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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, 1996
Commission File Number 0-19406
ZEBRA TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or
organization)
36-2675536
(IRS Employer Identification No.)
333 Corporate Woods Parkway, Vernon Hills, Illinois 60061
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
(847)634-6700
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
(Title of Class)
Indicate by check mark whether the registrant (1) 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 (2) has been subject to
such filing requirements for the past 90 days. Yes X 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
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 21, 1997, 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 $393,965,656
and $900,238, respectively. The closing price of the Class
A Common Stock on March 21, 1997, as reported on the Nasdaq
National Market, was $23.50. 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 21, 1997, the number of shares outstanding of
the registrant's Class A Common Stock, par value $.01 per
share, and of the registrant's Class B Common Stock, par
value $.01 per share, was 16,924,973, and 7,315,404,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Annual Report to
Stockholders for the year ended December 31, 1996, and of
the registrant's Notice of Annual Meeting of Stockholders
and Proxy Statement for its Annual Meeting of Stockholders
to be held on May 20, 1997, as described in the Cross-
Reference Sheet and Table of Contents included herewith, are
incorporated by reference into Parts II and III of this
report.
CROSS REFERENCE SHEET AND TABLE OF CONTENTS
Page Number
or Reference (1)
PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III
Item 10. Directors and Executive Officers of
the Registrant 12 (2)
Item 11. Executive Compensation 12 (3)
Item 12. Security Ownership of Certain Beneficial
Owners and Management 12 (4)
Item 13. Certain Relationships and Related Transactions 12 (3)
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 13
_________
(1) Certain information is incorporated by reference, as
indicated below, from the registrant's Notice of Annual
Meeting of Stockholders and Proxy Statement for its Annual
Meeting of Stockholders to be held on May 20, 1997 (the
"Proxy Statement") and from the registrant's 1996 Annual
Report to Stockholders (the "1996 Annual Report").
(2) Proxy Statement sections entitled "Election of
Directors" and "Executive Officers."
(3) Proxy Statement section entitled "Executive
Compensation and Certain Transactions."
(4) Proxy Statement section entitled "Security Ownership of
Management and Certain Beneficial Owners."
ZEBRA TECHNOLOGIES CORPORATION
333 Corporate Woods Parkway
Vernon Hills, Illinois 60061
(847)634-6700
PART I
ITEM 1. BUSINESS
The Company
Zebra Technologies Corporation (the "Company" or "Zebra")
provides bar code solutions, principally to manufacturing
and service entities worldwide, for use in automatic
identification and data collection systems. The Company
designs, manufactures, sells and supports a broad line of
computerized label/ticket printing systems, related
specialty supplies and PC-based bar code software. The
Company's equipment is designed to operate at the user's
location to produce and dispense high quality bar coded
labels in extremely time-sensitive and physically demanding
environments. Zebra's solutions approach integrates its
applications expertise, computerized printing systems,
specialty supplies and software. Applications for the
Company's systems include inventory control, automated
warehousing, JIT (Just-In-Time) manufacturing, CIM (Computer
Integrated Manufacturing), employee time and attendance
records, weighing systems, tool room control, shop floor
control, library systems, prescription labeling and
scientific experimentation. As of March 1, 1997, management
estimates that over 225,000 Zebra bar code printing systems
are installed at approximately 22,000 user sites around the
world.
The Company anticipates that its future growth will be
enhanced by two continuing trends: bar code label
standardization programs and the focus of businesses
worldwide on improving quality and productivity. Industry
mandated standardization has been a major catalyst in the
rapid development of bar coding, and Zebra believes that the
mandate of standards will continue to proliferate. Zebra
also believes that increasing demands for improvements in
productivity and quality in commercial and service
organizations will lead to increased use of automatic
identification systems.
The Company completed its initial public offering in August
1991 and a secondary public offering in March 1993. The
Company is organized under the laws of the State of
Delaware. The Company's principal offices are located at
333 Corporate Woods Parkway, Vernon Hills, Illinois 60061,
and its telephone number is (847)634-6700.
The Company's Products
The Company's products consist of a broad line of
computerized demand bar code label printers and print
engines, specialty bar code labeling/ticketing materials,
ink ribbons and PC-based bar code software. These products
are integrated to provide automatic identification labeling
solutions for manufacturing, business and industrial
applications. The Company's equipment and supplies are
designed for operating at the user's location to produce bar
coded labels in extremely time-sensitive and physically
demanding environments. The Company works closely with its
distributors, other resellers and the end users of its
products to fashion labeling solutions which meet the
technical demands of the end user. To achieve this, the
Company provides its customers with the ability to configure
printing systems with various options available on the
Company's systems. Additionally, the Company will select
and, if necessary, create appropriate labeling stock, ink
ribbons and adhesives to suit the particular intended use.
In-house engineering personnel with years of experience in
the disciplines of software, mechanical, electronic and
chemical engineering all participate in the creation and
realization of bar code solutions for particular
applications.
Examples of specialty bar code solutions include: process
control labels for U.S. Steel which are affixed to coils of
steel with a temperature of 400 degrees Fahrenheit;
identification labels for a unique library of DNA samples at
Los Alamos National Laboratory which are stored at minus 100
degrees Fahrenheit and are then repeatedly thawed and
restored; and identification labels for plutonium samples at
Los Alamos National Laboratory in conditions where the
labels and printers are exposed to radioactive materials.
Other examples include high security black-on-black bar
codes which are only machine (and not human) readable and
labels which automatically read "VOID" if they are removed
from their original application.
Label Printing Systems. The Company produces a broad range
of "on demand" thermal transfer and direct thermal bar code
label printers with, the Company believes, more models,
options and features than any of its competitors. Zebra
manufactures eight thermal transfer label printing systems,
which range in list price from $1,395 to $7,495, two direct
thermal printers which range in list price from $595 to
$795, and a high performance print engine for label
applicator systems. The Company's products include hundreds
of optional configurations which can be selected as
necessary to meet particular customer needs. Zebra's
printing systems, and their prices, vary based upon
performance criteria including label width, speed, image
density and optional features. Zebra's thermal transfer
product line is split into two parts: the Performance
Line(TM) and the Value-Line(TM). The Performance Line(TM)
consists of four basic models targeted at applications that
require continuous operation in high output, mission
critical operations. These units provide a wide variety of
option configurations, features, print widths, dot densities
and speeds. The four units comprising the Value-Line(TM)
are targeted at distributed printing applications where
heavy duty cycles are less important. These units have
fewer option configurations and features, but are offered at
a significantly lower price. The A-100(TM) and A-300(TM)
direct thermal Personal Printers, the Company's new
offerings in the sub-$1,000 market, are targeted at
applications where convenience, ease of use, small size and
price are important to the user. The Company's 170PAX print
engine is targeted at manufacturers of high speed automatic
label applicator systems. This product contains options and
performance characteristics not available on competitive
products.
In addition to use in demand printing situations, the
Company's products can also be used to meet customers' needs
for continuous duty production of small or large quantities
of custom bar code labels and other graphics, permitting on-
site label production with less lead time and more efficient
use of supplies than off-site printing can provide.
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 which are
important for printing readily scannable bar codes. In
addition, thermal transfer printing creates the image very
near the edge of the printer so that no blank areas must be
fed out before the label exits the printer. Finally, this
technology permits the use of many different label
materials, adhesives and inks and produces durable images.
Thermal transfer printing creates an image by applying an
electrically heated printhead onto a ribbon that releases
ink onto labeling stock. It is a relatively low cost way to
address the special needs of the Company's target customers
because it results in excellent image quality, can be used
with a wide variety of materials so long as they are smooth-
surfaced, requires no specially coated or otherwise
specially formulated labeling/ticketing stock and permits
the use of certain inks which are not viable with alternate
printing technologies. Direct thermal printing creates an
image by applying the heated printhead directly to specially
treated paper that 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 Performance Line and Value Line
printers are optimized for thermal transfer printing,
although they can operate in direct thermal mode as well.
Both Personal Printer products operate only in direct
thermal mode.
The Company's printing systems incorporate Company-designed
computer hardware, electro-mechanisms and software, which
operate the printing functions of the system and communicate
with the host computer. All Zebra printing systems, except
the A-100 personal printer, operate using Zebra Programming
Language ("ZPL(R)") and Zebra Programming Language II ("ZPL
II(R)"), 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. ZPL(R) and ZPL II(R) allow users of the Company's
systems to replace older Zebra printers with newer
equipment, which is plug and software compatible and
therefore requires no reprogramming, to operate different
Zebra equipment for different applications using
standardized programs and to integrate printers into a
network using additional software available from the
Company. Management believes ZPL(R) and ZPL II(R) give the
Company a competitive strength 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(R) and ZPL II(R) drivers specifically for Zebra
printers. ZPL(R) and ZPL II(R) label format programs can be run
on a personal computer with ordinary word processing
programs, making ZPL(R) and ZPL II(R) particularly adaptable to
PC-based systems.
