral part of these consolidated financials.
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 23, 2005 and March 25, 2005
(dollar amounts in thousands, except share and per share data)
(unaudited)
September 23, March 25,
2005 2005
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY: $ 700 $ 700
CURRENT LIABILITIES:
Current portion of long-term debt
Accounts payable 6,789 7,162
Accrued liabilities:
Payroll and employee benefits 4,988 5,275
Warranty 903 863
Deferred revenue 2,412 3,306
Other 2,987 2,815
Income taxes 201 145
-------- --------
TOTAL CURRENT LIABILITIES 18,980 20,266
-------- --------
Long-term debt, net of current portion 13,125 13,475
Deferred revenue, net of current portion 1,192 1,021
Long-term deferred income tax liabilities 1,696 1,548
Commitments and Contingencies (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value (Authorized 30,000,000
shares;
shares issued and outstanding 6,561,182 as of
September 23, 2005, and 6,470,260 as of March 25, 2005) 66 65
Additional paid-in capital 36,160 35,537
Accumulated other comprehensive income 22 31
Retained earnings 41,219 43,523
-------- --------
TOTAL STOCKHOLDERS' EQUITY 77,467 79,156
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $112,460 $115,466
======== ========
The accompanying notes are an integral part of these consolidated financials.
4
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 23, 2005 and September 24, 2004
(dollar amounts in thousands, except share and per share data)
(unaudited)
Three Months Ended Six Months Ended
-------------------------------- -----------------------------
September 23, September 24, September 23, September 24,
2005 2004 2005 2004
----------- ----------- ----------- -------------
Revenue $ 28,958 $ 31,808 $ 60,745 $ 65,086
Cost of sales 18,171 19,770 37,649 39,738
----------- ----------- ----------- -----------
Gross margin 10,787 12,038 23,096 25,348
Operating expenses:
Engineering and development 3,608 3,916 7,476 7,914
Sales and marketing 6,115 5,903 12,231 12,183
General and administrative 2,751 2,104 5,001 4,287
----------- ----------- ----------- -----------
Total operating expenses 12,474 11,923 24,708 24,384
Income (loss) from operations (1,687) 115 (1,612) 964
Other (income) expense:
Foreign currency (gains) losses,
net (23) (21) (83) 31
Interest and other (income)
expenses, net (201) 28 (346) 38
----------- ----------- ----------- -----------
Income (loss) before taxes (1,463) 108 (1,183) 895
Provision for income taxes 135 218 205 556
----------- ----------- ----------- -----------
Net (loss) income $ (1,598) $ (110) $ (1,388) $ 339
=========== =========== =========== ===========
Net (loss) income per share:
Basic $ (0.26) $ (0.02) $ (0.22) $ 0.05
Diluted $ (0.26) $ (0.02) $ (0.22) $ 0.05
Shares used in computing net (loss)
income per share:
Basic 6,241,949 6,341,593 6,222,233 6,311,117
Diluted 6,241,949 6,341,593 6,222,233 6,496,798
The accompanying notes are an integral part of these consolidated financials.
5
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 23, 2005 and September 24, 2004
(dollar amounts in thousands)
(unaudited)
Six Months Ended
--------------------------------
September 23, September 24,
2005 2004
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES: $ (1,388) $ 339
Net (loss) income
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 2,322 2,987
Provision (benefit) for doubtful accounts receivable (551) (99)
(Gain) loss on disposal of property, plant and (7) (9)
equipment
Changes in operating assets and liabilities:
Accounts receivable 3,109 1,155
Inventories (1,136) (652)
Prepaid expenses and other assets (456) 433
Accounts payable (373) 724
Payroll and employee benefits (287) (123)
Accrued warranty 40 (145)
Accrued income taxes 56 84
Deferred revenue (723) (254)
Other liabilities 172 474
-------- --------
Net cash provided by operating activities 778 4,914
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,448) (1,966)
Proceeds from disposition of property, plant and equipment 26 113
Proceeds from redemption of short-term investments 13,100 --
Purchases of short-term investments (16,990) --
-------- --------
Net cash used in investing activities (6,312) (1,853)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt (350) (350)
Proceeds from employee stock incentive plans 623 241
Cash dividends declared and paid (916) --
-------- --------
Net cash used in financing activities (643) (109)
-------- --------
Net (decrease) increase in cash and cash equivalents (6,177) 2,952
Cash and cash equivalents at beginning of period 35,405 36,671
-------- --------
Cash and cash equivalents at end of period $ 29,228 $ 39,623
======== ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Income tax paid $ 144 $ 494
Interest paid $ 273 $ 219
The accompanying notes are an integral part of these consolidated financials.
6
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as of September 23, 2005 and
March 25, 2005, and for the Three and Six Months Ended
September 23, 2005 and September 24, 2004
(Unaudited)
Note 1 Basis of Presentation
Printronix, Inc., has prepared the unaudited, consolidated financial
statements included herein 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. However, we
believe that the disclosures are adequate to make the information presented
not misleading.
In the opinion of management, the consolidated financial statements reflect
all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair statement of the financial position,
results of operations and cash flows as of and for the periods presented.
These consolidated financial statements are unaudited and should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in our latest Annual Report on Form 10-K for the fiscal
year ended March 25, 2005, as filed with the Securities and Exchange
Commission. The consolidated balance sheet as of March 25, 2005, presented
herein has been obtained from the audited consolidated balance sheet
contained in our latest Annual Report on Form 10-K. The results of
operations for the interim periods presented are not necessarily indicative
of the results for the full fiscal year.
Unless the context otherwise requires, the terms "we," "our," "us,"
"company" and "Printronix" refer to Printronix, Inc. and its consolidated
subsidiaries.
Stock-based Compensation
We account for stock-based compensation issued to employees using the
intrinsic-value-based method as prescribed by the Accounting Principles
Board ("APB") Opinion 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. No stock-based employee
compensation cost was recorded for the periods presented as all options
granted under the stock-based compensation plan had an exercise price equal
to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income (loss) and
earnings per share if we had applied the fair value recognition provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee
compensation and is provided in accordance with SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure."
7
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended Six Months Ended
--------------------------- ------------------------------
September 23, September 24, September 23, September 24,
2005 2004 2005 2004
-------------------------- ------------------------------
(dollar amounts in thousands, except per share data)
Net (loss) income, as reported $ (1,598) $ (110) $ (1,388) $ 339
Deduct total stock-based
employee compensation
expense determined under
fair-value-based
method for all awards (102) (33) (195) (82)
--------- --------- --------- ---------
Proforma net (loss) income $ (1,700) $ (143) $ (1,583) $ 257
========= ========= ========= =========
(Loss) earnings per share:
Basic - as reported $ (0.26) $ (0.02) $ (0.22) $ 0.05
Basic - pro forma $ (0.27) $ (0.02) $ (0.25) $ 0.04
Diluted - as reported $ (0.26) $ (0.02) $ (0.22) $ 0.05
Diluted - pro forma $ (0.27) $ (0.02) $ (0.25) $ 0.04
Note 2 Short-term Investments
The company evaluates its short-term investments in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and has determined that all of its investments should be
classified as available-for-sale and reported at fair value. The unrealized
gains and losses on available-for-sale securities, net of taxes, are
recorded in accumulated other comprehensive income. Realized gains and
losses are included in interest and other (income) expense, net.
The fair value of the company's investments is based on quoted market
prices that approximate fair value due to the frequent resetting of
interest rates. The company assesses its investments for
other-than-temporary declines in value by considering various factors that
include, among other things, any events that may affect the
creditworthiness of a security's issuer, the length of time the security
has been in a loss position, and other factors. As of September 23, 2005,
we assessed our portfolio and determined that none of our investments had
experienced other-than-temporary declines.
At September 23, 2005, the company's short-term investments consisted of
taxable corporate and government agency auction rate securities, and
mortgage-backed securities. At September 23, 2005, the estimated fair value
of each investment approximated its amortized cost and, therefore, the
company had no significant unrealized gains or losses. Also included in
short-term investments is $0.2 million in certificates of deposit as of
September 23, 2005.
Although contractual maturities of the company's debt securities are due
after five years, the investments are classified as current assets in the
Consolidated Balance Sheets due to the company's expected holding period of
less than one year.
Note 3 Accounts Receivable
The allowance for doubtful accounts was $0.9 million and $1.5 million as of
September 23, 2005 and March 25, 2005, respectively. During the three-month
and six-month periods ended September 23, 2005, the company reduced its
allowance for doubtful accounts by $0.4 million and $0.6 million,
respectively, due to resolution of various customer liquidity issues.
Allowances presented as a reduction to accounts receivable also included
the estimated sales returns reserve of $0.8 million and $0.9 million as of
September 23, 2005 and March 25, 2005, respectively.
Note 4 Inventories
We record a provision to value our inventory at the lower of the actual
cost to purchase and/or manufacture the inventory, or the current estimated
market value of the inventory. We also perform regular reviews of our
inventory and record a provision for estimated excess and obsolete items
8
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based upon forecasted demand, and any other known factors at the time.
Inventories, which include material, labor and overhead costs, are valued
at the lower of cost (first-in, first-out method) or market.
Note 5 Bank Borrowings and Debt Arrangements
Collateralized Debt
As of September 23, 2005, we have a $13.8 million long-term note with a
United States bank collateralized by our Irvine facility. The note contains
customary default provisions, no restrictive covenants and requires monthly
principal and interest payments, with a balloon payment of $12.6 million
due June 1, 2007. Interest on the note is at variable rates based upon the
London Interbank Offered Rate ("LIBOR") plus 1.25 percent, and is reset for
periods from one month up to one year, at our discretion. The interest rate
on the note at September 23, 2005, was 5.125 percent and the weighted
average interest rate on the note was 5.0 percent and 4.7 percent for the
three and six months ended September 23, 2005, respectively. Total interest
expense on the note was $0.2 million and $0.1 million, for the current and
year ago quarters. Total fiscal year-to-date interest expense was $0.3
million and $0.2 million for the current and year ago periods. The note
consisted of $13.1 million long-term debt and $0.7 million for the current
portion of long-term debt as of September 23, 2005.
Lines of Credit and Standby Letters of Credit
At September 23, 2005, one of our foreign subsidiaries maintained unsecured
lines of credit for $2.1 million with major foreign banks, which included a
standby letter of credit of $1.5 million. These credit facilities are
subject to certain standard financial covenants. We were in compliance with
these financial covenants for all fiscal periods presented. The parent
company guarantees any amounts outstanding on these lines of credit. There
were no cash borrowings against these lines of credit for the fiscal
periods presented. No fees are charged for the unused portion of the lines
of credit. Any borrowings on the lines of credit would be subject to
interest rates at approximately 0.25 percent to 1.0 percent above the
prime-lending rate.
