<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
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)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
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. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 1, 2000, the aggregate market value of each of the registrant's
Class A Common Stock and Class B Common Stock held by non-affiliates was
approximately $1,686,317,000 and $421,298,000, respectively. The closing price
of the Class A Common Stock on March 1, 2000, as reported on the Nasdaq Stock
Market, was $67.00 per share. Because no market exists for the Class B Common
Stock and the shares of Class B Common Stock are convertible on a one-for-one
basis into shares of Class A Common stock, the registrant has assumed for
purposes hereof that each share of Class B Common Stock has a market value equal
to one share of Class A Common Stock.
As of March 1, 2000, the registrant had outstanding 25,168,914 shares of Class A
Common Stock, par value $.01 per share, and 6,288,028 shares of Class B Common
Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Notice of Annual Meeting of Stockholders
and Proxy Statement for its Annual Meeting of Stockholders to be held on May 16,
2000, as described in the Cross-Reference Sheet and Table of Contents included
herewith, are incorporated by reference into Part III of this report.
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 12
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 21
SIGNATURES
Signatures 22
EXHIBITS
Index to Exhibits 23
CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements F1
</TABLE>
-2-
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Zebra Technologies Corporation and its wholly-owned subsidiaries (the Company or
Zebra) design, manufacture and support a broad range of direct thermal and
thermal transfer bar code label printers, receipt printers, instant-issuance
plastic card printers and secure identification printing systems, related
accessories, and support software. The Company markets its products worldwide
principally to manufacturing and service organizations for use in automatic
identification, data collection, and personal identification systems.
The Company's equipment is designed to operate at the user's location or on a
mobile basis to produce and dispense high quality bar coded labels and plastic
cards in time-sensitive applications and under a variety of environmental
conditions. Applications for the Company's products are extremely diverse. They
include applications where bar coding is used to identify or track objects or
information, particularly in situations that require high levels of data
accuracy and where speed and reliability are critical variables. For plastic
cards, they are used where secure, reliable identification is required on an
on-demand basis.
Applications for the Company's technology cut across all industries and
geographies. They include, but are not limited to, inventory control, small
package delivery, baggage handling, automated warehousing, JIT (Just-In-Time)
manufacturing, employee time and attendance records, file management systems,
hospital information systems, shop floor control, library systems, employee ID
cards, driver's licenses, access control systems, and medical specimen labeling.
As of December 31, 1999, management estimates that more than 1,500,000 Zebra
printers are installed in more than 90 countries throughout the world.
The Company believes the growth of its bar code printer business will be
enhanced by the proliferation of bar code label standardization programs, which
are driven by competitive forces on businesses worldwide to reduce costs,
improve quality, and increase productivity. Industry-mandated standardization
continues to be a major catalyst in the rapid development of bar coding. Zebra
also believes that increasing use of enterprise-wide resource planning (ERP)
systems in manufacturing and service organizations and the rapid growth of
e-commerce will lead to increased use of automatic identification systems.
The Company's card printer business is being driven by the rapid growth in
applications for smart card technology and increased concern over personal
identification, including secure ID systems for driver's license applications
and access control systems.
On October 28, 1998, the Company merged with Eltron International, Inc.
(Eltron). Products manufactured and marketed under the Eltron brand name
consist of high-quality, low-cost direct thermal and thermal transfer bar
code printers, instant-issuance plastic card printers and secure card
printing systems, ribbons, self-adhesive labels, and related accessories.
Financial results for the Company have been restated to reflect the merger as
a pooling-of-interests.
The Company completed its initial public offering in August 1991. The Company is
organized under the laws of the State of Delaware, and its principal offices are
located at 333 Corporate Woods Parkway, Vernon Hills, Illinois 60061. The
Company's telephone number is (847) 634-6700.
PRODUCTS
The Company's products consist of a broad line of computerized on-demand bar
code label printers, print engines, plastic card printers, specialty bar code
labeling materials, ink ribbons and bar code label design software. These
products are used to provide bar code labeling and personal identification
solutions principally in the manufacturing, service, and government sectors of
the economy. The Company's equipment and supplies are designed to operate at the
user's location under a variety of work environments. The Company works closely
with its distributors, other resellers, and the end users of its products to
design and implement labeling solutions that meet the technical demands of the
end user. To achieve this flexibility, the Company provides its customers with a
very broad selection of printer models, each of which can be configured to a
specific use. Additionally, the Company will select and, if necessary, create
appropriate labeling stock, ink ribbons and adhesives to
-3-
<PAGE>
suit a particular intended use. In-house engineering personnel in software,
mechanical, electronic and chemical engineering participate in the creation and
realization of bar code solutions for particular applications.
Zebra markets its products under the Zebra and Eltron brand names. Zebra bar
code products are designed and principally targeted for mission-critical
applications, where high volume or demanding compliance labeling standards are
required. The Company offers comprehensive bar code labeling solutions under the
Zebra brand, including a wide range of premium-quality bar code label printers.
Bar code labeling products marketed under the Eltron brand are targeted at
end-users looking for an economical, easy-to-use printing solution in general
office and light manufacturing and distribution environments. The Company's full
range of card printer products is also marketed under the Eltron brand name.
Bar Code Labeling Solutions
The Company believes it produces the industry's broadest range of on-demand
thermal transfer and direct thermal bar-code label printers, with more options
and features than any of its competitors. Zebra's printing systems include
hundreds of optional configurations, which can be selected to meet particular
customer needs. The Company believes this breadth of product is a unique and
significant competitive strength, since it allows the Company to satisfy the
wide variety of printing applications in its target market.
The Company offers 29 bar code printer models, which are marketed under the
Zebra and Eltron brand names. At December 31, 1999, the Company's main printer
product offerings were as follows:
PERFORMANCE PRINTERS. At the high end of the label printer market, Zebra
produces printers targeted at applications requiring continuous operation in
high output, mission-critical settings. These units provide a wide variety of
option configurations, features, print widths, speeds, and dot densities
(including the industry's only 600-dpi printer). The Company offers four Zebra
models under its XiII Series line. List prices range from $4,295 to $7,495.
In 1999, Zebra introduced the R-140 Printer/Encoder. The R-140 prints and
encodes "smart labels," which are printable labels embedded with an ultra-thin
radio frequency transponder, in a single pass. Information encoded in these
transponders can then be read and modified by a radio frequency reader. The
R-140 is targeted at the developing market for radio frequency identification
(RFID), where line-of-sight reading or scanning a label may not be possible.
List price for the R-140 is $5,690.
MID-RANGE PRINTERS. The Company offers 10 printer models designed for less
demanding applications. These units offer fewer option configurations and
features for a commensurate lower price. Products in this category consist of
the Zebra Stripe, S, and Z Series as well as Eltron brand TLP 2746, LP/TLP 2684
(Strata), TLP Eclipse, and TLP 2046 printers. List prices range from $1,395 to
$3,295.
DESKTOP PRINTERS. Applications with low volume suit the Company's desktop
printers. Zebra currently offers nine desktop models, which are marketed as
Zebra Stripe DA402 and T402 printers and Eltron Companion Plus, LP 2443 (Orion),
LP/TLP 2622, LP/TLP 2642, TLP 3642, LP/TLP 2722, LP/TLP 2742, and TLP 3742
printers. List prices range from $595 to $845.
PORTABLE PRINTERS. The Company offers four portable printer models, which
provide durability, lightweight, and optional infrared and radio frequency
interfaces. These printers are designed for remote and mobile applications, and
are marketed under both the Zebra and Eltron brands. The Company's portable
printers range in price from $695 to $1,495.
PRINT ENGINES. Zebra's 170PAX2 print engine is targeted at manufacturers of
high-speed automatic label applicator systems. The price of the 170PAX2 print
engine is approximately $3,100.
In addition to their use in on-demand automatic identification applications, the
Company's bar code label printers can also be used to meet customers' needs for
on-site production of small or large quantities of custom bar code labels and
other graphics. This capability results in shorter lead times, reduced
inventory, and more flexibility than can be provided with traditional off-site
printing. Management believes that of the major on-site printing technologies,
thermal transfer is best suited for most industrial applications. Thermal
transfer printing produces dark and solid blacks and sharply defined lines that
are important for printing readily scannable bar codes. These images can be
printed on a variety of labeling materials,
-4-
<PAGE>
which enable users to affix bar code labels to virtually any object. This
capability is very important in the industrial and service markets served by the
Company.
Plastic Card Printers
The Company offers five plastic card printers, including one secure
identification printing system. Uses for plastic cards printed by these systems
include smart cards, on-demand access control, identification, and loyalty card
applications. Users can select from a number of printer options, including
monochrome and color printing, single- and two-sided printing, and magnetic
stripe and smart card encoding. The Company's P310, P420, P500, and P600 plastic
card printers are marketed under the Eltron brand. Plastic card printers range
in price from $2,495 to $9,995.
The Max3300 is a single process secure ID printing system that provides maximum
security, durability, and tamper resistance for applications such as driver's
licenses and national ID card programs. The system integrates printing,
lamination, rotary die cutting, and optional magnetic encoding of 3M Secure Card
media. The Max3300 is priced at $16,500.
Sales of hardware (bar code and plastic card printers and replacement parts)
represented $321,354,000 of net sales in 1999, $265,495,000 in 1998, and
$229,763,000 in 1997. These sales amounted to 80.6%, 79.0%, and 77.3% of net
sales in 1999, 1998, and 1997, respectively.
Supplies
The Company sells supplies, which consist of stock and customized thermal labels
and tags and thermal transfer ribbons, to both new and current users of its
label printing systems worldwide. Zebra promotes the use of genuine Zebra brand
and Eltron brand supplies with its equipment. Management believes that owners of
Zebra and Eltron printing systems purchasing Zebra brand and Eltron brand
supplies attain peak performance and optimum print quality and minimize costly
downtime and malfunctions in their automatic identification systems.
Zebra fully supports its printers, resellers and end users with an extensive
line of superior quality, high performance supplies optimized to a particular
user's needs. Supplies are expertly chosen, in consultation with the end user
and reseller, based on the specific application, printer and environment in
which the labeling system must perform. The Company's supplies also include
proprietary ribbon and label formulations developed according to our
specifications and designed to maximize printer performance and meet the most
demanding end user performance criteria. Factors such as scratch, smudge and
abrasion resistance, and chemical and environmental exposures are all taken into
account when selecting the type of ribbon and labeling materials. The use of
supplies that are not carefully matched to specific printers can adversely
impact printer performance in print speed, print quality and ultimately overall
customer satisfaction.
Sales of the Company's supplies in 1999, 1998, and 1997 were $69,092,000,
$62,298,000, and $58,873,000, respectively, amounting to 17.3%, 18.5%, and 19.8%
of net sales, respectively.
Software
In February 1996, the Company acquired the intellectual property of a United
Kingdom-based partnership, Fenestra Computer Services, which provides a
high-performance label design and integration software package specifically
designed to optimize the performance of Zebra printers. Known as BAR-ONE-TM-,
this software provides the capability to design and integrate sophisticated
labels from standalone or legacy applications through a powerful, easy-to-use
Windows interface. In late 1997, the Company signed an exclusive alliance
agreement with JetForm Corporation, a leading worldwide provider of electronic
forms, workflow and output management software applications. Zebra's BAR-ONE
product includes a special version of JetForm's premier multi-platform, output
management product, JetForm Central-TM-. This software package enables Zebra
printers to receive output directly from most of the popular software packages
on the market, including the increasingly used enterprise-wide resource planning
(ERP) software, without the need to write costly software interfaces. In 1999,
the Company released a new version of BAR-ONE, which enables users to print to
both Zebra- and Eltron-brand printers.