In 1996, the Company upgraded the Zebra 105S printer to
include 300 dpi capability. The Zebra 105S and 160S
printers both feature a rugged metal case and full roll
internal rewind at a Value-Line(TM) price. The Company's
STRIPE(R) printer product line rounds out the Value-Line(TM)
family of products. The Model S-500 at a list price of
$1,795 and S-300 at a list price of $1,395 are the lowest
priced printers in the Value-Line(TM). These units employ
design concepts that have allowed the Company to offer these
products at a lower price point in the market but with
performance, quality, reliability and durability equal to
more expensive models.
Also in 1996, the Company began shipping the 220XiII(TM) and
the 170PAX print and apply engine from its Performance
Line(TM) products. The Zebra 220XiII(TM) printer is a wide-
web printer that rounds out the Performance Line(TM) family
of printers which includes the 170XiII(TM), 140XiII(TM), and
90XiII(TM). These printers are based on an advanced
electronics package that includes dual microprocessors based
on RISC technology. As a result, these printers offer
greatly increased print speed, dramatically reduced
formatting time, improved throughput and image resolution.
The 170PAX print and apply engine, also based on XiII
electronics, is the Company's first product offering in the
component sector of the automatic identification market.
The print and apply engine is designed to increase print
speeds, reduce formatting times, and improve image
resolution in comparison to competitive products.
Sales of the Company's printer line accounted for
$122,127,000 of the Company's net sales in 1996,
$106,781,000 in 1995, and $74,685,000 in 1994. These sales
amounted to 72.0%, 71.9%, and 69.7% of the Company's total
net sales in each of the last three years, respectively.
Supplies. The Company sells label/ticketing stock, custom
labels and tags, and thermal transfer ribbons worldwide, to
support its printing systems and systems users. Zebra
supplies are selected for a particular user's needs based on
the specific application and environment in which the
labeling system must operate. Critical criteria include
levels of abrasion, possible exposure to chemicals and
liquids, variations in both the environment (such as
temperature or humidity) in which the labels will be used
and the surfaces to which the labels will be affixed. These
factors are all taken into account in selecting the type of
ribbon, the type of labeling material and the adhesive to be
used. Zebra supplies include proprietary ribbon
formulations developed according to Company specifications.
Zebra develops its printers and supplies contemporaneously,
as if they were a single unit, to optimize performance of
Zebra printers and genuine Zebra supplies. Performance is
typically measured as a function of both print speed and
print quality and both of these factors can be adversely
affected by the use of supplies that are not suited to
particular printers. Because of the close relationship
between the printing system, the supplies and the specific
applications, the Company sells supplies together with
printing systems. In addition, the Company sells supplies
to existing users of its printing systems. Zebra promotes
the use of Zebra supplies with Zebra equipment. Management
believes that owners of Zebra's printing systems purchase
Zebra supplies to attain peak performance and optimum print
quality and to minimize costly downtime and malfunctions in
their automatic identification systems. Supplies sales in
1996, 1995, and 1994 were $39,561,000, $36,033,000, and
$30,140,000, respectively, comprising 23.3%, 24.2%, and
28.1% of total net sales, respectively.
Software. In July 1995, the Company acquired Vertical
Technologies, Inc., a software development company that
provides PC-based bar code labeling, scanning, and tracking
software targeted principally to small-and medium-sized
businesses. In February 1996, the Company acquired the
intellectual property of a UK-based partnership, Fenestra
Computer Services, which provides a high-end label design
software package specifically designed to optimize the
performance of Zebra printers. In combination, these
software products provide users with powerful PC-based, easy
to use bar code label design and printing systems. The low-
end Barcode AnythingTM Suite is distributed through PC
software catalogs, PC distributors, and retailers and is
intended to broaden the market for bar code systems to
small-and medium-sized businesses, providing the opportunity
for Zebra to sell additional products to these customers as
their bar code requirements develop. The high-end Bar OneTM
software is targeted at experienced bar code users and
provides the capability to optimize the performance of Zebra
printers through a powerful, easy to use Windows interface.
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 to on-site service, which is provided by
distributors and Wang Laboratories, Inc. ("Wang"). Under a
service support agreement, Wang and the Company share the
revenue for on-site service contracts sold by Wang for Zebra
printing systems installed in the United States. The
Company in turn provides maintenance parts as needed to
repair units under contract. IBM also provides service for
the Company's products. This technical support is available
to end users and to the Company's distributors and
resellers. International maintenance service is handled by
the Company's distributors in each country, either directly
or through service agents. Zebra provides service and
technical support assistance from in-house support personnel
located both in the United States and the United Kingdom who
are available by telephone hotline five days a week during
regular business hours.
Warranties. All Zebra printing equipment is warranted
against defects in material and workmanship for six months.
Zebra supplies are warranted against defects in material and
workmanship for the stated shelf life or six months,
whichever occurs first. Defective equipment and supplies may
be returned to the Company for repair, replacement or refund
during the applicable warranty periods.
Sales and Marketing
Sales. The Company sells its products in the United States
and internationally through a multi-channel distribution
system including distributors, value-added resellers
("VAR's"), original equipment manufacturers ("OEM's") and
international accounts. Software is sold principally
through the PC-retail channel and PC software catalogs, in
addition to the Company's traditional channels. This multi-
channel distribution system purchases, warehouses, and sells
a variety of automatic identification components including
printers, supplies, scanners, and application software, and
brings system integration expertise to the end users. Two
of the Company's distributors are classified as National
Distributors because of their broad territorial
representation within the United States. Other distributors
have qualified for Zebra Solution Center (ZSC) status.
ZSC's carry the full range of Zebra printers and supplies,
and focus on providing a Zebra bar code solution to their
customers. VAR's, 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 OEM's, then resell the products under their own
logos.
The Company utilizes 72 U.S. and approximately 100
international resellers. The resellers typically cover
specific geographic areas of the United States and 70 other
countries around the world. The Company has a subsidiary in
the United Kingdom that serves as a sales office, product
distribution warehouse and service center. For 1996, 1995,
and 1994, sales to international customers comprised 44.2%,
44.2%, and 39.8%, respectively, of the Company's total net
sales.
Because of the wide variety of end users and applications
for the Company's products and because the Company's
products are frequently integrated with products from other
manufacturers to form a complete automatic identification
system, management believes that it is more effective to
sell printing systems principally through multiple
distributors and resellers with defined market niche
expertise and presence rather than directly to end users.
By forming relationships with distributors who serve various
submarkets and types of end users and who have existing
customers and in-place sales and distribution networks which
identify new customers and sales opportunities, the Company
is able to reach end users throughout the world in a variety
of industries. 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 around the world.
Marketing. The Company's marketing operations include
product management, marketing communications, technical
services, training, market research and market development
functions. The product management group specifies new
products and product enhancements that create customer
value, and manages product positioning and introductions.
The marketing services 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 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, among other
things, a hotline staffed by experienced technical personnel
and, when necessary, trips to customer sites.
The Company's market research group is a strategic planning,
research oriented group, which focuses on market definition
and analysis of Company and competitor strengths. This
group identifies and analyzes market opportunities for
current, planned and potential products, and gathers and
analyzes competitive and market intelligence.
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
The Company estimates that it presently has over 225,000 bar
code printing systems installed at approximately 22,000 user
sites around the world. Sales to the Peak Technologies
Group, Inc., one of the Company's National Distributors,
accounted for more than 20% of the Company's total net sales
in the year ended December 31, 1996.
Production and Manufacturing
The Company's strategy is to create and produce production
designs which optimize product performance, quality,
reliability, durability and versatility. These designs
facilitate 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 all 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 with Zebra's new products engineers
and with vendors, thereby creating products that are highly
manufacturable, and to specifying and designing
manufacturing processes and facilities simultaneously with
product design. In addition to its' strategy of in-house
production, the Company has implemented a manufacturing
outsourcing program for its sub-$1,000 printers in an effort
to expand its' manufacturing options.
Research and Development
The Company devotes significant resources to developing new
products to serve the needs of targeted markets, providing
bar code solutions to users of the Company's printing
systems and developing new and reliable products that have a
high degree of manufacturability. The Company's research
and development expenditures were $10,452,000, $8,185,000,
and $5,835,000, in 1996, 1995, and 1994, respectively.
Competition
The Company considers its direct competition to be the
providers of thermal transfer and direct thermal printing
systems and supplies to the "demand printing" environment
rather than the larger group of companies engaged in the
design, manufacture and marketing of standard computer and
label printers and/or other equipment for automated data
collection systems, such as scanners or data collection
devices. Competition in the thermal transfer and direct
thermal market depends on a number of factors, including
reliability, quality and reputation of the manufacturer and
its products, hardware innovations and specifications,
information systems connectivity, price, level of technical
support, supplies and applications support offered by the
manufacturer, and available distribution channels.
