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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D. C. 20549

 

FORM 10-Q

 

ý  Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

 

For the quarterly period ended June 29, 2002

 

Commission File Number:  000-19406

 

Zebra Technologies Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

 

36-2675536

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

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.

 

ý  Yes    o  No

 

As of August 7, 2002, there were the following shares outstanding:

 

Class A Common Stock, $.01 par value

 

26,698,584

 

Class B Common Stock, $.01 par value

 

4,847,932

 

 

 



 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

 

QUARTER ENDED JUNE 29, 2002

 

INDEX

 

PART I - FINANCIAL INFORMATION

 

 

Item 1.

Consolidated Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 29, 2002 (unaudited) and December 31, 2001

 

 

 

 

 

 

 

 

Consolidated Statements of Earnings (unaudited) for the three and six months ended June 29, 2002 and June 30, 2001

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended June 29, 2002 and June 30, 2001

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the six months ended June 29, 2002 and June 30, 2001

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

 

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

 

 

 

 

 

 

 

SIGNATURES

 

2



 

PART I - FINANCIAL INFORMATION

 

Item 1.    Consolidated Financial Statements

 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

 

 

 

June 29,
2002

 

December 31,
2001

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

17,053

 

$

26,328

 

Investments and marketable securities

 

272,276

 

223,021

 

Accounts receivable, net

 

73,556

 

67,160

 

Inventories

 

39,949

 

39,923

 

Deferred income taxes

 

4,942

 

4,295

 

Prepaid expenses

 

2,955

 

3,611

 

Total current assets

 

410,731

 

364,338

 

 

 

 

 

 

 

Property and equipment at cost, less accumulated depreciation and amortization

 

39,986

 

40,742

 

Long-term deferred income taxes

 

2,676

 

902

 

Goodwill

 

54,455

 

32,735

 

Other intangibles

 

4,239

 

26,693

 

Other assets

 

8,250

 

14,146

 

Total assets

 

$

520,337

 

$

479,556

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

17,402

 

$

14,414

 

Accrued liabilities

 

12,698

 

14,993

 

Short-term note payable

 

287

 

221

 

Current portion of obligation under capital lease with related party

 

114

 

79

 

Income taxes payable

 

5,076

 

4,121

 

Total current liabilities

 

35,577

 

33,828

 

Obligation under capital lease with related party, less current portion

 

242

 

408

 

Deferred rent

 

364

 

313

 

Other long-term liability

 

561

 

 

Total liabilities

 

36,744

 

34,549

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value; 10,000,000 shares authorized, none outstanding

 

 

 

Class A Common Stock, $.01 par value; 50,000,000 shares authorized, 26,685,449 and 26,018,743 shares issued, and 26,129,799 and 25,256,380 shares outstanding in 2002 and 2001, respectively

 

267

 

260

 

Class B Common Stock, $.01 par value; 28,358,189 shares authorized, 4,861,067 and 5,527,773 shares issued and outstanding in 2002 and 2001, respectively

 

48

 

55

 

Additional paid-in capital

 

55,005

 

59,012

 

Treasury stock, at cost (555,650 shares and 762,363 shares, respectively)

 

(25,030

)

(35,482

)

Retained earnings

 

453,955

 

422,555

 

Accumulated other comprehensive loss

 

(652

)

(1,393

)

Total shareholders’ equity

 

483,593

 

445,007

 

Total liabilities and shareholders’ equity

 

$

520,337

 

$

479,556

 

 

See accompanying notes to consolidated financial statements.

