Market Overview

Zebra Technologies Announces Second-Quarter 2018 Results

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Second-Quarter Financial Highlights

  • Strong net sales of $1,012 million; year-over-year growth of 12.9%
  • Net income of $70 million and net income per diluted share of $1.29
  • Non-GAAP diluted EPS increased 64% year-over-year to $2.48
  • Adjusted EBITDA increased 25% year-over-year to $199 million; and
    adjusted EBITDA margin expanded 200 basis points year-over-year to
    19.7%
  • $140 million reduction of total debt

Zebra
Technologies Corporation
(NASDAQ:ZBRA), an innovator at the
edge of the enterprise with solutions and partners that enable
businesses to gain a performance edge, today announced results for the
second quarter ended June 30, 2018.

"Our second quarter results were driven by strong growth from our
product and service offerings and disciplined operational execution.
Sales and earnings results exceeded our previously communicated guidance
ranges and strong free cash flow allowed us to reduce our net debt
leverage ratio to 2.5x," said Anders Gustafsson, chief executive officer
of Zebra Technologies. "Given the strength of our results, we are
raising our full-year outlook for sales growth and free cash flow. We
continue to deliver digital innovation that enables our customers to
compete effectively in today's on-demand economy."

 
$ in millions, except per share amounts     2Q18     2Q17     Change
Select reported measures:            
Net sales $   1,012 $   896 12.9 %
Gross profit 472 411 14.8 %
Net income 70 17 311.8 %
Net income per diluted share $ 1.29 $ 0.32 303.1 %
 
Select Non-GAAP measures:
Adjusted net sales $ 1,012 $ 897 12.8 %
Organic net sales growth 10.6 %
Adjusted gross profit 473 413 14.5 %
Adjusted gross margin 46.7 % 46.0 % 70 bps
Adjusted EBITDA 199 159 25.2 %
Adjusted EBITDA margin 19.7 % 17.7 % 200 bps
Non-GAAP net income $ 135 $ 80 68.8 %
Non-GAAP earnings per diluted share     $   2.48       $   1.51       64.2 %
 

Reported (GAAP) results

Net sales were $1,012 million in the second quarter of 2018 compared to
$896 million in the second quarter of 2017. Net sales in the Enterprise
Visibility & Mobility ("EVM") segment were $661 million in the second
quarter of 2018 compared with $584 million in the second quarter of
2017. Asset Intelligence & Tracking ("AIT") segment net sales were $351
million in the second quarter of 2018 compared to $313 million in the
prior year period. Second-quarter 2018 gross profit was $472 million
compared to $411 million in the comparable prior year period. Net income
for the second quarter of 2018 was $70 million, or $1.29 per diluted
share, compared to net income of $17 million, or $0.32 per diluted
share, for the second quarter of 2017.

Adjusted (Non-GAAP) results

Consolidated adjusted net sales were $1,012 million in the second
quarter of 2018 compared to $897 million in the prior year period, an
increase of 12.8%. Consolidated organic net sales growth for the second
quarter was 10.6% reflecting growth in EMEA, North America and APAC, and
a slight decline in Latin America. Second-quarter year-over-year organic
net sales growth was 10.9% in the EVM segment and 9.9% in the AIT
segment.

Consolidated adjusted gross margin for the second quarter of 2018 was
46.7%, compared to 46.0% in the prior year period. This increase was
primarily due to favorable business mix and the favorable impact of
currency changes, primarily in the EMEA region. Adjusted operating
expenses increased in the second quarter of 2018 to $294 million from
$274 million in the prior year period primarily due to growth in the
business and increased incentive compensation expense related to
improved operating results.

Adjusted EBITDA for the second quarter of 2018 increased to $199
million, or 19.7% of adjusted net sales, compared to $159 million, or
17.7% of adjusted net sales, for the second quarter of 2017 primarily
due to operating expense leverage on higher sales and higher gross
profit margin.

Non-GAAP net income for the second quarter of 2018 was $135 million, or
$2.48 per diluted share, compared with $80 million, or $1.51 per diluted
share, for the second quarter of 2017. Lower interest costs and a lower
tax rate also contributed to the year-over-year improvement.

