-----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, WmGj8YssQWYMP8ietHXC5gpcnSHyKDh9XXGaNXq2MOv7t4FROC4qGHZXp+FUCWwy Or8RUJD9uPuQMBxBTqybIw== 0001047469-98-041586.txt : 19981123 0001047469-98-041586.hdr.sgml : 19981123 ACCESSION NUMBER: 0001047469-98-041586 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZEBRA TECHNOLOGIES CORP/DE CENTRAL INDEX KEY: 0000877212 STANDARD INDUSTRIAL CLASSIFICATION: 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: 98754448 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 October 3, 1998 Commission File Number: 000-19406 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 November 10, 1998, there were the following shares outstanding: Class A Common Stock, $.01 par value 19,439,347 Class B Common Stock, $.01 par value 11,807,568 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES QUARTER ENDED OCTOBER 3, 1998 INDEX
PAGE PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Independent Auditors' Review Report 3 Consolidated Balance Sheets as of October 3, 1998 (unaudited) and December 31, 1997 4 Consolidated Statements of Earnings and Comprehensive Income (unaudited) for the three months and nine months ended October 3, 1998 and September 27, 1997 5 Consolidated Statements of Cash Flows (unaudited) for the nine months ended October 3, 1998 and September 27, 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 13 SIGNATURES 14
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 October 3, 1998, the related consolidated statements of earnings and comprehensive income for the three-month and nine-month periods ended October 3, 1998 and September 27, 1997, and the related consolidated statements of cash flows for the nine-month periods ended October 3, 1998 and September 27, 1997. These consolidated financial statements are the responsibility of the Company's management. We conducted our reviews 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 reviews, 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. /s/KPMG Peat Marwick LLP Chicago, Illinois October 14, 1998 3 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
OCTOBER 3, DECEMBER 31, 1998 1997 -------------- -------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 7,140 $ 7,155 Investments and marketable securities 143,589 121,698 Accounts receivable, net of allowance of $1,746 in 1998 and $1,788 in 1997 41,891 31,032 Inventories 20,136 22,443 Deferred income taxes 3,210 4,307 Prepaid expenses 1,400 843 -------------- -------------- Total current assets 214,156 187,478 -------------- -------------- Machinery and equipment at cost, less accumulated depreciation and amortization 18,371 12,753 Deferred tax asset - - Other assets 4,288 3,353 -------------- -------------- TOTAL ASSETS $ 238,598 $ 203,584 -------------- -------------- -------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,421 $ 11,141 Accrued liabilities 6,379 6,900 Short-term note payable 137 137 Current portion of obligation under capitalized lease with related party 67 65 Income taxes payable 5,756 4,329 -------------- -------------- Total current liabilities 24,760 22,572 -------------- -------------- Obligation under capitalized lease with related party, less current portion - 51 Long-term liability - 212 Deferred income taxes 1,427 911 Other 234 287 -------------- -------------- TOTAL LIABILITIES 24,994 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, 19,439,347 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 30,443 29,984 Retained earnings 181,732 148,779 Accumulated other comprehensive income 1,186 545 -------------- -------------- TOTAL SHAREHOLDERS' EQUITY 213,604 179,551 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 238,598 $ 203,584 -------------- -------------- -------------- --------------
See accompanying notes to consolidated financial statements. 4 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER-SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------ ----------------------------- OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27, 1998 1997 1998 1997 --------------- -------------- ------------- --------------- Net sales $ 57,354 $ 49,889 $ 162,922 $ 138,742 Cost of sales 26,677 24,878 77,314 69,027 --------------- -------------- ------------- --------------- Gross profit 30,677 25,011 85,608 69,715 Operating expenses: Sales and marketing 5,717 4,863 16,654 13,807 Research and development 3,461 2,767 9,821 7,935 General and administrative 4,502 3,730 13,034 10,620 --------------- -------------- ------------- --------------- Total operating expenses 13,680 11,360 39,509 32,362 --------------- -------------- ------------- --------------- Income from operations 16,997 13,651 46,099 37,353 --------------- -------------- ------------- --------------- Other income (expense): Investment income 1,238 1,278 3,650 3,715 Gain (loss) on securities (647) 583 2,218 7,276 Other, net (83) 27 (496) 364 --------------- -------------- ------------- --------------- Total other income 508 1,888 5,372 11,355 --------------- -------------- ------------- --------------- Income from continuing operations before taxes 17,505 15,539 51,471 48,708 Provision for income taxes 6,275 5,594 18,518 17,591 --------------- -------------- ------------- --------------- Income from continuing operations 11,230 9,945 32,953 31,117 --------------- -------------- ------------- --------------- Loss from discontinued operation (less applicable income tax benefit) -- -- -- (2,655) --------------- -------------- ------------- --------------- Net income $ 11,230 $ 9,945 $ 32,953 $ 28,462 --------------- -------------- ------------- --------------- --------------- -------------- ------------- --------------- Other comprehensive income - foreign currency translation adjustments 489 (630) 641 (1,029) --------------- -------------- ------------- --------------- Comprehensive income $ 11,719 $ 9,315 $ 33,594 $ 27,433 --------------- -------------- ------------- --------------- --------------- -------------- ------------- --------------- Basic earnings per share from continuing operations $ 0.46 $ 0.41 $ 1.35 $ 1.29 Diluted earnings per share from continuing operations $ 0.46 $ 0.41 $ 1.35 $ 1.28 Basic earnings per share $ 0.46 $ 0.41 $ 1.35 $ 1.18 Diluted earnings per share $ 0.46 $ 0.41 $ 1.35 $ 1.17 Basic weighted-average shares outstanding 24,327 24,176 24,322 24,166 Diluted weighted-average and equivalent shares outstanding 24,417 24,257 24,412 24,247
See accompanying notes to consolidated financial statements. 5 ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED ---------------------------------- OCTOBER 3, SEPTEMBER 27, 1998 1997 --------------- ---------------- Cash flows from operating activities: Net income $ 32,953 $ 28,462 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,962 2,694 Depreciation (appreciation) in market value of investments & marketable securities 2,671 (468) Discontinued operations -- (3,371) Increase in accounts receivable (10,859) (212) Decrease in inventories 2,307 208 Decrease (increase) in other assets (935) 1,062 Increase (decrease) in accounts payable 1,280 (2,198) Increase (decrease) in accrued liabilities and other (574) 3,396 Increase (decrease) in income taxes payable 1,427 (108) Decrease (increase) in deferred taxes 1,613 (2,171) Net increase (decrease) in other operating activities 84 (2,583) Net purchases of investments and marketable securities (24,562) (23,017) -------- -------- Net cash provided by operating activities 9,367 1,694 -------- -------- Cash flows from investing activities: Purchases of machinery and equipment (9,580) (3,506) Net sales of investments and marketable securities -- 6,044 -------- -------- Net cash provided by (used in) investing activities (9,580) 2,538 -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options and stock purchase plan 459 259 Issuance of short-term notes payable -- 136 Payment of long-term notes payable (212) -- Payments for obligation under capital lease (49) (46) -------- -------- Net cash provided by financing activities 198 349 -------- -------- Net increase (decrease) in cash and cash equivalents (15) 4,581 Cash and cash equivalents at beginning of period 7,155 5,168 -------- -------- Cash and cash equivalents at end of period $ 7,140 $ 9,749 -------- -------- -------- -------- Supplemental disclosures of cash flow information: Interest paid $ 467 $ 9 Income taxes paid $ 12,236 $ 15,936
See accompanying notes to consolidated financial statements. 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 October 3, 1998, the consolidated results of their operations for the three months and nine months ended October 3, 1998, and September 27, 1997, and their cash flows for the nine months ended October 3, 1998, and September 27, 1997. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," as of January 1, 1998. NOTE 2 - DISCONTINUED BUSINESS OPERATIONS As of June 28, 1997, the Company decided 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. The Company's financial statements for the nine months ended September 27, 1997, have been revised to reflect the discontinuance of VTI. NOTE 3 - TAX AUDITS AND RELATED LITIGATION As of April 4, 1998, the Internal Revenue Service completed audits covering the Company's federal income tax returns from 1993 and 1994. Settlements with the IRS for both years amounted to $999,500 and were paid prior to the close of the quarter ended July 4, 1998. As of July 4, 1998, the Company made a final settlement to the IRS for interest charges related to the audits covering 1993 and 1994. The interest payments for both years amounted to $403,700 and were paid in the quarter ended July 4, 1998. These payments are reflected in such quarter's statement of earnings and comprehensive income as other expenses. 