 

3



 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29,
2002

 

June 30,
2001

 

June 29,
2002

 

June 30,
2001

 

Net sales

 

$

115,951

 

$

112,935

 

$

226,136

 

$

228,079

 

Cost of sales

 

60,202

 

60,601

 

118,376

 

121,722

 

Gross profit

 

55,749

 

52,334

 

107,760

 

106,357

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling and marketing

 

13,531

 

13,146

 

25,479

 

25,220

 

Research and development

 

7,472

 

7,615

 

14,927

 

14,211

 

General and administrative

 

9,413

 

8,479

 

18,742

 

17,033

 

Amortization of intangible assets

 

367

 

1,297

 

735

 

2,580

 

Costs related to terminated acquisition

 

 

 

3,300

 

 

Merger costs

 

 

532

 

73

 

1,364

 

Total operating expenses

 

30,783

 

31,069

 

63,256

 

60,408

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

24,966

 

21,265

 

44,504

 

45,949

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Investment income

 

1,188

 

2,042

 

5,355

 

4,203

 

Interest expense

 

(32

)

(28

)

(87

)

(120

)

Other, net

 

(413

)

(668

)

(726

)

(967

)

Total other income

 

743

 

1,346

 

4,542

 

3,116

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

25,709

 

22,611

 

49,046

 

49,065

 

Income taxes

 

9,249

 

8,140

 

17,646

 

17,664

 

Net income

 

$

16,460

 

$

14,471

 

$

31,400

 

$

31,401

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.53

 

$

0.47

 

$

1.02

 

$

1.03

 

Diluted earnings per share

 

$

0.53

 

$

0.47

 

$

1.01

 

$

1.02

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

30,932

 

30,599

 

30,887

 

30,583

 

Diluted weighted average and equivalent shares outstanding

 

31,229

 

30,831

 

31,181

 

30,820

 

 

See accompanying notes to consolidated financial statements.

 

4



 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29,
2002

 

June 30,
2001

 

June 29,
2002

 

June 30,
2001

 

Net income

 

$

16,460

 

$

14,471

 

$

31,400

 

$

31,401

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

2,885

 

(196

)

2,316

 

(1,621

)

Unrealized holding gains on investments:

 

 

 

 

 

 

 

 

 

Net change in unrealized holding gain/(loss) for the  period, net of income tax (benefit) of $18 and ($886), for the three and six months ended June 29, 2002 and $557 and $587 for the three and six months ended June 30, 2001, respectively.

 

32

 

991

 

(1,575

)

1,043

 

Comprehensive income

 

$

19,377

 

$

15,266

 

$

32,141

 

$

30,823

 

 

See accompanying notes to consolidated financial statements.

 

5



 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 29,
2002

 

June 30,
2001

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

31,400

 

$

31,401

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

6,024

 

7,814

 

Depreciation (appreciation) in market value of investments and marketable securities

 

653

 

(674

)

Write-down of long-term investments

 

193

 

 

Deferred income taxes

 

(2,422

)

319

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

(4,343

)

4,424

 

Inventories

 

650

 

8,878

 

Other assets

 

4,127

 

(6,747

)

Accounts payable

 

1,593

 

(7,540

)

Accrued liabilities

 

(2,378

)

387

 

Income taxes payable

 

914

 

(8,675

)

Other operating activities

 

749

 

(663

)

Investments and marketable securities

 

(49,908

)

(26,543

)

Net cash provided by (used in) operating activities

 

(12,748

)

2,381

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(4,111

)

(4,891

)

Net cash used in investing activities

 

(4,111

)

(4,891

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from exercise of stock options

 

6,445

 

3,786

 

Issuance of notes payable

 

620

 

192

 

Payments for obligation under capital lease, with related party

 

(165

)

(198

)

Net cash provided by financing activities

 

6,900

 

3,780

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

684

 

(1,621

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(9,275

)

(351

)

Cash and cash equivalents at beginning of period

 

26,328

 

13,776

 

Cash and cash equivalents at end of period

 

$

17,053

 

$

13,425

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Interest paid

 

$

87

 

$

120

 

Income taxes paid

 

9,935

 

25,221

 

 

See accompanying notes to consolidated financial statements.

