-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MzjFwSSQ+/g8P7MgoTJx/uesH8MoaQSSUngf5deD3VUP+N9H9b4cjU+BicsBMXgu sTaHXHVDawrUAIK2pAB1dQ== 0001047469-98-020531.txt : 19980518 0001047469-98-020531.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020531 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZEBRA TECHNOLOGIES CORP/DE CENTRAL INDEX KEY: 0000877212 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 366966580 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19406 FILM NUMBER: 98623001 BUSINESS ADDRESS: STREET 1: 333 CORPORATE WOODS PKWY CITY: VERNON HILLS STATE: IL ZIP: 60061 BUSINESS PHONE: 7086346700 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 4, 1998 Commission File Number: O-19406 Zebra Technologies Corporation ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-2675536 ------------------------------ --------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Corporate Woods Parkway, Vernon Hills, IL 60061 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (847) 634-6700 -------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant 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 has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of April 29, 1998, there were the following shares outstanding: Class A Common Stock, $.01 par value 19,425,187 Class B Common Stock, $.01 par value 4,890,609 1 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES QUARTER ENDED APRIL 4, 1998 INDEX
PAGE PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Independent Auditors' Review Report 3 Consolidated Balance Sheets (unaudited) as of April 4, 1998 and December 31, 1997 4 Consolidated Statements of Earnings and Comprehensive Income (unaudited) for the three months ended April 4, 1998 and March 29,1997 5 Consolidated Statements of Cash Flows (unaudited) for the three months ended April 4, 1998 and March 29,1997 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13
2 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REVIEW REPORT The Board of Directors and Shareholders Zebra Technologies Corporation: We have reviewed the consolidated balance sheet of Zebra Technologies Corporation and subsidiaries as of April 4, 1998, and the related consolidated statements of earnings and comprehensive income and cash flows for the three-month periods ended April 4, 1998 and March 29, 1997. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Zebra Technologies Corporation and subsidiaries as of December 31, 1997, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 27, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG Peat Marwick LLP Chicago, Illinois April 21, 1998 3 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
APRIL 4, DECEMBER 31, 1998 1997 --------- ------------ ASSETS Current assets: Cash and cash equivalents $8,379 $7,155 Investments and marketable securities 130,707 121,698 Accounts receivable, net of allowance of $1,524 in 1998 and $1,788 in 1997 31,731 31,032 Inventories 21,518 22,443 Deferred income taxes 1,889 4,307 Prepaid expenses 943 843 ------- ------- Total current assets 195,167 187,478 ------- ------- Machinery and equipment at cost, less accumulated depreciation and amortization 14,203 12,753 Other assets 3,802 3,353 ------- ------- TOTAL ASSETS $213,172 $203,584 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $11,329 $11,141 Accrued liabilities 4,758 6,900 Short-term note payable 137 137 Current portion of obligation under capitalized lease with related party 66 65 Income taxes payable 5,691 4,329 ------- ------- Total current liabilities 21,981 22,572 ------- ------- Obligation under capitalized lease with related party, less current portion 34 51 Long-term liability 0 212 Deferred income taxes 579 911 Other 285 287 ------- ------- TOTAL LIABILITIES 22,879 24,033 ------- ------- Shareholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized, none outstanding Class A Common Stock, $.01 par value; 50,000,000 shares authorized, 19,424,812 and 19,413,933 shares issued and outstanding in 1998 and 1997, respectively 194 194 Class B Common Stock, $.01 par value; 28,358,189 shares authorized, 4,890,609 shares issued and outstanding in 1998 and 1997 49 49 Paid-in capital 30,154 29,984 Retained earnings 159,213 148,779 Accumulated other comprehensive income 683 545 ------- ------- TOTAL SHAREHOLDERS' EQUITY 190,293 179,551 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $213,172 $203,584 ------- ------- ------- -------