Maintenance Services
The Company provides service for its printing systems with depot repair at its
Vernon Hills, Illinois, facility and its distributors' locations. In addition
the Company has agreements with International Business Machines Corporation
(IBM) and Wang Laboratories, Inc. (Wang) to provide on-site repair services.
Under these agreements, the Company shares the revenue for on-site service
contracts sold by IBM and Wang for Zebra printing systems installed in the
United States.
-5-
<PAGE>
Outside of the United States, the Company's distributors in each country provide
maintenance service, either directly or through service agents. Zebra also
provides service and technical support assistance from in-house support
personnel located in the United States, the United Kingdom, and Singapore, who
are available by telephone hotline five days a week during regular business
hours. Also, for Zebra brand products the Company provides interactive technical
support via the Internet, which can be accessed through the Company's web page,
http://www.zebra.com, 24 hours a day, seven days a week.
Warranties
All Zebra printing equipment is warranted against defects in material and
workmanship for twelve months. Zebra supplies are warranted against defects in
material and workmanship for the stated shelf life or twelve months, whichever
occurs first. Defective equipment and supplies may be returned to the Company
for repair, replacement or refund during the applicable warranty periods.
THE COMPANY'S TECHNOLOGY
The Company's products use thermal transfer, direct thermal, and thermal die
sublimation technologies. Each technology has certain characteristics that
provide specific benefits to the end user.
Thermal transfer printing is used in all performance and certain mid-range,
desktop and portable bar code label printers, as well as the Company's
high-speed print engine. This technology creates an image by applying an
electrically heated printhead to a ribbon that releases ink onto
labeling/ticketing media. The benefits of thermal transfer printing include
superior image quality, the ability to print on a wide variety of
smooth-surfaced materials, no requirement for specially coated or otherwise
specially formulated labeling/ticketing media, and the ability to use certain
inks that are not viable with alternative printing technologies.
Direct thermal printing is used in certain mid-range, desktop and portable
printer products. Direct thermal printing creates an image by applying the
heated printhead directly to specially treated paper, which changes color when
heated. Direct thermal technology is preferable where image durability is less
critical, and where the application does not require specialty-labeling
materials such as plastics or metal foils.
The Company's plastic card printers incorporate thermal dye sublimation for
color printing on PVC and polyester cards. This capability has given rise to an
industry focused on the on-site creation of full color, photographic quality
plastic cards. These cards can typically be created in less than 30 seconds for
under one dollar. Traditional photographic processes are both more expensive and
time consuming. The Company believes that personalized card applications such as
driver's licenses, loyalty cards, school and work identification cards, security
access cards, and financial transaction cards are well suited to this
technology. Bar codes, smart chip and magnetic stripe encoding can be used to
record such personal data as health records, financial transactions, security
access codes, and vital statistics.
The Company's printing systems incorporate Company-designed computer hardware,
electrical mechanisms and software, which operate the printing functions of the
system and communicate with the host computer. All Zebra brand printing systems
operate using Zebra Programming Language (ZPL-TM-) and Zebra Programming
Language II (ZPL II-TM-), proprietary printer driver languages, which were
designed by the Company and are compatible with virtually all computer operating
systems, including UNIX, MS/DOS and Windows. Because the Company guarantees
backward compatibility, ZPL and ZPL II allow users to replace older Zebra
printers with newer equipment without costly reprogramming of label design
programs. This compatibility also allows users to operate multiple Zebra
printers in different applications using standardized programs and to integrate
these printers into a local area network. Management believes that ZPL and ZPL
II give the Company a competitive advantage by ensuring compatibility across the
full family of the Company's present and future printer products and by
facilitating system upgrades and customer loyalty to Zebra products. Certain
independent software vendors have written label preparation programs with ZPL
and ZPL II drivers specifically for Zebra printers. ZPL and ZPL II label format
programs can be run on a personal computer with ordinary word processing
programs, making ZPL and ZPL II particularly adaptable to PC-based systems.
All Eltron brand printing systems operate using Eltron Programming Language
(EPL-TM-), which have characteristics for networking and backward compatibility
similar to those of ZPL and ZPL II.
-6-
<PAGE>
SALES AND MARKETING
SALES. The Company sells its products in the United States and internationally
through distributors, value-added resellers (VARs), original equipment
manufacturers (OEMs), international customers, and directly to a small number of
designated key accounts. Distributors and VARs purchase, warehouse, and sell a
variety of automatic identification components from different manufacturers, and
customize systems for end-user applications using their systems integration
expertise. Because these sales channels provide specific software,
configuration, installation, integration, and support services required by end
users within various market segments, these relationships allow the Company to
reach end users throughout the world in a wide variety of industries.
The Company classifies two of its distributors as National Distributors because
of their broad territorial representation within the United States. Other
distributors qualify as Zebra Solution Centers (ZSCs). ZSCs carry the full range
of Zebra printers and supplies and focus on providing a Zebra bar-code solution
to their customers. VARs, OEMs and systems integrators provide customers with a
variety of automatic identification components including scanners, accessories,
applications software and systems integration expertise, and, in the case of
some OEMs, then resell the products under their own brands. The Company believes
that the breadth of this indirect channel network, both in terms of variety and
geographic scope, is a material competitive advantage.
In certain instances, the Company may designate a customer as a key account when
purchases of Company products reach certain levels. Zebra sales personnel,
together with the Company's distribution partners, manage these accounts to
ensure their complete needs are met, including consistent support for projects
and applications.
Sales to international customers comprised 40.1%, 40.1%, and 41.4% of net sales
for 1999, 1998, and 1997, respectively. The Company's products are distributed
in more than 90 countries throughout the world. Management believes that
international sales have the long-term potential to grow faster than domestic
sales because of the lower penetration of bar-code systems outside the United
States. As a result, the Company has invested resources to support its
international growth and currently operates facilities and sales offices in the
United Kingdom, France, Germany, Japan, Hong Kong, China, Singapore, and South
Africa.
MARKETING. The Company's marketing operations include product management,
marketing communications, technical services, training, market research and
market development functions. The product management group initiates the
development of new products and product enhancements to meet customer needs, and
manages product introductions and positioning. The product management group also
focuses on strategic planning and market definition and analyzes the Company's
competitive strengths and weaknesses.
The marketing communications group operates as an internal advertising and
public relations resource. This group, working with advertising agencies and
contractors, creates advertising, brochures and documentation, manages trade
show exhibits, maintains the Company's Web sites and places articles
highlighting applications of Zebra products in trade and industry publications.
The technical services group offers technical support to the Company's
distribution channels and end users of the Company's products. These services
include a hotline staffed by experienced technical personnel, an advanced
Internet-based technical support system available 24 hours a day, and, when
necessary, trips to customer sites.
The Company's market research group is a strategic planning, research-oriented
group that focuses on market definition and analysis of Company's relative
strengths and weaknesses compared with its competition. This group identifies
and analyzes market opportunities for current, planned and potential products,
and gathers and analyzes competitive and market information.
The market development group is responsible for the development of new market
opportunities and relationships with key customers, vendors and government
regulatory and industry standards committees. This group also prepares speeches,
application training programs and seminars, which are presented around the world
to industry and customer groups.
CUSTOMERS
As of December 31, 1999, Company estimates that it has more than 1,500,000 bar
code and plastic card printers installed in more than 90 countries.
-7-
<PAGE>
Two customers accounted for more than 10% of the Company's total net sales in at
least one of the fiscal years ended December 31, 1998 and 1997. The Peak
Technologies Group, Inc., represented 10.9%, of the Company's net sales in 1997.
United Parcel Service represented 10.3% of the Company's net sales in 1998.
PRODUCTION AND MANUFACTURING
The Company's strategy is to create and produce production designs that optimize
product performance, quality, reliability, durability and versatility. These
designs use cost-efficient materials, sourcing and assembly methods with high
standards of workmanship. The Company has aggressively pursued a manufacturing
strategy of increasing control over the manufacture of its hardware products by
developing in-house capability to produce mechanical and electronic assemblies,
and it has designed many of its own tools, fixtures and test equipment. The
Company's manufacturing engineering staff is dedicated to co-engineering new
products in coordination with Zebra's new product engineers and vendors. This
collaborative effort increases manufacturing efficiency by specifying and
designing manufacturing processes and facilities simultaneously with product
design.
RESEARCH AND DEVELOPMENT
The Company had research and development expenditures of $22,007,000,
$21,428,000, and $17,911,000 for 1999, 1998, and 1997, respectively. These
expenditures amounted to 5.5%, 6.4%, and 6.0% of net sales for the corresponding
periods. The Company devotes significant resources to develop new bar-code
printing solutions for its target markets, as well as to ensure that the
Company's products maintain high levels of reliability and efficient
manufacturing.
At December 31, 1999, the Company had 131 full-time employees in new product
design, engineering and development. Zebra engineers design all firmware,
hardware, software, mechanisms, mechanical parts and enclosures used in its
printers and other products.
COMPETITION
Many companies are engaged in the design, manufacture and marketing of automatic
identification data collection equipment and plastic card printers. The Company
considers its direct competition to be producers of on-demand thermal transfer
and direct thermal label printing systems and supplies. To a lesser extent the
Company also competes with companies engaged in the design, manufacture and
marketing of standard computer and label printers which use alternative printing
technologies, particularly for low-cost label printers. For card printers, the
Company considers its direct competition to be the producers of thermal plastic
card printing systems and supplies designed for on-demand printing.
Management believes that the ability to compete effectively in the thermal
transfer and direct thermal market depends on a number of factors. These factors
include the reliability, quality, and reputation of the manufacturer and its
products; hardware innovations and specifications; breadth of product offerings;
information systems connectivity; price; the level of technical support;
supplies and applications support offered by the manufacturer; available
distribution channels; and financial resources to support new product design and
innovation. The Company believes that it presently competes favorably with
respect to these factors.
No single competitor competes across the entire breadth of the Company's product
line. The Company, however, faces, significant competition in each of its
product segments. For low-cost desktop label printer products, the Company's
principal competitors are Cognitive Solutions, a subsidiary of Axiohm
Transaction Solutions, Inc.; Tokyo Electric Company (TEC); Taiwan Semiconductor;
Microcom; and Datamax Corporation. In the mid-range printer market, the
Company's principal competitors are Datamax Corporation; UBI and Intermec
Corporations, subsidiaries of Unova, Inc.; Monarch Marking Systems, a subsidiary
of Paxar, Inc.; Sato; and TEC. Principal competition in the high end of the
market derives from Sato, TEC, and Intermec. For print engines, the Company's
principal competitor is Sato. For portable printers, the Company's principal
competitors are Monarch Marking Systems, as well as Comtec Information Systems,
Inc., and O'Neil Product Development, Inc., two privately held companies.
The Company's principal competitors in the plastic card market include Datacard,
Inc., a privately-held manufacturer of card personalization systems and
transaction terminals, and Fargo Electronics, Inc., a privately-held
manufacturer of thermal transfer and dye sublimation color page printers and
plastic card printers.
-8-
<PAGE>
ALTERNATIVE TECHNOLOGIES
The Company believes that direct thermal and thermal transfer printing will be
the technology of choice in Zebra's target markets for the foreseeable future.
Among the many advantages of direct thermal and thermal transfer printing is its
ability to print high-resolution, durable images on a wide variety of label
materials at a relatively low cost and at very high speeds, compared with
alternative printing technologies. The Company continually assesses competitive
and complementary methods of bar code printing and automatic identification.
These technologies include ink jet, laser, impact dot matrix, laser etching, and
radio-frequency identification (RFID). Currently, the Company believes that
direct thermal and thermal transfer print technology provide the best low-cost,
high quality printing solution for its target markets.
