Business Context and Reporting Period
Company: Zebra Technologies Corporation
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 1997
Business Overview: Zebra designs, manufactures, and sells computerized bar code label printing systems, specialty supplies, and software. The company operates globally with approximately 290,000 systems installed at 30,000 user sites in 80 countries. Products include thermal transfer and direct thermal printers, ribbons, and label design software.
Key Financial Metrics (1997)
| Metric | 1997 Value | 1996 Value |
|---|---|---|
| Net Sales | $192,071,000 | $163,980,000 |
| Gross Profit | $98,200,000 | $78,678,000 |
| Gross Margin | 51.1% | 48.0% |
| Operating Income | $52,775,000 | $41,031,000 |
| Net Income (Continuing Ops) | $42,810,000 | $30,853,000 |
| Net Income (Total) | $40,155,000 | $28,915,000 |
| Diluted EPS (Total) | $1.65 | $1.19 |
| Cash & Marketable Securities | $128,853,000 | $94,540,000 |
| Long-term Obligations | $263,000 | $2,326,000 |
| Capital Expenditures | $5,272,000 | $5,994,000 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 17.1% to $192.1 million, driven by unit growth despite declining average unit prices due to product mix shifts.
- Margin Expansion: Gross margins improved to 51.1% from 48.0%, attributed to lower material costs for high-volume parts and favorable product mix.
- Investment Income: Other income surged 119.5% to $13.96 million, primarily due to a one-time gain of $5.46 million from the sale of Norand Corporation stock.
- Discontinued Operations: The company discontinued Zebra VTI (PC retail channel) in 1997, recording a one-time pre-tax charge of $2.36 million. This resulted in a net loss from discontinued operations of $2.66 million.
- Debt Reduction: Long-term obligations decreased significantly to $263,000 from $2.33 million in 1996.
Guidance, Outlook, and Risks
- Outlook: Management anticipates future growth driven by bar code standardization programs and global demand for productivity improvements. International sales (45.5% of total) are expected to grow faster than domestic sales.
- Product Strategy: Introduction of the new Z Series printer platform (Z4000 and Z6000) in late 1997 targets the industrial market with modular design and ease-of-use features.
- Year 2000 Compliance: The company is implementing an enterprise-wide Baan system conversion to ensure Year 2000 compliance, with completion expected by year-end 1998. Estimated total project cost is $8.8 million.
- Customer Concentration: Sales to Peak Technologies accounted for 17% of net sales in 1997. Peak was acquired by Moore Corporation, a major label provider, creating a potential risk to future supply sales.
- Market Risks: Results are sensitive to foreign exchange rates (due to 45% international sales), interest rate conditions (due to large investment portfolio), and competitive product offerings.
Investor Verification Checklist
- Customer Concentration: Verify the impact of the Moore Corporation acquisition of Peak Technologies on future supply sales, given Peak represented 17% of revenue.
- One-Time Gains: Assess the sustainability of earnings by excluding the $5.46 million gain from the sale of Norand stock when evaluating core operating performance.
- Discontinued Operations: Confirm the full phase-out of Zebra VTI and ensure no lingering liabilities from the $2.36 million charge.
- Year 2000 Costs: Monitor the final cost of the Baan system implementation against the $8.8 million estimate and verify completion timelines.
- International Exposure: Evaluate the impact of foreign currency fluctuations on the 45.5% of revenue generated outside the U.S.