Balance Sheet and Cash Flow

As of June 30, 2018, the company had cash and cash equivalents of $46
million and total debt of $2,014 million.

As previously disclosed, in the second quarter of 2018, the company
completed a debt restructuring which amended its Term Loan A, Term Loan
B and Revolving Credit facilities. These actions reduced the interest
rate on the Term Loan B by 25 basis points and increased the available
funds under the Revolving Credit Facility by $300 million to a maximum
of $800 million. The company also prepaid $300 million of the Term Loan
B Facility by drawing on the Revolving Credit Facility.

Free cash flow was $233 million for the first six months of 2018. The
company generated $266 million of operating cash flow and incurred
capital expenditures of $33 million. For the first six months of 2018,
the company made payments of long-term debt of $1,114 million and
received proceeds from the issuance of long-term debt of $879 million,
resulting in a $235 million net reduction of total debt. The company
made cash interest payments of $52 million for the first six months of
2018.

Outlook

Third Quarter 2018

The company expects third-quarter 2018 net sales to increase
approximately 12% to 15% from the third quarter of 2017. This
expectation includes an approximately 1 percentage point positive impact
from foreign currency translation.

Adjusted EBITDA margin is expected to be in the range of 19% to 20% for
the third quarter 2018, favorable to the prior year period. Non-GAAP
earnings per diluted share are expected to be in the range of $2.50 to
$2.70. This assumes an adjusted effective tax rate of approximately 15%
to 16%.

Full Year 2018

The company now expects full year 2018 net sales growth to increase
approximately 10% to 12%, which is favorable to our prior outlook and
includes an anticipated 2 percentage point positive impact from foreign
currency translation.

Adjusted EBITDA margin is expected to be approximately 20% for the full
year 2018, an improvement compared to the full year 2017.

For the full year 2018, the company expects free cash flow of at least
$525 million.

The outlook amounts provided above do not include any projected results
from the proposed acquisition of Xplore Technologies Corporation, which
is expected to close in the third quarter of 2018.

Conference Call Notification

Investors are invited to listen to a live webcast of Zebra's conference
call regarding the company's financial results for the second quarter of
2018. The conference call will be held today, Tuesday, Aug. 7, at 7:30
a.m. Central Time (8:30 a.m. Eastern Time). To view the webcast, visit
the investor relations section of the company's website at investors.zebra.com.

About Zebra

Zebra (NASDAQ:ZBRA) empowers the front line of business in
retail/ecommerce, manufacturing, transportation and logistics,
healthcare and other industries to achieve a performance edge. With more
than 10,000 partners across 100 countries, we deliver industry-tailored,
end-to-end solutions that intelligently connect people, assets and data
to help our customers make business-critical decisions. Our
market-leading solutions elevate the shopping experience, track and
manage inventory as well as improve supply chain efficiency and patient
care. Ranked on Forbes' list of America's Best Employers for the last
three years, Zebra helps our customers capture their edge. For more
information, visit www.zebra.com
or sign up for our news
alerts
. Follow us on LinkedIn,
Twitter
and Facebook.

Forward-Looking Statements

This press release contains forward-looking statements, as defined by
the Private Securities Litigation Reform Act of 1995, including, without
limitation, the statements regarding the company's outlook. Actual
results may differ from those expressed or implied in the company's
forward-looking statements. These statements represent estimates only as
of the date they were made. Zebra undertakes no obligation, other than
as may be required by law, 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 release.

