Zebra
Annual Report 2001

Plain-text annual report

2 0 0 1 Annual Report W e E n a b l e Zebra Technologies Corporation Zebra Technologies Corporation provides innovative and reliable on-demand printing solutions to businesses and governments in nearly 100 countries around the world. Zebra® thermal bar code label and receipt printers and Eltron® card printers encode and deliver information, which enables users to strengthen security, increase productivity, enhance quality, lower costs and improve customer service. ncrease inventory accuracy - Ensure quality - Eliminate packing errors - Lower labor costs - Shorten cycle time - Prevent theft - Avert tampering - Avoid misplaced goods - A vertical markets focus: Small package delivery Entertainment Driver’s licenses Specialty retailing Department store retailing National ID Food service distribution Vehicle rental Transportation Auto parts manufacturing Third-party logistics Electronics manufacturing Lodging Drug manufacturing Warehousing High-security access High-performance bar code label and specialty printers Industrial and commercial bar code label printers Desktop label, ticket and receipt printers Mobile printing systems F I N A N C I A L S U M M A R Y 2001 % change 2000 % change 1999 (In thousands, except per share data and percentages) Operating Results Net sales Capitalization Gross profit Operating income Net income Diluted earnings per share Cash and cash equivalents and investments in marketable securities Working capital Total assets Total shareholders’ equity $450,008 209,893 92,459 61,529 1.99 $249,349 329,789 479,556 445,007 -6.6% $481,569 -9.7 -14.9 -14.0 -13.4 232,428 108,670 71,622 2.30 $156,714 256,799 418,896 371,288 19.7% 14.3 4.7 2.8 4.0 $402,213 203,271 103,784 69,632 2.21 $235,568 302,804 394,643 349,307 Certify documentation - Authenticate merchandise - Collect customer data - Enhance customer service - Speed customer checkout - Control access - Secure assets - Verify personnel Card printers Thermal printing supplies Radio Frequency Identification (RFID) Connectivity and label design software L E T T E R T O S T O C K H O L D E R S Edward Kaplan Chairman and Chief Executive Officer Early in 2001, as the U.S. economy slowed, Zebra made important strategic investments to strengthen its position for long-term success. Facing an expected sales decline, but with substantial resources and high profitability, we decided to trade current earnings for the opportunity for much larger gains in the following years. We focused on demand-generating activities. We introduced new prod- ucts that enable businesses and governments to improve security, productivity, quality, and customer service. We expanded our global presence and introduced high- growth mobile printing solutions to new territories. We also began implementing new channel and marketing programs targeting vertical markets with high-growth opportunities. Our pursuit of acquisitions yielded increased deal flow and, regrettably, a transaction that we were unable to complete. Against a backdrop of weak manu- facturing and technology sectors, we materially strengthened our financial condition and generated record free cash flow. As expected, net sales for 2001 declined for the first time in Zebra’s history, down 6.6% to $450 million. Net income before merger expenses amounted to $2.03 per share, com- pared with $2.53 per share in 2000. At the same time, continued high profitability and the success of better working capital management 2 | Zebra Technologies Corporation 2001 Annual Report helped generate $84 million in free cash. Operating profit margins exceeded 21% for the year. Inventories declined 30%, and receivables fell 20%. Cash and investments at the end of 2001 totaled $249 million, which can be used for acquisitions. We believe our performance was quite respectable relative to Corporate America in general and technology companies in particular. More important, we enhanced our ability to grow and deliver stock- holder value over the long term. Certainly our accomplishments in 2001 underscore our commitment to long-term growth. In Europe, we established a mobile printing systems business. In a few short months, our associates captured some important contract awards. Our investments in geographic expansion with in-country representation helped us win more business oppor- tunities as well. On the strength of our product offerings, we increased sales with national postal organi- zations, banking systems, and hospitality and travel providers. Major leaps forward in connectivity and wireless communications enhanced the value of Zebra’s prod- ucts in 2001. Our products became easier to integrate into IT networks. We introduced the first wireless tabletop printers. The introduction of Bluetooth and other important wireless technologies also broadened the connectivity of Zebra printers. Record sales and product-line expansion were the high points for Zebra’s card printers. Heightened awareness of safety and security fol- lowing the tragedy of September 11 supported growth of these products. Related to our growth in card printers and our commitment to building stockholder value was our agreement to acquire Fargo Electronics. We devoted sig- nificant resources over eight months to bring the transaction to a successful conclu- sion. Ultimately, the Federal Trade Commission Staff indicated that it was unlikely to clear the transaction in its pro- posed form. After carefully considering the time and uncer- tainty in making selective product divestitures outlined by the FTC Staff, Zebra and Fargo determined that continued pursuit of the transaction was not in the best interests of the companies and their stockholders. Accordingly, we agreed to terminate the acquisition. No doubt, we are disappointed that we were unable to complete the acquisition. Zebra, however, remains committed to the attrac- tive market for card personalization systems. The opportunities for personal identification, access control and security are excellent, and Zebra’s card printer business unit is very well positioned for continued growth. We are working with law enforce- ment agencies on developing card personalization systems that meet higher security needs, as govern- ments, defense agencies and military contractors, and global corporations are upgrading their card personalization programs and showing greater interest in higher-value identification tech- nologies. Our new P720 We have a sharper focus on high-growth vertical markets and applications where we deliver real value for our customers. performance printer is targeted at high- security applica- tions, including driver’s licenses and national ID cards. In addi- tion, new entry- level P200 series printers are perfect for loyalty cards, employee badges, and member- ship cards. During 2002, we intend to expand our card printer line further, with new features and price points to increase the number of potential applications and deliver better value in card personalization solutions. Advances in wireless technology are expanding the applications for mobile printing systems. The latest addition to Zebra’s leading line of mobile printers is the QL320, which offers modular wireless connectivity options in a lightweight ergonomic design for applications such as shelf labeling, in-store pricing and mobile receipt printing. We intend to expand this exciting mobile platform in 2002. Internationally, our plans call for expanding our presence in Eastern Europe with more sales representa- tives and for accelerating penetra- tion of mobile applications from the outstanding base we built last year. In Asia Pacific and Latin America, our in-country representatives are working to generate more business in these regions, which offer excel- lent long-term growth opportunities. In 2001, we devoted additional resources to executing our acquisi- tion strategy. The goal of this strategy is to strengthen Zebra’s technological base, diversify into related businesses, and add products to address new printing applica- tions. We believe this is the best way to use our cash to grow stockholder value. It is clear to me that the decision to invest in 2001, rather than cut spending, was the right decision for Zebra. We distanced ourselves from the competition, extended our customer reach and expanded our product line. We have a sharper focus on high-growth vertical markets and applications where we deliver real value for our customers. Zebra is very well positioned to capitalize on the demand that we anticipate will emerge in 2002. We look forward to sharing our progress with you as the year unfolds. Edward Kaplan Chairman and Chief Executive Officer Zebra Technologies Corporation 2001 Annual Report | 3 S E E I N G T H E B I G P I C T U R E Over years of innovation, Zebra Technologies has achieved a clear view of the entire industrial supply chain and how it can add value at each link. Zebra now enables its customers to achieve their business goals more quickly, more safely, more accurately and more efficiently. Component Tracking The accuracy of barcoding enables companies to track individual parts, certify documentation, ensure procedural compliance and prevent tampering. A Connectivity - Component manufacturing - Product identification - Quality assurance - Inventory tracking - Compliance labeling - WIP management - Warehouse management - Commerce today demands ever-increasing ZebraLink maximizes With WebView, network speed and efficiency in the delivery of goods and services. Zebra’s key enabling technologies automate information exchange to maximize efficiencies at uptime and gives users administrators download unparalleled control over label formats and configure their bar code printer networks. Alert instantly sends a message to any email-enabled device a printer to optimize performance and meet customer needs quickly. every step of a company’s operations, when a printer runs out The ZBITM basic interpreter from production to inventory, to shipping, receiving and tracking, and ultimately, to sale and delivery to the customer. of ribbon or labels, or other situations arise. can control other peripheral devices for cost-effective stand-alone operations, as well as interpret non-Zebra data streams. 4 | Zebra Technologies Corporation 2001 Annual Report Connectivity Direct connections to enterprise, warehouse management and other data networks add value to Zebra printers. Web and wireless connectivity increases printer flexibility by eliminating costly hard wiring. Package Labeling Barcoding speeds shipping and makes it possible to track the billions of packages sent each year. Better tracking reduces losses and helps ensure on-time deliveries, especially in time-critical business operations. On-Demand Shelf Labeling Pricing updates are The Zebra Portable handled quickly and Radio (ZPR) clips onto accurately thanks to net- handheld devices for worked mobile printing short-range wireless solutions for scanning communication with and printing right on Zebra mobile printers the selling floor. to add functionality and flexibility. QL320 Package labeling - Cross-docking - Receiving and stocking - In-store pricing - On-demand shelf labeling - Self-serve kiosk printing - Point-of-sale receipts and coupons - Mobile POS/queue busting - Customer loyalty cards Z Mobile POS/Queue Busting With magnetic stripe and smart card readers on Zebra mobile printers, retailers can add wireless, point-of-sale locations during peak times for instant improvement in productivity and customer service. Economical mobile POS solutions shorten checkout lines, increase customer satisfaction and prevent lost sales. They also maximize selling space by eliminating the need for additional fixed POS stations. Cameo 2sc Zebra Technologies Corporation 2001 Annual Report | 5 A V I E W O F T O M O R R O W As the world becomes more complex and interconnected, the need for fast and accurate identification, tracking and transactions processing provides Zebra outstanding avenues for growth. Specialty Labeling Zebra teams specialty ribbon, adhesive and face stock to meet unique labeling requirements. Companies value Zebra’s UL/CSA- approved Color Match Labels for applications requiring extreme durability, superior adhesion and chemical resistance, plus the aesthetics of color matching. D r i v e r ’ s l i c e n s e s - A s s e t t r a c k i n g - K e y l e s s e n t r y - P e r s o n n e l i d e n t i f i c a t i o n - C h i l d s a f e t y - S p e c i a l t y l a b e l i n g - N a t i o n a l I D c a r d s - Identifying, tracking and protecting in customer service can all be achieved people and their property give rise to with solutions that incorporate Zebra an expanding array of applications that printers and supplies. Wireless connec- are benefiting from Zebra’s innovations tivity and radio frequency identification in label, receipt and card printing. (RFID) technology further enhance the Greater safety and security, a reduction value of Zebra products. in medical errors and an improvement 6 | Zebra Technologies Corporation 2001 Annual Report Child Safety Municipalities are implementing child safety programs with Zebra card printers. Identification cards containing a child’s vital information, including a thumbprint, let parents provide police with the key facts needed to start a search immediately if their child is missing. Passenger Tracking Applications in transportation incorporate Zebra printers with wireless connectivity for issuing tickets and boarding passes, upgrading ticket fares, printing timetables and route maps, and taking payment for refreshments all while increasing passenger satisfaction. Pa s s e n g e r t r a c k i n g - B i o m e t r i c s - E l e c t r o n i c p u r s e - A c c e s s c o n t r o l - L a w e n f o r c e m e n t t i c k e t i n g - E v i d e n c e t r a c k i n g - L u g g a g e i d e n t i f i c a t i o n a n d t r a c k i n g Access Control Zebra’s card personalization systems enhance safety and security for cruise lines and their passengers. Multi-featured cards with magnetic stripes, smart chips and bar codes give guests access to their staterooms, act as an electronic purse for on-board purchases and track who has left the ship in ports of call. $ “Smart” Labels with embedded radio frequency identification (RFID) chips can enhance security by matching baggage with passenger manifests. Zebra RFID printer/encoders simultaneously print a label and encode the embedded chip. The ability to append information to smart labels and read the chip’s RF signals where there is no line of sight expands Zebra’s applications opportunities. Zebra Technologies Corporation 2001 Annual Report | 7 Patient Identification Healthcare professionals increasingly depend on the accuracy that bar codes provide to reduce potentially life- threatening errors. Barcoded ID bracelets match patients with their records, test results and lab samples. Scanning wristbands when delivering medications