ITEM 1. BUSINESS
Certain geographic information for Item 1 is contained in the Company's 1997 Annual Report to Stockholders on page 22, which information is incorporated herein by reference (and except for that page, the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997 is not deemed filed as part of this report).
GENERAL
Printronix, Inc. designs, manufactures, and markets medium and high speed printers used on a wide range of computer systems and associated networks. Printronix printers produce "hard copy" output using line matrix, laser and thermal printing technologies. The Company's products are designed primarily for business and industrial applications where performance and reliability are paramount. All of the Company's printers have extensive graphics capabilities allowing them to support most popular graphics languages while printing most output types such as text, reports, tabular data, computer graphics, bar codes, forms, labels, logos, etc.
Printronix, Inc. was incorporated in California in 1974 and was reincorporated in Delaware in December 1986. Unless the context otherwise requires, the terms "Company" and "Printronix" refer to Printronix, Inc. and its consolidated subsidiaries.
COMPUTER PRINTERS
Computer printers are output devices that use electromechanical techniques to convert digitized information sent from a host computer to printed form. The printed output produced can then be read by humans and/or machines, depending upon the format of the output. Such devices can print on paper and other substances, such as card stock or mylar, by means of impact or non-impact technologies.
Impact printers are generally classified as being either text or graphics printers and as either serial or line printers. Text printers print a predetermined set of fully formed characters. Graphics printers print dots anywhere on the paper and are used for text and graphics applications. Serial printers print one character at a time and line printers print one line at a time. Impact printers can print both single-part and multi-part forms.
Graphic printers form characters by printing dots in combinations of patterns. Such printers are called dot matrix or line matrix printers. Dot matrix or serial matrix printers create characters one at a time in horizontal sweeps across the page. Printronix manufactures line matrix printers, which print a complete line of dots, thus combining the flexibility of the matrix printing technique with the reliability and durability of a line printer.
Non-impact printers print on paper by means of thermal, electrostatic, inkjet, laser, LED, and other techniques that deliver high resolution printed output for letter quality and graphics applications, but print only single-part forms.
TECHNOLOGY
Printronix products include line matrix printers, laser printers and thermal printers. This product line is unified by a common printer controller architecture called PSA(TM), Printronix System Architecture. This architecture permits all three printing technologies to be application compatible by supporting common graphics languages and computer host communication protocols.
LINE MATRIX PRINTERS --------------------
The newest Printronix line matrix printers, the ProLine Series 5, operate at 500, 800, 1200, and 1400 lines per minute as summarized on the following page. The older models, MVP, P3000 series, P6000 series, P4000 series and P9000 series have been phased out of production.
Printing is accomplished as the hammer bank shuttles a small distance back and forth, enabling the hammers to place dots anywhere along a row across the paper. Successive dot rows are produced by the paper advancing while the hammer bank reverses for printing the next dot row. Dots overlap horizontally and vertically to produce graphics as well as alphanumeric characters.
The dot placement of Printronix line matrix printers is very precise, permitting accurate character alignment. The combination of precise dot placement anywhere on the page and the use of overlapping dots rather than fully formed characters enables Printronix printers, under computer control, to produce graphic output. Another key feature of the line matrix technology is that hammer energy is optimized to print dots only, resulting in improved print quality on multi-part forms.
LASER PRINTERS --------------
The Company's laser printers create images on paper electrographically like a copier machine. The image is fixed to the paper with toner in the same manner as copiers. The intelligent controllers that are designed by the Company are integrated with print engines purchased from outside suppliers. Both models are available with optional power stackers.
THERMAL PRINTERS ----------------
The Company's thermal printers create images on paper by heating thermal sensitive media. The image is created either by heating an ink-based ribbon which transfers its ink to the paper label material (transfer) or by heating paper label material in which the thermally sensitive ink is already impregnated (direct). This type of printer is especially useful in "on-demand" label applications. These models use print engines purchased from outside suppliers and are integrated with Printronix System Architecture, (PSA).