Although there is no assurance that a new technology will not supplant direct
thermal and thermal transfer printing, the Company is not aware of any
developing technology that offers the advantages of direct thermal and thermal
transfer printing for the Company's target markets. To complement its thermal
printing technology, Zebra introduced the R-140 printer/encoder for printing and
encoding "smart labels," which are printable labels embedded with an ultra-thin
radio frequency transponder. Information encoded in these transponders can then
be read and modified by a radio frequency reader. The R-140 is targeted at the
developing market for RFID, where line-of-sight reading or scanning a label may
not be possible.
If other technologies were to evolve or become available to the Company, it is
possible that those technologies would be incorporated into the Company's
products. Alternatively, if such technologies were to evolve or become available
to the Company's competitors, the Company's products may become obsolete, which
would have a material adverse effect on the Company's business, financial
position, results of operations and cash flows.
INTELLECTUAL PROPERTY RIGHTS
Zebra relies on a combination of trade secrets, patents, employee and third
party nondisclosure agreements, copyright laws and contractual rights to
establish and protect its proprietary rights in its products. The Company holds
and actively protects a number of trademarks, which are registered domestically
and internationally. The Company holds 27 patents and nine patents pending
pertaining to its products.
Despite the Company's efforts to protect its intellectual property rights, it
may be possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or otherwise obtain and use, to the
Company's detriment, technology and information that the Company regards as
proprietary. Moreover, the laws of certain countries do not afford the same
protection to the Company's proprietary rights as do United States laws. There
can be no assurance that legal protections relied upon by the Company to protect
its proprietary position will be adequate. The Company does not believe that the
legal protections afforded to its intellectual property rights are fundamental
to its success.
Other trademarks mentioned in this report include IBM, which is a registered
trademark of International Business Machines Corporation; UNIX, which is a
registered trademark of UNIX Systems Laboratories, Inc.; MS/DOS and Windows,
which are registered trademarks of Microsoft Corporation; and Jet Form Central,
which is a registered trademark of Jet Form Corporation.
EMPLOYEES
As of March 1, 2000, the Company employed approximately 1,650 persons. None of
these employees is a member of a union. The Company considers its relationship
with its employees to be excellent.
-9-
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Vernon Hills, Illinois, a
northern suburb of Chicago. The Company conducts its operations from a
custom-designed facility at this location, which provides approximately 242,000
square feet of space. Approximately 106,800 square feet have been allocated to
office and laboratory functions and 135,200 square feet to manufacturing and
warehousing. This facility was constructed in 1989 and expanded in 1993, 1995,
1996, and 1999. It is owned and leased to the Company, under a lease terminating
on March 31, 2008, by Unique Building Corporation, a corporation owned in part
by Edward Kaplan and Gerhard Cless, both executive officers and directors of the
Company. A new lease is currently under development to include the 59,200 square
feet of space that was added in 1999. The proposed new terms of the lease
covering the entire Vernon Hills facility would extend the lease to terminate on
June 30, 2014.
The Company's major facilities as of December 31, 1999, are listed below:
<TABLE>
<CAPTION>
Square Footage
------------------------------------------------------
MANUFACTURING,
PRODUCTION & ADMINISTRATIVE,
LOCATION WAREHOUSING RESEARCH & SALES TOTAL LEASE EXPIRES
- -------- ----------- ---------------- ----- -------------
<S> <C> <C> <C> <C>
Vernon Hills, Illinois, USA 135,200 106,800 242,000 June 2014
Camarillo, California, USA 73,600 68,400 142,000 Owned
High Wycombe, UK -- 20,900 20,900 November 2018
Preston, UK 29,000 8,000 37,000 Owned
Varades, France 11,800 9,000 20,800 August 2000
Greenville, Wisconsin, USA 27,000 3,000 30,000 March 2007
</TABLE>
The Company also has facilities totaling an aggregate of 12,640 square feet,
with 3,954 square feet dedicated to warehousing and 8,686 square feet dedicated
to administrative, research, and sales functions, in the following locations:
Northbrook, Illinois; Miami, Florida; Sandy, Utah; Boulogne Billancourt, France;
Singapore; Tokyo, Japan; and Frankfurt, Germany.
During 1999, the Company consolidated certain of its facilities. In the UK, this
consolidation consisted of moving distribution from the Company's Wokingham and
High Wycombe facilities to the Company's Preston location, and transferring
Wokingham associates to the renovated High Wycombe location. The vacant
Wokingham facility totals 27,000 square feet and has a lease that expires in
October 2010. The Company expects to dispose of or sub-lease the Wokingham
facility in 2000.
-10-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various lawsuits, which are incidental to the
ordinary conduct of its business. The Company does not believe that any such
matters will have a material adverse effect on the Company's business, financial
condition, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-11-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
STOCK INFORMATION: PRICE RANGE AND COMMON STOCK
The Company's Class A Common Stock is traded on the Nasdaq Stock Market under
the symbol ZBRA. The following table shows the high and low trade prices for
each quarter in 1999 and 1998, as reported by the Nasdaq Stock Market. No market
exists for the Company's Class B Common Stock. The shares of Class B Common
Stock are convertible on a one-for-one basis into shares of Class A Common Stock
at the option of the holder.
<TABLE>
<CAPTION>
1999 HIGH LOW 1998 HIGH LOW
- --------------------------------------- ----------- ------------- --------------------------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
First Quarter $37.00 $22.88 First Quarter $38.50 $25.50
Second Quarter 38.50 23.50 Second Quarter 44.63 34.75
Third Quarter 50.38 37.00 Third Quarter 42.63 27.00
Fourth Quarter 64.50 44.19 Fourth Quarter 37.00 25.00
</TABLE>
SOURCE: THE NASDAQ STOCK MARKET
At March 1, 2000, the last reported price for the Class A Common Stock was
$67.00 per share, and there were 524 shareholders of record for the Company's
Class A Common Stock and 24 shareholders of record for the Company's Class B
Common Stock.
DIVIDEND POLICY
Since the Company's initial public offering in 1991, the Company has not
declared any cash dividends or distributions on its capital stock. The Company
intends to retain its earnings to finance future growth and therefore does not
anticipate paying any cash dividends in the foreseeable future.
-12-
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF EARNINGS DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997 (1) 1996 (1) 1995 (1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 398,517 $ 335,983 $ 297,100 $ 252,487 $ 200,319
Cost of sales 196,128 180,173 153,392 135,474 106,365
---------- ---------- ---------- ---------- ----------
Gross profit 202,389 155,810 143,708 117,013 93,954
Total operating expenses 99,487(2) 94,174(2) 72,446 62,880(4) 43,328
--------- --------- ---------- ---------- ----------
Operating income 102,902(2) 61,636(2) 71,262 54,133(4) 50,626
Income from continuing operations
before income taxes 108,800(2) 65,021(2) 85,225(3) 60,703(4) 56,185
Income from continuing operations 69,632(2) 40,069(2) 54,447(3) 37,952(4) 36,693
Earnings per share from continuing operations
Basic $ 2.23(2) $ 1.30(2) $ 1.76(3) $ 1.24(4) $ 1.22
Diluted $ 2.21(2) $ 1.29(2) $ 1.74(3) $ 1.21(4) $ 1.19
Weighted average shares outstanding
Basic 31,175 30,919 30,897 30,696 30,128
Diluted 31,521 31,176 31,380 31,269 30,780
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(In thousands)
<TABLE>
<CAPTION>
December 31, 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents and
investments and marketable
securities $ 235,568 $ 162,668 $ 139,320 $ 103,777 $ 88,139
Working capital 302,804 229,688 209,862 164,678 131,369
Total assets 394,643 310,002 270,447 218,631 176,695
Long-term obligations 664 36 314 3,137 2,928
Shareholders' equity 349,307 270,884 236,220 184,007 144,391
</TABLE>
(1) Revised to reflect the discontinuance of operations of Zebra Technologies
VTI, which was acquired by the Company in July 1995.
(2) Includes a pretax charge for merger costs of $6,341 in 1999 and $8,080 in
1998 relating to the merger with Eltron International, Inc.
(3) Includes a one-time pretax gain of $5,458 from the sale of Zebra's
investment in Norand Corporation common stock.
(4) Reflects a pretax charge for acquired in-process technology of $1,117
relating to the Company's acquisition of Fenestra Computer Services and
$2,500 relating to the Company's acquisition of Privilege, S.A.
-13-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On October 28, 1998, the Company merged with Eltron International, Inc. This
transaction has been accounted for as a pooling of interests for financial
reporting purposes. All financial statements for periods presented prior to the
merger have been restated to give effect to the combination.
In the fourth quarter of 1998, the Company recorded one-time charges totaling
$13,161,000 related to the merger with Eltron. Of this amount, $8,080,000 is
reported separately as Merger Costs and consists of fees for accountants,
attorneys, consultants, and investment bankers, as well as provisions for
facilities consolidation and severance costs. The balance of $5,081,000 relates
to adjustments to bring the former Eltron operations into conformance with
Zebra's accounting policies and to eliminate certain duplicate assets. These
adjustments, which are reported within Cost of Sales and Operating Expenses as
described below, include increases to inventory and bad debt reserves and the
expensing of certain duplicate fixed assets. For 1999, charges related to the
Eltron merger totaled $6,341,000, which was all reported as Merger Costs. These
costs, which could not be provided for at the time of the merger, include
expenditures on consulting fees, as well as personnel-related expenses for
relocation, severance, and recruitment.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Net sales increased 18.6% in 1999 to $398,517,000 from $335,983,000 in 1998.
Unit growth in hardware (printers and replacement parts) principally drove sales
growth. Product mix changes lowered the average unit price for printers, since
volume in lower-priced models increased faster than in higher-priced models.
Hardware sales increased 21.0% to 80.6% of net sales, and supplies sales
increased 10.9% to 17.3% of net sales. The remaining 2.0% of net sales consisted
of service and software revenue.
Both North American and international sales increased at the same 18.6% rate.
International sales increased to $159,769,000 from $134,723,000 and accounted
for 40.1% of net sales in both 1999 and 1998.
Gross profit increased 29.9% to $202,389,000 for 1999 from $155,810,000 for
1998. As a percentage of net sales, gross profit increased 4.4 percentage points
to 50.8% from 46.4%. Gross profit for 1998 was affected by $3,485,000 in
one-time adjustments to cost of goods sold related to the Eltron merger.
Excluding this one-time charge, gross profit for 1998 would have been
$159,295,000, or 47.4% of net sales. Excluding the effect of merger costs on
1998 gross profit, the increase in gross profit margin was primarily due to
better overhead utilization, as the increased sales volume was produced through
roughly the same amount of fixed assets, as well as lower product component
costs. Average unit costs deteriorated slightly, primarily because of changes in
the mix of products sold toward shipments of relatively larger volumes of
lowered priced printers.
Selling and marketing expenses increased 10.8% to $39,930,000 from $36,052,000.
As a percentage of net sales, selling and marketing expenses decreased to 10.0%
from 10.7%. Excluding one-time charges of $242,000 related to the Eltron merger,
selling and marketing expenses for 1998 would have been $35,810,000, or 10.7% of
net sales. Excluding the effect of merger costs, the higher selling and
marketing expenses in 1999 resulted from higher co-op and other business
development expenses and higher staffing levels to support the increased levels
of business.
Research and development expenses for 1999 increased 2.7% to $22,007,000, or
5.5% of net sales, from $21,428,000, or 6.4% of net sales, for 1998. Research
and development expenses for 1998 included $175,000 in one-time charges related
to the Eltron merger. Excluding these one-time charges, research and development
expenses for 1998 would have been $21,253,000, or 6.3% of net sales. For 1999,
lower business development expenses partially offset higher expenses for
increased staffing levels and outside professional services.
