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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 0-9321

Printronix, Inc.

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act).     Yes o          No þ

      On September 26, 2003, there were 5,734,476 shares of the Registrant’s Common Stock outstanding. The aggregate market value of the Common Stock (based upon the closing price of $13.18 per share as quoted in the Nasdaq Stock Market® on September 26, 2003) held by non-affiliates of the Registrant was $52,196,978.

      On May 21, 2004, there were 6,033,931 shares of the Registrant’s Common Stock outstanding. The aggregate market value of the Common Stock (based upon the closing price of $14.55 per share as quoted in the Nasdaq Stock Market® on May 21, 2004) held by non-affiliates of the Registrant was $62,670,880.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on August 17, 2004 are incorporated by reference into Part III and Part IV of this report.

PRINTRONIX, INC.

INDEX TO FORM 10-K

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PART I

Forward-Looking Statements

      Except for historical information, this Annual Report on Form 10-K 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 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 the resurgence of SARS (Severe Acute Respiratory Syndrome); the ability of the company to maintain our production capability in our Singapore plant or obtain product from our Asia Pacific suppliers should a resurgence of SARS occur; the ability of the company to hold or to 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 requirements for radio frequency identification (“RFID”) products by Wal-Mart and/or the Department of Defense (“the DOD”) and their suppliers or 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 our 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. We encourage readers of this Annual Report on Form 10-K to review the Risk Factors section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations. The company does not undertake to publicly update or revise any of its forward-looking statements, even if experience or new information show that the indicated results or events will not be realized.

      All brand names used throughout this Annual Report on Form 10-K are trademarks or registered trademarks of their respective companies.

Message from the President

      During fiscal 2004 Printronix invested in opportunities to expand its sales presence in emerging technology markets and emerging geographic markets. Despite the global economic downturn that has continued to affect the company over the past year, we believe Printronix is still positioned for long-term growth with a strong balance sheet and a base business with increasing margins that leverage profit with sales growth. With these investments, Printronix is building a foundation for high-growth potential within the emerging radio frequency identification (“RFID”) printing market for labels with an embedded microchip and antenna, while expanding opportunities to tap into increasing demand for line matrix printing technology in emerging geographies.

      Fiscal year 2004, ended March 26, resulted in sales of $125.1 million and a profit of 11 cents per share versus sales of $138.2 million and profit of 51 cents per share in the prior year. Triggered by the economic slowdown, Printronix has been challenged by a decline in sales of line matrix printers in its base business. However, the decline reversed in fiscal 2004 for Printronix branded product sold through distribution channels, but continues to decline in OEM channels.

      To address the OEM channel situation, Printronix has developed a North American program involving the launch of a unique and collaborative marketing demand-generation program with our largest OEM partner, IBM. Printronix will be providing field sales support for IBM and its business partners as well as demand generation activities aimed at bolstering sales among IBM’s installed user base. We are also seizing

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      Sales of Printronix high-performance thermal printers grew about 16% during fiscal 2004. Printronix continues to hold a 62% share of the worldwide line matrix market with the broadest range of printers, 500 lines per minute to an industry’s fastest 2400 lines per minute. Line matrix printers continue to fill the segment of reliability, lowest cost of printing and versatility of printed output that ideally suits industrial and back office applications. Strong global enterprise printing solutions and support are integral to the base business, which produces positive cash flow and growing margins, even at a lower annual sales level.

      Printing solutions include the industry’s most advanced network management for printers, PrintNet® Enterprise (“PrintNet”) and open systems architecture (“PSA3”^TM), which are shared by Printronix thermal, line matrix and laser printers. In addition, thermal printers are designed for the same industrial reliability as Printronix line printers and also have the unique capability to validate that printed barcodes can be scanned with 100% readability, 100% of the time, through On-line Data Validation (“ODV”^TM), meeting compliance requirements that will become even more stringent with RFID. New product and solution developments accelerated during fiscal 2004 with the introduction of three new line matrix printer models that enhance the base business and industry-leading RFID printing solutions to satisfy Wal-Mart/ Department of Defense (“DOD”) mandates. The RFID developments position the company for opportunities in a new high-growth market.

      Printronix was first-to-market with a commercially available Smart Label Developer’s Kit (“SLDK”^TM) that includes hardware and software to print RFID labels utilizing the user’s current barcode data stream. It provides a unique solution for conducting pilot RFID label programs to meet Wal-Mart/DOD requirements. As fiscal 2004 ended, these kits and subsequent Printronix RFID printers were already in use among Wal-Mart/DOD suppliers. Strategically, Printronix has also established relationships with software and system integration alliance partners to assist these suppliers in meeting mandates for product shipments for the January, 2005 Wal-Mart/DOD timeline.

      The industry RFID activity is accelerating quickly. Printronix is responding to this opportunity by working with evolving RFID standards as a member of EPC Global, the industry consortium selected to define standards, as a member of the MIT consortium for RFID label applications, and by meeting these needs with evolving solutions and user support. This industry RFID activity is expected to make the high-performance thermal printer market grow at an annual rate of 30% to 40% over the next few years. We believe that our capabilities for rapid solution development and collaborative work with alliance partners and global support will enable Printronix to be one of the leaders in supporting RFID deployment. This user value is expected to result in Printronix sales growth for this new opportunity.

      As the economy recovers, we trust our efforts will provide meaningful returns for investors. As always, we are committed to achieving continued growth in user satisfaction as we fulfill needs for enterprise global printing solutions.

	Robert A. Kleist
	President and Chief Executive Officer
	Printronix, Inc.

      Printronix is the leader in multi-technology “Supply Chain Printing Solutions,” which provide remotely-managed printers that produce labels, transaction documents and information reports in the supply chain for businesses around the world. Printronix manufactures three types of applications-compatible printers — line matrix, thermal and fanfold laser, as well as software that manages these printers in an enterprise network. Its integrated network solutions enable the printing of bar codes, labels, forms, and reports, verify their accuracy

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      Printronix develops, designs, manufactures and markets medium- and high-speed printing solutions and related supplies and services. Products are designed for use in mission-critical applications where unsurpassed reliability and performance are crucial. Products are used in industrial settings such as manufacturing plants and distribution centers, in addition to the back office and the information technology department. Printronix has a global presence with manufacturing and configuration sites located in the United States, Singapore, Holland and Mexico. In addition, we have 19 sales and support locations around the world to support users, channel partners and alliance partners.

      Printronix printers function on a wide range of computer systems and enterprise software and are compatible with various label-generation and label-management software. All Printronix printers have extensive industrial graphics capabilities that allow them to support most popular industrial graphics languages while producing every type of printed computer output, including labels, bar codes, RFID smart labels, multi-part forms and reports.

      Printronix is differentiated from competitors in several key areas. We offer three printing technologies: line matrix, thermal and fanfold laser. We also provide post-sales support with supplies, spares, repairs and maintenance capability, and professional services for custom applications. A unique printer management solution, PrintNet, offers remote management of networked printers around the world. This unique architecture allows common printing solutions to be applied to all three printing technologies. Printing solutions offer direct connectivity to the enterprise software (i.e. SAP/R3, Oracle), thus eliminating costly middleware. In addition, a unique ODV feature provides a differentiated solution in thermal printing for compliance labeling by monitoring bar code labels as they print to verify scanability. This capability, together with the ODV Data Manager for network management, provided the architecture for RFID printing which requires a 100% readability guarantee. The printers are available in languages used around the world. Printronix also designs, manufactures and markets bar code verifiers. We offer both hand-held and on-line verifiers that incorporate traditional and American National Standards Institute (“ANSI”) verification. We develop and own most of the technology employed in our products.

      To support the installed base of printers and verifiers, Printronix sells consumables, such as ribbons and toner. We also sell spare parts and provide other customer services such as the Advanced Exchange spare parts logistics program, repairs and maintenance. Under the Advanced Exchange Program, channel partners do not need to stock inventory of spare parts as we ship parts directly to their repair sites. After the repairs are completed, channel partners then ship the defective part back to us. The consumable supplies, spare parts and customer services provide recurring revenue on the installed base of Printronix printers.

      Printronix markets and sells products worldwide through major computer systems companies (“OEMs”), and a network of system integrators, full-service distributors and value-added resellers. In addition, Printronix has a program to market directly to Major Accounts, which are mostly fulfilled through the distribution-channel or IBM. Major Accounts are large companies who can utilize all three printing technologies, are often multi-national and are leaders in their industries. All three technologies are largely intended for use in related applications and are marketed through the same channels.

      The business is affected by global changes in the level of capital spending to expand or enhance manufacturing plants, distribution centers and investments in information technology spending. We believe that greater emphasis on supply chain management, warehouse automation and the increasing use of bar coded labels offers opportunities for long-term growth. RFID smart label printing solutions are expected to accelerate this growth because this is a new technology that generates new buying decisions.

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      Printronix, Inc. was incorporated in California in 1974 and was reincorporated in Delaware in December 1986. Our headquarters are located at 14600 Myford Road, Irvine, California, 92623 and our internet web address is www.printronix.com. Our main phone number is (714) 368-2300. All of Printronix’s filings with the Securities and Exchange Commission (“SEC”) are available free of charge through our investor relations page on our internet site, immediately upon filing, or alternatively at www.sec.gov. Our stock is traded on the Nasdaq Stock Market under the symbol PTNX. Unless the context otherwise requires, the terms “we,” “our,” “us,” “company” and “Printronix” refer to Printronix, Inc. and its consolidated subsidiaries.

      Certain geographical information for Item 1 is found in Note 8 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

Market Overview

      Various industry analysts track market share data and such data for fiscal year 2004 is not yet available. In fiscal year 2003, Printronix had a 62 percent market share in the worldwide line matrix market, excluding Japan. We introduced a thermal printer line in late fiscal year 2000 and have increased market share to 7.6 percent of the performance segment (high-end) of the 2003 worldwide thermal market. Industry analysts do not track the size of the fanfold laser market; however, we believe Printronix has a dominant market share in the high-end fanfold laser label-printing segment.