The Company's principal competitors in the thermal transfer
and direct thermal bar code printing systems and supplies
markets, many of which have substantially greater resources
than the Company, include: Intermec Corporation, a
subsidiary of Western Atlas Corporation, which manufactures
bar code readers, scanning wands, laser scanners, labels and
label printers; Sato, a manufacturer of thermal transfer bar
code printers and printer supplies; TEC, which manufactures
a broad range of electronic products including bar code
printers; Datamax Corporation, a manufacturer of mid-range
thermal transfer printers; United Barcodes International
(UBI), who competes with the Company principally in Europe;
and Eltron International, a manufacturer of low cost thermal
and thermal transfer printers.
Various other methods of bar code printing exist, but the
Company believes that thermal transfer printing will be the
technology of choice in Zebra's target markets for the
foreseeable future. Among the many advantages of thermal
transfer printing is its ability to print high resolution
images on a wide variety of label materials at a relatively
low cost compared to alternative printing technologies.
Although there is no assurance that a new technology will
not supplant thermal transfer printing, the Company is not
aware of any developing technology which offers the
advantages of thermal transfer printing for the Company's
target markets.
Intellectual Property Rights
The Company, through its subsidiary Zebra Domestic
Intangibles, Inc., currently holds U.S. trademarks on the
words "STRETCH", "Value-Line", "Performance Line",
"220XiII", "170XiII", "140XiII", and "90XiII" and holds U.S.
registered trademarks on the Company's Zebra head logo and
the words or marks "Zebra", "ZPL", "ZPL II", "STRIPE",
"Element Energy Equalizer", "E2", and "Z- Ultimate". The
Company, through its subsidiary Zebra International
Intangibles, Inc., holds trademarks on the word "Zebra" and
the Company's Zebra head logo in France, Canada, Germany,
the United Kingdom, Sweden and China. The Company actively
protects these trademarks. Zebra relies on a combination of
trade secrets, copyright laws and contractual rights to
establish and protect its proprietary rights in its
products. For example, the firmware in Zebra's printing
systems is copyrighted and the Company's specifications for
certain inks and supplies are treated by the Company as
trade secrets and disclosed subject to confidentiality
agreements. 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.; and MS/DOS and Windows, which
are registered trademarks of Microsoft Corporation.
Employees
As of March 1, 1997, the Company employed 627 persons. None
of these employees are unionized. The Company considers its
relationship with its employees to be excellent.
ITEM 2. PROPERTIES
The Company conducts its operations from a custom-designed
facility in Vernon Hills, Illinois (north suburban Chicago),
which provides approximately 167,628 square feet of space.
Approximately 61,428 square feet have been allocated to
office and laboratory functions with 106,200 square feet
allocated to manufacturing and warehouse functions. This
facility was constructed for the Company in 1989, expanded
in 1993, 1994, and 1995, and is owned and leased to the
Company, under a lease terminating on March 31, 2003, by
Unique Building Corporation, a corporation owned in part by
Edward Kaplan and Gerhard Cless, both executive officers and
directors of the Company.
An additional 2.4 acre parcel of land adjacent to the
Company's facility is also owned by Unique Building
Corporation and available to the Company for expansion.
The Company leases 6,092 square feet of office space in
Vernon Hills, Illinois that is occupied by the Company's
Personal Printer Division. The lease extends through June
of 1998.
The Company established a branch in the United Kingdom in
late 1990, which was incorporated as a subsidiary in 1993.
This subsidiary, Zebra Technologies Europe Limited, moved in
1994 to a new facility at High Wycombe outside London in the
United Kingdom. This facility, which consists of 17,100
square feet leased by the Company, serves as a sales office,
product distribution point and service center for sales in
the United Kingdom and as headquarters for all European
operations.
In September 1993, the Company purchased the assets of a
label conversion company in Preston, England, incorporating
it as a subsidiary under the name Zebra Technologies Preston
Limited. This subsidiary is intended to improve the
Company's ability to service its European customers with
custom and Zip-Ship labeling materials. In 1994, Zebra
Technologies Preston moved to a larger facility in Preston,
occupying 19,400 square feet of leased manufacturing and
office space.
In July 1995, the Company purchased all of the outstanding
stock of a PC-based bar code software company in Sandy,
Utah, incorporating it as a subsidiary under the name Zebra
Technologies VTI, Inc. (Zebra VTI). This subsidiary is
intended to open new markets to the Company by expanding the
use of bar code technology in the small- and medium-sized
business market. Zebra VTI leases a 4,221 square foot
facility in Sandy, Utah, consisting of both manufacturing
and office space.
ITEM 3. LEGAL PROCEEDINGS
On March 6, 1996, the Company and Zebra VTI filed a
complaint against David Carter and William Flury, former
officers of Zebra VTI, in the Circuit Court of the
Nineteenth Judicial Circuit, Lake County, Illinois. The
complaint (i) alleges breach by Messrs. Carter and Flury of
various representations and warranties contained in the
Agreement and Plan of Reorganization dated July 5, 1995 (the
"Agreement"), for which damages in excess of $4.0 million
are sought, and (ii) alleges that with respect to matters
represented in the Agreement, Mr. Carter knew that his
representations were false, for which compensatory and
punitive damages in an unspecified amount are sought.
On March 15, 1996, Messrs. Carter and Flury filed suit
against the Company and Zebra VTI in the Third Judicial
District Court in Salt Lake County, Utah, alleging, inter
alia, that the Company and Zebra VTI wrongfully terminated
their employment agreements thereby breaching such
agreements and an incentive compensation pool agreement
dated July 5, 1995. The complaint seeks aggregate
compensatory damages in excess of $8.0 million, punitive
damages, rescission of the Agreement and payment of the
plaintiffs' costs and fees. In addition, on March 25, 1996,
Messrs. Carter and Flury filed a motion for a preliminary
injunction enjoining Zebra VTI from terminating their
employment agreements. The Company and Zebra VTI deny the
allegations and intend to vigorously defend the action and
to oppose the motion for preliminary injunction.
On April 4, 1996, the Company and Zebra VTI filed Motions to
Strike the Preliminary Injunction motion and, in addition, a
Motion to Stay the Utah litigation, pending resolution of
the prior pending Illinois action. On June 24, 1996 the
Utah court granted Zebra's Motion to Stay and has stayed the
Utah case pending conclusion of the Illinois action.
On September 24, 1996, the Company and Zebra VTI filed an
Amended Complaint which expanded upon the allegations and
theories of the prior complaint, including seeking
additional damages. On Novemebr 24, 1996 Messrs. Carter and
Flury filed an answer denying the material allegations of
the Amended Complaint, asserting affirmative defenses
thereto and asserting counter claims against both the
Company and Zebra VTI, similar in nature to the claims they
had previously asserted in the Utah case. The Company and
Zebra VTI have denied the allegations of those
counterclaims.
Discovery is currently proceeding and is scheduled to close
on June 30, 1997. A trial date is scheduled for August 18,
1997. Zebra intends to vigorously prosecute its claim and
defend against the counterclaim.
In addition to the matters described above, the Company
presently 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
No matters were submitted to a vote of security holders
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Stock Information
Price Range of Common Stock
The Company's Class A Common Stock is traded on the Nasdaq
National Market under the symbol ZBRA. The following table
shows the high and low closing prices as reported by Nasdaq
for each quarter during the last two years.
Fiscal 1996 High Low Fiscal 1995 High Low
First Quarter $35.25 $25.25 First Quarter $21.38 $18.13
Second Quarter $27.88 $17.75 Second Quarter $27.13 $19.50
Third Quarter $26.25 $15.50 Third Quarter $32.00 $26.63
Fourth Quarter $31.50 $23.13 Fourth Quarter $34.50 $23.38
At March 21, 1997, the last reported sale price for the
Class A Common Stock was $23.50 and there were 575 and 14
holders of record of the Company's Class A Common Stock and
Class B Common Stock, respectively.
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 currently intends to
retain its earnings to finance future growth and therefore
does not anticipate paying any cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
1996 1995 1994 1993 1992
Net sales $169,715 $148,593 $107,103 $87,456 $58,711
Gross profit $81,919 $70,987 $52,023 $43,567 $28,992
Income from
operations (1)$38,218 (2)$32,525 $30,343 $24,897 $15,407
Net income (1)$28,915 (2)$22,564 $21,073 $18,255 $11,843
Net income
per share (1) $1.19 (2) $0.94 $0.88 $0.76 $0.50
Total assets $163,283 $131,071 $95,043 $76,697 $54,845
Long-term
obligations $2,326 $2,177 $236 $293 $347
(1) Reflects a pre-tax charge for acquired in-process
technology of $1,117 relating to the Company's acquisition
of Fenestra Computer Services.