4 ZEBRA TECHNOLOGIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED ------------------- APRIL 4, MARCH 29, 1998 1997 ------- ------- Net sales $50,214 $41,009 Cost of sales 24,074 20,603 ------- ------- Gross profit 26,140 20,406 Operating Expenses: Sales and marketing 5,303 3,875 Research and development 3,446 2,392 General and administrative 4,211 2,967 ------- ------- Total operating expenses 12,960 9,234 ------- ------- Income from operations 13,180 11,172 ------- ------- Other income (expense): Investment income 1,275 1,082 Gain on securities 1,321 6,028 Other, net 552 121 ------- ------- Total other income 3,148 7,231 ------- ------- Income from continuing operations before taxes 16,328 18,403 Provision for income taxes 5,894 6,876 ------- ------- Income from continuing operations 10,434 11,527 ------- ------- Discontinued operation: Loss from discontinued operation (less applicable income tax benefit) -- (292) ------- ------- Net income $10,434 $11,235 ------- ------- ------- ------- Other comprehensive income, foreign currency translation adjustments 138 (763) ------- ------- Comprehensive income $10,572 $10,472 ------- ------- ------- ------- Basic earnings per share from continuing operations $0.43 $0.48 Diluted earnings per share from continuing operations $0.43 $0.47 Basic earnings per share $0.43 $0.46 Diluted earnings per share $0.43 $0.46 Basic weighted-average shares outstanding 24,312 24,240 Diluted weighted-average and equivalent shares outstanding 24,393 24,269
5 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED ------------------------ APRIL 4, MARCH 29, 1998 1997 ------- ------- Cash flows from operating activities: Net income $10,434 $11,235 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,150 909 Appreciation in market value of investments & marketable securities 1,370 564 Deferred income taxes 2,086 1,578 Decrease (increase) in accounts receivable (699) 3,455 Decrease in inventories 925 1,069 Decrease (increase) in other assets (549) 165 Increase (decrease) in accounts payable 188 (3,051) Increase (decrease) in accrued expenses (2,142) 810 Increase in income taxes payable 1,362 3,526 Net increase (decrease) in other operating activities 136 (986) Net purchases of investments and marketable securities (10,379) (20,911) ------- ------- Net cash provided by (used in) operating activities 3,882 (1,637) ------- ------- Cash flows from investing activities: Purchases of machinery and equipment (2,600) (706) Net sales of investments and marketable securities 0 5,479 ------- ------- Net cash provided by (used in) investing activities (2,600) 4,773 ------- ------- Cash flows from financing activities: Net proceeds from exercise of stock options 170 0 Issuance of short-term notes payable 0 82 Payment of long-term notes payable (212) 0 Payments for obligation under capital lease (16) (15) ------- ------- Net cash provided by (used in) financing activities (58) 67 ------- ------- Net increase in cash and cash equivalents 1,224 3,203 Cash and cash equivalents at beginning of period 7,155 5,168 ------- ------- Cash and cash equivalents at end of period $8,379 $8,371 ------- ------- ------- ------- Supplemental disclosures of cash flow information: Interest paid $2 $3 Income taxes paid $928 $1,100 ------- ------- ------- -------
6 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The consolidated financial statements included herein have been prepared by Zebra Technologies Corporation and subsidiaries (the "Company"), without audit, 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. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. The consolidated balance sheet as of December 31, 1997 presented herein has been derived from the audited consolidated balance sheet contained in the Annual Report on Form 10-K. In the opinion of the Company, the consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of Zebra Technologies Corporation and subsidiaries as of April 4, 1998 and December 31, 1997, and the consolidated results of their operations and their cash flows for the three months ended April 4, 1998 and March 29, 1997. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" for the quarter ended April 4, 1998. Required changes are reported in the Consolidated Statements of Earnings and Comprehensive Income. Note 2 - Discontinued Business Operations As of June 28, 1997, the Company made the decision to discontinue the operations of its subsidiary, Zebra Technologies VTI ("VTI"). A one-time charge of $2,363,000, before income tax benefits, was recorded in the second quarter of 1997 and was related to the discontinuance of VTI and the Company's presence in the PC retail channel. The one-time charge includes a provision for expected product returns from present retail channel partners, provision for slow moving/obsolete product, and provisions for estimated contingent liabilities. Due to the discontinuance of Zebra Technologies VTI, the Company's 1997 quarterly financial statements have been revised to reflect such discontinuance. Note 3 - Tax Audits and Related Litigation As of April 4, 1998, the Company has completed the IRS audits covering federal income tax returns from 1993 and 1994. Settlements with the IRS for both years amounted to $999,500 and were recorded during the quarter ended April 4, 1998. The State of Illinois income tax audit covering the same tax years was also settled during the quarter. A settlement of $190,400 was paid in April 1998 for tax years 1993 and 1994. 