Geographical Regions

      We classify revenue into three geographical regions; The Americas, Asia Pacific, and Europe, the Middle East and Africa (“EMEA”). Printronix products are sold in over seventy-five countries. We believe a large percentage of our future revenue will continue to come from outside of the Americas. We believe our largest growth opportunities for line matrix exist in the industrializing countries of Asia Pacific, especially China, and also in areas of EMEA. Growth opportunities for thermal, and in particular RFID, exist worldwide starting with North America and growing into EMEA and Asia Pacific as standards are set for those regions. Printronix products are priced in United States dollars and in Euros. A summary of the effects of the change in the Euro’s value can be found in Note 1 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. A summary of revenue and assets by region can be found in Note 8 of this Annual Report on Form 10-K.

Growth Strategy

      We continue to invest in sales and marketing, adding additional sales personnel in EMEA, new sales offices in China, Australia, and Korea in the Asia Pacific region and a new sales office in Mexico in the Americas region. These new sales offices are one aspect of our strategy to promote revenue growth through geographic expansion. As the majority of this expansion was in the latter part of fiscal year 2004, sales growth benefits have not yet been realized.

      We also believe RFID is an opportunity for future growth. We intend to grow thermal market share by expanding the range of applications and solutions, specifically RFID smart label print solutions in which Printronix’s unique features add value, and by expanding the migration of industrial printing to new enterprise software platforms, networks and applications. In the past year, we have entered into several strategic alliances with other key companies in the RFID market. In addition, in prior years, Printronix entered into strategic alliances with providers of warehouse management-systems software that serve the retail logistics and automotive industries. We believe these alliances will expand our channels to market and increase the value of our industry solutions. We expect to continue to enter into additional alliances.

      Printronix intends to continue investing in printing solutions and to leverage those solutions across its line matrix, thermal and laser products. We also intend to continue to invest in high-speed line matrix printer development and believe these high-speed models offer an opportunity to replace aging high-speed band printers and to fulfill the growing need for higher speed printing in emerging markets. Printronix’s focus is to develop better ribbon technology and manufacturing processes to enhance line matrix print quality and market share of ribbons in the Printronix installed base.

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      Printronix intends to grow revenue from our installed base of printers by expanding channels for supplies, by increasing services, such as maintenance, repairs, spare parts logistics programs, and professional services, such as training and custom applications. We expect these actions will increase our share of this market. We also are expanding market share of remanufactured Printronix printers, a market segment Printronix entered in fiscal year 2002.

      We expect to create demand for Printronix’s products through Major Accounts marketing and vertical marketing programs. We are working with retail and automotive industry leaders to provide printing solutions using all three of our printing technologies. We believe we can achieve efficiencies for end-user customers through our global channel partners due to the common architecture, worldwide support and post-sales supplies and services.

      To stop any further erosion of sales of line matrix product sold through the OEM channel, Printronix and IBM together have developed a plan for Printronix to provide field sales support for IBM and their resellers as well as having Printronix provide telemarketing to the IBM installed base for demand generation.

Technology

      Printronix’s core technologies include line matrix and thermal print engines, subsystem controllers and software, bar code verification, RFID smart label printing and network-printer management. Line matrix, thermal and laser printers developed from these technologies are unified by a common control architecture called Printronix System Architecture (“PSA”^TM), the latest version of which is PSA3. This architecture permits all three printing technologies to be application-compatible by supporting common industrial graphics languages, host communication protocols, and global network management, thereby enhancing user productivity and printer up-time.

      Printronix also offers advanced network-printer management solutions with PrintNet, which is a combination of hardware and software components. PrintNet is a web-enabled remote printer-management tool, combining printer diagnostics, troubleshooting, an alerting system and visibility that allows remote management control of Printronix printers anywhere in the world from a networked desktop. PrintNet includes special printer capabilities, an interface card to provide connection to an Ethernet network and a Java-based software application providing advanced configuration-management tools, event notification, remote status and diagnostic capabilities.

      In addition, Printronix offers the unique ODV capability that verifies all bar codes produced on the T5000 thermal printer line are readable by bar code scanners, thus eliminating disruption and costly rework in the supply chain. ODV analyzes each bar code immediately after the label is printed and validates that the bar code is within specifications. The T5000 will automatically strike out an invalid label and print a new label. ODV also provides a quality control record of each bar code printed. ODV Data Manager, introduced in fiscal year 2003, provides enhanced data capturing and reporting capabilities and the ability to evaluate data within each bar code. RFID printers have a similar capability.

      During fiscal year 2004, we further advanced our industry leadership in printing solutions through new product development. Two new line matrix products were the P5224D, which at 2400 lines per minute is the world’s fastest line matrix printer and an improved 2000 lines per minute model. New thermal products include the RFID smart label printers and wireless mobile cart printing.

      Printronix has designed and developed software and hardware that leads the industry in connectivity to allow the printers to operate in a wide variety of computer systems, software and networks. In addition, emulation software has been developed which allows our printers to be placed in environments with printers manufactured by others and enables our printers to function using the host data streams without the need for modifying the applications. Printronix printers can print in many languages used throughout the world.

Line Matrix Printers

      Printing is accomplished as a hammer bank shuttles a small distance back and forth, enabling the hammers to place dots anywhere along a row across the paper or other media. As the paper or other media

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      The dot placement of our 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 printers made by Printronix, under computer control, to produce graphic output. Another key feature of the line matrix technology is that hammer energy is optimized to print only dots, resulting in improved print quality on multi-part forms. These printers are available in pedestal or cabinet models with worldwide languages, a wide range of computer capabilities and a power paper stacker for cabinet model units.

      Uses for line matrix printers include reports, multi-part forms, bar codes, labels and program listings. The P5000 series line matrix printers operate at 500, 1000, 1500, 2000 and 2400 lines per minute (“LPM”). The value provided by line matrix printing is the high level of reliability, the ability to function in harsh environments, the lowest cost per printed page and the ability to process multi-part forms. The P5000 series models were introduced in fiscal year 1996, and replaced our previous generation of models. In fiscal year 2004, three new high-speed models were launched into the market. These were 2000 and 2400 LPM models for the worldwide market and an 800 LPM model specifically for printing Asian languages. Additionally, expenditures were made to develop a zero tear version of a printer capable of printing single sheets without wasting preprinted forms, which was released for sale late in the fourth quarter of fiscal year 2004. Our P5000 series of line matrix printers offers the PrintNet option, which includes high-speed Ethernet connectivity and full remote printer management capabilities.

Thermal Printers

      Thermal printers have become the primary instruments in the creation of on-demand bar codes and label printing, increasingly important in supply chain logistics.

      Thermal printers create images on paper or other media by heating thermal-sensitive media. The image is created either by heating an ink-based ribbon which transfers ink to the media (transfer) or by heating media in which the thermally sensitive ink is already impregnated (direct). This technology results in a readable bar code image. The value provided by thermal printing is the flexibility of high-quality on-demand label printing from wired or wireless network stations along the manufacturing production line or throughout the distribution center.

      Printronix thermal printers range in print width from 4.1 to 8.5 inches and in speed from 6 to 10 inches per second. They print at 200 or 300 dots per inch (“DPI”). The latest version is the T5000e, which was introduced in fiscal year 2003. The printers support both direct and thermal transfer methods and were designed to fulfill the demands of the high-volume, mission-critical industrial users.

      The T5000e wireless-enabled thermal printer models were designed, engineered and manufactured by Printronix, and they incorporate PSA3 and PrintNet. The T5000e also offers the unique ODV capability that verifies the bar codes it produces meet industry specifications and will scan accurately. With PrintNet, ODV and PSA3, the T5000e sets a new standard of durability, versatility, flexibility, and manageability to meet today’s enterprise users’ needs. The latest development in fiscal 2004 provides users with the next new requirement, RFID smart label printing solutions. These printers address a wide range of label printing applications in the manufacturing, warehousing/distribution, transportation, retail logistics and health care sectors for today and tomorrow.

Radio Frequency Identification (“RFID”) Smart Label Printers

      During the second quarter of fiscal year 2004, the retailer Wal-Mart and the DOD, announced that they would require their top 100 suppliers to use RFID technology on the pallet and case labels of products supplied to them by January 2005. Their remaining suppliers are required to implement RFID technology by the end of 2006. These mandates have set in motion a trend in advanced automation requiring suppliers to focus their resources on implementing RFID printing.

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      RFID technology is already in use in products such as toll road transponders that identify the automobiles to the transit authorities, for animal identification purposes and in libraries. RFID labels increase the effectiveness of product identification by combining traditional bar code information with electronic data on the same label.

      There are various methods to achieve compliance with the Wal-Mart/DOD mandate. A primary method uses a printer in creating the labels and Printronix is addressing the needs of the suppliers who choose this method. If a supplier chooses this method of compliance, the components of a typical RFID label generating system consist of five main items: RFID labels, readers, software, a printer and integrator. The RFID label consists of a microchip with a flexible antenna embedded in the label stock used for traditional bar coded labels, and are known as smart labels. The reader uses radio waves to scan the microchip via the antenna. The reader can read the labels without the need for physical contact or line-of-sight positioning as needed in a traditional bar coded label scanner. The RFID printers have a reader, sometimes referred to as an encoder, which encodes the microchip in the label and then immediately verifies that the label is readable. Another method to achieve RFID compliance requires suppliers to attach an RFID label that contains only the antenna and microchip. A printer is not needed to create the label with the antenna and microchip under the second method, only an encoder. We believe there are numerous advantages and disadvantages to both methods.