The company maintains a standby letter of credit related to its workers'
compensation insurance program for $0.4 million. The standby letter of
credit is secured by a cash deposit and is automatically renewed annually.
There were no cash borrowings against this letter of credit for the fiscal
periods presented. Any borrowings would be subject to interest rates at 2.0
percent above the prime-lending rate, subject to certain maximum limits.
Credit Agreement for Hedging Activity
We have a commitment facility for $2.4 million with a major foreign bank to
support our hedging activities. This commitment facility has no restrictive
covenants and is available to fund any forward currency contracts should we
be unable to satisfy our obligations. The agreement automatically renews
annually, subject to certain compliance requirements. There are no annual
fees under this agreement. Any borrowings under this agreement would be
subject to interest rates available at that time. No amounts were borrowed
under this credit agreement for the fiscal periods presented.
Interest and Other (Income) Expense, Net
The components of interest and other (income) expense, net, in the
consolidated statement of operations for the three and six months ended
September 23, 2005, and September 24, 2004, were as follows:
Three Months Ended Six Months Ended
-------------------------- ---------------------------
September 23, September 24, September 23, September 24,
2005 2004 2005 2004
------------- ------------ -------------- -------------
(dollar amounts in thousands)
Interest expense $ 175 $ 121 $ 330 $ 229
Interest income (359) (99) (646) (182)
Other (income) expense (17) 6 (30) (9)
------------- ------------ -------------- -------------
Interest and other (income) expense, net $ (201) $ 28 $ (346) $ 38
============= ============ ============== =============
9
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Net (Loss) Income per Share
Basic net (loss) income per share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted net
(loss) income per share is computed using the weighted average number of
shares of common stock outstanding and potential shares outstanding during
the period, if dilutive.
Net (loss) income per share for the three and six months ended September
23, 2005, and September 24, 2004, is as follows:
Three Months Ended Six Months Ended
-------------------------- ----------------------------
September 23, September 24, September 23, September 24,
2005 2004 2005 2004
------------- ------------ -------------- -------------
(dollar amounts in thousands)
Net (loss) income $ (1,598) $ (110) $ (1,388) $ 339
Basic weighted average shares outstanding 6,241,949 6,341,593 6,222,233 6,311,117
Basic net (loss) income per share $ (0.26) $ (0.02) $ (0.22) $ 0.05
Effect of dilutive securities:
Basic weighted average shares outstanding 6,241,949 6,341,593 6,222,233 6,311,117
Dilutive effect of stock options -- -- -- 185,681
------------ ----------- -------------- -----------
Dilutive weighted average shares outstanding 6,241,949 6,341,593 6,222,233 6,496,798
Diluted net (loss) income per share $ (0.26) $ (0.02) $ (0.22) $ 0.05
The dilutive weighted average shares outstanding do not include the
antidilutive impact of 96,433 shares for the three-month and 121,028 for
the six-month periods ended September 23, 2005, respectively, because the
exercise price of the stock options exceeds the average market value of the
stock in the periods presented. In addition, the dilutive weighted average
shares outstanding do not include the antidilutive impact of 226,647 shares
for the current quarter, and 222,209 shares for the six-month period, as a
result of net losses for these periods, respectively. The dilutive weighted
average shares outstanding do not include the antidilutive impact of 36,150
shares for the three and six months ended September 24, 2004, because the
exercise price of the stock options exceeded the average market value of
the stock for the periods presented. In addition, the dilutive weighted
average shares outstanding do not include the antidilutive impact of
193,053 shares for the year-ago quarter as a result of a net loss for this
period.
Note 7 Common Stock
Stock Repurchase Plan
In the fourth quarter of fiscal year 2002, the Board of Directors
authorized the company to purchase up to 500,000 shares of the company's
outstanding common stock. Purchases may be made from time-to-time in the
open market. During fiscal years 2002 and 2003, 165,905 shares of common
stock were repurchased at prices ranging from $9.03 to $11.87 for a total
cost of $1.7 million. We repurchased 106,700 shares of common stock at
prices ranging from $9.70 to $10.61 per share for a total cost of $1.1
million during fiscal year 2004. No shares of common stock were repurchased
during fiscal year 2005 or the first six months of fiscal year 2006. Future
purchases of 227,395 shares of common stock may be made at our discretion.
Stock options exercised totaled 8,112 and 66,522 for the three and six
months ended September 23, 2005, and 22,349 and 27,136 for the three and
six months ended September 24, 2004, respectively.
Cash Dividends
On June 15, 2005, the company paid a cash dividend of $0.07 per share, or
$0.5 million based on 6.5 million shares outstanding. On September 15,
2005, the company paid a cash dividend of $0.07 per share, or $0.4 million
based on 6.6 million shares outstanding.
10
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 Stock Incentive Plan
The 1994 Stock Incentive Plan expired in August 2005. As of September 23,
2005, there were 550,436 stock options outstanding that were previously
granted subject to the rights of that plan.
The company's shareholders approved the Printronix, Inc. 2005 Stock Option
Plan (the "2005 Plan") during the second quarter of fiscal 2006. The 2005
Plan authorizes the sale of up to a total of 600,000 shares of the
company's common stock pursuant to either of two types of "Stock Awards":
(1) stock options; and (2) shares of stock acquired pursuant to stock
purchase agreements containing certain restrictions ("restricted stock").
Individuals are granted options under the 2005 Plan at terms (purchase
price, expiration date and vesting schedule) established by a committee of
the Board of Directors. Options are granted either in accordance with
contractual arrangements or pursuant to the 2005 Plan at a price that is
approximately equal to fair market value on the date of grant. Such options
expire up to ten years after the grant date. Under restricted stock
purchase agreements, individuals purchase shares when the Stock Award is
granted; the shares are restricted as the rights to full beneficial
ownership vest only upon achievement of certain performance criteria.
During the first quarter of fiscal year 2005, the company reserved 56,722
and 310,000 shares under the 1994 Stock Incentive Plan for future issuance
as restricted stock. The 56,722 shares were reserved for future issuance to
the non-employee Board of Directors members and key employees. The company
granted restricted stock awards for 24,400 shares to certain employees in
July 2005. As of September 23, 2005, 24,400 of the 56,722 shares were
issued and outstanding. These shares granted are performance based and vest
only if the company achieves certain financial targets over a total of 6
fiscal years.
During the first quarter of fiscal year 2005, 290,000 of the 310,000
reserved shares were granted to certain officers of the company and other
employees. These shares granted are issued and outstanding and are
performance based and vest only if the company achieves certain financial
targets over a total of 6 fiscal years. In addition, 20,000 shares are not
issued or outstanding but may be purchased by an employee if the
performance criteria are met.
As of September 23, 2005, we have not met, nor are there any indications
that we will meet, any of the performance targets. Accordingly, no
compensation expense has been recorded as of September 23, 2005, for the
fiscal periods reported.
Note 9 Product Warranties and Guarantees
Product Warranties
We maintain an accrual for warranty obligations based upon an evaluation of
our claims experience. A provision for estimated warranty obligation is
charged to cost of sales when the product is sold. We evaluate our warranty
reserve requirements on a quarterly basis. Printronix offers either a
90-day on-site or a 12-month return-to-factory standard parts-and-labor
warranty on printer and verifier products to most customers. Defective
printers and verifiers can be returned to us for repairs or replacement in
the applicable warranty period at no cost to the customer. Supplies are
warranted for the shelf life of the products, which can be up to two years.
A summary of our accrued warranty obligation for the periods presented is
as follows:
Six Months Ended
-------------------------
September 23, September 24,
2005 2004
------------- -----------
(dollar amounts in thousands)
Beginning balance, warranty reserves $ 863 $ 1,033
Add warranty expense 544 482
Accrual adjustments to reflect actual
experience (8) (100)
Deduct warranty charges incurred (496) (527)
------------- -----------
Ending balance, warranty reserves $ 903 $ 888
============= ===========
11
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Guarantees
In the normal course of business to facilitate sales of its products, the
company may indemnify customers and hold them harmless against losses
arising from intellectual property infringement claims. The term of these
indemnification agreements is generally perpetual any time after execution
of the agreement subject to statute of limitations restrictions. The
maximum potential amount of future payments we could be required to make
under these agreements is unlimited. We have never incurred costs to defend
lawsuits or settle claims related to these indemnification agreements. As a
result, we believe the estimated fair value of these agreements is minimal
and have not recorded a liability for these agreements.
In addition, in connection with the standby letter of credit agreements
obtained for our workers' compensation insurance program, we have agreed to
indemnify the bank from any third party claims related to its performance
on our behalf. The term of this indemnification agreement extends beyond
the term of the standby letter of credit agreements. We believe the fair
value of this indemnification agreement is minimal and have not recorded a
liability for it.
Note 10 Commitments and Contingencies
Contractual Obligations and Commercial Commitments
We are obligated under certain borrowing and lease commitments. Additional
information on our borrowing obligations can be found in Note 4. There were
no material changes in our borrowing and operating lease agreements as of
September 23, 2005, from those reported in our Annual Report on Form 10-K.
Operating Leases
With the exception of Singapore, we conduct our foreign operations and
United States sales offices using leased facilities under non-cancelable
operating leases that expire at various dates from fiscal year 2006 through
fiscal year 2009. We own the building in Singapore and have a land lease
that expires in fiscal year 2057.
Environmental Assessment
Barranca Parkway Sites
In January 1994 and March 1996, we were notified by the California Regional
Water Quality Control Board -- Santa Ana Region (the "Board") that ground
under one of our former production plants and ground adjacent to property
previously occupied by us was thought to be contaminated with various
chlorinated volatile organic compounds ("VOCs"). Evidence adduced from site
studies undertaken to date indicates that compounds containing the VOCs
were not used by Printronix during its tenancy, but were used by the prior
tenant during its long-term occupancy of the site.
In August 2002, we responded to an inquiry from the California Department
of Toxic Substance Control (the "Department") regarding our operations at
the site of our former production plant. In February 2004, the Department
submitted a proposed Corrective Action Consent Agreement to Printronix,
which would require Printronix to perform an investigation of the site that
would be used as a basis to determine what, if any, remediation activities
would be required of Printronix. During fiscal year 2006, the Department
has agreed to include the prior tenant of the site in the ongoing inquiry.
We have agreed to perform an initial environmental test, which we believe
will further support our claim that we did not use the VOCs in question. We
are convinced that we bear no responsibility for any contamination at the
site and we intend to defend vigorously any action that might be brought
against us with respect thereto.
As of September 23, 2005, we maintained an accrual for $0.2 million,
included in accrued liabilities other, which we believe is a reasonable
estimate to cover any additional expenses for environmental tests the Board
may request.
