e10vq

Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 29, 2006

		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________

Commission file number 0-9321

PRINTRONIX, INC.

(Exact name of registrant as specified in its charter)


Delaware		95-2903992
(state or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

14600 Myford Road P.O. Box 19559, Irvine, California		92623 (Zip Code)
(Address of principal executive offices)

(714) 368-2300
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12(b)-2 of the Exchange Act.


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act).


YES o		NO þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class of Common Stock		Outstanding at October 27, 2006
$0.01 par value		6,614,920

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

PRINTRONIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 29, 2006 and March 31, 2006
(Unaudited)


	September 29,			March 31,
	2006			2006
	($ in thousands except share and per
	share data)
ASSETS
Current assets:
Cash and cash equivalents	$	32,334		$	41,546
Short-term investments		3,991			547
Accounts receivable, net of allowances for doubtful accounts and sales returns of $1,349 as of September 29, 2006, and $1,483 as of March 31, 2006		19,402			19,292
Inventories:
Raw materials		8,799			7,881
Subassemblies		3,566			3,420
Work in process		189			186
Finished goods		3,517			2,895

Total inventory		16,071			14,382
Prepaid expenses and other current assets		1,910			1,780
Deferred income tax assets, net		154			196

Total current assets		73,862			77,743

Property, plant, and equipment, at cost:
Machinery and equipment		26,238			26,744
Furniture and fixtures		22,780			22,889
Buildings and improvements		23,174			23,172
Land		8,100			8,100
Leasehold improvements		796			754

		81,088			81,659
Less: Accumulated depreciation and amortization		(50,695	)		(50,041	)

Property, plant and equipment, net		30,393			31,618
Long-term deferred income tax assets, net		110			110
Other assets		615			513

Total assets	$	104,980		$	109,984

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	13,125		$	700
Accounts payable		8,502			8,427
Accrued liabilities:
Payroll and employee benefits		4,105			4,552
Warranty		803			865
Deferred revenue		3,049			3,925
Professional fees		970			1,964
Other		2,078			2,522
Income taxes		160			2,273

Total current liabilities		32,792			25,228

Long-term debt, net of current portion		—			12,775
Deferred revenue, net of current portion		1,486			1,214
Long-term deferred income tax liabilities, net		154			196
Other long-term liabilities		368			331
Commitments and contingencies (Note 10)		—			—

Stockholders’ equity:
Common stock, $0.01 par value (Authorized 30,000,000 shares; shares issued and outstanding 6,614,920 as of September 29, 2006, and 6,587,519 as of March 31, 2006)		66			66
Additional paid-in capital		36,581			36,369
Accumulated other comprehensive income (loss)		7			(24	)
Retained earnings		33,526			33,829

Total stockholders’ equity		70,180			70,240

Total liabilities and stockholders’ equity	$	104,980		$	109,984

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRINTRONIX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 29, 2006 and September 23, 2005
(Unaudited)


	Three Months Ended						Six Months Ended
	September 29,			September 23,			September 29,			September 23,
	2006			2005			2006			2005
	($ in thousands, except share and per share data)

Revenue	$	29,263		$	28,958		$	60,913		$	60,745
Cost of sales		17,761			18,171			37,012			37,649

Gross margin		11,502			10,787			23,901			23,096

Operating expenses:
Engineering and development		3,092			3,608			6,231			7,476
Sales and marketing		5,493			6,115			11,448			12,231
General and administrative		2,720			2,751			5,581			5,001

Total operating expenses		11,305			12,474			23,260			24,708


Income (loss) from operations		197			(1,687	)		641			(1,612	)

Foreign currency losses (gains), net		16			(23	)		10			(83	)
Interest income		(444	)		(359	)		(904	)		(646	)
Interest expense		266			175			490			330
Other income, net		(7	)		(17	)		(14	)		(30	)

Income (loss) before taxes		366			(1,463	)		1,059			(1,183	)
Provision for income taxes		155			135			292			205

Net income (loss)	$	211		$	(1,598	)	$	767		$	(1,388	)


Net income (loss) per share:
Basic	$	0.03		$	(0.26	)	$	0.12		$	(0.22	)
Diluted	$	0.03		$	(0.26	)	$	0.12		$	(0.22	)

Shares used in computing net income (loss) per share:
Basic		6,299,942			6,241,949			6,291,767			6,222,233
Diluted		6,439,328			6,241,949			6,449,775			6,222,233

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRINTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 29, 2006 and September 23, 2005
(Unaudited)


	Six Months Ended
	September 29,			September 23,
	2006			2005
	($ in thousands)

Cash flows from operating activities:
Net income (loss)	$	767		$	(1,388	)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		2,195			2,322
Recovery of doubtful accounts		(115	)		(551	)
Loss (gain) on disposal of property and equipment		69			(7	)
Unrealized gain on marketable securities		7			—
Changes in operating assets and liabilities:
Accounts receivable		5			3,109
Inventories		(1,689	)		(1,136	)
Prepaid expenses and other assets		(208	)		(456	)
Accrued interest income		(35	)		—
Accounts payable		75			(373	)
Payroll and employee benefits		(447	)		(287	)
Accrued warranty		(62	)		40
Accrued professional fees		(994	)		363
Accrued income taxes		(2,113	)		56
Deferred revenue		(604	)		(723	)
Other liabilities		(407	)		(191	)

Net cash (used in) provided by operating activities		(3,556	)		778


Cash flows from investing activities:
Purchases of property and equipment		(1,083	)		(2,448	)
Proceeds from disposition of property and equipment		44			26
Proceeds from sales of short-term investments		—			13,100
Purchases of short-term investments		(3,409	)		(16,990	)

Net cash used in investing activities		(4,448	)		(6,312	)


Cash flows from financing activities:
Payments made on long-term debt		(350	)		(350	)
Proceeds from employee stock incentive plans		212			623
Cash dividends declared and paid		(1,070	)		(916	)

Net cash used in financing activities		(1,208	)		(643	)


Net decrease in cash and cash equivalents		(9,212	)		(6,177	)
Cash and cash equivalents at beginning of period		41,546			35,405

Cash and cash equivalents at end of period	$	32,334		$	29,228


Supplementary disclosures of cash flow information:
Income tax paid	$	2,870		$	144
Interest paid	$	435		$	273

The accompanying notes are an integral part of these condensed consolidated financial statements.

As of September 29, 2006 and March 31, 2006, and for the Three and Six Months Ended
September 29, 2006 and September 23, 2005
(Unaudited)

Note 1 Basis of Presentation

Printronix, Inc. has prepared the unaudited condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading.

In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the financial position, results of operations and cash flows as of and for the periods presented. These condensed consolidated financial statements are unaudited and should be read in conjunction with the consolidated financial statements and footnotes thereto included in our latest Annual Report on Form 10-K for the fiscal year ended March 31, 2006, as filed with the Securities and Exchange Commission. The consolidated balance sheet as of March 31, 2006, presented herein has been derived from the audited consolidated balance sheet contained in our latest Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the interim periods presented are not necessarily indicative of the results for the full fiscal year.

Certain amounts for the prior periods have been reclassified to conform to the fiscal year 2007 presentation.

We underwent a state sales tax audit for the period of October 2001 through September 2004 and received a notice of determination in October 2006. As of September 29, 2006, we had accrued $156 thousand related to this matter for taxes, interest and penalties through September 2006, of which $38 thousand was recorded to cost of sales, $38 thousand was recorded to engineering and development, $37 thousand was recorded to general and administrative, and $43 thousand was recorded to other income, net. Of the $156 thousand, $144 thousand related to prior years. We do not believe that these adjustments are quantitatively or qualitatively material to the results of the three and six month periods ended September 29, 2006, our projected results for the current year, or to any prior years’ earnings, earnings trends or financial statement line items. As a result, we have not adjusted any prior period amounts.

Unless the context otherwise requires, the terms “we,” “our,” “us,” “company” and “Printronix” refer to Printronix, Inc. and its consolidated subsidiaries.

Stock-Based Compensation

Adoption of Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”) and Transition

On April 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which requires compensation expense to be recognized for all share-based payments made to employees based on the fair value of the award at the date of the grant. As required by SFAS 123(R), share-based compensation expense, net of an estimated forfeiture rate, is recognized over the requisite service period (generally the vesting period) of the award. We adopted SFAS 123(R) using the modified prospective method, which results in the recognition of compensation expense using the provisions of SFAS 123(R) for all share-based awards granted or modified after March 31, 2006 and the recognition of compensation expense using the provisions of SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), for all unvested awards outstanding at the date of adoption. Under this transition method, the results of operations of prior periods have not been restated. Accordingly, we will continue to provide pro forma financial information for prior periods to illustrate the effect on net income and earnings per share of applying the fair value recognition provisions of SFAS No. 123.

Prior to April 1, 2006, as permitted by SFAS No. 123, we accounted for employee stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. Accordingly, we did not recognize any compensation expense for stock option grants where the exercise price was equal to the fair market value of our common stock on the grant date. In accordance with SFAS 123 and SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, we provided pro forma net income or loss and net income or loss per share disclosures for each period prior to the adoption of SFAS 123(R) as if we had applied the fair value-based method in measuring compensation expense for our stock-based compensation plans. Prior to the adoption of SFAS 123(R), we presented all tax benefits resulting from the exercise of stock options as operating cash flows in our consolidated statements of cash flows. SFAS 123(R) requires that the realized tax benefit related to the excess of the deductible amount over the compensation cost recognized (excess tax benefits) be classified in the statement of cash flow as a cash flow from financing activities rather than as a cash flow from operating activities.