(2) Reflects a pre-tax charge for acquired in-process
technology of $6,028 relating to the Company's acquisition
of VTI.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues. During 1996, Zebra's net sales were $169,715,000,
increasing by 14.2% from net sales of $148,593,000 in 1995.
Net sales in 1994 were $107,103,000. Net sales growth in
both 1995 and 1996 is attributed to unit growth, as the
average unit price of the Company's printer products
declined due to product mix changes and price reductions on
certain products.
Printers vs. supplies. Zebra sells printer products,
software and related supplies, which consist of self-
adhesive labels and thermal transfer ribbons. In 1996,
printer sales were $122,127,000 (72.0% of net sales),
supplies sales were $39,561,000 (23.3% of net sales), and
software and service revenues accounted for $8,027,000 (4.7%
of net sales). In 1995, printer sales were $106,782,000
(71.9% of net sales) and supplies sales were $36,033,000
(24.2% of net sales), and software and service revenues were
$5,778,000 (3.9% of net sales). In 1994, printer sales were
$74,686,000 (69.7% of net sales), supplies sales were
$30,140,000 (28.1% of net sales). The remaining 1994 sales
consist of service and other revenue sources.
International sales. Zebra products are sold through an
international network of resellers in over 70 countries.
International sales in 1996 were $75,055,000, an increase of
14.2% over 1995 international sales of $65,720,000.
International sales comprised 44.2% of net sales in both
years. In 1994, international sales were 39.8% of net
sales, or $42,631,000. Management believes that
international sales will continue to grow faster than
domestic sales due to the lower penetration of bar code
systems outside the United States.
Gross margins. Gross margins increased slightly in 1996 to
48.3% of net sales, compared to 47.8% of net sales in 1995.
Margins were 48.6% in 1994. The increase in gross margins
in 1996 is attributed to the Company's increased sales in
higher margin printers and software. Supplies sales, which
is a lower portion of total sales in 1996, provide a lower
gross margin than the other product lines.
Sales and marketing expenses. Total sales and marketing
expenses increased by $3,901,000 in 1996, to reach
$18,428,000 or 10.8% of net sales, compared to 1995 expenses
of $14,527,000 or 9.8% of net sales. In 1994, the Company
incurred $9,011,000 of sales and marketing costs, or 8.4% of
net sales. The increasing trend in sales and marketing
expenses as a percentage of net sales over the past three
years is principally the result of expenses related to
development of the PC retail channel and expansion of the
Company's sales infrastructure needed to support
international sales, particularly with respect to Europe.
The Company's acquisition of Vertical Technologies, Inc. in
July of 1995, resulted in a significant expansion of sales
and marketing expenses directly related to establishing and
maintaining a position in the PC retail channel. Market
development expenses and product promotion costs will
continue to be a key element of the success of these
products in the market. In addition, the Company expanded
its High Wycombe-based sales and marketing organization in
order to support the growth of its distribution channels in
Europe. These expenses include additional funds to promote
the Zebra brand in specific national markets within Europe.
Research and development. Research and development expenses
increased by 27.7% in 1996, to $10,452,000, from $8,185,000
in 1995, and $5,835,000 in 1994. As a percentage of net
sales, these expenses increased to 6.2% in 1996 compared to
5.5% in 1995, and 5.4% in 1994. The increase in research
and development expenses as a percentage of sales was
primarily the result of increased staffing to support new
product development as the Company introduced a significant
number of new products in 1996. The Company will continue
to invest significant amounts in new product development as
management believes that a steady stream of new products is
vitally important to the Company's future sales growth.
General and administrative expenses. General and
administrative expenses increased by 37.7% to $13,388,000 or
7.9% of net sales in 1996, compared to $9,722,000, or 6.5%
of net sales in 1995. Included among the 1996 expenses are
$739,000 of amortization of intangible assets and goodwill
resulting from the acquisitions of Vertical Technologies,
Inc. and Fenestra Computer Services. In 1994, general and
administrative expenses were $6,834,000, or 6.4% of net
sales. The increased level of general and administrative
expenses in 1996 and 1995 was caused principally by higher
staffing levels plus increased usage of professional
services. In addition, 1996 expenses include increased
information systems costs related to the Company's
enterprise-wide software implementation project.
Acquired in-process technology. The charge for acquired in-
process technology in 1996 relates to the Company's
acquisition of software technologies as part of the
acquisition of Fenestra Computer Services in the first
quarter of 1996. This acquisition was accounted for under
the purchase method, which requires that the purchase price
be allocated to the fair market value of the assets
acquired. Among these assets was in-process technology
(projects that had not reached technological feasibility and
had no alternative future use) that was valued at
$1,117,000. Accounting rules require that this asset be
immediately expensed. Intangible assets and goodwill
resulting from the acquisition are being amortized over
periods of between three and ten years.
Other income. Other income, which consists of investment
income and gains on the sales of securities (net of interest
expense), increased by 17.8% in 1996 to $6,418,000, from
$5,448,000 in 1995. The substantial increase in investment
income is the result of larger investment balances as well
as the recognition of gains resulting from the liquidation
of certain security positions in 1996. Other income in 1995
was up 115.1% from $2,533,000 in 1994, again, principally
due to gains on the Company's investment portfolio.
Income before income taxes. Income before income taxes for
1996 was $44,636,000, or 26.3% of net sales, an increase of
17.5% from $37,973,000, or 25.6% of net sales, in the
previous year. In 1994, income before income taxes was
$32,876,000, or 30.7% of net sales.
Provision for income taxes. The provision for income taxes
in 1996 was $15,721,000, or 35.2% of income before income
taxes. The provision for income taxes in 1995 was
$15,409,000, or 40.6% of income before income taxes. In
1994, the provision for income taxes was $11,803,000,
representing 35.9% of income before income taxes. The
decrease in the effective tax rate in 1996 from 1995 was due
to the 1995 non-deductibility for tax purposes of the
acquired in-process technology charge and goodwill
amortization related to the acquisition of Vertical
Technologies, Inc. Excluding these amounts, the Company's
provision for taxes in 1995, would have been 34.8% of pre-
tax income.
Net income. Net income in 1996 was $28,915,000, or $1.19
per share, based on 24,203,000 average shares outstanding.
In 1995, net income was $22,564,000, or $0.94 per share,
based on 24,113,000 average shares outstanding during the
year. In 1994, net income was $21,073,000, or $0.88 per
share, based on 24,034,000 average shares outstanding.
Outstanding shares have all been adjusted for the two-for-
one stock split effective December 28, 1995. As a
percentage of net sales, net income increased for 1996 to
17.0% of net sales compared to 15.2% in 1995, and 19.7% in
1994. The decrease in net income as a percentage of sales
in 1995 compared to 1994 was due to the increased operating
expenses and write-off of acquired in-process technology
related to the acquisition of Vertical Technologies, Inc.,
as previously described. Similar expenses and write-offs
incurred in 1996 related to the acquisition of Fenestra
Computer Services were considerably lower, and consequently,
had less of an impact on net income.
Liquidity and Capital Resources
Internally generated funds from operations are the primary
source of liquidity for the Company. The Company has long-
term obligations of $2,326,000 as of December 31, 1996,
which consist of $1,999,000 and $212,000 of deferred payouts
owed to the former shareholders of Vertical Technologies,
Inc. and Fenestra Computer Services, respectively, and
$115,000 of deferred rent and capitalized lease obligations.
As of December 31, 1996, the Company had $94,540,000 in cash
and marketable securities compared to $71,858,000 at the end
of 1995. 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 150 basis points over the
London Inter-bank Offer Rate (LIBOR), at the Company's
discretion. As of December 31, 1996, the Company had no
outstanding borrowings under its lines of credit. Capital
expenditures in 1996 were $5,994,000, compared to $4,333,000
in 1995, and $2,116,000 in 1994. Management believes that
existing capital resources and funds generated from
operations are sufficient to finance anticipated capital
requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule of the Company are
annexed to this Report as pages F-1 through F-14. An index
to such materials appears on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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."
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. No reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this
report.
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 26th day of
March, 1997.
ZEBRA TECHNOLOGIES CORPORATION
By: /s/ EDWARD L. KAPLAN
Edward L. Kaplan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/EDWARD L. KAPLAN C.E.O. and Mar. 26, 1997
Edward L. Kaplan Chairman (Principal
Executive Officer)
/s/GERHARD CLESS Executive Vice Pres. Mar. 26, 1997
Gerhard Cless and Director
/s/CHARLES R. WHITCHURCH C.F.O. and Mar. 26, 1997
Charles R. Whitchurch Treasurer (Principal
Financial and Accounting Officer)
/s/CHRISTOPHER G. KNOWLES Director Mar. 26, 1997
Christopher G. Knowles
/s/DAVID P. RILEY Director Mar. 26, 1997
David P. Riley
/s/MICHAEL A. SMITH Director Mar. 26, 1997
Michael A. Smith
ZEBRA TECHNOLOGIES CORPORATION
INDEX TO EXHIBITS
3.1 * Certificate of Incorporation of the
Registrant.