PRODUCTS
Line matrix models include the new ProLine Series 5(TM) family with speeds ranging from 500 to 1400 lines per minute. The new ProLine Series models were introduced in fiscal 1996 and replace the Company's previous generation models in the MVP, P3000, P4000, P6000, and P9000 series. The Company started shipping two new ProLine models in March 1997, just 18 months after the ProLine family was introduced. We upgraded the 475 line per minute model to 500 lines per minute for the same list price. The second model was a 1,400 line per minute model with a power stacker. Applications for line matrix printers include reports, multi-part forms, bar codes, labels and program listings.
The L5031 continuous form laser printer operates at up to 31 pages per minute. The L5031 has a unique flash fusing process, known as DuraFusion(TM), which produces output of exceptional durability and quality. Unlike other laser printers, the L5031 can print on a wide variety of media including synthetics and plastic cards. The L5031's wide carriage, duty cycle and durability of the output makes it particularly well suited for high volume utility type billing and labeling applications.
The L1024 continuous form laser printer operates at up to 24 pages per minute. Utilizing the more conventional heat/pressure fusing process, the L1024, with its 8-1/2 inch wide carriage and more modest duty cycle, is primarily used for medium volume billing and labeling applications.
The new ThermaLine(TM) family of thermal printers is dedicated to bar code/label printing applications. Ranging in print width from 4.1 to 8.5 inches and in speed from 10 to 5 inches per second, ThermaLine printers address a wide range of label printing applications in the manufacturing, distribution, retail and healthcare sectors.
The Company's ProLine Series 5, LaserLine and ThermaLine printers employ the Printronix System Architecture (PSA)(TM) design which provides software compatibility among its printer families. All of the Company's printers support Printronix IGP/PGL(R) and IGP/VGL bar code label printing languages.
MARKETING AND CUSTOMERS
The market for the Company's products is related to the market for computer and bar code systems. Printronix printers are marketed worldwide directly to original equipment manufacturers (OEM) and to end users through a network of full-service distributors and resellers.
The Company's 10 largest customers accounted for an aggregate of approximately 62, 64, and 66 percent of net sales during the fiscal years ended March 1997, 1996, and 1995, respectively. During fiscal 1997, the Company sold its products to major OEMs, and distributors/resellers, which accounted for approximately 47 percent and 53 percent of net sales, respectively.
In fiscal 1997, the Company had two customers which individually represented 10 percent or more of consolidated net sales. Sales to the largest customer, IBM, represented 29 percent, 30 percent and 29 percent of net sales for fiscal years 1997, 1996 and 1995, respectively. On a geographic basis, fiscal 1997 sales to the largest customer represented 31 percent of domestic net sales and 25 percent of international net sales. Sales to the second largest customer represented 10 percent, 10 percent and 11 percent of consolidated net sales for fiscal years 1997, 1996, and 1995, respectively. A significant decline in sales to either customer could have an adverse effect on the Company's operations.
COMPETITION
The Company has a wide range of printers that compete in the overall market for medium and high speed computer printers. The overall market includes serial, line matrix, band, laser and thermal transfer printers. This overall market includes a large captive market which consists of computer systems manufacturers that formerly produced their own printers and in the past have not bought from independent printer manufacturers. Due to the increasing competitive nature and the level of investment now required for ongoing printer development, most of these OEMs are now buying from independent manufacturers. The Company competes on a direct basis with several companies of varying sizes, including some of the largest businesses in the United States and Japan, in the non-captive market. Competing products include high end serial printers, medium and high speed line printers, laser printers, thermal printers, and other non-impact technologies.
Competitive factors in the Company's markets include reliability, durability, price, print quality, versatility of special performance features, and after-sales support. The Company believes that its printers are highly competitive with regard to price/performance and cost of ownership, and that the Company rates highly in after-sales support.
The Company has periodically evaluated other printing technologies and intends to continue to do so. Introduction of products with superior performance or substantially lower prices could adversely affect the Company's business.
ORDER BACKLOG
The Company's order backlog at March 28, 1997 was approximately $13.4 million, compared with $23.7 million at March 29,1996 and $17.6 million at March 31, 1995. The decrease over prior years reflects the continuing conversion of the Company's customers to a just-in-time delivery process. The backlog represents orders for which the majority of products have a delivery date and expected ship date of three months or less.
