In a world of black & white, Zebra enjoys the full spectrum of success. Zebra Zebra sales climbed 17 percent and earnings per share increased 39 percent over 1996. Zebra returns more than 62 percent on each dollar of shareholders’ equity in the company. to our shareholders By any measurement, 1997 was an outstanding under-appreciated measurement of our success, year. Virtually every measure of financial perfor- return on equity, continued impressive growth. mance reflected significant growth. Our position in Excluding the effect of investment income and cash the market, both domestically and internationally, reserves, Zebra returned more than 62 percent on grew stronger. Our commitment to delivering value each dollar of shareholders’ equity in the company. to our customers and value to our shareholders has Zebra’s sales figures are even more impressive than again delivered results. the 17 percent growth because business with our 4 This year Zebra continued to strengthen its posi- largest customer, Peak Technologies, was actually tion as a dominant player in an industry experienc- down this year. Sales to all other customers climbed ing rapid growth. We are succeeding because we 26 percent. have superior products, a talented and committed Consistent performance at an exceptionally high management team, and the financial strength and level attracts attention. In 1997 Forbes magazine stability to capitalize on every available opportunity named Zebra Technologies one of the Best Small and advantage. Companies in America, the fifth time we have been named to this distinguished list. We are one of only a year of record results. again. 14 companies named by Forbes five or more times. In 1997 Zebra continued its trend of record setting financial performance. Sales increased 17 percent over the leader in an exceptional industry. 1996 to $192.1 million. Our earnings per share also Bar coding is an essential tool in the new global climbed dramatically, finishing 39 percent higher economy. Competitive pressures on companies to than the previous year at $1.77 per share. In addition, reduce costs and improve quality are greater than our gross margins, operating margins and operating ever. Bar code technology continues to deliver sub- profits all made significant gains over 1996. One stantial benefits in improved productivity and I nvestment highlights Financial Summary (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NET SALES GROSS PROFIT OPERATING INCOME NET INCOME FROM CONTINUING OPERATIONS BASIC EARNINGS PER SHARE FROM CONTINUING OPERATIONS (PRO FORMA 1988-1991) DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS (PRO FORMA 1988-1991) TOTAL-ASSETS LONG-TERM OBLIGATIONS 1988 1989 1990 1991 $ 17,726 7,572 3,622 2,329 0.10 0.10 8,863 — $ 29,963 13,509 8,278 5,534 0.24 0.24 16,705 495 $ 37,982 $ 45,623 18,064 10,548 6,630 0.30 0.30 16,235 448 22,102 12,690 8,487 0.38 0.38 48,901 399 5 improved quality for nearly every industry; conse- quently, the automatic identification industry con- tinues steady and impressive growth. Research by the Venture Development Corporation indicates that the Auto ID market will continue to grow between 18 and 19 percent a year through the year 2000. At Zebra, we focus exclusively on the fastest growing parts of this exciting industry: the industrial/service sectors and international. Both have low penetration of bar code technology and huge growth potential. Zebra is a dominant player in the industrial/service market. With over 30 percent of the market for ther- mal transfer printers, we have nearly 1.5 times the share of our nearest competitor. Internationally, where bar coding is an emerging technology, we have even greater opportunities for growth. Zebra is positioned, through the strength of our distribution system and product offerings, to be the leader in providing bar code printers and supplies to the world. During the past five years, international sales have grown at a 31 percent compounded annual rate. In 1997 they reached $87.4 million, representing 1992 1993 1994 1995 1996 1997 $ 58,711 $ 87,456 $ 107,103 $ 145,348 $ 163,980 $ 192,071 28,992 15,407 11,843 0.50 0.49 54,845 347 43,567 24,897 18,255 0.76 0.76 76,697 293 52,023 30,343 21,073 0.88 0.87 95,043 236 69,107 39,981 29,574 1.23 1.22 131,071 2,177 78,678 41,031 30,853 1.27 1.27 164,386 2,326 98,200 52,775 42,810 1.77 1.76 203,584 263 46 percent of our total sales. With offices in Including the Z Series Zebra now has an Singapore, Frankfurt, the U.K. and Miami, Zebra unequaled offering of bar code printers. We have now occupies a significant presence in all of the products for virtually every price and performance world’s key markets. Including the Miami office, segment of the market, from the $395 A100™ to the which covers Central and South America, Zebra now high performance 220XiII™ for $7,495. has more than 100 people dedicated to increasing our market share in the international market. 