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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended July 4, 1998
(Referred to as June 30, 1998 for Basis of Presentation)
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ________________
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Commission file number: 0-23342
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ELTRON INTERNATIONAL, INC.
(Exact name of business issuer as specified in its charter)
California 95-4302537
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
41 Moreland Road
Simi Valley, California 93065
(Address of principal executive offices)
(805) 579-1800
(Issuer's telephone number)
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Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |X| No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,677,210 common shares as of August
5, 1998
Transitional Small Business Disclosure Format (Check one): Yes [ ] No |X|
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ELTRON INTERNATIONAL, INC.
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1998
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements ......................................................................... 3
Consolidated Balance Sheets - June 30, 1998 and December 31, 1997
Consolidated Statements of Operations - Three and six months periods
ended June 30 1998 and 1997
Consolidated Statements of Cash Flows - Six months periods
ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operation......... 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .......................................... 12
Item 6. Exhibits and Reports on Form 8-K.............................................................. 12
SIGNATURES
Signatures............................................................................................ 13
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3
ELTRON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1997 1998
(Audited) (Unaudited)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash ................................................................ $ 3,770,139 $ 3,818,051
Short term investments .............................................. 6,696,105 6,823,447
Accounts receivable, net of allowance for doubtful accounts of
$341,343 and $460,448, respectively ......................... 20,575,443 22,993,998
Inventories ......................................................... 21,417,152 21,546,891
Prepaid expenses and other current assets ........................... 835,410 1,093,159
Deferred tax asset .................................................. 1,803,553 1,803,553
------------ ------------
Total current assets ............................................. 55,097,802 58,079,099
PROPERTY AND EQUIPMENT, net .............................................. 10,384,651 19,046,073
DIFFERENCE BETWEEN COST AND FAIR VALUE OF NET ASSETS ACQUIRED ............ 735,482 597,180
OTHER ASSETS ............................................................. 643,813 471,829
------------ ------------
$ 66,861,748 $ 78,194,181
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................... 5,928,560 8,121,190
Accrued liabilities ................................................. 1,594,072 2,914,901
Accrued compensation ................................................. 959,120 1,254,735
Deferred Service Contract Revenue ................................... 344,569 275,196
Income Taxes Payable ................................................ 361,659 1,197,971
Earnout Obligation .................................................. 954,313 980,421
------------ ------------
Total current liabilities ........................................ 10,142,293 14,744,414
LONG TERM OBLIGATION ..................................................... 50,083 32,768
SHAREHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized of which none
are outstanding .....................................................
Common stock, no par value:
Authorized - 30,000,000 shares
Issued and outstanding - 7,455,920 and 7,596,645 shares, respectively 26,000,480 26,138,013
Cumulative translation adjustment ................................... (255,758) (294,538)
Retained earnings ................................................... 30,924,650 37,573,524
------------ ------------
Total shareholders' equity ...................................... 56,669,372 63,416,999
------------ ------------
$ 66,861,748 $ 78,194,181
============ ============
The accompanying notes are an integral part of these financial statements
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ELTRON INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
SALES .................................. $ 27,513,022 $ 31,651,353 $ 50,682,593 $ 62,303,242
COST OF SALES .......................... 15,435,621 18,739,405 28,294,939 36,650,958
------------ ------------ ------------ ------------
Gross profit ....................... 12,077,401 12,911,948 22,387,654 25,652,284
OPERATING EXPENSES:
Selling, general and administrative 4,883,530 5,755,916 9,632,034 11,328,902
Research and product development ... 1,894,671 1,859,249 3,431,236 4,193,472
Gain on sale of subsidiary's assets -- -- -- (403,885)
INCOME FROM OPERATIONS ................. 5,299,200 5,296,783 9,324,384 10,533,795
OTHER (INCOME) EXPENSE:
Interest, net ...................... (62,122) (77,761) (174,968) (200,091)
Other, net ......................... 38,314 36,238 38,314 8,740
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES ................... 5,323,008 5,338,306 9,461,038 10,725,146
PROVISION FOR INCOME TAXES ............. 1,969,513 2,028,556 3,499,158 4,076,272
------------ ------------ ------------ ------------
NET INCOME ............................. $ 3,353,495 $ 3,309,750 $ 5,961,880 $ 6,648,874