RAW MATERIALS
The Company purchases basic mechanical and standard electronic components from numerous outside vendors. Most of those components used in the Company's impact printers are immediately available from alternate sources. The Company also purchases certain components from sole sources and has no reason to believe that it will be unable to obtain those components. However, if the Company were to lose any sole source for a component, there could be a delay in shipment of printers using those components until an alternate source begins production. The Company's laser and thermal printer products are designed to use specific print engines and printer assemblies manufactured by outside vendors. The Company has entered into written purchase agreements for these printer components and has no reason to believe that it will be unable to obtain the materials required.
ENGINEERING AND DEVELOPMENT
The Company operates in an industry which is subject to rapid technological change, and its ability to compete successfully depends upon, among other things, its ability to react to change. Accordingly, the Company is committed to the development of new products. During fiscal 1997, 1996, and 1995, its engineering and development expenditures incurred were approximately $14.3 million, $13.7 million, and $12.7 million, respectively. Substantially all expenditures were Company sponsored. A substantial portion of engineering and development expenditures were associated with the continued development of lower cost line matrix printers, software and hardware development of the Printronix System Architecture for laser, thermal and line matrix printers.
PATENTS AND LICENSES
The Company has been issued 34 United States patents, and related foreign patents (primarily in Canada, the United Kingdom, France and Germany) associated with various aspects of its printers. Two of the foreign patents will expire in July and September 1997, respectively. Three of the United States patents will expire during 1997, one in September and two in December. The Company believes that its patented line matrix printing technology has competitive value and intends to continue its practice of enforcing its patent rights against potential infringers where it deems appropriate. Although there can be no assurance that the Company will be successful in defending its rights to any of its patents, the Company believes that its patents are valid.
The Company has no material licenses from others pertaining to the manufacture of its products, including those under development, and believes that none are currently required. The Company believes that, based on industry practice, any such licenses as might be required in the future could be obtained on terms which would not have a material effect on it. However, the Company does have licenses for the use of IPDS, POSTSCRIPT and PCL5 graphic languages.
PCL 5 is a trademark of Hewlett-Packard Corporation. IPDS is a registered trademark of International Business Machines Corporation.
EMPLOYEES
The Company had 866 employees as of March 28, 1997 including 502 in the United States, 304 in Singapore and 60 in Europe.
None of the Company's employees in North America or Singapore is subject to a collective bargaining agreement. Printronix Nederland BV is a member of the Employers Union F.M.E., and some of its employees have elected to become members of an employee union. This employee union is not government sponsored and is supported by contributions from its members. The Company believes that its relationship with its employees is good.
FOREIGN OPERATIONS
The Company has manufacturing facilities in Singapore, wherein line matrix printer products and some printed circuit board assemblies are produced. In the Netherlands, the Company has a facility that provides product support, customer service, product distribution and assembly of selected models of laser and thermal printers. International sales represented approximately 44 percent, 41 percent, and 38 percent of the Company's total sales in fiscal years 1997, 1996, and 1995, respectively. The Company has sales offices within Germany, France, the United Kingdom and Singapore. The Company is not aware of any significant risks with respect to its foreign business other than those inherent in the competitive nature of the business and fluctuations in foreign currency exchange rates. Selected financial information regarding foreign and export sales by geographic area is set forth in Note 6 of Notes to Consolidated Financial Statements.
ITEM 2.
ITEM 2. PROPERTIES
The Company's executive, manufacturing, engineering, administrative and marketing offices are located in a total of approximately 169,000 square feet of leased facilities in Irvine, California.
The Company's foreign operations are located in the Netherlands and Singapore. The Netherlands operations are in leased facilities of approximately 34,000 square feet. The Singapore operations were moved to a new 74,000 square foot state-of-the-art building purchased in fiscal 1997 for approximately $3.8 million with an additional $3.0 million spent in capital improvements. The Company also leases several small offices, generally on short-term leases, throughout the United States and Europe for sales or service. See Note 7 of Notes to Consolidated Financial Statements for a summary of the expiration dates and lease or rental commitments.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL ASSESSMENT ------------------------
In January 1994, the Company was notified by the California Regional Water Quality Control Board - Santa Ana Region (the "Board") that groundwater monitoring reports indicated that the groundwater under one of the Company's former production plants was contaminated with various chlorinated volatile organic compounds (VOCs). Evidence adduced from site studies undertaken to date indicates that compounds containing the VOCs were used by the prior tenant during its long-term occupancy of the site. The tests also indicate that the composition of the soil is such that off-site migration of contamination is very slow and contamination is most likely confined to the site. Investigation indicates that the prior occupant is a well established business enterprise which has substantial assets and is affiliated with a publicly traded company.