 

6



 

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Basis of Presentation

Zebra Technologies Corporation and subsidiaries (the Company) prepared, without audit, the consolidated financial statements included herein 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 accounting principles generally accepted in the United States of America 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 on Form 10-K filed with the Securities and Exchange Commission. The consolidated balance sheet as of December 31, 2001, presented herein, has been derived from the audited consolidated balance sheet contained in the Annual Report on Form 10-K. In the opinion of the Company, the interim consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of the Company as of June 29, 2002, and the consolidated results of operations for the three and six months ended June 29, 2002, and June 30, 2001, and the consolidated statements of cash flows for the six months ended June 29, 2002, and June 30, 2001. The results of operations for such interim periods are not necessarily indicative of the results for the full year.

 

Note 2 – Inventories

The components of inventories are as follows (in thousands):

 

 

 

June 29,
2002

 

December 31,
2001

 

Raw material

 

$

22,896

 

$

25,410

 

Work in process

 

952

 

1,360

 

Finished goods

 

16,101

 

13,153

 

Total inventories

 

$

39,949

 

$

39,923

 

 

Note 3 Earnings Per Share

Earnings per share were computed as follows (in thousands, except per-share amounts):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 29,
2002

 

June 30,
2001

 

June 29,
2002

 

June 30,
2001

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Net income

 

$

16,460

 

$

14,471

 

$

31,400

 

$

31,401

 

Weighted average common shares outstanding

 

30,932

 

30,599

 

30,887

 

30,583

 

Per share amount

 

$

0.53

 

$

0.47

 

$

1.02

 

$

1.03

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Net income

 

$

16,460

 

$

14,471

 

$

31,400

 

$

31,401

 

Weighted average common shares outstanding

 

30,932

 

30,599

 

30,887

 

30,583

 

Add: Effect of dilutive securities – stock options

 

297

 

232

 

294

 

237

 

Diluted weighted average and  equivalent shares outstanding

 

31,229

 

30,831

 

31,181

 

30,820

 

Per share amount

 

$

0.53

 

$

0.47

 

$

1.01

 

$

1.02

 

 

The potentially dilutive securities, that were excluded from the earnings per share calculation, consisted of stock options for which the exercise price was greater than the average market price of the Class A Common Stock. The shares amounted to 223,000 and 233,000 for the three and six months ended June 29, 2002, respectively, and 437,000 and 429,000 for the three and six months ended June 30, 2001, respectively.

 

7



 

Note 4 – New Accounting Pronouncements Including Intangible Asset Data

During the first quarter of 2002, Zebra implemented SFAS No. 142, Goodwill and Other Intangible Assets, which replaces the requirements to amortize intangible assets with indefinite lives and goodwill with a requirement for an annual impairment test. SFAS No. 142 also establishes requirements for identifiable intangible assets. As a result, during the first quarter Zebra reclassified $21,720,000 of intangible assets into goodwill. Operating income for the first six months of 2001 includes $1,845,000 of amortization of goodwill and other intangible assets that are not included in 2002 results, because of the implementation of SFAS No. 142.

 

Intangible asset data are as follows (in thousands):

 

 

 

As of June 29, 2002

 

 

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Amortized intangible assets

 

 

 

 

 

Current technology

 

$

7,346

 

$

(3,107

)

 

 

 

 

 

 

Unamortized intangible assets

 

 

 

 

 

Goodwill

 

$

54,455

 

 

 

 

 

 

 

 

 

Aggregate amortization expense

 

 

 

 

 

For the six months ended June 29, 2002

 

$

735

 

 

 

 

 

 

 

 

 

Estimated amortization expense

 

 

 

 

 

For the year ended December 31, 2002

 

$

1,468

 

 

 

For the year ended December 31, 2003

 

1,468

 

 

 

For the year ended December 31, 2004

 

1,468

 

 

 

For the year ended December 31, 2005

 

570

 

 

 

 

Net income, basic earnings per share, and diluted earnings per share would have been $32,582,000, $1.07, and $1.06, respectively, for the six months ended June 30, 2001, if adjusted for the impact of the implementation of SFAS No. 142 (i.e., if goodwill had not been amortized).