      Much like the universal product code (“UPC”) is used today in traditional bar code labels, the smart labels are required to use the electronic equivalent, the electronic product code (“EPC”). The EPC identifies the particular item in the supply-chain by identifying the manufacturer, the product, and version. The microchip will have memory to accommodate the EPC number.

      In the future, RFID technology is expected to support improved supply-chain visibility by allowing companies to know where every item in their supply-chain is located at any moment in time. One example of the expected benefits of RFID technology might be seen in the shipping of products from the manufacturer to the retailer. As trucks are loaded, RFID technology will allow suppliers to tell customers exactly what has been shipped. This should also enable better theft control since RFID technology would allow for continuous product verification throughout the supply-chain. In addition, RFID technology should reduce problems like inventory stock-outs by enabling more efficient demand planning as well as minimizing the potential for misplacement of in-stock items. Finally, distribution centers can streamline the identification of inventory in process that should lead to improved inventory accuracy, improved operational productivity and reduction of product shortages. All of these improvements are likely to contribute to overall lower supply-chain costs as well as better customer service and associated customer loyalty.

      EPCGlobal, which is a joint venture of the EAN International and Uniform Code Council (the “UCC”), is developing standards for the EPC number. Together, EAN International and the UCC constitute 100 member organizations worldwide with more than one million members from 102 countries. Printronix is a founding member of EPCGlobal. Standards for the emerging RFID market are evolving very rapidly. Ultra high frequency (“UHF”) standards have been set for the United States and Europe but not yet for the rest of the world. The design and protocols for the microchip used in RFID smart labels are also evolving as the industry moves forward. Currently, three classes of chips are available; Class 0, Class 0+ and Class 1. EPC standards committee is currently driving the design of a second-generation chip that is expected to become the standard going forward.

      We believe Printronix is well positioned to continue to be a leading participant in the growing RFID thermal printer market. During the second quarter of fiscal year 2004, Printronix was the first to commercially ship a printer that was designed to meet this emerging market. These Printronix RFID Smart Label printers encode the label with an UHF 915 MHz radio signal, print human readable traditional bar code information on the label and verify the encoded information. Printronix now markets RFID offerings such as the SLDK that allow our customers to develop RFID printing solutions in a test environment before integrating these solutions into current operations. Printronix has developed Software Migration Tools (“SMT”) which enable a printer to automatically create RFID commands from existing legacy label bar code applications data streams. Printronix also offers innovations such as RFID Print and Apply solutions to address compliance and

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      We are working to help establish industry standards to enable our RFID printers to integrate effectively into our customer’s information technology and supply-chain environments. As RFID standards continue to evolve in the near future, Printronix expects to be able to support these changes through development of software upgradeable reader technology and through the ability to field upgrade our printers to support future RFID technology.

      Printronix has also developed a Professional Services staff that is leveraging our technical know-how with the goal of supporting our customers in their migration to an RFID-enabled environment. This is expected to be accomplished through consulting, label compliance and certification, and ERP and application migration and implementation support.

      Given the Wal-Mart/DOD mandates that all suppliers use RFID tags on all pallets and cases by the end of 2006, it is expected that the RFID portion of the thermal market will have significant growth potential. Printronix, being first to market with an EPC printing solution and through its significant level of focus on RFID technology, expects to have market access for RFID applications beyond that which our present thermal market share might indicate. While Printronix acknowledges that there is at least one larger company now vying for a strong position in the RFID printer market, we believe that we are positioned as a strong participant in the emerging RFID print opportunity.

Laser Printers

      The LaserLine® printers combine print quality and speed with the distinct advantages of fanfold forms. A straight-through paper path combined with optional power stacking allows for long, unattended print runs. Fanfold laser printers create images by fixing toner on paper electrographically.

      The L1524 laser printer operates at up to 24 pages per minute (“PPM”) and 300 DPI. The L1524 uses the more conventional heat/pressure fusing process, supports form widths up to 10 inches and offers a 50,000 pages per month duty cycle. The L1524 is primarily used for medium-volume billing and labeling applications.

      The LaserLine L5520 and L5535 fanfold laser printers, with their unique label-printing capabilities, operate at up to 35 PPM, 240 to 400 DPI, and have a unique flash fusing process, which produces output of exceptional durability and quality that can’t be scratched off. Unlike other laser printers, the L5520 and L5535 can print on a wide variety of media including synthetics and plastic cards. The wide carriage, which can print widths up to 14.6 inches, high-duty cycle and durability of the output make these printers particularly well suited for high-volume utility-type billing and labeling applications.

      Fanfold laser printing provides value with its high-resolution, high-speed batch printing and jam-free operation.

Bar Code Verification Products

      A bar code verifier reads and decodes a bar code in the same manner as a normal scanner, but it also analyzes the adherence of the bar code to published industry specifications to verify that any scanner can read the barcode. Hand-held portable models and on-line models are available that meet practically any industry requirement. On-line verifiers are fixed to either printers or conveyance systems. When attached to a printer, the verifier analyzes the bar codes being produced by the printer. When attached to a conveyance system, the verifier analyzes the bar codes as they traverse in front of it. On-line models have an additional feature that communicates with the printers or conveyance systems and allows them to be controlled. These control features can stop the printers or conveyance systems, sound alarms or alert operators that manual intervention is required, if the bar codes are not meeting industry specifications. When used on Printronix thermal printers,

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Supplies, Consumables and Services

      Printronix sells associated printer supplies and consumables such as ribbons and toner. Line matrix ribbons are designed and manufactured by us; other supplies and consumables are purchased from outside suppliers. We offer maintenance services and the Advanced Exchange program, which provides logistical support for spares and repairs, and minimizes the amount of inventory needed by our resellers and channel partners to service the printers. The printers are sold with warranties, but customers can purchase maintenance service agreements from us or from our channel that cover the post-warranty period. Printronix also repairs and sells spare parts to our channel, which are used to support their maintenance service programs. Supplies, consumables and services, such as maintenance, are an area of expected growth because Printronix can add value.

Worldwide Market for Printronix Products

      Printronix markets products to manufacturers, distribution centers and retailers for use in mission-critical applications producing bar codes, labels, tags, transaction documents and information reports, in which reliability and scannable bar codes are valued. In addition, we market our products to information systems departments for use in producing multi-part forms and reports. The market for bar code verifiers consists mainly of companies that use bar codes as a critical source for data, that print bar codes, or that supply bar codes to other companies either as labels or on products and/or have internal quality procedures relating to bar codes, such as ISO 9000 requirements.

Warranties

      We offer warranties of various lengths to our customers, depending upon the specific product and terms of the customer purchase agreement. Printronix offers generally 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.

Seasonality

      Revenue patterns are only somewhat impacted by seasonal fluctuations and are more significantly impacted by the level of global spending on plant expansion and refurbishment. Typical historical revenue patterns have resulted in slightly higher revenues in our third fiscal quarter as many customers are completing their fourth fiscal quarter at that time. In addition, we historically experience a drop in sales in EMEA in the summer months, which occurs in the second quarter.

Channel

      Printers and other products made by Printronix are sold worldwide through OEMs, and a network of full-service distributors, systems integrators and value-added resellers. In addition, Printronix has a program to market directly to Major Accounts, most of which are fulfilled through the distribution-channel or IBM. OEM sales, distribution-channel sales and direct sales were 31.3%, 63.1% and 5.6% of net sales, respectively, for fiscal year 2004. Channel sales were 38.9% OEM, 56.4% distribution and 4.7% direct for fiscal year 2003 and 43.0% OEM, 54.5% distribution and 2.5% direct for fiscal year 2002. Printronix builds each product to order and ships directly from our factories to the end user in most cases, thus reducing our partners’ inventory levels and resulting in minimal short-term order backlog to Printronix.

      Information on sales to our largest customers can be found in Note 8 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

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Competition

      Products made by Printronix compete in the overall market for medium- and high-speed computer printers. The overall market includes line matrix, thermal transfer, laser, inkjet, serial, and band printers. We compete directly with several companies of varying sizes, including some of the largest businesses in the United States and Japan.

      Competitive factors in the printer markets include reliability, durability, price, total cost of ownership, print quality, versatility of special performance features, information systems connectivity, channel-to-market, post-sales support, including professional services, and financial resources to invest in new product designs and features. We believe our printers are highly competitive with regard to features, reliability, durability, price/ performance and cost of ownership. Professional services includes a wide range of services to enable our printing solutions to deliver their full potential in the customer’s enterprise system. We invest more heavily in research and development than the industry average, but can offer no assurance that products with superior technology or superior price/performance will not be introduced by competitors. If introduced, those products could have a materially adverse impact on results of operations and financial position. Knowledge of a pending new product in the marketplace by us or by our competitors may have an adverse impact on revenue as customers may delay purchasing decisions until the new product is available.

      The worldwide market for line matrix printers for calendar year 2003 is calculated at $139 million, excluding Japan. Industry analysts reported this market dropped by 18 percent for calendar 2003, which marks the fourth consecutive year of decline. This continued decline is the result of strong competition from mid-to-high range laser printers, saturation of the market with the latest line matrix offerings, and new technologies that bypass mass printing altogether. As this market has matured, the two largest remaining competitors Tally and Genicom have merged, while others are in the process of exiting the market. Printronix continues to hold the dominant position with a 62 percent market share, compared with the newly merged Tally/Genicom holding 24 percent. Regionally, the market is now roughly balanced between Asia Pacific, EMEA, and the Americas.

      Our strategy, given the declining market, is to create greater upgrading within our installed base, increase our share of the post-sale recurring revenue stream for each printer installed, and fully capitalize on the growth in China and other emerging markets. Further research and development investment is required to introduce newer models that deliver substantial benefits over currently installed units and to provide the competitive features necessary for the emerging Asian markets.

