Business Context and Reporting Period
Company: Zebra Technologies Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 27, 1997
Business Overview: Zebra Technologies designs, manufactures, and markets printer products and supplies. The company operates globally, with approximately 46% of year-to-date sales derived from international sources.
Key Financial Metrics
| Metric | Three Months Ended Sep 27, 1997 |
Nine Months Ended Sep 27, 1997 |
Nine Months Ended Sep 28, 1996 |
|---|---|---|---|
| Net Sales | $49,889,000 | $138,742,000 | $117,301,000 |
| Gross Profit | $25,011,000 | $69,715,000 | $56,109,000 |
| Gross Margin | 50.1% | 50.2% | 47.8% |
| Operating Income | $13,651,000 | $37,353,000 | $27,732,000 |
| Net Income | $9,945,000 | $28,462,000 | $20,224,000 |
| Diluted EPS (Continuing Ops) | $0.41 | $1.28 | $0.87 |
| Cash & Cash Equivalents | $9,749,000 | $9,749,000 | $5,168,000 (Dec 31, 1996) |
| Investments & Securities | $106,818,000 | $106,818,000 | $89,372,000 (Dec 31, 1996) |
| Total Debt (Short & Long Term) | $413,000 | $413,000 | $2,373,000 (Dec 31, 1996) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 19.2% in the third quarter and 18.3% year-to-date compared to 1996. Growth was driven by unit volume increases across all product categories, despite a decrease in average unit price for printers.
- Product Mix: Printer sales grew 25.0% in the quarter, now representing 77.0% of total sales. Supplies sales decreased 1.6% in the quarter but grew 6.3% year-to-date.
- Profitability: Gross margin expanded to 50.1% in the quarter (from 48.0% in 1996) due to lower material costs and favorable product mix. Operating income rose 16.2% in the quarter and 34.7% year-to-date.
- Expenses: Sales and marketing expenses increased 37.5% in the quarter due to international staffing increases (Singapore, Germany, France) and higher advertising costs. R&D expenses rose 28.3% in the quarter due to staffing increases.
- Investment Income: Investment income surged 167.4% year-to-date, driven by larger cash balances and a one-time gain of $5.46 million from the sale of Norand Corporation stock in Q1 1997.
- Discontinued Operations: The company recorded a net loss of $2.655 million from discontinued operations (VTI subsidiary) year-to-date, including a $2.363 million charge in Q2 for the discontinuance of the PC retail channel.
Guidance, Outlook, and Risks
- Liquidity: The company maintains strong liquidity with $116.6 million in cash and marketable securities as of September 27, 1997. Management believes existing resources are sufficient for anticipated capital requirements.
- Discontinued Operations: The decision to discontinue the VTI subsidiary and PC retail channel was completed in Q3 1997. A one-time charge was recorded in Q2, and the transition of remaining products was finalized in Q3.
- Legal Proceedings: Litigation with former VTI officers was settled out of court in June 1997. The settlement did not unfavorably impact net income.
- Customer Concentration: The Peak Technologies Group, Inc. accounted for 17% of net sales in the first nine months of 1997. Peak was recently acquired by Moore Corporation, creating uncertainty regarding the future of this relationship.
- Risks: Future results depend on market acceptance of products, competitor offerings, manufacturing cost control, interest rate conditions (due to large investment portfolio), and foreign exchange rates.
- Accounting Changes: The company will implement SFAS No. 128 (Earnings per Share) for periods ending after December 15, 1997, though no significant impact on EPS amounts is expected.
Investor Verification Checklist
- Customer Concentration Risk: Verify the status of the relationship with Peak Technologies following its acquisition by Moore Corporation, given its 17% contribution to YTD sales.
- Discontinued Operations: Confirm that all charges related to the VTI discontinuance have been fully recognized and that no further contingent liabilities remain.
- Investment Portfolio: Assess the impact of interest rate fluctuations on the company's significant investment portfolio ($106.8 million in marketable securities).
- International Exposure: Monitor foreign exchange rate impacts, as nearly 47% of YTD sales are derived from international sources.
- Expense Management: Track the sustainability of increased sales and marketing expenses (up 37.5% QoQ) relative to future revenue growth targets.