For the six months ended September 29, 2006, we did not grant or modify any stock options or restricted stock awards and, therefore, no stock-based compensation expense was recognized under SFAS 123(R). We are currently evaluating alternatives to stock options to compensate our employees.

Pro Forma Information Under SFAS No. 123 for Periods Prior to April 1, 2006

The following table illustrates the effect on net loss and net loss per share for the three and six months ended September 23, 2005 if we had applied the fair value recognition provision of SFAS 123 to stock-based compensation:


	Three Months			Six Months
	Ended			Ended
	September 23,			September 23,
	2005			2005
	($ in thousands, except per share data)
Net loss, as reported	$	(1,598	)	$	(1,388	)

Deduct total stock-based employee compensation expense determined under fair value-based method for all awards		(102	)		(195	)

Pro forma net loss	$	(1,700	)	$	(1,583	)


Net loss per share:
Basic — as reported		($0.26	)		($0.22	)
Basic — pro forma		($0.27	)		($0.25	)

Diluted — as reported		($0.26	)		($0.22	)
Diluted — pro forma		($0.27	)		($0.25	)

In December 2005, we accelerated the vesting of all of the company’s “out-of-the-money” stock options (96,402 shares at a weighted-average exercise price of $16.96 per share) previously granted under the 1994 Stock Incentive Plan. No compensation expense resulted from the accelerated vesting of these options. In March 2006, we accelerated the vesting of all remaining stock options (60,121 shares at a weighted-average exercise price of $12.11 per share) previously granted under the 1994 Stock Incentive Plan and the 2005 Stock Option Plan. As a result of the acceleration of the “in-the-money” stock options, approximately $10 thousand of stock-based employee compensation cost was reflected in the reported net loss for fiscal year 2006 in accordance with the Financial Accounting Standards Board (“FASB”) Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation — an interpretation of APB Opinion No. 25.” The compensation cost is related to the excess of the intrinsic value over the fair market value of the company’s stock on the acceleration date of those options that would have been forfeited or expired unexercised had the vesting not been accelerated. The forfeiture rate was determined based on historical experience. The compensation charge will be adjusted in future period financial results as actual forfeitures are realized. For the three and six months ended September 29, 2006, there were no material changes in actual forfeitures from estimates.

We elected to accelerate the above options to eliminate recognizing approximately $0.4 million of future compensation expense in our consolidated statement of operations that would have been recorded over four years beginning fiscal year 2007 following the adoption of SFAS 123(R).

Determining Fair Value

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatility is based upon the historical volatility of our stock for a period approximating the expected life. The risk-free interest rate is estimated using the U.S. Treasury rates corresponding to the grant date and expected life. Dividend yield is based on our history of dividend payouts. The expected life of options granted is estimated based on historical exercise patterns, and represents the period of time the options are expected to be outstanding.

For purposes of calculating the compensation cost consistent with SFAS No. 123, the fair value of each option granted to employees is estimated using the Black-Scholes option-pricing model on the date of grant using the following assumptions for the three and six months ended September 23, 2005:


	Three Months			Six Months
	Ended			Ended
	September 23,			September 23,
	2005			2005
Expected volatility		0.44			0.44
Weighted-average risk-free interest rate		4.04	%		3.96	%
Dividend yield		1.1	%		1.1	%
Average expected life		3.60			3.60
Weighted-average grant-date fair value	$	5.62		$	5.45

Assumptions are not presented for the three and six months ended September 29, 2006 because stock options were not granted during these periods.

Note 2 Short-Term Investments

We evaluate our short-term investments in marketable debt securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and have determined that all of the investments in marketable debt securities should be classified as available-for-sale as of September 29, 2006 and held-to-maturity as of March 31, 2006. Available-for-sale securities are carried at fair value and held-to-maturity securities are carried at amortized cost. The unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income. The income tax rate is zero for these transactions due to domestic operating losses and the effect of valuation allowances. Realized gains and losses are included in interest income. The cost basis for realized gains and losses on available-for-sale securities is determined on a specific identification basis.

The fair value of the investments in marketable debt securities is based on quoted market prices that approximate fair value. We assess the investments in marketable debt securities for other-than-temporary declines in value by considering various factors that include, among other things, any events that may affect the creditworthiness of a security’s issuer, the length of time the security has been in a loss position, and our ability and intent to hold the security until a forecasted recovery of fair value.

At September 29, 2006, we had $30.0 million of investments in taxable corporate securities, repurchase agreements and money market funds. At September 29, 2006, $26.4 million of these investments had original maturities of three months or less and were included in cash and cash equivalents, $3.4 million had original maturities of greater than three months, but less than one year, and were included in short-term investments, and $0.2 million were funds held in escrow, and were included in other assets. During the three and six months ended September 29, 2006, our investments earned an annualized effective yield of 5.3 percent and 5.1 percent, respectively.

At March 31, 2006, we had $30.8 million of investments in mortgage-backed securities with original maturities of three months or less which were included in cash and cash equivalents on the balance sheet. At September 29, 2006 and March 31, 2006, short-term investments also included $0.6 million and $0.5 million, respectively, in certificates of deposit, which are carried at cost.

At September 29, 2006 and March 31, 2006, the estimated fair value of each investment approximated its amortized cost and, therefore, we had no significant unrealized gains or losses or any non-temporary losses.

Note 3 Accounts Receivable

We maintain an allowance for doubtful accounts and an allowance for estimated sales returns, totaling $1.3 million and $1.5 million as of September 29, 2006 and March 31, 2006, respectively. The allowance for doubtful accounts was $0.6 million and $0.8 million as of September 29, 2006 and March 31, 2006, respectively. The allowance for estimated sales returns was $0.7 million as of September 29, 2006 and March 31, 2006, and was reflected as a reduction to revenues in the periods established.

Note 4 Inventories

We record a provision to value the inventory at the lower of the actual cost to purchase and/or manufacture the inventory, or the current estimated market value of the inventory, based upon assumptions about future demand and market conditions. We also perform an evaluation of the inventory and record a provision for estimated excess and obsolete items based upon forecasted demand, and any other known factors at the time. Inventories, which include material, labor and overhead costs, are valued at the lower of cost (first-in, first-out method) or market.

Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment (“RoHS”) became effective throughout the European Community starting July 1, 2006. RoHS restricts the use of six substances: lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (“PBB”) or polybrominated diphenyl ethers (“PBDE”), within electrical and electronic equipment. As of June 30, 2006, the conversion of products targeted for RoHS compliance had been completed without an impact to the realizability of the inventory on hand.

Note 5 Bank Borrowings and Debt Arrangements

Long-Term Note

As of September 29, 2006, the company has a $13.1 million note with a United States bank collateralized by its Irvine facility. The note requires monthly principal and interest payments, with a balloon payment of $12.6 million due June 1, 2007. Repayment of the note is as follows: $0.3 million for fiscal year 2007, and $12.8 million, which includes the balloon payment, in fiscal year 2008. Because all remaining payments are due within one year, the $13.1 million balance on the note is classified in current liabilities. As of September 29, 2006, the Irvine facility had a carrying value of $20.1 million.

The note contains customary default provisions and has no financial covenants. Interest on the note is at variable rates based upon the London Interbank Offered Rate (“LIBOR”) plus 1.25 percent, and is reset for periods from one month up to one year, at our discretion. The interest rate on the note was 6.6 percent as of September 29, 2006 and the weighted-average interest rate on the note was 6.7 percent and 6.5 percent for the three and six months ended September 29, 2006. Total interest expense on the note was $0.2 million and $0.4 million, respectively, for the three and six months ended September 29, 2006 and $0.2 million and $0.3 million, respectively, for the three and six months ended September 23, 2005.

Line of Credit and Standby Letters of Credit

In May 2006, one of our foreign subsidiaries terminated its $1.8 million unsecured line of credit, which included a $1.5 million standby letter of credit, with a major foreign bank and entered into a new line of credit for $4.2 million with the same major foreign bank. This line of credit provides for trade financing and includes letters of credit, trust receipts, shipping guarantees, banker’s guarantees and a standby letter of credit for a total of $1.8 million, and a working capital line of credit for $2.4 million. Advances under the trade financing instruments generally have a maximum term of one year, except for the letter of credit and trust receipt, which have maximum terms of 30 and 90 days, respectively. Advances under the working capital line of credit are limited to 80% of the market value of our subsidiary’s manufacturing facility, or $2.4 million, whichever is lower. The parent company guarantees any amounts outstanding up to the $4.2 million credit limit. The entire credit facility is subject to a financial covenant, which requires that we maintain a net worth of not less than $64 million. We were in compliance with this financial covenant as of September 29, 2006. The line of credit is collateralized by our subsidiary’s manufacturing facility. The facility had a carrying value of $2.7 million as of September 29, 2006. No fees are charged for the unused portion of the lines of credit. Any borrowings on the line of credit would be subject to interest rates at 1.0 percent above the prime-lending rate. During the six months ended September 29, 2006 and fiscal year 2006 there were no cash borrowings against the new or terminated lines of credit.

One of our foreign subsidiaries maintains a $0.3 million letter of credit with a major foreign bank. This credit facility provides for financing of trade shipments to Singapore. Any borrowings on this letter of credit are subject to interest rates at 0.25 percent above the prime-lending rate. During the six months ended September 29, 2006 and fiscal year 2006, there were no cash borrowings against this letter of credit.

