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 September 28, 1996
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 (IRS Employer Identification No.)
incorporation or organization)
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 11, 1996, there were the following shares outstanding:
Class A Common Stock, $.01 par value: 16,913,006
Class B Common Stock, $.01 par value: 7,315,404
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 28, 1996
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Independent Auditors' Review Report 2
Consolidated Balance Sheets as of September
28, 1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Earnings (unaudited)
for the three and nine months ended
September 28, 1996 and September 30, 1995 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 28, 1996
and September 30, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 13
Independent Auditors' Review Report
The Board of Directors
Zebra Technologies Corporation:
We have reviewed the consolidated balance sheet of Zebra Technologies Corp-
oration and subsidiaries as of September 28, 1996, and the related consolidated
statements of earnings for the three-month and nine-month periods ended
September 28, 1996 and September 30, 1995 and consolidated statements of cash
flows for the nine months ended September 28, 1996 and September 30, 1995.
These consolidated financial statements 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, 1995, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 13, 1996, 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, 1995, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Chicago, Illinois KPMG Peat Marwick LLP
October 10, 1996
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 28, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $4,805 $10,017
Investments and marketable securites 81,136 61,841
Accounts receivable, net of allowance 29,034 24,887
Inventories:
Finished goods 8,000 9,519
Work-in-process 265 354
Raw materials 11,749 10,492
Total inventories 20,014 20,365
Deferred income taxes 0 787
Prepaid expenses 1,063 1,379
Total current assets 136,052 119,276
Machinery and equipment at cost, less
accumulated depreciation and amortization 11,044 8,319
Other assets 2,833 3,476
Deferred income taxes 148 0
Total assets $150,077 $131,071
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,142 $11,268
Accrued liabilities 5,284 4,012
Notes payable 2 37
Current portion of obligation under
capitalized lease with related party 61 59
Income taxes payable 3,959 4,067
Total current liabilities 17,448 19,443
Obligation under capitalized lease with
related party, less current portion 131 177
Long term liability 2,212 2,000
Deferred income taxes 0 1,124
Other 308 121
Total liabilities $20,099 $22,865
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, none outstanding
Class A Common Stock, $.01 par value, 35,000,000
shares authorized, 16,902,290 and 16,865,500
shares issued and outstanding in 1996 and
1995, respectively 169 169
Class B Common Stock, $.01 par value, 35,000,000
shares authorized, 7,315,404 and 7,318,062
shares issued and outstanding in 1996 and
1995, respectively 73 73
Paid-in capital 30,039 29,645
Retained earnings 99,933 79,709
Unrealized holding loss on investments (122) (1,166)
Cumulative translation adjustment (114) (224)
Total stockholders' equity $129,978 $108,206
Total liabilities and stockholders' equity$150,077 $131,071
See accompanying notes to consolidated financial statements.
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except for per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
Net sales $43,757 $37,480 $122,596 $107,360
Cost of sales 22,324 19,214 63,342 56,015
Gross profit 21,433 18,266 59,254 51,345
Operating expenses:
Sales and marketing 4,164 3,663 13,746 9,780
Research and development 2,287 2,289 7,974 5,611
General and administrative 3,048 2,575 9,843 6,597
Acquired in-process technology 3 6,028 1,117 6,028
Total operating expenses 9,502 14,555 32,680 28,016
Income from operations 11,931 3,711 26,574 23,329
Other income (expense):
Investment income 1,351 798 4,110 2,484
Interest expense (3) 16 (16) 5
Other, net 154 18 141 116
Foreign exchange gain (loss) (29) 77 55 217
Total other incomes 1,473 909 4,290 2,822
Income before income taxes 13,404 4,620 30,864 26,151
Provision for income taxes 4,690 3,657 10,640 11,483
Net income $8,714 $963 $20,224 $14,668
Net income per share $0.36 $0.04 $0.84 $0.61
Average shares outstanding 24,203 24,133 24,197 24,094
See accompanying notes to consolidated financial statements.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 28, September 30,
1996 1995
Cash flows from operating activities:
Net income $20,224 $14,668
Adjustments to reconcile net income to net cash
provided by operating activities, net of
acquisitions:
Depreciation and amortization 2,193 1,366
Deferred income taxes (485) 1,397
Acquired in-process technology 1,117 6,028
Increase in accounts receivable (4,147) (5,694)
(Increase) decrease in inventories 351 (2,572)
(Increase) decrease in other assets 850 (624)
Increase (decrease) in accounts payable (3,126) 2,329
Increase in accrued expenses 1,459 762
Increase (decrease) in income taxes payable (108) 1,900
Net increase (decrease) in other operating assets
and liabilities 427 (1,271)
Net (purchases) sales of investments and marketable
securities (18,174) (12,199)
Net cash provided by operating activities 581 6,090
Cash flows from investing activities:
Purchases of machinery and equipment (4,803) (3,923)
Net purchases of investments and
marketable securities (78) (674)
Net cash used in investing activities (4,881) (4,597)
Cash flows from financing activities:
Proceeds from exercise of stock options 129 534
Issuance (repayment) of short-term notes payable (35) 43
Payments for obligation under capital lease (45) (43)
Payments for acquisition (962) (2,550)
Net cash used in financing activities (912) (2,016)
Net decrease in cash and cash equivalents (5,212) (523)
Cash and cash equivalents at beginning of period10,017 10,421
Cash and cash equivalents at end of period $4,805 $9,898
Supplemental disclosures of cash flow information:
Interest paid 16 19
Income taxes paid $10,145 $9,537
Supplemental schedule of noncash investing and financing activities:
The Company purchased all of the capital stock of Vertical Technologies, Inc.