7 Completion of the State of Illinois income tax audit covering the same tax years was settled during the first quarter of 1998. A settlement of $190,400 was paid in April 1998 for the tax years of 1993 and 1994. The Illinois Department of Revenue has recently challenged the Company on the tax status and treatment of the Company's intangible entities. Although the Company and its attorneys believe that the Company has a strong position, the Company was required to make deposits of $2,893,788 while the matter is pending. These deposits were made in the third and fourth quarters of 1998. NOTE 4 - SUBSEQUENT EVENT On October 28, 1998, the Company completed the acquisition of Eltron International, Inc. ("Eltron"), acquiring all of the outstanding capital stock of Eltron in exchange for 6,917,00 shares of the Company's Class B Common Stock. The Class B stock is neither traded on nor quoted by any securities exchange. Zebra Class A Common Stock is traded on and quoted by the Nasdaq Stock Market. Class B shares may be converted into Class A shares on a one-for-one basis at any time at the option of the holder. Based upon the closing price of the Company's Class A Common Stock, the Class B Common Stock had a market value of approximately $201 million on the date the acquisition was consummated. In addition, the Company assumed stock options and warrants that converted into options and warrants to purchase 807,780 shares of Class B Common Stock. Eltron manufactures and markets high-quality, low-cost bar code label and plastic card printers, secure card printing systems, ribbons, self-adhesive labels, and related accessories throughout the world. Eltron is located in Camarillo, California. The acquisition of Eltron will be accounted for as a pooling of interests. On a pro forma basis, the combined company would have generated sales of $256 million for the nine months ended October 3, 1998, and $215 million for the nine months ended September 27, 1997, and would have had approximately $149 million in cash and investments as of October 3, 1998. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS; THIRD QUARTER OF 1998 VERSUS THIRD QUARTER OF 1997 AND YEAR-TO-DATE 1998 VERSUS YEAR-TO-DATE 1997 Net sales for the third quarter increased 15.0% to $57,354,000 from $49,889,000. The sales increase is attributable to unit growth in hardware (printers and replacement parts). The average unit price for printers declined slightly, since volume in lower-priced models has grown faster than increases in higher-priced models. For the third quarter, hardware sales increased 19.0% from the third quarter of 1997 to 79.6% of net sales, and supplies sales increased 1.9% from the third quarter of 1997 to 17.9% of net sales. The remaining 2.5% of net sales consisted of service and software revenue. For the year to-date, net sales increased 17.4% to $162,922,000 from $138,742,000. Year-to-date hardware sales increased 22.6% to 78.6% of net sales, and supplies sales declined 0.5% to 18.8% of net sales. The remaining 2.6% of year-to-date net sales consisted of service and software revenue. International sales accounted for 42.8% of 1998 third quarter sales, compared with 45.8% of net sales for the third quarter of 1997. On a year-to-date basis, international sales accounted for 43.4% of sales in 1998 and 46.7% of sales in 1997. The decrease in the percentage of international sales, on both a quarterly and year-to-date basis, is principally due to declines in the Company's sales to the Asia-Pacific region. Gross profit for the third quarter of 1998 was $30,677,000, up 22.7% from the gross profit of $25,011,000 for the third quarter of 1997. As a percentage of net sales, gross profit increased 3.4 percentage points to 53.5% from 50.1%. The increase in gross profit margin was due to a decrease in printer component costs, productivity improvements in printer manufacturing, and a favorable product mix. On a year-to-date basis, gross profit increased to $85,608,000, up 22.8% from $69,715,000 for the same period a year ago. Year-to-date gross profit also increased as a percentage of net sales, to 52.5% from 50.2%. Sales and marketing expenses of $5,717,000 increased 17.6% for the third quarter of 1998 from $4,863,000 for the third quarter of 1997. During the quarter, new programs to introduce new products began. The Company also staffed new marketing functions for the Company's personal printer line and opened a new sales office in Japan. As a percentage of net sales, third quarter sales and marketing expenses increased to 10.0% from 9.7%. Year-to-date sales and marketing expenses of $16,654,000 increased 20.6% from $13,807,000, and increased as a percentage of net sales to 10.2% from 10.0%. Research and development expenses for the third quarter increased 25.1% to $3,461,000 from $2,767,000. As a percentage of sales, quarterly research and development expenses increased to 6.0% from 5.5%. Higher personnel-related expenses and prototype work related to new product development were primarily responsible for the increase. Year-to-date research and development expenses increased 23.8% to $9,821,000, or 6.0% of net sales, in 1998 from $7,935,000, or 5.7% of net sales, in 1997. 