General and administrative expenses increased by 9.1% to $31,209,000 from
$28,614,000. As a percentage of net sales, general and administrative expenses
decreased to 7.8% from 8.5%. Excluding $1,178,000 in one-time charges related to
the Eltron merger, 1998 general and administrative expenses were $27,436,000, or
8.2% of net sales. For 1999, higher expenses related to increased staffing
levels and information technology operations were partially offset by lower
expenditures for outside consulting and other professional services.
-14-
<PAGE>
In 1999, the Company incurred $6,341,000 in costs related to the Eltron merger
for consulting fees as well as personnel-related expenses for relocation,
severance, and recruitment. For 1998, the Company incurred $8,080,000 in
merger-related costs for accounting, legal, investment banking, and consulting
fees, as well as provisions for facilities consolidation and severance. The
Company expects to incur merger costs through the second quarter of 2000.
Investment income increased to $8,732,000 from $4,005,000. The increase was
principally due to higher invested balances and a more normalized return on the
Company's investment portfolio during 1999, compared with the loss resulting
from the unusually high volatility in the capital markets during the second half
of 1998. During the fourth quarter of 1998, the Company took steps to reduce its
investment portfolio's exposure to market volatility.
Other expense for 1999 totaled $2,625,000, compared with $195,000 for 1998. The
expense increase was principally due to certain one-time items recorded during
the third quarter of 1999, including a settlement for claims prior to any
litigation that was unrelated to the Company's operations. Other expense also
includes a revaluation of the Company's euro- and deutsche mark-denominated
receivables and cash balances as a result of the relative strength of the pound
sterling versus both the euro and deutsche mark in the fourth quarter of 1999.
Income from continuing operations before income taxes increased 67.3% to
$108,800,000 from $65,021,000. Excluding merger-related charges of $6,341,000 in
1999 and $13,161,000 in 1998, income from continuing operations before taxes
increased 47.3% to $115,141,000 in 1999 from $78,182,000 in 1998.
The effective income tax rate for 1999 was 36.0%, compared with 38.4% for 1998.
The provision for income taxes for 1998 includes the effect of $2,875,000 in
certain merger-related costs, which are not deductible for income tax purposes.
Excluding these costs, the Company's effective tax rate for 1998 would have been
36.8%.
Income from continuing operations for 1999 was $69,632,000, or $2.21 per diluted
share. For 1998, income from continuing operations was $40,069,000, or $1.29 per
diluted share. Excluding the effects of merger expenses, income from continuing
operations for 1999 was $73,691,000, or $2.34 per diluted share, up 49.1% from
$49,420,000, or $1.59 per diluted share, for 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Net sales increased 13.1% in 1998 to $335,983,000 from $297,100,000 in 1997.
Unit growth in hardware (printers and replacement parts) principally drove sales
growth. Product mix changes lowered the average unit price for printers, since
volume in lower-priced models increased faster than higher-priced models.
Hardware sales increased 18.5% to 79.4% of net sales, and supplies sales
increased 5.4% to 18.6% of net sales. The remaining 2.0% of net sales consisted
of service and software revenue.
International sales increased 8.5% to $136,128,000 from $125,411,000 and
accounted for 40.5% of net sales in 1998, compared with 42.2% of net sales in
1997. The decrease in the percentage of international sales is principally due
to higher sales growth to North American customers combined with a decline in
sales to the Asia-Pacific region.
Gross profit increased 8.4% to $155,810,000 from $143,708,000 for 1997. As a
percentage of net sales, gross profit decreased 2.0 percentage points to 46.4%
from 48.4%. Excluding $3,485,000 in one-time charges related to the Eltron
merger, gross profit for 1998 would have been $159,295,000, or 47.4% of net
sales. The decline in gross profit margin was also due to an unfavorable shift
in product mix toward lower margin printers.
Selling and marketing expenses of $36,052,000 increased 9.2% from $33,017,000.
As a percentage of net sales, selling and marketing expenses decreased to 10.7%
from 11.1%. Excluding $242,000 in one-time charges related to the Eltron merger,
selling and marketing expenses for 1998 would have been $35,810,000, or 10.7% of
net sales. During 1998, the Company increased staff levels to support
anticipated higher levels of business. Higher personnel-related expenses and
depreciation were partially offset by lower advertising and trade show expenses.
Research and development expenses for 1998 totaled $21,428,000, or 6.4% of net
sales, compared with $17,911,000, or 6.0% of net sales, for 1997. Excluding
$175,000 in one-time charges related to the Eltron merger, research and
development expenses for 1998 would have been $21,253,000, or 6.3% of net sales.
Higher personnel-related expenses and prototype work related to new product
development were primarily responsible for the increase.
-15-
<PAGE>
General and administrative expenses increased by 33.0% to $28,614,000 from
$21,518,000. As a percentage of net sales, general and administrative expenses
increased to 8.5% from 7.2%. Excluding $1,178,000 in one-time merger charges,
1998 general and administrative expenses were $27,436,000, or 8.2% of net sales.
In 1998, the Company incurred higher personnel costs related to increased
staffing levels. Depreciation and other expenses also increased, as Zebra's Baan
ERP system became active during the second quarter of 1998.
In 1998, the Company incurred $8,080,000 in costs related to the Eltron merger.
These merger costs include accounting, legal, investment banking, and consulting
fees, as well as provisions for facilities consolidation and severance.
Other income decreased to $3,385,000 from $13,963,000, including investment
income of $4,005,000 compared with $13,520,000. During the second half of 1998,
net investment income declined because of financial market volatility. In
addition, investment income for 1997 includes a one-time pretax investment gain
of $5,458,000, which was recognized in the first quarter of 1997. This one-time
gain resulted from the sale by the Company of 350,000 shares of Norand
Corporation common stock. Excluding this gain, investment income for 1997 would
have been $8,062,000. During the fourth quarter of 1998, the Company took steps
to reduce its investment portfolio's exposure to market volatility.
Income from continuing operations before income taxes was $65,021,000, compared
with $85,225,000, a decrease of $20,204,000, or 23.7%. Excluding the $13,161,000
in merger-related charges in 1998 and the one-time investment gain recognized in
the first quarter of 1997, income from continuing operations before taxes
declined 2.0% to $78,182,000 in 1998 from $79,767,000 in 1997.
The effective income tax rate for 1998 was 38.4%, compared with 36.1% for 1997.
The provision for income taxes for 1998 includes the effect of $2,875,000 in
certain merger-related costs, which are not deductible for income tax purposes.
Excluding these effects, the Company's effective tax rate for 1998 would have
been 36.8%.
Income from continuing operations for 1998 was $40,069,000, or $1.29 per diluted
share. Excluding charges related to the Eltron merger, income from continuing
operations for 1998 was $49,420,000, or $1.59 per diluted share, compared with
$54,447,000, or $1.74 per diluted share, for 1997.
DISCONTINUED OPERATIONS
During 1997, the Company decided to discontinue the operations of its Zebra
Technologies VTI subsidiary (Zebra VTI), which developed bar code label design
software targeted at the small business market and distributed through PC
distributors and catalogs. A one-time charge of $2,363,000, net of applicable
tax benefit, was recorded in the second quarter of 1997 to cover expected
product returns, provisions for slow-moving and obsolete inventory, estimated
contingent liabilities, and the write-off of remaining goodwill and other
intangible assets. Remaining business records and assets were transferred to
other portions of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Internally generated funds from operations are the primary source of liquidity
for the Company. As of December 31, 1999, the Company had $235,568,000 in cash
and marketable securities, compared with $162,668,000 at the end of 1998.
The Company has a $6,000,000 unsecured line of credit plus an additional
$4,000,000 unsecured revocable line of credit with its bank. These credit
facilities are priced at either the prime rate or 100 basis points over the
London Interbank Offered Rate (LIBOR), at the Company's discretion. As of
December 31, 1999, the Company had borrowings of $176,959 outstanding under its
lines of credit.
Capital expenditures were $12,445,000 in 1999, $25,615,000 in 1998 and
$10,241,000 in 1997. In 1998, capital expenditures included purchases of new
manufacturing and distribution facilities in Camarillo, California (acquired in
conjunction with the Eltron merger), and Preston, United Kingdom, as well as
expenditures on computer hardware and software, including the Company's new
enterprise-wide resource planning (ERP) system. Management believes that
existing capital resources and funds generated from operations are sufficient to
finance anticipated capital requirements.
-16-
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 137, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF
FASB STATEMENT NO. 133, which is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 establishes a comprehensive
standard for the recognition and measurement of derivative instruments and
hedging activities. This pronouncement will require the Company to recognize
derivatives on its balance sheet at fair value. Changes in the fair values of
derivatives that qualify as cash flow hedges will be recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company expects that this new standard will not have a significant effect on its
results of operations.
YEAR 2000 CONSIDERATIONS
The Company conducted a program to bring its internal systems and products into
Year 2000 (Y2K) compliance. This program included upgrades to internal computer
systems and technical infrastructure, as well as a review of the Company's
product lines to bring them into Y2K compliance. In addition, the Company
surveyed its significant suppliers to determine their ability to provide
necessary products and services that are critical to business continuation
through Y2K.
Zebra has experienced no interruptions in its business because of Y2K and is not
aware of any significant problems being experienced by its customers or
suppliers that would have a negative impact on the Company. There can be no
assurance, however, that unexpected difficulties related to Y2K compliance at
the Company, its customers, or its suppliers will not occur. Such unexpected
difficulties could have a material adverse effect on the Company. Through
December 31, 1999, the Company estimates that it spent approximately $400,000 on
Y2K compliance for software testing and modifications or upgrades. These funds
exclude regular upgrades to computer systems and technical infrastructure to
meet the Company's information technology requirements.
SIGNIFICANT CUSTOMERS
For the year ended December 31, 1999, no customer accounted for 10.0% or more of
net sales. Two customers accounted for more than 10% of net sales in at least
one of the years ended December 31, 1998 and 1997. The Peak Technologies Group,
Inc., represented 10.9% of net sales in 1997. United Parcel Service represented
10.3% of net sales in 1998.
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 products
and competitors' product offerings. Profits will be affected by the Company's
ability to control manufacturing and operating costs. Due to 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
operations. When used in this document and documents referenced, the words
"anticipate," "believe," "estimate," 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, for further discussions of
issues that could affect the Company's future results.
-17-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
The Company is exposed to the impact of changes in interest rates because of its
large investment portfolio. As stated in the Company's written investment
policy, the Company's investment portfolio is viewed as a strategic resource
that will be managed to achieve above market rates of return in exchange for
accepting a prudent amount of incremental risk, which includes the risk of
interest rate movements. Risk tolerance is constrained by an overriding
objective to preserve capital across each quarterly reporting cycle.
The Company mitigates interest rate risk with an investment policy that requires
the use of outside professional investment managers, investment liquidity, broad
diversification across investment strategies, and limits on the types of
investment assets that may be used. Moreover, the policy requires strict due
diligence of each manager both before employment and on an on-going basis.
FOREIGN EXCHANGE RISK
The Company conducts business in more than 90 countries throughout the world
and, therefore, can be exposed to movements in foreign exchange rates. Currency
exposures are related only to the U.S. dollar/U.K. pound sterling, U.S.
dollar/euro, and the U.K. pound sterling/euro exchange rates arising from
invoicing European customers in pounds sterling and euros from the Company's
U.K. office, and to the U.S. dollar/Japanese yen exchange rate arising from
purchases of some thermal transfer ribbons denominated in yen. There is no
foreign exchange risk associated with the Company's investment portfolio.