 

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. SFAS 143 must be applied starting with fiscal years beginning after June 15, 2002. Management is currently evaluating the impact that the adoption of SFAS 143 will have on the consolidated financial statements.

 

Note 5  Derivative Instruments

In the normal course of business, portions of the Company’s operations are subject to fluctuations in currency values. The Company addresses these risks through a controlled program of risk management that includes the use of derivative financial instruments.

 

The Company enters into foreign exchange forward contracts to manage exposure to fluctuations in foreign exchange rates related to the funding of its United Kingdom operations. The Company accounts for such contracts by recording any unrealized gains or losses in income each reporting period. The notional principal amounts of outstanding forward contracts were €22,000,000 and 8,769,000 at June 29, 2002, and  €15,000,000 and 136,000 at June 30, 2001. The realized gain/(loss) related to these forward contracts was ($383,000) and ($234,000) for the three and six months ended June 29, 2002, respectively, and $408,000 and ($420,000) for the three and six months ended June 30, 2001, respectively.

 

Note 6  Acquisition Termination Costs and Sale of Investment

In the first quarter of 2002, the Company terminated the acquisition agreement and tender offer in which the Company would acquire all outstanding shares of common stock (including associated rights to purchase preferred stock) of Fargo Electronics, Inc. for $7.25 per share in cash. In connection with the termination, the Company recorded $3,300,000 in expenses for capitalized acquisition costs and other acquisition costs that would otherwise have been capitalized. There was no such expense in the first quarter of 2001. Also during the quarter ended March 30, 2002, the Company sold its investment in common stock of Fargo and realized a pre-tax gain of $1,953,000, which was included in investment income.

 

8



 

Item 2.                           Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations: Second Quarter of 2002 versus Second Quarter of 2001, Year-to-date 2002 versus Year-to-date 2001

 

Net sales for the second quarter of 2002 were $115,951,000, up 2.7% from $112,935,000 for the second quarter of 2001. Hardware sales (printers and replacement parts) increased 0.5% and accounted for 75.0% of 2002 second quarter net sales, compared with 76.6% of net sales for the second quarter of 2001. Supplies sales were up 6.8% from the second quarter of 2001 and comprised 18.7% of net sales versus 18.0% of net sales for the second quarter of 2001. Service and software revenue accounted for 5.5% of second quarter sales, increasing 31.6% from the second quarter of 2001, in which service and software revenue accounted for 4.3% of net sales. The remaining 0.8% of net sales consisted of freight revenue. For the year to-date, net sales decreased 0.9% to $226,136,000 from $228,079,000.

 

International sales for the second quarter of 2002 increased 13.8% to $51,127,000 from $44,941,000 and accounted for 44.1% of 2002 second quarter sales, compared with 39.8% of net sales for the second quarter of 2001. All of the Company’s geographic regions outside North America contributed to this growth. The strength of the British pound versus the U. S. dollar increased sales for the Company’s European region by approximately $1,203,000, compared with exchange rates that prevailed during the second quarter of 2001. For the first six months of 2002, international sales increased 8.6% to $96,767,000, or 42.8% of net sales, from $89,100,000, or 39.1% of net sales.

 

During the quarter, sales to North American customers, which continue to be affected by economic conditions in the United States, decreased 4.7% to $64,824,000 from $67,994,000 in 2001. The decline in sales to North American customers was concentrated in sales of bar code label printers. For the first six months of 2002, North American sales were $129,369,000, compared with $138,979,000 in 2001 for a decline of 6.9%.