Denova Site
In August 2004, Printronix was notified by the Environmental Protection
Agency (the "EPA") that clean up costs had been incurred at an authorized
facility used by Printronix and approximately 2,000 other companies for the
disposal of certain toxic wastes. Printronix joined with a group of the
companies contacted by the EPA and collectively negotiated a settlement
with the EPA in the second quarter of fiscal 2006. Our share of the
settlement was less than our estimated liability for $0.1 million. We
reduced our accrued liability of $0.1 million to $32 thousand to reflect
the settlement during the second quarter of fiscal year 2006.
12
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restriction of Hazardous Substance Directive ("RoHS")
"Directive 2002/95/EC on the restriction of the use of certain hazardous
substances in electrical and electronic equipment", will be enforced
throughout the European Community starting July 1, 2006.
RoHS restricts the use of six substances: lead, mercury, cadmium,
hexavalent chromium, polybrominated biphenyls (PBB) or polybrominated
diphenyl ethers (PBDE), within electrical and electronic equipment.
The company is reviewing each of its products for the substances banned
under RoHS, and expects to be compliant by the effective date. As of
September 23, 2005, there was no impairment to the company's products with
respect to RoHS.
Legal Matters
We are involved in various claims and legal matters in the ordinary course
of business. We do not believe that these matters will have a material
adverse effect upon our results of operations or financial condition.
Note 11 Other Comprehensive Income (Loss)
Other comprehensive income (loss) represents unrealized gains and losses on
our Euro foreign currency forward exchange contracts that qualify for hedge
accounting. The aggregate amount of such gains or losses that have not yet
been recognized in net (loss) income is reported in the equity portion of
the consolidated balance sheets as accumulated other comprehensive income
(loss).
Under our foreign currency-hedging program, we can enter into foreign
currency forward exchange contracts with maturities from 30 to 180 days
with a major financial institution. We do not use the contracts for
speculative or trading purposes. As of September 23, 2005, we had
outstanding forward exchange contracts with an aggregate notional amount of
(euro)2.3 million, approximately $2.8 million. Based on the fair value of
these contracts at September 23, 2005, we recorded a net asset of $0.1
million.
The following table reconciles net income to comprehensive income for the
fiscal periods presented:
Three Months Ended Six Months Ended
-------------------------- ----------------------------
September 23, September 24, September 23, September 24,
2005 2004 2005 2004
------------- ------------ -------------- -------------
(dollar amounts in thousands)
Net (loss) income $ (1,598) $ (110) $ (1,388) $ 339
Other comprehensive (loss) income, net of tax (101) (34) 23 (190)
------------- ----------- ------------ ------------
$ (1,699) $ (144) $ (1,365) $ 149
============= =========== ============ ============
Note 12 Segment and Customer Data
We manufacture and sell a variety of printers and associated products and
conduct business in a single operating segment.
Sales by Customer
Percent of total sales by customer for the fiscal periods presented were as
follows:
13
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended Six Months Ended
-------------------------- ----------------------------
September 23, September 24, September 23, September 24,
CUSTOMER 2005 2004 2005 2004
------------------------------------ ------------- ------------ -------------- -------------
(dollar amounts in thousands)
Largest customer - IBM 22.9% 21.7% 23.5% 21.7%
Second largest customer 8.2% 8.2% 8.2% 8.0%
Top ten customers 49.9% 50.8% 50.1% 51.4%
IBM accounted for 25 percent of our accounts receivable
balance as of September 23, 2005 and 23 percent at March
25, 2005.
Note 13 Income Taxes
We account for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes" ("SFAS 109"). SFAS 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
are determined based upon the difference between the financial statement
and tax bases of assets and liabilities using tax rates in effect for the
year in which the differences are expected to reverse.
We periodically review our deferred tax assets for realization based upon
historical taxable income; prudent and reasonable tax strategies, the
expected timing of the reversals of existing temporary differences and
future taxable income. We record a valuation allowance to reduce our
deferred tax asset to the amount management believes will be realized.
We have subsidiaries in various countries and are therefore subject to
varying income tax rates. We have a favorable pioneer tax status in
Singapore which exempts income generated from the manufacture and sale of
the Printronix P5000 Series line matrix and T5000 thermal products by our
Singapore subsidiary from income tax liability. The tax provision for the
three months ended September 23, 2005 consists of foreign tax expense of
$135 thousand. The tax provision for the six months ended September 23,
2005 includes $20 thousand in current state expense and $185 thousand in
foreign tax expense. A full valuation allowance is recorded against our
losses generated in the United States since it is more likely than not that
such assets will not be realized. The tax provision for the three and six
months ended September 24, 2004, reflects the tax provision of our foreign
operations and a full valuation allowance against net operating loss
carryforwards generated in the United States, and a tax charge on profits
from our Singapore subsidiary as at that time we had not been awarded the
pioneer tax status.
Congress passed the American Jobs Creation Act of 2004 on October 22, 2004
("the Act"). The Act contains numerous changes to existing tax laws
including, but not limited to, incentives to repatriate foreign accumulated
earnings and other international tax provisions regarding foreign tax
credits. We have not completed our evaluation of the effects of the Act and
have not reached a conclusion that it is probable that foreign earnings
will be repatriated, but would like to take advantage of this opportunity
if it is beneficial to the company. Therefore, as a result, we cannot
conclude what the associated tax effects may be and have not recorded any
such tax effects in our financial results for fiscal year 2006. The company
expects to complete its analysis of this repatriation incentive during
fiscal year 2006, after the expected issuance of additional regulatory
guidance.
Note 14 New Pronouncements
In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs - an Amendment of ARB 43, Chapter 4," ("SFAS
151"). SFAS 151 clarifies that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges and requires the allocation of fixed
production overheads to inventory be based on the normal capacity of the
production facilities. SFAS 151 is effective for fiscal years beginning
after June 15, 2005, and will be adopted by the company in the first
quarter of fiscal year 2007. The company is currently evaluating the
financial statement impact of the implementation of SFAS 151. We do not
expect the adoption of SFAS 151 to have a material impact on our
consolidated financial position or results of operations.
14
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2004, the FASB issued FASB Staff Position ("FSP") No. FAS
109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes,
to the Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004" ("FSP 109-1") and FSP No. FAS 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004" ("FSP 109-2").
Both FSP 109-1 and FSP 109-2 are effective upon issuance.
FSP 109-1 clarifies the application of SFAS 109 to this new Deduction for
Qualified Production Activities by stating the deduction should be
accounted for as a special deduction under SFAS 109, rather than as a
tax-rate deduction, and should be reported no earlier than the year in
which it is reported on the tax return. We believe it is probable that this
deduction will not be available to Printronix because of its existing
domestic net operating losses.
FSP 109-2 addresses the impact of the Act's one-time 85 percent dividends
received deduction for repatriated foreign earnings, provided they are
reinvested in the permitted uses specified in the Act. FSP No. 109-2 allows
companies additional time to determine whether any foreign earnings will be
repatriated under the Act and evaluate how the law affects whether
undistributed earnings continue to qualify for SFAS 109's exception from
recognizing deferred tax liabilities. The company has not yet completed its
evaluation of the repatriation provision (Note 13).
In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS 123, "Accounting for
Stock-Based Compensation," and supercedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123R requires that all share-based
payments to employees, including grants of stock options, be recognized in
the financial statements based on their fair value beginning with the first
interim or annual reporting period that begins after June 15, 2005. In
March 2005, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 107 ("SAB 107") regarding the SEC Staff's
interpretation of SFAS 123R and certain SEC rules and regulations and
provides interpretations of the valuation of share-based payments for
public companies. In April 2005, the SEC amended Regulation S-X to amend
the date for compliance with SFAS 123R beginning with the first interim or
annual period of the registrant's first fiscal year beginning on or after
June 15, 2005. Printronix will be required to adopt SFAS 123R and SAB 107
at the beginning of the first quarter of fiscal year 2007. We are currently
evaluating the requirements of SFAS 123R, including the determination of
the fair value method to measure compensation expense, the appropriate
assumptions to include in the fair market value model and the transition
method to use upon adoption. The company believes the adoption of SFAS 123R
may have a material unfavorable impact on its consolidated results of
operations and earnings per share.
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets - an Amendment of Accounting Principles Board Opinion No. 29 ("APB
29"), Accounting for Nonmonetary Transactions." The guidance in APB 29 is
based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The guidance in
APB 29, however, included certain exceptions to that principle. SFAS 153
amends APB 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the
exchange. The provisions of SFAS 153 are applicable for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of SFAS 153 did not have an impact on the company's consolidated
results of operations and financial condition.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 clarifies that
an entity must record a liability for a "conditional" asset retirement
obligation if the fair value of the obligation can be reasonably estimated.
The types of asset retirement obligations that are covered by this
interpretation are those for which an entity has a legal obligation to
perform an asset retirement activity; however, the timing and/or method of
settling the obligation are conditional on a future event that may or may
not be within the control of the entity. FIN 47 also clarifies when an
entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. The provisions of FIN 47 are
effective no later than the end of fiscal years ending after December 15,
2005, although early adoption is encouraged. FIN 47 is required to be
adopted by Printronix by the end of fiscal year 2006 and the company is
currently evaluating the provisions of this standard.
In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error
Corrections" which replaces Accounting Principles Board Opinions No. 20
15
PRINTRONIX, INC. and SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements -- An Amendment of APB Opinion No. 28." SFAS
154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective application, or
the latest practicable date, as the required method for reporting a change
in accounting principle and the reporting of a correction of an error. SFAS
154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. Printronix is required to
adopt SFAS 154 in the first quarter of fiscal 2007. Printronix is currently
evaluating the effect that the adoption of SFAS 154 will have on its
consolidated results of operations and financial condition but does not
expect it to have a material impact.
In June 2005, the FASB issued FSP No. FAS 143-1, "Accounting for Electronic
Equipment Waste Obligations" ("FSP FAS 143-1"), that provides guidance on
how commercial users and producers of electronic equipment should recognize
and measure asset retirement obligations associated with the European
Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the
"Directive"). The adoption of this statement in fiscal year 2006 did not
have a material effect on the company's consolidated financial statements.
As of the end of the current quarter, the majority of the EU-member
countries have transposed the Directive into country-specific laws. The
effect of applying FSP FAS 143-1 in the remaining countries in future
periods is not expected to have a material effect on the company's
consolidated financial statements
In June 2005, the FASB issued EITF 05-5, "Accounting for Early Retirement
or Postemployment Programs with Specific Features, (Such as Terms Specified
in Altersteilzeit Early Retirement Arrangements)". The Altersteilzeit
arrangement is an early retirement program in Germany designed to create an
incentive for employees, within a certain age group, to transition from
(full or part-time) employment into retirement before their legal
retirement age. The EITF is effective for fiscal years beginning after
December 15, 2005. The company believes the adoption of this EITF will have
no impact on the consolidated financial position, results of operations or
cash flow.