============ ============ ============ ============
NET INCOME PER COMMON SHARE
Basic .............................. $ 0.46 $ 0.43 $ 0.81 $ 0.88
============ ============ ============ ============
Diluted ............................ $ 0.43 $ 0.43 $ 0.76 $ 0.85
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic .............................. 7,368,661 7,658,679 7,351,487 7,596,645
============ ============ ============ ============
Diluted ............................ 7,887,298 7,785,723 7,883,697 7,799,819
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
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ELTRON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1998
Six Months Ended
June 30, 1998
------------------------------
1997 1998
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................................... $ 5,961,880 $ 6,648,874
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ................................................... 1,170,784 1,661,530
Amortization of the difference between cost and fair value of net assets acquired 139,941 134,311
Provision for losses on inventory ............................................... 74,227 440,839
Provision for doubtful accounts ................................................. 118,678 119,105
Gain on sale of subsidiary's assets ............................................. -- (403,885)
Changes in assets and liabilities, net of effect from sale of subsidiary's assets:
Accounts receivable ............................................................. (2,102,917) (3,080,134)
Inventories ..................................................................... (2,157,114) (1,229,198)
Prepaid and other assets ........................................................ (70,438) (109,565)
Accounts payable ................................................................ (766,120) 2,395,155
Accrued liabilities and compensation ............................................ 385,017 650,175
Income Taxes Payable ............................................................ 970,013 836,312
Deferred service contract revenue ............................................... -- (69,373)
------------ ------------
Net cash provided by operating activities .......................................... 3,723,951 7,994,146
CASH FROM INVESTING ACTIVITIES:
Purchases of property and equipment ................................................ (2,063,471) (10,560,177)
Proceeds from sale of subsidiary ................................................... -- 2,659,847
Purchase of short term investments ................................................. (3,850,374) (127,342)
Sale short term investments ........................................................ 3,191,018
------------ ------------
Net cash used in investing activities .............................................. (2,722,827) (8,027,672)
CASH FROM FINANCING ACTIVITIES:
Additions to long term obligations ................................................. 56,107 --
Repayments of long term obligations ................................................ -- (17,315)
Proceeds from sale of stock ........................................................ 422,274 137,533
------------ ------------
Net cash provided by financing activities .......................................... 478,381 120,218
EFFECT OF EXCHANGE RATE ON CASH ........................................................ (226,925) (38,780)
------------ ------------
NET INCREASE IN CASH ................................................................... 1,252,580 47,912
CASH BALANCE, beginning of period ...................................................... 1,291,396 3,770,139
------------ ------------
CASH BALANCE, end of period ............................................................ $ 2,543,976 $ 3,818,051
============ ============
SUPPLEMENTAL DISCLOSURES:
Non-cash transactions:
Book value of net assets and obligations recorded in connection with
sale of RJS' verification business ................................................. $ -- $ 2,255,962
Settlement of receivable with common stock ......................................... $ 253,016 $ --
============ ============
The accompanying notes are an integral part of these financial statements
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ELTRON INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. BASIS OF PRESENTATION
The financial statements of Eltron International, Inc. (the "Company")
included herein are unaudited; however, they contain all normal recurring
accruals which, in the opinion of management, are necessary to present fairly
the financial position of the Company at June 30, 1998 and the results of
operations and cash flows for the three and six month periods ended June 30,
1997 and 1998. It should be understood that accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the three and six month periods ended June 30, 1998
are not necessarily indicative of the results to be expected for future quarters
or the full year.
In the first quarter of 1998, the Company changed its reporting from
calendar month end to a thirteen-week calendar quarter. For financial statement
presentation purposes, however, the reporting periods are referred to as ended
on the last calendar day of the quarter. The accompanying financial statements
for the three months ended June 30, 1997 and 1998 are for the thirteen weeks
ended June 30, 1997 and July 4, 1998, respectively.
The accompanying financial statements do not include footnotes and certain
financial presentations normally required under generally accepted accounting
principles and, therefore, should be read in conjunction with the Company's
financial statements for the year ended December 31, 1997 as filed in the
Company's annual report on Form 10-K.
2. RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period's presentation.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consist of the following:
December 31, June 30,
1997 1998
----------- -----------
Subassemblies and raw materials $13,698,636 $10,177,097
Work in process ............... 2,411,237 3,690,352
Finished goods ................ 5,307,279 7,679,442
----------- -----------
$21,417,152 $21,546,891
4. PROPERTY AND EQUIPMENT
Property and equipment stated at cost consists of the following:
December 31, June 30,
1997 1998
------------ ------------
Land and Buildings ............................ $ 0 $ 7,671,602
Tooling and machinery ......................... 8,566,595 10,020,201
Office equipment .............................. 5,988,410 7,080,921
Leasehold improvements ........................ 598,876 704,109
------------ ------------
15,153,881 25,476,833
Less, accumulated depreciation and amortization (4,769,230) (6,430,760)
Net property and equipment .................... $ 10,384,651 $ 19,046,073
============ ============
5. INCOME TAXES
The provisions for income taxes for the six months ended June 30, 1997 and
1998 are based on the Company's estimated annualized tax rate for the respective
years, after giving effect to the utilization of available tax credits and tax
planning opportunities.
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6. NET INCOME PER COMMON SHARE
The following table provides a reconciliation of the numerator and
denominators of the basic and diluted per-share computations for the six month
periods ended June 30, 1997 and 1998.
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
Three Months Ended June 30, 1997:
Basic EPS $3,353,495 7,368,661 $ 0.46
Effect of dilutive securities - stock options and warrants -- 518,637
---------- ---------
Diluted EPS $3,353,495 7,887,298 $ 0.43
Three Months Ended June 30, 1998:
Basic EPS $3,309,750 7,658,679 $ 0.43
Effect of dilutive securities - stock options and warrants -- 127,044
---------- ---------
Diluted EPS $3,309,750 7,785,723 $ 0.43
Six Months Ended June 30, 1997:
Basic EPS $5,961,880 7,351,487 $ 0.81
Effect of dilutive securities - stock options and warrants -- 532,210
---------- ---------
Diluted EPS $5,961,880 7,883,697 $ 0.76
Six Months Ended June 30, 1998:
Basic EPS $6,648,874 7,596,645 $ 0.88
Effect of dilutive securities - stock options and warrants -- 203,174
---------- ---------
Diluted EPS $6,648,874 7,799,819 $ 0.85
The computation for diluted number of shares excludes unexercised stock options
and warrants which are antidilutive. The number of such shares was 172,000 and
163,500 for the periods ended June 30, 1997 and 1998, respectively.
7. SALE OF VERIFICATION BUSINESS
In January 1998, Eltron sold the assets and rights to the bar code
verification business and the RJS name to Printronix Inc. for approximately $2.8
million. In connection with the sale, a pre-tax gain of $403,885 was recognized.
8. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income." This statement, which requires companies to adopt its
provisions for fiscal years beginning after December 15, 1997, establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. Differences between comprehensive income and net income were not
material to the Company's financial position, results of operations and cash
flows for the three and six month periods ended June 30, 1997 and 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement requires publicly held
companies to report financial and other information about key revenue producing
segments of the entity for which such information is available and is utilized
by the chief operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. SFAS No. 131 requires
companies to adopt its provisions for fiscal years beginning after December 15,
1997, but does not require that segment information be reported in financial
statements for interim periods in the initial year of application. Management is
currently evaluating the requirements of adopting SFAS No. 131 and the effects,
if any, on the Company's current reporting and disclosures.
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9. SUBSEQUENT EVENT
In July 1998, Eltron announced the signing of a definitive agreement to be
acquired by Zebra Technologies Corporation (Zebra), a manufacturer of
computerized label printing systems based in Vernon Hills, Illinois. The
transaction is structured as a merger under which Eltron's common shares will be
exchanged for 0.90 shares of Zebra common stock. It is expected that the
acquisition will be accounted for as a pooling of interests. As a result of the
acquisition, Eltron will become a subsidiary of Zebra.
Completion of the merger, which is expected to occur in the fourth quarter
of 1998, is contingent on customary conditions, including shareholder approval
and the expiration or termination of the Hart-Scott-Rodino Act review.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Eltron International, Inc. designs, manufactures and distributes a full
range of direct thermal and thermal transfer bar code label printers, integrated
verified printing systems, receipt printers, plastic card printers, secure
identification printing systems, related accessories, and support software.
Eltron also manufactures and distributes a full range of pressure sensitive
labels, tags, plastic cards, and printer ribbons for use with Eltron and other
printers. The Company believes that its success to date has resulted from
Eltron's ability to offer high quality printers and related products with
features comparable to or exceeding those of available competing products at a
lower cost and, additionally, because the Company offers the broadest range of
thermal label and plastic card printers currently on the market.