3.2 * Bylaws of the Registrant.
3.3 **** Amendment to Bylaws of the Registrant.
4.0 * Specimen stock certificate representing Class A
Common Stock.
10.1 * Stock Option Plan. +
10.2 ** Stock Purchase Plan (as Amended and Restated). +
10.3 * Form of Indemnification Agreement between the
Registrant and each of its directors.
10.4 * Lease between the Registrant and Unique Building
Corporation for the Registrant's facility in
Vernon Hills, Illinois, as amended.
10.5 * Employment Agreement between the Registrant and
John H. Kindsvater, Jr. +
10.7 * Employment Agreement between the Registrant and
Clive P. Hohberger. +
10.8 * Guaranty by the Registrant of certain obligations.
10.9 * Forms of Distributor Agreement.
10.10 *** Directors' Stock Option Plan. +
10.11 **** Employment Agreement between the Registrant and
Charles R. Whitchurch. +
10.13 **** Form of Authorized Zebra Solution Center Agreement.
10.14 **** Credit Agreement with American National Bank and
Trust Company of Chicago.
10.15 **** Description of Executive Officer Bonus Plan. +
10.16 ***** Amendment to the lease between the Registrant and
Unique Building Corporation for the Registrant's
facility in Vernon Hills, Illinois, dated April
1, 1993.
10.17 ****** Amendment to the lease between the Registrant and
Unique Building Corporation for the Registrant's
facility in Vernon Hills, Illinois, dated
December 1, 1994.
10.18 Amendment to the lease between the Registrant and
Unique Building Corporation for the Registrant's
facility in Vernon Hills, Illinois, dated
June 1, 1996.
10.19 Amendment to the lease between the Registrant and
Unique Building Corporation or the Registrant's
facility in Vernon Hills, Illinois, dated June 2,
1996.
10.20 ******* Employment Agreement between the Registrant and
Thomas C. Beusch.+
10.21 ******* Employment Agreement between the Registrant and
Jeffrey K. Clements.+
10.22 ******* Employment Agreement between the Registrant and
Jack A. LeVan.+
21.0 Subsidiaries of the Registrant.
23.0 Report and Consent of KPMG Peat Marwick LLP,
independent auditors (included on page S-1 of
this Annual Report on Form 10-K).
27.1 Financial Data Schedule
- - ----------------------------------
* 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.
** 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.
*** 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,
1991, and incorporated herein by reference.
**** 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.
***** 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.
****** 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.
******* 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.
+ Management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
Annual Report on Form 10-K.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
last quarter of the period covered by this Annual Report on
Form 10-K.
EXHIBIT 10.18
AMENDMENT TO INDUSTRIAL BUILDING LEASE
THIS AMENDMENT TO INDUSTRIAL BUILDING LEASE is dated as of
June 1, 1996, by and between ZEBRA TECHNOLOGIES CORPORATION,
as Lessee, and UNIQUE BUILDING CORPORATION, as Lessor for
the Property commonly known as 333 Corporate Woods Parkway,
Vernon Hills, Illinois (the "Property").
WHEREAS, on May 15, 1989, Lessor and Lessee executed an
Industrial Building Lease (the "Lease") for the Property for
a term commencing September 1, 1989 and expiring August 31,
1999;
WHEREAS, on July 1, 1991, April 1, 1993, December 1, 1994,
and October 1, 1995, Lessor and Lessee entered into several
amendments to the Lease (collectively, the "Amendments")
whereby additional premises were added to the Property and
leased by Lessee for the term and the rent set forth in the
Amendments.
WHEREAS, Lessee desires to lease additional premises at the
Property in the mezzanine level and Lessor desires to lease
said premises to Lessee on the terms and conditions set
forth herein;
NOW THEREFORE, in consideration of Ten and NO/100 Dollars,
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties,
Lessor and Lessee hereby agree as follows:
1. Lessee hereby leases from Lessor the premises commonly
known as the area above the second floor mezzanine as set
out on Exhibit A attached hereto (the "Mezzanine Premises").
2. The term for the Mezzanine Premises will commence June
1, 1996, and expire March 31, 2008. Base Rent for the
Mezzanine Premises will be a s follows:
(i) June 1, 1996 through March 31, 2003 - $8,554 per
month;
(ii) April 1, 2003 through March 31, 2008 - $10,812 per
month.
3. The effective date of this Amendment is June 1, 1996.
4. Except as they may have been modified by anything set
forth in this Amendment, all of the terms and provisions of
the Lease and Amendments are hereby ratified and confirmed
by the parties hereto as being in full force and effect.
5. In the event of a conflict between the terms and
conditions of the Lease and Amendments and this Amendment to
Lease, the provisions of this Amendment to Lease shall
prevail.
IN WITNESS WHEREOF, the parties hereto have set their hands
and seals as of this 1st day of June, 1996.
LESSEE: LESSOR:
ZEBRA TECHNOLOGIES CORPORATION UNIQUE BUILDING CORPORATION
BY: /s/ Edward L. Kaplan BY: /s/ Edward L. Kaplan
TITLE: CEO TITLE: President
EXHIBIT 10.19
AMENDMENT TO INDUSTRIAL BUILDING LEASE
THIS AMENDMENT TO INDUSTRIAL BUILDING LEASE is dated as of
June 1, 1996, by and between ZEBRA TECHNOLOGIES CORPORATION,
as Lessee, and UNIQUE BUILDING CORPORATION, as Lessor for
the Property commonly known as 333 Corporate Woods Parkway,
Vernon Hills, Illinois (the "Property").
WHEREAS, on May 15, 1989, Lessor and Lessee executed an
Industrial Building Lease (the "Lease") for the Property for
a term commencing September 1, 1989 and expiring August 31,
1999;
WHEREAS, on July 1, 1991, April 1, 1993, December 1, 1994,
October 1, 1995, and June 1, 1996, Lessor and Lessee entered
into several amendments to the Lease (collectively, the
"Amendments") whereby additional premises were added to the
Property and leased by Lessee for the term and the rent set
forth in the Amendments.
WHEREAS, Lessee and Lessor desire to summarize all the
Premises leased at the Property by Lessee;
WHEREAS, Lessee and Lessor desire to amend the Base Rent
paid by Lessee for the Premises under the Lease and
Amendments.
NOW THEREFORE, in consideration of Ten and NO/100 Dollars,
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties,
Lessor and Lessee hereby agree as follows:
1. Lessor and Lessee agree that all premises and parking
areas leased at the Property by Lessee pursuant to the
Lease, the Amendments and this Amendment to Industrial
Building Lease are described as follows:
The real estate, including parking areas and all
improvements thereon containing approximately 167,625 square
feet (including Mezzanine Premises) located at 333 Corporate
Woods Parkway, Vernon Hills, Illinois and legally described
as follows:
Lots 113 through 121 in the Corporate Woods, being a
Subdivision of portions of Section 9, 10, 15, and 16,
Township 43 North, Range 11, East of the Third Principal
Meridian according to the Plat thereof recorded August 5,
1986 as Document 2468419 and recorded October 22, 1986 as
Document 2496355 and amended by Letter of Amendments
recorded as Document 2561505 and 2585702, in Lake County,
Illinois (collectively, the "Premises").
2. The Lease as hereto amended is hereby further amended to
provide that the term of the Lease for the entire Premises
(to the extent not already provided) is extended to March
31, 2008.
3. The parties acknowledge and agree that the Base Rent for
the entire Premises is currently as follows:
(i) As of the date hereof and for the period through
March 31, 1998: $105,053.00 per month;
(ii) For the period of April 1, 1998 through August 31,
1999: $111,997.00 per month.
The parties further agree that the lease is hereby further
amended to provide that the Base Rent for the entire
premises for the remainder of the term subsequent to August
31, 1999 shall be as follows:
(i) For the period of September 1, 1999 through March
31, 2003: $115,355.00 per month;
(ii) For the period of April 1, 2003 through March 31,
2008: $127,570.00 per month.
4. Except as they may have been modified by anything set
forth in this Amendment, all of the terms and provisions of
the Lease and Amendments are hereby ratified and confirmed
by the parties hereto as being in full force and effect.
5. In the event of a conflict between the terms and
conditions of the Lease and Amendments and this Amendment to
Lease, the provisions of this Amendment to Lease shall
prevail.
IN WITNESS WHEREOF, the parties hereto have set their hands
and seals as of this 2nd day of June, 1996.