These forward-looking statements are based on current expectations,
forecasts and assumptions and are subject to the risks and uncertainties
inherent in Zebra's industry, market conditions, general domestic and
international economic conditions, and other factors. These factors
include customer acceptance of Zebra's hardware and software products
and competitors' product offerings, and the potential effects of
technological changes. The continued uncertainty over future global
economic conditions, the availability of credit and capital markets
volatility may have adverse effects on Zebra, its suppliers and its
customers. In addition, a disruption in our ability to obtain products
from vendors as a result of supply chain constraints, natural disasters
or other circumstances could restrict sales and negatively affect
customer relationships. Profits and profitability will be affected by
Zebra's ability to control manufacturing and operating costs. Because of
its debt, interest rates 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 our international
sales. The outcome of litigation in which Zebra may be involved is
another factor. The success of integrating acquisitions could also
affect profitability, reported results and the company's competitive
position in its industry. These and other factors could have an adverse
effect on Zebra's sales, gross profit margins and results of operations
and increase the volatility of our financial results. When used in this
release and documents referenced, the words "anticipate," "believe,"
"outlook," and "expect" and similar expressions, as they relate to the
company or its management, are intended to identify such forward-looking
statements, but are not the exclusive means of identifying these
statements. Descriptions of the risks, uncertainties and other factors
that could affect the company's future operations and results can be
found in Zebra's filings with the Securities and Exchange Commission,
including the company's most recent Form 10-K and Form 10-Q .

Use of Non-GAAP Financial Information

This press release contains certain Non-GAAP financial measures,
consisting of "adjusted net sales," "adjusted gross profit," "EBITDA,"
"Adjusted EBITDA," "Non-GAAP net income," "Non-GAAP earnings per share,"
"free cash flow," "organic net sales growth," and "adjusted operating
expenses." Management presents these measures to focus on the on-going
operations and believes it is useful to investors because they enable
them to perform meaningful comparisons of past and present operating
results. The company believes it is useful to present Non-GAAP financial
measures, which exclude certain significant items, as a means to
understand the performance of its ongoing operations and how management
views the business. Please see the "Reconciliation of GAAP to Non-GAAP
Financial Measures" tables and accompanying disclosures at the end of
this press release for more detailed information regarding non-GAAP
financial measures herein, including the items reflected in adjusted net
earnings calculations. These measures, however, should not be construed
as an alternative to any other measure of performance determined in
accordance with GAAP.

The company does not provide a reconciliation for non-GAAP estimates on
a forward-looking basis (including the information under "Outlook"
above) where it is unable to provide a meaningful or accurate
calculation or estimation of reconciling items and the information is
not available without unreasonable effort. This is due to the inherent
difficulty of forecasting the timing or amount of various items that
have not yet occurred, are out of the company's control and/or cannot be
reasonably predicted, and that would impact diluted net earnings per
share, the most directly comparable forward-looking GAAP financial
measure. For the same reasons, the company is unable to address the
probable significance of the unavailable information. Forward-looking
non-GAAP financial measures provided without the most directly
comparable GAAP financial measures may vary materially from the
corresponding GAAP financial measures.

As a global company, Zebra's operating results reported in U.S. dollars
are affected by foreign currency exchange rate fluctuations because the
underlying foreign currencies in which the company transacts change in
value over time compared to the U.S. dollar; accordingly, the company
presents certain organic growth financial information, which includes
impacts of foreign currency translation, to provide a framework to
assess how the company's businesses performed excluding the impact of
foreign currency exchange rate fluctuations. Foreign currency impact
represents the difference in results that are attributable to
fluctuations in the currency exchange rates used to convert the results
for businesses where the functional currency is not the U.S. dollar.
This impact is calculated by translating, for certain currencies,
current period results at the currency exchange rates used in the
comparable period in the prior year, rather than the exchange rates in
effect during the current period. In addition, the company excludes the
impact of its foreign currency hedging program in both the current year
and prior year periods. The company believes these measures should be
considered a supplement to and not in lieu of the company's performance
measures calculated in accordance with GAAP.