In March 1996, the Company received a request from the Board for information regarding chemicals used by the Company or others on property adjacent to the former production plant site. Although, the Company previously occupied a small portion of this adjacent property primarily for office space and a machine shop, initial review indicates that the Company did not use compounds containing VOCs on this adjacent property.
There are presently no Board remediation orders outstanding against the Company. As of March 28, 1997, the Company has reserved $214,000 to cover further legal fees or any additional expenses related to environmental tests which could be requested by the Board at the site. To date, the Company has incurred only minimal expense in its initial response to the Board's request for information and for environmental testing. However, the Company could be subject to charges related to remediation of the site. These charges on a preliminary (and very general) basis, could be estimated as follows:
Remediation involves a two-step procedure. The first step would include the installation of a soil vapor extraction system. The cost of installation could range from $50,000 to $100,000. There would also be annual operating costs of up to $50,000 for a period of several years. The second step would be the installation of a pump and water treatment system to cleanse the groundwater. The cost of installation would range from $100,000 to $200,000. The annual operating costs would range up to $100,000 for a period which cannot now be ascertained.
The Company is convinced that it bears no responsibility for any contamination at the site and intends to vigorously defend any action which might be brought against it in respect thereto. Furthermore, the Company believes it has adequately accrued for any future expenditures in connection with further legal fees or additional environmental tests that could be requested by the Board at the site, and that such expenditures will not have a materially adverse effect on its financial condition or results of operations. However, because of the uncertainty of this matter there is no assurance the actual costs will not exceed management's estimate.
PRINTRONIX, INC. V. KENTEK INFORMATION SYSTEMS, INC. ----------------------------------------------------
On May 16, 1996, the company filed suit against Kentek Information Systems, Inc. ("Kentek") in the United States District Court for the Central District of California. On or about June 19, 1996, the case was transferred to the United States District Court for the District of Colorado.
The suit alleged that Kentek had discriminated against the Company in the prices that it charged the Company for the purchase of consumable products, in violation of the Robinson-Patman Act, and in breach of a contract between the parties governing the purchase of such consumables. The suit sought damages of $2.5 million for breach of contract and violation of the Robinson-Patman Act (damages for which are trebled) and sought an injunction against further price discrimination.
On December 23, 1996, Kentek's counterclaims against the Company were filed. The counterclaims alleged that the Company is in breach of contract for failing to exercise its best efforts in the sale of Kentek products and the Company misrepresented its intentions to perform under the contract in the course of negotiations. The counterclaims sought damages and punitive damages in unspecified amounts.
By agreement dated May 12, 1997, the parties have settled the lawsuit. The settlement provides for the dismissal of all claims with prejudice, release of certain claims, a reduction in prices charged to the Company for consumables, retroactive to January 6, 1996 and continuing thereafter as provided in the contract, and certain other credits. The terms of the settlement will not have a material impact on the Company. The parties have expressly denied liability to one another.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of May 12, 1997 are as follows:
Officers are appointed by and hold office at the pleasure of the Board of Directors.
Mr. Kleist is one of the founders of the Company and has served as a director and its President and Chief Executive Officer since its formation in 1974. In addition, Mr. Kleist served as Chief Financial Officer from February 1987 to October 1988, a position he also held from August 1985 until January 1986. Mr. Kleist is a director of Seagate Technology, a manufacturer of computer disk drives.
Dr. Belt joined the Company in December 1985 as Vice President, Engineering, Line Matrix Division. In February 1987, he was appointed Senior Vice President, Engineering and Chief Technical Officer. Dr. Belt was appointed to the additional position of Assistant Corporate Secretary in August 1989. From October 1984 to December 1985, Dr. Belt was Manager of Engineering, Large Communication Systems Division of Rolm Corp. From December 1979 to October 1984, he was Manager of Engineering, Schlumberger Sentry. In prior years, Dr. Belt has held engineering management positions at General Electric Co. and Pertec Computer Corp. He was also a founder and Engineering Vice President of Courier Terminal Systems in 1969.