      To stop any further erosion of sales of line matrix product sold through the OEM channel, Printronix and IBM together have developed a plan for Printronix to provide field sales support for IBM and their resellers as well as provide telemarketing to the IBM installed base for demand generation.

      Industry analysts have determined the calendar year 2003 worldwide market for high-end thermal printers to be $234 million based on end-user pricing, up seven percent over the prior year. On average, these printers have a list price of $2,500 or more. The high-end market is defined as printers used in mission-critical applications with high-performance features. Printronix grew our calendar year 2003 market share to 7.6 percent, up from six percent from the prior calendar year. Our strategy for the thermal market is to continue to grow market share by delivering compelling solutions around our thermal products, including RFID. Printronix was first to market in November 2003 with a UHF capable printer that met the Wal-Mart and DOD RFID requirements. We expect to continue to provide leadership in this new emerging product category and win new customers in the process.

      Our primary competitors in the thermal market (non-RFID) are Zebra Technologies Corporation (“Zebra”), Sato, Toshiba Corporation (“TEC”) and Intermec, a subsidiary of Unova. Together they account for 79 percent of the thermal high-end market, relatively unchanged from 2002.

      Industry data on the fanfold laser market is not available. We believe we have a significant share of the segment devoted to fanfold laser label printing, a niche market in computer printing.

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      Verification products offer a unique feature mix of fixed-position scanning, verification communication and controls. There is little direct competition at this time for on-line verifier products. For portable verifiers, there are two major competitors in the United States, and both purchase on-line verification products from us.

      Printronix invests a larger share of its revenue than do our competitors in research and development and expects to continue to do so. In fiscal year 2004, this was about 13 percent versus six percent. The incremental expenditure incurred by Printronix is primarily due to the added solutions development over and above the development of printers. We believe that our global presence, three technologies, advanced network-printer management capabilities, unique ODV capability and RFID print solution leadership provide a competitive advantage.

Order Backlog

      Pursuant to Printronix’s business model, we build to order and direct ship to our channel partners’ customer in most cases. Our manufacturing process of combining printer variants, which contain features common across the printer technology family, with the end users’ unique combination of options, achieves a rapid order completion. In most cases, orders are shipped the day after they are received. As a result, we believe order backlog is minimal and is not a meaningful indication of future sales. Our largest customer in the OEM channel in EMEA, IBM, converted to the direct-ship method in fiscal year 2004 with a one-time drop in Printronix sales, as discussed further in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.

Production and Manufacturing

      We believe the quality and price-performance of our products are instrumental to our success. As a result, we utilize concurrent design and manufacturing in the development of our products by incorporating our manufacturing processes with the product design. We source our own raw materials and components from a variety of suppliers. We assemble our printer products on a configure-to-order basis.

Raw Materials

      We purchase custom mechanical and both custom and standard electronic components from numerous outside suppliers. Most of those components used in our impact and thermal printers are available from alternate sources should an issue arise with the existing source. Tooling is typically transferable to a new source with minimal ramp-up time to full production capabilities. We also purchase certain components from sole sources and have no reason to believe that supply from these sources would be placed in jeopardy. If we were to lose any sole source for a component, there could be a delay in shipment of printers requiring those components until an alternate source could be ramped to fulfill production requirements. Safety stock is typically maintained for such long-lead time items. Our laser printer products are designed to use specific proprietary print engines and printer assemblies manufactured by outside suppliers. We have entered into written purchase agreements for these printer components and have no reason to believe that we will be unable to obtain the materials required.

Engineering and Development

      Printronix operates in an industry that is subject to technological change, and our ability to compete successfully depends upon, among other things, our ability to anticipate market needs and to respond quickly with new solutions. We invest a larger share of our revenue in research and development, about 13 percent versus six percent, than our competitors. Accordingly, we are committed to a product-development process that is coupled to market requirements and facilitates high-quality, rapid, product development and introduction.

      Engineering and development expenditures were $15.9 million in fiscal year 2004, $15.8 million in fiscal year 2003 and $15.7 million in fiscal year 2002 and have remained relatively constant in spite of the decrease in revenue. Engineering personnel are located in all three key regions: the Americas, Europe, and Asia Pacific. For fiscal year 2004, product development focused on a three pronged strategy: introduce new products to open

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      Expenditures were made in fiscal year 2003 to develop the wireless printers, the T5000e, the P5240D, and the P5220S, an enhanced version of the P5220. Research and development expenditures were made in fiscal year 2002 to enhance our suite of enterprise system printing solutions. These enhancements included: introduction of PrintNet Enterprise, a significant innovation in enterprise network-printer management; the P5220; new network printing protocols; feature and language enhancements to the T5000 thermal printers; and ODV enhancements.

Intellectual Property

      We operate in an industry characterized by technological change and, as a result, we rely on patents, licenses, trade secrets, non-disclosure agreements from third parties and other rights we may have to protect our intellectual property. Printronix has been issued 47 United States and related foreign patents (primarily in Canada, the United Kingdom, France and Germany) associated with various aspects of our printers. The expiration of these patents range August 2004 to March 2023. We believe that our patents, in various technologies (line matrix, thermal, system architecture, printer control), have competitive value and we intend to continue our practice of enforcing our patent rights against potential infringements where we deem appropriate. We do not believe the expiration of any of these individual patents will have a significant material impact to our financial condition or results of operations. Although there can be no assurance that we will be successful in defending our rights to any of our patents, we believe our patents are valid.

      Despite our best efforts, we may fail to protect our intellectual property from unauthorized use. In addition, our global operations and sales expose us to the risk that other countries may fail to provide the same level of protection for our intellectual property as afforded in the United States.

      Printronix has no material licenses from others pertaining to the manufacture of products, including those under development, and believe none are currently required. Certain software is obtained under licensing agreements. We believe, based on industry practice, any such licenses as might be required in the future could be obtained on terms that would not have a material effect on us.

Employees

      Printronix had 828 employees as of March 26, 2004, including 447 in the United States, 301 in Asia Pacific and 80 in Europe.

      None of our employees in the United States or Asia Pacific is subject to a collective-bargaining agreement. Our wholly-owned subsidiary, Printronix Nederland BV, is a member of the Employers Union FME-CWM, and some of our 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. We believe our relationship with our employees is good.

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Foreign Operations

      We have manufacturing facilities in Singapore, wherein line matrix and thermal printer products and some key components are produced. The Singapore facilities also provide product support and customer service for the Asia Pacific region. We have a facility in the Netherlands that provides product support, customer service, line matrix, thermal and laser printer configuration and distribution. In April 2002, we began manufacturing line matrix ribbons in Mexico for shipment to the Americas. In November 2002, we expanded the manufacture of line matrix ribbons in Mexico to include those for export to EMEA and Asia Pacific. We have sales offices within Germany, France, the United Kingdom, Austria, India, Korea, China, Singapore, Mexico and Australia.

      International sales information is found in Note 8 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

      We are not aware of any significant risks with respect to our foreign business other than those inherent in the competitive nature of the business, fluctuations in foreign currency exchange rates and other world events. Selected financial information regarding foreign and export sales by geographical area is set forth in Note 8 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

      Printronix owns a facility measuring approximately 186,000 square feet in Irvine, California, which houses our U.S. operations, sales support, engineering and development and also is the company headquarters. The leased facility in Memphis, Tennessee, is approximately 39,000 square feet. In June 2004, management announced they will close the Memphis facility. We do not expect the closure of this facility to have a material impact on our financial position or results of operations. Related expenditures are expected to be approximately $340 thousand.

      Foreign operations are located in Singapore, the Netherlands and Mexico. Singapore operations are in a facility owned by Printronix, which was constructed in fiscal year 1997 and totals approximately 74,000 square feet. The Singapore facility is subject to a land lease, which expires in year 2057. The Netherlands operations are in leased facilities of approximately 33,000 square feet. The lease on the Netherlands facilities is an annual lease that is extended from year to year and expires in June 2005. The Mexico operations are in leased facilities of approximately 17,410 square feet. The lease on the Mexico operation expires in September 2006. We also lease several small offices, generally on short-term leases, throughout the United States, Asia Pacific and Europe for sales, support or service.

      See Note 9 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for a summary of the expiration dates and lease or rental commitments.

      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 our 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 which would be used as a basis to determine what, if any, remediation activities would be required of Printronix. We are convinced that we bear no responsibility for any

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      As of March 26, 2004 and March 28, 2003, we continued to maintain an accrual for $0.2 million, included in accrued liabilities other, which we believe is a reasonable estimate to cover any additional expenses related to environmental tests that could be requested by the Board. Furthermore, we believe that we have adequately accrued for any future expenditures in connection with environmental matters and that such expenditures will not have a materially adverse effect upon our financial condition or results of operations.

      We are involved in various claims and legal matters in the ordinary course of business. We do not believe these matters will have a materially adverse effect upon our results of operations or financial condition.

      Printronix 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.

PART II

      Printronix has one class of common stock and is traded on the Nasdaq Stock Market under the symbol PTNX. To date, Printronix has not declared or paid cash dividends on its common stock. As of May 21, 2004, the closing price per share was $14.55 and there were 1,353 registered stockholders of record.

      The table below provides the high and low closing stock prices at each fiscal quarter end:

      The following income statement and balance sheet data have been derived from our consolidated financial statements. The information set forth below is not necessarily indicative of the results of future

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      The fiscal year 2001 results include pretax charges of $1.8 million related to restructuring the manufacturing operations as discussed in Note 5 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

      The matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on Form 10-K should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements provided under Part II, Item 8 of this Annual Report on Form 10-K.

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 fiscal years 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:

      We recognize revenue in accordance with various authoritative guidance including, but not limited to, Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition.” The application of the authoritative guidance requires judgment to determine whether revenue has been realized or is realizable and earned.