The Company's products are sold through multiple distribution channels that
include value added resellers, systems integrators, original equipment
manufacturers and national and regional distributors located in more than 80
countries. Industries for which the Company believes its printers are
particularly well suited include shipping and package delivery, retail
distribution and point of sale, healthcare, manufacturing, financial services,
security and governmental identification. The Company currently focuses its
sales efforts in these markets, although it continues to explore the potential
for new markets in which it can apply its expertise in the design and
manufacture of thermal printers.
Eltron's objective is to expand its position as a leading supplier of
thermal printers, supplies and related accessories designed for use in on demand
and distributed printing applications. The Company believes that it is able to
maintain a competitive advantage through both internal development efforts and
strategic acquisitions and alliances.
In January, 1998, Printronix Inc., a leading manufacturer of computer
printers, acquired the assets and rights to the bar code verification business
and the RJS name from Eltron for approximately $2.8 million. Eltron retained the
rights to the in-line verification technology for use in its line of integrated
verified printing systems, as well as the QualaBar and ThermaBar industrial
thermal printer lines.
In July 1998, Eltron announced the signing of a definitive agreement to be
acquired by Zebra Technologies Corporation (Zebra), a manufacturer of
computerized label printing systems based in Vernon Hills, Illinois. The
transaction is structured as a merger under which Eltron's common shares will be
exchanged for 0.90 shares of Zebra common stock. It is expected that the
acquisition will be accounted for as a pooling of interests. As a result of the
acquisition, Eltron will become a subsidiary of Zebra.
Completion of the merger, which is expected to occur in the fourth quarter
of 1998, is contingent on customary conditions, including shareholder approval
and the expiration or termination of the Hart-Scott-Rodino Act review.
STATEMENTS OF OPERATIONS DATA
The following table presents certain information derived from the Company's
Statements of Operations for the three and six month periods ended June 30, 1997
and 1998, expressed as a percentage of sales.
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1998 1997 1998
------ ------ ------ ------
SALES .................................. 100.0% 100.0% 100.0% 100.0%
COST OF SALES .......................... 56.1 59.2 55.8 58.8
------ ------ ------ ------
Gross profit ....................... 43.9 40.8 44.2 41.2
OPERATING EXPENSES:
Selling, general and administrative 17.7 18.2 19.0 18.2
Research and product development ... 6.9 5.9 6.8 6.7
Gain on sale of subsidiary ......... 0.0 0.0 0.0 (.6)
------ ------ ------ ------
INCOME FROM OPERATIONS ................. 19.3 16.7 18.4 16.9
OTHER (INCOME) EXPENSE:
Interest, net ...................... (0.2) (.3) (0.4) (.3)
Other, net ......................... 0.1 .1 0.1 0.0
------ ------ ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES 19.4 16.9 18.7 17.2
PROVISION FOR INCOME TAXES ............. 7.2 6.4 6.9 6.5
------ ------ ------ ------
NET INCOME ............................. 12.2% 10.5 11.8% 10.7
====== ====== ====== ======
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COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
Sales for the quarter ended June 30,1998 increased 15% to a record $31.7
million from $27.5 million in the second quarter of 1997. Sales for the six
months ended June 30, 1998 totaled $62.3 million, up 23% from the same period in
1997 which totaled $50.7 million. There was an increase in sales in all major
business groups, particularly from UPS and card printers.
In the second quarter 1998, total sales to UPS increased 46% to $9.9
million from $6.7 million in the second quarter of 1997. In the first six months
of 1998, sales to UPS totaled $20.0 million, a 62% increase over the $12.3
million for the same period in 1997. Label printer sales to customers other than
UPS in the second quarter of 1998 increased 16% over the second quarter of 1997
and were up 18% for the first six months of 1998 compared to the same period in
1997.
Although the Company had outstanding orders from UPS of approximately $5.1
million as of June 30, 1998, there is no obligation on the part of UPS to place
further orders with the Company. The Company has derived a significant portion
of its revenues from UPS and may in the future be dependent on UPS, or other
significant customers, the loss of any one of which could materially and
adversely affect the Company's financial position, results of operations and
cash flows. No customer other than UPS contributed greater than 10% of the
Company's net sales in the second quarter and the first six months of 1998 or
1997.