for $8,050 in cash and common stock during 1995. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $8,358
Cash and common stock paid 8,050
Liabilities assumed $308
See accompanying notes to consolidated financial statements.
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 to Stockholders (the "Annual Report") incorporated by
reference into the Company's Form 10-K filed with the Securities and Exchange
Commission. The consolidated balance sheet as of December 31, 1995 presented
herein has been derived from the audited consolidated balance sheet contained in
the Annual Report. 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
September 28, 1996 and December 31, 1995, and the consolidated results of their
operations for the three and nine months ended September 28, 1996 and September
30, 1995 and their cash flows for the nine months ended September 28, 1996 and
September 30, 1995. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
Note 2 - Letter of Intent
Zebra Technologies Corporation and Eltron International, Inc. have executed a
letter of intent providing for a merger of the two companies. The contemplated
transaction will be structured as a tax-free merger and is expected to be
accounted for as a pooling of interests. The proposed merger is subject to a
number of conditions, including satisfactory completion of due diligence,
negotiation of a mutually satisfactory definitive merger agreement, receipt of
fairness opinions from investment bankers, approval of the transaction by the
shareholders of both companies, customary closing conditions, and certain
regulatory approvals, including the Hart-Scott-Rodino review. Eltron
International, Inc. designs, manufactures and markets high-quality, low-cost
label and plastic card printers, smart card printing systems, verifiers,
software, label media, and related accessories throughout the world. The
company's headquarters are located in Simi Valley, California.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Third Quarter of 1996 and First Nine Months of
1996 versus Third Quarter of 1995 and First Nine Months of 1995
Net sales for the third quarter of 1996 increased 16.7% to $43,757,000 versus
sales of $37,480,000 for the third quarter of 1995. On a year-to-date basis,
1996 net sales of $122,596,000 increased 14.2% over last year's net sales of
$107,360,000. The net sales increase for the quarter and year to date is
attributed to unit growth in printers rather than price increases, as the
average unit price of printer products remained essentially flat with last
year, while media and ribbon average unit prices actually declined from last
year's levels. Printer sales increased 13.6%, supplies sales increased 14.0%,
and service and software sales increased 191.5% over the third quarter of 1995.
Printer and supply sales for the quarter accounted for 70.7% and 23.4% of net
sales, respectively. On a year-to-date basis, printer and supplies consolidated
net sales increased by 10.7% and 8.2%, respectively, over 1995, bringing
printers to 70.6% and supplies to 23.6% of year-to-date net sales.
Approximately 58.9% of the third quarter net sales were derived from domestic
sales as compared to 54.2% during the third quarter of 1995. International net
sales for the quarter account for 41.1% compared to 45.8% of net sales for 1995.
Year to date, domestic sales accounted for 57.4% of consolidated net sales as
compared to 54.9% for year-to-date 1995.
Gross profit increased to $21,433,000 (49.0% of net sales) for the third quarter
of 1996, an increase of 17.3% over the gross profit of $18,266,000 (48.7%) for
the same period last year. Year-to-date gross profit of $59,254,000 (48.3%)
also increased 15.4% over $51,345,000 (47.8%) for 1995. The increase in gross
profit is due principally to favorable mix changes within the Company's
printer product sales and a significant increase in higher margin software sales
over the third quarter of 1995.