      We consider revenue to be realized or realizable and earned when we have persuasive evidence of a sales arrangement in the form of a contract or a purchase order, the product has been delivered and title and risk of loss has passed, which generally occurs when the product is shipped, the sales price is fixed or determinable

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      Products that are not working properly may be returned subject to our warranty policy discussed below. Customers may return products that are incompatible with the intended application. Judgment is required to record provisions for future product returns. Our business model of configuring products to order for each customer and direct shipping to end users in most cases greatly reduces the amount of inventory in the channel, effectively reduces product return liability and aids in estimating future product returns. We continuously monitor product returns and, at the time of sale, record a provision as a revenue reduction for the estimated amount of future returns, based upon historical experience, authorization we have granted for significant pending returns and any other known factors. Although such returns have historically been within our expectations and the provisions we have established, we cannot guarantee that we will continue to experience the same return rates that we have in the past. Because of our direct ship business model, we encourage our channel partners not to hold inventory and, as a result, we do not offer pricing protection for any inventory that is carried by our channel partners. Any significant increase in product failure rates and the resulting returns, or product returns for other reasons, could have a materially adverse impact upon our operating results for the period or periods in which such information is known.

      We had no revenue arrangements with multiple deliverables such as the delivery or performance of multiple products, services or rights to use assets that would need to be identified into separate units of accounting.

      Judgment is also required to record provisions for customer programs and incentive offerings, including special pricing, rebates or other programs. We record estimated revenue reductions at the time of sale for such programs. Historically, the revenue reductions for these programs have been within our range of estimates; however, we cannot guarantee that we will continue to stay within our range of estimates. Future market conditions may cause us to increase the amount of incentive programs or other programs and could result in additional revenue reductions at that time.

      We offer professional services, such as training and customized applications to customers. These services are generally short-term in duration and are billed separately upon completion and acceptance of the service. Although the revenue received from professional services is not currently material, professional services are considered an area of potential growth.

      Most of our customers arrange their own shipping methods. For the remaining customers, we record revenue for shipping costs charged. The related shipping costs incurred are recorded as cost of sales.

      We offer printer-maintenance services through service agreements that customers may purchase separately from the printer. These agreements are mostly for a one-year period. We provide the point-of-customer-contact and initial diagnostic services, and supply the parts used for printer repairs. We have contracted with third parties to perform the on-site repair services. Revenue from maintenance contracts is deferred and recognized on a straight-line basis over the period of each individual contract, which approximates the manner in which costs are incurred. Any significant change in estimates or circumstances could have a materially adverse impact upon our operating results for the period or periods in which such information is known.

      We perform credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness. We periodically review all open accounts and provide allowances for specific customer-collection issues based upon our estimate of collectibility. In addition, we maintain general reserves based upon evaluation of our historical losses and overall economic conditions in our industry.

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      Inventories include the costs of material, labor and factory overhead. 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 (“FIFO”), or the current estimated market value of the inventory, based upon assumptions about future demand and market conditions. We periodically review historical sales activity to determine slow moving items and potentially obsolete items and also evaluate the impact of any anticipated changes in future demand, such as the release or potential release of new or modified products, or new competitive products. 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 materially adverse effect upon our results of operations and our financial condition for the period or periods in which such information is known.

      We account for research and development costs in accordance with several accounting pronouncements, including Statement of Financial Accounting Standards (“SFAS”) No. 2, “Accounting for Research and Development Costs” and SFAS No. 86, “Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” Judgment is required in the application of these pronouncements and in determining when technological feasibility is established. Our printers include software, which we consider incidental to the hardware. Our internal research-and-development costs, which include software-development costs, are expensed as incurred. Under our current development methods and procedures, the technological feasibility of the software being developed is not established until substantially all of the product development costs have been incurred. As a result, we have not capitalized any software-development costs for software that is embedded in our products, because the costs incurred after attaining technological feasibility are not material.

      We offer warranties of various lengths to our customers, depending upon the specific product and terms of the customer purchase agreement. Printronix generally 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. We record a provision for warranty expenses at the time of sale. We determine the provision for warranty charges by applying the estimated repair cost and estimated return rates to the outstanding units under warranty. We determine our estimated repair costs by reviewing our historical repair costs and factor in any known or anticipated changes in these costs. We also evaluate our historical return rate and include the effects of any known or expected future changes in these rates.

      We engage in product-quality programs and processes, including evaluating our suppliers. Although our warranty costs historically have been within our expectations and the provisions we have established, we

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      Long-lived assets, including intangible assets, are assessed in accordance with accounting guidance, including, but not limited to, SFAS No. 142, “Goodwill and Other Intangible Assets” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Judgment is required in the application of the authoritative guidance and in determining the recoverability of assets. We assess the carrying value of long-lived assets, including intangible assets, at least annually or whenever events or changes in circumstances indicate that the carrying amount of an underlying asset may not be recoverable. In the event the carrying value of assets is determined to be unrecoverable, we would record an adjustment to the carrying value of the assets affected based upon a discounted-cash-flow method. Any major unanticipated change in circumstances could have a significant impact upon the recoverability of long-lived assets and upon our operating results and financial condition. All goodwill and most intangible assets were fully amortized as of March 29, 2002, and the remaining intangible asset related to unpatented technology was fully amortized as of March 28, 2003.

      SFAS No. 109, “Accounting for Income Taxes” establishes financial accounting and reporting standards for the effect of income taxes. We estimate our income tax liability based upon current tax laws in the tax jurisdictions in which we operate. These estimates include judgments about deferred tax assets and liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and those recognized for tax purposes.

      Judgment is required to determine if deferred tax assets will be realized by examining both the positive and negative evidence available to us, such as historical taxable income or losses, and projected future taxable income or losses. Judgment is also required to determine the expected timing of the reversals of existing temporary differences. Under SFAS No. 109, we must place greater reliance on our past history of domestic operating losses than on projected future domestic operating income in determining whether a valuation allowance is necessary. 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.

      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 issues, an unfavorable resolution of such issues could have an adverse effect upon our results of operations and financial condition.

      We account for contingencies in accordance with various accounting guidance, including, but not limited to, SFAS No. 5 “Accounting for Contingencies” and Financial Accounting Standards Board Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” 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 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 materially adverse impact upon our operating results for the period or periods in which such information is known.

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      We account for stock-based compensation issued to employees in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB No 25, 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 is reflected in net income for the fiscal years 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. No stock-based compensation has been issued to non-employees during the fiscal years presented.

Results of Operations

      A message from the president regarding fiscal year 2004 and expectations for fiscal year 2005 can be found immediately preceding Item 1 of this Annual Report on Form 10-K.

      Fiscal year 2004 revenue declined 9.5% and was negatively impacted by continued economic uncertainty in the Americas and European markets, the impact of competing technologies on line matrix product sales, and IBM’s conversion to a direct ship method in EMEA. IBM’s conversion to a direct ship method in EMEA resulted in a slow-down in orders as they worked down their existing inventory and was completed in the fourth fiscal quarter. We continued to grow our thermal printer sales, which were up 15.7% over the prior year. Gross margins improved as a result of a stronger Euro, lower warranty expenses and lower provision for excess inventory. We continue to invest a higher than industry average in research and development. Cost control programs reduced general and administrative expenses. Sales and marketing costs increased as we pursued revenue growth through our strategic initiatives that include geographic expansion, demand generation by marketing to the installed base and focused attention on the rapidly emerging opportunities presented by RFID. Cash balances increased by $7.1 million principally as a result of stock option exercises, asset-management programs and results of operations. Expenditures of $1.1 million were made to buy back company stock.

      Our focus during the fiscal year was on several growth initiatives, including RFID. As a result, we were first to market with an RFID printer and began shipments of our “Smart Label Developer’s Kit,” in our third fiscal quarter. We also focused our efforts on geographical expansion by adding additional sales personnel in the EMEA and Asia Pacific regions, China in particular, and opened new sales offices in Mexico and Australia.

      Lower revenues and higher operating expenses, partially offset by a favorable impact from the Euro, all contributed to reduced pre-tax income.

      Fiscal year 2003 reported improved profitability on lower revenue. We attribute the revenue decrease partially to the continued softness in the worldwide economy and the related reduced capital spending and partially to the impact of competing technologies on line matrix printer sales. Gross margins improved as a result of a stronger Euro and continuing cost-reduction programs. Cost-control programs maintained relatively flat engineering and general and administrative spending, while continued emphasis on sales and marketing programs, including the Major Accounts and vertical marketing programs, resulted in higher spending in that area. Overall profitability also improved as a result of higher foreign currency exchange gains as the Euro strengthened and also as a result of lower interest expense due to lower interest rates. Cash balances increased by $7.0 million and inventory decreased by $2.4 million principally as a result of asset-management programs.

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      Our focus during the fiscal year was on the programs initiated in fiscal year 2002 to expand our range of printing solutions in the retail-logistics and automotive markets. Also, we continued our emphasis on growth opportunities in the Asia Pacific region by expanding into Korea and by specifically targeting the banking industry in China, where sales were up 86.2% over the prior year. We also continued to grow our thermal printer sales, which were up 40.0% over the prior year, and to expand our Major Accounts marketing.

     Revenue — Fiscal Year 2004 Compared With 2003

      Revenue for the fiscal year 2004 was $125.1 million, a decrease of $13.1 million, or 9.5%, compared with the prior fiscal year. We attribute the decrease partially to continued economic uncertainty in the Americas and European markets which has caused a slow down, or deferral, of customer capital expenditures directly impacting the company’s sales in the regions, partially to the impact of competing technologies on line matrix printer sales and partially to a continuing erosion in line matrix sales through OEM channels. In addition, IBM converted to a direct ship method in EMEA, resulting in a slow-down in orders from IBM. As they worked through this conversion, IBM continued to sell to their customers; however, they did not place replenishment orders with Printronix in order to work down their existing inventory. We estimate the lost revenue due to the conversion to be $3.4 million. This process was completed by the end of the fourth fiscal quarter. The effects of changes in the value of the Euro contributed $3.3 million to revenue. We increased sales of our thermal products by $2.5 million, or 15.7%, as we continue to take market share. We attribute this increase to our direct marketing efforts. RFID product sales, although small, are gaining momentum as the industry standards are being finalized. The decrease in revenue in fiscal year 2004 was mainly attributable to unit sale decreases as no major modifications were made to pricing.

