<PAGE> 1
U.S. 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 MARCH 31, 1997.
[ ] 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 small 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)
-------------------
Check whether the issuer (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: 7,368,823 common shares as of
May 12,1997.
-------------------
Transitional Small Business Disclosure Format (Check one): Yes ; No X
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<PAGE> 2
ELTRON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December, 31 March, 31
1996 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................................. $ 1,291,396 $ 2,550,455
Short term investments ........................................................... 7,945,254 8,039,413
Accounts receivable, net of allowance for doubtful accounts of $452,234
and $493,860, respectively .................................................... 16,331,124 15,940,192
Inventories ...................................................................... 16,947,780 17,783,877
Prepaid expenses and other current assets ........................................ 700,145 974,665
Deferred tax asset ............................................................... 1,291,468 1,291,468
----------- ------------
Total current assets ....................................................... 44,507,167 46,580,070
PROPERTY AND EQUIPMENT, net ............................................................. 7,724,700 8,368,454
DIFFERENCE BETWEEN COST AND FAIR VALUE OF NET ASSETS
ACQUIRED ......................................................................... 1,125,164 1,024,579
OTHER ASSETS ............................................................................ 888,028 957,735
----------- ------------
$54,245,059 $ 56,930,838
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................. 7,041,719 6,059,532
Accrued liabilities .............................................................. 1,179,415 1,077,123
Accrued Compensation ............................................................. 1,311,862 1,173,211
Deferred Service Contract Revenue ................................................ 349,516 296,157
Income Taxes Payable ............................................................. -- 1,532,629
----------- ------------
Total current liabilities .................................................. 9,882,512 10,138,652
LONG TERM OBLIGATION .................................................................... 811,313 840,103
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 - 7,302,294 and 7,368,323 shares, respectively ..... 24,238,345 24,298,223
Cumulative translation adjustment ................................................ 25,400 (242,032)
Retained earnings ................................................................ 19,287,489 21,895,892
----------- ------------
Total shareholders' equity ................................................. 43,551,234 45,952,083
----------- ------------
$54,245,059 $ 56,930,838
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE> 3
ELTRON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
SALES .......................................................... $ 19,019,185 $ 23,169,571
COST OF SALES .................................................. 10,251,541 12,859,318
------------ ------------
Gross profit .............................................. 8,767,644 10,310,253
OPERATING EXPENSES:
Selling, general and administrative ....................... 3,735,668 4,748,504
Research and product development .......................... 1,237,471 1,536,565
Write off of acquired in process technology and other costs
associated with acquisitions .......................... 3,198,555 --
------------ ------------
INCOME FROM OPERATIONS ......................................... 595,950 4,025,184
OTHER (INCOME) EXPENSE:
Interest, net ............................................. (42,631) (112,846)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES ....................... 638,581 4,138,030
PROVISION FOR INCOME TAXES ..................................... 1,381,369 1,529,645
------------ ------------
NET INCOME (LOSS) .............................................. $ (742,788) $ 2,608,385
============ ============
NET INCOME (LOSS) PER COMMON SHARE ............................. $ (.10) $ .34
============ ============
WEIGHTED NUMBER OF SHARES OUTSTANDING .......................... 7,768,349 7,742,845
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE> 4
ELTRON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ (742,788) $ 2,608,385
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization ............................ 322,339 505,532
Amortization of the difference between cost and fair value
of net assets acquired ............................... -- 70,188
Write off of purchased in-process technology ........... 2,500,000 --
Changes in assets and liabilities:
Accounts receivable, net ............................ (1,519,831) 21,188
Inventories ......................................... (2,358,203) (931,738)
Prepaids and other assets ........................... 739,700 (381,180)
Accounts payable .................................... (1,748,200) (730,449)
Accrued liabilities and compensation ................ 599,969 (196,674)
Accrued Income Taxes Payable ...................... -- 1,613,362
Deferred service contract revenue ................. -- (54,463)
----------- -----------
Net cash provided by (used in) operating activities .......... (2,207,014) 2,524,151
CASH FROM INVESTING ACTIVITIES:
Purchases of property and equipment .......................... (1,278,469) (1,179,095)
Cash paid in connection with acquisition of Privilege ........ (3,196,373) --
Sale (purchase) of short term investments, net ............... 7,899,676 (94,159)
----------- -----------
Net cash provided by (used in)investing activities ........... 3,424,834 (1,273,254)
CASH FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of long term debt ................ (9,884) 35,000
Net repayments under line of credit .......................... (724,000) --
Common stock purchased in connection with merger of RJS ...... (775,581) --
Proceeds from sale of stock .................................. 376,906 59,878
----------- -----------
Net cash provided by (used in) financing activities ......... (1,132,559) 94,878
EFFECT OF EXCHANGE RATE ON CASH ................................... (10,791) (86,716)
----------- -----------
NET INCREASE IN CASH .............................................. 74,470 1,259,059
CASH BALANCE, beginning of period ................................. 729,055 1,291,396
----------- -----------
CASH BALANCE, end of period ....................................... $ 803,525 $ 2,550,455
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
ELTRON INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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 March 31, 1997 and the results of
operations and cash flows for the three month periods ended March 31, 1996 and
March 31, 1997. 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 month period ended March 31, 1997 are not
necessarily indicative of the results to be expected for future quarters or the
full year.