Gross profit for the quarter ended June 30, 1998 was $12.9 million, an
increase of $0.8 million or 7% over the second quarter of 1997. Gross margin
decreased to 41% in the second quarter of 1998 from 44% in the second quarter of
1997. Gross profit for the six months ended June 30, 1998 totaled $25.7 million,
an increase of $3.3 million or 15% over the gross profit for the same period in
1997. As a percentage of revenues, gross profit decreased 3% to 41% for the
first six months of 1998 from 44% for the same period in 1997 due principally to
a lower margin product mix.
Sales to high volume customers and OEMs, and sales of supplies are
typically transacted at a price which yields a lower than average gross margin.
Management currently believes that further changes to the Company's product mix
and sales to high volume and OEM customers, as well as sales of supplies, may
increase in the future and that, as a result, the 41% gross margin for the
second quarter of 1998 may not necessarily be maintained in the future.
Selling, general and administrative expenses increased from $4.9 million in
the second quarter of 1997 to $5.8 million in the second quarter of 1998, but
was flat as a percentage of sales at 18%. Selling, general and administrative
expenses increased to $11.3 million in the first six months of 1998, an 18%
increase over the first six months of 1997 and decreased as a percentage of
sales from 19% to 18%.
The Company currently anticipates that selling, general and administrative
expenses will increase in future quarters but may continue to decrease as a
percentage of sales. The actual amount spent will depend upon a number of
factors, including the Company's level of operations and the number and nature
of new markets the Company attempts to enter.
Research and development expense in the second quarter of 1998 was flat
from the second quarter of 1998 at $1.9 million, but decreased as a percentage
of sales from 7% to 6%. Research and development expense in the first six months
of 1998 increased by $0.8 million over the first six months of 1997, but
remained flat as a percentage of sales at 7%. Research and development expenses
were high in the first quarter of 1998 due to new product prototype expenses.
The Company is continuing to invest in new product development of label
printers, card printers and its secure identification printing systems.
The Company currently anticipates that research and product development
expense will increase in future quarters and may increase as a percentage of
sales. The actual amount spent will depend upon a variety of factors, including
the Company's level of operations and the number of product development projects
that it embarks upon.
In January, 1998, Printronix Inc., a leading manufacturer of computer
printers, acquired the assets and rights to the bar code verification business
and the RJS name from the Company for approximately $2.8 million. In the first
quarter of 1998 the Company recorded a tax affected gain on the sale of
approximately $250,000, or $0.03 per share. Eltron retained the rights to the
in-line verification technology for use in its line of integrated verified
printing systems, as well as the QualaBar and ThermaBar industrial printer
lines.
The provision for income taxes in the second quarter 1998 was $2.0 million,
or 38% of pretax income compared to $2.0 million for the second quarter of 1997,
or 37% of pretax income. The provision for income taxes for the first six months
of 1998 was $4.1 million, or 38% of pretax income compared to $3.5 million for
the first six months of 1997, or 37% of pretax income. The effective tax rate is
slightly higher in 1998, primarily due to the Federal Government not yet
renewing the Research and Development tax credit.
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YEAR 2000 COMPLIANCE
During 1997, the Company began the implementation of a year 2000 compliant
enterprise-wide information system. The Company has also initiated an assessment
project, both within the Company and with its business partners, which addresses
those other significant systems that may have year 2000 compliance issues. The
Company presently believes that with the implementation of the new system and
modification to existing software, year 2000 compliance will not pose a
significant operational challenge for the Company. However, if these
modifications are not completed on a timely basis, including implementation by
its business partners, the Company's financial position, results of operations,
and cash flows will be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
In the six month period ended June 30, 1998, operating activities provided
cash of $8.0 million as compared to $3.7 million in the first six months of
1997. In the first six months of 1998, cash was generated from an increase in
trade accounts payable of $2.4 and income tax payable of $0.8 million, which was
offset by an increase in trade receivables of $3.1 million and inventory of $1.2
million. These increases were due to overall increases in the level of business
activity in the first six months of 1998.
In the first six months of 1998, investing activities used cash totaling
$8.0 million compared to $2.7 million used in the first six months of 1997.