LESSEE: LESSOR:
ZEBRA TECHNOLOGIES CORPORATION UNIQUE BUILDING CORPORATION
BY: /s/ Edward L. Kaplan BY: /s/ Edward L. Kaplan
TITLE: CEO TITLE: President
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 Technologies Preston Limited, a U.K. limited
liability company
Zebra International Intangibles, Inc., a Delaware
corporation
Zebra Domestic Intangibles, Inc., a Delaware corporation
Zebra Technologies VTI, Inc., a Utah corporation
EXHIBIT 27.1
ZEBRA TECHNOLOGIES CORPORATION
Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
The schedule contains summary financial information
extracted from Zebra Technologies Corporation and
subsidiaries consolidated balance sheets for September 28,
1996 and consolidated statements of earnings for September
28, 1996 and is qualified in its entirety by reference to
such financial statements.
Item Number Item Description Amount
5-02(1) Cash and cash items $5,167,754
5-02(2) Marketable securities 89,372,434
5-02(3)(a)(1) Notes and accounts receivable-trade 32,307,765
5-02(4) Allowances for doubtful accounts (959,796)
5-02(6) Inventory 21,503,199
5-02(9) Total current assets 148,995,948
5-02(13) Property, plant and equipment 22,124,722
5-02(14) Accumulated depreciation (10,796,296)
5-02(18) Total assets 163,283,662
5-02(21) Total current liabilities 20,194,136
5-02(30) Common stock 242,404
5-02(31) Other stockholder's equity 140,212,654
5-02(32) Total liabilities and stockholders'
equity 163,283,662
5-03(b)1(a) Net sales of tangible products 166,760,133
5-03(b)1 Total revenues 169,715,559
5-03(b)2(a) Cost of tangible goods sold 86,767,554
5-03(b)2 Total costs and expenses applicable
to sales and revenues 87,796,336
5-03(b)3 Other costs and expenses 43,059,483
5-03(b)5 Provision for doubtful accounts
and notes 641,892
5-03(b)(8) Interest and amortization of
debt discount 19,896
5-03(b)(10) Income before income taxes 44,636,698
5-03(b)11 Income tax expense 15,721,227
5-03(b)(14) Income/loss 28,915,470
5-03(b)(19) Net income or loss 28,915,470
5-03(b)(20) Earnings per share-primary $1.19
5-03(b)(20) Earnings per share-fully diluted $1.19
ZEBRA TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
(1) Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1996
and 1995 F-3
Consolidated Statements of Earnings for the years
ended December 31, 1996 , 1995, and 1994 F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995, and 1994 F-5
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1996, 1995, and 1994 F-6
Notes to Consolidated Financial Statements F-7
(2) Financial Statement Schedule:
The following financial statement schedule is
included herein:
Schedule II - Valuation and Qualifying Accounts F-14
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.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Zebra Technologies Corporation:
We have audited the accompanying consolidated balance sheets
of Zebra Technologies Corporation and Subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
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 provide
a reasonable basis for our opinion.
In our opinion, 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, 1996 and 1995, and the
results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 7, 1997
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands, except share data
December 31, December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $5,168 $10,017
Investments and marketable securities 89,372 61,841
Accounts receivable, net of allowance
of $960 in 1996 and $349 in 1995 31,631 24,887
Inventories 21,503 20,365
Prepaid expenses 1,322 1,379
Deferred income taxes 0 787
Total current assets $148,996 $119,276
Machinery and equipment at cost, less
accumulated depreciation and
amortization 11,328 8,319
Other assets 2,812 3,476
Deferred income taxes 147 0
TOTAL ASSETS $163,283 $131,071
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $12,200 $11,268
Accrued liabilities 4,180 4,012
Short-term note payable 1 37
Current portion of obligation under
capital lease with related party 62 59
Income taxes payable 3,750 4,067
Total current liabilities $20,193 $19,443
Obligation under capital lease with
related party, less current portion 115 177
Long-term obligation 2,211 2,000
Other 308 121
Deferred income taxes 0 1,124
Total liabilities $22,827 $22,865
Stockholders' equity:
Preferred Stock, $.01 par value;
10,000,000 shares authorized. None
outstanding. 0 0
Class A Common Stock, $.01 par value;
35,000,000 shares authorized,16,924,973
and 16,865,500 shares issued and
outstanding in 1996 and 1995,
respectively 169 169
Class B Common Stock, $.01 par value;
35,000,000 shares authorized,7,315,404
and 7,318,062 shares issued and
outstanding in 1996 and 1995,
respectively 73 73
Additional paid-in capital 30,386 29,645
Retained earnings 108,624 79,709
Unrealized holding loss on investments (6) (1,166)
Cumulative translation adjustment 1,210 (224)
Total stockholders' equity $140,456 $108,206
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $163,283 $131,071
See accompanying notes to consolidated financial statements.
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
In thousands, except per share data
Years Ended
December 31, December 31, December 31,
1996 1995 1994
Net sales $169,715 $148,593 $107,103
Cost of sales 87,796 77,606 55,080
Gross profit $81,919 $70,987 $52,023
Operating expenses:
Sales and marketing 18,429 14,527 9,011
Research and development 10,452 8,185 5,835
General and administrative 13,388 9,722 6,834
Merger costs 315 0 0
Acquired in-process
technology 1,117 6,028 0
Total operating expenses $43,701 $38,462 $21,680
Income from operations $38,218 $32,525 $30,343
Other income (expense):
Investment income 6,259 5,262 2,709
Interest expense (87) (59) (327)
Other, net 246 245 151
Total other income $6,418 $5,448 $2,533
Income before income taxes 44,636 37,973 32,876
Income taxes 15,721 15,409 11,803
Net income $28,915 $22,564 $21,073
Net income per share $1.19 $0.94 $0.88
Average shares outstanding 24,203 24,113 24,034
See accompanying notes to consolidated financial statements.
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Years Ended
Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994
Cash flows from operating activities:
Net income $28,915 $22,564 $21,073
Adjustments to reconcile net
income to net cash (used in)
provided by operating activities,
net of acquistion:
Depreciation and amortization 3,839 2,219 1,382
Acquired in-process technology 1,117 6,028 0
Unrealized appreciation in market
value of investments and
marketable securities (2,483) (2,061) 0
(Increase) in accts receivable (6,744) (7,295) (1,773)
(Increase) in inventories (1,138) (3,193) (2,497)
(Increase) decrease in other
assets 132 (1,884) (81)
Increase in accounts payable 932 3,867 1,564
Increase in accrued expenses 355 1,003 (409)
Increase (decrease) in income
taxes payable (317) 1,791 (22)
(Decrease) in deferred income
taxes (484) (815) (340)
Net increase (decrease) in other
operating activities 1,491 927 (256)
Net sales (purchases) of
investments and marketable
securities (24,153) (11,460) 14,964
Net cash provided by operating
activities $1,462 $11,691 $33,605
Cash flows from investing activities:
Purchases of machinery and
equipment (5,994) (4,333) (2,116)
Payment for acquisition (962) (2,550) 0
Net purchases (sales) of
investments and marketable
securities 265 (6,147) (20,010)
Net cash used in investing
activities $(6,691) $(13,030) $(22,126)
Cash flows from financing activities:
Proceeds from exercise of stock
options 476 324 318
Proceeds from sales of Common stock 0 631 310
Repayments under line of credit 0 0 (4,000)
Issuance (repayment) of short-term
notes payable (37) 37 0
Payments for obligation under
capital lease (59) (57) (54)
Net cash provided by (used in)
financing activities $380 $935 $(3,426)
Net increase (decrease) in cash and
cash equivalents (4,849) (404) 8,053
Cash and cash equivalents at
beginning of period 10,017 10,421 2,368
Cash and cash equivalents at end
of period $5,168 $10,017 $10,421
Supplemental disclosures of cash flow information:
Interest paid $87 $59 $276
Income taxes paid $16,763 $13,626 $11,964
See accompanying notes to consolidated financial statements.
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dollars in thousands
Unrealized
Class A Class B Add'l Holding Cum.
Common Common Paid-in Retained Loss on Trans.