 

Gross profit for the second quarter of 2002 was $55,749,000, up 6.5% from $52,334,000 for the second quarter of 2001. As a percentage of net sales, gross profit increased to 48.1% from 46.3%. The increase in gross profit margin was principally due to reduced capacity variances and the effect of lower component costs, offset by an unfavorable product mix. The unfavorable product mix was offset by the effect of foreign exchange on sales to European customers, which increased gross profit by $1,425,000, compared with exchange rates that prevailed during the second quarter of 2001. For the year to-date, gross profit for 2002 increased 1.3% to $107,760,000, or 47.7% of net sales, compared with $106,357,000, or 46.6% of net sales, for 2001.

 

Selling and marketing expenses increased 2.9% to $13,531,000 from $13,146,000. As a percentage of net sales, second quarter selling and marketing expenses increased to 11.7% from 11.6%. Sources of increased spending were from advertising and trade shows, cooperative advertising programs with reseller partners, consulting services, payroll, and bonus payments. Management will continue to invest in market development and sales promotion activities to improve the Company’s competitive position. The success of these programs cannot be determined at this point. For the first six months of 2002, selling and marketing expenses increased 1.0% to $25,479,000 from $25,220,000 for the corresponding period in 2001.  As a percentage of net sales for the year to-date, selling and marketing expenses were 11.3% in 2002 and 11.1% in 2001.

 

Research and development expenses for the second quarter of 2002 were $7,472,000, down 1.9% from $7,615,000 for the second quarter of 2001, resulting from reduced personnel costs and project expenses. As a percentage of net sales, quarterly research and development expenses decreased to 6.4% from 6.7%. For the first six months of 2002, research and development expenses increased 5.0% to $14,927,000 from $14,211,000 in 2001. For the year to-date, research and development expenses represented 6.6% of net sales in 2002 and 6.2% in 2001.

 

General and administrative expenses increased by 11.0% to $9,413,000 from $8,479,000. Higher personnel costs and consulting costs were the primary causes of the increase. As a percentage of net sales, quarterly general and administrative expenses increased to 8.1% from 7.5%. For the first six months of 2002, general and administrative expenses increased 10.0% to $18,742,000, or 8.3% of net sales, from $17,033,000, or 7.5% of net sales in 2001.

 

During the first three and six months of 2002, Zebra recorded $367,000, and $735,000 in amortization of intangible assets, compared with $1,297,000 and $2,580,000 for the comparable periods of 2001. During the first quarter of 2002, Zebra implemented SFAS No. 142, Goodwill and Other Intangible Assets, which replaces the requirements to amortize intangible assets with indefinite lives and goodwill with a requirement for an annual impairment test. SFAS No. 142 also

 

9



 

establishes requirements for identifiable intangible assets. As a result, during the first quarter Zebra reclassified $21,720,000 of intangible assets into goodwill, as such assets did not meet the criteria for recognition as an asset apart from goodwill under SFAS No. 142. Operating income for the second quarter of 2001 includes $930,000 of amortization of goodwill and other intangible assets that are not included in 2002 results, because of the implementation of SFAS No. 142. Operating income for the first six month of 2001 includes $1,846,000 of amortization of goodwill and other intangible assets that are not included in the 2002 results in conjunction with the implementation of SFAS No. 142.

 

Also in the first quarter of 2002, the Company terminated the acquisition agreement and tender offer in which the Company would acquire all outstanding shares of common stock (including associated rights to purchase preferred stock) of Fargo Electronics, Inc. for $7.25 per share in cash. In connection with the termination, the Company recorded $3,300,000 in expenses for acquisition costs that would otherwise have been capitalized. There was no such expense in 2001.

 

For the second quarter of 2002, there were no merger costs, compared with $532,000 for the second quarter of 2001. These costs were related to the acquisition of Comtec Information Systems in April 2000. For the year to-date in 2002, merger costs totaled $73,000, compared with $1,364,000 for the first six months of 2001.