9 General and administrative expenses for the third quarter increased by 20.7% to $4,502,000 from $3,730,000. As a percentage of net sales, quarterly general and administrative expenses increased to 7.8% from 7.5%. During the quarter, the Company experienced higher personnel costs related to increased staffing levels. In addition, depreciation and other expenses increased, as the Company's Baan ERP system became active during the second quarter of 1998. For the first nine months of the year, general and administrative expenses increased 22.7% to $13,034,000, or 8.0% of net sales, from $10,620,000, or 7.7% of net sales. Income from operations for the third quarter increased by $3,346,000, or 24.5%, to $16,997,000, or 29.6% of net sales, from to $13,651,000, or 27.4% of net sales. For the year to-date, income from operations increased by $8,746,000, or 23.4%, to $46,099,000, or 28.3% of net sales, from $37,353,000, or 26.9% of net sales. Investment income and gain (loss) on securities for the third quarter of 1998 decreased 68.2% to $591,000 from $1,861,000 for the same period in 1997. Unrealized losses on securities because of abnormal financial market volatility during the quarter were the primary reason for this decline. Also because of the abnormal market volatility in the third quarter of 1998, year-to-date investment income and gain on securities decreased 46.6%, to $5,868,000 from $10,991,000 for the first nine months of 1997. For the year to-date in 1997, gain on securities includes a one-time pre-tax investment gain of $5,458,000, which was recognized in the first quarter of 1997. Other expense for the third quarter of 1998 totaled $83,000, compared with other income of $27,000 for the third quarter of 1997. For the year to-date, other expense of $496,000 included $403,700 for a one-time interest charge for a tax deficiency arising from a U.S. Internal Revenue Service tax audit of 1993 and 1994. See Note 3 to the Consolidated Financial Statements included elsewhere herein. Income from continuing operations before taxes for the third quarter of 1998 was $17,505,000, compared with $15,539,000 for the same period in 1997, an increase of 12.7%. On a year-to-date basis, income from continuing operations before taxes increased 5.7% to $51,471,000 from $48,708,000 for the previous year. Excluding the previously discussed one-time investment gain recognized in the first quarter of 1997, year-to-date income from continuing operations before taxes increased 19.0%. The effective income tax rate for the third quarter of 1998 was 35.8%, resulting in income from continuing operations and net income of $11,230,000, or $0.46 per share (basic and diluted). For the third quarter of 1997, the effective income tax rate was 36.0%, and income from continuing operations and net income were $9,945,000, or $0.41 per share (basic and diluted). As a percentage of net sales, quarterly net income was 19.6% in 1998, compared with 19.9% in 1997. For the year to-date, the effective income tax rate was 36.0% for 1998, resulting in income from continuing operations and net income of $32,953,000, or $1.35 per share (basic and diluted). For 1997, the effective income tax rate was 36.1%, and income from continuing operations was $31,117,000. Basic earnings from continuing operations were $1.29 per share, and diluted earnings from continuing operations were $1.28 per share. Net income for the first nine months of 1997 was $28,462,000, or basic earnings of $1.18 per share ($1.17 per share diluted). As a percentage of net sales, year-to-date income from continuing operations was 20.2% in 1998 and 22.4% in 1997. 10 LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of liquidity continues to be cash generated from operations. Cash and cash equivalents and investments and marketable securities totaled $150,729,000 at October 3, 1998, compared with $128,853,000 at December 31, 1997. Management believes that existing capital resources and funds generated from operations are sufficient to finance anticipated capital requirements. YEAR 2000 CONSIDERATIONS To meet changing business needs, the Company initiated a conversion in 1995 to the Baan system, an enterprise-wide business management and resource planning system. This system is Year 2000 compliant and its implementation was completed in the third quarter of 1998 for Vernon Hills and will be completed by year-end 1998 for the Company's United Kingdom location. The Company's payroll system, which is not covered by the Baan system, is expected to be replaced at the beginning of the second quarter of 1999. 