We maintain a $0.5 million standby letter of credit related to our workers’ compensation insurance program. The standby letter of credit is secured by a cash deposit and is automatically renewed annually. Any borrowings would be subject to interest rates at 2.0 percent above the prime-lending rate, subject to certain maximum limits. During the six months ended September 29, 2006 and fiscal year 2006, there were no cash borrowings against this standby letter of credit.

Credit Agreement for Hedging Activity

We have a commitment facility for $2.5 million with a major foreign bank to support our hedging activities. This commitment facility has no restrictive covenants and is available to fund any forward currency contracts should we be unable to satisfy our obligations. The agreement automatically renews annually, subject to certain administrative compliance requirements. There are no annual fees under this agreement. Any borrowings under this agreement would be subject to interest rates available at that time. During the six months ended September 29, 2006 and fiscal year 2006 no amounts were borrowed under this commitment facility.

Note 6 Defined Benefit Pension Plan

We sponsor a defined benefit pension plan in Germany for our employees. The pension benefits are based on length of service, wage level, and position in the company. As of September 29, 2006 and March 31, 2006, there were four participants in the plan. We have elected to record the change in the pension benefit obligation as our net periodic benefit cost. For the three and six months ended September 29, 2006, we recorded a net periodic benefit cost of $9 thousand and $18 thousand, respectively.

Note 7 Net Income (Loss) per Share

Basic net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding and potential shares outstanding during the period, if dilutive.

Net income (loss) per share for the three and six months ended September 29, 2006, and September 23, 2005, is set forth in the following table:


	Three Months Ended					Six Months Ended
	September 29,		September 23,			September 29,		September 23,
	2006		2005			2006		2005
	($ in thousands, except share and per share data)

Net income (loss)	$	211	$	(1,598	)	$	767	$	(1,388	)
Basic weighted-average shares outstanding		6,299,942		6,241,949			6,291,767		6,222,233
Basic net income (loss) per share	$	0.03	$	(0.26	)	$	0.12	$	(0.22	)

Effect of dilutive securities:
Basic weighted-average shares outstanding		6,299,942		6,241,949			6,291,767		6,222,233
Dilutive effect of stock options		139,386		—			158,008		—

Dilutive weighted-average shares outstanding		6,439,328		6,241,949			6,449,775		6,222,233
Diluted net income (loss) per share	$	0.03	$	(0.26	)	$	0.12	$	(0.22	)

The dilutive weighted-average shares outstanding do not include the antidilutive impact of 118,335 and 121,538 shares for the three and six months ended September 29, 2006, respectively, and 96,433 and 121,028 shares for the three and six months ended September 23, 2005, respectively, because the exercise price of the stock options exceeded the average market value of the stock in the periods presented. In addition, the dilutive weighted-average shares outstanding do not include the antidilutive impact of 226,647 and 222,209 shares for the three and six months ended September 23, 2005, respectively, due to net losses for these periods.

Note 8 Stockholders’ Equity

Stock Incentive Plan — Common Stock Options

The 1994 Stock Incentive Plan (the “1994 Plan”) expired in August 2005. As of September 29, 2006, there were 482,623 stock options outstanding that were previously granted subject to the rights of that plan and no stock options available to grant. The company’s shareholders approved the Printronix, Inc. 2005 Stock Option Plan (the “2005 Plan”) during the second quarter of fiscal year 2006. The 2005 Plan authorizes the sale of up to a total of 600,000 shares of the company’s common stock pursuant to either of two types of “Stock Awards”: (1) stock options; and (2) shares of stock acquired pursuant to stock purchase agreements containing certain restrictions (“restricted stock”). Individuals are granted options under the 2005 Plan at terms (purchase price, expiration date and vesting schedule) established by a committee of the Board of Directors. Under the 2005 Plan, options are granted either in accordance with contractual arrangements or at a price that is equal to fair market value on the date of grant. Such options expire up to ten years after the grant date and generally vest over a four year period. Under restricted stock purchase agreements, individuals purchase shares when the Stock Award is granted; the shares are restricted as the rights to full beneficial ownership vest only upon achievement of certain performance criteria.

When the 2005 Plan was approved by the company’s stockholders, the company’s ability to grant new awards under the 1994 Plan terminated, but did not affect awards then outstanding under the 1994 Plan.

In fiscal year 2006, we accelerated the vesting of all remaining stock options, as described in Note 1.

A summary of the status of the company’s stock option activity for the six months ended September 29, 2006 is as follows:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Common Stock Options	Shares			Price		Term		Value
	($ in thousands, except share and per share data)
Outstanding, March 31, 2006		526,724		$	10.20
Granted		—			—
Exercised		(27,401	)		7.78
Forfeited and expired		(8,200	)		17.01

Outstanding, September 29, 2006		491,123		$	10.22		2.97	$	1,952

Exercisable at September 29, 2006		491,123		$	10.22		2.97	$	1,952

The total intrinsic value of options exercised during the three and six months ended September 29, 2006 was $7 thousand and $181 thousand, respectively.

Stock Incentive Plan — Restricted Stock

Under the 1994 Plan, grants of restricted stock can be made at any price. During fiscal year 2005, we reserved 366,722 shares for future issuance as restricted stock under the 1994 Plan. Of the total reserved, 56,722 shares were reserved for future issuance to the non-employee members of the Board of Directors and key employees. The restricted stock shares are performance based and vest only if the company achieves certain financial targets over a total of six fiscal years.

During the first quarter of fiscal year 2005, we granted 290,000 of the 310,000 shares and in July 2005, we issued 24,400 of the 56,722 shares, bringing the total restricted stock issued to 314,400. In addition, 20,000 shares were not issued but could be purchased by an employee if certain performance criteria were met. As of September 29, 2006, the performance criteria had not been met.

No restricted stock was granted, vested or forfeited during the six months ended September 29, 2006. The weighted-average grant date fair value of the non-vested restricted stock outstanding as of September 29, 2006 was $13.94.

The company has not met, nor is it probable any of the performance targets will be met as of September 29, 2006. Accordingly, stock-based compensation expense has not been recorded during any of the periods presented.

Common Share Purchase Rights

On March 16, 1989, we declared a dividend payable on April 4, 1989, of 10,311,603 Common Share Purchase Rights. Each right, when exercisable, entitles a stockholder to buy one share of common stock at an exercise price of $15.55, subject to adjustment. The rights become exercisable ten days after certain persons or groups announce an acquisition of 20 percent or more, or announce an offer for 30 percent or more, of the common stock. The rights are nonvoting, originally expired in ten years and may be redeemed prior to becoming exercisable. In the event we are acquired in a merger or other business combination, each outstanding right would entitle a holder to purchase, at the current exercise price, that number of shares of common stock of the surviving company having a market value equal to two times the exercise price of the right. Prior to expiration of the rights, the plan under which the rights were granted was amended to, among other things, extend the plan for an additional ten years and change the exercise price to $70.00. The rights expire at the earlier of April 4, 2009, or the exchange or redemption as described above.

Stock Repurchases

During fiscal year 2002, the Board of Directors authorized the company to purchase up to 500,000 shares of the company’s outstanding common stock. Purchases may be made from time-to-time in the open market. During fiscal years 2002 through 2004, 272,605 shares of common stock were repurchased at prices ranging from $9.03 to $11.87 for a total cost of $2.8 million. No shares of common stock were repurchased during fiscal years 2005 and 2006 or during the first six months of fiscal year 2007. Future purchases of 227,395 shares of common stock may be made at our discretion.

Cash Dividends

During the first and second quarters of fiscal year 2007, the company paid cash dividends of $0.07 and $0.10 per share, respectively, totaling $1.1 million, based on 6.3 million shares outstanding.

Note 9 Product Warranties and Guarantees

Warranty Costs

We maintain an accrual for warranty obligations based upon our claims experience and other known factors. We evaluate the warranty accrual requirements and record a provision for estimated warranty obligations to cost of sales. We determine the provision for warranty charges by applying the estimated repair cost and estimated return rates to the outstanding units under warranty. We generally offer either a 90-day on-site repair option or a 12-month return-to-factory option. The 90-day warranty covers the cost of the parts and the labor to replace these parts. The 12-month warranty covers only the replacement parts. If a defective product cannot be repaired, it is replaced at no additional cost to the customer. Supplies are warranted for the shelf life of the products, which can be up to two years.

A summary of our accrued warranty obligation for the periods presented is as follows:


	Six Months Ended
	September 29,			September 23,
	2006			2005
	($ in thousands)
Beginning balance, warranty reserve	$	865		$	863
Add warranty expense		421			544
Accrual adjustments to reflect actual experience		(9	)		(8	)
Deduct warranty charges incurred		(474	)		(496	)

Ending balance, warranty reserve	$	803		$	903

Guarantees

In connection with the standby letter of credit agreement obtained for the workers’ compensation insurance program, we have agreed to indemnify the bank from any third party claims related to its performance on our behalf. The term of this indemnification agreement extends beyond the term of the standby letter of credit agreements. We believe the fair value of this indemnification agreement is minimal and have not recorded a liability for it.

We have posted collateral in the form of a surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the risk of loss related to certain customs and employment activities. If any of the entities that hold these bonds should require payment from the Surety, we would be obligated to indemnify and reimburse the Surety for all costs incurred. As of September 29, 2006, we had $1.0 million of these bonds outstanding.

In the normal course of business to facilitate sales of the products, we 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.

Note 10 Commitments and Contingencies

Contractual Obligations and Commercial Commitments

We are obligated under certain borrowing, purchase and lease commitments. Additional information on our borrowing obligations can be found in Note 5. There were no material changes in our operating lease commitments as of September 29, 2006 from those reported in our Annual Report on Form 10-K.