 

Second quarter operating income increased 17.4% to $24,966,000 from $21,265,000. As a percentage of net sales, operating income was 21.5% for the second quarter of 2002, compared with 18.8% of net sales for the second quarter of 2001. Excluding merger costs related to the Comtec acquisition, operating income increased 14.5% from $21,797,000, or 19.3% of net sales, for the second quarter of 2001. For the first six months of 2002, operating income was $44,504,000, or 19.7% of net sales, compared with $45,949,000, or 20.1% of net sales in 2001, representing a 3.1% decline. Excluding merger-related costs, year to-date operating income increased 1.2% to $47,877,000, or 21.2% of net sales, from $47,312,000, or 20.7% of net sales, in 2001.

 

Investment income for the second quarter of 2002 was $1,188,000, down 41.8% from the $2,042,000 in investment income recorded in the second quarter of 2001. This decrease was the result of unrealized mark-to-market adjustments on the Company’s investment portfolio, and a write-down of a long-term investment.  These non-cash adjustments caused an $846,000 decrease to investment income during the quarter. For the year to-date, investment income totaled $5,355,000 in 2002, versus $4,203,000 in 2001.

 

Income before income taxes for the second quarter of 2002 increased 13.7% to $25,709,000 from $22,611,000 for the second quarter of 2001. For the year to-date, income before income taxes amounted to $49,046,000, compared with $49,065,000 for the first six months of 2001.

 

The effective income tax rate for the second quarter of 2002 and 2001 was 36.0%. Net income was $16,460,000, or $0.53 per diluted share, compared with $14,471,000, or $0.47 per diluted share. Excluding merger costs, net income for the second quarter of 2001 was $14,811,000, or $0.48 per diluted share.

 

For the year to-date, the effective income tax rate was 36.0% for 2002 and 2001. Net income was $31,400,000, or $1.02 per diluted share, compared with $31,401,000, or $1.02 per diluted share.  Excluding merger costs, net income for the first six months of 2002 was $33,559,000, or $1.08 per dilute share, compared with $32,274,000, or $1.05 per diluted share, for the corresponding period in 2001.

 

Liquidity and Capital Resources

The Company continued to maintain high levels of liquidity, principally from cash generated from operations. As of June 29, 2002, the Company had $289,329,000 in cash and cash equivalents and investments and marketable securities, compared with $249,349,000 at December 31, 2001. During the six months ended June 29, 2002, net cash used in operations totaled $12,748,000, and included an increase of $49,908,000 in investments and marketable securities. During the six months ended June 29, 2002, accounts receivable increased $4,343,000, net of the effect of foreign currency translation adjustment. The increase in receivables was due to higher sales offset by a decline in days sales outstanding to 58 days from 64 days in the second quarter of last year. Also during the first half of 2002, inventories declined by $650,000, net of foreign currency translation adjustment. Compared to the same period a year ago, inventory turns increased from 5.1 to 6.0. Management believes that its reserves for bad debt and inventory obsolescence are adequate. Purchases of property and equipment totaled $4,111,000 for the first six months of 2002. Management believes that existing capital resources and funds generated from operations are sufficient to finance anticipated capital requirements.

 

10



 

Significant Customer

Sales to ScanSource, Inc., accounted for 13.1% of net sales for the second quarter of 2002 and 2001. For the six months ended June 29, 2002 and June 30, 2001, sales to ScanSource, Inc., accounted for 12.9% and 11.7%, respectively.  No other customer accounted for 10% or more of net sales during the second quarter of 2002 or 2001.

 

Expectations

During its quarterly conference call on July 19, 2002, management provided net sales and earnings guidance for the third and fourth quarters of 2002 as follows ($ amounts in 000’s, except per share data):

 

 

 

Third Quarter

 

Fourth Quarter

 

Net sales

 

$

114,000 to $119,000

 

$

120,000 to $125,000

 

Earnings per share

 

$

0.55 to $0.60

 

$

0.61 to $0.66

 

 

Gross profit margins are expected to increase as a result of increased sales volume and consequent reductions of capacity variances, as well as the expected favorable effect of foreign exchange compared to last year. Operating expenses should fall in the range of $30,000 to $31,000 per quarter.