 
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

 
    June 30,     December 31,
2018 2017
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 46 $ 62
Accounts receivable, net of allowances for doubtful accounts of $2
million and $3 million as of June 30, 2018 and December 31, 2017,
respectively
502 479
Inventories, net 465 458
Income tax receivable 44 40
Prepaid expenses and other current assets 52   24  
Total Current assets 1,109 1,063
Property, plant and equipment, net 254 264
Goodwill 2,462 2,465
Other intangibles, net 252 299
Long-term deferred income taxes 104 119
Other long-term assets 94   65  
Total Assets $ 4,275   $ 4,275  
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 85 $ 51
Accounts payable 442 424
Accrued liabilities 238 296
Deferred revenue 198 186
Income taxes payable 51   43  
Total Current liabilities 1,014 1,000
Long-term debt 1,914 2,176
Long-term deferred revenue 150 148
Other long-term liabilities 124   117  
Total Liabilities 3,202   3,441  
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none
issued
Class A common stock, $.01 par value; authorized 150,000,000 shares;
issued 72,151,857 shares
1 1
Additional paid-in capital 273 257
Treasury stock at cost, 18,459,879 and 18,915,762 shares at June 30,
2018 and December 31, 2017, respectively
(617 ) (620 )
Retained earnings 1,446 1,248
Accumulated other comprehensive loss (30 ) (52 )
Total Stockholders' Equity 1,073   834  
Total Liabilities and Stockholders' Equity $ 4,275   $ 4,275  
 
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)

(Unaudited)

 
    Three Months Ended     Six Months Ended
June 30,   July 1, June 30,   July 1,
2018 2017 2018 2017
Net sales:
Net sales of tangible products $ 889 $ 779 $ 1,728 $ 1,514
Revenue from services and software 123   117   261   247  
Total Net sales 1,012   896   1,989   1,761  
Cost of sales:
Cost of sales of tangible products 450 408 873 787
Cost of services and software 90   77   179   162  
Total Cost of sales 540   485   1,052   949  
Gross profit 472   411   937   812  
Operating expenses:
Selling and marketing 121 114 241 223
Research and development 109 99 210 195
General and administrative 93 68 164 143
Amortization of intangible assets 23 52 46 102
Acquisition and integration costs 19 2 46
Exit and restructuring costs 1   1   5   5  
Total Operating expenses 347   353   668   714  
Operating income 125   58   269   98  
Other (expenses) income:
Foreign exchange (loss) gain (4 ) 2 (4 ) 1
Interest expense, net (23 ) (40 ) (34 ) (81 )
Other, net 2   (1 ) 2   (1 )
Total Other expenses, net (25 ) (39 ) (36 ) (81 )
Income before income tax expense 100 19 233 17
Income tax expense (benefit) 30   2   54   (8 )
Net income $ 70   $ 17   $ 179   $ 25  
Basic earnings per share $ 1.31 $ 0.33 $ 3.35 $ 0.49
Diluted earnings per share $ 1.29 $ 0.32 $ 3.30 $ 0.48
Basic weighted average shares outstanding 53,537,876 51,996,353 53,414,267 51,928,911
Diluted weighted average and equivalent shares outstanding 54,255,707 53,128,657 54,134,110 53,037,956
 
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 
    Six Months Ended
June 30,     July 1,
2018 2017
Cash flows from operating activities:
Net income $ 179 $ 25
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 86 141
Amortization of debt issuance costs and discounts 9 10
Share-based compensation 24 15
Deferred income taxes 3 (10 )
Unrealized gain on forward interest rate swaps (18 ) (1 )
Other, net 2 2
Changes in operating assets and liabilities:
Accounts receivable, net (26 ) 104
Inventories, net (11 ) (68 )
Other assets (9 ) 15
Accounts payable 21 13
Accrued liabilities (48 ) (21 )
Deferred revenue 22 20
Income taxes 24 (35 )
Other operating activities 8   (7 )
Net cash provided by operating activities 266   203  
Cash flows from investing activities:
Purchases of property, plant and equipment (33 ) (22 )
Proceeds from sale of long-term investments 2
Purchases of long-term investments (2 )  
Net cash used in investing activities (33 ) (22 )
Cash flows from financing activities:
Payment of debt issuance costs and discounts (2 )
Payments of long-term debt (1,114 ) (240 )
Proceeds from issuance of long-term debt 879
Payments of debt extinguishment costs (1 )
Proceeds from exercise of stock options and stock purchase plan
purchases
6 7
Taxes paid related to net share settlement of equity awards (10 ) (5 )
Net cash used in financing activities (242 ) (238 )
Effect of exchange rate changes on cash (7 ) (4 )
Net increase in cash and cash equivalents (16 ) (61 )
Cash and cash equivalents at beginning of period 62   156  
Cash and cash equivalents at end of period $ 46   $ 95  
Supplemental disclosures of cash flow information:
Income taxes paid $ 21 $ 43
Interest paid $ 52 $ 70
 