Purchase Obligations

We have a non-cancelable purchase obligation under an agreement with one of our suppliers. We have agreed to purchase a minimum of $1.0 million of product through March 2007. As of September 29, 2006, we had a remaining purchase commitment of $0.6 million.

Operating Leases

With the exception of Singapore, we conduct our foreign operations and United States sales operations using leased facilities under non-cancelable operating leases that expire at various dates from fiscal year 2007 through fiscal year 2010. We own the building in Singapore and have a land lease that expires in fiscal year 2057.

Environmental Assessment

Barranca Parkway Sites

In January 1994 and March 1996, we were notified by the California Regional Water Quality Control Board — Santa Ana Region (the “Board”) that ground under one of the former production plants and ground adjacent to property

previously occupied by us was thought to be contaminated with various chlorinated volatile organic compounds (“VOCs”). Evidence adduced from site studies undertaken to date indicates that compounds containing the VOCs were not used by Printronix during its tenancy, but were used by the prior tenant during its long-term occupancy of the site.

In August 2002, we responded to an inquiry from the California Department of Toxic Substance Control (the “Department”) regarding the operations at the site of the former production plant. In February 2004, the Department submitted a proposed Corrective Action Consent Agreement to Printronix, which would require Printronix to perform an investigation of the site that would be used as a basis to determine what, if any, remediation activities would be required of Printronix. During fiscal year 2006, the Department agreed to include the prior tenant of the site in the ongoing inquiry. We have agreed to perform an initial environmental test, which we believe will further support our claim that we did not use the VOCs in question. In May 2006, Printronix and the prior tenant referred to above were jointly issued an Enforcement Order in respect to 1700 Barranca Parkway, Irvine, CA. The Enforcement Order requires both parties to a) evaluate if interim measures are required and take action if necessary, b) perform an investigation of the site and c) take corrective measures if contaminants are found. The Enforcement Order allows an appeal, which was filed on June 2, 2006. As of August 7, 2006, the Corrective Action Consent Agreement to conduct a Preliminary Endangerment Assessment (“PEA”) had been agreed upon and executed by both Printronix and the prior tenant. Printronix and the prior tenant have selected an environmental consulting firm to conduct the PEA on their behalf. It is anticipated that in the third quarter of fiscal year 2007, the environmental consulting firm will prepare a formal PEA scope of work for all parties to approve.

We are convinced that we bear no responsibility for any contamination at the site and we intend to defend vigorously any action that might be brought against us with respect thereto.

As of September 29, 2006 and March 31, 2006, we continued to maintain an accrual for $0.2 million, included in accrued liabilities other, which we believe is a reasonable estimate to cover expenses for environmental tests, which we are prepared to undertake.

Denova Site

In August 2004, Printronix was notified by the Environmental Protection Agency (the “EPA”) that clean up costs had been incurred at an authorized facility used by Printronix and approximately 2,000 other companies for the disposal of certain toxic wastes. Printronix joined with a group of the companies contacted by the EPA and collectively negotiated a settlement with the EPA. Our share of the settlement was $32 thousand, which we paid in May 2006. At September 29, 2006 we had no further liability regarding this matter.

Legal Matters

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

Our subsidiary in France is party to a wrongful termination dispute with a former employee. The former employee is claiming damages of 124,500 euros (approximately $158 thousand), which represents approximately 18 months of salary and legal fees. A hearing before the Labor Court in France is scheduled for April 2007. We believe that the former employee’s claim is without merit and the company intends to vigorously defend itself. Although it is possible the company may incur a liability related to this claim, we believe it is not probable and that the ultimate resolution of this matter will not have a material impact on the condensed consolidated financial statements of the company, and therefore have not recorded a liability for this matter.

Note 11 Other Comprehensive Income (Loss)

Other comprehensive income (loss) represents unrealized gains and losses on the Euro foreign currency forward exchange contracts that qualify for hedge accounting and unrealized gains and losses on short-term investments. The aggregate amount of such gains or losses that have not yet been recognized in net income (loss) is reported in the equity portion of the Condensed Consolidated Balance Sheets as accumulated other comprehensive income (loss).

Unrealized net gains on short-term investments at September 29, 2006 were $7 thousand.

Under our foreign currency-hedging program, we can enter into foreign currency forward exchange contracts with maturities from 30 to 180 days with a major financial institution. We do not use the contracts for speculative or trading purposes. As of September 29, 2006, there were no outstanding forward exchange contracts.

The following table reconciles net income (loss) to other comprehensive income (loss) for the fiscal periods presented:


	Three Months Ended					Six Months Ended
	September 29,		September 23,			September 29,		September 23,
	2006		2005			2006		2005
	($ in thousands)
Net income (loss)	$	211	$	(1,598	)	$	767	$	(1,388	)
Other comprehensive income (loss)		4		(133	)		31		(9	)

	$	215	$	(1,731	)	$	798	$	(1,397	)

Note 12 Segment and Customer Data

We manufacture and sell a variety of printers and associated products and conduct business in a single operating segment.

Sales by Customer

Percent of total sales by customer for the fiscal periods presented were as follows:


	Three Months Ended						Six Months Ended
	September 29,			September 23,			September 29,			September 23,
Customer	2006			2005			2006			2005
Largest customer — IBM		21.8	%		22.9	%		19.7	%		23.5	%
Second largest customer		4.6	%		8.2	%		5.9	%		8.2	%
Top ten customers		47.2	%		49.9	%		46.3	%		50.1	%

IBM accounted for 26.1 percent of our accounts receivable balance at September 29, 2006, and 24.7 percent as of March 31, 2006.

Note 13 Income Taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the use of the asset-and-liability method for financial accounting and reporting for income taxes, and further prescribes that current and deferred tax balances are determined based upon the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. Our effective tax rate includes the impact of undistributed foreign earnings for which no U.S. taxes have been provided because we plan to reinvest such earnings indefinitely outside the United States.

In assessing the realizability of deferred tax assets, SFAS No. 109 establishes a more likely than not standard. If it is determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, historical and projected future taxable income and tax planning strategies when making this assessment. SFAS No. 109 further states that forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as losses in recent years. As a result of the company’s recent losses in the United States, the company concluded that a full valuation allowance was required for its deferred tax assets in the United States as of September 29, 2006, as required by SFAS No. 109.

We have subsidiaries in various countries and are therefore subject to varying income tax rates. We have a favorable pioneer tax status in Singapore which exempted income generated from the manufacture and sale of the Printronix P5000 and P7000 Series line matrix and T5000 thermal products by our Singapore subsidiary from income tax liability. The pioneer status in Singapore resulted in foreign tax savings of zero and $0.1 million for the three and six months ended September 29, 2006, respectively, and $0.1 million and $0.3 million for the three and six months ended September 23, 2005, respectively. The effect of this pioneer status was to increase diluted net income per share by zero and 2 cents for the three and six months ended September 29, 2006, respectively, and 1 cent and 4 cents for the three and six months ended September 23, 2005, respectively. The pioneer status expires at the end of fiscal year 2007.

As a matter of course, various taxing authorities may conduct regular audits on the company which may result in additional tax assessments. We believe that our tax positions comply with applicable tax law and that we have adequately provided for these matters. During fiscal year 2006, we filed a protest and amended state income tax returns with the State of California Franchise Tax Board (“FTB”) to claim previously unclaimed research tax credits related to tax years ending March 1994 through March 2003. In September 2006, we received a notice from the FTB that it was conducting a review of our amended returns for the tax years ending March 1998 through March 2000.

The tax provision for the three months ended September 29, 2006 consisted of $5 thousand in current state tax expense and $150 thousand in foreign tax expense. The tax provision for the six months ended September 29, 2006 consisted of $10 thousand in current state tax expense and $282 thousand in foreign tax expense. The tax provision for the three and six months ended September 29, 2006 reflected state minimum franchise taxes and the income tax rates in foreign countries in which we operate.

In the first quarter of fiscal year 2007, we paid $2.5 million in taxes related to the repatriation under the American Job Creation Act of $32.0 million of dividends in the fourth quarter of fiscal year 2006.

The tax provision for the three months ended September 23, 2005 consisted of foreign tax expense of $135 thousand. The tax provision for the six months ended September 23, 2005 included $20 thousand in current state tax expense and $185 thousand in foreign tax expense.

Note 14 New Pronouncements

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an Amendment of ARB 43, Chapter 4” (“SFAS 151”). SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory be based on the normal capacity of the production facilities. SFAS 151 was effective for fiscal years beginning after June 15, 2005, and was adopted by the company in the first quarter of fiscal year 2007. The adoption of SFAS 151 did not have a material impact on the condensed consolidated financial statements of the company.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” which replaces Accounting Principles Board Opinion No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28” (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle and the reporting of a correction of an error, unless it is impracticable to do so. When it is impracticable to determine the period-specific effects of an accounting change, SFAS 154 requires application of the new accounting principle as of the earliest period for which retrospective application is practicable. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS 154 requires application as if the accounting principle were adopted prospectively from the earliest date practicable. SFAS 154 was effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and was adopted by the company in the first quarter of fiscal year 2007. The adoption of SFAS 154 did not have a material impact on the condensed consolidated financial statements of the company.

age group, to transition from full or part-time employment into retirement before their legal retirement age. The EITF is effective for fiscal years beginning after December 15, 2005 and was adopted by the company in the first quarter of fiscal year 2007. The adoption of this EITF did not have a material impact on the condensed consolidated financial statements of the company.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 31, 2006. We are currently evaluating what impact, if any, this statement will have on the condensed consolidated financial statements of the company.