Sales by Geographic Region

      Sales by geographic region, related percent changes and percent of total sales for fiscal years 2004 and 2003 were as follows:

      Americas OEM sales decreased 21.5% to $23.7 million, principally as a result of lower sales to our largest customer, IBM. The lower sales through IBM were due to their continuing lack of focus on selling line matrix products. Americas distribution sales decreased 4.5% to $35.7 million. Americas direct sales decreased 6.7% to $4.2 million.

      EMEA OEM sales decreased $8.8 million, or 39.8%, to $13.3 million, as a result of IBM’s transition to a direct ship method and a one-time large sale of $2.4 million in the prior year. EMEA distribution sales were $27.4 million, up from $25.0 million a year ago. EMEA direct sales were $1.5 million, down from $1.8 million a year ago. Changes in the value of the Euro contributed $3.3 million to EMEA revenue. Asia Pacific sales increased from a year ago mostly as a result of growth in the distribution-channel, mainly China, Thailand and Indonesia. Early in the prior fiscal year, sales in the Asia Pacific region had been negatively impacted by the SARS epidemic which significantly slowed trade in the region.

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Sales by Product Technology

      Sales by product technology, related percent changes and percent of total sales for fiscal years 2004 and 2003 were as follows:

      Line matrix printer sales were negatively impacted by the effects of competing technologies and lower sales to our largest customer as discussed above. To stop any further erosion of line matrix product sold through the OEM channel, Printronix and IBM together have developed a plan for Printronix to provide field sales support for IBM and their resellers as well as provide telemarketing to the IBM installed base for demand generation.

      We believe the growth in thermal printer sales is a result of our direct marketing to Major Accounts which resulted in market share growth.

      Recurring revenue from the installed base was $50.4 million and 40.3% of total sales for fiscal year 2004, up from $49.3 million and 35.7% of total sales a year ago, partly due to new demand-generation programs. Recurring revenue includes line matrix ribbons, laser consumables, spares sales, sales under the advance exchange program, printer maintenance and depot repair services. We intend to grow our recurring revenue primarily by focusing on marketing to our installed base of customers and adding sales channels to market.

Sales by Channel

      Sales by channel, related percent changes and percent of total sales for fiscal years 2004 and 2003 were as follows:

      The decrease in OEM sales includes a shortfall of $4.8 million from IBM as a result of lower revenues in the Americas and the conversion to direct ship in EMEA. It also reflects the large one-time sale in EMEA in the prior year of $2.4 million.

      The growth in the distribution-channel was primarily in EMEA and Asia Pacific.

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Sales by Customer

      Sales by customer, related percent changes and percent of total sales for fiscal years 2004 and 2003 were as follows:

      Sales to IBM were lower in EMEA by $3.4 million as a result of the conversion to direct ship. Sales to IBM in the Americas decreased by $2.8 million, the fourth year of declines. As discussed in the Message from the President immediately preceding Item 1 of this Annual Report on Form 10-K, we are actively taking steps to stop the revenue declines with IBM by providing field sales support and demand generation activities.

      Revenue from United States customers was 48.4% and 50.2% of total revenue, while revenue from international customers was 51.6% and 49.8% of total revenue for fiscal years 2004 and 2003, respectively. We expect international revenue to grow and continue to be a large percentage of total revenue.

      Revenue for the fiscal year 2003 was $138.2 million, a decrease of $8.5 million, or 5.8%, compared with the prior fiscal year. We attribute the decrease partially to continued softness in the worldwide economy and the continued slowdown in capital spending for plant expansion or refurbishment and partially to the impact of competing technologies on line matrix printer sales. Since fiscal year 2000, we have experienced decreasing volumes of line matrix printer sales. In addition, there was a heavy investment in IT infrastructure in the years leading up to the year 2000 (“Y2K”), and we believe orders slowed as the supply chain needed time to work through the conversions and upgrades. We also were impacted by lower sales to our major customer. Thermal printer sales increased 40.0% over the prior fiscal year, due to our Major Accounts and vertical marketing programs. The effects of changes in the Euro’s value in fiscal year 2003, compared with fiscal year 2002, resulted in an increase in revenue of $1.8 million.

Sales by Geographic Region

      Sales by geographic region, related percent changes and percent of total sales for fiscal years 2003 and 2002 were as follows:

      Americas OEM sales decreased 17.1% to $30.1 million, principally as a result of lower sales to our largest customer. Americas distribution sales decreased 10.1% to $37.4 million. Increased sales in the retail-logistics market as a result of our direct marketing were more than offset by lower sales elsewhere. Americas direct sales increased 40.6% to $4.5 million. EMEA OEM sales decreased $2.7 million, or 10.8%, to $22.1 million, principally as a result of lower sales to our largest customer. EMEA distribution sales were $25.0 million, up

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Sales by Product Technology

      Sales by product technology, related percent changes and percent of total sales for fiscal years 2003 and 2002 were as follows:

      Sales of recurring items such as spares, consumables and customer services, included in the product-line sales discussed above, were $49.3 million, down 2.4% from the prior fiscal year.

Sales by Channel

      Sales by channel, related percent changes and percent of total sales for fiscal years 2003 and 2002 were as follows:

Sales by Customer

      Sales by customer, related percent changes and percent of total sales for fiscal years 2003 and 2002 were as follows:

      Revenue from United States customers was 50.2% and 53.3% of total revenue, while revenue from international customers was 49.8% and 46.7% of total revenue for fiscal years 2003 and 2002, respectively.

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     Gross Margin

      Gross margin as a percentage of sales was 37.9% in fiscal year 2004 compared with 35.3% in fiscal year 2003 and increased due to the strengthening of the Euro, lower warranty expenses, lower provision for excess inventory, and continuing cost reduction programs partially offset by lower volume. The changes in the value of the Euro added $2.4 million, or 190 basis points, to the gross margin in fiscal year 2004. Warranty expenses decreased by $0.7 million due to a decrease in the outstanding units under warranty. Charges for excess and obsolete inventory decreased by $0.8 million due to asset-management programs.

          Fiscal Year 2003 Compared with 2002

      Gross margin as a percentage of sales was 35.3% in fiscal year 2003 and 32.4% in fiscal year 2002. The increase in gross margin is primarily due to the strengthening of the Euro which added $1.5 million, or 110 basis points, and continuing cost reductions, both of which were partially offset by lower volumes.

     Operating Expenses

      Operating expenses consist of engineering and development, sales and marketing, and general and administrative costs. Operating expenses were $46.4 million, $45.8 million and $44.1 million for fiscal years 2004, 2003 and 2002, respectively.

      We believe it is critical to continue to invest in research and development to ensure technology leadership in line matrix, thermal and RFID printing solutions. Engineering expenses consist mostly of labor and test materials. In fiscal year 2004, we spent $15.9 million on engineering and development, compared with $15.8 million in fiscal year 2003 and $15.7 million for fiscal year 2002. As a percentage of revenue, engineering and development expenses increased in fiscal year 2004 to 12.7% from 11.4% in fiscal year 2003 and 10.7% in fiscal year 2002, mostly as a result of lower revenue in fiscal years 2004 and 2003.

      In fiscal year 2004, engineering and development costs were focused on a three pronged strategy: introduce new products to open new markets, broaden product lines within existing markets, and enhance existing products to support regional expansion in the Asian markets. The most significant change from prior years was a strategic shift to develop a new line of thermal printers to support Wal-Mart and the DOD’s RFID initiatives. In addition, the T5000 thermal family was further enhanced to add additional data stream interpreters to work in TEC, Intermec and Sato applications, plus a general purpose interface was released to support a broad base of post-processing external devices, including print and apply applicators. To address the market need for industrial grade transaction printing, a zero tear version of the P5000 line matrix pedestal printer was developed and launched late fiscal 2004. To facilitate regional expansion, the P5000 line sold into Asian markets received a new high-speed controller coupled with regional specific enhancements for both distribution and OEM version printers.

      In fiscal year 2003, expenditures were made to bring to market a wireless-feature option for the thermal and line matrix printers. In addition, expenditures were made to develop a 2400 LPM line matrix printer, the P5240D, and to develop the P5220S, a 2000 LPM line matrix printer which uses a single hammer bank instead of a double hammer bank. The P5240D is the world’s fastest line matrix printer, printing 2400 lines per minute using a double hammer bank. In fiscal year 2002, expenditures were made to enhance the line matrix product family with a faster printer, resulting in the introduction of the P5220D during fiscal year 2002.

      Sales and marketing expenses for fiscal year 2004 increased to $22.3 million, compared with $21.3 million for fiscal year 2003 and $19.2 million for fiscal year 2002. As a percentage of revenue, sales and marketing expenses increased to 17.8% from 15.4% in fiscal year 2003 and 13.1% in fiscal year 2002. Sales and marketing expenses increased in fiscal year 2004 from the prior fiscal year due to increased spending for marketing programs, including the creation of a telesales program to market to the installed base in the United States and geographic expansion. New sales offices were opened in Australia, Mexico, and China and additional sales resources were added in Europe, resulting in additional sales compensation and facilities costs. In addition, incremental expenditures of approximately $0.3 million were made during the fourth quarter for RFID

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      General and administrative spending for fiscal year 2004 was $8.2 million compared with $8.7 million for fiscal year 2003 and $9.2 million for fiscal year 2002. General and administrative expenses decreased during fiscal year 2004 from the prior fiscal year due to lower labor costs, lower provision for doubtful accounts due to resolution of an outstanding customer collection issue during the fourth quarter, and lower amortization of intangibles, partially offset by increased consulting costs for Sarbanes-Oxley compliance and the research and development tax credit study. General and administrative expenses decreased in fiscal year 2003 from the prior fiscal year due to lower labor costs, lower provision for doubtful accounts and lower amortization of intangibles. As a percentage of revenue, general and administrative expenses increased to 6.6% in fiscal year 2004 from 6.3% in fiscal year 2003, principally as a result of lower revenues. General and administrative expenses were 6.3% of revenue in fiscal year 2002.

