ZBRA

Business Context and Reporting Period

Company: Zebra Technologies Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1999
Business Overview: Zebra designs, manufactures, and supports bar code label printers, plastic card printers, and related supplies/software. The company operates globally with over 1.5 million printers installed in 90+ countries. In October 1998, Zebra merged with Eltron International, Inc., accounted for as a pooling-of-interests, requiring restatement of prior periods.

Key Financial Metrics (Year Ended Dec 31, 1999)

Revenue Composition (1999): Hardware (80.6%), Supplies (17.3%), Service/Software (2.0%).
Geographic Sales (1999): Domestic (59.9%), International (40.1%).

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 18.6% year-over-year, driven primarily by unit growth in hardware. International and domestic sales grew at the same rate.
• Margin Expansion: Gross margin improved by 4.4 percentage points to 50.8%. This was due to better overhead utilization and lower component costs, partially offset by a product mix shift toward lower-priced models.
• Profitability: Operating income rose 67% to $102.9 million. Net income increased 74% to $69.6 million.
• Merger Costs: The company incurred $6.3 million in merger-related costs in 1999 (down from $8.1 million in 1998). Excluding these one-time charges, operating income growth was 47.3%.
• Investment Income: Increased to $8.7 million from $4.0 million due to higher invested balances and normalized market returns compared to the volatility in late 1998.

Guidance, Outlook, and Risks

Management Commentary:

• Outlook: Management expects merger costs to continue through the second quarter of 2000. Growth is anticipated to be driven by bar code standardization, ERP system adoption, and e-commerce expansion.
• Product Strategy: Continued focus on high-end performance printers and the introduction of RFID-enabled "smart labels" (R-140 printer).
• Capital Allocation: The company intends to retain earnings to finance future growth and does not anticipate paying cash dividends.

Risks and Contingencies:

• Competition: Significant competition exists in all product segments (desktop, mid-range, high-end, and card printers) from companies like Datamax, Intermec, and Sato.
• Technology Obsolescence: Risk that alternative technologies (e.g., ink jet, laser, RFID) could supplant thermal transfer/direct thermal printing.
• Foreign Exchange: Exposure to currency fluctuations (USD/GBP, USD/EUR, USD/JPY) impacts financial results, though the company uses selective hedging.
• Customer Concentration: No single customer exceeded 10% of sales in 1999. However, United Parcel Service (10.3%) and Peak Technologies (10.9%) were significant in 1998 and 1997, respectively.

Key Facts for Investor Verification

• Merger Integration: Verify the timeline and remaining costs associated with the Eltron International merger, which impacted 1998 and 1999 results.
• Product Mix Shift: Confirm the trend of increasing volume in lower-priced printer models and its long-term impact on average selling price and gross margins.
• International Exposure: Assess the impact of foreign currency fluctuations on the 40% of revenue generated outside the U.S.
• Investment Portfolio: Review the composition and performance of the $197 million investment portfolio, which contributed significantly to other income.
• Customer Concentration: Monitor if any new customers emerge as significant (>10% of sales) given the absence of such concentration in 1999.