The Company manages its foreign exchange exposure through a policy of selective
hedging. This policy involves selling forward up to 180 days, projected
remittances in pounds sterling and euros from the Company's U.K. subsidiary. The
Company also purchases a limited number of yen contracts to hedge the cost of
yen-denominated invoices from certain suppliers. This policy mitigates, but does
not eliminate, the impact of exchange movements on the value of future cash
flows. Thus, adverse movements in either the pound, euro or the yen in relation
to the dollar can directly impact the Company's financial results. All foreign
exchange contracts are executed by the corporate treasury department only with
major financial institutions. Under no circumstances does the Company enter into
any type of foreign exchange contract for trading or speculative purposes.
EQUITY PRICE RISK
The Company does not generally invest in marketable equity securities, except as
part of its acquisition strategy, although one of its investment managers
utilizes a market neutral strategy that involves offsetting long-short equity
positions. The Company held no direct equity positions as of December 31, 1999.
The Company utilizes a "Value-at-Risk" (VaR) model to determine the maximum
potential one-day loss in the fair value of its interest rate, foreign exchange
and equity price sensitive instruments.
The following table sets forth the impact of a 1% movement in interest rates on
the value of the Company's investment portfolio as of December 31, 1999.
Similarly, the impact of a 1% change in the value of all equity positions held
by the Company's investment managers is tabulated. The impact of a 1% movement
in the dollar/pound and dollar/euro rates is measured as if the Company did NOT
engage in the selective hedging practices described above and is based on the
present value of the projected average monthly remittances from the Company's
U.K. subsidiary for the first quarter of 2000.
Interest rate sensitive instruments
+1% movement ($1,093,000)
- -1% movement $1,435,000
Foreign exchange
Dollar/pound $8,000
Dollar/euro $20,000
Equity price sensitive instruments $75,000
-18-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and schedule of the Company are annexed to this Report
as pages F-2 through F-22. An index to such materials appears on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
-19-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in response to this item is incorporated by reference from the
Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information in response to this item is incorporated by reference from the
Proxy Statement section entitled "Executive Compensation and Certain
Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in response to this item is incorporated by reference from the
Proxy Statement section entitled "Security Ownership of Management and Certain
Beneficial Owners."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in response to this item is incorporated by reference from the
Proxy Statement section entitled "Executive Compensation and Certain
Transactions."
-20-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The financial statements and schedule filed as part of this report are listed in
the accompanying Index to Financial Statements and Schedule. The exhibits filed
as a part of this report are listed in the accompanying Index to Exhibits.
The Company filed no Current Report on Form 8-K during the fourth quarter of
1999.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 6th day of March
2000.
ZEBRA TECHNOLOGIES CORPORATION
By: /S/EDWARD L. KAPLAN
Edward L. Kaplan
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/EDWARD L. KAPLAN Chief Executive Officer and March 6, 2000
- ------------------- Chairman of the Board of Directors
Edward L. Kaplan (Principal Executive Officer)
/S/DONALD K. SKINNER Vice Chairman of the Board March 6, 2000
- -------------------- of Directors
Donald K. Skinner
/S/GERHARD CLESS Executive Vice President, March 6, 2000
- ---------------- Secretary and Director
Gerhard Cless
/S/CHARLES R. WHITCHURCH Chief Financial Officer and Treasurer March 6, 2000
Charles R. Whitchurch (Principal Financial and Accounting
Officer)
/S/CHRISTOPHER G. KNOWLES Director March 6, 2000
Christopher G. Knowles
/S/DAVID P. RILEY Director March 6, 2000
David P. Riley
/S/MICHAEL A. SMITH Director March 6, 2000
Michael A. Smith
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C>
3.1 (1) Certificate of Incorporation of the Registrant.
3.2 (2) Bylaws of the Registrant.
3.3 (4) Amendment to Bylaws of the Registrant.
4.0 (2) Specimen stock certificate representing Class A Common Stock.
10.1 (9) 1997 Stock Option Plan +
10.2 (3) Stock Purchase Plan (as Amended and Restated). +
10.3 (2) Form of Indemnification Agreement between the Registrant and each of
its directors.
10.4 (2) Lease between the Registrant and Unique Building Corporation for the
Registrant's facility in Vernon Hills, Illinois, as amended.
10.5 (2) Employment Agreement between the Registrant and Clive P. Hohberger. +
10.6 (2) Guaranty by the Registrant of certain obligations.
10.7 (2) Forms of Distributor Agreement.
10.8 (9) Directors' Stock Option Plan.+
10.9 (4) Employment Agreement between the Registrant and Charles R.
Whitchurch. +
10.10 (4) Form of Authorized Zebra Solution Center Agreement.
10.11 (4) Credit Agreement with American National Bank and Trust Company of
Chicago.
10.12 (4) Description of Executive Officer Bonus Plan. +
10.13 (5) Amendment to the lease between the Registrant and Unique Building
Corporation for the Registrant's facility in Vernon Hills, Illinois,
dated April 1, 1993.
10.14 (6) Amendment to the lease between the Registrant and Unique Building
Corporation for the Registrant's facility in Vernon Hills, Illinois,
dated December 1, 1994.
10.15 (8) Amendment to the lease between the Registrant and Unique Building
Corporation for the Registrant's facility in Vernon Hills, Illinois,
dated June 1, 1996.
10.16 (8) Amendment to the lease between the Registrant and Unique Building
Corporation for the Registrant's facility in Vernon Hills, Illinois,
dated June 2, 1996.
10.17 (7) Employment Agreement between the Registrant and Jack A. LeVan. +
10.18 (10) Employment Agreement between the Registrant, Eltron, and Donald K.
Skinner. +
21.0 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, independent auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
27.1 Financial Data Schedule--Fiscal Year Ended December 31, 1999.
</TABLE>
-23-
<PAGE>
(1) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form S-3, File No.
333-33315, and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form S-1, as
amended, File No. 33-41576, and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form S-8, as
amended, File No. 33-44706, and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, and incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and incorporated herein by reference.
(9) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, and incorporated herein by reference.
(10) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form S-4, as
amended, File No. 333-60241, and incorporated herein by reference.
+ Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K.
-24-
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Statements
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Earnings for the Years ended December 31, 1999,
1998 and 1997 F-4
Consolidated Statements of Comprehensive Income
for the Years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Shareholders' Equity for the Years ended
December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the Years ended December 31,
1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedule
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying Accounts F-21
Report of Independent Accountants F-22
</TABLE>
ALL OTHER FINANCIAL STATEMENT SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT
APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE CONSOLIDATED FINANCIAL
STATEMENTS OR NOTES THERETO.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Zebra Technologies Corporation:
We have audited the accompanying consolidated balance sheets of Zebra
Technologies Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of earnings, comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. In connection with our audits of the
consolidated financial statements, we also have audited the consolidated
financial statement schedule of valuation and qualifying accounts. These
consolidated financial statements and the consolidated financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
consolidated financial statement schedule based on our audits. We did not audit
the financial statements of Eltron International, Inc., a wholly-owned
subsidiary, which statements reflect net sales constituting 35 percent for the
year ended December 31, 1997, of the related consolidated total. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for Eltron
International, Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, and the report of the other auditors, provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Zebra Technologies Corporation and
Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/KPMG LLP
Chicago, Illinois
January 31, 2000
F-2
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
--------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,501 $ 11,391
Investments and marketable securities 197,067 151,277
Accounts receivable, net of allowance of $1,850 in 1999 and $2,156
in 1998 62,870 57,654
Inventories 42,379 39,684
Deferred income taxes 3,467 5,137
Prepaid expenses 1,614 1,328
--------------- --------------
Total current assets 345,898 266,471
--------------- --------------
Property and equipment at cost, less
accumulated depreciation and amortization 41,686 38,850
Other assets 7,059 4,681
--------------- --------------
TOTAL ASSETS $ 394,643 $ 310,002
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,798 $ 20,565
Accrued liabilities 11,295 11,498
Short-term note payable 196 183
Current portion of obligation under capital lease with related party 264 51
Income taxes payable 7,541 4,486
--------------- --------------
Total current liabilities 43,094 36,783
--------------- --------------
Obligation under capital lease with related party, less current portion 571 -
Long-term liability 93 36
Deferred income taxes 1,473 1,932
Other 105 367
--------------- --------------
TOTAL LIABILITIES 45,336 39,118
--------------- --------------
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, 24,877,501 and 22,323,094 shares issued
and outstanding in 1999 and 1998 249 223
Class B Common Stock, $.01 par value; 28,358,189 shares
authorized, 6,540,188 and 8,619,919 shares issued
and outstanding in 1999 and 1998 65 86
Additional paid-in capital 60,072 49,854
Retained earnings 289,404 219,772
Accumulated other comprehensive income (483) 949
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY 349,307 270,884
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 394,643 $ 310,002
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
--------------- ------------- --------------
<S> <C> <C> <C>
Net sales $ 398,517 $ 335,983 $ 297,100
Cost of sales 196,128 180,173 153,392
--------------- ------------- --------------
Gross profit 202,389 155,810 143,708
Operating expenses:
Selling and marketing 39,930 36,052 33,017
Research and development 22,007 21,428 17,911
General and administrative 31,209 28,614 21,518
Merger costs 6,341 8,080 --
--------------- ------------- --------------
Total operating expenses 99,487 94,174 72,446
--------------- ------------- --------------
Operating income 102,902 61,636 71,262
--------------- ------------- --------------
Other income (expense):
Investment income 8,732 4,005 13,520
Interest expense (209) (425) (86)
Other, net (2,625) (195) 529
--------------- ------------- --------------
Total other income 5,898 3,385 13,963
--------------- ------------- --------------
Income from continuing operations before income taxes 108,800 65,021 85,225
Income taxes 39,168 24,952 30,778
--------------- ------------- --------------
Income from continuing operations 69,632 40,069 54,447
--------------- ------------- --------------
Discontinued operations:
Loss from discontinued operation (less applicable
income tax benefit of $372 in 1997) -- -- (1,692)
Loss on disposal of discontinued operations, including
provision for operating losses during phase-out period
(less applicable income tax benefit of $615 in 1997) -- -- (963)
--------------- ------------- --------------
Net income $ 69,632 $ 40,069 $ 51,792
=============== ============= ==============
Basic earnings per share from continuing operations $ 2.23 $ 1.30 $ 1.76
Diluted earnings per share from continuing operations $ 2.21 $ 1.29 $ 1.74
Basic earnings per share $ 2.23 $ 1.30 $ 1.68
Diluted earnings per share $ 2.21 $ 1.29 $ 1.65
Basic weighted average shares outstanding 31,175 30,919 30,897
Diluted weighted average and equivalent shares outstanding 31,521 31,176 31,380
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net income $ 69,632 $ 40,069 $ 51,792
Other comprehensive income (loss):
Foreign currency translation adjustment (1,432) 659 (946)
Unrealized holding gains (losses) on investments available
for sale:
Net change in unrealized holding gains for the period,
net of income tax expense of $3 in 1997. -- -- 6
============= ============= =============
Comprehensive income $ 68,200 $ 40,728 $ 50,852
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
-------------------------------
CLASS A CLASS B ADDITIONAL UNREALIZED CUMULATIVE
COMMON COMMON PAID-IN RETAINED HOLDING GAIN TRANSLATION
STOCK STOCK CAPITAL EARNINGS ON INVESTMENTS ADJUSTMENT TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $169 $138 $54,559 $127,911 $(6) $1,236 $184,007
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of 64,165 shares of
Class A Common Stock 1 -- 907 -- -- -- 908
Issuance of 144,978 shares of
Class B Common Stock -- 1 1,011 -- -- -- 1,012
Conversion of 2,424,795 shares of
Class B Common Stock to 2,424,795
shares of Class A Common Stock 24 (24) -- -- -- -- --
Settlement of litigation-
Zebra Technologies VTI -- -- (1,372) -- -- -- (1,372)