      The effects of changes in the value of the Euro resulted in increases in operating expenses of $0.8 million and $0.4 million for fiscal years 2004 and 2003, respectively.

     Foreign Currency Losses (Gains), Net

      Foreign currency transactions and remeasurements were losses of $8 thousand in fiscal year 2004 compared with gains of $556 thousand in fiscal year 2003 and losses of $163 thousand in fiscal year 2002, principally due to the effect of changes in the value of the Euro. The future effect of changes in the value of the Euro or other foreign currencies upon our results of operations or financial condition is difficult to predict.

      A summary of the effects of the changes in the value of the Euro can be found in Note 1 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

      Interest and other expenses, net, increased $0.2 million in fiscal year 2004 due to a decrease in interest income as a result of lower rates, and lower other income. Interest and other expenses, net decreased $0.6 million in fiscal year 2003 mainly due to lower interest expense as a result of reduced interest rates.

      The effective tax rate for fiscal year 2004, fiscal year 2003 and fiscal year 2002 was 7.6%, 13.4% and 11.0%, respectively. We expect the effective tax rate for fiscal year 2005 to be between 20% and 25%. We project to return to profitable domestic operating income. In addition, we believe our Singapore income taxes will increase as a result of the expiration of the pioneer status.

      During the fourth quarter of fiscal year 2004, the company completed a federal income tax audit. The audit resulted in a net zero charge to earnings; however, a one-time additional $6.0 million of income was assessed to the United States operations from foreign operations. Without this additional assessment, the United States would have reported losses of $3.6 million. Under SFAS No. 109, we must place greater reliance on our history of cumulative United States operating losses than on our future projections which indicate operating income in the United States. As a result of cumulative United States losses and the full

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      The tax provision for fiscal year 2004 reflects the tax expense of our foreign operations which are at a lower rate than the United States, and a valuation allowance against net operating loss carryforwards and certain other credits generated in the United States, mostly offset by the research and development tax credit claimed in the United States. The tax provision for fiscal years 2003 and 2002 reflects the effects of net operating losses and lower income tax rates in countries in which we operate.

      We had a favorable pioneer tax status that began in April 1996 in Singapore for income generated from the manufacture and sale of the Printronix P5000 Series line matrix products by our Singapore subsidiary. Net income generated by our Singapore subsidiary was exempt from tax liability. The pioneer status ended March 26, 2004. The pioneer status mandated that we meet certain requirements, including meeting specific levels of capital investment and engineering headcount. The pioneer status reduced foreign taxes by $0.8 million, $0.9 million and $0.8 million for fiscal years 2004, 2003 and 2002, respectively. The diluted net income per share effect of this pioneer status was an increase of 13 cents, 15 cents and 14 cents for fiscal years 2004, 2003 and 2002, respectively.

Liquidity and Capital Resources

      The primary source of liquidity historically has been cash generated from operations, which was $6.4 million, $12.0 million, and $20.7 million for fiscal years 2004, 2003 and 2002, respectively. Cash generated from operations has been sufficient to allow the company to fund its working capital needs, invest in capital expenditures as needed, and repurchase shares of its common stock during the fiscal periods presented.

      A subsidiary of the company maintains an unsecured line of credit with a foreign bank for $1.8 million. The company also maintains a credit agreement in the amount of $2.4 million with a foreign bank to support our hedging activities. In December 2003, the company obtained a standby letter of credit for $0.2 million in conjunction with our workers’ compensation insurance program. During and as of the periods presented, no amounts were borrowed under these agreements. The company also has a credit facility with a United States bank for $14.9 million secured by a long-term note on our Irvine facility. This note has scheduled principal repayments of $0.7 million annually through fiscal year 2007 and a balloon payment of $12.8 million in fiscal year 2008. (See Note 3 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K).

      Cash and cash equivalents increased $7.1 million to $36.7 million in fiscal year 2004. We generated $6.4 million in cash from operations, which was lower than the $12.0 million generated from operations a year ago principally as a result of decreased profitability and lower cash provided by inventory and other assets. In fiscal year 2004, cash proceeds from the exercise of stock options were $5.4 million, significantly higher than the prior fiscal year proceeds of $1.1 million as large blocks of options were exercised shortly before they were scheduled to expire. Investment in property, plant and equipment was less than depreciation expense. The remaining major uses of cash were payments totaling $0.7 million made on the long-term note and repurchases of stock totaling $1.1 million. We ended fiscal year 2004 with debt of $14.9 million related to the long-term note, which consisted of $14.2 million long-term and $0.7 million for the current portion of the long-term debt.

      The remaining shares that could be repurchased at the discretion of management under the stock buyback program totaled 227,395 shares as of March 26, 2004.

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      We believe our internally-generated funds are sufficient to finance anticipated working capital and capital expenditure requirements for the foreseeable future. Should we need to obtain additional sources of funds, we believe we could obtain such funds through additional credit facilities.

      Cash and cash equivalents increased $7.0 million to $29.6 million in fiscal year 2003, principally due to increased profitability and a reduction in inventory levels. We generated $12.0 million in cash from operations, which was lower than the $20.7 million generated from operations in the prior fiscal year as a result of a slowing in the rate of decrease in inventory and an increase in accounts receivables. Investment in property, plant and equipment was less than depreciation expense. The remaining major uses of cash were payments totaling $0.7 million made on the long-term note and repurchases of stock totaling $1.7 million. We ended fiscal year 2003 with debt of $15.6 million related to the long-term note, which consisted of $14.9 million long-term and $0.7 million for the current portion of the long-term debt.

Contractual Obligations and Commercial Commitments

      We are obligated under certain borrowing and lease commitments. Additional information on our obligations can be found in Note 3 and Note 9 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. The minimum payments due as of March 26, 2004, for the subsequent fiscal years, are as follows:

      We also are obligated under certain unsecured lines of credit and a credit agreement which supports our hedging activities for our foreign subsidiaries. No amounts have been borrowed against these lines of credit or credit agreement as of March 26, 2004, or for the fiscal periods presented.

      The commitment amounts and expiration periods, as of March 26, 2004, are summarized below.

Off-Balance Sheet Arrangements

      The company’s off-balance sheet arrangements consist of operating leases, credit facilities and guarantees.

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      We utilize operating leases for various facilities as disclosed further in Note 9 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K, and intend to continue to do so. We also use operating leases to obtain some of our machinery and equipment. Should we decide to purchase such machinery and equipment outright, we do not believe it would have a material impact on our results of operations or capital resources.

      The company maintains lines of credit totaling $2.0 million and a $2.4 million credit agreement which supports our hedging activities as discussed further in Note 3 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. No amounts were borrowed under these agreements for the periods presented and we expect this to continue.

      The parent company guarantees any amounts outstanding on the subsidiary’s unsecured line of credit with a foreign bank for $1.8 million. There were no cash borrowings against this line of credit for the fiscal periods presented.

      In connection with the standby letter of credit agreement 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. We believe the fair value of this indemnification agreement is minimal and have not recorded a liability for it.

      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 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.

      The company has also agreed to hold harmless a former officer of the company in the event of an unfavorable outcome of ongoing litigation. We believe the fair value of the resolution of this litigation is minimal and have not recorded a liability for it.

New Pronouncements

      In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”, which had required a liability for an exit cost be recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002 and requires that a liability for an exit cost be recognized when incurred. This statement also requires that the initial measurement of this liability be at fair value. This statement primarily impacts the timing of the recognition of restructuring activity expenses. The adoption of this statement did not have a material impact on our financial position or results of operations.

      In November 2002, the FASB issued FIN 45. This interpretation requires additional disclosures be made by a guarantor in its interim and annual financial statements about obligations that it has. This interpretation is effective for financial statements of interim or annual periods ending after December 15, 2002. We adopted the disclosure and recognition provisions of this interpretation during the third quarter of fiscal year 2003. The recognition provision of this interpretation had no impact on our financial position or results of operations.

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      In November 2002, the EITF reached a consensus on Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This issue provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of this issue did not have a material impact on our financial position or results of operations.

      In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 and APB No. 28, “Interim Financial Reporting,” to require prominent disclosure in both the annual and interim financial statements about the method of accounting and the effect on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. We adopted the disclosure provisions of this statement in the fourth quarter of fiscal year 2003. The adoption did not have a material impact on our financial position or results of operations, as we will continue to account for stock-based compensation under APB No. 25, “Accounting for Stock Issued to Employees.”

      In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003. The adoption of this statement did not have a material impact on our financial position or results of operations.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 establishes standards for how certain financial instruments with characteristics of both liabilities and equity are classified and measured. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement did not have a material impact on our financial position or results of operations.

      In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition,” which superceded SAB 101, “Revenue Recognition in Financial Statements.” SAB 104 updated certain interpretative guidance included in SAB 101. The basic revenue recognition principles of SAB 101 were largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not have a material impact on our financial position or results of operations.