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, 1996 as filed in the
Company's annual report on form 10K.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ -----------
<S> <C> <C>
Subassemblies and raw materials......... $10,958,660 $11,955,806
Work in process......................... 1,924,981 1,804,443
Finished goods.......................... 4,064,139 4,023,628
----------- -----------
$16,947,780 $17,783,877
=========== ===========
</TABLE>
3. RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period's presentation.
4. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share." This statement requires dual presentation of newly defined basic and
diluted earnings per share ("EPS") on the face of the income statement for all
entities with complex capital structures. The accounting standard is effective
for all fiscal years ending after December 15, 1997 and requires restatement of
all prior period EPS presented. Earlier application is not permitted. SFAS No.
128 specifies the computation, presentation and disclosure requirements for EPS.
The implementation of SFAS 128 is not expected to have a material impact on data
previously presented by the Company.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Eltron International, Inc. and subsidiaries (the "Company" or "Eltron")
design, manufacture and market a full range of direct thermal and thermal
transfer bar code printers, plastic card printers, related accessories,
software, and custom print engines for applications such as airline ticketing.
Eltron also manufactures and distributes a full range of supplies designed for
use with its printers. The Company believes that its success to date has
resulted from its ability to offer high-quality printers and related products
with features comparable to or exceeding those of available competing products
at a lower cost.
The Company's products are sold through multiple distribution channels
that include value added resellers, systems integrators, original equipment
manufacturers and independent distributors located in more than 70 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 access
control, and governmental licensing. 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
high quality, low-cost, thermal printers.
STATEMENTS OF OPERATIONS DATA:
The following table presents certain information derived from the
Company's Statements of Operations for the three month periods ended March 31,
1996 and 1997, expressed as a percentage of sales.
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
SALES..................................................................... 100.0 % 100.0 %
COST OF SALES............................................................. 53.9 55.5
----- -----
Gross profit......................................................... 46.1 44.5
OPERATING EXPENSES:
Selling, general and administrative.................................. 19.6 20.5
Research and product development..................................... 6.5 6.6
Write off of acquired in process technology and other costs
associated with acquisitions..................................... 16.8 --
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INCOME FROM OPERATIONS.................................................... 3.2 17.4
OTHER (INCOME) EXPENSE:
Interest, net........................................................ (0.2) (0.5)
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INCOME BEFORE PROVISION FOR INCOME TAXES.................................. 3.4 17.9
PROVISION FOR INCOME TAXES................................................ 7.3 6.6
----- -----
NET INCOME (LOSS)......................................................... (3.9)% 11.3 %
====== =====
</TABLE>
6
<PAGE> 7
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND 1997:
Sales. Sales for the three months ended March 31, 1997 totaled $23.2
million, an increase of $4.2 million or 22% over sales for the same period in
1996 which totaled $19.0 million. This increase in sales can be attributed to
wider market acceptance of the Company's bar code printers and higher than
anticipated demand for the Company's plastic card printers.
In both 1996 and 1997 sales of printers were enhanced by increased sales
to UPS, which contributed approximately $6.1 million and $4.8 million to sales
in to the first quarter of 1996 and 1997, respectively. Although the Company had
outstanding orders from UPS in excess of $3.5million as of March 31, 1997, there
is no obligation on the part of UPS to place any further orders with Eltron. 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 first quarter of
1996 or 1997.
Gross profit. Gross profit for the three months ended March 31, 1997
totaled $10.3 million, an increase of $1.5 million or 18% over gross profit for
the same period in 1996. As a percentage of revenues, gross profit decreased 1%
to 45% for the three month period ended March 31, 1997.
Sales to high volume customers or OEMs are typically transacted at a price
which yields a lower than average gross margin, although the incremental selling
costs associated with these transactions are generally less than those
associated with a non-OEM sale. Sales of supplies are typically made at lower
than average gross margins, as a result of general market conditions and the
commodity nature of these products. Eltron's OEM sales and sales of supplies
have been increasing. As a result, management believes that it is not reasonable
to assume that the 45% gross margin exhibited in the first quarter of 1997 will
necessarily be maintained in the future.
Selling, general and administrative expenses. Selling, general and
administrative expenses as a percentage of sales increased 1% to 21% for the
three month period ended March 31, 1997. On an absolute dollar basis, selling,
general and administrative expenses increased $1.0 million or 27%.
The Company currently anticipates that selling, general and administrative
expense will increase in future quarters but may decrease as a percentage of
sales. The actual amount spent will depend on a variety of factors, including
the Company's level of operations, and the number of new markets the Company
chooses to enter.
Research and development expenses. Research and development expenses as a
percentage of sales remained constant at 7% for the three month periods ended
March 31, 1996 and 1997. On an absolute dollar basis, research and development
expenses increased $0.3 million or 24%.