In September 2005, the FASB reached a final consensus on Emerging Issues
Task Force ("EITF") issue No. 04-13, "Accounting for Purchases and Sales of
Inventory with the Same Counterparty ("EITF 04-13"). EITF 04-13 concludes
that two or more leally separate exchange transactions with the same
counterparty should be combined and considered as a single arrangement for
purposes of applying APB Opinion No. 29. "Accounting for Nonmonetary
Transactions," when the transactions were entered into "in contemplation"
of one another. The consensus contains several indicators to be considered
in assessing whether two transactions are entered into in contemplation of
one another. If, based on consideration of the indicators and the substance
of the arrangement, two transactions are combined and considered a single
arrangement, an exchange of finished goods inventory for either raw
material or work-in-process should be accounted for at fair value. The
provisions of EITF 04-13 should be applied to transactions completed in
reporting periods beginning after March 15, 2005. There were no such
transactions for the periods reported.
16
PART I. FINANCIAL INFORMATION
PRINTRONIX, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
Except for historical information, this Form 10-Q contains "forward-looking
statements" about Printronix, within the meaning of the Private Securities
Litigation Reform Act of 1995. Terms such as "objectives," "believes,"
"expects," "plans," "intends," "should," "estimates," "anticipates,"
"forecasts," "projections," 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
peripheral 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; a worsening of the global economy
due to general conditions; a worsening of the global economy resulting from
terrorist attacks or risk of war; a worsening of the global economy
resulting from an outbreak of avian flu or other world health epidemic, or
from a resurgence of SARS (Severe Acute Respiratory Syndrome); the ability
of the company to maintain its production capability in its Singapore plant
or obtain product from its Asia Pacific suppliers should a resurgence of
SARS or other world health epidemic occur; the 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
adapt to changes in the requirements for radio frequency identification
("RFID") products by Wal-Mart and/or the Department of Defense (the "DOD")
and others; the ability of the company to attract and to retain key
personnel; the ability of the company's customers to achieve their sales
projections, upon which the company has in part based its sales and
marketing plans; the ability of the company to retain its customer base and
channel; the ability of the company to compete against alternate
technologies for applications in its markets; 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. The company does not undertake to publicly update or revise any of
its forward-looking statements, even if experience or new information shows
that the indicated results or events will not be realized.
Message from the President
The second fiscal quarter of fiscal year 2006 resulted in a net loss of
$0.26 per diluted share on sales of $29.0 million. This compares with a net
loss of $0.02 per share on sales of $31.8 million in the year ago quarter.
Second quarter sales were down mostly due to lower sales to the automotive
and general manufacturing industries in the United Kingdom, Germany and
France, and a lengthening of the sales cycle that resulted in sales not
closing as expected in the U.S. market. RFID revenue during the quarter was
$0.8 million compared with $0.9 million in the same quarter last year as
industry RFID deployment of Gen2 technology created some uncertainty in the
market. The loss in the second quarter was incurred due to the lower level
of sales, increasing expenses for Sarbanes-Oxley compliance and increased
sales expenses from a changeover of both our line matrix and thermal
product lines to entirely new models, which we expect to be completed in
our third fiscal quarter.
The most significant events of the second quarter were the introduction of
our new series of P7000 line matrix printers for both the Printronix and
IBM channels and the early shipment of new RFID solutions for our T5000r
thermal printers.
Taken together, line matrix printers and thermal printing solutions fulfill
user needs in industrial and supply chain printing. Operating in the same
user environments with compatible network management and printing
protocols, they fulfill applications such as label printing, transaction
documents and information reports. That is why Printronix and IBM are
focused on user requirements for industrial printers. In fiscal year 2005,
Printronix and IBM introduced a sales/marketing teaming program in the
United States that was effective in turning around the decline of line
matrix printer sales in the IBM channel as well as growing IBM thermal
printer sales. In fiscal year 2006, we are expanding this program to EMEA
(Europe, Middle East, and Africa), Canada, Latin America and Asia Pacific,
with the long-term goal of a strong global partnership in this important
channel to reach and support end users with printing solutions. This is
strengthening our largest channel to market.
17
RESULTS OF OPERATIONS
Revenue
Compared with the Prior Year Quarter - Overview
Consolidated revenue for the current quarter was $29.0 million, a decrease
of $2.8 million, or 9.0 percent, from the same period last year. We
attribute the decrease mostly to lower sales in Western Europe as a result
of continued slowing of the automotive and general manufacturing
industries, partly to lower sales in the Americas due to a lengthening of
the sales cycle that resulted in sales not closing as expected, and partly
to lower sales to a major direct account in the retail business. Thermal
printer sales decreased $0.9 million, or 14.6 percent, including a drop of
6.6 percent in RFID printer sales from the year ago quarter as the market
awaited final standards for Gen2 products. Changes in the value of the Euro
were favorable $0.2 million to revenue as compared with a favorable
increase to revenue of $0.3 million in the prior year quarter.
Sales by Geographic Region
Sales by geographic region, related percent changes and percent of total
sales for the second quarter of fiscal year 2006 and 2005 were as follows:
Three Months Ended Percent of Total Sales
--------------------------- ---------------------------
September 23, September 24, Percent September 23, September 24,
GEOGRAPHIC REGION 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ ------------- -------------
(dollar amounts in thousands)
Americas $ 14,032 $ 15,606 -10.1% 48.5% 49.0%
EMEA 9,375 10,806 -13.2% 32.4% 34.0%
Asia Pacific 5,551 5,396 2.9% 19.1% 17.0%
------------- ------------- ------------- -------------
$ 28,958 $ 31,808 100.0% 100.0%
============= ============= ============= =============
Americas sales decreased principally due to lower sales in the OEM and
distribution channels partly offset by increased sales to a new
distribution channel partner. EMEA sales were down from the year ago
quarter mostly due to lower sales in the distribution channel and lower
direct sales to a customer in the retail business, offset by increased OEM
sales. Asia Pacific sales increased principally due to higher OEM and
distribution channel sales.
Sales by Product Technology
Sales by product technology, related percent changes and percent of total
sales for the second quarter of fiscal year 2006 and 2005 were as follows:
Three Months Ended Percent of Total Sales
--------------------------- ----------------------------
September 23, September 24, Percent September 23, September 24,
PRODUCT TECHNOLOGY 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ -------------- -------------
(dollar amounts in thousands)
Line matrix $ 20,857 $ 22,140 -5.8% 72.0% 69.6%
Thermal* 5,054 5,917 -14.6% 17.5% 18.6%
Laser 2,661 3,212 -17.2% 9.2% 10.1%
Verification products 386 539 -28.4% 1.3% 1.7%
------------- ------------- -------------- -------------
$ 28,958 $ 31,808 100.0% 100.0%
============= ============= ============== =============
*RFID $ 792 $ 848 -6.6% 2.7% 2.7%
============= ============= ============ ============== =============
All product line sales decreased from the prior year. Thermal printer sales
decreased largely due to general slowness in the Western European economy,
along with decreased RFID printer sales, as customers deferred purchases
until Gen2 products are finalized. Laser printer revenues decreased in
Americas and EMEA for the reasons stated above.
18
Sales by Channel
Sales by channel, related percent changes, and percent of total sales for
the second quarter of fiscal year 2006 and 2005 were as follows:
Three Months Ended Percent of Total Sales
--------------------------- ---------------------------
September 23, September 24, Percent September 23, September 24,
CHANNEL 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ ------------- -------------
(dollar amounts in thousands)
OEM $ 8,201 $ 8,880 -7.6% 28.3% 27.9%
Distribution 19,362 21,226 -8.8% 66.9% 66.7%
Direct 1,395 1,702 -18.0% 4.8% 5.4%
------------- ------------- ------------- -------------
$ 28,958 $ 31,808 100.0% 100.0%
============= ============= ============= =============
Sales in all channels decreased in the current quarter from the same period
a year ago. Sales to IBM and other OEM customers decreased principally in
Americas, but were offset by increased sales to IBM in EMEA and Asia
Pacific. Distribution channel sales decreased mostly in EMEA. Decreases in
Americas distribution channel sales were partly offset by increased sales
from a new channel partner. Direct sales were down from $1.7 million in the
year ago quarter to $1.3 million this quarter. The change was entirely due
to lower sales to a major retailer in EMEA and Asia Pacific, partly offset
by higher Americas sales to this account.
Sales by Customer
Sales by customer, related percent changes and percent of total sales for
the second quarter of fiscal year 2006 and 2005 were as follows:
Three Months Ended Percent of Total Sales
--------------------------- ---------------------------
September 23, September 24, Percent September 23, September 24,
CUSTOMER 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ ------------- -------------
(dollar amounts in thousands)
Largest customer - IBM $ 6,630 $ 6,916 -4.1% 22.9% 21.7%
Second largest customer 2,375 2,619 -9.3% 8.2% 8.2%
Top ten customers 14,443 16,159 -10.6% 49.9% 50.8%
Sales to IBM in the Americas declined but were partly offset increases in
EMEA and Asia Pacific largely a result of expansion of our sales programs
into those regions in the current fiscal year. Lower sales to the second
largest and top ten customers are generally consistent with the overall
decrease in sales.
Recurring Revenue
Recurring revenue from the installed base was $12.8 million in the current
quarter, up slightly from $12.5 million a year ago. As a percentage of
sales, recurring revenue from the installed base increased to 44.2 percent
for the current quarter from 39.3 percent for the same quarter last year.
Recurring revenue includes line matrix ribbons, laser consumables, spares,
sales under the advance exchange program, printer maintenance and depot
repair services. We will continue to focus on this strategic growth
initiative by marketing to our installed based of customers and adding
channels to market.
Impact of the Euro
Changes in the value of the Euro were favorable $0.2 million to revenue in
the current quarter compared with a favorable impact of $0.3 million in the
prior year quarter.
Compared with the Prior Year to Date -- Overview
Consolidated revenue for the six-month periods ended September 23, 2005,
and September 24, 2004, were $60.7 million and $65.1 million, respectively.
19
Revenue decreased in the year-to-date period mostly due to lower sales in
Western Europe as a result of the continued slowing of the economy. Thermal
sales were relatively flat despite an increase of $0.7 million, or 72.3
percent, in RFID printer sales from the prior year period. Revenue from
laser printers decreased $1.1 million since the prior year. Year to date
revenue increased $0.3 million due to effects of changes in the value of
the Euro compared with increases of $1.1 million for the same periods a
year ago.