verifies that the correct medication is dispensed to each patient and reduces health risk and legal liability. Ht-146 Specimen Tracking Barcoding specimens with labels from a desktop or wireless mobile printer at the same time they are obtained from a patient ensures proper labeling and tracking, averts misplacing and tampering, makes certain that procedures are followed, and avoids rework. Pa t i e n t i d e n t i f i c a t i o n - Pa t i e n t b i l l i n g - B l o o d b a g i d e n t i f i c a t i o n - R e g u l a t o r y c o m p l i a n c e - S p e c i m e n t r a c k i n g - P r o c e d u r e t r a c k i n g - I n s t r u m e n t a n d t r a c k i n g - P h a r m a c y m a n a g e m e n t H E A L T H C A R E Patient Billing Barcoding reduces billing errors by cutting paper- work and increasing records management accuracy. Barcoded items are scanned when removed from inventory, and the patient’s chart is scanned to show utilization and adjust the bill. 8 | Zebra Technologies Corporation 2001 Annual Report Pharmacy Management Barcoding helps drug manufac- turers comply with regulatory mandates, minimize production errors, and ensure security of company assets. Pharmacists can help the visually impaired take their proper medication by labeling pill bottles with Zebra-encoded smart labels that “speak” in a synthesized voice with the aid of a handheld reader. Selected Consolidated Financial Data Financial Data Z E B R A T E C H N O L O G I E S C O R P O R A T I O N (In thousands, except per share amounts) Year Ended December 31, Consolidated statements of earnings data Net sales Cost of sales Gross profit 2001 2000 1999 1998 1997 $ 450,008 $ 481,569 $ 402,213(4) $ 339,678(4) $ 300,071(4) 240,115 249,141 198,942(4) 183,639(4) 153,205(4) 209,893 232,428 203,271 156,039 146,866 Total operating expenses 117,434(1) 123,758(1) 99,487(2) 94,174(2) 72,446 Operating income 92,459(1) 108,670(1) 103,784(2) 61,865(2) 74,420 Income before income taxes 96,139(1) 111,911(1) 108,800(2) 65,021(2) 85,225(3) Net income Earnings per share Basic Diluted 61,529(1) 71,622(1) 69,632(2) 40,069(2) 54,447(3) $ $ 2.01(1) 1.99(1) $ $ 2.33(1) 2.30(1) $ $ 2.23(2) 2.21(2) $ $ 1.30(2) 1.29(2) $ $ 1.76(3) 1.74(3) Weighted average shares outstanding Basic Diluted 30,645 30,881 30,790 31,155 31,175 31,521 30,919 31,176 30,897 31,380 (In thousands) December 31, Consolidated balance sheet data Cash and cash equivalents and investments and marketable securities $ 249,349 $ 156,714 $ 235,568 $ 162,668 $ 139,320 Working capital Total assets Long-term obligations Shareholders’ equity 330,510 256,799 302,804 229,688 209,862 479,556 418,896 394,643 310,002 270,447 408 513 664 36 314 445,007 371,288 349,307 270,884 236,220 (1) Includes pretax charges for merger costs relating to the acquisition of Comtec Information Systems, Inc., and merger with Eltron International, Inc. of $1,838 in 2001 and $11,066 in 2000. (2) Includes a pretax charge for merger costs of $6,341 in 1999 and $8,080 in 1998 relating to the merger with Eltron International, Inc. (3) Includes a one-time pretax gain of $5,458 from the sale of Zebra’s investment in Norand Corporation common stock. (4) Reflects the adjustment of net sales and cost of sales for EITF Issue No. 00-10, which requires freight billed to customers to be reported as revenue, not as a reduction of freight costs. This adjustment has no impact on net income. Zebra Technologies Corporation 2001 Annual Report | 9 DiscussionManagement’s Discussion and Analysis of Financial Condition and Results of Operations General 78.4% of net sales for 2000. Sales of supplies increased to believe that the Asia Pacific and Latin American On April 3, 2000, Zebra acquired all of the outstanding 5.2% to $85,266,000 from $81,045,000 to represent regions hold significant growth opportunities, because capital stock of Comtec Information Systems, Inc. 18.9% of net sales versus 16.8% of net sales in 2000. it believes that barcoding and other auto-id technologies This acquisition was accounted as a purchase trans- Service and software revenue was $19,345,000 in 2001, are not as well adopted in these international markets action. Accordingly, Zebra’s results of operations up 12.1% from $17,251,000 to account for 4.3% of net as in North America. The strength of the U.S. dollar reflect Comtec’s results of operations from the date sales compared with 3.6% for 2000. Freight revenue versus the British pound and the euro reduced sales of acquisition. was $5,511,000 for 2001, compared with $5,773,000 for the Company’s European region by approximately During the fourth quarter of 2000, the Company adopted accounted for 1.2% of net sales in both 2001 and 2000. vailed during 2000. It is difficult for management to Emerging Issues Task Force Issue No. 00-10 (EITF 00-10). accurately forecast the direction of foreign exchange In accordance with EITF 00-10, the Company adjusted North American sales declined 10.5% to $269,955,000 movements, and therefore, to estimate the impact of sales for all years reported to include freight billed to for 2001 from $301,580,000 for 2000, as the slowing foreign exchange rates on future financial results, for 2000, representing a 4.5% decline. Freight revenue $2,976,000, compared with exchange rates that pre- customers as freight revenue. Previously, these freight U.S. economy restricted sales of bar code label and either positive or negative. billings were classified as a reduction of freight costs receipt printers in North America. This slowdown in cost of sales. This change in classification had no began in 2000 and became more severe in 2001. Gross profit was $209,893,000 for 2001, down 9.7% effect on previously reported net income. Management believes that the long-term outlook for from $232,428,000 for 2000. In addition, gross profit Comparison of Years Ended December 31, 2001 and 2000 Net sales of $450,008,000 declined 6.6% from bar code label and receipt printing remains favorable margin declined to 46.6% from 48.3%. Lower production but is unable to determine at this time when growth volumes and the resulting decline in manufacturing might return to historical levels. capacity utilization had the predominant effect on the gross profit and gross profit margin declines. $481,569,000 in 2000. The decline was primarily related International sales for 2001 of $180,053,000 showed Management calculates that changes in foreign to softness in sales of bar code label and receipt printers virtually no growth from the $179,989,000 recorded exchange rates reduced gross profit by $2,287,000. in North America from deteriorating economic condi- in 2000. Because of the overall decline in net sales, Positive variances to standard costs related to lower tions in the U. S., specifically in the manufacturing and international sales increased to 40.0% of net sales in component costs and a favorable mix of products technology sectors. A full year’s sales of mobile printing 2001 from 37.4% of net sales in 2000. Growth in the sold had a positive effect on gross profit margin. systems as a result of the Comtec acquisition, com- Company’s European region to a record level resulted pared with only three quarters in 2000, partially offset from the formation of a team dedicated to the sale of Selling and marketing expenses increased 2.9% to the decline from this weakness. Hardware sales mobile printing systems and sales expansion in Eastern $49,688,000, or 11.0% of net sales, from $48,306,000, decreased 10.0% to $339,886,000 from $377,500,000 Europe. This growth was offset by sales declines in or 10.0% of net sales. During 2001, the Company and represented 75.5% of net sales, compared with Latin America and Asia Pacific. Management continues continued to invest in demand-generating activities 10 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N to support long-term growth. For 2001, higher As part of the Comtec acquisition, the Company Company recorded a $2,242,000 pre-tax write-down of expenditures for personnel, market research and co- acquired printer and wireless technology. A portion a long-term investment, in which the decline in value op activities were partially offset by declines in travel of the purchase price was attributed to acquired was viewed as other than temporary. This write-down and entertainment and other expenses. in-process technology, as the development work reduced 2001 diluted earnings by $0.05 per share. associated with the projects had not yet reached Research and development expenses for 2001 were technological feasibility and was believed to have Interest expense and other expense, net, for 2001 $28,184,000, up 5.4% from $26,746,000 for 2000, and no alternative future use. The Company assessed totaled $1,739,000, compared with $8,104,000. The represented 6.3% of net sales in 2001 versus 5.6% in the fair value of the acquired in-process technology 78.5% decline was primarily attributable to the effec- 2000. Lower project expenses partially offset higher using an income approach. During the second quarter tiveness of currency hedging strategies to minimize expenditures related to engineering personnel and of 2000, the Company recorded a $5,953,000 charge the effects of foreign currency transactions, which the consulting services. to write off this acquired in-process technology. Company implemented during the second half of 2000. There was no such charge in 2001. In 2001, losses from foreign currency transactions General and administrative expenses declined 3.3% on the value of euro-denominated cash deposits and to $32,491,000 from $33,594,000. As a percentage of The Company incurred merger costs of $1,838,000 in receivables from customers and pound sterling- net sales, general and administrative expenses 2001 and $5,113,000 in 2000. These costs related to denominated receivables from the Company’s U.K. increased to 7.2% from 7.0%. Higher expenditures on the merger with Eltron International, Inc. in October subsidiary totaled $896,000, compared with $6,032,000 information systems were partially offset by expense 1998, which was accounted for as pooling-of-interests, for 2000. declines for personnel-related expenses from benefits and the Comtec acquisition. These costs exclude and taxes, as well as lower expenditures on outside certain direct costs of the Comtec acquisition, which Income before income taxes decreased 14.1% to services for recruiting and consulting. were not included as a portion of the purchase price $96,139,000 from $111,911,000. As a percentage of net or recorded at the time of the transaction. In 2001, sales, income before income taxes declined to 21.4% Amortization of intangible assets totaled $5,233,000, these costs primarily consisted of expenditures on from 23.2%. Excluding merger-related charges and compared with $4,046,000 for 2000. The increase was information technology infrastructure to integrate the acquired in-process technology of $1,838,000 in 2001 due to a full year’s amortization of intangible assets Comtec and Eltron operations. and $11,066,000 in 2000, income before income taxes related to the Comtec acquisition, compared with declined to $97,977,000,or 21.8% of net sales, from three quarters in 2000. Management expects the Investment income was $5,419,000 for 2001, a decrease $122,977,000, or 25.5% of net sales. The effective impact of adopting SFAS No. 142, Goodwill and of 52.2% from $11,345,000 for 2000. Lower investment income tax rate was 36.0% in both 2001 and 2000. Other Intangible Assets, to eliminate approximately returns on invested balances contributed to the $5,000,000 in amortization of goodwill and other decline. In addition, in the third quarter of 2001, the Net income of $61,529,000, or $1.99 per diluted share, intangible assets during 2002. for 2001 was down 14.1% from $71,622,000, or $2.30 Zebra Technologies Corporation 2001 Annual Report | 11 per diluted share, for 2000. Excluding the effects of International sales were $179,989,000, up 11.9% higher expenses related to increased staffing levels merger expenses, net income for 2001 was $62,706,000, from $160,893,000 and accounted for 37.4% of net and other internal operations. or $2.03 per diluted share, compared with $78,704,000, sales, compared with 40.0% in 1999. All international or $2.53 per diluted share, for 2000. regions experienced sales increases to record levels, Research and development expenses were $26,746,000, with strong sales growth posted in Asia Pacific and or 5.6% of net sales, up 21.5% from the $22,007,000, Comparison of Years Ended December 31, 2000 and 1999 Latin America. The strength of the U.S. dollar versus or 5.5% of net sales. The Company incurred increased the British pound and the euro reduced reported sales personnel-related expenses from higher staffing levels, Net sales increased 19.7% to $481,569,000 from growth for the Company’s European region in 2000. increased use of outside consulting services, and $402,213,000. A significant portion of this sales growth higher costs related to activities in the research and was due to the addition of sales derived from the Gross profit increased 14.3% to $232,428,000 from development of new products. Comtec acquisition. Hardware sales increased 17.6% $203,271,000. Gross profit margin declined to 48.3% to $377,500,000 from $321,354,000 and represented from 50.5%. Faster growth in portable printers, General and administrative expenses increased by 78.4% of net sales, compared with 79.9% of net sales. brought about by the Comtec acquisition, and other 8.9% to $33,594,000 from $30,858,000. As a percentage Sales of supplies increased 17.3% to $81,045,000 from lower priced printers contributed to an unfavorable of net sales, general and administrative expenses $69,092,000 to represent 16.8% of net sales in 2000 product mix. Foreign exchange rates also negatively declined to 7.0% from 7.7%. During 2000, the Company versus 17.2% in 1999. Service and software revenue affected gross margins, as the strength of the U.S. recorded higher personnel-related expenses from advanced 113.7% to $17,251,000 from $8,071,000 and dollar against the British pound and euro lowered higher staffing levels, as well as costs for expanded accounted for 3.6% of net sales in 2000 compared reported sales of products to European customers. operations related to the Comtec acquisition. Lower with 2.0% for 1999. Freight revenue was $5,773,000, Unfavorable variances to standard costs related to costs for outside services, notably recruiting, partially up 56.2% from $3,695,000, and accounted for 1.2% of higher component costs, increased freight charges offset these higher expenses. net sales in 2000 and 0.9% in 1999. and higher labor costs also contributed to the lower North American sales increased 25.0% to $301,580,000 partially offset these negative factors. for 2000, compared with $291,000. The increase was from $241,320,000. The high concentration of Comtec due to the amortization of intangible assets related to gross profit