Sales and marketing expenses of $4,164,000 increased by $500,000, or 13.6% of
net sales, in the third quarter of 1996 versus the same period last year. As
a percentage of net sales, sales and marketing expenses have remained flat in
the third quarter as compared to the prior year third quarter. Year-to-date
sales and marketing expenses of $13,745,000 were up 40.5% over last year, and
increased as a percent of sales to 11.2% from 9.1% in 1995. Increased spending
is principally due to expenses required to develop the retail channel of
distribution for the Company's software products, start-up expenses for the
personal printer product line, and increased staffing at the Company's Vernon
Hills and High Wycombe facilities that are necessary to support anticipated
sales growth.
Research and development expenses in the third quarter of 1996 of $2,287,000
were flat in comparison with the third quarter of 1995. These expenses as a
percent of sales decreased from 6.1% to 5.2% for the quarter, due to the
completion of several large product development projects. On a year-to-date
basis, research and development expenses of $7,974,000 increased by 42.1% over
last year. As a percent of sales, they increased to 6.5% in 1996 versus 5.2% in
1995. On a year-to-date basis, the Company increased research and development
costs to support several significant product releases in June through August,
including the XiII printer series and the 170 PAX print engine, among others.
General and administrative expenses increased by 18.4% to $3,047,000 (7.0% of
net sales) in the third quarter of 1996 compared to $2,574,000 (6.9% of net
sales) in 1995. On a year-to-date basis, general and administrative expenses
increased by 49.2% to $9,843,000 (8.0% of net sales) in 1996, compared to
$6,596,000 (6.1% of net sales) in 1995. The increase in general and
administrative expenses for the quarter and year-to-date on a dollar and
percentage basis was primarily the result of increases in staff levels,
depreciation, mainframe computer expenses, and amortization of intangibles and
goodwill for the acquisitions of Vertical Technologies Inc. in July, 1995 and
Fenestra Computer Services in February, 1996.
Compared to the previous year, income from operations in the third quarter of
1996 increased 221.5% to $11,931,000 from $3,711,000 in third quarter of 1995.
As a percent of sales, income from operations for 1996 was 17.4% higher than the
third quarter of 1995. The 1995 income from operations was reduced by a non-
recurring $6,028,000 write-off of acquired in-process technology related to the
acquisition of Vertical Technologies Inc. in July, 1995. On a year-to-date
basis, operating income increased 13.9% to $26,574,000 (21.7% of net sales) from
$23,329,000 (21.7% of net sales) as the result of higher operating expenses.
Investment income for the third quarter of 1996 increased 69.3% to $1,351,000
from $798,000 in the third quarter of 1995. On a year-to-date basis,
investment income increased by $1,626,000 (65.5% increase) to $4,110,000
compared to the prior year total of $2,484,000. On both a quarterly and year-
to-date basis, the Company had larger balances in marketable securities, on
which it earned a higher total return than in the same period of 1995. On a
year-to-date basis, the marketable securities increased from $61,841,000 at
December 31, 1995 to $81,136,000 at September 28, 1996. In 1995, the annualized
year to date return on these investments was 10.4% compared to a return of 8.2%
for the comparable period of 1996.
Income before taxes for the third quarter of 1996 of $13,404,000 was $8,784,000
or 190.2% above the third quarter of 1995. Income taxes were provided at a rate
of 35.0% in the third quarter of 1996, resulting in net income of $8,714,000 or
19.9% of net sales, and net income per share of $0.36 on 24,203,000 average
weighted shares outstanding. In the third quarter of 1995, the provision for
income taxes was 79.1% resulting in net income of $963,000 or 2.6% of net
sales and net income per share of $0.04 on 24,133,000 weighted average shares
outstanding. The unusually high tax rate in this quarter is the result of the
non-deductibility for tax purposes of the $6,028,000 write-off of acquired in-
process technology related to the acquisition of Vertical Technologies
previously described. Year-to-date income before income taxes of $30,864,000,
in 1996, was $4,712,000 or 18.0% above the same period of 1995. The 1996 year-
to-date provision for income taxes was $10,640,000 (34.5% tax rate), resulting
in net income of $20,224,000 or 16.5% of net sales, and net income per share of
$0.84 on 24,197,000 weighted average shares outstanding. In 1995 the provision
for income taxes year-to-date was $11,483,000 (43.9% tax rate), resulting in
net income of $14,668,000 or 13.7% of net sales, and net income per share of
$0.61 on 24,094,000 weighted average shares outstanding.