Year-to-date Sales by Geographic Region
Sales by geographic region, related percent changes and percent of total
sales for the six months ended September 23, 2005, and September 24, 2004,
are set forth in the following table:
Six Months Ended Percent of Total Sales
--------------------------- ---------------------------
September 23, September 24, Percent September 23, September 24,
GEOGRAPHIC REGION 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ ------------- -------------
(dollar amounts in thousands)
Americas $ 30,218 $ 30,523 -1.0% 49.7% 46.9%
EMEA 19,792 23,520 -15.9% 32.6% 36.1%
Asia Pacific 10,735 11,043 -2.8% 17.7% 17.0%
------------- ------------- ------------- -------------
$ 60,745 $ 65,086 100.0% 100.0%
============= ============= ============= =============
Americas sales were basically flat; increases in distribution and direct
sales were slightly less than the decrease in OEM channel sales. EMEA sales
were down from the year ago period mostly due to lower sales through the
distribution channel reflecting lower sales into Western Europe due to
continued slowing in the automotive and general manufacturing industries,
lower sales to a direct account, and lower OEM channel sales. Asia Pacific
sales decreased principally due to lower direct sales to an account in the
retail business, lower distribution channel sales, partly offset by
increased OEM sales.
Year-to-date Sales by Product Technology
Sales by product technology, related percent changes and percent of total
sales for the six months ended September 23, 2005, and September 24, 2004,
were as follows:
Six Months Ended Percent of Total Sales
--------------------------- ---------------------------
September 23, September 24, Percent September 23, September 24,
PRODUCT TECHNOLOGY 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ ------------- -------------
(dollar amounts in thousands)
Line matrix $ 43,062 $ 46,144 -6.7% 70.9% 70.9%
Thermal* 11,200 11,255 -0.5% 18.4% 17.3%
Laser 5,460 6,549 -16.6% 9.0% 10.1%
Verification products 1,023 1,138 -10.1% 1.7% 1.7%
------------- ------------- ------------- -------------
$ 60,745 $ 65,086 100.0% 100.0%
============= ============= ============= =============
*RFID $ 1,735 $ 1,007 72.3% 2.9% 1.5%
============= ============= ============ ============= =============
The decreases in sales for all products from the prior year resulted from
the previously stated reasons.
Year-to-date Sales by Channel
Sales by channel, related percent changes, and percent of total sales for
the six months ended September 23, 2005, and September 24, 2004, were as
follows:
20
Six Months Ended Percent of Total Sales
--------------------------- ---------------------------
September 23, September 24, Percent September 23, September 24,
CHANNEL 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ ------------- -------------
(dollar amounts in thousands)
OEM $ 17,693 $ 19,396 -8.8% 29.1% 29.8%
Distribution 40,186 41,485 -3.1% 66.2% 63.7%
Direct 2,866 4,205 -31.8% 4.7% 6.5%
------------- ------------- ------------ --------------
$ 60,745 $ 65,086 100.0% 100.0%
============= ============= ============ ==============
OEM sales decreased from the year ago period due to lower sales in Americas
and in EMEA, partly offset in EMEA by increased sales from IBM.
Distribution sales decreased from the year ago period primarily in EMEA as
a result of attrition in the channel partly offset by increases in the
Americas and Asia Pacific regions. Direct sales were down compared with the
same period a year ago primarily due to decreases in EMEA and Asia Pacific
sales to the same worldwide direct account in the retail business.
Year-to-date Sales by Customer
Sales by customer, related percent changes and percent of total sales for
the six months ended September 23, 2005, and September 24, 2004, were as
follows:
Six Months Ended Percent of Total Sales
-------------------------- ----------------------------
September 23, September 24, Percent September 23, September 24,
CUSTOMER 2005 2004 Change 2005 2004
------------------------------------ ------------- ------------- ------------ -------------- -------------
(dollar amounts in thousands)
Largest customer - IBM $ 14,270 $ 14,139 -0.9% 23.5% 21.7%
Second largest customer 4,971 5,203 -4.5% 8.2% 8.0%
Top ten customers 30,442 33,454 -9.0% 50.1% 51.4%
Sales to IBM were flat year over year as decreases in second quarter sales
in the current fiscal year offset gains in first quarter sales. Sales to
our second largest customer decreased slightly. Sales to our top ten
customers decreased principally from lower sales to a direct account in the
retail business in EMEA and Asia Pacific regions.
Year-to-date Recurring Revenue
Recurring revenue from the installed base was $25.2 million down slightly
from $25.4 million a year ago. As a percentage of sales, recurring revenue
from the installed base increased to 41.6 percent of total sales as a
result of lower sales in the current year, up from 39.1 percent a year ago.
Year-to-date Impact of the Euro on Revenue
Year-to-date revenue increased by $0.3 million from changes in the value of
the Euro compared with increases of $1.1 million for the same period a year
ago.
Gross Margin
Compared with the Prior Year Quarter
Gross margin for the current quarter was 37.3 percent, down slightly from
37.8 percent for the same quarter last year. Increases in margin resulted
from savings from cost-cutting initiatives but were offset by increased
costs due to lower volumes. Changes in the value of the Euro improved gross
margin by $0.2 million, or 0.6 percent, over the prior year quarter.
Compared with the Prior Year-to-date
Gross margin was 38.0 percent for the six-month period ended September 23,
2005, down slightly from 38.9 percent for the six-month period ended
September 24, 2004. The decrease from the prior year period was due to the
21
above-stated reasons. The impact of the Euro caused a $0.3 million
improvement, or 0.4 percent, in the gross margin over the prior
year-to-date period.
Operating Expenses
Compared with the Prior Year Quarter
Engineering and development, sales and marketing and general and
administrative expenses, related percent changes and percent of total sales
are as follows:
Three Months Ended Percent of Total Sales
--------------------------- ----------------------------
September 23, September 24, Percent September 23, September 24,
2005 2004 Change 2005 2004
------------- ------------- ------------ -------------- -------------
(dollar amounts in thousands)
Engineering and development $ 3,608 $ 3,916 -7.9% 12.5% 12.3%
Sales and marketing 6,115 5,903 3.6% 21.1% 18.6%
General and administrative 2,751 2,104 30.8% 9.5% 6.6%
------------- ------------- ------------- -------------- -------------
$ 12,474 $ 11,923 4.6% 43.1% 37.5%
============= ============= ============= ============== =============
Engineering and development expenses for the current quarter decreased due
to lower labor costs and cost containment initiatives offset by increased
expenses for product certification related to newly launched products.
Sales and marketing expenses for the current quarter increased compared
with the same period last year mainly due to a ramp up in expenses in the
current quarter attributable to P7000 launch programs, offset by decreased
advertising expenses.
General and administrative expenses for the current quarter increased
compared with the same period last year due primarily to $0.4 million
higher consulting and auditing costs associated with satisfying
Sarbanes-Oxley requirements and $0.2 million increased legal costs,
partially offset by $0.1 million lower provision for doubtful accounts.
Compared with the Prior Year-to-date
Engineering and development, sales and marketing and general and
administrative expenses, related percent changes and percent of total sales
are as follows:
Six Months Ended Percent of Total Sales
--------------------------- ---------------------------
September 23, September 24, Percent September 23, September 24,
2005 2004 Change 2005 2004
------------- ------------- ------------- ------------- -------------
(dollar amounts in thousands)
Engineering and development $ 7,476 $ 7,914 -5.5% 12.3% 12.2%
Sales and marketing 12,231 12,183 0.4% 20.1% 18.7%
General and administrative 5,001 4,287 16.7% 8.2% 6.6%
------------- ------------- ------------- ------------ --------------
$ 24,708 $ 24,384 1.3% 40.6% 37.5%
============= ============= ============= ============ ==============
Engineering and development expenses for the current period decreased for
the previously stated reasons.
Sales and marketing expenses remained flat year over year, as costs for
geographic expansion increased along with increased costs to launch new
products, offset by decreased advertising expenses.
General and administrative expenses for the current period increased
compared with the same period last year due primarily to $0.6 million
higher consulting and auditing costs associated with satisfying
Sarbanes-Oxley requirements and $0.1 million increased legal costs, partly
offset by a reduction of $0.4 million in the company's provision for
doubtful accounts during the first six months of fiscal 2006, as the
company resolved various issues related to customer accounts.
22
Foreign Currency (Gains) Losses, Net
Gains from foreign currency transactions and remeasurements were $24
thousand and $21 thousand for the quarters ended September 23, 2005 and
September 24, 2004, respectively. For the six months ended September 23,
2005, foreign currency transactions and remeasurements were gains of $83
thousand versus losses of $31 thousand a year ago. Changes in foreign
currency transactions and remeasurements for the three and six months ended
September 23, 2005, compared with the prior comparable periods were
principally due to the effect of changes in the value of the Euro.
Interest and Other (Income) Expense, Net
Interest income increased due to higher cash and short-term investment
balances and higher interest rates for both the three-month and six-month
periods of the current fiscal year, as set forth in the following table:
Three Months Ended Six Months Ended
--------------------------- ---------------------------
September 23, September 24, September 23, September 24,
2005 2004 2005 2004
------------- ------------- ------------- -------------
(dollar amounts in thousands)
Interest expense $ 175 $ 121 $ 330 $ 229
Interest income (359) (99) (646) (182)
Other (income) expense (17) 6 (30) (9)
------------- ------------ ------------- -------------
Interest and other (income expense, net $ (201) $ 28 $ (346)$ 38
============= ============ ============= =============
Income Taxes
We have subsidiaries in various countries and are therefore subject to
varying income tax rates. The tax provision for the three months ended
September 23, 2005, consists of foreign tax expense of $135 thousand. The
tax provision for the six months ended September 23, 2005, includes $20
thousand in current state expense and $185 thousand in foreign tax expense.
A full valuation allowance is recorded against our losses generated in the
United States since it is more likely than not that such assets will not be
realized. The tax provision for the three and six months ended September
24, 2004, reflects the tax provision of our foreign operations and a full
valuation allowance against net operating loss carryforwards generated in
the United States, and a tax charge on profits from our Singapore
subsidiary as at that time we had not been awarded an extension of the
pioneer tax status.
Congress passed the American Jobs Creation Act of 2004 on October 22, 2004
("the Act"). The Act contains numerous changes to existing tax laws
including, but not limited to, incentives to repatriate foreign accumulated
earnings and other international tax provisions regarding foreign tax
credits. We have not completed our evaluation of the effects of the Act and
have not reached a conclusion that it is probable that foreign earnings
will be repatriated, but would like to take advantage of this opportunity
if it is beneficial to the company. Therefore, as a result, we cannot
conclude what the associated tax effects may be and have not recorded any
such tax effects in our financial results for the first and second quarters
of fiscal year 2006. The company expects to complete its analysis of this
repatriation incentive during fiscal year 2006, after the expected issuance
of additional regulatory guidance.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity has historically been cash generated from
operations. We ended the quarter with cash, cash equivalents and short-term
investments of $42.6 million, a decrease of $2.3 million from the beginning
of the fiscal year. Approximately $0.8 million was provided by operations.
The major uses of funds for the period were capital expenditures totaling
$2.4 million, principally related to the purchase of new tooling and
equipment in connection with moving the hammerbank manufacturing process to
Singapore, and cash dividends declared and paid of $0.9 million.