margin. Higher production volumes Amortization of intangible assets totaled $4,046,000 sales in North America contributed to the sales growth Selling and marketing expenses increased 20.8% to the Comtec acquisition. in the region. A slowing U.S. economy restricted $48,306,000 from $39,990,000. As a percentage of sales growth of bar code label printers in North net sales, selling and marketing expenses increased As part of the Comtec acquisition, the Company America in 2000, as companies reduced expenditures slightly to 10.0% from 9.9%. Lower expenses for acquired mobile printer and wireless technology. on capital and information technology. business development, including trade show expenses, A portion of the purchase price was attributed to and outside professional services partially offset 12 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N acquired in-process technology, as the development the value of euro-denominated cash deposits and Critical Accounting Policies and Estimates work associated with the projects had not yet reached receivables from customers and pound sterling- Management prepared the consolidated financial technological feasibility and was believed to have no denominated receivables from the Company’s U.K. statements of Zebra Technologies Corporation in con- alternative future use. The Company assessed the subsidiary. These losses totaled $6,032,000 for 2000, formity with accounting principles generally accepted fair value of the acquired in-process technology compared with $1,985,000 for 1999. During the second in the United States of America. Accordingly, certain using an income approach. During the second quarter half of 2000, the Company implemented currency required estimates, judgments and assumptions are of 2000, the Company recorded a $5,953,000 charge hedging strategies to minimize the effects of foreign believed to be reasonable, based upon the information to write off this acquired in-process technology. currency transactions. Higher other expense also available. These estimates and assumptions affect the There was no such charge in 1999. resulted from interest expense related to short-term reported amounts of assets and liabilities at the date loans related to the Comtec acquisition. of the financial statements and the reported amounts The Company incurred merger costs of $5,113,000 in of sales and expenses during the periods presented. 2000 and $6,341,000 in 1999. These costs related to Income before income taxes increased 2.9% to The following accounting policies comprise those that the Eltron and Comtec transactions and consisted $111,911,000 from $108,800,000. As a percentage of management believes are the most critical to aid in principally of expenditures on information technology sales, income before income taxes declined to 23.2% fully understanding and evaluating the Company’s infrastructure to integrate Eltron operations into the from 27.1%. Excluding merger-related charges and reported financial results. Company’s enterprise-wide resource planning (ERP) acquired in-process technology of $11,066,000 in 2000 system, and on product line rationalization of the and $6,341,000 in 1999, income before income taxes Company’s expanded portable printer line. In 1999, increased 6.8% to $122,977,000, or 25.5% of net sales, these costs related to the Eltron merger for consulting from $115,141,000, or 28.6% of net sales, in 1999. The fees and personnel-related expenses for relocation, effective income tax rate for the Company was 36.0% severance and recruitment. The Company substantially in both 2000 and 1999. completed the integration with Eltron in 2000. Investment income increased 29.9% to $11,345,000 diluted share, up 2.9% from $69,632,000, or $2.21 Net income for 2000 was $71,622,000, or $2.30 per Valuation of Long-Lived and Intangible Assets and Goodwill Management assesses the impairment of identifiable intangibles, long-lived assets and related goodwill and enterprise-level goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important to possibly trigger an impairment review from $8,732,000. Higher investment returns more per diluted share, for 1999. Excluding the effects of consist of: than offset lower average invested balances. merger expenses, net income for 2000 was $78,704,000, or $2.53 per diluted share, versus $73,691,000, or Other expense for 2000 totaled $8,104,000, compared $2.34 per diluted share, for 1999. with $3,716,000. The expense increase was primarily due to losses from foreign currency transactions on • significant underperformance relative to expected historical or projected future operating results • significant changes in the manner of use of the acquired assets or the strategy for the overall business Zebra Technologies Corporation 2001 Annual Report | 13 • significant negative industry or economic trends review thereafter. The Company expects to complete as determined by a review of current credit information. • significant decline in Zebra’s stock price for a sustained period its initial review during the first quarter of 2002. Management monitors customer collections and pay- ments and maintains a provision for estimated credit The Company currently does not expect to record an losses based upon historical experience and any specific • significant decline in market capitalization relative impairment charge upon completion of the initial customer collection issues. While such credit losses to net book value impairment review. There can be no assurance, how- have historically been within expectations and the ever, that when the review is completed a material provisions established, management cannot guarantee When it is determined that the carrying value of impairment charge will not be recorded. that the Company will continue to experience credit loss intangibles, long-lived assets and related goodwill consistent with historical experience. Since accounts and enterprise level goodwill may not be recoverable Revenue Recognition receivable are not concentrated in a few number of based upon the existence of one or more of the above Zebra recognizes revenue from product sales at the time customers, a significant change in the liquidity or indicators of impairment, management measures any of shipment and passage of title. Certain customers financial position of any one customer would not impairment based on a projected discounted cash have the right to return products that do not function have a material adverse effect on the collectability of flow method using a discount rate determined by properly within a limited time after delivery. The accounts receivables and future operating results. management to be commensurate with the risk Company regularly monitors and tracks product returns inherent in the current business model. Net intangible and records a provision for the estimated amount of Inventories assets, long-lived assets, and goodwill amounted to such future returns, based on historical experience and The Company values its inventories at the lower of $114,317,000 as of December 31, 2001. any notification received of pending returns. While such the actual cost to purchase or manufacture, or the returns have historically been within expectations and current estimated market value. Management regularly In 2002, SFAS No. 142, Goodwill and Other Intangible the provisions established, the Company cannot guaran- reviews inventory quantities on hand and records a Assets, became effective. As a result, the Company tee that it will continue to experience return rates con- provision for excess and obsolete inventory based will cease to amortize approximately $54,455,000 of sistent with historical patterns. Any significant increase primarily on estimated forecasts of product demand goodwill, including existing intangible assets that are in product failure rates and the resulting credit returns and production requirements for the subsequent not considered identifiable under SFAS No. 142. The could have a material adverse effect on operating twelve months. A significant increase in the demand Company recorded approximately $5,134,000 of results for the periods in which such returns materialize. for Zebra’s products could result in a short-term amortization on these amounts during 2001 and increase in the cost of inventory purchases, while a would have recorded approximately $5,134,000 of Accounts Receivable significant decrease in demand could result in an amortization during 2002. In lieu of amortization, the The Company performs ongoing credit evaluations of increase in the amount of excess inventory quantities Company is required to perform an initial impairment customers and adjusts credit limits based upon payment on hand. Additionally, the Company’s estimates of review of its goodwill in 2002 and an annual impairment history and the customer’s current credit worthiness, future product demand may prove to be inaccurate, 14 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N in which case the provision required for excess and Liquidity and Capital Resources and cash equivalents increased by $12,552,000 for obsolete inventory may be understated or overstated. Internally generated funds from operations are the the year. In the future, if inventories are determined to be over- primary source of liquidity for the Company, largely as valued, the Company would be required to recognize a result of the Company’s sales and profitability, control Net cash provided by operating activities totaled such costs in cost of goods sold at the time of such over working capital and relatively low requirements $132,565,000 in 2000. During the year, the Company determination. Likewise, if inventories are determined for purchases of property and equipment. As of reduced its investments and marketable securities to be undervalued, the Company may have over- December 31, 2001, the Company had $249,349,000 by $60,860,000 as partial funding for the Comtec reported cost of goods sold in prior periods and in cash and cash equivalents and investments and acquisition. The Company also recorded increases of would be required to recognize such additional oper- marketable securities, including approximately $7,106,000 in accounts receivable and $7,179,000 in ating income at the time of sale. The Company makes $100,000,000 earmarked for the Fargo acquisition, com- inventories. Depreciation and amortization totaled every effort to ensure the accuracy of its forecasts of pared with $156,714,000 at the end of 2000. Capital $14,383,000. Acquired in-process technology related future product demand; however any significant expenditures totaled $9,613,000 in 2001, $8,947,000 to the Comtec acquisition had a $5,953,000 positive unanticipated changes in demand or technological in 2000, and $11,349,000 in 1999. Management believes effect on cash flow, while deferred income taxes used developments could have a significant impact on the that existing capital resources and funds generated $6,076,000 in cash during the year. Investing activities value of inventories and reported operating results. from operations are sufficient to finance anticipated used $97,423,000 in cash in 2000. In addition to the capital requirements. $8,947,000 used for purchases of property and Reserve for Tax Litigation and Tax Audits equipment, the Company used $88,476,000 for the The Company has recorded the estimated liability For 2001, net cash provided by operating activities Comtec acquisition, net of cash acquired. For 2000, related to certain pending tax litigation and tax audits was $14,076,000, which included an increase of the Company used $48,675,000 for financing activities, based on management’s estimates of the probable $78,874,000 in investments and marketable including $55,505,000 for the purchase of treasury range of loss. As additional information becomes securities and relatively significant declines of stock. Proceeds of $6,653,000 from the exercise of available, management will assess the potential liability $16,223,000, or 19.3%, in accounts receivable and stock options had a positive effect on net cash used related to pending litigation and tax audits, and revise $17,284,000, or 30.4%, in inventories. Both declines in financing activities. For 2000, cash and cash estimates. Such revisions in the estimates of potential exclude the effect of exchange rates on cash. equivalents declined by $15,041,000. future liabilities could materially affect the results of Depreciation and amortization totaled $15,691,000. operation and financial position. Net cash used in investing activities was used exclu- For 1999, operating activities provided $15,683,000, sively for $9,613,000 in purchases of property and including an increase in investments and marketable For additional information on the Company’s significant equipment, and $8,863,000 in net cash provided by securities of $59,471,000. In addition, accounts accounting policies, see Note 2 to the accompanying financing activities was substantially generated by receivable increased by $5,216,000 and inventories consolidated financial statements. proceeds from the exercise of stock options. Cash increased $2,695,000. Offsetting these uses of cash, Zebra Technologies Corporation 2001 Annual Report | 15 accounts payable increased by $3,233,000 and income period in which the termination occurs. The Company with a requirement for an impairment test. SFAS 142 taxes payable increased $3,055,000. Depreciation and expects to incur as yet unquantified additional merger also requires an evaluation of intangible assets and amortization totaled $9,900,000 for the year. Investing integration costs related to the Fargo acquisition, if their useful lives and a transitional impairment test activities used $4,403,000. Sales of investments and consummated. See Note 3 of Notes to Consolidated for goodwill and certain intangible assets upon marketable securities of $6,946,000 partially offset the Financial Statements and the Company’s Form 8-K adoption. After transition, the impairment test will $11,349,000 in purchases of property and equipment. dated July 31, 2001 for a more thorough description be performed annually. SFAS 142 is effective for Financing activities provided $9,591,000, almost of the Fargo acquisition. In addition, see the Acquisition fiscal years beginning after December 15, 2001. entirely from proceeds from exercise of stock options. Agreement, Amendment No. 1 to the Acquisition Management is currently evaluating the impact of For the year, the Company recorded a net increase of Agreement, Amendment No. 2 to the Acquisition adopting SFAS 142 on the Company’s consolidated $19,439,000 in cash and cash equivalents. Agreement and Amendment No. 3 to the Acquisition financial statements. Agreement, all of which are on file with the SEC. On July 31, 2001, the Company signed a definitive As of the date of adoption, the Company expects agreement, through its wholly owned subsidiary On March 22, 2002, the tender offer was