Risk Factors That May Affect Financial Results and Financial Condition and Information Concerning Forward-Looking Statements

      This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management’s current expectations concerning future activities or events and their potential impact upon the company. We can offer no assurance that future activities or events affecting the company will be those anticipated by management. In addition, any of the following risks and uncertainties could adversely affect our business, financial results or financial condition and cause the actual results to differ from those expressed or implied in the forward-looking statements in this document. Other risks and uncertainties also could affect our business. Although we reassess material trends and uncertainties affecting our results of operations and financial condition in connection with the preparation of our quarterly and annual reports, we do not intend to review or revise, in light of future events, any particular forward-looking statement contained in this document. The information contained below should be carefully considered when reviewing any forward-looking statements contained in this document.

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      Our products are used for mission-critical applications in industrial settings such as manufacturing plants and distribution centers and 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, our revenue is impacted by growth in the level of activity in the worldwide supply chain. The slowness in the worldwide economy and the resultant reduced capital expenditures for plant expansion and refurbishment has contributed to revenue reductions noted since fiscal year 2000. Continued softness in the global economy could result in lower revenue and could adversely affect our business, results of operations and financial condition.

      The industrial printing market utilizes varying technologies including line matrix, thermal transfer, laser, inkjet, serial and band printing 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, thermal transfer (high-end) and high-end laser printing technologies. Since fiscal year 2000, we have experienced decreasing volumes of line matrix printer sales. This is partially due to the heavy spending on information technology systems replacements and upgrades related to Y2K in the fiscal years leading up to the year 2000, partially due to the impact of other competing technologies, in particular thermal printers and mid-range laser printers, and partially due to a loss of focus on selling our products by our largest customer in the OEM channel.

      During fiscal year 2004, we have taken steps to mitigate the impact that competing technologies have had upon our product sales. Together with our largest customer, we have developed a plan for Printronix to provide field sales support for IBM and their resellers as well as provide telemarketing to the IBM installed base for demand generation. We continued to implement our plan of geographic expansion of sales offices in markets where line matrix is growing. We will also continue to develop higher-speed line matrix printers that will allow us to replace aging band printers and compete against the mid-range laser printers. We cannot offer assurance that we can successfully develop the needed products and compete against current competitors or future competitors for band printers and mid-range laser printers, or regain mindshare with our largest customer.

      The printing-solutions industry is extremely competitive and is characterized by technological change, frequent new product development, periodic product obsolescence, evolving industry standards, 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, services and solutions. To develop new products, we invest in research and development. 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. We cannot guarantee the success of our research and development efforts.

      The industry activity related to RFID smart labels has continued to build momentum to meet the January 2005 start date mandated by Wal-Mart and the DOD for their top tier suppliers. We must adapt quickly to changes mandated by the industry standard setting group, EPC Global, to achieve 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.

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      The market for medium- and high-speed computer printers 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.

      Our current main competitors in line matrix printers are Tally/ Genicom and Hitachi Data Systems. Our current main competitors in high-end thermal printers are Zebra Technologies Corporation (“Zebra”) (NASDAQ: ZBRA), Toshiba Corporation (“TEC”), SATO, and Intermec (NYSE:UNA). 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.

      We can offer no assurance that products with superior market acceptance, superior price or superior performance will not be introduced by our competitors. Increased competition may result in price reductions, lower gross margins, 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. 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 materially adverse effect upon our business, results of operations and financial condition.

      Standards for the emerging RFID market are evolving almost daily. UHF frequency standards have been set for the United States and Europe, but not yet for the rest of the world. The design of the microchip used in RFID smart labels is also evolving as the industry moves forward. Currently, three classes of chips are available; Class 0, Class 0+, and Class 1. EPC Standards Committee is currently driving the design of a second-generation chip that will become the standard going forward. We cannot guarantee that we can successfully meet the evolving standards in the future or evolving product designs.

      We were first to market a product that meets the needs of the RFID mandate from Wal-Mart and the DOD with a smart label. We believe our primary competition in RFID printing is Zebra for the consumer products market and Intermec for the DOD requirements and we believe they are actively pursuing this market. We cannot offer assurances that we can successfully compete against these competitors or other competitors in the RFID market.

      We believe the opportunity presented by RFID draws heavily upon our differentiating features such as ODV, open systems architecture to fit seamlessly into legacy IT applications and global presence, but can offer no assurance that we will be successful in capturing market share in this new market or be successful in improving our profitability as a result of capturing market share.

      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 be successful.

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      We rely upon a few resellers for a significant amount of our revenue. In fiscal years 2004 and 2003, sales to our largest reseller, IBM, represented 22.3% and 23.8% of net sales, respectively, and sales to our second largest reseller represented 8.9% and 9.0% of net sales, respectively. Sales to the top ten customers represented 51.4% of net sales in fiscal year 2004 and 50.9% of net sales in fiscal year 2003. The loss of any one of these resellers would have a materially adverse effect upon our business, results of operations and financial condition. We also may be adversely impacted by any conflicts that could arise between and among our sales channels.

      We believe 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 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:

	•	loss of channel;
	•	customers leveraging their buying power to change the terms of pricing, payment and product delivery schedules; and
	•	direct competition should a customer decide to manufacture printers internally.

      We cannot guarantee a major reseller will not reduce, delay or eliminate purchases from us, which could have a materially adverse effect upon our business, results of operations and financial condition.

      We rely upon our ability to successfully forecast customer demand and to manage our worldwide inventory levels to support this 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, 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. We have taken several actions over the years to mitigate these risks. We utilize just-in-time (“JIT”) practices wherever possible in our manufacturing process to minimize the potential for excess and obsolete inventories. We maintain minimal levels of finished good printer products since we build to order. We are able to achieve the many optional configurations customers choose to meet their needs by combining the elements of a printer that are common across all printers, called a variant, with the unique combination of options a customer chooses to achieve their needed connectivity and features. The use of variants greatly reduces our need to maintain inventory levels and offers maximum flexibility to meet customer demands. We cannot guarantee that our results of operations and financial condition will not be adversely affected in the future by such changes in demand.

      Our products are manufactured using raw materials and components that are acquired in the United States and 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 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

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      We rely heavily upon our international facilities to manufacture key products, components and complete configuration of printers. Our future operating results and financial condition may be adversely affected by several factors, including, but not limited to, failure of our international production and configuration facilities or international suppliers to supply products reliably, disruptions in international trade, or production and supply constraints that could result in additional costs. Also, we rely upon our ability to successfully predict demand and to adjust our worldwide inventories accordingly.

      For fiscal years 2004, 2003, and 2002, international revenue (excluding United States sales) accounted for approximately 51.6%, 49.8%, and 46.7%, respectively, of our net sales. We expect international revenue will continue to grow and account for a significant percentage of our revenue for the foreseeable future.

      There are many risks associated with international customers, operations and suppliers, including, but not limited to, the following:

	•	compliance with multiple and potentially conflicting regulations, including export requirements, tariffs, import duties, health and safety requirements and other barriers;
	•	differences in intellectual property protections;
	•	currency fluctuations;
	•	economic instability, including inflation and interest rate fluctuations;
	•	risk of loss of our international assets due to political or economic instability;
	•	competition from foreign suppliers;
	•	political or civil turmoil;
	•	war or conflict abroad;
	•	terrorist attacks and
	•	outbreaks of infectious disease such as Severe Accute Respiratory Syndrome (SARS).

      The company’s effective tax rate could be adversely affected by:

	•	overlapping or differing tax structures;
	•	whether we obtain an extension of the Singapore pioneer tax status which expired at the end of fiscal year 2004 and which exempted earnings from the manufacture and sale of the line matrix P5000 products by our Singapore subsidiary from income tax;
	•	a change in the mix of earnings in countries with differing income tax rates and
	•	unfavorable outcomes of future audits by taxing authorities in various jurisdictions.

      Failure to manage the risks posed by our international customers, operations and suppliers could have a materially adverse effect upon our business, results of operations and financial condition.

      The ability to attract and to retain key, highly-qualified personnel, both technical and managerial, is critical to our success.

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      Developing, manufacturing and marketing our products is a complex process and requires significant expertise to meet customers’ specifications. Competition for personnel, particularly qualified engineers, 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 materially adverse effect upon our business, results of operations and financial condition.

      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. We have been granted a total of 47 United States and foreign patents.

      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 and diversion of our resources. 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 materially adverse effect upon our business, results of operations and financial condition.

Foreign Currency Risk

      Our Singapore and European operations may be impacted by foreign currency fluctuations. We are not aware of any significant risks with respect to our foreign business other than those inherent in the competitive nature of the business and fluctuations in foreign currency exchange rates. Foreign currency transaction and remeasurement losses were $8 thousand for fiscal year 2004, compared with gains of $556 thousand for fiscal year 2003 and losses of $163 thousand for fiscal year 2002, principally due to the effect of changes in the value of the Euro. The future effect of changes in the value of the Euro or other foreign currencies on our results of operations or financial condition is difficult to predict.

      We employ a foreign currency hedging program in order to mitigate exposure to foreign currency rate movements. Information on our foreign currency hedging program is found in Note 1 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

      The effects of changes in the Euro’s value in fiscal year 2004, compared with fiscal year 2003, were as follows: an increase in revenue of $3.3 million, an increase in gross margin of $2.4 million, an increase in operating expenses of $0.8 million and an increase in foreign exchange losses of $1.1 million.

      The effects of changes in the Euro’s value in fiscal year 2003, compared with fiscal year 2002, were as follows: an increase in revenue of $1.8 million, an increase in gross margin of $1.5 million, an increase in operating expenses of $0.4 million and an increase in foreign exchange gains of $0.7 million.

Interest Rate Risk

      We have financial instruments that are subject to interest rate risk, principally debt obligations and short-term cash investments. Borrowings are at variable rates for periods that generally do not exceed 90 days. Information about our bank borrowings is found in Note 3 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. Information about the fair value of the financial instruments is found in Note 1 of the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K. If interest rates were to increase by 10% (24 basis points on the seven-year note), the impact on our pre-tax earnings would not be material.

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Index to Consolidated Financial Statements