Stock Stock Capital Earnings Invest. Adjust Total
Balance at
Dec. 31, 1993 $74 $45 $24,686 $36,072 $0 $(242) $60,635
Issuance of 44,802
shares of Class A
Common Stock 0 1 627 0 0 0 628
Conversion of 430,502
shares of Class B
Common Stock to
430,502 shares of
Class A Common Stock 2 (2) 0 0 0 0 0
Net income 0 0 0 21,073 0 0 21,073
Cumulative trans-
lation adjustment 0 0 0 0 0 91 91
Unrealized holding
loss on investments 0 0 0 0 (395) 0 (395)
Balance at
Dec. 31, 1994 $76 $44 $25,313 $57,145 $(395) $(151) $82,032
Issuance of 117,388
shares of Class A
Common Stock 1 0 2,453 0 0 0 2,454
Conversion of
1,391,712 shares of
Class B Common
Stock to 1,319,712
shares of Class A
Common Stock 7 (7) 0 0 0 0 0
Adjustments for
stock split 85 36 (121) 0 0 0 0
VTI acquisition 0 0 2,000 0 0 0 2,000
Net income 0 0 0 22,564 0 0 22,564
Cum. trans. adjust. 0 0 0 0 0 (73) (73)
Unrealized holding
loss on investments 0 0 0 0 (771) 0 (771)
Balance at
Dec. 31, 1995 $169 $73 $29,645 $79,709 $(1,166) $(224)$108,206
Issuance of 56,815
shares of Class A
Common Stock 0 0 741 0 0 0 741
Conversion of 2,658
shares of Class
B Common Stock to
2,658 shares of
Class A Common Stock 0 0 0 0 0 0 0
Net income 0 0 28,915 0 0 0 28,915
Cum. trans. adjust. 0 0 0 0 0 1,434 1,434
Unrealized holding
gain on investments 0 0 0 0 1,160 0 1,160
Balance at
Dec. 31, 1996 $169 $73 $30,386 $108,624 $(6) $1,210 $140,456
See accompanying notes to consolidated financial statements.
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 computerized on-demand bar code
label printers, specialty bar code labeling materials,
thermal transfer ribbons, and PC-based bar code software,
which provides bar code labeling solutions targeted
primarily at industrial and service organizations
worldwide.
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, 1996 consisted of U.S.
Treasury, mortgaged-backed, and corporate debt and equity
securities. The Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (FASB
115) on January 1, 1994. Under FASB 115, 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
which 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
stockholders' equity until realized. Transfers of
securities between categories are recorded at fair value at
the date of transfer. Unrealized holding gains and losses
are recognized in earnings for transfers into trading
securities.
Inventories. Inventories are stated at the lower of cost or
market, and cost is determined by the first-in, first-out
(FIFO) method.
Machinery and Equipment. Machinery 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 machinery and
equipment, which range from 3 to 10 years. Machinery and
equipment held under a capital lease 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 in
accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (FASB 109). Under
the asset and liability method of FASB 109, 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. Under FASB 109, 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.
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.
Stock-based Compensation. The Company utilizes the
intrinsic value-based method of accounting for its stock-
based compensation arrangements.
Net Income Per Share. For the years ended December 31,
1996, 1995, and 1994, net income per share was computed
based on weighted average shares of 24,203,000, 24,113,000,
and 24,034,000, respectively.
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 sales and
expenses are translated using the average exchange rate for
the year. The resulting translation gains or losses are
recorded as a separate component of stockholders' equity as
a cumulative translation adjustment.
Note 3 Investments and Marketable Securities
Investments and marketable securities consist of (in
thousands):
December 31, December 31,
1996 1995
Trading, at fair value $83,334 $56,698
Available-for-sale, at fair value 6,038 5,143
$89,372 $61,841
The amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and fair value for available-for-
sale investments and marketable securities were as follows
(in thousands):
Gross Unrealized Holding
Cost Gains Losses Fair Value
December 31, 1996 $6,047 $0 $(9) $6,038
December 31, 1995 $6,939 $142 $(1,938) $5,143
Note 4 Related-Party Transactions
Unique Building Corporation (Unique), an entity controlled
by certain officers and stockholders of the Company, leases
a facility and equipment to the Company under a lease
described in note 9. Management believes that the lease
payments are substantially consistent with amounts which
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):
Unique Operating Interest Expense on
Lease Payments Unique Capital Lease
1996 $1,227 $10
1995 1,114 12
1994 779 15
Note 5 Inventories
The components of inventories are as follows (in thousands):
December 31, December 31,
1996 1995
Raw material $10,750 $10,492
Work in process 325 354
Finished goods 10,428 9,519
Total inventories $21,503 $20,365
Note 6 Machinery And Equipment
Machinery and equipment, which includes assets under capital
leases, is comprised of the following (in thousands):
December 31, December 31,
1996 1995
Machinery, equipment, and tooling $11,091 $9,246
Machinery and equipment under
capital leases 591 618
Furniture and office equipment 2,259 1,390
Computers and related equipment 6,943 3,899
Automobiles 536 365
Leasehold improvements 704 498
22,124 16,016
Less accumulated depreciation and
amortization 10,796 7,697
Net machinery and equipment $11,328 $8,319
Note 7 Income Taxes
The provision for income taxes consists of the following (in
thousands):
1996 1995 1994
Current:
Federal $12,914 $12,365 $10,020
State 1,412 1,192 1,336
Foreign 1,879 1,037 787
Deferred:
Federal (240) 289 100
State (244) 64 22
Foreign 0 462 (462)
Total $15,721 $15,409 $11,803
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):
1996 1995 1994
Provision computed at statutory rate $15,623 $13,291 $11,507
State income tax (net of Federal
tax benefit) 759 816 883
Tax-exempt interest and dividend income (280) (211) (252)
Tax benefit of exempt foreign trade
income (585) (670) (483)
Acquisition related items 259 2,213 0
Other (55) (30) 148
Provision for income taxes $15,721 $15,409 $11,803
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.
Temporary differences which give rise to deferred tax assets
and liabilities are as follows (in thousands):
December 31, December 31,
1996 1995
Deferred tax assets:
Deferred rent-building $104 $103
Capital equipment lease 70 92
Accrued vacation 276 196
Inventory items 951 391
Allowance for doubtful accounts 275 104
Unrealized loss on securities 0 677
Other accruals 569 42
Acquisition related items 435 0
Total gross deferred tax assets 2,680 1,605
Deferred tax liabilities:
Unrealized gain on securities (821) (623)
Depreciation (979) (666)
Acquisition of VTI (451) (653)
Other (282) 0
Total gross deferred tax liabilities (2,533) (1,942)
Net deferred tax asset (liability) $147 $(337)
The valuation allowance was zero as of December 31, 1996 and
1995, and decreased by $384,000 in 1995.
Note 8 401(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 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 2.925% of
eligible earnings for 1996, and 3.4% for 1995 and 1994.
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):
401(k) Profit sharing Total
1996 $398 $513 $911
1995 324 453 777
1994 269 321 590
Note 9 Commitments and Contingencies
(a) 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
treated as an operating lease. An amendment to the lease
dated June 1996, extended the term of the lease through
March 31, 2008. 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). Under the portion of the
lease agreement with Unique which is accounted for as a
capital lease, the Company leases machinery, equipment,
furniture and fixtures at a monthly rental of $5,725 for a
ten-year period. Assets under these leases are as follows
(in thousands):
December 31, December 31,
1996 1995
Assets under capital leases $591 $618
Less accumulated amortization 577 583
Net leased machinery and equipment under
capital leases $14 $35
Minimum future obligations under the Vernon Hills non-
cancelable operating lease and future minimum capital lease
payments as of December 31, 1996 are as follows (in
thousands):
Capital Operating
Lease Lease
1997 $69 $1,192
1998 69 1,254
1999 50 1,312
2000 0 1,384
2001 0 1,384
Thereafter 0 9,385
Total minimum lease payments 188 $15,911
Less amount representing interest 11
Present value of minimum payments 177
Less current portion of obligation
under capital lease 62
Long-term portion of obligation under
capital lease at December 31, 1996 $115
Rent expense for operating leases charged to operations for
the years ended December 31, 1996, 1995, and 1994 was
$1,750,000, $1,348,000, and $790,000, respectively.
(b) 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
Company's contingent liability under this guaranty as of
December 31, 1996 is $700,000, which is the limit of the
Company's guaranty throughout the term of the IRB.
(c) 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 150 basis points over the LIBOR rate, at the Company's
discretion. There were no amounts outstanding at December
31, 1996 or December 31, 1995. The lines of credit expired
on February 28, 1997 and were renewed until February 28,
1998.
Note 10 Segment Data and Export Sales
The Company operates in one industry segment. The Company
generated sales to foreign customers of approximately
$75,055,000, $65,720,000, and $42,631,000, for the years
ended December 31, 1996, 1995, 1994, respectively.
For the year ended December 31, 1996, the Company's wholly-
owned subsidiaries located in the United Kingdom had net
sales, net income, and total assets of $44,518,000,
$1,864,000, and $21,015,000, respectively. For the year
ended December 31, 1995, the subsidiaries' net sales, net
income, and total assets were $36,925,000, $2,536,000, and
$15,537,000, respectively.
Note 11 Acquisitions
(a) Fenestra Computer Services
Effective February 16, 1996, the Company purchased the
assets of Fenestra Computer Services, a UK partnership, in
exchange for $1,314,000, paid in the form of cash and Zebra
Class A Common stock. The transaction has been accounted
for under the purchase method of accounting. Assets and
liabilities, including software and hardware technology, and
trade names have been recorded at their respective fair
market values, with $1,117,000 assigned to acquired in-
process technology, based on an independent third-party
appraisal. The acquired in-process technology was expensed
in the first quarter of 1996.