extended to have unamortized goodwill in the amount of Rushmore Acquisition Corp., to acquire all of the to 5:00 PM, New York City time, on April 5, 2002. $54,455,000, which includes existing intangible outstanding common stock (including associated The extension is necessary, because the applicable assets that are not considered identifiable under rights to purchase preferred stock) of Fargo Electronics, Hart-Scott-Rodino antitrust review waiting period has SFAS No. 142. Amortization expense related to Inc., for $7.25 per share in cash, or approximately not expired or been terminated. Because clearance goodwill was $5,134,000 and $1,283,000 for the year $86,000,000, plus debt. This debt will become due on under the Hart-Scott-Rodino Antitrust Improvements ended December 31, 2001 and three months ended consummation of the tender offer. Management will Act has not been received, Fargo has the right under December 31, 2001, respectively. Because of the fund the acquisition with existing cash and investment the acquisition agreement to terminate the acquisition extensive effort needed to comply with adopting resources. The Company believes that existing capi- at any time during the period beginning at 5:00 PM, SFAS 142, it is not practical to reasonably estimate tal resources and funds generated from operations New York City time, on March 22, 2002 and ending at the impact of adopting this Statement on the are also sufficient to finance anticipated capital 12:00 midnight, New York City time, on March 29, 2002. Company’s financial statements at the date of this requirements, as well as potential future acquisitions report, including whether it will be required to and related integration costs. As of December 31, Recently Issued Accounting Pronouncements recognize any transitional impairment losses as the 2001, the Company had $1,395,000 in capitalized In June 2001, the FASB issued SFAS No. 142, cumulative effect of a change in accounting principle. acquisition costs related to the Fargo transaction. Goodwill and Other Intangible Assets, which If the agreement is terminated, the capitalized acqui- supersedes APB Opinion No. 17, Intangible Assets. In June 2001, the FASB issued SFAS No. 143, Accounting sition costs and other acquisition costs that would SFAS 142 replaces the requirements to amortize for Asset Retirement Obligations. SFAS 143 addresses otherwise be capitalized will be expensed in the intangible assets with indefinite lives and goodwill financial accounting and reporting for obligations 16 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N associated with the retirement of tangible long-lived adoption of SFAS No. 144 may have on the financial The Company could encounter difficulties in any assets and for the associated asset retirement costs. statements; however, such impact, if any, is not acquisition it undertakes, including unanticipated SFAS 143 must be applied starting with fiscal years known or reasonably estimable at this time. integration problems and business disruption. beginning after June 15, 2002. Management is currently Acquisitions could also dilute stockholder value and evaluating the impact that the adoption of SFAS 143 Safe Harbor adversely affect operating results. will have on the consolidated financial statements. Forward-looking statements contained in this report The Company agreed to acquire Fargo Electronics, are subject to the safe harbor created by the Private Inc., and may acquire or make investments in other In August 2001, the FASB issued SFAS No. 144, Securities Litigation Reform Act of 1995 and are highly businesses, technologies, services or products. The Accounting for the Impairment or Disposal for Long- dependent upon a variety of important factors. These process of integrating any acquired business, technol- Lived Assets. SFAS No. 144 addresses financial factors could cause actual results to differ materially ogy, service or product into operations may result in accounting and reporting for the impairment or disposal from those reflected in such forward-looking state- unforeseen operating difficulties and expenditures. of long-lived assets. While SFAS No. 144 supersedes ments. These factors include those described below. Integration of an acquired company also may consume SFAS No. 121, Accounting for the Impairment of When used in this document, the words “anticipate,” considerable management time and attention, which Long-Lived Assets and for Long-Lived Assets to Be believe,” “estimate,” “will” and “expect,” and similar could otherwise be available for ongoing development Disposed Of, it retains many of the fundamental pro- expressions as they relate to the company or its of the business. The expected benefits of any acqui- visions of that Statement. SFAS No. 144 also supersedes management, are intended to identify such forward- sition may not be realized. Moreover, the Company the accounting and reporting provisions of APB Opinion looking statements. The Company undertakes no obli- may be unable to identify, negotiate or finance future No. 30, Reporting the Results of Operations-Reporting gation to publicly update or revise any forward-looking acquisitions successfully. Future acquisitions could the Effects of Disposal of a Segment of a Business, statements, whether as a result of new information, result in potentially dilutive issuances of equity and Extraordinary, Unusual and Infrequently Occurring future events, changed circumstances or any other securities or the incurrence of debt, contingent Events and Transactions, for the disposal of a segment reason after the date of this annual report. liabilities or amortization expenses. of a business. It retains, however, the requirement in APB Opinion No. 30 to report separately discontinued Risk Factors The Company may not be able to continue to develop operations, and extends that reporting to a component Investors should carefully consider the risks, uncer- products to address user needs effectively in an of an entity that either has been disposed of (by sale, tainties and other factors described below, as well as industry characterized by rapid technological change. abandonment, or in a distribution to owners) or is other disclosures in Management’s Discussion and To be successful, Zebra must adapt to rapidly changing classified as held for sale. SFAS No. 144 is effective Analysis of Financial Condition and Results of technological and application needs, by continually for fiscal years beginning after December 15, 2001, Operations, because they could have a material improving its products as well as introducing new and interim periods within those fiscal years. The adverse effect on the Company’s business, financial products and services to address user demands. Company is in the process of evaluating the impact that condition, operating results, and growth prospects. Zebra Technologies Corporation 2001 Annual Report | 17 Zebra’s industry is characterized by: • high levels of quality and reliability, and The Company sells a significant amount of its products • rapidly changing technology • dependable and efficient distribution networks • evolving industry standards • frequent new product and service introductions Zebra cannot assure it will be able to compete successfully against current or future competitors. Increased competition in printers or supplies may to customers outside the United States. Shipments to international customers are expected to continue to account for a material portion of net sales. Risks associated with sales and purchases outside the United States include: • evolving distribution channels • changing customer demands Future success will depend on the Company’s ability to adapt in this rapidly evolving environment. The Company could incur substantial costs if it has to modify its business to adapt to these changes, and may even be unable to adapt to these changes. The Company competes in a highly competitive market, which is likely to become more competitive. Competitors may be able to respond more quickly to new or emerging technology and changes in customer requirements. Zebra faces significant competition in developing and selling its systems. Principal competitors have substantial marketing, financial, development and personnel resources. To remain competitive, the Company believes it must continue to provide: • technologically advanced systems that satisfy the user demands; result in price reductions, lower gross profit margins • Fluctuating foreign currency rates could restrict sales, and loss of market share, and could require increased or increase costs of purchasing, in foreign countries. spending on research and development, sales and marketing and customer support. Some competitors may make strategic acquisitions or establish • Foreign governments may impose burdensome tariffs, quotas and taxes or other trade barriers. cooperative relationships with suppliers or companies • Political and economic instability may reduce demand that produce complementary products. Any of these for our products, or put our foreign assets at risk. factors could reduce our earnings. The inability to protect intellectual property could harm the Company’s reputation, and competitive • Restrictions on the export or import of technology may reduce or eliminate the ability to sell in or purchase from certain markets. position may be materially damaged. • Potentially limited intellectual property protection in Zebra’s intellectual property is important to its success. certain countries, such as China, may limit recourse Copyrights, patents, trade secrets and contracts are against infringing products or cause the Company used to protect these proprietary rights. Despite these to refrain from selling in certain geographic territories. precautions, it may be possible for third parties to copy aspects of the Company’s products or, without authorization, to obtain and use information which • Staffing and managing international operations may be unusually difficult. Zebra regards as trade secrets. • The Company may not be able to control Zebra sells a significant portion of its products internationally and purchases important components Economic factors, which are outside the Company’s from foreign suppliers. These circumstances create a control, could lead to a deterioration in the quality of international distributors working on its behalf. • superior customer service; number of risks. the Company’s accounts receivable. 18 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N The Company sells its products to customers in the neither has long-term employment agreements with Taxing authority challenges may lead to tax payments United States and several other countries around the key personnel, nor maintains key man life insurance exceeding current reserves. world. Sales are typically made on unsecured credit policies on any of its key employees. The Company operates in multiple tax jurisdictions terms, which are generally consistent with the prevailing worldwide and uses strategies to minimize its tax business practices in a given country. A deterioration The ability to attract, retain and motivate highly exposure. Local tax authorities may challenge these of economic or political conditions in a country could skilled employees is important to Zebra’s long-term tax positions from time to time. Adverse outcomes in impair Zebra’s ability to collect on receivables in the success. Competition for personnel in the Company’s these situations may exceed the Company’s reserves affected country. industry is intense, and the Company may be unable for tax payments. to retain key employees or attract, assimilate or retain Infringement on the proprietary rights of others could other highly qualified employees in the future. put the company at a competitive disadvantage, and any The Company operates in many markets around the world and in the ordinary course of business, is related litigation could be time consuming and costly. Terrorist attacks such as the attacks that occurred in subjected to many external influences that may affect Third parties may claim that Zebra violated their New York City and Washington, D.C., on September 11, the Company’s operations and financial position. intellectual property rights. To the extent of a violation of 2001, and other attacks or acts of war may adversely Management believes that adequate provision has a third party’s patent or other intellectual property right, affect the market for the Company’s stock, its operations been made for any such existing matters. Further the Company may be prevented from operating its busi- and profitability. events, however, including and in addition to those ness as planned, and may be required to pay damages, On September 11, 2001, the United States was the enumerated above may occur. to obtain a license, if available, or to use a non-infringing target of terrorist attacks of unprecedented scope. method, if possible, to accomplish its objectives. Any of These attacks caused periodic major instability in the these claims, with or without merit, could result in costly U.S. and other financial markets. Possible further acts Quantitative and Qualitative Disclosure About Market Risk litigation and divert the attention of key personnel. of terrorism in the United States or elsewhere could Interest Rate Risk have a similar impact. Leaders of the U.S. government The Company is exposed to the impact of changes The Company depends on the ongoing service of its announced their intention to actively pursue and take in interest rates because of its large investment senior management and ability to attract and retain military and other action against those behind the portfolio. As stated in the Company’s written invest- other key personnel. September 11 attacks and to initiate broader action ment policy, the Company’s investment portfolio is Future success is substantially dependent on the against global terrorism. Armed hostilities or further acts viewed as a strategic resource that will be managed continued service and continuing contributions of senior of terrorism would cause further instability in financial to achieve above market rates of return in exchange management and other key personnel. The loss of the markets and could directly, or indirectly through reduced for accepting a prudent amount of incremental risk, service of any of executive officer or other key employ- demand, negatively affect the Company’s facilities which includes the risk of interest rate movements. ees could adversely affect business. The Company and operations or those of its customers or suppliers. Risk tolerance is constrained by an overriding Zebra Technologies Corporation 2001 Annual Report | 19 objective to preserve capital across each quarterly Currency swaps that are net settled every month management limits the amount of the Company’s reporting cycle. mitigate the U.S. dollar to U.K. pound sterling net investments in alternative