A subsidiary of the company maintains unsecured lines of credit with major
foreign banks totaling $2.1 million. The company also maintains a credit
agreement in the amount of $2.4 million with a foreign bank to support its
hedging activities. The company has letters of credit related to its
workers' compensation program for $0.4 million, which renew automatically
and are secured by cash. During and as of the periods presented, no amounts
were borrowed under these agreements. The company also has a long-term
23
note, secured by its Irvine facility. This note has scheduled principal
repayments of $0.7 million annually through fiscal year 2007 and a balloon
payment of $12.6 million in fiscal year 2008. We ended the current fiscal
quarter with long-term debt of $13.1 million and $0.7 million for the
current portion on the note.
Under our stock buyback program, the remaining shares that can be
repurchased at the discretion of management totaled 227,395 shares at
September 23, 2005.
We do not anticipate any significant changes to our capital expenditure
needs in the foreseeable future, which we expect to fund from cash from
operations.
As of September 23, 2005, there have been no material changes in the
company's significant contractual obligations and commercial commitments as
disclosed in its Annual Report on Form 10-K.
If demand for our products decreased, there could be a risk that cash
provided from operations would diminish. We believe we could obtain bank
financing secured by collateral. However, we can offer no assurances that
such financing would be available on favorable terms, or at all. We believe
that our cash and cash equivalents and our internally generated funds are
sufficient to finance anticipated working capital, capital expenditure
requirements and cash dividend needs for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
The company's off-balance sheet arrangements consist of operating leases,
credit facilities and guarantees. There were no material changes in our
operating lease agreements as of September 23, 2005, from that reported in
our Annual Report on Form 10-K. Information regarding our credit facilities
can be found in the preceding section and in Note 5. We have not recorded a
liability for the fair value of the guarantees made by the company, as we
believe that value to be minimal.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare the consolidated financial statements of Printronix in
conformity with accounting principles generally accepted in the United
States of America. As such, we are required to make certain estimates,
judgments and assumptions that we believe are reasonable based upon the
information available to us at the time. These estimates and assumptions
affect the reported amounts of assets, liabilities, revenue, expenses, and
related disclosures of contingent assets and liabilities for the periods
presented. We continuously evaluate our estimates, judgments and
assumptions, including those related to product returns, customer programs
and incentives, doubtful accounts, inventories, warranty obligations,
intangible assets, other long-lived assets, income taxes, contingencies and
litigation. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the most critical accounting policies used to prepare the
accompanying consolidated financial statements are the following:
Revenue Recognition
We recognize revenue in accordance with various authoritative guidance
including, but not limited to, Staff Accounting Bulletin ("SAB") 104,
"Revenue Recognition." Revenue includes sales of printers, spare parts,
supplies and services, including maintenance contracts. Products and
services are separately priced and can be sold separately. However, when a
revenue arrangement contains multiple elements, Printronix allocates
revenue to each element based upon its relative fair value. Under our
standard terms and conditions of sale, revenue is generally recognized at
the time products are shipped to customers. The company reduces revenue for
estimated customer returns, price protection, rebates and other offerings
that occur under sales programs established by Printronix. Service revenue
is derived primarily from maintenance contracts sold separately to
customers and is deferred and recognized over the term of the contracts.
The application of the authoritative guidance requires judgment to
determine whether revenue has been realized or is realizable and earned.
Judgment is required to record provisions for future product returns,
customer programs and incentive offerings, including special pricing,
rebates or other programs. Judgment is also required to determine the
appropriate period to recognize previously deferred revenue related to
service agreements. Any significant change in estimates or circumstances
could have a material adverse impact upon our operating results for the
period or periods in which such information is known.
24
Allowance for Doubtful Accounts
We use judgment based upon historical experience, overall economic
conditions, and any specific customer collection issues we have identified
to determine our allowance for doubtful accounts. Although bad debt losses
historically have been within our expectations and the allowance we have
established, we cannot guarantee that we will continue to experience the
same bad debt loss rates that we have in the past. Any significant change
in estimates or circumstances could have a material adverse impact upon our
operating results for the period or periods in which such information is
known. Our accounts receivable balance includes substantial receivables
from a few large resellers, and a significant change in the liquidity or
financial position of any one of these resellers, or other significant
changes in estimates or circumstances with other customers, could result in
an additional allowance that could have a material adverse effect upon our
operating results and financial condition for the period or periods in
which such information is known.
Inventories
Each quarter, we record a provision to value our inventory at the lower of
the actual cost to purchase and/or manufacture the inventory using the
first-in, first-out method, or the current estimated market value of the
inventory, based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.
Estimated future demand could prove to be inaccurate, in which case the
company may experience product shortages, or may only be able to obtain the
necessary components at a higher cost. Conversely, an inaccurate estimate
of future demand may also result in additional charges for excess and
obsolete inventories. Unanticipated changes in demand or changes in
technology could have a material adverse effect upon our results of
operation and financial condition for the period or periods in which such
information is known.
Warranties
Our warranty program generally offers our customers the choice of either a
90-day on-site repair option or a 12-month return-to-factory option. The
90-day warranty covers the cost of the parts and the labor to replace said
parts. The 12-month warranty covers only the replacement parts. If a
defective product cannot be repaired, it is replaced at no additional cost
to the customer. We maintain an accrual for warranty obligations and
provisions for estimated warranty obligations are charged to cost of sales.
Each quarter, we determine the provision for warranty charges by applying
the estimated repair cost and estimated return rates to the outstanding
units under warranty. Although our warranty costs historically have been
within our expectations and the provisions we have established, we cannot
guarantee that we will continue to experience the same warranty return
rates or repair costs that we have in the past. A significant increase in
product failure rates, product return rates, or a significant increase in
the cost to repair our products, could have a material adverse impact upon
our operating results and financial condition in the period or periods in
which such information is known.
Long-Lived Assets
Long-lived assets are assessed in accordance with accounting guidance under
Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," ("SFAS 144").
Judgment is required in the application of the authoritative guidance and
in determining the recoverability of assets. Any major unanticipated change
in estimates or circumstances could have a material adverse effect upon the
recoverability of long-lived assets and upon our operating results and
financial condition.
Income Taxes
SFAS No. 109, "Accounting for Income Taxes" establishes financial
accounting and reporting standards for the effect of income taxes. Judgment
is required in assessing the future tax consequences of events that have
been recognized in our financial statements or tax returns. Judgment is
also required to determine if deferred tax assets will be realized and to
determine the expected timing of the reversals of existing temporary
differences. If the provision for income tax is inadequate or if we are
unable to realize deferred tax assets, or if the tax laws change
unfavorably, we could experience income tax charges in excess of the
reserves established. Likewise, if the provisions for current and deferred
taxes are in excess of those eventually needed, or if we are able to
realize additional deferred tax assets, or if tax laws change favorably, we
could experience reduced income tax charges or an actual tax benefit.
We have operations in multiple international taxing jurisdictions and are
subject to audit in those jurisdictions. These audits can involve complex
issues. While we believe we have made adequate provision for any such
25
issues, an unfavorable resolution of such issues could have a material
adverse effect upon our consolidated results of operations and financial
condition.
We have not completed the process of evaluating our position with respect
to the indefinite reinvestment of foreign earnings taking into account the
possible election of the repatriation provisions contained in the American
Jobs Creation Act of 2004. Accordingly, the company has not adjusted its
income tax expense or deferred tax liability to reflect the possible effect
of the new repatriation provision. Income tax expense, if any, related to
the possible election of the repatriation provision will be recorded in the
quarter when the company completes its evaluation and obtains the necessary
management and board approvals for action, if any.
The company has not adjusted its deferred tax assets and liabilities to
reflect the impact of the special deduction as discussed in Financial
Accounting Standards Board ("FASB") Staff Position ("FSP") No. FAS 109-1,
"Application on FASB Statement No. 109, Accounting for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the American
Jobs Creation Act of 2004." The impact of this deduction, if any, will be
reported in the period in which the deduction is claimed on its U.S.
federal income tax return. We believe it is probable that this deduction
will not be available to Printronix because of its existing domestic net
operating losses.
Contingencies
We account for contingencies in accordance with various accounting
guidance, including, but not limited to, SFAS No. 5 "Accounting for
Contingencies" and FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
the Indebtedness of Others," ("FIN 45"). Judgment is required to evaluate
the degree of probability of an unfavorable outcome and our ability to
reasonably estimate the loss related to legal claims, tax related audits,
guarantees, including indirect guarantees of the indebtedness of others,
and other known issues, and we will record a charge to earnings if
appropriate. Any significant change in estimates or circumstances could
have a material adverse impact upon our operating results for the period or
periods in which such information is known.
NEW ACCOUNTING STANDARDS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
Amendment of ARB 43, Chapter 4," ("SFAS 151"). SFAS 151 clarifies that
abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges
and requires the allocation of fixed production overheads to inventory be
based on the normal capacity of the production facilities. SFAS 151 is
effective for fiscal years beginning after June 15, 2005, and will be
adopted by the company in the first quarter of fiscal year 2007. The
company is currently evaluating the financial statement impact of the
implementation of SFAS 151. We do not expect the adoption of SFAS 151 to
have a material impact on our consolidated financial position or results of
operations.
In December 2004, the FASB issued FSP No. FAS 109-1, "Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act
of 2004" ("FSP 109-1") and FSP No. FAS 109-2, "Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004" ("FSP 109-2"). Both FSP 109-1 and FSP
109-2 are effective upon issuance.
FSP 109-1 clarifies the application of SFAS 109 to this new Deduction for
Qualified Production Activities by stating the deduction should be
accounted for as a special deduction under SFAS 109, rather than as a
tax-rate deduction, and should be reported no earlier than the year in
which it is reported on the tax return. We believe it is probable that this
deduction will not be available to Printronix because of our existing
domestic net operating losses.
FSP 109-2 addresses the impact of the Act's one-time 85 percent dividends
received deduction for repatriated foreign earnings, provided they are
reinvested in the permitted uses specified in the Act. FSP 109-2 allows
companies additional time to determine whether any foreign earnings will be
repatriated under the Act and evaluate how the law affects whether
undistributed earnings continue to qualify for SFAS 109's exception from
recognizing deferred tax liabilities. The company has not yet completed its
evaluation of the repatriation provision.
In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS 123, "Accounting for
Stock-Based Compensation," and supercedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123R requires that all share-based
26
payments to employees, including grants of stock options, be recognized in
the financial statements based on their fair value beginning with the first
interim or annual reporting period that begins after June 15, 2005. In
March 2005, the Securities and Exchange Commission ("SEC") issued SAB No.