In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation),” (“EITF 06-03”). EITF 06-03 concluded that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, such as sales, use, value added and certain excise taxes is an accounting policy decision that should be disclosed in a company’s financial statements. Additionally, companies that record such taxes on a gross basis should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. EITF 06-03 is effective for interim and annual periods beginning after December 15, 2006. We do not expect this statement to have a material impact on the condensed consolidated financial statements of the company.

In September 2006, Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretative guidance on how public companies quantify financial statement misstatements. There have been two common approaches used to quantify such errors. Under an income statement approach, the “roll-over” method, the error is quantified as the amount by which the current year income statement is misstated. Alternatively, under a balance sheet approach, the “iron curtain” method, the error is quantified as the cumulative amount by which the current year balance sheet is misstated. In SAB 108, the SEC established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company’s financial statements and the related financial statement disclosures. This model is commonly referred to as a “dual approach” because it requires quantification of errors under both the roll-over and iron curtain methods. SAB 108 is effective for fiscal years ending after November 15, 2006. We are currently assessing the impact of adopting SAB 108 but do not expect that it will have a material effect on the condensed consolidated financial statements of the company.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating what impact, if any, this statement will have on the condensed consolidated financial statements of the company.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pensions and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires companies to 1) fully recognize, as an asset or liability, the overfunded or underfunded status of defined benefit and other post-retirement plans; 2) recognize changes in the funded status in the year in which the changes occur through comprehensive income; 3) measure the funded status of defined pension and other post-retirement benefit plans as of the date of the company’s fiscal year end; and 4) provide enhanced disclosures. The provisions of SFAS 158 are effective for fiscal years ending after December 15, 2006, except for the requirement to measure the funded status of retirement benefit plans as of our fiscal year end, which is effective for fiscal years ending after December 15, 2008. We are currently evaluating what impact, if any, this statement will have on the condensed consolidated financial statements of the company.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

PRINTRONIX, INC. AND SUBSIDIARIES

Forward-Looking Statements

Except for historical information, this Form 10-Q contains “forward-looking statements” about Printronix, within the meaning of the Private Securities Litigation Reform Act of 1995. Terms such as “objectives,” “believes,” “expects,” “plans,” “intends,” “should,” “estimates,” “anticipates,” “forecasts,” “projections,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including: adverse business conditions and a failure to achieve growth in the computer peripheral industry and in the economy in general; the ability of the company to achieve growth in the Asia Pacific market; adverse political and economic events in the company’s markets; a worsening of the global economy due to general conditions; a worsening of the global economy resulting from terrorist attacks or risk of war; a worsening of the global economy resulting from an outbreak of avian flu or other world health epidemic, or from a resurgence of SARS (Severe Acute Respiratory Syndrome); the ability of the company to maintain its production capability in its Singapore plant or obtain product from its Asia Pacific suppliers should a resurgence of SARS or other world health epidemic occur; the ability of the company to hold or increase market share with respect to line matrix printers; the ability of the company to successfully compete against entrenched competition in the thermal printer market; the ability of the company to adapt to changes in the requirements for radio frequency identification (“RFID”) products by Wal-Mart and/or the Department of Defense (the “DOD”) and others; the ability of the company to attract and to retain key personnel; the ability of the company’s customers to achieve their sales projections, upon which the company has in part based its sales and marketing plans; the ability of the company to retain its customer base and channel; the ability of the company to compete against alternate technologies for applications in its markets; and the ability of the company to continue to develop and market new and innovative products superior to those of the competition and to keep pace with technological change. The company does not undertake to publicly update or revise any of its forward-looking statements, even if experience or new information shows that the indicated results or events will not be realized.

Message from the President

The second quarter of fiscal year 2007 resulted in net income of $0.03 per diluted share on sales of $29.3 million. This compares with a net loss of $0.26 per share on sales of $29.0 million for the same quarter last year. Earnings in the first six months of fiscal year 2007 were $0.34 per share greater than the prior year on the same level of sales, reflecting higher margins (39.2 percent compared with 38.0 percent) and lower operating expenses (38.2 percent compared with 40.7 percent). Sales during the second quarter of fiscal year 2007 reflected an increase in sales through the OEM and distributor channels offset by a decline in direct sales. Through increased productivity and continued focus on cost containment, we were able to increase our profitability over the same quarter last year.

Line matrix sales during the second quarter of fiscal year 2007 increased 1.3 percent to $21.1 million from the prior year quarter due to higher recurring revenue from our installed base, aided by our installed base’s upgrade to our new P7000 series line matrix printers. Regionally, Americas sales increased 4.6 percent to $14.7 million due to higher recurring sales primarily through the OEM channel. Asia Pacific sales decreased by 4.5 percent from the prior year quarter to $5.3 million primarily due to lower printer sales through the distribution channel. EMEA sales decreased by 1.0 percent from the prior year quarter to $9.3 million, due primarily to a decline in sales to our large OEM customers. Overall, worldwide sales through the distribution channel increased by 2.0 percent over the prior year quarter to $19.8 million.

Cash and short-term investments were $36.3 million at September 29, 2006 compared with $42.1 million at the end of fiscal year 2006, primarily due to payment of $1.1 million of dividends to stockholders during the first six months of fiscal year 2007, $2.5 million in taxes related to the funds repatriated under the American Jobs Creation Act, and a $1.7 million increase in inventory. Inventory increased as we are now maintaining inventory in China for assembly of line matrix printers to be sold into China. In addition, we now maintain inventory levels unique to EMEA that are compliant with the RoHS directive to reduce hazardous wastes. Lastly, we increased levels of consumables inventory to improve service levels. We believe that this strong cash position can fund dividends and future growth opportunities.

RESULTS OF OPERATIONS

Revenue

Compared with the Prior Year Quarter — Overview

Revenue for the current quarter was $29.3 million, an increase of $0.3 million, or 1.1 percent, over the same period last year. The increase in revenue for the current quarter was mainly attributable to higher recurring revenue from our installed base. Revenue increased in the Americas by 4.6 percent due to higher recurring sales, primarily through the OEM channel. Revenue decreased by $0.1 million, or 1.0 percent, in EMEA and by $0.3 million, or 4.5 percent, in the Asia Pacific region. Sales declined in the Asia Pacific region principally due to lower line matrix printer sales through the distribution channel.

Revenue by Geographic Region

Revenue by geographic region, related percent changes and percent of total revenue for the second quarter of fiscal year 2007 and 2006 were as follows:


	Three Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Geographic Region	2006		2005		Change			2006			2005
	($ in thousands)
Americas	$	14,684	$	14,032		4.6	%		50.2	%		48.5	%
EMEA		9,279		9,375		-1.0	%		31.7	%		32.4	%
Asia Pacific		5,300		5,551		-4.5	%		18.1	%		19.1	%

	$	29,263	$	28,958		1.1	%		100.0	%		100.0	%

Americas sales increased by 4.6 percent to $14.7 million principally as a result of an increase in OEM sales. EMEA sales decreased 1.0 percent to $9.3 million principally due to lower sales through IBM, offset by an increase in distribution sales. We continue to observe weakness in Western Europe’s economy in the manufacturing sector together with a shift by end customers from high-end thermal printers to lower priced mid-range thermal printers, a market in which Printronix currently does not participate. Changes in the value of the Euro had a positive impact on EMEA revenue of $9 thousand during the current quarter compared to the prior year quarter. Asia Pacific sales decreased 4.5 percent to $5.3 million principally due to a decrease in distribution sales as a result of increased competition in the South East Asian market. Sales into China continued to grow and were up 12.9 percent over the prior year quarter, partly due to adding new channels.

Revenue by Product Technology

Revenue by product technology, related percent changes and percent of total revenue for the second quarter of fiscal year 2007 and 2006 were as follows:


	Three Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Product Technology	2006		2005		Change			2006			2005
	($ in thousands)
Line matrix	$	21,119	$	20,857		1.3	%		72.2	%		72.0	%
Thermal (includes RFID)*		5,038		5,054		-0.3	%		17.2	%		17.5	%
Laser		2,596		2,661		-2.4	%		8.9	%		9.2	%
Verification products		510		386		32.1	%		1.7	%		1.3	%

	$	29,263	$	28,958		1.1	%		100.0	%		100.0	%

* RFID	$	683	$	792		-13.8	%		2.3	%		2.7	%

Line matrix sales increased from the prior year quarter principally due to higher recurring revenue from consumables sales and from our maintenance service contracts and repair business, partially offset by lower sales of line matrix printer units, principally in the Asia Pacific region, as a result of aggressive pricing by competitors. Laser sales continue to show a slight decline. We are focusing our efforts on updating our laser product line during fiscal year 2007. Verification products sales increased from the prior year quarter, principally in the Americas.