investment strategies to exposure. This policy mitigates, but does not eliminate, a maximum of 20% of the total investment portfolio, The Company mitigates interest rate risk with an the impact of exchange movements on the value of with no single investment exceeding $10,000,000. investment policy that requires the use of outside pro- future cash flows. Thus, adverse movements in either fessional investment managers, investment liquidity the pound or the euro in relation to the dollar can The Company utilizes a “Value-at-Risk” (VaR) model and broad diversification across investment strategies, directly affect the Company’s financial results. The to determine the maximum potential one-day loss in and which limits the types of investments that may be corporate treasury department executes all foreign the fair value of its interest rate, foreign exchange and made. Moreover, the policy requires due diligence of exchange contracts with major financial institutions equity price sensitive instruments. each investment manager both before employment only. Under no circumstances does the Company and on an ongoing basis. enter into any type of foreign exchange contract for The following table sets forth the impact of a 1% trading or speculative purposes. movement in interest rates on the value of the Foreign Exchange Risk Company’s investment portfolio as of December 31, The Company conducts business in more than 90 coun- Equity Price Risk 2001. Similarly, the impact of a 1% change in the tries throughout the world and, therefore, is exposed From time to time, the Company has taken direct value of all equity positions held by the Company’s to risk based on movements in foreign exchange rates. equity positions in companies. These investments investment managers is tabulated. The impact of a Currency exposures are related to the U.S. dollar/U.K. relate to potential acquisitions and other strategic 1% movement in the dollar/pound and dollar/euro pound sterling, U.S. dollar/euro, and the U.K. pound business opportunities. To the extent that it has a direct rates is measured as if the Company did not engage sterling/euro exchange rates arising from invoicing investment in the equity securities of another company, in the selective hedging practices described above. European customers in pounds sterling and euros from the Company is exposed to the risks associated with It is based on the dollar/euro and dollar/pound exchange the Company’s U.K. office. The U.S. dollar/Japanese such investments. rates and euro- and pound-denominated assets and yen exchange rate arises from invoicing customers. liabilities as of December 31, 2001. The yen foreign currency exposure averages less than The Company currently employs three investment $200,000. There is no foreign exchange risk associated managers, two of which manage portfolios of invest- Interest rate sensitive instruments with the Company’s investment portfolio. ment funds (i.e. fund of funds). These investment funds use a variety of investment strategies, some +1% movement -1% movement The Company manages its foreign exchange exposure of which involve the use of equity securities. Each Foreign exchange through a policy of selective hedging. This policy investment manager’s portfolio is designed to be involves selling forward up to 120 days projected remit- market neutral, although an individual fund within a Dollar/pound Dollar/euro $(2,044,747) $ 2,044,747 $ 87,360 $ 196,130 tances in euros from the Company’s U.K. subsidiary. portfolio may be exposed to market risk. By policy, Equity price sensitive instruments N/A 20 | Zebra Technologies Corporation 2001 Annual Report Balance Sheets Consolidated Balance Sheets Z E B R A T E C H N O L O G I E S C O R P O R A T I O N (Amounts in thousands, except share and per share data) December 31, Assets Current assets: Cash and cash equivalents Investments and marketable securities Accounts receivable, net of allowance of $1,975 in 2001 and $1,420 in 2000 Inventories Deferred income taxes Prepaid expenses Total current assets Property and equipment at cost, less accumulated depreciation and amortization Deferred income taxes Excess of cost over fair value of net assets acquired Other intangibles Other assets Total assets Liabilities and shareholders’ equity Current liabilities: Accounts payable Accrued liabilities Short-term note payable Current portion of obligation under capital lease with related party Income taxes payable Total current liabilities Obligation under capital lease with related party, less current portion Deferred rent Total liabilities Shareholders’ equity: Preferred stock, $.01 par value; 10,000,000 shares authorized, none outstanding Class A Common Stock, $.01 par value; 50,000,000 shares authorized, 26,018,743 and 25,610,515 shares issued; 25,256,380 and 24,551,762 shares outstanding in 2001 and 2000, respectively Class B Common Stock, $.01 par value; 28,358,189 shares authorized, 5,527,773 and 5,936,001 shares issued and outstanding in 2001 and 2000, respectively Additional paid-in capital Treasure stock, at cost (762,363 shares and 1,058,753 shares, respectively) See accompanying notes to consolidated financial statements. Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity 2001 2000 $ 26,328 223,021 67,160 39,923 4,295 3,611 364,338 40,742 902 32,735 26,693 14,146 $ 13,776 142,938 83,941 56,852 4,601 1,578 303,686 41,587 3,469 34,529 29,281 6,344 $ 479,556 $418,896 $ 14,414 14,993 221 79 4,121 33,828 408 313 $ 23,838 11,910 149 77 10,913 46,887 513 208 34,549 47,608 — 260 55 59,012 (35,482) 422,555 (1,393) 445,007 $ 479,556 — 256 59 63,491 (50,128) 361,026 (3,416) 371,288 $418,896 Zebra Technologies Corporation 2001 Annual Report | 21 Z E B R A T E C H N O L O G I E S C O R P O R A T I O N Earnings Consolidated Statements of Earnings (Amounts in thousands, except per share data) Year Ended December 31, Net sales Cost of sales Gross profit Operating expenses: Selling and marketing Research and development General and administrative Amortization of intangible assets Acquired in-process technology Merger costs Total operating expenses Operating income Operating income (expense): Investment income Interest expense Other, net Total other income Income before income taxes Income taxes Net income Basic earnings per share Diluted earnings per share See accompanying notes to consolidated financial statements. Basic weighted average shares outstanding Diluted weighted average and equivalent shares outstanding 2001 2000 1999 $ 450,008 $ 481,569 $ 402,213 240,115 209,893 49,688 28,184 32,491 5,233 — 1,838 117,434 92,459 5,419 (231) (1,508) 3,680 96,139 34,610 249,141 232,428 48,306 26,746 33,594 4,046 5,953 5,113 123,758 108,670 11,345 (1,120) (6,984) 3,241 111,911 40,289 198,942 203,271 39,990 22,007 30,858 291 — 6,341 99,487 103,784 8,732 (209) (3,507) 5,016 108,800 39,168 $ 61,529 $ 71,622 $ 69,632 $ $ 2.01 1.99 30,645 30,881 $ $ 2.33 2.30 30,790 31,155 $ $ 2.23 2.21 31,175 31,521 22 | Zebra Technologies Corporation 2001 Annual Report Consolidated Statements of Comprehensive Income Income (Amounts in thousands) Year Ended December 31, Net income Other comprehensive income (loss): Z E B R A T E C H N O L O G I E S C O R P O R A T I O N 2001 2000 1999 $ 61,529 $ 71,622 $ 69,632 Foreign currency translation adjustment (977) (1,508) (1,432) See accompanying notes to consolidated financial statements. Unrealized holding gains (losses) on investments: Net change in unrealized holding gain (loss) for the period, net of income tax expense (benefit) of $1,687 for 2001 and of ($801) for 2000 Comprehensive income 3,000 (1,425) — $ 63,552 $ 68,689 $ 68,200 Zebra Technologies Corporation 2001 Annual Report | 23 Z E B R A T E C H N O L O G I E S C O R P O R A T I O N Shareholders’ Equity Consolidated Statements of Shareholders’ Equity (Dollars in thousands) Balance at December 31, 1998 Issuance of 474,676 shares of Class A Common Stock Conversion of 2,079,731 shares of Class B Common Stock to 2,079,731 shares of Class A Common Stock Tax benefit resulting from exercise of options Net income Foreign currency translation adjustment Balance at December 31, 1999 Issuance of 128,827 shares of Class A Common Stock upon exercise of stock options Conversion of 604,187 shares of Class B Common Stock to 604,187 shares of Class A Common Stock Repurchase of 1,170,500 shares of Class A Common Stock Reissuance of 111,747 treasury shares upon exercise of stock options Tax benefit resulting from exercise of options Gains on put options Net income Unrealized holding loss on investments (net of income taxes) Foreign currency translation adjustment Balance at December 31, 2000 Conversion of 408,228 shares of Class B Common Stock to 408,228 shares of Class A Common Stock Reissuance of 296,390 treasury shares upon exercise of stock options Tax benefit resulting from exercise of options Loss on put options Net income Unrealized holding gain on investments (net of income taxes) Foreign currency translation adjustment Class A Common Stock $ 223 5 21 — — — 249 1 6 — — — — — — — 256 4 — — — — — — Class B Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Unrealized Holding Loss on Investments Cumulative Translation Adjustment Total Accumulated Other Comprehensive Income $ 86 — (21) — — — 65 — (6) — — — — — — — 59 (4) — — — — — — $ 49,854 $ 219,772 $ — $ — $ 949 $ 270,884 9,828 — 390 — — — — — 69,632 — 60,072 289,404 3,227 — — (1,952) 1,505 639 — — — — — — — — — 71,622 — — — — — — — — — — (55,505) 5,377 — — — — — 63,491 361,026 (50,128) — (5,751) 1,273 (1) — — — — — — — 61,529 — — — 14,646 — — — — — — — — — — — — — — — — — — (1,425) — (1,425) — — — — — 3,000 — — — — — (1,432) 9,833 — 390 69,632 (1,432) (483) 349,307 — — — — — — — — (1,508) (1,991) — — — — — — (977) 3,228 — (55,505) 3,425 1,505 639 71,622 (1,425) (1,508) 371,288 — 8,895 1,273 (1) 61,529 3,000 (977) Balance at December 31, 2001 $260 $55 $59,012 $422,555 $(35,482) $1,575 $(2,968) $445,007 See accompanying notes to consolidated financial statements. 24 | Zebra Technologies Corporation 2001 Annual Report Cash FlowsConsolidated Statements of Cash Flows Z E B R A T E C H N O L O G I E S C O R P O R A T I O N (Amounts in thousands) Year Ended December 31, Cash flows from operating activities: Net income 2001 2000 1999 $ 61,529 $ 71,622 $ 69,632 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Tax benefit from exercise of options Acquired in-process technology Depreciation (appreciation) in market value of investments and marketable securities Write-down of long-term investment Deferred income taxes Changes in assets and liabilities, net of business acquired: Accounts receivable, net Inventories Other assets Accounts payable Accrued expenses Income taxes payable Other operating activities Investments and marketable securities Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Acquisition of Comtec Information Systems, net of cash acquired Sales of investments and marketable securities Net cash used in investing activities Cash flows from financing activities: Purchase of treasury stock Proceeds from exercise of stock options Proceeds from (cost of) put options Issuance (repayment) of notes payable Payments for obligation under capital lease, with related party Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 15,691 1,273 — (1,209) 2,242 2,873 16,223 17,284 (7,895) (9,424) 3,083 (6,792) (1,928) (78,874) 14,076 (9,613) — — (9,613) — 8,895 (1) 72 (103) 8,863 (774) 12,552 13,776 14,383 1,505 5,953 2,952 — (6,076) (7,106) (7,179) (542) (6,064) (810) 3,372 (305) 60,860 132,565 (8,947) (88,476) — (97,423) (55,505) 6,653 639 (140) (322) (48,675) (1,508) (15,041) 28,817 9,900 390 — (936) — 1,211 ( 5,216) (2,695) (2,931) 3,233 (203) 3,055 (286) (59,471) 15,683 ( 11,349) — 6,946 ( 4,403) — 9,833 — 70 (312) 9,591 (1,432) 19,439 9,378 See accompanying notes to consolidated financial statements. Cash and cash equivalents at end of year $ 26,328 $ 13,776 $ 28,817 Supplemental disclosures of cash flow information: Interest paid Income taxes paid Supplemental disclosures of non-cash financing activity: $ 231 38,604 $ 1,120 44,736 $ 209 36,010 Conversion of Class B Common Stock to Class A Common Stock 4 6 21 Zebra Technologies Corporation 2001 Annual Report | 25 Notes Notes to Consolidated Financial Statements Note 1 Description of Business Trading and available-for-sale securities are recorded at fair value. Held-to-maturity Zebra Technologies Corporation and its wholly-owned subsidiaries (the Company) securities are recorded at amortized cost, adjusted for the amortization or accretion design, manufacture, sell and support a broad line of bar code label and receipt printers of discounts or premiums. Unrealized holding gains and losses on trading securities and card printers, self-adhesive labeling materials, card supplies, thermal transfer are included in earnings. Unrealized holding gains and losses, net of the related tax ribbons and bar code label design software. These products are used principally in effect, on available-for-sale securities are excluded from earnings and are reported automatic identification (auto ID), data collection and personal identification applications as a separate component of shareholders’ equity until realized. and are distributed world-wide through a network of resellers, distributors and end users representing a wide cross-section of industrial, service and government organizations. Note 2 Summary of Significant Accounting Policies Principles of Consolidation. The accompanying financial statements have been prepared on a consolidated basis to include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts, transactions, and unrealized profit have been eliminated in consolidation. Inventories. Inventories are stated at the lower of cost or market, and cost is determined by the first-in, first-out (FIFO) method. Property and Equipment. Property and equipment is stated at cost. Depreciation and amortization is computed primarily using the straight-line method over the estimated useful lives of the various classes of property and equipment, which are 30 years for buildings and range from 3 to 10 years for other property. Property and equipment held under capital leases is amortized using the straight-line method over the shorter Cash Equivalents. Cash consists primarily of deposits with banks. In addition, the of the lease term or estimated useful life of the asset. Company considers highly liquid short-term investments with original maturities of less than seven days to be cash equivalents. Previously, the Company considered highly liquid instruments with original maturities of less than three months to be cash equivalents. Those instruments with original maturities of seven to 119 days that were considered cash equivalents are now included in investments and marketable securities. The financial statements for all periods presented have been reclassified to reflect this change. Investments and Marketable Securities. Investments and marketable securities at December 31, 2001, consisted of U.S. government securities, state and municipal Income Taxes. The Company accounts for income taxes under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carry- ing amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. bonds, partnership interests and equity securities, which are held indirectly in diver- Intangible Assets. Excess cost over fair value of net assets acquired represents the sified funds actively managed by investment professionals. The Company classifies unamortized excess of the cost of acquiring a business over the fair values of the net its debt and marketable equity securities in one of three categories: trading, available- assets received at the date of acquisition. This excess cost is being amortized on a for-sale or held-to-maturity. Trading securities are bought and held principally for the straight-line basis over 20 years and is stated net of accumulated amortization of purpose of selling them in the near term. Held-to-maturity securities are those secu- $4,648,000 and $2,870,000 at December 31, 2001 and 2000, respectively. rities that the Company has the ability and intent to hold until maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale. 26 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N Other intangible assets consist primarily of customer lists, assembled workforce and Use of Estimates. The preparation of consolidated financial statements in conformity current technology. These assets are recorded at cost and amortized on a straight-line with accounting principles generally accepted in the United States of America requires basis over periods up to 15 years. Accumulated amortization for these other intangible management to make estimates and assumptions that affect the reported amounts of assets was $5,944,000 and $2,505,000 at December 31, 2001 and 2000, respectively. assets and liabilities and disclosure of contingent assets and liabilities at the date of Revenue Recognition. Revenue is recognized at the time of shipping and includes freight billed to customers. Research and Development Costs. Research and development costs are expensed as incurred. Advertising. Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2001, 2000 and 1999 totaled $4,405,000, $4,637,000 and $4,700,000, respectively. Warranty. The Company provides warranty coverage of up to one year on printers against defects in material and workmanship. A provision for warranty expense is recorded at the time of shipment. To date, the Company has not experienced any significant warranty claims. Financial instruments. The reported amounts of the Company’s financial instruments, which include investments and marketable securities, trade accounts receivable, accounts payable, accrued liabilities, income taxes payable and short-term notes payable, approximate their fair values because of the contractual maturities and short-term nature of these instruments. Stock-based Compensation. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation. The consolidated balance sheets of the Company’s foreign subsidiaries are translated into U.S. dollars using the year-end exchange rate, and statement of earnings items are translated using the average exchange rate for the year. The resulting translation gains or losses are recorded in shareholders’ equity as a cumulative translation adjustment, which is a component of accumulated other comprehensive loss. Capitalized Software. The Company’s investment in software development consists primarily of enhancements to its existing E-commerce web-based application, which will include the automation of current business activities. Specifically, the activities include the processing of customer orders; the acknowledgement of customer orders and delivery; and the financial invoicing for all of Zebra’s products and will aid in enabling the Company to create new business efficiencies. Costs associated with the planning and design phases of web-based development, including coding and testing activities necessary to establish technological feasibility of the functionality of the website, are charged to research and development as incurred. Once technological feasibility has been determined, costs incurred in the construction phase of software development including coding, testing, and product quality assurance are capitalized. the date of grant. The Company accounts for stock option grants in accordance with Amortization commences at the time of capitalization or, in the case of a new service Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to offering, at the time the service becomes available for use. Unamortized capitalized Employees, and provides the pro forma disclosures required by Statement of Financial costs determined to be in excess of the net realizable value of the product are Accounting Standards (SFAS) No. 123, Accounting for Stock-based Compensation. expensed at the date of such determination. The Company assesses the recoverability of its software development costs against estimated future undiscounted cash flows. Zebra Technologies Corporation 2001 Annual Report | 27 Given the highly competitive environment and technological changes, it is reasonably upon adoption. After transition, the impairment test will be performed annually. possible that those estimates of anticipated future gross revenue, the remaining SFAS 142 is effective for fiscal years beginning after December 15, 2001. Management is estimated economic life of the product, or both may be reduced significantly. currently evaluating the impact of adopting SFAS 142 on the Company’s consolidated Funded Engineering Arrangement. The Company is part of an arrangement with a financial statements. third party, whereby the Company will be reimbursed for certain engineering services As of the date of adoption, the Company expects to have unamortized goodwill in performed on behalf of the third party. The arrangement has a term of three years. the amount of $54,455,000, which includes existing intangible assets that are not The arrangement also provides that the Company will be the exclusive manufacturer considered identifiable under SFAS No. 142. Amortization expense related to goodwill of the products resulting from the engineering agreement. The products will be was $5,134,000 and $1,283,000 for the year ended December 31, 2001 and three distributed under the third party’s brand name. During 2001, the Company incurred months ended December 31, 2001, respectively. Because of the extensive effort approximately $2,800,000 of reimbursable expenses under the agreement. As of needed to comply with adopting SFAS 142, it is not practical to reasonably estimate December 31, 2001, the Company had an accounts receivable of approximately the impact of adopting this Statement on the Company’s financial statements at the $2,600,000, including an unbilled portion of $1,100,000 related to the arrangement. date of this report, including whether it will be required to recognize any transitional Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. The impairment losses as the cumulative effect of a change in accounting principle. Company accounts for long-lived assets in accordance with the provisions of SFAS In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Obligations. SFAS 143 addresses financial accounting and reporting for obligations Assets to be Disposed of. The statement requires that long-lived assets and certain associated with the retirement of tangible long-lived assets and for the associated identifiable intangibles be reviewed for impairment whenever events or changes in asset retirement costs. SFAS 143 must be applied starting with fiscal years beginning circumstances indicate that the carrying amount of an asset may not be recoverable. after June 15, 2002. Management is currently evaluating the impact that the adoption Recoverability of assets to be held and used is measured by a comparison of the of SFAS 143 will have on the consolidated financial statements. carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recog- nized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal for Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of Recently Issued Accounting Pronouncements. In June 2001, the FASB issued that Statement. SFAS No. 144 also supersedes the accounting and reporting provisions SFAS No. 142, Goodwill and Other Intangible Assets, which supersedes APB Opinion of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of No. 17, Intangible Assets. SFAS 142 replaces the requirements to amortize intangible Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently assets with indefinite lives and goodwill with a requirement for an impairment Occurring Events and Transactions, for the disposal of a segment of a business. It test. SFAS 142 also requires an evaluation of intangible assets and their useful retains, however, the requirement in APB Opinion No. 30 to report separately discontin- lives and a transitional impairment test for goodwill and certain intangible assets ued operations, and extends that reporting to a component of an entity that either has 28 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N been disposed of (by sale, abandonment, or in a distribution to owners) or is classified Pending Transaction. On July 31, 2001, the Company announced that it signed a as held for sale. SFAS No. 144 is effective for fiscal years beginning after December 15, definitive agreement to acquire all of the outstanding common stock (including 2001, and interim periods within those fiscal years. The Company is in the process of associated rights to purchase preferred stock) of Fargo Electronics, Inc., for $7.25 per evaluating the impact that adoption of SFAS No. 144 may have on the financial state- share in cash, or approximately $86,000,000, plus approximately $16,500,000 in debt. ments; however, such impact, if any, is not known or reasonably estimable at this time. This debt will become due upon consummation of the tender offer. On August 3, Reclassifications. Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s presentation. Note 3 Business Combinations Comtec Information Systems, Inc. On April 3, 2000, the Company acquired Comtec Information Systems, Inc. (Comtec), by acquiring all of the outstanding capital stock of Comtec for approximately $88,476,000 in cash. Located in Warwick, Rhode Island, Comtec had been a privately held company. Comtec designs, manufactures and supports mobile printing systems. The acquisition was accounted for under the purchase method. Accordingly, the purchase price has been allocated to identifiable tangible assets and intangible assets acquired and liabilities assumed based on their estimated 2001, Zebra, through its Rushmore Acquisition Corporation wholly owned subsidiary, commenced a cash tender offer for Fargo Electronics common stock. The tender offer is subject to certain conditions, including successful termination of Hart-Scott- Rodino antitrust review, and at least a majority of the outstanding shares of Fargo’s common stock on a fully diluted basis being tendered without withdrawal before expiration of the offer. The applicable Hart-Scott-Rodino antitrust review waiting period has yet to expire or be terminated. Zebra intends to extend the offer at least until expiration or termination of the Hart-Scott-Rodino antitrust review waiting period, subject to the provisions of the acquisition agreement. Pursuant to the acquisition agreement signed by Zebra and Fargo, the tender offer will generally be extended in increments of 10 business days. fair values. Estimated amounts allocated to acquired in-process technology were See Zebra’s Form 8-K dated July 31, 2001, for additional information regarding the expensed at the time of the acquisition. The excess of cost over net assets acquired Fargo transaction. In addition, see the Acquisition Agreement, Amendment No. 1 is amortized on a straight-line basis over the expected period to be benefited of 20 to the Acquisition Agreement, Amendment No. 2 to the Acquisition Agreement, years. Other intangible assets are amortized on a straight-line basis over periods up and Amendment No. 3 to the Acquisition Agreement, all of which have been filed to 15 years. The consolidated statements of earnings reflect the results of operations with the SEC. of Comtec since the effective date of the acquisition. The following summary presents information concerning the purchase price allocation systems. Fargo printing systems create personalized plastic identification cards for the Comtec acquisition: complete with digital images and text, lamination, and electronically encoded infor- Fargo Electronics, Inc. designs and manufactures desktop plastic card personalization Amount (in thousands) mation. On a combined basis, sales of instant-issuance plastic card printers and Net tangible assets Acquired in-process technology Intangible assets Excess cost over fair value of net assets acquired Purchase price $15,235 5,953 31,786 35,502 $88,476 related supplies and accessories would represent approximately 20% of Zebra’s net sales for the twelve-month period that ended December 31, 2001. Zebra Technologies Corporation 2001 Annual Report | 29 Note 4 Earnings Per Share Note 5 Investments and Marketable Securities For the years ended December 31, 2001, 2000, and 1999, earnings per share were The amortized cost, gross unrealized holding gains, gross unrealized holding losses computed as follows (in thousands, except per-share amounts): and aggregate fair value of investment securities at December 31, 2000, were as 2000 2001 2000 1999 Basic earnings per share: Net income Weighted average common shares outstanding Per share amount Diluted earnings per share: $61,529 $71,622 $69,632 30,645 $ 2.01 30,790 $ 2.33 31,175 $ 2.23 Net income $61,529 $71,622 $69,632 Weighted average common shares outstanding Add: Effect of dilutive securities – stock options Diluted weighted average and equivalent shares outstanding Per share amount 30,645 30,790 31,175 236 365 346 30,881 $ 1.99 31,155 $ 2.30 31,521 $ 2.21 follows (in thousands): Available for sale (included in other assets): Amortized Cost Gross Unrealized Gross Unrealized Holding Gains Holding Losses Fair Value Equity securities $ 1,804 $2,462 $ — $ 4,266 Trading Securities: U.S. government and agency securities State and municipal bonds Corporate bonds Partnership interests Other 118,825 76,576 5,077 17,326 2,000 219,804 42 286 89 3,104 — 3,521 (53) (222) — (29) — (304) 118,814 76,640 5,166 20,401 2,000 223,021 $ 221,608 $5,983 $ (304) $ 227,287 The potentially dilutive securities, which were excluded from the earnings per The amortized cost, gross unrealized holding gains, gross unrealized holding losses share calculation, consisted of stock options for which the exercise price was and aggregate fair value of investment securities at December 31, 2000, were as greater than the average market price of the Class A