Liquidity and Capital Resources
The Company's principal source of liquidity continues to be cash generated from
operations. At the end of the third quarter, the Company had $85,941,000 in
cash and marketable securities versus $71,858,000 at the end of 1995.
Effective February 16, 1996, the Company purchased the assets of Fenestra
Computer Services, a UK partnership, in exchange for $1,314,000 in the form
of cash and Zebra Class A common stock. The transaction has been accounted for
under the purchase method of accounting. Assets and liabilities, including
software and hardware technology, and trade names have been recorded at their
respective fair market values with $1,117,000 assigned to acquired in-process
technology based on an independent third party appraisal. The results of
operations noted above are impacted by acquired in-process technology charges
of $3,000 and $6,028,000 in the three months ended September 28, 1996 and
September 30, 1995, respectively. These non-recurring charges relate to the
acquisition of Fenestra Computer Services in the first quarter of 1996 and
Vertical Technologies Inc. in the third quarter of 1995.
On October 16, 1996, the Company and Eltron International, Inc. executed a
letter of intent providing for a merger of the two companies. The contemplated
transaction will be structured as a tax-free merger and is anticipated to be
accounted for as a pooling of interests. The proposed merger is subject to a
number of conditions, including satisfactory completion of due diligence,
negotiation of a mutually satisfactory definitive merger agreement, receipt of
fairness opinions from investment bankers, approval of the transaction by the
shareholders of both companies, customary closing conditions, and certain
regulatory approvals, including the Hart-Scott-Rodino review.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements. The
Company has no other commitments or agreements with respect to acquisitions or
other significant capital expenditures.
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 December 7, 1995
for further discussions of factors that could affect Zebra's future results.
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
15. Acknowledgment of Independent Certified Public Accountants
Regarding Independent Auditors' Review Report
27. 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.
Exhibit 15
Acknowledgment of Independent
Certified Public Accountants
Regarding Independent Auditors' Review Report
The Board of Directors
Zebra Technologies Corporation:
With respect to the Registration Statements on Form S-8 of Zebra Technologies
Corporation, we acknowledge our awareness of the use therein of our report dated
October 10, 1996 related to our review of interim financial information as of
September 28, 1996.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a 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.
Chicago, Illinois KPMG Peat Marwick LLP
November 8, 1996
Exhibit 27
The schedule contains summary financial information extracted from Zebra
Technologies Corporation and subsidiaries consolidated balance sheets for
September 28, 1996 and consolidated statements of earnings for September 28,
1996 and is qualified in its entirety by reference to such financial statements.
ZEBRA TECHNOLOGIES CORPORATION
Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Item Number Item Description Amount
5-02(1) cash and cash items 4,805
5-02(2) marketable securities 81,136
5-02(3)(a)(1) notes and accounts receivable-trade 29,326
5-02(4) allowances for doubtful accounts (292)
5-02(6) inventory 20,014
5-02(9) total current assets 136,052
5-02(13) property, plant and equipment 20,933
5-02(14) accumulated depreciation (9,889)
5-02(18) total assets 150,077
5-02(21) total current liabilities 17,448
5-02(22) bonds, mortgages and similar debt 0
5-02(28) preferred stock-mandatory redemption 0
5-02(29) preferred stock-no mandatory redemption 0
5-02(30) common stock 242
5-02(31) other stockholder's equity 129,736
5-02(32) total liabilities and stockholders' equity 150,077
5-03(b)1(a) net sales of tangible products 120,428
5-03(b)1 total revenues 122,596
5-03(b)2(a) cost of tangible goods sold 62,546
5-03(b)2 total costs and expenses applicable to
sales and revenues 63,342
5-03(b)3 other costs and expenses 32,374
5-03(b)5 provision for doubtful accounts and notes 306
5-03(b)(8) interest and amortization of debt discount 16
5-03(b)(10) income before income taxes 30,864
5-03(b)11 income tax expense 10,640
5-03(b)(14) income/loss 20,224
5-03(b)(15) discontinued operations 0
5-03(b)(17) extraordinary items 0
5-03(b)(18) cumulative effect- changes in accounting
principles 0
5-03(b)(19) net income or loss 20,224
5-03(b)(20) earnings per share-primary 0.84
5-03(b)(20) earnings per share-fully diluted 0.84
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 11, 1996 By: /s/Edward L. Kaplan
Edward L. Kaplan
Chief Executive Officer
Date: November 11, 1996 By: /s/Charles R. Whitchurch
Charles R. Whitchurch
Chief Financial Officer