Revenue by Channel

Revenue by channel, related percent changes, and percent of total sales for the second quarter of fiscal year 2007 and 2006 were as follows:


	Three Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Channel	2006		2005		Change			2006			2005
	($ in thousands)
OEM	$	8,334	$	8,201		1.6	%		28.5	%		28.3	%
Distribution		19,753		19,362		2.0	%		67.5	%		66.9	%
Direct		1,176		1,395		-15.7	%		4.0	%		4.8	%

	$	29,263	$	28,958		1.1	%		100.0	%		100.0	%

Sales through the OEM channel increased 1.6 percent to $8.3 million due to an increase in the Americas offset by a decrease in EMEA. In the Americas, the OEM channel increase was primarily due to sales under a maintenance service contract with one of our large customers. In EMEA, the decrease was primarily due to lower sales to IBM. Sales through the distribution channel increased 2.0 percent to $19.8 million primarily due to an increase in EMEA consumable sales, offset by a decrease in Asia Pacific line matrix printer sales resulting from aggressive competitor pricing in certain smaller countries. Direct sales decreased 15.7 percent to $1.2 million primarily due to the purchasing patterns of a major end user resulting in lower thermal printer sales in the Americas and EMEA.

Revenue by Customer

Revenue by customer, related percent changes and percent of total revenue for the second quarter of fiscal year 2007 and 2006 were as follows:


	Three Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Customer	2006		2005		Change			2006			2005
	($ in thousands)
Largest customer — IBM	$	6,385	$	6,630		-3.7	%		21.8	%		22.9	%
Second largest customer		1,339		2,375		-43.6	%		4.6	%		8.2	%
Top ten customers		13,799		14,443		-4.5	%		47.2	%		49.9	%

Sales to IBM decreased by $0.2 million, or 3.7 percent, primarily in EMEA, offset partially by increased sales to IBM in the Americas. Sales to our second largest customer decreased 43.6 percent. The decrease was because our second largest customer underwent a restructuring, due to new management, resulting in a decrease in sales to this customer. Also, there was a reduction in the amount of consumables inventory being held by that customer.

Recurring Revenue

Recurring revenue from the installed base was $13.9 million, or 47.5 percent of total sales, in the current quarter, up from $12.8 million, or 44.2 percent, for the same period a year ago. The increase is due partly to higher maintenance and service sales and, we believe, is also partly a result of the demand-generation programs, particularly in the Americas. We have launched similar programs in EMEA and are beginning to see increased post sales revenue in that region as well. Recurring revenue includes line matrix ribbons, laser consumables, spares, sales under the advance exchange program, labels, printer maintenance and depot repair services. We will continue to focus on this strategic growth initiative by marketing to our installed base of customers, continuing to add channels to market, and targeting the maintenance and repair business.

Compared with the Prior Year to Date — Overview

Revenue for the first six months of fiscal year 2007 was $60.9 million, an increase of $0.2 million, or 0.3 percent, over the same period last year. The increase in revenue for the first six months of fiscal 2007 was mainly attributable to higher sales through the distributor and direct channels offset by lower sales through the OEM channel, particularly in EMEA. Revenue increased in the Americas by $0.7 million, or 2.2 percent, particularly in the line matrix technology area, but was lower in EMEA by $0.3 million, or 1.7 percent, in the line matrix and laser product technology areas and in the Asia Pacific region by $0.2 million, or 1.4 percent, in the line matrix technology area.

Revenue by Geographic Region

Revenue by geographic region, related percent changes and percent of total revenue for the first six months of fiscal year 2007 and 2006 were as follows:


	Six Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Geographic Region	2006		2005		Change			2006			2005
	($ in thousands)
Americas	$	30,872	$	30,218		2.2	%		50.7	%		49.7	%
EMEA		19,458		19,792		-1.7	%		31.9	%		32.6	%
Asia Pacific		10,583		10,735		-1.4	%		17.4	%		17.7	%

	$	60,913	$	60,745		0.3	%		100.0	%		100.0	%

Americas sales increased by 2.2 percent to $30.9 million principally as a result of an increase in direct sales. Americas direct sales increased 36.5 percent to $2.8 million due to increased sales to one of our largest customers as they refurbished a distribution center in the first fiscal quarter.

EMEA sales decreased 1.7 percent to $19.5 million principally due to lower line matrix printer sales through IBM, partially offset by an increase in recurring sales through the distribution channel. We noted a continued weakness in Western Europe’s economy in the manufacturing sector, together with a move to lower priced mid-range thermal printers, a market in which we currently do not participate. Changes in the value of the Euro had a negative impact to year-to-date EMEA revenue of $0.3 million compared with the same period a year ago.

Asia Pacific sales decreased 1.4 percent to $10.6 million principally due to a decrease in distribution sales as a result of increased competition and a large sale in Indonesia during the prior six month period, offset by an increase in direct sales.

Revenue by Product Technology

Revenue by product technology, related percent changes and percent of total revenue for the first six months of fiscal year 2007 and 2006 were as follows:


	Six Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Product Technology	2006		2005		Change			2006			2005
	($ in thousands)
Line matrix	$	43,867	$	43,062		1.9	%		72.0	%		70.9	%
Thermal (includes RFID)*		10,760		11,200		-3.9	%		17.7	%		18.4	%
Laser		5,254		5,460		-3.8	%		8.6	%		9.0	%
Verification products		1,032		1,023		0.9	%		1.7	%		1.7	%

	$	60,913	$	60,745		0.3	%		100.0	%		100.0	%

* RFID	$	1,397	$	1,735		-19.5	%		2.3	%		2.9	%

Line matrix sales increased from the prior year principally due to higher recurring revenue from the installed base, offset by lower sales of line matrix printers in the EMEA region, due to a slowdown in the Western Europe

manufacturing sector, and in the Asia Pacific region. Thermal printer sales showed a reduction from the prior year due to a major sale in the Americas which did not reoccur this year. Laser sales continue to show a slight decline. We are focusing our efforts on updating our laser product line during fiscal year 2007.

Revenue by Channel

Revenue by channel, related percent changes, and percent of total sales for the first six months of fiscal year 2007 and 2006 were as follows:


	Six Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Channel	2006		2005		Change			2006			2005
	($ in thousands)
OEM	$	16,186	$	17,693		-8.5	%		26.6	%		29.1	%
Distribution		40,873		40,186		1.7	%		67.1	%		66.2	%
Direct		3,854		2,866		34.5	%		6.3	%		4.7	%

	$	60,913	$	60,745		0.3	%		100.0	%		100.0	%

Sales through the OEM channel decreased 8.5 percent to $16.2 million. In the Americas and EMEA, the OEM channel decline was primarily due to lower sales through IBM. The decline in the Americas was partially offset by higher sales under a maintenance contract with one of our large OEM customers. The decline in sales to IBM was due to a major sale in the prior year in the Americas which did not reoccur this fiscal year and continued weakness in EMEA. Sales through the distribution channel increased 1.7 percent to $40.9 million primarily due to an increase in EMEA sales in the post sales area, offset by a decrease in Asia Pacific sales resulting from aggressive competitor pricing in certain smaller countries. Direct sales increased 34.5 percent to $3.9 million primarily due to increased sales in the Americas and Asia Pacific as a large customer completed a few major refurbishment projects in the first fiscal quarter.

Revenue by Customer

Revenue by customer, related percent changes and percent of total revenue for the first six months of fiscal year 2007 and 2006 were as follows:


	Six Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
Customer	2006		2005		Change			2006			2005
	($ in thousands)
Largest customer — IBM	$	11,994	$	14,270		-15.9	%		19.7	%		23.5	%
Second largest customer		3,613		4,971		-27.3	%		5.9	%		8.2	%
Top ten customers		28,192		30,442		-7.4	%		46.3	%		50.1	%

Sales to IBM in the Americas decreased by $1.3 million, or 15.2 percent, and in EMEA by $1.1 million, or 21.6 percent, for the reasons already stated above. Sales to our second largest customer decreased 27.3 percent. The decrease was because our second largest customer underwent a restructuring, due to new management, resulting in a decrease in sales to this customer. Also, there was a reduction in the amount of consumables inventory being held by that customer.

Recurring Revenue

Recurring revenue from the installed base was $27.7 million, or 45.6 percent of total sales, in the current quarter, up from $25.2 million, or 41.6 percent, for the same period a year ago. The increase is due partly to higher maintenance and service sales to a major OEM customer and, we believe, is also partly a result of the demand-generation programs, particularly in the Americas, and now starting in the EMEA region. Recurring revenue includes line matrix ribbons, laser consumables, spares, sales under the advance exchange program, labels, printer maintenance and depot repair services. We will continue to focus on this strategic growth initiative by marketing to our installed base of customers, continuing to add channels to market and targeting the maintenance and repair business.

Gross Margin

Compared with the Prior Year Quarter

Gross margin for the current quarter was $11.5 million compared with $10.8 million for the same period a year ago and was 39.3 percent and 37.3 percent of revenue, respectively. The increase in gross margin is a result of lower worldwide manufacturing costs due to our cost reduction and containment measures, which included a reduction in labor cost due to the shifting of manufacturing to a lower cost base and lower product costs. In addition manufacturing costs decreased due to a 6.2 percent decrease in personnel for the quarter ended September 29, 2006 compared with the quarter ended September 23, 2005. Also, the cost of manufacturing printers in Asia Pacific was reduced compared with the year ago quarter. The manufacturing cost reductions were partially offset by a slight product margin decline resulting from higher product costs due to RoHS compliance in EMEA. Changes in the value of the Euro had an unfavorable impact on gross margin of $53 thousand, or 0.2 percent of revenue.

Compared with the Prior Year-to-Date

Gross margin for the first six months of fiscal year 2007 was $23.9 million compared with $23.1 million for the same period a year ago and was 39.2 percent and 38.0 percent of revenue, respectively. The increase in gross margin is a result of lower worldwide manufacturing costs due to our cost reduction and containment measures, which included a reduction in labor and product costs which more than offset the higher product costs due to RoHS compliance in EMEA. The reduction in labor costs was due to a 7.1 percent decrease in personnel for the six months ended September 29, 2006 compared with the six months ended September 23, 2005. Also, the cost of manufacturing printers in Asia Pacific was reduced compared with the same period last year. Changes in the value of the Euro had an unfavorable impact on year-to-date gross margin of $0.3 million, or 0.4 percent of revenue.