(b) Vertical Technologies, Inc.
In July 1995, the Company purchased all the outstanding
stock of Vertical Technologies, Inc. (VTI), a PC-based bar
code software company. The acquisition was accounted for
under the purchase method whereby the purchase price of
$8,050,000 was allocated to the fair market value of the net
assets acquired. In conjunction with the acquisition, the
Company assumed $308,000 of VTI's liabilities. Acquired in-
process technology valued at $6,028,000 was expensed
immediately. A long-term liability of $2,000,000 was
reflected at December 31, 1996 and 1995 relating to amounts
remaining to be paid to the former stockholders of VTI.
Note 12 Stockholders' 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. All actions submitted to a vote of
stockholders are voted on by holders of Class A and Class B
Common Stock voting together as a single class, 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 his Class B Common Stock
into Class A Common Stock, in whole or in part, at any time
and from time to time on the basis of one share of Class A
Common Stock for each share of Class B Common Stock.
Holders of Class A and Class B Common Stock are entitled to
receive cash dividends equally on a per share basis if and
when such dividends are declared by the Board of Directors
of the Company from funds legally available therefore. In
the case of any dividend paid in stock, 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 available for distribution in respect of
Class A and Class B Common Stock in the event of
liquidation.
The Company has authorized 10,000,000 shares of Preferred
Stock. No shares of Preferred Stock have been issued.
Note 13 Stock Option Plans
As of December 31, 1996, the Company has two stock option
plans, described below. The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," 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 Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company's net income and net
income per share would have been reduced by less than 1% in
1996 and 1995.
The Board of Directors and stockholders 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.
In general, the options granted under the 1991 Plan during
1996 and 1995 have similar provisions. Under this plan, the
Company has granted only nonqualified stock options. 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%
on the third anniversary, 22.5% on the fourth anniversary,
and 25% on the fifth anniversary of the grant date. Upon
vesting, the options have a legal life of two years from the
date of vesting. Options granted to the Board of Directors
do not carry an expiration period, however, should a member
of the board discontinue service on the Board of Directors,
they are limited to a sixty-day period to exercise all
outstanding options. The specific provisions of any grant
are determined by the Board of Directors.
The Board of Directors and stockholders also adopted a
Directors' Stock Option Plan, which reserves 80,000 shares
of Class A Common Stock for issuance under the plan. All
options granted under this plan are exercisable immediately
upon grant at a price per share equal to the closing price
of the Class A Common Stock as reported on the Nasdaq
National Market on the date of grant.
In addition, the Board of Directors and stockholders 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, or (2) 85% of the fair market value of the shares as
of the date of purchase. As of December 31,1996, 98,213
shares have been purchased under the plan.
In general, the options granted under the Stock Purchase
Plan during 1996 and 1995 have similar provisions. Under
this plan, the Company has granted only nonqualified stock
options. These options are granted either on January 1 or
July 1 of the current year and expire at the end of the
year. Therefore, the options have a legal life of six
months to one year, and typically vest upon grant. The
specific provisions of any grant are determined by the Board
of Directors.
For purposes of calculating the compensation cost consistent
with FASB 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 1996 and 1995,
respectively: option price, which equals the fair market
value at the date of grant of $21.16 and $19.43; expected
dividend yield of 0% and 0%; expected volatility of 41.21%
and 41.21%; risk free interest rates of 6.45% and 6.36%; and
expected weighted-average lives of 5.25 years and 5.25
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 1996
and 1995, respectively: fair market value of $22.11 and
$20.20; option price of $18.79 and $17.17; expected dividend
yield of 0% and 0%; expected volatility of 44% and 30%;
risk-free interest rates of 5.55% and 5.55%; and expected
lives of six months to one year.
Stock option activity for the years ended December 31, 1996,
1995 and 1994 was as follows:
1996 1995 1994
Weighted-Avg. Weighted-Avg. Weighted-Avg.
Fixed Options Shares Ex. Price Shares Ex. Price Shares Ex. Price
Outstanding at
beginning of
year 168,000 $15.72 170,000 $12.43 157,000 $ 8.96
Granted 47,500 $26.06 56,000 $19.36 56,000 $18.66
Exercised (38,500) $ 9.01 (38,500) $ 8.42 (43,000) $15.70
Canceled (5,000) $29.25 (19,500) $11.91 0 0
Outstanding at
end of year 172,000 $20.23 168,000 $15.72 170,000 $10.45
Options exer-
cisable at
end of year 78,700 $18.20 54,000 $16.47 28,750 $16.42
The following table summarizes information about fixed stock
options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
-------------------------------------- -------------------
Range of No. Wgtd-Avg Remaining Wgtd-Avg No. Wgtd-Avg
Prices Shares Contract Life Ex. Price Shares Ex. Price
$12.38-$29.25 112,000 5.25 years $20.07 18,700 $17.34
$9.88-$26.50 60,000 4.20 years $18.46 60,000 $18.46
Note 14 Quarterly Results of Operations (unaudited)
(Dollars in thousands, except per share data)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
1996
Net sales $38,352 $40,490 $43,757 $47,116 $169,715
Cost of sales 19,919 21,099 22,324 24,454 87,796
Gross profit 18,433 19,391 21,433 22,662 81,919
Total operating
expenses 11,740 (1) 11,438 9,502 11,021 43,701
Income from operations 6,693 (1) 7,953 11,931 11,641 38,218
Total other income 1,279 1,534 1,473 2,132 6,418
Income before income
taxes 7,972 (1) 9,487 13,404 13,773 44,636
Income taxes 2,723 3,227 4,690 5,081 15,721
Net income 5,249 (1) 6,260 8,714 8,692 28,915
Net income per share $0.22 (1) $0.26 $0.36 $0.35 $1.19
1995
Net sales $34,392 $35,488 $37,480 $41,233 $148,593
Cost of sales 17,914 18,887 19,214 21,591 77,606
Gross profit 16,478 16,601 18,266 19,642 70,987
Total operating
expenses 6,985 6,477 14,554 (2) 10,446 38,462
Income from operations 9,493 10,124 3,712 (2) 9,196 32,525
Total other income 956 957 909 2,626 5,448
Income before income
taxes 10,449 11,081 4,621 (2) 11,822 37,973
Income taxes 3,836 3,990 3,657 3,926 15,409
Net income 6,613 7,091 964 (2) 7,896 22,564
Net income per share $0.27 $0.29 $0.04 (2) $0.33 $0.94
(1) Reflects a pre-tax charge for acquired-in-process
technology of $1,117 relating to the Company's acquisition
of Fenestra Computer Services.
(2) Reflects a pre-tax charge for acquired-in-process
technology of $6,028 relating to the Company's acquisition
of VTI.
The unaudited quarterly consolidated statements of earnings
included in this report are an integral part of the
consolidated financial statements.
Note 15 Major Customers
One customer represents revenues of approximately 21% during
the year ended December 31, 1996, and 12.2 % of the accounts
receivable at December 31, 1996. Consolidated sales to Peak
Technologies Group amounted to $36,310,000 in 1996. No
other customer accounted for 10% or more of consolidated
sales.
ZEBRA TECHNOLOGIES CORPORATION
DECEMBER 31, 1996
Schedule II
Valuation And Qualifying Accounts
(Dollars in Thousands)
Balance at Charged to Costs Balance at
Description Beg. of Period and Expenses Deductions End of Period
Valuation account for accounts receivable:
Y/E 12/31/96 $349 $611 $0 $960
Y/E 12/31/95 $349 $0 $0 $349
Y/E 12/31/94 $589 $118 $360 $349
Valuation account for inventory:
Y/E 12/31/96 $969 $1,945 $180 $2,734
Y/E 12/31/95 $677 $1,351 $1,059 $969
Y/E 12/31/94 $645 $391 $359 $677
REPORT AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Zebra Technologies Corporation:
Under date of February 7, 1997, we reported on the
consolidated balance sheets of Zebra Technologies
Corporation and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1996, as contained
in the Form 10-K for the year 1996. In connection with our
audits of the aforementioned consolidated financial
statements, we also audited the related financial statement
schedule listed under Item 14. The financial statement
schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial
statement schedule based on our audits.
In our opinion, such 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.
We consent to incorporation by reference in the registration
statements (No. 334706 and No. 33-72774) on Form S-8 of
Zebra Technologies Corporation of our reports relating to
the consolidated balance sheets of Zebra Technologies
Corporation and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1996, and related
to the financial statement schedule, as contained herein.
These consolidated financial statements and the financial
statement schedule and our reports thereon are included
herein.
KPMG Peat Marwick LLP
Chicago, Illinois
March 26, 1997