Common Stock. For the years follows (in thousands): ended December 31, the shares amounted to 436,325 in 2001, 267,500 in 2000, and 21,500 in 1999. Amortized Cost Gross Unrealized Gross Unrealized Holding Gains Holding Losses Fair Value Available for sale (included in other assets): Equity securities $ 4,596 $ — $ (2,226) $ 2,370 Trading Securities: U.S. government and agency securities 22,564 State and municipal bonds 104,699 Corporate bonds Partnership interests 5,054 8,614 140,931 110 326 35 2,413 2,884 (61) (816) — — (877) 22,613 104,209 5,089 11,027 142,938 $ 145,527 $2,884 $ (3,103) $ 145,308 30 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N The Company is a limited partner in two non-registered partnerships. The partnerships Lease payments related to the leases were included in the consolidated financial seek to provide returns to its partners by making strategic investments in a diversified statements as follows (in thousands): portfolio of investment funds. Zebra’s investment as a limited partner allows it to have liability protection limited to the amount of its investments in the funds. The contractual maturities of debt securities at December 31, 2001, were as follows (in thousands): 2001 2000 1999 Unique Operating Lease Payments $2,085 2,085 1,662 Due within one year Due after one year through five years Due after five years Fair Value $131,583 25,067 45,970 $202,620 Using the specific identification method, the proceeds and realized gains on the sales of available-for-sale securities were as follows (in thousands): Proceeds Realized gains (losses) 2001 — ($2,242) 2000 $ — — 1999 $6,947 19 The realized loss of $2,242,000 in 2001 is the result of a write-down of an available- for-sale security whose decline in value was determined to be other than temporary. Note 6 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 11. Management believes that the lease payments are substantially consistent with amounts that could be negotiated with third parties on an arm’s-length basis. Note 7 Inventories The components of inventories, net of allowances, are as follows (in thousands): December 31, Raw material Work in process Finished goods Total inventories 2001 2000 $ 25,410 1,360 13,153 $ 35,907 365 20,580 $ 39,923 $ 56,852 Note 8 Property and Equipment Property and equipment, which includes assets under capital leases, is comprised of the following (in thousands): December 31, Buildings Land Machinery, equipment and tooling Machinery and equipment under capital leases Furniture and office equipment Computers and software Automobiles Leasehold improvements Projects in progress Less accumulated depreciation and amortization 2001 2000 $ 12,029 $ 11,981 1,910 35,507 1,670 5,681 28,951 183 2,997 2,705 91,633 50,891 1,910 31,211 1,670 5,375 27,854 254 2,516 1,508 84,279 42,692 Net property and equipment $ 40,742 $ 41,587 Zebra Technologies Corporation 2001 Annual Report | 31 Amortization of capitalized software was $1,834,000 in 2001, $1,797,000 in 2000, and The provision for income taxes differs from the amount computed by applying the $2,129,000 in 1999. U.S. statutory Federal income tax rate of 35%. The reconciliation of statutory and Note 9 Income Taxes The geographical sources of earnings before income taxes were as follows (in thousands): United States Outside United States Total 2001 2000 1999 $ 90,272 5,867 $ 96,139 $101,532 10,379 $111,911 $ 95,637 13,163 $ 108,800 effective income taxes is presented below (in thousands): 2001 2000 1999 Provision computed at statutory rate $ 33,649 $ 39,169 $ 38,080 State income tax (net of Federal tax benefit) Tax-exempt interest and dividend income Tax benefit of exempt foreign trade income Other 3,556 (1,524) (1,438) 367 3,880 (1,588) (1,035) (137) 2,862 (1,677) (805) 708 Provision for income taxes $ 34,610 $ 40,289 $ 39,168 The Company does not provide for deferred income taxes on undistributed earnings of foreign subsidiaries, which totaled approximately $8,700,000 at Deferred income taxes reflect the impact of temporary differences between the December 31, 2001 and $6,500,000 at December 31, 2000. Management expects amounts of assets and liabilities for financial reporting purposes and such amounts such earnings to be permanently reinvested in these companies. Should such as measured by tax laws. Based on management’s assessment, it is more likely than earnings be remitted to the Company, foreign tax credits would be available not that the deferred tax assets will be realized through future taxable earnings. to substantially offset the U.S. income taxes due upon repatriation. The provision for income taxes consists of the following (in thousands): The Company is litigating a dispute over a 1998 tax assessment in the amount of approximately $2,600,000, including penalties and interest, with the Illinois Department of Revenue for the years 1993 through 1995. The case was filed by the Company on Current: Federal State Foreign Deferred: Federal State Foreign 2001 2000 1999 November 1, 2000, in the District Court of Illinois and tried during November 2000. The decision from the court was unfavorable to the Company but has been $ 25,998 $ 35,362 $ 27,914 appealed. Management believes that adequate provisions have been made in the 5,319 2,107 1,132 152 (98) 6,441 3,761 (4,922) (472) 119 4,489 5,554 1,376 (85) (80) Company’s financial statements for the estimated liability arising from this dispute. Total $ 34,610 $ 40,289 $ 39,168 32 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N The Illinois Department of Revenue is currently examining the Company’s tax returns Note 10 401(k) Savings and Profit Sharing Plans for the years 1996 and 1997. Management believes that this examination will not be The Company has a Retirement Savings and Investment Plan (the 401(k) Plan), completed until the outcome of the lawsuit relating to the 1993 through 1995 returns which is intended to qualify under Section 401(k) of the Internal Revenue Code. is known. The Company believes that adequate provisions have also been made in Qualified employees may participate in the Company’s 401(k) Plan by contributing its financial statements related to the potential assessments for the years 1996 up to 15% of their gross earnings to the plan subject to certain Internal Revenue through 2000. Tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows (in thousands): December 31, Deferred tax assets: Deferred rent — building Capital equipment lease Accrued vacation Inventory items Allowance for doubtful accounts Other accruals Acquisition related items Unrealized loss on securities Total deferred tax assets Deferred tax liabilities: Unrealized gain on securities Depreciation Total deferred tax liabilities Net deferred tax asset 2001 2000 $ 124 $ 11 576 2,193 259 3,102 2,321 — 8,586 (1,717) (1,672) (3,389) 83 15 825 2,354 152 2,843 2,538 1,235 10,045 — (1,975) (1,975) $ 5,197 $ 8,070 Service restrictions. The Company matches each participant’s contribution of up to 6% of gross eligible earnings at the rate of 50%. The Company may contribute additional amounts to the 401(k) Plan at the discretion of the Board of Directors, subject to certain legal limits. The Company has a discretionary profit-sharing plan for qualified employees, to which it contributed 1.9% of eligible earnings for 2001, 3.1% for 2000 and 4.2% for 1999. 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 2001 2000 1999 $ 1,374 1,178 $ 2,552 $ 1,287 877 $ 2,164 $ 740 820 $ 1,560 Note 11 Commitments and Contingencies Leases. In September 1989, the Company entered into a lease agreement for its Vernon Hills facility and certain machinery, equipment, furniture and fixtures with Unique Building Corporation. The facility portion of the lease is the only remaining portion in existence as of December 31, 2001, and is treated as an operating lease. An amendment to the lease dated July 1997 added 59,150 square feet and extended the term of the existing lease through June 30, 2014. The lease agreement includes a modification to the base monthly rental, which goes into effect if the prescribed rent payment is less than the aggregate principal and interest payments required to be made by Unique under an Industrial Revenue Bond (IRB). Zebra Technologies Corporation 2001 Annual Report | 33 Minimum future obligations under noncancelable operating leases and future minimum The Company enters into foreign exchange forward contracts to manage exposure to capital lease payments as of December 31, 2001, are as follows (in thousands): fluctuations in foreign exchange rates to the funding of its United Kingdom operations. 2002 2003 2004 2005 2006 Thereafter Total minimum lease payments Less amount representing interest Present value of minimum payments Less current portion of obligation under capital lease Capital Lease Operating Leases $ 106 $ 3,742 3,107 2,643 2,636 2,604 19,972 $ 34,704 106 91 91 91 105 $ 590 (103) 487 (79) Long-term portion of obligation under capital lease $ 408 Rent expense for operating leases charged to operations for the years ended December 31, 2001, 2000, and 1999 was $4,917,000, $4,833,000, and $4,317,000, respectively. Letter of credit. In connection with the lease agreements described above, the Company has guaranteed Unique’s full and prompt payment under Unique’s letter of credit agreement with a bank. The contingent liability of the Company under this guaranty as of December 31, 2001, is $700,000, which is the limit of the Company’s guaranty throughout the term of the IRB. The Company accounts for such contracts by recording any unrealized gains or losses in income each reporting period. The notional principal amounts of outstanding forward contracts were €16,391,000 and £6,019,000 at December 31, 2001, and €15,000,000 at December 31, 2000. The realized loss was $661,000 in 2001 and the realized gain was $367,000 in 2000. Note 12 Segment Data and Export Sales The Company operates in one industry segment. Information regarding the Company’s operations by geographic area for the years ended December 31, 2001, 2000, and 1999 is contained in the following table. These amounts (in thousands) are reported in the geographic area where the final sale originates. United States United Kingdom Other Total 2001 2000 1999 Net sales Long-lived assets Net sales Long-lived assets Net sales Long-lived assets $ 325,003 107,491 $ 357,412 103,957 $ 284,462 39,370 $ 111,577 5,755 $ 100,988 6,526 $ 97,426 6,799 $13,428 1,071 $23,169 1,258 $20,325 1,695 $ 450,008 114,317 $ 481,569 111,741 $ 402,213 47,864 Note 13 Shareholders’ Equity Holders of Class A Common Stock are entitled to one vote per share. Holders of Derivative Instruments. In the normal course of business, portions of the Company’s Class B Common Stock are entitled to 10 votes per share. Holders of Class A and operations are subject to fluctuations in currency values. The Company addresses Class B Common Stock vote together as a single class on all actions submitted to a these risks through a controlled program of risk management that includes the use vote of shareholders, except in certain circumstances. If at any time the number of of derivative financial instruments. 34 | Zebra Technologies Corporation 2001 Annual Report 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. Z E B R A T E C H N O L O G I E S C O R P O R A T I O N Class A Common Stock has no conversion rights. A holder of Class B Common Stock may convert the Class B Common Stock into Class A Common Stock, in whole or in part, at any time and from time to time. Shares of Class B Common Stock convert into shares of Class A Common stock on a share-for-share basis. The Board of Directors and stockholders adopted an employee stock purchase plan (Stock Purchase Plan) and 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 10% of their cash compensation through regular payroll deductions to purchase shares of Class A Common Stock from the Company Holders of Class A and Class B Common Stock are entitled to receive cash dividends over a period not to exceed 12 months at a purchase price per share equal to the equally on a per-share basis, if and when the Company’s Board of Directors declares lesser of: (1) 85% of the fair market value of the shares as of the date of the grant, or such dividends. In the case of any stock dividend paid, holders of Class A Common (2) 85% of the fair market value of the shares as of the date of purchase. A total of Stock are entitled to receive the same percentage dividend (payable in shares of 248,411 shares were purchased under this plan, which terminated on July 11, 2001. Class A Common Stock) as the holders of Class B Common Stock receive (payable in shares of Class B Common Stock). The Board of Directors adopted the 1997 Stock Option Plan, effective February 11, 1997, and reserved 4,250,000 shares of Class A Common Stock for issuance under Holders of Class A and Class B Common Stock share with each other on a ratable the plan. The 1997 Stock Option Plan is a flexible plan that provides the committee basis as a single class in the net assets of the Company in the event of liquidation. that administers the Plan broad discretion to fashion the terms of the awards to Note 14 Stock Option and Purchase Plans As of December 31, 2001, the Company had four active stock option and stock purchase plans, described below. provide eligible participants with stock-based incentives, including: (i) nonqualified and incentive stock options for the purchase of the Company’s Class A Common Stock and (ii) dividend equivalents. The persons eligible to participate in the 1997 Stock Option Plan are directors, officers, and employees of the Company or any subsidiary of the Company who, in the opinion of the committee administering the The Board of Directors and stockholders adopted the Zebra Technologies Corporation plan, are in a position to make contributions to the growth, management, protection Stock Option Plan (the 1991 Plan), effective as of August 1, 1991. A total of 400,000 and success of the Company or its subsidiaries. As of December 31, 2001, 1,916,098 shares of Class A Common Stock was authorized and reserved for issuance under the shares were available under the plan. 1991 Plan. Under this plan, the Company has granted only nonqualified stock options. During 2001, all options expired, and thus, no shares are available under the plan. The options granted under the 1997 Stock Option Plan have an exercise price equal to the closing market price of the Company’s stock on the date of grant. The options The Board of Directors and stockholders also adopted a Directors’ Stock Option Plan, generally vest over two- to five-year periods and have a legal life of ten years from which reserved 80,000 shares of Class A Common Stock for issuance under the plan. the date of grant. A committee of Board of Directors determines the specific provisions During 2001, all options expired, and thus, no shares are available under the plan. of any grant. Zebra Technologies