Cancellation of 6,715 shares of Class B
Common Stock in connection with
RJS merger -- -- (253) -- -- -- (253)
Tax benefit resulting from exercise of
options -- -- 1,066 -- -- 1,066
Net income -- -- -- 51,792 -- -- 51,792
Foreign currency translation
adjustment -- -- -- -- -- (946) (946)
Unrealized holding gain on
investments -- -- -- -- 6 -- 6
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 194 115 55,918 179,703 -- 290 236,220
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of 55,578 shares of
Class A Common Stock 1 -- 946 -- -- -- 947
Issuance of 229,290 shares of
Class B Common Stock -- 3 566 -- -- -- 569
Conversion of 3,187,641 shares of
Class B Common Stock to 3,187,641
shares of Class A Common Stock 32 (32) -- -- -- -- --
Elimination of intercorporate
investments In Eltron (4) -- (8,088) -- -- -- (8,092)
Tax benefit resulting from exercise
of options -- -- 512 -- -- -- 512
Net income -- -- -- 40,069 -- -- 40,069
Foreign currency translation
adjustment -- -- -- -- -- 659 659
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 223 86 49,854 219,772 -- 949 270,884
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of 474,676 shares of
Class A Common Stock 5 -- 9,828 -- -- -- 9,833
Conversion of 2,079,731 shares of
Class B Common Stock to 2,079,731
shares of Class A Common Stock 21 (21) -- -- -- -- --
Tax benefit resulting from exercise
of options -- -- 390 -- -- -- 390
Net income -- -- -- 69,632 -- -- 69,632
Foreign currency translation
adjustment -- -- -- -- -- (1,432) (1,432)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $249 $65 $60,072 $289,404 $-- $(483) $349,307
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1999 1998 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 69,632 $ 40,069 $ 51,792
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,900 10,248 7,002
Depreciation (appreciation)
in market value of investments and marketable securities (936) 1,085 (5,973)
Deferred income taxes 1,211 1,995 (3,761)
Discontinued operations - - (3,371)
Changes in assets and liabilities, net of businesses
acquired
Accounts receivable, net (5,216) (6,046) (3,645)
Inventories (2,695) 4,176 (5,409)
Other assets (2,931) (294) (1,007)
Accounts payable 3,233 3,496 (2,172)
Accrued liabilities (203) 744 3,909
Income taxes payable 3,055 (205) 1,944
Other operating activities (286) 430 339
Investments and marketable securities (51,800) (23,967) (37,853)
--------------- ---------------- ----------------
Net cash provided by operating activities 22,964 31,731 1,795
--------------- ---------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (11,349) (25,615) (10,241)
Purchase of investments and marketable securities - - (14,549)
Sales of investments and marketable securities 6,946 - 27,304
--------------- ---------------- ----------------
Net cash provided by (used in) investing activities (4,403) (25,615) 2,514
--------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from exercise of stock options 10,223 2,028 1,983
Common stock retired in Eltron merger - (8,092) -
Issuance (repayment) of notes payable 70 (180) (819)
Payments for obligation under capital lease (312) (65) (61)
--------------- ---------------- ----------------
Net cash provided by (used in) financing
activities 9,981 (6,309) 1,103
--------------- ---------------- ----------------
Effect of exchange rate changes on cash (1,432) 659 (946)
--------------- ---------------- ----------------
Net increase in cash and cash equivalents 27,110 466 4,466
Cash and cash equivalents at beginning of year 11,391 10,925 6,459
--------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 38,501 $ 11,391 $ 10,925
=============== ================ ================
Supplemental disclosures of cash flow information:
Interest paid $ 209 $ 425 $ 85
Income taxes paid 36,010 22,624 30,060
Supplemental disclosures of noncash transactions:
Tax benefit arising from exercise of options 390 512 1,066
Cancellation of shares issued in connection with RJS merger - - (253)
Equipment under capital lease obligation 1,096 - -
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS
Zebra Technologies Corporation and its wholly-owned subsidiaries (the Company)
design, manufacture, sell, and support a broad line of bar code label and
plastic card printers, self-adhesive labeling materials, plastic card supplies,
thermal transfer ribbons and bar code label design software. These products are
used principally in automatic identification (auto ID), data collection and
personal identification applications and are distributed world-wide through a
multi-channel reseller network to a wide cross section of industrial, service
and government organizations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying financial statements have been
prepared on a consolidated basis to include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts, transactions,
and unrealized profit have been eliminated in consolidation.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs are expensed as
incurred.
CASH EQUIVALENTS. Cash equivalents consist primarily of short-term treasury
securities. For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents.
INVESTMENTS AND MARKETABLE SECURITIES. Investments and marketable securities at
December 31, 1999, consisted of U.S. government securities, state and municipal
bonds, partnership interests, and equity securities, which are held indirectly
in diversified funds actively managed by investment professionals. The Company
classifies its debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities that the Company has the
ability and intent to hold until maturity. All securities not included in
trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of discounts or premiums. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of shareholders'
equity until realized.
INVENTORIES. Inventories are stated at the lower of cost or market, and cost is
determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost. Depreciation
and amortization is computed primarily using the straight-line method over the
estimated useful lives of the various classes of property and equipment, which
are 30 years for buildings and range from 3 to 10 years for other property.
Property and equipment held under capital leases is amortized using the
straight-line method over the shorter of the lease term or estimated useful life
of the asset.
INCOME TAXES. The Company accounts for income taxes under the asset and
liability method. Accordingly, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
ADVERTISING. Advertising costs are expensed as incurred. Advertising expenses
for the years ended December 31, 1999, 1998, and 1997 totaled $4,700,000,
$3,931,000 and $4,767,000, respectively.
F-8
<PAGE>
WARRANTY. The Company provides warranty coverage of up to one year on printers
against defects in material and workmanship. A provision for warranty expense is
recorded at the time of shipment. To date, the Company has not experienced any
significant warranty claims.
FINANCIAL INSTRUMENTS. The reported amounts of the Company's financial
instruments, which include investments and marketable securities, trade accounts
receivable, accounts payable, accrued liabilities, income taxes payable, and
short-term notes payable, approximate their fair values because of the
contractual maturities and short-term nature of these instruments.
STOCK-BASED COMPENSATION. The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with Accounting Principles Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and provides the pro forma disclosures required by
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION.
RECLASSIFICATIONS. Certain amounts in the prior years' financial statements have
been reclassified to conform to the current years' presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION. The balance sheets of the Company's foreign
subsidiaries are translated into U.S. dollars using the year-end exchange rate,
and statement of earnings items are translated using the average exchange rate
for the year. The resulting translation gains or losses are recorded in
shareholders' equity as a cumulative translation adjustment, which is a
component of accumulated other comprehensive income.
NOTE 3 BUSINESS COMBINATIONS
ELTRON. On October 28, 1998, the Company acquired all of the outstanding capital
stock of Eltron International, Inc. (Eltron), a manufacturer of bar code label
and plastic card printers and related accessories, in exchange for 6,916,951
shares of the Company's Class B Common Stock,, which had a market value of
approximately $201 million at the time of the acquisition.
The acquisition was accounted for as a pooling of interests and, accordingly,
the consolidated financial statements have been restated as if the companies had
been combined for all periods presented. Merger costs reported in the
consolidated statement of earnings for the year ended December 31, 1999 and 1998
include investment banking and other professional fees, write-downs of certain
assets, employee severance, and other acquisition related charges. Included in
accrued liabilities as of December 31, 1999 and 1998 is $115,000 and $1,181,000,
respectively, related to these costs.
F-9
<PAGE>
The following information (in thousands) reconciles net sales and income from
continuing operations of the companies as previously reported in the companies'
Annual Report on Form 10-K for the year ended December 31, 1997, with the
amounts presented in the accompanying consolidated statements of earnings for
the year ended December 31, 1997, as well as the separate results of operations
of Eltron for the period from January 1, 1998, through October 28, 1998,
representing the period in 1998 preceding the acquisition.
<TABLE>
<CAPTION>
1998 1997
---------------------------- ------------------------------
Income Income
from from
Continuing Continuing
Net Sales Operations Net Sales Operations
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Zebra(*) $192,071 $42,810
Eltron $100,043 $9,090 105,029 11,637
------------------------------
Total $297,100 $54,447
</TABLE>
(*) Represents the historical results of Zebra without considering the effect of
the pooling of interests business combination with Eltron.
RJS, INCORPORATED. In January 1998, Printronix, Inc., a leading manufacturer of
computer printers, acquired the assets and rights to the bar code verification
business and the RJS name from the Company for approximately $2.8 million. In
the first quarter of 1998, the Company recorded a tax-effected gain on the sale
of approximately $250,000. The Company retained the rights to the in-line
verification technology for use in its line of integrated verified printing
systems, as well as the QualaBar and ThermaBar industrial printer lines.
NOTE 4 EARNINGS PER SHARE
For the years ended December 31, 1999, 1998, and 1997, earnings per share were
computed as follows (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income from continuing operations $69,632 $40,069 $54,447
Weighted average common shares outstanding 31,175 30,919 30,897
Per share amount $2.23 $1.30 $1.76
DILUTED EARNINGS PER SHARE:
Income from continuing operations $69,632 $40,069 $54,447
Weighted average common shares outstanding 31,175 30,919 30,897
Add: Effect of dilutive securities - stock options 346 257 483
-------------------------------------------
Diluted weighted average and
equivalent shares outstanding 31,521 31,176 31,380
Per share amount $2.21 $1.29 $1.74
</TABLE>
The potentially dilutive securities, which 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, amounting to
21,500, 227,250 and 246,855 at December 31, 1999, 1998 and 1997, respectively.
F-10
<PAGE>
NOTE 5 INVESTMENTS AND MARKETABLE SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1999
were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Gains Holding Losses Fair Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading Securities:
U.S. government and agency securities 8,191 16 (81) 8,126
State and municipal bonds 138,946 90 (426) 138,610
Corporate Bonds 5,056 -- (39) 5,017
Equity securities 9,522 32 (903) 8,651
Partnership interests 26,933 6,106 -- 33,039
Other 3,428 196 -- 3,624
----------------------------------------------------------------------
$ 192,076 $ 6,440 $ (1,449) $ 197,067
======================================================================
</TABLE>
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and aggregate fair value of investment securities at December 31, 1998
were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Gains Holding Losses Fair Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
State and municipal bonds $ 6,928 -- -- $ 6,928
Trading Securities:
U.S. government and agency securities 8,981 147 (6) 9,122
State and municipal bonds 82,869 469 (30) 83,308
Equity securities 16,456 589 (117) 16,928
Partnership interests 24,500 3,162 -- 27,662
Other 7,487 -- (158) 7,329
----------------------------------------------------------------------
140,293 4,367 (311) 144,349
----------------------------------------------------------------------
$ 147,221 $ 4,367 $ (311) $ 151,277
======================================================================
</TABLE>
The contractual maturities of debt securities at December 31, 1999 were as
follows (in thousands):
<TABLE>
<CAPTION>
Fair Value
-----------------
<S> <C>
Due within one year $ 88,893
Due after one year through five years 57,124
Due after five years 9,360
-----------------
$ 155,377
=================
</TABLE>
Using the specific identification method, the proceeds and realized gains on the
sales of available-for-sale securities were as follows (in thousands):
<TABLE>
<CAPTION>
Proceeds Realized Gains
------------------------ --------------------------
<S> <C> <C>
1999 $ 6,947 $ 19
1998 -- --
1997 $ 11,506 $ 5,458
</TABLE>
F-11
<PAGE>
NOTE 6 RELATED-PARTY TRANSACTIONS
Unique Building Corporation (Unique), an entity controlled by certain officers
and shareholders of the Company, leases a facility and equipment to the Company
under a lease described in Note 11. Management believes that the lease payments
are substantially consistent with amounts that could be negotiated with third
parties on an arm's-length basis.
