<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
-------------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________________ to __________________
-------------------
Commission file number: 0-23342
-------------------
ELTRON INTERNATIONAL, INC.
(Exact name of 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 7,375,722 common shares as of
July 15, 1997.
-------------------
Transitional Small Business Disclosure Format (Check one): Yes ; No X.
-- --
<PAGE> 2
ELTRON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................... $ 1,291,396 $ 2,543,976
Short term investments ............................................. 7,945,254 8,604,610
Accounts receivable, net of allowance for doubtful accounts of
$452,234 and $570,912, respectively ................................ 16,331,124 18,062,357
Inventories ........................................................ 16,947,780 19,030,669
Prepaid expenses and other current assets .......................... 700,145 843,824
Deferred tax asset ................................................. 1,291,468 1,291,468
Total current assets ........................................... 44,507,167 50,376,904
PROPERTY AND EQUIPMENT, net .......................................... 7,724,700 8,681,206
DIFFERENCE BETWEEN COST AND FAIR VALUE OF NET ASSETS ACQUIRED ........ 1,125,164 921,405
OTHER ASSETS ......................................................... 888,028 673,911
----------- -----------
$54,245,059 $60,653,426
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 7,041,719 $ 6,275,599
Accrued liabilities ................................................ 1,179,415 1,571,065
Accrued compensation ............................................... 1,311,862 1,305,229
Deferred Service Contract Revenue .................................. 349,516 261,892
Income Taxes Payable ............................................... -- 970,013
----------- -----------
Total current liabilities ............................................ 9,882,512 10,383,798
LONG TERM OBLIGATION ................................................. 811,313 867,420
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 7,369,485 shares,
respectively ................................................... 24,238,345 24,407,603
Cumulative translation adjustment .................................. 25,400 (231,297)
Retained earnings .................................................. 19,287,489 25,225,902
----------- -----------
Total shareholders' equity ..................................... 43,551,234 49,402,208
----------- -----------
$54,245,059 $60,653,426
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 3
ELTRON INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES .......................................... $22,729,508 $27,513,022 $41,748,693 $50,682,593
COST OF SALES .................................. 12,788,900 15,435,621 23,040,441 28,294,939
----------- ----------- ----------- -----------
Gross profit ............................... 9,940,608 12,077,401 18,708,252 22,387,654
OPERATING EXPENSES:
Selling, general and administrative .......... 4,161,827 4,883,530 7,897,495 9,632,034
Research and product development ............. 1,279,083 1,894,671 2,516,554 3,431,236
Write off of acquired in process technology
and other costs associated with acquisitions -- -- 3,198,555 --
INCOME FROM OPERATIONS ......................... 4,499,698 5,299,200 5,095,648 9,324,384
OTHER (INCOME) EXPENSE:
Interest, net ................................ (19,315) (62,122) (69,590) (174,968)
Other, net ................................... -- 38,314 7,644 38,314
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES ....... 4,519,013 5,323,008 5,157,594 9,461,038
PROVISION FOR INCOME TAXES ..................... 1,694,630 1,969,513 3,075,999 3,499,158
----------- ----------- ----------- -----------
NET INCOME ..................................... $ 2,824,383 3,353,495 $ 2,081,595 5,961,880
----------- ----------- ----------- -----------
NET INCOME PER COMMON SHARE .................... $ 0.36 $ 0.43 $ 0.27 $ 0.76
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ........................ 7,755,725 7,887,298 7,768,861 7,883,697
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
ELTRON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 2,081,595 $ 5,961,880
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization .............................. 648,666 1,310,725
Write off of purchased in-process technology ............... 2,500,000 --
Changes in assets and liabilities; Net of effect
from acquisitions:
Accounts receivable, net ................................. (3,121,449) (1,984,239)
Inventories .............................................. (1,555,904) (2,082,887)
Prepaids and other assets ................................ 228,387 (70,438)
Accounts payable ......................................... (781,818) (766,120)
Accounts payable to shareholder .......................... (775,936) --
Accrued liabilities and compensation ..................... 832,214 385,017
Accrued Income Taxes Payable ............................. -- 970,013
----------- -----------
Net cash provided by operating activities ........................ 55,755 3,723,951
CASH FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................ (2,440,219) (2,063,471)
Cash paid in connection with acquisition of Privilege .......... (3,196,373) --
Sale (purchase) of short term investments, net ................. 9,239,998 (659,356)