Mr. Harwood joined the Company in October 1988 as Senior Vice President, Finance and Chief Financial Officer. Mr. Harwood was appointed to the additional office of Corporate Secretary in January 1989. In October 1994, Mr. Harwood assumed responsibility for the Company's Information Systems. From December 1984 to October 1988, Mr. Harwood was Chief Financial Officer and Vice President, Finance at Qume Corporation. From December 1982 to December 1984, Mr. Harwood was Group Controller of ITT Automotive Products, Worldwide. In prior years, Mr. Harwood has held various senior financial positions at ITT in Brussels, London and Zambia. Mr. Harwood is a Fellow of the Institute of Chartered Accountants in England and has had seven years of public accounting experience, primarily at Price Waterhouse.
Mr. Fitzsimmons joined the Company in September 1985 as Director of Information Systems. In December 1988, he was appointed Vice President, Information Systems. In May 1990, Mr. Fitzsimmons assumed responsibility for Printronix B.V., the Company's Netherlands subsidiary. Mr. Fitzsimmons was appointed to the additional office of Vice President, Irvine Manufacturing in October 1990. In July 1991, he assumed responsibility for Printronix A.G., the Company's Singapore subsidiary. From May 1992 to October 1994 Mr. Fitzsimmons was Senior Vice President, Manufacturing and Information Systems. In October 1994, he was appointed Senior Vice President, Worldwide Manufacturing. From September 1979 to September 1985, Mr. Fitzsimmons held various senior IS positions at Magnavox Government and Industrial Electronics Company.
Mr. Steele joined the Company in July 1991 as Senior Vice President, Sales and Marketing. From May 1990 to June 1991, Mr. Steele was Senior Vice President, Sales and Marketing at DataWare. From May 1989 to May 1990, Mr. Steele was Vice President, Sales and Marketing at Talaris. From April 1972 to January 1987, Mr. Steele held various positions including District Sales Manager, National Sales Manager and Vice President, Sales and Marketing at Datagraphix. In January 1987, Datagraphix became Anacomp, Inc. and Mr. Steele was appointed Senior Vice President, Sales and Marketing, a position he held until October 1988. In prior years, Mr. Steele held various positions in sales management and systems engineering at IBM.
PART II
Information for Items 5, 6, 7 and 8 is contained in the Company's 1997 Annual Report to Stockholders on the following pages, which information is incorporated herein by reference (and except for these pages, the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997 is not deemed filed as part of this report):
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Information required under Item 10
Item 12 "Security Ownership of Certain Beneficial Owners and Management," and Item 13
Item 13 "Certain Relationships and Related Transactions" has been omitted from this report. Such information is hereby incorporated by reference from Printronix's Proxy Statement for its Annual Meeting of Stockholders to be held on August 12, 1997, which the Company intends to file with the Securities and Exchange Commission not later than July 10, 1997.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements
- -------------- * Incorporated by reference from the indicated pages of the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997 (and except for these pages, the Company's Annual Report to Stockholders for the fiscal year ended March 28, 1997, is not deemed filed as part of this report).
All schedules except Schedule II have been omitted for the reason that the required information is shown in financial statements or notes thereto, the amounts involved are not significant or the schedules are not applicable.
(b) Reports on Form 8-K
None
(c) Exhibits
Reference is made to the Index of Exhibits beginning at page 14 of this report, which index is incorporated herein by reference.
(d) Other Financial Statements
There are no financial statements required to be filed by Regulation S-X which are excluded from the annual report to stockholders by Rule 14a-3(b)(1).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Printronix, Inc.:
We have audited in accordance with generally accepted auditing standards, the financial statements included in Printronix, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated April 24, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Orange County, California April 24, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 25, 1997
PRINTRONIX, INC.
BY /s/ ROBERT A. KLEIST --------------------------- Robert A. Kleist, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
PRINTRONIX, INC. AND SUBSIDIARIES
-----------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED MARCH 28, 1997
DESCRIPTIONS OF OTHER ADDITIONS AND DEDUCTIONS:
(A) -- Write-off of bad debt
INDEX OF EXHIBITS
INDEX OF EXHIBITS (CONTINUED)