Interest expense and lease payments related to the leases were included in the
consolidated financial statements as follows (in thousands):
<TABLE>
<CAPTION>
Unique Interest
Operating Expense on
Lease Payments Unique Capital
Lease
---------------- -----------------
<S> <C> <C>
1999 $1,662 $1
1998 1,323 4
1997 1,261 7
</TABLE>
NOTE 7 INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
Raw material $23,098 $21,292
Work in process 3,744 2,838
Finished goods 15,537 15,554
---------------- -----------------
Total inventories $42,379 $39,684
================ =================
</TABLE>
NOTE 8 PROPERTY AND EQUIPMENT
Property and equipment, which includes assets under capital leases, is comprised
of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
Buildings $ 11,185 $ 10,256
Land 1,910 1,910
Machinery, equipment and tooling 26,672 25,005
Machinery and equipment under capital leases 1,670 574
Furniture and office equipment 5,310 4,125
Computers and software 25,775 21,589
Automobiles 347 514
Leasehold improvements 2,848 1,444
---------------- -----------------
75,717 65,417
Less accumulated depreciation and amortization 34,031 26,567
---------------- -----------------
Net property and equipment $ 41,686 $ 38,850
================ =================
</TABLE>
F-12
<PAGE>
NOTE 9 INCOME TAXES
The geographical sources of earnings before income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
United States $95,637 $62,071 $82,614
Outside United States 13,163 2,950 2,611
---------------- ----------------- ----------------
Total $108,800 $65,021 $85,225
================ ================= ================
</TABLE>
Management expects that the cumulative unremitted earnings of foreign
operations, which amounted to $6,000,000 after foreign taxes at December 31,
1999, will be reinvested. Accordingly, no provision has been made for additional
U.S. taxes, which would be payable if such earnings were to be remitted to the
parent company as dividends.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Current:
Federal $27,914 $17,194 $26,553
State 4,489 2,822 3,599
Foreign 5,554 2,941 3,528
Deferred:
Federal 1,376 2,197 (3,250)
State (85) (202) (627)
Foreign (80) -- 116
---------------- ----------------- ----------------
Total $39,168 $24,952 $29,919
================ ================= ================
</TABLE>
The provision for income taxes differs from the amount computed by applying the
U.S. statutory Federal income tax rate of 35%. The reconciliation of statutory
and effective income taxes is presented below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Provision computed at statutory rate $38,080 $22,747 $28,608
State income tax (net of Federal tax benefit) 2,862 2,044 2,284
Tax-exempt interest and dividend income (1,677) (1,369) (635)
Tax benefit of exempt foreign trade income (805) (1,227) (441)
Acquisition related items -- 1,006 109
Other 708 1,751 (6)
---------------- ----------------- ----------------
Provision for income taxes $39,168 $24,952 $29,919
================ ================= ================
</TABLE>
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Based on management's assessment, it is more
likely than not that the deferred tax assets will be realized through future
taxable earnings.
F-13
<PAGE>
Temporary differences that give rise to deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
Deferred tax assets:
Deferred rent-building $ 42 $ 77
Capital equipment lease 20 20
Accrued vacation 798 595
Inventory items 2,221 4,220
Allowance for doubtful accounts 405 667
Other accruals 1,096 --
Acquisition related items 413 473
---------------- -----------------
Total deferred tax assets 4,995 6,052
Deferred tax liabilities:
Unrealized gain on securities (1,067) (440)
Depreciation (1,934) (1,587)
Other -- (820)
---------------- -----------------
Total deferred tax liabilities (3,001) (2,847)
---------------- -----------------
Net deferred tax asset $ 1,994 $ 3,205
================ =================
</TABLE>
NOTE 10 401(K) SAVINGS AND PROFIT SHARING PLANS
The Company has a Retirement Savings and Investment Plan (the 401(k) Plan) that
is intended to qualify under Section 401(k) of the Internal Revenue Code.
Qualified employees may participate in the Company's 401(k) Plan by contributing
up to 15% of their gross earnings to the plan subject to certain Internal
Revenue Service restrictions. The Company matches each participant's
contribution of up to 6% of gross eligible earnings at the rate of 50%. The
Company may contribute additional amounts to the 401(k) Plan at the discretion
of the Board of Directors, subject to certain legal limits.
The Company has a discretionary profit-sharing plan for qualified employees, to
which it contributed 4.2% of eligible earnings for 1999, 3.4% for 1998, and 3.3%
for 1997. Participants are not permitted to make contributions under the
profit-sharing plan.
Company contributions to these plans, which were charged to operations,
approximated the following (in thousands):
<TABLE>
<CAPTION>
401(k) Profit Sharing Total
---------------- ----------------- ----------------
<S> <C> <C> <C>
1999 $740 $820 $1,560
1998 $620 $970 $1,590
1997 $548 $847 $1,395
</TABLE>
F-14
<PAGE>
NOTE 11 COMMITMENTS AND CONTINGENCIES
LEASES. In September 1989, the Company entered into a lease agreement for its
Vernon Hills facility and certain machinery, equipment, furniture and fixtures
with Unique Building Corporation. The facility portion of the lease is the only
remaining portion in existence as of December 31, 1999, and is treated as an
operating lease. An amendment to the lease dated July 1997 added 59,150 square
feet and extended the term of the existing lease through June 30, 2014. The
lease agreement includes a modification to the base monthly rental, which goes
into effect if the prescribed rent payment is less than the aggregate principal
and interest payments required to be made by Unique under an Industrial Revenue
Bond (IRB).
Minimum future obligations under noncancelable operating leases and future
minimum capital lease payments as of December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
---------------- -----------------
<S> <C> <C>
2000 $ 316 $ 3,773
2001 117 3,135
2002 117 2,907
2003 117 2,882
2004 103 2,436
Thereafter 325 13,587
---------------- -----------------
Total minimum lease payments $ 1,095 $ 28,720
=================
Less amount representing interest 260
----------------
Present value of minimum payments 835
Less current portion of obligation under capital lease 264
----------------
Long-term portion of obligation under capital lease $ 571
================
</TABLE>
Rent expense for operating leases charged to operations for the years ended
December 31, 1999, 1998, and 1997 was $4,317,000, $2,898,000, and $2,871,000,
respectively.
LETTER OF CREDIT. In connection with the lease agreements described above, the
Company has guaranteed Unique's full and prompt payment under Unique's letter of
credit agreement with a bank. The contingent liability of the Company under this
guaranty as of December 31, 1999 is $700,000, which is the limit of the
Company's guaranty throughout the term of the IRB.
LINES OF CREDIT. In December 1992, the Company established a $6,000,000
unsecured line of credit and an additional $4,000,000 unsecured revocable line
with a bank. Borrowings under these lines bear interest indexed at either the
prime rate or 100 basis points over the London Interbank Offered Rate, at the
Company's discretion. The line of credit is renewed annually with the current
agreement expiring on February 28, 2001. At December 31, 1999, borrowings under
these lines amounted to $176,959 bearing interest at 6.0%.
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 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. At December 31, 1999 and 1998,
the notional principal amounts of outstanding forward contracts were $0, and
$4,057,000, respectively.
F-15
<PAGE>
NOTE 12 SEGMENT DATA AND EXPORT SALES
The Company operates in one industry segment. Information regarding the
Company's operations by geographic area for the years ended December 31, 1999,
1998, and 1997 is contained in the following table. These amounts (in thousands)
are reported in the geographic area where the final sale originates.
<TABLE>
<CAPTION>
DOMESTIC EUROPE OTHER TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales $ 281,890 $ 116,627 $ -- $ 398,517
Identifiable assets 327,347 67,177 119 394,643
1998
Net sales $ 238,354 $ 96,397 $ 1,232 $ 335,983
Identifiable assets 267,470 41,751 781 310,002
1997
Net sales $ 224,376 $ 72,724 $ -- $ 297,100
Identifiable assets 239,117 31,236 94 270,447
</TABLE>
NOTE 13 DISCONTINUED BUSINESS OPERATIONS
As of June 28, 1997, the Company made the decision to discontinue the operations
of its subsidiary, Zebra Technologies VTI (Zebra VTI). The discontinuance of
Zebra VTI and its related PC-retail channel resulted in a one-time charge of
$2,363,000 before income tax benefits, which was recorded in the second quarter
of 1997. The one-time charge includes a provision for expected product returns
from the present retail channel partners, provision for slow moving/obsolete
product, and provisions for estimated contingent liabilities. Additionally, the
remaining goodwill and intangible assets of $1,833,000 were written off as part
of the charge to discontinued operations.
F-16
<PAGE>
NOTE 14 SHAREHOLDERS' EQUITY
Holders of Class A Common Stock are entitled to one vote per share. Holders of
Class B Common Stock are entitled to 10 votes per share. Holders of Class A and
Class B Common Stock vote together as a single class on all actions submitted to
a vote of shareholders, except in certain circumstances. If at any time the
number of outstanding shares of Class B Common Stock represents less than 10% of
the total number of outstanding shares of both classes of common stock, then at
that time such outstanding shares of Class B Common Stock will automatically
convert into an equal number of shares of Class A Common Stock.
Class A Common Stock has no conversion rights. A holder of Class B Common Stock
may convert the Class B Common Stock into Class A Common Stock, in whole or in
part, at any time and from time to time. Shares of Class B Common Stock convert
into shares of Class A Common stock on a share-for-share basis.
Holders of Class A and Class B Common Stock are entitled to receive cash
dividends equally on a per-share basis, if and when the Company's Board of
Directors declares such dividends. In the case of any stock dividend paid,
holders of Class A Common Stock are entitled to receive the same percentage
dividend (payable in shares of Class A Common Stock) as the holders of Class B
Common Stock receive (payable in shares of Class B Common Stock).
Holders of Class A and Class B Common Stock share with each other on a ratable
basis as a single class in the net assets of the Company in the event of
liquidation.
NOTE 15 STOCK OPTION AND PURCHASE PLANS
As of December 31, 1999, the Company has five stock option and stock purchase
plans, described below.
The Board of Directors and shareholders adopted the Zebra Technologies
Corporation Stock Option Plan (the 1991 Plan), effective as of August 1, 1991. A
total of 400,000 shares of Class A Common Stock have been authorized and
reserved for issuance under the 1991 Plan. Under this plan, the Company has
granted only nonqualified stock options. As of December 31, 1999, 196,311 shares
were available under the plan. These options have an exercise price equal to the
closing market price of the Company's stock on the date of grant. Typically, the
options vest in annual installments of 15% on the first anniversary, 17.5% on
the second anniversary, 20.0% on the third anniversary, 22.5% on the fourth
anniversary, and 25.0% on the fifth anniversary of the grant date. Upon vesting,
the options have a legal life of two years from the date of vesting. The Board
of Directors determines the specific provisions of any grant.
The Board of Directors and shareholders also adopted a Directors' Stock Option
Plan, which reserves 80,000 shares of Class A Common Stock for issuance under
the plan. As of December 31, 1999, 12,000 shares were available under the plan.
All options granted under this plan are exercisable immediately upon grant at a
price per share equal to the closing market price of the Company's Class A
Common on the date of grant. Options granted to the Board of Directors carry a
seven-year expiration period, however, should a member of the board discontinue
service on the Board of Directors, they are limited to a two year period to
exercise all outstanding options.