Operating Expenses

Compared with the Prior Year Quarter

Operating expenses consist of engineering and development, sales and marketing and general and administrative costs. Operating expenses were $11.3 million for the current quarter and $12.5 million for the prior year quarter. Operating expenses, related percent changes and percent of total sales were as follows:


	Three Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
	2006		2005		Change			2006			2005
	($ in thousands)
Engineering and development	$	3,092	$	3,608		-14.3	%		10.5	%		12.5	%
Sales and marketing		5,493		6,115		-10.2	%		18.8	%		21.1	%
General and administrative		2,720		2,751		-1.1	%		9.3	%		9.5	%

	$	11,305	$	12,474		-9.4	%		38.6	%		43.1	%

Engineering and Development

Engineering expenses consist mostly of labor and test materials. In the current quarter, we spent $3.1 million on engineering and development, compared with $3.6 million for the same period last year. As a percentage of revenue, engineering and development expenses decreased in the current quarter to 10.5 percent from 12.5 percent in the same quarter last year. Engineering and development expenses for the current quarter decreased due to lower labor costs resulting from a 13.2 percent decrease in personnel for the quarter ended September 29, 2006 compared with the quarter ended September 23, 2005. Labor costs were higher in the prior year quarter due to the P7000 and T5000 product development.

Sales and Marketing

Sales and marketing expenses for the quarter decreased to $5.5 million, compared with $6.1 million for the prior year quarter. As a percentage of revenue, sales and marketing expenses decreased in the current quarter to 18.8 percent from 21.1 percent in the same quarter last year. Sales and marketing spending was lower in the current period due to increased focus on cost containment and efficiencies, including reductions in marketing, consulting, and travel expenditures. In addition, the prior year quarter included higher consulting and travel related expenses attributable to the P7000 and T5000 product launches.

General and Administrative

General and administrative expenses for the quarter decreased to $2.7 million, compared with $2.8 million for the prior year quarter. As a percentage of revenue, general and administrative expenses decreased in the current quarter to 9.3 percent from 9.5 percent in the same quarter last year. General and administrative expenses decreased primarily due to a $0.3 million reduction in costs for consulting and auditing fees primarily associated with Sarbanes-Oxley compliance and a $0.1 million reduction in legal, patent, and environmental testing costs. Information technology and management services costs increased by $0.2 million in Asia Pacific for the three months ended September 29, 2006 compared with the three months ended September 23, 2005. The current quarter also reflects a reduction in the provision for bad debts of $0.1 million for recovery on receivables previously determined to be uncollectible compared with a $0.2 million reduction in the prior year quarter.

The effects of changes in the Euro’s value in the current quarter, compared with the prior year quarter, increased operating expenses by $21 thousand.

Compared with the Prior Year-to-Date

Operating expenses consist of engineering and development, sales and marketing and general and administrative costs. Operating expenses were $23.3 million for the first six months of fiscal year 2007 compared with $24.7 million for the same period last year. Operating expenses, related percent changes and percent of total sales were as follows:


	Six Months Ended							Percent of Total Sales
	September 29,		September 23,		Percent			September 29,			September 23,
	2006		2005		Change			2006			2005
	($ in thousands)
Engineering and development	$	6,231	$	7,476		-16.7	%		10.2	%		12.3	%
Sales and marketing		11,448		12,231		-6.4	%		18.8	%		20.1	%
General and administrative		5,581		5,001		11.6	%		9.2	%		8.2	%

	$	23,260	$	24,708		-5.9	%		38.2	%		40.6	%

Engineering and Development

Engineering expenses consist mostly of labor and test materials. In the first six months of fiscal year 2007, we spent $6.2 million on engineering and development, compared with $7.5 million for the same period last year. As a percentage of revenue, engineering and development expenses decreased in the current period to 10.2 percent from 12.3 percent in the same period last year. Engineering and development expenses for the current period decreased due to lower labor costs resulting from a 16.5 percent decrease in personnel for the six months ended September 29, 2006 compared with the six months ended September 23, 2005. Labor costs were higher in the prior year due to the P7000 and T5000 product development.

Sales and Marketing

Sales and marketing expenses for the first six months of fiscal year 2007 decreased to $11.4 million, compared with $12.2 million for the same period last year. As a percentage of revenue, sales and marketing expenses decreased in the current period to 18.8 percent from 20.1 percent in the same period last year. Sales and marketing spending was lower in the current period due to increased focus on cost containment, including reductions in marketing, consulting, and travel expenditures. In addition, the prior year included higher consulting and travel related expenses attributable to the P7000 and T5000 product launches.

General and Administrative

General and administrative expenses for the first six months of fiscal year 2007 increased to $5.6 million, compared with $5.0 million for the same period last year. As a percentage of revenue, general and administrative expenses increased in the current period to 9.2 percent from 8.2 percent in the same period last year. The current period reflects a reduction in the provision for bad debts of $0.1 million for recovery on receivables previously determined to be uncollectible compared with a $0.5 million reduction in the same period last year. Also, there was a $0.3 million increase in expense due to an increase in information technology and management services costs, increased costs for strategic planning, patent related costs and environmental matters of $0.1 million, increased audit costs of $0.3 million, and higher labor costs resulting from a 1.8 percent increase in personnel for the six months ended September 29, 2006 compared with the six months ended September 23, 2005. These increases were partially offset by lower consulting costs of $0.6 million related to Sarbanes-Oxley compliance.

The effects of changes in the Euro’s value in the first six months of fiscal year 2007, compared with the same period last year, decreased operating expenses by $9 thousand.

Foreign Currency Losses (Gains), Net

Foreign currency transaction and remeasurement losses from all foreign currencies for the three and six months ended September 29, 2006 were $16 thousand and $10 thousand, respectively, principally due to the effect of changes in the value of the Euro. Foreign currency transaction and remeasurement gains from all foreign currencies for the three and six months ended September 23, 2005 were $23 thousand and $83 thousand, respectively, principally due to the effect of changes in the value of the Euro.

Interest and Other (Income), Net

Interest income, interest expense and other income, net are as follows:


	Three Months Ended						Six Months Ended
	September 29,			September 23,			September 29,			September 23,
	2006			2005			2006			2005
	($ in thousands)
Interest expense	$	266		$	175		$	490		$	330
Interest income		(444	)		(359	)		(904	)		(646	)
Other income, net		(7	)		(17	)		(14	)		(30	)

Interest income increased compared to the prior fiscal year primarily due to higher interest rates. In addition, in the second quarter of fiscal year 2006, we engaged a professional investment manager which resulted in better investment performance. Interest expense increased compared to the prior fiscal year due to higher interest rates and due to interest we recorded related to the under accrual of sales and use tax.

Sales Tax

Income Taxes

We have subsidiaries in various countries and are therefore subject to varying income tax rates. The tax provision for the three months ended September 29, 2006 consisted of $5 thousand in current state tax expense and $150 thousand in foreign tax expense. The tax provision for the six months ended September 29, 2006 consisted of $10 thousand in current state tax expense and $282 thousand in foreign tax expense. A full valuation allowance was recorded against net operating loss carryforwards generated in the United States since it is more likely than not that such assets will not be realized. The tax provision for the three and six months ended September 29, 2006 reflected state minimum franchise taxes and the income tax rates in foreign countries in which we operate.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The primary source of liquidity historically has been cash generated from operations. As of September 29, 2006, cash, cash equivalents and short-term investments were $36.3 million, a decrease of $5.8 million from the beginning of the fiscal year. The decrease in net cash was due primarily to payment of taxes of $2.5 million during the six months ended September 29, 2006 related to the repatriation of $32.0 million of dividends in the fourth quarter of fiscal year 2006, an increase in inventory of $1.7 million, and payment of $1.1 million in dividends to stockholders during the period.

Cash generated from operations has been sufficient to allow the company to fund its working capital needs, invest in capital expenditures as needed, repurchase shares of its common stock during fiscal year 2004 and pay dividends starting in fiscal year 2005. Should we need to obtain additional sources of funds for any working capital needs, we believe we could obtain such funds through additional credit facilities.

The current portion of debt of $13.1 million, collateralized by the Irvine facility, is due in June 2007. Current expectations are that the company will refinance the debt before that time. We believe we will be able to refinance the debt at acceptable terms or, alternatively, repay the debt using existing cash balances.

One of our subsidiaries maintains a line of credit with a major foreign bank totaling $4.2 million that is guaranteed by the company. This line of credit is collateralized by the subsidiary’s manufacturing facility. The line of credit is subject to a financial covenant, which requires that we maintain a net worth of not less than $64 million. We were in compliance with this financial covenant as of September 29, 2006. One of our subsidiaries also maintains a letter of credit with a major foreign bank of $0.3 million. We also maintain a commitment facility in the amount of $2.5 million with a foreign bank to support the hedging activities. We have a letter of credit related to our workers’ compensation program for $0.5 million, which renews automatically and is secured by cash. During and as of the fiscal periods presented, no amounts were borrowed under these agreements.