----------- -----------
Net cash provided by (used in) investing activities ............ 3,603,406 (2,722,827)
CASH FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of long term debt .................. (16,611) 56,107
Repayments under line of credit ................................ (724,000) --
Common stock purchased in connection with merger of RJS ........ (775,581) --
Proceeds from sale of stock .................................... 429,787 422,274
----------- -----------
Net cash provided by (used in) financing activities ............ (1,086,405) 478,381
EFFECT OF EXCHANGE RATE ON CASH .................................. (23,291) (226,925)
----------- -----------
NET INCREASE IN CASH ............................................. 2,549,465 1,252,580
CASH BALANCE, beginning of period ................................ 729,055 1,291,396
----------- -----------
CASH BALANCE, end of period ...................................... $ 3,278,520 $ 2,543,976)
=========== ===========
Non-cash transaction:
Settlement of receivable with common stock ..................... -- $ 253,016
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 5
ELTRON INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1997 and the results of
operations and cash flows for the three and six month periods ended June 30,
1996 and June 30, 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 and six month period ended June
30, 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 10-K.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consist of the following:
December 31, June 30,
1996 1997
----------- -----------
Subassemblies and raw materials ............... $10,958,660 $12,347,907
Work in process ............................... 1,924,981 2,157,212
Finished goods ................................ 4,064,139 4,525,550
----------- -----------
$16,947,780 $19,030,669
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 required dual presentation of newly defined basic and
diluted earnings per share ("EPS") on the face of the income statements 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.
<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 lower cost.
The Company's products are sold through multiple distribution channels
that include value added resellers, system 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 and six month periods ended
June 30, 1996 and 1997, expressed as a percentage of sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
SALES ........................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES ................................... 56.3 56.1 55.2 55.8
----- ----- ----- -----
Gross profit ................................ 43.7 43.9 44.8 44.2
OPERATING EXPENSES:
Selling, general and administrative ........... 18.3 17.7 18.9 19.0
Research and product development .............. 5.6 6.9 6.0 6.8
Write off acquired in process technology and
other costs associated with acquisitions .... 0.0 0.0 7.7 0.0
----- ----- ----- -----
INCOME FROM OPERATIONS .......................... 19.8 19.3 12.2 18.4
OTHER (INCOME) EXPENSE:
Interest, net ................................. (0.1) (0.1) (0.2) (0.3)
----- ----- ----- -----
INCOME BEFORE PROVISION FOR INCOME TAXES ........ 19.9 19.4 12.4 18.7
PROVISION FOR INCOME TAXES ...................... 7.5 7.2 7.4 6.9
----- ----- ----- -----
NET INCOME ...................................... 12.4% 12.2% 5.0% 11.8%
===== ===== ===== =====
</TABLE>
<PAGE> 7
COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997:
Sales:
Sales for the three months ended June 30, 1997 totaled $27.5 million,
an increase of $4.8 million or 21% over sales for the same period in 1996 which
totaled $22.7 million. Sales for the six months ended June 30, 1997 totaled
$50.7 million, an increase of $9.0 million or over sales for the same period in
1996 which totaled $41.7 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 have been enhanced by increased
sales to UPS, which contributed approximately $8.6 million and $6.7 million to
sales for the three month periods ended June 30, 1996 and 1997, respectively.
Sales to UPS contributed approximately $14.7 million and $11.5 million to sales
for the six month periods ended June 30, 1996 and 1997, respectively. Although
the Company had outstanding orders from UPS in excess of $4.3 million as of
June 30, 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 second quarter of 1996 or 1997.
Gross Profit:
Gross profit for the three months ended June 30, 1997 totaled $12.1
million, an increase of $2.1 million or 21% over gross profit for the same
period in 1996. As a percentage of revenues, gross profit remained constant at
44% for the second quarter.
Gross profit for the six months ended June 30, 1997 totaled $22.4
million, an increase of $3.7 million or 20% over gross profit for the same
period in 1996. As a percentage of revenues, gross profit decreased 1% to 44%
for the first six months of 1997 from 45% for the same period in 1996.
Sales to high volume customers or OEMs are typically transacted at a
price which yields a lower 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 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
44% gross margin exhibited in the second 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
were 18% for three months ended June 30, 1997 and 1996. On an absolute dollar
basis, selling, general and administrative expenses increased $.7 million or
17%.