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF ORGANIC NET SALES GROWTH

(UNAUDITED)

 
    Three Months Ended
June 30, 2018
AIT     EVM     Consolidated
Reported GAAP Consolidated Net sales growth 12.1 %     13.2 %     12.9 %
Adjustments:
Impact of foreign currency translation(1) (2.2 )%     (2.3 )%     (2.3 )%
Organic Net sales growth 9.9 %     10.9 %     10.6 %
 
Six Months Ended
June 30, 2018
AIT     EVM     Consolidated
Reported GAAP Consolidated Net sales growth 10.7 % 14.0 % 12.9 %
Adjustments:
Impact of foreign currency translation(1) (2.6 )%     (2.7 )%     (2.7 )%
Organic Net sales growth 8.1 %     11.3 %     10.2 %
 
(1) Operating results reported in U.S. dollars are affected by
foreign currency exchange rate fluctuations. Foreign currency
translation impact represents the difference in results that are
attributable to fluctuations in the currency exchange rates used to
convert the results for businesses where the functional currency is
not the U.S. dollar. This impact is calculated by translating, for
certain currencies, the current period results at the currency
exchange rates used in the comparable prior year period, rather than
the exchange rates in effect during the current period. In addition,
we exclude the impact of the company's foreign currency hedging
program in both the current and prior year periods.
 
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP GROSS MARGIN

(In millions)

(Unaudited)

 
    Three Months Ended
June 30, 2018     July 1, 2017
AIT   EVM   Consolidated AIT   EVM   Consolidated

GAAP

Reported Net sales (1) $ 351 $ 661 $ 1,012 $ 313 $ 584 $ 896
Reported Gross profit 173 299 472 155 257 411
Gross Margin 49.3 % 45.2 % 46.6 % 49.5 % 44.0 % 45.9 %
 
 

Non-GAAP

Adjusted Net sales $ 351 $ 661 $ 1,012 $ 313 $ 584 $ 897
Adjusted Gross profit (2) 173 300 473 155 258 413
Adjusted Gross Margin 49.3 % 45.4 % 46.7 % 49.5 % 44.2 % 46.0 %
 
(1) Fiscal 2017 consolidated results include corporate eliminations
which are related to the Enterprise Acquisition in October 2014 and
are not reported in segment results.
(2) Adjusted Gross profit excludes purchase accounting adjustments
and share-based compensation expense.
 
    Six Months Ended
June 30, 2018     July 1, 2017
AIT   EVM   Consolidated AIT   EVM   Consolidated

GAAP

Reported Net sales (1) $ 703 $ 1,286 $ 1,989 $ 635 $ 1,128 $ 1,761
Reported Gross profit 356 581 937 317 497 812
Gross Margin 50.6 % 45.2 % 47.1 % 49.9 % 44.1 % 46.1 %
 
 

Non-GAAP

Adjusted Net sales $ 703 $ 1,286 $ 1,989 $ 635 $ 1,128 $ 1,763
Adjusted Gross profit (2) 356 583 939 317 498 815
Adjusted Gross Margin 50.6 % 45.3 % 47.2 % 49.9 % 44.1 % 46.2 %
 
(1) Fiscal 2017 consolidated results include corporate eliminations
which are related to the Enterprise Acquisition in October 2014 and
are not reported in segment results.
(2) Adjusted Gross profit excludes purchase accounting adjustments
and share-based compensation expense.
 