Additional information on bank borrowings and debt arrangements can be found in Note 5 of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Operating Activities

Net cash used in operating activities during the six months ended September 29, 2006 was $3.6 million compared with net cash provided by operating activities of $0.8 million during the six months ended September 23, 2005. The decrease in net cash from operating activities was due primarily to payment of taxes of $2.5 million during the six months ended September 29, 2006 related to the repatriation of $32.0 million of dividends in the fourth quarter of fiscal year 2006, and payment of professional fees of $1.8 million during the six months ended September 29, 2006 compared with $0.9 million during the six months ended September 23, 2005.

Investing Activities

Net cash used in investing activities during the six months ended September 29, 2006 was $4.4 million compared with $6.3 million during the six months ended September 23, 2005. During the six months ended September 29, 2006, we purchased short-term investments of $3.4 million compared with $17.0 million during the six months ended September 23, 2005. There were no proceeds from sales of short-term investments during the six months ended September 29, 2006 compared with $13.1 million during the six months ended September 23, 2005. Purchases of property and equipment were $1.1 million during the six months ended September 29, 2006 compared with $2.4 million during the six months ended September 23, 2005.

Financing Activities

Net cash used in financing activities during the six months ended September 29, 2006 was $1.2 million compared with $0.6 million during the six months ended September 23, 2005. During the six months ended September 29, 2006, we paid $1.1 million in dividends to stockholders compared with $0.9 million in the six months ended September 23, 2005. Cash proceeds from the exercise of stock options during the six months ended September 29, 2006 were $0.2 million compared with $0.6 million during the six months ended September 23, 2005. Payments totaling $0.4 million were made on the long-term note during the six months ended September 29, 2006 and September 23, 2005.

The remaining shares that could be repurchased at the discretion of management under the stock buyback program totaled 227,395 shares as of September 29, 2006. No shares were repurchased during the periods presented.

OFF-BALANCE SHEET ARRANGEMENTS

The company’s off-balance sheet arrangements consist of operating leases, purchase obligations and guarantees. There were no material changes in our operating lease agreements or guarantees as of September 29, 2006 from that reported in our Annual Report on Form 10-K. We have a non-cancelable purchase obligation under an agreement with one of our suppliers. We have agreed to purchase a minimum of $1.0 million of product through March 2007. As of September 29, 2006, we had fulfilled approximately $0.4 million of the commitment.

Additional information regarding our obligations can be found in Note 5, Note 9 and Note 10 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The condensed consolidated financial statements of Printronix are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available to us at the time. These estimates and assumptions affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures of contingent assets and liabilities for the periods presented. We continuously evaluate the estimates, judgments and assumptions, including those related to product returns, customer programs and incentives, doubtful accounts, inventories, warranty obligations, other long-lived assets, income taxes, contingencies and litigation. Actual results may differ from these estimates under different assumptions or conditions. Information with respect to the company’s critical accounting policies which the company believes could have the most significant effect on the company’s reported results and require subjective or complex judgments by management is contained on pages 23-25 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the company’s Annual Report on Form 10-K for the year ended March 31, 2006. Management believes that as of September 29, 2006 there has been no material change to this information, except as described below.

Stock-Based Compensation

Prior to April 1, 2006, as permitted by SFAS No. 123, we accounted for employee stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. Accordingly, we did not recognize any compensation expense for stock option grants where the exercise price was equal to the fair market value of our common stock on the grant date. In accordance with SFAS 123 and SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure", we provided pro forma net income or loss and net income or loss per share disclosures for each period prior to the adoption of SFAS 123(R) as if we had applied the fair value-based method in measuring compensation expense for our stock-based compensation plans. Prior to the adoption of SFAS 123(R), we presented all tax benefits resulting from the exercise of stock options as operating cash flows in our consolidated statements of cash flows. SFAS 123(R) requires that the realized tax benefit related to the excess of the deductible amount over the compensation cost recognized (excess tax benefits) be classified in the statement of cash flow as a cash flow from financing activities rather than as a cash flow from operating activities.

NEW ACCOUNTING STANDARDS

In June 2005, the FASB issued EITF 05-5, “Accounting for Early Retirement or Postemployment Programs with Specific Features, (Such as Terms Specified in Altersteilzeit Early Retirement Arrangements)”. The Altersteilzeit arrangement is an early retirement program in Germany designed to create an incentive for employees, within a certain age group, to transition from full or part-time employment into retirement before their legal retirement age. The EITF is effective for fiscal years beginning after December 15, 2005 and was adopted by the company in the first quarter of fiscal year 2007. The adoption of this EITF did not have a material impact on the condensed consolidated financial statements of the company.

In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 06-03, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation),” (“EITF 06-03”). EITF 06-03 concluded that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, such as sales, use, value added and certain excise taxes is an accounting policy decision that should be disclosed in a company’s financial statements. Additionally, companies that record such taxes on a gross basis should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. EITF 06-03 is effective for interim and annual periods beginning after December 15, 2006. We do not expect this statement to have a material impact on the condensed consolidated financial statements of the company.

PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk

PRINTRONIX, INC. AND SUBSIDIARIES

MARKET RISK

Our foreign operations may be impacted by foreign currency fluctuations. We are not aware of any significant risks with respect to the foreign business other than those inherent in the competitive nature of the business and fluctuations in foreign currency exchange rates. We have a foreign currency hedging program in order to mitigate exposure to foreign currency rate movements. Under the program, we can enter into foreign currency forward exchange contracts with maturities from 30 to 180 days with a major financial institution. We do not use the contracts for speculative or trading purposes. The contracts are marked-to-market and the resulting gains or losses are reflected in accumulated other comprehensive income (loss). Unrealized gains and losses on these contracts are deferred in other comprehensive income (loss) until the contracts are settled and the hedged sales are realized, at which time the deferred gains or losses will be reported as an increase or decrease to sales.

As of September 29, 2006, there were no outstanding forward exchange contracts. The following table reflects the total foreign currency forward contracts outstanding at March 31, 2006:


	March 31, 2006
	($ and € in thousands)
Notional amount	€	900
Average exchange rate		1.206
Carrying value of payable	$	(24	)

The effects of changes in the Euro’s value for the three months ended September 29, 2006 compared with the three months ended September 23, 2005 were as follows: an increase in revenue of $9 thousand, a decrease in gross margin of $53 thousand, an increase in operating expenses of $21 thousand and foreign exchange losses of $0.3 million.

The effects of changes in the Euro’s value for the six months ended September 29, 2006 compared with the six months ended September 23, 2005 were as follows: a decrease in revenue of $0.3 million, a decrease in gross margin of $0.3 million, a decrease in operating expenses of $9 thousand and foreign exchange losses of $0.3 million.

The future effect of changes in the value of the Euro or other foreign currencies on the consolidated results of operations or financial condition is difficult to predict.

Interest Rate Risk

We have financial instruments that are subject to interest rate risk, principally debt obligations and short-term cash investments. At September 29, 2006, our interest-bearing investments totaled $30.6 million, and the related interest income on these investments was $0.8 million, (an annualized effective yield of 5.1 percent) for the six months then ended. If interest rates were to decrease by 10 percent (51 basis points on the balance of $30.6 million), the impact on our annual interest income would be a decrease of $0.2 million. Information about the fair value of the financial instruments is found in Note 2 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Borrowings are at variable rates for periods that generally do not exceed 90 days. If interest rates were to increase by 10 percent (65 basis points on the long-term note), the impact on our annual interest expense would be an increase of $0.1 million. Information about the bank borrowings is found in Note 5 of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

PART I. FINANCIAL INFORMATION
Item 4. Controls and Procedures

PRINTRONIX, INC. AND SUBSIDIARIES

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal accounting and financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on their evaluation, our principal executive officer and principal accounting and financial officer concluded that our disclosure controls and procedures are effective. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended September 29, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION
PRINTRONIX, INC. AND SUBSIDIARIES

Item 1. Legal Proceedings

The information set forth under Note 10 of the Notes to the Condensed Consolidated Financial Statements, included in Part I, Item I of this Report is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes from risk factors previously disclosed in “Item 1A. Risk Factors” reported in Part 1 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of stockholders of the company was held August 22, 2006, at which six persons, constituting the entire board of directors, were elected to serve until the next annual meeting of stockholders. The names of the persons elected as directors are as follows:


	Shares For		Shares Withheld
Robert A. Kleist		6,202,428		78,529
Bruce T. Coleman		6,201,828		79,129
John R. Dougery		6,040,263		240,694
Chris Whitney Halliwell		6,257,096		23,861
Erwin A. Kelen		6,170,263		110,694
Charles E. Turnbull		6,257,696		23,261

Item 5. Other Information

None

Item 6. Exhibits

31.1 Certification Pursuant to Rule 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification Pursuant to Rule 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


	PRINTRONIX, INC. (Registrant)


Date: November 8, 2006	By:	/s/ George L. Harwood
		George L. Harwood

		Senior Vice President, Finance and Information Systems (IS), Chief Financial Officer and Corporate Secretary (Principal Accounting and Financial Officer)

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	PAGE
PART I: FINANCIAL INFORMATION		3

Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Balance Sheets as of September 29, 2006 and March 31, 2006		3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 29, 2006 and September 23, 2005		4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 29, 2006 and September 23, 2005		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitive and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		31

PART II: OTHER INFORMATION		32

Item 1. Legal Proceedings		32
Item 1A. Risk Factors		32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3. Defaults Upon Senior Securities		32
Item 4. Submission of Matters to a Vote of Security Holders		32
Item 5. Other Information		32
Item 6. Exhibits		32
SIGNATURES		33
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2


Exhibit
Number		Description

31.1		Certification Pursuant to Rule 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification Pursuant to Rule 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002