The Board of Directors and shareholders adopted an employee stock purchase plan
(Stock Purchase Plan) and have reserved 300,000 shares of Class A Common Stock
for issuance thereunder. Under this plan, employees who work a minimum of 20
hours per week may elect to withhold up to 8.5% of their cash compensation
through regular payroll deductions to purchase shares of Class A Common Stock
from the Company over a period not to exceed 12 months at a purchase price per
share equal to the lesser of: (1) 85% of the fair market value of the shares as
of the date of the grant (January 1 or July 1), or (2) 85% of the fair market
value of the shares as of the date of purchase. As of December 31, 1999, 181,456
shares have been purchased under the plan.
The Company's Board of Directors adopted the 1997 Stock Option Plan, effective
February 11, 1997. On May 18,1999, the Company's shareholders approved an
increase in the number of shares of Class A Common Stock reserved for issuance
under the plan to 4,250,000 from 2,000,000 shares. The 1997 Stock Option Plan is
a flexible plan that provides the Option Committee broad discretion to fashion
the terms of the awards to provide eligible participants with stock-based
incentives, including: (i) nonqualified and incentive stock options for the
purchase of the Company's Class A Common Stock and (ii) dividend equivalents.
The persons eligible to participate in the 1997 Stock Option Plan are directors,
officers, and employees of the Company or any subsidiary of the Company who, in
the opinion of the Option Committee, are in a position to make
F-17
<PAGE>
contributions to the growth, management, protection and success of the Company
or its subsidiaries. As of December 31, 1999, 2,375,603 shares were available
under the plan.
The options granted under the 1997 Stock Option Plan have an exercise price
equal to the closing market price of the Company's stock on the date of grant.
The options generally vest over two- to five-year periods and have a legal life
of ten years from the date of grant. The Board of Directors determines the
specific provisions of any grant.
The Company's Board of Directors adopted the 1997 Director Plan, effective
February 11, 1997. The 1997 Director Plan provides for the issuance of options
to purchase up to 77,000 shares of Class A Common Stock, which shares are
reserved and available for purchase upon the exercise of options granted under
the 1997 Director Plan. Only directors who are not employees or officers of the
Company are eligible to participate in the 1997 Director Plan. Under the 1997
Director Plan, each non-employee director was granted, on the effective date of
the plan, an option to purchase 15,000 shares of Class A Common Stock, and each
non-employee director subsequently elected to the Board will be granted an
option to purchase 15,000 shares of Class A Common Stock on the date of his or
her election. Options granted under the 1997 Director Plan provide for the
purchase of Class A Common Stock at a price equal to the fair market value on
the date of grant. If there are not sufficient shares remaining and available to
all non-employee directors eligible for an automatic grant at the time at which
an automatic grant would otherwise be made, then each eligible non-employee
director shall receive an option to purchase a pro rata number of shares. As of
December 31, 1999, 32,000 shares were available under the plan.
Unless otherwise provided in an option agreement, options granted under the 1997
Director Plan shall become exercisable in five equal increments beginning on the
date of the grant and on each of the first four anniversaries thereof. All
options expire on the earlier of (a) ten years following the grant date or (b)
the second anniversary of the termination of the non-employee director's
directorship for any reason other than due to death or Disability (as defined in
the 1997 Director Plan).
The Company applies APB No. 25 in accounting for its plans. No compensation cost
has been recognized for its fixed stock option plans and its stock purchase
plan. Had compensation cost for the Company's stock option and stock purchase
plans been determined consistent with SFAS No. 123, the Company's net income
from continuing operations and diluted earnings per share from continuing
operations would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Income from continuing operations:
As reported $69,632 $40,069 $54,447
Pro forma 66,569 37,785 52,215
Basic earnings per share from continuing operations:
As reported $2.23 $1.30 $1.76
Pro forma 2.14 1.22 1.69
Diluted earnings per share from continuing operations:
As reported $2.21 $1.29 $1.74
Pro forma 2.11 1.21 1.66
</TABLE>
For purposes of calculating the compensation cost consistent with SFAS 123, the
fair value of each stock option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for stock option grants in 1999, 1998, and 1997, respectively:
expected dividend yield of 0% for each period; expected volatility of 50%, 55%,
and 51%; risk free interest rate of 6.54%, 4.75%, and 5.71%; and expected
weighted-average life of five years.
The fair value of the employees' purchase rights pursuant to the Stock Purchase
Plan are estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for purchase rights granted in 1999,
1998, and 1997, respectively: fair market value of $30.45, $28.75, and $23.63;
option price of $25.88, $24.44, and $20.09; expected
F-18
<PAGE>
dividend yield of 0% for each period; expected volatility of 49%, 51%, and 51%;
risk-free interest rate of 6.11%, 4.60%, and 5.59%; and expected lives of six
months to one year.
Stock option activity for the years ended December 31, 1999, 1998, and 1997 was
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------- ---------------------------------- --------------------------------
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------ ------------ --------------------- ------------ --------------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,416,138 $ 26.55 1,180,293 $ 23.31 722,654 $ 18.90
Granted 720,500 27.45 368,550 35.18 567,410 26.12
Exercised (433,526) 21.28 (66,767) 18.03 (109,771) 8.83
Canceled (312,524) 30.03 (65,938) 25.34 -- --
- ------------------------ ------------ --------------------- ------------ --------------------- ---------- ---------------------
Outstanding at end
of year 1,390,588 27.88 1,416,138 26.55 1,180,293 23.31
Options exercisable
at end of year 291,485 25.24 604,453 23.10 330,971 23.05
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------ -----------------------------------
Range of Number Weighted-Average Remaining Weighted-Average Number Weighted-Average
Exercise Prices of Shares Contractual Life Exercise Price Of Shares Exercise Price
- -------------------- -------------- ----------------------------- --------------------- --- ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.31-$24.17 141,386 5.19 years $18.70 87,554 $16.42
$ 24.50-$26.50 225,966 6.94 years $24.55 65,868 $24.66
$ 26.56 601,500 9.17 years $26.56 -- $ 0.00
$ 29.25-$33.27 206,761 7.13 years $30.04 114,713 $29.57
$ 35.38-$46.25 214,975 8.56 years $39.02 23,350 $38.62
-------------- -------------
1,390,588 291,485
============== =============
</TABLE>
F-19
<PAGE>
NOTE 16 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter(2) Quarter(2) Quarter(2) Quarter(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $89,822 $97,321 $103,988 $107,386
Gross profit 42,480 48,195 55,849 55,865
Operating expenses 24,526 24,666 24,458 25,837
Operating income 17,954 23,529 31,391 30,028
Net income 12,650 17,122 19,932 19,928
Basic earnings per share $0.41 $0.55 $0.64 $0.64
Diluted earnings per share $0.41 $0.55 $0.63 $0.63
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter(1) Quarter(1) Quarter(1) Quarter(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $80,798 $87,040 $88,068 $80,077
Gross profit 38,861 41,701 42,381 32,867
Operating expenses 20,752 20,464 21,009 31,949
Operating income 18,109 21,237 21,372 918
Net income (loss) 13,163 14,037 13,213 (344)
Basic earnings per share $0.42 $0.45 $0.43 ($0.01)
Diluted earnings per share $0.42 $0.45 $0.42 ($0.01)
</TABLE>
(1) Reflects the elimination of intercorporate investment in Eltron
International, Inc., and the related tax effect.
(2) Reflects a pretax charge
for merger costs relating to the Company's merger with Eltron International,
Inc. as follows:
<TABLE>
<CAPTION>
1998 1999 1999 1999 1999
Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter
---------------- ----------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Merger costs $ 8,080 $ 1,869 $ 1,291 $ 1,581 $ 1,600
</TABLE>
NOTE 17 MAJOR CUSTOMERS
Two customers accounted for more than 10% of total net sales in at least one of
the fiscal years ended December 31, 1998 and 1997. The Peak Technologies Group,
Inc., represented 10.9% of net sales in 1997. United Parcel Service represented
10.3% of net sales in 1998.
F-20
<PAGE>
ZEBRA TECHNOLOGIES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Costs and Balance at End
DESCRIPTION Period Expenses Deductions of Period
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Valuation account for accounts receivable:
Year ended December 31, 1999 $2,156 ($176) $130 $1,850
Year ended December 31, 1998 $2,130 $1,061 $1,035 $2,156
Year ended December 31, 1997 $1,412 $997 $279 $2,130
Valuation account for inventories:
Year ended December 31, 1999 (1) $9,354 $971 $5,769 $4,556
Year ended December 31, 1998 (1) $4,330 $6,043 $1,019 $9,354
Year ended December 31, 1997 $3,211 $2,920 $1,801 $4,330
</TABLE>
(1) During 1998, the Company established $3,945,000 of reserves to value
certain inventory at market, which was below historical cost. During 1999,
the Company charged $3,944,000 to that reserve. Additionally, during 1998,
the Company increased its reserves for shrinkage and obsolescence by
$3,985,000, as a result of the merger between the Company and Eltron. This
action was due to planned discontinuances and other one-time merger-related
activities. During 1999, the Company charged a net of $990,000 against
these reserves.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Eltron International, Inc.:
In our opinion, the accompanying consolidated statements of income,
shareholders' equity and cash flows of Eltron International, Inc. and
subsidiaries (the "Company") present fairly, in all material respects, the
results of their operations and their cash flows for the year ended December 31,
1997, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Woodland Hills, California
February 24, 1998
F-22
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Zebra Technologies Corporation, V.I. Ltd., a U.S. Virgin Islands corporation
ZIH Corp., a Delaware corporation
Zebra Technologies Europe Limited, a U.K. limited liability company
Zebra International Intangibles, Inc., a Delaware corporation
Zebra Domestic Intangibles, Inc., a Delaware corporation
Eltron International, Inc., a California corporation
Donner Media, Incorporated, a Wisconsin corporation
Zebra Technologies France, a French corporation
Eltron FSC, Inc., a Barbados corporation
Eltron Holdings Limited, a United Kingdom corporation
Zebra Technologies VTI Corporation, a Utah corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
(Nos. 33-4706, 33-72774, 333-59733 and 333-63009) on Form S-8 of Zebra
Technologies Corporation of our report relating to the consolidated balance
sheets of Zebra Technologies Corporation and Subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of earnings,
comprehensive income, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999, and related
consolidated financial statement schedule, as contained herein. These
consolidated financial statements and the related consolidated financial
statement schedule and our report thereon are included herein. Our report was
based in part on the report of other auditors.
/s/KPMG LLP
Chicago, Illinois
March 1, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Eltron International, Inc. on Form S-8 of our report dated February 24, 1998 on
our audit of the consolidated financial statements of Eltron International, Inc.
for the year ended December 31, 1997, which report is included in this Annual
Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
Woodland Hills, California
March 1, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZEBRA
TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1999, AND CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED
DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 38,501
<SECURITIES> 197,067
<RECEIVABLES> 64,720
<ALLOWANCES> (1,850)
<INVENTORY> 42,379
<CURRENT-ASSETS> 345,898
<PP&E> 75,717
<DEPRECIATION> (34,031)
<TOTAL-ASSETS> 394,643
<CURRENT-LIABILITIES> 43,094
<BONDS> 0
0
0
<COMMON> 314
<OTHER-SE> 348,993
<TOTAL-LIABILITY-AND-EQUITY> 394,643
<SALES> 393,332
<TOTAL-REVENUES> 398,517
<CGS> 192,682
<TOTAL-COSTS> 196,128
<OTHER-EXPENSES> 99,663
<LOSS-PROVISION> (176)
<INTEREST-EXPENSE> 209
<INCOME-PRETAX> 108,800
<INCOME-TAX> 39,168
<INCOME-CONTINUING> 69,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,632
<EPS-BASIC> $2.23
<EPS-DILUTED> $2.21
</TABLE>