 

Safe Harbor

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 market acceptance of the Company’s printer and software products and competitors’ product offerings. They also include the effect of market conditions in North America and other geographic regions on the Company’s financial results. Profits will be affected by the Company’s ability to control manufacturing and operating costs. Because of the Company’s large investment portfolio, interest rate and financial market conditions will also have an impact on results. Foreign exchange rates will have an effect on financial results, because of the large percentage of the Company’s international sales. When used in this document and documents referenced, the words “anticipate,” “believe,” “estimate,” “will” 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 document are referred to prior filings with the Securities and Exchange Commission, including the Risk Factors portion of Management’s Discussion and Analysis of Financial Condition and Results of Operation in Zebra’s Form 10-K for the year ended December 31, 2001, for a further discussion of issues that could affect Zebra’s future results. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

 

11



 

Item 3.           Quantitative and Qualitative Disclosures About Market Risk

 

There were no material changes in the Company’s market risk during the second quarter ended June 29, 2002. For additional information on market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

 

12



 

PART II - OTHER INFORMATION

 

Item 4.           Submissions of Matters to a Vote of Security Holders

 

(a)           The Company held its Annual Meeting of Stockholders on May 15, 2002.

 

(b)                                 The Company’s stockholders voted on the following proposals:

 

1.                                       To elect six directors to the Company’s Board of Directors.

 

Directors

 

For

 

Authority
Withheld

 

Gerhard Cless

 

64,704,996

 

11,089,863

 

Edward L. Kaplan

 

64,705,590

 

11,089,269

 

Christopher G. Knowles

 

69,129,295

 

6,665,564

 

John W. Paxton

 

64,811,512

 

10,983,347

 

David P. Riley

 

69,137,691

 

6,657,168

 

Michael A. Smith

 

69,139,266

 

6,655,593

 

 

2.                                       To approve a proposal to amend the Company’s Certificate of Incorporation to adopt a classified Board of Directors.

 

For

 

Against

 

Authority
Withheld

 

Abstentions

 

Broker
Non-Votes

 

50,211,472

 

19,382,858

 

¾

 

39,974

 

¾

 

 

3.                                       To approve a proposal to adopt the Zebra Technologies Corporation 2002 Non-Employee Director Stock Option Plan.

 

For

 

Against

 

Authority
Withheld

 

Abstentions

 

Broker
Non-Votes

 

65,613,645

 

3,457,336

 

¾

 

563,323

 

¾

 

 

4.                                       To ratify the selection by the Board of Directors of KPMG LLP as the independent auditors of the Company’s financial statements for the year ending December 31, 2002.

 

For

 

Against

 

Authority
Withheld

 

Abstentions

 

Broker
Non-Votes

 

75,190,108

 

582,635

 

¾

 

22,116

 

¾

 

 

13



 

Item 6.    Exhibits and Reports on Form 8-K

 

(a)           Exhibits.

 

3.1

 

Certificate of Amendment to Certificate of Incorporation of the Registrant

3.2

 

Amendment to By-laws of the Registrant

10.18

 

2002 Non-Employee Director Stock Option Plan

10.19

 

Amendment No. 1 to the 2002 Non-Employee Director Stock Option Plan

10.20

 

2002 Non-Employee Director Stock Option Plan Non-Qualified Stock Option Agreement

99.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b)           Reports.

 

The Registrant filed no reports on Form 8-K during the quarterly period covered by this report.

 

14



 

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:

August 12, 2002

By:

/s/Edward L. Kaplan

 

 

 

Edward L. Kaplan

 

 

Chief Executive Officer

 

 

Date:

August 12, 2002

By:

/s/Charles R. Whitchurch

 

 

 

Charles R. Whitchurch

 

 

Chief Financial Officer

 

15