107 ("SAB 107") regarding the SEC Staff's interpretation of SFAS 123R and
certain SEC rules and regulations and provides interpretations of the
valuation of share-based payments for public companies. In April 2005, the
SEC amended Regulation S-X to amend the date for compliance with SFAS 123R
beginning with the first interim or annual period of the registrant's first
fiscal year beginning on or after June 15, 2005. Printronix will be
required to adopt SFAS 123R and SAB 107 at the beginning of the first
quarter of fiscal year 2007. We are currently evaluating the requirements
of SFAS 123R, including the determination of the fair value method to
measure compensation expense, the appropriate assumptions to include in the
fair market value model and the transition method to use upon adoption. The
company believes the adoption of SFAS 123R may have a material unfavorable
impact on its consolidated results of operations and earnings per share.
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary
Assets - an Amendment of Accounting Principles Board Opinion No. 29 ("APB
29"), Accounting for Nonmonetary Transactions." The guidance in APB 29 is
based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The guidance in
APB 29, however, included certain exceptions to that principle. SFAS 153
amends APB 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the
exchange. The provisions of SFAS 153 are applicable for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of SFAS 153 did not have an impact on the company's consolidated
results of operations and financial condition.
In March 2005, the FASB issued FIN No. 47, "Accounting for Conditional
Asset Retirement Obligations" ("FIN 47"). FIN 47 clarifies that an entity
must record a liability for a "conditional" asset retirement obligation if
the fair value of the obligation can be reasonably estimated. The types of
asset retirement obligations that are covered by this interpretation are
those for which an entity has a legal obligation to perform an asset
retirement activity; however, the timing and/or method of settling the
obligation are conditional on a future event that may or may not be within
the control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. The provisions of FIN 47 are effective no later than
the end of fiscal years ending after December 15, 2005, although early
adoption is encouraged. FIN 47 is required to be adopted by Printronix by
the end of fiscal year 2006 and the company is currently evaluating the
provisions of this standard, but does not expect it to have a material
impact.
In May 2005, the FASB issued SFAS No.154, "Accounting Changes and Error
Corrections" which replaces Accounting Principles Board Opinions No. 20
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements--An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes
and error corrections. It establishes retrospective application, or the
latest practicable date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an error. SFAS
154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005, and is required to be
adopted by Printronix in the first quarter of fiscal 2007. Printronix is
currently evaluating the effect that the adoption of SFAS 154 will have on
its consolidated results of operations and financial condition but does not
expect it to have a material impact.
In June 2005, the FASB issued FSP No. FAS 143-1, "Accounting for Electronic
Equipment Waste Obligations" ("FSP FAS 143-1"), that provides guidance on
how commercial users and producers of electronic equipment should recognize
and measure asset retirement obligations associated with the European
Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the
"Directive"). The adoption of this statement in fiscal year 2006 did not
have a material effect on the company's consolidated financial statements.
As of the end of the current quarter, the majority of the EU-member
countries have transposed the Directive into country-specific laws. The
effect of applying FSP FAS 143-1 in the remaining countries in future
periods is not expected to have a material effect on the company's
consolidated financial statements.
27
In June 2005, the FASB issued EITF 05-5, "Accounting for Early Retirement
or Postemployment Programs with Specific Features, (Such as Terms Specified
in Altersteilzeit Early Retirement Arrangements)". The Altersteilzeit
arrangement is an early retirement program in Germany designed to create an
incentive for employees, within a certain age group, to transition from
(full or part-time) employment into retirement before their legal
retirement age. The EITF is effective for fiscal years beginning after
December 15, 2005. The company believes the adoption of this EITF will have
no impact on the consolidated financial position, results of operations or
cash flow.
In September 2005, the FASB reached a final consensus on Emerging Issues
Task Force ("EITF") issue No. 04-13, "Accounting for Purchases and Sales of
Inventory with the Same Counterparty ("EITF 04-13"). EITF 04-13 concludes
that two or more leally separate exchange transactions with the same
counterparty should be combined and considered as a single arrangement for
purposes of applying APB Opinion No. 29. "Accounting for Nonmonetary
Transactions," when the transactions were entered into "in contemplation"
of one another. The consensus contains several indicators to be considered
in assessing whether two transactions are entered into in contemplation of
one another. If, based on consideration of the indicators and the substance
of the arrangement, two transactions are combined and considered a single
arrangement, an exchange of finished goods inventory for either raw
material or work-in-process should be accounted for at fair value. The
provisions of EITF 04-13 should be applied to transactions completed in
reporting periods beginning after March 15, 2005. There were no such
transactions for the periods reported.
FACTORS THAT MAY AFFECT FUTURE RESULTS
There can be no assurance that future developments affecting the company
will be those anticipated by management, and there are a number of factors
that could adversely affect the company's future operating results or cause
the company's actual results to differ materially from the estimates or
expectations reflected in forward-looking statements, including without
limitation, the factors set forth below:
We Operate in an Industry Influenced by Worldwide Capital Spending.
Our products are used for mission-critical applications in industrial
settings such as manufacturing plants and distribution centers and also in
information technology and back office operations. Our revenue is impacted
by the worldwide level of spending for capital expenditures related to
manufacturing plant expansion or refurbishment. In addition, the level of
activity in the worldwide supply-chain processes impacts our revenue.
We Operate in an Industry Affected by Competing Technologies.
The industrial printing market utilizes varying technologies including line
matrix, thermal transfer, laser, inkjet, and serial technologies. Across
all technologies, the printers are characterized as high-, medium- or
low-end depending upon their range of features, including functionality and
durability. Products made by Printronix utilize line matrix, high-end
thermal transfer and high-end laser printing technologies.
We cannot offer assurance that we can successfully develop the needed
products and compete against current competitors or future competitors for
mid-range thermal and laser printers. Even if we are able to maintain or
increase market share for a product, line matrix in particular, revenue
could still decline as the market for the product matures.
We Operate in an Industry Characterized by Technological Change and
Evolving Industry Standards.
The printing-solutions industry is extremely competitive and is
characterized by technological change, frequent new product developments,
periodic product obsolescence, evolving industry standards, particularly
for RFID, changing information technologies and evolving
distribution channels. We must adapt quickly to changing technological,
application and solutions needs, and the introduction of new technologies
and products offering improved features and functionality. We could incur
substantial cost to keep pace with the technological changes, and may not
be able to adapt to these changes.
Although we believe that we currently compete favorably with respect to
these characteristics, this may change in the future. Our future success
largely depends upon our ability to continuously develop new products with
the quality levels that customers demand, and to develop new services and
solutions. We spend a greater amount on research and development than the
industry average because we believe that providing innovative products and
solutions is important to our future operations. In spite of our efforts,
we may fail to develop new products. Additionally, the new products we
develop may not achieve market acceptance or may not be manufactured at
competitive costs or in sufficient volumes. If we cannot proportionately
decrease our cost structure in a timely manner in response to competitive
pressures, our consolidated results of operations could be affected. We
cannot guarantee the success of our research and development efforts.
Any delay in the development, production or marketing of a new RFID product
could result in our not being the first to market, which could harm our
competitive position. We must adapt quickly to changes mandated by the RFID
industry standard setting group, EPC Global, and customers to maintain
market share in this growing opportunity.
Our failure to enhance our existing products, services and solutions or to
develop and introduce new products, services and solutions that meet
changing customer requirements and evolving technological standards would
adversely impact our ability to sell our products.
28
We Operate in a Highly Competitive Market.
The market for medium- and high-speed computer printers, printer/encoders
and the related post-sale supplies is highly competitive, subject to
change, and is likely to become even more competitive.
We compete directly with several companies of various sizes, including some
of the largest businesses in the United States and Japan. Our competitors
include privately held companies, publicly held companies and subsidiaries
of multinational corporations. Some of our competitors may enter into
strategic business relationships with other companies. We cannot offer
assurance that we can successfully compete against these current
competitors or future competitors.
Some competitors have significantly greater financial, technical,
manufacturing, sales, marketing and other resources than we do and have
achieved greater name recognition for their products and technologies than
we have. We may not be able to successfully increase our market penetration
or our overall share of the printer market.
Increased competition may result in price reductions, increased sales
incentive offerings, lower gross margins, and loss of market share and
could require increased investment in inventory, research and development,
sales expenses, marketing programs and expenditures to expand channels to
market. Our competitors may offer products with superior market acceptance,
superior price or superior performance. The company may be adversely
affected if we are unable to maintain current product cost reductions, or
achieve future product cost reductions, including warranty costs.
Customers may defer their purchasing decisions in anticipation of the
introduction of new products or the actual introduction of new products by
the company or its competitors.
If we fail to address our competitive challenges, there could be a material
adverse effect upon our business, consolidated results of operations and
financial condition.
We Compete in the Rapidly Evolving Market for RFID for the Supply-Chain.
We cannot guarantee that we can successfully compete against competitors in
the RFID market, nor can we provide assurances that we will be successful
in maintaining our market leadership or improving our market share.
While we believe the interest in RFID remains high, we can offer no
assurance that the speed of RFID deployment will increase.
Standards for the emerging EPC RFID market are beginning to formulate.
EPCglobal has issued a Generation 2 standard and products are beginning to
come to market in accordance with this standard. Although Printronix has
taken an early leadership role in introducing a Gen2 printer with an EPC
certified Gen2 RFID encoder, we cannot guarantee that we can successfully
comply with all aspects of these evolving EPC standards. While we continue
to focus intently on RFID technology leadership, we also cannot guarantee
that we will continue to develop such products or that we will address user
needs effectively in an industry characterized by rapid technological
change.
We have entered into several key strategic alliances with the leaders in
RFID labels, software and integration services. We cannot guarantee that
these strategic alliances will all be continued or successful.
We Rely on Resellers to Sell Our Products and Services.
We use a variety of distribution channels, including OEMs and distributors,
to get most of our products to market. We may be adversely impacted by any
conflicts that could arise between and among our sales channels.
We believe that our future success depends upon our ability to provide
industrial-strength printing solutions to a broader customer base and to
maintain good relationships with our major OEMs and distributors. We
believe that continued purchase of our products by OEMs is dependent upon
many factors, including OEMs' desire to use outside suppliers rather than
investing the capital resources necessary to develop their own products.
Our dependence upon a small number of major resellers exposes us to
numerous risks, including:
o channel conflicts;
29
o loss of channel and the ability to bring our products to market;
o concentration of credit risk, including disruption in
distribution should our resellers' financial condition
deteriorate;
o reduced visibility to end user demand and pricing issues, which
makes forecasting more difficult;
o resellers leveraging their buying power to change the terms of
pricing, payment and product delivery schedules; and
o direct competition should a reseller decide to manufacture
printers internally.
We cannot guarantee that resellers will not reduce, delay or eliminate
purchases from us, which could have a material adverse effect upon our
business, consolidated results of operations and financial condition. The
loss of any one of these resellers would have a material adverse effect
upon our business, consolidated results of operations and financial
condition.
We Operate in an Environment of Unpredictable Demand.
We rely upon our ability to successfully manage our worldwide inventory
supply-chain and inventory levels to support uncertain demand in a
cost-effective manner.