During the first quarter of 1998, approximately $7.8 million of cash was used to
complete the purchase of a building in Camarillo, California that will serve as
the Company's new world headquarters and provide expanded manufacturing
capacity. In addition, $2.8 million of cash was used in connection with the
company's computer system implementation and to purchase manufacturing
equipment. In January 1998, Printronix Inc., a leading manufacturer of computer
printers, acquired the assets and rights to the bar code verification business
and the RJS name from Eltron. This generated proceeds of approximately $2.7
million.
In the first six months of 1998 and 1997, financing activities provided
cash of approximately $0.1 million and $0.5 million, respectively, primarily by
the purchase of common shares under the company's stock option plans.
In 1997, the Company entered into an agreement for a revolving line of
credit with a bank. The revolving credit facility allows Eltron to borrow up to
$10 million on an unsecured basis. Borrowings under the revolving credit
facility bear interest at the bank's prime rate. Under the terms of the
revolving credit facility, the Company is not able to enter into certain
transactions or declare dividends without receiving prior written consent from
the bank and is required to comply with certain covenants as well as maintain
certain debt to net worth ratios, current ratio and minimum net worth
requirements. The revolving credit agreement expires in April, 1999. There was
no utilization of the credit line during the first six months of 1998.
The Company did not have any significant capital commitments as of June 30,
1998.
The Company believes that cash provided by operating activities, existing
cash and short-term investments will be sufficient to fund the Company's capital
needs for the foreseeable future.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income." This statement, which requires Companies to adopt its
provisions for fiscal years beginning after December 15, 1997, establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. Differences between comprehensive income and net income were not
material to the Company's financial position, results of operations and cash
flows for the three and six month periods ended June 30, 1998 and 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. SFAS No. 131 requires
companies to adopt its provisions for fiscal years beginning after December 15,
1997, but does not require that segment information be reported in financial
statements for interim periods in the initial year of application. Management
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is currently evaluating the requirements of adopting SFAS No. 131 and the
effects, if any, on the Company's current reporting and disclosures.
CAUTIONARY STATEMENTS AND RISK FACTORS
In additional to historical information, this Report contains forward
looking statements that involve risks and uncertainties. Factors associated with
the forward looking statements which could cause actual results to differ
materially from those stated appear elsewhere in this Report and in the
Company's most recent Annual Report on Form 10-K. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's opinions only as of the date hereof. The Company undertakes no
obligations to publicly release any revision to these forward-looking
statements. Readers should also carefully review any risk factors described in
other documents the Company may file from time to time with the Securities and
Exchange Commission. In addition to the other information contained in this
document, readers should carefully consider the cautionary statements and risk
factors contained in the Company's most recent Annual Report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 1998, the Company held its Annual Meeting of Stockholders to
elect members of the Board of Directors and to adopt and approve an amendment to
the Company's 1996 Stock Option Plan to increase by 325,000 the number of shares
of the Company's Common Stock which may be granted.
The following directors were elected and the votes cast were as follows:
Name For Withheld
----------------------- --------- ------
Donald K. Skinner 5,782,856 16,300
George L. Bragg 5,782,856 16,300
Hugh K. Gagnier 5,779,556 19,600
Robert G. Bartizal 5,782,856 16,300
William R. Hoover 5,782,856 16,300
The votes cast for the approval of the amendment of the 1996 Stock Option
Plan were as follows:
For Against Abstain Broker Non-Votes
------------ ----------- --------- ----------------
5,619,046 166,110 14,110 --
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
2.1 Agreement of Merger and Plan of Reorganization
dated July 9, 1998 by and among Eltron
International, Inc., Spruce Acquisition Corp., and
Zebra Technologies Corporation (without exhibits
and schedules).
27 Financial Data Schedules
b) Reports on Form 8-K
(i) Form 8-K, filed April 10, 1998
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
ELTRON INTERNATIONAL, INC.
Date: August 12, 1998 By:/s/ DONALD K. SKINNER
---------------------- -------------------------------
Donald K. Skinner
Chairman of the Board
and Chief Executive Officer
Date: August 12, 1998 By:/s/ ROGER HAY
---------------------- -------------------------------
Roger Hay
Vice President Finance
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. 2.1 Agreement of Merger and Plan of Reorganization dated
July 9, 1998 by and among Eltron International, Inc.,
Spruce Acquisition Corp., and Zebra Technologies
Corporation (without exhibits and schedules)
Exhibit No. 27 Financial Data Schedules
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