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 on a variety of factors, including
the Company's level of operations, and the number of product development
projects that it embarks upon.
Write off of acquired in process technology and other costs associated
with acquisitions. In the first quarter of 1996, in-process technology valued at
$2.5 million was purchased in connection with the acquisition of Privilege and
expensed immediately. In addition, costs related to the acquisition of Privilege
and RJS totaling $0.7 million were incurred and expensed during the first
quarter of 1996. These costs are not deductible for income tax purposes.
7
<PAGE> 8
Provision for income taxes. The provision for income taxes for the three
months ended March 31, 1997 was $1.5 million, or approximately 37% of pretax
income, which reflects the utilization of certain tax credits and current
benefit of deferred tax assets under SFAS 109. The Company's provision for
income taxes for the first three months of 1996 was $1.4 million or 216% of
pretax income. The Company's income tax rate for the first quarter of 1996 was
substantially affected by purchased in-process technology and other acquisition
related costs totaling $3.2 million which were expensed during that quarter. The
tax effect of these non-deductible expense were fully reflected in the first
quarter of 1996 and did not impact the remaining quarters reported for the year
ended December 31, 1996, during which the Company's tax rate approximated 37% of
pretax income.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Eltron's primary source of liquidity has been cash flow from
operations and cash provided by public offerings of its common stock which
generated $6.1 million and $16.7 million in 1994 and 1995, respectively.
In the three months ended March 31, 1997, operating activities provided
$2.5 million as compared to $2.2 million used during the same period in 1996. In
the first quarter of 1997, cash was provided as a result of an increase in
income taxes payable of $1.6 million, which was offset by cash used by an
increases in inventories of $0.9 million.
In the three months ended March 31, 1997, investing activities used cash
totaling $1.3 million as compared to $3.4 million provided during the same
period in 1996. During the first quarter of 1997, cash was used to purchase
approximately $1.2 million in equipment.
In the three months ended March 31, 1997 financing activities provided
cash totaling $0.1 million, primarily by the purchase of common shares under the
company's incentive stock option plans.
In January 1997, Eltron entered into a letter of understanding with
respect to a revolving credit facility with a bank. As defined in the letter of
understanding, the revolving credit facility would allow Eltron to borrow up to
$8 million on an unsecured basis. Borrowings under the revolving credit facility
would bear interest at the Bank's prime rate. Under the terms of the revolving
credit facility, Eltron would not be able to enter into certain transactions or
declare dividends without receiving prior written consent from the Bank and
would be required to comply with certain covenants as well as maintain certain
debt to net worth ratios, current ratios and minimum net worth requirements. The
letter of understanding is subject to the completion of a definitive line of
credit agreement on terms which are mutually acceptable and does not constitute
a legally binding commitment on the part of either party.
The Company did not have any significant capital commitments as of
December 31, 1996.
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 foreseable future.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share." This statement requires dual presentation of newly defined basic and
diluted earnings per share ("EPS") on the face of the income statement for all
entities with complex capital structures. The accounting standard is effective
for all fiscal years ending after December 15, 1997 and requires restatement of
all prior period EPS presented. Earlier application is not permitted. SFAS No.
128 specifies the computation, presentation and disclosure requirements for EPS.
The implementation of SFAS 128 is not expected to have a material impact on data
previously presented by the Company.
8
<PAGE> 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
Exhibit 11.1 - Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule
(B) REPORTS ON FORM 8-K:
None.
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:_______________________ By:___________________________
Donald K. Skinner
Chairman of the Board
and Chief Executive Officer
Date:_______________________ By:___________________________
Daniel C. Toomey, Jr.
Vice President Finance
and Chief Financial Officer
9
<PAGE> 1
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
March 31, March 31,
1996 1997
----------- ----------
<S> <C> <C>
Net income (loss) .................................. $ (742,788) $2,608,385
=========== ==========
Weighted average shares outstanding ................ 7,161,298 7,334,122
Number of shares calculated using the treasury stock
method in accordance with APB15 ................. 607,051 408,723
----------- ----------
Total weighted average shares outstanding .......... 7,768,349 7,742,845
=========== ==========
EARNINGS PER SHARE (LOSS) .......................... $ (.10) $ 0.34
=========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,550
<SECURITIES> 8,039
<RECEIVABLES> 16,434
<ALLOWANCES> 494
<INVENTORY> 17,784
<CURRENT-ASSETS> 46,580
<PP&E> 8,873
<DEPRECIATION> 505
<TOTAL-ASSETS> 56,931
<CURRENT-LIABILITIES> 10,139
<BONDS> 0
0
0
<COMMON> 24,298
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 56,931
<SALES> 23,170
<TOTAL-REVENUES> 23,170
<CGS> 12,859
<TOTAL-COSTS> 19,144
<OTHER-EXPENSES> (36)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (76)
<INCOME-PRETAX> 4,138
<INCOME-TAX> 1,530
<INCOME-CONTINUING> 2,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,608
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