7 The Company has recently been challenged by the State of Illinois, Department of Revenue on the tax status and treatment of the Company's intangible entities. Although the Company believes they have a sustainable tax position, they were required to make a deposit of $2,665,400 while the matter is pending. This deposit was made in April 1998. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FIRST QUARTER OF 1998 VERSUS FIRST QUARTER OF 1997 Net sales for the first quarter of 1998 increased 22.4% to $50,214,000 versus sales of $41,009,000 for the first quarter of 1997. This sales increase is attributed to unit growth in all product categories rather than price increases, as the average unit price of printer products has decreased due to product mix changes. Printer sales increased by 28.9% and supplies sales by 0.7% over the first quarter of 1997, bringing printer sales to 76.9% and supplies sales to 20.2% of consolidated net sales, respectively. The remaining 3.0% of net sales consisted of service and software revenue. Approximately 44.4% of first quarter net sales were derived from international sources as compared to 47.0% during the first quarter of 1997. Gross profit increased to $26,140,000 for the first quarter of 1998, a 28.1% gain over gross profit of $20,406,000 for the first quarter of 1997. As a percentage of net sales, gross profit increased 2.3% from 49.8% to 52.1%. This increase is principally due to decreased material costs of high volume printer parts plus a favorable product mix within the Company's printer products and a lower percentage of supplies sales. Sales and marketing expenses of $5,303,000 were up 36.9% for the first quarter of 1998 compared to $3,875,000 in the first quarter of 1997. As a percentage of net sales, first quarter sales and marketing expenses were 10.6% compared to 9.4% for the same period last year. Increased spending was the result of increased staffing in the Vernon Hills and Europe locations, advertising, trade show, co-op, and travel expenses. The increases were offset in part by decreased bad debt and consulting expenses. Research and product development expenses for the first quarter of 1998 increased by 44.1% to $3,446,000 (6.9% of net sales) as compared to $2,392,000 (5.8% of net sales) in the first quarter of 1997. Increases resulted from increased staffing, product development expenses, and consulting. General and administrative expenses for the first quarter of 1998 increased by 41.9% to $4,211,000 (8.4% of net sales) as compared to $2,967,000 (7.2% of net sales) in the first quarter of 1997. The dollar increases were the result of increases in staffing, recruiting, computer software, computer repair and maintenance, outside consulting, tax planning, 401(k) services, and shareholder services. Income from operations for the first quarter of 1998 increased by $2,008,000 or 18.0% to $13,180,000 (26.2% of net sales) compared to $11,172,000 (27.2% of net sales) for the first quarter of 1997. This was due to increased gross profit offset in part by increased operating expenses, as previously indicated. Investment income and gain on securities for the first quarter of 1998 decreased by $4,514,000 or 63.5% to $2,596,000 versus $7,110,000 for the first quarter of 1997. Excluding a one-time pre-tax investment gain of $5,458,000 in the first quarter of 1997, investment income and gain on securities rose by $944,000 or 57.1%. 9 Net income from continuing operations before income taxes was $16,328,000 in the first quarter of 1998 compared to $18,403,000 in the same quarter of 1997, a decrease of $2,075,000 or 11.3% due to the one-time investment gain last year as previously discussed. Income taxes were provided at a rate of 36.1% in the first quarter of 1998 resulting in income from continuing operations and net income of $10,434,000 or 20.8% of net sales, and $0.43 per basic share and $0.43 per diluted share. In the first quarter of 1997, the provision for taxes was 37.4% resulting in income from continuing operations of $11,527,000 or 28.1% of net sales and $0.48 per basic share and $.47 per diluted share. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity continue to be cash generated from operations. At the end of the first quarter, the Company had $139,086,000 in cash and cash equivalents, and investments and marketable securities versus $128,853,000 at the end of 1997. Management believes that existing capital resources and funds generated from operations are sufficient to finance anticipated capital requirements. The Company has no commitments or agreements with respect to acquisitions or other significant capital expenditures. YEAR 2000 CONSIDERATIONS The Company initiated an enterprise-wide system conversion in 1994 to meet changing business needs, using the Baan system. This system is year 2000 compliant and its implementation is planned to be completed in the second quarter of 1998 for Vernon Hills and completed by year-end 1998 for the United Kingdom location. In addition, the Company's payroll system, not covered by the Baan system, will also be replaced by the end of 1998. The payroll system will integrate payroll with the Company's human resources software and will be year 2000 compliant. To date, expenditures on the Baan project have aggregated $5,128,000 of which $3,877,000 has been capitalized. At completion, total expenditures are estimated to be $8,800,000 of which $7,100,000 is estimated to be capitalized. The Company is in the process of analyzing its significant customers and suppliers to determine whether they are Year 2000 compliant. There can be no guarantee that such customers or suppliers will achieve such compliance on a timely basis. The failure by one or more significant customers or suppliers to achieve such compliance could have a material adverse effect on the Company. The Company's printers have no internal clock or dating mechanism and will not be effected by the change in dates. The Company's labeling and other software is Year 2000 compliant with the exception of the LABEL software, which is dependent on the BIOS of the systems on which the software runs or the external data source being Year 2000 compliant. SIGNIFICANT CUSTOMER Sales to Peak Technologies accounted for 13% of the Company's total net sales in the first quarter of 1998 and 18% in the first quarter of 1997. Peak Technologies was acquired by Moore Corporation in June 1997. Management recognizes that Moore Corporation is a major provider of labels, which 10 could have an adverse affect on Zebra sales of its label products to Peak Technologies. Label sales to Peak Technologies accounted for 2% of Zebra's total net sales in the first quarter of 1998 and 3% in the first quarter of 1997. SAFE HARBOR Forward looking statements contained in this filing are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and are highly dependent upon a variety of important factors which could cause actual results to differ materially from those reflected in such forward looking statements. These factors include the acceptance of the Company's printer and software products by the market, and product offerings made by its competitors. Profits will be affected by the Company's ability to control manufacturing and operating costs. Due to the Company's large investment portfolio, interest rate conditions will also have an impact on results, as will foreign exchange rates due to the large percentage of the Company's sales in international markets. When used in this document and documents referenced, the words "anticipate," "believe," "estimate," and "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward looking statements. Readers of this release are referred to prior filings with the Securities and Exchange Commission, and Zebra's prospectus of September 4, 1997 for further discussions of factors that could affect Zebra's future results. 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 15.1 Acknowledgment of Independent Certified Public Accountants Regarding Independent Auditors' Review Report 27.1 Financial Data Schedule (b) Reports. No reports on Form 8-K have been filed by the Registrant for the quarterly period covered by this report. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZEBRA TECHNOLOGIES CORPORATION Date: April 29, 1998 By: /s/Edward L. Kaplan ---------------------- Edward L. Kaplan Chief Executive Officer Date: April 29, 1998 By: /s/Charles R. Whitchurch --------------------------- Charles R. Whitchurch Chief Financial Officer 13 EX-15.1 2 EXHIBIT 15.1 Exhibit 15.1 ACKNOWLEDGMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REGARDING INDEPENDENT AUDITORS' REVIEW REPORT Zebra Technologies Corporation 333 Corporate Woods Parkway Vernon Hills, Illinois 60061-3109 Ladies and Gentlemen: With respect to the registration statements (No. 33-44706 and No. 33-72774) on Form S-8, we acknowledge our awareness of the incorporation by reference therein of our report dated April 21, 1998 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ KPMG Peat Marwick LLP Chicago, Illinois May 11, 1998 14 EX-27 3 EXHIBIT 27
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 APR-04-1998 8,379 130,707 33,255 (1,524) 21,518 195,167 29,930 (15,727) 213,172 21,981 0 0 0 243 190,050 213,172 49,346 50,214 23,701 24,074 13,168 (208) 2 16,328 5,894 10,434 0 0 0 10,434 0.43 0.43
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