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 totaled $8,500,000, of which $6,700,000 has been capitalized. At completion, total expenditures are estimated to be $8,800,000, of which $7,000,000 is estimated to be capitalized. The Company does not believe that its non-information technology systems will be materially affected by the Year 2000 issues. The Company is in the process of surveying its significant suppliers to determine if they are Year 2000 compliant. Approximately 96% of these surveys have been returned. There can be no guarantee that such suppliers will achieve compliance on a timely basis. The failure by one or more significant suppliers to achieve compliance could have a material adverse effect on the Company. The Company has not yet undertaken to quantify the effects of such possible non-compliance, to determine the likely worst-case scenario or to develop contingency plans to deal with such scenario. The Company's printers have no internal clock or dating mechanism and will not be affected by the change in dates. The Company's PC-470 printer controller has a self-contained real-time clock and currently is not Year 2000 compliant. The Company intends to post instructions on its Web site (www.zebra.com) on how to reset the PC-470's clock so that it will function properly after January 1, 2000. Current versions of the Company's labeling and other software are either Year 2000 compliant or depend on the internal clock of the computer on which it is running for proper dating. The Company's LABEL software depends on the BIOS of the system on which it is running or on the external data source being Year 2000 compliant. SIGNIFICANT CUSTOMER Sales to The Peak Technologies Group, Inc. ("Peak") accounted for 14.6% of the Company's total net sales for the third quarter of 1998, compared with 16.5% of net sales for the third quarter of 1997. For the year to-date, sales to Peak represented 14.8% of net sales in 1998 and 16.7% of net sales in 1997. Moore Corporation acquired Peak in June 1997. Management recognizes that since Moore Corporation is a major provider of labels, the acquisition could have an adverse effect on Zebra's label sales to Peak. 11 SUBSEQUENT EVENT On October 28, 1998, the company merged with Eltron International, Inc. Each share of Eltron common stock was exchanged for nine-tenths (.90) of a share of Zebra Class B Common Stock. The Class B stock is neither traded on nor quoted by any securities exchange. Zebra Class A Common stock is traded on and quoted by the Nasdaq Stock Market. Class B shares may be converted into Class A shares on a one-for-one basis at any time at the option of the holder. Eltron manufactures and markets high-quality, low-cost bar code label and plastic card printers, secure card printing systems, ribbons, self-adhesive labels, and related accessories throughout the world. Eltron is located in Camarillo, California. The acquisition of Eltron will be accounted for as a pooling of interests. On a pro forma basis, the combined company would have generated sales of $256 million for the nine months ended October 3, 1998, and $215 million for the nine months ended September 27, 1997, and would have had approximately $149 million in cash and investments as of October 3, 1998. SAFE HARBOR Forward-looking statements contained in this filing are subject to the safe harbor created by the Private Securities 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 market acceptance of the Company's printer and software products and competitors' product offerings. They also include the success and speed of the Company's integration with Eltron International, Inc., as well as the effect of market conditions in the Asia-Pacific region on the Company's financial results. 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 and financial market conditions will also have an impact on results. Foreign exchange rates will have an effect on financial results due to the large percentage of the Company's international sales. 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 document are referred to prior filings with the Securities and Exchange Commission, including Zebra's joint proxy statement/prospectus dated September 21, 1998, particularly the "Risk Factors" section, for further discussions of issues that could affect Zebra's future results. 12 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. 13 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: November 12, 1998 By: /s/Edward L. Kaplan ------------------- Edward L. Kaplan Chief Executive Officer Date: November 12, 1998 By: /s/Charles R. Whitchurch ------------------------ Charles R. Whitchurch Chief Financial Officer 14 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, No. 33-72774, and No. 333-59733) on Form S-8 of Zebra Technologies Corporation, we acknowledge our awareness of the incorporation by reference therein of our report dated October 14, 1998, related to our review of interim financial information as of October 3, 1998. 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 November 9, 1998 EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF OCTOBER 3, 1998 AND CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 OCT-03-1998 7,140 143,589 43,637 (1,746) 20,136 214,156 36,976 (18,605) 238,598 24,760 0 0 0 243 213,361 238,598 143,068 162,922 70,513 77,314 39,485 24 467 51,471 18,518 32,953 0 0 0 32,953 1.35 1.35
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