Our sales to resellers are made under purchase orders that typically have
short delivery requirements. Although we receive periodic order forecasts
from our major reseller, they have no obligation to purchase the forecasted
amounts and may cancel orders, change delivery schedules or change the mix
of products ordered with minimal notice. Significant increases in demand
could result in inventory shortages, higher costs to obtain expedited
materials and components, higher costs to expedite shipment to our
customers, and/or lost revenue opportunities. Significant decreases in
demand could result in increased inventory levels, higher production costs,
higher material and component procurement costs and reduced profitability.
Our quarterly sales patterns have historically reflected a slightly higher
than normal level of sales in the last few weeks of each quarter, making
forecasting more difficult. In addition, seasonality in sales also affects
our business to some degree. Typically sales are low in the EMEA region
during the summer months as the region generally takes extended holidays.
Sales are also typically higher in our third fiscal quarter, which ends in
December, as many of our customers are on a calendar year. We cannot
guarantee that these trends will continue.
We Have International Customers, Suppliers and Operations.
Our products are sold in eighty countries around the world that subjects us
to risks that may be unique to a particular country, but also to risk
factors that may affect the global economy.
Our products are manufactured using raw materials and components that are
acquired from sources around the world. We use a large number of suppliers
and regularly evaluate the availability of potential alternate suppliers
should circumstances change with existing suppliers. We rely on a single or
limited number of sources for certain raw materials and components,
although we attempt to have alternate sources where possible. We internally
develop most of the software used in our printer products. Certain software
is purchased from suppliers through royalty agreements. If we were to
experience a sudden loss of availability of purchased raw materials and
components or purchased software, we are unable to guarantee that we could
quickly obtain the needed items from alternate sources. Our ability to ship
our products in desired quantities and in a timely, cost-effective manner
could be adversely affected, thus affecting our business, consolidated
results of operations and financial condition.
We rely heavily upon our international facilities to maintain appropriate
inventory levels, manufacture products, and complete configuration of
printers in a timely and cost-efficient manner. Should we fail to
successfully predict demand, we may not have sufficient inventory levels
available to address customer requirements, or may need to use costly
distribution methods, such as air freighting, to meet sales requirements.
There are many risks associated with international customers, suppliers and
operations, including, but not limited to, the following:
o compliance with multiple and potentially conflicting regulations,
including export requirements, tariffs, import duties, health and
safety requirements and other barriers;
30
o fluctuations in freight and duty costs and disruptions at
important geographic points of exit and entry;
o differences in intellectual property protection;
o differences in technology standards or customer requirements;
o the possibility of defective parts from suppliers;
o difficulties associated with repatriating cash generated or held
abroad in a tax-efficient manner and changes in tax laws;
o currency fluctuations and restrictions on currency movements;
o economic instability, including inflation, recession and interest
rate fluctuations;
o longer accounts receivable cycles and financial instability;
o local labor regulations;
o trade protection measures and regulations;
o risk of loss of our international assets due to political or
economic instability;
o political or civil turmoil;
o war or conflict abroad or in the United States;
o difficulties associated with environmental regulations under
various federal, state, and international laws, including
restrictions imposed in the European Union, the Restriction of
Hazardous Substance Directive ("RoHS") and European Union Waste
Electrical and Electronic Equipment Directive ("WEEE") which
makes producers of electrical goods, including computers and
printers, responsible for collection, recycling, treatment and
disposal of recovered products, and other similar legislation,
including similar legislation currently proposed for China;
o natural disasters, such as earthquakes, floods, tsunamis and
typhoons;
o consequences resulting from our armed military conflict in Iraq;
o terrorist attacks or other armed hostilities abroad or in the
United States and
o outbreaks of infectious disease such as avian flu, Severe Acute
Respiratory Syndrome (SARS) or other public health issues.
We are substantially self-insured for losses and business interruptions
stemming from terrorist attacks, armed conflicts, war, power shortages and
natural disasters. California and other parts of the United States have
experienced major power shortages and blackouts and could experience them
in the future, which could disrupt our business or that of our suppliers or
customers. Our corporate headquarters and research and development
activities are located in California, near known earthquake faults. It is
impossible to predict the ultimate impact on us, but our business,
consolidated results of operations and financial condition could suffer in
the event of a major earthquake.
We could incur substantial costs, including clean up costs, fines,
sanctions, property damage claims and personal injury claims, if we were to
violate or become liable under environmental laws or if our products become
non-compliant with environmental laws.
The company operates in many countries with differing and sometimes
conflicting income tax requirements. The company's effective tax rate could
be adversely affected by:
o overlapping or differing tax laws;
o changes in the mix of earnings in countries with differing income
tax rates and
o unfavorable outcomes of future audits by taxing authorities in
various jurisdictions.
In particular, the realization of deferred tax assets, which are
predominately in the Unites States, depends on our ability to generate
future taxable income in the United States. Further, our effective tax rate
may be impacted if we elect to repatriate cash held outside the United
States under the terms outlined in the American Jobs Creation Act of 2004.
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Failure to manage the risks posed by our international customers, suppliers
and operations could have a material adverse effect upon our business,
consolidated results of operations and financial condition.
We Depend on Our Ability to Attract and Retain Key Personnel and Future
Changes in Equity Compensation Accounting Could Adversely Affect Earnings.
The ability to attract and to retain key, highly qualified personnel, both
technical and managerial, is critical to our success.
Developing, manufacturing and marketing our products are complex processes
and require significant expertise to meet customers' specifications.
Competition for personnel, particularly qualified engineers and employees
with expertise in RFID applications, is keen. The loss of a significant
number of key personnel, as well as the failure to recruit and train
additional key personnel in a timely manner could have a material adverse
effect upon our business, consolidated results of operations and financial
condition.
In the future, the company will be required to record a charge to earnings
for employee stock option grants. As a result, we may incur increased
compensation costs and may need to change our equity compensation
structure, and find it difficult to attract, retain and motivate employees,
all of which could impact our business.
Intellectual Property is Important to Our Success.
We rely upon patents to protect our intellectual property. We execute
confidentiality and non-disclosure agreements as needed and limit access
to, and distribution of, our proprietary information; however, we cannot
guarantee that our efforts to protect our intellectual property will be
successful.
Our ability to compete successfully and to achieve future revenue growth
depends, in part, upon our ability to protect our proprietary technology
and to operate without infringing upon the rights of others. We may fail to
do so. Such infringement claims, whether or not valid, could result in
substantial costs, diversion of management's attention and resources from
our ongoing business. Claims of intellectual property infringement also
might require us to redesign products, enter into costly settlement or
licensing agreements or pay costly damage awards. Even if we have an
agreement to indemnify us against such costs, the indemnifying party may be
unable to uphold its contractual agreement to us.
A third party may assert that we, or customers indemnified by us, violate
their intellectual property. A third party claiming infringement also may
obtain an injunction or other equitable relief, which effectively could
block the distribution or sale of allegedly infringing products. The
departure of any of our key management and technical personnel, or breach
of non-disclosure obligations, or the failure to achieve our intellectual
property objectives may have a material adverse effect upon our business,
consolidated results of operations and financial condition.
Our Stock Price is Volatile.
Our stock price has fluctuated and we expect that it will continue to do
so. Many factors can influence our stock price, including but not limited
to:
o the announcement of new products or innovations by us or our
competitors;
o changes in the levels of quarterly revenue or net income; and
o speculation in the press or investment community about the
company, in particular as it relates to RFID.
Investors should not rely on recent trends to predict future stock prices,
consolidated financial condition, or results of operations or cash flows.
32
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PRINTRONIX, INC. AND SUBSIDIARIES
MARKET RISK
The company operates on a global basis and may be impacted by foreign
currency exchange rate fluctuations, principally related to the Euro and
the Singapore dollar. We have a foreign currency-hedging program to
mitigate currency rate fluctuation exposure related to foreign currency
cash inflows. Under the program, we may enter into foreign currency forward
exchange contracts with maturities from 30 to 180 days with a major
financial institution. We do not use the contracts for speculative or
trading purposes. As of September 23, 2005, we had outstanding forward
exchange contracts with a notional amount of (euro)2.3 million,
approximately $2.8 million. Based on the fair value of these contracts at
September 23, 2005, we recorded a net asset of $0.1 million.
We have financial instruments that are subject to interest rate risk,
principally debt obligations. Long-term borrowings, consisting of a
long-term note collateralized by our Irvine facility, are at variable rates
based on London Interbank Offered Rate ("LIBOR"), and are reset at our
discretion for periods not exceeding one year. The weighted average
interest rate on the note was 5.0 percent, and 4.7 percent, respectively,
for the quarter and six months ended September 23, 2005. If interest rates
were to increase by 10 percent (51 basis points on the $13.8 million note),
the impact on our pre-tax earnings would not be material.
33
PART I. FINANCIAL INFORMATION
Item 4. Controls and Procedures
PRINTRONIX, INC. AND SUBSIDIARIES
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our principal executive officer and principal accounting and
financial officer, we conducted an evaluation of our disclosure controls
and procedures, as such term is defined in Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended, as of the end of the
fiscal quarter covered by this quarterly report on Form 10-Q. Based on
their evaluation, our principal executive officer and principal accounting
and financial officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information required to
be included in our periodic reports filed with the Securities and Exchange
Commission. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions,
regardless of how remote.
There have been no significant changes, including corrective actions with
regard to significant deficiencies or material weaknesses, in our internal
controls or in other factors that could significantly affect these controls
during the fiscal quarter covered by this report or subsequent to the date
of the evaluation referenced in the paragraph above.
34
PART II. OTHER INFORMATION
PRINTRONIX, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
See "Item 3. Legal Proceedings" reported in Part 1 of our Annual Report
on Form 10-K for the fiscal year ended March 25, 2005.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the company was held August 16,
2005, at which five persons, constituting the entire board of
directors, were elected to serve until the next annual meeting of
stockholders. The names of the persons elected as directors are as
follows:
Shares For Shares Withheld
----------- ---------------
Robert A. Kleist 5,777,814 353,624
Bruce T. Coleman 5,755,391 376,047
John R. Dougery 5,590,714 540,724
Chris W. Halliwell 5,749,716 381,722
Erwin A. Kelen 5,720,752 410,686
The stockholders also approved the Printronix, Inc. 2005 Stock Option
Plan as 4,442,799 shares voted for the Plan and 1,688,639 shares
withheld.
Item 6. Exhibits
31.1 Certification Pursuant to Rule 13a-14(a) and15d-14 (a), As
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to Rule 13a-14(a) and15d-14 (a), As
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
35
PRINTRONIX, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTRONIX, INC.
----------------
(Registrant)
Date: November 7, 2005 By: /s/ George L. Harwood
---------------- ---------------------
George L. Harwood
Senior Vice President, Finance and
Information Systems (IS), Chief Financial
Officer and Corporate Secretary (Principal
Accounting and Financial Officer)
36