Selling, general and administrative expenses as a percentage of sales
were 19% for the six months ended June 30, 1997 and 1996. On an absolute dollar
basis, selling, general and administrative expenses increased $1.7 million
or 22%.
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 were 7% and
6% for the three months ended June 30, 1997 and 1996, respectively. Research
and development expenses increased as a percentage of sales in the second
quarter of 1997 when compared to the second quarter of 1996. This increase
related primarily to increase efforts to develop new products.
<PAGE> 8
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
expenses immediately. In addition, costs related to the acquisition of
Privilege and RJS totaling $0.7 million were incurred and expenses during the
first quarter of 1996. These costs are not deductible for income tax purposes.
Provision for Income Taxes:
The provision for income taxes for the three months ended June 30, 1997
was $2.0 million or 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 three months ended June 30,
1996 was $1.7 million or 37% of pretax income.
The provision for income taxes for the six months ended June 30, 1997
was $3.5 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 six
months of 1996 was $3.1 million or 60% of pretax income, which reflects the
utilization of certain tax credits and current benefit of deferred tax assets
under SFAS 109 which have been substantially offset by purchased in-process
technology and other acquisition related costs totaling $3.2 million which were
expensed in the first quarter of 1996. The tax effect of these non-deductible
expenses were fully reflected in the first quarter of 1996 and are included in
results of operations for the six month period ended June 30, 1997.
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.
During the six months ended June 30, 1997, operating activities
provided cash totaling $3.7 million as compared to $56,000 during the same
period in 1996. Significant changes in the first six months of 1997 included
cash used resulting from increases in accounts receivable and inventory of $1.7
million and $2.1 million, respectively, which was partially offset by increases
in income taxes payables and accrued liability totaling $1.3 million.
During the six months ended June 30, 1997, investing activities used
cash totaling $2.7 million. This was primarily due to the purchase of property
and equipment of $2.1 million. In addition, the Company made net purchases of
short term investments totaling $.7 million during the first six months of 1997
as compared to net purchases of $9.2 million in short term investments during
the first six months of 1996.
During the six months ended June 30, 1997, financing activities
provided cash totaling $.5 million as compared to $1.1 million used during the
same period in 1996. In 1996, cash from financing activities was used for the
purchase of common stock in connection with the merger of RJS of $.8 million
and $.7 million was repaid under the line of credit.
In 1997, Eltron entered a revolving credit agreement with a bank. The
revolving credit facility allows 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 is not able to enter into certain transactions or declare
dividends without receiving prior written consent from the Bank and is required
to comply with certain covenants as well as maintain certain debt to net worth
ratios, current ratios and minimum net worth requirements. The revolving credit
agreement expires in May 1998.
The Company did not have any material capital commitments as of
June 30, 1997.
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 foreseeable 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.
<PAGE> 9
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: July 24, 1997 By: /s/ DONALD K. SKINNER
---------------------------------
Donald K. Skinner
Chairman of the Board
and Chief Executive Officer
Date: July 24, 1997 By: /s/ DANIEL C. TOOMEY, JR.
---------------------------------
Daniel C. Toomey, Jr.
Vice President Finance
and Chief Financial Officer
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
June 30, June 30,
1996 1997
---------- ----------
Net income (loss) $2,824,383 $3,353,495
========== ==========
Weighted average shares outstanding 7,214,642 7,371,366
Number of shares calculated using the
treasury stock method in accordance
with APB15 541,084 515,932
---------- ----------
Total weighted average shares outstanding 7,752,634 7,887,298
========== ==========
Earnings per share (loss) $ 0.36 $ 0.43
========== ==========
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,544
<SECURITIES> 8,605
<RECEIVABLES> 18,062
<ALLOWANCES> 571
<INVENTORY> 19,031
<CURRENT-ASSETS> 50,377
<PP&E> 12,251
<DEPRECIATION> 3,570
<TOTAL-ASSETS> 60,653
<CURRENT-LIABILITIES> 10,384
<BONDS> 0
0
0
<COMMON> 24,407
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 60,653
<SALES> 27,513
<TOTAL-REVENUES> 27,513
<CGS> 15,436
<TOTAL-COSTS> 22,214
<OTHER-EXPENSES> 38
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,323
<INCOME-TAX> 1,970
<INCOME-CONTINUING> 3,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,353
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