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(In millions, except share data)

(Unaudited)

 
    Three Months Ended     Six Months Ended
June 30,   July 1, June 30,   July 1,
2018 2017 2018 2017
Net income $ 70   $ 17   $ 179   $ 25  
Adjustments to Net sales(1)
Purchase accounting adjustments   1     2  
Total adjustment to Net sales   1     2  
Share-based compensation 1   1   2   1  
Total adjustments to Cost of sales 1   1   2   1  
Adjustments to Operating expenses(1)
Amortization of intangible assets 23 52 46 102
Acquisition and integration costs 19 2 46
Legal Settlement 13 13
Share-based compensation 16 7 26 15
Exit and restructuring costs 1   1   5   5  
Total adjustments to Operating expenses 53   79   92   168  
Adjustments to Other expenses, net(1)
Amortization of debt issuance costs and discounts 8 6 10 10
Gain on Sale of Investments (1 ) (1 )
Foreign exchange loss 4 (2 ) 4 (1 )
Forward interest rate swaps gain (6 ) (1 ) (18 ) (1 )
Total adjustments to Other expenses, net 5   3   (5 ) 8  
Income tax effect of adjustments(2)
Reported income tax expense (benefit) 30 2 54 (8 )
Adjusted income tax expense (24 ) (23 ) (49 ) (44 )
Total adjustments to income tax 6   (21 ) 5   (52 )
Total adjustments 65   63   94   127  
Non-GAAP Net income $ 135   $ 80   $ 273   $ 152  
 
GAAP earnings per share
Basic $ 1.31   $ 0.33   $ 3.35   $ 0.49  
Diluted $ 1.29   $ 0.32   $ 3.30   $ 0.48  
Non-GAAP earnings per share
Basic $ 2.51   $ 1.54   $ 5.10   $ 2.93  
Diluted $ 2.48   $ 1.51   $ 5.04   $ 2.87  
 
Non-GAAP weighted average shares outstanding (3)
Basic 53,537,876 51,996,353 53,414,267 51,928,911
Diluted 54,255,707 53,128,657 54,134,110 53,037,956
 
(1) Presented on a pre-tax basis.
(2) Represents the adjustment to the GAAP basis tax provision
commensurate with non-GAAP adjustments.
(3) In periods of loss, Non-GAAP weighted-average shares exclude
restricted stock awards and performance stock awards within basic
and dilutive weighted-average share computations. Share-based
compensation awards that are dilutive in nature are included within
weighted-average dilutive share computations.
 
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATION

(In millions)

(Unaudited)

 

EBITDA

 
    Three Months Ended     Six Months Ended
June 30,   July 1, June 30,   July 1,
2018 2017 2018 2017
Net income $ 70 $ 17 $ 179 $ 25
Add back:
Depreciation 20 20 40 39
Amortization of intangible assets 23 52 46 102
Total Other expenses, net 25 39 36 81
Income tax expense 30   2   54   (8 )
EBITDA (Non-GAAP) 168   130   355   239  
 
Adjustments to Net sales
Purchase accounting adjustments   1     2  
Total adjustments to Net sales   1     2  
Adjustments to Cost of sales
Share-based compensation 1   1   2   1  
Total adjustments to Cost of sales 1   1   2   1  
Adjustments to Operating expenses
Acquisition and integration costs 19 2 46
Legal Settlement 13 13
Share-based compensation 16 7 26 15
Exit and restructuring costs 1   1   5   5  
Total adjustments to Operating expenses 30   27   46   66  
Total adjustments to EBITDA 31   29   48   69  
Adjusted EBITDA (Non-GAAP) $ 199   $ 159   $ 403   $ 308  
 
Adjusted EBITDA % of Adjusted Net Sales 19.7 % 17.7 % 20.3 % 17.5 %
 

FREE CASH FLOW

 
    Six Months Ended
June 30,     July 1,
2018 2017
Net cash provided by operating activities $ 266 $ 203
Less: Purchases of property, plant and equipment (33 ) (22 )
Free cash flow (Non-GAAP)(1) $ 233   $ 181  
 
(1) Free cash flow is defined as Net cash provided by operating
activities in a period minus purchases of property, plant and
equipment (capital expenditures) made in that period. This measure
does not represent residual cash flows available for discretionary
expenditures as the measure does not deduct the payments required
for debt service and other contractual obligations or payments for
future business acquisitions. Therefore, we believe it is important
to view free cash flow as a measure that provides supplemental
information to our entire statements of cash flows.
 

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