6 new products other events Consolidation was the theme for a tumultuous year in the Auto ID industry. Paxar acquired Iimak and Zebra’s success has always been fueled by product Western Atlas acquired Norand and UBI. Perhaps of innovations. Historically, new product platforms have greatest importance to Zebra was Moore’s acquisition led to tremendous incremental growth in revenue as of Peak Technologies, our largest customer. The short customers created new applications for bar code tech- term effect of this merger was a decline in our sales to nology. For example, Zebra’s revenue jumped 49 per- Peak. Longer term, however, Moore offers excellent cent following the introduction of our Stripe™ print- opportunities for increased printer sales through their ers in 1993; our revenues grew 38 percent after the extensive customer base. We expect the net result of introduction of our Xi Series™ printers in 1995. Last Peak Technologies’ acquisition to be positive for Zebra. year, products introduced over the last 18 months Zebra, with cash reserves in excess of $125 million, accounted for 45 percent of total printer sales. continues to seek suitable companies for acquisition, In 1997 Zebra introduced a significant new product either in products or technologies. platform, the Z Series™ printers. We invested more During the second quarter of 1997, Zebra closed money on the development of this product platform Zebra Technologies VTI in Utah; we took a one time than any other product in our history. The result is a pretax charge of $2.4 million. We decided that further revolutionary printer. The Z Series are the first mod- investment in developing the small business user ular printers; all options can be field installed. This through the retail channel was a poor use of our man- innovation greatly simplifies both the distribution agement resources. Instead, we will focus the talents and the purchase of bar code printers, making it eas- of our software development personnel at the Utah ier on both our channel partners and the end-user. Technical Center on products that help sell Zebra The Z Series is the fourth new platform Zebra has printers. Our alliance with JetForm Corporation is an introduced in the past 18 months; that rate is equal to example of this focus. By integrating JetForm soft- the number of new product platforms we’ve intro- ware with our Bar-One® label design package, Zebra duced in the past 10 years combined. We expect this printers can now accept output directly from virtually accelerated rate of product introductions will be all of the popular enterprise resource planning pack- reflected in our 1998 performance. ages currently on the market. the view ahead We expect 1998 will be another record year for Zebra with improved sales and earnings growth. Zebra is currently growing faster than the industry, a trend we expect to continue. We expect substantial sales from the new Z Series printers. We have a signif- icant presence in all of the key international markets; we will continue to expand our international invest- ment, as Europe and Latin America look to be partic- ularly strong growth markets. While growth in the Asian market is uncertain due to the recent currency crisis, our exposure to the weakest economies is small. Ultimately our success comes down to these sim- ple factors: Zebra has the broadest printer product offering with the highest quality and reliability in the industry; we have the highest brand recognition and market share; we have the strongest collection of channel partners; and we have the strongest presence in the international market. Zebra currently has sig- nificant cash reserves, in excess of $125 million, and a market capitalization greater than $700 million. In the coming years, we will continue to draw from our considerable resources to invest in each area critical to our growth, while capitalizing on every available new opportunity. 1997 was a great year. We are eager for the chal- lenges the future holds, and look forward to even greater success. 26.8% CAGR1 92 97 $58.7 $192.1 IN MILLIONS net sales 7 28.4% CAGR free cash flow 92 97 $10.5 $36.6 IN MILLIONS 28.8% CAGR 92 97 $.50 $1.77 basic earnings per share Edward Kaplan Chairman and Chief Executive Officer 1. COMPOUNDED ANNUAL GROWTH RATE Focused expansion—targeted growth. The $8.5 billion automatic identification industry is clearly a growth market. Venture Development Corporation, an independent research firm, predicts the Auto ID market will grow between 18 and 19 per- cent a year through the year 2000. Zebra’s prospects, however, will continue to outpace industry predic- tions for one simple reason: Zebra focuses its entire business on the two segments of the market with the highest growth potential, the industrial/service sector and the international market. Analysts estimate that bar code technology has penetrated only 30 percent of the industrial/service sector, in comparison to more than 90 percent pene- tration of the retail market. Zebra, with a full spec- trum of products and a reputation for meeting the most demanding requirements, is uniquely posi- tioned to take advantage of the industrial/service market’s growth potential. The international market offers additional oppor- tunities for growth, particularly in Europe, Asia, Central and South America, where industries are in the earliest stages of adopting bar code technology. With sales offices in place to cover all the world’s major markets, Zebra is positioned to be a dominant player in the international market. 9 sales growth 1992-1997 26.8% 17.8% industry2 zebra CAGR 2. SOURCE: THE ROBINSON-HUMPHREY COMPANY 220XiII™ 170XiII™ 140XiII™ 90XiII™ XiII Series™ Zebra leads while all others follow. installed base 11 46.4% CAGR 92 97 43.8 294.9 THOUSANDS OF UNITS Zebra has installed over 290,000 printers in 80 countries around the world. To support this broad collection of international customers, Zebra imple- mented the industry’s first Internet-based technical support system to supplement its traditional tech support group. This new, interactive system uses case- based logic to provide support in real time, 24 hours- a-day, 7 days-a-week, to customers around the world. Zebra is the first bar code printer company to incor- porate leading Internet technology into its customer service and technical support systems. For the industrial market, Zebra has by far the largest selection of printers, supplies and software of any bar code printer manufacturer. Zebra has products to fit virtually every industry, from low volume desk- top applications to high performance print engines used in automatic label applicator systems. Whatever the requirements, from the smallest sized label, to the fastest output, to labels that withstand the harshest conditions, Zebra has a product to meet the spec. Each Zebra product shares a common reputation for inno- vation, performance, quality and reliability. 