Corporation 2001 Annual Report | 35 The Company’s Board of Directors adopted the 1997 Director Plan, effective February The Company applies APB No. 25 in accounting for its plans. No compensation cost 11, 1997. The 1997 Director Plan provides for the issuance of options to purchase up has been recognized for its fixed stock option plans and its stock purchase plan. Had to 77,000 shares of Class A Common Stock, which shares are reserved and available compensation cost for the Company’s stock option and stock purchase plans been for purchase upon the exercise of options granted under the 1997 Director Plan. Only determined consistent with SFAS No. 123, the Company’s net income and diluted directors who are not employees or officers of the Company are eligible to participate earnings per share would have been as follows: in the 1997 Director Plan. Under the 1997 Director Plan, each non-employee director was granted, on the effective date of the plan, an option to purchase 15,000 shares of Class A Common Stock, and each non-employee director subsequently elected to Net income: the Board will be granted an option to purchase shares of Class A Common Stock on the date of his or her election. Options granted under the 1997 Director Plan provide for the purchase of Class A Common Stock at a price equal to the fair market value on the date of grant. If there are not sufficient shares remaining and available to all non-employee directors eligible for an automatic grant at the time at which an auto- matic grant would otherwise be made, then each eligible non-employee director shall receive an option to purchase a pro rata number of shares. As of December 31, 2001, 24,500 shares were available under the plan. Unless otherwise provided in an As reported Pro forma Basic earnings per share: As reported Pro forma Diluted earnings per share: As reported Pro forma 2001 2000 1999 $ 61,529 57,971 $ 2.01 1.89 $ 1.99 1.88 $ 71,622 67,613 $ $ 2.33 2.20 2.30 2.17 $ 69,632 66,569 $ $ 2.23 2.14 2.21 2.11 option agreement, options granted under the 1997 Director Plan shall become exer- For purposes of calculating the compensation cost consistent with SFAS No. 123, cisable in five equal increments beginning on the date of the grant and on each of the fair value of each stock option grant is estimated on the date of grant using the the first four anniversaries thereof. All options expire on the earlier of (a) ten years Black-Scholes option-pricing model with the following weighted-average assumptions following the grant date or (b) the second anniversary of the termination of the non- used for stock option grants in 2001, 2000, and 1999, respectively: expected dividend employee director’s directorship for any reason other than due to death or disability yield of 0% for each period; expected volatility of 59%, 58%, and 50%; risk free interest (as defined in the 1997 Director Plan). rate of 4.38%, 5.05%, and 6.54%; and expected weighted-average life of five years. The fair market value of options granted were $11,930,000 in 2001, $24,290,000 in The Board of Directors and stockholders adopted the 2001 Stock Purchase Plan and reserved 500,000 shares of Class A Common Stock for issuance thereunder. Under 2000 and $19,774,000 in 1999. this plan, employees who work a minimum of 20 hours per week may elect to with- The fair value of the employees’ purchase rights pursuant to the Stock Purchase hold up to 10% of their cash compensation through regular payroll deductions to Plan are estimated using the Black-Scholes option-pricing model with the following purchase shares of Class A Common Stock from the Company over a period not to weighted-average assumptions used for purchase rights granted in 2001, 2000, and exceed 12 months at a purchase price per share equal to the lesser of: (1) 85% of the 1999, respectively: fair market value of $38.18, $44.62, and $30.45; option price of fair market value of the shares as of the date of the grant, or (2) 85% of the fair market $32.45, $37.92, and $25.88; expected dividend yield of 0% for each period; expected value of the shares as of the date of purchase. As of December 31, 2001, 27,547 volatility of 54%, 71%, and 49%; risk-free interest rate of 2.17%, 5.85%, and 6.11%; shares have been purchased under the plan. and expected lives of three months to one year. 36 | Zebra Technologies Corporation 2001 Annual Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N Stock option activity for the years ended December 31, 2001, 2000, and 1999 was as follows: Fixed Options Shares Weighted-Average Exercise Price Shares Weighted-Average Exercise Price Shares Weighted-Average Exercise Price Outstanding at beginning of year 1,487,277 $36.08 1,390,588 $27.88 1,416,138 $26.55 2001 2000 1999 Granted Exercised Canceled Outstanding at end of year Options exercisable at end of year 287,500 (247,838) (113,554) 1,413,385 477,385 41.49 28.38 38.02 38.38 31.22 440,000 (195,369) (147,942) 1,487,277 417,570 55.29 23.76 31.57 36.10 27.82 720,500 (433,526) (312,524) 1,390,588 291,485 27.45 21.28 30.03 27.88 25.24 The following table summarizes information about fixed stock options outstanding at December 31, 2001: Range of Exercise Prices $ 4.31 $17.38 – $26.56 $29.25 – $40.88 $43.13 – $54.69 $60.63 Options Outstanding Options Exercisable Number of Shares Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price Number of Shares Weighted-Average Exercise Price 4,500 514,377 445,183 229,825 219,500 1,413,385 2.52 years 6.50 years 7.79 years 8.41 years 8.13 years $ 4.31 $25.88 $37.26 $47.92 $60.63 4,500 266,302 137,758 34,625 34,200 477,385 $ 4.31 $ 25.58 $ 31.51 $ 47.76 $ 60.63 Zebra Technologies Corporation 2001 Annual Report | 37 Note 15 Quarterly Results of Operations (unaudited) Note 16 Major Customers No customer accounted for 10% or more of net sales in 2001, 2000 or 1999. (Amounts in thousands, except per share data) First Quarter(1) Second Quarter(1) Third Quarter(1) Fourth Quarter(1) $115,144 $112,935 $110,318 $ 111,611 On March 13, 2002, the Company’s Board of Directors established a Stockholder Note 17 Subsequent Event 2001 Net sales Gross profit Operating expenses Operating income Net income 54,022 29,339 24,683 16,930 52,334 31,069 21,265 14,471 52,037 28,317 23,720 14,882 51,500 28,709 22,791 15,246 Basic earnings per share Diluted earnings per share $ $ 0.55 0.55 $ $ 0.47 0.47 $ $ 0.49 0.48 $ $ 0.50 0.49 (Amounts in thousands, except per share data) First Quarter(1) Second Quarter(1) Third Quarter(1) Fourth Quarter(1) 2000 Net sales Gross profit Operating expenses Operating income Net income $ 99,635 $129,995 $129,717 $ 122,222 49,380 25,171 24,209 15,228 62,312 37,369 24,943 16,650 64,180 29,325 34,855 22,590 56,555 31,892 24,663 17,154 Basic earnings per share Diluted earnings per share $ $ 0.48 0.48 $ $ 0.54 0.53 $ $ 0.74 0.73 $ $ 0.56 0.56 (1) Reflects pretax charges for merger costs and acquired in-process technology relating to the Company’s merger with Eltron International, Inc. and acquisition of Comtec Information Systems, Inc. as follows: First Quarter Second Quarter Third Quarter Fourth Quarter 2001 2000 $ 832 $1,009 $ 532 $7,685 $ 305 $1,651 $169 $721 38 | Zebra Technologies Corporation 2001 Annual Report Rights Plan under which stockholders will receive one Class A Right for each share of the Company’s Class A Common Stock they own and one Class B Right for each share of the Company’s Class B Common Stock they own on March 15, 2002 (collectively, the “Rights”). Each Class A Right entitles the holder to purchase from the Company one ten-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock and each Class B Right entitles the holder to purchase from the Company one ten-thousandth of a share of the Company’s Series B Junior Participating Preferred Stock, each at an exercise price of $300 per one ten-thousandth of a Preferred Share, subject to adjustment. The Rights will only be exercisable if a person or group (excluding certain grandfathered persons) acquires, has the right to acquire, or has commenced a tender offer for 15% or more of the Company’s outstanding common stock. If any person or group acquires 15% or more of the Company’s outstanding common stock, each Right not owned by that person or group or related parties will enable its holder to either purchase, at the Right’s exercise price, common stock (or, in certain circumstances, cash, property or other securities of the Company) having double the value of the exercise price, or if so determined by the Board of Directors, exchange each Right for one share of Common Stock. In the event of certain merger or asset sale transactions with another party, the Rights would entitle their holders to purchase that party’s common stock on similar terms. Upon approval by the Board of Directors, the Rights may be redeemed for $0.001 per Right at any time prior to the time a person or group has acquired 15% of the Company’s outstanding common stock. The Rights are nonvoting, pay no dividends and expire on March 14, 2012, unless earlier redeemed or terminated. A committee of the Board of Directors comprised of the independent directors will review the Rights Agreement at least every three years and may recommend a modification or termination of the Rights Agreement. Auditors’ Report Independent Auditors’ Report Z E B R A T E C H N O L O G I E S C O R P O R A T I O N The Board of Directors and Shareholders Zebra Technologies Corporation: We have audited the accompanying consolidated balance sheets of Zebra Technologies We conducted our audits in accordance with auditing standards generally accepted Corporation and Subsidiaries as of December 31, 2001 and 2000, and the related in the United States of America. Those standards require that we plan and perform consolidated statements of earnings, comprehensive income, shareholders’ equity, the audit to obtain reasonable assurance about whether the financial statements are and cash flows for each of the years in the three-year period ended December 31, free of material misstatement. An audit includes examining, on a test basis, evidence 2001. These consolidated financial statements and the consolidated financial statement supporting the amounts and disclosures in the financial statements. An audit also schedule are the responsibility of the Company’s management. Our responsibility is includes assessing the accounting principles used and significant estimates made to express an opinion on these consolidated financial statements and the consolidated by management, as well as evaluating the overall financial statement presentation. financial statement schedule based on our audits. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Chicago, Illinois February 1, 2002, except as to Note 17, which is as of March 13, 2002 Zebra Technologies Corporation 2001 Annual Report | 39 Stockholder Stockholder Information Corporate Headquarters Zebra Technologies Corporation 333 Corporate Woods Parkway Vernon Hills, Illinois 60061-3109 U.S.A. Phone: 847-634-6700 Fax: 847-913-8766 Annual Meeting Zebra’s Annual Meeting of Stockholders will be held on May 15, 2002, 10:30 A.M. Equal Employment Opportunity/Affirmative Action It is the policy of Zebra Technologies Corporation to provide equal opportunity and affirmative action in all areas of its employment practices without regard to race, religion, national origin, sex, age, ancestry, citizenship, disability, veteran status, marital status, sexual orientation or any other reason prohibited by law. Stock Information: Price Range and Common Stock The Company’s Class A Common Stock is traded on the Nasdaq Stock Market under the symbol ZBRA. The following table shows the high and low trade prices for each (Central Time), at The University of Chicago Gleacher Center, 450 North CityFront quarter in 2001 and 2000, as reported by the Nasdaq Stock Market. No market exists Plaza Drive, Chicago, Illinois. Independent Auditors KPMG LLP Chicago, Illinois Corporate Counsel Katten Muchin Zavis Rosenman Chicago, Illinois Transfer Agent and Registrar Mellon Investor Services 85 Challenger Road Ridgefield, New Jersey 07660 Phone: 877-870-2368 www.mellon-investor.com Investor Relations For corporate or product information, please contact the Corporate Headquarters. Form 10-K Report You may receive a free copy of the Zebra Technologies Corporation Form 10-K Report filed with the Securities and Exchange Commission by contacting the Investor Relations Department at the Corporate Headquarters. Web Site Investors are invited to learn more about Zebra Technologies Corporation by accessing the Company’s web site at www.zebracorporation.com 40 | Zebra Technologies Corporation 2001 Annual Report for the Company’s Class B Common Stock. The shares of Class B Common Stock are convertible on a one-for-one basis into shares of Class A Common Stock at the option of the holder. 2001 First Quarter Second Quarter Third Quarter Fourth Quarter 2000 First Quarter Second Quarter Third Quarter Fourth Quarter High $57.00 52.06 49.95 56.50 High $70.88 58.06 54.75 50.50 Low $35.50 34.13 35.15 36.00 Low $39.81 42.13 41.88 37.13 Source: The Nasdaq Stock Market At March 19, 2002, the last reported price for the Class A Common Stock was $57.97 per share, and there were 440 registered shareholders of record for the Company’s Class A Common Stock and 31 registered shareholders of record for the Company’s Class B Common Stock. Dividend Policy Since the Company’s initial public offering in 1991, the Company has not declared any cash dividends or distributions on its capital stock. The Company intends to retain its earnings to finance future growth and therefore does not anticipate paying any cash dividends in the foreseeable future. Number of Employees The Company had approximately 2,000 associates as of March 20, 2002. Board of Directors Officers Edward Kaplan Chairman and Chief Executive Officer Zebra Technologies Corporation Gerhard Cless Executive Vice President and Secretary Zebra Technologies Corporation Christopher Knowles (1) Retired Chief Executive Officer Insurance Auto Auctions, Inc. John Paxton President, Bar Code Business Unit Zebra Technologies Corporation David Riley (1) Retired President and Chief Executive Officer The Middleby Corporation Edward Kaplan Chairman and Chief Executive Officer Gerhard Cless Executive Vice President and Secretary Veraje Anjargolian Vice President, General Manager Card Printer Business Unit Michael Edicola Vice President, Human Resources John Kindsvater Senior Vice President, Business Development Todd Naughton Vice President, Controller Michael Smith (1) Chairman and Chief Executive Officer FireVision, L.L.C. (1) Member of Audit Committee John Paxton President, Bar Code Business Unit Charles Whitchurch Chief Financial Officer and Treasurer Zebra Technologies Corporation International Headquarters 333 Corporate Woods Parkway | Vernon Hills, IL | 60061-3109 U.S.A. 847-634-6700 | www.zebracorporation.com 

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