160S™ 105Se™ S-500™ S-300™ S Series Stripe® Series 170PAX™ PC470 Z6000™ Z4000™ Z Series™ New product platforms drive growth. product development spending 13 26.0% CAGR 92 97 $3.4 $10.8 IN MILLIONS Historically, new product platforms have fueled Zebra’s record growth in revenue. Zebra has intro- duced as many new product platforms in the past 18 months as in the past 10 years combined. This accelerated rate of product development comes in response to the market as industries find new appli- cations for bar code technology. Zebra consistently invests more in new product development than any company in our industry. This past year products introduced during the past 18 months accounted for 45 percent of total printer sales and more than half of all units sold. In 1997 Zebra introduced the Z Series printers. The Z Series is the result of extensive research and represents the largest investment in new product development Zebra has ever made. The Z Series most significant innovation is its modular design. Options on both the Z4000™ and the Z6000™ can be field installed, making these two models the most flexible bar code printers in the industry. With revolutionary performance and pricing, the Z Series redefines value in the bar code printer industry. T300™ A300™ A100™ BAR-ONE® personal printers ® ® ® ® Zebra’s reputation is built on reliability. warranty claims 15 down 29% 92 97 .007 .005 PER 1000 UNITS SHIPPED The world’s leading companies choose Zebra print- ers for mission-critical applications for one simple reason: Zebra printers deliver results. Day after day. Year after year. For more than 15 years, Zebra has earned its reputation for quality and reliability under the most demanding circumstances. And customer satisfaction remains central to Zebra’s success today. In an industrial or manufacturing environment, bar code data systems are essential components of the entire production and communications network. At the heart of the system is the bar code label, which contains every piece of critical information associated with the item labeled. Most companies cannot afford for the label to fail. Zebra can create labels that adhere to virtually any surface, enabling our cus- tomers to adapt bar code technology into practically every industry. Zebra labels perform flawlessly, even under the harshest conditions—from exposure to chemical baths used in the manufacturing of circuit boards to the extreme temperatures of a steel mill. Zebra’s on-demand printers print literally billions of labels each month for customers around the world. ® ® ® ® See page 36 for information on trademark ownership. Experts in the field. Unquestionably, Zebra’s indirect channel network is among its strongest assets. Zebra has relationships with more than 500 reseller partners worldwide. Among these are “two tier” distributors who sell to thousands of small value-added resellers with specific industry or application expertise. The breadth and diversity of this network leverages Zebra’s resources and provides a highly flexible and cost-effective way to deliver products to the end-user. Zebra’s channel partners deliver value to the end- user because they build the optimal bar code system by selecting from the leading manufacturers of each system component: printers, scanners and data col- lection equipment. Zebra also works with its channel partners to provide application expertise for the end- user, to integrate bar code technology with the cus- tomer’s existing information systems. The breadth of Zebra’s distribution channels provides the end-user far more choices, from the full services of a national systems integrator like Peak Technologies to the spe- cialized services provided by industry-specific value- added resellers. Zebra is clearly the preferred brand of bar code printer among its channel partners. Zebra will continue to invest in these valuable relationships. reseller partners 17 47.9% CAGR 92 71 97 502 WORLDWIDE Simon Tang general manager, asia pacific vernon hills miami high wycombe & preston A key player in the global market. international sales growth 19 30.6% CAGR 92 97 $23.0 $87.4 (IN MILLIONS) The international market, where bar coding is an emerging technology, is Zebra’s greatest opportunity for long term growth. Zebra is positioned to be the world leader in bar code printer technology for the same reasons it dominates the domestic market: product quality, product diversity and the strength of its distribution network. International sales have risen from 37 percent of total sales in 1993 to 46 percent, almost $90 million, in 1997. International sales grew more than 18 percent over 1996. Zebra printers are currently providing bar code labeling solutions in 80 countries around the world. Zebra has a strong sales position in all of the world’s key markets with offices in High Wycombe and Preston (U.K.), Frankfurt, Singapore and Miami; the Miami office manages sales in both Central and South America. In three years the number of employees devoted to international sales has doubled to 108. Zebra also offers technical support in seven languages: English, German, French, Spanish, Portuguese, Japanese and Mandarin. frankfurt singapore